How to Save the Middle Class

RICHARD REEVES

August 20, 1993|By RICHARD REEVES

New York. -- The two most frightening conversations I have had in the past few months were with businessmen, happy men describing the impact of the North American Free Trade Agreement on their operations:

(1) The chairman (and principal owner) of several corporations in diverse fields told me he has 21,000 employees in Mexico. Most of them work in clothing factories just over the Texas and California borders, making shirts and dresses for export back to the United States. The quality of their work, said my friend, is equal to or better than the same work by Americans at only a little more than one-tenth the pay.

He pays $11 million a year in tariffs on made-in-Mexico products, which would be eliminated if NAFTA becomes law. What will you do with that money? ''Invest it in the business,'' he said. ''I'll use it to move more work to Mexico.''

(2) The chief operating officer of a Michigan manufacturer of refrigeration equipment said that if NAFTA became law he would move the manufacturing operations to Mexico. Not only is labor cheaper, he said with a certain excitement, but the company can begin manufacturing home refrigerators for Mexican workers moving into the middle class. He expected the growth of that market would be similar to what happened in the United States in the 1940s and 1950s.

What about American jobs? ''There will be plenty of jobs,'' he said, ''for engineers, managers, designers. We'll do all that here.'' But what percentage of your workforce is involved in designing new products? ''Well . . . '' he said, and the conversation drifted away from specifics.

I have been for NAFTA and I have not changed my mind -- yet. Though I share a general commitment to free trade, I am no expert on the economics of the treaty and its side agreements. I am also not particularly influenced by debates over safety and environmental laws and enforcement in Mexico, because, whatever the documents say, the Mexicans will do anything they please inside their own borders, and American and Japanese companies locating there will do whatever they have to do to avoid killer publicity in the United States.

My support is political: It is the long-range interest of the United States to push desperate poverty as far as possible from our own borders. It is in our interest to do whatever is reasonable to avoid the obvious problems of having a Third World country on our borders. Over time, I would prefer to see Mexico operate as a de facto adjunct of the United States -- a lot like Canada does already.

Mexico is a very big country -- 90 million or so people, with one of the highest birthrates in the world. In terms of immigration and, possibly, chaos or revolution, we need a relatively prosperous Mexico.

But we also need a relatively prosperous United States. What was most disturbing to me about those two conversations was a total disregard for American production employees. Not my problem, said both my friends. They are Democrats, both very active in politics. They are advocates of national health care -- and argue for it in ways that persuade me that they know trouble is coming close to home when middle-class Americans have neither secure employment nor work-related health plans.

The overriding goal of American democracy -- to say nothing of U.S. economic policy -- has to be the preservation of a prosperous and overwhelming American middle class. Because, over the long run, if we lose the middle class we will lose the democracy. The fact that engineers, graphic designers and investors are doing well will not be enough to save the U.S.A. we know. If reasonably educated and hard-working Americans cannot provide for their families, we could end up trading free trade for freedom itself.

We need the Americans making $16.17 an hour, which is the average pay-and-benefits package of U.S. production workers. That compares with $2.35 for Mexican workers, who normally work a 48-hour week. (The minimum wage in Mexico is $4.21 -- a day!) The dynamic of modern international economics is to move production to wherever wages are lowest and regulation most friendly. We do it, which is why much of U.S. business is sniffing around China and Vietnam these days.

The Japanese, because they have always had to trade to prosper, are even more expert at that. The Japanese response to U.S. threats to curb automobile imports was to search the country (and Canada) for the lowest-wage, lowest-tax states. They ended up in Tennessee and Kentucky and a few other business-friendly states. If NAFTA becomes a reality, the cheapest-labor, business-friendly state will be Mexico -- and that is where the Japanese and anyone else with common business sense will go to serve and exploit the United States' free market.

Mexican wages and benefits will, of course, begin to increase in economic alliance with the United States. That is good. But we need some more national dialogue on NAFTA before it becomes our future. It is critical to that future that the rug is not pulled out from under the American middle class -- or the foundation under American democracy itself.

Richard Reeves is a syndicated columnist.

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