Smith Faculty Opinion Article	March 2, 2007
By Dr. Peter Morici, Professor of International Business E-MAIL WEB SITE

Addressing Income Inequality?

Democrats won control of Congress, in part, promising to address income inequality. Unfortunately, many seem more determined to help union leaders than address the real problems workers face.

Early in the Twentieth Century the phonograph and motion picture made Enrico Caruso and Al Jolson international stars but also destroyed the livelihoods of entertainers whose sphere of fame was the local music hall.

Today, this principle applies to more workers. Jet travel, the internet and an increasingly service-based economy permit U.S. bankers, software designers and even professors to peddle services on five continents, while cheap ocean transportation and global supply chains drive down wages for North Carolina furniture makers and Pennsylvania machinists.

Since fire and the wheel, mankind has been learning to make and move products better, quicker and cheaper. Societies connect, specialize and get richer, but particular workers, unemployed by trade, become poorer. Since productive lives of the displaced are short but benefits are enduring, economists advocate assisting those workers to accomplish permanent progress.

Washington has offered trade-displaced workers retraining and financial assistance but these programs have largely failed. The government is not good at delivering effective retraining to mature adults and offers too little money to patch together disrupted lives.

Compounding these problems, unions who profess to help common folks build better lives ardently resist change and exacerbate conditions, because their leaders cant get elected if they deliver bad news.

For example, the United Autoworkers leadership wins admiration from members by defending compensation structures and work rules that make hourly labor much more expensive at GM than at U.S.-based Toyota plants. With thousands losing their jobs year after year thanks to such poor leadership, it is no surprise workers shun unions. Union membership has fallen from about 35 percent of the private sector workforce in the 1950s to 7.4 percent today.

Thanks to teachers unions, schools in cities like Washington and Detroit socialize children to expect the kind of rules-bound workplace that unions defend, and high-tech companies either wont locate in those places or bring in skilled workers from outside.

Equally disturbing, China and others countries are cheating on the system, boosting exports with subsidies and undervalued currencies to capture market shares in industries where they have no comparative advantage like autos and steel. This artificially multiples the income inequality imposed by globalization and dysfunctional unions and urban schools.

Enter Nancy Pelosis Democrats, eager to reward unions for helping win control of the House of Representatives.

House Democrats have passed the Employee Free Choice Act, which would replace secret ballots for certifying unions with card check. Curiously, proponents argue workers in private voting booths are subject to arm twisting they would not be if offered a signature card by a husky union organizer in the washroom.

Democrats are offering to renew President Bushs authority to negotiate trade agreements, which expires June 30, if he will seek safeguards regarding child labor and workers rights. Under existing World Trade Organization agreements, the United States has latitude to exclude products made in factories that violate internationally recognized workers rights, but both the Clinton and Bush administrations have failed to act. Moreover, most imports causing American workers fits are not made in establishments that violate internationally recognized norms. This debate is meaningless without a President with courage on the issue.

Similarly, the Bush Administration has refused to apply U.S. trade laws against unfairly subsidized Chinese imports. It has even denied that China and other countries manipulate currencies to boost exports, although Federal Reserve Chairman Ben Bernanke has fingered the problem.

If the Democrats want to help workers harmed by globalization, they should take five steps.

Give trade-displaced workers significant cash payments, and let them use those as they please to rebuild their lives.

Put children first, stop opposing school vouchers, and subject urban public school teachers to robust competition.

Tell their union friends in private industry to get serious about negotiating compensation and work rules that permit employers to compete in global markets, and try earning the trust of nonunion workers instead of seeking a license to engage in strong arm tactics.

Hold up the Presidents trade negotiating authority until he takes action against imports made by child labor and abused workers.

Pass the bill sponsored by Duncan Hunter (R-CA) and Tim Ryan (D-OH), or similar legislation, that would permit businesses harmed foreign subsidies and undervalued currencies to obtain tariffs that nullify the advantages those practices create.

Those actions might not speak to Speaker Pelosis liberal sensibilities or the undemocratic agenda of organized labor, but it would actually do working men and women, and their children, some good.

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.