Free Race to the Bottom

Catholic social teaching is to be contrasted, not only with socialism, but also with the free trade ideology that appears to dominate American government policy. This contrast was made in the earliest expression of Catholic social teaching when Pope Leo XIII said in Rerum Novarum:

“Wages, as we are told, are regulated by free consent, and therefore the employer, when he pays what was agreed upon, has done his part and seemingly is not called upon to do anything beyond. The only way, it is said, in which injustice might occur would be if the master refused to pay the whole of the wages, or if the workman should not complete the work undertaken; in such cases the public authority should intervene, to see that each obtains his due, but not under any other circumstances.

“To this kind of argument a fair-minded man will not easily or entirely assent; it is not complete, for there are important considerations which it leaves out of account altogether….    

“Let the working man and the employer make free agreements, and in particular let them agree freely as to the wages; nevertheless, there underlies a dictate of natural justice more imperious and ancient than any bargain between man and man, namely, that wages ought not to be insufficient to support a frugal and well-behaved wage-earner. If through necessity or fear of a worse evil the workman accept harder conditions because an employer or contractor will afford him no better, he is made the victim of force and injustice.” [1]  

The requirement of what we would today call the “living wage” is such a foundational and intrinsic part of Catholic social teaching that it is amazing that there are still those who dispute its rightful place in the body of Church doctrine, or try to downplay its importance. To maintain that wages should be left to market forces alone is an unambiguous rejection of Magisterial teaching, and ought to be regarded as such. 

But what the Magisterium has to say about the free market goes beyond wage contracts. This is the era of free trade agreements, the most notorious of them being the North American Free Trade Agreement. As this is being written, discussions are underway for the implementation of the Trans-Pacific Partnership, the terms of which are only partially known by the public, or even members of Congress (an issue all on its own). Free trade agreements have, as a central feature, the reduction or elimination of tariffs. This allows businesses to transfer their production operations to countries where they can pay the lowest wages. Pope Benedict XVI, in Caritas in Veritate, described the problem this way: 

“From the social point of view, systems of protection and welfare, already present in many countries in Paul VI's day, are finding it hard and could find it even harder in the future to pursue their goals of true social justice in today's profoundly changed environment. The global market has stimulated first and foremost, on the part of rich countries, a search for areas in which to outsource production at low cost with a view to reducing the prices of many goods, increasing purchasing power and thus accelerating the rate of development in terms of greater availability of consumer goods for the domestic market. Consequently, the market has prompted new forms of competition between States as they seek to attract foreign businesses to set up production centres, by means of a variety of instruments, including favourable fiscal regimes and deregulation of the labour market. These processes have led to a downsizing of social security systems as the price to be paid for seeking greater competitive advantage in the global market, with consequent grave danger for the rights of workers, for fundamental human rights and for the solidarity associated with the traditional forms of the social State. Systems of social security can lose the capacity to carry out their task, both in emerging countries and in those that were among the earliest to develop, as well as in poor countries. Here budgetary policies, with cuts in social spending often made under pressure from international financial institutions, can leave citizens powerless in the face of old and new risks; such powerlessness is increased by the lack of effective protection on the part of workers' associations. Through the combination of social and economic change, trade union organizations experience greater difficulty in carrying out their task of representing the interests of workers, partly because Governments, for reasons of economic utility, often limit the freedom or the negotiating capacity of labour unions. Hence traditional networks of solidarity have more and more obstacles to overcome. The repeated calls issued within the Church's social doctrine, beginning with Rerum Novarum[60], for the promotion of workers' associations that can defend their rights must therefore be honoured today even more than in the past, as a prompt and far-sighted response to the urgent need for new forms of cooperation at the international level, as well as the local level.” [2]   

Due to the increased globalization of the economy, a living wage requirement in one country can be defeated by outsourcing. There is, of course, no living wage requirement that is operative throughout the United States, but the practice of outsourcing has still been found useful by some American companies as a tool to reduce labor costs as they situate their production facilities in places where they can pay even lower wages than what they could pay domestically. This, in turn, has a downward pressure on wages in the United States. But it is the natural and probable result of the implementation of free market ideology to international trade.

The inherent fault in the free market ideology was described by Pope Benedict XVI in Caritas in Veritate:

“In a climate of mutual trust, the market is the economic institution that permits encounter between persons, inasmuch as they are economic subjects who make use of contracts to regulate their relations as they exchange goods and services of equivalent value between them, in order to satisfy their needs and desires. The market is subject to the principles of so-called commutative justice, which regulates the relations of giving and receiving between parties to a transaction. But the social doctrine of the Church has unceasingly highlighted the importance of distributive justice and social justice for the market economy, not only because it belongs within a broader social and political context, but also because of the wider network of relations within which it operates. In fact, if the market is governed solely by the principle of the equivalence in value of exchanged goods, it cannot produce the social cohesion that it requires in order to function well. Without internal forms of solidarity and mutual trust, the market cannot completely fulfil its proper economic function. And today it is this trust which has ceased to exist, and the loss of trust is a grave loss….            

“Economic activity cannot solve all social problems through the simple application of commercial logic. This needs to be directed towards the pursuit of the common good, for which the political community in particular must also take responsibility. Therefore, it must be borne in mind that grave imbalances are produced when economic action, conceived merely as an engine for wealth creation, is detached from political action, conceived as a means for pursuing justice through redistribution.”  

Of course, the political action that the pontiff describes can’t reach beyond the borders of a political entity’s jurisdiction. The United States cannot legislate wages in other countries. But it can control the effects of low wages in other countries on American workers, and it used to be the policy of the United States government to protect American businesses and workers through the use of tariffs. It is now time to return to that policy. 

If American wages are higher than elsewhere it ought to be considered a strength. That is how the United States achieved general prosperity and a strong middle class. Protection of American industries helped to strengthen businesses in the United States to such an extent that it became the chief industrial power in the world, to the point that it was still able to dominate long after tariffs began to be de-emphasized after 1930. But the United States is no longer in such a position of strength, at least insofar as it concerns the American worker.

To eliminate the downward pressure brought to bear on American wages by foreign labor, tariffs are needed to balance the difference with the labor costs in other countries. Such a policy would also have the salutary effect of removing the incentive for American companies to transfer their productive facilities elsewhere, since the tariffs here proposed would be charged against all imported goods, even if they were manufactured at American owned plants. 

The concern that must be addressed is whether such a policy would adversely impact working people in other countries. The answer is that the United States is in a unique position to adopt the policy and actually help the conditions of workers elsewhere. If tariffs were imposed based on the difference in labor costs, an incentive would be removed to keep wages low in other countries. No business that has a potential reach as far as the United States wants to forego the American market. A tariff imposed on a country by country basis, based on the location of manufacture, would do away with the ability to sell cheaply in the United States at the expense of foreign labor, and an incentive to keep wages low in other countries would be removed. While it cannot be claimed that these tariffs would bring Utopia to foreign lands, it would eliminate the incentive for exploitation that is present in current American policy. 

Interestingly, what has been presented here used to be the position of the Republican Party. One wonders if we will ever see that Republican Party again.


Jack Quirk