THE RACE TO THE BOTTOM: Why a Worldwide Worker Surplus and Uncontrolled Free Trade Are Sinking American Living Standards.

By Alan Tonelson. Westview. 225 pp. $25

In the 1990s, the Washington consensus held that free trade and deregulated markets would best promote prosperity in countries at all stages of development. This "neoliberal" consensus was shared not only by conservatives and libertarians but by center-left advocates of the Third Way, such as Bill Clinton and Tony Blair, who sought to reconcile progressive redistribution programs with free-market economics. Tonelson, a research fellow at the U.S. Business and Industry Council, provides a well-informed and often witty assault on the conventional wisdom.

He argues that economic globalization, by enlarging the pool of low-wage labor, tends to reduce wages in advanced countries—a point now acknowledged by some free-trade supporters, such as Columbia University economist Jagdish Bhagwati. Tonelson writes that the trade-induced "movement of U.S. workers from high-wage industries to low-wage industries has hit U.S. wage levels with a double whammy. It has lowered wages by greatly reducing the number of Americans working in high-paying jobs [in the manufacturing sector]. In addition, it has just as greatly increased the number of Americans competing for jobs in the lower-paying service sector." To make matters worse, immigration has depressed service-sector wages further. California, he observes, "was importing people while exporting their likeliest jobs."

This is dangerous, Tonelson argues, because "alone among the industrialized first world countries, the United States has a large population with what might be called Third World levels of education and skills. Other countries can in theory let labor-intensive industries like apparel or traditional manufacturing industries like textiles and steel migrate abroad without undue social fallout.... The United States, however, has more to worry about."

In addition to questioning the conventional wisdom about how free trade and mass immigration affect ordinary Americans, Tonelson argues that other countries do a better job of promoting the interests of their companies and their workers. For example, China, South Korea, and many other developing nations require U.S. multinationals "to transfer technology, to provide investment capital for other parts of the buyer’s economy, or to purchase goods completely unrelated to the original transaction." Such governments strategically shape the pattern of global trade and investment, contrary to the oft-heard claim that the global economy is shaped by market forces before which governments stand powerless.

Tonelson’s alternative to the free-market consensus is a robust American economic nationalism. Such a policy might hurt some developing countries hoping to export to the U.S. market, he acknowledges, but "when trade policy is the chosen tool of U.S. economic development policy, our nation’s most economically vulnerable citizens bear the brunt of the costs."

Some of Tonelson’s arguments can be questioned. For example, he does not consider the possibility that automation, by shifting workers from high-wage factory jobs to low-wage service jobs, would have the same effects as the expatriation of industry to low-wage countries. And his critique of the neoliberal economic consensus is unlikely to change the views of those who identify free trade with intellectual clarity and moral virtue.

But with the failure of free-market "shock therapy" in Russia and Eastern Europe, the Asian financial crisis, and the collapse of the high-tech stock bubble, free trade has hardly inaugurated the golden age of global prosperity that neoliberals promised. Whether one agrees with Tonelson or not, Race to the Bottom is a timely book.