Trade agreements are a subject that can cause
the eyes to glaze over, but we should all be paying attention. Right
now, there are trade proposals in the works that threaten to put most
Americans on the wrong side of globalization.
The conflicting views about the agreements are actually tearing at the fabric of the Democratic Party,
though you wouldn’t know it from President Obama’s rhetoric. In his
State of the Union address, for example, he blandly referred to “new
trade partnerships” that would “create more jobs.” Most immediately at
issue is the Trans-Pacific Partnership, or TPP, which would bring
together 12 countries along the Pacific Rim in what would be the largest
free trade area in the world.
Negotiations for the TPP began in 2010, for the purpose, according to the United States Trade Representative,
of increasing trade and investment, through lowering tariffs and other
trade barriers among participating countries. But the TPP negotiations
have been taking place in secret, forcing us to rely on leaked drafts to guess at the proposed provisions. At the same time, Congress introduced a bill
this year that would grant the White House filibuster-proof fast-track
authority, under which Congress simply approves or rejects whatever
trade agreement is put before it, without revisions or amendments.
Controversy has erupted, and justifiably so.
Based on the leaks — and the history of arrangements in past trade pacts
— it is easy to infer the shape of the whole TPP, and it doesn’t look
good. There is a real risk that it will benefit the wealthiest sliver of
the American and global elite at the expense of everyone else. The fact
that such a plan is under consideration at all is testament to how
deeply inequality reverberates through our economic policies.
Worse, agreements like the TPP are only one aspect of a larger problem: our gross mismanagement of globalization.
Let’s tackle the history first. In general,
trade deals today are markedly different from those made in the decades
following World War II, when negotiations focused on lowering tariffs.
As tariffs came down on all sides, trade expanded, and each country
could develop the sectors in which it had strengths and as a result,
standards of living would rise. Some jobs would be lost, but new jobs
would be created.
Today, the purpose of trade agreements is
different. Tariffs around the world are already low. The focus has
shifted to “nontariff barriers,” and the most important of these — for
the corporate interests pushing agreements — are regulations. Huge
multinational corporations complain that inconsistent regulations make
business costly. But most of the regulations, even if they are
imperfect, are there for a reason: to protect workers, consumers, the
economy and the environment.
What’s more, those regulations were often put
in place by governments responding to the democratic demands of their
citizens. Trade agreements’ new boosters euphemistically claim that they
are simply after regulatory harmonization, a clean-sounding phrase that
implies an innocent plan to promote efficiency. One could, of course,
get regulatory harmonization by strengthening regulations to the highest
standards everywhere. But when corporations call for harmonization,
what they really mean is a race to the bottom.
When agreements like the TPP govern
international trade — when every country has agreed to similarly minimal
regulations — multinational corporations can return to the practices
that were common before the Clean Air and Clean Water Acts became law
(in 1970 and 1972, respectively) and before the latest financial crisis
hit. Corporations everywhere may well agree that getting rid of
regulations would be good for corporate profits. Trade negotiators might
be persuaded that these trade agreements would be good for trade and
corporate profits. But there would be some big losers — namely, the rest
of us.
These high stakes are why it is especially
risky to let trade negotiations proceed in secret. All over the world,
trade ministries are captured by corporate and financial interests. And
when negotiations are secret, there is no way that the democratic
process can exert the checks and balances required to put limits on the
negative effects of these agreements.
The secrecy might be enough to cause
significant controversy for the TPP. What we know of its particulars
only makes it more unpalatable. One of the worst is that it allows
corporations to seek restitution in an international tribunal, not only
for unjust expropriation, but also for alleged diminution of their
potential profits as a result of regulation. This is not a theoretical
problem. Philip Morris has already tried this tactic against Uruguay,
claiming that its antismoking regulations, which have won accolades from
the World Health Organization, unfairly hurt profits, violating a
bilateral trade treaty between Switzerland and Uruguay. In this sense,
recent trade agreements are reminiscent of the Opium Wars, in which
Western powers successfully demanded that China keep itself open to
opium because they saw it as vital in correcting what otherwise would be
a large trade imbalance.
Provisions already incorporated in other
trade agreements are being used elsewhere to undermine environmental and
other regulations. Developing countries pay a high price for signing on
to these provisions, but the evidence that they get more investment in
return is scant and controversial. And though these countries are the
most obvious victims, the same issue could become a problem for the
United States, as well. American corporations could conceivably create a
subsidiary in some Pacific Rim country, invest in the United States
through that subsidiary, and then take action against the United States
government — getting rights as a “foreign” company that they would not
have had as an American company. Again, this is not just a theoretical
possibility: There is already some evidence that companies are choosing
how to funnel their money into different countries on the basis of where
their legal position in relation to the government is strongest.
There are other noxious provisions. America
has been fighting to lower the cost of health care. But the TPP would
make the introduction of generic drugs more difficult, and thus raise
the price of medicines. In the poorest countries, this is not just about
moving money into corporate coffers: thousands would die unnecessarily.
Of course, those who do research have to be compensated. That’s why we
have a patent system. But the patent system is supposed to carefully
balance the benefits of intellectual protection with another worthy
goal: making access to knowledge more available. I’ve written
before about how the system has been abused by those seeking patents
for the genes that predispose women to breast cancer. The Supreme Court
ended up rejecting those patents, but not before many women suffered
unnecessarily. Trade agreements provide even more opportunities for patent abuse.
The worries mount. One way of reading the
leaked negotiation documents suggests that the TPP would make it easier
for American banks to sell risky derivatives around the world, perhaps
setting us up for the same kind of crisis that led to the Great
Recession.
In spite of all this, there are those who
passionately support the TPP and agreements like it, including many
economists. What makes this support possible is bogus, debunked economic
theory, which has remained in circulation mostly because it serves the
interests of the wealthiest.
Free trade was a central tenet of economics
in the discipline’s early years. Yes, there are winners and losers, the
theory went, but the winners can always compensate the losers, so that
free trade (or even freer trade) is a win-win. This conclusion,
unfortunately, is based on numerous assumptions, many of which are
simply wrong.
The older theories, for instance, simply
ignored risk, and assumed that workers could move seamlessly between
jobs. It was assumed that the economy was at full employment, so that
workers displaced by globalization would quickly move from
low-productivity sectors (which had thrived simply because foreign
competition was kept at bay through tariffs and other trade
restrictions) to high-productivity sectors. But when there is a high
level of unemployment, and especially when a large percentage of the
unemployed have been out of work long-term (as is the case now), there
can’t be such complacency.
Today, there are 20 million Americans who
would like a full-time job but can’t get one. Millions have stopped
looking. So there is a real risk that individuals moved from low
productivity-employment in a protected sector will end up
zero-productivity members of the vast ranks of the unemployed. This
hurts even those who keep their jobs, as higher unemployment puts
downward pressure on wages.
We can argue over why our economy isn’t
performing the way it’s supposed to — whether it’s because of a lack of
aggregate demand, or because our banks, more interested in speculation
and market manipulation than lending, are not providing adequate funds
to small and medium-size enterprises. But whatever the reasons, the
reality is that these trade agreements do risk increasing unemployment.
One of the reasons that we are in such bad
shape is that we have mismanaged globalization. Our economic policies
encourage the outsourcing of jobs: Goods produced abroad with cheap
labor can be cheaply brought back into the United States. So American
workers understand that they have to compete with those abroad, and
their bargaining power is weakened. This is one of the reasons that the
real median income of full-time male workers is lower than it was 40 years ago.
American politics today compounds these
problems. Even in the best of circumstances, the old free trade theory
said only that the winners could compensate the losers, not that they
would. And they haven’t — quite the opposite. Advocates of trade
agreements often say that for America to be competitive, not only will
wages have to be cut, but so will taxes and expenditures, especially on
programs that are of benefit to ordinary citizens. We should accept the
short-term pain, they say, because in the long run, all will benefit.
But as John Maynard Keynes famously said in another context, “in the
long run we are all dead.” In this case, there is little evidence that
the trade agreements will lead to faster or more profound growth.
Critics of the TPP are so numerous because
both the process and the theory that undergird it are bankrupt.
Opposition has blossomed not just in the United States, but also in
Asia, where the talks have stalled.
By leading a full-on rejection of fast-track
authority for the TPP, the Senate majority leader, Harry Reid, seems to
have given us all a little respite. Those who see trade agreements as
enriching corporations at the expense of the 99 percent seem to have won
this skirmish. But there is a broader war to ensure that trade policy —
and globalization more generally — is designed so as to increase the
standards of living of most Americans. The outcome of that war remains
uncertain.
In this series, I have repeatedly made two
points: The first is that the high level of inequality in the United
States today, and its enormous increase during the past 30 years, is the
cumulative result of an array of policies, programs and laws. Given
that the president himself has emphasized that inequality should be the
country’s top priority, every new policy, program or law should be
examined from the perspective of its impact on inequality. Agreements
like the TPP have contributed in important ways to this inequality.
Corporations may profit, and it is even possible, though far from
assured, that gross domestic product as conventionally measured will
increase. But the well-being of ordinary citizens is likely to take a
hit.
And this brings me to the second point that I
have repeatedly emphasized: Trickle-down economics is a myth. Enriching
corporations — as the TPP would — will not necessarily help those in
the middle, let alone those at the bottom.
Source: New York Times
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