by Michael Robinson, NIPSA Global Solidarity Committee
Free trade deals are in the news again. The Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU has been held up by Belgium and Donald Trump, now President of the USA (really) has indicated that he intends to tear up the North American Free Trade Agreement (NAFTA), as soon as he gets installed in the White House and completes a garish redecoration of the Oval Office. (He’s bound to.)
Adam Smith and the Wealth of Nations
Trade agreements are not a new phenomenon of course and in many regards, modern agreements claim their lineage back to the ideas promulgated by Adam Smith in his treatise – the Wealth of Nations, first published in 1776 and in his other writings. A Moral Philosopher and Political Economist, Smith’s ideas later inspired the Manchester based Anti Corn Law League in their overturning of the Corn Laws in 1846. The Corn Laws were a protectionist measure which imposed tariffs on imported wheat and thus maintained the higher price of food in Britain. The laws were supported by the land owning aristocracy who controlled domestic food production and benefited from the absence of competition, but opposed by the many textile factory workers in Manchester, who bore the main burden of higher prices. With their emerging power, the Industrial working class were able to secure a consequential increase in wages from the Mill owners. But the additional labour costs were added to the price of finished goods for export, arguably making them less competitive.
The victory over the Corn Laws heralded a new era in the British Empire, based on free trade and a laissez faire attitude to economic or other regulation. Henceforth, as Adam Smith had asserted, “the invisible hand” of the market would ensure economic equilibrium, without bothersome “interference” from the state. Margaret Thatcher is said to have kept a copy of the Wealth of Nations book in her hand bag.
Manufacturers, Merchants and the Most Suspicious Attention
Alas, Adam Smith is just as misunderstood and often as misquoted as Karl Marx. He had envisaged a ‘political economy’ in which free trade between nations would offer opportunities to grow domestic economies by appropriate specialisation and division of labour in the production of manufactured goods for export, from which to fund the import of goods that could not be as affordably produced by them. For example, it made sense that Britain would export Whiskey, which it could make well and import wine, which it could not, because of climate. This ensuing trade and the tax generated, would unlock resources beyond the mere exploitation of the natural mineral wealth and agricultural production controlled by a land owning aristocracy.
However, he understood too, that without the agency of the state, rudimentary as it might have been in the 1700s, corporations would rush to merger and monopoly and maximise profit, not through efficient production in the context of competition, but by simply ensuring scarcity of supply and the fixing of prices within a cartel. He went even further, warning that the interest of manufacturers and merchants “...in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public...The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.” Smith envisaged the net worth of such commerce generated, being shared within the ‘Nation’ (state) for the benefit of society. Unlike Thatcher, Smith did believe that there was such a thing as “society”. He also thought the state should, amongst other things – provide public goods such as infrastructure, provide national defence and regulate banking. It was also the role of government to provide goods “of such a nature that the profit could never repay the expense to any individual” such as roads, bridges, canals, and harbours. He also supported monopoly arrangements to protect developing industries.
Free Trade in the Modern World
Alas Free Trade Agreements forged in the modern world are framed in a different context than that of the ‘most scrupulous and suspicious attention’ envisaged by Adam Smith, even though his Moral Philosophy and Political Economy is often cited to sanctify them. My colleague Ian Boersma has described in the April 2016 edition of the NIPSA Global Solidarity magazine, the nature and effect of the proposed Transatlantic Trade and Investment Partnership (TTIP). Noting the Investor State Dispute Settlement procedures at the core of TTIP, Ian warned – “Corporations will also be given privileged early access to proposed public policy legislation, potentially leading to what some have described as a “chilling effect”, in other words governments will be reluctant to put forward legislation that large corporations are likely to be hostile to.
The Arbitration Game
Concern at such provisions is far from limited to those of us in the union movement. Indeed in an article in the Economist (yes the Economist) titled “The Arbitration Game”, (11 October 2014), the author stated: “If you wanted to convince the public that international trade agreements are a way to let multinational corporations get rich at the expense of ordinary people, this is what you would do; give foreign firms a special right to apply to a secret tribunal of highly paid corporate lawyers for compensation whenever a government passes a law to, say, discourage smoking, protect the environment or prevent a nuclear catastrophe. Yet that is precisely what thousands of trade and investment treaties over the past half century have done, through a process known as “investor-state dispute settlement”, or ISDS.”
Bretton Woods and a Licence to Roam
A number of measures were necessary to bring the modern world to the situation of virtually untrammelled corporate power that we now face. They are largely the result of the capture of the post war Bretton Woods institutions – the World Bank and the IMF. Once Keynesian and expansionist, they have been captured by adherents of the ‘Washington Consensus’ - neo-liberal dogmatists who hold that the loans given by the World Bank, must be made conditional on requirements for the liberalisation of trade, investment and the financial sector, together with the deregulation and privatisation of nationalised industries. The IMF is maintained in the role of overseer (or undertaker) of the necessary economic and political arrangements.
Free trade in the modern context, is essentially a licence to roam for corporations. They can locate and relocate according the tax advantages of various jurisdictions and declare profits in jurisdictions different to that in which they carried out their activity. Google’s ‘Double Irish’ being a case in point. Transfer-pricing within a company can ensure that a “loss” is declared, with any actual ‘surplus’ (profit) being ‘off-shored’, where it will have no beneficial impact on any economy. The investigation into Apple (Ireland) by the European Commission, revealed a deliberately opaque and complex company structure, with manufacturing off-shored to China, at wages and conditions condemned by the International Labour Organisation and others. The company used ‘transfer pricing’ and tax avoidance/evasion that the EU investigation found to amount to €13bn. Adam Smith must be spinning in his grave.
Speak Softly and Carry a Big (Regulatory) Stick
Yet the nature of corporate power, left unchecked, has been known for some time. Here’s what Theodore Roosevelt, President of the USA from 1901 – 09 had to say in an earlier era:
“These great corporations rarely want anything from the government except to be let alone and to be permitted to work their will unchecked by the government. All that they really want is that governmental action shall be limited. In every great corporation suit, the corporation lawyer will be found protesting against extension of governmental power. Every court decision favouring a corporation takes the form of declaring unconstitutional some extension of governmental power. Every corporation magnate in the country who is not dealing honestly and fairly by his fellows, asks nothing better than that.... there be stringent limitations of governmental power.”
The corporate lobby groups that dominate American politics are not the only interested parties in all this. In the EU, the European Services Forum (ESF), champions the same self interest. Representing global services companies such as Deutsche Bank and Microsoft, the European Commission helped to establish the Forum in 1999, with Trade Secretary, Leon Brittan saying at the launch meeting – “I am in your hands...I count on your support and inputs.”
New Labour – Same Danger
The Thatcherite Leon Brittan, was followed in the post of EU Trade Secretary by Peter Mandelson. He was very much a creature of Labour B.C. (Before Corbyn). Responding to arguments from President Sarkozy in favour of a measure of ‘protectionism’ in the EU, Mandelson took to his column in the Sunday Telegraph on 6 July 2008, to declare: “These are not comfortable times for those committed to free trade.
In both Europe and the United States, there is increasing rhetoric about the need to protect people from change, some of it sincere but much of it populist and self-serving. In recent days there have been strong statements about the Doha round of World Trade Organisation negotiations. Those negotiations, which will come to a head at a ministerial meeting in the coming weeks, will decide whether the world enters a new era of freer trade, with fewer barriers between countries...
...But the protectionist rhetoric suggests that many do not see these benefits, and that they see global economic change in zero-sum terms: if Asia rises, we decline; what benefits are generated are captured by a small, rich clique; the openness boom that has sustained us for decades now threatens to eat us alive. Few would disagree that globalisation has its dark side. I understand the concerns of those who feel under pressure as they face the impact of growing foreign competition. But open markets and economic integration are still by far the best tool we have for increasing global economic welfare, including our own prosperity at home. But Peter, now Baron Mandelson, wasn’t just interested in the ‘invisible hand’ of the market to generate global economic welfare, there were political considerations in world trade.
“This is not just about economics. It’s also about politics. Global economic welfare is an essential component of global stability. Only stable, co-operating states can manage the growing squeeze on vital resources such as energy, food and water.“ In light of the various ‘liberal’ interventions across the world, by the USA, UK, France, NATO et al, to ensure that states are sufficiently ‘co-operative’ with the Neo-Liberal order, Mandelson’s words are quite chilling.
Who speaks for Fair trade?
The concept of fair trade does not exist in the Neo-liberal concept, so Baron Mandelson doesn’t greatly trouble us with it. With its reductionist, libertarian dogma, appropriated from Adam Smith, the Neo-Liberals hide behind Smith’s assertion that individuals pursuing their own, apparently selfish, economic interests, are nonetheless guided by the ‘invisible hand’, “to promote an end which was no part of his intention.” That end, is of course a prosperous economy for all, in case you haven’t noticed it in your life experience. The rather smug and self serving justification for excluding the government from the proper regulation of such economic activity, is provided by Adam Smith’s famous dictum – “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”
Populorum Progressio and the Other Invisible Hand
There has been a moral collapse in most of the mainstream Left parties in recent years. They have adopted electoral strategies based around ‘triangulation’, ensuring they remain close to the other competing Conservative parties, in pursuit of the chimera of the ‘middle ground’. This has squeezed out radical thinking and grass roots activism. But we are not entirely bereft of analysis on the effects of capitalism and free trade. And so we turn to Populorum Progressio (On the Development of Peoples), an Encyclical Letter of His Holiness, Pope Paul VI, promulgated on 26 March 1967. It is addressed to: “To The Bishops, Priests, Religious, The Faithful And To All Men Of Good Will.” The following paragraphs detail very prescient concerns around free trade that deserve to be shared, (with my emphasis indicated.)
“56. The efforts which are being made to assist developing nations on a financial and technical basis, though considerable, would be illusory if their benefits were to be partially nullified as a consequence of the trade relations existing between rich and poor countries. The confidence of these latter would be severely shaken if they had the impression that what was being given them with one hand was being taken away with the other.
57. Of course, highly industrialized nations export for the most part manufactured goods, while countries with less developed economies have only food, fibres and other raw materials to sell. As a result of technical progress the value of manufactured goods is rapidly increasing and they can always find an adequate market. On the other hand, raw materials produced by under-developed countries are subject to wide and sudden fluctuations in price, a state of affairs far removed from the progressively increasing value of industrial products. As a result, nations whose industrialization is limited are faced with serious difficulties when they have to rely on their exports to balance their economy and to carry out their plans for development. The poor nations remain ever poor while the rich ones become still richer.
58. In other words, the rule of free trade, taken by itself, is no longer able to govern international relations. Its advantages are certainly evident when the parties involved are not affected by any excessive inequalities of economic power: it is an incentive to progress and a reward for effort. That is why industrially developed countries see in it a law of justice. But the situation is no longer the same when economic conditions differ too widely from country to country: prices which are “ freely” set in the market can produce unfair results. One must recognize that it is the fundamental principle of liberalism, as the rule for commercial exchange, which is questioned here.
59. The teaching of Leo XIII in Rerum Novarum is always valid: if the positions of the contracting parties are too unequal, the consent of the parties does not suffice to guarantee the justice of their contract, and the rule of free agreement remains subservient to the demands of the natural law. What was true of the just wage for the individual is also true of international contracts: an economy of exchange can no longer be based solely on the law of free competition, a law which, in its turn, too often creates an economic dictatorship. Freedom of trade is fair only if it is subject to the demands of social justice.
NAFTA, the US Presidential election and the Giant Vampire Squid
It is little wonder then that the ongoing NAFTA agreement and proposed CETA agreement, containing all the elements highlighted in the “Arbitration Game”, should became an issue in the US Presidential election, with Bernie Sanders and Donald Trump against and Hilary Clinton vacillating and unclear. Hilary’s problem being that her husband Bill, was a major advocate for it when he was President and Hilary was in hock to many of the corporate interests that spawned it. Not least of these was Goldman Sachs, described by journalist Matt Taibbi in Rolling Stone on 5 April 2010, as follows: “the world’s most powerful investment bank, is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” In October 2013, Hilary Clinton gave a speech at a Goldman Sachs conference on “Builders and Innovators” in Arizona, for which she received her customary fee of $225,000. CNN reported that between 2013 and 2015, Hilary made 92 speeches. She made 8 speeches to big banks worth $1.8m and in a two year period collected $21.6m. Bill Clinton also presided over the deregulation of banking that Adam Smith had warned against, with his Treasury Secretary, Larry Summers’ repeal of the Glass Steagall Act of 1933, which was designed to protect banking deposits from the rampant speculation that had fed the Great Depression. Hillary’s other problem was that NAFTA is over 20 years old and its results are there for all who wish to see. They are particularly detailed in -
“NAFTA’s 20-Year Legacy and the Fate of the Trans-Pacific Partnership” www.tradewatch.org February 2014 Published by Public Citizen’s Global Trade Watch. Extracts from Introduction
“This is not a story about protectionism, but about lived experience. The data show that NAFTA proponents’ projections of broad economic benefits from the deal have failed to materialize. Instead, millions have suffered job loss, wage stagnation, and economic instability from NAFTA. Scores of environmental, health and other public interest policies have been challenged. Consumer safeguards, including key food safety protections, have been rolled back. And NAFTA supporters’ warnings about the chaos that would engulf Mexico, and a new wave of migration from Mexico, if NAFTA was not implemented have indeed come to pass, but ironically because of the devastation of many Mexicans’ livelihoods occurring, in part, because NAFTA was implemented. ...
NAFTA created new privileges and protections for foreign investors that incentivized the off-shoring of investment and jobs by eliminating many of the risks normally associated with moving production to low-wage countries. NAFTA allowed foreign investors to directly challenge before foreign tribunals domestic policies and actions, demanding government compensation for policies that they claimed undermined their expected future profits."
Bernie Sanders on Bill Clinton and NAFTA
As early as 1997, Bernie Sanders said of Bill Clinton – “His support for the North American Free Trade Agreement (NAFTA) was a sell out to corporate America. Pure and simple, it was a disaster for the working people of this country...” “The function of trade agreements like NAFTA is to make it easier for American companies to move abroad, and to force our workers to compete against desperate people in the third world.” (Source: “Outsider in the House” 17 June 1997.)
Further extracts from “NAFTA’s 20 year legacy”
“More than 845,000 American workers have been officially certified for Trade Adjustment Assistance because they lost their jobs due to imports from Mexico or Canada or because their factories were relocated to those nations. Overall, it is estimated that NAFTA has cost us well over a million jobs. U.S. manufacturers pay Mexican workers just a little over a dollar an hour to do jobs that American workers used to do. The number of illegal immigrants living in the United States has more than doubled since the implementation of NAFTA. The exporting of massive amounts of government-subsidized U.S. corn down into Mexico has destroyed more than a million Mexican jobs and has helped fuel the continual rise in the number of illegal immigrants coming north.”
The US Presidential Election and the glass ceiling
It is clear that in the end, the US Presidential election was determined, ironically, more than anything else, by the maxim coined by Bill Clinton in a previous contest – “It’s the economy stupid.” Hilary Clinton chose to make her campaign about individualism and identity politics based on race and gender, and set litmus tests around liberal issues, possibly even believing that we were indeed in the epoch of liberal democracy and the triumph of the market over all other forms. No room there for thought about the inevitable victims of such a system, just political tactics designed to misdirect the electorate.
Hilary’s ‘victory’ party was to be held in a massive hall with a symbolic glass ceiling, representing, (to her at least) the most important issue in politics in the USA – the prospect of a female President. But the dispossessed victims of the Neo-Liberal economic policies followed by successive governments, many living in trailer parks and tent cities like that outside Detroit, weren’t immediately preoccupied about glass ceilings. And Bernie Sanders, who did care about their circumstances, was robbed of his moment by the internal machinations of the Democratic National Convention and the “invisible hand” of the corporate power he railed against. Post election we now learn from the psephologists, that Bernie Sanders would have won states lost by Hilary under the USA’s electoral college system, where the Democratic and Independent voters simply couldn’t bring themselves to vote for her and remained at home or switched to Trump.
So now we have as US President - Donald Trump, a candidate sufficiently aware of the feelings of the American working class, to harness their anger, incoherent although some of it might be, to his advantage. How that plays out and how it affects the ongoing Free Trade negotiations between the USA and EU, will be rather important and more than a little interesting.