[Ip-health] Joseph Stiglitz in the New York Times (Opinionator Blog): On the Wrong Side of Globalization

Thiru Balasubramaniam thiru at keionline.org
Sun Mar 16 04:36:27 PDT 2014

THE GREAT DIVIDE<http://opinionator.blogs.nytimes.com/category/the-great-divide/?module=BlogCategory&version=Blog%20Post&action=Click&contentCollection=Opinion&pgtype=Blogs&region=Header>
 MARCH 15, 2014, 5:06 PM
On the Wrong Side of Globalization
By JOSEPH E. STIGLITZ<http://opinionator.blogs.nytimes.com/author/joseph-e-stiglitz/>

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

The conflicting views about the agreements are actually tearing at the
fabric of the Democratic
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
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<https://wikileaks.org/Second-release-of-secret-Trans.html> to
guess at the proposed provisions. At the same time, Congress introduced a
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

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

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
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
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

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<http://www.nytimes.com/2014/01/30/opinion/obamas-free-trade-conundrum.html?action=click&module=Search&region=searchResults%230&version=&url=http%3A%2F%2Fquery.nytimes.com%2Fsearch%2Fsitesearch%2F%3Faction%3Dclick%26region%3DMasthead%26pgtype%3DHomepage%26module%3DSearchSubmit%26contentCollection%3DHomepage%26t%3Dqry653%23%2Fbonior+tpp&_r=1>
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

More information about the Ip-health mailing list