Labor and our allies are facing another big fight in Congress in March. It’s about the new NAFTA-style trade deal called the Trans Pacific Partnership (TPP). Once again, a Democratic President is relying on Wall-Street Republicans (and Dems) to get it passed even though large majorities of Americans are opposed to so-called free trade deals. They’re pushing a renewal of what’s called Fast Track Trade Promotion Authority which allows them to have a quick up/down vote with no amendments.
The TPP includes 12 nations bordering the Pacific Rim. It’s worse than NAFTA. It’s more unbalanced in favor of corporate power, and it includes countries even poorer than Mexico. A number of unions, environmental, human rights and farm organizations recently formed the Missouri Trade Justice Coalition. It can be reached at MOtradejustice@gmail.com. Everyone needs to contact Congress to tell them to vote against Fast Track and the TPP.
On February 12th the Heartland Labor Forum broadcast a show called Fast Track to Oblivion. Guests included CWA President Larry Cohen, Ben Beachy from Public Citizen’s Global Trade Watch and Celeste Drake from the AFL-CIO. She witnessed the negotiations and testified to how everyone but corporate lobbyists were cut out of them. To listen to that show, go to www.heartlandlaborforum.org.
Once a month the PhD Economists at UMKC do a 5-minute feature called Economics Unmasked. On the February 12th show, Stefanie Cole unmasked free trade theory. You’re going to hear a lot of hype in the next month about how great these trade agreements are. Stefanie’s short explanation might help you sift through it.
Judy Ancel, Heartland Labor Forum and Missouri Trade Justice Coalition
Economics Unmasked by Stefanie Cole, UMKC and MCCKC
Today’s topic is David Ricardo’s theory of Comparative Advantage, which is often dredged up from history and used to justify free trade deals like TPP. Ricardo’s theory is often spoken of as some kind of common sense truth, but it is based on his analysis of international trade in the 19th century, a time when the world was under a colonial economic order: entire nations were enslaved laborers for colonial princes and American plantation owners. What did Ricardo mean by costs, whose costs? Just like today, the people who would be benefited from comparative free trade in Ricardo’s time were elites whose financial interest were aligned with the state. It certainly wasn’t the laborers.
The basic idea behind the economic theory of comparative advantage is that if one country labors to produce only what it can produce at the lowest cost and another country does the same, then they will both gain from trade. They will use their low cost of production products to trade for other products that would be more costly to produce for themselves. For example, Ricardo’s story was that the climate is just better for producing wine in Portugal, and even if England can produce a bit of wine, it will be at a lower yield and at a higher cost in terms of land and labor. Instead, if England only produces wool and trades for wine with Portugal, the country as a whole will end up with more wool AND more wine by specializing in wool. According to the theory, free trade allows the countries to keep overall costs low. Of course, no one ever manipulates prices or cheats to get additional advantages. Supposedly, it follows that everyone benefits from lower costs and/or increased overall productivity through specialization.
Specialization has never been the best long term economic strategy from a community perspective. Specialization narrows the scope of community skills and pigeon holes economic possibilities as times changes. Think Detroit. Emerging movements toward local production schemes are showing great promise not only in terms of meeting output needs and raising incomes, but also in terms of environmental sustainability and a resurgence of democratic control over the means of production. TPP would be a step in the same wrong direction we’ve been following since Reagan.
According to Obama: “The TPP will boost our economies, lowering barriers to trade and investment, increasing exports, and creating more jobs for our people” But in Ricardo’s time and today in China and elsewhere, we can see what export lead growth and cost advantages mean for labor: it means working very hard in poor conditions to produce goods that are consumed by those with higher incomes.
Now, here is the rub on the cost cutting nature of the theory. Every trade has two sides, what is a cost to one company is income to another. How is it that Mr. Obama cannot understand it is impossible, as a matter of logic, to cut costs in one part of an economy without cutting incomes in another part of the economy? UMKC professor and Chief Economist to the Democrats on the Senate Budget Committee, Stephanie Kelton, often explains it this way: “we cannot all be net exporters.” If one country increases its exports, someone else must increase imports.
The White House says concerns about TPP are misplaced, “Given Mr. Obama’s determination to agree to only the deals that were beneficial to American Companies.” It is difficult to understand how Mr. Obama can believe that the interests of American Corporations are the same as the American people. The proliferation of free trade deals has only increased the power and resource control of corporate leaders. This means that economic power becomes concentrated in the hands of a-national and even anti-national interests, again, a totally different world from Ricardo’s.
Free trade does not live up to the textbook fairy tale. In that story, there are never any greedy and powerful corporate executives using their financial resources to influence international trade policy. Obama should recognize that a lot of things have changed since Ricardo’s time: Most importantly in relation to the TPP is that corporations were not people back then. It is no stretch to say that the leaders of the biggest corporations in the world are often more powerful than princes and presidents. Corporate agents act as international brokers for trade deals that allow corporate officers to extract wealth from the productivity of workers. In a world where the power of international corporations supersedes governmental power in many cases, there should be no expectation that corporate interest would ever align with the people’s interests, they have zero electoral obligation to society at large.
In conclusion, there is never any reason to believe that an economic theory will apply under all social and political conditions. As for free trade, if it ever was relevant and useful to society, it is now harmful and anti-social.
The TPP includes 12 nations bordering the Pacific Rim. It’s worse than NAFTA. It’s more unbalanced in favor of corporate power, and it includes countries even poorer than Mexico. A number of unions, environmental, human rights and farm organizations recently formed the Missouri Trade Justice Coalition. It can be reached at MOtradejustice@gmail.com. Everyone needs to contact Congress to tell them to vote against Fast Track and the TPP.
On February 12th the Heartland Labor Forum broadcast a show called Fast Track to Oblivion. Guests included CWA President Larry Cohen, Ben Beachy from Public Citizen’s Global Trade Watch and Celeste Drake from the AFL-CIO. She witnessed the negotiations and testified to how everyone but corporate lobbyists were cut out of them. To listen to that show, go to www.heartlandlaborforum.org.
Once a month the PhD Economists at UMKC do a 5-minute feature called Economics Unmasked. On the February 12th show, Stefanie Cole unmasked free trade theory. You’re going to hear a lot of hype in the next month about how great these trade agreements are. Stefanie’s short explanation might help you sift through it.
Judy Ancel, Heartland Labor Forum and Missouri Trade Justice Coalition
Economics Unmasked by Stefanie Cole, UMKC and MCCKC
Today’s topic is David Ricardo’s theory of Comparative Advantage, which is often dredged up from history and used to justify free trade deals like TPP. Ricardo’s theory is often spoken of as some kind of common sense truth, but it is based on his analysis of international trade in the 19th century, a time when the world was under a colonial economic order: entire nations were enslaved laborers for colonial princes and American plantation owners. What did Ricardo mean by costs, whose costs? Just like today, the people who would be benefited from comparative free trade in Ricardo’s time were elites whose financial interest were aligned with the state. It certainly wasn’t the laborers.
The basic idea behind the economic theory of comparative advantage is that if one country labors to produce only what it can produce at the lowest cost and another country does the same, then they will both gain from trade. They will use their low cost of production products to trade for other products that would be more costly to produce for themselves. For example, Ricardo’s story was that the climate is just better for producing wine in Portugal, and even if England can produce a bit of wine, it will be at a lower yield and at a higher cost in terms of land and labor. Instead, if England only produces wool and trades for wine with Portugal, the country as a whole will end up with more wool AND more wine by specializing in wool. According to the theory, free trade allows the countries to keep overall costs low. Of course, no one ever manipulates prices or cheats to get additional advantages. Supposedly, it follows that everyone benefits from lower costs and/or increased overall productivity through specialization.
Specialization has never been the best long term economic strategy from a community perspective. Specialization narrows the scope of community skills and pigeon holes economic possibilities as times changes. Think Detroit. Emerging movements toward local production schemes are showing great promise not only in terms of meeting output needs and raising incomes, but also in terms of environmental sustainability and a resurgence of democratic control over the means of production. TPP would be a step in the same wrong direction we’ve been following since Reagan.
According to Obama: “The TPP will boost our economies, lowering barriers to trade and investment, increasing exports, and creating more jobs for our people” But in Ricardo’s time and today in China and elsewhere, we can see what export lead growth and cost advantages mean for labor: it means working very hard in poor conditions to produce goods that are consumed by those with higher incomes.
Now, here is the rub on the cost cutting nature of the theory. Every trade has two sides, what is a cost to one company is income to another. How is it that Mr. Obama cannot understand it is impossible, as a matter of logic, to cut costs in one part of an economy without cutting incomes in another part of the economy? UMKC professor and Chief Economist to the Democrats on the Senate Budget Committee, Stephanie Kelton, often explains it this way: “we cannot all be net exporters.” If one country increases its exports, someone else must increase imports.
The White House says concerns about TPP are misplaced, “Given Mr. Obama’s determination to agree to only the deals that were beneficial to American Companies.” It is difficult to understand how Mr. Obama can believe that the interests of American Corporations are the same as the American people. The proliferation of free trade deals has only increased the power and resource control of corporate leaders. This means that economic power becomes concentrated in the hands of a-national and even anti-national interests, again, a totally different world from Ricardo’s.
Free trade does not live up to the textbook fairy tale. In that story, there are never any greedy and powerful corporate executives using their financial resources to influence international trade policy. Obama should recognize that a lot of things have changed since Ricardo’s time: Most importantly in relation to the TPP is that corporations were not people back then. It is no stretch to say that the leaders of the biggest corporations in the world are often more powerful than princes and presidents. Corporate agents act as international brokers for trade deals that allow corporate officers to extract wealth from the productivity of workers. In a world where the power of international corporations supersedes governmental power in many cases, there should be no expectation that corporate interest would ever align with the people’s interests, they have zero electoral obligation to society at large.
In conclusion, there is never any reason to believe that an economic theory will apply under all social and political conditions. As for free trade, if it ever was relevant and useful to society, it is now harmful and anti-social.
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