Outsized influence by corporate interests continue to prevent free trade agreements from delivering on their promises of economic prosperity.
By Andy Cohen
There has been a lot of consternation and handwringing lately about free trade agreements and their benefits/detriments to our overall economy. My San Diego Free Press colleague Anna Daniels recently penned a piece largely lamenting the 20th anniversary of the signing of the NAFTA treaty: “Twenty Years of NAFTA: Capital Freely Crosses Borders While People Can’t”.
Anna is entirely correct: NAFTA did not deliver on the promises that were made upon its signing. And it laid the foundation for an exodus of capital and good paying jobs to other low wage locales, in Mexico and around the world. But NAFTA’s failures—and the inherent problems with the Trans Pacific Partnership (TPP) that is currently being negotiated—are not due to the fact that free trade is inherently bad or unsustainable. Quite to the contrary: The concept of free trade can be potentially extremely beneficial to all parties involved, if the treaty is done right.
To understand why a free trade agreement can be successful, and might be desirable, it is necessary to understand the premise: The removal of barriers to trade and capital makes investment in all nations involved more attractive. It’s a mutually beneficial arrangement that can ensure growth in the participating countries. But in order for a free trade agreement to be successful, it requires a fairly level playing field.
Think of it this way: Staunch conservatives are constantly expounding the virtue of the free market; that the free market will take care of itself without any outside intervention, and that since the principles of the free market are always fair, everyone can potentially benefit. The trouble is that the basic premise of the free market is dependent on the existence of perfect competition; the explicit exclusion of outside influences or bad actors manipulating the market. That’s how the free market would work in a perfect world.
But as we know, the world is not perfect, and thus the free market is never free. There is always someone in the market trying to manipulate it, to gain an unfair advantage over competitors. Left to their own devices, market actors will game the system for their own profit without proper oversight (regulation). An unregulated market can never work. See: Enron, Tyco, WorldCom, etc. The entire San Diego economy was nearly brought to its knees by the deregulation of the electricity market in the name of open competition (the free market).
The premise of free trade is not all that different. In a perfect, free and open market, everybody stands to gain, from the workers to the corporate interests that employ them. It depends on the market actors acting on behalf of the greater good. But we know that never happens, and the corporate entities involved in setting the terms of the free trade agreements always seek to game the terms of the accord to the benefit of their own corporate bottom lines.
This is why the NAFTA didn’t work, and why the TPP as it’s being constructed won’t work—and could do further damage to our already fragile economic recovery. Governments are supposed to act on behalf of their citizenry at large and not the involved corporate entities. But instead, the playing field has been tilted toward the “job creators” under the auspices of trickledown economics.
When NAFTA was written, the authors knew that Mexico was at a heavy disadvantage to its trade partners, the United States and Canada. At the time, Mexico was still a borderline third world country. Mexican environmental regulations fell woefully short of American and Canadian standards; workplace safety regulations lagged; the education level of the average worker was incomparable; there was a huge disparity in the basic standard of living.
The agreement, therefore, provided Mexico with a grace period during which they would be somewhat exempted from meeting the environmental and economic standards of the US and Canada, with the provision that the government make the necessary investments to bring Mexico in line with its partners. And to an extent, that did happen, but not enough to fully level the playing field. Eventually the lure of a more highly skilled, cheaper workforce with fewer regulations and less hope of economic parity sent the corporate interests to other markets, where they could be even more exploitative.
The expectations of economic parity in the NAFTA were never realized to the extent we were told they would be because the Mexican government never fully lived up to its commitment of investment in its own people, but also largely because the corporate interests were allowed an outsized influence in determining the extent to which the treaty rules were enforced.
And now, with the TPP, corporate interests are being treated as full partners, given de-facto nation-state status. This bodes well for the financial success of the involved companies, but not at all for the success of the trade partnership, or the workers in all of the countries involved. When the playing field is tilted so heavily in favor of the corporate interests’ bottom line, and by default the developing nations trying to lure them with the promise of cheap skilled labor, the trade deficit the United States currently suffers will only be exacerbated, and there will be little hope for the growth and development of the American economy.
Free trade agreements would work if the focus was turned away from the “job creators” who are looking to tweak the system to their advantage for profit, and instead centered on the greater good, i.e. the workers, the middle class who actually drives the economy….or in the case of developing nations, creating a middle class and thus real economic growth. But that isn’t the case with the NAFTA, and it certainly isn’t the case with the TPP. Until the drafters of these agreements become more interested in the broader economic implications instead of the profit margins of their corporate benefactors, these agreements will continue to fail.
On the other hand, if the focus is turned to where it should be, we might just be surprised by how the rising tide lifts all of the boats involved.