It’s always fun when your reading and the real world line up – although perhaps in this case “fun” may not be the right word.
I like to read economic theory in my spare time. This may strike you as somewhat odd, but what I like about it is that it’s always relevant. For instance, I’m presently reading Rod hill and Tony Myatt’s (excellent) Economics Anti-Textbook, which systematically debunks the hugely value-laden, assumption-riddled, fiercely unrealistic theory of ceteris paribus market fundamentalism outlined in introductory economics textbooks. Just this morning I read the following passage on the oft-unaddressed power dynamics of “free trade” agreements:
[T]he large country [in a bilateral trade agreement] will seek “side payments”—perhaps unrelated to trade—as a price for preferential access to its markets…
This point is crucial. By focusing attention on the simple arguments from trade theory, economists can make a persuasive-sounding case for freer trade. But by ignoring the actual or potential “side payments,” whose costs may also be hard to quantify, they are ignoring a critical part of the story.
[University of Toronto economist Gerald] Helleiner suggests that these “side payments” could include things like: extending monopoly protection of “intellectual property” (namely patents and copyrights), special protection of foreign investors, privatization of parts of public sector production, “harmonizing” some laws and regulations to those of the large country, and acceptance of the small country of restrictions on some of its economic policies…
The “side payments” will benefit certain powerful interests in the large country, while at the same time restricting the policy autonomy of the small country in ways that could end up being much more important than just lowering tariffs. Furthermore, as time passes and the economies become more integrated, it could become prohibitively costly to cancel the agreement, effectively locking in these policy constraints.
Then what should I read on my Facebook thread but this opinion piece from The Guardian on the Transatlantic Trade & Investment Partnership (TTIP), a “free trade” agreement being negotiated between the United States and the European Union. In it, British writer George Monbiot pinpoints precisely one of the “side payments” to which Hill and Myatt refer:
The purpose of the Transatlantic Trade and Investment Partnership is to remove the regulatory differences between the US and European nations. I mentioned it a couple of weeks ago. But I left out the most important issue: the remarkable ability it would grant big business to sue the living daylights out of governments which try to defend their citizens. It would allow a secretive panel of corporate lawyers to overrule the will of parliament and destroy our legal protections. Yet the defenders of our sovereignty say nothing.
The mechanism through which this is achieved is known as investor-state dispute settlement. It’s already being used in many parts of the world to kill regulations protecting people and the living planet.
Monbiot goes on to detail several examples of how such dispute settlement has been used in the recent past:
During its financial crisis, and in response to public anger over rocketing charges, Argentina imposed a freeze on people’s energy and water bills (does this sound familiar?). It was sued by the international utility companies whose vast bills had prompted the government to act. For this and other such crimes, it has been forced to pay out over a billion dollars in compensation. In El Salvador, local communities managed at great cost (three campaigners were murdered) to persuade the government to refuse permission for a vast gold mine which threatened to contaminate their water supplies. A victory for democracy? Not for long, perhaps. The Canadian company which sought to dig the mine is now suing El Salvador for $315m – for the loss of its anticipated future profits.
In Canada, the courts revoked two patents owned by the American drugs firm Eli Lilly, on the grounds that the company had not produced enough evidence that they had the beneficial effects it claimed. Eli Lilly is now suing the Canadian government for $500m, and demanding that Canada’s patent laws are changed.
In other words, if signatories to a trade agreement decide to democratically limit the power of large firms, those firms can sue them, not even for lost profits, but for lost anticipated profits. Back in the day, the oligarchy had to call in the CIA to do its dirty work, as in the case of the 1954 overthrow of the government of President Jacobo Árbenz of Guatemala. Árbenz had the gall to champion land reform and the union organization of Guatemala’s working classes. Such policies were less than amenable to the United Fruit Company, whose stranglehold on Guatemalan agriculture was threatened by land reform. One coup d’etat later, it’s out with President Árbenz and in with a military junta – and upwards of three decades of brutal civil war.
As effective as CIA-backed dictatorships might be at protecting corporate interests, they are also rather messy, and make for bad PR. Investor-state dispute settlement is a significantly cleaner, more genteel answer to the problem of pesky governments trying to uphold economic and social justice in the face of the profit motive. Hold out the all-too-often illusory carrot of the benefits of “free trade” while clutching the stick of multi-million-dollar litigation behind your back.
In a response to Monbiot’s article, British Conservative politician Ken Clarke justified the no-oversight, un-democratic settlement mechanism as follows:
Investor protection is a standard part of free-trade agreements – it was designed to support businesses investing in countries where the rule of law is unpredictable, to say the least.
For “unpredictable” read “potentially more oriented toward social justice than toward profits.” Which is why corporations have wielded such “protections” against such unstable countries like Canada, for having the audacity to demand that pharmaceutical companies properly test their products for safety, and now against Great Britain and members of the E.U.
Of course, as a more significant player in the global economy, Great Britain has a better bargaining position, more entrenched capitalist industry, and thus perhaps less to lose from “free trade” agreements than, say, El Salvador. But in both cases, contrary to what Clarke may say, “rule of law” as such is not the relevant criterion. Rather, it’s what kind of law is ruling – democratic or oligarchic? If the former, those poor mining companies, robbed of their future profits by a public uninterested in agreeing to a voluntary contract, need some recourse.
But wait! Clarke goes on to explain that “free trade” agreements stand to benefit, not multinational mining companies, but rather “small widget makers from the West Midlands”:
According to the best estimates available, an ambitious deal would see our economy grow by an extra £10bn per annum. It could see a rise in the number of jobs in the UK car industry of 7%. British companies – of all sizes – currently pay £1bn to get their goods into the US – this cost could be removed altogether…
And while it is of course true to say that these changes will help big business, it is also true to say that big business often has a vested interest in overly complex regulation. They can afford armies of staff to satisfy reams of regulation, but their smaller rivals cannot and so are squeezed out. So while leftwing radicals can attempt to skew the facts, it’s my view that the TTIP is much more a deal for the small widget maker from the West Midlands than it is for the multinational corporate giant.
…which is why, one assumes, big business is always so keen on “competition” and “reducing regulation” – in order to benefit their smaller competitors. And not at all because the rhetoric of “free trade” masks a drive to capture a monopoly on economic and political power. But of course! It makes so much sense!
It would be sort of funny if it weren’t so painfully predictable. Externalize costs in the form of “side payments,” capture the levers of political power, and then pitch the whole thing as a coup for small business and the “virtues of competition” – when really it’s just another coup d’etat.