Home > Uncategorized > The new trade agenda: deals that promote equality rather than inequality

The new trade agenda: deals that promote equality rather than inequality

from Dean Baker

With the Trans-Pacific Partnership now definitely dead and Donald Trump pushing for a renegotiation of NAFTA, many progressives are looking for a fundamental re-examination of trade deals. As supporters of international cooperation rather than narrow nationalists, progressives have often felt uncomfortable opposing trade deals.

While there is no reason to be defensive about opposing trade deals that favored business interests at the expense of workers, consumers, and the environment in all the countries participating, it is worth asking how trade deals can be crafted to promote a progressive agenda. There really is no shortage of ideas in this area.

To start, from a U.S. perspective, the items opened up for trade has to be broadened. High-end professional services, such as physicians’ and dentists’ services should be front and center in any future trade deals. The U.S. has highly protectionist rules in this area. In the case of physicians, foreign doctors are prohibited from practicing in the United States unless they complete a U.S. residency program. Foreign dentists must graduate from a U.S. dental school, although in recent years graduates of Canadian schools have been allowed also.

As a result of this protectionism, doctors in the United States earn on average more than $250,000 a year, twice as much as their counterparts in other wealthy countries. The potential gain to the United States from standardizing licensing requirements in professional services is at least $100 billion a year and quite likely close to $200 billion (0.5-1.0 percent of GDP). The goal need not be that all countries have the same standard, but rather that licensing rules are transparent and based on legitimate public interest, not protecting the incomes of professionals.  

A central focus of recent trade deals has been making patent and copyright protection stronger and longer. These forms of protectionism are incredibly costly, often raising the price of the protected items by many thousand percent above the free market price. This is especially important in the case of prescription drugs, where patent monopolies can raise the price of drugs from a few hundred dollars to a few hundred thousand dollars. Modern trade deals should be pushing in the opposite direction: trying to diffuse knowledge and cultural output as widely as possible.

Towards this end, trade deals should create more space for open innovation and creative work. This would mean setting rules that would allow parties to trade deals to share publicly funded work, while excluding those who do not share in the funding. For example, if the United States and South Korea were to both agree to spend 0.5 percent of GDP on developing new drugs, a trade deal could give both countries access to the output, while maintaining patent rights against the use by other nations. Trade agreements of this sort could be a powerful dynamic towards creating a world of open innovation and culture.

Another area where trade deals can work to both increase efficiency and reduce inequality would be by requiring greater transparency in government dealings with the financial sector. In the United States this is especially important with public pension funds. State and local government pension funds have over $6 trillion in assets. They routinely turn over management of these funds to investment advisers, private equity funds and hedge funds. The terms of these arrangements are rarely disclosed. As a result, pension funds often pay far more than necessary for these services.

Trade deals that required full transparency in these government dealings with the financial sector would be a great win-win. They would reduce the amount of money wasted (perhaps “stolen” is the better word) by financial firms operating through political connections.

Also, full transparency would open up the sector to more competition both domestic and foreign. If we want the public to be able to fuller benefit from open trade, we should want investment fund managers from all over the world competing to invest the trillions of dollars held by pension funds in the United States and elsewhere.

In a similar vein, it would be a huge step forward to include competition policy as an agenda item in future trade deals. The logic here is straightforward. If a company is pursuing anti-competitive policies to control the market and keep out domestic competitors, it is also implicitly acting in a way to exclude potential foreign competitors.

The U.S. government has largely abandoned anti-trust policy in the last four decades. Companies like Microsoft and Facebook have openly engaged in practices that almost certainly would have led to anti-trust actions in prior decades.

In Microsoft’s case, it managed to lock up a near monopoly on operating systems by signing contracts with manufacturers requiring them to pay Microsoft for computers shipped with a competitor’s software. Facebook openly sought to buy Snapchat and Whatsapp for the purpose of eliminating a potential competitor. (Its buyout succeeded in the case of Whatsapp.) It would be good policy and good trade policy to require governments to take action against companies that are seeking to monopolize markets.

These are the sort of rules that we should be looking to include in future trade agreements. There is no inherent reason that trade should redistribute income upward. It only happens because the people designing the deals want this outcome. That can change.

See article on original site

  1. Anna Zimmerman
    March 8, 2017 at 8:59 pm

    There are some good ideas here, but relaxing the rules on employment of foreign doctors is not one of them. How progressive it is exactly to encourage the poaching of highly skilled people from poor nations? There are better ways of tackling the grossly inflated pay of American doctors, such as transforming the culture of ‘treatment’ to one aimed more at ‘prevention’ which would have tremendous supplementary benefits. Easier said than done, I know, but Baker’s suggestions are no less idealistic, given that ‘trade deals’ have never been about equitable trade, and always about exploiting the opportunities provided by asymmetrical power.

    • March 9, 2017 at 12:35 am

      ¡ Poaching ! What a great perspective. Think of Fidel Castro here and require freely educated doctors to return home, forever banished from the USA. We will educate your doctors and many more of our own for free. Healthy people produce more and medical support is small compared to the gigantic humungous increase in an educated well fed healthy population.

      Remember also Noam Chomsky pointing out that the only accurate words in the term NAFTA are north and american.

  2. March 9, 2017 at 12:59 am

    Trade and the environment. Think here of what is normally omitted, as it is here in an otherwise interesting perspective.

    “And what is it that was omitted?” one logically asks.

    Trade in ungodly cruel weapons of mass destruction by mostly men in black suits. Noting that gender does not grant women innocence for committing war crime and extremely poisonous pollution of Earth’s life support systems.

    March 1, 2017 … US military Budget yields Chaos : Over 90% of world terrorism is located near US military concentrations. During this same time, Afghanistan became #1 world Heroin producer.

    Pollution tracking satellite records exist. The current US government is among the top and probably #1 world polluter. The US military is the #1 polluter within the US government.

    Current trade patterns are so distorted by corruption, subsidy and special supporting laws that regulation is not the correct idea. Accounting by including externalized costs and an autonomous democracy that closely monitors scientific speculations with regard to living in balance with Earth life support systems.

    All economics professors should see their salaries decline to match medical doctors. Professors enlist your students in quantifying external costs. Reduce yourself to the rank of accountant and foster a society that prospers and also has the figures to show humanity lives in balance with Earth. Economics is the proper term for this.

    • Anna Zimmerman
      March 9, 2017 at 7:32 am

      Thoroughly agree. Re: demoted economists, I’d go one step further, abolish the profession and relaunch it as a melange of political economy and ecology. The current crop can do penance cleaning latrines.

  3. March 9, 2017 at 2:26 am

    The US is a large consumer. Facts are facts.

    Like Earth’s Sun sings in the key of C… A fact of life.

    More than meets the eye.

    Sol sounds like a whale in the key of C.

    Imagine Sol singing…

    seemingly almost endlessly

    And cosmic powered biology freedom

    are all in the same song

  4. March 9, 2017 at 11:46 am

    Per the World Fair Trade Organization, “Fair Trade is a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers – especially in the South.” The push for fair trade has in many ways failed. Partly the result of the organizations supporting it. And partly because so many nations and NGOs involved in international trade oppose trading fairly. But I think it’s time the world pursued fair trade as the primary goal of international trade. Economics sort of gets it. One definition from professional economics reads, “A trade scheme which promotes better working and living conditions among the producers of primary commodities such as bananas and coffee in less developed countries. Attempts to assure that a larger percentage of the final sale price of such commodities makes it back to those who produced them.” Working on both a definition and a means to create fair trade is necessary today more than ever. Trade can be beneficial for all and promote equality but only if it’s fair.

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