Alert – Policy Wonk Post
Canada and the US have recently signed onto the Trans Pacific Partnership – a massive agreement to liberalize trade between North America and Asia. For the political right and economists, it represents the next big step in globalized free trade and all the economic efficiency that comes with it. For the lefties, it is a further infringement on national sovereignty and another barrier to strong domestic environmental and workers rights.
So… who’s correct? Well, the truth is that they both are… and they’re both wrong. We’re now 30 years into the great trade liberalization experiment. We have GATT, WTO, NAFTA. And we have some facts upon which to judge free trade:
- Free Trade has generated wealth – there can be no doubt that, globally, freer trade has increased global wealth. Developing countries got access to markets that were previously inaccessible to them, and their low wages and low production costs allowed for business opportunities and jobs to open up. Yes… the rich got a disproportionate share and the jobs were often crappy… but there were jobs and wealth created. And by any objective measure, the average global citizen is financially better off.
- Free Trade has infringed on sovereignty – It is impossible to credibly argue that individual countries not have forfeited bits of their sovereignty by entering free trade agreements. The very act of agreeing not to impose domestic trade barriers is a weakening of sovereignty. Further, by opening your economy to foreign imports you are certainly creating major barrier to domestic environmental standards, higher domestic wages and workers rights. Sure you can do these things (protect the environment and worker, but it will cost you… ergo your sovereign decision is subject to consequences by others).
But this polemic is missing the point. Giving up sovereignty can be a good and necessary thing. Lefties are all over it when it comes to global agreements on climate change or banning land mines. Similarly, creating global wealth is not always a good thing; not when it exacerbates inequality and diminishes welfare at the expense of wealth.
So lets step back, put aside our left and right tendencies, and discuss what we can all agree on:
- We need global approaches to address global issues. Some of our most prickly problems – climate change and combatting terrorism chief among them – require global solution. And they require nations to let go of bits of their sovereignty in order to manage within this global commons. So lets cut the knee jerk opposition to globalization. We’ve, quite literally, outgrown it.
- We need a more equal economic growth model. The rich are benefitting disproportionately to their contribution to the creation of new wealth. Adam Smith, the trickle down and free market economists and Ronald Regan got it right that we need private incentives for the creation of wealth, jobs and stuff. And capitalism has done an admirable job at creating the incentives for the owners of production (the rich) to make stuff, jobs and money. But come on. Do they really need to keep so much of it. Won’t a hedge fund manager feel equally incentivized if he makes $400 million instead of a billion. And that extra $600 million could be spread around to do a lot of good… and the hedge fund guy would hardly miss it.
These two simple ideas could change the world. Pull back on opposition to globalization of trade in return for more equal wealth distribution. How do you do it:
- Expand power of the United Nations (and everyone pay their dues) and redistribute power to acknowledge role of larger countries;
- Support a legally binding climate change agreement in Paris this December with internationally enforceable penalties for non compliance;
- Impose a small tax on international financial transactions and use proceeds to economic development in less developed countries
- Cease and desist on opposition to global free trade agreements.
- Negotiate scalable international minimum wage and social services standards.
This is an audacious idea whose time has come.