John Buell

‘Free Trade’ as the Bankers’ Trojan Horse

The North American Free Trade Agreement (NAFTA), which just turned 20, has been in the news lately. Its advocates hope to extend its reach and depth through a Trans-Pacific Partnership (TPP) and similar deals with Europe.

Perhaps NAFTA’s greatest achievement has been rhetorical. Agreements like TPP are still called “free trade.” They are nothing of the sort. They employ coercive means at the domestic and international level to enshrine monopoly privilege for key segments of the so-called FIRE sector (Finance, Insurance, Real Estate) of US capitalism. The instability and rapaciousness of deregulated finance on an international plane will likely cost even more jobs than NAFTA.

NAFTA was originally promoted with classic arguments of “comparative advantage.” If tariffs on goods are eliminated, each nation can specialize in those at which it is best. Trade between nations then increases the total size of the pie.

The classic theory, however, postulates underlying assumptions, such as full employment, that have virtually never pertained. Yet even this flawed defense was itself a fig leaf hiding another agenda.

Economist Dean Baker has frequently pointed out that these agreements require foreign governments to accept the terms of US patent and copyright laws, in effect extending monopoly pricing power beyond US boundaries. The TPP likely will likely add insult to injury by prohibiting Maine from importing cheaper drugs from Canada. So much for TPP as a trade-promoting agreement.

Perhaps the greatest threat lies with finance. NAFTA opened Mexican banking to competition with US investment banks. Trade agreements since NAFTA have been even more aggressive in aiding big banks. Public Citizen reports: “Since NAFTA… bankers have gotten much more aggressive in their attempts to block regulation… For example, the Korea FTA, passed by Congress in October, included [harsher prohibitions] on financial sector regulations than NAFTA. On top of that, the WTO [restricts] policies on capital controls, bans on risky financial services, size limits on banks, and “firewalls” between banking and investment services.”

Despite the world financial crisis, frequent exposure of banker malfeasance, and continued economic distress, TPP and other like agreements may achieve banker’s fondest hopes—an international political and legal structure that forbids effective regulation of the banks by domestic authorities.

Experience in the Eurozone suggests that giving finance capital free flow—and implicit bailout guarantees— seldom encourages investment in real business. Financial deregulation leads to bank consolidation, speculative investment in land and other finite resources, asset collapses, calls for austerity, public bailouts of the largest players, growing inequality, and political crisis. In such a scenario, the small business community in the US, just as Greece’s today, dependent as it is on the bank financing, will suffer greatly.

US history suggests the folly of these policies. University of Missouri/Kansas City economist Michael Hudson points out that to foster development “{T}he [19th century] Republican Party … founded land-grant state colleges and endowed business schools to teach the protectionist and technology-based alternative to the British free trade doctrine being taught at the most prestigious colleges such as Harvard, Yale and Princeton. ... [T]hese less prestigious schools … taught the doctrines that would propel the United States to world leadership by means of protective tariffs, a national bank and public infrastructure investment. “

International trade is vital, but for trade to flourish, finance itself must be reigned in via international regulations. These would include limiting leverage, capital controls, tax policies, and a central bank with the resources and commitment to discourage speculation, as well as policies to prevent beggar thy neighbor trade agendas. John Maynard Keynes proposed such an agenda at Bretton Woods in 1944 but was outmaneuvered by American bankers eager to enhance the role of the dollar. Some investment banks may have benefited, but the rest of us, including thousands of Maine workers, have lost. Collaboration among labor, peasant, and immigrant rights advocates on modernized reforms of the sort Keynes suggested would be an occasion to celebrate.

John Buell lives in Southwest Harbor, Maine and writes on labor and environmental issues. Email jbuell@prexar.com.

From The Progressive Populist, March 1, 2014