Collision Course: Endless Growth on a Finite Planet (42 page)

The free trade narrative held that trade unimpeded by tariffs and other barriers would produce economic growth and cause all nations to prosper. Yet, over the past sixty years, the greatest rates of economic growth were seen before 1974.
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The average annual growth of GDP per capita in the twenty years before 1980 is shown in the dark gray bar of figure 13.1,
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outshining anything that came later. Since much higher tariffs predominated at that time, growth is obviously not determined by unrestricted trade alone.

Figure 13.1

Average Growth of GDP per capita, EU and US, 1961–2009.
Source:
Tridico 2011, 27. Data from Eurostat. Courtesy of Pasquale Tridico.

Disputes and Environmental Protection

The environmental standards put in place in the late 1960s and early 1970s were never acceptable to a business class that desired free rein, and the WTO has become a significant weapon in the hands of the corporate opposition to these and other regulations. As noted in chapter 2, the WTO views environmental regulation through the lens of trade. Its coercive apparatus enforces thousands of pages of rules dedicated to the compulsory pursuit of free trade. In the process, countries are stripped of the right to make democratic decisions that conflict with these rules. The central institution in the WTO’s coercive capacity is the dispute panel, which settles conflicts in secret. Panel members are “trade bureaucrats, usually corporate lawyers,” with no particular expertise in specific scientific issues or specific countries, no process for avoiding conflicts of interest, and no forum for review or appeal.
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The panels are hardly impartial arbiters of the issues. The food safety standards observed by WTO panels, for example, are largely written by the food industry—and are far weaker than US standards.
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When a WTO dispute panel rules against a country, the country must either change its domestic laws, pay penalties representing “lost profits” to the aggrieved corporation, or face unilateral trade sanctions.
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The US was obliged to weaken its air pollution legislation when the WTO ruled that it could not exclude petroleum of poorer quality imported from Mexico and Venezuela.
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Japan has been obliged to accept more pesticide residues in food than its own regulations demanded.
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In the dispute between Europe and the US over growth-promoting hormones in beef, the WTO panel found against the Europeans. (The dispute continues, however, as Europe has produced evidence showing that at least one of the hormones in dispute, estradiol 17β, is connected to an increased risk of cancer, and there is as yet insufficient evidence to determine the risk from five others.) The WTO reverses the burden of proof and requires objectors to prove harm rather than industry to prove safety.
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Europe, on the other hand, applies the “precautionary principle” whereby substances are not permitted until the product is demonstrated to be safe on the basis of reliable scientific assessment of risk.
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A 1991 GATT panel also ruled against the US ban on imports of tuna caught with collateral slaughter of dolphins. The WTO’s own report on this case states:

What was the reasoning behind this ruling? If the US arguments were accepted, then any country could ban imports of a product from another country
merely because the exporting country has different environmental, health and social policies from its own
. This would create a virtually open-ended route for any country to apply trade restrictions unilaterally—and to do so not just to enforce its own laws domestically, but to impose its own standards on other countries. The door would be opened to a possible flood of protectionist abuses [emphasis mine].
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Here the WTO states baldly that trade has priority over environmental, health, and social justice considerations, regardless of the wishes of a government and the people it represents. To enforce trade obligations, the rules penalize countries if they choose to assess risk and protect citizens under their own standards.

More Than Trade

Capital began seeking greater global mobility from the 1960s on (discussed in chapter 6), something financial corporations had always favored—though early globalization was interrupted by World War I, the 1929 crash, and the financial regulation that came with the New Deal. Cross-border financial flows began to increase in the 1970s and exploded in the 1980s with the deregulation of domestic banking in many countries and the beginnings of electronic trading. By the end of 1991, annual international financial flows had increased to almost $200 trillion, fifty times greater than the volume of actual trade in concrete goods and services.
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Even mainstream economists acknowledge that such extreme capital mobility can have a destabilizing effect—for example in the East Asian financial crisis of 1997. The 50:1 ratio between money flows and actual goods gives some indication of the degree of speculation embodied in the activities of Thomas Friedman’s “electronic herd,” the traders tapping away on the computer terminals of international finance. The daily tsunami of speculative capital also reflects the financialization outlined by Woolley and Phillips, where the financial sector expanded its share of corporate profits from 10 percent in the 1950s to almost 40 percent by 2004.
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The financial sector does not make anything tangible; theoretically, it exists to serve the funding requirements of productive enterprise. Nevertheless, financial institutions came to dominate the US, UK, and global economy in the last decades of the twentieth century, diverting capital from productive investment into the arcane arena of “innovative” but opaque financial “products,” with an almost inconceivable face value of $640 trillion in September 2008—fourteen times the GDP of all the countries on earth.
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It was claimed that these products would disperse credit risk and ensure resiliency, in line with the sanguine idea that a new business era of “the great moderation” had been engineered by the neoliberal seers.
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In reality, the entire financial system was on quicksand. Whether the crisis has been resolved remains to be seen (at the time of writing in 2013), since taxpayer-funded bailouts have transferred unpayable liabilities to nations and created or exacerbated immense sovereign debt, not just in countries such as Ireland and Greece but also in the US itself. Immense debts still underpin the entire financial system, and business confidence appears to remain dependent on the indefinite injection of US dollars via “quantitative easing.”

Clearly, financial deregulation played a crucial role in this chain of events. In the words of the Indian economist Prabhat Patnaik, it detached the local “financial sector from its anchorage in the domestic economy to make it part of the international financial sector; to make it operate according to the dictates of the market which means the end of … the distinction between productive and speculative credit needs; and to remove it from the ambit of accountability to the people.”
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A return to greater financial regulation seems logical and necessary to militate against a further financial collapse. However, notwithstanding the trillions of dollars’ worth of assistance they have received from US and other first world taxpayers, multinational bankers and financiers are unenthusiastic.
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Now that transnational finance has become securely established, it is extremely difficult for national governments to exert discipline on it. To gales of objection from French financiers, President Sarkozy announced that France would unilaterally implement what is known as a Tobin (or “Robin Hood”) tax, which would shave a minuscule amount from every financial transaction. The governments, banks, and business organizations of the US and UK, which are home to two of the foremost centers of transnational capital, London and New York, have declined to support anything of the kind.
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The agreements forged in the WTO at the peak of the deregulation drive during the 1990s are also implacably opposed to all regulation. WTO rules are, in fact, intended to be impossible for national governments to reverse. As US Treasury official Barry Newman told Congress in relation to the similar financial services provisions of the North American Free Trade Agreement (NAFTA): “Future Mexican governments may change and they may not have the same attitudes of the current government. The benefit of NAFTA is that it will lock [them] into an internationally legally binding and enforceable agreement.”
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The antiregulatory ideology of the neoliberal intelligentsia and the business interests it serves has been written into binding “free trade” contracts that democratic governments will struggle to repeal. UN treaties on climate or biodiversity, even though they require legislative ratification at home before implementation, are rejected by US think tanks on the grounds that they encroach on national sovereignty; the same entities ignore the very real curtailment of sovereign rights actually enforced by the free trade agreements and the WTO.

While the WTO operated as GATT before 1995, its central objectives revolved around reducing tariffs on concrete material goods. From the 1980s, however, the International Chamber of Commerce was already demanding new investment rules aimed at free movement for capital around the world.
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The OECD attempted a comprehensive deregulation of foreign investment flows in the late 1990s when it launched the Multilateral Agreement on Investment (MAI), but the MAI failed in 1998 in the wake of an unprecedented groundswell of opposition from consumer, environmental, and labor groups and the defection of France. Despite such setbacks, the advent of free trade in capital and services would soon be upon us.

Once the WTO came into force at the end of the Uruguay Round, additional “trade-related” areas were added to the trade agenda, in particular services such as investment. The WTO’s General Agreement on Trade in Services (GATS) launched a process of investment liberalization, and its Financial Services Agreement (FSA), adopted in 1999, has already imposed rules that limit national options to regulate. The “standstill” provision in the FSA forbids any limitations not already specified—no rollbacks permitted; Article B7, which permits foreign bankers to provide “any new financial service,” prevents regulation of opaque or risky derivatives; Article B10 binds signatories to “remove or limit” existing measures that are adverse for foreign investors.
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One of the “basic principles” of the GATS agenda is “progressive liberalization,” now part of the Doha Round, which followed the Uruguay Round in 2001, after delays caused partly by vigorous opposition in Seattle. The goal of the Doha Round is to extend the scope of free investment flows so that governments will have no rights at all to regulate the entry, behavior, and operations of foreign-based corporations. The Doha Round is incomplete at the time of writing but is being implemented piecemeal in bilateral and multilateral trade agreements such as the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership. In essence, the neoliberal agenda is being cast in iron: according to the WTO itself, “because ‘unbinding’ is difficult, the commitments are virtually guaranteed.”
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This spells a particularly dismal outcome for developing countries should they wish to foster stability by restricting the stampedes of capital in and out of their countries, or by nationalizing services. A UN panel on financial reform, chaired by Joseph Stiglitz, pointed to numerous problems with the free trade regime. Any nationalization of services such as banking would be likely to incur compensation penalties. Capital controls are forbidden. The UN panel of experts recommended that “agreements that restrict a country’s ability to revise its regulatory regime—including not only domestic prudential but, crucially, capital account regulations—obviously have to be altered, in light of what has been learned about deficiencies in this crisis.”
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In other words, they were warning that WTO rules prohibiting national capital controls are detrimental and should be dropped.

Despite the role of the bloated financial industry in the near collapse of the global capital market in 2008, the industry has not been reregulated, nor have its ideological preferences been widely challenged. It had already enshrined these preferences in WTO agreements and continues to enjoy determinate influence in the corridors of government, especially in the English-speaking world. The G20 and President Obama have attempted reregulation of finance with, at best, partial success. G20 meetings have canvassed the issue, made proposals, and promised action, but have achieved little so far.
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The US legislation, passed by Congress in July 2010, was drafted with thousands of lobbyists in attendance on behalf of banks, hedge funds, and organizations such as the Chamber of Commerce and the Business Roundtable.
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While it offers some consumer protections, the new law does not reinstate the firewall between commercial and investment banking; trading of the derivatives that played a key role in the collapse, though subjected to some disclosure, will still not be conducted openly in the same manner as share trading; and corporate size will not be limited to avoid the risk of being “too big to fail”—or “too big to bail,” as economist Max Fraad Wolff put it in an interview with Amy Goodman.
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