[CTC] The New Trade Agenda: Deals that Promote Equality Rather than Inequality - Dean Baker

[Alan Barber]

Please excuse the cross post, but sharing Dean Baker's latest
piece on trade


http://cepr.net/publications/op-eds-columns/the-new-trade-agenda-deals-that-promote-equality-rather-than-inequality
The New Trade Age: Deals that Promote Equality Rather than Inequality
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.


--

Alan Barber

Director of Domestic Policy

Center for Economic and Policy Research

202-293-5380 x115 | 202-486-6180

barber at cepr.net




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