Big Is Bad—or Is It?
January 28, 2019Thinking about the politics of trade in Congress over the past several weeks has made me curious about how trade skeptics think about the issue. On the Republican side, where that group has grown bigger during the Trump presidency, it appears to be largely wanting to support the president, either out of agreement or out of fear of retribution from him or his base voters in their district. Philosophically, there has also been a gradually growing fear of sovereignty infringement. Trade agreements, like treaties, inevitably tie our hands and prevent us from doing exactly what we would like at any given moment, whether we can articulate what that might be or not. That, of course, is an argument against any foreign entanglements, but it has clearly affected the trade debate.
The arguments on the Democratic side, which have a longer, richer history, are more varied. Predominant is the organized labor-supported view that trade agreements cost jobs and move plants offshore. This group also views investment as zero-sum—a dollar invested overseas is a dollar not invested in the United States, and a job created by that investment in Asia is a job eliminated in the United States. There is a small mountain of data suggesting that is wrong, but the view remains popular. These issues have been debated extensively; I’ve discussed them before and don’t propose to repeat all that right now.
More interesting, to me anyway, is the arrival of “progressives” on the trade scene. While they echo the traditional labor argument, they also inject a new element into the debate—the negative role large companies play in the trading system. I have said before that in trade, as in many things, size matters, but that was primarily a reference to countries. China has more clout in the system than Mauritania. For progressives, size apparently also matters at the micro level of the individual company.
That view has a long history. The progressive movement in politics dates to the early twentieth century. Books like The Jungle by Upton Sinclair did much to raise public consciousness about the terrible working conditions suffered by the poor and the greed of the rich industrialists. They did much to promote the idea that “big is bad,” which led to a number of landmark laws on antitrust policy and consumer protection that gave government prosecutors and regulators new authority to break up trusts or cartels and to enforce health and safety standards along with rules of fair competition. Many of the strongest proponents of reform were socialists, who, though they never captured the White House or controlled Congress, succeeded in getting the two major parties to gradually accept reforms.
There is one area, however, where their indignation is misplaced, and that is trade. First, they are clearly indignant:
“I have worried about trade policy that has been written largely by a handful of multinational corporations. But it has not been written to enrich Americans. It’s been written to enrich those who play above that sphere.” – Senator Elizabeth Warren (D-MA) on CNBC, August 15, 2018
“Last week, the Trump administration submitted formal notice that they intend to renegotiate the North American Free Trade Agreement. I stood with House Democrats to demand a transparent process that puts hard-working, middle-class Americans before big, multinational corporations. We called for the inclusion of civil society, labor and members of Congress in negotiations, and an end to the sublimation of our international laws by tribunals of corporate lawyers” – Rep. DeLauro (D-CT) in an op-ed in the Hill
“So, we have the destabilization of countries around the world due to wealth inequality that has been historically powered by global trade deals that concentrate the gains of trade into multinational corporations as opposed to the workers who create that wealth.” – Alexandria Ocasio-Cortez (D-NY) in an interview with The Intercept
These comments illustrate the progressives’ assertion of a cause and effect chain from multinational corporations to trade agreements to inequality and other social evils. The first writes the second, which causes the third. There is a whole pile of questions that need more answers than that have been provided so far. Among them:
- Governments negotiate agreements, not companies. If there is undue influence by the latter on the former, it needs to be shown, not simply asserted.
- Why is it bad for a government to help its companies? Companies employ hundreds of thousands of workers who presumably benefit from the jobs and wealth created by trade agreements.
- If the workers are not getting their fair share of the benefits, is that the fault of the agreement, the government, or the company’s management?
- Trade agreements are intended to promote trade and thereby jobs and economic growth. What else can we reasonably expect them to do without overloading the boat?
- Do technology upgrades and other productivity improvements have more to do with job loss and income inequality than trade policy?
I have written before that trade has often been a scapegoat for our social problems, so I suppose it is logical that if you’re going to blame big companies for trade agreements, you should also blame them for the problems trade allegedly causes. But if that is going to be a progressive meme, then they need to provide a lot more evidence for their assertions, and they need to explain why the hundreds of millions of people who have been lifted out of poverty because of trade don’t matter and why eight of the ten most globalized countries are in Europe, and all have more equitable income distributions than we do.
I admire today’s progressives for embracing the spirit of their predecessors and pointing out modern-day corruption, enforcement failures, and inadequate standards, particularly in the financial services sector. They have met predictable resistance from mainstream politicians, but in the end, they will win just like their ancestors did because they are on the right side of history. But they should think long and hard before they add trade policy to their list of targets.
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