Myopia Still Hampers WTO

It is up to the United States “to make history” by leading the way to a revival of the stalled Doha Round of trade negotiations, says Pascal Lamy, director-general of the World Trade Organization.

In making that case in a Washington talk on April 24, Lamy emphasized that open trade needs to be “accompanied by the right domestic policies.” His list of those policies includes:

-- “better worker training, greater mobility in labor markets, more expansive social safety nets."
-- “investing in critical areas such as health care, education, and clean energy.”
-- “greater investment in physical, social, and government infrastructure, which helps increase the benefits of trade.”

“The presence of these domestic policies,” he explained, “provides a layer of comfort to workers who are then better prepared to face global competition since they know there are social safety nets that will catch them when they fall.”

In warning against protectionist measures, Lamy said: “It is not less trade that the United States needs, but more and better domestic policies,…policies which help translate trade into benefits for the people. This is where the task of reconciling the people with trade must start [emphasis added].”

While detailing the domestic policies that need to be changed for the sake of workers, he neglected to mention any WTO policies that might need change to take account the rights and interests of workers. These are controversial of course, but so are the domestic policies he advocates.

Ironically, at least in the United States, the business groups most eager to restart the Doha negotiations are also those most zealous in opposing the domestic policies that Lamy deems necessary to give “comfort” to working men and women.

In his talk, given at the Peterson Institute for International Economics, Lamy called upon U.S. business, academics, and political leaders to rally behind the WTO during what he called “the first global crisis in the history of mankind.” Yet, except for his ideas on needed domestic programs, he relied on the same free trade rationale that has been persuasive for 60 years but now is seriously questioned by influential economists and others in rich and poor countries alike.

Back in 1993, a Heritage Foundation memorandum analyzing the pre-WTO General Agreement on Tariffs and Trade (GATT) called it “the closest thing to a uniform commercial code for world trade.” The WTO is still devoted to devising and enforcing an improved global code for commerce, but the world needs more than that.

Lamy’s talk reflects some innovative WTO ideas on the internal policies of the United States and other countries. Especially in the present crisis, Pascal would be wise to start rethinking the WTO’s own policies.
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I have long criticized the WTO for its unbalanced agenda. See, for example, “The WTO's Lop-Sided Agenda for the World,” in December 2001. For a more recent analysis, see the blog posting of April 20, immediately below this.

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President Obama’s basic choice on trade

As the Obama administration wrestles with shaping its policy on the World Trade Organization (WTO), the old questions about fairness and equal treatment pop up once again.

Fairness? (I can hear the loud objections.) Why sidetrack the WTO into controversies about fairness and equal treatment?

It may come as a surprise to some that the WTO is already committed to equal treatment. That commitment is so basic that it is expressed in two principles that the WTO calls “the foundation of the multilateral trading system.”

These two principles, both formulating “trade without discrimination,” are:

“1. Most-favored-nation (MFN): treating other people equally….Grant someone a special favor (such as a lower customs duty rate for one of their products), and you have to do the same for all other WTO members.”

“2. National treatment: treating foreigners and locals equally. Imported and locally produced goods should be treated equally….The same should apply to foreign and domestic services, and to foreign and domestic trademarks, copyrights, and patents.”

Those two principles, here quoted from an official document, “Understanding the WTO,"are written into all three key WTO agreements, the General Agreement on Tariffs and Trade (GATT), the General Agreement Trade in Services (GATS), and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Why does equality of treatment have such a fundamental role in the WTO as in the trading system as a whole?

Because it is fair to those whose rights and interests it is designed to protect – the business people and firms engaged in international commerce. The laws of individual countries were not – and are not -- adequate to offer that protection. After World War II, policymakers of leading nations agreed to correct that particular gap, and created the first versions of GATT the agreement and GATT the organization, both focused on business.

Even at the beginning, some leaders recognized that the focus on business was one-sided and needed to be corrected to include the rights and interests of workers and their organizations. Those efforts failed then, and have failed ever since.

The challenging trade issues now facing the Obama administration can be reduced to three statements:

1. The world trade and investment system does not protect the rights and interests of workers and worker organizations as it does the rights and interests of business and business firms.

2. That imbalance is unfair, and is increasingly recognized as unacceptable -- a trend that partly accounts for the widespread disenchantment with globalization.

3. The challenge is to decide what actions, short range to long range, are necessary to correct that imbalance.

Adopting a WTO agreement on Trade-Related Aspects of International Labor Standards (TRAILS) would be a historic achievement, but not a cure-all. Biased ideas toward work, workers, and worker organizations are imbeded in our culture. Curing them requires a multi-faceted approach.
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This crisis should not go to waste

“Anonymous” makes the following comment about my previous post (below), titled “Oust U.S. financial oligarchy: economist”

“I'm so not listening to economists these days, Bob. Let's hear from people who are breaking out new mobilization ideas - the grass-roots cannot be rallied with what this-or-that economist says. Get the agit-prop, resistance-inspiring and activists' victories stories out there, before this moment passes!”

My view: Let a thousand flowers bloom. Including those among economists.


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Oust U.S. financial oligarchy: economist

Every country has its dominant elites, oligarchs of one kind or another. The challenge is to change them when they get too powerful. The United States, too, has its oligarchy, the banking/financial industry, which has grown so powerful that it thrives on the chaos it created and blocks essential reforms. Ousting the oligarchy must be accomplished soon, or else we may well suffer not just a repeat of the Great Depression, but something worse.

That paragraph summarizes the unsettling message of “The Quiet Coup,” an article in the May issue of The Atlantic by Simon Johnson, a former chief economist of the International Monetary Fund (IMF). Now a professor at MIT, Johnson draws on his experience at the Fund to describe the typical plight of “emerging market” countries in a desperate economic situation.

“The biggest obstacle to recovery is almost invariably the politics of the countries in crisis….The powerful elites within them overreached in good times and took too many risks,” he writes. Then, in the downward spiral that follows “the oligarchs are usually among the first to get extra help from the government.” But an economic reform program succeeds “only if at least some of the powerful oligarchs who did so much to create the underlying problems take a hit.”

Johnson compares the situation of troubled emerging market countries with that of the United States, except that here it’s much worse, as he sees it. “Just as we have the world’s most advanced economy, military, and technology, we have its most advanced oligarchy” -– the banking/financial industry.

Economist Jagdish Bhagwati’s name for this oligarchy is the “Wall Street-Treasury complex,” a powerful network he describes as “unable to look beyond the interests of Wall Street which it equates with the good of the world.” Like Bhagwati, Johnson illustrates its influence by tracking the back-and-forth movement of its leaders between Wall Street and top federal government posts in both Democratic and Republican administrations.

In a key insight, Johnson writes: “The American financial industry gained political power by amassing a kind of cultural capital – a belief system…[that held] that what was good for Wall Street was good for the country…In a society that celebrates the idea of making money, it was easy to infer that the interests of the financial sector were the same as the interests of the country.”

What followed in the past decade is what Johnson calls “a river of deregulatory polices that is, in hindsight, astonishing.” Three items from his list of seven:

-- The insistence on the free movement of capital across borders.
-- Major increases in the amount of leverage [borrowing] allowed to investment banks.
-- A light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement.

The environment, or at least public opinion, has now changed, but “financial elites have continued to assume that their position as the economy’s favored-children is safe, despite the wreckage they have caused.” And the government itself “has taken extreme care not to upset the interests of the financial institutions, or to question the basic outlines of the system that got us here.”

For Johnson, “the government’s velvet-glove approach with the banks is deeply troubling, for one simple reason: it [doesn’t] change the behavior of a financial sector accustomed to doing business on its own terms, at a time when that behavior MUST change.” Instead, big banks have a veto power over public policy, despite their loss of popular support.

The solution? Johnson’s advice, as he puts it, is similar to the advice that the IMF, and the U.S. government, has given to developing countries in deep economic trouble: temporary nationalization of hopelessly insolvent banks. Instead, the U.S. Treasury is trying to negotiate bailouts bank by bank, and “behaving as if the banks hold all the cards.”

Meanwhile, in foreign trade and investment policy, an area not examined by Johnson, the Obama administration has signaled that it will ask Congress to ratify the three still pending Free Trade [and investment] agreements negotiated by the Bush administration with Columbia, Korea, and Panama. There likely will be changes in the contents, but none in how the agreements extend Wall Street’s power in the global economy and hence in the United States also.

Johnson’s overall assessment: “The Obama administration’s fiscal stimulus [program] evokes FDR, but what we need to imitate here is Teddy Roosevelt’s trustbusting.” Its operating principle would be: “Anything that is too big to fail is too big to exist.’

The article’s closing analysis is dire:

“What we face now could, in fact, be worse than the Great Depression – because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late.”

To learn more about Johnson’s ideas, see the Website he co-founded, BaselineScenario.com.

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Doubting WTO chief Pascal Lamy‘s Doha data

The top executive of the World Trade Organization (WTO) got an unusual public rebuke April 14 during an informal session in Geneva of the WTO trade policy review board, made up of representatives of the organization’s full membership.

India’s trade envoy, Ujal Singh Bhatia, challenged a forecast that WTO Director-General Pascal Lamy made in his latest report on trade and the current economic and financial crisis. Bhatia specifically questioned Lamy about how he arrived at the figure of $150,000,000,000 as the potential “stimulus” benefit that would result if the stalled Doha Round succeeded.

He cautioned against repeating figures “not supported by hard data.”

“In the last few years I have seen numbers ranging from $400,000,000,000 to $40,000,000,000,“ Bhatia said, citing a statement of economist Peter Galbraith that “the only function of economic forecasting is to make astrology look respectable,” according to a report of the Business Standard of India.

In his remarks at the meeting, Ambassador Peter Allgeier, deputy U.S. trade representative, said that the U.S. remains committed to conclude “an ambitious and balanced” Doha Development Agreement. According to a USTR release, he added: “In this regard, we support India’s request for details on the $150,000,000,000 figure in the report for estimated tariff savings from DDA.”

In his response, Lamy defended his figure as neither “rocket science” nor “astrology” but based on “the revenues foregone” from the tariff cuts proposed last July as part of the Doha round. His report to the meeting explains in detail why “The Doha Development Round is the best stimulus package.”

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Your Federal tax burden eased

Although people complain much about taxes, the fact is that, for taxpayers in most income groups, the share of their income going to Uncle Sam is close to their lowest levels in decades.

That may not be very comforting for people who filed their IRS returns this spring, but facts are facts, and the Center on Budget and Policy Priorities laid them out blandly in a report on April 14.

Take a median-income family of four. It paid only 5.9 percent of its income in federal income tax in 2007, slightly higher than the 2003 all-time low of 5.3 percent. In fact, that family’s tax rate was lower in 2007 than in any year between 1956 and 2002.

Of course, the highest-income households fared better, and those at the top of the pyramid are faring much better. For example, in 2010, when the 2001-2008 tax cuts are fully in effect, households with annual incomes of more than $1,000,000 a year will receive tax reductions averaging $168,000, whereas households in the middle fifth of the income distribution will average $1,150.

The Center on Budget and Policy Priorities is an equal opportunity collector and interpreter of vital national statistics. This report draws on, analyzes, and updates data from the Treasury Department, the Congressional Budget Office, the Brookings Institution, the Tax Policy Center, and other sources, including groundbreaking work on income inequality by two economists, Thomas Piketty and Emmanuel Saez.

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More 'informal' Asian workers = more exploitation

Companies in Asia are relying more and more on labor in the “informal sector,” to the point that “informal workers” now comprise as much as two-thirds of the region’s labor force.

So says the Hong Kong-based Asia Monitor Resource Center (AMRC) in a new report, “Rights for Two-Thirds of Asia.” The 274-page publication tracks the labor law and practices prevailing in the “unregistered” activities in the industrial, agricultural, and services sectors of 14 Asian countries, and finds that increased number of informal workers, most of them female, means increased exploitation of the most vulnerable.

“Overall, the Race to the Bottom penalizes virtually everyone in the labor force, particularly those in the informal majority – in both the formal and informal economies,” writes Rene E. Ofreneo in the introductory chapter of what is the latest edition of the AMRC’s Asian Labor Law Review.

Ofreneo, a professor of industrial relations at the University of the Philippines, poses a question raised in a 2006 UNDP report: The fast-growing Asian-Pacific region has embraced free trade, but has free trade embraced free trade? “The answer by the [22] contributors to the 2008 Labor Law Review is a uniform No,” she points out.

The most remarkable part of that failure is this. The informal workers are no longer just street vendors, home workers, or farm helpers.

They are also women and men who once did regular jobs such as packaging, maintenance, and security for a company and who now do the same work in the same office or factory. The only difference is that they are now working under an imposed “contract” status with fewer benefits and no job security.

When I was in Bangkok a few years ago, I learned of a bank that unilaterally decided to switch a part of its work force into a “contract” status, partly to cut them off from its unionized employees and thereby deprive them of benefits under its collective bargaining contract.

Now “the irregularization mania [is] sweeping Asia,” according to the AMRC. In fact, “the regulars, or standard employees, are now outnumbered by the ‘irregular’ or ‘non-standard agency, temporary, casual, part-time, migrant, and subcontracted workers.”

Looking at the big picture, Ofreneo attacks the policies of the World Bank and of the United States and Europe, which long preached their gospel of a regularization-free labor market. The World Bank still does, through a widely circulated annual publication, “Doing Business,” which holds up a development model with minimal labor legislation.

“One undeniable root cause” of today’s global financial meltdown, in the AMRC’s view, “is precisely the irrational exuberant belief in the so-called growth creating potentials of free financial, goods, and labor markets sans regulations.”

“Rights for Two-Thirds of Asia,” priced at $25, was prepared in cooperation with the Committee for Asian Women and Homenet Southeast Asia.


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West Wing cast joins pro-union campaign

With business organizations pouring uncounted millions into their fight against the Employee Free Choice Act, three top members of the West Wing cast came to Washington recently to lend their support to that proposed bill.

The three West Wingers – Martin Sheen, Bradley Whitford, and Richard Shiff – recorded a video to help kick off labor’s “Faces of the Employee Free Choice” campaign.

“The Employee Free Choice Act,” Martin Sheen says in the video, ”means a stronger America for all of us.” Here what they all said.



What can you do?

Check the American Rights at Work organization to learn how you can help. Click here.

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The TRUST GAP: yesterday's and today's

The TRUST GAP
Pharaoh in all his glory would have envied today’s CEOs their perquisites and ever-sweetening pay. Too busy living the cosseted life, America’s managerial elite have lost touch with the humble employee. Workers’ faith in top management is collapsing. CEOs who don’t come down from the heights are in trouble.

Those words appeared on the cover of the December 4, l989, issue of Fortune magazine, which I just found in a file of material I collected back then while writing an encyclopedia article on exorbitant executive pay.

Fortrune’s graphic indictment of 1989 applies today, but with crucial differences. The managerial elite still live as modern-day Pharoahs, but now they are joined by their peers in the shadowy financial world. And it is not just the faith of the humble workers that has collapsed; the public trust, the trust of the people at large. is in shambles. And, whereas the “trouble” of two decades ago faded away without serious repercussions, the crisis today is shaking the nation.

The contrasts with the past are striking. In 1990 the average CEO made 107 times more than the average worker. Now, according to the latest data, that ratio is 334 times to one. But until now exorbitant CEO compensation has not provoked a populist reaction, partly because of a widespread belief that, after all, the bosses earned it. That assumption has been shattered for at least two reasons.

First of all, even companies in bankruptcy or near it have brazenly rewarded their chiefs with sky-high pay and matching bonuses. The bonuses, especially, ignited unprecedented outrage.

Secondly, in recent years our great leaders of American enterprise have presided over a massive export of U.S. jobs, particularly to a neo-Communist state, China, to the point that our respected National Association of Manufacturers (NAM) is really the U.S. Association of Asian Manufacturers.

These Pharaohs, who would never tolerate a governmental role in supervising elections for corporate boards, are militantly opposing the Employee Free Choice Act, a union-friendly bill in Congress. The NAM and its allies are zealously devoted to maintaining the present restrictive system, which requires the federal government to run a referendum before a union is allowed to exist and operate in any workplace.

There is a strong case for freeing up that system. It is supported by an impressive number of noted economists, even Professor Jagdislh Bhagwati.


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