Costello: On Trade

By Joe Costello, former communications director for Jerry Brown’s 1992 presidential campaign and senior adviser for Howard Dean’s effort in 2004; first posted at Archein

“You going to liberate us girls from male, white, corporate oppression?”
Tell em like it is, Fear of a Female Planet
Fear baby
Let everybody know
Sonic Youth

When speaking of economics, one very old and fundamental element is trade. From prehistoric times, societies/cultures traded. Egyptians, Babylonians, Chinese, Greeks, Phoenicians, Romans, Aztecs, and Incas, all had great trading networks. Trade is in no way a development of industrial capitalism or more recently of corporate globalization, it is far older. However, many of the myths, theories, and practices valuing modern trade developed over the past two-hundred years. Particularly a wrong-headed doctrine that all trade is good, which can traced back to the particular place and time when private international merchants were attempting to break-up the monopolies of state mercantilism. Over the past fifty years, the world, and particularly the United States went completely to the other extreme, abdicating all state power on trade to Wall Street and global mega-corporations to the detriment of both the United States and the rest of the world.

Greider has a good piece in The Nation laying out some of the fundamental issues involved, particularly:

Washington must also change the rules for how American business and finance operate. Only in America do multinationals get to behave like free riders, with no strings attached. They harvest public money as subsidies and investment capital, they are protected by US armed forces and diplomacy, and they are rescued when they get into trouble. It is a one-way relationship, and the American public knows it.

US corporations and banks remain free to move jobs and production whenever and wherever corporate strategy dictates, regardless of the consequences for the economy. Government can stop this by forcing them to serve the broader national interest. This is not as radical as it may sound. Every other leading industrial nation does it, one way or another. They impose limits on corporate strategy, either in formally binding ways or through political and cultural pressure, to ensure that good jobs and the best value-added production remains at home.

The whole piece is well worth reading, but I have serious doubts the Democratic arm of the DC political class will turn against Wall Street and the entrenched corporate globalization doctrine. In fact I’d bet against it, industrial labor is dead in America, and the issue for the remnant service and government employee unions isn’t high. For many reasons, I see a neo-America First movement coming much more naturally out of an increasingly radicalized “nativist” Republican base, but that remains to be seen.

In either case, we need a much different view of trade in the 21st century. One taking a much closer look not just at the national implications, but the impacts on locality. An understanding that industrial technologies have rolled over local diversity and advantages, creating an unsustainable and increasingly volatile global homogeneity. Underlying the entire, present corporate globalization system is one thing, cheap oil, and the world has no more cheap oil(tx yves). The US can lead the world developing new, healthy and sustaining global trade by announcing we’re going to heavily tax our oil imports. As Greider concludes,

All these suggestions are deeply disruptive to global commerce, and, yes, many would raise prices for Americans. But the country’s predicament is a historic emergency that cannot wait for market solutions. The United States must, in effect, decide that its role as Goliath is over. It’s time to act like a nation again rather than as the global overseer.

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  1. Anon

    Would this tax be transferred to the 15% of households among the working poor ($20k-$30k) who are just a paycheck away from being homeless? Otherwise their lives would be completely and utterly destroyed by higher priced food, energy, and transportation.

    1. joecostello

      Yes something like that, but its hard to see how anything smart can come out of DC. The only thing more broken than our financial system is our political system.

  2. Koshem Bos

    We are deep into the slogan of free trade and hard core capitalism that I don’t see any such changes coming. Of course, a depression may give us the opportunity to slaughter the sacred cows, but I don’t see us able to select a leader capable of the task. What we seem to get now a days is Bush and Obama, leaders that their claim to the job comes from PR and only PR.

  3. brazza

    This article begins to confront the depth of transformation that lies ahead – out of necessity, not dogma. “Unsustainable” means just that … the current system has an expiry date – we must respond with creative alternative thinking, or the consequences will simply engulf an unprepared society, drugged by TV into semi-consciousness.

  4. Jojo

    November 4, 2010

    India Outsourcers Feel Unloved in the U.S.
    A ban on offshoring Ohio government IT projects feels like the thin edge of the wedge in Bangalore

    When President Obama meets with Indian political and business leaders during his four-day swing through Mumbai and New Delhi starting Nov. 6, he’s sure to encounter some harsh words about the current U.S. backlash against Indian outsourcing firms. In August, Congress passed a law raising fees for work visas by $2,000 to about $4,300. The visas, used by foreign IT workers spending time in the U.S., could cost Indian companies up to $250 million a year, says Som Mittal, president of Nasscom, the Indian software industry’s lobbying group.

    Also in August, Ohio banned the outsourcing of government IT projects to offshore destinations such as India. “There’s some level of concern,” says P.R. Chandrasekar, chief executive of Mumbai-based Hexaware Technologies. “You don’t want other states to do that.”

    The bottom line: Indian outsourcers fear that a U.S. backlash over job losses will endanger their biggest overseas market.

  5. Greg

    Krugman and Obstfeld (in “International Economics: Theory and Policy,” an undergraduate textbook) repeatedly point out that, while trade almost always increases overall welfare, it almost always increases inequality as well.

    This, inequality, is the problem. Not trade. Not trade, but the failure of governments to compensate the losers with some of the gains of the winners.

    Again: inequality is the problem. The problem is that the tax rate on high incomes is too low. As Malcolm Gladwell points out, in America in 1960 the marginal tax rate on income over $2M (in today’s money) was 91 percent. Social trust was high, confidence was high, growth was robust, everyone’s lives improved. All of that has been thrown away.

    America has a choice. It can play “Monopoly” out to the end, with wealth and incomes steadily concentrating in fewer and fewer hands. Or it can return to a mixed market economy, in which everyone has a real chance, and not just the empty rhetoric, of improving his or her life.

    Yes, the sudden appearance on the global labour market of hundreds of millions of Chinese and Indians has put enormous downward pressure on wages. Supply and demand: basic economics. But government could have, should have, softened the blow, cushioned the fall, promoted adjustment and renewal.

    Government has been negligent, delinquent, absent. That is the problem. And that is where the solution must start.

    Greider: > Multinationals drive the destructive cycle but are also its prisoners. They cannot quit on their own without losing out to other companies.

    Marx’s analysis of Capitalism in a nutshell.

    1. joecostello

      Inequality is part of the problem, corporate globalization is part of the problem. The Pax Americana is part of the problem. How they all get resolved is the question.

      Far from government being absent, delinquent and negligent, it as has been an active advocate, participant, and implementer.

      Krugman has absolutely nothing to offer but a whine, but I guess that makes him a good Democrat these days.

      1. Fractal

        Krugman warned Obama he was gonna fuck up the stimulus if he gave in to Blue Dogs and Republicans, and Obama fucked up the stimulus. Ditto for Obama’s disgusting policy of sucking up to the criminal banks. Krugman is an important warning service, don’t insult him.

        Meanwhile, a link or two please to the Joe Costello columns or blog posts that warned Obama to enact a larger stimulus and/or warned Obama that sucking up to the criminal banks would end in tears.

  6. attempter

    In a nutshell, the basis of trade has to be actual demand, not top-down command economy “free trade” imposed by fiat for the benefit of corporate gangsters. The entire basis of “free” trade and globalization is the latter.

    Relocalization, and the new economies based on post-oil farming by millions of new autonomous, self-managing farmers and growers, must economically federate based only upon the true bottom-up need and want basis of trade.

    Trade, like everything else, must become directly democratic. Otherwise it, like anything else, has no legitimacy and will fail on a practical level.

    Government can stop this by forcing them to serve the broader national interest. This is not as radical as it may sound.

    It’s not radical at all. It’s simple morality and common sense. It’s the current status quo which is radical.

    “You going to liberate us girls from male, white, corporate oppression?”

    There’s yer problem right there. Nobody’s going to liberate us but ourselves. Waiting around for better elites to come along to trickle “liberation” down upon us is doomed to failure, as history has already proven over and over again.

    Just look at the real-time double-cross going on in France as we speak.

  7. Sungam

    I’d echo Greg’s excellent post. The current global trade system is very far from perfect but it has aided the rise of many countries in Asia. Japan, South Korea, Taiwan and China would not be where they are today without Global Trade.

    Whilst nativism might be of some benefit to workers in the west I do think the shutting out of the rest of the world would lead to a serious backlash. Subsidies etc are already causing enough tensions as it is (see the cotton wars with Brazil).

    I am also on the side of the line which would prefer to keep trade as free as possible.

    As far as the pay and treatment of workers is concerned one thing that has always struck me is the rising obsession with leadership and star CEOs/Managers. The people at the top are seen to be responsible (and hence should be rewarded for) the performance of the entire organisation. If a company does well it is due to the “visionary” CEO not the myriad of hard working employees. There have been plenty of studies showing how star managers tend to revert to mean yet they are still stunningly over-rewarded which does nothing to aid income inequality.

    1. joecostello

      Just because South Korea, Japan, China, developed in a certain way doesn’t mean that’s the only way they could have developed. There’s no such thing as free trade and there’s no more cockamamie thinking on the subject than Krugman, who got to his illustrious position in life as an advocate of the corporate globalization model, and now has nothing to say but blame the Chinese. No thanks.

    2. Yves Smith Post author

      The mercantilist model that China, South Korea et al are following is version 2.0 of the Japanese model. It is very heavily export (and in the case of China, now investment) rather than consumption dependent. Development experts now are saying this path was a mistake, because you hit a wall in terms of the tolerance of your trade partners with trade partners’ tolerance for mercantilism. In Japan, the result was the Plaza Accord, a concerted effort to drive up the yen, which worked and hurt Japanese exports. Japan tried lowering interest rates with the deliberate aim of increasing asset prices at home to create a wealth effect to increase consumption. Instead, what they got was monster asset bubbles and a 20 year malaise.

      What we are getting now as a result of this model is a system so badly out of whack that US efforts to reduce trade deficits (which are necessary as a part of getting our debt levels down) even if they are arguably clumsy and misdirected (the Fed’s QE2) is threatening to break the international trade/currency architecture.

      1. Fractal

        So, Yves, is Krugman correct to say we should blame the Chinese? Or is Joe Costello correct that Krugman is just a useless, whining apologist for globalization?

  8. Pixy Dust

    Very well said. One place to start is to dispense with the ridiculous self-defeating concept of “global free market economy” and return to skillfully negotiated interNATIONal trade treaties. Other nations protected their self interests while taking advantage of what we so willingly gave away.

    The same catchphrase and claptrap was used by Wall Street in the late 1880’s and caused multiple depressions. Eventually the great collapse of 1929 ended the Roaring ’20s which was promoted in part by the Florida land speculation frenzy. Sounds familiar…

  9. Ming

    I am glad to see that some people ( except for Sungam) get it. Global free trade has become the global poverty trade, where the poor masses of Chinese and Indians are allowed to compete against middle class blue collar and white collar America. Then the power of the principle if supply &demand becomes evident, with job loss and wage deflation in the US. Unfortunately, when one considers that the average manufacturing jobs in china pay only $0.85/ hour, plus massive pollution of local landscape, we can conclude that most of the benefits of this free trade have gone to the global corporation and their financier backers/ masters.

    I do not China and India can only develop this way. But some
    important questions need to be asked:
    1) How can these nations develop an internal, self sustaining market place.
    2) Does china/ India have access to the natural resources necessary to develop it’s economy,
    3) do they have the physical, knowledge, and institutional capitol required to make the general population productive and capable of further evolution/ knowledge discovery
    4) based on what is lacking( like oil)… What do they need to trade inorder gain access to what is needed
    5) what combination of free market forces and government regulations are necessary to help facillate that a decent share of the surplus( income ) created flows toward the general population… Which is a critical
    factor required to form a self sustaining market and to bring properity to the people of the nation.

    I am sure there are more ( and perhaps) better questions that need to be developed and explored… But I believe this is a start.

    Now open the eyes of the tea- partiera and the dis- illusioned republican and Obama supporter base to the real issues that need to be resolved.

  10. lark

    The type of free trade and globalization that we have is exactly what our corporate and financial elites wanted (and paid lobbyists and politicians to get).

    It is so toxic that destroying it is about the only thing the American left and American right will agree on.

    Be careful what you wish for!

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