Reports from the Economic Front

a blog by Marty Hart-Landsberg

Monthly Archives: May 2015

MNCs Buy Their Way To The TPP

It is often said that “money makes the world go round.”  It is certainly true when it comes to passing legislation in Congress.  A case in point: the Senate’s recent approval of the Ryan-Hatch Fast Track bill.

The President and U.S. multinational corporations want Congress to pass the Ryan-Hatch Fast Track bill because they know they need it to ensure passage of the Transpacific Partnership agreement.  The bill not only grandfathers in fast track for the TPP but will set the terms for approval of other similar agreements such as the Trans-Atlantic Trade and Investment Partnership.

In the words of Public Citizen, the Ryan-Hatch Fast Track bill would empower the President to:

  • Unilaterally select U.S. trade agreement partners and initiate new negotiations;
  • Determine the contents of trade agreements and sign and enter into them before Congress votes to accept or reject the terms, regardless of whether a pact meets Congress’ negotiating objectives;
  • Write implementing legislation containing any terms the President unilaterally decides are “necessary or appropriate” that can change wide swathes of existing U.S. law, and then circumvent ordinary committee review and submit the legislation for a vote;
  • Obtain a mandatory vote in both chambers of Congress within 90 days, overriding congressional leaders’ control of House and Senate floor schedules regardless of whether a pact meets Congress’ negotiating objectives;
  • Override normal voting procedures, including a ban on all amendments and limits on debate time regardless of whether a pact meets Congress’ negotiating objectives.

Supporters of the bill tout its special provisions allegedly designed to ensure accountability and transparency.  For example, the bill makes it possible for Congress to strip fast track authority from a trade agreement.  But as Public Citizen explains:

Instead of establishing a new “exit ramp,” the bill literally replicates the same impossible conditions from past Fast Track bills that make the “procedural disapproval” mechanism to remove an agreement from Fast Track unusable. A resolution to do so must be approved by both the Senate Finance and the House Ways and Means committees and then be passed by both chambers within 60 days. The bill’s only new feature in this respect is a new “consultation and compliance” procedure that would only be usable after an agreement was already signed and entered into, at which point changes to the pact could be made only if all other negotiating parties agreed to reopen negotiations and then agreed to the changes (likely after extracting further concessions from the United States). That process would require approval by 60 Senators to take a pact off of Fast Track consideration, even though a simple majority “no” vote in the Senate would have the same effect on an agreement. In contrast, the 1988 Fast Track empowered either the House Ways and Means or the Senate Finance committees to vote by simple majority to remove a pact from Fast Track consideration, with no additional floor votes required. And, such a disapproval action was authorized before a president could sign and enter into a trade agreement.

Another example of the bill’s limitations: it allows congressional viewing of draft texts, something that Obama fought in the case of the TPP, but members of congress would still not be allowed to share what they learned with the press or public. And their congressional staff would need security clearance to view any draft text.

But on to the main point.  Initially it appeared that there was enough opposition among leading Democrats and a few Republicans in the Senate to block passage of the bill.  Then suddenly the opposition disappeared.  A story in the Guardian newspaper explains what happened:

Fast-tracking the TPP, meaning its passage through Congress without having its contents available for debate or amendments, was only possible after lots of corporate money exchanged hands with senators. The US Senate passed Trade Promotion Authority (TPA) – the fast-tracking bill – by a 65-33 margin on 14 May. Last Thursday, the Senate voted 62-38 to bring the debate on TPA to a close.

Those impressive majorities follow months of behind-the-scenes wheeling and dealing by the world’s most well-heeled multinational corporations with just a handful of holdouts. . . .

Two days before the fast-track vote, Obama was a few votes shy of having the filibuster-proof majority he needed. Ron Wyden and seven other Senate Democrats announced they were on the fence on 12 May, distinguishing themselves from the Senate’s 54 Republicans and handful of Democrats as the votes to sway.

  • In just 24 hours, Wyden and five of those Democratic holdouts – Michael Bennet of Colorado, Dianne Feinstein of California, Claire McCaskill of Missouri, Patty Murray of Washington, and Bill Nelson of Florida – caved and voted for fast-track.
  • Bennet, Murray, and Wyden – all running for re-election in 2016 – received $105,900 between the three of them. Bennet, who comes from the more purple state of Colorado, got $53,700 in corporate campaign donations between January and March 2015 . . . .
  • Senator Rob Portman of Ohio, who is the former US trade representative, has been one of the loudest proponents of the TPP. (In a comment to the Guardian Portman’s office said: “Senator Portman is not a vocal proponent of TPP – he has said it’s still being negotiated and if and when an agreement is reached he will review it carefully.”) He received $119,700 from 14 different corporations between January and March, most of which comes from donations from Goldman Sachs ($70,600), Pfizer ($15,700), and Procter & Gamble ($12,900). Portman is expected to run against former Ohio governor Ted Strickland in 2016 in one of the most politically competitive states in the country.
  • Seven Republicans who voted “yea” to fast-track and are also running for re-election next year cleaned up between January and March. Senator Johnny Isakson of Georgia received $102,500 in corporate contributions. Senator Roy Blunt of Missouri, best known for proposing a Monsanto-written bill in 2013 that became known as the Monsanto Protection Act, received $77,900 – $13,500 of which came from Monsanto.
  • Arizona senator and former presidential candidate John McCain received $51,700 in the first quarter of 2015. Senator Richard Burr of North Carolina received $60,000 in corporate donations. Eighty-one-year-old senator Chuck Grassley of Iowa, who is running for his seventh Senate term, received $35,000. Senator Tim Scott of South Carolina, who will be running for his first full six-year term in 2016, received $67,500 from pro-TPP corporations.

“It’s a rare thing for members of Congress to go against the money these days,” said Mansur Gidfar, spokesman for the anti-corruption group Represent.Us. “They know exactly which special interests they need to keep happy if they want to fund their reelection campaigns or secure a future job as a lobbyist.

Now we are on to the House where opposition to the bill also exists.  Lots of Representatives are no doubt licking their chops, waiting for the U.S. Business Coalition for the TPP to unlock its vault once again.


Oppose Fast Track And The TPP

It is looking increasing likely that the U.S. Congress is going to approve a Fast Track mechanism which will be used to pass the Transpacific Partnership (TPP) agreement.  This is not good.   What follows is the text of a talk I gave at an April 2015 Oregon AFL-CIO sponsored event on the TPP.

I don’t have much time so I am going to try and make my points as quickly but as clearly as I can.

First, globalization is a process that is shaped by power and current globalization dynamics reflect corporate interests.  Sadly, these dynamics have produced a globalization process that is harmful to workers in all the countries involved.

Many U.S. companies have globalized their production because it enables them to lower labor and environmental costs and greatly increase their profits.  Since they no longer need to engage in production in this country they have not used their profits to fund investment or job creation in this country.  Rather they have channeled them into dividends or stock by-backs, both of which enrich their owners and managers.  The consequence for working people is quite different.  The resulting low growth and intensified competition between workers for jobs has left us with weak job creation and employment conditions that are increasingly precarious.

Second, the essence of these globalization dynamics is perhaps best revealed through an examination of our various free trade agreements.  These agreements, and the Transpacific Partnership agreement (TPP) is no different, are called free trade agreements because the government believes that we all think free trade is good and so by calling them free trade agreements it hopes we will uncritically support them.

The fact is that these agreements are about far more than trade.  For example, they normally have some 20 chapters, most having nothing to do with trade as we understand it.  The US-Korea agreement had 24 chapters, for example.    The TPP apparently has 29 chapters.  Now, we don’t know precisely what the TPP or the Trans-Atlantic Trade and Investment Partnership, another agreement being pushed by the current government, will include because they are being negotiated primarily in secret.  But we have seen enough agreements signed that we know the US trade negotiator’s play book and there have been enough leaks about the TPP that we can be confident of what many of the chapters will include.

Let me highlight two of its chapters:

We know the TPP has an investment chapter because of a recent leak.  Ostensibly this chapter is supposed to protect foreign investors, defined broadly, from nationalization or expropriation, but it does much more.  For example, the chapter blocks governments from putting performance requirements on foreign investment.  More problematic, it also grants foreign corporations protection from direct or – and here is the kicker – indirect expropriation or nationalization.

So, what is an indirect expropriation or nationalization you might ask?  According to the leaked chapter, one of the factors that might signal an indirect expropriation is “the extent to which the government action interferes with distinct, reasonable investment-backed expectations.”  Another is “the character of the government action.”  This last factor becomes clearer from a reading of the terms of the Investment Chapter in the U.S.-Korea Free Trade Agreement.  There it is stated that one of the factors to be considered in determining whether a foreign investor has suffered an indirect expropriation is “whether the government action imposes a special sacrifice on the particular investor or investment that exceeds what the investor or investment should be expected to endure for the public interest.”

Moreover, the chapter also allows an investor that feels like it has been wronged to sue the offending level of government in a special tribunal, whose judges are primarily corporate lawyers who will earn millions of dollars regardless of who wins.  In fact many of these lawyers actively encourage corporations to sue in one period, making millions representing them, and then sit on a tribunal judging a government in another time period and again making millions.

The number of corporations suing governments under investment chapters, which are in most FTAs, is rising sharply.  Here are a few cases:

  • Philip Morris is suing Uruguay and Australia, because these countries want tobacco products sold in plain packaging with large health warnings. The company is suing Uruguay for $2 billion.
  • Vatterfall, a Swiss company, is suing Germany because the country has decided to decommission nuclear power plants.
  • Lone Star, a U.S. based company, is suing Canada because the province of Quebec has decided to ban fracking.
  • Veolia, a French company, is suing Egypt because the government mandated increase in the minimum wage has reduced the profitability of its waste management operation.

Another leaked chapter, this one designed to protect the intellectual property rights of our large companies, seeks, among other things, to extend the length of patents enjoyed by big drug makers. It does that in several ways.   For example, it protects “evergreening” in which drug companies can obtain patent extensions by making minor changes to their patented formula or by promoting a secondary use for the drug.  It also limits the criteria a product must fulfill in order to be eligible for a patent, thereby making it easier for companies to patent new products.  An earlier version of the chapter—it is not sure where things currently stand—even tried to secure patents for particular methods of performing surgery.

I could go on but you get the idea—these and other chapters are designed to promote corporate power and profits by limiting public policies that might regulate their investment or production decisions.  This freedom would come at our expense and, I would add, the overall health of our economy.

Third, what about the trade part.  We hear over and over again from economists how wonderful free trade is for all countries involved.  However, realize that this conclusion is largely based on Ricardo’s theory of comparative advantage, a theory which rested on a few key assumptions.  The most important were: full employment, balanced trade, and a lack of capital mobility.  Now you might think that this theory and its assumptions is just another example of the fantasy world that economists live in, and no one, especially policy-makers, would take its conclusions seriously.  Well, every time you read or hear an economist or government official tell you how much such and such free trade agreement is going to raise GDP or boost trade you can be sure that they got that number from something called a Computable General Equilibrium Model.  And those models, believe it or not, use the very same assumptions.  They have to make those assumptions if their models are to produce numerical estimates.  But think of what that means.  We worry about unemployment, trade deficits, and capital flight.  Economists, the ones that our government relies on, assume those worries away, by assumption.

Even granting them their assumptions, their predictions for gains are still incredibly small.  The most common estimates, using the method noted above, find that the TPP will boost U.S. GDP by 0.38 percent in 2025.  That is a predicted gain of approximately $80 billion, really a rounding error in a $18 trillion economy.  And then remember all the chapters that we know will do us harm.  For example, the extra cost for medical care from extending and promoting patients will clearly swamp predicted benefits from trade.

Nevertheless U.S. officials have been endlessly quoting that the agreement will boost jobs—most often they cite a gain of 650,000 jobs.  However, it is unclear where this number comes from.  The studies themselves do no actual job forecasting.  All they do is predict, subject to the assumptions noted, growth in GDP and exports and imports.

So, where does the administration get its estimate?  No one knows for certain, but here is a good guess:  The model predicts that the TPP will increase exports by $124 billion by 2025.  The Commerce Department estimates that about 5,500 jobs are supported by every $1 billion in exports, so, if you do the math you get an increase of approximately 650,000 jobs.  There is one big problem with this calculation—it leaves out imports.  The model actually predicts an increase of approximately the same dollar value of imports—so there goes the increase in jobs.

In short, we are being lied to—about the nature of this and other agreements.

The fact is that the government doesn’t have the slightest idea of what this agreement will do for our GDP or employment.  What it knows is that it will greatly increase corporate profits and power and that is what it cares most about.  The rest is all salesmanship.

So, the takeaway: these agreements have been harmful—we have the history of past agreements to show us that.  We need to oppose them.  The government knows that the more people know about these agreements the less they will like them so they want to fast track them.  They want a procedure that will allow a simple and quick up or down vote.  Unfortunately many of our politicians depend on corporate funds and so they also want fast track because it allows them to do what they want without drawing too much public heat.  We cannot let that happen.  We need to educate others about what these agreements are really about and we need to pressure Congress not to approve a fast track procedure for approving them.

Things are bad enough in this economy we certainly don’t need to implement agreements that will only worsen them.

Growth Is Not Development: The Chinese Labor Experience

Growth is not development.  The Chinese labor experience is a good example of this.  In brief, despite record rates of growth, the Chinese economy has failed to generate formal sector jobs.  In fact, there were fewer formal sector urban workers employed in 2010 than in 1990.  All the job growth has been outside the formal sector, which means that a growing percentage of Chinese workers are not covered by the country’s labor law, and their wages, benefits, and working conditions are not captured by official Chinese labor statistics.

From 1979 until 2010, China recorded an average annual GDP growth rate of approximately 10%, a thirty year growth rate unmatched by any other country.  The country’s rate of growth is now slowing, from 10.6% in 2010, to 7.7% in 2012, and 7.4% in 2014.  Of course those are official rates of growth.  According to most analysts, Chinese growth was probably closer to 5% in 2014 and, despite government efforts, likely to continue to slow.

But what about the labor experience?  In “Misleading Chinese Legal and Statistical Categories: Labor, Individual Entities, and Private Enterprises,” a 2013 article published in the journal Modern China, Philip C.C. Huang describes the evolution and application of Chinese labor law, highlighting its relevance for and growth of different categories of labor.  As he explains, Chinese statistical categories recognize four main types of labor activity based on the legal standing of the employing firm: labor by “employee-workers,” labor by workers employed by legally registered “private enterprises,” labor by people in legally registered “individual entities,” and “unregistered” labor.

Only “employee-workers” are considered formal sector workers and covered by the country’s labor law.  The following table, with numbers expressed in units of 10,000, shows that there were almost 128 million urban formal sector workers employed in China in 2010.

Formal sector

Significantly, as the next table illustrates, both the number and percentage of workers employed in the formal urban economy are shrinking.  The number employed in the formal economy in 2010 was less than the number employed in 1990.  As of 2010, only 36.8% of all workers in the urban economy were employed in formal sector jobs.  In short, all the growth in urban employment over recent decades has been in categories not covered by Chinese labor law, which means that those workers are not covered by legally established minimum wage, overtime regulations, and social benefit requirements.

labor trends

Who are the workers employed outside the formal sector?  “Private enterprises” are mainly legally registered small-scale businesses averaging 13-15 people.  As Huang describes: “They are also as a rule not formally incorporated as a limited liability entity with separate ‘legal person’ status and are therefore not considered legal ‘employing units’ that are involved in ‘labor relations’. . . . These small businesses rely mainly on the cheapest labor available, the majority of them on disemployed workers and peasant-workers, who are considered to be only in a casual work relationship with them and for whom they need provide no benefits.”

“Individual entities” include legally registered small scale operations employing one or perhaps two people, usually the owner and a family member or friend.  In the largest cities, these workers are “largely engaged in wholesale and retail trade (mainly of daily necessities and clothing), followed by small and modest eateries and hostels, domestic and other services, and transport work. . . .Regardless, the great majority of the people operating the individual entities come from the ranks of the disemployed urban workers and the migrant peasant-workers.”

“Unregistered” workers are those, as the category name implies, whose work is unregistered and therefore largely illegal or extralegal.  They are primarily “newer and less established peasants-workers working in the lowest levels of the informal economy, as temporary construction workers, janitors, itinerant peddlers or stall keepers, guards standing outside residential compounds and commercial buildings the help in eateries and hostels domestic servants manual transport and loading-unloading workers, and the like, many of whom work in the shadow of the law without permits, truly members of the so-called floating population.”

Unregistered workers “appear in the official state statistical tallies only as the difference between those who have registered with the official state administrative entities and the actual numbers of laborers counted up by the decennial population censuses (which have made every effort to enumerate every person living and working in the cities).”  As we can see from the table above, the number of unregistered urban workers are quickly catching up to the number of formal sector urban workers.

The critical point here is that despite record rates of growth few formal sector jobs have been created in urban areas.  That means that official Chinese labor laws and regulations cover a relatively small and declining share of Chinese urban sector workers.  As a consequence, the great majority of urban workers suffer from conditions far worse than do formal sector workers.

At the same time, things are far from rosy for most formal sector workers.  For example, many companies, especially foreign owned companies, have been actively seeking to weaken formal sector job rights by employing so-called dispatched workers and student interns to avoid paying the wages and benefits mandated by Chinese labor law.  It is therefore not surprising, as recent labor struggles make clear, that even workers in the formal sector have been forced to take direct action to ensure compliance with their country’s labor laws and improve their working conditions.