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Dean Baker | The Incredible Arrogance of the Trans-Pacific Partnership Crowd

Tuesday, 19 May 2015 00:00 By Dean Baker, Truthout | Op-Ed
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Yoshitaka Shindo, a Japanese legislator, stands with Lt. Gen. Lawrence Snowden, a World War II veteran of the Pacific Theater, before Prime Minister Shinzo Abe’s address to a joint meeting of Congress, on Capitol Hill in Washington, April 29, 2015. Abe's historic speech followed meetings with President Barack Obama, from which both leaders reported making progress toward a sweeping Pacific Rim trade agreement. (Stephen Crowley/The New York Times)Yoshitaka Shindo, a Japanese legislator, stands with Lt. Gen. Lawrence Snowden, a World War II veteran of the Pacific Theater, before Prime Minister Shinzo Abe's address to a joint meeting of Congress, on Capitol Hill in Washington, April 29, 2015. Abe's historic speech followed meetings with President Barack Obama, from which both leaders reported making progress toward a sweeping Pacific Rim trade agreement. (Photo: Stephen Crowley/The New York Times)

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There are few policies that show the split between elite opinion and everyone else as clearly as trade policy. On trade, we see a remarkable convergence of the leadership of both parties against their base, with the elites firmly behind the leadership against what they view as the ignorance of the masses.

As is often the case, the ignorance rests largely on the side of the elites. If that seems surprising, after all these are highly-educated people, remember these are people who could not see the $8 trillion housing bubble whose crash wrecked the economy. There is little reason to believe their understanding of economics has improved much in the last seven years.

For the elites, trade agreements like the Trans-Pacific Partnership (TPP) are a no-brainer. After all, do we want autarky? Globalization is a natural process and standing in the way is like trying to block the flow of the Amazon River.

They acknowledge that some people get hurt, like autoworkers and textile workers, and the more liberal ones feel really bad about that. But the answer is not to try to turn back the clock on globalization; the answer is a few dollars in trade adjustment assistance to try to get these workers prepared for the global economy.

There are many reasons why this understanding is wrong, most importantly that the losers are not a few people who lost factory jobs, but rather tens of millions of workers who get lower wages because of the competition with low-paid workers in the developing world. But an even more fundamental error is the arrogant elite's idea that globalization is somehow a natural process.

The problem with elite view is that there is nothing remotely natural about the course globalization has taken. It's true that workers in developing countries like Mexico and China are willing to work in factories for much lower pay than our factory workers. But it is also true that these countries have millions of very smart people who would be thrilled to have the opportunity to train to US standards and work in the United States as doctors, lawyers, or in other highly-paid professions, at much lower pay than our current crew.

Our trade deals could have been written to facilitate the process of putting our most highly paid professionals in competition with workers from the developing world, rather than autoworkers and textile workers. This would have meant producing clear and transparent standards for joining these professions.

It also would have meant a testing process whereby people in the developing world could test in their home country to become certified as a doctor or lawyer in the United States, thereby reducing the enormous cost (to them) of having to come to the United States for these tests. (The test-givers could be from the United States to ensure the tests were administered fairly, if we didn't trust the home country.) They could then work in their profession in the United States just like someone who was born and educated here.

This process of putting our professionals in competition with the developing world is every bit as natural as putting our manufacturing workers in competition. It also would have led to enormous gains to growth of the type trade economists like to tout. But because professionals have so much more political power, we don't allow this type of globalization. (If you're worried about brain drain from the developing world, it is easy to compensate the home countries for the loss of educated workers. Even an economist can figure that one out.)

Another way in which our trade deals depart from the natural course of things is that they increase some forms of protectionism, most importantly patent and copyright protection. Contrary to what you hear from the drug industry and elite news outlets, patents and copyrights are not part of the natural order. These are monopolies granted by the government for the purpose of promoting innovation and creative work.

These are not the only mechanisms for promoting innovation and creative work, and it is certainly arguable that they are not the best, but most importantly they are forms of government intervention, not just the natural workings of the market. This point is especially important in the case of prescription drugs where patents can raise the price of a drug by a factor of one hundred compared to the free market price.

For example, the Hepatitis-C drug Solvaldi sells for $84,000 per treatment in its patent protected version in the United States. A high quality generic version is available in India for less than $1,000. If patent monopolies raise the price by a factor of 100, it has the same effect on the market as imposing a tariff of 10,000 percent. Markets are too dumb to know that patents are a form of government intervention that we are supposed to like, whereas tariffs are bad intervention that we are supposed to dislike.

This means that in addition to making drugs unaffordable to people who need them for their health, patent monopolies lead to all the sorts of corruption that textbook economics predicts from incredibly high tariffs. In the case of prescription drugs corruption takes the form of lying about the safety and effectiveness of drugs, which leads to bad health outcomes and sometimes death.

But the pro-TPP elites don't like to talk about such things. Their trade deals are simply good and modern, and if you don't agree they will call you an anti-trade protectionist and all sorts of other bad things. That's what elites do when they don't have a real argument. 

Copyright, Truthout. May not be reprinted without permission.

Dean Baker

Dean Baker is a macroeconomist and codirector of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He is a regular Truthout columnist and a member of Truthout's Board of Advisers.


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Dean Baker | The Incredible Arrogance of the Trans-Pacific Partnership Crowd

Tuesday, 19 May 2015 00:00 By Dean Baker, Truthout | Op-Ed
  • font size decrease font size decrease font size increase font size increase font size
  • Print

Yoshitaka Shindo, a Japanese legislator, stands with Lt. Gen. Lawrence Snowden, a World War II veteran of the Pacific Theater, before Prime Minister Shinzo Abe’s address to a joint meeting of Congress, on Capitol Hill in Washington, April 29, 2015. Abe's historic speech followed meetings with President Barack Obama, from which both leaders reported making progress toward a sweeping Pacific Rim trade agreement. (Stephen Crowley/The New York Times)Yoshitaka Shindo, a Japanese legislator, stands with Lt. Gen. Lawrence Snowden, a World War II veteran of the Pacific Theater, before Prime Minister Shinzo Abe's address to a joint meeting of Congress, on Capitol Hill in Washington, April 29, 2015. Abe's historic speech followed meetings with President Barack Obama, from which both leaders reported making progress toward a sweeping Pacific Rim trade agreement. (Photo: Stephen Crowley/The New York Times)

Truthout combats corporate power by bringing you trustworthy, independent news. Join our mission by making a donation now!

There are few policies that show the split between elite opinion and everyone else as clearly as trade policy. On trade, we see a remarkable convergence of the leadership of both parties against their base, with the elites firmly behind the leadership against what they view as the ignorance of the masses.

As is often the case, the ignorance rests largely on the side of the elites. If that seems surprising, after all these are highly-educated people, remember these are people who could not see the $8 trillion housing bubble whose crash wrecked the economy. There is little reason to believe their understanding of economics has improved much in the last seven years.

For the elites, trade agreements like the Trans-Pacific Partnership (TPP) are a no-brainer. After all, do we want autarky? Globalization is a natural process and standing in the way is like trying to block the flow of the Amazon River.

They acknowledge that some people get hurt, like autoworkers and textile workers, and the more liberal ones feel really bad about that. But the answer is not to try to turn back the clock on globalization; the answer is a few dollars in trade adjustment assistance to try to get these workers prepared for the global economy.

There are many reasons why this understanding is wrong, most importantly that the losers are not a few people who lost factory jobs, but rather tens of millions of workers who get lower wages because of the competition with low-paid workers in the developing world. But an even more fundamental error is the arrogant elite's idea that globalization is somehow a natural process.

The problem with elite view is that there is nothing remotely natural about the course globalization has taken. It's true that workers in developing countries like Mexico and China are willing to work in factories for much lower pay than our factory workers. But it is also true that these countries have millions of very smart people who would be thrilled to have the opportunity to train to US standards and work in the United States as doctors, lawyers, or in other highly-paid professions, at much lower pay than our current crew.

Our trade deals could have been written to facilitate the process of putting our most highly paid professionals in competition with workers from the developing world, rather than autoworkers and textile workers. This would have meant producing clear and transparent standards for joining these professions.

It also would have meant a testing process whereby people in the developing world could test in their home country to become certified as a doctor or lawyer in the United States, thereby reducing the enormous cost (to them) of having to come to the United States for these tests. (The test-givers could be from the United States to ensure the tests were administered fairly, if we didn't trust the home country.) They could then work in their profession in the United States just like someone who was born and educated here.

This process of putting our professionals in competition with the developing world is every bit as natural as putting our manufacturing workers in competition. It also would have led to enormous gains to growth of the type trade economists like to tout. But because professionals have so much more political power, we don't allow this type of globalization. (If you're worried about brain drain from the developing world, it is easy to compensate the home countries for the loss of educated workers. Even an economist can figure that one out.)

Another way in which our trade deals depart from the natural course of things is that they increase some forms of protectionism, most importantly patent and copyright protection. Contrary to what you hear from the drug industry and elite news outlets, patents and copyrights are not part of the natural order. These are monopolies granted by the government for the purpose of promoting innovation and creative work.

These are not the only mechanisms for promoting innovation and creative work, and it is certainly arguable that they are not the best, but most importantly they are forms of government intervention, not just the natural workings of the market. This point is especially important in the case of prescription drugs where patents can raise the price of a drug by a factor of one hundred compared to the free market price.

For example, the Hepatitis-C drug Solvaldi sells for $84,000 per treatment in its patent protected version in the United States. A high quality generic version is available in India for less than $1,000. If patent monopolies raise the price by a factor of 100, it has the same effect on the market as imposing a tariff of 10,000 percent. Markets are too dumb to know that patents are a form of government intervention that we are supposed to like, whereas tariffs are bad intervention that we are supposed to dislike.

This means that in addition to making drugs unaffordable to people who need them for their health, patent monopolies lead to all the sorts of corruption that textbook economics predicts from incredibly high tariffs. In the case of prescription drugs corruption takes the form of lying about the safety and effectiveness of drugs, which leads to bad health outcomes and sometimes death.

But the pro-TPP elites don't like to talk about such things. Their trade deals are simply good and modern, and if you don't agree they will call you an anti-trade protectionist and all sorts of other bad things. That's what elites do when they don't have a real argument. 

Copyright, Truthout. May not be reprinted without permission.

Dean Baker

Dean Baker is a macroeconomist and codirector of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He is a regular Truthout columnist and a member of Truthout's Board of Advisers.


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