Theoclassical Economists’ Dogmatic Hate for Only One Form of Unfair Competition

By William K. Black
November 2, 2016     Kansas City, MO

The uber-right wing economist Tyler Cowen, has written a column entitled “TPP Is Exciting. Let’s Make the Case for It.”  Cowen’s column is remarkable for his inability to even get himself excited about TPP, much less his readers.  He begins with what should be an important warning – there will be a major effort by President Obama and the largest corporations to pass the Trans-Pacific Partnership (TPP) during the lame duck session after the election.

Cowen’s effort to excite his readers to support TPP is so weak that I will comment on only a few points.  First, he says that Americans should be overjoyed that TPP would produce 18,000 tax cuts – for corporations!

[A] good argument for TPP is that it will bring 18,000 tax cuts to job-creating exporters.

18,000 corporate tax cuts are an excellent reason to reject the TPP.

Second, Cowen he is reduced to citing Pete Peterson’s infamous institute for his assertion that TPP will produce huge gains.  But in the last clause even Cowen admits it’s likely a typical Pete Peterson scam.

­­­A Peterson Institute estimate suggests global yearly gains from TPP of $295 billion, with $78 billion of that going to the U.S. That is an abstract number to most voters; it doesn’t feel like money in their pockets and it’s hard to be sure it’s accurate anyway.

If the huge job and GDP gains Peterson always claims these deals were real, we would have had – for three decades – a booming economy with huge gains for the working and middle-classes.  The promised gains of these deals to American workers have always proved to be false.

Cowen then relies on the familiar claim by economists that we should ignore the reality of TPP – it is not a “trade” deal much less a “free trade” deal.  The actual corporate goal of TPP – corporate lobbyists largely drafted TPP in secret – is to extort nations not to effectively regulate corporations and protect consumers and investors.  Cowen urges his readers to ignore that fact.

Other parts of TPP are simply hard to understand. There’s a mechanism to resolve disputes that has been criticized for giving companies the upper hand in conflicts with governments; it’s a common part of trade deals that shouldn’t be a major problem, but has become one.

Who is the expert that Cowen is citing for the proposition that the kangaroo non-court Investor-State Dispute Settlement (ISDS) panels “shouldn’t be a major problem?”  That’s Cowen citing Cowen as if Cowen were an authority on law and regulation.  Yes, ISDS provisions are “common” – that’s the problem.  ISDS should be a fatal problem – the panels are exceptionally pernicious, one-sided, and biased.  That one-sided, pro-corporate and anti-public, nature of ISDS can be seen from the ISDS acronym and from a legally-sophisticated reading of the deal.  Cowen, inadvertently, gives an example of the deliberately one-sided nature of ISDS.

Hardly anyone even mentions that TPP will make it harder for Asian economies to compete unfairly against U.S. companies through state-owned enterprises. The Obama administration touts the labor and environmental standards in the deal to progressives, but those provisions, appropriately or not, leave many of the traditional supporters of free trade under-enthused.

Notice first the ISDS title – only “investors” get a right to have their disputes decided by these kangaroo, non-judicial panels.  Indeed, only some “investors” count as “investors” under ISDS provisions.  Shareholders, the actual “investors,” cannot bring a complaint against the managers of the corporation under ISDS.  Shareholders cannot sue on behalf of the corporation under ISDS, e.g., in a shareholder “derivative” action.

Second, customers, workers, and other people who are victims of corporate misconduct – no matter how illegal or how catastrophic the injury – cannot bring an action under ISDS.  TPP, as with all these deals, provides that customers, workers, and other victims have no “private right of action” under any provision of TPP, including ISDS.  Businesses, in their capacity as “investors,” in any nation that signs on to TPP get this unique right to a private right of action under ISDS.

Third, note that Cowen admits that theoclassical economists like him are delighted that TPP will allow businesses to bring actions under ISDS to try to impose fines so large that they will destroy state-owned enterprises (SOEs) because he claims that unique private right of action is essential to make it harder for SOEs “to compete unfairly against U.S. companies.”   He also admits that theoclassical economists are hostile (“under-enthused” is his euphemism) to clauses in the TPP that supposedly make it harder for foreign firms “to compete unfairly against U.S. firms” by using production methods that endanger workers and non-workers lives and health and ruin the environment.  That logical inconsistency reveals that theoclassical economists’ praise for deals like the TPP is the product of logically incoherent theoclassical dogma.

Theoclassical economists hate SOEs – passionately – and their worst nightmare is successful SOEs because that success falsifies their dogmas.  SOEs = socialism.  If an SOE succeeds, therefore, a theoclassical economist is certain that its success must be due to the SOE’s ability “to compete unfairly.”  Theoclassical economists, and private businesses, want to destroy SOEs.  Business lobbyists have increasingly used these international deals’ ISDS provisions as their means to destroy SOEs.  Business lobbyists secretly draft the key ISDS language in each of these international deals and the language keeps ratcheting up in its hostility to SOEs.  SOEs and governments cannot bring actions under ISDS against privately-owned foreign firms that “compete unfairly” against SOEs or domestic firms.  But privately-owned foreign firms can bring actions against governments that have SOEs, and the kangaroo-non-judicial ISDS panel can impose unlimited, fatal fines on any government that dares to have a competitively-successful SOE.

If you believe enthusiastically that these global deals should make it harder for foreign (from the U.S. perspective) firms “to compete unfairly with U.S. firms,” as Cowen pretends to believe, then you logically must be an enthusiastic supporter of provisions that it would make it harder for those foreign firms to compete unfairly with U.S. firms by endangering their workers, the public, and the environment.

“Asian” firms, the example Cowen uses of firms that “compete unfairly with U.S. firms,” can compete unfairly with U.S. firms through a host of means.  They can pay their workers unduly low wages in violation of local labor law and the labor contract.  They can achieve very large “cost-savings” – from the firm’s perspective, rather than societies’ perspective – by not providing a safe workplace for the workers.  It was cheaper in Bangladesh for a huge clothing manufacturing firm to illegally and corruptly take control of former swamp land that was not supposed to be built on due to subsidence danger.  It was cheaper for the firm to build the factory unsafely.  It was cheaper for the firm not to repair the cracks in the structure and try to stabilize the foundations.  It was cheaper for the firm to add heavy equipment in a manner that exacerbated the danger of a catastrophic collapse.  It was cheaper for the firm not to provide safe exits or train the employees how to exit.  It was cheaper for the firm when the cracks grew suddenly and the risk of catastrophic collapse became acute to demand that the employees continue working rather than evacuate the factors.  1,129 workers died at Rana Plaza and hundreds were maimed, but Bangladesh has no workers’ compensation system so the cost was born not by the Bangladeshi businesses or even the government but by the workers.  None of these practices or results are cheaper for society, and that is how economic decisions are supposed to be made.

Firms should bear the economic cost of running their enterprise in a manner that provides superb safety to workers, the environment, and the public.  It is much cheaper from a societal perspective for firms to provide a safe work environment and make the prevention of all material injury a top priority.  Similarly, it is far cheaper from a societal perspective to minimize efficiently polluting emissions from the firms rather than to try to clean up the cost after-the-fact.  Pollution harms not only the workers, but the general public.  A foreign (again, from the U.S. perspective) firm “competes unfairly” when it can push the costs of its pollution off onto the public while the rival U.S. firms (appropriately) have to bear the costs of preventing that same pollution.

The discussion immediately above is all straight-forward neoclassical economics, so Cowen is well aware of it and should be an enthusiastic supporter of demands that deals like the TPP end these far broader and more harmful forms of unfair competition than his fears that SOEs might engage in unfair competition against U.S. firms.  Cowen is honest enough to admit (to be precise, he implies) that he actually wants foreign firms to be able to compete unfairly – and with absolute impunity – against U.S. firms through means such as wage theft, illegal child labor, production in firms that are death traps for workers, and massive and often illegal releases of pollution that maim and kill millions of people.  Theoclassical economists cheer anti-regulatory races to the bottom.  They openly called for it in the UK banking context in the run up to the fraud epidemics that drove the financial crisis and the Great Recession.

But Cowen does not reveal to his reader something critical about the limits of his clause: “The Obama administration touts the labor and environmental standards in the [TPP] deal to progressives….”  There are two things essential to understand about those “labor and environmental standards” that Cowen correctly notes that the Obama administration “touts” (endlessly) to progressives.  First, no one can use ISDS to enforce those so-called “standards.”  No one can use ISDS to enforce those standards because corporate lobbyists drafted the ISDS language and TPP in secret to ensure that no one could do so.  TPP explicitly denies any private right of action to victims of firms violating TPP’s “labor and environmental standards.”  Even a U.S. firm, despite being an “investor” under ISDS, cannot bring a claim under ISDS to fine a nation that signs TPP on the basis that the nation failed to enforce those labor and environmental standards on its domestic firms, thereby allowing them to compete unfairly with the rival U.S. firm that bear the costs of meeting those standards.

Second, the non-ISDS TPP provisions that allow a country like the U.S. to complain about a TPP-signatory nation not enforcing the labor and environmental standards applicable to its firms are convoluted, time-consuming, and useless.  In the great majority of cases the nations that signed the TPP have been subject to those same standards for many years, often decades, and have studiously refused to enforce those standards.  The Asian signatory nations that the Obama administration and American TPP supporters cite to progressives as the places where business practices will be cleaned up under TPP’s “labor and environmental standards” are precisely the nations that have refused to enforce those standards.  No one rational expects that to change under TPP.  TPP was secretly drafted by the lobbyists to ensure that these standards could be used to con progressives while ensuring that the standards would remain unenforceable and routinely violated in the countries that allow their firms to compete unfairly with U.S. firms.

My second column in this series responds to Cowen’s unintentionally hilarious metaphorical claim that the largest corporations’ lobbyists secretly drafted a deal in which ISDS panels were designed to act as impartial “referees” when those corporations’ violations of “foreign” law led them to ask the kangaroo panels to impose hundreds of millions or billions of dollars in fines on “foreign” governments.  The fines, of course, go the corporations that violated the law and endangered public health and safety.

13 responses to “Theoclassical Economists’ Dogmatic Hate for Only One Form of Unfair Competition

  1. Ray LaPan-Love

    How strange it is to read so many opinions about the TPP, all across the net, by those who haven’t taken the time to read any of it. And respectfully, this article, like so many, is missing a great deal. To begin with, enforcement of the environmental and worker protections begins with a requirement that all member nations meet the standards ‘before’ having access to the markets of other member’s markets. Then too, international agencies in each category have been given authority to monitor compliance. Ultimately then, sanctions are the option for enforcement, and these will, I suppose, be subject to the political whims of the member nations. But judging the potential of this treaty based on assumptions about corruption is an apathetic and pointless reaction. Our political system is of course being held hostage by the MNCs and etc, but whether the TPP happens or not doesn’t change that in any way. The ISDS provisions already exist via the International Centre for Settlement of Investor Disputes, this under the auspices of the World Bank with 153 member nations. Plus, ISDS provisions are also available within the NAFTA/CAFTADR treaties. So there is no escape from ISDS provisions except maybe in Iran or North Korea and maybe somewhere in Africa.

    Here is an excerpt from the environmental section:

    Wildlife Trade

    All TPP countries are parties to the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), the world’s preeminent agreement to protect endangered species. The Environment chapter requires each TPP Party to implement its CITES obligations and effectively enforce its laws and regulations that achieve that end. The chapter also includes commitments to combat trade in wildlife, plants and fish — whether or not protected under CITES — if they have been taken illegally. These include commitments for TPP members to cooperate by sharing information relevant to the investigation of criminals engaged in wildlife trafficking. In addition, the chapter includes commitments to protect and conserve wildlife and plants in the TPP region, including through action by Parties to conserve specially protected natural areas, such as wetlands; to promote sustainable forest management; and to conserve wild fauna and flora.

    The treaty:
    https://ustr.gov/tpp/#text

    • Cognitive dissonance.

    • I have not had time — which is very limited for me — to read it. I did just do a search to find and download it, but I could not find it. What I found was pages with bits and pieces of it, in a great many files, each of which had to be accessed separately, which would have to be loaded into a reader for PDF or whatever. To get the full text those would have to be then hand assembled. Between my arthritic hands and old slow machine this would probably take over an hour just to get a copy of the text. The best I found was a zipped file of all the pieces.
      It’s like my first PC computer — a Zenith Heathkit — which was not a computer until I soldered all the components in and assembled it.

      I see this as a form of obscurantism, making it difficult for someone to skim or speed-read, reading the parts which caught their interest, or using a computer to search for text. Whether or intentional or not, the effect is to hide the information from those who can not devote large amounts of time to it. It’s like trying to get information from the government or a corporation and being forced to make numerous phone calls or go through many layers of voice-mail menus to find it. Or go through layers upon layers of short hyperlinked pages and menus — by the time I get there, backing up and trying different paths, I often am so exhausted I don’t even care any more, or trying to keep all the bits and pieces and ‘factoids’, in my working memory is more than I can handle. This is no way to ‘connect dots’ or get a comprehensive picture of a thing — to understand it, and the meaning of it. It becomes just pieces of out-of-context data instead of information.

      If one gives in and reads just the ‘executive summary’ or like that, then one knows only how someone else interpreted it, or spun it, which can be very far from what it said.

  2. Ray LaPan-Love

    From the Labour section of the TPP:

    TPP has the strongest protections for workers of any trade agreement in history, requiring all TPP Parties to adopt and maintain in their laws and practices the fundamental labor rights as recognized by the International Labor Organization (ILO), including freedom of association and the right to collective bargaining; elimination of forced labor; abolition of child labor; and the elimination of employment discrimination. It also includes commitments, again required for all TPP Parties, to have laws governing minimum wages, hours of work, and occupational safety and health. All these are fully enforceable and backed up by trade sanctions.

    This is vitally important in a part of the world where workers continue to face significant challenges, from inability to organize and join unions of their own choosing, to forced labor and child labor, and poor working conditions. These practices not only hurt workers in the countries with which we trade, but they also have significant impacts here in America, as a competition with workers who do not have the most basic of labor rights is fundamentally unfair, and creates incentives for a race to the bottom. TPP will create a fairer and more level playing field for American businesses and American workers by raising labor standards across the Asia-Pacific.

  3. …is this the same quisling La-Pan Love tasked with shilling around the web, as in Baseline Scenario, for corporate interests?
    …what does an electronic elf make these days?

  4. Why the shadowy darkness to create these deals? Why fast-track legislation, so as to avoid a democratic critique? Why lame-duck session?

    No such countervailing power exists with regard to the regulations and laws that are most essential to the health and safety of our people and the effectiveness and stability of our financial system. Elite CEOs typically share a community of interest in opposing effective regulations. They share a near identity of interests in preventing effective prosecutions and enforcement actions against CEOs. These points explain why Pan-Love’s rhetoric about the deals – saying that the U.S. rather than China makes the rules – is knowingly propaganda on his part. Whether U.S. CEOs or Chinese CEOs dictate the terms of the deal is irrelevant. They all want to achieve and maintain the ability to rig the system, self-dealing with impunity.

    Pan-Love,
    I theorize a Electronic Elf (EE) as a rational agent, whom continually seek to maximize their future earnings potential. The We should apply a critical approach in order to counterbalance pervasive repetitive notions of EE’s as scientific heroes struggling against popular ignorance in order to serve the common good.

    There’s an incentive to propound theories that CEOs and financial institutions find attractive. Even if adoption of these theories leads to substantial public costs, these costs will not be shouldered by the EE’s (or executive directors) personally. Second, by developing such theories an EE can open the door to future wealth as a lobbyist or consultant. Third, the support of EE’s is critical to creating and maintaining special privileges for the financial services industry and for top corporate officers. By threatening to withdraw this support, EE’s can engage in rent-seeking. Call this last practice academic entrepreneurship.

    It only makes “efficient markets” {non} sense that EE’s shade their theoretical allegiances in the directions preferred by powerful interest groups? How could it ever be offensive to assume that a person acts rationally in pursuit of maximizing his or her own utility?
    Should one begin to accept a more democratic harmonization there are certainly a few obstacles. You would have to resolutely conceal your interest in this social virtue during your entire educational career, at least until you receive tenure. Once you reveal your true passion, you would have to accept both relative poverty and ceaseless acrimony on the part of those who march to the “spontaneous order” of Rubinical Doctrine.

  5. Ray LaPan-Love

    So then, lots of juvenile tactics and not much more than an attack on the messenger. I was expecting more than that here, but of course it would be unwise to judge this site on just a few comments.

    There was one genuine question however, so I’ll try to answer it:
    “Why the shadowy darkness to create these deals? Why fast-track legislation, so as to avoid a democratic critique? Why lame-duck session?”

    Nearly all trade deals are negotiated in private so as to avoid the very type of controversy that has happened with the TPP. In this case however, it became a political talking point anyway due to the unavoidable timing. The result being an avalanche of misinformation such as seen in this article. For example, the claim of “Kangaroo courts”… when the truth is that each party has the option of refusing any appointee to the court. In fact, this treaty is a response to the many of the problems inherent to trade deals. But most of those who have criticized the TPP are unaware of these responses, evidently.

    The ‘fast-tracking’ is to protect the treaty from the typical wheeling and dealing of Congress. And, I suppose, that the lame-duck session allows for the least political harm to those who vote to ratify, and thus the treaty has the best chance of getting through.

    As for avoiding “democratic critique”, well, if you ever mature in your thinking…re-read your comments on this board and that should answer your question. You might also read the ‘Federalist Paper’ #10, and other germane material regarding just how important your opinion is in this ‘democracy’. That being especially true regarding something as complicated as a trade treaty.

  6. Ray LaPan-Love

    From chapter 28 of the TPP:

    Transparency

    The Dispute Settlement chapter guarantees the right of the public in each TPP country to follow proceedings, by ensuring that submissions made in a dispute will be made publicly available, hearings will be open to the public, and final decisions by panels will be made publicly available. Further, non-governmental entities will have the right to request making written submissions to panels during disputes.

  7. Ray LaPan-Love

    More from the ‘Dispute Settlement’ chapter #28

    10. If a disputing Party believes that a panellist is in violation of the code of conduct referred to in Article 28.10.1(d) (Qualifications of Panellists), the disputing Parties shall consult and, if they agree, the panellist shall be removed and a new panellist shall be selected in accordance with this Article.

    Article 28.10: Qualifications of Panellists

    1. All panellists shall:

    (a) have expertise or experience in law, international trade, other matters covered by this Agreement or the resolution of disputes arising under international trade agreements;

    (b) be chosen strictly on the basis of objectivity, reliability and sound judgment;

    (c) be independent of, and not affiliated with or take instructions from, any

    3. The roster shall consist of at least 15 individuals, unless the Parties agree otherwise.

    4. Each Party may nominate up to two individuals for the roster and may include up to one national of any Party among its nominations.
    ===================================================================

    I am curious to know how a court might be less “kangaroo”.

  8. Ray LaPan-Love

    What sort of person[s] attacks the messenger, or allows such, with unsupported claims and name-calling and etc, and then censures germane material taken directly from the document being criticized in the applicable article? Material put forth politely too, even though I was allowed to be insulted by others. This site tarnishes the reputation of the MMTers, and, now, the lack of readers and participants comes as no surprise.

    It will be interesting however to see the reactions on other sites when I explain how even excerpts from the TPP were censured, but of course those excerpts revealed a level of ignorance that would most surely cause embarrassment. That ‘ignorance’ will however make for some interesting subject matter, so thanks for that, and for revealing the true value of this site beyond the mostly trite and shallow articles.

    • You were not censured. You were dumped into the spam bucket by the automated spam checking system. Looks like your email address and quoting documents is starting to trigger spam notices in places….