Economic Study Finds TPP Would Have Tiny Impact on Economic Growth but Continue to Expand Wealth Disparities
Last week, a new study found that the top ten percent of American households raked in over half of the nation’s income in 2012. The results were widely reported, but another study garnered less attention. It concluded that your government is working hard to boost the incomes of the top ten percent further, while continuing to depress the wages of the vast majority of American families.
The study, by economist David Rosnick at the Center for Economic Policy and Research, attempts to estimate the likely effects on wages from the Trans-Pacific Partnership (TPP), a mega-trade deal that’s been negotiated out of view of the public, with what government transparency watchdogs call an “unprecedented level of secrecy.”
The TPP is a proposed deal between twelve countries in the Americas and Asia. It would expand an already controversial agreement between Chile, New Zealand, Brunei, and Singapore – if finalized, it would become the biggest trade pact ever.
These kinds of regional deals are the neoliberal response to widespread opposition to the World Trade Organization (WTO), and they include the most controversial provisions on multinational corporations’ wish-lists – measures that have been stuck at the WTO for years.
Public Citizen calls the TPP a “corporate power tool for the one percent.” According to a leaked draft agreement, the treaty would establish independent tribunals that would allow corporations to bypass member countries’ judicial systems to challenge domestic laws and regulations that interfere with their business. According to an analysis of the text by Public Citizen, “the tribunals would be staffed by private sector lawyers that rotate between acting as ‘judges’ and as advocates for the investors suing the governments” – a conflict of interest that would never stand in an American courtroom. The tribunals could order countries to pay monetary damages to foreign investors if they didn’t comply with the rulings. Fair trade activists call it a back door to deregulation.
Writing at the Campaign for America’s Future, Dave Johnson notes that Chile’s lead negotiator recently quit his job in order to warn that “the TPP is solidifying multinational corporate control over the Internet, copyrights [and] patents (especially drug patents),” and that “giant financial interests are solidifying their current control over the regulatory process.” (Last year, New York Times reporter Gretchen Morgenson detailed how Wall Street might use international trade deals to derail reforms like Dodd-Frank.)
That’s a lot of controversy. Yet according to Rosnick, economists estimate that the TPP will have only a miniscule impact on our overall economic growth in the future – if enacted, it’s projected to increase U.S. Gross Domestic Product (GDP) by only 0.13 percent between 2015 and 2025. As Rosnick puts it, “this figure is meaninglessly tiny in almost any reasonable context.”
But the distributional effects are anything but trivial. Rosnick expects those at the bottom of the ladder to be protected by minimum wage laws, those at the top – highly paid professionals and the investor class — to see their incomes increase significantly as a result of TPP’s expanded patent protections and intellectual property rights, and the vast majority in the middle to experience yet more downward mobility.
Estimates of how much trade has contributed to rapidly rising economic inequality vary. In his study, Rosnick extrapolated the TPP’s impact on wages based on four different estimates of how much trade deals have contributed to rising inequality in the past. The graphic below illustrates his results.
All four estimates result in the median wage – the one right in the middle of the pile – declining in absolute terms. Rosnick writes, “thus, under any reasonable assumptions about the effect of trade on inequality… the majority of workers” will suffer “a net loss as the result of these trade agreements.” And again, the pact’s overall impact on growth would be negligible.
This dynamic – those at the top grabbing a bigger share of the pie while the rest of us lose ground – is typical of these trade deals for the simple reason that they’re not negotiated with the greater good in mind. Rather, they provide a shining example of how economic inequality and political inequality are inexorably linked. As former trade negotiator Clyde Prestowitz writes in Foreign Policy, the winners of these trade agreements are always “going to be the shareholders — the guys at the Business Roundtable who dominate the ‘cleared advisors’ to the trade representative and who, of course, are investing most of the money that’s being invested to make this deal happen. They own it, so it’s likely that they will win something from it.” They’re the only ones who can even take a look at what’s being discussed behind closed doors by TPP negotiators; the only ones who have the U.S. trade representative’s ear.
This is what proponents of these pacts overlook or ignore. They rely on idealized economic theories of trade to argue that signing more binding trade deals will lift all boats. And in a perfect world, those theories might hold true. But in reality, these deals are about corporate lobbyists getting their firms’ narrow, bottom-line interests codified into international trade law – the one area of international law that is readily enforceable. That a majority of workers, the environment, food safety and public health regulations and a host of other priorities are given short shrift should come as no surprise – those things don’t help powerful multinationals’ bottom lines.