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Who Plans the Economy? Imagining Fair and Free Trade

We need new trade and investment rules that shift control from the plutocratic private owner to the democratic public.

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The way we talk about trade is all wrong. We’re told we have two options: the “free” trade status quo or protectionism. But many other possibilities exist, if we are willing to entertain different rules for owning and controlling capital both within and between countries.

To understand “free” trade we need only identify the subjects for whom it is “free.” Though “free” trade proponents assume trade is free for all of us, it’s really only designed to be free for the owner of productive capital. Fundamentally, “free” trade is designed to keep investment decisions private by limiting the restrictions that national democratic politics can place on capital investment. It’s free only for the plutocrat minority who controls our corporations and owns the giant majority of the capital in our country and the world. They remain free to make the investment decisions that determine what industries and jobs will exist, where they will be located, and what will be the terms and pay of employment. These decisions literally shape our world. Whoever gets to make them holds supreme authority in society.

Senator Bernie Sanders recently made a version of this criticism in the op-ed pages of The New York Times. Many economists, including Joseph Stiglitz and Dean Baker, repeatedly argue that “free” trade really just means corporate-managed trade for corporate interests, and that many aspects of “free” trade are not free at all, such as expanded intellectual property rights for pharmaceutical and entertainment corporations that are meant to prevent trade competition.

On the other hand, protectionism empowers national governments to compete to attract international capital investment and to use their own national markets to benefit their own producers of goods and services. A system where countries compete on the terms of investment and marketing of goods and services can only result in trade wars that in the past have always become military wars.

The real problem with the current system is that it is unfair because it creates an increasing concentration of wealth, which effectively disenfranchises economically and politically, the vast majority of people who don’t have any wealth. A “free,” level playing field for trade and investment places capital that has already been concentrated, in the form of Western corporations, at a great advantage to capital that has yet to be concentrated in the global South. Those with capital can more easily reproduce that capital than those without capital can produce it.

This is why many countries in the global South remain largely cut off from the wealth of the global industrialized economy. “Free” trade, which is designed by powerful countries to prevent an egalitarian distribution of wealth between all countries, has explicitly been our country’s preferred imperial strategy since Secretary of State John Hay’s articulation of the Open Door Policy at the turn of the nineteenth century into the twentieth. With the project of genocidal continental expansion complete, “free” trade between economic unequals became the US strategy to promote a cycle of dependence by the global South on the global North. The US was and remains the most economically powerful country, which keeps the global North in charge of the financial services and sale of the manufactured and high-tech products that generate the highest-profit margins.

The same dynamic plays out within countries. Our country’s zones of disinvestment — both urban areas populated primarily by people of color and rural areas mired in decades of poverty — stand as a testament to our country’s colonization by the plutocratic minority which owns our capital. Those who own capital invest it in order to produce more capital. They are not interested in investing in the grocery stores or bank branches that would employ people in areas that lack potential customers with the capacity to pay for their products. Even if they were, paying living wages that might allow employees to begin to build wealth directly conflicts with the capital investor’s main goal of return on investment. Without purchasing power, poor communities cannot attract the investment needed to help them build purchasing power. They are marginalized and forgotten by the market society planned by our plutocrats.

In broad terms, the ability of private owners of investment capital to plan the economy according to their own needs, absent any accountability to social needs, is how we’ve reached a place of unprecedented wealth inequality for post-feudal Western civilization, and it’s how wealth inequality in this country continues to track along racial lines.

“Free” Trade Is Neoliberalism’s Failure

Discussions about trade that only include the options of “free” trade vs. protectionism are all wrong because they assume that the plutocratic minority that owns our productive capital must remain in control of investment decisions. This is the key assumption at the core of neoliberalism. Either we let the owners do whatever they want (the status quo) or countries compete to make life better for them (protectionism). If neoliberalism’s core assumption must be protected, then, yes, those are the only two options. But there is no economic reason why we must remain within the constraints of neoliberalism. We remain there only because neoliberalism is a profitable system for the plutocratic and corporate interests that fund our government.

The limits of neoliberalism are producing huge real world consequences. Just look at the UK’s referendum vote to exit the EU. Political leaders, who get elected by aligning themselves with the interests of plutocratic capital, can’t offer any relief to the economic suffering that has created growing criticism of the international investment regime. They have given capital free reign, incentivizing capital investment to the max; there is not much left to give. And the plutocrats, who invest their capital primarily to produce more capital, are unable to create widespread prosperity.

Xenophobic demagogues have a tendency to arrive in times like these to channel that suffering toward their own cynical and personal gain. Missing from the conversation has been any attempt to acknowledge the suffering that the current order causes so many Americans (half of the country has zero net assets) and to create an alternative system capable of creating widespread prosperity.

Perhaps the best evidence for the argument that neoliberalism can’t produce a trade regime other than “free” trade is that none of the Democrat pundits have been offering any alternatives to the Trans-Pacific Partnership (TPP) despite the overwhelming evidence that most voters don’t support the agreement. Instead, they offer a seemingly endless stream of op-eds branding Sanders as a protectionist like Donald Trump, presumably hoping to avoid an argument on trade.

As for the rare neoliberal concession to trade reform, Hillary Clinton argues for vague improvements to the TPP’s labor and environmental standards, while others propose many bilateral “free” trade agreements instead of one big multilateral TPP. Neither approach would seriously curb the supreme power of private capital, let alone direct capital investment to the goods, services and vast expansion of ownership demanded by our society’s obscene wealth inequality and growing economic desperation.

The Limits of Democratic Socialism

Instructively, while Sanders frequently points out that the status quo is not designed to achieve the widespread prosperity it promises, he has not proposed alternative trade and investment rules. Sanders proposes blocking the TPP and creating a $1 trillion public spending program to invest in jobs in this country. But simply blocking the TPP does not place accountability on the private capital controlled by the plutocrats to create full employment, a cost that is in direct opposition to their profit motives. “Free” trade must not just be blocked, but replaced by new rules. However, the key tools of the democratic socialist state — regulation, taxation, and public spending — also have their limits.

Progressive free trade agreements — like those proposed by the Congressional Progressive Caucus — that promise to increase protections for labor and the environment, enhance labor’s ability to unionize, and impose greater regulations and control on capital are fundamentally the same as today’s “free” trade agreements. They protect and expand the power of private capital as our society’s supreme authority, like any trade regime that reduces barriers for workers to enter professional sectors, curbs excessive patent and copyright restrictions for which the pharmaceutical and tech industries lobby, and scraps the TPP’s corporate authoritarian investor-state dispute settlement mechanism.

The creation of an international social democratic order would not necessarily address the supreme authority we continue to afford private capital. Thomas Piketty’s proposal for a global wealth tax is a building block for such an order. As is the proposal for a Global Marshall Plan that redistributes global wealth by taxing wealthy countries to provide for public spending in poor countries. Such schemes would pretty obviously reduce some of the economic suffering produced by the status quo but they would not be able to take us anywhere beyond a society controlled by private capital.

Democratic socialism can curb the worst of capitalism’s excesses. But it leaves capital as the dominant partner to labor, an inconvenient reality driving the decades-long rollback of social democracy worldwide since its post-war peak. Just as we need a left that imagines reform beyond democratic socialism, we need international investment and trade rules that shift control from the private owner to the democratic public.

Imagining Alternatives: Economic Democracy

Any real alternative to the current international investment regime requires confronting the power of private plutocratic capital. So what might a new international trade and investment regime look like?

For starters, it must promote a free exchange of goods and services, but, unlike the current system, it must do so on fair terms. The main idea must be that any fair and free trade and investment regime must expand the number of people who have a say in the investment decisions within and between countries that will determine where jobs will exist and on what terms for employees. Such a regime should give everyone a say, especially women, racial minorities, former colonized countries, and people of all minority sexual orientations and other non-mainstream persuasions who have been most marginalized by the plutocratic regime for centuries. Ideally, investment would be made in producers who share with employees, or better still, where all employees are owners. In short, a fair and free investment and trade regime needs to redefine the rights of capital by subordinating capital rights to human rights.

The sociologist Johanna Bockman analyzes the last attempt to create such an international order by the world’s relatively poor countries at the United Nations Conference on Trade and Development (UNCTAD) in 1964.

UNCTAD, which included on an equal basis all nation-states recognized by the UN, pursued what Raúl Prebisch, the Argentinian economist and UNCTAD’s first secretary general, called a “new international economic order.” It sought to upend the General Agreement on Tariffs and Trade (GATT), the contemporary international “free” trade and investment order, which effectively enforced the old colonial trading arrangements whereby former colonies, instead of developing their own manufacturing capacity, provided the colonizers with the raw materials needed for their high-margin manufactured goods. Yet, complicating the current false choice offered between the “free” trade status quo and protectionism, UNCTAD advocated for trade liberalization and opposed protectionism.

In order to build an international trade and investment order that could benefit all countries, UNCTAD called for “structural adjustment” of the international economy of a sort just a bit different from the austerity, privatization and trade liberalization programs of the same name that the International Monetary Fund has since imposed around the world. On structural adjustment, the Final Act of the 1964 UNCTAD conference stated: “Developed countries should assist the developing countries in their efforts to speed up their economic and social progress, should cooperate in measures taken by developing countries for diversifying their economies, and should encourage appropriate adjustments in their own economies to this end.”

This meant moving parts of the most profitable industries, concentrated in the wealthy Global North countries, to the Global South. It would have required either public capital investment or coercion of private capital to invest toward this purpose. These economic goals would have either displaced private capital with public investment or publically imposed accountability on private capital investment.

“Structural adjustment” would require time and the creation throughout the world of organic democratic organizations capable of facilitating democratic ownership and control of industry.

The Mondragon Corporation in Spain’s Basque region and the ecosystem supporting cooperative economics in Italy’s Emilia Romagna region offer models for how this could begin to play out at scale. Both models are built around worker-owned cooperatives, the expansion of which has been financed by cooperative development loan funds that are capitalized by public spending and the profits made by member cooperatives. Whereas the Mondragon network is highly centralized, like a Western corporation owned by workers and run by worker-elected management and union leadership, the Emilia Romagna model is more decentralized, defined by state tax exemptions for coop retained earnings and state regulations requiring coops to reinvest significant portions of their profits and contribute to a coop loan fund of their choosing.

Targeted tariffs could help aid a transition toward democratic ownership and control of resources throughout the world. David Schweickart has argued for a socialist tariff whereby international goods face an entry tax into a national market, subsidizing domestic goods, with the tax’s revenue returned to the country whose goods were taxed. With a socialist tariff, countries could incentivize the democratization of their own industry — and protect it from international competition — while also helping to finance similar democratization of industry abroad. Similarly, in Making a Place for Community: Local Democracy in a Global Era, Thad Williamson, David Imbroscio and Gar Alperovitz argue for tariffs on goods whose entry into the US would tend to undercut the principle of nurturing just, sustainable and secure communities. The idea is to use tariffs to favor goods produced by democratically owned and controlled capital at home and throughout the world.

Any systemic solution to inequality and mass economic deprivation will need to expand the amount and types of people who get to make the investment decisions that determine where industry and jobs will exist and at what pay. The current “free” trade regime is anathema to this conception of economic democracy. We need trade rules that allow all of us together to plan the investment that will shape our society, not just the plutocrats who currently finance and control both of our country’s dominant political parties. And to achieve the promise of a democratic society, we must begin to develop institutions capable of actually placing investment decision-making in the hands of the people.