Jayati Ghosh – Professor of Economics at Jawaharlal Nehru University in New Delhi – has penned a thought-provoking opinion piece arguing that so-called “free trade” has entrenched corporate interests and worsened inequality:
Some argue that free trade is being demonized simply because people do not understand what is in their own best interest. But that is both patronising and simplistic. Even if free trade is ultimately broadly beneficial, the fact remains that as trade has become freer, inequality has worsened.
One major reason for this is that current global rules have enabled a few large firms to capture an ever-larger share of the value-added from trade. Specifically, the proliferation of global value chains has enabled powerful multinational firms to control the design, production, and distribution of traded goods and services…
These firms often benefit from intellectual-property monopolies, reinforced by free-trade agreements designed to strengthen corporate power. These enable them to collect massive economic rents, especially at the pre-production (including design) and post-production (marketing and branding) stages, where the most value-added and profit is generated.
Meanwhile, increasingly intense competition in the production phase drives down prices, so that the actual producers, whether employers or workers, receive diminishing shares of the value pie. The upshot of this system is that many developing countries that should have benefited from the globalisation of value chains have remained confined to low-productivity activities that yield only limited economic value and do not even foster wider technological upgrading.
…by drastically enlarging the global labour supply, the economic integration of countries with large populations like China and India has increased the bargaining power of capital relative to labour…
The more power these companies have, the more they can accrue, as they use their influence to shape regulatory systems, economic policies, and even tax regimes. The result is a weakened state that serves the interests of the few, rather than protecting the many. Those who claim that redistribution can adequately address this problem must address the fact that the “losers” of free trade have so far received little, if any, compensation…
The problem is not that free trade has led to too much global competition, but rather that it has enabled a few companies to secure monopolies or near-monopolies. This has given rise to massive inequalities, blatant rent-seeking, and predatory behavior. Only by addressing these trends can the benefits of trade be increased and equitably shared.
Brilliantly said.
In Australia’s case, free trade agreements (FTAs) have been largely negotiated in secret from the public, but opened to corporations and industry groups who are free to lobby for their interests.
The problems are most pressing in non-trade areas like intellectual property, investor-state dispute settlement (ISDS) and labour market access, where the interests of corporations are most detached from ordinary citizens.
This is why the Productivity Commission remains an ardent sceptic of FTAs, repeatedly calling for an independent and transparent analysis of the costs and benefits to Australia both before negotiations commence, and after an agreement has been signed.
Sadly, the PC and the public’s interests have been repeatedly ignored, resulting in sub-optimal FTAs that lack transparency and oversight, and entrench corporate interests at the expense of the broader public.
