Published on Sunday, July 24, 2005 by the Daily Camera (Boulder, Colorado)
Corporate Socialism, Not Free Trade
CAFTA is no panacea for U.S. or Central America
by Jeff Milchen
It's going to be easier to sell your product to 44 million new customers," President Bush proclaimed at a recent media event near Charlotte, N.C. The forum was designed to create support for passing the Central American "Free Trade" Agreement before Congress adjourns for summer later this month.
If his aides hadn't hand-screened the crowd to remove the likelihood of hard questions, someone might have asked just which imported goods Nicaraguans, who earn an average of about $2,300 annually, are planning to purchase. Or a skeptic might have questioned how Central America, with a combined economic output less than many U.S. cities, is going to buy enough goods to help reduce a trade deficit that has grown from $38 billion to $617 billion under the trade policies of Presidents Clinton and Bush Jr.
As with the North American Free Trade Agreement, the leading U.S. export will be jobs. For those who might be willing to sacrifice American prosperity to benefit our poorer neighbors to the south, it's a false promise. During NAFTA's 12-year influence, Mexicans' real wages have fallen and poverty is rising and CAFTA would benefit primarily transnational corporations, but not just by reducing tariffs. In fact, pacts like CAFTA are about erecting barriers to real market competition and preventing competition as often as lowering barriers. This largely is due to politically powerful corporations lobbying to expand the most costly forms of protectionism patents, copyrights and other monopolies grouped under "intellectual property rights."
Such rights often are essential to ensure writers, researchers, musicians and others receive compensation for their work. Often, however, what's patented is taxpayer-funded research, given away or sold for a pittance to corporations that reap huge profits thanks to government-created monopolies. In 2003, publicly financed pharmaceutical research totaled $27 billion nearly equaling domestic drug research by all businesses combined. Public investment is even greater when you disregard "lifestyle drugs." According to a Massachusetts Institute of Technology study, 11 of the 14 most medically significant drugs developed in the United States between 1970 and 1995 originated with government-funded research.
Yet most of this public investment is then privatized in exclusive licenses to drug companies without fair return to taxpayers. For example, Taxol (the best-selling cancer drug ever) was developed with $500 million in publicly funded research and testing, beginning in the 1960s decades before its commercial debut.
Yet despite our public investment, we taxpayers got nothing in return. Actually, less than nothing. First, the National Institutes of Health granted exclusive production rights to Bristol-Myers Squibb Inc. for a pitiful 0.5-percent royalty. Then we paid Squibb almost $700 million in just the first five years of Taxol's production for government health-care programs at markups that would make street drug dealers blush up to 2,000 percent over production costs. Such profit margins would be impossible without government-created and enforced monopolies. Think "corporate socialism," not free market.
And while import tariffs rarely increase product prices more than 25 percent, patent-protected monopolies can gouge us for 20 times the cost we'd see in a competitive market.
Imposing these obscene profit margins abroad (through trade pacts that poor countries often have little choice but to sign) effectively mandates suffering and death in many instances. Poor countries that have violated trade agreements to provide generic AIDS drugs and save thousands of lives have been sued to halt the practice.
The retail side of the drug trade demonstrates another angle of how corporate power has distorted market competition. Consumer Reports magazine issued a detailed report in 2003 showing that independent pharmacies beat chain stores on price, service and overall satisfaction. So why have more than 10,000 independent pharmacies disappeared since 1990?
Not only does massive advertising power falsely convince people that chain stores provide better value, government discrimination also harms independents. The U.S. Supreme Court ruled in 1992 that states could not collect sales tax on catalog or Internet sales to in-state residents (unless authorized by Congress). The Court bizarrely reasoned, essentially, that mail-order businesses should be protected from having to collect the same taxes as community-based businesses because they built their operations on the expectation of such favoritism. So in 45 states, a community-serving business must compete hobbled by a penalty that averages 8.3 percent of a product's cost.
Some state governments also hinder retail drug competition in this realm by forcing state employees to fill their health plan prescriptions at chain stores or on-line vendors. The state government may save a few dollars on the Internet sales, but employees lose important personal service and communities lose irreplaceable businesses. Of course, CAFTA and other proposed "free trade" agreements make no attempt to stop this government discrimination against small businesses.
Where are those "pro-business" politicians and "free market" think tanks when it's entrepreneurs who are undermined by laws and trade agreements that benefit their corporate funders? Apparently they don't like to confront the fact that political power determines which markets will or will not be free. But distinguishing theoretical free markets from the disturbing realities of corporate capitalism is a prerequisite for any meaningful evaluation of trade treaties.
The track record of NAFTA undermines the credibility of almost every supposed benefit of CAFTA. Don't buy the false premise of these pacts being about "free trade." They serve to advance the power and profit of the giant corporations that create them, not the interests of average citizens or business people.
Jeff Milchen directs ReclaimDemocracy.org, a nonprofit organization working to restore citizen authority over corporations. He co-founded the Boulder Independent Business Alliance and American Independent Business Alliance.
© 2005 Daily Camera