Message to Congress on Trade and Inequality: Wake Up, 'Trickle-Down' is Dead!

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Message to Congress on Trade and Inequality: Wake Up, 'Trickle-Down' is Dead!

Fast-tracking TPP is unlikely to benefit economic growth and may further exacerbate inequality

(Photo: Stop FastTrack/flickr/cc)

The debate over trade is red-hot these days. Proponents in Congress are revving up this week to push through their ‘Plan B’ after a grassroots uprising took them by surprise earlier this month and defeated ‘Plan A’, which the Obama administration had hoped would grant it ‘fast track’ trade negotiating authority designed to facilitate completion and quick passage of the Trans-Pacific Partnership (TPP) free trade agreement.

As with most controversies over legislation, spin and hyperbole dominate the news cycle. The Washington Post editorial board has dedicated more than its share of newsprint (6 editorials in the last 2 months) to lambast ‘fast track’ opponents, in particular the labor movement, asserting that trade expansion was central to US economic growth after World War II and that failure to get ‘fast track’ and enact the TPP will only undermine our prosperity and security.

To be fair, it’s not just the Washington Post on this offensive. One of the most common arguments made by the administration and other proponents of ‘fast track’ and the TPP is that more free trade agreements, which include a whole host of rules and regulations protecting corporate investment, will boost US economic growth.  Opponents are portrayed as Luddites who fail to understand that a rising tide lifts all boats.  There is more to be gained through increased exports, the argument goes, even if there may be some job loss from global competition and outsourcing.

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Well, here’s a news flash, particularly for those with a simplistic view of history and a belief that little changes: the International Monetary Fund (IMF) has shown that ‘trickle-down’ economics is dead!  

Just last week, that venerated institution of global finance released a powerful research report demonstrating that when the incomes of the richest 20 percent rise in relation to the rest of the population, GDP actually declines over the medium term.  That’s right, the same institution that brought us the market fundamentalism known as the “Washington Consensus” in the 1980s now asserts that wealth doesn’t ‘trickle-down’ to boost employment or wages.  Instead, the IMF found that when the incomes of the poorest 20 percent increases, GDP expands.

This welcome revelation means policies that serve to benefit the wealthiest in society actually pose a threat to the overall economy and stifle poverty reduction. That includes all those rules in free trade agreements like the TPP that benefit investors and expand monopoly protections.  The IMF research strongly argues for governments to advance public policies focused on expanding the economic opportunities of low and middle income groups.

Members of Congress, particularly proponents of ‘fast track’ and TPP, should take heed of this important message: unless a trade agreement actually serves to raise incomes for low and middle income families, it will not boost overall economic growth and can instead worsen inequality.  Neither the Obama administration nor other proponents have demonstrated that these trade agreements will benefit those on the lower end of the economic spectrum, as the well-respected economist Jeffrey Sachs has pointed out. To the contrary, many have indicated how the myriad rules embedded in the agreements will benefit special interests over the wider public interest.

This raises two related concerns.  First, the TPP threatens to worsen economic inequality across member countries, including here in the US.  Second, by raising inequality, the TPP could actually undermine economic growth, which has shown to be the key factor in reducing poverty.

Nobel-prize winning economist Joe Stiglitz has similarly challenged the simplistic economic reasoning used by ‘fast track’ and TPP proponents. It had been disappointing to see the Obama administration and many in Congress ignoring the advice of the former chair of President Clinton’s Council of Economic Advisors.

In a last-ditch effort to win additional votes in Congress, the US Trade Representative has been quoted as saying that some poorer countries party to the TPP could get special considerations based on their level of development – permitting them to postpone adoption of some intellectual property protections that affect access to medicines. Yet even if such provisions were to make it into the final TPP text, they would make little difference.  Research from Oxfam America and Doctors Without Borders shows that measures under consideration ignore existing inequalities within countries, and in any case would be inadequate to overcome adverse effects of TPP rules on access to medicines.

So who’s really calling the shots on US trade policy, and why is it on course to exacerbate inequality, which undermines economic growth? Well to start, there seems to be a gaping hole exposed in the democratic process.  How else could the President and Congress dismiss historic numbers of Americans speaking out against the TPP, let alone commonsense economic advice from luminaries like Joseph Stiglitz and Jeffrey Sachs, among others?

It should come as no surprise that corporate interests drive trade agreements. And Congress listens because corporations pay big in terms of campaign dollars. As the Guardian reported last month, fast-tracking the TPP was only possible after huge sums of corporate money passed into the hands of many Senators. Out of the $1,148,971 contributed between January and March 2015 by the corporate members of the US Business Coalition for TPP to US Senators, an average $17,676.48 was donated to each of the 65 ‘yea’ votes. Another analysis showed that 24 of 28 House Democrats supporting ‘fast track’ received money from drug and medical device companies.

Corporations have also enjoyed highly unequal treatment compared to the public in terms of shaping the agreement’s content.  Over 500 corporate lobbyists have been named “advisors” and given national security clearance to get privileged access to the text, while consumers and public interest groups have been kept in the dark about key details. The cozy relationship between industry representatives and US trade negotiators has no doubt helped ensure the trade rules in the TPP will benefit corporate interests.

Thus, inequality begets more inequality – so unjust!  Yet in fast track round one, there was a strong ray of hope when grassroots efforts to defend the public interest achieved a big upset.  As we enter round two, will Members of Congress listen to the public and heed the analysis of the revered global economic stalwart, the International Monetary Fund?

This blog post was co-authored by Stephanie BurgosOxfam America’s Economic Justice Policy Manager.

Nick Galasso

Dr. Nick Galasso is an American Council of Learned Societies Public Fellow, serving Oxfam America as a research and policy advisor. He leads Oxfam’s work on economic inequality.

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