The Case for a New Bretton Woods by Kevin P Gallagher & Richard Kozul-Wright

Author:Kevin P Gallagher & Richard Kozul-Wright [Gallagher, Kevin P & Kozul-Wright, Richard]
Language: eng
Format: epub
Tags: International Relations, Trade & Tariffs, Political Science, General
ISBN: 9781509546541
Google: E1lXzgEACAAJ
Goodreads: 58230737
Publisher: Wiley
Published: 2021-12-28T00:00:00+00:00

From Small Gains to Big Risks

If “free trade” agreements were delivering on their promise, the world economy would be more competitive, the gains from trade more widely shared, and the economic gaps within and across countries rapidly closing. This is not the case. Indeed, as the gains from trade have shrunk and been captured by a diminishing number of large firms, high economic costs and regulatory risks have been growing for governments, workers, citizens, and the environment. Nations are quickly learning that the rules they have signed up to don’t allow them the policy space to put their economies on the right track, while the governance of the system, whether through the private handling of disputes or with a nod to corporate social responsibility, has been ceded to the very same footloose firms that needed to be regulated in the first place. This is particularly true of regional and bilateral trade and investment agreements that lack even the flexibilities remaining in the global trade body (UNCTAD 2014).

An aspect of the new generation of “free trade” deals that is lost to many analysts is that they are seldom any longer about trade, given that tariffs on goods trade have been close to zero for decades in all but a handful of sectors and countries. The focus instead is on rules with respect to government regulations on financial services, allowing foreign banks unlimited market share and all forms of capital to move in and out of countries “freely and without delay”; on intellectual property, including what research and development activities can be funded, the duration of patents, the widening of protection to trade secrets and what improvements to existing products merit protection; on the rights of foreign investors; and on government financial support to specific industries.

A summary of six of the most alarming impacts of this type of regulatory regime indicates just how far the governance of international trade has moved since the creation of the WTO:

Increasing financial instability. As regulations on global capital flows weaken, surges and sudden stops, discussed in the last chapter, increase, banking crises become more frequent, and growth slows (Ostry et al. 2010; Jeanne et al. 2012). Moreover, global corporations have themselves become increasingly financialized, with highly leveraged balance sheets and heightened financial risks.

Boosting monopoly profits. As markets have become more open, production and profits have been reallocated toward large firms with market power (UNCTAD 2018). A major driver of market concentration and rising corporate incomes is the greater protection for large innovating firms through intellectual property rules in trade and investment treaties (see Figure 4.1).

Lowering wages. As large corporations have come to dominate global markets they have become more and more inclined to use their profits to increase dividend payments and engage in buying back their own stock (Lazonick et al. 2020), at the expense of industrial jobs in advanced economies and the incomes of small entrepreneurs and farmers in developing countries (Acemoglu et al. 2016; Autor et al. 2020). While some governments, especially in advanced

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