Washington Post's "Free-Trade" Zombies Discover New Form of "Protectionism"

Posted by Joshua Holland, AlterNet at 11:40 AM on March 28, 2009.

What do you call it when a government takes over a bank teetering on the brink of collapse, pumps truck-loads of public funds into it, and then asks it to, you know, maybe make some loans to the families and businesses whose taxes financed its rescue in the first place?

Like me, you'd probably call it a fairly commonsense policy. But if you were the kind of mindless "free-trade"-worshiping zombie who writes for the Washington Post, you'd probably call it "protectionism in the 21st century." Like this:

EDINBURGH, Scotland -- Once as rooted in the Scottish soil as this city's famous castle, the Royal Bank of Scotland ventured far during the era of globalization -- pumping billions of dollars worth of credit overseas as it expanded into markets as diverse as Kazakhstan, China and Rhode Island.

But just as RBS came to symbolize the free flow of credit across borders, the worldwide financial crisis has turned it into a leading example of the reverse: protectionism in the 21st century.

The government took majority control of the venerable bank four months ago after it suffered the worst corporate loss in British history. Authorities promptly issued a fresh directive: RBS, which had been in private hands since 1727, would have to sharply boost lending to British companies and home buyers stung by the global credit crunch -- effectively curtailing lending to its equally hard-hit customers overseas. As RBS prepares to comply with the government order to pump billions of dollars more into British credit markets, it is retrenching in at least 15 countries, moving to sell off branches from Vietnam to Romania.

Even the WaPo writers know they're torturing the definition of protectionism, as illustrated by this ass-covering graph:

World leaders gathering for a major economic summit in London next week are vowing not to repeat the trade wars of the 1930s by imposing the kind of protectionist tariffs on butter, steel and other goods that deepened the Great Depression. But while their promises center largely on avoiding classic forms of trade barriers -- such as higher taxes on imported cars -- the rise of financial protectionism poses a far greater threat to global recovery.

The short response to this ridiculous stretch of the concept of "protectionism" is fairly straightforward: RBS was no longer capable of functioning as a private institution. It made bad bets. It was going to go belly-up, but was deemed "too big to fail," so it was nationalized by the UK, not by the governments of Vietnam or Romania. And it's clearly not a form of "protectionism" as the Brits didn't do anything to hinder or regulate the flow of capital in and out of the UK -- they imposed conditions on a single institution, which the government happens to own.

But I think the more interesting thing here is the ever-expanding definition of a "trade barrier."

Let me take a brief moment to tease out the crucially important distinction between "classic forms of trade barriers," and screaming "protectionism" about anything that in any way impacts international commerce. We'll need a bit of background.

Most people still believe that discussions of "free-trade" are about ships full of bananas or ball bearings or high-tech widgets crossing oceans. Understanding why that's just a small part of the issue is key to grasping the difference between "free trade" and what these deals we've been signing for the last 30 years are really about -- a corporate power grab.

Prior to World War II, trade wars were common, and they often led to shooting wars. In the mid-1940s the General Agreement on Tariffs and Trade (GATT) was created to foster world peace. Many of its authors were FDR liberals. They had high ideals.

Between 1944 and the mid-1990s, trade negotiations were conducted by (mostly) white guys in business suits and nobody really gave a damn. Poor countries griped about agricultural subsidies and the rich countries' protectionism, but they were also free to try various development strategies (a big subject itself, but one for another day).

During the first decades of the GATT, which governed trade between 1947-1995, the United States and "old" Europe had economies based heavily on manufacturing. But today, almost all advanced economies share a very similar distribution: about one to two percent in agriculture, maybe 20 or so percent in manufacturing and around 80 percent in services.

For the first forty or so years of its existence, the members of the GATT negotiated reductions in tariffs, quotas and other traditional forms of market protectionism. They were the manufacturers, and those deals were for the most part negotiated on a level playing field between the world's advanced economies -- what they call "North-North" negotiations in trade lingo.

Those who brand opponents of today's trade deals "protectionists" might ask themselves why nobody resisted the GATT during those years of slashing tariffs and quotas and the like.

Beginning in the 1970s two things happened -- or I should say two things aside from the oil shock of '73.

In 1979, during the Tokyo round of the GATT, negotiators began looking at "non-tariff barriers." These included onerous customs procedures, mountains of paperwork required to import goods, subsidies for domestic industry, etc.

That shift to "non-tariff barriers" coincided with the emergence of the new conservative movement -- with its think tanks and front groups -- and the elections of Reagan and Thatcher to head the world's leading political and economic powers.

That marked the beginning of both a precipitous decline in union membership and a massive shift in the wealthy economies -- their bread and butter went from manufacturing to services (the latter having already begun after the oil shock).

When it comes to services -- and this is really a key point -- there's a massive pile of cash just sitting out there in the things that governments commonly did at the time: from education to sanitation and everything in between. According to Tony Clarke of the Polaris Institute, a Canadian NGO, the total estimated value of the world's service sector -- including public services -- is between 15-20 trillion dollars. That's a honeypot.

Now, once they started looking at non-tariff barriers, it was inevitable that somewhere along the line, someone in those think tanks said, "we can call all those  environmental laws or food-safety regulations non-tariff barriers too!"

With that mindset, in 1986, after seven years of negotiating, the GATT culminated in the creation of the WTO, which had enforcement powers unlike any other multilateral organization. But its rules hadn't been written up by FDR liberals, but by Reagan-Thatcher big-business conservatives.

Using the Freedom of Information Act, Public Citizen found that of 500 "experts" who sat on the advisory boards that hammered out the thousands of pages of the WTO treaty, there were a dozen representatives of labor. There were none from groups advocating for the environment, poor country development, human rights or anything else. The rest were multinational execs and various lawyers, lobbyists and industry experts.

For too many of them, the new "free trade" framework provided a back door through which they could advance a broader agenda. They could push a set of treaties that pressured -- and in many instances legally compelled -- domestic legislatures to conform to the prevailing economic theories known as the "Washington Consensus" (whenever anyone calls something a "consensus," it probably isn't even close). And the definition of "non-tariff barrier" continued to expand.

(In the meantime, since the early days of the GATT, dozens of countries -- many of them newly liberated from the clutches of European colonialism -- had been added -- and most were poor and had poor infrastructure and very different economic distributions. Many relied on agriculture not only for food, but also as a significant source of employment. Early on, the developed countries promised to start cutting agricultural subsidies and giving those developing countries a level playing field for agriculture but so far they just haven't gotten around to it on the scale promised.)

By the time we got to the "Singapore Round" in 1996, there was an aggressive push to 1) enact a broad set of "investor protections" that made a variety of laws -- some protecting the public interest -- subject to the WTO's dispute-resolution process and 2) allow countries (or even private companies) to exert pressure on other governments to privatize their public services.

Organized labor, community activists, environmentalists, food security specialists, farmers and many other groups started to see these rules as a significant threat to their work. They gathered to greet the Ministers a few years later in Seattle -- the famous "teamsters and turtles" coalition -- and that led to the infamous "Battle in Seattle" (which was actually a brutal police riot). And since that time, the fight has really been about how deep into the realm of domestic policy trade agreements should reach.

Which brings us back to the Washington Post's new discovery: a form of "protectionism" that in fact is a purely a domestic matter between a government and a single bank that it owns.

Be wary of the trend, or everything your elected officials do will eventually be constrained in the name of supporting "free trade" over an all-encompassing definition of "protectionism."

Tagged as: trade

Joshua Holland is an editor and senior writer at AlterNet.