Trading for Good: How Global Trade Can be Made to Serve People not Money 9781786996022, 9781786996015, 9781350223677, 9781786996039

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Praise for Change Everything by Christian Felber

“Christian Felber has written that rare article: the genuine gamechanger. Easy to read, irrefutable in its principles and comprehensive in its proposals, it’s a how-to guide to a better world.” Susan George, author of Whose Crisis, Whose Future? “This path-breaking, optimistic book shows that it is possible to have an economy that serves us rather than enslaving us.” Richard Heinberg, author of The End of Growth “A smart, useful answer to the economic chaos and the enormous social suffering that the oligarchs of globalized financial capital have caused on the planet. A great and important book!” Jean Ziegler, former UN ambassador on the Right to Food “A timely and important new vision for the purpose of economic activity, moving away from the private accumulation of wealth and towards the common good. A must read for business leaders, economists, activists, civil servants and politicians …” Duncan McCann, New Economics Foundation “This is a joyful book of hope and possibility. Everything can be changed, including the depressive mindset that there are no alternatives.” Ed Mayo, Co-operatives UK

“Offers a clear analysis that combines pragmatic designs for some of the potential institutions of the next system with a strategy for building a movement that can bring these institutions into being. His accessible articulation of a genuine alternative is an important contribution to an essential global conversation.” Gar Alperovitz, author, historian, political economist “Enterprise that is fit for the 21st century will be managed and measured by a far richer set of metrics than last century’s companies. Economy for the Common Good is a pioneering example of how this can successfully be put into practice. This movement is proving that another way is possible, and thus is inspiring far wider ripples of transformation.” Kate Raworth, economist and author of Doughnut Economics “Christian Felber shows a pathway that leads to an economy based on love instead of profit, a society based on solidarity instead of greed, and a life based on joy instead of fear. We can all become involved.” Kosha Joubert, president of the Global Ecovillage Network

TRADING FOR

GOOD

Christian Felber is an Austrian alternative economist, university lecturer, and associate scholar of the IASS in Berlin-Potsdam. He is an internationally renowned speaker, author of several award-winning bestsellers and a regular commentator on ethics, business and economics. He initiated the Economy for the Common Good movement as well as the project Bank for the Common Good, which is a cooperative with more than 5000 owners today and offers the first “common good account” since 2019. Besides this, he is a contemporary dancer and performer.

TRADING FOR

GOOD How Global Trade Can be Made to Serve People not Money

CHRISTIAN FELBER Translated by Patrick Camiller

Trading for Good: How Global Trade can be Made to Serve People not Money was first published in English in 2019 by Zed Books Ltd, The Foundry, 17 Oval Way, London SE11 5RR, UK. Originally Published in German in 2017 under the title Ethischer Welthandel. Alternativen zu TTIP, WTO & Co by Paul Zsolnay Verlag, Wien, Austria www.zedbooks.net Copyright © Deuticke im Paul Zsolnay Verlag, Wien, 2017, 2019 The right of Christian Felber to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act, 1988 Typeset in Adobe Garamond Pro by seagulls.net Index by John Barker Cover design by Steve Leard Printed and bound by CPI Group (UK) Ltd, Croydon, CR0 4YY All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise, without the prior permission of Zed Books Ltd. A catalogue record for this book is available from the British Library ISBN 978-1-78699-602-2 hb ISBN 978-1-78699-601-5 pb ISBN 978-1-78699-603-9 pdf ISBN 978-1-78699-604-6 epub ISBN 978-1-78699-605-3 mobi

CONTENTS I Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 II Origins and critique of the religion of free trade. . . . . . . . . . . 13 III The substantive alternative: ethical world trade. . . . . . . . . . . 69 1 Significance of trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 2 For an ethical trade system within the United Nations . . . . . . . 88 3 A pragmatic alternative: the Common Good Balance Sheet. . . 141 IV The procedural alternative: sovereign democracy . . . . . . . . . 155 1 The centrality of democracy. . . . . . . . . . . . . . . . . . . . . . . . . . . 155 2 The democratic genesis of international (business) law. . . . . . . 177 3 Encouraging examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 4 Questions for the trade convention. . . . . . . . . . . . . . . . . . . . . . 185 Acknowledgements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221

TABLES

I.1 Current paradigm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 I.2 Alternative paradigm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 II.1 Ricardo’s example (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 II.2 Ricardo’s example (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 III.1 Corporate legal actions over the last twenty years. . . . . . . . . 84 III.2 An ethical UN trade system. . . . . . . . . . . . . . . . . . . . . . . . . . 91 III.3 Important multilateral environmental agreements. . . . . . . . 103 III.4 Forms of ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 III.5 Performance criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 III.6 Working towards a uniform global instrument . . . . . . . . . . 153 IV.1 Post-democracy vs. sovereign democracy. . . . . . . . . . . . . . . 176

viii

I

INTRODUCTION The terms free trade and protectionism both describe extremes. Free trade makes trade an end in itself, while protectionism does the same with protection: two equally vacuous positions. Trade can be valuable and protection meaningful. But trade is just as little an end in itself as the closing of borders. Maximum international division of labour is just as blinkered and pig-headed as the striving for national autarky. No one can really want either of these options. Yet nowadays everyone is either for free trade or describes those who are against it as “protectionists”. The starting point for an intelligent debate – and for a judicious development of alternatives – could be better. Unfortunately, mainstream economics shows no greater inclination to diversity. “Economists argue all the time”, notes Paul Samuelson, holder of the recognition award for economic science (commonly called the Nobel Prize in Economics); “only on free trade do they all seem to be united.”1 Back in 1987, his fellow award-winner Paul Krugman wrote: “If there were an Economist’s Creed, it would certainly contain the affirmations, ‘I understand the principle of Comparative Advantage’ and ‘I advocate Free Trade’.”2 Jagdish Bhagwati, the “prime warrior of free trade”, confesses that “this task of ceaselessly defending our scientific findings in favour of free trade […] is an obligation that I teach tirelessly to my students”.3 At the same time, the faith 1

trading for good warrior Bhagwati regrets that the classical case for free trade “has only infrequently carried credibility with the populace at large”.4

AFTER TTIP AND CETA: FROM THE FRYING PAN INTO FIRE He is pretty right about that. While this book was being written in 2016, the two most ambitious free trade projects ever – the Comprehensive Economic and Trade Agreement (CETA) and the Transatlantic Trade and Investment Partnership (TTIP) – were staggering, as was the trans-Pacific TTP. In the EU, 3.2 million citizens signed a petition against TTIP, and in Germany some 300,000 people took to the streets against TTIP and CETA. In opinion polls at the beginning of 2016, 15 percent of respondents in the USA and 17 percent in Germany supported TTIP.5 In Austria, in September, a representative survey showed 4 percent and 6 percent for TTIP and CETA respectively.6 Yet a week later, the Austrian chancellor voted in favour of CETA at the European Council. The fact that hundreds of thousands demonstrate in Germany against “free trade” does not mean that they are protectionists. They want a different trade policy, different rules of the game that go beyond extreme positions and ideologies. This is good news. The bad news is that even if TTP, TTIP and CETA are partly defeated, we will still be trapped in the only slightly less objectionable World Trade Organization (WTO). Besides, there are approximately 3,400 other bilateral investment protection agreements. Along with the WTO tribunal, which has targeted laws protecting health or the environment, there are investment arbitration courts that hear direct complaints by multinational corporations against national governments. A legal action by the Vattenfall energy provider against the Federal Republic of Germany, for a total of 5.6 billion euros, was submitted before TTIP and CETA, and a case against the Philippines government that Fraport 2

introduction won in late 2016 was based on a bilateral agreement between Germany and the Philippines. Germany is the world champion in this field: it has ratified 140 such agreements, and the EU a total of 1,400. In parallel to CETA and TTIP, the EU is negotiating more than two dozen other free trade agreements. So, we have managed to get from the TTIP frying pan into the permanent fire of a multilayered free trade regime. Anti-WTO protests had begun some time earlier. In 1999 in Seattle, they were so strong that they played a role in the inconclusive break-up of the conference there. The same people who keep up the mantra that free trade brings democracy decided to move the follow-up conference to Doha, a desert dictatorship where demonstrations are banned. The WTO has not recovered from the blow. The “Doha Development Round” is over, and faith in free trade is disappearing worldwide. “The multilateral system is in the process of fraying”, writes Joseph Stiglitz.7 Donald Trump, the conservative billionaire who by rights should be a reserve officer in Bhagwati’s army, proclaims that “the World Trade Organization is a disaster”.8 Sigmar Gabriel campaigns for free trade, Donald Trump rants and raves against it; Hillary Clinton cheers it on, while Joseph Stiglitz, her husband’s former key economic appointee, admits “it is clear that NAFTA has not succeeded”.9 The landscape of opinions has grown rather confused in a short space of time. But not so the landscape of interests.

“FUNDAMENTALISM”10 The strange thing about political discussion of trade is that, in contrast to the compromise between two extreme positions that often emerges in such cases, one of the extremes here comes out on top: namely, the view that the most accurate definition of “free trade” is trade as an end in itself. This is already the fundamental mistake. For it implies that a means becomes the end and that the real goals and values suffer as a 3

trading for good result. This elevation of trade into an end in itself mirrors the elevation of capital in general in the capitalist system. All other goals and values suffer as a result – which ultimately means the common good.

ABSURDISTAN The absurdity of the “the more trade, the better” position becomes clear when one thinks it through to the end. The WTO rejoices that the volume of world trade rose from 5.5 percent of economic output in 1870 to 17.7 percent in the mid-1990s, and since then has soared to 30 percent in 2015.11 Logically, the joyful climax will come when it reaches 100 per cent – when specialization and the international division of labour go so far that everything produced around the world is exported and everything consumed is imported. This would be the case if there were a total international division of labour and the freest possible trade: a neurotic-compulsive idea. But if the maximum is not the best, then some thought must be given to why 17.7 percent should be better than 5.5 percent. And the prospect that transatlantic trade might rise by 80 percent12 as a result of TTIP, and by more than 55 percent13 as a result of CETA, would then be more of a high-stress scenario than a desirable objective for everyone concerned.

CORPORATE POWER The reason for the elevation of trade into an end in itself might simply be that more trade means more business for traders. And the important “traders” today are transnational corporations. One third of world trade is “intra-corporate” (i.e, within corporations), another third is “inter-corporate” (between corporations), and the remaining third involves other players. The power of corporations and their lobbies is now so great that international law places commercial law (including 4

introduction the protection of investments and patents) above human rights, environmental protection, cultural diversity or distributive goals – and even threatens to do away with such rights. Free trade is becoming the all-embracing basic right of juridical persons – about which it was once debatable whether they should have any rights at all. And, being a basic right, there are no longer supposed to be any limits to it. Attempts to regulate, control, dose or restrict it are increasingly held to be illegal or criminal under international law. This places shackles on local, regional and national democracy – for example, through: • a ban on preference for local businesses in public procurement or other regional, labour-market and infrastructural measures; • liberalization of public services, using pressure and even compulsion if they are included in lists of exceptions; • the banning of demands on investors, as provided for in the Multilateral Agreement on Investments (MAI), which collapsed in 1998; • investment protection agreements that give corporations nothing but rights, and host countries (democracies) nothing but obligations; • greater protection for intellectual property than for human rights; • direct litigation rights for corporations (ISDS) and the establishment of special courts to hear such cases (ICSID, MIC); • new supranational institutions to prevent new laws and regulations from hindering trade, and to rule on them before they are submitted to national parliaments (“regulatory cooperation”); • measures to prevent laws on health or the environment from restricting trade “more than is necessary”, with the WTO tribunal to rule in case of doubt.

5

trading for good

COMPULSION INSTEAD OF FREEDOM Open borders for goods and services are a basic element in the Washington Consensus, better known as “neoliberalism”. I prefer to use the term “pseudo-liberalism”, because it speaks of freedom more than it realizes it. It concerns itself one-sidedly with economic freedoms for juridical persons (transnational corporations), and with the protection of private property at the expense of all other freedoms, property forms and cultural diversity. The Washington Consensus began to take shape in the 1980s around the World Bank, the International Monetary Fund and the US Treasury Department. It was associated politically with Ronald Reagan (Reaganomics) and Margaret Thatcher (Thatcherism) and ideologically with the Austrian school of economics (Friedrich von Hayek, a major influence on Margaret Thatcher) and the Chicago Boys around Milton Friedman (one of Ronald Reagan’s economic advisors). Thomas Friedman, a New York Times columnist and a figurehead for the Washington Consensus, coined the term “golden straitjacket” to designate the combination of free trade, competitive business location and austerity policy. It is amazingly candid: the purpose is compulsion, not freedom. “To fit into the Golden Straitjacket a country must either adopt, or be seen as moving toward, the following golden rules: making the private sector the primary engine of its economic growth, maintaining a low rate of inflation and price stability, shrinking the size of its state bureaucracy, maintaining as close to a balanced budget as possible, if not a surplus, eliminating and lowering tariffs on imported goods, removing restrictions on foreign investment …”14 As seamstress of the golden straitjacket Friedman named Margaret Thatcher, the former UK prime minister, who “will go down in history as one of the great revolutionaries of the second half of the twentieth century”. Like the Iron Lady herself, he asserted that after 6

introduction the collapse of socialism there was no alternative to golden straitjacket politics: “The free market is the only ideology left.”15 The same idea had been disseminated by Francis Fukuyama as “the end of history”. The golden straitjacket “is not always pretty or gentle or comfortable. But it’s here and it’s the only model on the rack this historical season.” Moreover, Friedman insisted, “the tighter you wear it, the more gold it produces”16 – a promise that might sound attractive to King Midas (the mythical figure whose touch turned everything to gold but left him close to starvation), but for freedom-loving people, and for democrats, a golden cage remains a prison, and a golden straitjacket a horrific prospect.

THE PURPOSE OF TRADE This book will systematically take into account the purpose of trade: that is, the comprehensive practice of human rights, sustainable development – the UN goals of development and sustainability – and a good life for all, or the common good. Trade should serve human rights and the basic values of a democratic polity: that is its right place, that is its mission and its justification. The argument below will unpick the free trade paradigm and propose a different one instead: the paradigm of ethical trade. Two things in particular struck me as I was researching this book. First, there is a surprising range of alternative approaches. But, second, there is hardly any public discussion of them, and they are ignored by the free trade fan club. “Free trade” is obviously hegemonic: people are afraid to argue any position that deviates from it. The following survey will show how dogmatically orthodox the whole discussion has become, but also how diverse the treasury of alternatives remains.

7

trading for good Table I.1 Current paradigm Author

Proposal/idea

Adam Smith

Absolute advantages

David Ricardo

Comparative advantages

Heckscher-Ohlin theorem

Factor proportions model with assumption of convergence

Paul Samuelson

“We don’t need a new theory for international trade.”17

Jagdish Bhagwati

Army for free trade

GATT

Most favoured nation principle + national treatment

WTO

“Non-discrimination”

Thomas Friedman

The earth is flat – golden straitjacket

Francis Fukuyama

End of history

CETA

“Regulatory cooperation”

TTIP

“Gold standard for world trade”

BITs and ICSID

Corporate litigation rights (ISDS)

TARIFFS AS AN INSTRUMENT Customs tariffs, though perhaps not the key instrument, continue to play a by no means negligible role in trade policy. It is true that EU customs duties average no more than 1.3 percent, but the resulting revenue of 21.9 billion euros in 2014 (minus 25 percent, which went to the member states) contributed an impressive 12.4 percent to the EU’s total budget – which was actually up on the 11 percent in 2013.18 In Germany, 35,000 people work for the customs department. The corresponding figure is 55,000 in Russia, and 60,000 each in the USA and China.19 On average, the industrial countries cover their imports with a 5 percent tariff.20 In the non-industrial countries, the average tariff fell from 25 percent at the end of the 1980s to 11 percent in 2005.21 8

introduction Table I.2 Alternative paradigm Author

Proposal/idea

Friedrich List

Educational tariffs

John Maynard Keynes

Clearing union

Prebisch-Singer thesis

Unequal exchange and import substitution

Vandana Shiva

Free trade is the protectionism of the powerful

Ha-Joon Chang

Independent technological and industrial policy

Helena Norbert-Hodge

Localization

George Monbiot

Organization for fair trade

UNCTAD

Trade as instrument of sustainable development

Dani Rodrik

Trilemma of globalization

Corporate Europe Observatory and NGOs

Alternative trade mandate

Manfred Nowak, Julia Kozma, Martin Scheinin

World court for human rights

Economy for the Common Good

Ethical world trade

In most parts of the world, tariffs still make up a quarter of tax receipts; in South-East Asia 33 percent, in southern and East Africa 35 percent, and in West and Central Africa 42 percent.22 In Mexico, customs revenue fell by nearly a half after the country joined NAFTA,23 and per capita growth fell to 1.8 percent in the first ten NAFTA years, compared with 3.2 percent between 1948 and 1973.24 To be sure, tariffs are not an end in themselves (in the sense of “the higher, the better”), but nor are they the opposite of free trade (which would be a ban on imports and exports covering all categories of goods). Tariffs are an effective lever for the fine-tuning of various policy goals. In any middle course between free trade and isolation, tariffs will play a role 9

trading for good in the future – as an instrument of ethical trade policy and as a not insignificant budgetary resource.

QUALITATIVE RATHER THAN QUANTITATIVE FREEDOM One obstacle to knowledge-oriented discussion in recent decades has been that neoliberal ideology simply associates special interests with the word “free”, so that many end up supporting those interests for no other reason than that association. Who can be against “free trade”, “the free market economy”, “free movement of capital” or “free enterprise”? But freedoms, just like interests, are in constant conflict with one another. One person’s freedom is not automatically another person’s freedom – so we should be very cautious about approaching free trade or the free market economy from the viewpoint of “freedom”. We need clear definitions, and ultimately a democratic decision, as to which freedom we wish to prioritize over which others. In 2016 the director of the Global Ethics Institute in Tübingen, Claus Dierksmeier, published a book that helps us to weigh qualitative freedoms in the balance, instead of resting on the pat quantitative formula that any increase in any freedom is always best.25 This is a very useful tool for discussions of the pros and cons of free trade. The answers to many questions are clear and simple: for example, whether the economic freedom of the slaveholder should be graded higher than human dignity and the right of individuals to liberty, a legal work contract, a living wage and dignified work conditions. In many other conflicts of interests, the answer is not immediately obvious, but the task is still to come up with a sophisticated qualitative assessment, instead of simply preaching the free trade doctrine on the assumption it will ensure the best solution. Let us take a few examples.

10

introduction • Is the freedom to choose nuclear power, in addition to solar, wind, biomass and hydraulic energy, worth more to us than the freedom to live without fear of radioactive contamination and a mega-disaster? • Does the freedom of Bayer’s owners to purchase Monsanto count for more than the freedom of suppliers, consumers, politicians and society not to be dependent on one powerful corporation? • Should Germany’s freedom to notch up a record trade balance be considered superior to the freedom to feel secure in a multilateral trading system where the balances of all participating countries tend to cancel one another out? • Should the freedom to consume goods and services with a high ecological footprint take priority over equal rights to life and opportunities for future generations? • Is the freedom of investors more important than the freedom to regulate foreign investments democratically? If the answers are “no”, why are all those things legal and consistent with WTO rules? Why do so few economists think it a problem that free trade should be imposed without regard for human rights, work conditions, environmental protection and sustainable development? The European Commission’s current strategic thinking on trade policy is sweeping and unnuanced: “Europe must reject protectionism. Protectionism raises prices for consumers and business, and limits choice.”26 Full stop, end of message! That is too simple. How could free trade have become “the religion of our age”?27

11

II

ORIGINS AND CRITIQUE OF THE RELIGION OF FREE TRADE ADAM SMITH: ABSOLUTE ADVANTAGES The first prominent champion of free trade was Adam Smith. In his second major work, The Wealth of Nations (1776), the Scottish moral philosopher laid the cornerstone for classical economics, in opposition to the then-dominant mercantilist strategy of exporting as much, and importing as little, as possible. Smith referred more than once to the fact that “the inland or home trade [was] the most important of all, the trade in which an equal capital affords the greatest revenue, and creates the greatest employment to the people of the country”.1 At the same time, he complained of the ubiquitous tariffs: “The variety of goods, of which the importation into Great Britain is prohibited, either absolutely, or under certain circumstances, greatly exceeds what can easily be suspected by those who are not well acquainted with the laws of the customs.”2 Against this background, Smith developed a theory of “absolute cost advantages”. If a country, A, because of its geographical, climatic or cultural circumstances, can produce certain goods more cheaply or with better quality than another country, and if country 13

trading for good B can do the same for other goods, then it is in the interests of both countries to exchange these “specialities” in free trade without tariff barriers. Smith derives his theory from the principle of the division of labour and begins his thought process with the family. “It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy.” Note the word: never. “The tailor does not attempt to make his own shoes but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes but employs a tailor. The farmer attempts to make neither the one nor the other, but employs those different artificers.” Here speaks Smith, who was not a family therapist but a moral philosopher. “All of them find it for their interest to employ their whole industry in a way in which they have some advantage over their neighbours, and to purchase with a part of its produce, or, what is the same thing, with the price of a part of it, whatever else they have occasion for.”3 “Their whole industry”: the choice of words seems as incautious here as in the case of “never”. The next step in his thinking transfers to entire nations the idea of an economy based on a local division of labour. “What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.”4 These lines mark the fons et origo of the free trade ideology. It soon becomes clear, however, that not all countries can produce more cheaply the same quantity of often-used goods. Hence there will be winners and losers in any global trading system based on absolute cost advantages. Without special measures to offset this, the system will soon fall out of equilibrium.

14

origins and critique of the religion of free trade

DAVID RICARDO: COMPARATIVE COST ADVANTAGES Forty years later, in 1817, David Ricardo took Smith’s basic idea farther. He found a mathematical solution to the problem of how a trading system could provide advantages to all countries participating in it, even if not all of them enjoyed absolute advantages in certain goods or services. The master that Ricardo served in developing his theorem was the common good: “Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole.”5 Ricardo developed his ideas by taking the example of wine production in Portugal and cloth production in England. On the basis of absolute advantages, it was understandable that each country should specialize in what it could do better than the other. But even if Portugal could produce both wine and cloth more cheaply than England, it would be worthwhile for both that Portugal should invest all its capital in viticulture and Britain in cloth, since, measured by the hours of necessary labour, Portugal was relatively better at producing wine. This is how Ricardo puts it: “England may be so circumstanced, that to produce the cloth may require the labour of 100 men for one year; and if she attempted to make the wine, it might require the labour of 120 men for the same time. England would therefore find it her interest to import wine, and to purchase it by the exportation of cloth. To produce the wine in Portugal, might require only the labour of eighty men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth.” Then comes this: “This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England. Though she could make the cloth 15

trading for good with the labour of 90 men, she would import it from a country where it required the labour of 100 men to produce it, because it would be advantageous to her rather to employ her capital in the production of wine, for which she would obtain more cloth from England, than she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth.”6 Perhaps suspecting that he has not yet made the point fully understandable to every reader, Ricardo here adds the only footnote in this chapter, “On Foreign Trade”: “Two men can both make shoes and hats, and one is superior to the other in both employments; but in making hats, he can only exceed his competitor by one-fifth or 20 per cent, and in making shoes he can excel him by one-third or 33 per cent; – will it not be for the interest of both, that the superior man should employ himself exclusively in making shoes, and the inferior man in making hats?”7 The jewel in the crown of foreign trade theory pops up in a footnote. If life were a mathematical matrix, if everyone calculated like a machine, and if human existence were mainly about money, such a (correct) mathematical calculation would also have practical importance. But money is not the main thing in life, and Ricardo’s calculation virtually leaves out what makes life worth living in the first place: value, meaning, feelings, relationships, community, democracy, traditions, environment, cultural diversity … The obvious advantage of Ricardo’s calculation is greater financial efficiency. But is financial efficiency what life, or indeed “economics”, is mainly about? On closer examination, Ricardo’s conception of efficiency – How do I obtain a higher rate of profit? How do I get the lowest prices for what I purchase? How do I raise my quantitative consumption opportunities – turns out to be not “economic” but chrematistic. The real concern of economics is the good life; money and financial efficiency are only means to an end – unlike in chrematistics, which is about money and profit. We owe this distinction – between oikonomia 16

origins and critique of the religion of free trade (household management) and chrēmatistike (moneymaking) – to the Greek philosopher Aristotle.8 In oikonomia, money is only a means and serves the “good life” of all household members and a just “society”. In chrematistics, it becomes the prime goal and is an end in itself, even if things are worse for household members or for the house (oikos) itself. If moneymaking becomes the goal, more money, a higher rate of return, greater profits and a higher GDP are in principle always better – regardless of how everything else, from health to democracy, may develop. The good life, the common good, loses out in chrematistics. In chrematistics disguised as economics, which also thinks of itself as a leading science,9 Ricardo’s calculation has prevailed on a broad front. Historians regard the theorem of comparative cost advantages as the “jewel in the crown of foreign trade theory”,10 while the WTO even acclaims it as “the single most powerful insight into economics”.11 One of the highest authorities in economics, the textbook author and Nobel prizewinner Paul Samuelson, said in a conversation with the mathematician Stanislaw Ulam that it was probably the only hypothesis in economic science that was both true and non-trivial: “That this idea is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them.”12 Here, as in Bhagwati, there are undertones of regret about the impossibility of teaching unbelievers. Ricardo’s idea has prevailed not only against the doubts of noneconomists but also in international business law. The World Trade Organization, the core of the global free trade regime, rests upon more than sixty agreements valid in international law. It emerged in 1995 out of the GATT (General Agreement on Tariffs and Trade), which between 1947 and 1994 was gradually built up in eight rounds of negotiations. The last, longest and broadest of these, taking in new areas such as agriculture, textiles, services (GATS) and intellectual 17

trading for good property rights (TRIPS), was the Uruguay Round (1986 to 1994), which eventually led to the founding of the WTO. The original plan had been different, however. Back in 1948, it had been intended that an International Trade Organization (ITO) would come into being as a sister organization of the World Bank and the International Monetary Fund. But the Bretton Woods twins never turned into triplets. The ITO would have had the status of a UN organization, with the ability to enforce labour rights, to stabilize balances of payments, and to regulate the prices of raw materials.13 But this met with huge opposition from the economic lobbies, until the US Congress finally buckled and wound up the ITO.14 The section on free trade was simply lifted from its “Havana Charter” and used to carpenter the GATT, so that, instead of an ethical trade organization, what came into being was a simple free trade agreement. The aim of this was a one-dimensional removal of tariffs and “non-tariff barriers to trade” – by which was meant all political measures that interfered in any way with frictionless trade, such as technical standards, approval tests, certification processes, rules of origin and hygiene requirements, but also human rights, labour standards, distributive policies, or measures to protect public health, consumers, the environment and the climate. Only through free-trader spectacles (free trade as an end in itself ) can one arrive at the idea that such protective measures might be rather negative. But what the WTO is concerned with is not the good life but free trade. And it invokes the name of David Ricardo in pursuing that aim.

THE WTO’S “CASE FOR OPEN TRADE” On the WTO website you can find the current justification for free trade: Suppose country A is better than country B at making automobiles, and country B is better than country A at making 18

origins and critique of the religion of free trade bread. It is obvious (the academics would say “trivial”) that both would benefit if A specialized in automobiles, B specialized in bread and they traded their products. That is a case of absolute advantage. But what if a country is bad at making everything? Will trade drive all producers out of business? The answer, according to Ricardo, is no. The reason is the principle of comparative advantage. It says, countries A and B still stand to benefit from trading with each other even if A is better than B at making everything. If A is much more superior at making automobiles and only slightly superior at making bread, then A should still invest resources in what it does best – producing automobiles – and export the product to B. B should still invest in what it does best – making bread – and export that product to A, even if it is not as efficient as A. Both would still benefit from the trade. A country does not have to be best at anything to gain from trade. That is comparative advantage.15 This is how the jewel in the crown was described in 2016 at the highest political level. I regularly ask my students at the Vienna University of Business and Economics whether they find this example convincing and whether they would think it a good idea to apply it in practice to two countries, for example, China and India. Most of the class have long been familiar with Ricardo’s theorem and its status as a holy pillar. Yet often my question is greeted with sheepish silence. After a long while, one student sometimes mutters something about “efficiency gains”. Correct: some gains might be achieved in practice – between India and China, for instance – even if one of the two countries was better at making cars 19

trading for good and at baking bread. But is that alone really a sufficient and convincing argument for free trade? “The theory dates back to classical economist David Ricardo”, the WTO continues. “It is one of the most widely accepted among economists. It is also one of the most misunderstood among noneconomists because it is confused with absolute advantage.” Aha! The distinction between believers and non-believers – excuse me, between those who understand and those who do not understand – is equated with the distinction between economists and non-economists. We’ve heard that one before! Evidently there is more at issue here than a cognitive divide between experts and non-experts. Evidently the mainstream in economics (or chrematistics) cherishes a worldview that is not often held by “normal” people – and they openly complain about it. The present book has been written by an (academic) non-economist who largely shares the doubts and concerns of non-economists. After years of thinking about economic-chrematistic science, I have come to regard it more and more as a danger. In what follows, I shall therefore try to take the crown jewel apart, facet by facet, in the sense of scientific, or at least logical, deconstruction.

CRITICISM 1: GLOBAL PLANNED ECONOMY According to the jewel in the crown of foreign trade theory, countries that know everything better than others should hand over to other countries the production and export of goods in which they are less superior and those others are less inferior. The better should somehow transfer such industries to the worse and gift them the resulting profits. Well, the world has yet to see any country make such a generous move, in the name of a famous calculation. Nor does the WTO offer any practical instance of one: the automobile/bread example is fiction. That 20

origins and critique of the religion of free trade is already more than a little strange. Are scientific crown jewels above the requirement to be measured by what happens in practice? Is such a move even conceivable? One “person” – in this case, a trade or economics minister representing a whole economy – would have to persuade businessmen in the less superior sectors to give up their craft or industriousness and voluntarily yield to a country, or several countries, with comparative advantages. Realistic? The numberone error in Ricardo’s reasoning is to equate national economies with “people” – a lapsus he shares with Adam Smith, the family theorist, who, as we have seen, had a very precise idea of what makes a father tick. Smith’s rule: “never” practise two crafts at the same time, even if you’re a master at both and enjoy working at them! The god of chrematistics wouldn’t like that! To my relief, I found two economists who exposed the same logical errors. Herman Daly and John Cobb, Jr, wrote: “Suppose that Japan has an absolute advantage in both electronic and automobile production, but that the United States has a comparative advantage in automobile production. Will that provide any incentive for Japanese investors to produce only electronics and import their cars from the United States? Obviously it does not function in that way.”16 It gets even crazier. The United States produces cars and exports them to Japan; and Japan produces cars and exports them to the United States. Reality refuses to yield to theory. According to the theory, one country should specialize in auto production, in order to cash in on its comparative advantages. Mathematically, at least, that would be the most efficient. In the WTO example, the trade minister of country A (for example, China) would have to urge all bakers to stop making bread and to invest their (mostly rather modest) assets in the auto industry, so that country B (for example, India) can in future supply the whole of China with bread. Such massive government intervention would have to take 21

trading for good place in the WTO at a global level; all trade and economics ministers would have to come to an agreement and, working at the drawing board, “distribute” the production of all export goods. Consistent implementation of Ricardo’s idea would require a global planned economy. But that was certainly not the intention, nor is it the policy of today’s WTO. There is no central committee for the planning of global production. Adam Smith, so highly praised by Ricardo, explicitly warned against such arrogation: “Every individual, it is evident, can in his local situation judge much better than any statesman or lawgiver can do for him. The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.”17 Clearly the WTO tacitly assumes that the economic branches of all countries with absolute advantages, but with comparative disadvantages, willingly change into branches with comparative advantages – which is why it does absolutely nothing to encourage this assumption with practical rules. Moreover, the WTO is guilty of a small but subtle piece of deception in its example of cars and bread. In Ricardo’s example, the colonial country Portugal is better in both (cloth, wine) than the colonial power Britain. This leads to the conclusion, however, that the production of the industrial product (cloth) should be ceded to the colonial power, while the colonial country specializes in the primary sector (wine). The WTO’s textbook case would therefore be more authentic if country A was better at making bread (agrarian product) than at producing cars (industrial product) and ergo should yield auto production to country B. Presumably, more readers would then become suspicious right from the start … 22

origins and critique of the religion of free trade That the global distribution of production by comparative advantage does not operate in the real world – or is not even a realistic political goal – can be seen from the simple fact that a half of world trade is redundant: the import-export of cars to and from Japan, Germany, France and the United States is only one example of the non-organization of international trade by comparative advantage. Americans import cakes from Denmark, and Danes cakes from the USA. “A recipe swap would certainly be more economical”, suggests Herman Daly.18 New Zealand butter is marketed in Germany as if there were no cows there, and Chilean apples are shipped to Austria as if no apple tree were in blossom there. The first example presented in the CETA “Sustainability Impact Assessment” is that EU imports of beef and especially pork from Canada will increase.19 Good Lord, can it really be that there are no pigs or cattle in the EU? In the other direction, Canada can expect increased dairy imports from the EU – obviously to relieve a serious shortage in the Canadian dairy industry! In the restaurants of Minnesota, wooden toothpicks from Japan are provided in plastic wrapping, while at the same time a factory in Minnesota produces an annual total of one billion disposable chopsticks for export to Japan.20 In the WTO, however, there is no organism and no contractual provision to remedy this radical violation of the principle of comparative advantage, either by moving the chopstick production to Japan and the toothpick production to Minnesota, or – a rather obvious course – by relocating then both in parts of the world with the greatest comparative advantages. Those places are not known, because there has not even been any calculation of what could be most efficiently produced where (in Ricardo’s sense of efficient). It would seem that in fact no one takes seriously the idea of comparative cost advantages. Gerd Zeitler writes that “in the whole of economic history there has been no consistent application of Ricardo’s theorem”.21

23

trading for good

CRITICISM 2: MOBILE CAPITAL OBLITERATES RELATIVE (NATIONAL!) ADVANTAGES A further key error on the part of Smith and Ricardo is the assumption of the immobility – or, to put it another way, the “under-utilization” or “underemployment” – of capital and manpower. The possibility that either British capital or Portuguese manpower is fully employed, and that it might seek investment or employment opportunities abroad, is not part of Ricardo’s model. The effectiveness of his proposal requires that British capital should specialize in Britain in “what it can do best” (WTO), and that Portuguese capital should do the same in Portugal. Ricardo did, it is true, think it an option for British capital to enter the wine production market in Portugal, exploit the comparative advantages there, and produce what Portugal could do best with its factors of production (know-how, geography, climate, manpower). Indeed, he discussed this in some detail: “If the profits of capital employed in Yorkshire, should exceed those of capital employed in London, capital would speedily move from London to Yorkshire, and an equality of profits would be effected; but if in consequence of the diminished rate of production in the lands of England, from the increase of capital and population, wages should rise, and profits fall, it would not follow that capital and population would necessarily move from England to Holland, or Spain, or Russia, where profits might be higher. […] The difference in this respect, between a single country and many, is easily accounted for, by considering the difficulty with which capital moves from one country to another, to seek a more profitable employment, and the activity with which it invariably passes from one province to another in the same country.” Then comes this noteworthy sentence: “It would undoubtedly be advantageous to the capitalists of England, and to the consumers in both countries, that under such circumstances, the wine and the cloth should both be made in Portugal, and therefore that 24

origins and critique of the religion of free trade the capital and labour of England employed in making cloth, should be removed to Portugal for that purpose.” 22 That speaks for moving capital and labour to Portugal. But Ricardo came to the conclusion that the whole scenario was irrelevant, because of “the natural disinclination which every man has to quit the country of his birth and connexions, and intrust himself with all his habits fixed, to a strange government and new laws”. He was convinced that “these feelings […] induce most men of property to be satisfied with a low rate of profits in their own country, rather than seek a more advantageous employment for their wealth in foreign nations”.23 In this he was following Adam Smith’s assumption that capitalists always acted nationally and did not think of investing their capital abroad. We find this in the famous passage where, for the only time in his 800-page magnum opus, he invokes the invisible hand: “By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”24 Smith and Ricardo took it for granted that all capitalists voluntarily invest at home in pursuit of profit. Smith’s legendary sentence contains a triple assumption: 1. Capitalists act in pursuit of profit. 2. Therefore they voluntarily invest at home in preference to abroad. 3. This preference promotes the common good. The first proposition is questionable, the second seems false from today’s viewpoint, and the third follows from the second and is therefore logically false: capitalists promote the common good because they rather invest at home than abroad. But, precisely, if they do not do that, then logically they do not promote the common good, or 25

trading for good at least do so only to a lesser degree. Partly, but not only, because of the erroneous reasoning, the idea that the common good is an effect of capitalism has proved to be a myth. Peter Ulrich, the expert in business ethics at St. Gallen, Switzerland, describes it pointedly as the “metaphysical common good-fiction of the market”.25 Here I would speak of the “national-capitalist common good-fiction”, which both Smith and Ricardo are taken in by. Today, contrary to Smith’s and Ricardo’s suppositions, free mobility of capital is not only possible but a global reality. This changes the picture fundamentally. British capital can produce cloth in Britain and wine in Portugal; it can pay workers rock-bottom wages in both countries and transfer the profits to tax havens, where the owners’ assets keep accumulating and do not serve “the universal good of the whole”. Jobless British workers, too, might follow the capital to Portugal and increase the pressure on wage levels and labour markets. To be blunt, capital today is by and large no longer British or Portuguese but primarily global or transnational. And what it pursues is not relative but absolute cost advantages. Gerd Zeitler writes: “Direct competition over absolute advantages – or, more precisely, over absolute worldmarket prices and increasingly over absolute world-market wages – is replacing indirect competition over comparative cost advantages.”26 Corporations do not ask: “In which country can I produce at the relatively cheapest price?”, but rather: “In which country can I produce most cheaply?” And Altvater and Mahnkopf concur: “The theorem [of Ricardo] becomes meaningless if, as well as goods being traded, capital is also transferred.”27 Thus, in the actual state of global competition and “free trade”, the real point is not relative but absolute advantages – the jewel in the crown is a castle in the air. Further, competition over absolute advantages does not necessarily centre on higher (labour) productivity, so much as on lower costs and, not infrequently, on dumping. For example, a business 26

origins and critique of the religion of free trade in country A may produce bicycles at lower productivity (six bicycles with ten employees working an eight-hour day) than a rival business in country B (which makes eight bicycles with ten employees working an eight-hour day). However, the wages paid by the business in country A may be only half as high – 6 euros an hour – while the business in country B pays, or is liable to pay, 12 euros an hour. In that case, the less productive business has lower unit labour costs (= wage costs per bicycle, that is, 80 euros) than those of the more productive business (120 euros). The less productive business may then offer bicycles at a cheaper price and win the global competition for absolute cost advantages. What is true for a whole bicycle produced in one country is also true – with a global division of labour and free movement of capital – along the whole length of the global value-creation chain. In this way, cost pressure is globalized and strikes at the place of lowest resistance (wages, labour standards, social security, human rights, environmental legislation, consumer protection, etc.). The following example shows how little purchase Ricardo’s calculation may have in the real world. Let us assume that country C is worse than England and Portugal at producing wine and cloth. But if it has the lowest labour costs or environmental standards or social obligations (or even human rights standards), then it may offer both on the world market more cheaply than England and Portugal are able to do. The majority of global consumers do not have the option of turning to the qualitatively better Portuguese wine or English cloth, because they simply cannot afford the high price of quality. The result under present-day conditions – faith in “free trade”, hence free unregulated movement of goods and capital, hence the reality of global competition over costs and location – will therefore be growing unemployment in England and Portugal, together with wretched, sometimes degrading, work conditions in country C, where transnational corporations reap high profits and make shareholders rich faster than in other parts of the 27

trading for good world. The profits from the global division of labour and “free trade” do not, as Ricardo calculated in minute detail, go to the capitalists of the country in which the production takes place, who, guided by the invisible hand, invest in production and employment “at home”; no, the profits go to a transnational property-owning elite, who park their assets in tax havens and entrust them to asset managers, family offices and private bankers (who also rise into the global class of High Net Worth Individuals – HNWIs). Meanwhile, “beneath them”, unemployment and job insecurity spread worldwide, the World Trade Organization tirelessly sings to “non-economists” the “trivial” idea of comparative cost advantages – and Trump wins the elections.

CRITICISM 3: EXCHANGE RATES FORGOTTEN The roots of the problem we have been describing lie in the fact that the currency in which Ricardo did his sums was labour hours, or productivity. His calculation works if labour hours are equated with costs, and costs with prices: one labour hour in England = one labour hour in Portugal. In a situation of barter trade, labour hours are a rational unit. But nowadays products like wine and cloth are paid for not in hours but in national currencies such as the pound or the euro. How much something costs in cross-border trade therefore depends not on the number of labour hours embedded in it but on the level of wages and hence of unit costs (per bottle or per bale) in the currency of the country of origin, as well as on the exchange rate and hence the price in the country of destination. Only if exchange rates reflect the level of productivity and real purchasing-power parities is there no (further) problem in this regard. But they must be established politically – and since the 1970s that has no longer been the case. “Currency prices” – hence exchange rates – are today formed on the “free” finance and currency markets; they can shoot right up one day and come crashing 28

origins and critique of the religion of free trade down the next, with all the predictable consequences for “exchange relations” between the traded goods and services (“terms of trade”), and therefore for absolute and comparative cost advantages. This opens up a whole set of problems. Gerd Zeitler argues that, for today’s trading partners to be able to implement Ricardo’s idea, they would first have to “back away from barter trade and agree among themselves bilateral exchange-rates directly derived from the internal prices of their products, which then allow them to identify and use comparative advantages”.28 Table II.1 Ricardo’s example (1) Wine

Cloth

Portugal

80 hours = currency units

90 hours = currency units

England

120 hours = currency units

100 hours = currency units

I will now apply Zeitler’s calculation directly to Ricardo’s example. If England requires 120 labour units (hours) for one unit of wine and 100 for one unit of cloth, the costs (hours) are together 220 or on average 110 (assuming, for the sake of simplicity, that one hour is remunerated equally at one pound an hour). Portugal requires, for one unit of cloth and one unit of wine, 90 plus 80 = 170 hours, or an average of 85 escudos. So, 110 pounds correspond to 85 escudos, which is the “bilateral exchange rate” between the (in Ricardo’s example, more productive) Portugal and the (less productive) England. To be more precise, one escudo = 1.294 pounds, and one pound = 0.773 escudos. If Portugal and England then divide up the production of wine and cloth on the basis of comparative cost advantages, Portugal will cede to England what it makes less better than England, that is, cloth. Instead of producing cloth itself for 90 escudos, it buys it in England, which produces cloth at the price of 100 pounds. For 100 pounds Portugal must fork out 77.3 escudos (instead of 90 escudos to produce its own 29

trading for good cloth), which represents a saving of 14.1 percent. England, on the other hand, which could produce wine at the price of 120 pounds, pays 80 escudos for wine imports from Portugal – that is, the equivalent of 103.5 pounds at the computed exchange rate of 1.294 pounds per escudo. The saving for England would come to 13.7 percent. Table II.2 Ricardo’s example (2) Home-produced wine

Wine from Portugal

Difference/ saving

England

120 pounds

103.5 pounds

–13.7 percent

Portugal

90 escudos

77.3 escudos

–14.1 percent

Home-produced cloth

Cloth from England

So far, so good: both are winners. But now the problems begin. I will mention only the three most important. Problem Number One: Ricardo forgot about – or deliberately overlooked – transaction costs; first of all, the costs of transport, but also such things as customs declarations (even with free trade), translations or foreign distribution. If these costs add roughly another 15 percent, the profit would melt away in both cases. The incentive to divide up production on the basis of comparative advantages would disappear. The bread must somehow be got from southern India to northern China! Problem Number Two: productivity, and therefore the prices of goods in which countries have specialized, develop differently; the “terms of trade” deviate from each other. That means: wine stays cheap, while cloth rises in price. Or in the WTO example: bread stays cheap, while cars become expensive. Throughout the twentieth century, the prices of raw materials (without oil) declined by 1 percent a year in relation to industrial prices.29 Between 1980 and 2000, world market prices fell by 41 percent for metals, 71 percent for fuels,30 and an average of 25 percent for eighteen major agricultural goods. Coffee became 64 30

origins and critique of the religion of free trade percent cheaper, cocoa 71 percent, and sugar 77 percent. Consequently, at the beginning of the twenty-first century, a total of sixty-four developing countries had a negative trade balance.31 To compensate for the widening fluctuations in price relations, either the affected countries had to adjust (politically) the exchange rates between their currencies, or the winner-countries had to cede more production to the loser-countries. Hello, the WTO! Problem Number Three appears if wages and productivity remain the same but exchange rates change. This may happen if the formation of exchange rates is left to free markets. Then, either the currency markets may develop in their usual irrational way, deviating from actual productivity relations; or financial investors may appear on the scene and speculate on rising or falling exchange rates. If they achieve their speculative aims, they destroy the exchange relation in which each trading partner might be a winner. Let us assume that, as a result of irrationality or speculation, the exchange rate of the escudo against the pound falls to 1:1, so that one pound is worth one escudo, and vice versa. England will be happy with this, because it will be able to buy wine more cheaply – for 80 instead of 103.5 pounds. The advantage in comparison with the costs of producing the wine itself will increase to one third, or 33 percent. On the other hand, imported cloth will become more expensive for Portugal: its price will rise to 90 escudos – precisely the cost of producing its own – so that the comparative advantage for Portugal will disappear (even without allowing for transaction costs). From this we learn that stable exchange rates are also a precondition if the Ricardo calculation is to work. Irrational exchange-rate fluctuations are by no means necessarily attributable to malign speculation. Not long ago, in the wake of the euro crisis, Switzerland experienced for itself the deleterious effects of market-driven exchange rates combined with free movement of capital, when global investment capital flooded into the secure pastures of the 31

trading for good Alpine country. The flood was so strong that attempts by the National Bank to cap the exchange rate of the Swiss franc were of no avail. The rate went through its ceiling, and in the following months Swiss goods became on average 10 percent more expensive for people buying in euros. In 2015, an average of 6,000 jobs a month were lost, official GDP growth forecasts fell from 2.1 to 0.8 percent, Swiss hotel bookings were down by a total of 142,000 between May and October, and corporate insolvencies rose by 7 percent.32 The WTO has nothing to offer for such perfectly real scenarios.

CRITICISM 4: BALANCED TRADE NOT A GOAL If countries operating in a free trade system are to be equal winners, the trade balances of all must cancel each other out. For whether the “free” market enthusiasts like it or not, macroeconomic equilibrium can be achieved only with a balanced trading relationship. The sum of trade balances is then zero: any trade surplus for one country necessarily entails a deficit in another country. An imbalance is not a problem if it is temporary and small in scale, just as, in relations between two “people”, one may occasionally sell to the other more than he buys. But if one sells continually or substantially more than he buys, the other will run up a growing debt to him and sooner or later face bankruptcy. That is a problem also for the country running a surplus, because it will no longer be able to collect the money owing to it. In a global trading system, there is also the possibility of finding another debtor and hanging the former partner out to dry – anyway, that would correspond to a mercantilist strategy rather than the idea of free trade aimed at the “good of the whole”. In 2016, Germany notched up a record surplus of nearly 250 billion euros or 8.5 percent of its GDP;33 the previous year it had been 7.6 percent. Such a figure requires that one or more quite sizeable 32

origins and critique of the religion of free trade countries should be in debt on the same scale – the scale that soon leads to bankruptcy – otherwise the sum does not add up for the world champion exporter. There is a familiar case in point: the massive trade imbalance that developed between Germany and Greece from the launch of the euro currency union in 1999 to the outbreak of the euro crisis in 2009, and which played a considerable role in the Greek crash. According to Ricardo’s idea, Germany and all other countries that had a trade surplus with Greece should have ceded production lines to Greece until it was again exporting as much as it imported, for, as the WTO tells us, “it is meaningless to say a country has a comparative advantage in nothing”.34 Germany, for example, could have ceded its entire agriculture to Greece and other trading partners; it does not even have absolute advantages in that sector, which is why such a solution would actually suggest itself from the point of view of comparative advantages. There are also “economists” who seriously propose it.35 And the WTO explains free trade to us precisely by saying that not every country has to produce its daily bread itself. Actually, things should not have come to a world export championship. The stability law passed in the Federal Republic in 1967 provided for “external economic equilibrium”: “In the case of external disturbances to the overall economic equilibrium […] the Federal Government shall avail itself of all possible means of international coordination. Insofar as this does not suffice, it shall use the economic policy instruments available to it for the purpose of maintaining external equilibrium.”36 Ricardo, for example! To implement this law, Germany would have either to raise the exchange rate (which is difficult with the euro!) or revalue internally (wage rise in all export branches) or levy duties (which is difficult in the customs union) or apply the principle of comparative cost advantages by ceding whole production lines to trading partners. In any case, a trading system can function in the long term only if all participants have balanced trade, and that in turn 33

trading for good can be achieved only if the global distribution of production is such that all countries export goods and services of comparable value. If the development of trade balances is left to chance – or to a trial of strength – some countries will sooner or later go bankrupt, while others are left with claims (“assets”): a formula for sovereign defaults and “haircuts”. In 2015, sixty-two countries around the world had a trade surplus, while 123 had a deficit.37 Many of the imbalances – for example, between China and the United States – are so large that some authors see them as “the most significant immediate threat to the world economy”.38 Trade imbalances can have the most varied causes: • Not all countries have absolute advantages of equal value. • The “terms of trade” become skewed. • Exchange rates do not represent purchasing-power parities but are muddled by liberalized financial markets. • Consumers in one country consume on credit, which drives up imports excessively. • A number of countries specialize in similar products (coffee) or services (low-wage sweatshops) and prefer to wager on absolute cost advantages (South–South competition). (England creates many Portugals, in order to emerge from the global trade war as the victor in industrial goods.) What is decisive in the end, however, is that there is not one person per country who can plan production and allocate it in such a way that all are winners. Such all-powerful individuals do not exist in reality; a country’s economy consists of thousands of companies, each with its own interests. And many of these do not cooperate for the greatest possible common good of their national economy, but pursue their own advantage. Indeed, they are encouraged to do this by classical economics, which has affixed free trade to its banner. Adam Smith had 34

origins and critique of the religion of free trade already postulated that the wealth of nations depended not on “the benevolence” of entrepreneurs but on the fact that they pursue “their own advantage”.39 But why, then, should they apply the theorem of comparative advantage? If the global trading system is to work for “the good of all”, it needs a mechanism to ensure that trade balances remain even, at least approximately and over long time periods. The economist John Maynard Keynes developed such a balancing mechanism – today we would call it an “automatic stabilizer” – and in 1944 he presented it at the Bretton Woods conference that laid the foundations for the post-war economic order. The idea immediately foundered, however, because, unlike Ricardo, the chief American negotiator, Harry Dexter White, had his eyes not on global well-being as a whole but on that of the US government. Together with the Bretton Woods system came the dollar hegemony that persists to this day; the dollar was and remains the world’s number one commodities and credit currency. The singling out of one national currency for this leading role programmed the Bretton Woods system for eventual failure, and it is still today the principal source of world economic instability. Since the collapse of the Bretton Woods system in the early 1970s – when the dollar’s gold backing went overboard – the global currency and finance markets have been shaken by major exchange-rate fluctuations, trade imbalances, twin-tower structures of currency reserves and government debt, speculative attacks on currencies and sovereign defaults. If governments had deliberately planned a system of global instability, they could not have produced a better result. The founding of the WTO in 1995 could have been the opportunity to develop a compensation mechanism and to calm currency and finance relations. Participation in a Bretton Woods II, as envisaged by Keynes, could have been made the condition for membership, but there were two reasons why this did not happen. First, the US 35

trading for good government, driven by the same superpower interests as fifty years earlier, was opposed to it. And second, Keynes’s reputation had been plummeting, as monetarists, free traders and straitjacket pedlars had taken command, and the epithet “Keynesian” had become a block to a career in mainstream economics. Nevertheless, “Ricardo” plus “Keynes” was, at least mathematically, a logical marriage: comparative cost advantages (A) + balanced trade on all sides (B), to ensure that the efficiency gains accrue equally to all human beings – or rather, sorry, to all nation-states.

CRITICISM 5: ECOLOGY Even if all countries had financial trade balances that were perfectly level, they might together use the earth’s resources far more quickly than these were renewed, and produced waste substances that put a permanent strain on the ecosystem. In this way, humanity as a whole might accumulate an ecological debt to the planet and to the future. On the other hand, it might be that only some countries took out more than their inhabitants were due per capita, or that people in only a small number of countries lived several times beyond their ecological means. It is further possible that the very countries with a surplus financial trade balance might have the largest material deficits in their trade balances and therefore the largest ecological debt to the planet. Take the European Union, for example. In the year 2000, the EU had a slight deficit in its financial balance yet imported goods with a total mass of 7.3 billion tonnes, against exports weighing light at just 2.3 billion tonnes.40 In a single year, the EU incurred a debt of 4 billion tonnes to its trading partners. Chrematists disguised as economists regard these calculations as alien to their discipline; they read balances only in dollars. The WTO provides just as little for a compensation mechanism in relation to ecological trade balances as it does in relation 36

origins and critique of the religion of free trade to financial balances. Indeed, it does not even recognize the problem of overuse of the earth’s resources: it is a question that in WTO language is called a “non-trade concern”. The best-known way of measuring the strain that man places on the earth’s ecosystem is the ecological footprint, which is calculated in “global hectares”. All pollution – both wastage and restitution – is converted into these units or “ecological currency”.41 In 2012, each human being had 1.7 global hectares at their disposal. But on average each had already consumed 2.8 hectares, so that in 91 out of 152 countries humans were placing an excessive burden on the ecosystem. All told, humanity already lays claim to 1.5 planets.42 If everyone consumed as much as the average citizen of the USA or Canada we would need 4.8 planets, of Austria 3.6 planets, of Germany 3.1 planets, of China 2 planets, of India 0.7 planets, and of Eritrea 0.25 planets. With just one planet, humankind could manage if everyone consumed as much as an average person does in Morocco, Honduras, Lesotho or Vietnam.43 Humankind has reshaped 50 percent of the earth’s land surface and consumes 50 percent of all freshwater supplies. The global forest area has halved since the beginning of agriculture 10,000 years ago; the number of wetlands since 1950; and the fish population since 1970. One fifth of all coral reef and 35 percent of mango forest have been lost. The rate of species destruction is today a thousand times higher than before the human entrance into history. One third of all mammals, birds and amphibians are threatened with extinction.44 Between 1970 and 2012, the stocks of sea-living species fell by 36 percent, those of landliving animal species by 38 percent, and those of freshwater creatures by 81 percent.45 The numbers of thirty-three types of common butterfly shrank by an average of a third between 1990 and 2012.46 It has to be asked whether, in this unsustainable economic system, it is wise to strive for “highly ambitious” free trade agreements with two of the highest-consumption countries on earth, the USA and Canada, 37

trading for good to treat these deals as the “gold standard” without even mentioning the dimension of ecological footprints. One day such a policy decision should be brought before the International Criminal Court as a serious crime against Mother Earth. We are still in the logic of free trade. The global division of labour has involved allocations that are doubly advantageous to the industrial countries: the “South” specializes in exporting cheap, unprocessed raw materials, while the North exports expensive industrial and consumer goods. The North wins both from the favourable terms of trade and from its never-ending receipt of “ecological credit” from the countries of the South,47 without this being recorded anywhere, let alone repayment demanded.48 Only the North makes claims – against the financial debts of the South, which arise as a result of current account deficits as well as a “free trade system” that silently ensures that the South remains underdeveloped and financially dependent on the North. Furthermore, the wealthy industrial nations – which, admittedly, have outsourced many industries to poorer countries, but import the products as before – describe themselves narcissistically as “service”, “knowledge” or even “digital” societies, as if they had left the industrial age behind them and will no longer harm a hair on the head of the planet. According to a study made by the Swiss environmental agency, 60 percent of the pollution caused by Swiss people is located in other countries.49 As to Britain, Tim Jackson has shown that an apparent 6 percent reduction in greenhouse gas emissions between 1990 and 2004 turns into an increase of 11 percent if imports are taken into consideration.50 In the EU, the share of highly polluting goods in the import total has risen sharply in recent decades and now stands at around 75 percent.51 It is becoming clear to more and more people that (a) further economic growth is not sustainable in the USA and the EU, and (b) that 38

origins and critique of the religion of free trade further economic growth does not increase but threatens most people’s well-being and quality of life. Yet the chrematists among economists, as well as the majority of economic policy-makers, stick to the growth religion and the basic equation of trade = growth = prosperity. All we can know for sure, though, is that trade is growing faster than the economy. Between 1950 and 2002, global GDP increased sevenfold while world trade expanded by a factor of 22.52 In 2005, world trade accounted for 20 percent of global GDP, but by 2014 the figure was up to 30 percent!53 This explosion is quite incredible, and one wonders what it is supposed to have given us apart from a massive increase in global transport and pollution. That the link between free trade and economic growth is as uncertain as that between trade and higher resource consumption is demonstrably proven. “Economies of scale”, longer transport routes and increased volumes of trade clearly place a greater strain on the environment. In the EU, food transport has risen 20 percent since 1970, but the total kilometres covered by 125 percent. The ingredients for a simple strawberry yoghurt involve a total of 9,000 kilometres in various travels.54 The shipping of one container from Shanghai to northern Europe cost 212 euros in March 2016 – which, according to Harald Klimenta’s calculations, means that the transport of 20 tonnes of goods over 20,000 kilometres was cheaper than a second-class rail ticket from Munich to Göttingen and back.55 Cargo ships pump out not only greenhouse gases but also sulphur dioxide. More than 9,000 container ships and tens of thousands of smaller ships are plying the world’s oceans. The World Health Organization estimates that there are up to 60,000 additional deaths as a result of these “floating incineration plants”.56 And the underwater noise they produce is unbearable for many creatures; it has reduced the living space of humpback whales, for example, by as much as 90 percent. 39

trading for good The reason for this madness is that transport is much too cheap. It is heavily subsidized by the general public, and the transport industry does not pay for the damage it does to the environment, health and the economy. Instead of questioning these hidden subsidies, chrematists and free traders are happy to see more ships and lorries in service. Gerd Zeitler puts his finger on it: “Characteristically, the WTO sees the increased use of transport as a contribution to economic growth, not as a global danger.”57 We are slowly beginning to understand the WTO’s point. Its example of cars and bread was not thoughtlessly introduced, but may have involved a deliberate calculation: if country A stops producing bread, then bread must be shipped from country B at huge costs in transport so that it can be distributed in country A. Thus, not only car factories and bakeries but also the lorries of the freight forwarding business hum with activity – and that increases the gross domestic product! P.S. You may be thinking, thank goodness he didn’t torture us by working out how long the bread transport would take in the worst case, from Kerala at the southern tip of India to Heilongjiang in north-eastern China, and how many kilometres it would involve. But no: I really would have tortured you if, instead of two neighbouring countries, I had taken Australia and Canada, or Chile and China, to follow up on the WTO’s point. That could easily have come from a global calculation of comparative costs.

CRITICISM 6: FREE TRADE BETWEEN UNEQUAL PARTNERS INCREASES THEIR INEQUALITY If the distribution of comparative cost advantages is not judiciously planned, the result, as we have seen, may be dangerous imbalances and even hostile trading. Many “people” even think it sporting not to share their comparative cost advantages but to aim for the title 40

origins and critique of the religion of free trade of world export champion. Free trade can wreak particular damage if highly industrialized countries engage in “free trade” with poor countries. Industrial countries use many different tricks to continue their mercantilism under the cover of free trade: • They impose the principle of reciprocity (“non-discrimination”), according to which unequal countries are treated equally and their tariff protection must be lowered as fast as that of industrial countries. • Notwithstanding this, industrial countries impose tariffs three or four times higher on imports from developing countries than on imports from other industrial countries.58 CETA and TTIP would be further steps in this false direction. • They pursue the specialization of poor countries in the export of raw materials, which widens the technological gap and therefore the difference in development. • They levy higher duties on finished products than on raw materials (“tariff escalation”), which hinders the advance of industry. • At the same time, most commodity corporations are in the hands of the North (Canada, Australia), so that even the profits flow to the North. • They preach export as the prime development strategy, which gears economic policy to the export of raw materials and away from the construction of a diversified production base comprising trades and crafts, sustainable industry and agriculture. • They keep poor countries in the debt trap, which increases the pressure on them to export in the primary sector. • They fuel South–South competition, which minimizes the development effect and squeezes prices to the advantage of highconsumption northern countries. 41

trading for good • They protect their own branches with absolute and comparative advantages (e.g., corn or cotton in the United States) – using not only defensive measures but also aggressive export subsidies that make a farce of any espousal of free trade. • They pack the WTO agenda with non-trade issues of benefit only to wealthy countries: for example, defence of intellectual property rights, investment protection, or “unfair” public procurement and service provision in other countries. • They have established the rule that WTO decisions must always cover the whole range of issues, which puts huge pressure on poor countries to open many areas up far more than is beneficial to them. Reciprocal trade between unequals, or simply free trade, has the result that countries at a low level of development that imprudently deliver themselves up to the world market – or, as is often the case, are forced into it to reduce their debt – fall farther behind for that very reason. Numerous countries in South Asia, Africa and Latin America have become poorer by opening their markets and agreeing to “free trade”. A few examples: • In 1960 to 1962, the per capita income of the 20 richest countries was 54 times greater than that of the 20 poorest countries; in 2000 to 2002, it was already 122 times greater.59 • Between 1980 and 1997, per capita income fell in 59 countries.60 • In many countries, free trade has led to deindustrialization; Argentina lost its mechanical engineering industry, while in the Ivory Coast the chemical, shoe and automotive supply industry collapsed. In Kenya, the number of jobs in the textile industry plummeted from 120,000 to 85,000. • Free trade has also swept away large numbers of small businesses and artisans. In Zambia, occupation in craft businesses has 42

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declined by 40 percent, and in Ghana by almost two-thirds.61 Small farmers are being swept away. In Mexico, 1.3 million gave up after the country joined NAFTA, and in Kenya cotton production has fallen from 70,000 to 20,000 bales. In Senegal, tomato production is down from 73,000 to 20,000 tonnes. The food dependence of developing countries has been increasing. In the 1970s, they imported only 4 percent of the grain consumed internally, but in 2000 the figure was up to nearly 10 percent, and by 2030 the shortfall is expected to be as high as 14 percent.62 By 2015, the group of least developed countries (LDCs) had doubled since the list was first compiled, from 25 to 48 members. Only four of these – Botswana, Cape Verde, the Maldives and Samoa – made it out of the list.63 In India, the original Fall took place when the British colonial power, pursuing its own advantage, targeted deindustrialization and eliminated the tariffs protecting Indian cotton mills. In a short time, spinning mills and steel production were history.64

Findings. In principle, “reciprocal” trade should take place only between partners of equal economic strength. All modern constitutions prohibit the equal treatment of unequals. The WTO jargon of “nondiscrimination” is cynical, because it means that different entities (industrialized and developing countries, global corporations and local SMEs, agribusiness multinationals and small farmers) are not supposed to be treated differently. It is true that after 1979, under the GATT regime, there was provision for special and differential treatment (SDT) of developing countries, but this scarcely had any effect. The revenue shortfalls which rich countries inflict on poor countries through trade restrictions are three times greater than the total development aid they extend to them.65 Vandana Shiva’s conclusion: “Free trade is not antiprotectionism. It is the protectionism of the powerful.”66 43

trading for good Guest contribution: Is a low single tariff “free trade”? By definition, “free trade” seeks the opening of markets, which is supposed to bring higher economic growth and to facilitate the division of labour. The removal of tariffs and other barriers to trade will bring greater economic efficiency and be of benefit to consumers. In the 1970s, Chile applied the neoliberal model in accordance with the principles of Milton Friedman. He stood for greater private initiative, a smaller public sector, and rollback of the state. Chile was the first country to implement this doctrine, albeit violently and not through a democratic decision. The borders were opened for imports, non-tariff trade restrictions were removed along with tariffs. First a single tariff of ten per cent was established (later reduced to zero for most markets) in a series of free trade agreements, some of which were concluded by the restored democracy. This policy had destructive consequences for numerous companies and jobs, leading to increased inequality, especially in most of the internationally uncompetitive sectors but with the exception of raw materials and some sections of agriculture. The previously flourishing textile industry was hard hit, as were the motor and consumer goods industries. Fair or ethical trade is not against “free trade” if it takes place under fair and equal conditions. It was unfair that textile producers faced with high labour, social and environmental costs in Chile had to compete “on a non-discriminatory basis” with importers who produced comparable products in their countries of origin under conditions that were not the same. That is unfair competition, but not “free trade”. If labour conditions in the place of production are dignified and healthy, and if the price is nevertheless better, then those products 44

origins and critique of the religion of free trade should have easier access to consumers, but usually they are “subsidized” by inadequate labour, social and environmental practices that would not be permitted in Chile. As a result, the situation is unequal and involves a gradual worsening of development opportunities for many productive sectors. Fair and ethical trade should ensure that the conditions of production are equitable and do not undermine basic social, economic and ecological rights. In that case, openingup is not questioned. If the contribution to the common good can be proven, a lower tariff should be applicable to ethical enterprises than to those which cannot demonstrate their contribution to the common good or which act in ways that are contrary to it. Gerardo Wijnant (former member of the directorate of the World Fair Trade Organization, Chile)

CRITICISM 7: UNEQUAL DISTRIBUTION WITHIN COUNTRIES Common sense tells us that, for two reasons, international trade increases inequality within countries and divides society into winners and losers. 1. An export orientation leads to economies of scale, larger-sized companies, and greater inequalities in income and financial circumstances – unless there are generous unemployment benefits, safety nets or a guaranteed minimum income. Such protections tend to be reduced, however, in a context of globalization. (And international fiscal, social and distributional policies are fended off by straitjacketing governments, with the same passion that they bring to new free trade and investment agreements.) 45

trading for good 2. Division of labour, specialization and scale effects reinforce this tendency. In China, owners of auto companies are becoming filthy rich, while a large part of the population lives on the poverty line because there are no longer any bakeries and other sectors have been ceded to trading partners with comparative advantages. In India, giant baking corporations are taking shape that will put millions of small bakeries out of business; all the small independent bakers will then toil away as badly paid workers to increase the wealth of the owners of baking corporations, while they themselves remain poor or attain only a very modest degree of prosperity. The jobless in both countries will move to where the situation is less unbearable. Rarely will these job-seeking migrants be received with open arms and find well-paid employment. More often, they will end up in lower-class ghettoes, where the only choices on offer will be rock-bottom wages, unemployment and a life of crime. Here is where violence and, more recently, terrorism thrive. Free trade without compulsory redistributive measures can only increase social inequality. • Between 1990 and 2012, inequality grew in a clear majority of 130 countries under study.67 • In the United States, the median income of males in fulltime employment has fallen below the 1975 level (adjusted for inflation). At the bottom end of the income pyramid, real wages are comparable to the level of sixty years ago.68 • In Germany, the share of wages in national income fell from 63.9 percent to 55.6 percent between 1980 and 2015; in France, from 65.6 to 58.2 percent; and in the USA, from 62.1 to 57.6 percent.69 • According to World Wealth Report, the combined assets of High Net Worth Individuals (those with at least US$1 million 46

origins and critique of the religion of free trade in liquid assets) increased from $16.6 trillion in 1996 (53 percent of global GDP) to $58.7 trillion in 2015 (80 percent of global GDP). By 2025 the figure is expected to have risen to $106 trillion; with an annual 3 percent growth of the world economy that would represent 107 per cent of global GDP.70 • Oxfam, based on Credit Suisse data, has calculated that in 2015 the assets of just sixty-two persons exceeded the total assets of half of humanity: 3.6 billion people. Only five years earlier, in 2010, there had still been 488 multimillionaires, who together were wealthier than 50 percent of the world population.71 It would therefore be more honest not to canvass for a free trade deal by projecting GDP growth figures, but to say who would gain or lose how much and how. Only then would a democratic law-based state (not one “person”) be able to decide rationally whether it actually wanted the deal or not, or which further binding measures (e.g., public sector jobs or transfer services) it wanted to be guaranteed as part of it, in order to win people’s support. To agree on binding trade legislation, but to keep one’s fingers crossed and postpone social security aspects until tomorrow, is not a strategy with which the people’s trust can be secured. It is electoral publicity for the Trumps, Pegidas, Le Pens and Straches of this world. When the TTIP negotiations between the USA and EU started, specially commissioned economists were predicting a small gain in per capita income – without specifying who would be affected and how. Dani Rodrik writes that prosperity gains between highly developed economies that maintain even small trade restrictions are practically irrelevant. All the greater, then, is the redistributive effect of further liberalization: “It’s as if we give David $51, only to leave Adam $50 47

trading for good poorer.”72 But what happens to Adam? An increased volume of redistribution to compensate the losers from free trade for their losses is often rejected by enthusiasts with the same verve that they display in arguing the case for free trade. Kenneth Rogoff wrote a hymn in praise of Samuelson for calculating that free trade winners might compensate the losers and that both might then be in a better position than before.73 But who will propose such a binding “twin pack” to haul Adam into the lifeboat? Which free trade deal in the world contains a programme of redistribution from winners to losers?

CRITICISM 8: COMPETITION BETWEEN BUSINESS LOCATIONS Free trade combined with free movement of capital is also used as a lever to force down wages, labour standards, social contributions, taxes or environmental standards, the threat being that corporations can always move somewhere nicer and leave the old location “uncompetitive”. Free movement of capital makes democracies susceptible to blackmail, enabling corporations to play countries off against one another. In this way, globalization threatens and undermines the very things it promised: prosperity, jobs, an end to poverty. In the name of free trade, we are supposed to give up dignified work conditions, equitable redistribution, social cohesion, environmental protection and democratic regulation, and constantly face the reproach that if we do not do so we will be endangering our own prosperity and denying equal prosperity to other countries – when it is self-evident that the top salaries, fat cat bonuses, corporate profits and private fortunes will continue growing with no end in sight. This analysis has become common sense in the world of the “global trap”: “In a new pincer movement, the global International of capital is turning whole countries and social orders upside down. On one front it threatens to pull out altogether according to the circumstances of the hour, 48

origins and critique of the religion of free trade thus forcing massive tax reductions as well as subsidies running into billions or the provision of cost-free infrastructure.”74 The competition at issue here is not economic but political: it is not corporations that compete by trying to provide the best quality and the lowest price, but polities (nation-states, democracies) that compete by offering the most favourable conditions for investors. In the competition over business locations, governments adapt nearly all areas of policy to corporate requirements – from labour and social legislation through environmental protection and educational policy to tax and inheritance regulations. Nowadays, corporations obtain litigation rights against governments as an “extra benefit”, in case they go too far with environmental protection or the minimum wage, or the withdrawal of a concession seems unjustified despite a clear breach of the rules. The regime change from international economic cooperation to competition among different national locations is based on the fact that, instead of being regulated by nation-states in the common good, the market itself becomes the regulator for nation-states. In a “markettrimmed democracy”, it is not politics that determines how well things are going for people, but rather “the markets” or “structure-dissolving”75 global competition. A few examples: • “Shorter working-time is a threat to business location” (Harald Kaszanits, head of the economic policy department of the Austrian Chamber of Commerce).76 • “The right electricity price is 30–35 per cent lower” (Helmut Draxler, CEO of RHI Aktiengesellschaft).77 • “Voest is not wedded to [the city of ] Linz” (Wolfgang Eder, CEO of Voest).78 • “Wages are bloody high in Western Europe. There’s certainly no room there for more increases” (Wolfgang Reithofer, CEO of Wienerberger).79 49

trading for good • “Non-wage labour costs must come down. People in Slovakia have fewer holidays, cooling-off periods are shorter, and all other social acquisitions that we have simply don’t exist there in the same form” (Peter Mitterbauer, president of the Federation of Austrian Industries).80 On 27 August 2004, the German employers’ chief Dieter Hundt said in an interview: “Germans work too little. We must start performing better again.”81 The Chinese employers’ chief liked the sound of that and shortly afterwards let it be known that Chinese work too little and need to start performing better. Then the Brazilian employers’ chief told the media that Brazilians work too little and must do better in future. And so on. After a few months, the Federation of International Employers held a conference and solemnly declared: “People all around the world work too little. They must start performing better again.” Do you see? The top people need prominent policy whips to peddle their ideology of all against all. There has certainly been no shortage of them in the past twenty years: “We have simply got to be better than the others. We must have the better education, the better engineers, the better products, the better quality […]. A country’s competitiveness begins in the classroom” (Heinrich von Pierer, CEO Siemens).82 “We must change the social security systems and get away from welfare-state thinking. Europe must always be a step ahead and the global top-dog in many areas […]. That’s the only way we can survive amid the global competition” (Wolfgang Clement, German labour minister).83 “We must be competitive if we want to live well. I’m not thinking Mercedes or golf clubs, but a perfectly normal life: normal income, going to the movies, holiday, eating out now and again. To keep that up we must be competitive, and for that we measure ourselves not 50

origins and critique of the religion of free trade against our next-door neighbour but against America, China, India, Japan, Korea” (Boris Nemšić, head of Telekom-Austria).84 “We can’t promise citizens that we’ll protect them from change. On the contrary: structural change will continue. Much that we are going through now is only the beginning. Europe’s economy must not and cannot be shielded from competition” (Günter Verheugen).85 Must not and cannot? Who forbids it, then? And why should it not be possible? It is precisely their parliamentary representatives who should protect citizens from location competition and a race to the bottom. No one forces us to accept the blackmail of location competition by agreeing to wipe out social gains. Competition should not be practised between states, because “competitiveness is a challenge for companies, not for governments or economies”.86 So, if competitiveness is not a question for governments, why does it have such a prominent place on policy agendas? In the Austrian “Critical Book on the EU”, we read that “the placing of competitiveness at the top of the EU agenda” is the central lobbying success of the European Round Table of Industrialists, one of the most powerful industrial lobbies in the EU.87 Free movement of capital – which was not one of Ricardo’s ideas – is the most powerful instrument of blackmail available to the corporations. If things were as described by Smith (“the capitalist prefers to support the national rather than the foreign economy”) or Ricardo (“natural reluctance to leave his country of birth”), nation-states would have no trouble regulating the multinationals, taxing them appropriately, and setting a limit to their size. But the world looks different today from how it did in the age of Smith and Ricardo – and it therefore needs something different from free trade agreements.

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CRITICISM 9: CONCENTRATION OF POWER, LOSS OF DEMOCRACY AND FREEDOM A discussion has been raging for years about who is directing globalization: is it the nation-states, which formally take (or fail to take) the relevant decisions under international law? (The ministerial council of the WTO consists of the trade and economics ministers of member states.) Or is it the transnational corporations, which are becoming ever larger and more ramified and exert ever greater influence at every level: in the media, public discourse, research, investments, big data, trade and ownership control? UNCTAD regularly reports on the number and size of transnational corporations (TNCs): in 1990 it registered 35,000 with a total of 150,000 subsidiaries, and in 2008 there were 82,000 with 807,000 subsidiaries. Together they dominated two-thirds of world trade, of which one third was “intra-corporate trade”, another third was inter-corporate, and only a final third did not involve them directly. Between 1990 and 2009, a total of 2,200 mergers took place, each with a value of at least one billion dollars; all told, corporations worth a total of 7.2 trillion dollars were taken over.88 In 1983, the combined turnover of the world’s 200 largest corporations contributed 25 percent to global GDP; in 2005, the corresponding figure was already 29.3 percent.89 UNCTAD describes TNCs as “the main force in international economic integration”,90 and with this comes their growing political power. Their lobbying agenda includes: the removal of trade restrictions, the defence of intellectual property rights (90 percent of patents are controlled by Western corporations), protection of investments abroad and direct litigation rights against national governments. If one compares these priorities with the trade policy actions of governments and parliaments, the wide degree of overlap leaps to the eyes. This explains the contradiction that, while governments formally hold the political decision-making power, the most important legislation and agreements 52

origins and critique of the religion of free trade under international law (WTO, TTIP, CETA, TTP, NAFTA) are primarily in the interests of TNCs. The result of this “corporate-driven globalization” is the increasing concentration of power in the markets and the formation of oligopolies in more and more branches of the economy. A few examples. • In the automobile industry, three corporations together hold more than a 35 percent share of the world market: Volkswagen (13.55 percent), Toyota (12.19 percent) and General Motors (9.81 percent). Every third car comes from one or another of them.91 • The Android operating system for mobile phones has an 86 percent world market share – which is pretty close to a global monopoly. Microsoft, Apple, Google, Amazon and Facebook have reached similar dominance. When South Korea announced that it was starting proceedings against Microsoft for market dominance, the corporation threatened to pull out of the country. Joseph Stiglitz commented: “In a sense, it confirmed the allegations of overweening market power, for if that were not the case its threat to withdraw would have been meaningless.”92 • Six tobacco giants share 81 percent of the world market: China National Tobacco Corporation, Philip Morris International, British American Tobacco, Japan Tobacco International, Imperial Tobacco and Altria Group.93 • In 2015, AB InBev (Belgium) bought SAB-Miller (UK) for nearly 100 billion euros. This gave a single corporation control of 31 percent of the global beer market.94 • In 2017, in the food, biotech and agrochemical branch, the ten largest corporations controlled 55 percent of the global pharma market, 66 percent of the biotechnology market, 67 percent of the private seed market (Monsanto alone having a 23 percent share), and as much as 89 percent of the agrochemicals market 53

trading for good (Bayer and Syngenta each having just short of 20 percent).95 Bayer’s takeover of Monsanto looks like a very bad idea against the background of already extreme concentration. A glance at the ownership of the corporations makes one wonder: Blackrock is the largest shareholder in Bayer (7 percent) and the second largest in Monsanto (5.75 percent). Vanguard is number one in Monsanto and number four in Bayer, while the Capital Group comes third in both.96 To put it bluntly, three financial investors are selling Monsanto to themselves. Very much as in Monopoly. The merger represents another step towards the uncontrolled concentration of ownership and power. A study by the EDT technical university in Zurich has investigated for the first time the concentration of power in transnational corporations. Its object of research was 43,000 TNCs (as defined by the OECD), especially their ownership relations with other corporations. The main conclusion: ownership control is ten times more concentrated than ownership itself. A total of 737 corporations control 80 percent of the ownership of all 43,000 TNCs, and a mere 147 control nearly 40 percent. “The top holders within the core can […] be thought of as an economic ‘super-entity’ in the global network of corporations.”97 Goldman Sachs belongs to Bank of America belongs to Merrill Lynch belongs to Barclays belongs to Deutsche Bank belongs to Citigroup belongs to Credit Suisse belongs to UBS belongs to Goldman Sachs. Furthermore, three-quarters of the companies in the inner core are financial corporations.98 The authors of the study express surprise that they are the first to uncover this core power in the world market: “Remarkably, the existence of such a core in the global market was never documented before and thus, so far, no scientific study demonstrates or excludes that this international ‘super-entity’ has ever acted as a bloc.” Super-cartel might be another way of describing it. 54

origins and critique of the religion of free trade What is the effect of this? The winners in the global tussle are not countries but transnational corporations and the moneyed elites that control, and have increasingly concentrated ownership of, them. It follows that the present-day trading system does not serve the “universal good” (Ricardo) and that the actually existing free trade regime misses its mark. Clearly there is a need for special control and regulation of the most powerful players in the global arena – and for measures to limit their size. But however long the list of issues for the WTO, we would look in vain for measures against the concentration of power, anti-trust laws or an upper limit on the size of corporations. Bilateral investment treaties (BIT), like TTIP and CETA, continue to make them larger. So conceived, “free trade” becomes a threat to freedom.

CRITICISM 10: CULTURAL DIVERSITY, INNOVATION AND RESILIENCE The consistent application of Ricardo’s idea would finally lead to a situation where each product and each service on the world market was produced in a single country or, at the most, a handful of countries – that is the source of the mathematical efficiency of comparative cost advantages. All other countries would have to import from, and become dependent upon, this one country or small group of countries. To be sure, such mathematical specialization may entail that the country is very innovative in the product in which it specializes – although even that is questionable. Would Indian industrial baking corporations always bake better bread? What is indisputable is that, in all import branches where a country’s own production has been given up in favour of countries with comparative advantages, innovation and development would come to a complete standstill – for example, in the Chinese baking industry. Valuable know-how would be lost in the process, and if worse came to worst a new start might fail or be delayed. 55

trading for good Portugal forgoes industrial development to specialize in wine? That is no trivial matter. Loss of cultural and economic diversity goes hand in hand with loss of “resilience”. This concept come from the study of ecosystems, where it refers to their ability to absorb disturbances and remain alive and stable in the long term. What if bakers in India go on strike and fail to deliver for even a few days? What if civil war breaks out in India? Or terrorism blocks major transport routes or cripples power supplies? Must Chinese people then go hungry? The use of comparative advantages presupposes that everyone in the world is peaceful, tractable, politically and morally stable, strike-averse and opposed to terror. If that is the case, bread can be carted from India to China for the next ten thousand years. Another problem. If bakeries in China close down in favour of comparative advantages, does China also stop producing grain? If not, is Chinese grain first exported to India and processed into bread, then exported back to China? Quite apart from this objection, would it not be wise for millers and bakers to remain in close contact and to speak the same language? In Berlin, the local farmers who supply the common good enterprise Märkisches Landbrot typically decide the grain price themselves – so high is the level of trust between the medium-sized bakery and its suppliers. Would such a symbiotic relationship be imaginable between Indian baking multinationals and Chinese agri-multinationals? For these reasons, is it not better if as many countries as possible make as many products as possible – and all countries make bread? Then bakers can link up across borders and exchange the latest tips, leaving open the possibility that now some, now others will be more innovative. Is it not wiser and more sensible if each country produces its own grain, vegetables, wine, wood, building materials, energy and other basic goods – in the greatest possible variety and with varying degrees of financial efficiency? In the end, is financial efficiency not the most unimportant of all arguments? Is it not just one big fetish 56

origins and critique of the religion of free trade for a spaced-out chrematistic sect that no longer has any contact with real life, and that shares the responsibility for a “deadly” economics (to quote Pope Francis)? Herman Daly writes: Uruguay has a clear comparative advantage in raising cattle and sheep. If it adhered strictly to the rule of specialization and trade, it would afford its citizens only the choice of being either cowboys or shepherds. Yet Uruguayans feel a need for their own legal, financial, medical, insurance and educational services, in addition to basic agriculture and industry. That diversity entails some loss of efficiency, but it is necessary for community and nationhood. Uruguay is enriched by having a symphony orchestra of its own, even though it would be costeffective to import better symphony concerts in exchange for wool, mutton, beef and leather. Individuals, too, must count the broader range of choices as a welfare gain: even those who are cowboys and shepherds are surely enriched by contact with countrymen who are not vaqueros or pastores. My point is that the community dimension of welfare is completely overlooked in the simplistic argument that if specialization and trade increase the per capita availability of commodities, they must be good.99 And this is Gerd Zeitler’s view: “Structural unemployment would increase as economic diversity lessened. In the very first exchange with Portugal, England would not have managed to retrain all winemakers as clothmakers, nor Portugal to deploy all its clothmakers in vineyards. Moreover, country-specific specialisms would gradually be replaced with globally uniform products […]. At the latest in its monostructural end-state, with its final comparative advantage, each country would fall 57

trading for good into dangerous dependence and find itself on the brink of economic and social collapse.”100

CRITICISM 11: MEANING IN WORK AND LIFE This is the last time I will torment you. Try to imagine what would happen to the art of baking in India if Chinese people and Indian people agreed, in line with WTO thinking, that China should make cars and India bake bread. In India, there would be massive growth and displacement competition in the baking industry, so that eventually only five mega-corporations would squeeze out perhaps as many as ten million small bakers: a textbook case of oligopoly. If we aggregate the Indian and Chinese population, this would mean that each of the five oligopolists would be left with a customer base of 540 million people. WTO economists would again rejoice at this, because the maximum “economies of scale” would be used and the gains from tree trade would be exceptionally high. Mathematically speaking, that is correct. But now let us imagine the work conditions in these megacorporations. And let us imagine the sense of meaning, the sensuous delights, the aesthetic cultivation and the personality development that people would experience there. Then let us carefully ball up the piece of paper with the free trade idea and calmly throw it into the wastebasket. The division of labour has now reached a degree that affords to many people virtually no sense of meaning at work. According to Gallup’s “Motivation at Work” report, 70 percent of Americans with a good, well-paid job no longer find any meaning in it – they are “actively disengaged”.101 More and more people are therefore dropping out of the “mega-machine”102 and reshaping their lives in accordance with values, pleasures, relations and meaning. One such person used to be a well-paid engineer at Daimler-Chrysler, where he perfected 58

origins and critique of the religion of free trade electronic windows. Technically it was just the right job for him: he had all the necessary training and skills. But at some point in his fifties, it no longer made sense to work year in, year out tweaking a flawless window design. “There are so many important problems to solve in the world, and I am perfecting something that already works perfectly.” In today’s capitalism, with its advanced division of labour, “prosperity” and a thirst for meaning are both spreading. The division of labour becomes the meaning-trap. Curiously, we can already find in Adam Smith this quandary of efficiency gains and loss of meaning. It would be hard to find another author or book where the contradiction is greater. For right at the beginning of The Wealth of Nations, Adam Smith tells us that it would be sensible to divide the production of pins into “eighteen distinct operations” and to have each one performed by a different person. It would be infinitely more inefficient for individuals to produce whole pins: “they certainly could not […] have made […] the two hundred and fortieth, perhaps not the four thousand eight hundredth, part of what they are at present capable of performing, in consequence of a proper division and combination of their different operations”.103 Later in the same work, however, he gives a fiery speech against a maximum division of labour: “In the progress of the division of labour, the employment of the far greater part of those who live by labour, that is, of the great body of the people, comes to be confined to a few very simple operations; frequently to one or two. But the understandings of the greater part of men are necessarily formed by their ordinary employments.104 The man whose whole life is spent in performing a few simple operations, of which the effects, too, are perhaps always the same, or very nearly the same, has no occasion to exert his understanding, or to exercise his invention, in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as 59

trading for good stupid and ignorant as it is possible for a human creature to become.”105 Nor is this the end of Smith’s objection to the “progressive” division of labour: “The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging; and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. The uniformity of his stationary life naturally corrupts the courage of his mind.” We scratch our heads in wonder: “progress in the division of labour” is first “sensible”, then it makes people “as stupid and ignorant as it is possible for a human creature to become”; it renders them incapable “of forming any just judgment” and “corrupts the courage of [their] mind”. So, what next? Should we divide labour into as many operations as possible – eighteen in the case of pin-making – or should we avoid it? Is greater efficiency sensible or nonsensical? Smith’s indecisiveness makes one thing clear to us: division of labour and efficiency are one possibility, but not goals to be pursued at all costs. They may make sense in some cases, while being counterproductive and destructive in others. The argument for using comparative cost advantages and “free trade” therefore becomes seriously questionable. Above all, it is not a “trivial” matter, as the WTO would have it. Free trade, which rests upon the “progressive division of labour”, robs more and more people of meaning in work. Effective mechanisms are required to protect us against it. But guess what: we won’t find them in the WTO. Nor anywhere in the science of chrematistics.

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origins and critique of the religion of free trade

CRITICISM 12: PREACH WINE, DRINK WATER: THE DOUBLE STANDARDS OF THE RICH NATIONS We now have quite a long list of weighty objections and criticisms regarding the idea of free trade. But there is one more that rounds off the picture of economic Absurdistan. The most perverse and ludicrous point to emerge from discussions is that not a single industrial country has itself applied the free trade formula that is hawked around the world with such verve. In their own history, all the industrial countries lived behind tariff walls, built even high with political measures and subsidies. But now that their industries are competitive, they demand free trade of others, of those weaker than themselves. Today’s world export champions were once champions of protection, at earlier stages of their development. An important source on the evolution of trade policy is Paul Bairoch, professor of economic history at the University of Geneva. In his book Economics and World History. Myths and Paradoxes, he rigorously dispatches an impressive number of false assumptions: “The truth is that, historically, free trade is the exception and protectionism the rule.”106 In the nineteenth century and up to the end of the Second World War, the United States of all countries was the most protectionist on earth; its industrial tariffs hovered more or less constantly around 40 percent between 1816 and 1945. Bairoch therefore awards it the title of “mother country and bastion of modern protectionism”.107 However, the United States was not the first: it learned its strategy from its own mother country, Great Britain. Though comparatively open from the mid-nineteenth century (its number of dutiable products fell from 1,146 to 48 between 1846 and 1860108), Britain robustly protected its industrial development for one and a half centuries. It did this by means of import bans, tariffs, subsidies, export restrictions on unfinished products, and anything else that worked – and is today prohibited by the WTO.109 I therefore award Britain the title of “grandmother country of industrial protectionism”. 61

trading for good The Cambridge-based economist Ha-Joon Chang, who follows in the footsteps of Bairoch, writes in the same vein: “A closer look at the history of capitalism reveals [that …] when they were developing countries themselves, virtually all of today’s developed countries did not practise free trade (and laissez-faire industrial policy as its domestic counterpart). Rather, they promoted their national industries through tariffs, subsidies, and other measures. Particularly notable is the fact that the gap between ‘real’ and ‘imagined’ histories of trade policy is the greatest in relation to Britain and the United States, which are conventionally believed to have reached the top of the world’s economic hierarchy by adopting free trade when other countries were stuck with outdated mercantilist policies. These two countries were, in fact, often the pioneers and frequently the most ardent users of interventionist trade and industrial policy measures in their early stages of development.”110 The title of Chang’s book, Kicking Away the Ladder, picks up a metaphor from the German economist Friedrich List, who is regarded as the spiritual father of “infant industrial policy”. But the description is not altogether accurate: List was inspired by Alexander Hamilton in the United States,111 and he designed the German Customs Union in accordance with the British model. List describes how England, in its own history, first grew rich with the help of a policy of tariff protection and then threw away the ladder with which it had climbed over the wall of poverty: “It is a vulgar rule of prudence for him who has reach the pinnacle of power to cast down the ladder which he has mounted, that others may not follow.” More specifically, about England: “A nation which by protective duties and maritime restrictions has built up a manufacturing industry and a merchant marine to such a point of strength and power as not to fear the competition of any other, can pursue no safer policy than to thrust aside the means of elevation, to preach to other nations the advantages of free trade, and 62

origins and critique of the religion of free trade to utter loud expressions of repentance for having walked hitherto in the way of error, and for having come so lately to knowledge of the truth.”112 Subsequently, he accuses the English science of hypocrisy: “To complete the mockery, it has been taught by many professors of political economy that nations can only arrive at wealth and power by universal free trade.”113 List considered tariff protection to be a better development strategy than free trade: “If theory teaches the Germans that they can advantageously encourage their manufacturing industry only by a gradual elevation, then afterwards a diminution also gradual of their protective duties, and that foreign competition to a certain degree cannot but aid the progress of their manufacture, it will render to free trade positively a greater service than by any cooperation in the ruin of German industry.”114 In this perspective, he designed the German Customs Union with protective tariffs up to 60 percent – and celebrated their success. “Germany in the space of ten years has advanced a century in prosperity and industry […]. How so? […] The protection of the tariff of the Customs Union, extended to manufactured products in general use, has accomplished this wonderful change.”115 In essence, however, List was not a “protectionist”: “International trade”, he wrote, “is one of the mightiest instruments of civilization.”116 And for the long term he continued to dream Kant’s old dream: “Universal association and absolute free trade may possibly be realized centuries hence; their theory regards them as realizable now. […] All nations would attain their goals to a much higher degree if they were united together, by law, by perpetual peace, and by free interchange.”117 Chang argues that – quite contrary to the economic orthodoxy and policies of the WTO – this same “ladder” should be made available to the developing countries: tariffs, subsidies and investment regulation. “At last”, we might add – for in the nineteenth century the colonial 63

trading for good powers already forced developing countries into free trade, while themselves behaving in a protectionist manner. Bairoch writes that “enforced economic liberalism in the Third World” is an important factor in explaining “its delayed industrial development”.118 India is just one example among many. More facts help to complete the set of debunked myths: (a) the most protectionist country, the United States, was at the same time the one with the highest economic growth and the highest export growth; and (b) “trade is not an engine of economic growth but, on the contrary, economic growth is an engine of trade”.119 Chang points out that, as free trade increased, economic growth fell lower and lower: between 1960 and 1980, before the great “liberalization”, real per capita income grew in 116 countries at an average annual rate of 3.1 percent; and between 1980 and 2000, with the straitjacket firmly applied, at a rate of 1.4 percent. In Latin America, the annual advance was 2.8 percent between 1960 and 1980, but dropped to just 0.3 percent between 1990 and 1998. In sub-Saharan Africa, per capita income growth fell from an annual rate of 1.6 percent between 1960 and 1980 to one of minus 0.8 percent between 1980 and 1998.120 Evidently things are very different from the way in which they have hitherto been assumed and offensively argued. After Ricardo’s revolutionary calculation, more than a hundred years passed before contemporary missionaries of free trade developed a taste for the jewel in the crown. Until the middle of the twentieth century, Ricardo played only a minor role. Only after Britain and the USA, grandmother and mother of protection, had drunk their fill of wine (infant industry policy, educational tariffs, subsidies) did they demand free trade of others. And only then did they call on Ricardo as a crown witness, having carefully mothballed him for 150 years. Joseph Stiglitz, too, sees the USA and the EU as the epitome of “double standards”, preaching free trade but practising protectionism.121 64

origins and critique of the religion of free trade This historical incoherence and dishonesty is a strong indication that the free trade ideology along with its “jewel in the crown” is advanced only rhetorically, to allow mercantilism to be continued with other means. Some wicked tongues even claim that the purpose of Ricardo’s calculation was to secure Britain an advantage, even if its colonies were superior in every branch to the mother country. Vandana Shiva is right to argue that it is protectionism behind the mask of free trade (rather than “non-discrimination”). We should not be taken in by this rhetorical trick, however, but demand the same rights for all. Those who applied protection for their own infant industries, in the shape of tariffs and subsidies, must permit the same to others. A “one size fits all” trade system is definitely the wrong way to go. Or wearing comfortable sportswear and buckling straitjackets on others: no, that’s just not on!

THE TWELVE HUGE PRECONDITIONS FOR A FUNCTIONING FREE TRADE SYSTEM The “single most powerful insight into economics” turns out to be the “single most incomplete insight into economics”; it leaves out of account, instead of taking on board, everything else of (major) relevance. We could also say that is only an “insight into chrematistics”. The “jewel in the crown of foreign trade theory” would be a good idea if, in addition, the following conditions were present: 1. global planning of production, so that all countries can realize their relative advantages; 2. even trade balances, so that all can profit equally from the multilateral trade system; 3. exchange rates that are politically decided and kept stable; 4. restrictions on the free movement of capital, meaning that it basically stays at home; 65

trading for good 5. calculation and incorporation of transaction costs, so that the comparison of hourly wages or unit labour costs is no longer the whole story; 6. environmental true-cost pricing, so that only countries that keep their resource consumption within the earth’s limits participate in the trade system; 7. non-reciprocity: countries at a lower level of development do not have to open their borders in the same degree as highly industrialized countries; 8. binding redistributive measures that prevent any country from exceeding a pre-defined degree of inequality; 9. prevention of location competition through common rules for human rights, labour rights, social standards, environmental protection, consumers, taxes and financial supervision; 10. anti-trust legislation, pre-emptive merger controls, and upper limits on market share and corporate size to prevent the concentration of power on global markets; 11. protection of local and national industries to preserve cultural and economic diversity and resilience and to prevent dependency; 12. limited division of labour: a trade system that builds on the division of labour must prevent excesses and ensure that work does not become meaningless in the world market. But each of these prerequisites for a functioning “free trade system” is so great that, by now at the latest, it should be clear that free trade is simply the wrong approach. What it represents is an attempt to make a means into an end. It would be more effective to start with the horse in front rather than the cart behind: that is, to set the goal in advance and then apply trade in such measured and targeted doses that the goal is achieved. Ricardo and the theorem in his book should become a footnote in economic history. His calculation is correct, but it has no identifiable 66

origins and critique of the religion of free trade practical relevance and no political value. What sensible policy measure could possibly be derived from it? So what if it makes chrematists smart? “Economists today have returned in hordes back to free trade”, Bhagwati wrote in 1998. “The latest revolt, of the 1980s, has died down. Only neanderthals among the economists now militate against free trade.”122 In the twenty-first century, not long before his death, Samuelson was equally insistent: “Most of the facts support Ricardo’s worldview and his theory of free trade. His idea of comparative advantages has proved very useful in the study of economic history. Apart from that, there is no convincing alternative.”123 Forward to the alternatives!

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III

THE SUBSTANTIVE ALTERNATIVE: ETHICAL WORLD TRADE 1 SIGNIFICANCE OF TRADE 1a) Trade is not an end but a means Trade can do a lot of good: it helps to divide up work sensibly; it brings specialities to distant places; it brings people into contact and opens up horizons. Trade is also a freedom, a part of economic freedom. But trade is not an end in itself, nor is it a basic right. And economic freedoms are only instrumental, not final, freedoms: they serve higher values, which they must not endanger. The examples of the slave trade, and the trade in women, children or organs, immediately make it clear that at least human dignity and human rights are above commercial freedom. But that is not all. Threatened species or toxic waste, for instance, are not supposed to be traded “freely”, or even at all. Trade is categorically not a goal of economic policy, but a means to achieve overarching policy objectives that are legitimate and commonly agreed. Such objectives are the full observance of human rights, globally sustainable development, social cohesion, just distribution and cultural diversity. Trade is a means that they may either require or impair. And it depends on which is the 69

trading for good case whether there should be more or less trade or a different kind of trade. According to whether the means serves the ends or is detrimental to them, trade should and must be made either easier or more difficult, be either promoted or restricted – with a sense of proportion and in consideration of the ends and values that it serves. “Free trade” would mean that the means no longer has to pay heed to the ends. This is the central flaw in the present trade system: “free trade” turns trade into an end in itself. And that is not what it is. Others see things in the same way: “Trade is a means, not the end”, says the renowned Cologne-based expert in international law Bernhard Kempen.1 “More open trade is not an end in itself ”, declares the UN Development Programme.2 “Good health is an end”, Mander and Cavanagh write. “Worker rights, dignified wages, and safe working conditions are ends. A healthy environment is an end. In contrast, international trade and investment are merely means and should be dealt with accordingly.”3 What makes the basically simple point so difficult is a threefold conceptual trick. Part 1: The little word “free” is tacked on to selfinterest, and suddenly it is much harder to be against it. For who is against freedom? Free trade sounds good – like free beer, free thought or free love. Anyone who doesn’t give it much thought, or fails to see through it, soon ends up agreeing. The idea is to immunize you against criticism of free trade by suggesting that critics are against freedom. This little ploy works amazingly well: many critics buckle at the first question and assure everyone that they are “not basically against free trade” – without making it clear what they understand by it. Those who are for “free trade” downgrade the environment, health, human rights and democracy. A more sophisticated answer would be: “I’m not basically against trade, I’m only against free trade!” Part 2: Anyone who is against “free trade” is reflexively pigeonholed under “protectionism” – as if there were not a host of different options 70

the substantive alternative: ethical world trade between wide open and tightly sealed borders. One popular idea is: “But Germany benefits from open borders.” Most often one hears knee-jerk reflexes such as: “But the solution isn’t to close borders either.”4 Critics are readily accused of wanting to break up the EU: “A return to nation-states won’t solve any of the major problems.”5 In the worst case, they are sent packing to “North Korea” and that’s the end of the discussion. It’s like saying that people who prefer not to eat meat are “anti-nutrition”, or those who choose to ride a bike are “anti-mobility”, or those who seek to solve conflicts without violence are “anti-security”. This way of imputing the opposite extreme is most familiar from discussion of economic models: anyone who criticizes capitalism is immediately pigeonholed among the communists; no third way is possible. This black-and-white logic serves an interest group that may have good arguments against communism but has no alternative to capitalism – although endless possibilities are conceivable apart from these two extremes. Common good economics is neither the one nor the other; it transcends the extremes by integrating their valid cores – the values of freedom and equality – and sketching something new beyond them. This irritates traditional socialists and capitalists alike, who mirror each other by branding “common good economics” as either capitalism6 or communism7 in disguise. But the universe harbours endless possibilities; there are not only a third and a fourth but infinite gradations between all poles. Between day and night, between man and woman, between communism and capitalism, and between free trade and isolationism. Part 3 of the trick is the moulding of (legal) language to the new goal. As in a magnetic field, the whole usage is geared to the new “superbasic right” (Heribert Prantl). In Step 1, the true goals of trade are disparaged as “non-trade concerns” and, if they still prove a nuisance, cast into the political pot of “trade restrictions”. Then legitimate practices that extend protection – of the small against the big, the weak against the 71

trading for good strong, the local against the global, the ethical against the unscrupulous – are attacked with the semantic weapon of “non-discrimination”, which previously ensured the equal treatment of equals, but not of unequals. The WTO principles of “equal treatment with nationals” and “most favoured nation” treatment are further patching on the straitjacket, other elements being reciprocity, “necessity tests”, scientific evidence (before regulation is permitted) and regulatory cooperation. New legislative proposals are checked not for their compliance with human rights, ecological limits, distributive justice or financial stability, but for their “conformity to free trade” – which is thereby elevated to the supreme goal. To be sure, trade is part of the freedom to run a business and is therefore rooted in basic rights, but limits can be set on that freedom (see above), and only natural persons, not juridical persons such as TNCs, have basic rights. Besides, they do not have them in foreign countries! Trade by juridical persons is a business instrument, like investments, loans, money or incorporation itself; none of these is an end in itself. All have to serve the goals of economic activity. The whole economy is not an end in itself but has co-responsibility for achieving, or at least not contravening, the policy objectives of a democratic community. According to various philosophies and legal traditions, the economy is a means to a “good life” (Latin American indigenous peoples), a “just society” (Aristotle), the general good (Germany) or the common good (Bavarian Constitution). The German Bishops’ Conference has adopted the view: “World trade must serve the global common good”.8 As early as the fifteenth century, Bernardino of Siena wrote: “Six considerations must be made about the person who makes and uses trade. […] The first is that the person of the merchant has to be considered. Second, the soul of the merchant has to be considered. Third, the way of making trade must be considered. Fourth, the place for making trading needs to be thought out. Fifth, the time for trading 72

the substantive alternative: ethical world trade needs to be considered. Sixth, the consortium with whom the trade is practised must be looked into. The seventh is by Duns Scotus: ‘trade is carried out for the common good’.”9 In recent years, the United Nations has formulated alongside human rights a set of Millennium Development Goals and, building further on these, a set of Sustainable Development Goals (October 2015). If UN member states took seriously these goals of the international community – number one of which is “the elimination of poverty” – they would check their bilateral, plurilateral and multilateral trade policies and investment protection agreements to see how much, if at all, they promote the development goals, and to flesh them out with appropriate sections, concrete measures and verifiable sub-goals. Trade agreements based on mere hopes or vague promises that they will help to reduce poverty, with no actual tasks or targets specifying how this will be achieved, should either be coherently reworked or not concluded in the first place. Examples are TTIP, CETA or the numerous WTO agreements. The sum total of human rights, development goals and other objectives of the international community – for example, the protection of indigenous cultures or biological diversity – might shape a “global common good”. In a number of existing constitutions, the common good is the explicit goal of economic policy, while in others it sets the limit to economic freedom. “All economic activity serves the common good”, states the Bavarian Constitution (Art. 151), for example. According to the Colombian Constitution, “economic activity and private initiative” are free “within the limits of the common good” (Art. 333). According to the Spanish Constitution, “the country’s entire wealth, in its various forms and to whomsoever it belongs, is subordinate to the general interest” (Art. 128). The Basic Law of the Federal Republic of Germany declares: “Property entails obligations. Its use shall also serve the general good” (Art. 14). Freedom of trade 73

trading for good might be subsumed as a sub-freedom of the freedom to own property. And if this higher (property) freedom carries an obligation to the public good, so much the more does the sub-freedom (trade). We in the Common Good movement propose that the achievement of the common good should be measured at every level of the economy – national (macro), corporate (meso) and investment (micro) – and take precedence over the financial indicators of success (GDP, profit and return on capital). Economic success should be gauged by the contribution to the objectives of the democratic, law-based state and the international community of states. The Common Good Balance Sheet has been in existence since 2011, freely compiled by roughly 400 enterprises. Meanwhile, the Cooperative for the Common Good has developed a series of checks that all projects seeking finance must pass (whether the capital is theirs or belongs to someone else) in order to be considered for a bank loan or direct investment from outside. If the credit screening is positive, the money flows in on conditions that are more favourable the greater the added ethical value of the project.10 A number of alternative banks already exist which either invest in such areas as progressive education, organic farming and renewable energies or have developed special instruments for the assessment of loans. In our proposed process for the democratic development of common good products, free and sovereign citizens might gather in their communities and begin by compiling an index with, say, the twenty most important elements affecting the quality of life. Most probably, these would include human rights and development and sustainability goals – and everything that contributes to a good life for all (living creatures). This participatory elaboration of the “common good” corresponds to the formal understanding of the common good, which is different from “substantive” meaning. A substantive definition is one that is clear from the outset: it would have to come from the Good Lord, from “Natural Law” or from a dictator – each of which 74

the substantive alternative: ethical world trade is a no-go.11 The formal meaning implies that the concrete meaning can be found only through a process of wide participation. All studies and preliminary investigations indicate that the final result will include fundamental aspects of the quality of life, such as health, education, good housing, sound relationships, social cohesion, a blossoming environment and stable climate, distributive justice, democracy, security, peace, a purpose in life and rich leisure time. If the democratically constituted common good increases, people can reliably know that they are doing better – because their own priorities and highest values are measured. A “sovereign” yardstick is created for whether trade, whether more trade, investment and credit, are conducive to the goals of the democratic community. The Asian mini-state of Bhutan offers a remarkable example of political programmes and strategies geared to comprehensive welfare indicators. For some years there, a survey of 6,000 homes has been used to measure the “gross national happiness”. It asks about subjective wellbeing, health, education, quality of relations, environmental factors, personal security, involvement in decision-making – everything that is part of a good life. In sum, 133 facets of the quality of life make up “gross national happiness”. This also gives Bhutan a “screening tool” that allows it to evaluate proposed legislation and policy measures in respect of constitutionality, conformity to human rights, gender mainstreaming, and indeed the common good. This instrument was also used when Bhutan had to decide whether it should join the WTO. Originally, a majority of the cabinet were in favour of entry, on the grounds that more trade was synonymous with greater prosperity. But then came the “360 degree screening”, which showed that the expansion of trade would weaken relationships and social cohesion, increase inequality, reduce cultural diversity and damage the environment. Democracy, too, would stand to suffer as a result of the influx of transnational corporations. After the common good 75

trading for good testing, seventeen out of twenty-four ministers voted against joining the WTO. Bhutan today is still free of free trade.12 Germany too, like most other industrial countries, is looking for alternatives to GDP. Early in the new millennium, the Bundestag therefore commissioned an official inquiry on “Growth, prosperity, quality of life – paths to sustainable economies and social progress in the social market economy”. Its final report, in May 2013, proposed three “W3 indicators” (after the German for prosperity, Wohlstand ) to measure future prosperity and quality of life in Germany: “material prosperity”, “social well-being/participation” and “ecology”.13 In addition, ten key indicators – including per capita GDP, rate of employment and a “national bird index” (to measure species diversity) – set up warning lights in case outer limits were breached. So far, however, the main W3 indicators have not been applied – much though the public would have liked it. In 2014, the Environment Ministry and the Federal Environment Agency asked a representative sample of Germans whether they wanted future economic and social policy to be geared to GDP or to a broader range of quality of life indicators. Eighteen percent voted for GDP, against 67 percent for something broader – for example, “gross national happiness”.14 After such a result, a democratic government ought to have re-examined all policy programmes and measures geared to GDP growth and reoriented them to an increase in “gross national happiness” or the “W3 indicators”. Or it could have commissioned the democratic development of a common good product. What a gain in trust there would be if governments and parliaments configured trade policy in accordance with the real priorities of the population! 1b) Alignment of world trade rules with the UN goals But there is still no Common Good Product, and Gross National Happiness exists only in Bhutan. True, the OECD has developed a 76

the substantive alternative: ethical world trade “Better Life Index”, but no government has thought of checking a trade agreement for its effects on this innovative yardstick of wellbeing. Neither the Better Life Index nor Gross National Happiness nor Common Good Product is rooted in international law – unlike many of their likely future components, such as human rights, ILO labour standards, climate protection, the safeguarding of cultural and biological diversity, protection of indigenous peoples, conventions against bribery and corruption, etc. Since 2015 there has also been a set of UN sustainability goals. It therefore seems an obvious course to adjust the world trade system to the goals and values previously agreed under international law, to aim for their progressive realization and further development, and to work step by step towards a coherent set of objectives. Instead of systematically endangering these goals through “free trade agreements” with which they are bound to clash, the trade system (like the financial system) could be designed as a means to promote and achieve them more effectively than is the case today. This is the core of the “ethical world trade” vision, analogous to the vision of “money as a public good”.15 1c) The UN as headquarters of international business law The good news is that many of the foundations for an ethical trade system – international agreements, declarations, programmes and objectives – are already in place. If they are not presently integrated into the trade system, it is because this was intentionally constructed outside the UN system so that it would not have to pay heed to its goals. Significantly, in “Freetradespeak” the real goals and values of international politics are degraded into “non-trade concerns”. The WTO was deliberately established on the sidelines of international law to enable the strategic confusion of ends and means: a) by giving an expert cover to the ideology of free trade; b) by legally codifying Freetradespeak; and c) by entrenching undemocratic decision-making 77

trading for good processes and deliberately circumventing sovereigns in the negotiation and conclusion of international treaties. I know of no case where governments have asked their sovereigns whether they wish to join a forced trade organization outside the United Nations. Is it not obvious that world trade rules should be crystallized out of the core of international law? If any organization is suited to serve “the good of the whole” (Ricardo) or “perpetual peace” (Kant), then it is the United Nations. There lies the frame of reference – from human rights packages through environmental agreements to ILO labour standards – for trade as a “means” to an end, and the rules of the game for trade might refer to the framework so that it serves those goals and values. This thinking did once make sense to governments – which is why, thirty years before the birth of the WTO, an agency for the regulation of world trade was founded within the UN: the United Nations Conference on Trade and Development (UNCTAD). No fewer than 77 countries pushed for it to be established, and today this “Group of 77” has over 130 members – many more than the WTO (76) or the UN itself (51) had at its foundation. UNCTAD associated itself with the spirit of the stillborn International Trade Organization. In the first fifteen years of its existence, it sought to promote a “new global economic order” that would narrow the gap between the former colonial powers and their ex-colonies. Its first general secretary, the Chilean Raúl Prebisch, was a leading representative of the “import substitution school”, which offered an alternative to the free trade paradigm. UNCTAD developed a system of “preferential treatment” for poorer countries within GATT, as well as a series of agreements to stem the decline of raw material prices and to ensure that countries dependent on their exports received an adequate income. (Following Ricardo: to prevent Portuguese wine from being always cheaper than English cloth, with the result that England always won the free trade match.) 78

the substantive alternative: ethical world trade However, the (actually mercantilist) industrial countries had just as little interest in stable commodity prices as they did in even trade balances. Nor did they appreciate the South’s demand that they play a substantial role in shaping globalization – which is why they cold-shouldered UNCTAD and shunted it into the sidings. Instead, they pushed hard for the founding of the autistic WTO, under the ideological flag of “free trade”. In the 1980s, moreover, the general ideological climate changed: many poor countries joined in the hosannas to free trade, privatization and the enticement of foreign capital, often donning the Golden Straitjacket of their own free will. UNCTAD came to rest in the sidings, while GATT in 1995 ended up in the WTO terminus for which it had been destined. Because of the dominance of international business law, particularly trade law, some observers have come to regard the WTO as the “actually existing world government”.16 They credit it with the fact that, in comparison with often “weaker” UN conventions, free trade legislation is “hard” (that is, enforceable) international law, violations of which lay the offender liable to sanctions. That was (and is) precisely the aim of the straitjacket-makers. On close consideration, however, it is not an encouraging strength, since complaints to the WTO only protect economic freedoms (from market access to patent law) and are therefore directed against not only environmental or consumer protection but also independent technological and industrial policies. Other WTO members have sometimes complained that the EU prohibits the import of hormone-treated beef (this once led the Bush administration to impose temporary “punitive tariffs” of 300 percent on Roquefort cheese17), tolerates a moratorium by member states on genetic engineering or subsidizes the Airbus consortium – all arguable decisions, certainly not high crimes. None of these EU policies offends against human rights, environmental protection or cultural diversity – quite the contrary. The WTO tribunal cannot be regarded as progress 79

trading for good in international law; nothing would be lost if it were to disappear along with the WTO itself. Perhaps this will happen sooner than expected. For the WTO has fortunately manoeuvred itself into a political dead end with its unreasonable approach to free trade – a process that began in 1999 with mass protests at the ministerial conference in Seattle, which ended inconclusively because the developing countries refused to sign a declaration that the “Quads” (Canada, the USA, the EU and Japan) had cobbled together in the so-called Green Room and, out of ingrained power habits, presented to “the rest” as a fait accompli. Since then, the WTO has taken no major step forward. The Singapore issues (from the 1996 conference) have failed to advance, as has the so-called Doha Round (2001 to 2015) to the most part. To all intents and purposes, the WTO has been marking time since its foundation in 1995, albeit at a far too high and damaging level of enforced trade. In any case, the inefficiency argument no longer applies only to the UN. Nevertheless, after the failures of “their” WTO, the industrial countries have not returned to the harbour of the UN and sought to develop international law there, but have gambled on bilateral and plurilateral (regional) trade and investment agreements. An important parallel manoeuvre took place in the OECD, where there was a push in 1995 to conclude a Multilateral Agreement on Investment (MAI). This too failed in 1998, however, when the French parliament, faced with a broad resistance movement in civil society, backed down and said “Non! ” The third attempt is taking place now, mainly at a bilateral level. In a report issued in 2006, entitled “Global Europe: Competing in the world. A contribution to the EU’s growth and jobs strategy”, the European Commission went on to the offensive and proposed bilateral free trade agreements (FTAs) – in the knowledge that it would be controversial to leave the multilateral level: “There will be no European retreat from protectionism. […] But free trade agreements can also 80

the substantive alternative: ethical world trade carry risks for the multilateral trading system. They can complicate trade, erode the principle of non-discrimination and exclude the weakest economies.” Precisely. But: “The key economic criteria for new FTA partners should be market potential (economic size and growth) and the level of protection against EU export interests (tariffs and non-tariff barriers).”18 Aha, so that’s what it’s all about: not the weakest economies or development or human rights or cultural diversity, but quite simply new markets and “EU export interests”. The same goes for CETA, TTIP and dozens of other bilateral FTAs that the Commission has subsequently tackled – from India and Vietnam through the Mediterranean states and the Near East to the Andean countries. The most important agreement is the TTIP between the EU and the USA, involving the trade relationship that the Commission describes as “the heart of the world economy”.19 Bilateral agreements are supposed to achieve what for the moment is not possible in the WTO: even freer trade, even stronger protection of investments and intellectual property, even stricter rules for public procurement and services (WTO-plus themes), even more shackling of the public sector in its purchasing activity, service provision, and regulation of investments and markets. Thilo Bode received from the German Chancellor’s Office the highly official information that, as a result of TTIP, “the regulatory scope of the EU and EU member-states may be partially restricted”.20 Not without reason does the US Chamber of Commerce describe TTIP as the “gold standard” for all other international trade agreements.21 That would suit it nicely. One searches the negotiation papers in vain for chapters on human rights, labour rights, distribution, social cohesion, consumer protection, environmental protection, climate protection or cultural diversity. Which is why the resistance has become so huge. A special bone of contention has been the enlargement of corporate powers to take legal action. Not only does this make transnational corporations clearly defined subjects in international law; it also 81

trading for good intentionally extends their power at the expense of the national state’s capacity for democratic regulation and development. Many of today’s 3,400 bilateral investment protection agreements include investor-state dispute settlement (ISDS) clauses, enabling companies to file suits directly before ad hoc international courts. Such provisions have come in for massive criticism, because they create a multiple asymmetry in international law. 1. They impose conditions that do not feature at all in UN conventions (investment protection, property protection, freedom of trade). The real objects of international law do not have any courts at their disposal – for example, if TNCs violate human rights or ILO labour standards. 2. They permit complaints on such grounds as “indirect expropriation” or “unfair treatment”, which are not allowable in national courts. Again, they do not provide for complaints about “indirect” violation of human rights. 3. Only foreign, not domestic, corporations can institute legal proceedings. Was non-discrimination not a sacrosanct part of the freedom to trade? 4. They do not satisfy the basic principles of the rule of law; cases are not heard in permanent courts of justice, are not conducted by ordinary judges (but by experts mostly in commercial law or by partly profit-motivated lawyers), are not held in public, and do not hand down judgements that have to be made public or are subject to appeal (echoes of the Middle Ages!). Typically, those who promote the ISDS system focus exclusively on the fourth asymmetry. In the CETA negotiations, the EU did some touching up: a regular court of justice, ordinary judges, public proceedings, possibility of appeal. With these changes, the EU Commission could not 82

the substantive alternative: ethical world trade even convince German judges. The Deutsche Richterbund commented in a position paper of its own: “The view apparently underlying the proposal for an International Investment Court – namely, that the courts of EU member states cannot provide effective legal protection to foreign investors – lacks factual grounding.”22 In the European Council’s negotiating mandate updated in 2011, before the surge of public protests, the talk was still of the “highest possible level of legal protection and security for European investors in Canada”.23 The Council could not have expressed more clearly its lack of trust in the Canadian rule of law – or its ambition to enshrine the strongest litigation rights for corporations worldwide, outdoing even the WTO in the establishment of “superbasic” rights. Litigation rights are designed to be used, as we said, in cases of “unfair treatment” and “indirect expropriation” – which could mean anything and everything. It could cover anything that diminishes profits or any law to protect health, the environment, consumers, employees, future generations or democracy. Investment and property protection is thus continually extended at the expense of protecting the environment, health and democracy – that is protectionism. The protection of something becomes an end in itself, even though it is not the highest consideration. Property is not sacred but carries social obligations (the German Basic Law). Direct litigation rights for corporations against “indirect expropriation”, before legal action can be taken by humans against the direct violation of their rights: that was and remains a scandal.24 A study in Canada has shown that 40 percent of the litigation in question is directed against laws.25 From the media discussion of recent years, I know of not one example of direct expropriation – the supposed justification for the system of corporate litigation against states, first introduced in 1959 between Germany and Pakistan. What is absolutely clear, however, is the negative effect of this system on 83

trading for good development: 85 percent of all complaints originate in industrial countries, and three-quarters of the legal actions are taken against developing countries.26 The creation of a comfort zone for investors has led to an exponential increase in the number of corporate legal actions in the past twenty years. Whereas a total of fifty-six suits were filed worldwide between 1987 and 2000, the figure between 2010 and 2015 was six times higher: 335 complaints. By the end of 2016, 26.4 percent of the cases had been concluded in favour of the corporations and another 25.7 percent had ended in a settlement27 – which means that, in more than 50 percent of cases, the corporations obtained at least something. In the most favourable outcomes, they received compensation amounting to billions of dollars.28 Table III.1 Corporate legal actions over the last twenty years Who sues whom?

Case description

Outcome/current state

Vattenfall vs. Germany

Swedish energy corp. complains of Germany’s nuclear exit

Vattenfall demands 5.6bn euros in lost profits

Occidental Petroleum vs. Ecuador

Ecuador ended oil concession, after corp. had illegally resold development licence

Ecuador must pay US$2.4bn compensation to Occidental Petroleum

Chevron vs. Ecuador

An Ecuadorean court had fined Texaco $19bn for environmental destruction and human rights violations

Chevron won: the verdict was quashed

Ethyl vs. Canada

The US fuel producer took legal action against a ban on toxic manganese additives

Ethyl received CAN$11mn in compensation, and Canada withdrew the legal ban

84

the substantive alternative: ethical world trade Who sues whom?

Case description

Outcome/current state

CMS, Suez, Vivendi vs. Argentina

The multi-utility corporations had not reckoned on the ending of the peso’s fixed link to the US dollar and, after the financial crisis and the peso’s free fall, they sued for compensation for their lower earnings (in dollars)

Total damages came to a staggering US$65bn in 2013. Several judgements went against Argentina, and it considered withdrawing from 59 free trade agreements29

Veolia vs. Egypt

Egypt responded to inflation by raising the minimum wage in the waste industry to US$99 a month. Veolia sued for breach of contract

Veolia is claiming US$82mn in compensation.

Al-Kharafi vs. Libya

Libya withdrew planning permission for a tourism project near Tripoli

The investor received US$935mn in compensation, although it had only invested $5mn

Lone Pine vs. Canada

The US oil and gas corp. took legal action against the Quebec government moratorium on fracking

Lone Pine is claiming CAN$250 in compensation

Lone Star vs. South Korea

The Texan investment fund tries to use an ISDS suit to force through tax tricks and compensation for speculative losses

The case is continuing

Piero Foresti vs. South Africa

The Italian mining company took action against an anti-apartheid law that a quarter of owners and 40% of management must come from the black population

The investors lost the case

Eureko vs. Poland

After 30 percent privatization of the state pension scheme, the Polish government stopped further privatization in view of the financial crisis

Eureko claimed US$12bn in compensation and received $1.5bn

Eli Lilly vs. Canada

The Canadian patents office disallowed two Eli Lilly patents

Eli Lilly is claiming US$500mn in compensation

85

trading for good Thus, the prospect of gain already gives corporations a major incentive to pursue a legal action. But there is worse: ISDS has recently become a veritable business model. So-called litigation funders offer to take on the legal costs of a case, in return for a handsome commission – perhaps as high as hundreds of millions of dollars – in the event of success.30 Corporations risk nothing financially by taking legal action, so that the number of cases is bound to keep increasing. The Canadian law professor Gus Van Harten says that investors “can get billions of dollars when that award would never come out in domestic law. It’s just a jackpot for speculators.” And the Spanish ISDS arbitrator Juan Fernández-Armesto wrote: “When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all. […] Three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament.”31 And there is more. In spring 2011, the Australian government announced that in future it would no longer accept investor-state jurisdiction in its trade agreements. Bolivia, Ecuador and Venezuela have terminated a number of investment protection agreements and withdrawn from the International Centre for the Settlement of Investment Disputes (ICSID). Brazil has in principle foresworn ISDS in its bilateral investment treaties.32 Indonesia and South Africa have renounced their bilateral agreement with the Netherlands; and South Africa has ended its investment protection agreement with Switzerland and Germany.33 The resistance to CETA and TTIP had a solid base. When CETA nearly collapsed in the European Council (because of opposition from Wallonia), the chairman of the EU Parliament’s trade committee, Bernd Lange, said that it meant “a step towards destruction of the European Union”34 – a reckless idea and just another way of saying that there was 86

the substantive alternative: ethical world trade no alternative to the Golden Straitjacket. There is an alternative, and in reality it is the Golden Straitjacket – together with the elites that rule against their sovereigns – which are destroying Europe. Let us return to the point that UN conventions are becoming “weaker” across the board. It is true that complaints can be made against human rights violations, but only if these are committed by governments (rather than corporations). Warlike actions can be sanctioned, and even answered militarily, but only if the carefully constituted UN Security Council unanimously gives the go-ahead. War criminals can be indicted before the International Criminal Court in The Hague, but only if they come from countries that have ratified the underlying treaty or if the crime took place on the territory of a signatory state. Things look even worse with regard to the ILO’s core labour standards, climate protection, species diversity, the protection of indigenous peoples, the UNESCO Convention on the Protection and Promotion of Cultural Diversity, and the UN Global Compact on corporate behaviour. If anyone breaches any of these UN agreements, what usually happens is – nothing. No tribunal has competence, no judge can admit a complaint. The criticism that the UN is a paper tiger is not without justification, and the question as to why this is so must be put mainly to the EU Council, which elsewhere strives for the toughest possible international law. There is, however, a more optimistic way of looking at things. (1) Sanction mechanisms do exist for the first set of agreements and objectives. (2) Many others are binding in international law. (3) The UN has only been around for seventy years: what does not exist now will come to pass sooner or later, so long as actual people and institutions make the necessary commitment. All the more important is it that trade rules are brought into line with UN agreements, because it may be that one day UN law becomes enforceable. “One world” will come about – perhaps on the quiet and at snail’s pace, but come it 87

trading for good will. The first step is to think ahead and propose it. Harald Klimenta writes: “In a well-balanced trading system, the WTO will have much less significance and be integrated into the UN system.”35 Mander and Cavanagh write: “Trade is a means, not an end; […] responsibility for negotiating and enforcing trade rules should rest with agencies that understand this distinction. Thus, we are inclined to the view that the jurisdiction for trade issues should be distributed among the UN agencies concerned with such matters as development, health, food, labour and the environment. The responsibility should rest with the same agencies responsible for the outcomes that trade should support.”36 I also agree with Zeitler: “Every progressive nation-state is therefore advised to begin a controlled exit from the WTO treaties and to fight for a new world trade organization”:37 an organization for ethical trade within the framework of the United Nations. Perhaps, after the stillborn ITO in 1944 and the “tailored” UNCTAD, the third such attempt, which since 1964 has been waiting in the sidings (or better: in the waiting room), will be more of a success. The vision of an ethical world trade system might here kill two birds with one stone: that is, it might establish widely accepted rules for world trade, as well as making UN agreements and objectives enforceable on pain of sanctions.

2 FOR AN ETHICAL TRADE SYSTEM WITHIN THE UNITED NATIONS The substantive core of this vision is a gearing of the trade system to the values and goals of the international community. However, in view of the analysis in the previous section, and with reference to other analyses and criticisms, we would like to flesh out a little the required profile for an ethical world trade system. What we are looking for is a global system beyond both Extreme Free Trade and Protectionism, which: a) supports the values and goals of the international community; 88

the substantive alternative: ethical world trade b) allows democratic scope at local and national level (dancewear instead of straitjackets); c) enables countries at a lower industrial-technological level to catch up with more developed countries (“development leaders”); d) ensures cultural and economic diversity and therefore resilience and innovativeness; e) aims at level current account balances for all trading partners, best achieved with one trading currency. 2a) Protecting the values and goals of the international community The “level playing-field” so happily invoked in today’s debate about globalization and trade policy has a logical flaw, in that it mainly concerns such conditions for economic activity as the elimination of tariffs and “non-tariff barriers to trade”. No one has a comparable problem with unevenness in human rights, labour rights, social security, taxation burdens, environmental protection, climate protection, transparency, public health and safety, or cultural diversity: here the “playing-field” can be as level as a limestone mountain range; they are “non-trade issues”, so no one gives a damn. Except when non-trade issues become barriers to trade – then, may the Lord Chrematistics have mercy on them! Then, measures relating to health, the environment, consumer protection or social and distributive policies are “mutually recognized” or “harmonized down”, or else authorized corporations litigate over them, either before the WTO tribunal or via ISDS. So far there are no known cases where the WTO has approved common standards on human rights, labour conditions, environmental and climate protection, or cultural diversity. Generally speaking, anything that interferes with trade, the supreme good and highest objective, must be got rid of. As in a computer game, we could reverse the whole set-up, so that the “level playing-field” referred instead to human rights, workers’ rights 89

trading for good and the other main “non-trade concerns”, and the game rules (foul, offside, penalty) ensuring fair and efficient (!) play included controls on trade such as tariffs or quotas.38 That would be “ethical trade” instead of “free trade”. Then it would not be the stronger or more unscrupulous but the fair players who were allowed to go on playing and to export and invest successfully. Anyone who tried to play unfairly would have a harder time, would trade less freely, and would obtain limited or more expensive access to markets, or no access at all. States that respected human rights, labour rights and all other UN conventions would trade more freely with one another; they would exclude dumping in every field and protect themselves against dumpers – that is, against states that did not respect human rights, workers’ rights, environmental standards or cultural diversity, failing to ratify and apply the relevant UN agreements. They would establish an “Ethical UN Trade Zone”. I can immediately hear it said that this would be meaningless, since all countries would never agree on such an ethical trade agreement. This argument has no foundation. For no UN treaty has to wait for everyone to “play along”: that’s the stuff of fairy tales. The two existing pacts on human rights came into force after thirtyfive states had ratified them. The Rome Statute of the International Criminal Court (ICC), adopted in 1998, took effect in 2002 following ratification by sixty states, after which the ICC began its work in 2003 in The Hague. An “Ethical UN Trade Zone” might become effective if, for example, fifty UN member states were to ratify its founding charter. It would not be necessary to wait for anyone; a critical mass of the willing, who meant business as far as the UN’s goals and values were concerned, would be sufficient. Instead of being bounced around by others, in the name of economic “efficiency” and “free trade”, they would set the direction themselves. Others could play too, if they kept to the rules. Any failure to sign or ratify a UN agreement would be treated as a foul giving the country in question 90

the substantive alternative: ethical world trade an unfair competitive advantage and making it liable to protective tariffs in return. In the end, it would have to cost global traders more, not less, to play foul on the “level playing-field”. The core of the ethical trading system might be an exhaustive list of every (existing, gestating and planned) UN agreement under which non-ratifying countries were liable to pay customs duties to those that ratified it. Lower or higher protective tariffs might then be imposed according to the gravity and impact of the agreement. For example, the tariff might be set at 20 percent in the case of serious refusals to abide by human rights pacts, at 10 percent in the case of environmental agreements or the agreement to protect cultural diversity, and at 3 percent in the case of the ILO’s core labour standards. An ethical UN trade system might thus be schematically represented as follows: Table III.2 An ethical UN trade system Domain

Additional tariff

1 Human rights

Total for domain 30%

UN civil pact

10%

UN social pact

10%

Human rights court

10%

2 Labour rights

48%

Core standards 1–8

3%

24%

Governance (priority) conventions

1%

4%

0.1%

20%

ILO convention 3 Environmental protection

45%

Each priority agreement

5%

4 Ecological human rights

30%

Rights of nature

10%

Ecological human rights

20%

91

trading for good Domain

Additional tariff

5 Cultural diversity

Total for domain 10%

UNESCO agreement

10%

6 Taxes

40%

Agreement with automatic exchange of information

10%

Complete financial register

10%

1% HNWI tax for UN funding

10%

Country-by-country reporting, unitary taxation, minimum tax rate and assessment basis.

10%

7 Merger control

20%

8 State insolvency law

10%

9 Monetary cooperation

20%

10 Corporate obligations

30%

Size limits

10%

Common Good Balance Sheet

20%

It is daring to talk about tariffs in the early twenty-first century. For mainstream economics, they are as outdated as celibacy and as pathological as coeliac disease; Nobel prizewinner Samuelson described them as the cause of “economic arteriosclerosis”.39 Yet to bash tariffs is to turn a blind eye to history: as we saw in Chapter 1, they have been trusty companions to all industrial countries, in waves that have punctuated the last few centuries. And the states that today curse them the most are the very ones that made full use of them in their own past history: the “mother” and “grandmother” of protectionism, the United States and Great Britain. Besides, tariffs are still in worldwide use today, and even the EU boasts that they account for 12 percent of its budgetary resources. In some poor countries, they make up as much as a half of state revenue. At a fundamental level, the tariff is an instrument for 92

the substantive alternative: ethical world trade steering economic policy, like base rates or taxes. One might just as well reject taxes or interest rates in principle, by using such empty buzzwords as “free money” or “free state”. But just as the aim of interest rates is not to make investment unprofitable but to navigate the economic cycle, and just as taxes are not supposed to confiscate income but to ensure just distribution and the funding of public goods, so are tariffs not fundamentally directed against trade. The purposes they serve are the targeted selection, differentiation, measuring and steering of trade. Those who would throw out tariffs with the bathwater of protectionism deprive themselves of an important tool of economic policy. “Protection”, in the primary sense of the word, is not a bad thing but a vital necessity. We protect children, minors, minorities, endangered species, constitutional values and the privacy of correspondence. Everything possible is protected, and that is a good thing. “Protectionism” is as unfortunate a neologism as “free trade” and means – inversely – that protection has become an end in itself. That really is bad. But then no one has ever called for it, at any time or anywhere. Such are the two stupidities of the debate. An intelligent and ethical trading system protects: • • • •

small farmers from industrial agribusiness; local markets from distant corporations; ethical enterprises from profit machines; public goods and the commons from competitive markets and externalities.

An important and legitimate protective policy, fully consistent with all basic values, defends enterprises that take account of social, ecological and other ethical considerations, protecting them from all manner of dumpers who, by means of lower costs and prices, seek to obtain an unfair competitive advantage on world markets. 93

trading for good This tariff policy does not mean that one country forces its ecological or moral values on another. Each country can protect the values it wishes to protect, and the necessary rules for the internalization of costs for its own market. On this market, however, any supplier must keep to the rules in force or pay a tariff that offsets the competitive advantages derived from lower standards. If certain labour standards apply in one country, it is unfair that firms producing in a country where those standards do not apply should have free access to the markets of the country with the higher standards. If free access were granted, it would not only undermine and nullify the legal provisions and underlying constitutional values in that country, but also openly invite firms of the country with the higher standards to relocate their production in the country with the lower standards, while continuing to supply the same market (with the higher standards). Transnational corporations split up their total value-creation chain in accordance with absolute cost advantages. If no ethical protective tariffs are in place, they can seek out the business location with the lowest fiscal, environmental, social, health and human rights standards, at no cost to themselves. That is a form of a) socialism (where the community assumes certain costs), and b) property protection (which, in ensuring that propertyowners no longer have to meet their social responsibilities, is actually anti-constitutional). Incidentally, anti-dumping measures are still today on the agenda in the WTO: protection against unfair competition is allowed (because it comes under the logic of free trade). Between 1998 and 2008 alone, the EU investigated more than 330 anti-dumping cases, and in 200 cases it has also imposed anti-dumping measures.40 Thus, in July 2016 it raised the import duty on high-grade low-fatigability Chinese steel from 18.4 percent to 22.5 percent,41 and in November 2016 it imposed tariffs up to 81.1 percent on seamless pipes.42 The United States – which protects itself with tariffs as high as 240 percent on Chinese steel products – has 94

the substantive alternative: ethical world trade recently imposed anti-dumping duties on salmon from Norway and Chile, catfish from Vietnam, flowers from Colombia, tomatoes from Mexico, and honey and apple juice from China.43 The case for protection that the WTO accepts is when foreign companies supply certain goods below the costs of production in a country’s internal markets (in order to capture those markets). Exactly the same argument can be applied to environmental, labour, social or fiscal dumping – when dumping corporations offer products on global markets that are below the costs of production (not their own but the whole society’s). Here they have a price advantage over companies that have to bear the total production costs themselves (including environmental, health, workers’ and consumers’ protection). That is completely the wrong way around: those who bear the costs of full social responsibility are punished for it by the markets; those who get the community to pay are rewarded. Good old free trade! The proposal for an ethical UN trade zone therefore widens the contractually binding anti-dumping argument from true-cost pricing for businesses to true-cost pricing at the level of the national economy: to the basic values of society. Those who belittle constitutional values must reckon on higher costs of market access. Those who respect and comply with them will obtain free (or freer) market access. All countries can choose to keep environmental, fiscal and labour standards as high or as low as they see fit, while countries with the higher standards remain able to protect themselves against global dumping. A weakness of current anti-dumping duties is that the litigants are also the judges and are able to impose “arbitrary” penalties – a power of which they make abundant use. Joseph Stiglitz therefore writes: “What is needed is an international tribunal to judge whether a country is guilty of dumping (or engaging in other unfair trade practices). The current system, where any country can set its own standards and do its own cost calculations in such a way as to make a finding of dumping 95

trading for good more likely, should be viewed as unacceptable in a world in which there is a rule of law governing trade.”44 One can agree with Stiglitz up to a point. For arbitrary antidumping judgements and punitive tariffs carry a risk that anti-dumping will become an instrument of mercantilism. We therefore need “global standards” – against both price dumping and ethical dumping! That is precisely what is being proposed here: a global body should be the one to verify, within the UN, any violation of global labour, human rights or environmental standards. A multilateral ethical trade system, just like the WTO, will for obvious reasons need to have jurisdiction – although its priority will not be corporate profits but the protection of human rights, workers’ and consumers’ rights, the environment and future generations. A world human rights tribunal, planned for the near future, might take on this function. Good news: the EU’s foreign trade policy has introduced an element with the same effect as protective tariffs. In the economic partnership agreements with African states, it has inserted so-called “non-execution clauses”, which permit either party to issue trade restrictions or to suspend liberalization obligations (thereby loosening the straitjacket a little) in the event that the other party is guilty of violating human rights. This policy is extremely interesting for four reasons: 1. The precedence given to human rights over trade changes from mere lip service to a priority carrying sanctions under international law. This means: no mutual trade without common observed standards. 2. There is no such clause in the TTIP agreement with the United States – although in many ways the USA violates human rights and core international law (from the death penalty through the use of torture to offensive war without a UN mandate) and has not even ratified one of the two pacts on human rights, the social 96

the substantive alternative: ethical world trade pact. Since social, economic and cultural rights are not guaranteed in the United States, it would be legally proper and consistent if the EU required the United States, like its other trading partners, to observe human rights, on pain of significant sanctions in the event of non-compliance. It would be even more consistent to associate trade agreements in general with the proviso that human rights agreements are respected and ratified. But here the EU clearly measures with a double standard: it imposes its (legitimate) priorities vis-à-vis African states, but in relation to the United States it gives precedence to trade over human rights. A uniform line in foreign economic policy would be to require from all trading partners alike the ratification and observance of human rights agreements. It would then protect itself with ethical tariffs from non-ratifiers, and with “non-execution clauses” from countries that ratify but fail to observe the agreements, turning for back-up to a global human rights tribunal. 3. The EU is not so inconsistent in every policy field vis-à-vis the United States. In extradition cases, for example, if there is a threat to the dignity of the prisoner – in the form of torture or a death sentence – the handover does not take place. This is precisely the priority and the logic that should apply in trade agreements. For human rights are sacred, just as human dignity is inviolable. The freedom to trade is violable. 4. On the other hand, it is hypocritical to insist on the observance of human rights in developing countries – however good and proper in itself – when the whole agreement structurally disadvantages them through “reciprocity” and “symmetrical liberalization” clauses. The equal treatment of unequals is an injustice and an act of force, disguised in Freetradespeak as “non-discrimination”.

97

trading for good The present-day trading system is skewed in such a way that social, ecological and fiscal dumping are regarded as positive for the poor countries; it appears that their lower standards enable them to keep pace with others on the world market. But lower labour, environmental or fiscal standards are the worst kind of “development aid” – which is why it is mainly corporations and their lobbies that advance this argument. Their position is straightforward: if you want poor countries to catch up with the rich, then you must allow them to exploit people and the environment; only then will they stand a chance (and we make a profit from it). There are better kinds of “development aid”, such as “non-reciprocity” in trade or “asymmetrical opening of borders” for the benefit of poorer countries. There is also debt forgiveness or help with the creation of functioning public goods and services. If these countries experience North–South relations as fundamentally solidaristic, they will no longer interpret better labour conditions and protection of the basis of life on earth as a ruse of the rich, ex-colonial, neo-protectionist North. 1 Human rights The heart of international law and the United Nations is the Universal Declaration of Human Rights, adopted in 1948, and the two human rights covenants of 1966 that are based on it: the Civil Pact and the Social Pact. The former enshrines basic civil and political rights, the latter social, economic and cultural human rights. So far, 162 of the 193 UN member states have ratified the Civil Pact, many of them quite recently (e.g., Argentina in 1986, the USA in 1992, Pakistan in 2010).45 As to the Social Pact, 164 countries had ratified it by the end of 2016, including Germany in 1973, France in 1980, Switzerland in 1992, and China in 2001. The United States has not yet added its name to the list. The question of whether states are responsible for respecting, protecting (vis-à-vis other states) and guaranteeing (actively providing for) human rights was clarified in the so-called Limburg Principles. 98

the substantive alternative: ethical world trade The strength of the human rights declarations is that they have been incorporated into many national constitutions and may form the basis for legal action in national courts, as well as the European Court of Human Rights (ECHR). To this day, however, there is no international court of human rights. This is a particularly sensitive issue, for two reasons. First, people in many countries have nowhere to take legal action in support of their rights, if they have no fair chance in their own country because of a corrupt or deficient judicial system. Second – and this is especially relevant here – corporations involved in human rights violations cannot be held to account before any international court. This is all the more serious because the power of transnational corporations has grown enormously in recent years. In today’s world, legal experts complain, “the global reach of TNCs is not matched by a coherent global system of accountability”.46 Since the end of the Nazi period, more than seventy years ago, international law has defined corporations as legal subjects that can be held (jointly) responsible for human rights. It is high time that the rights and duties of corporations were brought into balance. Now some good news. An outline for such a “World Court for Human Rights” has been ready to go since 2009.47 On the occasion of the sixtieth anniversary of the Universal Declaration, the human rights experts Manfred Nowak, Julia Kozma and Martin Scheinin drew up a consolidated proposal for such a court. They first noted that, despite the extensive obligations of governments and other bodies under international law, “large numbers of human beings in all parts of the world [were] suffering every day violations of their human rights”. Moreover, they wrote, “the vast majority of human beings around the world have no access to effective domestic, regional or universal remedy against violations of their human rights and have no chance of being provided with adequate reparation for the harm suffered through these human rights violations”. The purpose of the proposed world court 99

trading for good was to close this “enormous gap” between existing obligations and the lack of effective enforcement of human rights. Its decisions would be “final and binding” with regard to human rights violations by state and relevant non-state players, and provide for appropriate compensation to be paid to their victims.48 The legal basis for this was a list of twenty-one international agreements for the protection of human rights – from the Slavery Convention of 1926 through the International Covenant on Civil and Political Rights (1966) and the International Covenant on Economic, Social and Cultural Rights (1966) to the International Convention for the Protection of All Persons from Enforced Disappearance (2006). Complaints could be lodged with the court by any person, NGO or group of individuals claiming to be the victim of a violation, provided that it had exhausted the national channels available to it. The duty to uphold human rights applied not only to states but also to business corporations (Art. 4). The authors proposed that, initially, corporations could voluntarily recognize the competence of the court (Art. 51). At a later stage, it would be enough that the state in which they had their headquarters recognized the court for them to be held accountable.49 The World Court of Human Rights might be established in The Hague, alongside the International Court of Justice (the main jurisdiction under the UN Charter) and the International Criminal Court (the UN’s “war crimes court”). Human rights deserved no less. Members of the ethical UN trade zone could protect themselves by imposing a tariff of 10 percent on states for each of the two covenants that they did not ratify, with a further 10 percent on states that did not recognize the competence of the World Court of Human Rights. 2 Labour standards A second important area in which globalization and free trade keep getting bad headlines concerns the dignity of working conditions. Free trade means that internationally active corporations are free to profit from it with impunity. In 2016, a total of 100

the substantive alternative: ethical world trade 24.9 million people were subject to forced labour, human trafficking or sexual exploitation, or were held in conditions akin to slavery.50 We hear of child and slave labour, of factories where emergency exits are locked so that no one can leave their place, of people who have to wear nappies as they work, of women who are sacked at the first sign of pregnancy, of trade unionists brutally murdered by death squads, and of factories so badly (and often illegally) built that they fall in on themselves. In Bangladesh, for example, 1,139 workers who made clothes for Zara, El Corte Inglés, Mango, kik and Benetton lost their lives at a factory that had ignored warnings about cracks in the walls.51 Western supermarkets like Tesco, Walmart, Carrefour or Costco sell prawns that are harvested in Thailand under the most inhumane conditions. Refugees speak of twenty-hour shifts, beatings and mockkillings on fishing vessels operated by Thai suppliers.52 According to the UN Covenant on Economic, Social and Cultural Rights, every human being has a right to: • “just and favourable” working conditions; • “remuneration which provides all workers, as a minimum, with (i) fair wages and equal remuneration for work of equal value without distinction of any kind, in particular women being guaranteed conditions of work not inferior to those enjoyed by men, with equal pay for equal work; and (ii) a decent living for themselves and their families”; • “safe and healthy working conditions”; • “rest, leisure and reasonable limitation of working hours and periodic holidays with pay, as well as remuneration for public holidays”. But who monitors and sanctions violations? The ILO is not authorized to. In fact, the International Labour Organization, founded in 1919, is 101

trading for good a peculiar “trilateral” structure made up of employers, employees and governments. It has 187 members and exists to secure workers’ rights, dignified working conditions, social insurance, and political dialogue about work. As a special organization of the UN, it operates on the basis of accords and recommendations. The eight key standards that it promotes concern: forced and compulsory labour, freedom of association, collective bargaining, equal pay and non-discrimination, and labour performed by children and minors. Other priorities are the conventions on labour inspection, employment policy, and consultative procedures for the implementation of conventions. Then come the 200 or so agreements with a lower priority, and finally the 208 recommendations issued by the ILO. In 1969, on the fiftieth anniversary of its foundation, the ILO received the Nobel peace prize. In 2019, on its 100th anniversary, it deserves to see its most important conventions and recommendations become not only legally binding but strictly enforceable under international law, in the framework of an ethical world trade system. This is the key point. As things stand, not even the eight key labour standards are recognized by all members; by 2016 a total of 139 states had ratified them, including Germany, Austria, the United Kingdom and Switzerland. The least interested were four small Pacific islands: they had not ratified a single one. And three other countries – Cook Islands, Brunei and the USA – had ratified two of the eight.53 The first step for an ethical trade system might therefore be to link free trade to respect (= ratification) for these minimum standards of labour law. A 3 percent tariff might be imposed for each unratified key labour standard, plus 1 percent for each priority convention, and 0.1 percent for each further ILO convention. 3 Environmental agreements Most of the international environmental agreements were concluded within the framework of the UN, following major events such as the Conference on the Human Environment 102

the substantive alternative: ethical world trade (UNCHE – Stockholm, 1972), the Earth Summit (UNCED – Rio de Janeiro, 1992) and the Rio+20 Follow-up (Johannesburg, 2012). The UN Environmental Programme (UNEP) also came out of these first three conferences, also known as the “watersheds”. The number of international environmental protection agreements exceeds 1,500, most of which are not, however, multilateral agreements. In fact, there are fewer than twenty relevant UN agreements of this kind. Table III.3 Important multilateral environmental agreements 1

1973

International Convention for the Prevention of Pollution from Ships

MARPOL

2

1973

Washington Convention on International Trade in Endangered Species

CITES

3

1982

United Nations Convention on the Law of the Sea

UNCLOS

4

1987

Montreal Protocol on Substances that Deplete the Ozone Layer

5

1989

Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal

Basel Convention

6

1992

UN Framework Convention on Climate Change

UNFCCC

7

1992

Convention on Biological Diversity

CBD

8

1994

International Tropical Timber Agreement

ITTA

9

1994

UN Convention to Combat Desertification

UNCCD

10

1996

Comprehensive Nuclear Test Ban Treaty

CTBT

11

1997

Kyoto Protocol

Supplement to UNFCCC

12

2000

Cartagena Protocol on Biosafety

Supplement to CBD

13

2001

Stockholm Convention on Persistent Organic Pollutants

POP Convention

14

2010

Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from their Utilization

Supplement to CBD

103

trading for good For these global agreements to be immediately enforceable, as trade and investment protection agreements are today, states would have to recognize the jurisdiction of a court in which litigation could take place and protect themselves with tariffs against states that did not recognize it: for example, 5 percent in the case of these priority environmental protection agreements. 4 Rights of nature – ecological human rights A number of recent initiatives have sought to grant nature rights of its own or to recognize it as a (international) legal subject.54 The idea is to prevent the planet from being exploited and overburdened by one species, man – but also to protect future generations of that species from over-consumption on the part of present generations. We have already seen that human beings consume the annual endowment of 1.5 planets in renewable resources and ecosystem services. And the average inhabitant of an industrial country consumes three to five times more than they would be entitled to under a globally just and sustainable distribution. Consequently, two important steps should be taken in international law. a) Rights of nature in the UN Charter and national constitutions. The next good news is that nature as a legal subject is gradually finding its way into national constitutions – for example, in Bolivia, Ecuador, Israel and Montenegro.55 Cities such as Santa Monica or Pittsburgh have also recognized it, as have the verdicts of courts in New Zealand, Argentina and India.56 Art. 4 of a draft EU directive on the rights of nature states: “Nature shall have legal personality, be recognized as having fundamental rights that arise from its inherent dignity as the source of life and those rights shall be respected, applied and protected by the law of the Union and the laws of the Member States.”57 An Earth Charter was adopted as long ago as the year 2000, but it is not part of the UN Charter, let alone a condition for membership of the WTO. It must be fleshed out with sections on the permanent stabilization of 104

the substantive alternative: ethical world trade major ecosystems (rainforests, freshwater reserves, seas, glaciers, etc.), the protection of species diversity and the avoidance of toxic waste in the environment (including radioactive waste and genetically modified organisms). These “ecological limits” should be written into binding international law, via national constitutions and the EU Treaty, and become targets and conditions for trade. Keywords: “framework mandate” and ecotariffs. b) Ecological human rights. If the ecological debt is at least to stop increasing, two further areas of international law need to be expanded: ecological human rights (the heads side of the coin) and protective rights of the planet (the tails side). The precise thinking here is as follows. The planet’s annual endowment of resources to humankind is shared among all persons and enshrined as an ecological human right and usage right, in the sense of an unconditional, non-negotiable and inalienable basic right. It would be part of a UN environmental covenant, a third pact alongside the existing civil and social pacts. This usage right would be equal for all humans, like the right to vote: each person has only one vote, regardless of how wealthy, clever or “important” he or she may be. Similarly, all humans have the right to use one eight-billionth of what natures gives us each year, without degrading the planetary ecosystem or significantly robbing other species of living space. The global consumption budget of humanity would then be at least 50 percent lower than it is today. The question is how usage could be measured and regulated. The idea of a “money trail” might be useful here, based on the existing cultural innovation of registering all marketed goods and services with a price. Price is today one of the most widely understood and accepted features of the (free) economy, and no one questions the technical feasibility of prices. When we make a purchase with our debit or credit card, the amount is indicated on our account. That is just how I imagine an “ecological price record”: each good and service offered for 105

trading for good sale on the market would have to show not only a barcode and a price but also its ecological consumption. This second “price label” (Niko Paech)58 would be measured in a physical currency such as joules, CO2 equivalent or “global hectares”. According to the concept of an ecological footprint, each human being has 1.7 global hectares or 17,000 global square metres available to him or her each year. This “credit” could be logged annually on their ecological account and used up in the course of the year – or saved for a later (larger) consumption. The ecological account could be electronically linked to everyone’s debit and credit cards, so that all non-cash purchases (90 percent of all purchases today) would be automatically included. We would thereby extend the system of financial price marking to the recording of ecological consumption. Given the happy circumstance that humankind – with all people living today having satisfied their basic needs – remained within the ecological limits of planet earth, a two-step model with further advantages might then be developed. We could leave the biological surplus reserves untouched. But we could also certify as nonnegotiable and inalienable only the part of the endowment that is necessary to cover all basic needs: let us say, 1.3 global hectares per person. The surplus reserve, comprising 0.4 hectares per person, and only that, would become a tradeable commodity. This would have the following advantages: • Poor people who lacked the purchasing power to use up their whole ecological budget might sell what was left to better-off individuals, to their mutual benefit. • Today’s over-consumers would have a slightly longer transitional period in which to adjust. • Frugal individuals could give, or sell cheaply, additional ecorights to other individuals or to civic initiatives or research establishments. Another possibility might be that humankind 106

the substantive alternative: ethical world trade contents itself with less than the allowable maximum and curtails the overall ecological budget. For the industrial countries, such an environmental pact would be an effective way into a “post-growth society”,59 or at least a “post-growth economy”60 or, as Herman Daly calls it, a “steady-state economy”.61 Poor countries, on the other hand, which consumed even less per capita than the planet gave per person, would still be able to “catch up”, though only within the limits of global sustainability. The debt of the North and the ex-colonial powers would not be wiped out, but it would at least cease to grow – a compromise that would therefore be to the North’s advantage. As with all other UN initiatives, not all countries would have to play ball right from the start. It would be possible to begin with thirty, forty or fifty countries. And those which participated in the system would trade more freely with one another than those which, not considering “one world”, equal rights for all or the UN environmental pact as so important, decided not to sign up (even if there was a strong incentive to make global sustainability and equal distribution their business). This approach would be the exact opposite of the mantra on the lips of today’s blockers and outright opponents of globalization, who try to discourage us from launching meaningful initiatives on the “realistic” grounds that they cannot work if all countries in the world do not act simultaneously, or if a single country (or leading group of countries) cannot “afford them”. What a cheap put-down! What blackmail directed against freedom! In a trade regime that serves compulsive moneymaking, what they say is right: any country that leads the way will suffer disadvantages. But in a system of ethical trade, those who suffer disadvantages are those who do not play along. We must escape the “free trade trap” once and for all. We must pull off the chrematistic straitjacket and throw it onto the intellectual compost heap of history. 107

trading for good 5 Cultural diversity The UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions (“UNESCO Convention”) was adopted on 20 October 2005 and came into force on 18 March 2007. By the end of 2016, a total of 141 states had signed up to it, with the aim of safeguarding an independent cultural policy and achieving worldwide cultural cooperation on a basis of equality. The heart of the convention is the right of each state to take regulatory and financial measures to protect the diversity of cultural expression on its territory. The basic point underlying this is that culture is not simply a commodity. Cultural services stand for life plans, traditions and identities. They feature prominently in the sphere of public goods and require special regulation, support and “protection” from global market competition. The UNESCO Convention recognizes this “dual nature of cultural goods” and allows for political measures to support them. Free trade laws are a threat to democratic cultural policies. By compelling governments to eliminate “corporate subsidies”, or to treat all “corporations” equally, they prohibit the special protection or promotion of certain cultural practices or domains and degrade art and art services into market commodities. As in every other sector of the economy, this could result in the formation of a gigantic industry that reduces quality and diversity, restricts artistic freedom, economizes the whole of culture and permeates it with capitalist values. The Passau expert in constitutional and commercial law Hans-Georg Dederer warns that TTIP could lead to an “obliteration of cultural diversity” in Europe.62 Much the same applies to every sector, except that comparatively large numbers of people are alive to the sensitivity of the cultural sphere. In an ethical trade system, states that ratify the UNESCO Convention might be able to set an extra 10 percent tariff between themselves and non-ratifiers. In addition, it would not be possible to take legal action against measures to protect cultural diversity. 108

the substantive alternative: ethical world trade 6 Taxation One of the sensitive issues in the debate about globalization is that it is precisely the winners who manage to avoid tax liabilities, by shifting capital to tax havens and various other tricks. In recent years, as they have progressively turned property freedoms into a basic super-right, governments and parliaments have also been releasing capital from its constitutional duty to society and the common good: all limits on acquisition and inequality have been lifted; taxes have been lowered; and a clear route to tax havens has been opened up. In this way, wealthy individuals and companies systematically rid themselves of tax liabilities. Even the prevailing tax rates can no longer be regarded as fair, because the free movement of capital, fiscal competition and tax avoidance schemes appreciably reduce the nominal tax rates. The consequences are shrunken public finances, austerity policies, cuts in public goods and services (especially for the socially deprived), and the shifting of the tax burden onto the middle classes.63 To the extent that globalization advances and the world “grows together”, the possibility of effectively cooperating in tax policies has greatly increased. Technically, it would be possible at any time to tax the profits of globalization appropriately and to enforce the corresponding social obligations. If other measures do not do the job, the free movement of capital – which is not a basic right – could and should be made dependent on cooperation in tax matters. No rights without duties. a) Automatic exchange of financial information. In any case, there is a straightforward way of ending international tax evasion. On 19 April 2013, in the aftermath of the 2008 financial crisis, the finance ministers and central bank governors of the G20 spoke out in favour of the automatic exchange of tax-related information. The impetus for this was the intergovernmental application of the US Foreign Account Tax Compliance Act (FATCA). On 17 January 2014, the tax committee of the OECD published a standard procedure for exchanges, which it 109

trading for good had developed together with the G20 and the EU. Its main provision is that participating countries should automatically report to the finance departments of the holders’ country of residence information about the balances and earnings (interest, dividends, etc.) on all kinds of accounts (including foundations, trusts, insurance, etc.). The institutions required to give these reports include not only banks and depositories but also brokers, undertakings for collective investment in transferable securities (UCITS) and certain insurance companies. Both natural and legal persons are affected. This has established a new minimum standard for the exchange of financial information. But participating states may at any time go beyond this minimum – which is a good thing, because the first version contains a series of loopholes that need to be closed. The Global Tax Justice Network (TJN) criticizes the following in particular:64 • Not all financial data are included: for example, safety deposit boxes or freeports (airport depositories). • The planned threshold of 250,000 euros is too high, as assets can be divided up into smaller portions that do not have to be reported. • In the case of legal persons such as trusts or foundations, only the “controlling persons” of those entities have to be identified, instead of all beneficiaries and recipients of equity distribution (who may therefore withdraw untold millions in income and conceal it from the tax authorities). • Reciprocity of information exchange is demanded of participating countries: not only must they supply financial data about their citizens abroad, but they must also supply to other states financial data concerning citizens of those states. What at first seems perfectly fair and logical proves on closer inspection to be beyond the budgets of many developing countries – and not at all necessary. “To understand why reciprocity is a problem, consider 110

the substantive alternative: ethical world trade first how many wealthy Nigerians are likely to stash assets secretly in Switzerland – then consider how many wealthy Swiss are likely to have located their secret stashes in Nigeria.” One solution would be to provide poor countries with technical and financial assistance during adequate transition periods, so that they can construct their own reporting systems. According to TJN, “nearly all the active tax havens are located in rich countries, and the flow of illicit money is in one direction only: from poor countries to rich”. Of course, there are exceptions, such as Panama. • Sanctions are ineffective. The current draft legislation provides for maximum penalties of just 5,000 euros even in the case of deliberate false reporting. “This is an invitation to break the law.” Thomas Fritz of the Tax Justice Network calls for jail sentences where there is deliberate intent (as in other cases of lawbreaking), as well as sizeable financial penalties: “In the finance industry, one can count on a deterrent effect only if the fines cannot be built into the calculations.” So, though positive in itself, the initiative is only a beginning. One strength of the OECD standard is its global focus, which means not only the avoidance of a hotchpotch but also the eventual inclusion of all states, at least if they have an interest in freer trade with one another. There is already a multilateral agreement on which fiscal cooperation can be “superimposed”: namely, the Convention on Mutual Administrative Assistance in Tax Matters, dating from 2011. It provides for all kinds of cooperation and facilitates the automatic exchange of information. The penalty area has already been marked out; all that governments have to do now is bring it into operation. If everything goes according to plan, the first data may be collected in 2017 and exchanged in 2018. We can imagine that things will develop at two levels: the basic level of the OECD and the development of a complete registry of financial 111

trading for good assets held by residents and non-residents, which can be supplied for the purposes not only of capital gains tax but also of wealth taxes, gift taxes and inheritance taxes. Gabriel Zucman, a disciple of Thomas Piketty, considers such a complete “worldwide register of securities, showing who owns which assets and bonds” to be the decisive step in the global struggle against tax avoidance and evasion. An analogy to this would be the land registry – a compulsory record of all real estate assets, which nowadays is a matter of course that no one finds outrageous. It, too, serves two purposes: to establish what belongs to whom (property law) and how much tax is due on it. In July 2016, a resolution of the EU Parliament welcomed “a global register of all assets held by persons, companies and entities such as trusts and foundations, to which the tax authorities [would] have unrestricted access”.65 Unfortunately, the EU Parliament has no legislative powers in tax matters. And the governments of member states have no interest in such a register. Zucman’s proposal is that countries which refuse to cooperate in developing a global financial register and information exchange should be excluded from free trade and incur tariffs proportionate to the costs they inflict on other countries. It is possible to defeat tax havens, by placing “the problems of fiscal dissimulation […] at the heart of discussions on trade. […] An alternative approach to withholding taxes [would be to act] on the level of the trade of goods and services. Tax havens cannot, in fact, do without commercial avenues. […] Without access to foreign markets, tax havens are condemned to die.” In the case of Switzerland, Zucman suggests that France and Germany could impose tariffs of 30 percent.66 b) Global HNWI taxes for UN goals. Long overdue is a moderate tax on the wealth of the winners from globalization. Every year we hear that the gap between rich and poor is becoming wider and wider, that the number of dollar millionaires is growing at a faster rate than global population or GDP, and that the density of high net worth individuals 112

the substantive alternative: ethical world trade (HNWIs) is continuing to increase. HNWIs are people who have liquid financial assets (excluding the property they live in themselves) worth at least one million US dollars. Their number has increased from roughly six million in 1996 (the first recorded year) to 15.4 million in 2015, and their combined wealth from $16.6 trillion in 1996 to a fabulous $58.7 trillion in 201567 – almost twenty times the economic output of Germany. A globalization tax of 1 percent would bring in a handsome $587bn; and even 0.1 percent would net $58.7bn. By comparison, the entire UN system, with all its organizations, commissions, programmes and projects, has a budget of $46bn at its disposal. Although the world is richer than ever before, it is flat and skinny when it comes to implementation of the UN Sustainable Development Goals (SDGs). Whereas $390bn to $630bn was needed for the less ambitious Millennium Development Goals – and could have been raised through a 1 percent tax on HNWIs – an extra $0.8trn to $1.5trn is needed each year for the SDGs;68 that means a tax of 2 percent on HNWI assets. c) Corporate taxes. Corporations are particularly aggressive in avoiding their tax obligations. In the case of Germany, all DAX index companies and large family businesses operate today in tax havens. The tax shortfall for Germany alone has been estimated at 60 to 90 billion euros.69 In Britain in 2014, the big banks JP Morgan, Merrill Lynch, Morgan Stanley, Deutsche Bank and Nomura did not pay a penny in taxes, while two others – UBS and Goldman Sachs – together paid 28.4 million euros. All seven combined, on the other hand, recorded profits of nearly 5 billion euros.70 Global players profit immensely from a global infrastructure which includes free trade, free movement of capital and state protection of property and investment just as much as cost-free public education, healthcare or disaster relief. Given the inaction of governments over systematic avoidance of corporate taxes, NGOs such as the Global Tax Justice Network have come up with detailed ideas about how it can be ended. 113

trading for good • A uniform tax base and minimum tax rates: the existence of different tax rates and rules is, economically speaking, a distortion of competition in favour of corporations, since these relocate their economic activities in countries with the lowest taxes. Then what counts is neither quality nor efficiency – the promise of economic results – but cost minimization at the expense of democratic community. A “level playing-field”, of which so many freetraders like Thomas Friedman dream, would provide for a uniform global tax rate and a uniform basis of assessment – only then could all enterprises operate under the same conditions. As things stand, the uncoordinated, even competitive, relationship between national fiscal policies makes for a steeply sloping playing-field that favours not the better or fairer enterprises but those with the least scruples about using fiscal criteria for their choice of business location and transferring their profits there. • Dual taxation agreements according to the charging method: if a company is active in several countries, it can use creative accounting to move its profits to countries with the lowest tax rates. The country of origin has two possible ways of dealing with this. If, in cooperation with the affected countries, it applies the exemption method in dual taxation agreements, there will be nothing further to pay even if the tax rate in the lowest tax country is, say, 12.5 percent and in the country of origin 30 percent. An agreement based on the charging method, however, would levy the difference in the country of origin. The moving of profits to countries with the lowest tax rates would then no longer be attractive. All that is required is the political will to organize all tax agreements in accordance with the credit method. • Unitary taxation: the switching of all agreements to the charging method would not be enough on its own, however, because the corporation might transfer its headquarters to one of the countries 114

the substantive alternative: ethical world trade with the lowest tax rates. Accenture, for example, started out in Bermuda and moved from there to Ireland; while Philip Morris relocated from the United States to Switzerland. Against this a “unitary taxation” approach has developed. This involves first judging the proportion of its real economic activity (measured by capital investment, employment and turnover) that a corporation carries out in each country, so that it can then be determined which part of its global profits should be taxed there at the prevailing rate in that country, regardless of where the corporation has declared which part of its profits. This would soon put an end to tax dodges. • Country-by-country reporting: A prerequisite for proportional taxation is knowledge of a corporation’s scale of activity in countries where it has a presence, and, in the case of the charging method, what is the tax yield from that activity. Only then can the two principles be applied and take effect. Happily, there is already some movement on this point. The method of “countryby-country reporting” was introduced as a minimum standard in the OECD project against base erosion and profit shifting (BEPS). Large corporations (with earnings above 750 million euros) must submit in the country where they have their head office a country-by-country list of their economic activities. This report is then passed on to the relevant authorities of the countries in question, making available an important piece in the jigsaw of global tax liability. The whole puzzle still needs to be solved, however. Systematic taxation of transnationally active corporations implies that those which wish to enjoy global economic freedoms must also endure global tax obligations. d) Global tax authorities. Fair, democratic and liberal globalization, based upon a balance of rights and duties, freedom and responsibility, 115

trading for good power and supervision, also requires global institutions. Trading rights, free movement of capital and protection of investment and property are one side of the political architecture of globalization; global labour standards, environmental protection agreements, tax authorities, financial supervision, antitrust authorities and criminal courts are the other side. The Stiglitz Commission, set up by the UN General Assembly after the financial crisis of 2008, called for such a world tax authority, in a 110-page report on regulation of the global financial system. Along with other regulatory tasks, its proposed “global financial authority” would take action against money laundering and practices with negative fiscal effects.71 To avoid misunderstandings: the tasks of such a global authority would complement and support those of national financial authorities; it would not replace them, any more than it would question sovereignty over tax policy. It would be given powers only to prevent the global freedoms of economic players from degenerating into a new global domination. Moreover, no one would be forced to recognize the competence of such global authorities; the only advantage of recognition would be an ability to trade more freely. A world tax authority might be entrusted with the following tasks: • compiling, monitoring and administering the global financial register; • adopting, monitoring and developing the OECD agreement on automatic exchange of financial data; • providing administrative support for the implementation of HNWI taxes and supplying the means to the UN for funding the Sustainable Development Goals (SDGs); • developing a single global basis of assessment for corporations; • establishing a minimum tax rate, applying the principle of “unitary taxation” and eliminating practices with negative fiscal effects; 116

the substantive alternative: ethical world trade • supporting the fight against money laundering and international financial crime. The pioneer of ecosocial market economics Franz Josef Rademacher72 and the German Attac founder and Euro MP Sven Giegold have long been campaigning for a world tax authority.73 The European Parliament – in contrast to member states – has now also declared in favour of one. And Ecuador has announced that it will prioritize the issue during its chairmanship of the G77 in 2017.74 Free trade might be tied to cooperation in all agreements, so that any country that does not sign up to automatic information exchange, coordinated corporate taxation, HNWI taxes and the creation of a UN tax authority might be encouraged to cooperate by the prospect of a supplementary 10 percent tariff. 7 Global antitrust authorities In Part 1, we saw that the concentration of power in world markets is proceeding apace and that the WTO, while continuing to tout for more “free trade”, is not in the least opposed to this danger. This indulgence towards the power of transnational corporations is all the more surprising because, when legal persons first came into existence, the mistrust of any uncontrollable accumulation of power was so great in the United States that business licences were for a fixed number of years and lapsed if an extension was not sought and granted. The power to issue licences was vested in individual states, so that corporations could be kept under citizens’ control. In 1800 there were only around 200 licensed corporations in the whole of the USA.75 Subsequently, however, their rights and their power gradually expanded, two important steps being the legislation on limited liability companies in England (1856) and in the USA in the following years,76 and the freedom given to corporations to become shareholders in other corporations. (Until 1880 such cross-ownership was “generally 117

trading for good prohibited”.77) The final breach in the dam was the Supreme Court ruling in 1886 that a corporation counted as a “natural person” under the US Constitution.78 This meant that corporations acquired a whole series of rights, such as the right to sign contracts, to make donations to political parties, or to file law suits. The consequences were predictable, as Abraham Lincoln wrote in a letter in 1864: “I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. As a result of the war, corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavour to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed.”79 Today, global corporations dispose of almost unlimited power, and the fact that the WTO does not even have a merger control function tells us everything about the accuracy of Lincoln’s prophecy. “Postdemocracy” also means that, as things stand, no parliament in the world seeks to limit the power of the transnationals. Perhaps the initiative for this should therefore come from citizens – and perhaps they should also make the crucial decisions, in a spirit of direct democracy. The German Bishops’ Conference writes: “Regulatory measures are therefore urgently required to monitor competition and to limit the economic power of large corporations, or in certain circumstances to exercise merger control.”80 George Monbiot insists: “The key political issue of our age, by which you can judge the intent of all political parties, is what to do about corporate power.”81 That sounds like the voice of the age, but it is not new. Back in 1950, the celebrated German economist Walter Eucken espoused a similar view: “So, it is not the so-called abuses of economic power that need to be fought, but economic power itself.”82 The countries forming part of the ethical trade zone might limit the power of global corporations, so that they are no longer able to impose their agenda against the interests of the majority and the common 118

the substantive alternative: ethical world trade good. An agreement to limit the concentration of power in the global economy could include at least three rules: • No company may hold more than a 1 percent market share in its branch of the economy. • No company may have a turnover greater than 50 billion dollars. • No bank may have a balance sheet total greater than 30 billion dollars. And upward of a $1bn turnover or balance sheet total, a Common Good Balance Sheet would not only be compulsory but operate as a licence for participation in the world market, renewable only if a minimum score on the Common Good Balance Sheet was achieved. Participation in the world market is a privilege for the most ethical corporations! The question is where such an antitrust authority might be located. Most proposals suggest that it could come under ECOSOC, the UN Economic and Social Council, so that countries that support the authority and set limits to corporate size and power would be able to protect themselves in two ways from the giants. Either they would exclude from the market any company that exceeded the size limitation; or they would also levy a duty of 20 percent on countries that did nothing against the concentration of power. The proposed duty is especially high in the case of such bold measures, because the question then really would be one of power. 8 Insolvency law for states Uneven trade balances can suddenly land states in financial woes and carry them to the brink of bankruptcy. Sovereign defaults are not a rarity, and sovereign debts have often been restructured or forgiven. For example, the London debt agreement in 1953 cancelled more than a half of Germany’s external debt, which fell from 129 percent to 61 percent of GDP. Argentina was deleveraged in 119

trading for good 2001, and Iraq in 2008. In the course of history, Germany and France have been bankrupt eight times each, Austria seven times, Greece five times and Spain thirteen times.83 Despite this high number of sovereign defaults, there is still no international insolvency law in place. This is in contrast to the situation for companies, where insolvency law is now a matter of course all over the world and benefits both sides – debtors as well as creditors. This would make sense for states, too. Many countries suffer from an oppressive debt burden and are unable to fund basic development projects without a major deleverage. A central reason for the excessive debt of poor countries is the dollar hegemony of the Bretton Woods I system (to the taste of the United States). Since the US dollar was the world’s reserve currency, most countries were inescapably indebted in dollars and soon became insolvent when dollar interest rates shot up in the early 1980s. In the ensuing crisis, the IMF and World Bank (representing the creditors) stoked up debtor nations to maximize their exports, with the result that not only “Portugal” but also many poor (and indebted) nations specialized in the production and export of wine (or coffee, sugar cane, cotton, ores or precious metals). The World Bank and IMF, the two main creditor institutions, also prescribed the notorious structural adjustment programmes, which may be read as straitjacket policies imposed through the levers of debt. An important lesson from all this is that the great debt crisis need never have happened if Keynes’s proposal for a Clearing Union had eliminated the dollar’s role as world reserve currency and used interest-rate levels to penalize deviations from balanced trade. On the other hand, the debt crises might not have degenerated into social catastrophes if the insolvency procedures for states had been as clear and transparent as they were for companies. In the USA, there are such procedures at least for local authorities and individual states, in Chapter 11 of the US bankruptcy code. A number of experts propose that this should serve as the model 120

the substantive alternative: ethical world trade for international insolvency law. For there will be debt forgiveness whatever happens – whether through regular cancellations, through a modern and calculable insolvency law or through haircuts after sudden financial crashes (as in Argentina in 2001 or Greece in 2009). If there is no regulated procedure, a further outcome may be that creditors appear in the shape of vulture funds or the Troika and attempt to rip the entrails from the dying victim. There are good reasons why insolvency law should be extended to nation-states. Basically, a loan is always agreed between two sides, and both should therefore be involved in solving a crisis situation. The “moral hazard” problem, which some like to brandish in opposing an international insolvency law, is currently applicable to creditors. If their calculation is that states cannot become insolvent, they will lightmindedly dish out loans: “The hard truth is that every loan has both a lender and a borrower”, writes Joseph Stiglitz. “If the loan is inherently bad, the lender is as much at fault as the borrower.”84 But now for the solution. At least six different proposals are on the table for an international insolvency procedure, the authors ranging from the former IMF director Anne Krüger through the Viennese development economist Kunibert Raffer to the International Debt Framework (IDF) that is close to the G20.85 An attractive, workable procedure could be distilled out of these, which could go into service at any time to avert once and for all tragedies like those that hit Greece or Argentina. A fair and transparent sovereign insolvency procedure might be built around the following points. • The procedure is part of a new international contract within a UN framework, on the initiative, for example, of the Economic and Social Council of the UN (ECOSOC). • The court of arbitration sits on neutral territory and is linked into the infrastructure of international law. The IMF ceases to perform 121

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• • •

•

•

the dual role of creditor and arbitrator. Many authors therefore propose the United Nations and its ICJ as the appropriate home for the court. In principle, the debtor initiates insolvency proceedings, but a qualified majority of the creditors may also take this step. All debts are taken into account, private and public, external and internal, and in principle all are treated equally. It is enough if a qualified majority of creditors (say, 75 percent) agrees to the proposed debt restructuring; a single (vulture) fund cannot block proceedings. The proceedings must be transparent and public, and all parties must be heard. This makes the debtor state responsible to its own population. It also means that the basic needs of the affected population are better protected. In defining the limits of debt sustainability, debtors and creditors may fine-tune contractual minimum standards.

Current indicators are debt level or debt service measured in terms of exports, gross domestic product or government revenue. It is absolutely essential to include social indicators, so that the debt service does not take place at the expense of development and the human dignity of those affected. There is a historical precedent for an alternative criterion of debt sustainability: when Germany was deleveraged in 1953, the London conference accepted that the debt service should not be higher than the trade surplus. Not only did this define a painless limit; it also allowed that imports could be paid for with export earnings. The first insolvency proceedings might also determine the most appropriate human, social and ecological criteria in the light of all perspectives. “As economic history shows, over-indebtedness makes debt reduction unavoidable”, summarizes the legal expert and development economist Kunibert Raffer.86 States that sign up to insolvency law 122

the substantive alternative: ethical world trade might protect themselves with an extra 10 percent duty against states that fail to participate. 9 Bretton Woods II – a “barter circle of nations” A multilateral trade system makes sense only if even trade balances for all are one of its central goals. If they are simply left to chance, imbalances can build up in no time at all and suddenly plunge countries into sovereign bankruptcy, or at least into an economic crisis complete with debt bondage. If the demand that a trade agreement should serve “the whole” is to be taken seriously, it must logically provide for a compensatory mechanism for trade balances. As we have seen, John Maynard Keynes came to this realization during the Great Depression, then gradually refined it into the proposed solution that he presented to the Bretton Woods conference in 1944 – as the delegate of Great Britain.87 This was more than unusual, because it was literally a “radical” proposal: it went to the roots of, and would have brought about a genuine change in, the international trade and currency system; it would for the first time, by mathematical necessity, have brought the same benefits to all who participated in it. As one contemporary later recalled, it was a proposal the likes of which had never before been formulated as the policy of a responsible government, “so ambitious and electrifying it became a banner of hope; an inspiration to the daily grind of war-time duties”.88 What did Keynes’s idea amount to, then? At its heart was an international complementary currency to be used in trade calculations between states, via an International Clearing Union (ICU). Only the central banks of member states would have an account in this, which would show the balance of imports and exports for each country. A surplus would lead to a positive balance on the account, a deficit to a negative balance. (There is a similarity here to the target system of the European Central Bank.) Keynes called the reckoning unit a “bancor”; today we might use a term like “globo” or “terra”. 123

trading for good If all participating countries had even trade balances, their trade accounts would balance one another out; the “whole” would be in balance. But Keynes provided for countermeasures in the event of imbalances. Should any country’s trade balance deviate by a quarter or more from its quota (the average value of exports/imports over the previous three years), it would have to pay a 1 percent tax into the ICU reserve fund. Should it deviate by more than 50 percent, a further 1 percent would be charged. (This recalls the theoretical penalties in the eurozone for deviations from the Maastricht criteria.) What caused a real sensation in Keynes’s proposal was that the penalties would be imposed on countries with a surplus as well as those with a deficit. The fault for any imbalance would no longer lie with one side only; both sides were called upon with the same vigour to restore equilibrium. Furthermore, the ICU acquired more and more rights to intervene as the deviation grew larger. In the case of an overdraft (trade deficit) of more than a quarter, the affected country would have to adjust its exchange rate downward; or if it rose above a half the ICU had the power to impose controls on the movement of capital and to fall back on the country’s gold reserves; if it reached more than three-quarters, the ICU could withdraw the country’s right to debit its account and declare it insolvent. The proposals for countries in surplus would be no less effective – measures to raise internal demand, to adjust the exchange rate upward (currency revaluation), and to reduce duties and import restrictions, as well as loans to countries in deficit. Keynes justified these astonishingly ambitious measures as follows: “We are too ready today to assume the inevitability of unbalanced trade positions, thus making the opposite error to those who assumed the tendency of exports and imports to equality. […] We need a system possessed of an internal stabilising mechanism, by which pressure is exercised on any country whose balance of payments with the rest of the world is departing from 124

the substantive alternative: ethical world trade equilibrium in either direction.”89 Another stroke of genius is the idea that surplus countries could award credits to deficit countries. Logically, the level of interest on these would have to be lower than the interest on the penalties, so that both sides had an incentive to make the credit transaction. This element would even function with negative interest rates, involving genuine aid by surplus to deficit countries. A rate of minus 1 percent on part of the surpluses would still work out 50 percent cheaper than having to fork out penalties of 2 percent. Keynes had this to say about his measures against the accumulation of surpluses: “The substitution of a credit mechanism in place of hoarding would have repeated in the international field the same miracle, already performed in the domestic field, of turning a stone into bread.”90 As if that was not enough, he offered a whole firework display of ideas concerning what the ICU could achieve with special accounts and the money of countries in surplus: reconstruction projects, the maintenance of “international order” (one is reminded of the UN Security Council), the storage of raw materials (for the stabilization of prices: see the later UNCTAD), an investment and development agency to stimulate dampening and growth effects over the whole system, and so on. Keynes was seriously thinking along these lines a few years before the founding of the United Nations. Not only do many of his proposals sound like UN sustainability goals; they also immediately solved the problem of how they could be funded –more than seventy years ago! Keynes was perfectly aware of the scale of what he had in mind: “It has been suggested that so ambitious a proposal is open to criticism on the ground that it requires from the members of the Union a greater surrender of their sovereign rights than they will readily concede. [NB: Perhaps that depends on who is the sovereign.] But no greater surrender is required than in a commercial treaty. […] A greater readiness to accept super-national arrangements must be required in the post-war world.”91 How true and how topical today! Referring to the need for “financial 125

trading for good disarmament”, Keynes ended on a solemn note: “The plan makes a beginning at the future economic ordering of the world between nations and ‘the winning of the peace’.” I endorse this tone and consider his idea to be more brilliant than Ricardo’s; for not only is it as precise mathematically, but its application would make eminent sense. It would make the world a little more just and a little more peaceful. This may well be why it failed in 1944 – because of the US government. Keynes’s opposite number at the negotiating table, Harry Dexter White, proposed the dollar rather than the bancor as the world reserve currency, promising to back it with gold. And instead of the ICU he proposed a world bank and an international monetary fund – the rest of the story is well known and has been the object of ample critical analysis.92 The predictable collapse of Bretton Woods 1 in the early 1970s ushered in a period of major crises. As Susan George put it: “With an ITO and an ICU, we could have had a world order in which no country could run a huge trade deficit (the United States deficit stood at $716bn in 2005) or the huge trade surplus of contemporary China. Under such a system, crushing third world debt and the devastating structural adjustment policies applied by the World Bank and the IMF would have been unthinkable.”93 George Monbiot, for his part, has written: “The gift which Keynes has offered us, and which we have so far refused to accept, is a world in which the poor nations are neither condemned to do as the rich nations say, nor condemned to stay poor.”94 I like the “so far”. In fact, after the financial crash of 2008, leading economists and bankers took up Keynes’s idea, and in its report to the UN General Assembly the team around Joseph Stiglitz described it as “an idea whose time has come”.95 That is true. And if the US government still has no inclination to take up this brilliant proposal, then “willing” governments should lead the way and give an incentive for the “unwilling” to follow them – for example, with a 20 percent tariff against those preventing a global trade balance. 126

the substantive alternative: ethical world trade Of course, Keynes’s proposal would have to be carefully considered and scanned for potential amendments and updating; Keynes himself suggested as much in a number of places. One improvement might be that low-income countries, above all the forty-eight least developed countries (LDCs), would not be penalized for any limited trade surpluses. Insofar as they closed the development gap, this special treatment would then be discontinued. On the other side, the highestincome countries might be partly exempted from penalties if they ran a trade deficit with poor countries. 2b) Infant industry policy and non-reciprocity between unequals As we saw in Part 1, none of today’s trading powers applied the free trade formula in its own history. The US government discovered the “single most powerful insight” of economic science only after 1945, once the country, by practising the opposite of Ricardo’s formula, had acquired an unassailable lead in development over most other countries. This “kicking the ladder away” it had learned from Britain, the old mother country. Similarly, none of today’s trading powers – whether Germany or Canada, Australia or the Asian tiger states – applied the free trade formula itself. All the more justified is it, therefore, that countries with a low income and technological level should be able to climb the same “development ladder” and apply the same protective measures, instead of being strapped into straitjackets disguised as trade agreements that forbid such measures. The historian and newspaper contributor Ulrike Herrmann writes: “In the nineteenth century, the technology gap between the richest and poorest countries was at most 4:1. […] Today, the gap between rich countries like the USA and the poorest countries such as Ethiopia or Tanzania has widened to 60:1. Even emerging countries such as Brazil limp along at 1:5 behind in terms of the productivity of their economies. This means that, if a country like Brazil wants to defend itself against 127

trading for good the superior strength of the industrialized countries, it can no longer just impose import duties of 40 per cent (as the United States did in the nineteenth century); the duties must be well over 100 per cent. Instead of this, however, the developing and newly emerging economies are forced to accept trade agreements and WTO agreements that provide for the lowering of tariffs.”96 To be sure, special, preferential treatment for developing countries has been present among many other themes in the GATT (1948) and the WTO (since 1995) – though with generally meagre results. A modest advance came in 1954 with a revision of Article XVIII, such that, for “the establishment of a particular industry”, developing countries could be exempted from free trade obligations. The founding of UNCTAD, in 1964, also only helped a little to further the interests of poor countries within GATT. A new Section 4 on trade and development for the first time established the principle of non-reciprocity, so that not all countries had to open their borders and markets at the same speed and to the same extent. More far-reaching was the General System of Preferences (GSP) agreed at the UNCTADII Conference in 1968, following a proposal by the head of UNCTAD, Raúl Prebisch. However, the industrial countries agreed to establish this system only on a voluntary basis, and often its benefits were offered only on extortionate conditions. Anyway, nothing much was achieved subsequently, amid the general turn in global policy. “Since the late 1970s”, writes Thomas Fritz (in the same vein as Thomas Friedman), “the countries of the South witnessed a transition from domestically oriented import substitution to foreign-trade oriented integration into the world market. Burdened by foreign debt and pressured by the structural adjustment programmes of the international financial institutions, the governments adopted monetaristic measures: restrictive monetary policy, priority of the struggle against inflation, budget cuts, privatisation, wage cuts, withdrawal of the state and last 128

the substantive alternative: ethical world trade but not least, increased opening towards the world market. Trade barriers were lowered, incentives for foreign investment were created and export efforts were increased. Politicians increasingly submitted to the demands of the global location competition.”97 According to Fritz, the UNCTAD VI Conference in Belgrade “marked the crucial turning-point in the attitude of Southern governments towards the multilateral trading system. […] It was hoped that the reciprocity of obligations would be more beneficial than special treatment for weaker world market participants.”98 The straitjacket became the fashionable political trend. This trend led to the successful conclusion of the last GATT round, the Uruguay Round, and in 1994 to the founding of the World Trade Organization (WTO). Most observers consider that, right from the beginning, the development needs of poor countries carried less weight in the WTO than they had in the GATT. Exceptions tended to apply only to the least developed countries (LDCs), with longer implementation periods on the basis of voluntary action, so that the industrial countries not only had a free hand in defining them but could even use them as instruments of blackmail. Observers have described the development of the WTO preference system from a “development tool” to an “adjustment tool”.99 According to the development economist and lawyer Kunibert Raffer, the system was “practically dismantled” with the founding of the WTO.100 The 155 WTO measures in favour of developing countries do nothing to change this verdict. The Seattle Ministerial Conference in 1999 foundered in the face of opposition from the developing countries. At the Doha follow-up conference in 2001, the industrial countries – with their eyes mostly on the media – called for a “development round”, but Joseph Stiglitz has described this as “mere rhetoric”. He saw a “real risk that this new round, rather than undoing the imbalances of the past, would make them worse”.101 It did lead 129

trading for good to much-hyped initiatives such as the EU’s “Everything but Arms” scheme or the expansion of the African Growth and Opportunity Act in the United States. But neither of these could lend force or credibility to the Doha Round. It dragged on endlessly, until it notched up an isolated success in 2015 – the elimination of export subsidies in the agrarian sector – and was then unceremoniously buried. Marita Wiggerthale of Oxfam Deutschland commented: “Without ratification of the Doha development agenda, it will hardly be possible for developing countries in the WTO to negotiate advantageous trade agreements.”102 The collapse of the Doha development round is a further major reason to consider the WTO and its free trade approach as a general failure and to use the present impasse as an opportunity to move towards the UN. For all its weaknesses, UNCTAD is particularly well suited to take the helm from the WTO and finally to steer the ship of global trade policy in a constructive direction. The road leading from the ITO to UNCTAD, which we sketched out above, can arrive at a UN organization for fair and sustainable trade.103 One of its first measures might build on the proposals submitted by a group of eleven developing countries at Doha, for a core UN agreement on trade and development as part of an ethical trading system. This might have the following characteristics, among others: • The agreement must be concluded in the UN, not the WTO. • The agreement must be legally enforceable, not reliant on voluntary action or handouts by the industrial countries. • The central objective must not be market access but development: the UN’s Sustainable Development Goals. • There must not be one “single undertaking”, nor any overloading with “non-trade issues” such as intellectual property rights, public employment, services, competition or investment. 130

the substantive alternative: ethical world trade • Non-reciprocity, in the sense of unequal treatment of unequals, must be a central principle; preferential treatment of the poorest countries should follow indicators proposed by those countries themselves (for example, the Human Development Index, which includes educational level and life expectancy as well as per capita income, or a measurable achievement of the SDGs). • Like the rich countries earlier in their history, poor countries should use the same “development ladders” to scale the walls of poverty and underdevelopment; technology policy, subsidies and protective tariffs are legitimate instruments. Dani Rodrik demands: “WTO restrictions on subsidies and other industrial policies should be suspended or subsumed under a general exception for developing countries.”104 • A reversal of tariff escalation by the rich countries against the poor; what should be encouraged is the export of processed goods rather than raw materials. • Rich countries should provide financial assistance to the poor (either from the International Clearing Union reserve fund or from HNWI taxes) for the development of trade capacity programmes and customs authorities. This series of ladders could help the poor countries to scale the walls of poverty. At the same time, they should only pursue development paths that are not detrimental either to cultural diversity or to sustainable ways of life and business patterns. In addition to the human rights goals outlined above, the agreement on trade and development might therefore strive to achieve the following special objectives: • protection and construction of a diversified, partly importsubstitutionist industrial base in the poor countries; • improved terms of trade through the upgrading of production; 131

trading for good • attainment and protection of economic resilience and cultural diversity; • food sovereignty and security, less dependence on energy imports; • development of trade capacities, including customs authorities; • raising of labour, social, human rights, environmental and fiscal standards; • level trade balances or only small surpluses. The achievement of these goals should be regularly evaluated and monitored by UNCTAD (or the UN organization for ethical trade). The poor countries must have the same right as the rich to follow their development path with autonomous and creative strategies of their own. The imposition of a “one size fits all” model – such as the WTO operates – should be rejected outright. There is no such thing as a “golden straitjacket”. There is only greater freedom through a fair trading system, or less freedom through “free trade”. 2c) Increasing the scope for democratic action “The same rights for all” is a basic principle of an ethical world trade order. A further basic principle is the safeguarding of autonomy and democratic self-determination for all participants in a multilateral trade system. This is easier said than done, since the quest for coherent middle ways between free trade and isolation has to confront a dense thicket of dilemmas: • A country that liberalizes and opens its markets too quickly will be ground down by heavyweight competitors. • Free trade without common rules and standards leads to location competition, dumping and the straitjacketing of democracy. • If the dismantling of tariffs and “non-tariff trade barriers” 132

the substantive alternative: ethical world trade becomes an end in itself, trade turns into a form of totalitarianism with collateral damage to all basic values and policy goals. • Unilateral protectionism carries the risk of retaliation and an isolationist spiral, with a resulting loss of worthwhile trade that sustainably increases prosperity as a whole. The starting situation is certainly maze-like, but as always there is a way out of the maze. In recent years, the Harvard economist Dani Rodrik has been hot on the trail of a systemic solution. He has tried to express the numerous complexities of foreign trade in what he calls a “political trilemma” of globalization: “We cannot simultaneously pursue [global] democracy, national self-determination and economic globalization.”105 Noting that globalization has become an “end in itself ”, Rodrik first refreshingly states what has been forgotten amid all the talk of “hyperglobalization”: “There is no global antitrust authority, no global lender of last resort, no global safety net, and, of course, no global democracy.”106 In the present combination of free trade with lack of global democracy, there are too many losers: free trade has become the imposed system. Its desired outcome – and the one desired by those who study it – is supposed to be global democracy. But as things stand today this is an illusion: “Real federalism on a global scale is at best a century away.” Therefore, we have no choice but to make the best of a “slim” version of globalization: “The only remaining option sacrifices hyperglobalization.”107 More specifically, Rodrik continues, “countries would be able to ‘violate’ WTO rules when those rules threaten to undermine domestic labour and environmental standards or when they hamper the pursuit of sound development policies”. In case of doubt, democracy would be valued more highly than the principle of non-discriminatory trade.108 We are now able to visualize how the “multilemma” of globalization might be solved: 133

trading for good • A global trading system, and with it a world market, is progressively established on the basis of common values, especially human rights, and not on the basis of economic freedoms. • The progressively created world market is steered in the right direction by means of appropriate regulations and institutions: a human rights court, a clearing union, antitrust authorities, global tax authorities, global financial supervision, etc. • Space remains for democracy, because no country is forced to play along and each country can go its own way. Each country can have as much globalization as it wishes (autonomy); each can be as open or closed as it likes; each can freely decide the path of its own development. • What it cannot do, however, is exploit its export strength at the expense of other countries (trade surplus) or seal itself off more than it requires other countries to open up. Balanced trade is the alpha and omega of ethical globalization. • No trade agreement may impose trade, open markets or the dismantling of tariffs on any country (WTO); nor dictate the protection of intellectual property rights or prohibit the regulation of investment. • The aim of regulatory cooperation must never be to serve free trade, but rather to pursue common values and goals such as the effective assertion of human rights, climate protection or sustainable development goals. • A country may also decide against human rights, environmental protection and labour rights (that is, against the agreements listed above) but then it must reckon that other countries will be less prepared to trade with it freely. The countries that will face sanctions are not those which violate free trade but those which do not respect the sovereign goals and values.

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the substantive alternative: ethical world trade The new triangle is as follows: 1. Preservation of national autonomy and democracy, together with 2. progressive global cooperation on human rights, environmental and climate protection, social cohesion and cultural diversity (the SDGs). 3. Trade policy is a means to achieve these goals, at national level (import substitution, infant industry policy, promotional tariffs) and at international level (ethical system of tariff protection, clearing union). These guidelines enable member states of the UN’s ethical trade system to develop their legal systems freely, without constricting regulations. Interference by the WTO, TTP, TTIP, etc., with regard to democratic regulation, public employment, intellectual property rights, development targets or the right to regulate foreign investment will cease entirely. Counterproductive “free trade law” will disappear along with the “golden straitjacket” into the dustbin of history. After this change of direction in international law, each country’s labour, social and environmental standards may be as high as it wishes them to be. No legal action may be taken against these standards, either in the WTO tribunal or in investment arbitration tribunals (which will be abolished on grounds of irrelevance or inadequacy). Each country shall also freely choose its technological, regional and infrastructural policies, grant subsidies and introduce protective tariffs (a particularly important source of revenue for poor countries, which has been completely lost sight of in the media hue-and-cry over “protectionism”). At the same time – and this is the decisive innovation – no country may use such measures for a combative trade policy. In fact, all participating states will have a supreme obligation to balance their 135

trading for good trade, thanks to a clearing union along the lines proposed by Keynes. This will work equally well against mercantilists, because it will prune their exports in the same degree that they restrict their imports. Should national egoism prevail, Keynes’s rule will have a boomerang or “negative feedback” effect. His clearing system is the cornerstone of fair multilateral trade, of what Rodrik calls “smart globalization”.109 The obligation to run even trade balances is the ultimate escape from the multilemma of globalization, because it leaves countries free to pursue their own development paths as well as to join a multilateral agreement. 2d) Economic subsidiarity, autarky, regionalization and subsistence We have seen a number of sound reasons why each country or region should be in a position to produce a large proportion of the products and services that it needs for a good life, even if this is not the most efficient use of capital goods. Efficient use of capital and maximum rate of profit are not the most important criteria. More deserving of attention are the following goals: • The economy should be ecologically sustainable and based as far as possible on closed-loop material cycles. • Each region should have a high degree of economic resilience (= resistance to crises). • Short distances should be a characteristic feature, so that local people have control over the economy. • Regions and countries should be as independent as possible of transnational corporations, and above all not be susceptible to blackmail on their part. • Value creation chains should not be so split up that the division of labour stunts individuals to the utmost.

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the substantive alternative: ethical world trade These are all powerful reasons that weigh against the one-dimensional efficiency argument. They speak for somewhat lesser efficiency in the valorization of capital, and in favour of greater purposefulness, sustainability, diversity, autonomy, resilience and social cohesion. For these reasons it may make sense – and must be allowed – that states belonging to the trade system should produce public goods, prioritize the local economy (or small enterprises), define criteria for public employment, set limits on exports (e.g., for raw materials), promote the creation of local businesses or industries, or permit trade and international competition only in doses that are fertile and enriching, rather than threatening, displacing and “structurally disaggregating”. Herman Daly makes the key point in the debate: “Measures to integrate national economies further should now be treated as a bad idea unless proved otherwise in specific cases.”110 I would go even farther and say that every country should produce as much as it is possible and reasonable to do so, in line with “economic subsidiarity”! Not only Uruguay should have a symphony orchestra of its own. And conversely, in well-considered and justified exceptions – if it does not unduly threaten allocation, innovativeness, the environment or economic resilience – a country may forgo the production of certain goods or services and make itself dependent on the world market. A degree of world market dependence is not a bad thing, so long as it is carefully considered, does not endanger stability and rests upon a multilateral trade system that a majority of the population supports because it has chosen it out of several available alternatives! Hans Diefenbacher and Richard Douthwaite write: “The aim is to minimize a region’s dependence on trade relations beyond its frontiers. […] One should not be forced into foreign trade to survive.”111 The minimum autonomy and self-sufficiency that they recommend concerns food and clothing, energy and finance. (The first place given to food already indicates that the WTO made rather a bad choice in using the 137

trading for good example of bread.) I would further extend the sphere of “energy” to the whole resource base, so that material cycles, including the recycling of waste and its organic return to nature, would as far as possible remain within a closed loop. (Note that under TTIP closed-loop material cycles would be prohibited.) Diefenbacher and Douthwaite are in this regard very close to Keynes, who radically revised his earlier, more or less inculcated enthusiasm for free trade (“I was brought up, like most Englishmen, to respect free trade not only as an economic doctrine which a rational and instructed person could not doubt, but almost as a part of the moral law. I regarded ordinary departures from it as being at the same time an imbecility and an outrage”112). In 1933 he wrote: “I sympathize, therefore, with those who would minimize, rather than with those who would maximize, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel – these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national.”113 If economic structures tend to become deglobalized and to shake off the influence of transnational corporations, regional diversity will be able to flourish. Everywhere it is necessary to preserve or regain the option of strengthening self-sufficiency and local economic cycles, weaving exchange and cooperation networks, promoting gift economics, building the commons and placing the care economy on a stable basis (for example, as a public good instead of a market-driven service of corporations operating in the health and personal care sector). Given the ecological necessity of a fourfold or fivefold reduction in resource use, we should be looking to shrink hyperefficient global employment structures in favour of local structures geared to subsistence, donations and cooperation. Anyone who wishes to be sustainable must power down the world market and at least partially ramp up localization. “We should not strive for economic globalization, but for economic localization”, writes Edward Goldsmith.114 138

the substantive alternative: ethical world trade And Klimenta: “We should consider changing trade agreements so that regions are fully entitled to favour small and medium-sized enterprises – for which regions should not be larger than, say, 100 square kilometres. Similarly, all products that are traded over a distance of more than 500 kilometres might attract an extra value-added tax. So, let us be clear: it is not about national isolation, and certainly not the renaissance of nation-states, but rather about supporting the local and the regional.”115 The transition towns movement has made an important contribution here. Instead of pushing to their limits the international division of labour and senseless chrematistic efficiency, it seeks to make towns and villages independent of crude oil, climate neutral and resilient in the face of crises. It is a compact network of social and ecological initiatives. It is these that humanity needs, not more and more “free trade agreements”.116 Freedom to pursue one’s own development path is also hugely important for the preservation and development of cultural diversity in relation to ownership. One example: the international movement centred on common goods or the commons plays a growing role in the range of economic alternatives. Yet this form of ownership and social organization does not feature at all in Freetradespeak and free trade law. The scope for regions and countries to protect forms other than private ownership – the only one protected in international business law – must be won back. “Ownership-neutral” international business law should not endanger any form of ownership by placing it below other forms – on the contrary. “Tolerant” commercial and business law geared to diversity should give equal chances to, and allow protective mechanisms for, all forms of ownership – public, private, communal or social ownership, as well as use rights and non-ownership (in nature = rights of nature). At the same time, it should set the preconditions and limits for all these forms. 139

trading for good Table III.4 Forms of ownership Public ownership

Private ownership

Community ownership

Examples

Schools, town halls, central bank, money

Bicycles, private homes, smallscale farms and businesses

Meadows, fishing grounds, seeds, software

Scope of application

Infrastructure

Consumption goods

Commons

Limits/ conditions

Only strategic goods, Common Good Balance Sheet

Size limits for corporations, Common Good Balance Sheet

Clear game rules and sanctions

Advantages

Universal supply, higher standards, economic policy

Economic freedom, private initiative, diversity

Freedom from commercial culture, relationship-building based on values

Corporate litigation rights are extremely prejudicial in favour of private ownership, placing it higher than all other forms of ownership. An ethical trading system does not prejudge in any direction and accords equal rights and development opportunities to all kinds of ownership. Private ownership is not sacred, nor is it the only form of ownership. Just as there is not only one feeling or one element, there is a diversity of ownership forms, lifestyles and commercial practices. This alternative paradigm advances a little farther the vision of the World Commission on the Social Dimension of Globalization (established by the International Labour Organization (ILO) in February 2002): “The rules of the global economy must offer equitable opportunity and access for all countries and recognize the diversity in national capacities and developmental needs.”117

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the substantive alternative: ethical world trade

Social ownership

Use rights (no ownership)

Neither ownership nor use rights

Large manufacturing companies

Water, energy, land

Threatened species and ecosystems

Consumption goods

Nature

Coral reefs, rainforests, mountain ranges, wetlands

Systemic importance

Ecological human rights

Permanent security of the basis of human life

Clear game rules and sanctions

Effective nature conservation

Permanent security of human livelihoods

3 A PRAGMATIC ALTERNATIVE: THE COMMON GOOD BALANCE SHEET In line with the creation of an ethical UN trade zone tariff-protected against non-ratifiers and non-respecters of international law, a regulatory approach at enterprise level – offering a kind of “entry card” or “licence to operate” in the world market – could provide an alternative to interstate “regulatory cooperation” on human rights, labour rights, taxes, cultural diversity, climate protection and SDGs. “Market access” – to the UN trade zone – might be tied to a common good balance: the better the balance (that is, the higher the ethical achievements in human rights, jobs, diversity, environment, transparency, taxes and the fight against corruption), the freer would be the market access, investment and business activity. This approach fits well the analysis that global players are nowadays the most powerful actors on the global stage – which is why regulation would be most effective if it began with them. 141

trading for good Corporations have “become the world’s dominant institution”, argues Joel Bakan. “Yet history humbles dominant institutions. Great empires, the church, the monarchy, the Communist parties of Eastern Europe were all overthrown, diminished, or absorbed into new orders.”118 Bakan recalls that the first great corporations in the seventeenth and eighteenth centuries pursued a “public purpose” and for that reason the Crown or the government endowed them with a charter. By contrast, today’s corporations pursue overwhelmingly private purposes. As in the past, however, “the state is the only institution in the world that can bring a corporation into being”; it alone confers legal status on it, issues licences, allows limited liability, sets taxes and duties, and permits the pursuit and privatization of profits: “Without the state a corporation is nothing.” Consequently, the question “is not whether a state regulates corporations – it always does that – but how and in whose interest”. Bakan encourages us to demand binding legislation to regulate corporations and to apply it democratically: limits on their size, an orientation to the public good, and the option to withdraw their right to exist if they break the law. “Corporate charter revocation laws […] symbolize the fact that corporations are our creations and that we – the people – still have the power to control them.”119 David C. Korten, for his part, writes: “Corporations have no natural or inalienable rights. The corporation is a public body created by a public act through issuing a public charter to serve a public purpose.”120 This view of corporations has always been lodged at least in the unconscious. Discussions regularly flare up over the purpose of corporations, over their social responsibility and duties to the community. Not only have corporations shown that they create jobs, develop new products and technologies, and make life in many respects more pleasant; they have also demonstrated that they violate human rights, destroy the environment, and increase their wealth by participating in wars. Such historical experiences are not the least of 142

the substantive alternative: ethical world trade the reasons why the German Constitution states that “property entails obligations” and that “its use shall also serve the public good”.121 Similar points may be found in many other constitutions. Social ethicists and philosophers, but also holistic – genuine – economists, have always argued along these lines. “The right to private property is not absolute and unconditional”, we read in the papal encyclical “Populorum Progressio” from 1967.122 If it ever becomes that, adds the current Pope Francis, the economy turns into an economy “that kills”. Public discussion of the rights and duties of international corporations keeps coming back in waves. Until now, however, an “architecture of impunity”123 or, more generally, a “structure of irresponsibility”124 has maintained itself. In the United Nations, the discussion about corporate regulation began in the 1970s. Triggered by a series of corruption scandals involving international corporations, and the involvement of the United Fruit Company and the US telecom giant ITT in the overthrow of democratically elected governments in Guatemala and Chile, UNCTAD set out in 1972 to introduce binding rules for transnational corporations. The UN Economic and Social Council (ECOSOC) reacted in 1973 by commissioning a group of experts to investigate the impact of TNCs on the UN’s development goals. Its recommendations led to the establishment of a United Nations Centre on Transnational Corporations (UNCTC), which, along with UN analyses and advice, was supposed to study the feasibility of a globally agreed code of conduct for TNCs.125 Nothing came of this idea, however, and the significance of the UNCTC rapidly declined with the change in the political climate during the 1980s. In 1993 it was liquidated into an UNCTAD department on TNCs. Since then, UNCTAD has only issued a yearly World Investment Report, which contains widely read statistics on transnational corporations, including valuable documentation on corporate law suits against 143

trading for good national governments. The UN Secretary-General, on the other hand, has developed a cosy relationship with the TNCs, whose power has continued to grow. In 1999 Kofi Annan initiated the so-called Global Compact, which is supposed to elicit global social responsibility from the TNCs – on a purely voluntary basis. Not by chance, the European Commission developed a notion of corporate social responsibility (CSR) with the same core feature of voluntariness. The Sub-Commission on the Promotion and Protection of Human Rights, the main subsidiary body of the UN Commission on Human Rights, diverted this CSR mainstream the wrong way. In 1999 it commissioned a working group to investigate options for the regulation of TNCs, and in 2003 this group came up with an explosive report: “Norms on the responsibilities of transnational corporations and other business enterprises with regard to human rights”.126 These draft norms required TNCs to respect, fulfil and promote human rights in full, making them direct addressees in international law and providing for legally enforceable duties in relation to anti-corruption, human rights, labour rights, health and public safety, consumer protection, environmental protection and sustainable development. This broke new ground in three respects: • international law is directly binding on corporations; • corporations are responsible for human rights violations on the part of their suppliers and joint-venture partners; • and corporations make themselves complicit if countries in which they operate violate human rights and the corporations profit from this. The norms were meant to be legally enforceable by existing or yetto-be-created courts. “Transnational corporations and other business enterprises shall provide prompt, effective and adequate reparation 144

the substantive alternative: ethical world trade to those persons, entities and communities that have been adversely affected by failures to comply with these Norms.”127 The SubCommission adopted the “Norms” and submitted them to its parent body, the UN Commission on Human Rights. The reception there was extremely divided. A broad alliance of NGOs – from Amnesty International through Human Rights Watch to the Prince of Wales International Business Leaders Forum – welcomed the “Norms” as “in many ways setting new legal standards regarding corporate human rights responsibilities”.128 At the same time, a storm of resistance broke from global corporate associations and various national governments, including the UK, the USA, Canada and Australia. The guardians of the “architecture of impunity” pulled out all the legal stops to discredit the paper, their most common argument being that only governments, not corporations, were responsible for the protection of human rights. Another thorn in their side was the idea that corporations could be held responsible for the activity of their suppliers and other business partners – a well-founded point explicitly argued in the document. Opponents of the “Norms” also insisted that corporations could not be placed under constraint because of the actions of host countries; the Australian government argued that they should simply observe the laws in the countries where they operated.129 Finally, it was widely held that, although global rules of conduct for corporations were important, they should remain voluntary and non-binding. In a joint statement, the International Chamber of Commerce (ICC) and the International Organization of Employers (IOE) denigrated the Draft Norms as a “solution without a problem” and strongly insisted that the UN Commission on Human Rights should refrain from adopting them.130 These dismissive arguments, which clearly show the nature of present-day power relations, reinforce my impression that governments understand and shape international law differently from how sovereign peoples would do if they had the right. In 145

trading for good an impassioned contribution, the international legal expert Julie Campagna has deconstructed the argument that only governments, not corporations, are responsible for the protection of human rights. First, she points out that the Universal Declaration of Human Rights had already stated unambiguously that “every organ of society”, not only governments, shall “strive to secure [the] effective recognition and observance” of human rights.131 And developments in international law have left no doubt that transnational corporations are to be included as an “organ of society”.132 The jurist Beth Stephens is of the same view: “International law has never been limited to regulating state behaviour. Over the past fifty years, the international community has moved decisively to expand not only the rights of non-state actors but their responsibilities as well.”133 It is “effective enforcement” of international rules for non-state actors that she considers “the crucial missing piece of the regulatory puzzle”.134 This is evidently the sorest point. Although in recent decades the “responsibilities” of TNCs have been increasingly taken up – and sanction mechanisms developed in individual states – there is still no binding global specification sheet for transnational corporations. The fundamental asymmetry in international law is that TNCs enjoy full global economic freedoms, including the right to litigate against governments, whereas there are no binding labour standards, no global consumer protection standards, no global environmental standards, no global fiscal standards, and not even binding human rights standards at a global level. Campagna writes: “If the Norms set forth the duties of transnational corporations, then bilateral investment treaties (BITs) most definitely provide for their rights.”135 Investor state dispute settlement (ISDS) is the best proof of the incoherence of counter-arguments against the Norms. For if international law is not directly applicable to corporations, if corporations are not subjects in international law, how is it that they enjoy (and defend) 146

the substantive alternative: ethical world trade litigation rights against states that go beyond existing litigation rights at national level? It is with those rights that they are able to attack and nullify national legislation – the observance of which ought to be their only obligation, as the Australian government put it. Also illogical is the denial of litigation rights to those affected by TNC activities. In the case of corporations, it is said that international courts (operating below the minimum standard for the rule of law) are necessary because the litigation opportunities available to them in national courts are inadequate and “biased”. But when it comes to the rights of those harmed by global corporate activity, it is regularly claimed that they can have recourse to (evidently neither inadequate nor biased) national courts. This is one of the most patent contradictions in the recent development of international law. Governments follow this absurd line of argument and have enshrined it in legislation. Powerful national governments had no interest in and use for the proposed “Norms”. In 2004, the Commission on Human Rights baldly stated that it had not commissioned the Norms and that they therefore had no legal validity,136 and a year later, at its 61st session, they were duly shelved in accordance with the positions of the Australian and US governments.137 The second attempt in the UN to introduce binding rules for corporations thus ended in failure. Yet the question did not disappear altogether. At the same session, the Commission on Human Rights recommended to the UN Secretary-General that he appoint a special rapporteur on TNCs and human rights – a position that was occupied by the Harvard professor John Ruggi. In 2011, he submitted “United Nations guiding principles on business and human rights”, which the Commission adopted unanimously. The following year, however, a report by the Secretary-General stated that these principles did not “create new legal obligations”138 – in other words, were nonbinding and practically ineffective. Once again, the “architecture of impunity” and the “structure of irresponsibility” carried the day. 147

trading for good If we look at the wider picture, however, we can be a little more confident that this victory only bought time for the powerful interests involved. The development of international law points in the following direction: • human rights are becoming a fixed part of international law; • norms on human rights and other issues such as environmental protection or anti-corruption also apply to non-state actors; • not only are corporations identified as subjects in international law, with corresponding rights and duties, but their duties are enforceable under international law; • international sanction mechanisms have been called for in various quarters; Professor François Rigaux, for example, has proposed an International Court for Transnational Corporations, with the power to prosecute TNCs in both civil and criminal law and to consider the responsibility of individuals therein;139 the Nowak, Kozma and Scheinin trio have already made specific proposals for a global human rights court. The number-one priority should be to secure full litigation rights against TNCs for human rights violations. If they cooperate with dictatorial regimes, profit from genocide, hire paramilitaries to murder trade unionists, tolerate slave or child labour in supply companies, recruit workers for unhealthy or accident-prone jobs, pay starvation wages or discriminate against women, then it must be possible to hold them to account for this in a court of law. Those who try to prevent enforceability under international law sit in government positions. In my view, it is inconceivable that a referendum in any country in the world would reject the UN norms for TNCs. Hopefully, it is only a matter of time before binding and actionable corporate duties are written into international law. 148

the substantive alternative: ethical world trade At any event, the last word has not been said. On 14 July 2014, the UN Human Rights Council again decided “to establish an open-ended intergovernmental working group on transnational corporations and other business enterprises with respect to human rights”.140 The vote on the resolution was extremely close: the Philippines, Kenya, Morocco, Algeria, Burkina Faso, Pakistan and Russia voted for; Austria, Germany, the UK, the USA and others against. Would the people of Germany (from which, according to Art. 20/2 of the Constitution, “all state authority is derived”) or the people of Austria (from which “law is derived”) also have voted against? In the end, the proposal to set up the working group carried by 20 votes to 14, with 13 abstentions. The United States absented itself from the first working session, and the EU – despite the fact that the European Parliament had supported active involvement – departed on the second day.141 A first draft is expected in 2017. 3a) The Common Good Balance Sheet In the past twenty years, along with the Guiding Principles and the UN Global Compact, a number of other standards reports and certifications – e.g., the Global Reporting Initiative (GRI), the OECD Guidelines on Transnational Corporations, the ILO’s Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, the German Sustainability Code (DNK), the B Corporations and the Common Good Balance Sheet – have made the ethical behaviour of corporations visible and in some cases measurable. The Common Good Balance Sheet is one of the fruits of the Economy for the Common Good (German Gemeinwohl-Ökonomie), a holistic alternative economic model that first emerged as a movement in 2010 in Austria and has since spread to fifty or so countries.142 The primary aim of the Balance Sheet is to orient corporate activity to the common good – in the sense of oikonomia rather than chrematistike – 149

trading for good and to document and reward such an orientation. The balance sheet has a positive side (“ethical achievements”) and a side of negative criteria with the same aim as the “norms”, that is, to prevent grave corporate misconduct by means of sanctions. The Common Good Balance Sheet addresses the basic values most often found in democratic constitutions – human dignity, justice, sustainability, solidarity and democracy – and is designed to make their realization both measurable and susceptible to comparison, so that corporations recording higher ethical achievements (or fewer infringements) can be rewarded at the level of taxes, credits, public contracts, research projects – and market access. The aim is to neutralize the absurd competitive disadvantage that ethical corporations suffer vis-à-vis less ethical ones and to change it into a competitive advantage. This would mean that • ethical goods and services are lower priced than unethical ones; • corporations can be successful only if they help to solve global social and ecological problems, if they contribute to the “wealth of nations”, not to their misery; • corporations become reliable partners in the achievement of UN Sustainable Development Goals; • and grave human rights violations lead to the “ethical insolvency” or failure of corporations. The last point is linked to the new and old idea of issuing licences to large corporations, which have to be renewed if they are to continue existing as legal persons. The Common Good Balance Sheet would be an entry card to the world market, which, like the financial balance, would not have to be settled each time but would have to be constantly drawn up. Just as the result of the financial balance has legal consequences, so too should the result of the Common Good Balance. Repeatedly serious negative results lead to the end of corporate freedom or, quite 150

the substantive alternative: ethical world trade simply, to non-extension of the licence; good results lead to improved positions, ranging from credits through public contracts to free market access: that is, so long as all corporations together constantly increase the common good and contribute to the SDGs. With regard to implementation, a “beginner zone” of thirty or fifty states might declare an ethical trade area, which could then go on to integrate new members. States that impose corporate obligations and require a Common Good Balance Sheet may either withhold access to markets from corporations that fail to provide one or levy a 20 percent extra tariff on states guilty of ethical poaching. 3b) EU directive In 2014, the EU position on corporate social responsibility (CSR) underwent a swerve when the European Parliament and the European Council issued a directive on non-financial reporting, a further development of the EU’s CSR directive. The new directive comes into force at the beginning of 2017 and requires companies with more than 500 employees to provide, along with a financial balance sheet, a report on major ethical issues such as human rights, labour standards, environmental standards, diversity and anti-corruption measures. Skewed as the world is today, ethical performance is described as “nonfinancial performance”. In chrematistike, everything revolves around the means. In oikonomia, we would speak of “ethical performance” – which is more important for the society that creates legal persons with rights – and secondarily of “non-ethical” (i.e., financial) performance. In implementing the directive, governments have once again chosen an approach geared to maximum dilution and lack of binding force. In Germany, according to the government draft, precisely 548 out of four million companies were affected. Ethics reports do not need to feature even in the management reports of large corporations; their content does not have to be checked by auditors and has no legal 151

trading for good consequences.143 Maximum dilution has been successful, therefore. Yet the requirement that companies provide an ethical as well as a financial balance sheet, and discussion of the relationship between ethnical and financial performance, have entered the public arena and are not likely to go away. The international Common Good movement is demanding complete parity with financial balance sheets in the medium term: • a uniform standard must be developed for ethics reports; • these should be part of the annual company report and therefore be verified by outside auditors; • the inspection result has legal consequences for differential tax rates, liability issues and corporate (ethical) solvency. This approach would put an end to ethical free trading and dumping in every sector. The first step to a uniform ethical balance sheet might be for the EU – or better still, the parties interested in an ethical trading zone – to define the criteria for the later uniform ethical balance and to endorse the standards that most comprehensively satisfy them, in a “process of integration” from which a common standard eventually emerges. The Economy for the Common Good movement has already formulated the required performance criteria: Table III.5 Performance criteria Participatory development: involvement of all stakeholders

Intelligibility: for all stakeholders, not just auditors and experts

External audit: like the financial balance sheet

Universality: all relevant issues and values included

Measure & comparability: • quanitified score • label on products

Legally binding: the times of voluntary CSR are over

Practical & feasable: appliable for companies of all sizes, branches and legal forms

Impact: as for a society’s main goals: sustainability, common good

Legal incentives: linkable to differentiated taxes, tariffs, interests

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the substantive alternative: ethical world trade The strategy of working towards a uniform global instrument – similar to a financial balance sheet – might look like this: Table III.6 Working towards a uniform global instrument Timetable

to 2015

2016–20

2021–25

2026–30

Strategic phase

1. Generation of CSR standards: diversity, but ineffectual

2. Generation of CSR standards: all that fulfil required criteria are brought into revised EU directive

All standards listed in the directive are amalgamated into an ethical balance sheet; this has legal consequences

Financial and non-financial balance sheets are amalgamated into a single standard, which becomes an EU and later a UN standard

The end result, then, is an entry card to the “ethical trading zone” or a “licence to operate”, as Monbiot and Bakan have demanded – not at all a “licence to plunder”,144 but a licence to trade ethically.

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IV

THE PROCEDURAL ALTERNATIVE: SOVEREIGN DEMOCRACY 1 THE CENTRALITY OF DEMOCRACY There is a problem with attractive political alternatives. Governments and parliaments have to like them to give them the go-ahead. In recent years, I have seen dozens of attractive alternatives emerge, without a single one of them being implemented.1 On the other hand, governments and parliaments are prepared to take measures that a broad majority rejects. The EU–Canada trade agreement (CETA) is a good example of this. In the very week in which a mere 6 percent of people in Austria expressed support for CETA (and 4 percent for TTIP), the country’s prime minister came out in favour of it. The European Parliament voted by a large majority against a proposal that the European Court of Justice should check the legality of the hotly debated CETA – although international experts had expressed massive reservations about its constitutional status. In such decisions, one might just as well leave the corporations to govern. International politics is eminently a question of power: governments assert the interests of their corporations; governments blackmail other 155

trading for good governments to sign agreements; governments cooperate with one another against their own peoples; governments rely on ideology to justify measures detrimental to the majority of their population (the WTO is a good case in point). This raises the question of whether decisions can be taken more democratically. In my previous books, I gradually began to develop what I call a “sovereign democracy” approach.2 In Change Everything: Creating an Economy for the Common Good (2015; updated version 2019), I put forward an argument for direct democracy and a democratic economic convention. In Money. The New Rules of the Game (2017), the idea was taken considerably farther. The analysis underlying it is that today we live not so much in a “post-democracy” (Colin Crouch3) as in a “predemocracy”: there has not yet been such a thing as “real” democracy. A post-democracy is characterized by the lack of all formal elements of a democratic system – elections, parliament, government, president, constitutional court – while political decisions cease to operate because of the great concentration of power in business, media control, and lobbying and elite formation in favour of influential minorities: a de facto plutocracy. In a post-democracy or pre-democracy, the sovereign’s power is largely non-existent, limited to the right to put a cross next to one or another party every four or five years. Formally this is a kind of democracy, but it is the most ineffectual I can imagine as a citizen. Sovereignty comes from the Latin superanus and means “standing above everything”. In monarchy, the king or queen was the sovereign standing above everyone else; in democracy it is the citizens. If they stand above everything, all other elements of democracy are subordinate to them: Constitution, parliament, government, every international agreement and every particular law. The essence of sovereignty is that all these “lower” elements may be changed and reshaped at any time by the highest authority. This implies a form of basic rights that do not exist today: sovereign basic rights. In contrast to individual basic rights and 156

the procedural alternative: sovereign democracy human rights, we are talking here of collective basic or sovereign rights. These are not entirely new, however. In the monarchical regime, they were a self-evident fact: they endowed the king or queen – not the person but the sovereign body – with power. Monarchical sovereigns were entitled to consecrate bishops, to confer or withdraw titles of nobility, to confiscate or award property holdings, to issue money (Geldregal or coinage prerogative), to levy duties (Zollregal or customs prerogative), to decide on war and peace, and so on and so forth. These were not junk rights but the core of royal power. In the passage from monarchy to democracy, the focus was on individual basic rights and human rights, which represented a historic achievement. What was overlooked, however, was the transfer of sovereign rights to the new sovereign – overlooked or deliberately forgone. The power of the monarch passed mostly to the representative of the sovereign; the actual sovereign was entitled only to choose its representative, as one of its newly created individual basic rights. The sovereign had virtually no power to make decisions, to take initiatives or to exercise control – this, in my view, is a central design fault of modern democracies and the most important reason why we are living in “post-democracy”. In a nutshell, transnational corporations are very powerful, but the heart of their power is the unwillingness of governments and parliaments to regulate them or to limit their powers. The sovereign people would do this without hesitation, but it does not have the necessary power – it lacks sovereign rights. And as we painfully witness, the supposed “transfer mechanism” of representative democracy – the parties that form governments and fill parliaments, ostensibly executing the will of the people – often does not function in reality. According to the German and Austrian Constitutions, the sovereigns should today already enjoy full sovereign rights: “all state authority is derived from the people” (Art. 20/2) and “its law emanates from the people” (Art. 1), respectively. Until now, however, these big 157

trading for good words have had only rudimentary application. The following ten proposals might therefore decisively augment the political power of the sovereign. It should have the right: 1. to amend the Constitution; 2. to elaborate a completely new Constitution in a democratic process; 3. to define, in this democratic Constitution, a framework mandate for international negotiations; 4. to halt legislation proposed by parliament; 5. to bring in a law itself (through a people’s initiative and countrywide referendum); 6. to choose a government with a particular make-up; 7. to deselect the government in valid circumstances (for example, a declaration of war); 8. to take a basic utility (e.g., water, energy or the mint) under direct people’s management; 9. to take the final decision on the monetary system; 10. to take the final decision on the customs and duties system. First and most important is the exclusive sovereign right to draft, amend and adopt the Constitution. The highest document in democracy should for two reasons be written by the highest (“sovereign”) body. (a) The Constitution regulates the rights and tasks, and thereby defines the power, of parliament, government and all other democratic institutions; if these write the Constitution themselves, they are obviously endowed with the maximum power and scarcely assign any power to the lawful sovereign (“no power to the people”), only rights to agitate or supplicate, as in demonstrations, non-binding referenda or the EU Citizens’ Initiatives. (b) The sovereign may decide on the basic orientation in every field of policy and issue corresponding 158

the procedural alternative: sovereign democracy directives to its representative. Concretely, the essence of the fifteen to twenty policy fields might be enshrined in two to three pages each of the Constitution. That would be a reasonable separation of powers: citizens define the rough (constitutional) direction, parliament takes this as the basis for legislation (as it does today) and implements the will of the sovereign. Such a “democratic hierarchy” would be not only a literal application of the sovereignty principle, but also a possible basic framework for a “genuine” democracy worthy of the name. In Germany and Austria, democracy is only a hundred years old – not counting the fascist interruption – and perhaps this would be a good occasion on which to renovate the existing model from the bottom up.4 This basic framework for a sovereign democracy points logically to a very different way of negotiating and concluding international agreements – one that could spare its citizens much trouble and political frustration. From a sovereign framework mandate through transparent negotiations to a final resolution by the sovereign: many things could become more democratic. Later I shall dwell in greater detail on the idea of a sovereign democracy. Here my main concern is with the practical value of the model with regard to the democratization and further development of international law. More specifically, how might sovereign democracy affect mandates, negotiations and decision-making about TTIP, CETA and TiSA, but also the WTO and the ICSID? In order to clarify the difference between today’s status quo and the hoped-for improvement, I shall first describe how the process leading to CETA and TTIP has unfolded. Then, for the sake of comparison, I shall present what the same process might look like in a sovereign democracy. The present (undemocratic) process: (a) The legal basis for the negotiating mandate does not come from the sovereign. The decision to start the CETA and TTIP negotiations was 159

trading for good taken by the European Council – on the basis of the EU Treaties. With one exception, the Lisbon Treaty was not adopted by the sovereign peoples, but their representatives, who also decided it should be this way, asserting decisively their power over the sovereigns. The European Treaties provide for free trade: “The Union shall contribute, in the common interest, to the harmonious development of world trade, the progressive abolition of restrictions on international trade and on foreign direct investment, and the lowering of customs and other barriers” (Treaty on the Functioning of the EU, Art. 206). That’s pretty steep: the lowering of customs barriers is the constitutional objective! Would the sovereigns agree to that? Given the dubious contents of the Lisbon Treaty, it is important to know the history of how it came about. As more and more national powers were transferred to the European Union – media pundits often point out that 80 to 90 percent of laws enacted in the Bundestag originate in Brussels – an increasing number of voices favoured its conversion into a federal state following the model of the USA. Among the supposed advantages of this would be the freedom to issue Eurobonds, powerful central management of the economy (“there has never been a currency without a state”), external representation with a voice in the shape of an EU foreign minister (instead of the famous “I want to speak to Europe, who should I call?”), but also EU citizenship, requiring that the EU become a legal subject in its own right. In 2002, the member states therefore organized a special convention and entrusted it with the drafting of a Constitution for the EU, which at the end would be submitted to all sovereigns for their approval. That, anyway, was what the majority of the convention wanted. But this convention, appointed from the top down and composed of people representing the heads of state and government of member states, the European Parliament, the parliaments of member states and the European Commission, was itself not organized in a particularly democratic manner: the thirteen-member presidium, 160

the procedural alternative: sovereign democracy chaired by the former French president Valéry Giscard d’Estaing and the former premiers Giuliano Amato (Italy) and Jean-Luc Dehaene (Belgium), had the power to “overrule” the plenum. Although the majority of convention members had signed a declaration of intent – that the resulting draft EU constitution should be approved by all sovereigns – the presidium unceremoniously decided that there would be no referenda. But then, although it was not necessary, a popular vote was held in four countries: Spain, France, the Netherlands and Luxembourg. A majority rejected the draft in both France and the Netherlands, 54.7 percent and 61.6 percent respectively, and the EU constitution seemed to be dead in the water. But only for a few moments. The governments of member states soon made their next move in the chess game. The “constitution” of the future “EU State” was summarily redefined as a “treaty” and “cleansed” of a few details of statehood (flag, anthem, “law” and “foreign minister”). The author of the EU’s basic treaty was the legal department of the European Council – in other words, the administration. There followed the solemn declaration of a common-or-garden treaty, with no need for EU citizens to approve it; the various parliaments could simply apply their rubber stamps – which is what happened. But then came another glitch, this time in Ireland, where the Constitution required a popular vote even on an ordinary treaty. The Irish became the third sovereign to reject the Lisbon Treaty, with a 53.4 percent majority. Was that the end of the story? No way. The EU governments put massive pressure on Dublin (as they later did on Wallonia over CETA); the Irish government then explained to its sovereign that it had voted the wrong way and would have to repeat the exercise (top-down plebiscites are classical instruments of legitimation in dictatorships and would be excluded in a sovereign democracy). Sheepishly the Irish turned out for Referendum No. 2 and delivered the correct vote, making it possible for the Lisbon Treaty to go ahead and to become (in 2009) 161

trading for good the foundation for the EU. In contrast to the previous Nice Treaty, it assigns to the EU sole competence for trade and investment policy, so that the European Commission now has the power to authorize negotiations for an international treaty without the approval of other bodies such as the European Parliament, the parliaments of member states, or sovereign peoples. The Lisbon Treaty contains a terse point in the section on “Common Commercial Policy”: “The Commission shall make recommendations to the Council, which shall authorize it to open the necessary negotiations” (TFEU, Art. 207/3). This background is decisive for what comes next. (b) The negotiating mandate comes from an entity that has no direct democratic legitimacy. Given its power, the fact that the European Council is not directly elected in any democratic process is a major design fault in the EU. What we are talking of is the executives of the member states – which, apart from anything else, represents a problematic concentration of powers. In two separate books appearing about the same time, Robert Menasse and myself proposed that the European Council should be either wound up altogether or replaced with a federal chamber in the European Parliament, where EU member states are represented.5 This would make the only directly elected body at EU level, the Parliament, into the most important legislature. At present, the Council is the most important legislative body: no EU laws can be enacted without it, and the CETA (2009) and TTIP (2013) negotiating mandates also emanate from it. (c) The mandate is issued to a body that has no direct democratic legitimacy. The body in charge of CETA and TTIP negotiations was and is the European Commission. It has even less direct democratic legitimacy than the Council: it is elected neither by the sovereign nor by the Parliament. Commissioners are nominated by the governments of member states, put together by Commission presidents and accepted as a team by the European Parliament. It is not possible for the Parliament 162

the procedural alternative: sovereign democracy either to nominate Commission members itself or to reject any individual proposed as a member. It can only force the whole Commission to resign. Even worse, not only is the Commission the negotiator, it actively takes on negotiating mandates by giving “recommendations” to the European Council: a game of ping-pong between two bodies that are remote from EU citizens and not elected by them. (d) The Council gives the order for secret negotiations. Medieval! The argument that the Commission should not show its hand, because otherwise it would obtain worse results from negotiations, is positively hair-raising! It offends against the values of transparency, participation and democracy. And it reveals that the point is to sacrifice the interests of certain groups in order to push through the interests of other groups. Such power games should not be happening. Soon after the democratic debacle over the EU Constitution and the Lisbon Treaty, the Commission came up with Plan D (democracy, dialogue and debate) in the hope of restoring some faith in the European project. “Plan D dovetails with the Action Plan on communicating Europe which seeks to improve the way that the Commission presents its activities to the outside world. […] Together with Plan D these initiatives set out a longterm plan to reinvigorate European democracy and help the emergence of a European public sphere, where citizens are given the information and the tools to actively participate in the decision-making process and gain ownership of the European project.”6 Just listen to that! In 2005. In the TTIP negotiating mandate of 2013, which was eventually made public in 2014 after stormy protests (and one and a half years of negotiations!), we read: “This document contains information classified RESTREINT EU/EU RESTRICTED whose unauthorized disclosure could be disadvantageous to the interests of the European Union or of one or more of its Member States.”7 How quickly the in-house offensive on democracy, transparency and participation was forgotten! When it is a question of forced trade, occultism is apparently 163

trading for good the strategy of choice. Yet we live in modern democracies, where many brilliant minds and open hearts should be thinking and acting together. Negotiations can have good results only if they are conducted in public. An updated position for the EU would be that negotiations with any country must take place in public or not at all. The key question is who should decide this. As things stand, the European Treaty gives a crystalclear answer: “The Council shall authorize the opening of negotiations, adopt negotiating directives, authorize the signing of agreements and conclude them” (TFEU, Art. 218/2). (e) No authority checks the legality of the negotiating mandate. CETA and TTIP are meant to be binding agreements in international law. They would have effects in many spheres of life: in all areas of economic policy, in social policy, labour law, environmental protection, consumer protection, public employment, energy and raw materials policy, justice and jurisdiction, and even democratic legislation itself. It would therefore be altogether in the spirit of “checks and balances” if such a broad and weighty negotiating mandate was checked for its legitimacy and conformity with contractual law, for its objective and its proposed democratic procedure, and for who should be involved in that process. Moreover, the controversial question as to whether it is a mixed agreement (in the sense of only EU competences or as well as those of member states) should be clarified beforehand, and if it is defined as a mixed agreement then member states too, not only the European Council, should be charged with its negotiation. The Lisbon Treaty baldly states: “The Council and the Commission shall be responsible for ensuring that the agreements negotiated are compatible with internal Union policies and rules” (TFEU, Art. 207/3). Any law that comes before the Bundestag must be checked by the Constitutional Court. All the more should this principle apply for such a major project; the European Court of Justice must check the (secret!) mandate. 164

the procedural alternative: sovereign democracy (f ) There is no regular impact assessment of the main policy goals. Along with the constitutional (legal) review, it would be reasonable for at least three independent institutions to carry out compulsory impact assessments in all affected sectors – industry, SMEs, employees, consumers, farmers, environment, women, common goods, public goods. This would enable everyone to see from the start who were the likely winners and losers. Since it is implausible, and contrary to the facts, that “everyone” can profit from a trade agreement, it is all the more important to know the losers, so that in case of need they can be helped into the lifeboat. The European Commission has itself produced a rosy impact assessment report to which we shall return below.8 (g) The Commission gets together with anyone it likes and does not have to give any account of its meetings. According to the Corporate Europe Observatory, 92 percent of the European Commission’s meetings in preparation for the TTIP negotiations were with industrial lobbyists.9 That can hardly produce balanced results. If the EU elites really wished to take citizens’ concerns seriously, they could assist NGOs to have at least a minimum representation in Brussels; EU parliamentarians complain that they have no opportunity to hear the opinions of people from civil society, because these lack the resources to maintain an office. Apart from individual trade unions or large environmental organizations, it is only large corporations and business associations that can afford to run an office in Brussels – which means that the influences on decisionmakers there are correspondingly one-sided. The voluntary character of inscription in the lobbying register is another ludicrous idea. The reasoning of the European Parliament – “We create transparency about who is seeking to influence us, but anyone who doesn’t want to isn’t forced to join the register!” – is not exactly impressive. Meetings with business representatives who are not on the register ought to be a punishable offence. Failure to register is already a negative criterion in the Common Good Balance Sheet.10 165

trading for good (h) If the sovereign protests against the mandate, the Commission can declare its protest inadmissible. Since the Lisbon Treaty, at least there has been the “European Citizens’ Initiative”. A minimum of one million people, from at least a quarter of the member states, must request that the Commission implement a certain point in the treaties.11 Requests to change the treaties are deemed inadmissible, as are demands that do not fall under the competence of the Union. Whatever next: citizens might end up taking the Union farther! (Parliaments may at any time, through treaty amendment procedures, assign powers to the EU that it did not have before. Citizens, who elect and legitimize the parliaments, may not do this.) The narrow scope available to citizens is nowhere spelled out more clearly than in relation to the EU Citizens’ Initiative on revocation of the TTIP negotiating mandate. This request, initiated by the More Democracy association in Germany, ran aground at the Commission, which made it clear that a not directly elected body has the power to decide that a (completely legitimate) request is inadmissible. The Commission’s veto, based on two dubious arguments, did not even have to be ratified by the ECJ within a reasonable period of time. Argument 1: The Council’s decision is “a preparatory act, but not a legal act of the Union”, because it does not itself amend EU law. Argument 2: Citizens are only entitled to invite the Commission to propose a legal act for implementation of the EU treaties. “A citizens’ initiative inviting the Commission not to propose a legal act is not admissible.”12 A protest is admissible only against the TTIP decision, which would bring about a change in EU law. There is no better example of the arrogance of EU bodies and the powerlessness of the sovereign: it cannot challenge a decision of the not directly elected Council, even though the Council alone acts in its name – because that is how things are in the EU Treaty, or, to be more precise, in one of the regulations stemming from it issued by the Parliament and the Council. Or is it just that the EU Commission interprets the resolution in that way? 166

the procedural alternative: sovereign democracy But who gave that power to the Commission? Who takes responsibility for that regulation, and who wrote the Lisbon Treaty on which the regulation is based? I hope this example makes it clear why it is so crucial that the basic treaty or Constitution should be written by the sovereign, not by its representative. Above all, the sovereign itself must define what its rights are; they cannot be granted or denied by its representative. In the end, the initiators of the citizens’ initiative refused to be bullied by the Commission: they pressed ahead with it as a “private EU citizens’ initiative” and collected an impressive total of 3.2 million signatures13 – three times more than was necessary to force the Commission to act on it. But the Commission turned a deaf ear – not so long after it had piously stated in its “Plan D”: “The democratic renewal process means that EU citizens must have the right to have their voices heard.”14 (i) The Commission also wanted to exclude national parliaments from voting on the end result (CETA). Both TTIP and CETA are “mixed agreements” – which means that they touch upon the competence of member states as well as the Union. They even touch upon the competence of local authorities, if the provision of public services or public employment is sucked into trade policy. This is a highly important question, because the answer determines whether the negotiated agreement is approved only by EU institutions (“EU only”) or also by national parliaments (“mixed agreement”). Again, it is the Commission that makes the initial ruling on this – after the conclusion of the negotiations. And surprise, surprise: after 3.2 million EU citizens had indicated just how controversial the issue was, the Commission decided that the parliaments of member states could not decide on the negotiated CETA agreement. That is “hearing their voices” at its finest! Fortunately, the Commission’s faux pas was overruled by the European Council – but again, one presumes, only because public opinion in the member states had become so disgusted 167

trading for good with the failings of EU institutions in relation to political democracy and substantive issues. So now national parliaments also got to vote on CETA. When it came to the vote in the Council, yet another glitch occurred in the shape of Wallonia; the special circumstances in Belgium mean that all three parts of the country – Flanders, Wallonia and the Brussels region – have to give their approval to all decisions taken in the European Council. And Wallonia said “No” – at least for a while. The pressure that Ireland had previously felt was turned on the Walloon first minister Paul Magnette, until he caved in. But that was not yet the end of the story. The 1,600-page treaty plus thirtynine clarifications still had to get through forty national and regional parliaments. But it was already clear that the “Realpolitik” of the EU elites had nothing in common with the rhetoric of a “Common European Home” or “grassroots democracy”. (j) The body in whose name negotiations take place is not allowed a vote. Points 1 to 9 would not be invalidated but considerably mitigated if, at the end of the process, the sovereign could decide whether or not it accepted the result of the negotiations. But it was not entitled to do that; the decision-maker was once again its representative. If I were a primary school pupil and had been told that Germany and Austria were democracies, or that democracy was one of the guiding values of the European Union, I would be mystified to learn that the sovereigns did not have the last word on whether to accept or reject the treaty. I would no longer understand the world – or have doubts about my understanding of democracy. Men and women, the people, citizens: it is in their name that the negotiations take place; it is for them that the treaty is supposed to be beneficial. So why on earth should they not judge and decide whether the negotiated treaty lives up to this requirement? Or at least be able to decide if they so wish? Of course, democracy can be organized in such a way that, although all legislative powers emanate from the people, they are ceded to the 168

the procedural alternative: sovereign democracy people’s representative for the duration of a government – including the power to amend the Constitution and to discipline or curb the rights of the sovereign. A sovereign-democratic process (a) The Constitution of the sovereign. As we have seen, it is vitally important what the Constitution or the EU founding treaty defines as the basis for the mandate, the negotiating procedure and the final vote on the result of the negotiations. It is therefore highly significant who elaborates and decides on the basic treaty. The EU elites have impressively demonstrated, including through a whole series of glitches, that their aim is not to exercise their true function – to represent the interests of the sovereign – but to assert their own interests in the face of popular resistance, protests and even explicit votes. In a sovereign democracy, this very right to draft, accept and amend the Constitution would be the number-one sovereign right. The Economy for the Common Good movement therefore proposes that the sovereign itself should draft and adopt constitutions and EU basic treaties. The first step in this process might be decentralized assemblies in local communities, towns and regions, where the basic issues in every field of policy would be “systemically konsensed” (German “konsense” meaning to find the greatest consensus possible) through the consideration of (and measurement of resistance to) different alternatives. The one that encountered the least resistance would be deemed to have been accepted.15 It might be that participants in the decentralized conventions would meet once a month for a year, first to clarify the issues and procedures, then in, say, twenty working groups to look more deeply at each question and to draw up alternatives. In a number of cycles, the chief variants would be sifted out and the final ones voted on by the whole population of the community. A delegate elected by the convention might then take the result to a federal convention and feed it into the 169

trading for good convergence process. The federal convention could be constituted with 100 delegates from communities in all regions of the country. At the end of the federal convention, the sovereign would systemically concert the final issues and the alternatives; the end result of this sovereign vote would be the first democratic constitution in the history of the Federal Republic of Germany or Austria, or, if the process takes place at EU level, the first democratic treaty of the European Union. The Economy for the Common Good movement has worked out in detail the process for a “local business convention”.16 I feel sure that if the sovereigns themselves could write the Constitution and the EU basic treaty, they would organize the whole procedure – from the issuing of the mandate to the final vote – quite differently from the way in which their representatives have done, acting much more in the direction outlined above. (b) The goal of the economy and therefore of trade policy. The idea of a constituent process began with the “local economic convention”, which was originally intended to work up and render more precise the economic part of the Constitution. The same approach was then gradually extended to conventions in other policy fields – for example, the money convention, education convention, environment convention and energy convention. Finally, the “crowning convention” would be the constitutional convention. Ideally, the procedure suggested here requires two things: the business convention for the substantive orientation of trade negotiations, and the constitutional convention to clarify the negotiating process, from the original remit to the final vote. For the sake of simplicity, both of these aspects could be settled at the economic convention, but, as we have seen, the question of sovereignty is here so pervasive that the relationship between contracting entity and contractor would have to be newly regulated from scratch in the core of the constitution. At such a convention, the first task would be to define the goal of business, for everything else strictly follows from that. If the goal is 170

the procedural alternative: sovereign democracy unclear, it is impossible either to direct sensible economic policies or to measure coherently the success of economic activities. People must decide this most fundamental question of all: do we want to live in capitalism (chrematistike) or in an economy for the common good (oikonomia)? Should economic activity in general serve the growth of capital or the common good? If the opposition to capitalism is less strong than the opposition to an economy for the common good (and any possible alternatives), then it would be possible to continue with the present economic model; the text of the Constitution would simply have to be amended. For example, the Bavarian Constitution would have to read: “The whole of economic activity serves the increase of capital.” Or the German Basic Law: “Property carries no obligations. Its use does not have to serve anyone’s good.” However, we already have a clear indication of how the decision would turn out. Today, 67 percent of Germans want to see the replacement of GDP with a wider “quality of life” indicator as the supreme measure of economic and social policy. I have shown elsewhere in detail17 that, without exception, the constitutions of democratic states agree on the primary goal of economic activity: the common good. So, we have clear evidence: • that the constitutions speak plainly about the goal of economic activity; • that they draw a crystal-clear distinction between ends and means; • that they support not capitalism (chrematistike) but an economy for the common good (oikonomia); • that the population (in Germany) sees things like this, not otherwise; • that the German and many other governments act contrary to these four basic findings.

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trading for good Everything suggests that the sovereigns themselves should take this decision and enshrine it in the national constitutions and EU basic treaty. Then many political decisions will be both clearer and simpler. (c) The framework mandate from the sovereign. A framework mandate can be given for the goal of commercial activity, and hence for all economic policy of which trade is a part. Let us emphasize this again. Only if it is clear who is the ultimate source of the mandate, who issues the direct mandate and who is the negotiator, can the process take place in a way that does not lead to huge annoyances, violations and protests. In a sovereign democracy, the ultimate source for all negotiating mandates is the sovereign. It would therefore make sense for the sovereign to enshrine a negotiating mandate in the Constitution, providing the basis on which a body assigned by the sovereign may issue a specific mandate to a negotiator in accordance with the rules. The framework mandate is limited to essentials: the aims of the negotiations, the level at which they should take place, and the game rules that they should respect. These are three rough but clear guidelines, which can be conclusively verified. The aims, for example, might be defined as: • sustainable activity (the ecological footprint of EU citizens must shrink in the direction of the globally sustainable and equitable yardstick); • distributive justice (income inequality should not increase; minimum wages should not fall or come under attack); • full respect for human rights, all ILO labour norms and all gains in labour law achieved in the EU and member states; • a narrowing of the gender gap in income and power in the economy; • preservation of cultural diversity, etc.

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the procedural alternative: sovereign democracy As to the question of the level of negotiations, precedence might be given in principle to a multilateral approach, so that commercial law can be shaped in conjunction and consonance with UN agreements and essentially involve the same rules for all. Another issue here is whether a multilateral trade system should operate within the United Nations or outside; a vote for the UN would logically imply a “controlled exit” from the WTO. It must be said that governments were themselves to blame when they came up with the idea of establishing the trade system outside the UN – however rational it may have sounded at the time. But everyone can learn from mistakes. Exceptions to multilateral precedence would need to be referred back to the sovereign: national parliaments that proposed a bilateral agreement alongside the multilateral system would have to give plausible reasons for doing so. One consequence of this is that the round of talks that the European Commission reported holding in 2006 would have been illegal, or should first have been proposed to the European Parliament for the approval of the sovereign. In plain language: there would never have been a legal basis for the start of (bilateral) CETA and TTIP negotiations! As to the game rules, two clear guidelines are enough: they must be transparent, and the negotiations must be public. All affected sections of the population should be involved, in accordance with a clearly defined protocol. This may be drafted and adopted by the Parliament as an implementation law, subject in case of doubt to correction by the sovereign. (d) Direct mandate through direct representation. If the content of the guidelines and the process for the holding of negotiations are clear, an entity trusted by the sovereign may award the direct negotiating mandate. At EU level, the Parliament is the body that comes to mind, since it is the only one directly elected by the sovereign. As regards content, it would be consistent with the basic treaty if the Trade 173

trading for good Committee of the European Parliament shaped foreign trade policy and tabled corresponding initiatives for decision by a plenary session. If a majority of the plenary session approves, the result is a draft negotiating mandate. (e) Verification of the mandate by the ECJ. Once the Parliament approves a negotiating mandate, the ECJ steps in and checks it against the general guidelines. Let us take the example of TTIP. If the sovereign has a constitutionally valid preference for a multilateral agreement, there is no legal basis for bilateral agreements, and for this reason alone the ECJ would declare the mandate null and void – or invite the Parliament to ask the sovereigns for an exception. But we do not want to make things so simple. Let us look at the actual effects of TTIP. In relation to agriculture, the European Commission’s impact assessment study speaks of an “initial shock” that will lead to “restructuring” and in the long term, assuming “productivity increases”, to “positive results”.18 That sounds a little like the final battle between Chinese and Indian bakery corporations. The spectre of efficiency again haunts the land. EU agribusiness already counts among the most productive in the world, but this is at the expense of soil quality, species diversity, food quality, animal and human health, the meaningfulness of people’s work, and the role of small farmers. Still, the average farming business in the EU remains below 15 hectares in size (Austria: 19 hectares, Germany: 56 hectares), against the average of 175 hectares in the United States. Enforced trade means that the average EU farmer will have to increase his farm size tenfold – by means of “productivity increases” – or have no prospect of survival. Against the background of this prognosis, the ECJ now comes along and verifies the TTIP mandate. It asks: Does the structural shock of enforced trade promote human rights? Or ecological sustainability? Self-fulfilment at work? Distributive justice? Gender equality? Cultural diversity? Democracy? Negative in each and every case, I would say. So, 174

the procedural alternative: sovereign democracy a red light for TTIP. That should put an end to the story, and burst the freetraders’ bubble. (f ) Transparent and participatory negotiations. Regardless of who conducts them, only public and fully transparent negotiations are acceptable in a modern-day democracy. This does not make them any worse – why should it? The mentality that sees advantages in a lack of transparency, in “holding your cards close to your chest”, is based on greed and confrontation; it expects nothing from cooperation agreements; EU governments are on the wrong track with that kind of thinking. Either negotiations are transparent and participatory from the beginning or they don’t happen at all – that should be the framework mandate. A list should also be compiled of all the stakeholders affected by the negotiations. The negotiator is obliged to meet equally frequently with representatives of these groups, and is forbidden to hold meetings with corporations or lobbyists not listed in the official register. If it is necessary to choose among several corporations on a particular matter, preference should be given to the one with the best score on the Common Good Balance Sheet. (g) Voting by the sovereign. The result of the negotiations is submitted for decision by the highest body in whose name they took place. Only if the sovereign approves of the agreement negotiated in its name may the agreement be ratified by the Parliament. On this point, the “Alternative Trade Mandate” developed by a Europe-wide alliance of civil society does not go far enough: it merely stipulates that national parliaments shall also have a vote on the final outcome.19 That this may definitely not be enough we have already seen from the Lisbon Treaty. It is the best illustration of the fact that parliaments can simply rubber-stamp basic international agreements with the utmost ignorance and passivity. After the sovereigns in three member states had voted against the draft Constitution and the Lisbon Treaty, their parliaments proceeded to vote for them. Among other things, they 175

trading for good Table IV.1 Post-democracy vs. sovereign democracy Post-democracy (current)

Sovereign democracy (alternative)

Constitutional basis comes from representation of the sovereign – framework mandate for “dismantling of customs and other barriers”

Constitutional basis comes from the sovereign – (alternative) framework mandate is a result of participatory conventions

Negotiating mandate comes from Council (with no direct democratic legitimacy), on the recommendation of the Commission (ditto)

Negotiating mandate is issued by Parliament (with direct democratic legitimacy) to trade committee

Mandate is not verified

ECJ verifies conformity of mandate with the treaty

Commission can declare inadmissible the sovereign’s demand for withdrawal of the negotiating mandate

If request for withdrawal of mandate reaches a success threshold (defined in the Constitution), it leads to a people’s vote and the breaking-off of negotiations

No compulsory independent impact assessment.

Three independent impact assessment studies verify legitimacy and conformity with objectives.

Negotiations are held in secret

Negotiations are completely transparent

Negotiator speaks with anyone s/he likes

Negotiator is obliged to include all affected sections of the population in the negotiations, in accordance with a legal protocol

Council decides, on the proposal of the Commission, whether national parliaments also have a vote

Sovereign decides whether trade policy is an exclusive EU competence, a mixed competence or the competence of the member states

Sovereign is excluded from the vote

Sovereign has the final say – either as a standard practice or when it so wishes

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the procedural alternative: sovereign democracy decided that in future they should no longer participate in voting on international trade and investment agreements. At any event, it might be thought, while parliaments decide in principle, the sovereign may assume the decision for itself if it does not have confidence in the negotiated result. This seems a plausible course to take in the more than 100 bilateral “free trade and investment protection agreements”. If, however, there were a single global trade agreement instead of this obscure contractual jumble impenetrable even to parliamentary deputies, the vote would be just one event over a long time period, and the sovereign would not be overstretched. Indeed, the direct vote would have the additional advantage that the sovereigns were familiar with the basic content of trade policy. The choice between ethical trade and free trade is anyway an absolutely fundamental decision of this kind. The crucial point is that in a sovereign democracy the sovereign can have the last word – if it wants to.

2 THE DEMOCRATIC GENESIS OF INTERNATIONAL (BUSINESS) LAW We should leave behind once and for all the time when governments and parliaments could systematically act against the people’s interests. For it to happen that the sovereign’s representatives can no longer: • secretly negotiate and decide on forced trade agreements; • officially justify this by invoking David Ricardo; • grant litigation rights to corporations and offer weak protection of human rights; • found a trade organization without reference to antitrust authorities; • tolerate and rescue banks that are of systemic importance; • accept the US dollar as the world’s reserve currency; • resolve on the free movement of capital to tax havens; 177

trading for good • allow listing in the lobby register on a voluntary basis; • permit the patenting of life forms; • allow the non-labelling of genetically modified food, What is needed is a radical democratization of international politics. The transfer of basic decisions on international law to sovereigns would be a milestone on the road to global emancipation. 2a) The democratic constituent process The heart of sovereign democracy is a democratic process for the drafting and refinement of the Constitution – the first sovereign basic law. In the decentralized economic conventions proposed above, a democratically constituted group of 50 to 100 citizens works up the most important issues in a policy field into a number of alternative options. During this process, the population is kept regularly informed and invited to have a say. At the end of the year, the population “systemically konsenses” the final alternatives. This innovative decision-making procedure was developed by two mathematicians at Graz University, with convincing results. Its key advantage is that two or more options are voted on: the current state of things and at least one alternative – in principle, there is no limit to the number that may be considered. This method makes it possible to represent, and to render transparent, the whole range of positions and values in a democratic community. At the same time, diversity prevents the concentration of all political energy on one proposal that divides the population into two camps, those for and those against – a stand-off in which sensitivity and finer nuances are lost. In the alternatives available to be chosen, it is not their approval rating but the opposition to them that is measured. The winning proposal is the one that arouses the least opposition in the population. Deep wisdom lies behind this method: any norm, whether free 178

the procedural alternative: sovereign democracy trade, protectionism or another alternative, triggers a certain degree of opposition among the people, because it limits their freedom to a greater or lesser degree. This is unavoidable; no rule makes everyone completely contented; any rule will cause some pain. The method of systemic concertation makes it possible to find the rule that causes the least total pain in the population, because it least restricts the freedom of all people together and therefore triggers the least opposition. What is so brilliant about this way of proceeding is that a rather good proposal, which largely reconciles the existing interests and needs yet still overlooks one value, one marginal group or one consideration, is “undercut” (in terms of pain and opposition) by a still better proposal that takes account of and integrates that missing aspect. Polarizing proposals – which, for example, create advantages for a strong group and only that group – immediately fail because of opposition from everyone else; Friedman, Bhagwati, Pegida, Trump, free trade and protectionism do not stand a chance. The winning proposal will be the one that takes the most into consideration, that maximizes the common good. Or, if you prefer, the one that limits as much as possible the damage to freedom and the common good. In the autumn, the respective communities, districts or regions fix their positions on the Constitution. This is fittingly celebrated, and one person is elected to represent the result at the federal convention and to continue working on it with the other delegates. The federal convention may be constituted after 100 lower-level conventions have appointed their delegates. It collects and synthesizes the local results, concerting them into the final variants on the twenty fundamental issues. At the end of the process, these variants are “systemically konsensed” in a constitutional referendum. The winning proposals – those that trigger the least opposition on their respective topic – enter into the future constitution: that is how the first democratic economic Constitution comes about. In other cases, it might concern neighbouring communities, 179

trading for good the monetary system or the trade system. The vanishing point of this process is the first sovereign (total) Constitution. 2b) Convention on trade policy One possible variant is that each 100 communities take on a theme – trade policy, for example. If there were twenty policy fields, that would mean a total of 2,000 conventions – but only one in each local community! In Austria, where there are roughly 2,300 local communities, the figure would fit well. In Germany each ten administrative districts might work on a particular theme, so that altogether two-thirds of all districts would take part. The aim is maximum involvement of the sovereign. Anyway, not everyone will take part in a convention – only elected or randomly selected persons. But the more conventions are held, the more people have an opportunity to participate directly, and not only by casting their votes locally or nationally. As regards the method of electing convention members, four models have been devised so far: (1) random selection based on age, gender and occupation; (2) delegation by all large associations in the community/region; (3) selection among candidates who have collected a minimum number of signatures; (4) anyone who shows up can take part. The idea of the Economy for the Common Good movement is to try out all four methods – and any others that may emerge – and to observe and evaluate the results scientifically. The one that functions best may then be formally validated for use in the federal convention process. 2c) TTIP-free communities first At the beginning, informal conventions may be recognized and supported by the local council, but not immediately by a two-thirds majority of the federal parliament. That is the aim, however, so that the process is formally legitimized under the existing constitutions. The first informal convention may nevertheless send a strong political signal 180

the procedural alternative: sovereign democracy (if only because the citizens themselves organized it) and inspire others to do the same. As soon as a critical mass of informal conventions has been reached, it will only be a question of time before the parliaments formally approve and legitimize the process. The obvious candidates for pilot projects with a local trade convention are TTIP-free and CETA-free communities which, by decision of the local council or the citizens themselves, have pronounced against TTIP and CETA. Having wrestled down unwelcome forced trade agreements, their next step might be get involved in shaping a future-proof trade system. This book contains substantive guidance for a local trade convention; a proposal for how it should take place may be downloaded without charge from the Economy for the Common Good website.20 All local communities are cordially invited to use these two instruments of democracy and to help a little more in shaping global policy. A second obvious group is Common Good communities. They already have three actual conventions to choose from: economic conventions, monetary conventions and a trade convention. But Local Agenda 21 communities, climate protection communities, gene technology or pesticide-free communities, involved citizens’ communities and other such politically active communities are virtually tailor-made for a democratic trade convention after the failure of TTIP and the enforcement of CETA. 2d) Youth conventions Communities that seek to encourage their young people to educate themselves politically and to become involved in social policy might organize youth conventions or parliaments to ascertain the views of the future sovereign. I am pretty sure that, in many basic decisions under international law, young people would proceed differently from the present governments and parliaments. Even if that is not the case, 181

trading for good it would still be a worthwhile educational and democratic project to find out that it is not. If “EU citizens must have the right to have their voices heard”, then all the more must young people have that right. Youth conventions do not necessarily have to be organized by local communities; other appropriate bodies include local associations, organizations, trade unions, churches and educational institutions. The Economy for the Common Good youth movement is involved in developing a suitable format for various users, in line with youth parliaments that have already taken place with great success in many local communities.

3 ENCOURAGING EXAMPLES 3a) Report from the Vienna University of Economics and Business Since 2008 I have been teaching as an external lecturer in the “Economics for Future” module at the Vienna University of Economics and Business. At first, my course was called “Critique of globalization in theory and practice”; now it is “Economy for the Common Good and other alternatives”. The aims of the course are: (a) to show that theoretical and practical economics does not rest upon laws of nature, but on changing systems of ideas and political decisions; (b) to point up various alternatives to the status quo; (c) to foster powers of judgement and independent opinions; and (d) to encourage independent, creative thinking about future alternatives. One of my best moments so far was when my students “systemically konsensed” a number of models of trade policy. (World trade is among the various subjects we treat.) I was convinced that “free trade” would win easily, since the great majority of people on my course were studying business management. Eager as ever to consider several alternatives, I first put forward a critique of free trade 182

the procedural alternative: sovereign democracy – the only possibility they knew from their previous classes. Then I tried to show that critics of free trade were not protectionists, even if a knee-jerk reaction often presented them as such. Both the former chief economist of the Federation of Austrian Industry, Erhard Fürst, and the director of the Sustainability Centre at Vienna University of Economics and Business, Fred Luks, suggested that I and my proposals would not be out of place in “North Korea”.21 I characterized the protectionist option as “Trade is bad” (the less trade, the better). And as the third alternative I presented my vision of “ethical trade” (trade is a means to an end). Then we proceeded to a vote: Free trade: 28 opposed Protectionism: 44 opposed Ethical trade: 0 opposed. Such a clear-cut result really surprised me. If, after just two hours of discussion on the pros and cons of various options, ethical trade could beat free trade hands down, then the result in the population as a whole would be no less guaranteed – given the complaints of prominent economists, and the impressive survey results, to the effect that the general public or non-economists had little taste for free trade. This meant that free trade and protectionism would stand no chance in a direct democratic vote – and ethical trade or an even better alternative would carry the day. Of course, I always ask whether anyone has a fourth or fifth proposal, and if they do it is put to the vote in the same way. Once a student proposed that ethical trade “on a voluntary basis” should be voted on as a further option. Result: the opposition to it was just as large as the opposition to free trade.

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trading for good 3b) A thesis on proposals for monetary reform Another encouraging example is a master’s thesis at the University of Kassel, which used a questionnaire on money very similar to the questionnaire outlined below. A total of 121 participants from Switzerland, the EU and other countries answered no fewer than thirty questions – on the themes of a democratically designed monetary system, targets for banks, lending rules and money creation. In 92.6 percent of cases, the respondents agreed with my proposals – although they were not identified in the questionnaire and, in every case, departed from the parliamentary decisions currently in force. Among the proposals were, for example: a limit on the size of banks, loans only for real businesses, an ethical credit check, and the transfer of the money creation monopoly to central banks. My personal favourite – “The common good should be a bank’s prime objective” – was rejected by 14 percent of interviewees and endorsed by 68 percent.22 3c) Limiting inequality In lectures and workshops in roughly twenty countries, I have acted out a “democratic convention” with the example of “limiting income inequality”. The audience makes proposals ranging from Factor 1 (i.e., the highest income should be the same as the minimum income) to Factor Unlimited (there should be no limits to inequality). All proposals – usually between five and ten – are then systemically konsensed. In a dependable 90 percent of cases, Factor 10 wins: the highest income should be no more than ten times greater than the minimum income. This result has occurred in countries from Scandinavia through Great Britain and the United States to Latin America, most recently in the Chamber of Commerce in Santiago, Chile. By comparison, the inequality between highest and lowest incomes vouched for by parliaments is presently 900:1 in Switzerland, 1,150:1 in Austria, 6,000:1 in Germany and 360,000:1 in the USA.23 184

the procedural alternative: sovereign democracy

4 QUESTIONS FOR THE TRADE CONVENTION In relation to trade policy, I propose twelve issues with a total of twenty questions – as concrete, practical guidelines for trade policy conventions of all shapes and sizes. Each proposition requires respondents to indicate their level of resistance, in a range between 0 and 10 points (of resistance). Issue 1: Purpose of economic activity 1A: The purpose of all economic activity is to increase capital. The common good is a side-effect that comes automatically (“chrematistics”). 1B: The purpose of all economic activity is to increase the common good. Capital and money are means to that end (economics). Issue 2: Role and value of trade 2A: Trade is a high economic freedom and therefore a goal to which human and labour rights, environmental protection, social security and cohesion are subordinate (“free trade”). 2B: Trade is a means that serves and is subordinate to the ends of human rights, environmental protection, fair distribution and social cohesion (“ethical trade”). 2C: Trade and the international division of labour should be rejected; countries should close their borders to the movement of goods and services (“protectionism”). 3A: 3B:

Customs barriers and other barriers to trade should be gradually eliminated (EU Treaty). Customs duties are a tool for steering trade and economic policy; they should be applied in a nuanced and measured way according to the goal in question. 185

trading for good Issue 3: Where trade should be regulated 4A: Trade should be regulated within the United Nations, in a manner consistent with human and labour rights, environmental agreements, climate protection, cultural diversity, food sovereignty, limits to inequality, etc. (“UN approach”). 4B: Trade should be regulated outside the United Nations, since human and labour rights or environmental and climate protection are “non-trade issues”, and free trade should not depend on compliance with them (“WTO approach”). 4C: There is no need for any international regulation of trade, either within or outside the United Nations (“antiglobalization approach”). Issue 4: At what level should agreements be sought? 5A: The EU should seek to develop a single trade system at a multilateral level, even if there is not rapid progress towards this (“UN approach”). 5B: The EU should conclude as soon as possible as many bilateral or regional agreements as it can (“CETA-TTIP approach”). 5C: The EU should be equally driven in seeking to conclude trade agreements, without setting priorities (“WTO/UN-CETATTIP approach”). Issue 5: The negotiating process 6A: The framework mandate – the overarching goal whose attainment should be independently monitored – originates from the sovereign (sovereign democracy). 6B: The framework mandate originates from the EU Council, the EU Parliament and the parliaments of the member states (EU Treaty). 186

the procedural alternative: sovereign democracy 7A: 7B: 7C:

The direct negotiating mandate originates from:the European Council; the European Parliament; the European Parliament, subject to the agreement of national parliaments.

8A: 8B:

The negotiating process takes place in secret. The negotiating process takes place transparently.

9A: 9B:

The negotiating body may meet with anyone it wishes. The negotiating body must consult all affected sections of the population and include them in the negotiations, in accordance with a predefined protocol.

10A:

The EU Council and the EU Parliament decide on the result of the negotiations. The EU institutions and the parliaments of member states decide on the result of the negotiations. The sovereign decides on the result of the negotiations.

10B: 10C:

Issue 6: Ethical tariffs to protect human rights, labour rights, the environment and health 11A: The government shall participate in a trade system in which countries that have ratified and respected the following UN agreements may protect themselves with additional tariffs against countries that do not ratify and respect these agreements: human rights labour rights environmental agreements cultural diversity corporate obligations 187

trading for good

11B:

exchange of tax information HNWI taxes (e.g., 1 percent) The government shall participate in a trade system, regardless of whether its trading partners have ratified and respect the following UN agreements: human rights labour rights environmental agreements cultural diversity corporate obligations exchange of tax information HNWI taxes (e.g., 1 percent)

Issue 7: Global institutions 12A: Global markets necessitate global institutions (“global governance” approach). The multilateral commercial and business order should therefore include: antitrust authorities global tax authorities supervision of finance markets a clearing union 12B: It is best if markets regulate themselves (the “flat earth” approach). The world market therefore has no need of: antitrust authorities global tax authorities supervision of finance markets a clearing union Issue 8: Even trade balances 13A: Deviations from balanced trade should not be corrected; they are the result of the free play of market forces (laissez-faire approach). 188

the procedural alternative: sovereign democracy 13B:

All states commit to even trade balances in order to keep the world economy in equilibrium. Small, temporary deviations shall be tolerated, larger and longer deviations progressively sanctioned – by means of interest rates, favourable loans from surplus to deficit countries, and the revaluation/devaluation of national currencies (“Keynesian approach”).

Issue 9: Reciprocity – equal treatment of developing countries? 14A: No “symmetrical” or reciprocal opening and liberalization can be expected from countries with different levels of prosperity. Countries with a lower degree of industrialization/ diversification may resort to educational tariffs and other “infant industry policy” measures and assert greater protection of their markets (“non-reciprocity between unequals”). 14B: Equal right for all. All participants in a multilateral trade system must operate a basically symmetrical dismantling of tariffs and open their markets (“reciprocity between unequals”). Issue 10: Scope for democracy 15A: Restrictions on democratic regulatory powers – for example, a ban on subsidies, uniform rules for public employment, the banning or limitation of foreign investment regulation, or enforced protection of intellectual property rights – should be component parts of the multilateral trade system (“straitjacket approach”). 15B: Restrictions on democratic regulatory powers – for example, a ban on subsidies, uniform rules for public employment, the banning or limitation of foreign investment regulation, or enforced protection of intellectual property rights – should not be component parts of the multilateral trade system (“autonomy approach”). 189

trading for good Issue 11: Preference for local markets and resilience 16A: Local communities, administrative districts, regions and states may promote local commercial circuits and give them precedence over distant or global economic relations (“economic subsidiarity”). 16B: There must be no preference for local or regional economic circuits or relations (“level playing field”). 17A:

17B:

All countries should specialize in the production of goods and services in which they have comparative advantages and import the rest (“specialization approach”). All countries should try to produce as many goods and services as possible and supplement and stimulate this by means of carefully measured trade (“resilience approach”).

Issue 12: Scope for democracy 18A: Companies that wish to operate on the world market must draw up a Common Good Balance Sheet. The result of this will be decisive for more favourable or more expensive market access (“common good approach”). 18B: All companies maintain uniformly free market access, regardless of their ethical performance (“value-free markets approach”). 19A:

Companies that wish to have access to the world market may not exceed a certain world market share (e.g., 1 percent) and a certain size (e.g., turnover or balance sheet total of 50 billion euros) (“liberal approach”). 19B: Freedom of ownership may not be curtailed by size limits (“property is sacred approach”).

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the procedural alternative: sovereign democracy 20A:

20B:

International trade and economic agreements should only protect private property and give it full rights (“capitalism approach”). International trade and economic relations should cater for a range of ownership forms (public, private, collective, social and ownership-free) and impose duties, conditions and limits for all forms (“cultural diversity approach”).

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ACKNOWLEDGEMENTS I would like to thank Pia Eberhardt (Corporate Europe Observatory), Peter Fuchs (Power Shift), Magdalena Hanke (TdU Wien), Harald Klimenta (academic adviser to Attac Deutschland), Karin Küblböck (Austrian Research Foundation for Development Cooperation), Jürgen Meier (Environment and Development Forum), Manfred Nowak (former UN special rapporteur on torture), Kunibert Raffer (University of Vienna), Gerardo Wijnant (Fair Trade and Economy for the Common Good, Chile) and Gerd Zeitler (economics teacher) for suggestions, references to material and reading of parts of the manuscript, as well as for their valuable suggestions for improvements. Once again I am grateful to the Deuticke team around Bettina Wörgötter for this eighth collaborative book, whose planning, development and production have as always given me great pleasure. I thank the brilliant translator, Patrick Camiller, and the team of ZED Books who, after the positive experience with Change Everything, risks another adventure with a far-reaching vision. Finally, I thank all the activists and builders of alternatives to capitalism and free trade, who put life and the Planet, including humans and their dignity, and democratic values – from solidarity and justice to the common good – over trade, capital, money, investment and business in general: the means.

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NOTES I Introduction 1 Samuelson (2004b). 2 Krugman (1987), 131. 3 Bhagwati (2003), 9–10. 4 Ibid. , 5. 5 Bertelsmann Stiftung (2016), 7. 6 OGM Survey, Die Presse, 6 September 2016. 7 Stiglitz (2006), 97. 8 the hill.com, 24 July 2016. 9 Stiglitz (2006), 62. 10 Rodrik (2011), 165–70. 11 WTO (2013), 47 and WTO (2015), 17. 12 Felbermayr/Heid/Lehwald (2013), 10. 13 European Commission (2016), 2. 14 Friedman (2000), 105. 15 Ibid. , 104. 16 Ibid., 106. 17 Samuelson (2004a/b). 18 European Commission (2014b) and DG Budget: http://ec.europa.eu/ taxation_customs/facts-figures/customs-duties-mean-revenue_de 19 World Customs Organization (2016), 22, 29, 36, 46 and 52. 20 WTO (2013), 56. 21 UNDP (2005), 115. 22 World Customs Organization (2016), 22–3. 23 Stiglitz (2006), 66. 24 Ibid., 64. 25 Dierksmeier (2016). 26 European Commission (2006), 5. 27 Morris (2002), 218.

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notes II Origins and critique of the religion of free trade 1 Smith (1961), 456, 477. 2 Ibid., 474. 3 Ibid., 478. 4 Ibid., 478–9. 5 Ricardo (1911), 81. 6 Ibid., 82. 7 Ibid., 83. 8 Dierksmeier/Pirson (2009). 9 Kirchgässner (2013), 152ff. 10 Fäszler (2007), 210. 11 WTO (2016). 12 Samuelson (1969), 1–11. 13 Interim Commission for the International Trade Organization (1948), Arts. 4 (Balance of Payments), 7 (Fair Labour Standards) and 55–66 (Intergovernmental Commodity Agreements). 14 Monbiot (2003), 236. 15 WTO (2016). 16 Daly/Cobb (1994), 222. 17 Smith (1961), 478. 18 Daly/Cobb (1994). 19 European Commission (2016), 15. 20 Morris (2002), 167. 21 Zeitler (2006), 87. 22 Ricardo (1911), 81–2. 23 Ibid. (1911), 83. 24 Smith (1961), 477. 25 Ulrich (2005), 36. 26 Zeitler (2006), 94. 27 Altvater/Mahnkopf (1999), 158–9. 28 Zeitler (2006), 88. 29 Wuppertal Institute (2007), 95. 30 WTO (2013), 66. 31 Wuppertal Institute (2007), 95. 32 Matthew Allen, “Die Kosten des Frankenschocks”, Swissinfo.ch, 14 January 2016.

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Statistisches Bundesamt, Pressemitteilung 40/16, 9 February 2016. https://www.wto.org/english/res_e/reser_e/cadv_e.htm, accessed 1 October 2016. 35 According to a Ricardian logic, one country would supply the whole world with potatoes, another with corn, a third with strawberries, a fourth with wine, and so on. 36 http://www.bundesfinanzministerium.de/Content/EN/Standardartikel/ Ministry/Laws/1967-06-08-act-to-promote-economic-stability-andgrowth.pdf?__blob=publicationFile&v=3. 37 IMF, World Economic Outlook, October 2015. 38 Rodrik (2011), 277. 39 Smith (1961), 18. 40 Wuppertal Institute (2007), 65. 41 Wackernagel/Beyers (2010), 19ff. 42 WWF (2014), 35, and WWF (2016a), 77. 43 www.footprintnetwork.org/ecological_footprint_nations/ecological_per_ capita.html. 44 World Resources Institute (2005), 1–6. 45 WWF (2016b), 9. 46 WWF (2016a), 19 and 27. 47 Martínez-Alier (2002) and Martínez-Alier/Oliveres (2010). 48 World Resources Institute (2005), 1–6. 49 Paech (2012), 83. 50 Jackson (2009), 73. 51 Wuppertal Institute (2007), 63. 52 Ibid., 57. 53 WTO (2015), 17. 54 Böge (1992). 55 Klimenta (2016a). 56 Ibid. 57 Zeitler (2006), 110. 58 UNDP (2005), 127. 59 ILO (2004), 41. 60 UNDP (1999), 31. 61 Christian Aid (2005), 6–7. 62 Wuppertal Institute (2007), 93. 34

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notes 63

65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88

United Nations (2015), 9–10. Bairoch (1993), 89. Stiglitz (2006), 78. Herman/Kuper (2004), xiii. UNDP (2014), 38. Stiglitz (2016). Jakobs (2016), 669. Capgemini (2016), 8–10, and my own calculations. Oxfam (2016), 2. Rodrik (2011), 57. Rogoff (2005), 2. Martin/Schumann (1997), 7. Zeitler (2006), 94. Der Standard, 31 December 2004. Ibid., 24 February 2005. Ibid., 19 April 2004. Die Presse, 18 June 2005. Der Standard, 31 October 2006. Ibid., 27 August 2004. Profil, 17 March 2008. Interview in: Die Presse, 20 January 2007. Der Standard, 10 March 2007. Ibid., 21 July 2005. Dräger (2005), 19. Attac Austria (2006), 69. Bundeszentrale für politische Bildung: Zahlen und Fakten Globalisierung: http://www.bpb.de/nachschlagen/zahlen-und-fakten/globalisierung 89 Roach (2007), 3. 90 UNCTAD (2009), 1. 91 www.statista.com 92 Stiglitz (2006), 58. 93 Adrian Rehn, “6 Mega Corporations Control Almost the Entire Global Cigarette Industry”: https://mic.com/articles/81365/6-mega-corporationscontrol-almost-the-entire-global-cigarette-industry#.td61o9fWq 94 Süddeutsche Zeitung, 14 October 2015. 95 ETC Group (2008), 4, 11 and 15. 64

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Kathrin Werner, “Bei Bayer und Monsanto reden auf beiden Seiten dieselben Investoren mit”, Süddeutsche Zeitung, 21 September 2016. 97 Vitali/Glattfelder/Battiston (2011), 6. 98 Ibid., 7–8. 99 Daly/Cobb (1994), 51. 100 Zeitler (2006), 93. 101 Gallup (2013), 13. 102 Scheidler (2015). 103 Smith (1961), 9. 104 Karl Marx would later write: “Being determines consciousness”. 105 Smith (1961), II, 303. 106 Bairoch (1993), 16. 107 Ibid., 30–35. 108 Chang (2003a), 23. 109 Bairoch (1993), 55. 110 Chang (2003b). 111 Chang (2003a), 25. 112 List (1856), 440. 113 Ibid., 473. 114 Ibid., 275. 115 Ibid., 459. 116 Ibid., 71. 117 Ibid., 64 and 70. 118 Bairoch (1993), 53. 119 Ibid., 50–53. 120 Chang (2003a), 128–9. 121 Stiglitz (2003), 218. 122 Bhagwati: Keynote address delivered at the University of St Gallen, Switzerland, on 25 May 1998, on the occasion of the International Management Symposium. 123 Samuelson (2004b). III The substantive alternative: ethical world trade 1 “Das europäisch-kanadische Freihandelsabkommen CETA: Verfassungswidrig?”, Munich seminar at the ifo-institut, 5 December 2016.

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4 5

UNDP (2005), 113. Mander/Cavanagh (2004), 322. Lisa Nienhaus, “Falsche Gegner”, Die Zeit, 20 October 2016. Othmar Lahodinsky, “CETA: Feinbild Freihandel”, Profil, 30 October 2016. 6 Andreas Exner, “Solidarische Ökonmien statt Gemeinwohl-Ökonomie” at Social Innovation Network (online), 17 July 2011: www.socialinnovation.org/?p=2548; or Christian Zeller, “Gemeinwohl-Ökonomie”, scharf-links.de, 12 December 2013. 7 Wirtschaftskammer Österreich, “Gemeinwohl-Ökonomie auf dem Prüfstand. Eine umfassende und kritische Analyse”, Dossier Wirtschaftspolitik, 27 August 2013. 8 Wissenschaftliche Arbeitsgruppe für weltkirchliche Aufgaben der Deutschen Bischofskonferenz” (2006), 23. 9 Quoted in: Bruni/Zamgani (2007), 50. 10 https://www.mitgruenden./ 11 MISEREOR (2015), 8–9. 12 www.gnhcentrebhutan.org/what-is-gnh/gnh-today/a-policy-screeningtool/, accessed 9 October 2016. 13 Deutscher Bischofskonferenz (2013), 28. 14 Bundesumweltministerium/Umweltbundesamt (2015), 22 and 35. 15 Felber (2014). 16 Wuppertal Institute (2007), 198. 17 Henry Samuel, “US punishes France with Roquefort rariff”, The Telegraph, 16 January 2006; Matthew Dalton, “US drops tariffs on Roquefort”, Wall Street Journal, 7 May 2016. 18 European Commission (2006), 11–12. 19 Ibid.), 13. 20 Bode (2015), 78. 21 US Chamber of Commerce (2015), 5. 22 Deutscher Richterbund (2016), 1. 23 European Commission (2011b), 3. 24 Christian Felber, “Warnung vor einer neuen TTIP-Finte”, Der Standard, 6 December 2015. 25 Pinzler (2015). 26 UNCTAD (2014), 125. 3

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http://investmentpolicyhub.unctad.org/ISDS. See Felber (2014), 28–33. 29 Attac München (n.d.). 30 Pinzler (2015), 162. 31 “Arbitrator and counsel: the Double-Hat Syndrome”, Global Arbitration Review 7/2, 15 March 2012. 32 Corporate Europe Observatory/Transnational Institute (2012), 9. 33 UNCTAD (2014), 114. 34 Markus Becker, “Ein Schritt zur Zerstörung der EU”, Spiegel online, 25 October 2016. 35 Klimenta (2006), 245. 36 Mander/Cavanagh (2004), 328–9. 37 Zeitler (2006), 121. 38 Sliwka/Rosik-Kölbl (2007). 39 Samuelson (2004a), 143. 40 Davis (2009), 5. 41 Reuters, 29 July 2016. 42 ORF online, 15 November 2016. 43 Stiglitz (2006), 91. 44 Ibid., 94. 45 https://treaties.un.org/Pages/ViewDetails.aspx?src=TREATY&mtdsg_ no=IV-4&chapter=4&lang=en 46 Miretski/Bachmann (2012), 12. 47 Kozma/Nowak/Scheinin (2010). 48 Ibid., 9–10. 49 Ibid., 29. 50 ILO (2017), 9. 51 https://www.evb.ch/kampagnen-aktionen/eilaktionen/rana-plazafabrikeinsturz-in-bangladech 52 Felicity Lawrence, “Costco and CP Foods face lawsuit over alleged slavery in prawn supply chain”, Guardian, 19 August 2015. 53 www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:10011:0::NO: :P10011_DISPLAY_BY,P10011_CONVENTION_TYPE_CODE:2,F 54 Stahlmann (2015) and Seidel/Winter (2015). 55 Stahlmann (2015), 13. 56 www.harmonywithnature.org/rightsofnature.html 28

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www.rightsofnature.eu Paech (2012), 100–101. 59 Seidl/Zahrnt (2010). 60 Paech (2012). 61 http://steadystate.org/discover/definition/ 62 “Ödnis statt Vielfalt”, Süddeutsche Zeitung, 20 February 2015. 63 Herrmann (2010), Marterbauer (2011). 64 “TJN responds to new OECD report on automatic information exchange”, press statement, 13 February 2014. 65 European Parliament (2016). 66 Zucman (2016), 84–5, 78. 67 Capgemini (2016), 7–8. 68 Oxfam International/Development Finance International (2015), 30. 69 Weed/Netzwerk Steuergerechtigkeit (2016), 1. 70 Der Standard, 24 December 2015. 71 United Nations (2009), 96. 72 Radermacher/Beyers (2011), 338. 73 Giegold (2003), 62. 74 Eurodad (2016), 36. 75 Korten (1995), 56–7. 76 Bakan (2005), 13. 77 Stephens (2002), 55. 78 Korten (1995), 59. 79 Stephens (2002), 57. 80 Deutsche Bischoefskonferenz (2006), 32. 81 Monbiot (2014). 82 Eucken (2012), 85. 83 Reinhart/Rogoff (2008), 32. 84 Stiglitz (2015), 233. 85 Berensmann/Herzberg (2007), 2–3. 86 Raffer (2011), 84. 87 Keynes (1943). 88 Lionel Robbins, quoted in Monbiot (2003), 178. 89 Keynes (1943), 28, 20. 90 Ibid., 27. 91 Ibid., 36. 58

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94 95 96 97 98 99

Stiglitz (2015), Klein (2014), Felber (2006). George (2007). Monbiot (2003), 164. United Nations (2009), 110. Herrmann (2016). Fritz (2005), 9. Ibid., 10. Tortora (2003), 5. 100 Raffer (2011), 10. 101 Stiglitz (2006), 80. 102 Press statement, Oxfam Deutschland, 20 December 2015. 103 Monbiot (2003), xx. 104 Rodrik (2011), 277. 105 Ibid., xviii. 106 Ibid., xvi. 107 Ibid., 204. 108 Ibid., 253–5. 109 Ibid., 205ff. 110 Daly (1993), 57. 111 Douthwaite/Diefenbacher (1998), 60. 112 Keynes (1933), 755. 113 Ibid.. 114 Goldsmith (2002). 115 Klimenta (2016b). 116 Hopkins (2013). 117 ILO (2004), x. 118 Bakan (2005), 139. 119 Ibid., 153–8. 120 Korten (1995), 276. 121 Deutscher Bundestag, “Basic Law for the Federal Republic of Germany”, Art. 14 (2). 122 http://w2.vatican.va/content/paul-vi/en/encyclicals/documents/hf_pvi_enc_26031967_populorum.html 123 The Peoples’ Treaty Working Group (2017), 7. 124 Honegger/Neckel/Magnin (2009). 125 Emmerij/Jolly (2009), 1. 93

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UN Sub-Commission on the Promotion and Protection of Human Rights (2003). 127 Ibid., para. 18. 128 Miretski/Bachmann (2012), 13. 129 Ibid., 33. 130 ICC/IOE (2004), 44. 131 http://www.un.org/en/universal-declaration-human-rights – Preamble. 132 Campagna (2004), 2018–19 and 2023. 133 Stephens (2002), 71. 134 Ibid., 82. 135 Campagna (2004), 1251. 136 Miretski/Bachmann (2012), 17. 137 Ibid., 34. 138 United Nations Human Rights Office to the High Commissioner (2014), 8. 139 Campagna (2004), 1248. 140 United Nations Human Rights Council: “Resolution 26/9 adopted by the Human Rights Council”, 26 June 2014. 141 Martens/Seitz (2016), 5 and 49. 142 Felber (2015). 143 Felber (2006). 144 Mies/Werlhof (1998). IV The procedural alternative: sovereign democracy 1 www.christian-felber.at/schaetze.php 2 Felber (2014), 38. 3 Crouch (2004). 4 The Weimar Constitution came into force in Germany on 14 August 1919; the Austrian Constitution on 1 October 1920. 5 Robert Menasse, Der Europäische Landbote, Vienna: Paul Zsolnay, 2012; Christian Felber, Retten wir den Euro!, Vienna: Deutlicke, 2012. 6 European Commission (2005), 2–3. 7 Council of the European Union (2013), 2 and 3. 8 European Commission (2013). 9 www.corporateeurope.org/international-trade/2014/07/who-lobbiesmost-ttip

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https://www.ecogood.org/en/our-work/common-good-balance-sheet/ The legislative text on citizens’ initiatives is worth noting: “Citizens’ initiative means an initiative submitted to the Commission in accordance with this Regulation, inviting the Commission, within the framework of its powers, to submit any appropriate proposal on matters where citizens consider that a legal act of the Union is required for the purpose of implementing the Treaties.” Art. 2 of “Regulation (EU) No 211/2011 of the European Parliament and of the Council of 16 February 2011 on the citizens’ initiative”. 12 European Commission (2014a), 2 and 3. 13 www.stop-ttip.org 14 European Commission (2005), 4. 15 www.sk.-prinzip.eu 16 https://www.ecogood.org/en/our-work/politics/ 17 Felber/Heindl (2015). 18 European Commission (2013), 37–8. 19 The Alternative Trade Mandate (2013), 7. 20 https://www.ecogood.org/en/our-work/politics/ 21 Erhard Fürst, “Katastrophe Gemeinwohlökonomie”, Der Standard, 17 April 2016; Fred Luks, “Schulbuch-Posse: Meinung oder Wissen”, Der Standard, 8 April 2016. 22 Schmitt (2015), 36, 52 and 77–8. 23 Felber (2015 and 2019), 81. Felber (2018), 95. 11

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INDEX AB InBev, 53 absolute cost advantage, 14, 34; Adam Smith, 13; realities of, 27 Accenture, tax relocation, 115 Airbus, subsidies to, 79 Algeria, 149 Altria Group, 53 Altvater, Elmar 26 Amato, Guiliano, 161 Amnesty International, 145 Android operating system, 53 Annan, Kofi, Global Compact, 144 anti-dumping, 94-5; moves against mercantilism risk, 96 antitrust authorities, global lack, 133; need for, 119 “architecture of impunity”, victory of, 148; Western guardians of, 145 Argentina, 104; debt tragedy, 121; deindustrializing, 42 Attac, 117 Australia, 86; global TNCs “norms” rejection, 145, 147 Austria, 2, 149; CETA opposition ignored, 155; Chamber of Commerce, 49; Constitution, 157; consumption level, 37; democracy history, 159; income inequality scale, 184 Austrian Autarky, 1 auto industry, oligopoly, 53

Bairoch, Paul, 61-2, 64 Bakan, Joel, 142, 153 “bancor”, 123 Bangladesh, textile factory deaths, 101 basic needs, space requirement, 106 Bavarian Constitution, 73 Bayer, 11; Monsanto takeover, 54 B Corporations, 149 Benetton, 101 BEPS (base erosion and profit shifting), 115 Bernadino of Siena, 72 Bhagwati, Jagdish, 1-3, 8, 17, 67, 179 Bhutan: Gross National Happiness measure, 75-6; WTO rejection, 76 big banks, tax avoidance, 113 bilateral trade deals; norm, 80; oppressive, 81 biotech, oligopoly, 53-4 BITs, 8 Blackrock, 54 Bode, Thilo, 81 Bolivia: Constitution, 104; ICSID withdrawal, 86 Botswana, 43 Brazil, 50; trade vulnerabilities of, 127-8 bread making, 56-8; baking corporations, 46

221

trading for good Bretton Woods, system, 123; collapse of, 35, 126; dollar hegemony, 120 Britain, 22; historical protectionism, 61-2; limited liability company legislation, 117; see also, UK British American Tobacco, 53 Burkina Faso, 149 Campagna, Julie, 146 Canada: consumption level, 37; TNCs norms rejection, 145 Cape Verde, 43 capital, free movement of, 26, 48, 51 Capital Group, 54 Cavanagh, John, 70, 88 CETA (Comprehensive Economic and Trade Agreement), 2-4, 8, 41, 55, 73, 82, 86, 162; checks and balances lack, 164; EU-Canada, 155; “mixed agreement”, 167; national parliament votes, 168; negotiations, 173; post-failure, 181; “Sustainability Impact assessment”, 23 Chevron vs Ecuador litigation, 84 Chile: coup 1973, 143; neoliberal model, 44; non-regulation subsidy, 45 China, 8, 19; inequality, 46; National Tobacco Corporation, 53; Social Pact ratification, 98; tariffs against, 94; trade surpluses, 126; -USA, trade imbalance, 34 chrematistics, 16-17, 20-1, 60, 65, 185 chrematistike, 150-1, 171 Clement, Wolfgang, 50 climate protection communities, 181 Clinton, Hillary, 3 closed-loop material cycles, 138

Cobb Jr, John, 21 Colombian Constitution, 73 commercial law, primacy of, 5 commodity corporations, 41 Common Good Balance Sheet, 74, 119, 140-1, 149-50, 165, 190; mechanisms of, 151 Common Good Bank, 74 common good economics, 71 “common good”, fiction of, 26 Common Good, international movement, 74, 152 commons, the, 138-9 communities, politically active variety, 181 “comparative advantage”: “law” of, 1, 8, 36; unreality of, 23, 55, 57; see also, Ricardo comparative costs, advantage distribution, 8, 17, 40 Conference on the Human Environment, Stockholm, 102 Constitutions: German, 143; sovereign democratic, 169, 171, 178; sovereign right to draft, 158 consumption levels, relative, 37 Convention on Mutual Administrative Assistance in, 111 conventions: economic decentralized,178; election methods, 180 Corporate Europe Observatory, 9 corporate litigation, 86; cases, 84-5; Germany-Pakistan 1959, 83; laws bias, 140 corporate social responsibility, voluntary, 144; standards enforceability issue, 153

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index corporations: as “natural person” law, 118; state need, 142; taxes, 113 Credit Suisse, 47 “cultural diversity” approach, 191 culture, non-commodified, 108 “currency prices”, 29 customs employees, 8

dollar US: hegemony of, 35, 120, 126, 177; interest rate 1979 raise impact, 120 Douthwaite, Richard, 137-8 Draxler, Helmut, 49 dumping, 132 Duns Scotus, 73

Daly, Herman, 21, 23, 57, 107, 137 debt: forgiveness, 98; “haircuts”, 121; “moral hazard” issue, 121; sovereign –creditor arbitration, 122 decentralized assemblies, 169 decision-making, innovative method, 178-9 Dederer, Hans-Georg, 108 Dehaene, Jean-Luc, 161 democracy: “genuine”, 159; “markettrimmed”, 49-50; post vs sovereign, 176; sovereign, see below; trade rules impinging, 5 democratic regulation, trade, 189 Deutsche Bank, UK tax avoidance, 113 Deutsche Richterbund, 83 “development aid”, standards lowering, 98 “development ladders”, 131 Diefenbacher, Hans, 137-8 Dierksmeier, Claus, 10 division of labour, 4, 58, 185; familial, 14; global imbalanced, 38; inequalities produced, 46; international, 1, 27; limits to need, 136; meaning-traps, 59 Doha Development Round, WTO, 3, 129; stalling of, 80

Earth Charter, 104 Earth Summit, Rio de Janeiro, 102 East Africa, tariffs as tax receipts, 9 ecological footprint: “global hectares”, 37; personal budgets, 106; “price record”, 105-6; trade disregarded, 38 ecological losses, 37 “economic subsidiarity”, 137, 190 economics, ecosocial market, 117 Economy for the Common Good, 9, 170; movement, 169, 180; website, 18; youth movement, 182 economy, as “good life”, 72 Ecuador: Constitution, 104; G77 chairmanship, 117; ICDS withdrawal, 86 Eder, Wolfgang, 49 EDT Technical university, Zurich, 55 “efficiency”, 19, 90; one-dimensional view of, 137; Ricardo concept of, 16 Eli Lilly vs Canada, 85 elite: European Union, 160-3, 169; transnational property owning, 28 employment location blackmail, 51 (en)forced trade, 78, 80, 163, 174, 177, 181 Eritrea, consumption level, 37 ethical balance sheet, demand for, 152 ethical trade, 7, 18, 44-5, 90, 177, 183, 185; policy, 10; system, 77, 88, 96,

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trading for good 102, 107-8, 132-5; zone proposed, 90, 100, 118, 153 Ethyl vs Canada, 84 Europe, sovereign bankruptcies, 120 European Central Bank, 123 “European Citizen’s Initiative”, 166 European Commission, 11, 82, 160, 166, 173; FTAs, 81; Lisbon Treaty power, 162; secret trade negotiations power, 163; TNC voluntary scheme, 144; trade negotiating monopoly, 165, 167 European Council, 83, 87, 151, 164, 167, 186-7; unelected, 162 European Court of Human Rights, 99 European Court of Justice, 155, 164, 166; trade negotiations revision, 174 European Parliament, 112, 117, 151, 160, 173, 186-7; Lisbon Treaty downgraded, 162; Trade Committee of, 174; weakness of, 165 European Roundtable of Industrialists, 51 European Union, 36, 51, 79, 110, 149, 152; -Africa agreements “nonexecution” clauses, 96; agribusiness, 174; anti-dumping investigations, 94; arrogance of, 166; Citizen’s Initiatives, 158; Constitution topdown drafting, 160-1, 163; corporate social responsibility moves, 151; double standards, 64, 97; elites, 169; “Everything but Arms” scheme, 130; “export interests”, 81; food transport increase, 39; free trade agreements, 3; Lisbon Treaty, 160; polluting goods production, 38; tariffs

imposition, 94; trade agreements issues, 186; TTIP protest, 2 Eucken, Walter, 118 Euro crisis 2009, 33 Eurobonds, idea of, 160 exchange rates, 34; changes in effects, 31 export orientation, inequalities produced, 45 farm size, Europe-USA comparison, 174 federal convention: delegate system, 169; process, 180; template for, 179 federalism, European notions of, 160 Federation of Austrian Industries, 50, 183 Fernández-Armesto, Juan, 86 financial corporations, concentration of, 55 financial “efficiency”, dominance of, 16 financial information exchange, 109; limited, 110-111 food, developing world dependence, 43; sovereignty, 132 forced labour, 101 France, 80; EU constitution draft rejected, 161; inequality increase, 46; Social Pact ratification, 98 Fraport, Philippines suit, 2 “free trade”, 3, 7; as religion, 11; false reciprocity, 41; ideology origins, 14; inequality of, 43; lower working conditions, 27; possible system functioning, 66; protectionism, 1; south de-industrialization, 42; see also, trade

224

index freedom(s), private interests, 10-11 “Freetradespeak””, 77 Friedman, Milton, 6, 44 Friedman, Thomas, 6-8, 114, 179 Fritz, Thomas, 111, 128 Fürst, Erhard, 183 Fukuyama, Francis, 7-8 G20, 110 G77, 78, 117 Gabriel, Sigmar, 3 Gallup, “Motivation at Work” report, 58 GATS, 17 GATT (General Agreement on Trade and Tariffs), 8, 17, 78; Article XVIII, 128; SDT provision, 43; Uruguay Round, 18, 129 GDP (gross national product): alternative indicators to, 76, 171 Gemeinwohl-Okonomie, 149 General Motors, 53 German Bishops Conference, the, 72, 118 Germany, 51, 86, 171; alternative indicators, 76; Bundestag, 164; Constitution, 143, 157; consumption level, 37; customs revenue, 8; Customs Union,62-3; democracy history, 159; Federal Republic Basic Law, 73; -Greece trade imbalance, 33; income inequality scale, 46, 184; More Democracy association, 166; post war debt cancellation, 119, 122; Social Pact ratification, 98; Sustainability Index, 149; tax avoidance, 113; trade surpluses, 32 Ghana, craft production collapse, 43

Giegold, Sven, 117 gift economies, 138 Giscard d’Estaing, Valéry, 161 Global Ethics Institute, Tubingen, 10 “global financial authority”, call for, 116 global markets, institutions of, 188 Global Reporting Initiative, 149 Global Tax Justice Network, 110-11, 113 “global trap”, 48 “golden straitjacket”, 6-7; abandonment need, 135; EU, 87 Goldsmith, Edward, 138 Graz University, 178 Greece: -Germany trade imbalance, 33; debt tragedy, 121 “growth” religion, 39 Guatemala, coup in, 143 Ha-Joon Chang, 9, 64; Kicking Away the Ladder, 62 Hamilton, Alexander, 62 “Havana Charter”, 18 Hecksher-Ohlin theorem, 8 Herrmann, Ulrike, 127 HNWIs(high net worth individuals), 28; taxes on proposed, 116-17, 188; wealth increase, 46-7; wealth scale, 113 human rights: corporate responsibility, 146; ecological, 105; enforcement lack, 100; international law place, 148 Human Rights Watch, 145 Hundt, David, 50 ICC (International Criminal Court), 87, 100; Rome Statute of, 90

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trading for good ICSID (International Centre for the Settlement of Investment Disputes), 8, 159; Bolivia withdrawal, 86 ILO (International Labour Organization), 77, 82, 140; labour standards non-ratifications, 78, 91, 102; Tripartite Declaration, 149; weakness of, 101-2 IMF (International Monetary Fund), 6, 18, 121 Imperial Tobacco, 53 India, 19, 46, 64, 81, 104; colonial deindustralization, 43; consumption level, 37 Indonesia, 86 inequality: domestic growth of, 46; scales of, 184 infant industry policy, 64, 127, 135, 189 intellectual property rights protection, 42 inter-corporate world trade, 5 international business law, “ownership neutral”, 139 International Convention for the Protection of All Persons from Enforced Disappearance, 100 International Court for Transnational Corporations, 148 International Court of Justice, 100 International Covenant of Economic, Social and Cultural Rights, 100 International Debt Framework, 121 international insolvency law; lack of, 120; proposals, 121 International Investment Court, proposed, 83

International Trade Organization, stillborn, 18, 78, 88 investor hegemony, 49, 83; bilateral deals, 82; corporate litigation, 84; “freedom” of, 11; protection agreements, 5; rejections of, 86; threats, 48 “invisible hand”, Adam Smith ideology, 25 Iraq, 2008 deleveraged, 120 Ireland, 168; Lisbon Treaty forced acceptance, 161 ISDS (investor-state dispute settlement), 89, 146; as business model, 86; system, 82 Israel, Constitution, 104 ITT, Chile coup involvement, 143 Ivory coast, industrial collapse, 42 Jackson, Tom, 38 Japan, 21; Tobacco International, 53 JP Morgan UK tax avoidance, 113 Kant, Immanual, 63, 78 Kaszantis, Harald, 49 Kempen, Bernhard, 70 Kenya, 149; cotton production loss, 43; textile industry undermined, 42 Keynes, J.M., 138; “automatic stabiliser” proposal, 35; International Clearing Union proposal, 120, 123-7, 136; reputation fall, 36 Kik, 101 Klimenta, Harald, 39, 88, 139 “knowledge society” deception, 38 Korten, David C., 142 Kozma, Julia, 9, 99, 148

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index Kruger, Anne, 121 Krugman, Paul, 1 labour standards lack, 101 Lang, Bernd, 86 “level playing field”: deceit of, 89; real, 91 “licence to operate”, 153; trade notion, 141 Limburg Principles, 98 Lincoln, Abraham, 118 Linz, 49 Lisbon Treaty, 163-4, 166-7, 175; Ireland rejected and accepted, 161 List, Friedrich, 9, 62-3 lobbyists, 175 Local Agenda 21 committee, 181 location competition, blackmail of, 51, 132 Luks, Fred, 183 Luxembourg, EU constitution draft ejected, 161 Magnette, Paul, 168 Mahnkopf, Birgit, 26 MAI (Multilateral Agreement on Investment), 5; rejection of, 80 Maldives and Samoa, 43 Mander, Jerry, 70, 88 Mango, 101 MDGs (millennium development goals), UN, 73, 113 Merrill Lynch, UK tax avoidance, 113 Mexico: customs revenue fall, 9; NAFTA impact, 43 Microsoft, power of, 53 migration, job-seeking, 46 Mitterbauer, Peter, 50

monarchical regimes, 157 Monbiot, George, 9, 118, 126, 153 monetary reform proposals, 184 Montenegro Constitution, 104 Monsanto, 11, 53; Bayer takeover, 54 Morgan Stanley, UK tax avoidance, 113 Morocco, 149 multilateral environmental agreements, 102-3 NAFTA (North American Free Trade Agreement), 3, 9; Mexican impact, 43 national wealth gaps, scale of, 127 negotiating processes, trade, 187 Netherlands, the, 86; EU constitution draft ejected, 161 New Zealand, 104 Nomura, UK tax avoidance, 113 “non-discrimination”, 97; semantic weapon use, 72 non-reciprocity principle, 131 non-trade issues, WTO loaded, 130 Norbert-Hodge, Helena, 9 “North Korea” slur, 183 Nowak, Manfred, 9, 99, 148 Occidental Petroleum-Ecuador, corporate litigation, 84 OECD (Organisation of Economic Co-operation and Development), 80, 109; “Better Life Index”, 77; country-by-country tax exporting, 115; exchanges procedures, 11011; Guidelines on Transnational Corporations, 149 oikonomia, 16

227

trading for good oligopolies, 53, 58 ownership, forms of, 140-1 Oxfam, 47; Deutschland, 130 Pakistan, 149 Pegida, 179 Philip Morris International, 53; tax relocation, 115 Philippines, 149; Germany bilateral deal, 3 Pinketty, Thomas, 112 Pittsburgh, 104 pollution: global trade transport, 39; outsourced, 38 poor countries: debt trap, 41; dumping on, 98 Pope Paul VI, “Populorum Progessio” 1967, 143 Portugal, 22 “post-growth” economy, “steady state”, 107 Prantl, Heribert, 71 “pre-democracy”, 156 Prebisch, Raúl, 78, 128; PrebischSinger thesis, 9 Prince of Wales Business Leaders Forum, 145 production, global distribution of, 23 “protection”, 93 protectionism, 11, 185; hypocrisy, 61; rich world, 42 “pseudo-neoliberalism”, 6 “public purpose”, original corporations, 142 public services, shrinkage of, 109 qualitative freedoms, 10-11

Rademacher, Franz Josef, 117 Raffer, Kunibert, 121-2, 129 raw materials prices fall, 30 Reagan, R., 6 reciprocity: “between unequals”, 189; deceit of, 97 register of securities, proposed, 112 Reithofer, Wolfgang, 49 “resilience”: approach, 190; economic, 13; loss of, 56 Ricardo, David, 8, 15-17, 19, 26-9, 35, 51, 55, 66, 78; abstractions of, 33; assumptions of, 25; comparative advantage law, see above; errors of, 21-2, 24, 30-1; non-applicability of, 23; opportunistic use of, 18, 20, 64, 67, 127, 177; unreality of, 28 Rigauz, François, 148 rights of nature, draft EU directive, 104 Rio + 20, Johannesburg, 102 Rodrik, Dani, 9, 47, 131, 133, 136 Rogoff, Kennet, 48 Ruggi, John, 147 rule of law, bypassed, 82 Russia, 149; customs employees, 8 Samuelson, Paul, 1, 8, 17, 48, 67, 92 Santa Monica, 104 Scheinin, Martin, 9, 99, 148 “screening tool”, Bhutan use, 75 sectoral conventions, 170 self-sufficiency, 138 Senegal, agricultural loss, 43 shipping costs cheapness, 39 Shiva, Vandana, 9, 43, 65 Siemens, 50 “Singapore issues”, WTO, 80

228

index slavery, modern, 101; Convention, 100 Slovakia, wage levels, 50 small farmers, wipe out of, 43 “smart globalization”, 136 Smith, Adam, 8, 15, 21-2, 26, 34, 51; contradictory assumptions of, 25; errors of, 24; ideological language, 14; “progressive” division of labour opposition, 60; The Wealth of Nations, 13, 59 South Africa, 86 South East Asia, tariffs, 9 South Korea, Microsoft case, 53 South-South competition pressure, 41 sovereign bankruptcies, 120 “sovereign democracy”, 159, 177; approach, 156; Constitutions forming, 169, 171, 178 sovereignty principle, 159 Spain: Constitution, 73; EU Constitution draft rejected, 161 species loss, 37 State, the, 51, 142 Stephens, Beth, 146 Stiglitz, Joseph, 3, 53, 64, 95, 121, 126, 129; Commission, 116 structural adjustment policies, 126 structural unemployment, 57 Sub-Commission on the Promotion and Protection of Human Rights (UN), 144-5 supermarkets, Thai prawn slavery complicity, 101 Sustainable Development Goals (SDGs), UN, 73, 116, 130, 141, 150-1 Switzerland, 86; euro crisis impact, 31-2; GATT provision, 43; income

inequality scale, 184; social pact ratification, 98 “symmetrical liberalization”, 97 tariffs, 41; as tax receipts, 9; avoidance, 109; Chile removal impact, 44; ethical use of, 94, 187; virtuous use of, 92-3; WTO lowering drive, 128 tax: authority global lack, 133; avoidance, 109; dual, 114; global institution need, 116; havens, 113; information exchange, 188; on HNWIs, 112-13; policies coordination need, 109; unitary, 114-16 Telekom-Austria, 51 Thatcher, M., 6 Third World, “enforced economic liberalism”, 64 TiSA, 159 tobacco, oligopoly, 53 Toyota, 53 trade, international: as means not end, 70; balanced need, 133; balances, 189; balances compensatory mechanism need, 123; bilateral deals push, 80; bilateral investment deals, 55; distance cut desirability, 139; economic output ratio, 4; -economy growth rates, 39; (en) forced, see above; ethical, see above; “free”, see above; imbalances, 33-4; imbalances creditor responsibility, 125; “kicking the ladder away”, 127; law international law lack, 78; material imbalances, 36;

229

trading for good negotiations, 165, 172-3, 187; policy issues, 185; policy models, 182; purpose of, 7; regulation issues, 186; surplus and debt, 32; terms of, 29-30, 34, 131; transaction costs, 30; wage levels-driven, 28; world intercorporate, 5 transition towns movement, 139 transnational corporations: and Human Rights UN Special Rapporteur, 147; draft “norms”, 144-7; intra-corporate scale, 52; legal assymetry, 146; litigation rights, 5; political unwillingness to control, 157; ownership concentration, 55; value-creation chains, 94 transparency, trade negotiations need, 173, 175 transport costs, cheapness, 40 TRIPS, 18 Trump, Donald, 3, 28, 179 TTIP (Transatlantic Trade and Investment Partnership), proposed 2-4, 8, 41, 55, 73, 81, 86, 135, 159, 162, 175; checks and balances lack, 164; cultural dangers of, 108; EC monopolized negotiations, 47, 166, 173; forcing attempt, 163; Germany protest, 2; “mixed agreement”, 167; post-failure, 181; potential agriculture impact, 174; proposed, human rights violations, 96 UBS, limited UK tax payment, 113 UK (United Kingdom), 149; banks tax avoidance, 113; TNC “norms” rejection, 145 Ulam, Stansilaw, 17

Ulrich, Peter, 26 United Nations, 18, 78, 80, 173; budget size, 113; Centre on Transnational Corporations liquidated, 143; Civil Pact, UN, 98; Commission on Human Rights, 147; Conventions by-passed, 82; Covenant on Economic, Social and Cultural Rights, 101; Development Programme, 70; ECOSOC, 119, 121, 143; environmental programmes, 102; ethical trade system proposed, 91-2, 95-6, 134, 141; Global Compact, 149; Human Rights Council, 149; MDGs, see above; paper tiger, 87; Security Council, 87; sustainability goals, 77, 113; trade regulation, 186; tax authority proposal, 117; UNESCO, 87, 108 UNCTAD, 9, 52, 78, 88, 125, 130; VI Belgrade, 129; cold-shouldering of, 79; General System of Preferences, 128; proposed development of, 132; TNCs binding rules attempt, 143 uneven trade balances, debt, 119 unitary taxation, 114-16 United Fruit Company, Guatemala coup involvement, 143 Universal Declaration of Human Rights, 98-9, 146 University of Geneva, 61 University of Kassel, 184 USA (United States of America), 21, 38, 97, 149; -Africa wealth gap widening, 127; African Growth and Opportunity Act, 130; bankruptcy code, 120; Chamber of Commerce,

230

index 81; -China trade imbalance, 34; Congress, 18; consumption level, 37; corporations, 117; customs employees, 8; double standards, 64; Foreign Account Tax Compliance Act(FACTA), 109; global TNC “norms” rejection, 145, 147; historical protectionism, 61; income inequality, 46, 184; national interest priority, 35-6; social pact nonratification, 98; Supreme Court, 118; tariffs use, 94-5; trade deficits, 126 Van Harten, Gus, 86 Vanguard, 54 Vatenfall: -Germany litigation, 84; TTIP case, 2 Venezuela, 86 Verhuegen, Gunter, 51 Vienna University of Economics and Business, 19, 182 Vietnam, 81 Voest corporation, 49 Volkswagen, 53 von Hayek, Friedrich, 6 von Pierer, Heinrich, 50 vulture funds, 121 wages, international devaluation race, 50-1 Wallonia, 168 Washington Consensus, 6 West and Central Africa, tariffs, 9 White, Harry Dexter, 35, 126 Wienerberger, 49 Wiggerthale, Marita, 130 Wijnant, Gerardo, 45 World Bank, 6, 18, 120

World Commission on the Social Dimension of Globalization, 140 “World Court for Human Rights”, outline for, 99-100 World Health Organisation, 39 World Investment Reports, UNCTAD annual, 143 world market share limits, 190 WTO (World Trade Organisation), 2, 4, 8, 17-18, 21-2, 24, 28, 30, 32-3, 52, 55, 58, 60-1, 63, 72, 83, 95, 104, 117, 134, 159, 186; agreements, 73; Bhutan rejected, 76; compensation mechanisms lack, 36; “controlled exit” from, 173; David Ricardo use, 18, 20, 64, 67, 127, 177; dead end, 80-1; deceptions of, 22; decision-making, 42; developing countries, negative trade balances, 31; Doha Round, 130; founding of, 35; global transport view, 40; international law sidelines, 77; merger control function lack, 118; “non-discrimination” cynicism, 43; “one size fits all” imposition, 132; “rights” selectivity, 89; rules, 11; rules violation right need, 133; Seattle protest 1999, 3, 129; tribunal ideological, 5, 79 youth conventions, 182 Zambia, craft business collapse, 42 Zara, 101 Zeitler, Gerd, 23, 26, 29, 40, 57, 88 Zucman, Gabriel, 112

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