Canadian Prime Minister Justin Trudeau shocked the pundits and most trade experts last week when he refused to sign the updated Trans-Pacific Partnership (TPP), an 11-nation free-trade deal.
His decision to continue negotiating and push for a better deal for Canada had a lot to do with preserving the auto industry in Canada and protecting Canada’s cultural industries, both of which are under threat from unfair global competition.
But what does this refusal mean? And with so many Asian nations eagerly waiting, what’s Trudeau’s problem with the TPP? After all, free trade and globalization have been encouraged for decades as a means of promoting world peace and accelerating global economic integration.
Perhaps the prime minister is listening to the alternative French economist Thomas Piketty. Piketty has long maintained that movements like Brexit in the United Kingdom and the election of U.S. President Donald Trump were predictable, primarily driven by the failure of modern trade deals.
According to Piketty, developed industrial economies are suffering from poorly implemented globalization, which has led to an “explosion in economic and geographic inequality … over several decades.” Brexit and Trump are natural consequences of governments’ inability to deal with the flaws in world trade.
Piketty’s damning indictment resonates with many and is a far cry from the optimism that accompanied globalization in its early years.
The whole idea of liberalizing trade started with the Second World War. Protectionism and vicious national economic competition were widely believed to be major contributors to the war.
Sentiments like these were clearly evident at the 1944 Bretton Woods Conference, where the Allies made their plans for the post-war world. Early framers of globalization envisioned trade deals as more than economic agreements; they were designed to achieve peace among nations and to raise living standards in the Third World.
Counterpoint
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In order to accomplish these noble goals, the Bretton Woods planners needed to achieve balanced growth. The whole idea was “to reconcile liberal international trade policies with high levels of domestic employment and growth.” Early globalization initiatives attempted to create a balanced international system, benefiting not just the world community as a whole but also each of its parts.
Globalization worked pretty well for the first few decades. The Treaty of Paris (1951) established the European Coal and Steel Community, and in the process set an important standard in European co-operation. This was soon followed by the Treaty of Rome (1957), which established the European Atomic Energy Community.
With the success of these early supranational agreements, the road was cleared for more globalization initiatives. That accelerated the development of the European Economic Community and set the stage for the Canada-United States Free Trade Agreement in the 1980s.
So what’s wrong with modern globalization?
A lot, it seems. Globalization has been associated with the hollowing out of developed economies, wage stagnation, runaway climate change and, as we’ve seen recently, corporate tax evasion on an unprecedented scale. Basically, globalization has been terrible for stuck-at-home wage earners and nothing short of a windfall for global elites.
So where did globalization go wrong?
It went wrong at the worst possible moment. Post-war globalization was hit with a perfect storm: just as the Berlin Wall came tumbling down, a pernicious version of neoclassical economics was infecting western capitalism, changing the course of post-war history.
Monetarism, a radical form of free-market economics developed at the University of Chicago, perpetuated the myth that unencumbered market forces alone would optimize the capitalist system. At a stroke, what became known as the Washington Consensus emerged. It jettisoned the political ideals of globalization and any idea of balanced growth.
In the 1990s, Wall Street investment bankers became the guardians of globalization. Focused narrowly on maximizing corporate profits, the Washington Consensus strongly supported the idea that corporations and their profits were the only things that really mattered.
After this, human rights vanished from free-trade dialogue. In the absence of established workers’ rights, developing countries like China, Vietnam and the Philippines persisted in exploiting powerless workers to created unfair cost advantages, and yet continued to have unlimited access to developed economies. This fatal flaw is now undermining trade deals like the TPP.
Fixing the TPP won’t be easy but Trudeau will find a growing audience for his plan to return to balanced growth. A renewed commitment to improving workers’ wages and conditions in emerging economies would level the international playing field.
Those are good first steps toward fixing globalization.
Robert McGarvey is an economic historian and former managing director of Merlin Consulting, a London, U.K.-based consulting firm. Robert’s most recent book is Futuromics: A Guide to Thriving in Capitalism’s Third Wave.
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