The Walloon mouse

It appears Belgium's Wallonia has put a nail on the coffin of the EU-Canada trade agreement (CETA) by vetoing it. The reasons, The Economist puts it, "are hard to understand." 

Well, yes and no. Canada is one of the most progressive trade partners you could hope to have, and it is hard to believe that Walloon incomes or values are really being threatened. But clearly something larger than the specifics of this agreement is at stake here.

Instead of decrying people's stupidity and ignorance in rejecting trade deals, we should try to understand why such deals lost legitimacy in the first place. I'd put a large part of the blame on mainstream elites and trade technocrats who pooh-poohed ordinary people's concerns with earlier trade agreements. 

The elites minimized distributional concerns, though they turned out to be significant for the most directly affected communities. They oversold aggregate gains from trade deals, though they have been smallish since at least NAFTA. They said sovereignty would not be diminished though it clearly was in some instances. They claimed democratic principles would not be undermined, though they are in places. They said there'd be no social dumping though there clearly is at times. They advertised trade deals (and continue to do so) as "free trade" agreements, even though Adam Smith and David Ricardo would turn over in their graves if they read, say, any of the TPP chapters.

And because they failed to provide those distinctions and caveats now trade gets tarred with all kinds of ills even when it's not deserved. If the demagogues and nativists making nonsensical claims about trade are getting a hearing, it is trade's cheerleaders that deserve some of the blame.

One more thing. The opposition to trade deals is no longer solely about income losses. The standard remedy of compensation won't be enough -- even if carried out. It's about fairness, loss of control, and elites' loss of credibility. It hurts the cause of trade to pretend otherwise.

Comments

[paine]

Amen brother...amen !

[George H. Blackford]

It is not free trade, as such, that is the problem. The problem is unregulated capital flows that lead to trade deficits and the accumulation of foreign debt in exchange for increased consumption.

For a country to accumulate foreign debt as it runs a persistent trade deficit is not, in itself, a bad thing. The United States followed this course throughout the nineteenth century and into the twentieth. But throughout that period we used that debt to import capital goods and foreign technology. We invested in public education and other public infrastructure that led to tremendous increases in productivity in agriculture and manufacturing. We built national railroad and telegraph systems and created steel, oil, gas, electrical, automobile, and aviation industries. Our trade policies protected our manufacturing industries as our economy grew more rapidly than our foreign debt, and as Europe squandered its resources in senseless conflicts, by the end of World War I the United States had become a net creditor nation and the economic powerhouse of the world.

This is not the course we have followed over the past forty years. We have exported rather than imported capital goods and technology, and, in return, we borrowed to import consumer goods. We invested less rather than more in our public education, transportation, and other public infrastructure systems than other countries have invested. While we made huge advances in the electronics and computer industries over the last forty years, our trade policies have not protected our manufacturing industries, and we have outsourced the manufacturing and technological components of these industries to foreign lands. As a result, our economy is not growing more rapidly than our foreign debt, and it is the United States that is squandering its resources in senseless conflicts.

I find this passage from Hobson to be rather prophetic in trying to understand the situation we find ourselves in today:

"Free Trade can nowise guarantee the maintenance of industry, or of an industrial population upon any particular country, and there is no consideration, theoretic or practical, to prevent British capital from transferring itself to China, provided it can find there a cheaper or more efficient supply of labour, or even to prevent Chinese capital with Chinese labour from ousting British produce in neutral markets of the world. What applies to Great Britain applies equally to the other industrial nations which have driven their economic suckers into China. It is at least conceivable that China might so turn the tables upon the Western industrial nations, and, either by adopting their capital and organisers or, as is more probable, by substituting her own, might flood their markets with her cheaper manufactures, and REFUSING THEIR IMPORTS IN EXCHANGE MIGHT TAKE HER PAYMENT IN LIENS UPON THEIR CAPITAL, REVERSING THE EARLIER PROCESS OF INVESTMENT UNTIL SHE GRADUALLY OBTAINED FINANCIAL CONTROL OVER HER QUONDAM PATRONS AND CIVILISERS. This is no idle speculation. If China in very truth possesses those industrial and business capacities with which she is commonly accredited, and the Western Powers are able to have their will in developing her upon Western lines, it seems extremely likely that this reaction will result." Hobson,1902
https://archive.org/details/imperialismastu00goog

Free trade is generally sold on the basis of comparative advantage with fixed endowments. There is little discussion of transferring capital in such a way as to equalize the return to labor and increase the concentration of income. When this sort of thing happens as a result of unregulated capital flows imbalances are created in the system that lead to economic, social, and political crisis. See, for example, http://www.rweconomics.com/htm/Ch_1.htm , http://www.rweconomics.com/htm/WDCh3e.htm , and http://www.rweconomics.com/LTLGAD.htm .

[Damien Geradin]

I fear that Dani's analysis is not entirely correct. The reason why the Walloon Region is trying to block or at least delay the CETA is political only. The Belgian federal government is run by the right wing whereas the Walloon Region is dominated by the socialists. The problem for the Walloon socialists is that there are losing ground to the extreme left. Hence, it is critical for them to show that they are fighting the CETA whose benefits would only to large multinational corporations. All this fuss about the CETA has thus to be seen in the context of Belgian politics. Belgium has an extremely open economy and exports much more than it imports. We are net beneficiaries of free trade.

[john vos]

As a Belgian resident, I second Damien's clarifications. The Walloon socialist party's resistance to CETA and TTIP has very little to do with what is at stake from an economic perspective. It's all about posturing, about trying (rather desperately) to take back votes from an increasingly popular communist party in the Walloon region. In short: it's motivated by politics, not economics. As has been noted in the Belgian press, the Walloon socialist party (SP) is happy to promote weapons export to Saudi Arabia (you guessed it: rifle producer FN is based in Wallonia). Trade agreements with Vietnam: no objection. But Canada, being close to the US, is a welcome target for anti-capitalist rhetoric.
And of course, that the federal Belgian government, political opponents to the SP, are embarrassed and outraged by Wallonia's veto, is a fine bonus.

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