The Dubious Economics of TTIP

Stephen Boyd, STUC

Global Justice Now fringe, SNP campaign conference, 28 March 2015

LET’S START WITH A FAMOUS TALE FROM ECONOMIC HISTORY…

A mathematician’s challenge

“Hey Paul, name me one proposition in all of the social sciences which is both non-trivial and true” Stanislaw Ulam

Comparative advantage in international trade!

“"That it 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.“

Paul Samuelson

But ‘the crown jewel of economics’ descends into tired orthodoxy…

gains from trade follow from allowing an economy to specialise gains from trade are significant and mutual; trade is not zero-sumExpanding trade is beneficial in each and every circumstance Opponents of ‘free trade’ must be self-interested or ignorant So opponents of trade agreements are wrong and should be disparaged and ridiculed

…leading to statements like this…

“It comes down to the general question of whether you believe in free trade, particularly between developed countries but also more generally, enhances overall prosperity”

Lord Livingston, UK Minister of State for Trade and Investment

European and External Affairs Committee, 2nd Report 2015 (session 4), The Implications of the TTIP for Scotland (para 59)

The economics of TTIP is framed as a very simple choice

Autarky Free trade

But case for freer trade (inc. new bilateral agreements like TTIP) isn’t at all clear cut

Dani Rodrik’s tests:

• Are the gains too small relative to the potential losses to low income or other disadvantaged groups that may have little recourse to safety nets?

• Does the trade include actions that would violate widely shared norms or the social contract if carried out here – such as repressing labour rights or using environmentally harmful practices?

If answers are yes, then legitimacy of trade will be in question

…and the distributional impacts become more acute the freer trade becomes

“The more open an economy is, the worse the distribution-to-efficiency ratio gets. The political and social-cost-benefit ratio of trade liberalisation looks very different when tariffs are 5% instead of 50%. It is inherent in the economics of trade that going the last few steps to free trade will be particularly difficult because it generates lots of dislocation but little overall gain”.

Dani Rodrik, The Globalization Paradox

The Economic Case for TTIP as presented by EU Commission

• TTIP likely to increase the size of EU economy by 120bn euros or 0.5% of GDP by 2027 – best case scenario assuming all plausible removal of trad. barriers to trade (tariffs and quotas)

• Wages in EU and US up ‘roughly 0.5%’

• Labour reallocation of less than 0.7%

• No forecasts on overall job numbers (full employment models) although hints at +3m across EU

• Particularly positive outcomes in metal products, processed foods, chemicals, other manufactured goods, motor vehicles

UK and Scottish Governments

• UK Govt: “in the long run, UK national income could rise between £4bn and £10bn annually” or 0.2 and 0.6% of GDP

• Scot Govt modelling suggests GDP could expand by 0.2 to 0.3% and imports by 1.8 to 3.6% (impact will of course be balanced by increase in imports)

Convinced?

• Annual increment in GDP growth likely to be so small as to be unidentifiable

• Main benefits to flow from regulatory harmonisation but there will be no ‘lowering of domestic standards’ –how can these positions be reconciled? Upwards regulatory harmonisation? Seriously?

• No serious employment impact analysis undertaken by EU, US, UK or Scot Govts

• No distributional analysis – by income or geography –undertaken by any official authority; how can this be reconciled with EU’s cohesion agenda? Trade has distributional consequences!

‘Research’ simply ignores adverse impacts…such as?

• Extending patent protection – and extending scope for frivolous patents – will raise prices and impede competition

• Big Pharma in particular will be seeking to make its patents stronger, longer and more far reaching with negative impact on cost and availability of prescription drugs

• cost of displaced workers and higher inequality (research suggests TTIP will exacerbate falling wage share/rising profit share)

• institutionalises regulatory arbitrage with related impact on resilience and stability (i.e. no FTT?)

• Further undermines global market legitimacy; undermines (already scant) public support for ‘good trade’; markets are not intrinsically legitimate

In summary

• Gains, if they transpire at all, will be so small as to be lost in statistical noise

• TTIP about further concentration of economic power and extension of rents through e.g. longer and stronger patents

• Distributional impacts could be significant and are currently being ignored

• No serious analysis of impacts at Scottish level yet undertaken