The Neoliberal Disorder: The Inconsistencies of Trade Policy

September 25, 2007

Markets do not exist as gifts from the gods. They are created by people. In part, they are constructed and shaped as the unintended consequences of innumerable human actions and arrangements—wars and revolutions, informal social customs and formal legal structures, schooling and technological innovations. Markets are also constructed and shaped by conscious and intentional actions by individuals, unions, firms, and governments.

For the past decade, under both Democrats and Republicans, Washington has been engaged in a very explicit and direct action to shape the markets of the Americas. Under the rubric of the Free Trade Area of the Americas (FTAA), the Bush administration is attempting to construct a whole new set of rules by which economic relations in the Western Hemisphere would be organized. In this effort, the Republican Party is now carrying the banner of “Free Trade.”

The Republicans have carried other banners in the past. During the late 19th century, when big business in the United States operated primarily in the national realm and needed protection from foreign—especially European—competition, the Republican Party identified itself as “The Party of the Tariff.” While the Republicans of a century ago pushed the weaker countries of the Americas to open their markets to U.S. exports, they were simultaneously limiting the access of other industrialized countries to U.S. markets. Both then and now, the consistent feature in defining the Republican Party has been its support for U.S.-based big business. As U.S. business has grown in strength, and its realm of operation has become increasingly international, both its strategy and the strategy of the Republican Party, as well as the party’s rhetoric, have changed. At least since the middle of the 20th century, U.S. business along with the imperial U.S. state has moved away from tariffs (and other restrictions on international commerce) toward deregulation and openness. In this movement, the Republican Party has in effect re-dubbed itself as “The Party of Free Trade”—though it might avoid confusion if it would just maintain the one name that defines its consistency, “The Party of Big Business.”

None of this is to say that Republicans have exclusive claim to any of these titles. Their victory on matters of international economic policy—or perhaps we should see it as the victory of big business—has been thorough, and the Democrats too have been zealous in their pursuit of “free trade” and in the general support of U.S.-based businesses’ operations in the global arena. There are some differences between the way that Republicans and Democrats pursue the same broad international economic objectives, yet the operation of an imperial state has been a defining feature of the much touted bipartisan foreign policy for a long time.

In Latin America, the long history of the imperial state is especially poignant, beginning perhaps with the schemes to annex Cuba at the beginning of the 19th century, achieving formal definition with the proclamation of the Monroe Doctrine in 1823, passing on through the war with Mexico and the annexation of nearly half of that country at mid-century and the war with Spain at the end of the century, reaching a veritable frenzy in the era of “dollar diplomacy” when the U.S. government used its military forces readily and explicitly to protect the interests of U.S. business, and then beating a steady cadence through the Cold War era as the United States intervened, directly and indirectly, virtually at will throughout the region. The history of military actions is the backdrop for the economic policies of the U.S. government in Latin America and, more generally, throughout the world economy. Political-military power is an essential partner of economic expansion. It is the ultimate guarantor of the arrangements at the foundation of NAFTA, the FTAA and other formal economic agreements that the U.S. government has constructed for the operation of U.S. business.

The U.S. imperial operation is very powerful, especially when the United States sits alone as the world’s only superpower. In recent years, the United States appears to have done relatively well in the global economy, promoting a set of market-based policies and operating under a “free-market” ideology that has come to be known as “neoliberalism.”[1] Not everything is smooth, however. The operation of the system itself generates instability and disruption, and it thus demands continual adjustments of strategy by those who direct the empire. In order to understand how that strategy evolves, what strengths and weaknesses it may exhibit, and what new instabilities and disruptions it is likely to generate, I want to focus attention on some inconsistencies and problems that are currently operating in the international economy, and particularly in U.S. relations with Latin America. I will organize most of my comments around three propositions.

Proposition #1: Neoliberalism is based on the ideology of free markets, and the practitioners of neoliberalism argue that free markets are the best means by which to support the interests of U.S. business and, through U.S. business, the interests of the U.S. economy and U.S. citizens. Yet guided by the fundamental principle that their goal is to promote U.S. business interests, U.S. policy makers must continually violate free market principles.

In testimony before Congress on March 7, 2001, the new U.S. Trade Representative, Robert Zoellick, laid out the Bush administration’s general policy on international commerce and, in particular, the administration’s obeisance to free trade: “Just as the World War II generation forged a bipartisan consensus that sustained successful trade expansion throughout the Cold War, we must build a new consensus to promote open markets and trade in the decades to come.... I want to work with [the Congress] to try to mobilize broad support for free trade.... A new commitment to trade liberalization can boost a vigorous, long term economic recovery from the present slowdown.”[2] Nonetheless, when the interests of particular U.S. firms or industries have been at stake, Zoellick and the Bush administration have found rationalizations for protectionism.

Consider the steel industry. In early June, 2001, the Bush administration “took the first steps...toward imposing broad restrictions on imported steel, handing a victory to American steel companies and unions that have long urged the government to grant relief from foreign competition.” These actions, which Bush justified as arising from “unfair trade practices” by other governments, suggest that the new administration will go well beyond its predecessor in protecting the domestic steel industry from foreign competition.[3] The groundwork for this action had been several months in the making, as Zoellick had spoken up to raise the particular needs of U.S. industry above free trade principles: “He said the Section 201 trade law, which allows an administration to restrict imports if an industry is threatened by imports, may be the best way to aid U.S. steelmakers.”[4] Both Brazil and Mexico will be affected by restrictions on U.S. steel imports, as will several countries in Europe and Asia.

Zoellick has also, like his predecessors in the Clinton administration, pursued the issue of access for bananas to the European market. As the United States does not export bananas, one might legitimately wonder why this is a concern of the U.S. trade representative. That concern is not, of course, for the well-being of the Latin American countries that have had their exports to the EU restricted. Instead, Zoellick’s interest is prompted by the fact that it is the U.S.-based Chiquita company—the descendant of the infamous United Fruit Company—that wants greater access to the world markets.[5]

The U.S. government has long supported U.S. agribusiness—and in some cases independent U.S. farmers. This support is especially important because U.S. agricultural exports have major impacts on social as well as economic structures in many countries, including several in Latin America. Such support has consisted of government sponsorship for the development of agricultural technology (including machinery and seeds), numerous programs of agricultural price supports, government provision of subsidies through water policies, and export promotion initiatives. As the Bush administration establishes itself in office, there has been a flurry of demands from farm groups for support: Soybean growers want “their share” of dollars under the American Marketing Transition Act; rice farmers have told Congress that “their future depends on more government aid;” and Bush’s Agriculture Department has announced that it “will spend up to $20 million this year to compensate seed companies for corn mixed with an unapproved genetically modified variety—the first direct federal bailout of food producers harmed by biotechnology.”[6]

The corn bailout is but one aspect of Republicans’ willingness to aid the biotech industry. As the industry lobbies for more government research support and favorable regulatory actions, it expects considerable support from the Bush administration and Republicans in the Congress.[7] While the focus of this support is not foreign trade per se, biotechnology-based products are an important part of U.S. trade through various industries, particularly the pharmaceutical industry. Thus government support for biotechnology is directly relevant to a recent dispute related to Brazilian production of AIDS drugs. The U.S. government has objected to a Brazilian regulation “that requires a company to manufacture in Brazil within three years of getting a patent or have its invention be subject to a compulsory license.”[8]

The Bush administration, like its predecessor, preaches the gospel of free trade. It is a gospel that serves the broad interests of U.S. business. Yet when particular interests of U.S. business are served by direct government support rather than by the application of free trade principles, those principles are ignored. It is best, perhaps, to view neoliberalism, especially its free trade component, as primarily a justificatory ideology rather than as a guide to policy.

Proposition #2: Neoliberalism celebrates “globalization” and the integration of markets on a world-wide basis, but imperial power always involves rivalries and those rivalries lead to inter- and intra-regional conflicts.

Although the United States operates today as the world’s only superpower, it does not operate without challenges. These challenges, these limits on the ability of the U.S. government and U.S. business to construct a world economic order exactly as it would wish, are important factors in shaping the institutions and course of the international economy.

The simultaneous formation of regional and global trade agreements is one manifestation of the tension that emerges from international rivalries and conflicts. On the one hand, regional agreements are sometimes presented by both proponents and opponents as a step in the process of globalization, as a movement towards a larger realm of commerce uninhibited by national boundaries. NAFTA provides a clear example, and the efforts to form the FTAA are a further step in this movement from the national, to the regional, to the global. In this view of the phenomenon, the U.S. government, unable at this time to shape global agreements to its full satisfaction, seeks to form arrangements within the Americas that are in accord with its aims and which then may provide a basis for shaping global agreements in the future. For example, so far the U.S. efforts to create the Multilateral Agreement on Investment (MAI) have not done well on a global level, but its provisions have been thoroughly incorporated in NAFTA and are an important part of the U.S. agenda for the FTAA.

On the other hand, regional agreements are also mechanisms to secure privilege for one national economic power relative to some of its rivals. Both NAFTA and the FTAA again provide examples, giving U.S. business a preferential position in the Americas relative to its European and Asian rivals. At the Summit of the Americas in April, 2001, President Bush promoted the FTAA, explaining his focus on a regional accord in order that “we can combine in a common market so we can compete in the long term against the Far East and Europe.”[9] In fact, regional commercial formations are probably moving the organization of the world economy in two opposite directions at the same time—both toward globalization and toward restrictions on globalization. They embody a tension that will be resolved—if at all—only as the international rivalries evolve.

Yet, even on a regional level the United States cannot always control the actions of other governments. This has become apparent in actions by the Brazilian government. It has not been cooperating. Shortly before the Summit of the Americas, the New York Times told its readers that: “What [recent disputes] have in common is the sight of Brazil as it sheds its image as eternally easygoing and cordial and suddenly flexes the muscles that naturally accrue to a regional power with 170 million people and a booming economy.”[10] This Times report focused on the dispute with the United States over AIDS drugs (noted above) and conflicts with Canada over subsidies to aircraft makers and over mad cow disease and beef exports.

The Brazilian government, however, has been causing more general problems for the United States in its approach to the FTAA. In discussions with Zoellick, Brazil’s foreign minister has insisted on addressing several “issues that the U.S. administration will not be comfortable negotiating, such as changes to U.S. antidumping law, domestic support for U.S. farmers, and high U.S. tariffs on key Brazilian exports such as steel and orange juice.”[11]

In part, the U.S. position has been weakened because after the implementation of NAFTA the Clinton administration, no less committed to FTAA than the Bush administration, was not able to obtain support in the Congress for “fast track authority.” As a consequence, the FTAA has been slower in developing than otherwise might have been the case, and delays have limited the ability of the United States to maintain control over at least some of its Latin American partners.

Proposition #3: The practical advance of business requires both tactical adjustment and a supporting ideology, but the supporting ideology can become a guide to action that interferes with the practical advance of business.

“Fast track authority” in the U.S. Congress—or, as Bush administration officials have renamed the issue, “trade promotion authority” (TPA)—is a tactical keystone in the current evolution of U.S. international economic agreements.[12] TPA would require the support of a sizable number of Democrats in the Congress, and some members of the Democratic Congressional leadership claim that they will not move on the issue without provisions in trade agreements that assure labor rights and environmental protection.[13] In addition, many legislators are concerned that particular interests that they wish to protect might be harmed by new trade agreements (the point of Proposition #1).

Some Republicans in Congress and in the administration have indicated their willingness to include labor and environmental provisions in trade agreements, but that willingness is limited. Senate Republican Leader Trent Lott has said that “Congress should consider labor and environmental issues provided they are not made into the ‘dominant part’ of the final legislation.”[14] Trade Representative Zoellick “has said that Bush is willing to include such provisions in future on condition they do not impede trade.”[15] Perhaps of greater significance is that some business groups, notably the National Association of Manufacturers (NAM) and the Business Roundtable, have indicated a willingness to support inclusion of labor and environmental accords in international agreements, though other business groups—for example, the U.S. Chamber of Commerce—remain opposed.[16]

It is not surprising that some business groups would be flexible on the labor and environmental issues. Low-cost, direct overseas production is a secondary part of the international operations of most U.S. business. One can infer the role of low-cost production in the international operations of U.S. firms from data on imports back to the United States from the firms’ foreign affiliates relative to the total sales of those affiliates. Excluding the special case of Mexico, for U.S. firms operating in Latin America in 1998 these imports back to the United States accounted for only 6% of total sales. These data suggest that the primary concern of U.S. firms operating in Latin America is the market, while production for sales back to the United States—the type of activity in which low wages and lack of environmental restrictions would be important—is of lesser significance.[17]

To be sure, U.S. firms rely to a great extent on subcontractors for the sorts of products and inputs that use low-wage labor and environmentally damaging production methods. Yet, for the largest U.S. multinationals, markets are at the center of their international concerns. Their interest in keeping labor and environmental accords out of international trade agreements is motivated more by a desire to maintain access to foreign markets; that access depends on reaching agreement with business and governments in low-income countries who, because of their direct interests, are opposed to such accords. Overall, the situation is such that important business groups are likely to take a pragmatic approach to the issues and exhibit a willingness to make tactical adjustments.

Business has also, however, depended heavily on the ideology of neoliberalism to provide support for its international operations, and ideology is seldom a good foundation for tactical adjustments. Thus the reaction of many congressional Republicans to the NAM’s and Business Roundtable’s openness to labor and environmental accords was hostile. The conservative Republican leadership in the House of Representatives warned business groups against pushing for the inclusion of labor and environmental accords as a means to achieve TPA. As a result, NAM, at least, backed off on the issue.[18] Although the position of House Republicans may reflect their close ties to those segments of business more dependent on low-cost U.S. imports (groups playing a role in the U.S. Chambers of Commerce), this position is fully consistent with their strong and long-standing commitment to neoliberal ideology as a guide to policy.

The Bush administration may attain TPA. To do so, however, it will not only have to placate the Democrats and those from both parties who want to protect particular constituencies from import competition, but also those Republicans who continue to be driven by neoliberal ideology. Neoliberal ideology has no place for interference with “the market” to provide for concerns about labor and the environment. Those in Congress who have built their careers on the basis of this ideology—however opportunistically embraced in the first place—appear to have a difficult time when it comes to a need for tactical adjustments.

At each step in its effort to establish new economic arrangements for the Americas, the Bush administration, like the Clinton administration before it, has appealed to time-worn cliches about the efficacy of markets. Yet when these neoliberals proclaim the desirability of “leaving things to the market,” they are in fact making a meaningless statement. It does not mean anything to say that we will do best by “leaving things to the market” until we specify which market. How is the market we are talking about constructed? What are the rules? What rights do different groups have? What distribution of income exists when we start leaving things to this market? Who owns how much property? What defines property? These and many more questions need to be answered before we can talk about “leaving things to the market.”

U.S. policymakers may not see things in exactly these terms, but they do seem well aware of the fact that in their efforts to shape international trade agreements they are engaged in an effort to construct or shape markets. After all, if NAFTA were an agreement designed to leave things to the market, it could have been written up in a few pages, if not in a paragraph or two. Instead, the agreement runs on for hundreds of pages, setting out the rules and procedures by which the market among Canada, the United States and Mexico will operate. The negotiations over the FTAA will involve similar sorts of complexities and similar volumes of ink and paper.

Moreover, in this effort to construct a market of the Americas, the U.S. government and U.S. business are not just trying to create any old market; they are trying to construct the market they know and love, a market that embodies the principles, practices and procedures of the U.S. national market. What they are doing is trying to spread the particular U.S. way of doing business. In NAFTA and in the FTAA, the spread is to the Americas, but the United States has operated with a similar agenda in its direction of global institutions—the IMF, World Bank, and World Trade Organization (WTO).

The U.S. way of doing business starts with a great deal of power in the hands of the world’s largest firms. It continues on with minimal—as compared to other high-income countries—social regulations and supports for workers and low-income groups. Thus it perpetuates a highly unequal distribution of income and power. This general picture is elaborated in many particulars. One good example is that U.S. patent laws are to be the norm for all the Americas; thus when the Brazilian government, or any other government, attempts to allow national pharmaceutical companies to provide medicines at reasonable rates, they would be blocked by the rules of the market. Another example is the set of U.S. practices that protect the rights of private property against environmental regulations; NAFTA firmly incorporates such practices, as has been made well known by two recent cases in which private companies brought suit against environmental protections enacted by sovereign governments.[19]

The Bush administration and the large U.S. firms that benefit from the administration’s international economic agenda have many allies in the world economy. Financial firms and exporters in Latin America as well as the region’s few multinational operators also gain from the sorts of market arrangements that the United States is pursuing for the Western Hemisphere, and governments of the region generally share Washington’s broad agenda. They too want to establish a market context that makes the world safe for the pursuit of profits. Beyond the hemisphere, this overriding principle is shared by business and government in most countries.

Yet while the context and the broad agenda are important, they are not the whole story. The U.S. government is not the government of world capitalism; it is the government of U.S. capitalism. The conflict between the free markets and particular U.S. interests (Proposition #1), imperial and regional rivalries (Proposition #2), and the political disputes where ideological principles come into conflict with tactical needs (Proposition #3) all illustrate the continuing national character of U.S. capitalism, even in an economy that is increasingly “global.” These problems also underscore the practical problems that the Bush administration faces in Latin American and elsewhere in the coming period.

The agenda of the Bush administration regarding economic policy toward Latin America or, for that matter, toward the rest of the world is fairly clear: It will be following in the well worn path that U.S. administrations have followed for at least the last 50 years. There is, however, a difference between having an agenda and implementing it. The Bush administration, as I have tried to suggest here, will face several problems and inconsistencies in managing its international economic policy.

Arthur MacEwan teaches economics at the University of Massachusetts, Boston. His most recent book is Neo-Liberalism or Democracy? Economic Strategy, Markets, and Alternatives of the 21st Century (Zed Books, 1999).

1. While my concern here is primarily with the way neoliberalism prescribes “free trade” for the operation of the international economy, the policies and ideology of neoliberalism are broader: “The economic policy that became dominant in most of the world during the final decades of the 20th century has given greater and greater rein to unregulated private decisionmaking. The policy calls for reducing the economic roles of government in providing social welfare, in managing economic activity at the aggregate and sectoral levels, and in regulating international commerce. The ideas at the foundation of this policy are not new. They come directly from the classical economic liberalism that emerged in the nineteenth century and that proclaimed ‘the market’ as the proper guiding instrument by which people should organize their economic lives. As a new incarnation of these old ideas, this ascendant economic policy is generally called ‘neoliberalism.’” See Arthur MacEwan, Neo-Liberalism or Democracy? Economic Strategy, Markets, and Alternatives for the 21st Century (London and New York: Zed Books and St. Martin’s Press, 1999), p. 4.
2. Statement of the Honorable Robert B. Zoellick, United States Trade Representative, Testimony Before the House Committee on Ways and Means, Hearing on President Bush’s Trade Agenda, March 7, 2001.
3. “Bush Moves Against Steel Imports; Trade Tensions are Likely to Arise,” The New York Times, June 6, 2001.
4. “Steel Import Curbs Weighed,” The Washington Post, March 8, 2001. Zoellick did avow that any such protection for the steel industry should be temporary and would depend on a commitment from the industry and unions to “restructure” in ways that would make U.S. firms more competitive—which would likely mean gutting existing union contracts. The emerging policy of the Bush administration with regard to steel imports has been pushed by a large bloc in Congress; more than 200 members of the U.S. House of Representatives—including members of both political parties—have sponsored the “Steel Revitalization Act,” which would direct the president to impose quotas, tariff surcharges, or other measures on “illegally” dumped steel and to negotiate agreements that restrain imports of steel products. See “Lawmakers Seek Help for Steel Companies,” The Columbus Dispatch, June 3, 2001.
5. The settlement of the U.S.-E.U. banana dispute at the end of April 2001, however, did not leave all U.S. firms happy. While Chiquita generally expressed satisfaction with the agreement, Dole Food Company, also a U.S.-based firm, criticized the agreement as favoring its competitor. See “Dole Says Trade Accord on Bananas Favors Rival,” The New York Times, April 14, 2001. Also see “Banana Dispute Resolved as E.U.-Ecuador Reach Agreement,” Bridges Weekly Trade News Digest, Vol. 5, No. 16, May 1, 2001.
6. See “U.S. Soybean Assn to Ask for $1.65 Bill in Aid,” High Plains Journal, March 21, 2001; “Rice Farmers Say Their Future Depends on More Government Aid,” The Associated Press State and Local Wire, March 21, 2001; “U.S. Will Buy Back Corn Seed,” The Washington Post, March 8, 2001. This bailout, it should be noted, had bipartisan support in Congress.
7. The president of the Biotechnology Industry Organization has commented, “Generally, we’re very positive about how this administration is developing its policies and personnel.” See “Biotech Largely Pleased by Bush,” The Boston Herald, February 26, 2001.
8. “U.S. Rebuts Charges that IPR Panel Attacks Brazil’s AIDS Policy,” Inside U.S. Trade, February 9, 2001.
9. “Biggest Obstacle to Selling Trade Pact: Sovereignty,” The New York Times, April 23, 2001.
10. “Brazil Flexes New Muscle in Another Trade Fight,” The New York Times, March 27, 2001.
11. “Brazilian Minister Resists Speeding Up FTAA, Emphasizes Mercosur,” Inside U.S. Trade, March 9, 2001.
12. Under “Trade Promotion Authority,” Congress would commit itself to consider without amendment trade agreements negotiated by the administration. Under these arrangements, Congress could accept or reject the agreements, but could not amend them. With regard to the FTAA, other governments have indicated that they would not go forward with negotiations unless Congress makes this commitment.
13. The matter continually arose, for example, in controversy over a provisional trade agreement with Jordan. The Jordan agreement as drafted includes labor and environmental provisions, and leading Democrats claim “that fast-track must include enforceable labor and environmental standards as one of the U.S. negotiating objectives.” See “Levin Says Road to Fast-Track Goes Through Jordan Agreement,” Inside U.S. Trade, March 9, 2001.
14. “Lott Sees Fast-track as Early as Fall, Including Labor and Environment,” Inside U.S. Trade, March 9, 2001.
15. “E.U. & U.S. Meet On Trade As U.S. Trade Policy Takes Shape,” Bridges Weekly Trade News Digest, March 13, 2001. I might note in passing that environmental and labor provisions are meaningful only if in fact they do in some way impede trade; otherwise they are unnecessary.
16. “House Leaders Urge Halt to Business, Labor, Environment Effort,” Inside U.S. Trade, February 16, 2001.
17. The data are from Raymond J. Mataloni, Jr., “U.S. Multinational Companies, Operations in 1998,” Survey of Current Business, July 2000. U.S. firms’ affiliates in Mexico, which accounted for 28% of the sales of their affliliates operating in the region, sent 40% of their sales back to the United States. These data, for Mexico or the whole region, do not tell us much about the problems that U.S. workers face as a result of import competition or about environmental damage associated with international commerce. Those issues are not the same as the direct and immediate concerns of the largest U.S. internationally operating firms. The popular image of those firms as heavily dependent on low-wage foreign labor is understandable because of the importance of low-wage-based imports of highly visible consumer goods (e.g., clothing) and the dramatic problems of many U.S. workers. Likewise, the popular image of these firms as seeking havens safe from environmental regulation probably arises from some highly dramatic anecdotes. These problems are real, and are consequences of the way the international economy is organized under the aegis of U.S. business. Nonetheless, as these data suggest, U.S. business is often not the direct culprit.
18. “House Leaders Urge Halt to Business Labor, Environment Effort,” Inside U.S. Trade, February 16, 2001.
19. In the Metalclad and Methanex cases, firms have used Chapter 11 of NAFTA to sue governments over environmental regulations. The Metalclad case involves a California-based company in a suit against local regulations in Mexico. See, for example, “Mexico to Pay Pounds 11m Damages in NAFTA Case,” Financial Times (London), September 1, 2000. In the Methanex case, a Canadian firm has sued the government of California for placing a ban on the use of its gasoline additive product MTBE. While Chapter 11 does provide extensive protections for firms, the courts have not always given them what they want. See, for example, “Ruling in Canada Strikes at Companies’ NAFTA Trade Suits,” Los Angeles Times, May 5, 2001.

Tags: US foreign policy, neoliberalism, trade policy, FTAA, globalization

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