Thursday, 28 July 2016

Why TPP (or something like it) is inevitable

I

There seems to be two types in the anti-Trans Pacific Partnership (TPP) camp. In one corner sit people pleased the deal may be discarded entirely. While in the other, they hope a failure is a chance for renegotiation towards a more comprehensive deal. Either way, they seem happy the TPP might be dying.

Leaving aside that the TPP isn’t yet ruined (Washington sources report plenty of bartering heating up the Beltway) this TPP schadenfreude appears to come from politics in the disgruntled middle class frustrated with productivity and wage losses who blame the economic system for their plight.

But their reasoning is flawed. First, the link between productivity and wages is inverse. Productivity is a function of technology and business organisation much more than it is of labour. Boosting productivity is achieved by deploying better technology, which allows a company to hire fewer, less skilled workers who can be paid less. Trade deals aren’t responsible for this.

Second, there is no middle class. I'd love to write a screed about how the system is ripping people off and the wealthy manipulates the social order to enrich themselves, but that would be dishonest. There are too many people in the so-called “middle class” who have never driven a ten-year old car, spending upwards of $200/month on cell phones and have internet TV packages with premium channels to place all the blame on the system.

The middle class is largely comprised of spendthrifts and idiots. They are still buying petrol guzzling cars at $2.00/litre even when more economical options are available, and their justifications for doing so are entirely irrational. They are completely and hopelessly uneducated. And yes, I too land squarely in this “class.”

And considering the present house prices, apparently the middle class can’t calculate the affordability of mortgage payments either. They can’t be bothered to learn what they don't know, despise being told what they don't know, and they hate it when they can't have something. Getting more things is extremely important to the middle class, unless people believe shopping malls are patronised exclusively by the rich and the destitute.

II

The rationale against TPP is: “We are all [insert nationality] and we want what’s best for [insert country]. We just disagree on what best is.”

But that’s not quite true. People want what they think is best for a particular country, but often they don’t know what actually is best.

For instance, some on the right want to abolish trade protectionism. That’s fine, but lowering trade barriers means New Zealand companies which are less efficient in innovation, design and manufacturing can’t compete against better foreign competition.

On the left, people want environmental regulation and improved labour laws. That's nice too, but it ensures no one builds factories or hires large labour forces in New Zealand. This country may be less polluted, but it's hard to enjoy that when no one can afford food and rent.

Of course, environmentalists and free traders aren’t wrongheaded, I think they are both right. There should be environmental protection because we (well, at least I) live in New Zealand, not China, and there should be free trade policies because I don't depend on manufacturing for a job.

The factory owner in China agrees with me. He wants New Zealand to have strong environmental and labour protection laws so it doesn’t manufacture any goods to compete with him. He also wants free trade so New Zealanders can buy more of his goods.

Am I a traitor because I “side with” someone in China? Is he a traitor because he sides with me? Both positions result in long-term damage for the respective countries. More importantly, notice how completely opposite politics (liberal environmentalism and conservative free trade) lead to the exact same result – goods are made in China, but sold here.

With the TPP, the notion of comparative advantage is being codified into law. Cheap manufacturing centres are shifting around the globe and access to those are being prioritised. Whatever helps manufacturing will be written into laws and whatever hinders it doesn't even get discussed.

III

Consider how the US is by far the world’s largest exporter of agricultural commodities. Agriculture is a winning industry for the US through the entire vertical market: seeds, fertilisers, farming, farm equipment, rail, processing and export.

In New Zealand, lots of people are out of work, but they aren't out of work at agriculture companies. The industry is the last line of defence against a working class depression. About 11% of New Zealand’s workforce is employed directly in agriculture, forestry and the food sector. This doesn't include those working in related industries such as mining (fertiliser), rail, logistics and many others.

This keeps Americans and New Zealanders well-fed. Food is cheap. A dozen eggs costs a few dollars. Meat is insanely cheap. In-season fruits and vegetables cost functionally nothing, and out of season they aren't prohibitively expensive either.

Those aren't the prices in other countries, but that has more to do with tariffs on imports and moronically managed government price control boards which, in an effort to lower the prices of domestically grown food, inadvertently discourage farmers from actually growing any food.

Case in point: corn in 2012. When corn was at its peak, many developing countries forbade their local farmers from exporting corn to the global market, under the theory that the local population could not afford those prices. The hope (and that's all it was) was that by prohibiting the exports, the price of corn would find a lower market price internally rather than externally.

Except those farmers stopped growing corn, because they still had to water, plough, fertilise and harvest, all of which costs money they couldn't recoup. Seeds and fertiliser also needed purchasing on the international market, where the price is set related to the price of the agriculture commodity. So the local population didn't get their food and local farmers were rendered poor.

By banning corn exports governments created a market imbalance which hurt farmers. It also reduced supply on the international market, raising corn prices even further. Nice going.

This happened because those governments didn't want to be out of the agriculture business and turn control and ownership over to farmers. Rather than rioting as consumers of food, farmers rioted over seed prices, wages or percentage. Either way, the attempt to control led to riots.

IV

The TPP reflects an understanding that nations cannot feed themselves.

National borders are based on politics and history, not agricultural efficiency. That's outdated collectivist thinking. TPP is a step closer to everyone on earth being able to feed themselves. If that means Indians buy poultry from Americans who buy rice from the Chinese who buy milk from New Zealand, fantastic, as long as no one is starving.

The alternative is to continue grouping people by nation where political and geographical inefficiencies guarantee some people won't eat, and that everyone else pays more than they should. There’s no need to repeal the free market because the free market works, even in agriculture. No government can control prices. Marijuana is an agricultural product and the most powerful nation on earth has been trying to ban it for a century. Yet there is still a healthy free market for it.

The reality is the concept of “nations” is rapidly approaching the end of its useful life. Why would governments want to protect the New Zealand way of life when the only difference between it and the British or Swiss way of life are the brands of consumer goods? The way of life in Blenheim is more different from the way of life in Auckland than Auckland's is from London's.

The whole concept is becoming silly which is why the TPP is a vision of the inevitable future, not a fix for the past. And the fact that political opinions on international issues like this fall along racial or religious lines reveals the root of the “nation” concept lies in those outmoded ideas.

As those increasingly become the province of a culturally conservative minority, the benefits of "what is best for our country" becomes gradually less obvious and are decided by how a particular person earns money. This anti-trade sentiment is not about democracy and economics, it is about politics. And politics can’t hold back geopolitical realities for ever.

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