Tuesday, 25 October 2016

Plucky Wallonia exposes the lie at the heart of EU trade policy

Welcome to Wallonia....
Policy strives to achieve the things that it measures, and nothing is more fervently measured in modern economies than GDP. If increasing GDP is the policy objective, then encouraging trade - any sort of trade - will generally help. GDP measures money transactions, so the more times a product and its components are traded on their journey from producer to consumer, the more GDP is recorded.

That, in summary, is the basis for TTIP, TPP, TISA and, currently, CETA, the Comprehensive Economic and Trade Agreement negotiated between the EU and Canada, which the regional parliament of Wallonia, in Belgium, is refusing to pass. Trade agreements increase activity in global markets, which increases GDP. The size of that increase is much debated, but even a tiny percentage of GDP is a big number in pounds or Euros, and makes for good headlines.

The extent to which trade agreements actually increase GDP is not, however, the real issue. The lie at the heart of trade policy is much bigger than that. The lie is that increasing GDP makes people wealthier, when it can easily have the opposite effect. As economies grow, what matters most is how that additional wealth is distributed. If most of it goes to the already-wealthy, then the rest of society becomes relatively poorer. Relative poverty is real poverty: when the rich people who hold assets such as shares and property get even richer, then housing, energy and basic services become more expensive and poorer people can buy fewer of them.

Both statistics and human experience bear out this point. Statistics show that median US incomes have not risen since the 1960s, although GDP has more than doubled. Experience in the UK is that while the UK economy is generating plenty of jobs, more and more of these do not pay enough to live on. Poorly paid, insecure jobs generate GDP and make employers richer, but they leave employees with insufficient wealth to live.

The connection between these outcomes and global free trade has to do with the way in which the nature of trade has changed over the years. Originally its purpose was to exchange things that one could produce for things that one couldn't. This could be driven by variable factors such as climate, environment, natural resources or the availability of expertise and technology. Thousands of years ago the people of Cornwall were exporting tin on this basis, and importing fine quality manufactured goods such as pottery and silverware.

These days, however, trade is increasingly driven not by need or availability, but by price. The technological capacity of Europe and Canada are similar, and their climates are comparable, too. There is not a great deal that either can produce that the other cannot. There is no reason to suppose, for example, that Europe cannot produce as much pork as it can eat; and yet the people of Wallonia are worried about their pig farmers, because CETA will allow unrestricted E.U. access for 80,000 tonnes of Canadian pork.

The only rationale for shipping 80,000 tonnes of pork thousands of miles across the Atlantic is that, even after the cost of that shipping is taken into account, it will still be cheaper. Which means that its cost of production in Canada is significantly lower, presumably because it is produced on an industrial scale. And cheaper pork is, apparently, good for European consumers, who are feeling the pinch because their own incomes are being squeezed.

And this is where the real problem with GDP-driven trade policy becomes apparent. Not only does GDP fail to take account of the distribution of wealth, but it also takes no account of the qualitative aspects of people's lives that cannot be measured in money terms. In 2013 the UK government released research findings showing that, although GDP had more than doubled in the previous forty years, people's life satisfaction had scarcely changed at all. Living in a country that was twice as rich did not make people happier, because the way in which that "twice as rich" was measured did not capture the things that really mattered to them.

Raising pigs on smaller farms in Wallonia may be more expensive in crude money terms, but it may also be conducive to a higher quality of life by preserving social and cultural networks in local communities and protecting the environment. These things have value. They can make or break the quality of people's lives, and its sustainability, and yet they have no place in the calculation of the benefits and losses that arise from unrestricted global trade.

People across Europe are waking up to the fact that economic "growth" as measured by GDP does not make them wealthier in terms that they recognise. Instead, it is disrupting their communities, causing people to trek thousands of miles in search of low-paid, insecure work; it is raising the cost of housing and energy; it is pouring money into the coffers of already-wealthy investors; it is giving multi-national companies more and more power over people's lives; it is depleting public services, as taxes on the wealthy are lowered to encourage investment; it is degrading the environment - not least with the CO2 emissions that will arise from shipping all that pork across the Atlantic.

Plucky Wallonians have finally said "non" to this madness. Instead of trying to strong-arm them into changing their minds, the Eurocracy would do well to learn from their good sense.

Picture by Stephane.dohet (Own work) [Public domain], via Wikimedia Commons