TPP promises health care for profits, not patients

Health care will take a large step toward becoming a privilege for those who can afford it rather than a human right under the Trans-Pacific Partnership. Government programs to hold down the cost of medications are targeted for elimination in the TPP, which, if adopted, would grant pharmaceutical companies new powers over health care.

This has implications around the globe, as such rules could become precedents for the Transatlantic Trade and Investment Partnership and Trade In Services Agreement, two other deals being negotiated in secret.

The U.S. Congress’ difficulties in passing “fast-track” authority has thrown a roadblock in the path of the Trans-Pacific Partnership, but by no means has this most audacious corporate power grab been defeated. The latest leak of TPP text, the annex on pharmaceutical products and medical devices published by WikiLeaks earlier this month, makes clear that the U.S. pharmaceutical industry is taking aim at health care systems that put accessibility above corporate profiteering.

Craters of the Moon Geothermal Area, New Zealand (photo by Pseudopanax)

Craters of the Moon Geothermal Area, New Zealand (photo by Pseudopanax)

People in other countries should be extremely wary of any attempt to make their health care systems more like that of the United States. The U.S. health care system is designed to produce profits for pharmaceutical, insurance and other health care industry corporations, not to provide health care. Because of this, health care in the U.S. is by far the world’s most expensive while delivering mediocre results. How expensive? During the decade of 2001 to 2010, U.S. health care spending was $1.15 trillion higher per year than it would have been otherwise.

As always with the TPP, bland-sounding text written in stilted, bureaucratic language contains more danger than initially meets the eye. New Zealand’s Pharmaceutical Management Agency, which makes thousands of medicines, medical devices and related products available at subsidized costs, is a particular target of TPP and the U.S. pharmaceutical lobby because it is an example that drug companies do not wish to be emulated elsewhere. Agencies of other governments will also be under threat.

U.S. government targets New Zealand subsidies

A “Special 301 Report” issued in April 2015 by the U.S. government under the name of U.S. Trade Representative Michael Froman specifically names no less than 17 countries in which it seeks to undo health-system protections. Taking direct aim at New Zealand, the report said:

“With respect to New Zealand, U.S. industry has expressed serious concerns about the policies and operation of New Zealand’s Pharmaceutical Management Agency (PhARMAC), including, among other things, the lack of transparency, fairness, and predictability of the PhARMAC pricing and reimbursement regime, as well as the negative aspects of the overall climate for innovative medicines in New Zealand.” [page 25]

Note that the wishes of “U.S. industry” are presented as the only possible point of view. This is consistent with the fact that 605 corporate lobbyists have access to the TPP text as “advisers,” while the public is shut out. The real issue is that the New Zealand agency holds down the price of medicines, cutting down the industry’s exorbitant profit-gouging. A 2011 submission to the U.S. government by corporate lobby group Pharmaceutical Research and Manufacturers of America, called the New Zealand agency an “egregious example” because of its “focus on driving down costs.”

Professor Jane Kelsey of New Zealand’s University of Auckland, who has closely followed TPP issues for years, leaves little doubt that New Zealanders will pay more for medications if TPP comes into force. In an analysis of the leaked health care annex text, she writes:

“This leaked text shows the [TPP] will severely erode Pharmac’s ability to continue to deliver affordable medicines and medical devices as it has for the past two decades. That will mean fewer medicines are subsidised, or people will pay more as co-payments, or more of the health budget will go to pay for medicines instead of other activities, or the health budget will have to expand beyond the cap. Whatever the outcome, the big global pharmaceutical companies will win, and the poorest and most vulnerable New Zealanders will lose.” [page 2]

But other countries are in the cross hairs

The Pharmaceutical Management Agency estimates it has created savings of more than NZ$5 billion since 2000. The language of the TPP health care annex specifically targets “national health care programs” that make pricing decisions and not direct government procurement of medicines and medical devices. Professor Kelsey sees a nationalist agenda behind this specific wording, writing:

“ ‘National’ is presumably chosen to preclude such programmes that are run by states and provinces, which are politically sensitive in the US and Canada. In effect, the US has excluded almost all its own programmes, while targeting New Zealand, as it did with the [Australia-U.S. Free Trade Agreement].” [page 3]

But U.S. Medicare and Canadian provincial programs will certainly be targets as well. Medicare is prohibited under U.S. law from from negotiating prescription prices with drug makers, and the same language that would undermine New Zealand’s program would block any attempt to allow Medicare, or any other agency, from instituting a similar pricing program. Per-capita spending on drugs is far higher in the U.S. than elsewhere, in part thanks to this prohibition, which would become irreversible under the TPP.

The advocacy group National Committee to Preserve Social Security and Medicare notes:

“The fact that Medicare is forbidden in the law that created Medicare Part D to negotiate lower prices is no accident. The drug lobby worked hard to ensure Medicare wouldn’t be allowed to cut into the profits which would flow to big Pharma thanks to millions of new customers delivered to them by Part D.”

“Part D” is a program that shifted millions of people from Medicaid, which pays much less for drugs, to Medicare, a boon to pharmaceutical companies.

The TPP health care annex also contains language that the annex’s provisions are exempted from the “investor-state dispute mechanism,” the secret tribunals in which corporate lawyers sit as judges when corporations sue governments under so-called “free trade” agreements. The annex’s text is misleading, however. Language elsewhere in the TPP that requires “fair and equitable treatment” of foreign “investors” would still enable challenges to New Zealand’s program or any other. Thus, governments could be sued using provisions other than the annex, Professor Kelsey writes:

“The biggest risk is the obligation to provide ‘fair and equitable treatment’, which investors may claim includes a legitimate expectation that governments will comply with their obligations in making regulatory and administrative decisions. They could launch a claim for many millions of dollars compensation, including expected future profits, if they believed New Zealand’s process in general, or in specific cases, violated their expectations under the Transparency Annex and adversely affected the value or profitability of their investment.” [page 6]

Who gets to “consult”?

Deborah Gleeson, a lecturer at La Trobe University in Australia, points out another danger. A “consultation” mechanism that requires governments to consider corporate objections in pricing decisions could be used to apply pressure to make changes to benefit pharmaceutical and medical-device corporations. She writes:

“The inclusion of the Healthcare Transparency Annex in the TPP serves no useful public interest purpose. It sets a terrible precedent for using regional trade deals to tamper with other countries’ health systems and could circumscribe the options available to developing countries seeking to introduce pharmaceutical coverage programs in future.” [page 2]

As elsewhere in the TPP, the U.S. government is taking the most hard-line approach, and has been opposing efforts to exempt the poorest countries from attacks on health care subsidies. Judit Rius Sanjuan of Médecins Sans Frontières/Doctors Without Borders said:

“If the US proposal is accepted, the poorest countries would be forced to limit access to affordable medicines long before their public health needs are under control. The fact remains that no country, rich or poor, should accept limitations on its sovereign ability to ensure medicine is accessible and affordable for all those who need it.”

It’s not as if pharmaceutical companies are not already hugely profitable. They like to whine that they have high research and development costs, and while that is true, the prices they charge are well beyond reasonable expenses. They enjoy one of the highest, if not the highest, profit margin of any industry — nearly 20 percent for 2013. The world’s 10 largest pharmaceutical corporations racked up a composite US$90 billion in profits for 2013, according to a BBC analysis. As to their expenses, these 10 firms spent far more on sales and marketing than they did on research and development.

“Free trade” agreements have very little to do with trade. The Trans-Pacific Partnership, and the similar Transatlantic Trade and Investment Partnership and the Trade In Services Agreement, are nothing more than initiatives to cement corporate control over all aspects of society, in which governments lock themselves into binding agreements that elevate corporate profits above all other human considerations. Don’t get sick.

Keynesianism will not save the world

Nostalgia for the supposed “golden age” of mid-20th century capitalism carries with it an assumption that we can simply go back to a Keynesian world. Yet this is not a matter of simply of switching horses for nobody decreed that we shall now have neoliberalism and nobody can decree we shall now have Keynesianism.

There are structural reasons for the neoliberal assault. It is the logical development of capitalism; “logical” in the sense that the relentless scramble to survive competition eventually closed the brief window when rising wages were tolerated and government investment encouraged. The Keynesian policies of that time was a product of a specific set of circumstances that no longer exist and can’t be replicated.

Mid-20th century Keynesianism depended on an industrial base and market expansion. A repeat of history isn’t possible because the industrial base of the advanced capitalist countries has been hollowed out, transferred to low-wage developing countries, and there is almost no place remaining to which to expand. Moreover, capitalists who are saved by Keynesian spending programs amass enough power to later impose their preferred neoliberal policies. A vicious circle arises: Persistent unemployment and depressed wages in developed countries and inadequate ability to consume on the part of underpaid workers in developing countries leads to continuing under-consumption, creating pressure for still lower wages by capitalists who can’t sell what they produce and seek to cut costs further because there is no incentive for them to invest in new production.

Counter-intuitively, the turn toward neoliberalism is a also a response to declines in profitability. The rising wages of the post-World War II era were tolerated by capitalists because profits and the potential for further expansion were both high. Pent-up demand across the global North and the massive destruction of capacity in Europe enabled U.S. manufacturers to gain an unprecedented, and unrepeatable, opportunity. Capitalists in Europe and East Asia used state investment to rebuild their economies and regain their competitiveness.

Workforce of the future?

Workforce of the future?

The Keynesian compromise was not necessarily what capitalists would have wanted; it was a pragmatic decision — profits could be maintained through expansion of markets and social peace bought. When markets could no longer be expanded at a rate sufficiently robust to maintain or increase profit margins, however, capitalists ceased tolerating paying increased wages.

Competition is now carried out on a global scale, and where in the past local monopolies tended to cohere within national or regional borders, corporate globalization has put the world well down the road of international monopolization. The same tendency toward a handful of corporations dominating a market is now being reproduced on a larger scale, a single global world system, replicating the processes that previously led to monopolizations within individual countries or regions.

This is part of the “grow or die” dynamic of capitalism. It’s not only grabbing market share, it’s a mad scramble to “innovate” to increase profitability. That can be new production techniques but it is especially cutting costs — in the first place, wage costs. Thus robotics and automation to reduce the number of workers needed, which also “deskill” work to make workers more expendable, putting downward pressure on wages. Work speedups are part of the extraction of more profits, or an attempt to stave off declines in profit rates. And when these are finally insufficient, the work begins to be moved to new locations with lower wage levels and weaker regulation. “Free trade” agreements negotiated in secret that bring corporate wish lists to life both accelerate this tendency and are a product of it.

The capitalist that cuts costs first gains an advantage, but competitors follow, eroding the advantage. So the next step, and the next step, is carried out, intensifying these processes. The personality of the capitalist does not matter; he or she is acting under the rigors of competition. There is no way to put a human face on this or to permanently reverse the logic of capitalist competition. The present era of austerity and neoliberalism is the product of capitalist development. Even if a massive movement becomes sufficiently strong to effect significant reforms, eventually they would be taken back just as the reforms of the mid-20th century have been taken back.

(Mural by Ben Shahn)

(Mural by Ben Shahn)

Not only does the scope for expansion that existed during the Keynesian era no longer exist, the environmental limits and global warming that the world did not then face can no longer be avoided. Humanity is consuming far beyond the world’s replenishment capacity and changing the climate at a faster rate than ever before known. We can’t turn back the clock (and the “golden age” of capitalism wasn’t so golden if you were a woman, a Person of Color or a working person in a developing country) nor is it environmentally sound to ramp up production and consumption on the scale that a global Keynesian initiative would require.

Alas, this is a variation on the theme of “green capitalism” — the idea that the same system that has brought the world to its present state of crisis, a system that requires infinite expansion on a finite planet, that has turned to financialization because speculation is more profitable than production, that treats pollution and waste as external costs to be ignored will somehow now save us. Tinkering with the machinery of capitalism — which is what Keynesian nostalgia amounts to — would ameliorate conditions somewhat for a while, but offer no solution.

The days when it was still possible to believe capitalism can be a progressive force are behind us; the neoliberal assault is the “new normal.” When capitalism has penetrated into every corner of the world, there is nowhere else to expand: The only route for capitalists is to reduce wages and benefits. The only route for the 99 percent is an entirely different world.

The destruction of Jamaica’s economy through austerity

A small country immiserates itself under orders of international lenders; unemployment and poverty rise, the debt burden increases and investment is starved in favor of paying interest on loans. If this sounds familiar, it is, but the country here is Jamaica.

So disastrous has austerity been for Jamaica that its per capita gross domestic product is lower than it was 20 years ago, the worst performance of any country in the Western Hemisphere. In just three years, from the end of 2011 to the end of 2014, real wages have fallen 17 percent and are expected to fall further in 2015, according to the country’s central bank, the Bank of Jamaica.

Such is the magic of austerity, or “structural adjustment programs,” to use the official euphemism of the International Monetary Fund and World Bank.

A new paper from the Center for Economic and Policy Research, “Partners in Austerity: Jamaica, the United States and the International Monetary Fund,” reports that the amount of money Jamaica will use to pay interest (not even the principal) on its debt will be more than four times what it will spend on capital expenditures in 2015 and 2016. And despite a new loan, the country actually paid more to the IMF than it received in disbursements from the IMF during 2014!

Holywell National Park in Jamaica (photo by Wolmadrian)

Holywell National Park in Jamaica (photo by Wolmadrian)

As a further sign of the times, the current pro-austerity government of Jamaica is led by the National People’s Party, the party of former democratic socialist Prime Minister Michael Manley. Prime Minister Manley took office in 1972 on promises to combat social inequality and injustice, and he is credited with enacting legislation intended to establish a national minimum wage, pay equality for women, maternity leave with pay, the right of workers to join trade unions, free education to the university level, and education reforms that enabled students and teachers to be represented on school boards.

He also became an international figure advocating for progressive programs to be implemented elsewhere. Naturally, this did not sit well with the United States government. When Prime Minister Manley stood with Angola against the invasion by the apartheid South African régime and supported Cuban assistance to Angola, he defied a warning from U.S. Secretary of State Henry Kissinger. The CIA presence in the Jamaican capital, Kingston, was doubled.

A Jamaica Observer commentary noted parallels between the overthrow of Salvador Allende in Chile and unrest in Jamaica later in the 1970s:

“The imperialists applied the same ‘successful’ Chile model of destabilisation in Jamaica. They applied the same strategy of ‘making the economy scream,’ creating artificial shortages of basic items, promoting violence, including the savage murder of 150 people in a home for the elderly. Violence erupted in Jamaica as was never seen before in the ‘shock and awe’ tactics mastered by the imperialists whenever they want to create fundamental change in someone else’s country. Manley and Jamaica yielded under the pressure and eventually took the IMF route.”

Replacing human development with austerity

The conservative who took office in 1980 reversed Prime Minister Manley’s programs. By the time that Prime Minister Manley returned to office in 1989, he had moved well to the right under the impact of changing world geopolitical circumstances and the dominance of neoliberal ideology. As an obituary in The Economist dryly put it, “He did as the IMF told him, liberalised foreign exchange and speeded up the privatisation of state enterprises.”

The one-size-fits-all program, a condition of IMF and World Bank loans, includes currency devaluation (making imports more expensive), mass privatization of state assets (usually done at fire-sale prices), cuts to wages and the prioritization of the profits of foreign capital over a country’s own welfare. The 2001 film Life and Debt, produced and directed by Stephanie Black, depicted a country on its knees thanks to “structural adjustment.” The film’s Web site sets up the picture then this way:

“The port of Kingston is lined with high-security factories, made available to foreign garment companies at low rent. These factories are offered with the additional incentive of the foreign companies being allowed to bring in shiploads of material there tax-free, to have them sewn and assembled and then immediately transported out to foreign markets. Over 10,000 women currently work for foreign companies under sub-standard work conditions. The Jamaican government, in order to ensure the employment offered, has agreed to the stipulation that no unionization is permitted in the Free Trade Zones. Previously, when the women have spoken out and attempted to organize to improve their wages and working conditions, they have been fired and their names included on a blacklist ensuring that they never work again.”

The film shows the destruction of Jamaica’s banana industry and the decimation of its milk-production capacity because the country is forced to open itself to unrestricted penetration by multi-national capital, while those corporations continue to receive subsidies provided them by their home governments. The Life and Debt Web site reports:

“In 1992, liberalization policies demanded that the import taxes placed on imported milk solids from Western countries be eliminated and subsidies to the local industry removed. In 1993, one year after liberalization, millions of dollars of unpasteurized local milk had to be dumped, 700 cows were slaughtered pre-maturely and several dairy farmers closed down operations. At present, the industry has sized down nearly 60% and continues to decline. It is unlikely the dairy industry will ever revitalise its growth.”

Poverty and unemployment continue to rise

Austerity continues its course today. The Center for Economic and Policy Research’s “Partners in Austerity” paper, written by Jake Johnston, notes that conditions in Jamaica are worsening — unemployment, at 14.3 percent as 2014 drew to a close, is higher than it was when the global economic crisis broke out in 2008 and the 2012 poverty rate (latest for which statistics are available) of 20 percent is double that of 2007.

Jamaica currently has a debt-to-GDP ratio of 140 percent, an unsustainable level that has risen. Yet it is required as a condition of its latest IMF loan to maintain an unprecedented budget surplus of 7.5 percent. Thus the paper declares the country is undergoing the world’s most severe austerity because this surplus, the highest dictated to any country, must be extracted from working people on top of what is extracted for interest payments.

Jamaica has re-financed its debt twice in the past three years, and its latest IMF loan, agreed to in 2013, comes two years after previous loans were cut off because the government said it would pay promised wage increases to public-sector employees. The debt exchanges lowered the interest rates and extended the payment period, a combination that does not necessarily mean less interest will ultimately be paid out. Without debt relief, there is no exit from this vicious circle. The “Partners in Austerity” paper says:

“Crippled with devastatingly high debt levels and anemic growth for years, Jamaica is certainly in need of financing. But it is also the case that, after billions of dollars of previous World Bank, [Inter-American Development Bank] and IMF loans, much of its debt is actually owed to the very same institutions that are now offering new loans.” [page 2]

Financing schemes, whatever negative consequences it might ultimately have for the debtor country, are lucrative for investment banks. For example, banks underwriting Argentine government bonds earned an estimated US$1 billion in fees between 1991 and 2001, profiting from public debt. Yet the foreign debt continued to grow. In one example during this period, a brief pause in Argentina’s payment schedule was granted in exchange for higher interest payments — Argentina’s debt increased under the deal, but the investment bank that arranged this restructuring, Credit Suisse First Boston, racked up a fee of US$100 million.

Less for public needs

As a result of the new austerity measures, Jamaican government spending on infrastructure has fallen to 2.6 percent of gross domestic product, as opposed to 4.2 percent as recently as 2009. Moreover, the government is required to siphon $4.4 billion over four years from its National Housing Trust to replenish government coffers drained to pay off the loans. The trust, a legacy of Prime Minister Manley, is mandated to provide affordable housing, and yet it is the same National People’s Party that is raiding it under IMF orders.

The country’s economic difficulties would be still more severe if it were not for aid from Venezuela and investments from China, according to “Partners in Austerity.” The paper reports:

“Venezuelan funding comes through the Petrocaribe agreement, where Jamaica receives oil from Venezuela, paying a portion up front and keeping the rest as a long-term loan. Jamaica pays a lower interest on the Petrocaribe funds than it does to its multilateral partners. According to the IMF, net disbursements through Petrocaribe totaled over $1 billion over the last three years, averaging 2.5 percent of GDP per year. … A significant portion of the Petrocaribe funds are being used to refinance domestic debt, in support of the IMF program. Additionally, a portion of funds takes the form of grants and is used for social development, bolstering support to the neediest who have been most impacted by continued austerity. … Without the Venezuelan and Chinese investments staving off recession, it’s likely the IMF program would fail due to serious public opposition.” [page 13]

It is possible to provide aid that actually assists development rather than as a cover for exploitation, as Venezuela demonstrates.

Why do disastrous “structural adjustment” programs continue to be foisted on countries around the world despite the results? Undoubtedly many who prescribe “structural adjustment” continue to believe in neoliberalism in the face of all evidence. But this ideology doesn’t fall out of the sky; it is an ideology in service of the biggest industrialists and financiers, presenting the inequality and excess of capitalism as natural as the tides. But anything made by humans can be unmade by humans.

Fossil fuel subsidies total trillions of dollars per year

Most of the cost of fossil fuels is hidden because environmental harms such as pollution and global warming are kept outside ordinary economic calculation. Energy companies externalize these costs (among others) — that is, they don’t pay them. The public does.

And we do, to a remarkable extent. When we think of corporate subsidies, we naturally think of taxes not paid, real estate giveaways and other ways of taking money from the public and shoveling it into corporate coffers. Then there are the environmental costs, something prominent if we are talking about fossil fuels. These, too, should be thought of as subsidies since these constitute costs paid by the public. A first attempt at seriously quantifying the magnitude of the totality of subsidies given to fossil fuels leads to a conclusion that the total for 2014 was US$5.6 trillion, a total expected to be matched in 2015.

Yes, you read that correctly: 5.6 trillion dollars. As in 5.6 million million. Or, to put it another way, more than seven percent of gross world product.

A lot of money.

These calculations are, interestingly, the product of an International Monetary Fund working paper, “How Large Are Global Energy Subsidies?” The paper, prepared by economists David Coady, Ian Parry, Louis Sears and Baoping Shang, sought to provide a fuller accounting of the costs of the environmental damages caused by fossil fuels, and found that those costs greatly exceed direct corporate subsidies and below-cost consumer pricing. The authors foresee huge benefits should all fossil-fuel subsidies be eliminated. They write:

“Eliminating post-tax subsidies in 2015 could raise government revenue by $2.9 trillion (3.6 percent of global GDP), cut global CO₂ emissions by more than 20 percent, and cut pre-mature air pollution deaths by more than half. After allowing for the higher energy costs faced by consumers, this action would raise global economic welfare by $1.8 trillion (2.2 percent of global GDP).” [page 7]

Grangemouth oil refinery at sunset (photo by Steve Garvie, Dunfermline, Fife, Scotland)

Grangemouth oil refinery at sunset (photo by Steve Garvie, Dunfermline, Fife, Scotland)

As dramatic as the preceding paragraph is, the International Monetary Fund is not suddenly questioning capitalism. The paper carries the caveat that it is “research in progress” and does not represent the views of the IMF. Nor does the paper devote so much as a single word questioning the economic system that has produced such astounding distortions, not to mention the hideous social effects of massive inequality and power imbalances. Nonetheless, it does present an implicit challenge to business as usual and helps conceptualize the massive costs of profligate energy usage. The paper lays out in plain language the environmental, fiscal, economic and social consequences of energy subsidies, stating that energy subsidies [page 5]:

  • Damage the environment, causing more premature deaths through local air pollution, exacerbating congestion and other adverse side effects of vehicle use, and increasing atmospheric greenhouse-gas concentrations.
  • Impose large fiscal costs, which need to be financed by some combination of higher public debt, higher tax burdens and crowding out potentially productive public spending (for example, on health, education and infrastructure).
  • Discourage needed investments in energy efficiency, renewables and energy infrastructure, and increase the vulnerability of countries to volatile international energy prices.
  • Are a highly inefficient way to provide support to low-income households since most of the benefits from energy subsidies are typically captured by rich households.

Paying for air pollution and global warming

The biggest subsidized cost is air pollution, which the paper’s authors estimate accounts for 46 percent of fossil fuel subsidies. Global warming is the next biggest subsidy, at 22 percent, with corporate and consumer subsidies, foregone taxes and other items accounting for smaller amounts. From this calculation, the authors argue that local benefits from ending subsidies are high enough that doing so should be done in the absence of action in other countries. They write:

“An important point, therefore, is that most (over three-fourths) of the underpricing of energy is due to domestic distortions — pre-tax subsidies and domestic externalities — rather than to global distortions (climate change). The crucial implication of this is that energy pricing reform is largely in countries’ own domestic interest and therefore is beneficial even in the absence of globally coordinated action.” [page 21]

When the costs are broken down by forms of energy, it is no surprise that coal is the most subsidized form. Coal subsidies alone total almost four percent of global GDP, according to the paper, with “no country … impos[ing] meaningful taxes on coal use from an environmental perspective.” Petroleum is also heavily subsidized.

If we could at a stroke eliminate all forms of fossil fuel subsidies, the gains would be significant. The authors believe that global revenue gains would be $2.9 trillion for 2015, a total less than the current cost of subsidies because it accounts for a reduction in energy usage from higher prices and an assumption that some tax money would be used for emission-control technologies. The authors also calculate a $1.8 trillion net gain in social welfare, a gain that could be increased were this gain used to invest in education, health and other public benefits.

So if so much good can come from rationalizing the fossil fuel industry, why does this sound like an impossible dream? Unfortunately, in real world of capitalism, there is very little to prevent corporations from externalizing their costs.

With increased corporate globalization, capital can pick up and move at will, inducing political office holders to hand out subsidies, waive taxes and refuse to enforce safety and environmental laws. They do this because the alternative is for corporations to move elsewhere in a never-ending search for the lowest wages and weakest regulations with an accompanying disappearance of jobs. And this globalization, fueled by “free trade” agreements that arise from relentless competition, aggravates global warming as components are shipped around the world for assembly into finished products that are shipped back, greatly adding to the environmental damage imposed by transportation.

Environment doesn’t count in orthodox economics

Not only is the environment an externality that corporations do not have to account for, thereby dumping the costs on to the public, but orthodox economics doesn’t account for the environment, other than as a source of resources to exploit. The same capitalist market that is nothing more than the aggregate interests of the largest and most powerful industrialists and financiers is supposed to “solve” environmental problems. A Monthly Review article by sociologists Richard York, Brett Clark and John Bellamy Foster, “Capitalism in Wonderland,” puts this contradiction in stark perspective:

“Mainstream economists are trained in the promotion of private profits as the singular ‘bottom line’ of society, even at the expense of larger issues of human welfare and the environment. The market rules over all, even nature. For Milton Friedman the environment was not a problem since the answer was simple and straightforward. As he put it: ‘ecological values can find their natural space in the market, like any other consumer demand.’ ” [May 2009, page 4]

From that perspective, it follows that present-day environmental damage is of minimal concern to capital and future damage of no concern. The industrialists and financiers who reap billions today won’t necessarily be around when the environmental price becomes too high to avoid. The “Capitalism in Wonderland” authors write:

“[T]he ideology embedded in orthodox neoclassical economics [is] a field which regularly presents itself as using objective, even naturalistic, methods for modeling the economy. However, past all of the equations and technical jargon, the dominant economic paradigm is built on a value system that prizes capital accumulation in the short-term, while de-valuing everything else in the present and everything altogether in the future. …

[H]uman life in effect is worth only what each person contributes to the economy as measured in monetary terms. So, if global warming increases mortality in Bangladesh, which it appears likely that it will, this is only reflected in economic models to the extent that the deaths of Bengalis hurt the economy. Since Bangladesh is very poor, [orthodox] economic models … would not estimate it to be worthwhile to prevent deaths there since these losses would show up as minuscule in the measurements. … [E]thical concerns about the intrinsic value of human life and of the lives of other creatures are completely invisible in standard economic models. Increasing human mortality and accelerating the rate of extinctions are to most economists only problems if they undermine the ‘bottom line.’ In other respects they are invisible: as is the natural world as a whole.” [pages 9-10]

Tinkering versus analyzing the structure

The International Monetary Fund paper does offer a brief discussion of social disruptions should fossil-fuel subsidies be removed, suggesting a need for “transitory” programs such as worker retraining and protection of vulnerable groups. [page 31] But their proposed program centers on environmental taxes as a way to align fossil fuels with their costs to make energy prices “efficient.” Certainly, polluters and causers of global warming should be required to absorb those costs. But given that market forces tilt overwhelmingly in favor of large polluters, the fact of massive imbalances in power, and that governments have handcuffed themselves in terms of confronting capital (a trend itself a product of market forces), it is unrealistic to believe such a program is currently politically feasible.

The disruptions to a capitalist economy with a forced large reduction in energy usage are also significant. It is not only that a capitalist economy can’t function without growing (and a growing economy uses more, not less, energy, especially because of ever more complex machinery and lengthening supply chains), but that a capitalist economy doesn’t offer millions of workers who lose their jobs new work in new industries. Every incentive under capitalism is for more energy usage; thus “the market” will object to dramatically higher energy prices, no matter how rational those higher prices.

Ultimately, the authors of the IMF paper are trapped in the same inability to imagine anything outside the present capitalist system, similar to those who claim that stopping global warming will be virtually cost-free. Their paper has done a necessary service by providing the first real quantification of the gigantic costs of fossil fuels and the massive subsidies they receive. Subsidies for renewable energy, in comparison, are minuscule. The massive subsidies for nuclear energy, which is a complete failure on any rational economic basis before we even get to the physical dangers, demonstrate that nuclear is no solution, either. These should also be eliminated.

The size of the social movement that would be necessary to eliminate all these subsidies would be enormous. Why should such a movement ask for mere reforms that fall well short of what is necessary, worthy as they would be. Energy is too important not to be put in public hands. The trillions of dollars of fossil fuel subsidies are the logical product of allowing private interests to control critical resources for private profit and leaving “the market” to dictate outcomes.

We can’t make what is unsustainable sustainable through a better tax policy. That the enormous scale of reform proposed by the IMF paper still falls far short of what is actually necessary to create a sustainable economy demonstrates the severity of the crises we are only beginning to face.

Speculation for its own sake pays billions

The absurdity of the tsunami of money crammed into speculators’ bank accounts is illustrated in the fact that the 25 highest-paid hedge-fund managers vacuumed up a collective $11.6 billion in 2014 — and that was considered to be a bad year for them by the business press. Stratospheric though that total is, it is barely more than half of what the top 25 took in a year earlier.

All together now: Awwww. Yes, somehow these speculators will have to get by on a paltry average of $467 million.

Institutional Investor’s Alpha magazine — one can hear their editors’ teeth gnashing at their heroes’ bitter fate — lamented that 2014 was the worst year since the 2008 stock meltdown for hedge-fund managers in announcing its “Rich List.”

City of London expanding (Photo by Will Fox)

City of London expanding (Photo by Will Fox)

Nonetheless, some observers might believe that these moguls earned somebody serious money to collect such enormous paychecks. But that wasn’t necessarily the case. For the sixth consecutive year, hedge funds fell short of the average stock-market performance, returning a composite average of three percent. Perhaps the 25 hedge-fund managers who hauled in the most money for themselves were better? Not really. Alpha reports that the hedge funds of at least 12 of the individuals on its top 25 list posted gains below the 2014 average.

The S&P 500 Index, the broadest measure of U.S. stock markets, gained 11.4 percent in 2014 and the benchmark Dow Jones Industrial Average gained 7.5 percent. So somebody throwing darts, or parking their money in a passive fund that tracks a major index, would have done as well or better in many cases. Despite their subpar performances, hedge-fund managers continue to receive an annual fee of two percent of the value of the total assets under management and 20 percent of any profits. The fee gets paid even when the fund loses money.

So it’s heads, Wall Street wins and tails, Wall Street wins. And hedge funders pay less in taxes. Much of their income is classified as capital gains under U.S. tax law, and the tax rate on capital gains are much less than on regular income.

Imposing austerity on others is a job never finished

What is that hedge-fund managers do to “earn” such enormous sums of money? Let us take a look. The top person on the 2014 list is Kenneth Griffin of Citadel Capital, who hauled in $1.3 billion for the year. Citadel makes lots of money through computerized high-speed trading — buying and selling securities in microseconds to take advantage of momentary price changes. Apparently allowing computers to do the work leaves Mr. Griffin with time to pursue his hobby of widening inequality still more.

Not content with the fact that his 2014 earnings are equal to the combined median wage of 26,000 U.S. workers, he contributed $10 million to an Illinois campaign that seeks to cut workers’-compensation benefits, make it illegal for employees to contribute to political campaigns through their union, abolish prevailing-wage laws and render union dues collections much more difficult. He’s also contributed millions to the Koch brothers’ war chest. Mr. Griffin’s firm also owns a stake in ServiceMaster, a company that profits from the privatization of public services by firing employees and rehiring them at lower wages.

A Huffington Post article, noting that Mr. Griffin is also a major donor to Chicago Mayor Rahm Emanuel, nonetheless reports that he believes Mayor 1% is too soft on public employees despite the mayor’s attacks on pensions and teachers. The article said:

“Griffin, alone, could fund all of Chicago’s pension liabilities for [2014] (estimated at $692 million) and still have $208 million [from his 2013 income] left to scrap by on. Yet Griffin is terribly worried that the mayor is being too soft on retirees. He castigated Chicago and Illinois politicians for not making ‘tough choices,’ blaming Democrats who control city, county and state government for not fixing pension, education and crime problems.”

Second on the hedge-fund list is James Simons of Renaissance Technologies. Although Alpha reported that he no longer runs his firm on a day-to-day basis and “spends a good chunk of the year on his 226-foot yacht,” Mr. Simons hauled in $1.2 billion in 2014. His firm employs physicists, others scientists and mathematicians to develop models for its computerized trading. Alas, speculation pays much more than scientific research that might benefit humanity.

Buy, strip, profit, repeat

Third on the list is Raymond Dalio of Bridgewater Associates, who took in $1.1 billion in 2014. He specializes in bond and currency speculation. Fourth on the list is William Ackman of Pershing Square Capital Management, who is what the corporate media likes to call an “activist investor.” In other words, someone who buys stock in a company and immediately demands massive cuts so he can make a large short-term profit is an “activist investor” because he does this more loudly than others.

Mr. Ackman hauled in $950 million in 2014. Forbes magazine, as consistent a cheerleader for the corporate overclass as any institution, summed him up this way last year:

“[H]edge fund billionaire William Ackman has tried to destroy a company that sells diet shakes, played a prominent role in nearly driving a 112-year-old retailer into the ground [and] helped launch a hostile takeover of a pharmaceutical company in a way that the Securities & Exchange Commission is reportedly examining for potential violations of insider trading law. Now, Ackman is suing the U.S. government.”

He is suing the U.S. government because it is taking the profits from federal housing-loan programs Fannie Mae and Freddie Mac to recoup money used to bail them out rather than handing the profits over to speculators such as himself. Never mind that the government spent hundreds of billions of dollars bailing out speculators. Among his most recent exploits, he was involved in two separate deals that would have moved a U.S. corporation’s headquarters to Canada so that it could avoid paying taxes, savings that would be earmarked for speculators’ wallets.

No summation of hedge-fund greed would be complete without a mention of Paul Singer, another entrant on the rich list. The vulture capitalist specializes in buying debt at pennies on the dollar and then demands to be paid the full face value, regardless of human cost. Among other exploits, he has seized an Argentine naval ship, demanded $400 million from the Republic of the Congo for bonds he bought for less than $10 million and compelled the government of Peru to pay him a 400 percent profit on the debt of two banks he bought four years earlier.

The outsized renumeration of financiers is due to the disproportionate size of the financial industry. A rough calculation estimates that in 11 business days speculators trade instruments and contracts with a value greater than all the products and services produced by the entire world in one year. In other words, a year’s worth of gross world product is traded in about two weeks on the world’s stock, bond, derivative, futures and foreign-exchange markets.

Such frenzied trading, often involving high-speed computers and ever more exotic betting, has little to do with actual economic needs and much to do with extracting money by ever more imaginative needs. Such is a system that values financial engineering more than human life.

Low wages don’t come cheap

When we think of the externalization of costs by capitalist enterprises, we think of environmental damage or infrastructure. But low wages are another burden foisted onto society, costing the public more than $150 billion annually in the United States.

So widespread have low wages become that a majority of federal and state money going toward public-assistance programs are paid to people who are part of a working family. This amounts to one more subsidy for U.S. business, already the recipients of massive largesse.

When it is impossible to live on meager wages — a position tens of millions of U.S. families find themselves in — there is no alternative to turning to public-assistance programs. The scale of this was calculated by researchers at the University of California Berkeley Center for Labor Research and Education, and released this month in their paper, “The High Public Cost of Low Wages.”

(Graphic by the Economic Policy Institute)

(Graphic by the Economic Policy Institute)

The authors of the report, Ken Jacobs, Ian Perry and Jenifer MacGillvary, examined the cost to the federal government and the 50 state governments for four programs — the Medicaid and Children’s Health Insurance Program, Temporary Aid to Needy Families, the Earned Income Tax Credit and the food stamps program (known formally as the Supplemental Nutrition Assistance Program, or SNAP). Almost three-quarters of those enrolling in at least one of these programs is a member of a working family, defined as a family with at least one member who works at least 10 hours a week for at least 27 weeks in a year.

Overall, $153 billion from these four programs goes to working families, representing 56 percent of total public-assistance spending by the federal and state governments.

This massive amount of public money represents a subsidy of corporations. The less they spend on wages and benefits, the more goes to profits, which are ultimately stuffed into the bloated bank accounts of corporate executives and financiers.

Fast-food workers, child care workers and home care workers are heavily represented among those who depend on public assistance to supplement their subpar wages — about half of all the employees in these three industries. That is no surprise. What might be surprising is the increasing prevalence of this in “white-collar” fields. Twenty-five percent of adjunct college professors receive public assistance! So much for “lack of education” as the cause of stagnant or falling wages, as right-wing apologists for growing inequality like to claim.

The Berkeley Center report broke down the public-assistance money by state, which reveals some interesting statistics. The state with the highest share of public-assistance money going to members of working families is none other than Texas. A full two-thirds of federal and state public-assistance money in that state goes to working families. Something to keep in mind next time you hear former Texas Governor Rick Perry, a past and possibly future presidential candidate, drone on about Texas creating more jobs than any other state. The official web site of the current Texas governor, tea party extremist Greg Abbott, brags about the state’s alleged plentiful “good jobs for hard-working Texans,” declaring that “It’s not bragging if it’s true.”

In reality, if so many Texans rely on food stamps and other government programs to survive, not too many of those jobs pay well. The tax system there is also regressive — Texas has no state income tax, but it has high sales and property taxes structured to disproportionately place the burden of taxes on the poor and middle class. The top 1 percent of Texans pay an effective tax rate of 3.2 percent, while a middle-income Texan pays taxes at a higher rate than a middle-income Californian, according to a Washington Monthly analysis.

(Graphic by Economic Policy Institute)

(Graphic by Economic Policy Institute)

It’s not only Texas, however, even if it is done on a larger scale there. Higher-paying jobs have been disappearing in the U.S., with the most growth since 2010 in low-wage jobs paying less than $13.33 an hour. At the same time, the number of people enduring long-term unemployment because of the weak economy has sharply risen in the U.S., Canada, European Union, Australia and New Zealand.

Given the increased harshness of employment practices, more families may be needing public assistance. A particularly brutal practice, “on-time scheduling,” has become so pervasive that New York State Attorney General Eric Schneiderman has launched an investigation into 13 retailers. This is a practice in which workers are told what shift to work with less than one day’s notice, making it impossible for them to make arrangements for personal and family needs.

A measure of how far backwards we have traveled is that the Obama administration is offering U.S. minimum-wage workers two-thirds of what was demanded 50 years ago. One of the demands of the March on Washington in 1963 was a minimum wage of $2 an hour. Adjusted for inflation, $2 an hour in 1963 would be worth $15.34 today. Yet the federal minimum wage in the United States is $7.25 an hour. So the $15 an hour campaign that has rapidly grown over the past year is agitating for nothing outlandish. Nor will $15 an hour for someone who supports a family lead to a life in luxury.

Raises most certainly can be afforded. U.S. corporations were sitting on about $5 trillion of cash as of 2011, a figure that undoubtedly has since grown. The massive hoards of cash, bloated salaries and bonuses for executives and financiers, and the starvation wages endured by so many all come with a cost — a cost borne by working people. There are not only no free lunches for working people, you are paying for the lunches and dinners of the wealthy besides your own lunch.

Trans-Pacific Partnership says if a corporation claims it’s true, it must be true

Corporations are elevated to the same status as national governments under “free trade” agreements, but if the Trans-Pacific Partnership is approved, corporations will be elevated above governments. New language inserted into the text of the TPP declares that, in certain circumstances, arbitrators hearing a suit by a corporation must assume the corporation’s claim is true.

We know this thanks to WikiLeaks, which has published another section of the TPP, the investment chapter that spells out the enforcement mechanism — the muscle — that will codify corporate dominance over democratic processes and governments. There is this tidbit, found within Article II.22 (“conduct of the arbitration”), which specifies what an arbitration panel is to do if a government objects that a complaint brought by a corporation does not qualify for a hearing:

“In deciding an objection under this paragraph, the tribunal shall assume to be true the claimant’s factual allegations in support of any claim in the notice of arbitration (or any amendment thereof).”

Thus, there is no basis on which a government can block the most frivolous of claims. TPP apologists might object that only a “technical” issue is being addressed in the above passage. But given the context, it is not a large step to go from a presumption that a corporation’s argument is true on its face for eligibility to be heard to presumptions in the hearing itself. The corporate lawyers who double as the arbitrators in the secret, unappealable tribunals in which cases are adjudicated under “free trade” agreements have interpreted the text of past agreements to strike down safety, health and environmental laws, and that “investors” should be guaranteed the highest possible profit. These are rulings that governments obligate themselves to carry out.

Protest at TPP negotiations in New York on January 26. (Photo by Cindy Trinh; puppet by Elliot Crown)

Protest at TPP negotiations in New York on January 26. (Photo by Cindy Trinh; puppet by Elliot Crown)

All the elements of agreements like the North American Free Trade Agreement and the many bilateral “free trade” agreements that mandate arbitration in secret, unappealable tribunals are in the Trans-Pacific Partnership. In fact, TPP mandates the same arbitration body, the International Centre for Settlement of Investor Disputes — an arm of the World Bank. ICSID is no friend of regulation.

No limitations on eligibility to sue for ‘lost profits’

Who will be eligible to sue under TPP? No, not the governments that wish to sign the agreement. Only “investors” are eligible to sue. There is no limitation on who or what is an “investor” — any person or entity that has “an expectation of gain or profit” in any form of participation in any enterprise, holds any financial instrument, possess any intellectual property right or has a “tangible or intangible” right in any “movable or immovable property,” even liens, is qualified to sue. Any decision, regulation or law by any level of government can be challenged, regardless of the democratic procedures used to promulgate it.

The real-world effect is that any corporate entity can move to overturn any government action, simply on the basis that its “right” to the maximum possible profit, regardless of cost to a community, has been “breached.”

Worse still, the expansive language of the TPP means that even more corporations will be eligible to sue governments, a Public Citizen analysis of the leaked investment chapter reports:

“Existing ISDS-enforced agreements of … developed TPP countries have been almost exclusively with developing countries whose firms have few investments in the developed nations. However, the enactment of the leaked chapter would dramatically expand each TPP government’s ISDS liability. The TPP would newly empower about 9,000 foreign-owned firms in the United States to launch ISDS cases against the U.S. government, while empowering more than 18,000 additional U.S.-owned firms to launch ISDS cases against other signatory governments.”

Corporations not based in a TPP country but which operate in a TPP country, even when they have no real investment in a TPP country, will be eligible to sue. (The “ISDS” in the above passage refers to “investor-state dispute settlement,” the technical term used to refer to rules that mandate the use of the secret arbitration bodies.) Additionally, previous language that purported to provide support for health, safety and environmental rules is missing from the latest text, according to Public Citizen.

That does not mean that the boilerplate language in past “free trade” deals concerning health, safety and the environment has any meaning. The most recent ruling on a complaint brought under the North American Free Trade Agreement, handed down on March 17, put Canada and the province of Nova Scotia on the hook for a minimum of C$300 million because a U.S. concrete company was denied a permit to turn an environmentally sensitive beach into a quarry.

Health and environment laws swept away

The list of decisions (which become precedents for future disputes) under NAFTA alone is infamous. Here is a sampling:

  • Ethyl Corporation sued Canada for $250 million because of a ban on a gasoline additive known as MMT, a chemical long believed to be dangerous to health. Ethyl claimed the Canadian ban was an “expropriation” of its “investment” and a violation of the principal of “equal treatment” of foreign capital even though had a Canadian producer of MMT existed, it would have been subject to the same standard. Canada settled to avoid a total defeat, paying Ethyl a smaller amount and reversing its ban.
  • A U.S. company, Metalclad, sued Mexico because a city government refused to grant it a permit for a waste dump (similarly denied to a Mexican company that previously wanted to use the site). Mexico lost, and had to grant the permit despite the environmental dangers and pay $15.6 million to Metalclad.
  • Another U.S. company, S.D. Myers, sued Canada because of a ban on the transportation of PCBs that conformed with both a Canada-United States and a multi-lateral environmental treaty. A tribunal ordered Canada to pay $5.6 million and reverse the ban, negating the two environmental treaties and ignoring the fact that PCBs are known carcinogens banned since 1979 in the U.S. The tribunal ruled that, when formulating an environmental rule, a government “is obliged to adopt the alternative that is most consistent with open trade.” So much for democracy!

In another infamous case, the tobacco company Philip Morris moved some of its assets to Hong Kong so it could declare itself a Hong Kong company eligible to sue Australia under the Australia-Hong Kong bilateral investment treaty, which, unlike some Australian trade pacts, allows corporations to sue one or the other government. Philip Morris seeks to overturn Australia’s rules limiting tobacco advertising and packaging, enacted in the interests of public health, which were found to be legal by Australia’s supreme court, the High Court. (This case is still pending.)

That case is shocking enough in itself, but there is an extra twist — the lawyer for Philip Morris, David A.R. Williams, is one of the judges appointed by New Zealand to the arbitration body hearing the case, ICSID. That is far from an isolated case as many ICSID judges are lawyers who specialize in representing multi-national corporations in front of these arbitration bodies. In another example, a judge ruled in favor of Vivendi Universal against Argentina in a failed water-privatization scheme, and her ruling was allowed to stand even though the judge served on the board of a bank that was a major investor in Vivendi. The TPP is completely silent on conflicts of interest. The leaked TPP chapter reveals for the first time that ICSID would hear disputes brought under TPP.

You won’t be able to buy local anymore

Those corporate lawyers, and especially the multi-national capital they represent, have had their wish lists brought to life in the leaked TPP text. No capital controls of any kind are allowed, “buy local” rules would be prohibited, “investors” can sue for large damages even when their claim has been covered by insurance, and the arbitration body hearing a case should apply “customary international law.”

That last item may sound bland, but in practice it means that rulings declaring reasonable laws and regulations to be illegal impediments to corporate profits are precedents that must be followed. Consider, for example, a London Court of International Arbitration panel, ruling in July 2005 for a unit of the Occidental Petroleum Corp. in a case heard under the U.S.-Ecuador bilateral investment treaty, which declared that any change in business conditions constitutes a violation of “investor rights.” If such a ruling is accepted as precedent, any attempt at regulation is at risk of being ruled an illegal “expropriation” of future profits.

The TPP, along with the Transatlantic Trade and Investment Partnership and the Trade In Services Agreement, are not done deals. The TPP is much closer to the conclusion of negotiations than the others, but can be stopped. Grassroots opposition across the 12 countries currently engaged in TPP talks continues. Militant opposition is critical in all countries, but perhaps the single most important factor at the moment is what the U.S. Congress will do.

Reports consistently say that several governments will not commit themselves to passing TPP until the U.S. Congress passes what it is commonly called “fast-track authority.” Officially known as “trade promotion authority,” fast-track is a method of sneaking unpopular bills into law. Under fast-track, Congress has a limited time to debate a bill and can not make amendments or change so much as a comma, only vote yes or no. The Obama administration is pushing hard for Congress to re-authorize fast-track because that is the only way the TPP, which can not stand the light of day, can be passed into law.

Because of opposition from most Democrats and some tea party Republicans, fast-track passage is not assured. The introduction of fast-track into the Senate depends on a Democrat from Oregon, Ron Wyden, who is being heavily pressured by his constituents not to introduce a fast-track bill he has been negotiating with a conservative Republican from Utah, Orrin Hatch. One of several groups pressuring Senator Wyden, the Oregon Fair Trade Campaign, has rented a recreational vehicle to shadow him across the state.

Where ever you are, voicing your opposition to the TPP to your elected officials, and joining a local or national group in opposition, is critical. The U.S. government is pushing the hardest, and attempting to insert the most draconian rules, to cement the control of U.S.-based multi-national corporations over the world’s resources and markets, and the other governments are willing to throw overboard what sovereignty remains to them so that their multi-national corporations get a slice of the pie.

Allowing the TPP to pass means nothing less than an end to democracy and a world where corporate power and money becomes more dominant than ever, where corporate profits are codified in law to be above all other human concerns.