Putting the TPP on the right track — Simon Johnson and Rep. Sander Levin

MIT Sloan Prof. Simon Johnson

From Politico Magazine

The Trans-Pacific Partnership is a major potential trade agreement between the United States and 11 countries at very different levels of economic development, including Japan, Mexico and Vietnam. Will the agreement boost U.S. growth, address wage stagnation, help our strategic partners and create legitimate rules for international trade in the 21st century? The answer hangs in the balance.

With negotiations reported to be entering the final stages, it is critical that Congress focus at this point not on how to “fast track” approval of an agreement — through passing Trade Promotion Authority — but on making sure the TPP itself is on the right track.

There is a real choice to be made between two different approaches to international trade.

The first approach is based on the unbridled free-market view that more trade is necessarily better. The focus here is on eliminating regulatory barriers to exports and foreign investment. It is claimed that market forces will not just increase economic efficiency, but also improve governance in developing countries. Similarly, trade imbalances between nations will work themselves out.

The second approach is that rules matter — so the details of labor standards, investor protection, intellectual property rights, permissible subsidies and environmental safeguards help determine who gains from trade. This approach recognizes that, without good rules, higher potential profits associated with new export and investment opportunities increase the temptation to pollute the environment and suppress worker rights.

History is on the side of this second view. In “Why Nations Fail,” Daron Acemoglu and James Robinson document case after case in which growth falters and countries collapse because the political regime was oppressive and corrupt. There are precisely no cases in which these underlying issues were fixed simply by being able to increase exports.

Read the full post at Politico Magazine.

Simon Johnson is the Ronald A. Kurtz (1954) Professor of Entrepreneurship at the MIT Sloan School of Management.  

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