USTR, INC.

U.S. Trade Representative Mike Froman  had a phone call on Monday with what his office called a "broad cross section of stakeholders" to review the state of the negotiations for concluding the Trans Pacific Partnership (TPP) free trade agreement.

How do you like that wording -- "stakeholders"?

For me, it raises a lot of questions about what exactly is going on in the trade representative's office. Over the past forty years there has been a great debate in business schools and corporate circles over the pros and cons of "stakeholder" and "shareholder" philosophies of corporate management. In post World War II America, the ruling doctrine was the stakeholder philosophy. The Business Roundtable in those days issued a mission statement for CEOs that said they should be primarily concerned with satisfying responsibilities to their customers, employees, the communities within which they operated, the nation, and finally the shareholders.

That view began to change in the 1980s in favor of the notion that the main objective of the corporate CEO is to take care of the shareholders and to do so by maximizing earnings per share. In the late 1990s, the Business Roundtable changed its guidance and advised CEOs to adopt the shareholder first doctrine. Subsequently, optimizing shareholder welfare (mainly short-term profits) has become the driving concern of most American CEOs.

Has the trade representative become a convert to the old time religion? I guess it depends on what he means by stakeholder. According to his press statement, those participating in the phone call included representatives of business, labor, academia, the environmental and public health communities, and advocacy groups (I thought they were all advocacy groups). Froman insisted that he wanted to hear from all of them and that this deal is going to be a "high standard" free trade agreement that will "level the playing field" or American workers and business.

This is where I began to get a bit confused. I was a U.S. trade negotiator back in the 1980s (yes, I'm getting old) and have been a commentator on trade and globalization ever since. I don't remember any agreement being described as  "low standard" deal. And how many times have U.S. negotiators leveled the playing field? I did it myself at least twice and there were many more such levelings after my time. How much more level can the field get? I mean, if there are still trade problems, maybe it has nothing to do with the shape or plane of the field. Maybe it's the game. Maybe we and our trade partners are not playing the same game. If that's the case, if we're playing Adam Smith/David Ricardo while our trade partners are playing strategic export led growth, then fiddling around with the level of the field isn't going to solve any problems.

But wait -- I have been told now for nearly fifty years that free trade is always and everywhere a win-win proposition. So if all these countries with whom we are negotiating want free trade and we want free trade and all the stakeholders want free trade, why don't we all just agree to keep our markets open and take home our winnings?

But it's clear from the rest of Froman's statement that it doesn't work that way. He told his stakeholders that things were going to get a bit difficult, that they wouldn't all be able to get 100 percent of what they wanted, and that he was going to have to make difficult decisions.

What does that mean -- difficult decisions? Sounds like he's not actually going to get all the market opening he wants and that maybe he's going to open some U.S. markets that some of his stakeholders don't want opened. But that must mean he's going to "pick some winners and losers"? Some stakeholders are going to be favored and some will apparently wind up getting the short end of the stick. Isn't that exactly the "industrial policy" that all real free traders abhor?

So who are the winners actually going to be? A good bet would be that despite all the fancy talk about stakeholders, it's going to be the shareholders -- the guys at the Business Roundtable who dominate the "cleared advisors" to the trade representative and who, of course, are investing most of the money that's being invested to make this deal happen. They own it, so it's likely that they will win something from it.

Now, according to free trade doctrine, the winners are supposed to compensate the losers because the overall winnings are theoretically enormously larger than the losings. But don't hold your breath waiting for that to happen, even though in this case, the big loser could well be a majority of the people.

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