For the past three or four months there has been a lot of jawboning over the Trans Pacific Partnership (TPP) trade agreement. The Administration touts the agreement as necessary to the United State’s ability to compete in an emerging Asia-Pacific market. According to the Administration:
“President Obama’s trade agenda is dedicated to expanding economic opportunity for American workers, farmers, ranchers, and businesses. That’s why we are negotiating the Trans-Pacific Partnership, a 21st century trade agreement that will boost U.S. economic growth, support American jobs, and grow Made-in-America exports to some of the most dynamic and fastest growing countries in the world.”
The Obama administration believes the TPP will aid American business sales of product in the Asia-Pacific region by reducing tariffs on both sides of the Pacific Rim, in some cases to zero. Think of a tariff as a tax schedule on products entering a country. These taxes can make selling products overseas a bit onerous because the taxes will increase the price of the goods faced by the overseas end-user.
The Administration also hopes to increase transparency of laws and regulations in the Asia-Pacific market which, they believe, will facilitate entry into these markets by small and medium-sized enterprises (SME). The Administration argues that small businesses account for two-thirds of new jobs created in the private sector and that easing entry into new markets will serve to maintain SME contribution to the American economy’s growth.
Regarding labor, the Administration’s focus appears to be on how labor is treated overseas versus ensuring against job losses here in the United States. Critics, such as Senator Elizabeth Warren, Democrat of Massachusetts, argues that the President’s trade agenda does little to protect U.S. workers. As an example, Senator Warren, in an opinion piece for The Washington Post, observed that under proposed provisions of the TPP, a Vietnamese company could challenge American labor law in an investor-state dispute settlement court, basically a panel of international arbitrators. But if an American labor union wanted to challenge wage practices in Vietnam, it would have to go through Vietnamese courts, thus tilting the advantage to multinational corporations.
Mrs. Warren continues to place too much emphasis on labor as some protected class and not enough on the true economic engine, the entrepreneur. Labor is an activity, a resource that is applied to capital to generate returns and income. Demand for labor is driven not just by derived demand by consumers for goods and services but by what capital has determined to be the necessary skills and knowledge possessed by labor to deliver those goods and services. Demand for labor is driven by the value labor brings to the capital the entrepreneur deploys. Until Mrs. Warren and other progressives start understanding this, their arguments about the plight of the “labor class” will be invalid.
Where Mrs. Warren’s emphasis should be is on the benefits TPP would bring to the very entrepreneurs that will do the hiring of the labor Mrs. Warren wants to protect. Employer firms with less than 500 employees employed 48.5% of workers on private sector payrolls in 2011, according to data cited by the Small Business and Enterprise Council. You can’t talk about labor without talking about increasing access to markets by entrepreneurs.
What is missing so far from the TPP conversation is a substantive discussion on capital access and formation. I don’t see this discussion on the part of the Administration and it is definitely missing from Mrs. Warren’s rhetoric.