Approaching 25: The Road Ahead for the WTO
Finance, Approaching 25: The Road Ahead for the World Trade Organization, Tuesday, March 12, 2019
Attachment One repeats selected comments from the Ways and Means Committee’s hearing on U.S. China Trade from February 27, 2019 and from this Committees hearing on the U.S. Trade Policy Agenda from March 2018. As usual, we will preface our comments with our comprehensive four-part approach, which will provide context for our comments. (Omitted)
Regulatory capture theory is essential to explain how international trade associations work, from NAFTA to the WTO. Capture theory, which is part of the Public Choice School of economics, is associated with George Stigler and others. While it is usually associated with national and state regulation, such as the Food and Drug Administration and the late, great Interstate Commerce Commission, it is equally applicable here. It is similar to what we all learned as Iron Triangles or Issue Networks.
The gist of the theory is that, while regulation is initially promulgated for the public good, relationships between government and regulated industries grow symbiotic. This occurs because professional expertise is often industry specific. This expertise is interchangeable in regulated industries, regulatory staff, on K Street, the academy and congressional staff. Campaign contributions often grease the skids of communication. Regulation always begins with private sector resistance until relationships are established. Eventually, regulatory agencies are co-opted by industry and the resistance stops. While there is still an oppositional dynamic, by and large capture helps steer the regulatory ship.
Capture is so complete in trade that industrial panels are often the most important part of modern trade agreements. In NAFTA, these take the form of Chapter 19 Panels. These panels wield super-national authority, allowing them to over-ride governmental actions which are seen as contrary to free trade as the industry sees it. Such industrial favoritism is likely the glue that gets trade agreements past congressional approval. While treaties are part of federal supremacy in Article IV of the Constitution, ceding this authority to industry is likely beyond what the framers would have expected – and they were often mercantilists. Of course, the U.S. Constitution may itself be an instance of regulatory capture.
The impact of capture are very real barriers to entry, both for professionals and for newer companies. Larger firms dominate small ones, who must find a link to an existing larger company in order to even function. While regulations favoring small businesses attempt to steer such relationships, especially by introducing affirmative action into such decisions, these actions are also captured by industry.
There is no need to drain the swamp. The swamp seems just fine where it is. Indeed, calls to do so under the banner of populism are likely to give temporary advantage to industry, but it will later adjust (if it is even really changed), with changes in Administration and the benching of its team of rookies.
Many would say that the status quo is unsustainable, others like it perfectly well. Progressives and Democratic Socialists call for bigger and better regulations. The far-left simply considers this an improvement of the same cage. The social democracies of northern Europe have developed a cozy relationship with their capitalists, but have no idea how to transition to true employee sovereignty, which is the ultimate goal of socialism. The answer is that you cannot do deep reform through the deep state. The obstacles are too great.
The only alternative to regulatory capture and industrial domination is not to better regulate capitalism, but to overcome it – not through revolution (which simply turns the party bureaucrats into capitalists, but to occupy capitalism from within. This starts with transforming employee-owned firms. The answer is not change to employee culture over a monthly dinner and pep rally or training line workers to read financial statements. This is also a creating a better cage.
Real change will come from matching corporate governance to corporate ownership. Hierarchical management structures from capitalism are discordant. They do not deliver on the promise of ownership. Employee ownership, to work, must embrace true democracy in both management and the decision to expand the scope of the enterprise from better production to matching production to consumption, also by democratic decision-making. This will start with how leadership is consumed as a good (leading to open auction for executive jobs with the final choice between the low bidders determined by election).
Employee ownership will continue from decisions on the cafeteria menu to local sourcing and farm ownership, building or buying apartments for younger workers, as well as single family units and abandoning outside finance for retirement and home mortgages with no interest loans. Such features will attract workers and firms to this model to something more than the monthly chicken dinner.
Currently, employee ownership is undertaken with smaller companies rather than major industries. It will not remain there when ownership is transformed. Larger enterprises will convert franchisees to managers and absorb their employees, extending union membership and board representation. Consultants paid through 1099 employment with only one client also be added to the employing firm.
The NBRT/SVAT reforms can facilitate the expansion of ownership on a fairly rapid basis, with rates set high enough to pay for obligations to current retirees and the transition to ownership. While the employee contribution to Old Age and Survivors insurance will continue to be linked to income, the employer contribution will become part of the SVAT, with employer contributions credited to each employee without regard to wage.
Ownership rights and benefits can also be extended to overseas employees, both subsidiaries and in the supply chain, preventing international trade from being used to arbitrage wages in a race to the bottom, raising the standard of living for overseas workers and ending the need for international trade agreements. Industrial and workers interests will be identical to each other and to the national interest of all parties. International organizations could be an honest broker to estimate wages at an equivalent standard of living rather than based on currency trading. See Attachment One for more detail.
It can go even faster if employers can reduce such taxation by making current employees, former employees and retirees whole as if they had worked under the proposed system from the start. If our proposed high income and inheritance surtax is adopted (where cash from inheritances and estate asset sales are considered normal income), some of the proceeds can be used to distribute the Trust Fund to speed employee ownership, as well as ESOP loans. Note that heirs, sole proprietors and stock holders who share to a broad-based ESOP will avoid taxation on that income, including our proposed 25% VAT on asset sales.
Expediting ownership with the assistance of tax reform will end the need for NAFTA and the WTO (unless national governments balk at allowing international employee ownership. Even then, the need for such organizations, and for government in general, will eventually fade away.
Attachment One repeats selected comments from the Ways and Means Committee’s hearing on U.S. China Trade from February 27, 2019 and from this Committees hearing on the U.S. Trade Policy Agenda from March 2018. As usual, we will preface our comments with our comprehensive four-part approach, which will provide context for our comments. (Omitted)
Regulatory capture theory is essential to explain how international trade associations work, from NAFTA to the WTO. Capture theory, which is part of the Public Choice School of economics, is associated with George Stigler and others. While it is usually associated with national and state regulation, such as the Food and Drug Administration and the late, great Interstate Commerce Commission, it is equally applicable here. It is similar to what we all learned as Iron Triangles or Issue Networks.
The gist of the theory is that, while regulation is initially promulgated for the public good, relationships between government and regulated industries grow symbiotic. This occurs because professional expertise is often industry specific. This expertise is interchangeable in regulated industries, regulatory staff, on K Street, the academy and congressional staff. Campaign contributions often grease the skids of communication. Regulation always begins with private sector resistance until relationships are established. Eventually, regulatory agencies are co-opted by industry and the resistance stops. While there is still an oppositional dynamic, by and large capture helps steer the regulatory ship.
Capture is so complete in trade that industrial panels are often the most important part of modern trade agreements. In NAFTA, these take the form of Chapter 19 Panels. These panels wield super-national authority, allowing them to over-ride governmental actions which are seen as contrary to free trade as the industry sees it. Such industrial favoritism is likely the glue that gets trade agreements past congressional approval. While treaties are part of federal supremacy in Article IV of the Constitution, ceding this authority to industry is likely beyond what the framers would have expected – and they were often mercantilists. Of course, the U.S. Constitution may itself be an instance of regulatory capture.
The impact of capture are very real barriers to entry, both for professionals and for newer companies. Larger firms dominate small ones, who must find a link to an existing larger company in order to even function. While regulations favoring small businesses attempt to steer such relationships, especially by introducing affirmative action into such decisions, these actions are also captured by industry.
There is no need to drain the swamp. The swamp seems just fine where it is. Indeed, calls to do so under the banner of populism are likely to give temporary advantage to industry, but it will later adjust (if it is even really changed), with changes in Administration and the benching of its team of rookies.
Many would say that the status quo is unsustainable, others like it perfectly well. Progressives and Democratic Socialists call for bigger and better regulations. The far-left simply considers this an improvement of the same cage. The social democracies of northern Europe have developed a cozy relationship with their capitalists, but have no idea how to transition to true employee sovereignty, which is the ultimate goal of socialism. The answer is that you cannot do deep reform through the deep state. The obstacles are too great.
The only alternative to regulatory capture and industrial domination is not to better regulate capitalism, but to overcome it – not through revolution (which simply turns the party bureaucrats into capitalists, but to occupy capitalism from within. This starts with transforming employee-owned firms. The answer is not change to employee culture over a monthly dinner and pep rally or training line workers to read financial statements. This is also a creating a better cage.
Real change will come from matching corporate governance to corporate ownership. Hierarchical management structures from capitalism are discordant. They do not deliver on the promise of ownership. Employee ownership, to work, must embrace true democracy in both management and the decision to expand the scope of the enterprise from better production to matching production to consumption, also by democratic decision-making. This will start with how leadership is consumed as a good (leading to open auction for executive jobs with the final choice between the low bidders determined by election).
Employee ownership will continue from decisions on the cafeteria menu to local sourcing and farm ownership, building or buying apartments for younger workers, as well as single family units and abandoning outside finance for retirement and home mortgages with no interest loans. Such features will attract workers and firms to this model to something more than the monthly chicken dinner.
Currently, employee ownership is undertaken with smaller companies rather than major industries. It will not remain there when ownership is transformed. Larger enterprises will convert franchisees to managers and absorb their employees, extending union membership and board representation. Consultants paid through 1099 employment with only one client also be added to the employing firm.
The NBRT/SVAT reforms can facilitate the expansion of ownership on a fairly rapid basis, with rates set high enough to pay for obligations to current retirees and the transition to ownership. While the employee contribution to Old Age and Survivors insurance will continue to be linked to income, the employer contribution will become part of the SVAT, with employer contributions credited to each employee without regard to wage.
Ownership rights and benefits can also be extended to overseas employees, both subsidiaries and in the supply chain, preventing international trade from being used to arbitrage wages in a race to the bottom, raising the standard of living for overseas workers and ending the need for international trade agreements. Industrial and workers interests will be identical to each other and to the national interest of all parties. International organizations could be an honest broker to estimate wages at an equivalent standard of living rather than based on currency trading. See Attachment One for more detail.
It can go even faster if employers can reduce such taxation by making current employees, former employees and retirees whole as if they had worked under the proposed system from the start. If our proposed high income and inheritance surtax is adopted (where cash from inheritances and estate asset sales are considered normal income), some of the proceeds can be used to distribute the Trust Fund to speed employee ownership, as well as ESOP loans. Note that heirs, sole proprietors and stock holders who share to a broad-based ESOP will avoid taxation on that income, including our proposed 25% VAT on asset sales.
Expediting ownership with the assistance of tax reform will end the need for NAFTA and the WTO (unless national governments balk at allowing international employee ownership. Even then, the need for such organizations, and for government in general, will eventually fade away.
posted by Michael Bindner at 10:15 AM
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