"Sweep away the community of honest brokers in America [and] we'll be left with a culture and public dialogue based on assertion rather than authenticity, on claim rather than fact."
While you were going about your daily routines this week, the Trudeau Sunny Ways government was rushing Bill C-30 (the act to implement the Canada-EU Comprehensive Economic and Trade Agreement -- CETA) through the House. Thirty of its 140 pages are devoted to amending The Patent Act, amendments which will increase annual drug costs for Canadians by up to 13 per cent. We already pay more for drugs than any other country except the U.S. Unless the rewards of CETA are very impressive, this "free trade" zealotry qualifies as a special kind of madness.
Faith over fact
In observing the Trudeau government and its media cheerleaders regarding CETA, I am reminded of U.S. journalist Ronald Suskind's revelations about how the George W. Bush administration justified their decisions. One of Bush's senior aides chastised Suskind for being part of the "reality-based community" in contrast to Bush's "faith-based community." He told Suskind:
"[You] believe that solutions emerge from your judicious study of discernible reality. That's not the way the world really works anymore. … when we act, we create our own reality. And while you're studying that reality …we'll act again, creating other new realities."
If those contrasting realities ring a bell, they should, because we have lived for 10 years with such thinking under Stephen Harper and there has been an almost seamless transition to the Trudeau government's dissembling on international treaties. When it comes to trade and investment deals, the facts mean nothing. Chrystia Freeland simply refuses to answer questions and calls the deal "the gold standard" of trade agreements -- full stop.
As in the U.S., we have assertion rather than authenticity, claim rather than fact.
The federal government makes its own "reality" by crafting "facts" to fit its policy objectives -- no matter how outrageous they are when put to the test. Three numbers stand out in the talking points of federal governments under both Harper and Trudeau: that CETA will increase GDP by $12 billion, that it will create 80,000 jobs and the newly created wealth will boost income by $1000 per family.
But economist Jim Stanford debunked these numbers long ago --
pointing out in 2012 that the federal trade department simply took the $12-billion figure (itself a highly dubious figure) "[a]nd divided it by the number of families in Canada. That assumes that every additional dollar of GDP translates directly into family income. In fact, higher GDP never fully trickles down into income..." The money that does find its way into income goes mostly to the wealthy.
The $12-billion figure came from a study commissioned by Canada and carried out by three EU economists. Stanford pointed out that the model used made some outrageous assumptions:
"[c]onstant full employment (so no one can be unemployed due to imports), balanced trade (so a country's total output cannot be undermined by a trade deficit), no international capital flows (so companies cannot shift investment abroad), and no impact from fluctuating exchange rates."
Stanford called the study "outrageous." He was being far too polite. It was outright fraud. Anyone paying even cursory attention to the Canadian economy knows that not one of these assumptions holds. We haven't had full employment for decades, we have been experiencing trade deficits for years, NAFTA resulted in the shifting of billions of investment dollars to Mexico and China, and our exchange rate has been all over the map.
Faith gets a reality check
But while the Harper/Trudeau axis trots out its faith-based "reality" others are thankfully stuck in the "fact-based" one. The latest are researchers from Tufts University's Global Development and Environment Institute (GDEI) who in September produced the aptly named study "
CETA Without Blinders." The Tufts researchers used the Global Policy Model developed by the United Nations. That model, unlike the one commissioned by Ottawa, examined the likely impact of CETA on jobs, wages and inequality. It's not a pretty picture:
- "CETA will lead to a reduction of the labour income share. Competitive pressures exerted by CETA on firms and transferred onto workers will raise the share of national income accruing to capital and symmetrically reduce the share of national income accruing to labour.
- By 2023, workers will have foregone average annual earnings increases of €1776 in Canada and between €316 and €1331 in the EU depending on the country.
- CETA will lead to net losses of government revenue. Competitive pressures exerted by CETA on governments by international investors and shrinking policy space for supporting domestic … production and investment will reduce government revenue and expenditure.
- CETA will lead to job losses. By 2023, about 230,000 jobs will be lost in CETA countries, 200,000 of them in the EU, and 80,000 more in the rest of the world [the study projects a loss of 23,000 Canadian jobs due to CETA in the first seven years].
- CETA will lead to net losses in terms of GDP. [D]emand shortfalls nurtured by higher unemployment will also hurt productivity and cause cumulative losses amounting to 0.96 per cent of national income in Canada..."
As if to highlight the predictions of the Tufts University's report, a recent Canadian study underlined just how grim things are already getting for Canadian workers and their families. Researchers at the University of Waterloo just released a
national index of well-beingwhich shows economic growth has not resulted in an improved quality of life since the 2008-2009 recession:
"The index shows the Canadian economy expanded 38 per cent between 1994 and 2014, while improvements in Canadians' well-being grew just 9.9 per cent. …The biggest decline in that time is in leisure and culture -- areas that can enrich lives, alleviate stress and build connections with others, such as socializing with others or taking a holiday."
The start of this two-decade period coincides precisely with federal governments' (starting with the Chretien/Martin regime) complete abandonment of enormously successful post-war industrial policies aimed at high wages and value-added manufacturing, and putting literally all their economic policy eggs in the external trade basket.
Why any reputable economist would expect a different result from signing CETA is inexplicable -- unless you remember that it's all about faith. Beginning with the original Canada-U.S. Free Trade Agreement (FTA), its promoters saw it as a leap of faith. Peter Nicholson, a former Scotia Bank vice-president and later a personal adviser to Paul Martin, was one of free trade's gurus. He acknowledged that supporters of the free-trade agreement thought it would "cause Canadian firms to pull up their socks ... and compete in the North American market." Instead, bemoaned Mr. Nicholson years later, many companies adjusted to the FTA "by simply moving across the border... taking the path of least resistance."
Welcome to CETA, back to the future.
Murray Dobbin has been a journalist, broadcaster, author and social activist for 40 years. He writes rabble's State of the Nation column.
$12 bil CETA GDP Claim from SimCity, not Real World
Posted by Jim Stanford under economic models, Europe, free trade.
November 2nd, 2012
Comments: 1
This week’s edition of Embassy newspaper contained a very interesting briefing insert on the Canada-EU CETA talks. Below is a
commentary from me critiquing the ubiquitous but unbelievable claim that free-trade with Europe would boost Canada’s GDP by $12 billion, create 80,000 jobs, and life incomes by $1000 per family.
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$12 billion. That number keeps popping up in debates about the CETA. It’s the increase in Canadian GDP the federal government claims will result from the deal.
The number has been repeated so often, it now shows up unsourced in routine reporting on the negotiations. CETA “is a massive trade deal expected to boost the Canadian economy by $12 billion,†opened a recent, typical article.
But where did this factoid come from? Very few reporters or policy-makers know (or bother citing) the original source. It was generated by a computer model built by three European economists, retained by the Canadian and EU governments to work on the 2008 joint economic study of the CETA.
There are now two subsidiary factoids, both derived from the $12 billion claim, that also appear in virtually every DFAIT news release – and trickle down into more stories. Ottawa now claims the $12 billion gain in turn will generate 80,000 new jobs, and boost incomes by $1000 per family.
Let’s learn more about these claims. The European economists used a tool called a “computable general equilibrium†(CGE) model. It consists of hundreds of mathematical equations assumed to describe various relationships in the economy. By fitting particular numbers to those equations, you can simulate the working of an economy (like an enormous game of SimCity). But remember: a CGE model is not empirically grounded. Any model can be tailored to look like any economy, but the model’s predictive power depends entirely on the validity (or lack thereof) of its assumed equations.
The European model makes assumptions that are typical of its genre, but not remotely realistic. These include: constant full employment (so no-one can be unemployed due to imports), balanced trade (so a country’s total output cannot be undermined by a trade deficit), no international capital flows (so companies cannot shift investment abroad), and no impact from fluctuating exchange rates. Quaintly, the model assumes Canada consists solely of one “representative†household, fully sharing income from all sources. (I have catalogued and critiqued these assumptions in detail in other work, including
Out of Equilibrium, published by the Canadian Centre for Policy Alternatives, and in scholarly form in “Economic Models and Economic Reality: North American Free Trade and the Predictions of Economists,†International Journal of Political Economy 33(3), pp. 28-49.)
Eliminating tariffs produces trade gains when each country specializes in what it does best. But this traditional mechanism only explains $2 billion of CETA benefits. The modelers had to go further, with more farfetched assumptions, to boost their prediction. They assume that invisible, unspecified non-tariff barriers will be fully eliminated by the CETA. They assume Canadian service providers will do as much business in Europe as European firms currently do. Finally, they assume Canadians will save a strong share of new income, all of which is invested in new capital here (thus spurring even more growth). This latter effect alone accounts for over half the predicted $12 billion. Given record consumer debt and growing hoards of corporate “dead money,†this saving-and-investing assumption is downright bizarre.
The subsidiary claim that CETA will produce 80,000 new jobs is more than unrealistic. It is intellectually dishonest. Remember, the CGE model assumes constant full employment. That’s essential, because it prevents any loss in total output from a lack of competitiveness. The predicted GDP gains do not come from more employment, they come from higher productivity. By propagating the findings of the model in this manner, DFAIT’s spin-doctors are showing they do not understand the methodology of the model they commissioned.
I’ve discussed this with Richard Harris at Simon Fraser University, who co-wrote the first Canadian CGE trade models. He confirmed that models of this type predict productivity effects, not job-creation. “The argument about gains from trade is about welfare and productivity gains, not employment gains,†he wrote. “However that argument is difficult to use politically to sell trade liberalization, except under normal employment growth.â€
The $1000-per-family factoid is the most outrageous of all. DFAIT simply took the $12 billion gain in GDP and divided it by the number of families in Canada. That assumes that every additional dollar of GDP translates directly into family income. In fact, higher GDP never fully trickles down into income (due to depreciation, retained earnings, indirect taxes, and other leakages). And these days, whatever does land in individual pockets is increasingly captured at the top of the income ladder – never reaching the “average family.â€
From 1980 to 2010, Canada’s real GDP more than doubled (dwarfing the tiny impact predicted by the CGE model). Yet real median family income in 2010 was exactly the same as thirty years earlier. How will we get $1000 per family from CETA, when the median family received nothing from 30 years of growth?
The claim that CETA will boost Canada’s GDP by $12 billion is highly questionable. If the underlying CGE assumptions are relaxed, then the impact of CETA could well be negative (as I’ve found in my own research). The 80,000 jobs and $1000-per-family claims are worse than dubious. They are dishonest and manipulative, and should not be repeated by serious commentators.
CETA Without Blinders:How Cutting ‘Trade Costs and More’ Will Cause Unemployment, Inequality and Welfare Losses Pierre Kohler and Servaas Storm
GDAE Working Paper 16-03
September 2016Download the Working Paper in:
English, French
Download the Executive Summary in
English, French
The Comprehensive Economic and Trade Agreement (CETA) is now in the process of being ratified by Canada and the European Union (EU). Like other ‘new generation’ trade agreements, CETA aims at further liberalizing trade, investment and other sectors of society so far protected from market competition. CETA is thus more than just a ‘trade deal’ and needs to be approached in its complexity, without blinders.
CETA’s proponents emphasize the prospect of higher GDP growth due to rising trade volumes and investment. However, official projections suggest GDP gains of up to 0.08% for the European Union 0.76% for Canada. More importantly, all these projections stem from a single trade model, which assumes full employment and no negative impact on income distribution in all countries excluding the major risks of deeper liberalization. This lack of intellectual diversity and of realism shrouding the debate around CETA’s alleged economic benefits calls for an alternative assessment grounded in sounder modeling premises.
This working paper, edited by Jeronim Capaldo, Coordinator of the
Modeling Policy Reform Program, provides alternative projections of CETA’s economic effects using the United Nations Global Policy Model (GPM). Allowing for changes in employment and income distribution, and acknowledging that CETA is more than just an old-fashioned trade deal, produces very different results. The authors find that CETA will cause unemployment, inequality, welfare losses and a reduction of intra-EU trade.
Specifically, the authors find that:
- CETA will lead to intra-EU trade diversion. Trade balances and current accounts in Germany, France and Italy may improve, but this will happen to the detriment of the United Kingdom and other EU countries.
- CETA will lead to a reduction of the labor income share. Competitive pressures exerted by CETA on firms and transferred onto workers will raise the share of national income accruing to capital and symmetrically reduce the share of national income accruing to labor. By 2023, the profit share will have risen by 1.76% and 0,66% in Canada and the EU, respectively, mirroring the decline in the labor share.
- CETA will lead to wage compression. By 2023, workers will have foregone average annual earnings increases of €1776 in Canada and between €316 and €1331 in the EU depending on the country. Countries with higher labor income shares and unemployment, such as France and Italy, will experience the most pronounced wage compression.
- CETA will lead to net losses of government revenue. Competitive pressures exerted by CETA on governments by international investors and shrinking policy space for supporting domestic investment, production and investment will reduce government revenue and expenditure. Government deficits will also increase as a percentage of GDP in every EU country, pushing public finances closer or beyond the limits set by the Maastricht treaty.
- CETA will lead to job losses. By 2023, about 230 thousand jobs will be lost in CETA countries, 200 thousand of them in the EU, and 80 thousand more in the rest of the world, adding to the rising dependency ratio (the average number of people supported by one job).
- CETA will lead to net losses in terms of GDP. As investment and foreign demand remain sluggish, aggregate demand shortfalls nurtured by higher unemployment will also hurt productivity and cause cumulative welfare losses amounting to 0.96% and 0.49% of national income in Canada and the EU, respectively. While the United Kingdom (-0.23%) and Germany (-0.37%) may be least affected, France (-0.65%) and Italy (-0.78%) will lose more than other EU countries (-0.53%).
In sum, CETA will lead not just to economic losses but also to rising unemployment and inequality, with negative implications for social cohesion in an already complex and volatile political context.
The authors draw two general conclusions from these bleak prospects for EU policymakers. First, quantitative studies that are by construction oblivious to proven risks related to comprehensive liberalization do not represent an adequate basis for informing policy-makers about the economic implications of CETA. Alternative approaches to modeling, which acknowledge the risks of deeper liberalization and can quantify their impact and cost, are required for providing meaningful insights as to the likely consequences of CETA.
Second, seeking to boost exports as a substitute for domestic demand is not a sustainable growth strategy for the EU or Canada. In the current context of high unemployment and low growth, improving competitiveness by lowering labor cost can only harm the economy. Were policy-makers to adopt CETA and go down this road, they would soon be left with only one option for reviving demand in the face of growing social tensions: increase private lending, possibly through renewed financial deregulation, opening the door to unsustainable debt and financial instability. Instead of repeating the same errors of the past, policy-makers should rather stimulate economic activity through coordinated and lasting support of labor incomes and seek ways of initiating a much-required socio-ecological transition.
About the U.N. Global Policy Model:Documentation and papers about the UN Global Policy Model are available on
UNCTAD's website.
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Related Commentary:Rejet wallon du CETA, nouvel accroc pour le libre-échange, Servaas Storm and Pierre Kohler,
Le Monde diplomatique, October 14, 2016
The CETA Trade Pact Will Add to the Groundswell of Discontent: Why We Need More Informed Decision-Making, Servaas Storm and Pierre Kohler, Naked Capitalism, October 7, 2016
Le CETA: commerce au service du bien commun ou Pangloss à la solde du capital?, Pierre Kohler, Mediapart, September 30, 2016
Multimedia:
The Citizens' CETA SummitOn October 20, 2016, Pierre Kohler spoke about economic assessments of CETA at a transatlantic gathering of local & public representatives in the European Parliament, Brussels. (Kohler's presentation starts at 14:37:30. Note: video is available 11 languages.)
Download a PDF of presentation in
English or
French
I hate Trump and Farage. But on free trade they have a point | Aditya Chakrabortty https://www.theguardian.com/commentisfree/2016/oct/19/free-trade-broken-idea-elites-deals-ceta-ttip-economic?CMP=share_btn_tw
