For years, advocates of globalization have argued that spreading capitalism, by itself, breeds stability. As the German sociologist Erich Weede declared in 2004, “capitalism and economic freedom promote peace,” and globalization is “the universalization of capitalism.” But as the rise of populists makes clear, this isn’t the case. Without regulation, spreading capitalism leads to the arrogation of power and money to the few at the expense of the many. It results in an authoritarian backlash, as citizens endorse nationalists who promise to restore past glory, channeling xenophobia as needed.
The founders of the multilateral trading system, including Franklin Delano Roosevelt and John Maynard Keynes, saw these risks. That’s why they attempted to craft an order that would not just provide for tariff cuts—as the General Agreement on Tariffs and Trade does—but also hem in the excesses of capitalism through a broader agreement negotiated in Cuba and called the Havana Charter. These rules included worker rights, anti-monopoly provisions, and protections against abusive foreign-investor behavior. Fifty-three countries signed the Havana Charter, including the United States, much of Europe, and independent countries from the Global South.
But the charter didn’t survive. American industrialists rejected constraints on their behavior, and by early December 1950, they persuaded Congress to snub the agreement. Instead, we ended up with the trading system we have now: one that lowers tariffs without providing any disciplines on capital. It is therefore no surprise that we see widening income inequality within countries. The surge in nationalism, and the resentment of globalization, is logical.
It is also frightening. But it creates an opportunity for the European Union and the United States. We can seize on it to reconceive the way trade agreements are done. We can bring much of the Havana Charter
The charter’s rules are well suited for today. The visionaries behind the agreement, working in the aftermath of the Great Depression and World War II, confronted the same issues of inequality and nationalism. They have provided us with a road map to create a more balanced global economic system. It will help us fight against modern-day robber barons and disperse the benefits of trade to the many rather than the few.
But the charter will need updating. Rules from the 1940s do not address more modern crises, the most pressing of which is climate change. The World Trade Organization has no enforceable environmental standards. Many U.S. treaties do, but they have been too modest. Similarly, globalization has created a race to the bottom when it comes to taxes, as rich corporations look to park themselves in cheaper jurisdictions. The EU has rules that help stop the kinds of tax incentives U.S. states use to lure big companies like Amazon, rules that could be considered a model for addressing beggar-thy-neighbor policies across the Atlantic.
Implementing such a deal will not be easy. Large business interests will fight to shunt provisions that would harm their bottom lines, and to include rules that will help them. But we must resist. Giving in will make for a deal that’s not just worse but also has little chance of success. Fights over big-money commercial disputes, like the safety of GMOs and chlorinated chicken, or state funding for Boeing and Airbus, date back decades. They have not been resolved because they cannot be resolved. Trying to solve them will do nothing but allow narrow parochial interests to swallow the much broader goal of creating an equitable trading framework.
Instead, the agreement between the Europeans and the Americans should set out important, enforceable principles that govern the overarching economic relationship between the countries—like the Havana Charter would have done. These principles should be set forth in a trade deal passed by Congress, and they should focus on promoting fair competition, high labor standards, and robust environmental regulations, rather than the race to the bottom our rules currently incentivize.
Succeeding in this task will be hard, but not impossible. The newly elected European Parliament—entered into office in July—is marked by a renewed attention toward a well-functioning trade relationship with the U.S., and it is willing to use sustainable development as a tool for global growth. That is why it may be more willing to press for a new approach to these agreements. Incoming trade commissioner Phil Hogan said during his confirmation hearings that he intends to improve the trade relationship across the Atlantic and to use trade to fight climate change.
But our vision is broader. The world is struggling to discern a way forward on trade. The WTO has no answers. Regional negotiations are based on the old model. In the meantime, China is expanding its own authoritarian reach through the Belt and Road Initiative and concerted forays into Africa. The European Union and the United States can work together to demonstrate that there is a better way.