Oh No! Not Another Kemp Speech! Jude Wanniski December 20, 1999

Memo To: Website browsers, fans, clients
From: Jude Wanniski
Re: Jack Kemp's Seattle speech

Jack Kemp generally gives at least one speech before breakfast and several after the bacon and eggs. The reason you almost never see a reference to one in this space is that he has been giving the same speech over and over, including the old football jokes. Well, I have to admit, the speech Kemp gave in Seattle on December 1st I think is new enough, fresh enough, provocative enough, to serve up here. He called it: "Democratic Capitalism: The Ultimate Triumph of the Worker." As my son Matthew works for Jack at Empower America, as a writer/researcher, I would not have read this except for Matt, who e-mailed it to me a few days back. It's not bad.

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Just think, today is the first day of the last month of the 20th Century, and it's just 30 days until the next thousand years of human history. This watershed moment, full of hope and optimism, should inspire us to ever-greater heights of human achievement, opportunity, growth, and freedom, not for ourselves alone but as Mr. Lincoln observed, for the ultimate purpose of lifting the burden off the shoulders of all mankind.

Here in Seattle -- the national export capital -- is a perfect place to discuss the world trading system. One in every three jobs here is related to trade. The Seattle economy is outpacing the booming national economy because of exports, with an unemployment rate of only 3.6 percent. America and the world are in the middle of a worldwide information-age revolution. At Empower America, we have identified Internet policy as a key component of continued prosperity. Our "10 Commandments of Internet Policy" for the 21st Century covers a range of issues, including Internet taxation, export controls and encryption, child protection, free trade, and high-tech worker immigration. Our goal is to ensure that the Internet is not stifled by punitive taxation and regulation.

One lesson we should have learned from the 20th century is that in our urge to improve the plight of mankind, government must always be kept the servant of the people, never allowed to become their master. Otherwise, man finds himself on the road to dictatorship and totalitarianism, the twin dangers of Marxism and fascism that have cost so many lives in this century. Governments, treaties, alliances, and multilateral agreements must be subordinated to the cause of freedom and judged by whether they hinder or advance that cause. There simply is no other way and no Third Way.

Certainly, this criterion must hold for the WTO, which was created for the sole purpose of facilitating the free flow of goods and services across national boundaries. Free trade, of course is not everything, or for that matter, the most important thing in the life of a human being. But, for the WTO, a manmade bureaucracy, it is. For everything else, there are other means and other mechanisms.

A standing rule of good public policy is, "one policy lever, one policy objective;" each additional policy objective requires an additional policy lever. Tax codes are for raising revenues, not making social policy. Try doing both with a tax code and you get lousy social policy and less revenue. Monetary policy is for maintaining the value of the currency, not for fine tuning the economy. Try doing both with a single monetary instrument and you get both inflation and higher unemployment. Take the IMF—please. It has demonstrated this truth in country after country around the world. The same holds true for free trade and any organization designed to promote and facilitate it.

Is a clean environment important? Of course it is, but it's not the WTO's job. Turn the WTO into the EPA and you end up with a monster that restricts trade, keeps countries poor, and leaves the environment dirtier.

Surely another lesson of the 20th Century is that the wealthier a country becomes, the healthier and safer its people are and the more protective it is of the environment. The history of the past 50 years proves that only solid economic growth, technological innovation, and expanding markets can eradicate poverty, hunger, and disease, and give developed nations the resources and the will to tackle pressing ecological concerns. There is an iron law of environmentalism that too few self-anointed "environmentalists" seem to comprehend: It is impossible to improve the environment by impoverishing people.

As long as the WTO remains faithful to its singular purpose—enhancing and expanding free trade—it deserves our full support. But we cannot, must not, allow the WTO to be hijacked and diverted from its original purpose. One IMF loose on the world is enough!

Adam Smith wrote in his historic treatise on freedom of enterprise and trade that "Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. . . . in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer." Who are the consumers? They are the poor and middle class workers around the world, and it is they who are hurt when certain firms and industries and labor unions seek protection. And, the same holds true for those folks out in the streets of Seattle today. Well intentioned as they may be, their agenda is counterproductive. By stifling production and free trade, they won't protect the poor and the middle class worker against large corporations and the rich. Big companies have lots of lawyers and the rich can always fend for themselves. Neither will thwarting production protect the environment. Which model would they prefer: a modern day Pittsburgh or Milwaukee or San Diego or Seattle thriving on trade, cleaner and healthier cities than ever before, or the planned economy of a shabby and filthy Stalingrad under the Commissars or Eastern Europe or third-world nations in grinding poverty? It is poverty that pollutes and the wealth of technology that will lead to a cleaner, greener, more prosperous planet.

As a born optimist, I believe economic freedom eventually will prevail with or without a bureaucracy called the WTO; but I am also convinced it will happen a lot faster if the WTO is left uncorrupted to pursue the singular goal of fostering free trade. Yes, in the long run economic freedom will prevail, because its promise is too compelling, its practice too powerful to be resisted. But while we may philosophize in the long run, we must live in the short run, so we can't just docilely accept the status quo. "Status Quo:" Ronald Reagan said that was Latin for "the mess we're in." And, in the here and now, the mess we're in is a creeping paralysis that threatens to halt continued progress toward free trade; paralysis brought about by a resurgence of the all-too-human urge to plan, manage, fine tune, direct, and manipulate free markets and free institutions from the bureaucratic center. The WTO and all our hopes and plans for free trade among democratic and sovereign nations are challenged by the rising forces of global governance—not the centralized, unitary world government envisioned earlier in this century, but rather a 21st Century variant, the so-called Third Way, multilateral model of "socialism with a capitalist face." Paraphrasing William Shakespeare's Mark Antony, Third-Wayers proclaim, "We come not to destroy free markets but to ‘harness' them."

Rhetoric about "harnessing" the power of the free market to clean the environment, dictate labor standards, and regulate the world's climate exposes the true agenda of the Third-Way movement. They seek to conscript free markets as a beast of burden to haul their radical ideological agenda into the 21st Century. For, make no mistake, behind the capitalist face of the Third-Way movement beats the heart of true international socialists who believe that an elitist vanguard knows better what is good for people than the people themselves. What they forget is that free markets are nothing more than the outcome of a sovereign and free people going about their daily business. The American people will not stand for being put in harness by any Third-Way takeover of the WTO or any other multilateral organization. And I guarantee you, neither will the people of the developing and former Communist countries when they discover that the real agenda being played out in the streets of Seattle is to keep them poor and energy starved.

This is not a brief for the WTO bureaucracy but rather a warning that the WTO will only threaten the health and safety of people if it is taken over by those folks out there in the streets and in the fashionable Third-Way salons of London, Paris, Berlin, and Washington, DC. I met recently with ambassadors from Africa, Asia, and Latin America, all of whom have begun to benefit from trade and stand to benefit even more from expanded trade. To a person, they were concerned that the developed countries were allowing domestic environmental and labor special interests to throw a cog in the works.

So it is unambiguously clear that the protesters out there in the streets don't occupy the moral high ground. To oppose trade is to oppose the one thing guaranteed to lift the poorest people out of poverty. Listen to this statistic: Developing countries with open trade policies grew three times as quickly [from mid-1970s to mid-1990s] as countries with restrictive policies. Those with liberal trading practices grew about 6 percent a year; the others, 2 percent.

Our hopes for alleviating poverty and human misery are also challenged by the outright protectionists, isolationists, and Luddites who misunderstand and fear trade as harmful. On the labor front, for example, some in the union movement want to conscript the WTO to protect labor cartels. Some labor leaders incessantly repeat the mantra that they oppose free trade but favor "fair" trade, which as The Wall Street Journal points out, translates into "you buy from us but we won't buy from you."

Protectionist sentiments are natural, indeed inevitable, but they are misdirected at free and open trade. Instead, the concern over lost jobs and fleeing markets that motivates protectionism should be directed to the real source of these problems, namely an international monetary arrangement of floating currencies, in which no currency is linked to a stable anchor and all countries are tempted to use currency devaluation as an economic policy rather than making the market reforms required to generate prosperity. A liberal trading system without a sound international monetary arrangement can easily be destabilized by currency manipulations. That is why I believe we need a new international monetary regime based on a price rule, in which the value of currencies are anchored by the price of gold. With stable currencies, the overwhelming majority of people will see free markets and free trade as an unqualified benefit to themselves, and the problem of workers and industries that get caught in the economic transition becomes a tractable problem with which governments can deal without harming everyone else.

Why do I feel so intensely about these threats to free trade and the WTO? Because there is so much to lose; the potential good news is so breathtaking. If we can hold the line against creating new barriers to trade, and keep whittling away at the barriers that already exist, the 21st century can see an explosion of new wealth that can begin to lift the Third World out of poverty and dramatically reduce the threats of war, hunger, and disease. If you doubt that, just look at the record of the past decade. According to the Council of Economic Advisers, full implementation of the Uruguay Round of trade-opening agreements would increase U.S. income on the order of $30 billion a year. Our Office of Trade Representative reports that between 1994 and 1998 1.3 million new jobs were created related to exports of goods and services. In 1998 alone, over a third of all U.S. agricultural production was exported, with a dollar value of $52 billion.

From a strictly self-interest perspective, America has everything to gain from trade liberalization. Our average tariff today is 7.5 percent. Only Hong Kong has a lower tariff barrier -- zero. But China, currently has an average tariff of about 23 percent; with some individual goods taxed at extraordinary rates at the border, such as 100 percent on automobiles (120 percent on "large" automobiles).

No, there is no doubt that market-opening measures benefit America as a whole, and American workers in particular. But let us never forget that free trade benefits everyone -- it is NOT a zero-sum game. The OECD, which found that world merchandise exports exceeded 5 trillion dollars in 1998, says trade barriers removed by the Uruguay Round of negotiations "delivered a global tax cut...worth more than $200 billion per annum." The OECD also points out that removing all tariffs would aid developing countries the most, particularly India, Asia, and sub-Saharan Africa -- direly in need of economic opportunity and real wealth-creation.

With China getting ready to join the WTO, it makes no sense to turn our backs on the cause of free trade. I know the issue of China joining the WTO is controversial, among some of my old colleagues whose opinion I respect. But, let me say that I agree wholeheartedly with William F. Buckley that it is a key test of WTO legitimacy that Taiwan be admitted as well. Also, let me point out that since the opening of China to the West in 1972, and specifically since the reforms of Deng Xiaoping in 1979, the people of China are winning greater wealth and, yes, more freedom than they had before, notwithstanding the terrible abuse of human rights now and at the time of Tianamen Square. That's due in no small part to the slow, painful, yet demonstrable emergence of free markets within China and between China and the wider world. China has much more to do to establish the rule of law, protect human rights, and protect intellectual property rights. But we have no choice but to continue market-opening policies that hold the potential of so much good. I cannot say how saddened and disappointed I am to see old friends like Pat Buchanan, Bill Kristol, and others pretending that our relationship with China today is like it was with Soviet Communism or with the Peoples Republic under Mao. Communism is abhorrent; political and religious persecution are abhorrent. We must hold the Chinese Communists accountable in a way befitting the great power we are, in a way guaranteed to succeed, not just to make us feel righteous and superior and run the risk of being counterproductive and dangerous. To abandon economic engagement with China is no answer; it's a cop-out -- just like the Soviet grain embargo that President Ronald Reagan wisely ended, even as he engaged the Soviet Union in an economic and political competition that ended the Cold War without a shot being fired.

President Reagan summed it all up perfectly: "As the leader of the West and as a country that has become great and rich because of economic freedom, America must be an unrelenting advocate of free trade." So we must.

The potential here is stunning! Simply by removing tariffs worldwide, we could create more jobs, opportunities, and truly "sustainable" indigenous growth in the developing world than decades of government aid programs have been able to do. Why don't we do it? Why CAN'T we do it?

That, my friends, is the troubling question. For as much promise as the WTO's Millennium Round of negotiations offers the world, renunciation of tariffs is not even on the agenda. For reasons too complicated to examine today -- reasons of domestic politics, economic rivalry, and sheer ideology, we are not yet able to accept the full-blown benefits of free trade and open markets worldwide. We know the great good it would accomplish, yet we decline to seize the overwhelming benefits that a zero-tariff world would bring.

With time, education, and commitment on the part of workers, businesses, investors, and enlightened leaders, that may change. But I am sorry to say that before that day arrives we have more immediate concerns to address: the most serious threat to the post-war trading system that we have yet seen. I return again to the concerted efforts by many of those here in Seattle—some in the meeting halls, some in the streets, with spectacular media coverage—to bludgeon the WTO into becoming not a forum for resolving trade disputes, but an aggressive agent of global regulation. Their agenda is to use the sensitive issues of labor standards, and particularly environmental regulation, to leverage the WTO into becoming an international policymaking body responsive to their interests.

The WTO would become the building block of Third Way-style global government: neither capitalist nor Marxist, but elitist and dedicated to expropriating the market's powers of wealth-creation to finance their regulatory schemes. You know, I hate to say it, but the whole Third-Way movement looks more and more like a new brand of international corporatism: socialist in sentiment, statist in practice.

The Third Wayers want to use the trade-negotiation process to impose the highest possible level of environmental restriction on world commerce, regardless of scientific evidence or sound risk-benefit analysis. In a full-page ad in the November 22 New York Times, signed by organizations ranging from the Sierra Club to the Earthjustice Legal Defense Fund, a number of these organizations revealed much of their agenda. It includes, among other things, minimizing trade in food products (tell that to sub-Saharan Africa!); encouraging the European Union to protect its market from beef imports; and opposing "never-ending resource supplies, never-ending growth, ever-expanding markets, and constant supplies of cheap labor."

Excuse me? These so-called environmental organizations stand in favor of scarce resources, less growth, and contracting markets? I take these people at their word, and I certainly don't doubt their sincerity. They really believe in the politics of scarcity, slow growth, and bureaucratic command-and-control as the way to "protect" species, habitats, the air and the water. They are really nothing more than neo-Malthusians, Luddites and isolationists.

But they are profoundly wrong, and we have a moral obligation to say so. George Gilder said it best [in a Wall Street Journal comment on climate policy last May, "Zero-Sum Folly, From Kyoto to Kosovo"] when he pointed out that global warming merely revives "the zero-sum Zeitgeist, in which gains for comfort and wealth of some are assumed to cause losses for other people, other species, or the environment...the claims of zero-sum ecology can lead to only one result: war. ...To tell [China and India] that their billions of citizens cannot even match current Western use of fuels, fertilizers, pesticides and other chemicals is to tell them they cannot feed their people, let alone get rich, without war."

Starkly put, but exactly right. Look at what happened 70 years ago after passage of the Smoot-Hawley tariff: worldwide depression, the spread of Fascism, and then war.

The more extreme elements of the green movement too often forget that much of the world still faces life-and-death issues of hunger, disease, and malnutrition on a daily basis. To use international regulation of labor and the environment to impede solutions to those problems, to tie access to global markets to a costly, Eurocentric agenda of "managing" Third World development according to the whims of green bureaucrats, is simply wrong. We, as Americans, as opinion leaders, as member nations of the WTO—have no right to do it.

There is a deep irony here, because many of those most loudly protesting the WTO's alleged "sellout" to commercial interests challenge the WTO on the ground that it is "among the most powerful, secretive, undemocratic and unelected bodies on Earth," as the signatories to the November 22 New York Times ad put it. These folks attack the WTO as an agent of "globalization" and unaccountable bureaucracy, yet their own proposals would give the WTO much, much greater power over the global economy: power to restrain trade in the name of workers and the environment; power to micromanage economic decisions in every member nation; power to close doors, not open them. Surely protesters here in Seattle are being a bit cute when they denounce WTO for bureaucratic lack of accountability. No, what they want is a WTO accountable to THEM, and let the rest of the world's people—from the barrios of Brazil to the street markets of Calcutta—stand aside and watch. This is the height of cynicism and hypocrisy on which our Third Way colleagues have set their hopes and plans.

No one has expressed the stakes in this battle for the soul of the WTO more eloquently than Jagdish Bhagwati. In Professor Bhagwati's "Statement Against Linkage", signed by a multitude of Third World intellectuals and opinion leaders, he articulates the bottom line: "The WTO's design must reflect the principle of mutual-gain; it cannot be allowed to become the institution that becomes a prisoner of every developed-country lobby or group that seeks to advance its agenda at the expense of the developing countries. The game of lobbies in the developed countries seeking to advance their own interests through successive enlargement of the issues at the WTO by simply claiming, without any underlying and coherent rationale, that the issue is "trade-related", has gone too far already. It is time for us to say forcefully: Enough is enough."

And so it is. But what are the prospects the WTO, and my own U.S. government, will agree?

My answer is that both are seriously in question. For all the good that it has done, the WTO in its short history has been drifting slowly, but undeniably, towards a position of greater linkage between the rules of trade and the global green agenda.

Although our green friends argue otherwise, there is no doubt that last year's adjudication of America's attempt to bar imports of shrimp, because of risks to sea turtles posed by certain harvesting methods, opened the door for full integration of trade policy with the highest level of "green" protection adopted by a member nation. We are not there yet, but the handwriting, as they say, is on the wall. And let there be no doubt: the global greens are not telling the truth when they say the WTO is impeding the adoption and application of any environmental law or policy a nation may choose to adopt. Rather, the WTO has been wary of allowing trade policy to be used to export those laws to other sovereign nations whose people, economy, and culture may dictate a different policy. But there is more than one sign that the WTO's vigilance is waning.

The very idea that trade and environmental policy are linked is built into the WTO's standing Committee on Trade and the Environment, which although an advisory body, reflects the fact that in its own words, "the WTO is interested in building a constructive relationship between trade and environmental concerns … they should be mutually supportive in order to promote sustainable development." Now, I don't want to be too hard on the WTO, which has enough to worry about without Jack Kemp parsing its words too closely. But the language I just cited, from the WTO's own website, buys wholeheartedly into the jargon of Third Way market socialism. "Sustainable development" is a well-established term in global discourse on trade and the environment, and it means what it says: a bunch of guys sitting around the table in Geneva (or Brussels, or Seattle—take your pick) are supposed to be omniscient enough to know just what level of growth, development, and wealth creation a nation (or the world) can "sustain" without using up too many resources, pumping out too many emissions, or altering too many habitats.

Who decides how much is too much? Bureaucrats do. And I'm sure you agree with me that if such a floating standard of "sustainable" economic development were applied in advance, we would have been stuck in the neo-Keynesian bog of stagflation of the late 1970s, we never would have had the Reagan Revolution, or even the Industrial Revolution itself. You can't "plan" such things, you have to have faith, freedom, and entrepreneuralism. Then good things start to happen. Planning for "sustainability" is a recipe for ensuring that the peoples of Africa, Latin America, and parts of Asia never have the kind of economic revolutions we have been blessed with in the West but develop instead a misplaced reliance on big-government solutions.

But it's not just the incipient signs that the WTO feels a need to accommodate the Third Way style regulators that concern me. It's the growing pressure not just from the interest groups gathered here this week, and from the media, but also, and perhaps most importantly, from my own government -- from the Clinton-Gore Administration. The President will be talking the talk of free and unfettered trade this week in Seattle, for which he should be applauded. But I will be watching what his administration does after he is finished talking. He may talk the talk of unfettered free trade but will his administration walk the walk or will the Clinton-Gore Administration walk the walk of a global regulator?

The President, in fairness, is getting hammered from both labor and the environmental movement to drastically amend his free-trade credentials by adding their regulatory freight to the free-trade express. Unfortunately, every indication is that the Clinton-Gore Administration is attempting to have it both ways by suggesting it has discovered a "win-win" scenario in which we give greater play in trade negotiations to green issues and labor's agenda, while still "growing the world economy," as it were. In fact, the only true "win-win" strategy is free trade itself, which creates wealth and opportunity not just for the parties to the deal, but for workers, investors, and consumers worldwide. Everything else is just so much Third-Way razzmatazz.

Let me give you an example of the traps the Administration is walking us into. The President wants an official WTO working group on labor issues, but as Rep. Phil Crane and others point out, this just duplicates the mission of the International Labor Organization.

Even more significantly, on November 16 President Clinton issued an Executive Order requiring assessments of environmental impact for any major trade negotiation that the U.S. may undertake. While these "environmental impact" reviews will be done under the auspices of USTR and the Council on Environmental Quality (i.e., the White House) they will be done in close consultation with EPA and "appropriate foreign policy, environmental, and economic agencies". The President's Executive Order specifically states that "Trade agreements should contribute to the broader goal of sustainable development." There's that "sustainability" buzzword again.

Lest anyone think this new Executive Order is mere window dressing to appease the environmental movement, Deputy U.S. Trade Representative Susan Esserman assures us that the goal is to ensure that trade negotiations are conducted "in a manner consistent with U.S. support for domestic and international environmental protection." Since my view is that free trade per se is the best thing for the environment, I don't quarrel with the underlying objective. I do question very seriously the President's explicit linkage between trade and environmental regulation, however, particularly the emphasis on "international" green regulation.

Time will tell how this Order is applied in practice, but a few things are instantly clear. First, whatever happens in the Millennium Round negotiations, the Clinton-Gore Administration is now firmly committed to integration of trade policy with environmental regulation. And since the U.S. is the world's largest marketplace, the example it sets is bound to have a huge impact not just on the WTO, but on commercial and regulatory practices worldwide.

Second, the Clinton-Gore Administration is explicitly introducing the EPA into trade policy. The EPA is an independent regulatory agency, not an arm of the White House like USTR is. And this is the same EPA that flaunts the U.S. Senate in seeking to promote and implement by stealth the unratified Kyoto global warming treaty; the same EPA that seeks by regulatory fiat to force States to implement its expansive and costly interpretation of the Clean Water Act; the same EPA that sought to enforce an aggressive new interpretation of clean air standards that had no statutory basis, no scientific credibility, and no credible cost assessment. This EPA will be given decisive input into global trade policy. And the folks gathered here in Seattle complain about WTO unaccountability! Let them take a look at the EPA.

Third, the trade-environment link is high on the Clinton-Gore Administration's political agenda, as indeed it is for the European Union and the entire global Third Way movement. Now, I have commended President Clinton's efforts to implement NAFTA, extend and expand it to Chile, open up a free trade relationship with Africa, and his opposition to tariffs on electronic commerce. But, those of us who care about trade, growth, and freedom itself must be deeply concerned about these developments in U.S. policy. We must also be vigilant not just against the "greening" of the WTO, but also the parallel drive to link trade policy—really trade sanctions—with international environmental agreements. The Basel Convention