Last week, I hand-delivered to U.S. trade negotiators a statement signed by more than 250 economists calling for trade reforms to allow governments to use capital controls to prevent financial instability. This week, the Empire struck back. The U.S. Chamber of Commerce, the Business Roundtable, and 15 other lobby groups have sent a letter to six top Obama administration officials, urging them to reject our proposals.
The corporate counter-attack begins with flimsy arguments about how loosening capital control restrictions would undermine everything we hold dear as Americans, from good-paying jobs to national security. They then go on to make a contradictory argument that reforms aren’t necessary because our trade and investment agreements already allow capital controls.
Together with the Global Development and Environment Institute at Tufts University (GDAE), which co-initiated the economist statement, we’ve developed a point-by-point rebuttal to the corporate lobbyists’ letter.
We push back particularly hard on the big business lobbyists’ claim that capital controls are bad for workers and the poor. It’s truly astonishing to see them make these arguments — two years into a global financial crisis caused by reckless unregulated financial activity.
As I explained in a video last week, many governments have used capital controls effectively to manage the flow of hot money in and out of their economies. They include measures to prevent speculative bubbles – that’s what Brazil is doing right now. They can also include measures to prevent massive capital flight, like those the IMF recommended for Iceland. As part of a broader menu of options, capital controls are critical tools for helping to prevent job-killing financial instability.
IPS and GDAE are also encouraging the 257 economists who signed our letter – an ideologically diverse array of academics and former IMF and government officials – to speak out directly through the media or to policymakers.
The fight is particularly timely as U.S. trade negotiators head off to Chile for talks on February 15 over the Trans-Pacific Partnership, a proposed trade deal with eight other countries. In addition, Dave Camp (R-MI), the new chair of the House Ways and Means Committee, has just made a big pitch for action on three pending deals negotiated under the Bush administration, as well as a bilateral investment treaty with China.
Thus far, the Obama administration has made no commitments to change U.S. policy on capital controls. And so, the fight continues…..