December 4, 2015

Economic Inequality: Causes, Consequences, and Responses

International trade agreements have become a dominant feature of the global financial and political discussion. As multinational companies seek to expand profits by growing their enterprise in developing countries and host countries react to this new labor demand, the result is a rapidly changing global economic climate. One particular treaty—the Trans-Pacific Partnership (TPP) —has been a large source of contention and was the topic at hand for the panel on "The Inequality Costs of the Trade Liberalization Agenda in Developing Countries" hosted by the Georgetown Law Center on December 4, 2015.

If ratified, the TPP would be the largest trade deal in history. But many are calling for it to be struck down; in particular, critics raise questions about the possible acceleration of inequality in developing countries. The 12-nation treaty seeks, among other things, to expand corporate profit margins in developing countries and generate revenue opportunities in a reciprocal agreement. However, according to some panelists, the TPP appears to be anything but reciprocal in its distribution of profits. As competition to bring in these lucrative multinational companies increases, various host governments will attempt to create the most appealing labor and patent policies for the foreign entities. Consequently, developing countries will be locked in a scramble to the bottom: contributing to the wealth of others, while not receiving any comparable benefits.

As a Georgetown law professor commented, the TPP will create a system that encourages host countries to provide special incentives to foreign investors (a process he named “international policy laundering”). The result is a drastic shift in inequality between the developing countries and the multinational corporations interacting with them.