BFoGP  Working  Paper  WP/2015/01    (January  2015)  

   

 

An  Unequal  Treaty    -­‐  TTIP  and  Inequality  in  Europe  -­‐  

 Marc  Venhaus  

             

               

 Berlin  Forum  on  Global  Politics    Webpage:  www.bfogp.org  Email:  contact@bfogp.org    Twitter:  @BFoGP                  

 

   

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 An  Unequal  Treaty    

-­‐  TTIP  and  Inequality  in  Europe  -­‐    by      

Marc  Venhaus    Abstract:   TTIP,   which   is   currently   negotiated   between   the   EU   and   the   US,   is   largely  portrayed  as  a  blessing  and  especially  on  the  European  side  backed  by  communicational  campaigns  and  econometric   impact   studies  with   the  aim   to  appease  growing   criticism  among   the   wider   population.   However,   both   the   EU   Commission’s   constant   win-­‐win  rhetoric  and  the  overly  optimistic  and  simplistic  scientific  assessments  of  (willingly)  fail  to  take  into  account  the  multiplicity  of  potential  (negative)  consequences  on  European  societies,   especially   if   TTIP   is   purely   conducted   in   the   vested   interest   of   transatlantic  elites,  as  well  as  the  financial  and  corporate  sector.  A  high  price  that  Europe  may  have  to  pay  is  a  rise  in  the  actual  and  (mis-­‐)perceived  level  of  inequality,  which  again  might  put  the  future  of  the  EU  at  serious  risk  (e.g.  rise  of  populism,  migration  pressures,  growing  imbalances   and   so   forth).   Only   if   citizens   in   Europe   as   well   as   legitimately   elected  representatives   bethink   themselves   of   the   long   egalitarian   and   democratic   European  tradition  and  start  reclaiming  their  rights  in  the  name  of  unity,  solidarity,  and  prosperity  could   TTIP   turn   out   to   be   beneficial,   instead   of   turning   into   an   ‘unequal   treaty’   with  Europe  at  the  losing  end.      Keywords:  TTIP;  EU;  US;  inequality;  impact  studies  

 Introduction    The  global  financial  crisis  (GFC)  of  2008  (and  counting)  has  accelerated  the  global  shift  in  power  and  significantly  harmed  the  economic  and  geopolitical  standing  of  both  the  US  and   its   closest  Western   ally,   the   EU,   vis-­‐à-­‐vis   aspiring   emerging   economies   like   China  (Venhaus  2013).  This  has   caused  Washington  and  Brussels   to   reevaluate   their  mutual  relationship  under  the  impression  of  waning  Western  leadership  and  has  motivated  the  two   vast   economic   markets   to   overcome   sluggish   domestic   growth   performance   and  stalling  WTO-­‐negotiations  with  a  new  groundbreaking   free   trade  and   investment  deal.  Hence,  TTIP,  which  originated  from  an  idea  of  the  mid-­‐1990s  that,  back  then,  was  mainly  initiated  by  Germany  (see  e.g.  Donges,  Freytag  &  Zimmermann,  1997:567)  and  met  with  reluctance   from   the   US,   experienced   a   comeback   on   the   international   stage   with   the  November   2011   EU-­‐US   summit.   Concrete   negotiations   between   the   EU   and   the   US  started   in   July   2013   after   the   joint   High   Level   Working   Group   on   Growth   and   Jobs  (HLWH  2013)  came  to  the  conclusion  that  an  agreement  would  be  in  the  larger  interest  of   both   partners.   However,   the   initial   aim   to   conclude   the   negotiations   by   the   end   of  2014  has  already  been  missed  with   the  7th   round  of  negotiations   (September/October  2014)   due   to   bilateral   discords   on   several   issues   and   public   resistance,   especially   in  Europe.  Up  to  now,  far  too  much  has  already  been  invested  on  both  sides  of  the  Atlantic  

   

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for  which  reason  failure  is  no  longer  perceived  as  an  option.  Thus,  it  seems  that  it  is  only  a  matter  of   time  until   the   ‘economic  NATO’  (Hilary  Clinton)  or   ‘Transatlantic  Colossus’  (Cardoso  et  al.  2013)  will  finally  be  ratified  in  order  to  create  the  largest  free  trade  area  in   history   covering   nearly   half   of   world   GDP,   30%   of   global   trade   and   roughly   800  million  people  (Mildner  et  al.  2012:9).      I.  TTIP  –  An  Agreement  in  Disguise    It  needs  to  be  stressed  that  TTIP  -­‐  despite  the  nice  wording  of  ‘free  trade’  in  combination  with  ‘partnership’  -­‐  is  not  so  much  about  trade  (the  topic  is  actually  barely  touched),  but  rather   about   reducing   regulatory  barriers   especially   in   regard   to  bilateral   investment;  e.g.,   in   the   form   of   investment   protection   by   means   of   ISDS   (i.e.,   dispute   settlement  between   a   state   and   a   suing   company   with   the   former   most   often   coming   off   as   the  winner).  This   is  actually  a  smart  move   in   terms  of   framing  since   the   idea  of   free   trade  has  a  close  to  sacrosanct  standing  and  is  mostly  portrayed  as  a  global  blessing  -­‐   if  you  criticize   it   you   are   against   progress   and   prosperity.   No   doubt   about   it,   our   wealth  nowadays  is  based  on  an  international  division  of  labor  and  the  free  exchange  of  goods  and  services.  Even  so,  tariffs  between  the  US  and  the  EU  are  already  largely  insignificant.  What   is   mainly   negotiated   between   the   two   partners   is   first   and   foremost   common  guidelines  in  regard  to  future  rules  and  regulations  in  the  interest  of  the  financial  sector  and   large   highly   financialized   and   shareholder-­‐value-­‐oriented   corporations.   The   long-­‐term  aim  is  to  create  a  transatlantic  ‘regulatory  cooperation’  where  market  obstacles  are  to   the   largest   extent   dismantled   and   most   present   and   future   regulations   become  harmonized  (i.e.,  common  standards).  To  be  precise,  regulatory  cooperation  is  a  rather  new   approach   in   US-­‐EU   trade   relations.   Not   only   do  Washington   and   Brussels   aim   to  reduce  the  existing  barriers  to  trade  and  investment  by  harmonizing  standards  but  also  want  to  avoid  that  new  rules  and  regulations  are  created  that  may  cause  problems  to  the  agreement  at  a  later  point  in  time.  Accordingly,  the  two  negotiation  partners  are  aiming  at   establishing   a   bilateral   ‘regulatory   cooperation   body’   as   the   supreme   oversight  authority,  which  not  only  would  be  able   to  exclude   the  public  and  elected  parliaments  but  de-­‐facto  would  provide   the  US  as  an  outside  actor  with  significant   influence   in  EU  lawmaking  process  and  vice  versa.  On  the  US  side,  things  are  momentarily  speeding  up  as   the   President   might   soon   receive   so-­‐called   fast-­‐track   negotiation   authority   from  Congress.  This  implies  that  the  Congress  can  no  longer  discuss  all  the  negotiated  points  in  detail  -­‐  which  most  likely  would  prolong  the  process  -­‐  but  instead  has  to  fully  approve  or  reject  the  agreement  once  the  negotiations  have  come  to  a  close.  This,  however,  puts  the  EU  -­‐  with  its  currently  28  quite  diverse  and  often  discordant  member  states  –  under  additional  pressure  to  follow  suit  and  push  for  the  conclusion  of  the  trade  agreement.  On  the   European   part,   it   is   the   EU   Commission   that   currently   holds   the   official  mandate  from   the  EU  Council   and  EU  Parliament   to  negotiate  with   the  US,  despite   the   fact   that  “the  composition  of  the  later  two  has  profoundly  changed  since  the  time  the  decision  to  open  the  negotiations  was  taken”  (Skrzypek  2014a).  Besides  the  controversies  about  the  given  mandate,   it   is  especially  the  direct  involvement  of  lobby  groups  coming  from  the  financial  and  corporate  sector  along  with  the  simultaneous  exclusion  of  civil  society  that  contributed  to  the  democratic  deficit  regarding  TTIP.  Early  chances  to  apply  the  ideal  of  a  deliberative  democratic  process  by  means  of  some  public  inclusion,  transparency,  and  openness  have  been  missed  (Venhaus  2014).  To  be  true,  financially  well-­‐endowed  lobby  

   

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groups   have   already   gained   such   a   strong   influence   that   not   even   the   EU   Parliament  knows  what  is  currently  being  negotiated.  This  is  eroding  trust  in  the  ‘European  idea’  of  democracy  and  accountability  both  among  voters  and  several  members  of  parliament.  In  whose  interest  is  a  swift  conclusion  of  TTIP  then;  i.e.,  the  good  old  question  cui  bono?      The  Few  Against  the  Many    In   the   current   times   of  widespread   secular   stagnation   that   is   signified   by   diminishing  returns,   it   is   especially   the   financial   sector   plus   large   financialized   and   shareholder-­‐value-­‐based  corporations  that  aspire  to  gain  more  (market)  power  by  means  of  TTIP.  A  central  aim  is  to  extend  rent  seeking  activities  and  to  realize  the  biggest  possible  short-­‐term  profit  by  rewriting  the  regulatory  rules  of  the  game  -­‐  largely  at  the  expense  of  the  involved  societies.  Unfortunately,  most  of  the  political  establishment  seems  to  be  going  along.  Presumably,  this  is  either  due  to  tight  personal  or  professional  linkages  with  the  former  (regulatory  capture),  a  general  paradigmatic  sympathy  to  their  mostly  neoliberal  policy  goals  (cognitive  capture)  or  simply  a  result  of  a  too  narrow  focus  on  geopolitical  interests  and  strategies,  where  possible   societal   costs  appear   like  a  necessary  price   to  pay.  In  any  case,  a  trade  agreement  that  is  biased  in  such  a  sense  is  unlikely  to  create  the  promised  jobs  and  growth,  but  may  lead  to  inequality  and  widening  income  differences  due  to  an  accelerated  tendency  for  the  top  incomes  (especially  investors  and  the  upper  managerial  class)  to  grow  faster.  Wealth  and,  thus,  political  power  is  concentrated  in  the  hands  of  ever  fewer  people  who  disproportionally  benefit  at  the  expense  of  the  majority  of  people;  especially  of  those  who  depend  on  labor,  pensions,  and  welfare  (Stockhammer  2014).  In  the  end,  (regulatory)  harmonization  may  force  people  in  Europe  and  the  US  to  be  attuned   to   the  symphony  of  unrestricted  market   ideology  whereas  vested   interests  and  the  corporate  and  financial  lobby  dictate  the  hammering  rhythm.  The  result  may  be  a  further  decline  of  trade  unions  and  workers  representations  as  well  as  reduced  social  cohesion,  which  is  driven  by  corporate  and  financial  behemoths  and  a  leviathan  that  is  either   in   fatalistic   retreat  or   afflicted  with   the  neoliberal  Ungeist.   The  question   is  how  much   affected   societies   are   capable   or   willing   to   bear?   Elgar   (2014:57)   argues   that  especially  inequality  could  turn  into  a  social,  political,  and  economic  bad  as  it  “tears  the  social   fabric   and   divides   communities   and   entire   societies   along   economic   lines.   Rifts  between   the   rich   and   poor   foster   feelings   of   deprivation,   increase   class   anxiety   and  conflict,  and  reduce  levels  of  trust  and  efficacy  in  communities”.      Without   a   doubt,   TTIP   will   cause   “substantive   repercussions   for   national   regulatory  regimes”  (Pelkmans  2014).  The  question  in  this  regard  is  who  of  the  two  partners  will  have  to  bare  the  bigger  share  of  the  costs  of  (regulatory)  adjustment?  Resistance  to  pay  the  bill   is  strong  on  both  sides,  but   it   is  not  unlikely  that  Europe  -­‐  being  in  a  relatively  weaker  negotiation  position  -­‐  will  blink  first.  So  to  say,  the  EU  may  take  the  path  of  least  resistance  by   lowering   its   high   social   standards   in   order   to   comfort  US  demands.   The  reason  is  that  the  US  is  currently  a  bigamous  negotiator  that  in  its  ‘pivot  to  Asia’  tries  to  simultaneously   close   a   trade   deal,   the   Trans-­‐Pacific   Partnership   (TPP),   with   eleven  partners  (explicitly  not  China)  in  the  Pacific  Rim;  another  big  project  that  is  promoted  by  US   financial  and  corporate   lobby  groups.   In   this  regard,   the  president  of   the  Economic  Strategy   Institute,  Clyde  Prestowitz   (2015),  wrote   in  a   recent  op-­‐ed  article   for   the  Los  Angeles  Times  that  in  advance  of  each  free  trade  agreement,  US  leaders  promised  high-­‐

   

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paying   jobs,   a   reduction   of   the   trade   deficit,   an   increase   in   GDP,   and   a   rising   living  standards   but   “none   of   these   came   true”   whereas   “economists   overwhelmingly   agree  that   rising   US   income   inequality   is   being   driven   in   part   by   international   trade”.   He  expects  a  similar  outcome  from  TPP  and  TTIP  and  believes  that  it  is  just  a  matter  of  time  until  people  will  finally  come  to  realize  this  constant  “betrayal”,  and  start  to  revolt.  Ergo  we  might  soon  find  ourselves  in  a  “dying  age  of  free-­‐trade  agreements”.  Nonetheless,  the  EU  at   the   same   time   is  highly  worried  about  being   left  behind  and  aspires   to  keep  on  playing   an   important   geopolitical   role   in   an   ever-­‐changing   global   environment   by  signing   TTIP   and,   thus,   binding   itself   closer   to   the   US.   Moreover,   as   Bildt   and   Solana  (2015)  recently  pointed  out,  Brussels  now  starts  fearing  the  “catastrophic  consequences  of   failure”  as   it  could  fully  paralyze  the  EU  and  even   lead  to  a  political  disruption  with  troublesome   countries   like   the   UK   going   adrift   even   further.   Apart   from   that,   a  cancelation  of  TTIP  would  probably  leave  the  impression  with  Washington  that  the  EU  is  a  rather  impotent  global  actor  and  incapable  of  speaking  with  one  voice.  Indeed,  leading  European  actors  are  willing  to  enter  “an  allegiance  rather  than  an  alliance”,  which  is  why  the  EU  Commission  is  doing  its  very  best  to  make  it  a  success  (Defraigne  2014:17)      Propagating  TTIP    To  dampen  domestic  controversies  that  broke  out  all  over  Europe  (except  from  the  UK  where  TTIP  seems  to  be   less  of  a  controversial   topic),   the  EU  Commission  and  various  other  advocates  of  TTIP  have  tried  to  discursively  frame  the  almighty  agreement  in  the  most  favorable  terms  with  the  aim  to  sell  the  idea  to  the  European  public.  In  this  context,  a   recently   leaked   issue   paper   named   ‘Communicating   on   TTIP’   from   November   2013  gives   interesting   insights   in   the  so-­‐called   ‘holistic’   communicational   strategy  of   the  EU  Commission  (2013a).  To  give  just  one  example:    

“The   aim   is   to   define,   at   this   early   stage   in   the   negotiations,   the   terms   of   the   debate   by  communicating   positively   about   what   TTIP   is   about   (i.e.   economic   gains   and   global  leadership  on  trade  issues)”  

 Furthermore,   it   is   stated   in   the   document   that   the   EU   Commission   and   its   respective  partners   in   the  member   states   should   try   to   keep   the  prerogative   of   interpretation   in  regard  to  TTIP;  especially  so  by  influencing  mainstream  media  and  fending  of  criticism  as   a   form   of   scaremongering   or   unreasonableness.   Luckily   large   segments   of   the  journalistic  landscape  of  Europe  did  not  go  along  and  reported  and  continue  to  report  in  a   more   balanced   if   not   increasingly   critical   way.   Interestingly,   compared   to   Europe,  where  TTIP  is  a  hot  topic,  it  seems  that  it  is  barely  covered  by  US  media  and  of  far  less  importance  to  US  citizens    (Knüpfer  2014).  Concomitantly,  the  EU  Commission  started  to  systematically   affect   public   opinion   via   social   network   channels   (e.g.,   by  means   of   the  official   Twitter-­‐Account   ‘EU_TTIP-­‐team’   that   constantly   propagates   TTIP   as   a   grand  project   and   shrugs   off   criticism).   One   potential   element   of   the   agreement   whose  consequences  are  largely  downplayed  is  investment  protection,  which  currently  comes  in  the  form  of  the  so-­‐called  investor-­‐state  dispute  settlement  (ISDS)  (for  details  on  ISDS  see:   e.g.,   Eberhardt   2014;   Krajewski   2014).   This   is   especially   crucial   for   Washington  because  “US  financial  firms  hope  that  the  TTIP  will  bury,  once  and  for  all,  EU  plans  for  a  tax  on  financial  transactions”  and  additionally  will  preclude  them  from  regulating  high-­‐

   

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risk   investments   (Wallach   2013).   Hence,   ISDS,   if   included,   would   provide   foreign  investors  with  the  right1  to  directly  sue  a  state  if  they  feel  that  the  respective  state  has  violated  the  initial  terms  of  investment  (e.g.,  through  the  adoption  or  implementation  of  new   laws   in   the   public   interest).   In   such   a   case   ad   hoc   arbitration   tribunals   that   are  commonly  composed  of  highly  specialized  private   lawyers   from   large   law  firms  rather  than  publicly  accountable  domestic  courts,  would  gain  the  single  right  to  decide  whether  compensation   becomes   necessary   or   not     (Krajewski   2014:6).   This   again   could   have  significant   consequences   for  a   state’s   regulatory   rights  and  national  budget  and  hence  for   the   welfare   of   its   citizens.   Once   ratified   it   is   nearly   impossible   for   individual  governments  to  roll  back  the  newly  gained  power  of  private  investors.  However,  due  to  public  outcry  and  the  resulting  political  controversy  surrounding  ISDS,  it  has  now  been  agreed   by   the   negotiators   that   the   topic   is   adjourned   until   the   “final   phase   of   the  negotiations”  (EurActiv  2015).        Nonetheless,  in  Germany  and  multiple  other  European  states,  critics  and  opponents  are  gaining  the  upper  hand,  as  trust  in  the  EU  institutions  is  increasingly  shattered  (Venhaus  2014).  As  of  January  2015,  the  Europe-­‐wide  Initiative  ‘Stop  TTIP’,  which  is  supported  by  about  300  organizations,  already  managed  to  collect  more  than  1.2  million  signatures  all  over  the  continent.  The  necessary  quorum  has  already  been  reached  in  eight  out  of  28  countries  but  is  not  being  accepted  by  the  EU  Commission.  It  is  therefore  likely  that  the  European  institution  will  soon  come  into  direct  conflict  with  the  EU  Court  of  Justice.  As  a  reaction   to   the   growing   protests   against   TTIP   in   Europe,   the   Federal   Government   of  Germany  together  with  other  EU  member  states  and  the  EU  Commission  plan  to  set  up  a  broad  campaign  in  February  2015  in  order  to  address  the  widespread  worries  and  (pre-­‐)conceptions   among   the   population.   Accordingly,   the   EU   Trade   Commissioner   Cecilia  Malmström  was  asked  to  initiate  a  study  that  -­‐  once  more  -­‐  should  stress  the  economic  importance   of   the   trade   agreement   and   aims   to   show   that   TTIP   will   neither   lead   to  deregulation  nor   to   a   reduction  of  democratic   rights.   It   remains   to  be   seen   if   this  will  work  out,  since  trust  is  already  significantly  shattered  and  hard  to  be  rebuild.  Apart  from  that,  the  EU  Commission  recently  made  available  some  of  its  so  far  secret  documents,  on  which  negotiations  between  the  EU  and  the  US  are  based,   in  order  to  allow  for  a  more  informed  public  debate.  Until  now,  people  were  only  able  to  get  a  hint  of  what  is  really  negotiated  behind  closed  doors   in   the   ‘name  of   the  European  citizens’   from  numerous  leaks.   This   not   only   signified   a   strong   lack   of   transparency,   but   also   led   to   increased  speculation  about  the  underlying  content  and  purposes  of  TTIP.  The  partial  publication  of  EU  documents,  however,  currently  seems  like  a  desperate  act  in  the  ongoing  fight  for  public   opinion   (ZEIT   Online   2015).   Furthermore,   the   new   transparency-­‐initiative  reveals  only  one  part  of  the  picture:  the  US  demands  in  regard  to  TTIP  are  still  kept  in  full   secrecy   (as   repeatedly   demanded   by   Washington),   so   the   revelation   of   EU  documents   has   close   to   no   value   since   it   remains   unclear   to   what   extent   European  negotiators   will   (have   to)   make   concessions   during   the   negotiations   with   the   US.  Consequently,  the  negotiations  remain  as  untransparent  as  before.                                                                                                                      1  Interestingly,   the   first  modern   bilateral   investment   treaty  was   signed   in   1959   between   Germany   and  Pakistan  on  the  request  of  the  former.      

   

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One  thing  is  for  sure:  in  this  largely  entrenched  debate  the  advocates  of  TTIP  are  in  the  defensive.  Consequently,  Brussels  has  to  fear  that  if  public  opinion  is  not  turned  around,  all  will  be   lost;   the   latest   if  TTIP   finally   fails   to  be  ratified  by  the  national  parliaments.  However,   that   is  where  power  comes   into  play.  No  doubt  about   it,  especially  Germany  matters  a  great  deal  as  it  is  a  central  actor  in  the  process;  its  export-­‐oriented  and  highly  competitive   companies   and   banks   (e.g.   Deutsche   Bank)   -­‐   but   less   so   the   German  Mittelstand  -­‐  have  high  stakes  in  TTIP.  Nonetheless,  Angela  Merkel  (CDU)  and  her  Vice-­‐Chancellor  and  Minister  for  Economic  Affairs  Sigmar  Gabriel  (SPD)  seem  quite  eager  to  ratify  TTIP  -­‐  if  necessary  -­‐  against  strong  resistance  in  the  public  and  even  within  their  own  parties.  Moreover,  due  to  an  inherent  danger  of  rejection,  it  is  still  not  fully  decided  whether  national  parliaments  will  be  involved  at  all.  Thus,  what  could  be  observed  at  the  moment  is  a  creeping  redistribution  of  power  from  democratically  elected  parliaments  to  the  executive  under  the  direct  influence  of  lobby  groups  (Schumann  2014).  So,  in  the  end,  democracy  could  provide  a  hindrance  to  a  successful  completion  of  TTIP  and  may  lose   out   vis-­‐à-­‐vis   vested   interest   of   elites,   large   corporations,   and   finance   (Monbiot  2013).  Not   surprisingly,  Le  Monde  Diplomatique   called  TTIP   ‘the   corporation   invasion’  and   predicted   “[i]f   it   came   into   force,   privileges   enjoyed   by   foreign   companies  would  become   law   and   governments   would   have   their   hands   tied   for   good.   The   agreement  would   be   binding   and   permanent:   even   if   public   opinion   or   governments   were   to  change,   it  could  only  be  altered  by  consensus  of  all  signatory  nations”  (Wallach  2013).  The  British  political  scientist  Colin  Crouch  (2014)  even  goes  as  far  to  say  that  we  already  live  in  a  ‘post-­‐democratic  society’  where  “an  elite  of  business  and  governmental  persons  has   been   trying   to   make   deals   behind   the   back   of   the   population”   and   in   which   the  vested   interest  of  a   few  has   lead  to  an  “overall  decline   in  regulation”  and  a  worrisome  “degrading   of   labour   rights”.   Nonetheless,   he   rightly   points   out   that   “social   Europe  versus   market   America   (…)   is   not   a   particularly   helpful   way   to   frame   the   problem”.  Rather   the  cleavage   is  between  special   interests  vs.   the  general  public  and   their  social  standards.  Crouch  goes  on   to  explain   that   it   is  surely   the  case   that   “US   firms  are  more  adept  at  this  game,  because  their  country’s  small  welfare  state  has  allowed  more  scope  for  profit-­‐making  social  policy,  but  European  firms  are  active  here  too”  for  which  reason  “a   trade   treaty  with   the  US   seems   to   be   reinforcing   pressures   already   at  work  within  Europe,   rather   than   some   distinctively   American   threat”   (ibid.:2).   In   any   case,  we   are  now   entering   a   critical   phase   where   TTIP   will   either   lead   to   a   dominance   of   vested  interests,  finance  and  large  cooperations  or  alternatively  could  be  transformed  not  only  into   a   pan-­‐European,   but   also   a   transatlantic,   commitment   to   democracy   and   social  values.      The  Lullaby  of  Economic  Impact  Studies      As  shown  above,  the  EU  Commission  engages  in  a  domestic  campaign  to  promote  TTIP  among  the  European  public.  Not  only  does  it  currently  apply  a  strong  win-­‐win  rhetoric  but  also   -­‐   as   the   leaked  documents   reveal   -­‐   focuses  on  ostensibly   scientific   arguments  that   TTIP   will   be   both   a   growth-­‐engine   and   a   job-­‐creator.   Advocates   of   TTIP   are  especially  hoping   for  welfare   effects  based  on  economic   assumptions   in   a  neoclassical  sense:  Once   regulatory  barriers   disappear,   competition  will   be   increased   and  markets  become  more   innovative   and   efficient   (e.g.,   products   and   services   could   be   bought   at  cheaper   prices   and,   potentially,   in   a   higher   quality).   Additionally,   a   bigger   common  

   

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market   will   allow   firms   to   generate   economies   of   scale,   which   likewise   will   benefit  consumers.   An   increase   in   consumption   will   then   boost   the   economy   and   create  additional   jobs.   But,   the   reality   shows   that   economic   integration   not   only   produces  winners   but   also   losers.   Several   sectors   and   regions   (e.g.   crisis-­‐ridden   countries   in  Southern  Europe)  may  loose  out  further  that  already  have  severe  trouble  to  compete.  In  the  end  companies  may  have  to  close  down  resulting  in  labor  displacement  with  all   its  negative  consequences;  even  if  on  balance  new  jobs  will  be  created.  Even  so,  real  market  competition  is  generally  a  good  thing  but  what  we  have  seen  in  the  last  few  decades  is  a  trend  towards  oligopolistic  structures  for  which  reason  our  current  times  are  defined  by  large  corporations  and   the  dominance  of   finance   (too  big   to   fail)  on   the  one  hand  and  growing   inequality  and  powerless  masses  on   the  other   (Alice  Martin  et   al.   2014:7).   In  such  a  world,  textbook  economics  may  fail  to  grasp  reality.      In  line  with  that,  a  few  selected  studies,  commissioned  by  the  EU  Commission  (2013a)  as  well  as  the  German  Federal  Ministry  for  Economic  Affairs  and  Energy,  come  to  the  rather  inaccurate   and   implausible   conclusion   that   the   effects   of   TTIP   would   be   enormously  positive  for  both  partners  (Myant  2014).  The  two  most  prominent  studies  were  under-­‐taken   by   the   Centre   for   Economic   Policy   Research   (Francois   et   al.   2013)   and   by   the  Bertelsmann   Stiftung   in   collaboration   with   the   ifo   Institute   for   Economic   Research  (Felbermayr  et  al.  2013).  These  studies  make  it  look  probable  that  hundred  thousand  of  jobs   would   be   created   in   all   directly   involved   countries   (ibid.:41)   and,   in   addition,  calculate   that   TTIP   will   lead   to   an   increase   of   0,5%   in   GDP   for   the   whole   EU   (CEPR  2013:46).   Even   though   growth   is   always   nice   to   have,   the   latter   number   is   based   on  ‘most  ambitious’  -­‐  speak:  unrealistic  -­‐  assumptions  and  in  fact  covers  the  overall  period  from   the   final   ratification   until   the   year   2027;  which   in   the   end   comes   down   to   only  0,05%  (!)  growth  per  annum.  This  is  far  from  being  impressive  so  that  TTIP  most  likely  will  fail  to  become  a  significant  ‘growth  engine’  or  ‘job  creator’.  This  is  to  say,  the  hoped-­‐for   advantages   are   portrayed   as   facts   -­‐   backed   by   impact   studies   coming   from   think  tanks   with   a   certain   neoliberal   orientation   -­‐   whereas   all   potential   disadvantages   are  simply   ignored.   In   this   context,   it   is  worth  mentioning   Lorenzo   Fioramonti’s   (2014:6)  well-­‐written  book  How  Numbers  Rule  the  World,  which  reveals  how  “numbers  have  been  used   and   abused   in   governance   processes   to   entrench   the   power   of   markets   and  undermine   public   debate”.   In   a   sense   the   commissioned   and   paradigmatically   biased  impact   studies  were  published   to   function  as   an  econometric   lullaby   that   should   calm  down  the  public.   In  addition,   the  given  studies  are  based  on  overly   “simplistic  general  equilibrium  models  with   stringent   and  non-­‐realistic   assumptions”   (Cozzi   2014:1)   that  are   largely  rooted  in  the  neoclassical   tradition  of  the  Chicago  School  of  Economics  and  Jacob  Viner’s  (1950)  theory  of  economic  integration.      Such  trade   impact  assessments   therefore  have  to  be  seen  as  “an  exercise   in   ‘managing  fictional   expectations’”   (De   Ville   &   Siles-­‐Brügge   2014:1)   given   the   fact   that   estimated  effects  on  growth  and  employment  from  TTIP  are  either   largely  exaggerated  due  to  an  inadequacy  of  narrow  and  flawed  models  (Capaldo  2014)  or  are  misleadingly  presented  to  obscure  reality  and  distort  policies  in  the  vested  interest  of  influential  elites  (Weeks  2014).  Potential  adverse  effects  of  TTIP  are  often  either  downplayed  or  overlooked  due  to  both  a  strong  paradigmatic  and  methodological  bias  and  a  general  ignorance  in  regard  to   the   inclusion   of   broader   non-­‐calculable   socio-­‐economic   costs.   To   go   even   further,  

   

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Raza  et  al.  (2014:6)  show  in  a  detailed  assessment  of  the  above  named  assumptions  that  TTIP  may   have   “limited   economic   gains,   but   considerable   downside   risks“   and   stress  that   “the   social   costs   of   regulatory   change   might   be   substantial”.   Similarly,   Raza   and  Tröster  (2014),  Cozzi  (2014),  and  Myant  (2014)  suspect  that  TTIP  may  actually  turn  out  to   be   insignificant,   if   not   even   negative,   in   its   effects.   Interestingly,   a   recent   study   by  Capaldo   (2014)   from   Tufts   University,   who   applied   the   much   broader   Global   Policy  Model  of  the  United  Nations,  came  to  the  result  that,  for  instance,  on  the  European  side  TTIP  could   lead   to  economic  disintegration,   increased  unemployment  rates   (estimated  600.000  people  are   laid  off),  and   lower   incomes  (citizens   lose  around  165  up  to  5.000  €/year)  as  well   as  a   concentration  of  wealth  and  higher   financial   instability.  Raza  and  Tröster  (2014)  especially  point  to  the  fact  that  several  impacts  have  not  been  included  in  the   given   calculations,   like   economic   adjustment   costs   (which   they   estimate   to   be  around   €33-­‐60   billion   in   a   ten-­‐year   period)   and   substantial,   yet   admittedly   hard   to  measure,  social  costs  of  regulatory  change  and  compensation  like  rising  inequality  with  all   its   consequences.  Moreover,   it  needs   to  be   stressed   that  problems  of  measurement  and   insufficiencies   in   computable   calculations   do   not   mean   that   such   costs   are   not  existent.   Unfortunately,   the  mentioned   econometric   studies   are   turning   a   blind   eye   to  this   fact   instead   of   honestly   assessing   all   possible   implications   of   TTIP.   Hence,   “a  methodological  approach  for  such  an  impact  analysis  is  needed,  that  is  characterized  by  inter-­‐disciplinarity   and   the   participation   of   all   affected   stakeholders”   (ibid.   2014:13).  One   finding,   however,   sounds   highly   likely:   the   ifo/Bertelsmann   study   projects   that  (elites  in)  the  two  most  liberalized  and  financialized  countries  -­‐  the  US  and  the  UK  -­‐  will  substantially  gain  in  a  deep  liberalization  scenario  (i.e.  13,4%  and  9,7%  in  real  per  capita  income);  the  positive  effects  for  most  other  countries  in  general  and  on  employment  in  particular  look  rather  meager  in  direct  comparison  (Felbermayr  et  al.  2013:43;  Petersen  2013:20).      Once   again,   the   biggest   potential   price   that   Europe  will   have   to   pay   if   vested   interest  dominate  and   large  corporations  and   the   financial   sector   imprint   their  preferences  on  TTIP  is  probably  a  rising  level  of  inequality  with  all  its  potential  negative  consequences.  As  shown  above,  the  absolute  and  relative  gains  of  TTIP  are  highly  uncertain  but  it  has  to  be  assumed  that  the  social,  economic  and  political  costs  could  be  significant  (admittedly,  it   is  still  relatively  unclear  what  the  effects  of  TTIP  on  specific  sectors  and  regions  will  be).  Accordingly  we  have  to  be  prepared  for  the  worst,  instead  of  being  lulled  into  a  false  sense  of  hope.  Additionally,   the  example  of  the  North  American  Free  Trade  Agreement  (NAFTA2),  which  was  set  up  in  1994  between  the  US,  Canada  and  Mexico,  shows  that  the  real   outcomes   of   such   agreements   are   often   fundamentally   different   to   the   (false)  promises  initially  made.  But  if  there  is  growth  at  all,  how  will  it  really  look  like?  In  fact,  the   last   decades   of   increased   financialization   (penetration   of   profit-­‐led   motives   into  increasing  areas  of  society)  have  shown  that  growth  is  not  necessarily  equal  to  a  rise  in  the  wealth  and  welfare  of  the  wider  population  (Martin  et  al.  2014).  The  inherent  danger  comes   from   “jobless   growth”,  where   growth   is   “experienced   purely   in   financial   terms  without   any   visible   benefit   in   the   ‘real   economy’   dimension”   so   that   “TTIP   might  predominantly   become   the   tool   to   enable   further   flourishing   of   the   financial   capital                                                                                                                  2  It   is  worth  mentioning   that  TTIP  at   the  very  beginning  was  actually   called  TAFTA   (Transatlantic  Free  Trade  Agreement)  but  was  then  renamed,  presumably  due  to  negative  associations  with  NAFTA.  

   

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rather   than   being   an   agreement   to   the   benefit   of   the   ‘ordinary   citizen’”   (Skrzypek  2014b:10).  Accordingly,   an   increase   in  GDP  does  not   necessarily  mean   that   all   people  benefit.  In  a  way,  GDP  itself  provides  false  impressions  of  how  well  a  country  is  actually  doing  and  can  be  perceived  as  a  flawed  measurement:  a  few  might  gain  above  average  though  the  most  are  left  unaffected  or  even  worse  off  than  before  (Fioramonti  2013).      II.  TTIP  and  Inequality      What  the  described  econometric  impact  studies  fully  miss  out  are  the  potential  effects  of  both  a)  actual  and  b)  (mis-­‐)perceived  levels  of   inequality  in  Europe,  which  again  could  have  significant  effects  on  the  wellbeing  of  citizens  and  may  form  a  hindrance  to  growth  in  the  EU.  If  TTIP  further  extends  the  reach  of  financial  capital,   large  corporations,  and  neoliberal   policies,   it   is   not   unlikely   that   the  EU   (Gini   coefficient:   31%)  may   in   a  way  import   the   higher   level   of   inequality   -­‐   which   among   others   manifests   itself   through  disparities   in   income,  wealth,  access   to   jobs  and  education   -­‐   from  the  US  (38%)  under  the  dogma  of  economic  freedom  and  market  flexibility.  Rising  levels  of  inequality  within  and  between  European  countries  could  then  inflict  enormous  social,  economic  as  well  as  political  costs  for  the  28  -­‐  sometimes  already  highly  fragile  -­‐  member  states.  Instead  of  creating  prosperity,  TTIP  could,   in  the  worst  case  scenario,   take  the  EU  to  the  brink  of  collapse   if   it   may   come   at   the   price   of   inequality-­‐driven   economic   disintegration,  migration   pressures   (especially   out   of   desperation),   frustration   with   the   established  political   institutions,   and   increasing   left   and   right   wing   populism   as   well   as   growing  budgetary  imbalances  between  the  core  and  the  periphery.      Actual  Levels  of  Inequality      Due   to  a  very   recent  OECD-­‐study  conducted  by  Frederico  Cingano   (2014:6)   inequality  has   increased  in  nearly  all  countries   involved  in  the  TTIP  negotiations  since  the  1980s  which   is   why   “the   gap   between   rich   and   poor   is   at   its   highest   level   since   30   years”.  According  to  his  OECD-­‐colleague  Stefano  Scarpetta,  based  on  data  from  2012,  the  top  1%  of  the  US  population  accounted  for  20%  of  the  total  pre-­‐tax  income  compared  to   ‘only’  8%   in   the   1980s   (K@W   2015).   In   addition   to   that,   a   detailed   report   of   the   EU  Commission   (2014a)   shows   that   in   the   EU   124.5   million   people   -­‐   i.e.,   24.8%   of   the  population   -­‐   are   currently   at   the   risk   of   poverty   or   social   exclusion.   Nonetheless,   not  only  are  the  “[p]overty  rates  in  most  EU  countries  […]  below  the  OECD  average,  and  in  particular   lower   than   in   the   United   States”   but   also   in   terms   of   the   Gini-­‐coefficient3  (being  the  most  widely  used  indicator  for  measuring  inequality),  “Europe  appears  much  more  equal   in   international   comparisons.”  whereas   the  US   “remains   the  most  unequal                                                                                                                  3  The   Gini-­‐coefficient,   named   after   the   Italian   economist   Corrado   Gini,   measures   the   level   of   income  inequality   based   on   equivalised   disposable   income   of   individuals   in   different   countries/regions   at   a  specific  point  in  time.  The  scale  ranges  from  0  to  100  where  0  represents  a  perfectly  equal  distribution  of  disposable   income   in   a   society   and   100   signifies   that   everything   is   concentrated   in   the   hands   of   one  person  only.  An  often-­‐criticized  limitation  of  the  index  is  that  it  does  not  show  how  income  is  distributed  among   different   segments   of   society   for   which   reason   the   interpretation   of   empirical   evidence   may  become  problematic.  It  is  therefore  often  useful  to  further  break  down  income  distribution  into  quintiles,  percentiles,  and  deciles  to  get  a  more  detailed  picture  in  regard  to  the  haves  and  have-­‐nots.      

   

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high-­‐income  country”  in  the  world  (ibid.:6,7).  The  US  experienced  a  rapidly  rising  level  of   inequality  especially  during  the   last  decades  of  neoliberal  policies  (the  same,  by  the  way,   is   true   for   the  UK,   its   neoliberal   European   counterpart).  Overall   living   standards  have  been  rising  in  the  US,  but  less  and  less  people  actually  benefitted  from  it  leading  to  the   point   that   inequality   has   reached   a   level   similar   to   the   years   before   the   Great  Depression.   In   addition   to   that,   the   population   has   barely   profited   from   former   trade  agreements   (like  NAFTA);   instead,   the   largest   share   of   the   gains  went   to   big   business  and   the   financial   sector.  Due   to   Joseph  Stiglitz   (2012:xi)   the  high  price  of   inequality   is  “an   economic   system   that   is   less   stable   and   less   efficient,   with   less   growth,   and   a  democracy   that  has  been  put   into  peril”  whereas   the   idea   that   the  US   is   a   land  of   fair  opportunity   has   been   debunked   as   a   myth   since   economic   elites   “have   pushed   for   a  framework   that   benefits   them   at   the   expense   of   the   rest”.   A   recent   study   from   the  University   of   Princeton   reveals   that   the   dominance   of   such   elites   and   special   interest  groups  has  slowly  turned  the  US  from  a  democracy  to  some  kind  of  oligarchy  (Gilens  &  Page  2014).  Unfortunately,  Europe  is  already  on  a  track  of  convergence.  To  be  precise,  in  the  US  with  an  average  Gini-­‐coefficient  of  38%,   “inequality   levels  vary  by   region,  with  the   rural  west   the  most   ‘egalitarian’   section  of   the   country  and   the  northeast   its   least.  (By  state  Alaska,  Wyoming  and  Idaho  are  the  most  ‘equal’  states;  New  York,  Connecticut  and   Washington,   D.C.,   the   least)”   (ibid.:3),   while   in   the   EU   the   average   stands   at  significantly   lower   31%,   ranging   from   24%   in   Slovenia   (lowest   level   of   inequality)   to  36%  in  Latvia  (highest  level  of  inequality).  Before  the  GFC,  growth  in  the  Southern  and  Eastern  periphery  had  the  effect  that  overall  inequality  in  the  EU  decreased,  even  though  inequality  within  some  member  countries  did  increase.  Still,  as  Dauderstädt  and  Keltek  (2012)  show,   inequality  has  been  growing  all  over  Europe   in  the  aftermath  of   the  GFC  and   since   the   outbreak   of   the   partially   related   Eurocrisis;   especially   so   in   the   case   of  crisis-­‐ridden   countries   like   Greece,   followed   by   Ireland,   Spain,   Italy,   and   Cyprus.   In  general,   it   has   to   be   mentioned   that   Southern   European   states   tend   to   be   somewhat  more  unequal  than  the  ones  in  the  North  and  Northwest  (except  the  UK).  Interestingly,  the  EU  Commission  (2014a:3)  report  at  hand  states  that  “to  much  inequality  may  harm  growth   and   economic   performance   through   a   number   of   mechanisms,   such   as   some  under-­‐utilisation   of   human   capital,   lack   of   adequate   incentives   or   favouring   asset  bubbles”  as  well  as  “negative  effects  on  aggregate  demands”,  but  at  the  same  time  does  not   seem   to   take   into   account   that   TTIP   could   actually   worsen   inequality   in   Europe  (Gresser  2014).                              

   

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Gini  coefficient  in  selected  EU  and  non-­‐EU  countries,  2009  (EU  Commission  2014:7)  

   Besides   the   introduction   of   neoliberal   policies   of   liberalization,   deregulation   and  privatization,  the  increase  in  inequality  in  the  US  as  well  as  in  Europe  is  to  a  large  extent  based  on  the  rise  of  predatory  behavior  (e.g.,  rent  seeking  by  means  of  financialization  on  the  expense  of  the  real  economy)  of  a  small  influential  fraction  of  society  with  access  to   power.   In   this   regard,   Piketty   and   Saez   (2006:24)   refer   to   the   ‘top   executives’   or  ‘working   rich’,  who  managed   to   replace   the   classical   rentiers   at   the   top  of   the   income  hierarchy   during   the   20th   century.   Several   authors   like   Rajan   (2010),   Stiglitz   (2009),  Galbraith  (2012),  and  Palley  (2012)  argue  that  inequality  was  even  an  underlying  cause  for  the  GFC,  since  many  US  households  tried  to  compensate  (i.e.,  the  habitual  ‘keeping  up  with  the  Joneses’-­‐effect)  a  decline  in  relative  wages  by  reducing  savings  and  increasing  their   debts   to   realize   the   ‘American   Dream’   (van   Treeck   2012).   Another   important  reason   for   rising   indebtedness   and   inequality   in   the  US   (but   also   in   the  UK)   could   be  found   in   the   intensified   financial  penetration  of   society  at   large   through  new   financial  schemes  and  instruments  as  well  as   in  a  rapid   increase  of  student   loans  to  pay  for  the  high   costs   of   education   (Langley   2008).   These   developments   did   not   only   distort   the  economy  and  curbed  economic  growth,  but  also  affected  the  social  fabric  and  wellbeing  of   societies   (Galbraith   2012;   Stiglitz   2013,   Fitoussi   &   Saraceno   2014).   In   the   EU,   the  (Southern  and  Eastern)  enlargement  and  catch-­‐up  process  has  surely  contributed  to  this  development,   but   “it   is   not   the   only   explanation   since   inequality   has   also   increased  within  a  ‘core’  of  8  European  countries.  Large  income  gains  among  the  10%  top  earners  appear   to   be   a   main   driver   behind   this   evolution”   (Fredriksen   2012:2,   also   see   Boix  2004).  Hitherto,  first  and  foremost  in  the  US,  “income  inequality  has  risen  dramatically.  The  top  10  percent  of  earners  took  more  than  half  of  the  country’s  total  income  in  2012,  the   highest   level   recorded   since   the   government   began   collecting   the   relevant   data   a  century   ago.   The   top   1   percent   took   more   than   one-­‐fifth   of   the   income   earned   by  Americans”  (Compa  2014:3;  also  see  Piketty  &  Saez  2003).  This  is  not  only  problematic  from  a  social  perspective,  but  also  for  the  economic  stability  at  large:  it  has  been  proven  that   the   top  decile  not  only  has  a  higher  propensity   to  spend  (lowering  demand)   than  the  rest,  but  also  often  engages  in  more  speculative  and  risky  financial  behavior  (Lettau  

   

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et  al.  2014).  In  any  case,  it  has  become  obvious  since  the  GFC  that  the  ‘rising  tide-­‐lifts  all  boats’  and  ‘trickle  down’  arguments  (e.g.  Dew-­‐Becker  &  Gordon  2005)  have  failed,  since  it   is  predominantly  the  rich  who  are  getting  richer.  As  a  consequence,  “[r]edistribution  policies  via  taxes  and  transfers  are  a  key  tool  to  ensure  the  benefits  of  growth  are  more  broadly   distributed   and   the   results   suggest   they   need   not   be   expected   to   undermine  growth”  (Cingano  2014:6).  The  named  OECD-­‐study  convincingly  shows  that  high  levels  of   inequality   are   actually   bad   for   economic   growth;   this   is   e.g.   due   to   educational  disadvantages,   lower   socio-­‐economic   mobility,   and   insufficient   collective   spending  power.  Similarly  to  that,  a  well-­‐acclaimed  IMF-­‐study  by  Jonathan  D.  Ostry  et  al.  (2014)  supports  the  view  that  growing  inequality  may  impede  growth  and  reveals  that  -­‐  at  least  in  regard  to  advanced  countries  -­‐  redistribution  not  only  has  benign  effects  on  growth,  but   could   also   even   be   considered   as   a   pro-­‐growth   policy.   These   findings   directly  challenge   the   so   far   prevalent   conviction   that   inequality   is   important   for   growth   as   it  provides  ‘incentives’  (see  e.g.  Kaldor  1957,  Barro  2000,  Forbes  2000).  Thomas  Piketty’s  (2014)  widely  discussed  book,  Capital  in  the  21st  Century,  illustrates  how  the  returns  on  investment   (r)  have  become   far   larger   than  overall   growth   in  GDP   (g)   -­‐   leading   to  his  well-­‐known  formula  r>g  -­‐  for  which  reason  it  needs  to  be  assumed  that  this  will  remain  self-­‐perpetuating   if   there  are  no  significant  distributional  policy  changes.  The   inherent  danger  is  that  TTIP  will  give  even  more  room  to  risky  investment  and  financial  flows  (r  is  increased)  though  (g)  will  most  likely  not  be  significantly  effected;  this  again  may  go  hand   in  hand  with  an   increase   in   inequality.  Moreover,   in  a  working  paper  of   the   IMF,  Jaumotte  et  al.  (2008:1)  state  “whereas  trade  globalization  is  associated  with  a  reduction  in   inequality,   financial   globalization   -­‐   and   foreign   direct   investment   in   particular   –   is  associated  with  an  increase.”  Hence,  especially  in  regard  to  TTIP,  it  is  utterly  important  that  democratically  elected  governments  retain  the  right  to  regulate  investments  of  the  financial  and  corporate  sector.  Nonetheless,  especially  ISDS  provides  a  challenge  to  the  policy  space  of  public  institutions.      (Mis-­‐)Perceived  Levels  of  Inequality      The   EU   and   the   US   are   comparable   in   economic   size   and   on   a   comparable   level   of  development,   but   they   differ   significantly   in   regard   to   not   only   the   real,   but   also   the  perceived,   level   of   inequality.   In   fact,   the   perception   of   inequality   could   matter   even  more  than  the  actual  level  of  inequality  since  perceptions  are  deeply  internalized  in  the  everyday   life   of   people,   shape   reality,   and   effect   behavior.   A   persistent   feeling   of  unfairness   can   trigger   widespread   disillusionment   and   resentment   among   the  population   and   could   lead   to   a   deep   and   lasting   legitimacy   crisis.   This   is   to   say   that  perceived  inequality  (i.e.,  the  ‘subjective  Gini  coefficient’)  should  not  be  underestimated  (Niehus   2014).   Delhey   and   Draglov   (2013)   show   that   there   are   notable   regional  differences   in   regard   to   the   perception   and   acceptance   of   inequality   and   proof   that  Europeans  are  far  more  inequality  averse  than  people  in  the  US  or  other  global  regions.  Their   main   findings   include   that   inequality   lowers   the   sense   of   wellbeing   among  Europeans   and   increases   distrust   and   status   anxiety.   They   conclude   that   Europeans  actually  want  to  realize  both  living  in  an  affluent  and  equal  society.  Accordingly,  “public  policies  that  serve  both  goals  are  best  suited  to  make  Europeans  happy”  (ibid.:11).  Some  prominent  authors  (e.g.,  Lipset  1996)  base  their  explanation  about  why  inequality  seems  to  matter  less  in  the  US  than  in  Europe  on  the  idea  of  ‘American  exceptionalism’,  which  

   

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results   fromon   a   strong   belief   in   a   society   that   is   signified   by   both   mobility   and  opportunity   and   where   inequality   is   treated   as   a   necessary   evil   in   order   to   have   an  innovative  and  prosperous  society.  In  reality,  however,  the  US  is  far  less  socially  mobile  than  most  societies  in  Europe  (the  UK  being  an  exception)  as  it  is  generally  the  case  with  the   most   unequal   societies   among   advanced   countries   (Corak   2004;   Corak   2013).  Alesina  et  al.  (2004)  also  see  a  connection  between  divergent  perceptions  of  the  degree  of  social  mobility  and  the  respective  assessment  of  inequality,  since  “Americans  believe  that   their   society   is  mobile   so   the   poor   feel   that   they   can  move   up   and   the   rich   fear  falling   behind.   In   Europe,   a   perception   of   a   more   immobile   society   makes   the   poor  dislike   inequality  since  they   feel   ‘stuck’”  (ibid.:2011).  Accordingly,   the  “European  fiscal  systems  are  more  progressive   than   in   the  United  States   and   the  welfare   state   is  more  generous  in  Europe,  where  the  share  of  the  government  in  the  economy  is  substantially  larger   than   in   the   United   States”   (ibid.:2010).   This   again   leads   to   the   point   that  “European   observers   object   to   the   higher   (and,   for   much   of   the   past   few   decades,  growing)   inequality   in  the  US”  whereas  “American  commentators  argue  that  European  society’s   ‘obsession’   with   inequality   stifles   creativity   and   creates   a   vicious   circle   of  welfare   addiction   of   the   poor”   (ibid.:2035).   Such   a   divergence   regarding   the   issue   of  inequality   goes   hand   in   hand   with   the   attitudinal   findings   of   Osberg   and   Smeeding  (2006),  who  showed  that  Americans  often  perceive  higher  levels  of  inequality  still  as  fair  (i.e.,  acceptable)  while  most  people  in  Europe  would  reject  them.  As  a  result,  despite  the  fact  that  inequality  is  significantly  higher,  the  US  federal  and  state  governments  do  less  to  address  this  topic  than  their  European  counterparts.  Furthermore,  Norton  and  Ariely  (2011)   and   Niehus   (2014)   demonstrate   that   people   in   the   US   tend   to   have   a   far   too  optimistic  view  in  regard  to  the  real  degree  of  inequality  in  their  country  and  often  hope  that  they  will  be  able  to  climb  up  the  ladder  if  they  just  try  hard  enough.  Europeans,  on  the  other  hand,  often  believe  that  their  countries  are  signified  by  much  higher  inequality  than  it  is  really  the  case  (this  is  especially  true  in  former  socialist  countries  like  Hungary,  Slovenia,  and  Czech  Republic),  which   is  why   they  demand  more  redistributive  policies  than  US  citizens.  To  be  precise,  “[a]lthough  income  inequality  is  high  in  the  US,  welfare  state   redistribution   is   relatively   low.   In   comparison,   income   inequality   in   European  countries  is  substantially  lower.  Still,  the  European  welfare  state  programs  are  far  more  generous”   (ibid.:1).   Last   but   not   least,   differences   in   redistributive   preferences   and  beliefs  between  the  US  and  the  EU  could  be  explained  by  political  and  behavioral  factors  that  are  also  connected  to  differences  in  the  history  and  geography,  which  leads  Alesina  et   al.   (2001:247)   to   come   to   the   conclusion:   “Our   bottom   line   is   that   Americans  redistribute   less   than  Europeans   for   three  reasons:  because   the  majority  of  Americans  believe  that  redistribution  favors  racial  minorities,  because  Americans  believe  that  they  live  in  an  open  and  fair  society  and  that  if  someone  is  poor  it  is  his  or  her  own  fault,  and  because   the   political   system   is   geared   toward   preventing   redistribution.   In   fact,   the  political  system  is   likely  to  be  endogenous  to  these  basic  American  beliefs“  (ibid.).  The  different   preferences   and   perceptions   in   regard   to   inequality   in   the   EU   (focus   on  stability  and  solidarity)  and  the  US  (focus  on  chances  and  risk-­‐taking)  signify  a  cultural-­‐  ideological  divide  that  could  be  hard  to  bridge.  Hence,  regulatory  homogenization  and  a  resulting  socio-­‐economic  convergence  form  a  serious  risk.        

   

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Potential  Impacts  of  Inequality  in  Europe    Inequality   is   hollowing  out   the  middle   class,  which   is   traditionally   the  main   carrier   of  democratic  values.  A  withdrawal  from  liberal  democracy  (declining  share  of  voters;  lack  of   trust   in  the  system)  or  even  a  turn  to  populist,  nationalist  and  anti-­‐European  forces  due  to  a  public  disenchantment  with  politics  could  be  the  result.  This  again  could  have  the   effect   that   the   political   system   becomes   more   biased   to   those   who   are   already  advantaged   or   to  more   extremist   voices   at   the  margin   of   society.   These   dynamics   are  already   on   the   way   as   European   citizens   (especially   in   the   crisis-­‐affected   Southern  countries)  feel  a  growing  gap  between  their  interests  and  the  policies  brought  forth  by  the   respective   governments   and   EU   institutions.   Populist   and   often   anti-­‐European  movements  and  parties  are  blossoming  all  over  Europe,  even  in  Germany,  a  country  that  for   long   seemed   to   be   spared   from   such   developments.   Additionally,   the   economic  downturn   in   several   European   countries   has   already   lead   to   an   increase   in   inner-­‐European   labor  migration  and  together  with  migration  from  third  countries  and  rising  numbers   of   refugees   currently   changes   the   face   of   Europe.   Before   the   crisis,   the  willingness   to  move  to  another  region  (i.e.,  geographical  mobility)   to   find  employment  tended   to   be   significantly   higher   in   the   US   than   in   the   EU   (some   reasons   include:  language  barriers,  cultural  resistance,  different  social  security  schemes,  and  labor  laws,  etc.).  Nonetheless,  the  dynamics  in  regard  to  labor  migration  in  the  EU  have  significantly  changed   during   the   last   few   years.   Highly   mobile   low-­‐skilled   workers   from   Eastern  Europe   have   been   disproportionately   effected   by   the   crisis   and   were   often   forced   to  return   to   their   home   countries,   whereas   many   skilled   migrants   -­‐   especially   from   the  Southern  periphery   -­‐   saw  no  other  way   than   to  move   to   the   core  member   states,   like  industrious  and  knowledge-­‐based  Germany  in  order  to  get  a  proper  job  (42%)  or  better  payment   (54%)   (Mayert  2015:26).  Not   surprisingly,   the  numbers  of  people  moving   to  European  core   countries   -­‐   either  out  of  hope  or  desperation   -­‐  have  never  been  higher  than   at   the   present  moment.  However,   the  masses   of   laid-­‐off   people  with   lower   skills  are,  due  to  structural  differences  and  a  mismatch  in  qualifications,  not  even  demanded  in  the  core  countries  like  Germany,  and  are  therefore  left  behind  with  no  or  close  to  no  real   perspective.   Despite   the   fact   that   emigration   from   the   economically   tarnished  periphery  to  the  prosperous  core  is  still  marginal  in  absolute  numbers,  it  may  soon  come  to  a   critical   turning  point  where   imbalances  grow  so   strong   that  a  brain  drain   sets   in,  which   not   only   prolongs   the   crisis,   but   also   impedes   long-­‐term   recovery   in   these  countries.  But  even  the  core  should  not  be  too  happy  about  the  current  inflow  of  skilled  people,  since  a  growing  reserve  army  of  migrants  that  is  willing  to  accept  lower  wages  may  put  a  cap  on  the  overall  development  of  wages.  Quite  contrary  to  Robert  Mundell’s  (1961)   famous   hypothesis   that   increased   labor   migration   would   be   a   sign   of   market  efficiency  in  an  optimum  currency  area  (like  the  Eurozone),  it  could  be  assumed  that  it  is  rather  the  current  predicament  that  has  led  to  this  effect.  In  fact,  occupational  migration  is  first  and  foremost  downward  migration  since  most  migrants  see  no  other  option  than  to  take  jobs  that  are  (far)  below  their  level  of  education  and  in  addition  often  pay  off  less  (Mayert   2015:28).   These   effects   might   be   worsened   if   TTIP   adds   to   the   ongoing  predicament  by   increasing   inequality  within  and  between  nations.  Admittedly,  already  in   2006   the   European   Globalization   Adjustment   Fund   (EGF)  was   set   up   by   the   EU   to  enable  workers  (companies  are  excluded  due  to  potential  market  distortions)  who  have  been   made   redundant   because   of   deregulation   and   liberalization   or   economic   and  

   

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financial  crisis  to  either  become  competitive  again  or  quickly  find  a  new  job  in  another  sector.   Besides   counseling,   support   is   given   in   regard   to   job   search   and   mobility  allowances,  (re-­‐)training,  micro-­‐credits,  and  so  forth.  Other  important  tools  are  e.g.  the  European   Social   Fund   (ESF),  which   is   endowed  with  €80   billion   for   the   period   2014-­‐2020,  and  the  European  Regional  Development  Fund  (ERDF),  which  especially  aims  to  reduce   regional   disparities   in   terms   of   income,   wealth,   and   opportunities.   These  financial  instruments  are  surely  a  good  starting  point,  but  need  to  be  propped  up  to  be  able   to   compensate   for   potential   negative   effects   of   TTIP   like   sectorial   and   regional  downturns,   labor   displacement   and   precarization.   Fair   (Schumpeterian)   competition  should   definitely   not   be   feared,   but   the   extended   power   of   the   financial   and   business  lobby   and   a   watering   down   of   democratic   standards   and   the   European   labor  market  should  be.  One  specifically  pressing  problem   in  Europe   is  youth  unemployment  which  creates   a   deprived   and   depressed   generation;   especially   so   in   Spain   (53,9%),   Greece  (49,3%).  and  Italy  (43,3%)  (Dauderstädt  2015:12).  Even  though  countries  like  Germany  (7,7%),  the  Netherlands  (9,7%),  and  Austria  (10%)  are  far  less  affected  (to  compare:  the  US   stands   at   16%),   it   is   estimated   that   there   are   currently   around   5,5  million   young  Europeans  (between  15  and  24  years)  without  jobs  and  around  7,5  millions  that  fall  into  the  so-­‐called  NEET-­‐group:  i.e.,  not  in  education,  employment  or  training  (ibid.).  Two  of  the  underlying  reasons  are  a  general  market  mismatch  (there  is  no  demand  for  the  skills  offered)   and   inequality   (it   is   not   possible   to   afford   the   high   prices   for   education   or  except   unpaid   internships   which   are   key   determinants   of   receiving   opportunities)  (Eposito  &  Tse  2014).  This  again  leads  to  discouragement  and  social  withdrawal,  if  not  even  unrest.  As  a  result,  it  becomes  necessary  to  provide  long-­‐term  prospects  instead  of  worsening  the  situation  by  austerity  measures  or  trade  deals.  To  be  fair,  the  EU  already  took  several  measures  to  tackle  youth  unemployment  (see  EU  Commission  2014b)  and  included   the   topic   in   the   ‘Europe  2020’   strategy,  which,   as  a   reaction   to   rising   income  dispersion,   aims   at   improving   social   inclusion   and   realizing   sustainable   and   inclusive  growth   in  Europe.  Nonetheless,   it  has   to  be  seen   if   this   is  going   to  be  successful   if   the  effects  of  TTIP  will  largely  push  in  the  other  direction.    III.  Challenges  and  Chances  Ahead  of  Europe    Since   inequality  was  a   fundamental  cause  of   the  crisis,  Europe  (as  well  as   the  US)  will  now  need  more  equality  to  get  out  of  it  and  recover  (e.g.  by  fostering  aggregate  demand  through   more   healthy   wage-­‐led   instead   of   highly   speculative   finance-­‐led   growth)  (O’Farrell  2011).  TTIP,  however,  does  not  seem  to  be  leading  in  this  direction  Instead  of  extending  the  reach  of  large  corporations  and  finance,  TTIP  should  improve  both  living  and   working   conditions   for   ordinary   European   citizens.   Accordingly,   high   social  standards   are   necessary   because   “otherwise,   bankers,   investors   and   corporations  will  harvest  the  benefits  of  expanded  trade  for  themselves,  while  working  people  and  their  families   reap   the   husks”   (Compa   2014:1).   Already   wealthy   elites   will   gain   the   most  through  mergers  and  acquisitions  and  closures  and  privatization   in  a   common  market  whereas,   especially   in   Europe,   labor   could   be   confronted   with   even   further   wage  stagnation  or  reduction,  diminished  influence  of  trade  unions  (see  the  current  situation  in   the   US),   and   a   lowering   of   social   protection   regulations.   Due   to   Pierre   Defraigne  (2014)  it  is  likely  that  “labour  prices  will  be  pulled  downwards  and  the  unequal  income  structure   prevailing   in   the   US   will   weigh   on   the   European   wage   structure.   In   such   a  

   

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context,  productivity  gains  brought  about  by  economies  of  scale  will  not   translate   into  higher  wages,  but  into  lower  ones”.  In  the  end,  a  strengthening  of  the  domestic  economy  through  more   consumptive   power   of   average   households   would   probably   have  more  positive   effects   for   Europe   than   an   agreement   with   the   US.   The   US   is   not   only   “the  bastion  of   ‘union-­‐free’  management  philosophy”  and   signified  by  a   rigidly  deregulated  labor  market  but  also  refuses  to  agree  to  international  standards.  To  be  precise,  all  EU  countries   comply  with   the   labor   laws   set  up  by   the   International  Labour  Organization  (ILO),  a  special  agency  of  the  United  Nations,  this,  however,  is  not  the  case  with  the  US,  which   -­‐   so   far   -­‐   has  not  become  a   signatory.   In   fact,  TTIP   could   further   accelerate   the  already  ongoing   ‘Americanization’  of  the  EU  labor  market  by  watering  down  European  standards   and   thus  may   result   in   increasing   inequality   (Compa  2014:9f.).   This   lack   of  commitment   to   global   criteria   is   something   that   urgently   needs   to   be   addressed   by  Brussels   in   order   to   “reinforce   worker’s   rights   based   on   ILO   and   EU   standards”  (Stanishev  2014).  TTIP  could  go  both  ways:  it  could  either  become  a  blessing  as  it  raises  overall   living   standards   or   it   could   turn   out   to   be   a   curse   if   it   results   in   increasing  inequality,  suppressed  wages,  and  a  hollowing-­‐out  of  liberal  democracy.  Therefore,  it  is  important  to  seize  the  chance  to  build  a  strong  social  dimension  into  the  agreement  to  set  off  negative  consequences  (Compa  2014:17).  Furthermore,  it  becomes  necessary  that  an  end   is  put   to   the   failing  policies  of   fiscal  austerity,   that  especially  Germany   -­‐  under  flawed   premises   and   a   deep   historical   fear   of   inflation   -­‐   prescribes   to   debtor   nations  (Blyth  2013).   The   inherent   danger   lies   in   the   fact   that   austerity   not   only  worsens   the  deep  depression  and  prolongs  stagnation  by  killing  off  much  needed  aggregate  demand  in   Europe   but   also   creates   desperation   and   further   weakens   the   continent’s   internal  cohesion   by   creating   a   deep   divergence   and   centrifugal   forces   (Dauderstädt   2015:11;  Smale  &  Aldermann  2014).  Again,  especially  Southern  European  countries   like  Greece,  Spain  and  Portugal  have   to  bear   the  high   costs   and   react  with  a  politically   radical   left  (and  to  a  lesser  degree  right)  turn.    Unfortunately,  the  EU,  once  a  grand  peace  project,  does  not  provide  inspiration  and  has  lost  all  of  its  former  idealism.  It  rather  follows  an  economic  (ir)rationality  that  is  hidden  behind  shallow  numbers  and  mathematic  calculations:  the  single  European  market  and  the   momentarily   troubled   Euro   form   the   continents   spiritless   identity   today.   TTIP  should  soon  be  added  as  another  shaky  pillar  that,  in  fact,  could  also  have  effects  on  the  other  two.  Choblet  and  Hager  (2013),   for   instance,  project  that  TTIP  could  weaken  the  importance  of   the   inner-­‐European  market  by  diverting  more  trade,  and  thus,  attention  to   the  US;   and   the  European  Central  Bank   is   currently   pushing  down   the   value   of   the  Euro  (among  others   to  buttress   the  export  sector  and   inhibit  deflationary   tendencies),  which  taken  to  the  extreme,  could  result  in  retaliatory  actions  from  Washington;  in  the  worst-­‐case   scenario   leading   to   some   kind   of   currency   war   between   the   two   TTIP-­‐partners.   Actually,   to   reduce   currency   fluctuations   in   between   the   Euro   and   Dollar  would  probably  be  more  beneficial   than  to  harmonize  regulations   in  the  form  of  TTIP;  but  so  far  there  is  no  lobby  for  such  drastic  monetary  measures.  In  any  case,  increasing  numbers   of   people   in   Europe   have   “the   intuition   that   the   European   establishment   is  making  a  historic  mistake”  under  the  given  economic  predicament  (Defraigne  2014:16).  Ostensibly,  the  establishment  has  not  only  been  captured  by  particularistic  interests  but  its  members  have  even  been  transformed  into  ’eurosceptics  on  the  inside’  forming  “[t]he  most  dangerous  breed  because  they  feed  a  sense  of  ‘European  fatigue’  at  the  top  of  the  

   

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EU   institutions”   (ibid.:17).  As  a  result,  TTIP  may   further  weaken   instead  of  strengthen  the   foundations   of   Europe.   It   is   alarming   not   only   to   observe   growing   public   anti-­‐Americanism  but  also  a  worrisome   increase   in   inner-­‐European  cleavages  and  national  egoisms.   A  worsening   of   the   current   social,   economic   and   political   fragility   of   at   least  parts  of  the  EU  could  entail  the  possibility  of  collapse.  Unfortunately,  a  point  of  (nearly)  no   return  has  already  been   reached   in   the  negotiations.  However,   attempting   to  bring  the  TTIP-­‐project  down  does  not  seem  to  be  a  much  better  option  at   this  point   in  time.  Too  much   is   already   at   stake.   The   overall   costs   of   ending   negotiations   could   even   be  higher   than  pushing   it   through.   In   fact,  Europe  could  become  even  more  self-­‐centered,  globally  decoupled  and  inward-­‐looking  than  is  already  the  case,  and  -­‐   in  the  end  -­‐  may  fully  crumble  into  insignificant  pieces.  Therefore,  European  citizens  should  start  seeing  TTIP   as   a   chance   for   the   old   continent   to   reclaim   core   values   in   the   name   of   unity,  solidarity,   and   prosperity.   Thus,   a   new   pan-­‐European   egalitarian   consciousness   and  democratic   self-­‐awareness   is   required,   which   strongly   has   to   be   reflected   in   the  negotiation  process,   so   that  Europe   finally  could  “place   itself   in  a  position   to   influence  America”,   instead  of   the  other  way  around  (Progressive  Economy  2014b:14;  Defraigne  2014:17).      To  be  true,  Europe  has  a   long  egalitarian  tradition  reaching  from  the  outcry  for  égalité  during   the   French   Revolution   to   the   Scandinavian   Jante   loven   and   Immanuel   Kant’s  postulate  of  humanitarian  Gleichheit  that  needs  to  be  revived.  Such  common  ideals  once  again  need  to  be  defended  with  dedication  and  bravery.  So  to  say,  the  EU  should  provide  a   far   more   egalitarian   benchmark   (accompanied   by   acceptable   compensational   and  regulatory  measures)  during   its  negotiations  with   the  US   if   it  wants   to  have  a  Pareto-­‐optimal   solution   where   TTIP   creates   both   social   equality   and   market   efficiency.   Dani  Rodrik   (2014)   is  among   those  who   famously  criticize   the  widespread  assumption   that  there  is  a  trade-­‐off  between  the  two  targets  -­‐  as  it  was  once  prominently  brought  forth  by  American  economist  Arthur  Melvin  Okun  (1975).  What  is  more,  equality  could  even  strengthen  market  efficiency  given  that  social,  economic,  and  political  stability  provide  a  more  stable  environment  for  productivity,  investment  and  growth.  Hence,  both  elements  are  anything  but  exclusive.  Consequently,  Europe’s  future  could  be  prosperous  and  just  if  not  only  markets  matter  but  citizens  as  well.   If   the  negotiators  do  not  pay  sufficient  attention   to   this   fact,   social   European   norms   may   be   at   stake   even   if   the   current  President  of  the  EU  Commission  Juncker  (2014:8)  -­‐  shortly  before  his  election  -­‐  openly  declared  that  he  will  “not  sacrifice”  Europe’s  social  standards  “on  the  altar  of  free  trade”.      Conclusion    No   doubt   about   it,   in   the   end,   far  more   scientific   research   is   needed   in   regard   to   the  connection  of  a  bilateral  agreement   like  TTIP   to   the  potential   increase  of   inequality   in  Europe  with  all   its  potential  consequences;  even  if  those  results  may  already  come  too  late.  A  next  step  would  be  to  conduct  a  realistic  study  that  contains  all  possible  gains  and  costs   and   is   not   only   derived   from   unrealistic   best-­‐case   scenarios   based   on   over-­‐simplistic  econometric  models.  Apart  from  this,  several  conclusions  could  be  made:  One  of  them  being  that  regulatory  harmonization  implies  more  deregulation.  What,  however,  is   really   needed   is   a   better   bilateral   re-­‐regulation   in   the   name   of   the   European   and  American  people.  This   is   to   say,   common   transatlantic   regulations  are   required   to  not  

   

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only  uphold,  but  also  extend  labor  rights  and  standards  as  well  as  tame  the  financial  and  corporate   sector   in   a   way   that   it   is   beneficial   for   society   at   large   and   not   just   in   the  interest   of   privileged   parts   of   it.   To   be   sure,   neoliberal   policies   of   liberalization,  privatization,   and   deregulation   not   only   benefitted   the   vested   interests   of   such  transatlantic   elites,   but  have   also   resulted   in   a   significant   rise  of   badly  paid   and  often  lower-­‐quality  jobs,  increasing  inequality,  causing  more  instability,  and  lowering  rates  of  growth  (e.g.  see  Wade  2014:4).  TTIP  might  add  to  this  predicament  if  it  is  conducted  in  the   interest   of   the   privileged   few,   as   well   as   finance   and   the   corporate   sector.   Yet,  besides  these  risks,  TTIP  could  also  provide  opportunities  as  long  as  the  negotiations  are  still  going  on.  Europe  should  stand  up  for  democratic  and  egalitarian  values.  In  line  with  that,   it  must   be   people,   not  markets,  who   are   at   the   center   of   TTIP.   Accordingly,   it   is  important  that  big  business  and  boundless  finance  on  both  sides  of  the  Atlantic  are  put  under   the  control  of  democratically   legitimized  and  accountable   institutions   to  benefit  the  whole  of  society.  If  TTIP  does  not  reflect  the  interests  of  European  citizens  at  large  (i.e.,   more   involvement   of   civil   society   groups   and   democratically   elected   represent-­‐atives),   it   may   come   at   the   high   price   of   growing   inequality   with   all   its   potential  consequences   like   growing   imbalances   in   Europe   (probably   with   a   strong   North-­‐Western  center  and  a  quasi-­‐hegemonic  Germany  at  its  heart  in  contrast  to  a  weakened  South-­‐Eastern  periphery),  a  weakening  of  the  middle  class,  and  -­‐  hence  –  the  demise  of  liberal  democracy,  a  lack  of  social  cohesion  and,  thus,  more  civil  conflicts,  and  increased  migration  pressures  -­‐  largely  out  of  desperation.  Such  a  bleak  scenario  would  not  go  well  for   too   long.   The   paper   of   the   EU   Commission   (2014a:3)   on   inequality   stresses   that  “economic   policies   should   reflect   the   interest   of   society   as   a   whole   and   serve   social  justice.  Growth  cannot  enjoy  sustained  democratic  support  if  it  only  benefits  a  privileged  few”.   Ultimately,   the   EU   has   to   be  measured   by   this   statement.   Accordingly,   counter-­‐vailing  actions  have  to  be  taken  to  avoid  an  increase  in  inequality  through  TTIP  and  to  offset  potentially  negative  consequences  by  means  of  safeguarding  labor  rights  and  high  social   standards,   by   strengthening   pan-­‐European   solidarity   and   democratic   account-­‐ability,   sharing   the  burdens  of  distributive  and  compensational   costs   (e.g.   in   regard   to  trade  diversion  and  lay-­‐offs),  fighting  unemployment,  poverty  and  social  exclusion  and,  last   but   not   least,   guaranteeing   access   to   well-­‐paid   and   qualitatively   acceptable   jobs.  This  could  make  an  agreement  like  TTIP  socially  sustainable,  and  in  the  best  case,  highly  beneficial.   Otherwise,   TTIP  may   turn   out   to   be   an   ‘unequal   treaty’  with   the   EU   at   the  losing  end.      References:      

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