Capital As Citizen
This column originally appeared in the January 1998 issue of Minnesota Law and Politics
“We are writing the constitution of a single global economy”, boasts Renato Ruggiero, Director-General of the World Trade Organization. The document he’s referring to is the Multilateral Agreement on Investment(MAI). Most of you, I suspect, have yet to hear of it. That’s no surprise. For the past two years, the 29 members of the Organization for Economic Cooperation and Development have been hammering out the details behind closed doors. But when the MAI comes out of the closet next spring when it is expected to be presented to Congress, the reaction may well make the NAFTA and fast track debates look like lovefests.
One hundred fifty years ago Karl Marx and Friedrich Engels taught the world that capital is a new kind of entity with its own appetites and demands. Today, at the very moment that citing Marx or Engels is a surefire way to get tossed out of polite society, the world’s richest nations are writing a document that bestows on capital the status of citizen and gives it rights no other citizen can claim.
For most free traders, MAI is a logical extension of GATT and NAFTA. Those agreements lowered barriers to the flow of goods and services. MAI will lower barriers to the movement of capital across borders.
The argument is disingenuous. Capital is not a car or a bushel of corn or a phone call. For one thing, capital is not consumed. Just the opposite. It strives to multiply itself.
For another thing, capital brings power and control. And remote capital brings remote control. From long and bitter experience, communities have learned to be wary about allowing their economies to be controlled by those with no personal stake in them.
As currently conceived, MAI is nothing less than a Magna Carta for absentee ownership. It codifies and reinforces the dangerous tendency of modern economies to separate those who make the decisions from those who feel their impact.
MAI allows investors the unrestricted right to buy, sell and move businesses, resources and other assets wherever and whenever they want. MAI requires remote investors to be treated better than local investors but not worse. MAI could outlaw Minnesota’s and Iowa’s bans on the corporate ownership of certain agricultural enterprises, as well as Arizona’s law that restricts the dsale of public lands to state residents and state businesses.
While MAI offers a whole slew of new rights to capital, it severely restricts the authority of governments to impose obligations on capital. One of the first U.S. laws to go might be measures like the Community Reinvestment Act, which encourages banks to invest a portion of their locally generated deposits back into their communities.
MAI requires compensation not only when a government seizes an asset but when a government action “is likely to cause loss or damage”. This provision alone could keep corporate lawyers busy for decades, but MAI goes further, by requiring compensation for “a lost opportunity to profit from a planned investment”. That’s the kind of rule you get when you put capital in charge of the writing.
MAI offers rights to capital that are unavailable to just plain folks. Travel abroad and you’re bound by the laws of the host country. But when your money travels abroad, it will be accorded far higher privileges.
Countries will no longer be able to limit the migration of capital, although they will retain the right to limit the migration of people. A corporation like Nike will be able to sue a Vietnamese city to overturn an ordinance that requires it to buy part of its supplies locally, but Nike’s workers will be unable to sue the company if it overworks or underpays them.
MAI would become the second free trade agreement to allow investors and corporations to sue governments directly. NAFTA was the first, but NAFTA applies to only three countries; MAI would apply to 29 countries that control three quarters of the world economy, and the agreement encourages additional signatories.
Last April, the U.S.-based Ethyl Corporation became the first to exercise the new right to sue governments directly. Canada had limited the sale of one of Ethyl’s products, a manganese-based gasoline additive called MMT. Canada believes MMT causes environmental problems. Ethyl is seeking $350 million in damages.
The Ethyl case illustrates the emerging structure a new planetary judicial system. Unlike domestic courts or even international tribunals like the World Court, the free trade judicial system allows capital to have an active role in choosing its own judges. Ethyl’s case will be decided by a three judge tribunal. The company chooses one judge, the Canadian government another. The third is selected by mutual consent. Decisions of the tribunal are not appealable.
Since MAI focuses on foreign investment, the debate in this country may well take on a xenophobic flavor. That would be unfortunate because capital has no homeland. The issue should be framed not as foreign vs. domestic, but as local vs. absentee. The debate about MAI represents an important opportunity for Americans, and indeed, for peoples across the planet, to discuss how we can promote vibrant economies while strengthening local communities and allowing citizens to continue to play an active role in writing the rules that influence their futures.
Such a conversation would be important even without the prospect of MAI, because too often our national laws favor absentee over local ownership and give remote investors considerable control over the destiny of communities.
This past spring an out-of-state investor purchased both of the widely distributed weekly newspapers in my hometown of Minneapolis. Both weeklies were thriving. The competition between the two had enriched the community. The investor shut down one to maximize his profits on the other. It was a smart business move, I’m told. But the resulting monopoly has weakened the civic life of the area.
Earlier this year, British Petroleum(BP) announced that it was closing its refinery in Lima, Ohio. The refinery is state-of-the-art facility. In 1996 it made more than $45 million for BP but the parent company believes it can make even more by closing the plant. The closure will cost the city more than 1500 jobs and over $100 million. BP received five formal bids for the refinery. It chose not to sell it but to close it down. That was its right under U.S. law.
Perhaps the discussion catalyzed by MAI will lead us to re-examine our own laws regarding the rights and reach of absentee owners. Capital may be the most powerful invention ever devised by the human race. It has spawned an era of unprecedented productivity and prosperity. But over the decades we have learned that capital, if unattended, has equally great destructive powers.
As Benjamin Franklin, one of America’s greatest scientists and entrepreneurs once wrote, “The person who would trade independence for security usually deserves to wind up with neither.” We have made that trade in the past. The tension between capital and community has never been greater. We need to rethink rules that increasingly put our communities and our economies at the mercy of remote, absentee owners.
The OECD is expected to finalize MAI early next year. That is when media coverage will begin. President Clinton could introduce MAI to Congress as early as late spring. That would carry the ratification debate into the election campaigns. Imagine an ongoing and visible debate about the reach and exercise of absentee ownership that is framed by a major piece of legislation on the table and taking place at the same time as politicians ask for our votes. A scenario devoutly to be wished for. That would be politics at its best.