Reagan before it was cool

“Reaganism” predated Reagan, as recent diplomatic disclosures again confirm.

The Gipper gets a lot of heat and love, depending on one’s perspective, for having supposedly pioneered many “free market” or “pro-corporate” policy innovations. But recently declassified documents from the State Department show that much of the Reagan agenda came from the Jimmy Carter administration, and that many of these tools were not so much anti-state interventions, as pro-certain types of interventions.

Let’s take the example of international investment agreements that allow investors to sue governments. The US didn’t roll out any of these until the Reagan years. But the seeds for the Reagan strategy were set a few years prior, in a  declassified memo authored by Carter official C. Fred Bergsten (who went on to found a center-right research center) in the summer of 1977. (It’s not easy to find: it is located on page 173 of a nearly 1,200 page PDF.)

In the memo, Bergsten lamented the lack of “enforcement teeth” in existing approaches to investment disputes, and considered a variety of approaches, from tax treaties, judicially enforceable trade remedies for goods made at expropriated factories, to insurance conditions, to multilateral and bilateral investment agreements. This last option he called a “GATT for investment”, after the trade agreement now under the WTO.

While today, investment treaties are sometimes justified as market-friendly, Bergsten took a different approach, emphasizing treaties’ interventionist nature:

The U.S. has traditionally not taken an active role with respect to foreign investment, in accordance with our general free market philosophy. This philosophy is not shared, however, by other governments which often intervene in investment to and from the United States. The interventions which have the most conspicuous effect on our national interests are the performance requirements imposed on firms by host governments, including quantitative and qualitative job quotas, minimum export quotas, “local content” requirements, and limitation of capital and local ownership. The United States is not necessarily worse off as a result of such intervention than it would be in the absence of foreign investment, but it is very likely worse off with foreign intervention than without it…

Cooperation of other governments in pursuing a GATT for Investment would depend on the specific contents of our proposal and the force with which we pursued our objective. Our case should be based on the general proposition that unregulated competition among governments in the investment area is just as detrimental as it would be with respect to trade, and on the proposition that we will no longer passively accept the interventionist policies of other nations. No explicit threats would be necessary, but we would have to make it clear that we are ready to take measures such as regulating  the outflow of investment and technology in accordance with our national interests…

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