Can Trade Promote Development?

Joseph Stiglitz and Andrew Charlton wade through the debates and evidence in "Fair Trade for All: How Trade Can Promote Development" (2005). The book aims to "describe how trade policies can be designed in the future with a view to helping the developing countries" including that "liberalization needs to be managed carefully - the task is much more complex than the simple prescriptions of the Washington Consensus which blithely exhorts developing countries to liberalize their markets rapidly and indiscriminately" (p. 2). It has been over a decade since the book was published, and as a result some of the details have changed, but the general arguments are important ones. The book is easy to read for non-economists and is highly recommended. 

The book begins: "The rules which govern world trade affect the livelihoods of the whole planet, and influence the economic development of all nations... You might hope that the world's trading system went some way to redressing the global inequalities which slice our world into the rich, the poor, and the very poor. Yet the opposite is true. The world trading system has protected the interests of the rich countries, at the expense of the poor, and entrenched inequalities" (p. v). 

The authors provide plenty of examples to back up the strongly worded statement given at the outset. One example: "Farmers are subsidized and protected by the governments of the rich countries, where less than two percent of the workforce is employed in agriculture. This protection shuts out goods produced by farmers of developing countries, where agriculture supports the livelihoods of most of the world's poor people. Intellectual property rules protect the rights holders in the rich countries, but do little to transfer technology to the underdeveloped industries in the poor countries. We are in the bizarre position of giving the developing world some $100 billion in aid every year, but costing them three times as much in protectionist policies." (p. v; see also p. 7). 

Despite what might be assumed (based on the positionality of the authors), the authors do not advocate for free trade, in all places at all times. In fact, they argue against this. "To date, not one successful developing country have pursued a purely free market approach to development. In this context it is inappropriate for the world trading system to be implementing rules which circumscribe the ability of developing countries to use both trade and industry policies to promote industrialization" (p. 17). And, not just trade - liberalization will affect inequality, and thus other services are required (like safety nets) to ensure the redistribution of wealth do not simply re-create new forms of poverty.

One point I found interesting was a commentary on the idea of 'comparative advantage', and the limits (or limiting role it can play). "For example, the theory of comparative advantage told South Korea, as it emerged from the Korean War, that it should specialize in rice. But Korea believed that even if it were successful in increasing the productivity of its rice farmers, it would never become a middle- or high-income country if it followed that course. It had to change its comparative advantage, by acquiring technology and skills. It had to focus not on its comparative advantage today, but on its long run, its dynamic comparative advantage. And government intervention was required if it was to change its comparative advantage." (p. 30). Often the 'comparative advantage' discourse is deterministic, stories such this present comparative advantage not as a reflection of present resources and opportunities but also of a vision for different opportunities and creating pathways for that. 

The focus of the second half of the book is what fair trade could actually look like - in agriculture, intellectual property, labor mobility, non-tariff barriers, and a number of other areas. Interested readers should pick this book up.

Adjustment with a Human Face
No is Not Enough

Related Posts

By accepting you will be accessing a service provided by a third-party external to http://logancochrane.com/

Subscribe to receive new blog posts via email