Commentes have pointed out that I was a bit misguided myself in my original post, so I’ve updated with some paragraphs at the end
“You can’t always get what you want
You can’t always get what you want
You can’t always get what you want
But if you try sometimes you might find
You get what you need”
Alex Singleton’s latest post on free trade at the Globalization Institute is both misinformed and misguided.
Let’s get misinformed out of the way first. Clearly inspired by his pals at The Business, Alex informs us that “Developing countries that open themselves to globalisation grow faster”. This is actually a rather ambiguous claim, probably deliberately so - does ‘open themselves’ mean trade liberalisation (a policy choice), or does it refer to growth in trade (not only or even mostly a policy choice)?
Anyway, his evidence for the claim is apparently “A study by Jeffrey Sachs and Andrew Warner of 117 countries in the between 1970 and 1989 [which] showed that open developing countries had an annual growth rate of 4.5 percent, compared with 0.7 per cent in closed developing countries”.
Problem is, as I said here recently, it’s been known for some time that the Sachs-Warner study is seriously flawed in that it doesn’t so much measure whether countries had open trade policies or not as whether countries were in Sub-Saharan Africa or not. So all it really tells us is that countries in Sub-Saharan Africa tended to grow more slowly, which we already knew. I think Alex needs to get his crack team of researchers working on some better evidence in support of his case.
Now for misguided. As we all know, the Doha ‘Development Round’ of trade talks is seriously stalled. The main reason seems to be the demands of the EU in particular that developing countries open their markets in exchange for the EU cutting their obscene export subsidies and prohibitive barriers to agricultural trade. The Financial Times reported on Wednesday that “Mr Mandelson, who is under strong pressure from France and its allies not to give more ground in agriculture, insisted yesterday that it was up to countries such as Brazil and India to show their hands on industrial goods and services as an “incentive” for Brussels to go further”.
What this means is that it is the demands of the rich countries that developing countries must cut their trade barriers even more that is holding up liberalisation in the sectors that probably matter most in terms of poverty reduction.
It’s ironic, really - if the EU and the other rich countries had listened to the ‘trade Justice’ movement and dropped these demands, then we would now be much closer to the real reform of the disgraceful farm policies that we all say we want. Instead, they took precisely the line that the Globalization Institute supports - trying to bully poor countries into opening their markets - and that’s why the trade talks are going nowhere. In short, the free trade fundamentalists are shooting themselves in the foot.
Alex points out - correctly - that the two main political parties in the UK support pressuring poor countries into liberalising (the Labour government have talked about dropping such demands, but in practice haven’t have yet to do so), and thus support the approach that has grounded the trade talks. I don’t think this will last, though - for example, over 200 MPs have signed the Trade Justice Movement’s Early Day Motion calling for a change in tack, support that will probably only grow given the recent breakdown.
People are slowly coming round to the realisation that trying to impose liberalisation on everyone else as a condition of our reform only slows that reform down. I hope this message eventually gets through to the Globalization Institute too - I’m sure the trade justice movement would love to have their support.
Following comments from readers Jonathan and Paul, I’m happy to correct my post and clarify that the Globalization does support unilateral liberalisation without pressure being put on poor countries to reciprocate through the WTO. A couple of questions then arise:
(1) If the Globalization Institute (and Global Growth Org, etc) don’t like poor countries being pressured to liberalise through the WTO, how about through structural adjustments or conditionality? If that kind of pressure is okay, isn’t their philosophy simply a mirror-image of the mercantilist view that we should only give our ‘competitors’ something they want (in this case, policy space) if there’s something in it for us (the various benefits of unilateral liberalisation)? To put it another way, does the Globalization Institute support developing country markets being ‘crowbarred’ open by other means available to us?
(2) If the answer to question (1) is no and the GI really does support developing countries having the liberty to decide their own policies, then would someone like to explain what the pragmatic differences are between this position and that of the trade justice movement? In another recent GI post, Paul complained that Christian Aid seeks to “impose an outdated, failed economic model on the developing world”. The problem with this argument is that even if they did want to impose their wishes on developing countries, in pragmatic terms neither Christian Aid nor anyone else has any power to force any country to raise trade barriers. They know that countries can be pressured or even forced to lower their trade barriers by others, and that kind of pressure, bribery and coercion is what they campaign against. So does ‘trade justice’ ultimately mean the same thing for both the Globalization Institute and the TJM - ‘unilateral liberalisation in the rich world and policy space for developing countries’? Or have I just misunderstood again?
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The ‘Globalization Institute’ really dont’ like discussion do they? A Moveable Type engine with comments disabled?
“Does not play well with others” on the report card in my book.
Alex has also conflated the Sachs study with Tony Venables’ statement about import liberalization, as if they were saying the same thing.
The 2005 Human Development Report warns against mixing up an economic indicator with a policy indicator.
It found that export growth is, unsurprisingly, associated with income growth. But that there is no strong correlation between import liberalization and growth.
India cut import barriers deeply in the 1990s and grew fast.
Peru and Brazil cut even deeper, but performed poorly on growth.
Import liberlization in Nicaragua and Kenya is associated with economic stagnation and decline.
Posted on 13-Nov-05 at 7:45 pm | PermalinkWhen has the Globalization Institute argued that developed nations ought to forego unilateral liberalization in order to have a bargaining chip at trade negotiations?
I think most “free trade fundamentalists” would prefer unilateral liberalization.
Posted on 13-Nov-05 at 10:52 pm | PermalinkI’m not sure that unilateral liberalisation is what the Globalization Institute wants. If it is, then they should really be supporting the trade justice movement, since that’s exactly what they want too.
Posted on 13-Nov-05 at 11:03 pm | PermalinkGI prefers unilateralism: http://www.globalizationinstitute.org/blog/0504_unilateral_trade_agreements_ar.php & http://www.globalizationinstitute.org/blog/0508_europe_beware_global_free_tra.php
The trade justice movement’s agenda comprises far more than the mere abolition of agricultural subsidies. On that narrow topic, my impression is that the Globalization Institute is in complete agreement with them.
Posted on 14-Nov-05 at 12:49 am | PermalinkThanks for the links. I’ll make some changes to the post this evening when I have time. In the meantime, it’s worth considering whether support for unilateral liberalisation really is that different in pragmatic terms from what the TJM is looking for.
Posted on 14-Nov-05 at 8:41 am | PermalinkThe GI advocates unilateral free trade as an immediate objective.
So does Global Growth, in fact, do any real free traders not advocate such a policy?
The logic of free trade is universal. Mercantilism is the policy of governments in thrall to domestic vested interests. The WTO negotiations frequently degenerate into a mercantilists auction. The neo-protectionism of the TJM favours the interests of a few producers over the many poor consumers. I don’t say that is the conscious objective of the TJM, but is the inevitable actual outcome of protectionist policies.
Posted on 14-Nov-05 at 4:07 pm | Permalink“Impose” in the sense of campaign for or against a particular economic model.
The unsaid difference between TJM and us free trading, free marketeers, is that we are pro-capitalism as the anti-poverty mechanism by which to most powerfully and most widely raise living standards.
The neo-protectionists of the TJM have an underlying agenda of exporting a statist / socialist economic model.
David Cameron’s recent speech was a head-on attack on those who hide their anti-capitalist political agenda behind a shield of humanitarian work - humanitarian work which is laudable. At least WDM and WoW have an overt hard left, anti-capitalist agenda. But Christian Aid’s Trade Policy Unit (CA-TPU)_hides behind a veneer of Christian charity to protect itself from criticism. That veneer has worn off now and the CA-TPU neo-protectionist campaign is going to be increasingly spotlighted for what it is - a left-wing, anti-capitalist propaganda machine that puts ideology first.
I have never seen the CA_TPU produce anything on say micro-finance and the creation of micro-entrepreneurs. Why is that? Is it because they don’t want to see African capitalism take-off?
Capitalists are portrayed as fat exploiters in CA-TPU posters - its hard to see the CA-TPU promoting African capitalism or enterprise based solutions to global poverty.
Posted on 15-Nov-05 at 10:37 am | PermalinkAs for your conditionality question - it doesn’t really arise for me. I’m opposed to state-to-state aid. The whole debt crisis is a result of state-to-state aid.
A more realpolitik position is that I think it morally wrong to give aid to dictatorships, human rights abusers, the corrupt or to finance the purchase of weapons.
To unconditionally aid those types of regimes is abhorrent.
Posted on 15-Nov-05 at 10:48 am | Permalink“”Impose” in the sense of campaign for or against a particular economic model.”
But that’s not imposing. Nobody has any power to impose higher trade barriers on anyone else.
“The neo-protectionists of the TJM have an underlying agenda of exporting a statist / socialist economic model.”
So you say, but I’m not convinced. It appears to me that they are wholeheartedly behind privately owned enterprises in poor countries. The recurring message I get from TJM, WDM and WoW is (a) that they want policy space for developing countries, and (b) that the imposition of free market policies on those countries has produced dismal results. On both I think they’re entirely correct. If you think they oppose all liberalisation at any time, I’d say you’re wrong - they just want developing countries to liberalise at a pace of their own choosing.
“I have never seen the CA_TPU produce anything on say micro-finance and the creation of micro-entrepreneurs. Why is that? Is it because they don’t want to see African capitalism take-off?”
Well it is the *Trade* Policy Unit, Paul. Perhaps you should look harder: this page from Christian Aid’s website describes a Christian Aid partner microlending in Goma and includes the line, ” with hard work and determination, micro-finance projects can help families put their lives back on track”: http://www.christianaid.org.uk/news/features/0301goma.htm
Maybe if you looked past your obsession with trade barriers you’d see that Christian Aid aren’t as anti-capitalist as you think.
“The whole debt crisis is a result of state-to-state aid.”
What the hell are you talking about? The loans underlying the debt crisis were mostly given by private sector banks.
Posted on 15-Nov-05 at 7:19 pm | PermalinkWhat the hell are you talking about? Much of the debt was guaranteed by third parties - the World Bank for instance is a para-statal entity. Its credit is effectively near-sovereign because the bond market effectively sees it as underwritten by Western taxpayers. Citibank and JP Morgan were bailed out by the US taxpayer during the Latin American debt crisis, the Fed did it again during the Mexican peso crisis, France used its state owned banks as a tool of foreign policy and to finance arms sales, Britain underwrote loans under export credit guarantees as did Japan. Ditto for Germany which used Deutschebank to pay “Danegeld” to Russia in times of tension. Those banks were not taking the risk without their home government’s implicit or explicit nod.
Loans were politically authorised during the cold war for geo-political reasons. I would have thought that was something we could both agree on.
Posted on 16-Nov-05 at 12:35 pm | PermalinkPaul, what you’re talking about is state-to-bank aid, not state-to-state: the debt crisis was so deep and long in large part because governments in creditor countries could not countenance their private sector lenders taking a significant hit, so they stepped in to bail out the banks. The debt crisis turned into a case of state-to-state loans, but it did not start out that way.
Posted on 16-Nov-05 at 11:43 pm | PermalinkI suspect we are not in serious disagreement here.
Posted on 17-Nov-05 at 8:08 pm | PermalinkNo, we are, because your characterisation of the debt crisis as “a result of state-to-state aid” is complete bollocks.
Posted on 17-Nov-05 at 8:27 pm | PermalinkWell I did use to trade debt so maybe I do know something about this, you on the other hand have read a text-book?
No one would lend to a junk status sovereign borrower without a third-party guarantee of some kind - that in many cases was implicit if not explicit. If you don’t understand that, you don’t understand the roots of the debt crisis. Lending decisions were not made on the basis of expected returns, they were political.
Posted on 22-Nov-05 at 4:34 pm | Permalink“Well I did use to trade debt”
But not in the 1970s, which is when these debts were mostly accumulated. And back then, developing countries did not have “junk” status (in fact, such sovereign debt ratings didn’t become widely used until the 1980s, AFAIK). Far from it: they were coming off the back of probably their strongest decade of economic growth in history, their export earnings were good, and real interest rates were low or even negative. Compared to shrinking returns in the domestic market, the big American commercial banks saw developing countries as a good prospect.
Of course, that all changed, but due to some pretty unexpected events: the second major oil price hike, the massive hike in US interest rates and subsequently LIBOR rates, the global recession and the collapse in commodity prices, all of which did for debtor developing countries.
You claim that US banks lent in the knowledge that some third-party state or para-statal entity would guarantee the loan. But if they did think this, they must have been sorely disappointed. As I’ve said, some of the loans were *gradually* recycled into concessionary loans by the World Bank and IMF, constituting a partial bail-out, but the US banks still had to recognise losses on large portions of the debts at the end of the 1980s. So clearly the loans were not guaranteed, and the fact that some of the debtor countries were left to suffer a collective economic collapse comparable to the Great Depression of the 1930s makes it the strangest case of ’state-to-state aid’ I’ve ever seen.
Posted on 22-Nov-05 at 11:39 pm | PermalinkThe 70s encompassed the Cold War, JP Morgan, Citibank, BNP, Cred Ag, Deutsche et al were tools in that war.
The West lent to its friends and those it wanted to be its friends - these debts are in a very real sense war debts. The war being the geo-political struggle between the free world and Soviet expansionism.
Posted on 23-Nov-05 at 10:21 am | Permalink