And the World's Top Priority Is... Free Trade?*

The fourth dispatch from the 2008 Copenhagen Consensus Conference

Copenhagen, May 28—Trade is THE solution to poverty. Throw in international labor mobility, and we're well on the way to remedying any of the problems that money can fix—like controlling infectious diseases, providing electricity, clean water and sanitation, feeding people, educating women, and so forth. Or at least that's what Kym Anderson, an economics professor at the University of Adelaide in Australia more or less asserted in his presentation on trade and migration on the third day of the Copenhagen Consensus 2008 Conference.

Anderson looked at a number of econometric modeling scenarios and calculated the cost and benefits that would obtain from full trade liberalization under realistic assumptions derived from the current World Trade Organization's Doha Development Agenda negotiations. Anderson estimated that liberalization of global merchandise trade would mean an annual increase of $287 billion per year in global GDP, of which $86 billion would go to developing countries. This compares very nicely with the $104 billion in development assistance that the governments of industrialized countries gave to developing countries in 2006.

In other calculations, Anderson found that the long term effects of trade liberalization would be that global income in 2098 would be up to 10% greater than it otherwise would have been. The associated net present values from freer trade range from $50 trillion to $424 trillion. Consider that in 2007, total gross world product was $53 trillion. In other words, both the immediate and long-term benefits from free trade are enormous. Anderson reports benefit cost ratios ranging from 269:1 to 1121:1.

Allowing workers to move from developing countries to rich countries also provides big benefits to both. Anderson cites a World Bank study which found that annual migration from now to 2025 of 560,000 workers and their families from developing countries to rich countries would yield global gains by 2025 amouting to $674 billion per year in 2001 US dollars. Most of the gain would go to the migrants, but natives would gain $138 billion in benefits.

If the benefits are so great, why are governments squandering these opportunities and allowing world trade negotiations to verge on collapse? Poltics. Anderson notes that trade liberalization arouses opposition because significant groups in countries fear they will be the losers when their markets open, even though the whole economy will benefit. As Anderson observes, "Reform has political, and possibly employment, costs for politicians." Translation: Unhappy constituents will vote free traders out of office.

However, Anderson did find a free trade silver lining in the black cloud of the current world food crisis. Farmers from rich countries are making lots of money, so their governments might risk cutting agricultural subsidies and opening their markets to agricultural products from developing countries. (The new farm bill in the U.S. suggests that Anderson is a cock-eyed optimist.) In addition, as food prices have escalated, developing countries which are big food importers have slashed their tariffs, so they might take this opportunity make the lower rates permanent. Finally, Anderson also remarked on a synergy between free trade and illegal immigration. If the Doha negotiations fail, economic growth in many developing countries will remain sluggish and that means many more poor people will be seeking opportunities in rich countries.

Another session at the Copenhagen Consensus 2008 Conference was devoted to the challenge of women and economic development. Economist Stephan Klasen from the University of Gottingen in Germany cited the disadvantages that women still face, including lack of equal legal rights, education, weak access to market opportunities, and diminished political voice. For example, 60 percent of the 137 million illiterate youths in the world are girls. In many developing countries, laws make it difficult for women to own land and other property. And it is estimated that 130 million (17 percent) of all married women in developing countries would prefer to avoid pregnancy but do not have access to any form of family planning.

Klasen and his colleagues offered four solutions for consideration. The first is to improve girls' schooling. One promising program is conditional cash transfers (CCT) in which parents are offered a monthly stipend so long as their girl child remains in school. A program that would cover all eligible girls in South Asia and sub-Saharan Africa costing $32 per pupil annually could be funded with $6 billion. Another proposed solution would provide family planning support. Klasen estimated that a program that would avert 52 million pregnancies would cost $4 billion per year. To help women gain access to markets, another solution would expand microfinancing (making small loans). And a fourth option suggested by Klasen would legislate that a certain percentage of elected political officials must be women. Some research shows that female politicians tend to spend more government money on health care, education, and water supplies.

The tenth big challenge addressed by the Copenhagen Consensus conference was education in poor countries. The chief presenter was economist Peter Orazem from Iowa State University. Orazem argued that in developing countries the highest returns from education come from the lowest levels of schooling. In other words, schooling at an early age leads to further educational gains and higher worker productivity. He cited a survey of developing countries which found that each additional year of schooling boosted adult earnings by more than seven percent. In general, the completion of five years of schooling represents near assurance of lifetime literacy and numeracy. The World Bank estimates that would take an additional $9 to $36 billion annually to expand primary education to every child in the world.

Orazem and his colleagues decided to focus on primary school dropouts as the most cost effective way to meet the Copenhagen Consensus constraint of allocating an "extra" $75 billion over the next five years to useful programs. Why? Orazem gave three reasons: (1) We know there is a school nearby; (2) the parents were at least initially interested in schooling; (3) they've already had some schooling which means that they have fewer years to go to get through grade 5.

What solutions does Orazem propose? Two of them are similar to proposals made to meet the hunger and women and development challenges. For example, he notes that 28 percent of children in developing countries are malnourished. This increases the likelihood that they will not attend or remain in school. To correct this, Orazem suggests a program to supply micronutrients and deworming treatments.

Orazem is also a fan of conditional cash transfers to provide incentives to parents to make sure their children remain in school. And finally, schools in many developing countries charge fees which discourage the poorest from attending. When Uganda abolished its $16 primary school fee, thus cutting costs by 60 percent, the result was a 60 percent increase in enrollment. Vouchers can also be offered to pupils from poor families so that they can attend private schools. Orazem estimated that financing his proposals would cost $3.6 billion annually and would lower the fraction of developing country children failing to complete primary school from 23 percent to 10 percent.

In his perspective paper on education, Hebrew University economist Victor Lavy pointed especially to one very serious problem not addressed by Orazem—pervasive teacher absenteeism in many developing country schools. Unannounced visits to schools in Bangladesh, Ecuador, India, Indonesia, Peru, and Uganda found teachers absent 20 percent of the time. In India, it's 25 percent. And teachers are relatively well-paid in these countries with incomes generally three times the national average. Orazem acknowledged that one successful program reduced teacher absenteeism by providing them an additional stipend and requiring them to take a time-dated digital photo of themselves with students in the classroom everyday.

The data have been presented and the solutions proposed. Now the expert panel is pondering where in the world can we do the most good. To do this they are coming to a consensus on how to prioritize the 43 different solutions that have been made by nearly 50 different researchers to the world's ten biggest challenges. They will report their rankings on Friday.

Ronald Bailey is reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.

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  • ||

    232 years after Adam Smith published The Wealth of Nations we learn . . . Ta Da-- free trade will benefit almost everyone. How many person-hours were expended in reaching this new insight?

  • The Wine Commonsewer||

    Speaking of climate change, Shikah Dalmia, and the Prius/Humvee dust up where 95% of all Reason commenters beat her body into a coma, I see in the latest issue of WIRED that Ms Dalmia has been vindicated.

  • Iguana||

    Well, I wouldn't say that completely vindicates her so much as it paints a different picture of the obsession people have with hybrids.

  • Douglas Gray||

    Fair and equitable free trade presupposes a number of conditions, such as honoring contracts, adherence to common law principles, a minimum security for the trading partners, etc.

    What about an African country where you have a warlord with a bunch of gun toting goons raping 14 yr olds and grabbing things at gunpoint?How do you implement free trade?

    You have to deal with the security issues first. Sounds to me like Mr. Bailey and the others are not coping in Copenhagen.

  • Dello||

    Doug Gray,
    "What about an African country where you have a warlord with a bunch of gun toting goons raping 14 yr olds and grabbing things at gunpoint?How do you implement free trade?"

    So you saw that story about the UN peacekeepers, too?

  • Dello||

    TWC,

    Quick math questions (new math version): You get 25 MPG in your used car and drive 10,000 miles per year at $4 per gallon. Your buddy buys a new Prius for $30,000 that gets 50 MPG and drives 10,000 per year at $4 per gallon.

    You spend $1,600 per year on gas, while your buddy spends $800, a difference of $800.

    1) How many years will your buddy have to drive to offset the purchase price of his new car?

    2) How much will he have to PAY to throw away the (eco-hazard) battery pack when it wears out in 7 years, and how much will the new one cost him?

    3) Why would anyone do that?

    Questions for all your prius driving friends...

  • The Wine Commonsewer||

    Dello, good points. Mrs TWC and I were just talking about that the other day. We have an 8 year old paid-for full size Montero that gets 17-20 mpg.

    We can buy a lot of gas for the 18-30 grand it would cost to replace the vehicle with something more fuel efficient.

    The other thing is our gas guzzling big truck (not paid for). It gets 16-23 depending. Years ago I had a Chevy with the same size engine. 100 less horsepower. 25% less MPG.

    What we consider a gas guzzler today is downright fuel efficient compared to anything built 25 years ago. Including my old Karmann Ghia. Speaking of that, I had an old Datsun PU that got no better mileage than my 2007 Nissan Titan Crew Cab with all the fixxings.

    Modern Technology.

  • Nigel Watt||

    OT, but Texas Supreme Court has ruled that CPS is retarded:

    Houston Chronicle

  • Dello||

    Modern application, actually. The technology has been around for 100 years, its just that nobody cared enough to be willing to pay for it.

  • ||

    Dello | May 29, 2008, 5:30pm | #
    Modern application, actually. The technology has been around for 100 years, its just that nobody cared enough to be willing to pay for it.


    We've had computer-controlled ignition, timing and valve overlap for 100 years? Impressive. I wonder how large a vehicle would have been needed to tote the UNIVAC controlling its engine.

  • Rakune||

    3) Why would anyone do that?

    Maybe because value is subjective, maybe the Prius driver gets some non-economic benefit (i.e. hippie chicks).

  • Amakudari||

    Update: The Copenhagen Consensus Youth Forum consisting of 80 college students from around the world announced their ranking on Thursday. I will compare it with what the experts announce Friday. One hint: the kids didn't rank free trade very highly.

    It's already out? Either way, that's not a surprise, considering that the youth participants were mostly from countries with a spotty record on capitalism. But no one wants malnutrition. That's my two cents/blind optimism.

  • ||

    He's absolutely right that free trade would likely increase the GDP of developing countries. The problem is that doesn't eliminate poverty. In many countries, the distribution of wealth is so skewed that the "increased prosperity" isn't helping anyone. For all the trickle-down fundamentalists, bear in mind that America's GDP has been going up for the past eight years, but only the top income bracket has actually seen a rise in their real (inflation-adjusted) incomes during that time; everyone else is actually getting poorer in real terms.

  • Dello||

    Kwix,
    "We've had computer-controlled ignition, timing and valve overlap for 100 years?"

    Funny, but close. We've had ignition (at all), variable ignition timing, and variable valve timing for a long time, just without the computer control. Cruise control has been around since about 1927. Automatic transmissions and hybrid vehicles since the teens. All-electric vehicles since the late 1800's.

    Computers make the mechanical processes of the Infernal Combustion Engine easier to manage, but certainly aren't manditory.

  • ||

    Modern application, actually. The technology has been around for 100 years, its just that nobody cared enough to be willing to pay for it.

    We've had computer-controlled ignition, timing and valve overlap for 100 years? Impressive. I wonder how large a vehicle would have been needed to tote the UNIVAC controlling its engine.


    Other stuff contributes to the gas mileage besides the advances in engine technology. Better aerodynamics, less tire rolling resistance, taller gearing, more efficient automatic transmissions, lighter weight, smaller engines etc. Stick shifts used to be 10% -20% more fuel-efficient, now many new cars have slightly better gas mileage for automatics versus the stick shift.

    The biggest drag on fuel economy is grossly oversized engines compared to power needs. I went to an auto show recently, and was surprised to find that if you spring for the bigger, 2.4 liter engine in a Corolla, it gets the exact gas mileage as the 2.4 liter Camry.

  • Mike Laursen||

    Speaking of climate change, Shikah Dalmia, and the Prius/Humvee dust up where 95% of all Reason commenters beat her body into a coma, I see in the latest issue of WIRED that Ms Dalmia has been vindicated.

    OK, she didn't quite deserve a full-on coma, but the article does not vindicate her gullible reporting. For a magazine called reason, blah, blah, blah...

  • The Wine Commonsewer||

    drink

  • ||

    Dello,

    One thing that you're missing out in your calculations is that you have to take the price of the new prius and subtract the cost of the other car. Resale values and depreciation would also be in important but I won't go into that.

    aka, if it costs $4000 more for a car that will save you $800 a year, plus it'll have a higher resell value, the math doesn't look so bad anymore.

  • mmo||

    3) Why would anyone do that?

    Maybe because value is subjective, maybe the Prius driver gets some non-economic benefit (i.e. hippie chicks).

    Did anyone else find that funny? I'm getting me a hybrid! Many hippie chicks are unusually hot...

  • Guy Montag||

    So, who is buying advance tickets to Inconvenient Truth, the opera?

  • ||

    About the car debate,

    Alot of this goes to poorly drafted legislation. OBD-I mandated the use of catalytic converters and electronic fuel injection. Unfortunately this removed entire systems of engine management form the marketplace, such as mechanical fuel injection, thermal reactors and variable flow carburetors.

    This was done, of course, in the name of the environment and cleaner air. Unfortunately, all of those "improvements" severely reduced power and fuel economy in most vehicles. It is only within the last few years that computer controls and advances in engineering have made up for the initial losses.

    For example, my two speed automatic transmission '62 model corvair with a flat six aircooled engine gets almost 30 mpg on the freeway. Throw in an aftermarket 5 speed and it is closer to 35 mpg. And that is using points for ignition.

    Once again we have an example of the environmental movement/big government telling people how to do things verus simply telling them to meet a standard as a way of fucking up an entire industry.

    Cheers,

    Tom

  • Guy Montag||

    prolefeed,

    The biggest drag on fuel economy is grossly oversized engines compared to power needs.

    NEVER NEVER NEVER use those words together again! No such thing as a 'grossly oversized engine' ever ever ever.

    Tom,

    Even pre-OBD the feds were messing up performance and economy.

    My little 1972 318 is the victim of that de-tuning nonsense, with a spec compression of about 8:1, plus all that vapor recovery crap that is just a bunch of plumbing to gum up and clog over time resulting in excess fuel system pressure and gas fumes leaking everyplace.

    I do plan on repairing the problems caused by government on that engine. Thinking maybe domed pistons, possibly decking the block (whatever to get close to 10:1), aluminum 360 heads and cam, 4" or bigger stroker crank, might bore it .020 over, maybe, if the cylinders need to be trued to the bottom. However, I am getting tired of fussing with the 2bbl carb, might do the home-built EFI thing too.

  • ||

    Guy,
    Yeah, that is what happens when congressmen ignorant of technology and scientists dictating policy collide.

    If you can afford it, try mechanical fuel injection instead. Nothing like retuning the mixture for a given power setting while on the fly. It is alot easier to use than programable EFI.

    Plus it looks cooler!

    Cheers,
    Tom

  • Guy Montag||

    Tom,

    Will look into that, but my first guess is that parts for a programmable EFI will be easier to find in a junk yard (in Northern VA or East TN) than for MFI. Plus, the modern electronic ignition units might work better with them too.

    BTW, my engine has that original, 1972 vintage elec. ignition on it already, from the factory.

  • Douglas Gray||

    Dello:

    I wasn't talking about the peacekeepers. Recently there was a video from the U.N. A teenage girl, 15 yrs. old spoke and someone translated. She and a number of her friends were pressed into service by local warlords, and repeatedly raped, and nearly all of them are now HIV positive. Many of course get pregnant as well.

    I forgot what country it was.

    The point is, someone might benefit from free trade in that country, but not them.

  • DannyK||

    Hey, free markets are great! I think we should have more of them in the United States, too.

    Wine Commonsewer:
    That Wired blog post is interesting, but it really just restates something enviros have been saying for decades: recycling stuff is almost always greener than buying new stuff.

    In other news, Shikah Dalmia is still lame.

  • Rakune||

    Why thank you MMO!
    Prius -> Hippe chicks
    Hummer -> Fat chicks
    Corvette -> Chicks who likes men with little dicks

    Which could all be the same woman, in which case a 1993 Ford Escort, a six-pack of natural light and a three-pack of Trojans should suffice.

  • Guy Montag||

    Prius -> Hippe chicks
    Hummer -> Fat chicks
    Corvette -> Chicks who likes men with little dicks


    Ford -> Three legged chicks

    MOPAR -> Chicks into real guys.

    QED

    Ladies, I am the guy driving the 1972 Charger with Tennessee C8H18 tags.

  • Fig||

    What about an African country where you have a warlord with a bunch of gun toting goons raping 14 yr olds and grabbing things at gunpoint?How do you implement free trade?

    You have to deal with the security issues first. Sounds to me like Mr. Bailey and the others are not coping in Copenhagen.


    Oh, I don't know... what if the average citizenry had the right to bear arms? Granted the 14 year old gets no protection while out and about, but whole villages don't get raped. The whole security situation would be significantly better. There are still small villages in Africa that refuse to be disarmed and are relatively protected from their nut-ball warlords, but the UN doesn't believe in the right to bear arms so they're helping in the attempt to disarm.

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