Who Gains From Free Trade?

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In Foreign Policy, economist Arvind Panagariya debunks many myths about free trade and globalization.

A snippet:

In low-income countries, openness to international trade is indispensable for rapid economic growth. Indeed, few developing nations have grown rapidly over time without simultaneous increases in both exports and imports, and virtually all developing countries that have grown rapidly have done so under open trade policies or declining trade protection. India and China are the best recent examples of countries that started with relatively closed trade policy regimes in the 1980s but subsequently achieved accelerating growth while opening up their economies. From the mid-1950s through the mid-1970s, industrial countries also enjoyed rapid growth while dismantling their high post-World War II trade barriers and embracing new technologies. Japan offers the most dramatic example, but countries such as Denmark, France, Greece, Italy, the Netherlands, Norway, and Portugal exhibited similar patterns.

He tackles other issues, too, including whether rich countries are more protectionist than poor, whether free trade hurts the environment, etc.

Whole thing here.

One counter: He's right to say that, on balance, poor countries tend to be more protectionist than rich ones. But it's worth noting, as Johan Norberg, the author of In Defense of Global Capitalism and the subject of a great interview in the December issue of Reason, points out, "Western duties on export commodities from the developing world are 30 percent above the global average."

Indeed, the West (read: rich countries) have remained protectionist in agriculture and textiles, two areas in which developing countries can actually compete. Norberg rightly calls this hypocrisy "the white man's shame."

[Link via Arts & Letters Daily]

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  1. Zathras,

    Hundreds of millions of people who can make no contribution to a global economy probably COULD so if they weren’t evicted from their land and robbed of the means of subsistence.

    Norberg skims over the real scandal: that what is called “free trade” by neoliberals has about as much to do with a genuinely unfettered market as did the Industrial Revolution in Britain.

    If the U.S. government ever tries to allow genuine free trade–the first step toward which would be withdrawal from the IMF, World Bank and WTO–the transnationals would probably attempt a coup d’etat.

  2. We are better off with markets that are more free, not less free, even if true free markets don’t exist.

  3. Well, Kevin, subsistence by itself does not make a contribution to a global economy. Helping people to get a marginal living, say from agriculture, is certainly worthy for other reasons, but if all they can do is survive they won’t create much wealth.

    As to the other thing, which has been too often discussed for us to be able to add much to the subject here, the WTO and other international institutions are not the alternative to free trade, but the mechanism for it. The alternative is action by individual national governments, which left to themselves will be protectionist most of the time. Only agreements between governments, implemented under the supervision of organizations agreed to by governments, can lead reiably to trade liberalization.

  4. Norberg rightly calls this hypocrisy “the white man’s shame.”

    Too bad the Japanese, the South Koreans and the Taiwanese aren’t “white.” What an idiot.

    If this is an exmaple of Norberg’s thinking abilities, then please, stop using him to bolster your arguments.

  5. Kevin Carson,

    Concentration of labor and rationalization of land usage appear to go hand in hand with “development.” Now one can make that process more (Britain) or less harsh (France) with legislation and land distribution schemes, but a nation needs more than subsistence agriculturalists to develop.

    Also, I think the potential of these non-contributing people does exist; its amazing what skills and the like people can learn when given a chance.

  6. This argument has gotten rather vague. Of course subsistence farming doesn’t contribute to a global economy, but I wouldn’t say that Kevin said that. He did imply that subsistence farmers were being evicted from their land and perhaps that the global institutions we all know and love somehow contribute to this. Now, if this be true, I don’t think we need consider the effect on the global economy to declare it bad and wrong. But do the WTO et al really contribute to this? How so?

  7. Since this thread is about to drop off the main page, feel free to email me directly if you wanna address my last post…

  8. This whole “we need the WTO, IMF, etc” for free trade to exists blows my mind. If anything, these organizations are more mercantilist than “free trade”, and benefit rich countries at the expense of poor countries. Western governments set the rules on what is to be traded “freely” and what can be protected.

    Farmers in many poor countries have no choice but subsistence farming. The government’s huge subsidies to agribusiness in the US effectively negate any comparative advantage that these farmers had. Without these subsidies, poor farmers could compete with US farmers and earn a better living than they are now.

  9. Zathras,

    It seems to me you’re guilty of conceptual realism (or methodological holism, or whatever) when you refer to a “global economy” that subsistence farmers aren’t “contributing” to. Subsistence farming just means producing most of the stuff you need yourself. And as far as I know, the people doing that are still part of the human race. So if productive economic activity that satisfies their needs excludes them from an imaginary collective entity called the “global economy,” so much the worse for the global economy. It sounds too much like liberal arguments that people who keep their own money aren’t contributing to “society”–as if society were anything more than individuals trying to satisfy their own needs.

    And this issue points to one of the misleading arguments for globalization–the vast expansion of economic output. What it really is, I suspect, is a vast expansion of the economic activity that gets counted as part of “output” because activities formerly performed outside the money economy are suddenly monetized. It’s as if an American family decided to monetize the transactions within their household, and the husband started paying the housewife a wage for her work. If everybody did that, it would show up as a big increase in GDP, even if no actual production activity had changed.

    Jean Bart,

    I have no quarrel with the idea of larger production units. But there’s nothing stopping such production units being formed by family farmers themselves, pooling their credit to jointly purchase mechanized farm equipment, etc. That is the pattern that likely would have happened (England included) if the population hadn’t been robbed and turned into propertyless wage-laborers. The question isn’t the benefits of cooperative labor, it’s who’s feeding off it–the producers or the parasites.

    Don,

    That depends on the big picture. If you simply go for any movement in a slightly more free market direction, but let the corporate elites make the strategic decisions as to what forms of regulation and spending to reduce, what you’ll wind up is a pattern of state activity designed to optimize rent-seeking for privileged corporations. They’ll just cut off the forms of state intervention that make corporate capitalism slightly more tolerable, or that are of no benefit to the segment of capital that’s currently dominant politically, and leave the major structural supports of statism in place.

    A case in point is “privatization” schemes that just fit into an overall strategy of 1) “debt-led development” (i.e., taxing third world peoples to pay interest on debt to create infrastructure that TNCs depend on); 2) impoverishment by accumulating debt; and then 3) sell-off of infrastructure paid for by the people’s sweat equity to TNCs for pennies on the dollar.

    The proper strategy is to eliminate the structural foundations of state capitalism first, and then the secondary activities of the state that make it a little more fair for the serfs–not the other way around.

  10. Oh, no! Not conceptual realism! Or was it holy methodologicism?

    I missed the liberal arguments about people not contributing to society if they keep their own money. The point about people keeping their own money and neither spending or investing it was that they were not contributing to the economy, which is a different thing. Similarly people are born into the human race, but merely subsisting in an economy that is growing overall puts them perforce at the bottom of the social order, powerless to improve their position through economic means. My original point, you will recall, was that the gap between such people and their more prosperous neighbors who are connected to the global economy can be a potent source of political stress in many developing countries. To some degree it already has been.

    Also — and forgive me, this may just be my imagination — but the “larger production units” you imagine being formed by small landowners sound suspiciously like Soviet farm cooperatives. This is an odd model for a libertarian to admire.

  11. I can’t believe this evidence. I’ve been told that the benefits of free trade are merely an overly academic theory. And I don’t care about poor people in other countries. Well, except when it comes time to appropriate tax money for foreign aid….

  12. On the economics, Panagariya is exactly right. It’s the politics that are difficult.

    The fact is that in a liberalized, globalized economy overall growth will be higher and so will incomes. Large numbers of people will move ahead — but large numbers of people will not, and this gap will create political stress that fragile political systems will have a hard time withstanding (there is considerable evidence that a similar though less dramatic gap has been opening even in the United States). Stress is exacerbated to the degree that the most successful businesses in a globalized economy are based outside developing countries, as most though not all of them will be.

    This is not an argument against free trade — the alternatives appear much worse — but rather a caution. Developing countries have hundreds of millions of people who, to be brutally frank, are unable to make any real contribution to a modern world economy, are unlikely to have access to the education and other assets that might change this, and yet do have political influence, sometimes a great deal of it. The future of globalization will depend on how effectively this obstacle is overcome.

  13. fyodor… now now. we battled that one well together last week… 🙂

    but zathras: “the world needs ditch diggers, Danny”… (paraphrase of judge smails) and “what’s wrong with working in a lumber yard?” (of course, Ty Webb)

    🙂

    drf

  14. Robots… where are the goddamned robots?

  15. drf, heh-heh, well yeah…. in fact, HELL YEAH!

  16. Always glad to see my colleagues highlighted
    on Hit and Run.

    Jeff

  17. Zathras,

    It’s pretty common for NRP liberal types to contrast “ownlife” with service to “society.”

    And what’s unlibertarian about people voluntarily cooperating and pooling their labor and capital? For that matter, how’s it any more “collectivist” than a joint stock corporation?

    Oh, horrors, to think the English copyholders and other customary tenants might have actually been confirmed in their legitimate property rights, and decided for themselves how to cooperate to farm more efficiently! It was so much more LIBERTARIAN to abrogate their rights in the land, evict them, enclose their plots by force, and use the stolen land for sheep pasture or cash crops to enrich a Whig oligarch!

    Genuine cooperatives, organized from the bottom up, resemble Soviet collective farms about as much as a New England township resembles a People’s Democratic Republic.

    You are basically embracing a system created by REAL, GENUINE violence and robbery, out of an AESTHETIC aversion to voluntary cooperation. THAT’S pretty odd for a libertarian.

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