Economic Commentary
The recent G-8 meeting in Scotland, as well as concerts and celebrity activism, has put a spotlight on the amount of international assistance reaching the countries and peoples of Africa. This is understandable in light of the continent's persistent poverty, seemingly endless conflicts, and the prevalence of HIV/Aids and other infectious diseases. If properly targeted and conditioned on reforms, international aid can make a positive difference, says Richard N. Haass, formerly Director of Policy Planning in the U.S. State Department, now President of The Council on Foreign Relations. This article was provided to Fortune by Project Syndicate.
Trade more than Aid
Aid is no panacea. The fact that so many problems persist despite tens of billions of dollars of assistance and years of effort is a sad reminder that aid can allow governments to undertake foolish investments that accomplish little, or can easily be siphoned off by corrupt officials. Moreover, aid is inherently uncertain, leaving Africans at the mercy of outside forces beyond their control.
Another problem with the emphasis on aid - in addition to the near impossibility of accurately measuring the scale of the flows from all sources - is that the political effort to increase it absorbs attention that would be better spent on a more powerful instrument of economic development: trade.
Trade is the all-but-forgotten weapon in the battle against poverty, but it can provide more help to the poor than aid can. If rich countries in particular, the United States (U.S.), the 25 members of the EU, and Japan really want to help poor people, they will open their markets to what poor countries produce, especially textiles, apparel, agricultural products, and commodities.
Phasing out tariffs and import quotas for poor countries' exports "and phasing out subsidies for their own producers of agricultural products" would have a dramatic effect on the lives of hundreds of millions of people in Africa and elsewhere. Private businesses would develop, jobs would be created, and incomes would rise.
Moreover, trade benefits the world in many other ways, providing a major boost to the advanced economies of the world. One recent study estimates that incomes in the U.S. alone could rise by half a billion dollars a year if global trade were to become truly free. Similarly, incomes around the world would rise significantly from liberalizing more global trade in both goods and services.
Trade is also an engine of political and economic reform.
What countries must do to join the World Trade Organization is precisely what they must do to become productive and democratic: accept the rule of law, reduce corruption, and become open, accountable, and transparent. At the same time, increased trade can help create and sustain a middle class "precisely the social group that often stands at the forefront of movements for democratic reform."
Trade has a strategic benefit as well, for it gives countries a stake in good relations with one another and in maintaining order and stability. A China that trades extensively with the U.S. and its Asian neighbours will think twice before it pursues any policy that would place those relationships at risk. Likewise, trade between India and Pakistan could contribute to the normalization of ties between these long-estranged neighbours.
But if the case for expanding world trade is compelling, the prospects for actually doing so are clouded, owing to a simple but nonetheless fundamental political reality: those who gain from trade, which is almost everyone, are not always aware of it. The benefits of freer trade, such as job creation, lower inflation, and greater consumer choice, are often invisible or only partly visible.
By contrast, those who lose from trade, or who fear that they could lose, while relatively small in number, are anything but invisible. They feel the threat acutely and act accordingly, often dominating their country's political process. Highly motivated minorities can and do overwhelm the general interests of majorities who are not seized with an issue.
What is needed, therefore, is a pledge by governments to make global trade liberalization a much higher political priority. This will happen only if all of the major trading countries demonstrate a commitment to play by the rules.
For China, this means respecting and enforcing intellectual property rights, allowing non-Chinese firms to compete on an equal basis, and setting its currency at a fair level rather than one that is artificially low. For the U.S., the EU, and Japan, it means ending massive subsidies to farmers and curtailing other forms of protection provided to uncompetitive sectors.
Governments can take these steps if they introduce and expand programmes designed to assist those who would lose their jobs as a result of trade liberalization. Displaced farmers and workers must be provided with the education and training required to enter new jobs, as well as the funds, health care, and other essential services that they need to tide them through the transition.
There is urgency in all of this. The current (Doha) round of global trade negotiations is behind schedule; the next session, to be held in Hong Kong, is only months away. Where are the many people who benefit from trade, including the celebrities who care so deeply about alleviating poverty and promoting development? Live Trade, anyone?
© Addisfortune.com, 2004
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