US Trade Policy, "Do as We Say, Not as We Did"
"Do as we say, not as we do," is the advice from the United States to the low- and middle-income countries of the world when it comes to trade. Lately the press has taken aim at this aspect of modern colonialism. They have pointed out the hypocrisy of the US and other rich countries subsidizing their agriculture or protecting their steel or textile industries, while demanding that countries as poor as Ghana open their markets to goods and services from the North.
This allows the punditry to fancy itself the champion of the world’s poor, joining hands in righteous indignation with the leaders of the world’s most powerful economic institutions: the International Monetary Fund, World Bank, and the World Trade Organization. The same rules should apply equally to all, they proclaim.
Or as Anatole France once said, "The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread."
But how much will the world’s poor really benefit from increased access to the markets of the rich countries? And is this really the best way to level the playing field — "free trade" for everyone?
As often happens with debates about economic policy, few of the people writing and chattering about the subject bother to look at the numbers. For example: imagine that the rich countries of the world open all of their markets for merchandise trade– agriculture, textiles, steel, everything. This would be phased in by 2015. How much more annual income would the low- and middle-income countries have in 2015 as a result of this increased access to the markets of rich countries?
According to the World Bank, the answer is about 0.6 percent. The poorer countries would not get their fair share, but imagine that they did: a country in Sub-Saharan Africa whose income per person would otherwise be $500 a year would, as a result of this trade liberalization, have $503. Not much to write home about.
In fact, according to other widely-used economic models, many developing countries will actually wind up with a net loss from the liberalization of agriculture and textile trade that was agreed upon at the WTO’s creation in 1994.
But it gets worse. The WTO doesn’t just make and enforce trade rules. It has a seamier underside — the highly protectionist agreement known as "TRIPS" (Trade-Related Aspects of Intellectual Property Rights). The goal of these rules is to get the low and middle-income countries to obey patent and copyright laws that are made in the USA and Europe.
Economists haven’t spent too much time looking at what this will cost developing countries. But preliminary estimates (again from the World Bank) indicate that this one form of protectionism could easily exceed the gains from trade liberalization.
And there are other serious concerns that people in developing countries have about implementing the rules of "free trade," as it is commonly and inaccurately labeled. In many countries a large part of the labor force, sometimes the majority, is still employed in agriculture. In the United States we went from 53 percent of our labor force in agriculture in 1870 to 4.6 percent in 1970, and yet the displacement of people from the countryside still generated much pain and serious social unrest. Imagine what would happen if this century-long process were collapsed into a couple of decades, as advocated by the WTO (along with the IMF and World Bank) for much of the world. This is a recipe for social explosion.
The truth is that equalizing the enforcement of bad rules will not make the world better off, any more than spreading street crime from poor to middle-class neighborhoods would. If we look at the few countries that have made it out of poverty in the last half-century — for example South Korea or Taiwan — they didn’t get there by adhering to the "Washington Consensus" of free trade and unrestricted foreign investment flows. Quite the contrary: their governments protected, subsidized, and even created key industries, and intervened heavily to move their economies into higher technology, higher value-added production.
Of course we did similar things when the United States was a developing country, with an average tariff of 44 percent on manufactured goods as late as 1913. Not to mention "borrowing" technology from wherever it existed in more advanced form, ignoring foreign intellectual property rights. "Do as we say, not as we did."