In 1999, during the World Trade Organisation ministerial conference in Seattle, I watched protestors march against globalisation. They saw international trade as a threat to their jobs and/or the environment.
I was convinced that expanded world trade could bring benefits to developing countries and ease poverty. I believed they should open their markets to international competition. Market discipline would strengthen economies and the poor would benefit.
This remains the view of bodies like the International Monetary Fund (IMF), reflected in the incentives and penalties in their loan agreements with developing countries.
I now believe this approach is wrong. Since leaving the British Cabinet, I’ve met farmers and communities at the sharp end and seen the consequences of trade policy at first hand.
In terms of income, trade could far outweigh aid or debt relief for developing countries. A 1% increase in Africa’s share of world exports could generate around $70-million — five times the aid it receives.
Reform is vital because world trade rules are rigged against poor countries. The quid pro quo for rich countries opening their markets is that developing countries do likewise. They are then vulnerable to heavily subsidised rich country exports.
Often the most successful developing countries have installed measures to protect industries while they gain strength and allow communities to diversify. This is not intervention to prop up failing enterprises, but a transitional phase to create businesses that can compete globally.
Taiwan and South Korea built international trading strength on government subsidies, investment in infrastructure and skills and protection from overseas competition. Countries that have recently reduced poverty through higher growth — China, Vietnam, India and Mozambique — intervened to strengthen domestic sectors.
Liberalisation in many countries has not delivered growth, while allowing domestic markets to be dominated by imports. After opening their markets, Zambia and Ghana had sudden falls in growth rates, with sectors unable to compete.
Where growth has followed trade liberalisation, poverty has not necessarily been reduced. Mexico is an example.
The benefits of increased world trade will not materialise if markets are left alone. When this happens, rich and powerful international players make quick gains from short-term investments. IMF and World Bank loan conditions often force countries into rapid liberalisation with scant regard for the poor.
The way forward is a regime of managed trade, where markets are slowly opened, and subsidies and tariffs help achieve development goals.
The IMF and World Bank should recognise that trade liberalisation is the World Trade Organisations’s job, to be considered in the context of poverty reduction, and should not feature in loan agreements. — Â