Trade, openness and sharing in economic growth

Mike Moore, Director-General of the World Trade Organisation, discusses the role of international trade today and the way forward for the WTO

Socialist Affairs, Issue 1 / Volume 49, 2000

A major challenge for political forces is to scrutinise the global institutions that function in their name. Some very heavy lifting and thinking is required that goes beyond the traditional banner slogans, car stickers, television sound bites and radio grabs.

Healthy, democratic and accountable international agencies are now as important as democracy at home. The international architecture is much talked about. Now we need some leadership and direction, especially given the end of the Cold War.

Fifty years ago, when I was born, the future did not look as bright. Rationing was commonplace. Memories of the Great Depression were still fresh. The world was struggling to recover from the devastation and horrors of the War. And the spectre of nuclear conflict between the United States and the Soviet Union loomed over us. Science's final solution was the great cloud that hovered over all decision-making.

Undeniably, we in the West are lucky. The peace and prosperity we enjoy is unprecedented. We must cherish them. But we also made a lot of our luck. Were it not for far-sighted policymakers we would live in a very different world today.

My parents, having suffered the great depression and the collapse of the trading system, made deeper and more lethal because of tariff hikes in major markets, then suffered a world war. Those two events were connected. Great men, liberal and progressive leaders like Roosevelt, Lord Keynes and others erected a new system of global structures, including:

• the United Nations; to handle political matters

• the World Bank; to manage development

• the International Monetary Fund; to manage global economic policy

• the International Trade Organisation; to manage trade (which became the GATT and then the WTO)

Embodied in the Marshall Plan, the most generous idea by victors in war ever, this was the mirror opposite of the spiteful, short-term thinking of 1918 and Versailles. What a different and more dangerous world it would have been without this visionary political leadership.

We all can learn and benefit from decisions taken many years ago. If you are to remain successful, and if those who are less fortunate are also to share in your success, then you would do well to heed the lessons of the past fifty years.

We on the Left have a lot to be proud of. We built the Welfare State that looks after people when they are sick, poor, or old. We fought for the equality of women and of minorities. We argued passionately for internationalism, for solidarity between workers in industrialised and developing countries

So it is odd that some in the Left have sometimes opposed free trade. If international solidarity means anything, surely it means helping people around the world who are less fortunate than us. And surely that means buying coffee from a Ugandan grower and T-shirts made in Bangladesh as well as demonstrating against apartheid. The contradiction of the Left is that in church on Sunday we give generously to flood victims in Bangladesh. Then on Monday we petition the government to stop the Bangladeshis selling their garments in our country.

I think the most important lesson of the past fifty years is that we must embrace the outside world, not shun it. Openness is good. Just compare the protectionist nightmare of the 1930s with the long boom in America and Europe in the 1950s and 1960s as trade barriers fell.

But the benefits of openness are not only economic. Whatever its flaws, no one seriously doubts that Europe is better off with the European Union than without it. There are two Europes. One is united and integrated, where people enjoy each other's food, culture and commerce. This Europe is a powerful force for good in the world where living standards, human rights and environmental sensitivity are on the rise. Then there is the other Europe where tribalism and economic nationalism brings fear, terror and lower living standards. This is the extreme in the Balkans. Openness is the surest way to overcome tribalism.

Open societies share their ideas and their culture. I love my country, but I see no reason why I shouldn't also enjoy the best that other countries have to offer. It is great that Swedes eat Chinese food, watch American films, and read Latin American books. It is heartening that we celebrated when apartheid fell in South Africa and were horrified when people were butchered in Rwanda. Opening up, which is basically what that ugly world "globalisation" means, is in keeping with the internationalism that the Left has always championed. All this does not make France less French or Scotland less Scottish.

Openness does bring with it new challenges. Our lives are more closely linked with those of others across the globe. When Russia defaulted in 1998, the financial aftershocks meant Mexican homeowners had to pay higher mortgage rates. When South Korea's economy seized up, workers in Korean factories in Britain lost their jobs. Undeniably, this causes pain. But people tend to forget that, thanks to globalisation, good times in the rest of the world spill over to us too. America's free-spending consumers prevented a world recession in 1998 and have helped Asia to recover quickly. More generally, exports can keep an economy going when domestic demand flags, while imports can prevent it from overheating when domestic demand is strong.

The World Trade Organisation, and its predecessor the GATT, has played an important role in creating this more open and prosperous world. Since the GATT was set up in 1948, world trade has soared fifteen-fold, to more than $7,000 billion a year. This has helped to multiply world output by seven. This huge rise in living standards has allowed nearly everyone to enjoy the luxuries that were previously enjoyed only by the few. European tours were once the preserve of the wealthy and the aristocrats. Now almost everyone in the EU can enjoy a foreign holiday. Even in poor countries, people live longer, eat better, and have more access to clean water than they did fifty years ago.

Of course, the world today is far from perfect. Disease is still rampant. Bloody wars still kill and maim. Far too many people are still poor. 2.8 billion people live on less than 2 dollars a day, barely enough for a Big Mac.

Such extreme poverty is a tragedy and an outrage. But how can it be reduced? The simple answer is that developing economies need to grow faster, and the poor need to share more in the fruits of economic growth. But that merely begs more questions-how do governments boost economic growth?; how do they make sure it benefits everyone?-to which there are no simple solutions. Cancelling Third World debt, for instance, will do little to improve the lives of the poor if governments squander their resources. When 25 per cent of the population have AIDS, then trade is just a small but important part of progress. Nor will abolishing trade barriers help much if countries are at war and farmers cannot get their crops to market. Even so, at least one thing is clear: trade alone may not be enough to eradicate poverty, but it is essential if poor people are to have any hope of a brighter future.

Some people scoff at the argument that trade helps the poor. They claim that trade benefits the rich at the expense of the poor. But the evidence tells a different story. It is well-established that trade boosts economic growth. A much-quoted paper by Jeffrey Sachs and Andrew Warner of Harvard University found that developing countries with open economies grew by 4.5 per cent a year in the 1970s and 1980s, while those with closed economies grew by 0.7 per cent a year. Countless country studies support their results.

Opponents of free trade retort that poor countries are still not catching up with rich ones, indeed that the rich are drawing further ahead. It is true that poor countries in general are not catching up with rich ones. Yet it is obvious that some developing countries are. Just look at South Korea. Thirty years ago, it was as poor as Ghana. Now, thanks to trade-led growth, it is as rich as Portugal-and think how much richer Portugal has become over the past thirty years thanks to the European Union. Or consider China, where 150 million people have escaped from extreme poverty over the past decade. What do these fortunate countries have in common? Openness to trade. A WTO study on trade and poverty published last month found that the poor countries that are catching up with rich ones are those that are open to trade; and the more open they are, the faster they are converging.

Even so, critics of free trade argue that poor people within a country lose out when it liberalises. Not so. The new WTO study finds that the poor tend to benefit from the faster economic growth that trade liberalisation brings. It concludes that "trade liberalisation is generally a strongly positive contributor to poverty alleviation-it allows people to exploit their productive potential, assists economic growth, curtails arbitrary policy interventions and helps to insulate against shocks". This concurs with the finding of a new study by David Dollar and Aart Kray of the World Bank which, using data from eighty countries over four decades, confirms that openness boosts economic growth and that the incomes of the poor rise one-for-one with overall growth.

Of course, some people do lose in the short run from trade liberalisation. Some are fat cats grown rich from cosy deals with governments. But others are poor farmers who lose their subsidies or unskilled workers who lose their jobs. Their plight should not be forgotten. But the right way to alleviate the hardship of the unlucky few is through social safety nets and job retraining rather than by abandoning reforms that benefit the many.

I see no contradiction between being on the Left and supporting free trade and the WTO. I am, and always will be, a Labour man. But how does making food and clothing from abroad more expensive help working people? How does raising the price of cars so that only the rich can afford them help working people? And how does protecting the jobs of yesterday at the expense of the jobs of tomorrow help working people? It doesn't. It doesn't. It doesn't.

The information age is providing opportunities in education, health care, entertainment, enjoyment and employment never before dreamed of. On lonely atolls and distant villages, one can enjoy Pavarotti, get weather reports and teach one's children. Contrast - when I was a child the hope of every working class family was a set of the Encyclopaedia Britannica. In those days it cost a year's pay. Now, its free on the internet or you can buy the compact disc with a week's social security.

Free trade is generally a good thing. And so is the WTO. We are too often misunderstood, sometimes genuinely, often wilfully. We are not a world government in any shape or form. People do not want a world government, and we do not aspire to be one. But people do want global rules to match the acceleration of globalisation. If the WTO did not exist, people would be crying out for a forum where governments could negotiate rules, ratified by national parliaments, that promote freer trade and provide a transparent and predictable framework for business. And they would be crying out for a mechanism that helps governments avoid coming to blows over trade disputes. That is what the WTO is. We do not lay down the law. We uphold the rule of law. The alternative is the law of the jungle, where might makes right and the little guy doesn't get a look in.

The best friends of the WTO are those who are not members. This year Georgia, Jordan, Albania and Croatia have joined the WTO. The Albanian President said to me that those who oppose economic integration and support isolation should visit Albania. Later this year we hope to have China, Chinese Taipei, Oman and Lithuania as new members. The Baltic states had living standards equal to Denmark before the Soviets closed them up. Czechoslovakia had a living standard comparable with France before the war. And at the turn of the century, Chile, Argentina and Uruguay had higher living standards than New Zealand, Australia and Canada. Then they turned inwards - and downwards.

Of course, we need to put our case better. We also have to listen to our critics more. They are not always wrong. And we are trying to make the WTO's work even more accessible to everywhere. We welcome public scrutiny. That is why I make a point of meeting with parliamentary committees whenever I visit a country.



© 2000 Socialist Affairs. All rights reserved.

Signed articles represent the views of the authors only, not necessarily those of Socialist Affairs or the Socialist International