Labor, The Economy

A recent NY Times Editorial argued that developing nations were being hurt by the unfair trade practices of Europe and America:

The same sad story repeats itself around the globe, as poor countries trying to pull themselves into the world market come up against the richest nations’ insistence on stacking the deck for their own farmers. President Bush deserves credit for traveling to Africa and trying to focus attention on that continent’s plight. But meanwhile, struggling African cotton farmers are forced to compete with products from affluent American agribusinesses whose rock-bottom prices are made possible by as much as $3 billion in annual subsidies. Sugar producers in Africa are stymied by the European Union’s insistence on subsidizing beet sugar production as part of a wasteful farming-welfare program that gobbles up half its budget.

This is an argument in line with the policy that Oxfam has been taking towards globalization. Much to the dismay of more radical groups, Oxfam has been endorsing free trade. This may have something to do with their decision, in 2000 to appoint Economist/Philosopher Amartya Sen as their honorary president. Their point, like that of the NY Times article, is that free trade as practiced by the industrialized nations is not really free — but stacks the deck against the poorer nations. They’ve even launched a web site: <> to promote this line of reasoning.

Now, I think Amartya Sen and Oxfam are great, but then I read this statement by Mark Weisbrot and Dean Baker at the Center for Economic and Policy Research. They attack the NY Times (and by extension, the Oxfam, although they don’t mention Oxfam directly) line of reasoning by questioning whether free trade would really have that much of an impact on poorer nations.

To put the problem in perspective: the World Bank, one of the world’s most powerful advocates of removing most trade barriers, has estimated the gains from removing all the rich countries’ remaining barriers to merchandise trade — including manufacturing as well as agricultural products — and removing agricultural subsidies. The total estimated gain to low and middle income countries, when the changes are phased in by 2015, is an extra 0.6 percent of GDP. In other words, an African country with an annual income of $500 per person would then have $503, as a result of removing these barriers and subsidies.

They also argue that developing countries do benefit in some ways from the tariffs of wealthy nations, whether through cheaper imports (lower prices for consumers) or even more expensive exports (more income for farmers). Now, I’m not an economist so this it is really beyond me to sort out this argument, but I thought it was interesting that the article ends by suggesting that the best solution would be to allow developing countries to impose tariffs!!!

Insofar as cheap food imports are viewed as negatively impacting a developing country’s economy, the problem can be easily remedied by an import tariff. In this situation, developing countries would benefit far more if the ones that want cheap subsidized food have access to it, whereas the ones that are better served by protecting their domestic agricultural sector are allowed to impose tariffs without fear of retaliation from rich nations.

In the end, they say that the whole issue diverts attention from the real problem, which is the IMF:

While reducing agricultural protection and subsidies in rich countries might in general be a good thing for developing countries, the gross exaggeration of its importance has real consequences, because it can divert attention from issues of far more pressing concern. For example, the IMF continues to play the role of an enforcer of a creditors’ cartel in the developing world, threatening any country that defies its edicts with a cutoff of access to international credit.

Anyone have any thoughts?