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Fri Nov 4 08:06:43 PST 2005

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GLOBALISATION
Nov 3rd 2005  

But trade liberalisation and other forms of openness are needed more
than ever

FREDERIC BASTIAT, who was that rarest of creatures, a French
free-market economist, wrote to this newspaper in 1846 to express a
noble and romantic hope: "May all the nations soon throw down the
barriers which separate them." Those words were echoed 125 years later
by the call of John Lennon, who was not an economist but a rather
successful global capitalist, to "imagine there's no countries". As he
said in his 1971 song, it isn't hard to do. But despite the spectacular
rise in living standards that has occurred as barriers between nations
have fallen, and despite the resulting escape from poverty by hundreds
of millions of people in those places that have joined the world
economy, it is still hard to convince publics and politicians of the
merits of openness. Now, once again, a queue is forming to denounce
openness--ie, globalisation. It is putting at risk the next big advance
in trade liberalisation and the next big reduction in poverty in the
developing countries.

In Washington, DC, home of a fabled "consensus" about poor countries'
economic policies, a bill before Congress devised by one of New York's
senators, Charles Schumer, threatens a 27.5% tariff on imports from
China if that country does not revalue its currency by an equivalent
amount. In Mr Schumer's view, presumably, far too many Chinese peasants
are escaping poverty. On November 4th George Bush will escape the
febrile atmosphere along Pennsylvania Avenue by visiting Argentina to
attend the 34-country Summit of the Americas. There he will be greeted
by a rally against "imperialism", by which is meant him personally, the
Iraq war and the Free Trade Area of the Americas which he espouses.
Among the hoped-for 50,000 demonstrators will be Diego Maradona, who as
a footballer became rich through the game's global market and as a
cocaine-addict was dependent on barrier-busting international trade;
and naturally his fellow-summiteer, Hugo Chavez, who is using trade in
high-priced oil to finance his "21st-century socialism" in Venezuela.

All, perhaps, the normal fun of a Latin American visit. Last week's
Latinobarometro opinion poll revealed that whatever the protesters may
say, a clear majority in all the region's countries favour a market
economy rather than a closed, state-directed one--even in Venezuela
(see article[1]). This is, however, a difficult moment for the market
economy and for relations between rich countries and poorer ones, for
the Doha round of trade-liberalisation talks under the World Trade
Organisation are in trouble. When it began in 2001, the round was
billed as a big effort to boost growth in poor countries, and the
lowering of barriers to food trade was placed at its centre. In the
past few weeks, however, a fairly bold American proposal for reducing
its farm protection has been greeted by a much weaker response from the
European Union and none at all from Japan. And ministers from Bastiat's
own country, France, have vied with one another to denounce all talk of
further reform to the EU's common agricultural policy. Europe must,
they say, remain an "agricultural power" even at the expense of the
taxpayer and the poor, and, according to President Jacques Chirac, must
fight back "liberalism". Whatever happened to LIBERTe, EGALITe,
FRATERNITe?

The world will find out, to some extent, next month when ministers from
the 148 countries in the WTO meet in Hong Kong. The last time they
gathered for such a crucial meeting was in September 2003 in Cancun,
and the result was a shambles. There was a bitter row between rich
countries and poor ones, and the meeting broke up in acrimony. At that
stage, however, there was still plenty of time to repair the damage.
For in effect the deadline for the Doha round comes in June 2007, when
the trade-negotiating authority granted by Congress to President Bush
expires. But, although that leaves more than a year and a half after
Hong Kong, the complexity of a negotiation involving 148 countries and
scores of highly technical issues means that the deal really needs to
be done during 2006, with the political framework for it set early
on--which essentially means in Hong Kong.

THE CASE FOR SELFISH GENEROSITY
Trade-liberalisation rounds are arcane affairs about which free-traders
are often thought to cry wolf. The previous talks, known as the Uruguay
round, went through lots of brinkmanship and delays before they were
completed. The result was still disappointing in many ways, especially
to developing countries, and yet since the round's completion in 1993
the world economy has grown lustily and the biggest developing
countries, China, India and Brazil, have all burst on to the global
trading scene. Would the world really be hurt if the EU merely refuses
to expose its farmers to more competition?

The likeliest outcome both from the Hong Kong meeting and the eventual
Doha agreement is a compromise--as always. The European position is
feeble but not risible, for it has offered an overall average cut in
its farm tariffs of 39%, up from 25% only a month ago, though with
rather a lot of loopholes that could severely limit the benefits.
France, and other European farm protectionists, may prove more flexible
than they currently imply: this is hardly the first time they have
promised to man the barricades shortly before striking a deal. Yet
though some sort of fudge in Hong Kong must be likely, with the
Americans lowering their ambition and the Europeans raising theirs a
little, such an outcome would still represent both a missed opportunity
and a risk.

The missed opportunity is that Doha has offered the first proper chance
to involve developing countries in trade negotiations--they now make up
two-thirds of the WTO members--but also thereby to use a full exchange
of agricultural, industrial and service liberalisations to make a big
advance in free trade that could benefit a wide range of countries.
Some of that progress may still be made, even in a fudged deal: Brazil,
for example, stands to benefit hugely from freer trade in agriculture
(see article[2]), so it should be willing to promote other concessions
in return. India is reluctant to cut its own farm tariffs but has a big
interest in liberalising trade in services, wanting more freedom in
everything from finance to health care to entertainment. But if the
rich world could gird itself to be more ambitious on agriculture the
gains would be even greater: help for the poorest countries, making the
rich look generous; better access to the biggest and richest developing
countries for western companies; and a rise in global income in a
decade's time of $300 billion a year (says the World Bank), which would
thus help everyone.

The risk is that failure to agree on a new wave of openness during a
period (the past two years) in which the world economy has been growing
at its fastest for three decades, with more countries sharing in that
growth than ever before, will set a sour political note for what may
well be tougher times ahead. A turn away from trade liberalisation just
ahead of an American recession, say, or a Chinese economic slowdown,
could open up a chance not just for a slowdown in progress but for a
rollback. Currently, for example, the Schumer bill to put a penal
tariff on Chinese goods looks unlikely to pass. If American
unemployment were rising and world trade talks had turned acrimonious,
that might change. So might the political wind in many developing
countries.

If so, that would be a tragedy for the whole world. Although the case
for reducing poverty by sending more aid to the poorest countries has
some merit, the experience of China, South Korea, Chile and India shows
that the much better and more powerful way to deal with poverty is to
use the solution that worked in the past in America, western Europe and
Japan: open, trading economies, exploiting the full infrastructure of
capitalism (including financial services--see our survey[3] on
microfinance) amid a rule of law provided by government. In other
words, globalisation. To paraphrase Samuel Johnson, anyone who is tired
of that is tired of life. 

-----
[1] http://www.economist.com/displayStory.cfm?story_ID=5093522
[2] http://www.economist.com/displayStory.cfm?story_ID=5107849
[3] http://www.economist.com/displayStory.cfm?story_ID=5079324

See this article with graphics and related items at http://www.economist.com/research/articlesBySubject/displayStory.cfm?story_id=5115177&subjectID=423172&fsrc=nwl&emailauth=%2527%2524%255F%255B%2522XN%255F0%25241%252A4%250A

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