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Tuesday, December 06, 2005

Trade and Poverty: A Case of Discourse Failure?

Let us agree that world poverty is a major scourge and that the international community as a whole, as well as governments, have a moral obligation to try to alleviate it. The issue is very topical now. It permeates meetings at the United Nations, developed countries' summits, and scholarly writings. Of the latter, there are two research communities that have addressed the question: human rights scholars (especially those concerned with socioeconomic rights) and global justice philosophers.

When I started research on a piece I'm writing with my colleague Jon Klick, I was stunned by the fact that almost no writer in these two fields discusses the fact that, according to a nearly unanimous economic literature, free trade helps the poor (please, don't ask me to prove this here: I recommend two non-technical books, Baghwati's In Defense of Globalization, OUP, 2004, and McCullock, Winters and Cirera: Trade Liberalization and Poverty: A Handbook, 2001).  Now, it's not as if they consider the issue and disagree that free trade helps the poor (although that would be bizarre, given the evidence). They simply ignore the issue.  I conjecture there are two reasons for this weird ommission. First, many human rights advocates and global philosophers are left-of-center, and therefore they do not want to concede that free markets may help the poor. They favor internal regulation of markets and they may think it is somewhat inconsistent for them to recommend international free trade. The other reason has to do with professional distortions. Human rights scholars tend to be economically illiterate.

Philosophers, on the other hand, have a prejudice against social theory. My sense is that they tend to think that all solutions to social problems are conceptual or normative: we just think about what equality requires, and enact the appropriate policies (e.g., transfer from rich to poor). But I've been persuaded the hard way that this apporach is wrong. The answer to most social problems is empirical, not normative, and world poverty is one of them. These writers are not only guilty of discourse failure (that is, of ignoring a relevant issue for truth-insensitive reasons).  They are hurting the poor.

Posted by fteson on December 6, 2005 at 11:12 AM in Fernando Teson | Permalink


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My usual response to people who say free trade is not good for the poor: how come trade sanctions are so effective in crippling economies? Aren't the US protecting Cuba when they decide not to trade with her? [And of course, since party leaders are not the ones smuggling toilet paper out of hotels, it seems poor Cubans are the ones bearing the cost of the embargo].

In a more serious note, I think most of the attacks agains free trade come from people who either are, or care about, people who will be unambiguously hurt. An example is industrial labor. These people, in developed countries, may lose their jobs as their country specializes in something else. For upper-middle class individuals, these workers *are* poor (or should I say poorER), and their losses are clear. Whereas the gains to the poor - the jobless, or those with very low paying jobs in service sectors that have no international competition (say, janitors, MC Donald's employees), are more dilluted - they come as reduced overall prices, higher quality, etc, and ultimately growth as the economy redirects forces towards more productive means. But these "gains" are harder to measure than the obvious losses, thus tempting well-meaning individuals to be against free trade.

Posted by: Maria | Dec 8, 2005 1:54:16 PM

The domestic monopoly point is an important one. Just to clarify, Pogge doesn't ignore the role of corrupt regimes in hobbling development. However, because his project is to describe the obligations of wealthy nations to poor nations, he focuses on the contribution to internal corruption of foreign corporations, only recently prohibited by anti-bribery treaties, as well as of international legal rules framed by wealthy nations.

Posted by: Adil Haque | Dec 7, 2005 2:41:53 PM

These writers (human rights lawyers and global philosophers)make a triple mistake:
1) They conceal that free trade helps the poor
2) They almost never discuss the law of comparative advantages by paying attention to relevant economic literature, and as a result:
2) They assume that protectionism is an unsuccessful coordination game ("free trade would be Ok if everyone stopped protecting"). This is wrong: protectionism is a successful rent-seeking game, in developing and developed nations alike. (I owe this characterization to Jon Klick). That is why authors like Pogge get it only partially right: protectionism in rich countries indeed hurts the world's poor. But what he and others do not say is that domestic monopolies in developing countries are even worse for the poor. This economic mistake serves their agenda well, however: let us blast rich nations, yet say nothing about corrupt regimes in the developing world who sell protection to oppressive domestic monopolies, using bad arguments such as the need to protect infant industry (refuted, I believe, 200 years ago.)

Posted by: Fernando Teson | Dec 7, 2005 10:09:57 AM

Hm. I've found that political philosophers condemn protectionism by wealthy nations, and then split over whether poor nations should be able to insulate their infant industries from foreign competition. Also, while thinkers like Thomas Pogge describe protectionism as one of three leading sources of distributive injustice, others like Thomas Nagel consider protectionism under a separate heading of unfair competition. In any case, I'm not sure philosophers are entirely uninterested in the connection between free trade and global poverty.

Posted by: Adil Haque | Dec 7, 2005 9:37:52 AM

Maybe Jeffrey and I are reading different literature. I don't think there's any serious debate about whether free trade causes economic growth. It does. The record of free trade as promoting growth is not mixed, once you control for all the variables. The debate is about whether the distributional effects are acceptable, i.e., whether free trade helps the poor. I think the consensus is that in the short term free trade is Kaldor-Hicks efficient, and in the long term, it is Pareto-efficient. The alleged counter-examples fail to control for important variables, such as bad institutions and other forms of government failure. Even social democrats such as Amartya Sen, believe that we need free trade, but supplemented by a variety of government policies to ensure that the poor have access to the production circuit. Apart from that, I wholeheartedly agree with Jeffrey's Kantian view about the link between peace and trade.

Posted by: Fernando Teson | Dec 6, 2005 10:48:30 PM

1. The post equates equality with growth, but increased growth can coexist quite comfortably with higher GINI scores.

2. The track record of free trade as a promoter of economic growth is quite mixed; neoliberalism fails to explain some spectacular success stories (the heavily protected markets of the NICs led to export-led growth rather than stagnation). Of course, dependency theory, classical liberalism, and just about every other theory of development have also failed to simultaneously account for the success stories and horror stories of economic development, so I don't hold it against the neoliberals.

3. The author accuses others of thinking too normatively rather than empirically -- and then commits the same error. Free trade works quite nicely in theory (those production possibility frontiers are pretty darn seductive, aren't they?) but the actual predictive ability of liberal trade policies on economic growth is rather limited. The author seems to assume that a host of statistical studies of development support the liberalism=grwoth (and specifically growth in incomes among the poor) hypothesis, but the record is quite mixed. What studies show statistically significant, substantively significant, positive coefficients for trade liberalism on the income of, say, the bottom 20% of wage earners -- after controlling for other factors known to influence the incomes of the poor?

4. There does seem to be a strong correlation between trade liberalism and reduced international conflict. If nothing else, this should be a tie-breaker when the economic studies are mixed.

Note that all of these comments are coming from a quantitative social scientist who considers himself a neoliberal -- I'm pretty far from left-wing when it comes to international political economy.

Posted by: Jeffrey | Dec 6, 2005 8:37:13 PM

Perhaps it's that economists are biased instead of human rights advocates? GASP! What a heretical suggestion!

Posted by: Paul Gowder | Dec 6, 2005 1:50:01 PM

I'm no trade expert - just finished teaching the class for the first time. But I don't agree with this view. Trade and Development is the subject of not just hundreds, but thousands of articles, an SSRN paper series, an international agreement called the Generalized System of Preferences, and chapters in both of the leading casebooks. Maybe you're defining it differently and specifically, but the people who claim that trade and poverty are related is not a null set.

Posted by: David Zaring | Dec 6, 2005 1:43:04 PM

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