Justice in trade is not simply a moral question

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The trade justice day is an opportunity to reframe accurately the discussion on international trade.

Thursday is Trade Justice day and British campaigning organisations plan a mass lobby of parliament. I have been reading their advice on what I should tell my member of parliament. The most important injunction is: “describe trade justice as a moral issue rather than a complex debate about economics”.

But this will not do. Concern about world poverty is, and should be, a moral issue; but action to combat it requires a complex debate about economics. What powers should be exercised by the World Trade Organisation? What are the best means of financing the development needs of poor societies? Is protection of infant industries appropriate? If so, at what levels and for what period? These questions can be resolved only by careful analysis of cause and effect. And sensible answers cannot be derived from either moral principles or economic ideology.

We in rich countries are not rich because people in poor countries are poor, or vice versa. To see that unfair trade between rich and poor is not the fundamental problem, think about what would happen if rich and poor countries had no economic relations with each other at all.

Most world trade is among rich countries: Microsoft software is exchanged for Mercedes cars. If we neither imported from nor exported to poor countries, our standard of living would change little. There are almost no goods that could not be produced, more expensively, in rich countries. The largest effect would be on energy. We would have to use less oil and derive more from Norway and Canada.

The division of the world into rich and poor zones would have larger effects on poor economies. Access to western technology is important to them and there is a wide range of items that poor countries do not have the skills base to manufacture.

It is true that without imports these states would have an opportunity to establish that skills base. There is a serious argument that import protection helps develop new industries and that Germany and the US in the 19th century, and Japan and Korea in the 20th, gained from such a policy. But indiscriminate use of this argument has been uniformly disastrous. The history of Indian car manufacture illustrates the futility of creating inefficient domestic industries behind tariff walls. Asian tigers that did build strong new industries quickly directed them towards export markets.

The process of international trade probably benefits poor countries more than rich. Rich people and countries benefit from an international division of labour that leads to the development of specialist skills. Poor people are still largely engaged in production for their own use or the needs of people in their immediate neighbourhood. So it is more accurate to say that poor people are poor because they do not participate sufficiently in the world international trading system than that they are poor because they are unjustly treated when they do.

The Trade Justice campaign uses the sporting analogy of a club golfer trying to beat Tiger Woods – but this comparison completely misses the point. Poor countries do have a compensating advantage for their low productivity: their low wages. If we have to use a golfing metaphor, the best way to improve your handicap and score is to take advantage of it to compete at the highest possible level.

Yet amid the confusion in the Trade Justice campaign there are substantive points. It is not true that free trade is necessarily in the best interests of everyone, everywhere, every time. The trade liberalisation agenda is dictated to an inappropriate degree by multinational companies and disputes in the WTO are largely conducted by lobbyists seeking commercial advantage for themselves behind the front of national governments. The benefits to poor countries from liberalising capital flows are dubious. And the Common Agricultural Policy does damage the interests of farmers in less developed countries, although it is more damaging to the interests of consumers in rich countries.

But to unpick these issues requires economic analysis as well as moral indignation. And that is why I shall not be joining the Trade Justice campaigners tomorrow.

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