Is Free Trade Helping to End World Poverty Selected, Edited, and with ue Framing Material Stephen M. Hill, University of Wisconsin = Eau Clarie ISSUE Is Free Trade Helping to End World Poverty? YES: The World Bank Group and World Trade Organization Staff, from “The Role of Free Trade in Ending Poverty,” World Trade Organization (2015) NO: Ian Fletcher, from “Free Trade Isn’t Helping World Poverty,” Huffington Post (2011) Learning Outcomes After reading this issue, you will be able to: + Explain the liberal arguments in favor of free trade. * Explain “neoliberalism” and the “Washington Consensus.” + Explain the Mercantilist and Neo-Marxist criticisms of free trade ISSUE SUMMARY YES: In their report, The World Bank Group and World Trade Organization staff make the case for the con- tinued success of free trade in helping to end giobal poverty. They thus conclude that much deeper economic integration and lowering of trade barriers must occur if we are to reach the goal of having less than 3 percent of the world’s population living in poverty by 2030. NO: Ian Fletcher, who sits on the advisory board of the Coalition for a Prosperous America, an organization dedicated to reforming American trade policies, argues to the contrary that free trade does not work as a global anti-poverty strategy. Rather he suggests that the greatest strides in poverty reduction have occurred in those states that have adopted mercantilist policies and that free trade is also leading to greater inequality between tich and poor states. Gorctatzaton 2 proces thats diminishing many of the factors that divide the world. Advances in travel and communication have made geographical distances less important, people around the world increasingly resem- ble one another culturally, and the United Nations and other international organizations have increased the level of global governance, Another aspect, economic integra- tion, is the most advanced of any of the strands of globali- zation. Tariffs and other bartiers to trade have decreased significantly since the end of World War Il (WWII). As a result, all aspects of international economic exchange have grown rapidly. For example, global trade, measured in the value of exported goods and services, has grown around 2000 percent since the mid-20th century and now reaches over $17 trillion annually. Global trading of currencies has surpassed $5 trillion per day. In this liberalized atmosphere, huge multinational corporations (MNCs) have come to dominate global com- ‘merce. Just the top 500 MNCs have combined annual sales of over $15 trillion. The impact of all of these changes is that the economic prosperity of almost all countries and the individuals within them is heavily dependent on what they import and export, the flow of investment in and out of a country, and the exchange rates of currency of each country against the currencies of other countries. ‘The United States hes been at the vanguard of push- ing for free trade for over 0 years. Its desire to reduce90. ‘Taking Sides: World Politics trade barriers emerged during and after WWII as a means to prevent a repeat of the Great Depression, which many believed had sown the seeds of authoritarianism in Europe and eventually led to WWIIL Based on the Liberal eco- nomic theories of the 18th century, British economists, Adam Smith and David Ricardo, advocates for free trade believed that the best way to increase global wealth was to reduce protectionist trade barriers and allow states to concentrate on producing those goods in which they had a comparative advantage. In this “win-win” environ- ‘ment, all states would become wealthier and increasingly dependent on one another for their future economic well- being. Liberals also believed that such economic interde- pendence would encourage states to maintain peaceful relations, so as not to upset their mutually advantageous trading relationships. ‘The United States thus took the lead in establishing @ new post-WWII international economic system, and helped found global institutions designed to ensure its success. These included the Bretton Woods institutions, the Intemational Monetary Fund (IMB), and World Bank (WB), which were designed to help manage currencies and aid the poorest states to develop economically. In 1947, the General Agreement on Tariffs and Trade was estab- lished, which eventually became the World Trade Organi- zation (WTO) in 1995 as free trade continued to expand. During the latter half of the 20th century, the move- ‘ment toward economic globalization was strong and there were few powerful voices opposing it. Western leaders like Ronald Reagan and Margaret Thatcher in the 1980s com- ined these old ideas of international free trade with the ‘more modern domestic policies of privatization, austerity, and deregulation in an approach that became known as “neoliberalism.” However, since at least the turn of the century, criti- cal voices opposing free trade and neoliberalism have become increasingly influential. These critics can be grouped into two general schools of thought. The first are the Economic Nationalists (formerly Mercantilists) who view global economic relations through a Realist lens. For them, the world is a competitive environment in which states must manage their trade through protectionism to ensure they do not lose out to other countries, especially those that pose a military threat. For example, Economic Nationalists have focused national attention on the US- Chinese annual trade deficit, which has grown from $40 billion 1996 to nearly $350 billion in 2016. From a Realist perspective, complaining about Chinese aggression while handing them such large sums of money to spend on their military simply makes no sense. The second critical school of thought can be broadly categorized as Neo-Marxist. In what is a testimony to the continuing relevance of the 19th-century German politi- cal philosopher, Karl Marx, the various branches of this school all agree with the central premise of Marx's analysis of capitalism as a system of exploitation. They thus focus on the inequalities that ate perpetuated and exacerbated by the spread of free trade and globalization. For this school, institutions like the IMF and WB have not helped poor states develop, but instead locked them into relation- ships of even greater dependency in which they can be exploited for their natural resources and cheap labor. Neo- Marxists thus highlight not only the growing level of ine- quality between countries but also the within them too, It is in the context of these varying perspectives on free trade that the debate in this issue occurs. The ques- tion is whether free trade has helped the world’s poorest people or whether the improvements that have been wit- nessed over the last 30 years are, in fact a product of the ‘more mercantilist policies adopted by developing nations like China and India. In the first selection, members of staff at the World Bank Group and WTO argue that around one billion people have escaped extreme poverty since 1990 mainly because of the growth of international free trade over that time. Nevertheless, they do acknowledge that significant obstacles exist to helping the one billion or so people who remain in that condition, Their report thus suggests a number of policies that can be adopted by states in order to better integrate the extreme poor into the global economy. Tan Fletcher, a former Economist for the Coalition for a Prosperous America, argues that the gains in eradicat- ing extreme poverty that have been witnessed are mostly the product of both a statistical sleight of hand and the mercantilist policies adooted by populous countries like China, Fletcher also criticizes the growth in inequality that hhas occurred between the rich and poor states, and within states themselves. He writes derisively of the effects of the “Washington Consensus” (a name given to the neoliberal approach of the Bretton Woods institutions and U.S. Treas- tury Dept.) on poor states that have endured it through "structural adjustment” packages forced upon them,YES ¢/ Is Free Trade Helping to End World Poverty? The World Bank Group and World Trade Organization Staff The Role of Free Trade in Ending Poverty Tre expansion of international trade has been essential to development and poverty reduction. Today’s economy is unquestionably global, Trade as a proportion of global GDP has approximately doubled since 1975. Markets for goods and services have become increasingly integrated through a fall in trade barriers, with technology helping Grive trade costs lower. But trade is not an end in itself. People measure the value of trade by the extent to which it delivers better livelihoods, through higher incomes, greater choice, and a more sustainable future, among other benefits. For the extreme poor living on less than $1.25 a day, the central value of trade is its potential to help transform their lives and those of their families. In this way, there is, no doubt that the integration of global markets through trade openness has made a critical contribution to poverty reduction. The number of people living in extreme pov- erty around the world has fallen by around one billion since 1990, Without the growing participation of develop- ing countries in international trade, and sustained efforts to lower barriers to the integration of markets, it is hard to see how this reduction could have been achieved Trade Can Continue to Play a Key Role in Poverty Reduction In 2011 (the most recent year for which comprehensive data are available), around one billion people remained in extreme poverty—just under 15 percent of the world’s population. The World Bank Group has adopted the goal of reducing this figure to less than 3 percent by 2030, and the concept is prominent in discussions underway this year on the post-2015 Sustainable Development Goals, This report, jointly written by the World Bank Group and the World Trade Organization, explores how sustained efforts to lower trade costs and integrate global markets can max- mize the gains for the extreme poor. It offers strategies on how to support further integration of the poor into global trade by lowering trade costs in a way that maximizes the gains and minimizes the risks, with a particular focus on the work of the World Trade Organization and the World Bank Group. This report has three key messages: A sustained effort to deepen economic integra- tion and further lower trade costs is essential for ending poverty. Strong growth in devel- oping countries will be needed to achieve the end of poverty, and trade is a critical enabler of growth, opening up opportunities for new and better work for the poor. Although great progress has been made in reducing trade costs and integrating low-income countries into the global economy, more needs to be done. 2. Lowering tariffs and non-tariff barriers between countries are essential elements of this agenda, but this must form part of a wider approach that recognizes the specific constraints facing the extreme poor—and for many, their disconnec- tion from markets—if they are to benefit from trade. This includes challenges facing women, the rural poor, those in the informal economy, and those in fregile and conffict-affected states. ‘Thus, in order to have the greatest impact toward ending poverty, trade policy must be made and implemented in conjunction with other areas of policy. This entails deeper coop- eration across sectoral lines, government agen- cies, and a wider range of stakeholders. 3. The World Trade Organization and World Bank Group have made substantial contributions to trade and poverty reduction. However, a great deal more remains to be done to end poverty, and both institutions and other partners need to continually review their activities to support poverty reduction to ensure they remain rel- evant in an ever-changing world. ‘Trade can drive poverty reduction by boosting growth. Although the drivers of poverty are multi-dimensional, the basic requirement for sustained poverty reduction is eco- nomic growth, Opening up to trade increases a country’s GDP because it allows each country to use its resources The World Bank; World Trade Organization. “The Role of Trade in Ending Poverty,” World Trade Organization, 2015, Copyright ©2015 by World ‘rade Orgenization, Used with permission, http//d.bandle.net/10986 22081Taking Sides: Wore Politics mote efficiently by specializing in the production of the goods and services that it can produce more cheaply, while importing the others. Trade also affects long-term. growth since it gives access to more advanced technologi- cal inputs available in the global market and because it enhances the incentives to innovate. ‘Trade contributes directly to poverty reduction by ‘opening up new employment opportunities, for example for agricultural producers, with the expansion of export sectors, and by bringing about structural changes in the economy that increase employment of low-skilled, poor workers in the informal sector. Trade also provides better access to external markets for the goods that the poor pro- duce. Understanding these channels helps us trace through the impact that trade can have on the extreme poor. ‘The increasingly integrated global economy has been a critical factor behind the poverty reduction achieved so far, And integration will be just as—if not more—important on the path to 2030. A key message of this report is the need to sustain efforts to keep global trade open and to do more to lower trade costs, by fut- ther integrating markets, Reducing trade costs in countries where the poor live may not just oll the engine of eco- nomic growth but also can increase the competitiveness of the goods and services traded by the poor and lower the costs of key inputs in production, such as fertilizers for poor farmers. The inverse relationship between trade costs and income—the poorer the countries are, the higher the trade costs they face—underlines the need to do more on. this front. Lowering trade costs is particularly important for countries seeking to take advantage of the fragmen- tation of production through global value chains, which offer new opportunities to generate growth and income gains through trade. Yet growth alone may not be enough to achieve the end of poverty by 2030. Based on recent World Bank projections of likely global growth to 2030, growth is, unlikely to be high enough across all developing coun- tries to reduce poverty to the level sought by 2030. Devel- oping countries would have to grow at an average of 4 percent each year—even higher than the growth rate of the 2000s and much higher than that of the 1980s and 1990s, Even with sustained growth, as poverty continues to decline globally, there is evidence to suggest that it will become even harder for overall growth to be translated into income gains for the poor. Extreme poverty is becom- ing concentrated in countries and regions where poverty reduction seems to be less responsive to overall growth. The extreme poor face numerous constraints that limit their capacity to benefit from wider economic gains. In this context, trade in:egration is important not only because of the boost to growth it can provide but also because there is room for it be executed in ways that more effectively overcome the constraints faced by the extreme poor. A novel feature of this report is the link drawn between these challenges facing people living in extreme poverty and their capacity to benefit from trade, as a key driver of growth. The report describes four leading charac- teristics of the poor that have a particularly strong impact on their capacity to extract the full potential benefits of trade: rural poverty, fragility and conflict, informality, and gender, Bach of these four characteristics shapes the envi- ronment in which the extreme poor live and constrains them from benefiting from trade opportunities. Poverty in many parts of the world—especially in Sub-Saharan Africa, where the challenge of ending extreme poverty is, greatest—is a strikingly rural phenomenon, For the rural poor, trade and internal market barriers in agriculture pre- sent real challenges to benefiting from trade opportuni- ties. More than half of the extreme poor live in fragile and conflict-affected areas (often dominated by revenues from high-value minerals and other natural resources) and are less likely to be able to benefit from trade opportunities, even though export diversification by providing alterna- tive livelihoods can be an essential pathway out of conflict. Poverty and informality often go hand in hand. Informal sector workers and the micro-enterprises that dominate the informal economy face particular challenges, and are vulnerable to sudden economic shocks. Finally, women are often at the forefront of poverty reduction, and trade has brought particular benefits for women in terms of jobs, and empowerment. However, women face specific con- straints, both within and outside the household, which can make it difficult to participate in and gain from trade opportunites. The risks faced by the poor also affect their capacity to benefit from trade opportunities. Major risks faced by the poor across each of the four dimensions of poverty Include economic shifts, labor market adjustments, and vulnerability to weather events and to climate change. At the same time, the poor often lack access to the instru- ments and support necessary to mitigate these risks— things people in advanced countries take for granted, such as insurance and social security. When poor people face risks, they may be unable to adopt strategies to make the most of trade opportunities, even where these strategies‘would be beneficial. For example, the risks faced by sub- sistence farmers are at least partly responsible for their ability to invest in higher quality inputs like seeds and fertilizers, which could help them take full advantage of trade opportunities. Similarly, a lack of access to finance often limits the capacity of informal microenterprises to invest in ways that would allow them to offset risks. Understanding and addressing these risks is important to ensure that trade delivers maximum benefits to the poor. While the challenges and risks facing the extreme poor are considerable, the opportunities are great. Cross- border trade enhances the income of agricultural produc- ers and traders in poor countries. Trade has contributed to women moving out of agriculture into manufacturing and especially services, and this has brought with it higher incomes and more formal employment. ‘Trade can also help to devise pathways out of conflict. Pursuing strategies for economic integration in ways that address the chal- lenges faced by the extreme poor can help maximize the xains from trade, ‘The greatest impact on poverty reduction will come through a coherent approach that lowers trade costs in ways that maximizes the gains for the extreme poor. Poli- cies that focus on lowering tariffs and non-tariff bartiers between countries are essential elements, but they must form part of a wider approach. Only a holistic approach, which also incorporates a variety of specific localized measures, can begin to deliver the gains required to end global poverty. Although countries are the basic “build- Ing blocks” of international trade policy, the challenges faced by the poor vary greatly within national borders, ‘and across borders, For this reason, approaches that focus on lowering trade costs between countries will need to be complemented by efforts to tackle challenges faced by the poor within and across national borders. This underlines the importance of the various pro- ‘grams that the World Trade Organization and World Bank Group have in place to address these challenges and of further efforts in this regard. This report offers five interre- lated and complementary areas of policy that can be con- sidered by countries and the international community in implementing this approach: + Lowering trade costs for deeper integration of markets. Trade facilitation—including implemen- tation of the WTO Trade Facilitation Agreement— as well as tackling other policy and infrastructure barriers to goods and services trade are critical to growth and poverty reduction, Is Free Trade Helping to End World Poverty? by Hill ‘* Improving the enabling environment, Trade ‘openness itself and lowering trade costs is essen- tial for delivering gains for the poor. A range of complementary policies helps maximize the gains of openness for the poor—including policies related to human and physical capital, access to finance, governance, and institutions, and mac- roeconomic stability. Strengthening the enabling environment car. be done through innovative policy frameworks that improve consultation with the poor, and target their needs more carefully. To achieve this will require deeper cooperation across sectors, better coordination across government ministries and agencies and that a wider range of stakeholders work effectively together. * Intensifying the poverty impact of integration policies. Bringing a greater focus on tackling remoteness from markets at the sub-national level, and facilitating the activities of poor and small traders, can help improve gains for the poor, especially in rural areas. This also entails reforms to tackle costs generated by a lack of competition, and other sources of domestic costs. Promoting greater inclusiveness of women, and targeting the challenges they face as distinct from men, is cen- tral to efforts to intensify the poverty impact of integration policies. ‘* Managing and mitigating risks faced by the poor. More focus is needed on managing the existing risks that poor people face that limit them from. benefiting ftom trade opportunities when they arise. Effective ris« management can be a power- ful instrument for development, through building poor people's resilience to the effects of adverse events and also by allowing them to take advan- tage of opportunities for improvement. Address- ing any potential risks to livelihoods for the poor through trade-related adjustments is also important. ‘+ Improving data ard analysis to inform policy. The gaps in understanding of poverty, the nature of the informal economy, the participation of women in. trade, and of the ttade-related constraints in gen- ral that many countries face continue to be large. Better data is required for the design and imple- mentation of effective policies to maximize the poverty reduction gains from trade. ‘The World Trade Organization plays a critical role in under- pinning an open and inclusive global trading system. The key goals of pursuing further openness at the multilateral level, complementing unilateral opening and regional cooperation, and helping developing and least developed94 | Tekin sides wor otis countries to integrate into the trading system remain as relevant today as ever. The rules-based global trading system has been essential in reducing the risks faced by the poor from opaque and unpredictable trade policies— both in terms of access to markets for the products they produce and by creating a stable trading environment to Support job-creating investment, both domestic and for- eign, in trade-telated activities. Updating the World Trade Organization's rules, market access commitments and flexibilities through a successful conclusion of the current round of Doha negotiations will expand the opportunities for developing countries to benefit from inclusion in the global trading system and foster development. ‘The World Trade Organization also plays a key role in supporting trade facilitation, The need to support coun- ‘ties in making the most of trade opportunities is recog- nized in the Trade Facilitation Agreement, which states that assistance and support must be granted to help devel- oping countries achieve the capacity necessary to imple- ‘ment its provisions. Various efforts are now underway, including by the World Bank Group, to ensure that this commitment is delivered. Ratification and implementa- tion of the Trade Facilitation Agreement has the potential to deliver significant reductions in trade costs, especially in the poorest countries. Recognizing the particular constraints faced by the poor, including small-scale traders, and focusing on connecting the extreme poor to markets would maximize the impact of the Agreement on poverty reduction. ‘The Aid for Trade Initiative, convened by the World ‘Trade Organization, has helped mobilize significant addi- tional resources for trade-related assistance, and could more closely monitor the impacts of trade integration on Poverty reduction. As the leading multilateral donor of Aid for Trade, the World Bank Group has a key role to play through its financing capacity, widespread country presence, capacity to undertake and widely disseminate relevant research, knowledge, and analytical expertise, and multi-sectoral capacity and reach. The Bank Group is increasingly focusing on fragile and conflict states, and the importance of agricultural development in raising incomes in rural areas. Improving the tools to monitor the impact of Aid for Trade and integrating effective trade indicators into broader monitoring systems of poverty reduction and progress in fragile states is an important area of on-going and future work for the Bank Group. ‘Tur Wont Bank Grove anv Wont Trapt ORGANIZATION ‘Starr The World Bank Group strives to end extreme pov- erty within a generation and boost shared prosperity. The World Trade Organization deals with the global rules of trade between nations. It's main function is to ensure that trade flows as smoothly, predictably and freely as possible.95. Is Free Trade Helping to End World Poverty? by Hl Ian Fletcher » NO Free Trade Isn’t Helping World Poverty Tre propaganda for free trade tells us that not only is it the master key to our own prosperity, but also the master key to lifting the world’s poor out of poverty. So if we don’t support free trade, we're in for a guilt trip like the one that used to make us stick quarters into UNICEF boxes. Unfortunately, free trade just doesn’t work as a global anti- poverty strategy. The spreading Third World affiuence one sees in TV commercials only means that the thin upper crust of Western-style consumers is now more widespread than ever before. But having more affluent people in the ‘Third World is not the same as the Third World as a whole nearing the living standards of the First. This is actually not a terribly big secret, and is fairly well known to the people who promote free trade. For a start, the World Bank standard for poverty is $2 a day, so “moving people out of poverty” can merely consist in moving people ftom $1.99 a day to $2.01 a day. In ‘one major study, there were only two nations in which the average beneficiary jumped from less than $1.88 to more than $2.13: Pakistan and Thailand. Every other nation was making minor jumps in between, The developing world's gains from trade libe tion (insofar as there are any) are concentrated in a rela- tively small group of nations, due to the fact that only a few developing nations have economies that are actually capable of taking advantage of freer trade to any meaning- ful extent, Although it depends a bit on the model, China, India, Brazil, Mexico, Argentina, Vietnam, and Turkey generally take the lion’s share, This list sounds impres. sive, but it actually leaves out most Third World nations. Dirt-poor nations like Haiti aren’t even on the radar. Even nations one notch up the scale, like Bolivia, barely figure So forget helping starving children in Africa this way. ‘They're not even in the game of international trade—let alone winners of it. Like it or not, this is perfectly logical, as increased access to the ruthlessly competitive global marketplace (which is all free trade provides) benefits only nations whose industries have something to sell which foreign trade barriers are currently keeping out. Their industries must both be strong enough to be globally competitive and have pent-up potential due to trade barriers abroad, a fairly rate combination. As a result, the most desperately impoverished nations, which have few or no internationally competitive industries, have basically nothing to gain from freer trade. ‘What progress against poverty has occurred in the world in recent decades has not been due to free trade, but, due to the embrace of mercantilism and industrial policy by some poor nations. (This is, of course, the same way nations like the United States and England became pros- perous hundreds of years ago.) According to the World Bank, the entire net global decline in the number of peo- ple living in poverty since 1981 has been in mercantilist China, where free trade is spurned, [2008 World Devel- ‘opment Indicators: Poverty Data Supplement," The World Bank, 2008, p. 10.] Elsewhere, their numbers have grown, The story on global economic progress for poor nations in the last 30 years is roughly as follows: 1. China (1/S of humanity) braked its popula- tion growth, made a quantum leap from agrat- jan Marxism to industrial mercantilism, and thrived—largely because the United States was so open to being the “designated driver” of its export-centered growth strategy during this period. 2. India (another fifth) sharply increased the capitalist share of its mixture of capitalism and Gandhian-Fabian socialism after 1991. It did reasonably well, but not as well as China and not well enough to reduce the absolute number of its people living in poverty, given unbraked population growth. 3. Latin America lost its way after the oil shocks of the 1970s, experienced the 1980s as an eco- nomic “lost decade,” and tried to implement the free market Washington Consensus in the 1990s. It didn’t get the promised results, etcher, lan, “Tree Trade Isn't Helping World Poverty,” Hufinton Past, May 2011. Copyright ©2011 by lar Fletcher. Used with permission.96 Taking ides: Word Politics so some nations responded with a pragmatic retreat from free market purism, others with a lurch to the left, the former showing results in. the last five years or so. 4, The collapse of Communism left some nations (Cuba, North Korea) marooned in. Marxist poverty, while others (Uzbekistan, Mongolia) discovered that the only thing worse than an intact communist economy is the wreckage of ‘one. Much of Eastern Europe and the ex-USSR got burned by an overly abrupt transition to capitalism, then recovered at various speeds. 5. Sub-Saharan Africa spent much of this period in political chaos, with predictable economic results (except for South Africa and Botswana). Washington Consensus policies in the 1990s did not deliver, and the few recent bright spots have yet to deliver increased per capita income or lower unemployment. 6. Other poor countries followed patterns one through five to varying degrees, with corre- sponding outcomes. China is unquestionably the star here. But all its brutally efficient achievements in forcing up the living standards of its people from an extremely low base, it still has serious problems. Its growth miracle has been largely confined to the metropolitan areas of the country’s coastal provinces. Of the 800 million peasants left behind in agri culture, perhaps 400 million have seen their incomes stag- nate or even decline. ‘Over the last 30 years of greatly expanding free trade, ‘most of the world’s poor nations have actually seen the gap between themselves and the rest of the world increase. ‘As economist Dani Rodrik of Harvard summarizes the dat The income gap between these regions of the devel- oping world and the industrial countries has been steadily rising, In 1980, 32 Sub-Saharan countries had an income per capita at purchasing power parity equal to 9.3 percent of the U.S. level, while 25 Latin American and Caribbean, countries had an income equal to 26.3 percent of the U.S. average. By 2004, the numbers had dropped to 6.1 percent and 16.5 percent, respectively, for these two regions. This represents a drop of over 35 percent in relative per capita income. Today, because a few formerly poor nations are suc- ceeding economically while most have been hit with eco- nomic decline, the world is splitting into a “twin peaks” income distribution, with a hollowing out of middie- income countries. A significant number of nations have gone backward, and are now poorer than they were a generation ago. Most poor nations have high fertility, so population growth drags down their per capita income by a percentage point or two every year if economic growth does not outpace it. Contrary to impressions in the media, economic suc- cess is actually becoming more concentrated in the West- ern world, not less. According to one summary of the data by Syed Murshed of Erasmus University in Holland: Between 1960 and 2000 the Western share of rich countries has been increasing; to be affluent has almost become an exclusive Western prerogative—16 of the 19 non-Western nations who were rich in 1960 traversed into less affluent categories by 2000 (for example, Algeria, Angola, and Argentina). Against that, four Asian non-rich countries moved into the first group. Most non-Western rich nations in 1960 joined the second income group by 2000, and most non-Western upper-middle-income countries in 1960 had fallen into the second and third categories by 2000. Of 22 upper- middle-income nations in 1960, 20 had declined into the third and fourth income categories, among them the Democratic Republic of the Congo, also known recently as Zaire, and Ghana. Mest nations in the third group in 1960 descended into the lowest income category by 2000. Only Botswana moved to the third group from the fourth category, while Egypt remains in the third category. ‘We seem to inhabit a downwardly mobile world with a vanishing middle class; by 2000, most countries were either rich or poor, in contrast to 1960 when most nations were in the middle-income groups (emphasis added). This is no accident, Free trade tends to mean that the industrial sectors of developing nations either “make it to the big time” and become globally competitive, or else they get killed off entirely by imports, leaving nothing but agriculture and raw materials extraction, dead-end sectors which tend not to grow very fast. Free trade eliminates the protected middle ground for economies, like Mongolia or Peru, which don’t have globally competitive industrial sectors but were still better off having such sectors, albeit inefficient ones, than not having them at all. The productivity of modern industry is, so much higher than peasant agriculture that it raises aver- age income even if it is not globally competitive. Nations which open up their economies to (some- what) free trade relatively late in their development, and continue to support domestic firms with industrial policy, are far more likely to retain medium and high technol- ogy industry, the key to their futures, than nations which ‘embrace full-blown free trade and a laissez faire absence of industrial policy too early in their development, There are numerous documented cases in which trade liberalization simply killed off indigenous indus- ‘ries without supplying anything to replace them. To takesome typical examples given by the Intemational Forum on Globalization: Senegal experienced large job losses following liber- alization in the late 1980s; by the early 1990s, employ- ‘ment cuts had eliminated 1/3 of all manufacturing jobs. The chemical, textile, shoe, and automobile assembly industries virtually collapsed in the Ivory Coast after tar- iffs were abruptly lowered by 40 percent in 1986. Similar problems have plagued liberalization attempts in Nigeria. In Sierra Leone, Zambia, Zaire, Uganda, Tanzania, and the ‘Sudan, liberalization in the 1980s brought a tremendous surge in consumer imports and sharp cutbacks in foreign exchange available for purchases of intermediate inputs and capital goods, with devastating effects on industrial Is Free Trade Helping to nd World Poverty? by Hill sOF: output and employment. In Ghana, liberalization caused industrial sector employment to plunge from 78,700 in 1987 to 28,000 in 1993, One unhappy corollary of this is the so-called Vanek-Reinert effect, in which the most advanced sectors of a primitive economy are the ones destroyed by a sud- den transition to free trade. Once these sectors are gone, a nation can be locked in poverty indefinitely. Taw Fuercuen sits on the advisory board of the Coalition for a Prosperous America and is a former senior economist for the organization.98 Taking Sides: World Polties EXPLORING THE ISSUE Is Free Trade Helping to End World Poverty? Critical Thinking and Reflection 1. Do you believe extreme poverty is actually diminishing or is it mostly due to tiny increases in income that places them just above the extreme poverty threshold? 2, Does it matter that income inequality among and within states might be increasing at the same time extreme poverty is decreasing? 3. Do you think the Bretton Woods institutions are exploiting the weak by imposing a neoliberal program on states that seek their help? 4, Should the United States adopt protectionist policies to manage the trade deficit with China even if that increases poverty rates in China? Is There Common Ground? ‘As was evident in the 2016 US. presidential election, there is at least common ground between the Economic Nation- alist and Neo-Marxist approaches to the issue of free trade and poverty. A majority of the electorate appeared to sup- port either Bernie Sanders or the eventual winner, Donald ‘Trump, because they both rejected the “Washington elite” consensus concerning free trade. Whilst Sanders focused primarily on the extreme economic inequality that has developed in the United States over the past decades, ‘Trump focused his ire on countries like China, which he blamed for stealing the jobs of the “forgotten man and woman” of America. Both called for protectionist poli- cies to “bring jobs back to America,” but differed on the domestic economic policies they would adopt. The popularity of both of these candidates is signifi- cant because they were campaigning in the world’s richest, 1Ce€. Internet Refere: CATO Institute: Trade Myths httpsi/vr.cato.orgresearchitrade-myths International Monetary Fund httpuwur.imf.orgiexternavindex.htm country. Globalization is on the defensive in the world's largest economy! It is under stress in Europe too, where the United Kingdom voted to leave the European Union in 2016. The future of globalization may depend, at least n the near future, on whether the case for free trade can be made forcefully enough to overcome the tendency of dis- contented electorates to look for easy answers in populist politicians. The debate in this issue will help you decide ‘whether it is worth trying, Additional Resources Irwin, Douglas, A. (2016). “The Truth about Trade.” Foreign Affairs, Vol. 95, No. 4. Stiglitz, Joseph, . (2013). The Price of Inequality. W.W. Norton & Compan; ‘The World Bank hitpuwew.worldbank.org/ World Trade Organization httperinwwcwto.ora/