It is important that the world not let recriminations over the failed Cancun trade talks obscure a more important issue.
Expanded trade reform would have benefited rich and poor countries alike. In the long run, however, such reform is less important to global society than simple domestic economic policy changes within developed and developing countries.
The most dangerous possible outcome of the debacle in Cancun is that nations will use it as an excuse to relapse into truculent stagnation on domestic policy fronts.
The basic international trade issues outlined at Doha in 2002 and placed on the table in Cancun this year were important. Trade affects development. A fairer trade environment could foster faster growth in poor countries where economic growth is hugely important to millions of poor people.
The wealthy countries cling to policies that do harm poorer countries. But the naive critics of “globalization,” whatever that may be, have it wrong. Buying the exports of developing countries, whether they are coffee beans or running shoes, seldom harms the poorer countries. It is the refusal to buy their exports that is most harmful and most iniquitous.
In no sector is this more harmful than in agriculture. The governments of the European Union, the United States and Japan erect barriers to imports of many farm products. These barriers go beyond high tariffs. The United States, in effect, bans sugar imports at any price as does Japan with rice and the Europeans with a variety of commodities.
Moreover, these wealthy nations subsidize the production of farm products within their own borders and even subsidize the exports of these products. This distorts international markets and keeps countries that have a genuine competitive edge in producing soybeans or cotton or wheat from achieving sales that would be possible in the absence of rich nations’ subsidies.
Fixing this mess would have been a step in the direction of efficiency and justice. It didn’t happen at Cancun and probably will not occur in the immediate future. That is a loss to families around the world.
Fixing agricultural trade, however, is not the only way in which economic efficiency and economic justice might be improved. There are myriad domestic policies in wealthy and poor countries in which reform would improve the well being of large numbers of people.
Such policies include those in the United States that mitigate against savings and investment and that funnel a disproportionate share of income gains to a narrow group within society. Unbalanced U.S. federal finances fall into the same category.
The indefensible farm policies willingly adopted by Congress and the Bush administration in 2002 wiped out limited steps for reform taken in the 1990s. They do hurt farmers in developing nations, but they hurt even more the long-run health of U.S. agriculture and the day-to-day interests of U.S. households.
In Europe, the failure of France and Germany to deal with labor market rigidities and surrealistic pension systems saps economic growth and the long-term well-being of hundreds of millions of Europeans. Yes, reform is politically difficult, but it is not impossible. The Netherlands faced similar challenges and made great strides in the last decade while its neighbors to the east and south have marked time.
African farmers, in general, suffer from the trade distorting measures employed by the United States and European Union. They also suffer from the inefficiencies of state-run monopolistic marketing corporations that lower African farmers’ incomes by as great a factor as do wealthy nations’ agriculture policies. Allowing private sector marketing firms to replace these Leninist structures would do a lot for some of the world’s poorest people.
In South America, a long-standing bias toward state and national budget deficits and highly ineffective government spending dominated by patronage employment continue to create misery.
Brazilian President Luis Ignacio da Silva is fighting for very limited reforms but even these threaten established political elites. Peru’s Alejandro Toledo, now almost without a political base, is trying to do the same. That is more than can be said for the populist presidents of Venezuela and Argentina, who continue to substitute rhetoric for reform.
Just as the Netherlands stand as proof that reform is possible in Europe, so Chile demonstrates that movement toward growth and justice can take place south of the Rio Grande.
Cancun was a failure, and we have to live with that. But nations will hurt only themselves if they blame domestic stagnation on the failure of international cooperation within the World Trade Organization. In the long run, policies that improve the equity and efficiency of domestic economies are far more important to the lives of most people.
© 2003 Edward Lotterman
Chanarambie Consulting, Inc.