The problem with “trade not aid”

This post was written by Reuben on June 11, 2012
Posted Under: Uncategorized

“Trade not aid” remains one of the most fashionable slogans in world of international development. The slogan expresses the idea that the developing world is held back by the protectionist policies of the developed world, and that instead of sending money, we should focus upon measures that enable the developing world to trade its way out of poverty. It is to be expected that such slogan is attractive to the right, for whom markets are always more effective than social and governmental action.

Yet the slogan is also pushed by liberals and even some on the left, who see it as an alternative to patronising notions of international charity. The Guardian, for example, has attacked the WTO for failing the developing world, on account of its inability to curb the protectionist policies of the developed world.

Yet it is a slogan that is troubling. Those who advocate that the developing world be enabled to export its way out of poverty, skip all to easily over the question of who will bear the burden of such an adjustment. Put simply, buying in goods from the developing world that were previously produced here will put some of our fellow citizens out of their jobs, while many of those remaining in work will intensified competition from very low-wage economies.

Some would argue that, in ever making such a point, my priorities are upside down. That the fate of those in absolute poverty is surely more important than the relatively wealthy people of the developed world. Yet the question of “who will pay” is legitimate. After all developed countries are not monolithic blocs. It goes without saying that the richest countries should be prepared bear some burdens for the sake of improving living standards in the poorest countries. Yet the question is, which sections of first-world society should bear this burden. Upon whom within the developed world will the costs fall. After all it is not financiers, corporate lawyers, nor indeed guardian journalists who find themselves at the sharp end of competition with the world’s low wage economies.

The point is that excessive trade does not simply transfer wealth and income away from certain sections of society. It also determines the whole structure of our economy, and hence our society. As I have argued before, a country which is excessively open to imports, and reliant upon exports, becomes over-specialised, and this in turn leads to the economic marginalisation of vast swathes of society, as the industries in which they work lose their economic viability. The woman who once would have been employed making cars is now employed driving around lawyers and bankers, and others who, at this juncture in British economic history, possess those skills that can most easily be sold to international economy. In short, those who advocate “trade not aid” are being generous with other people’s livelihoods.

Yet this is not just about the welfare of people in the rich west. Too often, advocates of “trade not aid” assume that, as far as development is concerned, export-lead growth is the only show in town – that to grow, poorer countries must depend upon selling more to the west. In fact the dominance of this model is specific to the neo-liberal epoch. Skip back a couple of generations, and the you’ll see that development economist of practical importance was the Argentinian Raul Prebisch. Prebisch advocated a policy of import-substition – wherein developing countries produced for themselves the manufactured goods which they had previously imported. Developing countries would grow by selling more to an expanded home market. The power to produce would grow in line with the domestic power to consume.

This arguably represents a far more egalitarian model of development than that which is dominant today. It is notable that countries such as China and Indonesia, that are growing most successfully on the back of high exports are also fantastically unequal, and increasingly so. This is in part because of the gulf between those who are able to profit from export sectors and those who are not. But it is also the case that, without open markets in the west, China would simply not be able to afford to keep wages as low as they are. In the absence of easily accessible export markets, China’s domestic demand would simply not be able to consume all that the country produces, without a dramatic increase in wage rates. Export-lead growth, in other words, allows the industrialists of the developing world to get rich by selling to the west, while the workers who man their factories remain too poor to buy anything that they produce.

So while “trade not aid” may sound like a progressive alternative to antiquated notions of international charity, it nonetheless represents an approach whose burdens fall all to heavily upon the working class of the developed world, and whose benefits are all to concentrated amongst a minority of those in the developing world.

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Reader Comments

Buggery bollocks

“After all it is not financiers, corporate lawyers, nor indeed guardian journalists who find themselves at the sharp end of competition with the world’s low wage economies.”

FYI – the first two are bricking themselves about the BRICs and other poorer economies. Once the local financial sectors become worthy competitors and legal training becomes as good as it is in the developed world, these sectors will no longer essentially have work outsourced out to the global financial centres for them. International firm offices also don’t have a reason to exist when local firms can charge less and compete with them – why pay ten times more for the services of Freshfields’ office in Casablanca when the locals have exactly the same skills? Back in that London, people at the top will be making less and the people at the bottom will be getting sacked to keep the profits up.

For that matter, hacks need to be scared too; the foreign correspondent is going to be a dodo soon.

But then again it’s dead easy to have a pop at those who are well off, isn’t it. Much easier than having to think things through.

Written By Buggery bollocks on June 11th, 2012 @ 3:44 pm

It is worth noting China’s growth has been on the back of not only exports but also decades of gift aid and loan aid from Japan.

Also, “But it is also the case that, without open markets in the west, China would simply not be able to afford to keep wages as low as they are” appears to presume that the only – or even majority of – jobs paid this badly in China are factory jobs or otherwise reliant on international markets, which is simply not the case.

Written By TP on June 11th, 2012 @ 5:05 pm

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