TCS Daily

Sisyphus In Action

By Hans H.J. Labohm - November 21, 2002 12:00 AM

Trade is one of the main engines of growth, which allows today's mankind a standard of living that is without precedent in human history. In our era of globalisation, an increasing part of trade is cross-border or foreign trade. Without this trade, complex manufactures, such as automobiles, aeroplanes or mechanical dishwashers, would be non-existent. But even the humblest of manufactures, such as a pencil, contains a great variety of inputs from all over the world.

No wonder, therefore, that economists have praised the virtues of free trade since the beginning of economics as a distinct scientific discipline. It was Adam Smith, who wrote: 'What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage. The general industry of the country, being always in proportion to the capital which employs it, will not thereby be diminished [...] but only left to find out the way in which it can be employed with the greatest advantage.'

At the end of the 1980s, many believed that the collapse of communism with its central planning system, would usher the final victory of the market economy over the command economy. Consequently, they expected that the world was poised for ever more market liberalisation, both within and between countries. The mood was almost euphoric. And indeed, liberalisation made great strides, such as the accomplishment of Europe's single market, the successful completion of the Uruguay Round (1994), the progress in NAFTA, the transition of the former command economies to market economies, privatisation everywhere, and so on and so forth.

However, the turn of the millennium saw the emergence of a certain liberalisation fatigue. The WTO Ministerial at Seattle (December 1999), which was initially meant to be a prelude to a new Millennium Round of trade liberalisation, failed dismally because of profound divergences of views and interests between the WTO member countries. In the West-West context they manifested themselves by Europe's preference for a comprehensive agenda, while the US favoured a more selective approach. Moreover, Europe and the US were at loggerheads on liberalisation of agricultural trade. In the North-South context there was discord about the developed countries' claim to include minimum labour and environmental standards, which was adamantly opposed by the
Third World.

Seattle also marked the first world-wide appearance of the antiglobalist movement, which comprises many birds of very different feathers, such as anarchists, Trotskyists, Marxists. Maoists, neo-fascists, feminists, environmental activists, Third World activists, human rights activists, consumer rights activists, religious groups, trade unions, farm lobbies, etc. Apart from the fact that they are opposed to (neo-)liberalism, they have no common agenda. Broadly they fit into two main currents: those who want to overturn the multiparty democracy cum market economy on the one hand, and those who want to adjust our societal order so that it will take account of their particular concerns on the other. They share, however, some lowest common denominator. In general they reject the current income inequality between and within nations. They are in favour of compliance with some minimum labour standards, because they fear that exports from low-wage/low labour standard countries might lead to a 'race to the bottom' in the developed countries. The same applies to environmental standards. Additionally, they want the preservation of national cultural identity, which, according to them is under attack from phenomena such as 'Disneyfication' and 'Coca-Colonization'. They are opposed to unequal opportunities in the world trade system, believing that multinationals and people in rich countries benefit most from globalisation. Finally they reject the concentration of power in undemocratic institutions like the WTO.

The advocates, on the other hand, reject those views. In the footsteps of Smith and Ricardo, they emphasise the advantages of improvement of the international division of labour, which leads to more wealth, because of better utilisation of comparative advantage, efficiency gains and economies of scale. This will result in rising standards of living for broad layers of the world population, which has manifested itself already, especially in countries with an outward, export orientation, such as the Asian Tigers. They, therefore, see globalisation primarily as a positive sum game. As regards the anti-globalists' charge that globalisation will lead to rising income inequalities, some advocates might acknowledge that this is indeed occasionally happening, but should be regarded as a transitory phenomenon, which is inevitable when countries are in the stage of economic take-off. Others deny that worldwide inequality is increasing, such as Xavier Sala-i-Martin, of Columbia University, who has calculated that both worldwide inequality and absolute poverty have diminished over the past three decades. The advocates generally do acknowledge that some degradation of the environment is happening, but they merely see it as local phenomena, which can be remedied when countries become richer. They, moreover, believe that democratic control of multilateral institutions is adequate, because, in fact, democratically-elected member country governments are in command. Finally, they believe that despite globalisation - some would even argue: supported by the rewards of globalisation - countries have sufficient room of manoeuvre to pursue their own national, social and economic objectives.

Many of the anti-globalists are part of some non-governmental organisation (NGO). One should, however, be cautious to put every NGO in the same category. Oxfam, for one, is definitely not against free trade. On the contrary! It is particularly critical of trade policies of the developed countries, because these are not liberal enough. It accuses them that they refuse to practise what they preach, by maintaining trade barriers vis-à-vis the developing countries. In that sense, Oxfam is undoubtedly a staunch supporter of trade liberalisation and more globalist than many governments that pose as advocates of globalisation.

Oxfam highlights, for instance, that approximately three-quarters of the poorest people in developing countries live in rural areas. Their livelihoods are affected both by export opportunities and by competition from imports. Farm subsidies in rich countries exclude poor countries from world markets. They also result in unfair competition in local markets, since smallholder farmers cannot compete with subsidised European and American export prices. Oxfam points out that the Uruguay Round Agreement on Agriculture was heralded as a triumph for resolve and political will - as the start of a new era in which the withdrawal of subsidies in rich countries would open up new opportunities for poor countries. But, according to Oxfam, the new era has yet to start.

After the failure of Seattle, parties went back to lick their wounds. Then came the attacks of September 11, 2001. Many felt that the hatred of fundamental Islam against the United States and the West at large was also fuelled by resentment because of the wide income gap between rich and poor countries. Partly also in order to muster support from several Third World countries for the 'War against Terror', the effort to bring about further trade liberalisation in the WTO was therefore refocused, by giving enhanced priority to the interests of the Third World. Consequently, the Millennium Round was rebaptised and became the Development Round.

The next major WTO gathering after Seattle took place in Doha (November 2001). Its result was generally hailed as a success. But the agreement only referred to the future trade agenda - substantive negotiations had still to start. In the mean time both the US and Europe have taken measures to support their farmers. America's farm bill, passed in May, promised some $ 180 billion of extra subsidy over the next ten years, while France and Germany concluded a deal, ruling out any reform of EU's protectionist Common Agricultural Policy until at least 2006.

So, one year later, Doha has lost its shine, as was reconfirmed at a recent meeting of 25 trade ministers in Sydney. There, the developing countries insisted on a deal on agriculture as a condition sine qua non. But especially Europe and Japan, are dragging their feet on this issue. In countries where both left and right are vying for the decisive farmers' vote to give them the edge - which is particularly the case in France - a clash of 'alternative logics' occurs, whereby economic logic has to yield to political logic. And so the tails continues to wag the dog.

With such attitudes of the purported protagonists of globalisation, one can only wonder what niche is still left for the anti-globalists. John Kenneth Galbraith once maliciously remarked that the only group that unreservedly supports free trade consists of
economics professors with a fixed tenure. Let us hope that he was wrong.



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