Helping the Rich, Harming the Poor
By Sebastian Mallaby
5th November, 2001.
Here's some of why we have an image problem in the world's poor nations.Some 2.8 billion people subsist on less than $2 a day. We in the rich world preach that if they work hard they will climb out of poverty. But then we impose our highest import taxes on precisely those industries in which most of the poor work -- farming and low-tech manufacturing.
Because of this discrimination, the average worker in the poor world faces tariffs roughly twice as high as the average worker in rich countries, according to the World Bank. It's as though we hit minimum-wage workers in the United States with twice the normal sales tax.The biggest low-tech manufacturing sector is textiles. Well, the rich world hits textiles not just with tariffs but with quotas. A quota is a flat prohibition on selling too much, imposed by Westerners who supposedly rejoice in a swashbuckling pro-success culture. If Sam Walton sells a lot, he's an American hero. If a Pakistani shirt factory sells a lot, then naturally that's illegal.
The world's poorest farmers, who lack seeds and tools and malaria tablets, could use a little government assistance. Well, rich governments happily lavish about $1 billion a day on farm subsidies -- but these are for their own malaria-free farmers. Taxpayer support for farmers in rich countries is six times larger than all development assistance to poor countries, according to World Bank calculations.
The rich world's subsidies do not merely pass poor farmers by; they actually hurt them. The subsidized farmers grow more food than they would otherwise, which pushes down world prices and punishes Third World producers. Overproduction by European wheat farmers, who derive fully half their income from subsidies, cripples the export prospects of rivals such as Argentina, a country that is about to default on its debt because it can't export enough to keep to its repayment schedule.
Subsidies have another effect too. By rewarding high farm output, they encourage overuse of fertilizer, which is one reason why agriculture contributes about one-fifth of global greenhouse gases. Meanwhile the rich subsidizers declare they can't possibly expand trade with the poor world because of its shameful disrespect for the environment.
Full trade liberalization could eventually boost the annual income of developing countries by anything between $200 billion and $500 billion, according to World Bank numbers. That would be more than enough to pay for universal primary education in the developing world (which would cost $9 billion a year, according to UNICEF), plus any number of other worthwhile projects...
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