Sorry to resurrect ancient posts, but I can't begin to keep up. I also apologize to those who have contributed to my inbox with no response. My formal excuse is that I'm trying to write only a few quality posts, but the truth is that I'm lazy, it's paddling season, and since moving back to the mountains I'm not doing that much Net time.
Maybe I should write to that Reason economist and ask him to throw national security into the calculator
I think we are talking apples and oranges here, or maybe apples and air conditioners. I would grant that there are probably few industries where protection could be theoretically justified by security concerns. I would also suggest that this is a very short list, and that most of the industries people would put on it really don’t belong there.
Look again at the example cited in the article. The US Government pays out subsidies to cotton farmers that are worth 30% more than the total value of the crop. That money comes out of American pockets, and directly undercuts the economies of a half-dozen very poor countries that produce the same crop, but don’t have enough taxpayer money to match the subsidies. I suppose that one could construct some sort of security-related justification for this (we MUST have access to a source of cotton with which to clothe our fighting men, even in the event of world war), but it would be a pretty severe stretch.
The actual issue that I’ve been talking about, and that the Reason article described, really has nothing to do with national security. Neither does it deal with an entirely American phenomenon. The problem is that the developed world across the board (the US, the EU, and the developed Asian economies) has erected an elaborate network of trade barriers intended to restrict imports of agricultural products and the products of labor-intensive light industry. These happen to be the only products that the debt-ridden countries of the developing world can viably export. These imports are not being restricted for security reasons. They are restricted for two reasons: politics and sentiment. The political implications are obvious: every politician likes to be able to brag about “saving jobs”, particularly in the less-than-competitive industries where those jobs are most frequently threatened. Sentiment is also a very real issue: in many of these countries (Japan is a classic example) the rural agricultural sector is regarded as the bedrock of the culture, and the effort and money expended to protect that culture is far beyond any sort of economic rationality.
The developed world spends $100 billion annually to protect their markets from goods produced in developing countries. Then we turn around and send them $50 billion in aid. This process is destructive to everyone in the picture. There are times when the absurdity of the contradiction is palpable. In many cases we have lent countries huge sums with which to develop the infrastructure needed to produce and export commodities, only for the recipients to find out at the end of the day that trade barriers make it effectively impossible to use their nice new acquisitions. Then we wonder why they can’t pay back the money.
The money paid out as subsidies comes from the pockets of taxpayers. The higher cost of inefficiently produced but protected goods is borne by consumers, pretty much the same as taxpayers. The extra money that taxpaying consumers lay out to support inefficient industries could, if it were left in their pockets, be profitably invested or spent to support industries that do produce efficiently. Protection may help a few individuals in politically influential or sentimentally attractive industries, but that benefit is seriously offset by the negative impact on the economy as a whole.
A great deal of the $50 billion that the developed world spends on foreign aid every year would not have to be spent if we would just allow poor countries to sell their products. It’s not just a matter of total sums, either. Money spent as aid flows from government to government. It promotes a culture of dependence, and it promotes economic centralization and economic dependence on support that comes through government. It encourages corruption. We also get nothing in return for aid, except some very theoretical goodwill. If we are going to send money to developing countries, isn’t it better to do so through trade? At least we get cheap goods in return, and support the more productive sectors of the economies of the countries we trade with. We also greatly increase the likelihood that these economies will mature to the point where they become significant consumers of the things we produce efficiently, and we enable these countries to pay back their debts, removing a major threat to the integrity of our banking system.
There are nations in the world, the poorest 20% of the developing world, that are simply incapable of producing anything efficiently. In these cases the only options are aid and abandonment, of which aid is usually considered the cheaper option, abandonment often leading to very expensive military interventions to restore order. For the rest, trade is our best option in the long run, even if we lose a little in the short term.
It seems very obvious to me, but perhaps I should point out that the obvious conclusion one reaches from factoring security issues into trade is that true security lies in self-sufficiency, and thus that the entire economy must be protected from those untrustworthy and potentially hostile foreigners. When many countries adopt this same posture, what we get is a system of closed economies that does a great deal to promote war and diminish everybody’s security. When people stop trading, the only way to get the things you need but haven’t got is to conquer somebody who has them. We all know where that leads.
Which will be more secure, for everybody? A free-trading, economically interdependent world, or a place where people are constantly looking for excuses to protect their own inefficient producers, or trying to use what one poster here described as “the privilege” of access to their markets as a weapon to force others to do their will. My own belief is that trade should ultimately be regarded as something approaching a right: all trade should be presumed free of government interference unless somebody can prove that there is an extremely good reason for restricting it. In the long run, I think that this freedom will go a lot farther toward promoting worldwide peace, prosperity, environmental quality, etc. than any attempt to use trade as a weapon or a political football.
...but for now we have to rely on Congress and the President to muddle through.
Now that’s what I call a scary thought.
I’m pasting a peripherally related article, which deals more with the problems of the nations that simply can’t trade. This is just to provide fuel for the vague (and doubtless impossible) dream of a discussion that is not circular and repetitive and that does not focus on Iraq or the Middle East. I can’t say I agree with him across the board, but he does have some interesting things to say.
Why "Trade, Not Aid" Isn't Enough
BusinessWeek Online
Thursday October 10, 2:31 pm ET
Jeffrey Sachs gained world fame in the 1980s and '90s advising the governments of such countries as Bolivia, Poland, and Russia to implement economic shock therapy. These days, Sachs is better known as one of the world's most influential theorists on the causes and remedies for extreme poverty. As a consultant to the U.N. Development Program, he has undertaken ambitious studies to identify the root causes of such problems as disease epidemics and what must be done to address them. He just moved to New York to head the Earth Institute at Columbia University.
In a wide-ranging conversation with BusinessWeek editors, Sachs recently reflected on the evolution of his thinking on globalization, how to solve the challenges facing poor nations, and what the industrialized world should to help. Following are edited excerpts of that conversation:
Q: Please explain your current work on poverty.
A: I was asked by the U.N. Secretary General [Kofi Annan] to become a special adviser to help elaborate a strategy for actually achieving the Millennium Goals on global poverty and development.... He asked me to work with the head of the U.N. Development Program, Mark Malloch Brown, to organize a comprehensive strategy for achieving eight goals [the first is eliminating economic poverty and hunger] and 18 targets.
These eight goals are...are pretty ambitious, and we have failed to meet all of them in the past.... My intention is to try to [get them to be taken seriously]. Part of this is trying to work out the costs. I'm a big believer that it will take quite a lot of money from the rich countries to make this all work. That isn't a message that many in the U.S. like to hear.
Q: Why do you think support will be more serious now?
A: I think we're at a turning point in the globalization debate. There was an...ideological belief for about 20 years that, wherever you are, if you just do the right thing, things will get good for you.... The saying was, "Trade, not aid." [The thinking was] "We don't really have to do much more beyond sending IMF and World Bank missions to help you privatize your sugar factory or dismantle your marketing board."
That idea is probably correct for about two-thirds of the world -- but grossly inadequate for about one-fifth of the world. We have come to realize there are 1 billion to 2 billion people in the world that aren't going to naturally make it on their own.
There are enough foreign-policy reasons in this country, and enough pressures in the world, to actually make this work. If you can get some better analysis, we can probably get something done, if you push hard and in the right places.
Q: What do you say to skeptics who argue that this will never work? They point out that we've poured many billions into developing nations for five decades and set all of these goals before.
A: There always is a battle between the optimists and the pessimists.
I'm banking on one fundamental thing: that the next few years will be different from the past 20 years. That we have turned the corner on the structural-adjustment era, which was: "We're not going to give you any help. You have to repay those debts. And by the way, the next IMF mission is coming next week. And that's how you're going to get out of this." That went on for 20 years and didn't do any good. Almost everyone now acknowledges there has to be a new approach, and I think we are putting that approach into place.
Q: The U.S. has had a lot of poverty, too. Why not assume these countries will grow out of it?
A: We don't have poverty that kills, with people dying because they can't get a $1 dose of quinine on time. The life expectancy of sub-Saharan Africa is dropping quite dramatically. You have mass malnutrition and stunting. You have wasting, pandemic disease.... You do not find that kind of poverty in any of the rich countries.... What we have is relative poverty.
Second, by and large the countries that have gotten out of absolute poverty have had some advantages that the ones that haven't gotten out lacked.... [The really difficult places are] Central Asia, the Andean Plateau, some of the highlands of Central America, tropical sub-Saharan Africa.
I guess I'm also saying -- which is very painful -- there will still be places where it will be damn hard to get development going.... It's very hard to say politically. I don't mean to write them off, but it's not an accident that Rwanda or Burundi are the toughest places in the world. Afghanistan isn't where it is because of the Soviets and the Taliban. The Soviets and the Taliban were there because Afghanistan was what it was.
Q: Why can't countries in these regions pull themselves out?
A: One characteristic of the historically poorer performers is they're farther away from the major markets, so they don't have market forces pulling them. So Mexico is better than Central America, and Central America is better than central South America. Central Asia does much worse than coastal Asia.
For a lot of the poorest places, I don't think we have an economic theory for getting a lot of growth going. I challenge anyone to debate me on how you are going to make Mongolia prosper. I've been there many times, and I haven't had a good idea yet. It's basically 1,500 kilometers away from big population centers and has a few million people.
Half of the people live in yurts. Their connectivity is low. They have no viable industry right now. They sell some camel hair but can't process it because they get a higher price by selling it to China, which processes it at much lower costs and gets it out of the ports cheaper than they can do by having a knitting factory in Ulan Bator. The real economic answer for Mongolians is to leave. But that's not the answer for Mongolia.
That's an extreme example. But let me put the positive side on that. No Mongolians need to die of extreme deprivation. Africans do not need to die of these pandemic diseases. Everyone should be able to have a basic education. But in some places, it can't all be paid for out of local resources. And my belief is that we ought to have a global system that enables a Burkina Faso or a Mongolia to have a shot at the future, rather than dying.
Q: What are the parts of Africa that can develop?
A: My lead candidates for development in Africa are the big coastal cities, like Dakar, Senegal, Abidjan in Cote d'Ivoire, Accra in Ghana, Dar es Salaam in Tanzania, Maputo in Mozambique, and Mombasa in Kenya. All of these cities have relatively low transportation costs. They have at least a million people. I'm quite clear in my mind about how you get these places going. You can have light manufacturing, an export-processing zone.
What's missing? Well first all, Dar es Salaam has a lot of malaria, so people don't like to set up factories there. Tanzania also has a lot of AIDS and major educational issues.... They faced bad advice from the World Bank and IMF, which told them not to set up export-processing zones.... They've had a major debt crisis.
Still, when you look at it, they are on the coast, they have a good harbor, shipping costs to Europe are not high. They are peaceful, they are democratic. There's nothing really intrinsically wrong. But there are obstacles that can be overcome.
Q: Wouldn't you agree that corruption is a major reason why these countries haven't gone anywhere?
A: That's too casual a metric. I would argue that corruption and talent have been pretty well distributed around the world through history, but the pockets of poverty are rather systemically distributed. There's a huge difference between being a corrupt country one day's shipping distance from a major market and a corrupt country 27 days shipping distance.
Q: You'd have to agree that some countries are so badly governed that you really can't do much for them.
A: There are some countries I wouldn't set foot in, like Liberia or Zimbabwe. But we don't have to take the very hardest cases. I don't tend to work in the worst places, because I don't like to get shot at, for one. Second, I don't really like dealing with thugs too much.
But there aren't really that many countries like that. There are [at least] 10 countries in Africa that are pretty well-governed but are desperate and dying. I like to deal with governments that are struggling to do something. But these countries don't get any more help than anyone else. So to me this governance argument doesn't ring true.... Botswana is a terrifically well-governed place. But it's a desert sitting on diamonds and still has a 40% AIDS prevalence.
We've gotten into a discourse about development that [says] "It's all their fault." And it's a lot more complicated than that.... We would have a lot more success if we helped some of these countries.
Q: Some people say digital technologies will solve the problem by bridging these geographical gaps.
A: If I am Burkina Faso and I want to be a technology center [and see tech] as the answer to my problems, that's very, very tough. You have to realize that in Africa, there's no fiber-optic cable that connects to the Internet backbone. It's all by satellite, and that's very expensive. Except for a new fiber-optic cable that was recently installed in South Africa, nobody has had the incentive to invest in one.
Q: Is the West now doing enough to help these countries?
A: Twenty-one years into the AIDS pandemic, the U.S. government so far has not paid for one human being in a developing country to get antiretroviral treatment. There are 28 million AIDS-infected people in Africa. These are cheap lives to save. But there are very few people on treatment. It's terribly frustrating. For the first time, we are just starting to organize a global fund to fight malaria.
Q: It certainly seems that U.S. Treasury Security Paul O'Neill has gotten more active since his trip to Africa in May. How would you rate his efforts?
A: In Africa, O'Neill went into a hospital and was shocked that mothers weren't getting treated. He let loose a gasket. I told him about that [situation] personally at least five times in the last year. Then he saw it with his own eyes.... It's really hard to look a human being who is dying in the eye when you know the pills are there. But so far, we still have not been able to get the money we need from the Office of Management & Budget.
We need $10 billion a year to solve AIDS, but so far donor countries have only offered the global fund $350 million over five years. The U.S. is the cheap member on the board.
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