Posted by: Lister | August 1, 2008

Free Trade or Fair Trade?

Johann Hari:

To help Adelina [a Peruvian child living in the rubbish dumps of Lima], we need to start with a basic question: how do poor countries turn into rich countries? The institutions that dominate world trade – especially the World Trade Organisation (WTO) – have a simple answer: all markets, all the time. They tell poor countries to abolish all subsidies, protections and tariffs that protect their own goods. If you fling yourself naked at the global market, you will rise. If the poor countries disagree, they are cajoled to do as we say.

There’s just one problem: every rich country got rich by ignoring the advice we now so aggressively offer.

[…] Look at the most startling eradication of poverty in the 20th century: South Korea. In 1963, the average South Korean earned just $179 a year, less than half the income of a Ghanaian. Its main export was wigs made of human hair, and Samsung was a fishmonger’s. Today, it is one of the richest countries on earth. The country has been transformed from Senegal to Spain in one human lifetime. How?

South Korea did everything we were pressing the poor at Doha not to do. Dr Ha-Joon Chang, a South Korean economist at Cambridge University, explains in his book Bad Samaritans: “The Korean state nurtured certain new industries selected by the government through tariff protection, subsidies and other forms of government support, until they ‘grew up’ enough to withstand international competition.” They owned all the banks; they controlled foreign investment tightly. The state controlled and guided the economy to the international marketplace.

But we are so pickled in market fundamentalist ideology that we have blotted out this history – and even our own. Until the Tudors, Britain was a backward rural country dependent on exporting raw wool. Turning that wool profitably into clothes happened elsewhere. Henry VII wanted Britain to catch up – so he set up manufacturing bases, and banned the export of wool, so clothes were manufactured here. It’s called protectionism. His successors kept it up: by 1820, our average tariff rate was 50 per cent. Within a century, protected British industries had spurted ahead of their European competitors – so the walls could finally be dismantled. Dr Chang explains: “Trade liberalisation has been the outcome of economic development – not its cause.”

The US did the same. By 1820, the average tariff was 40 per cent; Abraham Lincoln then pushed them higher, and they stayed there until the First World War. Yet if Lincoln had been at the Doha trade talks, the United States of 2008 would have described him as a “fool” who was “harming his own people” with “despicable policies”.

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