Trade, not just more aid, is a road to making poverty history
Every day 30,000 children die as a result of extreme poverty; the equivalent of 10 9/11s. Every 30 seconds a child dies of malaria in Africa. Every 3.6 seconds a child dies of starvation. Africa has received more than $300 billion in aid, but it is poorer than it was in 1980.
When leaders of the eight richest countries - the Great Eight or G8 - met in Gleneagles last week, campaigners wanted them to provide a plan to make poverty history. G8 chair Tony Blair said tackling poverty in Africa was top of the agenda. Merely providing aid and canceling some debt hasn't tackled poverty in the past, as poor countries have to liberalise trade as a condition of aid, loans and debt relief.
This exacerbates poverty because the main impact of liberalisation on trade flows means aid recieved does not compensate for the losses sustained by meeting the conditions attached to the aid. Trade liberalisation increases the demand for imports at a faster rate than the demand for exports. Due to the drop in demand for locally produced goods, farmers in sub-Saharan Africa either have to sell less, or at a lower price. As a result, poor countries became indebted as they spent more than they earn.
To make poverty history, poor countries must be allowed to trade their way out of poverty.Trade has to be fair, not free. Fair trade means that the producers who make the goods you buy get a price that fairly rewards their work and skills.
Forget AIDS, terrorism and debt. International trade is the most important issue in global relations, with a $7.5 trillion annual price tag. Fix trade and you go a long way in fixing debt in sub Saharan Africa. Fix debt and grow the economy. Grow the economy and increase health services to combat AIDS. Combat AIDS, keep the traders alive, and lift poor countries out of poverty. No, it's not that simple, of course, but trade may be one of the motors of globalisation and can actually provide a solution to poverty more quickly than was ever possible in the past.Yet trade failed to feature significantly in the G8 communique.
In past years, G8 leaders promised to provide resources to halve extreme poverty by 2015, predominately in the form of aid and debt relief. This year they agreed to double aid to $50bn, although most of it had already been announced and will not arrive until 2010. Leaders did, however, ratify previous agreements to cancel debt in 18 countries by the G7 finance ministers, but made little mention of trade. Yet as a result of international trade practices, developing countries are getting poorer because rich countries set the rules. Countries representing four-fifths of the world’s population market less than one fifth of the world’s exports. According to the United Nations, developing countries are losing around $200 billion a year through unfair protectionist policies, with tariff barriers in rich countries four times higher than poor countries
A briefing paper,The Economics of failure, released by Christian Aid last month, showed that sub-Saharan Africa is a massive US$272 billion worse off because of ‘free’ trade policies forced on them as a condition of receiving aid and debt relief.
This is equal to the income that poor countries in sub-Saharan Africa have lost over the past 20 years as a result of being forced to open their markets to rich country imports. Had they not been forced to liberalise as the price of aid, these African countries would have been able to wipe out their debt and vaccinate every school-aged child, according to the study.
In 2000 alone, sub-Saharan Africa lost income worth $28 billion due to trade liberalisation, enough to halve the number of people living on $1 day, based on United Nations estimates. That equates to more than half the amount of extra aid granted by G8 leaders at Gleneagles.
It’s time to promote trade that is fair to all. This year G8 leaders have assisted poor countries like never before. They could have gone further if they had focused on trade, rather than aid, debt and climate change.
..And on that note, its light blogging for the rest of the week - in fact commitments mean that I probably won't be blogging until Saturday. Polls are out in the weekend, I wish they`d ask the question "Should Helen Clark name the election date ( of September 17) now"?
4 comments:
I think developing countries do need to open up their markets, but rich nations maintaining their own trade barriers while insisting that poor ones can't is narcissistic hypocrisy of the highest degree and, as you say, a major obstacle on the road to development.
Dave,
Did you mean to say that trade liberalisation leads to a drop in demand for locally produced goods?
If so, please read an economics textbook before you post on this again.
Nigel,
It is true that in the long run imports will not reduce aggregate demand for domestically produced goods, but in the short run there will be a transition period where domestic firms will be in industries that are no longer profitable. It is not that free trade hurts local producers, but that a long period of protectionism distorts business decisions such that an abrupt removal of them could be catastrophic. Doubly so if other countries don't liberalise their trade barriers to allow a natural move to industries in which they have a genuine comparative advantage.
Nigel, No I didn't mean trade liberalisation leads to a drop in demand as such, I actually meant the comparative demand to the increase in the demand for exports, as imports tend to riae faster than exports with trade liberalisation. Perhaps I should have said "local producers are selling less".
However I will state that when trade is liberalised, imports climb as new products come in. Local producers are subsequently priced out of their markets.
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