Expect much gnashing of teeth in Hong Kong this week. The chances of securing a comprehensive trade deal are non-existent, with the talks now really about damage limitation and the apportionment of blame.
The development charities will say that the selfish behavior of the developed world has condemned poor nations to further penury.
Washington and Brussels will say the negotiations have been stymied by the obduracy of India and Brazil. Economists will have a field day explaining how the world is turning its back on millions of dollars' worth of extra growth, and that the poor countries will be the ones who will really suffer if the global economy lapses back into a new dark age of protectionism.
That's certainly the accepted view. An alternative argument is that the trade talks are pretty much irrelevant to development and that in as much as they do matter, developing countries may be buying a pup.
The Harvard economist Dani Rodrik is one trade sceptic. Take Mexico and Vietnam, he says. One has a long border with the richest country in the world and has had a free-trade agreement with its neighbor across the Rio Grande. It receives alot of inward investment and sends its workers across the border in droves. It is fully plugged in to the global economy. The other was the subject of a US trade embargo until 1994 and suffered from trade restrictions for years after that. Unlike Mexico, Vietnam is not even a member of the WTO.
So which of the two has the better recent economic record? The question should be a no-brainer if all the free-trade theories are right -- Mexico should be streets ahead of Vietnam. In fact, the opposite is true. Since Mexico signed the North American Free Trade Agreement (NAFTA) deal with the US and Canada in 1992, its annual per capita growth rate has barely been above 1 percent. Vietnam has grown by around 5 percent a year for the past two decades. Poverty in Vietnam has come down dramatically; real wages in Mexico have fallen.
Rodrik doesn't buy the argument that the key to rapid development for poor countries is their willingness to liberalize trade. Nor, for that matter, does he think boosting aid makes much difference either.
Looking around the world, he looks in vain for the success stories of three decades of neo-liberal orthodoxy: nations that have really made it after taking the advice -- willingly or not -- of the IMF and the World Bank.
Rather, the countries that have achieved rapid economic take-off over the past 50 years have done so as a result of policies tailored to their own domestic needs. Vietnam shows that what you do at home is far more important than access to foreign markets. There is little evidence that trade barriers are an impediment to growth for those countries following the right domestic policies.
Those policies have often been the diametric opposite of the orthodoxy. South Korea and Taiwan focused their economies on exports, but combined that outward orientation with high levels of tariffs and other forms of protection, state ownership, domestic-content requirements for industry, directed credit and limits to capital flows.
"Since the late 1970s, China also followed a highly unorthodox two-track strategy, violating practically every rule in the guidebook. Conversely, countries that adhered more strictly to the orthodox structural reform agenda -- most notably Latin America -- have fared less well. Since the mid-1980s, virtually all Latin American countries opened up their economies, privatized their public enterprises, allowed unrestricted access for foreign capital and deregulated their economies. Yet they have grown at a fraction of the pace of the heterodox reformers, while also being buffeted more strongly by macroeconomic instability," Rodrik says.
This is an argument taken up by the Cambridge University economist Ha Joon-chang in a recent paper for the South Center, the developing countries' intergovernmental forum. Chang argues that "there is a respectable historical case for tariff protection for industries that are not yet profitable, especially in developing countries. By contrast, free trade works well only in the fantasy theoretical world of perfect competition.''
Going right back to the mid-18th century, Chang says Pitt the Elder's view was that the American colonists were not to be allowed to manufacture so much as a horseshoe nail. Adam Smith agreed. It would be better all round if the Americans concentrated on agricultural goods and left manufacturing to Britain.
Alexander Hamilton, the first US Treasury secretary, dissented from this view. In a package presented to Congress in 1791, he proposed measures to protect America's infant industries. America went with Hamilton rather than Smith. For the next century and a half, the US economy grew behind high tariff walls, with an industrial tariff that tended to be above 40 percent and rarely slipped below 25 percent. This level of support is far higher than the US is prepared to tolerate in the trade negotiations now under way.
The lesson is clear, Chang says. South Korea would still be exporting wigs made from human hair if it had liberalized its trade in line with current thinking. Those countries that did liberalize prematurely under international pressure -- Senegal, for example -- saw their manufacturing firms wiped out by foreign competition.
He draws the comparison with bringing up children.
"In the same way that we protect our children until they grow up and are able to compete with adults in the labor market, developing country governments need to protect their newly emerging industries until they go through a period of learning and become able to compete with the producers from more advanced countries,'' he says.
As with children, infant industry protection can go wrong. But, says Chang, "just as failures in the world of parental protection are hardly an argument against parenting itself, so cases of failures of infant industry protection do not constitute an argument against infant industry protection per se -- especially when history shows that with startlingly few exceptions, successful countries in the past and in the present have used infant industry protection."
The chances of success are increased if the choice of target infant industries is realistic, protection is combined with an export strategy, the state imposes discipline on the firms receiving protection and the government is competent.
Another counter-argument is that while a modicum of protection may be necessary, most developing countries now have tariff rates much higher than those used by today's developed countries in the past.
Chang says this ignores one vital point: the productivity gap between rich and poor countries today is far higher than it was in the past, so it is perfectly logical for tariffs to be higher.
For example, Britain and the Netherlands were perhaps up to four times as rich as Japan or Finland in the 19th century; today, Switzerland or the US is 50 or 60 times as rich as Ethiopia or Tanzania. Yet in Hong Kong the pressure will be on the bigger developing countries to make the big concessions on industrial tariffs, cutting them to levels below those that existed in most rich countries until the early 1970s.
History suggests that accepting the demands of Washington and Brussels would be unwise, to say the least.
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
Singaporean Prime Minister Lee Hsien Loong’s (李顯龍) decision to step down after 19 years and hand power to his deputy, Lawrence Wong (黃循財), on May 15 was expected — though, perhaps, not so soon. Most political analysts had been eyeing an end-of-year handover, to ensure more time for Wong to study and shadow the role, ahead of general elections that must be called by November next year. Wong — who is currently both deputy prime minister and minister of finance — would need a combination of fresh ideas, wisdom and experience as he writes the nation’s next chapter. The world that
The past few months have seen tremendous strides in India’s journey to develop a vibrant semiconductor and electronics ecosystem. The nation’s established prowess in information technology (IT) has earned it much-needed revenue and prestige across the globe. Now, through the convergence of engineering talent, supportive government policies, an expanding market and technologically adaptive entrepreneurship, India is striving to become part of global electronics and semiconductor supply chains. Indian Prime Minister Narendra Modi’s Vision of “Make in India” and “Design in India” has been the guiding force behind the government’s incentive schemes that span skilling, design, fabrication, assembly, testing and packaging, and
As former president Ma Ying-jeou (馬英九) wrapped up his visit to the People’s Republic of China, he received his share of attention. Certainly, the trip must be seen within the full context of Ma’s life, that is, his eight-year presidency, the Sunflower movement and his failed Economic Cooperation Framework Agreement, as well as his eight years as Taipei mayor with its posturing, accusations of money laundering, and ups and downs. Through all that, basic questions stand out: “What drives Ma? What is his end game?” Having observed and commented on Ma for decades, it is all ironically reminiscent of former US president Harry