The Pope, poverty and free trade

I was prompted to put pen to paper by the Pope’s plea this week to end poverty in the Philippines—coming just a couple of months after the Doha free trade talks stalled.

If there is one strategic change that we could make now to better the world by lifting millions of people out of extreme poverty over the next two generations, it would be a move to freer trade. So, why don’t we?

In 2000, the international community agreed to a set of important targets to improve the lot of the world’s poorest by 2015: the “Millennium Development Goals”. Many of these goals have been successful in addressing vital areas such as reducing poverty and hunger, but there is still much to be done.

World leaders are working through the United Nations on the next set of targets for 2015 to 2030. As the world will spend $2.5 trillion on development aid alone over that period—and countless trillions through their national budgets—there are many contenders for these targets.

The think tank Copenhagen Consensus asked 60 of the world’s top economists to look at the economic, social and environmental costs and benefits in areas like health, nutrition and education. These are vitally important outcomes—but a key performance driver seems to have been missed. Reducing trade barriers not only makes the world richer; it is also a powerful driver for reducing poverty, curtailing hunger, improving health and restoring the environment, argues Kym Anderson of the University of Adelaide.

Free trade means that each country can focus on doing what it does best—make all countries better off in the long haul.

Whilst some progress has been made in freer trade this century, the Doha Development Agenda seems to be stalled, with little hope of a resolution. This especially hurts developing lower-wage countries in the tropics and sub-tropics where agriculture and textiles sectors where have a comparative advantage.

Open economies grow faster. In the last 50 years, countries as diverse as South Korea, Chile and India have seen their rate of growth increased by an average 1.5 percent pa shortly after liberalisation. China alone has lifted 680 million people out of poverty—the most ever achieved in human history.

Globally, there are substantial potential rewards for completing the Doha round. The direct economic benefit from a modest forecast of 1.1 percent increase in global GDP means a world economy richer by trillions of dollars per year by 2030.

So back to the question: why don’t we? There are forces in play that make it hard for politicians to compromise.

Jobs lost through free trade tend to be obvious and concentrated—take European farmers losing their subsidies— whilst the benefits are spread far and wide—millions of third-world farmers breaking out of subsistence.

There is a timing issue—outlays will occur in the short term, say, over the coming decade—whilst the benefits accrue over the next century. It is a big leap of faith to take pain today for the benefit of our grandchildren.

It is impossible to predict and manage the balancing for an equitable redistribution of wealth at individual or sovereign level, yet over a billion people live in abject poverty today.

Perhaps we should just ease into freer trade and be prepared to react to the unexpected consequences.

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