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The Progressive

Bush Wrong at UN on Benefits of Free Trade

Amitabh Pal

In a little-noticed portion of his speech to the United Nations on September 25, President Bush repeated a favorite hymn of his."

In the long run, the best way to lift people out of poverty is through trade and investment," Bush said. "During the 1990s, developing nations that significantly lowered tariffs saw their per capita income grow about three times faster than other developing countries. Open markets ignite growth, encourage investment, increase transparency, strengthen the rule of law, and help countries help themselves."

As in so many of his other pronouncements, he's wrong.

In the past few decades, as the gospel of free trade has spread, growth in the developing world has actually slipped. Mark Weisbrot, Dean Baker, and David Resnick of the Center for Economic Policy and Research (an organization that does great work in demolishing conventional shibboleths) have done research that reveals quite the opposite of what Bush contends.

"Contrary to popular belief, the past 25 years (1980-2005) have seen a sharply slower rate of economic growth and reduced progress on social indicators for the vast majority of low- and middle-income countries," their paper says.

"Overall, in the 1990s gross domestic product (GDP) per capita grew by 1.6 per cent a year in developing countries," says the United Nations Population Fund, buttressing the CEPR analysis. "But these slow gains were unevenly distributed. The per capita GDP growth of the poorest countries in the 1990s was slower than in the 1980s."

But what about China and India?

Weisbrot, Baker, and Rosnick deal with the two behemoths in a separate section. As they point out, while it is true that these countries have done quite a bit better in the recent past, it's not as if they are poster children of globalization. For instance, both still maintain currency controls, an approach that allowed both countries to escape the devastating Asian financial crisis in the late 1990s. In China, much of the growth in employment has come through state entities and collectively owned Township and Village Enterprises (TVEs). Both countries still have an activist government, with the major banks being state-controlled. And China has been lowering its tariff barriers only very carefully so as to protect its emerging industries.

Bush doesn't believe the folks over at the Center for Economic Policy and Research? How about Joseph Stiglitz, Nobel Laureate in Economics, onetime chief economist at the World Bank, and the former chair of the Council of Economic Advisers?

"The sad truth, however, is that outside of China, poverty in the developing world has increased over the past two decades," Stiglitz writes in his 2006 book, "Making Globalization Work." "Some 40 percent of the world's 6.5 billion people live in poverty (a number that is up 36 percent from 1981), a sixth-877 million-live in extreme poverty (3 percent more than in 1981)."

Given his background, Stiglitz's critique of globalization and the organizations that dominate it-such as the IMF-has to be heeded. In his previous work on the subject, "Globalization and Its Discontents," Stiglitz lifted the veil on who controls these entities.

"The institutions are dominated not just by the wealthiest industrial countries but by commercial and financial interests in those countries, and the policies of the institutions naturally reflect this," Stiglitz wrote. He continued, later on: "The change in mandate and objectives [of the IMF], while it may have been quiet, was hardly subtle: from serving global economic interests to serving the interests of global finance. Capital market liberalization may not have contributed to global economic stability, but it did open up vast new markets for Wall Street."

A process so obviously controlled by currency traders and other Wall Street mavens can scarcely be thought to be benefiting the global poor, and it hasn't. As if Bush cares, though.

And I'm not sure what he means by "rule of law," but it sure as hell hasn't been strengthened in large parts of the world by the introduction of free-market and free-trade policies. In Russia, "shock therapy" to bring about an abrupt transition to capitalism resulted in large-scale looting of state assets by oligarchs in cahoots with corrupt state officials. And especially in Latin America, there's been turmoil as populations have risen up against the harsh toll such policies exact.

"As people shed the collective fear that was first installed with tanks and cattle prods, with sudden flights of capital and brutal cutbacks, many are demanding more democracy and more control over markets," Naomi Klein writes in her new book, "The Shock Doctrine: The Rise of Disaster Capitalism." "These demands represent the greatest threat of all to [Milton] Friedman's legacy, since they challenge his most central claim: that capitalism and freedom are part of the same indivisible project."

So, what works? Ha-Joon Chang, an economist of Korean origin teaching at Cambridge, provides some answers. In books such as "Kicking Away the Ladder" and "Bad Samaritans," Chang demonstrates that what will succeed best for the developing world are strategies that helped the West in the past: an activist state engaging in a mix of policies to protect and encourage infant industries, rather than orthodox free trade.

But to listen to people like Chang, Bush would have to stop repeating, zombie-like, the free-trade mantra he carries around in his head.

Amitabh Pal is managing editor of The Progressive.

© 2007 The Progressive

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