Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism

that year were $1, 565 billion and $506 billion respectively.

13

According to an estimate by Oxfam in 2002, European citizens are supporting the dairy industry to the tune of ?16 billion a year through subsidies and tariffs. This is equivalent to more than $2 per cow per day – half the world’s people live on less than this amount. Oxfam (2002), ‘Milking the CAP’, Oxfam Briefing no. 34 (Oxfam, Oxford). Downloadable at: http://www.oxfam.org.uk/what_we_do/issues/trade/downloads/bp34_ cap.pdf

14

T. Fritz (2005), ‘Special and Differential Treatment for Developing Countries’, Global Issues Paper no. 18, Heinrich Boll Foundation, Berlin.

15

In 1998, a multilateral investment agreement (MIA), which proposed to put severe restrictions on governments’ abilities to regulate foreign investment, was proposed in the OECD, the club of rich countries. Ostensibly, it was an agreement only among the rich countries, but the ultimate goal was to make it include the developing countries. By proposing to allow developing countries voluntarily sign up to the agreement, the rich countries hoped that all developing countries would eventually feel obliged to sign up to it for fear of being blackballed in the international investors’ community. Some developing countries, such as Argentina (a faithful disciple of the IMF and the World Bank at the time), enthusiastically volunteered to sign up to it, putting pressure on other developing countries to do likewise.When the proposal was thwarted in 1998 due to disagreements among the rich countries themselves, the rich countries tried to put the proposal back on the international agenda by bringing it to the WTO. However, in the 2003 Cancun ministerial meeting, it was dropped from the WTO agenda due to resistance from developing countries. On the evolution of these events, see H-J. Chang & D. Green (2003), The Northern WTO Agenda on Investment: Do as we Say, Not as we Did (CAFOD [Catholic Agency for Overseas Development], London, and South Centre, Geneva), pp. 1–4.

16

See J. Stiglitz & A. Charlton (2005), Fair Trade for All – How Trade Can Promote Development (Oxford University Press, Oxford), pp. 121–2 and Appendix 1. For various numerical estimates of the gains from agricultural liberalization in the rich countries, see F. Ackerman (2005), ‘The Shrinking Gains from Trade: A Critical Assessment of Doha Round Projections’, Global Development and Environment Institute Working Paper, No. 05–01, October 2005, Tufts University. Two World Bank estimates cited by Ackerman put the share of the developed countries in the total world gain from trade liberalization in agriculture by high- income countries at 75% ($41.6 billion out of $55.7 billion) and 70% ($126 billion out of $182 billion).

*

The HOS theory is named after the two Swedish economists, Eli Heckscher and Bertil Ohlin, who pioneered it in the early 20th century, and Paul Saumelson, the American economist who perfected it in the mid-20th century. In this version of free trade theory, for each product there is only one ‘best practice’ (i.e., most efficient) technology, which all countries will use if they are producing it. If each product has one best production technology for its production, a country’s comparative advantage can not be determined by its technologies, as in Ricardo’s theory. It is determined by how suitable the technology used for each product is for the country. In the HOS theory, the suitability of a particular technology for a country depends on how intensively it uses the factor of production (i.e., labour or capital) with which the country is relatively abundantly endowed.

†

So, ‘comparative’ in the term ‘comparative advantage’ is not about comparison between countries but about comparison between products. It is because people mix these two up that they sometimes believe that poor countries do not have comparative advantage in anything – which is a logical impossibility.

*

The other main beneficiaries of agricultural liberalization in rich countries, that is, their consumers, do not gain very much. As a proportion of income, their spending on agricultural products is already pretty low (around 13% for food and 4% for alcohol and tobacco, of which only a fraction is the cost of the agricultural produce itself). Moreover, the trade in many agricultural products they buy is already liberalized (e.g., coffee, tea, cocoa).

*

In the earlier stages of development, most people live on agriculture, so developing agriculture is crucial in reducing poverty. Higher agricultural productivity also creates a pool of healthy and productive workers that can be used later for industrial development. In the early stages of development, agricultural products are also likely to account for a high share of exports, as the country may have little else to sell. Given the importance of export earnings for economic development that I discussed earlier, agricultural exports should be increased as much as possible (although the scope may not be large). And, for this, greater opening of agricultural markets in the rich countries is helpful. But increased agricultural productivity and agricultural exports often require state intervention along the line of ‘infant industry promotion’. Agricultural producers, especially the smaller ones, need government investment and support in infrastructure (especially irrigation for production and roads for exports), international marketing and R&D.

Chapter 4

1

Between 1971 and 1985, FDI accounted for only about 0.6% of total fixed capital formation (physical investment) of Finland. Outside the communist bloc, only Japan, at 0.1%, had a lower ratio. The data are from UNCTAD (various years), World Investment Report (United Nations Conference on Trade and Development, Geneva).

2

M. Feldstein (2000), ‘Aspects of Global Economic Integration: Outlook for the Future’, NBER Working Paper, no. 7899, National Bureau of Economic Research, Cambridge, Massachusetts.

3

A. Kose, E. Prasad, K. Rogeff & S-J. Wei (2006), ‘Financial Globalisation: A Reappraisal’, IMFWorking Paper, WP/06/189, International Monetary Fund (IMF), Washington, DC.