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Free, not fair

Sukumar Muralidharan | Updated on January 19, 2018
Unequal world: Anti-WTO demonstrators at Nairobi, where a WTO Ministerial Conference was held in December 2015.

Unequal world: Anti-WTO demonstrators at Nairobi, where a WTO Ministerial Conference was held in December 2015.   -  Reuters

Sukumar Muralidharan

Sukumar Muralidharan   -  Business Line

The mythology of free trade being a force for economic progress remains entrenched in world politics

Globalisation has created a unique spectator sport, where political dignitaries periodically gather at carefully chosen venues for days of deliberation over humanity’s most consequential problems. It is a spectacle at which ‘civil society’ — as the new force in world politics is called — is granted a tent of its own, financed in the main by western charities, to perform an assigned role as the moral conscience of an integrated global community.

Two such events wrapped up the year just gone by. At the climate summit in Paris, developing countries insisted on pinning ‘historic responsibility’ for global warming on western industrial nations, while reserving for themselves future rights to repeat the same follies. A trade summit in Nairobi followed soon after with its usual mix of arcane debates over terminology, hard bargaining and some unsubtle arm-twisting.

As growth momentum has sputtered to a halt, countries have begun ring-fencing sectors seen as important for national economic welfare. There is in some quarters, growing nostalgia for what is referred to as a ‘rules-based multilateral trading system’. The mythology of free trade being a force for economic progress remains entrenched.

The basic premise of the World Trade Organisation (WTO), now a two-decade-old global presence, is that development is about a country achieving its place in the global value chain. As the western industrial nations ascend the value chain, they create spaces below for others to occupy. Rudimentary stages of production with attendant pollution hazards would be areas to grant developing countries preference. Lawrence Summers, once chief economist in the World Bank and a US Treasury official who in later years administered the bitter pill of fiscal austerity to countries in financial meltdown, said as much in a secret memo written for the global lender in the early-1990s.

India’s own embrace of neoliberalism has fostered a vigorous automobile industry, identified in various policy documents as an important potential contributor to growth. Ironically, 2016 also dawned with India’s capital city trying to grapple with the pollution consequences of the untrammelled growth of private automobiles as a means of conveyance.

Nairobi also disillusioned votaries of the proposition that agriculture could be a niche uniquely reserved for developing countries in global trade. The ‘border paradigm’ was once the reigning philosophy of global trade treaties: that no watchdog organisation would have jurisdiction beyond conditions that regulate commerce at national frontiers. In the early days of the Uruguay Round of multilateral negotiations — which led to the creation of the WTO in 1995 — the US signalled its intent to severely abridge this principle and assume oversight powers over matters of national policy.

Developing countries sought to secure their interests by bringing agriculture within the ambit of negotiations. In retrospect, this was clearly based on a false expectation of the possibilities of industrialising peasant agriculture and a wilful ignorance of its disastrous consequences for mass livelihoods and the environment. But even this rather hopeful exploration of unknown frontiers soon ran into a dead end. Industrial nations insist on keeping the vast subsidies they hand out to keep paltry numbers of farmers on the field, while denouncing food security measures introduced by developing nations as a distortion of free markets.

This was one among many issues on which the Nairobi talks deadlocked, finally producing a declaration which steered a middle course between irreconcilable positions. And, as the practice of free trade develops exceptions in numbers that reduce the doctrine to a laughable farce, the theoreticians engage in contortions of numbing complexity to keep faith alive.

At a recent World Bank conference on development economics, Eric Maskin of Harvard University tried to unravel what he thought was an anomaly. Globalisation in its latest avatar had brought prosperity to ‘emerging economies’, but fallen short in terms of the collateral assurance of reducing inequality. “(W)age inequality (had) actually increased,” observed Maskin. And the very same economies that testified to the growth promise of globalisation — China and India — also bore witness to rising inequality. This was anomalous, since there had been several ‘globalisations’ (sic) in the past which fulfilled the prediction that “freeing up trade should reduce inequality in emerging economies”.

Maskin’s belief in income convergence drew from the experience of the US and continental Europe in the latter half of the 19th century. Besides the scanty empirical basis, Maskin grossly misread the experience. Jeffrey Williamson, another economist who has made frequent passages through World Bank portals, has found that the 19th-century record is at best mixed. Between 1870 and 1913, “inequality rose dramatically in rich New World countries such as Australia and the United States”. Over the same period, poor and newly industrialising countries of the “Old World”, notably in the Scandinavian region, witnessed correspondingly sharp reductions in inequality. For middle-income industrialised economies such as Belgium, France, Germany, the Netherlands and the UK, inequality declined, though by modest magnitudes.

The policy background was admittedly ambiguous. Free trade dominated very briefly from 1860 till about 1880. Then followed “a retreat from trade liberalism (which)…included France, Germany, Italy, Portugal and Spain”. Yet, trade continued to grow because of a sharp decline in transportation costs. With all the evidence in, Williamson found that migration had a far stronger impact on inequality than trade.

Curiously, after all this, Williamson concluded that the “connection between inequality and the forces of globalisation was broken” between 1913 and 1946. Even after taking account of ample evidence of the absence of such connection, the neoliberal economist finally has to fall back on its existence as a matter of religious faith.

Sukumar Muralidharan is an independent writer and researcher based in Gurgaon and Shimla

Published on January 08, 2016

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