Free Trade and the 'Starving Child' Defense | The Nation


Free Trade and the 'Starving Child' Defense

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In the wake of Seattle, defenders of the neoliberal model of development put forth what seemed to many a compelling new argument in favor of free trade. The Economist dramatically presented this argument--in an issue whose cover bore a picture of a starving Indian child--as follows: "It is as well to be clear about who would stand to lose most if globalization really were to be pushed sharply backward--or, indeed, simply if further liberalization fails to take place. It is the developing countries. In other words, the poor." We asked four people born and raised in the Third World to respond to this argument: an academic, an activist, a poet and a trade union official. The last three pieces are edited versions of interviews conducted by Nation contributing editor Doug Henwood.
      --The Editors

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Ajit Singh

Ajit Singh, who graduated from Punjab University and obtained his PhD at the University of California, Berkeley, is professor of economics at Cambridge University. He has been a senior economic adviser to the governments of Mexico and Tanzania, and a consultant to UN organizations and the World Bank. His new book (co-edited with Candace Howes), Competitiveness Matters: Industry and Economic Performance in the US, is forthcoming from the University of Michigan Press.

Globalization hurts both rich and poor countries.

Academic and non-academic big guns have been wheeled out to suggest that economic globalization--which essentially means free trade and unfettered capital movements--is the only way of achieving fast material progress. The record of the advanced and developing countries under this regime, however, tells a rather different story. The economic performance of industrial countries under globalization in the eighties and nineties compares unfavorably with their record during the "golden age" of the fifties and the sixties, when most of them operated under the "illiberal" and "regulated" regime of the social-market economy at the national level and controlled capital movements at the international level. Consider:

§ GDP growth in the eighties and nineties in industrial countries has been considerably lower than that achieved in the fifties and sixties.

§ Economic growth has not only been lowered during the past two decades, it has also been more unstable, i.e., more subject to booms and busts.

§ Productivity growth in the globalization period has been half of what it was in the golden age.

§ Eight million were unemployed in the OECD countries in 1970. In 1994, there were 35 million unemployed, 10 percent of the labor force. A dramatic illustration is provided by the West German case. The average West German unemployment rate during the last decade of the golden age, 1964-1973, was, amazingly, only 1.1 percent per annum. The corresponding figure during the past ten years of globalization, 1990-1999, has been 9 percent per annum.

Proponents of globalization often suggest that the current mass unemployment in Western Europe is due largely to the inflexibility of the West European labor markets. These markets are contrasted with those of the United States, and it is argued that the superior US unemployment record in the recent period is due to its much more flexible labor markets.

A little reflection will show that the issue is more complex. To see this, consider, for example, labor markets and employment in West Germany and the United States. The former has a comparatively rigid labor market, but this is not only true today, it was true in the golden age. However, in the golden age West Germany managed to achieve full employment, while the United States did not. Moreover, the growth of real wages in West Germany in this earlier period was considerably faster than in the United States. The key to this puzzle lies in the fact that West Germany in that period was growing much faster than at either its current rate or that of the United States (whether now or in the earlier period).

Similarly, fast technological progress cannot be held responsible for the current European unemployment. There is indeed the revolutionary new information and communications technology (ICT) available, but its potential has not yet been realized, precisely because of the slow rate of economic advance in the globalization period. Had actual technological progress been faster, productivity growth should have increased and not decreased, as indicated above.

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