Trade policy and development woes

Oct 18, 2009 Letters

Dear Editor,
Last week, I reviewed the book “The Bottom Billion” which tried to answer the question as to why the poorest countries are unable to develop.
The main thesis of the book is that a large number of developing countries are at the bottom of the global economic system, not because they hold the distinction of being the poorest, but because they fail to grow. As Collier puts it, these countries are not merely falling behind, they are falling apart.
Collier’s book shows that these countries are dirt poor because they are caught in one or a combination of these traps: the conflict trap, the natural resources trap, the trap of being landlocked with bad neighbours, and the bad governance trap.
This book demonstrates quite candidly how to break away from these traps and so fortify the hand of the reformers via these instruments: aid, military intervention, international laws and charters, and trade policy to reverse marginalisation.
However, each of these is being used for purposes inimical to the bottom billion; and, indeed, the people who control these instruments are those with no knowledge or any interest in alleviating the plight of the bottom billion.
Today, using Collier’s work, I merely want to descriptively focus on one instrument: trade policy to reverse marginalisation, and so remove the shackles from these traps; the endpoint of this exercise also will further elucidate Collier’s ideas on the bottom billion.
The trade policy of rich countries, trade barriers of the poorest countries, and increased aid, all function to stagnate the development of the poorest countries, according to Collier.
Protection of agriculture is a fundamental pillar of the trade policy of rich countries; and not too long ago, the European Union and the U.S. trade negotiators resisted any reduction of their subsidies and advised that poor countries as an alternative to agricultural products should switch to other production lines.
But this advice is more appropriate for the developed world with greater capacity to switch to other products.
The developed world also has an additional dysfunctional trade policy: tariff escalation. Tariffs generally are higher for processed products than for the unprocessed.
And so, to dampen the impact of higher tariffs, poor countries, as if they do not already have sufficient financial inadequacies, will need to expend a lot more to expand their export base via processing their raw materials, prior to exportation.
Paradoxically, the bottom billion also contributes to their own developmental demise through trade protection.
Collier argues that poor countries’ markets are moribund, and so, merely concentrating on the domestic market, will achieve little. Competition is largely responsible for productivity growth; but the poorest countries’ firms engage in limited competition, as trade barriers protect the local firms from external competition, and even from internal competition, due to the small market size.
This scenario may be a contributory factor to inadequate productivity growth in the bottom billion.
Finally, the poorest nations face a formidable clash between their trade barriers and increased aid. Ruane argues that notwithstanding the increase in aid to Africa, Africa is still poor; even President Obama in Ghana this year asked why it is that South Korea today enjoys greater prosperity than Kenya when the opposite situation held 50 years ago.
And so, what is aid providing to poor nations?
Collier advocates for the removal of trade barriers, a greater focus on trade liberalization; for he believes that more aid and more trade barriers will only compound the poverty and the development woes of the poorest nations. But is this an accurate scenario?
Prem Misir

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