Free Trade Helps the World's Poor

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Free Trade Helps the World's Poor

By: John C. Downen
Posted on October 02, 2002 FREE Insights Topics:

Although the UN's recent World Summit on Sustainable Development looked set to become simply another opportunity for environmentalists and Europeans to trash the US, leaders of developing countries injected a healthy dose of reality. Rather than submitting to the West's eco-imperialism, poor countries were able to retain their freedom to pursue economic development as they see fit.

Indeed, they recognize that environmental quality is a luxury good best afforded by the affluent. Thus the surest, fairest way to achieve it is through economic growth. Some pointed out the developed world's hypocrisy in subsidizing and protecting its farmers -- thereby keeping poor-country producers out of its markets -- while seeking to hobble developing countries with restrictive environmental standards.

According to the World Bank, First World protectionism costs the Third World $100 billion a year in lost income. This is more than twice what they receive in aid from the developed world annually. Protectionism not only keeps developing countries poor, it harms American consumers through higher taxes to fund subsidies and higher prices due to tariffs and reduced supplies.

The easiest way to help the world's poor is for the US and Europe to stop protecting domestic industries, particularly agriculture. Free trade with the developing world provides markets for the poor to sell their goods and earn an income. Once they are wealthy enough to fulfill their basic needs, then they can begin to think about the environment. With open economic borders and economic growth comes reduced pollution, as industries adopt cleaner technologies and consumers buy more energy-efficient appliances and automobiles.

The free exchange of goods and services is a win-win situation. I buy something from you only if I value it more than the money I give you. You sell it to me only if you value the money you receive more highly than the item or service sold. We both walk away happy.

Open economies provide individuals with the most opportunities to improve their condition. They free up resources and allow individual initiative and creativity to combine those resources in productive, profitable ways. And free markets disperse power. Castro stifles markets because they reduce the control of governments over citizens. Big Steel lobbies for tariffs because it doesn't like competition. Competition benefits consumers, not corporations.

International free trade and competition induce countries and companies to specialize in producing those goods at which they are most effective, that give them the most output for their available inputs. This leads to the efficient use of the world's land, timber, minerals, and other natural resources. In contrast, closed, centrally planned economies are notoriously wasteful, producing only poverty, oppression, and ecological disasters.

When we close our markets to producers in developing countries and funnel money to their governments, we get what economist Peter Bauer called the three M's: Mercedes, machine guns, and monuments. Aid to governments enriches dictators, outfits their armies, and produces useless "public works" projects that only glorify despots. Meanwhile, common people suffer poverty and oppression.

The National Bureau of Economic Research found that, contrary to the cries of the reactionary anti-globalization mob, freer trade has reduced inequality. In China, those areas that increased trade saw reduced inequality between urban and rural incomes. Globalization modernizes rural areas. That is, rural firms have a better chance to emerge, expand, and succeed in an open economy, speeding rural income growth.

Now consider politics. Governments redistribute wealth according to political power. Money, opportunities, and favor are coercively taken from some and given to others, based on the strength of their respective political voices. It's at best a zero-sum game. What's more, government redistribution of wealth leads people to spend more time lobbying for handouts and less time being productive. This slows growth and reduces society's overall wealth.

Out of a romantic longing for the good ol' hunter-gatherer days, the affluent anti-globalists want to stop growth in the developing world. They would impose their values on Third World citizens, robbing them of opportunities and choices and keeping them in poverty. Free markets let individuals define and decide their own progress. Those who are truly concerned for the plight of the poor and the environment in the developing world should recognize that economic growth through free trade is the best remedy for both.

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