Monday, December 12, 2005

History vs. theory

Provocative piece in the Guardian from economics editor Larry Elliott, in the run-up to the WTO talks in Hong Kong. With the rich companies, backed up by the heavyweights of neoclassical economics, demanding further liberalisation of trade, Elliott follows Harvard economist Dani Rodrik's comparative study of Mexico and Vietnam:

One has a long border with the richest country in the world and has had a free-trade agreement with its neighbour across the Rio Grande. It receives oodles of inward investment and sends its workers across the border in droves. It is fully plugged in to the global economy. The other was the subject of a US trade embargo until 1994 and suffered from trade restrictions for years after that. Unlike Mexico, Vietnam is not even a member of the WTO.
So which of the two has the better recent economic record? The question should be a no-brainer if all the free-trade theories are right - Mexico should be streets ahead of Vietnam. In fact, the opposite is true. Since Mexico signed the Nafta (North American Free Trade Agreement) deal with the US and Canada in 1992, its annual per capita growth rate has barely been above 1%. Vietnam has grown by around 5% a year for the past two decades. Poverty in Vietnam has come down dramatically: real wages in Mexico have fallen.
Rodrik doesn't buy the argument that the key to rapid development for poor countries is their willingness to liberalise trade. Nor, for that matter, does he think boosting aid makes much difference either. Looking around the world, he looks in vain for the success stories of three decades of neo-liberal orthodoxy: nations that have really made it after taking the advice - willingly or not - of the IMF and the World Bank.
Rather, the countries that have achieved rapid economic take-off in the past 50 years have done so as a result of policies tailored to their own domestic needs. Vietnam shows that what you do at home is far more important than access to foreign markets. There is little evidence that trade barriers are an impediment to growth for those countries following the right domestic policies.

National specifics trump theoretical generalisations each time, it seems. Who'd have thought it.

Another even more sceptical (if less reasoned) view in the same paper, from Gary Younge in Jamaica:

Little wonder that, according to a Christian Aid poll, two-thirds of African trade delegations questioned said that their economies would suffer if they accept what is currently on offer, while more than half said they would halt the negotiations if they didn't like what was on offer. They should follow their instincts, and other less developed nations and progressive NGOs should follow their lead. When the only thing on the menu is going to make you sick, it is time to walk away from the table.



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