Only Trade-Fuelled Growth Can Help the World's Poor

Current experience and history both speak loudly that the only real engine of growth out of poverty is private business, and there is no evidence that aid fuels such growth, says William Easterly, professor of economics at New York University and co-director of its Development Research Institute.

Of the eight Millennium Development Goals (MDGs), only the eighth faintly recognises private investment, through its call for a "non-discriminatory trading system." Yet the trade-related MDG received virtually no attention from the wider campaign, has seen no action and even its failure has received virtually no attention.

This is all the more misguided because trade-fuelled growth not only decreases poverty, but also indirectly helps all the other MDGs. Yet in the United States alone, the violations of the trade goal are legion, says Easterly.

U.S. consumers have long paid about twice the world price for sugar because of import quotas protecting about 9,000 domestic sugar producers; the European Union is similarly guilty.

Equally egregious subsidies are handed out to U.S. cotton producers, which flood the world market, depressing export prices.

According to an Oxfam study, eliminating U.S. cotton subsidies would "improve the welfare of over one million West African households – 10 million people – by increasing their incomes from cotton by 8 to 20 per cent."

The U.S. government, for its part, announced recently its "strategy to meet the millennium development goals." The proportion of this report devoted to the U.S. government's own subsidies, quotas and tariffs affecting the poor: zero.

It is already clear that the goals will not be met by their target date of 2015. One can already predict that the ruckus accompanying this failure will be loud about aid, but mostly silent about trade. It will also be loud about the failure of state actions to promote development, but mostly silent about the lost opportunities to allow poor countries' efficient private business people to lift themselves out of poverty, says Easterly.

Source: William Easterly, Only Trade-Fuelled Growth Can Help the World's Poor, Financial Times, September 21, 2010.

For text: http://blogs.ft.com/beyond-brics/2010/09/21/guest-post-only-trade-fuelled-growth-can-help-the-worlds-poor/

For more on Trade Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=42

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 05 October 2010