All entries for Wednesday 05 January 2005

January 05, 2005

Make Poverty History?

‘Make Poverty History’ is a vital campaign which will increase the prominance of issues facing the developed world amongst the public and politicians. The developed world has made genuine errors in the past as regards the conditionality of loans, and political concerns have hindered movements towards free trade.

The campaigners are correct to say many of today’s rich countries enjoyed protection from international competition in the past. However, to say protection from competition will lead to a greater economic development (in both monetary and humanitarian terms) than would occur with the multilateral removal of trade barriers is dubious. Capital market liberalisation has been of questionable benefit, but the gains available from free trade have been well documented.

The Ludvig Von Mises Institute
blog had a recent post entitled ‘The Infant Industry Argument’ which discussed the protection of growing industries. One reader made the following comment which supporters of the campaign could bear in mind

“The infant industry argument relies upon the empirical claim that historically many countries industrialised behind tariff barriers. (A recent book advancing the argument you mention is Kicking Away the Ladder (2002) by Ha-Joon Chang, an economist at Cambridge University (UK).) This is true but it only establishes correlation not causation. Had resources not been wastefully diverted by tariffs, real incomes would have risen even faster during the 19th century than they did.”

‘Free trade’ is a worthy aim, but if ‘trade justice’ involves the wholesale protection of domestic industry by the developing world then the objective is less than optimal, regardless of whether such protection is deemed temporary.

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