Trading Phobias: Governments, NGOs and Globalisation

 

Almost any dispassionate analysis of the evolution of the world economy will find that the past few years have seen better economic performance by almost all measures; that the past fifty years have witnessed increased well-being of a larger percentage of the world’s population by a greater increment than ever before in history.

Yet, in the midst of all the unprecedented prosperity, there appears to be a considerable backlash – or at least sympathy with those who are protesting – against globalisation. This backlash was highlighted by the events in Seattle, and subsequent
meetings of the international economic institutions have brought further organised
protests. But quite aside from Seattle, it seems clear that there are large groups who are at least to some degree dismayed by the ongoing process of economic integration.

One of the major grounds of unease about this process is a concern that trade flows will impinge upon human values such as labour and environmental standards.

But poor countries are able to achieve more rapid gains in living standards for their people, and especially for the poor, when they have open trade policies and have access to markets in developed countries. People in many developed countries are so rich that they cannot conceive of poverty of the type that is prevalent in many poor countries.

'In the midst of all the unprecedented prosperity, there appears to be a considerable backlash'

For poor countries, access to markets and an open trade regime permits the rapid expansion of exports of labour-intensive goods, which in turn enables the rapid increase in employment of unskilled workers in “good”, well-paying jobs where they may receive training as well.

When people in developed countries talk about decent wages for people in poor countries, they are often talking about a wage that would be sufficiently high that any competitive advantage of businesses using unskilled labour on the international
market would be eroded. Indeed, in some developing countries, there is as strong suspicion that unions in developed countries want labour standards as a protectionist measure to avoid the inflow of imports!

The call for labour standards is therefore somewhat suspect. True, there are instances of abuse of children and of other workers. But there is ample reason to believe that in most developing countries there is an excess supply of labour, that people compete for jobs in the exporting sectors, and that in consequence there is little or no artificial suppression of wages. Even if some existing investors could pay more, that would reduce further new investment, in addition to creating a dual economy between domestic and foreign firms.

When proposals are made to link trade to labour standards, the issues become operationally cloudy as well. If, for the sake of argument, it were decided that there should be a universal code, an interesting question arises as to what penalty would be assessed, and against whom, for violations. Should an entire country’s exports be shut off because some firms within the country violate the code? Obviously, such a measure would be extreme, and would harm many workers.

What should be done if the code were violated in home goods industries, such as construction or electric power generation? And, when governments in developing countries have little administrative capacity, should the international community be encouraging its application to labour standards above other pressing concerns?

'Should an entire country's exports be shut off because some firms within the country violate the code?'

Environmental issues raise many of the same concerns. Many now-developed countries, including Australia and the United States, despoiled their environment during their early period of economic growth.

Since that time, we (and others) have grown rich enough so that we value a cleaner environment and have been willing to commit public and private resources to improve it. The evidence is reasonably convincing that, at an income level of around $US5,000 ($9,365) per capita, people begin choosing to invest in cleaning up and preventing pollution, the exact income level depending in part on the particular kind of pollutant.

It may be worth it to the rich to call for environmental measures that the poor cannot yet afford to undertake. But the way to achieve those measures is to negotiate over environmental issues with the poor, helping to finance those measures which are not yet attractive at low levels of income.

It is ironic that, should extreme and costly measures for environmental protection be imposed on poor countries, it is possible that the resulting costs could sufficiently slow down growth so that the long-run impact on the environment could be negative.
 

About the Author:
Professor Anne Krueger is Director of the Center for Research on Economic Development and Policy Reform at Stanford University.  This article is an extract of the John Bonython Lecture she delivered for The Centre for Independent Studies on 10 October, 2000.