Simon Hughes
'Eliminating World Poverty - The Importance of Trade' - Trinity College, Dublin
I start from the belief that in our modern world no country can or should be isolated; that we are as nations inter-dependent and increasingly so.
For perhaps too long now the debate about how we lift people out of poverty has been focused on the giving of aid by donor countries and in more recent years by the campaign to write off the debt owed by many of the developing countries.
This over concentration on these two aspects concerns me. In many respects it reinforces some rather negative approaches. That charity should form the basis of our policy. That the developing world is hapless – having to deal with natural disasters like hurricanes, floods and famine. In my view a lasting solution to the problems of the millions in poverty is through trade. Which if properly managed will benefit those who need help the most.
It has the potential to provide finance to developing countries on a scale far in excess of that which they receive from aid.
In addition it fosters a healthier relationship between countries of the developed world and those who need to be taken out of poverty. It cannot be sustainable in the long term to have countries where over 50% of their total budget comes from donor countries. Far better surely to allow countries to create their own wealth.
It was the World Trade Organisation Ministerial meeting in Seattle that put globalisation centre stage. For some globalisation is the new evil of the world. It reflects a nightmare of greed and inequality. A threat to the culture of individual countries and peoples.
The alternative view is that globalisation brings growth, opportunity and prosperity.
Of course in reality things are never as clear cut as this. But I do believe that under the right conditions globalisation can be a bringer of opportunity and not a threat.
The real danger is that if we try to deny the inter-dependent nature of our modern world we will end up retreating into nationalism and protectionism.
This is one of the lessons we must learn from history. It was the response of many countries to the financial crash and depression of the 1920s and 1930s and we all know the bloody and destructive consequences that followed.
Enlargement of the E.U. has the potential to bring real benefits to some of the poorest countries in the world. But only if we use the changes that will flow from the entry of new countries into the E.U. to break down trade barriers; free up market access and reduce subsidies. And that is why radical and fundamental reform of the C.A.P. is so crucial.
For perfectly understandable reasons the debate over world poverty and help for those countries in greatest need has focused on levels of aid from donor countries and the issue of debt write off.
Now these are important but they are not as significant as the part that could be played by trade.
We need to be clear that free trade does not mean unregulated trade.
An unfettered global market can fail the poor just as much as protectionism can.
Global trade may bring Nile perch from Lake Victoria in East Africa to our supper table but it might also mean that people living on the shores of Lake Victoria find their fish stocks so depleted that there is not enough left for their own families.
If managed badly globalisation becomes merely the survival of the biggest. If it is to be a force for good then we need a set of rules that apply equally to all countries and multi-national corporations.
A set of rules that work for people throughout the world and not just those that are most powerful or have historically been those with greatest influence.
We are a long way from that at present. Radical reform of W.T.O. is crucial. Seattle showed weakness, Doha strength.
I am strongly of the view that trade – in the right circumstances and subject to the appropriate conditions – can be a great force for poverty reduction. It can generate jobs and wealth. It can improve the quality of life for individuals, families and the communities in which they live.
There is no question that the opening up of markets and increased trade from developing countries would dwarf the contributions that could be made from overseas aid.
Take Africa for example. If it were to increase its share of world exports by just 1% it would generate 70 billion dollars. That's around five times more than it receives in aid.
In other parts of the world we can see the benefits that flow from increased trade. In China, as they have opened up their economy, the number of rural poor has been cut from 250 million in 1978 to 34 million in 1999. Still an unacceptable level but a real improvement.
The level of absolute poverty in Vietnam has been halved in 10 years.
Or look at the situation of South Korea in 1970 with a closed economy poorer than Ghana. Now richer than Portugal.
What we need are equitable and fair trade rules. They are essential if we are to create the opportunity for the poorest countries to grow their economies and for the poor of the world to work their way out of poverty.
But our present system is loaded against the developing world.
Import tariffs cost developing countries 100 billion dollars. This is twice as much as they receive in aid.
We give them charity but then deny their goods access on fair terms to our markets.
These countries want a hand up not a hand out. And we in Europe can give a lead by making radical and fundamental changes to the Common Agricultural Policy.
The E.U. spends around 40 billion dollars on agricultural subsidies. Rich farmers in rich countries continue to be subsidized. They then flood developing countries with their produce forcing poor farmers in developing countries out of business and into destitution and poverty.
The CAP as presently constituted doesn't even manage to protect the small farmer working the land. 80% of the total goes to the largest 20% of producers.
Under CAP we end up with the obscenity of the 21 million cows in Europe receiving a subsidy of 2 dollars a day whilst 100 million people – men, women and children in Africa – live on less than 2 dollars a day.
And yet there are some elected politicians in Europe who have the audacity to argue that the CAP is actually beneficial to developing countries.
The World Bank showed in its recent publication ‘Can Africa Reclaim the 21st Century?' that if Africa managed to retain the same proportion of world trade as it had at the time the colonial powers pulled out in the 1960s then it would have income some 70 billion dollars a year more than at present.
So an increase in the volume of trade with the poorest countries is essential. But on its own that will not be enough. Simply leaving it to the market through greater trade liberalization will not result in a reduction in inequality.
The benefits of trade do not necessarily trickle down to the poorest and those in greatest need.
Trade policy needs to be firmly placed in development policy.
As President Museveni of Uganda recently said, “For too long, Africans and their partners in the West have looked to international aid as the answer to the poverty and economic challenges confronting developing countries. Africa does need development assistance, just as it needs debt relief from its crushing international debt burden. But aid and debt relief can only go so far. We are asking for the opportunity to compete, to sell our goods in Western markets. In short, we want to trade our way out of poverty.”
Yet major trading countries are moving in precisely the opposite direction.
The E.U. faces the challenge of CAP.
In the U.S. the American Farm Bill has been introduced. It will give some 190 billion dollars over 10 years to 2 million American farmers. This will drive prices down for export and shut farmers from developing countries out of world markets but in some cases will threaten their position within their own domestic market. And of course the Bill has been a boost to protectionists throughout the globe.
The World Bank estimates that the reform of the international trade rules could lift 300 million people out of poverty and that is why President Museveni said, aid and debt relief will not be enough.
We face a far more difficult choice in the field of domestic politics to play fair by the developing world and take away the subsidies that we presently pay to farmers in our own countries. To allow market access by tearing down the tariffs that distort the value of goods and remove quotas. This will not be easy and there will be opposition but politics is all about choices and priorities.
The essential answer to the problems of the moment is not less globalisation and not new national structures to separate and isolate economies, but stronger international structures to make globalisation work in harder times as well as easy ones.
Under political pressure there are soft options, easy but dangerous shelters – such as a return to protectionism, the breakdown of co-operation, the rise of beggar thy neighbour policies. But this can only yield a worsening of the situation, not renewed growth.
Let us be clear, protectionism anywhere is a threat to prosperity everywhere. Closing off national economies only increases national and international instability.
And across the world it is the poorest, the most vulnerable members of society who suffer from financial crisis and stagnation.
In the new global economy, neither Ireland the United Kingdom nor any other country or trading bloc can afford the easy illusion of isolationism. We are all part, and ultimately the product of, events happening in the global economy. Never in economic history have so many depended so much on genuine economic co-operation between the leading industrialized nations.
We must never forget that the path of open trade and open capital markets that we have traveled in the last 30 or 40 years has brought unprecedented growth, greater opportunity and a better life for people here in Ireland and in the UK.
The challenge for us now is to make sure these benefits are shared throughout the world.
There will be those that resist. The forces of reactions will be strong – clinging to the comfort blanket of the status quo.
But no change is not an option. We must have the courage of our beliefs to drive through the changes necessary so that we have a fair and just trading system that will lift literally tens of millions out of poverty.
This is an ambitious vision but it is one that by working together I believe can be achieved.
