Sustainability
Poverty alleviation and environmental concerns, together with food security and access to medication and some other issues, are sometimes called the ‘non-trade concerns’ in international trade. Governments are still reluctant to incorporate these sustainability questions into trade negotiations. They fear that this would complicate the talks. Trade negotiators believe that more free trade, next to higher growth, on balance will always result in less poverty, less environmental damage and more sustainability. However, empirical evidence and development theory teach us that this is not the case. Specific conditions ensuring an integrated and comprehensive approach will have to be fulfilled. I have mentioned a few of these conditions above. Many are of a political character. Meeting such conditions is not only a non-trade concern; it would also be in the interest of trade itself. When policy makers are uncertain about specific consequences of trade liberalization, they may refrain from it. When trade liberalization brings about unintended harm for a society, a backlash may result.
The main challenge is to create new jobs for ever-more new young people without unduly destroying jobs for others. Failing to do so will have social and political consequences, world-wide. When expectations are not met, when aspirations are violated, when unemployed young people are denied a fair perspective, economic instability, social unrest, political strife and violence may result. People without a stake in the labor market, in particular the young among them, may feel themselves excluded not only from the economic system, but from society as a whole. In reaction to this they may turn against society.
Presently the process of globalization seems to strengthen economic forces that are in favor of trade liberalization. But there always will be an inclination to protect. Where fear prevails, protectionism will be on the rise. Presently, stemming a return to protectionism as an unintended result of a combination of policy reactions – out of fear, or in order to guard specific interests – is more important than to enforce further liberalization. But a defensive approach will not suffice. It is important to keep the economy dynamic and oriented towards innovation. A standstill can easily turn into regression. Rendering trade policy making more comprehensive can be a contribution towards such a dynamic approach.
The stakes are high. I do not dispute Anderson’s estimates. I agree with his estimates of gross economic benefits from reducing subsidies and trade barriers. Both the static gains and the dynamic gains as presented by him are reasonable, given the assumptions made. Maybe these benefits will take more time to accrue and not last as long as assumed, but this is a minor consideration. In my opinion the economic costs will be higher than Anderson assumes. They will last longer. Still, in macro terms they are much less than the benefits.
I do not share Anderson’s optimism with regard to the social benefits and costs. Anderson argues that the net social benefits from trade liberalization for poverty reduction, the environment, diseases, education, nutrition, governance, stability and conflict management are most likely positive and large. I have argued for two of them – poverty and the environment – that this is only true under specific conditions, which will not easily be met. If not, the effects may on balance be negative rather than positive. The most important caveat with regard to Anderson’s figures is that their theoretical validity may be politically less relevant. The figures can be turned into reality only through political negotiations. In these negotiations, the conditions underlying these figures will also have to be met. Many of these conditions concern the distribution of the benefits and costs. Who will benefit – which countries, which sectors, which people? Who will have to bear the burden? Can they be compensated? Yes, because the macro benefits are very high. Will they be compensated? That is uncertain, and this uncertainty adds to the costs. The question is not whether the stakes are high, or how high they are, but how to share them. It is the distribution of the costs and benefits, rather than the size, which will determine action.
The main challenge is to create new jobs for ever-more new young people without unduly destroying jobs for others. Failing to do so will have social and political consequences, world-wide. When expectations are not met, when aspirations are violated, when unemployed young people are denied a fair perspective, economic instability, social unrest, political strife and violence may result. People without a stake in the labor market, in particular the young among them, may feel themselves excluded not only from the economic system, but from society as a whole. In reaction to this they may turn against society.
Presently the process of globalization seems to strengthen economic forces that are in favor of trade liberalization. But there always will be an inclination to protect. Where fear prevails, protectionism will be on the rise. Presently, stemming a return to protectionism as an unintended result of a combination of policy reactions – out of fear, or in order to guard specific interests – is more important than to enforce further liberalization. But a defensive approach will not suffice. It is important to keep the economy dynamic and oriented towards innovation. A standstill can easily turn into regression. Rendering trade policy making more comprehensive can be a contribution towards such a dynamic approach.
The stakes are high. I do not dispute Anderson’s estimates. I agree with his estimates of gross economic benefits from reducing subsidies and trade barriers. Both the static gains and the dynamic gains as presented by him are reasonable, given the assumptions made. Maybe these benefits will take more time to accrue and not last as long as assumed, but this is a minor consideration. In my opinion the economic costs will be higher than Anderson assumes. They will last longer. Still, in macro terms they are much less than the benefits.
I do not share Anderson’s optimism with regard to the social benefits and costs. Anderson argues that the net social benefits from trade liberalization for poverty reduction, the environment, diseases, education, nutrition, governance, stability and conflict management are most likely positive and large. I have argued for two of them – poverty and the environment – that this is only true under specific conditions, which will not easily be met. If not, the effects may on balance be negative rather than positive. The most important caveat with regard to Anderson’s figures is that their theoretical validity may be politically less relevant. The figures can be turned into reality only through political negotiations. In these negotiations, the conditions underlying these figures will also have to be met. Many of these conditions concern the distribution of the benefits and costs. Who will benefit – which countries, which sectors, which people? Who will have to bear the burden? Can they be compensated? Yes, because the macro benefits are very high. Will they be compensated? That is uncertain, and this uncertainty adds to the costs. The question is not whether the stakes are high, or how high they are, but how to share them. It is the distribution of the costs and benefits, rather than the size, which will determine action.