Wealth of Nations July 2006

A Clear-Cut Case of Incompetence

What a price the world, especially the poorest part of the world, will pay for the collapse of global trade talks.
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How would this be for a story? Imagine that researchers in Silicon Valley have come up with a miraculous new machine. It isn't much to look at, just a black box that sits in a cupboard somewhere. Nobody can explain how it works, but it does work, and it is a pretty remarkable piece of kit. Plug it in and every economy in the world instantly works at a higher level of efficiency. With the machine switched on, everywhere you look, everywhere in the world, economies are producing more, at no additional expense of effort or resources. And because they are producing more, people can consume more.

Hyperventilating economists check their math and blink in amazement. Just powering up this free-lunch machine, they say, is going to lift maybe half a billion people out of poverty over the next 15 years. It is going to increase incomes in the world's poorest countries by around $200 billion a year, or roughly four times what rich countries jointly give them in aid. And it doesn't cost anybody a cent. Just the opposite, because the rich countries benefit big-time as well. This box is the best thing ever, they say. It's worth trillions, for heaven's sake—and the inventors are proposing to give it to humankind free.

But hang on. The world's governments decide they had better have a meeting about this. They are going to need to talk it all over, for about five years. Let's not rush into anything, they say. Can we be sure this box is really such a good idea? There is a lot to discuss. How are the gains to be shared among countries, for instance? That will need some tough negotiating. And, country by country, what if some people gain more than others? That would be awkward. Come to think of it, if the world is suddenly going to be more efficient at making, well, everything, then perhaps we won't need as many farmers, say, or textile workers, as we used to. There might be some temporary unemployment. That would be bad.

So the governments have their five-year meeting. They pledge now and then that the machine will be connected up shortly, once all the issues have been resolved. They reaffirm again and again their commitment to confront the scourge of global poverty (as they call it), and say they understand that switching on the machine is the best and biggest thing they can do for the poor. And then one day they up and announce that, on reflection, they don't want the machine at all.

It is a good idea in principle, they have concluded, but in practice it is all too difficult. They have decided, reluctantly, to let half a billion people molder on in poverty. Better forget those billions—sorry, trillions—of dollars in higher living standards. Each and every government makes a point of blaming the others for the decision.

But in the end, they see things the same. Unanimously, they vote to destroy the machine and tell the inventors to burn the blueprints.

Now, am I wrong to think that this would be a story? People would probably be interested in it, and would be scandalized as well, don't you think? Evidently not. You probably missed it, but this very story was in the news this week. The Washington Post had a report about it, and judged it unworthy of the front page. It ran on page one of the business section, where it was given less prominence than a profile of a well-known expert on conserving energy. (He owns an interesting fuel-efficient house in Colorado.)

How could this happen? How could it come about that anybody who blinked would have missed the news that the Doha Round of trade talks had collapsed—and that even the people who noticed it mostly just shrugged and moved on? One reason is that the talks have indeed dragged on and on, and tracking the deviations of this epic of bureaucratic procedure would test the zeal of the most monomaniacal trade-policy wonk. But another reason, you might think, is that I am grossly exaggerating the whole thing, that the tale is not a clear-cut case of outrageous government incompetence, verging on criminality, as I am suggesting. But this would be incorrect. I am not hyping the evil and the idiocy of what has just happened. If anything, I am playing it down.

Liberal trade works exactly like a resource-saving technology. So, it makes exactly as much sense for a country to deny itself the advantages of open borders to trade as it would to deny itself the use of personal computers—another disruptive technology that shares its gains unequally within and among nations. Where my analogy goes wrong is that each government has its own liberal-trade machine, which it can switch on independently if it chooses. No international agreement is needed for a country to unilaterally lower its tariffs or cut its farm subsidies. If it does this, most of the gains (lower prices, lower taxes) flow to its own citizens—but there are benefits for foreigners, too. For the past five years, each government has been refusing to switch on its own machine unless other governments switch on theirs first. Why should the United States help Europe and Asia, if Europe and Asia won't help the United States? And vice versa. In the end, this week, the governments agreed that the easiest thing was to forget the whole idea. When you put it like that, it just sounds crazy. It is crazy. Nonetheless, this is precisely what happened.

What a shame that the complexity and dreary familiarity of the always-in-crisis global trade talks blind people—newspaper editors and expert commentators, as well as ordinary citizens who rely on the experts to tell them what is going on—to this colossal scandal of wasted opportunity and abdicated responsibility. Governments have chosen this course, obviously, because it is the line of least political resistance.

Indeed, they are responding to the demands made upon them. They are listening to the people, or to some of them, at least. This weird ideological schizophrenia, according to which new technology, however disruptive, is good—we want as much of that as possible—whereas liberal trade is dangerous, unjust, politically challenging, even economically harmful, is surely one of the great mysteries of our age. Our leaders blithely accept it. What a price the world, especially the poorest part of the world, will pay.

Reviving the talks will be difficult, although somebody will doubtless try at some point. (Keep an eye open: The story will be tucked away, I expect, inside the business pages.) There are things that the United States could do right now to restart the process if it chose (see p. 59 in this week's National Journal).

But the United States is no more to blame in all this—actually, less so—than the European Union, the most shameless plotter against the interests of its citizens, or some of the coming-of-age middle-income developing countries, whose governments have lately decided that a fine show of resistance to economic reality is a mark of geopolitical maturity. (Sadly, they are right about that.) Wherever you look, in the United States or abroad, you see capitulation to special interests and an utter lack of ambition and leadership.

The saddest part is that the process itself is no longer mitigating that problem but compounding it. The World Trade Organization and its precursor, the General Agreement on Tariffs and Trade, were designed as a forum in which governments could demonstrate to their electorates that trade liberalization was a win-win game. Rather than convincing voters that lowering their own tariffs is good for them (as it is), the process relied on showing that other countries would lower their tariffs as well. The model was based on an exchange of "concessions"—trade reform as shared sacrifice. It was intellectually dishonest but, undeniably, it worked. In the decades after 1945, the world moved from comprehensively managed trade to a more liberal trading order, with fabulous economic results.

Big exceptions remained—notably agriculture, ever the sticking point—but nobody was complaining. The system was apt to wobble from time to time, as you might expect, because it was based on a lie. But for a good few decades it effectively mobilized export interests against groups demanding protection, and the politics worked.

Progress was slowing even before the Doha Round. But this week the "exchange of concessions" model finally fell in on itself. The WTO process is no longer assisting liberalization. It is blocking it and, worse, legitimizing the failure. The world has settled for less-than-liberal trade. It is a multitrillion-dollar error; a crime, truly, against the world's poor; and, it seems, a story barely worth reporting.

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Clive Crook is a senior editor of The Atlantic and a columnist for Bloomberg View. He was the Washington columnist for the Financial Times, and before that worked at The Economist for more than 20 years, including 11 years as deputy editor. Crook writes about the intersection of politics and economics. More

Crook writes about the intersection of politics and economics.

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