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September 10, 2003

Comments

Tom Grey

Stephen is more right here, I think, because of Kick AAS (the Guardian's web site to Kick All Agricultural Subsidies) and the absolute need for some democratic simplicity. There is no doubt that LDCs need to open their borders with each other, much more than they do. In this, Oliver, you are correct.

But it's not at all certain that there will really be an increase in mercantilist thought. If Oxfam etc. are correct in getting EU & US farm subsidies as the focus of Cancun, and successfully push lower subsidies, faster, this will be a huge benefit. From free trade. Which can be explained to those with open minds as well as big hearts.

The donor agencies are likely to be seduced by free market policies that work, especially when called for by poor gov'ts, even if they don't buy free market rhetoric.

A Whig

Oliver, this post on the fallacies of the "fair trade" campaigners is by far the best you've written to date - in my humble estimation. BTW: When will you post something that will warrant me to show that i'm not another 'dittohead' who tunes in everyday to read your blog entries :-) This reader just loves 'you'!

Daniel Calto

An excellent and incisive post which I certainly agree with. The mercantilist fallacy is depressingly common, even among people who should know better.

One major problem is that emotional rhetoric ("Save Our Jobs!" "China is Cheating on the Yuan, and That's Why Our Economy is Sluggish!") coupled with economic illiteracy almost always trumps sound trade policy.

All nations, rich and poor, tend to be hypocritical on trade--Bush's stupid and counterproductive steel and agricultural tarriffs, put in place for short-term politcal gain, are merely an example of this. Democrats are certainly no better--in fact, their "fair trade" rhetoric is often far worse, and they often pander even more to economic special interests.

It is inherently difficult to make a case for unrestricted free trade, despite the overwhelming evidence in its favor, given that it requires some sophistication to see the mutual benefits of international trade clearly, while emotive arguments and calls for "fairness" have a natural appeal both to people's narrow self-interest and to their sense of justice. There is no easy way out of this trap except to stress the many benefits of trade and the importance of pursuing a nation's overall national interest as opposed to the narrow special interests which unfortunately tend to dominate trade agendas worldwide.

Val

What you say about India and Africa also applies to Latin America, where the United Nations ECLAC (Economic Commission for Latin America and the Caribbean) under Marxist leadership (Raul Prebisch) recommended mercantilism, import-substitution, state control and the "dependency theory" thus condemning the whole region to underdevelopment for decades.

Ryan

Even if import-substitution strategies in Sub-Saharan Africa cause more poverty than agricultural strategies - a claim that you do not seem to back up with facts - we should be allowing the developing world to choose their economic model rather than imposing one upon them via the Bretton Woods institutions.

Your idea of what the trade justice movement wants is very narrow. The protesters do not defend tariffs so much as the *right* of developing countries to decide for themselves which economic model works best (along with emphasising our responsibility to the developing world to allow access to our markets - something you appear to agree with). If tariffs and quotas damage the country that implements them, free trade will win out - it will be shown to be the best method, and any rational government will see that this is the case. However, if tariff barriers are so ruinous, it is hard to see how our own agricultural industries have survived so long.

You also fail to deal with some of the movement's core arguments for allowing developing countries to choose protectionism. Sure, there will be less efficiency in protected industries as these industries do not need to be globally competitive. But the tough competition of the global market means that developing countries' industries will not stand a chance in a tarrif-free world, and western companies will do all the work and take the profits home.

It is hardly contested that capitalism results in a consolidation of wealth, and that free trade unequally benefits countries with strong, competitive industries and strong infrastructures to support them. It is amply clear that 'free trade' benefits the West, but the benefits to developing countries are far from established.

You also fail to deal with another of the protesters' core problems with the Bretton Woods institutions - the immense lack of democracy they exhibit. This is far more evident within the IMF and World Bank, but still, you must be aware of the WTO's 'green room'? These institutions still give rich countries a great deal of ability to pressurise the less-rich countries into doing what they want, when they should attempt to allow the developing world to have an equal say.

The protesters for 'global justice', those who you think should 'go home and get a life', want democracy, on a global as well as national level, whereas you seem to advocate imposing one economic system globally - for the benefit of everyone, you insist. Going home isn't the best way to get a life - if you want a life, get out on the streets.

Howard Shaw

I think the point, Ryan, is that by protecting their own industries, LDCs are actually disincentivising them from growing into competitive industries that can actually compete in the global market.

If you claim that "tough competition of the global market means that developing countries' industries will not stand a chance in a tarrif-free world" you need to explain why some developing countries have been successful in this respect and not others.

Val

Most of Ryan's reasons are very similar to what the dependency theorists were saying back in the sixties. And Shaw, today's Chile is a good example of what you say.

Oliver Kamm

Ryan:
"Even if import-substitution strategies in Sub-Saharan Africa cause more poverty than agricultural strategies - a claim that you do not seem to back up with facts... "

The reason I don't back it up with facts is that I don't make it in the first place or even understand what it means.

"The protesters do not defend tariffs so much as the *right* of developing countries to decide for themselves which economic model works best..."

In that case they should have no problem at all with the remit of the World Trade Organisation. Member states can adopt any economic policies and any economic model they choose. The one thing they are not able to do is discriminate between domestic and foreign producers. Whether you think it's a good thing or not that discrimination on grounds of national origin should be regarded that way comes down, I suppose, to whether you believe in liberal and progressive values. I do.

"If tariffs and quotas damage the country that implements them, free trade will win out - it will be shown to be the best method, and any rational government will see that this is the case."

Wrong. The Public Choice school of economics shows why this does not follow.

"However, if tariff barriers are so ruinous, it is hard to see how our own agricultural industries have survived so long."

You have misunderstood the case against tariffs, which is that they result in concentrated benefits to sectional interests, to the detriment of the wider consumer interest. (That also, incidentally, provides an insight into why tariffs persist despite being universally recognised by the economics profession to be an irrational course.)

"Sure, there will be less efficiency in protected industries as these industries do not need to be globally competitive. But the tough competition of the global market means that developing countries' industries will not stand a chance in a tarrif-free world, and western companies will do all the work and take the profits home."

Developing countries do NOT need 'globally competitive industries' to benefit from trade. Trade is not *about* 'competitiveness': it's about comparative advantage.

"It is hardly contested that capitalism results in a consolidation of wealth,..."

Xavier Sala-i-Martin, of Columbia University - paper, The World Distribution of Income, April 2002, 'estimate[s] eight indexes of income inequality implied by our world distribution of income. All of them show substantial reductions in global income inequality during the 1980s and 1990s.'

"...and that free trade unequally benefits countries with strong, competitive industries and strong infrastructures to support them."

So far from being 'hardly contested', your claim is in fact held by no one at all among orthodox economists and hasn't been for well over 150 years (since Ricardo). A country with a competitive advantage in nothing whatsoever is a huge beneficiary of free trade.

"It is amply clear that 'free trade' benefits the West, but the benefits to developing countries are far from established."

See the research of Jeffrey Sachs and Andrew Warner, of Harvard, demonstrating that developing countries with open economies grew by 4.5% a year in the 1970s and 1980s, compared with 0.7% for those with closed economies. David Dollar and Aart Kray of the World Bank have demonstrated, using robust statistical techniques analysing data from 80 countries over 40 years, that there is a one-to-one relationship between increases in output and an improvement in the living standards of the poorest fifth of the population in developing countries.

"You also fail to deal with another of the protesters' core problems with the Bretton Woods institutions - the immense lack of democracy they exhibit. This is far more evident within the IMF and World Bank, but still, you must be aware of the WTO's 'green room'? These institutions still give rich countries a great deal of ability to pressurise the less-rich countries into doing what they want, when they should attempt to allow the developing world to have an equal say."

The developing world does have an 'equal say': every country has a power of veto on decisions arrived at by the WTO.

"The protesters for 'global justice', those who you think should 'go home and get a life', want democracy, on a global as well as national level, whereas you seem to advocate imposing one economic system globally - for the benefit of everyone, you insist."

Good thing you introduced the weasel word 'seem'. As I state above, member states of the WTO can choose any economic model they wish.

"Going home isn't the best way to get a life - if you want a life, get out on the streets."

On the basis of what you've posted here, I cordially suggest your most rational course would be to give the streets a miss, at least once you've visited a bookshop to look for a reliable non-technical description of the principles of international economics. Paul Krugman's Pop Internationalism is perhaps the most celebrated of this genre.

Daniel Calto

Ouch! A harsh lesson in macroeconomics 101--but people are used to getting away with rhetorical murder when it comes to unsupported assertions regarding economics.

As an example of developing countries' power in the WTO, see todays WSJ or NYT re the emergence of an India/China/Brazil bloc coming together for the Cancun round.

Mitch H.

I'm a little foggy on how, to make this concrete (and a little personal), ending import-substitution strategies would help the Malian cotton industry more than, say, repealing US cotton subsidies. Is the argument that Malian tariffs against equipment, pesticides, fertilizers, or GMO cotton seed are retarding their productivity, and thus inflating their production costs?

Howard Shaw

As another non-economist I'm also grasping to understand this.

"Developing countries do NOT need 'globally competitive industries' to benefit from trade. Trade is not *about* 'competitiveness': it's about comparative advantage."

If I understand that correctly, instead of what I said above, the problem with tariffs in developing countries is that, by protecting certain industries and certain interest groups, other industries where a comparative advantage exists are prevented from flourishing to their full extent. In other words there is a distortion preventing the country doing what it is best at.

I don't know anything about Mali but say its government provides protection and subsidies for the meat industry in order that meat imports can be reduced. This would divert resources away from the cotton industry which, in fact, it may have a comparative advantage in. It would therefore be better to import meat (therefore lift tariffs) and concentrate resources on the cotton industry.

Peter Cuthbertson

If I'm reading you right, it sounds like you now understand perfectly.

To take your example, Ryan is basically saying that if the average American worker can produce 4 sausages a minute or 2 cotton shirts a minute while the average worker in Mali can only produce 1 sausage a minute or 1 cotton shirt a minute, then Mali can never "compete" with the US and therefore would be mad to accept free trade with her. Of course, Mali still has a comparative advantage in the production of cotton (if she forgos domestic production of 100 sausages she gets 100 more shirts while the US would only get 50 more shirts if she did the same) while the US has a comparative advantage in the production of meat (if she forgos domestic production of 100 shirts she will get 200 more sausages while Mali would only get 100 more sausages by doing the same). So both countries will be better off if the US makes more meat and Mali makes more cotton and they both trade. Tariffs prevent this.

Peter Cuthbertson

To be strictly accurate, "can never" in my post above should read "cannot".

Jon Pardoe

I am more than willing to admit that I have no understanding of economics, macro, micro or otherwise.

However, am I the only person here who feels that the point is being missed?

As Marx said 'The philosophers have only interpreted the world in various ways; the point, however, is to change it.'

Mr. Kamm, how are we to change the world for the better? Through better global economic management?. As you are an Investment Banker (and I really don't know what that means), this is hardly suprising as your solution.

How about trying to raise the future generations to just be nice to each other, and put their own financial gain as a secondary consideration?

PS. I am very naive.

Daniel Calto

Jon:

More than philosophers, (or at least far more quickly) economics changes the world that people live in very substantially. Economies that are "managed" have a very dismal track record in providing goods, services, and the basic necessities of life to their own people. Markets, in contrast, tend to allocate goods and services more efficiently and fairly than governments can. This is not because markets are naturally altruistic, but because they can determine the proper prices of things. This is hugely important. Clear price signals allow all who participate in an economy to make plans for the future, and do what is most advantageous for themselves.

The great bulk of the evidence that economists have been able to put together over the last few decades points invariably to the conclusion that free trade and free markets benefit all people, rich and poor, in the developed and developing world, for more than any other economic system which has yet been devised. Thus, free trade is "compassionate" in the broadest sense--it doesn't discriminate among people, pick winners and losers, and has the potential to increase the standard of living for all people.

Agricultural subsidies and tarrifs distort or muddle the price-signaling function of markets, leading to absurd situations such as American beans and lentil food aid being given away in places like Ethiopia, while Ethiopian lentils rot in warehouses and farmers have no income--forcing them to rely on the same food aid to survive.

As an example, one could look at the huge projects in Africa -- hydroelectric dams, lavish airports, "advanced" industrial plants -- that were funded largely by foreign aid in the 1960's and 1970's. Instead of these countries investing in primary education and in agriculture, which the great majority of their people did for a living, and which have very substantial investment returns for a poor economy, they hugely distorted their economies. Corruption was vast (Bokassa's coronation cost over $1 billion), economies were destabilized and went into decline, peasants starved, all in the name of "managing" the economies of these countries. Things certainly changed, but for the worse. This is turning the comparative advantage that Mr. Cuthbertson speaks of on its head. Burkina Faso is not in a good position to produce cutting-edge consumer electronics like Japan does, just as Japan (or the U.S.) cannot produce rice at a price anything like what the world market price is.

Tariffs and trade barriers, whether erected by rich or poor countries, disproportionately impact the poorest of the poor. They get low-quality goods at high prices, rather than higher-quality goods at lower prices. India, a country of over 1 billion people, practiced swadeshi (self-reliance, or import substitution) for decades, and grew poorer.

The great economic success story of the late 20th century is obviously China. 30 million people starved to death in 1957-1958 in China, half of them in China's richest agricultural region in Sechuan Province, because Mao "managed" the economy and insisted that peasants work to make steel and other absurdities. Starting with agriculture in the early 1980's, China's economy was gradually liberaized, and subtantial parts of it function on a market basis. (The state-owned enterprises are an obvious counterexample, a huge drain on the Chinese Treasury, a huge drag on the economy, and in most cases are bankrupt). Chinese economic growth has pulled hundreds of millions of people from absolute poverty (less that $1 income per day) to $2 or more per day. This may not sound like much, but in many cases the move from $1 to $2 per day is the difference between starvation and survival, between getting a primary education and being illiterate.

This transformation of the Chinese economy has had impacts worldwide, good and bad--India, for instance, has seen its neighbor prosper and liberaized its own economy, though it is still highly protectionist (a point Mr. Kamm makes well above). Another very positive idea that gained currency some years ago, firsh in Bangladesh with the Grameen Bank, is microlending to women, who tend to spend more of the money they earn on children. With loans of as little as $100, these poor women can start businesses and become self-sufficient. They also have a generally very good record of paying the money back, which is a critical part of the whole idea. Instead of making them dependent on fickle foreign handouts of food or development aid, it gives them a chance to be self-reliant and earn their own income.

You've heard the refrain: "Give a man a fish, and he can eat for one day; teach him to fish, and he can feed himself for the rest of his life." Managing economies is the metaphoric equivalent of giving a man a fish--one is always dependent on the government, another narrow interest group can always push your interest group aside, and it is unsustainable in the long term. Markets and free trade, in contrast, allow people to find ways that they can "fish" in the economy to their own benefit. Economic activity is the first step out of poverty.

It may be counterintuitive, but "compassion" is a terrible basis for determining economic policies. Instead, as proven over and over, the "cold calculus" of markets (with some government regulation and provision of a basic safety net) is by far the best means to prosperity, with distributions of wealth which are both far more equitable and much more sustainable in the long term. This is a basic point--you need wealth to do most good things, like sending people to college or protecting the environment. The U.S., one of the wealthiest countries in the world, also has some of the best environmental protections. Poor countries have far fewer such protections, but that's because they're poor. As an environmental minister in mexico City said, I don't need people in California to tell me the environment is important; I live here and my kids breathe the air here every day!" Often, calls for fair labor standards of environmental protection abroad are just a back-door means to pretectionism. Don't believe the hype. As Mr. Kamm says, this "system" of ag subsidies, tarriffs, "anti-dumping" laws, "fair trade," "managed trade," protect the interests of small minorities, often elites, at the expense of the broader groups of citizens.

Peter Cuthbertson

And just to add to that, not only do you need money to be able to protect the environment properly, you need money just to be able to care enough about the environment to see this as a desirable goal. This ties in with what John was saying about money being a secondary goal. I have always lived in a wealthy, capitalist country so financial gain has never been more than a secondary concern for me. That leaves me open to put kindness towards others, concern for the environment and so on first. If you are living in a country where you don't know where your kids' next meal is coming from, then money is always a primary concern, robbing your neighbour suddenly looks a more attractive prospect and you couldn't really give two hoots about the environment. It is the wealth that free market, free trade capitalism creates that *allows* people to care about more than money.

Daniel Calto

Excellent point, Peter, and one which anti-globalization protestors should repeat as a mantra. "I'm wealthy and highly privileged and that is why I can spout my nonsense."

Here's a sample of such nonsense, only somewhat paraphrased: Economic development is "bad for you," it "destroys traditional values," and you don't want to become "soulless materialists" (with a lot of leisure time on your hands) like us." Two problems with such sentiments: first, people consistently and across every culture show that they like to have more money rather than less, that they like to buy things (vulgar as it is), and second, no one is more of a materialist than someone who doesn't have enough to eat or a place to live. Peter's comment is absolutely on point in this regard.

Not only would most anti-globalist critiques make no sense in poor countries, they could also get you put in prison or worse if you didn't spout the officially approved and government-sanctioned nonsense and instead spouted some nonsense of your own.

Remember, Jon, those who insist that economies need to be heavily "managed," that they alone know what needs to be done, have a nasty, anti-democratic subtext: namely, that people are too stupid to make their own decisions regarding their own welfare, and that the eminent wise ones in government know what's best for "the masses". This is the antithesis of liberty and one reasons why free markets, along with a strong legal system and committment to individual rights, are one of the most important components in a sustainable democratic system of governance.

john b

Two points:

1) The Indian petrochemical industry. Possibly the most stupid anti-competitive-advantage thing ever (at least hydro dams in Africa bring electric light, which is both beneficial and unimportable). Highlights the fact that while tariffs are daft, government spending plans tend to be far worse.

2) Property rights and the rule of law. *Far* more important than free trade in allowing a country to grow (see Japan and South Korea post-WWII - heavy tariffs on imported goods, but governments that didn't arbitrarily take people's stuff and/or lives away). Sub-Saharan Africa is poor because it's been ruled by murderous crooks; while tariff decisions haven't helped, they haven't been the key impoverishing factor.

David Gillies

Excellent summary of Ricardian comparative advantage, Peter. The problem with managed economies, as any fule kno (at least any fule who's read a bit of Hayek) is that markets are incredibly efficient disseminators of information. A central planning authority cannot, even in principle, garner enough information to beat the performance of a free market.

Vaclav Havel called environmentalism "whipped cream on a chocolate cake". The weight of evidence that only prosperous countries can protect their environments is so huge as to be a mystery why this is not more universally acknowledged. The scruffy, pampered, Western protesters at Cancun and elsewhere should try living, really living, on $2 a day before they start spouting nonsense about development 'destroying traditional ways of life'. It's pretty traditional in human history for a fair fraction of your children to die in infancy. They should wonder why such a huge fraction of the World's populace has no access to clean water or sanitation, when salmon have been re-introduced to the Thames.

I have seen, anecdotally, what economic development can do. Over the past five years, Costa Rica has seen a huge inflow of capital, mainly to fund the extraordinary construction boom that is currently underway. Alongside this, there has been a concomitant rise in GDP per capita to the point where it has got over the 'hump' of $6,000 per year. As Nemat Shafik and others have shown, this is an extremum in the graph of air quality vs. wealth. Up to $6,000 p.c. p.a., pollution increases - after that, it declines. (There is an interesting corollary to this - as time goes by, developing countries can buy more pollution reduction for a given amount of wealth than before, due to investment in pollution control mechanisms by the developed countries. Comparative advantage at work again). The air quality in the capital, San Jose, was dreadful four years ago, but is now improving markedly. New emissions controls have been imposed, whereas before they wuld have been an intolerable burden on the populace.

spacetoast

David-

It's weird that you mention Costa Rica without mentioning that its development has consisted in shifting its economy from farming to eco-tourism. In fact Costa Rica's economic growth has been predicated on conservation.

David Gillies

And how, exactly, Mr Spacetoast, did it do that without having a secure and stable democracy, a legacy of civic responsibility, and well-protected and documented property rights? In short, it had all the necessary structural elements to attract and then retain investment capital. Had it been like its neighbour to the north, Nicaragua, then it would still be impoverished and its environment would not be sufficiently protected or managed to be able to offer eco-tourism. I think you mistake cause and effect. One can preach environmental sensitivity until one is blue in the face, but without the necessary underpinnings it is all so much hot air. As Nicaragua emerges from the wasteland of the Sandinista years, it is undergoing a similar process, which leads me to believe it will be immeasurably more prosperous twenty years from now (if I had the cash to buy land there right now I'd be on it like a shot). But basing growth on environmental 'sustainability' or whatever is putting the cart before the horse.

Besides, it's not really correct to say that Costa Rica has shifted its economy to tourism. That was true a few years ago, but the growth sectors of the economy now are light/hi-tech engineering and internet gaming services. As I adumbrated above, construction (of an exceedingly high standard) is also undergoing strong growth, and if there is one way to enrich a country it is to enlarge and improve the value of the housing stock.

spacetoast

"And how, exactly, Mr Spacetoast, did it do that without having a secure and stable democracy, a legacy of civic responsibility, and well-protected and documented property rights?"

Eh? I didn't suggest anything like that. My point was that Costa Rica is a poor example of the conservation vs. growth trade-off. Sometime in the mid '80s they started shifting more resources from cattle-ranching to eco-tourism because of the terrible deforestation problem they'd had through the '70s and early '80s. From that time (1985 or so) through the '90s, GDP grew at ~4-5% annually, pretty healthy for them, and something like 60% of that came from the service sector, so it really is correct to say that Costa Rica's development consisted in shifting its economy to eco-tourism, if not exactly your paraphrase.

Ryan

I'm sorry, Oliver, if you view the word 'seem' as a 'weasel word', but it is hard to figure out exactly what you are trying to argue in this post, and I wouldn’t want to claim to understand you when I am not sure I do.

I'm not trying to be hostile here, but it seems that you are arguing that the 'anti-globalisation' crowd, along with most of the media, is making a mistake in over-emphasising the things we can do to help the developing world - like reducing agricultural subsidies.

Everyone here accepts (I think) that our agricultural subsidies are damaging, and that reducing them will help reduce global inequality. So surely rallying around this agreement is absolutely the right thing to do? The launch of that KickAAS website was all about emphasising the areas we all agree on, whereas you are claiming (I think) that this is a mistake, and that we should be emphasising our divisions instead. I don't see how this is helpful. Let's work to get rid of agricultural subsidies and dumping first, and argue about what LDCs should best do next to get themselves out of poverty once we've got over that first hurdle. If we can do something, in the West, to aid world development (without substantial harm to ourselves), it would be criminal not to do so. Blaming the poor for their own poverty isn’t going to help anyone.

I also want to make two minor points about your response:

1 - "Xavier Sala-i-Martin, of Columbia University - paper, The World Distribution of Income, April 2002, 'estimate[s] eight indexes of income inequality implied by our world distribution of income. All of them show substantial reductions in global income inequality during the 1980s and 1990s.'"

There are, however, studies which say the opposite. Pardon me for being confused. I think it is fair to say that this is contested?

http://www.worldbank.org/wbi/B-SPAN/sub_branko.htm
http://news.bbc.co.uk/1/hi/business/1763410.stm

2 - "Member states can adopt any economic policies and any economic model they choose. The one thing they are not able to do is discriminate between domestic and foreign producers. Whether you think it's a good thing or not that discrimination on grounds of national origin should be regarded that way comes down, I suppose, to whether you believe in liberal and progressive values. I do."

To reiterate: i'm not arguing that it is not a 'good thing' to discriminate between domestic and foreign producers - it is a matter of giving developing countries the right to choose. But anyway, you write that WTO member states cannot discriminate between domestic and foreign producers. I'm confused by this as well. Don't tariffs inherently discriminate between domestic and foreign producers, favouring domestic producers? And WTO members clearly do have tariffs. So – they are allowed? Or are we all breaking the rules? (I admit it, you know more about economics than me. I defer to your superior knowledge. Perhaps you could explain?)

Lastly, (for the moment), there was a quote from JM Keynes in the Guardian, which seems relevant to the ‘fair trade’ issue. "Proper economic prices should be fixed not at the lowest possible level, but at the level sufficient to provide producers with proper nutritional and other standards in the conditions in which they live... and it is in the interests of all producers alike that the price of a commodity should not be depressed beyond this level, and consumers are not entitled to expect that it should." - So, if I may address the general readership of this weblog, is that all nonsense or what?

Oliver Kamm

Ryan,

1. If you believe I was arguing that the fault of the anti-globalisers was one of over-emphasis, then you're quite right not to claim to understand me. In my post I stated, "The anti-globalisation protestors are in practice demanding that the poor world remain poor. There should be no common cause with such sentiments." That is *not* an argument that they are fundamentally on the right side but just a tad too enthusiastic. And given that I don't see how I could have made my point any clearer, I suspect the fault lies less with my ability to write prose than with your powers of comprehension.

2. You refer to a study by the World Bank economist Branko Milanovic. You shouldn't cite things you haven't read. The measurement of global inequality is a huge subject and a matter of great debate, but the Milanovic conclusions have been taken apart by a statistician called Ian Castle. Castle points out that Milanovic's methodology of aggregating the results of hundreds of different household surveys compiled using different methods leaves out such crucial components of national income as public expenditure on goods and services. But in any event it is not open to you to use Milanovic's study in support of your original post: your claim was that "It is hardly contested that capitalism results in a consolidation of wealth." It is in fact contested hotly and widely. As has happened in previous subjects you've broached, you've advanced an empirical claim without having first checked let alone researched it, leaving you in the undignified position of trying to bail out while refusing to acknowledge that anything is wrong. I don't particularly mind, but it thereby becames a waste of everyone's time either to read your comments or to take issue with them.

3. For this reason, I'm not minded to provide you with basic information you that you may easily research on your own account. The World Trade Organisation has an extensive web site which lists the agreements that apply to its members, starting with the General Agreement on Tariffs and Trade in 1947. Read on from there and your puzzlement will cease.

4. Keynes' belief in commodity price stabilisation (using buffer stocks, as I recall) was by no means nonsensical in the context of the Bretton Woods conference (by the way, you keep talking about 'Bretton Woods' as if the system still existed; you are aware, I hope, that it died a natural death 32 years ago), but it wouldn't work now in a different economic environment. Consider what happened with the Opec cartel's vaunted commodity power in 1973. There was an initially - but *only* initially - successful attempt to raise the price of that commodity, whereupon a search for substitutes reduced demand and led to a search for alternative sources of supply.

David Gillies

Spacetoast - to reiterate: Costa Rica's shift to greater concern for the environment was a consequence of its economic structure being hospitable to growth, not a cause of it. A will to move to eco-friendly policies without the necessary economic structure in place would have been useless wishful thinking. It is true that Costa Rica's growth in service industries has been largely supported by eco-tourism, but that avenue of growth would have been shut off had there not existed a sound basis on which investment could be made (chief of which was security of property rights - q.v. H de Soto, The Mystery of Capital).

This is the main fallacy of the 'sustainable development' crowd - that environmentally sound policies can be put in place without the wealth-generating mechanisms of free markets etc. that are required to nourish them.

spacetoast

David-

I can't quite make out which stereotype you're railing against, but "sustainability" is only a specific set of prescriptions in the sense that it's a philosophical orientation to tackling environmental problems. The basic notion is that traditional economics wrongly understands natural resources, i.e. the environment, as a subset of the economy, when in fact the opposite is true--the economy is a subset of the environment; so natural resources should not be understood as mere "endowments" in the traditional sense. But "the sustainability crowd," so far as that is a cohesive body at all, are interested in designing sui generis solutions to environmental problems given specific infrastructural constraints, specific sets of natural resources, and specific objectives. It's true that "development" isn't normalized in terms of western standards, but that's unquestionably the right view--it's just not true that the planet could sustain a world population use of natural resources comparable to the west's. In any case, your comment "...the main fallacy of the 'sustainable development' crowd - that environmentally sound policies can be put in place without the wealth-generating mechanisms of free markets etc. that are required to nourish them," is a truly egregious strawman.

spacetoast

"Costa Rica's shift to greater concern for the environment was a consequence of its economic structure being hospitable to growth, not a cause of it."

To reiterate, I haven't said anything to the effect that specified property rights, political stability, free exchange of goods, etc. are unnecessary to environmental protection. I've just pointed out that Costa Rica actually turned its economy around through conservation, which fact it is in my view extremely eccentric to overlook in bringing Costa Rica into a discussion about growth/conservation trade-offs.

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