One of the enduring myths about globalisation is that
it is bad for the poor. Yet the facts suggest otherwise. Freeing trade
increases economic growth, because new technologies, such as the
internet, spread faster and foreign competition spurs domestic
companies to become more productive. This faster growth, in turn,
reduces poverty.
For evidence that free trade is
good for growth, just compare the Thirties with the second half of the
20th Century. When governments resorted to protectionism in the
Thirties, trade spiralled downwards. That turned a world recession into
the Great Depression. Over the past 50 years, as governments have torn
down import barriers, world trade has risen 17-fold. This has
multiplied world output by seven, trebling living standards in
developed and developing countries.
More rigorous
proof that trade boosts growth comes from a study by Jeffrey Sachs and
Andrew Warner of Harvard University. They found that developing
countries with open economies grew by 4.5 per cent a year in the
Seventies and Eighties, while those with closed economies grew by 0.7
per cent a year.
Clearly, trade is good for the
economy as a whole. But critics of globalisation claim that it only
benefits the rich, while the poor lose out. Not so. Openness to trade
benefits the poor as much as it does the whole economy, according to a
new study by David Dollar and Aart Kray of the World Bank. Crunching
data from 80 countries over four decades, they find that the incomes of
the poor generally rise as fast as overall growth.
True,
in the short term, some people lose from trade liberalisation. Although
some losers are fat cats grown rich from cosy deals with governments,
others are genuinely poor. Their pain can and should be eased with
welfare benefits and job retraining. But the temporary losses of a few
should not prevent the country from reaping the gains of free trade.
Lower fuel bills for pensioners, for instance. The means to spend more
on health, education and social security because freer trade makes the
country better off. And higher incomes for everyone, as capital and
workers are employed more productively.