As G-8 meets, free trade under fire
Recent economic woes are raising new doubts about the benefits of globalization.
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•How to revive the current round of global trade negotiations. The so-called Doha Round of talks, named for the city where the negotiations began in 2001, has repeatedly stalled. If successful, the agreement would be the latest in a succession of worldwide deals that have expanded global markets since the 1960s.Skip to next paragraph
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But if progress isn't made this month, some experts say the failure would be a symbolic blow to the cause of global cooperation in economics.
"Never in recent memory has the global economy been under such stress," United Nations Secretary General Ban Ki Moon said in a written outline his hopes for the Japan summit. "More than ever, this is the moment to prove that we can cooperate globally to deliver results: in meeting the needs of the hungry and the poor, in promoting sustainable energy technologies for all, in saving the world from climate change – and in keeping the global economy growing."
Economists broadly agree, as they long have, on the substantial benefits of free trade. But what's becoming clearer in the past few years are the caveats: Trade is not a one-step recipe for growth, and it comes with costs that can include falling wages for workers who face new competition from lower-paid counterparts in other countries.
Weakening economic growth only adds to the challenge, especially since America – the nation that for decades has led the push toward open economics – is in or near recession.
"Backlashes against free trade always happen when the economy is slowing," says Bart Van Ark, chief economist at the Conference Board, a business-funded research group in New York.
Whoever wins the presidency in US elections this fall will have to devise ways to better compensate workers who lose out as trade expands, he says.
Developing nations, as well as rich ones, confront social concerns over how to share the costs and benefits of trade.
The Commission on Growth and Development, whose sponsors include the World Bank, argued in a May report that emerging nations should have policies to curb widening income gaps between rich and poor.
“Otherwise, the economy’s progress may be jeopardized by divisive politics, protest, and even violent conflict,” the report said.
Integration with the world economy has helped the most successful developing nations. But free-trade rules should be flexible enough that they don’t stymie domestic development strategies of poor nations, says Spence, the commission chair.
That’s one reason why global trade talks remain very complicated affairs.
Another factor: The growing diversity of nations who have a seat at the negotiating table.
“There are more countries that have a stake in these negotiations than in any previous round,” says Jeffrey Schott, a trade expert at the Peterson Institute for International Economics in Washington. This “complicates the task of putting a deal together.”
Yet even many critics of the World Trade Organization don’t want to scrap the organization and its system for resolving disputes.
Despite the worldwide concern about the current path of globalization, “the only thing worse would be a world without the WTO [World Trade Organization],” says Tony Avirgan of the labor-oriented Economic Policy Institute in Washington, D.C.
He’s coordinating the Global Policy Network, with member organizations worldwide that hope to develop a new, worker-friendly model for trade policy by the time the US elections are held in November.