Brookings Trade Forum 2004 (2004) 285-296
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The job of a discussant is made extraordinarily difficult when confronted with not one, but two excellent papers to critique. I looked for weaknesses and found none. In fact, I was delighted by these two surveys, which generously cite much of my research in this area. In their separate analyses of the relationship between poverty, inequality, and globalization, the two sets of authors have provided two extraordinarily balanced viewpoints. In fact, were it not for the cover pages of these two papers, it could be difficult at times to distinguish between their views on globalization and poverty.
These two papers present a set of lessons for policymakers that are remarkably consistent in their opposition to any sort of consensus on trade policy and its effects on the poor. Here are some of their key messages:
No Clear Relationship between Openness and Growth
This is an important and contentious issue because it is likely to be a primary mechanism through which poverty and globalization are linked: globalization affects growth, which in turn reduces poverty. Until recently, the Washington consensus view that openness and growth were inexorably linked seemed airtight. Not so if you read these two papers. Can you identify which of the following was written in Berkeley or which was written at Dartmouth and Yale?
The literature on the relationship between trade and growth . . . has failed to reach a consensus on the effect of trade on growth. . . . The relationship between trade and growth has itself been empirically elusive, leaving little hope that one can establish a further link to poverty. [End Page 285]
If the institutional prerequisites can be managed, globalization opens the door for some new opportunities, even for the poor. . . . Focusing on agitating against transnational companies and international organizations like the WTO deflects attention in those countries from the deleterious effects of domestic institutional vested interests.
Importance of Market Access
Both sets of authors agree that a key issue, which the Bush administration has failed to address, is market access. As Pranab Bardhan points out, the major hurdle faced by small exporters in countries like Vietnam or Bangladesh is not more globalization but less. How can farmers in developing countries lift themselves out of poverty when their goods are shut out of rich-country markets? It is remarkable that the exports of the poorest countries account for less than half of 1 percent of total global trade! As Pinelopi Goldberg and Nina Pavcnik point out, existing research predominantly focuses on the impact of unilateral trade liberalization in developing countries. However, various policies in developed countries, such as export and production subsidies, import tariffs, and quotas that shelter agricultural and food products, could have an enormous impact on rural poverty in the developing world.
Short-Term Effects of Trade Reforms on the Poor
Until recently, most considerations regarding the impact of trade policy focused on the long term. However, both sets of authors emphasize the need to take into account the short-term costs of trade reform. As Goldberg and Pavcnik point out, "Perhaps the most important way that trade policy could affect the urban poor in the short and medium term is through an increase in unemployment. Although the concern about unemployment in the aftermath of trade reforms features prominently in the public debate on the pros and cons of trade liberalization, it is almost absent in the mainstream models of international trade, which typically assume full employment."
As Bardhan states, "Until issues of general economic security for poor workers in developing countries are satisfactorily resolved, globalization is bound to raise anxiety and hostility among workers worried about their job security." His argument echoes Dani Rodrik's concerns that globalization is undermining the ability of the state to provide much needed social safety needs, particularly poor nations whose concomitant macroeconomic reforms have made it extremely difficult for them to compensate the losers. A number of critics of globalization have argued that it is undermining the ability of nations to tax capital and impose environmental and labor...