Re: Re: Re: Keeping focus after the WTO

[Bill Rosenberg <w.rosenberg@xxxxxxxxxxxxxxxxxxxxxxx>]

Michael Perelman wrote:

> Brad, if free-trade is the key to convergence among economies, why
> has the South taken so long to catch up with the northern United
> States, even with the concentrated political power of the South that
> gave them so much military spending?

Which is really the same question I asked in my analogy between free
trade/investment and the disparity between regions of any country. It
seems to me to come down to this when thinking about development:

- free trade (as opposed to more limited trade) is irrelevant except
(sometimes) to squeeze the optimal out of the status quo - and has
very small gains even then (Krugman called it economics' dirty little
secret didn't he?)

- it may however be damaging to new industries - therefore the need
for at least initial protection of them; but in that new industries
must continue to develop - it is not a one-off stage in history -
protection must be available for new industries indefinitely

- free capital mobility can also be damaging to new
industries. There are numerous examples in New Zealand where genuinely
innovative new industries have been set up, only to be bought out by
some transnational once they had shown they could succeed. Design and
production is then frequently moved elsewhere, leaving New Zealand
little better off than before. The highest accolade for an innovator
in New Zealand is to be bought out.

So the real question is not how to bring about free trade, but the
hoary old one of how to establish new, more productive industry.

In case anyone suggests reliance on foreign investment, once again New
Zealand's experience (and it is not unique) is that most of the recent
foreign investment (75% by value in 1995 I estimated) has been for
takeover rather than "greenfield" and leads to intractable balance of
payments problems.

All that is not to say trade is important, but the freer it gets, the
more it has to be supported by transfers. While Nathan's ideas of
internationally financed free pharmaceuticals, education and
unemployment fund are a necessary start, they (except perhaps for
education) still don't provide a permanent answer to the development
problem. And what would the democratic structures be like that would
be needed to support them?

Bill