Poverty and globalization.

• Author: Singham, Shanker

MOST OF the world's people live in countries where markets do not work properly and resources are not efficiently allocated. The notion that liberal economics has "failed" misses the point that in many areas of the world it has not really been tried.

Poverty--often cast as the fault of multinational corporations or "imperialist governments"--is the most virulent killer on our planet. Many continue to believe that increased government regulation and control, particularly when it comes to international trade, is the best way to combat poverty, ignoring the fact that real liberalization--truly free and competitive markets--is in fact the agenda of the world's poor.

It is therefore ironic that efforts to ensure that markets are competitive often fall on the sword of "national interest." Alleged threats to sovereignty are often cited by countries as reason not to negotiate on matters that touch domestic regulation and policies. In practice, this means that they reserve the right to maintain the status quo in which local producer interests trump consumer welfare. Allowing such notions of sovereignty to dominate over economic empowerment of people is to consign the vast majority of citizens to poverty.

It is remarkable that one of the most effective vehicles for empowering individual citizens--global trade negotiations--has largely disregarded this pivotal element of its work. Trade discussions have long centered on enhancing the welfare of producers, rather than on empowering consumers, despite the fact that the fundamental principles on which trade agreements are based are consumer-welfare enhancing ones. Today, the divide between those who would adopt a more consumer-led approach to market-opening and economic growth and those who maintain a producer-led focus represents a major factor opposing free trade and contributes notably to the stagnation of the international trade agenda.

One of the main problems is that governments and elites have refused to recognize the most basic fact of economic life: We are all consumers. Even businesses are also consumers of raw materials or finished or unfinished products. Yet trade negotiations are conducted with a strong bias toward mercantilism. It is quite revealing that in trade talks negotiators continue to refer to tariff cuts as concessions, as if lowering a tariff requires a "payment" by one's trading partner. This mercantilist logic is now applied to a whole raft of rules-based negotiations. Countries that employ this approach are really saying that they reserve the right to harm their consumers so that producers may receive a benefit in some unrelated area. This is irrational and destructive economics, which if not rooted out will perpetuate misery for billions of people. The recent Eminent Persons' Report prepared by a group chaired by former WTO Director General Peter Sutherland offered an opportunity to redirect the mercantilist approach toward trade. Sadly, however, the word "consumer" never appears in the text of that report.

Because so little attention was paid to consumer welfare, the unprecedented amount of trade liberalization that occurred in the 1990s did not lead to the competitive markets as had been predicted. At first this lag went unnoticed by trade negotiators from major developed countries, such as the United States and the EU countries, where competitive markets were much more the norm. The assumption was that removing trade barriers would inevitably lead to competitive markets inside the border.

But these negotiators failed to factor in the decades of state control and import-substitution economics that had pervaded most of the world's markets. In this context, removal of at-the-border barriers, which were often accompanied by significant privatization programs, often only enriched the gatekeepers, who initially invested in the privatizations at the expense of new entrants. Consumers in countries with low levels of competition were not always empowered by an opening to trade because the prices they paid for products were determined not by tariffs but by levels of competition in the market, which had not changed. The result was an increase in the perceived--and actual--disparity of wealth between the gatekeepers and consumers while poverty persisted. So...