All good news from the WTO

05/11/2014    21

Since the 1980s, seven Asian economies have grown at a scale and speed of development unmatched in history.

Pessimism is journalism’s lifeblood. Violent crime may be way down but “micro-aggression”—you know, people making unfriendly sidelong glances — is way, way up. Woe is all of us!

So it’s a refreshing change to scroll through the WTO’s newly published World Trade Report 2014. The template for these WTRs is that their first 30 pages or so summarize what’s happened to international trade over the last year, while the next 200 provide a state-of-the-economic-art discussion of some aspect of trade theory or policy. This year’s special topic is the influence of trade on economic development, the name we give to economic growth in the poor countries.

Journalists beware: Most of the news in WTR2014 is good. The WTO does its due diligence in searching for bad effects from three decades of unprecedented income growth in much of the formerly very poor parts of the world. There’s genuflection to environmentalism and the need for better pollution control in economies rapidly liberating themselves from poverty. And there’s much cautionary language about the drawbacks of inequality. But basically the news is good. Phenomenally good, in fact. As the report puts it “Since the 1980s, seven Asian economies [China, Hong Kong, Singapore, Korea, Taiwan and Thailand] have grown at an average of 8% a year for more than 25 years — a scale and speed of development unmatched in history.” Yes: Unmatched in… history, i.e., all of human experience, though admittedly the quarterly GDP data isn’t so good from our paleolithic period.

We’ve had an economic setback since the crash of 2008 but, looking past short term ups-and-downs here-and-there the economic news in the two decades before that was almost unremittingly good, and even since then the developing countries have had faster and higher bounce-backs than the rich countries — which, if you were planning a worldwide recovery, is more or less what you’d want. In all the short-term fog, we shouldn’t lose sight of the fact that, as the UN Human Development people put it in 2013: “never in history have the living conditions and prospects of so many people changed so dramatically and so fast.”

Twin Peaks was the title of a trendy/arty TV show in the 1990s. If the WTO wanted an edgy title for its trade report, it might be “Third Peak.” The graph of the world’s income used to be a twin peaks affair: Lots of people at the very bottom and lots of people at the very top. Now there’s a third peak in the middle. Sustained growth in the Asian countries mentioned, plus India, plus Brazil, plus much the same in a couple dozen smaller developing countries, have propelled literally billions of people to incomes that, while still far short of rich-country levels, are far beyond what even the boldest of optimists would have predicted in the 1960s and 1970s.

The WTO does recognize that it would be wrong to attribute all this unprecedented progress to trade alone. Technological change, shrinking distance, the spread of education, public health measures and probably a dozen other factors, including the abandonment of unproductive ideology, or ideological unproduction, have contributed. But it’s hard to avoid the conclusion that trade has been critical. Barely three decades ago China was the world’s 32nd most important exporter. Now it’s number one. That it could have experienced double-digit growth selling only to its domestic market does seem unlikely. In 1985 China’s average MFN tariff was 40%. Now it’s under 10%. In the positive-sum business of trade, selling to richer foreigners has fuelled China’s growth while China’s growth has helped foreigners become even richer.

Much of the improvement, especially in the last 20 years, has been due to the emergence of global value chains, which recent research suggests aren’t literally global but rather are mainly regional: Distance does still count for something. Increasingly, it’s useful to think in terms of “headquarters economies” — the U.S., Germany, Japan and to a certain extent China — that buy from and sell to lots of countries, though mainly those within their geographic orbit and factory economies that mainly deal with the local HQ economy. As there are only four HQ economies — or maybe three and a half since China only partly qualifies — and they’re all mega-economies, we in Canada shouldn’t feel shame in being a factory economy. Everybody apart from the big four behemoths is.

More good news is that despite 2008 there has been minimal backtracking on openness to trade, both in absolute terms and compared to the disastrous 1930s experience of competitive protectionism. Unwisely but also probably unavoidably, the WTO concludes with a chapter on its own role in facilitating the productive integration of the world economy and preventing a post-Crash return to autarky. Unsurprisingly, it concludes its effect was positive. That’s probably true but it’s not a research project the WTO itself is best placed to conduct.

The bottom line? Cheer up, everybody. If you can set aside the sackcloth, ashes and hemlock for a minute, the trends have been mainly good.

Source: Financial Post