alien & sedition.
Thursday, March 29, 2007
  Free Trade Means Fair Trade

Following on yesterday's Right-Wing Think Tank Review, here's a good piece in the Financial Times by Dani Rodrik, which points out that the future of free trade itself depends on its ability to accomodate social safety nets in the developed world and modestly protective trade policies in developing countries. As Rodrik says:
If there is one lesson from the collapse of the 19th century version of globalisation, it is that we cannot leave national governments powerless to respond to their citizens. The genius of the Bretton Woods system, which lasted for about three decades after the second world war, was that it achieved such a compromise. Some of the most egregious restrictions on trade flows were removed, while allowing governments freedom to run independent macroeconomic policies and erect their own versions of the welfare state. Developing countries were free to pursue their own growth strategies with limited external restraint. The world economy prospered like never before.
Rodrik points out that the most successful developing nations in the current era - China and India - relied on Bretton Woods-like strategies that sheltered their economies during crucial phases and "continue to restrict short-term capital inflows."

Meanwhile, free trade regimes will simply fail in the face of political realities if they threaten the safety nets built up by Western nations. The paradigm Rodrik proposes is simple: a trade-off in trade negotiations that takes these complementary forms of self-interest into account:
When rich and poor nations come together to negotiate the rules of the game they should stop thinking in terms of exchanging market access: "I will open my markets in x if you open yours in y." They should consider ins-tead exchanging policy space: "I will allow you to protect your national social compact if you allow me to engage in development strategies that conflict with WTO and International Monetary Fund rules of good behaviour." The challenge is to design procedures that enable the use of policy space for socially desirable purposes while limiting it for beggar-thy-neighbour purposes.
Rodrik concedes that this strategy is not without risks. But a fundamentalist opposition to any form of protectionsim may be even more risky for global trade agreements.

I do recommend you give the whole article a read.

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