“It’s complete nonsense. Politicians have completely lost the plot compared with the commercial world,” said Lord Levene, Chairman, Lloyd’s, UK.
He was in Kuala Lumpur, Malaysia and talking at the latest meeting of the great and the good at the World Economics Forum – that’s the people who organise the annual Davos meeting.
Once again, the spotlight has turned on fears of a backlash against free trade.
History tells us that human nature can make things worse. The global economy is hitting crisis. There are two things we can do. Baton down the hatches while the banks insist upon much tighter lending criteria and governments resort to protectionism. Or we can go on the attack.
If we go for the former, then things will get a lot worse.
Returning to Lord Levene. He said, “Where has the development come from? In Asia. It’s come from globalization which has been largely developed by the US and Europe working together with countries in this region to build their industries. Now that they see that they are successful, they are saying, ‘We don’t want you to do that.’ ”
“If you go to any Wal-Mart store in the US, about 60 to 80 per cent of everything is made in China. If you cut off all that manufacturing, and say you are going to produce these things domestically, the cost will go up to levels such that the public – which enjoys a high standard of living now – will not be able to buy these things anymore.”
So there’s a danger then of protectionism returning. Funnily enough, that’s not George Dubya’s way. His foreign policy in some respects may have him vilified, but in other respects his approach to foreign policy is more likely to promote wealth creation, both in the US and abroad, than other US politicians who have a more conciliatory approach to the Middle East.
A resurgence in protectionism poses the greatest single threat to an economic recovery.
But, then again, it is not the only threat.
There’s a growing gap between the Asian poor and rich. Simon Hobbs, moderator at the World Economic Forum conference, said that it is not that the poor are not getting richer, they are. It is just that the rich are getting richer, quicker.
Rajat M. Nag, Managing Director-General, Asian Development Bank agreed, “I think Asia has been a tremendous success story in fighting poverty. In 1990, one in three Asians subsisted on two dollars a day. In 2000, that became one in five.”
“But there is rising inequality and there are two faces in Asia. You go to any Asian city such as Mumbai, Jakarta or Manila and you have the two faces side by side. That is a major risk which can sow the seeds of social dissent and discord. There is this tension that is building up which finds its way into the streets.”
In Asia we are seeing a kind of race. A race to growth out of poverty. The race hits its danger spot when some are benefiting, but others not.
People who criticise globalization only see one side of the coin. They see the point when this gap between the rich and poor is growing. They don’t see how even the poor are getting better off.
The challenge lies in creating this extra wealth without creating resentment.
A growing tide of protectionism, sometimes protectionism that hides behind good motives – such as fair trade, is the real threat right now.
PS. In 1997 economist Paul Krugman said, “A country like Indonesia is still so poor that progress can be measured in terms of how much the average person gets to eat; since 1970, per capita intake has risen from less than 2,100 to more than 2,800 calories a day. A shocking one-third of young children are still malnourished – but in 1975, the fraction was more than half. Similar improvements can be seen throughout the Pacific Rim, and even in places like Bangladesh. These improvements have not taken place because well-meaning people in the West have done anything to help – foreign aid, never large, has lately shrunk to virtually nothing. Nor is it the result of the benign policies of national governments, which are as callous and corrupt as ever. It is the indirect and unintended result of the actions of soulless multinationals and rapacious local entrepreneurs, whose only concern was to take advantage of the profit opportunities offered by cheap labour.”
In a recent article, economist Benjamin Powell said, “In one famous 1993 case US senator Tom Harkin proposed banning imports from countries that employed children in sweatshops. In response a factory in Bangladesh laid off 50,000 children. What was their next best alternative? According to the British charity Oxfam a large number of them became prostitutes.”
