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London, June 16th 2000

Trade, Poverty and The Human Face of Globalization

Reuters/Carnegie Public Policy Series - London School of Economics

Ladies and Gentlemen,

It is a pleasure and an honour to address you here today at the London School of Economics as part of the Reuters/Carnegie Public Policy Series, whose theme is the "human face of globalization".

Few topics are as controversial as globalization. That is hardly surprising. It is the defining feature of our time. Bringing distant markets and people across the world closer together is a huge change that affects everyone, whether they are peasants in India, students in London, or bankers in New York. Such an enormous upheaval is unsettling, especially when it seems unpredictable and uncontrollable. People tend to assume the worst: that what they value most will be lost, and that what replaces it can only be bad.

We need to reassure people that globalization is generally a force for good. The last 20 years have seen a dramatic rise in living standards for many countries across the world. But those gains can be lost. Of course, the Internet cannot be uninvented. But governments can, and do, intervene to prevent products, money, people and ideas from flowing freely across national borders. They can slow or block progress. In the first half of the 20th century, the globalization of the 19th century was rolled back. We cannot rely on people's grudging acceptance of the perceived inevitability of globalization. We must not shrink from making our case.

Some people say that the problem with globalization is that it lacks a "human face".

Perhaps they are trying to say that the benefits of globalization mean little to ordinary people. After all, no-one has ever manned a barricade demanding that efficiency be maximized. But although the terminology may not have a human face, the reality does. Inefficiency is never a good thing: it means people are wasting their talents and countries are squandering their scarce resources. Maximizing efficiency means getting the most out of what you've got. It means enabling people to fulfil their potential and helping countries to make the most of their resources and conserve their environment. Those are truly noble aims.

The evidence of people doing better for themselves is captured in economic statistics. There is overwhelming evidence that trade boosts economic growth. Just compare the protectionist nightmare of the 1930s with the long boom in America and Europe as trade barriers fell in the 1950s and 1960s. Or read the famous study by Jeffrey Sachs and Andrew Warner of Harvard University which finds that developing countries with open economies grew by 4.5% a year in the 1970s and 1980s, while those with closed economies grew by 0.7% a year. At that rate, open economies double in size every 16 years, while closed ones must wait a hundred. Or cast an eye on the countless country studies that support their results.
When people say globalization lacks a human face, they may also mean that it doesn't benefit ordinary people. But that is simply not true.

It is not just Wall Street traders, management gurus and international civil servants like myself who gain from globalization.

It is also everyone with a pension who enjoys a more comfortable retirement because their savings are more fruitfully invested abroad, as well as everyone abroad who benefits from that foreign investment.

It is people in Britain who can talk on Finnish mobile phones, use Japanese cameras, drive American cars, drink Colombian coffee and wear clothes made in Asia.

It is poor people everywhere who can buy cheaper food and clothes produced abroad.

It is Indian computer programmers who can sell their services to American companies, and earn enough to give their children a good education and decent healthcare.

And it is poor people in poor countries who are grasping the opportunities provided by trade and technology to try to better their lives. Mexican farm hands who pick fruit in California, Bangladeshi seamstresses who make clothes for Europeans, and South African phone-shop owners who hawk time on mobile phones to their fellow township dwellers. They and countless other real people everywhere are the human face of globalization.

It is true that that in general living standards in poor countries are not catching up with rich ones. It is a tragedy that 1.2 billion people—a quarter of the world's population—survive on less than a dollar a day and that a further 1.6 billion—another third of the world's population—make do with between one and two dollars a day.

Reducing such extreme poverty must be a priority. Of course, it is easier said than done. But we can learn from the example of those developing countries that are catching up with rich ones. Take South Korea. Thirty years ago, it was as poor as Ghana; now, it is as rich as Portugal. Or consider China, where 100 million people have escaped from extreme poverty over the past decade.

What do these fortunate countries have in common? Openness to trade. That is the main finding of a new World Trade Organization study on trade and poverty by Dan Ben-David of Tel Aviv University and Alan Winters of Sussex University which will be launched on Monday.

The bottom line is this: the developing countries that are catching up with rich ones are those that are open to trade; and the more open they are, the faster they are converging. That is particularly good news for China. The liberalization that joining the WTO requires will give another big boost to Chinese living standards.

Trade alone is not enough to eradicate poverty. For instance, abolishing trade barriers will not help much if countries are at war and farmers cannot get their crops to market. But freer trade is essential if poor people are to have any hope of a brighter future.

Even so, critics of free trade argue that poor people within a country lose out when it liberalizes. Not so. The new WTO study finds that the poor tend to benefit from the faster economic growth that trade liberalization brings. It concludes that "trade liberalization is generally a strongly positive contributor to poverty alleviation—it allows people to exploit their productive potential, assists economic growth, curtails arbitrary policy interventions and helps to insulate against shocks". This concurs with the finding of a new study by David Dollar and Aart Kray of the World Bank which, using data from 80 countries over four decades, confirms that openness boosts economic growth and that the incomes of the poor rise one-for-one with overall growth.

Of course, in the short term some people do lose from globalization. As trade barriers fall, foreign competition forces domestic firms to specialize in what they do best, rather than making goods which are more efficiently produced elsewhere. Those who are no longer gainfully employed have to find new jobs. Some are fat cats grown rich from cozy deals with governments. But others are poor farmers who lose their subsidies or unskilled workers who lose their jobs and take time to find another one.

Their plight must not be forgotten. But their hardship, like that of anyone who loses their job, should be eased with welfare benefits and job retraining, not by putting a halt to liberalization. The temporary losses of a few should not prevent a country from reaping the much bigger—and permanent—gains from free trade. After all, the interests of candle makers were not allowed to stop the introduction of electricity. Nor are governments scrambling to stop the Internet cutting out middlemen. Freeing trade, like new technology, causes change. That is how it boosts economic growth. Some of us lose at first, but eventually we all gain.

Although the WTO is not a development organization, it does a lot to alleviate poverty. After all, free trade is not an end in itself. It helps to raise living standards, which lifts people out of poverty.

Even so, the WTO could do more to help the poor. Poor countries do not always make the most of the world trading system, and sometimes their interests are overlooked. That is why in my first speech as director-general last September I called on WTO members to do more to help the world's poorest countries reap greater benefits from the world trading system. I am glad to report that we have made progress on that front, with a package that includes better access to rich-country markets, increased technical assistance, and closer co-operation between the WTO and other global institutions that promote development, notably the World Bank.

These are important steps. But the surest way to do more to help the poor is to continue to open markets. A new round of multilateral trade negotiations would bring huge benefits. As Kofi Annan, the Secretary General of the United Nations, has said: "Whatever cause you champion, the cure does not lie in protesting against globalization itself. I believe the poor are poor not because of too much globalization, but because of too little." He is right. The poor as well as the rich need globalization.

Thank you.