Want Fries with Your Freedom?

Not only does globalism -- genuine free trade, not just hollow pieties -- foster prosperity, it can also bring down dictators

By Christopher Farrell

The recent annual meeting of the International Monetary Fund and the World Bank was a dispiriting affair. Little was accomplished, even as much of Latin America teeters on the edge of economic collapse. Argentina's economy will have contracted more than 20% the past four years -- a decline in output about twice that experienced during America's Great Depression of the 1930s. The two Bretton Woods institutions are floundering as confidence collapses in the "Washington Consensus," the Clinton/Rubin era economic-reform policies built around government deregulation, trade liberalization, and privatization.

Even the thousands of antiglobalization protesters who gathered in Washington, D.C., seemed like they were just going through the motions. It's as if weariness over the economics of globalization has set in from the nomenklatura of finance to student anarchists.


  Yet the Washington Consensus framework remains the world's best card to play when it comes to combating global poverty. The 24 developing nations that integrated into the global trading system over the two decades ending in the late '90s saw their average per-capita growth rate improve from 3% in the '70s to 5% in the '90s, according to the World Bank. In sharp contrast, developing nations with weakening trade ties had flat or negative growth rates in the '90s.

The developing world would benefit from greater market access to the industrial world, and vice versa. By how much? The World Bank estimates that eliminating barriers to merchandise trade would range from $250 billion to $620 billion annually, with about one-third to one-half going to the developing world. And that's before considering the economic impact of a world more open to new ideas, new technologies, and new ways of organizing life.

A little-noticed five-day agricultural fair for American products in Cuba shows that the globalization debate is alive and kicking. The Bush Administration strongly backs the trade embargo against Cuba. Florida Governor Jeb Bush asked Minnesota's Governor Jesse Ventura, who led that state's trade delegation to Cuba, to cancel his trip. So did Assistant Secretary of State Otto Reich, a fierce proponent of keeping isolated the communist nation that is 100 miles off the coast of Florida.


  "It would be one of the greatest ironies in history if the wealth of the American private sector is what keeps that failed government from finally collapsing," said Reich during a State Dept. news briefing.

Despite the White House's stance, politicians from the farm states are pressing for more trade with Cuba. In 2000, the embargo was loosened slightly to allow for modest cash-only trade in food and medicine. Cuba ranked last out of 228 countries American farmers dealt with then. Now, Cuba is America's 51st largest agricultural trading partner. And in Governor Ventura, the pro-embargo forces confronted a tough, ardent believer in the benefits of free trade, whether it's with China, Mexico, or Cuba.

"Do Governor Bush and Secretary Reich really believe Castro's missing a meal because of this embargo?" replied Ventura. "All you're hurting are the Cuban people. [Bush and Reich] have this obsession over one person: Castro. What about the other 9 million?"

The U.S. government's 43-year-old economic embargo was explicitly designed to topple communist caudillo Fidel Castro. But the four-decade policy experiment has been an abysmal failure, and the 76-year-old dictator is now among the world's longest-lived dictators.


  No one can know with certainty how differently history would have played out if the U.S. had instead pursued a foreign policy of actively trading with Cuba. But the experience of the past half century is that communism, military dictatorships, and state authoritarianism often lose their lure and power as the free flow of grain, sodas, hamburgers, VCRs, cars, medicines, and other consumer goods opens up moneymaking opportunities for domestic entrepreneurs and unleashes consumer choice.

A freer flow of international commerce and information is hostile to sclerotic bureaucracies and encourages democratic discourse. In the late 1980s, South Korea's growing middle class forced a military-backed dictatorship to give way to elections. Around the same time the middle class in Taiwan also pressured its authoritarian leadership to ditch martial law and begin a long march toward democracy. It appears that the same pressures toward reform are being unleashed in Vietnam.

To be sure, the promise of the Washington Consensus -- called the Wall Street Consensus by its critics -- was oversold. What's good for big business and big money isn't necessarily good for developing nations and poor people. The IMF is struggling to answer its sorry record of dealing with economic calamity in emerging markets. A liberal economic policy doesn't guarantee honest government, a stable economy, and political freedoms -- far from it.


  Industrial nations also practice their own version of economic hypocrisy. While preaching the virtues of openness, their tariffs and other trade barriers heavily discriminate against developing nations -- especially in sectors where they enjoy a comparative advantage, such as agriculture and textile. The World Bank notes that developing countries face tariffs on agricultural exports to the Organization for Economic Cooperation & Development nations that exceed the typical OECD tariff by a factor of 10 or more.

OECD farmers and agricultural interests received subsidies amounting to 1.3% of gross domestic product in 2001 -- and much of this taxpayer-financed largesse competes with developing countries' farmers. Duties collected by the U.S. on all imports from labor-intensive Bangladesh (which has a large textile industry) are about the same as those on imports from France, which are 12 times larger. (See "Market Access for Developing Country Exports-Selected Issues", prepared by the staff of the International Monetary Fund and World Bank.)

Certainly, hypocrisy and flaws hamper the West's efforts to increase global trade. And the stakes remain very high. On his return from Cuba, Ventura got it right when he enthusiastically defended his business-generating expedition: "Anything we can do to move them toward capitalism is a win-win. The current policy is a lose-lose." That goes for Cuba, or anywhere else for that matter.

Farrell is contributing economics editor for BusinessWeek. His Sound Money radio commentaries are broadcast over Minnesota Public Radio on Saturdays in nearly 200 markets nationwide. Follow his weekly Sound Money column, only on BusinessWeek Online

Edited by Beth Belton

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