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We should never forget that free trade is a two way street. The south should also dismantle its own tariffs, which according to World Bank estimates, are four times higher than those of the north. Charity starts at home. Through concrete reforms taken from both the North and South together, the world as a whole can realize the wealth creating effects of free trade and globalization.
IV. Imitate the East Asian miracle (but be democratic).
Even if Mexico gets a monopoly on say, tomato production, it will never become as rich as Japan, which has a monopoly on computer chips. Southern countries will remain unable to realize the wealth of their industrialized, northern counterparts. They will first need to fix certain sectors of their economy on the path towards industrialization in order to achieve this growth.
How did East Asia do this? Herein lies one of the rare times this author will support government intervention in the market: Asia used smart protections. The government protected infant industries for just enough time until they matured and were able to compete on the world stage. Then the government pulled back aid and forced industry to export. The result? High savings and great capital accumulation. Today, poverty has been nearly eradicated in these newly industrialized economies.
Southern countries should make similar reforms in creating time sensitive, limited protections, rather than imitate the European or American examples which allow for indefinite subsidies towards inefficient agricultural industries. Southern countries should create incentives for their industries to export. They should say, “In two years, your protections will expire. If you are not competitive by then in Northern markets, you will lose your job when subsidies end.” Only then will southern countries continue to gain access to northern markets.
V. Fighting poverty is a moral duty.
There is a moral imperative for northern countries to aid southern countries fight poverty, not in just empty words or promises to halve poverty by 2015, but through concrete action. The north should be willing to make serious sacrifices, and by this we do not mean meagre aid which disappears into southern countries with no accountability. Instead, the north should invest in institution building, training programs, and consultancy that help southern countries to take the actions on their own that are necessary for growth. First, southern countries should shift towards market economies and realize the wealth-creating benefits of free trade. Second, the north should be prepared to end its double discourse on free trade and end subsidies. Finally, the south must move towards transition to more dynamic, industrialized sectors.
The fight against poverty is worth fighting, not only because people should have food in their stomachs. The fight against poverty should be fought because poverty, the seed of hunger, conflict, crime, and terror, should be eliminated.
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John Michael Balouziyeh
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