Trade can work. Look beyond the jargon and the mudslinging and it’s easy to find people for whom trade really can make a difference. Unfortunately, writes Claire Melamed, it’s just as easy to find other people determined to make sure it doesn’t.
A few years ago, I was in a village in Mozambique just after farmers had sold the cotton they had spent all year growing. The whole village was alive with possibilities.
‘It is not market forces. It is a case of do as we say, not as we do’
Families of ten or so who had shared a single room for years were building more rooms onto their houses. Women were buying aluminium pots, which cook quicker and use less firewood than traditional clay pots.
People were purchasing bicycles so that they could travel to the nearest town to buy and sell goods, or visit family and friends.
This was trade and development working in front of my eyes. It was thrilling to see. But it wasn’t to last.
100% manmade
The year after my visit, the world cotton price dropped like a stone. The company that bought the farmers’ cotton decided it was no longer worth making the trip to their remote village. At a stroke, the farmers lost a vital source of income.
This may seem like the result of ‘market forces.’ In fact, far from the workings of the free market, it is policies made in rich countries that are to blame.
These villagers are competing against cotton farmers from all around the world, most of them far richer than those in Mozambique. American farmers in particular are some of the richest and most efficient in the world. It helps that the US government subsidises its cotton farmers by an average of $140,000 a year. Compare that with the $270 average annual income in Mozambique.
With this fat subsidy in their pocket, US farmers can afford to sell cotton at a much lower price than the Mozambicans – which means that companies are going to stop buying from remote Mozambican villages.
Getting rid of subsidies may be the obvious thing to do. Perversely, this is exactly what rich countries are aggressively recommending their poorer neighbours to do – even if they are patently unprepared to follow suit.
Despite weeping crocodile tears over the plight of poor people in poor countries, governments in thrall to their own farming lobbies have stubbornly refused to reduce the subsidies they pay.
Cotton subsidies have been declared illegal at the WTO, and are universally condemned as an affront to free trade – but the cheques to farmers in Iowa and California keep on coming, and the world price keeps falling. As a result, more and more farmers in poor countries can no longer afford to send their children to school, or buy clothes or shoes.
This is not market forces. This is a case of do as we say, not as we do.
Stitched up
Mozambican farmers might seem mad to try and make a living from selling cotton on world markets under these circumstances. But they don’t have many other options.
There is no domestic industry to speak of, either to offer alternative employment or to provide a local market for their cotton. Instead farmers export it abroad to be turned into clothing by foreign companies who can do it more cheaply. Mozambique, meanwhile, must import its own clothes. On the face of it, it is a farcical state of affairs.
Other countries have built up their own industries by carefully nurturing and protecting them until they were ready to really benefit from the opportunities international markets can offer. Government intervention is what made the economies of countries like South Korea and Taiwan the success stories they are today.
But this opportunity is denied to the likes of Mozambique. Instead they are forced to lower trade barriers and cut off support to businesses as the price of aid and loans from rich countries.
The people that need it least – the rich farmers and companies of the industrialised world – get all the support and the protection, while the poorest producers in the world are left to drown in the mire of unfair policies deliberately created and maintained by policymakers in rich countries.
Trade can work. The rich world’s job is to ensure it is allowed to. Ours is to make sure they never forget this.