Johan Norberg

In Defence of Global Capitalism

The developing countries would be the principal beneficiaries of increased global free trade in manufactures. One study estimated that the world economy would gain about US$70 billion ayear from a 40% tariff reduction, and that some 75% of the total gains would be harvested by the developing countries. That would equal the total amount of international development assistance to the developing countries, and it is almost three times the monthly income of all the world's absolutely poor taken together. The absence of a real breakthrough in WTO talks is a tragedy for the people of those countries.

The most startling protectionism on the part of the affluent countries concerns agricultural produce. World trade in agriculture is growing far more slowly than trade in other commodities, and this too is due to the policy of the affluent countries. Most of them are determined at all costs to maintain a large-scale agricultural industry of their own, even if they have no comparative advantages in this sector. They therefore subsidise their own farmers and exclude those of other countries by means of trade barriers. There is no easier way of squandering money than through an advanced agricultural policy. Affluent countries are drenching farmers with money through protectionism, subsidies, and export grants. The total cost of agricultural policy in the 29 affluent OECD countries burdens taxpayers and consumers with a staggering US$360 billion. For that money you could fly the 56 million cows in these countries once around the world every year—business class—with plenty of change left over. If they're willing to fly coach, the cows could also be given US$2,800 each in pocket money to spend in tax-free shops during their stopovers in the United States, the EU, and Asia.

The European Union's Common Agricultural Policy (CAP) involves quotas on foodstuffs, and tariffs of about 100% on things like sugar and dairy products. Here again, the EU wishes to exclude processed products that can compare with European ones. Tariffs on basic foodstuffs average only half of those on upgraded foodstuffs. Coffee and cocoa, which European countries don't produce themselves, can slip in without any serious customs markups. Meanwhile EU tariffs on meat are several hundred percent. The hollowness of self-appointed solidarity movements like the French ATTAC is exposed by their defence of such tariffs against the Third World.

Not only is the EU excluding foreign products, but production and transport by European farmers are being subsidised to a fantastic degree, by nearly half the EU budget. The average cow receives US$2.50 support daily, at the same time that nearly three billion of the world's human inhabitants have less than US$2.00 a day to live on. Because those grants are paid according to acreage and head of livestock, they are mainly a subsidy for the wealthiest large-scale operations—it is rumoured that the biggest beneficiary is the British royal family. OECD figures show the wealthiest 20% of farmers receiving something like 80% of the grants. In other words, nearly 40% of the entire EU budget goes to less than one percent of the EU's population.

The grants give rise to a huge surplus of foodstuffs, which has to be disposed of. One way that the EU does this is by paying farmers not to grow anything. Worse still, through export subsidies the EU dumps its surplus on the world market, so that poor countries are unable to compete. That means that the CAP not only prevents Third World farms from selling to Europeans, it also knocks them out of business in their own countries.

For consumers in the developed world, as was previously argued, export subsidies in other countries area gift: the artificially low cost of goods is paid by foreign taxpayers, and the savings can be diverted to other sectors. But for the developing world, the North's agricultural policy is a different story. It is a deliberate and systematic means of undermining the very type of industry in which the developing countries do have comparative advantages. The poor countries don't get a stable supply of specific goods; rather, one year the EU dumps one product that is being overproduced then, but the next year it dumps a totally different product, thus undermining any attempt by producers in the poor country to specialise. It is one thing for imports to spur farmers to produce more competitively, but subsidies guarantee that farmers in the developed world cannot compete, even when they are more efficient. These countries are so poor that there are few other sectors in which to invest: most of them must expand agriculture before other sectors can be developed. The CAP is estimated to cause the developing countries a welfare loss in the region of US$20 billion annually, which is twice Kenya's entire GDP.

The EU's trade policy is irrational and shameful. It protects a small circle of lobbyists and farmers who ignore the fact that their walls are condemning people in other continents to poverty and death. That is a moral disaster. The cynicism of the policy is made all the more apparent by the realisation that the EU as a whole gains nothing by it either. The Swedish government's calculations suggest that a Swedish household with no children could gain about US$250 a year by being spared the EU's duties on garments, and no less than US$1,200 a year if all agricultural policy were abolished. European taxpayers pay millions of dollars in taxes every year so that their shops can have a smaller selection of food at higher prices. EU governments subsidise agriculture to the tune of about US$90 billion a year and the manufacture of basic industrial products by about the same amount. All cracks through which goods from the developing countries could sneak in are promptly plugged with antidumping tariffs and technical stipulations, concerning, for example, packaging and hygiene—stipulations exclusively tailored to EU enterprises.

On the basis of statistics from the European Commission, the French economist Patrick Messerlin has estimated the cost of all EU trade barriers, including tariffs, quotas, export subsidies, antidumping measures, and the like. His findings indicate a total annual loss of 5-7% of the EU's GDP. In other words, completely free trade would mean that the EU could add the equivalent of nearly three Swedens to its prosperity every year. Messerlin maintains that roughly 3% of the jobs in the sectors he has investigated have been rescued by protectionism. Each job costs about US$200,000 per year, which is roughly ten times the average wage in these industries. For that money every tariff-protected worker could receive an annual Rolls Royce instead; it would not cost us more, and it would not be done at the expense of the world's poor. 'Either a branch of enterprise is profitable, in which case it needs no tariff protection; or else it is unprofitable, in which case it deserves no tariff protection,' as economist Eli F. Heckscher once put it. With tariff protection and subsidies, manpower and capital that could have developed the EU's competitive strength linger on in sectors where there is no comparative advantage. Thus the EU ties the developing countries to poverry, not for the benefit of the European people, but for the sake of a narrow, vociferous vested interest.