Globalisation and Trade Who Wins and Who Loses? The domination of globalisation lDominant process in our economic lives for the past 60 years lAccelerating since the 1970s l‘the ever-increasing integration of national economies into a giant one-size-fits-all global economy through trade and investment rules and privatisation, aided by technological advances, and driven by corporate power’—Colin Hines lIntegration of the world’s economies have become integrated lAn increasing proportion of what we produce and consume is traded—and over ever-increasing distances Ideological domination lThe major achievement of the system of ‘free trade’ that has been the global regime governing the exchange of goods between nations since 1945 lThe promotion of free trade is written into the Articles of Agreement of the IMF and World Bank) lWorld Bank President Barber Conable stated in a press conference in 2000 that ‘If I were to characterise the past decade, the most remarkable thing was the generation of a global consensus that market forces and economic efficiency were the best way to achieve the kind of growth which is the best antidote to poverty’. lIt could give Least Developed Countries a new foothold in the booming markets of the rapidly growing economies. . . a 1% increase in African global market share would be worth many times more than what you currently receive in aid Peter%20Mandelson nPeter Mandelsohn, EU Trade Commissioner nSpeaking about the Doha Round of WTO talks n29 February 2008 lClinton, with strong backing from U.S. organised labour, has advocated a ‘time out’ in trade liberalisation and questioned whether the theory of comparative advantage that underpins free trade still applies in the 21st century bill_clinton_talking nReuters, 10 March 2008 Absolute vs. Comparative Advantage lAdam Smith argued that a country could gain from trade if it has the lowest cost of production of a good but what about when one country produces everything ‘more efficiently’? smith_adam Theory of Comparative Advantage image?id=9585&rendTypeId=4 nRicardo argued that if each country concentrates on producing the goods it produces most efficiently and trades for other goods, all will gain (1817) Production Possibility Frontiers for Australia and New Zealand Before Trade fig30-2b1 fig30-2-1 There are 100 acres of land. Australia can dedicate all of its land to produce cotton, in which case it produces 600 bales (or 6 bushels per acre). On the other hand, if Australia dedicates all of its land to produce wheat, it produces 200 bushels (or 2 bushels per acre). Gains from Mutual Absolute Advantage lAn agreement to trade 300 bushels of wheat for 300 bales of cotton would double both wheat and cotton consumption in both countries. Production and Consumption of Wheat and Cotton after Specialization PRODUCTION CONSUMPTION New Zealand Australia New Zealand Australia Wheat 100 acres x 6 bushels/acre 600 bushels 0 acres 0 300 bushels 300 bushels Cotton 0 acres 0 100 acres x 6 bales/acre 600 bales 300 bales 300 bales Expanded Possibilities after Trade fig30-2 fig30-2b nBecause both countries have an absolute advantage in the production of one product, specialization and trade will benefit both. Gains from Comparative Advantage lIf both countries produced both goods this is how efficiently they could produce: Yield Per Acre of Wheat and Cotton Wheat NEW ZEALAND AUSTRALIA 6 bushels 1 bushel Cotton 6 bales 3 bales lNew Zealand is more efficient in the production of both goods Gains from Comparative Advantage lCountries are self-sufficient rather than engaging in trade. Total Production of Wheat and Cotton Assuming No Trade and 100 Available Acres Wheat NEW ZEALAND AUSTRALIA 300 bushels 75 bushels Cotton 300 bales 75 bales Wheat STAGE 1 New Zealand Australia 450 bushels 0 bushels Cotton 150 bales 300 bales nAustralia transfers all its land into cotton production. New Zealand cannot completely specialize in wheat production because it needs 300 bales of cotton and will not be able to get enough cotton from Australia. Countries specialise production Countries trade STAGE 3 New Zealand Australia 100 bushels (trade) Wheat 350 bushels 100 bushels (after trade) 200 bales (trade) Cotton 350 bales 100 bales (after trade) Situation for wheat Country Non specialisation Specialisation After trade New Zealand 300 450 350 Australia 75 0 100 Situation for cotton Country Non specialisation Specialisation After trade New Zealand 300 150 350 Australia 75 300 100 Comparative Advantage Means Lower Opportunity Cost lBoth Australia and New Zealand will gain when the terms of trade are set between 1:1 and 3:1, cotton to wheat. fig30-3a fig30-3b Assumptions about labour lLabour is the only ‘factor of production’ included in the model lWithin the country all people’s work is the same but across countries people’s work varies lLabour be reallocated without cost but cannot move between countries lThere is no unemployment Assumptions about goods lGoods are assumed to be heterogeneous, i.e. people are indifferent between the same product made in different countries lGoods can be transported costlessly – costs of pollution? Other assumptions lThere are technological differences between countries lModel is based on only two countries Mapping your personal items lCheck the origin of the clothes you have with you today lDiscuss this with a partner lWe will conduct a survey later lMobile phones and shoes can be very interesting! lA prize for the most exotic location! The critique of the three Cs colin lCompetition between poor countries lControl: the WTO is heavily politically dominated lClimate change Changes in the Terms of Trade of some Country Groups, 1980-2 to 2001-3 Group % change Developed economies +7.9 Developing economies -16.7 Developing economies: Africa -24.1 Least developed countries -35.2 Landlocked countries -16.0 Sub-Saharan Africa -20.7 Increases in inequality lIn Latin American countries, the wage gap between highly skilled and unskilled increased markedly between 1984 and 1995--UNCTAD lReal purchasing power of the least skilled workers actually declined, in several cases by over 20%. lILO study of 30 countries in Africa, Asia and Latin America found that in two thirds of the countries the real wages of all workers fell between the late 1970s and the late 1980s, with the least skilled falling by the greatest percentage. lFor 38 countries between 1965 and 1992, greater openness to trade had reduced the incomes of the poorest 40% of the population but strongly increased those of the remaining groups. ‘The costs of adjusting to great openness are borne exclusively by the poor’—World Bank, 1999 Competition lCompetition for commodities such as coffee, sugar and tea, as well as in manufactures such as textiles lTsunami destruction exacerbated by tourism-related deforestation lTwo-thirds of exports from developing countries come from just eight countries, none of which are LDCs lAll the increase in the value of vegetables exported from sub-Saharan Africa has accrued to Kenya, and to larger farmers, who are actually depriving their neighbours of water they need for subsistence farming lThe rise of China as a trading power has been a mixed blessing: lBenefits to countries exporting raw materials lDisastrous for those competing in e.g. textiles Solidarity in commodity markets lFor example, in May 2005 a new government in Ecuador (which exports more bananas than any other country) signed a degree to regulate the volume of bananas leaving the country. Two months later, Malaysia and Indonesia announced a bilateral plan to cooperate on the palm oil, rubber, cocoa, timber and other markets in order to ensure price stability and eliminate the undercutting of their position by others. . . . On the world tea market, discussions have been reported involving all four leading tea producers, China, India, Kenya and Sri Lanka. General Agreement on Sustainable Trade Support the local Governments allowed to favour domestic production Favouring certain partners States will be allowed to choose to give preferential trade terms to goods and services from other states which respect human rights, treat workers fairly, and protect the environment Performance requirements States may impose requirements on corporations opening production facilities in their territories based on: a minimum level of domestic input to the production process; a minimum level of local equity investment; a minimum level of local staff; minimum environmental standards Standstill and rollback No state party to GAST can pass laws or adopt regulations that diminish local control of industry and services Dispute resolution Citizen groups and community institutions should be able to sue companies for violations of this trade code, under a transparent and public process. Trade subsidiarity lLocal, non-intensive goods such as seasonal fruit and vegetables and other raw materials which can be grown without much complex labour input. lGlobal, non-intensive goods, which do not need much labour but require a different climate from our own. lLocal, complex goods that require skill and time to produce but not the import of raw materials. lGlobal, complex goods that need technical expertise and considerable time to produce and for which raw materials or the size of market suggests a problem with local production. Production possibility grid Labour Raw materials Local Global Non-intensive Farmers’ markets; self-build; domestic textiles Fair trade; replace WTO with GAST Intensive Support of local craft workers Mending to replace obsolescence; end to intellectual property laws Sufficiency economy lA watchword of sustainable economics is self-reliance—not self-sufficiency, which I believe holds very few attractions. Self-reliance entails combining judicious and necessary trade with other countries with an unapologetic emphasis on each country maintaining security of supply in terms of energy, food and even manufacturing. Trade-related direct action in India lShut-down of a Coca-Cola plant in Plachimada, Kerala by local tribal women; the company had been exploiting the valuable local resource of water to the extent of 1.5 million litres a day lBlockades of 87 Coca-Cola and Pepsi plants nationwide inspired by the Plachimada example lStudents at Jawaharlal Nehru University voted to replace their campus Nestle outlet with a café serving indigenous cuisine from the North East Tribal region of India. lSeed Sovereignty: a nationwide movement encouraging non-cooperation with seed patent laws