The Economics Of Failure

Former US Deputy Secretary of Defence, now President of the World Bank Paul Wolfowitz has recently begun making his first big pronouncements in his new role. Sharing the strong emphasis on Africa that most big players are adopting in the run up to the G8 Summit, he has been touring the continent and making some very promising calls.

According to this piece in the Christian Science Monitor, Wolfowitz is keen to support equal rights for women (because of their focal place in many developing world communities and families, women often play a more crucial role in development than do men), and harmonize the bank’s relationship with aid agencies “to reduce the administrative burden.” In other contexts he has been speaking of the need for western governments to practice what they preach in terms of free trade.

Those are good statements, insofar as they go, but possibly speak most clearly in what they leave out. The appearance of working for consensus is to be applauded, but the Bank clearly needed a visionary new president who would radically reform its workings to be more democratically responsible, and less dogmatic in its imposition of economic policies.

So-called-Free trade is where that is likely to be played out. If the free trade songbook continues to rule the melody then it is entirely right that rich countries open their borders as widely as they insist their poorer neighbours do. But Wolfowitz’s statements coincide with the publication of a new report from Christian Aid, “The Economics Of Failure,” that adds still more fuel to arguments that “free trade” as presently conceived costs more than it provides.

Christian Aid employed an expert in econometrics (Egor Kraev) who used economic modelling techniques, along with data from the World Bank, IMF, United Nations, and various academic studies, to explore the impact of “free trade” policies on sub-Saharan African economies, and found that “imports tend to rise faster than exports following trade liberalisation” (the reason such countries are given for enforced liberalisation is that export income will help stabilise their economies), and that “this results in quantifiable losses in income for some of the poorest countries in the world.”

Overall, the model suggests that since liberalisation, African countries have lost US$272 billion as a result of “free trade.” That’s twice as much as they received in aid; enough to have paid off all their debts, and to spin off many more benefits beside.

The evidence against one-size-fits-all approaches to economic development is already overwhelming, but such is the power of the ideological commitment to neoliberalism that free trade continues to be regarded as a panacea, to be applied with no consideration of local contextual issues. Despite his more-positive-than-expected rhetoric, the prophetic acts that are needed are not going to come from Paul Wolfowitz. They need to come from his apparent masters in western governments.

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