Trade, Growth and Development

13/02/2012 at 6:19 pm Leave a comment

By Hans Zomer

Earlier this year, the European Commission launched a new 10-year strategy, entitled ‘Trade, Growth and Development’.

The strategy reflects a wider trend among aid donors, who have come to realise that overseas aid on its own is not going to be sufficient to promote economic growth. In a move that evokes much of the aid discourse from the 1970s, many donors point to the rapid economic development in Asian countries to explain why they now embrace “the market” as a key tool to combat poverty.

“The rise of emerging economies like India, China and Brazil shows that trade-driven development is possible and that open markets can play a major role in generating growth” said the EU’s Trade Commissioner Karel De Gucht.

There are many good reasons to re-think the EU’s aid and trade policies. As Andy Sumner has pointed out, poverty is no longer an issue of poor countries , as more of the world’s poor now live in middle income countries. The debate should therefore shift from whether enough aid is going to the Least Developed Countries (see e.g. this article) to whether we are attacking the right form of poverty: Poverty as inequality.

Development NGOs have long argued that aid alone will not end extreme poverty. But their use of obscure language – using such terms such as “policy coherence for development” – has shrouded their key argument: ending poverty requires not just a transfer of resources, but also mechanisms to redistribute power, wealth and opportunity.

Current donor emphasis on the markets tends to be of the variety that embraces the ideology that “the rising tide lifts all boats”. Curiously, the economic crisis that grips much of the rich world has shown precisely that this is not the case: left to themselves, market forces create inequality, instability and irresponsible behaviour. To be effective, public policy should precisely therefore seek to balance the economic realm with the political.

If the EU’s new strategy aims to redress the balance, then it is a welcome initiative. If, as many NGOs suspect, the new plan is more about how aid will support EU trade profit than about how trade policy will support development, then it is a retrograde step. Too often, EU policy in the area of trade has seemed to be about imposing the EU’s own trade standards on the developing world, rather than building an infrastructure of support for SMEs in developing countries, in support of sustainable, decent jobs.

What is needed is an explicit recognition that aid will not end poverty, and neither will trade in and of itself.

The primary purpose of overseas aid is to reduce the barriers that poor people must overcome to access services and enjoy their rights. Aid is not there to boost the economy. Similarly, the purpose of trade is not to reduce poverty, and poverty eradication is not going to be an automatic side effect of increased trade.

Addressing the weaknesses of both approaches is not going to be easy.

 

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