Economics Article Review

I wrote a review on an article printed in the Globe and Mail for my economics class. It was fairly interesting because he states that although larger countries, (USA, Etc) are constantly aiding third world countries by sending supplies, they do not fix the problem it is mearly a bandaid solution. Kind of the mentality, "Give a man a fish, you feed him for a day. But teach a man a fish, you feed him for a lifetime." Interesting thought. Let me know what you think.

Article:
Kind Words or economic power: There’s a fair trade - Ken Wiwa. The Globe and Mail, Saturday, December 10th, 2005.

In his article “Kind Words or Economic Power: There’s a fair trade” Ken Wiwa writes on the issues dealt with The World Trade Organization (WTO). Wiwa criticizes the credibility of WTO, claiming that it is an obsolete organization that is not fulfilling its purpose. More specifically, Wiwa does not believe that WTO is not helping protect third world countries against economic giants such as the United States or Europe.

The World Trade Organization is the only global international organization dealing with the rules of trade between nations. “The goal is to help producers of goods and services, exporters, and importers conduct their business.” The WTO is a member driven organization with the negotiated agreements signed by the bulk of the world’s trading nations at its heart, which are ratified in their parliaments. This organization was brought about in lieu of the General Agreement on Tariffs and Trade (GATT) when it gridlock on the Uruguay round of negotiations.

Wiwa’s main criticism of WTO is that it does not hold an effective position of power. It has no control of powerhouse countries such as the United States. The United States promotes exporting rather than promoting trading, or as Wiwa puts it: “In their ideal world, i.e. the status quo, the Americans insist that the rest of the world must open up for American goods wand services, but don’t try to sell anything (sugar, cotton, steel) to them.” This idea of promoting export but discouraging imports works well for the industrial nation and its capitalistic government as this exporting practice directly affects the GDP equation (GDP = C+I+G+(X-M), where X = Exports and M = Imports). Increasing exports and reducing imports will certainly increase GDP, which is ultimately good for the government and for the entire economy. However, it comes at the expense of the American Consumer. The Americans are encouraging removing tariffs from their exports into other countries but keeping tariffs on imports coming into the US, and therefore decreasing the consumer surplus and increasing revenue to government (by the amount of tariffs collected) and increasing manufacturer profits (for selling at the elevated prices due to tariffs).

Wiwa’s other criticism attacks Europe’s eagerness to hand out subsidies to European farmers. Wiwa writes:

…the Europeans use the vehicle of the Common Agricultural Policy to ensure a policy of “no farmer left behind” – and so the European taxpayer pays enough in subsidies to fly every pig in Europe around the world on a first –class air ticket. Did someone say, “When pigs fly?” (Wiwa)

Economically speaking, subsidies take great criticism because of the government expenditure involved. With subsidies, there is no loss in consumer surplus, but in a case such as in pig farming, it does not help the long term longevity of the economy. If the farmers are relying on subsidies they will not be encouraged to diversify from their pork market. The European pork market will continue to operate subsidized operations, which allows the world market of pork to stay lower making it difficult to allow other domestic markets to compete, internationally or domestically.

The WTO is supposed to prevent these types of actions from taking place, but because the WTO is member driven, it will never become effective because it has no policing. It is an organization that sets up ideals and agreements, which the larger countries do not abide.

Wiwa noted that WTO needs to exercise “Trade Justice – Not Charity.” (Wiwa) He further noted that the African countries struggling with poverty will never be able to rise to any kind of economic ascendancy if they are not allowed to compete in the world markets because of unfair domestic subsidies and tariffs on their exports on other countries. These third world countries cannot rely on import substitution to raise output, as it was learned from the 1950s-1970s and therefore must rely on export-led growth to raise the country’s output. If these third world countries’ competitiveness in the world marketplace is being prohibited, they will not be able to arise from the economic pitfalls it is experiencing.

The WTO should promote Trade Justice in order boost the global economy. When a country has been relying on subsidies to keep a market afloat, i.e. European Pork market, it is not allowing Trade Justice. In fact, it hinders the Global Market, as there are other countries that could produce those goods with no subsidies. The WTO should also try to prohibit the USA from discouraging imports. The United States discouraging imports along with European subsidies is hindering developing countries from utilizing the export-led growth action plan.

Another reason that the WTO should promote Trade Justice is it will make the world economy more efficient. Subsidies are a socialistic measure and are meant to help the manufacturers, in this case the pig farmers, in tough times. The fact of the matter is that the global economy would be better off in the long run if these farmers did poorly for a number of years. The farmers would be begin to diversify into other markets and stop relying on government intervention, which would allow lesser developed countries easier access to the world market. Allowing these developing countries equal opportunity in the world market is what is needed to make export-led growth a success.

The WTO needs to stop being a passive organization in order to promote global efficiency and help evenly distribute the global wealth. But because the organization is member driven, it will always address the needs of its larger members first on the agenda. A distant second is the world poverty issue. Members will not look out for the best interest of third world countries at the expense of its own economy and therefore WTO will never be truly effective in the world market.