Global Policy Forum

By Wole Akande

Many may be surprised to learn that it was Adam Smith, not Karl Marx, who noted in 1776 that the affluence of the very rich was contingent upon the misery of the very poor. Given massive increases in the accumulation and concentration of wealth, that truth is far more potent today than it was in Smith's time.

Two years ago the world's leaders, perhaps gripped by millennial fever, offered bold promises to cut global poverty by 2015 - including halving those living in extreme poverty; universal primary education; and reducing by two-thirds the child mortality rate. Accordingly, the U.S. and the E.U. surprised the world last month, during the United Nations conference on financing development in Monterrey Mexico, by pledging to increase foreign aid. Thankfully, the conference has put aid back on the diplomatic agenda after years of neglect.

The goals set for the year 2015 are fine goals, but they are in danger of not being realized. Although both the U.S. and Europe have promised billions of dollars more in aid in coming years, their pledges fall far short of the $100bn the UN says is needed to cut poverty in half by 2015.

Perhaps the time is right to help poor countries, African countries in particular, help themselves. Cutting rich nations' agricultural subsidies will boost international trade for many African countries. Presently, these subsidies are six times what the rich countries provide in foreign aid to the developing world. More importantly, it is these expensive subsidies that rob poor countries of the opportunity to sell their products in truly open markets.

While mouthing the glories of laissez faire capitalism, protectionist schemes are wantonly invoked to protect private interests with powerful political influence. Although trade barriers imposed by OECD countries are quite low on average, high tariffs are imposed on products such as agriculture and textiles. These industries are important sources of export earnings for emerging market economies.

Tariff barriers, on commodities like rice and sugar, are largely to blame for the least developed countries having a share of world trade equal to only about 0.4 percent of the world total. This result occurs despite the fact that classifications by the UN indicate that there are almost 50 "least developed" countries, twice the number in that category 30 years before.

Subsidies paid by rich countries to their farmers amounted to about 37 percent of farm receipts in 1998. Global subsidy payments to farmers are worth at least $327 billion each year. Again, this means that agricultural subsidies exceed the value of foreign aid offered to poorer countries by a factor of six. With so much spent by these countries each year, the distortion effects upon the global agricultural sector are enormous. Trade liberalization, its proponents promise, will bring benefits to all countries. The World Bank, for example, calculates that "full" trade liberalization could bring between $200 billion and $500 billion in additional income to developing countries.

That would be more than enough to pay for universal primary education in the developing world (which would cost $9 billion a year, according to UNICEF), plus any number of other worthwhile projects. The catch 22 is that, in practice, the rich countries take full advantage of the market openings they press upon developing countries, while failing to open their own markets.

This is particularly clear in agriculture. Agricultural subsidies to farmers in the U.S., Europe, and Japan have risen to almost $1 billion a day. These subsidies, together with other measures such as tariffs and quotas, make it difficult for developing countries to compete in the markets of rich countries.

Even more damaging, these subsidies enable agricultural exports from the rich countries to drive small farmers out of business even in their home countries. This threatens domestic food security as well as undermining export potential. The Uruguay Round of trade negotiations, which ended in 1994, promised developing countries greater access to the markets of rich countries. This has not happened. African and other developing countries want this failure to be addressed.

Agriculture is only one example of the many trade sectors in which African and other developing countries have not benefited as promised from previous agreements. Developing countries want a comprehensive reevaluation of existing agreements before starting up a new series of complex negotiations on additional sectors.

They also want to remedy the difficulties they have faced in setting up legal and administrative systems for implementation of trade rules. In short, they want to address the systematic imbalance that ensures that rich countries benefit disproportionately, while the "development deficit" of poor countries only grows. The bottom line is that developing countries have been forced into opening their markets, allowing cheaper imports to undermine their domestic agriculture and industry. Meanwhile, rich countries have failed to lower their own trade barriers, which cost developing countries some $100 billion in lost opportunities. Instead of addressing these concerns, the rich countries are offering practically nothing to address these important issues.

The rich world has not made this a priority. Its leaders spout sentimental speeches about protecting family farmers, as though retaining a symbolic vestige of the pre-industrial age justifies condemning Africans to genuine pre-industrial misery.

What has been the rich world's priority? Well, it has created an intellectual property system that threatens to transfer an annual $20 billion (according to the World Bank) from the poor to holders of patents in rich countries. Intellectual property law is useful once a country is rich enough to afford existing inventions and it wants to give firms incentives to invent more. It is harmful in poor countries that just need to buy existing technology cheaply.

Agricultural subsidies have created imbalances and hardships for Africans and people residing in other parts of the developing world. There is no doubt that some foreign aid is needed, but there is also an overriding need for a level playing field in which African countries can achieve growth through fair trade.

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