Memo to G20: trade is the key to beating poverty

Why are we still arguing about this? If “98 per cent” of “climate scientists” agree the climate is changing (not a hard thing to agree on, given the thesis is so vague), why can’t we just accept that trade is the key to poverty decline? Relative poverty, something which only becomes a political issue once a society heads beyond a threshold, is not as important in the third world as absolute poverty. Inequality, pro-growth and other such distractions are noise, which keep the West’s values held high, and the most impoverished and vulnerable within their economic confines.

That is what we are measuring; anything else is arbitrary beyond a point. The most damage to be done is by interest groups restricting the potential growth of countries, which were not part of the 18th Century Western European industrialisation, because of their own morality-bound agenda. In many cases, especially in macroeconomic history, to be part of the first-mover group is essential.

The United States were able to implement severe protectionist policies when global competition was minimal, if at all evident in certain industries. Capital-intensive industries created the comparative advantage pronounced by Ricardo. Further to this, it is not a coincidence that highly industrialised countries with high standards of living were relatively homogenous societies with robust legal systems and defined property rights – with at times unscrupulous policies, that is, slavery and the like.

Who are we to keep people without the essentials that we were born with to a poverty-cycle? How can you create the necessary innovation and transmission channels without cheap sources of energy? Those who scream for “equity” – via debt forgiveness and generous immigration programmes – are ignorant of the mechanisms which will prove these measures obsolete.

Fractionalisation of society is indeed an important part that facilitates the continuation of dysfunctional and incompetent governance. However, progressives from developed countries refuse to accept that multiculturalism – in the real sense of the word – is the common denominator which keeps low-income countries (LIC) from having the necessary means to truly develop.

If we are going to look for the saviour of oppressed people, look no further than capitalism. Without the dirty connotation, it is a vessel of individualism that allows the least fortunate to thrive based on the work ethic (and a sprinkle of luck – not in the sense in which Obama describes it, as “big government”).

Centralised and growing government has the opposite effect, particularly in fractionalised poverty-stricken countries. The more fractionalised and desperate the agents are within a government, the more politically rational the extensive rent-seeking behaviour with the most economically inefficient outcomes.

The necessary tools are education, health care and robust financial markets with prudential regulation. Further, there is a direct correlation between growth, the development of stock markets and banking capabilities; greater liquidity generated by these markets assist in the ability of firms and individuals to raise capital, increase rates of return and improve productivity.

Acemoglu & Zilibotti conclude that: “development goes hand in hand with the expansion of markets and with better diversification opportunities”. Nobel Prize Winner Amartya Sen, introduces the concept of capability as a mechanism of development. Commodities should not be seen as the end in themselves; rather as a means to human welfare and freedom. The functionings of the goods provide the means to sustainable growth through trade pathways and self-determination.

Non-traditional development goals are essential for moving forward.