World Bank Reconsiders Trade's Benefits to Poor
Saturday, December 17, 2005
As thousands of trade diplomats meeting in Hong Kong this week struggle to break an impasse over a global trade agreement, some surprising new economic research threatens to throw a fresh damper on their efforts.
In a recently released book, the World Bank says that the potential benefits for the world's poor of a far-reaching trade deal "are significantly lower" than it had previously thought.
The bank has long served as a source of authority for claims -- by commentators, public officials and others -- that the ongoing trade negotiations, known as the Doha round, could lift multitudes of people out of poverty. The scaling back of the bank's projections is noteworthy, and comes at a sensitive time, as the Hong Kong meeting of the World Trade Organization remains stalled due to fierce disputes among the WTO's 149 member nations.
The bank estimated three years ago that freeing international trade of all barriers and subsidies would lift 320 million people above the $2 a day poverty line by 2015. Now, however, bank economists project the figure at between 66 million and 95 million people. And even that assumes the WTO negotiators would completely abolish tariffs, quotas and other obstacles to commerce -- a fanciful scenario, calculated only to show what a maximum deal would produce.
Assuming a more plausible outcome in which the WTO members agree to some deep cuts in tariffs and subsidies while stopping short of pure free trade, the reduction in the number of people below the $2-a-day line by 2015 would be only about 6.2 million to 12.1 million people, the bank now reckons. That is less than 1 percent of the people living below the line.
"This is a windfall for anti-globalists," said William R. Cline, a scholar at the Center for Global Development. "They can say even the World Bank doesn't think free trade would do much for reducing poverty."
Cline's study, published last year, projected that full trade liberalization would lead to significant increases in income for developing countries, with roughly 440 million people rising out of poverty. Although some critics have attacked his work, Cline is sticking by his estimates and said he is perplexed that the World Bank, given its influence, is now using assumptions that he regards as excessively conservative.
Whatever the merits of the arguments, free-trade skeptics are indeed seizing on the World Bank's new figures to question the value of the Doha round.
"On the eve of the WTO's Hong Kong ministerial, the so-called gains from trade seem to have evaporated," said Timothy A. Wise, deputy director of the Global Development and Environment Institute at Tufts University. "There are very good reasons why the [WTO] talks have lost momentum. For most countries, there is very little development left in them."
World Bank officials take issue with such conclusions, arguing that their new figures still support the case for negotiators to strike an ambitious deal because that will generate much greater gains for the poor than a modest compromise.
"While it's important not to oversell the impact, it's hard to think of any single measure that countries could take collectively that would have a more significant effect on poverty than a successful Doha round," said Richard S. Newfarmer, an economic adviser in the bank's trade department.
But L. Alan Winters, the bank's director of research, conceded: "Are some of these [new] numbers small? Clearly, smaller than one would wish."