Global South 2007 Lecture 4:October 12, 2007 Trade and Aid

Case for Free Trade  David Ricardo; Milton Friedman; WTO; CATO Institute  Trade is mutually beneficial  There are always gains from trade although gains are not equal

Trade: David Ricardo

Comparative Advantage Ricardo's argument: there are gains from trade if each nation specializes completely in the production of the good in which it has a "comparative" cost advantage in producing, and then trades with the other nation for the other good.  Foreign trade may promote further accumulation and growth if wage goods (not luxuries) are imported at a lower price than they cost domestically -- thereby leading to a lowering of the real wage and a rise in profits. But the main effect, Ricardo noted, is that overall income levels would rise in both nations regardless

World Trade Organization Why the WTO is good for you hatis_e/10ben_e/10b00_e.htm Why the WTO is bad for you released.html?Itemid=36 ption,com_wrapper/Itemid,80/

Case Against Free Trade  National security; mercantilism  Infant industry argument  Beggar-thy-neighbour  One country can not indulge in free trade alone “we cannot force you to be free”

Can trade work differently?  International Trade is currently worth $10 million a minute. Who controls it?  Have you heard of fair trade?  What is fair trade?

Aid: Can aid help?  Disease (AIDS)  Disaster (Tsumani; Katrina)  Hunger and Famine (Niger, Mali, Ethiopia, Somalia, India…) What is aid? What power, if any does the aid recipient have?

Motivations behind Aid  Help; charity; altruism  Security concerns  Redistributive justice

Is aid necessary? Average spending on health in low- income countries is $11 per capita. The cost of providing basic healthcare is estimated at $30 a person. For a country like Mali, where more than half the population lives on less than $1 a day, it would cost an additional $26 per person—or about 10% of GDP.

Mali’s options  What if Mali refused aid? What would happen? Who gains and who loses?  What if Mali takes aid? What happens then?

Which is true? We are hungry We have a food surplus

Famine, shortage or? Chronic hunger, malnutrition and vulnerability Causes: Landelessness, food insecurity, high and unpredictable food prices Unemployment Patriarchy ( Niger women 'banned from grain stores)‘ Can aid address these “structural” factors?

Is there humger in the north?  In 2004, 13.5 million households (or 11.9% of all U.S. households) were food insecure: 38 million people (13.2% of all Americans)  During the 12 months preceding the 2004 survey, 10.7 million adults and children lived in these households.

US (2)  In 2004, households with incomes below 130% poverty line had a food insecurity prevalence more than 3 times the national level. More than two-thirds of households reporting hunger had incomes under 185% of the poverty line.  Female-headed households and Black and Hispanic households had food insecurity at least 2.5 times those of other households.

Hunger in Canada  Hunger Count hungerfacts-eng05.pdf

Aid and Disasters Tsunami and Indonesia: “Reeling under relief measures” /forum.asp?id=28

Aid and structural problems Underlying characteristics of aid  verticalism, or the process of transmission of decisions through a rigid power hierarchy.  sectoralism, or the dissipation of resources into a myriad of uncoordinated sectoral projects;  “assitentialism,” or forms of action that consider the poor as passive beneficiaries and not as active subjects who with appropriate support, can become autonomous; and finally,  bureaucratism, or the continous concentration of power in the hands of managers and bureaucrats, as well as the ever-increasing bureacratization of the mechanisms of development co-operation ”

Historical structures (Cox) Where does aid fit in? Social forces Forms of stateWorld Orders

Can aid work differently?