The WTO is a friend of the poor Openness to trade alleviates poverty and helps developing countries catch up with rich ones, says Mike Moore
It is hard for a Financial Times reader to grasp how one could survive on less than $1 a day. For us, a dollar is the cost of a cup of coffee. Yet 1.2bn people, a quarter of the world's population, scrape by on such a modest sum. A further 1.6bn, another third of the world's population, make do with only twice that - barely enough for a Big Mac.
Such extreme poverty is a tragedy and an outrage. Reducing it must be a priority. But how? Although there are no easy answers, a World Trade Organisation study to be published today sheds some new light. It finds that openness to trade helps developing countries catch up with rich ones, and that the poor generally benefit from the faster economic growth that trade liberalisation brings. Moreover, faster growth in poorer countries does not come at the expense of rich countries. Increased trade is a "win-win": it also increases growth in developing countries' richer trading partners.
These important findings are particularly timely. Next weekend, the United Nations' second World Summit for Social Development begins in Geneva. Building on the agenda of the first social summit in Copenhagen in 1995, it will consider the allegedly growing gap between rich and poor, both within and among countries, and examine the relationship between changes in living conditions and globalisation.
My message is clear: trade alone may not be enough to eradicate poverty, but it is essential if poor people are to have any hope of a brighter future.
Critics of free trade argue that trade benefits the rich at the expense of the poor. But the evidence tells a different story. It is well-established that trade boosts economic growth. A much-quoted paper by Jeffrey Sachs and Andrew Warner of Harvard University found that developing countries with open economies grew by 4.5 per cent a year in the 1970s and 1980s, while those with closed economies grew by 0.7 per cent a year. Countless country studies support their results. But opponents of free trade retort that poor countries are still not catching up with rich ones, indeed that the rich are drawing further ahead.
It is true that developing countries in general are not catching up with rich ones. Yet some are. Take South Korea. Thirty years ago, it was as poor as Ghana; now, it is as rich as Portugal. Or consider China, where 100m people have escaped from extreme poverty over the past decade.
According to the new WTO study by Dan Ben-David of Tel Aviv University and Alan Winters of Sussex University, the countries that are catching up with rich ones are those that are open to trade - and the more open they are, the faster they are converging. That is particularly good news for China. The liberalisation that joining the WTO requires will give another big boost to Chinese living standards.
Even so, critics of free trade argue that poor people within a country lose out when it liberalises. Not so. The study concludes: "Trade liberalisation is generally a strongly positive contributor to poverty alleviation - it allows people to exploit their productive potential, assists economic growth, curtails arbitrary policy interventions and helps to insulate against shocks." This concurs with a study by David Dollar and Aart Kray of the World Bank which, using data from 80 countries over four decades, confirms that openness boosts economic growth and that the incomes of the poor rise one-for-one with overall growth.
Of course, some people do lose in the short run from trade liberalisation. Some are "fat cats" grown rich from cosy deals with governments. But others are poor farmers who lose their subsidies, or unskilled workers who lose their jobs. Their plight should not be forgotten. But the right way to alleviate the hardship of the unlucky few is through social safety nets and job retraining rather than by abandoning reforms that benefit the many.
The WTO is not a development organisation. But it does a lot to alleviate poverty. After all, free trade is not an end in itself. It helps to raise living standards, thus lifting people out of poverty. Even so, the WTO could do more to help the poor. Poor countries do not always make the most of the world trading system, and sometimes their interests are overlooked. That is why in my first speech as director-general last September I called on WTO members to do more to help the world's poorest countries reap greater benefits from the world trading system. I am glad to report that we have made progress on that front, with a package that includes better access to rich-country markets, increased technical assistance, and closer co-operation between the WTO and other global institutions that promote development, notably the World Bank. These are important steps. But the surest way to do more to help the poor is to continue to open markets. And how better to do that than for governments to launch a new round of multilateral trade negotiations.
The writer is director-general of the World Trade Organisation.