Governments today like to declare that they are engaged in trade exercises that will result in inclusive growth. Leaders are increasingly using the term to try to counter growing concerns over globalization.
Hence officials involved in crafting trade agreements are now being tasked with the idea of creating inclusive growth. However, they are likely to fail. Inclusive growth is an idea that sounds great but the quest to provide it through trade agreements will remain elusive.
Inclusive growth is never defined. Does it mean that the benefits of trade will trickle down to every citizen? Or to nearly all citizens? Or perhaps the benefits are supposed to flow evenly to everyone?
Trade agreements can do many things. Trade agreements, however, as an earlier post noted, are merely bridges that create opportunities for greater trade. These bridges are critically important, particularly in a time of slowing global trade. Trade matters. Trade remains the fastest, most reliable way to ensure economic growth and development for the largest number of citizens.
There are lots of other things that are needed for development, of course, including education, health care, nutrition, security, and so forth.
The basic economic model of international trade, simplified greatly, says that countries should specialize in what they do relatively better than others. Countries are not expected to be the world’s greatest, but simply make more efficient use of scarce resources than some other country.
Having specialized in one area, they trade with their neighbours for things that they do not produce as efficiently. In the long run, in the aggregate, both sides are better off.
To dredge up memories from your intro economics class, you may recall the examples of French wine and English wool—the French should observe they make more money growing grapes and making in excellent wine that many people will buy and will specialize in this while the English will observe they make more money from wool and raise sheep or produce cloth and clothing that people adore and will want nstead of wine.
We have no silver bullet for development, but trade gets everyone closer to growth than
the rest of the available options. But the benefits of trade are not automatically evenly spread to everyone. Even the classic example of wine and wool shows up problems that can be faced in the short run.
Hence, we need government. It may be the case that governments in both countries need to figure out what to do with French wool producers and English wine growers in the short run. They may need retraining or reskilling. They may need more information about alternative jobs or careers. They may need short-term insurance.
Or government may opt to do nothing at all. It may even turn out that some English people are great at making different sorts of wine— not Champagne perhaps—or the French may have particular skills with wool or weaving or apparel that the English will never master or bother with developing.
The point is that the decisions that must be made about how to handle any adjustment falls to domestic level governments and to individual citizens.
A trade agreement is not the place to address the issues of French wool growers or the English wine industry. An agreement can provide new opportunities for markets. It can lower barriers to trade in wool and wine. It can make customs procedures faster and easier. It can help service providers design websites or apps to let new customers find unique products.
It can make it easier to invest in vineyards or warehouses or factories. It can help spread technology or help license or protect the ideas and intellectual property behind amazing designs.
What a trade agreement does not do is provide inclusive growth. An agreement cannot create conditions for growth to spread to everyone or growth to flow evenly. It can only create new opportunities. It is up to companies and individuals to take advantage of these opportunities.
Government can and should be supportive. Government can negotiate better agreements that give more options and build better bridges—stronger and wider trade bridges that connect more countries together. Governments can try to craft agreements that are easier to use and include provisions that benefit smaller firms.
But at the end of the day, governments will have to take on the task of spreading inclusive growth at the domestic level on their own. Not through a trade agreement.
In fact, governments are potentially spreading new risks when they claim to bring inclusive growth home through trade agreements. Promising more than agreements can possibility deliver is another way to build up a backlash against trade deals.
Overpromising and under-delivering is not a recipe for success. It will not help. Let’s not burden trade negotiators with another such term in the form of “inclusive growth.”
Pages 24-25 of Autumn 2017 International Business Today. By Deborah Elms, Executive Director, Asian Trade Centre, Singapore.