Tim Worstall's praise of today's Guardian leader is in need of some tempering. He rightly talks of European and US subsidies ad "both immoral and economic madness". What would be more madness, however, would be a world in which no trade barriers exist.
While I applaud any anecdote combining dog's piss and Peter Mandelson, Ricardo's often-peddled arguments for free trade are obsolete, due to their reliance on perfect mobility of capital and labour as well a complete disregard for the existence of time (see here for another example of what bad consequences this can have).
Economies have a history. There are industries which make them tons of cash today, which could be dead ducks tomorrow as technological advances abroad overtake domestic competencies. Trade barriers give countries useful breathing space to sustain their economies during this transition and hopefully allow the domestic market to find something better to do. In the meantime, consumer confidence can be sustained as protected industries can let workers down gently instead of creating mass employment that can paralyse regions and cause widespread misery.
The other part of the free trade argument is that it ignores all concepts of power. A developing country faced with a multinational with an annual turnover worth twice its GDP will not be able to keepit in check. Of course good governance is a (perhaps THE) major issue in development but one mitigating factor is surely that legal institutions aren't allowed to develop when the economic incentives distort them so much. What is more, studies of knowledge spillovers from multinationals to domestic industry have shown the latter does not gain from the presence of the former. (China's tactic was to use trade liberalisation to actively guide technology into domestic hands, a luxury not open to say Chad or Bangladesh) . Trade controls are therefore a check on the tremendous power faced by developing countries, which hampers their development of technical knowledge and appropriate legal/economic institutions.
Of course the CAP and its equivalents are completely mad; as Blair pointed out, half the EU budget is spent on 3% of its population. Personally, I'm often on the more liberal side of the argument, but to dismiss trade barriers entirely is to exclude an extremely important tool of development policy.
Bill Gates Is clueless on the economy
8 hours ago