Global Policy Forum

Aid or Trade?


By Michael Renner *

Global Policy Forum
*Opinion Forum
October 3, 2003

The collapse of trade negotiations in Cancún in mid-September triggered much anguished commentary. In the run-up to this crucial World Trade Organization meeting, expectations had risen sharply. Many expected a deal to reduce Western agriculture subsidies and to lower barriers to greater food trade. Free traders, World Bank officials, and even NGOs seemed all to agree that this combination of measures would help combat the rural poverty plaguing much of the developing world. Cutting subsidies would help level the playing field for farmers from the global South. Greater agricultural exports would then boost farmers' incomes.

Is liberalized trade a tonic that eliminates the need for more foreign aid? No doubt, some hope that it is. Foreign aid has declined in the 1990s, from about $73 billion in 1992 to $57 billion in 2002. This is far from the lofty 1970s goal of providing the equivalent of 0.7 percent of GDP in aid money. Most of the rich nations never even came close to that target. Today, only about 0.2 percent of GNP is made available; the United States finds itself at the bottom of the league with a mere 0.1 percent.

The decline actually came on the heels of fresh promises made at the 1992 Rio Earth summit. Donor governments made new commitments to increasing their official development assistance at the International Conference on Financing for Development in Monterrey, Mexico, in March 2002. But even if these promises are fulfilled—a big if—they would still leave aid flows below the 1992 level of 0.33 percent.

Free trade and lowered subsidies to the rescue? The lobby for unencumbered trade has traditionally proven far stronger than the forces in favor of slashing subsidies. In the post-World War II era, successive rounds of trade talks lowered tariffs and tore down more and more impediments to trade. The establishment of the World Trade Organization in 1995 signaled that trade promotion took precedence over other global concerns such as labor rights and environmental stability.

Efforts to reduce subsidies, by comparison, have mostly met with failure. Worldwide, subsidies for agriculture and other economic sectors may run as high as $1 trillion annually. Western governments support agribusiness—most of the payments go to the largest farmers—to the tune of $300 billion per year. The U.S. government even increased its financial support last year, while rhetorically committing itself to the opposite policy. And at Cancún, it quickly became obvious that U.S. and European negotiators had no intention of agreeing to any cut in subsidies.

What is the likely consequence of liberalized trade under such conditions? Agribusiness is able to dump products at prices far below the cost of production, as is evident from the consequences of the NAFTA agreement. Mexico faces a flood of artificially cheap U.S. corn, which may be good news for urban consumers, but has devastating effects in rural areas.

A handful of big farmers in developing nations may well manage to compete on the world market. But millions of small farmers will be displaced. Rural upheaval will trigger greater migration to cities (and more illegal migrants to the United States and other industrial countries). But many cities are already unable to provide adequate social services to their burgeoning populations. The lack of jobs, in particular, may well contribute to growing instability and may nourish violent conflict.

The alternative surely is not to open the aid spigot blindly. A once naí¯ve sense that richer countries could easily set their poorer cousins on the right "development" path has given way to a more sophisticated understanding of the complexities and contradictions of aid policy. "Tied" aid tends to advance the interests of donors more than those of recipients. Military aid may crowd out non-military flows in the post-9/11 world. Corrupt regimes may appropriate foreign aid to shore up their legitimacy, just as rebel groups in a number of war zones have been known to hold aid convoys hostage.

But an intelligent aid policy that addresses urgent needs, particularly in education and health, can make a huge difference. Think what adequate funding of efforts to combat AIDS, malaria, and tuberculosis—among the biggest killers in the world—could do. Eliminating illiteracy and boosting women's rights will be far more liberalizing—and liberating— than tearing down trade barriers can ever be. Imagine the benefits of providing clean drinking water, halting soil erosion, and sharing renewable energy technologies. Such programs could easily be financed by a reduction in subsidies and military expenditures that together claim close to $2 trillion each year.

A policy that ignores these opportunities but dogmatically pursues globalization at the expense of the poor is bound to lead to ever greater upheaval. Ironically, this path will also lead to greater financial flows to the developing world—but in the form of refugee assistance and other emergency aid. Virtually by definition, however, humanitarian aid is incapable of leading humanity out of the vicious cycle of poverty, displacement, and conflict.

So the collapse in Cancún is far from the calamitous event that free trade advocates have claimed it to be. But an alternative to unequal globalization must emerge in its place. The world cannot afford stepping into a void.

About the Author: Michael Renner is Senior Researcher at Worldwatch Institute and a board member of Global Policy Forum.

More Pieces from the Opinion Forum
More Information on International Aid
More Information on International Trade and Development


FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.