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The Forum > Article Comments > Is trade liberalisation a panacea for poverty? > Comments

Is trade liberalisation a panacea for poverty? : Comments

By Dionisio Da Cruz Pereira, published 19/10/2010

Proponents of globalisation believe that trade liberalisation is the key to fight poverty in developing countries.

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All the economic issues turn on underlying issues of epistemology. *How do we know* that economic phenomenon A has caused economic phenomenon B? How do we know, for example, that trade liberalization has caused poverty? Or wealth?

Obviously if our line of reasoning on this question is confused, we will get policy measures backwards.

The positivist schools of economics, which are the mainstream, say that you treat the problem like a problem in the natural sciences. You use Occam’s Razor to float a most parsimonious hypothesis. You then test the hypothesis, by experimentation, or by empirical observation.

The problem with this approach is that other people are not animals on your farm, are not compounds in your laboratory, for you to perform experiments on their lives, liberty, and property. And as for empirical observation, society is highly complex with contingent variables. Just because A comes before B, doesn’t mean that A caused B. Correlation is not causation. Empirical observation by itself cannot say whether a particular result is *because of* policy, or *despite* policy. All empirical observations must always resolve back to understanding based in pure theory; otherwise they wouldn’t make sense and people wouldn’t be able to communicate with each other.

The other possibility is to take axioms, self-evident propositions of human action, and to reason by logical deduction therefrom.

In a nutshell, if trade liberalization causes poverty, then presumably restricting trade causes wealth. Think about it. Those arguing so have only two options: either
a) assert that the theoretical maximum possible wealth for mankind would come from restricting all trade, so everyone would work in isolation. That’s obviously wrong, isn’t it?; or
b) assert that freedom of trade creates greater wealth up to a certain point, but that thereafter, restriction of trade creates greater wealth. Then the problem is to identify that point and say why, and how you know; and then to distinguish, of all the billions of transactions taking place, which ones or which categories lead to greater wealth, and which to greater poverty; and why, and how do you know?

Take it away, pinkos.
Posted by Peter Hume, Tuesday, 19 October 2010 9:05:48 AM
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The fact that poverty persists in India doesn’t mean that economic liberalisation has been a failure. Since the government began liberalising its economy in the early 1980s India’s economic growth rates have picked up and poverty rates have fallen. Other welfare measures such as literacy and life expectancy have improved. It would be unrealistic to expect living standards to rise from third to first world standards in less than a generation, but India is at least heading in the right direction. In contrast, under the protectionist/interventionist policies of the 1960s and 1970s, economic growth barely kept pace with population growth.

China’s economic success has been even more startling, with hundreds of millions of people lifted out of absolute poverty in the past 30 years. And while its human right record is deplorable, things were hardly better under the cultural revolution and great leap forward.

According To the Millennium Development Goals Report 2010:

“Measured at the $1.25 a day poverty line, poverty rates [in India] are expected to fall from 51 per cent in 1990 to 24 per cent in 2015, and the number of people living in extreme poverty will likely decrease by 188 million.”

World Bank data show that in China the decline in poverty is even more striking, falling from 84% in 1981 to 16% in 2005 and expected to reach around 5% by 2015 – raising more than 400 million people out of extreme poverty. This is the largest, fastest, reduction in poverty in human history.
Posted by Rhian, Tuesday, 19 October 2010 6:10:05 PM
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The key tp fighting poverty is reform of the banking system.see You can download this award winning free doco.

By virtue of creating all our new currency for GDP+inflation,the banks milk countries of the necessary money to make their countries grow.In Aust the is $8000 for every working person,stolen and loaned back to us as debt.Our new money is created as debt.
Posted by Arjay, Wednesday, 20 October 2010 5:53:25 AM
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In your own country, there has to be a proper system of taxation, relatively high tax, about 70% to keep obscene incomes out of the picture, and zero tax on about $30,000 today to conform to the required 30% of GDP. From here, any trade between countries, there should be recognition of comparing the tax system in each country, there isn't very much chance of fair trade when one country has a low top tax and the other a high top tax, the affects on each country is very different. A country that has been regarded as an advanced country and its government commences trading it's coal and other non renewable, non value added resources, and receiving manufactured goods as the reciprocal trade, will lose its manufacturing industries, and revert to being a 3 rd world country, just as is happening to Australia these last 40 years. You can blame both governments, State and federal, the people can't do much except to kick out the party at the next election, but you have to have a good party to put back in, and that is something we haven't got.
Posted by merv09, Wednesday, 20 October 2010 1:16:50 PM
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