Free Trade
Food First
Comparative Advantage
• Major idea of Free
Trade:
– Comparative
Advantage
• Each country exports
what it produces best
• Money used to import
what it cannot grow
• This could alleviate
hunger and poverty
Costa Rica Coffee
http://bloggle.com/wordpress/wp-content/uploads/2004310637-1.jpg
Problems with
Comparative Advantage
• Exports have boomed
– in Third World countries
• Hunger has gotten worse
• Those who profit from exports
– are not the poor
• Wealthy do not use profits to
benefit the poor
• Export crops displace food crops
Soybeans in Brazil
http://www.brazilintl.com/states/matogrosso/agtours_mt/kory_pat/images_kory_pat/faz_cantosul.jpg
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Brazil
Bolivia
Chile
Thailand
Brazil
• 1970s:
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Soybeans become #1 export
• Most soybean production
– goes to feed livestock in
Europe, Japan
• Rice production fell
– Staple food
– hunger grew
• By 1990s:
– Brazil ranks third in world in
Ag exports
Hunger program in Brazil
http://www.paho.org/Images/DD/PIN/persp20_23.jpg
• ¼ of Brazil’s population
– lives below poverty line
Brazil Food Exports
Brazil Ag Frontier
• Cerrados:
– 120 million hectares
• high plains
• Previously uncultivated
– Soil acidity, aluminum
– 2006 World Food Prize
• Soil improvement of
Cerrados
– 40 million hectares now
cultivated (2006)
• Potential for expansion
http://www.worldfoodprize.org/assets/pressroom/2006/June/brazil_map.jpg
Chile
• 1990s had become world’s
#1 exporter of table grapes
– 90% of world trade in grapes
• Sales mostly to U.S.
• Poverty widened
dramatically
– 1970s poor = 20% population
– 1990s poor = 41% population
Free Trade
• Can be exploited by big
corporations
– to move farming, factories
to where labor cheap
• Large corporations get
huge subsidies
– from governments eager to
attract investment
• If unions raise production
costs
– strike for higher wages
– company moves on
World Trade
Organization Protest
http://www.panoramio.com/photos/original/8285536.jpg
Fair Trade
• Idea: support fair export prices
for small producers in developing
countries through co-ops:
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Coffee
Tea
Bananas
Cocoa
Mangos
Pineapples
Crafts
• 5 million growers in 40 countries
• $180 million sales in U.S. (2002)
Globalization
• Some companies seek:
– Lowest wages
– Most lenient regulations
– Cheapest resources
• “Race to the Bottom”
– People compete to work for less
– Accept part time employment
– Forgo health insurance
– Forgo occupational safety
regulations
Slash and Burn Capitalism
• Large export farming operations
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set up in a place for a few years:
Melons in Mexico: 7 years
before unprofitable
– Overused chemicals
– Increased pest resistance
– Increased wages
Pullout caused economy to
slump
Cheap for another multinational
to come in
Cycle leaves economy and
ecology in decline
NAFTA
• Resulted in loss of jobs
– in both US and Mexico
• Jobs in Mexico lost
– by flooding country with cheap
mass produced goods
• 28,000 local companies
– out of business
• Unemployment in Mexico
– doubled
• Number at or below poverty
– increased from 32% to 51%
Slums in Mexico City
http://images.world66.com/sl/um/_q/slum_quarter_in_th_1_galleryfull
Bubble Up Economics
• After WWII, Japan, Taiwan, Korea
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Tokyo
Tokyo
http://www.rasterman.com/photos/tokyo_skyline/dscn6090.jpg
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huge economic growth
No Free Trade
Prohibited food imports, direct foreign
investment
Land Redistribution
Government subsidies and tariff
protection of domestic manufacturing
Incomes and purchasing power of poor
peasants and workers raised:
Workers and peasants became strong
domestic market
After market strong, opened borders
World Trade Organization
• Is it a dictatorial tool of the
rich and powerful?
• Does it destroy jobs?
• Does it ignore concerns?
– health
– environment
– development
• WTO says emphatically no!
http://www.wto.org/
WTO Says
• Misunderstanding: The WTO destroys jobs, widens the gap
between rich and poor.
• Answer: Not true, inaccurate and simplistic.
– Trade can be a powerful force for creating jobs and reducing
poverty.
– Sometimes adjustments are necessary to deal with job losses
– The alternative of protectionism is not the solution.
• 1.5 billion people are still in poverty, but
– trade liberalization since World War II has contributed to
lifting an estimated 3 billion people out of poverty.