Columns

Is Free Trade Preferable to Development Aid?

Alec Dawson argues that it is; Kurt Purdon disagrees.

 
 
Alec:
Our society is hypocritical. We seem to think it is okay to provide endless barriers to trade, protecting our own businesses and citizens at the expense of farmers and producers in far worse-off circumstances, but at the same time scramble to give out endless ineffective ‘development aid’ in the form of government funding and charities.
Free trade is based on the idea of comparative advantage. If a particular country or person is good at one thing, and another good at something else, they should specialise and trade with one another so they can both focus on doing what they know best, and both benefit. As it stands, in the Western world we put up barriers to trade – such as tariffs and subsidies for own business – to prevent free trade with the third world. If we let these countries specialise and trade with us, they could make the most of what they are good at and then achieve greater prosperity through trade. This has happened in places such as India, where outsourcing various aspects of business has helped create a new middle class. By contrast, development aid focuses largely on subsistence, simply providing bare necessities rather than giving people a chance to provide and engage with the wider world. To assert that people in the third world have limited skills and therefore cannot specialise in much is incorrect – they often have the advantage of having a culture which is totally unique and can be exported throughout the world, as well as attract tourists. Also, even if they did have to work for very little pay in difficult conditions it would be better than living with nothing, or having no capacity to exchange with the rest of the world. 
Add to this the fact that development aid is often misused: it is estimated that only one out of every ten dollars of aid gets to the people who need it, and the rest is taken by governments of third world countries or corrupt people in positions of power. Because free trade is bilateral, it forces both sides to provide a good for the other, meaning there is no problem of just pouring money into a ‘bottomless pit’ where it can all go to bad ends. Consequently, free trade is more effective at providing for people who need help the most.
Kurt:
Our goal is to improve the standard of living of the poor in developing countries. However, removing development aid and exposing poor countries to the damaging forces of the free market will only entrench poverty further in these countries.
Firstly, free trade fails. How will poor countries expect their local industries to compete on the world stage against multi-billion dollar corporations from the West? When economic protections are removed, unemployment increases. This is because industries that had provided secure employment for many people go under, since their prices are undercut by cheap goods imported from rival firms overseas. Often, these poor countries already face high unemployment rates and social unrest as it is.
To be competitive in the international economy, countries need to produce products for the lowest cost. No one will buy from you if the country next door can sell their shirts for a dollar cheaper. The way to do this is to cut wages and labour regulations so as to minimise costs for businesses. The evidence of this is more than obvious. Sweatshops in countries like Vietnam have shown the shocking effects of free trade on the poor. Workers have little choice but to work 14-hour-plus days in dreadful conditions for under two dollars a day. All of the benefits from trade go to multi-national corporations or the rich business owners in that country.
Secondly, development aid is extremely important in helping developing countries get off the ground. Poor countries lack basic infrastructure like roads, running water, hospitals, and schools, which they need in order to grow. Development aid assists these countries in the construction and implementation of these necessities, something which free trade does not. After World War Two, many countries in Asia and Western Europe benefited greatly from development aid, which had huge success in raising living standards. These programmes were successful. Countries like Japan used tariffs to protect their companies while they were growing (some of which have become the world's top automobile manufacturers). Japan now has the second largest economy in the world. This was as a direct result of US development aid and smart trade policy.
These countries do not have the capabilities to grow unless they get the infrastructure they need. Free trade will not accomplish this. Development aid will.
 
Debatable is a column written by the Otago University Debating Society. They meet every Tuesday at 7pm in Commerce 2.20.