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

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Costa Rica Coffee

Problems withComparative 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– Brazil– Bolivia– Chile– Thailand

Soybeans in Brazil

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Brazil

• 1970s:– 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

• ¼ of Brazil’s population – lives below poverty lineHunger program in Brazil

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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

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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

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Fair Trade

• Idea: support fair export prices for small producers in developing countries through co-ops:– 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 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 Cityhttp://images.world66.com/sl/um/_q/slum_quarter_in_th_1_galleryfull

Bubble Up Economics

• After WWII, Japan, Taiwan, Korea 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

TokyoTokyo

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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.