Saturday, September 25, 2010

Easterly on the Failure of Millennium Development Goals and the Benefits of Trade

Ten years ago various world leaders signed the United Nations Millennium Declaration which included eight Millennium Development Goals (MDGs) that were to be achieved before 2015. The goals were targets for raising less developed countries out of poverty.

William Easterly has written a good piece published in the Financial Times explaining that "The millennium development goals tragically misused the world's goodwill to support failed official aid approaches to global poverty and gave virtually no support to proven approaches." This is a pity, because the proven approaches include letting the sources of prosperity do what they do so well.

Economic theory teaches that there are three sources of prosperity: the market division of labor, capital accumulation, and entrepreneurship.The market division of labor facilitates economic expansion because it allows people to specialize in those production activities at which they are relatively most efficient. By specializing in those production projects in which they are the low opportunity cost producer, everyone becomes more productive and therefore society in general is able to produce more goods, allowing people to satisfy more ends. Plugging into the global division of labor is one of the best and quickest way for less developed countries to experience economic expansion.

Of course, to participate in the market division of labor, one must be able to engage in exchange. It only makes sense to specialize in producing a specific good, if it is possible to trade to obtain other goods that you want. Without trade everyone would have to produce everything they want to consume themselves. There could be no specialization or the division of labor. Society would be a lot less productive, and vastly more poor.

In order to exchange, however, it is necessary to have private property. You cannot exchange what you do not own. Therefore if we want to benefit from participating in the division of labor, we must be able to trade and to trade we must have private property. Therefore, the most important thing societies can do to promote economic expansion is to develop and defend the institution of private property.

The importance of private property and any recognition of the importance of private entrepreneurial and capitalist initiative is almost completely absent from the MDGs according to Easterly. Only one target of one goal makes reference to exchange by calling for a nondiscriminatory trading system.

Easterly goes on to note that the more developed nations actively work to hamper free trade in order to benefit specific producers. The United States hinders economic expansion in less developed countries by supporting American sugar farmers and cotton growers. Easterly writes
[T]rade-fuelled growth not only decreases poverty, but also indirectlyhelps all the other MDGs. Yet in the US alone, the violations of the trade goal are legion. US consumers have long paid about twice the world price for sugar because of import quotas protecting about 9,000 domestic sugar producers. The European Union is similarly guilty.

Equally egregious subsidies are handed out to US cotton producers, which flood the world market, depressing export prices. These hit the lowest-cost cotton producer in the global economy, which also happen to be some of the poorest nations on earth: Mali, Burkina Faso and Chad.

One of the most important things we can do to facilitate economic expansion in less developed countries is to put away protectionist measures. Such a move will strike a blow in favor of property rights and benefit domestic consumers and producers in poorer countries as they can participate in the global division of labor.

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