On April 11, 2008 Simon Crean who is Australia’s minister of trade and Susan Schwab who is the US trade representative wrote a piece in the Wall Street Journal under the title Doha Dealbreaker that is so remarkable it will stand as a classic for some time to come.
What they say is that the Doha negotiators must give the service sectors of the economy the same consideration they do the agricultural and industrial sectors and they warn that the US and Australia “will not support a Doha package unless it includes an ambitious outcome on services that delivers commercially meaningful results.” They don’t spell out what they mean by not supporting the package but they are forceful when it comes to promoting the service sectors as seen in the following paragraph.
“In today's world, access to world-class service providers can be the difference between economic growth and stagnation. Open markets promote innovation and entrepreneurship, generate lower costs and higher-quality goods, increase the pace of technology diffusion, and attract more foreign investment.”
To see why the piece is remarkable you need to look at the following two paragraphs which do not come back to back in the piece but tell volumes when they are juxtaposed.
“In fact, several developing countries have autonomously liberalized certain sectors of their economies as part of their development strategy, recognizing that high services barriers only constrain their economic potential. For example, telecommunication markets have been opened up throughout the developing world, and everywhere this has resulted in greater telephone access and lower charges, with profound positive effects on rural farmers, small businesses and industrial exporters.”
“It is understandable that some countries are reluctant to offer more on services, especially in the absence of greater clarity in other parts of the Doha package. However, it is our view – and indeed a broader view – that the round will only deliver in terms of global growth and development if all areas of market access – agriculture, industrial products and services – are negotiated satisfactorily.”
It is clear that the writers believe everyone at the negotiating table understands exactly what they are saying and nobody disputes it. Nevertheless some countries are reluctant to go along with the idea at this time because, the writers say, those countries have understandable concerns that have not yet been addressed given that the negotiations are still ongoing. So, what’s the beef about? Why threaten they will not support the package when the negotiations seem to go smoothly?
It may well be that the reason for the beef is hidden in a history that the writers are too young to remember or do not wish to reveal. So let me give it a try. Is it possible that the industrialized countries now realize their pundits made a mistake a generation ago when they guessed how the Universe will unfold as the underdeveloped countries develop?
The pundits of the time pontificated – more like speculated - that the underdeveloped countries would, for a long time, produce labor intensive, low-end low-technology products such as shoes, leather products, furniture and textiles while the developed countries would continue to produce capital intensive, high-end high-technology products such as cars, computers and electronics.
But, as if to confound the pundits, the underdeveloped countries leapfrogged ahead of themselves in no time at all and began to develop on several fronts at the same time. Yes, they produced the shoes and the textiles but they also produced the cars and the computers. And this left the developed countries with no area in which to grow and create jobs for their people except the service sectors of the economy.
The result was that the developed countries had no choice but to buy all sorts of goods produced in the developing countries and run up trade deficits. To pay for the goods and reduce the deficit, some countries such as the US and Australia now seek to export services to the developing countries, a stand that is understandable but one that does not explain the beef.
Consequently, what the negotiators must be careful not to do is repeat the mistakes of the past by listening to false pontifications as to how the future will unfold this time around. Instead, the Western negotiators must take their eyes off their navels and look at the faces of their negotiating counterparts. More specifically they should look at the foreheads where they will see written: “I have a culture I need to protect.”
The US, Australia and the other Western nations can sing all they want that: “Comprehensive services-sector liberalization…would permanently boost the global economy by more than $1 trillion,” but the fact remains that culture is a big part of the services they want to export to those countries. And they must be made aware that they risk getting a backlash if they push too hard at making the liberalization too comprehensive.
Also it is important to remember that the cultures of the developing countries will evolve to adapt to their new industrial status anyway. But this does not mean they will look like any culture existing in the West now nor should they. In fact, many in the Orient have fully industrialized and they did it by blending with the new what they regard as worth conserving in the old, and they are doing marvelously well. Who are we to say they could have done things differently or done them better?
If any lesson should come out of all this, it is that adaptation of the cultures must be a two way street. The motto in the West should now be: Let the developing countries adapt their way at their own pace but let us adapt as well. And what we need to do here is iron out the internal contradictions embedded in our culture before we ask the others to accommodate us.
With millions of youngsters unemployed and many of these unemployable, with hundreds of thousands more incarcerated who will likely return to jail when released, we need to ask if we are not fooling ourselves into believing we are what we are not. After we honestly answer the question, we must get down to business and revamp what we call our system of laws.
Instead of spending billions of dollars to look after people in the prisons, asylums, half way houses, hospitals, dysfunctional schools, boot camps and what have you, let us find a way to put them to work and pay them a salary commensurate with their abilities. This will give them dignity, a sense of worth, a way to develop the work ethic and the discipline to go with all that. In return, they will produce the goods that we import from the developing countries but cannot now produce because we have a wage structure that is pricing us out of the market.
This is not to advocate doing away with the minimum wage or the labor laws or even the child labor laws. But in the same way that we set up a number of parallel systems we regard as charity or correctional or voluntary, we can set up a system that will take those whom we normally punish and give them a way to rehabilitate themselves without extending to them all the rights they forfeited when they broke the law.
Nobody frowns when someone suggests that a thirteen year old who has committed a horrible crime should be tried in adult court. But say that this kid should be made to work while incarcerated at half the minimum wage so as to develop good habits, and the phony bleeding hearts come out of the woodwork to act out their make believe discontent. Get out of here! We should have no patience with these characters.
What we are seeking here but do not wish to admit to ourselves is economic salvation. But our salvation will not come at the expense of the other cultures because they had nothing to do with our near damnation in the first place. They played the game by the rules we set up and even if they do agree to our changing of the rules in the middle of the game, we shall not be accommodated for the long haul because what is wrong with us exists in the structure of our core beliefs.
In consequence of this, we must resolve never again to dictate to others but to learn from them what was once a part of our culture but has disappeared with the passage of time. Our pundits made a mistake in the past when they thought the developing countries will take a long time to produce quality products we can buy and be satisfied with, and we are about to make the same mistake thinking they will not outdo us in the service sectors as well.
By all means, let us liberalize trade in the service sectors but let us do it at a pace that the developing countries can stomach. Most importantly, let us think seriously about an industrial strategy that will make it possible for us to compete in the industrial sectors too because we shall need to fire on all cylinders to get our economies back on their feet.