Kamal Malhotra, the United Nations Development Programme's senior advisor on inclusive globalization, provided an unorthodox perspective about the effects of trade liberalization on developing nations during a lecture at the Fletcher School yesterday.
His speech, entitled "National Trade and Development Strategies: Lessons from Successful Experiences in Asia," took a human development perspective in analyzing current and past trade deals.
Malhotra asserted that while economic growth is "necessary for human development," it is not sufficient by itself. Instead, he emphasized that this development is really about "enlarging people's choices and opportunities - particularly poor people."
He also said that trade liberalization is often overemphasized in current discourse, and the orthodox assertion that it promotes economic growth in poor countries is unfounded.
"Liberalizing trade does not ensure poverty reduction or human development, nor does it guarantee immediate economic growth," he said.
He hammered home this point by referencing China and India, both of which have relatively high tariffs and an impressive average GDP per capita growth.
As such, he said that "it is very important to be cautious about jumping to simplistic conclusions."
Malhotra also used Vietnam as an example of a developing nation that did not follow conventional wisdom while adopting economic policies.
There, the GDP growth rate reached and stayed at more than six percent, even in the face of high trade barriers. This trend helped to sharply reduce poverty, expand trade and attract foreign investment.
Consequently, he said that while liberalization can expand markets, facilitate competition and disseminate knowledge, it is not guaranteed to do so.
Also, he said that it is often the result rather than the cause of growth.
"Countries tend to dismantle trade barriers as they get richer," he said, calling liberalization "an outcome of growth and development, not a prerequisite."
He said that the policy implications of this assertion are quite profound, especially if developing nations realize that the traditional advice is not backed by empirical evidence.
Malhotra also highlighted the importance of context-specific institutional innovation.
"Institutional innovations, many of them unorthodox and requiring considerable domestic policy space and flexibility, have been crucial for successful development strategies and outcomes," he said.
While some policies may work in one region, they may be bound to fail in another. In Asia, for example, he said that a "strategic approach to managing globalization" has been crucial.
Several Asian countries, he said, found success by pursuing neither anti-globalization policies nor passive integration into the global economy.
"There was a very purposeful set of policies," he said.
Ultimately, Malhotra described the key ingredients of a successful policy package as public investment and strategic national trade, industrial and macroeconomic policies combined with selective, gradual liberalization.
"Selective protection, policy flexibility [and] cascading tariffs" allow countries to move up the ladder of economic productivity, he said.
He cited these as the reasons the South Korea changed from being a major exporter of wigs to one of steel, despite not having an initial competitive advantage.
Additionally, Malhotra said that "embedded autonomy is crucial," meaning that the government must be involved in, and responsive to, the private sector while remaining autonomous. A strong state and good leadership are indispensable to this end, he said.
He also emphasized that both selective and general governmental interventions are needed to improve market outcomes. It is not a question of whether governments should intervene, but how, when and where, he said.
The lecture was sponsored by Tufts' Global Development and Environment Institute. Tim Wise, the group's deputy director, said that Malhotra's remarks were refreshing.
"It's an important alternative viewpoint to the orthodox view that trade liberalization will lead to economic growth and will alleviate poverty," he said. "[Malhotra] shows that the evidence from history just doesn't back that claim up."
