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Free trade could make every Egyptian $897 richer yearly - Daily News Egypt

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Free trade could make every Egyptian $897 richer yearly

By Bjørn Lomborg With one simple policy – more free trade – we could make the world $500tr better off and lift 160m people out of extreme poverty. If there is one question we have to ask ourselves, it is: why don’t we? In 2000, the international community agreed a set of important targets to …

Bjørn Lomborg
Bjørn Lomborg

By Bjørn Lomborg

With one simple policy – more free trade – we could make the world $500tr better off and lift 160m people out of extreme poverty. If there is one question we have to ask ourselves, it is: why don’t we?

In 2000, the international community agreed a set of important targets to improve the lot of the world’s poorest by 2015, the Millennium Development Goals. Many of these goals were extremely successful in vital areas such as reducing poverty and hunger, but there is still much to be done. Through the UN, world leaders are now working on the next set of targets for 2015-2030. As the world will spend $2.5tr just on development aid over that period, and countless trillions in national budgets, there are lots of contenders for these targets.

That is why my think tank, Copenhagen Consensus, has asked some 60 of the world’s top economists to look at the economic, social and environmental costs and benefits of many different targets, in areas like health, nutrition and education. And these are all important. But one issue is often missing. As argued in a new paper by professor Kym Anderson of the University of Adelaide, reducing trade barriers not only makes the world richer, it is a great enabler for reducing poverty, curtailing hunger, improving health, and restoring the environment.

Freer trade essentially means that each country can focus on doing what it does best, making all countries better off. Big strides have been made in liberalisation since the Second World War, but the latest phase – the Doha Development Agenda – seems stalled, with little hope of a resolution. This is dreadful, particularly for developing countries, because two of the main areas where agreement is elusive are agriculture and textiles, both sectors where lower wage countries in the tropics and sub-tropics have a comparative advantage.

A successful Doha round could get Africa better prices for agricultural produce and textile, which would make Africa richer. But more importantly, free trade could make Africa focus on what it does best, which would boost growth just like it has for China.

Analysis shows that there would be substantial rewards for completing the Doha round. The direct economic benefits would be a 1.1% increase in global GDP. This sounds modest. But because it would impact the entire world economy, by 2030 we would be about $1.5tr richer every year.

But open economies also grow faster. In the last 50 years, countries as diverse as South Korea, Chile and India have seen their rate of growth shoot up by 1.5% per annum on average, shortly after liberalisation. If Doha can be completed, it is estimated that the global economy will grow by an extra 0.6% for the next few decades. By 2030, such dynamic growth would make the world economy $11.5tr larger each year, leaving us 10% more resources to fix all other problems.

And a large part of the benefit will go to the developing world, which by 2030 would see its economy $7tr larger each year. On average, this increased GDP is equivalent to $1,000 more for every person in the developing world. Translated directly to Egypt, this would mean the average person could be making an extra $897 per year.

By the end of the century, free trade could leave our grandkids 20% better off, or with $100tr more every year than they would otherwise have had.

For now, powerful vested interests make it hard for politicians to compromise. The jobs that are lost from free trade are obvious and concentrated – witness Western farmers protesting losing their subsidies. But the benefits are spread out – for example, food will be a bit cheaper for everyone, and Third World farmers will see greater profits.

Yet we need to keep a sense of proportion. There are real costs from free trade in terms of workers needing retraining and the provision of unemployment benefits. These outlays will occur mostly over the next decade and will cost $100-$300bn. But the benefits will accrue for at least the next nine decades, and total $500tr in present day dollars. For every dollar spent, we will achieve more than $3,000 of benefits.

And this will have huge impacts for the world’s poor. We know that economic growth has been one of the major drivers of poverty reduction – China’s rapid growth over the past 30 years has pulled 680 million people out of poverty, the most ever achieved in human history.

Yet we still have about 1.2 billion people living in abject poverty today. With future growth, this number will likely be reduced to a still chokingly high 700 million by 2030. But if we achieve freer trade through the Doha round, the faster growth could lift an extra 160 million people out of poverty by 2030.

It is worth stepping back and realising this amazing opportunity for the world. Yes, we should help in areas like food, education, health, and the environment. But if we could just get it right on free trade, we could possibly do more good here than anywhere else – leaving the world $500tr better off, with 160 million fewer poor.


Dr Bjørn Lomborg, an adjunct professor at the Copenhagen Business School, directs the Copenhagen Consensus Center, ranking the smartest solutions to the world’s biggest problems by cost-benefit. He is the author of The Skeptical Environmentalist and Cool It. His new book is How To Spend $75 Billion to Make the World a Better Place.

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  • Commander_Chico

    The problem with the Egyptian economy is not lack of free trade, but lack of domestic investment. Egypt clearly imports products it could make cheaper itself.

  • Learned_Goyim

    Highly biased and quite pushy for the Doha rounds.

    Free trade is often touted as the panacea of all ills for the underdeveloped world. On the ground though, it often translates itself in opening-up markets for the global North products-dumping the global South markets. What the world needs is fair trade. Does it make sense for Canada for instance to produce corn as a cash-crop and flood Colombia’s market at prices the local farmers aren’t able to compete with? Do you think colombian farmers will be able to retrain for new careers once they have been pushed-out from what they have always done, namely grow corn?

    I am glad you brought up South Korea to illustrate the pseudo-benefits of free trade. As Nobel Laureate Joseph Stigliz once posited, the notion that nations should focus on what they do best for the sake of free trade, is reckless. Why?

    South Korea, in the late 60s was a agriculture-based economy ruled by the Generals. Korean rice was the best in quality and yield. Had South Korea listened to free market-crusaders and focused on “what it did best”, namely growing first-rate rice, it would perhaps still be the best rice producer today and not much else.

    However, the South Korean generals back then, unlike the Egyptian generals today, held a deep desire for economic participation driven by a nationalist desire to advance their country. They embarked on diversifying the economy and encouraged home-grown companies to compete with their dominant eastern neighbour, Japan, in ship building, electronics manufacturing and technology.

    As a result, they managed decrease technology imports and tip the trade balance in their favour. As you know, Korean farmers have exported a ton of delicious rice grown over months in exchange for the value of 1 SONY TV set assembled in couple of days in Japan.
    It was only then that South Korea opened up to free trade and benefited from it, not by exporting “their-expertly-grown rice”.

    As someone else alluded to, Egypt’s troubles, like the rest of developed countries is not lack of free trade, but lack of good governance and a democratic deficit. If we go by the free trade theory that Egypt should stick to what it does best, then Egypt shout build more infrastructure for tourism and expand the Suez Canal, both of which are service-based revenue drivers, prone to political stability or lack thereof.

    That strategy has been tried and failed.

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