Over a select dinner briefing last week, the fifth director-general of World Trade Organisation (WTO), Pascal Lamy, suggested that since politics drives international trade, it is governments “not wise men, think tanks or director-generals” who should be driving agreements. “Leaders,” he argued, “must act to convince and spend political capital to make them happen. The time for technical work is long past. It is the hour of politics.”
I agree with the general tenor of his argument. But I’m not so sure about how effective it will be. I asked Lamy how that will happen given that global politics through the institution of G20 — leaders of the world’s largest economies that came together to fight the global credit crisis and is now effectively the international board of directors of the world economy — has failed to deliver. Despite all global macroeconomists arguing for freer trade, barriers have increased since the global economy went into a tailspin on September 15, 2008 when Lehman Brothers collapsed.
Lamy disagreed. “Trade barriers may have increased in some areas, but not as much as we expected them to,” he said. Trade talks post-Doha have to resume with pragmatism and a spirit of compromise. Developing countries such as India, China and Brazil that are seen to be coming in the way of free trade in the Doha round have the most to gain. They have been able to use trade, productivity and entrepreneurship to pull millions out of poverty — though 850 million still live on less than $2 a day in India. And still the worry is not that India or China will raise barriers but US and EU.
Looming beyond the G20 meetings and their holy statements are local factors that will compel good economics to be subservient to bad politics. This tug of war will be fought over jobs that will continue to move East from West. To expect political leaderships to reverse that to serve a larger interest — say, free trade that brings long-term benefits to all — is nothing but a mirage. Lamy is right when he says the political leadership needs to deliver. But he’s being naive or plain hopeful to expect it will.