Mitchell gives passionate case for free trade

By Alex Singleton | 15 December 2005

Andrew Mitchell, the UK's Shadow Development Secretary, gave a speech in Hong Kong today - one of the best speeches given by a modern-day British politician on the subject of free trade. It's good to see politicians really getting to grips with the issues. He said:

We need to put the case that when Europe offers to adopt free trade, this is not a "sacrifice" but a benefit to all. After all, the countries which have opened to globalisation are the ones enjoying higher living standards, longer life expectancies, better working conditions, and better recognition of human rights.

They enjoy better, cleaner environments - in part because they can afford to pay for them. They are less likely to go to war. After all, countries that are getting rich together have less incentive to wage war against each other. Indeed, the current Doha development round was launched in the shadow of the September 11 attacks. The war on terror was supposed to have a second prong: an attempt to cut terror off at the roots by tackling poverty.

And, very importantly, free trade delivers economic growth. By encouraging specialisation, welcoming new ideas and encouraging efficiency, free trade reduces costs and raises living standards.

Protectionism does not aid development. Developing countries with open economies are catching up with rich ones; those with closed economies are falling further behind.

The Chinese government has been engaging in the largest liberalisation the world has ever seen. That policy has delivered nearly double-digit economic growth - five times Britain's growth - and lifted 200 million Chinese out of poverty.

India's failed experiment with protection in the thirty years after independence gave way to liberalisation more recently, and with it high levels of growth.

Some say Africa needs to pursue "targeted protectionism".

There is, in certain very specific circumstances, a case for limited, transparent and temporary support to infant industries. But we should be sceptical, and recognise that in practice, governments have a dismal record at picking winners.

Typically, they favour powerful lobbies, not the dynamic upstarts that become world-beaters.
Pledges to keep support temporary do not typically prove to be credible - the "infants" never grow up, and remain dependent on taxpayer subsidies.

Such an approach, even in theory, requires highly skilled, objective government planning.

For countries with poor governance, it is unlikely to be a sensible strategy. What you get in practice is crony capitalism at its worst. Those with the best connections, or those who shout the loudest, win "protection" at the expense of the consumer, which hits the poorest hardest.

Moreover, Professor Tony Venables, the Chief Economist of DFID, has pointed out that imports are the flipside of exports. If you try and protect yourself from imports, your exchange rate will rise and you will find exports difficult.

Furthermore, as the Economist last week pointed out, developing countries themselves stand to gain from opening up to the global economy. This is for two reasons. Firstly, much of the trade they take part in is with other developing nations. During the 1990s, trade between developing countries grew at twice the speed of world trade as a whole.

Secondly, developing countries themselves stand to gain from opening up to the global economy simply because the poorest countries average over three times the tariff levels of rich countries.

The result is that African exporters can face higher tariff barriers selling to their neighbours than selling to the developed world. That is good for no one.

And some of these tariffs are on things like bednets and medicines - killer tariffs. In some cases anti-HIV/AIDS medicines are priced beyond the reach of the poor by mendacious government tariffs and taxes.

As Oxfam has said: "Increasing trade and investment between developing countries by reducing trade barriers could bring real benefits in terms of employment and incomes."

Download the full speech as a PDF.