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Free Trade and the Poor

Free Trade and the Poor

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February 25, 2011

Question: I am a proponent of trade liberalization and a free market, but I keep coming back to the issue of the severe inequality that free international trade can create. How would an Objectivist view the marginalization of the poor in developing nations, where they have absolutely no way to rise above poverty and hunger without protection in the market and/or aid from rich nations?

Answer: Objectivism holds that each person should be responsible for himself, and be free to live as he judges best. This doesn't preclude charity or assistance to the needy, but it makes these marginal moral issues at best.

Open international borders and freedom of capital to move from one country to the next are corollaries of this view. If human beings have the right to live freely and deal with one another by trade, surely this applies across borders as much as within them.

Objectivism holds that the moral is the practical. So we should expect to find that economic freedom is statistically correlated with health, wealth, and happiness. You can find some good evidence on this at www.freetheworld.com , where you can read the "economic freedom of the world report" that rates countries for economic freedom (including openness to international trade) and compares how they fare economically. Generally, the freer a country is, the more likely it is to be rich and the longer its people are likely to live. Generally, the relative degree of poverty of the poorest 10% in society doesn’t change with the amount of freedom in the country: more freedom doesn’t make the poorest more or less relatively poor. But in absolute terms, freedom makes a huge difference: the poorest 10% in free countries are much, much richer than the poorest 10% in less free countries.

In third world countries (some which are developing, and some which, sadly, are not developing), it is generally the case that a lack of free trade is a major contributor to the impoverishment and suffering of the people. Free trade and open capital markets give those with wealth and knowledge all over the world the opportunity to bring their resources to bear and exploit the potential of impoverished people. Countries that have opened up their property markets to allow foreign investment and repatriation of profits, and that have reduced or eliminated protectionist barriers to trade, have tended to do very well. And that means the poor in those countries have tended also to do very well.

I suggest you look, for example, at the experiences of Hong Kong, Ireland, and Chile over the last 40 years. Today those are some of the freest countries in the world, and are wealthy. It wasn’t the case 40 years ago. Consider the effects that increasing openness have had in China and India in recent years. There are many more examples.

If you are genuinely concerned about the welfare of the poor in third world countries, then you should work to increase their economic freedom. That, more than any project or subsidy, is what can allow them to lift themselves out of poverty.