Southern Demands and a Constructive Alternative
Advocates of laissez-faire and free trade have traditionally urged a posture of ‘trade not aid’ as the keystone of North-South economic relations. Friedman’s essay (1958) is the classic statement of this position and derives from what Reder calls the Tight Prior Equilibrium’ theory, which is the essence of Chicago Economics (1982, p. 11). Built into this set of assumptions is the presumption that income-distributional factors can be neglected in the determination of the efficiency of a policy prescription. This postulate is no different from that which dominates formal welfare economics; such analysis also assumes that the economic system will eventually attain the foreseen long-run equilibrium without any incidental breakdown in the tendency toward equilibrium either cyclically or politically (Gray and Gray, 1982, Section VI). Under extreme conditions, the assumption of stability may not be warranted within a nation and poverty is an essential ingredient in many instances of anarchy and in revolutions. When the component economic units are nation states, the assumption that income-distributional aspects can be safely neglected is tenuous to the point that the postulate becomes misleading in any pragmatic context. None of this means that a ‘trade not aid’ posture is entirely without merit and needs to be discarded in its entirety.
KeywordsForeign Exchange Free Trade Transfer Payment Official Development Assistance International Economic Order
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Notes and Reference
- 1.The North is always available in southern countries to serve as a scapegoat to be blamed for non-performance. The proposals could be seen simply in this light but that would amount to an excessive interpretation of reality.Google Scholar
- 2.The origin of this idea was the Development Advisory Committee of the OECD.Google Scholar
- 3.The ‘consensus statement’ of UNCTAD VI contained a reaffirmation of this goal but the US disassociated itself from the statement and many other developed nations indicated that their acceptance of the statement was subject to some reservations or qualifications (UNCTAD, 1983, p. 2).Google Scholar
- 4.In the ‘consensus statement’ of UNCTAD VI, the developed nations ‘committed themselves to halt protectionism by fully implementing and strictly adhering to standstill provisions’. They also agreed to work systematically towards reducing and eliminating quantitative restrictions and measures (UNCTAD, 1983, p. 4).Google Scholar
- 5.If lower tariffs resulted in offsetting or partially offsetting non-tariff barriers being imposed, then southern nations would be worse off since GSP does not provide for preferential treatment in non-tariff barriers.Google Scholar
- 6.Of course, displaced workers exerting political pressures for protection are a straightforward expression of’ selfish interests’ but these are sectoral rather than national which seems to be the thrust of Li Ke’s remarks.Google Scholar
- 7.It may be advisable to exclude Greece and, potentially Spain and Portugal from this criterion.Google Scholar