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Slowly, But Surely, Trade Erodes Global Poverty

Small, everyday purchases can have far-reaching effects on poverty in distant lands, especially those on the least-developed country list from the United Nations, those with per-capita incomes averaging less than $3 a day. Only a few years ago, the outlook for this group with ineffective governments and stagnant economies was bleak. However, the first decade of the millennium shows marked improvements for the poorest nations, including improved growth and school enrollments along with declining rates of malnutrition and communicable diseases. Trade reforms, aid, infrastructure investment and strengthened international relations have led to better policies in the poorest nations – so much so that the UN speculates that 22 of the 49 LDCs could graduate from the UN list by 2020. Trade expert Edward Gresser reflects on the ability of American consumers to purchase rice from Cambodia or birdseed from Ethiopia, and the countless, inspiring ways that trade has bettered lives for a billion people in 49 countries. – YaleGlobal

Slowly, But Surely, Trade Erodes Global Poverty

With trade, 22 nations could graduate from UN’s list of world’s poorest states
Edward Gresser
YaleGlobal, 2 November 2011
Cambodia’s feeding fields: Thanks to a bountiful harvest, Cambodia has resumed exporting rice to the world

WASHINGTON: Asian Market in Rockville, Maryland, has a pallet by the wall, stacked 6 feet high with 25-kilo bags of Angkor Rice – a high-quality jasmine, stamped in blue with the iconic five-tower silhouette of Angkor Wat. Harvested this spring, it is part of Cambodia’s first batch of rice sales to the United States since the 1960s. Two miles away at the Home Depot’s garden desk in Silver Spring, one can buy smaller bags of Niger seed, a top-end birdseed favored by finches and other songbirds, grown in the Ethiopian highlands as a staple crop for thousands of years and now harvested for American bird-lovers.

Mundane stories of trade like these rarely draw much attention. But the humble bags of rice and birdseed deserve a space among the genuinely big developments of the new millennium. Such exports are the tangible evidence of one of the last decade’s remarkable trends: the revival of the world’s poorest countries, and a vast, little-noticed decline in poverty.

Ethiopia and Cambodia are charter members of a depressing club – the United Nations’ list of “least developed countries,” or LDCs. First published in 1971, this list now includes 49 LDCs: seven in Asia, 34 in sub-Saharan Africa, six Pacific island states, Haiti, and Yemen.

Least developed countries, like Ethiopia or Cambodia, rarely
get much of the world’s attention, except
during crises.

Countries make the list by meeting three qualifications.   First, they have little money. Their per capita incomes average $905 or less – meaning in real terms, a farmer, hotel maid, or itinerant peddler supporting a family of five on $15 per day. Second, their people are often sick and mostly uneducated. LDC life expectancy is 59, a dozen years less than the world’s average; in 2000 their primary-school graduation rates were half the world average. And third, with governments often disorganized or unable to offer help in emergencies, they are unusually vulnerable to economic upheaval and natural disasters.

These countries rarely get much of the world’s attention, except during sensational crises. Only then do G-20 leaders hold meetings schedule meetings and high-minded rock stars and celebrities hold charity concerts – from George Harrison’s 1971 Concert for Bangladesh through the 1985 Live Aid appeal for Ethiopia to Bono and Angelina Jolie today. Few experts expect lasting improvements. In fact, Paul Collier’s justly celebrated 2007 book on their troubles, The Bottom Billion, closed on a typically pessimistic note:

“A billion people stuck in desperate conditions. … Conflict, natural resources, being landlocked, and bad governance have kept these countries stagnant for forty years, and I do not see much reason for the next couple of decades to be any different.”

His judgment had history behind it. Only three countries have escaped the UN’s LDC list in the 40 years since its first edition. And they are anomalies: Two small island states, the Maldives and Cape Verde, got off by cultivating high-end beach tourism; Botswana did it by careful management of income from a huge diamond find.

Collier found persuasive reasons to argue that the rest faced a brutal slog over decades. China, middle-income ASEAN states and Latin America had captured the rich-country farming and light-manufacturing markets that let them escape deep poverty. Energy and metal wealth in Africa was more likely to corrupt and impoverish than to raise living standards. Migration was likely to bleed talent and wealth. Aid often went wrong, and even geography was against the LDCs.

In the poverty count, the LDCs concluded the new millennium’s first decade better off than they began it.

But the pessimistic case could be wrong. In almost every important way – citizens’ health, the poverty count, the effectiveness and relevance of government – the LDCs concluded the new millennium’s first decade better off than they began it.

Economies began picking up. LDC GDP growth rates rose from the 3.1 percent average of the 1990s – essentially even with population growth – to 5.4 percent over the last decade. This year's figures are typical, above the world average and especially strong in the Sahel, the Horn of Africa, Southeast Asia, Bangladesh, and East Timor.

Higher growth rates over time brought larger real-economy output. World Bank figures show LDC manufacturing production up from $20 billion in 1999 to $44 billion in 2009, and farm production doubling with it. Cambodian farmers are an example. They produced 2 million tons of rice in 2000. Now they are at 8 million tons, enough to sell a half-million tons on the world market, and hoping for 15 million by 2015.

With rising output came better life. World Bank tables find low-income country malnutrition rates dropping by 20 percent since the 1990s, and primary-school completion up from 44 percent to 63 percent. Caseloads in many communicable diseases – leprosy, tetanus, malaria, cholera – have plummeted, while anti-retroviral medicines serve 3.2 million people in poor countries, up from 50,000 in 2000. Across the 49-country LDC list, life expectancy rose by seven years between 2000 and 2009, including jumps of eight years in low-income Asia, seven in West Africa and the Sahel, and eight in Haiti.

The list of poor countries may soon start shrinking. The UN’s most recent meeting about the list, held last May in Istanbul, concluded that 22 countries might escape it by 2020.

No single explanation seems adequate to explain why this has happened.

Bags of rice or birdseed in suburban markets signify an inspiring story stretching across 49 countries.

Within the LDCs, 1990s-vintage political and economic reforms have taken a beating as a stale “Washington consensus,” but appear to be earning slow but real rewards. Poor-country governments have encouraged investment by labor-intensive manufacturers, worked with donors to improve ports and farm-to-city roads, and put more effort into public health and primary education.

Rich-country policies are friendlier. Interested presidents – Clinton, Bush, Blair, Sarkozy – spurred by groups like Oxfam and DATA, and events like Live 8, bulked up their aid programs and made trade policy easier on the poor. Rich-country aid to the poorest countries jumped from $12 billion in 2000 to $38 billion in 2009, and private charities like the Gates Foundation added more. In America’s case, the Bush administration not only raised aid levels but added two imaginative new programs – the Millennium Challenge Corporation, which provides extra aid to proven reformers, and the President’s Emergency Fund for AIDS Relief, known as PEPFAR.

Trade reforms, though spottier, have relieved much of the pre-2000 tariff burden on LDCs’ manufacturing exports. Examples include America’s African Growth and Opportunity Act and Haitian HOPE, Europe’s “Everything but Arms” and similar tariff waivers in Japan, Canada and Australia.

China, and to a lesser extent, India rather than squeezing poor countries out of world markets, have emerged as big buyers of their goods. Their appetites for energy, metals, rubber and other commodities have improved poor countries’ terms of trade worldwide, and China matched the United States this year as the world’s largest agricultural importer.

Altogether, LDC policies have improved. The global system has become a bit kinder. And poor countries have capitalized on this with a remarkably good decade. More of their children survive infancy. More teens graduate from school. More adults earn good incomes. And more families expect life to be stable, decent and safe.

The visible evidence may seem mundane or dull. But the few bags of rice and birdseed in suburban Maryland markets signify economic reforms, better roads and new ports for rural Cambodia and upland Ethiopia, and ultimately an astonishing and inspiring story stretching across 49 countries and a billion people: In the poorest countries and the unluckiest places, life is better.

Edward Gresser is director of the ProgressiveEconomy project at the GlobalWorks Foundation in Washington, DC.

Rights:Copyright © 2011 Yale Center for the Study of Globalization

Comments on this Article

14 November 2011
Too many sweeping statements, too little evidence to relate facts. Trade could have eroded poverty, only if there hadn't been too many other factors at play.
-Puloma Dasgupta , India
9 November 2011
But the world is crawling with covetous corporations and superpowers who are full of unbridled greed who will not hesitate to continue to exploit the poor. Unless, these corporation and superpowers are willing to let others have their fair share - share and share alike - it is unlikely to see the world enjoy less poverty...
-Tum May , Cambodia
8 November 2011
it is very good to know that poverty is eroding slowly and gradually. these poor countries are playing and will be playing a major role to cope up with the rising prices in some countries like INDIA, CHINA etc.
how the developed and developing companies are showing co-operation for raising the life standard of poor countries, same way if all countries co-operate each other and eradicate nuke competition, world will be achieving unbelievable scenario.......
-DEVESH KUMAR SHARMA , india