Why Barriers Don’t Matter

Jagdish Bhagwati, a prominent economist at Columbia University and ardent supporter of more free-trade deals, scoffs at such numbers. The World Bank study and its ilk are "ridiculous," he says. "They've got gigantic models. If somebody changes an assumption or two out of the 300 you have to make, you can get what you want, almost. These are pseudo-numbers." Rodrik doesn't disagree, but says that if anything, the models are skewed in favor of the free-trade agenda.

But Bhagwati has a deeper criticism. Rodrik and those who agree with him wrongly focus on the very visible forms of protectionism, such as tariff barriers and agricultural subsidies, at the expense of its more insidious forms. Most countries abuse trade rules to a certain extent to achieve de facto protectionism without resorting to tariffs. And services like health care, entertainment and telecommunications still largely abide by national boundaries, but since they're not like compact discs or mobile phones, which can be shipped by sea, they're not a big part of the trade debate. The Doha negotiations aim to make some headway on freeing up services, but even if that's successful it won't be enough, says Bhagwati. "I don't think our task will be done until another three rounds of negotiations," he says.

But if the World Bank projections are anywhere near correct, we may first have to decide how hard to fight for a 0.04 percent jump in GDP, and whether our time, effort and tax dollars might be better spent elsewhere. The gains implied by the World Bank are "nothing to scoff at," says Rodrik. The problem is that "if you are going to be spending political capital, spend that capital in areas where it can make a difference." In Rodrik's view, the latest round of Doha talks collapsed not just because of stubbornness on the part of India or any other nation, but because nobody cared that much in the first place. "The Doha agenda itself is really small potatoes. There just wasn't enough on the table."

So what is worth the effort? Something that most people don't even consider a part of "trade" at all: labor mobility. Pretty much every expert agrees that creating a guest-worker program in the rich world would be one of the best ways to fight poverty and boost global incomes. The economic effects of migration are "profound," says Dilip Ratha, an economist at the World Bank. "Even a small increase in migration can produce significant welfare gains, and those welfare gains can be much larger than complete trade liberalization." His 2005 study showed that if the OECD countries let in just 14 million additional migrants by 2025—that's about 700,000 extra migrants a year, spread across the entire rich world—the global economy would be better off by $356 billion. By comparison, if the world could completely eliminate agricultural barriers, the benefit would amount to barely half that: $182 billion. Because of political opposition—farmers love their crop subsidies, and in most countries immigration is a touchy subject—either one would be tremendously difficult to accomplish. So why not get your money's worth?

© 2008