A Small New Zealand in a Big World

Presentation to the Browning Institute, of Public Affairs forum “The WTO in Hong Kong: Make or break time for neo-liberalism?”, 14th of December, McKenzie Room, St John’s in the City, Wellington.

Keywords: Globalisation & Trade;

If New Zealanders are to do what they say they want to do, the New Zealand economy is going to have to specialise in what it is good at, to obtain the dynamic economies of scale which give the high productivity which can underpin New Zealanders’ desire for a rich, sustainable and varied material and non-material life. The New Zealand economy will then have to trade much of what it specialises in, for that which it cannot produce so well. That rules out autarchy and puts us squarely into a world of international economic engagement.

Because New Zealand is small, its best trading strategy is multilateralist, that is as a part of a interconnected world where trading relations are regulated by the rule of law, based on mutual agreement. We are not big enough to be able to go unilateralist, and a bilateral arrangement would be akin to that between a colony and an imperial power, as occurred when we were a member of the British Empire. Multilateralism in international economic affairs parallels our multilateralism in political and security affairs.

The existing multilateralist economic regime is under the World Trade Organisation. The WTO is not perfect, but it is the best we have, and it has, I believe, the opportunity of improving. It is a bit like the nascent democracies of the past. They were dominated by bullies (unilateralists and imperialists); they were often unjust, and imposed unfair practices on the weak. But over the centuries the bullies got reigned in, there were some reductions in injustices, and the lot of the weak improved relative to the bullies. The same applies for the WTO regime. It is far from perfect – there is still too much room for bullies – but it can get better if we work at it. A better alternative to the WTO is not obvious.

The Doha Round is a part of the way of improving it. But much of the rhetoric about it and international trade is nonsensical – from all sides.

First, trade liberalisation does not give a big boost to economic activity in the short run. That means it wont reduce poverty much in the short run either.

Second, the short run impact of trade liberalisation is to give large benefits to some groups at the expense of large costs to others, especially those who have to be redeployed as their work closes down after losing protection.

Third, much of the posturing going on is how to ensure each country can maximise its benefits from a partial trade liberalisation. One substantial beneficiary from the round could be New Zealand. One estimate is the ending of export subsidies will raise the return on our beef by 8.4 percent, sheepmeats by 18.0 percent, and raw milk by 17.1 percent.* This is because the bullies have rigged the world trading system against New Zealand farmers. They have also rigged the system against developing world cotton producers and sugar producers.

Fourth, the big gains from the Doha Round are in the medium run, when the dynamic effects of specialisation become effective. Trade from that source has been a major promoter of growth and development of medium and small size economies, and of regions in large economies. Not all countries will benefit (in proportion). China is likely to be the biggest beneficiary. Some may suffer, especially if they cock up their responses to the opportunities a more liberal trade regime offers. The bullies may help them to do so.

We need to be clear about the consequences of a failed Doha Round. It could be business as usual. It could be a renewed effort to progress the rule of law. However the most likely outcome would be a breakdown in the world trading system. There are still unilateralist imperialist bullies, and countries like New Zealand could be forced into bilateral colonialist deals. The spectre which haunts economists is the breakdown which occurred in the 1930s, contributing to the slide to the Second World War.

The issue is how to progress the world trading regime. It is easy to say the WTO is terrible and the Doha Round is worse – that may be even partially true. But what is the progressive alternative?

A related column written about the same time.

* An analysis of agricultural trade policy reforms and their impact on the EU, China and New Zealand by Caroline Saunders, Anita Wreford and Shanika Rasin

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