A Way Out for the Developing World
Trade is the “only exit path” out of the financial crisis for the developing world, according to Pascal Lamy, Director General of the World Trade Organization (WTO). Speaking at a conference organized recently by the Bertelsmann Foundation, he declared pointedly that domestic consumption is unlikely to jump start developing countries’ economies since their populations are relatively poor and their states do not have significant capacity for public spending. In the short term, Lamy said, trade is the “low hanging fruit” or easiest option for generating growth, and he called for short-term financing by the World Bank and International Development Bank to help build trade capacity in the developing world.
While trade has been the engine of growth for countries like Brazil, China, India, and South Africa, Lamy argued that this is only possible where accompanied by transparency, accountability, rule of law, and infrastructure. Trade is the “rescue strategy” from the economic crisis not just for the developing world, he suggested, but for the developed world as well. “I understand why Obama has focused on exports,” he said, arguing that that increasing trade with the developing world was in the “enlightened self interest” of the United States and Europe as well.
The financial crisis has hit both the developed and developing world hard, and Lamy’s comments identify the role that trade could play in foreign assistance policies. “Aid for trade” has been debated for years, recently around the WTO’s Doha round of trade negotiations, yet to be completed, and strong opinions can be found on all sides. With 40 percent of U.S. exports now going to developing countries, this conversation will continue to grow.
