Markets and Morality

Cafod is right(-ish) on unilateral free trade – if for the wrong reason


The universal Church has not always been a strong supporter of globalisation and certainly not of free trade. In 1967, for example, Pope Paul VI published Populorum progressio. This was a major encyclical on human development which inspired the creation of Cafod and many other charitable organisations. The document was highly critical of free trade, suggesting that it might only work between countries that are roughly equal economically. It argued for price support schemes and for the protection of infant industries.

Such a view was popular among economists at the time. But such policies have tended to help the well-connected rather than the needy. Certainly, Africa and India have not benefited from protectionism. Among many reasons for this is that trade barriers promote corruption. Sir Paul Collier once noted that the bribe to get into the training school for customs officers in Madagascar was 50 times per capita annual income. Such a job in a country with high trade barriers is a well-trodden path to enrichment (rather like a tax collector in Jesus’s time). And Paul VI was wrong about trade not benefiting countries that are different. The more different countries are, the more they tend to benefit from trade.

Aware of the realities facing countries that rejected globalisation, John Paul II commented in 1991 that it was those countries that had integrated into international markets that had developed most quickly and that prevailing views had changed when it came to free trade.

Economic development does not necessarily equate to the integral human development that the Church demands, but it is certainly true that the participation of an increasing number of once poor countries in world trade has led to the most rapid fall in absolute poverty in the economic history of our planet. And the poverty that people have escaped was not just one characterised by a lack of riches; it was a poverty that had led to whole people’s being at permanent risk of malnutrition and starvation.

It is a pity that Christian charities have often been reluctant to admit the importance of trade and globalisation in reducing poverty. In the early 2000s they often called for more protectionism and encouraged poor countries to maintain their trade barriers. And, of course, Pope Francis has also been highly critical of globalisation. But the reality is that world income inequality has fallen dramatically as a result of globalisation and those countries that are the most protectionist have stubborn poverty rates.

It is in this light that it is refreshing to have a constructive contribution to the debate on free trade from Cafod. The charity is one of those Christian organisations that was lukewarm – at best – about globalisation in the early 2000s. Indeed, it was debating with Cafod that awakened my interest in Catholic social teaching.

The Cafod report is timely. Britain will soon control its own trade policy and, in the Trump era, we need to take a lead. Cafod wants a trade policy that puts the poor at the centre. Catholic social teaching demands that too – even if its specific recommendations have often been contestable.

Three main propositions from Cafod are of interest. I find myself reaching similar conclusions in two cases, though for different reasons.

Cafod argues that we should not demand that poor countries remove their trade barriers when we remove ours. Most economists would agree. Trade barriers against poor countries stop them moving up the value chain and harm British consumers. We should just remove them. I fear that Cafod believes that poor countries might be better off keeping their trade barriers, but their conclusions about British policy are, nevertheless, wise.

Secondly, Cafod proposes that the secretive processes around trade agreements such as the Transatlantic Trade and Investment Partnership (TTIP) should end. Again, they have a case. Trade agreements should be simpler and not negotiated in secret.

Thirdly, Cafod also wishes to tie trade agreements to labour and environmental standards. This is where we part company. There is a real risk that, in doing so, special interest groups in rich countries will use such clauses to ban the products of poor countries. This will not make badly treated workers better off, but, evidence suggests, lead them into the informal economy or prostitution. This is a very risky policy.

It is better to free up trade and then use civil society pressure to improve labour standards. Charities such as Cafod can, and do, work with supply chains and campaign groups to improve matters in a discriminating way which has far fewer adverse side effects.

Britain’s trade policy is a matter of life and death for many in poor counties. Post-Brexit, it should be top of the government’s agenda. And, whether you agree with them or not (or reach the same conclusions for different reasons), Cafod’s new document is a timely contribution to the debate.

 

This article was first published in the Catholic Herald.

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.


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