LIBERALIZATION OF TRADE

The alliance between government and business

June 24 - 30, 2002

Throughout history trade has played a major role in spreading new faiths and cultures, and today free trade is playing a decisive role in changing the nature of political structures in developing countries. Liberalizing trade does not only cause economic growth, but it also helps foster institutional changes that contribute to the development of democracy. Increasingly, nations are realizing that in order to take full advantage of the benefits of a global economy, the most important factors are free trade and the supremacy of democracy.

Some in developing countries incorrectly assume that the benefits of free trade are merely economic, but it is not possible to keep economic reforms from extending to the political level. It is no surprise that those nations that have for long years had repressive political structure have also suffered from poor social and economic relations. Though some regimes were able to achieve seemingly concrete economic growth, it was superficial and could not be sustained in the absence of the necessary social mobility and political institutions that constitute a true democracy.

In the second half of the 20th century most of the developing economies of the third world had fallen under a number of destructive problems in the form of drastic economic, political and social problems. Many adopted closed socialist policies because these were closer to the mindsets of ruling military men and autocrats and resulted in the disappearance of active state institutions.

When these countries considered a transition to a liberal economic approach, they were faced with a weak private sector that played a marginal role in economic development and had grown dependant on a centralized economy. Rebuilding the private sector thus became imperative in order to solidify market-based reform efforts, even if it had to be artificially created.

Some of the ruling systems of third world countries achieved what they wanted by creating a private sector from government institutions and non-voluntary, and non-independent business associations. These government-run "private" institutions also served to limit international criticism against authoritarian regimes. However, some private businesses saw an advantage to this arrangement and cooperated with non-democratic regimes in order to seize opportunities facilitated by a vague and corrupt economic structure. This coalition between autocrats and their private sector cronies will be broken only as a result of fundamental economic and cultural changes that affect how the ordinary citizen thinks about the proper relationship between money and power.

Still, a number of third world dictators continue to resist these trends. Globalization's positive aspects especially liberalizing trade and opening borders for the flow of products and services, investments in the local markets and encouraging competition between different producers, breaks down the lobbies of corrupt interests, which exist between money and power. It is often these corrupt interests that call for the "protection" of their industry for the sake of "national interest." But it is these anti-free trade practices that are the reason why some third world countries lagged behind the global development, and were seized by a lack in technological progress, unemployment and debt.

High tariffs are one way in which crony capitalists use their government contact to shield themselves from competition in the global markets, leading to the deterioration of these economies. The result is a lagging industry, a corroded banking system and a corrupt and weak institutional system that undermines the nation's ability to compete. Meanwhile, some developing countries, such as those in South East Asia, that have opened their markets and lowered tariffs, have greatly benefited from new industries and a strong economy. South Korea is an example of this progress. It accepted an open door policy and it has had a big share of the industrial and economic progress, which has placed it among the leading industrial countries.

True integration into the global economy requires that the relationship between the public and private sector be transparent. Only then can government and the business work to establish an environment conducive to economic growth. When the private sector is focused on being competitive and building associations and a national agenda on this basis, they will demand that government regulations do not impede this process and address the problem of corruption.

For too many people in the developing world, market oriented reform and democracy have been too slow in coming. And despite efforts by those who claim globalization will hurt the poor, we see time and again that it is those countries most heavily involved in the world economy that are the most free and have the strongest rates of economic growth.

CIPE.ORG Feature Service