A Helping Hand(out)?
A HELPING HAND(OUT)?
A panel discussion from Warwick International Development Summit (WIDS) 2012
Is Fair Trade actually the fairest system? On a WIDS panel chaired by the University of Warwick’s Professor Harrison, Professors Lord Desai and Winters suggest that capitalism may have a more constructive role to play in international development than foreign aid, as well as offering their insights into austerity measures and the EU crisis.
Members of the audience took the opportunity to tap into two leading minds and the professors reciprocated the enthusiasm, pouring forth their ideas on the poverty gap, sustainability and the Washington consensus1. The following article is based upon those discussions.
Q) Is capitalism fundamentally tied to liberal democracy and justice?
Lord Desai: Before capitalism, the notion of justice was much more primitive. It was a feudal notion of justice. It did not treat people equally. Capitalism and liberal democracy? I don’t think there’s necessarily any connection between the two. The thing about capitalism is that it has moved in a variety of systems – democratic and non-democratic.
Professor Winters: You do see capitalism under a variety of systems. I think my own view would be that, liberal democracy is in some sense a little bit more conducive to the capitalist system in the sense that the political and personal freedoms are perhaps more consistent with entrepreneurialism, innovation and so on. But that’s, I think, icing on the cake.
I do think liberal, certainly, is an extremely good thing to be generally. Democratic is also a good thing to be. I wish everyone luck in getting it but I’m just not sure it’s for me to impose it on another. It’s one of the problems when you say you’re liberal; a liberal does not go around imposing things on people.
Q) Is the Fair Trade movement a useful model for international development?
Professor Winters: It seems to be a perfectly reasonable thing to say ‘Yes, we’ll pay a bit extra for our coffee or a bit extra for our bananas in return for a commitment about how those [financial] returns are divided. Whether that’s the secret to international development, I really seriously doubt.
I had a research student who looked at coffee marketing costs in Costa Rica, right down at farm level. She did find that if farmers were part of a Fair Trade cooperative they got slightly higher returns on their coffee and slightly more stable returns on their coffee. And that sounds like a good thing. However, the inconvenient fact was that even better than being part of a Fair Trade cooperative was flogging your coffee to dear old Nestle. Nestle actually paid higher prices and more reliably. So what was going on? Nestle were probably just better at doing these sort of things than the Fair Trade movement.
Q) Do globalisation and capitalism cause the poor to get poorer and the rich to get richer?
Lord Desai: As countries get richer their idea of poverty also gets more affluent. A British poor household should have a television or a car or a telephone and things like that but you would not expect that for a poor family in India. In some ways we get more ambitious about how much poverty we remove.
Labour used to be scarce in developed countries and that scarce labour has suffered due to trade. People used to be in manufacturing: unskilled or semi-skilled manual workers on full-time jobs, working 48 hours a week and having good trade unions. Those people have suffered because industry moved away and a lot of them are now long term unemployed or they’ve gone into low paid service sector jobs. In a sense they have been relatively impoverished.
Professor Winters: I think one only has to look at China, where 500 million people have been pulled out of poverty, basically on the back of an export led growth policy to see that the poor growing poorer on average is just not the case. The poor grow poorer simply in regard to other serious errors in economic and possibly political management.
Now, having said that, one of the features of the world economy is the rich do grow richer. We are something like a superstar economy now, whereby if you are lucky enough to start Microsoft or Google or Facebook, you can get extremely rich. A number of people find that a bit offensive. I have to say I don’t. It seems to me that when we talk about economic policy, to have a concern about the poor seems to me right and proper but I don’t believe that the world gets worse off if Bill Gates has $400 billion rather than $300 billion. It just doesn’t matter. It really matters a great deal whether the Indian equivalent of Mrs Jones has an income of $700 or $750 a year.
Q) What is the role of charities, not for profits and social enterprises? How do they fit alongside their capitalist counterparts?
Professor Winters: I think life is a great deal richer for social enterprise and NGOs/civil society organisations. It’s occasionally very sad when governments wash their hands of responsibilities and believe that civil society organisations can pick them up but, on the other hand, there are many problems in life that, traditionally, people have set out to try and solve in smaller units than national government. We cannot look to governments to do absolutely everything. People should have an ability to help and solve problems themselves and be encouraged to do so.
Q) Are NGOs by default left-leaning, politically, and would you say third sector workers feel uncomfortable with capitalist organisations being involved in development?
Lord Desai: A lot of people don’t like capitalism. There was a time in the fifties when people thought capitalism not only did not help development but was hindering development and it would never last - only socialism was a path to get poor countries out of poverty. Nobody thinks that now. When people think capitalism is bad they really want the 1970s welfare state back or something like in Scandinavia which they don’t know much about.
Professor Winters: I come across a lot of people who believe in sustainability and disapprove of international trade and so on but they nonetheless drive their cars to go to the supermarket to buy the very cheapest pair of underpants they can find that happen to be made in China. If you really think the system stinks that much, it does seem to me a degree of consistency in not taking advantage of it is required.
Q) What are your views on the Washington consensus and how it played out in Latin America?
Professor Winters: It’s very plain that the Latin American countries have in general, Chile would be an exception, had more than a lost decade and that was associated at the time with the Washington consensus. It’s not completely clear to me that the Washington consensus caused that. There were other serious problems of economic management in Latin America. And we’ve seen in, at least in some of Latin America, in the last six or eight years, particularly in Brazil, a serious effort to address that. One needs to look carefully at the numbers to see exactly what was happening and one also needs to think quite hard about what was the cause. Just because it happened at the same time as a certain amount of trade liberalisation going on does not necessarily mean that it was the result of trade liberalisation.
Lord Desai: What the Eurozone is going through right now is the Washington consensus. If you got yourself into debt, there are not very many ways you can get out of debt without going through a lot of hardship and what Washington said was ‘balance your budget’. How you balance your budget is then a political choice.
The Washington consensus is basically budget orthodoxy. That is exactly what we have to go through on this side of the world because we have lived beyond our means for a while and we are having to follow the same rules as [Latin America] did.
Professor Harrison: The author of the Washington consensus was John Williamson who was a Warwick Economist. He’s always said the Washington consensus was a consensus. It was a consensus of people involved in policy making, left to right, liberal or conservative, as to what was the recipe for developing countries at that time. What many people mean nowadays by the Washington consensus was not in what he wrote. It’s worth going back to what he wrote to read what he actually said.
1The term 'Washington consensus' was coined by economist John Williamson who taught at the University of Warwick from 1970-1977. An extract, from John Williamson’s book on Latin American, describing the consensus can be read here »
Mark Harrison is a Professor of Economics at the University of Warwick and a research fellow of the Hoover Institution on War, Revolution, and Peace at Stanford University. He has written or edited a number of books including Guns and Rubles: the Defense Industry in the Stalinist State, published in 2008 in the Yale-Hoover series on Stalin, Stalinism, and the Cold War; The Economics of World War I (Cambridge University Press, 2005); and The Economics of World War II (Cambridge, 1998).
Professor Lord Desai studied at the University of Bombay and wrote his PhD at the University of Pennsylvania. In 1991, he became Lord Desai of St Clement Danes. He has taught at the London School of Economics (LSE) since 1965 and was made a Professor of Economics in 1983. He established the Centre for the study of Global Governance in 1992.
Professor Alan Winters CB teaches Economics at the University of Sussex. He is a Research Fellow and former Programme Director of the Centre for Economic Policy Research (CEPR, London) and Fellow of IZA, Munich. From 2004 to 2007 he was Director of the Development Research Group of the World Bank and was previously Division Chief and Research Manager (1994-99) and Economist (1983-85) at the Bank. He has also worked at the Universities of Cambridge, Bristol, Wales and Birmingham. He has been editor of the World Bank Economic Review and associate editor of the Economic Journal. He has also advised, inter alia, the OECD, DfID, the Commonwealth Secretariat, the European Commission, the European Parliament, UNCTAD, the WTO, and the Inter-American Development Bank.
Image courtesy of WIDS
Also on the Knowledge Centre
Related WRAP articles
Markevich, Andreĭ, 1976- and Harrison, Mark, 1949-. (2011) Great War, Civil War, and recovery: Russia's national income, 1913 to 1928. Journal of Economic History, Vol.71 (No.3). pp. 672-703. ISSN 0022-0507
Harrison, Mark, 1949- (2009) Forging success: Soviet managers and false accounting, 1943 to 1962. Working Paper. University of Warwick, Department of Economics, Coventry.
Harrison, Mark, 1949- (2008) The frequency of wars. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers.
Harrison, Mark, 1949- and Byung-Yeon, Kim. (2006) Plans, prices, and corruption: the Soviet firm under partial centralization, 1930 to 1990. Journal of Economic History, Vol.66 (No.1). pp. 1-41. ISSN 0022-0507