On Solutions: Public or Private
World Trade Agreements: Advancing the Interests of the Poorest of Poor
John O. McGinnis, Yeshiva University, Benjamin N. Cardozo School of Law

I. My concern in this talk is with the poorest of the poor, those who now sell charcoal in Madagascar or sell textiles in the Andes. To walk among these people is to witness real poverty and inequality–not the relatively small measure of poverty and inequality observed within Western society. In Western society, whatever the formal measures of inequality, there has been a large convergence in ways of life both within developed nations and among them. Even our relatively poor citizens have access to what the extremely wealthy had only a hundred years ago. To travel in the developing world, however, is to see the kind of raw poverty that blights all opportunity, makes the relatively young seemed aged, and the previously healthy prematurely infirm.

II. A. Free trade is a way to help the world's poor, including those whose poverty is life threatening. At a theoretical level trade opens new markets in areas where developing nations produce efficiently and thus allows the poor to raise their income. It also brings them into the web of exchange, encouraging the skills of entrepreneurship and habits of industry that will lift them from poverty. The additional skills and income in turn help give the poor an independence from their governments and thus leverage to push for changes in their own nations that will better their lot.

B. Empirically, there is huge amount of evidence that trade help poor countries become more wealthy. One major difference, if the not the major difference between developing countries that have prospered and those that have not, is their participation in world trade. Moreover, empirical evidence also shows that trades helps those lowest in the income scale of developing nations as much as those higher on the income scale.

C. Free trade also helps make nations wealthier even as it provides benefits to the least fortunate. It provides cheaper goods for our consumers and new markets for the goods we produce most efficiently. While evidence is conflicting whether it increases inequality within wealthier countries, we have evolved government mechanisms from progressive taxes to targeted retraining grants, to compensate for losses of less well-off. This option is far more efficient than simply blocking trade.

D. Moreover, the advantages of free trade to groups in developed countries are crucial to obtaining open trade for developing countries and thus to help the poorest of the poor. Protectionist interest groups have substantial leverage in developed democracies and use that leverage to block imports of goods from other countries. The World Trade Organization, however, provides a framework for reciprocal tariff reductions. Reciprocity gives exporters in developed countries an incentive to lower tariffs in their countries so that they can obtain lower tariffs abroad. This political structure makes rich exporters the guarantors of the interest of the poor in the world in free trade.

III. A. I do not mean to suggest that poor are helped only by bread alone. Civil rights are also helpful to the poor. But trade agreements can also facilitate the expansion of civil rights in developing countries not through fiat but through encouraging a process which will generate pressure for such rights internally. Civil rights are highly correlated with wealth of society. This accords with historical evidence that because of prosperity a rising middle class demands civil and political rights to help secure its swelling wealth against the dangers of tyrannical government and political instability.

B. The ability of multilateral trading agreements to cascade into civil rights has one important advantage over the direct international pursuit of human rights: it is more likely to be honored by the most despotic countries. Many countries, particularly developing nations that have signed the Universal Declaration on human rights as well as the most important human rights conventions, continue nevertheless systematically to abuse the civil and political rights of their people and resist basic democracy.

C. In contrast, despots are more likely to honor trade multilateralism, because expanding trade will make their nations richer and therefore redound to their personal advantage by permitting them to increase their tax revenues and other exactions. Therefore by offering attractive bait to hook despotic regimes multilateral trade agreements may actually provide a more effective, if circuitous, route to securing civil and political rights than civil and political rights conventions themselves. In this way trade agreements are also in the long run advantage of the poor.

IV. Unfortunately, groups in developed nations are seeking to limit trade unless the World Trade Organization, the international agency that now administers the General Agreement of Tariffs and Trade as well other global trade agreements, moves toward imposing labor and environmental standards on exported products. This stance, taken at the behest of labor unions and other wealthy interest groups in the developed world, represents a dramatic break from the policies pursued by every post-war President from Truman to Bush that favored freer trade without regulatory strings. As leaders of developing nations understand, this new trade regime would retard, perhaps even end, their economic progress. Developing nations cannot afford our labor and environmental standards, just as they cannot afford many other goods that the West takes for granted. Moreover, as Mark Movsesian and I demonstrated in a recent article (The World Trade Constitution, Harvard Law Review) industries and workers in the developing world lack the resources or lobbyists to defend their interests in the distant international forums in which regulations would be forged. As a result, international rules would tend to block exports from developing nations, dealing a blow to the prospects of the poor in the developing world.

IV. A. The WTO's structure's help for the poor has some general implications for ways of using government to aid the poor. Note that a key step in the WTO example is to link the poor's interests to the tangible interests of a wealthier, more influential group, in this case the exporter classes within developed countries. This solves a pervasive political problem for the poor, particularly in modern democracies. The same characteristics that make them poor, such as lack of education, also make them in unlikely to have much influence in politics.

B. Moreover, as Michael Rappaport and I have noted in an article (Supermajority Rules as Constitutional Solution, William and Mary 1999), the poor are even less likely to become organized as a special interest group of the kind that has influence in modern democracies. The poor are a diffuse group and have few resources to spend in becoming organized. Moreover, even if the poor somehow formed an organized group, they would be relatively ineffective because they have few resources other than their votes to contribute to the support of politicians. The consequences of this fact seem apparent in the federal budget; the programs that are the largest and have the most political support are not programs for the poor, but instead are middle class entitlements such as Social Security.

C. Thus the question is how to link the interests of the poor to a more influential group. The difficulty is to find a surrogate groups whose interests are really aligned with poor. Unfortunately, the history of efforts to help the poor in the United States suggest that those who purport to speak for them often have very different ultimate interests. For instance, although the war on poverty created benefits for middle-class bureaucrats, there is substantial evidence that it actually hurt the poor. Similarly, legislation that benefits teachers' unions seems to increase the drop-out rate in public high schools, which disproportionately hurts the poor. These results should not be surprising, because there is no general reason to believe that legislation intended to help majoritarian interests or special interest groups will systematically help other diffuse groups.

Moreover, the share of general resources shaken loose by such legislation and shifted incidentally to the poor by the kind of redistributionist legislation pursued by interest groups may be outweighed by the disincentives or other bad effects that the legislation has on the poor. Welfare programs are a prime example. Powerful public service unions support welfare because it requires a structure that provides jobs to their members. The disincentives to work caused by welfare are at best irrelevant to the interests of union members; thus, the members oppose programs to alleviate such disincentives whenever such programs would threaten their interests even mildly, as when welfare recipients are given jobs that conceivably could be given to union members.

D. The key therefore is to find some group that benefits from the same policies that will benefit the poor. Concentrated interests groups that benefit from the lifting market restrictions are a prime example of the group. Lifting restrictions benefits entrepreneurs as well as the poor. Government monopolies over primary and secondary schools are a case in point. Concentrated interest groups, like educational entrepreneurs and religious institutions, may have interests in eliminating this monopoly that are linked to the interests of the poor. The question is how to create structures that encourage, or at least do not discourage, these interests from virtually representing the poor.

Conclusion: The key to advancing the interests of the poor is to structure society to empower those who will make common interest with the poor. Frequently, those who say they have common interests actually have quite divergent interests. Happily, the WTO's empowerment of export interest groups have given a greater voice to the poor of the developing world in the politics of the developed world. We should applaud this aspect of the WTO and search for similar mechanisms elsewhere in the law to accomplish the same objective.