21 May 2018

Global Justice Now are wildly wrong about technology, trade and poverty


Cuba is a rich country. Fabulously so in fact. That’s the logical conclusion of the latest report from campaign group Global Justice Now.

This is not a reference to socialist planning, the destruction of markets nor political repression. Instead, the authors insist that an autarkic economy, one that trades little with dastardly foreigners, is a richer place. If this were so then Cuba really would be rich, wouldn’t it?

GJN’s specific concern is over how the bright new online economy works. Should poor countries in Africa allow Silicon Valley in for example? The correct answer is yes, of course they should. Search engines are worth about $17,000 a year where they are available. Why would anyone poor, let alone a poor country, want to reject that free value offer? The answer, according to Global Poverty Now, is that allowing in such behemoths will stifle any domestic production of such things. It’s a stance which ignores three rather important things.

First, we know that it’s the competition from those foreigners which is why trade makes us rich. Domestic resources only get used to do something where it is done better than can be gained elsewhere.

The second point is exemplified by Cuba. The place has had very little trade with anyone for decades now and is transparently not a very well-off country, so the argument that turning away from trade increases wealth would seem to fail.

The third is by far the most important though. We have already tried this autarkic development system across much of the globe. After World War Two all those newly independent nations were going to make their own steel, their own cement and build their own industries – pretty much none of which worked. It was only with the arrival of globalisation, where markets decide what is made where, that the poor started to get richer.

This is hugely more important today when we look at complaints about tech giants harnessing network effects. But the fact is, the more people use one of these services then the better and more useful the service itself is. The efficient size for a social network or a search engine is global. Are we really going to increase efficiency in an industry with network effects by insisting upon not allowing producers to exploit said network effects?

But quite the most glaring error is that these left-wing campaigners agree with Donald Trump on trade. Imports are something that must be taxed in order to impoverish domestic consumers. They actually complain that the WTO does not allow tariffs against imports of e-commerce products. This is to wildly misunderstand what is often wrong in a poor economy, which is that markets are not complete.

Imagine a meadow owner and a goat herder. They don’t know of each other’s existence, nor that there’s some fodder available for the goats.  The transaction doesn’t happen, the goats go hungry and the food rots. Now we add in information and communications – this brave new e-world is really just that – and the two can find each other. The grass gets eaten, as presumably do the goats in time, and all are richer.

A previously unused resource is now meeting a human need – it’s the very definition of getting richer. We do actually know that this is what happens too, the digital revolution allows markets to become more complete. That’s why just 10 per cent of the population having a mobile phone lifts GDP by 0.5 per cent a year. Being able to communicate easily is an essential prerequisite to people being able to partake in more economic activity.

Global Destitution Now is arguing that none of this should happen. That the new technologies which will increase economic growth, will reduce abject poverty, be allowed into the poor countries which can make the most use of them. Instead barriers must be placed in the way of the people who know how to do these things in order that, well, in order that what? It all happens more slowly and thus people are poorer for longer?

That is what they are effectively arguing. We human beings collectively now know how to do some pretty cool things, but poor people should apparently not have access to said knowledge and techniques. We should instead have the sort of self-contained economy that made Cuba so rich. How much do you have to hate actual poor people to argue in this manner?

Tim Worstall works at the Adam Smith Institute and Continental Telegraph.