Debacle in Seattle Was a Defeat for the World’s Poor

For the future of the world economy in the wake of last week’s trade debacle in Seattle, the most important story lies in the fate of the 115 developing economies that are home to 80% of the world’s people, most of whom subsist on less than $2 a day.

The developing countries were supposed to be chief beneficiaries of a new round of trade talks. The Seattle meeting was to have launched what the World Bank called “The Development Round” of global trade talks, an attempt to close the gap between poor countries and the rich.

New measures were to be negotiated giving developing-country textile and agricultural exports greater access to the industrial-country markets of the U.S., Europe and Japan.

But that won’t happen now. The developing countries suffered a defeat in Seattle, partly at the hands of the much-publicized coalition of U.S. labor and environmental groups that now seems to enjoy a veto over any U.S. moves on trade.

Basically, the Seattle breakdown means there will be no improvement in the system governing how the U.S., Europe and Japan accept the goods and services of the less developed.

Equally important, there will be less formal regulation preventing the poor countries from pirating software and film and music videos.

The world economy has entered a time of tensions “between the big powers and the big emerging markets,” says Jeffrey Garten, dean of the Yale School of Management and former U.S. undersecretary of commerce.

A mark of those tensions: the repeated descriptions in Seattle of developing countries as employers of slave or child labor, low-wage exploiters of their own citizens and tools of corporate greed. In many ways, Seattle was a festival of despising the world’s poor.

It all makes this a watershed for the economies of Mexico, China, Brazil, India, Indonesia and the nations of Africa. They are beginning a second stage of development, one involving the creation of legal systems and social infrastructure that could lessen the tyranny and disorder under which the poor of the world now live.

All of this is important because the developing world is not going away. Though poor, developing economies account for about 40% of world income, says Joseph Stiglitz, chief economist of the World Bank.

And they are growing. The developing countries will add 2 billion people to the world’s current 6 billion in the next 25 years.

So we should understand their issues and their prospects in the aftermath of Seattle.

James Wolfensohn, president of the World Bank, in a recent speech at UCLA, recalled visiting a center for immigrants in South-Central Los Angeles and a similar hostel for street kids in Honduras.

The differences were marked. Even the poorest people in Los Angeles earned 70 times the income of the poor in Honduras, Wolfensohn noted.

And income was not even the main distinction. In Los Angeles, Wolfensohn noted, there is a “comprehensive legal system, protection for property rights and the capacity of people to work in civil society.”

In Honduras and in most developing countries, there is no such legal system infrastructure. Instead, there is fear of their own governments and police. “Women have fear in their daily lives,” Wolfensohn said.

Wolfensohn prescribed the kind of solutions that weren’t taken up in Seattle. First, boost developing country economies by expanding access to rich countries, which put up “higher barriers to developing country exports than to those of other industrial countries.”

That prescription will not be filled. Indeed, past promises have not been kept. The global multi-fiber agreement, signed 10 years ago by the industrial nations, was supposed to have reduced barriers to textile imports by 50% by now. But it has reduced them by only 7%. That is why the poor countries distrust trade agreements, and why they ultimately opposed the Millennium Round in Seattle.

So what happens now? The World Bank is changing its focus from building dams and roads to supporting the creation of legal systems and social infrastructure such as health and nutrition programs. Legal systems are important. One reason developing countries fear the intellectual-property agreements industrial nations insist upon is that they lack credible courts and laws and lawyers of their own, and so are at the mercy of the rich and advanced economies.

The World Bank also will form partnerships with private capital in what Wolfensohn calls “second- generation” reforms.

He told of visiting a slum outside Rio de Janeiro, where private investment had financed a water and sewage system. Village women proudly took him to see a flush toilet, Wolfensohn recalled, and “waved their water bills in my face.” It was not a complaint but a notice that the bills had been issued in their names; they were members of society.

Greater market freedoms have been overwhelmingly positive for developing nations. “In the past 20 years, the developing economies of Asia . . . have benefited tremendously in terms of increasing longevity, declining infant mortality, increased schooling and rapid gains in gross national product, “ says Richard Drobnick, USC’s vice provost for international affairs.

But after Seattle, the outlook is less confident.

To be sure, patterns of imports and exports will continue pretty much as they are. The U.S. isn’t likely to set up factories to produce the low-priced underwear it now imports from Asia and Central America, nor is Congress likely to reject normal trade relations with China when the vote comes up next year, says economist David Malpass of investment firm Bear Stearns.

But the outlook for developing- country growth in the aftermath of the Asian crisis and the Seattle debacle “is uneven and fragile,” economist Stiglitz said Tuesday.

Future prospects depend on flows of private investments to bring water to poor villages and social standing to their people. The Seattle conference was supposed to contribute to those goals, but it ignored the poor and it failed.

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James Flanigan can be reached by e-mail at jim.flanigan@latimes.com.