Speeches

Globalization, Free Trade and Small Economies

Remarks by Ambassador John D. Rood to the University of Miami's MBA Reunion

July 7, 2006

 

Good evening and thank you for inviting me to speak here at the 25th Anniversary of the University of Miami’s MBA Program in The Bahamas.  Looking around at this distinguished audience tonight, this has obviously been a successful program.  Your group includes heads of businesses, a former Minister, a former Ambassador, a former CFO for the Roman Catholic Archdiocese and many other personal success stories.

This evening, I would like to share my thoughts with you about the effects of globalization on small economies, and about the importance of free trade in promoting economic development.

While I am speaking this evening as U.S. Ambassador to The Bahamas, I also bring to my discussion my experience as a businessman.  In fact, as I do my job as Ambassador every day, I always look at our issues and challenges from the perspective of private business, asking myself how can I apply what I have learned in business to the way we work in government.  In fact, the State Department's senior management has created a group of Ambassadors who have come from the business world who speak every couple of months to share thoughts on how to make the Department more efficient and apply some of our business best practices. 

From that background, I’d like to share with you down a recent observation about globalization and free trade by President Bush at the Council of the Americas.  He said: “Open trade is not just an economic opportunity, it is a moral imperative. Trade creates jobs for the unemployed.  When we negotiate for open markets, we are providing new hope for the world’s poor. And when we promote open trade, we are promoting political freedom.  Societies that open to commerce across their borders will open to democracy within their borders, not always immediately, and not always smoothly, but in good time.”

From President Bush’s comment, I see four key areas in which globalization and improved trade can impact small economies.  First, it empowers people.  Second, it develops infrastructure.  Third, it provides security. Fourth, it reduces poverty.

Globalization and free trade empower people and support democratic development.  When people place trust in what Adam Smith called “the natural system of liberty” rather than a government controlled flow of goods and services, this empowers people, stimulates creativity, and generates innovation.
 
What is clear in the world today is that liberty -- both political and economic, democracy and free-markets, are two sides of the same coin.  In the last 25 years, as the world has turned away from centralized economic controls toward a more open global markets, political and civil freedoms have also spread.

In 1975 the nonprofit group Freedom House classified only 42 countries as politically free, meaning that citizens enjoyed full civil and political freedoms.  Today that number has more than doubled to 89.  The emergence of civil liberties and more representative government in countries such as Taiwan, South Korea, and Mexico can be credited in large part to economic development spurred by free trade and market reforms.

In his book, Business as a Calling, Michael Novak explains the linkage with what he calls “the wedge theory”:  Free market practices bring contact with the ideas and practices of free societies, generate the economic growth that gives political confidence to a rising middle class, and raise up successful business leaders who come to represent a political alternative to military or party leaders.  As Daniel Griswold of the CATO Institute has observed, globalization wedges a democratic camel’s nose under the authoritarian tent.

The ssecond key point is that globalization and free trade will help develop national capacity for growth.  Free trade agreements -- whether bilateral or regional—are potent tools to implement reforms that will accelerate growth and increase competition.  They establish rules that foster investment and innovation, protect knowledge and creative industries, help counter corruption, improve the quality of service sectors, and lower costs.

Despite relatively strong economic growth in recent years, regional growth rates in Latin America and the Caribbean have fallen short of other regions and of what is needed for the region to fulfill its potential.  As the experience in other emerging regions of the world demonstrates, including the transition economies of Europe as well as the dynamic Asian economies, it is possible to achieve more rapid growth through more open markets and open economies.   Open markets provide incentives for firms to increase their competitiveness and reduce inefficiencies.
The fact that growth and poverty reduction are below the region’s potential can be attributed to relatively poor performance on a number of factors linked to increasing economic competitiveness. Business climate reform, infrastructure, and education are particularly important. 

The link between free trade and improved competitiveness is seen clearly in the case of the U.S.-Chile Free Trade Agreement. In just the first two years since the FTA’s entry into force, trade rose by a stunning 84 percent. Chile climbed to be the U.S.’s 29th largest export market (from 35th). Chile’s benchmark stock-market index (IPSA) has risen by 47 percent since the FTA entered into force. We have seen a 30% increase in trade and investment in the first year since it entered into force in 2004.

Another concrete example of the impact of trade liberalization is that trade between the United States and Mexico more than tripled from $81 billion in 1993 to $267 billion in 2004, in the wake of NAFTA implementation.   Since the passage of NAFTA, productivity also increased -- up 55% in Mexico and 28% in the United States.

The third key point is that globalization and free international trade foster international stability.  In an 1845 speech in the British House of Commons, Richard Cobden called free trade “that advance which is calculated to knit nations more together in the bonds of peace by means of commercial intercourse.”

Globalization doesn’t ensure peace, but it makes it much easier to maintain.  The tools of business – the internet, fax machines, phone calls, airplanes, the exchange of goods, of people – are also tools of understanding and collaboration.

China – U.S. relations provide an excellent example.  Certainly, the U.S. and China have significant differences.  We have tense exchanges on human rights and occasional differences on international issues.  But these exchanges are always dealt with in the context of the outstanding commercial relationship between our countries, the cultural exchanges we enjoy, and the common experiences that develop from a global economy.  And as our commercial ties grow stronger, so does our friendship.

Fourth, and perhaps most importantly to the people of the developing world, globalization and free trade provide benefits that reach those that need it the most. 

By spreading economic power more widely, free trade and free markets undercut the ability of elites in less-developed countries to pillage a nation’s resources at the expense of its poor.  Proof can be found in the immigration patterns of poor people throughout the world.  By the millions, they seek to leave closed and centrally controlled economies for those that are more open and less controlled.  Poor people themselves understand that a free economy serves their interests, even if many of their governments do not.

Nations open to trade tend to be more prosperous, just as cities along coastlines and navigable rivers tend to be wealthier than those in more remote, inland locations. The World Bank has reported that per capital real income grew nearly three times faster for developing countries that lowered trade barriers in the 1990s.

Significantly, trade-related growth has also been demonstrated to lift the poor.  To cite the most dramatic example of this, the World Bank estimates that the number of Chinese citizens living in absolute poverty— that is, on less than $1 per day—has fallen since 1978 by over 300 million.

A study by the International Institute of Economics estimates that global free trade could lift as many as 500 million people out of poverty and inject $200 billion annually into the economies of developing countries. 

I would like to conclude with a brief story in response to the main concerns developing nations and protectionist raise regarding globalization – we will lose our industries to other countries.  In my home state of Florida tomato farmers were all put out of business because other countries could produce tomatoes more efficiently overseas, at lower cost.  But, and this is the beauty of globalization, they adapted.  They found a product that could be more efficiently produced in Florida, sod.  Since then, tomato farmers have improved their profits.  

And this is perhaps the true lesson of globalization.  Not that It empowers people.  Not that it develops infrastructure.  Not that it provides security or reduces poverty.  The real lesson is that it is inevitable.  The choice is whether to react quickly and secure its benefits, or be left on the outside as Asia, Mexico and other countries ride the wave of prosperity. 

Thank you for your time.