A reality check on some myths circulated by opponents to Free trade in the Americas

Montreal, April 20, 2001 – The Executive Director of the Montreal Economic Institute, Michel-Kelly Gagnon, wants to set the record straight about some of the myths circulated by many opponents to free trade during the Quebec City Summit.

MYTH #1 – Free Trade increases inequalities: only the rich and multinationals can benefit

FACT: Objective studies have shown that openness to external trade (measured by the ratio between the external trade volume – imports plus exports – and the gross domestic product) and the unequal distribution of income are unrelated. Statistically, these two phenomenon are not linked together. In other words, it is false to pretend that free trade, as such, increases inequalities. (Source: David Dollar and Aart Kraay, Growth is Good for the Poor, World Bank, 2000)

MYTH #2 – The free market hampers social progress

FACT: Economic freedom and higher income levels go hand in hand. In its 2001 Annual Report, Economic Freedom of the World shows a positive correlation between economic freedom and the Human Development Index (HDI), as measured by the United Nations. The HDI is determined by three main indicators: life expectancy, knowledge and the standard of living. Countries with higher levels of economic freedom also score well on the HDI. The U. N. also computes a Human Poverty Index for developing countries. Using this Index, Economic Freedom of the World also found that economic freedom is negatively correlated with poverty. In other words, more freedom equals less poverty. (Source: Economic Freedom of the World, 2001 Annual Report, April 2001; co-published by over 50 public policy institutes from around the world.)

MYTH #3 – Civil society is opposed to free trade in the Americas

FACT: In a survey by Sondagem (conducted between February 23 and 27, 2001), 67% of respondents agreed with the statement that “extending the free-trade zone to all Latin-American countries will improve the standard of living of Canadians”. While some have questioned the democratic nature of the summit, it must be noted that street demonstrators are unelected while those sitting at the summit are duly elected representatives of their respective countries.

MYTH #4 – Multinational corporations are exploiting workers in poor countries

FACT: Figures show that multinationals pay wages that are 2 times higher than the wages paid by non-multinationals for comparable work in poor countries. Employees working for multinationals in poor countries enjoy a standard of living much higher than their compatriots who work for local businesses. Encouraging more multinationals to set up shop is thus one way to promote higher employment revenues in developing countries. (Source: Edward Graham, Institute for International Economics, September 1998)

MYTH #5 – Multinational corporations will dictate their will to local governments and threaten nascent democracy in poor countries.

FACT: Multinationals shun politically unstable countries. When they invest in a country, they want to be sure that they will not be expropriated unfairly by a corrupt government a few years later. Multinationals will rather invest in countries where the rule of law and respect for property rights are guaranteed. Those are historically the two pillars of democracy. This is why countries with unstable and corrupt regimes receive half the amount of foreign investments as the others (as a percentage of their GDP). (Source: Comparison between the data on perceived corruption in Transparency International and foreign direct investment statistics issued by the World Bank.)

MYTH #6 – Free trade is bad for agriculture. We must go back to traditional farming.

FACT: Entire countries would starve if José Bové’s nostalgic ideas were implemented. The current champion of opponents to free trade in agriculture, Bové also denounces efficient farming methods. However, these are needed to feed modern societies huge populations. Going back to traditional farming would also lead to ecological disasters, since the older methods require more land to produce the same amount of food. Entire forests would have to be razed to reach the production levels required to feed today’s world population.

MYTH #7 – Globalization increases poverty around the world

FACT: Poverty has been substantially reduced during the last decade. The percentage of the world population living with less than one U. S. dollar per day has gone down from 29% in 1987 to 24% in 1998. In spite of an increase in world population, the absolute number of people in poverty has been practically stable during this decade. (Source: World Bank)

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FOR FURTHER INFORMATIONS: Michel Kelly-Gagnon, Executive Director of the Montreal Economic Institute at (514) 273-0969.