An e-commerce company that helps farmers develop transport companies to deliver packages to remote, rural areas of China.
An airplane engine designed in Turkey, constructed in North America, and used all over the world.
Each of these innovations emerged from a modern trend in trade – global value chains – that was the subject of discussion Friday at “Transforming World Trade: Global Value Chains and Development,” a flagship event of the Annual Meetings hosted by the World Bank Group and the International Monetary Fund. At issue: what are the implications of this trend for poverty and development?
The panelists included World Bank Group President Jim Yong Kim, World Trade Organization (WTO) Director-General Roberto Azevêdo, General Electric Company Vice Chairman John Rice, and Colombian Minister of Finance and Public Credit Mauricio Cárdenas. Anabel Gonzalez, Senior Director of the World Bank Group’s Trade and Competitiveness Global Practice, moderated the discussion. The vantage points ranged widely, but all panelists seemed to agree: Global value chains hold promise for the poor.
“One of the things that I think is most exciting is what you see when you give poor people access to markets,” said World Bank Group President Jim Yong Kim, speaking to a packed room, overflow audience, and online listeners numbering over 700 people. He applauded the example of Alibaba, a Chinese e-commerce company sometimes likened to Amazon, for its efforts to boost market access deep in rural China.
Kim said that in today’s world, countries have no choice but to compete on a global market. And he said that a key role of the Bank’s Trade and Competitiveness Global Practice was to provide specifically tailored expertise and assistance to countries so that they can do that to the best of their abilities.
“The bottom line is, global market capitalism is the water we swim in,” Kim said. “What we’re really trying to do is, for every single country, come up with the best possible strategy for them to insert themselves into the water that they’re swimming in.”
Azevêdo said the link between trade and poverty is so obvious that it’s almost hard to talk about. He cited a recent study from the Pew Institute showing that support for trade comes from the smallest countries, with Africa being the biggest supporter of all the continents. He mentioned research from Jeffrey Sachs that found that countries that were more to trade in the 1970s and 1980s grew faster. He said salaries are 15-20 percent higher in companies that import and export.
“The biggest winners are the blue-collar workers. They are the ones that are in the upper range – in the 20 percent,” he said.
Both Azevêdo and Kim underscored the importance of trade facilitation – and, specifically, the WTO Trade Facilitation Agreement – in making it easier for traders in poor countries to connect to value chains. Complicated rules and relationships between countries favor big companies, Kim said, pointing out that small firms stand to be the biggest beneficiaries of a simplified system. And Azevêdo emphasized the responsibility of organizations such as the World Bank and the WTO in helping developing countries to make border improvements and other trade facilitation reforms.
“We have to help them to get there,” Azevêdo said.
Cárdenas said that trade has been vital to his country’s increase in per-capita income over the last 15 years from $3,000 to about $8,500.
“We’ve been doubling our exports every five years and that’s part of a strategy – basically, a strategy that embraces free trade,” Cárdenas said, adding that the connection between trade and poverty-reduction is very important. “The more sustainable way to lead people out of poverty is by providing people with good jobs, formal jobs.”
Rice brought the private-sector perspective of a company that operates 170 countries. He said that GE has to “think of the world as our oyster.” He pointed out that not everyone is friendly to open trade.
“A lot of people think that trade is kind of a zero sum game where somebody wins and somebody loses – there’s an exporter who wins and an importer who loses,” he said, but added that companies like his have to often make the argument that the real “global currency” and basis for sustainable development is job creation. “If you don’t have job creation, you have nothing that’s sustainable and nothing that’s inclusive.”
Rice said that when GE is making investment decisions it looks at the size of the market, the education system, the skill sets, the governance structures, and the ease of doing business in a country. But there’s not necessarily a hard-and-fast formula. Rice described an unorthodox approach that GE took in Saudi Arabia, where the company opened a business process outsourcing center a few weeks ago that is staffed and run by women.
“The Saudi government and our partners in Saudi Arabia came to us and said: ‘We are educating a lot of women, we are graduating women from universities. The world’s largest university for women is outside of Riyadh. We need your help providing employment opportunities,’” Rice said.
At the event, Kim announced fresh collaboration between the Bank and the WTO on efforts to increase border efficiency in the world’s poorest countries, a key element of value chain participation. Kim also announced that the Bank and the WTO would collaborate on a study to examine the role of trade in reducing extreme poverty.
The event was recorded and can be viewed here: “Transforming World Trade: Global Value Chains and Development.”
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