Toward A New World Economic Order

Ravi BatraAfter the demise of Soviet communism, President George Bush proclaimed the need for a new world order, with a
planetary economy tied to free trade. This is just the wrong thing to do, for it will add to pollution without
generating much new production.

The global trading network today is guided by GATT [General Agreement on Tariffs and Trade]. These should give
way to a new set of rules to create a new world order. It's guiding principle should be the satisfaction of
human needs with minimum pollution without generating much new production.

There are two types of trade that are wasteful and unnecessary to meet human demands around the world.
One is intra-industry trade, which constitute more than half of global commerce; the other is trade in raw
materials. In order to minimize trade-induced pollution, GATT should be replaced by the following set of

1. Monopolistic corporations in all nations should be broken up in order to generate intense domestic
competition and preclude the need for foreign competition.

2. Intra-industry should be minimized. Multinational corporations should, as much as possible, produce and
sell goods in the same nation. Another possibility is for multinational firms to swap their production
facilities in different countries, for instance, General Motors exports cars to Europe but also imports them
into America from its European facilities. This is clearly unnecessary. GM should not export when it can
produce the products in Europe itself. Similarly, it should not import when it also produces cars in the
United States.

What is the point in generating transportation goods, producing pollution in the process? If GM's plants
in Germany are uneconomical without their exports to the United States, the firm should simply sell them
to a German manufacturer and use the money for other productive but nonpolluting purposes.

3. International transfer of technology should be augmented. Instead of maximizing global trade, we should
maximize the international transfer of capital and technology. For instance, today Japan focuses primarily
on exporting goods, creating pollution in the process. If the Japanese companies instead opened plants
around the world, local needs would be met by foreign controlled local production and without much trade.
Japan would not need to import vast quantities of raw materials in exchange for its exports. Human needs
would still be met, but trade in goods and raw materials would be minimum.

4. The above principle suggests that countries rich in technology and capital should export them in
exchange for raw materials for home production. The Third World should not export primary goods but
should either import technology or invite foreign firms to utilize its raw materials in local production.
The idea is to locate plants near mineral rich areas as well as near population centers, so that
international trade can be minimized.

5. All resource-rich but industry-poor economies should impose high tariffs on imports of manufacturers
while vigorously generating competition in domestic markets. This would induce technology-rich countries
to locate their plants in tariff-imposing nations. Thus India, Australia, Canada, Mexico, and the
resource-rich nations in Africa and Latin America should follow this policy, combining it with internal
competition. Domestic competition would sharply reduce inequality and thus stimulate the demand for goods
at home. This in turn would reduce the need for exports and trade.

6. Governments should direct their R and D spending to discoveries that can potentially reduce pollution
as well as the optimum size of plants, thereby reducing the need for economies of scale. Some firms
enter the arena of exports just to utilize such economies. New technologies should be developed to make
this unnecessary. It is worth noting here that the value of economies of scale is often exaggerated. The
highly competitive firms of Japan, after all, started small. Similarly, if economies of scale are so
important, why do firms have multiple plants in one country to produce the same product? These are some
of the rules that should replace GATT to create a new world economic order. The migration of factories to
mineral-rich areas can trim international trade by as much as 25 percent without reducing global living
standard. The same is true of intra-industry trade. We can eliminate it altogether without much effect on
planetary production. In other words, global trade can be cut by at least 75 percent without much harm to
overall output. But while the output effect of trimming trade would be small to negligible, the benevolent
impact on the environment would be tremendous. Energy use would plummet, the oil price would tumble,
oceans would be safe from oil and chemical spills, the atmosphere would be more secure from toxic gases,
the risk of accidents would be smaller, and our ears would be less exposed to deafening noise. Such would
be the beneficence of minimum international trade and competitive protectionism.

Ravi Batra, Ph.D., is a world renowned economist and the author of half a dozen books, including
The Great American Deception and The Myth of Free Trade.

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