Southern Demands and a Constructive Alternative

Advocates of laissez-faire and free trade have traditionally urged a posture of ‘trade not aid’ as the keystone of North-South economic relations. Friedman’s essay (1958) is the classic statement of this position and derives from what Reder calls the Tight Prior Equilibrium’ theory, which is the essence of Chicago Economics (1982, p. 11). Built into this set of assumptions is the presumption that income-distributional factors can be neglected in the determination of the efficiency of a policy prescription. This postulate is no different from that which dominates formal welfare economics; such analysis also assumes that the economic system will eventually attain the foreseen long-run equilibrium without any incidental breakdown in the tendency toward equilibrium either cyclically or politically (Gray and Gray, 1982, Section VI). Under extreme conditions, the assumption of stability may not be warranted within a nation and poverty is an essential ingredient in many instances of anarchy and in revolutions. When the component economic units are nation states, the assumption that income-distributional aspects can be safely neglected is tenuous to the point that the postulate becomes misleading in any pragmatic context. None of this means that a ‘trade not aid’ posture is entirely without merit and needs to be discarded in its entirety.