Outcomes Assessment in Trade Policy Analysis: A Note on the Welfare Propositions of the "Gains from Trade"

By Reinert, Kenneth A. | Journal of Economic Issues, December 2004 | Go to article overview

Outcomes Assessment in Trade Policy Analysis: A Note on the Welfare Propositions of the "Gains from Trade"


Reinert, Kenneth A., Journal of Economic Issues


It is rarely acknowledged that any of a number of what ethicists term objects of value could be used for outcomes assessment in trade policy analysis. These might include consumption of various commodities and services, workplace qualities, environmental outcomes, or certain human functionings. In practice, however, trade economists have embraced what Jagdish Bhagwati, Arvind Panagriya, and T. N. Srinivasan (1998) have accurately termed the "traditional" approach, in which the only recognized object of value is the utility of consumption levels of commodities and services. In practice (e.g., in applied trade policy modeling), there is a further restriction to legally consumed commodities and services, a distinction which, in light of significant international flows in illegal drugs, weaponry, and sexual services, is not as insignificant as one might first believe. Interestingly, there has been no real attempt to justify the identification of the utility of consumption of legally consumed commodities and services as the most appropriate choice, and this note makes no such attempt. Rather, it simply makes explicit some key welfare propositions underlying the traditional approach to what international economists term the gains from trade, widely acknowledged to be the most fundamental analytical contribution of international economics.1 Making explicit these welfare propositions has the advantage of revealing why certain controversies in contemporary international trade policy have arisen. In short, these controversies reflect differences over appropriate objects of value.

It is worth repeating that, in principle, appropriate objects of value for trade policy analysis could include consumption of various commodities and services, workplace qualities, environmental outcomes, or certain human functionings. International trade theory rejects all but one of these potential evaluative spaces. In what follows, we try to trace the rejection process and relate it to accepted perspectives in moral philosophy. This process consists of the following steps: teleological restriction, subjectivist assertion, and objectivist limitations, the last two co-existing uncomfortably from a methodological perspective. In what follows, we take up each of these steps in turn.

Teleological Restriction

To make the issue at hand apparent, we begin this section with a quotation. Paul Taylor has written, "All organisms, whether conscious or not, are teleological centers of life in the sense that each is a unified, coherently ordered system of goal-oriented activities that have a constant tendency to protect and maintain the organism's existence" (1986, 122). This is a key proposition in the field of environmental ethics and one broadly recognized (if not always accepted) in modern moral philosophy. International trade theory rejects this view, however, asserting a teleological restriction in which only human beings serve as welfare subjects for the purpose of outcomes assessment. To put it another way, trade theory takes on what J. Baird Callicott called an "anthropocentric value theory" that "confers intrinsic value on human beings and regards all other things, including other forms of life, as being only instrumentally valuable" (1984, 299).

Since these considerations are so foreign to international trade theory, it is worth noting that there are indeed articulated, nonanthropocentric value systems such as conativism, theism (stewardship), rational holism, and sentimentalism. (2) The last of these is most closely aligned with economic analysis, being grounded in the work of David Hume and Adam Smith, and implicitly deployed in contingent valuation analysis of environmental issues.

The teleological restriction of trade theory is significant from both methodological and practical perspectives. To take two examples relevant to World Trade Organization disputes, dolphins and turtles do not count as welfare subjects in the gains from trade analysis. …

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