Hamish McRae: Blair, not Bush, has the right ideas about how world trade can help the poor

Tony Blair is right about trade. He started his speech in the Guildhall on Monday night by reminding the assembled City luminaries of the amount of progress the world had made in economic, political and human terms over the past 30 years. The world was becoming ever more integrated, ever more globalised. This was happening because of what ordinary people did in their daily lives, not because governments were forcing it on them.

"Globalisation isn't something done to us," he said. "It is something we are, consciously or unconsciously, doing to and for ourselves." He could have added that the perspective of most governments was national or at least regional: that governments are inevitably much less global in their outlook than the nations they seek to govern. A typical top-100 British company will have about two-thirds of its business overseas but virtually all the people who vote in an MP will live in Britain.

That difference in perspective is one of the three reasons why any talks to try to liberate international trade further run into tension. It is the natural job of President Chirac to represent the interests of French farmers or French wine-makers because that is what he is elected to do. It is not naturally his job to encourage foreign companies to buy French power stations, even though Eléctricité de France owns much of the British power-generating capacity.

The second reason is that the costs of greater freedom in trade are immediate and visible, the benefits longer-term and more widespread. A ceramics factory in Britain is undercut in price by the Chinese and its workers lose their jobs. The benefits of cheaper crockery in the shops go to thousands of customers, who not only get cheap plates but also have more money to spend on other things. As a result, eventually the UK can create better-paying jobs in other industries, probably in services, though not necessarily employing the displaced ceramics workers.

The third reason is an amalgam of these two: people in the less-developed countries, or Western organisations that present themselves as representing their interests, focus on the narrow and immediate interests of producers rather than the wider interests of these societies. A number of these organisations have joined together under the "trade justice" banner to promote trade restrictions.

It was to this band of objectors that the Prime Minister addressed much of his speech. "There are some," he said, "who argue that the poor will lose from an ambitious liberalising round. Far better to continue to offer them preferences - an old form of welfare. In one sense, they are right. In the short term, they may lose from some changes to the preference system if we do not take other actions. But ultimately the preference system is not the way forward. They stand to gain far more if we are bold."

There is a good example here with bananas. The EU has given preference to Caribbean producers, with the result that small islands have invested in a volatile commodity industry, narrowing their foreign earnings base. And they have been encouraged to invest in an industry where they do not have a competitive advantage which also makes them vulnerable to shifts in subsidies.

If you are a tiny island economy, you are bound to be vulnerable to market movements, changes in tastes and so on. But you want to minimise risk, not add the risk of a change in trade practices as well. Open Europe, the liberal think-tank, points out that the first round of reductions in EU sugar preferences would have much the same devastating impact on Guyana as Britain losing its entire financial services industry overnight.

So what is to be done? Will the forthcoming round of trade talks in Hong Kong be the disaster that many fear? There are two ways of trying to answer these questions. One is to focus on the areas of conflict, the detail of the negotiations, the extent to which the US and the EU would really be prepared to reduce agricultural subsidies, or at least (as is happening) direct the subsidies to the farmers rather than to what they produce.

That is the way the trade negotiators have to proceed because that is the nature of these discussions. The devil is in the detail. So while President Bush's offer at the UN to end all US agricultural and industrial subsidies, if others did so too, is a grand challenge, in practice the string of specific measures to help the poorest nations as outlined by Tony Blair at the Guildhall is more helpful. These included more investment in infrastructure, ending export subsidies, giving full market access for less-developed countries to the entire developed world, and so on.

Such a debate is by necessity complex and it has to happen. But debates take place within the greater climate of changing ideas and that is the second way of trying to answer the "what is to be done?" question.

I have just been reading Professor Jagdish Bhagwati's excellent book In Defense of Globalization - the new paperback is out later this month. It is a remarkably humane treatment of both the benefits and the pressures created by the growing interdependence of the world economy. In making the case for the benefits of greater freedom for international trade, he is also sensitive as to its costs.

He writes for example about "the perils of gung-ho financial capitalism". And he argues that greater trade freedom should move at the optimal pace, not the fastest. He believes that the costs of going too fast are often over-estimated but argues that powerful lobbies, particularly in the US, have pushed - disgracefully - for over-rapid opening of markets prior to WTO entry.

His big point here, however, is that it is much easier to get trade liberalisation measures though in a climate of good growth than when things are tough. Historically that is what has happened. Seen that way, the world has a great opportunity now to press forward. Last year saw the best global growth for a decade. Walk in the streets of Shanghai, go to an office block in Bangalore and what you see is thrilling: people who until recently were really poor now having access to a decent middle-class lifestyle. That is the result of the most interdependent world economy that this planet has ever seen.

The worm's-eye view of international trade matters is to look at particular people who appear to be suffering from globalisation and then protest about the often-absurd barriers that they face. The eagle's-eye view is to look at what is clearly working and ask how that can be extended.

I am not sure to what extent the UK in general and the Prime Minister in particular has real influence on this next round of talks. But I know the UK is the world's third-largest importer, after the US and Germany, and third-largest exporter too - yes, we earn more from exports, visible and invisible, than the much larger economy of Japan. That ought to give us some leverage. Tony Blair has set out his stall of ideas and they deserve to find a market.