Increasing GDP By Removing Red Tape
February 6, 2013
By Sherwin Pomerantz
A new report released by the World Economic Forum issued on January 22nd finds that reducing supply chain barriers could increase global GDP and world trade much more than reducing all import tariffs. In addition, economic gains from reducing supply chain barriers would be more evenly distributed than gains associated with tariff elimination, with particular benefits for sub-Saharan Africa and Southeast Asia.
Supply chain barriers can take many forms such as these cited in the report:
Amazingly, the report finds that if all countries improved border administration and transport & communications infrastructure halfway to global best practices, global GDP could increase by 4.7% and world trade by 14.5%, compared to gains of 0.7% and 10.1%, respectively, from the elimination of all import tariffs. Even a less ambitious set of reforms that moved countries halfway to regional best practices could increase global GDP by 2.6% and world trade by 9.4%.
For example, adopting electronic documentation for the air cargo industry could yield $12 billion in annual savings and prevent 70-80% of paperwork-related delays. In addition, easing regulatory compliance of international trade that SMEs face when selling through the Internet could increase cross-border SME sales by 60-80%.
WEF suggests that governments, to address these barriers to growth should simply agree to work with businesses and analysts to create mechanisms to collect data on factors affecting supply chain operations. Those can then be used to identify clusters of policies that jointly determine key supply chain barriers, identify priorities for action and assess progress.
In a word, the government and business communities, in tandem, should pursue a more holistic approach toward international trade negotiations that spans key sectors impacting trade logistics, including services such as transport and distribution, as well as policy areas that jointly determine supply chain performance (in particular those related to border protection and management, product health and safety, foreign investment, and the movement of business people and service providers).
In these difficult economic times, increasing the “bottom line” must be addressed from both the bottom up (i.e. increasing sales) as well as from the top down (i.e. through streamlining regulations). It would seem, therefore, that the effect of making even minor changes in requirements to ease trade has tremendous impact on GDP growth. Taking these top down measures to improve the situation requires serious commitment on the part of international and national regulators to put aside traditional rules and biases for the common good. Considering past experience, let’s hope that the world’s leaders heed the call before the end of our lifetimes.