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Superstar firms in the global economy: Towards a new understanding of international markets

Oxford economist Prof Peter Neary talks about new research into international trading firms that reveals some uncomfortable truths for policy makers and governments hoping to pick export winners and encourage startups. Presented by Elisabeth Lopez.

"As all this data becomes available, it gives a totally different picture of the way international markets operate. It turns out very few firms export at all, even in so-called exporting sectors, and the ones that do export tend to be much bigger, much more productive." -- Prof Peter Neary




Prof Peter Neary
Prof Peter Neary

Peter Neary is Professor of Economics at Oxford University and a Professorial Fellow of Merton College Oxford. Born in 1950 in Drogheda, Ireland, he was educated at University College Dublin and Oxford, where he completed his D.Phil. in 1978. From 1980 to 2006 he was Professor of Political Economy at University College Dublin. His publications include Measuring the Restrictiveness of International Trade Policy (with Jim Anderson, MIT Press, 2005) as well as over a hundred professional papers, mainly on international trade. Peter is a Fellow of the British Academy and the Econometric Society, and a former President of the European Economic Association. He has lectured widely, including the 2002 Ohlin Lectures at the Stockholm School of Economics and the 2008-2009 Graham Lecture at Princeton, and was the inaugural recipient of the Royal Irish Academy Gold Medal in the Social Sciences in 2006. Peter is the author of a joint paper with Max Corden, published in the Economic Journal in 1982, which is widely credited with developing the theory of the Dutch Disease -- the problems of adjustment which can paradoxically follow a sudden increase in wealth as a result of foreign aid or the development of natural resources.

Credits

Host: Elisabeth Lopez
Producer: Eric van Bemmel
Audio Engineer: Gavin Nebauer
Voiceover: Louise Bennet
Series Creators: Kelvin Param & Eric van Bemmel

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VOICEOVER
This is Up Close, the research talk show from the University of Melbourne, Australia.

ELISABETH LOPEZ
I'm Elisabeth Lopez. Thanks for joining us. In this era of hyperglobalisation, some might say a world that is flat in the sense that national borders matter less than they ever have, trade policy is a crucial element of the business of government. Success at exporting is critical to every country's economic health and growth. Jobs, investment, and technology transfer depend on it, and even more so in the post-Global Financial Crisis era. So in the race to grow exports, government policy and support loom large, and when it comes to spending taxpayer dollars on business, governments like to pick winners. But how do they go about making their choices, and do they succeed?

Our guest on Up Close is Oxford economist, Professor Peter Neary. If you've come across the term "Dutch Disease", which describes how national economies become distorted by natural resources and foreign aid booms, that term came from his work with Max Corden in their classic paper from 1982. More recently, Peter Neary has been studying the role of firms in international trade, what sort of firms prosper as exporters and why, and his findings have some unsettling implications for public policy.

Professor Peter Neary is in Melbourne to deliver the 2015 Corden Lecture for the University of Melbourne's Faculty of Business and Economics. Welcome to Up Close, Peter.

PETER NEARY
Thanks, Elisabeth.

ELISABETH LOPEZ
Peter, looking at international trade at the level of the firm is quite new for economists, who have historically tended to look at whole industries and sectors rather than firms or even products. Why has this shift happened and why does it matter?

PETER NEARY
I think the main prompt for the shift in the first place was the availability of data. So for perhaps hundreds of years, scribes had been taking detailed notes on goods that got exported and goods that got imported, and also on what firms did, but the data were all stored away in the vaults of central banks or statistical agencies.

Then, I guess from about the 90s onwards, it began to be made available, and of course simultaneously with that we had the fall in the cost of computing. So now every graduate student can do the kind of research that leading economists couldn't even dream of in the 1980s.

So all this data becomes available, and it turns out that it gives a totally different picture of the way international markets operate. We used to think there was an export sector and firms in that sector exported, and there was an import competing sector and firms in that sector related to imports.

It turns out very few firms export at all, even in so-called exporting sectors, and the ones that do export tend to be much bigger, much more productive. They tend to be older, longer established. They tend to pay higher wages and so on. They're just different. At the very top end there are the really big exporters. I like to call them the superstars. They're the ones that account for the bulk of exports. Slightly less important in terms of total employment, but they just dominate the smaller ones to an extent that we had not thought was true before.

ELISABETH LOPEZ
So in the historical focus on export and import sectors, I guess the level of sophistication was okay, let's look at French handbags versus Italian handbags, but now the ability to use such sophisticated data analysis methods or mining methods allows you to drill down to the product level. So what sort of insights have come from that?

PETER NEARY
So, as I say, the main key insight has been the fact that successful exporters tend to be much bigger. They tend to be larger in all dimensions. They typically export many products. They will export to many different markets, and they get involved not just in exporting but in foreign direct investment, in owning foreign companies, in trading at arms' length with other foreign firms in world markets and so on.

ELISABETH LOPEZ
Do we know much about the journey that these firms take to exporting? What happens before they become exporters?

PETER NEARY
The evidence seems to suggest, and the general view of trade economists right now is that firms that are successful in the first place become exporters. If you like, the analogy I like to draw with biology is the debate between nature and nurture. Not getting into biology here, but in world markets, it's successful firms, that are initially highly productive, they're the ones that tend to succeed when export opportunities open up. There is a slight tendency the other way, that firms which get into exporting learn a bit about their own potential. They may find they're good at servicing some kinds of firm markets and then they diversify into others, but...

ELISABETH LOPEZ
They may jettison the stuff they're bad at.

PETER NEARY
Indeed, and there is a learning process, of course, but rather less than we had thought. For the most part, the evidence pretty clearly suggests that it's firms that are good to begin with that turn out to be good exporters.

ELISABETH LOPEZ
So Peter, you said it's a minority of firms that actually engage in exports. What are some of the characteristics of these firms? Can we generalise about how large they are, what they do?

PETER NEARY
I mentioned that very few firms export. What's even more surprising is that of the firms that do export, there are again, broadly speaking, two kinds. There are a lot of small exporters. The data for most countries that have been looked at suggest they export maybe one product to one country. And then at the top there are the superstars, which export lots and lots of different goods to lots and lots of different countries.

ELISABETH LOPEZ
And the superstars tend to be the household names?

PETER NEARY
Household names. Think Samsung, think Philips in electrical goods. Sometimes people say to me, why do you work on large firms? Aren't small firms important? I ask them what brand of toothpaste did you use this morning. There are lots of brands, but if you look at the labels or dig through the web, you'll see there's only about three companies. Procter & Gamble, Colgate, and so on. These are long-established firms. They've been around since the 19th century. They've been leaders in the field of this new, modern technology called toothpaste since the 1880s and now that it's a mature industry, they dominate it.

ELISABETH LOPEZ
Okay. Going back to the smaller firms that may only export one product, why are they less interesting?

PETER NEARY
Interesting is a matter for individuals to decide for themselves. I think where my angle would be is that it's not that they're uninteresting. There is even the potential, which we all hope for, that some of these firms will, themselves, become giant, become very large. But I think there is a tendency for public policy and public debate to focus on these small firms. Small firms are fun. They're nice. They're cuddly. They're not as dangerous as big firms.

ELISABETH LOPEZ
They're the kittens and puppies of the business world, right?

PETER NEARY
Exactly, and yet you have the paradox that the real energy in exporting comes from the large firms, not from the small firms.

ELISABETH LOPEZ
Okay, and you've made quite a bit of a comment from David Cameron, the British Prime Minister, in 2012, saying that the world needs growth after the GFC and that small-to-medium businesses will be the engine for this. So when you sat down to analyse 15 years' of data on US exports, what did you find? Was David Cameron on the money?

PETER NEARY
Well, I hate to single out the British Prime Minister for criticism. I don't think he's alone in this. The way I like to put it is that pretty well every government in the world has a minister for small and medium enterprise. The fact remains that most of the energy and most of the growth in exports tends to come from large firms.

ELISABETH LOPEZ
I guess it's a very powerful narrative, the mums and dads running small businesses, and there are obviously a whole lot of rationales to have a small business minister or small business policy, but in terms of performance in exports, what sort of things did you find there?

PETER NEARY
One surprise is that there's a lot of what economists call churning in the data. That's a small firm will dip its toe in the market. It will accept a contract from a foreign company, from a foreign wholesaler, and it will ship goods abroad for a year, maybe two years, and then it stops. We don't know why. We haven't yet gone down to the nitty-gritty. I asked these firms what they're doing, or explored it in more detail. We need more research on this. But what's fascinating is just how much churning there is. Very small transaction levels, and again, the survivors in export markets tend to be the very large firms, the ones that stick in there and have a portfolio of products and a portfolio of different kinds of customers in different countries for whom they're catering.

ELISABETH LOPEZ
There are obviously a lot of disadvantages that small firms face, apart from the fact that their longevity is not as proven as some of the larger firms that we point to as export successes. What sort of barriers are important to economists doing this sort of work?

PETER NEARY
When I say that the governments pay too much attention to small firms, I wouldn't want to suggest that they should step back completely and do nothing. What I'm getting at, perhaps, is the idea behind picking winners, identifying the smaller firm that's going to survive. This is everyone's dream. You want to find the guy or gal in their garage, the Bill Gates who's going to be the next big thing in some world market. The problem is it's really hard to do that. The banks that lend to these small firms typically can't do that. They can't identify the future winners. So I think the role for government is to encourage the banks to do this; to create the right kind of environment for new firms; to encourage technical and business education, which will improve the extent to which people have the skills needed to start new firms; to encourage learning foreign languages, learning about foreign cultures, all the ways in which a potential firm might be able to target consumers in foreign markets. But getting involved in picking winners - the science suggests that that's a hiding to nowhere.

ELISABETH LOPEZ
You have strayed into territory that we tend to associate more with business strategists. One of the features that you identify among firms with export success is things like comparative advantage, and firms that can really develop a core competency. This sounds very unlike what we're used to hearing from economists, which tends to be about price and human beings acting rationally. What's happened?

PETER NEARY
I don't think there's any departure from rationality here. You could argue that of all agents in the economy, it's probably firms that are most rational, not completely by any means. But I think you've hit on something that's true, that this recent perspective in economics smacks more of what is normally done in business schools, and I think as economists we've a lot to learn from management, from the science of business. That said, our perspective is somewhat different. We are not so interested in helping businesses per se; we're not so interested in telling them what to do, and we're also interested in patterns across firms and in trying to generalise in a truly scientific way. It's hard, but that's the goal. You mentioned core competence. That's a concept I've used in my own work. The idea goes back to a paper in the Harvard Business Review in the 1980s. It's an interesting paper written by business school academics, deservedly very highly regarded, but it's not the kind of paper an economist would write. This was aimed at helping businesses to identify their core competence, whereas in economics we're trying to say what is the core competence of successful exporters?

ELISABETH LOPEZ
You're listening to Up Close. I'm Elisabeth Lopez and we're talking with Peter Neary, Professor of Economics at Oxford University, about the role of superstar firms and their impact on international trade.

So what challenges do you come up against as an economist trying to build in things like core competencies in your models about success or otherwise of exporting firms?

PETER NEARY
Since we want a framework that is not going to be a model of one firm but, in principle, applicable to all, we have to think about the different ways in which firms can compete. One aspect of that which I have identified in my work is you can see a pattern whereby some firms will be essentially competing on cost. I like to quote the founder of the British supermarket chain Tesco, Jack Cohen. He had a lovely phrase. He said in his business, the secret to success was to pile them high and sell them cheap. Well, that's a model of business behaviour which clearly works for some firms. It worked for Jack Cohen. The evidence suggests that it does work for some kinds of firms in world markets. My own research suggests that it works for firms that are selling relatively - what we call undifferentiated goods. They're not the kind of goods that are special. They're more bulk commodities and so on. By contrast, for the other kind of goods, the differentiated ones, the handbags that you mentioned or whatever, they tend to compete on quality, and that leads to a very different pattern of the prices they charge and so on.

ELISABETH LOPEZ
How does an economist capture that?

PETER NEARY
Let me give an example of the implications of those two different kinds of behaviour. If you believe that successful firms compete on cost, then the really most successful firm will be the one charging the lowest price, whereas if they're competing on quality, the most successful firm will be the one charging the highest price. Now, in practice we see a bit of both, but we tend to see more of the second, especially in goods where individual brands matter.

ELISABETH LOPEZ
Peter, you talk about the Matthew effect, a concept which I understand is borrowed from sociology, to describe the rich getting richer, basically. So you start off as a bit of a winner as an exporting firm, and that success is likely to become a self-fulfilling prophecy. Is that an approximation of what is happening here with exporters?

PETER NEARY
Yes. So I'm using that phrase to describe an effect which comes out of a lot of recent work in international trade. So the idea of the Matthew effect, remember, to those who have, more shall be given, what we're finding is that when the economy gets exposed to a shock, a shock that makes it in principle easier for all firms to export - so think of a globalisation shock or a technology shock which makes it easier. Using the Internet to access foreign customers.

You might think, isn't that good for all firms? Well, think of it from a single firm's point of view. I'm a small firm. It's good for me; now I can access foreign consumers more easily. But it's also good for my rivals; now they can access foreign firms more easily. So that's good news and bad news, and which dominates? The bottom line is the tendency we're finding is it's the good news that dominates for the large firms. The large firms are already selling to a lot of foreign customers. They now find it's cheaper for them to access those customers. They can do it using Internet marketing methods they didn't have before or whatever, and they gain. The small firm that was already hanging in there by its fingertips in foreign markets, it's now facing more competition. True, it has potential to sell to more customers, but the extra competition is going to squeeze it out. So the Matthew effect, it's the big firms that benefit from these changes. The smaller ones get squeezed.

ELISABETH LOPEZ
There are some good reasons for that effect, aren't there? A small business is much less likely to have enough slack in its budget to do things like gain additional market insights into, say, a new market or really be able to weather a few failures in order to get to that winning product.

PETER NEARY
If you think about it in terms of the number of foreign countries you're serving, if you're already selling to 10 countries, it's not so hard to exploit a new opportunity that opens up in country number 11. Whereas if you're just about shipping small amounts to one country, you're not going to benefit much from the opening up of that market, and you're going to be squeezed by the fact that your competitors, your big competitors, are doing much better in that market.

ELISABETH LOPEZ
I suppose even if a small firm is able to prosper initially through some sort of disruption to the market and is able to exploit that, the market very quickly adjusts.

PETER NEARY
There are various ways of adjustment. As I said, there's a lot of churning. Small firms that enter, do okay for a year or two and then leave. There are occasionally, as we said, the very successful small firms that grow. They're very much the minority. There's another pattern as well, which is the small firm that does reasonably well with some novel idea, maybe some new trick about how to access consumers, maybe a new product, maybe just a new technique for making an existing product. Very often, the fate of those companies, a fate which their owners welcome, is to be bought out by a big firm, so there's a lot of mergers and acquisitions of small firms by large firms. Not a bad thing. It's leading to restructuring and it's giving rise, sometimes at least, to opening up the market for the product of the small firm that wouldn't otherwise have been possible. But in a way, it's once again the Matthew effect. The small firms get squeezed because they're successful. Even when they're successful, they get bought out.

ELISABETH LOPEZ
So there's an ebb and flow to all of this, and it seems likely that we're going to see a lot more consolidation of larger firms dominating export activity. Does it render efforts by governments to get healthy small-to-medium enterprises as proper players in export markets, does it render those efforts futile?

PETER NEARY
It suggests that the payoff to putting a lot of resources into trying to turn small firms into big exporters, the payoff is probably small. The bottom line is that most of the action is done by the large firms. That's not to say that you don't want to have a good climate for business, that you don't want to encourage design and marketing and all the kinds of skills that in principle should help all firms, but don't expect that to pay off in terms of a big change in exports by these currently small firms.

ELISABETH LOPEZ
No linear relationship between the amount of money you invest and what happens later. There was a report by Forbes magazine just as the world was starting to emerge from the GFC that encapsulates what you seem to be saying about the mythology around small business and international trade, and the very headline is very telling; "Small Business, Big World". It said access to global markets can move a new business from a backyard garage to a local warehouse to a global network. Why is this narrative so powerful if it's so flawed?

PETER NEARY
Isn't it nice, though? It's cuddly, it's cosy. We sit back and we think that's the way it should be. That's the way of Hollywood movies. But a lot of life is more like European arthouse movies, unfortunately. Things do come to sticky ends and the little guy doesn't necessarily triumph in the world market. There's even a data issue. Sometimes it looks as though little firms are growing very quickly, but they're growing because they started in, say, July, and their first year they sell very little, their second year they sell more, but then their third year they don't sell much more.

So I think there is a seductive quality to this idea of small firms, and I like to give as an example a lovely advertisement, which I'm sure many people have seen. It's an advertisement by HSBC and it shows a lemonade stall, a kids' lemonade stall, and the little kid has a sign up quoting their price in three different currencies. It's cute, it's cuddly, it makes you immediately want to run out and open an account with HSBC or pay off your mortgage, if you haven't already done so. Their slogan is that they're the world's local bank. Well, they don't say that they're the world's second-largest bank. They're a big company and a lot of their clients are big companies. All I'm getting at is that there is this attraction, this subliminal attraction that we all have for the little guy, and it's a sad fact that little guys often end up last in this race.

ELISABETH LOPEZ
It was very telling when, in 2010, Barack Obama announced that he wanted to see a doubling of American exports, and he nominated farmers and small businesses as the people who would make that happen, and he also had a swipe at large firms for avoiding tax obligations or minimising tax or taking jobs offshore. The big firms hit back saying well, we're responsible for the bulk of exports. What's going on there?

PETER NEARY
So a few points that arise. One is that the small firms that Obama was hoping would generate extra exports, that program was not particularly successful. There wasn't a shift from large firms towards small firms. In fact, it was withdrawn after a few years without having made much difference. I wouldn't like to come across here as an apologist for large firms as for defending this sort of race to the bottom type of behaviour of firms in looking for tax advantages, choosing where to locate and so on. That's something which we need to police, just as we would police white-collar crime or any other kind of crime, and we may not have the right world institutions for effectively combating that right now. That's obviously an issue for tax lawyers and so on, as well as for economists. But more generally, the fact remains that I have to agree, I'm afraid, with the statement made by these large firms that indeed they are responsible for most of the exports. That doesn't mean they deserve special treatment. It's just a fact of life, and as concerned citizens and as potential policy makers and as voters, we need to take that fact on board.

ELISABETH LOPEZ
You're listening to Up Close, and our guest on this episode is Peter Neary, Professor of Economics at Oxford University, and we're talking about the role of firms in international trade. I'm Elisabeth Lopez.

Peter, you've looked a little bit at China, where small-to-medium enterprises have a very short recent history. They weren't allowed to exist until 1988, and now they're responsible for something like 60 per cent of GDP and they've overtaken state-owned enterprises in generating exports. What implications does your research have for interpreting what's happening there?

PETER NEARY
What's happened in China is both a confirmation of the general views that have come across - that economists have drawn attention to, the general patterns that hold across all countries, but also highlight some special features. One special feature is the role of state-owned firms, and state-owned firms, at the risk of enormous generalisation and simplification, the large players, the successful Chinese firms in world markets, many of them have tended to have state assistance at some stage in their genesis. That's rather less true, for example, of successful Indian firms, the large ones in world markets.

Small firms - one thing, of course, I haven't mentioned yet, and it's important to bear in mind, is that one feature of many small firms is that they are supplying large firms, and they may, in some cases, be sub-contracting and producing goods which don't sell under their own brand name but under the brand name of a large firm in another country.

That's another dimension to what's going on, and underlines the fact that it's not about saying small firms don't matter, but it is about saying that until those small firms get their own brand, they're not going to be enjoying the high margins on branded products which the really big firms do.

ELISABETH LOPEZ
Yeah, global supply chains have really been revolutionised by communications technology and hyperglobalisation, so is that difficult for you to capture as economists?

PETER NEARY
It raises challenges for our existing ways of thinking about how the global economy works. As a professional economist, I think it's exciting that here are problems we haven't yet fully grasped and we need to do more work on them. In terms of what we can learn, it's clear that global supply chains raise an issue which has always been important in economists’ thinking about international trade, and that is that countries differ and that it's their relative differences which matter in terms of originally where firms would produce and now in particular where different parts of the global supply chain will be located.

ELISABETH LOPEZ
What sort of differences are we talking about? The idea that certain countries are able to produce certain types of goods cheaply and easily?

PETER NEARY
Exactly. So let me give an example. For a number of years now, China, as everyone knows, has been increasing its share of the global economy, largely by starting off, as other countries did previously, by producing what we call labour-intensive goods; goods which thrive by being sold on the basis of low cost of production. In recent years there are suggestions that China is becoming more expensive as a location for manufacturing, and low-end manufacturing is beginning to relocate from China to lower-wage countries in that region. For all countries, there is a desire to move up the value chain, and it's not necessarily ideal to do that if their own local conditions, the skills they have available and so on, if they don't suit it. But the time comes where if wages rise above a certain level, that it's no longer feasible for a country to compete solely on the basis of cost.

ELISABETH LOPEZ
So you see places like Bangladesh coming, emerging, taking up the sort of work that used to be done by China a couple of decades ago.

PETER NEARY
Absolutely. Lots of countries, Vietnam and so on, which are now entering the global market.

ELISABETH LOPEZ
So your framework applies to manufacturing, but what happens when you add services into the mix?

PETER NEARY
A really important dimension of world trade is trade in services. One of the alarming facts is we don't know as much about it. We have much better data on goods than on services.

ELISABETH LOPEZ
Why is that?

PETER NEARY
I think it's just that services are intangible, they're by definition consumed at the point of production, and it's not something that a customs officer can physically inspect as it passes through a port. You can't weigh a container full of services. So we actually know less about it. What we do know - there is one study, for example, of UK services, and it finds a very similar pattern in services exporters. Once again, a dominance of very large firms and a huge bulk of tiny firms that, when you add them up, don't amount to a lot.

ELISABETH LOPEZ
Traditional methods that countries have used to control trade, things like tariffs, they're not so applicable to services.

PETER NEARY
Absolutely, which doesn't mean the trade in services are free. Typically the barriers take the form of what we call fixed-cost type barriers; regulations, licencing, the ability to sell your service in a particular country, and so on. Governments, for all sorts of reasons, including the desire to protect domestic firms, intervene in markets in order to prevent those kinds of international flows.

ELISABETH LOPEZ
Would you go so far as to say they intervene in quite protectionist ways, or has that era well and truly gone?

PETER NEARY
I think the instinctive desire to protect domestic firms hasn't gone. What has gone is the distinction between firms that are only serving the domestic market, whereas large firms on the domestic market typically now will be exporting as well, and I think that’s been a feature, for example, in the response to the global crisis. In the 1930s, the trade policy response was immediately to put on tariff barriers, and world trade collapsed. By the mid-30s it had vanished almost. We didn't see that in the recent financial crisis, and why is that? The evidence shows that trade did indeed fall as quickly in the first year, but it picked up again. My own view on that is that in the background, the large firms were saying we don't want to put on barriers against imports, because actually we're in the business of exporting as well, and if our country puts on barriers, then the markets where we're selling, we may face barriers there as well.

ELISABETH LOPEZ
What sort of economic research remains to be done on these issues?

PETER NEARY
I think we need to think much more about services. We need to work on the data for services. I also think we need to focus more on the really large firms and the way in which they interact with each other strategically. We don't know nearly enough about that. We need to understand global value chains and the ways in which sometimes they are internal to the firm and sometimes the companies involved at different stages of the chain are actually external. So why is that, what are the issues that firms face, and whether they internalise or not.

ELISABETH LOPEZ
So with the revolution in communications technologies, we live in a digital world. How flat has the world become, really, for exporters? Do we need public policy at all?

PETER NEARY
The world is flat is a wonderful phrase, a very good book by Thomas Friedman. It focuses attention on a feature which is very important, namely the increased technology, the increased availability of technology, the fact that firms can place orders with suppliers, with their own clients and so on so much more easily, they can access foreign customers at the touch of a button. But I also think it's very misleading, and that's really been the theme of everything I've said in the last half hour, that the world is not flat, if by that you mean that national borders don't count any longer. The world is very un-flat at the point of asking which firms get involved in exporting, do firms export at all and so on.

What should governments do about that? I think there is a role for governments, of course. Policing the world system is very important. Making sure that you negotiate on trade deals, trying to improve the chances of the world trade round through the Doha Round, the current negotiations. There's also a role for government in trying to make the world flatter than it is, in trying to reduce the barriers that small firms face, bearing in mind though that reducing those barriers, you're also going to be encouraging foreign firms to export into us. That's a good thing for consumers. It's a thing we should welcome, but not necessarily a consequence of the policies that governments might expect.

ELISABETH LOPEZ
It's a massive undertaking, isn't it? Once you move beyond bilateralism it's very difficult to negotiate agreements that will actually work that people can live with.

PETER NEARY
You could argue that the multilateral trade negotiations that have continued since the 1940s have been one of the great success stories of international cooperation. They've made globalisation possible. In the process, they've, if you like, picked off the easy barriers, the tariffs, the ones that are easier to measure.

ELISABETH LOPEZ
So the General Agreement on Tariffs and Trade, GATT.

PETER NEARY
Indeed, and now we're left with barriers that are harder to police, and some, like help to agriculture and so on, which are intrinsically more difficult to do anything about, vested interests are very important. Local concerns loom very large in all producing countries. So if you like, the GATT and the WTO, World Trade Organization, negotiations have done the easy task and they're left now with some pretty hard remaining tasks. I think that is an important role for governments to try and push forward on.

ELISABETH LOPEZ
Peter Neary, thank you very much.

PETER NEARY
Thank you, Elisabeth.

ELISABETH LOPEZ
We've been speaking with Peter Neary, Professor of Economics at Oxford University. Peter is a Fellow of the British Academy and the Econometric Society, and a former President of the European Economic Association.

For a full transcript of this episode and more information on our guest, head to the Up Close website. Up Close is a production of the University of Melbourne Australia. This episode was recorded on 23 June 2015 and produced by Eric van Bemmel. Audio engineering by Gavin Nebauer. Up Close is created by Eric van Bemmel and Kelvin Param.
Thanks for joining us. Until next time, goodbye.

VOICEOVER
You've been listening to Up Close. For more information, visit upclose.unimelb.edu.au. You can also find us on Twitter and Facebook. Copyright 2015 University of Melbourne.


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