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FROM WASHINGTON CONSENSUS TO BANGKOK CONVERGENCE

by Chakravarthi Raghavan


Bangkok, 20 Feb 2000 -- UNCTAD Secretary-General Rubens Ricupero strongly urged here Saturday the "abandonment of extremism in economic policy by all sides," and the construction of a new international order based on real reciprocity.

Such a new order, Ricupero said, requires dismantling of the massive barriers to trade of the developing nations (in agriculture, textiles and clothing, tariff peaks and escalations), recognition for their efforts to promote regional economic solidarity, and international institutions that are more pluralistic and participatory.

After the failure of the Seattle Ministerial meeting of the WTO, prospects for progress in these three directions were "at best mixed", Ricupero said, but felt that UNCTAD-X had made a contribution by providing an opportunity for wide-ranging exchange of views and creating an atmosphere of greater mutual understanding on the complexities of the globalization process.

"But much remains to be done in translating this into practical moves for institutional changes at the international level," Ricupero added. The minimum pre-requisites for constructing a new order, and the need to avoid any extremism in economic policy making were set out by Ricupero in a closing statement at the tenth session of the UN Conference on Trade and Development, outlining the "the Bangkok Convergence" in economic policies emerging out of the deliberations at the conference and conference-related events.

Synthesizing some of the points and ideas in key presentations at the conference, Ricupero said the wide-ranging exchange of views at the Conference had been instrumental in creating a "greater mutual understanding on the complexities of the globalization process."

Over the ten days of conference and pre-conference meetings and events, organized around UNCTAD-X, at the Queen Sirikit National Centre, and at the plenary meetings and interactive debates, there has been a constant iteration about the inevitability of globalization, particularly from the few who now benefit from it, but also challenges from a few about these inevitabilities.

"Globalization is not an unstoppable change sweeping inevitably across the face of the world," Ricupero told the final plenary session," and insisted that the building of an international community must rest on the same moral foundations as sustainable development, and rooted in the fundamental idea of "generalized reciprocity."

The new international order that so many nations of the world had demanded at the conference had to be constructed on the basis of this generalized reciprocity, and not "the nominal equality of countries that is belied in all the practices of negotiations, decision-making and dispute settlement."

The economic world is still divided because global integration has affected only a dozen developing countries. And those demanding the new international order were demanding three things above all:

* They want the dismantling of the massive barriers to trade in agriculture, textiles and clothing and in areas where tariff peaks and escalation still prevail even after the implementation of the Uruguay Round agreements.

"And while greater access to industrial countries' markets will not solve the problems of the least developed countries, it is crucial to securing the benefits of an open global trading system for the more advanced developing countries."

* They want recognition for their efforts in promoting regional economic solidarity. Provided these are in the form of 'open regionalism', they can strengthen the move towards positive global economic integration.

* They want existing international economic institutions to evolve so that they are capable of bridging the interests of both developed and developing countries. As the NGOs have emphasized, such institutions must be more pluralistic and participatory than they are today.

"In the aftermath of the WTO Ministerial Meeting in Seattle, the prospects for progress in these three directions are at best mixed," said Ricupero.

The Conference had provided the opportunity for a wide-ranging exchange of views, and has been instrumental in creating an atmosphere of greater mutual understanding on the complexities of the globalization process. But much remained to be done in translating this into practical moves for institutional change at the international level.

"The entire international community must see this as its goal in the four years ahead of us."

UNCTAD must play a constructive role in assisting the emergence of more effective international economic institutions, deploying for this purpose all of the three instruments at its command - research, policy advocacy and technical assistance.

"I look forward to the challenge that this will present," Ricupero told the conference.

Earlier, the UNCTAD head noted that the economic discourse of the past decade was dominated by the so-called "Washington Consensus", twelve rules of economic policy with which all sensible people were supposed to agree. However, they quickly proved to be too restrictive, and even the World Bank, in the person of Professor Joseph Stiglitz, began to adventure "beyond the Washington Consensus". And in January, the UK Chancellor of Exchequer, Gordon Brown had said that the Washington Consensus had narrowed the growth and employment objectives, and its assumptions had proven inadequate for the insecurities and challenges of globalization.

It would be tempting, said Ricupero, to announce the arrival of the Bangkok Consensus, with a different set of twelve points, but that would be unwise. "Consensuses self-destruct" and he would not pretend he could control the tide of world opinion on issues of fundamental concern to all.

Rather than trying to freeze the ongoing debate into a static mould, he would strive to capture the dynamic currents starting from opposite ends and gradually converging towards some common ground. The spectrum of opinion has in fact narrowed in recent years, not just among academic experts, but also among national leaders and those at the head of international organizations.

The end of the cold war had brought with it a new awareness of the phenomenon of globalization, while the ending of the bipolar world had undermined the identity of the "Third World" that had tried to stand apart from the two power blocs.

Ever since the ending of the bipolar world that had undermined the identify of the "third world", these countries have been trying to define themselves in relation to the globalization phenomenon.

"Their strategic choice is whether they accept or reject a growing integration into a single system of trading and financial relations in which the most powerful participant country is the United States."

One of the results of the collapse of the Russian and East European socialist regimes has been the virtual disappearance of the belief that the cutting of trade and financial links with the rest of the world will generate 'true development'.

"Now the debate is about the appropriate terms on which countries should insert themselves into the global trade and finance network."

The idea that the national state can itself spear-head a modernization of the economy by means of state-owned industries was another casualty of the end of the Cold War. This strategy had lost its credibility because of its excessive fiscal and environmental costs, and had also lost support because state enterprise was less effective than private in mastering the new technologies that were at the heart of economic development.

"Now countries are willing to create policy regimes that are attractive to private enterprise, whether domestic or foreign, that can bring about technological up-grading."

While macro-economic instability had never been strongly advocated, "now the imperatives of macro-economic stability is much more generally respected... the debate centers on the means to such stability" such as best policies for exchange rate management, not stability itself.

On freer trade, promotion of the private sector and imperatives of macro-economic stability, informed public opinion had converged over the last decade towards liberal views of desirable economic policies. Opinion was by no means homogenous, but the range of deviation was greatly reduced, providing a basis for developing countries to move towards meeting international standards involved in the globalization process.

"At the same time, however, such standards should not be set exclusively by the developed countries. They will have to be negotiated between all the parties that subscribe to them in a democratic and transparent manner. And, once they are negotiated, the developed countries must be willing to be bound by them even when they cut across their particular national interests."

This, Ricupero said, was one of the clearest appeals made at this Conference by the Heads of State and Government who have spoken. "A more inclusive and participatory decision-making process is needed at the international level."

But the new world in which they were living for the last ten years had not only been about convergence towards liberal economic policies, but had also seen the increasing acceptance of ideas that have been denied persistently by advocates of "uncritical market triumphalism".

The notion that capitalism was an economic system vulnerable to explosive financial crises has long been resisted, but during the cold war period, there were increasingly successful attempts to discredit the Keynesian analysis. Awareness of the vulnerability of the real economy, the economy of people's employment, income and investment, to malfunctions in the monetary sector, become blurred, and there were plenty of economists willing to argue that the complete freedom of markets, including money markets, would produce the best of all economic worlds.

Fortunately, the UNCTAD economists did not take that view, and from the early 1990s foresaw trouble ahead from "casino capitalism". And as John Kenneth Galbraith recently remarked (in an interview in an IMF journal), "the fact is that capitalism in inherently unstable and it is particularly so in its early, infant stages".

But the recent financial crisis, starting in Thailand in 1997, had brought a reversal of opinion, revealing as it did the sheer size of the financial flows that the industrial world could generate, relative to the normal size of flows of developing countries, and the havoc unleashed by the swift entry and swifter exit of such massive flows on small and fragile financial systems open to such tidal waves of finance.

A more realistic evaluation of the limits of unrestricted capitalism was now evident. Both Prime Minister Mahathir Mohamad of Malaysia and President Abdurrahman Wahid of Indonesia, were extremely forceful and persuasive, in their personal accounts of the ordeals endured by their peoples, and in their message that neither the increased volatility nor systemic instability of international finance could be effectively managed by means of the existing financial architecture. Its further reform is an urgent priority, and it should address the more substantive aspects of the problem. Positive processes of integration into the world economy were the goal, and this has never changed. However, the liberalization measures necessary to this end must be phased in a prudent and orderly manner, taking into account specific local circumstances, complemented by appropriate domestic policies and accompanied by institution- and capacity-building. Only then could they hope to succeed.

"Globalization," Ricupero said, "is not an unstoppable change sweeping inevitably across the face of the world. It is, at least in part, a work of deliberate construction, that has consisted so far of a number of regional integration projects, in Europe and Latin America, in addition to the emergence of the financial markets of Asia.

But as stressed by President Abdelaziz Bouteflika of Algeria and current Chairman of the Organization of African Unity, "the developing countries, representing the sweeping majority of mankind, are excluded from the process of consultation and collective decision-making.....A new map of the world is being drawn, from where a whole continent, Africa, is merely erased".

African economies, Ricupero said, remained marginal because of their very narrow export bases in primary commodities, whose price levels fall with deflation of world demand. Their longer-run development is jeopardized by the secular fall in terms of trade of commodities vis-a-vis manufactures.

While Raul Prebisch's views on this had long been denied, in recent years this fact has been generally accepted.

The least developed countries need practical assistance to deal with such problems. Export diversification was an important component of any solution, and in turn this depended on relaxing constraints on supply capacity, including investment in infrastructure and human capital formation.

The third example of the belated recognition of inconvenient facts concerned the question of income distribution and absolute poverty. Throughout the 1980s, poverty reduction was off the official international agenda. But in 1990 it was the subject of a World Development Report and under Wolfensohn as President of the Bank, it has now become its "over-riding objective".

And at this conference, the outgoing head of the IMF, Michel Camdessus had said "there is a mutually reinforcing relationship between .... growth and reduction of poverty and inequality..." As Professor Frances Stewart pointed out at the Round Table of Eminent Economists, more equal income distribution is associated with faster growth. And the reasons were both political and economic.

Thus, said Ricupero, while there has been a convergence of opinion towards the policies of economic liberalism, simultaneously there has been a frank official acknowledgement of the key unsolved problems of capitalist economic order -- its proneness to financial crisis, its economic undermining of peasant production and its tendency to neglect the problems of poverty.

"All these problems especially affect developing countries and their resolution will not come about naturally, but only with selective and intelligent forms of government action."

The convergence of the last decade has come about by movement from both ends of the ideological spectrum. Since 1990, the world has been learning to live without the extreme policies of the political Left and without the extreme ideology of the political Right.

"This dual movement of ideas reveals a world recovering its sense of moral values and this is credible reason for hope. We are now increasingly aware that both governments and markets require a moral basis for their proper functioning.

"Markets cannot operate when they are dominated by the behaviour of opportunists, inside traders or players who freely break their contracts. Governments cannot operate as they should when dominated by the behaviour of the corrupt and greedy. And development itself is impossible unless both markets and governments do function properly, that is, working together in partnership.

"Many aspects of the so-called 'failure of development' during the last fifty years can be readily explained, once we have these three precepts in mind."

"Economies," Ricupero stressed, "do not develop just because they exist. Economic development, historically, has been an exception, and not a general rule. It does not happen automatically in response to the fact that a country has fertile land or large deposits of mineral resources. It is more likely to happen where elaborate systems of human cooperation have evolved. Markets and governments are both the institutional embodiment of this cooperation. The good functioning of all social institutions rests, in turn, not only on habits of personal trust, but also on habits of general and impersonal reciprocity of behaviour, habits reinforced by our religious beliefs, whatever the religion that guides us."

To the six areas of consensus mentioned, could be added the need to make the best use of changing opportunities for technological process and importance of mobilizing financial resources for development, Ricupero said.

But rather than formalizing a new consensus on economic policy in a list with a fixed number of key points, "it is more important to urge that extremism in economic policy be abandoned by all sides." "Let us finally put away those doctrines of economic policy that, as a matter of fact, were never economic in origin at all, but created in the heat of geopolitical conflict that is now, mercifully concluded."

"As for the issues of economic policy that remain, we should avoid any forced unanimity. Unless there is free scope for exchange of economic ideas, for criticism and counter-criticism, our economic understanding will not make any further progress. There were also inherent limits of convergence and even of consensus.

"Even when we agree on basic principles, we may often differ on how to apply those principles, to concrete situations which will not always be interpreted in the same way by all of us," the UNCTAD head declared.

Looking to the future, as the Indian Minister of Commerce and Industry, Murasoli Maran had said, "the end of socialism does not silence the cry of the poor, and out of the pain of poverty must be born new dreams of justice - a new world economic order."

The building of an international community that would respect the aspirations of all its members for sustainable development must rest on the same moral foundations as does sustainable development itself. "The fundamental idea once again is of generalized reciprocity," real reciprocity, and not be merely conventional or formal one, based on a nominal equality of countries "that is belied in all the practices of negotiation, decision-making and dispute settlement." (SUNS4611)

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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