UNCTAD to formulate East Asia lessons for Africa

The secretariat of UNCTAD has been asked to formulate lessons, based on the development experiences of the East Asian countries, for African countries to consider when pursuing their own development strategies and policies.

by Chakravarthi Raghavan

GENEVA: The secretariat of the UN Conference on Trade and Development (UNCTAD) has been requested to formulate lessons, drawing upon the East Asian development experiences, which African countries could consider in pursuit of their own development strategies and policies.

This is one of the agreed conclusions of the Board which ended a two-week session on 18 October.

The Board appreciated the work so far undertaken by the secretariat on the development experiences of developing countries, as part of its analysis of interdependence and global economic issues and asked the secretariat to pursue this work, drawing as necessary, on experiences of developing countries in other regions and of the more successful least developed countries, deriving relevant policy lessons.

The East Asian development experience studies have been undertaken, as part of UNCTAD's analysis of interdependence and global economic issues from a trade and development experience. The work is supported by Japan which is supporting further studies that could be drawn upon by African countries. The Board took note of Japan's support for these studies.

Trade and Development Report 1996

The Board discussions, at an informal session with participation of experts, and in the general debate on interdependence, was based on this year's Trade and Development Report (TDR) which among others, has focused on "Rethinking Development Strategies: Some Lessons from the East Asian Experience."

In summarizing the comments, Mr Roger Lawrence, Deputy to the Secretary-General of UNCTAD and Director of the Division on Globalization and Development Strategies, identified three categories of responses to the Report and the discussions.

Some scepticism was expressed, especially by the Latin American countries, not so much on the general usefulness of drawing lessons from the East Asian success, but rather on the fact that the policies used by these countries for rapid industrialization might be applicable elsewhere. Others saw some specific points in the East Asian experience which they considered could be useful in devising their own development strategies. A third category of response was from African countries who invited the UNCTAD secretariat to pursue the effort to bring the East Asian experience to other developing countries.

On the views about the TDR, Lawrence noted that UNCTAD-IX at Midrand, South Africa, had decided that the Board should address interdependence, and that the TDR should be the background document for these discussions. Interdependence involved the interdependence of countries as well as the interdependence of issues. If the TDR focused on unemployment in the North, it was because this gave rise to protectionism and in turn affected the trade and development of developing countries. Similarly, it was difficult to look at resources for development, domestic and foreign, without looking at the external debt problem and its drain on the available resources, Lawrence pointed out.

In their comments at the formal meetings of the Board, Ireland, speaking for the European Union (EU), saw a substantial overlap between the classical structural adjustment agenda and the identified common features in the Asian success story. Both agreed that the private sector should be centre stage in the growth process and that there should be macro-economic stability, efficient public service and infrastructure, priority to human resources development and fiscal disciplines. But the main difference lay in protection against imports and government dirigism (which the EU implied was practised in East Asia). The latter, consisting of picking winners among new industries and supporting them, was a "dangerous game to play," the EU said. It could only be successful if there were favourable combinations of disinterested governance, analytical skills, clear-sighted policy-making and good luck. Some Asian governments had been able to encourage competitive new heavy industries to grow rapidly from scratch, while others had wasted millions on failed ventures.

Speaking for the Asian group of countries, Pakistan felt that dynamism of the East Asian miracle called into question the universal applicability of the neo-classical approach of the World Bank, which gives supremacy to the structural adjustments and development policies promoted by the World Bank and the IMF, and where individual economic agents merely respond to the prevailing incentive structure.

The TDR had made a useful contribution by going beyond such traditional arguments in various respects:

Firstly, it had emphasized the need to establish a dynamic interaction between exports and investment. Secondly, it had shown the importance of mobilizing and making full use of natural resources and abundant, unskilled labour; and of continually upgrading the industries and moving up the technological ladder. Thirdly, it has pointed to the challenges for government policies involving new forms of interventions to support a dynamic process of development.

The debt problems of African countries

However, many questions still needed to be answered before successful attempts could be made to replicate the experiences of East Asian economies. These related to vulnerability of countries highly dependent on FDI, the more restricted role that government policies could now play, due to bilateral and multilateral obligations to liberalize investment and trade, and the strongly regional nature of the East Asian experience.

Cuba, speaking for the Latin American and Caribbean group, agreed with the TDR on the urgency of reforming the planning and institutional framework of development policies in many developing countries. He felt that many of the interventionist policies used in East Asia in the past were probably not feasible for other developing countries in the current situation. The need hence, arose for alternative development strategies, taking into account the real possibilities of each economy given its level of development, as well as national and regional characteristics. Chile had been able to maintain growth rates comparable to those of East Asians, while maintaining macro-economic stability. There should be a case-study of Chile's experience that could be applied by other countries in the region.

Morocco, speaking for the African group, felt it was very difficult to be hopeful over the possibilities of the African continent achieving economic and social development, given its negative net external financial flows. The effects of the slight improvement in commodity prices in 1995 had been largely offset by two interdependent factors - lack of access to international capital markets and high debt service payments. These problems had been compounded by a decline in Official Development Assistance (ODA) and by unstable foreign exchange markets. Bolder measures were urgently needed to solve the debt problem of African countries. UNCTAD was fully qualified to help African countries draw lessons from the South East Asian development experience in which the State and regional dynamics have played an important role. South-South cooperation could help to compensate the problems of slow growth in the North and lack of export markets there.

China agreed with the TDR that exports to, and investments from, the developed countries had been an important driving force for East Asian economic growth. However, there was now a trend towards intensified protectionism in major developed countries. While this would harm the interests of the developing countries, eventually it would harm the developed countries as well. It was imperative that each country formulate policies for economic and social development in accordance with its own national conditions. The differences in levels of economic development should be recognized, so as not to force developing countries to remain in lock-step with developed ones in the process of liberalization of trade and investment.

Russia said the TDR analysis of the East Asian experience, showed the active role played by the State and the development policies, which were market-compatible rather than market-oriented. An essential component has been the reduction of technological dependence of the region on the industrial North. State institutions had played an important role and flexible protection had been applied to foreign direct investment (FDI) in the initial stages of industrialization. It might be useful to explore to what extent the development formula applied in East Asia could be used as a catalyst for the economic integration process in the former USSR area. Attention should also be given to the reasons for success and examine the problems and obstacles to future development.

Policy discussions being focused on globalization

India said important lessons could be learnt from the Asian experience. But the picture was disconcerting for most of the developing countries in Latin America and Africa which faced difficult external situations, shrinking ODA flows and inadequate international assistance. The Uruguay Round agreements had provided new opportunities for developing countries, but had reduced the policy autonomy of countries. Some of the policy options successfully employed by East Asians were no longer viable. India complained that in the aftermath of the Uruguay Round, international policy discussions focused on globalization and had diverted government and international organizations from giving adequate attention to country-specific issues. He also expressed concern over the protectionist uses of existing rules of the multilateral trading system, and the efforts of the developed countries to introduce new issues not directly related to trade, into the WTO agenda. Any further liberalization of international trade should give primacy to the interests of developing countries. Any arrangements that accentuated the existing global disparities should be rejected.

Ethiopia commended the extensive coverage of the debt issue in the TDR. The main obstacles to faster economic growth in Africa lay on the supply side. Upgrading physical infrastructure and developing human resources were important measures to relieve these supply side constraints. Despite the progress of globalization, external financial constraints remained critical for Least Developed Countries (LDCs).

Indonesia said, while a combination of favourable developments and sustained domestic policy reforms had enabled countries of the region to record a strong growth performance, and while most countries of the region were committed to liberalization and deregulation, their remarkable achievements could not be attributed to a single model of economic development. Rather, their policy makers had adopted a pragmatic response to the specific sets of problems. While Indonesia had achieved a rapid transition to achieve sustained growth, the country had reached a particularly difficult stage of development, which required significant forbearance and support from its development partners.

Sri Lanka felt that the international community had been too pre-occupied with macro-economic aspects of economic growth on the assumption that this would trickle down to the poor. But this trickle-down process had not worked satisfactorily. An underlying cause of the development crisis was the contraction in external financing and the deterioration of the external environment. While inappropriate policies of debt countries might have contributed to the debt crisis, the resulting drop in investment and capacity had created imbalances in the trading system and put the entire financial system under stress. There was a need for a comprehensive approach to this problem.

Mexico said globalization and liberalization did not constitute per se, a comprehensive recipe for development problems and these should be further analyzed to pave the way for coordinated policy actions in the areas of trade, technology and poverty. The lessons drawn from the East Asian experience needed further reflection. Many of the exogenous and endogenous factors that had enabled these countries to grow fast were no longer present, while the Uruguay Round agreements now forbade many of the successful interventionist policies of the State.

Positive role of governments in development

Thailand stressed the need to look at the qualitative aspects of development, rather than confining attention merely to quantitative economic growth. Sustainable economic progress required policies to alleviate poverty, environmental protection, and measures to ensure an equitable income distribution.

South Korea agreed with the TDR that in most East Asian countries, the State had provided a necessary complement to, and sometimes corrective influence on, the market. As stated in the TDR, while FDI provided a package which included the transfer of technology, promotion of production and managerial skills, manpower training and trade promotion, domestic technological capabilities need to be complemented by a selective approach to FDI. While globalization and liberalization provided a potential source of growth, they also threatened to increase the marginalization of developing countries.

The International Confederation of Free Trade Unions (ICFTU) said that in some East Asian countries, democracy had come late, and there had been repression of human rights and trade union rights. While these should not be replicated in other developing countries, the East Asian experience showed the positive role that governments could play in development. For FDI to generate lasting benefits, it was necessary to link it as closely as possible to the domestic economy.

The Third World Network, while agreeing with the broad conclusions of the TDR, doubted whether in the post-Uruguay Round environment, the developing countries possessed adequate policy autonomy. Assessments of the effects of the Round at a recent TWN-organized seminar, was that the WTO Agreements were unbalanced and asymmetric. The benefits to developing countries of the new trade order was uncertain and in the future, but the costs were immediate and upfront. Globalization was being perceived by the public everywhere as generating increased wealth for a limited number of people in a small number of countries, while marginaliza-tion was increasing for the vast majority, both in developed and developing countries. This was politically and socially unsustainable. For globalization to be beneficial, the asymmetric rules of the game in the systems of trade, money and finance need to be corrected, and UNCTAD's point of departure should be to identify such asymmetries so that countries could work to change them. (SUNS3853)

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