by Chakravarthi Raghavan

Bangkok, 13 Feb 2000 -- Prime Minister, Mahathir Mohammad of Malaysia, raised his voice Saturday, from the platform of UNCTAD-X, over the rise of worldwide oligopoly, and the plans of corporations in some industries to take advantage of liberalization and globalization through mergers and acquisitions.

"If you want to make globalization an effective instrument for the development of all countries and peoples, it is imperative that you take serious notice of the fears felt by developing countries about what is happening to the world's economy, the world's financial system in this era of interdependence and globalization," Mahathir told UNCTAD-X.

The Heads of Governments of ASEAN, who held a summit meeting here just before UNCTAD-X, spoke at the Conference on its opening day. Another head of government who also came here and spoke was the Prime Minister of Japan.

Mahathir's characteristically was a fighting speech, collating together many uncomfortable facts (for the promoters of the new order) and presenting them in a cogent way and demanding answers.

The countries of the region, he noted, had taken liberalization measures, opened up their markets for trade and investment, orienting their economies to external challenges and eventually welcoming globalization - and all this against the background of changes over which they had no control.

"Political stability, natural and human resources, capital and investment were once the only ingredients in the formula for development. But today technological advances, borderless flows of capital and the advent of a knowledge-based economy have complicated the development equation. We are not certain that we can deal with this new complex environment which changes even as we try to adjust to them. And because we are not so competent in dealing with these, our development have been and will be affected adversely.

"What we do know is that the path to development has never been easy even at the best of times. Despite out efforts we see rising inequality between developed and developing countries, with continued high levels of poverty and unequal and inequitable benefits from globalization. We see increasing uncertainty of the global economic environment... greater marginalisation as a result of the globalization process.. growing inadequacy of global institutions to deal with developmental problems."

The instability in the global financial system had adversely affected them. Just two years ago, a number of East Asian economies had been badly affected by a severe financial crisis. Though there was recovery now, the global financial system continued to be characterized by volatile capital flows and excessive speculative activities of hedge funds and highly leveraged institutions. Developing countries continued to remain vulnerable to another crisis unless reforms of the international financial system are undertaken.

Referring to the IMF advice Malaysia had initially followed, but abandoned when things actually got worse, and resorted to unorthodox measures, consistent with domestic circumstances, that had put Malaysia back on path to recovery, controls that brought about sustained stability, enabling them to take various measures to bring about broad-based economic recovery.

"But as a recalcitrant and a heretic, I would like to insist that the affected economies of east Asia were practising right economic policies that enabled them to enjoy high rates of growth... Some believe that periodic financial crises may be a small price to pay for development resulting from liberalization and globalization. But is it really necessary to have financial crisis every now and then, especially the severe kinds that affected East Asian tigers and dragons. Cannot we have liberalization and globalization with less disruptions for economies which are as yet not too resilient?

"I think we can, if we are not too rigid in our thinking about globalization and liberalization and our tolerance of the abuses of the system."

It was disappointing, said Mahathir, that the international community could not think of any other solution to the crisis in East Asia except to call for improvements in transparency and governance. Lack of transparency and accountability, it was argued, made it difficult for markets to function well, and when players in the market found themselves uncomfortable they pulled out, regardless of consequences to the countries which in the past had given them good returns. Can't there be better ways of responding to discomfort?

It seemed the international community was now more anxious to avoid periodic crisis and had set up various working groups and study groups, including the Financial Stability Forum and the G-20. But Malaysia remained pessimistic on the outcome, Mahathir said. The membership of the G-20 seemed to make it heavily influenced by the views of developed countries. He hoped that its agenda would not be limited to promoting information exchange and coordination among national authorities, international institutions and regulatory or relevant expert groupings.

"In our view, central to the issue of international financial system is the need to address the volatility of capital flows, particularly through direct regulation of hedge funds and highly leveraged institutions..."

Mahathir was also concerned that though there had been much discussion, and agreement on certain specific issues, implementation details were yet to emerge. There had been some progress on issue of transparency and disclosure and indirect regulation of market players. But even here they were yet to see concrete measures.

"Until and unless there is a reshaping of the international financial architecture, we can expect the global economic system to remain inherently unstable and this would not be conducive to further development, particularly for developing economies."

In the present environment, capital flows have been channelled to where the returns were highest, and not where capital was most urgently needed to uplift development.

On the trade front, the benefits resulting from the rules-based multilateral trading system as embodied in the WTO had not been equally distributed among all countries. Tariff reductions in industrial and agriculture products as well as of improved trading rules were of little consequence in those countries if they did not cover products of export interest to them . And commodity exports, the mainstay of many developing economies, continued to experience severe declines in terms of trade.

Existing international infrastructure was inadequate to deal effectively with development problems and crises. The UN, the IMF and World Bank have not been able to cope with the challenges confronting the developing world. The Asian financial crisis had clearly shown the inability of the developed world and international institutions to respond to crises and effects of contagion. Poverty and unequal distribution of wealth had resulted in security and social problems and they would continue to do so in particular in developing countries.

The responsibility to address issues of development was a collective one and developed countries must play an active role in assisting countries affected by these problems. But developing countries must accept that they too had to do their bit to ensure attaining sustainable growth and prosperity.

Apart from efforts of developing countries, the industrialized countries had a special responsibility to facilitate the process -by assisting developing countries gain access to knowledge, ideas and inventions which must be available at reasonable prices. IPRs must be protected, but consideration must be given to the needs of the poor. "By all means profit from IPRs, but make those who can afford pay more while reducing the profit from the poor.

As for the WTO, in the context of trade liberalization, developing countries should be given greater flexibility, for a wide variety of options and responses to deal with complex development problems.

This aspect and the special situation of developing countries were often not given adequate and appropriate treatment in trade liberalization negotiations. The principle of progressive liberalization must not only be an integral element of any WTO trade liberalization initiative, but must be fully recognized by all. And to be able to manage pace and discretion of liberalization and globalization, developing countries must be able to effectively participate in the decision-making process in all international institutions, which must also have mechanisms to allow all views to be heard. The decision-making process must also be transparent and reflect, not just the views of big governments and big business, but those of the threatened small business and small governments as well.

And the recent Seattle WTO Conference had clearly demonstrated the need to involve even the NGOs in the decision-making process. It was time the relevant NGOs must be given a proper forum to air their views. The street demonstrations can serve as a wake-up call, but their usefulness is quite limited.

Turning to the mega mergers and strategic alliances in the making, Mahathir expressed his worry and fright at the preparations being made by corporations in certain industries and business activities to take advantage of liberalization and globalization. Now many of the corporations were more powerful than medium-sized countries. "While we welcome their collaboration with our local companies, we fear that if they are allowed into our countries unconditionally they may swallow up all our businesses.

"A situation of worldwide oligopoly already seems to be emerging. If market forces are allowed free play, then oligopolies may end up as monopolies. I believe that the general consensus is that monopolies are unhealthy. Can it be possible that a corporation is not a monopoly in its country of domicile but a monopoly in the rest of the world? In such a case whose laws will apply? And if we restrain them, would we be accused of not subscribing to globalization and liberalization?

"UNCTAD 10," Mahathhir added, " has a big agenda before it. If you want to make globalization an effective instrument for the development of all countries and people, it is imperative that you take serious notice of fears of developing countries about what is happening to the world's economy, to the world's financial system. You have also to let the developing countries have a say in the interpretation and shaping of the new forces that are being unleashed by a globalized world where policies and practices are to be standardized so as to facilitate trade and investment.

"We must not forget," the Malaysian leader added, "that UNCTAD is not just about trade. It is also very much about development and development is the particular need of developing countries. Other fora are concerned exclusively with trade. But UNCTAD is one of the few concerned with development, and because of that it is extremely important to developing countries."

[IPS adds: Speaking at the plenary session, Singapore Prime Minister Goh Chok Tong said the end of the Cold War had opened up vast potential for international cooperation unconstrained by ideological conflict. But "these hopes have long been dashed.

Goh observed that the United States, which without hesitation implemented the Marshall Plan and generously opened its market to support an open international trading system succumbed, at Seattle in November 1999 to domestic protectionism.

"The expectation that the post-Cold War international system would be multi-polar has proved premature," Goh said, adding that globalisation led from the West bore the "strong imprint of the American political and economic power."] (SUNS4606)

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

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