Globalization needs more careful management, says UNDP

Although much progress has been made in poverty eradication, one of the basic elements aggravating poverty and inequality has been the phenomenon of "globalization", the dominant economic theme of the 1990s. If globalization is to afford greater opportunities for developing countries, it needs more careful management, and must take into account global equity concerns. This view has been expressed in the UNDP's Human Development Report 1997.

by Chakravarthi Raghavan

GENEVA: Globalization offers great opportunities - but only if it is managed more carefully and with more concern for global equity, says the 1997 Human Development Report (HDR).

Commissioned and published by the UN Development Programme (UNDP) (but with usual disclaimers of international organizations), the Report argues that much progress has been made in poverty eradication - "poverty has declined faster in last 50 years than 50 decades" - and extreme poverty can be banished within one or two decades.

New composite index

The HDR uses the income-level yardsticks to measure poverty, but also a new composite index to measuring poverty - in terms of shortness of life, illiteracy, lack of access to health services, safe water and adequate nutrition, and has a rating scale of countries.

At the top of the list are Trinidad and Tobago, Cuba, Chile, Singapore and Costa Rica; at the bottom are Niger, Sierra Leone, Burkina Faso, Ethiopia, Mali, Cambodia and Mozambique.

Says UNDP administrator, Gustav Speth, in a foreword: "...poverty is no longer inevitable. The world has the material and natural resources, the know-how and the people to make a poverty-free world a reality in less than a generation.... Poverty is not to be suffered in silence by the poor. Nor can it be tolerated by those with the power to change it."

Among the policies advocated in the HDR are the perennials - focus on human development, the 20-20 vision or spend more on health and education (by cutting military expenditures) and empower women and people.

These though, remain palliatives, however important they are for those afflicted. But like the palliative of the 1980s, UNICEF's "adjustment with a human face", which with all efforts to help the children and others badly affected, has still resulted in "adjustment" by the poor nations to ease the burdens of the rich, and as a result of which, sub-Saharan Africa, for example, has been put further back.

The HDR does recognise this, and does point to the basic elements that are aggravating poverty and the gaps, within and among nations, "globalization - the dominant economic theme of the 1990s." Globalization needs to be managed, said Mrs. Sakiko Fukuda-Parr, Director of the UNDP's HDR, at a press briefing in Geneva, in the second week of June, but sidestepped a question as to how this could be done without tackling the world economic systems, and in particular the unguided "Trade and Investment" processes that are the forces behind this particular form of "globalization".

The UNDP can't be blamed for not taking head-on this issue, and the neo-liberal economic norms being prescribed through trade and investment rules of the WTO trading system, the Fund and the Bank, and the moves to strengthen their hold.

And while the HDR makes a renewed plea for "governance" (democratic governance within and among nations), Parliaments no longer count, having given way in an "international rentier economy" (as French economist Alain Parguez calls it) to bond markets and budgets and tax policies of countries determined not by Parliaments but by views of Standard and Poor and other rating agencies.

At UNCTAD-IX in Midrand, at the round-table of heads of organizations, the WTO chief, Mr. Renato Ruggiero, said the purpose of his organization was only to reward the most efficient global producers, and the problems of equity was for others to tackle.

Only the UNDP head, Gustav Speth, questioned the wisdom of ignoring inequities. All the others at the round-table, developing country ministers and heads of organizations, did not find any reason to challenge or dissent from the view or to point out that history is replete with systems that did not have built-in arrangements for equitable distribution of benefits and collapsed as a result.

In the current atmosphere of UN restructuring, anyone bold enough to challenge the basics of the globalization norms would easily be restructured out of office - in deference of Sen. Jesse Helms and the interests of the UN in getting money (US arrears) out of his hands.

Some negative elements identified

Nevertheless, the HDR does identify some of the negative elements and the inequities in the system weighted against the poor nations, and the poor everywhere. They have been said before, but mostly by non-governmental organizations and institutions. Even if it is only a repetition, the UNDP-HDR is to be commended for saying it officially.

Globalization, as a description and a prescription, HDR says, has become a dominant economic theme of the 1990s. The description is the widening and deepening of international flows of trade, finance and information in a single integrated global market. The prescription is to liberalise national and global markets in the belief that free flows of trade, finance and information will produce the best outcome for growth and human welfare.

"All is presented with an air of inevitability and overwhelming conviction," says HDR. "Not since the heyday of free trade in the 19th century has economic theory elicited such widespread certainty."

"But the principles of free global markets are nevertheless applied selectively. If this were not so, the global market for unskilled labour would be as free as the market for industrial country exports or capital. Global negotiations are moving rapidly towards a free world market in foreign investment and services. But intervention in agriculture and textiles, an obstacle to developing countries remains high. And lacking power, poor countries and poor people too often find their interests neglected and undermined."

Globalization has its winners and losers. With expansion of trade and FDI, developing countries have seen gaps among themselves widen, while in many industrial countries unemployment has soared to levels not seen since the 1930s, and income inequalities to levels not recorded since the last century.

A rising tide of wealth is supposed to lift all boards. But some are more seaworthy than others. The yachts and ocean liners are indeed rising... but the rafts and rowboats are taking on water - and some are sinking fast.

On the panacea for development and resources, foreign direct investment (FDI), the Report notes that most FDI goes to the industrial "triad" (North America, Europe and Japan). Together with eight Chinese coastal provinces, they receive 90% of world FDI - and the rest of the world with 70% population receives 10%.

FDI flows are so skewed, partly because of national policy failures - country macro-economic policies that discourage investors and impede trade and investment more directly.

The Uruguay Round

But not all blame for limited benefits of globalization can be laid at doors of governments. The terms of trade of developing countries have been declining, and the cumulative loss between 1980 and 1991 amount to $290 billion. "Poor countries often lose out because the rules of the game are biased against them and the Uruguay Round hardly changed the picture."

Developing countries, with three-quarters of the world's people, will get only a quarter to a third of the income gains - and most will go to a few powerful exporters in Asia and Latin America. The

Uruguay Round has left intact most of the protection for industry and agriculture in industrial countries, while ignoring issues of vital concern to poor countries - notably management of debt and of primary commodity markets.

Tariffs on goods have been brought down, but developing countries still face tariffs 10% higher than global average, and the LDCs at 30% higher. Developing countries have also been locked into a volatile primary commodities market with tariff escalation resulting in tariffs being 8-26% higher on the final product than on underlying raw materials.

Non-tariff barriers have also been reduced, but the scope for evading the spirit, if not the letter, remains considerable, HDR notes and points to the anti-dumping actions and penalties which are "one of the most popular forms of protection."

Anti-dumping actions more than doubled between 1989 and 1994 - affecting a large share of Third World exports to the industrial world. The EU's anti-dumping cases during the 1980s covered trade of roughly equal value to all its agricultural imports. And the US and EU have applied anti- dumping measures against a wide range of developing country exports - from steel to colour TVs.

The level playing field (in agriculture) in the real world, rather than the imaginary one inhabited by free traders, survival in agriculture markets depends less on comparative advantage and more on access to subsidies... Implementation of the Uruguay Round agriculture agreement over the next five years will not materially change the picture. No effective disciplines on export subsidization have been agreed to, and this allows the US and EU to continue past practices, though under slightly different rules.

And in intellectual property, the Uruguay Round has extended life and enforced protection of patents and other rights - increasing the cost of technology transfer to developing countries. Early on, industries exploited a fairly free flow of ideas and technology. In the 19th century, the US adapted and developed European technologies with little regard for patent rights. And after World War II, Japan did the same.

"Now these same countries are enforcing policies that will impose steep licensing charges on developing countries using foreign technology. In a knowledge-intensive global economy, access to technology on reasonable terms determines whether countries can take advantage of the opportunities that globalization offers."

Globalization, the HDR comments, is thus proceeding apace, but largely for the benefit of the more dynamic and powerful countries of the North and the South. The loss to developing countries from unequal access to trade, labour and finance was estimated by HDR 1992 at $500 billion a year - ten times what they receive annually in foreign aid.

"Arguments that the benefits will necessarily trickle down to the poorest countries seem far-fetched. Even less certain than globalization's benefits for poor countries are its benefits for poor people within countries."

The imperatives of liberalisation everywhere has been to demand a shrinking of state involvement in national life. And everywhere, opening of financial markets has limited governments' ability to run deficits. Trade theory argues that poor people will gain from trade liberalization - through increased demand for unskilled labour and exports and output, and increased capital inflows as a result of liberalization of financial regimes.

But things don't work out that way. Liberalization has been accompanied by greater inequality and falling share of income for the poorest 20%.

And globalization also shifts patterns of consumption. Luxury cars and soft drinks rapidly become a part of daily life - heightening relative deprivation and can increase absolute poverty by undermining the production of goods on which poor people rely. A flood of imported wheat can shift consumption away from cassava, making them scarcer in local markets. And in industrial countries the era of globalization has been characterized by increase in overall income as also rise in unemployment and inequality.

Some possible solutions

What can be done? HDR lists several ideas, but they can't add up even collectively, so long as UN and its member- governments don't face up to changing the failing neo-liberal prescriptive economic norms.

National governments, says HDR, can manage trade and capital flows more carefully, and exercise more discretion in adopting policies of liberalization. They can also invest in poor people (in their education and health), and in fostering small enterprises, and fostering links between their micro- enterprises, as subcontractors and major corporations like Japan and the successful Asian economies did.

The HDR also calls for policies to manage new technology, eschewing inappropriate labour-saving technologies, adopt policies to reduce income inequality and put in place safety- nets.

It also underlines the need for international actions. At one level ethnic and other groups are pressing for greater autonomy, while at another level the TNCs care little about local jurisdictions and have become too big for small things, and too small for the big.

"The playing fields of globalization more often than not slope against the interests of people and countries... Proactive national efforts are essential... International efforts must share the responsibility for providing the much- needed public good of equity and social cohesion..."

"Today's global integration is wiping away national borders and weakening national policies. A system of global policies are needed to make markets work for people, not people for markets..."

The world needs a more effective macro-economic policy management at global level - with more stable sources of international liquidity, better surveillance, faster crisis response mechanisms, and a large multinational (sic) lender of last resort. Existing organizations serve these purposes inadequately. There is also need for a fairer international environment for global trade, says the HDR.

But the remedies don't even touch the peripherals - WTO's action plan for LDCs (which it notes, hasn't adopted detailed recommendations or implemented them), and liberalising markets of industrial countries for exports of developing countries.

At international level, it says, there is nothing equivalent to national legislation to ensure fair taxation, environmental management and labour rights, and protection against monopolies - with the world's 350 largest corporations accounting for 40% of global trade.

What can be done? An incentive system, that will avoid excessive regulation, and encourage TNCs to contribute to poverty reduction and be publicly accountable and socially responsible. And actions to stop a race to the bottom by strengthening hands of institutions like the ILO on labour standards, and developing similar institutions for international environment protection. (TWE 163, 16-30 June 1997)

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