Global Policy Forum

By Chakravarthi Raghavan

The UN Conference on Trade and Development (UNCTAD) held its tenth session in Bangkok from 12-19 February. Speaking at the close of the Conference, Rubens Ricupero, the UNCTAD Secretary-General, observed that the economic discourse of the past decade had been dominated by the so-called 'Washington Consensus' which had held out the policies of deregulation, privatisation and liberalisation as the prerequisites for economic development. Against the backdrop of the failure of these policies, he called for the construction of a new international order founded on real reciprocity that takes into account the underlying asymmetries in the economic structures of the countries of the North and South.

United Nations Conference on Trade and Development (UNCTAD) Secretary-General Rubens Ricupero on 19 February strongly urged the 'abandonment of extremism in economic policy by all sides,' and called for 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 escalation), 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 World Trade Organisation (WTO), prospects for progress in these three directions were 'at best mixed', Ricupero said, but he felt that UNCTAD X (the tenth session of UNCTAD held in Bangkok on 12-19 February) had made a contribution by providing an opportunity for a wide-ranging exchange of views and creating an atmosphere of greater mutual understanding on the complexities of the globalisation process. 'But much remains to be done in translating this into practical moves for institutional change at the international level,' Ricupero added. The minimum prerequisites 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 UNCTAD X outlining the 'Bangkok Convergence' in economic policies emerging out of the deliberations at the conference and conference-related events.

Over the 10 days of conference and pre-conference meetings and events organised around UNCTAD X, at the Queen Sirikit National Centre, and at the plenary meetings and interactive debates, there had been a constant iteration about the inevitability of globalisation, particularly from the few who now benefit from it. But there had also been challenges from a few about this inevitability. 'Globalisation 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 be rooted in the fundamental idea of 'generalised 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 generalised reciprocity, and not 'the nominal equality of countries that is belied in all the practices of negotiations, decision-making and dispute settlement.' 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. Earlier in his statement, the UNCTAD head noted that the economic discourse of the past decade was dominated by the so-called 'Washington Consensus', 12 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'.

Convergence

Rather than trying to freeze the ongoing debate into a static mould, Ricupero said, 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 organisations. 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 spearhead a modernisation 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 upgrading.' While macroeconomic instability had never been strongly advocated, 'now the imperative of macroeconomic stability is much more generally respected... the debate centres on the means to such stability,' such as the best policies for exchange rate management, and not the objective of stability itself.

On freer trade, promotion of the private sector and imperatives of macroeconomic 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 globalisation 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.'

'Inconvenient facts'

The new world in which they had been living for the last 10 years had, however, 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 is an economic system vulnerable to explosive financial crises has long been resisted, and 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 became 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 is inherently unstable and it is particularly so in its early, infant stages'. The recent financial crisis, starting in Thailand in 1997, had brought about 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 even 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 liberalisation 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.

But as stressed by President Abdelaziz Bouteflika of Algeria and current Chairman of the Organisation 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 jeopardised by the secular fall in terms of trade of commodities vis-a-vis manufactures. While Raul Prebisch's (the first UNCTAD Secretary-General) 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 this in turn depended on relaxing constraints on supply capacity, including investment in infrastructure and human capital formation.

'Over-riding objective'

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 the World Bank World Development Report and, under the presidency of James Wolfensohn, the Bank has now made it its 'over-riding objective'. And at this conference, the outgoing head of the International Monetary Fund (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 the 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.' Rather than formalising a new consensus on economic policy in a list with a fixed number of key points, said Ricupero, '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. The above is an edited version of an article which originally appeared in the South-North Development Monitor (SUNS - issue no. 4611) of which Chakravarthi Raghavan is the Chief Editor.

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