Experts debate globalization and inequality

A recent discussion session convened by UNCTAD saw development experts consider policy practices to combat poverty and inequality, as well as the need for policy space to implement these strategies at the national level.

by Kanaga Raja

GENEVA: Political will and political power and sustainable policies at national level as well as national policy space and fair international trade, money and finance systems are essential to tackle poverty and inequality, according to experts at an eminent panel discussion at UNCTAD.

The experts on the panel were discussing best policy practices for tackling poverty and inequality on the road to achieving sustainable development.

The discussion took place in a roundtable session on 19 June, during UNCTAD’s two-day Public Symposium (18-19 June), which this year coincided with UNCTAD’s own 50th anniversary celebrations.

Among the discussants were Rubens Ricupero, a former UNCTAD Secretary-General; Martin Khor, the Executive Director of the South Centre; Deborah James, Director of International Programmes at the Center for Economic and Policy Research (CEPR); Roberto Bissio, Global Coordinator of the Social Watch network; and Zhongxiu Zhao, Vice-President of the University of International Business and Economics.

Political will

Referring to the issue of inequality and poverty reduction, Ricupero, a Brazilian national, said everybody agrees that Latin America in general and Brazil in particular have been moving in the right direction, and in the opposite direction of many countries including developing countries that have seen inequality worsening and poverty coming back again, sometimes in force.

He underlined the fact that in order to fight poverty and reduce inequality, the first condition is political power and political will. Western societies only got rid of the most extreme forms of poverty when they decided that it was their utmost priority to do so, he said.

“And that is what we have been seeing in inequality in the current debate ... We all know that in the US, for instance, it is politics; it was the political choices made by the group that captured power” that explained this unfortunate evolution. They decided to make the country safer for the very rich and tougher for the very poor, Ricupero said, noting that this is a political problem that has to be settled at the political level.

In Latin America, and particularly in Brazil, he said, “perhaps we have too much of political power, too much of political will. Is it possible to say that we could have too much of a good thing? Indeed it is. In our case [in Brazil], there was, after the military withdrew, a sort of new social compact to finally address a centuries-old history of slavery, of inequality, of extreme poverty.”

And Brazil did it in a very short time, he said; in about 20 years, more than 50 million people were lifted up from the most abject forms of poverty. While inequality is still a problem, Brazil is moving in a determined way to reduce it, Ricupero underlined, noting that Brazil is one of the few countries in the world where inequality is actually falling.

But as always, the problem now is “to ask ourselves whether it will be sustainable in the middle and long term”, he remarked, stressing that his main message is that in order to make the fight against poverty and inequality sustainable, “we have to balance political will with a good mix of sound policies”.

In Brazil’s case, for instance, he said there was “some exaggeration” in terms of cash transfers and direct cash payments to families. In the last 12 years, it is estimated that a staggering 84% of the increase in public cost and expenditure went into cash transfers.

The consequence is that “we have very little money left for infrastructure. There has been an enormous boom in consumption and credit – those are good things, but there has been a c lear sacrifice in savings and investment, with the economy coming to a halt.” This means that in the long term, it will no longer be sustainable in terms of the progress that has been achieved so far.

According to Ricupero, in the very long term, what Nobel laureate Paul Krugman has said is true: “Productivity may not be the only thing, but it’s almost the only thing.” At some point, “we have to invest in human capital, on education and on the capacity to make people more productive with less cash transfers by governments”.

Ricupero said that one of the useful points of this discussion would be to try to come up with ideas that would make the fight against poverty and inequality a long-term sustainable goal.

From poverty to sustained

development

Martin Khor, the Executive Director of the South Centre, pointed out that there is acute poverty due to natural disasters, civil wars and so on; these kinds of causes require humanitarian assistance, but there isn’t enough of that.

“Secondly, we have in many countries poverty which in the past was due to low commodity prices. This led some countries into external debt crises,” he said.

According to Khor, the solutions offered by the international financial institutions were often the wrong ones, with the wrong conditionalities. And this led these countries into two or three “lost decades” because they continued to be in poverty, especially if one compares them to developing countries that did not suffer a debt crisis and did not go through structural adjustment policies.

When he is asked why East Asia did better than Africa, Khor said, “I tell my African friends it’s not due to more corruption in Africa or more tyranny in Africa – we have this all over the world – it’s due to the fact that we [East Asia] didn’t fall into the wrong policies of the IMF and World Bank and we were able to institute a lot of policies which they [Africa] were not allowed to do.”

Accordingly, if countries fall into debt, they need to have debt relief upfront or an international debt resolution mechanism. There is also a need for reforms of the international debt system as well as reforms in the conditionalities of loans. Today, said Khor, the big debate is also on the conditionality of loans to the European countries which have gone to the IMF or the European Central Bank.

On the larger issue of moving from poverty to sustained development, Khor said that at the national level one could have short-term and quite successful policies of cash injection to the poor, as is now being carried out by an increasing number of countries led by Brazil with its Zero Hunger programme. Citing what Ricupero had said earlier about cash transfers, Khor asserted that this may not be financially sustainable unless one has sustained economic growth which contributes to government revenues that can then sustain a social programme.

Referring to sustainable development strategies and policies, Khor said it is important to look at how to obtain more revenues from existing commodities, including minerals. He posed several other questions: How to have better benefit-sharing with the transnational corporations that extract the natural resources? How to keep the commodity prices up rather than down, because it is low commodity prices which have led many developing countries into poverty and which also led to the formation of UNCTAD itself? How to diversify away from commodities or among commodities and add value to the commodities through processing and manufacturing?

Khor, a Malaysian national, recalled one incident where “the Minister of Commodities in Malaysia [told] me that if we [Malaysia] exported one cubic metre of raw wood versus the same cubic metre converted into furniture, we would get seven times more revenue [from furniture] – more value-added – and that is why we went into furniture export.”

The role of the state is very important in the provision of loans and subsidies and in infrastructure, as well as active promotion of commodity diversification and upgrading into manufactures, said Khor.

He also pointed to the need for a stable currency, saying that unstable currencies led to crisis in many developing countries. This requires a reform in the international monetary and financial system which has not come about yet. Capital flows will also need to be stable, he added. There can’t be huge inflows and outflows of capital, which make it very difficult for a country to remain stable in terms of its real economy.

There is a need for policy space to be able to carry out all these strategies, Khor said, further underlining the need to have the correct trade rules.

“We have rules in the WTO in relation to subsidies, TRIMs [trade-related investment measures] and so on that make it difficult, or even impossible, for many developing countries to institute the kind of policies that successful developed countries, or successful developing countries, were able to have in the pre-subsidy agreement and the pre-TRIMs agreement period.”

Khor added: “We need developed countries to cooperate by not instituting policies that are detrimental to developing countries, for example, high agricultural subsidies which enable them to export food at very cheap prices to developing countries, which, because of lowered tariffs due to structural adjustment, force these poor developing countries to import food, which is less efficient [and displaces] their more efficient farmers.”

There is also a need to re-examine the free trade agreements that ask developing countries to lower their tariffs to zero for almost all products even as agricultural subsidies remain in the developed countries, for this will make it very difficult for them to escape from poverty and into sustained development.

Many countries are also now finding investment rules to be a real burden because these rules constrain their ability to have regulations and could see them brought to court in a very unfair arbitration system.

Khor concluded: “We need to have environmental policies that are sound or rather development policies that are environmentally sound, otherwise the base for future development is gone. And we need to have a development agenda post-2015 that has the right Sustainable Development Goals but also go beyond the goals-and-targets framework.”

Zhongxiu Zhao, the Vice-President of the University of International Business and Economics, highlighted China’s past experiences in using trade to promote development and to reduce poverty. He pointed out that trade absorbed over 100 million people from the rural areas and that this process is still continuing.

Internal and external policies

Roberto Bissio, the Global Coordinator of Social Watch, talked about best practices relating to poverty and inequality in his country Uruguay.

He said that after the financial crisis of 2002, Uruguay was in a situation not very different from that of Greece or Spain today. But from 2005 onwards, cash transfer programmes were started by the government to address the issue of poverty. They were conceived as an emergency measure much like humanitarian assistance, and what was done was to institute mandatory collective bargaining, which resulted in the doubling of unions, which in turn resulted in the salaries of workers growing in real terms, thus recovering buying power.

In addition, he said, the minimum wage was doubled and all workers, including domestic and rural workers, were formalized. Maternity and paternity leave, universal health insurance and income tax were also introduced.

On top of that, a non-economic agenda of more rights was undertaken, said Bissio, such as women having the right to decide on the number of children they want to have, people having the right to marry whomever they wish to marry, the right to choose one’s gender, etc.

All these policies led to poverty reduction and less inequality, and investments grew in enormous proportions, contrary to theories on the need to constrain workers’ rights in order to attract investment. In fact, there was growth in both national and foreign investment.

However, said Bissio, inequality between countries is a more complicated issue, because it does not depend on a country’s internal policies.

In an apparent reference to a recent decision by the US Supreme Court to reject an appeal by Argentina and allow to stand a lower-court decision concerning Argentina’s foreign debt, Bissio said: “We are facing a situation in the world today where sovereign country decisions about, for example, your own debt are taken by the Supreme Court of the US.”

“And we would like to avoid the Supreme Court of the US judging over Argentina’s foreign debt in a way that will lead the country to default, most likely, although they are desperately trying not to,” he said, cautioning that this will also pull Uruguay “down the drain”.

Pointing out that many other Latin American economies will also suffer as a result of this decision, he noted that even the IMF is now saying that debt restructuring cannot be done anymore if such a stand is taken.

He recalled that at the UNCTAD XI conference in Sao Paulo in 2004, Ricupero, who was the then UNCTAD Secretary-General, had warned developing countries against joining the path of financial liberalization. According to Bissio, Ricupero had said at that time that “this is like joining the Mafia – you are attracted by a lot of promises and all the benefits that you are going to get in terms of money, power, women, whatever, but after a while you realize that maybe it was not a good decision, [and] you cannot send a resignation letter.”

And this is what is happening to many countries now which are bound by bilateral investment treaties (BITs) and the like, Bissio said, adding that UNCTAD and the international system need to start thinking of an international “witness protection programme” for countries that want to get out of this, as well as for countries that now want to revise their BITs.

Denial of policy flexibility

Deborah James of CEPR said that many of the strategies that the US actually employed in its development when it was looking at a per capita income of $5,000 have now been made unavailable to developing countries. “We feel that this is one of the roots of the current inequality between countries.”

Referring to the issue of services, she said that for poverty reduction, there is a pretty well-established global consensus about achieving universal access to essential public services such as healthcare, education, and access to water and sustainable energy. Unfortunately, the WTO’s General Agreement on Trade in Services (GATS) and the proposed Trade in Services Agreement (TISA) would restrict a lot of the policy space, particularly around regulation of public services as well as access to foreign companies coming in to provide those services.

According to James, some of the best practices that were used by the current industrialized countries, such as the strategic deployment of tariffs on certain industries to promote their development, are restricted by the current global trade rules. This needs to be changed if countries are going to have the policy space to act on industrial policy and create jobs. She added that in terms of intellectual property rules, there is an actual overvaluing of certain types of labour such as intellectual labour and an undervaluing of other types of labour, such as people working in manufacturing plants.

She also referred to central bank policy, which she said has been most destructive in the last five years. “We have seen a situation where in the global economic crisis, the mandate of the European Central Bank has been exclusively focused on inflation and prices and [the Bank] has not taken its mandate on jobs and growth seriously. And because of that, we have tens of millions of people in Europe who are out of work and we have the depression of global aggregate demand as a result, that affects everybody around the world.” (SUNS7831)

Third World Economics, Issue No. 572/573, 1-31 Jul 2014, pp22-24, 28