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Statement
by Mr. Jayant
Malhoutra, Member
of Parliament on
October 26, 1999 in
the Second Committee (Economic and Financial) of the United Nations. Mr.
Chairman, My
delegation wishes to associate itself with the statement by the Chairman
of the G-77 & China. We have also read with interest the SG’s report
on this issue. Our
debate on the issue of ‘Globalisation and Interdependence’ in the
Second Committee this year is, in many ways, a historic opportunity. The
adoption of a Resolution at the 53rd session of the GA inscribing an
agenda item on this major economic trend, which has in the 1990s
transformed and reconfigured the international global economy, is only
appropriate for a variety of reasons. Aspects of globalisation and
liberalisation are being discussed in the major competent specialised fora,
notably trade liberalisation in the context of WTO, while financial
liberalisation and its consequences are being dealt with in the Bretton
Woods Institutions. When we had introduced this resolution in the Second
Committee last year, the objective was to draw on the comparative
advantage of the UN, through its unique attributes and universal
membership, in providing a forum where a holistic, comprehensive view can
be taken of globalisation. We
believe that we should carry out a far more incisive analysis, both of the
opportunities and drawbacks of globalisation. This is particularly
necessary at the national level by individual countries where we need to
define what the objectives of globalisation are. Clearly, if globalisation
is to be meaningful at the national level, it cannot lead only to enhanced
international trade or financial flows per se, but to raising of standards
and quality of life all around. Specifically, at the national level,
globalisation needs to address poverty, unemployment, education, health,
etc. and lead to higher living standards and for this we need to assess
how globalisation is impacting each individual developing country. More
specifically, we need to recognize differences between the economic and
social capacities of different countries and regions in responding to the
many challenges of globalisation and in evolving universal panacea or
prescriptions, we need to avoid a one size fits all approach.
Specifically, we need to avoid universally applicable time tables for
liberalisation, whether in the trade or financial sectors. Trade and
financial liberalisation should be undertaken at a pace and in a sequence
that is country specific. Globalisation, particularly hasty or ill thought
through liberalisation has led to massive unemployment and a break-down of
social systems where developing country economies have been ill prepared
for competition or even the immediate impact of technological upgradation.
What
is needed if we are to avoid the human misery we saw during the recent
South East Asian financial crisis and subsequently in Russia, Brazil, etc.
as the contagion spread, is to allow countries to evolve time frames and
modalities to cope with the enhanced competition that comes in the wake of
trade liberalisation. Adequate financial and other measures including re
training of the labour force need to be evolved by countries to address
the fall out of globalisation. Investment in research and development and
infrastructure is crucial, apart from development of agriculture and agro
industries if developing countries are to be equipped to manage the
challenges of globalisation. At
the same time we need to recognize at the global level that globalisation
is a ‘work in progress’, an "opera aperta" in which we are
at the same time both actors and players. As the political economist,
Stephen Commins, noted recently globalisation is an emerging system in a
transition period that will take 15 to 25 years at a minimum .This
provides a window of opportunity for shaping policies and global
institutions that will not be available for 10 or 15 years. As we begin
our debate on this new agenda item, we need to fashion our deliberations
in a manner that seeks to minimise the drawbacks of globalisation,
particularly for developing countries, while building on the opportunities
and challenges it presents. While
in the early1990s, globalisation and trade liberalisation were pushed
forward as economic panacea that would inevitably deliver high growth
rates, convergence in living standards and development, in the aftermath
of the recent financial crisis in the South East Asia, it is becoming
increasingly clear that there are deep seated structural imbalances in the
manner in which globalisation and liberalisation are currently shaping the
global economy. The
features of globalisation and liberalisation, which currently shape the
global economy, were fashioned in response to the debt crisis of the early
1980s, when a reorientation policy in the industrial countries led to
considerable macroeconomic distress in many developing countries and a
sharp fall in their growth rates. Severe balance of payments crises
revealed the extent to which growth rates in the South had come to depend
on steadily rising export earnings and capital inflows and just how
disruptive an interruption to these sources of foreign exchange could be.
For many, the crisis was final proof that inward-oriented strategies and
interventionist policies could not extract developing countries from the
mire of poverty and underdevelopment. Thus, in the second half of the 80s,
a powerful consensus was forged around closer integration of all countries
into the global economy through rapid liberalisation of trade, finance and
investment as a recipe for preventing setbacks to development caused by
recurrent balance of payment crises. It
was believed that trade liberalisation would ensure the best allocation of
resources according to comparative advantage, securing the export revenues
needed to import key ingredients of faster growth, while financial
liberalisation, it was believed, would attract foreign capital seeking
high returns in these capital scarce countries, allowing them to invest
more than they could save without running into a payments constraint. It
was also believed that higher flows of FDI would further accelerate
growth, not only by shaping domestic resources for capital accumulation,
but also through transfer of technology and organizational skills.
Globalisation, itself based on trade and financial liberalisation, was
expected to provide a viable and sustainable alternative to stop-go growth
and development through export expansion and inflows of private foreign
capital. The growth of world trade and the intensity of financial flows
(amounting as Stuart Eizenstat US Under Secretary of state pointed out in
January 1999 to well over a trillion dollars every day, exceeding the
value of world trade by 60 times) to some developing countries in the
early 90s were initially interpreted as acknowledgement that this
"panacea" had now ushered in a new irreversible era of
prosperity which would gradually embrace all developing countries,
provided they adopted the ‘recommended’ domestic policies. However,
the recent financial crises in South East Asia, which later spread to
Brazil and Latin America, as also Russia, provided a temporary pause. It
is now recognized that these financial crises have wiped out decades of
economic growth and successful poverty eradication in the very developing
countries that had most successfully integrated into the global economy
and had been projected as showcases of globalisation. The economic, social
and human costs that these countries were to bear had reverberations in
the international economic system as growth in the entire developing world
slowed from 6% in 1996 to 2% in 1998. This was paralleled by a dramatic
and widespread fall in commodity prices, as a result of which for the
first time in fifty years, the share of primary products in world trade
fell below 20%. The cumulative impact of the decline in terms of trade and
resulting income losses, which was unprecedented since the mid 70s, meant
that, to cite only two examples, the losses in Sub-Saharan Africa reached
2.5% of GDP while, in Latin America, decline in export products resulted
in a loss of over 10 billion US$ in foreign exchange earnings. The
dramatic reversal of private capital flows, which after reaching almost
100 billion US$ by mid 1990s fell to a mere $15 billion in the aftermath
of the financial crises and its consequences have been cited in several
recent reports. The
improvement in the prospects in the global economy since the beginning of
this year, the containment of the financial contagion from the Russian and
Brazilian economies, the modest return of capital inflows to some emerging
markets and indications that prices of certain commodities, particularly
oil, are likely to rise albeit due to supply cuts rather than demand
expansion has, however, meant that as concern over a possible global
recession has receded, legitimate concern, particularly about the more
long-term drawbacks in the global economy, has also receded, giving way to
an unjustified complacency. UNCTAD’S
Trade and Development Report this year clearly suggests that the return to
stability in the Asian economies and the apparent ability to deal with
contagion from the Brazilian and Russian crises should not be
misinterpreted and allowed to mask the underlying structural problems
which need to be addressed if globalisation is to be fashioned in a manner
that is responsive to the needs of the vast majority of developing
countries. Analysis
in the TDR indicates that there is a range of structural problems which
need to be analysed and addressed. Firstly, the balance of payments
disorders, that in many ways prompted globalisation and trade
liberalisation, remain as acute as ever for developing countries and if
any, their economies depend even more on external finance resources for
the achievement of growth rates sufficient to tackle the deep rooted
problems of poverty and under development. The reasons for trade deficits
rising faster than income in developing countries are complex and include
a combination of declining terms of trade, slow growth in industrial
countries and the accelerated pace of trade and capital account
liberalisation in developing countries. For developing countries, as a
whole, terms of trade fell by more than 5%, but recovery in oil and
non-oil commodity prices in the early 90s has been more than offset since
then, as these prices declined by about 16% and 34% respectively. More
alarming is the fact that terms of trade losses are no longer confined to
commodity exports. Many manufactures exported by developing countries are
now beginning to behave like primary commodities, as a number of countries
attempt to raise their exports in the relatively stagnant and protected
markets of industrialised countries, e.g. the prices of manufactures
exported by developing countries fell by 2% per annum from 1979 to 1994. The
slow growth in industrial countries over the 80s and 90s are also
estimated to have added to the trade deficits of developing countries by
1% of GDP. Rapid trade liberalisation in developing countries has further
added to their deficits leading to sharp increases in imports but without
a corresponding increase in exports. Liberalisation
of capital flows, often prompted by the need to redress external deficits
has made matters worse, leading to currency appreciations and instability,
thereby undermining trade performance. Under
globalisation, particularly financial globalisation, access to foreign
private capital was generally expected to greatly alleviate external
constraints of growth. Certainly, the early 1990s witnessed a rapid
expansion of private capital flows into developing countries, registering
a sevenfold increase over the average for the 1970s. Portfolio flows and
FDI showed strongest growth accounting for more than 2/3rds of total
private inflows. While this has received disproportionate attention, there
has been insufficient focus on and analysis of parallel trends, notably
the fact that the upsurge of private capital flows in the 1990s
represented no more than a return to the levels prevailing in 1975-82,
i.e. around 5% of GNP. Indeed, if China is excluded, the ratio for the 90s
is actually lower than the earlier period. Moreover, capital inflows have
been concentrated only on a small group of twenty emerging markets which
received 50% of such flows before the crisis. As for FDI, China, Brazil
and Mexico accounted for 50% of FDI flows. A recent UNCTAD study points to
the stark contraction in the diffusion of FDI flows in the 90s, for if
Malaysia was able to attract 223 US$ per capita, many countries in
Sub-Saharan Africa were unable to attract even 5 US$ per capita.
Similarly, an important part of private capital flows, notably short-term
loans and portfolio equity, which accounted for US$ 100 billion by mid-95
and constituted 40% of all private flows to developing countries, in a
period of two years, shrank to a mere US$ 15 billion after the financial
crises. This huge contraction in the availability of capital has had a
disproportionately huge impact in terms of human misery and social costs
in the affected countries. Even the strong growth of FDI in the 1990s
needs to be analysed more closely for a recent study suggests that these
largely reflect mergers and acquisitions rather than new and productive
"green field" investment. If
thus, the projections in terms of faster growth, greater employment and
poverty alleviation through trade and financial liberalisation and
globalisation has proved a chimera for most developing countries, it also
needs to be recognised that globalisation has accentuated the extent to
which economic success in a globalised economy depends on rapid
acquisition of skills and on the development and effective utilisation of
the information and technological revolution. It is now globally
recognized that growth and production have become knowledge based and that
a high proportion of modern manufacturing is based on research and
development, product design, process engineering, etc. This in turn
reflects rapid changes in technology, in particular for processing,
transmitting, receiving and utilising information of all sorts. The Human
Development Report 1999 has provided an incisive analysis of the inability
of the many developing countries to tap into the information and
communications revolution, lacking even basic infrastructure and the tele-density
that is required to do so. Apart from the constraints of resources and
infrastructure, we in the international community, must also examine the
continued viability of the frameworks we have put in place, particularly
for protection of Intellectual Property whereby knowledge and technology
are transformed into commercial products. The regimes of Intellectual
Property protection in WIPO and WTO (TRIPS) should seek to strike a
balance between the legitimate rights of the Intellectual Property owners
and innovators to secure an appropriate rate of return on their investment
and the larger social benefits that would flow from wide and unrestricted
knowledge flows. In recent years, under globalisation, the balance has
been tilted in favour of securing owner’s rights rather than rapid
diffusion. It is ironic that under the WTO Agreements, considerable
protection is afforded to subsidies for research and development for
developed countries, at a time when subsidies in other sectors are being
discouraged, and that this ‘protection’ is further offered to the
products of such research and development. It is imperative that in our
effort to reconfigure globalisation, we initiate an international dialogue
on evolving an International Technology Architecture which is more
responsive to the concerns of developing countries. In a recent article in
the New Statesmen, Roy Hattersley, quoting British historian, R.H.Tawney,
wrote ‘Opportunities to rise are no substitute for a large measure of
practical equality of income and social condition. The existence of such
opportunities depends not only upon an open road, but upon an equal
start.’ As
SG pointed out in Davos this year "Globalisation is a fact of life
but we have underestimated its fragility. The spread of the markets far
outpaces the ability of societies and their political systems to adjust to
them, much less to direct their course. History teaches us that an
imbalance of this type between the economic, social and political spheres
cannot be tolerated very long." Lamberto Dini Foreign Minister of
Italy writing in the International Herald Tribune in October 98 also
pointed out that "like industrialisation in its early days,
globalisation produces both great progress and dangerous imbalances. Thus
it requires governance". Klaus Schwab and Claudia Smadja, President
and Managing Director of the World Economic Forum pointed out in January
this year "The interdependence created by the globalisation process
means that emerging market countries have to be integrated as full
stakeholders in the management of the global economy". We
are confronted with what is becoming an explosive contradiction. At a time
when the emphasis is on empowering people, on democracy moving ahead all
over the world, on people asserting control over their lives,
globalisation has established the supremacy of the market in an
unprecedented way … We must demonstrate that globalisation is not just a
code word for an exclusive focus on shareholder value at the expense of
any other consideration; that the free flow of goods and capital does not
develop to the detriment of the most vulnerable segments of the population
and of some accepted social and human standards. We need to devise a way
to address the social impact of globalisation, which is neither the
mechanical expansion of welfare programs nor the fatalistic acceptance
that the divide will grow wider between the beneficiaries of globalisation
and those unable to muster the skills and meet the requirements of
integration in the global system." If we do not invent ways to make
globalisation more inclusive, we have to face the prospect of a resurgence
of the acute social confrontations of the past, magnified at the
international level. Responsible globality will have to mean not only a
financial infrastructure that works, or accepted global norms of corporate
governance. It will have to mean also a "value-added"
globalisation that takes into account the differences in the way America,
Europe and Asia set their priorities and create a common denominator of
shared social and ethical values." |