Excellencies, colleagues, ladies and gentlemen
The TDB is meeting as the world economy struggles to recover from the worst downturn since the Great Depression. Recent signs are deeply worrying. Most stimulus and rescue programmes have been replaced by a desire to restore "business as usual", that is, to revive the pattern of growth that we observed during what I call finance-driven globalisation (FDG). This is unlikely to be successful. Indeed, the efforts by some major economies to revive the old policy through the combination of state support for finance, printing money and fiscal retrenchment are unwise and risky and my lock these economies into a prolonged stagnation.
The crisis, which erupted three years ago this week with the collapse of Lehman Brothers, was not simply a "once-in-a-century" event or the result of a few "bad apples" in the financial markets. It was the unavoidable outcome of an unsustainable and undesirable model of growth that was built on a mountain of debt in both the private and public sectors and sustained by a culture of creative accounting and justified by ideology of efficient markets.
Global growth is likely to remain patchy, investment subdued, unemployment high and inequality unacceptably large as long as policy-makers continue to chase the mirage of "business as usual" through the elusive goal of restoring "financial market confidence". Under these circumstances, the temptation is often to resort to a more inward-looking agenda, seeking to protect employment and output at the expense of other countries, and raising the threat of currency and trade wars.
I cannot emphasize too strongly the dangers, which lie ahead of us. It is incumbent upon the international community to recognise that finance-driven globalization has run its course, that the crisis expressed its catastrophic failure and that alternatives are urgently needed. We do not need to begin the search from scratch.
The systemic weaknesses of some of the more advanced economies can be contrasted with the performance in several emerging economies. Their relatively rapid recovery from the crisis and their subsequent growth have been the result of effective countercyclical policies, the recovery of commodity prices since mid-2009, and the expansion of real wages, which has secured demand growth while wages and demand have stagnated in most advanced countries. Equally significantly, since their financial systems were largely sheltered from the crisis, demand could be more easily supported by domestic credit. This suggests that these economies are honouring their commitment to help reduce global imbalances.
Despite these achievements, it would be a mistake, however, to claim that these large emerging economies can lead the global recovery. This is unrealistic, because of their insufficient weight, relatively low absorptive capacity, and inability to issue international currencies. Most emerging economies face their own demanding adjustments over the coming years, which will demand significant domestic resources. Without far-sighted and effective measures in the advanced countries and at the international level, new imbalances will build up in these economies, with the threat of repeated crises and a reversal of recent gains.
Excellencies, ladies and gentlemen,
The crisis has served as a reminder that the potential benefits of closer integration with the global economy are not simply there for the taking, and that greater openness does not automatically remove the constraints and trade-offs that accompany the process of development. The crisis has also confirmed that the state remains the only institution that can respond to major economic shocks, orchestrate sustained recovery and build inclusive long-term solutions.
The world economy is now faced with serious and fundamental challenges: not only the crisis itself, but alleviating widespread poverty, growing food insecurity, and the development of climate-friendly patterns of production and consumption. These will require the integration of growth-promoting macroeconomic policies and redistributive social policies with developmental and environmentally sound industrial policies.
However, there is no universal blueprint for achieving more inclusive outcomes. Correcting market failures, promoting collaboration among enterprises in areas of long-term investment, building a strong social contract and managing integration with the global economy will require the state to forge a coherent and inclusive developmental vision and to consult with different interest groups to secure the required structural changes and to manage the conflicts and trade-offs that such changes inevitably bring. This is very much the task of a development state.
Advocating a leading role for the development state in achieving more balanced and inclusive growth does not imply that these states never fail: accountability, transparency and the rule of law remain critical to effective action in any representative political system. However, when we compare success stories from North America to Scandinavia to East Asia, we find that the market economy operates effectively within a wide spectrum of social and political arrangements and that, beyond a few core principles, there is no single model of state-market relations for others to emulate. Each country must be able to experiment and discover what configuration of institutions and governance works best in its circumstances and in line with the expectations of its population.
Still countries cannot act alone in the search for prosperity and stability. Not only do policy actions have impacts that go beyond their own borders but many of the threats to a sustainable future have become so closely intertwined that their mitigation requires countries to work and act together to find durable solutions. The climate challenge will not be solved separately from those of food and energy security or financial stability and none of these will be solved if the gaps across communities and countries widen even further.
UNCTAD maintains that the advanced economies bear most of the responsibility for the financial, energy, food and environmental crises, and they must support the recovery process in a more development-friendly, environmentally sustainable and socially inclusive direction. Solutions will require a mixture of agreed rules and norms to govern relations among independent states, along with large and coordinated investments, consistent policy measures and new development partnerships.
Effective regulatory systems, at the national as well as the international levels, are crucial for achieving inclusive and sustainable outcomes. But laws and rules will only stand when all those subject to them agree to observe them because it is in their interest to do so. Representative institutions are therefore essential to finding sustainable and inclusive solutions. Their absence or weakness, particularly at the international level, is a serious threat to a stable and prosperous global economy.
One thing we should all seek to avoid is easy solutions or quick fixes. Still I am convinced that it is possible to identify alternative measures, at the national, regional and global levels to rebalance the world economy, to transcend finance-driven globalization, to turn recent growth spurts in to sustainable development paths and to ensure that the gains are enjoyed by all sections of society, particularly its poorest and most vulnerable. This, in essence, is the challenge of development-led globalization.
The fundamental issue at the international level is not whether or not developing countries want to integrate with the global system, but how and how far to proceed, under what conditions and at what pace. We should recognize that the idea of a self-regulating global marketplace cannot provide the foundation for a flourishing multilateralism. A sustainable process of integration must include stronger and more innovative responses to the specific problems of developing countries, while supporting global efforts to stabilise growth and exchange rates. These challenges cannot be addressed successfully while the macroeconomic policies of the developed countries lack a clear vision of the future and adequate coordination, and there is no multilateral surveillance system which can insist on greater monetary and exchange rate policy coherence between them.
An inclusive and stable global order is unlikely while currency and financial markets are driven by speculative transactions, asset price bubbles, regular outbreaks of collective irrationality and herd behaviour. Finance, especially traditional banking, needs to get back to the business of providing security for people´s savings and mobilizing resources for productive investment. Reforms are also needed to replace unruly and pro-cyclical capital flows with predictable and long-term development finance, to regain stability in currency markets and to support appropriate expansionary macroeconomic adjustments. Surveillance and regulation will need to be strengthened at all levels, and new institutional arrangements may need to be considered if we are to regain a semblance of order in commodity and foreign exchange markets and ensure more orderly management of international debts. Regional financial cooperation will have a much larger role to play in a more balanced international architecture.
Similarly, an international trading system that generates greater volumes of trade but without commensurate increases in incomes and employment leaves the weaker countries and communities increasingly anxious about their prospects. As their resources are stretched at home, poor countries see fewer and fewer opportunities to bargain effectively in pursuit of their own interests. Until this situation is changed, developing countries will remain vulnerable to the vagaries of international finance, the pressures of footloose transnational companies, and exogenous shocks of various kinds.
For many developing countries, and particularly the least developed, economic fragility is compounded by environmental fragility trapping them at a low level of income, undermining their resource base, and constraining their ability to build resilience to withstand future shocks. Recent estimates suggest that 300,000 people already die each year because of global warming, while 300 million lives are seriously threatened by the ongoing environmental transition. Food insecurity, already at unprecedented levels, is set to become even more widespread. So far policymakers and dominant economic interests have underestimated the scale of these threats, and baulked at the costs of even modest programmes to address them. It would be economically unrealistic to demand of the developing countries, as part of their contribution to address the climate challenge, that they meet the costs for mitigation and adaptation even if it means that their economic growth would be compromised. This challenge can only be addressed through a genuine global partnership in favour of low-carbon high-growth paths. This partnership includes the development and diffusion of green technologies, large-scale retrofitting programmes, the coordinated replacement of energy-intensive patterns of production by alternatives fuelled by renewable sources. Its also includes changes in trade patterns supporting the transition of the global productive matrix towards environmental sustainability, while promoting equality and rising living standards for the majority of the global population.
By way of closing these remarks let me just say that as we begin to prepare for UNCTAD XIII it is important to remember that UNCTAD´s raison d´être, as set out in the final act of UNCTAD I, is to advance proposals that help to establish "an international division of labour in harmony with the needs and interests of developing countries, and of the world as a whole". The events of the last few years suggest that we have still some way to go but by approaching the challenges I have set out this morning with "cool heads but warm hearts" I believe the Doha Conference can make a lasting contribution to building a more inclusive and sustainable future for all.