The interdependent nature of the world economy requires a coordinated effort to re-energize the faltering recovery from the global financial crisis, panellists told the UNCTAD Trade and Development Board yesterday afternoon under the agenda item on “Interdependence: Coordinating stimulus for global recovery.”
Four panellists agreed that developing and developed countries need to take mutually re-inforcing steps to bolster current weak demand that is hindering a stronger resumption of economic growth. With consumers around the world retrenching to pay down debts and – in some cases – struggling to cope with lost jobs, governments need to provide that missing economic demand, they said. And the connected quality of the world economy means that it is best if governments pull in the same direction.
H.E. Mr. Faizel Ismail, Permanent Representative of South Africa to the World Trade Organization (WTO), said the mainstream view of globalization, based on global value chains, is flawed and ignores social and political contexts. The result is rising unemployment and increasing inequality and poverty. Ambassador Ismail warned against pressures for “aggressive trade liberalization” that were being promoted through the global value chain concept, including through B20 processes. This was not in the interests of many developing countries and, moreover it would not help the world escape the on-going economic crisis. The global trading system remains inequitable and systemic challenges to world trade are increasing.
To restart robust trade growth and increase export opportunities for developing countries, multilateral international agreement is needed to create a level playing field for trade, including the ending of developed-country subsidies for agriculture, Mr. Ismail said. He called for reforms at the WTO to favour development and to boost capacity building in developing countries – that is, to improve the abilities of their economies to produce broader varieties of goods, and goods of greater sophistication so that they can escape dependence on commodities exports. He added that balanced rules and the participation of developing countries in trade rule-making are necessary. The growing trend of ‘pluri-lateral’ trade agreements that was emerging while the Doha agenda stalled undermined the principle that all countries should participate in the negotiations process. UNCTAD is a good place for debate to begin on these broad issues, he said.
H.E. Mr. Luis Gallegos, Permanent Representative of Ecuador to the United Nations Office at Geneva, said the crisis in multilateralism can be found not only in trade but in other vital areas. Nations must re-learn the ability to work together in a coordinated fashion to confront the world’s problems. It is a question of political will. The economic crisis of the past five years has taught everyone how important coordinated stimulus is, Ambassador Gallegos said.
Coordination starts from inclusion, and too many countries currently are marginalized in international decision-making; coordination that doesn’t feature inclusion does not work, the Ambassador said. Solving the current economic crisis requires applying true democracy to international economic governance; and decision-making and reforms should not be confined to one or two organizations. Ecuador has suffered significantly from a series of economic crises; the country has learned the hard way that the global economy is interconnected. Developed countries are major players and when they act without consulting other nations, negative consequences often afflict less-wealthy nations, Ambassador Gallegos said. It is time to recognize that everyone is in the same boat.
Mr. Alfredo Calcagno, Head of the Macroeconomic and Development Branch of UNCTAD’s Division on Globalization and Developing Strategies, said the world economy is slowing and is facing risks of a more significant deceleration. Citing the findings of the UNCTAD Trade and Development Report 2012, published last week, he said growth for the global economy is estimated at just over 2% in 2012 – half the rate of two years ago -- with developed countries growing at only 1.1%.
Rising income inequality is stalling demand among consumers, and the austerity measures – rather than countercyclical stimulus measures -- being taken by some industrialized economies will not pull them out of the slump, Mr. Calcagno said. Progressive income redistribution and supportive policies – particularly in “surplus developed countries” – are needed to spur demand. These measures also would help to raise demand for imports from crisis-hit countries, thus brightening their prospects as well. As developing and transition economies will have to rely more than in previous years on domestic and regional markets, a better income distribution in these countries would widen these markets and may be key for a sustained and inclusive growth.
Mr. Costas Lapavitsas, Professor at the School of Oriental and African Studies in the United Kingdom, discussing the ongoing crisis in the Euro zone, said the current approach to the crisis, which focuses on austerity measures in peripheral countries having major deficits, appears unsustainable and is threatening the European Monetary Union.
There have been collapses in demand and huge social costs, and the countries’ debt positions have worsened rather than improved, Prof. Lapavitsas said. Options should be considered, including a possible Marshall plan for the Euro periphery, aimed at increasing productivity; a “rebalancing” of the German economy; debt forgiveness in some cases; financing for restructuring beleaguered economies; and income and wealth redistribution to spur domestic demand. A breakup of the Euro zone is likely if such measures are not taken, he warned.
During the debate that followed, delegates questioned why there was so little political will to help create a new global system that would help all countries, given the evidence that the global economy was still so vulnerable. One speaker argued that it was clear that belief in the power of the market and in “profits at all costs” was misguided. Using examples of how market and trade liberalization during the 1980s had damaged her country’s economy, she asked whether the market economy requires not just survival of the fittest but also the demise of the weak and vulnerable. The global governance system needed to be re-vamped so that it recognized the differences between countries, and gave all countries a forum in which to voice their problems, she said. The Global Value Chain concept was discussed further in this context, with Ambassador Ismail warning that it was a “mantra” that needed to be re-thought, including through a human rights perspective. This point was reinforced by panelists, one of whom described the suffering experienced in his country by the “lost generation”, during past crises.
Other speakers asked what lessons could be learned from the implications of the on-going Euro area crisis for countries and regions that are currently in the process of increasing integration – including monetary and financial integration processes similar to those in the Eurozone.
In reply, Mr. Calcagno and Mr. Heiner Flassbeck, Director of Globalization and Development Strategies Division, noted that there were many useful facets to integration that did not require countries to go so far as having a common currency, including the development of regional banks. Moreover, the Eurozone’s problems were related more to the Euros’s role as an international currency, its ‘domestic’ currency aspects were less problematic.