Globalization has fallen short of the promises of growth, increased employment, higher wages and greater welfare that are touted by the advocates of free trade and financial flows. In an environment of slow and erratic growth of the world economy, the benefits of globalization have been distributed unevenly among and within countries. The income gap between rich and poor has widened, and poverty has increased in many developing countries. The average GDP per capita in developed countries was 17 times that of the developing countries in the early 1990s, and this ratio rose to 20 to 1 in the year 2000.
Strategies for development need to be revised at both the international and national levels. At the international level, there is clear evidence that external shocks arising from the international financial and trading systems, such as volatile private capital flows and fluctuations in commodity prices, trigger crises and setbacks in developing countries. These crises in turn fuel economic instability, preventing growth and increasing poverty. The heavy and at times unsustainable debt levels in developing countries pose a risk to the international financial system that must be addressed. At the national level, the results of the liberal economic reforms of the 1990s are mixed: economic growth has been generally sluggish, and privatization, liberalization and foreign direct investment have led to a greater concentration of industry.
The one-size-fits-all policy recipe for development has been widely rejected in favour of recognition of the need for diversity in designing national development strategies. This implies that the State has a critical role to play in creating a policy environment conducive to private sector investment and economic growth.
Increased trade, but slower growth
The share of developing countries in world trade has risen, from approximately 24% in 1990 to 32% in 2000. However, this growth in developing-country exports is extremely concentrated: East Asia produces over 75% of developing-world manufactured exports and a greater proportion of high-technology items, while South Asia and sub-Saharan Africa saw their trade share grow by only 2%, according to Oxfam. In most developing nations, higher exports have not translated into faster GDP growth. Especially in the poorest countries, most of which are in Africa and still depend heavily on exports of non-oil primary commodities and official development assistance (ODA), there has been little progress in economic growth. Countries in the South have liberalized trade faster than the industrialized nations of the North, resulting in increased import bills at a time when ODA has been falling.
This only worsens the plight of countries already saddled with a heavy external debt burden, making it increasingly unsustainable. In many countries debt obligations absorb a large proportion of export earnings. The Heavily Indebted Poor Countries (HIPC) Initiative for debt reduction linked to sound economic management is an important step, but it will not be sufficient to ensure debt sustainability in the future.
Many developing countries, especially in Latin America, are now dependent on private capital inflows to finance their current account deficits. But volatility in international financial markets, and short-term capital flows to developing countries, have often created problems in managing interest and exchange rates in a manner conducive to sustained economic growth. In order to prevent financial crises in developing countries, the international community must consider how to make private capital flows more stable, even and sustainable. UNCTAD is urging that a sound global system be established to monitor short-term and speculative capital flows and provide warnings of possible volatility.
Rethinking national development strategies
There is now broad agreement on the need to rethink development strategies, at both the international and national levels. Promoting development requires creating a friendly business climate and making resources available for social and economic needs. This calls for greater coherence between the national and international visions of trade and development, which means that financial, monetary and technology policy coordination at the international level should create an environment that allows national development strategies to succeed. This is why coherence has been chosen as the central theme for UNCTAD XI. The meeting in São Paulo aims to "foster coherence between global processes and national development strategies, with an emphasis on the link between trade negotiations and the productive sector", says UNCTAD Secretary-General Rubens Ricupero.
The experience of successful developing countries offers lessons in national development strategies that work. One important lesson is that rapidly expanding and sustained investment can induce a shift in economic structure from the primary sector to manufacturing and services, associated with a progressive rise in productivity. Another lesson is that a steady increase in investment cannot be achieved by relying on market forces and FDI alone; the State must take an active part. National governments must also encourage the availability of lending; create a sound legal framework for business; build infrastructure; and foster an educated workforce. At the same time, regional arrangements in trade and finance, and improvements in regional infrastructure, can promote growth and create larger markets, thereby reducing dependence on traditional markets.
The challenges ahead
Globalization and liberalization cannot substitute for domestic forces of growth. Careful and well-managed integration into the world economy, appropriately sequenced and tailored to the level of economic and institutional development of each country, can support domestic investors and producers. Domestic economic policies in developing countries-especially trade, investment and technology policies-are now constrained by international trade and borrowing commitments. This calls for revisiting the issues of appropriate national policy space and policy flexibility in the developing countries and for exploring how this policy space can be used most effectively.