11:29 AM Oct 11, 1996

NEEDS CHANGE IN RULES FOR NATIONAL 'SPACE'

Geneva 10 Oct (Chakravarthi Raghavan) -- The East Asian development model is not "replicable", in view of the changed external environment of the international system, but there are valuable lessons of that experience that could be used by other developing countries who also need to join together join to correct the asymmetries in the rules of the system, expand the 'national space', and preserve their capacity to negotiate with TNCs.

This was one of the key messages that came out of informal UNCTAD Trade and Development Board plenary debate, with participation of outside experts, on "Rethinking Development Strategies: Some Lessons from the East Asian Development Experience". The experts who participated at a session chaired by the UNCTAD Secretary-General, Mr. Rubens Ricupero, were: Mr. Philippe Fremeaux (editor of a French monthly economic magazine, Alternatives Economiques), Mr. Adrian Hewitt (Dy. Director of the Overseas Development Institute in the UK), Prof. Deepak Nayyar (Professor of Economics at the Jawaharlal Nehru University in India, and a former Chief Economic Advisor to the Government of India) and Prof Yasutami Shimomura (Prof of Saitama University in Japan and formerly a senior official of the Overseas Economic Cooperation Fund).

Prof. Nayyar said the current strategic models of development pushed under a particular normative process of 'globalization', with intellectual rationale of neo-liberalism -- shrinking governments to the minimum and leaving everything to the market -- would promote economic prosperty for those who could join and deprivation for others, both among and within countries. In large countries like China, India, Brazil etc where there are vast pockets of poverty and growing inequalities, such a development model was socially unsustainable.

In initial remarks, and in some interventions, UNCTAD Secretary-General Rubens Ricupero noted that not too long ago, in the late 1950s and the 1960s for e.g. several of these countries had been facing internal conflicts and guerilla war, and it was fashionable to speak of them as dominoes. But they had successfully overcome these and accelerated growth, and these could be of some relevance for other regions, including Africa.

Earlier, Mr. Fremeaux noted that the external environment that faced the Far East economies like South Korea or Taiwan in the 60s was different from what was facing developing countries today and efforts to replicate the Far East experiences had to take that into account.

But in drawing on Far East experience fiction needed to be separated from facts. Efforts to replicate that model was circumscribed by the limitations of international demand and ability of the North to absorb exports such as in textiles, clothing, footwear etc. There were also problems for developing countries now due to debt and financing and their ability to use trade policy to protect domestic industries. However, the East Asian experience showed that countries could emerge from under-development, but countries would need to pay attention much more to the several domestic factors, including social and political conditions and willingness to develop.

Nayyar in his presentation, "Globalization and Economic Development: Is Strategic Intervention Still Possible", said that while the East Asian experience was not replicable, both because of the changed circumstances and the rules of the game of the international system and because there was a diversity and not a single model that East Asian followed.

Referring to the 'globalization' issue, Nayyar said the conflating of the descriptive view of the 'globalization process' with the prescriptive strategy for rapid integration of developing countries into the world economy had been responsible for a good part of the controversy over the growth and welfare implications of globalization.

Behind the contemporary globalization process were a number of economic forces pushing international integration, including most importantly liberalization and deregulation along with technological factors; the political factor of the dominant role of the US following collapse of communism which has been reinforcing the economic factors; and the strong intellectual rationale for globalization provided by the neoliberal economic model.

These forces had been harnessed by the "new agents" in the world economy to organize increasing network of cross-border flows and transactions -- the TNCs which dominate investment, production and trade in the world economy, and international banks or financial intermediaries which control the world of finance.

While these have been eroding the old-fashioned autonomy of the nation state, the death of the nation state has been greatly exaggerated. Nor was a further erosion of the influence of the nation state desirable. Nation states were critical for establishing the rules of the international game. And in the light of the growing asymmetries in the international rules determining globalization, there was growing importance for the nation state in a globalizing world.

Among the vivid examples of the asymmetries, Nayyar contrasted the growing mobility of goods and capital, and international (trade) rules to encourage greater mobility, alongside relative immobility of technology and labour. Such asymmetries also extended to the financial sphere where the Bretton Woods institutions were pushing globalization.

The WTO international trade system was trying to break down national boundaries and barriers for factor movements of capital, but not for technology (which is kept as a monopoly under TRIPs) or for labour. Developing countries were being asked to provide access to their markets for TNCs and outside producers, but without a corresponding access to technology, for access of capital but not labour.

This inequity lay at the heart of the international framework of rules. The international monetary and financial system has rules to protect the interests of banks and financial enterprises, part implicitly and part overtly. But the rules were not even as between the deficit countries in the industrial world and the surplus countries, nor between the deficit countries of the North, who don't have to get IMF resources, and that of the South and the transition economies on whom inappropriate conditionalities are enforced.

While all these had adverse impacts on developing countries, the globalization of financial markets were also raising many systemic concerns of interest to developed and developing countries alike.

The combined effect of the driving forces behind globalization and the asymmetries of the system is an emerging picture of uneven development and exclusion rather than convergence between countries. There was a concentration of trade, finance and investment flows among a small group of perhaps a dozen developing countries, arousing concerns over the dangerous possibility of "secession of the successful" - as had happened in the earlier experience of globalization before the First World War (during the late 19th century laissez faire or liberal era). But with the kind of 'demonstration effects' of affluence and prosperity that modern communications has brought across the world, economic deprivation will accentuate the economic divides among and within countries. Success in globalization would have the analog of deprivation and marginalisation.

As a result, Nayyar said, opportunities for broad-based development within the context of globalization depended very much on the degree of freedom still available to the state for national strategies to lay the foundations for industrialization and development. In this regard, the lessons of East Asia continued to be relevant: in East Asia, the State had created 'economic space' for pursuit of national and development objectives; had played a complimentary role to correct market failures, missing markets. The objectives, instruments and structures of the State were also changed in light of the rising levels of industrialization and development.

All these, Nayyar said, pointed to the need for state action with respect to both domestic economic conditions and the international rules of the game.

Nationally, the state must act to raise productivity and build technological and micro-economic capabilities at enterprise level through public investment in human capital along with strategic industrial policies. And since profitability by itself cannot steer the development process, the State must be in a position to bargain effectively with TNCs to ensure their actions are compatible with development. Besides, prudent macroeconomic management was also needed to ensure that integration takes place from a position of economic strength, and to avoid tight constraints on policy that often come with structural adjustment programmes when macroeconomic imbalances become too great.

But besides these domestic policies, developing countries also need to find common cause at the international level to address these asymmetries in the international rules of the game.

Thus, in the area of technology and intellectual property rights, the rights of users of technology as well as producers need to be recognized and voiced. Similarly restrictions on labour migration (in the face of capital mobility) need to be recognized and addressed. And financial rules of the system need to be flexible and implemented in such a way that investment is encouraged.

The political basis for such a common cause among the developing world, Nayyar suggested, could come through regional groupings or more diverse strategic alliances of developing countries. While the danger of formation of blocs needed to be borne in mind, these had to be assessed against existing asymmetries in the world economy, such as power of international financial markets.

Nayyar said the current strategic models of development pushed under a particular "globalization" process, namely shrinking the government and making it a "minimalist" state and leaving everything to the market. This would promote economic prosperity for those who could join it and deprivation for others -- both among countries, and even more within countries.

As a corrective, it would be necessary to create "national space for national development", and the strategic role that needs to be played by the State had to be recognized. There was a need to redefine the role of the State and the Market. Neither can substitute the other, but each must complement the other. Nayyar rejected the view that some authoritarianism of the State was needed for successful development.

In the international sphere, developing countries as a whole, or groups of them, had to join hands to reduce the inequities and cure the asymmetries of the system and its rules. For e.g. the TRIPs agreement should be chanted so that not only are the rights of technology holders recognized, but that of technology importers. Similarly, capital mobility rights need to be balanced by labour mobility, and right for commercial presence to provide a service with temporary migration to provide a service.

The benefits of integration into the world economy through globalization would occur only to those countries that had successfully laid the requisite foundations for industrialization and the necessary basis for economic and social development had been created.

Prof. Yasutami Shimomura that apart from the generally recognized factors behind East Asian success -- macroeconomic stability,, high savings rate, investments in human capital, support for entrepreneurs and an export orientation -- a crucial factor in all these countries had been a strong government initiative, with the exception of Hong Kong. But the view that these countries had been successful for a long time was also wrong. Acceleration of growth began mainly after the 1960s, and in some cases even later. A common factor was the shift of focus of the state and government from political, diplomatic or ideological goals to economic development and improvement in living standards. The improvements were the result of better economic governance and top priority to economic development through a capable technocracy. While good governance partly coincides with democracy, the latter was not a pre-requisite for the former.

Mr. Adrian Hewitt of the British Overseas Development Institute noted that several of the 'success' stories of structural adjustment (in the World Bank list of five years) were no longer being cited. Only Botswana had been doing well, while in the case of Uganda the bottom had been so low that any recovery and growth looked good. However, prospects for Africa seemed now much brighter and there had been recently improvement in growth of a number of sub-Saharan African countries.

Responding to a comment that the bright spots in African growth had been essentially a reflection of the upturn in commodity prices, but that the World Bank saw the price-boom as ending, Hewit agreed that this was atleast partially true.

In comments, Colombia raised concerns over the situation in the EU, and the likely deflationary effects of EU members trying to conform to the Maastricht criteria for EMU, with resulting high unemployment and weakening of demand.

Mr. Roger Lawrence, Deputy to the Secretary-General shared the concerns raised by Colombia and said that if UNCTAD focused on the unemployment issue in the North, it was because in the new post-Uruguay Round trading environment, the developing countries needed market access to develop and growth. Unemployment in the North, at current levels, would create forces that would make such open market access difficult, and would have effects on the trading system. In terms of future studies, UNCTAD now had a reasonably good view of what happened in East Asia, and in terms of development experiences and the kind of domestic policies and programs that other developing countries could undertake.