Challenges towards a new development agenda
Excerpts from the trade and development report’s overview, UNCTAD, 2014
“In order to operate effectively, markets must be guided by rules, restrictions and standards.” This is one of the recommendations made by UNCTAD in its latest report on trade and development (extract here1). This is a far cry from the naïve optimism which stated that agricultural liberalization systematically benefits developing countries (DCs).
The United Nations have rightly accepted the complex and potentially harmful links between economic policies, development strategies and food security, and have readily acknowledged that “the explosion of inequality has accompanied the expansion of economic liberalism.”
UNCTAD is therefore calling for a break with the past in favour of adopting a new development program, based on renewed global economic governance. This would give UNCTAD a sufficient margin for acting at national and international levels, free from the constraints of market forces.
momagri Editorial Board
Challenges towards a new development agenda
If macroeconomic policy is tacking uncomfortably close to the “business-as-usual” strategy of the pre-crisis years, the discussions now under way on a post-2015 development agenda are tending to break with the past. The push for a more universal, transformative and sustainable approach to development will play a key role in the setting of new goals and targets for policymakers, at both the national and international levels. The 17 goals and sundry targets agreed to at the United Nations Open Working Group on Sustainable Development already signal a level of ambition well beyond the Millennium Development Goals.
The international community faces three principle challenges in fashioning this new approach. The first is aligning any new goals and targets to a policy paradigm that can help raise productivity and per capita incomes everywhere, generate enough decent jobs on a scale to meet a rapidly growing and urbanizing global labour force, establish a stable international financial system that boosts productive investment, and deliver reliable public services that leave no one behind, particularly in the most vulnerable communities. The dominant economic paradigm of market liberalism has disappointed in most of these respects. In this context, as Pope Francis has recently suggested, we can no longer simply put our trust in “the sacralized workings of the prevailing system”. Undoubtedly, fresh thinking is needed.
The second challenge to consider in formulating a new development agenda is the massive rise in inequality, which has accompanied the spread of market liberalism. This is important because, in addition to its moral implications, growing inequality can seriously damage social well-being, threaten economic progress and stability, and undermine political cohesion. Previous Trade and Development Reports (TDRs) have insisted on the need to look beyond some of the headline-grabbing numbers surrounding the top one per cent, and examine what has been happening to functional income dynamics, in particular, the divergence between wage and productivity growth and the growth of rentier incomes. Heightened capital mobility has not only reduced the bargaining power of labour, further amplifying the adverse distributive impact of unregulated financial activity; it has also made it harder to tax some incomes directly, thus increasing the State’s reliance on more regressive taxes and on bond markets. This can, in turn, have a very corrosive impact on the legitimacy and effectiveness of the political process.
The third challenge is ensuring that effective policy instruments are available to countries to enable them to achieve the agreed goals and advance the development agenda. Restoring a development model that favours the real economy over financial interests, puts sustainability ahead of short-term gains and truly seeks to achieve prosperity for all will almost certainly require adding more instruments to the policy toolkit than is currently contemplated by economic orthodoxy.
The enduring case for policy space
Any widening and strengthening of the ambition of national development strategies will need to be accompanied by institutional changes. Markets require a framework of rules, restraints and norms to operate effectively. As such, the market economy is always embedded in a legal, social and cultural setting, and is sustained by political forces. How and to what extent the framework of rules and regulations is loosened or tightened is part of a complex political process specific to each society, but it cannot be dispensed with without threatening a breakdown of the wider economic and social order International markets and firms, no less than their domestic counterparts, also require a framework of rules, restraints and norms.
And, as at the domestic level, the loosening and tightening of that framework is a persistent feature of governance of the global economy.
States must decide on whether and how much of their own independence they are willing to trade for the advantages of having international rules, disciplines and supports. Inevitably, in a world of unequal States, the space required to pursue national economic and social development aspirations varies, as does the likely impact of an individual country’s policy decisions on others. The challenges of managing these tradeoffs are particularly pronounced at the multilateral level, where the differences among States are significant. While the extent to which an adopted growth and development path responds to national needs and priorities can obviously be limited or circumscribed by multilateral regimes and international rules, it can equally be affected by economic and political pressures emanating from the workings of global markets, depending on the degree and nature of economic integration of the country concerned.
The interdependence among States and markets provides the main rationale for a well-structured system of global economic governance comprising multilateral rules and disciplines. The guiding principle of these arrangements should be their ability to generate fair and inclusive outcomes by providing global public goods and minimizing adverse international spillovers and other negative externalities, regardless of whether these are created by national economic policies or the profitmaking decisions of private actors.
These various tensions between national policy autonomy, policy effectiveness and international economic integration are captured, in part, by the idea of “policy space”; this refers to the freedom and ability of governments to identify and pursue the most appropriate mix of economic and social policies to achieve equitable and sustainable development in their own national contexts, but as constituent parts of an interdependent global economy. It can be defined as the combination of de jure policy sovereignty, which is the formal authority of policymakers over their national policy goals and instruments, and de facto national policy control, which involves the ability of national policymakers to set priorities, influence specific targets and weigh possible trade-offs.
For some countries, signing on to multilateral disciplines can spur them to redouble their efforts to use their remaining policy space more effectively than when they had greater policy space; this seems to be true, in particular, for countries emerging from conflict, as well as for many former socialist economies. Moreover, these disciplines can operate to reduce the inherent bias of international economic relations in favour of countries that have greater economic or political power.
Thus, such disciplines can simultaneously restrict (particularly de jure) and ease (particularly de facto) policy space, since constraints on one country’s behaviour also apply to other countries, thereby affecting the external context as a whole.
But there are also valid concerns that the various legal obligations emerging from multilateral, regional and bilateral agreements have reduced national policy autonomy by affecting both the available range and the efficacy of particular policy instruments. In addition, the effectiveness of national policies tends to be weakened - in some instances very significantly - by forces of globalization (especially financial globalization) and by the internalization of markets, which affect national economic processes.
1 To read the entire overview follow this link