PRESS BRIEFING BY UNCTAD

Press Briefing

PRESS BRIEFING BY UNCTAD

The 1997 Trade and Development Report of the United Nations Conference on Trade and Development (UNCTAD) was introduced this morning by Anthony Woodfield, a senior economist with UNCTAD's Globalization and Development Strategies Division in Geneva, during a press briefing at United Nations Headquarters.

The report examines trends in the world economy, also focusing on the impact of globalization on income distribution and economic growth. In addition, it touches on polarization and income inequality among and within countries, as well as policies for turning the profits of the few into economic growth for all.

Mr. Woodfield said the overall finding of the report was that, contrary to expectation, there had not been a convergence of incomes between developing and developed countries since the 1980s. At 2 per cent per annum in the 1990s, worldwide growth had been slow as compared with the 1980s, when it was about 3 per cent, or with the 1950s and 1960s, when it was between 4 and 5 per cent. Poverty in developing countries had not shown much change, but it had been reduced in some areas, such as East Asia, where there had been rapid economic growth. The rich had gained everywhere, and a "hollowing out" of the middle class in terms of income distribution had become a prominent feature in many developing and developed countries.

Reasons for that trend included the growing role of finance over investment and manufacturing, Mr. Woodfield said. Finance had increased the disparities between middle and upper classes, with the share of income accruing to capital gaining over that assigned to labour. Profit shares had risen in developed and developing countries alike, and there were increases in job and income insecurity. As rising interest charges ate into business revenues, corporate restructuring, labour shedding and wage repression had become the order of the day in much of the developed and developing world. There was also a growing wage gap between skilled and unskilled labour -- a well-documented phenomenon in the United States, the United Kingdom and other developed countries. It was also particularly prevalent in middle-income developing countries.

He said UNCTAD was adopting a number of approaches to deal with those problems, including strong support for and encouragement of market forces, Mr. Woodfield said. It did not recommend that income be redistributed across the board, as that could slow growth while creating political and economic instability. Rather, it stressed reinvestment of profits for productive use. That not only fostered future growth, but also supported improvement in income distribution by generating more employment and increasing wage incomes.

UNCTAD Briefing - 2 - 15 September 1997

Mr. Woodfield said the report also drew upon the experience of some East Asian economies in achieving gains, noting the role of State involvement, as well as of policies to induce entrepreneurs to reinvest rather than consume.

The other major focus of the report was the role of the State and Governments in developing countries with respect to integration in the global economy, Mr. Woodfield said. Rather than the "big-bang" approach widely adopted in recent years in many parts of the world, UNCTAD urged a carefully phased and managed integration into the world economy, tailoring the process to the strength of the country concerned, as well as that of its institutions. The report cited the importance of successful implementation of the Uruguayan Round agreements on agriculture, textiles, clothing and software. There was need for developed countries to deal with their unemployment problems through growth and other strategies.

Looking at current trends in the world economy in that context, Mr. Woodfield said although growth had been slow, the United States and the United Kingdom had shown promising results with respect to reducing unemployment and maintaining sustained high rates of growth in a non-inflationary environment. In developing countries, a turn-around had been noted in Africa where per capita incomes were rising for the first time in decades. While that was particularly a result of favourable weather patterns and reduced hostilities and civil strife in certain countries, much of the improvement had resulted from increased prices of primary products.

The question now was how to make that growth increase sustainable, he went on to say. UNCTAD saw the import of capital goods to strengthen the export sector as important to achieving sustained growth in the long term. However, utilization of the proceeds of increased revenues was made difficult by debt-repayment needs. The report encouraged an accelerated and satisfactory outcome of the World Bank/International Monetary Fund debt initiative for heavily indebted poor countries; it also called for increased official development assistance (ODA).

In the case of Latin America and of East Asia, rapid growth had continued but it was fragile, Mr. Woodfield said. Noting the vulnerability of developing countries to external financial shocks, the report had expressed concern about the recurrence of such problems in the late 1990s and well into the next century, given the possibility of a rise in global interest rates.

Responding to questions, he said that Latin America and Africa had fallen behind on per capita income basis in their efforts to catch up with the developed countries. Only the East Asian economies were showing a sustained progress. Asked what UNCTAD's definition of the "rich" was, he said there were statistical difficulties in making such an identification in terms of income distribution. For countries as a whole, however, it relied on World Bank data. * *** *