NGO CONFERENCE HOLDS PANEL DISCUSSION ON GLOBALIZATION

Press Release
NGO/314
PI/1178

NGO CONFERENCE HOLDS PANEL DISCUSSION ON GLOBALIZATION

As a result of globalization, governments had nowhere to hide, Mark Malloch Brown, Administrator of the United Nations Development Programme (UNDP), told the fifty-second annual Department of Public Information/Non-governmental Organization (DPI/NGO) Conference this afternoon.

During a panel discussion on trade and finance, Mr. Brown said high-level corruption, a lack of transparency, and dishonest legal systems caused countries to pay a very high price in terms of their competitive advantage as a location for investors. Countries were being forced to compete beyond some crude measure of cheap labour. Those which succeeded in attracting business were investing in their people and providing a sound market environment and a pro-market orientation. A dramatic power shift was being glimpsed, not just from the strong to the weak, but between different kinds of institutions, from profit to non- profit organizations and from the governments to the communities. The way power was exercised was also shifting, from formal assemblies of people to information associations, with modern technology, such as the Internet, paving the way.

Globalization was widely accepted as the most distinguishing feature of global economics at the end of this millenium, said Kwesi Botchwey, Director for Africa Research and Programmes, Center for International Development, Harvard University. As the 1999 Human Development Report noted, globalization opened up great opportunities and many challenges for the world as a whole, but especially for its less developed regions, particularly Africa. The challenges included making globalization more ethical, more equitable and more inclusive. Among the challenges Africa faced were export expansion and diversification, attracting private capital flows and stemming capital flight, and more effective participation in international trade and finance and in the workings of the key international financial institutions.

John Hancock, Counsellor, Trade and Finance Division, World Trade Organization (WTO), said that the power of the WTO was much overstated. It did not create or enforce law. All negotiations were freely accepted or rejected by the 134 member governments. The WTO had moved from tariffs and quotas into areas in the way trade flows. Those were areas which had little to do with trade itself, but were internal issues. Hormone-treated beef, for example, had little to do with trade, but with what people wanted to eat, yet it was seen as a trade issue. Another important development in the WTO was the binding dispute- settlement system. Since the Uruguay Round, countries had to accept the outcome of a dispute settlement, or otherwise to pay compensation. In other fields, there was now recognition that binding dispute settlement was a powerful instrument. This could be useful for human rights issues, ozone depletion and environmental issues.

DPI/NGO Annual Conference - 1a - Press Release NGO/314 PM Meeting PI/1178 15 September 1999

Brian Fabbri, Chief Economist for North America, Paribas, said "it is better to have had capital and lost, than to never have had capital at all". Free trade forced social change. Yet, survival in the free-market jungle required a recipe that included avoiding a fixed exchange rate and encouraging long-term direct or equity investment. Following that recipe, along with monitoring and managing national balance sheets, however, would not eliminate the risk of financial crisis, but it would reduce the frequency and severity of crisis.

The panel was moderated by Kamaleshi Sharma, Permanent Representative of India to the United Nations. The role of governments and civil society in influencing policies which guided globalization, and the means whereby international financial, trade and multinational institutions could pursue market opportunities while addressing social concerns were among the issues addressed.

The Conference will meet again at 10 a.m. tomorrow to hold a panel discussion on labour.

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Conference Work Programme

The fifty-second annual DPI/NGO Conference this afternoon held a panel discussion on trade and finance. The panel’s moderator was Kamalesh Sharma, Permanent Representative of India to the United Nations. The panellists were Kwesi Botchwey, Director for Africa Research and Programmes, Center for International Development, Harvard University; Brian Fabbri, Chief Economist for North America, Paribas; John Hancock, Counsellor, Trade and Finance Division, World Trade Organization (WTO); Mark Malloch Brown, Administrator, United Nations Development Programme (UNDP); and Lori Wallach, Director, Public Citizen’s Global Trade Watch.

Presentations

KAMALESH SHARMA, Moderator of the panel, said that the theme of trade and finance could be observed from different perspectives. International trade had to be a significant engine for growth, especially in the face of globalization. Despite the various benefits of globalization, the real picture could be determined by looking at the distribution of income. Resources generated through international trade were crucial for developing countries as a contribution to national income. A major divide was visible between the positions of developing and developed countries in preparation for the upcoming World Trade Organization Ministerial Conference. International trade could not perform miracles. The Asian crisis had shown that trade and finance could not be divorced from the development discussion. Following the crisis, while developed countries saw cheaper imports and a boost in equity markets, the developing countries had seen the fruits of decades of economic growth destroyed. In the face of the crisis, was it unreasonable to conclude that there might be something wrong with the system itself? he asked. A fundamental issue was that of the volume of resources. official development assistance (ODA) had shrunk by one third in this decade alone.

KWESI BOTCHWEY, Director for Africa Research and Programmes, Center for International Development, Harvard University, said that globalization -- marked by an unprecedented increase in integration in markets for goods and services, a surge in the mobility of private capital flow and a revolution in information and communication technology -– was now widely accepted as the most distinguishing feature of world economics at the end of the millenium. As the 1999 Human Development Report noted, globalization opened up great opportunities and many challenges for the world as a whole, but especially for its less developed regions, particularly Africa. The challenges included making globalization more ethical, more equitable and more inclusive. Those challenges had particular relevance for sub-Saharan Africa. Africa was both marginalized and integrated in the globalization process. That marginalization was not the work of some divine ordination or laws of nature, but was the product of history. Even Africans were engaging in the process of self-criticism which created the impression that its crisis could be blamed on internal causes alone. The causes of that marginalization must be understood in order to address the problem.

A recent upturn could be seen in African economic performance, marked by positive per income growth, he said. That upturn had already begun to slow down, largely due to the Asian financial crisis. Savings and investment levels were still low, and the region’s dependence on ODA was much higher than anywhere else in the world. Financing debt was another major issue. While Africa was marginalized in the globalization process, it was also presented with a number of opportunities and challenges. The first was export expansion and diversification. A key issue would be whether Africa would continue to produce primary commodities for export or whether they would move away from that. Africa’s share of world trade remained

insignificant and concentrated in the narrow range of primary commodities. The composition of world trade had been changing and there was a noticeable shift towards manufacturers, whose share had grown. It was important that Africa not only expand its trade, but that its trade be diversified.

A second challenge was attracting private capital flows and stemming capital flight, he continued. Africa attracted very little private capital flows. If Africa was going to grow at twice its current growth rate, it was important that it attract much larger flows of private capital, especially since ODA flows had decreased. It was also suffering from a higher level of capital flight than any other region in the world. Africa’s own people did not find the confidence to keep their resources in Africa and tended to export their capital. Another challenge was more effective participation in international trade and finance and in the workings of the key international financial institutions, particularly the WTO. Also, there was the need for more participation in the information revolution, partly through domestic reforms. Information technology allowed Africa to leap- frog in technology advances, but, unfortunately, the costs of that technology were very high. Reform of the costs of service provision was very important. Also, Africa suffered from a major brain drain, which had averaged about 20,000 people a year.

JOHN HANCOCK, Counsellor, Trade and Finance Division, WTO, said that the power of the WTO was much overstated. All negotiations are freely accepted or rejected by the 134 member governments. The WTO does not create or enforce law.

This had been the official line of the last 50 years, he said, but the WTO had moved from tariffs and quotas into areas concerning the way trade flows. These were areas which had little to do with trade itself. Hormone-treated beef, for instance, had little to do with trade, but concerned what people wanted to eat, yet, it was seen as a trade issue.

Another important development in the WTO was the binding dispute settlement system. Since the Uruguay Round of trade negotiations, countries were obliged to accept the outcome of a dispute settlement, or otherwise to pay compensation. International economic jurisprudence was formed here, he said. In other fields, there was now recognition that binding dispute settlement was a powerful instrument. This could be useful for human rights issues, ozone depletion or environmental issues.

The WTO was going in the direction of a new form of international governance, based on global rule of law. It pointed the way other international systems might evolve. The negative side of this was that the system was half completed. A coherent system of trade rules now collided with other less- developed policy systems. Resolving these problems would not be simple or painless, he said.

He said that we lacked an international consensus to move forward. This was what he called a "challenge of will power". There were signs that consensus now might be less strong than over the last 50 years. At the Millennium Round of trade negotiations in Geneva, the will-power to make concessions did not seem to be there. This was a worrying prospect. If the General Agreement on Tariffs and Trade (GATT) had to be established today, it might not have been possible.

BRIAN FABBRI, Chief Economist for North America, Paribas, said “it is better to have had capital and lost, than to never have had capital at all". Free trade forced social change. Yet, survival in the free market jungle required a recipe. Following that recipe, along with monitoring and managing national balance sheets,

would not eliminate the risk of financial crisis; however, any more than it would eliminate the business cycle, but it would reduce the frequency and severity of crisis.

He said that fixing the exchange rate or borrowing in foreign currencies and in short-term obligations and then lending the proceeds in local markets for long terms should be avoided. On the other hand, long-term investment, such as direct investment or equity investment, should be encouraged. Governments should be aware of their national balance sheet, which could warn of any national impending liquidity difficulties. In addition, rules should be adopted for size of reserves, maturity of liabilities, and value at risk, and capital markets should be liberalized slowly. Strong regulatory and supervisory structures to enhance transparency should be developed, as well as accounting standards that met world standards, bankruptcy laws and a market-friendly environment. Instead of forcing fiscal austerity during a crisis, a social safety net should be created, and procedures should be pre-established for orderly debt settlement between bond holders and borrowers. Finally, contingent credit lines with the International Monetary Fund (IMF) or international banks should be made available immediately.

The dilemma in the trade versus capital issue concerned the effect of additional international economic integration, which could increase the demand for social insurance but constrain governments’ ability to respond, thereby causing the domestic consensus in favour of trade openness to dwindle, he said. Moreover, just as prices converged in the international marketplace in the long run as a result of international arbitrage, so then would national norms regarding social safety nets converge, as the costs of divergent social safety nets rose. The most prominent current example was "Euroland", where countries had systematically been trying to reduce the established safety net to meet an agreed standard for integration. Yet, decisions to reduce safety nets might exacerbate the strains from increased globalization outside of "Euroland". The forces of social change, which flowed from economic, financial and political integration, were truly profound.

The debate over so-called fair trade centred on the comparative advantage achieved by one country by violating the labour or environmental standards of another, he said. Free trade among countries with different domestic practices ultimately required some degree of harmonization. Yet, that requirement should not become a major factor in all trade negotiations, since it could derail the spirit and practice of promoting a free trade environment. Regional integration agreements, rather than global ones, were more likely to include supplementary agreements on those issues. Thus, the North American Free Trade Association, known as NAFTA, might be more useful in harmonizing the differences between the United States and Mexico, for example, than more global negotiations. There was no credible alternative to a free market economy, despite its shortcomings.

MARK MALLOCH BROWN, Administrator of the United Nations Development Programme (UNDP), said it was a very interesting moment as old structures of control were falling away and new ones were beginning to emerge. A dramatic power shift was being glimpsed, not just from the strong to the weak, but between different kinds of institutions, from profit to non-profit organizations and from the governments to the communities. The way power was exercised was also shifting, from formal assemblies of people to information associations, with modern technology, such as the Internet, paving the way. There was great flux in evidence, which directly affected the issue of trade and of who was in charge. There was also an extraordinary shift in the profile of global trade, from a trade in commodities to manufactured goods, to a trade in services and beyond to a daily trade in capital flows which far exceeded any of those earlier flows. Also emerging was a trade in words and ideas, via electronic communication.

He said that, looking ahead 20 years ago to the current situation, one might have called it chaotic, “cowboy capitalism”, an anarchistic explosion of international business, but he did not think the situation was so alarming. New international structures were emerging. The first was the ability of civil society to shape global public policy. The notable campaign against landmines, for example, had circumvented the traditional government machinery, and then come back to the United Nations for the seal of government approval. It had been an extraordinary organization of “kitchen tables and internet connections around the world”, and an extraordinary use of international machinery for civil society’s own end. It was civil society taking charge. A look at the third world debt relief movement coming to a head in the new year saw some of the most unlikely players rubbing shoulders, with only modest respect being paid to international organizations. Indeed, the transfer of savings from debt relief to helping the poor was the most exciting development of the millennium. Even the cautious World Bank and the slightly less cautious UNDP should let the ball be carried by civil society.

As a result of globalisation, governments had nowhere to hide, he went on. High-level corruption, a lack of transparency, and dishonest legal systems caused countries to pay a very high price in terms of their competitive advantage as a location for investors. So, countries were forced to compete beyond just some crude measure of cheap labour. Those countries which succeeded were those which invested in their people, provided a sound market environment and a pro-market orientation, and had institutions and structures accountable to the people. Those countries offered a level playing field for investors and citizens alike. For their part, international organizations were barely beginning to adjust to the challenge of the new environment. Going forward, the UNDP would be driven by three things: helping countries adjust to the change; relying increasingly on information technology as the tool for delivering advice to governments and grass- roots organizations; and looking way beyond the traditional and shrinking pool of development assistance to new pools of private capital and the non-profit sector to help countries finance their own development dreams and strategies.

Discussion

Responding to a question on whether the term free market would still be valid in the future considering the large concentrations of power that were likely to occur, Mr. BROWN said that in a market of rapid change, it was not clear that there would be such a level of global concentration of power. The combination of rapid changes in consumer preference, changes in technology and a vigorous enforcement regime taken together would mean that the world would not be controlled by 10 big corporations in the future.

In response to a question on the widening gap between developed and developing countries, he said that the Human Development Report had been the benchmark indicator of the growing gap between those countries. That was the short-term impact of globalization. It was true that those countries that were least integrated in the globalization process were those least benefiting from it. There were plenty of examples of countries for which globalization had transformed the economy. There was a need for more global integration while having the right public policy in place to protect the weak. One of the absolute underpinnings of globalization was a global social welfare system. Basic human services must be available to the world’s poor. He added that people had to engage in globalization on terms comfortable to them. Globalization usually rewarded those who opted in on their own terms.

In relation to how the UNDP understood the new role of the Economic and Social Council, he said that over the last two presidencies of the Council, it had undergone a great renaissance. There had been a lot of talk about the Council and its role in coordinating economic and social affairs. Intergovernmental deliberations were not always the easiest forum in which to harden economic and social policies. The first task of the Council was to promote meeting of goals of the major world conferences.

Mr. FABBRI said, in answer to a question about taxing international capital return, that generated taxes might be used to ameliorate some of the worst effects of international capital flight. But investments were made to bring a profit. In developing countries, there was high risk, as well as excess returns attached to private investments. If those excess returns were taxed, then there should also be a reduction in risks, he said. He thought the whole idea of taxing international capital return was unworkable. Who would administer, where would the funds go, were just some of the questions that seemed unsurmountable.

The answer to the question whether markets were really free was simple, he said. No, not totally. Every market had all kinds of restraints, subsidies and rules that prevented free movement. On the other hand, if markets could be totally free, then a human face would not be possible. Governments and societies had agreed to put a human face on the markets. The more capital flows, the more benefits there were for the world. He said that the gap between rich and poor in the last 10 years had been growing in the United States, as well. Yet, there was full employment, homeownership had increased, and there was far less complaint at the lower levels of society than before. This meant, he said, that wealth had finally trickled down to poorer people to make a difference.

Asked about the constraints the International Monetary Fund (IMF) put on governments to act when they receive an IMF loan, he said that the question whether those restraints were right was discussed within the IMF, as well. The IMF walked a very fine line between providing help and not creating disasters. There were other solutions, he thought. A social net might be better than austerity measures. Governments should be allowed to use greater fiscal stimulus in order to let their economy grow so that debt could be paid down later. But in order to do that, the IMF would require tacit and legal support from the capital markets. That support should be organized before a crisis happened, and not after, Mr. Fabbri said.

Mr. HANCOCK said, in answer to a question about incorporation of human rights into trade policy, that very little had been done. The GATT agreements disallowed trade in prison labour. Other issues could only be incorporated by consensus. If even one country did not agree to a human rights standard, then it could not be incorporated in the agreement. But the creation of global economy was forcing governments to become more transparent in their behaviour on all levels. Countries with gross human rights abuses would be punished in trade issues. Companies would be less willing to invest in those countries, and that would have a huge impact, he said.

Asked about global environmental issues, he said that the WTO would not stop any body from pursuing environmental standards. But countries would have to negotiate bilateral and multilateral agreements on issues like turtle protection, ozone depletion and the like, he said.

Mr. BOTCHWEY, the Director for Africa Research and Programmes at the Center for International Development of Harvard University, next responded to the question about what should be the quid pro quo on the debt issue, given the insatiable

appetite of the elite in Africa and the misguided policies, lack of transparency and corruption in the southern countries. He said the world already acknowledged that those countries could pay back the debt. As a result, for the past five years or so, there was a net flow of resources to those countries. In other words, the world already gave heavily indebted countries enough long-term concessional loans and grants to pay their debts. Beyond paying back existing debt, there was very little leftover to plan for improvements in education and public health, for example. The world already understood that reality. It was, therefore, important that those countries be forgiven so that they might become more attractive to private flows and investments.

Debt relief must be linked to greater transparency, proper governance and credible programmes of poverty alleviation, he went on. If African countries did not accept those conditions, then those countries did not get the relief. Many debt relief initiatives of the last 10 years came with conditions. So, the idea that some countries might resist those conditions was a red herring, as everyone understood it was in interest of the countries receiving the relief to meet certain conditions.

To the question of whether Africa would be better off with support for local food production in order to enhance self-sufficiency, instead of trying to catch up and integrate into the global market, he said Africa had no choice but to integrate. African agriculture, in particular, was still old style; productivity was low and depended on the vagaries of weather. It was impossible to survive like that, so integrating into the world system to avail itself of the latest techniques of technologies and finance made a lot of sense. The tragedy was that agriculture was the least free of all the markets, yet it was the area in which developing countries had the potential advantage. In other countries, monumental sums of money were spent subsidizing farmers, and, as a result, their standard of living was much better than those of their miserable African counterparts. The agricultural playing field must be levelled, and Africans had no choice but to modernize.

Business and political leaders could and should cooperate in dealing with the instability in Africa, he replied to another question. The days of rogue governments and dictatorships not accountable to the people were nearly gone. The new generation of African leaders and forces should join forces with civil organizations worldwide to overthrow dictatorial and corrupt governments in Africa. He never imagined that South Africa would be free in his lifetime, but thanks to the increasing struggle of internal democratic forces inside and outside Africa, it happened. Those who perpetuated the barbarity would be made accountable some day.

Replying to a question about whether he supported the proposal to establish a United Nations trusteeship in areas rich with diamonds and oil in Africa as a way of forging stability, he said that while he understood the concern leading to the proposal, he disagreed with it. Those were struggles which the democratic forces in Africa must weigh. While the post-independence record in some countries had not been entirely successful, no form of re-colonization should be considered. People had died for that independence, thereby creating conditions for democracy to emerge. Those forces must be reinforced, and in that regard, the civil society organizations worldwide had a role to play.

Mr. FABBRI, responding to a question on how social programmes would be financed if no taxes were collected in a global sense, said that as Mr. Brown had earlier stated, civil society could combine to put pressure on the private sector

and government to accomplish their goals. What could be seen today in capital markets was wider ownership of sources of income. In the United States, power hadbeen given to the people through schemes such as the 401K retirement programme, and people had also become the real owners of corporations. Now, Europe was also embarking on that process and would follow the example of the United States.

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