Hospitals & Asylums
1. In a Globalised world and an economy undergoing constant change we
stress the importance of the collaboration between the local, national and
international level to achieve full employment and decent work for all. ECOSOC has always been the UN’s principal body
for coordinating and advancing development policy. ECOSOC
coordinates the work of the 14 UN specialized agencies, 10 functional
commissions and 5 regional commissions, receives reports from 10 UN funds and
programmes and issues policy recommendations to the UN system and to Member
States. The 54-member Council meets every year, alternating between New York
and Geneva. ECOSOC should be the political- and policy-level global forum for making
progress towards the Millennium Development Goals. A place where
ministers commit, and are held accountable for action on those commitments. Such change can make ECOSOC the
development parliament of the United Nations.
Every day, 30,000 children die of preventable diseases, and every
minute, a woman dies because of complications in pregnancy and
childbirth. In the 1990s, some 60 countries in various parts of the world
actually grew poorer. Today, nearly 3 billion people subsist on less than
$2 a day, the same number as 10 years ago. Clean drinking water remains
out of reach for more than 1 billion people, while environmental degradation
continues to render once fertile soils incapable of supporting the most basic
needs of families. The Millennium
Development Goals present an opportunity for ECOSOC to rally around a concrete
set of clear, universally acclaimed and achievable targets.
2. The world as a whole is on track to meet the target of cutting in half the proportion of people living on a dollar a day or less by 2015. The starting date for all of this was 1990. At that time, 28% of the world lived on a dollar a day or less. Today that has dropped to 19%. Now, the first thing to say about this is that it is significantly driven by the extraordinary success in southern and eastern Asia and we’ve done less well in Latin America where progress has only been from 11 down to 9%. And of course, as I think you all know, in Sub-Saharan Africa poverty of this kind remains stubbornly stuck at 44%, although even there, there is some real evidence now that improved economic performance, along with additional donor assistance and debt relief, could be laying the groundwork to start making significant improvements there too. On some other goals, really good news to report as well. There are signs that we might get to the goal of universal primary education for every boy and girl. Eighty-six percent of children in the developing world are now enrolled in primary schools. Real progress too with clean drinking water where the statistics has also continued to rise, jumping to 80% in 2004 from 71% in 1990. But again, lots of major regional differences. Women’s role in political participation, which we see as critical if we are really to get at family poverty and have people who are willing to speak for it and hold governments accountable for it elected to office. We now have women holding 17% of parliamentary seats globally. In 20 countries, more than 30% of seats are held by women. And that is striking in some post-conflict countries, which have used the phenomenon of new constitutions and the lessons of conflict to really try and drive up the level of seats held by women. Afghanistan now has 27% of its parliamentary seats held by women and Iraq 25%. The number of people receiving antiretroviral drugs in developing countries has increased fivefold over the last four years, from 2001 to 2005, from 240,000 to 1.3 million people.
3. The
48 least-developed countries (LDCs) of Africa and the Asia-Pacific region are
home to the vast majority of the world’s poor. The African LDCs are: Angola, Benin, Burkina Faso, Burundi, Cape Verde,
Central African Republic, Chad, Comoros, Democratic Republic of Congo,
Djibouti, Equatorial Guinea, Eritrea, Ethiopia, The Gambia, Guinea,
Guinea-Bissau, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania,
Mozambique, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone,
Somalia, Sudan, Tanzania, Togo, Uganda and Zambia. The LDCs in the Asia-Pacific
region are: Afghanistan, Bangladesh, Bhutan, Cambodia, Kiribati, Lao People’s
Democratic Republic, Maldives, Myanmar, Nepal, Samoa, Solomon Islands,
Timor-Lesté, Tuvalu, and Vanuatu. Conference Room Paper of 3
May 2006. On the theme of
the 2006 ECOSOC High-Level Segment: "Creating an environment at the
national and international levels conducive to generating full and productive
employment and decent work for all, and its impact on sustainable
development" The quality of
employment is embedded in the very notion of decent work. It is about security
of tenure and prospects for career development; it is about working conditions,
hours of work, safety and health, fair wages and returns to labour,
opportunities to develop skills, balancing work and life, gender equality and
social protection. It is also about freedom of association and having a voice
in the workplace and society.
4. The 2005 World Summit resolved “to make the goals of full and productive employment and decent work for all a central objective of [their] relevant national and international policies”. Greater attention, therefore, needs to be paid to decent work, defined as “opportunities for men and women to obtain productive work, in conditions of freedom, equity, security and human dignity”. Decent work is central not only as a source of income, but also as a condition for people to live a self-determined life, and to participate fully as citizens in their communities. As such it facilitates social integration and social cohesion. It is also essential for the long-term recovery of countries emerging from conflict. It is important to put the goals of full employment and decent work firmly back into the United Nations development agenda. It demonstrated that there is a solid consensus that in order to achieve the internationally agreed development goals, including the MDGs, employment and decent work needs to be at the centre of economic and social policies. World Leaders also concluded at the Summit that in many parts of the world the goals could not be achieved by the 2015 deadline under the prevailing employment and labour market condition. Against this backdrop ECOSOC changed its mind to devote its 2006 High-Level Segment to employment rather than countries emerging from conflict. To put two and two together – To make progress nations must pay for gainful employment not soldiers.
5. The UN Economic and Social Survey is
the main report of the substantive session of ECOSOC this 2006. The Statement of Mr. Jose Antonio Ocampo
Under Secretary General of Economic and Social Affairs to the High Level Policy
Dialogue of ECOSOC in Geneva 3 July
2006 is that the world economy is performing well this year. The rapid and fairly broad growth of the
developing countries— undoubtedly the most positive global economic trend in
recent years—persists. In
2006, the developing world will again, as in the two previous years, register a
growth rate of more than 6.0 per cent, comparing favourably with 2.7 per cent
for the industrialized world. The LDCs in particular will reach an
unprecedented rate of over 7 per cent.
The solid growth figures of developing countries reflect a very
favourable international economic environment. Yet, this mix of exceptional conditions is
threatened by increasing risks. The first are the uncertainties surrounding
current trade negotiations. The increased volatility of commodity markets in
the first half of 2006 also signals the risks that commodity-exporting
economies face in the current conjuncture. And rising interest rates in
industrialized countries have been accompanied in recent months by a “flight to
safety” by investors in financial markets, implying less financing at higher
costs for developing countries. The global economic outlook itself features
increased uncertainties. As is well known, some of the major risks are
associated with the global imbalances, particularly the high current account
deficit of the United States, which is expected to reach over $900 billion in
2006. This continues to create the possibility of a sudden and sharp disorderly
adjustment of global imbalances, especially through a large devaluation of the
dollar, or a significant slowdown of the US economy, both of which would have
adverse effects on the world economy.
6. During the so-called golden age of
1950-1973, most developing regions experienced rapid economic growth. In
contrast, the final two decades of the twentieth century brought a worrisomely
large number of “growth collapses”, with only a few developing economies able
to sustain fast rates of growth. The
four point plan for continuing development in developing countries since the
Millennium Declaration are:
One, fostering
active trade and production sector policies to encourage the structural transformation of developing country
economies, aimed at encouraging the diversification of production sector
structures, creating strong domestic linkages among production activities, and
upgrading technologies. International rules should be reviewed in this light,
while avoiding at the same time some mistakes of past industrial policies.
Two, open
up more space for counter-cyclical macroeconomic policies, striking a better balance between fiscal and
monetary prudence and flexibility, and making price stability less an objective
in itself than an intermediate goal of economic growth and employment creation.
The effectiveness of these domestic policy efforts will also require policy
interventions at the international level to dampen financial volatility.
Three, ensuring sustained levels of public spending to make the necessary investments in
infrastructure and human capital. This means that additional fiscal space needs
to be created through increased efficiency of public expenditures, through
improved governance and strengthening of the tax base and, for the poorest
countries, through additional official development assistance (ODA).
Four, promoting gradual, country-specific and home-made
institutional reforms.
International cooperation can help in this regard by supporting such gradual
domestic processes, by fully respecting the principle of ownership of domestic
policies and institutions and, particularly, by avoiding the proliferation of
institutional conditionality.
7. Preface
by Koffi Annan. Our world is richer than ever before, but it is also marked by
enormous inequalities, both within and between countries. The average annual
income of someone living in the world’s richest country, Luxembourg, is more
than one hundred times larger than that of the average citizen of Sierra Leone,
one of the world’s poorest. Such big differences in living standards should be
a matter of great concern, because they reflect serious inequalities in life
opportunities. This calls for a robust policy response at both the national and
international levels, so that all countries can achieve the Millennium
Development Goals and other agreed development objectives. Trends in inequality
between countries have varied. In the 1950s and 1960s, developing countries
experienced strong and sustained economic growth, almost across the board.
Since the 1980s, however, a trend towards increasing divergence has set in,
with a limited group of countries, most of them in Asia, achieving rapid
economic growth and gaining from more open global markets, while much of the
rest of the developing world has faced economic instability and made few gains
in human well-being.
8. Chapter One:
Growth and Development Trends 1960-2005. By many measures, global income
inequality is high and rising. In 1950, the average Ethiopian had an income 16
times less than that of someone living in Europe or the United States of
America. Half a century later, Ethiopians have become 35 times poorer. We are concerned here, however, with the
rising inequality between countries. About 70 per cent of global income
inequality is explained by differences in incomes between countries. In the 1960s and 1970s, nearly 50 out of a
sample of 106 developing countries had experienced one or more prolonged
episodes of high and sustained per capita income growth of more than 2 per cent
per year. Since 1980, however, there are only 20 developing countries that have
enjoyed periods of sustained growth. Periods
of growth for developing countries have alternated with prolonged periods of
stagnation and volatility, especially since the mid-1970s. Only a few
developing countries have been growing at sustained rates in recent decades,
but these include, most notably, the world’s two most populous countries, China
and India. Considering that these two countries alone account for almost half
of world population, inequality across the globe is beginning to decline.
However, when these countries are left out, global inequality is seen as having
continued to rise strongly from already high levels.
9. Inequality matters especially within
developing countries, not only because it signals injustice, but also, and
particularly, because unequal opportunities make it so much more difficult, as
economic potential stays unutilized, to achieve the Millennium Development
Goals. The rich tend to be healthier and better educated. A better education
and greater wealth are “assets” that help people gain influence in society and
take fuller advantage of economic opportunities. At the other end of the
spectrum, inequality makes it more difficult for those who lack such assets to
grow out of poverty. In short,
inequality breeds more inequality. Further, it is now also more broadly
maintained that wide income disparities within countries tend to impair the
pursuit of sustainable long-term prosperity.
Seventy per cent of world
income inequality is explained by differences in incomes between
countries. Richer countries have better
access to capital markets and are less vulnerable to external shocks. Poorer countries have less of a voice in
international economic decision-making.
Eighty-four per cent of international income inequality is explained by
differences between regions. Widening
global asymmetries can be harmful to growth.
Since 1980, international inequality has increased sharply and only East
and South Asia have grown more rapidly than industrialized countries. Rising global inequality is in part
explained by the process of globalization.
Standard economic theory has encountered difficulties in explaining the
growth divergence.
10. Nobel Prize winner Robert Lucas (2000)
has estimated that the diffusion of technology and ideas will allow income
distribution across nations to narrow and make everyone “equally rich and
growing” by the year 2100. The renewed interest in the determinants of economic
growth heightened after it was observed that many developing countries had gone
through a prolonged period of poor growth performance and that there was
increasing evidence that only a few countries appeared able to “catch up” with
the developed world. The standard economic model of growth focused primarily on
the role of savings and investment and predicted that, in the long run, rich
and poor economies would eventually converge in terms of income levelsUsing
sophisticated economic analysis, others have strengthened this claim with
similar estimates showing that convergence can be expected to take place the
forces of the global market are left free to act. In terms of purchasing power
parity (PPP), commonly used when making such comparisons, the developed world
had managed to increase its GDP per capita 19-fold between 1820 and 2001. The performance of the rest of the world was
much more modest. The mean incomes of
countries in Eastern Europe increased nine times, while those of the countries
in Latin America and Asia showed, respectively, an eight- and a sevenfold
increase during the same period. African countries witnessed much more modest
welfare increases: their GDP per capita in 2001 was only three and a half times
that observed for 1820.
11. After the “golden age”, a dual pattern of
divergence emerged. In the 1960s and
1970s, nearly 50 developing countries had had sustained growth, but only 20 thereafter. There was a distinct downturn in
international development through the 1980s.
Sustained growth occurred
more often again in the 1990s, but at levels far below those of the golden
age. Growth successes and collapses have clustered in specific time
periods. The major general downturn
took place around 1980. The oil shock of 1973 had disturbed the
normal functioning of the economies of developed countries, generating inflation
and recession, and had important effects on developing countries as well. The pace at which the gap widened had
slowed down during the quarter-century that followed the Second World War
(1950-1973) and during this period several regions (Eastern and Central Europe and Asia) and the Union of
Soviet Socialist Republics managed to catch up in modest terms with the
developed countries. As noted above, this period is sometimes also referred to
as the golden age, since rapid growth took place in a large number of countries
and regions across the world. During
this period, all regions recorded an average GDP per capita growth rate of at
least 2 per cent (see lowest subdivision of India was the only large developing
country showing slower growth, with a rate of 1.4 per cent per annum. The
fastest-growing economy was Japan, with an impressive 8.1 per cent GDP per
capita growth rate, followed by Eastern Europe. Strong and widespread developing-country growth ended around 1980.
This relatively good
economic performance had come to an end with the second oil price shock, the
sudden increase in world interest rates at the end of the 1970s and the
collapse of non-oil commodity prices in the 1980s. These factors triggered the
debt crisis of the 1980s, which hit African and Latin American countries
particularly hard. Although the period between the two oil shocks had been
marked by a rising frequency of growth collapse, particularly in sub-Saharan
Africa, it was the combination of these external shocks that sparked a large
number of growth collapses among developing economies in the 1980s.
12. Two major and largely unexpected shocks
explain this generalized downturn in the developing world. The first was the
permanent effect of the interest rate shock of 1979. Real interest rates in the
United States (using the rate on 10-year Treasury Bills as the benchmark) had
increased from -1.8 per cent in 1979 to 3.6 per cent in 1981, reaching a peak
of 8.2 per cent in 1984. The cost of borrowing for developing countries was
even higher as the average risk premium (over the London Interbank Offered Rate
(LIBOR)) paid by developing countries had risen in real terms from 2.5 to 22.0
percentage points between 1979 and 1981.
Having profited from the previous eased external financing conditions,
developing countries suffered a sudden and substantial shock leading, for many
of them, to significant balance-of-payments problems. The second shock was the
structural decline in the terms of trade. Real non-oil commodity prices
experienced a permanent drop by more than 30 per cent, after having fluctuated
without a clear trend for a long period of time between 1920 and 1980. Domestic
and country specific conditions are important with respect to how countries can
adjust to global fluctuations. Growth
successes and collapses concentrate regionally.
13. Growth successes and collapses not only
appear to be concentrated in particular time periods, but also tend to coincide
in particular regions of the world. Most of the successful growth stories have
occurred in East Asia, while most growth collapses have been seen in Africa.
Also, growth performance in Latin America has been rather uniform among the
countries of the region, but different when the region is compared with other
regions in the world. The size
of the group of poorest countries decreased between 1960 and 1980. During the 1980s
and 1990s, the number of countries in the low-income group increased. Because
of the generally poor growth performance of developing countries during the
1980s and part of the 1990s, membership in the lowest-income group had
increased to 75 countries by 2001, with several countries members of the
Commonwealth of Independent States (CIS) as well as some Latin American
countries having joined the group. In
CIS and Eastern and Central European countries, upward convergence had occurred
during 1960-1980 and up to 1990 when the dismantling of the communist bloc took
place. During their transition to becoming market economies, two trends
emerged. On the one hand, the Central European countries and the Baltic States,
which by now had acceded to EU membership, retained their position in the upper
middle income group. The rest, on the other hand, experienced an absolute
decrease in GDP per capita which caused them to converge downward to a lower
income group. In Latin America and the Caribbean, Brazil’s economy had strongly
expanded during the golden age at a rate of 3.8 per cent per year in per capita
terms and by 1980 its income level surpassed the average for the world. This
also held for Mexico. Argentina, Honduras and Peru, on the other hand, dropped
into lower income group.
14. The large inequalities in income are
paralleled by huge disparities in other indicators of well-being. In 2002, the life expectancy of a child born
in Japan (82 years), Switzerland (80 years) or the United States (77 years) was
more than double that for a child born in Zambia (37 years), Malawi (38 years)
or Botswana (38 years). Similarly, opportunities in education show huge
disparities across countries. Educational
attainment measured in years of schooling amounted to less than 4 years in
sub-Saharan Africa but to more than 12 years in developed countries. In 1960, for instance, there were 73
countries whose citizens had a life expectancy of less than 50 years and 45
countries whose citizens had a life expectancy of 65 years or more. These “twin peaks” had disappeared by 2002;
population data from the United Nations indicates that the number of countries
in which a newborn was expected to live less than 50 years had dropped to 32
(all in sub-Saharan Africa), and the number of countries where he or she was
expected to survive for at least 65 years had increased to 128. At the same
time, inequalities in life expectancy at the extremes increased during the
1980s and 1990s, mainly because of the toll taken on lives in Africa by the
HIV/AIDS epidemic. Progress has also been evident in education: the average
number of years of schooling for all citizens almost doubled between 1960 and
2002, from 3.4 to 6.3.
15. It is important to bear in mind that
initial conditions are difficult to manipulate and countries with poorer
endowments have greater difficulties in positioning themselves to benefit from
world economic growth and make a break with the past. Hence, economies with
similar backgrounds and structures will more likely move in the same direction.
From this perspective, what comes to mind is Gunnar Myrdal’s principle of
cumulative causation, according to which poor countries continue to get poorer
while the rich ones continue to get richer as long as there are no exogenous
factors to force a change. Global inequality not only reduces the opportunities
of the poorest countries to gain from freer trade and financial flows, but also
has a bearing on how the rules governing world markets are set. Poorer countries have less power than richer
ones to influence the institutional rules governing global markets. Development
aid is not primarily benefiting the poorest countries. In particular, the fact
that much of the provision of bilateral official development assistance (ODA)
is driven by the political and economic objectives of donor countries leads to
richer developing countries’ receiving an important share of the
transfers. Failure to redress the growing global
inequality could have wide-ranging consequences for human development.
16. Chapter Two: Structural Change and Economic Growth Economic growth in developing countries is about changing the structure of production. An essential insight of classical development economics was that economic growth is intrinsically linked to changes in the structure of production. According to this view, industrialization is the driver of technical change, and overall productivity increases are mainly the result of the reallocation of labour from low- to high-productivity activities. The fast-growing Asian regions were able to make large and speedy transitions out of agriculture and into industries and services, while economies with little structural change lagged behind. The traditional view that capital accumulation is important for growth still holds. The structure of investment is also important, not only because industrialization requires more investment in the manufacturing sector, but also owing to the fact that important investments in financial and business services are needed to support industrial development. Further, low growth is associated with greater investment volatility. External shocks and erratic domestic policies are conducive to greater economic uncertainty, which hampers the long-term investment required to realize dynamic structural change.
17. Productivity growth in developed countries mainly relies on technological innovation. For developing countries, however, growth and development are much less about pushing the technology frontier and much more about changing the structure of production towards activities with higher levels of productivity. The importance of industrial development was central to classical development thinking. Productivity and output growth reinforce each other. Less unemployment can lead to higher productivity growth. Early empirical studies had already showed the importance of industrial development for higher long-term economic growth, indicating that it has indeed been an observed “regularity” in development patterns. Modernization of agriculture is also essential to facilitating a dynamic transformation from an agricultural to a modern industrial society. As economies moved up the ladder of development, services sectors would gain importance. Modern service sectors are also a source of productivity gain and are essential for the achievement of industrialization. As international trade for services grows, they also offer a new opportunity for export development. The degree and nature of structural change explain the diverging growth trends among developing countries.
18. Developing
economies grow faster as the importance of the industrial and services sectors
increases and that of agriculture decreases.
The economy of China underwent an impressive and rapid structural
change. The first-tier newly
industrialized economies switch to high-tech manufacturing during the
1980s. Deindustrialization characterized
structural change in Central and Eastern Europe and the former Union of Soviet
Socialist Republics during the
transition to a market economy. Growth
performance in the Middle East and Northern Africa is largely explained by
developments in the oil market. The
countries in sub-Saharan African economies show a lack of structural change. Structurally, the priorities of the
development policy were grossly mistaken, as they stipulated the preferential
treatment of agriculture, mining and ‘heavy’ branches of manufacturing
(metallurgy, shipbuilding, heavy armaments such as tanks, basic chemicals such
as fertilizers) at the expense of services and technologically advanced
high-skill branches. Higher economic growth and convergence are
associated with increases in investment per capita.
19. Investment
levels collapsed in sub- Saharan Africa and the Middle East and Northern
Africa. Lower growth is also associated
with higher investment volatility.
Capital accumulation is a catalyst of
structural change. Labour productivity
growth can be achieved through technological progress and/or by moving
resources from low- to higher-productivity sectors. The growth process in the developed countries also entailed a
dramatic change in the employment structure, involving a shift from the primary
sectors into industry and, subsequently, into services. In the poorer Latin American countries,
productivity growth occurred at the expense of job creation. In the semi industrialized countries and the
Middle East and Northern Africa, jobs were created in sectors with little or no
productivity growth. In sub-Saharan
Africa, most employment remains stuck in the low-productivity agricultural
sector. The fast-growing economies in East and South Asia have shown sustained
increases in labour productivity and labour has moved from low- to high
productivity sectors. Dynamic structural change involves
strengthening economic linkages within the economy- in other words,
integrating the domestic economy- and productivity improvements in all
major sectors.
20. Chapter Three:
Has Trade Integration Caused Greater Divergence? Economic
integration is no magic bullet for rapid and sustained growth. Success
in trade depends on the products and services produced, how they are produced
and whether production creates sufficient linkages with the rest of the economy
so that these activities allow for a dynamic transformation of the economy
while the growth stimulus coming from abroad is propagated throughout the
domestic economy. Foreign Direct Investment FDI, when properly managed and
incorporated into a strategy aiming at the continuous upgrading of the
country’s technological capacities, can bring lasting benefits. Faster
GDP growth and faster export growth are often interconnected. The composition of exports is what matters
for growth. Markets for products with
high technological content often grow faster.
Increasing participation in global markets can be achieved through specialization or diversification. While external integration is important, the
creation of domestic linkages is fundamental.
Markets for some goods are easier to enter than others but this may not
allow for sustained fast growth in the long run. Over the past 40
years, merchandise trade grew rapidly. The value of global merchandise trade
increased at an annual average rate of 10.4 per cent, and its volume by 6 per
cent during the period 1962-2000. Although
developed economies still dominate all non-oil export markets, developing
countries have rapidly expanded their participation in global markets,
especially since the second half of the 1980s.
During the period
1962-1980, the annual average rate of growth of world merchandise trade had
grown by 15.7 per cent in value terms and by 7.1 per cent in volume terms. The
corresponding figures for the period 1981-2000 were 5.8 per cent and 5.1 per
cent.
22. The
increased participation of developing countries in global markets has taken
place in low- (LT), medium- (MT) and high-tech (HT) manufactures, whose markets
have been relatively more dynamic, on
average, than markets for primary products (PP) and natural resource-based
(NRB) manufactures. Penetration by
developing countries has been particularly impressive in markets for LT
manufactures and by 2000 had reached 50 per cent of total world exports of this
group of products. The structure
of exports of developing countries has changed rapidly. Some
new LT manufacture exporters performed well in the period 1980-2000. A continuous effort is required to move into
exports of HT manufactures. Most
high-tech manufacture exporters grew faster than the developed economies. Growth is linked to the capacity to capture
a share of value added in the production chain. Gradual and continuous integration is preferred over the “big
bang” approach. Developed countries
dominate the dynamic global markets for services. Developed countries seem to benefit more from exports of service.
Skill-intensive services have offered greater opportunities for faster
growth.
23. Migrants alleviate labour-market shortages
in receiving countries, thus removing constraints on growth. Additionally,
migrant workers have a positive impact on growth by increasing effective demand
both as consumers and, in some instances, as investors. Empirical studies show that migrants have
only a limited negative impact on wages and employment of natives, even where
their share in the labour force is relatively large. In any case, such a negative impact is contingent on the
particular labour-market segment in which the migrant workers operate: often
low-skilled native labour is more adversely affected than skilled labour. For
instance, it was estimated that the immigrant influx to the United States in
the 1980s and 1990s led to a decline of 3.3 per cent in the wage of a typical
native worker. The negative impact on the wages was larger for high-school
dropouts (8.2 per cent) than for college graduates (3.8 per cent).
24. FDI inflows to developing countries have
surged since the mid-1980s. Services now account for close to three
quarters of the global stock of FDI, as compared with 40 per cent in 1980.
Between 1990 and 2003, the share of manufacturing in the FDI stock of the group
of developing countries rose from 25 per cent to 37 per cent. Sectoral
trends of FDI differ among developing countries and regions. Sectoral trends of FDI differ among
developing countries and regions.
Changes in the policy environment led to greater FDI flows. FDI in manufacturing requires an
industrial base and domestic markets. Because
direct investors hold factories and other assets that are impossible to move,
it is sometimes assumed that a direct investment inflow is more stable than
other forms of capital flows. This need not be the case. While a direct investor usually has some
immovable assets, there is no reason in principle why these cannot be fully
offset by domestic liabilities. Clearly, a direct investor can borrow in order
to export capital, and thereby generate rapid capital outflows. FDI and domestic capital formation
have moved in opposite directions. The contribution of FDI to exports depends
on the sector in which it is located.
The impact of FDI on the balance of payments hinges on several
factors. Countries need to have
absorptive capacity to benefit from FDI inflows. All fast-growing countries made use of production sector
strategies. Success cases involved fast
recognition and then abandonment of inefficient policies. Production sector policies promote
structural change in the economy.
Innovations are important for growth.
Innovations underlie a country’s competitive advantage.
25. The
acquisition of knowledge is subject to costs, externalities and barriers to entry. Participation of the private sector is important for identifying
constraints. The question of the impact
of trade liberalization on growth is the subject of intense debate. The contribution of trade to growth seems to
have declined in the 1990s. Trade
liberalization is not enough: complementary reforms are necessary. The timing and speed of liberalization
matter. Trade liberalization led to deindustrialization in some countries. Protection
has to be made part of a larger industrial strategy to nurture the
capababilities of domestic firms and raise the rate of domestic investment,
always in the context of a private enterprise, market-based economy. Developed countries liberalized trade
after industrial production was well
established. Almost all of them did not practice
free trade while promoting their own industrialization or, if they were late
industrializers, when catching up with the lead economies of their time. Trade
liberalization came only after industrial production had been well
established. The appropriate strategy is necessarily
context-specific. The global and the national policy
environments have evolved. The former now has jurisdiction over actions and sectors
that were unregulated before. The latter went through a process of autonomous
liberalization either induced by conditionalities demanded by multilateral
financial organizations and bilateral donors or voluntarily embraced, for
instance, through the participation in free trade agreements (FTA) whose
provisions go beyond internationally agreed disciplines.
26. Multilateral
trading rules gave room for greater government latitude in the past. The multilateral trade environment was indeed
more permissible in the past. Over the years, clauses were introduced in the
General Agreement on Tariff s and Trade (GATT) that accorded special
prerogatives to developing countries. The original Agreement (article XXXVI,
para. 8) had stated that developed countries should not expect reciprocity for
commitments. They made, that is to say,
developing countries were not supposed to make concessions that were
inconsistent with their development needs. The principle of non reciprocity implied
that developing countries could commit themselves to limited market access
provisions and limited tariff binding. Restrictions need to be considered in terms of
their contribution to development.
In the Uruguay Round of multilateral trade negotiations (1986-1994), the
“single undertaking” approach replaced the code approach. Developing countries
were no longer given the choice to opt out of certain agreements. Accordingly,
countries had to accept the additional disciplines brought about by, among
others, the Agreement on Trade-related Investment Measures, the Agreement on
Subsidies and Countervailing Measures the Agreement on Trade-related Aspects of
Intellectual Property Rights and the General Agreement on Trade in
Service. The Agreement on Trade-related
Aspects of Intellectual Property Rights, by establishing minimum levels of
protection on intellectual property rights, prohibits or restricts practices
such as copying, compulsory licensing, and reverse engineering which were
widely used by some developing (and developed) countries as a means of catching
up. The Agreement on Trade-related
Investment Measures does not allow for the use of performance–related measures
for foreign investors that have an eff ect on trade, such as local content and
trade-balancing requirements. Nevertheless, export and technology transfer
requirements are permitted.
27. The Agreement on Subsidies and
Countervailing Measures, on the other hand, renders illegal subsidies, fiscal
credit and incentives that require recipients to reach export targets or that
are tied to actual or expected export earnings. Subsidies linked to the use of
domestic products are also forbidden.
Countries whose per capita GDP is below $1,000 are exempt from these
commitments, but differential treatment for other developing countries is limited
to an extended phase-out period. Some
forms of intervention are still World Trade Organization compatible. Duty-free provisions can be maintained, as
well as certain forms of export assistance, including public export credits.
Furthermore, certain elements of the export incentive structure may, while
becoming World Trade Organization-compatible, be transformed in order to meet
the same targets. Tariff harmonization and reduced tariff
dispersion undermine the use of tariff structure as a policy tool. Developing
countries need a combination of relatively low and high tariff s applied to
different sectors at different periods as they promote the structural
transformation of their economies. Patterns of production and
integration are relevant for growth. Improved market access is needed for faster
convergence by developing countries. Countries need to be careful before trying to
quickly replicate an alternative that worked in the past and need to avoid
mistakes associated with some of the policies adopted before. A
policy environment within which to facilitate structural transformation is
needed. There is very little evidence to suggest that simply by opening up and
stabilizing the economy, and increasing inflows of FDI, developing countries
will enter a rapid and sustainable development path.
28. Chapter Four:
Macroeconomic Polices and Growth Divergence.
Views on what are the
“right” macroeconomic policies for developing countries have changed. Until
the 1980s, they had been mostly embedded in broader, growth-oriented national
development strategies. This changed in light of the severe macroeconomic
instability that many developing countries faced around 1980 and the paradigm shift
in the mainstream approach to macroeconomic policies in the developed
countries, away from a Keynesian approach of counter-cyclical demand management
aiming for full employment to a more conservative, prudential monetarist view
aiming at controlling inflation. This
new “orthodoxy” in macroeconomic policies prevailed during the 1980s and 1990s,
but its effectiveness in contributing to higher economic growth is increasingly
being questioned. Macroeconomic policies should be growth-centred, with full employment as the ultimate objective. The
growth divergence is closely associated with macroeconomic volatility. The
frequency of financial crises in developing countries indicates that
macroeconomic stability is, in addition, about maintaining well-regulated
domestic financial sectors, sound balance sheets of the banking system and
sound external debt structures. Greater
stability, in its broad sense, reduces investment uncertainty and hence is
supportive of higher long-term growth. Inflation rates had strongly
diverged among developing countries during the 1970s and 1980s, but they
converged downward during the
1990s. For most developing-country regions with relatively low and stable
inflation in the 1960s and again in recent years, since 2000, this has
coincided with a solid growth performance.
Lower inflation rates are
associated with higher long-term growth.
High inflation is correlated with lower growth,
but—as evidenced by econometric studies—the relationship is not robust and the
causality is not definitive. In particular, moderate inflation does not
necessarily lead to under-par growth.
29. Macroeconomic
adjustment is not a simple matter of restoring
the fiscal balance. The growth divergence across the developing
countries, as well as the different features of macroeconomic stability, has
also been influenced by financial sector development over the past four
decades. Financial intermediation supports the growth process by mobilizing
household and foreign savings for investment by firms, ensuring that these
funds are allocated to the most productive use, and spreading risk and
providing liquidity so that firms can operate the new capacity efficiently.
Financial development thus involves the establishment and expansion of
institutions, instruments and markets that support this investment and growth
process. Financial
liberalization in developing countries has not led to the expected increase in savings and investment
levels. The absence of a domestic bond
market makes it more difficult to fund public infrastructure or private
modernization projects and makes the financial system more vulnerable. The focus of macroeconomic policies merely
on low inflation and on restoring the fiscal balance may be too narrow for
achievement of the desired growth gains.
The growth of the domestic
bond market has also been substantial when expressed as a percentage of GDP. Volatile
international capital flows have become a source of macroeconomic instability for many developing countries. Economic
theory suggests that private capital should flow from developed countries,
where it is abundant and investment opportunities are more fully exploited, to
developing countries, where it is scarce relative to ample investment
opportunities. Capital inflows could supplement domestic savings in financing
investment in developing countries, contributing to their growth and
development. In addition, access to international capital markets would help
reduce fluctuations in liquidity over the business cycle, dampening
macroeconomic volatility. In practice, however, international capital flows to
developing countries have been volatile and a source of macroeconomic
instability.
30. Private
capital flows are concentrated in a small number of middle income countries.
Commercial bank lending
and portfolio investment have proved to be highly pro-cyclical for developing
countries. Both the availability and the cost of external financing ease during
periods of economic expansion, and tighten and become more expensive during
downswings. During the 1970s,
developing countries had obtained access to commercial bank lending, after
having relied mostly on ODA or FDI in preceding decades. The surge in bank lending came to a sudden
halt as world interest rates rose around
980
and the perception of risk changed with the sudden increase in the
debt-servicing burden of the borrowing countries. The subsequent massive
withdrawal of bank loans accelerated the debt crises that spread among
developing countries. Private capital flows were revived from 1990,
but again with boom-bust cycles. Without
adequate regulations and with weak financial systems, financial volatility is readily transmitted to the real sector. Private capital flows, in general, have not
contributed to increased long term growth.
A stable nominal exchange
rate can provide an anchor for general price stability. Particularly, in
countries with a past experience of high inflation and whose central bank lacks
credibility, reliance on a stable and fixed nominal exchange rate could be
helpful in reducing inflation and macroeconomic instability. On the other hand,
as the exchange rate provides a signal for allocating resources across
countries and across sectors, a larger degree of flexibility in the exchange
rate may be needed to avoid the inefficient allocation of resources in the long
run.
31. Counter-cyclical
macroeconomic policies matter for long-run
growth. When firms are financially constrained, an economic downturn would
force them to cut investment, hampering growth in the long run. If, however,
the Government had the fiscal space for increasing public expenditure, reducing
taxes, providing subsidies to private enterprises for long-term investment
and/or relaxing the monetary stance during an economic downturn, the adverse
impact on long-term investment and growth would be reduced. Macroeconomic policies in developing
countries often tend to be pro-cyclical, exacerbating, rather than alleviating,
the adverse impact of the downturns on long-run growth. Part of the observed growth divergence
among developing countries is attributable to the gaps in the public investment
in infrastructure and spending on human
development. An adequate level of infrastructure is a
necessary condition for firms’ achievement of productivity. By its very nature, infrastructure is
characterized by indivisibilities and countries need to build up a threshold or
minimum level of infrastructure (say, a minimum network of roads) to make a
difference for economy-wide productivity growth. To reach a minimum level of infrastructure,
countries will need to sustain substantial public investment levels over
prolonged periods of time.
32. Empirical
evidence has confirmed the positive relationship between infrastructure and growth. When
public and private capitals are complementary, an increase in infrastructure
will raise the rate of return on private capital and thus induce an increase in
the stock of private capital. Changes in public investment have been a minor
contributor to the widening income gap between rich and poor countries,
accounting for no more than 12 per cent of that increase. Lagging infrastructural development could
account for as much as one third of the widening income differentials between
East Asia and Latin America. Cuts in
growth-enhancing public investments may jeopardize future fiscal
sustainability. Human capital is
important for long run growth. Human
capital, in the form of a higher education level and good health, enhances
people’s capacities, and their creativity and productivity. Healthier and
better-educated people can perform higher value added tasks more efficiently
than people with low levels of human capital. They are also more likely to
adopt improved technology and to innovate. Finally, workers with high levels of
human capital can adapt more easily to changing job conditions and sectoral
change and are more likely to have the skills needed to face international
competition. Human development is a necessary, but not a
sufficient condition for long-term growth.
There are several approaches to human development and economic
growth. First, the efficiency of public spending on health
and education through better targeting to priority areas within the social
sectors and by improving the cost-effectiveness of public programmes. Second,
strengthening the tax base will be essential, particularly in countries with
low government revenues.
33. In 1961, when the General Assembly
proclaimed the First United Nations Development Decade, it had been understood,
by rich and poor countries alike, that there would have to be an intensified
effort to mobilize internal and external resources if designated growth targets
were to be met. The target of 0.7 per cent of gross national income (GNI) of
the developed countries for ODA emerged during the debates in the late 1960s on
the Second United Nations Development Decade. The target has never been met,
except by a few donor countries. In 2002, at the International Conference on
Financing for Development held in Monterrey, Mexico, the international
community reiterated the need for concrete efforts by the donor countries
towards achieving the target of 0.7 per cent of GNI for ODA and included the
Millennium Development Goals as tangible criteria against which to assess ODA effectiveness.
Renewed proposals for Marshall Plans and “big pushes”—as in the early
1960s—have emerged (UN Millennium Project, 2005). The growth impact of
aid depends on how it is spent and which
macroeconomic economic effects it generates.
First, not all aid is
meant to be used for investment purposes or spending on human development. Much of aid is allocated for emergency and
humanitarian relief. Second, even if
aid is allocated directly to, for instance, investment in infrastructure and
human development, the growth impact will depend not only on how such
investment contributes to growth, but also on other factors. Third, significant aid inflows will induce
other macroeconomic adjustments as well.
No systematic evidence has
been found that increased aid flows lead to real exchange rate appreciation and
loss of competitiveness.
34. The
findings offer some support for the plausibility of the notion of a “big push” to growth generated by well-targeted large
inflows of ODA. However, developing
countries may lack governance capabilities to manage large flows of foreign
aid. In the more appropriate
institutional setting, fiscal policy should strike a balance between fiscal
prudence and fiscal flexibility.
Macroeconomic policies should be well
integrated with broader developmental policies. Forward-looking provisioning
estimated on the basis of expected (rather than prevailing) losses when loans
are disbursed is an option with respect to reducing the pro-cyclicality caused
by the financial sector. A major challenge for the multilateral
financial institutions is to help developing countries mitigate the damaging
effects of volatile capital flows and provide counter-cyclical financing
mechanisms to compensate for the inherent pro-cyclical movement of private capital
flows. Reducing currency mismatches and linking debt-service obligations to the
capacity to pay of developing countries.
Multilateral surveillance should remain at the centre of crisis
prevention efforts. Part of the
observed growth divergence is attributable to gaps in public investment and
spending on infrastructure and human development. Fiscal space needs to be created for long term investment in
infrastructure and human development. Well-targeted
programmes supported by aid could put the poorest
nations on a path of faster growth. ODA has partly countered the tendencies
leading to the income divergence witnessed during the past 40 years. However,
since the magnitude of aid transfers has remained limited, the impact of ODA on
reducing international income disparities has been very weak at best. Governments in the recipient countries have
the administrative capacity to manage the resource flows in such a way as to
ensure that cumulative income and productivity gains are generated. A consideration
of the conditions for improvements in the governance structure—particularly in
such areas as transparency in budgetary processes, building a quality civil
service and improving social service delivery.
What really works at the local level, however, varies from country to
country, hence adding externally defined governance conditionalities to aid and
lending flows, which has been a recent practice of donor agencies, may not
produce the desired outcomes in terms of better- quality public services.
35. Chapter Five:
Governance, Institutions and Growth Divergence. Institutional and
governance factors help account for the divergence in economic growth. Successful growth depends on institutions
that can make markets function better and that can guarantee social
cohesion. Suitable forms of
institutional “quality” and good governance to support sustained growth are
inherently country-specific. A build-up
towards better institutions in specific areas can be sufficient to lift binding
constraints on growth. Market
functioning can be improved by lower transaction costs, public goods
provision,industry regulation and strategies for long-term growth. Governance
factors that create and improve markets can be classified as those that: (a)
help create markets, by reducing transaction costs and granting and protecting
property rights; (b) provide for public goods (measuring, in the classical
sense, non-rival and non-excludable goods), as well as those that generate
positive externalities, and reduce the supply of the ones that generate
negative externalities; (c) help in regulation at the industry level,
particularly in relation to non-competitive market practices; and (d) provide
for regulation that avoids short-run macroeconomic imbalances, and design
structural strategies and policies that create conditions for long-term growth
by extending adequate incentives and helping finance innovation, human capital
accumulation and investment.
36. Adequate provision of the goods and services, wealth redistributions and
participatory decision-making processes strengthen social cohesion. A widespread sharing of the benefits of
growth creates a sense of justice and fairness among the population. The
effectiveness of the system is determined, to a large extent, by its ability to
promote growth and rising levels of income and overall well-being and to
achieve social cohesion and, in general, to produce a society that is perceived
by its citizens as being just and fair.
The shifts in paradigm in development policies brought vast changes to institutional frameworks. Following
the poor growth experience that started around 1980, development policies have
predominantly focused on reducing government interference in the economy by
freeing domestic markets of price controls, lifting trade barriers,
liberalizing financial markets and privatizing State-owned enterprises. Rolling back the State, so the logic went,
would lead developing countries to higher and more sustained growth.
37. Two approaches to unraveling the
importance of the governance structure as a determinant of growth and
development have emerged in the recent literature: (a) new comparative
economics, where the rights of the individual in law (including property
rights), anti-corruption measures and other governance-related factors are
considered to be the key factors, with the significance of these key factors
often being estimated by cross-country analyses; and (b) the varieties of
governance systems approach, which recognizes differences in institutions over
time and across space and examines how economic agents respond in different
contexts to the specific set of rules and regulations governing markets.
38. Cross-country regression analysis has
shown that governance has a strong influence on incomes. Developed
countries enjoy high living standards because the rule of law prevails,
contracts are enforceable, corrupt officials are likely to be caught and
punished according to the law, the barriers to entry into a new business are
low, monetary and fiscal policies are prudent and appropriate social safety
nets are in place to mitigate unforeseeable risks. Above all, when conflicts
arise over issues such as the distribution of income or wealth, and the
provision of public goods, these countries have a governance system by which
the State is able to arrive at a different arrangement through democratic
processes. The quality of
governance is usually measured by indicators based on subjective judgement.
The perception of the quality of governance is strongly influenced by
economic performance. The cross-country
analyses provide poor guidance for defining governance conditions in aid
allocations. There is no one set of governance elements
that are the “best” for all countries and for all times. Each country is required to find, by trial
and error, its own governance system—the one that works best in its existing
context. The complementarities among governance elements can start a virtuous
circle once a Government establishes its credibility with its citizens in
respect of planning and implementing reforms.
39. Two types of governance capacities necessary to achieve
sustained growth:
market-enhancing governance and growth-enhancing governance. The former
encompasses governance
factors, such as the protection of property rights and the enforcement of rule
of law, that ensure market efficiency. The latter encompasses the State’s
abilities to complement market activities, including the capabilities to
accelerate the transfer of assets and resources to more productive industries,
and to facilitate the absorption and learning of new technologies. Step-by-step
changes to governance structures can be sufficient to trigger growth. Some developing countries achieved sustained
growth over the past three to four decades and narrowed the income gap existing
between them and developed countries. Their success in governance
transformation is illuminating in two respects. First, it demonstrated the
importance of addressing the binding constraints on growth being faced and of
creating a sense of priority in governance transformation. The success of such
transformation therefore does not depend on the comprehensiveness of reforms in
governance structure. Rather, a step-by-step, or gradual approach to removing such
constraints can be very effective. Second, their experiences demonstrated that
when a governance reform (such as a trade reform) induces large shifts of
income from one group to another, it was important to make the workings of the
market consonant with social cohesion. These success stories show the
importance of addressing the issues of complementarity not only between
economic reforms, but also between economic and social management.
40. Land
reform can be an effective means of easing the constraint on growth productivity. Land
reform is an effective means of easing this constraint by transferring
ownership to farmers who operate the land or, more generally, by securing for
farmers the right to share an appropriate return from their activity on the
land. Guaranteeing the private property
rights connected with owning land is a means of providing farmers with economic
incentives to produce crops and to maintain and invest in their land. When outright transfers of landownership are
not feasible for political or socio-economic reasons, higher agricultural
productivity can be achieved by merely enforcing tenancy law or by guaranteeing
a return to farmers’ activities on the land. The first stage of trade
reform is characterized by successful agricultural reform and a dual-track price-setting scheme. In the second stage, the dual-track price setting scheme is
phased out. The third stage of the
reform process is to put a stronger emphasis on the need to spread the benefits
of economic growth more equitably among all social groups and all regions of
the country. It is not necessary to
have all the required elements of good governance in place before sustained
growth can be initiated.
41. Countries that faced growth
failures tended to be poor, to be concentrated in sub-Saharan Africa and Latin
America, to be conflict-ridden and/or to
be dependent on primary commodity exports.
The growth collapses in many commodity dependent countries have given
rise to a belief in the “natural resource curse”. Yet, “when the right set of policies is in place, natural resources can be a source of prosperity, not
necessarily a ‘curse’ ”. Several reasons have been advanced for this
phenomenon—the deterioration in the terms of trade of commodities as against
manufactures; the volatility of commodity prices which makes investment
planning difficult and discourages investment because of the risk and sunk
costs; the Dutch disease, whereby a boom in a resource sector renders other
industries unprofitable; and rent-seeking, whereby economic agents pursue
short-term objectives to extract monopoly profits, rather than attempt to
invest in the long-term future of the industry. Such rent-seeking is made
easier in cases where the commodity is a “point resource”, that is to say, one
(like a mine or oil well) located in a specific area, rather than a “diffuse
resource” (like wheat), which is one produced over a large area.
One
of the most important ways to avert the realization of the natural resource curse is to prevent rent
seeking behaviour. It is in the
Government’s interest to establish mutually beneficial relationships with
commercially-driven enterprises that can exploit the country’s resources
profitably and efficiently. Much of the
failure of poor countries to grow, especially in Africa, was due to the
direction of insufficient attention to the development of their agricultural
resources. One irremovable feature of
both mineral and agricultural commodity price markets is their extreme
volatility. The success of
stabilization funds requires strong governance and institutional
arrangements.
42. Most wars
are now internal conflicts that take place in poor countries and they have
heavy immediate and long-term economic costs.
Warfare in one country inevitably has repercussions on other countries,
causing growth rates to converge downward.
In the case of most post-conflict countries or “failed States”, the most
important consideration is to foster the resumption of economic activity. The
linkage among growth failures, conflict and resource abundance can be broken by
governance and institutional arrangements that help turn natural resource
endowments into a source of long-term growth.
The
principles that apply in a post-conflict situation are similar to those that
apply in peaceful conflict resolution. There is a need to build those
institutions and governance practices that will convince the population that
the benefits of growth and wealth creation will be fairly shared and thus that
long-term investment is viable. Economic growth helps reduce conflict
risk. Yet, growth itself is not enough:
there should be an active policy to promote social cohesion. Good governance and sound institutions
provide the enabling environment for economic growth. The
advanced countries have developed, over time, an intricate governance and
institutional structure to assist in achieving economic growth and have used it
to build strong and cohesive societies.
Sustained
growth can be generated through small governance changes and with initially
imperfect institutions. The challenge
for many developing countries is to put in place those participatory
institutions that will allow all segments of society to feel that the fruits of
the nation’s wealth and the industry of its citizens are being put to good use
and that the benefits of this wealth are being distributed appropriately.
43. Governance
issues are assuming an increasing weight in bilateral and multilateral lending programmes. The
international community has also assigned a central importance to improving
governance in its efforts to achieve the Millennium Development Goals. International
support should be directed towards improving specific areas of governance
weaknesses rather than achieving comprehensive reforms. All
parties acknowledge in their steps toward greater mutual accountability that
the stakes are very high, as confidence that the mutual accountability process
is yielding benefits in terms of improved governance can assist the scaling up
of flexible official development assistance (ODA) to achieve the Millennium
Development Goals. In this scaling-up process, efforts should be made to
improve governance through actions aimed at remedying specific deficiencies
rather than through the attachment of conditions to aid that are based upon
global measures of governance which, as analysed earlier, are highly subjective
and riddled with serious conceptual problems.
44. Overview:
by Jose Antonion Ocampo Under Secretary General of Economic and Social
Affairs. By many measures, global
income inequality is high and rising. In 1950, the average Ethiopian had an
income 16 times less than that of someone living in Europe or the United States
of America. Half a century later, Ethiopians have become 35 times poorer. Most
of the world’s poorest nations are falling behind in more or less similar
degrees. The main reason is that in the
industrialized world the income level over the last five decades has grown
steadily, while it has failed to do so in many developing countries, especially
over the past quarter of a century.
About 70 per cent of global income inequality is explained by
differences in incomes between countries. World markets are far from equitable
and there are several conditions that do not favour a narrowing of the income
divergence between countries. Richer countries have better “endowments” which give them preferential access to
capital markets and make them less vulnerable to shifts in global commodity
markets. Global investors generally prefer countries with greater wealth and
better-developed human capital, infrastructure and institutions, which ensure
lower investment risk. Poorer countries have less diversified economies and
export structures, making them much more vulnerable to shifts in commodity
prices and to shocks in international financial markets. Developing countries
also have less of a voice in the negotiation processes setting the rules governing
global markets.
45. Rising inequality between countries is
the result of differences in economic performance over several decades. Broadly
speaking, the income gap between the industrialized economies and developing
countries was already very high in 1960 and has continued to widen since then.
At the same time, however, the growth experiences among the developing
countries have differed greatly. Widening income among developing countries
became prominent after 1980 as the result in part of a limited number of
success stories of sustained economic growth, most of them in East Asia. During
the past 25 years, the number of cases of growth collapses has increased,
whereas the frequency of cases of successful growth has diminished. In the
1960s and 1970s, nearly 50 out of a sample of 106 developing countries had
experienced one or more prolonged episodes of high and sustained per capita
income growth of more than 2 per cent per year. Since 1980, however, there are only 20 developing countries that
have enjoyed periods of sustained growth. In contrast, no less than 40
developing countries suffered growth collapses, that is to say, periods of five
years or longer during which there had been no growth or a decline in per
capita income. Such growth failures have been most frequent among the least
developed countries and countries in sub- Saharan Africa. Developing countries
have, of course, done well very recently. Indeed, current trends indicate that
the period 2004-2006 will show fairly widespread growth in developing
countries, a pattern not seen since the late 1960s and early 1970s. During
these three years, per capita income of developing countries will grow on
average at a rate of more than 4 per cent per year and the least developed
countries will perform even better.
46. Productivity growth in developed
countries relies mainly on technological innovation. For developing countries,
however, growth and development are much less about pushing the technology
frontier and much more about changing the structure of production so as to
direct it towards activities with higher levels of productivity. This kind of
structural change can be achieved largely by adopting and adapting existing
technologies, substituting imports and entering into world markets for manufacturing
goods and services, and through rapid accumulation of physical and human
capital. Only very few developing countries have been able to undertake
original research and development. The
industrial sector typically contributes more dynamically to overall output
growth because of its higher productivity growth, which results from increasing
returns to scale and gains from technological progress and
learning-by-doing. More broadly,
dynamic structural change involves more than just growth of industry and modern
services. It entails essentially the ability to constantly generate new dynamic
activities. It also involves strengthening economic linkages within the
economy—in other words, integrating the domestic economy. Increased integration into the world economy
seems to have exacerbated the divergence in growth performance among countries.
Trade can help stimulate growth, but in the first instance it is a matter not
of how much countries export, but rather of what they
export. The impact of foreign direct
investment (FDI) on economic growth is directly dependent on the role it can
play in strengthening domestic linkages in the economy. Trade liberalization has been the main
policy trend in recent decades. In most parts of the world, this has led to an
expansion of export volumes, but not necessarily to higher economic
growth. Countries able to diversify and
change the structure of production to encompass activities of higher productivity
have seen more visible growth gains.
47. Macroeconomic stability strongly
influences the long-term growth performance of the economy. Macroeconomic stability should be understood
in broader terms as entailing more than just preserving price stability and sustainable
fiscal balances. It is also about avoiding large swings in economic activity
and employment and, further, about maintaining sustainable external accounts
and avoiding exchange-rate overvaluation.
Stabilization policies as implemented in many developing countries since
the 1980s have mostly emphasized the objectives of lowering inflation and
restoring fiscal balances. In 1961,
when the General Assembly proclaimed the First United Nations Development
Decade, it had been understood that an intensified effort to mobilize internal
and external resources would be necessary if designated growth targets were to
be met. It was also understood at the time that most of these resources would
have to be allocated to infrastructure and human capital so as to overcome
development bottlenecks. Increased aid flows were seen to be critical to
overcoming such growth constraints and providing developing countries with a
“big push”. The target of 0.7 per cent of gross national income (GNI) of the
developed countries for ODA emerged in this context. In the decades that
followed, this target for aid transfers was not met by many and aid commitments
of the member States of the Development Assistance Committee (DAC) of the
Organization for Economic Cooperation and Development (OECD) fell to a third of
that target. In 2002, at the International Conference on Financing for
Development held in Monterrey, Mexico, the international community reiterated
the need for concrete efforts by the donor countries towards achieving the
target of 0.7 per cent of GNI for ODA and included the Millennium Development
Goals as tangible criteria against which to assess ODA effectiveness. Aid moved
back to centre stage in the development debate and renewed proposals for big
pushes—as in the early 1960s—emerged. Aid also regained its upward trend, now
matched by debt relief for the poorest countries.
48. It is now widely recognized that
institutions and governance structures matter for economic growth and thus for
explaining widening global income disparity.
Looking at economic history and institutional change, it appears that
even a buildup towards better institutional frameworks in very specific areas
can lift constraints on growth. While
governance reform is intrinsically difficult to implement, this analysis
suggests at the same time that there is no justification for the pessimistic
belief that certain countries will remain mired in low growth and shackled with
institutions that impede their growth. Governance reform is thus about creating
well-functioning public institutions that are seen as legitimate by private
agents. International cooperation can help, but only by supporting domestic
processes that are inherently context-specific and gradual. For the international community, this finding
has particular relevance to countries that are emerging from conflict or have
become “failed States”. In most cases, the most important consideration is to
foster the resumption of economic activity, which usually means the revival of
the agricultural sector, inasmuch as a solid agricultural sector is usually
essential for subsequent economic development.
49. In today’s increasingly integrated global
economy, the growth performance of a country is determined by factors that operate
both within and outside its geographical boundaries. Increased international
trade and finance can contribute to better economic performance. However,
countries with poorly integrated domestic economies, pro-cyclical macroeconomic
policies, low infrastructural and human development and weak institutions have
less opportunity to gain from expanding world markets. The problem of rising global inequality has
an important bearing on the implementation of the United Nations development
agenda. It makes the achievement of the Millennium Development Goals and other
internationally agreed development goals more difficult and affects global
security. Failure to redress the tendency towards growing global inequality
could thus have wide-ranging consequences for human development.
50. On Armistice Day 11 November 1918 US President Franklin D. Roosevelt, at his second inaugural address, January 1937, stated: “The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” The Principles of Labor set forth in Art. 427 of the Treaty of Versailles of 28 June 1919 are:
First. The guiding principle
above enunciated that labour should not be regarded merely as a commodity or
article of commerce.
Second. The right of association
for all lawful purposes by the employed as well as by the employers.
Third. The payment to the
employed of a wage adequate to maintain a reasonable standard of life as this
is understood in their time and country.
Fourth. The adoption of an
eight hours day or a forty-eight hours week as the standard to be aimed at
where it has not already been attained.
Fifth. The adoption of a weekly
rest of at least twenty-four hours, which should include Sunday wherever
practicable.
Sixth. The abolition of child
labour and the imposition of such limitations on the labour of young persons as
shall permit the continuation of their education and assure their proper
physical development.
Seventh. The principle that men
and women should receive equal remuneration for work of equal value.
Eighth. The standard set by law
in each country with respect to the conditions of labour should have due regard
to the equitable economic treatment of all workers lawfully resident therein.
Ninth. Each State should make
provision for a system of inspection in which women should take part, in order
to ensure the enforcement of the laws and regulations for the protection of the
employed.
51. Employment in
many countries, especially in Africa, has grown at a slower pace than the
population.
• The official unemployment rates in LDCs
grossly understate the extent of the employment challenge in these countries,
especially given the large informal sectors and underemployment and the working
poor.
• Millions of the poor in LDCs are not able
to earn enough through employment to lift themselves and their families out of
poverty. It is estimated that there were 229.4 million US$2 per day working
poor in Sub-Saharan Africa in 2005, representing 87.0 per cent of total employment.
Similarly, in South Asia the working poor constituted 83 per cent of
employment. In comparison, the share of working poor in South-East Asia and the
Pacific and East Asia was 58 per cent and 46 per cent of total employment,
respectively.
• In Latin America and the Caribbean
unemployment remained high at 7.7 per cent while US$ 2 a day working poverty
was somewhat lower at 31.8 per cent. However, in Haiti, the only LDC in that
region and endured a cycle of internal conflicts resulting in a economic and
social collapse, more than two-thirds of the labour force is unemployed or
underemployed. The working poor constituted 57 per
cent of the employed.
• In contrast Middle East and North Africa
region had the highest unemployment rate of 13.2 per cent although the working
poverty level was low at 36 per cent. In Yemen, the only LDC in that region,
the rate of unemployment exceeded 35 per cent while 45 per cent of the employed
was working poor.
• The majority of the working poor are
located either in the urban informal sector, or in agriculture, which still
accounts for over 60 per cent of total employment in South Asia and Sub-Saharan
Africa, respectively. A similar story relates to Haiti and Yemen, two LDCs from
Latin America and the Caribbean and the Middle East and North Africa regions,
the agriculture employing more than twothirds and three-fourths of the
employed, respectively.
• The exclusion of women from high paying job
opportunities persists in most LDCs, with significant costs to overall
socio-economic development. Women in some countries are prevented from
participating at all in the labour market, while in others women work mainly in
the informal economy.
• Youth unemployment is a widespread problem
in both the African and Asia-Pacific LDCs, a situation that stems from the
general lack of employment opportunities, high population growth rates, low
literacy rates, poor quality of education, and skills mismatch. The official
youth unemployment rate in 2004 ranged from 7.5 per cent in East Asia and 10.8
per cent in South Asia to 17.1 per cent in South- East Asia and the Pacific and
19.7 per cent in Sub-Saharan Africa. Again, these figures understate the actual
extent of unemployment due to large levels of underemployment.
• Poverty continues to force children to take
up employment in many African countries and LDCs. The Asia-Pacific region
harbours an estimated 122 million working children between the ages of 5 and
14,
accounting for 64 per cent of the world’s
total. In Sub-Saharan Africa there are approximately 49.3 million economically
active children, which represents the highest incidence globally (26.4 per cent
of children aged between 5 and 14). It is estimated that 23 per cent of
children between the ages 10-14 were working while in Yemen the ratio was 18.5
per cent
• The dearth of employment statistics imposes severe constraints on policy making in both Africa and Asia-Pacific. Africa in particular is the most under-reported region with regard to employment indicators. Meeting the challenge of employment creation in Africa and the Least Developed Countries (LDCs)
52. Each year millions of women land men
leave their homes and cross national borders in search of greater security for
themselves and their families. “Throughout human history, migration has been
a courageous expression of the individual’s will to overcome adversity and to
live a better life.” Most
are motivated by the quest for higher wages and better opportunities, but some
are forced to do so because of famine, natural disasters, violent conflict or
persecution. Most
of the world’s migrants – estimated at 191 million in 2005- are migrant workers
– those who migrate for employment- and their families. In 2000 economically
active migrants were estimated to number some 81 million, and with their
families accounted for almost 90 percent of total international migrants.
Refugees and asylum-seekers account for about 10 per cent of migrants. The World Bank estimates total remittances
of about $250 billion if informal flows are also included. Remittances have increased from $31 to $170
billion between 1990 and 2005, and by 73 per cent between 2001 and 2005. Recorded
remittances are now more than double the level of ODA. For some countries
migrants’ remittances constitute the main source of foreign exchange. The World
Bank has described remittances as “an important and stable source of
development finance”. Remittances
are private household transfers, and should not be viewed as a substitute for
overseas development aid or FDI. One
important source of concern is the growing emigration of skilled persons from
developing nations – the brain drain - which can have dire consequences for
sustainable development in developing countries, especially the LDCs.
53. The two ILO Conventions on migration—the ILO Migration for Employment Convention, 1949 (No. 97) and the Migrant Workers (Supplementary Provisions) Convention, 1975 (No. 143)—together with the 1990 International Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families provide a comprehensive legal framework for migration policy and practice covering most issues of treatment of migrant workers and of inter-State cooperation on regulating migration. The UN Secretary-General stated: “Only through cooperation – bilateral, regional, and global – can we build the partnerships between receiver and sender countries that are in the interests of both;... since migration is a global phenomenon, which occurs not only between pairs of countries or within regions but from almost every corner of the world to every other, it requires our collective attention.” Globalization and labour migration While women’s participation in the labour force has increased gradually over the last ten years, globally, this increase has been very slight – 0.5 percent (from 51.7 percent in 1995 to 52.2 percent in 2005). Despite the slight decrease of male participation (1.3 percentage points in 2005 to 80.8 percent), the gap between adult women and men is still wide: 28.6 percent in 2005. Of roughly 520 million working people living in extreme poverty (earning less than $1 a day), an estimated 60 per cent are women. Women provide important contributions to the economy through both remunerated and unremunerated work in the labour market, at home and in the community. However, gender stereotypes, and horizontal and vertical sex segregation1 in the labour market contribute to gender inequality in employment worldwide. Innovation at work: national strategies to achieve gender equality in employment
54. Report
of the Secretary General on the High Level Segment of ECOSOC E/2006/55 of 24 April 2006. From 1995 to 2005, there has been a drop in agriculture as a share of
total employment from around 44.4 per cent to 40.1 per cent and a concomitant
increase in services from 34.5 per cent to 38.9 per cent. Industrial employment
held steady over the time period at 21 per cent. Given that three quarters of the world’s poor live in rural and
agricultural regions and that most new employment is generated in the informal
economy, in many developing countries, working out of poverty means directing
efforts towards the rural on- and off-farm sector, the informal economy and
small and micro-enterprises in order to assist workers to move from low- to
high-productivity activities. In developed countries, erosion of the welfare state,
cost-cutting induced by competitive pressures, the decreasing power of trade
unions, deregulation in the labour market, and changes in technology and work
organization have resulted in an increase in the number of part-time employees,
and a rise in the number of contingent employment in temporary work agencies or
through personal contracts. To advance
towards the goals of full and productive employment and decent work for all,
the following framework should be pursued:
• At the national level, Governments should
make a political commitment to achieve full and productive employment and
decent work for all.
• Employment as a policy goal should be fully
integrated into national development and growth strategies. To that end,
Governments should work towards greater coherence between sectoral and
macroeconomic policies and adopt integrated strategies for employment
generation at national, regional and local levels.
• The
goal of decent and productive work for all should be made a global objective
and be pursued through coherent policies within the multilateral system in
order to enhance macroeconomic and trade-related international cooperation and
to arrive at a more balanced and coordinated strategy for sustainable global
growth and full employment, including
through greater market access, development assistance, technology transfer and
support for development of institutional capacities, as well as an equitable
sharing among countries of the responsibility for maintaining high levels of
effective demand in the global
economy.
• There is a need for continuing efforts
towards and focus on the goal of creating decent employment. To that end, the
Economic and Social Council may wish to consider launching a decade for full
and productive employment and decent work for all.
55. According to the ILO's
Global Employment Trend Brief , at
the end of 2005, the world’s unemployment rate stood at 6.3 per cent, unchanged
from the previous year and 0.3 percentage points higher than a decade
earlier. The world work force is
estimated at 2.8 billion. In
2005 the number of unemployed worldwide reached new heights of nearly 192
million people and underemployment remains pervasive. Some 520 million working
women and men are unable to earn enough to lift themselves and their families
above the one dollar a day or less per person extreme poverty line. More than twice that amount, 1.4 billion
earns $2 a day or less– the same number as ten years ago and half of the global
labor force. Moreover, the number of
unemployed worldwide, currently, at about 192 million, climbed to new heights
in 2005. The world, in short, is facing a structural challenge for job
creation; one that growth alone appears incapable of resolving. In order to attain the Millennium
Development Goals and the UN development agenda both the quantity and the
quality of jobs need to be increased in order for people to move out of
poverty. Creating
decent work opportunities with productivity growth
The questions posed to the writer: Are international institutions and national policy makers moving towards stronger commitment and action to achieve full employment and decent work? Only in policy but not in practice, they continue to torture the slaves who do all the work, for free, while the mindless employees become more and more like the soldiers the author made them not to be. If not, what international and national policy changes are needed? I quit. Unless the national and international governments pay for their work, service is going to stop. This collective bargaining tactic is a direct response to the collective punishment of torture being administered by the UN. Count me out as an unemployed person waiting for his $1 million settlement for the Official Development Atlas of the States of the United Nations (SUN) balanced in March 2006 or for the UN to safely declare a population greater than 6.6 billion. It has become as dangerous or more to write the Government than to fight in their stupid wars see… Jose Antonio Ocampo v. Luis Moreno-Ocampo HA-22-6-06 for the settlement arrangement that DESA can call Anthony Joseph Sanders v. Jose Antonio Ocampo in their settlement notice.
Tony
Sanders