A Blueprint for Linking Trade to Full Employment and Domestic Industrialization

Second part of a series, 2018 TRADE AND DEVELOPMENT REPORT: Interview with UNCTAD’s Richard Kozul-Wright, from the Real News Network.

RICHARD KOZUL-WRIGHT: Here’s a big question that I think needs to be honestly and frankly addressed. If state ownership, technology transfer agreements and subsidies work to sustain growth and eliminate poverty and these policies have taken 500 million people out of poverty in China, and by implication, because of China’s connections to other developing countries, another 100 million people out of poverty in other parts of the developing world: Why do advanced economies want to deny their use to other developing countries? Given their success, given what they have achieved in terms of economic performance and social performance, why would you want, why would you want to eliminate these options from the policy toolkit of developing countries? It’s a very serious question that needs to be, I think, asked in a more frank and honest way than has so far been the case.

Obviously, for us least in terms of the TDR, it’s about rethinking multilateralism in progressive ways. It’s a plague on both your houses This is not an issue of do we support regressive nationalism, which we’ve already seen in various formations. Nor is it a support for the kind of corporate cosmopolitanism that has dominated the multilateral discussion for the last…We need some kind of alternative that is neither of these options. And I’ll finish here. We, in the Trade and Development Report this year, have gone back to the Havana Charter, which as many of you know, was the forerunner of the GATT, indeed more ambitious of the multilateral discussions in 1947 and 1948 than the GATT, that was signed up to by 50 odd countries, both developed and developing. Indeed, the majority of countries that signed up the Havana Charter were from the developing world. It was eventually rejected by the U.S. Congress and was shelved, but it is a remarkable document.

LYNN FRIES: It’s The Real News, I’m Lynn Fries.

And this is part two of a conversation with Richard Kozul-Wright on Power, Platforms and the Free Trade Delusion, UNCTAD’s 2018 Trade and Development Report. The opening clip featured Richard Kozul-Wright presenting the report at the Board meeting at the United Nations Conference on Trade and Development. As mentioned in part one, both the report and the UN institution are better known by their acronyms, the TDR and UNCTAD, respectively. Richard Kozul-Wright is lead author of the 2018 TDR and Director of the Division on Globalization and Development Strategies at UNCTAD. Thanks again for joining us, Richard, welcome.


LYNN FRIES: The report emphasizes the link between infrastructure and industrialization, and that since 19th century Great Britain through the 21st century China, a central building block of successful industrialization has been public spending on infrastructure. Talk about that.

RICHARD KOZUL-WRIGHT: I think one of the great tragedies of the neoliberal agenda as it’s eviscerated public spending, particularly in the developing world, has been the way in which infrastructure finance has been crowded out of the resource mobilization discussion. And it’s taken China, essentially, to put this back onto the agenda. Infrastructure has been a central feature of the Chinese development model. The Washington-based institutions, we think, have a fairly simplistic view of public-private partnerships as the way to manage infrastructure projects, which we don’t find to be particularly convincing. The report is really calling for a return to the kinds of thinking that were commonplace in the debates on infrastructure in the 1950s and the 1960s. That is, linking infrastructure projects to the wider issue of structural transformation and economic growth.

So the report is a plea to go back and revisit the kinds of debates that have unfortunately dropped off the development agenda under the very simplistic belief that if you allow the private sector and market forces to rein free, then somehow infrastructure will spontaneously become a part of a healthy growth and development path, which is simply not the case.

LYNN FRIES: Enthusiasts in favor of global value chains in the structure of global trade argue global value chains provide developing countries with opportunities for economic advancement and development. You presented a far different narrative when presenting the TDR to the UNCTAD Board at the annual meeting. Here’s a brief clip.

RICHARD KOZUL-WRIGHT: The idea that value chains offer this opening to climb up the value chain, diversify your economy, upgrade, is not backed up by strong evidence outside of the East Asia region.

LYNN FRIES: Tell us more about that.

RICHARD KOZUL-WRIGHT: Yeah. It’s the big promise of global value chains linked to comparative advantage arguments, that somehow those countries with low skilled, low wage labor would be the big winners of this hyper-globalized world. And talk about the BRICS and emerging economies has being hard-wired into that narrative about the big winners from hyper-globalization. And as you said, we show that there is not very much evidence to support this, with one big exception. And the big exception, of course, is China. When you look at the share of the profits of the top 2000 TNCs in global income, the only part of the world that has actually made headways into that elite club, other than the advanced economies themselves, is of course, corporations from East Asia, including China.

And so, if you take the BRICS as being an indication of the rise of the South and you take China out of the BRICS acronym and you’re left with the RIBS – Russia, India, Brazil, South Africa – their share of global income over the last 20, 25 years has increased, but not significantly and certainly not to have generated the kind of hype and, to some extent, hysteria that we have seen around the notion of emerging economies. So the story of the rise of the South, as we see it, still remains fundamentally an East Asia story, with China, in many respects, simply replicating the experience that began with Japan in the 1950s and was repeated by Korea and other countries in the 1960s and the 1970s.

Now, from our point of view of course, it’s an interesting story if China has been able to buck the trend of hyper-globalization. The question is, how did it do it? And it turns out it did it by not following the rules of hyper-globalization as promoted within the capitals of the advanced economies, whether that’s from Washington or Paris or Brussels. So we know now that the Chinese have been very successful in using industrial policy, including the use of subsidies. We know they’ve been very successful in using state-owned enterprises as part of their development model. We know that they’ve been very good at ensuring that if international corporations come to their country to make profits, they have certain responsibilities in terms of transferring technology to the to the host economy.

Now, what is worrying for us, of course, in the current discourse that we hear about reforming the multilateral system, is all the things that worked for China and lifted 500 million people out of poverty in China, and to some extent even more people out of poverty outside of China given China’s connections with other parts of the developing world, these are the very elements that the advanced economies want to preclude other developing countries from using. So now, the endless rhetoric that we hear about, the dangers of state-owned enterprises, the problems of industrial subsidies, the problems with technology transfer agreements, are on the table for tightening the rules to prevent those being used in the future.

And that has to be a worrying trend, given the track record of successful use of these policies in the Chinese case. And it’s one of the great ironies here, that hyper-globalization has been sold to many as a way of alleviating poverty. But it turns out that the only way that it can work to alleviate poverty is if countries have sufficient policy space to be able to make use of its benefits and to mitigate its problems. And now, we have an agenda that is trying to reduce the policy space further of countries to ensure that they can’t do that in the future. It’s a very troubling and clearly hypocritical agenda that is emerging under the rhetoric of reforming the multilateral system.

LYNN FRIES: In a recent article you wrote, and I quote, “China’s success is exactly what was envisaged in the 1947 United Nations Conference on Trade and Employment in Havana, where the international community laid the groundwork for what would become the global trading system. The difference in discourse between then and now attests to how far the current multilateral order has moved from its original aims.”

RICHARD KOZUL-WRIGHT: It’s one of the great tragedies, I think, of discussion around the crisis and multilateralism, is just how much people have forgotten about the origins and evolution of this system. So the current tensions in the global trading system are essentially presented as a threat to a 70 year old international economic order that was hatched in the late 1940s and was gradually perfected over the subsequent seven decades. And that’s clearly not the case. The kind of international order that was designed in the immediate post-war period essentially died in the late 1970s and the early 1980s, when policymakers in the advanced economies gave up on full employment as a central goal of their agendas, when financial markets were rapidly and in many respects recklessly deregulated, when the mixed economy, the idea of a mixed economy became a dirty phrase in which the public sector had a central role in the organization of a healthy and balanced economy.

So that order died in the late 1970s and early 1980s. But one of the high points, in my opinion, of those early negotiations was the Havana Charter. 55 countries that negotiated the Havana charter, or 53, 54, signed up to that in 1948, so 70 years ago this year. The majority of those countries were actually developing countries, so it was a really genuine dialogue between the North and the South that gave rise to the Havana Charter. And of course, the charter eventually died when the U.S. Senate, the U.S. negotiators having originally signed up to it, but when the U.S. Senate essentially killed off the charter at the end of the 1940s, early 1950s. And all that remained were the GATT rules that became the basis for structuring trade rules in the postwar order.

LYNN FRIES: I just want to give viewers a very brief overview of the chronology of the history of the multilateral trade system that you’re going to be referring to. So from 1945 to 1947, over 50 countries began to create an International Trade Organization, the ITO. And in 1947 in Havana, 56 countries started negotiating the charter for the ITO. And the Final Act of that charter, the Havana Charter, was signed in 1948 in Havana. But the Havana Charter and its policy goals of full employment and domestic industrialization for structuring trade rules in the post-war order, as you said, got shelved. The International Trade Organization, along with its charter, the Havana Charter, was shelved.

Instead, from 1948 to 1994, a provisional arrangement, the GATT, the General Agreement on Tariffs and Trade, was the only multilateral instrument governing international trade. And as you said, the GATT rules became the basis for structuring trade rules. The last round of multilateral trade negotiations under the GATT, the Uruguay Round, was from 1986 to 1994. The Uruguay Round led to the end of the postwar order governed by the General Agreement on Tariffs and Trade, replacing it with the creation of the World Trade Organization, or WTO. The World Trade Organization was established by the Uruguay Round in 1995 and governs the multilateral trade system into the present. So what made the original aims of the Havana Charter so different from the current multilateral order?

RICHARD KOZUL-WRIGHT: The Havana Charter itself was far more ambitious than the GATT rules. As you said, it recognized that a healthy trading system could only evolve out of an economy that guaranteed full and stable employment in which aggregate demand was at a level that could generate full and decent work. It recognized that there were distributional issues always on the trade agenda that had to be managed at the international level. They were, at that time, seriously concerned about the use of restrictive business practices in distorting the international trading system and sought ways of dealing with those restrictive business practices by large international firms.

And as you said, they recognized this central role for industrialization in the South as part of a healthy trading system and they found ways to ensure that industrial policy and the use of various tools of industrial policy would be a legitimate part of the international trading rules. And all that was part of the Havana Charter that was negotiated by these 50 odd countries after the end of the Second World War. And to some extent, these features were retained in a more informal way in the post-war architecture, but not really as part of the rules of the system. Obviously, with the rise of neoliberalism, the Uruguay Round, the direction of trade rules was in the opposite direction. Concerns about unemployment were essentially removed from the discussion, industrial policy became a dirty word, particularly for developing countries.

LYNN FRIES: I have one more quote of something you wrote marking the 70th anniversary of the Havana Charter and then I’m going to ask you for a concluding thought. “The silence on the 70th anniversary of the Havana Charter speaks volumes about the current era’s approach to multilateralism, not simply in the contrasting levels of ambition, but in subverting its underlying logic by assuming that by opening up to trade and private capital flows, full employment and economic development will automatically follow. Evidence continues to favor the drafters in Havana.” And your concluding thought?

RICHARD KOZUL-WRIGHT: I strongly believe that despite all the changes that have happened in the global economy since 1948, there is a serious need to take a look again at what the Havana Charter was trying to do in terms of generating a more balanced and healthy trading system and to find ways of replicating those kinds of ambitions in line with the changes that we’ve seen in the second half of the 20th century and the beginning of the 21st century. And the report tries to make a case for revisiting the Havana Charter in light of the challenges of the digital economy, in light of the challenges of environmental and financial stress that we’ve seen over the last few years.

LYNN FRIES: Richard Kozul-Wright, thank you.


LYNN FRIES: And thank you for joining us on The Real News Network.

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