Shaky State of North-South Relations

Martin Khor

The UN’s leading development organisation just got a renewed mandate for its work, but not without difficulty because the developed countries are tighter with their concessions to the developing countries. The process in attaining it shows the not too healthy state of North-South relations.

The United Nations’ leading organisation for discussions on economic issues has recently concluded its conference, held once in four years, by adopting two declarations.

That is seen as another success in international co-operation, this time on trade, development and related issues. However, agreement was reached only after a lot of difficult wrangling between the developed and developing countries.

The process showed up the shaky and not too healthy state of North-South relations.

The 14th session of the UN Conference on Trade and Deve­lopment (dubbed Unctad 14) was held in Nairobi between July 17 and 22.

Formed in 1964, Unctad is the UN’s premier economic development organisation. In its heyday from the 1960s to the 1980s, Unctad was a major trade negotiating centre, specialising in global commodity agreements.

It helped lead the developing countries’ initiative for a “new international economic order”.

It was also designated the UN’s focal point for the integrated treatment of trade and development and with areas of finance, technology and investment.

For over half a century, Unctad has championed the cause of developing countries. But in recent years, under the influence of developed countries, its role was downgraded.

Many important issues were given to other organisations, over which the developed countries have more control, such as the OECD, World Trade Organisation, IMF and World Bank.

The two declarations adopted in Nairobi summarised the countries’ views on trade and economic issues and Unctad’s role in the next four years.

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Free Trade in Rhetoric, Not in Practice

Martin Khor

Western countries commonly proclaim the great benefits of free trade and the evils of protectionism.

In reality, many developed countries practise double standards, insisting on free trade in areas where they are strong, whilst using protectionist measures in sectors where they are weak.

In the worst case, within the same sector they have designed rules that impose liberalisation on developing countries but allow themselves to maintain high protectionism.

An outstanding example is in agriculture, in which the rich counties are not competitive.

If “free trade” were to be practised, a large part of global agricultural trade would be dominated by the more efficient developing countries.

But until today, agricultural trade is dominated instead by the major developed countries.

For many decades they got an exemption for agriculture from trade liberalisation rules.

This exemption ended when the World Trade Organisation (WTO) was crea­ted in 1995 and the rich countries were expected to open their agriculture to global competition.

But in reality, WTO’s agriculture agreement allowed them to have both high tariffs and high subsidies.

The subsidies have enabled far­mers to sell their products at low prices, often below production cost, yet allowed them to get adequate revenues (which include the subsidies) that keep them in business.

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How to Reinvent the Sanitation Wheel

Sunita Narain

Swachh Bharat Mission, the government’s much-needed flagship programme, is not just about building toilets. It is about building toilets that people can use, and most importantly, are linked to the waste disposal and treatment systems. This much is clear. But how will this be done? This is still a million dollar question. The reason is that we do not even know where our waste comes from and where it goes.

My colleagues studied the excreta sums of different cities. The city “shit-flow” diagram shows that the situation is grim as all cities either do not treat or safely dispose the bulk of the human excreta. This is because we often confuse toilets with sanitation. But the fact is that toilets are mere receptacles to receive waste; when we flush or pour water, the waste flows into a piped drain, which could be either connected, or not, to a sewage treatment plant (STP). This STP could be working, or not. In this case, the faecal sludge- human excreta-could be conveyed, but not safely disposed as it would be discharged into the nearest river, lake or a drain. All this will pollute.

In most cities, this connection from the flush to the STP does not exist. According to Census 2011, the flush water of some 30 per cent of urban India is connected to a piped sewer. But our survey found that in most cases, these underground drains have either lost their connections-they need repair—or are not connected to STPs.

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A Note on Development Under Risk in the Arab World, Part 2

Ali Kadri

Politics, Economics, Industry, and Trade

(Part 2 in a Four-Part Series)

It is true, but more so a truism, to assert that reviving the debilitated economies of the Arab World requires an end to conflicts and the creation of a politically stable environment, conducive to both domestic and foreign investment—investment of the higher output to capital ratio type—along with rising internal demand. Yet, as true as this assertion may seem, the regional security/insecurity arrangement is now anchored in a bellum americanum, or continuous war condition, emerging from more acute international divisions over regional control. The spinoffs of war on the political and economic side are regressive. On the national political scene, a process of “selective democracy” similar to the one practiced in ancient times—as opposed to universal or popular democracy—enshrines the right of the few at the expense of the many. On the macroeconomic side, policies may have taken a turn into a sort of extreme neoliberalism, as in lifting subsidies on essential commodities in countries that already experience a high rate of child malnutrition (Everington 2014).

Politics and Economics

The current policy interface between external shocks/conflicts and the national economy is based almost entirely on the unrealistic assumptions of an even playing field, a risk-free environment, and a market that works best with little government intervention. Not that demanding a limited role for the government in the economy would be necessarily functional anywhere, but to propose a small government under war or war-like conditions, as did the international financial institutions (IFIs), is beyond the pale. When the elephants in the room–the wars or their resonances and the lopsided institutional context–are overlooked, then it is no longer myopia which is causing the past errors to be repeated, it is rather its marked lack of will to carry out development.

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A Note on Development Under Risk in the Arab World, Part 1

Conflict, Policy, Resources, and Development

(Part 1 in a Four-Part Series)

Ali Kadri

Of the countries that are off-track on the road to sound development, many are situated in the Arab World. The worst hit are either in-conflict, near-conflict, or post-conflict zones. Even when not undergoing the war disaster, the fragility of their development is further compounded by the prospects of war. In addition to the actual or potential woes of conflict, their slow rate of progress is characteristic of small risky markets or capital scarce structures that have adopted unconditional liberalisation measures. (Real capital is scarce, not financial capital.) For the most part, these countries still depend for their economic growth on export earnings from a primary product: namely oil. When oil prices fall, economic growth stumbles, and an already poor development showing suffers yet another setback.

Yesterday’s accomplishments are frequently erased by a combination of war dislocation or anti-developmental macroeconomic policies. The latter are policies whose interface with reality does not sufficiently mobilise idle resources, as in putting the unemployed into decent work. For the group of risk-laden and underachieving Arab countries, which comprises the overwhelming majority, the crunch on their course of development happens to be fourfold.

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Development Central Banking, Part 2

Answering the Questions about Development Central Banking

Gerald Epstein

This is part 2 of a two-part series by regular contributor and Political Economy Research Institute (PERI) co-director Gerald Epstein, adapted from his recent International Labour Office (ILO) working paper “Development Central Banking: A Review of Issues and Experiences.” Part 1 is available here. The full paper is available here.

In both the developed and developing world, countries face significant transformational challenges. According to the International Labour Organization (ILO), global unemployment is over 200 million, with vulnerable employment being almost 50% of the total; among youth the unemployment rate stands at 13.1% but, in some places, such as the southern European countries, it is significantly higher. If current trends continue, these levels of unemployment and unemployment rates are unlikely to decline appreciably (ILO, 2014). In fact, in some respects, current trends are virtually guaranteed to get worse. Specifically, climate change, which is already creating considerable economic dislocations in many parts of the world, is predicted to accelerate over the next decades. It will especially harm poor and economically vulnerable communities (IPCC, 2014).

Historically, central banks have often been part of the policy apparatus that has helped to guide and provide financing for important development and transformational projects. (Bloomfield, 1957; Brimmer, 1971; Chandavarkar, 1987; Epstein, 2007). However, with the rise of the “Washington Consensus”, the global drive toward financial liberalization and the elimination of so-called “financial repression”, central banks were instructed or chose to follow the increasingly prevalent norm of the “inflation targeting” approach to central banking. This approach eschews virtually all goals other than keeping inflation in the low single digits. Its tool-kit was limited to just a few and ideally only one instrument – a short term interest rate (Bernanke et al., 1999; Anwar and Islam, 2011).

This approach to goals and instruments was accompanied by a drive to change the governance structure of central banks. Hitherto, they had tended to be integrated into the government’s policy apparatus but were also potentially subject to inappropriate influence by government officials. Now, they were able to “independently” implement inflation targeting policy structures and, especially, resist excessive financing of government expenditures.

If inflation targeting is not the best monetary policy framework for achieving broad economic and social goals, then what kind of central bank frameworks—goals, governance and instruments—are likely to best help developing countries address the key problems they face? Important lessons can be learned from history with respect to the kinds of central bank frameworks that have been tried and those that have been successful in achieving macroeconomic stability and economic development (Epstein, 2007, 2013).

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A Short Walk but with Giant Steps

Martin Khor

LAST Friday, I took a 10-minute walk from an old hotel to ano­­ther old building, a confe­rence hall. About 300 others were on the same walk on the warm and sunny day.

It didn’t seem anything remarkable or newsworthy. But this was no ordinary walk. Sixty years ago, on this same date, a small but powerful group of men and women took the same walk and then launched a movement that snowballed into a united anti-colonial and post-colonial battle.

We had come to commemorate and celebrate the anniversary of the Bandung conference of Asian and African leaders, all of whom had just won Independence or were on the verge of doing so.

The same grand Savoy Homann hotel was where the leaders had stayed, and they had taken the historic short walk on the Asia Africa Road to the Merdeka Building.

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Geographical Poverty Traps in Rural Areas: A Growing Global Problem

Edward Barbier

More than one-third of the rural population in developing countries lives on less-favored agricultural land, according to global spatial datasets from 2000. How, then, does this distribution influence the incidence of poverty in these countries?

To address this question, our paper “Poverty and the Spatial Distribution of Rural Population” investigates two types of spatial distributions across 83 developing countries over a 10-year period: rural populations on less-favored agricultural lands and in less-favored agricultural areas. Less-favored agricultural lands are constrained by difficult terrain, poor soil quality, or limited rainfall. Less-favored agricultural areas include less-favored agricultural lands plus favorable agricultural land with limited access to markets (i.e. five hours or more travel to a market city with a population of at least 50,000).

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