PROSPECTS FOR DEVELOPMENT: FROM CRISES TO CANCUN UNITED NATIONS OCTOBER 15, 2003

PROMISES OF THE 90S GLOBALIZATION AND “REFORM” WOULD BRING UNPRECEDENTED PROSPERITY EUPHORIA OF EXPANDING TRADE AND CAPITAL FLOWS NEW TRADE AGREEMENTS HERALDED NEW ERA

BY END OF DECADE SEATTLE PROTESTS—MANY PEOPLE DIDN’T SEEM TO BELIEVE THAT TRADE AGREEMENTS HAD MADE THEM BETTER OFF FINANCIAL CRISES HAD DEVASTATED EAST ASIA AND ELSEWHERE –ATTEMPT WAS MADE TO SHIFT BLAME –UNDERLYING PROBLEM WAS POLICIES THAT HAD BEEN PUSHED ON THESE COUNTRIES, ESPECIALLY CAPITAL MARKET LIBERALIZATION –COUNTRIES WHICH HAD FOLLOWED “ADVICE” WERE HURT

LATIN AMERICA ENTERED A NEW LOST HALF DECADE REFORM, GLOBALIZATION HAD FAILED GROWTH JUST OVER HALF OF WHAT IT HAD BEEN IN PRE-REFORM DECADES GROWING UNEMPLOYMENT LITTLE IMPROVEMENT IN POVERTY

BIG QUESTION: WHAT ARE WE TO MAKE OF THESE FAILURES?

END OF COLD WAR MEANT NEED FOR NEW GLOBAL ECONOMIC ORDER NEEDED A VISION INSTEAD GOT SPECIAL INTEREST POLITICS UNFAIR GLOBAL TRADING REGIME ECONOMIC AGENDA, GLOBAL INSTITUTIONS ADVOCATING “WRONG” ECONOMIC MODEL

“WRONG ECONOMIC MODEL” BASED ON MARKET FUNDAMENTALISM SUCCESS OF SUCCESSFUL COUNTRIES— UNITED STATES, EAST ASIA—WAS BASED ON A QUITE DIFFERENT MODEL –GOVERNMENT HAD LARGE ROLE –E.G. INDUSTRIAL POLICIES (r & d), EDUCATION, DISTRIBUTION, EMPHASIS ON GROWTH AND EMPLOYMENT, NOT JUST PRICE STABILITY

FAILED TO ADDRESS FUNDAMENTAL PROBLEMS OF GLOBAL ECONOMY UNDERLYING SOURCES OF INSTABILITY POOR COUNTRIES HAVE TO BEAR THE RISK OF INTEREST RATE AND EXCHANGE RATE FLUCTUATIONS GLOBAL RESERVE SYSTEM

ASSOCIATED WITH HUGE U.S. TRADE DEFICIT— RICHEST COUNTRY SEEMINGLY CANNOT OR WILL NOT LIVE WITHIN ITS MEANS POOR COUNTRIES ARE GIVING LOW INTEREST LOANS TO RICH COUNTRY—AND BORROWING MONEY BACK AT HIGH INTEREST RATES INCREASING INDEBTEDNESS SOURCE OF CONTINUING INSTABILITY WITH TRADE DEFICITS = TRADE SURPLUSES, DEFICITS BECOME LIKE HOT POTATOES GLOBAL INSTABILITY MAJOR IMPEDIMENT TO GROWTH OF DEVELOPING COUNTRIES

UNDERLYING PROBLEM: GLOBAL GOVERNANCE ECONOMIC GLOBALIZATION HAS OUTPACED POLITICAL GLOBALIZATION NOT JUST INSTITUTIONS, BUT FRAME OF MIND SOCIAL JUSTICE, SOLIDARITY STOPS AT THE BORDER WITH GLOBALIZATION, MORE NEED FOR GLOBAL COLLECTIVE ACTION SHORT SHRIFT TO PRINCIPLES OF DEMOCRACY UNILATERALISM OVER MULTILATERALISM

GLOBAL GOVERNANCE SMOKESTACK STRUCTURE OF DECISION MAKING –WITH TRADE MINISTERS MEETING WITH TRADE MINISTERS, FINANCE MINISTERS WITH FINANCE MINISTERS –IMPACTS BROADER –OTHER INTERESTS NOT SUFFICIENTLY PAID ATTENTION TO

“REFORMING THE GLOBAL FINANCIAL ARCHITECTURE” SAME PEOPLE SITTING AROUND SAME TABLES NO REAL CHANGE—FUNDAMENTAL QUESTIONS NOT ADDRESSED BROAD CONSEQUENCES OF MISMANAGEMENT OF CRISES –THEIR VOICES WERE NOT HEARD

LESSON OF MONTEREY MEETING DEVELOPMENT TOO IMPORTANT TO LEAVE JUST TO FINANCE MINISTERS

IMPLICATION: NEED TO HAVE A ROLE FOR THE UN “ECONOMIC SECURITY COUNCIL” INITIAL ROLE: ADVISORY, PLATFORM WITH POLITICAL LEGITIMACY AT WHICH CENTRAL GLOBAL ECONOMIC PROBLEMS COULD BE DISCUSSED DELINEATE ISSUES THAT REQUIRE GLOBAL COOPERATION, ACTION

EXAMPLE 1: CAPITAL MARKET LIBERALIZATION PUSHED BY IMF—IN SPITE OF EVIDENCE THAT IT LEAD TO INSTABILITY BUT DID NOT LEAD TO GROWTH VOICES OF THOSE WHO PROFITED WERE HEARD, VOICES OF THOSE WHO PAID PRICE WERE NOT FINALLY IMF RECOGNIZED THE PROBLEM BUT THEN AGENDA SHIFTED TO WTO— SINGAPORE ISSUE SPECIAL INTERESTS OVER GLOBAL GENERAL INTEREST

EXAMPLE 2: SOVEREIGN BANKRUPTCY PROBLEMS USED TO BE SOLVED WITH MILITARY INTERVENTIONS PRINCIPLES OF “FRESH START” WELL ACCEPTED BUT BANKRUPTCY RULES AND PROCEDURES CANNOT BE SET BY A MAJOR CREDITOR—SUCH AS THE IMF NEED FOR ALTERNATIVE APPROACH IN WHICH ALL STAKEHOLDERS ARE REPRESENTED

EXAMPLE 3: IRAQ RECONSTRUCTION ENTAILS MOVEMENT FROM FORM OF SOCIALISM TO A MARKET ECONOMY COMBINED WITH PROBLEMS OF RECONSTUCTION—DECADE OF SANCTIONS PLUS WAR DECADE OF EXPERIENCE WITH SHOCK THERAPY— –QUICK AND FULL LIBERALIZATION –QUICK AND FULL PRIVATIZATION

SHOCK THERAPY LESSON FROM A DECADE OF EXPERIENCE: IT DOES NOT WORK

ECONOMIC STRATEGY FOR IRAQ BASED NOT ON ECONOMIC SCIENCE BUT ON IDEOLOGY LIKELY ONLY TO WORSEN UNEMPLOYMENT PROBLEM AND INSTABILITY IF UN TAKES PART IN RECONSTRUCTION, IT MUST HAVE A VOICE IN DESIGN OF ECONOMIC POLICY –OR AT LEAST ENSURE THAT VOICES OF IRAQI PEOPLE ARE HEARD –BEFORE MAJOR CHANGE, THERE MUST BE A DEBATE

SECOND LESSON OF LAST DECADE: HASTE MAKE WASTE BETTER TO DELIBERATE AND GET BROAD SUPPORT BEHIND REFORMS, THAN HAVE THEM IMPOSED FROM TOP

GLOBAL INTEREST IN A SUCCESSFUL IRAQI RECONSTRUCTION WILL NEED DEBT FORGIVENESS –BUT MUST BE BASED ON “RULE OF LAW”—DEVELOPMENT OF A SET OF PRINCIPLES –IRAQ NOT ONLY COUNTRY FOR WHICH THERE ARE ODIOSE DEBTS, UN NEEDS TO DEVELOP PROCEDURE FOR DEALING WITH SUCH DEBTS (DETERMINING WHEN THEY ARE “ODIOSE”

GLOBAL INTEREST IN A SUCCESSFUL IRAQI RECONSTRUCTION NEED TO HAVE AN ECONOMIC STRATEGY THAT WILL WORK, BASED ON THE LESSONS OF THE PAST, ON ECONOMIC SCIENCE, NOT ON IDEOLOGY

CONCLUSION DEVELOPMENT IS POSSIBLE, BUT NOT INEVITABLE THERE IS A NEED FOR MORE ECONOMIC ASSISTANCE IF WE ARE TO MEET MILLENIUM DEVELOPMENT GOALS –QUESTIONS ARE BEING RAISED: WILL COMMITMENTS THAT WERE MADE IN MONTEREY BE FULFILLED?

TRADE CAN FACILITATE DEVELOPMENT –BUT THERE NEEDS TO BE A FAIR TRADE REGIME –THE ADVANCED INDUSTRIAL COUNTRIES RENEGED ON “PROMISE” OF A DEVELOPMENT ROUND THAT WOULD REDRESS IMBALANCES OF THE PAST –AND NEW DEMANDS COULD HAVE MADE MATTERS EVEN WORSE

ECONOMIC POLICIES AND GOVERNANCE WITHIN EACH COUNTRY MATTER BUT UNFAIR GLOBAL TRADING REGIME PLUS FAILURE TO ADDRESS FUNDAMENTAL PROBLEMS OF GLOBAL FINANCIAL SYSTEM (GIVING RISE TO INSTABILITY) MAKE DEVELOPMENT ALL THE MORE DIFFICULT

THERE IS A NEED FOR AN ECONOMIC SECURITY COUNCIL TO HELP PROMOTE A FAIRER, A BETTER, GLOBAL ECONOMIC ORDER