Cover page ………………………………………………………………………. 1
Contents …………………………………………………………………………. 2
Course objectives ………………………………………………………………....4
Acronym ……………………………………………………………………….… 5
International relations ………………………………………………………….….6
- Introduction …………………………………............................................…...6
- The concept of international relations………………………………….……...6
- The History of IR ……………………………………………….……….....….7
- International relations theory ……………………………………..…………...7
- Realism …………………………………………..……….……………………8
- Liberalism ……………………………………………..……………………….9
4.3 Democratic peace theory ………………………………..……………………. 9
4.4 Institutionalism …………………………………………….....……………….10
4.5 English School ….............................................................................................. 10
4.6 Critical theories ……………………………………………………..…………10
4.7 Marxist theory ………………………………………………………………....11
4.8 Constructivism …………………………………………………………......….11
4.9 Functionalism ……………………………………………………………..….. 11
5. 0 Critical International Relations Theories: n Reference to Russia case……..... 12
5.1 A Survey of International Relations Theory ………………………………..…12
5.2 The importance of International Relations Theory in Debate Rounds ….....….13
5.3 Imagining Russia in Western International Relations Theory...…………..….. 16
5.4 International Relations Theory and the case against Unilateralism ……..…… 19
5.5 Realism: counterbalancing and the costs of Unilateralism………………….....21
5.6 Looking for soft balance ……………………………………………………....24
5.7 International relations of small States...…………………………………….....24
5.8 Review of international relations theories related to small states......…….….. 24
6.0 Development Agenda ………………………………………………………....25
6.1 Background Information …………………………………………………….. 25
6.1.1 The challenges of development agenda and Popular support …...………… 25
6.2.0 The “first generation” of reforms ………………………………………….. 27
6.3 The “second generation” of reforms ……………………………………….... 30
6.4 Conclusion on changing the Development Agenda…………………………...31
6.5 To sum up: …………………………………………………………………….31
6.6 The development challenges ………………………………………………….32
6.6.2 Poverty …………………………………………………………………...... 34
6.6.3 Income distribution …………………………………………………………34
6.6.4 Unemployment …………………………………………………………...... 35
6.6.5 Environment ……………………………………………………………….. 36
6.6.6 Volatility ……………………………………………………….………….. .37
6.7 Conclusion on development challenges ……………………………….……...38
7.0 Strategic Development Agenda ……………………………………….….…..38
8.0 Globalization ………………………………………………………………….41
8.2 Measuring globalization …................................................................................46
8.3 Popular attitudes towards globalization: ………….……………….………….46
8.4 Pro-globalization …………………………………………….…….………….46
8.5 Anti-globalization …………………………………………………….………49
8.6 Globalization Challenges ………………………………………………….….52
9.0 DEVELOPMENT ISSUES: Multilateral cooperation……………….………..55
9.1.1 Status of aids for trade …………………………………………….………. 55
9. 1.2 The Rationale for Aid for trade ………………………………………… ... 56
9.2 Managing and Absorbing Large aid Inflows: The Role of Trade Measures……………………….………………………………..…………….…. 56
9.2.1 WTO Task Force………………………………………………….……….....57
9.2.2 The IF Task Force ……………………………………………………..…..... 57
9.3 Main Recommendations of the Aid for Trade Task Force ……………..…….. 59
9.4 Instruments of IMF and World Bank Aid for Trade ……………………….…..60
10.0 Regional Co operations ……………………………………………….……....62
10.1 The necessity of regional cooperation ……………………………….………..63
11.0 Conclusion ……………………………………………………………..…….. 64
12.0 Reference ………………………………………………………………..…….65
- COURSE OBJECTIVES: At the end of this course the student will be knowledgeable about (1)Which world agenda that are necessary to be incorporated in Development agenda in order to achieve the Millennium Development goal as anticipated in the Vision 2025 ( 2) Be able to explain Bilateral and international Relations and their Impacts in Development
- COURSE DESCRIPTION: The aim of this course is retool the student with knowledge about world affairs so that he can critically examine and adapt those relevant ones which can facilitate the development of domestic economies
- ACTIVITIES TO CARRY OUT THE PLAN: I will attain the objectives of the course in the following manner (1) I will research the issue through collection of references from different sources including websites. (2) I will write a research paper with minimum of 15 pages.
- SOURCE OF DATA: My source for description of this course is online catalogue from AIU and other relevant sources
CT – Critical Theory
DTIS – Diagnostic Trade Integration Studies
ECLAC – United Nations Economic Commission of Latin America and Caribbean
FDI – Foreign Direct Investment
GDP – Gross Domestic Product
IF - Integrated Framework for Trade-related technical Assistance
IGO – intergovernmental organization
IMF – International Monetary Fund
IR – International Relations
LDCs – Less Developed Countries or developing countries
MDGs – Millennium Development Goals
MNC – Multinational Cooperation
MVA – Manufacturing Value Added
NAFTA – North American Free Trade Agreement
NGO – Non Governmental Organization
ODA – Official Development Assistance
WB – World Bank
WTO – World trade organization
WW II – World War Two
UNDP- United Nations Development Programmes
U.S. – United States of America.
Development of poor countries once appeared linear, technical and dominated by economics. Layers of complexity and new insights from experience, research, and a more rich mix of disciplinary insights have altered the prescriptions of three decades ago past recognition. “The development agenda,” when it emerged midway through the last century was separate field of study and practice today it is part of global agenda and core concern of contemporary public policy, governance arrangements likewise have taken new forms in an elaborate tapestry of public and private, national and international local and global institutions. Challenges of globalization and security have transformed social policy issues, and vice versa. In some ways, this has brought full circle the concept of development as the bulwark of security, as it was considered in the aftermath of the World War II. More important, however, development’s unfinished business – to end poverty everywhere and nurture world of balance peace and equity - has never more urgent than today.
The above phenomena can be addressed using the tools of international relations. International relations (IR) is a branch of political science, that deals with foreign affairs and global issues among the states within the international system, including the roles of states, intergovernmental organizations, non-governmental organizations (NGOs) and multinational corporations. Using the same, we can attempt to make an analysis of various strategic agendas for development such things like millennium development goals, globalization, issues of corruptions etc.
However, before burying ourselves, deeply in such issues, let us expose ourselves to the concept of international relations and its theories.
2.0 THE CONCEPT OF INTERNATIONAL RELATIONS:
International relations (IR), is a branch of political science; is a study of foreign affairs and global issues among states within the international system, including the roles of states, intergovernmental organizations (IGOs), non-governmental organizations (NGOs), and multinational corporations (MNCs). It is both an academic and public policy field, and can be either positive or normative as it both seeks to analyze as well as formulate the foreign policy of particular states.
Apart from political science, IR draws upon such diverse fields as economics, history, law, philosophy, geography, sociology, anthropology, psychology and cultural studies. It involves a diverse range of issues, from globalization and its impacts on societies and state sovereignty to ecological sustainability, nuclear proliferation, nationalism, economic development, terrorism, organized crime, human security and human rights.
As you can see the IR field is extensive, not easy to cover each and every thing contained in the field. Our attention shall be directed into the world development agendas which shall include globalization and its impacts to the society, to millennium development goals, human security, gender equality, environmental conservations, human rights, etc.
3.0 THE HISTORY OF IR
The history of international relations is often traced back to the Peace of Westphalia of 1648, where the modern state system was developed. Prior to this, the European medieval organization of political authority was based on a vaguely hierarchical religious order. Westphalia instituted the legal concept of sovereignty, which essentially meant that rulers, or the legitimate sovereigns, would recognize no internal equals within a defined territory and no external superiors as the ultimate authority within the territory’s sovereign borders. Classical Greek and Roman authority at times resembled the Westphalian systems, but both lacked the notion of sovereignty.
Westphalia encouraged the rise of independent nation-state, the institutionalization of diplomacy and armies. This particular European system was exported to America, Asia and Africa via colonialism and the so called, “standards of civilization”. The contemporary international system was finally established through decolonization during the cold war. While the nation-state system is considered “modern”, many states have not incorporated the system and are termed “pre-modern”. Further a handful of states have moved beyond nation-state system and can be considered “post-modern”. The ability of contemporary IR discourse to explain the relations of these different types of states is disputed. “Levels of analysis” are a way of looking at the international system, which includes the individual level of transnational and intergovernmental affairs, and global level.
4.0 International relations theory
International relations theory attempts to provide a conceptual model upon which international relations can be analyzed. Each theory is reductive and essentialists to different degrees, relying on different set assumptions respectively. Theories are paradigms or models of interpretation in the context of International Relations; as Ole Holsti describes them, international relations theories act as a pair of colored sunglasses, allowing the wearer to see only the salient events relevant to the theory... An adherent of realism may completely disregard an event that a constructivist might pounce upon as crucial, and vice versa.
The number and character of the assumptions made by an international relations theory also determine the usefulness. Realism, a parsimonious and very essentialist theory is useful in accounting for historical actions (for instance why did X invade Y) but limited in both explaining systemic change (such as the end of cold war) and predicting future events. Liberalism, which examines a very wide number of conditions, is less useful in making predictions, but can be very insightful in analyzing past events. Traditional theories may have little to say about the behavior of former colonies, but post-colonial theory may have greater insight into that specific area, where it fails in other situations.
International relation theories can be divided into “positivist/rationalist” theories which focus on a principally state-level analysis, and “post-positivist/reflectivist” ones which incorporate expanded meanings of security, ranging from class, to gender, to post-colonial security. Many often conflicting ways of thinking exist in IR theory including Constructivism, Institutionalism, Marxism, Neo-Gramscianism, and others. However, two positivist schools of thought are most prevalent: Realism and Liberalism; though increasingly, constructivism is becoming main stream and positivist theories are popular particularly outside USA.
Realism makes several assumptions. It assumes that nation-states are unitary, geographically-based actors in an anarchic international system with no authority above capable of regulating interactions between states, rather than IGOs, NGOs, or MNCs are the primary actors in international affairs. Thus states, as the highest order, are in competition with one another. As such a state acts as a rational autonomous actor in pursuit of its own self-interest with a primary goal to maintain and ensure its own sovereignty and survival. Realism holds that in pursuit of their interests, states will attempt to amass resources, and that relations between states are determined by relative levels of power. That level of power is in turn determined by the state’s military and economic capabilities.
Some realists (offensive realists) believe that states are inherently aggressive, that territorial expansion is constrained only by opposing powers, while others (defensive realists) believe that states are obsessed with the security and continuation of the state’s existence. The offensive view can lead to a security dilemma where increasing one’s own security can bring along greater instability as the opponent(s) builds up its own arms making security a zero-sum game where only relative gains can be made.
The precursor to liberal IR theory was “idealism”; however, this term was applied in a critical manner by those who saw themselves as ‘realists’, for instance E.H. Carr. Idealism in international relations usually refers to the school of thought personified in American diplomat history by Woodrow Wilson, such that it is sometimes referred to as “Wilsonianism”. Idealism holds that state should make its internal political philosophy the goal of its foreign policy. Wilson’s idealism was precursor liberal international relations theory, which would arise amongst the institution-builders after World War II.
Liberalism holds that state preferences, rather than state capabilities, are the primary determinant of state behavior. Unlike realism where the state is seen as unitary actor, liberalism allows plurality in state actions. Thus preferences will vary from state to state, depending on factors such as culture, economic system or government type. Liberalism also hold that interactions between states is not limited to the political/security (“high politics”), but also economic/cultural (“low politics”) whether through commercial firms, organizations or individuals. Thus instead of an anarchic international system, there are plenty of opportunities for cooperation and broader notions of power, such as cultural capital (for example, the influence of firms leading to the popularity of the country’s culture and creating a market for its export worldwide). Another assumption is that absolute gains can be made through co-operation and interdependence-thus peace can be achieved.
4.3 Democratic peace theory
The democratic peace theory argues that democracies have never (or almost never) made war on one another and have few lesser conflicts between each other. This is seen as contradicting especially that realist theories and this empirical claim is now one of the greater disputes in political science. Numerous explanations have been proposed for the democratic peace. It has also been argued, as in the book Never at War, that democracies conduct diplomacy in general very differently from non democracies. Realists disagree with Liberals over the theory, often citing structural reasons for the peace, as opposed to the state’s government.
Institutionalism in international relations holds that the international system is not –in practice-anarchic, but that it has an implicit or explicit structure which determines how states will act within the system.
Institutions are rules that determine the decision-making process. In the international arena, institution has been used interchangeably with regime which has been defined by Krasner as a set of explicit or implicit “principles, norms, rules, and decision making procedure around which actors expectations converge in a given issue-area”.
Institutionalist scholars hold a wide array of the beliefs stemming from the central proposition that institutions “matter” in answering the question, what explains a particular outcome? There are four reasons for this:
- They structure choices,
- They provide incentive,
- They distribute power, and
- They define identity and roles
4.5 English School
The ‘English School’ of international relations theory, also known as International Society, Liberal Realism, Rationalism or British institutionalists, maintain that there is a “society of states” at the international level, despite the condition of ‘anarchy’ (literally the lack of a ruler or world state).
A great deal of the work of the English School concerns the examination of traditions of past international theory, casting it, as Martin Wight did in 1950s-era lectures at London School of Economics, into three divisions: 1) Realist or Hobbesian (after Thomas Hobbes), 2) Rationalist (or Grotian, after Hugo Grotius) 3) Revolutionalist (or Kantian, after Immanuel Kant). In broader terms the English School itself has supported the rationalist or Grotian tradition, seeking a middle way (or via media) between “power politics” of realism and the ‘utopianism’ of revolutionism
4.6 Critical theories
Many schools of thought in international relations have criticized the status-quo – both from other positivist positions as well as post positivist positions. The former include Marxist and Neo-Marxist approaches and Neo-Gramscicianism. The latter include postmodernist, postcolonial and feminist approaches, which differ from both realism and liberalism in their epistemological and ontological premise.
4.7 Marxist theory
Marxist and Neo-Marxist international relations theories are positivist paradigms which reject the realist/liberal view of state conflict or cooperation; instead focusing on the economic concerns transcend others; allowing for the elevation of class as focus of study. Marxists view the international system as an integrated capitalist system in pursuit of capital accumulation.
Whereas realism deals with security and material power, and liberalism looks primary at economic interdependence and domestic-level factors, constructivism most concerns itself with the role of ideas in shaping the international system (indeed it is possible there is some overlap constructivism and realism or liberalism, but they remain separate schools of thought). By “ideas constructivists refer to goals, threats, fears, identities, and other elements of perceived reality that influence states and non-state actors within the international system. Constructivists believe that these ideational factors can often have far-reaching effects and that they can trump materialist power concerns. For example, constructivists note that an increase in the size of US military is likely to be viewed with much greater concern in Cuba, a traditional antagonist of the US, than in Canada, a close ally. Therefore, there must be perceptions at work in shaping international outcomes. As such, constructivists do not see anarchy as the invariable foundation of the international system, but rather argue, in the words of Alexander Wendt, that “anarchy is what states make of it”. Constructivists also believe that social norms, shape and change foreign policy over time rather then security which realists cite.
Functionalism is a theory of international relations that arose principally of European integration. Rather than the self-interest that realists see as a motivating factor, functionalists focus on common interests shared by states. Integration develops its own internal dynamic: as the states integrate in limited functional or technical areas, they increasingly find the momentum for further rounds of integration in related areas. This “invisible hand” of integration phenomenon is termed as “spill-over.” Although integration can be resisted, it becomes harder to stop integration’s reach as it progresses. This usage, and the usage in functionalist in international relations, is the less commonly used meaning of the term functionalism.
More commonly, however, functionalism is a term used to describe an argument which explains phenomena as functions of a system rather than an actor or actors. Immanuel Wallerstein employed a functionalist theory when he argued that the Westphalian international political system arose to secure and protect the developing international capitalist system. His theory is called “functionalist” because it says that an event was a function of the preferences of a system and not the preference of agent. Functionalism is different from structural or realistic arguments in that while both look to broader, structural causes, realists (and structuralists more broadly) say that the structure gives incentives to agents, while functionalists attribute casual power to the system itself, bypassing agents entirely.
5. 0 CRITICAL INTERNATIONAL RELATATIONS THEORIES:
IN REFERENCE TO RUSSIA CASE
5.1 A survey of International relations theory
International relations theorists take what they know about the world and create theories that rationalize phenomenon known as world politics, however, just as there is no one theory of the beginning of universe or presidential popularity; as seen above, there is no single theory of international relations. Political scientists, much like the scientists investigating the origins of the universe, must piece together theories that explain past and current events based on data they can assemble. This is a daunting task since either there may not be a single answer to the question they are asking, or the unambiguous evidence they need to provide a fruitful hypothesis may no longer exist, assuming that it ever did. Some of the questions posed by these political scientists are: why can Latin America not follow the East Asian Development Strategy; when do states cooperate; and, how should the US change its foreign policy in the Post-Cold War world?
The primary mainstream International Relations theories are “Realism” and “Liberal institutionalism”. Realists believe that states are situated in the anarchy of world politics where every state purely looks out for its own national interests. A concept referred to as the “security dilemma” stems from the idea that all states are potential enemies and that enhancing the security of one state produces a relative loss of security for all others. Realists measure power according to material capabilities like military expenditures troop levels and natural resources. Peace, according to Realists, is only sustainable through a balance of power among several states, as opposed to a bi-polar, hegemonic world. The essential components of Realism are best summarized by Kenneth Waltz as:
States are involved in unending struggle with each other, because that is the nature of state in an anarchic world; power is necessary to survive in it or to continue to fight; all states are potential enemies (Waltz, 30)
Liberal institutionalists believe that states can achieve security through construction of international regimes and structures. Examples of these structures include bilateral arms control agreements, like START I and START II, and multilateral economic institutions like the WTO. States can engage each other through these structures, learning norms of peaceful cooperation and developing a common interest in the status quo. Liberalism is most closely associated with the work of Immanuel Kant who argued that peace is achieved through international institutions and the spread of democracy. A prominent example of liberalism is in the American tradition Woodrow Wilson’s fourteen points during World War I. Scholars like Bruce Rosette and Francis Fukuyama are prominent Liberals in the academic literature. A grand debate has taken place over the last several decades of Realism and Liberalism.
Critical international Relations theories (CT) developed as alternatives challenging these dominant paradigms, primarily Realism. Precisely defining CT is very difficult task, but roughly it is interdisciplinary endeavor, combining political science, international relations, sociology, history, psychology and other fields to formulate different theories of world politics. There are many different theories under the rubric CT, some examples include constructivism, identity politics and post structuralism. The main goal of the CT project is to provide an alternative to the Realist view of the world that more accurately explain world politics.
One critical theory known as “constructivism” or “identity politics” is especially germane to the Russian topic. Identity politics explores world politics from the view point that IR can best be explained by analyzing a collection of identities, rather than states. Instead of taking the state as the given and only relevant unit of analysis, these theories imagine the possibility of many different states, many distinct identities. It then follows that alternative kinds of states do not treat each other in similar manner. This approach has been used to explain many of the hard questions in international politics that realism has difficulty answering.
For example, the notion that there is more than one “Russian state’ is a prime concern of Identity Politics; Russia’s behavior in international politics is an outgrowth of these identities. What are Russia’s identities? Consider the vast number of adjectives used to describe Russia in our every day discourse in journals and newspapers. Russia is an “ex-communist state”, it is a “developing state”, and it is a “democratic state”, a “nuclear state”, and so on. According to theories of Identity Politics, we can best understand Russian behavior by studying these particular identities and how policy choices influence these identities. So Identity Politics consider a dramatically different set of variables than does Realism.
Further more, whereas Realists measures solely the role of states in world politics, critical theories take a more expensive course, incorporating NGOs, transnational corporations and factors like domestic politics into their explanation of world politics. CT appeals to a number of different non-quantitative (“post-positivist” is term in literature) fields to analyze world politics, whereas Realists believe that the influence of religion, culture, history and other variables is subordinate to precise measurements of material capabilities. Finally, critical theorists are very concerned wit inability of Realism to explain major events in world politics such as the end of the Cold War and the two world wars.
5.2 The importance of International Relations Theory in Debate Rounds
International Relation Theory is no way new to debate. Debaters have always implicitly relied on IR theory to make arguments even before the advent of “critiques”. Confidence building measures, trade agreements such as GATT or the WTO, and climate treaties are all examples of policies based upon the rationale of Liberal Institutionalism, in that these structures and institutions should encourage peaceful behavior. Typically arguments against these cooperative measures are based on a pessimistic, realistic view of the world.
Another common example of the use of international relations in debate is the advocacy of disadvantages about geopolitics. These disadvantages normally state that the affirmative’s plan exerts US influence in a particular region or over a particular issue and in doing so reduces the influence of another actor, usually a country. Such arguments will be common on the Russia topic, focusing on Japan, China, and India. These disadvantages are rooted in Realism, a theory that places priority on the role of geopolitics, territory and material capabilities in determining security.
Critical IR Theories have commonly been used in debate as arguments referred to as “critiques.” Negative teams arguing critiques depict the affirmative plan or case as a Realist explanation of world politics, and indict (accuse) Realism using the work of Critical Theories. CT has appeared in debate rounds under the auspices of critique arguments labeled Threat Construction, Orientalism, or even simply the title “Realism”. ‘Threat Construction” is one critical theory that is prominent on Russia topic. Threat Construction is an argument based on identity politics (constructivism) which places an emphasis on identity, meaning and discourse in world politics. Advocates of the Threat Construction position indict the opposition for “dreaming up scenarios for conflict” or for creating “self-fulfilling prophesies “through their politics. The evidence of this argument is derived from studies of linguists, discourse, identity and culture. Policies aimed at these constructed threats, and seek to remedy them with deterrent or hard-line solutions are the targets of these criticism. The policies of the affirmative are sometimes said to create “otherness” – in the word of the oft quoted scholar David Campbell. Examples of cases that are subject to this criticism are ones that warn of virulent Russian nationalism and its expansionist tendencies. A case that deters potential Russian aggression by stationing troops in neighboring states would be another example. A non-military example would be a case that uses economic sanctions influence Russian behavior. One would argue that these plans created self fulfilling prophesies or threats. Accordingly, if Russia is treated as an enemy or a rogue, then Russia will “learn” to play that role. These arguments are supported by claims that identities are constantly changing and adapting, and are influenced by others or mutually constitutive. William Wolfforth, a fellow of international security studies at Yale University describes this process as it patterns to Russia:
The contemporary discourse of Russia’s new foreign policy elite resembles a laundry list of the ‘myths of empire’ excoriated by Western scholars (if not policy makers): belief in the prevalence bandwagoning in world politics, the possibility of falling dominos, the vital importance of a reputation for power in order to maintain the country status and internal and external security, a strongly zero-sum conception of international security and economics. It is very difficult to persuade these new Russian strategies that any person knowledgeable about world affairs could possibly believe such notions to be myths. Each and every one of these proportions, they believe, was so clearly demonstrated by Gorbachev and Kozyrev’s experience on the world scene as to be beyond discussion (Wolfforth, 13).
Some affirmative plans will depend greatly on the theories of Realism. For example, last year’ collage debate topic required the affirmative to provide security assistance to Southeast Asia. A plan that provides F-16s to the Philippines to deter China is very reliant on balance of power world view an assumption of realpolitik rationality among Chinese leaders, an assumption that China is a revisionist state, and the China’s material capabilities are equivalent to its intentions. These assumptions are clearly Realist. The affirmative case, rhetoric and evidence will claim that “war is not inevitable”, China seeks power insatiably”, “A US presence strikes a good balance in the region”, and China would not be willing to fight the US if we show strong resolve”. These statements clearly reflect a Realist framework.
5.3 Imagining Russia in Western International Relations Theory
In western international relations theory, if not in the opinion of many of its inhabitants, Russia is a “normal” (i.e. a non-exceptional) country. The competing theoretical paradigms which currently dominate the narration of international relations, Neo-Realism, Neo-Liberalism, and Global Systems theory, are relied upon to explain and predict (imagine) Russian behavior in international relations in terms of variables which apply to broad range of states. From the stand point of these theoretical frameworks Russia’s behavior is presented as a comprehensible in terms of: the international power structure and a competitive power drive which Russia has in common with other states (Neo-Realism); its degree of political and economic modernization (Liberal Theory) and enmeshment in international institutions and regimes (neo-Liberal Theory); or, its degree of enmeshment in and dependence on the global capitalist system (World systems theory). The dominant paradigms offer plausible, albeit alternative and conflicting explanations of Russia behavior without reference to any exceptionalist claims regarding the putative uniqueness of Russian history, culture, or political values. Not only do the dominant paradigms offer no validation for exceptionalist claims, the possibility for the validation of such claims as default explanations is obscured by the nature of theories. Thus, for example, “democratic” Russia’s failure to behave as versions of liberal theory would predict is explained by factors common to “illiberal” states or its susceptibility to chauvinistic pressure characteristic of states in stages of democratization; its failure to conform fully to the global capitalist systems model, from its only partial integration into international economy; its failure to comply with the predictions of Neo-Realism, from governmental division and disunity. Problematic aspects of the explanations generated by these paradigms, as well as by the “clash of civilization” theory as advanced by Huntington. Prior to problematizing these approaches to imagining Russia’s relation to larger world, however, it is useful to consider how earlier efforts by Western social scientists to construct comprehensive theories of international relations implicitly explicitly reconstructed the Soviet Union as a normal or near normal state.
The tendency in Western international relations scholarship toward the marginalization of the particular history and culture of Russia /the Soviet Union and the construction of the Soviet Union /Russia as a near normal state in its behavior in international relations began in the 1940s with the ascendance first of “Realist” theory and, then “International Systems” theory as models of interpreting international relations. These approaches claimed that the behavior of states, particularly major powers, in international relations could be largely be understood in terms of a logic or competitive behavior aimed at maximizing a state’s power and/ or security. The most influential theory of international relations in the 1940’s and 1950’s, “Realism”, suggested that Soviet behavior in international relations was, in important respects, non-exceptional and comparable to that of other great powers. In the seminal narration of Realism, Hans Morgenthau’s Politics among, Nations (1960), references to imperialistic behavior of the Soviet Union are imbedded in a dense litany of references to the imperialist practices and policies of the U.S., Britain, France; the Arab world, Germany, Japan and other states. References to the imperialist policies of the Soviet Union, when they occur, are invariably linked textually to examples of imperialist practice by other states. Thus, for example, Soviet Imperialist in post 1945 Eastern Europe and the westward expansion of the American colonies are described as typical example of a tendency of stronger states to extend their influence over weaker political units or into power of vacuums. For Morgenthau, Communist ideology functioned much as various other ideologies which been wielded by expansionist powers to justify and legitimize policies of expansion. Conquering weak peoples, according to Morgenthau had been justified as “the white man’s burden, the national mission, manifest destiny… Arab expansion justified itself as the fulfillment of religious duty … Napoleonic imperialism swept over Europe under the banner of Liberty, Equality, and Fraternity. Russian imperialism has successively or simultaneously made use of the orthodox faith, Pan Slavism, world revolution and defense from capitalist encirclement.” Morgenthau (Morgenthau, 92) noted that Moscow’s control and use of international communist movement provided it with an effective instrument of cultural imperialism, but added that “the use of cultural sympathy and political affinities as weapons of imperialism were almost as old as imperialism itself” and noted as a comparable contemporary examples of such practice that la mission civilisatrice of France has been a potential weapon of imperialism. Morgenthau (Morgenthau, 62) took note of the “crusading mentality” messianic pretension (nationalistic universalism) and ideological prejudices which affected the Soviet Union and the complications which these qualities posed for adjusting differences with other powers through normal diplomacy, but described the same qualities as characteristic of American policy.
For Morgenthau and other Realists: the efforts of states to expand and increase power in international relations was ubiquitous and recurring phenomenon grounded in the realities of human nature. These ubiquitous inclinations assumed varying forms and manifestations in international relations. In Morgenthau’s construction of international relations the particular nature of the Soviet regime and the influence of communist ideology were not wholly ignored, but they were accorded mostly passing mention. Significantly, in his extended discussion of the international politics and soviet imperial politics in the post World War II, Morgenthau saw little need to mention Stalin (he is referred to three times, in passing in Politics among Nations) or dwell on particular characteristics of the Soviet regime. George Kennan, Arnold Wolfers and Raymond Aron, all of whom contributed to the Realist narrative of international relations, did devote more attention than Morgenthau to the nature of Soviet regime. Among these theorists, however, only Kennan dwelled on the conditioning influence of particular features of Russia and Soviet history, and the Bolshevik mentality on the behavior of the Soviet Union in International Relations. Significantly, Kennan differed from the other Realists in at least two important respects. First he had had direct experience with the Soviet system, and perhaps of greater importance he was not primarily concerned, as Morgenthau, Wolfers and Aron were, with the articulation of a general theory of international relations. Kennan saw distinctive and abnormal behavior of international policies of Lenin and Stalin, but Kennan, much like Adam Ulam, concluded that the aberrant character lessened under the force of circumstance and moved increasingly toward the great power norm. Thus Kennan concluded in 1960, “The general trend [in Soviet diplomacy] has been in the direction of normalcy toward a preoccupation with internal and defensive interests of the Soviet state”. At the height of the Cold War, Kennan offered a conclusion about soviet behavior which both reflected his stance as a realist and appeared, in the context of the times, highly iconoclastic.
The relationship we have with Soviet Union has to be compared … with what we can call the normal level of recalcitrance, of sheer orneriness and unreasonableness which we encounter in the behavior of states any where and which I am sure we often manifest in our own. This again, is largely, the product of long-term factors affecting a nation’s life. Russian governments have always been difficult to do business with; this is nothing new in kind-if any thing is new about it, it is only a matter of degree (Kennan, 393).
The reconstruction of the international relations and, implicitly, the Soviet Union, in Realistic discourse was profoundly political in implication and effect. It encouraged movement away from one mode of ideological thinking about the Soviet Union and the reimaginization of the Soviet Union as a Greater Power involved in efforts to preserve and extend its power that were common historically in the behavior of states. A similar “normalization” of the Soviet Union was effected in the most intellectually influential international relations theory of the 1960’s and 1970’s—international systems theory. Applied to international relations, systems theory posited a tendency toward symmetry in the behavior of superpowers in “bipolar” world. Morton Kaplan’s influential model of rational security seeking behavior on the part of Superpowers in a bipolar world postulated that each Superpower would tend to display a preoccupation with building and dominating blocs, competitive intervention to prevent alliance defections, and intense and costly efforts aimed at military balancing. (Kaplan, 1957) Given the structure of the international system, the elites in both superpowers would tend to view international relations as a “zero-sum” game in which neither in the view of the other could make an innocent move. The structure of the international system would promote a situation in which both Superpowers would approach their relations with the other, in the words of the leading text on international relations of the period, from the standpoint of an “institutionalized paranoia”. (Spanier 1966) In the terms of what become the dominant model of post-war international relations in Western theory, Soviet behavior toward the world, far from being exceptional, appeared normal for a Superpower under conditions of bipolarity.
5.4 International Relations Theory and the case against Unilateralism
What are the general costs associated with a U.S. shift toward unilateralism? According to the overwhelming majority of international relations (IR) scholars, the costs are very high. We evaluate the key arguments that underlie this assessment, namely that increased US unilateralism will: (1) spur the formation of a coalition to check U.S. power, (2) reduce efficiency gains through lost opportunities for institutionalized cooperation; and (3) undermine the legitimacy of the American-led international order. We conclude that the theoretical arguments that IR scholars advance do not show that a shift toward unilateralism necessarily has high costs. Our analysis reveals the need to, first, distinguish clearly between criticism of unilateral policies based on procedure and those based on substance and, second, to recognize the weakness of current procedural arguments.
U.S. policy maker have long been ambivalent about unilateralism. “The United States has been greatest champion of multilateral institutions in the twentieth century”, observes G. John Ikenberry, but it has also “been reluctant to tie itself too closely to these multilateral institutions and rules”. International relation scholars, by contrast, have typically touted the benefits of multilateralism in general and for the United States in particular, while stressing the heavy costs of unilateralism. Scholarly concerns about the costs of unilateralism came to the fore in 2003, when it appeared that President George W. Bush had made a strategic decision to reduce the United States’ general commitment to the international institutions in favor of “assembling coalitions of the willing” on as needed, case-by-case basis. Cutting across issues areas and individual cases, this seemed to represent a fundamentally new foreign policy approach, which analysts dubbed the “new unilateralism.”
The heightened salience of the debate over unilateralism among scholars, policy makers, and pundits shows every sign of becoming a permanent feature of American political scene. While the debate encompasses many different issues, it was the sagacity of going it alone in security affairs that was most salient in the 2004 election and is now poised to become the defining foreign policy distinction between the Democratic and republic parties. Important though it is, the distinction is one of degree. Unilateralism and multilateralism are best understood as two ends of a continuum, and it is a mistake to view any politician or party as being at one end or the other. The debate is not about a wholesale abandonment of all multilateral commitments, but rather about the wisdom of moving to more strategic approach to unilateralism. During the post-World War II period, American policy makers commonly saw unilateralism as a last resort, to be pursued only when multilateralism carried great costs or was impossible. The Bush administration, in contrast, advertised a greater willingness to go it alone, seeming to view multilateralism much more instrumentally- as a strategy to be followed when doing so it is easy or especially advantageous, but never as an end in itself, and certainly not one whose pursuit merits bearing high costs.
This raises fundamental question: What are the general costs associated with a shift toward unilateralism? President Bush escaped the most salient, short-term domestic downside-electrical defeat. John Kerry focused his critique of Bush’s foreign policy on the argument that American foreign policy had been insufficiently multilateral over the past four years. Bush not only emerged the victor, but did so in large part because voters judged him to be superior on foreign policy issues. This underscores the significance of unilateralism’s international costs, long preoccupation of international relations scholars.
Notwithstanding their vigorous debates over theory, methodology, epistemology, ontology, not to mention other aspects of U.S. foreign policy, the overwhelming bulk of IR scholars who express views on the subject stress the high international costs of unilateralism, particularly for the United States today. Stanley Hoffman’s warning that “nothing is more dangerous for ‘hyperpower’ than the temptation of unilateralism” is typical of scholarly assessments (Hoffman, 2002 p.3). Significantly, recent criticisms of this kind come not just from institutionalists and constructivists – whose scholarly writings highlight the importance of international institutions-but also from prominent representatives of the realist theoretical tradition as well (Walt, 2004; Martin, 2003; Reus-Smit2004). To any one familiar with this normally squabbling scholarly community, such widespread is noteworthy.
The analysts have advanced the arguments on the following issues concerning increased U.S. unilateralism, 1) spur the formation of coalition to check U.S. power; 2) reduce efficiency gains through lost opportunities for institutionalized cooperation; and 3) undermine the legitimacy of the American-led international order. These claims roughly correspond to the three major schools of IR theory: realism, institutionalism, and constructivism.
5.5 Realism: counterbalancing and the costs of Unilateralism
The most pervasive argument against unilateralism is that it will spark or hasten counterbalancing by other major powers. The argument is derived from balance-of-power theory, long a staple of realist thinking and practice. Realism’s focus on relative power does explain why the United States has the opportunity to act unilaterally, and, moreover, some realists discount the importance of international institutions. Nevertheless, influential contemporary formulations of the theory yield the argument that by strongly demonstrating its multilateral credentials, the United States can signal benign intent and thus forestall counterbalancing. In making this argument, contemporary realists are in distinguished historical company, for anticipated counterbalancing has long been the strongest realist argument for restrain. More than any other intellectual factor, this accounts for the similarity between many realists’ preferences regarding unilateralism and those of institutionalist and constructivist counterparts
Balance-of-power theory posits that because states have an interest in maximizing their long-term odds on survival, they will coordinate to check dangerous concentration of powers. If the security threat to others inheres in power potential alone as Kenneth Waltz maintains, then there is nothing Washington can do to affect the probability and rate of counterbalancing. If however, other states assess America’s intentions as well as its capabilities when deciding whether to balance, as Stephen Walt and many other realists argue, then U.S. policy makers can use support for international institutions to demonstrate their satisfaction with the status quo and dampen other states’ security fears, thus forestalling the emergence of counterbalancing coalition.
Many self-described realists accept the proposition that the U.S. can and should reduce the probability of counterbalance by maintaining a general deposition toward multilateralism. Walt argues that “the United Nations and other international institutions help the U.S. exercise its power in a way that it is less threatening (and therefore more acceptable) to others” (Walt, 2002 p.143). Michael Mastanduno explicitly derives from Walt’s balance of threat theory the preposition that “the dominant state in a unipolar setting will rely on multilateralism in its international undertaking” (Mastanduno, 1999 p.147). Randall Schweller and David Priess agree, noting that “if the hegemony adopts a benevolent strategy and creates a negotiated based on legitimate influence and management, lesser states will bandwagon with rather then balance against it” (Schweller & Priess, 1997 p.24).
The importance of balancing proposition cannot be overstated, for it also figures crucially in the arguments of non realist scholars. When institutionalists and constructivists assess the cost of unilateralism, expected counterbalancing by the other states often figures prominently (Nye, 2002/03; Cronin, 2001; Reus & Smit, 2004). Moreover the balance-of-power metaphor is a staple of punditry, both in the U.S. and abroad, in which each new effort at coordination among major powers that excludes Washington is routinely hailed as an epoch-making “axis”. Indeed the leaders of other major powers-notably the presidents of France, Russia and China – periodically seem to invoke the balancing proposition themselves, arguing that their policies are intended to foster multipolar world.
The confluence of theoretical expectations, journalistic commentary and political rhetoric lends initial plausibility to the balancing propositions and partly explains its popularity as argument against unilateralism. The argument hinges on the proposition that the more the United States backs away from multilateralism, the greater the probability of counterbalancing. The problem is that there is no counterbalancing against United States, nor is there likely to be any time so soon. Indeed, the remarkable thing about the current international system is that three key causal factors highlighted by realist balance of power theory itself are configured so as to make the reemergence of traditional balancing dynamics among the major powers highly improbable (Brooks & Wolfforth, 1999, 2002).
First is geography. The counterbalancing coalitions of the past all emerged against centrally located land powers that constituted existential threats to nearby major states. The United States, by contrast, lies far from the shores of Eurasia, where the other major powers are all clustered. Distance mutes the potential security threat U.S. power poses to others, while proximity magnifies the potential threat their power poses to one another and thus increases the salience of local as opposed to global counterbalancing.
The geographical uniqueness of the current international system and its implications for balancing are now widely appreciated (Walt, 2004). This is partly true of the second key factor: the distribution of material capabilities it is now common place to observe that the gap is overall power between U.S. and all other states is larger now than any other analogous gap in the history of the modern states systems (Ikenberry, 2003a). Analysts are also sensitive to decisive U.S. advantages in the individual components of national power, military, technological, economic, and even demographic (Emmot, 2002). Historically minded observers are aware that all preceding leading states were dominant militarily or economically, but never both simultaneously. Less widely appreciated is the gap in latent power. States make choices at balancing depending on their expectations of the capabilities prospective balancers could produce in extremis. The United States is in a better position than past leading states to enhance capabilities vis-à-vis putative rivals for two reasons: it obtains its currently dominant military capabilities by devoting a historically small proportion of its economy to national defense (less than 4% of GDP in 2004 as compared to 5-14 % during the cold War); and its historically large technologically need is a potential resource that could further exploit and these underlying advantages interact with perennial advantages.
The third key factor is that American primacy is an accomplished fact rather than a revisionist aspiration. Many observers now recognize that other key powers derive benefits from the status quo and so may be reluctant to pay costs to overthrow it. Less recognized is that for three centuries no balance-of-power theorists ever developed propositions about a system in which hegemony is the status quo. All the historical experience of balancing from the seventeenth century until 1991 concerns efforts to check a rising power from attaining hegemony. While both history and balance-of-power theory clearly suggest that a rising potential hegemon that is already firmly established. On the contrary both theory and historical experience suggest that when hegemony is status quo, all the familiar obstacles to balancing will be dramatically magnified. Chief among these are the much higher coordinated challenges putative counterbalances would face today, in comparison with their predecessors. Classical balance coalitions were always vulnerable to the collective action problem, as members would seek to ride free on the efforts of others. Those challenges would be multiplied in any attempt to counterbalance the U.S. today.
These factors characterize an international system that is already primed against traditional power balancing due to nuclear weapons and the declining economic military value of territory. All the major powers have or can quickly produce nuclear weapons. With a secure second strike capability, their territorial integrity is better secured than that of any past power, and the security threat inherent in concentrated power is diminished. Moreover, the economic and military benefits of owning specific bits of land have declined dramatically, reducing the incentives for conquest and diminishing the core security threat posed by concentrated power.
Taken individually, each of these factors militates against counterbalancing. Together they make it exceedingly unlikely, for there is considerable positive interaction among them. American preponderance in the material scales of world power feeds the collective action and coordination problems, as do geography and status quo barrier. Other schools of IR research yield additional reasons to doubt the salience of counterbalancing today. But the key is that all of the factors highlighted here lie within realist system of explanation that highlights anarchy and its attendant security problems. Even discounting the importance of factors such as shared democratic norms and institutions, there is no reason to expect the reemergence of traditional balance dynamics in the current international system. It follows that whatever the costs of unilateralism are, counterbalance is not among them.
5.6 Looking for soft balance
IR scholars are increasingly coming to recognize the absence of traditional great-power balancing since the end of cold war (Ikenberry, 2002; Paul, 2004). In response, realists have shifted their argument claiming that under unpopularity, balancing dynamics emerge more subtly in the form of soft balancing as it is typically called (Pape, 2004; Paul, 2004; Walt, 2002; Joffe, 2002). T.V. Paul provides a concise definition of this concept:
Soft balancing involves tacit balancing sort of formal alliances. It occurs when states generally develop ententes or limited security understanding with one another to balance a potentially threatening state or rising power. Soft balancing is often based on a limited arms buildup, ad hoc cooperative exercises or collaboration in national or international institutions; their policies may be converted to open, hard-balancing strategies if and when security competition becomes intense and the power state becomes threatening (Paul, 2004 p. 14)
5.7 International relations of small states
International theories are mainly based on behavior and interest of big powers explains the international behavior of small states. In order to do so, four different theories that are most commonly used to explain the international behavior of small states are reviewed.
5.8 Review of international relations theories related to small states
There is a wide consensus among scholars and students of international relations that are interested in small states that the small states have been ignored by prevailing international relations theories. In very limited instances where international politics of small states are mentioned, the states are described as small, are so, only relative to their neighbors or larger powers with which they are compared. For example, in power and interdependence, Keohane and Nye discuss the asymmetrical relationship between the U.S. on the one hand and Canada and Australia on the other. Australia and Canada are small only when compared to the US. Apart from the issue of differences in sizes of the states, there are several other dimensional differences that characterize global politico-economic system. There is an international hierarchy of growing complexities, discontinuities and inequalities (Fauriol, 1984 pp. 12-13).
One of the most common theories used to explain international policies of small states is structurally scarcity theory. It emphasizes that the lack of economic and military capabilities constrain the behavior of small states. They are dependent on the states that have these capabilities (Vogel, 1983, p.58)
The concept of bandwagoning is other most commonly used theory to explain international behavior of small states (Vayrnen, 1997 p. 46). It is stated that in a situation of threat small states will almost always align with the threatening power
There are other theories that have been used to study behavior of small states. First one is the world systems analysis and it emphasizes the economic dynamics of the entire international system. According to this theory, the world is divided into a three-layer; hierarchy of core, semi-periphery and periphery. It is believed when the world’s economy expands; it contributes productive power of the hegemonic core, which in turn enables substantial penetration into the periphery. It also states that in the long run there will be rivalry among the core powers, leading to protectionist and bilateral trading arrangements. This enables the peripheral states to exercise economic independence (Vayrnen, 1983 p. 90). The second one is the dependency school. It distinguishes states into dominant and dominated. It is believed that the dominant states penetrate with transnational economic forces into the economies and politics of smaller states (Vayrnen, 1983 p. 83).
After having reviewed the various theories of international relations in the context both big powers as well as small states; it is now the right time to examine critically, the development agenda.
6.0 DEVELOPMENT AGENDA
6.1 BACKGROUND INFORMATION
6.1.1 The challenges of development agenda and popular support
After a quarter of a century of economic expansion following the Second World War, the United States, the European countries and Japan entered the 1970s with on the upswing. In addition, the world economy faced the first oil shocks of the 1970s. Finally, inflation was abated during the Reagan years through a combination of restrictive monetary policy and high interest rates. This was done at the cost of real output losses and record rates of unemployment.
In these circumstances, post war Keynesianism gave ways to monetarism. The war against inflation took center stage and it influenced the policy debate not only in industrial, but also in developing countries. The economic thinking of the 1980s pointed to developing countries requiring both stabilization and market oriented structural reforms to prosper.
The new economic framework proposed for economic development was quite different from that of the 1970s. The first idea can be encapsulated in the two gap-model of economic development, where investment and foreign exchange bottlenecks are the main restraints to development. This approach justified lending to import substituting enterprises, generally high protected, and to inefficient state-owned enterprises.
With the benefit of hindsight, the development agenda of the 1960s and 1970s seem misguided. How much it hurt developing countries is not known, but we can guess that the cost was significant. It is paradoxical to recall the loans supporting protection and parastatals were approved in boards whose majority representatives came from industrialized countries that, at the time, were following quite different economic strategies, including the trade liberalization initiated in the post-war years. In fact, some critical voices towards import-substitution strategies were held as early as in the 1970s, but they were not taken note of fast enough in development agenda of those days.
Stabilization and trade and investment liberalization become the recommendations of the multilateral system in the 1980s. The task of implementing the new ideas within the international organizations was not easy. Many staff still believed in the old approach and was reluctant to change their views. Though the new ideas were finally embraced, much tension was generated in the process of changing the development agenda.
In some ways the new agenda suggested that economic stagnation could rapidly overcome with stagnation could be rapidly overcome with a set of policies which may be summed up as a “cut spending and get prices right”. These ideas developed into what become known as the “Washington consensus”. Initially articulated to control the imbalances of Latin American economies, the consensus aimed to solve the debit crisis. The creditors, largely private financial institutions that recycled dollars from oil-producing countries, did not consider the problem as one of solvency but as one of the liquidity by applying the policy of the Washington consensus, countries could repay their debts without forgiveness.
This discussion of liquidity versus solvency occupied much of 1980s in Latin America. In the end, however, the Brady arrangements included debt write-offs. The Washington consensus was not wrong, it was incomplete. Until this was realized, developing countries lost precious time. The international organizations command some of the best minds on development, but not even this has prevented them from having sometimes delivered second-best advice on development policy that has hurt some countries.
6.2.0 The “first generation” of reforms
The policy recommendations of the 1980s included stabilization to reduce fiscal deficits; privatization to reduce waste and improve resource allocation; deregulation to increase domestic competition, independent and prudent monetary policy to control inflation and defend currency value; an open trade regime to encourage foreign competition and flexibility in labor markets.
Chile followed by Mexico and Bolivia, showed the way in the Latin American region. Encouraged by initial results, Argentina, Brazil and Peru also adopted this approach. The economic reforms spread over the region, initially with positive results. Gross Domestic Product (GDP), manufacturing value added (MVA) and exports grew as these economies stabilized and inflation fell.
These initial results generated optimism and the impression that the policy prescriptions had universal validity. The process of trade liberalization, rapid economic integration and the globalization of the financial markets imposed the need to adopt universal criteria for the evaluation of investments in these markets. From Arab region, and from Central and Eastern Europe to Africa, the political and economic capacity and willingness of countries to pursue these prescriptions become the litmus test for evaluating decisions to invest there.
Indeed, the beginning of 1990s, the same policy recommendations were given to the former economies of the Soviet Union that were struggling to make transition from centrally planned to market economies. The same approach was under implementation in Africa, in countries such as Ghana, and United Republic of Tanzania that were willing to abandon their centrally planned approaches with minor adoptions, the same strategy applied to all these cases
What were results? I think we can safely say today that this wave of reforms was initially effective and showed encouraging results, particularly once macro stability was restored. In most of the countries where they were applied, we witnessed an increase in GDP, MVA and trade. Further more, these economies showed initial gains in productivity levels, employment levels however, behaved more erratically.
In the case of Latin America, the region for which reforms were initially designed, the gains generated a lot of popular support as standards of living improved. Some Governments were re-elected mainly because of these positive results and this was an important argument to spread the policy recommendations to other regions. The reform could be implemented in a democratic environment - they could also reinforce the democratic process. For instance, a significant part of the legislation supporting the new economic policies had to be approved by parliament.
In Eastern Europe, support for reforms came basically from enthusiasm generated among the population by the political changes that were taking place there. A non-functional system was left behind and economic reforms were seen as a vehicle to consolidate radical political changes. After a few years of initial downturn, with a few exceptions such as Hungary and Poland, the response of these economies was on the whole less dynamic than in Latin America.
Finally, in Africa, the proposed policies were adopted to substitute for a system of widespread government intervention and also to attract foreign direct investments (FDI). During the 1990s FDI grew faster than the official development assistance (ODA) and in some countries (Lesotho, Nigeria), even exceeded the funds provided by donor Governments. While some African economies were heavily dependent on ODA, others wanted to participate in the process of expansion of private investments.
The result of the reforms, were very uneven, with interesting cases in Ghana, Kenya, the United Republic of Tanzania, and Zimbabwe. Although GDP, MVA and exports rose, the populations of these countries did not necessarily enjoy the benefits of the productivity gains due to rigidities and weaknesses of the economic structure of these countries. Employment did not rise at the beginning but also had an erratic behavior and eventually started to decline.
It is worth taking a brief pause here and see how the different response capacity shown by a given economy, was influenced by factors like the dynamism of the private sector. Recent studies done by economists at the United Nations Economic Commission of Latin America and Caribbean (ECLAC) (Katz, 2000) and at Oxford University (forthcoming) provide evidence on the importance of these factors.
According to these analyses, objective differences at the firm level, such as size, command over resources and pattern of specialization cause economies to respond in different ways. In Africa this is evident if we compare manufacturing industry, manufactured exports, and technological response of firms exposed to trade liberalization in three economies, namely, Kenya, The United Republic Tanzania and Zimbabwe.
In terms of MVA, Kenya and Zimbabwe did worse in the five years after liberalization than in the period before it. The United Republic of Tanzania did better. Liberalization typically forced manufacturing firms to shut down or move to products not facing import competition. The products were either resource-based or derived from simple, low-productivity operations making goods for low-income consumers. In other words, they were a poor basis for long-term manufacturing and export development.
The rising share of manufacturing exports in total exports is a positive development in all three countries (Tanzania, Kenya, and Zimbabwe). This has to do with the more conducive export environment that followed structural adjustment and trade liberalization. Primary production improved, export incentives were stronger and access to imported inputs and equipment was easier. Nevertheless, the evidence also points only to better use of existing export capabilities, existing manpower levels, skills and know-how rather than an improved technology and higher skills levels.
This comparison also reveals significant differences in technological response across countries, sectors and firms. Zimbabwe’s firms, for example, are generally larger and more experienced export-oriented and diverse than those in Kenya or the United Republic of Tanzania. They also proved far more able after undergoing technological changes to reap the benefits of trade liberalization. The fundamental difference Zimbabwe, Kenya and the United Republic of Tanzania has been attributed technological dynamism i.e. complex combination of firm size, firm age training efforts, entrepreneurial education, firm-level skill development, and cluster arrangements.
Yet although necessary, this does suffice to attain sustained dynamic growth. More recently, many reforming economies have started to realize how difficult it is to maintain productivity and income gains. Starting around the mid 1990s a slowing down of growth and increasing unemployment and inequality began eroding public support for reform programs. Fifteen years after their conception the policy recommendations widely applied since the mid 1980s are starting to show symptoms of fatigue in the eyes of public. Partly because of this, attention has shifted towards the possible shortcomings of “Washington Consensus” this rethinking has led to what is known as the “second generation” reforms.
In my view, the logic, the relevance and usefulness of the policy recommendations of the 1980s were sound and provided economic gains to several countries. They were necessary but not always sufficient. The initial positive results are beyond dispute and the need to get the fundamentals right remains a prerequisite to access the global economy and re-launch a process that will eventually lead to sustainable growth. There were some missing elements (Carlos 2000)
6.3 The “second generation” of reforms
In retrospect it was concluded that the “Washington Consensus” overlooked the importance of institutional setting in the reforming countries. Privation, deregulation, openness, of the economy, flexible labor laws and the protection of the property rights require the right set of institutions in order to work properly and to allow the benefits derived from the “right prices” to spread (trickle down) to the population. This conclusion led to a second wave or generation of reforms focusing on the institutions that were needed to complement first-generation policy prescriptions. Improving the education systems, retraining labour force, reforming and expanding health and judicial systems, and fighting corruption were seen as key to support a strong and dynamic private sector.
Second generation reforms address multiple policy fronts. If implemented in an integrated manner, they should result in improved economic performance, thus enticing, at the political level, public support for market-oriented policies.
As pointed out earlier, the main source of popular support for the first generation reforms were the productivity and income gains that followed. However, such gains resulted essentially from obvious distortions and static advantages. Could second-generation reforms –- focused as they are, on institutions –- result in another round of productivity gains, this time more dynamic and sustainable? Obviously, it is of no doubt that the right institutions, working properly, would allow for, and even simulate, positive economic responses and social attitudes.
The problem is not whether the institutional setting will be instrumental in generating productivity increases; it is rather, when such gains will occur. The institutional setting is very much related to the cultural dimension of individual societies. This is why, in contrast to first-generation reforms there is no simple set of policy prescriptions to be applied. As argued in some literatures, institutional reform also needs to be largely centered on the mobilization of domestic skills and capabilities. Because of resource scarcity, it also needs to be well focused and finally tuned.
Because of intricacy of institutional development, productivity gains from a streamlined and competitive institutional setting will generally require long periods of time to become visible and sustainable. This observation is not intended to belittle the role of the institutional reforms. To repeat, institutional reforms are beneficial, but they can realize most of their full potential only in long run. In a view of this fact, the reason why the public support for this second-generation of reforms appears often to be more elusive than that given to the first generation.
6.4 Conclusion on changing the Development Agenda
Let me now introduce our present Development Agenda in a much styled manner. First get prices and the macroeconomic fundamentals right, second, ensure good governance through the right set of institutions. Only then will the benefits of the economic policies promoting free trade and private capital flows reach the majority of the population. The process will be led by the private sector of economy.
In hindsight, it is clear that getting prices and macroeconomic and institutional fundamentals right requires simultaneous action in order to prevent unduly dislocating of existing capabilities and to build the additional ones that are required.
So far we have focused on rationale behind the reforms and their bearing on popular support. In our view, this support is crucial to implementing reforms in a democratic environment. It also ensures that due attention is paid to the economic and social needs of the bulk of the population. As productivity improvements are a sine qua non the most direct route to entice the necessary public support to reform.
6.5 To sum up:
First, since the end of the Second World War, the development agenda has undergone quite radical changes. This has entailed costs to some developing countries. In contrast, for approximately the last twenty years, this agenda has been quite consistent, and missing parts have filled in as our knowledge of the forces fostering development continues to be sharpened. Truly speaking, this agenda is an appropriate one. The consensus brought about by it has reached levels not seen in the first three decades following the end of Second World War.
Second, experience suggests that by their very nature, productivity increases generated by the process of macroeconomic stabilization are difficult to sustain overtime. In fact we could safely say that some of these reforms, such as reducing the inflation rate and eliminating the regressive income tax that goes with it, generate one-off income gains.
Third, institutional reforms are a necessary complement of the first generation reforms.
Fourth, first- and second- generation reforms differ in their policy prescriptions. While those of the former are clear and simple, those of the latter are less universal, one important question here is: to what extent is the behavior of productivity growth overtime influenced by the quality of policy prescriptions in the area of institutional reforms?
Fifth, when we look at productivity gains over time, it becomes apparent that the beneficial effects of the first-generation reforms mature quicker than those of the second-generation reforms. The former produces relatively short-term and generally one-off productivity gains. Although first generation-reforms have lasting dynamic effects as a result of a higher degree of competition, second-generation reforms address the sustainability of such gains mainly over the medium and long-term.
Sixth, although first generation reforms generally lead to productivity improvements, responses vary in nature according to country-specific factors, such as the morphology of private sector and structure of economy.
Seventh, these specificities and the differential impact of first- and second-generation reforms on productivity in countries adopting them in Latin America, Eastern Europe and Africa affect the scope of public support. The popular and political support for the reform programmes, depends on how far reforms are able to deliver productivity gains widely and evenly which, in turn, is influenced by the economic structure. As soon as the productivity dynamism of the programmes wanes, popular support weakens. This is what we witness today (Carlos, 2000)
6.6 The development challenges
Let us start with the progress of fighting inflation. The average annual percentage change of consumer prices in industrialized economies fell from 4.9 (1982 – 1991) to 2.3 percent from 1992 onwards (the fall has been noticeable since 1995). The developing economies and economies in transition also show progress in inflation control. In the first case, the annual rate of increase in consumer prices went from 45.7percent (1982 – 1991) to 20.3 percent from 1992 onwards. They also display a rather steadily declining trend. In Latin America for example, the average inflation rate has come down from 166.9 percent (1982 – 1991) to 47.4 percent from 1992 onwards (8.8 percent in 1999). Finally, the countries in transition started making progress in price stability in 1992, when the rate of consumer prices increases was 788.9 percent, falling to an average of 118.4 percent since 1992. The fall was particularly remarkable from 1996 onwards, staying below 45 percent (Carlos, 2000).
GDP in industrialized economies had an average annual growth rate of 3% during 1974 – 1990 and 2.5% during 1990s. Corresponding figures for developing countries are 3.8 and 3.2% respectively (Carlos, 2000). However, growth disparities across regions observed during the last few decades remain a cause of concern (Carlos, 2000).
World trade (exports plus imports) has grown fast: its shares of global output have jumped from 23.1% in 1970 to over 44%1999 (IMF, April 2000). Business now trades to invest and invest to trade, since trade within transitional corporations or related partners now accounts for about two-thirds of world trade (UNCTAD, 1999). Nevertheless, trade performance has varied across country and regional divides (Carlos, 2000). The developing countries and transition economies produce over 30 per cent of the total world merchandise exports. World merchandise exports grew in the industrialized world at a rate of 7.0% per year during the 1980s and 5.01% during the 1990s while the developing countries and economies in transition grew at 3.52% in the 1980s and 8.41% in 1990s (World Bank, 2000a)
Investment has also been growing rapidly, but this time financial institutions are not recycling petrodollars as they did after the previous oil shocks. Today what is recycled is savings. There is a general shift of the burden of financing retirement during old age from the state to individuals. This has brought a vast amount of personal savings to capital markets and accordingly, there has been a rapid growth in the flow of funds into financial instruments. This is particularly the case for the global pension fund asserts, which soared dramatically during the 1990s (they are projected to rise to $14 trillion from $ 6 trillion in 1992). Needless to say, these resources will be seeking high returns throughout the world, including in the emerging markets.
Investment has also become a powerful force for integration. The value of inward foreign direct investment (FDI) stock, for instance, has experienced a five-fold increase from $ 782 billion in 1985 to $ 4 trillion in 1998. The annual sales this generates have overtaken the value of the world trade (UNCTAD, ibid.)
The developing countries generate over 25% of world MVA, and they account for 30% of the total stock of inwards ($1.2 trillion), 90% of which is generated by industrialized countries (UNCTAD, ibid.).
Clearly, developing countries have achieved considerable progress in a relatively short period of time. Trade and investment liberalization made possible
Nevertheless, as said progress has not been uniform but concentrated in a relatively small group of countries most of them from the East Asian region. The great majority of developing countries remain removed from the globalization process. The IMF estimates that over the period 1970 – 1998, “… 75% of developing countries recorded slower per capita income growth than in the industrialized countries …” (IMF, May 2000). One reason may be incomplete trade and investment liberalization, but there are other constraints (Carlos, 2000).
The development challenges we face today may not be new but they are more pressing. They include poverty and inequality, environmental degradation and volatility in financial markets. These are, of course, problems common to all countries and they require common efforts
Inequality is growing. It encompasses a number of problems ranging from poverty to unequal income distribution and unemployment.
Today 1.2 billion people live on less than one dollar per day, and 2.8 billion on less than two dollars a day. People live on less than two dollars per day account for 75.6% of the total population in Sub-Saharan Africa and 84% in South Asia. The average for developing and transition economies is 56% (World Bank, 2000b).
The collapse the economies of Eastern Europe and Central Asia by itself plunged some 93 million people below the poverty line of two dollars per day in the last 10 years (ibid.)
6.6.3 Income distribution
Equally disturbing and discouraging, inequality is not only growing but also accelerating. According to unpublished study by the University of Sussex, the relation between the richest and the poorer fifth of the world’s population increased from 30 to 1 in 1960; to 60 to 1 in 1990; and to 74 to 1 in 1997. The income gap increased one point a year between 1960 and 1990 and two points a year since then.
Contrary to expectations, the long awaited coverage of average productivity among economies does not appear to occur automatically, despite progress towards marketing opening and deregulation, largely because the ability to take the advantage of innovation and technical change and spread best practices differs across countries. The gap in per capita income between the poorest and the richest sectors of the world’s population is widening (Sercovich, F. et al, 1990).
Poverty and inequality mean that a large part of the world’s population has no access to the opportunities offered by the global economy. This phenomenon is observed not just when comparing developing with developed countries: the increase in inequality also occurs within countries, including the more advanced ones. Inequality also gives rise to internal and international migrations in search for opportunities of economic and social improvement.
Research done by economic historians at Harvard University indicates that the overall net worth held by the wealthiest 1% of American households jumped from below 20% in 1979 to 36%in 1989. In addition, although the national net worth of the U.S. expanded by $ 5 trillion between 1983 and 1989. New York University economic professors found that 54% of that increase was claimed by 500,000 families who make up the top one-half of 1% of the population.
Together with this increase in the concentration of wealth, an increase in income disparities can be observed. According to the congressional budget officer, the top 1% of American households claimed 70% of the total $ billion net increase in households income during the 1977-1989 period. In 1973 the income of the top 20% of American families was 7.5 times that of the bottom 20%. By 1996 it was more than 13 times
Even with the arrival of the new economy and renewed growth without inflation and unemployment rates around 4%, some 40 million people in the United States still will live outside the health-care system. This situation is unthinkable in Europe, where almost every is covered by some kind of health care system but, instead, there are some 15.7 million people unemployed in the countries of the European Union (calculation based on World Bank, 2000a and OECD, 2000).
Regarding the demographic forecasts, it is a fact that in the next 25 years the world’s population with increase around 3 billion. Because of the aging developed country populations (with negative growth and an increase in life expectancy in most of European countries), the overwhelming majority of the expected population growth is due to take place in developing countries.
Poverty, inequality, and population growth will certainly increase the pressures to come up with solutions, and this will have to be reflected in Development Agenda of the international community.
Throughout history all systems for the production of goods have entailed some form of environmental deterioration. What absolutely unique is the scale that problem has reached in our times. Some of outmoded production techniques have generated a global threat to the ecological stability of the planet.
The most disturbing problems in this area can be broken down in two groups: climate changes in biosphere. Climate change is already a matter of a public debate. Carbon dioxide is building up in the atmosphere (partly due to the combustion of fossil fuels) largely exceeding nature’s capacity to recycle it through the normal exchange of carbon dioxide and oxygen among plants and animals.
Climate changes means that the surface temperature is rising, (about 0.25 to 0.8 degrees Celsius in the last century, with most of the warming coming in the past two decades) and that, based on the current estimates, the lower and mid-atmosphere has warmed less than the earth’s surfaced during the past twenty years (0 to 0.2 degree Celsius).
Scientists estimate that we can only afford to release a limited amount of carbon dioxide into the atmosphere lest we pass the safe limits on climate change. Some analysts believe that a temperature increase of one degree Celsius is the absolute maximum that should be allowed. The amount of carbon that we can release to keep these limits is in the range of 112.5 to 337.5 billion tons of carbon dioxide over the next 100 years.
World industries already have released around four times this amount of carbon dioxide (over one thousand billion tones) relying on existing reserves of oils, coal and gas. This means that three quarters of the oil, coal, and gas already found cannot be burned if critical climate change is to be avoided. At the present rate of burning of fossil fuels the same limit of one degree Celsius will be just reached in forty years
As a result of the use of CFCs, halons and other ozone-depleting substances, stratospheric ozone has been depleted by approximately 2% per decade over the last thirty years. This increases the penetration of solar UV-radiation to the earth’s surface. It is assessed that nowadays the maximum levels of ozone depletion have been reached. Recovery of the Antarctic zone hole (which has experienced loses of 25% per decade) is not foreseen until the middle of the twenty first century.
Changes in biosphere are widespread. In the last fifty years the earth has lost one fourth of its top soil and one third of its forest cover. At the present speed of deterioration 70% of the world’s coral reefs (host of 25% of marine life) will probably disappear in one generation it is estimated that around one third of the planet’s resources have been depleted in the last three decades. It is necessary to preserve the health of the freshwater and marine ecosystems because they provide the most essential services to the humankind for instance, the microbial life of the oceans generates twice as much oxygen as the tropical rainforest.
The international community probably cannot afford to continue lengthy negotiations on these matters for much longer. It has to find the way, to the extent possible, to factor these variables into the price system in order to generate incentives to develop clean technologies. In my view, the fact that this is very much a problem of intergenerational welfare should be better recognized in the Development Agenda.
Financial volatility can, in a matter of days, destroy years of social development. It is one of the newer problems we confront as global society. The speed at which financial markets have developed since the 1980s is truly remarkable. In one single day, these markets move from $1 trillion (an amount equivalent to one and half times the annual trade between the European Union and the U.S.); while trade in the currencies is equivalent to twenty times the world trade.
The flow of private finance to the developing economies fell drastically in 1998 and remained at lower levels during 1999. Net private flows went from $303.9 billion 1997 to 267.7 billion in 1998 and 238.7 billion in 1999. Nevertheless, if the capital flows are disaggregated by type of investment, it can be seen that the behavior differed by segments.
Net bank lending evolved as follows: $51.6 billion in 1998 and -$11.4 billion in 1998 (the minus sign means outflows). Bond financing went from $48.9 billion in 1997 to $39.7 billion in 1998 and $25.0 billion in 1999. Equity investment also fell dramatically from $30.2 billion in 1997 to $15.6 billion in 1998 to recover in 1999, when it amounted to $27.6 billion. On the other hand, FDI amounted to $170.3 billion, 170.9 billion and 192.0 billion in 1997and 1999, respectively. Due to its characteristics, FDI has been far more stable than portfolio investment or bank landing, which turns it into an important channel for developing countries to counteract volatility (World Bank, 2000c)
Financial volatility is here to stay, and while efforts are made to reduce it, we have to learn to live with it. Respective agenda of policy discussions ranges from reform of the key multilateral financial institutions to strengthening of domestic financial systems in developing countries through the by now long discussion on the merits and demerits of controls on short-term capital movements among the list of possible reforms.
6.7 Conclusion on development challenges
In a nut shell; first, the current Development Agenda has achieved much for the developing world, and some countries raised their participation in the global economy and improved the living conditions of their population.
Second, the number of developing countries that draw on the global economy to foster economic development is relatively small.
Third, some development problems that have emerged or gained prominence pose a serious challenge for the global society in the years to come. These included increasing inequality (as expressed by poverty, skewed income distribution and unemployment), environmental constraints and increased market volatility.
Fourth, although the current Development Agenda is generally appropriate, the large portion of the population that remains disconnected from the globalization process suggests that something is missing. In spite of efforts at reforming their economies, many developing countries are sidestepped by investment flows and are unable to profit significantly from growing global trade flows.
Why is this so? This is where the arguments originate, some suggest, that the reason why some countries are not participating in the globalization process can be traced to their own policies, including unfinished reform programmes. Lack of institutions and resources to build capabilities only compound the problem.
Such factors, like, unbalanced rules, and market access opportunities of the multilateral trading and financial systems (e.g. application of highest tariffs and the most restrictive quotas to the products). Prevent the globalization process to be beneficial to the developing countries.
7.0 Strategic Development Agenda
The current Millennium Development Goals (MDGs) paradigm develops its clear focus on human security and global public goods, because the worldwide transition to the market system has led to disproportionately greater economic and social insecurity for the poor, as mentioned above, this raised the prospects of conflict.
Natural disasters, pollutions and the spread of diseases have grown in frequency and severity, and global warming will create dramatic threats to ecosystems.
Financial crises over the last thirty years have taken a devastating toll in Africa and emerging developing countries
Due to the number of terrorist attacks, criminal networks and weapons proliferations have grown more eightfold over the last two decades.
Similarly, competition for natural resources has led to conflict both among and within the nations.
The states weakness exacerbates these problems and as a result conflicts will manifest. Since, the so-called fragile states also account a third of the world’s absolute poor, the security and development policies need to be integrated with a focus on state fragility, social safety nets, youth employments, food security, and access to social services, natural resource management and disaster preparedness. In this, “human security” view, quality growth is preferred to rapid inequitable, unsustainable growth. According to Piciotto, development of community must urgently reconsider the basic tenets, protocols and operational practices of its enterprise as otherwise it is likely to suffer a sharp and a sustained decline in relevance, effectiveness and legitimacy (Piciotto: WW &World Bank)
Andrew Natsios on Strategic Development Agenda demands that, the sectoral approach to development taken historically by some agents including USAID is dysfunctional, since countries don’t develop in sectors, and that development is more about institutional reform, change and capacity building. In order to promote these processes, however, development professionals need to change their approach and focus on understanding the local political dynamics and supporting the agents of change in each country. According to Natsios, the current aid system tends to support the government in place, which in most cases is the cause of state failure and the source of resistance to reform. A central challenge for the development community, according to Natsios, is to find a new ways of strengthening domestic institutions which do not support the current paradigm that has caused the problem (Natsios WW & World Bank).
Jessica Einhorn sketched the central role the World Bank has played in the evolution of the history of the modern intellectual development theory and practice from the WWII. As the institution expanded its activities from lending to providing policy advice, the progress of Latin America and Eastern Asian miracle in the 1990s seemed to validate the World Bank’s approach. Yet the subsequent decline of Latin America, the lack of aid effectiveness in Africa and the 1997 Asian financial crises in fact displayed the limitations of the Bank’s focus on macroeconomic reforms and the creation of human capital, and led to a call for a new approach to poverty reduction. Since then the overarching focus of the World Bank has been on the development of sound domestic institutions and policies that would promote good corporate governance as well as private sector development, and establishing sufficient safety nets (Jessica, WW & World Bank)
The term “globalization” has acquired considerable emotive force. Some view it as a process that is beneficial – a key to future world economic development –and also inevitable and irreversible. Others regard with hostility, even fear, believing that it increases inequality within and between nations, threatens employment and living standards thwarts social progress. This brief, offers an overview of some aspects of globalization and aims to identify ways in which countries can tap the gains of this process, while remaining realistic about its risks.
Globalization offers extensive opportunities for truly worldwide development but it is not progressing evenly. Some countries are becoming integrated into the global economy more quickly than others. Countries that have been able to integrate are seeing faster growth and reduced poverty. Outward-oriented policies brought dynamism and greater prosperity to much of East Asia, transforming it from one of poorest areas of the world 40 years ago. And as living standards rose, it become possible to make progress and democracy and economic issues such as environment and work standards.
By contrast, in the 1970s and1980s when many countries in Latin America and Africa pursued inward-oriented policies, their economies stagnated or declined, poverty increased and high inflation became the norm. In many cases especially Africa, an adverse external developments made the problems worse. As these regions changed their policies, their incomes have begun to rise. An important transformation is underway. Encouraging this trend, not reversing it, is the best course for promoting growth, development and poverty reduction.
The crises in emerging markets in the 1990s have made it quite evident that the opportunities of globalization do not come without risks-risks arising from volatile capital movements and the risks of social, economic, and environmental degradation created by poverty. This is not a reason to reverse direction, but for all concerned-in developing countries, in advanced countries and of course investors –to embrace policy changes to build strong economies and a stronger world financial system that will produce more rapid growth and ensure that poverty is reduced.
How can developing countries, especially the poorest, be helped to catch up? Does globalization exacerbate inequality or can it help to reduce poverty? And are countries that integrate with the global economy inevitably vulnerable to instability? These are the some of questions which will be addressed below.
Economic globalization is a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through trade and financial flow. The terms sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. There are also broader cultural, political and environmental dimensions of globalization aspects.
At its most basic, there is nothing mysterious about globalization. The term has come into common usage since the 1980s, reflecting technological advances that have made it easier and quicker to complete international transactions-both trade and financial flows. It refers to an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activity – village markets, urban industries, or financial centers.
Markets promote efficiency through competition and division of labor –the specialization that allows people and economies to focus on what they do best. Global markets offer greater opportunities for people to tap into more and larger markets around the world. It means that they can have access to more capital flows, technology, cheaper imports, and larger export markets. But markets do not necessarily ensure that the benefits of increased efficiency are shared by all. Countries must be prepared to embrace the policies needed, and in the case of the poorest countries may need the support of the international community as they do so.
Globalization also refers to increasing global connectivity, integration and interdependence in the economic, social, technological cultural, political and ecological spheres. Globalization is an umbrella term and perhaps best understood as unitary process inclusive of many sub-processes (such as enhanced economic interdependence, increased cultural influence, rapid advances of information technology, and novel governance and geographical challenges) that are increasingly binding people and biosphere more tightly into one global system.
There are several definitions and all usually mention the increasing connectivity of economies and ways of life across the world. The Encyclopedia Britannica says that “globalization is the process by which the experience of every day life … is becoming standardized around the world”. While some scholars and observers of globalization stress coverage of patterns of production and consumption and resulting homogenization of culture, others stress that globalization has potential to take many diverse forms (Raskin, Banuri et al 2002).
In economics, globalization is the convergence of prices, products, wages, rates of interests and profits towards developed countries norms (Shariff, Vol. I: No. 2003, pp. 163 -178). Globalization of economy depends on the role of human migration, international trade, movement of capital, and integration of financial markets.
The International Monetary Fund notes: the growing economic interdependence of countries worldwide through increasing volume, variety of cross-boarder transactions, free international capital flows, and more rapid and widespread diffusion of technology.
Various aspects of globalization that affect the world differently may include:
- Industrial (alias transnationalization) – emergence of worldwide production markets and broader access to a range of goods for consumers and companies
- Financial – emergence of worldwide financial and better access to external financing for corporate for national and sub-national borrowers
- Economic – realization of a global common market, based on freedom of exchange of goods and capital.
- Political – political globalization is the creation of a world government which regulates the relationship among nations and guarantees the rights arising from the social and economic globalization (Stipo, Francesco: ISBN 978-0-9794679-2-9).
- Informational – increase in information flows between geographically remote locations
- Cultural – growth of cross-cultural contacts; advent of new categories of conscious ness and identities such as Globalism - which embodies cultural diffusion, the desire to consume and enjoy foreign products and ideas, adopt new technology and practices, and participate in a “world culture”.
- Ecological – the advent of global environmental challenges that can not be solved without international cooperation, such as climate change cross-boundary water and air pollution, over-fishing of the ocean, and the spread of invasive species.
- Social – the achievement of free circulation by people of all nations
- Transportation – Fewer and fewer Americans cars on American roads each year.
- Greater international cultural exchange:
- Spreading of multiculturalism, and better individual access to cultural diversity (e.g. through the export of Hollywood and Bollywood moves). However the imported culture can easily supplant the local culture, causing reduction in diversity through hybridization or even assimilation. The most prominent form of this is Westernization, but Sinicization of cultures has taken place over most of Asia for many centuries.
- Greater international travel and tourism
- Greater immigration including illegal immigration
- Spread of local consumer products (e.g. food) to other countries (often adapted to their culture
- World-wide fads and pop culture such as Pokemon, sudoku, Numa Numa, Origami, idol series, You Tube, Face book, and My Space
- World-wide sporting events such as FIFA World Cup and Olympic Games
- Formation or development of a set of universal value
- Technical /legal
- Development of global telecommunications infrastructure and greater transborder data flow, using such technologies as the internet, communication satellites, submarine fiber optic cable, and wireless telephones, and mobile phones
- Increase in the number of standards applied globally; e.g. copyright laws, patents, and world trade agreement
- The push by many advocates for an international criminal court and international justice movements.
Globalization is not just a recent phenomenon. Some analysts have argued that the world economy was just globalized 100 years ago as it is today. But today commerce and financial services are far more developed and deeply integrated then they were at that time. The most striking aspects of this have been the integration of financial markets made possible by modern electronic communication.
The term globalization was popularized by Theodore Levitt, a professor at the Harvard Business School. Levitt has been erroneously credited with coining the term in 1983, but the world “globalization” can be traced back to 1944. The term has been used by economists since 1981; however its concepts did not permeate popular consciousness until the latter half of the 1990s. Various social scientists have tried to demonstrate continuity between contemporary trends of globalization and earlier periods
Globalization is sometimes viewed as a century’s long process, tracking the expansion of human population and the growth of civilization that has accelerated dramatically in the past 50 years. Earlier forms of globalization existed during the Arab Empire, when knowledge from many cultures was integrated, and during the Mongol Empire, when there was a greater integration along the Silk Road. Global integration continued through the expansion of the European trade, as in the 16th and 17th centuries, Portuguese and Spanish Empires reached to all corners of the world.
Globalization became a business phenomenon in the 17th century when the Dutch East India Company, which is often described as the first multinational corporation, was established. Because of the high risks involved with international trade, the Dutch East India Company became the first company in the world to share risk and enable joint ownership through the issuing of shares: an important driver for globalization.
Liberalization in the 19th century is often called “The First Era of Globalization”, a period characterized by rapid growth of international trade and investment, between the European imperial powers, their colonies, and, later, the U.S.. The “First Era of Globalization” began to break down at the beginning with the First World War, and later collapsed during the gold standard crisis in the late 1920s and early 1930s. Lenin’s Imperialism the Highest Stage of Capitalism (1916) provided a seminal critique of this period as being characterized by exploitation of the third world by those in first. This theme forms the basis of many recent critiques of globalization.
Globalization in the era since World War II has been driven by advances in technology which have reduced the costs of trade, and trade negotiation rounds, originally under the auspices of GATT, which led to a series of agreements to remove restrictions on free trade. The Uruguay round (1984 to 1995) led to a treaty to create the World Trade Organization (WTO), to mediate trade disputes and set up uniform platform of trading. Other bilateral and trilateral trade agreements, including sections of Europe’s Maastricht Treaty and the North American Free Trade Agreement (NAFTA) have also been signed in pursuit of the goal of reducing tariffs and barriers to trade grand.
The 20th Century saw unparalleled economic growth, with global per capita GDP increasing almost five-fold. But this growth was not steady the strongest expansion came during the second half of the century, a period of rapid trade expansion accompanied by trade and typically somewhat later, financial-liberalization.
The world increasingly is confronted by problems that can not be solved by individual nation –states acting alone. Examples include cross-boundary air and water pollution, over-fishing of oceans and other degradation of the natural environment, regulation of outer-space, global warming, international terrorist networks, global trade and finance, and so on. Solutions to these problems necessitate new forms of cooperation and the creation of new global institutions. Since the end of the WW II, following the advent of the UN and the Bretton Woods institutions, there has been an explosion in the reach and power of multinational corporations and the rapid growth of global civil society (Florin, 2000)
8.2 Measuring globalization
Looking specifically at economic globalization, it can be measured in different ways. These centre around the main economic flows that characterize globalization:
- Goods and services, e.g. exports plus imports as a proportion of national income or per capita of population
- Labor/people, e.g. net migration rates; inward or outward migration flows, weighted by population
- Capital, e.g. inward or outward direct investment as a proportion of national income or per head of population
- Technology, e.g. international research & and development flows; proportion of populations (and rates of change thereof ) using particular inventions (especially “factor-neutral” technological advances such as the telephone motorcar, broadband)
Employing simple proxies like flows of trade, migration, or foreign direct investment as describe above. A multivariate approach to measuring globalization is the recent index calculated by the Swiss Think tank KOF (http://www.globalization-index.org/). The index measures the three main dimensions of globalization: economic, social, and political. In addition to three indices measuring these dimensions, an overall index of globalization and sub-indices referring the actual economic flows, economic restrictions, data on personal contact, data on information flows, and data on cultural proximity is calculated. Data are available on a yearly basis for 122 countries (Wikipedia, the free encyclopedia). According to the index the world’s most globalized country is Belgium, followed by Austria, Sweden, the United Kingdom and the Netherlands. The least globalized countries according to KOF-index are Haiti, Myanmar, the Central African Republic and Burundi (http://www.globalization-index.org/). Other measures conceptualize Globalization as diffusion and develop interactive procedure to capture the degree of its impact (Jahn, 2006).
A.T. Kearney and Foreign Policy Magazine jointly published another Globalization Index. According to the 2006 index, Singapore, Ireland, Switzerland, the U.S., the Netherlands, Canada and Denmark are the globalized, while Egypt, Indonesia, India and Iran are the least globalized among the countries listed.
8.3 Popular attitudes towards globalization:
According to a 2003 survey of teenagers from New York, Lebanon, Azerbaijan, and Philippines, teenagers both in the U.S. and elsewhere are largely in favor of globalization [(http://www.worldfederalistmanifesto.com); Stipo, Francesco, ISBN 978-0-9794679-2-9), (http://www.globalfuture.net/2006/11/research-on- teenagers-attitudes-toward.htm)]
Conversely a CNN survey in 2007 found that only 5% of all people in America are in favor of globalization. The people involved cited major job insecurity as a big worry.
Supporters of the free trade claim that it increases economic prosperity as well as opportunity, especially among developing nations, enhances civil liberties and leads to a more efficient allocation of resources. Economic theories of comparative advantage suggest that free trade leads to a more efficient allocation of resources, with all countries involved in trade benefiting. In general, this leads to lower prices, more employment, higher output and higher standard of living for those in developing countries [(Sachs Jeffrey, 2005; World Bank poverty rates 1981 2002) also see:
http://siteresources.worldbank.org/DATASTATISTICS/Resources/tab2-7pdf)]. Retrieved on 2007-06.04:
One of the ironies of the recent success of India and China is the fear that … success in these two countries comes at the expense of the United States. These fears are fundamentally wrong and worse, dangerous. They are wrong because the world is not a zero-sum struggle… but rather is a positive-sum opportunity in which improving technologies and skills can raise living standards around the world (Jeffrey D. Sachs, 2005).
Libertarians and other proponents of laissez-faire capitalism say that higher degrees of political and economic freedom in the form of democracy and capitalism in the developed world are ends in themselves and also produce higher levels of material wealth. They see globalization as the beneficial spread of liberty and capitalism. Liberals see it as a tool for relieving poverty and providing the poor with a foothold in the global economy (Sachs, Jeffrey: 2005)
Supporters of democratic globalization are sometimes called pro-globalists. They believe that the first phase of globalization, which was market-oriented, should be followed by a phase of building global political institutions representing the will of world citizens. The difference from other globalists is that they do not define in advance any ideology to orient this will, but would leave it to the free choice of those citizens via a democratic process.
Supporters of globalization argue that the anti-globalization movement uses anecdotal evidence to support their protectionist view, where as worldwide statistics strongly support globalization:
- From 1981 to 2001, according to World Bank figures, the number of people living on $1 a day or less declined from 1.5 billion to 1.1 billion in absolute terms. At the same time, the world population increased, so in percentage terms the number of such people in developing nations declined from 40% to 20% of the population. Shaohua Chen and Martin Ravallion (Chen, Ravallion, 2002) argue that with the greatest improvement occurring in economies rapidly reducing the barriers to trade and investment; yet, some critics argue that more detailed variables measuring poverty should be studied instead.
- The percentage of people living on less than $2 a day has decreased greatly in areas affected by globalization, whereas poverty rates in other areas have remained largely stagnant. In East-Asia including China, the percentage has decreased by 50.1% compared to 2.2% increase in Sub-Sahara Africa: (http://siteresources.worldbank.org/DATASTATISTICS/Resources/tab2-7pdf)
- Income inequality for the world as a whole is diminishing.
- Life expectancy has almost doubled in the developing world since World War II and is starting to close the gap between itself and the developed world where the improvement has been smaller. Even in Sub-Saharan Africa, the least developed region, life expectancy increased from 30 years before World War II to about a peak of about 50 years before the AIDS pandemic and other diseases started force it down to current level of 47 years. Infant mortality has decreased in every developing region of the World.
- Democracy has increased dramatically from there being almost no nations with universal suffrage in 1900 to 62.5% of all nations having it in 2000 (http://www.freedomhouse.org/reports/century.htm
- Feminism has made greater advances in areas such as Bangladesh through economically liberating and empowering women with jobs (Sachs, Jaffrey: 2005)
- The proportion of the world’s population living in countries where per capita food supplies are less than 2,200 calories (9,200 kilojoules) per day decreased from 56% in the mid-1960s to below 10% by the 1990s (http://reason.com/news/show/34961.htm), (BAILEY,R. 2005).
- Between 1950 and 1999, global literacy increased from 52% to 81% of the world. Women made up much of the gap: female literacy as a percentage of male literacy has increased from 59% in 1970 to 80% in 2000 (BAILEY, R. 2005).
- The percentage of children in the labor force has fallen from 24% in 1960 to 10% in 2000 (http://www.oxfordleadership.com/DataFiles/homepage/projects/OLA_Mexico%20_Award_Oct%2020_2006.pdf
- There are similar increasing in trends towards electric power, cars radios, and telephones per capita, as well as growing proportion of the population with access to clean water (http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VC6-4F02KWN-8&_user=10&_coverDate=01%2F01... )
- The book: The improving State of the World also finds evidence for that these, and other measures of human well-being has improved and that globalization is part of the explanation. Also responds to argument that environmental impact will limit the progress
Others, such as Senator Douglas Roche, O.C., Simply view globalization as inevitable and creating institutions such as a directly-elected United Nations Parliamentary Assembly to excise oversight over unelected international bodies.
Supporters of globalization are highly critical of some current policies. In particular, the very high subsides to and protective tariffs for agriculture in developed world. For example, almost half of the budget of the European Union goes to agricultural subsides, mainly to large farms and agricultural businesses which form a powerful lobby. Japan gave 47 billion dollars in 2005 in subsidies to its agricultural sector (http:// www.oecd.org/dataoecd/12/6/37002611.xls), nearly four times the amount it gave in total foreign aid (http:// www.oecd.org/dataoecd/59/5/37781218.Pfd).The U.S. gives 3.9 billion dollars each year in subsidies to its cotton sector, including 25,000 growers, three times more in subsidies than the entire USAID budget for Africa’s 500 million people (http://www.oxfam.org/en/files/pp02925_cotto.pdf/down load). This drains the taxed money and increases the prices for the consumers in developed world due to retaliatory trade barriers; and undermines the very types of industry in which the developing countries do have comparative advantages. Tariffs and trade barriers, thereby, hinder the economic development of developing economies, adversely affecting living standards in these countries.
Although critics of globalization complain of Westernization, a 2005 UNESCO report (http://http:uis.unesco.org/template/pdf/cscl... UNESCO) showed that cultural exchange is becoming mutual. In 2002, China was the third largest exporter of cultural good, after the UK and US. Between 1994 and 2002, both North America’s and European Union’s shares of cultural exports declined, while Asian cultural exports grew to surpass North America.
Critiques of the current wave of economic globalization typically look at both the damage to the planet, in terms of the perceived unsustainable harm done to the biosphere, as well as the perceived human costs, such as increased poverty, inequality, injustice and erosion of traditional culture which, the critics contend, all occur as a result of the economic transformations related to globalization. They challenge directly the metrics, such as GDP, used to measure progress promulgated by institutions such as the World Bank, and look to other measures, such as the Happy Planet Index (http://www.neweconomics.org/gen/uploads/...pdf) created by new economics foundation. They point to a “multitude of interconnected fatal consequences—social disintegration, breakdown of democracy, more rapid and extensive deterioration of the environment, the spread of new diseases increasing poverty and alienation”. Which they claim are the unintended but very real consequences of globalization.
The critics of globalization typically emphasize that globalization is a process that is mediated according to corporate interests, and typically raise the possibility of alternative global institutions and policies, which they believe address the moral claims of poor and working classes throughout the globe, as well as environment concerns in a more equitable way.
The movement is very broad, including church groups, national liberation factions, peasant unionists, intellectuals, artists, protectionists, anarchists, those in support of relocalization and others. Some are reformist, (arguing for a humane form of capitalism) while others are more revolutionary (arguing for what they belief is a more humane systems of capitalism) and others are reactionary, believing globalization destroy national industry and jobs.
One of the key points made by critics of recent economic globalization is that income inequality, both between and within nations, is increasing as a result of these processes. One study made in 2001 found that significantly, in 7 out 8 metrics, income inequality has increased in the twenty years ending 2001. Also, “incomes in the lower deciles of world income distribution have probably fallen absolute since the 1980s”. Furthermore, the World Bank’s figures on absolute poverty were challenged. In particular, some economists are skeptical of the World Bank’s claim that the number of people living on less than $1 a day has held steady at 1.2 billion from 1987 to 1998 because of biased methodology.
A chart that gave the inequality a very visible and comprehensive form, the so-called ‘champagne glass’ effect was contained in the 1992 United Development Program Report, which showed the distribution of global income to be very uneven, with the richest 20% of the world population controlling 82.7% of the world’s income
DISTRIBUTION OF WORLD GDP 1989
Quintile of Population
Source: UNDP 1992 Human Development Report
Most importantly, critics of recent economic globalization see that these developments are not all occurring in a vacuum, but fed into ethnic, religious, and factional tensions that lead to wars and breed terrorism. Furthermore, these terrorists, now globally interconnected and empowered with knowledge, create a whole new category of warfare based, in part, on the disruption of the interconnections which are both created by and necessary for globalization. Some commentators believe the nation-states are ill-equipped to deal with emergent threat.
In terms of the controversial global migration issues, disputes evolve around its causes, whether and to what extent it is voluntary or involuntary, necessary or unnecessary; and its effects, whether beneficial, or socially and environmentally costly. Proponents tend to see migration simply as a process where by white and blue collar workers may go from one country to another to provide their services, while critics tend to emphasize negative causes, such as economic, political, and environmental insecurity, and cite as one notable effect the link between migration and the enormous growth of urban slums in developing countries. According to “The Challenge of Slums (http://www.globalpolicy.org/socecon/develop/africa/2003/03slums.htm”, a 2003 UN-Habitat report, “the cyclical nature of capitalism increased demand for skilled versus unskilled labor and the negative effects of globalization – in particular, global economic booms and busts that ratchet up inequality and distribute new wealth unevenly-contribute to enormous growth of slums”
Various aspects of globalization are seen as harmful by public-interest activists as well as strong state nationalists. This movement has no unified name. “Anti-globalization” is the media’s preferred term; it can lead to some confusion, as activists typically oppose certain aspects or forms of globalization, not globalization per se. Activists themselves, for example Noam Chomsky, have said that this name is meaningless as the aim of the movement is globalize justice. Indeed global justice movement is the common name. Many activists also unite under the slogan “another world is possible”, which has given rise to names such altermondialisme in French (http://en.wikipedia.or/wik/globalization).
There are a wide variety of types of “Anti-globalization”. In general critics claim that the results of globalization have not been what was predicted when the attempt to increase free trade began, and that many institutions involved in the systems of globalization have not taken the interests of poorer nations, the working class, and natural environment into account. One of the proposed solutions to the uncontrolled environmental damage created by global economic expansion is to set prices for that environmental damage done to biosphere, so that the economy “sees” the price signal from the environment, and begins to internalize the value of environment. The present global economic system, critics of globalization would note, does not price the damage (e.g. pollution) done to limited environmental resources making those resources, in effect, free. Economic theory, however, holds that items of economic utility and limited supply should be priced in order to be used efficiently by the market. Presently, the two proposals for sending these price signals to the economy are “Carbon Tax”, proposed by in the U.S. by Al Gore, and ‘Cap and Trade’ system as has been created in the European Union (http://en.wikipedia.or/wik/globalization).
Economic arguments by fair trade theorists claim that unrestricted free trade benefits those with more financial leverage (i.e. rich) at the expense of the poor (http://en.wikipedia.or/wik/globalization).
Some opponents of globalization see the phenomenon as the promotion of corporatist interests. They also claim that the increasing autonomy and strength of corporate entities shapes the political policy o the countries (http://en.wikipedia.or/wik/globalization).
Some anti-globalization groups argue that globalization is necessary imperialistic; it can therefore be said that “globalization” is another form of Americanization, as it is believed by some observers that the United States could be one of the few countries (if not the only one) to truly profit from globalization
Some argue that globalization imposes credit-based economies, resulting in unsustainable growth of debt and debt crises
The main opposition is to unfettered globalization guided by the governments and what are claimed to be quasi-governments (such as International Monetary Fund and the World Bank) that are not held responsible through transparent or democratic processes by the populations that they affect and instead respond mostly to the interests of corporations. Many conferences between trade and financial ministers of the globalizing nations have been met with large, and occasionally violent, protests from opponents of “corporate Globalism”
8.6 GLOBALIZATION CHALLENGES
So to speak, globalization has profoundly altered world affairs including the nature of the development challenge. According to Mauro F Guillen, globalization is a process of fueled by, and resulting in increasing cross-border flows of goods, services, money, people, information, and culture. The multidimensional nature of globalization not only leading to different dimension according to academic discipline but also require different levels of analysis: 1) the above level namely supranational organizations and national states and 2) the below level, i.e. sub-national regions, NGOs, and person to person networks.
Some scholars (Moises Naim) describe globalization as a project designed and implemented by the powerful, in particular, America. The enthusiasm for globalization in many countries during the early 1990s has turned to disillusionment and frustration and is partly due to global imbalances and inequalities. Beyond trade and exchange rate imbalances, the more striking and frustrating global imbalance is the widening gap between supply and demand of global public goods.
Similarly, in a recent process of rapid globalization, for the past two decades; the world has witnessed the incidence and impact of global environmental disasters to have been increased more than fivefold. During the same period, however, the budgets of international institutions in charge of dealing with those crises has either stagnated or declined. For instance, the budget of the UNH High Commissioner for Refugees has only increased 62% since 1990 while the total budget of the UN has risen by just 26%. In short the need for global collective action has been increasing … yet the capacity and availability of international organizations has been decline (Moses Naim: WWS 75th Anniversary/World Bank)
As regards to global economy, the world has experienced the sustained strength, in the recent years; and the vibrancy of the international financial markets, especially in emerging countries. Yet still there are important economic challenges need to be addressed. IMF is trying to help developing countries to overcome them; first, the historical approval of 100% debt cancellation of 19 low-income countries in 2005. Second, in view of surging global current account imbalance, the emphasis should be placed on the importance of remedial policy on the side of the US but also of Asian countries in regards of their exchange rates. Third, is the essence of fund’s broader work in promoting development through reform of multilateral trade regime and facilitating balance-of-payment adjustments for low income countries. The newly introduced Trade Integration Mechanism is a sign of funds commitment to low-income countries and multilateral trade liberalization.
The key challenges in international development lending are:
- Ensuring greater debt sustainability and avoiding huge debt liabilities and aid dependency in developing countries
- Sound financial management and fiscal sustainability that involves prudent international borrowing, strong budget management, and good governance.
- “Dutch disease” in lending –eradicating the phenomenon whereby high foreign aid inflows actually end up harming countries’ long term prospects.
In view of the above risks the Fund and the Bank (IMF&WB) have jointly instituted a Debt Sustainability Analysis Mechanism to regularly assess individual countries’ debt situations, and the Fund is committed to finding new lending facilities and instruments that are tailored to specific country needs.
Amidst the feast of discussions and challenges to conventional wisdom by different paradigm approaches some highlights have a particular relevance as we look to the future of globalization. These include:
- The complex multifaceted and multilayered phenomenon of globalization was backdrop to our entire discussion; the discussion has brought home how pervasive and how far it marks a dividing line in how development challenges are seen and acted upon. Globalization appears in a highly polarized set of realities and, still more, perceptions. Teasing out exactly what analysts mean they use the term globalization will help to better understand its impact.
- The architecture of global system needs to be overhauled to confront the new challenges posed by globalization. A house built in the forties may be valuable for its historical significance, yet the house may need to be remolded and retrofitted.
- The “dark sides” of global systems - economic, political and social emerged more starkly than expected. Economics the so called sensible economics remains a key part of the architecture of development
- Human security is a new cornerstone for development; both the foundation, tying the need to define and work for human dignity, the complex challenges of human rights human development in its all forms and security both in the sense of absence of conflict and peace and an environment of law and order in which human capabilities can flourish.
- The national state, the country, remains in many frames that essential unit of account, durable, and reference point at many stages. Yet current international relations in practice more often operate outside the confines of national boundaries including legal and social norms emerged as a central challenge for immediate and still more for the longer term future
- It is approaching a truism in global discourse that what is global is also local, that all that is local still has global dimensions. Yet many sensed that the operational implications of this wisdom of our times has yet to be harvested – that in many senses the insight has yet to be translated into operational forms.
- “Politics uber alles” might be a conference theme – not that political science has all the answers or visions, but that the future path lies along a complex path strewn with political challenges at every turn. Presenting issues in political terms; understand the politics of an issue, leading the political process, inspiring political leadership, and building the institutions of political participatory and democratic systems-all monumental challenges. New forms of previously unimagined alliance, including strikingly, faith-based activism, religious institutions and social movements, but also business, large and small technology, academia and so forth, all are playing more active roles
- Complexity is no longer, the bugbear of small minds but the daily, minute- by- minute reality of the world we are navigating. Appreciating and finding tools to deal with the enormous interwoven disciplines, actors, and places that drive current developments is, to put it mildly, a challenge.
- Partnership is a buzz word of our times but its common use reflects the important reality that complexity plus political demands plus new disciplinary perspectives demand a vast array of working arrangements built on difference, mutual respect if not understanding, flexible and creative relationships
- Weak institutions are not confined to weak states but they lie at the crux of the challenge there. Great minds need to focus far more sharply on the challenges of what we term capacity and institution-building as our understanding and paths forward remain uncertain.
- Innovations, social entrepreneurship, and creativity have always been linked to progress and hope but perhaps never more than today. Thinking rigorously about what sparks creativity how social entrepreneurship works and how to support it, and where innovative ideas are leading is imperative for future (25 years ahead)
Globalization is inevitable, what are the next steps to ensure the whole world communities enjoy its fruits more equitably? Three themes are to be addressed here 1) The transformation of our global governance infrastructure to confront the new challenges posed by globalization; 2) How to conceptualize a new political economy of development taking into account sensible, social economics and hard political realities; and 3) How to forge new constituencies for common development goals.
9.0 DEVELOPMENT ISSUES: Multilateral cooperation
9.1.1 Status of aids for trade
9. 1.2The Rationale for Aid for trade
Aid for trade comprises: technical assistance for capacity building and institutional reform, as well as financial support for diagnostic studies, investments in trade-related infrastructure, and assistance to offset adjustment costs, such as support to help countries make the transition from tariff to other source of revenue.
The significant trade liberalization undertaken by developing world over the past two decades has been associated with rapid growth in a number of formerly poor countries, especially in Asia. Countries with export-oriented policies have grown faster than those with inward-oriented policies that block integration and discourage competition. The increase in per capita incomes in these countries has been accompanied by a – sometimes dramatic decline in the incidence property.
Although trade can be an important engine of growth, many poor countries face considerable infrastructure and other supply-side constraints to participating in global markets. Trade reform is also “global public good” in that all countries generally benefit from one country reforms (e.g. lowering of tariffs and other trade barriers) and investments in trade infrastructure (e.g. customs reforms and ports), and benefits are increased when reforms are undertaken by a number of countries concurrently. However, the benefits of reforms are not fully captured by the reforming country itself, leading potentially to “under-investment” in reforms. Aid for trade can thus be important complement to trade reform and global market opening.
Efforts to provide aid for trade, like any other aid, need to take account countries’ absorptive constraints, whether at the project implementation, institutional or macroeconomic level. Nevertheless, it is useful to note that both trade reforms and aid for trade can also be complementary to the broader growth in aid: trade reforms and aid for trade can play a role in managing scaled-up in flows, by encouraging aid absorption and containing or mitigating the consequences of upward pressure on real exchange rates. For instance, more open trade policies can counteract the negative impact that surges in aids, which can raise real exchange rates, might have on the competitiveness of exports. Lower import tariffs reduce costs for the export sector, both directly by making imported inputs available more cheaply and by diverting fewer resources into import competition and learning. Aid for trade in turn can tackle bottlenecks hampering supply and productivity in the non-tradable sector –such as roads, storage, ports, distribution-enabling the sector to expand supply instead of increasing prices, and thus benefiting the competitiveness of tradable sectors. Finally customs reform and trade facilitation more generally, can reduce transaction costs for trade, thus countering the effects of real exchange rate appreciation.
9.2 MANAGING AND ABSORBING LARGE AIDS INFLOWS – THE ROLE OF TRADE MEASURES
Fund staff is modeling the role that trade measures can play in helping authorities to manage and absorb large aid inflows. Results indicate that trade-related measures that lower transaction costs help to reinforce the effect of tariff cuts in containing the real exchange rate pressures arising from large aid inflows (i.e. Dutch disease). Moreover, trade policy can compare favorably with other policies aimed at managing the impact of large aid inflows, which are typically contractionary. For instance, while trade policy measures are associated with consumption growth, typically monetary adjustment policies rely on domestic sterilization. As such, monetary policies entail a building up of international reserves and contraction of consumption.
9.2.1 WTO Task Force
Two task forces have been established since September 2005, to provide recommendations on how to move forward with aid for trade. In October 2005, a Task force was set up at the WTO in Geneva to present recommendations for enhancing the Integrated Framework (IF). Shortly thereafter, at the Hong Kong Ministerial meeting in December 2005, Ministers called for the establishment of a Trade Task Force on Aid for Trade more broadly, which was set up in February 2006, as well as separate complementary process on assessing the prospects for aid for trade funding, headed by WTO Director General Lamy. Meanwhile, donors have also announced increased commitments for aid for trade.
The Integrated Framework for Trade-Related Technical Assistance (IF), first established in 1997, is a cooperative interagency effort (involving the IMF, International Trade Centre, UNCTAD, UNDP, the World Bank, and the WTO) supported by bilateral donors aimed at facilitating coordination of trade-related technical assistance and promoting an integrated approach to assist the LDCs in enhancing their trade opportunities. Although initially the IF made little tangible progress towards its objectives, in 2000 it was revamped into a mechanism for mainstreaming trade into national economic plans and poverty reduction strategies. An IF Trust Fund was established with contribution by donors to finance Diagnostic Trade Integration Studies (DTIS) and certain related activities. Work in the first three countries began in May 2001 and at present, approximately forty DTISs have been undertaken, or are in pipeline. These diagnostic studies include a comprehensive appraisal of barriers to trade and typically cover market access, trade policy, transportation, trade facilitation and investment framework, as well as the overall macroeconomic situation and an assessment of the institutional setting.
9.2.2 The IF Task Force
Partly as a follow-up to the DC endorsement of the Bank and Fund staffs’ recommendation for an enhanced IF, a task force of donors and LDCs was established in October 2005 to operationalize these proposals. The work of task force was based three objectives: (i) increased, additional and funding on a multi-year basis; (ii) strengthened in-country machinery, including through mainstreaming trade into national development plan and poverty reduction strategies; more effective follow-up to diagnostic trade integration studies; and improved coordination amongst all IF stakeholders, and (iii) improved decision-making and IF management Structure to ensure an effective and timely delivery of the increased financial resources and other support.
Following consultations, including with Bank and Fund staff, the Task Force presented its recommendations to the IF Steering Committee in Geneva, which approved them on July 5, 2006. The main recommendations are:
- Creation of a new executive secretariat in Geneva, administratively housed in the WTO Secretariat (with a strong firewall around it) which would take operational decisions, manage the IF trust fund and report to a board consisting of donors, recipients and agencies
- Supporting a significant strengthening of capacity in each LDC recipient country funded by the IF, to manage the IG process, including the capacity to contract IF agencies for diagnostic work, capacity building, project preparation studies and other activities within the scope of the If;
- A funding target of US$400 million over initial five-year period; and,
- Monitoring and evaluation framework (currently there is no single framework, making it difficult to measure)
Staffs are broadly supportive of the direction that enhanced IF has taken. The strengthened ownership of LDCs and Donors will an essential pillar for enhancing the effectiveness of the IF and in light of donors’ interest in the work of the Task Force, the prospects of funding needed for enhanced IF have improved significantly. At the same time the staffs have also expressed concerns shared with the Task Force and within the IF governing bodies about the need to establish adequate mechanism to provide support in-country, thus bridging the gap between an independent Secretariat housed in Geneva in the WTO and the implementation of programs at country level. Development effectiveness must be the overriding consideration for the IF implementation structure agreed upon by the negotiating parties (donors and LDCs) in Geneva.
Going forward, transition teams, comprising donors, LDCs and agencies are being established to provide more specific inputs for implementation in three key areas:
- institutional issues including staffing of the executive secretariat for the IF
- defining the in-country approach and programming issues; and,
- launching the replenishment process for the IF Trust Fund, with a view to operationalizing the enhanced IF by January 2007
The broad scope of aids for trade implies that monitoring and evaluation will be challenging. The Task Force recommends the establishment of a monitoring body in the WTO, which would undertake a periodic global review based on reports from several different sources (including from countries and regions, donors, relevant multilateral agencies, and private sector). The reviews are to be followed by an annual discussion on aid for trade, convened in the WTO General Council to give political guidance. Further more, an assessment of aid for trade- for donors and recipients is to be included in WTO Trade Policy Reviews.
9.3 Main Recommendations of the Aid for Trade Task Force:
The report of the Task Force established that aid for trade should be guided by the Paris Declaration on Aid Effectiveness. Applicable to all parties involved (donors, agencies, and beneficiaries). The specific recommendations from the Task Force include:
Strengthening Needs Identification at the Country Level:
- Implement the recommendations for an enhanced integrated framework
- Explore the necessity of establishing a similar, but separately funded, in-country-process for non-LDCs “International Development Assistance (IDA)-only” countries, if such mechanisms do not already exist or can be improved upon.
- Urge agencies, donors and governments in other developing countries to work together to establish similar processes if they do not already exist. These processes should be modeled to the specific circumstances and needs of the country concerned; building on what already exists where possible and appropriate.
- Use donors and agencies, together with regional banks and organizations, to step up their efforts to identify regional, sub-regional and cross-border needs, including those related to regional integration.
Strengthening Donor Response
Donors and agencies should:
- Integrate trade and growth issues more effectively in their aid programming;
- Further strengthen their trade expertise both in the field and capitals;
- Use needs assessment processes (where available), and their results, as a basis for their programming;
- Move towards a programme/sector/budget approach, if country owned, if mainstreamed in national development strategies and if a robust system of financial accountability is in place.
Strengthening the Bridge between needs and donor response
- Recipient countries should mainstream trade into national strategies such as PRSPs, formulate trade strategies, and propose priority trade projects for donor financing
- The division of responsibility for funding and implementing Aid-for-Trade projects and programmes should be addressed through country-based processes such as PRSPs or Consultative Groups, if necessary complemented with a partner conference focusing specifically on trade-related support.
- Explore merits of establishing a Regional Aid-for-Trade projects Committee, comprising sub-regional and regional organizations and financial institutions, to oversee the implementation of sub-regional and regional dimensions of Aid for Trade, to report on needs, responses and impacts, and to oversee monitoring and evaluation.
- Strengthen the collection and analysis of data on trade policies and their impact, the facilitation of knowledge sharing, and the development of guidelines. Funding for such activities needed to be secured;
Strengthening Monitoring and Evaluation
- A global periodic review of Aid for Trade should be convened by a monitoring body in WTO, based on reports from several different sources, to be published if feasible on the WTO we page.
- Donors should report on funds dedicated for Aid for Trade, how they intend to meet their announced Aid-for-Trade targets, the Aid-for-Trade categories covered, and their progress in mainstreaming trade into their aid programming
9.4 Instruments of IMF and World Bank Aid for Trade include:
Types of Assistance
- Regular fund facilities
- Trade integration mechanism (TMI) as part of regular Fund facilities
- Floating tranches
- Exogenous Shocks Facility
- Investment lending
- Development policy lending (budget support)
- Preference erosion
- Tax Revenue and Trade Liberalization
- Trade-related Balance of Payments Vulnerabilities
- Country competitiveness and export growth
- Impact of Global Trade Reforms
- Trade and Poverty
- Trade Facilitation & Logistics
- Trade and Service
Support and Policy Dialogue
- Design of trade reform
- Fiscal impact of tariff reduction
- Assessing and managing preference erosion and changes in food terms of trade
- Impact of financial services liberalization on regulatory and supervisory framework
- Country Diagnostic Trade Integration Studies (IF)
- Country Growth and Competitiveness Reports
- Country Economic Memorandum with focus on trade
- Trade and Transport Facilitation Audits/Value Chain Analysis
- Standard Assessments
- Trade in Service Country Studies
Technical Assistance/Capacity Building
- Redesign of tax systems in the face of tariff revenue loss
- Customs administration reform/ trade facilitation
- Support to Trade Facilitation Negotiations
- Support to WTO Accession
- WBI Capacity building events:
Trade and poverty
Analytical tools (WITS)
Mauritius: An example of Bank-Fund collaboration on Aid for Trade and Adjustment
Mauritius is a specific example where World Bank and IMF staff are working together, drawing on their comparative expertise, to address Mauritius’ request for assistance in assessing Aid for trade. This combined support for Mauritius is an example of how staffs can respond effectively to a demand from countries authorities. As a middle-income country, Mauritius does not have access to mechanisms such as Integrated Framework to provide diagnostics and coordinate donors round trade related priorities. However, Mauritius is facing significant external shocks from preference erosion for sugar and textiles exports, compounded by oil prices, which are coming on top of an already challenging macroeconomic environment, characterized by declining growth and worsening public sector debt burden. The response of the government has been to seize the opportunity to embark on an ambitious program of economic reform, including trade liberalization, to move Mauritius from dependence on declining trade preferences to being a globally competitive trader, including services
At the request of the Government of Mauritius, Bank and Fund staff provided in-depth analytical and technical assistance support in identifying key elements of a reform program. The IMF has advised on budgetary measures that will be central in the restructuring process, while strengthening the social safety net. The World Bank has focused on how Mauritius might improve its trade competitiveness, through a combination of tariff reduction and simplification, tax and regulatory reforms to encourage investment and to tap new sources of future growth, while protecting low-income workers during transition process and providing new opportunities for the unemployed. Moreover, an IMF-sponsored consultant is also assisting the authorities in monetary and financial sector policy formulation. Bank and Fund staffs have been working with Mauritius to identify prospects for possible donor funding associated with the aid for trade initiative.
Going forward, the authorities are seeking an IMF/World Bank assessment of their reform strategy to help to mobilize financial support in the context of donor commitments on aid for trade. Mauritius plans to showcase its economic reform program on margins of the Annual Meetings in Singapore. The government has asked the World Bank, in the context of aid for trade, to provide financing and technical assistance through series of programmatic loans and selected infrastructure projects.
10.0 REGIONAL COOPERATIONS
Regional cooperation on trade-related projects is another perimeter that can help to promote the competitiveness of low-income countries in ways that purely national intervention can not or less efficiently. However, achieving regional cooperation on infrastructure and trade-related regulation is difficult, as illustrated by the many examples of regional integration initiatives that have foundered. The needed coordination is impeded by uncertainty regarding the distribution of benefits and fears of asymmetrical implementation costs and free riding. Even in the EU-with supra-national institutions and financial mechanism through which poorer regions are provided with transfers aimed in part at supplying regional public goods-cooperation is not assured
To bolster the capacity of low-income developing countries to realize the potential benefits of regional cooperation, there is a case for supporting regional (multi-country) projects through grant financing of the aspects of regional cooperation that might not otherwise attract adequate financing, such as identification, feasibility and cost/benefit analysis, the consultations and consensus-building process, and technical assistance and capacity building for the national and regional bodies concern. In addition to funding such “upstream” activities, there may also be a case for grant co-financing of the implementation of regional projects to help to overcome coordination problems and the failures of countries to adequately internalize costs and benefits of regional investments. Any mechanism to enhance assistance for regional cooperation would need to be demand-driven, with projects proposed supported by countries concerned, and open to any implementing body.
10.1 The necessity of regional cooperation
Regional cooperation encompasses cooperation on trade related regulatory policies (i.e, “policy integration” of measures that result in fragmented markets or affect their contestability, such as health and safety standards for products) and cooperation on infrastructure projects that will benefit more than one country. The two are closely linked: policy reforms to remove impediments to regional market integration may also be needed in order to fully benefit from regional investments in infrastructure. And investments in regional infrastructure could be less than optimal where, for example, they serve to reinforce the trade diversion effects of discriminatory regional trade agreements, rather than enhancing the benefits of nondiscriminatory policies and low external tariffs.
To be beneficial, regional cooperation should increase countries’ competitiveness in the world market, opposed to promotion of activities which will primarily lead to the creation of closed blocs and trade diversion costs for other developing countries. Regional integration agreements that have pursued that the latter as opposed to pursuing a strategy of integrating into world economy have generally failed to deliver sustained economic benefits to members and been detrimental to non-members
However, cooperation can occur in the context of formal regional integration agreements (RIAs), but need not. Much regional cooperation occurs outside the ambit of formal RIAs.
Potential benefits of regional cooperation can be large, particularly for small, very poor, and land locked countries. To trade, countries need to be competitive and cross-border infrastructure and policy cooperation (harmonization, mutual recognition, adoption of common regulatory systems) can help lower trade costs. Landlocked countries of which they are over 20 amongst the low income countries-can be dependent on action by neighbors to ensure their access to trade and transport links. The establishment of a transport corridor linking two or more countries can be a mechanism that reduces trade costs both directly and indirectly by increasing the incentives of all countries involved to monitor “performance” on the corridor. Non tariff barriers are a major impediment confronting traders in low-income developing countries-red tape, corruption, internal tax and regulatory controls. These are matters that may be difficult for national governments to address – international cooperation can help focus political attention on these problems.
We have seen and discussed the theories of international relations, and critically examined the various development agenda; and reviewed the existing discourse on globalization and its impact to the global development.
Similarly, we have investigated various issues essential for development; such issues include aids for trade, regional cooperation and instruments used by WB and IMF to hasten and global development and poverty reduction and hasten the achievement of Millennium Development Goals.
Lastly, I am convinced that this paper has achieved the objective as identified at the beginning in the course objective which required that, “at the end of this course the student will be knowledgeable about (1) Which world agenda that are necessary to be incorporated in Development agenda in order to achieve the Millennium Development goal as anticipated in the Vision 2025 (2) Be able to explain Bilateral and international Relations and their Impacts in Development”.
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- Professor William D. Jackson Miami University: [email protected]
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- Woodrow Wilson School 75th Anniversary Event &World Bank Washington DC: Developing in the globalizing World: A transformed Agenda: PRINCETON UNIVERSITY
- http://www.imf.org/external/np/exr/ib/2000/o41200.htm Globalization: Threat or Opportunity?
- Woodrow Wilson School 75th Anniversary event – World Bank, Washington, DC: Strategic Agenda for Development: Development in the Globalizing World: A Transformed Agenda?: Princeton University
- IMF and World Bank Staffs (2006). Doha Development Agenda Aid for Trade: Geneva