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The
Millennium Round of trade negotiations, sometimes referred
to also as the Development or Seattle Round, must be more balanced
and shaped by the basic notions of equity and fair play. This
means that its outcomes should more adequately reflect the interests
and expectations of the developing world as much as it will reflect
the interests of highly industrialized countries. Unless this
is ensured we may be guilty of perpetuating the inequity that
exists between highly industrialized and developing countries
in the global economy. Moreover, the very credibility of the new
round of trade negotiations will be challenged as will future
rounds of multilateral trade negotiations. An agenda that does
not include the interests and concerns of people in the developing
world – especially the poor – could seriously and adversely
affect the outcome of the trade liberalization.
If, for example, trade liberalization leads some developing countries
to face greater instability and uncertainty, if it results in
deepening poverty, it will not engender the kind of international
support that is needed to stabilize the global trading regime.
If, as a result of this, governments cannot rely on the support
of its population, or reach consensus on key legislation to ratify
positions and agreements reached in negotiations the gains of
international efforts will surely be rolled back.
This ratification process, what
has been described as “synergistic issue linkage” is
the crucial link between international negotiations and domestic
implementation. The challenge is enormous and the stakes are high.
Impact of Trade Liberalization on Developing
Countries
 There
is a growing gap between the developed and the less developed
countries, highlighted in this year’s World Development
Report and the international community should do more to reduce
it. As the ability of developing countries to use foreign aid
effectively has increased, so has the level of development assistance
decreased; per capita aid to the developing world has fallen by
nearly a third in the 1990s. The World Bank’s recent study
Assessing Aid shows that in countries that have put into
place the right policies and institutions, aid can be very effective
in increasing economic growth and in reducing poverty.
Too often, the cuts in aid budgets
have been accompanied by the slogan of “Trade, not aid”
together with exhortations for the developing world to participate
fully in the global marketplace. Developing countries have been
lectured about how government subsidies and protectionism distort
prices and impede growth. But all too often there is a hollow
ring to these exhortations. As developing countries take steps
to open their economies and expand their exports, in several,
often too many sectors simultaneously, they find themselves confronting
significant trade barriers - leaving them, in effect, with neither
aid nor trade.
At the same time, developing countries
often face great pressure, from industrialized countries or multilateral
organizations, to liberalize quickly. When they raise concerns
about potential job losses, they receive the doctrinaire reply
that markets create jobs, and that the resources released from
the protected sector can be redeployed productively elsewhere.
But all too often, the jobs do not appear quickly enough for those
who have been displaced, and all too often, the displaced workers
have no resources to buffer themselves, nor is there a public
safety net to catch them as they fall.
Consider this, standard economic analysis
argues that trade liberalization – even unilateral opening
of markets – benefits a country. In this view, job loss in
one sector will be offset by job creation in another, and the
new jobs will be higher-productivity ones than the old. It is
this movement from low- to high-productivity jobs that represents
the gain from the national perspective, and explains why, in principle,
everyone can be made better off as a result of liberalization.
This economic logic requires markets to be working
well, however, and in many countries, underdevelopment is an inherent
reflection of poorly functioning markets. Thus new jobs are not
created, or not created automatically. Moving workers from a low-productivity
sector to unemployment does not increase output.
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What
are developing countries to make of the rhetoric in favor
of rapid liberalization, when rich countries – countries
with full employment and strong safety nets – argue that
they need to impose protective measures to help those adversely
affected by trade?
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A variety of factors contribute
to the failure of creating jobs, from government regulations,
to rigidities in labor markets, to lack of access to capital.
But whatever the causes, they have to be addressed simultaneously
if we are to make a convincing case for trade liberalization.
Let me underscore this point. There are some sectors of the economy
where the standard competitive paradigm does not work well even
in developed countries, let alone developing countries.
The issue of unemployment in developing
countries is a genuine concern. What are developing countries
to make of the rhetoric in favor of rapid liberalization, when
rich countries - countries with full employment and strong safety
nets – argue that they need to impose protective measures
to help those adversely affected by trade? Or when rich countries
play down the political pressures within developing countries
- insisting that their polities “face up to the hard choices”
– but at the same time excuse their own trade barriers and
agricultural subsidies by citing “political pressures”?
Let me be clear: There is no doubt
in my mind that trade liberalization will be of benefit to developing
countries, and to the world more generally. But trade liberalization
must be balanced and it must reflect the concerns of the developing
world. It must be balanced in agenda, process, and outcomes. It
must take in not only those sectors in which developed countries
have a comparative advantage, like financial services, but also
those in which developing countries have a special interest, like
agriculture and construction services. It must not only include
intellectual property protections of interest to the developed
countries, but also address issues of current or potential concern
for developing countries, such as property rights for knowledge
embedded in traditional medicines, or the pricing of pharmaceuticals
in developing-country markets.
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As
developing countries take steps to open their economies
and expand their exports, in several, often too many sectors
simultaneously, they find themselves confronting significant
trade barriers – leaving them, in effect, with neither aid
nor trade.
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Trade liberalization must take into account
the marked disadvantage that developing countries have in participating
meaningfully in negotiations. For instance, as the new World
Development Report points out, 19 of the 42 African WTO members
have no trade representative at WTO headquarters in Geneva. In
contrast, the average number of trade officials from OECD countries
is just under seven. Often representatives from developing countries
return home and face enormous political and social pressures or
constraints that weaken their domestic bargaining powers. Internationally
negotiated agreements have to be ratified by national parliaments
and cabinets, plus they have to be implemented in societies that
tend to be divided, in transition or in some state of uncertainty
or instability. Standard economic theory and analysis does not
account for these essentially social and political processes and
irrationalities.
A Level Playing Field
This round of trade negotiations, and those beyond, must be not
be looked at in isolation. Developing countries have historically
been at a disadvantage in international bargaining for an array
of reasons and have suffered severely because of it. We need to
address suspicions born of a legacy of past power imbalances.
Moreover, we must recognize the differences in circumstances between
developed and developing countries, differences to which I have
already alluded. We know that developing countries face greater
volatility, that opening to trade in fact contributes to that
volatility, that developing countries have weak or non-existent
safety nets, and that high unemployment is a persistent problem
in many – if not most – developing countries.
The developed and less developed
countries play on a playing field that is not level. Thus, provisions
that look fair on the surface may have very different and unequal
consequences for the developed and less developed countries. Accordingly,
the power imbalances at the bargaining table are exacerbated by
the imbalance of consequences. If fairness must be the touchstone
of international negotiations, developing countries must be given
a seat at the table on terms that suit them more closely and that
are sensitive to their domestic needs and expectations.
Finally, liberalization is not an end
in itself, but a means to an end, and that end has to be the transformation
of society, modernization and above all, the end of need and poverty.
Joseph E.
Stiglitz is Chief Economist and Senior Vice President of Development
Economics at the World Bank. Stiglitz will leave the Bank at the
end of 1999 to return to research and teaching where he had a
distinguished career in academia and as Chairman of the US Administration’s
Council of Economic Advisers. Commenting on Stiglitz’s departure,
World Bank President James D. Wolfensohn said,
“Joe
has an extraordinary mind. He joined the Bank a year and a half
into a major change process designed to move us closer to our
clients, away from the so-called Washington Consensus, and to
apply a comprehensive approach to development putting social justice,
equity and the fight against poverty at the heart of the Bank’s
agenda. In the three years that Joe has been with us, he has contributed
greatly to that endeavor”.
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