Making Globalization Work for the Poor

Reports Reveal Problems — and Possible Solutions

GENEVA, MARCH 6, 2004 ( Two new reports by U.N.-affiliated groups shed light in the ongoing debate over globalization. The first, released Feb. 24, was published by the World Commission on the Social Dimension of Globalization. The 26-member group, made up of academics, politicians and representatives from a variety of organizations, was co-chaired by President Tarja Halonen of Finland and President Benjamin William Mkapa of Tanzania.

Their report, “A Fair Globalization: Creating Opportunities for All,” says globalization needs to change to be more “fair and inclusive.” Among the problems highlighted in the report are the serious imbalances in the global economy and the failure of globalization to meet the aspirations of many for “decent jobs and a better future for their children.”

The report does acknowledge, however, that globalization “has opened the door to many benefits … promoted open societies and open economies and encouraged a freer exchange of goods, ideas and knowledge.”

The commission was formed on the suggestion of Juan Somavia, director-general of the International Labor Organization. In the press release accompanying the report, Somavia said the ILO convened the commission to search for common ground and make proposals on issues that are the subject of “parallel monologues.”

The report came out of a two-year process of consultations held in more than 20 countries. Among the common points arising from these meetings was a sense of concerns about employment, threats to traditional institutions such as the family and the school, and worries about unfair rules that favor the powerful. Other concerns touched on problems related to migration and the need for government action to be more effective.

Reforms needed

The report said the problems “are not due to globalization as such but to deficiencies in its governance. … Global markets have grown rapidly without the parallel development of economic and social institutions necessary for their smooth and equitable functioning.”

To overcome this deficiency the commission proposed a number of reforms. Its report asked that each nation’s government respect the needs and interests of others in formulating domestic policies. This is particularly the case of those countries that have greater power to influence matters at a global level.

The report also called for greater attention to the basic principles of democracy, social equity, human rights and the rule of law. As well, it noted the need for a sound institutional framework within each country to promote opportunity and enterprise in a well-functioning market economy.

To enable the benefits of globalization to be more widely shared, the report calls for the large informal economy to be brought into the economic mainstream by means of policies that guarantee the rights of both property and workers.

A number of changes were proposed to the global systems governing trade and finance. The report called for the reduction of barriers to markets for goods coming from developing countries, especially in those areas where the latter have a comparative advantage, such as textiles and agricultural products.

The commission also noted that cross-border financial flows have grown massively, though the system is unstable. It also asked that efforts to deal with the debt burden of developing countries be intensified. As well, the report insisted that richer countries must increase international aid.

Insofar as coordination on these global matters is concerned, the report expressed its confidence in the multilateral system operating through the family of U.N. institutions. And the report called for institutions such as the World Bank, International Monetary Fund and World Trade Organization to be “more democratic and accountable to people,” and to give more weight to the interests of developing countries.

Unleashing entrepreneurs

A second report on globalization emphasized the importance of private business in redressing economic imbalances. “Unleashing Entrepreneurship: Making Business Work for the Poor” was presented to U.N. Secretary-General Kofi Annan last Monday by the Commission on the Private Sector and Development.

The commission, co-chaired by Canadian Prime Minister Paul Martin and former Mexican President Ernesto Zedillo, was convened by the secretary-general nine months ago to examine the obstacles to development in the poorest sectors of developing countries. The commission comprised 15 members, drawn from business, development economics and government.

The report forms part of the strategy to meet the Millennium Development Goals for 2015. These goals were adopted during a September 2000 meeting of heads of state and government, held at the United Nations in New York.

Explaining why the commission thought it necessary to give priority to the role of private enterprise, the report observes that domestic private investment averaged 10% to 12% of gross domestic product in the 1990s, compared with 7% for domestic public investment and 2% to 5% for foreign direct investment. Moreover, once informal resources are examined, such as potential land value, the domestic assets that can be tapped are much larger than the alternatives.

Prime Minister Martin, speaking at a news conference to present the report along with Annan and Zedillo, said, “For too long, development specialists have overlooked or downplayed the role of entrepreneurship in creating economic growth, providing employment, and in increasing productivity. Governments seeking to lift their people from chronic conditions of poverty must focus on the conditions that will allow local entrepreneurs to flourish.”

Steps needed

The urgency of action was illustrated by the data in the report stating that 4 billion people in the world earn less than $1,500 a year. The private sector can alleviate this poverty, stated the report, “by contributing to economic growth and empowering poor people by providing them with a wider choice of goods and services at less cost.” This will not only create employment and income growth, but will also improve the quality of life.

A point of reform in common with the ILO-inspired report is the need to bring the informal business sector into the legal and economic mainstream. To do this, a number of obstacles need to be eliminated. The “Unleashing Entrepreneurship” report noted that mainstream members are often overtaxed, and regulations and government requirements are complex and costly.

Among the other reforms recommended in the report:

— Private enterprise needs access to finance, knowledge and skills and a level playing field for firms competing in the domestic market.

— Regulations affecting the entry, operation and exit of private enterprise need to be simplified.

— Governments in developing nations should provide conducive operating and investment environments in which all private enterprise (domestic, foreign, politically connected or otherwise) can flourish without fear or favor. This involves a stable social environment, as well as competition rules, effective enforcement and a sound economic policy.

— Governments need to establish properly functioning legal and judicial systems for protecting property rights and resolving contractual disputes.

— Movement of private capital needs to be facilitated, but the liberalization of financial capital flows requires great prudence.

— The private sector, for its part, needs a sharper focus on corporate governance and transparency.

The report did not overlook the responsibility of richer nations in helping developing countries. It called for an increase in development aid and a reform of the global trading system to provide fair economic opportunities to producers from developing countries. It also mentioned the need for a better coordination among the multilateral and bilateral development institutions.

However, the report noted, the “primary responsibility for achieving growth and equitable development lies with developing countries.” For the sake of billions of poor people, facing up to this responsibility is an urgent task.

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