CUTS-CITEE

One of the most talked about topics in the present day world is no doubt, globalisation. Globalisation, which is defined in a myriad of ways, refers to the expansion of economic activities across political boundaries of nation states. It is a process of deepening economic integration, increasing economic openness and growing interdependence between countries. Borders and barriers are disappearing not just for trade, investment or financial flows but also in the flow of services, technology, information, ideas and people across national boundaries. Globalisation can also be viewed as shifts in traditional patterns of production, investment and trade.

There are two distinct bodies of literature, both voluminous, one depicting the innumerable benefits associated with globalisation, the other its uncountable flaws. On the positive side, every debate on globalisation touches upon variables such as foreign investment, increases in trade, better technology and more efficient utilization of resources. This all adds up to an increase in productivity, acceleration of growth, a decline in poverty, an increase in per capita income and improvements in human development indicators.

On the negative side, arguments focus on unemployment and link globalisation with an increase in poverty. Can globalisation help to reduce poverty or will it increase it? Some argue that the future course of reforms and initiatives involved in globalisation will lead to a greater divide between the ‘haves’ and the ‘have-nots’. They point to evidence that globalisation has not improved the lot of poor and marginalised people. The ultimate effect of growth should be measured in terms of providing basic minimum needs such as schooling, medical services and clean drinking water for which we do not have any specific strategy; that growth alone will solve these problems is a myth.

In this edition, we are carrying a debate on globalisation, which focuses in on some of the above aspects. Most of the contributors to the debate are from Europe, yet their disparate views amply demonstrate just how controversial globalisation is even within that region.

Apart from this debate, we also carry some of our event reports and details of new publications. Hope that you would enjoy reading it.

Editor

Debate

Growth makes the poor richer: Reversing the effects of globalisation might increase equality as the critics claim!

Ten per cent of the world's population receives 70 per cent of its total income and produces 70 per cent of its goods and services. At the opposite end of the scale, about half of the world's population lives on less than Dollars 2 a day (about Dollars 700 a year, at purchasing power parity). These 3bn people produce only 6 per cent of world output. These gaps are the most striking fact about our world. Yet the world is also knitted together, as never before, by the technological advances and economic liberalisation known as "globalisation". For vocal critics, globalisation must have caused the inequality. As it happens, they are right - but for reasons that are the exact opposite of those they advance. Modern technology and economic liberalisation have not made the poor poorer. But they have helped make the rich richer. Those who argue that ending globalisation would lower world inequality could even be right-but only because it would be a move towards equality of destitution.

First, according to the World Bank, not only does half of the world's population live on less than Dollars 2 a day but a fifth, that is 1.2bn people, has less than Dollars 1 a day. Focusing on the latter group, we find that the absolute number is much the same as in 1987 but the proportion of the world's population has fallen, from 24 per cent to 20 per cent. In East Asia, the proportion in extreme poverty fell sharply, from 27 per cent to 15 per cent. The proportion also fell in south Asia, from 45 per cent to 40 per cent, but it remained constant, at between 46 and 47 per cent, in sub-Saharan Africa.

Second, the ratio of average incomes in the world's 20 richest countries to those of the world's poorest is now about 40. Forty years ago it was 20. The figures put together by the economic historian, Angus Maddison, suggest that in 1900 it was close to five and in 1820 about two. The ratio of the average incomes of successful countries to those less successful has grown over two centuries.

Third, according to last year's World Development Report, global interpersonal inequality rose substantially in the 19th century and remained roughly constant in the first half of the 20th century. It then rose again, though not very rapidly, in the second half of the 20th century. A more detailed study by the World Bank suggests that global inequality rose appreciably between 1987 and 1993. (Branko Milanovic, True World Income Distribution, 1988 and 1993, World Bank, 1999).

How is one to understand these trends? The answer is that the principal determinant of the numbers and location of those in absolute poverty, of gaps in average incomes between rich and poor countries and of global inequality is relative economic growth. At the beginning of the 19th century, global average income was about Dollars 650 a head at today's purchasing power. May be two-thirds of the population of 1bn lived on the equivalent of Dollars 1 a day. As growth started in Europe and North America and spread across the globe, to Russia, Latin America and East Asia, average incomes rose, lifting the poor in these countries out of extreme poverty. This growth process has been weakest in south Asia and sub-Saharan Africa. That explains the concentration of extreme poverty in those regions. Analysing the recent past, two World Bank researchers explain the disappointingly slow fall in extreme poverty in the 1990s by the fact that too little of the growth was in the poorest countries. (Shaohua Chen and Martin Ravallion, How Did the World's Poorest Fare in the 1990s? World Bank, 2000).

Similarly, differences in long-term growth also explain the gap between rich and poor countries. With a few exceptions, countries that began growing in the 19th century have continued to do so. In these countries, real average incomes per head, at purchasing power parity, are perhaps 20 times as high as in 1820. But in some countries incomes per head are roughly the same as they were two centuries ago: Ethiopia is an example. Necessarily, the gap between them and the front-runners has grown ever bigger.

Again, differences in relative growth rates explain most of the changes in interpersonal income distribution. Branko Milanovic of the World Bank concludes, for example, that between 75 and 88 per cent of global interpersonal inequality is explained by inequality in average incomes across countries. Over shorter periods, changes in internal income distribution also matter. He argues, for example, that the fast growth of urban China relative to rural China and India explains much of the increase in global inequality between 1987 and 1993.

If the most important single determinant of poverty and inequality is growth, where does globalisation fit in? The answer is that, in the right policy and institutional context, integration supports growth. It is no accident that the periods when global inequality rose fastest were in the second half of the 19th century and the second half of the 20th. If global inequality did not rise in the first half of the 20th century, it was largely because catastrophic policy errors reversed integration and caused a global depression in the world's most advanced economies.

A link does indeed exist between globalisation, inequality and poverty. But it is neither new nor the one critics point to. Globalisation does not make countries poor; it helps make them rich. But it has not made all countries equally rich. The result is growing global inequality and a concentration of extreme poverty in the countries that have failed to jump on to the growth ladder and stay on it. The partial spread of rapid economic growth is explained, in turn, by the inadequacies of policies, politics and institutions in many countries. Yet, while the rich have not become rich because poor countries are poor, they have too often failed to give the poor the assistance and opportunities they desperately need.

At bottom, however, the countries that have failed to generate sustained growth either turned their backs on global integration, such as India, have lacked preconditions for exploiting those opportunities, such as much of sub-Saharan Africa, or have suffered from both obstacles. The path to reducing poverty and closing income differentials requires removing such impediments. But one thing, above all, is quite clear: if the world is to become less unequal through raising the bottom, rather than collapsing the top, and still more if mass poverty is to be eliminated, it can only be via successful integration, not its opposite.

(source: This is a slightly abridged version of the article by Martin Wolf, Financial Times (FT); January 24, 2001)

CRITIQUE

The article of Martin Wolf has generated a lot of discussion on the subject. The following are some of the responses published in the Letters to the Edior column of the Financial Times.

Who are the Critics of Globalisation?

It would be nice if Martin Wolf would tell his readers who are the "critics of globalisation" he is arguing with and what arguments (beyond protesters' banner headlines) he is challenging. He claims that some people argue for the opposite of "successful integration"; that is, isolation. Who, apart from some North Koreans?

There is good evidence, some of which Mr. Wolf cites, that world income distribution became sharply more unequal even in the five years from 1988 to 1993. Other evidence suggests that the same is true of the last quarter of the 20th century. At the same time, indices of globalisation have risen at high speed.

Mr. Wolf says that even faster global integration incorporating more of the world's population will reduce world income inequality by causing accelerated economic growth in countries and regions at lower levels of the income distribution, perhaps. But first, the absolute gap between rich and poor countries is so large that the poor would have to grow very fast and for a long time even to begin to reduce it.

Second, the correlation between rising income inequality and rising globalisation is consistent with the proposition that free market economic growth tends to generate a rising proportion of households at the extremes of the income distribution. Third, the world shift towards free market policies over the past 20 years has been associated in developing countries with little or no acceleration in their average economic growth. The New Zealand experience of radical free market reforms since 1984 serves as a dismal reminder that even with the most level of playing fields the players may not turn up.

Furthermore, plenty of experience, notably of the East Asian crisis of 1997-99 with open capital flows and Chile's successful stablisation in 1993-94 using capital controls as an instrument of monetary policy, suggests that the sort of uncontrolled integration into international financial markets that Mr. Wolf seems to be calling for is a recipe for disaster.

(Source: Robert Wade, FT; January 25, 2001)

Spread benefits of globalisation evenly

Perhaps Martin Wolf is a little too complacent about the spread of gains from globalisation?

It is now widely accepted that poverty has two dimensions-it has to be understood both in relative and in absolute terms. It is indeed true that the share of the global population living in absolute poverty has declined over the past decade. But at the same time there is overwhelming evidence that the distribution of income has worsened, both within and between countries. There is also widespread agreement that these changing patterns of global poverty are to a significant extent an outcome of the reduction in the barriers to the global spread of many inputs (skilled labour but not unskilled labour), of products and of ideas (but not always of technology).

More problematically, the "losers" are not confined to those who failed to participate in the global economy (as Mr. Wolf implies) but are also drawn from those who have participated but have done so inappropriately. So the issue is not so much whether countries should participate in the global economy, but how.

There is another reason why we should be concerned about the unequal spread of gains from globalisation. As Mr. Wolf correctly points out, the second half of the 19th century and the first decade of the 20th century saw a similar rise in both global integration and inequality. But he fails to point out that this very process of unequalisation led to policy responses that constrained and then reversed global integration. The inflow of unskilled labour bid down wages in many countries and controls were instituted against labour mobility. The distributional consequences of intense competition in product markets led to tariffs in the inter-war period.

These historical developments are not irrelevant in the current period. The consequence of increasing inequality is the growth of widespread opposition to global processes, not just with respect to the World Trade Organisation but also in new forms of protectionism (such as those masquerading as “environmental” standards). If we are to benefit from the specialisation that globalisation makes possible, it is my belief that we will have to develop improved mechanisms to spread the gains more widely. We should be driven in this not just by altruism but also by self-interest.

(Raphael Kaplinsky, FT; January 26, 2001)

Growth makes poor richer, but still not rich enough

Martin Wolf made some fair points. But growth doesn't make the poor rich enough unless public policy is pro-poor and unless peace prevails.

For instance, Angola's real annual gross domestic product growth rate averaged 6.5 per cent for 1995-99 (International Monetary Fund data), based on its offshore oil revenues (including one-off oil exploration bonuses worth Dollars 900m paid to the government by foreign oil companies). Yet, Angola's poor see very little benefit because this bounty is not spent on pro-poor services (53 per cent of children under five are malnourished) and agriculture- once the main livelihood of the poor- has collapsed to less than 10 per cent of its prewar level.

Similarly, the struggle of Ethiopia's poor (a country Mr. Wolf cites as having an income per head roughly the same as that two centuries ago) has been exacerbated by the recent Ethiopia-Eritrea war, which has held back much-needed social spending (58 per cent of Ethiopian women are illiterate). For the average African, the celebration of globalisation in Davos is meaningless as long as public policy remains anti-poor, aid budgets contract and international peacekeeping remains unfunded.

(Source: Tony Addison, FT; January 30, 2001)

Unspeakable dilemma over helping poorest

Martin Wolf explains the relationship between globalisation, inequality and poverty in relation to the Davos World Economic Forum. Globalisation encourages economic growth, increases the absolute income of the poorest and reduces their proportion. But it has increased the income gap or inequality between rich and poor over two centuries or more.

This poses an unspoken dilemma for the big multilaterals whose political masters and public relations insist that their policies attack poverty with programmes that put money directly in the hands of the poor today-not tomorrow, or as a result of trickle-down in due course. If this approach had no cost it would be incontestable. But it has. Not long ago the World Bank explained that the very poor tend mostly to live beyond the reach of targeted poverty reduction programmes. Redistributing resources to attack poverty directly may reduce the contribution of the multilaterals to growth. This in turn will reduce progress in poverty alleviation.

Most seriously, we do not know how to help the poorest countries on to the growth ladder. Until we do, should we learn to live with inequality as the lesser of two evils?

(Source: Alister McFarquhar, FT; January 27, 2001)

CITEE EVENT REPORTS:

Round Table: Implementation vs. Expansion of the WTO

There are differences at the WTO between the developed countries that want to expand the ambit of the WTO through a new round, and developing countries which want the WTO to first to resolve problems faced by developing countries arising from implementation of the existing agreements. Further, at the next WTO Ministerial Conference to be held in Qatar in November 2001, implementation of the Uruguay Round Agreements will be a crucial matter for India and other developing countries. CUTS-CITEE organised a roundtable on this topic at New Delhi on the 24^th of March 2001. Representatives of government, non-governmental organisations, business chambers, diplomatic missions, academic and research organisations and the media participated in this half a day discussion. The two panellists were Mr. Nripendra Misra, Special Secretary, Ministry of Commerce, Government of India and Joe Cunnane, First Counsellor (Economics and Commerce), Delegation of the European Commission in India.

Misra said if implementation issues are not addressed by the member nations of World Trade Organisation (WTO), the future of the Multilateral Trading System (MTS) is at stake. He emphasised that implementation issues must be resolved before the launching of any new round.

Cunnane did not agree with this sentiment the way it was being put forward. He pointed out that the implementation issues and the launch of a new round need not be mutually exclusive. While speaking on the occasion, Pradeep S. Mehta emphasised the importance of involving the civil society in the decision making process regarding the trading system to buttress the people’s faith.

For more information, please visit: Web: www.cuts-international.org

Negotiating Agenda for Market Access: Cases of SPS and TBT

“We need to go beyond ‘technical assistance’ if developing and least developed countries are to benefit from the multilateral trading system,” said John Cuddy, Director, Division on International Trade in Goods and Services and Commodities of the United Nations Conference on Trade and Development (UNCTAD).

Cuddy was speaking at the closing session of an international workshop on “Negotiating Agenda for Market Access: Cases of Sanitary and Phyto-sanitary Measures and Technical Barriers to Trade”. The event was organised by CUTS-CITEE with the cooperation of UNCTAD and the International Centre for Trade and Sustainable Development (ICTSD), Geneva in Geneva on 24-25 April 2001. More than 70 delegates from civil society organisations, government and inter governmental bodies, academics and trade negotiators participated in the meeting. Apart from the LDC and developing country delegates, experts from the WTO, UNCTAD and various country missions participated and spoke on the occasion. Most importantly, experts presented case studies on market access problems being faced by countries such as Kenya, Uganda, Mozambique, Chile, Zambia, Tanzania, Sri Lanka, Bangladesh and India.

For more information, please visit: Web: www.cuts-international.org

World Consumer Rights Day

As part of the World Consumer Rights Day (15^th of March) celebrations, CUTS organised a one-day workshop of consumer organisations at Jaipur on the 18^th of March 2001. The theme of the workshop was “Corporate Citizenship in the Global Market and Consumer’s Perspective”. The focus of the discussion was issues pertaining to corporate responsibility and their linkage to poverty eradication from the perspective of consumers. Further, the viewpoints and concerns of rural consumers on corporate governance and poverty eradication were also discussed. More than 60 representatives of grassroots consumer organisations participated in this meeting. They also spoke on the problems that common consumers face in their day to day life.

NEW PUBLICATIONS

RESEARCH REPORT

The Functioning of Patent Monopoly Rights in Developing Economies: In whose interest?

Author: Taimoon S. Stewart

The report questions the persisting view that developing countries would gain by pursuing a strong intellectual property protection regime, in terms of flows of trade, investment and technology transfer. The report analyses the functioning of patents regimes in developing economies in the past and present.(ISBN 81087222-36-0, Rs.100/$25)

BRIEFING PAPER

Trade and Sustainable Development: An Outline of A Southern Agenda

The paper examines the pros and cons of the concept of sustainable development from the point of view of the South. It also tries to answer two core questions, which need to be answered in-depth: how does trade policy relates to sustainable development? And is there any Southern Agenda on Sustainable Development? Finally, it provides an outline of a southern agenda. (No.1/2001)

MONOGRAPHS

Consumer Protection in the Global Economy

As the title suggests, this monograph spells out the areas of interaction between consumer protection laws and competition laws, an area . and in the global economy with the help of certain examples. The novelty of this monograph is that it outlines the goals of a consumer protection policy and also speaks about the interaction highlights the concerns and perspective of the consumers in the era of globalisation. (ISBN: 8187222-38-7 , Rs.20/$5)

All about International Investment Agreements

Bilateral investment treaties (BITs) have proliferated rapidly in recent years. From about 1330 BITs in 1996, the number went up to 1856 in 2000. In general BITs seek to ensure fair and equitable treatment for foreign investors. For developing countries to benefit fully from investment inflows, investment treaties should allow national national governments the flexibility to persue development objectives. In general, an investment friendly environment will be one that promotes development, but flexiblity should be introduced in the agreement. This monograph provides an overview of the trends and recent experiences in foreign direct investment and in investment agreements at the bilateral, regional multilateral levels. This can be a good guide to anybody who wants to learn more about the subject. (ISBN: 81-87222-39-5, Rs.20/$5).

NEWSLETTER

ReguLetter

A quarterly newsletter covering developments relating to competition policy and economic regulations around the world. Its main purpose is to provide a media, in particular to the civil society, to understand the issues clearly and promote a healthy competition culture in the world. (16 pp, subscription: $15/Rs.50 p.a.)

RESOURCES

Value Added Tax: Experiences of India and Other Countries

The book is the first of its kind, gives useful account of the evolution and the taxonomy of Value Added Tax (VAT) and its variants, and presents the reasons for its growing popularity that has made VAT prevalent in 115 countries of the world. It explains the economic effects, structure including rates, base and overage, and taxation of services in India, Brazil and Canada apart from harmonisation of VAT in European Union, management of VAT in France, etc. (ISBN 81-85930-05-8, 2001 Edition) For further information, please contact Professor Mahesh C. Purohit at mcpur@giasdl01.vsnl.net.in or gayatri3@vsnl.com

EVENTS

Asia-Pacific Meeting on Consumer Protection: New Dimensions of Consumer Protection in the Era of Globalisation, Goa, India, 10-11 Septemeber 2001

UNCTAD together with Consumers International (CI), International Organisation for Standardisation (ISCCO) and CUTS propose to do the above-mentioned meeting. The meeting is organised in the context of the issues, which emerged at the UNCTAD X (Bangkok, February 2000) and the 4th Review Conference of the Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices (popularly known as Set) to be held in Geneva in September 2001. Both the governments and the civil society organisations will join together to enhance consumer protection in this era of integrating world economies.

For more information please contact Mr. K.S. Sajeev/ Ms. Anjali Bansal at the following address.

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