Capital Ethiopia Newspaper

Promoting the benefits of the poor in the current global economy

Apart from the current economic crisis in the United States and particularly in Euro zone area of Europe, it is clearly evident that the world economy has experienced unprecedented growth in the past decade. Another interesting feature of the growth is the boom in commodity demand and prices. Common factors responsible for the price increases include the rapid pace of industrialization in the South, especially in China, but also in India and other emerging developing countries, and increased demand for bio-fuels. The rise in commodity prices has generated surpluses for many commodity-producing developing countries and has led to significant and prolonged improvements in their terms of trade.
Despite all the good news, however, the international community currently faces two broad challenges: first, the need to actively maintain the past growth trends, so as to allow an increasing number of developing countries to reap the benefits of globalization; and, second, there is a need to ensure that the process of globalization becomes more inclusive, so that it benefits countries and sectors of the population that have been left out – the world’s poor.
There is evidence to suggest, especially in Africa and other low-income economies that the recent trends in global growth have not generated the level of employment that will help reduce poverty. The International Labor Organization (ILO) estimates that worldwide unemployment stands at about 200 million people, rising to one third of the global workforce if the definition is broadened to include those who are underemployed.
The problem of jobless growth in commodity-dependent economies, for example, requires policy attention. In other areas, unemployment or underemployment is more related to falling productivity, or lack of productive capacity. In low-income economies, for example, where the labor force is expected to increase significantly over the next few years, falling farm size and increasing population growth is making it harder for agricultural workers to make a living.
Low levels of investment and innovation in agriculture fuel a vicious cycle of poverty, prompting rural dwellers to look for work in the urban and non-agricultural sector, where there are, however, very few employment opportunities. Moreover, what is ultimately desired is not just employment per se, but rather employment that pays sufficiently well and that allows people to enjoy more fulfilling lives. Therefore, in order to make the world’s poor beneficial from the current globalized economy, some broad policy areas are therefore worth considering.
One of the policy areas worth considering is the issue of access in trade policy.  Further liberalization of trade in goods and services through the World Trade Organization’s (WTO) Doha round offers an important opportunity to allow more countries to benefit from trade. If it delivers on its “development agenda”, the round may begin to correct existing imbalances in the trading regime.
Other important areas for discussion include the need to liberalize trade in services, including the modalities of movement of natural persons. This would have a very large and positive impact in developing countries, in part because of the sheer size of the services economy. Policy attention should also be directed to the increasing application of non-tariff barriers, both as instruments of protection and for regulating trade.
In many developed countries, regulatory policy now focuses on protection of the environment, public health and safety, and often includes higher standards for the domestic market than existing international standards. These regulations may help promote higher prices for exporters from developing countries, but they may also open avenues for protectionist abuse and also entail greater compliance costs than would otherwise be the case. Some domestic subsidies that are currently allowed may have distorting effects on trade.
The other policy issue worth considering is the issue of regional integration. Regional integration is usually considered by many as a stepping stone to markets and multilateral alliances. In addition to further liberalization of trade in the multilateral system, further progress can also be achieved through strategic regional integration. South-South investment and trade is emerging as a major new force in the world economy, with potentially far-reaching implications. For example, South-South agreements can achieve rapid boosts in production, consumption and trade at the regional level, as well as helping to underpin the position of developing countries in South-North agreements. 
Developing new and innovative financial mechanisms is also a crucial policy area to be considered for the achievement of greater benefits for the world’s poor in the current global economic system. In addition to seeking ways to boost the benefits of foreign direct investment, policy attention needs to be directed to uncovering innovative and new financial mechanisms to help mobilize domestic and global resources. These include improving access to capital for small enterprises and the poor by reducing the costs of asymmetric information and by mainstreaming products such as micro-insurance and microfinance.
Another issue for discussion is the potential for a global monitoring and coordinating mechanism to reduce the likelihood and costs of financial crises caused by systemic vulnerabilities in the global financial markets. These can have particularly devastating effects on the poor, who lack financial resilience.
Building productive capacity is also an indispensible policy area. In order to participate fully in the global economy, developing countries must first have productive capacity and become more competitive. In part, this is an issue of the natural resources with which a country is endowed, but increasingly in the modern global economy it is also a question of created advantages relating to infrastructure, human capital, skills, resources and knowledge. The crucial lack of adequate transport, telecommunications and energy infrastructure in many developing countries requires a range of policy responses including public-private partnerships, foreign direct investment and domestic resource mobilization. Skills development and training is another important ingredient to help create a more inclusive global economy.
Another point worth mentioning is the promises and perils of commodities. Commodity-dependent economies are historically more likely to be excluded from the benefits of globalization than economies with a more diversified resource base. As per the OECD recent report, out of 144 developing countries, 86 depend on commodities for more than half of their export earnings. In the past, falling and highly volatile prices for key commodities have made this dependence particularly problematic, but today the current boom in commodity prices created by new demand in the emerging economies has opened up new opportunities for commodity-rich countries.
Policy issues that are attracting the attention of the international community include: the need to find new approaches to investment that are more advantageous to host countries; how to improve the transparency and accountability of international revenue payments in the sector; and the related need for recipient Governments to use their revenues wisely and in ways that lead to a more equitable distribution to the poor. Moreover, commodity-dependent countries are looking for ways to diversify more into upstream and downstream activities related to the commodities sector, such as distribution and higher value-added processing activities; in addition to diversifying beyond the commodities sector.
Climate change and environmental concerns and opportunities played their own very important roles in the process of maximizing the benefits to the poor. Growing concerns about climate change, biodiversity and the environment are being reflected in a number of policy measures aimed at developing and developed countries alike. There may be a re-thinking of industrial policy, with particular implications for developing countries, for example, whether the traditional trajectory from agriculture through manufacturing to the services economy needs to be followed slavishly, or whether they can leapfrog to a cleaner and greener diversified economy.
In other areas, the search for new cleaner technologies can have positive implications for developing countries, if, for example, increased research and development leads to approaches or tools that reduce the costs of providing infrastructure services for remote or distant communities. Other opportunities that are opened up also require a positive policy response from many developing countries, in gearing up to the high certification standards required in organic agriculture, for example; or in enhancing their branding and marketing of high-value biodiverse products.
The last but not the least policy issue worth considering is the issue of international aid. Aid must be more inclusive. In recent years, donor countries have been increasingly focusing their official development assistance on emergency aid and social services such as education and health. Recent UNCTAD research argues that these important contributions need to be supplemented by a more strategic approach that recognizes that long-term sustainability requires donor investment in productive capacities, including knowledge, science and technology, and enterprise development.
To conclude, the above highlighted policy issues can contribute to promoting a more inclusive, pro-poor process of globalization by taking advantage of the window of opportunity that has opened up as a result of the last five years of unprecedented economic growth. A more measured and coherent approach is needed to ensure that the benefits generated by globalization are more widely shared, and so can help to reduce the gap between those who have benefited and those for whom the benefits have not yet been forthcoming.