Opinion | UN body paints ugly picture of the economic system
If you believe globalization was the way for EMs to develop, it dismisses that as a fond fantasy
The United Nations Conference on Trade and Development (UNCTAD) has a long and distinguished history of calling a spade a bloody shovel. Its Trade and Development Report for this year, provocatively sub-titled Power, Platforms and the Free Trade Delusion, is no different, carrying on the work of smashing economic idols and icons with unabashed glee.
If you believe globalization was the way for emerging markets to develop, UNCTAD dismisses that as a fond fantasy. It says the last four decades—the heydays of globalization—have been “a mixture of financial chicanery, unrestrained corporate power and economic austerity”. Contrary to the hosannas sung to the brave new world of globalization and free trade that is supposed to lift all boats, the UNCTAD report says the world today is very much like the world before World War I, which had dramatic technological changes such as telegraph cables, railroads and steamships but was also an era of unrestrained monopoly power and financial speculation, leading to obscene inequality and frequent booms and busts.
The report approvingly cites John Maynard Keynes’ comparison of free trade with the Holy Inquisition—presumably a reference to the murderous piety inherent in both of them. Like today, implies the report, the theories used to justify the economic system were mere cant, a cover for advancing the interests of capital, to the detriment of society at large. The ongoing trade wars are a symptom of this “unbalanced hyperglobalized world”.
This hyperglobalization “has as much to do with profits and mobile capital as with prices and mobile phones, and is governed by large firms that have established increasingly dominant market positions and operate under ‘free trade’ agreements that have been subject to intense corporate lobbying and all too frequently enacted with minimal public scrutiny…..this is a world where money and power have become inseparable and where capital…..has extricated itself from regulatory oversight and interference.”
This, according to UNCTAD, is how the economic system actually works, as opposed to the fairy tales spun by mainstream economic theory.
But surely countries like China have benefited immensely from globalization? Yes they have, but UNCTAD believes China and a few countries in East Asia are the exceptions. Although we celebrate their successes, the norm has been failure. Moreover, China’s development has been due, not just to its taking advantage of globalization, but also because of a well-thought-out planned industrialization strategy, selecting industries to modernize, gradually moving up the value chain and leveraging its attractiveness as a low-cost location and access to its vast market to wrest concessions on sharing technology. It has not hesitated to develop national champions capable of posing a challenge to the Western multinationals. The irony is that although China has adopted many of the same policies that were used by Western countries when they climbed the development ladder, the rise of China has been greeted with alarm and hostility. It is, ultimately, a question of power.
But surely the way to development lies in being part of global value chains (GVCs). The UNCTAD report says that it is a handful of large export firms that benefit the most from these value chains. Transnational corporations capture the lion’s share of the value in GVCs, with high value-added inputs and protected intellectual property content sold at high prices to processing exporters, and the actual production in developing countries accounting for only a tiny fraction of the value of exported final goods. The increase in profits of large ‘superstar’ firms has been a major driver of global inequality, widening the gap between a small number of big winners and a large collection of smaller companies and workers, whose share of income has been coming down.
The report does contain some desultory talk of South-South co-operation and nations coming together to change this ‘winner-takes-most’ world. But UNCTAD’s conclusion is bleak: “The paradox of twenty-first century globalization is that—despite an endless stream of talk about its flexibility, efficiency and competitiveness—advanced and developing economies are becoming increasingly brittle, sluggish and fractured. As inequality continues to rise and indebtedness mounts, with financial chicanery back in the economic driving seat and political systems drained of trust, what could possibly go wrong?”
Manas Chakravarty looks at trends and issues in the financial markets. Respond to this column at email@example.com