Chapter 9 Promoting Human Development and Economic

Chapter 9: Promoting Human Development and Economic Well-Being - Discussion Questions §

Main point of chapter 9:

An evolving global economy:

1. What are the 4 main system back in the 40s? Which one became successful and why?

   The 4 main system were Soviet socialist model, US liberal market economy, imperial preference system of European and mercantilist statist. Liberal economic system or liberal or neo-liberal system became dominant because of the failure of socialist and mercantilist statist to create a sustainable development.

Globalization of liberal economic norms:

1. What are the norms of liberal economic norms? And what are the role of government? And when will development improve?
2. The norm of liberal economic norms are that people are rational being who act to gain self-interest. And also that market produce, distribute and consume goods allowed people to better their well-being and competition keep the price low. The government has the role of providing order, making sure trade flow smoothly and increase market economies. Development will improve when international and national governance increase more commerce without interference.
3. Will every countries benefit from this system? And what is the Bretton woods institution?
4. No not every states will benefit from it. Less developing countries don’t have the infrastructure for development, so they will borrow loan and that created financial gap. The Bretton woods institution represent one way to fix that problem.

The Bretton woods institutions: the Washington consensus and beyond:

1. What are the cornerstone of the liberal economic system?
2. The corner stone are World Bank and IMF that help aid countries with financial and economic issues.
3. What are the main focus of the consensus and was it a perfect system?
4. The main focus of the consensus is helping the poor, provide basic service, infrastructure, privatize industry, liberalize trade, increase direct foreign investment, reduce government involvement and tax reform. But it wasn’t perfect as the institution and other major donor states see the limit of its approach and need for more local way to solve it and blend economic and government policies.

The role of multilateral corporations:

1. What is MNCs? What does it help with and is it an important part in economic growth?
2. To the liberal MNCs is the embodiment of an independent world economy and they represent the most efficient mechanism for developing economic and well-being. The MNCs help invest in world capital, open new market, creating jobs and improving both agriculture and technology. And yes it play an important part in economic growth, even though most of the biggest MNCs are based in developed countries like US, Japan and Europe.

The critic of liberal economic norms:

1. What did the critic of the liberal economic system norms said and what did they created?
2. The critic said that if developing countries do as it then they would end up depending on others. And so they created the UNCTAD in the 60s and NIEO in the 70s, also the G77 as well.
3. What did the G77 demand? Were the demand meet?
4. The demands were: change in international trade, demand more authority for the developing states, improve technology transferring, more foreign aid and better condition, debt relief and restructuring the international financial institutions. The demand that was meet was adopting the generalized system of preference from GATT using nondiscrimination rule. The last two demand was denied.
5. What did the NIEO try to do? What happen to G77 in the end?
6. The NIEO try to change the voting system to include more developing countries, but that didn’t change anything. It later eroded, and G77, most of the developing states decided to take on liberal economic system.
7. What is the UNCTAD jobs later on? How do economic liberalism do to soften the issues?
8. The UNCTAD jobs became training trade negotiator, promoting entrepreneur and reaching out to civil society. It soften the issues by creating Human development index.

Pieces of global economic governance: the core of Bretton wood institution is improving economic and human development.

Development and finance: The World Bank, the IMF, UN system and NGOs:

The World Bank and the IMF:

World Bank: short summarize of World Bank.

The World Bank was made to help reconstruct countries after WWII. But in the 50s it changes task to provide loan with interest to states. The loan came from member states and international financial market, the loan are provided to private capital, the loan also have conditions. The loan of banks from IFC, MIGA and IDA. When poor countries meet a certain level of GNP per capita, they can’t get loan anymore.

1. What happen to World Banks in the 50s, 60s, 70s and 80s?
2. In the 50s bank and also fund shift to develop strategies and sometimes they develop plan, sometime they response. In 50s and 60s bank’s job was to fund infrastructure project. In the 70s under Robert McNamara they improve social service. In the 80s bank involved in sustainable development, operation to reduce poverty and save the environment. All of these lead to important changes: bank can support private sector and under James D. Wolfensohn, bank focus on promoting corruption and promote sound government, but it’s not easy since they have a history of disbursing even there were evidence of corruption.

The IMF: Summarize the IMF: it was created to provide loans to short term fluctuation of currency exchange rates to establish free convertibility among their currency and maintain stable exchange rates. Member contribute every 5 years and member can withdraw it back according to the amount of contribute with charge of 3 quarter of 1%. Transition and charge based on the length of borrow. Initiative were made for group of poor countries. And they have expand their role to help heavily in debt countries and dictate policy changes as a condition for the loans.

• The IMF have try to help many countries that was in financial crisis or heavily in debt. There were some success and there some failure, and it had made some questionable decision throughout the years, which shook the belief in the IMF.
• The IMF and World Bank then make a policy call the heavily in debt poor countries initiative in 1996. In which they bring together many creditor to plan a proposal for the poor countries.
• The poor countries must submit their plan to channel debt saving into reducing poverty and better education. Once they did it the external debt will be cancel.

Collaborating with NGOs:

1. When and why did World Bank and IMF collaborate with NGO and what happen?
2. In the mid-90s they collaborate because there were many critic to them. With World Bank they work on World Bank mission, designing and executing project and participate in broad policy service as an instrument of accountability. World Bank also create organization to be the watchdog to see if the mission meets its goal and also organization to investigate charges and other to be whistle blower.
3. IMF on the other hand don’t believe in NGOs to do the job causing them to NGO to criticize IMF more.

Critic of World Bank and IMF: what are the critic of it? They are:

• The effectiveness of the two
• The head of them are always American and European
• They have limit member or executive board made everyday policies
• The voting guarantee more power to major donor
• Both are tool for powerful states
• Politic also intervene
• Majority of staff are train by western with the same ideology
• Outdated process for selecting heads
• Ineffective policies
• Both have reevaluated structural adjustment policy, soften conditions and give more responsibility to host countries.
• IMF program work better if they reflect its core
• Priority to help countries should be specific.

The UN’s approach to economic development:

1. What job does UN has to economic development?
2. The UNGA provide 2 approach: decentralized program and planning and technology assistance in training program and expert advice. It also have 3 key role as well:

• Source for innovation ideas about development.
• Gathering data and statistic
• Promote gender equality.

1. But despite that UN resource is still little compare to World Bank and IMF.

Partnerships and Millennium development goals

• The term partnerships refers to the World Bank began partnering in 1980 and in 1990 the partnership became a wide-spread approach to tackling development issues.
• Millennium development goals (MDGs) refers to the eight international development goals for the year 2015. It has been established by the UN member states in the Millennium Summit in 2000, following the adoption of the UN Millennium Declaration.
• The eight goals of MDGs:

1. eradicating extreme poverty and hunger
2. achieving universal primary education
3. promoting gender equality and empower women
4. reducing child mortality
5. improving maternal health
6. combating HIV/AIDs, malaria and other diseases
7. ensuring environmental sustainability
8. developing a global partnership for development

Bilateral aid

• Bilateral aid can be referred as official development assistance which is the aid from one government to another government.
• Since WW II over half a trillion dollars has been transferred to the developing countries, especially with 95% of that coming from the 22 members of OECD- the organization for economic cooperation’s development assistance committee (DAC).
• Bilateral aid is often tied to political consideration.

Private international finance

• Since the mid-1980s, capital flows to developing countries have increased dramatically to over $600billionin2006fromFDIandotherprivatesectors,whilethebilateralaidhasdecreasedatover$100 billion, meaning that private sector’s growing importance in economic governance.
• For the less developed countries, private capital is risky and may be limiting as most of the investment goes to just a few countries only like China, Russia, Turkey, Brazil, Mexico and Africa which are the most capital poor region during that time.

NGOs and development aid

• NGOs did many things such as helping to articulate the concept of sustainable development, changing the terms of discourse and setting new agendas in both states and international economic organizations.
• By 1990, NGOs had become important channels for assistance, serving their own missions and as subcontractors for donor governments and increasing working in partnerships with the WB, the UNDP and other IGOs.

Trade from GATT to WTO

• Globalization has occurred in large part because of the expansion of trade.
• For GATT and WTO principles and operations are some parts similar to each other like its central principles integral to the international trade regime, starting with support for trade liberalization as outlined in figure 9.4, in the textbook page 413.
• Its top decision marking body is the ministerial council, which meets at least every 2 years.
• There are 2 important innovations to be noted such as the trade policy review mechanism and dispute settlement unit.
• Trade policy review mechanism allows each WTO member to raise question to each other about trade practice and learn how to draft trade regulations in the forum.
• Dispute settlement unit is which each WTO member come together to talk or discuss about the resolutions for the problems to be solved.
• Within dispute settlement unit, there are 2 bodies inside it. The first body is the dispute settlement body, composed of representatives from all WTO members. This body tries to find diplomatic options to resolving disputes, when those option are exhausted an ad hoc panel composed of three experts chosen by the parties is convened. Its report is due after 6 months. The second body is the appellate body. It is a standing organ composed of 7 people. Its decisions are only binding when adopted by consensus in the dispute settlement body.

Macroeconomic policy coordination: the role of G7

• The group of seven or G7 is an intergovernmental organization consist of many rich countries such as Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, function as the self-appointed leaders of international economic governance.
• The roles of G7 are to manage crises, address new issues at an early stage, and to prod other institutions such as IMF, and WB to take actions. It has also proven valuable for establishing personal relationships among leaders and learning from each other’s experiences.
• Among the ongoing issues the G7 has addressed are employment levels, the consequences of globalization, job loss, cross border conflict, financial problems, debt relief and world poverty.

Functional regimes in transportation

• International trade and development and the international monetary system are lubricated by a network of international functional regimes.
• Ocean shipping and air transport are two areas that have had a direct impact on expanding economic relations and contributed to the international air transportation association (IATA) which created by the airlines in 1945.
• At outset, it was intended that IATA would provide technical information to the international civil aviation organization (ICAO) and that the two would work closely together.
• By working together, the efforts of ICAO and IATA in standardizing safety, navigation, and transit regulations have had a major impact in removing barriers to the international movement of aircraft and promoting economic efficiency in air and ground operations.

Intergovernmental resource cartels

• In 2008 about 40% of world oil production was pumped and exported from the 12 members of OPEC, the response of OPEC to the oil oligopoly formed by the international oil, the problem of cutting oil price and without consultation to do it.
• Beside the problems, there is a success of OPEC energized other less developed countries to push for not just price stability, but also price increases for other commodities, but still OPEC itself had declined in power, as oil production in non-OPEC countries such as Russia and other post-Soviet states has expanded to 24% of oil supplies. Pressures to expand renewable sources of energy to control global warming and to stabilize petroleum prices also reduce OPEC’s long term power.

Private governance

• There are four forms of private governance:

1. Coordination among firms through codes of conduct
2. Production alliance or producer cartels
3. Businesses or trade associations unite
4. Self-regulation

The Regionalization of Economic Governance

• Two debates regarding regional trade agreements have emerged:

First is the question of whether they improve the economic welfare of their members through trade creation or whether trade is actually diverted and thus reduces economic welfare. Second is the question of whether regional trade agreements are a stepping-stone or a stumbling block to global trade arrangements.

The European Union’s Single Market

Breaking down the trade barriers.

The Single European Act of 1987 (SEA) provided the foundation for major economic changes and a deepening of the integration process. Under the Single European Act, the goal was to achieve a complete single market by December 1992, including the strengthening of community institutions to support the goal.

Competition policy has also proved to be a significant technical barrier to trade. The Maastricht Treaty prohibits EU member states from giving prefer¬ ences to home companies in government contracts, even though certain areas of economic activity, such as road transport, water, and financial services, are often under the control or management of state enterprises. Breaking long¬ standing state monopolies and prohibiting state aid to specific sectors are po¬ litically difficult, although most recognize that such practices do distort trade.

A de facto single market exists among the EU’s twenty-seven members, with most restrictions eliminated. This has resulted in increased overall wealth and productivity as trade and foreign investment have grown; European cor¬ porations have become more competitive and integration of transportation and energy networks is proceeding, although unemployment remains compara¬ tively high (McCormick 2008: 272-284). Agriculture, however, has been a particular problem.

The conundrum of agriculture. Of the EU’s economic policies, none is more complicated than the Common Agricultural Policy (CAP). Agriculture is the most integrated of the economic sectors, receiving more than 40 percent of the EU’s total budget, most of which goes to buying, storing, and exporting agri¬ cultural surpluses such as butter, wine, and olive oil. In 2007, the EU paid over 43 billion euros under the CAP to subsidize 13 million farmers (3 percent of the population).

Moving to monetary integration

In the 1960s, members of the European Economic Community declared their interest not only in an economic union, but also in a monetary union, though not much progress on the latter was made for many years. In 1979, the formation of the European Monetary System created some structure for coordinating financial policy; the European Currency Unit served as a means of settling accounts; and the Exchange-Rate Mecha¬ nism provided fixed, though adjustable, bands of currency exchange. But these were weak instruments. In the late 1980s, during the discussions of the single market, provisions were made for greater cooperation in monetary policy.

The North American Free Trade Agreement

Whereas the EU’s founding Treaty of Rome is the model for common markets, NAFTA is a model for free trade areas. The latter agreement, concluded by the United States, Canada, and Mexico in 1994, actually differs substantially from the economic schemes of both the EU and other regions. The driving force in NAFTA has been MNCs seeking larger market shares than their Japanese and European counterparts. NAFTA has phased out many restrictions on foreign in¬ vestment and most tariff and nontariff barriers, allowing MNCs to shift produc¬ tion to low-wage labor centers in Mexico and to gain economically by creating bigger companies through mergers, acquisitions, and larger markets. NAFTA has also been pushed by US presidents beginning with George H. W. Bush in 1991, whose Initiative for the Americas sought to bolster Latin American and US ties to enhance competition with other emerging regional trading blocs.

Hence, while the EU has a plethora of institutions, NAFTA includes only one—the Free Trade Commission—which oversees the implementation of the agreement, makes recommendations, and provides mechanisms for dispute settlement.

For dispute settlement, NAFTA members can convene special bilateral panels, a procedure similar to that in the WTO.

The heart of NAFTA is the agreement to eliminate tariffs and quotas among the three members and to spur business investment. With the completion of the free trade area and the dismantling of both trade and investment barriers, trade among the three partners was projected to increase.

Other provisions of NAFTA deal with property rights of companies mak¬ ing investments in the three countries, and with protection of some domestic producers, notably the Mexican oil and gas industry and the US shipping in¬ dustry. NAFTA’s sanitary and phytosanitary measures are designed to protect people and animals from health risks, although such protective measures may not be imposed for economic reasons alone. NAFTA’s flexible standards per¬ mit national and local governments to have stricter standards. Export subsidies are eventually to be eliminated, though they are permitted in the Mexican mar¬ ket. There are also incentives for buying within the region; for example, prod¬ ucts from states outside the region must be processed or transformed in order for them to receive regional trade advantages.

ASEAN Free Trade Area

The AFTA agreement is relatively brief (especially compared to NAFTA) and contains no binding commitments, ironic given the fact that ASEAN members’ prosperity depends heavily on trade. Designed to eliminate all tariffs among the original six ASEAN members (Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand), in 2008 AFTA reduced tariffs to between 0 and 5 per¬ cent for over 99 percent of products traded.

Beyond the terms of the original agreement, AFTA has focused not only on tariff reductions, but also on nontariff barriers, quantitative restrictions, and harmonizing customs rules. ASEAN has also pursued various bilateral trade deals, such as with India, Australia, and New Zealand in 2008.

Regional Multilateral Development Banks

These banks are designed to promote regional programs and be more sensitive to regional needs and concerns. We look at four of them.

The Inter-American Development Bank

The oldest and among the most active of the regional development banks is the Inter-American Development Bank (IDB), with forty-six members from Latin America, the Caribbean, and North America. Founded in 1959, the IDB became a leader in social sector lending (health and education) and in lending to the smaller poor countries during the 1960s and 1970s. In the 1980s, the IDB aligned itself more with the World Bank’s economic liberalization agenda. Since the 1990s, the IDB has adopted the broader approach of the World Bank, working not only to reduce poverty and inequality by financing micro entrepreneurs and small-scale farmers, but also to improve governance through promotion of democracy and regional integration.

The IDB has assumed a leadership position in the region not only because of its lending activities, but also because it chairs and convenes donor meetings. For example, the IDB convened the 1994 Summit of the Americas, hosting the UNDP, regional NGOs, and governments in an effort to consolidate democracy and reconstruct the state.

The IDB’s advantage has always been its close relationship with states and its specialized knowledge of the region. It maintains resident representatives in each of its borrowing countries, resulting in a steady flow of information concerning needs and problems.

The Asian Development Bank

The Asian Development Bank (ADB) has also assumed a major leadership position in its respective region. Established in 1966 with headquarters in Manila, the bank currently has sixty-seven members (forty-eight regional and nineteen non regional states).

Five core areas of operation are part of the ADB’s Strategy 2020. These include infrastructure (currently one-half of all lending), environment, includ¬ ing climate change, regional cooperation, financial sector development, and education. Funded projects include the Greater Mekong subregional initiatives in transportation improvement, power, agricultural science, and technology in the river basin, and another focusing on the special needs of Bangladesh, Bhutan, India, and Nepal in energy, investment, transport, and water resource management.

The African Development Bank

The African Development Bank (AfDB) was founded in 1966 by African states. Originally defining itself as an economic development institution, the AfDB established only economic conditions for its loans, believing that the imposition of political criteria constituted unwarranted interference in the in¬ ternal affairs of member states. AfDB officials, however, increasingly moved in the direction of conditionality, albeit timidly, such as suggesting that if a government does not undertake measures leading toward the eventual use of the market pricing system, it will have difficulty obtaining future loans (Mingst 1990). Lending has become less project-based, with more program lending and sector loans.

The European Bank for Reconstruction and Development

The European Bank for Reconstruction and Development (EBRD) was founded in 1991 to aid transitions to market economies in the twenty-seven states of Central and Eastern Europe and the former Soviet Union. There are sixty-three members, including two EU institutions: the European Community and the European In¬ vestment Bank. Allocating loans that average 25 million euros each, the EBRD supports risky private projects in cooperation with commercial partners. It monitors recipients’ progress in price and trade liberalization, competition policy, enterprise restructuring, and establishing new legal frameworks.

Critics of the Liberal Economic System and Its Governance

Developing countries have long been critics of the international liberal economic system and expressed their dissatisfaction through the United Nations. Criticisms by less developed countries have been rooted both in poli¬ tics (the domination of the rich) and in economic theory, particularly Marxist and dependency theory. Other criticisms have been rooted in concerns for eq¬ uity, fairness, and social justice, which have motivated many religiously based NGOs and some mass social movements. We look at three of these: the move¬ ments to address poor countries’ debt burdens and oppose globalization, and the initiative to regulate MNCs.

Challenges from Mass Social Movements

In the mid-1990s, increasing public recognition of the debt problem and the suffering caused by IMF-mandated conditions led to a popular movement known as Jubilee 2000, a coalition of development-oriented NGOs, church groups, and labor groups that launched its campaign in Great Britain and drew its name from a biblical text (Leviticus 25) calling for remission of obligations every fifty years.

Jubilee 2000 advocated debt cancellation to overcome injustice and poverty, rather than rescheduling, reduction, or mandated policy reforms, believ¬ ing that such conditions adversely affect the poor, who unfairly bear the greatest economic burden caused by debt. “Breaking the Chains of Debt” became a ral¬ lying cry. Jubilee was especially adroit at simplifying a complex issue, placing it within a moral framework, and pressing creditors for debt adjustment. Al¬ though there are major issues of sound economic policy and moral hazard at stake, issues of fairness and global economic justice also mark the debate over debt relief.

MNCs: From Regulating to Partnering

Critics of the liberal economic model have long been dissatisfied with the roles multinational corporations play in economic affairs, believing that they occupy a position of preeminence without being subject to adequate international or state controls. Yet determining what is to be regulated, even defining what MNCs are, as well as the scope of regulations, has always been problematic.

The OECD has the clearest model for regulation of MNCs in the developed world. Its thirty members, all industrialized states with liberalized economies, have agreed to voluntary guidelines for MNCs. The OECD model is a simple one: MNCs are to be given the same treatment as domestic corporations. Thus, host-country policies on employment and labor practices, environment, and combating bribery apply to both domestic and foreign corporations.