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Is this the UN's most powerful critique to date of finance-driven globalization?

March 7, 2012
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Ten years ago, Supachai Panitchpakdi was in charge of the World Trade Organization as it led a global push for the supachai-panitchpakdiliberalization of trade, investment and just about everything else in the early days of the Doha Round. The talks ran aground (they still aren’t concluded) amid a big pushback from many developing countries (backed by organizations like Oxfam) against the free market fundamentalists. Now Supachai is in charge of UNCTAD and has just written (or at least put his name to) one of the most comprehensive critiques of the WTO model of globalization that I’ve seen from an official body. ‘The World Turned Upside Down’ is his report to UNCTAD’s upcoming meeting in April (UNCTAD XIII – they’re held every four years) and it’s a punchy, outspoken and well written document. From the UN. That’s correct. Some highlights:

On the role of the state: “When things fall apart, the state remains the only institution capable of mobilizing the resources needed to confront large and systemic threats. The idea that the nation state had somehow outlived its usefulness in a borderless world was never very serious. Since the state is pivotal to establishing an inclusive social contract and strengthening participatory politics, it is both imprudent and unrealistic to reduce or bypass its role in managing economic development and change. The more worrying trend in recent years has been the growing influence of financial markets in bending public policy and resources to their own needs and interests – leading a former IMF chief economist to warn of a “quiet coup” – including in the post-crisis period.” Further down Supachai “stresses the critical role of the developmental state”.

A sideswipe at the Washington-based institutions: “Neither IMF nor the World Bank, having abandoned their original raison d’être to the siren calls of unregulated financial markets, have been able to forge a vision of a postcrisis world economy consistent with changed economic and political realities.”

What’s the problem?  “I have chosen the term finance-driven globalization (FDG) to characterize the dominant pattern of international economic relations during the past three decades. This is intended to convey the idea that financial deregulation, concerted moves to open up the capital account, and rapidly rising international capital flows have been the main forces shaping global economic integration since the breakdown of the Bretton Woods system. Financial markets and institutions have become the masters rather than the servants of the real economy, distorting trade and investment, heightening levels of inequality, and posing a systemic threat to economic stability. The latest crisis has served as a further reminder that FDG is a political project and is, therefore, the subject of legitimate discussion and debate. To date, the response has largely been one of muddling through, with ad hoc measures to mitigate the damage from economic shocks, informal partnerships to tackle global imbalances, and impromptu alliances to push for greater market transparency.”

And the solution? “Finding the appropriate mixture of reflation, redistribution and regulatory measures to achieve these goals is now the urgent task of policymakers, at the international as much as the national level. I have chosen the term development-led globalization (DLG) to describe the principles, priorities and policies that need to be pursued to turn tentative recovery into an inclusive and sustainable future. Reforming the financial system is the place to begin. Even before the crisis, it was clear that stable and inclusive development was incompatible with speculative market behaviour, boom-and-bust cycles, and the austerity programmes to which they invariably lead. It is telling that the emerging success stories from the South have, in large part, pursued policies that have avoided these dangers. Finance needs to get back to the business of providing security for people’s savings and mobilizing resources for productive investment.”

But solutions go beyond economic policy:  “An inclusive development agenda cannot depend on economic policies alone. Under FDG, the stresses and burdens of unregulated markets have, all too often, been shifted to individuals and households and, in countries where social welfare systems exist, to government budgets. In many cases, UNCTAD_logounprecedented increases in income inequality have gone hand in hand with underfunded public services and rising levels of household indebtedness. The resulting cost to economic security and social cohesion has been enormous. Even when growth has accelerated, as it did in many developing countries between 2002 and 2008, too many people were left behind. A balanced economy depends on a strong social compact which, in turn, requires a range of universal and targeted social policies, tailored to specific circumstances, to ensure that the benefits of growth are widely enjoyed and its risks are shared fairly. The crisis has confirmed UNCTAD’s long-standing insistence on the importance of policy space…. Each country must be able to experiment and discover what configuration of institutions and governance works best in its circumstances and in line with the expectations of its population.”

Conclusion? “Rebalancing is not a narrow technocratic challenge.  A true break with the fundamentalist thinking underlying FDG will involve a change of attitudes, morals and values.”

Stirring stuff. The only shame is that these days UNCTAD, which in the 1970s and 80s led calls for a ‘New International Economic Order’, often seems such a marginal voice in the international scene. Yet in an era of FDG crisis, perhaps its hour has come again?


  1. All worthy, well-intentioned stuff. Part of the problem with this argumentation is that “policy space” is all too often a mandate for the status quo, one which entrenches established interests and neglects the structural causes of poverty. None of which would seem in line with the expectations of the populations of these model development states. An alternate argument is that “policy space” peddles a dystopian concept which legitimates an entrenched “poverty space” – and which gives the fallacious foundation for opting out of engagement in multilateral fora where the very rebalancing and inclusive agenda which the authors deisre is being pursued.

    Perhaps I’d be more convinced if this argument was was delievered in song. “The World Turned Upside Down” is a workable title (admittedly less inspired than yesterday’s complex causal chains) and the New International Economic Order bring back fond memories of a mis-spent youth. My only fear is who may be who is humming along. Remember the infamous renditions of “We are the world”? In short, get the music right; don’t give the policy space to sing badly out of tune…

  2. Thanks for this.

    In fact UNCTAD has been generally critical of the Washington Consensus for many years and openly critical of the World Bank. I don’t know the politics but I bet this stance has led to its marginalization within the UN hierarchy.

    This paper from 2005 [] pulls few punches (excerpts below) so yes, every dog has its day, they were right, and they should shout about it; e.g.: “WTO, World Bank, George Bush, Paul Wolfowitz, Peter Mandeleson, Margaret Thatcher… your boys have taken a hell of a beating”.

    [From abstract & conclusions]
    “The author argues that no doubt trade liberalization is essential when an industry reaches a certain level of maturity, provided it is undertaken selectively and gradually. Nevertheless, the way it is recommended under the Washington Consensus, it is more likely to lead to the destruction of the existing industries, particularly of those that are at their early stages of infancy without necessarily leading to the emergence of new ones.”

    “The World Bank’s view on the subject is theoretical and ideological. Accordingly, the sort of de-industrialization which has taken place in developing countries is regarded welcome. It is argued that where the manufacturing sector had expanded excessively in relation to its comparative advantage as a result of protection, the de-industrialization is justified if it is transitory, improves efficiency and promotes growth. The World Bank’s implicit assumption in this argument is that SAPs improve efficiency, promotes growth and as inefficient industries disappear, efficient ones emerge. […] Nevertheless, while these industries may disappear, there is little evidence that new and efficient ones emerge sufficiently to replace those destroyed.”

  3. “When things fall apart, the state remains the only institution capable of mobilizing the resources needed to confront large and systemic threats”

    yes definitely we will rely on the state power of securing lives, this post is really worth reading and the arguments and contradictions justifies how leaders work to solve the issues.

    -LowkeyMedia Marketing Team

  4. As a member of the team in UNCTAD that worked on the Secretary-General’s Report to UNCTAD XIII, I am grateful to Duncan for his careful and supportive reading. Having recently joined UNCTAD from academia this was a new experience for me. The report was of course the product of a team of UNCTAD researchers designated by the SG but I was pleasantly surprised by the strong guidance from Dr Supachai Panitchpakdi (who after all was a student of Jan Tinbergen, the first recipient of the Nobel Prize in Economics), and the careful reading and comments he gave to what was produced. So yes it is very much his report.

    The key messages of the SG Report are, first, that the belief that unregulated and internationalised financial markets could resolve all economic problems has led to the constitution of a regressive global institutional and policy framework which UNCTAD has called finance-driven globalisation (FDG). This framework includes the IFIs and most international organisations, most private financial institutions, the inter-related structures of international production and trade and, not least, the ideological dominance of a doctrine which has persistently failed the test of scientific rigour and constantly failed to live up to its own promises.

    Second, the economic fragilities created by FDG are responsible for the global disasters that have been unfolding since 2007. Tens of millions of workers have lost their jobs, a whole generation is blighted by the prospect of unemployment or precarious employment throughout their working lives, and debt – of countries, governments, financial institutions and households – acts as a powerful roadblock against economic recovery. Just as importantly, the longer-term record of FDG for developing countries also leaves a good deal to be desired. In terms of growth, investment, structural transformation and social welfare, the performance has been uneven at best for the three decades in which FDG dominated policy-making globally. There is also a very strong link between FDG and inequality. If this link is not broken, truly inclusive and sustainable outcomes at all levels of development will be impossible.

    Third, there have been winners, and the report acknowledges that favourable global circumstances, particularly after 2000, have helped propel growth across the developing world. However, as we now know those conditions were unsustainable, and the report insists that developing countries cannot rely on a return to “business as usual” to recover the growth dynamic of the past decade. Indeed, the countries that have sustained growth for long periods were those which which did not conform to FDG, and avoided the policy prescriptions beamed by the IFIs.

    Tackling these deep imbalances requires a much more integrated policy approach, and Dr Supachai has proposed an alternative, development-led globalisation (DLG), offering the scope for inclusive and environmentally sustainable growth.

    As Duncan kindly describes it, the report is bold and ambitious, but it is important to note that its key contributions are not entirely new. While UNCTAD’s development work, particularly on debt and finance, has consistently been ahead of the curve, other international agencies, including ECLAC, ILO, UN-DESA, UNRISD and UN-WIDER have reflected for several years upon the shortcomings of the mainstream and the imperative to develop alternative policy and institutional arrangements. We hope the SG Report will offer a handle to assist these debates, and a tool with which to build a new modality of globalisation.

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