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23 Feb, 2011

UNCTAD: Social, Economic Change Must Accompany Political Change

Noting that the momentous events in the Middle East and North Africa are a reflection of “massive social discontent and crises,” a United Nations agency that fights for the cause of developing countries has called for political reform to be accompanied by policies to “reshape economic and labour governance”.

Delivering a stinging rebuke to “rapid and poorly sequenced liberalisation and sweeping privatisation programmes”, many of which have long been reflected in the policy platforms of various travel industry groups, the Geneva-based UN Conference on Trade and Development said in its latest February 2011 policy brief that “the upheaval represents a day of reckoning for the trade and economic policy choices made in the region over past decades” and presents an opportunity for public and private sectors to make a “fresh start for economic growth with social equity.”

The recommendation is framed within the global context of a “New International Development Architecture (NIDA)” that UNCTAD says is needed for the Least Developed Countries (LDCs) to reverse their marginalisation in the global economy and support “a pattern of accelerated economic growth and diversification to improve the general welfare of all their people”, as against just a few. With the UNWTO’s Global Tourism Forum as well as the ITB Berlin both set for next month, the UNCTAD brief sets the stage for the travel & tourism industry to follow suit by pursuing an agenda for change that will recognise past mistakes and pursue alternative development paradigms.

Said the policy brief, “In its economic dimensions the upheaval represents a day of reckoning for the trade and economic policy choices made in the region over past decades. But for policy makers in countries facing similar pressures this is an opportune moment to rebuild neglected public institutions so they can lead the process of reshaping economic and labour governance. This can provide a platform for a re-assignment of macroeconomic policies for sustained growth in ways that trigger a virtuous circle of investment, productivity growth, income growth and employment creation so that the income gains from productivity growth are distributed equitably between labour and capital.”

Effectively calling for a new world economic and social order alongside the political order, UNCTAD noted that equally vocal calls are being heard for “alleviation of poverty, more and better jobs, better wages and social security, access to basic commodities at affordable prices and equitable distribution of national income.”

It added, “The downside of rapid and poorly sequenced liberalisation, sweeping privatization programmes, restrictive macroeconomic policies and export led growth strategies has manifested itself vividly in the first weeks of the second decade of this third millennium. Vulnerable countries in North Africa and West Asia, especially non-oil exporters, face significant social and political pressures though the economic policy space necessary for appropriate response has been shrinking over the last decades.

“More often than not, liberalizstion has not been able to prevent income concentration and the emergence of legions of educated, unemployed urban youth whose job prospects are dim. One of the defining features of the globalisation process in the last three decades has been to create growth in economies ill-prepared to absorb burgeoning urban and rural labour forces in productive and decent employment. While policy “reforms” proceeded apace, and even generated GDP growth, this was accompanied by bubbles of wealth and skewed, unsustainable income distribution, which has improved only marginally in many such countries.”

The brief questioned the effectiveness of the last three decades of neoliberal economic policies. It noted, “Policy reforms in developing countries since the 1980s involved reorientation of macroeconomic policies, with priority given to combating inflation, attracting foreign direct investment, and greater openness to trade and capital flows. With market liberalisation, the economic role of governments was reduced, and the goals of full employment and equitable income distribution lost their former pre-eminence.

“According to the structural adjustment paradigm that has since been widely advocated, the leading role in development hitherto accorded to industrialisation was deemphasized and prominence was accorded to whichever sector was seen as reflecting a country’s comparative advantage. In this view of what best promotes development, liberalisation was expected to permit a reallocation of productive resources from protected, inefficient industries to export-oriented competitive sectors that were supposedly more employment-intensive.”

The brief quoted the UNCTAD Trade and Development Report 2010 as concluding that more than 20 years of policy reform have had a limited impact on strengthening the potential for rapid and sustainable growth in Africa. “Indeed, they may even have reduced that potential by hindering crucial investments in physical and social infrastructure. Financial liberalisation since the 1990s altered growth trajectories in ways that were inimical to employment generation by preoccupying central bankers with exchange rate stabilisation instead of investment promotion and promoting full employment.

“Furthermore, when governments in the region opened up to foreign capital, the investment they attracted was concentrated in capital intensive sectors (telecom, energy, etc), which is the opposite of what neoclassical trade theory and comparative advantage predict. Typically, recessionary episodes with high unemployment weakened the bargaining power of organized workers and lowered their share in national income. This also encouraged greater labour market flexibility and aggravated wage compression.”

Said the policy brief, “What has taken place recently in Tunisia, Egypt and other countries in the region is thus symptomatic of a wider policy malaise that has inspired a rapidly evolving social transformation agenda. Even though acceleration of GDP growth in the 2000s has been accompanied by higher labour productivity and declining incidence of vulnerable employment and of the working poor, labour market characteristics in North Africa have remained largely unchanged since the 1990s.

“Participation rates increased marginally, and in the late 2000s were at about 44 per cent of the labour force. Registered unemployment has shrunk from around 15 per cent in the late 1990s, although, at close to 10 per cent during the past decade for Africa and at between 10-13 per cent in countries of North Africa, it remains high relative to other developing regions.”

The brief calls on policymakers to pursue “a more sustainable macroeconomic strategy (which) would rely more on investment and new capacity creation for absorbing surplus labour and on domestic demand expansion based on wage increases in line with aggregate labour productivity increases.”

It added, “For all countries, the ability to achieve sustained growth of income and employment on the basis of productivity growth depends critically on how the resulting gains are distributed within the economy, in particular how much goes to consumption of domestically produced goods and services and for investment in activities that create more employment.

“Sustainable growth can be enhanced based on seeking synergies between employment and wage growth in line with productivity and output growth. For a virtuous circle of investment, productivity growth, income growth and employment creation to occur, policies need to be oriented towards ensuring that the income gains from productivity growth are distributed appropriately between labour and capital.”

The full policy brief has been circulated to the media. It will be posted soon at this UNCTAD weblink.


UNCTAD Organises TrainForTrade seminar on sustainable tourism for development for Cambodia and Lao PDR

Tourism is recognized as a high-potential sector and a priority both by Cambodia and Lao PDR, which rank among the leading LDCs in terms of international tourist arrivals. To further assist Cambodia and Lao PDR in reaching socio and economic development gains through the generalized implementation of sustainable tourism practices, the TrainForTrade programme of UNCTAD is organizing a training seminar on sustainable tourism for development.

This event, jointly organized with the Ministry of Tourism of Cambodia and with the support of the French government, will be held in Phnom Penh from 21 to 25 February 2010. This event is expected to benefit more than 30 Cambodian high level officials, including at the provincial level, and 5 government officials from Lao PDR.

TrainForTrade is a programme of the UNCTAD Division on Technology and Logistics. For more info: www.learn.unctad.org


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