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G20 seoul agenda from a non g20 perspective-ha-joon chang, global hr forum 2010.pdf, seoul, korea

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The launch of the G20 in 2008 was a watershed in the evolution of the global economic governance system. …

The launch of the G20 in 2008 was a watershed in the evolution of the global economic governance system.

Despite their numerical dominance, both in terms of the number of countries and in terms of their combined population, developing countries have had very little say in the management of the global economy over the last few centuries.

Between the early 19th century and the Second World War, all of today’s developing countries were either officially colonized or forced to sign ‘unequal treaties’ that deprived them of the right to set their own policies, such as tariffs.
= After the Second World War, these countries started gaining independence and were made members of the United Nations and all that, but they had very little say in the management of the global economy.

Since their launch in 1944, the IMF and the World Bank have been the two pillars of global economic management.
= These organizations, however, are run basically on the basis of one-dollar-one-vote, rather than one-country-one-vote, principle.
= Moreover, the US have a de facto veto in both organizations, as it owns around 18% of their votes and the key decisions require 85% majority.

On top of that, since the mid-1970s, macroeconomic policy coordination has been mainly decided among the G7 countries, with no developing country representation.

However, despite this structure, until the 1980s, the developing countries had a relatively high degree of freedom in their policy choices.
= Partly because of the competition with the Soviet bloc and partly because of their colonial guilt, the leading Western powers were more willing to give space to developing countries during this period.
= For example, the GATT (General Agreement on Trade and Tariffs), which oversaw international trade until it was replaced by the more-powerful WTO in 1995, mainly focused on trade liberalization among the rich countries and allowed developing countries to opt out of agreements that they thought were too burdensome for them.

However, since the 1980s, with the memory of colonialism fading, with the decline and eventually collapse of the Soviet bloc, and with the rise of market fundamentalism in their own economic thinking the developed countries have become much more aggressive in demanding that developing countries adopt what they consider to be ‘good’ policies.

In the 1980s, especially after the 1982 Third World Debt Crisis, using their dominance in the IMF and the World Bank, the rich countries implemented the SAPs (or Structural Adjustment Programs) that pushed for a ‘one-size-fits-all’ package of trade liberalization, deregulation, and privatization in the developing countries (or the so-called ‘Washington Consensus’ agenda).
= Since the mid-1990s, the rich countries have imposed an even broader range of policy changes in the developing countries, covering issues like regulation of foreign direct investment and protection of intellectual property rights, through the WTO and various bilateral and regional trade agreements.

Even when all these policy changes did not prove very effective in promoting economic development, they were continued, because the developing countries suffering from them had very little say in deciding what policies to adopt.
= Even in the WTO, developing countries have not had the influence which you would guess they would have, given the organisation’s one-country-one-vote principle.
= This is because the organization is supposed to work through consensus and therefore votes are never taken.
= Consensus sounds great, but given the disparities in bargaining power between the member states, this in practice means that the rich countries are able to get their ways most of the time.

In the meantime, the relative economic power of the developing countries was growing.
= By the turn of the 21st century, the distribution of voting rights in the IMF and the World Bank looked hopelessly outdated.
= Except the

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  • 1. G20 Seoul Agenda from a Non-G20 Perspective Ha-Joon Chang University of Cambridge hjc1001@cam.ac.uk
  • 2. The Launch of the G20 • The launch of the G20 in 2008 was a watershed in the evolution of the global economic governance system. • Despite their numerical dominance, in terms of both the number of countries and their combined population, developing countries have had little say in the management of the global economy over the last few centuries. – Between the early 19th century and the Second World War, all of today’s developing countries were either officially colonized or forced to sign ‘unequal treaties’ that deprived them of the right to set their own policies, such as tariffs. – After the Second World War, these countries started gaining independence and were made members of the United Nations and all that, but they had very little say in the management of the global economy.
  • 3. History of Global Economic Governance I • Since their launch in 1944, the IMF and the World Bank have been the two pillars of global economic management. – These organizations are run basically on the basis of one- dollar-one-vote, rather than one-country-one-vote, principle. – Moreover, the US have a de facto veto in both organizations, as it owns around 18% of their votes and the key decisions require 85% majority. • Since the mid-1970s, macroeconomic policy coordination has been mainly decided among the G7 countries, with no developing country representation.
  • 4. History of Global Economic Governance II • However, despite this structure, until the 1980s, the developing countries had a relatively high degree of freedom in their policy choices. – Partly because of the competition with the Soviet bloc and partly because of their colonial guilt, the leading Western powers were more willing to give space to developing countries during this period. – For example, the GATT (General Agreement on Trade and Tariffs), which oversaw international trade until it was replaced by the more-powerful WTO in 1995, mainly focused on trade liberalization among the rich countries and allowed developing countries to opt out of agreements that they thought were too burdensome for them.
  • 5. History of Global Economic Governance III • However, since the 1980s, with the memory of colonialism fading, with the decline and eventually collapse of the Soviet bloc, and with the rise of market fundamentalism in their own economic thinking, the developed countries have become much more aggressive in demanding that developing countries adopt what they consider to be ‘good’ policies. – In the 1980s, especially after the 1982 Third World Debt Crisis, the rich countries implemented the SAPs (or Structural Adjustment Programs) through the IMF and the WB that pushed for a ‘one-size- fits-all’ package of trade liberalization, deregulation, and privatization in the developing countries (or the so-called ‘Washington Consensus’ agenda). – Since the mid-1990s, the rich countries have imposed an even broader range of policy changes in the developing countries, covering issues like regulation of foreign direct investment and protection of intellectual property rights, through the WTO and various bilateral and regional trade agreements.
  • 6. History of Global Economic Governance IV • Even when all these policy changes did not prove very effective in promoting economic development, they were continued, because the developing countries suffering from them had very little say in deciding what policies to adopt. • Even in the WTO, developing countries have not had the influence which you would guess they would have, given the organisation’s one-country-one-vote principle. – This is because the organization is supposed to work through consensus and therefore votes are never taken. – Consensus sounds great, but given the disparities in bargaining power between the member states, this in practice means that the rich countries are able to get their ways most of the time.
  • 7. Changing Realities • In the meantime, the relative economic power of the developing countries was growing. – By the turn of the 21st century, the distribution of voting rights in the IMF and the World Bank looked hopelessly outdated. – Except the increase in Japan’s share, it basically reflected the distribution of economic power in 1944, when the Bretton Woods conference set up these two organizations, rather than that of the 21st century. • An important turning point was reached with the 2008 financial crisis, with the US, the UK, and other rich countries plunging into the second deepest recession since the Great Depression. – In 2009, the new distribution of economic power was recognized and the G20 officially replaced the G7 as the main international policy coordination body.
  • 8. Putting the G20 into perspective I • The launch of the G20 was a very important event, but we have to put it into perspective. • The G20 is only one element, and not even the most important element, in the system of global economic governance – there is the IMF, the World Bank, the WTO, the BIS, and so on, and developing country representation in those organizations has not been increased. • True, the G20 may eventually also increase the influence of the developing countires in the other parts of the global governance system, but this is not guaranteed and it is certainly going to take time.
  • 9. Putting the G20 into perspective II • The G20 is certainly an improvement over the G7, which represented only about 700 million people. – The G20 includes some key developing countries as well as the smaller European countries (through the EU), together representing something like an additional 3.3 billion people. • However, there are still around 2.5 billion people and around 150 countries in this world that the G20 does not represent. • The G20 will better represent the interests of developing countries than the G7, as it includes several developing countries – China, India, Indonesia, Argentina, Brazil, Mexico, South Africa, and probably Korea.
  • 10. Developing Country Members of the G20 I • Now, the fact that we have several developing countries in the G20 does not guarantee that they will adequately represent the interests of all developing countries. • The problem is that the developing countries that belong to the G20 are not typical ones. – They are all big countries in terms of population – the smallest is Argentina, with 40 million people, when the median developing country population is around 20 million people. – In terms of income level and economic structure, they tend to be richer, more industrialized, and more diversified than most other developing countries.
  • 11. Developing Country Members of the G20 II • Being richer, bigger, and more economically advanced than most other developing countries, the developing country members of the G20 may not be natural advocates of things that worry other smaller, poorer, and economically vulnerable countries. • Being richer and bigger also means that they have better bargaining power and negotiation skills than do most other developing countries, so they can defend their interests better. • Being able to defend their national interests better, these countries are not as dependent on there being good global rules that better protect the weak as other developing countries are.
  • 12. Developing Country Members of the G20 III • All this means that the G20 should increase representation for poorer, smaller, and vulnerable developing economies. • Increased representation of developing countries in the G20 should also be paralleled by the increase in the representation of weaker developing countries in other parts of the global governance system- such as the IMF, the WB, etc.. • Given this concern that the G20 may not adequately reflect the interests of the smaller and weaker developing countries, the proposal to include development of the low-income countries (LICs) as a key item in the G20 agenda, made by the Korean government, as the chair of this year’s G20 meeting in November, is a very welcome move.
  • 13. G20 Development Agenda • The ‘Issue Paper, which the Korean government has produced in order to initiate this discussion makes many good points. – First of all, it openly rejects the ‘one size fits all’ approach of the ‘Washington Consensus’, represented by the G7, the IMF, and the World Bank, and advocates a ‘dynamic i-Phone approach’, where countries have a broad menu to select from. – Second, it strongly emphasizes infrastructural investment, which unfortunately had been rather neglected in the so-called Washington Consensus agenda. – Third, its proposal to pay closer attention to remittances is to be commended, given that the mainstream development agenda has largely ignored this increasingly important issue. • However, there are some important issues that are underplayed or even neglected - particularly trade and industrial policy and policies to enhance equity.
  • 14. Trade and Industrial Policy I The Korean government’s issue paper rightly emphasizes the importance of international trade for economic development. • International trade is crucial for economic development, because without international trade developing countries cannot get access to advanced technologies, whose absence is in the end what makes developing countries poor. • However, this does not mean that free trade is the best trade policy, as today’s economic orthodoxy says and the Korean government’s Issue Paper implicitly accepts.
  • 15. Trade and Industrial Policy II • The paper suggests that the best way to help developing countries benefit from international trade is to maximize their access to rich country markets while increasing foreign aid to them to improve their ability to trade, especially through increased investment in infrastructure. • However, this is fundamentally at odds with how Korea itself has developed. – In the early stages of its economic development, Korea used a mixture of protectionism, regulation on foreign investment, lax intellectual property rights protection, and occasional use of state-owned enterprises in order to nurture and develop high-productivity industries, such as steel, automobile, electronics, and shipbuilding – the main pillars of the Korean economy today.
  • 16. Trade and Industrial Policy III • But isn’t Korea an exception? • The truth is that, starting from 18th century Britain, through to 19th century US, Germany, and Sweden, down to 20th century France, Finland, Norway, and Austria, virtually all of today’s rich countries became rich by using policies similar to that of Korea’s. • And this was not a coincidence – very respectable economic theories that show that justify these policies.
  • 17. Trade and Industrial Policy III • Given this, the discussion of trade and development in the Korean government’s Issue Paper is highly problematic. – There has to be a proper discussion on the relative merits and de-merits of different types of trade and industrial policies. – There also has to be a discussion on how to reform the WTO rules and change the policies of the IMF and the World Bank on trade and investment liberalization in a way that will allow the developing to use more freely the policies that are more suited to their development needs. • If the developing country members of the G20 buy into the G7 mantra that free trade is good and that the main issue for developing countries is market access, they will be doing a great disservice to non-G20 developing countries.
  • 18. Policies to Enhance Equity I • Another issue that needs greater attention equity. • Some recognition of this issue in the Issue Paper by the Korean government – for example, in its emphasis on inclusive finance and greater access to education and training. • But there are many other policies that need considering, if we are to more strongly help non-G20 developing countries achieve a more equitable development than what today’s orthodoxy says is possible.
  • 19. Policies to Enhance Equity II • Land reform has been off the policy agenda for decades, but it can bring about great benefits, as it did in the case of Korea itself. • In addition to education and training, healthcare and other social policies need to be discussed. • If we are going to make what the Issue Paper calls inclusive finance work, we need to discuss how best to supply key productive inputs that are either too bulky or that have public goods nature (such as canal irrigation or food-processing facilities), which markets are bad at efficiently providing, and discuss alternative delivery options like cooperatives.
  • 20. Concluding Remarks I • The establishment of the G20 has been a watershed in the evolution of global economic governance, but we should not forget that there are still 2.5 billion people and around 150 countries that are not represented by it. • Unless the developing country members of the G20, and Korea as the country that still straddles the developing and the developed worlds, take extra care, they may fail to adequately represent other developing countries. • In this regard, the Korean government’s push for greater emphasis on development in the G20 agenda is most welcome.
  • 21. Concluding Remarks II • However, the development agenda proposed by the Korean government has two important gaps – first, trade and industrial policy, and, second, policies that enhance equity. • It is a great pity that the Korean government is unable, or unwilling, to talk about even policies that has benefited itself – such as infant industry protection and land reform. • Unless we adopt a more comprehensive and open-minded development agenda, the G20 will turn into another forum where (an expanded group of) stronger countries make decisions that adversely affect weaker countries or at least neglect issues that help them.

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