The ideology of 'there is no alternative' and the struggle for national policy space
Guyana and the wider world
By Dr Clive Thomas
Stabroek News
October 24, 2004
The situation facing two commodities, oil and sugar, both of which are under considerable international pressure have been examined at length in these columns. For the Caricom region as a whole these are arguably the most important imported item (oil) and merchandise export (sugar). Both commodities are exported from, as well as imported, into the region, which reinforce their significance for the region's overall international trade. The earlier discussions had made it clear that the prices of these commodities are fixed in the context of global trading arrangements over which the region has little or no effective control.
To take an example, it is the combination of the war in Iraq, the Nigerian industrial conflict, the power struggle between President Putin and his political rival that threatens to break up the giant Russian oil conglomerate Yukos, China's voracious appetite for commodities, along with widespread global uncertainty, which has pushed the price of oil to unprecedented levels, beyond US$55 per barrel. The impacts of this oil price rise on our economy, both good (high government revenues) and bad (high energy costs) will play themselves out in a manner that highlights how vulnerable are small, poor countries like Guyana to such global events.
Claiming policy space
This vulnerability has led small countries to stake out their claims for 'national policy space,' within which they can pursue to hold a balance between the pressures of these global developments and their domestic development priorities. This issue was first firmly put on the front-burner of the international development debates in the period of structural adjustment of the 1980s. At that time the International Financial Institutions (IFIs) and donor countries imposed severe and uncompromising conditionalities on national policy as a condition for their support in meeting some of the financial requirements of the stabilisation and adjustment programmes, which developing countries had begun to implement.
With the formation of the WTO in 1995 and its dedication to a strict enforceable rules-based regime for the regulation of international trade, the IFIs and donor countries conditionalities have become cross-related. As a consequence, developing countries now face a formidable, and for many far too rigid set of rules, procedures, instructions, and regulations on their national policy actions. The earlier rebellion against IMF conditionalities was met with the response that 'there is no alternative' to the policies being imposed. Resistance to this is now expressed in the call for 'national policy space' in a rapidly globalizing environment.
The largest, richest and most self-contained economies
To be fair, these global developments have also narrowed the national policy space of the biggest, richest and most self-contained states in the global economy. Thus the US cannot pursue an independent exchange rate or monetary policy in isolation from what is happening in the rest of the world. It therefore tends to work co-operatively, to the extent possible, with other developed economies as well as through international institutions like the IMF and World Bank, over which it exercises considerable leverage. The issue therefore, is one of degree. As the saying goes however, 'When the US economy sneezes the rest of the world economy catches a cold.' This dictum reflects the sheer size and weight of the US contribution to global economic activity. Small states can never exercise such influence on the global economy, and therefore their concerns for national policy space are of a different order of importance for their survival than is the case for the USA.
This leads to the irresistible conclusion that small size creates an asymmetrical relation. On the one hand, it makes small states very open and highly dependent on the global economy for their survival, while on the other, their smallness marginalises their reciprocal influence on the global economy.
From gross to grotesque
The question readers may ask is: Why if all countries find their national policy space being diminished is there not a common effort to halt or impede this process? There are many responses and here I discuss three of them. First all large states (and several small ones also) have pronounced that they are committed to the integration of their national economies into the global economy on the basis of the existing rules and practices. They indicate favour with the rules in support of free trade, private sector-led growth, expanding opportunities for investment worldwide, and the complete global integration of all markets for goods, services, and productive factors. It is their view that their economies will benefit from these outcomes. Indeed these countries have contributed substantially to the present regulatory framework for global economic activity. In other words, in the trade-off between national policy space and global integration, they have opted for the disciplines of the latter.
Second, while large countries preach free trade and complete deregulation and liberalisation of markets more often than not they practise otherwise. We saw this in the cases of sugar and oil where a host of non-market considerations determine the prices of these commodities and shape their global supply and demand. Some of these distortions are gross to the point of being grotesque. This is particularly the case with subsidised agricultural exports from the European Union (EU), USA, and Japan that are dumped on global markets, thereby depressing prices and undermining the livelihoods of small poor farmers in small states. Third, the rich states often use the very rules they do not observe themselves as leverage against poor countries in an effort to prevent them from pursuing an independent path of development and giving priority to their domestic development goals over global rules.
Over the years, the IFIs have had to moderate their conditionalities on account of a number of factors, including widespread political protest against them, the intellectual discrediting of these policies, and home-grown efforts of the IFIs to 'moderate' their positions. Thus today there is much discussion of governance, country-ownership of policy proposals, and the involvement of civil society in designing policy packages.
The Sao Paulo consensus
The case for increased national policy space for the developing countries has been advanced under the aegis of the evolving WTO world trade regime, but it has never been legitimised. However, at the recent XI Session of the United Nations Conference on Trade and Development (UNCTAD) held in Sao Paulo, Brazil, a Consensus Statement was adopted, which potentially has great significance for the debates over national policy space. As we shall see next week, for the first time this agreement has legitimised the notion as an acceptable policy objective for developing countries at a major inter-governmental forum. The agreement has also legitimised UNCTAD, which is significant because it is a leading inter-governmental agency dedicated to building policy-making capacity and support for the activities of the developing countries in the global trade and development order.