Policy space and the trade-off between global benefits and domestic constraints
Guyana and the wider world
By Dr Clive Thomas
Stabroek News
October 31, 2004
Whether explicitly stated in these terms or not, the present-day struggle for national policy space within which governments of the developing countries can pursue their domestic development goals is as old as the struggle against colonialism. This follows from the simple fact that the formal structures of colonialism precluded the domestic inhabitants of the colonised country from effective control over significant areas of national policy space. Governments were not elected, foreign economic relations were in the exclusive control of the colonial power, the monetary and fiscal authorities followed directives issued from the metropolitan capital, and for long periods popular organisations like unions were illegal and treated as insurrectionist. Implicit in the struggle for independence, therefore, was the achievement of effective domestic control of national policy space for governments.
In the immediate post-independence years of the 1960s and 1970s, governments of developing countries, both elected and non-elected, dictatorships as well as democracies had pursued a nationalist agenda of seeking to exercise control over national policy space. Several of them went further under the aegis of the non-aligned movement (NAM) and sought to reshape the global economic system by creating a framework of a New International Economic Order (NIEO) as it was then called.
Readers are no doubt familiar with the rise and fall of the NIEO and NAM and I do not wish to recount that saga here. The Burnham government in Guyana was a leading inspiration in these efforts. The collapse of efforts to promote the NIEO was strongly associated with the structural adjustment programmes (SAPs), which had been introduced into many developing countries by the IMF and World Bank after these countries had turned to them for support to cope with the massive macro-economic imbalances and staggering levels of external indebtedness they were encountering. The SAPs of the 1980s and after, along with their attached conditionalities cannot be appreciated unless full account is taken of the external debt crises developing countries were facing at that time. Again, Guyana during the 1980s is an excellent example of this experience. As I pointed out last week, the call for more national policy space had surfaced in response to the rigidities and inflexibilities of these SAPs and the tremendous social costs and economic loss they were imposing on countries that had to implement them. Subsequently the call was strengthened with the explosive growth of globalisation and the formation of the WTO in 1995.
The WTO effect on policy space
Globalisation accompanied by liberalisation of trade, markets and deregulation of government controls over the economy has led to the unparalleled integration of the global economy. Two striking manifestations of this are firstly, the rapid rate of growth of global trade in goods and services. This has been well in excess of the rate of growth of global output (GDP) thereby making the world as a whole and for that matter even the most self-contained economies like the USA and China, more and more dependent on trade for their economic growth and development. The other manifestation has been the unprecedented rise in the overseas sales of the foreign affiliates of transnational corporations. These sales constitute the largest sector of the global economy.
During this period the influence of the WTO, which is the overarching organisation with responsibility for the regulation of global trade, has grown tremendously. As readers are aware not only is the WTO a rules-based body, but as an organisation it boasts of its strict adherence of agreed-to rules. It has also been invested by its members with a tremendous capacity to enforce those rules as well as with a legal mechanism for dispute settlement. Moreover, the WTO is not a 'done-deal,' but an organisation still in the process of development, so that its trajectory will be one of increasing influence over the regulation and supervision of global trade.
Because the global trading rules have been, not surprisingly, shaped by the major trading powers, many developing countries have arrived at the conviction that WTO rules for the regulation of global trade in goods and services and other trade-related areas like investment, intellectual property rights, government procurement and competition are progressively constricting their choices and options in the pursuit of domestic developmental priorities. For them, there is no scope for a trade-off between the WTO rules and domestic goals, as the WTO rules seemed to have already preempted alternative choices, because its operating agenda is to progressively narrow and constrain the room for such choice.
In this context, in response to the considerable pressure from developing countries the recent Sao Paulo Consensus (July 2004) has made what may well turn out to be a significant advance on this issue. Thus the consensus document acknowledges that with "Increasing interdependence of national economies in a globalizing world and the emergence of rules-based regimes for international economic relations have meant that the space for national economic policy, ie the scope for domestic policies... is now framed by international disciplines commitments and global market consideration."
Recognition of this reality at a major inter-governmental forum is, by any measure, a major step forward in the international community's legitimisation of the concerns that I am raising in this column. Furthermore, the consensus statement goes on to acknowledge that "it is for each Government to evaluate the trade-off between the benefits... and the constraints posed by the loss of policy space."
In conclusion let me point out that it goes without saying that support for the principle of national policy space is of far more significance to small states than it would be for large ones with their greater capacities. It also goes without saying that support for more domestic policy space as it is expressed in this column is not a blind endorsement of poor policy-making in the developing countries. It is a legitimate call for country sovereignty over its domestic economic affairs, but not an excuse for the abuse of that sovereignty.