Once again international attention is focussed on trade
negotiations, with hectic parlays between groups of
countries before the forthcoming WTO Ministerial Meeting
in Hong Kong. And once again it is clear that developing
countries are unlikely to get much relief or advantage
from these talks, either in terms of being allowed greater
flexibility to provide some protection to their own
producers, or in terms of greater market access to the
markets of developed countries.
So it is worth asking
the question: why are developing countries so persistently
unable to extract any advantage from these international
negotiations, despite their clear moral advantage, their
greater numerical strength, and even the greater unity
across some groups that they have recently displayed
by forming pressure groups like the G-20 and the Group
of African countries?
Of course it is true that international power remains
unequally distributed and dramatically skews the balance
between the core group of rich nations (and the US in
particular) and developing countries in general. But
that is only part of the problem. One basic weakness
of developing countries, and one that renders them so
much less effective in international trade negotiations,
is the concern they all have with increasing market
access to the developed world, which stems from the
obsession with exports as the engine of growth. This
in turn make developing country governments so desperate
that they are willing to offer various concessions and
accept problematic clauses that affect their own domestic
producers, in the hope of somehow achieving the export
expansion that is now seen as the key to the development
project.
Across the developing world, the basic stimulus to economic
growth is now seen to come from increasing access to
and getting larger shares of the international market,
rather than building up the domestic market. Even in
countries that have had large growth of imports as well
and therefore do not show large trade surpluses at present
(such as China and much of East Asia) the stimulus to
growth still is seen to come from exports. Since all
countries except the US are playing this particular
game, it follows that the US economy remains the most
important stimulus not only to world trade but to world
economic activity generally. Even for countries like
China, where exports to the US account for only around
one-fifth of total exports, this remains the driving
force for the accumulation which then generates such
high rates of aggregate growth and in turn high aggregate
savings.
But this very obsession with export growth as the means
to development creates its own contradictions. It leads
to heightened competitive pressure (the famous race
to the bottom) which reduces unit values of exports
even as export volumes may increase. It prompts technological
changes in export and import-competing industries which
mean that new production tends to generate less employment,
and therefore have lower domestic multiplier effects.
In any case, all developing countries together cannot
really hope to increase their share of world markets
unless they diversify their ultimate export destinations.
Most important, this strategy prevents more sustainable
and equitable patterns of economic expansion based on
the domestic market.
The problem has become quite evident in world trade
patterns, where the ''fallacy of composition'' is now
widely acknowledged to be a real problem for developing
country exporters. Simply put, this is the problem that,
while it may be possible for a small developing country
to increase its exports substantially without significantly
reducing world market prices, this is not true for developing
countries as a whole or for groups of countries or even
large individual countries.
This means that a rapid increase in the volume of ''developing
country exports'' (which are typically resource-intensive
or labour-intensive) is likely to be associated with
prices falls and adverse changes in terms of trade for
such exporters. In extreme cases, it is even possible
to get ''immiserising growth'' through trade, of the kind
that Jagdish Bhagwati had described several decades
ago - where the benefits of increased export volumes
are more than offset by terms of trade losses.
While immiserising growth may not yet have occurred,
there is clear evidence that the prices of the manufactured
exports of developing countries have been weakening
relative to those of industrial countries, especially
for the less skill-intensive manufactured exports. A
book summarising research undertaken at UNCTAD over
some years (''Developing countries and world trade: Performance
and prospects'', edited by Yilmaz Akyuz, Zed Books and
Third World Network 2003) provides empirical substantiation
of this.
This study notes that this means that the debate must
shift from the concern with the terms of trade of primary
producers versus manufactured goods producers, to one
based on the underlying factors that affect terms of
trade and world market behaviour. Earlier it was generally
accepted that diversification and shifting to manufactured
goods production and export was the necessary advice
for developing countries. The well-known Prebisch-Singer
argument stated that developing countries would face
long-term declines in terms of trade because primary
products were demanded less as incomes increased, and
could be over-supplied.
But now, it appears that the problem relates not just
to the goods but to the nature of the trading countries,
their technological capacity and the extent of surplus
labour. It seems that the labour-intensive manufactured
goods exported by developing countries (even those that
appear to be ''skill-intensive'' and ''technology-intensive''
but really derive their advantage from being produced
by cheaper labour) behave in very similar ways. So a
shift from primary product exports to labour-intensive
manufactured exports can fail to solve the problem,
simply because too many other developing countries are
trying to do the same thing.
In fact, global competition for labour-intensive manufacturing
activities has risen sharply in the past few years precisely
for this reason, and this has meant that countries have
significantly increased volumes of exports without reaping
much benefit in terms of the total value of these exports
going up. This is very important because it provides
a cautionary note for policy makers regarding the orientation
of development strategy and the potential adverse fallout
of the export obsession.
In this context, domestic deflation in developing countries
becomes almost necessary to perpetuate the system which
provides the current pattern of growth. Developing countries
that have trade surpluses, or have capital inflows,
are all trying to avoid currency appreciation by holding
more foreign exchange reserves with the central bank.
And these reserves are usually held in what is seen
as the world’s safest place, the US - in Treasury Bills
or US securities. It is felt that by fuelling the US
economic expansion, this ensures a continuing market
for exports by the rest of the world. Paradoxically,
the US economy then emerges as the only engine of growth
and all other countries are obsessed with ensuring increases
in net exports to the US as the means for sustaining
their own growth.
It should be noted that all this has very little to
do with ''free trade''. Internationally, ''free market''
principles are speedily abandoned by the ruling powers
whenever imperialist designs are thereby affected. Thus,
adherence to ''free trade'' by the US administration has
been uneven at best, essentially serving the interests
of US large capital, and unilateralism remains the most
significant trade instrument for the Bush regime. The
''free trade agreements'' the US signs with less powerful
countries force huge concessions upon them and provide
major protection for its own large companies, including
agribusinesses. And the lack of acceptance of genuine
free trade principles in the WTO by the US and the EU
is only too well known.
In this context, the only way for developing countries
to get out of this trap is to stop thinking of exporting
to the US as the only or even dominant means of economic
expansion, and consider other ways of growth and diversification,
based on the domestic market or on alternative trade
patterns, perhaps within other regional arrangements.
This has special significance for large economies with
potentially huge internal markets. Such a shift in policy
emphasis would also provide an opportunity to bring
in the role of developmental states catering to the
citizen’s needs rather than to the needs of the international
market. It might even, by changing the terms of bargaining,
bring about a better deal for developing countries in
international trade negotiations.
But most significantly of all, the obsession with export
growth not only denies current structures supporting
neo-liberalism erode the possibility of developmental
states. It is worth remembering that the countries that
are currently lauded as ''success stories'' of globalisation
- especially China - retain the developmental role of
the state in crucial ways, which are denied to those
countries that are more directly affected by imperialist
hegemony. |
