The UNCTAD Expert Group Meeting on
"New Trade and Development Strategies in Least Developed Countries"
(June 11-12, 2003, Geneva)
UNCTAD is unique among international organizations in that, unlike the IMF, World Bank or WTO, it advocates careful integration and liberalization of developing countries from the perspective of their development needs. Its Least Developed Countries Report 2002 (LDC Report) argues that (i) countries with generalized poverty need overall growth, not poverty targeting; (ii) development-led strategy is required instead of adjustment-led; (iii) the cause of stagnation must be sought in external conditions as well as domestic policies; (iv) the quality, not the extent, of international integration is key. UNCTAD's distinctive position may cause isolation among international organizations but it also helps to establish its own identity.
Kenichi Ohno (GRIPS) was invited by Charles Gore, the principal author of the LDC Report, to speak at the above meeting (he was the only participant from Asia). The purpose of this small group meeting was to provide inputs to the LDC Report 2004 (published every other year). The two-day meeting was heated and interesting. Apart from the meeting, Ohno met Gore informally to further exchange views. Below are some of the arguments which may be of interest to Japanese aid officials and experts. (It was a closed session but the publication of this summary has been authorized by Mr. Gore.) These are my personal and selective views and do not represent the views of UNCTAD or the meeting host.
Speakers (in order of presentation): Gustav Ranis, Guy Mhone, Jean-Claude Berthelemy, Ignacy Sachs, Mulat Demeke, Marc Wuyts, Kenichi Ohno, Mario Cimoli, Jonathan Kydd
Other participants: Elsa Assidon, Ajit Ghose, Massoud Karshenas, Amelia Santos-Paulino, Shigehisa Kasahara (UNCTAD), and other UNCTAD staff. Rubens Ricupero (UNCTAD Secretary-General) took part in the closing session.
Note: The UN classifies 49 countries as least developed using the criteria of income, human development and economic vulnerability. However, our discussion proceeded without specific reference to this definition. The UN-defined LDCs do not include, for example, Mongolia, Vietnam, and Bolivia.
< Purpose >
At the outset, Charles Gore, the meeting host, hoped that the experts would discuss the following issues:
(i) LDCs adopted liberalization (structural adjustment) and poverty reduction (PRSP) but have not attained sustainable development. Do they now need developmental policies? If so, what alternative strategies can we offer?
(ii) What is the proper relationship between external opening and development? Is it too simple to say the former leads to the latter? Should development be the main goal and trade a supplementary measure?
(iii) LDCs may be regarded as open subsistence economies which were forced open. What is needed to trigger their take-off?
< Session One: Balanced Growth, Dualism and Structural Change >
The first speaker argued that Africa was moving from natural resource rich to labor surplus economies (although not as much as East Asia), so the model of resource mobility between agriculture and industry would apply. For this, many sectors such as rural-urban, informal-formal, must be considered. LDCs' development required domestic linkage between agriculture and industry, whereas growth based solely on the export of primary commodities was unsustainable. Technical and higher education as well as currency depreciation were recommended for this. Analytically, typologies were useful. To this presentation, questions were raised as to the complexity of typology when each country and issues must be analyzed differently. The wisdom of currency depreciation was also questioned.
The next speaker stated that, in grafted capitalism of LDCs, modern development (enclavity) and marginalization of the mass were simultaneously observed. Examples from Southern Africa were presented. To overcome this duality, it was necessary to directly analyze the informal sector and introduce pro-active measures including land reform, labor-intensive industrialization and trade policy. It was pointed out from the floor that international factors also played a part in sustaining mass marginalization. Others noted the importance of "supplementing policies" to correct growth biases, and the quality of the leadership (and the way to ensure such leadership).
< Session Two: Inclusive Development, Tradables/Non-tradables, and Supply of Wage Goods >
The speaker pointed to (i) subsistence-oriented economies; (ii) low saving due to waste; and (iii) import vulnerability, as the common features of LDCs. The income elasticity of employment and the supply elasticity of wage goods were highlighted. Governments were urged to do everything to generate employment, especially through non-investment sources of growth such as eliminating wastes and better maintenance of existing capital. The second speaker, from Ethiopia, reported the status of poverty trap in his country with concrete facts and numbers.
To these presentations, it was pointed out, from the methodological viewpoint, that the search for a common policy list would not work since each country was different, and what was required was a new program to ask the right development question in the context of each country. Discussion on surplus extraction from the agriculture and natural resource sectors followed.
The next speaker reported on the PRSP and HIPC situations in Tanzania. The "macro-micro linkage problem," namely, the coexistence of overall macro growth and the lack of progress in poverty reduction, was a big concern. To explain this, the author proposed the hypothesis of cheaper wage goods due to trade liberalization. As the prices of (second-hand) manufactured imports fell, the domestic production cost also fell even without productivity gain, sustaining the competitiveness of Tanzanian agriculture. However, commentators questioned the data quality as well as the significance of such manufactured goods in the consumer basket of workers.
< Session Three: Policies and Institutions for Poverty Reduction through Productive Development >
Ohno reported on the transferability of East Asian experience with the following main points:
--There are three levels of transferability: (i) blind copying; (ii) selective copying; and (iii) general strategic thinking. The most important is (ii) and (iii), especially the last.
--East Asia is actually growing and we know what works but cannot articulate it well. The World Bank has the opposite problem.
--The East Asian experience consists of: (i) industrialization through trade and investment; (ii) clear order and organic structure of the region; and (iii) authoritarian developmentalism as a political regime for initiating growth. They cannot be directly transferred to Africa, however.
--Vietnam was presented as an example. It has the potential to join Asian dynamism but has not attracted a critical mass of FDI due to bad policies. We are trying to persuade the Vietnamese government through concrete industrial studies and policy proposals.
--Japan has less experience with Africa and also faces a tight ODA budget. We are encouraging the Japanese government to (i) adjust the aid system to participate in the new aid modality; and (ii) propose a new growth strategy suitable for each country.
There was an emotional repulsion of authoritarianism, quoting Stalin. There was also a criticism [based on misunderstanding] that Vietnam's FDI strategy could hardly be copied to other LDCs. Knowing the risk of being misinterpreted, the author made as clear a presentation as possible. However, misunderstanding still seems inevitable in discussing the East Asian experience with people from different backgrounds.
On a more fruitful level, the following questions were raised: (i) Can East Asian experience be replicated in South Asia? (ii) Is income convergence visible in East Asia? (iii) Northeast and southeast Asia had different growth patterns; (iv) Is there a leap frogging? (v) Other regions had authoritarian developmentalism but it was not sustained; (vi) Can authoritarian developmentalism be adopted without abandoning democracy?
Regarding (ii) and (iii), there was a discussion on the limits faced by Malaysia and Thailand, which relied on trade liberalization and FDI for growth but could not reach the level of domestic capability of Taiwan and Korea. Some argued that there should not be any difference in learning ability between ASEAN and NIEs, but the author rejected this as a wishful thinking not based on reality. Additionally, the inclusion of large-scale infrastructure in Vietnam's CPRGS, as well as Japan's agricultural protection, were discussed.
The speaker from ECLAC asserted that Latin America was witnessing a simultaneous occurrence of modernization (liberalization, IT, etc) and declining domestic capability (productivity, design, etc). Trade was freer but competitiveness and value were lost. Computer users increased but productivity stagnated. To overcome this dilemma, deliberate policy intervention to strengthen knowledge and networks was necessary. [This is the same problem as ASEAN's, albeit at a higher level of development. However, apart from ECLAC, it was not clear how much interest in industrial competitiveness existed in Latin America generally.]
The last speaker argued for balanced policy intervention to solve various coordination problems in the agriculture of LDCs, which was experiential and not dominated by either plan mentality or complete liberalization. For this, more institutional analysis, trade and domestic policies to support institution, and the "stage" view of agricultural development were required. Ohno noted that these ideas were extremely interesting, however, it was doubtful whether the state alone could provide coordination services. Historically, the merchant class provided such services (long-distance trade, Yokohama merchants in 19c. Japan, overseas Chinese in Southeast Asia, Japanese trading companies, etc). Ohno argued that the state should link up with these private "professionals" for agricultural coordination.
< Closing Session >
Rubens Ricupero, secretary-general of UNCTAD, commented on the previous session. According to him, the pressure to open up agriculture was very strong at present. While it was mainly directed to high- and middle-income countries, LDCs could no longer avoid opening either. To this, a number of experts (including Ohno) replied that the political economy of agricultural liberalization in higher income countries and the agricultural development problem of LDCs were separate matters, and hasty liberalization on the latter was undesirable. It was hoped that UNCTAD would strive to modify the reality rather than take it as given. Ohno however added: (i) while trade policy mattered greatly, the quality of domestic development strategy was most important; (ii) food security argument should be used with much care since it could be easily misrepresented; (iii) fundamental discussion should not be hurried, and should be continued even past the agricultural negotiation deadline of January 2005.
The points that each participant felt as most important were also presented. Ohno's key points were as follows: (i) shift the level of debate from the search for common policies to individual, concrete policies; (ii) organize a new program to ask the right questions and provide answers for each country; (iii) each LDC should be able to choose from alternative development policy options.
Kenichi Ohno (GRIPS)