New global order needed

Ian Boyne

IT TAKES just one relatively small hurricane this season to throw our International Monetary Fund (IMF) agreement off course. There is no provision for that, no special fund where we can access adequate resources to offset the kind of economic dislocation which results from our natural-hazard vulnerability.

Adverse changes in the global economy, too, can overturn all our targets and hard-won gains and there is no global mechanism to take care of these exogenous factors. I am all for our 'putting our house in order' economically. I believe that it makes no sense for us to cry in our soup, lament things which are not under our control, or throw up our hands in despair because things are stacked against us. Acknowledging certain realities and constraints is not the same as being immobilised by them.

As a globalist, I don't believe in using external constraints as excuses for domestic inertia. We must do everything in our power to be fiscally prudent, productive, competitive, and growth-inducing. We must make the institutional and structural changes which are necessary for growth. We must adjust our values and attitudes to prepare ourselves for global competition and world-class production.

But no one can be taken seriously for suggesting that all we need to do is to produce and export more and "all these things will be added to thee". This kind of nonsense is repeated by the ignorant, and many believe it.

It is interesting that in the IMF's Regional Economic Outlook: The Western Hemisphere, released last week, there is a section titled, 'What Factors Drive the Recent Strong Growth Performance in the Region', focusing on Latin America. In that section, it is acknowledged that "there is consensus that the robust performance in recent years has been to a great extent due to favourable external conditions (namely, strong global growth, high commodity prices and easy external financing conditions)".

It goes on to say: "Latin America experienced a remarkable improvement in key macroeconomic fundamentals over the last decade on the back of a highly favourable external environment. With prospects of less benign global conditions ahead, however, the region's fundamentals could change drastically."

The IMF says further: "This chapter examined how important these changes could be, thus informing the discussion on whether current levels of policy buffers (especially fiscal) are adequate to withstand a deterioration of the global environment."

bigger than us

So the IMF is acutely aware of how external conditions affect domestic economic growth. But some here seem to think that everything is up to domestic policymakers and that it is only those who are seeking excuses for incumbent and kleptocratic Third World politicians who draw attention to the global environment. We are told constantly that once we set our house in order, reduce red tape and bureaucracy, make doing business easier, and implement tax, public-sector and pension reforms, the kingdom blessings will flow.

Here's the balance in the IMF's Regional Economic Outlook: Western Hemisphere report: "Highly favourable external conditions - interrupted only temporarily during the 2008-09 global financial crisis - bolstered GDP growth in most of Latin America during the last decade." So it's both yes, prudent macroeconomic policies, but also a global environment which is favourable.

The IMF admits that "while undoubtedly prudent policies played an important role, these gains reflected to a significant extent a highly favourable external environment ... ." It's time we freely made these kinds of concessions in our economic discourse in Jamaica rather than perpetrate the myth that any reference to global conditions and external factors is just a cop-out for the incompetence, inefficiencies and corruption of local politicians.

There are some simple facts many are unaware of, but let me make a former United States trade representative, Carla Hills, explain. She served under Republican President George H.W. Bush. Writing in the December 2005 issue of Foreign Affairs, she educates: "Most Americans have no idea that poor countries are required to pay higher tariffs on their exports than wealthy countries. They would be astonished to learn that last year Mongolia paid the United States US$13 million more on tariffs on its US$240 million of exports than Norway paid on its US$6.5 billion exports, or that Washington collects roughly the same amount of tariffs from Bangladesh on its US$2 billion of exports than it does from France on its US$30 billion of exports."

Doha and beyond

When some people hear about the Doha Development Round and stalled talks at the World Trade Organization, they don't understand what that is about and how that affects them. The fact that crucial trade agreements have not been made and that no urgency is being put to restarting the Doha Development Round have a major effect on developing countries' economies. Yes, they must adopt prudent macroeconomic policies and reduce red tape and facilitate business more smoothly, earning a good place on the World Bank's Doing Business report, but that is not enough to produce growth.

Unfavourable barriers to trade need to be removed to improve their balance of payments problems. (Of course, we in Jamaica were not even using our quotas under protected trade and our own structural problems which we need to fix internally.)

But there are issues to be dealt with. Carla Hills pointed out in that 'Foreign Affairs' article that even in the United States where tariffs are as low as two per cent, the tariffs on the goods most developing countries' exports like footwear, vegetables, fruit juices, peanuts and sugar range from 40% to 100%. The tariffs in other industrialised countries are even worse: Some go up to 1,000% on some farm goods. The developed countries are estimated to subsidise their farmers to the tune of an estimated US$1 billion a day, US$365 billion a year.

No less a conservative than Paul Wolfowitz, former World Bank president, said when he was in that post, "The Doha Round presents an opportunity to rewrite the rules of an unfair trading system that holds back the potential of the poorest people." US Department of Agriculture studies show that eliminating rich countries' agricultural support subsidies would result in a 24% gain in the value of poor countries' farm exports, which account for a third of their exports.

How many who say blithely that all developing countries need to do is to "increase [production] know that the developed countries actually penalise developing countries for increasing value-added production? There is what is called tariff escalation, which is applied to the degree of processing which is done to primary products. So when countries try to deepen value-added production, developed-country markets discriminate against them. So much for the hypocritical call from the developed world for developing countries to export their way out of their problems.

Paul Wolfowitz explained: "Tariff escalation is one reason, for example, that 90% of the world's cocoa beans are grown in developing countries but those developing countries only produce four per cent of the world's chocolate." Eight years ago, the World Bank estimated that the full removal of trade protection in goods would raise real global income by an estimated US$287 billion by 2015. You know what stimulus that would provide to the global economy?

Manley Memories

And studies done by William Cline of the Centre for Global Development in Washington show that removing global barriers to trade would lift some 500 million persons out of poverty - not an insignificant figure, considering the level of global unemployment today.

Michael Manley used to talk about these things, but he was ridiculed and attacked for seeking excuses for his failures. But the issues have not gone away but, indeed, have become more urgent. Meanwhile, reckless actions by greedy bankers in America, given a free hand by a then retreating State, plunged the world into a global recession costing the US economy alone some US$13 trillion, according to the Better Markets Institute of Washington, DC.

Loss output between 2008 and 2011 has been put at 8% of GDP across all major economies. That is how wasteful unbridled capitalism can be to economies. Yet countries like Jamaica are forced to adopt austerity measures, partially for a crisis we did not make or contribute to, but which our poor have to bear. (I know much of our crisis is home-grown, so don't misquote me.) For a searing critique of austerity, you must read economics professor Mark Blyth's just-released (2013) book, Austerity: The History of a Dangerous Idea, published by Oxford University Press.

"Austerity is a great policy for the banks because the people who are to pay for the mess are not the ones who made it," Blyth says. Incidentally, neoliberals talk a lot about when states fail but ignore the disastrous consequences when markets fail. As Blyth points out: "Just as we saw in the US case, the crisis in Europe has almost nothing to do with states and everything to do with markets. It is a private-sector crisis that has once again become a state responsibility" (except Greece, of course).

Final example to show that macroeconomic prudence and even strong export competitiveness can be undermined by external factors. I raise the case of the former darling of our local private sector: Ireland. This Celtic Tiger was put up as a model - and, indeed, its export-led growth and strategic investment promotion strategy is worthy of emulation. But look how that was undermined by the global economic crisis of 2008.

Blyth picks up the story: "Ireland did well prior to the crisis. Ireland reduced its gross government debt-to-GDP from 112% in 1986 to 25% in 2007, and its net debt to GDP stood at a mere 12%. It was able to do so by exporting to countries that were expanding and by up-skilling its workforce to take advantage of the influx of multinational corporations ... . Ireland's GDP rose significantly. But when the interbank market froze following Lehmans' collapse, the ability of the Irish banks to service their loans collapsed, along with Irish property prices, taking the entire banking sector down with it."

Financial openness, recommended by the IMF, and reckless capitalist behaviour in the most advanced developed country shot the Celtic Tiger. I rest my case.

Ian Boyne is a veteran journalist. Email feedback to columns@gleanerjm.com and ianboyne1@yahoo.com.