LDCs want a larger share of the world's income and wealth.
Half the world's population has an annual income of scarcely more than £220
per person.
LDCs complain that (a) markets for their primary products are
controlled by the north; (b) northern protectionism is hampering
their prospects for industrial development; (c) borrowing is too expensive;
(d) austere and unpopular domestic policies are being forced upon them; and
(e) simple justice dictates that rich countries should take practical steps
to close the gap.
In the world's poorest countries, population growth is faster than the
rate at which supplies of other factors can be increased. Hence labour productivity
is low and, after provision for consumption, there are few spare resources
to increase human and physical capital. It is hard to break out of this vicious
circle.
The downward trend in real prices, price volatility and danger of extreme
concentration in a single commodity have made LDCs reluctant to pursue development
by exploiting a comparative advantage in primary products.
Buffer stocks and cartel supply restrictions have proved
difficult to organize, with the conspicuous exception of OPEC.
LDCs are increasing their export of manufactures. Although the LDCs begin
from a small base, their market share could quickly become much more significant.
Industrial countries are tempted to protect their declining manufacturing
industries. Th ey would do better by encouraging adjustment towards industries
in which their comparative advantage now lies.
Structural adjustment policies aim to improve incentives
and the efficiency with which existing resources are used.
LDCs ran large deficits, financed by external borrowing.
Larger debts and high interest rates led to threats of default and an international
debt crisis.
Increasing financial market integration in the 1990s led to large capital
inflows to LDCs. When investors got scared, many LDCs faced drastic
crises.
Trade may help the LDCs more effectively than aid. Migration would
help equalize world incomes. Rich countries may reconsider their immigration
policy once they need young, taxpaying workers.
Globalization, the rise of foreign influence on domestic
economic and social behaviour, is neither new nor irreversible. It is caused
by cheaper transport, better communications and policies to reduce trade protection.
In the absence of other distortions, this yields gains from trade and net
benefits for the global economy. However, some groups may lose out.
In the last half century, global inequality has not increased
and the number of people in absolute poverty has fallen, despite rapid population
growth. Trade is usually the route to prosperity and no country has ever got
rich without international trade. However, better global information has made
everyone aware of the extent of poverty that still exists
in the world.
Liberalizing agriculture and textile markets in rich countries would hugely
benefit not only their own citizens but also potential exporters in poor countries.
The gains would easily allow the losers (rich farmers) to be bought off.
Globalization exacerbates existing distortions, for example the over-exploitation of the environment or inadequate financial regulation in poor countries. The ideal solution is to improve these by domestic policy reform, not to curtail trade. Foreign aid could usefully be channelled into these areas.
Failing this, there is a greater role for international agencies to devise
rules that off set existing market failures and allow the benefits of globalization
to be enjoyed without incurring these additional costs. Taxing pollution
and environmental depreciation would also generate useful tax revenue,
in both poor and rich countries.
Allowing powerful groups of uncompensated losers to build up is the most
likely way in which globalization may eventually be arrested or even reversed.
This increases the case for redistribution to allow the benefits of globalization
to continue to help raise living standards in poor countries. Aid alone will
never be enough.
