Ian Boyne
The decision by the European Commission (EU) to cut by as much as 40 per cent the price of the sugar sold on the European market by the African, Caribbean, and Pacific (ACP) community, again highlights the trauma of globalisation and free trade for developing countries, as well as the urgency of global reforms.
Ever since the Seattle protests against the World Trade Organisation (WTO), there has been increasing concern by the world's intelligentsia, particularly about the potentially baleful effects of free trade and the influence of the WTO on the well-being of societies. While in the developing world, the intensity and stridency of the quest for a new global order have subsided since the 1970s, the development challenges of the Third World are no less acute and impatient of attention.
In this era when the neo-liberal economic theology has become the unquestioned orthodoxy, we frequently hear the rhetoric that all developing countries need to do is to 'get the macroeconomics right', 'remove the distortions in the market', 'get the institutions right' and liberalise, and hence economic growth and prosperity will follow.
Some finance ministers in the developing world, over-awed by the admittedly impressive macroeconomic report card, give the impression that lobbying for changes at the global level and pressing for reforms in the Bretton Woods institutions is not really critical once the Washington Consensus model is being copied.
The fact is that much of our fate turns on what takes place in the global environment.
Take sugar. Professor Trevor Munroe, government senator, is sounding as strident and as vehement as he sounded in his days as a firebrand Marxist leader in denouncing the European decision to cut the price of our sugar. Munroe understands, as an astute trade unionist and political scientist, the enormous dislocations and social impact which will flow from such a drastic cut.
The fact is that Jamaican and ACP sugar is being sold for up three times the world price. As the World Bank's recently released major study on the Caribbean, (The Caribbean in the 21st
Century) says, "World sugar production costs have fallen about 40 per cent in real terms since 1980, while those of the Caribbean have been rising...these confirm the high costs of the Caribbean sugar industry and indicate that none of the Caribbean producers is competitive with low-cost world producers or major exporters."
While the Caribbean costs have been rising, the costs of large producers such as Australia, Brazil and Thailand, which took the action in the WTO which led to the announced price reductions, have been declining.
These countries, along with Colombia, Guatemala and South Africa, have seen their combined world exports grow from 24 per cent to 52 per cent since 1980. Besides, production and exports of Caribbean sugar have dropped by over half since 1970. Without preferential access, the revenues of Caribbean exporters, including Jamaica whose export earnings are put at US$100 million annually, would have declined by 60 per cent if sold at world market prices.
As the World Bank says glumly in its report: "Most of the Caribbean sugar industries will ultimately need to be closed or restructured or they will face the losses that will increase as preferences erode". Countries like Jamaica are now lobbying gallantly and are seeking to forge and strengthen alliances and build a coalition of opposition but it might be too late. The tide of free trade might be unstoppable.
greater priority
to foreign affairs
Jamaica had better assign a greater priority to foreign affairs, for the erosion of preferential trade, decline in multilateral aid, growth in the power of the WTO and the influence of new players like China and India, will cause serious dislocations for small open, import-dependent economies like ours.
It's good that we are getting the macroeconomics right, but that is not enough. Michael Manley told us that long ago. We underestimate foreign affairs to our own peril. I will leave the specific discussion of how we should try to cushion the bitterness of this sugar cut for another time and draw our attention to the pivotal importance of the global economy and the external environment.
The discussions in Jamaica about economics are so puerile, parochial, infantile and uninformed that one is simply amazed at our level of unsophistication in international economic and political affairs.
Discussions within the intelligentsia, the media, the business class and among the politicians are usually bereft of the larger international environment in which Jamaica has to operate. It is as though the actions taken by us here are the only determinant of what happens to our people's quality of life. Absolutely not so.
Those who downplay the impact of the external environment the exogenous factors as the economists call it are simply ignorant.
Impact of China
What, for example, is and will be the impact of the emergence of China as an industrial power on the Caribbean? China has been growing at an average annual rate of over nine per cent since 1978 and its per capita income has increased sevenfold (while Latin America's has only increased by 16 per cent over the period).
Chinese exports are having a devastating effect on the light industrial manufactures of developing countries. In Mexico, the apparel sector has lost 254,000 jobs in the last three years and inflows of foreign direct investment (FDI) fell from US$26.6 billion in 2001 to $11 billion in 2003.
FDIs in Brazil has also fallen sharply as well and in 2003 FDI in all of the Latin America was down by 37 per cent of its 1999 peak.
China is now the number one recipient of FDI. In 2002, United States companies invested 10 times more in China than they did 10 years before. Astounding. You think that has no effect in terms of investment diversion from countries in this region?
To highlight the importance of preferential trade arrangements and the impact of exogenous factors, note the fact that the share of world exports coming from the Americas was essentially the same in 2000 as in 1980. The major exception was in Mexico which accounted for 2.6 per cent of world exports in 2000, up from 0.9 per cent in 1980. It was the North American Free Trade Agreement (NAFTA) which was primarily responsible for that development.
Latin America has been a poster child of neo-liberal reforms, yet both growth and poverty reduction have been disappointing. Overall, tariffs have declined dramatically in the developing world and yet the commensurate economic benefits which were trumpeted have not been realised. Average tariffs on manufactured goods have dropped from roughly 40 per cent after World War II to five per cent in most developing countries.
Yilmaz Akyuz, the former director of the division of globalisation and development strategies at the United Nations Conference on Trade and Development (UNCTAD), says in a paper released in May this year from Geneva that "fanaticism, according to Spanish philosopher George Santayana, means redoubling your effort when you have forgotten your aim."
He went on to say that, "developing countries are once again facing intense pressure to liberalise trade in industrial products, even though the extravagant benefits claimed from the Uruguay Round have been belied by subsequent experience."
According to one estimate, says Akyuz, the Uruguay Round's combined liberalisation increased global economic welfare by US$75 billion, of which approximately US$70 billion went to the developed countries and US$5 billion to the newly industrialised countries of Asia, with none to other developing countries.
Protectionism
While the WTO, the International Monetary Fund (IMF) and the World Bank have been preaching their gospel of free trade and liberalisation, economists like William Easterly, Dani Rodrik and Joseph Stiglitz have been pointing out that protectionism played a major part in building the industrialised economies as well as those of the newly industrialised economies such as Japan, South Korea Taiwan, Singapore.
Rodrik has also pointed out that China and India, the two latest stars of the globalisation model, have not followed Washington Consensus, neo-liberal principles in transforming their economies.
In his acclaimed critique of free trade and neo-liberalism, Kicking Away the Ladder: Development Strategy in Historical Perspective, Ha-Joon Chang says, "the productivity gap between today's developed countries and developing countries is much greater than that which used to exist between today developed countries and less developed NDCs (now-developed countries) in earlier times. This means that today's developing countries need to impose much higher rates of tariff than those used by NDCs in the past, if they are to provide the same degree of actual protection to their industries once accorded to the NDC industries".
Of course, that would never be allowed in this WTO-governed world. The ladder is being kicked away and yet developing countries are told to climb out of their poverty. It is madness, as Santayana would say. People like Jagdish Bhagwati, who in his recent book In Defense of Globalization and David Dollar, in his essay in the 2005 book Globalisation: What's New?, vigorously defended globalisation against its critics and are focusing on the half-full side of globalisation.
But people like Jeffrey Sachs (the most influential economist in the public sphere) in his 2005 book The End of Poverty: Economic Possibilities for Our Time, continue to point to the other side of the story. In his chilling and engaging book, characterised by impeccable scholarship and balance, Sachs says, "Since September 11, 2001, the United States has launched a war on terror but it has neglected the deeper causes of global instability. The US$450 billion that the United States will spend this year on the military will never buy the peace, if it continues to spend around one thirtieth of that, just US$15 billion to address the plight of the world's protest of the poor, whose societies are destabilised by extreme poverty and thereby become havens of unrest, violence and even global terrorism."
The action of the European Commission last week is threatening to add even more on the rubbish heap of poverty. A rubbish heap which could become incendiary - to the dismay of Europe and America.
Ian Boyne is a veteran journalist. Send comments to ianboyne1@yahoo.com or infocus@gleanerjm.com.
