A development NGO critique of globalization

Submission to the House of Lords economic affairs committee

February 2002 ¹

In the UK, the basic NGO critique of globalization developed over the course of 2000, as aid agencies debated the World Bank's flagship 2000 World Development Report, Attacking Poverty, and engaged with the department for international development over its white paper on globalization and development, Eliminating World Poverty: Making Globalization Work for the Poor.² An intensive round of written and oral submissions and debates sharpened arguments and clarified both common ground and areas of difference.³ A number of underlying concerns about the direction of political and economic globalization crystallized during these discussions.

The white paper debate also helped inform a shift in NGO emphasis from debt to trade, a change already boosted by the growing notoriety of the World Trade Organization (WTO) following the collapse of the 1999 Seattle ministerial. The success of the Jubilee 2000 debt coalition in the late 1990s had confirmed the importance of policy and advocacy work as a core activity of NGOs, and a significant source of influence on northern policy-makers. While debt remains an important issue, of keen interest to NGOs, experience on the ground in the 1980s and 1990s drew their attention to the wider social impact of structural adjustment and trade liberalization.

Kevin Watkins of Oxfam sees the increasing involvement of northern development NGOs in policy and advocacy as stemming from a recognition of the inadequacies of an exclusive reliance on traditional in-country project work. "We might spend US$20m on a school in rural Kenya, only to find that nobody could afford to send their children to school.... We discovered that you cannot operate small islands of development success in a sea of macroeconomic failure."⁴ Over the last ten years, NGOs have invested increasing levels of time and money into research and lobbying work. UK NGOs seem to have made particular strides in this area, and are usually disproportionately represented in NGO engagement with international institutions.

The main concerns ⁵

In general, NGO and civil society concerns stem from the realization that while globalization has led to benefits for some, it has not led to benefits for all. The benefits appear to have gone to those who already have the most, while many of the poorest have failed to benefit fully and some have even been made poorer. For example, trade liberalization has meant that many small farmers in developing countries have been hit by import surges of heavily subsidized food imports from the US and the EU.⁶

Equity and redistribution are increasingly recognized as the "missing link" between globalization and poverty reduction. Recent research shows that improved equity not only leads to faster poverty reduction for a given amount of growth, but also leads to faster growth.⁷ What is good for poor people is good for the economy as a whole. Yet up to now, globalization has frequently been linked to increasing inequality.⁸

New research also points to the importance of national differences. The same policy reforms have different outcomes in different countries, depending on the structure of the economy, the initial distribution of assets, and the nature of economic and political institutions. Policy responses to globalization should be appropriate to particular cases in terms of the instruments used, the sequencing of reforms, and the combination of policies implemented.

However, even though the evidence points to the importance of diversity, developing country governments are pushed by international rule-making, whether under the auspices of the WTO, through the pressures exerted by structural adjustment packages, or by the need to reassure the markets, towards greater homogeneity of policy response. The challenge for policy makers is to find ways to make national and international rule-making accommodate appropriate diversity of policy rather than to reduce diversity to a minimum.

A linked NGO concern is that too much of the drive for liberalization is based more on dogma and ideology than a careful examination of the evidence and assessment of likely impact. They are not alone in this. A recent report by the UK parliamentary international development select committee concluded "We are astonished at the lack of empirical study of the Uruguay round on developing countries. Adequate resources must be provided to fund such a review."⁹ To date, no such review has even begun. For many NGOs, the empirical flimsiness of the intellectual case for liberalization was one of the main revelations of the white paper process.

One of the lessons of recent years is that liberalization and deregulation have very different costs and benefits when applied to the three areas of financial flows, direct investment and trade. Arguments and evidence for one should not be applied to the others. The increasing frequency and severity of financial crises in recent years demonstrate the need for serious reforms of the global financial architecture. Crises hurt the poor disproportionately, and increase inequality, making the achievement of pro-poor growth harder thereafter. For the least developed economies, debt cancellation remains one of the most efficient ways of freeing the resources needed to fight poverty.

One of the most high profile areas of concern (demonstrated by the impact and worldwide sales of Naomi Klein's No Logo) is that the increasing size and dominance of transnational corporations is making them both more influential, and more unaccountable. The danger is that competition between countries wishing to attract foreign investment and technology could lead to a "race to the bottom" in terms of tax incentives and labour market suppression, thereby minimizing the potential social benefits offered by the private sector. The impact of FDI on employment, on export performance and on domestic industry is not guaranteed, and governments must be able to provide a regulatory framework to maximize the benefits and minimize the costs.

Public concern over excessive corporate power has led both to calls for increased international regulation, and to pressure on companies to self-regulate through the introduction of "codes of conduct" for themselves and their suppliers. While sometimes derided as PR exercises, self-regulation by the more serious companies appears to be leading to improvements on the ground.¹⁰ In financial circles, this pressure has been accompanied by a greater awareness that successful companies must take into account a range of "non-financial risks" including social, environmental and ethical issues.¹¹

Finally, although most mainstream NGOs believe strongly that it is essential to have rules governing international trade, they severely criticize the particular set of rules established in the WTO. A multilateral trading system is necessary to ensure that weaker nations are not discriminated against by the strong in both north-south and south-south relations. However, rule-making must proceed at a pace that is appropriate for the weakest members of the system, and the rules made in the WTO must be the right rules for development and poverty reduction. Current rules open northern governments to well-founded accusations of double standards on issues such as protection for domestic industries and support for domestic farmers, and provide insufficient flexibility to enable southern governments to pursue their development goals. As an institution, the WTO has proved itself chaotic and ineffective, and stands in urgent need of reform.

Notes