SUSTAINABLE DEVELOPMENT: A ROAD TO BRIDGE NORTH-SOUTH GAP
By: Yashasvi Nain
Rajiv Gandhi National University of Law, Punjab
07 June, 2013
For thousands of years countries have anchored their currencies to one of the precious metals or to another currency. But in the quarter century since the international monetary system broke down, countries have been on their own, a phenomenon that has no historical precedent in the cooperative game known as the international monetary system.
-RobertMundell
INTRODUCTION:
To understand the current problems of developing countries it is necessary to shed some light on the historical background. To tackle such problem we should go back to history and remember that how powerful European countries benefitted economically from the natural resources of their colonial territories or such other countries as those in Latin America, which, though, got independence in the early nineteenth century, but were long under de facto domination of industrialized States. For example when in the period 1780-1840 Britain had witnessed rapid industrial growth during the wake of industrialization, it had few natural resources of its own (prominently coal and iron) but it was capable of manufacturing goods in relatively high volume and efficiency, it found it useful to import mineral primary commodities from the relatively underdeveloped countries (tin, copper, petroleum, tungsten).
The impact of advanced economic activity on the archaic structure of under-developed territories resulted in the creation of dual or hybrid economy. It resulted into two completely different patterns of economy side by side:
a. A dynamic and modern sector, export oriented and based on the capitalistic model, and
b. The general sector of the economy essentially based on pre-capitalistic structures and geared to subsistence agriculture.
It is pertinent to note here that the former sector, geared to producing and exporting raw material, was controlled by foreign enterprises but availed itself of cheap local labour.
Concept of Sustainable economic development:
Sustainable economic development is the promotion of economic activity that imports financial capital into a community while sustaining natural, historic and social assets. It is a prosperous economy that can persist over the long term. The challenge of sustainable economic development is balance between capitalizing upon and protection of community assets (i.e. natural and historic).
Concept of north-south gap:
It was in the year 1960 when the problem of north-south gap emerged. from the standpoint that the widening economic gap between the developing countries, most of which are located in the Southern hemisphere, and the developed countries in the Northern hemisphere, would threaten the peace and prosperity of the world. Global economic imbalance, a result of capital flow, trade imbalance, monetary system imbalance and unsuitable policies of some advanced countries, is fundamentally caused by the north-south divide. The 20 per cent of the world’s population that controls nearly 85 per cent of the total wealth of the world lives almost exclusively in the industrialized nations of the Northern Hemisphere (in addition to Australia and New Zealand). However the poorest 20 per cent of people in the world are concentrated in the southern hemisphere. Because of the great discrepancy between the “have” and have-not” nations of the world, this is often referred to as the North-South Gap.
SUSTAINABLE ECONOMIC REFORM: A ROAD TO BRIDGE NORTH-SOUTH GAP
If a significant number of Southern States are ultimately transformed into Northern States, the fundamental nature of the North-South Gap will be altered. This can be achieved if more investment is made in developing countries and Foreign Direct Investment is a possible tool. Possible outcome of FDI liberalization is that it will attract new foreign investment and that new FDI will lead to increases in overall investment rates and translate into economic growth. FDI by multinational corporations will flow to and be a source of dynamic growth in host countries. Beyond boosting income and employment, the hope was that manufacturing FDI would bring knowledge spillovers that would build the skill and technological capacities of local firms, catalyzing broad-based economic growth; and environmental spillovers that would mitigate the domestic eco-logical impacts of industrial transformation. But the problem in this scenario is that when FDI come, foreign firms tend to have higher levels of productivity and higher wages and
were likely to increase trade in the region; yet FDI fell far short of generating “spillovers” and backward linkages that help countries develop, and in many cases wiped out locally competing firms thereby “crowding out” domestic investment.
ROLE OF INTERNATIONAL MONETARY REFORM IN ACHIEVING SUSTAINABLE DEVELOPMENT
An important step on the road to reducing global imbalances is thus to reform the IMF in a more serious manner to regain the trust of developing countries. The inception of IMF, ITO and IBRD at the Bretton Woods was to come out of the scourges of the economic and political after-effects of the World War II. The global community realized the necessity of a secure economic global institution. Henceforth, the GATT, GATS, IMF were brought into action so that certain basic principles of economic equality and economic fairness can be harnessed. This was the vision of IMF as well. These principles are embedded in many institutions and regulations including the monetary fund. They are necessary to ensure a feeling of secredness and transparency among the smaller nations who are under a constant fear of insecurity among the other economic powers.
With the advancement of time, all these institutions have tried to modify their approaches in a sustainable manner. That is to say, the economic measures that are taken by the international bodies like the WTO, IMF, IBRD are now decentralized in their approach. Their dispute resolution mechanisms also include a all or none consensus approach. As opposed to ICJ where the bigger powerful countries may oppose a vital decision exercising their veto power, the decisions of the economic bodies like the WTO dispute resolution bodies is unique. It is to be abided by the parties, and it is taken by approval or rejection of all the members of the WTO. This feature may not be highlighted among the global fraternity. But this is a sterling feature in the hat of the WTO dispute resolution mechanism. Measures like these restore faith in the system. These ensure power and equanimity to even the smallest countries on the world map. This reduces the fear of polarization of the North-South divide. It is essential to take such economic measures in order to foster the common brotherhood among even the geographically small or large nations equally. The G20 leaders have committed to advance the reform of the Bretton Woods institutions to give emerging and developing economies greater voice and representation. What is needed in the contemporary scenario is governance reform to adjust international financial institutions to today’s more decentralized international political environment. Also significant is the need to consider decentralizing international financial governance by assigning more tasks to the regional level.
CONCLUDING REMARK/ SUGGESTIONS:
After discussing the various concepts and problems attached I am of the view that there is a need for fundamental reforms of policy and practice at both the international and national levels to achieve the much desired economic sustainable development. As discussed above also I reiterate that there is need to reform the policies of International Monetary Fund. A prerequisite for reform is the democratization of international relations and institutions, so that the South can have an active role in decision-making whilst civil society can also have its concerns taken into account. The WTO, IMF and the World Bank, which are considered as the major global economic actors, should be made more accountable to the public and indeed to the government.
Secondly, there is need to reform the inequitable global economic system as part of the battle for sustainable development. Of major importance is the reversal of the ongoing net South-North real and financial flows. Otherwise, it will be extremely difficult, if not impossible, for Southern countries to adequately implement sustainable development policies, even if they wanted to.
A major area of reform is poor and deteriorating terms of trade for the South’s commodity exports vis-a-vis Northern manufactured exports, which is a major source of the lack of foreign exchange and income in the South. Another aspect which can be discussed here is that the Foreign Direct Investment in developing countries should be done in controlled manner. Multi-national Corporations should abide by the policies of the home country. As a result of this developing countries can access to new technologies which will help them to produce better products. Apart from this the money received from foreign market can be used for growth and development schemes of the developing country.
I would also like to suggest that supporting regional trade agreements between the geographically close countries is also another sustainable measure to nurture a group of economies that are well suited to sustain their inter-regional trade. This concept of developing regional trade between nations is not creating a divide among the global community, but a group of countries belonging to a region are accustomed to the demand and supply environment of certain goods and services categorically. For instance, agriculture, poultry, consumer goods to name a few, these goods and services may vary from region to region. But if these regions made an effort to their targets will be achievable and results will be sustainable. The economic insulation will not have to be a product of political hoodwink of only a few global leaders. It would be a group of neighboring countries which reciprocate the benefits. This is another example of sustainable economic development. This is already a successful model functioning in the ASEAN and the SAARC countries. Although arguably it is said to be against the principle of a unified global village, but this model has fetched accolades from even the economically deficient countries, which have been able to stand on their own feet.
However, it is to be noted that, this regionalism is not as complicated as it is projected. It does not require any eternal help. It is left to the countries which know how to make the best out of their own resources and each other’s resources. Generally, in a particular region, the geographical and anthropological characteristics are also very similar; it makes it easier to implement the economic measures at the grass root level in the regional economic arrangements in this model.
Lastly, through FDI our economy is increased and recruitment is also increased through FDI farmer can deal directly with the company and can get more profit product quality increases and customer has more option it not only provides the benefits for educated people but also for the farmer.
References:
Rajiv Gandhi National University of Law, Punjab
07 June, 2013
For thousands of years countries have anchored their currencies to one of the precious metals or to another currency. But in the quarter century since the international monetary system broke down, countries have been on their own, a phenomenon that has no historical precedent in the cooperative game known as the international monetary system.
-RobertMundell
INTRODUCTION:
To understand the current problems of developing countries it is necessary to shed some light on the historical background. To tackle such problem we should go back to history and remember that how powerful European countries benefitted economically from the natural resources of their colonial territories or such other countries as those in Latin America, which, though, got independence in the early nineteenth century, but were long under de facto domination of industrialized States. For example when in the period 1780-1840 Britain had witnessed rapid industrial growth during the wake of industrialization, it had few natural resources of its own (prominently coal and iron) but it was capable of manufacturing goods in relatively high volume and efficiency, it found it useful to import mineral primary commodities from the relatively underdeveloped countries (tin, copper, petroleum, tungsten).
The impact of advanced economic activity on the archaic structure of under-developed territories resulted in the creation of dual or hybrid economy. It resulted into two completely different patterns of economy side by side:
a. A dynamic and modern sector, export oriented and based on the capitalistic model, and
b. The general sector of the economy essentially based on pre-capitalistic structures and geared to subsistence agriculture.
It is pertinent to note here that the former sector, geared to producing and exporting raw material, was controlled by foreign enterprises but availed itself of cheap local labour.
Concept of Sustainable economic development:
Sustainable economic development is the promotion of economic activity that imports financial capital into a community while sustaining natural, historic and social assets. It is a prosperous economy that can persist over the long term. The challenge of sustainable economic development is balance between capitalizing upon and protection of community assets (i.e. natural and historic).
Concept of north-south gap:
It was in the year 1960 when the problem of north-south gap emerged. from the standpoint that the widening economic gap between the developing countries, most of which are located in the Southern hemisphere, and the developed countries in the Northern hemisphere, would threaten the peace and prosperity of the world. Global economic imbalance, a result of capital flow, trade imbalance, monetary system imbalance and unsuitable policies of some advanced countries, is fundamentally caused by the north-south divide. The 20 per cent of the world’s population that controls nearly 85 per cent of the total wealth of the world lives almost exclusively in the industrialized nations of the Northern Hemisphere (in addition to Australia and New Zealand). However the poorest 20 per cent of people in the world are concentrated in the southern hemisphere. Because of the great discrepancy between the “have” and have-not” nations of the world, this is often referred to as the North-South Gap.
SUSTAINABLE ECONOMIC REFORM: A ROAD TO BRIDGE NORTH-SOUTH GAP
If a significant number of Southern States are ultimately transformed into Northern States, the fundamental nature of the North-South Gap will be altered. This can be achieved if more investment is made in developing countries and Foreign Direct Investment is a possible tool. Possible outcome of FDI liberalization is that it will attract new foreign investment and that new FDI will lead to increases in overall investment rates and translate into economic growth. FDI by multinational corporations will flow to and be a source of dynamic growth in host countries. Beyond boosting income and employment, the hope was that manufacturing FDI would bring knowledge spillovers that would build the skill and technological capacities of local firms, catalyzing broad-based economic growth; and environmental spillovers that would mitigate the domestic eco-logical impacts of industrial transformation. But the problem in this scenario is that when FDI come, foreign firms tend to have higher levels of productivity and higher wages and
were likely to increase trade in the region; yet FDI fell far short of generating “spillovers” and backward linkages that help countries develop, and in many cases wiped out locally competing firms thereby “crowding out” domestic investment.
ROLE OF INTERNATIONAL MONETARY REFORM IN ACHIEVING SUSTAINABLE DEVELOPMENT
An important step on the road to reducing global imbalances is thus to reform the IMF in a more serious manner to regain the trust of developing countries. The inception of IMF, ITO and IBRD at the Bretton Woods was to come out of the scourges of the economic and political after-effects of the World War II. The global community realized the necessity of a secure economic global institution. Henceforth, the GATT, GATS, IMF were brought into action so that certain basic principles of economic equality and economic fairness can be harnessed. This was the vision of IMF as well. These principles are embedded in many institutions and regulations including the monetary fund. They are necessary to ensure a feeling of secredness and transparency among the smaller nations who are under a constant fear of insecurity among the other economic powers.
With the advancement of time, all these institutions have tried to modify their approaches in a sustainable manner. That is to say, the economic measures that are taken by the international bodies like the WTO, IMF, IBRD are now decentralized in their approach. Their dispute resolution mechanisms also include a all or none consensus approach. As opposed to ICJ where the bigger powerful countries may oppose a vital decision exercising their veto power, the decisions of the economic bodies like the WTO dispute resolution bodies is unique. It is to be abided by the parties, and it is taken by approval or rejection of all the members of the WTO. This feature may not be highlighted among the global fraternity. But this is a sterling feature in the hat of the WTO dispute resolution mechanism. Measures like these restore faith in the system. These ensure power and equanimity to even the smallest countries on the world map. This reduces the fear of polarization of the North-South divide. It is essential to take such economic measures in order to foster the common brotherhood among even the geographically small or large nations equally. The G20 leaders have committed to advance the reform of the Bretton Woods institutions to give emerging and developing economies greater voice and representation. What is needed in the contemporary scenario is governance reform to adjust international financial institutions to today’s more decentralized international political environment. Also significant is the need to consider decentralizing international financial governance by assigning more tasks to the regional level.
CONCLUDING REMARK/ SUGGESTIONS:
After discussing the various concepts and problems attached I am of the view that there is a need for fundamental reforms of policy and practice at both the international and national levels to achieve the much desired economic sustainable development. As discussed above also I reiterate that there is need to reform the policies of International Monetary Fund. A prerequisite for reform is the democratization of international relations and institutions, so that the South can have an active role in decision-making whilst civil society can also have its concerns taken into account. The WTO, IMF and the World Bank, which are considered as the major global economic actors, should be made more accountable to the public and indeed to the government.
Secondly, there is need to reform the inequitable global economic system as part of the battle for sustainable development. Of major importance is the reversal of the ongoing net South-North real and financial flows. Otherwise, it will be extremely difficult, if not impossible, for Southern countries to adequately implement sustainable development policies, even if they wanted to.
A major area of reform is poor and deteriorating terms of trade for the South’s commodity exports vis-a-vis Northern manufactured exports, which is a major source of the lack of foreign exchange and income in the South. Another aspect which can be discussed here is that the Foreign Direct Investment in developing countries should be done in controlled manner. Multi-national Corporations should abide by the policies of the home country. As a result of this developing countries can access to new technologies which will help them to produce better products. Apart from this the money received from foreign market can be used for growth and development schemes of the developing country.
I would also like to suggest that supporting regional trade agreements between the geographically close countries is also another sustainable measure to nurture a group of economies that are well suited to sustain their inter-regional trade. This concept of developing regional trade between nations is not creating a divide among the global community, but a group of countries belonging to a region are accustomed to the demand and supply environment of certain goods and services categorically. For instance, agriculture, poultry, consumer goods to name a few, these goods and services may vary from region to region. But if these regions made an effort to their targets will be achievable and results will be sustainable. The economic insulation will not have to be a product of political hoodwink of only a few global leaders. It would be a group of neighboring countries which reciprocate the benefits. This is another example of sustainable economic development. This is already a successful model functioning in the ASEAN and the SAARC countries. Although arguably it is said to be against the principle of a unified global village, but this model has fetched accolades from even the economically deficient countries, which have been able to stand on their own feet.
However, it is to be noted that, this regionalism is not as complicated as it is projected. It does not require any eternal help. It is left to the countries which know how to make the best out of their own resources and each other’s resources. Generally, in a particular region, the geographical and anthropological characteristics are also very similar; it makes it easier to implement the economic measures at the grass root level in the regional economic arrangements in this model.
Lastly, through FDI our economy is increased and recruitment is also increased through FDI farmer can deal directly with the company and can get more profit product quality increases and customer has more option it not only provides the benefits for educated people but also for the farmer.
References:
- Antonio Cassese, International Law, 2nd Edn. Oxford University Press, 2005.
- Rafael Reuveny, William R. Thompson, North and South in the World Political Economy, John Wiley & Sons, 2009.
- Sanjeev Gupta, Fiscal dimensions of sustainable development, Issue 54, International Monetary Fund, 2002.
- William Fox, Enslin Van Rooyen, The Quest For Sustainable Development, Juta and Company Ltd, 2004.