Monday, October 15, 2012

Developmental state, globalization and reducing inequity - Is there a way?

I have often argued in this blog about the inequitable impact of globalization and the need to recognize that large segments of population may not be able to participate in the development that international trade offers. While the benefits of international trade in terms of employment and development is not disputed, the limited role international trade plays in bridging income inequities is often a subject of criticism.

Pascal Lamy, the Director General of the WTO referring to Amartya Sen's works, contextualized this dichotomy recently:
"Trade has been a vehicle for prosperity in many areas of the globe. By promoting economic growth and higher incomes and by offering access to better goods, services, capital, knowledge and technology, trade offers new and diverse opportunities for all.  
However, the persistence of widespread poverty in many areas of the world and the growing inequalities in most of our societies are also a stark reminder that the benefits of the global economy have not accrued to everyone in an equal manner. Economic growth is a necessary but not sufficient tool for poverty alleviation. Skewed patterns of income distribution — both at international level and within a country — mean that economic growth does not often trickle down to the most vulnerable in our societies and that the poor are often denied access to the opportunities of trade opening. 
What Prof. Sen teaches us is that to ensure that trade opening works for the poor, trade reforms need to be accompanied by policies that guarantee an equitable distribution of trade gains. Health and education, safety nets and access to credit are part of poverty reduction strategies as much as economic growth itself. These complementary policies protect the poor against the potentially destabilizing effects of trade opening, while ensuring that trade unlocks income-generating potential for all layers of society. This requires overall coordination between government institutions as well as multilaterally in all areas of international cooperation. In other words, it requires a strong domestic and international set-up. In many ways, we are all in dire need of institutional capacity building."
The role of the State in a globalized world becomes crucial. While the retreat of the State has been a common theme since the early 1990's, recent years have seen the reemergence of the developmental state. Is an active, developmental state compatible with WTO rules? Can a redistributive, developmental state policy go hand in hand with an active engagement with the multilateral system? Is an aggressive state policy of involvement in the economy compatible with the multilateral trading system? As countries battle inequity and provide solutions, these questions will increasingly come up in the multilateral setting. A balanced, mature approach shunning ideological positions needs to be taken to harness the benefits of a global trading system along with the positives an active, liberal, equitable state has to offer. This balance will often be tested and questioned. It nevertheless has to be pursued.

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