Guest blogger T. Ademola Oyejide sets out the challenges and priorities for G-20 leaders in global economic governance.
The establishment of the Bretton Woods institutions in 1948 was intended to forestall the sort of crisis that had afflicted global economic and political governance structures in the preceding periods, and which have a striking semblance to the current world economic recession. The weaknesses of the skewed governance configurations built into the institutions charged with coordinating and managing the aftermath of the pre-1948 catastrophe have spurred copious criticisms, particularly from the developing countries whose interests have frequently been threatened by the ways in which these institutions have implemented their respective mandates. For the rest of the twentieth century and in the advent of the new millennium, the developing world has been preoccupied with resisting the current and potential impacts of global economic power relations biased against their sustainable development interests. If not immediately restructured, the status quo could have pervasive, damaging consequences for both the developed countries that now exercise economic and technological supremacy, and the weak, almost totally helpless, developing countries. Only a few developing countries have managed to escape the harsh effects of such distorted power relations.
The core challenge facing developing countries in political and economic global governance is a lack of access to resources for effective engagement in the decision-making processes. If the Bretton Woods institutions were a world government with the mandate to maximize the welfare of the world citizens, they would be expected to equally distribute world resources, taxing the rich countries to create facilities for the benefits of poor countries. Regrettably, however, these institutions do not exercise power in a way that prioritizes helping weak and poor countries. As a result, developed countries are the perpetual gainers of world political and economic structures that have neither been able to adequately compensate developing countries or to restore the balance required for a stable global economy. Instead, we have seen a steady flow of resources from poor to rich countries with profound implications for existing gaps in growth and welfare between them.
The multilateral trading system, which is supposed to serve as the central mechanism through which the design and formulation of the basic rules governing the flows of goods and services, investment, and technology across countries are accomplished, is an illustration of how global economic governance is biased against the interests of developing countries. This bias is reflected not only in terms of inadequate and ineffective recognition of how the problems facing developing countries are quite different from those of developed countries, but also in terms of the inability to properly address practical impediments to the effective participation of developing countries. Without such involvement, the rules governing world trade and investment are unlikely ever to produce a more equitable distribution of their benefits.
Therefore, the primary political challenges are two-fold:
- removing all hindrances to developing country involvement in the decision-making mechanisms of global economic management. This entails establishing ways to improve developing countries’ access to and participation in the decision-making process of all agencies concerned with organizing world finance, investment, and trade. In addition, such progress will demand reforms that create a level-playing field between developed and developing countries, which should include compensation for past biases against the interests of developing countries; and
- recognizing that the management of the global economy should not be the prerogative of the G7 or G8 countries nor the current G20. Alongside the growing appreciation of the benefits of a collective and cooperative global economic management system, there is a need for a body that is more representative and larger than the G20 and which fully reflects the different development levels of countries. This broader body could be constituency-based, whereby countries could cooperate through groups composed based on regional representation and other multi-dimensional indicators, including for instance country size, population, income, location, and vulnerability levels, among others. In order to ensure that the composition of global decision-making bodies fully reflects experience and emerging economic configurations, the modalities for the composition of the representatives of global bodies should be time-bound and embedded with built-in flexibilities.
Trade, investment, and financial flows are the three key channels through which the current financial crisis is impacting developing countries. A recession in world trade and investment thus impacts developing countries’ trade, which has been their engine of growth, especially those developing countries that depend on export-led growth. Therefore, to the extent that the slowdown impacts negatively on their trade, developing countries’ growth may suffer from the current crisis.
To respond to the financial crisis, the G20 should ensure:
- that developed countries do not react in ways that will increase protectionism against the exports of developing countries, which would further worsen the impact of the global recession on these countries;
- that actions taken by developed countries to stabilize the global economy should not be taken at the expense of overseas development assistance (ODA) flows, which are critical for fighting poverty in developing countries;
- that employment-related actions by developed countries are not biased against employees of developing country origin given that developing countries currently draw a substantial amount of remittances from their citizens in the diaspora;
- coordination and harmonization of national level policies for managing global imbalances so that volatility in global financial markets of the sort that created the on-going crisis may be reduced or ameliorated; and
- the symmetric application of the set of rules governing the global economy in the sense that the rules applicable to deficit or surplus countries are operated even-handedly.
With respect to the World Trade Organization (WTO), developing countries face similar challenges as at the World Bank and International Monetary Fund (IMF), where they have long called for more effective representation and participation in governance structures, including for example, through governance rules that reflect country characteristics such as size, location, and vulnerability, among other indicators. In establishing new rules for WTO decision-making that better involve developing countries, governments also need to find ways to enhance the speed and efficiency of decision-making so that the process for reaching consensus are simplified and made less cumbersome. Finally, for African countries, regional trade plays a more significant role in Africa than multilateral trade, most notably because of the widespread use of preferential trade arrangements. The ongoing negotiations between the European Union and African countries for Economic Partnership Agreements (EPAs) will likely pose great challenges for Africa in terms of how the continent can dovetail commitments taken at the bilateral level with those taken at the multilateral level.
T. Ademola Oyejide is Professor of Economics, University of Ibadan, in Ibadan Nigeria. His recent publications include: Oyejide, T. A., (2008), “Introduction and Overview” in Oyejide, T. A. and D. Njinkeu (eds.) Africa imperatives in the new world trade order: Volume I: Case studies of agriculture and food security. Nairobi: African Economic Research Consortium (AERC); and Oyejide, T. A., (2008), “Introduction and Overview” in Oyejide, T. A. and W. M. Lyakurwa (eds.) Africa imperatives in the new world trade order: Volume II: case studies of manufacturing and services. Nairobi: African Economic Research Consortium (AERC).
This article is part of a forthcoming compilation on a trade agenda for G20 leaders edited jointly by Dr. Carolyn Deere Birkbeck (Global Economic Governance Programme) and Ricardo Meléndez-Ortiz (International Centre on Trade and Sustainable Development (ICTSD)). The compilation will be published in mid-March 2009.
March 18th, 2009 at 6:45 pm
Having read several literatures on this global economic crunch, I have personally come to the conclusion that Africans should be, horse’e pen this time around!). It’s high time African woke up to the reality – having played a game of deceit for so long a time. It beat my immaginat at the vanguard of this crusade. I felt very elated to stumble on this piece, coming from the “horses’ mouth” (sorryion to have heard from the Federal Government of Nigeria that “the global recession can never affect us!” What a naive statement! No nation operates without inter-relations, by the way, what then is the essence of International trade? A recent submit in Tanzania with an assemblege of African leaders, most distinguishly, Sir. Kofi Anan, the erstwhile UN stalwart actually hit the nail on the head. The Bretton Woods chiefs actually spoke the truth of what Africa should expect in the cause of this avoidable plague. Then, should we deceive ourselves again? He who has ears should hear, and also, tell those who do not have, that this plague called recession is blowing its wind all over the world. Let the looting stop in parts of the continent, and let everybody (paticularly, the governing and the ruling classes) concentrate on good governance. Enough is enough!
March 24th, 2009 at 8:11 am
Its high time the leaders of developing countries sit tight to combat their problems rightly rather than depending on G7, G8 or G20. Most of these nations have enough endowed resources to transform their economies into a developed one but lack leaders that have merit. How long are we going to be relying on the developed economy at every phase of recession? It’s an absurd to me!
December 8th, 2009 at 12:32 pm
Prof. Oyejide’s recommendations to the G20 countries made me smile, because those are the actions that such countries are most likely going to take; afterall it is an ‘economic downturn’. The principal interest of each state is the promotion of the benefit of its citizens; if the rest of the Developing World is roasting in the process, so be it! Most importantly, Developing Countries and LDC’s must go beyond the ‘cry-cry’ attitude they have adopted. Meaning, rather than giving excuses why we cannot, let’s utilise the means we have, such as a more dynamic application of TRIPS Objectives and Principles in Interpretation of its individual provisions, to obtain a more ‘development friendly’ result in WTO jurisdiction.