Setting the global economy on a new path

XXIII Congress of the Socialist International, Athens, 30 June-2 July 2008

The Socialist International is aiming for a sustainable – economic, social, environmental – global development, in which all nearly seven billion human beings all over the world will have the same opportunities of a decent life, meeting their unquestionable un-negotiable human rights.

At the same time all human beings have the same obligation to preserve and safeguard the environment. The world society today is far away from these goals.

Sustainable development is a global task for all countries and regions. The poorer a country, the higher is the necessity of economic growth. Economic growth in less developed states is in the interest of higher developed states. Economic growth – even trade – is not a zero-sum game.


The general situation

The annual growth rate of the world GDP between 1975 and 2005 was at 1.5% with acceleration since the 1990s. The OECD states have growth on average 2.0% during that period, however with a slight deceleration after 1990. The countries with the largest populations in the world have contributed increasingly to global growth. China has grown on average at a speed of 8.4% and India at a rate of 3.4%. Growth in these two countries gained enormous momentum after 1990 up to 8.8% in China and 4.2% in India. Nevertheless, income disparities per capita within purchasing power parities remain high: in the OECD states income per capita is at 29.197 US$, while this figure is at 6.757 US$ in China and 3.452 US$ in India (in the year 2005). In sub-Saharan Africa this figure lays at 1.499 US$.

High income correlates with a longer life expectancy compared to low income and poverty. Life expectancy in the OECD states is 78.3 years, while in China this figure lies at 72.5 years, Russians reach an average of 65.0 years old, in India on average 63.7 years, and in sub-Saharan Africa 49.6 years. Uneven and unjust distribution of wealth and income not only exists between but also, and mainly, within states. While Europe and Japan have a Gini-Index of about 30 and 25 respectively, China and Brazil suffer under an extreme uneven distribution of income mirrored in Gini-Indexes of 47 and 57 respectively. The USA has a Gini value of 41 and Russia of 40. Perfect equality of income distribution would consist at a value of 0, perfect inequality at a value of 100. More than 1 billion people live on under 1 US$ a day and more than 1.5 billion on between 1 and 2 US$ a day.

Concerning the global environmental impact through carbon dioxide emissions the USA produces 21 tons per year, Germany 10, China 4 and India 1 ton per year, and sub-Saharan Africa 0.5 tons per capita (2004). There is a global obligation to avert climate change. The wealthiest nations with the greatest volume of emissions should reduce their emissions the most.

Since 2005 global growth has risen up to 5% per year, in Russia to more than 6%. In Latin America the growth has remained relatively weak, with less than 3% in Brazil. In the interest of the least developed countries, higher growth rates in these countries, compared to the OECD countries, remain necessary for catching-up processes. Global economic growth has to be equally balanced between better and worse developed states. The better developed must support the worse developed in this process – only in this way can poverty be overcome. For the Socialist International growth must provide opportunities for all, meaning sustainable development taking care of environmental needs.

At the same time global economic development suffers under structural restrictions, not only increasing the unjust distribution of income and wealth, but also the inability of the political systems at state and global level to overcome the structural restrictions.

The two recent major crises on the financial and raw materials markets are an expression of an inadequate governance regime to promote effective and just economic development.

For years the Socialist International has opposed a neo-liberal market ideology and the unilateralist, US-dominated approach in the global economic system. It has conceived an alternative that combines the dynamics of the global market with social, ecological and democratic values.

The SI is aware that globalisation is calling into question very basic elements of the economic and social order of welfare states. Nation-states which for more than a century have been a central element of the political, social and economic order are losing capacity to deal with the new challenges. Only larger states like the USA, China and India have remained strong and systemically important, based on their population, their economic strength or their military power.

New transnational actors or transnational corporations are taking over parts of the states’ discretionary capacities. In many economic fields, domestic solutions alone are no longer sufficient and have to be replaced or accompanied by globally coordinated efforts. That is a multi-level responsibility. The states have to cooperate more effectively and regional integration remains crucial for all. There is a need for more effective policy at a global level. At present, the global level is suffering from a lack of legitimacy. The United Nations Security Council is dominated by post-World War II powers and the developing countries are under-represented. In the International Financial Institutions (IFIs) the USA has an unacceptable influence. A condition for more effective global organisations is more global democracy.

The acceleration of growth in the last years has shown that globalisation can be a powerful source of wealth. More and more jobs across the world are dependent on international trade and/or have been created by trans-border investment. Globalisation opens up chances and opportunities, especially for those who have not profited from the economic order of the post-World War II era, like China and India. These hitherto unincorporated states are being integrated into global trade and new technological and productive centres are emerging.

At the same time, globalisation is a source of problems on a global scale: the increasing divide between rich and poor. The consequence is global migration.

Neo-liberal globalisation gives free rein to speculative movements of capital, which have induced a number of financial crises to South East Asia, South America, Russia and Turkey in the 1990s. Since 2006 the sub-prime crisis originating in the US markets has involved the economies of better and worse developed countries and decreased opportunities of economic growth. Many people in different countries have lost their jobs. For many years responsible politicians and economists have anticipated this kind of crisis. It shows that the financial order of the Washington Consensus has failed but until now there has not been enough democratic responsibility to protect the world from its failures.

The effects of globalisation – if ruled, as it is, by liberal financial logic - are distributed unequally. The major challenge posed by globalisation is therefore that of enabling democratic policy to implement welfare statehood on the global level. There is a need for multi-level governance, with responsibilities on:

  • the state level,
  • the supra-state regional level, and
  • the global level.

On all these levels the same values, principles and instruments have unlimited validity.


For the state level

Economic policy of all states should be guided by the principles on which the welfare state is based: market economy on the one hand, regulation, redistribution and public goods on the other. The peaceful integration of individuals into globally interlinked societies can only be achieved through social integration, protecting the human rights of the citizens. Every single state has the responsibility for achieving social integration.

Competition between states by reducing taxes, deregulation and decreasing state budgets can destroy the states' capability to guarantee social integration. Smaller states who want to promote sustainable development should be ready to look for regional integration.


For the supra-state regional level

The SI reiterates its proposal of its Congress of Sao Paolo in 2003 for an effective process of supra-state regionalisation. Regions should assume an increasing role as areas of economic, social, migratory and cultural interaction. A major obstacle to regional economic integration is the use of unilateral sanctions and blockades against neighbouring states and political units. More cooperation within and between supra-state regions is globally necessary. Primarily these integration schemes are a response to economic interests and dimensions, but regional integration schemes can have even more dimensions. The European Union is clearly to the fore in this respect.

Regions create intermediary levels or institutional frameworks in at least two dimensions:

Economically they create common markets that are intermediary levels of international trade allowing for specialisation, learning processes, nursing of infant industries and technologies and scale returns, thus preparing enterprises from less developed countries for competition in the world market;

They create an institutional framework of problem-solving for those trans-state problems and interactions that are no longer at a state level, but are not global in their dimensions either, and they establish areas of social cohesion based on solidarity.

The figures of China and India can be the weight for populations that can be regionally integrated. Compared with these, Sub-Saharan Africa, South America, the EU, North and Central America, Russia and the transformation states, the Middle East and one or two regions in South-East Asia could build regions.


For the global level

A more democratic United Nations System

The SI reiterates its proposal of a “United Nations Council for Sustainable Development”, to establish a global coordination mechanism - a new United Nations Security Council on Economic, Social and Environmental issues. This Council should be composed and function in a manner that takes into account the difficulties facing the current UN Security Council. The eventual permanent members should be more representative of the world as a whole and of all the major economic regions, including China, India, the EU, the United States, Africa, Latin America, Middle East and regions in Asia and Oceania; it should reflect the world of 2008, not the world of 1945.

The Council for Sustainable Development should be independent of the Security Council and have the same standing with respect to international economic and social matters as the Security Council has in peace and security matters. It should be in a position to improve coordination between international economic, financial, social and environmental policies.

It should be a deliberative forum aimed at contributing to world social and economic justice, stability and prosperity on the basis of the UN Charter and the achievement of the UN Millennium Development Goals.

It should have the tasks:

  • of continuously assessing the state of the world economy;
  • promoting stronger macro-economic coordination with regard to the smoothing of potential global imbalances;
  • providing a long-term strategy framework for sustainable development;
  • securing consistency between the policy goals and activities of the international economic, social and environmental institutions, especially regarding the International Financial Institutions and the WTO, the ILO, UNDP and UNEP; these organisations should have common guidelines on the priorities of their global agenda;
  • dealing and arbitrating with the externalities of trade, employment and the environment;
  • appointing the Chief Executives of all United Nations organisations dealing with the question of sustainable development and of the Bretton Woods Institutions.

Once a year the Council should meet at the level of heads of state together with the chief executives of all main global agencies related to sustainable development.


Welfare Statehood

Neo-liberal globalisation has undermined the ability of states to steer their economies according to given aims, such as full employment, growth or redistributive taxation. But these aims are global aims. Broader global cooperation and coordination are needed to meet them.

Regulation, redistribution and public goods are the principles upon which the Welfare State is based and have now become the basis for a global order that is socially inclusive.

  • Regulation has to be sustainable and effectively implemented.

  • Redistribution has to be socially fair.

  • Public goods have to be accessible for everyone.


Global trade

The present system of the World Trade Organisation (WTO) remains inadequate and unsatisfactory. Many developing states are still economically marginalised and not integrated into world markets. The WTO has until now failed to produce an adequate response to this challenge.

The current round of negotiations is declared as the Development Round. After the deadlock of the ministerial meeting in Cancun the process of negotiations involved new organised actors, such as the G21. The global trade order needs fundamental reform in favour of the less developed states. Free trade for the poor could be the direction. Free entrance to the market should be given first to the worst developed states. Reciprocity should be regulated between equally developed states – between worse and worse, between better and better, but not between worse and better developed. This principle includes reform of the agricultural market, including cotton. Long-term challenges for the WTO are to tackle concerns about the environment, core labour standards, the preservation of national cultures, rules regarding investment and gender sensitiveness.


Raw materials and energy

The world is rich enough of raw materials to provide the nutrition and the energy needs of more than ten billion people by using efficient technologies.

- The present problems of the food shortage have resulted from unequal distribution, bad governance and financial speculation affecting food products. In the short-run, countries and regions in which people suffering hunger should be aided by effective distribution system organised by the UN. The productivity of the agricultural sector, especially in Africa, should be supported by economic co-operation with the OECD and developing countries and an important increase of the share of public aid dedicated to agriculture.

Several proposals and mechanisms for increasing the funding of aid destined to the agricultural sector of developing countries were issued during the latest FAO food summit in Rome. Perhaps, one of the most significant ones, was the call launched by Tunisia to the international community to contribute to the funding of the UN World Solidarity Fund by allocating one dollar per oil barrel to the World Solidarity Fund, in order to combat hunger and poverty in the world.

Such solidarity-based initiatives are likely to better achieve their objectives, as they represent vital correctives to the excesses of globalisation, especially insofar as deregulation of the prices of basic commodities and the brutal erosion of consumer rights are concerned.

“The courage to make a difference” begins by showing the sustainability of such initiatives, as well as their long term profitability to all nations.

The present problems of energy and metallic resources are a problem of an over consumption in the OECD states and reluctance of using energy saving technologies. It is time now for the production and consumption of energy as a wider sector of global development to be regulated and controlled under the responsibility of the United Nations.


Global financial markets

The process of globalisation influences the financial markets. Shaping these markets in accordance with global sustainable development, at foremost, means reforming this present financial order. The US are no longer in the undisputed position to provide for the world currency. It is increasingly dependent on capital inflows, especially from China, Japan and the whole East Asian region.

There is an urgent need to reform the global financial system and the International Financial Institutions. The SI stresses the need for holding a global conference on fiscal markets in order to find solutions that are effective for all states and all peoples in the world.

The reform of the IMF and the World Bank, including a modification of the quota system so that developing countries are far better represented as has taken place in the recent reform of 2008, is necessary in order:

  • to prevent crises and manage global risks;
  • to control speculative funds and to combat money laundering;
  • to organise more effectively cooperation between monetary authorities.

The transparency of the IMF’s decision-taking has to be increased – for member states, parliaments, civil society and media – and the Fund’s governance structures have to be made more democratic by reforming the basic votes.

The reform of the World Bank should be intensified in the direction of a broad and comprehensive understanding of development beyond neo-liberal market orthodoxy including options to protect vulnerable economies and societies against external pressures.

The regional development banks should work more effectively to promote regional integration, because they are perceived as being closer to their clients than the IFIs. In a reformed system there should not be problems of cooperation between global and regional institutions.

The latest crisis on the financial markets increases the need for new regulations inside the financial system. On the one hand, the systemically procyclical behaviour of private rating agencies needs to be disrupted by a stricter public surveillance for example by the Bank for International Settlements. On the other hand, the complexity of financial instruments and products needs to be monitored and regulated by an independent institution to avoid situations of uncalculated risks in the credit markets. A supervisory body should be responsible for an approved procedure for complex structured financial products.

Capital requirement could be specified according to the respective risk assessment. In extreme cases a product could also be denied approval.

There is a need for global financing of development and of global public goods. New global resources are needed to achieve these aims. Additional International Financial Facilities have to be better funded, for example the installation of a global taxation system.


Financing development

A more just and even distribution between different states needs more resources. Firstly, the OECD and other developed states should implement the 0.7% development financing goal. Mainly the people in the producing states and not only the international companies should profit from the production of raw materials. The United Nations should make available a consultancy system which can assist producing states in the best possible way of using this income.

Debts are the most important obstacles to development in a very large number of countries. The debt cancellation programme for Highly Indebted Poor Countries must be continued and reformed in conjunction with social and democratic oriented conditions for improving good governance. A new debt workout mechanism should be set up.


Global labour

Work is essential to ensure human existence. An inclusive and equitable labour market is the filter through which wealth is redistributed and poverty can be efficiently tackled at the global level. Global development policy has to stay focused on the impact of globalisation on labour markets. It is time to make sustainable and decent employment a central macroeconomic aim for the IFIs, to combine macroeconomic with structural policy and to link economic and social policies. Rethinking employment policies and integrating the gender perspective is essential to address the negative gender implications of current patterns of work and employment.

Over the next ten years about one billion young people will reach working age. But there is a fundamental divide in their skills and knowledge. A part of them belongs to the best educated generation ever, while others lack educational opportunities. A global employment strategy for the 21st century must focus on educating all as a precondition of creating jobs. These jobs have to be both more viable and sustainable so that these young people will have decent employment and thus be fully integrated into the world society.


The responsibility of the private sector

Transnational corporations, as the big winners of the era of globalisation, must be forced to assume their social and environmental responsibilities. They could be better controlled if international regulations in the field of global competition and consumer rights were introduced. TNCs are at the core of the taxation gap in present societies; due to deregulation policies, capital is avoiding taxation, thus putting the burden of State finances on consumption and labour. Joint international efforts are needed to reverse this trend.