UNCTAD\\\'s prescription for sustainable growth

The less than projected growth in global economy in the current year and the preceding years reveals that the core factors impeding growth has been the same with most nations, though in varying degrees. The UNCTAD Trade and Development Report (TDR) 2014: Global Governance and Policy Space for Development, released recently, states that with insufficient demand and persisting financial instability, the global economy badly needs a sustainable growth path.
The TDR-2014 highlighted the current and future challenges of the global economy that include weak employment growth, stagnant wages and rising levels of household debts, surging asset prices and growing profit shares. As for international trade, the Report states that the less than 2.0 per cent growth rate of world merchandise trade in the past two years and early 2014 is indicative enough of the fragile growth direction. It attributes the dull performance to weak global demand, and stressed that global expansion of trade must be achieved through a robust economic recovery braced by domestic demands, warning that "efforts to spur exports through wage reduction and internal devaluation would backfire."
Tracking the trends of the global economy, the TDR observes a modest pickup of economic growth in 2014. It shows that global economy was expected to grow by 2.5 per cent to 3.0 per cent in 2014, slightly higher than the 2.3 per cent in the past two years but still below its pre-crisis level. The developed countries, the Report projects, would raise their growth rate from 1.3 per cent in 2013 to 1.8 per cent this year, and the developing countries would grow at between 4.5 per cent and 5.0 per cent. Meanwhile, the growth in transition economies, mainly referring to South-East Europe and the Commonwealth of Independent States, is estimated to slow down to around 1.0 per cent.
Insisting that some drivers of present recovery may not be adequate for sustainable growth, the TDR-2014 pointed out that the developed countries launched policies which combined fiscal austerity, wage restraint and monetary expansion to cope with the crisis, but such measures reduced domestic demand while encouraging liquidity to flow into financial sector instead of productive investments. This resulted in a significant increase in asset prices in spite of feeble economic growth and also led to large capital outflows, much of which are directed into emerging markets. The Report warned that such policies only indirectly supported a demand recovery in those countries where asset appreciation generated a sufficiently strong wealth effect, and encouraged renewed consumer borrowing. Such a situation shared certain obvious parallels with the conditions that led to the global financial crisis years ago.
The main assessment of the global economy, according to the Report, is that after six years of the global economic and financial crisis, the world economy has not yet established a new sustainable growth regime. Furthermore, the policies supporting the recovery are frequently inadequate, as they do not address the rise of income inequality, the steady erosion of policy space along with the diminishing economic role of governments and primacy of the financial sector, the Report says. It recommends that in order to put the world economy on the path of sustainable growth, the key requirements are strengthening domestic and regional demand, with a reliance on better income distribution rather than new financial bubbles.
With the fiftieth anniversary of the UNCTAD coinciding with the seventieth anniversary of the Bretton Woods institutions, the Report looks at how, after the end of the Second World War, the international community tried to build a more inclusive and sustainable international economic order around effective multilateral disciplines without unduly compromising the policy space needed to meet a new set of economic and social goals. Today's efforts to ensure adequate policy space within the global trading system will deliver the desired outcomes only with effective reform of the global financial architecture to ensure more stable and long-term financing, both public and private, for poor economies.
The Report takes a long-term perspective in analysing the evolution of the debate on global governance and policy space. Policy space is understood in the Report as the ability of governments to identify and pursue the most appropriate mix of economic and social policies to achieve equitable and sustainable development in their own national contexts, but as part of an independent global economy.
The Report emphasises the role that proactive trade and industrial policies can play in the post-2015 development agenda and points to various policies which, in the changing dynamics of the world economy, can help achieve sustained income growth, full employment, poverty reduction and other socially desirable outcomes. On trade, the TDR-2014 argues that negotiations on rule- making need to refocus on multilateral agreements which recognise the legitimate concerns of developing countries. It also argues that developing countries should carefully consider the loss of policy space when engaging in bilateral and regional trade and investment agreements. Such agreements often come with stricter commitments than in the same areas covered by multilateral agreements.
As regards the existing fiscal policies and their less than desired impacts on the economies, especially in the developing world, the TDR 2014 stresses the need for expanding fiscal space. It notes that the current structure of the global economy makes it difficult for countries to increase government revenues and to choose their tax structure. Lower tariffs have led to a significant reduction in import duties. Besides, the conditions for taxing income and wealth have been altered by the increased mobility of capital and the intensive use of tax incentives. Tax incentives can be excessively costly in terms of foregone revenues, the TDR warns. In the light of this observation, the UNCTAD strongly advocates that fiscal space and governance issues should be prominent in the post-2015 development agenda in respect of many developing and transition economies.

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