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<text> <title> Global Markets, Poor Nations, Poor People </title> <article> <hdr> Human Development Report 1992 Global Markets, Poor Nations, Poor People </hdr> <body> The disparities in the distribution of global economic opportunities between rich and poor nations are widening. There are many reasons for this, both domestic and international. This focuses on only two of the reasons: the role of international markets in this process, and the impact of human development on a country's performance in international markets; a look at the international flows of capital, labour, goods and services, assessing them from the perspective of poor nations and poor people. -- Financial markets--Real interests rates have been four times higher for poor nations than rich ones. Developing countries effectively paid 17% a year on their foreign debt during the 1980s, while rich nations paid only 4%. -- Foreign direct investment--Multinational companies channel most of their investments toward rich countries--83%. And the developing countries that do receive investment tend to be the already better off. -- Goods and services--Trade barriers are highest for manufactured goods for which poor countries enjoy a competitive advantage--for labour-intensive exports such as textiles, clothing and footwear. The market for agricultural produce is also distorted--by import barriers and by $300 billion a year in agricultural subsidies and price supports in industrial countries, reducing the export opportunities for developing countries. Sub-Saharan African countries have seen their trade share fall to a quarter of its 1960 level. And the least developed countries, with 8% of world population, have been among the greatest losers: their already small share of global trade has been halved over the past 20 years--from .8% to .4%. -- Labour--Immigration laws deny workers the right to equalize the global supply and demand for labour: to move to where they could best earn a living. This lack of market opportunities for developing countries costs them at least $500 billion a year, 10 times what they receive in foreign assistance. But the analysis also shows that some developing countries have fared quite well in international competitiveness. They often share one common characteristic--high levels of investment in their people and in strengthening their national technological capacity. Financial markets The financial markets have come a long way from the musty, secretive offices of the City of London. They are global, fast, and highly efficient--responding quickly to the supply and demand for investments and to the smallest changes in exchange or interest rates. Computerized dealing systems despatch $300 billion or more across national borders each day. Developing countries use these markets to raise funds, but they have to deal with the cycles of markets with short-term fluctuations in interest rates and with longer term cycles in which periods of excessive lending are followed by sudden withdrawals of funds. Developing countries also have to deal with the fact that some market players are more equal than others. They generally have to pay higher real interest rates and can thus find it very difficult to service debts. And even though they are already short of capital, the international money markets have a strong tendency to move funds out of developing countries to safer havens in the already capital-rich industrial countries. Real interest rates Interest rates rose sharply in the 1980s to a level without precedent in the past 100 years. In the 1980s, real interest rates were more than twice the level that prevailed in most of the period for which data are available. In the United States, real interest rates were five times higher than their average for the preceding 25 years. And even though US interest rates fell sharply during 1991, most analysts believe that this will be only a temporary respite. When global rates are high, everyone pays more. But in the 1980s, the developing countries effectively paid more than most, partly because they were considered higher-risk borrowers and were charged a commensurate premium. Mauritius, for example, has been relatively stable financially. Yet in early 1983, when the London interbank offered rate (LIBOR) was 10%, the Mauritian sugar industry was paying domestic rates of 18.5%. And when LIBOR rose to 14.4%, the local interest rose to 23.3%. The domestic interest cost went up on account of the "country (borrower) risk" of 2.4% above LIBOR, banking charges, and a premium for expected currency depreciation of 6%. The burden for local enterprises in developing countries also increased as international lenders, such as the International Monetary Find (IMF), imposed a series of devaluations--and the price of repayment in local currency rose accordingly. This had a devastating effect, especially in Latin America, where the amount of local currency to service external debt increased three or four times in one year. Developing countries also suffered from the collapse in commodity markets. As the international prices for coffee, sugar and other primary commodities fell, developing countries had to export ever greater tonnages to maintain interest payments. The real interest rates are calculated in different ways for industrial (creditor) and developing (debtor) countries. For industrial countries, the real rates are arrived at by taking the nominal rate and subtracting the domestic rate of inflation. For developing nations, however, the real interest rate on foreign debt is calculated by adjusting the nominal rate they are charged according to the rate of change in the dollar prices of the goods they export. Since the prices of the goods they export have generally fallen in the postwar period, the developing countries have effectively paid interest rates much higher than those stipulated in their debt contracts. While real interest rates in industrial countries averaged around 4% in the first half of the 1980s, in developing countries they were effectively around 17%. It is a sad commentary on the workings of the international financial markets that poor countries and their people have to pay interest rates four times those in rich countries. And the rates may well stay high as demands for the world's investment resources intensify. The continuing claims of the US budget deficit, the need to strengthen the capital base of US and Japanese banks, the creation of a single internal market in Europe, the costs of German reunification, the costs of postwar reconstruction in Kuwait and Iraq, the social and physical needs of Eastern Europe and the republics of the former Soviet Union--all these pressures are likely to keep interest rates high in the 1990s. If so, the developing countries will continue to shoulder a heavy debt burden and will receive relatively little new investment--restricting their opportunities for economic expansion, now and for years to come. High interest rates have their greatest impact on poor people--who cannot afford to borrow in such terms. But such interest rates can also result in serious damage to the environment. They act as a signal from the market that future income will be worth much less, so they encourage the present generation to discount the future at a very high rate. There is a strong case, therefore, for institutions such as the World Bank and the regional development banks to serve as intermediaries between developing countries and the financial markets--and to take measures to ease the burden of real interest rates. Cycles of lending International lending can fluctuate wildly--with rapid increases in flows followed by even more rapid withdrawals of funds. Such cyclical tendencies in the international financial system have been graphically described by the eminent economist Frank Taussig: "Loans from the creditor country, far from being granted at an equal annual rate, begin in moderate amounts, then increase and reach a crescendo. Usually, they are granted in exceptionally large sums when a culminating phase of activity and speculative fever approaches, and during this phase they become ever larger from month to month for as long as the upswing continues. With the emergence of the crisis, loans suddenly fall off or even cease altogether. Payment of interest on old loans is no longer compensated by the granting of new ones; interest becomes the net burden for the debtor country; it feels the consequences suddenly in the form of immediate need to make remittances in favor of the creditor country, in pressure on its banks, in a high discount rate, in falling commodity prices. And this sequence may occur not only once but two or three times in a row. After the first crisis and recovery, it is possible that the debtor country will manage to get on its feet. After several years the loans from the creditor country will start flowing again, another period of activity and speculative investment takes place, the old round gets repeated, until finally another crisis comes and another sudden reversal in the debtor country's balance of payments." This was written in 1927, and the events of the Great Depression proved Professor Taussig right. International banks increased their loans rapidly in the 1920s, but in the 1930s, as many banks collapsed, the lending stopped almost completely. The same pattern was eerily echoed in the 1970s and 1980s, though this time for the developing countries. During 1972-82, the international capital markets lent developing countries a net amount of $21 billion a year on average--reaching a peak of $36 billion in 1981. Unfortunately, real interest rates started to rise dramatically after 1979 as the industrial countries' governments introduced restrictive monetarist policies in response to the second oil shock. The precipitated the Latin American debt crisis in 1982, after which ending suddenly dropped. By 1988, net financial transfers to developing countries were minus $35 billion. The effect was felt not just by all developing countries as the commercial banks became overly cautious and cut credit lines all round. Theoretically, this should not have happened. The IMF and the World Bank were created in the 1940s specifically to avoid repeating the experience of the 1930s. They were supposed to intervene in order to moderate the extreme cycles of unregulated financial markets. In fact, they did try to increase their net credits to the developing countries in the early 1980s. But lacking the necessary resources, as well as the official mandate to intervene in global markets in a meaningful way, they could not sustain such policies. Far from dampening the cycles, they amplified them. Between 1983 and 1987, net IMF transfers to developing countries turned from plus $7.6 billion to minus $7.9 billion. World Bank transfers moved in much the same direction (despite the softening influence of concessional lending through the IDA). In 1991, net World Bank transfers were minus $1.7 billion, of which minus $500 million were to current borrowers. The Bretton Woods institutions thus failed many developing countries at the time of greatest need. The cyclical nature of the flows has also contributed to the deteriorating terms of trade highlighted earlier. When developing countries were suddenly required to repay debts, they often stepped up production of primary commodities that were already on oversupply, and the prices fell even lower. Their situation was remarkably similar to that of Germany in the interwar period following the demands for reparation. As Keynes argued, debtors face a double burden: debt servicing imposes a budget burden, while the deteriorating terms of trade impose a transfer burden. And Professor Irving Fisher, as far back as 1933, made some profound observations that the experience of the 1980s reconfirmed: "The liquidation of debts cannot keep up with the fall in prices which it causes. In that case, the liquidation defeats itself. While it diminishes the number of dollars owed, it may not do so as fast as it increases the value of each dollar owed...Then we have the great paradox which...is the chief secret of most, if not all, great depressions: the more debtors pay, the more they owe." The human cost of these cycles is very high. In the downward phase, economic stagnation causes real wages to fall, hitting the lower-income groups with particular force. In Latin America during 1981-87, for example, the lowest non-agricultural wages fell 41%. In Brazil in 1987, wages were at their lowest level in 37 years, and over a three-month period from January to March that year, unemployment almost doubled. In Mexico, real wages in manufacturing were cut by 50% over a period of five years. Africa in many ways fared even worse. Real wages had already fallen in the 1970s, so a further decline of 30% in the first half of the 1980s bit very deeply. Yet the lending of the IMF and the World Bank throughout the 1980s imposed stringent conditions that were not fully sensitive to the mounting human costs. Future lending from the international financial markets to developing countries will probably fluctuate just as violently. So, the task for the international community is to create a system of global governance that, among other things, can find ways to moderate such swings and allow developing countries to follow a steady and productive course of human development. Foreign direct investment The countries of the South have enormous potential for development, as well as millions of underemployed workers--a combination of opportunities that can attract foreign corporations wishing to build new factories or establish local subsidiaries. In practice, however, transnational corporations have brought relatively little new capital to the South. Foreign investment dropped off between 1981 and 1986, recovering to its 1981 level in 1988. In 1989, it reached $30 billion. And of global flows of foreign direct investment, the developing countries have been getting a steadily smaller share: from 31% in 1968 down to 17% in 1988-89. Even at its peak in 1975, such investment was equal to only .9% of the GDP of developing countries, and by 1980-85 a mere .4%. Transnational corporations employ relatively few people in developing countries--less than 1% of the economically active population. And these workers tend to be in the "modern" sectors of the economy: skilled workers using capital-intensive technology. Most foreign investment is concentrated in relatively few developing countries. During 1980-89, the average annual flow to the South was $16 billion, of which 74% went to just 10 countries: Brazil (12%), Singapore (12%), Mexico (11%), China (10%), Hong Kong (7%), Malaysia (6%), Egypt (6%), Argentina (4%), Thailand (3%), and Colombia (3%). And it is rising fastest in countries like Morocco, Chile, Mexico, Botswana, and Thailand, where the business climate is improving. This list shows a strong regional bias towards East and South-East Asia and Latin America. In East and South-East Asia, this attraction of foreign capital has intensified in recent years such that well over one-third of all direct investment now goes to six countries: China, the Republic of Korea, Indonesia, Singapore, Malaysia, and Thailand. The share for Latin America and the Caribbean, however, is dropping: it accounted for more than a half in the early 1980s but only a third by the end of the decade. Direct investment tends, therefore, to go the better-off and faster-growing economies. The poorer countries receive much less--unless they happen to have oil or minerals or other important raw materials. Of all the foreign direct investment channeled to the developing world, Sub-Saharan Africa as a whole currently gets around 6%, and in 1988-89 the least developed countries received just over 2% a year ($170 million). Why have these countries attracted so little investment? The major reason is that investment is generally more profitable in rich countries than in poor ones. This might seem strange since capital is theoretically supposed to enjoy a higher return where it is scarce, but in practice this does not seem to be the case. In the major industrial economies, the average rate of return on non-residential capital stock in recent years has been 17%. In the developing countries, the return has been around 12%. An analysis of the rates of return in developing countries by the International Finance Corporation (IFC), an affiliate of the World Bank, shows than in 200 projects for which the overall expected real rate of return was 21.4%, the actual rate turned out to be only 11.9%. And the rates varied from one region to another, highest in Europe, the Middle East and North Africa (15.1%), followed by Asia (13.5%), and Latin America and the Caribbean (11.1%). They were lowest in Sub-Saharan Africa (6.6%). The most profitable industry was mining (17.8%), followed by general manufacturing (16.4%), while food and agribusiness were much less successful (5.6%). Even on the best projects, therefore, the rates of returns in developing countries do not compare very favorably with those in industrial countries. Part of the reason is the lower levels of technology and labour productivity. But other factors have more to do with national governance--including political and financial instability and foreign exchange controls. Still, none of these obstacles to investment is insuperable--as the examples of the industrializing "tigers" of East and South-East Asia have shown. By adopting sensible macroeconomic policies, by developing indigenous technology and above all by making a judicious investment in the education and skills of their people, they have been able to attract considerable foreign capital. The international capital markets may indeed be warped in favor of the better-off economies, but with good national governance they can be penetrated. Labour markets No market is perfect, but the international market for labour is one of the most restricted of all. The supply is there: millions of workers in developing countries are unemployed or underdeveloped. And so could be the demand, if it were up to entrepreneurs only. But immigration laws block the free flow of labour from poor countries to rich. International migration has become increasingly significant--and contentious. At least 35 million people from developing countries have taken up residence in the North in the past three decades--around 6 million illegally--and about 1.5 million more join each year. There are also 20 million or so working overseas on contracts for fixed periods. Some countries have been much more open to migration than others. The percentage of foreign residents is 21% in Australia, for example, and 16% in Canada, compared with 8% in the United States and 4% for Europe as a whole. The United States, however, has seen the greatest growth in immigration--108% since the 1960s, compared with a 4% increase for Europe. In all these countries, there has been a marked shift in the source of their immigrants. Until the early 1960s, 80% of immigrants to the United States, Canada and Australia came from other industrial countries. By the end of the 1980s, the position was almost precisely reversed--82% now come from developing countries. In Europe, the trend was less marked but in the same direction--with the proportion from developing countries rising over the same period from 30% to 46%. These changing patterns of migration reflect changing demographic balances. Most industrial countries are facing reduction in fertility rates. Annual population growth in the 1990s is expected to be .2% in the European Community and the Nordic countries and .7% in North America. So, these regions are less likely to be a source of migration. But the position in the South is very different. Some 38 million extra people join the labour force each year. Added to the more than 700 million people already unemployed or underemployed, this means more than one billion new jobs must be created, or improved, by the end of the decade--equivalent to the total population of the North. Indeed, the world's overall demographic balance is shifting fast. Today's rich nations are rapidly becoming a minority. Back in 1950, 20% of new babies were born in an industrial world. Today, the figure is 12%, and by 2000 it will have dropped to 11%. The rich populations and the fast-expanding poor ones give a further impulse to international migration. If global opportunities do not move towards people, then people will inevitably start moving towards global opportunities. The people of developing countries are also much more likely to have their lives unhinged by war, natural disaster and environmental degradation--and thus are more likely to migrate. The problem is particularly acute in Africa, which has nearly half the world's refugees. Undocumented migration and seasonal labour migration have taken place routinely in all regions of Africa, particularly West Africa. But the refugee problem is confined mainly to East Africa and especially to the countries of the Horn, Mozambique, and Sudan. The movement of despair takes people from one poor country to another. Migratory movements in the South are also more prone to dislocations by war. Of the 2.8 million migrants in Kuwait and Iraq affected by the Gulf War, about three-quarters originated from Arab countries, one-quarter from Asian countries and fewer then 2% from other countries. The labour-sending countries of Asia are thus exploring alternative prospects in Japan, Singapore, Hong Kong, Malaysia, and the Republic of Korea. There are around 12 to 15 million internally displaced people in developing countries and probably 14 to 16 million political refugees. On past experience, only about 5% of them are likely to find their way to the North. Immigration policies As a response to demographic changes, many industrial countries changed their immigration policies in the 1960s and 1970s to allow for more migrants from the South. The United States in 1965 abolished the national origin quotas that favored other industrial countries, and in 1978 Canada amended its Immigration Act to emphasize that there would be no discrimination by country of origin. But given the scale of potential migration from the South, and their own problems of unemployment, some of the receiving countries, especially those in Europe, have become much more concerned about the potential for social disruption. There has been considerable discrimination against migrant workers--not just in employment but also in housing and welfare rights. The International Convention on the Protection of Rights of All Migrant Workers and Members of their Families is addressing some of the problems. But in several European countries, pressure for the repatriation of unemployed migrants is on the increase. Partly in response to these pressures but also as a result of demographic trends and to protect the living standards of their people, the industrial countries, in what is, effectively a "buyers' market" for migrants, have been setting higher and higher levels of qualification--giving preference to highly skilled workers, or to those who bring capital with them, or letting in only political refugees. -- Skilled workers--Immigrant workers have traditionally been among the lowest paid--doing the dirty, difficult and dangerous jobs that citizens of the richer countries decline. This is particularly true for illegal migrants. In Japan, for example, illegal migrants from the Philippines and Bangladesh will take jobs in construction and manufacturing that Japanese workers refuse. But the receiving countries are now placing more emphasis on the import of skills. Canada's preference for entrepreneur immigrants has been reflected in a sevenfold increase in their numbers between 1983 and 1989. The US has tended to be more liberal in allowing entry to unskilled and semi-skilled workers, but its Immigration Act of 1990 shows that it too is now looking for higher skill levels from its immigrants. -- Investors--The industrial countries are now in a position to ask not just for labour but also for money. Canada and the United States, for example, have been giving preference to investors and are said to have attracted millions of dollars in this way. -- Political refugees--These have been the major category of migrants besides those for family reunification. Political refugees on average outnumber economic migrants by 10%. In some countries, such as France, the Netherlands, Norway and Sweden, the proportion of political refugees is much higher. The greatest numbers of asylum-seekers in 1989 went to Germany (121,000), the United States (84,000) and France (61,000). Even those numbers, however, are relatively small compared with the number of potential refugees from the South. So, many industrial countries are now much more careful about whom they will accept as political refugees. For the industrial countries, the benefits of migration are clear enough. It might be argued that in the long term, instead of importing workers, they could increase their levels of technology to reduce the need for unskilled labour. Simultaneously, they could increase training for their own people to avoid importing skilled workers. But in the short term, at least, the receiving countries benefit from a willing and increasingly skillful new workforce. For the sending countries, too, there can be significant gains, the numbers of people who migrate are relatively small (.4% of the total labour force) so their absence may have little impact on local levels of unemployment. But they can make an important contribution through the remittances they send home. The cost of immigration controls Immigration controls prevent workers in developing countries from moving across international frontiers in search of higher wages. A study at the Indira Gandhi Institute of Development Research in India estimates that immigration restrictions will have resulted, by 2000, in a $1,000 billion loss in global economic growth. How much does this cost the developing countries in financial terms alone? This is difficult to estimate accurately since it would require data on so many different aspects of migration. How many people would move if the labour market were completely free? What would they earn? How would their absence affect economic growth in their home countries? What remittances would they send--and what multiplier effect would these have on GNP growth? These are just some of the questions that would have to be answered. A very conservative estimate can still be made, however. Developing countries already have extensive unemployment and underemployment, combined with population growth of 2.2% a year. And workers who migrate could expect much higher salaries overseas. So, to suggest that, say, 2% of the labour force in the developing world would choose to move each year if there were no restrictions is a cautious estimate indeed. If such workers earned no more than a poverty-line salary in industrial countries (around $5,000 a year), they would earn $220 billion a year. Of this, between $40 and $50 billion would be sent home as remittances. The benefit of remittances would be cumulative at first as more people found a place in richer societies, but would then level off as immigrants started to sever close links with their home country. Over five years, however, they might reach $200 billion a year. This income would have an even greater impact in GNP (possibly double) through the multiplier effect mentioned earlier. Offset against all this income would have to be the developing countries' reduced growth opportunities because of the loss of skilled workers. Even using very conservative assumptions, immigration controls deny developing countries income (direct and indirect) of at least $250 billion a year. The market in international labour is clearly not free. It is steered and controlled by the industrial countries. People in poor countries are unable to grasp opportunities overseas and thus equalize the returns for equivalent skills and effort. But the pressures of migration will continue unless there is development in the South. Economic opportunities--better access to global markets and foreign direct investment--have to migrate towards people if people cannot migrate towards economic opportunities. Regional economic groups Countries throughout the world have been grouping themselves in larger regional trading blocs. Even the largest countries are aware that, as trade is increasingly globalized, they cannot survive on their own. In Europe, the European Community will have a single market by the end of 1992 when all internal barriers among member states are removed. And by the end of the decade, Europe may well have a single currency with all the economic coordination that implies. In North America, the United States and Canada are negating a new extended agreement with Mexico. And the United States has also expressed its willingness, though the Enterprise for the Americas Initiative, to enter free trade agreements with other countries, or groups of countries, in Latin America. More than 16 countries have already expressed interest in pursuing this proposal. This initiative has given a fresh impulse to Latin America's own efforts at regional integration. Argentina, Brazil, Paraguay and Uruguay signed a treaty in early 1991 preparing the basis for a Southern Cone Common Market, to be in operation by 1995. In addition, the Andean Group (Bolivia, Colombia, Ecuador, Peru, and Venezuela) decided in early 1991 to accelerate progress toward the establishment of a common market in their subregion by 1995. And the Caribbean countries already have a 12-member common market in their subregion. In Africa, the Organization for African Unity, at its summit meeting in Nigeria in 1991, adopted a treaty for the establishment of an African Economic Community. The treaty sets out a timetable for the necessary steps--including a phased removal of barriers to intra-African trade. These are expected to culminate in the formation of an Africa-wide economic community and monetary union by 2025. In Asia and the Pacific, the Association of South-East Asian Nations has recently decided to create an ASEAN Free Trade Area over the next 15 years. In a looser fashion, there is cooperation with the South Asian Association for Regional Cooperation and the Pacific Rim countries. The Arab states are also more loosely linked--through the Arab Maghreb Union and the Arab Cooperation Council. What effect will such trading blocs have on human development within individual countries? Since most of them tend to be grouped around one or two dominant nations, there is the danger that these nations could increase their dominance. But in many of the regions, it is clear that there could be transfers of income from richer to poorer countries--as between the countries of northern and southern Europe. Some may argue that such regional groupings run counter to the steady process of globalization in trade. Rather than assisting multilateral negotiations through GATT, they tend to fragment the world economy. This appears unlikely. The pressures for globalization seem unstoppable. East Asia's trade with the European Community, for example, grew by 12.4% a year between 1980 and 1989 and that with North America by 12.8%. Much of this increase comes from transnational enterprises as they exchange goods and services between subsidiaries and affiliates in different countries. For Japan in 1983, such intrafirm transactions made up 31% of the country's exports. Regional groups can complement the global trading arrangements, helping to reduce disparities among countries and protecting them against the worst shocks of the global markets. National policies for global competitive advantage The analysis shows that global markets are not very friendly to poor nations and poor people. Developing countries enter the markets as unequal partners and leave with unequal rewards. Their path is restricted precisely in areas where they enjoy a comparative advantage--such as labour-intensive manufacturing. Fundamental reforms are needed if global markets are to benefit all nations and all people. But the reforms in global markets do not reduce the responsibility of developing countries to take all the steps they can to increase their access. National governments carry the primary responsibility for accelerating economic growth and for boosting levels of human development. Unless national governance improves, global reforms stand little chance of benefiting poor people. -- Creating an enabling policy framework. The first two Human Development Reports showed just what national governments could do to improve macroeconomic management, to increase savings and investment, to enhance productivity and to translate economic growth into improved well-being for their people. The potential is enormous. The 1991 Report illustrated what could be achieved by reorienting public spending priorities. If developing countries reduced military expenditure for example, and privatized inefficient and loss-making public enterprises, they could release an estimated $50 billion a year for human development concerns. In recent years, economic reform in Latin America and the chance of further debt restructuring agreements have brought back to the economies of this region significant amounts of national "flight" capital and foreign investments. Foreign direct investment in Mexico quadrupled in 1991 to $17 billion. For 1991, Argentina expects its investment growth to have been around 10%, Venezuela 18% and Bolivia 5%. The earlier Reports also showed how growth in a country's economy could be directed into improved well-being for its people. Reforms in land distribution, access to assets and income-earning opportunities, new fiscal politics to benefit the lower income groups, credit expansion to make more funds available to the poor, a reorganization of social-spending priorities--all could help smooth the translation of economic growth into human development. -- Investing in people. Poor countries find that restrictions on the functioning of markets deny them full access to free international trade--and the benefits this could bring to their people. Even so, some countries have managed to overcome such biases. Although the overall gaps between North and South may be widening, 10 countries have increased their share of both global GNP and global trade. Determined national action can sometimes overcome perversity in global markets. How did they do this? How have they managed to progress even with the odds stacked against them? The secret seems to be dynamic competitiveness. They have striven to increase their competitiveness as the demands of the market change. Each country has, of course, taken its own individual line, but there have been several common elements. Good economic governance seems to have played an important role. And this has not been limited to pursuing appropriate macroeconomic policies. All these governments have, to a greater or lesser extent, been actively involved in supporting industrialization. And some have intervened to offer some forms of market protection. The republic of Korea, for example, built up its industry by serving a protected local market before gaining its current international competitive position. But these governments have also had outward-oriented trade regimes and an open climate for foreign direct investment. This openness to foreign capital has brought them into close contact with international markets and new technological developments. The Republic of Korea built much of its manufacturing output on the basis of "borrowed" technology. Most important, they have continuously supported broad investments in their people--in education, in health and in national capacity building in policy formulation, planning, development management and science and technology. This should come as no surprise. It was, after all, the experience of Western Europe. According to a recent study, improvements in nutrition and health between 1970 and 1980 accounted for 20% to 30% of per capita income growth. And the most successful of the industrial countries today, Japan is remarkable, among other things, for the education of its workforce--about 90% of managers have a university degree (compared with 45% in the US and 30% in the UK). The faster-growing developing countries are following a similar path, showing how investments in education and technology have helped them leapfrog several decades of progress and lay the skill base for future growth. Individual countries can, therefore, overcome many international barriers if they make the necessary domestic policy choices. That is an important lesson from development experience: addressing the dual challenge of meeting basic education and health needs as well as leapfrogging through rapid technological change. But it is also true that the obstacles to liberalizing the international markets are removed. The global community must make it easier for developing countries to sell their goods. If it does not, millions of the world's people will be left even further behind--and tempted to catch up not through development but through migration. Global economic expansion and political stability demand urgent changes in global governance. Source: United Nations Development Programme </body> </article> </text>