A partnership with academia

Building knowledge for trade and development


altVi core member FLACSO Argentina gathered 21 lecturers and students of its Global Studies Programme (GSP) around its first Vi videoconference presentation on the 2014 edition of the Trade and Development October 23.

Introduced by Valentina Delich, coordinator of the GSP's course on Re-ordering Global Economy and Society", the presentation was delivered by the leader of the TDR team, Alfredo Calcagno (pictured).

"In its first part, the TDR discusses current economic trends while the second part analyses the link between these short-term issues and longer-term trends. We explore whether the international economic system and global governance are functioning reasonably well and generating expected outcomes or if we are at a breaking point when things will need to change", started Calcagno.
The world is experiencing the weakest recovery in the post-war period. According to the report, the roots of the crisis, which consist of increasing income inequality and financial deregulation, are not addressed through appropriate policy measures, leading to a combination of weak demand in the real economy and artificially boosted asset bubbles in developed countries.

As Calcagno put it: "The current policies aimed at structural reforms which consist of a greater flexibility in the labour market will only further aggravate the situation."

The alternative proposed by UNCTAD is to implement coordinated expansionary policy across the different countries of the world. Such policy would comprise 3 R's: reflation in the form of government spending and credit policies, regulation of the financial system, and redistribution policies.

Developing countries' prospects for economic growth can be adversely affected by several factors: lower import demand from developed countries which casts doubt on the validity of export-oriented growth strategies, slower growth of world commodity prices, and financial instability triggered by volatility of global capital flows.

In this less favourable external economic environment, "developing countries need to find new drivers of growth and develop a new strategy, both on the demand and the supply side", affirmed Calcagno.

Such strategy will require greater policy ambition in terms of industrial policy, public investment in infrastructure and human capital, as well as capital management ensuring stable long-term capital inflows.

Its implementation will also need greater policy space to pursue structural transformation, manage capital inflows to match the countries' needs, and mobilize the necessary domestic fiscal revenues.

UNCTAD considers multilateral agreements more "friendly" to this kind of policies than bilateral or plurilateral trade and investment agreements. For instance, "the investor-State dispute settlement mechanism in bilateral investment agreements can tie the hands of the government to apply some industrial policies," noted Calcagno. He then added": Capital account management is still possible at the multilateral level if applied to cope with macro-prudential risks, but possibilities are restricted in most bilateral and plurilateral agreements."

Finally, the report raises the question of fiscal space: as governments need to finance the investment and other public spending required for development, mobilizing domestic fiscal revenues is crucial. At the same time, developing countries are incurring significant losses of such revenues as a result of tax competition, tax avoidance and transfer pricing by transnational corporations, which can artificially shift their benefits to secret jurisdictions and tax havens.

The report therefore proposes a possible UN-led multilateral framework in the area of taxation. "The three components of this framework would include: (a) an international convention against tax avoidance and evasion, (b) acceptance of the principle that firms have to pay taxes in the countries where they generate their profits, and (b) mandatory application of the Extractive Industries Transparency Initiative by both governments and companies", concluded Calcagno.

In the discussion that followed the presentation, the participants raised question relating to the likelihood of a positive outcome of the WTO Doha Development Round, as well as alternative forums which could influence the future shape of the international economic system.