Hospitals & Asylums    





Substantive Session of ECOSOC 3 - 28 July

“Creating an environment at the national and international levels conducive to generating full and productive employment and decent work for all, and its impact on sustainable development”

High-level Segment 3 – 5 July 2006

1. In a Globalised world and an economy undergoing constant change we stress the importance of the collaboration between the local, national and international level to achieve full employment and decent work for all.  ECOSOC has always been the UN’s principal body for coordinating and advancing development policy.  ECOSOC coordinates the work of the 14 UN specialized agencies, 10 functional commissions and 5 regional commissions, receives reports from 10 UN funds and programmes and issues policy recommendations to the UN system and to Member States. The 54-member Council meets every year, alternating between New York and Geneva. ECOSOC should be the political- and policy-level global forum for making progress towards the Millennium Development Goals.  A place where ministers commit, and are held accountable for action on those commitments. Such change can make ECOSOC the development parliament of the United Nations.  Every day, 30,000 children die of preventable diseases, and every minute, a woman dies because of complications in pregnancy and childbirth.  In the 1990s, some 60 countries in various parts of the world actually grew poorer.  Today, nearly 3 billion people subsist on less than $2 a day, the same number as 10 years ago.  Clean drinking water remains out of reach for more than 1 billion people, while environmental degradation continues to render once fertile soils incapable of supporting the most basic needs of families.  The Millennium Development Goals present an opportunity for ECOSOC to rally around a concrete set of clear, universally acclaimed and achievable targets. 

2. The world as a whole is on track to meet the target of cutting in half the proportion of people living on a dollar a day or less by 2015. The starting date for all of this was 1990. At that time, 28% of the world lived on a dollar a day or less. Today that has dropped to 19%. Now, the first thing to say about this is that it is significantly driven by the extraordinary success in southern and eastern Asia and we’ve done less well in Latin America where progress has only been from 11 down to 9%. And of course, as I think you all know, in Sub-Saharan Africa poverty of this kind remains stubbornly stuck at 44%, although even there, there is some real evidence now that improved economic performance, along with additional donor assistance and debt relief, could be laying the groundwork to start making significant improvements there too.  On some other goals, really good news to report as well. There are signs that we might get to the goal of universal primary education for every boy and girl. Eighty-six percent of children in the developing world are now enrolled in primary schools. Real progress too with clean drinking water where the statistics has also continued to rise, jumping to 80% in 2004 from 71% in 1990. But again, lots of major regional differences. Women’s role in political participation, which we see as critical if we are really to get at family poverty and have people who are willing to speak for it and hold governments accountable for it elected to office. We now have women holding 17% of parliamentary seats globally. In 20 countries, more than 30% of seats are held by women. And that is striking in some post-conflict countries, which have used the phenomenon of new constitutions and the lessons of conflict to really try and drive up the level of seats held by women. Afghanistan now has 27% of its parliamentary seats held by women and Iraq 25%. The number of people receiving antiretroviral drugs in developing countries has increased fivefold over the last four years, from 2001 to 2005, from 240,000 to 1.3 million people.


3. The 48 least-developed countries (LDCs) of Africa and the Asia-Pacific region are home to the vast majority of the world’s poor. The African LDCs are: Angola, Benin, Burkina Faso, Burundi, Cape Verde, Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, The Gambia, Guinea, Guinea-Bissau, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda and Zambia. The LDCs in the Asia-Pacific region are: Afghanistan, Bangladesh, Bhutan, Cambodia, Kiribati, Lao People’s Democratic Republic, Maldives, Myanmar, Nepal, Samoa, Solomon Islands, Timor-Lesté, Tuvalu, and Vanuatu.  Conference Room Paper of 3 May 2006.  On the theme of the 2006 ECOSOC High-Level Segment: "Creating an environment at the national and international levels conducive to generating full and productive employment and decent work for all, and its impact on sustainable development" The quality of employment is embedded in the very notion of decent work. It is about security of tenure and prospects for career development; it is about working conditions, hours of work, safety and health, fair wages and returns to labour, opportunities to develop skills, balancing work and life, gender equality and social protection. It is also about freedom of association and having a voice in the workplace and society.


4. The 2005 World Summit resolved “to make the goals of full and productive employment and decent work for all a central objective of [their] relevant national and international policies”.  Greater attention, therefore, needs to be paid to decent work, defined as “opportunities for men and women to obtain productive work, in conditions of freedom, equity, security and human dignity”.  Decent work is central not only as a source of income, but also as a condition for people to live a self-determined life, and to participate fully as citizens in their communities. As such it facilitates social integration and social cohesion. It is also essential for the long-term recovery of countries emerging from conflict.  It is important to put the goals of full employment and decent work firmly back into the United Nations development agenda. It demonstrated that there is a solid consensus that in order to achieve the internationally agreed development goals, including the MDGs, employment and decent work needs to be at the centre of economic and social policies. World Leaders also concluded at the Summit that in many parts of the world the goals could not be achieved by the 2015 deadline under the prevailing employment and labour market condition. Against this backdrop ECOSOC changed its mind to devote its 2006 High-Level Segment to employment rather than countries emerging from conflict.  To put two and two together – To make progress nations must pay for gainful employment not soldiers.


5. The UN Economic and Social Survey is the main report of the substantive session of ECOSOC this 2006.  The Statement of Mr. Jose Antonio Ocampo Under Secretary General of Economic and Social Affairs to the High Level Policy Dialogue of ECOSOC in Geneva 3 July 2006 is that the world economy is performing well this year.  The rapid and fairly broad growth of the developing countries— undoubtedly the most positive global economic trend in recent years—persists.  In 2006, the developing world will again, as in the two previous years, register a growth rate of more than 6.0 per cent, comparing favourably with 2.7 per cent for the industrialized world. The LDCs in particular will reach an unprecedented rate of over 7 per cent.  The solid growth figures of developing countries reflect a very favourable international economic environment.  Yet, this mix of exceptional conditions is threatened by increasing risks. The first are the uncertainties surrounding current trade negotiations. The increased volatility of commodity markets in the first half of 2006 also signals the risks that commodity-exporting economies face in the current conjuncture. And rising interest rates in industrialized countries have been accompanied in recent months by a “flight to safety” by investors in financial markets, implying less financing at higher costs for developing countries. The global economic outlook itself features increased uncertainties. As is well known, some of the major risks are associated with the global imbalances, particularly the high current account deficit of the United States, which is expected to reach over $900 billion in 2006. This continues to create the possibility of a sudden and sharp disorderly adjustment of global imbalances, especially through a large devaluation of the dollar, or a significant slowdown of the US economy, both of which would have adverse effects on the world economy.


6. During the so-called golden age of 1950-1973, most developing regions experienced rapid economic growth. In contrast, the final two decades of the twentieth century brought a worrisomely large number of “growth collapses”, with only a few developing economies able to sustain fast rates of growth.  The four point plan for continuing development in developing countries since the Millennium Declaration are:


One, fostering active trade and production sector policies to encourage the structural transformation of developing country economies, aimed at encouraging the diversification of production sector structures, creating strong domestic linkages among production activities, and upgrading technologies. International rules should be reviewed in this light, while avoiding at the same time some mistakes of past industrial policies.


Two, open up more space for counter-cyclical macroeconomic policies, striking a better balance between fiscal and monetary prudence and flexibility, and making price stability less an objective in itself than an intermediate goal of economic growth and employment creation. The effectiveness of these domestic policy efforts will also require policy interventions at the international level to dampen financial volatility.


Three, ensuring sustained levels of public spending to make the necessary investments in infrastructure and human capital. This means that additional fiscal space needs to be created through increased efficiency of public expenditures, through improved governance and strengthening of the tax base and, for the poorest countries, through additional official development assistance (ODA).


Four, promoting gradual, country-specific and home-made institutional reforms. International cooperation can help in this regard by supporting such gradual domestic processes, by fully respecting the principle of ownership of domestic policies and institutions and, particularly, by avoiding the proliferation of institutional conditionality.


7. Preface by Koffi Annan. Our world is richer than ever before, but it is also marked by enormous inequalities, both within and between countries. The average annual income of someone living in the world’s richest country, Luxembourg, is more than one hundred times larger than that of the average citizen of Sierra Leone, one of the world’s poorest. Such big differences in living standards should be a matter of great concern, because they reflect serious inequalities in life opportunities. This calls for a robust policy response at both the national and international levels, so that all countries can achieve the Millennium Development Goals and other agreed development objectives. Trends in inequality between countries have varied. In the 1950s and 1960s, developing countries experienced strong and sustained economic growth, almost across the board. Since the 1980s, however, a trend towards increasing divergence has set in, with a limited group of countries, most of them in Asia, achieving rapid economic growth and gaining from more open global markets, while much of the rest of the developing world has faced economic instability and made few gains in human well-being.


8. Chapter One: Growth and Development Trends 1960-2005. By many measures, global income inequality is high and rising. In 1950, the average Ethiopian had an income 16 times less than that of someone living in Europe or the United States of America. Half a century later, Ethiopians have become 35 times poorer.  We are concerned here, however, with the rising inequality between countries. About 70 per cent of global income inequality is explained by differences in incomes between countries.  In the 1960s and 1970s, nearly 50 out of a sample of 106 developing countries had experienced one or more prolonged episodes of high and sustained per capita income growth of more than 2 per cent per year. Since 1980, however, there are only 20 developing countries that have enjoyed periods of sustained growth.  Periods of growth for developing countries have alternated with prolonged periods of stagnation and volatility, especially since the mid-1970s. Only a few developing countries have been growing at sustained rates in recent decades, but these include, most notably, the world’s two most populous countries, China and India. Considering that these two countries alone account for almost half of world population, inequality across the globe is beginning to decline. However, when these countries are left out, global inequality is seen as having continued to rise strongly from already high levels.


9. Inequality matters especially within developing countries, not only because it signals injustice, but also, and particularly, because unequal opportunities make it so much more difficult, as economic potential stays unutilized, to achieve the Millennium Development Goals. The rich tend to be healthier and better educated. A better education and greater wealth are “assets” that help people gain influence in society and take fuller advantage of economic opportunities. At the other end of the spectrum, inequality makes it more difficult for those who lack such assets to grow out of poverty.  In short, inequality breeds more inequality. Further, it is now also more broadly maintained that wide income disparities within countries tend to impair the pursuit of sustainable long-term prosperity.  Seventy per cent of world income inequality is explained by differences in incomes between countries.  Richer countries have better access to capital markets and are less vulnerable to external shocks.  Poorer countries have less of a voice in international economic decision-making.  Eighty-four per cent of international income inequality is explained by differences between regions.  Widening global asymmetries can be harmful to growth.  Since 1980, international inequality has increased sharply and only East and South Asia have grown more rapidly than industrialized countries.  Rising global inequality is in part explained by the process of globalization.  Standard economic theory has encountered difficulties in explaining the growth divergence. 


10. Nobel Prize winner Robert Lucas (2000) has estimated that the diffusion of technology and ideas will allow income distribution across nations to narrow and make everyone “equally rich and growing” by the year 2100. The renewed interest in the determinants of economic growth heightened after it was observed that many developing countries had gone through a prolonged period of poor growth performance and that there was increasing evidence that only a few countries appeared able to “catch up” with the developed world. The standard economic model of growth focused primarily on the role of savings and investment and predicted that, in the long run, rich and poor economies would eventually converge in terms of income levelsUsing sophisticated economic analysis, others have strengthened this claim with similar estimates showing that convergence can be expected to take place the forces of the global market are left free to act. In terms of purchasing power parity (PPP), commonly used when making such comparisons, the developed world had managed to increase its GDP per capita 19-fold between 1820 and 2001.  The performance of the rest of the world was much more modest.  The mean incomes of countries in Eastern Europe increased nine times, while those of the countries in Latin America and Asia showed, respectively, an eight- and a sevenfold increase during the same period. African countries witnessed much more modest welfare increases: their GDP per capita in 2001 was only three and a half times that observed for 1820.


11. After the “golden age”, a dual pattern of divergence emerged.  In the 1960s and 1970s, nearly 50 developing countries had had sustained growth, but only 20 thereafter.  There was a distinct downturn in international development through the 1980s.  Sustained growth occurred more often again in the 1990s, but at levels far below those of the golden age.  Growth successes and collapses have clustered in specific time periods.  The major general downturn took place around 1980.  The oil shock of 1973 had disturbed the normal functioning of the economies of developed countries, generating inflation and recession, and had important effects on developing countries as well.  The pace at which the gap widened had slowed down during the quarter-century that followed the Second World War (1950-1973) and during this period several regions (Eastern and Central Europe and Asia) and the Union of Soviet Socialist Republics managed to catch up in modest terms with the developed countries. As noted above, this period is sometimes also referred to as the golden age, since rapid growth took place in a large number of countries and regions across the world.  During this period, all regions recorded an average GDP per capita growth rate of at least 2 per cent (see lowest subdivision of India was the only large developing country showing slower growth, with a rate of 1.4 per cent per annum. The fastest-growing economy was Japan, with an impressive 8.1 per cent GDP per capita growth rate, followed by Eastern Europe.  Strong and widespread developing-country growth ended around 1980.  This relatively good economic performance had come to an end with the second oil price shock, the sudden increase in world interest rates at the end of the 1970s and the collapse of non-oil commodity prices in the 1980s. These factors triggered the debt crisis of the 1980s, which hit African and Latin American countries particularly hard. Although the period between the two oil shocks had been marked by a rising frequency of growth collapse, particularly in sub-Saharan Africa, it was the combination of these external shocks that sparked a large number of growth collapses among developing economies in the 1980s.


12. Two major and largely unexpected shocks explain this generalized downturn in the developing world. The first was the permanent effect of the interest rate shock of 1979. Real interest rates in the United States (using the rate on 10-year Treasury Bills as the benchmark) had increased from -1.8 per cent in 1979 to 3.6 per cent in 1981, reaching a peak of 8.2 per cent in 1984. The cost of borrowing for developing countries was even higher as the average risk premium (over the London Interbank Offered Rate (LIBOR)) paid by developing countries had risen in real terms from 2.5 to 22.0 percentage points between 1979 and 1981.  Having profited from the previous eased external financing conditions, developing countries suffered a sudden and substantial shock leading, for many of them, to significant balance-of-payments problems. The second shock was the structural decline in the terms of trade. Real non-oil commodity prices experienced a permanent drop by more than 30 per cent, after having fluctuated without a clear trend for a long period of time between 1920 and 1980. Domestic and country specific conditions are important with respect to how countries can adjust to global fluctuations.  Growth successes and collapses concentrate regionally. 


13. Growth successes and collapses not only appear to be concentrated in particular time periods, but also tend to coincide in particular regions of the world. Most of the successful growth stories have occurred in East Asia, while most growth collapses have been seen in Africa. Also, growth performance in Latin America has been rather uniform among the countries of the region, but different when the region is compared with other regions in the world.  The size of the group of poorest countries decreased between 1960 and 1980.  During the 1980s and 1990s, the number of countries in the low-income group increased.  Because of the generally poor growth performance of developing countries during the 1980s and part of the 1990s, membership in the lowest-income group had increased to 75 countries by 2001, with several countries members of the Commonwealth of Independent States (CIS) as well as some Latin American countries having joined the group.  In CIS and Eastern and Central European countries, upward convergence had occurred during 1960-1980 and up to 1990 when the dismantling of the communist bloc took place. During their transition to becoming market economies, two trends emerged. On the one hand, the Central European countries and the Baltic States, which by now had acceded to EU membership, retained their position in the upper middle income group. The rest, on the other hand, experienced an absolute decrease in GDP per capita which caused them to converge downward to a lower income group. In Latin America and the Caribbean, Brazil’s economy had strongly expanded during the golden age at a rate of 3.8 per cent per year in per capita terms and by 1980 its income level surpassed the average for the world. This also held for Mexico. Argentina, Honduras and Peru, on the other hand, dropped into lower income group. 


14. The large inequalities in income are paralleled by huge disparities in other indicators of well-being.  In 2002, the life expectancy of a child born in Japan (82 years), Switzerland (80 years) or the United States (77 years) was more than double that for a child born in Zambia (37 years), Malawi (38 years) or Botswana (38 years). Similarly, opportunities in education show huge disparities across countries.  Educational attainment measured in years of schooling amounted to less than 4 years in sub-Saharan Africa but to more than 12 years in developed countries.  In 1960, for instance, there were 73 countries whose citizens had a life expectancy of less than 50 years and 45 countries whose citizens had a life expectancy of 65 years or more.  These “twin peaks” had disappeared by 2002; population data from the United Nations indicates that the number of countries in which a newborn was expected to live less than 50 years had dropped to 32 (all in sub-Saharan Africa), and the number of countries where he or she was expected to survive for at least 65 years had increased to 128. At the same time, inequalities in life expectancy at the extremes increased during the 1980s and 1990s, mainly because of the toll taken on lives in Africa by the HIV/AIDS epidemic. Progress has also been evident in education: the average number of years of schooling for all citizens almost doubled between 1960 and 2002, from 3.4 to 6.3. 


15. It is important to bear in mind that initial conditions are difficult to manipulate and countries with poorer endowments have greater difficulties in positioning themselves to benefit from world economic growth and make a break with the past. Hence, economies with similar backgrounds and structures will more likely move in the same direction. From this perspective, what comes to mind is Gunnar Myrdal’s principle of cumulative causation, according to which poor countries continue to get poorer while the rich ones continue to get richer as long as there are no exogenous factors to force a change. Global inequality not only reduces the opportunities of the poorest countries to gain from freer trade and financial flows, but also has a bearing on how the rules governing world markets are set. Poorer countries have less power than richer ones to influence the institutional rules governing global markets.  Development aid is not primarily benefiting the poorest countries. In particular, the fact that much of the provision of bilateral official development assistance (ODA) is driven by the political and economic objectives of donor countries leads to richer developing countries’ receiving an important share of the transfers.  Failure to redress the growing global inequality could have wide-ranging consequences for human development.


16. Chapter Two: Structural Change and Economic Growth Economic growth in developing countries is about changing the structure of production.  An essential insight of classical development economics was that economic growth is intrinsically linked to changes in the structure of production. According to this view, industrialization is the driver of technical change, and overall productivity increases are mainly the result of the reallocation of labour from low- to high-productivity activities. The fast-growing Asian regions were able to make large and speedy transitions out of agriculture and into industries and services, while economies with little structural change lagged behind. The traditional view that capital accumulation is important for growth still holds. The structure of investment is also important, not only because industrialization requires more investment in the manufacturing sector, but also owing to the fact that important investments in financial and business services are needed to support industrial development.  Further, low growth is associated with greater investment volatility. External shocks and erratic domestic policies are conducive to greater economic uncertainty, which hampers the long-term investment required to realize dynamic structural change. 


17. Productivity growth in developed countries mainly relies on technological innovation. For developing countries, however, growth and development are much less about pushing the technology frontier and much more about changing the structure of production towards activities with higher levels of productivity.  The importance of industrial development was central to classical development thinking.  Productivity and output growth reinforce each other.  Less unemployment can lead to higher productivity growth.  Early empirical studies had already showed the importance of industrial development for higher long-term economic growth, indicating that it has indeed been an observed “regularity” in development patterns.  Modernization of agriculture is also essential to facilitating a dynamic transformation from an agricultural to a modern industrial society. As economies moved up the ladder of development, services sectors would gain importance. Modern service sectors are also a source of productivity gain and are essential for the achievement of industrialization. As international trade for services grows, they also offer a new opportunity for export development.  The degree and nature of structural change explain the diverging growth trends among developing countries. 


18. Developing economies grow faster as the importance of the industrial and services sectors increases and that of agriculture decreases.  The economy of China underwent an impressive and rapid structural change.  The first-tier newly industrialized economies switch to high-tech manufacturing during the 1980s.  Deindustrialization characterized structural change in Central and Eastern Europe and the former Union of Soviet Socialist Republics during the transition to a market economy.  Growth performance in the Middle East and Northern Africa is largely explained by developments in the oil market.  The countries in sub-Saharan African economies show a lack of structural change. Structurally, the priorities of the development policy were grossly mistaken, as they stipulated the preferential treatment of agriculture, mining and ‘heavy’ branches of manufacturing (metallurgy, shipbuilding, heavy armaments such as tanks, basic chemicals such as fertilizers) at the expense of services and technologically advanced high-skill branches.  Higher economic growth and convergence are associated with increases in investment per capita. 


19. Investment levels collapsed in sub- Saharan Africa and the Middle East and Northern Africa.  Lower growth is also associated with higher investment volatility.  Capital accumulation is a catalyst of  structural change.  Labour productivity growth can be achieved through technological progress and/or by moving resources from low- to higher-productivity sectors.  The growth process in the developed countries also entailed a dramatic change in the employment structure, involving a shift from the primary sectors into industry and, subsequently, into services.  In the poorer Latin American countries, productivity growth occurred at the expense of job creation.  In the semi industrialized countries and the Middle East and Northern Africa, jobs were created in sectors with little or no productivity growth.  In sub-Saharan Africa, most employment remains stuck in the low-productivity agricultural sector. The fast-growing economies in East and South Asia have shown sustained increases in labour productivity and labour has moved from low- to high productivity sectors.  Dynamic structural change involves strengthening economic linkages within the economy- in other words, integrating the domestic economy- and productivity improvements in all major sectors.


20. Chapter Three: Has Trade Integration Caused Greater Divergence?  Economic integration is no magic bullet for rapid and sustained growth.  Success in trade depends on the products and services produced, how they are produced and whether production creates sufficient linkages with the rest of the economy so that these activities allow for a dynamic transformation of the economy while the growth stimulus coming from abroad is propagated throughout the domestic economy. Foreign Direct Investment FDI, when properly managed and incorporated into a strategy aiming at the continuous upgrading of the country’s technological capacities, can bring lasting benefits. Faster GDP growth and faster export growth are often interconnected.  The composition of exports is what matters for growth.  Markets for products with high technological content often grow faster.  Increasing participation in global markets can be achieved through specialization or diversification.  While external integration is important, the creation of domestic linkages is fundamental.  Markets for some goods are easier to enter than others but this may not allow for sustained fast growth in the long run.  Over the past 40 years, merchandise trade grew rapidly. The value of global merchandise trade increased at an annual average rate of 10.4 per cent, and its volume by 6 per cent during the period 1962-2000.  Although developed economies still dominate all non-oil export markets, developing countries have rapidly expanded their participation in global markets, especially since the second half of the 1980s.  During the period 1962-1980, the annual average rate of growth of world merchandise trade had grown by 15.7 per cent in value terms and by 7.1 per cent in volume terms. The corresponding figures for the period 1981-2000 were 5.8 per cent and 5.1 per cent.


22. The increased participation of developing countries in global markets has taken place in low- (LT), medium- (MT) and high-tech (HT) manufactures, whose markets have been relatively more dynamic, on average, than markets for primary products (PP) and natural resource-based (NRB) manufactures.  Penetration by developing countries has been particularly impressive in markets for LT manufactures and by 2000 had reached 50 per cent of total world exports of this group of products.  The structure of exports of developing countries has changed rapidly.  Some new LT manufacture exporters performed well in the period 1980-2000.  A continuous effort is required to move into exports of HT manufactures.  Most high-tech manufacture exporters grew faster than the developed economies.  Growth is linked to the capacity to capture a share of value added in the production chain.  Gradual and continuous integration is preferred over the “big bang” approach.  Developed countries dominate the dynamic global markets for services.  Developed countries seem to benefit more from exports of service.  Skill-intensive services have offered greater opportunities for faster growth.


23. Migrants alleviate labour-market shortages in receiving countries, thus removing constraints on growth. Additionally, migrant workers have a positive impact on growth by increasing effective demand both as consumers and, in some instances, as investors.  Empirical studies show that migrants have only a limited negative impact on wages and employment of natives, even where their share in the labour force is relatively large.  In any case, such a negative impact is contingent on the particular labour-market segment in which the migrant workers operate: often low-skilled native labour is more adversely affected than skilled labour. For instance, it was estimated that the immigrant influx to the United States in the 1980s and 1990s led to a decline of 3.3 per cent in the wage of a typical native worker. The negative impact on the wages was larger for high-school dropouts (8.2 per cent) than for college graduates (3.8 per cent).


24. FDI inflows to developing countries have surged since the mid-1980s.  Services now account for close to three quarters of the global stock of FDI, as compared with 40 per cent in 1980. Between 1990 and 2003, the share of manufacturing in the FDI stock of the group of developing countries rose from 25 per cent to 37 per cent.  Sectoral trends of FDI differ among developing countries and regions.  Sectoral trends of FDI differ among developing countries and regions.  Changes in the policy environment led to greater FDI flows.  FDI in manufacturing requires an industrial base and domestic markets.  Because direct investors hold factories and other assets that are impossible to move, it is sometimes assumed that a direct investment inflow is more stable than other forms of capital flows. This need not be the case.  While a direct investor usually has some immovable assets, there is no reason in principle why these cannot be fully offset by domestic liabilities. Clearly, a direct investor can borrow in order to export capital, and thereby generate rapid capital outflows.  FDI and domestic capital formation have moved in opposite directions.  The contribution of FDI to exports depends on the sector in which it is located.  The impact of FDI on the balance of payments hinges on several factors.  Countries need to have absorptive capacity to benefit from FDI inflows.  All fast-growing countries made use of production sector strategies.  Success cases involved fast recognition and then abandonment of inefficient policies.  Production sector policies promote structural change in the economy.  Innovations are important for growth.  Innovations underlie a country’s competitive advantage.


25. The acquisition of knowledge is subject to costs, externalities and barriers to entry.  Participation of the private sector is important for identifying constraints.  The question of the impact of trade liberalization on growth is the subject of intense debate.  The contribution of trade to growth seems to have declined in the 1990s.  Trade liberalization is not enough: complementary reforms are necessary.  The timing and speed of liberalization matter. Trade liberalization led to deindustrialization in some countries.  Protection has to be made part of a larger industrial strategy to nurture the capababilities of domestic firms and raise the rate of domestic investment, always in the context of a private enterprise, market-based economy.  Developed countries liberalized trade after industrial production was well established.  Almost all of them did not practice free trade while promoting their own industrialization or, if they were late industrializers, when catching up with the lead economies of their time. Trade liberalization came only after industrial production had been well established.  The appropriate strategy is necessarily context-specific.  The global and the national policy environments have evolved. The former now has jurisdiction over actions and sectors that were unregulated before. The latter went through a process of autonomous liberalization either induced by conditionalities demanded by multilateral financial organizations and bilateral donors or voluntarily embraced, for instance, through the participation in free trade agreements (FTA) whose provisions go beyond internationally agreed disciplines.


26. Multilateral trading rules gave room for greater government latitude in the past.  The multilateral trade environment was indeed more permissible in the past. Over the years, clauses were introduced in the General Agreement on Tariff s and Trade (GATT) that accorded special prerogatives to developing countries. The original Agreement (article XXXVI, para. 8) had stated that developed countries should not expect reciprocity for commitments.  They made, that is to say, developing countries were not supposed to make concessions that were inconsistent with their development needs. The principle of non reciprocity implied that developing countries could commit themselves to limited market access provisions and limited tariff binding.  Restrictions need to be considered in terms of their contribution to development. In the Uruguay Round of multilateral trade negotiations (1986-1994), the “single undertaking” approach replaced the code approach. Developing countries were no longer given the choice to opt out of certain agreements. Accordingly, countries had to accept the additional disciplines brought about by, among others, the Agreement on Trade-related Investment Measures, the Agreement on Subsidies and Countervailing Measures the Agreement on Trade-related Aspects of Intellectual Property Rights and the General Agreement on Trade in Service.  The Agreement on Trade-related Aspects of Intellectual Property Rights, by establishing minimum levels of protection on intellectual property rights, prohibits or restricts practices such as copying, compulsory licensing, and reverse engineering which were widely used by some developing (and developed) countries as a means of catching up.  The Agreement on Trade-related Investment Measures does not allow for the use of performance–related measures for foreign investors that have an eff ect on trade, such as local content and trade-balancing requirements. Nevertheless, export and technology transfer requirements are permitted. 


27. The Agreement on Subsidies and Countervailing Measures, on the other hand, renders illegal subsidies, fiscal credit and incentives that require recipients to reach export targets or that are tied to actual or expected export earnings. Subsidies linked to the use of domestic products are also forbidden.  Countries whose per capita GDP is below $1,000 are exempt from these commitments, but differential treatment for other developing countries is limited to an extended phase-out period.  Some forms of intervention are still World Trade Organization compatible.  Duty-free provisions can be maintained, as well as certain forms of export assistance, including public export credits. Furthermore, certain elements of the export incentive structure may, while becoming World Trade Organization-compatible, be transformed in order to meet the same targets.  Tariff harmonization and reduced tariff dispersion undermine the use of tariff structure as a policy tool.  Developing countries need a combination of relatively low and high tariff s applied to different sectors at different periods as they promote the structural transformation of their economies. Patterns of production and integration are relevant for growth.  Improved market access is needed for faster convergence by developing countries.  Countries need to be careful before trying to quickly replicate an alternative that worked in the past and need to avoid mistakes associated with some of the policies adopted before.  A policy environment within which to facilitate structural transformation is needed.  There is very little evidence to suggest that simply by opening up and stabilizing the economy, and increasing inflows of FDI, developing countries will enter a rapid and sustainable development path.


28. Chapter Four: Macroeconomic Polices and Growth Divergence.  Views on what are the “right” macroeconomic policies for developing countries have changed.  Until the 1980s, they had been mostly embedded in broader, growth-oriented national development strategies. This changed in light of the severe macroeconomic instability that many developing countries faced around 1980 and the paradigm shift in the mainstream approach to macroeconomic policies in the developed countries, away from a Keynesian approach of counter-cyclical demand management aiming for full employment to a more conservative, prudential monetarist view aiming at controlling inflation.  This new “orthodoxy” in macroeconomic policies prevailed during the 1980s and 1990s, but its effectiveness in contributing to higher economic growth is increasingly being questioned. Macroeconomic policies should be growth-centred, with full employment as the ultimate objective. The growth divergence is closely associated with macroeconomic volatility.  The frequency of financial crises in developing countries indicates that macroeconomic stability is, in addition, about maintaining well-regulated domestic financial sectors, sound balance sheets of the banking system and sound external debt structures.  Greater stability, in its broad sense, reduces investment uncertainty and hence is supportive of higher long-term growth. Inflation rates had strongly diverged among developing countries during the 1970s and 1980s, but they converged downward during the 1990s.  For most developing-country regions with relatively low and stable inflation in the 1960s and again in recent years, since 2000, this has coincided with a solid growth performance.  Lower inflation rates are associated with higher long-term growth.  High inflation is correlated with lower growth, but—as evidenced by econometric studies—the relationship is not robust and the causality is not definitive. In particular, moderate inflation does not necessarily lead to under-par growth.


29. Macroeconomic adjustment is not a simple matter of restoring the fiscal balance.  The growth divergence across the developing countries, as well as the different features of macroeconomic stability, has also been influenced by financial sector development over the past four decades. Financial intermediation supports the growth process by mobilizing household and foreign savings for investment by firms, ensuring that these funds are allocated to the most productive use, and spreading risk and providing liquidity so that firms can operate the new capacity efficiently. Financial development thus involves the establishment and expansion of institutions, instruments and markets that support this investment and growth process.  Financial liberalization in developing countries has not led to the expected increase in savings and investment levels.  The absence of a domestic bond market makes it more difficult to fund public infrastructure or private modernization projects and makes the financial system more vulnerable.  The focus of macroeconomic policies merely on low inflation and on restoring the fiscal balance may be too narrow for achievement of the desired growth gains.  The growth of the domestic bond market has also been substantial when expressed as a percentage of GDP. Volatile international capital flows have become a source of macroeconomic instability for many developing countries.  Economic theory suggests that private capital should flow from developed countries, where it is abundant and investment opportunities are more fully exploited, to developing countries, where it is scarce relative to ample investment opportunities. Capital inflows could supplement domestic savings in financing investment in developing countries, contributing to their growth and development. In addition, access to international capital markets would help reduce fluctuations in liquidity over the business cycle, dampening macroeconomic volatility. In practice, however, international capital flows to developing countries have been volatile and a source of macroeconomic instability.


30. Private capital flows are concentrated in a small number of middle income countries.  Commercial bank lending and portfolio investment have proved to be highly pro-cyclical for developing countries. Both the availability and the cost of external financing ease during periods of economic expansion, and tighten and become more expensive during downswings.  During the 1970s, developing countries had obtained access to commercial bank lending, after having relied mostly on ODA or FDI in preceding decades.  The surge in bank lending came to a sudden halt as world interest rates rose around

 980 and the perception of risk changed with the sudden increase in the debt-servicing burden of the borrowing countries. The subsequent massive withdrawal of bank loans accelerated the debt crises that spread among developing countries.  Private capital flows were revived from 1990, but again with boom-bust cycles.  Without adequate regulations and with weak financial systems, financial volatility is readily transmitted to the real sector.  Private capital flows, in general, have not contributed to increased long term growth.  A stable nominal exchange rate can provide an anchor for general price stability. Particularly, in countries with a past experience of high inflation and whose central bank lacks credibility, reliance on a stable and fixed nominal exchange rate could be helpful in reducing inflation and macroeconomic instability. On the other hand, as the exchange rate provides a signal for allocating resources across countries and across sectors, a larger degree of flexibility in the exchange rate may be needed to avoid the inefficient allocation of resources in the long run.


31. Counter-cyclical macroeconomic policies matter for long-run growth.  When firms are financially constrained, an economic downturn would force them to cut investment, hampering growth in the long run. If, however, the Government had the fiscal space for increasing public expenditure, reducing taxes, providing subsidies to private enterprises for long-term investment and/or relaxing the monetary stance during an economic downturn, the adverse impact on long-term investment and growth would be reduced.  Macroeconomic policies in developing countries often tend to be pro-cyclical, exacerbating, rather than alleviating, the adverse impact of the downturns on long-run growth.  Part of the observed growth divergence among developing countries is attributable to the gaps in the public investment in infrastructure and spending on human development.  An adequate level of infrastructure is a necessary condition for firms’ achievement of productivity.  By its very nature, infrastructure is characterized by indivisibilities and countries need to build up a threshold or minimum level of infrastructure (say, a minimum network of roads) to make a difference for economy-wide productivity growth. To reach a minimum level of infrastructure, countries will need to sustain substantial public investment levels over prolonged periods of time.


32. Empirical evidence has confirmed the positive relationship between infrastructure and growth.  When public and private capitals are complementary, an increase in infrastructure will raise the rate of return on private capital and thus induce an increase in the stock of private capital.  Changes in public investment have been a minor contributor to the widening income gap between rich and poor countries, accounting for no more than 12 per cent of that increase.  Lagging infrastructural development could account for as much as one third of the widening income differentials between East Asia and Latin America.  Cuts in growth-enhancing public investments may jeopardize future fiscal sustainability.  Human capital is important for long run growth. Human capital, in the form of a higher education level and good health, enhances people’s capacities, and their creativity and productivity. Healthier and better-educated people can perform higher value added tasks more efficiently than people with low levels of human capital. They are also more likely to adopt improved technology and to innovate. Finally, workers with high levels of human capital can adapt more easily to changing job conditions and sectoral change and are more likely to have the skills needed to face international competition.  Human development is a necessary, but not a sufficient condition for long-term growth.  There are several approaches to human development and economic growth.  First, the efficiency of public spending on health and education through better targeting to priority areas within the social sectors and by improving the cost-effectiveness of public programmes. Second, strengthening the tax base will be essential, particularly in countries with low government revenues.


33. In 1961, when the General Assembly proclaimed the First United Nations Development Decade, it had been understood, by rich and poor countries alike, that there would have to be an intensified effort to mobilize internal and external resources if designated growth targets were to be met. The target of 0.7 per cent of gross national income (GNI) of the developed countries for ODA emerged during the debates in the late 1960s on the Second United Nations Development Decade. The target has never been met, except by a few donor countries. In 2002, at the International Conference on Financing for Development held in Monterrey, Mexico, the international community reiterated the need for concrete efforts by the donor countries towards achieving the target of 0.7 per cent of GNI for ODA and included the Millennium Development Goals as tangible criteria against which to assess ODA effectiveness. Renewed proposals for Marshall Plans and “big pushes”—as in the early 1960s—have emerged (UN Millennium Project, 2005). The growth impact of aid depends on how it is spent and which macroeconomic economic effects it generates.  First, not all aid is meant to be used for investment purposes or spending on human development.  Much of aid is allocated for emergency and humanitarian relief.  Second, even if aid is allocated directly to, for instance, investment in infrastructure and human development, the growth impact will depend not only on how such investment contributes to growth, but also on other factors.  Third, significant aid inflows will induce other macroeconomic adjustments as well.  No systematic evidence has been found that increased aid flows lead to real exchange rate appreciation and loss of competitiveness. 


34. The findings offer some support for the plausibility of the notion of a “big push” to growth generated by well-targeted large inflows of ODA.  However, developing countries may lack governance capabilities to manage large flows of foreign aid.  In the more appropriate institutional setting, fiscal policy should strike a balance between fiscal prudence and fiscal flexibility.  Macroeconomic policies should be well integrated with broader developmental policies. Forward-looking provisioning estimated on the basis of expected (rather than prevailing) losses when loans are disbursed is an option with respect to reducing the pro-cyclicality caused by the financial sector.  A major challenge for the multilateral financial institutions is to help developing countries mitigate the damaging effects of volatile capital flows and provide counter-cyclical financing mechanisms to compensate for the inherent pro-cyclical movement of private capital flows.  Reducing currency mismatches and linking debt-service obligations to the capacity to pay of developing countries.  Multilateral surveillance should remain at the centre of crisis prevention efforts.  Part of the observed growth divergence is attributable to gaps in public investment and spending on infrastructure and human development.  Fiscal space needs to be created for long term investment in infrastructure and human development.  Well-targeted programmes supported by aid could put the poorest nations on a path of faster growth.  ODA has partly countered the tendencies leading to the income divergence witnessed during the past 40 years. However, since the magnitude of aid transfers has remained limited, the impact of ODA on reducing international income disparities has been very weak at best.  Governments in the recipient countries have the administrative capacity to manage the resource flows in such a way as to ensure that cumulative income and productivity gains are generated. A consideration of the conditions for improvements in the governance structure—particularly in such areas as transparency in budgetary processes, building a quality civil service and improving social service delivery.  What really works at the local level, however, varies from country to country, hence adding externally defined governance conditionalities to aid and lending flows, which has been a recent practice of donor agencies, may not produce the desired outcomes in terms of better- quality public services.


35. Chapter Five: Governance, Institutions and Growth Divergence.  Institutional and governance factors help account for the divergence in economic growth.  Successful growth depends on institutions that can make markets function better and that can guarantee social cohesion.  Suitable forms of institutional “quality” and good governance to support sustained growth are inherently country-specific.  A build-up towards better institutions in specific areas can be sufficient to lift binding constraints on growth.  Market functioning can be improved by lower transaction costs, public goods provision,industry regulation and strategies for long-term growth.  Governance factors that create and improve markets can be classified as those that: (a) help create markets, by reducing transaction costs and granting and protecting property rights; (b) provide for public goods (measuring, in the classical sense, non-rival and non-excludable goods), as well as those that generate positive externalities, and reduce the supply of the ones that generate negative externalities; (c) help in regulation at the industry level, particularly in relation to non-competitive market practices; and (d) provide for regulation that avoids short-run macroeconomic imbalances, and design structural strategies and policies that create conditions for long-term growth by extending adequate incentives and helping finance innovation, human capital accumulation and investment.


36. Adequate provision of the goods and services, wealth redistributions and participatory decision-making processes strengthen social cohesion.  A widespread sharing of the benefits of growth creates a sense of justice and fairness among the population.  The effectiveness of the system is determined, to a large extent, by its ability to promote growth and rising levels of income and overall well-being and to achieve social cohesion and, in general, to produce a society that is perceived by its citizens as being just and fair.  The shifts in paradigm in development policies brought vast changes to institutional frameworks.  Following the poor growth experience that started around 1980, development policies have predominantly focused on reducing government interference in the economy by freeing domestic markets of price controls, lifting trade barriers, liberalizing financial markets and privatizing State-owned enterprises.  Rolling back the State, so the logic went, would lead developing countries to higher and more sustained growth.


37. Two approaches to unraveling the importance of the governance structure as a determinant of growth and development have emerged in the recent literature: (a) new comparative economics, where the rights of the individual in law (including property rights), anti-corruption measures and other governance-related factors are considered to be the key factors, with the significance of these key factors often being estimated by cross-country analyses; and (b) the varieties of governance systems approach, which recognizes differences in institutions over time and across space and examines how economic agents respond in different contexts to the specific set of rules and regulations governing markets.


38. Cross-country regression analysis has shown that governance has a strong influence on incomes.  Developed countries enjoy high living standards because the rule of law prevails, contracts are enforceable, corrupt officials are likely to be caught and punished according to the law, the barriers to entry into a new business are low, monetary and fiscal policies are prudent and appropriate social safety nets are in place to mitigate unforeseeable risks. Above all, when conflicts arise over issues such as the distribution of income or wealth, and the provision of public goods, these countries have a governance system by which the State is able to arrive at a different arrangement through democratic processes.  The quality of governance is usually measured by indicators based on subjective judgement.  The perception of the quality of governance is strongly influenced by economic performance.  The cross-country analyses provide poor guidance for defining governance conditions in aid allocations.  There is no one set of governance elements that are the “best” for all countries and for all times.  Each country is required to find, by trial and error, its own governance system—the one that works best in its existing context.  The complementarities among governance elements can start a virtuous circle once a Government establishes its credibility with its citizens in respect of planning and implementing reforms. 


39. Two types of governance capacities necessary to achieve sustained growth: market-enhancing governance and growth-enhancing governance. The former encompasses governance factors, such as the protection of property rights and the enforcement of rule of law, that ensure market efficiency. The latter encompasses the State’s abilities to complement market activities, including the capabilities to accelerate the transfer of assets and resources to more productive industries, and to facilitate the absorption and learning of new technologies.  Step-by-step changes to governance structures can be sufficient to trigger growth.  Some developing countries achieved sustained growth over the past three to four decades and narrowed the income gap existing between them and developed countries. Their success in governance transformation is illuminating in two respects. First, it demonstrated the importance of addressing the binding constraints on growth being faced and of creating a sense of priority in governance transformation. The success of such transformation therefore does not depend on the comprehensiveness of reforms in governance structure. Rather, a step-by-step, or gradual approach to removing such constraints can be very effective. Second, their experiences demonstrated that when a governance reform (such as a trade reform) induces large shifts of income from one group to another, it was important to make the workings of the market consonant with social cohesion. These success stories show the importance of addressing the issues of complementarity not only between economic reforms, but also between economic and social management.


40. Land reform can be an effective means of easing the constraint on growth productivity.  Land reform is an effective means of easing this constraint by transferring ownership to farmers who operate the land or, more generally, by securing for farmers the right to share an appropriate return from their activity on the land.  Guaranteeing the private property rights connected with owning land is a means of providing farmers with economic incentives to produce crops and to maintain and invest in their land.  When outright transfers of landownership are not feasible for political or socio-economic reasons, higher agricultural productivity can be achieved by merely enforcing tenancy law or by guaranteeing a return to farmers’ activities on the land. The first stage of trade reform is characterized by successful agricultural reform and a dual-track price-setting scheme.  In the second stage, the dual-track price setting scheme is phased out.  The third stage of the reform process is to put a stronger emphasis on the need to spread the benefits of economic growth more equitably among all social groups and all regions of the country.  It is not necessary to have all the required elements of good governance in place before sustained growth can be initiated. 


41. Countries that faced growth failures tended to be poor, to be concentrated in sub-Saharan Africa and Latin America, to be conflict-ridden and/or to be dependent on primary commodity exports.  The growth collapses in many commodity dependent countries have given rise to a belief in the “natural resource curse”.  Yet, “when the right set of policies is in place, natural resources can be a source of prosperity, not necessarily a ‘curse’ ”.  Several reasons have been advanced for this phenomenon—the deterioration in the terms of trade of commodities as against manufactures; the volatility of commodity prices which makes investment planning difficult and discourages investment because of the risk and sunk costs; the Dutch disease, whereby a boom in a resource sector renders other industries unprofitable; and rent-seeking, whereby economic agents pursue short-term objectives to extract monopoly profits, rather than attempt to invest in the long-term future of the industry. Such rent-seeking is made easier in cases where the commodity is a “point resource”, that is to say, one (like a mine or oil well) located in a specific area, rather than a “diffuse resource” (like wheat), which is one produced over a large area.

One of the most important ways to avert the realization of the natural resource curse is to prevent rent seeking behaviour.  It is in the Government’s interest to establish mutually beneficial relationships with commercially-driven enterprises that can exploit the country’s resources profitably and efficiently.  Much of the failure of poor countries to grow, especially in Africa, was due to the direction of insufficient attention to the development of their agricultural resources.  One irremovable feature of both mineral and agricultural commodity price markets is their extreme volatility.  The success of stabilization funds requires strong governance and institutional arrangements. 


42. Most wars are now internal conflicts that take place in poor countries and they have heavy immediate and long-term economic costs.  Warfare in one country inevitably has repercussions on other countries, causing growth rates to converge downward.  In the case of most post-conflict countries or “failed States”, the most important consideration is to foster the resumption of economic activity. The linkage among growth failures, conflict and resource abundance can be broken by governance and institutional arrangements that help turn natural resource endowments into a source of long-term growth.  The principles that apply in a post-conflict situation are similar to those that apply in peaceful conflict resolution. There is a need to build those institutions and governance practices that will convince the population that the benefits of growth and wealth creation will be fairly shared and thus that long-term investment is viable.  Economic growth helps reduce conflict risk.  Yet, growth itself is not enough: there should be an active policy to promote social cohesion.  Good governance and sound institutions provide the enabling environment for economic growth.  The advanced countries have developed, over time, an intricate governance and institutional structure to assist in achieving economic growth and have used it to build strong and cohesive societies.  Sustained growth can be generated through small governance changes and with initially imperfect institutions.  The challenge for many developing countries is to put in place those participatory institutions that will allow all segments of society to feel that the fruits of the nation’s wealth and the industry of its citizens are being put to good use and that the benefits of this wealth are being distributed appropriately.


43. Governance issues are assuming an increasing weight in bilateral and multilateral lending programmes.  The international community has also assigned a central importance to improving governance in its efforts to achieve the Millennium Development Goals.  International support should be directed towards improving specific areas of governance weaknesses rather than achieving comprehensive reforms.  All parties acknowledge in their steps toward greater mutual accountability that the stakes are very high, as confidence that the mutual accountability process is yielding benefits in terms of improved governance can assist the scaling up of flexible official development assistance (ODA) to achieve the Millennium Development Goals. In this scaling-up process, efforts should be made to improve governance through actions aimed at remedying specific deficiencies rather than through the attachment of conditions to aid that are based upon global measures of governance which, as analysed earlier, are highly subjective and riddled with serious conceptual problems.


44. Overview: by Jose Antonion Ocampo Under Secretary General of Economic and Social Affairs.  By many measures, global income inequality is high and rising. In 1950, the average Ethiopian had an income 16 times less than that of someone living in Europe or the United States of America. Half a century later, Ethiopians have become 35 times poorer. Most of the world’s poorest nations are falling behind in more or less similar degrees.  The main reason is that in the industrialized world the income level over the last five decades has grown steadily, while it has failed to do so in many developing countries, especially over the past quarter of a century.  About 70 per cent of global income inequality is explained by differences in incomes between countries. World markets are far from equitable and there are several conditions that do not favour a narrowing of the income divergence between countries. Richer countries have better “endowments”  which give them preferential access to capital markets and make them less vulnerable to shifts in global commodity markets. Global investors generally prefer countries with greater wealth and better-developed human capital, infrastructure and institutions, which ensure lower investment risk. Poorer countries have less diversified economies and export structures, making them much more vulnerable to shifts in commodity prices and to shocks in international financial markets. Developing countries also have less of a voice in the negotiation processes setting the rules governing global markets.


45. Rising inequality between countries is the result of differences in economic performance over several decades. Broadly speaking, the income gap between the industrialized economies and developing countries was already very high in 1960 and has continued to widen since then. At the same time, however, the growth experiences among the developing countries have differed greatly. Widening income among developing countries became prominent after 1980 as the result in part of a limited number of success stories of sustained economic growth, most of them in East Asia. During the past 25 years, the number of cases of growth collapses has increased, whereas the frequency of cases of successful growth has diminished. In the 1960s and 1970s, nearly 50 out of a sample of 106 developing countries had experienced one or more prolonged episodes of high and sustained per capita income growth of more than 2 per cent per year.  Since 1980, however, there are only 20 developing countries that have enjoyed periods of sustained growth. In contrast, no less than 40 developing countries suffered growth collapses, that is to say, periods of five years or longer during which there had been no growth or a decline in per capita income. Such growth failures have been most frequent among the least developed countries and countries in sub- Saharan Africa. Developing countries have, of course, done well very recently. Indeed, current trends indicate that the period 2004-2006 will show fairly widespread growth in developing countries, a pattern not seen since the late 1960s and early 1970s. During these three years, per capita income of developing countries will grow on average at a rate of more than 4 per cent per year and the least developed countries will perform even better.


46. Productivity growth in developed countries relies mainly on technological innovation. For developing countries, however, growth and development are much less about pushing the technology frontier and much more about changing the structure of production so as to direct it towards activities with higher levels of productivity. This kind of structural change can be achieved largely by adopting and adapting existing technologies, substituting imports and entering into world markets for manufacturing goods and services, and through rapid accumulation of physical and human capital. Only very few developing countries have been able to undertake original research and development.  The industrial sector typically contributes more dynamically to overall output growth because of its higher productivity growth, which results from increasing returns to scale and gains from technological progress and learning-by-doing.  More broadly, dynamic structural change involves more than just growth of industry and modern services. It entails essentially the ability to constantly generate new dynamic activities. It also involves strengthening economic linkages within the economy—in other words, integrating the domestic economy.  Increased integration into the world economy seems to have exacerbated the divergence in growth performance among countries. Trade can help stimulate growth, but in the first instance it is a matter not of how much countries export, but rather of what they export.  The impact of foreign direct investment (FDI) on economic growth is directly dependent on the role it can play in strengthening domestic linkages in the economy.  Trade liberalization has been the main policy trend in recent decades. In most parts of the world, this has led to an expansion of export volumes, but not necessarily to higher economic growth.  Countries able to diversify and change the structure of production to encompass activities of higher productivity have seen more visible growth gains.


47. Macroeconomic stability strongly influences the long-term growth performance of the economy.  Macroeconomic stability should be understood in broader terms as entailing more than just preserving price stability and sustainable fiscal balances. It is also about avoiding large swings in economic activity and employment and, further, about maintaining sustainable external accounts and avoiding exchange-rate overvaluation.  Stabilization policies as implemented in many developing countries since the 1980s have mostly emphasized the objectives of lowering inflation and restoring fiscal balances.  In 1961, when the General Assembly proclaimed the First United Nations Development Decade, it had been understood that an intensified effort to mobilize internal and external resources would be necessary if designated growth targets were to be met. It was also understood at the time that most of these resources would have to be allocated to infrastructure and human capital so as to overcome development bottlenecks. Increased aid flows were seen to be critical to overcoming such growth constraints and providing developing countries with a “big push”. The target of 0.7 per cent of gross national income (GNI) of the developed countries for ODA emerged in this context. In the decades that followed, this target for aid transfers was not met by many and aid commitments of the member States of the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD) fell to a third of that target. In 2002, at the International Conference on Financing for Development held in Monterrey, Mexico, the international community reiterated the need for concrete efforts by the donor countries towards achieving the target of 0.7 per cent of GNI for ODA and included the Millennium Development Goals as tangible criteria against which to assess ODA effectiveness. Aid moved back to centre stage in the development debate and renewed proposals for big pushes—as in the early 1960s—emerged. Aid also regained its upward trend, now matched by debt relief for the poorest countries.


48. It is now widely recognized that institutions and governance structures matter for economic growth and thus for explaining widening global income disparity.  Looking at economic history and institutional change, it appears that even a buildup towards better institutional frameworks in very specific areas can lift constraints on growth.  While governance reform is intrinsically difficult to implement, this analysis suggests at the same time that there is no justification for the pessimistic belief that certain countries will remain mired in low growth and shackled with institutions that impede their growth. Governance reform is thus about creating well-functioning public institutions that are seen as legitimate by private agents. International cooperation can help, but only by supporting domestic processes that are inherently context-specific and gradual.  For the international community, this finding has particular relevance to countries that are emerging from conflict or have become “failed States”. In most cases, the most important consideration is to foster the resumption of economic activity, which usually means the revival of the agricultural sector, inasmuch as a solid agricultural sector is usually essential for subsequent economic development.


49. In today’s increasingly integrated global economy, the growth performance of a country is determined by factors that operate both within and outside its geographical boundaries. Increased international trade and finance can contribute to better economic performance. However, countries with poorly integrated domestic economies, pro-cyclical macroeconomic policies, low infrastructural and human development and weak institutions have less opportunity to gain from expanding world markets.  The problem of rising global inequality has an important bearing on the implementation of the United Nations development agenda. It makes the achievement of the Millennium Development Goals and other internationally agreed development goals more difficult and affects global security. Failure to redress the tendency towards growing global inequality could thus have wide-ranging consequences for human development.


50. On Armistice Day 11 November 1918 US President Franklin D. Roosevelt, at his second inaugural address, January 1937, stated: “The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”  The Principles of Labor set forth in Art. 427 of the Treaty of Versailles of 28 June 1919 are:

First.­ The guiding principle above enunciated that labour should not be regarded merely as a commodity or article of commerce.

Second.­ The right of association for all lawful purposes by the employed as well as by the employers.

Third.­ The payment to the employed of a wage adequate to maintain a reasonable standard of life as this is understood in their time and country.

Fourth.­ The adoption of an eight hours day or a forty-eight hours week as the standard to be aimed at where it has not already been attained.

Fifth.­ The adoption of a weekly rest of at least twenty-four hours, which should include Sunday wherever practicable.

Sixth.­ The abolition of child labour and the imposition of such limitations on the labour of young persons as shall permit the continuation of their education and assure their proper physical development.

Seventh.­ The principle that men and women should receive equal remuneration for work of equal value.

Eighth. ­The standard set by law in each country with respect to the conditions of labour should have due regard to the equitable economic treatment of all workers lawfully resident therein.

Ninth.­ Each State should make provision for a system of inspection in which women should take part, in order to ensure the enforcement of the laws and regulations for the protection of the employed.

51. Employment in many countries, especially in Africa, has grown at a slower pace than the population.


• The official unemployment rates in LDCs grossly understate the extent of the employment challenge in these countries, especially given the large informal sectors and underemployment and the working poor.

• Millions of the poor in LDCs are not able to earn enough through employment to lift themselves and their families out of poverty. It is estimated that there were 229.4 million US$2 per day working poor in Sub-Saharan Africa in 2005, representing 87.0 per cent of total employment. Similarly, in South Asia the working poor constituted 83 per cent of employment. In comparison, the share of working poor in South-East Asia and the Pacific and East Asia was 58 per cent and 46 per cent of total employment, respectively.

• In Latin America and the Caribbean unemployment remained high at 7.7 per cent while US$ 2 a day working poverty was somewhat lower at 31.8 per cent. However, in Haiti, the only LDC in that region and endured a cycle of internal conflicts resulting in a economic and social collapse, more than two-thirds of the labour force is unemployed or underemployed. The working poor constituted 57 per

cent of the employed.

• In contrast Middle East and North Africa region had the highest unemployment rate of 13.2 per cent although the working poverty level was low at 36 per cent. In Yemen, the only LDC in that region, the rate of unemployment exceeded 35 per cent while 45 per cent of the employed was working poor.

• The majority of the working poor are located either in the urban informal sector, or in agriculture, which still accounts for over 60 per cent of total employment in South Asia and Sub-Saharan Africa, respectively. A similar story relates to Haiti and Yemen, two LDCs from Latin America and the Caribbean and the Middle East and North Africa regions, the agriculture employing more than twothirds and three-fourths of the employed, respectively.

• The exclusion of women from high paying job opportunities persists in most LDCs, with significant costs to overall socio-economic development. Women in some countries are prevented from participating at all in the labour market, while in others women work mainly in the informal economy.

• Youth unemployment is a widespread problem in both the African and Asia-Pacific LDCs, a situation that stems from the general lack of employment opportunities, high population growth rates, low literacy rates, poor quality of education, and skills mismatch. The official youth unemployment rate in 2004 ranged from 7.5 per cent in East Asia and 10.8 per cent in South Asia to 17.1 per cent in South- East Asia and the Pacific and 19.7 per cent in Sub-Saharan Africa. Again, these figures understate the actual extent of unemployment due to large levels of underemployment.

• Poverty continues to force children to take up employment in many African countries and LDCs. The Asia-Pacific region harbours an estimated 122 million working children between the ages of 5 and 14,

accounting for 64 per cent of the world’s total. In Sub-Saharan Africa there are approximately 49.3 million economically active children, which represents the highest incidence globally (26.4 per cent of children aged between 5 and 14). It is estimated that 23 per cent of children between the ages 10-14 were working while in Yemen the ratio was 18.5 per cent

• The dearth of employment statistics imposes severe constraints on policy making in both Africa and Asia-Pacific. Africa in particular is the most under-reported region with regard to employment indicators. Meeting the challenge of employment creation in Africa and the Least Developed Countries (LDCs)


52. Each year millions of women land men leave their homes and cross national borders in search of greater security for themselves and their families. “Throughout human history, migration has been a courageous expression of the individual’s will to overcome adversity and to live a better life.”  Most are motivated by the quest for higher wages and better opportunities, but some are forced to do so because of famine, natural disasters, violent conflict or persecution.  Most of the world’s migrants – estimated at 191 million in 2005- are migrant workers – those who migrate for employment- and their families. In 2000 economically active migrants were estimated to number some 81 million, and with their families accounted for almost 90 percent of total international migrants. Refugees and asylum-seekers account for about 10 per cent of migrants.  The World Bank estimates total remittances of about $250 billion if informal flows are also included.  Remittances have increased from $31 to $170 billion between 1990 and 2005, and by 73 per cent between 2001 and 2005. Recorded remittances are now more than double the level of ODA. For some countries migrants’ remittances constitute the main source of foreign exchange. The World Bank has described remittances as “an important and stable source of development finance”.   Remittances are private household transfers, and should not be viewed as a substitute for overseas development aid or FDI.  One important source of concern is the growing emigration of skilled persons from developing nations – the brain drain - which can have dire consequences for sustainable development in developing countries, especially the LDCs.


53. The two ILO Conventions on migration—the ILO Migration for Employment Convention, 1949 (No. 97) and the Migrant Workers (Supplementary Provisions) Convention, 1975 (No. 143)—together with the 1990 International Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families provide a comprehensive legal framework for migration policy and practice covering most issues of treatment of migrant workers and of inter-State cooperation on regulating migration. The UN Secretary-General stated: “Only through cooperation – bilateral, regional, and global – can we build the partnerships between receiver and sender countries that are in the interests of both;... since migration is a global phenomenon, which occurs not only between pairs of countries or within regions but from almost every corner of the world to every other, it requires our collective attention.” Globalization and labour migration   While women’s participation in the labour force has increased gradually over the last ten years, globally, this increase has been very slight – 0.5 percent (from 51.7 percent in 1995 to 52.2 percent in 2005). Despite the slight decrease of male participation (1.3 percentage points in 2005 to 80.8 percent), the gap between adult women and men is still wide: 28.6 percent in 2005.  Of roughly 520 million working people living in extreme poverty (earning less than $1 a day), an estimated 60 per cent are women.  Women provide important contributions to the economy through both remunerated and unremunerated work in the labour market, at home and in the community. However, gender stereotypes, and horizontal and vertical sex segregation1 in the labour market contribute to gender inequality in employment worldwide.  Innovation at work: national strategies to achieve gender equality in employment


54. Report of the Secretary General on the High Level Segment of ECOSOC E/2006/55 of 24 April 2006. From 1995 to 2005, there has been a drop in agriculture as a share of total employment from around 44.4 per cent to 40.1 per cent and a concomitant increase in services from 34.5 per cent to 38.9 per cent. Industrial employment held steady over the time period at 21 per cent.  Given that three quarters of the world’s poor live in rural and agricultural regions and that most new employment is generated in the informal economy, in many developing countries, working out of poverty means directing efforts towards the rural on- and off-farm sector, the informal economy and small and micro-enterprises in order to assist workers to move from low- to high-productivity activities. In developed countries, erosion of the welfare state, cost-cutting induced by competitive pressures, the decreasing power of trade unions, deregulation in the labour market, and changes in technology and work organization have resulted in an increase in the number of part-time employees, and a rise in the number of contingent employment in temporary work agencies or through personal contracts.  To advance towards the goals of full and productive employment and decent work for all, the following framework should be pursued:


• At the national level, Governments should make a political commitment to achieve full and productive employment and decent work for all.

• Employment as a policy goal should be fully integrated into national development and growth strategies. To that end, Governments should work towards greater coherence between sectoral and macroeconomic policies and adopt integrated strategies for employment generation at national, regional and local levels.

• The goal of decent and productive work for all should be made a global objective and be pursued through coherent policies within the multilateral system in order to enhance macroeconomic and trade-related international cooperation and to arrive at a more balanced and coordinated strategy for sustainable global growth and full employment, including through greater market access, development assistance, technology transfer and support for development of institutional capacities, as well as an equitable sharing among countries of the responsibility for maintaining high levels of effective demand in the global


• There is a need for continuing efforts towards and focus on the goal of creating decent employment. To that end, the Economic and Social Council may wish to consider launching a decade for full and productive employment and decent work for all.


55.  According to the ILO's Global Employment Trend Brief , at the end of 2005, the world’s unemployment rate stood at 6.3 per cent, unchanged from the previous year and 0.3 percentage points higher than a decade earlier.  The world work force is estimated at 2.8 billion.  In 2005 the number of unemployed worldwide reached new heights of nearly 192 million people and underemployment remains pervasive.  Some 520 million working women and men are unable to earn enough to lift themselves and their families above the one dollar a day or less per person extreme poverty line.  More than twice that amount, 1.4 billion earns $2 a day or less– the same number as ten years ago and half of the global labor force.  Moreover, the number of unemployed worldwide, currently, at about 192 million, climbed to new heights in 2005. The world, in short, is facing a structural challenge for job creation; one that growth alone appears incapable of resolving.  In order to attain the Millennium Development Goals and the UN development agenda both the quantity and the quality of jobs need to be increased in order for people to move out of poverty.  Creating decent work opportunities with productivity growth  


The questions posed to the writer: Are international institutions and national policy makers moving towards stronger commitment and action to achieve full employment and decent work? Only in policy but not in practice, they continue to torture the slaves who do all the work, for free, while the mindless employees become more and more like the soldiers the author made them not to be. If not, what international and national policy changes are needed? I quit.  Unless the national and international governments pay for their work, service is going to stop.  This collective bargaining tactic is a direct response to the collective punishment of torture being administered by the UN.  Count me out as an unemployed person waiting for his $1 million settlement for the Official Development Atlas of the States of the United Nations (SUN) balanced in March 2006 or for the UN to safely declare a population greater than 6.6 billion.  It has become as dangerous or more to write the Government than to fight in their stupid wars see… Jose Antonio Ocampo v. Luis Moreno-Ocampo HA-22-6-06 for the settlement arrangement that DESA can call Anthony Joseph Sanders v. Jose Antonio Ocampo in their settlement notice.


Tony Sanders