Wednesday, September 22, 2010

Death of Export-Led Growth?

Especially because the economic crisis has dealt such a shock to the U.S. economy, which accounted for much of global consumption, the market for developing countries' exports going forward is not going to be as robust as it was before due to the economic flatness that, in the medium term, will be the "new normal" in developed economies.

The recommendation from analysts in the report, which was released last week (yes, I know, but I'm clawing my way out of the wilderness one item in my inbox at a time), is that developing countries need to "boost domestic consumption and allow wages to increase in line with productivity growth". In a story from IPS, UNCTAD's director called for a "paradigm shift" on labour that ensures more formal work, as, according to the report, "There is not a shortage of employment in absolute terms in African countries, but a lack of productive and decent jobs".

The way this sounds to me is that economies that are mostly agrarian are to shift away from jobs that are mostly agrarian.

UNCTAD believes that "sustainable policies for wage increases need to cover both formal and informal labour markets and there needs to be a linkage between the two of them." For those among us who speak economics a bit more fluently, this from STWR teases the labour stuff out a bit more:

A promising strategy for rapid employment generation could be to focus more on investment dynamics, and to ensure that the resultant productivity gains are distributed between labour and capital in a way that lifts domestic demand," UNCTAD Secretary-General Supachai Panitchpakdi writes in the overview to the report.

To strengthen the contribution of domestic demand to employment creation, the principles and objectives of monetary and fiscal policies need to be redefined, the TDR says. These areas of macroeconomic policy also need to be combined with what the report calls an "incomes policy" -- a set of instruments and institution-building measures that would ensure that mass incomes in real terms rise along with average productivity growth.

If rising wages and increased employment in a period of low demand for goods and services sounds like a recipe for inflation to you --

At the same time, [an incomes policy] serves as an instrument to control inflation. As labour costs are the most important determinant of the overall cost level in most economies, adjusting wages to productivity prevents both increases in production costs and demand growth in excess of the supply potential and also widens the room for investment-friendly monetary policy.

I don't really have an opinion on this because, while a lot has indeed changed for developed countries, not a lot has changed in the relationship between emerging markets and developed ones. The skew towards established markets, in terms of needed investment capital and investment dollars/euros/pounds/yen, is very much still there, even in the major seemingly-invincible emerging markets like Brazil, China, India and South Africa. Until that changes, any really good idea in global trade, like free trade on commodities and agricultural products, is just going to get stuck like a hamster on some wheel of paperwork and stalled talks, like Doha.

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