Countries’ policies are based on self-interest
Dr. Charles Soludo, member of the South Centre’s board and former governor of Nigeria’s Central Bank, indicated in a general comment that in terms of the response to the crisis and lack of coordination, what has been witnessed is what one expects in the real world. This is despite what one would ideally wish for. Yet, he called for searching and identifying the countries and sectors where opportunities lie.
Dr. Soludo’s first point was that we live in a multi-polar world, and the categories of developing and advanced countries are no longer useful. Most problems, including that of unemployment and lack of jobs, poverty, climate change, energy, and inequality are faced by every country; the difference is a matter of the degree of the problem.
Dr. Soludo explained that although categories are still needed, it is important to realize that there are even least developed countries that have been achieving significant progress, for example seeing growth rates exceeding 7% over several years. There are countries getting by, while others are being left behind, he noted.
In regard to interconnectedness and intensifying spillovers, Soludo noted that trade as a share of GDP has gone up to around 35%, while capital flows intensified more than 4 times compared to 1995. Yet, the mechanisms of cooperation globally are limited, Dr. Soludo cautioned.
Increasingly, policy choices are serving narrow domestic interests and not designed taking into consideration the collective interests in a global context. Less than one percent of policy makers’ attention is focusing on issues we wish them to focus on such, as interconnectedness and spillovers, Dr. Soludo noted.
Dr. Soludo referred to an IMF calculation that showed that greater degrees of harmonization between the main economies of the world would lead to an increase in the global GDP of around 3% in the long run. Yet, reality is that democracies and domestic power bases in these countries make it impossible to respond in a way that reflects coordination and harmonization. In the end, every country resorts to self-help approaches, Soludo noted.
Dr. Soludo added that precisely at the time that the global system might need slightly inflationary policies to ensure speedy recovery, what we are getting is the reverse. This, he explained, is driven by domestic politics.
Besides few cosmetic changes, neo-liberalism is still alive and well, and dominates policy making everywhere, Dr. Soludo underlined. Recovery remains fragile and a new crisis remains probable or imminent, Soludo cautioned. It is a race to the bottom as each country seeks self-insurance, he explained. Part of this self-help is sought by the United States through the TPP and by the European Union through the EPAs, which represents a bail out sought from the African countries and ACP.
Soludo underlined the importance of China’s economy to many other developing countries. He noted that China has been considered as the new market, especially for countries dependent on commodities and oil, where much of their exports have been directed. Yet, the old model that propelled China’s growth seems to be going out of steam. The question is for how long can this approach continue, Dr. Soludo noted, and what would happen to a lot of these countries if China slows down.
Soludo was of the opinion that China may indeed need to live on bubbles for an extended period of time, especially for poorer developing countries that shifted their dependence to China to be able to continue to live. Otherwise, the greater and more devastating threat could be resulting from a slowdown in China. Dr. Soludo referred to that situation as the ‘threat from within’ in the context of South–South integration.
In terms of the outlook for countries that are increasingly left behind, Dr. Soludo referred to what he called the ‘paradox of poverty’. He explained that poor communities often have greater incentives to bond together, but also have greater resentment among them. So if some money trickles down or gets promised from the EU or another party, he noted, some countries are prepared to sell their regions and the entire coordination mechanism among them would then collapse.
Dr. Soludo cautioned that African countries could suffer from intensified levels of poverty and inequality in the next few years if their coordination vis-a-vis the EPAs falls out. This will lead to wiping out the limited manufacturing capacity in the region. He underlined that the aid promised to African countries is not additional and in fact has been declining. He added that Europe has its own crisis, and cannot support others.
In conclusion, Dr. Soludo noted that in a world with a dominant reserve currency, where policy makers are most of the time preoccupied with domestic welfare and hardly deal with global welfare, future crises happen to be almost an inevitable feature of the global economy as it is currently designed. However, Dr. Soludo stressed, not everyone will suffer in the same way.