Select Committee on Economic Affairs First Report


LIST OF CONCLUSIONS AND RECOMMENDATIONS

We offer this list as a help to the reader. We emphasise, however, that a proper understanding of each conclusion and recommendation requires full consideration of the argument that precedes it in the text of each chapter.

Chapter 2: Defining and Describing "Globalisation"

1. The present period of globalisation represents a new departure in world affairs. (paragraph 55)

2. Although some of our witnesses claimed that what we observe is much the same as what has happened before, but on a large scale, we believe that recent experience is both quantitatively and qualitatively different. (paragraph 57)

Chapter 3: Economic Performance, Poverty and Inequality

POVERTY

3. Although the general level of world poverty appears to be decreasing, this improvement is not evenly spread and some countries continue to suffer a very high concentration of poverty. (paragraph 64)

4. There remains, in our view, a shameful level of poverty in the world. We are appalled at the sheer waste of human potential that such poverty implies. (paragraph 64)

INEQUALITY

5. It appears that between-country inequality is reducing (largely because of the economic growth of China and, to a lesser degree, India), but within-country inequalities (both in developing and developed countries) are in some cases increasing. (paragraph 72)

RELATIONSHIP BETWEEN POVERTY, INEQUALITY AND GLOBALISATION

6. While there are negative aspects to globalisation, the weight of the evidence suggests that the opportunities created by globalisation outweigh the dangers. Effective integration in the global economy is a major part of the explanation why some developing countries, such as China and India, have enjoyed significant economic growth in recent years and a failure to integrate effectively is at least part of the explanation why other developing countries, such as sub-Saharan Africa, remain very poor. (paragraph 86)

7. The process of globalisation requires appropriate national policies (dealing, for example, with political and administrative reform) and a strengthened international governance infrastructure so that its potential may be maximised. Only then can markets operate optimally. (paragraph 88)

EXPLOITING GLOBALISATION TO REDUCE POVERTY AND INEQUALITY

8. We welcome the measures that are being taken internationally to assist developing countries to improve their investment climate. Although this is principally a responsibility of the developing countries themselves, efforts should be made through multilateral and bilateral agencies and agreements to facilitate developing countries in making such improvements. (paragraph 94)

9. We consider that efforts should be made through multilateral and bilateral agencies and agreements to encourage developing countries to diversify their production, while not undermining the areas of production where those countries have a distinct comparative advantage. (paragraph 96)

10. We welcome the United Nations' commitment in the second of its Millennium Development Goals to "achieve universal primary education" and the UK Government's support for this. An education strategy which takes school age children out of the labour market should be at the centre of any development plan. Far from creating an economic burden, this is a prerequisite to a successful economy. (paragraph 100)

11. Financial regulators, the international financial institutions, the World Trade Organisation, professional bodies and governments, either separately or together, should establish a centre of responsibility with the aim of tackling corruption (both in connection with development programmes and the operation of the global economy). We believe the UK Government has an important part to play here, preferably in co-operation with our European Union partners. Transnational corporations and other businesses must accept responsibility for scrutinising their agents and other business associates with regard to corrupt practices on their part. Reinforced action by business organisations would also be helpful. (paragraph 110)

Chapter 4: Labour Market Conditions

DEVELOPED COUNTRIES

12. Globalisation has brought about industrial restructuring which has caused some transitional unemployment in developed countries especially amongst the less skilled. The evidence suggests however that technological change has been more significant in reducing industrial employment amongst the less skilled. It is possibly a more significant force than competition from low-wage economies. (paragraph 117)

13. The evidence suggests that in those developed countries where there is increasing wage inequality, this cannot be attributable solely to globalisation but is also a consequence of a number of other factors including technological change. (paragraph 119)

RESPONDING TO CHANGING LABOUR MARKET CONDITIONS

14. Given the fall in demand for unskilled and less skilled labour in the tradeable sector of the economies of developed countries, including the United Kingdom, successive UK governments have been right to take steps over many years to promote the skills training of the unskilled and less skilled workforce. We support the present Government's reinforcement of the policy to promote education and skills training. Similarly, as regards developing countries, increasing skills levels is an important element of a strategy to enable those countries to exploit more effectively the potential of globalisation. (paragraph 135)

15. Significant benefits arise from labour mobility (for both the countries involved and the individuals). Nevertheless, there is a concern about the effect of the "brain drain" on those developing countries which are losing skilled labour. To the extent that this impairs the development of these countries (in relation to both their public and private sectors), we share that concern. We welcome the UK Government's commitment to undertake further research on the "brain drain". Overseas aid policy should help to finance education and training in poorer countries, shifting the burden from taxpayers there to taxpayers in the countries of immigration. The level of aid might be geared to some extent to the number of skilled workers coming from a country. (paragraph 138)

Chapter 5: Role of Transnational Corporations (TNCs)

TNCS AND THE ECONOMIC EFFECTS OF FOREIGN DIRECT INVESTMENT

16. We believe that foreign direct investment is an effective mechanism for economic change in developing countries (although there is evidence that it could be more effective). (paragraph 150)

COMPLAINTS ABOUT THE POWER OF TNCS

17. Witnesses expressed a real concern about the influence of TNCs in democracies. We acknowledge that TNCs are powerful, but we believe that they are also subject to a range of constraints and, in particular, to the power of governments and of public opinion. (paragraph 157)

18. We acknowledge that there is a concern that some TNCs have the capacity to be "footloose", but we believe that, in practice, their mobility is constrained and that foreign direct investment by TNCs, once undertaken, is locked in to a significant extent. We think that this point is fundamental. (paragraph 162)

19. TNCs are not an homogeneous group and standards of conduct will vary between them. Some TNCs behave responsibly but others act against the interests of the country in which they have located production. The evidence we have received suggests that often TNCs adopt standards which are higher than those adopted by local businesses. We are not complacent however. We are aware that businesses have a primary duty to act in the interests of their shareholders and that there is, therefore, a case for government measures to be taken to encourage them to take responsibility for a wider range of the interests which are affected by their activities. (paragraph 169)

REGULATION OF TNCS

20. There has been a welcome increase in transparency of governments and of public financial institutions in recent years. Although similar advances have been made by some TNCs, the corporate sector has a long way to go in this respect. We recognise the right of companies to a degree of commercial confidentiality, but believe that their claims to this could be regarded as excessive, making it almost impossible for the international financial institutions and governments, let alone a committee such as ours, to give them the scrutiny that good global governance requires. (paragraph 181)

21. We welcome international initiatives to promote corporate social responsibility amongst TNCs as a mechanism for enhancing transparency and accountability of TNCs. We recognise, however, that there is concern that a purely voluntary regime will not provide a sufficient safeguard against abuse of power by TNCs. We note with approval that, as part of its current review of company law, the UK Government is considering that some companies should be required to report on the impact of their activities on the environment and, more broadly, on the communities in which they operate. (paragraph 182)

22. There is a need to consider whether a powerful global competition authority is necessary. (paragraph 183)

23. The UK Government should review its data collection in respect of TNCs. Data collection at present is too limited and out of date and should be substantially improved. (paragraph 184)

Chapter 6: Management of the International Trading System

GOVERNANCE OF THE WTO

24. We recognise that member countries of the WTO vary in size and economic power. They vary, therefore, in their capacity to influence decisions in the WTO and, more fundamentally, to maintain a presence at the WTO. It would be naïve to believe that an organisation like the WTO would not be dominated by a small number of rich countries. The important question, which applies to the International Monetary Fund and the World Bank as well, is whether this domination is excessive. We believe that it is in all three institutions, but the evidence we received placed most emphasis on the WTO. We urge the Government, with its European Union partners, to consider, first, how to improve the balance of power in the WTO and, secondly, how to ensure that decisions are more transparent. We acknowledge the commitment of the Government, contained in the White Paper on globalisation by the Department for International Development, in respect of both matters. (paragraph 199)

DEVELOPED COUNTRY PROTECTIONISM: AGRICULTURE AND TEXTILES

25. We consider that developed countries' protectionism (mainly in the United States and the European Union) with regard to agricultural and textile products in particular is wholly objectionable and unjustifiable. In coming to this view we were particularly struck by the evidence of Clare Short, the Secretary of States for International Development, and Mike Moore, former Director-General of the WTO, which we believe should inform future debate on the subject. Developed country protectionism places an unfair burden on developing countries and is in stark contrast to the protestations of the leaders of rich nations that they are committed to helping the world's poor. We urge the Government, within the European Union and the WTO, to take stronger steps to ensure that it is brought to an end. (paragraph 208)

WTO AGREEMENTS

26. We are convinced of the central role that Research and Development plays in the process of economic development, and the importance of intellectual property protection as helpful to that end. There is, however, widespread concern that the agreement on Trade-related Intellectual Property Rights (TRIPS), in some respects, is acting against the interests of developing countries and placing a burden of compliance on developing countries. We share that view. (paragraph 223)

27. We support the initiatives both in the UK and the WTO that seek to review the operation of TRIPS and urge the UK Government to take the steps necessary to ensure that the interests of developing countries are properly considered in the amendment of the TRIPS agreement. (paragraph 225)

28. The UK Government should help to ensure that the implementation of the General Agreement on Trade in Services (GATS) does not place unreasonable pressures on the governments of developing countries prematurely to introduce competition into their service sectors. (paragraph 233)

Chapter 7:The International Financial System

THE EFFECTS OF CAPITAL MARKET LIBERALISATION

29. The evidence supports our view that there are advantages to capital market liberalisation. Economic theory and the evidence we have received show, in particular, that capital market liberalisation is broadly beneficial to the economic progress of developing countries. It is not without costs, however, and for developing countries to pursue it without adequate preparation of the right policies and institutions would be foolhardy. Our overall conclusion is that the international free flow of capital should be the aim, and become the norm. However, matching the timing of capital market liberalisation with the precise circumstances of the individual country is of the essence. (paragraph 256)

THE INTERNATIONAL ECONOMIC INSTITUTIONS

30. We started our inquiry from a position highly critical of the World Bank in its role as an international financial institution. While acknowledging the criticisms of the Bank, the evidence has led us to a more balanced and supportive view. In addition to welcoming the Bank's more client-focused approach in its operations, we are especially impressed by the World Bank as a source of data and research which provides the basis for a sensible and valuable approach to the growth process. (paragraph 265)

TACKLING FINANCIAL INSTABILITY AND CRISES

31. We believe that the IMF is the appropriate body to assist a country faced with an immediate financial crisis. We say this whilst recognising and sharing the criticism of some of the IMF's previous interventions. We are aware that in the past the IMF has been seen as being part of the problem rather than the solution. We are glad to note that they have for some time been subjecting their procedures to internal scrutiny, especially as they pertain to dealing with short-term financial crises. In the short term, what is obviously required is immediate assistance to deal with impending sovereign debt default. We recognise that the resources of the IMF are limited and that, therefore, financial support from the United States and other developed countries will have to increase and the role of the main central banks be enhanced. We also recognise the advantages of involving the world's capital markets in providing the necessary short-term finance, and the important role that the IMF can play in sovereign debt re-scheduling. Finally, it is our general view the IMF should pursue an open-minded approach to these problems and one that is carefully tuned to the circumstances of individual countries. (paragraph 292)

  1. The Committee is not persuaded of the case for a Capital Transactions Tax as a mechanism for reducing capital market volatility. It would be difficult, if not impossible, to impose world-wide and could be very harmful to a country to do so on its own. We recognise that capital outflows can be damaging to an economy, but this is often a symptom of domestic macroeconomic problems, not the cause. Where, however, capital outflows are the result of excess volatility and the irrationality of international financial markets, the IMF, together with the major central banks, should assist in reducing that volatility. (paragraph 299)



 
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