Post-Privatization Industrial Restructuring Issues in Transition Economies & Developing Countries
-Kenneth Abeywickrama, 30th Nov 2000
Presented in Tulane Institute for International Development (TIID) invites its November Seminar under the Tulane International Development 2000 Seminar Series.
1. Overview
1.1 Background
The integration of the world into a global economy was predicated to generate wealth and eradicate poverty. Structural adjustment programs, to create private sector based liberal market economies, were carried out in 142 of the 179 countries in the UN system[i]. This has been immensely successful in some areas and has failed badly in others. A major area of failure is the eradication of poverty in developing countries and the transition economies. In the transition economies, poverty has increased dramatically in the last decade. In the decade from 1989 to 1999, all economies of the transition countries declined and only 4 countries regained their original GDP levels at the end of the decade: Poland, Slovenia, Slovakia and Hungary. The substantial decline of others has reduced them to the level of Third World countries from their earlier state of high industrialization and social development. In the developing world, only a handful of countries, principally the East Asians who were once designated Asian Tigers, made the substantial breakthrough to reduce poverty through rapid industrialization. But their vulnerability to external global shocks demonstrated the fragility of the world economic system. Among the least developed countries (LDCs), the economies of 22 countries actually declined and most others have not made sufficient progress to break out of mass poverty. China, once a rigid communist planned economy, made the most spectacular industrial advances seen in recent decades, recording continuing high growth rates combined with social development and creating a solid industrial base.
While technological advances have led to the growth of more sophisticated and convenient products on an unprecedented scale, the economies in transition are littered with the rusting relics of giant industrial complexes of the past, leading to massive unemployment and poverty for many citizens. In the developing countries, the nascent import substitution industries often crumbled with market liberalization, destroying the meager assets of these countries. Hence, the emphasis on post-privatization industrial restructuring.
The guiding hands that directed transition economies and the developing countries into the global economy were mostly the multi-lateral and bilateral aid agencies, led by the World Bank, the IMF and others, that are dominated by the G7 countries who are the main aid donors. Structural Adjustment Facility (SAF – since 1986), Enhanced Structural Adjustment (ESAF- since1987) provided the carrots that gave the impetus for changes associated with global market liberalization. The World Bank and IMF now concede that these economic philosophies were not always successful. The two institutions have now proposed amendments that also emphasize social development (social capital) with the introduction of the Poverty Reduction &Growth Facility (PRGF- since 1999).
Industrial restructuring is a key element in the economic revival of transition economies and developing countries. Aid agencies play a key role in this process. This paper seeks to analyze some of the issues involved in this process. The major pitfall that is identified is the lack of a holistic approach to industrial restructuring in individual countries. Each aid agency has its own agenda, influenced partly by the political outlook and national interests of the aid donors, and assisted countries lack the ability, or even the opportunity, to make a comprehensive analysis and national development plans. A discussion of some of these issues may contribute to the ongoing debate on the role of industrial restructuring.
1.2 Multi-Dimensions
There are at least three dimensions that must be considered in industrial restructuring and these need to be considered in planning.
(1) The global market place and its influence on industry in transition economies and developing countries.
(2) The national business infrastructure and environment that influences industrial activity within a country,
(3) The typical business problems within industrial enterprises that characteristically hamper business viability.
National economic planning involving sectors of the economy may not seem to accord with current concepts of less government and more private sector led growth but developing countries that have been successful, like China and India, and even a developed country like Japan, have done this with some success. Without integrating the issues arising from these different facets and creating a national plan, as has been the general pattern to date, industrial restructuring can only have limited success.
Some of these issues, together with some of the opposing views on each, will be discussed briefly in the following chapters.
2. Global Market
2.1 The Power of TNCs
Transnational corporations (TNCs) are the major players in global industrial production. The 63,000 TNCs have worldwide sales of $14 trillion (compare with the world GDP of $30 trillion). The leaders are the top 100 TNCs (non-financial), which had assets of $2.0 trillion and sales of $2.0 trillion in 1998. The only developing country TNC in the top 100 is Petroleos de Venezuela[ii]. The largest TNC has a turnover that exceeds the GDP of all but 20 countries of the world. Overwhelmingly, TNCs are from developed countries. Their financial strength, advanced technology and international marketing prowess make them economic and political powerhouses. The top 100 TNCs have annual turnovers that far exceed the GDP of most developing countries and transition economies.
While developing countries and transition economies are desperate to attract TNCs from developing countries, TNCs have their positive and negative effects on local industry. On the positive side, TNCs create support industries and introduce technologies and management systems that can benefit local industry and create employement. The presence of TNCs also raises foreign investor confidence in a host country. On the negative side, TNCs will quickly demolish local competition. With their international operations, TNCs will bypass local suppliers and source materials from the cheapest sources and, with the use of transfer pricing, deny host countries revenues that they should receive.
A bigger fear is the political power of large TNCs that are backed by the political leadership of their powerful home countries, mainly in the G7 countries. While direct military intervention to protect the rights and privileges of TNCs in South America may be a thing of the past for US policy makers, TNCs still influence governments to erect trade restrictions on imports from developing countries when their interests are challenged, eg. import restrictions to support US Steel against cheaper imports from India, China and Russia, “voluntary restraints” on Japanese car imports and electronics, the banana war between USA and the EU, etc.
On the other hand, most aid agencies take the view that developing countries should only be assisted to develop small and medium sized industries, generally with primitive technologies. The UN guidelines for assistance to developing countries stipulate this as one of the 5 priorities for assistance. Even in transition economies, which had large industrial complexes in communist times, the prevailing dogma is that these should be shut down in favor of small production units. Small production units, with limited access to finance and technology, are often only viable as contract suppliers to TNCs. The best examples are the tens of thousands of garment factories (garments are the major export of manufactured products from developing countries) and leather goods makers in developing countries and transition economies, all competing against each other on price to become suppliers to brand name marketing companies in the EU and North America. Small and medium scale industries are fragile and small national market size in developing countries inhibits growth. Smaller industries mainly flourish under the umbrella of large-scale industry as suppliers and distributors.
An interesting approach to this has been advanced by Rubens Lopez Braga in a discussion paper published by UNCTAD. The title of his paper is self explanatory: Expanding developing countries exports in a global economy: the need to emulate strategies of transnational corporations for international business development[iii] He argues that developing countries need to assist the creation of their own TNCs and that this is borne out by the success of TNCs established in the emerging economies like China, India, Hong Kong, Korea, Malaysia, Taiwan, etc. This will take some of these countries eventually out of the dependency syndrome they are now in.
2.2 Foreign Direct Investment
Foreign direct investment (FDI), mainly in the form of mergers and acquisitions in the global market for firms (mostly acquisitions), is a major factor in developing industrial competitiveness in the global economy. Indeed, aid agencies in the USA often took the view that direct assistance to ailing industries in transition economies and developing countries was not productive and that the proper course for development was to persuade these countries to create favorable conditions which would attract FDI. This thinking was not based on reality. FDI is not a substitute for aid because business will move into the most favorable locations for profits on a larger scale. Though almost all countries have now liberalized markets, reduced the public sector, eliminated or reduced any forms of subsidies and even offered fiscal incentives to foreign investors, FDI has mainly been attracted to the developed countries and, in the case of developing countries, mostly to those with large national markets.
FDI flows in 1999 amounted to $865 billion, or 14% of gross global domestic capital formation. Of this, the USA was the main recipient with $276 billion, on account of mergers and acquisitions resulting from the continuing strength of the US economy. Most of this came from the European Union (EU). Developed countries attracted $636 billion while all the transition economies and developing countries received $208 billion. Among developing countries and transition economies, FDI moved mainly to those with large markets or with well developed infrastructure and business, the leaders being China, Brazil, Mexico, Argentina, Malaysia, Singapore, Hong Kong, Taiwan, Poland and Chile[iv]. The less developed countries and the LDCs received very little, if at all, even though many LDCs liberalized their markets much more than developing countries that attract large FDI flows[1][v]Hence industrial restructuring via FDI is not a viable option for many developing countries and LDCs.
In the absence of foreign investment, most developing countries have to rely on local savings and aid flows. Local savings have become more difficult than in the past because of trade liberalization that has led to a rising torrent of imports of consumer luxuries into developing countries, draining away earnings of affluent households with larger disposable incomes.
2.3 Terms of trade
With poor national markets, the option for developing countries and transition economies is to export to the highly developed markets in North America and the EU, with the USA always being the market of choice. However, as UNCTAD has being pointing out for the last two decades, the terms of trade for developing countries continue to be adverse. Up to 1980, developing country exports were mostly commodities (excluding fuel). As commodity prices kept declining rapidly since the 1960s, developing countries moved into industry. With industrialization, manufactured products accounted for three fourths of developing country exports by 1990. But from 1970 to 1987, the price of these manufactured products declined by an average of 1% per annum. The net barter terms of trade of developing countries with the EU declined by 2.2% per annum from 1979 to 1994[vi]. In short, developing countries have to export much more to stay in the same place.
This phenomenon needs some comment. While the main thrust of industrial restructuring assistance to developing countries and transition economies is to improve quality and productivity, the marketing factor is usually ignored. The major problem of the economies in transition and the developing countries is their lack of knowledge of marketing as well as direct access to developed country markets. Their access to these markets is usually as contract manufacturers. With all developing countries vying to gain access to the same markets, manufacturing many similar products, the buyers are in a position to dictate terms and play suppliers against each other. Aid agencies also compound the problem. They assist industries in different parts of the globe to make similar products for the same markets in the EU or North America, creating a problem of dependency on the one side and cheaper consumer products and higher profits on the other.
Another evidence of the marketing prowess of TNCs and their ability to dominate developing country markets is seen in the manner in which they have changed the cultural habits of these countries according to their own terms. The introduction of hamburgers, coke, jeans, casual shoes and a host of name brand products that are now considered essential for life have changed life styles and supplanted indigenous products that have been traditional for centuries.
The option for most developing regions is to enter into regional alliances that create common customs borders, as the EU and NAFTA have demonstrated with success. This course is strongly supported by UN development agencies, following upon the substantial success of ASEAN. Inter-regional trade accounted for 50% of the total trade among the 10 major East Asian economies. Inter-regional trading groups are developing in South, East and West Africa, in South America and South Asia and inter-regional trade is increasing. This runs counter to the philosophy of global trade without barriers and the WTO goals, illustrating that even the proponents of these philosophies have their own reservations.
2.4 Non-Tariff Barriers to trade
Developing countries and transition economies face many barriers to trade in dealing with the G7 countries. The best known is the Multi-Fiber Agreement that allocates quotas for the import of garments, garments being the largest single export product from these countries. There are however many other restrictions that are selectively used at times.
# Restrictions on imports from industries that are causing environmental degradation. This ignores that developed countries are the main culprits in worldwide environmental pollution through over-consumption.
# Restrictions on products that are made using very low wages, even though low wages are often the only competitive advantage these countries have.
# Restrictions on products made by child labor.
# Restrictions on products made by industries owned by the military, applied only to China.
# Restriction on goods made by prison labor, also applied only in the case of China.
# Restrictions on increasing imports that challenge industries in developed countries, eg. recent US restrictions on steel imports from China, India and Russia, because they threatened a US company, US Steel.
2.5 Currency trading, short-term capital flows and debt
With about $1.5 trillion of currency being traded daily, and most of this being in the hands of private speculators, no country would have much of a chance when targeted for attack by currency speculators. The targets, apart from the case of the UK in 1992, are often the more advanced developing countries that have over-exposed themselves by heavy reliance on short-term borrowing. This was not a problem when many developing countries had rigid currency controls (as still exists in South Asia and China). With financial liberalization, many financial institutions and corporations in East Asian countries, not sufficiently experienced in this area of international finance, over-exposed themselves during times and became easy targets for speculators. Mexico and other Latin American countries have faced similar showdowns, each of which wiped many of the gains from decades of hard work. George Soros himself has gone on record advocating some controls on international currency flows.
Short-term borrowing is advantageous as long as markets are expanding. However, free markets can be unpredictable even to the most astute business people and, when markets are lost, often due to the optimistic extension of industrial capacity for larger market share, debt is the result. Industrial restructuring after such financial crises becomes a major political problem because of the sudden loss of business asset values coupled with debt that results in the fire sale of industries to foreigners or their closure. Either course leads to downsizing and the loss of jobs. The current crisis in some of the Korean chaebols is a good example of this situation.
Debt is a major constraint to the LDCs and many economies in transition. Liberal aid flows and lending during the 1980s did not produce the expected results. Instead, liberalization created massive trade imbalances and declining commodity prices (in case of LDCs) and currency devaluations made debt servicing a bigger problem. The debt stock of LDCs stood at $150.4 billion in 1998, or 101% of their GNP[vii]. These, in turn, constrained development, adding to the problems. Industrial production and investment is difficult in a situation of financial uncertainty.
2.6 Capital flight
While transition economies and developing countries are in need of capital for investment in manufacturing, there is a continuous flight of available capital to developed countries. This takes many forms. In many of the LDCs and some transition economies, corrupt politicians and their cronies rob state assets and transfer these to safe havens in Switzerland and offshore financial institutions. A World Bank study once assessed that if all the funds transferred from Sub-Saharan Africa were counted, it would approximate to 75% of the GDP of that region. Another source is the massive funds generated by crime syndicates, mainly those dealing in narcotics. Since these have to be re-cycled, they are transferred again to safe havens from which they are periodically drawn for conspicuous consumption. Narcotics being illegal at present, these funds cannot be easily put to productive uses, unlike in the 19th Century when English and American opium traders in China converted their fortunes to productive use by setting up financial institutions and business houses that are today crown jewels, eg. Jardine Matheson, Barings Bank, and many Boston based business houses. The third source of huge funds, those generated by trade surpluses of China, Taiwan, Hong Kong and the East Asian NIEs, is mainly in the US as dollar denominated assets, mainly in the form of bonds. The US has become the sanctuary in a world where currency fluctuations and external financial shocks threaten savings held in other currencies.
2.7 Globalization of crime
A corollary to the globalization of the market place has been the globalization of crime. In many developing countries and transition economies, the frustration caused by the poverty and the disparities of wealth, coupled with the liberalization of markets and the withdrawal of state controls, has encouraged the development of international crime syndicates that have become business empires in their own right. These crime syndicates deal mainly in narcotics, prostitution, human smuggling from poor countries to the EU and North America. Narcotics smuggling from Colombia, Peru and Bolivia are well known to us. It is not so well known that Albanian mafia (Albania is the poorest country in Europe) are major traffickers of narcotics to the EU and supply kidnapped East European girls to brothels in EU countries. The Russian mafia controls prostitution rings using Russian girls from USA as far as South and East Asian countries.
Crime has become big business in many transition economies and developing countries and it is affecting the growth of legitimate business. It corrupts the political system and makes Customs controls and legal systems ineffective. The black money of the mafia has to be laundered and it is sometimes used for legitimate business and the acquisition of state owned industries, particularly in some transition economies. In many transition economies, taxes are levied on legitimate industries while competitive imports by corrupt business people allied to politicians are free of taxes. Criminals may obstruct competitors and take protection money from profitable businesses. This makes industrial restructuring all the more difficult. It also inhibits foreign investors.
3. National institutions for business
The absence of the accepted institutions for private sector business in LDCs and, especially in the transition economies, is a major hindrance to business development and industrial restructuring. Chambers of Commerce and Industry, manufacturers associations, marketing services companies, Standards and Quality Testing Institutes, financial institutions, are a pre-requisite for private sector business development.
3.1 Chambers of Commerce & Industry
Many transition economies and developing countries lack Chambers of Commerce and Industry and where they exist, they are often state controlled and sponsored and are ineffective. Without such chambers, the genuine organized business communities have little voice in the economic policies of their governments. Potential foreign investors and partners also feel reluctant to deal with generally lethargic public servants who have no abiding commitment to business development unless it personally benefits them.
3.2 Manufacturers’ Associations
Since most manufacturers in developing countries are small or, as in transition economies, are now operating only on a reduced scale, they could benefit by creating associations for different industry sectors. Working as a group, especially in export industries where individual production units are often too small to be of interest to buyers in developed countries, they could pool marketing resources, obtain technical assistance and lobby their governments. The International Trade Center of UNCTAD/WTO has recorded some of its best achievements in developing country export marketing by fostering such industry associations[viii].
3.3 Distribution companies
In all the economies in transition, distribution remains a problem. During communist times, distribution was done entirely by giant state distributing organizations that handled local and foreign distribution. These were shut down after market liberalization and only small distributors in the informal sector have come up since. Most enterprises wait for customers to arrive at their doorstep and those who have organized some form of distribution find the costs too high. Supermarket chains are still undeveloped as the purchasing power of consumers is still too small to invest in such networks in many of these smaller countries. Large wholesale networks, as is found in most Asian economies, have still to be created.
3.4 Marketing services
Private advertising and promotion was not known in communist times. Most transition economies, as well as many LDCs, lack proper advertising and public relations companies. Market research companies are also rare and market data is confined to government statistics that are often inaccurate due to the high incidence of smuggling. Local business people and potential foreign investors are unable to obtain reliable market data for strategic planning. Though advertising services are poor, TV advertising for imported products, based on foreign advertisements, is substantial. This places local manufacturers at a disadvantage in popularizing their products.
3.5 Quality Assurance and Standards Institutes
Few LDCs and economies in transition have standards institutes that test and certify products before these are sold in the local markets. Quality standards vary and are often poor because manufacturers are mainly interested in making low priced products or cheaper imitations of foreign brands. In the absence of marketing skills or even marketing budgets, low price is the only selling strategy. Hence, consumer preference is always for imported brands if they are within their reach. This has also created a large market for spurious imitations of foreign brands throughout the transition economies.
3.6 Financial institutions
In most of these countries, industrialists have little access to capital, except through their own resources or through bank borrowing at high rates of interest. Development banks, unit trusts and stock exchanges have not developed in many transition economies and LDCs though they are fairly developed in most South and East Asian and Latin American countries. Most industries need to be technologically updated and funding for these is a major problem.
4. Enterprise Restructuring
4.1 Enterprise problems
Most aid agencies and their consultants are often overwhelmed by the extent of problems within industries in transition economies and many of the LDCs. In the Newly Industrializing Economies (NIEs), the problems are of a different order and are often concerned with the over-extension of business through over-confidence in markets, leading to over-capacity and debt. Though the stakes in such cases are high, these are problems that are comprehensible. It is more difficult in many transition economies and LDCs that have a multitude of internal problems that bewilder an outside observer. These are some of the problems that often appear after the diagnostic study.
(1) No operating plan
(2) No marketing plan
(3) No production plan
(4) No materials management plan
(5) No financial planning or cash flow forecasts
(6) Large stocks of unsold finished goods
(7) Large stocks of raw materials and packing materials, some obsolete
(8) Products of poor quality, little quality control
(9) Products not properly positioned for target market
(10) Production bottlenecks and poor factory lay out
(11) Overstaffing but lacking supervision and accountability
(12) No sales forecasts and no sales distribution
(13) No advertising or promotion
(14) Poor packaging designs
(15) No profit based accounting
(16) Inadequate management information
(17) Hierarchical management structure and poor delegation of responsibility
(18) No marketing department
(19) No proper management performance review meetings and corrective action.
(20) Poor housekeeping with garbage strewn around premises.
(20) Many idle employees or, in many LDCs, “ghost workers”.
The list can be endless and frustrating. Different aid agencies have different approaches to these problems of industrial restructuring.
4.2 Marketing
Marketing is the key problem in transition economies and LDCs. Though countries have created liberal market economies, most industries, including many large ones, have no marketing departments and no senior marketing managers. The marketing department consists of the sales invoicing clerks and the sales negotiations are handled by the CEO. It is difficult for them to comprehend the need for marketing, which seems an unjustifiable expense. Investment in technology produces a visible tangible asset. Marketing benefits are not so comprehensible to those who have lived in planned and closed economies. In the absence of marketing, there is no appreciation of the size of markets, the competition and competitive forces, the target consumers and their habits and attitudes. Products are made on the basis of available technology and the CEO’s perception of market needs. If sales do not materialize, lower pricing is the only option. Without marketing, there is no product positioning, product differentiation, production planning, advertising, promotion and any kind of competitive strategic planning. The product offer has no competitive advantage except very low price. People work harder with less and less results. Without market guidance, the internal activities of the enterprises are often misguided.
Most aid agencies are reluctant to assist in marketing in a meaningful way except, sometimes, to offer assistance in the marketing of generic products for developed country destinations.
4.3 Aid agency restructuring methodolies
Restructuring has specific meaning: it means a radical change in the way an enterprise conducts its business, as opposed to management improvement. The usual forms of restructuring are: (1) change in the financial structure/ownership, (2) change of product lines or market focus, (3) change of technology, (4) change of management or management/employee structure.
Multi-lateral aid agencies like the World Bank and UN agencies prefer a comprehensive approach. Multi-disciplinary teams would make comprehensive diagnostic study covering all aspects of a business, identify all comprehensible problems, make recommendations for each, work out detailed short-term and long-term implementation plans and briefly assist in the implementation of some recommendations. There are some drawbacks in this approach. Unless the aid agency is willing to keep its consultants in the enterprises on a long-term basis, which they are usually unwilling to do for reasons of cost and cost effectiveness (consultant fees may be more than the turnover of the company), the prospects of implementation are slight. Managers of an ailing firm are also put off when external consultants come in for analysis and find that almost everything they do is wrong. Management becomes uncooperative at this stage and further progress becomes very difficult. The multi-lateral aid agency, however, finds satisfaction in the massive diagnostic and implementation plans that have been prepared and preserved for record as achievements of the agency.
Bi-lateral aid agencies often pin-point a specific problem within a company and seek to rectify this. In the transition economies, where law requires enterprises to maintain accounting records but not the Western style Income Statements and Balance Sheets, much time is spent trying to get the enterprises to use the same data and change their accounting formats. The author worked in four large enterprises in Mongolia where a large international consulting firm had worked for 6 months to change accounting systems and found that these had been discarded by the enterprises shortly afterwards. The author has also come across 5 year corporate plans made by US consulting firms for enterprises which were locked away as souvenirs in filing cabinets of enterprises in transition economies. In other instances, aid agencies get consulting firms to make a brief assessment and offer grants or partial grants to enterprises in transition economies and developing countries to buy modern machinery from the country of the aid agency. If technology is the only problem, this will be useful. Often it is not the key problem.
The most successful bi-lateral aid programs are usually offered by the Netherlands and the Nordic countries. These aid programs have been willing to identify key enterprises and place long-term consultants to work with the managements over an extended period to change management practices and help create a new management culture
4.4 Changing people
Changing the way an enterprise does business is about changing the way people think and work. The best way this could be achieved is by changing the ownership through sales to a TNC from a more developed country. Another way to bring about this change would be to bring in a competent external management team. External management contracts for period of about five years are advocated by multi-lateral aid agencies but host countries are rarely willing to allow this. These easier options are not always possible. Unless the enterprise is a large key industry with great potential, outsiders would not be interested. So there is a need to look at other means by which a culture change could be introduced.
The author’s own approach is to avoid loading the management with negative assessments from the beginning of a consultancy. The first stage is to gain the confidence of the management and this usually done by commending them on some good achievements and then identifying a key constraint that is hampering business. It must be an issue that, if rectified, will produce a quick result. Often, in transition economies and developing countries, distribution is a major problem. If time is spent on improving distribution alone, the enterprise will see tangible benefits in a few months. This will encourage them to work on related areas, like management information. Another key area that can be resolved is internal coordination and the acceptance of responsibility by operating managers. Due to the hierarchical structure of a business, management meetings are only for discussion of trivialities and real management decisions are brought personally to the CEO. If proper management meetings are organized on a regular basis, with management information being available and decisions recorded in minutes of meetings for action. a business will take stock of piling finished goods, stock shortages and see the value of departmental planning. The attendance of external consultants at such meetings will set the style for the future.
In a short period, if external consultants, acting as catalysts, assist the management to see positive results, there are chances that the enterprise will continue to improve. The last thing that consultants should try is to introduce corporate planning at an early stage. It will take an enterprise about three years before it can understand corporate planning. In the meantime, simple short term operating plans linked to departmental plans will suffice.
5. Prognosis
The prognosis for most transition economies and developing countries, reading between the lines of analyses made by the World Bank and the UN agencies, is not good. While liberalized market economies are far more efficient than rigidly planned economies, international capitalism needs a human face in the global market and developed countries need to modify pre-occupation with their own national interests and assist in international development for the betterment of all peoples. In the global situation of today, people in developing countries and developed countries have divergent interests. We need the international movement of finance, products and businesses. People in developing countries, with their appetites aroused by the living standards of the developed countries viewed through the mass media, want to be a part of the developed world now. We already threatened by economic refugees from developing countries who want to gain entry and overload our societies. Unless the deprived societies are genuinely assisted, our own societies will see the repercussions. The demons are already knocking at our castle doors, taking the form of contagious diseases, narcotics, prostitution, illegal immigrants.
It is also time to evaluate our assumption that all countries must conform the same prescription for progress within timetables set by multi-lateral agencies. During the first phase of the industrial revolution, from 1750 to 1900, the growth rate in Great Britain, which was the world leader at the time, was around one per cent per annum. The industrial development of Western Europe and North America took many centuries and, despite the availability of technologies, finance and TNCs, many countries will need much longer periods for their development. Fiscal measures protected nascent industry in developed countries in the past and it would be unrealistic to consign LDCs and some transition economies into an open competitive world where monetary measures are the only corrective economic tool in the hands of governments.
Aid is a vital component of this assistance but aid flows have declined significantly. Overseas Development Assistance (ODA) declined from 0.09% of the GNP of aid donors in 1990 to 0.05% in 1998. Though targets of 0.15% of GNP for some and 0.2% had been agreed by others, only 4 countries met their targets in 1998: Norway, Denmark, Netherlands and Sweden (0.2% each) and Luxembourg (0.15%)[ix]. Aid also needs to be coordinated under the umbrella of national plans for external assistance. A major failure has been the desire of each aid agency carry out its own programs based on their national and political priorities, meaning that a lot of aid money is wasted. For enterprise restructuring to work, a comprehensive plan must take account of the international, national and enterprise levels barriers, even though some of these factors are beyond the control of national governments and aid agencies must agree to work within this planned approach.
Kenneth Abeywickrama
30 November 2000.
[1]
[i] Latest estimate by UNCTAD.
[ii] World Investment Report 2000, UNCTAD, Geneva & New York, 2000.
[iii] UNCTAD Discussion Paper No. 133, March 1998, Geneva.
[iv] World Investment Report 2000, UNCTAD, Geneva & New York, 2000.
[v] The Least Developed Countries 2000 Report, page 106, UNCTAD, Geneva & New York, 2000.
[vi] Trade & Development Report, 1996, UNCTAD, Geneva & New York, 1996.
[vii] The Least Developed Countries 2000 Report, UNCTAD, Geneva & New York, 2000.
[viii] ITC Strategy for Product & Market Development, Abeywickrama & Lindhal, ITC, Geneva, 1998.
[ix] The Least Developed Countries 2000 Report, pages 60 & 61, UNCTAD, Geneva & New York, 2000.
