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The Policy Space Debate APRIL 2007 Asia Program SPECIAL REPORT No. 136 The Policy Space Debate: Does a JOMO KWAME SUNDARAM Globalized and Multilateral Economy Policy Space? Overcoming Constraints to Pursuing National Development Constrain Development Policies? Strategies EDITED BY BHUMIKA MUCHHALA PAGE 8 ABSTRACT This Special Report asks whether multilateral economic policies constrain the abil- HEINER FLASSBECK Macroeconomic Policy Space ity of developing countries to choose the best mix of economic polices for achieving sustain- and the Global Imbalances able and equitable development. Jomo Kwame Sundaram illustrates the significance of PAGE 17 policy space for national development strategies, and assesses the principal sources of con- straints imposed by international financial institutions (IFIs) on policy space in developing CARLOS CORREA Constraining Policy Space in countries. Heiner Flassbeck contends that intermediate exchange rate regimes and the Intellectual Property development of a multilateral framework for exchange rates would enable developing coun- PAGE 22 tries to better align their monetary policies with their development priorities. Carlos Correa links intellectual property rights (IPR) rules in the global trade regime to equitable development ELAINE ZUCKERMAN by presenting several counter-arguments to the dominant proposition that IPRs are necessary Policy Space and the Gendered Impacts of International to promote knowledge and innovation, and by providing a historical analysis of IPR policy. Financial Institutions Elaine Zuckerman demonstrates the impact of IFI loans and projects on women and girls PAGE 28 through country case studies, arguing that IFI-imposed conditionalities intensify the feminiza- tion of poverty through, for example, the privatization of essential services. INTRODUCTION international rules and agreements. In order to bet- BHUMIKA MUCHHALA ter understand such an argument, a working defini- tion of policy space is necessary.One such definition he debate on the importance of policy is that policy space, for developing countries, “is space for national development strategies about the freedom to choose the best mix of policies T has gained significant momentum in recent possible for achieving sustainable and equitable eco- years, particularly among developing country repre- nomic development given their unique and individ- sentatives in international forums.The argument for ual social, political, economic, and environmental policy space states that developing countries need conditions.”1 Policy space refers to the scope a nation the freedom to choose the best mix of policies pos- has for building its own national development strat- sible for achieving sustainable and equitable develop- egy and its relationships with the world economy ment given their specific national conditions. This and markets. argument reflects the idea that governments should The three international law principles that vali- have the ability to evaluate the trade-offs between date the concept of policy space are the sovereign the benefits of engagement in the global economy equality of states, the right to development, and the versus the loss of policy space that often accompanies principle of special treatment for developing coun- Bhumika Muchhala is program associate with the Woodrow Wilson Center’s Asia Program. The argument tries.2 These principles are reflected in the charter itization of global market considerations over nation- 4 for policy adopted by the United Nations Conference on Trade al development. Developing countries’ call for poli- and Development (UNCTAD) at its first meeting in cy space to carry out their national development space states June 1964. UNCTAD arose from the demands of strategies has struck a controversial chord in devel- that develop- poorer countries to establish a trade and development oped countries, who argue that policy space cannot ing countries body that addressed their needs and concerns. General be used as a roadmap for UNCTAD’s work nor as a need the free- Principle Fifteen in UNCTAD’s 1964 charter states principle in multilateral economic frameworks as it dom to choose that developing countries should receive special and may appear to suggest that developing countries can 5 the best mix of differential treatment according to their particular opt out of international rules and agreements. stage of development.3 When applied to policy space Despite the disagreements between rich and poor policies possi- through its third principle of special treatment, the countries, the UNCTAD XI conference under- ble for achiev- charter’s General Principle Fifteen contends that some scored the need to strike a balance between the ing sustainable international rules and commitments may not be objectives of efficiency and equity, in that both the and equitable appropriate for certain developing countries at their market and the state have crucial roles to play in the development. respective levels of development. Forty years after development process. these principles were first endorsed by UNCTAD, Consequently,global civil society and internation- they have again appeared in public discourse on inter- al development forums, such as the United Nations national development. UNCTAD’s XI conference in (UN) World Summit in September 2005, have rein- Sao Paulo in June 2004 demonstrated that these prin- forced the international development community’s ciples are just as—or even more—relevant today, as commitment towards enabling developing countries multilateral rules for achieving development continue to pursue their own development strategies.The 2006 to fall short of their promises. Trade and Development Report by UNCTAD, titled “Global partnership and national policies for development,” THE NORTH-SOUTH DEBATE highlighted a paradox between the global trading and ON POLICY SPACE financial regimes.6 While multilateral and bilateral trade rules often impose constraints on the ability of The objective of the UNCTAD XI conference was states to manage foreign investment or use perform- to produce a declaration by developing countries on ance requirements such as local-content sourcing, the globalization, trade and development strategies. The absence of a multilateral arrangement in internation- Negotiated Text of the UNCTAD XI conference in al financial liberalization makes it difficult for states to 2004 generated dispute between developed and enforce selective capital controls, for example. The developing countries. The disagreement focused on UNCTAD report urged maintaining a balance one of the central tenets of the text in paragraph 18, between sovereignty in national economic policy- which states that increasing interdependence in a making and multilateral commitments. globalizing world and the emergence of rule-based With the purpose of bridging the gaps between international economic regimes have meant that the various policy alternatives already proposed by eco- space for national economic policy in trade, macro- nomic development scholars and advocates and the economic, and industrial development is now gov- political realities of enacting them in the world econ- erned by international commitments, and the prior- omy, the Woodrow Wilson Center’s Asia Program THE ASIA PROGRAM The Wilson Center’s Asia Program is dedicated to the proposition that only those with a sound scholarly grounding can begin to understand contemporary events. One of the Center’s oldest regional programs, the Asia Program seeks to bring historical and cul- tural sensitivity to the discussion of Asia in the nation’s capital. In seminars, workshops, ASIA PROGRAM STAFF briefings, and conferences, prominent scholars Robert M. Hathaway, Program Director of Asia interact with one another and with pol- Mark Mohr, Program Associate icy practitioners to further understanding of the Bhumika Muchhala, Program Associate peoples, traditions, and behaviors of the 2 Michael Kugelman, Program Assistant world’s most populous continent. hosted a symposium on December 14, 2006.The fol- other parts of the world, effective conditional protec- lowing compilation of four essays by the speakers at tion on export promotion was instrumental to the conference aims to offer four analyses on the spurring industrialization. Due to the structural global economic constraints that inhibit national pol- reforms in trade liberalization that have been carried icy space for development goals. out over the last two decades, many lesser developed countries have experienced a significant collapse of FOUR PERSPECTIVES ON POLICY SPACE manufacturing capacity. International financial liberal- ization, Jomo asserts, constrains fiscal space through the The conference keynote speaker, Jomo Kwame adoption of monetary policies that are counter-infla- Sundaram, is the assistant secretary-general for eco- tionary,which often have a deflationary effect on eco- nomic development at the United Nations nomic growth. Instead of generating financial flows Department for Economic and Social Affairs. He from capital-rich to capital-poor countries, interna- stresses the significance of policy space for national tional financial liberalization has resulted in a flow of development strategies, and assesses the principal funds in the opposite direction. Furthermore, Jomo sources of external, global constraints to national pol- posits that financial liberalization has often led to an Jomo argues icy space. He acknowledges the importance of the undermining of institutions that have a developmental that
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