Human Development Report 1999

HUMAN DEVELOPMENT REPORT 1999

Published for the United Nations Development Programme (UNDP)

New York Oxford Oxford University Press 1999 Oxford University Press Oxford New York Athens Auckland Bangkok Bombay Calcutta Cape Town Dar es Salaam Delhi Florence Hong Kong Istanbul Karachi Kuala Lumpur Madras Madrid Melbourne Mexico City Nairobi Paris Singapore Taipei Tokyo Toronto

and associated companies in Berlin Ibadan

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Editing, desktop composition and production management: Communications Development Incorporated, Washington, DC, New York, San Francisco and London D EDICATED TO THE MEMORY OF

M AHBUB UL H AQ (1934–98)

CREATOR OF THE H UMAN D EVELOPMENT R EPORT Foreword

This is the first Human Development Report campaign for millennium debt relief. These that bears my signature as Administrator. For a coalitions use the convening power and the new Administrator, the Human Development consensus-building, standard-setting and imple- Report is a crown jewel of UNDP. Its robust menting roles of the United Nations, the Bretton editorial independence and its unapologetic Woods institutions and international organiza- scholarship have led its authors to say the tions, but their key strength is that they are big- unthinkable, and they then have the pleasure of ger than any of us and give new expression to the watching conventional opinion catch up. I UN Charter’s “We, the peoples.” We must not believe that Mahbub ul Haq, to whom this suffocate this new diplomacy with new institu- tenth Report is dedicated, would be proud that tions, but first try to adapt and strengthen those the tradition is being so vigorously maintained. we have—not least by reaching out to these new This year’s Report comes down clearly in global coalitions of stakeholders. favour of the power of globalization to bring Second, markets. In listing the negative economic and social benefits to societies: the impacts of markets on people, it is important free flow of money and trade is matched by the not to appear to be rejecting markets as the cen- liberating power of the flow of ideas and infor- tral organizing principle of global economic life. mation driven by new technologies. Markets need institutions and rules—and too However, as it has so effectively in the past, frequently in the global setting they are not yet the Report champions the agenda of the adequately subjected to the control of either. world’s weak, those marginalized by globaliza- But the unleashing of competition within coun- tion, and calls for a much bolder agenda of tries and between countries has ushered in for global and national reforms to achieve global- many an era of prosperity and liberty. ization with a human face. It cautions that Where I fully agree with the authors is that globalization is too important to be left as this empowerment has been uneven—leaving unmanaged as it is at present, because it has the countries, regions, ethnic and religious groups, capacity to do extraordinary harm as well as classes and economic sectors the victims of good. I fully endorse this view. increased inequality. Sixty countries have been Let me comment on only two aspects of the getting steadily poorer since 1980. The losers Report’s wide-ranging recommendations for from globalization are both a huge human and change in how global society is organized. political waste and the source of disappointment First, governance. My own view is that we and often tragedy for themselves and the fami- are seeing the emergence of a new, much less for- lies that depend on them. Markets have brought mal structure of global governance, where gov- dislocation and heartache as well as remarkable ernments and partners in civil society, the private advances. As the authors argue, these failures, sector and others are forming functional coali- unaddressed, will compound and encroach on tions across geographic borders and traditional the security of today’s market winners. political lines to move public policy in ways that Public health problems, immigration and meet the aspirations of a global citizenry. Some refugees, environmental degradation and issue campaigns have led to shifts in global pol- broader social and political breakdown are the icy, such as the antilandmine campaign and the new security challenges that breed in a context

v of unattended global inequality. For all our and regulate the strong. We must do so, how- sakes we need to work together to build the ever, in ways that are innovative and reﬂective frameworks of a new global society and econ- of the new forces in our societies—and that omy that respect differences, protect the weak keep markets free but fair.

Mark Malloch Brown

The analysis and policy recommendations of the Report do not necessarily reﬂect the views of the United Nations Development Programme, its Executive Board or its Member States. The Report is the fruit of a collaborative effort by a team of eminent consultants and advisers and the Human Development Report team. Richard Jolly, Special Adviser to the Administrator, together with Sakiko Fukuda-Parr, Director of the Human Development Report Ofﬁce, led the effort.

Team for the preparation of Human Development Report 1999

Principal Coordinator Richard Jolly

UNDP team Panel of consultants Director: Sakiko Fukuda-Parr Adebayo Adedeji, Philip Alston, Galal Amin, Lour- Deputy Director: Selim Jahan des Arizpe, Isabella Bakker, Yusuf Bangura, David Members: Håkan Björkman, Sarah Burd-Sharps, Bigman, Bob Deacon, Meghnad Desai, Nancy Fol- Haishan Fu, Laura Mourino-Casas, Andreas Pfeil, bre, Stephany Grifﬁth-Jones, Gerry Helleiner, K.S. Kate Raworth and Pablo Rodas, in collaboration Jomo, Azizur Rahman Khan, Martin Khor Kok with Özer Babakol, Marixie Mercado, Irina Peng, Jong-Wha Lee, Michael Lipton, Nguyuru Nemirovsky, Guy Ranaivomanana, Nadia Rasheed Lipumba, Raisul Awal Mahmood, Ranjini Mazum- and Tamahi Yamauchi dar, Süle Özler, Theodore Panayotou, Alejandro Ramirez, Mohan Rao, Changyong Rhee, Ewa Editor: Bruce Ross-Larson Ruminska-Zimny, Arjun Sengupta, Victor Tokman, Designer: Gerald Quinn Albert Tuijnman and John Whalley Human development index revision: Sudhir Anand and Amartya Sen

vi Acknowledgements

The preparation of the Report would not have cal Division, World Bank, World Health Orga- been possible without the support and valu- nization, World Resources Institute and able contributions of a large number of indi- World Times. viduals and organizations. The Report benefited greatly from intellec- Many organizations generously shared tual advice and guidance provided by the their experience, research materials and data: external Advisory Panel of eminent experts, the Food and Agriculture Organization, Inter- which included Lourdes Beneria, Nancy Bird- national Data Corporation, International Fund sall, Kwesi Botchwey, Manuel Castells, Ha- for Agricultural Development, International Joon Chang, Robert Douglas, Muni Figueres, Labour Organisation, International Monetary Carlos Fortin, Ellen Johnson-Sirleaf, Louka T. Fund, International Organization for Migra- Katseli, John Langmore, Nora Lustig, Mau- tion, International Telecommunication Union, reen O’Neil, Yung Chul Park, Juan F. Rada, Inter-Parliamentary Union, Joint United Gert Rosenthal and Paul Streeten. Nations Programme on HIV/AIDS, Office of The team expresses its special thanks to the United Nations High Commissioner for Gordon Conway and Lincoln Chen of the Refugees, Organisation for Economic Co- Rockefeller Foundation for their support for operation and Development, Rural Advance- the Bellagio Conference and to those who facil- ment Foundation International, Stockholm itated and chaired consultations in Geneva, University, United Nations Centre for Social London, Paris, Seoul and Tokyo: Carlos Fortin, Development and Humanitarian Affairs, Ryokichi Hirono, Jacques Loup and Clare United Nations Children’s Fund, United Short. The Report benefited greatly from these Nations Conference on Trade and Develop- and other discussions with Raja Zaharaton Raja ment, United Nations Department of Eco- Zainal Abdin, Montek Singh Ahluwalia, Sultan nomic and Social Affairs, United Nations Ahmad, Halis Akder, Yilmaz Akyuz, Qazi Division for the Advancement of Women, Shamsul Alam, Azita Amjadi, Aya Aoki, Arjun United Nations Economic and Social Commis- Appadurai, Lourdes Arizpe, Maria Baquero, sion for Asia and the Pacific, United Nations Hazel Bennett, Jean-Claude Berthelemy, Yves Economic and Social Commission for Western Berthelot, Ram Binod Bhattari, Yonas Biru, Asia, United Nations Economic Commission David E. Bloom, Tom Boden, Carlos Hernando for Africa, United Nations Economic Commis- Gomez Buendia, Bernadette Burke, Shashua sion for Europe, United Nations Economic Chen, Kim Woo Choong, S. K. Chu, Patrick Commission for Latin America and the Cornu, Elizabeth Crayford, Jacqueline Damon, Caribbean, United Nations Educational, Sci- Liang Dan, Isabelle Decarroux, V. V. Desai, entific and Cultural Organization, United John Dixon, Le Dang Doah, Susan Douglas, Nations International Drug Control Pro- Jean-Christophe Dumont, Heba El-Laithy, gramme, United Nations Office at Doris Ma Fat, Julio Frenk, Susan Gearhart, Vienna/Crime Prevention and Criminal Jus- Dorota Gierycz, Thomas Gladwin, Erlinda Go, tice Division, United Nations Population Divi- Greta Greathouse, Joseph Grinblat, Odd Gul- sion, United Nations Research Institute for brandsen, the late Mahbub ul Haq, Hazel Hen- Social Development, United Nations Statisti- derson, Ricardo Henriques, Mark Hereward,

vii Evelyne Herfkens, Barry Herman, Alan Hes- Timpson, Antonio Vigilante, Mourad Wahba, ton, Kenneth Hill, Karl Hoghesand, Michael Eimi Watanabe, Phillips Young, Raul Zam- Hopkins, Shinsuke Horiuchi, Bela Hovy, brano and Fernando Zumbado. Morimitsu Inaba, Hilde Frafjord Johnson, A number of offices in UNDP and national Gareth Jones, Bela Kadar, Kazuko Kano, human development report teams provided Devash Kapur, Mats Karlsson, Robert King, support and information. They include many Jon Lickerman, Patrick Low, Nyein-Nyein UNDP country offices, including special contri- Lwin, Robert Lynn, Christian Morrisson, Srdan butions from UNDP Indonesia and Malaysia, Mrkic, Scott Murray, Daw Yi Yi Myint, Takeshi UNDP’s Regional Bureaux and the Bureau for Nakano, Geraldo Nascimiento, Peter Newell, Development Policy. The United Nations David Nitkin, Farhad Noorbakhsh, Michimasa Office for Project Services provided the team Numata, Naoki Ono, Elsie Onubogu, Saeed with critical administrative support. Particular Ordoubadi, Manuel Otero, G. L. Peiris, thanks go to Martha Barrientos, Maria Hemsy, Bernard Perrollaz, Antonella Picchio, Christine Oscar Hernandez, Liliana Izquierdo, Serene Pintat, Jason Potts, Thomson Prentice, Will Ong and Ingolf Schuetz-Mueller. Prince, Madanmohan Rao, Martin Ravallion, The Report also benefited from the dedi- Wolfgang Rhomberg, E. Riordan, Jerzey cated work of interns. Thanks are due to Myr- Rozanski, Jagdish Saighal, Orlando Sakay, iam Benlamlih, Fe Conway, Michael E. Claude Sauvageot, Karl Sauvant, Enid Schoet- Davidian, Petter Meirik, Joachim Reiter, Jes- tle, Simon Scott, John Sewell, Ali Mojtahed sica Rothenberg-Aalami, Kerstin Schuetz- Shabestari, Donald Shih, A. K. Shivakumar, S. Mueller, Sahba Sobhani and Hye Yoen Kim. Simeant, Ajit Singh, Timothy Smeeding, Babar Secretarial and administrative support for Sobhan, Budhy T. Socdijoko, Shiv Someshwar, the Report’s preparation were provided by Luz Frances Stewart, Namgoong Suk, Robert Sum- Asuncion, Sonia Barolette, Oscar Bernal, mers, Eric Swanson, Françoise Tandart, Simon Renuka Corea-Lloyd, Rekha Kalekar, Chato Tay, Shigeki Tejima, Raj Thamotheram, Harald Ledonio-O’Buckley and Marjorie Victor. And Trabold Nubler, Lourdes Urdaneta-Ferran, as in previous years, the Report benefited from Mark Uzan, Joann Vanek, Maria Vaquero, the editing and pre-press production of Com- Michael Ward, Tessa Wardlow, Robin White, munications Development Incorporated’s Saskia E. Wieringa, Erna Witoelar, Jinishiro Bruce Ross-Larson, Garrett Cruce, Terrence Yanabuta, Long Yongtu, Tsuneaki Yoshida, Fischer, Wendy Guyette, Paul Holtz, Damon Akiko Yuge, Anne Zammitt, Frederique Zegel Iacovelli, Megan Klose, Daphne Levitas, Terra and He Zengke. Lynch, Donna McGreevy, Laurel Morais, Ali- Colleagues in UNDP provided extremely son Smith and Alison Strong. useful comments, suggestions and inputs dur- The team expresses sincere appreciation to ing the drafting of the Report. In particular, the the Administrator’s peer reviewers, Kwesi authors would like to express their gratitude to Botchwey and Diane Elson. Thelma Awori, Nilufer Cagatay, Georges The authors are deeply indebted to the late Chapelier, Shabbir Cheema, Djibril Diallo, Mahbub ul Haq, the originator of the Human Abdoulaye Mar Dieye, Moez Doraid, Hans Development Reports. His vision and com- d’Orville, Ligia Elizondo, Fawaz Fokeladeh, mitment will continue to inspire the Reports. Anne Forrester, Ariel Français, Enrique The authors are especially grateful to James Ganuza, Isabelle Grunberg-Filatov, Michael Gustave Speth, who, as UNDP Administrator, Heyn, Noeleen Heyzer, Nay Htun, Henry guided and inspired the preparation of Human Jackelen, Mbaya Kankwenda, Inge Kaul, Development Reports 1994, 1995, 1996, 1997, Anton Kruiderink, Kerstin Leitner, Thierry 1998 and 1999. His strong intellectual leader- Lemaresquier, Khalid Malik, Andrei Marcu, ship and unqualified commitment to this series Elena Martinez, Brenda McSweeney, made these publications possible. Saraswathi Menon, Luong Nguyen, Omar Thankful for all the support that they have Noman, John Ohiorhenuan, Minh Pham, Ravi received, the authors assume full responsibility Rajan, Jordan Ryan, Nessim Shallon, Sarah L. for the opinions expressed in the Report. viii Contents

OVERVIEW Globalization with a human face 1

TEN YEARS OF HUMAN DEVELOPMENT 15

CHAPTER ONE Human development in this age of globalization 25 The world has changed 28 Global integration—rapid but unbalanced 30 Social fragmentation—reversals in progress and threats to human security 36 What’s to be done? 43

CHAPTER TWO New technologies and the global race for knowledge 57 The race for knowledge 57 The new technologies—drivers of globalization 57 Access to the network society—who is in the loop and on the map? 61 The new rules of globalization—shaping the path of technology 66 Impacts on people 68 The need to reshape technology’s path 72

CHAPTER THREE The invisible heart—care and the global economy 77 Human development, capabilities and care 77 Care—or “tender loving care” 78 Globalization and care 79 Care and market rewards 80 Redistributing the costs and responsibilities of care—to family, state and corporation 80 The challenge of care in the global economy 81

CHAPTER FOUR National responses to make globalization work for human development 84 Capturing global opportunities 84 Protecting people against vulnerabilities 90 Overcoming the resource squeeze 92

ix Generating pro-poor growth—reducing inequalities and enhancing human capabilities 94 Creating effective alliances of national actors 95 Formulating strategies for emerging new issues in the global system 96

CHAPTER FIVE Reinventing global governance—for humanity and equity 97 Putting human concerns and rights at the centre of global governance 98 Protecting human security in economic crisis 101 Reducing other causes of human insecurity 103 Narrowing global gaps 104 Speciﬁc actions to strengthen the bargaining position of poor countries in global governance 108 Start now to build the global architecture required for the 21st century 110 All these actions begin with people 114

References 115

SPECIAL CONTRIBUTIONS Ten years of human development Paul Streeten 16 Assessing human development Amartya Sen 23 Partnership with the United Nations Ted Turner 100

BOXES 1.1 Globalization—what’s really new? 30 1.2 Shrinking time, shrinking space, disappearing borders—but for whom? 31 1.3 The concept of human security 36 1.4 Merry Christmas—and have a Happy New Year elsewhere 37 1.5 The collapse of the East Asian financial markets— economies recovering, but human recovery will take longer 40 1.6 Buildup and reversal of short-term capital flows—lessons of East Asia 41 1.7 Why crime syndicates like globalization 43 2.1 What is the Internet? 58 2.2 HealthNet for better patient care 59 2.3 Defending Gorbachev, defeating the Multilateral Agreement on Investment—how the Internet made a difference 60 2.4 Trading places—the rise of data processing 61 2.5 Innovating with the Internet 64 2.6 Preparing for the information age—set the wheels in motion 66 2.7 What is TRIPS? 67 2.8 Ethics and technology—a luxury concern? 72 2.9 Questioning the ownership of knowledge 73 2.10 Rerouting the genetic revolution—the CGIAR proposal 74 3.1 If we are going to compete, let it be in a game of our choosing 78 3.2 Globalization leads to the feminization of labour—but the outcome is mixed 80 x 3.3 More paid work doesn’t reduce unpaid work 81 3.4 Support for men’s child-care responsibilities in Western Europe 82 4.1 More trade, more capital, more human deprivation—Russia 85 4.2 Opening the Polish economy with institutional reforms 86 4.3 Liberalizing foreign investment in India 87 4.4 Foreign direct investment for human development in Malaysia 88 4.5 Incentives to multinationals—and nationals—in Mauritius 88 4.6 Short-term capital controls in Chile 89 4.7 Revealing the human trafficking in Eastern Europe and the CIS 89 4.8 Social protection for Tunisia’s poor 90 4.9 Ireland’s social partnership agreements 91 4.10 Upgrading skills and achieving worker flexibility in Sweden 91 4.11 Responses to the eroding welfare state 93 4.12 NGOs as a powerhouse in national alliances 96 4.13 Meeting the challenges of globalization—Fundación Chile 96 4.14 Using national human development reports to outline impacts and priorities 96 5.1 Keynes’s vision for global governance 98 5.2 The successes and failures of global governance since 1945 99 5.3 Social auditing of multinational corporations 101 5.4 Globalization without Poverty—a European initiative 101 5.5 Global crime—the international response 104 5.6 Renegotiating Lomé—one size doesn’t fit all 105 5.7 Developing countries and trade—active participation in the millennium round 106 5.8 Debt—a need for accelerated action 107 5.9 NGOs and global advocacy 110 5.10 Global public goods—the missing element 111

ANNEX TABLES A1.1 Trade flows 45 A1.2 Resource flows 49 A1.3 Information flows 53

BOX TABLES 1.1 Declining cost of transport and communications 30 3.3 Time spent in paid and unpaid work in Bangladesh, 1995 81

TABLES 1.1 Top corporations had sales totalling more than the GDP of many countries in 1997 32 1.2 Unemployment rate in selected OECD countries 32 1.3 The Asian crisis hurts distant economies and people 42 2.1 Who has real access to intellectual property claims? 71 4.1 Trade, economic growth and human development—no automatic link 85

xi 4.2 Foreign direct investment, economic growth and human development—no automatic link 87 4.3 Adjustment and greater income inequality, 1987–88 to 1993–95 92 4.4 Major and minor collectors of trade taxes, 1990–96 92 4.5 Social welfare systems and income inequality, 1998 94 5.1 Eight heavily indebted poor countries, 1995 108 5.2 External debt of the 41 heavily indebted poor countries, 1992–96 108 5.3 Who gets aid? 108 5.4 Global institutions and their membership 109

FIGURES Stark disparities between rich and poor in global opportunities 2 1.1 Global integration has progressed rapidly but unevenly . . . with wide disparity between countries 26 1.2 International telephone calls 28 1.3 Less than a third of television programming in Latin America originates in the region 34 1.4 Domestic film industries struggle to hold market share 34 1.5 Uneven ratification of human rights conventions 35 1.6 Inequality has worsened both globally . . . and within countries 38 1.7 Portfolio flows have brought severe volatility to many markets 41 1.8 Provisioning for human development 44 2.1 How long before new technologies gain widespread acceptance? 58 2.2 Software exports from India 61 2.3 Teledensity 62 2.4 Internet users—a global enclave 63 2.5 Worldwide mergers and acquisitions 67 2.6 The race for patents 68 2.7 Drug prices and patent costs 69 3.1 Four sources of caring labour 79 4.1 Differences in human development—Botswana and Mali, mid-1980s 85 4.2 Reduced revenue generation—loss of fiscal strength 93 4.3 Growth—pro-poor or pro-rich? 94 4.4 Subsidies to the poor or the rich? 95

HUMAN DEVELOPMENT INDICATORS What do the human development indices reveal? 127 Monitoring human development: enlarging people’s choices . . . 1 Human development index 134 2 Gender-related development index 138 3 Gender empowerment measure 142 4 Human poverty in developing countries 146 5 Human poverty in industrialized countries, Eastern Europe and the CIS 149

xii 6 Trends in human development and per capita income 151 7 Trends in human development and economic growth 155 Technical note 159

. . . to lead a long and healthy life . . . 8 Progress in survival 168 9 Health proﬁle 172

. . . to acquire knowledge . . . 10 Education imbalances 176

. . . to have access to the resources needed for a decent standard of living . . . 11 Economic performance 180 12 Macroeconomic structure 184 13 Resource use imbalances 188 14 Aid ﬂows from DAC member countries 192 15 Aid and debt by recipient country 193

. . . while preserving it for future generations . . . 16 Demographic trends 197 17 Energy use 201 18 Proﬁle of environmental degradation 205 19 Managing the environment 209

. . . ensuring human security . . . 20 Food security and nutrition 211 21 Job security 215 22 Proﬁle of political life 217 23 Crime 221 24 Personal distress 225

. . . and achieving equality for all women and men 25 Gender gaps in education 229 26 Gender gaps in economic activity 233 27 Gender gaps in work burden and time allocation 237 28 Gender gaps in political participation 238

29 Status of selected international human rights instruments 242 30 Basic indicators for other UN member countries 246

Note on statistics in the Human Development Report 247 Primary statistical references 251 Deﬁnitions of statistical terms 253 Classiﬁcation of countries 257 Key to countries 260 Index to indicators 261

xiii ABBREVIATIONS

AIDS Acquired immunodeficiency syndrome CGIAR Consultative Group on International Agricultural Research CIS Commonwealth of Independent States ECOSOC Economic and Social Council (of the United Nations) EU European Union FDI Foreign direct investment GATT General Agreement on Tariffs and Trade GDI Gender-related development index GDP Gross domestic product GEM Gender empowerment measure GNP Gross national product HIPCs Heavily indebted poor countries HDI Human development index HIV Human immunodeficiency virus HPI Human poverty index IMF International Monetary Fund NGO Non-governmental organization ODA Official development assistance OECD Organisation for Economic Co-operation and Development PPP Purchasing power parity TRIPS Trade-Related Aspects of Intellectual Property Rights UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Programme UNESCO United Nations Educational, Scientific and Cultural Organization UNICEF United Nations Children’s Fund WHO World Health Organization WTO World Trade Organization

xiv OVERVIEW Globalization with a human face

“The real wealth of a nation is its people. And • New markets—foreign exchange and cap- People everywhere are the purpose of development is to create an ital markets linked globally, operating 24 hours enabling environment for people to enjoy a day, with dealings at a distance in real time. becoming connected— long, healthy and creative lives. This simple • New tools—Internet links, cellular affected by events in far but powerful truth is too often forgotten in the phones, media networks. pursuit of material and financial wealth.” • New actors—the World Trade Organiza- corners of the world Those are the opening lines of the first Human tion (WTO) with authority over national gov- Development Report, published in 1990. ernments, the multinational corporations with This tenth Human Development Report— more economic power than many states, the like the first and all the others—is about peo- global networks of non-governmental organi- ple. It is about the growing interdependence of zations (NGOs) and other groups that tran- people in today’s globalizing world. scend national boundaries. • New rules—multilateral agreements on trade, services and intellectual property, Globalization is not new, but the present era backed by strong enforcement mechanisms has distinctive features. Shrinking space, and more binding for national governments, shrinking time and disappearing borders are reducing the scope for national policy. linking people’s lives more deeply, more intensely, more immediately than ever before. Globalization offers great opportunities More than $1.5 trillion is now exchanged in for human advance—but only with the world’s currency markets each day, and stronger governance. nearly a fifth of the goods and services produced each year are traded. But globalization This era of globalization is opening many is more than the flow of money and commodi- opportunities for millions of people around the ties—it is the growing interdependence of the world. Increased trade, new technologies, for- world’s people. And globalization is a process eign investments, expanding media and Inter- integrating not just the economy but culture, net connections are fuelling economic growth technology and governance. People every- and human advance. All this offers enormous where are becoming connected—affected by potential to eradicate poverty in the 21st cen- events in far corners of the world. The collapse tury—to continue the unprecedented progress of the Thai baht not only threw millions into in the 20th century. We have more wealth and unemployment in South-East Asia—the ensu- technology—and more commitment to a global ing decline in global demand meant slow- community—than ever before. downs in social investment in Latin America Global markets, global technology, global and a sudden rise in the cost of imported med- ideas and global solidarity can enrich the lives of icines in Africa. people everywhere, greatly expanding their Globalization is not new. Recall the early choices. The growing interdependence of peo- sixteenth century and the late nineteenth. But ple’s lives calls for shared values and a shared com- this era is different: mitment to the human development of all people.

OVERVIEW 1 The post–cold war world of the 1990s has for people—not just for profits. Globalization sped progress in defining such values—in with: adopting human rights and in setting develop- • Ethics—less violation of human rights, not ment goals in the United Nations conferences more. on environment, population, social develop- • Equity—less disparity within and between ment, women and human settlements. nations, not more. But today’s globalization is being driven by • Inclusion—less marginalization of people market expansion—opening national borders and countries, not more. to trade, capital, information—outpacing gov- • Human security—less instability of soci- Stark disparities between rich ernance of these markets and their repercus- eties and less vulnerability of people, not more. and poor in global opportunity 1997 shares sions for people. More progress has been made • Sustainability—less environmental destruc- in norms, standards, policies and institutions tion, not more. Shares of world GDP for open global markets than for people and • Development—less poverty and depriva- Richest 20% 86% their rights. And a new commitment is needed tion, not more. to the ethics of universalism set out in the Uni- Middle 60% 13% versal Declaration of Human Rights. Competitive markets may be the best guar- The opportunities and benefits of globaliza- antee of efficiency, but not necessarily of equity. tion need to be shared much more widely. Poorest 1% 20% Liberalization and privatization can be a step to Shares of exports competitive markets—but not a guarantee of Since the 1980s many countries have seized the of goods and services them. And markets are neither the first nor the opportunities of economic and technological Richest 20% 82% last word in human development. Many activi- globalization. Beyond the industrial countries, ties and goods that are critical to human devel- the newly industrializing East Asian tigers are Middle opment are provided outside the market—but joined by Chile, the Dominican Republic, India, 60% 17% these are being squeezed by the pressures of Mauritius, Poland, Turkey and many others link-

Poorest global competition. There is a ﬁscal squeeze on ing into global markets, attracting foreign invest- 20% 1% public goods, a time squeeze on care activities ment and taking advantage of technological

Shares of foreign and an incentive squeeze on the environment. advance. Their export growth has averaged more direct investment When the market goes too far in dominating than 5% a year, diversifying into manufactures. Richest 20% 68% social and political outcomes, the opportunities At the other extreme are the many coun- and rewards of globalization spread unequally tries benefiting little from expanding markets Middle and inequitably—concentrating power and and advancing technology—Madagascar, 60% 31% wealth in a select group of people, nations and Niger, the Russian Federation, Tajikistan and corporations, marginalizing the others. When Venezuela among them. Poorest 20% 1% the market gets out of hand, the instabilities These countries are becoming even more show up in boom and bust economies, as in the marginal—ironic, since many of them are Shares of Internet users financial crisis in East Asia and its worldwide highly “integrated”, with exports nearly 30% of Richest repercussions, cutting global output by an esti- GDP for Sub-Saharan Africa and only 19% for 20% 93.3% mated $2 trillion in 1998–2000. When the profit the OECD. But these countries hang on the Middle motives of market players get out of hand, they vagaries of global markets, with the prices of 6.5% 60% challenge people’s ethics—and sacrifice respect primary commodities having fallen to their low- for justice and human rights. est in a century and a half. They have shown lit- Poorest 20% 0.2% The challenge of globalization in the new tle growth in exports and attracted virtually no century is not to stop the expansion of global foreign investment. In sum, today, global Source: Human Development Report Office. markets. The challenge is to find the rules and opportunities are unevenly distributed— institutions for stronger governance—local, between countries and people (see figure). national, regional and global—to preserve the If global opportunities are not shared bet- advantages of global markets and competi- ter, the failed growth of the last decades will tion, but also to provide enough space for continue. More than 80 countries still have per human, community and environmental capita incomes lower than they were a decade resources to ensure that globalization works or more ago. While 40 countries have sustained

2 HUMAN DEVELOPMENT REPORT 1999 average per capita income growth of more than • OECD countries, with 19% of the global 3% a year since 1990, 55 countries, mostly in population, have 71% of global trade in goods Sub-Saharan Africa and Eastern Europe and and services, 58% of foreign direct investment the Commonwealth of Independent States and 91% of all Internet users. (CIS), have had declining per capita incomes. • The world’s 200 richest people more than Many people are also missing out on doubled their net worth in the four years to employment opportunities. The global labour 1998, to more than $1 trillion. The assets of the market is increasingly integrated for the highly top three billionaires are more than the com- skilled—corporate executives, scientists, enter- bined GNP of all least developed countries and tainers and the many others who form the their 600 million people. global professional elite—with high mobility • The recent wave of mergers and acquisitions and wages. But the market for unskilled labour is concentrating industrial power in megacorpo- The past decade has is highly restricted by national barriers. rations—at the risk of eroding competition. By Inequality has been rising in many countries 1998 the top 10 companies in pesticides con- shown increasing since the early 1980s. In China disparities are trolled 85% of a $31 billion global market—and concentration of income, widening between the export-oriented regions the top 10 in telecommunications, 86% of a $262 of the coast and the interior: the human poverty billion market. resources and wealth index is just under 20% in coastal provinces, but • In 1993 just 10 countries accounted for among people, more than 50% in inland Guizhou. The coun- 84% of global research and development tries of Eastern Europe and the CIS have regis- expenditures and controlled 95% of the US corporations and tered some of the largest increases ever in the patents of the past two decades. Moreover, countries Gini coefficient, a measure of income inequality. more than 80% of patents granted in develop- OECD countries also registered big increases in ing countries belong to residents of industrial inequality after the 1980s—especially Sweden, countries. the United Kingdom and the United States. All these trends are not the inevitable con- Inequality between countries has also sequences of global economic integration—but increased. The income gap between the fifth of they have run ahead of global governance to the world’s people living in the richest coun- share the benefits. tries and the fifth in the poorest was 74 to 1 in 1997, up from 60 to 1 in 1990 and 30 to 1 in 1960. In the nineteenth century, too, inequality Globalization is creating new threats to grew rapidly during the last three decades, in an human security—in rich countries and poor. era of rapid global integration: the income gap between the top and bottom countries One achievement of recent decades has been increased from 3 to 1 in 1820 to 7 to 1 in 1870 greater security for people in many countries— and 11 to 1 in 1913. more political freedom and stability in Chile, By the late 1990s the fifth of the world’s peo- peace in Central America, safer streets in the ple living in the highest-income countries had: United States. But in the globalizing world of • 86% of world GDP—the bottom fifth just shrinking time, shrinking space and disappear- 1%. ing borders, people are confronting new threats • 82% of world export markets—the bottom to human security—sudden and hurtful dis- fifth just 1%. ruptions in the pattern of daily life. • 68% of foreign direct investment—the bottom fifth just 1%. Financial volatility and economic insecu- • 74% of world telephone lines, today’s basic rity. The financial turmoil in East Asia in 1997–99 means of communication—the bottom fifth demonstrates the risks of global financial mar- just 1.5%. kets. Net capital flows to Indonesia, the Republic Some have predicted convergence. Yet the of Korea, Malaysia, the Philippines and Thailand past decade has shown increasing concentra- rocketed in the 1990s, reaching $93 billion in tion of income, resources and wealth among 1996. As turmoil hit market after market, these people, corporations and countries: flows reversed overnight—with an outflow of

OVERVIEW 3 $12 billion in 1997. The swing amounted to 11% reduced unemployment in Europe—leaving it of the precrisis GDPs of these countries. Two at 11% for a decade, affecting 35 million. In important lessons come out of this experience. Latin America growth has created jobs, but First, the human impacts are severe and are 85% of them are in the informal sector. likely to persist long after economic recovery. Bankruptcies spread. Education and health Health insecurity. Growing travel and budgets came under pressure. More than 13 migration have helped spread HIV/AIDS. More million people lost their jobs. As prices of than 33 million people were living with essentials rose sharply, real wages fell sharply, HIV/AIDS in 1998, with almost 6 million new down some 40–60% in Indonesia. The conse- infections in that year. And the epidemic is now quences go deeper—all countries report ero- spreading rapidly to new locations, such as rural sion of their social fabric, with social unrest, India and Eastern Europe and the CIS. With Globalization opens more crime, more violence in the home. 95% of the 16,000 infected each day living in people’s lives to culture Recovery seems to be on the way, most evi- developing countries, AIDS has become a poor dently in Korea and least in Indonesia. But person’s disease, taking a heavy toll on life and all its creativity—and while output growth, payment balances, inter- expectancy, reversing the gains of recent to the flow of ideas and est rates and inflation may be returning to nor- decades. For nine countries in Africa, a loss of 17 mal, human lives take longer to recover. A years in life expectancy is projected by 2010, knowledge review of financial crises in 80 countries over back to the levels of the 1960s. the past few decades shows that real wages take an average of three years to pick up again, and Cultural insecurity. Globalization opens that employment growth does not regain pre- people’s lives to culture and all its creativity— crisis levels for several years after that. and to the flow of ideas and knowledge. But the Second, far from being isolated incidents, new culture carried by expanding global mar- financial crises have become increasingly com- kets is disquieting. As Mahatma Gandhi mon with the spread and growth of global cap- expressed so eloquently earlier in the century, ital flows. They result from rapid buildups and “I do not want my house to be walled in on all reversals of short-term capital flows and are sides and my windows to be stuffed. I want the likely to recur. More likely when national insti- cultures of all the lands to be blown about my tutions regulating financial markets are not well house as freely as possible. But I refuse to be developed, they are now recognized as systemic blown off my feet by any.” Today’s flow of cul- features of global capital markets. No single ture is unbalanced, heavily weighted in one country can withstand their whims, and global direction, from rich countries to poor. action is needed to prevent and manage them. Weightless goods—with high knowledge content rather than material content—now Job and income insecurity. In both poor make for some of the most dynamic sectors in and rich countries dislocations from economic today’s most advanced economies. The single and corporate restructuring, and from disman- largest export industry for the United States is tling the institutions of social protection, have not aircraft or automobiles, it is entertain- meant greater insecurity in jobs and incomes. ment—Hollywood films grossed more than The pressures of global competition have led $30 billion worldwide in 1997. countries and employers to adopt more flexible The expansion of global media networks labour policies with more precarious work and satellite communications technologies arrangements. Workers without contracts or gives rise to a powerful new medium with a with new, less secure contracts make up 30% of global reach. These networks bring Hollywood the total in Chile, 39% in Colombia. to remote villages—the number of television France, Germany, the United Kingdom sets per 1,000 people almost doubled between and other countries have weakened worker dis- 1980 and 1995, from 121 to 235. And the missal laws. Mergers and acquisitions have spread of global brands—Nike, Sony—is set- come with corporate restructuring and massive ting new social standards from Delhi to War- layoffs. Sustained economic growth has not saw to Rio de Janeiro. Such onslaughts of

4 HUMAN DEVELOPMENT REPORT 1999 foreign culture can put cultural diversity at risk, tle choice, put pressure on the environment, and make people fear losing their cultural iden- but so does the consumption of the rich. The tity. What is needed is support to indigenous growing export markets for fish, shrimp, paper and national cultures—to let them flourish and many other products mean depleted alongside foreign cultures. stocks, less biodiversity and fewer forests. Most of the costs are borne by the poor—though it is Personal insecurity. Criminals are reaping the world’s rich who benefit most. The fifth of the benefits of globalization. Deregulated capi- the world’s people living in the richest coun- tal markets, advances in information and com- tries consume 84% of the world’s paper. munications technology and cheaper transport make flows easier, faster and less restricted not Political and community insecurity. just for medical knowledge but for heroin—not Closely related to many other forms of insecu- With the costs of just for books and seeds but for dirty money rity is the rise of social tensions that threaten and weapons. political stability and community cohesion. Of communications Illicit trade—in drugs, women, weapons the 61 major armed conflicts fought between plummeting and and laundered money—is contributing to the 1989 and 1998, only three were between violence and crime that threaten neighbour- states—the rest were civil. innovative tools easier to hoods around the world. Drug-related crimes Globalization has given new characteristics use, people around the increased from 4 per 100,000 people in Belarus to conflicts. Feeding these conflicts is the global in 1990 to 28 in 1997, and from 1 per 100,000 traffic in weapons, involving new actors and world have burst into to 8 in Estonia. The weapons trade feeds street blurring political and business interests. In the conversation crime as well as civil strife. In South Africa power vacuum of the post–cold war era, mili- machine guns are pouring in from Angola and tary companies and mercenary armies began Mozambique. The traffic in women and girls offering training to governments—and corpo- for sexual exploitation—500,000 a year to rations. Accountable only to those who pay Western Europe alone—is one of the most them, these hired military services pose a severe heinous violations of human rights, estimated threat to human security. to be a $7 billion business. The Internet is an easy vehicle for trafficking in drugs, arms and women through nearly New information and communications untraceable networks. In 1995 the illegal drug technologies are driving globalization—but trade was estimated at 8% of world trade, more polarizing the world into the connected than the trade in motor vehicles or in iron and and the isolated. steel. Money laundering—which the Interna- tional Monetary Fund (IMF) estimates at With the costs of communications plummeting equivalent to 2–5% of global GDP—hides the and innovative tools easier to use, people traces of crime in split seconds, with the click of around the world have burst into conversation a mouse. using the Internet, mobile phones and fax At the root of all this is the growing influ- machines. The fastest-growing communica- ence of organized crime, estimated to gross tions tool ever, the Internet had more than 140 $1.5 trillion a year, rivalling multinational cor- million users in mid-1998, a number expected porations as an economic power. Global crime to pass 700 million by 2001. groups have the power to criminalize politics, Communications networks can foster great business and the police, developing efficient advances in health and education. They can networks, extending their reach deep and wide. also empower small players. The previously unheard voices of NGOs helped halt the secre- Environmental insecurity. Chronic tive OECD negotiations for the Multilateral environmental degradation—today’s silent Agreement on Investment, called for corporate emergency—threatens people worldwide and accountability and created support for mar- undercuts the livelihoods of at least half a bil- ginal communities. Barriers of size, time and lion people. Poor people themselves, having lit- distance are coming down for small businesses,

OVERVIEW 5 for governments of poor countries, for remote • More collaboration: developing Internet academics and specialists. governance to accommodate diverse national Information and communications technol- needs. ogy can also open a fast track to knowledge- • More cash: finding innovative ways to fund based growth—a track followed by India’s the knowledge society everywhere. software exports, Ireland’s computing services and the Eastern Caribbean’s data processing. Despite the potential for development, the Global technological breakthroughs offer Internet poses severe problems of access and great potential for human advance and for exclusion. Who was in the loop in 1998? eradicating poverty—but not with today’s • Geography divides. Thailand has more agendas. cellular phones than Africa. South Asia, home Poor people and poor to 23% of the world’s people, has less than 1% Liberalization, privatization and tighter intellec- countries risk being of Internet users. tual property rights are shaping the path for the • Education is a ticket to the network high new technologies, determining how they are pushed to the margin in society. Globally, 30% of users had at least one used. But the privatization and concentration of this proprietary regime university degree. technology are going too far. Corporations • Income buys access. To purchase a com- define research agendas and tightly control their controlling the world’s puter would cost the average Bangladeshi more findings with patents, racing to lay claim to intel- knowledge than eight years’ income, the average American, lectual property under the rules set out in the just one month’s wage. agreement on Trade-Related Aspects of Intel- • Men and youth dominate. Women make lectual Property Rights (TRIPS). up just 17% of the Internet users in Japan, only Poor people and poor countries risk being 7% in China. Most users in China and the pushed to the margin in this proprietary regime United Kingdom are under 30. controlling the world’s knowledge: • English talks. English prevails in almost • In defining research agendas, money talks, 80% of all Websites, yet less than one in 10 peo- not need—cosmetic drugs and slow-ripening ple worldwide speaks it. tomatoes come higher on the priority list than This exclusivity is creating parallel worlds. drought-resistant crops or a vaccine against Those with income, education and—literally— malaria. connections have cheap and instantaneous • From new drugs to better seeds, the best of access to information. The rest are left with the new technologies are priced for those who uncertain, slow and costly access. When people can pay. For poor people, they remain far out of in these two worlds live and compete side by reach. side, the advantage of being connected will • Tighter property rights raise the price of overpower the marginal and impoverished, technology transfer, blocking developing coun- cutting off their voices and concerns from the tries from the dynamic knowledge sectors. The global conversation. TRIPS agreement will enable multinationals to This risk of marginalization does not have dominate the global market even more easily. to be a reason for despair. It should be a call to • New patent laws pay scant attention to the action for: knowledge of indigenous people. These laws • More connectivity: setting up telecommu- ignore cultural diversity in the way innova- nications and computer hardware. tions are created and shared—and diversity in • More community: focusing on group views on what can and should be owned, from access, not just individual ownership. plant varieties to human life. The result: a • More capacity: building human skills for silent theft of centuries of knowledge from the knowledge society. some of the poorest communities in develop- • More content: putting local views, news, ing countries. culture and commerce on the Web. • Despite the risks of genetic engineering, the • More creativity: adapting technology to rush and push of commercial interests are local needs and opportunities. putting profits before people.

6 HUMAN DEVELOPMENT REPORT 1999 A broader perspective is needed. Intellectual women in the garment industry spend 56 hours property rights were first raised as a multilateral a week in paid employment on top of 31 hours trade issue in 1986 to crack down on counterfeit in unpaid work—a total of 87 hours, compared goods. The reach of those rights now goes far with 67 by men. Men’s share of unpaid care beyond that—into the ownership of life. As trade, work is increasing slowly in Europe and other patents and copyright determine the paths of OECD countries but not in most developing technology—and of nations—questioning today’s countries and in Eastern Europe. arrangements is not just about economic flows. It Meanwhile, fiscal pressures are cutting back is about preserving biodiversity. Addressing the on the supply of state-provided care services. ethics of patents on life. Ensuring access to health Tax revenue declined in poor countries from care. Respecting other cultures’ forms of owner- 18% of GDP in the early 1980s to 16% in the ship. Preventing a growing technological gap be- 1990s. Public services deteriorated markedly— All need to make a strong tween the knowledge-driven global economy and the result of economic stagnation, structural the rest trapped in its shadows. adjustment programmes or the dismantling of commitment to preserving state services, especially in the transition time and resources for economies of Eastern Europe and the CIS. The relentless pressures of global competi- And global economic competition has put care—and the human tion are squeezing out care, the invisible pressure on the wages for caring labour, as the bonds that nourish human heart of human development. wage gap increases between tradable and non- tradable sectors, and between the skilled and development Caring labour—providing for children, the sick unskilled. and the elderly, as well as all the rest of us, How can societies design new arrange- exhausted from the demands of daily life—is an ments for care in the global economy? The tra- important input for the development of human ditional model of a patriarchal household is no capabilities. It is also a capability in itself. And solution—a new approach must build gender it is special—nurturing human relationships equity into sharing the burdens and responsi- with love, altruism, reciprocity and trust. With- bility for care. New institutional mechanisms, out enough care, individuals do not flourish. better public policy and a social consensus are Without attention and stimulus, babies lan- needed to provide incentives for rewarding guish, failing to reach their full potential. And care and increasing its supply and quality: without nurturing from their families, children • Public support for care services—such as underperform in school. care for the elderly, day care for children and Human support to others is essential for protection of social services during crises. social cohesion and a strong community. It is • Labour market policies and employer also essential for economic growth. But the mar- action to support the care needs of employees. ket gives few incentives and few rewards for it. • More gender balance and equity in carrying Societies everywhere have allocated women the burden of household care services. much of the responsibility and the burden for Each society needs to find its own arrange- care—women spend two-thirds of their work ments based on its history and conditions. But all time in unpaid activities, men only a quarter. societies need to devise a better solution. And all Women predominate in caring professions and need to make a strong commitment to preserving domestic service. Families, nations and corpora- time and resources for care—and the human tions have been free-riding on caring labour pro- bonds that nourish human development. vided mostly by women, unpaid or underpaid. But today’s competitive global market is putting pressures on the time, resources and National and global governance have to be incentives for the supply of caring labour. reinvented—with human development and Women’s participation in the formal labour equity at their core. market is rising, yet they continue to carry the burden of care—women’s hours spent in None of these pernicious trends—growing unpaid work remain high. In Bangladesh marginalization, growing human insecurity,

OVERVIEW 7 growing inequality—is inevitable. With politi- poor countries and poor people with little cal will and commitment in the global commu- influence and little voice, either for lack of nity, they can all be reversed. With stronger membership or for lack of capacity for effective governance—local, national, regional and representation and participation. There is little global—the benefits of competitive markets transparency in decisions, and there is no struc- can be preserved with clear rules and bound- tured forum for civil society institutions to aries, and stronger action can be taken to meet express their views. the needs of human development. • There are no mechanisms for making ethical Governance does not mean mere govern- standards and human rights binding for corpo- ment. It means the framework of rules, institu- rations and individuals, not just governments. tions and established practices that set limits In short, stronger national and global gov- and give incentives for the behaviour of indi- ernance are needed for human well-being, not With stronger viduals, organizations and firms. Without for the market. governance, the benefits strong governance, the dangers of global con- Reinventing governance for the 21st cen- flicts could be a reality of the 21st century— tury must start with strong commitments: of competitive markets trade wars promoting national and corporate • TO GLOBAL ETHICS, JUSTICE AND RESPECT can be preserved with interests, uncontrolled financial volatility set- FOR THE HUMAN RIGHTS OF ALL PEOPLE. Global ting off civil conflicts, untamed global crime governance requires a common core of values, clear rules and infecting safe neighbourhoods and criminaliz- standards and attitudes, a widely felt sense of boundaries, and stronger ing politics, business and the police. responsibility and obligations—not just by indi- action can be taken to With the market collapse in East Asia, with viduals, but by governments, corporations and the contagion to Brazil, Russia and elsewhere and civil society organizations. The core values of meet the needs of human with the threat of a global recession still looming, respect for life, liberty, justice, equality, toler- development global governance is being re-examined. But the ance, mutual respect and integrity underlie the current debate is: Charter of the United Nations and the Univer- • Too narrow, limited to the concerns of eco- sal Declaration of Human Rights. They now nomic growth and financial stability and need to be the guiding objectives of globaliza- neglecting broader human concerns such as tion with a human face. persistent global poverty, growing inequality • TO HUMAN WELL-BEING AS THE END, WITH between and within countries, exclusion of OPEN MARKETS AND ECONOMIC GROWTH AS poor people and countries and persisting MEANS. Human development and social protec- human rights abuses. tion have to be incorporated in the principles • Too geographically unbalanced, domi- and practices of global governance. Recent nated by the largest economies—usually the advances in global governance have been built G-7, sometimes just the G-1, and only occa- on concepts and principles of economic effi- sionally bringing in the large newly industrial- ciency and competitive markets. These are izing countries. Most small and poor important but not enough, just as they would developing countries are excluded, as are peo- be in national governance. ple’s organizations. • TO RESPECT FOR THE DIVERSE CONDITIONS Nor does the debate address the current AND NEEDS OF EACH COUNTRY. Economic pol- weaknesses, imbalances and inequities in icy-making should be guided by pragmatism global governance—which, having developed rather than ideology—and a recognition that in an ad hoc way, leaves many gaps. what works in Chile does not necessarily work in • Multilateral agreements have helped estab- Argentina, what is right for Mauritius may not lish global markets without considering their work for Madagascar. Open markets require impacts on human development and poverty. institutions to function, and policies to ensure • The structures and processes for global equitable distribution of benefits and opportuni- policy-making are not representative. The key ties. And with the great diversity of institutions economic structures—the IMF, World Bank, and traditions, countries around the world need G-7, G-10, G-22, OECD, WTO—are domi- flexibility in adapting economic policies and tim- nated by the large and rich countries, leaving ing their implementation.

8 HUMAN DEVELOPMENT REPORT 1999 • TO THE ACCOUNTABILITY OF ALL ACTORS. • Declining cultural diversity—by support- Multilateral agreements and international ing national cultures, not by shutting out human rights regimes hold only national gov- imports but by supporting local culture, arts ernments accountable. National governance and artists. holds all actors accountable within national bor- All countries need to rethink their social ders, but it is being overtaken by the rising policies—for redistribution, for safety nets, for importance of supranational global actors the universal provision of social services. The (multinational corporations) and international current debate focuses on the choice between a institutions (IMF, World Bank, WTO, Bank for targeted, minimum cost approach, as in such International Settlements). Needed are stan- countries as the United Kingdom and the dards and norms that set limits and define United States, and a more universalist responsibilities for all actors. approach, as in the Nordic countries and sev- Social policies—and The agenda for action to secure human eral continental European countries. What is development in this era of globalization should appropriate for developing countries? An national governance—are focus on seven key challenges, each requiring approach that combines human development even more relevant today national and international action. and poverty eradication with social protection. to make globalization 1. Strengthen policies and actions for 2. Reduce the threats of financial volatil- work for human human development, and adapt them to the ity—of the boom and bust economy—and new realities of the global economy. all their human costs. development and to protect people Social policies—and national governance—are Last year’s financial crisis in East Asia spot- even more relevant today to make globalization lighted the inadequacies of national and global against its new threats work for human development and to protect governance in managing economic and finan- people against its new threats. New policies are cial integration. Dominating the financial mar- needed to tackle: kets are the big players—from the United • Changing labour markets—not by going States to Brazil to China. But all countries are back to the old rigidities of labour market poli- affected by the swings of the world economy— cies that protect elite labour, but by promoting from South Africa to the Lao People’s Democ- job-creating growth, investing in workers’ skills, ratic Republic—particularly if they have promoting labour rights and making informal opened their economies. While countries need work more productive and remunerative. This is to manage their vulnerabilities to these swings, the new road to flexibility in the labour market. international action is needed to manage and • Shrinking fiscal resources of states, the prevent financial instability. Policy should results of liberalizing trade and financial markets, focus on: of the global tax competition and of the growth • Liberalizing the capital account more care- of the underground economy—by generating fully, with less international pressure and more revenue from new sources, such as taxes on greater flexibility for countries to decide on the income and land, abysmally low in many devel- pace and phasing based on their institutional oping countries, or on value added; by improv- capacities. ing efficiency in tax administration, cutting costs • Subjecting financial institutions to greater and increasing collections; by reducing military transparency and accountability. Developing spending globally, still as high as a third of edu- countries need to strengthen the legal and reg- cation and health spending. ulatory institutions in their financial sectors. • Increasing pressures on people’s ability to • Integrating macroeconomic management provide caring labour in the family and com- and social policies to reduce the impact of munity and on the state’s ability to support it— financial turmoil on the economy and to mini- by restoring strong commitments to preserving mize the social costs. time, resources and rewards for care and restor- • Strengthening international action to regu- ing gender balance in the distribution of costs late and supervise banking systems—building and burdens. on the provisions of the Basle Committee and

OVERVIEW 9 the G-10 in requiring greater transparency and nations. Such emergencies demand global disclosure of information both nationally and action, with initiatives building on the progress internationally. The UN Economic and Social at the global conferences in Kyoto and Buenos Council (ECOSOC), the World Bank and the Aires and on proposals for tradable permits and IMF should conduct an international study of clean development mechanisms. regulatory gaps, especially for short-term bank • Violations of human rights are often loans, for reversible portfolio flows and for the observed in export processing zones and in the activities of hedge funds. factories of multinational corporations. The • Instituting standstill provisions on debt ser- international community should formulate vice to the IMF, the World Bank and the codes of conduct for multinationals to safe- regional development banks, as proposed by guard workers’ rights. the recent UN task force on the architecture of • More global action is essential to address Stronger global the international financial system. HIV/AIDS, which is penetrating borders cooperation and action • Developing better institutions of early everywhere. Efforts should be directed at dis- warning and crisis management. The interna- seminating the benefits of research from are needed to address the tional community mobilized more than $170 developed to developing countries, providing growing problems beyond billion in the 1997–99 financial crisis for Thai- medicines and preventive measures at rea- land, Indonesia, Korea, Russia and Brazil. But sonable cost in developing countries and the scope of national what ultimately is needed is a true lender of last strengthening public health systems in the governments to manage resort, with more resources than the IMF is developing world. now equipped to provide. A world central bank to perform the functions of a lender of last 4. Enhance public action to develop tech- resort should be seriously considered. nologies for human development and the • Establishing an international lender of last eradication of poverty. resort for people—to complement financial packages. The real losses and risks from finan- The potential of the new technologies for cial crises are felt by people, and a parallel fund- human development and poverty eradication ing mechanism should be established to protect must be tapped. them—and their rights to development. • Intellectual property rights under the TRIPS agreement need comprehensive review 3. Take stronger global action to tackle to redress their perverse effects undermining global threats to human security. food security, indigenous knowledge, biosafety and access to health care. Stronger global cooperation and action are • The governance of global communications— needed to address the growing problems especially the Internet—must be broadened to beyond the scope of national governments to embrace the interests of developing countries in manage. decisions on Internet protocols, taxation, domain • The fight against global crime requires name allocation and telephony costs. national police to take cooperative action as • Public investments are needed in technolo- rapidly as the crime syndicates do. Dismantling gies for the needs of poor people and poor bank secrecy and providing witness protection countries—in everything from seeds to com- for foreign investigations would dramatically puters. An international programme should be improve the effectiveness of the global fight launched to support this, based on the model of against global crime. The proposed United the Consultative Group on International Agri- Nations Convention against Transnational cultural Research (CGIAR). Organized Crime is an important first step • New funds must be raised to ensure that the deserving support. information revolution leads to human devel- • The “loud emergencies” of environmental opment. A “bit” tax and a patent tax could raise degradation (acid rain, global warming and funds from those who already have access to ozone depletion) have transboundary conse- technology, with the proceeds used to extend quences, particularly for poor people and the benefits to all.

10 HUMAN DEVELOPMENT REPORT 1999 5. Reverse the marginalization of poor, analysis and developing common negotiating small countries. positions. Regional collective action is a first step in this direction. Nearly 30 years ago the Pearson Commission Stronger international action is needed to began its report with the recognition that “the support growth and accelerate human develop- widening gap between the developed and the ment in marginalized countries. This requires developing countries has become the central reversing the decline in flows of official devel- problem of our times.” But over the past three opment assistance (ODA), down by almost a decades the income gap between the world’s fifth in real terms since 1992. Even without richest fifth and its poorest fifth has more than increasing resources, ODA can be much better doubled, to 74 to 1. And with that gap comes targeted to the countries in greatest need, and migration, environmental pressure, conflict, to achieving key human development goals. Narrowing the gaps instability and other problems rooted in Another priority is debt relief for the 41 heavily poverty and inequality. indebted poor countries (HIPCs), whose debt between rich and poor and Narrowing the gaps between rich and poor service amounted to $11.1 billion in 1996 and the extremes between and the extremes between countries should whose debt payments have been squeezing become explicit global goals—to be rigorously spending on education and health. The HIPC countries should become monitored by ECOSOC and the Bretton Woods initiative is welcome—but it delivers too little explicit global goals institutions. These would complement the goals too late. Why not reduce the ceiling for a coun- for poverty reduction and social advance agreed try’s debt burden from 200–250% of exports to to in the global conferences of the 1990s. 100% or less? And why not reduce from six Action can start at the national level. All years to three (or even one) the performance countries need strong and coherent policies for requirement for eligibility? managing their integration into the rapidly changing global economy: 6. Remedy the imbalances in the structures • To capture the opportunities of markets in of global governance with new efforts to trade and investment, each country should adopt create a more inclusive system. a coordinated policy package. As the better-performing countries in each region have shown— Poor countries and poor people have little influ- the Dominican Republic, Ireland, Poland, ence and little voice in today’s global policy- Tunisia—the fundamentals do not stop with making forums. The most important and sound macroeconomic management. They must influential is the G-7, whose members control build on widely spread human capabilities, bet- the Bretton Woods institutions through voting ter incentive structures and sound governance. rights, and the UN Security Council by occupy- • To negotiate more favourable provisions in ing three of the five permanent seats. There is no multilateral agreements, poor and small coun- developing country equivalent to the G-7 or tries should pursue active participation in the OECD—with similar levels of resources, con- global dialogues on multilateral agreements— sultation and policy coordination—though from their development to negotiations to imple- there have been many efforts to develop collec- mentation. In trade, for example, to negotiate for tive third world positions through such bodies more rapid implementation of the agreement on as the G-15, the G-24 and the G-77. textiles and clothing, for a reduction of agricul- Four actions could be rapidly set in motion tural tariffs and subsidies and for a slower pace to strengthen the bargaining position of the in implementing the TRIPS agreement. poor and small countries: Poor and small countries can gain from col- • Provide legal aid. WTO dispute settlement lective action to link negotiations on intellec- mechanisms can be fair only when the parties to tual property rights with rights to emit carbon a dispute have access to expert services of equal into the atmosphere—and to link environmen- calibre to argue their case. An independent legal tal assets, like rain forests, to negotiations on aid centre is needed to support poor countries. trade, debt and investment. They can also gain • Appoint an ombudsman to respond to in negotiations by pooling resources for policy grievances and investigate injustices.

OVERVIEW 11 • Support policy research. OECD countries also with representatives of civil society and arrive at multilateral forums with a battery of private financial and corporate actors. That policy research to formulate and defend their task force would report to the key institutions positions. The UNDP South Centre set up to of global governance: to ECOSOC, the IMF, support developing countries is still grossly the World Bank, as well as to the WTO. underfunded. • A joint World Bank–UN task force should • Rely more on regional solidarity and be set up to investigate global inequalities and regional institutions to develop common posi- suggest policies and actions on how they can tions for negotiations. Regional support would be narrowed over the next two or three help in crises, as with the regional fund for decades. The task force should report to financial stability proposed in 1997. By using ECOSOC and to the World Bank Develop- peer pressure, it would also help to maintain ment Committee. An essential aspect of policies and practices consistent with economic global governance is and financial stability. 7. Build a more coherent and more democ- At the other extreme is the concentration ratic architecture for global governance in responsibility to people— of influence in rich countries, institutions and the 21st century. to equity, to justice, corporations—influence not yet used to ensure that globalization works for human develop- Just as the nineteenth-century mechanisms of to enlarging the choices ment. The voting patterns of the Bretton national government were inadequate for the of all Woods organizations need to be reviewed. challenges of the postwar era, so today’s insti- Greater public accountability and more trans- tutions of international governance are inade- parency would make their operations more quate for the challenges of the 21st century. democratic and increase their credibility. Many of the basic elements of national gover- Multinational corporations influence the lives nance will be needed in a more robust structure and welfare of billions of people, yet their of global governance. An essential aspect of accountability is limited to their shareholders, global governance, as of national governance, is with their influence on national and interna- responsibility to people—to equity, to justice, tional policy-making kept behind the scenes. If to enlarging the choices of all. they were brought into the structures of global Some of the key institutions of global gov- governance, their positions would become ernance needed for the 21st century include: more transparent, and their social responsibil- • A stronger and more coherent United ities subject to greater public accountability. Nations to provide a forum for global leader- • A multilateral code of conduct needs to be ship with equity and human concerns. developed for multinational corporations. • A global central bank and lender of last Today, they are held to codes of conduct only for resort. what national legislation requires on the social • A World Trade Organization that ensures and environmental impact of their operations. both free and fair international trade, with a True, they have in recent years taken up volun- mandate extending to global competition pol- tary codes of ethical conduct. But multinationals icy with antitrust provisions and a code of con- are too important for their conduct to be left to duct for multinational corporations. voluntary and self-generated standards. • A world environment agency. • National policies ensure free competition • A world investment trust with redistribu- in national markets, but there is no parallel in tive functions. global markets. Human Development Report • An international criminal court with a 1994 proposed a world antimonopoly author- broader mandate for human rights. ity to monitor and implement competition rules • A broader UN system, including a two- for the global market. That authority could be chamber General Assembly to allow for civil included in the mandate of the WTO. society representation. • A task force should be established on Even before these long-term changes are global economic governance—with perhaps 10 initiated or achieved, many actions could be industrial and 10 developing countries, but taken in the next one to three years:

12 HUMAN DEVELOPMENT REPORT 1999 • Developing countries could take collective— rich and poor—but also the private sector and especially regional—initiatives to strengthen their the civil society. It could report jointly to positions in global negotiations in trade, intellec- ECOSOC, the IMF Interim Committee and tual property rights and other areas. the World Bank Development Committee. • Individual countries could set up a high- level group to coordinate policy on globaliza- ••• tion and manage their integration for a more positive impact on human development. The surge of globalization over the past decade • Donor countries could accelerate action on or two is only a beginning. The globally inte- debt relief and redirect aid in favour of poorer grated world will require stronger governance countries and human development priorities. if it is to preserve the advantages of global mar- • An independent legal aid facility and ket competition, and to turn the forces of glob- Stronger governance is ombudsman could be created to support the alization to support human advance. poor and weak countries in the WTO. On the eve of the millenium, people are needed to preserve the • All countries could cooperate more to ﬁght unusually expectant of a more fundamental advantages of global global crime, relaxing restrictive bank secrecy diagnosis, more ready to receive it, more laws. eager to act on it. Millenium fever is already market competition, and • New sources of ﬁnancing for the global stimulating many groups to sketch out their to turn the forces of technology revolution could be investigated, to visions of the future—for their community, ensure that it is truly global and that its poten- their country and their planet. The future of globalization to support tial for poverty eradication is mobilized. Two global governance—objectives, institutions, human advance proposals: a bit tax to generate resources, and a responsibilities and actions—needs to be part public programme for development technol- of this exploration by people everywhere. ogy similar to CGIAR’s programme for food. And the Millenium Assembly of the United • A representative task force could be set up Nations is a global forum that could provide to review global economic governance, includ- powerful momentum for moving the agenda ing some 20 or so countries—large and small, forward.

OVERVIEW 13 TEN YEARS OF HUMAN DEVELOPMENT

When I was arguing that helping a one-meal family to become a two-meal family, enabling a woman without a change of clothing to afford to buy a second piece of clothing, is a development miracle, I was ridiculed. That is no development, I was reminded sternly. Development is growth of the economy, they said; growth will bring everything. We carried out our work as if we were engaged in some very undesirable activities. When UNDP’s Human Development Report came out we felt vindicated. We were no longer back-street operators, we felt we were in the mainstream.

Thanks, Human Development Report.

PROFESSOR MUHAMMAD YUNUS, FOUNDER, GRAMEEN BANK, BANGLADESH

TEN YEARS OF HUMAN DEVELOPMENT 15 TEN YEARS OF HUMAN DEVELOPMENT

SPECIAL CONTRIBUTION

In 1990 the time had come for a broad approach to improving human well-being that would cover all aspects of human life, for all people, in both high-income and developing countries, both now and in the future. It went far beyond narrowly defined economic development to cover the full flourishing of all human choices. It emphasized the need to put people—their needs, their aspirations and their capabilities—at the center of the development effort. And the need to assert the unacceptability of any biases or discrimination, whether by class, gender, race, nationality, religion, community or generation. Human development had arrived. The first Human Development Report of UNDP, published in 1990 under the inspiration and lead- ership of its architect, Mahbub ul Haq, came after a period of crisis and retrenchment, in which concern for people had given way to concern for balancing budgets and payments. It met a felt need and was widely welcomed. Since then it has caused considerable academic discussion in journals and seminars. It has caught the world’s imagination, stimulating criticisms and debate, ingenious elaborations, improvements and additions. Human development is the process of enlarging people’s choices—not just choices among different detergents, television channels or car models but the choices that are created by expanding human capabilities and functionings—what people do and can do in their lives. At all levels of development a few capabilities are essential for human development, without which many choices in life would not be available. These capabilities are to lead long and healthy lives, to be knowledgeable and to have access to the resources needed for a decent standard of living—and these are reflected in the human development index. But many additional choices are valued by people. These include political, social, economic and cultural freedom, a sense of community, opportunities for being creative and productive, and self-respect and human rights. Yet human development is more than just achieving these capabilities; it is also the process of pursuing them in a way that is equitable, participatory, productive and sustainable. Choices will change over time and can, in principle, be infinite. Yet infinite choices without limits and constraints can become pointless and mindless. Choices have to be combined with allegiances, rights with duties, options with bonds, liberties with ligatures. Today we see a reaction against the extreme individualism of the free market approach towards what has come to be called communitarianism. The exact

16 HUMAN DEVELOPMENT REPORT 1999 combination of individual and public action, of personal agency and social institutions, will vary from time to time and from problem to problem. Institutional arrangements will be more important for achieving environmental sustainability, personal agency more important when it comes to the choice of household articles or marriage partners. But some complementarity will always be necessary. Getting income is one of the options people would like to have. It is important but not an all-important option. Human development includes the expansion of income and wealth, but it includes many other valued and valuable things as well. For example, in investigating the priorities of poor people, one discovers that what matters most to them often differs from what outsiders assume. More income is only one of the things poor people desire. Adequate nutrition, safe water at hand, better medical services, more and better schooling for their children, cheap transport, adequate shelter, continuing employment and secure livelihoods and productive, remunerating, satisfying jobs do not show up in higher income per head, at least not for some time. There are other non-material benefits that are often more highly valued by poor people than material improvements. Some of these partake in the characteristics of rights, others in those of states of mind. Among these are good and safe working conditions, freedom to choose jobs and livelihoods, freedom of movement and speech, liberation from oppression, violence and exploitation, security from persecution and arbitrary arrest, a satisfying family life, the assertion of cultural and religious values, adequate leisure time and satisfying forms of its use, a sense of purpose in life and work, the opportunity to join and actively participate in the activities of civil society and a sense of belonging to a community. These are often more highly valued than income, both in their own right and as a means to satisfying and productive work. They do not show up in higher income figures. No policy-maker can guarantee the achievement of all, or even the majority, of these aspirations, but policies can create the opportunities for their fulfilment.

PAUL S TREETEN

TEN YEARS OF HUMAN DEVELOPMENT 17 Human Development Reports have had a signiﬁcant impact worldwide. Up until the publication of these Reports, discussions on development centred on economic growth, using variables such as per capita income growth. Of course these economic variables also generate some social beneﬁts. But this view of development had been quite limited. While a country could perfectly well be considered highly developed, income might be concentrated in the hands of a few, and poverty worsening…. Speaking as President of Brazil, until today the country is plagued by a lot of problems—income concentration, poverty, and so on. If we do not adopt a development model that responds to the needs of the majority, this development will not be long-lasting.

FERNANDO HENRIQUE CARDOSO, PRESIDENT, BRAZIL

This year’s Report marks the tenth anniversary of the THE 20:20 INITIATIVE (1992). With the aim of turning both Human Development Report. Each year since being domestic and external priorities to basic human concerns, launched in 1990, the Report has focused on different this initiative proposed that every developing country themes and introduced new concepts and approaches. allocate 20% of its domestic budget, and every donor 20% But the central concern has always been people as the pur- of its official development assistance (ODA), to ensuring pose of development, and their empowerment as partici- basic health care, basic education, access to safe water pants in the development process. The Report puts and basic sanitation, and basic family planning packages economic growth into perspective: it is a means—a very for all couples. important one—to serve human ends, but it is not an end in itself. GLOBAL HUMAN SECURITY FUND (1994). This fund would tackle drug trafficking, international terrorism, commu- ACCOUNTING FOR THE FIRST 10 YEARS nicable diseases, nuclear proliferation, natural disasters, ethnic conflicts, excessive international migration and How has human development changed since the Report global environmental pollution and degradation. The was first published in 1990? A balance sheet of human fund of $250 billion a year would be financed with $14 development in 1990–97 shows tremendous progress— billion from a proportion of the peace dividend (20% of but also enduring deprivations and new setbacks. the amount saved by industrial countries and 10% of that saved by developing countries through a 3% reduction in POLICY PROPOSALS OVER THE YEARS global military spending); $150 billion from a 0.05% tax on speculative international capital movements; $66 bil- Each year the Human Development Report has made lion from a global energy tax ($1 per barrel of oil or its strong policy recommendations, for both national and equivalent in coal consumption) and $20 billion from a international action. The proposals, some emphasizing one-third share of ODA. suggestions by others, some putting forward new approaches, have drawn both criticism and praise. But A NEW GLOBAL ARCHITECTURE (1994). A globalizing world most important, they have helped to open policy debates needs new institutions to deal with problems that nations to wider possibilities. alone cannot solve: • An economic security council—to review the threats GLOBAL PROPOSALS to human security. • A world central bank—to take on global macro- Global proposals have been aimed at contributing to a new economic management and supervision of international paradigm of sustainable human development—based on a banking. new concept of human security, a new partnership of • An international investment trust—to recycle inter- developed and developing countries, new forms of international surpluses to developing countries. national cooperation and a new global compact. • A world antimonopoly authority—to monitor the

18 HUMAN DEVELOPMENT REPORT 1999 The issues raised by this Report [Human Development Report 1995] are of central importance to all of us…. In country after country women have demonstrated that when given the tools of opportunity—education, health care, access to credit, political participation and legal rights—they can lift themselves out of poverty, and as women realize their potential, they lift their families, communities and nations as well…. This Report not only provides a graphic portrait of the problems facing today’s women, but also opens up the opportunity for a serious dialogue about possible solutions. It challenges governments, communities and individuals to enter into this conversation in a common effort to overcome shared problems.

HILLARY RODHAM CLINTON, FIRST LADY, THE UNITED STATES

activities of multinational corporations and ensure that ity, social norms and practices must be changed, and markets are competitive. women’s access to social services, productive resources and all other opportunities made equal to men’s. A TIMETABLE TO ELIMINATE LEGAL GENDER DISCRIMINATION (1995). As of December 1998, 163 countries had ratiﬁed PRO-POOR GROWTH (1996). The quality of economic growth the 1979 Convention on the Elimination of All Forms of is as important as its quantity. For human development, Discrimination Against Women (CEDAW), but others— growth should be job-creating rather than jobless, including the United States—had not. Women’s rights poverty-reducing rather than ruthless, participatory are human rights. There should be a timetable for recog- rather than voiceless, culturally entrenched rather than nizing legal equality between women and men every- rootless and environment-friendly rather than futureless. where, say by 2005, using CEDAW as the framework. A growth strategy that aims for a more equitable distribution of assets, that is job-creating and labour-intensive, NATIONAL PROPOSALS and that is decentralized can achieve such growth.

National proposals have focused on the centrality of peo- AGENDA FOR POVERTY ERADICATION (1997). People’s ple in development, on the need for a new partnership empowerment is the key to poverty elimination and at the between the state and the market and on new forms of centre of a six-point agenda: alliance between governments, institutions of civil soci- • Empower individuals, households and communities ety, communities and people. to gain greater control over their lives and resources. • Strengthen gender equality to empower women. RESTRUCTURING SOCIAL EXPENDITURES (1991). Resources • Accelerate pro-poor growth in low-income countries. should be reallocated to basic human priority concerns • Improve the management of globalization. through an analysis of a country’s total expenditure, • Ensure an active state committed to eradicating social expenditure and human priority spending ratios. poverty. The key is to move away from military spending towards • Take special actions for special situations to support social spending—and to shift the focus to primary human progress in the poorest and weakest countries. concerns: better education, health services and safe water accessible to poor people. HUMAN DEVELOPMENT AS A NATIONAL TOOL

A CRITICAL THRESHOLD OF 30% FOR WOMEN’S REPRESENTA- The human development approach has tremendous TION (1995). Women must have a critical 30% repre- potential for analysing situations and policies at the sentation in all decision-making processes—economic, national level. Two Human Development Centres have political and social—nationally and locally. Reaching this been established—the first in Islamabad, Pakistan, and threshold is essential to enable women to inﬂuence deci- the second in Guanajuanto, Mexico. More than 260 sions that affect their lives. And to achieve gender equal- national and subnational human development reports

TEN YEARS OF HUMAN DEVELOPMENT 19 The Human Development Report has become an important instrument of policy and the concept of the human development index a fundamental tool in formulation of policy by government…. Growth and advancement must be measured by the extent to which it impacts positively on people, but the starting point must be human development. We need to focus particularly on the sectors of society that are the most disadvantaged— women, youth, children, the elderly and the disabled.

THABO MBEKI, DEPUTY PRESIDENT, SOUTH AFRICA

have been produced over the years by 120 countries, in human development into political discourse and plan- addition to nine regional reports. In each country these ning. Its second report, in 1998, reflects the influence the serve to bring together the facts, influence national pol- first report had on planning. Social services now account icy and mobilize action. They have introduced the for more than 42% of plan investment, compared with human development concept into national policy dia- 19% in the previous plan budget. This success bodes logue—not only through human development indica- well for other states, such as Gujarat, Karnataka and tors and policy recommendations, but also through the Rajasthan, preparing their first human development country-led process of consultation, data collection and reports in 1999. report writing. KUWAIT—INTRODUCING THE HUMAN DEVELOPMENT SOUTH AFRICA—UNDERSTANDING THE FULL COSTS OF PERSPECTIVE HIV/AIDS Kuwait’s first human development report, in 1997, South Africa has one of the fastest-spreading HIV epi- raised awareness of the human development concept demics in the world. The country’s 1998 human develop- and its relevance to the country’s struggle to shift from ment report provided startling information on how this dependence on oil towards a knowledge-based econ- will affect human development. Many of the advances omy. The report’s production and promotion helped achieved during the short life of the new democracy will advance new thinking in academia, research institutions be reversed if the epidemic goes unchecked. Developing and the government. The Ministry of Planning has and drafting the report brought critical gaps in informa- started to incorporate the human development tion to light. The economic costs alone, in lost labour and approach in its indicators for strategic planning and to sick days, are far greater than initially realized. The report monitor human development. The Arab Planning Insti- has prompted plans for further study of the full costs— tute has revised its curriculum to reflect the human direct and indirect—of the epidemic to the government, development concept. And after the success of the first to communities and to households. report, the Ministry of Planning is following up with a second, fully funded by the government. INDIA—STATE REPORTS INFLUENCING POLICY GUATEMALA—ALERTING THE COUNTRY TO THE NEED Many of India’s 25 states rival medium-size countries in FOR DATA size, population and diversity. National-level aggregation would hide these important regional disparities. UNDP Guatemala’s first human development report, in 1998, India has therefore supported the preparation of human overcame data limitations to spotlight socio-economic development reports by state governments. disparities across regions, with a strong emphasis on sta- The government of Madhya Pradesh was the first to tistics. Seen as the most complete document on prepare a state report, in 1995, which helped bring Guatemalan society after the civil war, the report has

20 HUMAN DEVELOPMENT REPORT 1999 We, the people of the Earth, are one large family. The new epoch offers new challenges and new global problems, such as environmental catastrophes, exhaustion of resources, bloody conﬂicts and poverty. Every time I see children begging in the street, my heart is broken—it is our challenge and our shame that we are still unable to help those who are vulnerable—children in the ﬁrst place. Whatever are the problems or perspectives for the future— the human dimension is what should be applied as the measure of all events, towards the implications of every political decision to be made. That is why the idea of human development promoted by UNDP is so important for us. I would like to thank UNDP for bringing to life both the important concept of human development, and these Reports.

EDUARD SHEVARDNADZE, PRESIDENT, GEORGIA

become a crucial source of information for NGOs, uni- CAMBODIA—HIGHLIGHTING GENDER DISCRIMINATION versities and the international community. And it has led Guatemala’s government and civil society to recognize Published annually since 1997, Cambodia’s human devel- that the national system of statistics urgently needs opment reports have provided a unique overview of strengthening—not only to support technical studies, but human development in a country where scarcity of reli- also to inform citizens as a requirement for democracy. able statistical data has been a major obstacle in developing sustainable social and economic policies. The 1998 LATVIA AND LITHUANIA—NETWORKING ON HUMAN report drew public attention to the persistent discrimina- DEVELOPMENT tion against women in access to education and health care. This message was reinforced by a television docu- Latvia and Lithuania have published national human mentary and four short spots on women in different occu- development reports every year since 1995. The reports pations, broadcast by all ﬁve national television stations. have covered the social effects of transition, human set- The reports have received an enthusiastic response, and tlements, social cohesion and poverty. Starting out by several NGOs and provincial government units are using encouraging national debate on development challenges, them to train ﬁeld staff and community workers. Encour- the reports have now inspired a cross-border academic aged by this reception, UNDP and the Cambodian gov- network. Scholars from three universities in each country ernment recently began transferring ownership of the are jointly developing a course curriculum to provide a report fully into Cambodian hands. The initiative, with multidisciplinary overview of human development and its the participation of many NGOs, seeks to strengthen relevance to Latvia and Lithuania. The reports will be local capacity in compiling and analysing data on human part of the course curriculum. development.

TEN YEARS OF HUMAN DEVELOPMENT 21 A balance sheet of human development, 1990–97

GLOBAL PROGRESS GLOBAL DEPRIVATION

HEALTH In 1997, 84 countries enjoyed a life expectancy at birth of more than During 1990–97 the number of people infected with HIV/AIDS more 70 years, up from 55 countries in 1990. The number of developing than doubled, from less than 15 million to more than 33 million. countries in the group has more than doubled, from 22 to 49. Around 1.5 billion people are not expected to survive to age 60. Between 1990 and 1997 the share of the population with access to More than 880 million people lack access to health services, and 2.6 safe water nearly doubled, from 40% to 72%. billion access to basic sanitation.

EDUCATION Between 1990 and 1997 the adult literacy rate rose from 64% In 1997 more than 850 million adults were illiterate. In industrial to 76%. countries more than 100 million people were functionally illiterate. During 1990–97 the gross primary and secondary enrolment ratio More than 260 million children are out of school at the primary and increased from 74% to 81%. secondary levels.

FOOD AND NUTRITION Despite rapid population growth, food production per capita increased About 840 million people are malnourished. by nearly 25% during 1990–97. The overall consumption of the richest ﬁfth of the world’s people is 16 The per capita daily supply of calories rose from less than 2,500 to times that of the poorest ﬁfth. 2,750, and that of protein from 71 grams to 76.

INCOME AND POVERTY During 1990–97 real per capita GDP increased at an average annual Nearly 1.3 billion people live on less than a dollar a day, and close to rate of more than 1%. 1 billion cannot meet their basic consumption requirements. Real per capita consumption increased at an average annual rate of The share in global income of the richest ﬁfth of the world’s people is 2.4% during the same period. 74 times that of the poorest ﬁfth.

WOMEN

During 1990–97 the net secondary enrolment ratio for girls increased Nearly 340 million women are not expected to survive to age 40. from 36% to 61%. A quarter to a half of all women have suffered physical abuse by an Between 1990 and 1997 women’s economic activity rate rose from intimate partner. 34% to nearly 40%.

CHILDREN

Between 1990 and 1997 the infant mortality rate was reduced from Nearly 160 million children are malnourished. 76 per 1,000 live births to 58. More than 250 million children are working as child labourers. The proportion of one-year-olds immunized increased from 70% to 89% during 1990–97.

ENVIRONMENT

Between 1990 and 1997 the share of heavily polluting traditional Every year nearly 3 million people die from air pollution—more than fuels in the energy used was reduced by more than two-ﬁfths. 80% of them from indoor air pollution—and more than 5 million die from diarrhoeal diseases caused by water contamination.

HUMAN SECURITY Between two-thirds and three-quarters of the people in developing At the end of 1997 there were nearly 12 million refugees. countries live under relatively pluralist and democratic regimes.

22 HUMAN DEVELOPMENT REPORT 1999 ASSESSING HUMAN DEVELOPMENT

SPECIAL CONTRIBUTION

The human development index (HDI), which the Human dominance of GNP (an overused and oversold index that Development Report has made into something of a flag- he wanted to supplant) would not be broken by any set of ship, has been rather successful in serving as an alternative tables. People would look at them respectfully, he argued, measure of development, supplementing GNP. Based as it but when it came to using a summary measure of devel- is on three distinct components—indicators of longevity, opment, they would still go back to the unadorned GNP, education and income per head—it is not exclusively because it was crude but convenient. As I listened to focused on economic opulence (as GNP is). Within the Mahbub, I heard an echo of T. S. Eliot’s poem “Burnt limits of these three components, the HDI has served to Norton”: “Human kind/Cannot bear very much reality”. broaden substantially the empirical attention that the “We need a measure”, Mahbub demanded, “of the assessment of development processes receives. same level of vulgarity as GNP—just one number—but a However, the HDI, which is inescapably a crude measure that is not as blind to social aspects of human index, must not be seen as anything other than an intro- lives as GNP is.” Mahbub hoped that not only would the ductory move in getting people interested in the rich col- HDI be something of an improvement on—or at least a lection of information that is present in the Human helpful supplement to—GNP, but also that it would Development Report. Indeed, I must admit I did not ini- serve to broaden public interest in the other variables that tially see much merit in the HDI itself, which, as it hap- are plentifully analysed in the Human Development pens, I was privileged to help devise. At first I had Report. expressed to Mahbub ul Haq, the originator of the Mahbub got this exactly right, I have to admit, and I Human Development Report, considerable scepticism am very glad that we did not manage to deflect him from about trying to focus on a crude index of this kind, seeking a crude measure. By skilful use of the attracting attempting to catch in one simple number a complex real- power of the HDI, Mahbub got readers to take an ity about human development and deprivation. In con- involved interest in the large class of systematic tables and trast to the coarse index of the HDI, the rest of the detailed critical analyses presented in the Human Devel- Human Development Report contains an extensive col- opment Report. The crude index spoke loud and clear lection of tables, a wealth of information on a variety of and received intelligent attention and through that vehi- social, economic and political features that influence the cle the complex reality contained in the rest of the Report nature and quality of human life. Why give prominence, also found an interested audience. it was natural to ask, to a crude summary index that could not begin to capture much of the rich information that makes the Human Development Report so engaging and important? This crudeness had not escaped Mahbub at all. He did not resist the argument that the HDI could not be but a very limited indicator of development. But after some initial hesitation, Mahbub persuaded himself that the AMARTYA SEN, 1998 NOBEL LAUREATE IN ECONOMICS

TEN YEARS OF HUMAN DEVELOPMENT 23 Countries and regions that have produced human development reports

ARAB STATES Bulgaria, Soﬁa,a 1997 Paraguay, 1995, 1996 Algeria, 1999 Croatia, 1997, 1998 Peru, 1997 Bahrain, 1997 Czech Republic, 1996, 1997, 1998 Trinidad and Tobago, 1999 Egypt, 1994, 1995, 1996, 1997/98 Estonia, 1995, 1996, 1997, 1998 Uruguay, 1999 Iraq, 1995 Georgia, 1995, 1996, 1997, 1998 Venezuela, 1995, 1996, 1997, 1998 Jordan, 1998 Hungary, 1995, 1996, 1998 Kuwait, 1997, 1998 Kazakhstan, 1995, 1996, 1997, SUB-SAHARAN AFRICA Lebanon, 1997, 1999 1998, 1999 Angola, 1997, 1998, 1999 Libyan Arab Jamahiriya, 1998 Kyrgyzstan, 1995, 1996, 1997, Benin, 1997, 1998 Morocco, 1997, 1999 1998, 1999 Botswana, 1997 Occupied Palestinian territory, 1997 Latvia, 1995, 1996, 1997, 1998, 1999 Burkina Faso, 1997 Somalia, 1998 Lithuania, 1995, 1996, 1997, Burundi, 1997 Sudan, 1998 1998, 1999 Cameroon, 1991, 1993, 1996, 1998 Syrian Arab Republic, 1999 Macedonia, 1997, 1998 Cape Verde, 1998 Tunisia, 1999 Malta, 1996 Central African Republic, 1996 United Arab Emirates, 1998 Moldova, Rep. of, 1995, 1996, Chad, 1997 Yemen, 1998 1997, 1998 Comoros, 1997, 1998 Poland, 1995, 1996, 1997, 1998, 1999 Côte d’Ivoire, 1997 ASIA AND THE PACIFIC Romania, 1995, 1996, 1997, 1998 Equatorial Guinea, 1996 Bangladesh, 1992,1993,1994, Russian Federation, 1995, 1996, Ethiopia, 1997, 1998 1995,1996,1997 1997, 1998 Gambia, 1997 Cambodia, 1997, 1998, 1999 Slovakia, 1995, 1997, 1998 Ghana, 1997 China, 1997, 1999 Tajikistan, 1995, 1996, 1997, 1998 Guinea, 1997 a India, Gujarat, 1999 Turkey, 1995, 1996, 1997, 1998 Guinea-Bissau, 1997 a India, Karnataka, 1999 Turkmenistan, 1995, 1996, 1997, 1998 Kenya, 1999 a India, Madhya Pradesh, 1995, 1998 Ukraine, 1995, 1996, 1997, 1998 Lesotho, 1998 a India, Rajasthan, 1999 Uzbekistan, 1995, 1996, 1997, 1998 Liberia, 1997 Iran, Islamic Rep. of, 1999 Yugoslavia, 1996, 1997 Madagascar, 1996 Korea, Rep. of, 1998 Malawi, 1997, 1998

Lao People’s Dem. Rep., 1998 LATIN AMERICA AND THE CARIBBEAN Mali, 1995, 1997, 1998 Maldives, 1999 Argentina, 1995, 1996, 1997, Mauritania, 1996, 1997, 1998 Mongolia, 1997, 1999 1998, 1999 Mozambique, 1998 Myanmar, 1998 Argentina, Buenos Aires,a 1996, 1997, Namibia, 1996, 1997 Nepal, 1998 1998, 1999 Niger, 1997, 1998 Pakistan, 1992 Belize, 1997 Nigeria, 1996, 1997 Palau, 1999 Bolivia, 1998 Sierra Leone, 1996 Papua New Guinea, 1999 Bolivia, Cochabamba,a 1995 South Africa, 1998 Philippines, 1994, 1997, 1999 Bolivia, La Paz,a 1995 Swaziland, 1997 Samoa (Western), 1998 Bolivia, Santa Cruz,a 1995 Tanzania, U. Rep. of, 1997 Sri Lanka, 1998 Brazil, 1996 Togo, 1995, 1997 Thailand, 1999 Chile, 1996, 1998 Uganda, 1996, 1997 Vanuatu, 1996 Colombia, 1998 Zambia, 1997 Viet Nam, 1998 Costa Rica, 1995, 1996, 1997, 1998 Zimbabwe, 1998 Cuba, 1996, 1999 EASTERN EUROPE AND THE CIS Dominican Republic, 1997, 1999 REGIONAL REPORTS Albania, 1995, 1996, 1997, 1998 Ecuador, 1999 Africa, 1995 Armenia, 1995, 1996, 1997, 1998 El Salvador, 1997, 1999 Southern African Development Azerbaijan, 1995, 1996, 1997, Guatemala, 1998, 1999 Community, 1998 1998, 1999 Guyana, 1996 Europe and the CIS, 1995, 1996 Belarus, 1995, 1996, 1997, 1998 Honduras, 1998, 1999 Paciﬁc Islands, 1994, 1998 Bosnia and Herzegovina, 1999 Nicaragua, 1997 South Asia, 1997, 1998, 1999 Bulgaria, 1995, 1996, 1997, 1998, 1999

a. Subnational report. Source: Human Development Report Ofﬁce.

24 HUMAN DEVELOPMENT REPORT 1999 CHAPTER 1 Human development in this age of globalization

Globalization, a dominant force in the 20th • Travel, the Internet and the media have While globalization has century’s last decade, is shaping a new era of stimulated exponential growth in the exchange interaction among nations, economies and of ideas and information, and people today positive, innovative, people. It is increasing the contacts between engage more than ever in associations that span dynamic aspects—it also people across national boundaries—in econ- national borders—from informal networks to omy, in technology, in culture and in gover- formal organizations. has negative, disruptive, nance. But it is also fragmenting production Driving this global integration are policy marginalizing aspects processes, labour markets, political entities and shifts to promote economic efficiency through societies. So, while globalization has positive, the liberalization and deregulation of national innovative, dynamic aspects—it also has nega- markets and the retreat of the state from many tive, disruptive, marginalizing aspects. economic activities, including a restructuring Today’s interactions between nations and of the welfare state. Driving integration even people are deeper than ever (figure 1.1). faster are the recent innovations in information • World exports, now $7 trillion, averaged and communications technology. But global 21% of GDP in the 1990s, compared with 17% integration is still very partial—for one thing, of a much smaller GDP in the 1970s. the flow of labour is restricted, with borders • Foreign direct investment topped $400 bil- closed to the unskilled. lion in 1997, seven times the level in real terms The world today has more opportunities for in the 1970s. Portfolio and other short-term people than 20, 50 or 100 years ago. Child death capital flows grew substantially, and now total rates have fallen by half since 1965, and a child more than $2 trillion in gross terms, almost born today can expect to live a decade longer three times those in the 1980s. than a child born then. In developing countries • The daily turnover in foreign exchange the combined primary and secondary enrolment markets increased from around $10–20 billion ratio has more than doubled—and the propor- in the 1970s to $1.5 trillion in 1998. tion of children in primary school has risen from • Between 1983 and 1993 cross-border sales less than half to more than three-quarters. Adult and purchases of US Treasury bonds increased literacy rates have also risen, from 48% in 1970 to from $30 billion a year to $500 billion. 72% in 1997. Most states are now independent, • International bank lending grew from $265 and more than 70% of the world’s people live billion in 1975 to $4.2 trillion in 1994. under fairly pluralist democratic regimes. • People travel more—with tourism more The world is more prosperous, with aver- than doubling between 1980 and 1996, from age per capita incomes having more than 260 million to 590 million travellers a year. tripled as global GDP increased ninefold, from • Despite the tight restrictions, interna- $3 trillion to $30 trillion, in the past 50 years. tional migration continues to grow. So have The share of people enjoying medium human workers’ remittances, reaching $58 billion in development rose from 55% in 1975 to 66% in 1996. 1997, and the share in low human development • Time spent on international telephone calls fell from 20% to 10%. rocketed from 33 billion minutes in 1990 to 70 But these trends mask great unevenness— billion minutes in 1996 (figure 1.2). in the advances and in the new setbacks.

HUMAN DEVELOPMENT IN THIS AGE OF GLOBALIZATION 25 FIGURE 1.1 Global integration has progressed rapidly but unevenly . . .

Rapid growth in trade and capital flows Foreign direct investment—strong growth Index (1980=1) in a few regions, stagnation in others FDI (world) Percentage of total FDI 4 100

Exports of goods 2 & services (world)

1 80 Portfolio flows to developing 0.5 OECD Cross-border mergers & transition economies and acquisitions 60 The growth in cross-border mergers and 0.25 acquisitions (M&As) has become a strik- 1970 1975 1980 1985 1990 1995 ing trend and a major driver of FDI. In 1997 there were 58 transactions that South Asia Source: Based on data from World Bank 1999b and UNCTAD 1999. Sub-Saharan Africa exceeded $1 billion each. Large M&As 40 have been concentrated in Arab States ﬁnancial services, insur- US$ billions More people are talking on the phone … Latin America & ance, life sciences, watching television … Caribbean 236 Telephone mainlines telecommunications and TV sets per 1,000 people per 1,000 people the media. Eastern Europe & CIS 200 250 East Asia 100 20 Latin America South-East Asia & Caribbean & Pacific Latin America 200 & Caribbean 150 75 East Asia Annual cross-border mergers and South-East 150 Asia & Pacific 0 acquisitions 1970s 1980s 1990– 1997 Arab States East Asia 100 50 1996 Arab States 100 South-East Source: Based on data from UNCTAD 1999. Asia & Pacific

50 South Asia 25 50 Export shares—major regional shift 42% 59% Sub-Saharan South Asia of total of total Africa Sub-Saharan Percentage of total exports of goods and services Africa FDI FDI 100 0 0 1992 93 94 95 96 97 1985 1995 1985 1995

Source: UNCTAD 1998c. Source: Based on data from World Bank 1998c.

communicating on-line … and participating in NGOs 80 Internet hosts (millions) International NGOs 35.9 28,900

30 60 OECD

10 Arab States Sub-Saharan Africa South Asia 176 0 20 Eastern Europe & CIS Latin America & 1980 85 90 95 1909 1964 1993 Caribbean South-East Asia Source: Network Wizards 1998a. Source: Commission on Global & Pacific Governance 1995. East Asia 0 1970s 1980s 1990– 1996 Source: Based on data from World Bank 1999b.

26 HUMAN DEVELOPMENT REPORT 1999 . . . with wide disparity between countries

Country performance varies widely within regions How the benefits of integration are distributed EXPORTS OF GOODS AND SERVICES growth rate, annual average, 1980–96a Annual averages INCOME GROWTH China Thailand 12 Korea, Rep. of GNP per capita growth rate, 1980–97 Bangladesh Paraguay Botswana Nepal Mexico Jordan >4% 20 India 8 Chile 3–4% 13 Uganda Morocco Costa Rica 0–3% 79 Philippines Poland Tunisia <0% 59 4 Algeria Number of countries Iran, Islamic Rep. of Guatemala EXPORTS OF GOODS AND SERVICES Burkino Faso 0 Growth rate, 1980–96 Niger >10% 15 5–10% 43 –4 Bulgaria Sub-Saharan Arab South East South-East Latin Eastern Europe 1–5% 46 Africa States Asia Asia Asia & Pacific America and CIS & Caribbean <1% 9 Number of countries a MANUFACTURED EXPORTS as a percentage of merchandise exports, annual average, 1990–97 As a percentage of GDP, 1990–97 100 43 Korea, Rep. of >50% Slovenia 25–50% 66 Bangladesh Dominican 80 China Singapore Republic Romania 53 Tunisia India 10–25% Mauritius Thailand Mexico Sri Lanka Malaysia Poland <10% 10 60 Number of countries Morocco Brazil Central African MANUFACTURED EXPORTS 40 Republic Egypt As a percentage of merchandise Senegal exports, 1990–97 Russian 20 Federation >50% 58 Mozambique Bolivia Mongolia Myanmar Venezuela Cameroon Saudi Arabia Ecuador 25–50% 29 0 Congo Algeria 10–25% 26 Sub-Saharan Arab South East South-East Latin Eastern Europe Africa States Asia Asia Asia & Pacific America and CIS <10% 28 & Caribbean Number of countries a. Late 1980s to 1996/97 for Eastern Europe and CIS. TAXES ON INTERNATIONAL TRADE Top 20 recipients As a percentage of current revenue, 1990–96 Among developing and transition countries >50% 2 Workers’ remittances Foreign direct investment Portfolio and other flows 19 1996, millions of current US$ 1997, millions of current US$ 1997, millions of current US$ 25–50% India 9,326 China 45,300 Brazil 18,495 10–25% 36 Mexico 4,224 Brazil 16,330 Mexico 16,028 <10% 51 Turkey 3,542 Mexico 12,101 Thailand 11,181 Number of countries Egypt 2,798 Singapore 10,000 Argentina 10,132 Lebanon 2,503 Argentina 6,327 Indonesia 10,070 WORKERS’ REMITTANCES Morocco 2,165 Russian Federation 6,241 China 9,920 US$ millions, 1990–96 China 1,672 Chile 5,417 Malaysia 7,596 Jordan 1,544 Indonesia 5,350 Russian Federation 4,975 >1,000 14 Pakistan 1,461 Poland 5,000 Turkey 4,913 10 Bangladesh 1,217 Venezuela 4,893 Colombia 4,417 500–1,000 Brazil 1,213 Malaysia 3,754 India 3,817 100–500 19 Yemen 1,123 Thailand 3,600 Czech Republic 3,459 <100 113 El Salvador 1,086 India 3,264 Philippines 3,192 Algeria 1,045 Hong Kong, China (SAR) 2,600 Chile 2,712 Number of countries Croatia 985 Colombia 2,447 Venezuela 2,411 Nigeria 947 Korea, Rep. of 2,341 Peru 2,273 Note: The number of countries varies from 108 to 172 depending on the database used. Dominican Republic 847 Taiwan, province of China 2,248 Romania 1,551 Sri Lanka 832 Hungary 2,085 South Africa 1,281 Indonesia 796 Peru 2,000 Pakistan 1,246 Tunisia 736 Kazakhstan 1,320 Slovenia 1,033 Source: All figures based on data from World Bank 1999b and UNCTAD 1999. Totalling 88% of remittances Totalling 85% of FDI Totalling 94% of flows

HUMAN DEVELOPMENT IN THIS AGE OF GLOBALIZATION 27 Despite the tremendous progress in the 20th technological progress and shifted economic century, the world today faces huge backlogs of policies—events deﬁning the character of glob- deprivation and inequality that leave huge dis- alization and greatly accelerating it. The end of parities within countries and regions. the cold war unleashed a wave of global politi- Poverty is everywhere. Measured by the cal integration. Information and communica- human poverty index (HPI-1), more than a tions technology has launched millions of quarter of the 4.5 billion people in developing global conversations. And the Marrakesh countries still do not have some of life’s most Agreement of 1994 changed the rules of global basic choices—survival beyond age 40, access trade. All this in the wake of a global ideologi- to knowledge and minimum private and public cal shift. services. • Nearly 1.3 billion people do not have access POLITICAL ORDER FIGURE 1.2 International telephone calls to clean water. Minutes per person per year, 1995 • One in seven children of primary school age The fall of the Berlin Wall in 1989 and the end Switzerland 247 is out of school. of the cold war removed political and economic • About 840 million are malnourished. barriers—bringing more than 400 million peo- • An estimated 1.3 billion people live on ple in Eastern Europe and the Commonwealth Belgium incomes of less than $1 (1987 PPP$) a day. of Independent States (CIS) and almost 1.3 bil-

100 In industrial countries, too, human poverty lion people in China and Viet Nam into the Canada and exclusion are hidden among statistics of world of global contacts and communications. success, revealing enormous disparities within Ideas and information began to ﬂow freely as countries. Measured by the human poverty countries lifted censorship, travel restrictions 80 index (HPI-2), one person in eight in the rich- and prohibitions on political parties and civil est countries of the world is affected by some society organizations. And foreign investment aspect of human poverty: long-term unemploy- poured into China, Viet Nam, Poland and the

60 ment, a life shorter than 60 years, an income Russian Federation—as did McDonald’s, Hol- United States below the national poverty line or a lack of the lywood movies and CNN real-time global news. Australia literacy needed to cope in society. The HPI disaggregated for a country’s TECHNOLOGICAL PROGRESS 40 regions also shows wide disparities. In India, for example, the level of human poverty in the The launching of the Internet’s World Wide state of Bihar (54%) is more than twice that in Web in 1990 followed by the free distribution Hungary 20 Kerala. of Netscape in 1994 turned an established but Costa Rica Gender disparities remain large, too. In little-known technology for the scientiﬁc com- Japan developing countries there are still 60% more munity into a user-friendly web for people. Chile South Africa illiterate women than illiterate men, and female This not only brought far wider access at lower 0 Less than 5 minutes: enrolment at the primary level is still 6% lower cost. It also brought a whole new structure of Thailand 4 Colombia 3 than male enrolment. Disparities are starkest in communication, allowing simultaneous trans- Egypt 2 the political and economic arena, with women fers of information in words, numbers and Russian Federation 2 Benin 1 nearly closed out of political life. In only ﬁve images to points around the world. And it Ghana 1 countries do they occupy more than 30% of shrank the world of communications, making Pakistan 1 parliamentary seats, and in 31 they occupy interaction possible at a distance in real time. Source: UNESCO 1998b. fewer than 5%. The gender empowerment mea- The average cost of processing information sure and the gender development index show fell from $75 per million operations to less than inequalities in every country (see indicator a hundredth of a cent in 1960–90. Airline oper- tables 2 and 3). ating costs per mile came down by half in 1960–90. The cost of a three-minute telephone THE WORLD HAS CHANGED call from New York to London fell from $245 in 1930 (in 1990 prices) to under $50 in 1960 to Over the past decade dramatic events have $3 in 1990 to about 35 cents in 1999. These changed the global political order, brought innovations in communications technology

28 HUMAN DEVELOPMENT REPORT 1999 transform the possibilities for building social more countries—65—changing regimes, most solidarity and for mobilizing people across the continuing the trend of liberalization. globe in network societies. After the breakdown of the Bretton Woods system of fixed exchange rates in 1971, OECD ECONOMIC GOVERNANCE countries abolished most restrictions on capital flows, and today capital of all kinds moves The Marrakesh Agreement—signed in April among them virtually without restriction. The 1994, ending the Uruguay Round of the Gen- deregulation of financial markets has been eral Agreement on Tariffs and Trade slower in developing countries but is progress- (GATT)—reduced virtually all tariffs and other ing nonetheless, with encouragement from the barriers. It also introduced a “rules based” sys- IMF and OECD. Argentina, Mexico and Thai- tem of global regulation in trade. And it broke land opened their capital markets. India liber- Unprecedented in scope ground in establishing the World Trade Orga- alized trade radically but not its capital nization (WTO) to enforce the agreement, with markets. China discouraged short-term capital and commitment, these far-reaching authority to review country poli- flows. And Chile followed the unique route of multilateral agreements cies and settle disputes. reducing excessive short-term volatility of flows Multilateral agreements extend to new by introducing a deposit tax. bind national areas—services such as banking and insurance, Countries of Eastern Europe and the CIS governments in their and intellectual property rights. Unprece- began the dramatic transition from centrally dented in scope and commitment, these multi- planned economic systems to market democra- domestic policy choices, lateral agreements bind national governments cies. China, Mongolia and Viet Nam also began driving a convergence of in their domestic policy choices, driving a con- to liberalize their economies and dramatically vergence of policy in a world of enormously reshape their trading relationships, opening policy in a world of diverse conditions. their economies to trade and foreign direct enormously diverse investment. A GLOBAL IDEOLOGICAL SHIFT These changes sped the pace of globaliza- conditions tion and deepened the interactions among peo- National and international economic policies ple. They have also defined the character of shifted sharply in the 1970s and 1980s towards global integration, giving rise to new markets, more reliance on the market—diminishing the new actors, new rules and new tools (box 1.1). role of the state. Ever-growing numbers of And they have created an era of globalization developing countries adopted an open trade that is intensifying contacts—not just between approach, shifting away from import substitu- countries but between people. tion policies. By 1997 India had reduced its tar- The landscape is changing in three distinct iffs from an average of 82% in 1990 to 30%, ways: Brazil from 25% in 1991 to 12%, and China from • Shrinking space. People’s lives—their 43% in 1992 to 18%. Driven by technocrats, the jobs, incomes and health—are affected by changes were strongly supported by Interna- events on the other side of the globe, often by tional Monetary Fund (IMF) and World Bank events they do not know about. financing as part of comprehensive economic • Shrinking time. Markets and technologies reform and liberalization packages. Conditions now change with unprecedented speed, with of membership in the WTO and the Organisa- action at a distance in real time, with impacts on tion for Economic Co-operation and Develop- people’s lives far away. An example is the rapid ment (OECD) were important incentives. reversal of capital flows to the East Asian mar- Country after country undertook deep kets and its contagion from Thailand to Indone- unilateral liberalization, not just in trade but in sia to Korea—and also to faraway South Africa. foreign direct investment. In 1991, for exam- • Disappearing borders. National borders ple, 35 countries introduced changes in 82 reg- are breaking down, not only for trade, capital ulatory regimes, in 80 of them moving to and information but also for ideas, norms, cul- liberalize or promote foreign direct invest- tures and values. Borders are also breaking ment. In 1995 the pace accelerated, with even down in economic policy—as multilateral

HUMAN DEVELOPMENT IN THIS AGE OF GLOBALIZATION 29 agreements and the pressures of staying com- BOX 1.1 Globalization—what’s really new? petitive in global markets constrain the options for national policy, and as multinational corpo- Some argue that globalization is not new, • More policy coordination groups—G-7, and that the world was more integrated a G-10, G-22, G-77, OECD. rations and global crime syndicates integrate century ago. Trade and investment as a pro- their operations globally. portion of GDP were comparable, and with New rules and norms What does all this mean for human develop- borders open, many people were migrating • Market economic policies spreading ment? People’s lives around the globe are linked abroad. What’s new this time? around the world, with greater privatization and liberalization than in earlier decades. more deeply, more intensely, more immediately New markets • Widespread adoption of democracy as than ever before. This opens many opportuni- • Growing global markets in services— the choice of political regime. ties, giving new power to good and bad, to global banking, insurance, transport. • Human rights conventions and instru- women’s movements as well as to global crime • New financial markets—deregulated, ments building up in both coverage and syndicates. But it also exposes people to risks globally linked, working around the number of signatories—and growing aware- clock, with action at a distance in real ness among people around the world. from changes far away. National governments time, with new instruments such as • Consensus goals and action agenda for cannot cope with these vulnerabilities and risks derivatives. development. on their own—because their autonomy is weak- • Deregulation of antitrust laws and prolif- • Conventions and agreements on the ening, and because “global bads” such as drugs eration of mergers and acquisitions. global environment—biodiversity, ozone • Global consumer markets with global layer, disposal of hazardous wastes, desertiﬁ- and illegal arms travel the world with ease. brands. cation, climate change. • Multilateral agreements in trade, taking GLOBAL INTEGRATION— New actors on such new agendas as environmental and RAPID BUT UNBALANCED • Multinational corporations integrating social conditions. their production and marketing, dominating • New multilateral agreements—for world production. services, intellectual property, communica- Global integration is proceeding at breakneck • The World Trade Organization—the ﬁrst tions—more binding on national govern- speed and with amazing reach. But the process multilateral organization with authority to ments than any previous agreements. is uneven and unbalanced, with uneven partic- enforce national governments’ compliance • The Multilateral Agreement on Invest- ipation of countries and people in the expand- with rules. ment under debate. • An international criminal court system in ing opportunities of globalization—in the the making. New (faster and cheaper) tools global economy, in global technology, in the • A booming international network of of communication global spread of cultures and in global gover- NGOs. • Internet and electronic communications nance. The new rules of globalization—and the • Regional blocs proliferating and gaining linking many people simultaneously. importance—European Union, Association • Cellular phones. players writing them—focus on integrating of South-East Asian Nations, Mercosur, • Fax machines. global markets, neglecting the needs of people North American Free Trade Association, • Faster and cheaper transport by air, rail that markets cannot meet. The process is con- Southern African Development Community, and road (box table 1.1). centrating power and marginalizing the poor, among many others. • Computer-aided design. both countries and people (box 1.2).

GLOBAL ECONOMY BOX TABLE 1.1 Declining cost of transport and communications The steady expansion of exports and the phe- (1990 US$) nomenal growth of capital ﬂows mask enor- Sea freight Air transport mous disparities in experience across countries (average ocean (average Telephone call freight and port revenue per (3 minutes, Computers and regions. Year charges per ton) passenger mile) NY/London) (index, 1990 = 100) • World exports of goods and services almost 1920 95 — — — tripled between the 1970s and 1997 in real 1930 60 0.68 245 — terms. Botswana, China, the Dominican 1940 63 0.46 189 — Republic and the Republic of Korea enjoyed 1950 34 0.30 53 — 10–13% average annual growth in their 1960 27 0.24 46 12,500 1970 27 0.16 32 1,947 exports. But many countries did not share in 1980 24 0.10 5 362 the beneﬁts, with exports declining in Bulgaria, 1990 29 0.11 3 100 Niger, Togo and Zambia.

Source: IMF 1997a. • Since the 1970s the share of manufactures in merchandise exports has grown considerably

30 HUMAN DEVELOPMENT REPORT 1999 for some countries—from 13% to 71% in Mau- across levels of income and human develop- ritius, 32% to 81% in Mexico, 25% to 78% in ment—and across regions. Contrast China, Tunisia. But for 28 countries manufactures still Chile, Costa Rica, Mauritius and Poland with make up less than 10% of merchandise exports. Cameroon, Niger, Venezuela and Russia. • In 1997 foreign direct investment zoomed Ironically, those left behind are deeply inte- to $400 billion, seven times the level of the grated in world trade. Sub-Saharan Africa has a 1970s, but 58% of it went to industrial coun- higher export-to-GDP ratio (29% in the 1990s) tries, 37% to developing countries and just 5% than Latin America (15%). But Africa’s exports to the transition economies of Eastern Europe are still mainly in primary commodities, and and the CIS (see figure 1.1). foreign direct investment is concentrated in • More than 80% of the foreign direct invest- mineral extraction—so the region’s apparent ment in developing and transition economies in integration is actually a vulnerability to the the 1990s has gone to just 20 countries, mainly whims of the primary commodity markets. China. For 100 countries foreign direct invest- Countries are not the only major actors— ment has averaged less than $100 million a year more and more it is multinational corporations since 1990, and for nine countries net flows that dominate global markets. Their foreign have been negative. affiliates accounted for an estimated $9.5 tril- • Some 94% of the portfolio and other short- lion in sales in 1997. Their value added was 7% term capital flows to developing and transition of world GDP in 1997, up from 5% in the mid- economies went to just 20 of them in 1996, the 1980s. Their share of world exports increased year before the East Asian crisis (see figure 1.1). as well, from a quarter in the late 1980s to a Today only 25 developing countries have third in 1995. US-based multinationals account access to private markets for bonds, commer- for more than a quarter of US GDP—$2 trillion cial bank loans and portfolio equity. The rest are shut out by their lack of credit rating. BOX 1.2 To sum up: the top fifth of the world’s peo- Shrinking time, shrinking space, disappearing borders—but for whom? ple in the richest countries enjoy 82% of the Have time, space and borders collapsed High-skilled labour also travels the global expanding export trade and 68% of foreign into a global village? It depends on who village. With Internet access in nearly every direct investment—the bottom fifth, barely you are. country, the highly educated are increas- more than 1%. ingly on-line and in touch around the world. These trends reinforce economic stagna- Financial dealers are at the pinnacle of In 1998 more than 250,000 African profes- connections. Instant communications, free sionals were working in the United States tion and low human development. And they flows of capital and constant updates from and Europe. Immigrants with skills in com- have further marginalized many developing around the world enable money markets puting technologies are in high demand—in countries from the most dynamic areas of from London to Jakarta, from Tokyo to the European Union alone, 500,000 infor- global economic growth. The 1980s and 1990s New York, to act as a unit in real time. mation technology jobs go unfilled because of lack of national skills. The United States have seen strong growth in the trade of manu- Multinational corporations, too, are offers a special visa to professional immi- factures, services and “knowledge goods”. roaming global markets and integrating grants to keep high-tech industries staffed. While some developing countries have made production. Cross-border mergers and major advances, others have missed out acquisitions (majority foreign-owned) Unskilled labour, by contrast, runs up against entirely. Manufacturing exports should have accounted for 59% of total foreign direct hurdles. Many families are divided across investment in 1997. international borders as a result of the increas- been a step towards transforming their ingly tight restrictions in the rich countries on economies and creating more jobs. But only 33 Tourists travel more outside their countries— immigration of unskilled labour. Millions of countries managed to sustain 3% annual but more than half are travelling from high- people do not even have passports—difficult growth in GNP per capita during 1980–96. For income countries. to get in some countries—let alone the visas required to travel abroad. 59 countries—mainly in Sub-Saharan Africa NGOs on-line can campaign around the and Eastern Europe and the CIS—GNP per world, with their messages travelling across The collapse of space, time and borders capita declined. borders in seconds. Through email and may be creating a global village, but not Economic integration is thus dividing media networks, people are giving their sup- everyone can be a citizen. The global, pro- port to associations across borders—from fessional elite faces low borders, but bil- developing and transition economies into those informal networks to formal organizations. lions of others find borders as high as ever. that are benefiting from global opportunities Source: Human Development Report Office. and those that are not. The uneven divide cuts

HUMAN DEVELOPMENT IN THIS AGE OF GLOBALIZATION 31 of $7.3 trillion. And the large multinationals are 10 million have given up looking for a job. becoming even larger as takeovers and mergers Among the youth, one in ﬁve is unemployed. proliferate. People are facing job losses alongside job Capital is becoming even more concen- creation in many countries—from corporate trated globally as megacorporations merge, restructuring, mergers and acquisitions, the often across borders—Chrysler and Daimler, spread of globally integrated production by Hoechst and Rhone-Poulenc, Exxon and multinational corporations and, in the OECD Mobil. From 1990 to 1997 the annual number countries, shifts to knowledge-based sectors. of mergers and acquisitions more than dou- A common perception in the OECD coun- bled, from 11,300 to 24,600. Cross-border tries is that jobs are being exported to the mergers and acquisitions accounted for $236 South. OECD imports of manufactures from billion in 1997. Multinational corporations developing countries have certainly increased now dwarf some governments in economic since 1970, but such imports were just 2% of power (table 1.1). the combined GDP of the OECD countries in TABLE 1.1 Top corporations had sales 1996. So, it is not surprising that trade and totalling more than the GDP Generating employment? Conventional immigration contributed only about a tenth of of many countries in 1997 economic theory predicts that trade liberaliza- the increase in wage dispersion in the United Country or GDP or total sales tion will increase productivity and wages, espe- States in the early 1980s. Moreover, North- corporation (US$ billions) cially for tradable goods, thus expanding jobs South trade has mainly raised wages for skilled General Motors 164 and opportunities for poor people. Sometimes labour in OECD countries through exports, Thailand 154 Norway 153 the theory has been right. In the 1980s and 1990s not depressed wages for unskilled labour. So, Ford Motor 147 great progress in reducing global poverty and “dislocation” of jobs to the South does not Mitsui & Co. 145 Saudi Arabia 140 advancing human development was propelled appear to be the main source of job stress in the Mitsubishi 140 by many countries seizing global opportunities. North. Poland 136 Itochu 136 • China, Indonesia, the Republic of Korea, South Africa 129 Malaysia and many others achieved rapid eco- Expanding opportunities—migration. Royal Dutch/Shell Group 128 Marubeni 124 nomic growth, and linked that growth to Migration in today’s globalizing world is also Greece 123 advancing human development and reducing marked by uneven human opportunities and Sumitomo 119 Exxon 117 poverty. uneven human impacts. An estimated 130–145 Toyota Motor 109 • Many countries generated good employ- million people live outside their countries, up Wal Mart Stores 105 Malaysia 98 ment opportunities by tapping into global from 104 million in 1985 and 84 million in Israel 98 markets—take software programming in Ban- 1975. These estimates include only legally reg- Colombia 96 Venezuela 87 galore, India, computer assembly in Costa Rica, istered immigrants, so the real number is much Philippines 82 high-tech services in Ireland. higher. For many countries workers’ remit- • Others used foreign direct investment to tances are a major source of foreign exchange, Source: Forbes Magazine 1998. improve the quality of employment. Foreign- sometimes the primary source (see ﬁgure 1.1). owned companies in Hungary accounted for Three points about migration. First, global TABLE 1.2 more than 80% of manufacturing investment in employment opportunities may be opening for Unemployment rate in selected OECD countries 1996, a third of employment and three-quarters some, but they are closing for most others. The (percentage of the labour force) of export earnings. global market for high-skilled labour is now

Country Average But expansion of trade does not always more integrated, with high mobility and stan- or group 1985–95 1997 1999 a mean more employment and better wages. In dardized wages. But the market for unskilled

Iceland 2.3 3.9 2.7 the OECD countries employment creation has labour is highly restricted by national barriers, Japan 2.5 3.4 4.6 lagged behind GDP growth and the expansion even though it accounts for a larger share of Norway 4.3 4.1 3.7 United States 6.3 4.9 5.0 of trade and investment. Despite 2–3% growth international migration. Australia, Canada and Belgium 11.1 12.7 11.5 in per capita GDP over the past two decades, the United States have programmes to attract Spain 19.5 20.8 17.8 unemployment did not decline, staying at skilled migrants, so the brain drain from devel- European Union 9.9 11.2 10.3 around 7%, with a higher rate in the European oping countries continues. As many as 30,000 OECD 7.1 7.2 7.3 Union (10–11%) and lower rates in Japan, Nor- African PhDs live abroad, while the continent a. Projections. way and the United States (table 1.2). More than is left with only one scientist and engineer per Source: OECD 1998a and 1998b. 35 million people are unemployed, and another 10,000 people.

32 HUMAN DEVELOPMENT REPORT 1999 Second, undocumented migration contin- protecting what can be bought and sold, ues unabated. The United States alone has an neglecting community, custom and tradition. estimated 4 million undocumented immi- Culture has become important economi- grants. European countries estimate that half cally. A UNESCO study shows that world trade their immigrants are undocumented, up from a in goods with cultural content—printed matter, quarter in the mid-1980s. Developing coun- literature, music, visual arts, cinema and photo- tries also host large numbers of undocumented graphic, radio and television equipment— immigrants—3 million in Côte d’Ivoire in almost tripled between 1980 and 1991, from $67 1988, 1 million in Thailand and 700,000 in billion to $200 billion. It continues to grow. For Malaysia in 1997, 1 million in Gabon in 1993, the United States the largest single export indus- 1 million in Argentina in 1996. Lacking papers, try is not aircraft, computers or automobiles—it illegal immigrants face not only discrimination is entertainment, in films and television pro- For the United States the but also denial of human rights. They often grammes. Hollywood films grossed more than largest single export have to accept wages and conditions that do $30 billion worldwide in 1997, and in 1998 a sin- not meet minimum labour standards. And they gle movie, Titanic, grossed more than $1.8 bil- industry is not aircraft, often have to pay traffickers—as much as lion. computers or $35,000 from China to the United States. Traf- The vehicles for this trade in cultural goods ficking is a booming business, moving 4 million are the new technologies. Satellite communica- automobiles—it is people a year, generating $7 billion. tions technology from the mid-1980s gave rise entertainment, in films Third, there is a gender face to much migra- to a powerful new medium with a global reach tion. At least 50 million migrants are women, 30 and to such global media networks as CNN. and television million in developing countries. A large share of The number of television sets per 1,000 people programmes migrants from the Philippines, Sri Lanka and worldwide almost doubled between 1980 and elsewhere are women. Many end up in activities 1995, from 121 to 235. The 1990s have seen a that are dirty, dangerous and demeaning. boom in multimedia industries, with sales of the world’s largest 50 multimedia companies reach- GLOBAL CULTURE ing $110 billion in 1993. The development of the Internet is also spreading culture around the Contacts between people and their cultures— world, over an expanded telecommunications their ideas, their values, their ways of life—have infrastructure of fiber optics and parabolic been growing and deepening in unprecedented antennas. ways. Television now reaches families every- But the global market for cultural products where. For many, the exposure to new cultures is becoming concentrated, driving out small and is exciting, even empowering. For others, it is local industries. At the core of the entertainment disquieting, as they try to cope with a rapidly industry—film, music and television—there is a changing world. growing dominance of US products, and many As Mahatma Gandhi expressed so elo- countries are seeing their local industries wither quently earlier in the century, “I do not want (figures 1.3 and 1.4). Although India makes the my house to be walled in on all sides and my most films each year, Hollywood reaches every windows to be stuffed. I want the cultures of all market, getting more than 50% of its revenues the lands to be blown about my house as freely from overseas, up from just 30% in 1980. It as possible. But I refuse to be blown off my feet claimed 70% of the film market in Europe in by any.” Today’s flow of culture and cultural 1996, up from 56% in 1987—and 83% in Latin products is heavily weighted in one direction— America and 50% in Japan. By contrast, foreign from rich countries to poor. films rarely make it big in the United States, tak- The rise of culture as an economic good has ing less than 3% of the market there. added to the identification of culture with com- Once-thriving film industries around the modities that can be sold and traded—crafts, world declined in the 1970s and 1980s, a result tourism, music, books, films. Although the of the rise of television. Mexico once produced spread of ideas and images enriches the world, more than 100 films a year, but despite a resur- there is a risk of reducing cultural concerns to gence of cinema attendance, local production

HUMAN DEVELOPMENT IN THIS AGE OF GLOBALIZATION 33 had dropped to less than 40 ﬁlms by 1995, and that set limits on the behaviour of individuals, to less than 10 by 1998. Hollywood has cap- organizations and companies. In today’s inte- tured the resurgence of attendance since the grating world there is clear need for global gov- mid-1990s, leaving domestic industries to ernance for the good of society, economy and struggle. environment. And a form of global governance Faced with such threats, many countries is indeed emerging—but the imbalances in the argue that cultural goods should be exempt process are cause for concern. from free trade agreements. The Uruguay Intergovernmental policy-making in today’s Round acknowledged the special nature of cul- global economy is in the hands of the major tural goods, granting some exemptions. The industrial powers and the international institu- FIGURE 1.3 Less than a third of television North American Free Trade Agreement tions they control—the World Bank, the Inter- programming in Latin America (NAFTA) required substantial negotiations national Monetary Fund, the Bank for originates in the region Percentage of total programming before limited exemptions or exclusions of cul- International Settlements. Their rule-making by origin tural industries were adopted. The issue was may create a secure environment for open mar-

Europe, Asia reopened in the negotiations for the Multilat- kets, but there are no countervailing rules to and other 8% eral Agreement on Investments, polarizing protect human rights and promote human countries that see cultural goods as an eco- development. And developing countries, with Latin America 30% nomic good or service like any other (Germany, about 80% of the world’s people but less than a Japan, the United Kingdom, the United States) fifth of global GDP, have little influence. and countries that see cultural goods as having Ad hoc and self-selected policy groups have intrinsic value to be protected for artistic diver- emerged in the past decade to make de facto United States 62% sity and national identity (Canada, France). global economic policy, outside the United People are concerned about the spread of Nations or any other formal system with demo- “global consumer culture” and cultural homog- cratic processes and participation. The finance enization. Global producers market global ministers of the major industrial countries are in products—brands like Nike and Sony that sym- daily telephone contact—and their staff in email Source: UNESCO 1998b. bolize the life styles that people aspire to. But contact—shaping the annual G-7 meetings to there are countervailing trends. Culture does discuss global economic and political issues.

FIGURE 1.4 not always flow in one direction. Salsa music The United States took the initiative in 1998 to Domestic film industries from the Caribbean, the cuisines of Ethiopia and form the G-22—from the G-7 and 15 others, struggle to hold market share Thailand and many other traditions are spread- including the largest emerging economies—to Domestic share of film distribution, 1990–93 (percent) ing globally, and more nations are becoming review the global financial system in the wake of 100 multiethnic. Local cultures have also taken on the East Asian crisis. The G-10 central bankers renewed vigour and significance as political still guide the supervision of banking systems. movements promote local culture and local All these groups play a key part in international India 80 identity. In the post–cold war world local cul- economic policy-making, yet only the G-22 has United States ture has often replaced ideology in politics, as any consultation with developing countries, and the rise of fundamentalist movements reflects. then only with a select few. The debate among anthropologists on Poor countries participate little in the for- 60 Philippines whether there is cultural homogenization mulation and implementation of the new rules Iran, Islamic Rep. of remains open. There are no surveys showing that govern global markets. The 1994 Uruguay that people are becoming alike. And while Round of GATT shows the difficulties facing 40 Japan some argue that globalization is an ideological small and poor countries. Of the 29 least devel- France process imposing a global culture, others argue oped countries in the WTO, only 12 had mis- Italy, Russian Federation that while cultural products flow around the sions in Geneva, most staffed with a handful of Egypt 20 world, people receive and use them differently. people to cover the gamut of UN work. Few African countries had delegations supported GLOBAL GOVERNANCE by staff or in-depth analysis to defend their

0 Canada, Malaysia national interests, weaknesses that carry Chile Governance is not government—it is the through all negotiating and dispute settlement

Source: UNESCO 1998b. framework of rules, institutions and practices procedures. Many small and poor countries

34 HUMAN DEVELOPMENT REPORT 1999 had difficulty even ensuring representation at legal framework for human rights is a great meetings. And although the WTO is represen- achievement, starting with the Universal Decla- tative in its voting structure, its procedures, ration of Human Rights in 1948. And since the which rely on consensus for decision-making 1980s the system has been gaining ground. A and on committees with selected membership, high commissioner for human rights was leave much scope for the delegations with more appointed, and it was agreed to establish an resources to influence outcomes. Indeed, the international criminal court. And the Conven- 1996 ministerial meeting in Singapore agreed tion on the Rights of the Child has achieved on the need to review these procedures. nearly universal ratification in just a decade, Compounding these weaknesses in negotiat- while earlier conventions have yet to be univer- ing capacity is the breakup of the common sally ratified after three decades (figure 1.5). “South” position on global trade issues in the But the lack of mechanisms for enforce- NGOs have been effective 1990s—and the pursuit of diverging interests. The ment is glaring. The human rights regime holds different situations of developing countries— only national governments accountable—not advocates for human from the newly industrializing to the least devel- individuals, corporations or institutions. The development, maintaining oped—only deepen the schisms. 1998 agreement to create an international crim- The rapidly increasing multilateral inal court, with 120 countries in favour and pressure on national agreements—the new rules—are highly bind- only 7 against, was a landmark, bringing a governments, international ing on national governments and constrain forum for enforcement of international justice. agencies and corporations domestic policy choices, including those criti- But it applies only to war crimes, crimes against cal for human development. They drive a con- humanity and genocide. to live up to commitments vergence of policies in a world of enormous Ironically, more attention has gone to and to protect human diversity in conditions—economic, social, eco- enforcing labour and environmental standards logical. For example, most developing coun- in expanding free trade, using strong trade rights and environmental tries previously exempted agriculture, sanctions to punish countries that violate them. standards medicines and other products from national The Multilateral Agreement on Investment was patent laws, but with the passage of the agree- being developed in the OECD to provide a pre- ment on Trade-Related Aspects of Intellectual dictable market for multinationals, protecting Property Rights (TRIPS), almost all knowl- their rights. But no consideration went to their edge-based production is now subject to tight responsibilities to people—their responsibili- intellectual property protection, unified inter- ties to limit their behaviour, to bind their oblig- nationally. Further, the TRIPS agreement is ation to respect human rights and to promote FIGURE 1.5 unbalanced: it provides an enabling environ- the development interests of the communities Uneven ratification of human ment for multinationals, tightening their domi- they touch. rights conventions nant ownership of technology, impeding and Total countries ratifying increasing the cost of transfer to developing Global NGO networks. One big develop- 193 (UNIVERSAL RATIFICATION) countries. ment in opening opportunities for people to Rights of the Child These new rules and institutions advance participate in global governance has been the Discrimination against Women global markets. But there has been much less growing strength and influence of NGOs—in 150 Civil and progress in strengthening rules and institutions both the North and the South. NGOs have Political Rights to promote universal ethics and norms—espe- been effective advocates for human develop- Economic, Social and Cultural Rights cially human rights to promote human devel- ment, maintaining pressure on national govern- 100 opment and to empower poor people and poor ments, international agencies and corporations countries. Fortunately, two important forces of to live up to commitments and to protect social governance are gaining strength. human rights and environmental standards. 50 Their campaigns have reversed policy—as with Institutions of human rights. Helped by their opposition to the Multilateral Agreement the end of the cold war and the global commu- on Investment. When developing country gov- nications network, awareness is growing of the ernments have found it difficult to stay unified 0 violations of human rights and the possibilities in negotiations, the NGOs have often come for- 1970 1980 1990 1999 for democratic governance. The international ward with alternative approaches. Some NGOs Source: UN 1999c.

HUMAN DEVELOPMENT IN THIS AGE OF GLOBALIZATION 35 now have more members than some countries Recent research on complex humanitarian have citizens. A recent study estimates that the emergencies concluded that “horizontal non-profit organizations in just 22 countries are inequalities” between groups—whether ethnic, a $1.1 trillion sector, employing 19 million peo- religious or social—are the major cause of the ple (see figure 1.1). current wave of civil conflicts. Inequalities—and insecurities—matter not only in incomes but in SOCIAL FRAGMENTATION— political participation (in parliaments, cabinets, REVERSALS IN PROGRESS AND armies and local governments), in economic THREATS TO HUMAN SECURITY assets (in land, human capital and communal resources) and in social conditions (in educa- Uneven globalization is bringing not only inte- tion, housing and employment). gration but also fragmentation—dividing com- The shrinking of time and space is creating munities, nations and regions into those that new threats to human security. The fast-changing are integrated and those that are excluded. world presents many risks of sudden disruptions Social tensions and conflicts are ignited in the patterns of daily life—in jobs and liveli- when there are extremes of inequality between hoods, in health and personal safety, in the social the marginal and the powerful. Indonesia and cultural cohesion of communities (box 1.3). shows what can happen when an economic cri- Threats to human security can now speed their sis sets off latent social tensions between eth- way around the world—the collapse of financial nic groups—or between the rich and poor. markets, HIV/AIDS, global warming, global crime. Global threats are increasing, outgrowing national abilities to tackle them, and outpacing BOX 1.3 The concept of human security international responses. Human Development Report 1994 pre- The many threats to human security, dif- sented the concept of human security. fering for individuals at different times, fall WIDENING DISPARITIES IN INCOME Human development is a broader concept— into seven main categories: a process of widening the range of people’s • Economic insecurity. Gaps in income between the poorest and rich- choices. Human security means that people • Food insecurity. can exercise these choices safely and freely— • Health insecurity. est people and countries have continued to and that they can be fairly confident that the • Personal insecurity. widen. In 1960 the 20% of the world’s people opportunities they have today will not be lost • Environmental insecurity. in the richest countries had 30 times the income tomorrow. With advancing globalization, • Community and cultural insecurity. of the poorest 20%—in 1997, 74 times as much. new issues of global security have since • Political insecurity. This continues the trend of nearly two centuries emerged, but the conceptual framework from 1994 is still relevant for analysing Threats to global security (figure 1.6). today’s global issues. When human security is under threat any- Gaps are widening both between and where, it can affect people everywhere. within countries. In East Asia per capita Human security has two main aspects: Famines, ethnic conflicts, social disintegra- incomes today are more than seven times what • Safety from such chronic threats as tion, terrorism, pollution and drug traffick- hunger, disease and repression. ing can no longer be confined within they were in 1960, three times what they were • Protection from sudden and hurtful national borders. Some global challenges to in 1980. But in Sub-Saharan African and other disruptions in the patterns of daily life— human security arise because threats within least developed countries, per capita incomes whether in homes, in jobs or in communi- countries rapidly spill beyond national today are lower than they were in 1970. The ties. Such threats exist at all levels of frontiers, such as greenhouse gases and transition economies of Eastern Europe and national income and development. trade in drugs. Other threats take on a global character because of the disparities the CIS have experienced the fastest rise in Threats to human security between countries—disparities that inequality ever. Russia now has the greatest The loss of human security can be a slow, encourage millions of people to leave their inequality—the income share of the richest silent process—or an abrupt, loud emer- homes in search of a better life, whether the 20% is 11 times that of the poorest 20%. gency. Humans can be at fault—with bad receiving country wants them or not. And policy choices. So can the forces of nature. frustrations over inequality—in incomes Income inequalities also grew markedly in Or it can be a combination of the two— and in political power—often build up into China, Indonesia, Thailand and other East when environmental degradation leads to a serious civil conflicts between groups, and South-East Asian countries that had natural disaster, followed by human tragedy. whether ethnic, religious or social. achieved high growth while improving

Source: UNDP 1994. income distribution and reducing poverty in earlier decades.

36 HUMAN DEVELOPMENT REPORT 1999 Recent studies show inequality rising in OECD countries, one person in six is func- most OECD countries during the 1980s and tionally illiterate—unable to fill out a job appli- into the early 1990s. Of 19 countries, only one cation, excluded from the rapidly changing showed a slight improvement. The deteriora- world that demands new skills in processing tion was worst in Sweden, the United Kingdom information. With unemployment a luxury few and the United States. In the United Kingdom can afford, people who cannot get formal the number of families below the poverty line employment end up in the informal sector. In rose by 60% in the 1980s, in the Netherlands, Latin America in the 1990s, informal employ- by nearly 40%. And in Australia, Canada, the ment has expanded from 52% to 58%, and 85 United Kingdom and the United States at least of every 100 jobs created are informal. half the single-parent households with children As multinationals merge, corporate restruc- have incomes below the poverty line. Contrast turing means job losses (box 1.4). Though the that with the staggering concentration of loss of corporate jobs may be compensated by wealth among the ultra-rich. The net worth of employment creation elsewhere, it adds to the the world’s 200 richest people increased from insecurity of people in their jobs and lives. $440 billion to more than $1 trillion in just the four years from 1994 to 1998. The assets of the BUST AND BOOM ECONOMIES— three richest people were more than the com- FINANCIAL VOLATILITY bined GNP of the 48 least developed countries. The financial crisis in East Asia destabilized the JOB AND INCOME INSECURITY lives of millions and reduced the prospects for growth in that region and in the world. In In both poor countries and rich, dislocations Indonesia, the Republic of Korea, Malaysia, the from economic and corporate restructuring Philippines and Thailand human costs were and dismantled social protection have meant heavy job losses and worsening employment BOX 1.4 conditions. Jobs and incomes have become Merry Christmas—and have a Happy New Year elsewhere more precarious. The pressures of global competition have led countries and employers to With mergers and acquisitions come corpo- accustomed to consolidation through adopt more flexible labour policies, and work rate restructuring, downsizing and layoffs. merger. . . . In Exxon’s case, the announced arrangements with no long-term commitment It is impossible to say whether the downsiz- job losses represent only those that will be between employer and employee are on the ing following a merger would have been lost in the immediate aftermath of the avoided if the two corporations had not merger: many thousands more are likely to rise. merged, but it is clear that the layoffs dis- be cut later as the merged company sheds In Latin America, for example, reforms in rupt the lives of many. Reports in the New unprofitable refineries, oil wells and ser- labour laws increased labour market flexibility, York Times and the Financial Times in vice stations.” and more flexible contracts were introduced. one month, from 7 December 1998 to 4 Jan- • NYT, 16 December 1998. “Citigroup, By 1996 the share of workers without contracts uary 1999, tell part of the relentless story of one of the country’s largest financial services corporate layoffs. companies, said yesterday that it planned to or with new kinds of contracts increased to • NYT, 7 December 1998. “Deutsche eliminate about 10,400 jobs, or about 6 per- 30% in Chile, 36% in Argentina, 39% in Telekom plans to eliminate 20,000 jobs by cent of its workforce. . . . Citigroup said 65 Colombia and 41% in Peru. In Egypt an the year 2000 and will seek partners for pos- percent, or about 6,760, of the cuts would increasingly common practice is to require new sible mergers. . . . The job reductions are be overseas. The rest, about 3,640 positions, part of Deutsche Telekom’s effort to cut will be in the US.” recruits to sign a resignation letter before tak- costs to help offset lower prices, as the com- • NYT, 4 January 1999. “The largest pri- ing the job. Belgium, France, Germany and the pany, a former monopoly, winds up its first vate oil company, the Royal Dutch/Shell United Kingdom all weakened their worker year in a more competitive market.” Group, said last month that it would . . . cut dismissal laws. And the Netherlands, Spain • FT, 8 December 1998. “Last week’s some of its 105,000 employees. . . . In addi- and the United Kingdom decentralized wage announcements that Exxon was to buy tion, thousands of jobs will be cut by Texaco, Mobil (with job losses projected at 9,000) Conoco, Shell and Chevron. British Petro- bargaining. and that Deutsche Bank planned to leum and Amoco, whose merger was With ever-changing technology, people acquire Bankers Trust (5,500 jobs to go) approved on Wednesday by the FTC, plan to need ever-changing skills—yet even in the rich- both came in industries that are becoming shed 6,000 jobs.” est countries many lack the basics. Despite uni- Source: New York Times 1998a, 1998b and 1999b; Financial Times 1998b. versal primary and secondary education in

HUMAN DEVELOPMENT IN THIS AGE OF GLOBALIZATION 37 FIGURE 1.6 Inequality has worsened both globally . . .

Widening gaps between rich and poor since the early 19th century

GDP per capita US World inequalities have been rising steadily for nearly Switzerland (thousands of 1990 US$) two centuries. An analysis of long-term trends in 20 world income distribution (between countries) shows that the distance between the richest and poorest Japan Germany country was about 3 to 1 in 1820, 11 to 1 in 1913, 35 to 1 in 1950, 44 to 1 in 1973 and 72 to 1 in 1992. Denmark More amazing is that the British in 1820 had an income about six times that of the Ethiopians in 1992! These trends mask the fact that many countries have caught up with the most advanced. Japan, for example, had scarcely 20% of US income in 1950, 15 90% in 1992. Southern Europe has seen a similar trend—with 26% of US income in 1950 and 53% in 1992. Some Arab states have also seen big increases in income.

Richest and poorest countries, 1820–1992 GDP per capita (1990 US$)

Richest 10 Rep. of Korea 1820 1900 1992 UK 1,756 UK 4,593 US 21,558 Netherlands 1,561 New Zealand 4,320 Switzerland 21,036 Australia 1,528 Australia 4,299 Japan 19,425 Income range Argentina Austria 1,295 US 4,096 Germany 19,351 of the richest Belgium 1,291 Belgium 3,652 Denmark 18,293 5 countries Poorest Indonesia 614 Myanmar 647 Myanmar 748 5 India 531 India 625 Bangladesh 720 Bangladesh 531 Bangladesh 581 Tanzania, Pakistan 531 Egypt 509 U. Rep. of 601 China 523 Ghana 462 Congo, Dem. Rep. of the 353 Ethiopia 300 Japan Egypt Source: Maddison 1995. Poorest 0 countries 1820 1870 1900 1950 1973 1992

The world’s 200 richest people are getting richer—fast

Net worth of the 200 richest people They are global, They could do a lot citizens of both rich and poor for world poverty: $1,042 billion countries: The assets of the 3 richest people are North America 65 more than the combined GNP of all least developed countries. Income of $500 per second Europe 55 Other industrial countries 13 The assets of the 200 richest people are Eastern Europe & CIS 3 more than the combined income of 41% Asia & the Paciﬁc 30 of the world’s people. $440 billion Arab States 16 A yearly contribution of 1% of the wealth Latin America & Caribbean 17 of the 200 richest people could provide Sub-Saharan Africa 1 universal access to primary education for 1994 1998 all ($7–8 billion).

Source: Based on data from Forbes Magazine 1998.

38 HUMAN DEVELOPMENT REPORT 1999 . . . and within countries

Worsening inequality in OECD countries Recovery, but no improvement in distribution: during the 1980s the experience of Latin America

Earnings inequality The period of rapid growth in the region, beginning in • Almost all countries had an increase in wage inequal- the 1960s and lasting until the outbreak of the debt cri- ity during the 1980s except Germany and Italy. sis in 1982, led to an improvement in income distribu- • Earnings inequality increased most in the UK and the tion. Between 1970 and 1982 the income gap between US, and least in the Nordic countries. the richest 20% of the population and the poorest 20% • The increasing demand for skilled workers coupled fell from 23 to 1 to 18 to 1. But these improvements Worsening inequality in Eastern Europe and the CIS with differences across countries in the growth of sup- were short-lived. In the 1980s the 10% of the popula- ply of skilled workers explain a large part of differences tion with the highest incomes increased its share by The transition from centrally planned to in earnings inequality. more than 10 percent—at the cost of all other groups. market economies was accompanied by • At any given time there are large earnings inequali- The poorest 10% suffered a 15% drop in their share of large changes in the distribution of na- ties between men and women. income, wiping out the improvements in distribution tional wealth and income. Data on in- before the crisis. come inequality indicate that these Disposable income inequality changes were the fastest ever recorded. The economies of the region have undergone great • Increases in household income inequality were lower In less than a decade income inequality changes in the 1990s. High inflation has been halted, than those in earnings inequality in most nations, since as measured by the Gini coefficient in- deep economic reforms have been adopted to support creased from an average of 0.25–0.28 disposable income (after taxes and transfers) is better market operations, and productivity and economic to 0.35–0.38, surpassing OECD levels. distributed than market income. growth have been restored. But the concentration of Inequality increased most in the Russian • Still, income inequality increased in most OECD income has remained nearly unchanged, with the Federation and other CIS countries, countries in the 1980s and early 1990s. least in Eastern Europe. In Ukraine and region’s Gini coefficient staying at around 0.58. • Trends in inequality were not closely associated with the Russian Federation the annual in- But trends have varied across countries. In Brazil, levels. Some nations with low inequality experienced crease in the Gini coefficient was three Chile and Mexico income inequality worsened in the some of the largest increases. to four times as high as in the United 1980s, but this trend was halted in the 1990s. In States and United Kingdom. • Reductions in social welfare spending and regressive Colombia and Costa Rica distribution patterns have changes in income taxes account for only a small part of the remained quite stable. In Honduras and Jamaica Gini coefficient increase in disposable income inequality in most nations. income distribution worsened in the early 1990s. 1987/88 1993/95 Increase Inequality in: One of the most striking features of income distribution in Latin America is the huge gap between the Ukraine 0.23 0.47 0.24 Market Disposable Country income income top and bottom 20%. Russia 0.24 0.48 0.24 Lithuania 0.23 0.37 0.14 Hungary 0.21 0.23 0.02 ▲ ▲ UK 1981–91 Poland 0.26 0.28 0.02 US 1980–93 ▲▲ Income distribution in selected Latin American Sweden 1980–93 ▲▲ countries Source: Milanovic 1998; Ruminska-Zimny 1999. Australia 1980–81 to 89–90 ▲ ▲ Share of household income (percent) Denmark 1981–90 ▲ ▲ Poorest Richest Gini New Zealand 1981–89 ▲ ▲ Country 20% 20% coefficient a Japan 1981–90 ▲ ▲ Uruguay 5.0 48.7 0.43 Netherlands 1981–89 ▲ ▲ Costa Rica 4.3 50.6 0.46 Norway 1982–89 ▲ ▲ Peru 4.4 51.3 0.46 Belgium 1985–92 ▲ ▲ Ecuador 2.3 59.6 0.57 Canada 1980–92 ▲ ● Brazil 2.5 63.4 0.59 Israel 1979–92 ▲ ● Paraguay 2.3 62.3 0.59 Finland 1981–92 ▲ ● France 1979–89 ● ● a. A Gini coefficient of zero represents perfect equality, a coefficient of one per- Portugal 1980–90 ● ● fect inequality. Source: IADB 1998. Spain 1980–90 ● Ireland 1980–87 ▲ ● Germany 1983–90 a ▲ ● Italy 1977–91 ▼ ▼

Interpretation Change in Gini

▲ Extremely large increase 30% or more ▲ Large increase 16 to 29% ▲ Small increase 5 to 10% ● Zero –4% to +4% ▼ Small decline –5% or more a. Data refer to the Federal Republic of Germany before reuniﬁcation. Source: Gottschalk and Smeeding 1997.

HUMAN DEVELOPMENT IN THIS AGE OF GLOBALIZATION 39 severe. Escalating prices of essentials such as BOX 1.5 The collapse of the East Asian financial markets— food and medicines were accompanied by economies recovering, but human recovery will take longer increases in bankruptcies, unemployment, suicides, domestic violence and other conse- The exchange rate and inflation seem to 10% in the 12 months following April quences. Signs of economic recovery are have stabilized in the Republic of Korea, 1997. beginning to emerge in 1999. But studies of past Malaysia and Thailand. Malaysia’s stock Job losses hit women, the youth and index has begun to recover, and liquidity unskilled workers hardest in Korea. economic crises show that unemployment per- is returning to the financial system. Con- Employment declined by 7.1% among sists long after inflation subsides and exchange sumer spending is increasing—motor women between April 1997 and April rates recover. People take longer to recover than vehicle sales rose from 19,000 in Novem- 1998, compared with 3.8% for men. The economies (box 1.5). ber 1998 to nearly 23,000 in December. number of unemployed among those aged An analysis of this crisis spotlights two These developments are welcome. But 15–29 doubled in 1997–98, from 300,000 they mask the continuing human costs of to 600,000, and it tripled for the important lessons about global capital markets. the crisis. unskilled, rising from 1.7% to 5.4%. The first is that financial volatility is a permanent Past crises show that while economies Migrant workers were also hit hard. Lack- feature of today’s globally integrated financial regain output growth and macroeconomic ing valid papers, many were sent back to markets (figure 1.7). The East Asian crisis is not balances—inflation, exchange rates, bal- their home countries. ance of payments—fairly quickly, it takes • Reduced schooling. Families under an isolated accident—it is a symptom of general longer for employment and wages to stress are taking children out of school. In weakness in global capital markets. Recent recover. An analysis of more than 300 eco- Thailand one study estimates that nearly UNCTAD studies show a rising frequency of nomic crises in more than 80 countries 100,000 students are not pursuing either financial crises with the growth in international since 1973 shows that output growth primary or secondary education because of capital flows of the 1990s. Flows can be volatile, recovered to precrisis levels in one year on the crisis. In Korea enrolment registered average. But real wage growth took about small declines at primary and middle fed by herd behaviour and inadequate informa- four years to recover, and employment school levels. But drop-outs at the higher tion for investors around the world, with growth five years. Income distribution level increased by 36% in 1998. investor confidence and risk ratings tumbling worsened on average for three years, • Reduced public services. When fam- overnight. Technological innovations link improving over precrisis levels by the fifth ily incomes are under stress, people need year. to rely more on public services to finance global financial markets in real time, allowing The human costs of the East Asian cri- education and health. In most countries instantaneous decisions around the world. Mar- sis have been wide-ranging and wide- efforts were made to protect public kets have also become increasingly sophisti- spread. expenditures, but strains are evident in cated, with financial innovations that have made • Bankruptcies. Among small businesses many activities. In Thailand the budget of especially, bankruptcies soared with cur- the Ministry of Public Health was available countless financial instruments—from rency and stock market plunges and rock- reduced by 10%, and the community and derivatives to hedge funds. In theory, these eting interest rates. A total of 435 social services budget by 7.6%. In the instruments were intended to transfer and Malaysian firms were declared bankrupt in Philippines health expenditures declined spread risk. In practice, they have become part the nine months from July 1997 to March by about 10%, and the budget shows of the volatility of today’s capital markets. 1998. Such bankruptcies are a loss of liveli- reductions in family health and nutrition hood for owners and employees of small (6%) and communicable disease control A central feature of the financial crisis in firms, which unlike large businesses and (10%). Malaysia initially cut all expendi- East Asia was the massive new inflows of short- banks did not receive rescue packages. tures by 18–20%, but then introduced a term capital, followed by sudden reversals (box • Rising poverty. In Indonesia, the stimulus package. 1.6). A rapid buildup in the early 1990s fol- poorest country affected, an additional 40 • Increased social stress and fragmen- million people (or 20% of the population) tation. Felt in many communities, though lowed the deregulation of capital controls and are estimated to have fallen into poverty. In difficult to document, increasing domestic the restructuring of financial policies. Net Korea and Thailand poverty is expected to violence, street crime and suicides are financial inflows to Indonesia, Korea, Malaysia, rise, with 12% of the population affected in reported in all countries. In Korea the Hot- the Philippines and Thailand totalled $93 bil- each country—5.5 million in Korea and 6.7 line for Women received escalating num- lion in 1996. In 1997, as turmoil hit financial million in Thailand. bers of calls from women suffering • Surging unemployment. Virtually domestic violence—seven times as many as markets, these flows reversed in just weeks to a unknown for many years in Korea and in the previous year. The incidence of sui- net outflow of $12 billion, a swing of $105 bil- Malaysia, unemployment rose in all coun- cides also went up, from 620 a month in lion, or 11% of the precrisis GDPs of the five tries—by 0.3 million in Malaysia, 0.5 mil- 1996 to more than 900 a month in mid- countries. lion in Thailand, 1 million in Indonesia and 1998. Unemployment was often reported 1.5 million in Korea. Real wages declined: as the cause of intolerable human pain and The second lesson is that extreme caution is average real wages in Korea fell by nearly social tension. required in opening up to foreign short-term (often speculative) capital, especially when Source: Lee and Rhee 1999; World Bank 1998a; Kakwani 1998; Korea Institute for Social Information and Research 1999; UNFPA 1998; UNDP Country Office, Malaysia 1999. financial market institutions are not well developed. There are increasing doubts among econ-

40 HUMAN DEVELOPMENT REPORT 1999 omists about the benefits of short-term flows. ments, arming conflicts in Africa and Eastern They do not have the same potential as long- Europe. Light weapons have the most immedi- term investments to contribute to development. ate impact on people’s lives. Used in every con- They can even be disastrous, creating macro- flict around the world, they have caused 90% of economic imbalances, overvaluing the currency, war casualties since 1945. In El Salvador the reducing international competitiveness and seri- homicide rate increased 36% after the end of ously destabilizing domestic banking systems. the civil war. In South Africa machine guns pouring in from Angola and Mozambique are CONTAGION AND THREAT being used in more and more crimes. In Alba- OF A WORLDWIDE RECESSION

FIGURE 1.7 The reversals in human development are Portfolio flows have brought severe volatility to many markets spreading—with the contagion to financial mar- Net international portfolio investment (US$ billions)a kets in Brazil, Russia and elsewhere, but also 60 Latin America through slowdowns in global economic growth. and the Caribbean IMF, World Bank and UN projections of growth 50 in 1998 show a slowdown of 1–2 percentage points to around 2%, the lowest in five years. 40 Many poor countries are suffering lower export 30 prices due to shrinking world demand. Petro- East Asia leum exporters have been hit particularly hard, and the Pacific and Angola and Kuwait could lose about a quar- 20 ter of their export earnings and have their GDPs 10 decline by 14–18%. The impact has also been Sub-Saharan Africa severe for African countries dependent on pri- 0 mary commodity exports. Because of the collapse 1980 1985 1990 1995 in the copper market, Zambia can expect a 26% a. Includes bank and trade-related lending Source: Based on data from World Bank 1999b. decline in its copper exports—and a 9% decline in its GDP (table 1.3). World Bank projections of GDP growth in Sub-Saharan Africa for 1999 BOX 1.6 were revised downward from 4.5% to 3.2%. Buildup and reversal of short-term capital flows—lessons of East Asia

Capital to East Asia and Latin America increased the financial system’s vulnerabil- GLOBAL CRIME increased dramatically in the 1990s. ity to reversals of capital flows. An Between 1990 and 1996 financial capital UNCTAD study found no case in any coun- Globalization opens many opportunities for flows to the East Asian countries averaged try, developed or developing, where a large crime, and crime is rapidly becoming global, more than 5% of GDP. The most extreme increase in liquidity in the banking sector outpacing international cooperation to fight it. cases: Thailand and Malaysia. Capital did not lead to overextended lending, a There are now 200 million drug users, threat- inflows to these two countries averaged worsening in the quality of assets and laxer more than 10% of GDP during the 1990s, risk management. ening neighbourhoods around the world. In reaching 13% and 17% of GDP in one Not just the amount but the structure of the past decade the production of opium more year. Capital flows then abruptly reversed capital inflows determines a country’s vul- than tripled and that of coca leaf more than in 1997. For Thailand capital outflows nerability. External borrowings were con- doubled. In Belarus drug-related crimes between 1996 and 1998 amounted to centrated in short-term debt. Thailand and about 20% of GDP. The other countries Korea had short- to long-term debt ratios of increased from 4 per 100,000 people to 28 in faced a similar fate. nearly 50% before the crisis. The ratio of 1990–97, in Estonia from 1.4 per 100,000 to The large inflows before the reversal had short-term debt to GDP was also high in almost 8. The illegal drug trade in 1995 was esti- had negative effects, contributing to the Indonesia, Korea and Thailand, in sharp mated at $400 billion, about 8% of world trade, appreciation of real exchange rates and contrast to China, Malaysia and the Philip- delayed devaluation in a time of increasing pines. It is no wonder that the crisis erupted more than the share of iron and steel or of current account deficits, and reducing inter- in Thailand and then spread to Indonesia motor vehicles, and roughly the same as textiles national competitiveness. They also and Korea, leaving the other countries less (7.5%) and gas and oil (8.6%). expanded domestic bank lending and affected.

Illegal trafﬁcking in weapons is a growing Source: Lee and Rhee 1999; UNCTAD 1998b. business—destabilizing societies and govern-

HUMAN DEVELOPMENT IN THIS AGE OF GLOBALIZATION 41 nia there were ﬁve times as many murders in million people were living with HIV/AIDS at 1997 as in 1996, a rise attributed to the illegal the end of 1998. The spread of the virus con- arming of civilians. tinues unabated, with 11 men, women and Another thriving industry is the illegal traf- children becoming infected each minute— ﬁcking in women and girls for sexual exploita- about 6 million in 1998. AIDS causes 2.5 mil- tion, a form of slavery and an inconceivable lion deaths a year, more than twice as many as violation of human rights. In Western Europe the 1 million deaths from malaria. Yet some alone, about 500,000 women and girls from experts say that we are only a tenth of the way developing and transition economies are into the epidemic. entrapped in this slave trade each year. Women AIDS is now a poor people’s epidemic, lose not only their freedom, but their dignity with 95% of all HIV-infected people in devel- At the heart of all this is and often their health. If they return to their oping countries. HIV/AIDS has taken a heavy the growing power and homes, they are often rejected by their families toll on the life expectancy built up over the and communities. past three decades. A loss of 17 years in life influence of organized At the heart of all this is the growing expectancy is projected for the nine countries crime syndicates, power and influence of organized crime syn- in Africa with an HIV prevalence of 10% or dicates, estimated to gross $1.5 trillion a more—Botswana, Kenya, Malawi, Mozam- estimated to gross year—a major economic power rivalling bique, Namibia, Rwanda, South Africa, Zam- $1.5 trillion a year multinational corporations. The sheer con- bia and Zimbabwe—down to 47 years by centration of their power and money crimi- 2010, back to the life expectancy of the 1960s. nalizes business, politics and government. HIV is also spreading fast in areas thought Look at the Six Triads in China, the Medellín to be relatively free of the virus—in China and and Cali cartels in Colombia, the Mafia in even in the vast rural areas of India, where Italy, the Yakuza in Japan, the Juarez, Tijuana some studies show higher prevalence rates and Gulf cartels in Mexico, the Cosa Nostra than in urban areas. Eastern Europe and the in the United States and the organizations in CIS had appeared to be spared the worst in Nigeria, Russia and South Africa. All have the early 1990s, but new surveys show stu- operations extending beyond national bor- pendous increases in Belarus, Moldova, Rus- ders, and they are now developing strategic sia and Ukraine. There, too, HIV/AIDS is alliances linked in a global network, reaping often associated with poverty, spreading the benefits of globalization (box 1.7). among marginalized people, especially through drug use. THE SPREAD OF HIV/AIDS CIVIL CONFLICT, GLOBAL UNREST Global travel spreads more than ideas. The latest estimates by UNAIDS and the World Civil conflicts have been flaring for decades. Health Organization show that more than 33 What’s new today is the complex interaction of interests, the blurred line between conflict

TABLE 1.3 and business. Defence is becoming privatized, The Asian crisis hurts distant economies and people and international private military firms are (percent) proliferating. In some countries mercenaries Commodity price Fall in export earnings a Fall in GDP a often sell their services for mining and energy decline Country 1998 1998 concessions and set up affiliates in air trans- Petroleum—25% Angola 25 18 port, road building and trading. And more Gabon 21 13 Kuwait 25 14 and more, the clients of mercenaries are multi- Nigeria 24 4 national corporations seeking to protect their Venezuela 20 6 mining interests in conflict-prone countries. Copper—31% Zambia 26 9 Mongolia 10 6 Executive Outcomes, Sandline Interna- Chile 10 3 tional and Military Professional Resources a. Estimated. Incorporated offer military services and train- Source: UNCTAD 1998b. ing to governments and large corporations

42 HUMAN DEVELOPMENT REPORT 1999 and have been particularly active in Africa. 22,000 deaths. The worldwide costs of the El The Mobutu government in its final days Niño disaster were judged to be as high as $33 spent some $50 million in a desperate attempt billion. Many scientists believe that the ferocity to stay in power in the Democratic Republic of the El Niño storms was due to global warm- of the Congo. The rise of military companies ing. The storms ruined harvests and fuelled for- is linked to the post–cold war power vacuum. est fires from Indonesia to Brazil. La Niña Major powers are less inclined to intervene hurricanes and floods killed 9,000 people and militarily, especially in low-level conflicts. left more than a million homeless in Nicaragua Accountable only to those who pay, such and Honduras. businesses are hard to regulate. So far, domestic and international laws seeking to limit mer- WHAT’S TO BE DONE? cenaries’ operations have been ineffective. The annual reports of the UN Human Rights Globalization expands the opportunities for Special Rapporteur on Mercenaries have reg- unprecedented human advance for some but ularly urged governments to develop legisla- shrinks those opportunities for others and erodes tion that bans the use of mercenaries in their human security. It is integrating economy, culture territories. and governance but fragmenting societies. Dri- ven by commercial market forces, globalization in ENVIRONMENTAL DEGRADATION— A SILENT EMERGENCY BOX 1.7 Why crime syndicates like globalization Environmental degradation is a global problem that surpasses the scope of national govern- Globalization creates new and exciting The breakdown of the old order in ments. Globalization can improve prospects opportunities, and among the most enter- emerging markets—whether through prising and imaginative opportunists are the industrialization, automation and the rise of for environmental management—through the world’s criminals. skill-based economies or through the dislo- spread of environment-friendly technologies, Free movement of capital, say private cation of war or economic collapse—creates standards and pressures by consumers and sector investors, is a precondition of a burgeoning underclass ripe for exploita- activists. It can also add pressures for environ- increased foreign investment. But the pre- tion by the crime multinationals. The unem- mental exploitation—export-led demand for cipitous removal of currency controls, ployed in the South African townships before a proper regulatory environment has make easy recruits for criminal gangs, which paper leading to deforestation, and demand for been established, is the perfect condition have fostered South Africa’s rise as a major fish leading to overfishing. for money laundering. And sure enough, transshipment point for the worldwide drug Environmental degradation is a chronic Eastern European banks became a regular trade. and “silent emergency” that threatens the liveli- transfer point in the flow of dirty money. Technological advances create new vul- Lowering the barriers to international nerabilities. A computer hacker in Russia hoods of some of the poorest people of the trade and the transit of goods across borders came close to stealing millions of dollars from world. Scientists predict a steady rise in global is generally seen as a good thing. But it also Citibank in New York. Nigerian con men temperatures and sea levels, inundating as helps the luxury car hijacked on a Johan- take advantage of the semblance of legiti- much as 17% of the land area in Bangladesh, nesburg street to reappear for sale in macy that the fax machine gives a forged doc- Moscow. ument. New technology also creates new 12% in Egypt and almost all of the Maldives. Think of the organization required to crimes, such as the piracy of intellectual Renewable resources are being depleted effect such a transfer, or to ship illegal property—music, films and software. rapidly and unsustainably: fish stocks are three- Bangladeshi immigrants to England or Paradoxically, the rise of such criminal quarters of what they once were. Water avail- Ukrainian girls to a life of prostitution in activities undermines the initiatives that cre- ability today is 60% of 1970 levels, as is forest the Netherlands. As the multinational cor- ate the opportunity. Who wants to invest in porations have led the drive to globalize the a country where a business partner may turn coverage. All this threatens the economic secu- world’s economy, so the “crime multina- out to be a gangster who settles arguments rity, food security and health security of the tionals”—the organized crime syndicates— with a gun? Who in the international com- world’s poorest people. have been quick to exploit it. The Chinese munity will want to be seen supporting a People are also vulnerable to the “loud triads are in the restaurant trade in London. government mired in the corruption to The Sicilian Mafia is selling heroin in New which unchecked criminal activity so often emergencies” of the environment. In 1997 and York. And the Japanese Yakuza are leads? The control of organized crime must 1998 El Niño and La Niña brought wild swings financing pornography in the Nether- be ranked high on the international agenda in temperature and rainfall. El Niño is esti- lands. as well as national ones. mated to have displaced nearly 5 million peo- Source: Helsby 1999. ple, injured 118 million and caused almost

HUMAN DEVELOPMENT IN THIS AGE OF GLOBALIZATION 43 this era seeks to promote economic efﬁciency, ens institutions of redistribution, leading to generate growth and yield proﬁts. But it misses inequalities. And as individuals compete in the out on the goals of equity, poverty eradication global economy, they spend time in honing and enhanced human security. their skills and working at a paid job—putting • First, not just new but stronger policies to a time squeeze on caring activities. Care is also protect and promote human development are squeezed by reductions in public spending. needed, including policies often called “social And free market prices do not capture the full protection”. environmental costs of production and con- • Second, many problems of human develop- sumption, putting a squeeze on the natural ment go beyond what nations can tackle on their environment. own and require more international cooperation. Stronger policies for human development • Third, action to protect and promote human —more investment to equip people for the FIGURE 1.8 development must come not only from nations globally competitive economy, and to partici- Provisioning for human development but from communities, NGOs and corporations. pate in the global network society—are needed Economic growth, an important input for to promote human development. But they are Private incomes human development, can translate into human also needed to make globalization work. Ulti- development only if the expansion of private mately, people and nations will reject global

Public provisioning income is equitable and only if growth gener- integration and global interdependence if they ates public provisioning that is invested in do not gain from it and if it increases their vul- human development—in schools and health nerability. Pressures will mount to retreat to Unpaid work centres, not arms. Human development also isolationism in economic policy, culture and depends on unpaid work by men and women in political priorities. Natural resources the household or community, providing the To pursue human development, globaliza- “care” so essential to human survival. And it tion has to mean:

Source: Human Development Report Office. depends on the natural environment, another • Ethics—less, not more violation of human essential resource for all, particularly for poor rights and disregard of human values. people who derive their livelihood from natural • Development—less, not more poverty of resources (figure 1.8). countries and people. The rapid expansion of global markets— • Equity—less, not more disparity between the conditions for people, corporations and and within nations and generations. nations to compete globally, the urge to priva- • Inclusion—less, not more marginalization tize and downsize public action in search of and exclusion of countries and people. economic efficiency—creates an environment • Human security—less, not more vulnera- in which the needs of human development can bility of countries and people. be easily neglected, with spending subject to a • Sustainability—less, not more depletion fiscal squeeze. Reduced public spending weak- and degradation of the environment.

44 HUMAN DEVELOPMENT REPORT 1999 CHAPTER 2 New technologies and the global race for knowledge

The recent great strides in technology present power. Knowledge is the new asset: more than The global gap between tremendous opportunities for human develop- half of the GDP in the major OECD countries ment—but achieving that potential depends on is now knowledge-based. With such impor- haves and have-nots, how technology is used. What is technology’s tance placed on these technologies, the new between know and impact on globalization—and globalization’s rules of globalization—liberalization, privatiza- impact on technology? tion and tighter intellectual property rights— know-nots, is widening are shaping their control and use, with many THE RACE FOR KNOWLEDGE consequences for human development. Globalization’s rules have set off a race to With the knowledge economy at the forefront lay claim to knowledge. A global map for the of global interaction, much attention has new technologies is being drawn up faster than become focused on new technologies: on infor- most people are able to understand the mation and communications technologies and implications—let alone respond to them—and on biotechnology. Why do these stand out? faster than anyone’s certainty of the ethical and For both, there have been fundamental developmental impacts. The global gap leaps in innovation—not just better ways of between haves and have-nots, between know doing old things but radically new ways of doing and know-nots, is widening: previously unimagined things. The fusion of • In private research agendas money talks computing and communications—especially louder than need. through the Internet—has broken the bounds • Tightened intellectual property rights keep of cost, time and distance, launching an era of developing countries out of the knowledge global information networking. In biotechnol- sector. ogy the ability to identify and move genetic • Patent laws do not recognize traditional materials across species types has broken the knowledge and systems of ownership. bounds of nature, creating totally new organ- • The rush and push of commercial interests isms with enormous but unknown implications. protect proﬁts, not people, despite the risks in Both technologies are fuelling globaliza- the new technologies. tion, opening new markets and giving rise to new actors. Communications change economic THE NEW TECHNOLOGIES—DRIVERS OF competition, empowerment and culture, GLOBALIZATION inspiring global conversation. Genetic engineering leads to complex links between farmers Communications technology sets this era of and indigenous people in biorich countries and globalization apart from any other. The Inter- the multinational pharmaceutical and agricul- net, mobile phones and satellite networks have tural industries. shrunk space and time. Bringing together com- And both technologies are being shaped by puters and communications unleashed an globalization. Writing computer programmes unprecedented explosion of ways to communi- and revealing genetic codes have replaced the cate at the start of the 1990s. Since then tremen- search for gold, the conquest of land and the dous productivity gains, ever-falling costs and command of machinery as the path to economic rapidly growing networks of computers have

NEW TECHNOLOGIES AND THE GLOBAL RACE FOR KNOWLEDGE 57 transformed the computing and communica- to fast and cheap communications, computer- tions sector. If the automobile industry had the aided design and the standardization of tasks— same productivity growth, a car today would yet they can still coordinate and control their cost $3. worldwide operations as a unit. They operate In the early 1990s the Internet shifted from in an arena beyond the jurisdiction and a specialized tool of the scientific community to accountability of any one country, in a global a more user-friendly network transforming context that does not yet have an adequate social interaction (box 2.1). The number of framework for regulating them. At the same Internet hosts—computers with a direct con- time network communications have been a nection—rose from less than 100,000 in 1988 to tremendous levelling force for small busi- more than 36 million in 1998. More than 143 nesses, enabling them to compete—and suc- million people were estimated to be Internet ceed—in lucrative niches of the global market. FIGURE 2.1 How long before new users in mid-1998—and by 2001 that number is • Fragmentation versus integration. Cutting technologies gain expected to be more than 700 million. The across the tradition of national communities is widespread acceptance? (years from inception Internet is the fastest-growing tool of commu- the rise of on-line communities, drawn together to 50 million users) nication ever (figure 2.1). by politics, ethnicity, interests, gender, work or Its speed and cost advantages are clear. A 40- social cause. Using the network, they fire up Radio 38 page document can be sent from Madagascar to debates and rally instant responses, bringing a Personal computer 16 Côte d’Ivoire, for example, by five-day courier new lobbying power to previously silent voices for $75, by 30-minute fax for $45 or by two- on the global stage. At the same time network Television 13 minute email for less than 20 cents—and the communications can forge closer local commu- World email can go to hundreds of people at no extra nities, providing community information and Wide 4 Web cost. The choice is easy, if the choice is there. making local government more transparent. As the communications revolution turns • Homogenization versus diversity. The Source: Economist 1998b. digital, it promises far-reaching change, glob- global entertainment and media industry— ally, nationally and locally. Network communi- spreading opinion, culture and politics—is cations connect everything to everything else, dominated by a handful of major companies. creating a network society that forces complex They control both distribution networks and and contradictory shifts: the programming, including news and films, • Decentralization versus recentralization. sent by cable and satellite television into house- Old economic boundaries around nations have holds across the world. At the same time the given way to new centres of power in the pri- declining costs of technology have allowed a vate sector. Multinational corporations have diversity of voices and cultures to be aired. spread their activities around the world thanks Multilingual Internet sites and radio programming in local languages reach out to minority groups. Programmes on satellite television BOX 2.1 What is the Internet? bring news and culture from home to many The Internet—a centreless web of computer Even people in the industry did not foresee diasporas around the world, including Chi- networks—was funded by the US Depart- the revolution. In 1977 a computer industry nese, Indian and Korean communities. ment of Defence in the late 1960s as a strat- executive said “there is no reason why any- These changes are still in flux. But informa- egy for communicating during a nuclear one would want a computer in their home”. tion and communications technology can be a attack. Soon it was used to link technically Today more than 50 million households in skilled science and university communities. the United States and almost 50 million in tremendous force for human development for In the early 1990s user-friendly innova- Europe have at least one computer at all those connected—by providing informa- tions—the creation of the World Wide home—and many have two. tion, enabling empowerment and raising Web, the distribution of free browsers— The Web began as a free-for-all, an productivity. turned the arcana of computer language into unregulated domain, with a spirit of explo- the simple point and click of a mouse, mak- ration and spontaneity. Now that it is of ing the Internet more widely accessible. commercial interest, laws and regulations PROVIDING INFORMATION At the same time computers became are needed in areas of privacy, liability, cen- much cheaper, and the network took off. sorship, taxation and intellectual property. Developing countries suffer many of the

Source: Security Distributing and Marketing 1998; CNBC 1998; Human Development Report Ofﬁce. world’s most virulent and infectious diseases, yet often have the least access to information

58 HUMAN DEVELOPMENT REPORT 1999 for combating them. A US medical library sub- Giving voice to NGOs. The heat of the scribes to around 5,000 journals, but the moment will not wait for a letter to travel Nairobi University Medical School Library, halfway around the world: people’s movements long regarded as a flagship centre in East must respond fast to have an impact. Instant Africa, now receives just 20 journals, compared network communications have brought this with 300 a decade ago. In Brazzaville, Congo, power to NGOs, creating a tremendously the university has only 40 medical books and a important countervailing force out of previ- dozen journals, all from before 1993. Worse, ously silent voices in the global arena. the library in a large district hospital consists of The rise of these new actors is felt across the a single bookshelf filled mostly with novels. board (box 2.3). Socially excluded and minority Distance learning, through teleconferenc- groups have created cybercommunities to find ing and, increasingly, the Internet, can bring strength in on-line unity and fight the silence on critical knowledge to information-poor hospi- abuses of their rights. In India DATPERS, the tals and schools in developing countries (box Dalit and Tribal People Electronic Resource 2.2). The potential is great—but technology Site, exposes the exclusion of 250 million low- alone is not a solution. Three cautions: caste people, coordinating international human • Information-poor schools and hospitals are rights campaigns and keeping the community in often poorly connected. In South Africa, the touch. During the Indonesian riots of 1998 the best-connected African country, many hospi- ethnic Chinese minority used the Web to draw tals and about 75% of schools have no tele- the attention of the world to their plight. phone line. Even at the university level, where Women have been innovative in using there is connection, up to 1,000 people can global communications for their needs. In depend on just one terminal. A single computer Mexico City an NGO called Mujer a Mujer— is not enough: an entire telecommunications Woman to Woman—emailed contacts in Cali- infrastructure is needed. fornia for assistance when plans for a new • Equipment is a necessity, but to be part of textile factory were announced in their com- a solution distance learning requires institu- munity. The women went to meet the manage- tions, skills and good management. Distance ment with a bulky portfolio detailing the learning technology is of little use without rele- company’s practices, profits and ownership— vant course content and strong staff support.

Zambia saw an exodus of 7,000 teachers BOX 2.2 between 1986 and 1990, largely due to a shrink- HealthNet for better patient care ing education budget. Technology cannot work HealthNet is a networked information ser- HealthNet’s communications system where there are no support staff to help pupils vice supporting health care workers in more also supports ProMED mail, created by get the best from the network. than 30 developing countries, including 22 the Program for Monitoring Emerging • Information is only one of many needs. in Africa. It uses radio- and telephone-based Diseases. A moderated, free email list computer networks and a low-earth-orbit started in 1994, it now has more than Email is no substitute for vaccines, and satel- satellite. Slower than the Internet, it is also 11,000 direct subscribers in more than 135 lites cannot provide clean water. High-proﬁle cheaper, and accessible in areas with no countries—and thousands more over the technology projects risk overshadowing basic telecommunications infrastructure. Web—who report, discuss and request priorities. As one health worker in Kathmandu The network provides summaries of the assistance for outbreaks of emerging infec- said, “Our priorities are hygiene, sanitation, latest medical research, email connectivity tious diseases. The aim of ProMED is fast and access to medical libraries. Doctors in reporting—of cholera in the Philippines, safe drinking water . . . how is access to the Central Africa used it to share information E. coli in Japan, Delta hepatitis in the Internet going to change that?” The main con- on the 1995 outbreak of the Ebola virus. upper Amazon, dengue fever in Malaysia, straint is inadequate resources for health and Burn surgeons in Mozambique, Tanzania yellow fever in Switzerland and Ebola in education systems as a whole. and Uganda use it to consult one another Gabon. The speed of communication— on reconstructive surgery techniques. often faster than ofﬁcial channels, yet just Malaria researchers at a remote site in as reliable—translates into faster assis- ENABLING EMPOWERMENT northern Ghana use the system to commu- tance, earlier warnings to neighbouring nicate daily with the London School of countries and greater awareness among Communications technology opens new oppor- Hygiene and Tropical Medicine. health workers. tunities for small players to enter the global Source: SatelLife 1998. marketplace and political arena.

NEW TECHNOLOGIES AND THE GLOBAL RACE FOR KNOWLEDGE 59 information impossible to find in Mexico City, $2.6 billion in 1996, and by 2002 it is expected and even on the Web, but available in the to be more than $300 billion, promising to United States for a small database access fee. transform the way business is done around the And one inspired group used the Internet to world. The potential is not limited to compa- build community across the lines in war-torn nies with sophisticated Websites, or to cus- former Yugoslavia in 1994, creating the Elec- tomers with credit cards and electronic tronic Witches to link women from different banking. There are many ways of using the ethnic groups. Gathering at Internet-linked Internet to do business—from making contacts computers around the country, often in univer- and checking prices to displaying goods and sities, groups of women sent messages to one entering into contracts. Small businesses every- another, sharing their concerns, their grief over where are exploiting the opportunities. the bombing of the city of Tuzla and their sur- PEOPLink is a fair trade organization sell- vival strategies. One message advised that ing crafts over the Internet, linking the work of burning just one running shoe would be more than 130,000 artisans across 14 countries enough to bake a loaf of bread. of Africa, Asia and Latin America. By recording their work with a digital camera, the trad- Creating commerce for small businesses. ing partners can display their products on the Telephone, email and the Internet give small Internet and receive orders from around the businesses access to markets and bring much- world. needed savings in cost and time. A study in Tropical Whole Foods, a UK company sell- Ghana found that workers in small-scale indus- ing fairly traded dried fruit from cooperatives tries without telecommunications can waste up to and small businesses in Burkina Faso, South half their work time travelling from place to place. Africa, Uganda and Zambia, has transformed Starting from a small base, electronic com- communications with email. Daily messages are merce is booming. The market was valued at exchanged to pass on business advice and share accounts and production figures, preventing stockpiles and shortages and keeping all part- BOX 2.3 Defending Gorbachev, defeating the Multilateral Agreement ners informed of the current state of trade. In on Investment—how the Internet made a difference the past such tight coordination would have been possible only for multinational corpora- Leaflets and banners are out. Email and • In 1997 the leading countries of the Websites are in—as the new tool of protest OECD began negotiating an agreement tions with integrated data networks. Now inno- movements in this global era. Click, con- behind closed doors to set up a global frame- vative small businesses can find their niche and nect and the campaign begins. work of rules on investment. The Multilateral compete alongside giants. • In August 1991 an attempted coup Agreement on Investment aimed to prevent against President Mikhail Gorbachev of governments from favouring domestic the Soviet Union was defeated—a part in investors and to remove restrictions on multi- Empowering governments of poor this was played by a small but determined national corporations investing in develop- countries. In 1990 more than 90% of data on network society. Coup leaders seized con- ing countries—highly sensitive issues. When Africa were stored and managed in the trol of television and radio stations, the the proposal was posted on the Internet, a United States and Europe, inaccessible to traditional communications, to block the coalition of NGOs—environmental organi- sounds of dissent, but they did not think zations, consumer groups, trade unions and African policy-makers and academics. The to shut down the telephone network. Rus- church groups—united forces to question Internet is bringing the data back home. Pol- sia’s fledgling and little-known computer the direction of the debate, gain the attention icy-makers can also gain access to interna- network set to work, supplying informa- of the press and expose the agreement’s tional expertise and ongoing debates, tion to computer nodes and fax machines shortcomings. By the end of 1998 there were strengthening their negotiating positions for across the Soviet Union, broadcasting campaigns against the agreement in more Boris Yeltsin’s declaration of defiance than half the OECD countries participating a much-needed greater presence in interna- and providing a link between Moscow in the discussions and many more in devel- tional forums. The Small Islands Developing and the rest of the world. The supply of oping countries. With public pressure States Network, SIDSNet, is a forum for its information galvanized people’s resis- putting negotiators in an uncomfortable 42 member nations—from Malta and Mauri- tance and helped prevent the coup from position, and with disagreement among the gaining momentum. players, the negotiations broke down. tius to Cuba and Comoros—to share data and experience on common concerns: energy Source: Rohozinski 1998; Kobrin 1998. options, sustainable tourism, coastal and marine resources and biodiversity.

60 HUMAN DEVELOPMENT REPORT 1999 Informing remote specialists. Isolated political criticism. Others have even made use academics and scientists can take part in Inter- of the Internet a punishable crime. net conferences, keeping up to date on discus- But censoring the Internet is difficult, ulti- sions and developments in their fields. Contacts mately impossible, since it was designed by the made can become technical support groups, US Department of Defence to operate even if which are of tremendous value to remote spe- under nuclear attack and to hunt for ways cialists. By allowing participants to share and around obstacles when access is blocked. Web discuss papers on-line, Internet conferences discussion groups write the equivalent of thou- can easily involve more than 1,000 people sands of broadsheet newspapers every day—an worldwide, without any of the costs of travel. impossible volume to oversee. The Global Internet Liberty Campaign brings together civil RAISING PRODUCTIVITY liberties groups, journalists and NGOs to per- FIGURE 2.2 suade national governments not to restrict Software exports from India With the knowledge sector at the forefront of access to the Internet because of its tremendous US$ millions global economic opportunity, getting into potential for human development. Compared 1,500 knowledge production can be a fast track to with most traditional tools for development, growth. By creating a basic capacity to operate information and communications technologies imported technology, countries can progress, can reach many more people, go geographically 1,000 climbing the rungs of the ladder, by learning to deeper, work faster and at lower cost. duplicate, to adapt to their own needs and, finally, to innovate. The Eastern Caribbean has ACCESS TO THE NETWORK SOCIETY—WHO IS 500 seized the opportunity to step onto the first rung, IN THE LOOP AND ON THE MAP? using its low-cost, semi-skilled labour to export data processing services (box 2.4). In Sweden, The power and importance of communications 0 too, remote communities have specialized in data technology are clear. But is it leading to global- 1980 85 90 95 processing, airline ticketing and hotel reserva- ization or polarization in communications? Source: Heeks 1998. tions, creating productive employment to keep The information revolution has only just young people from heading for the cities. India begun on a worldwide scale, and its networks has forged ahead, specializing in software pro- are spreading wider every day. But they are gramming for export (figure 2.2). Japan and the heavily concentrated in a very few countries. first tier of newly industrializing countries have In Cambodia in 1996, there was less than 1 climbed the furthest—they focused their indus- telephone for every 100 people. In Monaco, by trial strategies on creating knowledge-intensive industries and have built up strong national BOX 2.4 capacities in research and development. Indeed, Trading places—the rise of data processing Japan is perhaps the ultimate proof that compar- As early as 1980 electronic data entry skilled computer work, the islands have ative advantage is not a fixed given, but can be services were being exported: bulky paper attracted many US companies. In 1994 created in the information economy. slips were sent by air freight to countries hourly wages for data entry in the United with good computing skills and low States were $7–8. Compare that with less wages. The industry was hampered, than $1.50 in Dominica, Grenada, Saint ADDRESSING CENSORSHIP however, by the unreliability of freight Kitts and Nevis, Saint Lucia and Saint delivery and the costs of volume, time and Vincent. Many governments recognize the tremendous distance. Electronic commerce has The appeal is heating up the competi- potential of the Internet and use it to provide removed those constraints. Claims pro- tion among offshore teleports, and the cost public information: from the Indian Ministry of cessing, electronic publishing, secretarial of overseas calls is often a determining work, airline ticketing and customer sup- factor—compare Jamaica’s 22 cents a Finance to the Malaysian Ministry of Agricul- port have migrated overseas through the minute with Saint Lucia’s $1.85 in 1994. ture, government agencies are using Websites Internet. That is why developing countries need to to increase the transparency of their operations. The Eastern Caribbean seized this move into high-tech, low-cost digital com- Several countries, however, have attempted to opportunity. Combining excellent tele- munications technology to be competitive censor and control this popular empowerment. communications with low wages for semi- in the global knowledge sector. Some monitor Web searches and have blocked Source: Schware and Hume 1994. access to sites providing foreign news or airing

NEW TECHNOLOGIES AND THE GLOBAL RACE FOR KNOWLEDGE 61 contrast, there were 99 telephones for every WELCOME TO THE NETWORK HIGH SOCIETY 100 people. A widely accepted measure of basic access to telecommunications is having 1 Within each region it is only the tip of each soci- telephone for every 100 people—a teledensity ety that has stepped into the global loop— of 1. Yet as we enter the next century, a quar- worldwide, just 2% of all people. What sets ter of countries still have not achieved even this these people apart from the rest? Current basic level. Many of those countries are in Sub- access to the Internet runs along the fault lines Saharan Africa and among the least developed of national societies, dividing educated from countries (figure 2.3). At the present average illiterate, men from women, rich from poor, speed of telecommunications spread, Côte young from old, urban from rural. National d’Ivoire and Bhutan would take until 2050 to Internet surveys in 1998 and 1999 revealed achieve the teledensity that Germany and Sin- that: FIGURE 2.3 Teledensity gapore have today. • Income buys access. The average South Telephone mainlines per 100 people Beyond basic landline connections, the dis- African user had an income seven times the parities are even more stark. In mid-1998 indus- national average, and 90% of users in Latin Sweden trial countries—home to less than 15% of America came from upper-income groups. United States 60 people—had 88% of Internet users. North Amer- More than 30% of users in the United Kingdom France ica alone—with less than 5% of all people—had had salaries above $60,000. Buying a computer more than 50% of Internet users. By contrast, would cost the average Bangladeshi more than Taiwan, province of China South Asia is home to over 20% of all people but eight years’ income, compared with just one Italy 40 had less than 1% of the world’s Internet users (fig- month’s wage for the average American. ure 2.4). • Education is a ticket to the network high Thailand has more cellular phones than the society. Globally, 30% of users have at least one United Arab Emirates whole of Africa. There are more Internet hosts university degree—in the United Kingdom it is Kuwait in Bulgaria than in Sub-Saharan Africa (exclud- 50%, in China almost 60%, in Mexico 67% and 20 ing South Africa). The United States has more in Ireland almost 70%. Argentina Costa Rica computers than the rest of the world combined, • Men dominate. Women accounted for Saudi Arabia and more computers per capita than any other 38% of users in the United States, 25% in Brazil, China country. Just 55 countries account for 99% of 17% in Japan and South Africa, 16% in Russia, 0 Less than 1: global spending on information technology. only 7% in China and a mere 4% in the Arab Haiti 0.8 Most telephones in developing countries are in States. The trend starts early: in the United Kenya 0.8 Sierra Leone 0.4 the capital city, although most people live in States five times as many boys as girls use com- Bangladesh 0.3 rural areas. Connections are often poor in the puters at home, and parents spend twice as Tanzania, U. Rep. of 0.3 Uganda 0.2 rainy season, and the costs of calls are very high. much on technology products for their sons as Afghanistan 0.1 In several African countries average monthly they do for their daughters. Source: ITU 1998. Internet connection and use costs run as high as • Youth dominate too. The average age of $100—compared with $10 in the United States. users in the United States was 36; in China and Yet even if telecommunications systems are the United Kingdom, under 30. installed and accessible, without literacy and • Ethnicity counts. In the United States the basic computer skills people will have little difference in use by ethnic groups widened access to the network society. In 1995 adult lit- between 1995 and 1998. Disparity exists even eracy was less than 40% in 16 countries, and among US university students. More than 80% primary school enrolments less than 80% in 24 attending elite private colleges used the Inter- countries. In Benin, for example, more than net regularly, compared with just over 40% 60% of the population is illiterate, so the possi- attending public institutions, where African- bilities of expanding access beyond today’s American students are more likely to enrol. 2,000 Internet users are heavily constrained. • English talks. English is used in almost Even for the newest and most advanced tech- 80% of Websites and in the common user inter- nologies, the most basic and long-standing pol- faces—the graphics and instructions. Yet less icy lies at the heart of the solution: investment than 1 in 10 people worldwide speaks the in education. language.

62 HUMAN DEVELOPMENT REPORT 1999 Geographic barriers may have fallen for • Capacity—building human skills for the communications, but a new barrier has emerged, knowledge society. an invisible barrier that, true to its name, is like a • Content—putting local views, news, cul- world wide web, embracing the connected and ture and commerce on the Web. silently—almost imperceptibly—excluding the • Creativity—adapting technology to local rest. The typical Internet user worldwide is male, needs and constraints. under 35 years old, with a college education and • Collaboration—devising Internet gover- high income, urban-based and English-speak- nance for diverse needs around the world. ing—a member of a very elite minority world- • Cash—ﬁnding innovative ways to fund the wide. The consequence? The network society is knowledge society. creating parallel communications systems: one for those with income, education and—liter- Connectivity. A telecommunications infra- ally—connections, giving plentiful information structure is needed, but the infrastructure costs at low cost and high speed; the other for those are immense, and many governments are turning without connections, blocked by high barriers of to the private sector. Opening telecommunica- time, cost and uncertainty and dependent on tions and Internet provider services to the market outdated information. With people in these two can massively increase connectivity. But schemes systems living and competing side by side, the are needed to ensure that the market does not advantages of connection are overpowering. The focus only on lucrative urban customers. When voices and concerns of people already living in Senegal privatized telephone services, operators human poverty—lacking incomes, education were required under licence to install public tele- and access to public institutions—are being phones in 50% of the rural villages containing increasingly marginalized. Determined efforts are needed to bring developing countries—and poor people everywhere—into the global con- FIGURE 2.4 Large circle represents world population. Internet users—a global enclave United Pie slices show regional shares versation. Mid-1998 States of world population. Dark wedges show Internet users.

MAKING GLOBAL COMMUNICATIONS TRULY GLOBAL Internet users as a percentage of the national population The past decade has proven the tremendous OECD potential of global communications to provide South Asia excluding the United States 40 Sub-Saharan information, enable empowerment and raise Africa Iceland productivity. But it has also exposed the risks of Arab States dividing and polarizing societies, threatening Eastern Europe Latin America and greater marginalization of those left out and left and the CIS the Caribbean 30 Sweden behind. East Asia South-East Asia and the Finland Pacific What lies in between is proactive policy. United States The greatest danger is the complacent belief Regional Internet users that a proﬁtable and growing industry will population (as a percentage (as a percentage of regional 20 Singapore solve the problem by itself. But the market of world population) population) Canada alone will make global citizens only of those United States 4.7 26.3 who can afford it. Fulﬁlling the potential of OECD (excl. United States) 14.1 6.9 Latin America and the Caribbean 6.8 0.8 Estonia global communications for development South-East Asia and the Pacific 8.6 0.5 10 United Kingdom demands relentless effort in reaching out to East Asia 22.2 0.4 Eastern Europe and the CIS 5.8 0.4 extend and enhance the loop. Seven goals on Arab States 4.5 0.2 the road to an information society: Sub-Saharan Africa 9.7 0.1 Qatar • Connectivity—setting up telecommunica- South Asia 23.5 0.04 Malaysia World 100 2.4 0 Brazil tions and computer networks. Note: The Czech Republic, Hungary, Mexico, Poland, the Republic of Korea • Community—focusing on group access, and Turkey are included in the OECD and not in the regional aggregates. not individual ownership. Source: Based on data supplied by Nua 1999, Network Wizards 1998 and IDC 1999.

NEW TECHNOLOGIES AND THE GLOBAL RACE FOR KNOWLEDGE 63 more than 3,000 people by 2000. In the Philip- petition could bring rapidly falling prices in the pines new mobile phone operators—usually serv- future. ing an elite market—are also required to install Competition is hard to ensure in the 400,000 landlines—serving poor communities— telecommunications industry—especially for within ﬁve years. Computing hardware and soft- local calls, as even the most developed coun- ware are needed to transform telephone lines into tries have seen. Strong regulation and antitrust Internet connections, and policies are needed to laws, well implemented, are needed to ensure promote this. To encourage computer owner- that private markets are competitive markets ship, the governments of Bangladesh and Mauri- and that public needs are met. This will be a tius, for example, eliminated tariffs and taxes on challenge for all countries. personal computers. The satellite revolution promises greater Community access. To bring connectiv- connectivity, since every point on the globe can ity to people, community access is key, not be reached instantly without a need for expen- individual ownership. The concept of one sive land-based infrastructure. User costs are household, one phone is unrealistic in many still very high, but with several major satellite developing countries, especially in rural areas networks due to be launched before 2001, com- and among poor communities everywhere. A

BOX 2.5 Innovating with the Internet The Internet is an evolving tool and can be Estonia—raising the roof leisure—spending little time playing games or creatively used in many ways. Some countries Estonia, among the first of Eastern Europe’s watching videos. Clearly, in Estonia the Inter- are at the forefront of innovating to make this transition economies expected to enter the net is becoming a learning tool, not an enter- technology work for their needs. European Union, is wasting no time catching tainment centre. up. Along with economic reform, the country Egypt—enriching telecentres has made great efforts to promote access to the India—reaching the villages At the end of 1998 there was less than one Inter- Internet for its 1.4 million citizens. Small coun- Some of the remotest villages in the world have net user for every 1,600 people in Egypt. Con- tries, often disadvantaged by their size in other modern communication. Ironically, it usually nections are increasing daily, but mainly among areas, can be among the first to create an infor- brings only satellite television full of images of the wealthy and well educated in urban areas. mation society. As President Lennart Meri of distant lives, irrelevant to local issues. To reach out to people in poor and remote Estonia has said, “The Internet is the roof of the The M.S. Swaminathan Research Founda- areas, UNDP has launched three pilot Technol- world for a small nation.” tion in South India is trying to change this—to ogy Access Community Centres (TACCs) in the Public Internet access points are provided tackle local problems. The Village Information governorate of Sharkeya. throughout the country, even on remote Project in Pondicherry began with an in-depth Each TACC telecentre, equipped with islands in the Baltic Sea. In schools the Tiger study of village needs—and only when this was Internet connection and many computers, is Leap Programme, launched in 1996, provides complete did it turn to technology. Recondi- located in a public building or a local cham- information-based learning systems for all tioned second-hand computers were donated ber of commerce to ensure that it is accessi- pupils, rapidly modernizing education and cre- by Byte by Byte, a Tokyo-based organization ble to all—individuals, civil society groups, ating strong conditions for an open learning that collects discarded equipment from com- small businesses, low-income communities. environment. Its scope has widened, aiming to panies such as Reuters and Ford Motors and But the centres provide far more than walk-in create an open and democratic society by pro- sends them off for second lives around the access. They offer training in computer li- viding access to modern communications for world. teracy, email and Web searches, Webpage all, not just school pupils, city dwellers and the Even in villages without telephones, the Vil- creation, desktop publishing, computer well-off. With few natural resources, Estonia lage Information Project brings people the maintenance and technical support. These has realized that its wealth is its people and is knowledge they need. Free-standing, solar- skills can be used for distance learning, investing in them for the 21st century. powered computers are updated daily with telemedicine, networking and electronic The country has indeed tiger-leaped ahead of information relayed through radio handsets commerce. Future plans include integrating other transition economies in integrating into the and cell phones from a regional centre with women’s health centres into the TACCs. information society. More than one in 10 Esto- direct Internet access. The village computer Internet access is initially free to encourage nians are now on-line—using the Internet—and acts as a bulletin board for the availability of people to explore the potential. Later, low Estonia ranks among the top 15 countries in medicine in health centres and credit in micro- fees will be supplemented by charges on Europe in computers per capita, ahead of finance schemes, for market prices, transport other services: fax, photocopies and training France and Italy. Surveys of users show that services and input costs, for warnings of pest, programmes. This is the way forward for tele- they use the World Wide Web mainly to find weather and water risks and for educational centres. information for work, for school and for materials for schoolchildren.

Source: M.S. Swaminathan Research Foundation 1998; Mehta 1999; UNDP 1998b; BMF Gallup Media 1999.

64 HUMAN DEVELOPMENT REPORT 1999 more appropriate approach is to create multi- in California’s Silicon Valley uses email to keep media community centres—or “telecen- culture strong for the worldwide diaspora. As tres”—in places accessible to those often one user said of the discussion group, “Vietnet blocked out of institutions: poor people and brought everybody closer. Many ideas, feelings, communities, women and youth. From Peru poems and opinions were exchanged. . . . Many to Kazakhstan, basic telecentres have been set people from faraway states and different conti- up in post offices, community centres, nents came to visit.” libraries, video shops, police stations and Local content can enhance community par- health clinics, providing local community ticipation and institutional transparency. In access to telephone and fax services, email India the state government of Andhra Pradesh and the World Wide Web. But providing is setting up a network to connect telecentre access takes more than providing computers. access points with government services and To bring connectivity to Telecentres need to become hubs for skills ofﬁces. The Infoville Project in Villena, Spain, training and capacity building. Egypt is lead- has created a “virtual” town hall by subsidizing people, community ing the way in this approach (box 2.5). access to a community intranet with local infor- access is key, not mation, government services, banking, retail, Capacity. Building people’s capacity to use schools and health services on-line. individual ownership the Internet starts in schools. The Costa Rican government has installed computers in rural Creativity. The context for communica- schools across the country to give all pupils a tions varies greatly around the world, yet chance to learn the new skills. In Hungary the solutions have focused on industrial coun- ambitious Sulinet (Schoolnet) has enabled stu- tries. Creativity is needed to adapt the possi- dents in more than two-thirds of secondary bilities of technology to the needs of poor schools to browse the Net from their class- countries and poor people. In rural Bolivia rooms. The annual NetDay initiative in the most farmers have never seen a computer, United States has used volunteers to connect but they already have access to the Internet. more than 140,000 schools at a fraction of the How? Farmers with crop concerns can give commercial cost. Beyond classroom connec- questions to a community leader, who relays tions, support staff are essential for on-line the inquiry to the radio station, where it is learning, and teachers need training. In Finland sent to UNDP’s communications centre. The teachers receive more than a month of training question is then posted on the Internet and in how to use information technology in the answers received are emailed back to the classroom. In Lesotho the Technical Enhanced radio station and broadcast. In South India, Learning Institutes in Southern Africa too, creativity has tailored computer tech- (TELISA) were launched in 1998 to renew nology to local community needs (see box regional education with professional develop- 2.5). ment for teachers. Collaboration. The Internet has rapidly Content. The information highway cannot become not only a global communications be a one-way street. Websites need to be cre- tool but a great source of economic potential. ated locally, adding new voices to the global Its evolution, at first ad hoc, is being shaped conversation and making content relevant to into a system of governance—with rules on communities. The ﬁrst step is language and cul- domain names, taxation, privacy and protec- ture. The government of Tamil Nadu, India, is tion of intellectual property rights. But gover- promoting keyboard standardization, software nance should not be framed by the United interfaces and Websites in Tamil, spoken by 75 States, the European Union or the OECD million people worldwide. In Estonia the alone. Commercial interests may be at stake— highly effective Tiger Leap Programme is but so is the right of access to communications developing educational software to teach the for all people. Internet and telecommunica- Estonian language and the history of the coun- tions need global governance framed by try (see box 2.5). The Vietnamese community global interests.

NEW TECHNOLOGIES AND THE GLOBAL RACE FOR KNOWLEDGE 65 BOX 2.6 Cash. There is an urgent need to find the Preparing for the information age—set the wheels in motion resources to fund the global communications The importance of building an information to the best performance yet achieved. A revolution—to ensure that it is truly global. society is clear. The question for governments complete wheel would mean the smoothest One proposal is a “bit tax”—a very small tax faced with scarce resources is not whether to ride in the information age. on the amount of data sent through the Inter- invest—but how much and where. What are The index has been calculated for the net. The costs for users would be negligible: the areas that strengthen a nation’s capacity to 55 countries, which account for 99% of make the most of information and communi- global information technology spending. sending 100 emails a day, each containing a cations technology? The Information Society This puts the focus on indicators most 10-kilobyte document (a very long one), Index, prepared by the World Times and the relevant to industrial countries. An inter- would raise a tax of just 1 cent. Yet with email International Data Corporation, gives one esting future challenge would be to adapt booming worldwide, the total would be sub- way of measuring a country’s preparedness, the index to include indicators more rel- across four types of infrastructure: evant to progress in developing coun- stantial. In Belgium in 1998, such a tax would • Information—creating the capacity to tries. Even in this group of 55 there is have yielded $10 billion. Globally in 1996, it send and receive information by telephone, great disparity, shown in the range of would have yielded $70 billion—more than television, radio and fax. wheels below. total official development assistance that year. • Computer—extending access to com- The United States is the most prepared puters in schools, workplaces and homes, information economy, but small countries How quickly are different countries building networks and using software. can be early adopters and leaders of the preparing for global communications? Many • Internet—expanding the use of the information revolution. Finland, the factors are involved, and the race to join the Internet in schools, workplaces and homes Netherlands and Singapore have all sur- information society has set off at a fast pace. It and enabling electronic commerce. passed many of the traditional industrial will determine many of the winners and losers • Social—building people’s capacity to economies in coverage and preparedness. use information through education, free- The wheels show that there are many in the globalized world (box 2.6). dom of the press and civil liberty. dimensions to being prepared for the infor- For each indicator, the closer a country mation age, and each country must tackle THE NEW RULES OF GLOBALIZATION— is to the outside of the wheel, the closer it is its weaknesses. SHAPING THE PATH OF TECHNOLOGY

US 21 1 2 21 1 2 JAPAN New technologies promise many advances for 20 3 20 3 19 4 19 4 human development. Gene therapy could tackle diseases such as cystic ﬁbrosis and cancer. 18 5 18 5 Genetically altered crops could reduce the need 17 6 17 6 to use polluting herbicides and pesticides. The 16 7 16 7 information and communications industry

15 8 15 8 could provide entry points for developing countries into producing for the knowledge-intensive 14 9 Circle shows 14 9 13 10 best country’s 13 10 economy. Yet the path of technology is not pre- 12 11 achievement 12 11 BULGARIA 21 1 2 21 1 2 JORDAN determined—many avenues of research could 20 3 20 3 be pursued, but only a few are followed. 19 4 19 4 Technology may be globalizing communi- 18 5 18 5 cations, but globalization—and its new rules—

17 6 17 6 is also shaping the path of new technologies. Over the past 20 years increasing privatization 16 7 16 7 of research and development, ever-growing lib- 15 8 15 8 eralization of markets and the tightening of 14 9 14 9 intellectual property rights have set off a race to 13 10 13 10 12 11 12 11 lay claim to knowledge, and this has changed

INTERNET COMPUTERS INFORMATION SOCIAL technology’s path. The risk is that poor peo- 1 Business Internet use 5 Personal computers 11 Fax ownership 19 Newspaper readership ple’s and poor countries’ interests are being left 2 Education Internet use for education use 12 Radio ownership 20 Tertiary enrolment 3 Home Internet use 6 PCs for government 13 Cable TV subscription 21 Secondary enrolment on the sidelines. 4 E-commerce spending and commercial use 14 TV ownership 7 PCs for home use 15 Cost of phone call 8 PCs installed 16 Cellular phone ownership PRIVATIZATION OF RESEARCH 9 Networked PCs 17 Telephone line error rate 10 Software spending 18 Telephone lines installed Source: World Times and IDC 1999. The knowledge sector is a fast-growing area of the global economy: between 1980 and 1994

66 HUMAN DEVELOPMENT REPORT 1999 the share of high-technology products in inter- $297 billion; in veterinary medicine, 60% of national trade doubled, from 12% to 24%. Yet $17 billion; in computers, almost 70% of $334 in the 1990s, with many governments facing a billion; in pesticides, 85% of $31 billion; and in squeeze on budgets, the proportion of public telecommunications, more than 86% of $262 funding for research and development in sci- billion. The lesson is clear: privatization does ence and technology has fallen around the not automatically lead to competition. FIGURE 2.5 world, to be replaced by private industry. Worldwide mergers and acquisitions Research and development has also shifted TIGHTER INTELLECTUAL PROPERTY RIGHTS Deals annually (thousands) away from developing countries. Their share in 3 the global total dropped from 6% in the mid- At the creation of the World Trade Organiza- 1980s to 4% in the mid-1990s. tion in 1994, the most far-reaching multilateral Computers The trend has been particularly strong in agreement on intellectual property was drawn agriculture and biotechnology. In the early up: Trade-Related Aspects of Intellectual Prop- 1980s most crop and seed development in the erty Rights, or TRIPS (box 2.7). 2 United States was under public research. The past two decades have seen a huge rise Patents were rarely sought and rarely enforced; in patent claims. The World Intellectual Prop- saving and trading of seed was commonplace. erty Organization’s Patent Cooperation Treaty This changed when new legislation encouraged accepts a single international application valid closer cooperation with the private sector, in many countries. The number of applications 1 Biotechnology enabling companies to profit from products made annually soared from less than 3,000 in developed largely with public funds. The intel- 1979 to more than 54,000 in 1997—and those lectual property of public and university applications in 1997 were equivalent to nearly Telecommunications research was increasingly passed over to private 3.5 million individual national applications 0 industry: the portion of public sector patents in (figure 2.6). According to the director of 1985 1990 1995 biotechnology sold under exclusive licence to research and development at one of the largest the private sector rose from just 6% in 1981 to biotechnology corporations, “the most impor- Total value of mergers and acquisitions more than 40% by 1990. tant publications for our researchers are not US$ billions Sector 1988 1998 With increasing privatization of research chemistry journals but patent office journals Computers 21.4 246.7 and rising costs for risky innovations, the 1990s around the world.” Biotechnology 9.3 172.4 have seen a boom in the number and value of Yet the claims to intellectual property are Telecommunications 6.8 265.8 mergers and acquisitions. The biggest year ever concentrated among very few countries. Source: Securities Data Company 1999. was 1998, especially for biotechnology, telecommunications and computing industries BOX 2.7 (figure 2.5). As a result economic power has What is TRIPS? consolidated among a very few players. By 1995 Intellectual property issues were first raised imposes minimum standards on patents, the world’s top 20 information and communi- under the General Agreement on Tariffs copyright, trademarks and trade secrets. cations corporations had combined revenue of and Trade in 1986 to clamp down on trade These standards are derived from the legis- more than $1 trillion—equivalent to the GDP in counterfeit goods. With many industrial lation of industrial countries, applying the of the United Kingdom. countries interested in tying negotiations form and level of protection of the indus- on trade liberalization to tighter control trial world to all WTO members. This is far In biotechnology genetic engineering over technology, this narrow focus was tighter than existing legislation in most underlies the new direction of pharmaceuti- soon extended to include many other areas. developing countries and often conflicts cals, food, chemicals, cosmetics, energy and The agreement on Trade-Related Aspects with their national interests and needs. seeds. This is blurring the boundaries between of Intellectual Property Rights, or TRIPS, Developing countries have been given until came into effect in 1995 under the World 2000 to adjust their laws, least developed the sectors, creating mega “life sciences” cor- Trade Organization (WTO). It affects such countries until 2005. porations. Indeed, across all knowledge-inten- diverse areas as computer programming The WTO’s TRIPS agreement can be sive industries, a select group of corporations and circuit design, pharmaceuticals and enforced through the integrated dispute set- controls ever-growing shares of the global transgenic crops. tlement system. This effectively means that if market. In 1998, how much of the global mar- Although each country implements a country does not fulfil its intellectual prop- intellectual property rights law at the erty rights obligations, trade sanctions can ket did the top 10 corporations in each indus- national level, the TRIPS agreement be applied against it—a serious threat. try control? In commercial seed, 32% of a $23 Source: South Centre 1997. billion industry; in pharmaceuticals, 35% of

NEW TECHNOLOGIES AND THE GLOBAL RACE FOR KNOWLEDGE 67 Industrial countries hold 97% of all patents • Despite the risks of genetic engineering, the worldwide. In 1995 more than half of global roy- rush and push of commercial interests are alties and licensing fees were paid to the United putting profits before people. States, mostly from Japan, the United Kingdom, France, Germany and the Netherlands. Indeed, PRIVATE RESEARCH AGENDAS—MONEY in 1993 just 10 countries accounted for 84% of TALKS LOUDER THAN NEED global research and development, controlled 95% of the US patents of the past two decades Genetic engineering is largely the product of and captured more than 90% of cross-border private commercial research in industrial coun- royalties and licensing fees—and 70% of global tries. The top five biotechnology firms, based in royalty and licensing fee payments were between the United States and Europe, control more parent and affiliate in multinational corpora- than 95% of gene transfer patents. It can take 10 FIGURE 2.6 The race for patents tions. By contrast, the use of intellectual property years and $300 million to create a new commer- Annual applications under World rights is alien to many developing countries. cial product—so, not surprisingly, companies Intellectual Property Organization’s Patent Cooperation Treaty (thousands) More than 80% of the patents that have been want to protect their innovations and ensure

50 granted in developing countries belong to resi- that they reap proﬁts. But this approach focuses dents of industrial countries. research on high-income markets. In 1998, of 40 the 27 million hectares of land under trans- IMPACTS ON PEOPLE genic—genetically altered—crops, more than 30 95% was in North America and Europe. These new rules of globalization—privatiza- Research has focused on the wants of rich farm- 20 tion, liberalization and tighter intellectual ers and consumers: tomatoes with longer shelf

10 property rights—are shaping the path of tech- lives or herbicide-resistant soyabeans and yellow nology, creating new risks of marginalization maize to be used mainly for poultry feed. Seed 0 and vulnerability: varieties are engineered to be suitable for mech- 1980 85 90 95 • In deﬁning research agendas, money talks anized mass production with labour-saving

Source: WIPO 1998. louder than need—cosmetic drugs and slow- techniques, designed for industrial and intensive ripening tomatoes come higher on the list than farming conditions. a vaccine against malaria or drought-resistant Far less time and money have been given to crops for marginal lands. Tighter control of the needs of farmers in developing countries: innovation in the hands of multinational cor- increasing nutritional value, disease resistance porations ignores the needs of millions. From and robustness. Similarly, research is lacking on new drugs to better seeds for food crops, the water-saving plant varieties for smallholders. best of the new technologies are designed and Instead, many major corporations are seeking priced for those who can pay. For poor people, patents for the innovation of linking genetic the technological progress remains far out of characteristics to chemical triggers. What for? reach. One likely use is to create seeds that will germi- • Tighter intellectual property rights raise the nate and bear fruit only when used with the price of technology transfer, and risk blocking company’s brand of fertilizers or herbicides— developing countries out of the dynamic increasing sales through dependency on inputs. knowledge sector in areas such as computer With agrochemical, plant breeding and seed software and generic drugs. distribution companies merging into megacor- • New patent laws pay scant attention to the porations, farming communities risk becoming knowledge of indigenous people, leaving it vul- caught in a chain of biological and licensing nerable to claim by others. These laws ignore controls. cultural diversity in creating and sharing inno- Local plant breeding is essential for adapt- vations—and diversity in views on what can ing seeds to the ecosystem and maintaining bio- and should be owned, from plant varieties to diversity. The 1.4 billion rural people relying on human life. The result is a silent theft of cen- farm-saved seed could see their interests mar- turies of knowledge from developing to devel- ginalized. With increasing control and homoge- oped countries. nization of the market by major agribusinesses,

68 HUMAN DEVELOPMENT REPORT 1999 the competitiveness of alternative varieties and When Glaxo Wellcome launched AZT as the scope for producing alternative crops will an inhibitor of AIDS, it cost $10,000 per most likely decline, depleting local genetic patient each year. As sales increased, the price diversity. fell to $3,000—still far out of reach for most In the pharmaceutical industry private people in developing countries. An Indian interests cannot be expected to meet all public company then produced a generic—Zidovir needs. Almost all research on diseases in devel- 100—and exported it to Belgium, Tanzania oping countries has been done by international and Uganda at less than half the price. The organizations or the military in industrial coun- TRIPS agreement requires 20-year patents on tries. Of the annual health-related research and both processes and products, so India and oth- development worldwide, only 0.2% goes for ers must change national patent laws, making pneumonia, diarrhoeal diseases and tuberculo- such opportunities impossible in the future. As FIGURE 2.7 sis—yet these account for 18% of the global gene therapy comes to dominate the pharma- Drug prices and patent costs disease burden. In the United States between ceutical industry, this will significantly limit the Price in Pakistan 1981 and 1991, less than 5% of drugs intro- industry’s potential in developing countries. Index (price in India = 1) duced by the top 25 companies were therapeu- Countries can choose to require patent tic advances. Some 70% of drugs with holders to give licences to competitors—but 13 therapeutic gain were produced with govern- the process is long and the fees may be prohib- Ranitidine Ramotidine ment involvement. Vaccines are the most cost- itive. Imposing price controls on industry, cal- 11 effective technologies known in health care, culated as a mark-up on costs, is another 9 preventing illness in a one-time dose. But they option, but multinationals often avoid low generate smaller profits and have higher poten- prices by using loopholes in transfer pricing— 7 tial liabilities than treatments used repeatedly. artificially inflating the cost of inputs trans- Ciprofloxacin As a result a consortium of US pharmaceutical ferred from country to country within the 5 companies has united to develop antiviral multinational’s domain. In India multinational agents against HIV, but not to produce a vac- companies have sometimes charged 2, 4 or even 3 cine against AIDS. 10 times the prices they would charge for inputs Norfloxacin 1 in Europe and the United States in order to

TIGHTER INTELLECTUAL PROPERTY RIGHTS avoid controlled low prices. They have little Source: Lanjouw 1997. ARE BLOCKING DEVELOPING COUNTRIES interest in pricing drugs for the market in devel- FROM THE KNOWLEDGE SECTOR oping countries because they are maximizing global, not national, profits and do not want to The costs of industrial catch-up for Japan and set a low-price precedent. the first-tier newly industrializing economies in In the computer industry, software is one of East Asia were greatly reduced by the weak the fastest-growing areas and can be a way for enforcement of intellectual property rights in new countries to get into producing for the the region before the mid-1980s. Tighter con- knowledge sector. In 1994 the global market for trol under the TRIPS agreement has closed off final, packaged software was $79 billion, of old opportunities and increased the costs of which OECD countries accounted for 94%. access to new technologies. With a small but growing number of developing In the pharmaceutical industry, prior to the countries entering the competition, it is not sur- TRIPS agreement, countries such as China, prising that the battle over intellectual property Egypt and India allowed patents on pharmaceu- rights for software is a fierce one. Protection is tical processes but not final products. This certainly needed: programmes are expensive to approach supported the development of domes- develop, while pirating them is cheap and easy. tic industries using different methods to produce Even before Microsoft launched Windows 95 at mainly generic drugs, similar to but far cheaper $100, it was on sale on the streets of Beijing for than the original brand names. The difference is $9. Many firms have lost billions of dollars of highlighted by contrasting drug prices in Pak- trade in this way. At the same time excessively istan, where there are patents, to India, where tight intellectual property rights would elimi- there are none (figure 2.7). nate competition and innovation in this industry

NEW TECHNOLOGIES AND THE GLOBAL RACE FOR KNOWLEDGE 69 underlying global communications. A careful their plants—indeed, it is their long-acquired balance needs to be struck. knowledge of nature’s potential that is valuable The TRIPS agreement followed the United to pharmaceutical companies today. Bio- States in placing software, like music and nov- prospectors have for many years taken samples els, under copyright law, with strong and uni- of plant material and documented their tradi- versal protection. The United States has started tional medicinal uses. Without the consent of to grant patents on software in addition to local people, this knowledge has been used to copyright, creating stronger control over pro- develop highly profitable drugs. In any other sit- gramme interfaces and tightening control over uation this would be called industrial espi- the industry. But there is leeway. The TRIPS onage—theft of both the genetic materials and agreement does not prohibit making copies for the long-acquired knowledge of using them to reverse engineering—a process of unravelling develop medicines. Developing countries are computer programmes to see how they work, The rosy periwinkle found in Madagascar, the source of an generating ideas and innovation. With pro- for example, contains anticancer properties, grammes such as Word and Excel becoming and drugs developed from it give $100 million estimated 90% of the computing standards, reverse engineering is in annual sales to a US-based multinational world’s store of biological essential for smaller producers to create soft- pharmaceutical company, Eli Lilly—but virtu- resources ware that is compatible and competitive, and it ally nothing for Madagascar. must be protected in future reviews of the Plant material was once treated as common agreement. If it were forbidden, the develop- property, but a landmark US legal case in 1980 ment of competitive products would be drasti- awarded a patent on a genetically altered organ- cally limited. And different computers around ism, launching the first step in the race to patent the world would not be able to interact with life. Yet patent laws were drawn up in 19th-cen- one another—defeating the aim of connecting tury Europe during the industrial revolution; the network society. their legal frameworks have been extended to cover global markets during the information PATENT LAWS DO NOT RECOGNIZE revolution. Three fundamental concerns: TRADITIONAL KNOWLEDGE AND • The inventions born of genetic engineering SYSTEMS OF OWNERSHIP bring radically new characteristics. Can a framework of property rights first designed to Biodiversity is of great importance to drug protect industrial machinery really cope fairly development, and developing countries are the and effectively with the complexities of geneti- source of an estimated 90% of the world’s store cally manipulated organisms? of biological resources. More than half of the • Scientific research now takes place under a world’s most frequently prescribed drugs are regime based on ownership and control. It derived from plants or synthetic copies of plant rewards research according to short-term prof- chemicals—and this trend is growing. Plant- itability, not according to the needs to protect based drugs are part of standard medical treat- biodiversity, ensure sustainable and ethical use ment for heart conditions, childhood of genetic resources or meet the essential needs leukaemia, lymphatic cancer and glaucoma, of people. with a global value over the counter of more • The attempt to create a global market in than $40 billion a year. property rights imposes one conception of In the same way that many Arab states ben- ownership and innovation on a culturally efited from industrialization’s thirst for the diverse reality, benefiting private industrial petroleum that lay beneath their land, so now research but not public institutes or farming biorich countries could have the chance to ben- communities (table 2.1). efit from biotechnology’s demand for the rare In 1995 two researchers at the University of germ plasm found on their land. Many indige- Mississippi Medical Center were granted the nous communities have a further claim to US patent for using turmeric to heal wounds. biotechnology’s bounty because they have been But in India this was a long-standing art, com- the cultivators, researchers and protectors of mon knowledge and practice for thousands of

70 HUMAN DEVELOPMENT REPORT 1999 years. To get the patent repealed, the claim had for a share of profits. Royalties promised are to be backed by written evidence—an ancient commonly 1–2%, though sometimes as low as Sanskrit text was eventually presented as proof 0.1% and as high as 3–4%. Even if just a 2% roy- and the patent removed—but this only high- alty were charged on genetic resources that had lighted the absurd imposition of one culture’s been developed by local innovators in the systems on another culture’s traditions. South, it is estimated that the North would owe As a result of these problems, there has been more than $300 million in unpaid royalties for increasing recognition of the need to protect the farmers’ crop seeds and more than $5 billion in knowledge of indigenous people. The Conven- unpaid royalties for medicinal plants. But this tion on Biological Diversity of 1992 recognizes rate is low because negotiations are on an the need to protect property rights but also the uneven footing. When one company wanted to need for companies to gain prior informed con- bioprospect in Yellowstone National Park, the More strategic alliances sent before conducting research—but this con- United States Park Service secured a 10% roy- vention is not legally binding until countries alty share. Negotiating power is everything. are being struck between translate it into national law, and indigenous pharmaceutical firms and communities have often received little attention THE RUSH AND PUSH OF COMMERCIAL or protection under national law. INTERESTS PROTECT PROFITS, NOT PEOPLE— the governments or In the absence of legislation, more and more DESPITE THE RISKS IN THE NEW indigenous groups in strategic alliances are being struck between TECHNOLOGIES pharmaceutical firms and governments or resource-rich countries indigenous groups in resource-rich countries. Genetically modified foods come from plants Merck Pharmaceuticals has an agreement with to which extra genes have been introduced to the non-profit National Institute of Biodiver- add qualities such as resistance to pests or frost. sity, INBio, in Costa Rica to pay $1.1 million for The genes are taken from other plants, animals access to 10,000 plant and insect samples. If any or micro-organisms and are often introduced leads to a successful drug, Costa Rica would by attaching them to a virus. There are several receive a 2–3% royalty share, yielding a possible risks in this process. Genes introduced to make $20–30 million each year. plants tolerant to herbicides and insecticides From Australia and Ecuador to Thailand could escape in pollen and create highly and Uganda, bioprospectors have made agree- resilient weeds that displace other wild plants ments with local communities, taking out and change the balance of the ecosystem. Sim- patents based on local knowledge in exchange ilarly, over time powerful new strains of insects

TABLE 2.1 Who has real access to intellectual property claims?

Issue Multinational corporations Public research institutes Farming communities

Under intellectual property law Employee contracts ensure that Employee contracts can ensure that The concept of an individual the inventor must be named. inventors surrender most or all inventors surrender most or all inventor is alien to many rights to the company. rights to the institute. communities and can cause conﬂict.

The criteria for patents include Companies’ focus on micro- Focused more on research, Since these criteria have little to novelty and an inventive step. improvements usually manages to institutes often cannot meet the do with the process of meet the criteria. strict criteria. community invention, they are hard to meet.

Legal advice from highly Companies have in-house legal Institutes have little in-house Communities usually cannot specialized patent lawyers departments and ready access to capacity and limited access to afford or obtain either basic or is expensive. expert consultants. expensive expertise. expert advice.

Patent holders must defend their Companies employ aggressive Institutes often lack strong patent Communities ﬁnd it almost patents under civil law. tactics, using patent claims to stake defence and give in to political impossible to monitor—let alone out their market turf. pressure not to challenge the confront—patent infringements private sector. around the world.

Source: RAFI 1998.

NEW TECHNOLOGIES AND THE GLOBAL RACE FOR KNOWLEDGE 71 and weeds resistant to herbicides and insecti- bitten, twice shy, European consumers espe- cides could develop. New toxins could have cially are now questioning altered foods. Science damaging effects in the food chain, and viruses is moving so fast and so little information has could escape from virus-containing crops. The been shared, it is not surprising that people fear impacts could be particularly serious in devel- that technology is out of control. oping countries where biodiversity is high and With new technologies, profits should not essential for sustainable agriculture. Yet it can come first—but nor should panic. Precaution is take 10–15 years before environmental damage needed, and this was the motivation for the becomes evident. Despite the promised com- Biosafety Protocol under the Convention on Bio- mercial gains, many developing countries are logical Diversity. The protocol would require extremely concerned about the potential exports of genetically manipulated organisms to impact (box 2.8). be approved in advance by the importing coun- Policies are urgently The growing use of transgenic crops raises try. The negotiations collapsed in February 1999 needed to turn the important issues—about the safety of transfer- after the main exporting countries—the United ring organisms into new environments, ques- States, Canada, Australia, Argentina, Uruguay advances in the new tions of liability for damage that are not covered and Chile—fell into open disagreement with the technologies into under international law and the need for far European Union and many developing coun- advances for all of more transparency in information. Responses tries. Biosafety is still critical—all the more so as to these issues have varied dramatically. transgenic crops become more widespread. humankind The United States, exporting $50 billion of agricultural products a year and planting trans- THE NEED TO RESHAPE TECHNOLOGY’S genic varieties for 25–45% of its major crops, PATH claims that strict safety rules will impede billions of dollars of global exports annually in seed, Policies are urgently needed to turn the grains and even products like breakfast cereals advances in the new technologies into advances and cotton clothing. But consumer movements for all of humankind—and to prevent the rules and farmers have often reacted strongly to trans- of globalization from blocking poor people and genic crops, pulling them out of fields and poor countries out of the knowledge economy. rejecting them in shops. Ten years ago the risk of humans being infected by bovine spongiform THE NEED TO BROADEN GOVERNANCE encephalopathy (BSE, or mad cow disease) was said to be negligible—but it happened. Once Intellectual property rights were first raised in GATT in 1986 to crack down on counterfeit goods. Their reach has gone far beyond that into BOX 2.8 Ethics and technology—a luxury concern? the ownership of life itself. As trade and intel- The ability to manipulate genetic resources taken into account. This is especially true of lectual property law increasingly come to deter- is running far ahead of the understanding of the new technologies whose social and envi- mine the path of nations—and the path of where to place the ethical limits. Sheep, mice ronmental implications are still unknown. To technology—questioning present arrangements and human cells have already been cloned— ask who gains and who loses, and what are is not just about economic flows. It is about pre- all considered impossible only 10 years ago. the benefits and what are the costs, is pre- The new technologies have sparked many cisely to ask the ethical questions. serving biodiversity, carefully considering the debates about the limits of science and the Far from being able to ignore these ethics of patents on life, ensuring access to ethics of tampering with the essence of life. issues, developing countries often find health care, respecting other cultures’ forms of Some argue that ethical questions are a themselves at the centre. They are home ownership and preventing a widening of the luxury for the wealthy and should not hinder to much of the world’s biodiversity. And technological change in the developing neglecting the ethical issues surrounding technological gap between the knowledge-dri- world, especially when the race is on to estab- genetic engineering will lead to their conven global economy and the rest trapped in its lish a competitive edge. But this is surely tinued neglect in economic forums. For shadows. wrong. The pursuit of human development is developing countries the ethics of tech- At a time of such dramatic breakthroughs in the first priority, and all concerns—social, nology are far from a luxury—they are a new technologies, it is indefensible that human financial, ethical, environmental—need to be basic. poverty should persist as it does. What is more Source: Shiva 1997. startling is that the current path could be leading to greater marginalization and vulnerability

72 HUMAN DEVELOPMENT REPORT 1999 of poor people. The relentless march of intellec- tries, which have an equal interest in the evolu- tual property rights needs to be stopped and tion of this tremendous tool. questioned. Developments in the new technolo- Participation in the governance of technol- gies are running far ahead of the ethical, legal, ogy must also be widened. Race car drivers regulatory and policy frameworks needed to would not be the best advisers on public trans- govern their use. More understanding is port, and scientists at the cutting edge of the At a time of such needed—in every country—of the economic technological revolution cannot alone decide dramatic breakthroughs and social consequences of the TRIPS agree- its path. This calls for collaboration—in ment. Many people have started to question the national and global forums—between indus- in new technologies, it is relationship between knowledge ownership and try, independent scientists and technicians, indefensible that human innovation. Alternative approaches to innova- governments, regulators, civil society organization, based on sharing, open access and com- tions and the mass media. poverty should persist munal innovation, are ﬂourishing, disproving the claim that innovation necessarily requires PUBLIC INVESTMENT IN TECHNOLOGIES FOR patents (box 2.9). DEVELOPMENT Broader governance is also needed in the communications industry. Governance of the The path of technology must be reshaped if Internet has until recently been ad hoc and developing countries are to see an advance in largely biased towards the needs of high-tech sustainable agriculture, wide access to global countries. Debates over taxing electronic com- communications and improvements in the merce, allocating domain names and creating health of their populations. The new structure privacy laws need to be opened up to include of science requires new initiatives. New tech- the needs and concerns of developing coun- nologies promise many advances for human

BOX 2.9 Questioning the ownership of knowledge Innovation is one of the most important Canada and Italy had no trouble attracting for- rights spur multinational corporations to carry processes for human development. It pushes eign investors even when they lacked patent out in-country research and development? human capability forward and keeps cultures protection. In Switzerland in 1883, a leading Apparently not: studies have found that compet- thriving. It is also at the heart of the human textile manufacturer defended loose laws, say- itive markets are the biggest influence on quest to expand knowledge. But are patents ing “Swiss industrial development was fostered research and development, not patents. All this always the best way to promote innovation in by the absence of patent protection. If [it] had evidence is inconclusive—but while the jury is new technologies? There are good reasons to been in effect, neither the textile industry nor still out, how can the judge decide? question this common claim. the machine-building industry . . . would have flourished as they did.” There is living proof of successful alternatives Experts question current trends Alternative ways of innovating are alive—and Some scientists are appalled by the scramble for Empirical evidence shows no clear link doing very well. The Internet is testament to the patents for commercial gain, believing that it dam- Despite the fierce defence of the need for intel- power of cooperative, decentralized approaches ages research openness about discoveries that lectual property rights in new technologies, there to solving problems. Rejecting the tight control should be shared for the common good. With the is no conclusive evidence to back it up. Do over software given by copyright, a reverse “stacking”—tactical purchase—of patents by tighter intellectual property rights increase trade movement has been launched—“copyleft”, corporations, the terrain of medical and agricul- in knowledge-intensive goods? Unclear. A 1999 turning standard practice on its head. Rather tural research is quickly being carved up and World Bank study examining the experience of than guarding the source codes to programmes, fenced off. Ideas are no longer shared across the more than 80 countries found that the effect of software developers allow users to view, modify boundaries of different research groups. intellectual property rights on trade flows in and innovate with them—as long as they keep high-tech goods was insignificant. Do tighter the new codes open too. The result? Arguably History tells another story intellectual property rights increase foreign the best software around. Apache, a Web server Many of today’s developed countries—ironi- direct investment in high-tech goods? Studies developed communally by programmers in their cally now the strongest advocates of tighter say yes for pharmaceuticals—along with higher spare time, is one of the most reliable and up-to- intellectual property rights—themselves had prices—but for other knowledge goods foreign date products available—and is installed on loose rules when they were setting up their direct investment usually depends on market 50% of publicly accessible Web servers. Its no- national industries, changing their tune only size, technological infrastructure and macroeco- secrets policy makes it an ideal tool for teaching after they became technology exporters. nomic policy. Do tighter intellectual property and experimenting in programming.

Source: Gerster 1998; Fink and Braga 1999; Leonard 1997; GRAIN 1998; UNCTAD 1997.

NEW TECHNOLOGIES AND THE GLOBAL RACE FOR KNOWLEDGE 73 development, but public institutions cannot of just $100 on each patent would have raised afford them alone and private industry will not $350 million in 1998 alone, equivalent to the develop them alone. Jointly they can. Innova- annual budget of the world’s largest interna- tive policy is needed to ensure that much- tional research organization in agriculture, the needed solutions for human development are CGIAR. Alternatively, funding could be reallo- pursued. Incentives are needed to turn cated from the research subsidies, grants and research towards the pressing needs of the tax breaks now given to industry. world, not just of those who pay. One proposal is for the Consultative Group on International PUSHING FOR CHANGE IN MULTILATERAL Agricultural Research (CGIAR) to reroute AGREEMENTS genetic research to wider needs (box 2.10). A representative group of independent sci- The WTO is planning a review of the TRIPS Incentives are needed to entists is needed to identify the critically impor- agreement. But these discussions must not sim- turn research towards the tant technological challenges—those that, if ply push into new issues. Intellectual property solved, would substantially improve the human rights agreements were signed before most gov- pressing needs of the development of the world’s poorest people and ernments and people understood the social and world, not just of those address the global challenges to human security economic implications of patents on life. They who pay faced by all. Every ﬁve years the group could were also negotiated with far too little partici- offer ﬁnancial incentives and public recogni- pation from many developing countries now tion to researchers, public and private alike, for feeling the impact of their conditions. There is innovations that would be used for global pub- a clear need for a full and broad review of exist- lic interests. What would be high on the list? In ing legislation, not an additional, unsustainable agriculture, sustainable, robust and biosafe burden of new conditions. crops. In medical research, vaccines for malaria The choice is not between patents on every- and HIV. In communications technology, per- thing or on nothing. Rather, the question is, sonal computers powered by solar strips and how much should be patentable? How can the wind-up or dynamo drives, resistant to sand system be structured to take into account and humidity; software for touch screens; and diverse interests and diverse needs? prepaid chip card software for electronic com- The review needs to ensure that the room merce without credit cards. In environmental for manoeuvre granted in the TRIPS agreement science, diverse sources of renewable energy. is respected in practice. Interpretation of the What would fund such initiatives? A levy on agreement is obviously not a unilateral matter, patents registered under the World Intellectual and proposals by developing countries have Property Organization is one possibility. A levy often been rejected by G-7 countries keen to maintain their industrial interests. In the event

BOX 2.10 of disagreement, dispute resolution mecha- Rerouting the genetic revolution—the CGIAR proposal nisms involve intense negotiating among The Consultative Group on International The CGIAR plans to rejuvenate a strong lawyers—expensive and complex. The advan- Agricultural Research (CGIAR) proposes to public research system to ensure that break- tage in costs and expertise clearly does not lie redirect the path of modern biotechnology throughs in science are translated into with developing countries. by providing public research to meet the breakthroughs for people—reducing malnu- To strengthen their bargaining positions in needs of all humanity. Responsible for a trition, poverty and environmental degrada- major collection of crop species—number- tion, keeping the ﬁndings as public property. pushing for change, countries need to present ing 600,000 accessions—it has called for an Also needed are “rules of engagement” for frameworks that provide alternatives to the end to patenting genes drawn from gene the public and private sectors, based on the provisions of the TRIPS agreement. Work is banks. It has also banned the use of geneti- premise that access to the means of food pro- already well under way. Many countries are cally sterile seeds—“terminator technol- duction is as much a human right as access to ogy”—in its own research. The CGIAR’s food. The CGIAR could also lead the way in exploring possible sui generis legislation for current budget for crop biotechnology is just combining the search for solutions with pre- plant varieties to protect farmers’ rights. The $12 million a year—compare that with US cautions against risk—following the equity difﬁculty is the need for legislation to meet private sector spending on biotechnology and biosafety protocols of the Convention on many diverse interests within each country. research: $9 billion in 1997 alone. Biological Diversity. One strong and coordinated international pro- Source: CGIAR 1998. posal is the Convention of Farmers and Breed-

74 HUMAN DEVELOPMENT REPORT 1999 ers (CoFaB). It offers developing countries an reviewed, then let it be a review in everyone’s alternative to following European legislation interests. A transparent cost review mecha- by focusing legislation on needs to protect nism should be established within the World farmers’ rights to save and reuse seed and to Trade Organization, to track the costs of fulfil the food and nutritional security goals of implementing the TRIPS agreement, the their people. effects on consumer prices, the cost of anti- For indigenous people’s interests, too, competitive effects and the impact on technol- open debate is needed across countries to ogy flows. And most important, it should bring together the most up-to-date thinking examine the impact on biodiversity, on farm- for use by negotiators and policy-makers. The ing communities and on access to medical framework needs to consider collective rights resources and scientific information. to knowledge and resources, the need for To strengthen their prior informed consent for use of materials PUTTING PRECAUTION BEFORE PROFITS and knowledge—not just the consent of the bargaining positions in government but also of the indigenous groups The potentially great benefits of the new pushing for change, concerned—and the need for transparency in biotechnology come with risks attached: the findings of research. Some initiatives have national and international guidelines are countries need to present already been taken. Indigenous people’s orga- urgently needed as transgenic crop production frameworks that provide nizations around the world such as the Indige- grows. Each country needs to draw up biosafety nous Peoples Biodiversity Network are measures, to monitor changes in biodiversity, alternatives to the seeking guidelines for legal recognition of demand transparency and labelling of prod- provisions of the TRIPS their intellectual property. Thailand, the ucts, consider the social, economic and ethical Philippines and Australian aboriginal groups impacts and promote research into areas of agreement have all taken steps to protect indigenous national need. Regional coordination is needed knowledge. for sharing data and experience, for sharing in Developing countries facing similar chal- the costs of training officials and for developing lenges can benefit from consultation and co- rules of trading. operation to create model laws, collaborate in Much greater attention must be given to training public officials and devise strategies to understanding the potential environmental and help industries adversely affected by the new health hazards of genetically altered crops— regime. Spreading awareness of the issues at an especially important task in countries where stake is important in building coalitions the science base and media coverage are narrow among national interest groups, regional orga- and there is extensive fragmentation of the food nizations and international civil society cam- chain into many smallholders, processors and paigns. Presenting counter-proposals as a traders. united negotiating bloc would greatly Participation in the process must be strengthen the possibility for change. In widened. Knowledge is needed not only of the March 1999 the International South Group latest technologies but also of local ecosystems Network drew together representatives from and food chains, local culture and systems of 17 southern and East African countries to dis- exchange, socio-economic conditions and cuss a joint position on the upcoming World political and market stability. This calls for Trade Organization round and the review of broad collaboration. Some countries are the TRIPS agreement, greatly strengthening already on this path with established and rep- the clarity and force of the message to be deliv- resentative biotechnology advisory groups. ered from countries in the region. France’s government has adopted the precau- The TRIPS agreement was drawn up with tionary principle, promising to survey the remarkably little analysis of its expected eco- development of the genetic revolution and nomic impacts. The costs of implementa- increase public transparency on findings. The tion—revising laws, training officers, testing European Parliament favours creating a reg- and enforcing patents—are high, yet the ben- istry of tested and accepted transgenic prod- efits are unclear. If the agreement is to be ucts, making a database available to the public.

NEW TECHNOLOGIES AND THE GLOBAL RACE FOR KNOWLEDGE 75 ••• • Bring benefits for the many or profits for the few? Information and communications technologies • Respect diverse systems of property and biotechnology hold great potential for ownership? human development. But strong policy action is • Empower or disempower people? needed nationally and internationally to ensure • Make technology accessible to those who that the new rules of globalization are framed to need it? turn the new technologies towards people’s Global governance of technology must respect needs. Thus questions need to be asked on how it and encompass diverse needs and cultures. Public is used. Does the control, direction and use of investment—through new funding—is essential to technology: develop products and systems for poor people and • Promote innovation and sharing of countries. Precaution is needed in exploring new knowledge? applications, no matter how great their commercial • Restore social balance or concentrate promise. Only then will the rules of globalization power in the hands of a few? allow technological breakthroughs to be steered to • Favour profits or precaution? the needs of people, not just profits.

76 HUMAN DEVELOPMENT REPORT 1999 CHAPTER 3 The invisible heart— care and the global economy

Studies of globalization and its impact on peo- what the critical paths are to negotiating an Globalization is putting ple focus on incomes, employment, education equitable solution. These are little-explored and other opportunities. Less visible, and often issues, but an exciting new body of work is a squeeze on care neglected, is the impact on care and caring probing them. and caring labour labour—the task of providing for dependants, for children, the sick, the elderly and (do not HUMAN DEVELOPMENT, CAPABILITIES forget) all the rest of us, exhausted from the AND CARE demands of daily life. Human development is nourished not only by expanding incomes, The role of care in the formation of human schooling, health, empowerment and a clean capabilities and in human development is fun- environment but also by care. And the essence damental. Without genuine care and nurturing, of care is in the human bonds that it creates and children cannot develop capabilities, and supplies. Care, sometimes referred to as social adults have a hard time maintaining or expand- reproduction, is also essential for economic ing theirs. But the supply of care is not merely sustainability. an input into human development. It is also an Globalization is putting a squeeze on care output, an intangible yet essential capability— and caring labour. Changes in the way that men a factor of human well-being. and women use their time put a squeeze on the Most adults need care in the emotional time available for care. The fiscal pressures on sense, even if not in the economic sense of rely- the state put a resource squeeze on public ing on one another. A clear manifestation of spending on care services. And the wage gap this is the positive effect of social support and between the tradable and non-tradable sectors social relationships on life expectancy—at least puts an incentive squeeze on the supply of care as significant as the negative effects of cigarette services in the market. Gender is a major factor smoking, hypertension and lack of physical in all these impacts, because women the world exercise. Married adults enjoy lower risks of over carry the main responsibility for these mortality than those who are unmarried. activities, and most of the burden. The difference that care makes for child In a globally competitive labour market, health and survival is also well documented. A how can we preserve time to care for ourselves UNICEF analysis identifies caring as the third and our families, neighbours and friends? In a underlying factor in preventing child malnutri- globally competitive economy, how do we find tion, after household food security and access the resources to provide for those unable to to water, health care and sanitation facilities. It provide for themselves? And how can societies is what translates available food and health distribute the costs and burdens of this work resources into healthy growth and develop- equitably—between men and women, and ment. For example, risks of malnutrition and between the state and the family or community, illness depend significantly on whether a child including the private sector (box 3.1)? is breast-fed and how long, at what age it is To answer these questions requires an given complementary foods and whether it understanding of what care is, how it is pro- receives immunizations on schedule. Many vided, who bears the costs and the burdens and studies show that malnourished children grow

THE INVISIBLE HEART—CARE AND THE GLOBAL ECONOMY 77 faster when they receive verbal and cognitive teaching, nursing and similar services. The stimulation—special attention can encourage a public sector also provides many services in child in pain to eat. these areas (figure 3.1). Another link between human develop- But in almost all societies the gender divi- ment and care relates to equity for the sion of labour hands the responsibility for providers of caring labour. These activities are caring labour to women, much of it without often identified with women’s unpaid work in remuneration—in the family or as voluntary the domestic sector. This is an important activity in the community. Human Develop- source, but there are others. Not just the fam- ment Report 1995 estimated that women ily but the community plays an important role. spend two-thirds of their working hours on So do men, though their contribution is unpaid work (men spend just a fourth), and smaller than women’s in most countries. The most of those hours are for caring work. The private sector provides domestic service, hours are long and the work physically hard—fetching water and fuel, for example—especially in rural areas of developing BOX 3.1 countries. In Nepal women work 21 more If we are going to compete, let it be in a game of our choosing hours each week than men, and in India, 12 Once upon a time the goddesses decided to argue that the work they were doing— more hours. In Kenya 8- to 14-year-old girls hold a competition, a kind of Olympics, caring for the runners—was just as impor- spend 5 hours more on household chores among the nations of the world. This was tant as the running and deserved equal not an ordinary race in which the distance reward. The men refused to make any than boys. These inequalities in burden are an was determined and the winner would be changes. The nation began to waste a great important part of the obstacles women face in the runner who took the shortest time, but deal of energy in bargaining and negotia- their life choices and opportunities. a contest to see which society, acting as a tion. Gradually it became clear that this Women also make up a disproportionate team, could move all its members forward. nation, too, was losing the race. When the gun went off, one nation So attention turned to a third nation, share of workers in domestic service and in pro- assumed that the race would not last long. which had started out moving quite slowly, fessions such as child care, teaching, therapy It urged all its citizens to start running as though making steady progress. In this and nursing. These occupations offer low pay quickly as possible. It was every person for nation everyone was required both to run relative to their requirements for education, himself. Very soon the young children and and to take care of those who could not run. skills and other qualifications—another source the elderly were left behind, but none of the Both men and women were given incen- fast runners bothered to help them out tives to compete, to run as fast as possible, of gender biases in opportunities. because it would have slowed them down. but the rules required them all to share in At first those who were in front were carrying the burden of care. CARE—OR “TENDER LOVING CARE” exhilarated by their success. But as the race Having agreed to rules that rewarded continued some became tired or hurt and both kinds of contribution to the collective fell by the wayside. Gradually all the run- effort, people were free to choose their own Care can mean a feeling of care, an emotional ners grew exhausted and sick, and there speed, to find a balance between individual involvement or a state of mind. Personal iden- was no one to replace them. It became clear effort and collective responsibility. This tity and personal contact—especially face-to- that this nation would not win the race. freedom and equality contributed to their face contact—are key elements of care services, Everyone’s attention turned to a second solidarity. Of course, it was this nation that involving a sense of connection between the nation, which adopted a slightly different won the race. strategy. It sent all its young men out ahead Perhaps this is a utopian fairy tale. But givers and receivers. The care-giver may be to compete, but required all the women to the global economic system tells us that we motivated by affection, altruism or social come along behind, carrying the children, are all in a race. It tells us to hurry up. It tells norms of obligation. The care-receiver has a the sick and the elderly and caring for the us all to worry about our speed. But it does sense of being cared for. These elements are runners who needed help. The nation’s lead- not tell us how long the race will last—or ers explained to the women that this was a what the best long-term strategy is. And it frequently there even when the care-giver is a natural and efficient arrangement from does not tell us how victory will be defined. paid employee. Individuals often choose caring which everyone could benefit. They pro- If we are going to compete, let it be a game jobs because they are a way to express caring vided great incentives for the men to run fast, of our own choosing. That is, in a nutshell, motives and earn a living at the same time. and gave them authority over the women. the challenge of the new global order: how At first this seemed to work, but the to define a world economy that preserves the The commitment to care for others is usu- women found that they could run just as advantages of market competition, but ally thought to be altruistic—involving love and fast as the men if they were not burdened establishes strict limits and rules that prevent emotional reciprocity. But it is also a social with caring for the weak. They began to competition from taking a destructive turn. obligation, socially constructed and enforced Source: Folbre 1999. by social norms and rewards. A compelling example: when a mother gets up for the fifth

78 HUMAN DEVELOPMENT REPORT 1999 time in the night to soothe her crying child, it is with the characteristics of a resource outside not necessarily because she gets pleasure from the market. But a deficit of care services not doing so. She may feel quite irritated. But she only destroys human development—it also accepts a social obligation to care for her child, undermines economic growth. even at some cost to her health or happiness. This may be just what is happening in many The word care often refers to looking after OECD countries today, where there is a short- people who cannot take care of themselves: age of reliable, skilled labour in the midst of children, the sick, the needy, the elderly. But widespread unemployment. And despite uni- this misses the fact that even the healthiest and versal schooling, there are widespread gaps in happiest of adults require a certain amount of skills. Data from the International Adult Liter- care. Their need for that care may ebb and flow, acy Surveys in OECD countries show that but it sometimes comes in tidal waves. nearly half the population in almost all these FIGURE 3.1 countries score below the level needed to be Four sources of caring labour GLOBALIZATION AND CARE trained for a skilled occupation. The traditional restrictions on women’s Women’s unpaid work Economic analysis of care offers three insights activities once guaranteed that women would into the impact of globalization on human specialize in providing care. Globalization’s Men’s unpaid development: shifts in employment patterns have promoted work • Women’s increased participation in the and to some extent enforced the participation of labour force and shifts in economic structures women in wage employment. The supply of Private are transforming the ways care services are pro- unpaid care services may be reduced, and market services vided. Needs once provided almost exclusively daughters, cousins or nieces may have to take on by unpaid family labour are now being pur- more of the work. Nonetheless, women in most Public services chased from the market or provided by the countries continue to carry the “double bur- state. den” of care services—ending up exhausted. Source: Human Development Report Office. • Increases in the scope and speed of trans- A challenge for human development is to actions are increasing the size of markets, find the incentives and rewards that ensure the which are becoming disconnected from local supply of services—from the family, the com- communities. As market relationships become munity, the state and the market—all recogniz- less personal, reliance on families as a source of ing the need for gender equality and emotional support tends to increase—just as distributing the burdens and costs of care fairly they are becoming less stable economically and (boxes 3.2 and 3.3). demographically. Noble. But trends are moving in the oppo- • Perhaps most important, the expansion of site direction. In OECD countries the problem markets tends to penalize altruism and care. is that globalization has pulled back on state Both individuals and institutions have been services and pushed more to private services. free-riding on the caring labour that mainly Many social commentators protest the ensuing women provide. Whether women will continue deterioration in quality. to provide such labour without fair remunera- In the transition economies of Eastern tion is another matter. Europe and the CIS these trends have been Globalization is dominated by the expan- dramatic, contributing to the huge human sion of markets and rewards profitability and costs of the transition. The dismantling and efficiency. While economic growth reflects weakening of the welfare state have meant cuts increasing private and public incomes, human and deterioration in services in health and development needs people to provide goods education—across the board—contributing and services that fall outside the market—such to the deteriorating human outcomes. Life as care and other unpaid services. A country expectancy was lower in 1995 than in 1989 in can speed the growth of GDP by encouraging 7 of 18 countries—falling as much as five years a shift in production from unpaid services such since 1987. Enrolment in kindergarten as care to market commodities. Care thus has declined dramatically—falling from 64% to clear analogies to environmental resources, 36% of 3- to 6-year-olds in Lithuania between

THE INVISIBLE HEART—CARE AND THE GLOBAL ECONOMY 79 1989 and 1995, and from 69% to 54% in Rus- Care produces goods with social externali- sia. Responsibility for pre-primary education ties—widespread benefits for those who do not was transferred from the state to parents, with pay for them. It creates human and social enormous consequences for mothers of chil- capital—the next generation, workers with dren this age. human and social skills who can be relied on, who are good citizens. But mothers cannot CARE AND MARKET REWARDS demand a fee from employers who hire their children. This care will be underproduced and The market gives almost no rewards for care. overexploited unless non-market institutions Much of it is unpaid—most of it provided by ensure that everyone shares the burden of pro- women, some by men. The market also penal- viding it. The traditional patriarchal family, and izes individuals who spend time in these gender biases in society that limit opportunities Care produces goods activities, which take time away from invest- for women outside the role of wife and mother, with widespread ing in skills for paid work or from doing paid have been the traditional way to solve this prob- work. lem. But this is obviously inequitable, and no benefits for those who Care services are also provided in the solution at all. do not pay for them market, usually underremunerated. What explains the financial penalty for doing caring REDISTRIBUTING THE COSTS AND work? Gender bias is one factor. A second is RESPONSIBILITIES OF CARE— the intrinsic reward people get from helping TO FAMILY, STATE AND CORPORATION others, allowing employers to fill jobs at lower pay. A third is that people feel queasy Where do the effects of globalization fit in the about putting a price on something as sacred larger conflicts over the distribution of the costs as care. of care? Consider a mother who devotes much And global economic competition has time and energy to enhancing her children’s tended to reinforce these trends, as the wage gap capabilities and a country that devotes much of increases between the tradable and non-tradable its national budget to family welfare. In the sectors. Wages for teaching, domestic service short run both are at a competitive disadvan- and other caring work have stagnated—or even tage: they devote fewer resources to directly fallen—in the industrial countries. productive activities. But in the long run their position depends on their ability to claim some

BOX 3.2 share of the economic benefits produced by the Globalization leads to the feminization of labour— next generation. but the outcome is mixed The family today is a small welfare state. Many empirical studies now allow analysis the work is volatile—with contracts moving Women invest time and energy in children— of how shifts in trade patterns affect with small changes in costs or trade essentially a “family public good”. They pay employment. A study covering 165 coun- regulations. most of the costs—while other family members tries from 1985 to 1990 concludes that Globalization has also been associated claim a greater share of the benefits. What they greater trade openness increases women’s with home work, tele-work and part-time share of paid employment. Further analysis work. In the United Kingdom the share of do is far less transferable outside the family of plant-level data from Colombia and from workers with unconventional work ar- than investments in a career. The resulting loss Turkey—both with rapid export growth— rangements rose from 17% in 1965 to 40% of bargaining power can mean less consump- shows that firms producing for export in 1991. In 1985 the shares of such work tion or leisure time for women, even if they employ more female workers, often in arrangements were up to 15% in Japan, remain married and enjoy some of their hus- skilled functions. 33% in the Republic of Korea and 50% in But increasing participation has not Mexico, Peru and Sri Lanka. And in band’s market income. always meant less discrimination. Women Greece and Portugal women constitute Public spending on children is modest constitute a large share of workers in infor- 90% of the home workers. This is a mixed compared with that by parents. Take public mal subcontracting, often in the garment blessing. Informal work arrangements can spending in the United States, about 38 per- industry—at low wages and under poor accommodate women’s care obligations in conditions. Highly competitive interna- the family. But such jobs are often precari- cent of all spending. Over the past 30 years the tional markets in garments also mean that ous and poorly paid. elderly in the United States have received far more than the young for a simple reason—the Source: Özler 1999. elderly have more votes than parents with chil-

80 HUMAN DEVELOPMENT REPORT 1999 dren. Studies in Western and Eastern Euro- THE CHALLENGE OF CARE IN pean countries show similar biases against THE GLOBAL ECONOMY children. Parents who invest in the next generation of workers are not explicitly rewarded How can societies design new arrangements for for their efforts. Their efforts are socially care in the global economy—to make sure that important but economically unproductive. it is not squeezed out? For much of the past 200 years nations Many fear that there is no alternative to the have exercised a lot of control over the pro- traditional model of the patriarchal household duction of care services such as education, in which women shoulder much of the respon- health and provision for dependants. The sibility through unpaid work. The resurgence analogy of the family to the state is clear. Both of religious fundamentalism around the world institutions demand commitment to the wel- testiﬁes to the anxieties about changing tradi- fare of the collective rather than the individual. tional patriarchal relationships that have But on the negative side, both institutions can ensured a supply of caring labour. Many social generate oppressive hierarchies that interfere conservatives fear that globalization fuels mar- with the development of human capabilities. ket-based individualism at the expense of Take a multinational corporation, tired of the frustrations of negotiating taxation and BOX 3.3 regulation with host governments, that buys a More paid work doesn’t reduce unpaid work small island, writes a constitution and Women are responsible for most unpaid Women in Eastern Europe and the announces a new country—Corporation care work—a social norm slow to change. A CIS spend more hours in paid employ- Nation. A citizen automatically receives a review of time-use surveys in Human ment than those in most other countries. highly paid job. Sounds good, but some Development Report 1995 showed a gen- But the gender disparity in sharing the eral trend to greater gender equality in burden of unpaid work remains stark, and restrictions apply. Individuals must have unpaid work in the OECD countries, but it is worsening under the economic dislo- advanced educational credentials, be physi- no equalization in developing countries and cations of the transition. In Bulgaria cally and emotionally healthy, have no chil- a deterioration in the transition economies men’s total work burden was 15% less dren and be under the age of 60. They do not of Eastern Europe and the CIS. than women’s in 1977 but 17% less in have to emigrate but can work from their Bangladesh had one of the largest 1988. Women increased their share of increases in the share of women participat- both paid and unpaid work—in 1977 men country over the Internet. And they immedi- ing in the labour force—from 5% in 1965 to did 52% as much household work as ately lose their new citizenship if they require 42% in 1995. This has been important for women, but in 1988 only 48% as much. In retraining, become seriously ill, acquire chil- export growth, with women as the main Moldova women work 73.5 hours each dren or reach the age of 60. workers in the garment industry. But women week. still spend many hours in unpaid work. A In OECD countries men’s contribution Corporation Nation can free-ride on the survey of men and women working in formal to unpaid work has been increasing. But a human capabilities of its citizen workers urban manufacturing activities shows that woman who works full time still does a lot of without paying for their production or their women put in on average 31 hours a week in unpaid work. Once she has a child, she can maintenance when ill or old. It can offer high unpaid work—cooking, looking after chil- expect to devote 3.3 more hours a day to dren, collecting fuel, food and water (box unpaid household work. Married women wages to attract the best workers from table 3.3). Men put in 14 hours in activities who are employed and have children under around the world without threatening its such as house repair. Workers in the infor- 15 carry the heaviest work burden—almost profitability. Footloose capital of the global- mal sector show similar patterns. 11 hours a day. ized economy weakens the connections between corporations and communities, and BOX TABLE 3.3 Time spent in paid and unpaid work in Bangladesh, 1995 the obligations to citizens. Why then would (hours per week) multinational firms remain in countries that Formal sector Informal sector tax them to support the production of human workers workers capabilities when they can go elsewhere and Men Women Men Women free-ride? They will remain for a while, out of Unpaid work 14 31 14 24 habit and loyalty. But the ones that jump first Paid employment 53 56 23 21 to take advantage of new opportunities will Total 67 87 37 45 win the race if the finish line is defined by maximizing the short-term value of market Source: Zohir 1998; UNDP 1995. output.

THE INVISIBLE HEART—CARE AND THE GLOBAL ECONOMY 81 social commitments to family and community. serious thinking about how to enforce responsi- A consistent theme of religious fundamental- bilities for care in the community. ism worldwide: re-establish rules that restrict So the first step must be to challenge social women’s rights for fear that women will aban- norms—to build commitment of both men and don caring responsibilities. women to their responsibilities for caring At the other end of the spectrum is market labour. Societies—through public and corpo- provision of care—but often the people who rate policy—then need to acknowledge care as need care cannot afford to pay for it. And finally a priority human need that they have a social there is state provision. But the search for effi- obligation to foster. ciency in today’s global economy imposes a A clear policy path is to support incentives “market discipline” that is at variance with qual- and rewards for caring work, both paid and ity. Cost-minimizing standards drive down qual- unpaid, to increase its supply and quality. This ity in schools, hospitals and child-care centres. does not mean sending women back to the tra- So public services alone are not a total answer, ditional role of housewife and mother, closing though state support must be a big part of it. off other opportunities. It means sharing In all this, the challenge is to strike a balance unpaid care services between men and women, between individual rights and social obligations reducing men’s paid work time and increasing of care. Competitive market societies emphasize their time on family care. And it means increas- values that encourage individualism—and say ing the supply of state-supported care services. little about obligations and commitment to the Nordic countries have a long tradition of such family and community. The extreme responses approaches, which give public recognition and of the patriarchal backlash and the marketiza- payment for care, rewarding family commit- tion of care require far less effort and negotiation ment but without reinforcing traditional gen- than the democratic response, which requires der roles (box 3.4).

BOX 3.4 Support for men’s child-care responsibilities in Western Europe Although several countries in Western Europe Denmark. About 65% of men in the labour Finland. Fathers may take 6–18 days of pater- have encouraged gender-neutral family- force work 30–39 hours a week, 30% work nal leave, and 158 days of parental leave can be oriented work policies, in 1995 only 5% of the more and 5% less; 69% of women work 30–39 shared after maternity leave ends (parental male workforce in the European Union (EU) hours, 11% work more and 20% work less. In leave is used by only 3% of fathers). One parent worked part time, and only 5% of fathers took 1987 men spent 10 hours a week in unpaid can take unpaid leave until the child is three. paternity leave. Men often cite their work envi- work, women 21 hours; in 1997 men spent 13 And parents are allowed 2–4 days a year to care ronment as a constraint when explaining their hours in unpaid work, and women 18. for a sick child. reluctance to make full use of parental and pater- Germany. A third of women work less than 35 Italy. During the child’s ﬁrst year a 6-month nal leave rights or to work part-time to care for a hours a week; only 2–3% of men do so. parental leave can be taken after maternity leave child. Private sector employers in particular are Italy. Married women with children spend 7.5 ends (at 30% pay). seen as unsupportive of such arrangements. Tra- hours each day in care work, men 1.5 hours. Norway. Employees may take parental leave ditionally it has been women who have had to Netherlands. Women spend twice as much for 42 weeks (at 100% pay) or 52 weeks (at 80% move into part-time labour or take a career break time in unpaid work at home as men (women 32 pay). Fathers must use at least 4 weeks of the after the birth of a child. EU Commissioner for hours, men 16). But women who work more parental leave; otherwise that period is lost. Employment and Social Affairs Padraig Flynn than 30 hours a week spend only 18 hours in Parents may also combine their leave with part- has stated that “even where there are policy unpaid housework, compared with 19 hours for time work. Employees are allowed 10–15 days instruments aimed at breaking down the gender their husbands. each year to care for a sick child, single parents imbalance in caring . . . the assumption that car- Spain. Women spend seven times as many 20–30 days. ing is the responsibility of women persists.” hours doing domestic work as men. Sweden. Employees are allowed 10 days’ paternal leave for the birth or adoption of a Time use Paternal and parental leave child, 450 days’ parental leave (at 80% pay). Austria. Men spend an average of 70% of their Denmark. Fathers are allowed a 2-week pater- One parent, usually the father, has an absolute time in paid labour, 30% in unpaid; women nal leave for the birth or adoption of a child. right to one month (at 85% pay). Parents have spend an average of 30% of their time in paid They can also use the last 10 weeks of maternity the right to a 25% reduction in their work labour, 70% in unpaid. Women make up 98% leave (10% of fathers do this). And there is a 4- hours until a child is eight; child care is a legal of part-time employees. week extension for fathers only. right.

Source: Flynn 1998; EU Network 1998.

82 HUMAN DEVELOPMENT REPORT 1999 Citizens could be given tax credits for con- who define them as narrowly contributing to tributing care services that develop long-term GDP or short-term profit. The erosion of fam- relationships between individuals. And this ily and community solidarity imposes enor- model could be extended further. For exam- mous costs reflected in inefficient and ple, many young adults benefit from public unsuccessful education efforts, high crime support for higher education. They could rates and a social atmosphere of anxiety and repay the costs through mandatory national resentment. The nurturing of human capabili- service that takes some responsibility for chil- ties has always been difficult and expensive. In dren and other dependants in their commu- the past it was assured by a gender division of nity. The care services they could provide labour based on the subordination of women. would be at least as valuable as military service, Today, however, the cost of providing caring and they could develop important skills as well labour should be confronted explicitly and as reinforce the value of care. distributed fairly—between men and women, Policies to foster more caring labour and among the state, the family or community appear unproductive or costly only to those and the employer.

THE INVISIBLE HEART—CARE AND THE GLOBAL ECONOMY 83 CHAPTER 4 National responses to make globalization work for human development

Markets can go too far Globalization has swung open the door to ization can be effectively managed for human opportunities in the world’s markets. But mar- development. and squeeze the kets can go too far and squeeze the non-market non-market activities activities so critical for human development. CAPTURING GLOBAL OPPORTUNITIES Because of a fiscal squeeze, the public provi- so critical for human sion of social services is being constrained. Comparative disadvantage in markets and development Because of a time squeeze, the personal provi- resources need not be a constraint. With appro- sion of (unpaid) caring services is being priate policies, countries can capture global reduced. And because of a perverse incentive opportunities in trade, finance and employ- squeeze, the environmental resources so ment and translate them into more human essential for human development are being development. degraded. The markets in today’s global system are ENHANCING TRADE creating wonderful opportunities, but distributing them unevenly—and the volatility of mar- The standard policy prescription for the devel- kets is creating new vulnerabilities. What’s oping world has been to liberalize trade and worse, the success of the global markets has provide incentives to produce for export. Many marginalized many non-market activities for developing countries have reduced their tariffs, human development, making human well- removed distortions in exchange rates and being even more vulnerable. trimmed fiscal deficits. The CFA countries have What can countries do to make globaliza- devalued the CFA franc. Eritrea, Ethiopia and tion work for human development? Mozambique have achieved current account • Capture global opportunities in trade, cap- convertibility for their currencies. Several ital flows and migration. South Asian countries have removed import • Protect people against the vulnerabilities restrictions. Transition economies in Eastern that globalization creates. Europe and the CIS have made tax incentives a • Overcome the resource squeeze from the key part of their strategies. And several Arab shrinking fiscal autonomy of the state. states are liberalizing financial services. For national action to succeed in these Has this helped growth? Yes, in many areas, countries have to generate pro-poor countries. Botswana, Chile, China, India, the growth that reduces inequalities and enhances Republic of Korea and Mauritius had a burst of human capabilities. They also have to create exports—and a boost in per capita income. The effective alliances of all actors. And they have to lessons are clear: countries can accelerate formulate strategies for better managing their growth through trade liberalization if they have needs and interests in today’s globalizing sound macroeconomic management, good world. None of these tasks is easy. With deeper infrastructure and social services, and strong integration of economies in the global system, governance with an appropriate institutional the demand for convergence of policies is high. framework. Critical in all this is human devel- But without strong national governance, nei- opment. Just look at Botswana and Mali. Both ther the opportunities nor the threats of global- opened their economies. But Botswana’s per

84 HUMAN DEVELOPMENT REPORT 1999 capita income grew at nearly 6% a year in FIGURE 4.1 1980–96, while Mali’s shrank 0.8% a year. In Differences in human development—Botswana and Mali, mid-1980s the mid-1980s Botswana was far ahead of Mali Adult Access to Access to Public in human development (figure 4.1). literacy safe water health spending on rate (percent) services education (percent) (percent) (percentage of GDP) Translating trade and growth into 100 100 100 12 human development. Even though there is a strong link between trade and growth, there is 80 80 80 Botswana no automatic link with human development 9 (table 4.1). Egypt and Pakistan achieved annual 60 60 60 export growth of more than 5% and per capita 6 income growth of more than 3% in 1985–97, 40 40 40 3 Mali yet both still have far to go in human develop- 20 20 20 ment. At the other extreme, countries can open their economies, but generate neither growth 0 0 0 0 nor human development. Russia generated trade and attracted private capital flows by Source: UNDP 1990. opening in the 1990s, yet economic stagnation and human deprivation are serious (box 4.1). By contrast, the Republic of Korea managed TABLE 4.1 trade and growth to improve its human devel- Trade, economic growth and human development—no automatic link opment. Since 1960 life expectancy has risen (percent) Reduction in from 54 years to 74. Infant mortality has come human down from 85 per 1,000 live births to 6. More development Annual growth Per capita index (HDI) than 96% of its people are expected to survive of exports income growth shortfall beyond age 40, and 98% of adults are literate. Country 1985–97 1985–97 1985–97 The main elements of the Republic of Stronger links Korea’s success: Singapore 12.9 6.2 45 Mauritius 7.9 3.7 38 • A pro-growth strategy, with a commitment Hong Kong, China (SAR) 13.0 4.8 33 to poverty reduction. Weaker links Pakistan 9.0 3.0 17 • Bold economic reforms, with sound macro- Uganda 8.0 2.4 5 economic policies and a focus on price reforms. • Institutions oriented to the market, with a Source: Human Development Report Office. restructuring of banking and financial institutions.

• An emphasis on rural areas and agriculture, BOX 4.1 with widespread land reform. More trade, more capital, more human deprivation—Russia • Extensive public provision of social ser- In 1997 Russia’s exports to the rest of the for developing countries. The under-five vices. world were $56 billion—and its inﬂows of mortality rate is 25 per 1,000 live births, • Redistributive income policies, creating foreign direct investment $6 billion, 30% of compared with 14 in Poland. Homicides more labour-intensive employment and insti- the total to the region. But its economic and illegal drug trafficking have growth was a meagre 0.4%. In 1989–96 its increased. tuting measures for social protection. Gini coefﬁcient deteriorated from 0.24 to What went wrong? Sometimes Rus- Similar policies in Botswana, Chile, Malaysia 0.48, a doubling of inequality. Wages fell sia’s problems are seen as only a financial and Thailand have also translated good perfor- 48%, with the share of wage income down crisis—partly due to the East Asian crisis, mance in trade into economic growth—and into from 74% to 55% and that of rent and other unfavourable external conditions and a the well-being of their people. income up almost fourfold, from 5% to 23%. lack of progress in building market insti- There are also serious human depriva- tutions. A broader view sees deeper A major lesson is that capturing global tions. Between 1989 and 1996 male life causes: bad governance, no rule of law, a opportunities in trade requires a comprehen- expectancy declined by more than four criminal society, concentrated power, an sive package, evident when contrasting Russia years to 60, two years less than the average imperfect market economy. with Poland. From the beginning of its transi- Source: Ruminska-Zimny 1999. tion to the market, Poland opened its economy,

NATIONAL RESPONSES TO MAKE GLOBALIZATION WORK FOR HUMAN DEVELOPMENT 85 built up institutions, put in place democratic Does lowering labour and environmental and participatory processes and ensured trans- standards give developing countries a compet- parency and accountability (box 4.2). itive edge in capturing trade opportunities? No. Are developed countries using these stan- Maintaining labour and environmental dards as grounds for unfairly restricting trade? standards. Capturing trade opportunities is com- Possibly. And do developing countries lose if plicated by labour and environmental standards, they improve their labour and environmental for violating them hurts human development. standards? Again, no. When wages less than the minimum are Empirical evidence suggests that lowering imposed on female garment workers in labour standards does not make a country more Bangladesh, that is a violation of the minimum competitive, especially if the country does wage law. When the workplace is put under nothing to improve productivity. It is not so lock and key with workers inside, that is a vio- much cheap labour as low per-unit labour cost lation of human rights. When hundreds of that attracts investment. The irony is that devel- these women die in a fire because they cannot oped countries themselves take advantage of get out, that is a human tragedy. When 27 mil- lower labour standards by outsourcing produc- lion workers in the world’s 845 export process- tion, $585 billion worth (in 1994 prices) and ing zones are not allowed to organize in unions, more than two-fifths of the exports from devel- that is a violation of workers’ rights as well as oping countries. Enhancing labour standards human rights. And continuing degradation of will not harm developing countries if they can the environment for economic gain increases improve productivity. the vulnerability of current generations—and In labour standards there is a strong move- deprives future generations of the opportuni- ment among trade unions and NGOs to ensure ties that are their due. workers’ welfare in the developing world. But there is no substitute for government action on legal and regulatory frameworks, on codes of BOX 4.2 Opening the Polish economy with institutional reforms conduct for business and on monitoring and punishing violations of labour standards. In the late 1980s, when Poland embarked sive approach towards privatization and On the whole, developing countries will be on opening its economy, it took a “shock the modernization of the industrial base. therapy” approach to macroeconomic This differed from the rushed and uncon- better served, in trade and in human develop- management. In the first few years of tran- trolled privatization in Russia, from the ment, if they maintain appropriate environmental sition income and consumption dropped market option in Hungary and from the standards. Repeated tests of the pollution haven by some 20% and unemployment and equity option in the Czech Republic. By hypothesis—that investment and production poverty increased. But in 1994 human negotiating with banks and other partners, development trends started improving and and in some cases undertaking debt swaps, migrate from countries with high environmental economic growth took off. Consumption Poland solved the debt problems of state standards to those with low standards—have increased, and unemployment fell from enterprises. failed to find systematic evidence in its favour. more than 16% in 1993 to less than 10% in Openness policies remained consistent Moreover, trade liberalization affects the envi- 1997. despite changes in government, and there What made the difference? Poland was a consensus on opening to the world ronment through many routes—some positive, shifted in the mid-1990s from a piecemeal economy, joining the OECD, European some negative. The net result can be anything, to a comprehensive approach. The build- Union and North Atlantic Treaty Organiza- and thus does not justify lowering environmental ing blocks of the programme were institution (NATO) and adopting internal policies standards a priori. Consumers in developed tional reforms, policy consistency and related to privatization, economic restruc- countries can help if they are willing to pay for popular participation. turing and decentralization. All policies bal- At the beginning of the transition anced market and equity considerations. such standards through social labelling and eco- Poland established a democratic system And all policies were the subject of pub- labelling. And developing countries, through with market institutions, including prop- lic debate—in parliament and the media. regional collective action, can set regional envi- erty rights and a transparent financial sec- This gave a sense of transparency and own- ronmental standards that provide them with bet- tor. There was strong political will to ership, facilitating consensus. Compare advance reforms and a consensus on the that with Russia, where a narrow group of ter bargaining tools in trade negotiations. transition strategy. Policies aimed at build- people made decisions whenever policies In environmental standards country expe- ing the market system with a comprehen- were subject to internal conflict. rience offers specific policy recommendations:

Source: Ruminska-Zimny 1999. • Abolish policies that distort trade and have negative environmental impacts. In the 1990s,

86 HUMAN DEVELOPMENT REPORT 1999 a decade in which Indonesia cut pesticide sub- offered investment incentives and promoted sidies from $128 million to zero, the country’s foreign investment opportunities (box 4.3). exports grew 7% a year. • National governance conditions the domes- • Correct market failures with good incentive tic policy and economic framework, affecting systems. In Norway energy taxes have helped attitudes towards foreign direct investment and cut carbon dioxide emissions in some sectors operational efficiency and profits. Important in by more than a fifth since 1991. all this is political openness—ensuring a democ- • Provide more incentives for transferring ratic system, promoting transparency and “clean” technologies to help developing coun- accountability, unleashing the press and civil tries follow environment-friendly growth paths. society and maintaining political stability In Lithuania 35% of companies started cleaner through the work of democratic political institu- production in the 1990s. tions. That is perhaps why Poland, with a GDP • Create the legal and institutional frame- a fifth of Russia’s, received $18 billion of foreign work to comply with environmental stan- direct investment in 1991–97, while Russia dards. In 1997 Brazil passed an environmental received only $13 billion. In Latin America, too, law to protect natural resources, imposing fines of up to $44 million or prison terms of up TABLE 4.2 to four years for illegal logging or killing wild Foreign direct investment, economic growth and human development— animals. no automatic link • Improve the effectiveness of environmental Reduction in policies through an alliance of communities, human Foreign direct Per capita development NGOs and other institutions of civil society. investment income index (HDI) One last point. Developed countries should flows growth rate shortfall (US$ billions) (%) (%) realize that using trade restrictions in the name Country 1985 1997 1985–97 1985–97 of environmental standards is protectionist Stronger links and, for domestic environmental problems, Chile 0.2 5.2 3.7 47 inefficient. For transboundary problems, it is China 2.3 43.5 8.3 45 Korea, Rep. of 0.3 2.2 6.5 35 both inefficient and inequitable. Weaker links India 0.1 3.1 3.7 13 Romania 0.0 1.1 –0.6 –2 ATTRACTING CAPITAL— CONTROLLING ITS VOLATILITY Source: Human Development Report Office.

Private capital flows, particularly foreign direct BOX 4.3 investment, have helped developing countries Liberalizing foreign investment in India to grow and to enhance human development. Foreign direct investment flows to India in receive tax incentives and can bring in But again, the link between foreign direct the 1980s were insignificant, not much more duty-free imports. India also promoted investment, growth and human development is than $1 billion. But in the early 1990s India private foreign investment in the country not automatic (table 4.2). And empirical evi- removed restrictions on ownership, loos- and identified enterprises for joint dence suggests that short-term speculative cap- ened regulations on currency transactions, ventures. The government advertised ital makes for financial volatility and little expedited the review and approval process broadly in newspapers and other media for foreign investment through “one-stop” in foreign countries. It arranged inter- long-term contribution to an economy. coordination and encouraged imports of national fairs. It sent trade delegations to new technology. countries. It cranked up its missions Attracting long-term capital flows. To The outcome: new opportunities for abroad. attract foreign direct investment, the traditional foreign investment. In 1988 the stock of What helped in this? Good human cap- foreign direct investment in India was $1.2 ital, enhanced technological power, market macroeconomic package calls for liberalizing billion—in 1994, $2.5 billion. Inflows rose size, democratic traditions and stable poli- capital, providing incentives, formulating a from $91 million in 1988 to $300 million tics. But they are not new. What made the conducive industrial policy and implementing in 1994 to $3 billion in 1997. breakthrough possible was the liberaliza- pragmatic technology and labour policies. India developed seven export pro- tion of foreign investment and a new set of cessing zones, where foreign investors strong incentives. • Countries thus need a comprehensive policy package, not ad hoc measures. Consider Source: Lim and Siddall 1997. India, which liberalized its investment rules,

NATIONAL RESPONSES TO MAKE GLOBALIZATION WORK FOR HUMAN DEVELOPMENT 87 the democratization of politics explains higher investment. The quality of labour and its skill inflows of foreign direct investment in the 1990s. level are an important element in capturing Increasingly, there are demands for government global opportunities. For the workers, skill insurance against political risks for foreign direct ensures better pay. Education and training are investment. In many cases foreign investors are essential to build the necessary human capital. willing to undertake commercial risks, but • Countries need to complement liberalization require protection against political risks. policies with technology policies, as Brazil, China, • Educating people and moving their skills India and Malaysia have done. Look at the results up the ladder are essential for raising in India, which has been providing incentives for productivity—and for attracting foreign direct research and development and working with foreign multinationals in high-tech areas. That’s what is needed to have foreign direct BOX 4.4 Foreign direct investment for human development in Malaysia investment. But what does it take for foreign direct investment and growth to contribute to In 1993 foreign direct investment accounted economic measures backed by social and human development? First, investments in for nearly 25% of gross fixed capital forma- structural measures. An active affirmative tion in Malaysia, which has used it to gener- action policy for Malays reduced social infrastructure and services should have a direct ate growth and enhance human well-being. and economic disparities. Technocratic impact on human development. Second, for- With per capita income growth of more than governance ensured efficiency, and insti- eign direct investment must be tailored to 4% a year in 1980–95, Malaysia reduced tutional reforms supported the policy national priorities, in activities that have income poverty from 29% to 13% and low- measures. ered its Gini coefficient from 0.49 in 1980 to The recent financial crisis spotlights spillovers—in creating more employment, 0.45 in 1993. The income of the poorest 20% four principles: bringing in high technology, building future has increased from $431 in 1970 to $1,030 • A high priority on policies friendly to human capital (box 4.4). Third, countries need (1985 PPP$). Wage employment grew at human development and good governance to minimize the adverse impacts of foreign more than 8% a year in 1970–92, and un- helps a country take advantage of global- direct investment (such as creating inequali- employment has fallen from 8% to 4%. ization’s opportunities. Look at what that has done for human • Human and physical capital cannot insu- ties), provide domestic enterprises with neces- development. Life expectancy is 72 years. late a country from the harm of globalization— sary incentives and protect their interests. Adult literacy is 85%. Primary enrolments and can indeed attract much more short-term National action on multinational corpora- are 91%. Infant mortality has come down in capital than a country can cope with. tions should focus on: the past 20 years from 30 per 1,000 live • Rapid access to larger amounts of births to 11. And more than 88% of capital, labour and natural resources can • Providing appropriate incentives. Coun- Malaysians have access to safe water and distort the development process, leaving it tries might give economic incentives to multina- health services. unsustainable. tional corporations, but these should not come Foreign direct investment played a big • A slower, more sustainable pace of at a cost to domestic enterprises (box 4.5). part in these achievements. The growth—with a strong emphasis on human Malaysian approach has been to use for- development—may be a better way to take • Bringing the operations of multination- eign direct investment for economic advantage of the opportunities and mini- als under national rules. While keeping the growth and human development, with mize the vulnerabilities. incentive structures for multinationals intact,

Source: Jomo 1999. their operations should be subject to all national rules and regulations—ranging from general laws to economic regulations. • Ensuring social responsibility. In the BOX 4.5 Incentives to multinationals—and nationals—in Mauritius absence of an enforceable international framework governing the operations of multinational Mauritius gave incentives to multinational for manufactured imports was 89%. corporations in export processing zones, The combination fuelled an export corporations, pressing companies to adopt vol- simultaneously protecting domestic indus- boom in garments to European markets, untary codes of conduct guaranteeing minimum tries. Enterprises in the zones had tariff-free generating new opportunities for women. labour standards for all their international access to imports of machinery and inputs, And because incentives went to all indus- operations has become a key strategy for free repatriation of profits, a 10-year tax holi- tries, the boom didn’t drive up wages in the enforcing labour standards—an issue dis- day and implicit assurance that wage increases rest of the economy. New profit opportuni- would be moderate. But domestic firms also ties were created at the margin, leaving old cussed in chapter 5. got tax holidays and protection from imports. opportunities undisturbed. There were no In the mid-1980s the average effective tariff identifiable losers, only winners. Managing the volatility of short-term

Source: Rodrik 1999. capital. The recent ﬁnancial crisis in East Asia has renewed the debate on the effectiveness of

88 HUMAN DEVELOPMENT REPORT 1999 capital controls to inhibit volatile, short-term from the 600,000 Albanians working abroad in flows. Earlier the focus was on capital controls 1993 as it did from foreign investment. to limit capital flight. Now it’s on controls to Countries also need stronger legal frame- alter the volume and composition of capital works and tougher laws to punish those flows (box 4.6). involved in human trafficking. NGOs and To avoid the speculative movement of hot other institutions of civil society can play an money, the Republic of Korea favoured a grad- important part in uncovering the story of ual opening of its financial markets, even though human trafficking (box 4.7). there were pressures to fully liberalize its capital When developing countries open their markets to become an OECD member. Rather economies and develop a strong private sector, than opening capital markets directly to foreign they can reverse their brain drains. In Taiwan investors, the government chose to do it indi- (province of China) this is called rencai huiliu— rectly, allowing domestic financial institutions to the “return flow of human talent”. A survey of borrow from abroad and distribute the bor- US multinational corporations in Taiwan rowed funds in domestic markets. Malaysia approached crisis management BOX 4.6 and recovery with a multipronged strategy of Short-term capital controls in Chile fiscal austerity, caps on bank lending, bank In the early 1990s Chile experienced a surge data for Chile’s external debt suggest that recapitalization and capital controls. Its ban on in capital inflows that created a conflict the controls affected the maturity compo- foreigners taking money out of the stock mar- between maintaining a tight monetary pol- sition of net capital inflows only after ket for a year has attracted much attention. icy and spurring export competitiveness. In 1995, when they were strengthened. Data Although new foreign direct investment com- 1991 the Central Bank attempted to resolve from the Bank for International Settle- mitments fell by 12% in 1998, that is not bad this by imposing a one-year unremunerated ments present a somewhat different pic- reserve requirement on foreign loans, pri- ture. The figures for short-term external given the regional slump. And in recent months marily designed to discourage short-term borrowing substantially exceed those Malaysia has eased capital controls, allowing borrowing without affecting foreign direct reported in Chilean sources, and the investors to repatriate capital by paying an exit investment. Between 1991 and 1997 the rate maturity structure of foreign bank bor- tax equal to 30% of the principal. The impact is of reserve requirement was increased and its rowing appears quite different from what coverage extended in several steps to cover the national data imply. not yet clear, but the experience shows that most forms of foreign financing except for- Analysts, too, are divided on the effec- tight fiscal policy alone cannot calm panic and eign direct investment. tiveness of the Chilean approach. Some restore the capital flows essential for fast recov- The empirical evidence on the effec- suggest that the controls were effective, but ery. In addition to relaxing capital controls, tiveness of the Chilean controls in reduc- only for a short while. Others suggest that ing short-term capital flows is ambiguous. they were not effective before 1995. And Malaysia has recently increased public spend- It is difficult to be conclusive in the still others argue that they were always ing to spur demand and avoid a recession. absence of a counterfactual, but national ineffective.

Source: IMF 1998b. GETTING THE MOST FROM MIGRATION— BOTH WAYS

BOX 4.7 To aid the migration of unskilled workers, Revealing the human trafficking in Eastern Europe and the CIS labour-sending countries such as Jordan, Pak- An estimated 500,000 women are trafficked ficked overseas. It also went undercover to istan and the Philippines have set up overseas each year from Eastern Europe and the CIS get information from companies dealing employment units to capture opportunities for to Western Europe. An estimated 15,000 with trafficking and traffickers. employment and protect workers’ well-being. Russians and Eastern Europeans work in The outcome: Crime and Servitude: Policies for opening accounts with banks and Germany’s red-light districts. In the An Exposé of the Traffic in Women for financial institutions also helped migrant Netherlands 57% of the trafficked women Prostitution from the Newly Indepen- are under 21. dent States. This very useful report showed workers—and were good for remittances back The Global Survival Network played a the size and depth of the problem, height- home. Egypt managed to get $4.7 billion in big part in exposing this slave trade, after ened awareness of the trafficking in people remittances in 1995—close to the $6 billion it studying it between 1995 and 1997. The and made concrete recommendations for earned from Suez Canal receipts, oil exports and researchers interviewed police and govern- actions to rein in the traffickers and assist ment officials, NGOs, and women traf- the victims. tourism combined. The Philippines received $7 billion in remittances in 1996, and Mexico $4 Source: Global Survival Network 1997. billion. Albania received three times as much

NATIONAL RESPONSES TO MAKE GLOBALIZATION WORK FOR HUMAN DEVELOPMENT 89 (province of China) found that no fewer than this is happening as globalization erodes the fis- 35% of expatriate staff were of Chinese extrac- cal base of countries, particularly developing tion. In both Hong Kong (China, SAR) and countries, shrinking the public resources and mainland China there is a high demand for institutions to protect people (box 4.8). ABCs (American-born Chinese). The brain drain may also have reversed in India and the COPING WITH CHANGING LABOUR MARKETS Republic of Korea. Would that it could in Africa. The structure and composition of labour mar- There is also a need to protect unskilled kets in both developing and developed coun- workers who return home. Return migration tries are changing rapidly. Some are moving can occur for several reasons. There could be a towards jobs that are highly skilled and highly slowdown of the economy in receiving coun- productive. But there are also pressures to be Evidence does not show tries (oil-producing countries in the 1980s). more flexible, as emphasized in chapter 1—and that flexible labour Countries might want to speed the climb up the that can mean throwing out the protection of skills ladder by importing cheap foreign labour workers’ incomes, rights and working condi- markets contribute to (the Republic of Korea and Singapore). Or tions. Yet evidence does not show that flexible competitiveness, and the there could be political or social problems labour markets contribute to competitiveness, trade-off between worker (some 2.7 million people returned to Russia and the trade-off between worker protection after having emigrated to other republics, find- and competitiveness may be illusory. Belgium, protection and ing it infeasible to stay if they could not speak France, Germany and the United Kingdom competitiveness may be the national language). weakened labour laws, but with little effect on Return migration can cause political, social unemployment. Spain and the Netherlands illusory and cultural disruption in the home countries, decentralized wage bargaining and Italy elimi- as it did for many Asian and Arab countries nated automatic wage indexation, but also after the Gulf War in 1991 and as it is doing failed to reduce unemployment. today in many countries in Eastern Europe and Developing countries have responded to the the CIS. Bangladesh, the Philippines and Thai- changing labour markets in different ways— land have long had in place measures to inte- sometimes successfully, sometimes not. Malaysia grate returnees in the economy and society with and the Republic of Korea used price policies to little disruption. ensure an affordable food supply for workers. By fixing the domestic price of rice above the export PROTECTING PEOPLE AGAINST price, they maintained the domestic supply. And VULNERABILITIES through subsidies, they ensured that workers could afford it. That allowed them to devalue People everywhere are more vulnerable. their currencies to capture trade opportunities Changing labour markets are making people while protecting workers. insecure in their jobs and livelihoods. The ero- Countries in Latin America attempted to sion of the welfare state removes safety nets. deal with changing labour markets through And the financial crisis is now a social crisis. All wage flexibility, allowing a widening gap between formal and informal sector wages. BOX 4.8 But that did not increase trade or foreign Social protection for Tunisia’s poor direct investment. So, they are now trying to Under the pressure of globalization Tunisia has reduced its ratio of military to make their informal sectors more productive, Tunisia cut public spending, but without social spending in the past 30 years from more vibrant and more sensitive to workers’ hurting the poor. Food subsidies fell less 45% to 31%, one of the smallest in the rights. The lesson: making labour markets in Tunisia than in some other Arab coun- Arab States. flexible by abandoning conditions that pro- tries, going from 3% to 2% of GDP in Tunisian labour unions, though not recent years, compared with a fall in large, were instrumental in setting a mini- tect labour does not help in dealing with Morocco from 5.5% of GDP to 0.5% mum wage and in maintaining food subsi- changing labour markets and capturing global between 1981 and 1993. Also important: dies for the poor. opportunities.

Source: Amin 1999. The new vulnerabilities in labour markets in developing countries call for:

90 HUMAN DEVELOPMENT REPORT 1999 • Expanding employment, with a focus on and strong will, as in Ireland (box 4.9). What creating reasonably productive jobs. specific actions are needed? More growth, par- • Constantly upgrading the skills of workers, ticularly pro-labour growth. How can this be particularly the unskilled, through training, on- achieved through expansionary monetary pol- the-job dissemination of technical know-how icy as well as other measures? That is explained and building the flexibility in skills needed to later on. Addressing the vulnerabilities of move around. workers in labour markets calls for: • Maintaining reasonable compensation, the • Providing education and training. minimum wage and accepted labour standards Unskilled workers need training to upgrade and rights. skills and be flexible in adapting to different sit- • Increasing the productivity of the infor- uations. Training by governments, direct or mal sector—through tax holidays, duty indirect, could be supported by an employers’ exemptions, lower interest rates and access to training tax. Employers should also provide credit. training to their employees, encouraged by tax The transition economies of Eastern Europe refunds. Just look at the way Sweden has taken and the CIS swiftly transformed labour policies.

Wage setting by the state was replaced by income BOX 4.9 policies, now being abandoned. The region has Ireland’s social partnership agreements the old tripartite commissions bringing together Since 1988 Ireland has used social part- than 7% a year, twice the developed world unions, employers and governments. But in many nership agreements to help the Irish act average. Since 1992 Ireland has created countries economic and social conditions have together to pursue strategic goals and nearly 220,000 jobs, more than the rest of deteriorated so much that unemployment is high recognize the actions of each part of the the European Union could manage. It cut community. The idea is to have a unemployment in half between 1986 and and real wages are low. Many enterprises, partic- national strategy against poverty and 1998, and has raised real wages for the ularly those in the public sector, cannot pay work- inequality. average industrial worker about 10% a ers. Workers can be protected only if an adequate One essential agreement is for moder- year since 1990. Inflation remains at 2%, legal system, sound institutions and good gover- ate wage increases—to ensure work for and the national debt is down from 122% everybody. It has kept society together of GDP in 1986 to 55% in 1998. nance are put in place. Only if macroeconomic through continuous increases in real take- The challenge in all this progress is to policies are undertaken to reverse economic stag- home pay and employment growth with- reduce poverty and inequality. About nation and enhance human development. Only if out neglecting competitiveness. 10% of the Irish are not expected to sur- social policies are pursued for the protection of The results are impressive. Since 1994 vive age 60, 23% are functionally illiterate, Ireland’s GDP growth has been more and nearly a fifth are income-poor. people.

In the developed world deindustrialization Source: National Economic and Social Forum 1997; Ireland 1998. and declines in manufacturing employment are due mainly to slow growth, outmoded patterns of growth and the expansion of high-skilled, BOX 4.10 high-productivity jobs. Finance, insurance, real Upgrading skills and achieving worker flexibility in Sweden estate, health care and business services have Globalization has brought changes in the Swedish government does not support become the most dynamic sectors in job cre- Swedish ﬁrms’ organization, increased cap- job creation at the low-wage, low- ation, with a doubling in their share of employ- ital-intensive production and raised the productivity end of the market. Its labour ment. But there are large disparities in skills and requirements for knowledge. The results market policy has always been part of a wages between service sectors. And part-time for workers: greater demand for vocational policy of full employment that emphasizes and precarious, low-productivity, low-wage education, skills, broad competence and equitable wage policies and promoting ﬂexibility. labour mobility. jobs are the norm for low-skilled workers in the Sweden has helped workers meet these Unemployment is lower in Sweden formal sector. The labour market is also chang- challenges through programmes to build than in Australia, Belgium, Canada, Den- ing because of growing links with developing their skills and increase their flexibility. Its mark, Finland, France, Germany, Italy countries—more imports, outsourcing of active labour market policy absorbs 7% of and Spain. Although problems of struc- the government’s budget, $5 billion for a tural unemployment remain, skills forma- investments and immigration. But no more workforce of 4.4 million. More than 70% tion and training have contributed to than a tenth of the unemployment in industrial goes to training and placement pro- equity and helped prevent long-term countries can be attributed to these links. grammes. In contrast to the Netherlands, unemployment.

How to overcome the vulnerabilities in Source: Bakker 1999. labour markets? With political commitment

NATIONAL RESPONSES TO MAKE GLOBALIZATION WORK FOR HUMAN DEVELOPMENT 91 workers’ training seriously in dealing with • Align macroeconomic policies to ensure changing labour markets (box 4.10). their compatibility with poverty reduction. • Supporting the unemployed in finding Besides public works programmes, coun- jobs. Job search assistance complements train- tries can rely on private job placement services ing for the unemployed. And public employ- to ensure job and income security for poor peo- ment may be a real possibility for targeting such ple, as Thailand did. Income transfers for the disadvantaged workers as the long-term un- needy are also important. To maintain food employed or workers with disabilities. security, countries have targeted low-cost food • Maintaining workers’ benefits and supply to poor people. Allowing poor people rights. Setting minimum wages at moderate to cultivate unused land can help to alleviate levels does not hurt employment, and it can hunger and absorb some of the urban unem- TABLE 4.3 reduce wage gaps between men and women. ployed. Adjustment and greater income inequality, 1987–88 to 1993–95 Health insurance, maternity benefits, parental Social services for poor people are crucial. leave and unemployment insurance are all Indonesia has kept children in school by reduc- Country Increase by type in income important for workers’ welfare. And prior ing or waiving school fees and providing more of adjustment inequality a notice of dismissal and rights of association and scholarships to poor students. And it has tar-

Non-compensatory collective bargaining are workers’ rights. geted 18 million families in a program to pro- Russian Federation 0.24 • Managing transitional labour markets. tect basic health services in 1998–2000, Ukraine 0.24 Estonia 0.12 Policies should support change in the gender ensuring basic health services in health centres, Compensatory roles in households—to value caring activities nutritional improvements, midwife services Bulgaria 0.11 Latvia 0.08 differently—and encourage the use of informa- and a health guarantee scheme at the district Belarus 0.05 tion technology. level. In any kind of transition—whether a Populist Slovenia 0.03 financial crisis or trade volatility or economic Poland 0.02 MANAGING THE SOCIAL COSTS transition—how people fare depends largely Hungary 0.02 OF FINANCIAL CRISIS on the kind of social protection. When coun- a. The increase in income inequality refers to the tries cushion people’s living standards against increase in the Gini coefficient. A Gini coefficient of zero means perfect equality, a coefficient of one Financial volatility brings huge social costs, as economic declines through social transfers, perfect inequality. evidenced by the debt debacle in Latin America they minimize the rise in inequality (table 4.3). Source: Rodas-Martini 1999. in the 1980s, the financial collapse in Eastern Europe and the CIS in the early 1990s and the OVERCOMING THE RESOURCE SQUEEZE recent East Asian crisis. The costs go beyond job losses, food insecurity and reduced social ser- The fiscal resource base of developing coun- vices. Weak social insurance systems and sudden tries is being squeezed in four ways: unemployment also cause serious psychological • Trade liberalization. Efficiency objectives, TABLE 4.4 and social stress, pushing up circulatory disease as well as multilateral commitments, have led Major and minor collectors of trade taxes, 1990–96 and suicide. Some households may even turn to many developing countries to reduce trade prostitution and crime, leading to the spread of taxes, particularly import taxes. Trade taxes Taxes on international disease, family breakdown, increased violence have always been a revenue-raising device for trade as and ethnic hatred. So, with restoring economic developing countries, where they account for % of total government stability, one of the big issues national govern- an average of a third of tax revenue (table 4.4). Country revenue ments face in a crisis is minimizing the social Losing that base has hurt revenue generation in

Major collectors costs and protecting people. these countries (figure 4.2). Lesotho 54.8 The financial crises of the 1980s and 1990s • Globalization of the tax base. With Madagascar 47.2 Mauritius 40.6 show that countries need to: most tax systems designed when economies Dominican Republic 40.4 • Target poor people through public works were primarily domestic, it is difficult to tax Lebanon 40.2 Minor collectors programmes and food subsidies. operations that are transnational. A typical Lithuania 3.6 • Protect public spending for basic social ser- US company may earn up to 50% of its profit South Africa 2.6 Brazil 1.6 vices for poor people. outside the country. Through transfer pric- Singapore 1.3 • Put in place such formal protections as ing, multinational corporations can make it Estonia 1.2 unemployment insurance. even more difficult for national governments Source: Human Development Report Office. • Avoid excessive fiscal restraint. to tax them. And the rise in electronic com-

92 HUMAN DEVELOPMENT REPORT 1999 merce is posing a fresh challenge to revenue GDP in some Latin America countries. In FIGURE 4.2 collection. Jamaica central bank losses from exchange rate Reduced revenue generation— loss of fiscal strength • Tax competition. With capital tending to guarantees exceeded 5% of GDP in the early prefer low-tax situations, countries compete in 1990s. Thailand spent $23.4 billion, or three- Trade taxes (percentage of trade) lowering their corporate and capital gains taxes, fourths of its foreign exchange holdings, in the 10 reducing tax receipts. Of 35 Commonwealth first half of 1997 to resist devaluation and shore Low-income countries countries that had an individual income tax up financial institutions. 8 before 1990, 29 reduced their rates by 1990, and Governments differ in their wishes and 6 none increased them. And tax-exempt export capacities to provide social protection. In processing zones compete with one another and industrial countries government expenditure 4 with the domestic economy. Tax competition increased from just under 30% of GDP in 1960 2 led all OECD countries except Switzerland and to nearly 50% in 1995. More than half this High-income Turkey to reduce the rate in their top tax bracket increase was due to higher social transfers, up 0 countries in 1985–90, from an average of 52% to 42%. from 9% of GDP to 20%. A recent OECD 1981–85 1991–96 • Growth of the underground economy. report recorded an increase in member coun- Tax revenue The growth of the “black”, or “underground”, tries’ national costs of subsidies from $39 billion (percentage of GDP) 30 economy has also reduced tax revenue in many in 1989 to $49 billion in 1993. Meanwhile, many Low-income countries. India’s underground economy is countries have cut social spending to balance countries estimated at 20% of GDP, comparable in size their books. Confronted by the challenges to 25 to Chile, Colombia, Kenya and Nigeria. In the welfare states posed by globalization, new European Union the untaxed economy is esti- thinking has emerged in the discourse within 20 mated to be 25% of GDP. Russia estimates that and among supranational organizations about its tax revenue is less than half of what it would the future of welfare (box 4.11). High-income be if tax laws were implemented, and that orga- Two conflicting models are emerging. One is 15 countries nized crime generates $900 million a year. The a modified version of liberalism—liberalism with 1981–85 1991–96 global drug business generates $400 billion a a safety net, the US model of welfare but more Source: Mohan J. Rao 1999a. year—8% of all international trade. As the resource base in developing countries shrinks, the demand for public resources BOX 4.11 Responses to the eroding welfare state grows—a double jeopardy. All the structural changes of globalization increase the demand With the erosion of the welfare state, peo- and benefits are tied more closely to contri- for public resources—but in the face of reduced ple in the developed world are even less butions. High unemployment means more secure and even more vulnerable— reliance on private sector jobs and services, revenues, governments are pulling back. Public smashed or marginalized by market forces, putting pressure on a “social investment” spending on health and education in countries their survival endangered, with much of the approach. with low human development declined from burden falling on women. • The continental European response. 2.0% of GDP in 1986–90 to 1.8% in 1991–96. • The neoliberal response. Britain, New Continental Europe is subsidizing unskilled Zealand, the United States and to less workers’ exit from the labour market, mainly Capital spending fell in the same period from degree Australia and Canada believe that through early retirement. This creates a dual 6.5% of public expenditure to 6.1%. the market should supplement a very basic problem of mass retirement and mass unem- Economic and industrial change increases social safety net. But market decay—typi- ployment, pushing up financial requirements calls on public authorities to offset the effects of fied by wage deregulation and low pay—is and social contributions. The strong incen- stronger competition by subsidizing ailing accompanying welfare decay, eroding both tive to participate in the informal sector or to public and private coverage in health and pursue self-employment further undermines firms—or helping exporting firms in their pensions among young and low-wage work- the welfare state’s tax base. struggle for global competitiveness. And seek- ers. Welfare gaps will therefore widen, and Built-in labour market rigidities stem ing to boost growth, public authorities are lur- costs will shift to families and individuals. A from most families’ dependence on the ing investment capital with various incentives, double jeopardy: the low-wage labour mar- male earner’s pay and social rights. So, it is ket requires higher income maintenance argued, welfare states need to be scaled all with a price. transfers and creates a disincentive to work. down. Dutch social policy suggests the Governments also have to put up public • The Scandinavian response. With possibility of updating policies without funds to stabilize their exchange rates. Where declining fiscal resources in recent years, abandoning job growth and social capital inflows are sterilized to avoid currency there is now more emphasis on workfare, solidarity. appreciation, open market operations usually Source: Deacon 1999. lead to losses for the central bank—up to 1% of

NATIONAL RESPONSES TO MAKE GLOBALIZATION WORK FOR HUMAN DEVELOPMENT 93 committed to targeting benefits to poor people. • Making tax laws simple, easy and trans- The second, based more on the European wel- parent and making tax administration effi- fare system, is more universalist. It argues that cient. Countries may need to formulate new the middle class should be brought into the wel- institutional arrangements and mechanisms fare system—to ensure political support, and for tax administration. thus a sustainable tax base, for the system. This • Restructuring expenditures by taking approach maintains that without support from resources away from the military and redirecting the middle class, services for poor people them to health and education. Countries in East- become poor services. This point is borne out in ern Europe and the CIS have recently done this. the evidence showing that more targeted pro- TABLE 4.5 Social welfare systems and grammes result in more inequality (table 4.5). GENERATING PRO-POOR GROWTH— income inequality, 1998 To cope with the shrinking fiscal autonomy REDUCING INEQUALITIES AND ENHANCING of the state, particularly in developing coun- HUMAN CAPABILITIES Country by type of Income tries, national governments might focus on: social welfare inequality • Generating more revenue from direct To generate growth the main policy components system (Gini coefficient) a taxes, such as income and property taxes. are ensuring sound macroeconomic management Non-targeted Direct taxes are often extremely low. In many and macroeconomic stability, boosting domestic Encompassing—based on contribution South Asian countries agriculture accounts for demand by appropriately adjusting real interest Norway 0.23 more than 33% of GDP, but contributes less rates, adopting fiscal discipline, accelerating Finland 0.23 Sweden 0.22 than 6% to total tax revenue. Imposing prop- industrial production, reforming financial sector Corporatist—compulsory erty taxes on big landholdings would generate institutions and promoting good governance. But membership, but separate social programme significant resources in the region. economic growth alone is not enough. It must be France 0.29 • Introducing a value added tax. A broad- pro-poor growth—expanding the capabilities, Germany 0.24 Basic security and targeted based value added tax can be more effective in opportunities and life choices of poor people (fig- United States 0.33 generating resources than an income tax. But it ure 4.3). To ensure the generation of pro-poor Australia 0.31 United Kingdom 0.29 may be more regressive, requiring a choice growth, national action should: between efficiency and equity, a choice that can • Restore full employment and expansion of a. A Gini coefficient of zero means perfect equality, a coefficient of one perfect inequality. be tackled only through a full analysis of the opportunities as a high priority of economic Source: Rodas-Martini 1999. impact of both taxes in a country. policy. • Remove antipoor biases in the macroeconomic framework. FIGURE 4.3 Growth—pro-poor or pro-rich? • Invest in the capabilities of poor people by restructuring public expenditure and taxation. Per capita growth rate for GNP per capita growth rate (percent) the poorest quintile (percent) • Ensure access of poor people to productive 43210 0123456 resources, including credit. Ecuador • Increase the productivity of small-scale 1970–90 agriculture. Sweden 1970–81 • Promote microenterprises and the informal Malaysia sector. 1967–89 • Emphasize labour-intensive industrializa- India tion to expand employment opportunities. 1970–79 Poor Costa Rica people’s Reducing inequality in the developing 1971–89 incomes world requires the following additional actions, grew ahead of Germany GNP per capita through alliances of governments, firms and 1968–88 NGOs: Kenya 1970–92 Poor • Build human capabilities through educa- people’s Brazil tion and ensure access of poor people to edu- 1971–89 incomes grew less than cation. Education has been found to be the UK GNP per capita 1968–88 most important asset in explaining income disparities, and wage dispersion among skill levels Source: UNDP 1997a. has become significant.

94 HUMAN DEVELOPMENT REPORT 1999 • Make public provision of safe water, billion, in Japan $264 billion and in the United health services and housing accessible to poor Kingdom $78 billion. In the developing world people. NGO budgets are nearly $1.2 billion, more than • Make more financial assets and productive $200 million in Mexico alone. And among the resources available to poor people and create transition economies their budgets are more productive and remunerative jobs for them. than $1.4 billion in Hungary and nearly $900 • Reduce inequality through progressive million in the Czech Republic. The point: income taxation and other redistributive policies. NGOs are a strong force—both as advocates • Provide income transfers and other social and as providers of services. protection during adjustment and crisis—and NGOs can often do more than developing pursue antipoverty programmes for the poorest. country governments in meeting the basic needs Both redistributive policies and social proof citizens—using fewer resources. NGOs also tection are important means for reducing create opportunities for people and protect them inequality. But in many developing countries against the new vulnerabilities of globalization. redistributive tools, such as subsidies, favour And they have become important pressure the rich (figure 4.4). This is particularly true in groups, protecting people’s rights and watching An alliance among the urban health facilities and universities. Of over other actors. The 1998 Birmingham Decla- government, NGOs, local course, national action to generate pro-poor ration for Debt Relief to the poorest countries is growth and reduce inequality may be con- an important achievement. During the 1998 elec- firms and multinational strained by measures at the international tion in Germany more than 80 NGOs came corporations can go far to level—a point discussed in chapter 5. together to get a commitment from national political parties to increase aid funding to 0.7% of the foster cooperation towards CREATING EFFECTIVE ALLIANCES country’s GDP. common goals OF NATIONAL ACTORS For a long time governments and NGOs were adversarial, each suspicious of the other, An alliance among the government, NGOs, but that is changing. NGOs’ relationships with local firms and multinational corporations can local firms and with multinational corporations go far to foster cooperation towards common are also improving steadily. And the donor goals. An alliance does not mean submission by community is coming to recognize NGOs as any one actor to the others. The work of each development partners (box 4.12). actor can complement that of others, under such How can the private sector be pulled in? By universal guidelines as respecting the rule of law, allowing it to work creatively, and by encourag- not violating human rights, and being fair, trans- ing its innovativeness. This requires complemen- parent and accountable. A strong, democrati- cally elected government is especially important, allowing representatives of the people to express FIGURE 4.4 Subsidies to the poor or the rich? their aspirations and be accountable to them. All Health Education this is easier said than done, for elite groups and other interest groups benefit from the present Percentage 49 33 32 17 41 37 32 21 nature and structure of globalization. They also share of the share power with global elites. richest NGOs have emerged as major actors—both 20% in size and in impact. In the United States employment in the NGO sector is nearly 9 million, in the European Union nearly 6 million and Percentage share in Japan more than 2 million—and in Brazil 1 of the poorest million, in Argentina 350,000 and in Colombia 20% 4 12 11 16 8 13 14 17 270,000. The share of resources accruing to Guinea Ghana Côte South Madagascar Tanzania, Uganda Kenya 1994 1992 d’Ivoire Africa 1993 U. Rep. of 1992 1992 NGOs has steadily increased, even though offi- 1995 1994 1994 cial aid transfers have been steadily declining. NGO revenues in the United States total $566 Source: Castro-Leal and others 1999.

NATIONAL RESPONSES TO MAKE GLOBALIZATION WORK FOR HUMAN DEVELOPMENT 95 tary domestic and trade policies to guarantee a BOX 4.12 NGOs as a powerhouse in national alliances competitive market environment, regulating any monopoly or oligopoly, particularly if it provides In the outcry against child labour—with efforts. In Uganda NGOs are collaborating threats of boycotts and other trade with the government, private sector and essential services. In many cases the private sec- restrictions—NGOs in South Asia have communities in a project on nutrition and tor has demanded subsidies, protection and often joined with local manufacturers and early childhood development funded by a infrastructure from government to benefit from the government to lobby against the arbi- $34 million credit from the International global markets. But in other cases local firms trary imposition of social clauses within Development Association, using their the World Trade Organization. In 1998 a expertise to give primary care providers have accepted the challenge of tackling global- group of NGOs lobbied the World Bank better access to infrastructure. Proshika ization for the good of the country (box 4.13). and other international donors to fund MUK, an NGO in Bangladesh, does par- Bringing multinational corporations into detailed research on the human impact of ticipatory rural appraisals of the national these alliances is the most difficult. Not only structural adjustment policies. budget to encourage the government to NGOs everywhere are making bigger examine how spending decisions affect the outsiders, they are empires—with money, contributions to national development poor and to adopt a pro-poor budget. power, affiliates, subsidiaries and the support of the international system. They are often seen Source: Human Development Report Office. as creating enclaves in national economies, and it is extremely difficult to bring them under national rules and regulations. To make them BOX 4.13 partners in the development process, they Meeting the challenges of globalization—Fundación Chile require support, but they also need to respect Fundación Chile, a joint initiative by the company is created for commercial produc- national rules and be accountable, transparent Chilean government and the private sec- tion. When production is exported, the and sensitive to social responsibilities. tor, combines research and development process is complete and Fundación Chile with a creative vision for market opportu- sells the company—30 so far—to Chilean FORMULATING STRATEGIES FOR EMERGING nities and a commitment to sustainable interests. development. Take salmon, which did not exist in NEW ISSUES IN THE GLOBAL SYSTEM The first step is to identify a product that Chile. Given the high price of salmon in the Chile may not yet produce but for which world market and the demand in Japan, National action is essential to capture global there could be a significant market. Next, Fundación Chile introduced salmon in opportunities in trade, capital flows and Fundación Chile masters the technology Chile’s rivers in the early 1990s. By 1995 through long experimentation. If the prod- salmon exports amounted to almost $500 migration—and to protect people against the uct can be adapted to local conditions, a million, creating thousands of jobs. uncertainties and vulnerabilities of globaliza-

Source: Human Development Report Office. tion (box 4.14). But the success of national action hinges on how effectively countries can negotiate at the global level. Globalization’s many facets require a focus, BOX 4.14 but efforts today are divided among different Using national human development reports ministries and departments. Some are led by the to outline impacts and priorities ministry of trade, some by the ministry of National and local human development • Priorities for action by local commu- finance and some by the ministry of planning. reports—expected to number 260 by the nities, by urban and rural groups and by This fragmentation not only weakens the end of 1999—provide a great opportunity the national government. capacity of developing country governments to outline how a country or community is • Indicators for monitoring the impact of affected by globalization. Some possible globalization and the effectiveness of to develop a powerful and consolidated strat- elements: national policy to manage it. egy at global forums. It also limits their ability • An analysis of how people have been • A common position on globalization for to capture global opportunities. That is why affected by globalization in the past 5–10 the different sectors of government—cov- each developing country should set up a coor- years, with a balance sheet of gains and ering finance, planning, trade, agriculture, losses, quantified as much as possible. It health and so on. dinated mechanism for dealing with global- should cover which groups of people Globalization should be the topic of ization. And whatever the mechanism gained or lost, what enabled the gains and one chapter or the theme for an entire chosen—presidential task force, global plan- what caused the losses. national human development report. The ning commission, special interministerial • An analysis of gains and losses in chapter or report might set out key priori- unit—it must be given the visibility, power the different elements of human ties in national policy for managing global- security. ization to enhance human development. and flexibility as well as the technical expertise and political clout to handle the complex- Source: Human Development Report Office. ities of globalization.

96 HUMAN DEVELOPMENT REPORT 1999 CHAPTER 5 Reinventing global governance— for humanity and equity

What area of policy is most important for hospital patients, rioting and looting in the Reinventing global managing globalization? Harmonizing global streets, rising unemployment and declining competition and free market approaches with school attendance. This has become the worst governance is not an steady and expanding support for human setback to the global economy since the 1930s. option—it is an development and human rights in all coun- For developing countries there have long tries, developed and developing. This is at the been losses from the inadequacies and imperative for the heart of a new perspective, a new global ethic, inequalities in global governance. Some result 21st century a new approach to globalization. And it from weaknesses in global markets for capital requires a range of actions, from the broad to —and some from restricted access to devel- the specific. oped country markets for exports and tech- Reinventing global governance is not an nology. Restrictions on migration are still a option—it is an imperative for the 21st cen- major contradiction with the principles of the tury. The preceding chapters have spelled out open global economy and one with a high cost possibilities for human development—and the to developing countries. Human Develop- pitfalls. They have also spelled out the failures ment Report 1992 estimated the total cost of of governance in getting the most from the denying market opportunities to developing opportunities—and in avoiding the pitfalls. countries as roughly $500 billion a year, The costs of these failures are much larger almost 10 times the amount they receive each than generally realized. Consider the output year in aid. losses from the East Asian crisis and its global With the Asian crisis in 1998, the need for repercussions. Over the three years from 1998 fresh thinking about global governance has to 2000 these are estimated at nearly $2 trillion. again been recognized. Initially, the crisis was These losses are: attributed to weaknesses of domestic policy • About 2% of global economic production and action within the countries affected, even in these years—and more than the combined though only months before the same countries annual income of Sub-Saharan Africa, the Arab had been hailed as Asian “miracles of develop- States and South Asia. ment”. But the need for changes in interna- • Enough to double the incomes of the poor- tional governance is now widely accepted, and est ﬁfth of the world’s people. the international community has begun to seek • About twice the additional ﬁnance solutions with renewed vigour. required over the next decade to achieve the Even so, the debate on international goals of basic education, primary health care, reform is: family planning, nutrition, water and sanitation • Too narrow in scope—usually excluding for all. human development as an objective, under- • Well over 10 times the $170 billion mobi- playing the importance of employment and lized internationally to prevent the economic environmental sustainability and largely slowdown. neglecting economic and social rights. And as chapter 1 made so painfully clear, • Too geographically unbalanced—dominated the cold statistics of economic loss convey few by the concerns of the industrial countries, with of the human costs—interrupted treatment for secondary attention to the emerging and large

REINVENTING GLOBAL GOVERNANCE—FOR HUMANITY AND EQUITY 97 economies. The poorest and least developed The entire structure rested on the Charter of countries are largely neglected. the United Nations, one of the most remarkable • Too driven by the economic and financial and pioneering documents of the 20th century. interests of the rich countries—often those of The far-seeing principles of the UN Charter the G-7, sometimes just the G-1. were reinforced three years later in the 30 arti- Is it too ambitious to think and plan more cles of the Universal Declaration of Human boldly? Recall the remarkable vision and Rights (boxes 5.1 and 5.2). human concerns of the 1940s, when the United Fundamental rethinking of policy and gov- Nations and Bretton Woods institutions were ernance is again required. It must be broad and created. At that time full employment was a key fair, and it must restore an integrated approach objective, along with: covering social as well as economic issues. Key • Fulfilment of economic and social rights. priorities: • Measures for economic stability, including • Putting human concerns and human rights stability of commodity prices. at the centre of international policy and action. • An integral view of the United Nations and • Protecting human security and reducing Bretton Woods institutions. vulnerability on a worldwide scale. • Narrowing the extremes of inequality between and within countries. BOX 5.1 Keynes’s vision for global governance • Increasing equity in negotiation and struc- The architecture of international gover- (SDRs), but these constitute less than 3% of tures of international governance. nance set up after the Second World War global liquidity today. • Building a new global architecture for the was in several respects more advanced than Keynes placed the burden of adjustment 21st century. that of today. on both surplus and deficit countries, even In short, reform driven by concern for peo- • There was an integral view of the envisaging a penalty interest rate of 1% a ple, not for capital. United Nations and Bretton Woods insti- month on outstanding trade surpluses. In tutions, working together as part of the practice, deficit nations (mostly developing whole UN system. countries) have had to bear the main bur- PUTTING HUMAN CONCERNS AND RIGHTS AT • Economic and social rights were key den of adjustment—except for the United THE CENTRE OF GLOBAL GOVERNANCE objectives. The UN Charter emphasized States, which can avoid adjustment because that “conditions of stability and well-being its deficit serves to supply dollars needed for are necessary for peaceful and friendly liquidity by the global system. The IMF now Changes in international governance are relations among nations” and “all mem- exercises some monetary discipline only on needed so that the international system does bers pledge themselves to take joint and developing countries, which are responsible much more to support, and much less to hin- separate action in cooperation with the for less than 10% of global liquidity. der, international, national and local actions for organization for ‘promoting’ higher stan- The international trade organization, as dards of living, full employment, and con- envisaged by Keynes, had functions far human development. Five specifics: ditions of economic and social progress beyond the present World Trade Organi- and development.” zation. Keynes’s international trade organi- STRENGTHEN GLOBAL ETHICS AND • The International Monetary Fund and zation was not only to maintain free trade RESPONSIBILITY the World Bank were to be complemented but also to help stabilize world commodity by a third body, an international trade prices, essentially through buffer stock organization. arrangements. Global governance with a human face requires • Full employment was a basic goal, to be Keynes went even further. He recog- shared values, standards and attitudes—a wide supported in all international economic nized that the long-term international prices acceptance of human responsibilities and operations. for commodities must be fixed in relation to obligations. Those values include respect—for Keynes went much further than the gov- both the economic conditions for efficient ernments of the time were prepared to production and the human conditions for life, liberty, justice and equality. And they accept. He proposed a fund with access to proper nutritional and other requirements include tolerance and mutual caring. resources equal to half of world imports. to ensure a decent standard of living among Such values underlie the UN Charter The IMF today controls liquidity equal to primary producers (a principle that Keynes and the Universal Declaration of Human less than 3% of world imports. He envis- recognized would also apply to producers Rights. They now need to be translated into aged the IMF as a world central bank, issu- of manufactured goods). ing its own reserve currency (Bancor). In the Direct concern for nutrition and decent the principles and practices of global gover- 1970s the IMF was permitted to create a living standards has yet to be incorporated nance. How? With a strong political com- limited amount of special drawing rights into the principles of international trade. mitment propelled by public awareness and

Source: Keynes 1980. support (see the special contribution by Ted Turner).

98 HUMAN DEVELOPMENT REPORT 1999 BRING PRINCIPLES OF HUMAN DEVELOPMENT ADOPT REGIONAL AND GLOBAL AGREEMENTS AND SOCIAL PROTECTION INTO THE TO PREVENT RACES TO THE BOTTOM CONCEPTS AND PRACTICES OF GLOBAL ECONOMIC GOVERNANCE International bargaining can be tough—and in the heat of the moment minor or major conces- Global competition and market efficiency are sions may be made in wages, labour standards the big objectives of current efforts to restruc- ture global economic governance. Important, BOX 5.2 but they are too narrow internationally, just as The successes and failures of global governance since 1945 they would be nationally. Global governance Although political negotiations never per- countries, from commercial banks lending needs to incorporate human development pri- mitted full realization of the international with little overall control or supervision. orities for people in all parts of the world—for economic and political architecture as orig- Welcomed at the time, it was later seen to poverty reduction, equity, sustainability and inally proposed, its practical impact was have laid the foundation for the major debt human development. remarkable. From the late 1940s to the early crises and adjustment problems of the 1970s world economic growth was faster, 1980s. Until recently social and welfare policy economic stability greater and unemploy- A second major international commis- were matters for national action. With global- ment lower than in any comparable period sion was established, the Brandt Commis- ization, this has been changing. In the indus- in history. Moreover, more than 70 coun- sion. Its report in 1980, North-South: A trial countries global economic competition is tries moved from colonial status to political Programme for Survival, showed how putting welfare states under pressure, as chap- independence, most achieving economic industrial and developing countries could growth rates during the 1960s higher than share in actions and transfers to stimulate ter 4 showed. In many developing countries ever before and often higher than ever since. growth in developing countries as a way to education, health and the more limited range Of course, the structures of global gov- achieve a more dynamic global economy. of welfare provisions have come under even ernance were far from perfect. The cold war But little of the message was implemented. greater pressure. Structural adjustment poli- polarized many operations. Inflation was Instead, the global emphasis shifted to often high. The terms of trade of many pri- what countries must do on their own, espe- cies have often cut back primary health care mary producing countries fell. The poorest cially in implementing liberalization and and basic education, with reduced subsidies and least developed countries became more adjustment. The need for complementary and increased charges restricting access to marginalized. Various international efforts action by the international community was these services for poor people. introduced changes in global governance to muted. Debt in the poorest developing tackle these problems. countries rose rapidly, commodity prices At the same time the institutions of • The International Development Asso- fell, and aid remained far below commit- global governance have leaned hard on ciation was established in 1960 to expand ments, especially for the least developed national governments to adopt their pre- the flows of concessional finance to poor countries. ferred systems of social protection—mar- countries. There followed a lost decade for devel- ginal for the International Monetary Fund, • UNCTAD was established in 1964 to opment in most of Latin America and Sub- improve the analysis and negotiation of Saharan Africa. Per capita income fell in social safety nets for the World Bank and a trade and development issues. more than 40 countries in the two regions, broader and more pragmatic range of social Nonetheless, global governance was often with serious human setbacks for large policy options and mechanisms for other UN recognized to be inadequate, especially for parts of the population. School enrolment agencies. Human development policy, as the developing countries. A high-level ratios fell in 20 countries. international group, the Pearson Commis- None of these results can be blamed promoted in the Human Development sion, was established to propose ways to entirely on the inadequacies of global gov- Reports, is an example. improve aid and development policy. It ernance. But the fact remains that since But a broader, more coherent set of inter- reported its recommendations in 1969 in 1980 the majority of countries in Sub- national principles is required—as some gov- Partners in Development. Saharan Africa, many in Latin America and ernments are beginning to recognize. Such In 1971 the United States abandoned most of those in transition have experienced the Bretton Woods system of fixed disastrous failures in growth, often with principles should be built on: exchange rates. In the mid and late 1970s, serious increases in poverty and setbacks in • Economic, social and cultural rights as well after two decades of declining oil prices, human security. Although there have been as political and civil ones. the price of petroleum almost quadrupled, some improvements over the 1990s, per • The goals and commitments of the global shifting global income distribution in capita income in some 40 developing coun- favour of the oil-producing countries. The tries is still less than it was 20 or more years conferences of the 1990s. suddenness of the adjustment set back the ago. The economic decline in many of these • Democratic and equitable governance, global economy. Output in the OECD countries has already been much worse than globally and nationally. economies fell. There was a surge in flows anything felt by the industrial countries dur- The World Bank Group and the IMF need of petro-dollars to non-oil developing ing the Great Depression. to explore how these principles are brought Source: Haq and others 1995; Rodrik 1999. into their policies and operations.

REINVENTING GLOBAL GOVERNANCE—FOR HUMANITY AND EQUITY 99 and environmental regulations. One way to ties more seriously. Mattel, the toy-producing avoid these pressures is to establish regional enterprise, and Disney World, the entertainment frameworks of minimum standards and to giant, have codes of conduct for their plants in strengthen regional agreements to work within Asia. Mattel is the only multinational corporation them. Labour standards need to support the abil- in China that has won the Social Accountability ities of people to provide care for their families 8000—a certificate of workplace standards that and communities—not to have global competi- Asia Monitor, a watchdog NGO, calls for. Disney tion undermine them. Mercosur and the Euro- has done more than 10,000 inspections to ensure pean Union have taken steps in this direction. proper working conditions for its workers in Asia. Such agreements, carefully defined, can raise Codes of conduct have moved from vague living standards and protect the environment, promises to detailed rules, with the best codes without setting back employment or discourag- now monitored by outside auditors (box 5.3). ing foreign investment. Collective regional action But multinationals should be socially respon- Multinational can ensure that the decisions are based on the sible from the beginning, not only after having corporations need to be needs of people in the countries concerned. been caught neglecting responsibilities. Codes of conduct should also be developed for banks brought within the frame DEVELOP A GLOBAL CODE OF CONDUCT FOR and financial institutions, covering secrecy and of global governance, not MULTINATIONAL CORPORATIONS—AND A risk assessment. GLOBAL FORUM FOR THEIR MONITORING Incentives and publicity can help. The just the patchwork of Council for Economic Priorities, a US-based national laws, rules and Multinational corporations are already a dom- NGO, gives annual awards and public recogni- inant part of the global economy—yet many of tion to Fortune 500 companies demonstrating regulations their actions go unrecorded and unaccounted. exceptional performance in community part- They must, however, go far beyond reporting nership, employee empowerment and gender just to their shareholders. They need to be equity, environmental stewardship, social mis- brought within the frame of global gover- sion and human rights. nance, not just the patchwork of national laws, But multinational corporations are too rules and regulations. important and too dominant a part of the global Because of the activism of NGOs and other economy for voluntary codes to be enough. institutions of civil society, many multinational Globally agreed principles of performance are corporations are taking their social responsibili- needed for:

SPECIAL CONTRIBUTION

Partnership with the United Nations Even as communications, transportation and new global challenges resides outside govern- to address global issues, protect the environment, technology are driving global economic expan- ment. eliminate poverty, empower women and pro- sion, headway on poverty is not keeping pace. All of these trends point us towards the need mote children’s health. And the United Nations It is as if globalization is in fast-forward, and the and potential for public-private partnerships. needs the support of all sectors—business, gov- world’s ability to understand and react to it is in These kinds of partnership are urgently needed as ernment, NGOs and the philanthropic world. slow motion. government assistance is cut even as the demands Secretary-General Koﬁ Annan is doing all But there are promising signs. and needs for international cooperation grow. that he can to make the United Nations a bet- First is the ascendance of new means for While the private sector, trade and investment ter, more responsive and more open institution. global progress—the emergence of a more hold promise for broad progress in the future, too It is up to the rest of us to join him in rededi- vibrant and engaged civil society. The private few countries and sectors are beneﬁting from cating our support for the United Nations and sector is another growing force for progress. globalization. Worldwide economic progress its efforts to create a more peaceful, prosperous Private investment in developing countries now must address sustainable human development. and poverty-free world. dwarfs foreign assistance as a source of That is why the UNDP and its UN colleagues resources for progress. are ever-more important. All those who care On the other hand, governments are about the world around them must care about financially and politically challenged as never and support the United Nations. The United Ted Turner before. And increasingly, the expertise of Nations is the place where nations work together Founder, CNN

100 HUMAN DEVELOPMENT REPORT 1999 • Human concerns—to ensure compliance • Interactions in professional groups. with labour standards and human rights. • Parliamentary, religious and other groups • Economic efficiency—to ensure fair trade committed to strengthening international and competitive markets. understanding and exchange. • Environmental sustainability—to avoid And these are just a start (box 5.4). degradation and pollution. Also needed is a global forum to bring PROTECTING HUMAN SECURITY IN multinational corporations into open debate ECONOMIC CRISIS with other parts of the global community— unions, NGOs and government. The results The biggest human setbacks of the past two could be practical and positive. The first major years emanate from the Asian economic crisis. conference hosted by the UK-based Ethical The crisis has already stimulated strong sup- Trading Initiative, in London at the end of port from the World Bank and the UN system 1998, brought together hundreds of people in response to human needs in the countries from a range of companies, trade unions and NGOs to discuss fair trade issues and company BOX 5.3 codes of conduct. Six of the nine UK compa- Social auditing of multinational corporations nies among the top 100 multinationals now The demand for social auditing—a thorough tionals. Nike has said that it would arrange have codes in draft. In the space of a few years, check as to whether multinationals are living for inspections of all its plants worldwide. the fair trade movement and the promotion of up to their social responsibilities—is on the At the same time Nike has raised the salaries fairly traded products have gone from the mar- rise. In addition to emerging social auditors, of workers hurt by currency devaluation, accounting firms such as Deloitte & Touche, increased its minimum working age to 18 gin to the mainstream in promoting labour PricewaterhouseCoopers and Ernst & Young and switched to less toxic glues. Mattel has rights, and retail sales of fairly traded goods are are also carrying out social auditing. also worked hard. Independent auditors worth more than $250 million in Europe alone. Last year 1,500 inspections were done in have paid visits to its factories and those of This could be replicated at the global level in the Guangdong province of China, where its suppliers, and local activists play a role in there is a large concentration of multina- its social auditing. many ways. Source: OECD 1999a. STRENGTHEN THE GLOBAL COMMITMENT TO HUMANE GOVERNANCE

BOX 5.4 People’s expanding awareness of their connec- Globalization without Poverty—a European initiative tions with the wider world is part of globaliza- The Council of Europe, with 40 member Europe, that extreme poverty and social tion. Securing political support for more states, recently launched Globalization exclusion are a denial of human rights. humane global governance will depend on without Poverty. This initiative brings One initiative, the Global Forum on increasing that awareness even more—and on together national governments, intergov- Poverty Eradication, has been inspired by ernmental organizations, NGOs, parlia- the work of the Forum of the Poor in making people conscious of their being citizens mentarians, local authorities, the media Thailand. It aims to listen to—and learn of the world, not just their countries. and communications agencies in joint from—the experiences of the poor, both Many things already contribute to a sense efforts to renew the commitment in Europe in Europe and in the South. Its goal is to of global responsibility: to global poverty eradication. The perma- develop an agenda for action that will nent North-South Centre of the Council of contain recommendations and proposals • Education, especially the opportunity for Europe, based in Lisbon, is the secretariat on how extreme poverty can be eradi- young people to learn about the lives and situ- for these efforts. cated and especially on how societies can ations of people in other parts of the world. The campaign aims to promote the idea be mobilized to achieve this goal. • The media’s treatment of international of social inclusiveness in Europe and new By emphasizing poverty eradication on concepts of global citizenship that focus on a global scale, the forum attempts to offset news and events, explaining them from the the rights and responsibilities of citizens liv- ideas of personal insecurity and “Fortress” viewpoints of other countries. ing in a global society. Some initiatives, such Europe as a response to European inward- • Networks of NGOs, such as the Third as the Action Week against Poverty, will be ness in thought and action. The campaign World Network and the UN-NGO Forum. Europe-wide; many others are national or message: “Europe is not a planet, but part • Trade union activities focusing on global local. The project aims to remind people, in of One World, and that creates both line with the overall policy of the Council of opportunities and responsibilities.” issues. • Opportunities to study abroad and to travel Source: Human Development Report Ofﬁce. and work with people from other countries.

REINVENTING GLOBAL GOVERNANCE—FOR HUMANITY AND EQUITY 101 directly affected. More important for the long • Removing the requirement that countries run, it has stirred a major rethinking of the liberalize capital accounts as a condition for improvements needed in global governance to borrowing. The extent and phasing of capital avoid recurrence and further contagion. account liberalization should be a matter for each developing or transition economy to REDUCING FINANCIAL INSECURITY decide on the basis of its needs and capacities. International pressures for abrupt or prema- Extremes of vulnerability are a systemic prob- ture liberalization have often proved counter- lem of financial liberalization on a global scale productive. and call for new global measures of prevention • Incorporating standstill provisions into and preparedness. Already the economic costs the rules for borrowing from the interna- and human consequences of these setbacks add tional financial institutions. These would give Stronger regional up to an important agenda of priorities. countries under financial pressure the right to collective action could be Developing and adopting new interna- delay debt servicing. tional codes of conduct for banks and financial • Developing regional and subregional ini- stabilizing—pooling institutions, improving information and trans- tiatives to support monetary and financial reserve funds, parency and enhancing international financial management. Stronger regional collective strengthening financial supervision and regulation are all part of the action could be stabilizing—pooling reserve new consensus. So is recognition of the IMF’s funds, strengthening financial monitoring, monitoring, maintaining need for increased financial resources to enable maintaining open trade even under pressure. open trade even under it to act more quickly and preemptively as The experience of Western Europe, from the lender of last resort. Such resources could be Payments Union in the early postwar years to pressure obtained by increasing government financial the euro today, underscores the value of such commitments to the IMF, enhancing the use of arrangements. IMF special drawing rights (SDRs) or selling • Increasing technical support. The cost of some of its gold holdings. processing all the information required for Those who balk at the political difficulties financial negotiation and decision-making is of getting agreement to such measures should very high for small and poor countries. The recall the risks and costs of not doing so. The international institutions have a special respon- willingness of the United States to act as lender sibility to help countries gain rapid and easy of last resort to Mexico in 1994–95, and the access to such information and analysis. speed of its support, did much to limit the depth and contagion of the Mexican financial PROTECTING PEOPLE DURING PERIODS crisis and to achieve rapid recovery. Money OF CRISIS AND ADJUSTMENT alone is not enough, however. Financial support must be accompanied by economic Time and time again when under economic reform and restructuring—taking account of pressure, countries find themselves sacrificing human goals, not just economic and financial the needs of their children on the altar of eco- ones. nomic orthodoxy—cutting schools, clinics and hospitals to balance their budgets and pay their PREVENTING FUTURE FINANCIAL CRISES debts. The challenge is greatest in poor countries, where the coverage of schools and health The financial crises of the 1990s have been services is already limited. By cutting the invest- systemic—with finance surging in and out of ment budget, countries ease the pressures on countries at a speed and volume beyond the both capital and recurrent accounts—but at capacity of any country on its own to control. the cost of postponing the vital goals of health In addition to the measures to reduce finan- and education for all. cial insecurity, poor countries need special sup- This spotlights the importance of adopting port. A recent UN task force on financial long-run human goals—and maintaining architecture proposed various measures to help progress towards them, with international sup- prevent further crisis and contagion, including: port to make this possible. Countries should be

102 HUMAN DEVELOPMENT REPORT 1999 encouraged to set goals and dates for achieving Special actions are needed to deal with traf- universal access to education and health—as ficking in women and children and smuggling set out in the World Summit for Social Devel- migrants and firearms. opment, in other global conferences of the The media, NGOs and other institutions of 1990s and in the Development Assistance civil society have played an important role in Committee goals for the 21st century. At a min- uncovering the untold story of human traffick- imum, all countries should be encouraged to ing and forcing action. Needed now are more make some progress towards these goals each formal international processes of reporting and year—no matter how severe the economic reviewing actions. Also needed are interna- pressures. tional negotiations between labour-sending Stronger international support is needed and labour-receiving countries and with inter- for protecting people in crisis. The way indus- national organizations. Such negotiations Culture, community and trial countries respond to a flood or earthquake should lead to codes of conduct both for within their borders is instructive here. It labour-sending and for labour-receiving coun- human security are would be unthinkable and politically unaccept- tries, laws for eliminating exploitation of intertwined—but too able in an industrial country today to allow a migrant workers and violations of their human natural disaster to leave citizens without health rights, and severe penalties for traffickers (box often undermined by the services or children without schooling for years 5.5). The UN Convention for the Suppression invasions of globalization on end. Yet this happens often in developing of Traffic in Persons and the Exploitation of countries. A lender of last resort for social pro- the Prostitution of Others, approved by the tection would thus be useful—perhaps as a spe- General Assembly in 1949, focuses on traffick- cial window of the World Bank. ing as a criminal commercial enterprise. Only 70 countries have adopted this convention. REDUCING OTHER CAUSES OF HUMAN INSECURITY PROTECTING CULTURAL DIVERSITY

Threats to human security are being exacer- Culture, community and human security are bated by globalization in other ways. Three intertwined—but too often undermined by the threats show the range of actions required. invasions of globalization. The World Com- mission on Culture and Development recog- CONTROLLING GLOBAL CRIME nized the broad principle of protecting cultural diversity while encouraging cultural exchange. The virulent synergy between globalization Balancing the two is difficult and controversial and organized crime calls for new global —but countries wishing to protect their cul- instruments to back national actions and con- tural heritage need to be permitted to do so. trol the international links. An international Four examples of actions: convention against transnational organized • Regional and private efforts could encourage crime is under preparation. Among the key much more two-way cultural communication— measures: so that films, music, literature and television pro- • Encouraging cooperation in law enforce- gramming flow between and within developing ment and surveillance, with support for regions, not just to them from industrial countries. advanced investigative techniques. • Policy-makers have to rethink state, com- • Enhancing international judicial coopera- munity and international institutions and poli- tion, including the transfer of cases from one cies to permit local populations to choose their jurisdiction to another and the use of video- languages and way of life. At the same time conferencing for cross-examination. institutions should be created that encourage a • Obliging states to develop effective pro- dialogue between leaders of different cultural grammes for protecting witnesses and legal groups to negotiate exchanges and promote professionals. better mutual understanding. • Criminalizing money laundering and devel- • An international forum could be held on oping cooperative actions to track and prevent it. international violence and pornography—

REINVENTING GLOBAL GOVERNANCE—FOR HUMANITY AND EQUITY 103 whether in videos, television programming or tries, both good and bad, should be more clearly interactive games and services—and on national recognized, so that policy can protect and efforts to moderate and control these activities enhance their cultural and economic flowering. and safeguard children from their influence. • New partnerships between governments, PRESERVING THE ENVIRONMENT corporations, private voluntary associations and other stakeholders should be developed. The Despite widespread public support for envi- effects of global markets on local cultural indus- ronmental action, the driving forces of globalization still put profit before environmental protection, preservation and sustainability. The BOX 5.5 Global crime—the international response international body charged with building a bridge between environmental and trade pol- The risk to the positive aspects of global- law enforcement budget may not seem a ization posed by the growth of global orga- high priority, but short-term savings may icy, the World Trade Organization’s committee nized crime has been recognized at the result in heavy long-term costs. on trade and environment, has focused mostly highest levels: it was on the agenda for the The second principle is effective and on fitting environmental concerns into existing G-7 meeting in Birmingham a couple of appropriate regulation. When a political trade regimes, not on seeking a true synergy years ago. Such recognition is critical, system changes from a centrally planned between environment and trade as equal policy because the response to global crime must economy or a police state to a liberal, free be global, not national. market, democratic society, there are huge objectives. The committee sees its role as limit- Con men operating out of Amsterdam pressures, from within and from the inter- ing unilateral state actions in the name of envi- sell bogus US securities by telephone to national community, to remove oppressive ronmental protection to protect the trading Germans; the operation is controlled by an regulations; but there is less push to replace system—not as creating a paradigm shift from Englishman resident in Monaco, with his them with the sort of legal framework and profits in Panama. Which police force institutions that have grown up over cen- a negative trade-environment relationship to a should investigate? In which jurisdiction turies in societies that have long had such positive one, a relationship that promotes sus- should a prosecution be mounted? There political systems. This is a dangerous mis- tainable trade, investment and growth. may even be a question about whether a take. The committee has focused on some impor- crime has been committed, although if all For example, encouraging an indige- the actions had taken place in a single coun- nous banking system is an important devel- tant questions: Should WTO members agree on try there would be little doubt. opment goal, and bank secrecy legislation general exemptions for trade-restricting mea- The first principle of a global response to may seem a good short cut. But without a sures in multilateral environmental agreements? crime is cooperation. Law enforcement strong bank regulatory framework, and an And how can eco-labelling schemes be pro- agencies, police, prosecutors and intelli- institution with the muscle to impose it, the tected and not classed as non-tariff trade barri- gence services need to work with their oppo- result will be a flood of dirty money followed site numbers across borders, breaking down by bank failures. The end result is bailout ers? But other issues demand attention: How what is often generations of suspicion and costs for the central bank and loss of inter- can trade measures encourage countries to even enmity. This is not easy, but there are national market credibility for the future. remove the perverse subsidies for energy, chem- precedents at the national level. A crime in Similarly, privatization without a strong icals and water that distort trade and damage the the United States may be investigated by system of corporate law, and a judicial sys- city, state or federal police; among the fed- tem that is an effective administrator and environment? And how can they lead countries eral agencies may be the Federal Bureau of guarantor of its application, becomes a lot- to internalize the environmental costs of pro- Investigation, the Drug Enforcement tery. Sometimes a sound enterprise, a good duction? Why not establish a “green round” on Administration, the Secret Service, US Cus- local partner and management team, and international trade to coordinate joint actions on toms and the Internal Revenue Service. consistent government regulation align to eliminating environmentally damaging subsi- These groups do not always get on with each produce a spectacular investment success. other, but they have learned to cooperate to But more often cronyism in the privatiza- dies and internalizing environmental costs? attack crime that cuts across their jurisdiction process and abuse of minority share- tions and competencies. holder interests lead to failure, and the local NARROWING GLOBAL GAPS Part of the suspicion that law enforce- courts offer little hope of redress. ment agencies in the developed world have Comparing the goal of increasing eco- of their counterparts elsewhere is based on nomic freedom with imposing new bureau- Nearly 30 years ago the Pearson Commission corruption. The traffic policeman in Mex- cratic contraints is an unequal battle. But report began with the recognition that “the ico, the customs officer in Nigeria, the pros- the liberalization of the economic and widening gap between the developed and the ecutor in Russia may all face a choice political system must march in lock-step developing countries has become the central between operating honestly or feeding their with the growth of laws and the institutions family. When compared with the needs of that administer them. New freedoms bring problem of our times.” Today, global inequali- education and health care, support for the new responsibilities. ties in income and living standards have reached grotesque proportions. The gap in per capita Source: Helsby 1999. income (GNP) between the countries with the

104 HUMAN DEVELOPMENT REPORT 1999 richest fifth of the world’s people and those with trial countries and the poorest and least devel- the poorest fifth widened from 30 to 1 in 1960, to oped countries. 60 to 1 in 1990, to 74 to 1 in 1995. The marginal- As Professor Jan Tinbergen, the first Nobel ization of the least developed countries contin- Prize winner in economics, wrote a few years ues, accelerating as a result of the Asian crisis. ago, “there should also be redistribution at the Narrowing such gaps is the unlisted item on international level through development co- Extremes of inequality the global agenda. Extremes of inequality per- operation. . . . As the world economy becomes permeate and poison meate and poison globalization and polarize increasingly integrated, so the redistribution of many reasonable and desirable attempts to world income should become similar to that globalization and polarize manage it better. The issues of global inequal- within well-governed nations” (Human Devel- many reasonable and ity are too fundamental to be swept under the opment Report 1994, p. 88). carpet. On the eve of the 21st century, with the desirable attempts to newfound awareness of globalization’s possi- PROMOTING FAIRER TRADE, manage it better bilities, new approaches are needed: ESPECIALLY FOR THE POOREST COUNTRIES • Taking consistent international actions to support faster growth, and adopting stronger Both developing and developed countries measures to support pro-poor growth in poorer need to do more to ensure greater benefits for countries.

• Removing constraints on poor countries in BOX 5.6 trade, investment and technology. Renegotiating Lomé—one size doesn’t fit all • Refocusing aid to support poverty reduc- For almost 25 years this pioneering treaty of market access to Europe, reversing transfer tion, especially in the poorest and least devel- development cooperation guaranteed the of payments from some ACP countries to oped countries. African, Caribbean and Pacific (ACP) the European Union. • Accelerating debt relief for the highly states financial aid and preferential market Under these plans, free trade areas, pri- access to Europe. The current Lomé con- vate investment and conditionality may indebted poor countries. vention will expire in February 2000. The replace preferential market access and These proposals are not new, but they are European Union and 71 ACP states are unconditional financial aid. The European rarely pursued with the energy and resolve engaged in negotiations to renew it. Union intends to maintain Lomé prefer- required, nor with the clear recognition that the The first of four treaties under this ences for the 41 least developed ACP coun- framework was signed in Lomé, the capi- tries. But the 30 other developing countries extremes between the richest and poorest tal of Togo, in 1975. It started out with may be given the choice of forming a free countries are counter-productive for the very high ideals. Its fundamental principles trade area with the European Union or process of globalization. One of the main rea- called for equality between the partners, joining the General System of Preferences. sons globalization stalled in the early 20th cen- respect for their sovereignty, mutual What can be done? interest and interdependence and the • Europeans must not abandon their tury was rising global inequalities. right of each partner to determine its own commitments to the ACP states. They Pro-poor growth is needed—both for political, social, cultural and economic should realize that Lomé applied one set of reducing poverty and for making growth a policy options. policies to 71 different countries. This one- stronger and more indigenous process. Particu- The European Union is suggesting sub- size-fits-all approach eventually did not larly important is accelerating growth in the stantial changes to the Lomé convention. work. A renewal of the Lomé treaty must European policy-makers argue that Lomé therefore recognize the political, economic poorest and least developed countries, with did not work. They say that the convention and cultural diversity of the ACP states. growth rates of at least 3% per capita main- did little to pull the ACP states out of • Previously, financial support was given tained for three decades. An important step poverty. Moreover, European policy prior- as a lump sum to ACP governments. A would be to establish an international transfer ities have shifted. Donor fatigue, new part- future Lomé treaty should direct resources ners in Eastern Europe and budgetary to promote specific sectors or to build insti- mechanism to encourage resource flows to poor constraints due to the strict Maastricht cri- tutions. This can be achieved only when countries—through private investment and teria contributed to a change in European donor and recipient countries cooperate through purposeful allocation of global rev- attitude towards the ACP states. In addi- closely. enues derived from taxing pollution or charging tion, the European Union claims that Lomé • The European Union should pursue a for use of the global commons (see below). is not in accord with the rules of the World mix of policies. Free trade areas can bene- Trade Organization. fit sectors that can compete. More vulnera- Another would be to create an international If the European Union’s plans are ble sectors, such as agriculture, should task force to focus on possible actions to implemented, a large group of ACP states either receive financial aid or be temporar- address the widening gaps between rich and may experience a massive deterioration in ily exempted from trade liberalization. poor countries, including setting time-bound Source: Kennan and Stevens 1997. goals for narrowing the gaps between the indus-

REINVENTING GLOBAL GOVERNANCE—FOR HUMANITY AND EQUITY 105 developing countries in trade, improving mar- lations governing food safety, animal and plant ket access and the terms of trade, especially for health and the safety of farm workers need to be the poorest and least developed countries (box implemented in ways that minimize the risk 5.6). Trade liberalization can benefit develop- that they will be used as protectionist ing countries, and they should in principle be measures—say, by: willing to engage in new multilateral negotia- • Devising multilateral standards and tions. But before new global trade talks start, encouraging the spread of mutual recognition developing countries must be assured that pre- and equivalency agreements. vious agreements and promises will be kept. • Requiring product labels that include the The Multi-Fibre Arrangement must be elimi- origin and attributes of each product. nated, as promised by developed countries. • Ensuring credible regulatory agencies that And the use of antidumping measures against are separate from those responsible for farm the poorest countries must be curbed. support programmes. Speeding the elimination of domestic agri- International support to help poor coun- cultural support and export subsidies in the tries expand agricultural exports would offer industrial countries would help ensure access triple benefits. It would encourage production to markets for agricultural products. And regu- in areas of the world with many comparative advantages and much lower use of fertilizers and pesticides than is typical in industrial coun- BOX 5.7 Developing countries and trade— tries. It would help maintain crop and seed active participation in the millennium round diversity. And it would encourage exports and production as a step towards economic devel- Five years after the end of the Uruguay seem to have overused their right to pol- opment in poor countries. Round, preparations for a new round of lute. If they want to continue to do so, multilateral trade negotiations are under developing countries could link these A new round of trade negotiations—the way. Negotiations might deal not only with property rights in trade negotiations and millenium round—is in the works (box 5.7). the reduction of tariff and non-tariff barri- demand compensation. An aggressive Much is at stake, and developing countries need ers in such critical areas as textiles and agri- pursuit of property rights could yield the to be ahead of the issues, not behind them. culture. They could focus also on non-trade developing countries both potential eco- issues such as environmental and labour nomic benefits and negotiating leverage. standards and competition rules. • Win-win: environmental concessions REDUCING THE DEBT OF THE POOREST Developing countries need to under- and trade liberalization. Broadening the COUNTRIES stand these developments, be ahead and negotiating agenda to include issues such as not behind them, identify areas of key inter- the environment does not have to be disad- Slow progress in tackling the accumulated debt est and help shape more forcefully the vantageous to developing countries. It can global trade structure. Trade liberalization also open opportunities. Countries with of the 41 heavily indebted poor countries can, after all, be a win-win situation. significant environmental assets (rain (HIPCs) is one of the clearest examples of how Developing countries could consider forests in Brazil, Cameroon, the Democra- globalization has been failing the poorest and these policy and strategy options for the tic Republic of the Congo, Costa Rica, least developed countries (box 5.8). For several next round of multilateral trade negotia- Indonesia, Malaysia, Thailand) could make tions: concessions to achieve benefits in other years most commentators have agreed that the • Review and implement existing agree- areas. In exchange for protecting or even debt of these countries is excessive and ments before new agreements. Before rebuilding rain forests, developing coun- unpayable. Yet the actions have so far been negotiators talk about such issues as envi- tries could ask OECD countries to level the minute in relation to the needs. ronmental or labour standards, they need to playing field in trade, investment or make sure that all parties keep the commit- antidumping measures. The debt burden has undermined growth, ments made in the Uruguay Round. For • Together, if you can. Developing health and education. Only 2 HIPCs have example, OECD countries need to imple- countries need to get better organized achieved growth rates of more than 2% per ment the Agreement on Textiles and Cloth- and negotiate in groups. Their political capita since 1980, while 9 did so between 1965 ing to free developing countries from the leverage increased during the Uruguay and 1980. Debt service payments exceed annual regime of the Multi-Fibre Arrangement. Round. Today, developing countries • Talk about all property rights. Prop- account for 30% of world trade. Regional expenditure on health and education in 9 erty rights include intellectual property or sectoral alliances may help developing HIPCs, and they exceed health spending in 29, rights as well as rights to emit carbon into countries increase their standing in trade including 23 in Sub-Saharan Africa (table 5.1). the atmosphere. Many rich countries negotiations. Tanzania’s debt service payments are nine times Source: Whalley 1999. what it spends on primary health care and four times what it spends on primary education.

106 HUMAN DEVELOPMENT REPORT 1999 Under the HIPC initiative, it takes six years especially for expanding basic health and edu- for a country to become eligible for debt relief. cation and raising growth rates. This period should be sharply reduced, by half or more. The debt sustainability ratio—the amount A MULTILATERAL AGREEMENT of debt that is deemed manageable by an ON INVESTMENT—FOR PEOPLE indebted country—must also be lowered, from 200–250% of a country’s annual exports to 100% Negotiations on the Multilateral Agreement on or less (table 5.2). Debt payments are deemed Investment collapsed—a casualty of unrecon- bearable at 20–25% of a country’s annual ciled differences of philosophy among devel- exports. This should be reduced to 10% or less. oped countries. More serious was the secrecy In short, the poorest countries need more sup- surrounding the negotiations and the failure to port and more breathing space to restore growth bring in all the countries involved. Negotiations and accelerate human development. on a new agreement must start with a more The sum required to fund the HIPC initia- equitable process and clearer acceptance of the tive has been officially estimated at $7 billion— need to achieve equitable results not just for less than 5% of the $170 billion mobilized for capital—but for people. East Asia and Brazil (though it is needed on The process of negotiating the agreement grant not loan terms). One argument against will determine its success. Talks need to be faster debt relief is that the resources for it open. Participation of developing countries would have to come from other concessional and of civil society is crucial. National treat- funds, “robbing Peter to pay Paul”. This need ment of capital must be tied to the concept of not be. Debt relief for the poorest countries sustainable development. Most-favored-nation could and should be financed from new and principles for investment do not preclude additional resources. These could come from sales of IMF gold or new allocations of SDRs— BOX 5.8 even from special contributions, just as for the Debt—a need for accelerated action bailout of the Long-Term Capital Management External debt continues to be a heavy burden period of six years of good performance fund. By the test of human development, Sub- for developing countries. In 1997 the total before eligibility should be reduced to Saharan countries and the other HIPCs deserve debt of developing countries reached almost three years or even less, provided debtor more support. $2.2 trillion. Hardest hit have been the 41 countries work closely with the World heavily indebted poor countries (HIPCs), 33 Bank and the IMF and follow agreed of them in Africa. Their debt burden, $245 principles. MORE AID, BETTER ALLOCATED, billion in 1996, drains public budgets, • In some cases partial or total debt for- MORE USEFUL absorbs resources needed for human devel- giveness by the Paris Club is also needed. opment and inhibits economic growth. Denmark’s cancellation of developing Although official development assistance Since 1980 the debt of the HIPCs has country debt worth $635 million and Ger- more than tripled, two-thirds the result of many’s debt initiative are leading examples (ODA) has fallen since 1994 (table 5.3), there arrears unpaid or earlier debt. Moreover, the for OECD countries. Other industrial are some signs of recovery. Six donor countries nature of debt has changed. In 1980 more countries have forgiven debt arising from of 21 increased their ODA in 1997, Canada and than half of all debt was owed to private earlier aid support—but not all. the United Kingdom by the most. And four creditors—in 1997 barely a fifth. Today’s • Showing how debt payments squeeze a continue to exceed the 0.7% of GNP target by debt crisis is about official debt—increas- country’s capacity to provide education ingly debt owed to multilateral institutions and health to all its children would help to an easy margin—Denmark, the Netherlands, such as the International Monetary Fund bring home to the general public the wider Norway and Sweden. The increases will help and the World Bank. The shift from private significance of the debt problem—and the offset the much faster decline in aid budgets in debt to official and multilateral debt opens urgent need for action. relation to other public expenditures. the door for policy-makers to find solutions • Cancellation of all debt of the most to the debt crisis. impoverished developing countries is the Implementing the commitments to the least • An acceleration of debt forgiveness objective pursued by the Jubilee 2000 ini- developed countries remains one of the highest under the HIPC initiative is essential. Too tiative. Sponsored by many churches and priorities, especially the commitment that each few of the poorest countries are eligible NGOs, the initiative links the year 2000 donor allocate a minimum of 0.15% of its GNP under the initiative, which may leave some with the biblical concept of debt countries in a very tight spot. The envisaged forgiveness. to these countries. Few of the poorest countries have much chance of receiving substantial for- Source: UNCTAD 1998b; UN 1998b. eign direct investment, so they depend on aid,

REINVENTING GLOBAL GOVERNANCE—FOR HUMANITY AND EQUITY 107 codes of conduct for big corporations. Gov- deal from technology’s breakthroughs. ernments must retain full discretion to set envi- • Global governance of intellectual property ronmental and labour standards. rights under the agreement on Trade-Related Aspects of Intellectual Property Rights, or NARROWING TECHNOLOGY GAPS TRIPS, must be broadly and fully reviewed to create a system that does not block developing In an era of sweeping technological advance, it countries from knowledge or threaten food is inexcusable that human poverty should per- security, indigenous knowledge, biosafety and sist—and that the technological gaps are widen- access to health care. ing. Poor people and countries need a better • The TRIPS agreement must recognize the rights of local communities to their traditional and indigenous knowledge—and encourage TABLE 5.1 Eight heavily indebted poor countries, 1995 fair and just compensation for the use of this Public expenditure knowledge. External debt On On On • Consumers and producers in developing As Debt service education health military countries must be protected. Price controls US$ % of as % of (% of (% of (% of Country billions GNP GNP GNP) a GDP) a GDP) should be permitted or encouraged on certain patented products for production by poor Nicaragua 10 670 19 4 4 2 Angola 12 501 20 .. 4 3 farmers and for basic health and education. Guyana 2 394 20 5 .. 1 Price controls are especially important for Guinea-Bissau 1 380 7 .. 1 3 Congo 6 350 11 6 2 3 pharmaceutical products, with treatments for Mozambique 6 327 9 6 5 5 HIV/AIDS an obvious example. Congo, Dem. Rep. of the 13 242 0.5 .. 0.2 0.3 • Governance of global communications— Mauritania 2 231 12 5 2 3 especially the Internet—must be broadened to include the very strong interests of developing a. Data are for most recent year available during 1990–95. countries in decisions on Internet protocols, Source: World Bank 1998c. taxation, domain name allocation and tele-

TABLE 5.2 phony costs. External debt of the 41 heavily indebted poor countries, 1992–96 • Public investment is needed in technologies to meet the needs of poor people and 1992 1993 1994 1995 1996 countries, from drought-resistant, robust Total debt (US$ billions) 229 235 247 254 245 seeds to humidity-resistant, solar-powered Debt service (US$ billions) 10 8 9 12 11 Debt service/exports (%) 21 17 19 20 16 computers. Debt stocks/exports (%) 461 495 493 431 344 • New funding mechanisms should be cre- Source: UN 1998b. ated to ensure that the information revolution leads to human development, not human polarization. Two proposals—a bit tax and a patent TABLE 5.3 Who gets aid? tax—would raise funds from those who already (official development assistance in current US$ billions, except where otherwise specified) have access to technology and use them to help 1988 1993 1994 1995 1996 1997 extend the benefits more widely.

Net ODA 48 56 60 60 58 50 Bilateral 37 39 41 41 39 32 SPECIFIC ACTIONS TO STRENGTHEN THE Multilateral 11 17 19 19 19 18 BARGAINING POSITION OF POOR COUNTRIES Net ODA (1995 US$ billions) 61 59 62 60 57 48 Share of ODA to least developed IN GLOBAL GOVERNANCE countries (%) 28 27 27 28 24 27 ODA to least developed countries 13 15 16 17 14 14 ODA to five largest recipients Large inequalities of economic power and China 2.5 3.3 3.3 3.5 2.6 2.0 influence are embedded in most international Egypt 1.9 2.4 2.7 2.0 2.2 2.0 India 2.4 1.5 2.3 1.7 1.9 1.7 institutions. Often this is justified on the Israel 1.5 1.3 1.3 0.3 2.2 .. grounds that those with the largest stake in the Bangladesh 2.2 1.4 1.8 1.3 1.3 1.0 outcomes have most to lose—and that they Source: OECD 1996a and 1999a. must have greater influence to ensure “respon-

108 HUMAN DEVELOPMENT REPORT 1999 sible” decisions. If stake means financial out- nance. Decision-making in international trade come, this may be true. But if stake refers to the and finance needs to be more transparent, and number of people affected, often hurt, this jus- independent evaluations of international pub- tification looks very thin (table 5.4). lic policies can be a first step towards increased Voting arrangements need to be revised—for accountability. The World Bank’s Operations fairness, efficiency and political viability. If they Evaluation Department and the IMF’s inde- are not, those shut out may change their minds pendent external evaluation of its Enhanced about the virtues of participating in the system. Structural Adjustment Facility programmes There must also be some agreement on the need are first steps in the right direction. Other to give much more attention to the interests of the priorities: poor countries and, over time, to narrow the gaps • Establishing an ombudsman mechanism between them and the better-off countries. within the WTO, World Bank and IMF to inves- Improving institutional accountability is a tigate cases of alleged bias and injustice in their priority in the reform of international gover- operations.

TABLE 5.4 Global institutions and their membership Share of world Share of world GDP population (%) (%) Institution Membership 1997 1997

P-5 Security Council China, France, Russian Federation, United Kingdom, 40.9 30.6 United States

G-7 Western economic powers Canada, France, Germany, Italy, Japan, United Kingdom, 64.0 11.8 United States

G-10 Western economic powers Belgium, Canada, France, Germany, Italy, Japan, Netherlands, 67.8 12.5 Sweden, Switzerland, United Kingdom, United States

G-22 Western economic powers Argentina, Australia, Brazil, Canada, China, France, Germany, 81.7 64.8 and emerging markets Hong Kong (China, SAR), India, Indonesia, Italy, Japan, Republic of Korea, Malaysia, Mexico, Poland, Russian Federation, Singapore, South Africa, Thailand, United Kingdom, United States

G-24 Major developing countries Algeria, Argentina, Brazil, Colombia, Democratic Republic of the Congo, 8.9 34.6 Côte d’Ivoire, Egypt, Ethiopia, Gabon, Ghana, Guatemala, India, Islamic Republic of Iran, Lebanon, Mexico, Nigeria, Pakistan, Peru, Philippines, Sri Lanka, Syrian Arab Republic, Trinidad and Tobago, Venezuela, Yugoslavia

G-77 Developing and transition Afghanistan, Algeria, Angola, Antigua and Barbuda, Argentina, 16.9 76.0 countries Bahamas, Bahrain, Bangladesh, Barbados, Belize, Benin, Bhutan, Bolivia, Bosnia and Herzegovina, Botswana, Brazil, Brunei Darussalam, Burkina Faso, Burundi, Cambodia, Cameroon, Cape Verde, Central African Republic, Chad, Chile, China, Colombia, Comoros, Congo, Democratic Republic of the Congo, Costa Rica, Côte d’Ivoire, Cuba, Cyprus, Djibouti, Dominica, Dominican Republic, Ecuador, Egypt, El Salvador, Equatorial Guinea, Eritrea, Ethiopia, Fiji, Gabon, Gambia, Ghana, Grenada, Guatemala, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, India, Indonesia, Islamic Republic of Iran, Iraq, Jamaica, Jordan, Kenya, Democratic People’s Republic of Korea, Kuwait, Lao People’s Democratic Republic, Lebanon, Lesotho, Liberia, Libyan Arab Jamahiriya, Madagascar, Malawi, Malaysia, Maldives, Mali, Malta, Marshall Islands, Mauritania, Mauritius, Federated States of Micronesia, Mongolia, Morocco, Mozambique, Myanmar, Namibia, Nepal, Nicaragua, Niger, Nigeria, Oman, Pakistan, Occupied Palestinian territory, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Qatar, Romania, Rwanda, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Samoa (Western), São Tomé and Principe, Saudi Arabia, Senegal, Seychelles, Sierra Leone, Singapore, Solomon Islands, Somalia, South Africa, Sri Lanka, Sudan, Suriname, Swaziland, Syrian Arab Republic, United Republic of Tanzania, Thailand, Togo, Tonga, Trinidad and Tobago, Tunisia, Turkmenistan, Uganda, United Arab Emirates, Uruguay, Vanuatu, Venezuela, Viet Nam, Yemen, Yugoslavia,a Zambia, Zimbabwe a. Cannot participate in the activities of the G-77. Source: Human Development Report Ofﬁce.

REINVENTING GLOBAL GOVERNANCE—FOR HUMANITY AND EQUITY 109 • Encouraging the involvement, formal or Developing countries can do much more to informal, of NGOs and non-official profes- strengthen their own bargaining capacity and sional groups in the discussion and review of positions. Priorities here include: proposals and policies, especially those affect- • Building and strengthening third world ing groups underrepresented in the formal and regional collective organizations. There structures (box 5.9). is no developing country group equivalent to • Adapting legal aid to provide support to the G-7 or to the OECD, even though at times and strengthen the bargaining position of weak there have been efforts to strengthen such bod- countries. Legal aid and capacity-building pro- ies as the G-15, the G-24 or even the G-77. grammes for the poorest countries could • Using regional economic arrangements increase the participation of poor countries in to develop and coordinate common positions international trade and financial organizations, in negotiations on economic issues. In Latin allowing them to establish missions and hire America Mercosur and the Andean Commu- experienced staff. Some Latin American coun- nity have already proved useful in establishing tries, backed by two or three members of the negotiating positions during trade talks with European Union, floated the idea of funding a the United States, Canada and the European legal centre to help developing countries pre- Union. In the 1990s the number of regional pare or defend cases under the WTO’s dispute trade agreements increased significantly. settlement system. Greater efforts are needed, especially in Sub- • Setting some long-term goals and broad Saharan Africa, to transform regional or subre- guidelines for narrowing global income gaps gional economic integration schemes into and securing larger shares of the benefits from strong platforms of common interest. trade and financial agreements for poor coun- • Developing regional initiatives on finan- tries and people. cial and monetary matters. Such initiatives could focus on providing early warning of

BOX 5.9 financial crises, supplementing international NGOs and global advocacy resources and formulating structural adjust- During the 1970s activists were urged to NGOs have put pressure on all the UN ment programmes while encouraging a move “think globally and act locally”. Over the agencies as well as governments to follow to peer review of national programmes and past 10–15 years a vibrant NGO commu- up on the goals and commitments of the ensuring that the programmes relate more nity has emerged in the South with a pro- global conferences. closely to recipient countries’ economic and found impact on development practice and For the Kyoto protocol, NGOs have thinking. Alternative NGO-sponsored con- been pushing for an agreement that will financial systems. ferences took place alongside all the global have a significant impact on global green- • Ensuring stronger professional support to UN conferences of the 1990s. Activists from house gas emissions rather than one that the poorest and least developed countries in both South and North joined to lobby gov- settles for cosmetic changes. At the Kyoto negotiations, especially those relating to trade, ernments and international agencies to give meeting NGOs pressured national gov- investment and growth prospects and to long- greater priority to the world’s poor and ernments and multilateral agencies to marginalized. release a 10-point call for action. The dec- term institutional restructuring. The G-24 In response to lobbying against some of laration forms the basis for ongoing NGO research programme offers some support to its policies, the World Bank reached out to advocacy and lobbying on climate developing country representatives and deci- its NGO critics, which now play a much big- change. Similar declarations have been sion-makers in trade and finance, but it is still ger role in Bank-funded projects. Other submitted by a group of NGOs from changes include the appointment of NGO- Eastern and Central Europe. Friends of primarily donor-funded and has no full-time or liaison officers in most Bank country offices the Earth and the World Wildlife Fund on-site staff. It merits fuller support from devel- and a greater recognition of the importance for Nature have been active in raising oping countries themselves. and input of NGOs to the Bank’s work. awareness about how private sector con- NGOs have also held the Bank accountable cerns appear to be dominating the discus- START NOW to its own procedures and policies. NGO sions on how the protocol is to be submissions to the World Bank Inspection implemented. They have also raised con- TO BUILD THE GLOBAL ARCHITECTURE Panels on the Arun III Hydroelectric Pro- cerns that the final outcome will have no REQUIRED FOR THE 21ST CENTURY ject in Nepal weighed heavily in the Bank’s meaningful impact on greenhouse gas decision not to finance the project. emissions. With the new challenges of globalization, and the need to ensure stronger action on old prob- Source: Human Development Report Office. lems and new, the time has come to rethink the

110 HUMAN DEVELOPMENT REPORT 1999 global architecture. Some of the key elements previous decade: high-level global conferences of an improved international architecture: to establish goals and commitments, internal • A stronger and more coherent UN system, reforms to increase focus and efficiency, the with greater commitment from all countries. creation of a UN Development Group bringing • A global central bank. together the development agencies to • A world investment trust with redistribu- strengthen field-level action and initiatives to tive functions and transfer mechanism. encourage closer working relationships with • A world environment agency. the World Bank and the IMF. • A revised World Trade Organization, fairer In parallel with these, the Economic and and with an expanded mandate. Social Council (ECOSOC) has adopted several • An international criminal court with a broader mandate for human rights. BOX 5.10 • A broader United Nations, including a two- Global public goods—the missing element chamber General Assembly to allow for civil Earlier we thought the ozone layer was out • Transnational actors. In business society representation. there. But now it is in here, a key issue on and civil society the number of transna- Earlier Human Development Reports rec- the national policy agendas of most coun- tional actors has been growing. And these ognized the need for major changes in global tries. The reason is that to avoid further actors are placing more pressure on gov- depletion of the ozone shield, the use of ernments to harmonize policy—such as governance if human development was to be chlorofluorocarbons has to be reduced in standardizing market rules for banking achieved on a global scale. The recent crises every country. The same point can be made supervision or recognizing universal hu- underscored this need and made people and gov- for the atmosphere: energy use has to man rights. ernments more aware of the case for fundamen- change everywhere to reduce the risk of These trends turn many national global warming. public goods and bads into global public tal changes—and more ready to consider them. Conversely, health, employment and goods and bads—and place global con- New and stronger international institutions equity, previously thought to be quintes- cerns, notably those about the natural of global governance can be seen as global pub- sential domestic concerns, now figure on global commons, on national policy lic goods. At the national level, public goods international policy agendas. Take the 1995 agendas. So, the number of global public have been recognized as vital when the market World Summit on Social Development, goods—non-rival and non-excludable— which focused on issues of poverty, is growing. Non-rivalry means that one has neither the incentive nor the mechanisms to employment and social cohesion. person’s consumption of a good does not meet a public need. With growing globaliza- Why this intermingling of concerns and detract from another’s enjoyment of it. tion, international public goods are now agendas? Non-excludability means that it is difficult needed for similar reasons (box 5.10). • Open borders. While borders continue and costly, if not impossible, to prevent a to be important, they have become porous person from enjoying a public good once This new perspective is much more than a as a result of falling tariffs, loosening capi- it exists. Peace is one such non-rival, non- change of terminology. To recognize the need tal controls and spreading information excludable public good. for global goods is to accept the importance of technology. Openness allows global goods Today’s policy-making is ill equipped actions of global governance beyond the and bads to travel with ever-greater ease. to handle today’s global public good issues. capacity of individual countries to provide, to So, good health, reduced greenhouse gas Three major policy deficits exist: emissions and peace and security in all • A jurisdictional gap—While the policy establish a rationale for new forms of financial countries matter even more. issues are global in nature, policy-making is support that countries need to ensure but to • Systemic risks. International financial still primarily national in focus and scope. recognize also that without special efforts markets produce boom and bust cycles • A participation gap—While we are liv- such support may not be forthcoming. These and present inherent risks. If global warming in a multi-actor world, international ing is allowed to proceed, we may face cli- cooperation is still primarily intergovern- issues become matters for political advocacy matic changes with as yet difficult to mental. and education on globalization, in which all predict consequences. And if global • An incentive gap—While cooperation countries have a role and a stake. Five basic inequity continues unchecked, the global works only if it offers a clear and fair deal to elements are needed in a new international social fabric could come under severe all parties, today’s international coopera- strain. Because of the growing number of tion is often stalled by concerns about architecture of global economic governance. systemic risks, the international commu- equity and fairness. nity faces the challenge of staying within Sustainable, broad-based development STRENGTHEN THE UNITED NATIONS SYSTEM, limits (sustainable pollution levels), depends on closing these three gaps—on GIVING IT GREATER COHERENCE TO RESPOND achieving specific targets (for poverty restocking the toolkit of policy-makers to reduction) or providing risk insurance (for equip them for cooperating in the provision TO BROADER NEEDS OF HUMAN SECURITY countries affected by financial contagion). of global public goods.

More actions have been taken in the past few Source: Kaul, Grunberg and Stern 1999. years to strengthen the UN system than in any

REINVENTING GLOBAL GOVERNANCE—FOR HUMANITY AND EQUITY 111 new ways of working, including holding joint • For clear agreement on a division of labour meetings with the IMF–World Bank Develop- among the United Nations, the World Bank ment Committee and inviting distinguished and the IMF. specialists to address the council. These have The issues in reforming global governance been important for enlivening debate and are a good starting point. Because the issues are improving relevance in ECOSOC—but the so wide-ranging, a joint committee could be set council still has not been given the status of up at the highest level to steer discussions and senior decision-making body on economic and negotiations, recognizing that governments social matters as envisaged by its founders. Col- will probably choose to pursue most matters in lective decision-making on economic and social existing institutions. But to get legitimacy and matters remains with a variety of other bodies— balanced representation in the final result, the the G-7, the World Bank, the IMF, the WTO. United Nations will have to be involved in the Keynes’s original proposal As a result, global decision-making still lacks overall process and the final decision-making. was that the global coherence and geographic balance, with key decisions made in different bodies and no clear MOVE TO A GLOBAL CENTRAL BANK monetary authority should mechanism to bring the elements together. have access to resources Various suggestions have been made to rem- Just as countries need central banks, so the equivalent to 50% of edy this. Earlier Human Development world needs a central bank in the 21st century. Reports—and the Commission on Global Gov- The recent establishment of the European Cen- world imports ernance in 1995—proposed an economic secu- tral Bank demonstrates the perceived need rity council, with equal numbers of developed among some of the richest industrial countries. and developing countries and veto powers in A world central bank would help stabilize each group to build confidence. Some have sug- global economic activity by performing several gested that the existing ECOSOC should set up vital functions: an executive committee with delegated powers • Acting as lender of last resort. for decision-making on certain matters or split • Regulating financial institutions and flows. into two bodies, one for decision-making on eco- • Calming financial markets when they nomic matters and the other for social matters. become jittery or disorderly. Other mechanisms would be possible, • Creating and regulating new international depending mostly on what could command a liquidity. political consensus. Three critical needs: Enlarging the mandate of the IMF would • For a broad consensus among industrial be one approach, though this would need to be and developing countries, rich and poor, and accompanied by measures to ensure greater for a stronger and more open decision-making sensitivity to human concerns and broader per- process on next steps in economic and social spectives on economic and social policy. issues of global governance. Another would be to establish a world financial • For national governments to work out authority. arrangements to harmonize their national posi- The Asian crisis has demonstrated the need tions and representation in the institutions of for a global monetary authority to have access to global government. Today, global management much greater financial resources. Keynes’s orig- suffers because many countries lack coherence inal proposal was that the global monetary between positions taken by their finance min- authority should have access to resources equiv- istries (which generally represent them in the alent to 50% of world imports. The US counter- Bretton Woods institutions), their foreign min- proposal was for 15%. Even with the special istries (which generally represent them in the efforts during the recent crisis, IMF resources United Nations in New York) and other min- remain less than 3% of world imports. istries (which represent them in the World Several mechanisms are available to expand Health Organization, Food and Agriculture global financial resources, including a renewed Organization, UNESCO, International Labour issue of special drawing rights and agreements Organisation and other bodies of the United with the main central banks to permit enlarged Nations). swap arrangements. Quick access to funding

112 HUMAN DEVELOPMENT REPORT 1999 may be as important as the size of the resources The Global Environment Facility (GEF), available. Procedures to achieve this need to be established in 1991, is a poor cousin to these explored, such as advance agreements on provi- ambitious plans. Jointly implemented by the sional lines of credit. World Bank, UNDP and the United Nations Environment Programme (UNEP), the GEF CREATE A GLOBAL INVESTMENT TRUST AND provides funding aimed at achieving environ- TRANSFER MECHANISM mental benefits in four areas: climate change, loss of biodiversity, pollution of international There is an urgent need for new mechanisms to waters and depletion of the ozone layer. At Rio generate additional flows of resources to poor the scope of the GEF’s funding was broadened developing countries as well as new funding for to include land degradation, primarily deserti- global public goods. Private investment flows fication and deforestation, where this is linked These proposals could are important, but experience shows two major to the four focal areas. Since 1992 some $2 bil- problems. First is their volatility, especially lion has been pledged for activities supported improve the operation of portfolio flows. Second is the tendency for for- by the GEF. the global economy and eign direct investment to be concentrated in a Relative to today’s global economy—and small number of developing countries. In 1997 the global challenge of sustainability—present generate billions of almost 70% of all foreign direct investment to structures and levels of global support are dollars a year developing and transition economies went to minuscule. Needed is a world environment just 10 countries. agency, possibly developed from UNEP, with There are several possible ways to generate much larger resources and broader functions: such additional revenues: • To oversee the global environment, pre- • Mobilize resources as a by-product of rev- senting reports and posing issues for review and enues raised from polluter-pays charges on policy-making. global pollution. • To broker deals. • Charge rents or royalties on the use of such • To serve as a clearing bank. “global commons” as under-seabed mineral One important focus of that agency would resources or radio waves. be to encourage the removal of perverse subsi- • Introduce taxes on such items as interna- dies and shift the resources released to direct tional air tickets. support of environmental protection and other • Implement the Tobin tax proposal—to levy measures (including employment creation). An a charge on short-term financial movements Earth Council study estimated that developing and restrain volatile flows of short-term and transition economies spend $220–270 bil- finance. Some of the proceeds could be lion a year on such perverse subsidies, mostly invested in poor countries. for energy and water. Some estimates suggest • Blend concessional finance with private an even higher figure. Massive resources are lending and make the proceeds available as a clearly being wasted, and there is a strong case third window for middle-income countries. for beneficial reallocation. Separately or together, these proposals could For its clearinghouse functions, the agency improve the operation of the global economy would oversee trade in permits for greenhouse and generate billions of dollars a year. gas emissions, along the lines explored in the Clean Development Mechanism proposed in the CREATE A WORLD ENVIRONMENT AGENCY Kyoto and Buenos Aires climate conferences. Emission rights could be borrowed or lent, but The Earth Summit in Rio de Janeiro in 1992 esti- not sold—thus keeping the market competitive mated the cost for developing countries to adopt and avoiding any risk that developing countries sustainable development practices at $600 bil- might lose long-term control over their rights. In lion a year, of which $475 billion would need to addition to promoting environmental sustainabil- come out of their own resources and $125 bility, the clearinghouse would be a new mechanism lion from new and additional international for mobilizing additional financial resources for resources. developing countries, especially the poorest.

REINVENTING GLOBAL GOVERNANCE—FOR HUMANITY AND EQUITY 113 Environmental governance should also be Achieving a comprehensive global com- improved—by reviving the proposal that the petition policy might not be feasible, but Trusteeship Council of the United Nations be progress could be made on several fronts. given a new mandate to preside over issues • Agreements could provide for interna- relating to the use and protection of the global tional oversight of the implementation of commons, guided by concern for the security domestic competition policy rather than for of the planet. international rules. • An international agreement could be lim- MAKE THE WORLD TRADE ORGANIZATION ited to the issue of price discrimination and FAIRER AND GIVE IT A MANDATE OVER predation, which would allow the elimina- MULTINATIONAL CORPORATIONS tion of antidumping rules. People in all parts of the • There may be opportunities for increased The World Trade Organization, still on an cooperation through bilateral and regional world need to join in the upward trajectory following its creation in 1995, agreements where differences in antitrust debate and to make clear marks a major step forward from its predecessor, laws are smaller. A multilateral agreement GATT. It has established a rule-based system for could be negotiated to lay out a set of mini- their interests and monitoring international trade and for settling mum standards for national policies in areas concerns disputes. More than 130 countries now belong to of international consensus. it. And its voting system offers fairer representa- One strong reason for adopting an inter- tion than that of the Bretton Woods institutions. national agreement on competition policies But it is far from adequate, given the long- is to eliminate antidumping actions, initiated term priorities for improving the situation of when countries are deemed to be dumping or developing countries. And although its playing selling below cost. ﬁeld is apparently more level, the very unequal size of the players often pits Gulliver against a ALL THESE ACTIONS BEGIN WITH PEOPLE single Lilliputian. Other functions for the WTO need to be The world is rushing headlong into greater explored in the long run. Multinational corpo- integration—driven mostly by economic rations are involved in more than 60% of world forces and guided mostly by a philosophy of trade and dominate the production, distribution market profitability and economic effi- and sale of many goods from developing coun- ciency. tries, especially in the cereal, mining and tobacco Much debate is under way—but it is too markets. About a third of world trade is con- narrowly focused, too geographically unbal- ducted as intraﬁrm trade within multinational anced and driven too much by economic and corporations, bypassing altogether the free play financial interests. People in all parts of the of genuine market competition. The mandate of world need to join in the debate and to make the WTO needs to be expanded to give it anti- clear their interests and concerns. The monopoly functions over the activities of multi- process of reinventing global governance national corporations, including production, must be broader, and human development working in close collaboration with national can provide a framework for this explo- competition and antitrust agencies. ration. It is time to change.

114 HUMAN DEVELOPMENT REPORT 1999 References

Background papers, country and regional studies and background notes for Human Development Report 1999

Background papers Sengupta, Arjun. 1999. “Financial Management of Global- ization of Developing Countries.” Adedeji, Adebayo. 1999. “Globalisation and Marginalisation Tokman, Viktor E., and Emilio Klein. 1999. “Social Stratifi- in Sub-Saharan Africa.” cation under Tension in a Globalized Era.” Al-Samarrai, Samer, and Patrick Belser. 1999. “Education, Tuijnman, Albert. 1999. “International Indicators of Educa- Globalization and the ‘Low-Skill Trap’.” tional Attainment.” Alston, Philip. 1999. “Governance, Human Rights, and the UNDP (United Nations Development Programme) Country Normative Areas.” Office, Thailand. 1999. “Responding to the Thai Eco- Anderson, Edward. 1999. “Globalisation and Inequality in nomic Crisis.” Historical Perspective.” Whalley, John. 1999. “Developing Countries in the Global Arizpe, Lourdes. 1999. “Culture, Globalisation, and Interna- Economy: A Forward-Looking View.” tional Trade.” Bangura, Yusuf. 1999. “Globalization, Technocratic Policy- Country and regional studies Making and Democratisation.” Belser, Patrick. 1999. “Globalisation, International Labour Amin, Galal. 1999. “Globalisation and Human Development Standards, and Multilateral Institutions.” in the Arab World.” Bigman, David. 1999. “Global Income Distribution.” Bakker, Isabella. 1999. “Globalisation and Human Develop- Desai, Meghnad. 1999a. “Global Governance.” ment in the Rich Countries: Lessons from Labour Mar- Folbre, Nancy. 1999. “Care and the Global Economy.” kets and Welfare States.” Griffith-Jones, Stephany, and J. Kimmis. 1999. “Capital Jomo, Kwame Sundaram. 1999. “Globalisation and Human Flows: How to Curb Their Volatility.” Development in East Asia.” Helleiner, Gerry, and Ademola Oyejide. 1999. “Global Eco- Khan, Azizur Rahman. 1999. “Globalisation and Human nomic Governance, Global Negotiations, and the Devel- Development in South Asia.” oping Countries.” Lipumba, Nguyuru I. 1999. “Opportunities and Challenges Hopkins, Michael. 1999a. “Corporate Social Responsibility of Globalisation: Can Sub-Saharan Africa Avoid Mar- of Business and Human Development.” ginalisation?” ———. 1999b. “Towards an Index to Measure the Social Ruminska-Zimny, Ewa. 1999. “Globalisation and Human Responsibility of Business and Human Development.” Development in Transition Economies.” Khor Kok Peng, Martin. 1999. “Foreign Investment Policy, the Multilateral Agreement on Investment and Develop- Background notes ment Issues.” Lee, Jong-Wha, and Changyong Rhee. 1999. “Social Impacts Deacon, Bob. 1999. “The Social Impact of Globalization on of the Asian Crisis: Policy Challenges and Lessons.” Developed Economies.” Mahmood, Raisul Awal. 1999. “Globalisation, International Desai, Meghnad. 1999b. “Equity Issues in Global Gover- Migration and Human Development: Linkages and nance.” Implications.” Goldstone, Leo. 1998. “Statistical Note on Human Develop- Mazumdar, Ranjini. 1999. “Globalisation and the Media: ment Report Indicators and Tables.” Currents and Counter Currents.” Korea Institute for Social Information and Research. 1999. Özler, Süle. 1999. “Globalisation, Employment, and Gender.” “The Economic Crisis in Korea: Its Effects and Panayotou, Theodore. 1999. “Globalisation and Environ- Prospects for Recovery—A Random Assessment.” ment.” Lipton, Michael. 1999a. “Globalization, Liberalization, and Ramirez, Alejandro Magana. 1999. “Impact of Globalisation Competition.” on National Film Industries.” ———. 1999b. “Globalized Agricultural Technology and Rao, Mohan J. 1999a. “Globalization and the Fiscal Auton- Human Development.” omy of the State.” ———. 1999c. “Impact of Globalization on the Poor.” ———. 1999b. “Openness, Poverty and Inequality.” RAFI (Rural Advancement Foundation International). Rodas-Martini, Pablo. 1999. “Income Inequality within and 1999a. “Background Note on Biotechnology between Countries: The Main Issues in the Literature.” Patenting.”

REFERENCES 115 UNDP (United Nations Development Programme) Country UNDP (United Nations Development Programme) Country Ofﬁce, Indonesia. 1999. “Mitigating the Social Impact of Ofﬁce, Malaysia. 1999. “Globalization and Human the Economic Crisis: Approaches to Social Safety Net Development: The Case of Malaysia.” Programmes in Indonesia.”

Bibliographic note

Chapter 1 draws on the following: Adedeji 1999, Amin Chapter 4 draws on the following: Adedeji 1999, Agosin 1999, Anderson 1999, Arizpe 1999, Bakker 1999, Belser 1995, Al-Samarrai and Belser 1999, Amin 1999, Bakker 1999, 1999, Castells 1996, Deacon 1999, Desai 1999a and 1999b, Bangura 1999, Belser 1999, Castro-Leal and others 1999, Eatwell and Taylor 1998a and 1998b, Giddens 1990, Griffith- Dasgupta 1998, Deacon 1999, Edwards and Edwards 1991, Jones and Kimmis 1999, Helleiner and Oyejide 1999, IMF Ghai and de Alcantara 1994, Global Survival Network 1997, 1999, Jomo 1999, Khor Kok Peng 1998 and 1999, Lee and Griffith-Jones and Kimmis 1999, Grunberg 1998, Gupta, Rhee 1999, Lipton 1999a, 1999b and 1999c, Lipumba 1999, Davoodi and Alonso-Terme 1998, Hausman and Rojas- Mahmood 1999, Mazumdar 1999, OECD 1997d and 1998b, Suarez 1996, Helleiner and Oyejide 1999, IADB 1998, IMF Özler 1999, Panayotou 1999, Ramirez 1999, Rodas-Martini 1998b and 1999b, International Confederation of Free Trade 1999, Ruminska-Zimny 1999, Tokman and Klein 1999, UN Unions 1998, Jomo 1999, Khan 1999, Khan and Muqtada 1998f and 1998g, UNAIDS and WHO 1998b, UNCTAD 1997, Khor Kok Peng 1999, Kobrin 1998, Lawrence, Rodrik 1998b and 1998c, UNDCP 1997, UNDP 1994, 1995 and and Whalley 1996, Lee 1998, Lee and Rhee 1999, Lim and 1998c, UNDP Country Office, Indonesia 1999, UNDP Siddall 1997, Lipton 1999a, Lipumba 1999, Mahmood 1999, Country Office, Malaysia 1999, UNDP Country Office, Thai- OECD 1998c, Panayotou 1999, Ranis and Stewart 1998, land 1999, Whalley 1999 and World Bank 1998a. Mohan J. Rao 1999a and 1999b, Robson 1997, Rodas-Martini Chapter 2 draws on the following: Biotechnology and 1999, Rodrik 1997 and 1999, Ruminska-Zimny 1999, Development Monitor 1998, Bond 1997, Brown and Flavin Spinanger 1998, Stalker 1997, Tokman and Klein 1999, UN 1999, Budapest Sun 1998, Castells 1998, CNN Interactive 1998h, UNCTAD 1998a and 1998b, UNDP 1997b, UNDP 1999, Corner House 1998, d’Orville 1999, Drahos 1997, Ecol- Country Office, Indonesia 1999, UNESCO 1998b, Visser ogist 1998, Financial Times 1998, Fink and Braga 1999, Foo and Hemerijck 1997, Wahba and Mohieldin 1998, Whalley 1999, Fortune Magazine 1999, GetIt 1998, GRAIN 1998, 1999, Woods 1998, World Bank 1995, 1998a and 1998b and Hakansta 1998, Hamelink 1997, Headcount 1998, Irish Times Yoon and Rhee 1998. 1998, ITU 1998, Jensen 1998, Lanfranco 1998, Lipton 1999b, Chapter 5 draws on the following: Agosin, Crespi and Mansell and When 1998, Mehta 1999, Mooney 1998, My Tussie 1998, Arizpe 1999, Bergsten 1998, Brandt Commission Vuong 1999, National Research Council and the World Bank 1980, Castells 1996–99, Commission on Global Governance 1995, National Science Foundation 1998, NetDay 1999, New 1995, Desai 1999a and 1999b, Dubey 1996, Eatwell 1996, York Times 1999a, ODI 1999, OECD 1996b and 1996c, Economist 1998a, Eichengreen 1999, Frankel 1997, Griffith- Oxfam 1998, Panos 1998, PEOPLink 1999, Poster 1997, Jones and Kimmis 1999, Group of 22 1998, Haq 1995, Haq, Pradesh 1998, RAFI 1998, 1999a, 1999b, 1999c and 1999d, Grunberg and Kaul 1996, Helleiner and Oyejide 1999, Jomo Madanmohan Rao 1999, Richardson 1998, Schoettle and 1999, Kay 1997, Kenen 1994, Keynes 1980, Kobrin 1998, Küng Grant 1998, SIDSnet 1998, South Centre 1997, UNCTAD 1996, Lee 1998, Lee and Rhee 1999, Lipumba 1999, Lister 1996b and 1998c, UNDP 1998b, UNESCO 1998d, von Weiz- 1997, Michaelopoulos 1998, Panayotou 1999, Pearson Com- sacker 1998, Weekly Mail and Guardian 1998, White 1999, mission 1969, Randel and German 1997, Rodrik 1999, Sachs WIPO 1997 and 1998 and World Bank 1999a. 1998, Schott 1994, South Centre 1998, Stewart and Daws 1996, Chapter 3 draws mainly on Folbre 1999. It also draws on UN 1998a and 1998b, UNCTAD 1996a and 1998b, USAID the following: Elson 1998, England and Folbre 1998, Özler 1999, Whalley 1999, Whalley and Hamilton 1996, World Bank 1999, Ruminska-Zimny 1997, UNDP 1995, UNICEF 1998b 1998a and 1999a and World Commission on Culture and and Zohir 1998. Development 1995.

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REFERENCES 123 What do the human development indices reveal?

Since first being published in 1990, the Human achievements in basic dimensions of human Development Report has developed and con- development, the HPI measures deprivations structed several composite indices to measure in those dimensions. Table 1 presents the basic different aspects of human development. dimensions of human development reflected in The human development index (HDI) has the human development indices, and the indi- been constructed every year since 1990 to mea- cators used to measure them, and table 2 shows sure average achievements in basic human the top and bottom five countries in the rank- development in one simple composite index ings for each of the indices. and to produce a ranking of countries. The gender-related development index (GDI) and THE NEW HDI— the gender empowerment measure (GEM), BETTER DATA, BETTER METHOD introduced in Human Development Report 1995, are composite measures reflecting gender The concept of human development is much inequalities in human development. While the deeper and richer than what can be captured in GDI captures achievements in basic human any composite index or even by a detailed set of development adjusted for gender inequality, statistical indicators. Yet to monitor progress in the GEM measures gender inequality in eco- human development, a simple tool is needed. nomic and political opportunities. Human Thus the HDI reflects achievements in the most Development Report 1997 introduced the basic human capabilities—leading a long life, concept of human poverty and formulated a being knowledgeable and enjoying a decent composite measure of it—the human poverty standard of living. Three variables have been index (HPI). While the HDI measures average chosen to represent those dimensions

TABLE 1 HDI, GDI, HPI-1, HPI-2—same dimensions, different measurements

Participation Index Longevity Knowledge Decent standard of living or exclusion

HDI Life expectancy at birth 1. Adult literacy rate Adjusted per capita income — 2. Combined enrolment ratio in PPP$ GDI Female and male life 1. Female and male Adjusted per capita income — expectancy at birth adult literacy rate in PPP$, based on female 2. Female and male and male earned income shares combined enrolment ratio HPI-1 Percentage of people Adult illiteracy rate 1. Percentage of people — For developing countries not expected to without access to safe water survive to age 40 2. Percentage of people without access to health services 3. Percentage of underweight children under ﬁve HPI-2 Percentage of people Adult functional Percentage of people living Long-term For industrialized countries not expected to survive illiteracy rate below the income poverty unemployment rate to age 60 line (50% of median (12 months or more) personal disposable income)

Source: Human Development Report Ofﬁce.

WHAT DO THE HUMAN DEVELOPMENT INDICES REVEAL? 127 —life expectancy, educational attainment and from 0 to 1. (The method for constructing the income. HDI is explained in detail in the technical note.) The HDI is a more comprehensive measure The HDI value for a country shows the distance than per capita income. Income is only a means that it has already travelled towards the maxi- to human development, not an end. Nor is it the mum possible value of 1 and also allows com- sum total of human lives. Thus by focusing on parisons with other countries. The difference areas beyond income and treating income as a between the value achieved by a country and proxy for a decent standard of living, the HDI the maximum possible value shows the coun- provides a more comprehensive picture of try’s shortfall—how far the country has to go. A human life than income does. challenge for every country is to find ways to With normalization of the values of the vari- reduce its shortfall. ables that make up the HDI, its value ranges The HDI has been evolving, and this year its methodology has been significantly refined on the basis of a thorough review of its concept TABLE 2 Top and bottom five countries in the human development indices and formulation. The changes are summarized in the technical note and discussed in detail in Index Top five Bottom five Anand and Sen (1999). This year’s HDI also HDI Canada Burundi reflects new and improved data for 1997 for the Norway Burkina Faso United States Ethiopia indicators included in the HDI. And the avail- Japan Niger ability of time series on various indicators has Belgium Sierra Leone made it possible to construct a trend HDI for GDI Canada Guinea-Bissau every five years for 1975–97. Norway Burundi United States Burkina Faso • Methodological changes. Until now, in Australia Ethiopia calculating the HDI, income above the cut-off Sweden Niger point of world average per capita income has GEM Norway Jordan been discounted using a drastic discounting Sweden Mauritania Denmark Togo formula. In the new methodology this dis- Canada Pakistan counting has been made more gradual by tak- Germany Niger ing the logarithm of income throughout. The HPI-1 Barbados Central African Republic rationale for the new treatment of income is Trinidad and Tobago Ethiopia Uruguay Sierra Leone given in the technical note. Costa Rica Burkina Faso • New and improved data series. This year’s Cuba Niger HDI is based on improved life expectancy data HPI-2 Sweden New Zealand from the United Nations Population Division Netherlands Spain Germany United Kingdom and revised data on adult literacy and com- Norway Ireland bined gross primary, secondary and tertiary Italy United States enrolment ratios from UNESCO. Data on pur- Source: Human Development Report Office. chasing power parities (PPP) have been

TABLE 3 Changes in HDI ranks due to revisions of data and methodology

HDI Rank changes Rank changes due to revised data due to Total 1998 Report 1999 Report Life Adult Gross Income reﬁned rank Country Rank a Value Rank Value expectancy literacy enrolment (PPP$) methodology changes

Brazil 62 0.809 79 0.739 –1 –1 +1 +3 –19 –17 Estonia 76 0.758 54 0.773 –1 0 +1 +17 +5 +22 Botswana 96 0.678 122 0.609 –8 +2 0 +9 –29 –26 a. Ranks have been recalculated to reﬂect the exclusion of the Democratic People’s Republic of Korea from the HDI ranking in this year’s Report. Source: Human Development Report Ofﬁce.

128 WHAT DO THE HUMAN DEVELOPMENT INDICES REVEAL? updated by the World Bank following the more Asia and the Pacific HDI values range from comprehensive 1997–98 surveys by the Inter- 0.491 in the Lao People’s Democratic Repub- national Comparison Programme (ICP). lic to 0.888 in Singapore. Among the Arab Because of these changes, this year’s HDI is States they range from 0.412 in Djibouti to not comparable with last year’s. The improve- 0.833 in Kuwait. ments in methodology and data affect the HDI • The link between economic prosperity and ranks of almost all countries. Thus if a country human development is neither automatic nor FIGURE 1 Human development varies ranks lower or higher on the HDI this year obvious. Two countries with similar income per among regions compared with last year, that does not neces- capita can have very different HDI values; coun- Human development index, 1997 sarily mean that its state of human development tries with similar HDI values can have very dif- 1.00 has deteriorated or improved. A drop or rise in ferent income levels (figure 2 and table 4). Of the rank could be attributed to the change in 174 countries, 92 rank higher on the HDI than methodology or data. Moreover, the HDI rank on GDP per capita (PPP$), suggesting that Industrialized countries of a country also depends on the performance these countries have been effective in converting .900 of other countries. The examples of Brazil, income into human development. But for 77 Estonia and Botswana show how the improve- countries the HDI rank is lower than the GDP ments in methodology and data can affect per capita (PPP$) rank. These countries have countries’ rankings (table 3). been less successful in translating economic .800 prosperity into better lives for people. Latin America & Caribbean Eastern Europe & CIS WHAT DOES THE 1999 HDI REVEAL? • New data series from the United Nations Population Division show that people in many East Asia .700 South-East Asia & Pacific The HDI reveals the following state of human countries live a much longer and healthier life development: than just two decades ago. In 31 of the 174 Developing countries • Of the 174 countries for which the HDI has Arab States .600 been constructed this year, 45 are in the high TABLE 4 human development category (with an HDI Similar HDI, different income, 1997 South Asia value equal to or more than 0.800), 94 in the Real GDP per capita medium human development category (0.500– Country HDI value (PPP$) .500 0.799) and 35 in the low human development Spain 0.894 15,930 category (less than 0.500). Sixteen countries Singapore 0.888 28,460 Sub-Saharan Africa Georgia 0.729 1,960 Least developed countries have experienced reversals in human develop- Turkey 0.728 6,350 ment since 1990 due to the HIV/AIDS pan- Morocco 0.582 3,310 .400 demic (mostly in Sub-Saharan Africa) or Lesotho 0.582 1,860 economic stagnation (in Sub-Saharan Africa Source: Human Development Report Office. Source: Human Development Report Office. and Eastern Europe and the CIS). • Canada, Norway and the United States are FIGURE 2 at the top of the HDI ranking, and Sierra Similar income, different human development, 1997 Leone, Niger and Ethiopia at the bottom. Wide Income Life Adult Human disparities in global human development per- GNP per capita expectancy literacy rate development sist. Canada’s HDI value of 0.932 is more than (US$) (years) (percent) index three times Sierra Leone’s 0.254. Thus Canada 1,200 75 100 .900 has a shortfall in human development of only 1,000 about 7%, Sierra Leone one of 75%. Sri Lanka • Disparities between regions can be signifi- 65 80 .700 cant, with some regions having more ground to 800 cover in making up shortfalls than others (fig- 55 60 .500 ure 1). Sub-Saharan Africa has more than twice 600 as far to go as Latin America and the Côte d’Ivoire Caribbean, South Asia three times as far as East 400 45 40 .300 Asia (excluding China). Disparities within Source: Human Development Report Office. regions can also be substantial. In South-East

WHAT DO THE HUMAN DEVELOPMENT INDICES REVEAL? 129 countries included in the HDI, life expectancy The HDI trends also show that the speed of has increased by more than a fifth since 1975. human progress is uneven. Countries can start But the data also tell a tragic story. Between at similar levels of human development, but 1975 and 1997 life expectancy fell in 18 advance at different speeds (figure 4). And countries—10 in Africa, 8 in Eastern Europe countries can start at different levels of human and the CIS. In 4 countries, all in Sub-Saharan development, yet end up in similar places. Africa, life expectancy declined by more than Whatever the initial situation, progress is often 10%: Zambia (17%), Zimbabwe (17%), Uganda determined by the policy measures countries (15%) and Botswana (14%) (figure 3). These take to enhance their people’s well-being. large declines in such a relatively short time reveal the devastating effects of HIV/AIDS. For HUMAN POVERTY AND DEPRIVATION these countries, the HDI rank also dropped. FIGURE 3 Setbacks in Africa The human poverty index is a multidimen- Life expectancy (years) TRENDS IN HUMAN DEVELOPMENT, sional measure of poverty. It brings together in 52 1975–97 one composite index the deprivation in four basic dimensions of human life—a long and 50 Between 1975 and 1997 most countries made healthy life, knowledge, economic provisioning

48 substantial progress in human development, and social inclusion. These dimensions of reducing their shortfall from the maximum pos- deprivation are the same for both developing Botswana 46 sible value of the HDI. Of the 79 countries for and industrialized countries. Only the indica- which HDI trends between 1975 and 1997 are tors to measure them differ, to reflect the dif- 44 Zimbabwe available, 54 made up more than 20% of their ferent realities in these countries and because of 42 shortfall, 31 more than 30% and 19 more than data limitations. 40%. And 6 countries managed a shortfall reduc- For developing countries the deprivation in 40 Zambia Uganda tion of more than 50% (table 5). Zambia is the a long and healthy life is measured by the per- only country among those with data that had a centage of people not expected to survive to age 1975 1997 lower HDI in 1997 than in 1975, largely as a result 40, deprivation in knowledge by illiteracy and Source: UN 1998h. of the effects of HIV/AIDS on life expectancy. deprivation in economic provisioning by the percentage of people lacking access to health TABLE 5 services and safe water and the percentage of Fastest and slowest progress in human development, 1975–97 For 79 countries with available data children under five who are moderately or severely underweight . Two observations. First, Shortfall reduction for economic provisioning in developing coun- 1975–97 tries, public provisioning is more important Country 1975 HDI 1997 HDI (%) than private income. At the same time more Starting from high human development (0.800–1.000) than four-fifths of private income is spent on Fastest progress Australia 0.838 0.922 52.0 Norway 0.850 0.927 51.5 food. Thus in developing countries lack of Canada 0.862 0.932 50.5 access to health services and safe water and the Slowest progress Austria 0.836 0.904 42.0 New Zealand 0.843 0.901 37.0 level of malnutrition capture deprivation in Denmark 0.861 0.905 31.5 economic provisioning more practically than Starting from medium human development (0.500–0.799) other indicators. Second, the absence of a suit- Fastest progress Singapore 0.737 0.888 57.5 Korea, Rep. of 0.680 0.852 54.0 able indicator and lack of data prevent the Hong Kong, China (SAR) 0.757 0.880 51.0 human poverty index from reflecting depriva- Slowest progress South Africa 0.637 0.695 16.0 Romania 0.722 0.752 11.0 tion in social inclusion in developing countries. Zimbabwe 0.539 0.560 4.5 For industrialized countries deprivation in Starting from low human development (0–0.499) Fastest progress Indonesia 0.471 0.681 40.0 a long and healthy life is measured by the per- Egypt 0.432 0.616 32.5 centage of people not expected to survive to age Swaziland 0.497 0.644 29.0 Slowest progress Burundi 0.282 0.324 6.0 60, deprivation in knowledge by functional illit- Central African Republic 0.342 0.378 5.5 eracy, deprivation in economic provisioning by Zambia 0.453 0.431 –4.0 income poverty (as private income is the most Source: Human Development Report Office. important source of economic provisioning in

130 WHAT DO THE HUMAN DEVELOPMENT INDICES REVEAL? industrialized countries) and deprivation in Yet their levels of human poverty vary. Sweden social inclusion by long-term unemployment. and the United Kingdom have almost the same The components and the results of the HDI values, 0.923 and 0.918. But Sweden has HPI-1 (for developing countries) and HPI-2 an HPI-2 value of only 7%, while the United (for industrialized countries) are presented in Kingdom’s is 15.1%. indicator tables 4 and 5. The technical note presents a detailed discussion of the methodology DISPARITIES WITHIN COUNTRIES for constructing the HPI-1 and HPI-2. Differences in human development exist not WHAT DOES THE HPI-1 REVEAL? only between countries and between North and South. National human development data, dis- Calculated for 92 developing countries, the aggregated by region, gender, ethnic group or FIGURE 4 HPI-1 reveals the following: rural and urban areas, reveal significant dispar- Different human progress • Human poverty ranges from a low 2.6% in ities within countries. And disparities of all Barbados to a high 65.5% in Niger. Several kinds are interrelated and overlapping. Same starting point, different outcomes Human development index countries have an HPI-1 of less than 10%: .700 China Bahrain, Barbados, Chile, Costa Rica, Cuba, . . . BETWEEN RURAL AND URBAN AREAS . . . Fiji, Jordan, Panama, Trinidad and Tobago and .650 Uruguay. These developing countries have When the HDI and the HPI are disaggregated overcome severe levels of poverty. along the rural-urban divide, they document • The HPI-1 exceeds 33% in 37 of the 92 higher progress in human development and less .600 Guatemala countries, implying that human poverty affects at deprivation for people in urban areas than for least a third of the people in these countries. Oth- those in rural areas. The rural-urban divide in .550 ers have still further to go in reducing human Botswana provides a good example. poverty. The HPI-1 exceeds 50% in Benin, Burk- According to Botswana’s national human ina Faso, the Central African Republic, Chad, development report, the country’s HPI-1 .500 Ethiopia, Guinea, Guinea-Bissau, Mali, Nepal, dropped from 32.2% to 22% between 1991 and 1975 80 85 90 97 Niger and Sierra Leone, suggesting that poverty 1996. Yet poverty persists even today, though at Same outcome, different paths affects at least half the population. very different levels in urban and rural areas (fig- Human development index • A comparison of HDI and HPI-1 values ure 6). People in Botswana’s urban areas are bet- .700 South Africa shows the distribution of achievements in human ter off, with an HPI-1 of 11.7%. In rural areas Tunisia progress. Countries can have similar HDI values the HPI is more than twice as high—27%. .650 but different HPI values (figure 5). . . . BETWEEN REGIONS OR DISTRICTS . . . WHAT DOES THE HPI-2 REVEAL? .600 • In India the disaggregated HPI-1 shows

The HPI-2 shows that human poverty is not strong disparities in poverty between states. .550 conﬁned to developing countries. Human deprivation is highest in the state of • Among the 17 industrialized countries Bihar, in northeastern India, where the HPI-1 included in the HPI-2, Sweden has the lowest is 54%. The state of Kerala, in South India, has .500 human poverty, with 7%, followed by the an HPI-1 of only 23%. 1975 80 85 90 97 Netherlands and Germany, with 8.3% and • The Mangistau and Zhambyl oblasts in Source: Human Development Report Office. 10.4%. The industrialized countries with the Kazakhstan have very similar life expectancy highest poverty according to the HPI-2 are the and school enrolments. But they have very dif- United States (16.5%), Ireland (15.3%) and the ferent HDI values, reﬂecting very different United Kingdom (15.1%). income levels. Mangistau has an HDI of 0.835 • A high HDI value does not automatically and a GDP per capita (PPP$) of $8,285— imply low levels of human deprivation. All 17 Zhambyl an HDI of 0.594 and a GDP per countries included in the HPI-2 have an HDI capita (PPP$) of only $1,650. of at least 0.894, suggesting that they have • In Cuba the provinces with big cities— achieved high levels of human development. Havana and Cienfuegos—on the southern

WHAT DO THE HUMAN DEVELOPMENT INDICES REVEAL? 131 coast have the highest HDI values, 0.728 and This year the GDI has been calculated for 0.720. The lowest HDI values can be found in 143 countries. The GDI values and ranks the provinces of Granma and Las Tunas, 0.372 reveal the following: and 0.435. • The closer a country’s GDI is to its HDI, the less gender disparity there is in the country. . . . BETWEEN ETHNIC GROUPS . . . But the GDI for every country is lower than its HDI, implying that there is gender inequality in • In Nepal Brahmins have a life expectancy every society. FIGURE 5 of 61 years, Muslims a life expectancy of only • For 43 of the 143 countries for which the Same HDI, different HPI-1, 1997 49. Adult literacy among the Brahmins is 58%, GDI has been calculated this year, the GDI HDI HPI-1 among the Muslims only 22%. rank is lower than the HDI rank, revealing the .900 15% unequal progress in building women’s capa- . . . AND BETWEEN MEN AND WOMEN . . . bilities compared with men’s. In these 10.6% .801 .800 10% Mexico countries—including Ecuador, Luxembourg .786 The HDI is a measure of average achieve- and the United Arab Emirates—the average .700 5% ments and thus masks the differences in achievements in human development have not 4.1% Costa Rica human development for men and women. So, been equally distributed between men and

.600 0% other measures are needed to capture gender women. inequalities. • For 60 countries the GDI rank is higher

.600 45% The gender-related development index than the HDI rank, suggesting a more equi- attempts to capture achievement in the same table distribution of human development

40.6% dimensions as the HDI—life expectancy, edu- between men and women. These countries are .500 40% Uganda cational attainment and income—but adjusts diverse: they include industrialized countries .421 the results for gender inequality. The technical such as Australia and Sweden, transition .404 .400 35% note presents a detailed discussion of the economies in Eastern Europe and the CIS such methodology of the GDI and of its compo- as the Czech Republic and Slovenia and devel-

.300 30% 29.8% nents. Just as in the HDI, income in the GDI oping countries such as Thailand and Uruguay. Tanzania, U. Rep. of has been treated according to the reﬁned These results show that greater gender equality methodology, so the GDI ranks of countries in human development does not depend on have been affected just as their HDI ranks income level or stage of development. And they Source: Human Development Report Office. have been. show that it can be achieved across a range of cultures.

FIGURE 6 Disparity in human poverty within Botswana . . . INCLUDING IN POLITICAL AND PROFESSIONAL LIFE Urban-rural HPI-1, 1996 Percent Human The gender empowerment measure captures Under-5 No No health Underweight poverty gender inequality in key areas of economic and mortalitya Illiteracy safe water services children index political participation and decision-making. It 10 50 50 50 25 50 thus focuses on women’s opportunities rather 8 40 40 40 20 40 than their capabilities as measured in the GDI. The methodology and the components of the 6 30 30 30 15 30 Rural GEM are discussed in detail in the technical NATIONAL 4 20 20 20 10 20 AVERAGE note. The GEM has been calculated this year for Urban 2 10 10 10 5 10 102 countries, revealing the following: • The top three countries are Nordic— 0 0 0 0 0 0 Norway, Sweden and Denmark. These coun-

a. Used as a proxy for the percentage of people not expected to survive to age 40. tries are not only good at strengthening the Source: UNDP and the Government of Botswana 1997. basic capabilities of women, they have also opened many opportunities for them to partic-

132 WHAT DO THE HUMAN DEVELOPMENT INDICES REVEAL? ipate in economic and political life. The GEM ••• values are lowest in Niger (0.120), Pakistan (0.176) and Togo (0.185), implying that in these The composite indices of human development societies opportunities for women are much do not by themselves provide a comprehensive constrained. proﬁle of human development in a country. To • Only one country of the 102 has achieved a gain a complete picture, these indices must be value of more than 0.800, and only 33 countries supplemented with other indicators of human a GEM of more than 0.500. Seventy countries development (see indicator tables 8–30). have GEM values less than 0.500. Thus many countries have much further to go in extending FIGURE 7 broad economic and political opportunities to Disparity in opportunities for women within Nepal women. • Some developing countries outperform GEM, 1991–96 Women’s share (percent) much richer industrialized countries in gender Gender equality in political and professional activities. Parliamentary Professional Administrative empowerment seats jobs positions Income measure Costa Rica and Trinidad and Tobago are ahead 5 40 25 25 0.30 of France and Italy, Israel outperforms Japan, Lalitpur 0.25 District and the Bahamas outranks Portugal. Greece’s 4 20 20 30 GEM value, at 0.404, is less than three-fourths 0.20 NATIONAL that of Costa Rica, at 0.550. The crucial message 3 15 15 AVERAGE 20 0.15 of the GEM: high income is not a prerequisite for 2 10 10 Jumla creating opportunities for women. 0.10 District 10 5 • Different regions of the same country allow 1 5 0.05 women different roles in public life. The disag- 0 0 0 0 0.00 gregated GEM for Nepal shows large disparities between two districts, Lalitpur and Jumla Source: Nepal South Asia Centre 1998. (ﬁgure 7).

WHAT DO THE HUMAN DEVELOPMENT INDICES REVEAL? 133