October 23, 2014

Trade, Aid, Power and Samsung at Seoul- G20 meetings, 2010

The G20 meetings are publicly recognized for being the arena of two repeating themes: citizen protest against unfair trade policies that affect communities across the world, and world leaders flexing their muscles to see who walks away as top dog.

The G20 meeting in Seoul, South Korea was burdened with a third theme– that of finding solutions to the ongoing global economic crisis and the fast approaching threat of protectionism. Why is protectionism an issue? In the context of the US economy, it could mean lower foreign investment, which would lower the value of the dollar. In the context of social justice, this could have far-reaching adverse effects on local and international unemployment and worker rights as well as on US government spending on social services.

The US came under pressure for the Quantitative Easing (QE2) decision taken by the Federal Reserve Board. What’s all the noise about, and did the rest of the G20′s argument against the US decision make any sense? Nice analysis of the situation (and some groovy Economics 101!) here.

But really, the only thing we’re asking each other right now is, why should we care about what is discussed or decided on at the G20?

Simple answer? International Aid Reform. The G20 meetings are a significant platform for world leaders to discuss global approaches to the issue of misdirected foreign aid and unmet aid targets.

Edward Rees, senior adviser to Peace Dividend Trust, while writing for the Atlantic, highlighted some of the issues with aid spending’s status quo:

... A significant amount of aid money, in Timor-Leste and other aid recipient nations, is in the form of expensive technical assistance (i.e. western advisers) or goes toward goods and services purchased outside of the assisted country. As a result, a great deal of aid money does not ultimately go to the country for which it’s been designated. Instead, the aid agenda should focus on the generation and equitable distribution of wealth within the targeted country.

Rees goes on to discuss the inherent fault with top-down aid spending:

… Leaders of the international community burn through much of its resources trying to recreate states in their own images. American legal experts, for example, often seek to build American-style legal systems in countries that have never had them. But this can take years and eat up scarce aid money, often to disappointing results.

Finally, Rees highlights the role economic policies can play in changing the face of International Aid–

… One of the ways that the international community can best help the missing middle is by directing its massive aid budgets into local business. Business is efficient; its winners survive and create jobs. It is also sustainable…

The Seoul G20 session also highlighted the fact that economic power no longer lies in the hands of only one or a few countries. Granted, the United States is no longer an economic hegemony, but despite China’s current global significance (George Soros commented on how China is tightening its grip on world economic power), neither the US nor China can survive without the cooperation and investment of rising economic powers such as Brazil, Thailand and South Korea, who in turn are taking steps to protect their own markets from the adverse effects of their booming economies. As outlined by this Wall Street Journal article, the concerns of rising economic powers are as follows:

  1. With traditional economic markets such as the U.S., Japan and Europe feeble and their interest rates low, faster-growing nations like Brazil are attracting high levels of investment (WSJ, 2010).
  2. The capital inflows can create asset bubbles and overvalued currencies or stock markets, primed to plunge the moment investors decide to move their money elsewhere (WSJ, 2010).
  3. Overvalued currencies also mean exporters lose their edge because their goods are costlier abroad (WSJ, 2010).
  4. countries that now offer investors a high rate can’t simply lower rates, as they need high rates to attract loans because of their existing wide deficits, large national debt and constant inflation concerns (WSJ, 2010).

But wait. How do you balance the needs of emerging economies with those of stagnant economies in the context of development aid?

There is no easy answer to that. Leaders sparred at Seoul the way they have sparred at every G20 meeting. In the final agreement or communiqué released by the G20, the language was so carefully worded to allow for diverse opinions that according to William Easterly, it is “completely free of substance.” InterAction did praise the inclusion of development language in the communiqué, but also stated disappointment at the lack of more specific language. However, the one statement that is receiving attention is the promise that nations would “refrain from competitive devaluation” of their currencies. In brackets, alternative wording said countries would refrain from “competitive undervaluation” of their currencies. Read this WSJ entry for an explanation of these terms.

But what does this mean for International Aid?

One of the most interesting articles written about the G20 meeting has nothing to do with the substance of the meeting itself, but with the story of South Korea– the choice of Seoul is historic, as it’s the first time the meeting has been held outside the original G7 member countries.  This article comes from none other than Ha-Joon Chang, another leading voice in the aid debate, who has engaged in several lively debates with Easterly regarding approaches to aid spending.

In his article, Chang discusses the impressive growth of South Korea, a country that half a century ago had an annual per capita income less than half that of Ghana at the time, but that today stands on par with Portugal and Slovenia. Chang’s piece hearkens to points made by Rees, saying that methods outside the mainstream “Washington Consensus” approach brought South Korea to its current status, which is to say that there can be no cookie-cutter approach to development.

What does this mean for us?

Next year’s G20 is to be hosted by France. Will it be a time to not only stand together in solidarity and protest, but also to suggest as members of civil society, guiding principles that we want our leaders to make decisions based on? What would these principles look like? Can we get countries to listen to the people, and not the banks?

An interesting perspective in a local Korean newspaper by Park Kyung-bae discusses the important role capacity building playing in development, the classic teach a man to fish story. How important is it to focus funds on skills (education, policy building, etc.) as opposed to humanitarian aid? Are both equally important?

For those of you who are interested, archived video streams from the G20 meetings available here.

And yes, Samsung was present at the G20! What role do you envision private enterprise playing in global development?

About Priyanka Joseph

Comments

  1. Sarah Frazer says:

    Hey Priyanka,

    Protectionism is largely misunderstood. A little bit of protectionism can actually go a long way to develop national industry, creating both endogenous growth and jobs. The more national industry thrives, the less foreign aid a country needs.

    The way I see it, international trade rules which put profit over people and the environment are more to blame for poverty than any country’s failure to meet foreign aid targets.

    =)

    Sarah

  2. Very interesting blog post. ER

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