UN Report Recommends Building a New Developmental State

The United Nations Conference on Trade and Development (UNCTAD) released a report, Least Developed Countries Report 2009, on July 16, 2009 that explains, according to a UN press release, the global economic recession "'should be grasped as a turning point' for the so-called Least Developed Countries (LDCs) – a classification grouping the 49 poorest States around the globe." The Report "argues that the impact of the global economic crisis is likely to be so severe in the least developed countries that 'business as usual' is no longer possible. This will necessitate a rethinking of the development paradigm. The magnitude of the crisis offers both the necessity and an opportunity for change. Coping with the impact of the crisis in LDCs will require an innovative and informed policy design response. But beyond this, new policy approaches are necessary to ensure that development after the crisis will be more resilient and more inclusive." Established in 1964, UNCTAD promotes the development-friendly integration of developing countries into the world economy.

The Report further explains the adverse impact on the real economy and the cost in terms of lost output and employment. While "most advanced economies are in recession and emerging markets are undergoing significant slowdowns...LDCs are likely to be particularly hard hit in the coming period." Since LDCs "are deeply integrated into the global economy, they are highly exposed to external shocks. Moreover, many are still suffering the adverse impact of recent energy and food crises, and they have the least capacity to cope with yet another major economic disruption. The combination of high exposure to shocks as well as weak resilience to those shocks is likely to mean that the LDCs, which already face chronic development challenges, will be harder hit than most other developing countries."

Addressing external vulnerability of LDCs resulting from their high level of indebtedness, according to the Report, LDCs' "debt burden represents on average 42 per cent of gross national income, compared to 26 per cent in other developing countries before the crisis. As UNCTAD has repeatedly warned in recent months, there is the potential for a new debt crisis to emerge in poor countries. For many LDCs, the current crisis can jeopardize their hard-won debt sustainability."

The Report simply does not soley focus on how LDCs can cope with the shortterm immediate impact of the crisis, but how can they emerge from the crisis in a stronger position? What policies should they be crafting now for the post-crisis era? The Report suggests evaluating policies in three areas:

• Firstly, there is even more reason now to refocus policy attention on developing productive capacities. This means that policies should be oriented towards stimulating productive investment, building technological capabilities, and strengthening linkages within and across sectors and between different enterprises. Strengthening domestic productive capacities should also be aimed at producing a wider range of more sophisticated products;
• Secondly, it is necessary to build a new developmental state. This is not a matter of going back to old-style development planning, but rather a question of finding new forms of development governance appropriate for the twenty-first century. Such development governance would be founded on a strategic collaboration between the state and the private sector, that will encourage the structural transformation of LDCs from agrarian to postagrarian economies; and
• Thirdly, it is necessary to ensure effective multilateral support to LDCs. This is not simply a question of more and better aid, but also the design of rules that govern international economic relationships with regard to trade, finance, investment and technology flows, in ways which would support development in LDCs. It is also critical that support for LDCs does not impose unnecessary limits to the measures that governments can take to promote development, structural transformation and poverty reduction.

LDCs must take a new approach on how to attract foreign direct investment (FDI) and create a new investment strategy that focuses in education, health care, capacity building in the public sector, public infrastructure development and maintenance, protection of natural resources, and private sector development. Industrialized nations cannot maintain the same approach of providing financial aid to LDCs and this aid should support comprehensive development strategies that include transparent, accountable deliverables and defined measurements for success. Similarly how the recession is forcing corporations to change their business practices, governments including the LDCs should also amend their policies to achieve sustainable growth potential.