CEPAL RCEEVPI A

ELW R7 E4 V •I EAWU G7 U
4 ST 2001 7

A new look at the

Executive Secretary of the This essay summarizes some of the main ideas behind
Economic Commission for
proposals for a new development agenda. It highlights first
Latin America and
the Caribbean the need to strike a new balance between the market and the
(ECLAC)
public interest, and to understand by “public policies” any
[email protected]
initiative organized in pursuit of common goals, and not

just State actions. The author makes five proposals for a

new agenda: i) more balanced globalization with genuine

respect for diversity, underpinned by a network of regional

institutions; ii) a broad view of macroeconomic stability and

the role of countercyclical policies; iii) the use of

development strategies to foster innovation and production

complementarities, without which macroeconomic policies

are insufficient to generate dynamic growth; iv) improved

social linkages, through long-term equity and inclusion

policies, complemented by economic growth to create

sufficient high-quality employment and measures to reduce

structural heterogeneity among production sectors;

v) subordination of the economic system to broader social

objectives.

A N E W L O O K AT T H E D E V E L O P
AUMG
ENUT
S TAG
2 0E0N1DA • J O S É A N TO N I O O C A M P O
8 CEPAL REVIEW 74 • AUGUST 2001

I
Introduction

Liberalization was presented to the developing world insufficient. Many transition economies still have levels
as providing a way out of inefficient strategies of economic activity below those seen prior to the “big
associated with trade protection and high levels of State bang”. Although most of the Asian economies that
intervention, as well as the rent-seeking behaviour that underwent the crisis did recover, they are still struggling
those strategies encouraged. It was also seen as a means with its financial repercussions. Notable exceptions are
of fully exploiting the opportunities generated by obviously China and India, which are certainly not on
globalization. This view represented a significant break the list of the most highly reformed economies. Even
with the idea, which underlay development strategies in the industrialized world, growth in the 1990s was
for several decades, that “late industrialization” required still far from what it was in the “golden age” of 1950-
a significant degree of State intervention in order to 1973; the United States did reach those rates, but only
succeed. The Washington Consensus provided one of during the second half of the decade.
the best summations of this reform agenda, although it Distributive tensions are running high and are
certainly did not reflect its most radical version, which probably intensifying. Income disparities between
called for a minimalist State (Williamson, 1997). It was developed and least developed countries continue to
also, it should be added, a manifestation of the optimism increase ( UNDP , 1999). Income distribution has
that the reform agenda generated a decade ago. worsened in a broad group of both developed and
During the last few years, the wisdom behind this developing countries. According to one account, the
vision has been called into question. The Asian crisis countries where income distribution has worsened
was what probably dealt it the hardest blow. That crisis contain 57% of the world’s population and those where
made patently clear that, without an adequate it has improved 16%, with the remainder experiencing
institutional setting, financial liberalization could be the no clear trend (Cornia, 1999). The growing skills-based
source of severe macroeconomic instability. The strong income differential is a worldwide phenomenon. Debate
views expressed by “global civil society” since Seattle continues as to whether it is the result of trade
indicate that globalization itself is now being questioned liberalization, technological trends or a weakening of
and reflect a basic substratum of discontent in the social safety nets. The asymmetry existing between
industrialized world. In developing countries, factors that cross international borders (capital, highly
disenchantment with reforms is also growing, but its skilled labour) and those that cannot (low-skilled
political manifestations are more disorganized and its labour), together with the increasing difficulties
agenda unclear. governments are having in providing social safety nets,
More broadly, dissatisfaction with the results of are certainly part of the explanation (Rodrik, 1997).
reforms is on the rise. Trade and foreign direct Recent events and the discontent they have
investment have boomed, but the “promised land” of generated have, in turn, spurred a constructive debate
high growth rates is increasingly regarded as a mirage. that promises to enrich the development agenda. The
In Latin America –the region where reforms have gone last few years have indeed made the debate somewhat
the furthest– growth in the 1990s was only 3.2% a year, more pluralistic. Alternative views of development
far below the 5.5% record set during the three decades have made some headway. New areas of emphasis
of State-led development from the 1950s to the 1970s. –institution-building, social safety nets and the
Sub-Saharan Africa’s performance, and that of the least “ownership” of development policies, to name a few–
developed countries in general, continues to be highly have been brought into the international policy debate.
Is this an indication that the development agenda is in
fact changing? Perhaps, but this is still unclear. Indeed,
new concepts and areas of emphasis are often mere
A prior version of this paper was presented at the American
Economic Association Annual Meeting Panel “Toward a Post- “add-ons” to what is, by and large, the same policy
Washington Consensus on Development and Security”, New agenda, with new generations of reforms simply being
Orleans, 5-7 January 2001. appended to what are regarded essentially as the correct

A N E W L O O K AT T H E D E V E L O P M E N T AG E N DA • J O S É A N TO N I O O C A M P O
 CEPAL REVIEW 74 • AUGUST 2001 9

foundations. Seen in a less favourable light, they are through a variety of economic, social and political
merely new garments draped over the same ideas. channels. An assertive public policy approach of this
Markets, particularly financial markets, have not really sort will be, if correctly applied, more market-friendly
internalized the need for a new development agenda, than the alternative approaches that tended to
and financial agents continue to call for more predominate during the first wave of reforms.
liberalization at the national and world levels, i.e., The second theme is that, rather than being
plainly for more of the “first generation” of reforms. restricted to State actions, the concept of public policy
This remains the dominant force in a world of weakened should be understood as any organized form of action
national polities and an even weaker transition to a that pursues objectives of collective interest. This
global polity. definition of public policy is in keeping with an
This paper summarizes some of the basic concepts awareness of the need to open up opportunities for
underlying the call for a new development agenda.1 Two participation by civil society and to work to overcome
intersecting themes in the literature on this subject a crisis of the State that affects the developing world
should be emphasized at the outset. The first is the call and, indeed, the world at large. It thus aims at correcting
for a new balance between the market and the public both “market failures” and “government failures” and,
interest. This should not be viewed as running counter more generally, at building and rebuilding institutions
to the operation of the market, since actions that ensure (or, in the terminology of the new institutional literature,
an adequate supply of public goods, help to complete institutions and organizations). This is unquestionably
markets, assist non-competitive markets to function one of the most complex tasks awaiting the developing
properly, exploit positive and avoid negative and transition economies. Moreover, it is the most
externalities, or ensure an equitable distribution of the pressing task –yet at the same time one that has so far
benefits of development, can serve as powerful received insufficient attention– in the process of
mechanisms for enhancing market development building a better international order.

II
A more balanced form of globalization
based on a genuine respect for diversity

The need to “civilize” the global economy (Helleiner, long-standing asymmetries in the world economy and
2000) or, in the words of the United Nations Millennium creating new ones. Four issues figure prominently in
Declaration, “to ensure that globalization becomes a the current agenda: free trade, intellectual property
positive force for all the world’s people” (United rights, investment protection, and financial and capital-
Nations, 2000) is the most crucial issue. Although account liberalization. The latter has been the object of
powerful technological and economic processes various qualifications during recent crises, including
underlie it, there is no doubt that the globalization the proviso that it should be well sequenced and that
process can be shaped, and indeed the form that it has emphasis should be given to longer-term flows and to
been assuming has largely been shaped by explicit institutional development. Moreover, in the area of
policy decisions. trade, liberalization is, in turn, incomplete and
The most troublesome aspect of this situation is asymmetric, as “sensitive” items of great interest to the
the incomplete and even lopsided character of the developing countries are subject to the highest levels
current globalization process and the international of protection in the industrialized world.
policy agenda that accompanies it, which is reproducing Meanwhile, other issues are conspicuously absent
from the current agenda: labour mobility; international
rules on taxation, particularly of capital (essential to
1References have been kept to a minimum, although the literature guarantee adequate taxation of this highly mobile
on the topic is extensive. factor); the design of truly international competition

A N E W L O O K AT T H E D E V E L O P M E N T AG E N DA • J O S É A N TO N I O O C A M P O
10 CEPAL REVIEW 74 • AUGUST 2001

rules and codes of conduct for multinational firms; and international organizations. Under the influence of the
compensatory financing to ensure the inclusion of those strong market forces characteristic of globalization,
countries and social groups that tend to be left behind which tend to weaken nation States, and the unilateral
in the globalization process. national liberalization processes that have been taking
This is, in turn, a reflection of the most serious place simultaneously, government regulations have
asymmetry of all: the imbalance between the rapid weakened worldwide. Many analysts perceive this result
globalization of (some) markets and the conspicuous as an advance, but it is also a source of significant
absence of a truly international social agenda. The latter distortions and risks, particularly –but not only– in the
is, in fact, largely confined to the definition of common area of finance. It should be added that, although open
international principles (through United Nations regionalism is also a feature of globalization, and strong
summits) and the as yet incipient emergence of integration forces have been at work in many parts of
international legislation. The decline of official the developing world (e.g., Latin America and South-
development assistance ( ODA ) is one of the most East Asia), this has not led to strong developing-country
compelling pieces of evidence of the lack of coalitions. Indeed, the European Union aside (and even
commitment to a truly international social agenda, as in this case only in a limited sense), countries are also
is the growing conditionality that is attached to unwilling to give up their sovereignty to regional
international financial support in general. organizations.
More broadly, it is increasingly being recognized These political and political economy features have
that globalization has underscored the need to provide major implications for international reform. The most
a number of global public (political, social, economic obvious are that the pressure for substantive reform will
and environmental) goods, as many previously national be weak, and thus that a more balanced globalization
(and, further back in history, local) public goods are agenda and stronger global governance may not
increasingly becoming global in nature (Kaul, Grunberg materialize, that any balanced negotiation process
and Stern, comps., 1999). There is, however, a striking would be cumbersome, and that negotiation processes
contrast between the recognition of this fact, on the may underestimate or bypass the interests of certain
one hand, and, on the other, the weakness of actors altogether. The lack of truly international
international arrangements to provide such public goods institutions also means that institutions that have
and the low level of funding allocated for this purpose. developed in the past at the national level will not be
These asymmetries obviously reflect basic political available at the global level or will only have limited
features and aspects of the world’s political economy. functions.
The lopsided character of the current globalization Because of the incompleteness of the relevant
process and agenda undoubtedly reflects the international arrangements, weaker actors should
predominance of major countries and large multi- continue to demand national autonomy in crucial areas,
nationals. However, it also reflects the disorganization particularly in terms of the choice of economic and
of many actors, particularly developing countries, in social development strategies. Moreover, national
the international policy debate. This state of affairs is autonomy is the only system that is consistent with the
associated not only with a weakening of the historical promotion of democracy at the world level. There is
mechanisms for concerted action by developing indeed no sense in promoting democracy if
countries (e.g., the Group of 77), but also with the representative and participatory processes at the
“policy competition” that globalization itself has national level are given no role in shaping economic
generated (i.e., the strong incentive that each country and social development strategies. This is also
has –in this era of mobile capital and increasingly consistent with the view that institution-building, social
footloose production– to claim that it is a more attractive cohesion and the accumulation of human capital and
investment site than other nations). Thus, the technological capabilities (knowledge capital) are
asymmetries characterizing world power relations and essentially endogenous processes. To borrow a term
the high cost of generating international coalitions to from Latin American structuralism, development can
compensate for those asymmetries have become even only come “from within” (Sunkel, 1993). Support for
more important today. these endogenous processes, respect for diversity and
A complicating feature of the political situation the design of rules that allow it to flourish are essential
and of the political economy is obviously the reluctance elements of a democratic, development-oriented world
of most countries to give up economic sovereignty to order.

A N E W L O O K AT T H E D E V E L O P M E N T AG E N DA • J O S É A N TO N I O O C A M P O
 CEPAL REVIEW 74 • AUGUST 2001 11

A final, crucial implication is that no international degrees of freedom and mutual support that would not
architecture is neutral in terms of the equilibrium of be available at the national level. The international order
international relations. In this sense, an international should thus provide ample scope for strong regional
system that relies on a very small number of world institutions while at the same time upholding a rules-
institutions will be less balanced than one that relies on based global order (i.e., a system of “open regionalism”,
a network of regional institutions, and countries with to borrow a term from the literature on economic
very limited power in the international arena will be integration). Indeed, operating through regional
better off if they are active participants in regional institutions may be the best way to gradually build up
schemes. These regional schemes can indeed provide a better international order.

III
A broad view of macroeconomic
stability and the role of countercyclical policies

The concept of macroeconomic stability has undergone investment (Ffrench-Davis, 1999). The uncertainty
considerable changes in the economic discourse over associated with variability in growth rates may
the past two decades. During the post-war years consequently have stronger effects on capital
dominated by Keynesian thinking, this concept was accumulation than moderate inflation. Indeed, it
basically defined in terms of full employment and stable encourages “defensive” microeconomic strategies
economic growth, accompanied by low inflation and (i.e., those aimed at protecting the existing corporate
sustainable external accounts. Over time, however, assets of firms that find themselves in an unfriendly
fiscal balance and price stability moved to centre stage, environment) rather than the “offensive” strategies that
while the Keynesian emphasis on real economic activity lead to high investment rates and rapid technical
took a back seat and eventually began to fade away change.
altogether. The second lesson is that private-sector deficits are
The consistency that ought to characterize just as costly as public-sector ones. Moreover, risky
macroeconomic policies should be oriented by a broad private-sector balance sheets may be as damaging as
definition of stability that recognizes that there is no flow imbalances. In financially liberalized economies,
single correlation between its alternative definitions and both may interact in non-linear ways with capital-
that significant trade-offs may be involved. Two lessons account shocks. The lack of rigorous domestic financial
are particularly important in this regard. The first is that regulation and supervision typical of the early phases
real instability is very costly. A narrow view of inflation of financial liberalization is part of this, but is certainly
targeting may thus be as damaging as past not the whole story. Boom-bust cycles are an inherent
macroeconomic practices that underestimated the costs aspect of financial markets. Private spending booms
of inflation. Recessions entail a significant loss of and risky balance sheets tend to accumulate during
resources that may have long-run effects: firms may periods of financial euphoria and are the basis for crises
sustain irreparable losses in terms of both tangible and once exceptional conditions normalize. During such
intangible assets (tacit technological and organizational bouts of euphoria, economic agents tend to
knowledge, commercial contacts, the social capital underestimate the intertemporal inconsistency that may
accumulated in the firm, its goodwill, etc.); the human be involved in existing spending and financial
capital of the unemployed or the underemployed may strategies. When crises lead to a financial meltdown,
be permanently lost; and children may leave school and the associated costs are extremely high. Asset losses
never return. Volatile growth leads to a high average may wipe out years of capital accumulation. The
rate of underutilization of production capacity, reducing socialization of losses may be the only way to avoid a
productivity and profits and thus adversely affecting systemic crisis, but this will affect future fiscal (or quasi-

A N E W L O O K AT T H E D E V E L O P M E N T AG E N DA • J O S É A N TO N I O O C A M P O
12 CEPAL REVIEW 74 • AUGUST 2001

fiscal) performance. Restoring confidence in the periods of financial euphoria and to overadjust during
financial system takes time, and the financial sector crises. Moreover, globalization places objective limits
itself becomes risk-averse, which undermines its ability on national autonomy and exacts a high cost for any
to perform its primary economic functions. loss of credibility when national policy instruments are
These two lessons are basically interconnected, as poorly administered. For this reason, it may be
financial boom-bust cycles have been the predominant necessary for macroeconomic policy management to
source of business cycles in the developing world. The be supported by institutions and policy instruments that
essential task of macroeconomic policy is thus to help to provide credibility, including fiscal stabilization
manage them with appropriate countercyclical tools. funds and independent central banks. On the other hand,
The experience of developing countries indicates that the explicit renunciation of policy autonomy (e.g., by
managing volatility requires a combination of three adopting hard pegs or a foreign currency) is hardly a
policy packages, whose relative importance will vary solution to this dilemma. Instead, this simply
depending on the structural characteristics and the predetermines the nature of the adjustment, and may
macroeconomic policy tradition of each country make business cycles more intense. If this occurs, the
(Ocampo, 2000). The first is consistent and flexible market may not validate (through reduced country risk)
macroeconomic –fiscal, monetary and exchange-rate– the hypothetical increase in “credibility” generated by
policies aimed at preventing public or private agents the decision to relinquish policy autonomy.
from accumulating excessive levels of debt and at The basic solution to the dilemma created by
forestalling imbalances in key macroeconomic prices the lack of adequate degrees of freedom to
(exchange and interest rates) and in the prices of fixed undertake a countercyclical macroeconomic policy
and financial assets. The second is a system of strict lies in the international arena (Eatwell and Taylor,
prudential regulation and supervision with a clear 2000; Ocampo, 2001). This means that a first,
countercyclical orientation. This means that prudential essential role of international financial institutions,
regulation and supervision should be tightened during from the point of view of developing countries, is
periods of financial euphoria to counter the mounting to counteract the procyclical effects of financial
risks incurred by financial intermediaries. The third markets. This can be achieved by smoothing out
element is a liability policy aimed at ensuring that boom-bust cycles at source through adequate
appropriate maturity profiles are maintained with regulation and by providing developing countries
respect to domestic and external public and private with additional degrees of freedom to adopt
commitments. Prudential capital-account regulations countercyclical policies (e.g., adequate surveillance
(i.e., those applied during periods of euphoria to prevent and incentives to prevent the build-up of risky
excessive borrowing) can play an essential role both as macroeconomic and financial conditions during
a liability policy –encouraging longer-term flows– and periods of financial euphoria, together with
as an instrument that provides additional degrees of mechanisms to smooth out adjustments in the event
freedom for the adoption of countercyclical monetary of abrupt interruptions of private capital flows). A
policies. second, equally essential role is to counter the
Managing countercyclical macroeconomic policies concentration of lending by providing access to
is no easy task, as financial markets generate strong those countries and agents that tend to be subjected
incentives for developing countries to overspend during to rationing in private international capital markets.

A N E W L O O K AT T H E D E V E L O P M E N T AG E N DA • J O S É A N TO N I O O C A M P O
 CEPAL REVIEW 74 • AUGUST 2001 13

IV
Macroeconomic policies are not enough:
the role of productive development strategies

The idea that the combination of open economies and thinking, broadly defined. This view emphasizes the
stable macroeconomics –in the limited sense in which close connection among structural dynamics,
this term has come to be used, i.e., fiscal balances and investment and economic growth. According to this
low inflation– would by itself spur rapid economic view, economic growth is not a linear process, in which
growth has thus far not been borne out. This has sparked “representative firms” grow or new representative firms
an unresolved debate concerning the underlying reasons are added and then produce a given set of goods on an
for this result. The orthodox interpretation is that extended scale. It is rather a more dynamic process in
markets have not been sufficiently liberalized. This which some sectors and firms grow and move ahead
interpretation runs up against the fact, however, that while others fall behind, thereby completely
the periods of fastest growth in the developing world transforming economic structures. This process
during the post-war era, as well as the longest-lasting involves a repetitive phenomenon of “creative
episodes of rapid growth (e.g., the East Asian or, most destruction”, to use Schumpeter’s metaphor (1962,
recently, the Chinese and Indian “miracles” or, in the chap. VIII). Not all sectors have the same ability to inject
past, the periods of rapid growth in Brazil or Mexico), dynamism into the economy, to “propagate technical
have not coincided with phases of extensive progress”, according to the classical concept advanced
liberalization, even in cases where they have involved by Prebisch (ECLAC, 1951). The complementarities
the use of the opportunities provided by international (externalities) among enterprises and production sectors,
markets on a large scale (which is a more common along with their macroeconomic and distributive effects,
though not universal feature). can produce sudden jumps in the growth process or can
Two alternative interpretations emphasize other block it (Rosenstein-Rodan, 1943; Taylor, 1991 and Ros,
determinants of aggregate economic growth or market 2000) and, in so doing, generate successive phases of
failures. In the first case, inadequate institutional disequilibria, according to Hirschman’s (1961) classical
development or human capital are seen as the view. Since technical know-how and knowledge in
explanation for slow growth. These factors are certainly general are not available in fully specified blueprints,
crucial but, here again, this interpretation needs to the growth path of firms entails an intensive process of
explain why faster growth was possible in periods adaptation and learning, closely linked to production
during which these factors were in even shorter supply. experience, that largely determines the accumulation
The second variant emphasizes the fact that, in order of technical, commercial and organizational know-how
to be efficient, liberalized markets require full-fledged (Katz, 1976 and Amsden, 2001).
“mesoeconomic” policies: active competition policies, The common theme in all these theories is the idea
public regulation of non-competitive markets or that economic growth is intrinsically tied to the
markets with strong externalities, and the correction of structural context, which is made up of productive and
market failures in factor markets, particularly the technological apparatuses, the configuration of factor
markets for long-term capital, technology, labour and product markets, the characteristics of
training and land. Policies to correct market failures entrepreneurial agents, and the way in which these
are indeed essential to ensure more efficient markets, markets and agents relate to the external environment.
and they may also have effects on equity, but the The leadership exercised by certain sectors and firms
relationship between these market failures and growth is, in this case, the essential dynamic factor that drives
is less clear. Failures in long-term capital and economic growth. In the developing world, many of
technology markets are probably the most important the dynamic forces are associated with the successful
in this regard. adaptation of activities previously developed in the
A more promising line of inquiry draws upon the industrialized world, through import substitution,
different historical variants of structuralism in economic export promotion or a combination of both.

A N E W L O O K AT T H E D E V E L O P M E N T AG E N DA • J O S É A N TO N I O O C A M P O
14 CEPAL REVIEW 74 • AUGUST 2001

Although alternative formulations can be used, one generated by the adverse structural shift in the growth/
approach that is particularly promising in terms of its trade deficit trade-off and the break-up of domestic
policy orientation emphasizes two essential concepts: linkages and national innovation systems have been
innovation and complementarities (linkages). In this stronger than the “creative” opportunities generated
formulation, innovation is viewed as any economic by the (still insufficient) market access and innovations
activity that introduces a new way of doing things. The introduced by the spread of multinational firms
best definition was provided by Schumpeter (1961, (Ocampo and Taylor, 1998; UNCTAD, 1999, chap. IV
chap. II) almost a century ago: new goods and services, and ECLAC, 2000). In any case, if the past is a correct
or new qualities of goods and services; new guide and structural interpretations are valid, then the
production methods or marketing strategies; the use of explicit productive development strategies
opening of new markets; new sources of raw aimed at encouraging innovation (in the broad sense
materials; and new market structures. The second of the term) and helping to build up complementarities
concept emphasizes the role of strategic synergies that would appear to be a better route to take, even in the
–through the externalities that the various economic open developing economies of today. The international
agents generate among themselves (Hirschman, community should regard such strategies as an
1961)– determine the “systemic competitiveness” of essential ingredient of successful development and
the relevant production structures (ECLAC, 1990). The should continue to search for instruments for
existence of dynamic scale economies is the essential implementing such strategies that do not degenerate
feature of both innovations and their diffusion, as well into “beggar-thy-neighbour” competition for footloose
as of the development of complementarities. production activities.
Institutional development may be viewed as an In the developing countries, a significant
innovation, but it is also an essential ingredient in such institutional and organizational effort is required to
complementarities. devise appropriate instruments for active production
These ideas have recently been used by several policies, as the old apparatuses of intervention were
authors to emphasize the need for a productive either dismantled or significantly weakened during the
development strategy as a basic component of a liberalization phase in many (if not most) of these
dynamic, open developing economy, a long-standing countries. An effort must also be made to design
theme in “late industrialization” (or, more precisely, instruments that, aside from being consistent with the
late development) literature. Thus, Rodrik (1999) has open economies of today, avoid the “government
made a strong argument for a “domestic investment failures” that characterized some of the tools used in
strategy” to kick-start growth, and ECLAC (2000) has the past (rent-seeking and cronyism).
referred to the need for a strategy of structural The effective incorporation of the sustainable
transformation. The essential role of strong State/ development agenda is an additional demand being
business-sector partnerships is set forth by Amsden placed on production strategies today. Indeed, the
(2001), as is the need for “reciprocal control degree of environmental degradation generated by
mechanisms” that tie incentives to results in order to developing countries at intermediate or even low stages
ensure that the former do not merely lead to rent-seeking of development indicates that sustainability is hardly a
behaviour. luxury that can be postponed. This objective involves
This interpretation brings out a central feature of much more than conserving the natural resource base.
successful development experiences in the past: a In essence, it calls for the mobilization of investment
strong industrialization drive built on solid State/ in dynamic production sectors which use clean
business-sector partnerships. Will opening markets production methods and technologies and in which
with neutral incentives, arms-length government- competitiveness is achieved through the accumulation
business relations and multilateral (Uruguay Round) of capital in the broad sense of the term (i.e., human,
constraints on traditional development instruments social, physical and natural capital). A shift in the
produce the same result? Or, to be more precise, will developing countries from a reactive to a more proactive
opening markets provide a substitute for active policy in this area is thus crucial, as is its necessary
productive development policies? It remains to be counterpart: the effective flow of resources from the
seen, but the results so far are not encouraging, industrialized nations to finance the global
although they may be skewed by certain features of environmental agenda based on the principle of shared
the transition period. The “destructive” elements but differentiated responsibilities.

A N E W L O O K AT T H E D E V E L O P M E N T AG E N DA • J O S É A N TO N I O O C A M P O
 CEPAL REVIEW 74 • AUGUST 2001 15

V
Improved social linkages

In economic terms, social progress may be thought of (integration), and policy tools should therefore be
as the result of three basic factors: a long-term social clearly subordinated to the broader principles. Thus,
policy aimed at improving equity and guaranteeing targeting should be seen as an instrument for attaining
inclusion; economic growth that generates high-quality universal coverage of basic services, and certainly not
employment in adequate quantities; and the reduction as a substitute for universality. Equivalency criteria
of the structural heterogeneity of production sectors in should be applied in a way that is not inconsistent with
order to narrow the productivity gaps between different solidarity. Properly managed, such criteria, along with
economic activities and different economic agents. As decentralization and private-sector participation, are
the following section indicates, economic instruments for achieving efficiency.
considerations are obviously not the only criteria to be To enhance equity, social policy should act upon
used in designing social policy. the structural determinants of income distribution:
The World Bank (2001) has formulated three basic education, employment, wealth distribution and
objectives for a poverty-reduction strategy: opportunity, demographic dependence, as well as their gender and
security and empowerment. In a revised formulation, ethnic dimensions. These factors are the key elements
we could argue that equity and inclusion should be in the inter-generational transmission of inequality and
equated with broad access to resources, basic poverty. Breaking these intergenerational links is
protections, voice and participation. Equitable access therefore vital for a successful social strategy. This
to resources is the key to equal opportunity, not only in should be reflected, in particular, in integrated policies
the economic sense, but also in its social, cultural and to assist the poor.
political dimensions. In the specific case of investment Education is a highly important element in
in human capital, this brings out the essential character equitable growth, particularly in the knowledge/
of social spending as a productive investment. Basic information age. But its objectives clearly go beyond
protections are necessary to free people from “negative these “human capital” dimensions: it is also a key factor
risks” (sickness, unemployment and, worst of all, in democratic development and strong citizenship, and
hunger) in order to allow and encourage them to take more broadly, in self-realization. Its effects on equity
“positive risks”, particularly those associated with may have been over-emphasized in recent discussions,
innovation. Protection from “negative risks” is intrinsic however, since in a highly segmented society, education
in high-quality employment. Ensuring that people have is also an instrument of segmentation. This factor has
a voice is essential to guarantee that the interests of the to be taken into serious consideration if education is to
poor are adequately taken into account in decisions that be used to improve equity. Moreover, inadequate high-
affect them. Through participation, poor people become quality job creation will defeat efforts made in the area
central actors in building their own future. In many of education, in terms of both the accumulation of
instances, organized communities have been a basic human capital (at the extreme, it migrates; under more
instrument of social and economic change and thus a usual circumstances, it remains underemployed) and
central element of institution-building. equity (occupational segmentation then multiplies the
To achieve these objectives, social policy should effects of educational segmentation). The link between
be guided by three basic principles: universality, economic growth and social progress is thus particularly
solidarity and efficiency (ECLAC, 2000, chap. 3). This crucial in this regard. In fact, this, in conjunction with
subject has been surrounded by a great deal of confusion the other linkages that are mentioned below, clearly
in recent years, as instruments –targeting, criteria of emphasizes the fact that social policy alone is not
equivalency between contributions and benefits, enough: it must be supported by a sound macroeconomy
decentralization, private-sector participation– rather and active production strategies if it is to bear fruit.
than principles have been guiding social-sector reforms. In the rapidly changing environment that
Moreover, these guiding principles emphasize the fact characterizes modern economies, the adaptability of
that social policy is a basic instrument of social cohesion labour to technical change and the business cycle is

A N E W L O O K AT T H E D E V E L O P M E N T AG E N DA • J O S É A N TO N I O O C A M P O
16 CEPAL REVIEW 74 • AUGUST 2001

increasingly important. The crucial contributing factors be weak and additional tensions will be created in
in this regard are strong labour training schemes; relation to equity.
institutions that enhance cooperation, both at the The links between the modernization of leading
national level (social dialogue) and within firms; economic sectors and the rest of the economy are thus
adequate social protection, both of an ongoing nature crucial, not only for growth but also for equity.
and of the type needed to cope with adverse events; Productive development strategies can play a vital role
and a prudent minimum wage policy. While flexibility in both dimensions. This also underscores the
may be an ingredient, provided it is accompanied by importance of a good distribution of production assets.
greater protection, it is only one of a number of Indeed there is strong evidence that an appropriate
alternative instruments. In this regard, it should be distribution of production assets which generates a
remembered that more flexible labour markets may universe of strong small firms is associated with a better
adversely impact other factors that have positive effects distribution of income (and less concentration of power
on adaptability, particularly labour-business in general). Policies aimed at democratizing access to
cooperation. Most importantly, flexibility should not production assets (capital, technology, training and
be seen as a substitute for adequate macroeconomic land) are thus critical for both growth and equity. Rural
policies. Indeed, in an unstable macroeconomic development policies, as well as those aimed at
environment, or in the presence of slow economic increasing formalization of microenterprises, fall within
growth, job creation will be weak in any case, and this realm. This should be accompanied by a gradual
additional flexibility may lead to a rapid deterioration extension of social security schemes to workers in small
in the quality of employment. Flexibility has, in other firms and to the self-employed.
words, negative externalities (it may undermine jobs The interaction between human capital and high-
that would otherwise be stable) that should not be quality employment and the effects of a better
ignored. distribution of production assets are only two of the
Poor economic growth affects equity in another positive linkages between development and equity.
way that plays a crucial role in developing countries: it There may also be favourable political economy
increases structural heterogeneity. This term, drawn linkages, as well as positive effects through the capital
from the Latin American structuralist school, is market and through the linkages among social cohesion,
preferred to “dualism” because the heterogeneity that investment and productivity. Equity-development
characterizes developing countries and societies cannot linkages were a favourite topic of development literature
be described in terms of a duality between a “modern” in the 1960s. Fortunately, they have now come back to
and a “traditional” sector and because low-productivity the forefront of economic thinking (for a recent survey,
sectors are continually being created and transformed; see Aghion, Caroli and García-Peñalosa, 1999).
only some of the sectors that are on the decline can be Given the crucial linkages between economic and
called traditional. In the absence of strong job creation social development, integrated policy frameworks
in dynamic activities, low-productivity activities should be designed. Such frameworks should explicitly
mushroom. This is what happened in Latin America in take such linkages into consideration, as well as those
the 1990s: the region generated more “world class” existing among social policies (the supportive effects
firms (many of them subsidiaries of multinationals) that of different social policies, which may, in particular,
were able to integrate successfully into the global be channelled through integrated poverty eradication
economy, but its low-productivity activities also programmes) and among economic policies (macro-
increased; in fact, they absorbed 7 out of every 10 new meso connections, particularly to facilitate the
workers during the years of growth preceding the Asian development of dynamic small business sectors). One
crisis (ECLAC, 2000, chap. 1). There is, in fact, no of the weakest links, in this regard, is the lack of
automatic mechanism that guarantees that rapid appropriate institutions for integrated policy
technological innovation in dynamic activities will fuel frameworks. Such institutions should provide for the
swift economic growth: in the absence of adequate active participation of social actors and give a strong
domestic linkages –or if the “destructive” effects of voice to the poor, should be equipped with effective
productive restructuring, and the defensive systems for coordination between economic and social
microeconomic strategies that accompany them, authorities in which social priorities are
predominate– it may simply increase structural “mainstreamed” into economic policy, and should be
heterogeneity. If this happens, the growth effects will guided by rules that facilitate the “visibility” of the

A N E W L O O K AT T H E D E V E L O P M E N T AG E N DA • J O S É A N TO N I O O C A M P O
 CEPAL REVIEW 74 • AUGUST 2001 17

social effects of economic policies. These rules should analyses of distributive effects, stipulate that these
provide for the consideration of such effects by analyses be taken into account by Congress when a
macroeconomic authorities (including central banks) budget proposal is being considered, provide for similar
on a regular basis, require budget proposals to include practices in the case of proposals for tax reforms, etc.

VI
Broader goals

One of the most positive events of the past decade has collective goals and their awareness of the need to
been the full realization that development comprises develop ties of solidarity. This fact drives home how
broader goals (Stiglitz, 1998). The concept of “human important it is to foster those bonds in order to “create
development” or the even more recent concept of society” and to arrive at a more widespread awareness
“development as freedom” (Sen, 1999) give expression of the social responsibilities of individuals and groups.
to this perspective, but it is clearly a long-standing and Either the State or civil society can take the initiative.
deeply-rooted part of development thinking. Its most In this sense, as indicated in the introduction to this
important manifestation is the gradual spread of global paper, “public affairs” should be viewed as the sphere
ideas and values, such as those of human rights, social in which collective interests come together, rather than
development, gender equity, respect for ethnic and as a synonym for State actions. It means, in other words,
cultural diversity, and environmental protection. that all sectors of society need to participate more
Nothing embodies this “globalization of values” more actively in democratic political institutions and that a
than the series of declarations issued by United Nations wide range of mechanisms need to be developed within
summits during the 1990s, including the Millennium civil society itself to strengthen relationships of social
Declaration. These global values, and particularly solidarity and responsibility and, above all, to
human rights in their dual dimension (civil and political consolidate a culture of collective development founded
rights, on the one hand, and economic, social and upon tolerance of differences and a willingness to
cultural rights, on the other), should be regarded as compromise.
constituting the ethical framework for the design of The enormous intellectual challenges and practical
development policy today. tasks that are involved in the recognition of these factors
The implications of this perspective run more should foster a sense of humility. The idea that “we
deeply than current economic thought is willing to already know what must be done” is nothing more than
recognize. The central implication, drawing on a sign of arrogance on the part of the economics
Polanyi’s work (1957), is that the economic system must profession, which has only worsened since the rise to
be subordinated to broader social objectives. An dominance of orthodox development thinking in the
emerging issue in this regard is the need to confront 1980s. Consideration of the unsatisfactory results of
the strong centrifugal forces that characterize private reforms and of the existing level of social discontent
affairs today. Indeed, in many parts of the developing should –and is– leading many experts to rethink the
(and industrialized) world, people are losing their sense development agenda. This is most welcome, but it is at
of belonging to society, their identification with best an incomplete, ongoing process.

Bibliography

Aghion, P., E. Caroli and C. García-Peñalosa (1999): Inequality and Cornia, G.A. (1999): Liberalization, Globalization and Income
economic growth: The perspective of the new growth theories, Distribution, Working papers, No. 157, Helsinki, United
Journal of Economic Literature, vol. 37, No. 1, Nashville, Nations University (UNU )/World Institute for Development
Tennesse, American Economic Association, December. Economic Research (WIDER), March.
Amsden, A. (2001): The Rise of “The Rest”: Challenges to the Eatwell, J. and L. Taylor (2000): Global Finance at Risk: The Case
West from Late Industrializing Countries, New York, Oxford for International Regulation, New York, The New Press.
University Press. ECLAC (Economic Commission for Latin America and the

A N E W L O O K AT T H E D E V E L O P M E N T AG E N DA • J O S É A N TO N I O O C A M P O
18 CEPAL REVIEW 74 • AUGUST 2001

Caribbean) (1951): Theoretical and Practical Problems of (1999): The New Global Economy and the Developing
Economic Growth, Mexico City. Countries: Making Openness Work, Policy Essay, No. 24,
(1990): Changing Production Patterns with Social Equity. Washington, D.C., Overseas Development Council ( ODC).
The Prime Task of Latin American and Caribbean Ros, J. (2000): Development Theory and The Economics of Growth,
Development in the 1990s, LC/G.1601-P, Santiago, Chile. Ann Arbor, The University of Michigan Press, September.
(2000): Equity, Development and Citizenship, LC/G.2071/ Rosenstein-Rodan, P.N. (1943): Problems of industrialization of
Rev.1-P, Santiago, Chile. Eastern and South-Eastern Europe, The Economic Journal,
Ffrench-Davis, R. (1999): Macroeconomía, comercio y finanzas vol. 53, Oxford, U.K., Basil Blackwell, June-September.
para reformar las reformas en América Latina, Santiago, Schumpeter, J. (1961): The Theory of Economic Development,
Chile, McGraw-Hill Interamericana. Oxford, U.K., Oxford University Press.
Helleiner, G.K. (2000): Markets, politics and globalization: Can (1962): Capitalism, Socialism and Democracy, third
the global economy be civilized?, The Tenth Raúl Prebisch edition, New York, Harper Torchbooks.
Lecture, Geneva, UNCTAD, 11 December. Sen, A. (1999): Development as Freedom, New York, Alfred A.
Hirschman, A.O. (1961): La estrategia del desarrollo económico, Knopf.
Mexico City, Fondo de Cultura Económica (FCE). Stiglitz, J.A. (1998): More Instruments and Broader Goals: Moving
Katz, J. (1976): Importación de tecnología, aprendizaje e Toward the Post-Washington Consensus, WIDER annual
industrialización dependiente, Mexico City, FCE . lectures, No. 2, Helsinki, UNU, WIDER , January.
Kaul, I., I. Grunberg and M.A. Stern (comps.) (1999): Global Public Sunkel, O. (ed.) (1993): Development from Within. Toward a
Goods. International Cooperation in the 21st Century, New Neostructuralist Approach for Latin America, Boulder,
York, United Nations Development Programme ( UNDP)/ Colorado, Lynne Rienner Publishers.
Oxford University Press. Taylor, L. (1991): Income Distribution, Inflation and Growth,
Ocampo, J.A. (2000): Developing Countries’ Anti-Cyclical Policies Cambridge, Massachusetts, The MIT Press.
in a Globalized World, Temas de coyuntura, No. 13, Santiago, UNCTAD (United Nations Conference on Trade and Development)
Chile, ECLAC, October. (1999): Trade and Development Report 1999, Geneva.
(2001): Recasting the international financial agenda, in UNDP (United Nations Development Programme) (1999): Human
J. Eatwell and L. Taylor (comps.), External Liberalization, Development Report 1999, New York.
Economic Performance, and Social Policy, New York, Oxford United Nations (2000): United Nations Millennium Declaration,
University Press, in the press. New York, Millennium Summit 2000, 6-8 December.
Ocampo, J.A. and L. Taylor (1998): Trade liberalisation in Williamson, J. (1997): The Washington Consensus revisited, in L.
developing economies: Modest benefits but problems with Emmerij (comp.), Economic and Social Development into the
productivity growth, macro prices, and income distribution, XXI Century, Washington, D.C., Inter-American Development
The Economic Journal, vol. 108, No. 450, Oxford, U.K., Basil Bank (IDB)/The Johns Hopkins University Press.
Blackwell, September. World Bank (2001): World Development Report 2000/2001.
Polanyi, K. (1957): The Great Transformation: the Political and Attacking Poverty, Washington, D.C.
Economic Origins of Our Time, Boston, Beacon Press.
Rodrik, D. (1997): Has Globalization Gone Too Far?, Washington,
D.C., Institute for International Economics (IIE).

A N E W L O O K AT T H E D E V E L O P M E N T AG E N DA • J O S É A N TO N I O O C A M P O