Unctad puts interventionist plan

DIANE COYLE

Economics Correspondent

The United Nations Conference on Trade and Development calls for lower interest rates, a one-off wealth tax to eliminate budget deficits and a transactions tax in the foreign exchange markets in its annual trade and development report published today.

These interventionist prescriptions to tackle world unemployment, made by one of the few international economic organisations in which developing countries have a strong voice, are based on the conclusion that weak demand has been the principal culprit. The advice will be rejected out of hand by developed countries.

Yet the report offers a powerful analysis of the problem of mass unemployment in the industrial world, rejecting the increasingly popular notion that cheap Third World imports are to blame. The volume of imports from the Third World to the industrialised OECD countries has grown 12 per cent a year for the past 20 years but still amounts to less than 2 per cent of developed countries' GDP. Their share of total OECD imports of manufactures has trebled during the same period, but is still only 15 per cent.

However, the Unctad report points out that the OECD countries have had a consistent trade surplus. It started to shrink during the 1980s - too little, too late to account for the majority of job losses in the industrial countries.

It argues that competition from industrialising countries cannot by itself explain rising unemployment. The developed world absorbed competition from economies such as Japan and Italy during the 1960s and had to import migrant workers because of the labour shortages created by exporting in turn to booming new markets.

A more sophisticated version of blaming the Third World links technological change and trade. OECD countries have increased their high-technology exports but have become net importers of low-skill manufactures such as textiles and steel from developing countries. This ties in with the higher rate of unemployment among unskilled workers. The biggest job losses - more than 5.2 million jobs in 1970-93, or two-thirds of the total lost in manufacturing - occurred in textiles and clothing and ferrous metals.

The trade and development report presents figures showing that more than half of the increase in Third World exports to the OECD came from just four countries: Hong Kong, Korea, Singapore and Taiwan. Their trade surpluses have grown; but the other industrialising countries still import more from the OECD than they export.

What is more, the type of exports from the four Asian countries have steadily upgraded from low-skill to high-tech.

The report concludes that the successful exporters among the newly industrialising countries are becoming like the OECD economies - just as Japan did before them. They are exporting high-skill goods, not just basic industrial products.

The report argues that the reason the developed countries have been unable to adjust to the process of industrial decline and renewal, creating jobs in new industries as they are lost in old ones, lies in the lack of sufficient demand.