Laying the foundations for future progress

Bernardo Kosacoff

As the global economic crisis deepens, the world is becoming increasingly uncertain. Now is the time to construct a shared public-private vision for development and progress. The key challenge is how to build a solid institutional framework for a stable economy. As the current crisis demonstrates, volatility and economic cycles can be extremely damaging. And the maintenance of external, fiscal and financial equilibriums is crucial for economic stability. At the same time, it is important to promote the development of competitive advantages and greater social cohesion through the equality of opportunity. This can only be achieved through a solid macroeconomic framework. To build this framework, progressive leaders should take the following steps:

Institute financial regulation
Financial liberalisation must be accompanied by appropriate regulation and prudent oversight, aimed at avoiding boom-and-bust cycles and the inadequate distribution of resources. Profits tend to increase confidence and financial agents are likely to make increasingly risky and less considered decisions and investments, which involve a greater proportion of debt to capital. This leads to excessive levels of debt and inadequate resource allocation that prioritises consumption over investment in productive social capital. Ultimately, this results in scarce capitalisation of financial entities leading to bankruptcies of debtors and financial intermediaries. The construction of an international financial architecture, which regulates and guarantees financing for both developed and developing countries is a key way out of the current crisis.

Aim to diversify exports
Patterns of specialisation determine the sustainability of an economy. While export growth can play an important role in development, it is not sustainable when this growth is based only on resources and raw materials. Adding value to raw materials and previously installed productive capital through processes of innovation is essential. This involves the generation of domestic technological capacity, constant training of human resources, encouraging entrepreneurial spirit, and a collective effort to build knowledge and productive capacity networks.

Ensure that TNCs contribute to the domestic economy
Transnational corporations have a significant role to play in development, but their mere presence does not guarantee this role. Clear incentives and rules of the game are required.  Regulation and incentives should promote greater inclusion in global value chains and the generation of domestic knowledge and production capacities. At the same time, economic integration processes must be strengthened. Coordination mechanisms that deal with the crisis and strengthen complementary production processes are required.

Strengthen policies for equitable and sustainable development The provision of public goods should guarantee equality of opportunity and help build sustainable development capacities. The path for reverting poverty and exclusion lies in moving forward on processes of structural change. This will generate greater wealth, which will be beneficial for all through progressive distribution policies. The strengthening of equitable and sustainable public policies, including transparency and social evaluation, is indispensable for achieving equity, strengthening businesses and creating competitive markets. All public actions and strategies need to be evaluated on the basis of their contributions towards social cohesion, respect for rights, and care for the environment.

Bernardo Kosacoff is director of the Buenos Aires office of the Economic Comisión for Latin America and the Carribbean