Because of its unconventional and critical analysis of burning issues in the World economy, UNCTAD`s major Annual Report on Trade and Development has in the past triggered lively interest on the part of activists, academics and policy-makers worldwide. This year UNCTAD`s Trade and Development Report, 1995 focuses on unemployment in OECD countries and industrial financial turbulence, two highly topical and important problems.

The world economy has been losing steam in 1995. This year, growth in Latin America as a whole will fall from 3.7 per cent to 2 per cent which is nearer to Africa`s rate. The developed market economies will also slow down. At the same time, the commodity prices will on the whole be considerably below their 1994 levels, says the report.

The main reason for this slow down is not the lack of transparency, information shortfalls or the vagaries of policy making. This approach, the report argues, reflects a lack of understanding of how speculative bubbles build up and investors can take very high risk`s in return for quick, windfall profits and capital gains.

UNCTAD, which had predicted this reversal in past issues of the Trade and Development Report, say the basic problem was that capital flows to most Latin American countries were drown in not by high rates of investment, but by massive privatization programmes and opportunities to earn high rates of interest with little or no exchange rate risk. The Funds were mostly used to finance a boom in consumer spending and elite consumption rather than investment in machinery and equipment. For these reasons, and because of substantial reductions of tariffs and other import barriers, Latin America`s trade balance underwent massive swing - from a surplus of $27 billion in 1990 to a deficit of about $19 billion in 1994.

The report argues that the boom - and - bust could have been avoided if the countries concerned had acted early to prevent excessive inflows of easily - reversible liquid funds by regulating capital movements. Such an approach was refuted because of a general complacency towards deficits. The notion that these are invariably benign, says UNCTAD, should have been dispelled 6y Chile`s crisis in the early 1980`s, but was transformed into a doctrine in the United Kingdom, and then re-exported to Latin America as an article of faith. The conclusion, still denied in many quarters. is that the crisis stemmed from the economic strategy itself(which had received the blessing of the international community), rather than from a slippage.

The report says that unemployment is now a veritable scourge in the developed market economies. Open unemployment has risen sharply in the OECD countries, from an average of 3.2 per cent of the labour force in 1960-1973 to 7.3 per cent in 1980-1994. Last year, 34 million people were out of work.

It also says that the problem is not only one of the vast numbers involved. The quality of the new jobs created has on the whole been poor. In the United States, for instance, employment has grown significantly faster than in most other industrial countries, but most of the new jobs created are low-paid. As a result, a large part of the labour force has been suffering from stagnant or even declining rates of pay, and has failed to share in the growth of national income.

The official debt of low-income debtor countries and some middle-income countries has continued to cause concern. The report warns that for the heavily indebted low-income countries, there is a situation of debt crisis. It explains that after the initiatives taken by bilateral official creditors, the debt problem has now shifted to that of outstanding debt owed to multilateral financial institutions. With few exception, a decade of adjustment policies supported by international monetary institutions has not sufficed to halt or reverse the economic stagnation of these countries and increase their capacity to service external debt. Thus, the report suggests that the problem of multilateral debt of these countries is serious enough to warrant receiving priority attention on the international agenda.

There are other problems as well. According to the report, access to major categories of financing from international financial markets continued to be concentrated in 1994 on a relatively small group of developing countries and economies in transition. Thus, for example, three Latin American countries (Argentina, Brazil and Mexico) were recipients of approximately 40% of sums raised in the form of external bond issues by countries and territories other than certain major offshore financial centres. A similar proportion went to five countries of South and South-East Asia (China, Indonesia, Republic of Korea, Taiwan province of China and Thailand).

The report warns,` A number of countries of South and South-East Asia`,……have increasingly been integrated into the global system of financial markets and in consequence can raise money relatively easily. However, the spill - over effects of the Mexican crisis served as a reminder of the continuing vulnerability of their financial markets to the actions of speculative international investors still inclined to lump them with emerging markets elsewhere in the developing world. These spill - over effects were evident in downward pressures on share prices and on exchange rates…

The report state that a number of Latin American economies, including the largest three Argentina, Brazil and Mexico- now face another round of severe crisis and adjustment. Not only this, their future is also bleak. It may be impossible to avoid a major reduction in domestic absorption and imports, since the capacity to export has not been sufficiently enlarged in the recent past. Besides, private saving rates have tended to decline. The report cautions that the simultaneous loss of capital inflows and of growth momentum will make the reconciliation of the income claims of different social groups more problematic. The maintenance of fiscal balance will also be rendered more difficult. The need for import cuts by several major economies simultaneously will involve a loss of external markets for all countries in the region. Equally, their push for foreign markets may impose great strains on trade and other relations.

Despite growing support for globalization, liberalization, and outward oriented development in the industrialized countries, joblessness is increasingly blamed on imports of manufactured products from the south. The solutions proposed range from raising import barriers (`protectionism`), to imposing higher labour standards on southern producers (`social clause`), to lowering labour standards in the North (`flexible labour markets`).

But this issue of the UNCTAD report takes an altogether different view. It traces the root of the problem to the slow pace at which demand, output and investment in the industrialized countries have been expanding over the last two decades. It says,` ..Even if labour is made less costly to employers and more skilled, business will invest on the scale required to provide more and better jobs only if it is confident of buoyant sales. But no country can expand demand on its own for long --- we therefore see the remedy in international cooperation to accelerate world economic growth. Such a strategy would mean `all- boats - afloat`.----By contrast a strategy of `adjusting unemployment by pitting worker against worker in the arena of competitive labour markets would exacerbate conflicts among social classes a1;ld no less, among nations. Turning labour back into just another commodity is not a viable recipe for advancing towards an open world economy `

The report argues that there can be little doubt that unskilled labour has been displaced on a significant level in a number of industries, including clothing and footwear, in which developing countries have succeeded in increasing their market share. None the less, the growth of North-South trade does not provide a convincing explanation of the unemployment problem as a whole, because;

According to the report, these considerations suggest that while the greatly increased volume of manufactured imports from developing countries has indeed caused significant job losses in certain industries, the explanation for the sharp rise in mass structural unemployment lies elsewhere. The same point applies regarding redundancies resulting from the introduction of new technology - a factor which many analysts view as more important than imports from developing countries. The report aptly asks, `The real question in both cases is, why it has been so difficult for the labour displaced to be redeployed at remunerative wages elsewhere in the economy?`

In this situation, some view that the key to resolving the unemployment problem lies in deregulating the labour market and reducing the Welfare State. But UNCTAD report states that labour market flexibility is no solution, even in theory, to the problem of insufficiency in the number of good jobs. They argue, `Rather, flexibility has proved to be an effective way to transform open unemployment into disguised unemployment, i.e. take people off the dole into low-paying, low productivity occupations, for instance, in services; This is evident from the experiences of the United Kingdom, where the labour market reforms of the 1980`s have made it more akin to the United States than other Western European countries. On one estimate, some 80 per cent of the jobs created in that country between 1979 and 1989 were low productivity and low-pay; for the United States, the figure has been put at 50 per cent.

Thus the report concludes that in any event, raising southern labour costs would not go far towards saving northern labour-intensive industries. Since productivity differentials are much narrower than wage differentials, -it would worsen the terms of trade and reduce incomes in the North. Besides, the real wages of unskilled workers would fall as import prices rose. At the same time, higher labour costs would reduce employment, output and exports in the south. Poorer countries that face difficulties in exporting would be hit hardest.

The discussions in the various chapters of UNCT AD report point to the need to attack unemployment on various fronts. But its emphasis is very clear. They concludes, `it would be unrealistic to expect the international trading system to evolve in the right direction, notwithstanding the Uruguay Round, unless the twin problems of unemployment and low wages in the developed market economies are tackled by increasing the prosperity of all. It is to be hoped that the international cooperation needed to obtain such an outcome will be forthcoming despite the end of the Cold War - and that international behaviour will not revert to the pattern of competition and conflict characteristic of the 1930`s`.