It’s about capabilities, not products

By Annemarie van de Vijsel

In the opening lecture of the 14th General Conference of the European Association of Development Research and Training Institutes (EADI), Professor of International Development at the UK’s Open University Raphael Kaplinsky addressed the challenges of achieving economic inclusiveness.

Kaplinsky admitted that participating in the global economy certainly brings benefits to countries, as the division of labour increases productivity and trade in comparative advantages provides the potential for mutual gain. But, as he already suggested at the start of his lecture, that is not always the case. Not all countries are able to make good use of these opportunities.

In his lecture opening the 14th EADI General Conference in Bonn, Germany, Kaplinsky explained that everything depends on whether a firm has the capacity to generate appropriate rents – either directly during the production process or in economic activities related to the process – and to protect them. Those that can will benefit from participation in the global economy, while those that cannot will be even worse off. They will face a race to the bottom and a fall in income for their employees. Even growth rates can be worse than before.

The more a company’s economic performance depends on global value chains, the more it faces the threat of becoming involved in a competition that leads to relatively low rents in the production sphere. Local companies have less negotiating power to set prices, with the consequence that they will be squeezed by higher demands from larger companies in the value chain, especially to produce more for less. The big question is how can this change? How can global value chains stimulate responsible development?

To answer this question, it is important to understand global value chains better. Today, according to Kaplinsky, more than two-thirds of global trade takes place in these global chains – in international trade in unfinished products, facilitated by direct investments. Therefore, as the title of his lecture suggested, it is ‘not whether, but rather how to participate in the global economy’.

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Annemarie van de Vijsel works at The Broker as a research editor on Employment and Social Entrepreneurship. She also works as a freelance journalist and photographer.