Figuring out our financial flops

Credit crunch, financial crash, recession – whatever you choose to call it – the economic crisis that began in 2008 set in motion a troubling chain of events. In times of economic hardship, more and more people are choosing to tend their own gardens - literally.

Hardships faced today by many working women and men, families and communities are linked to the declining number of good jobs, dwindling incomes and the soaring cost of living. Many families are existing in a state of almost constant financial stress. Way too many parents are spending way too many sleepless nights wondering how in the world they will be able to keep their heads above water for another month.

The International Labour Organization estimates that since the beginning of the crisis the global jobs gap has increased by 67 million. In spite of positive employment gains over the past years, global unemployment is still high and expected to approach 208 million people by 2015 and 214 million people by 2018.

So the question remains : what can be done to bolster the economy ? With half a decade’s hindsight, it is clear that more creative solutions must be devised. That’s exactly what many economists, and export specialists are telling the world to do – high calibres such as John Wilson and Khemraj Ramful. According to them, one solution could be the expanded use of International Standards in order to help boost economic growth through trade.

International trade 101

John Wilson, a Lead Economist in the International Trade group of the Development Research Group at the World Bank, has underlined that the global economy, though growing, remains fragile, underscoring the need to continue efforts to promote growth, lower the costs of doing business, and ensure a conducive business environment. “ There is a role here, I believe, for the contributions of regulatory reform, harmonization of standards to international ones, and other steps that can help expand trade – and support economic growth.”

Wilson says that research shows that global standards can boost commerce by lowering trade costs, facilitating integration into global value chains, and opening up new foreign markets to businesses. In particular, World Bank trade research shows that trade in the ICT sector, which is a critical contributor to the new global economy, benefits substantially from standards harmonization.¹ This, he suggests, can help create the jobs we so badly need, encourage innovation and improve productivity, which in turn will combat poverty and lead to higher standards of living for all.

Companies are still unprepared (or unwilling) to participate in standards.
We must also be careful, warns Wilson, to ensure that developing countries and small and medium-sized enterprises (SMEs) are able to share in these opportunities and are not excluded due to the fixed costs associated with adapting to necessary process and production methods.When asked what he sees as the answer, the economist famous for his standards work quickly answered : “ the global standards initiative ”.

The Lead Economist points out that reinvigorating global trade can be a major catalyst for sustainable growth. But as growth continues, Wilson explains, and global tariffs continue to decline, non-tariff measures, such as standards and technical regulations, are becoming increasingly important – especially with the increasing importance of global supply chains.

In fact, Wilson’s research points to the significant potential benefits to global trade from addressing non-tariff measures. In one study, he found that by improving trade facilitation, through customs modernization and tighter trade regulatory environments, global trade would increase by USD 377 billion.² Harmonization of standards is one important way to reduce trade costs, improve supply chain efficiency, and encourage inclusive, sustainable economic growth.

Don’t underestimate SMEs

Wilson’s economic outlook is matched by export specialist Khemraj Ramful, Senior Adviser, Export Quality Management, at the International Trade Centre. Ramful remarks that SMEs are essential in poverty reduction programmes because of their potential contribution to economic growth.

By facilitating their access to information on technical regulations and standards, assisting them with meeting the requirements of International Standards and paving the way to competent conformity assessment services, we can help SMEs thrive in an increasingly competitive global market so that they can play their part in alleviating poverty.

Ramful also believes that confidence among business partners is still lacking, and that standards are the next solution.“ ISO International Standards have a definite role to play in the removal of technical barriers to trade and in assisting enterprises in developing economies that connect to global value chains. Implementing International Standards can help provide that confidence.

“ For the man on the street, this means that ISO International Standards can contribute to improving exports, which would have an impact on job creation and poverty alleviation in developing economies.”

Participation pays off

Global unemployment Source : ILO

Where Wilson and Ramful see our collective action toward recovery and sustained growth as encouraging, Europe’s most prominent academician working in the field of standardization, Knut Blind, still foresees one fundamental challenge. In a recent interview to talk about his research groups in Berlin, Germany, ³ Blind says that it is still not easy to convince companies to participate in standardization and send people to the committees.

Although Blind recently presented findings which show that companies’ spending on research and development (R&D) correlates positively with their inclination to engage in standardization activities, many companies still give priority to performing their own R&D and protecting their results by patents instead of exploiting the possible synergies through an involvement in standardization.

These conclusions, that some companies are still unprepared (or unwilling) to participate in standards, come as a wake-up call for International Standards organizations such as ISO. While it is clearly worthwhile for most companies or whole economies to invest in standardization, many of those that should be participating are not. This highlights the fact that we (and by that I mean the International Standards community) need to further invest in company outreach efforts to convince CEOs, especially in small and medium-sized companies, about the value of engaging in standardization.

Failure to actively participate in the development (and use) of International Standards will prompt a fragmentation of production and a marginalization of the weakest (SMEs and developing countries alike) and likely lead to a reduced growth in the global economy. Isn’t it time we all took action ?

1) Portugal-Perez, A., Reyes, J. and Wilson, J.S. (2009), “ Beyond the Information Technology Agreement : Harmonization of Standards and Trade in Electronics ”. World Bank Policy Research Working Paper 4916. The World Bank Group.

2) Wilson, J.S., Mann, C.L. and Otsuki, T. (2005), “ Assessing the Benefits of Trade Facilitation : A Global Perspective ”. World Economy, 28:841-871.

3) Prof. Blind’s research groups are located at the Chair of Standardisation at the Erasmus University, the Chair of Innovation Economics at the Technical University of Berlin and the Fraunhofer Institute for Open Communication Systems.

Article & Image Credits: ISOorg