Is globalisation shrinking space for Third World development?
Saturday, 24 November 2007
Hasan Mahmud
THE historical contour of the development discourse posits that during the great depression of the 1930s in the US, Keynesianism emerged as the dominant economic policy. With its success in the US, it was applied to the reconstruction of the post-war European economy through the Marshall Plan. Thus, state intervention by means of real investment (in new factories, tools, machines, inventories of goods, etc.) was taken as necessary in order to achieve full employment and to generate ways out of the stagnation and depression in the capitalist economy, and this has become orthodoxy in the field of development.
However, the Cold War, decolonisation, and competition for the commitment of the Third World countries to either capitalism or socialism led the US and its European allies to bring the economic development project to the underdeveloped Third World countries in Latin America, Africa and Asia. Thus, Keynesianism became the foundation of the global theory of growth with industrialisation as the means to reach the goal of development.
While Keynesianism fulfilled its promise to end mass unemployment in the West, the same policy in the developing world has failed to achieve the goal because of the inappropriate adoption and implementation. However, the worldwide debt crisis together with some political development in the dominant West, has generated strong belief in neo-liberal ideology, which gives the state a very limited role to play.
In the face of globalisation, the role of the nation state has been declining, and giving way to the development of the new international division of labour (NIDL). There are three distinct preconditions for this to occur: first, the existence of huge armies of cheap and exhaustible labour in the developing countries that are docile and easily exploited by overwork (viz poor, women, children, immigrants, ethnic minorities); secondly, the unprecedented division and subdivision of labour that facilitates manufacturing operations with nominal training that can be learned in a very short time; and thirdly, the phenomenal development of transport and communication that has created the possibility for producing goods partially or completely at any site in the world.
Focusing on the textile and garments industries, a dramatic decline of this industry has been observed in the developed countries and a corresponding export-oriented industrialisation in the developing countries through relocation. This process has enhanced production rationalisation by cutting costs and any company that wishes to survive is compelled to follow this fashion. Consequently, in the developed countries, workers are consistently losing jobs and the state's tax revenues have been shrinking.
On the other hand, in developing countries, workers are being hired under terms that favour industrialists and states have to ensure protection of the private industry through priority taxation and other benefits, and by keeping the labour force under repression (low salary, limited job-related training and compensatory packages, etc.) and ensuring the openness of markets. Therefore, it is concluded that the reduction of unemployment, training of skilled personnel, access to modern technology, and increase in foreign currency -- in a word "development" -- is not attainable through new industrialisation in the developing world.
There are some who argue that private capital has completely overpowered the state and workers in three ways: first, the appropriation by capital of a significantly higher share of surplus from the production process; secondly, a substantial change in the pattern of state intervention, with the emphasis shifting from political legitimacy and social redistribution to political domination and capital accumulation; and lastly, the accelerated internationalisation of all economic processes, to increase profitability and to open markets through the expansion of the system.
The main visible characteristics of this system by which private capital acquires the lion's share of profit are extremely high productivity of technology, lower wages, reduced welfare and safety standards at work, dramatic expansion of the informal economy, growing participation of women, children, immigrants and those most vulnerable both in society and market and a weakening of trade unions.
The state's new role is visible in the relaxation of social and environmental control in the work place, shrinkage of the public sector through privatisation, repressive tax reform favouring the large corporations and upper-income groups, support in high technology R&D, stimulation of high technology-based defense sector and reinforcing military power, shrinkage of welfare in favour of the powerful groups, and tight monetary policy. The process of internationalisation connects every local market into the global economic order. This increases differentiation among societies vertically while homogenising markets horizontally.
For those who view development as the maximisation of national welfare via technological advances in industry and agriculture, development was a political strategy of the post-war era to stimulate nationally managed economic growth. The world debt crisis has dismantled the development discourse and a new principle of "globalisation" has become instituted as an alternative with the underlying message that nation-states no longer develop. Instead, transnational companies (TNCs) and multinational corporations (MNCs) play the role of stimulating economic activities in the free market economic system.
The most striking feature of globalisation is that the reach of economic globalisation is extremely limited in terms of its beneficiaries, but has a profound impact for the whole population. The beneficiaries are the handful of transnational capitalists who move back and forth over the globe in search of the most favourable conditions for management, production and control of their financial operations so as to secure maximum profit. As such, Joseph Stiglitz argues that trade liberalisation, contrary to the aim of moving workers from low-productivity jobs to high-productivity ones, moves them from low-productivity jobs to unemployment. According to Stiglitz, this is due to the undemocratic management of globalisation by the leading officials of such organisations as the WTO, WB and IMF which lack accountability and which respond only to the interests of the global elite.
Global financial organisations (WB, IMF, etc.) protect the interests of the developed nations while squeezing the space for development for the developing nations through multilateral and bilateral agreements between the developed and developing nations. For example, taken together, the three international agreements -- TRIMS, TRIPS and GATS -- greatly limit the right of states to carry out policies that favour the technological upgrading and growth of domestic farms and industries. Therefore, Arrighi and his associates declare that industrialisation has become redundant as the means towards development. They argue that opportunities for economic advancement by industrialisation are not equivalent for all countries all the time.
According to the product cycle model, those with innovations in the market place receive spectacular prize of their product due to the fact of less competition. However, that particular innovation becomes ordinary with time and the return diminishes gradually for the latecomers. Thus, the countries that develop it first get the "spectacular prize" and the followers get proportionately smaller shares and sometimes even lose. The developing countries tend to overrate their chances of winning the "spectacular prize" that the developed countries got through industrialisation, and correspondingly, tend to underrate their chances of becoming the losers.
The apparent failure of development through earlier industrialisation approach to development has led to the rise of the neo-liberal doctrine of free market and trade liberalisation that holds that market mechanisms will generate growth and that the economic and financial equilibrium will usher "trickle down" that growth to the entire population including the poor leading to development. However, the evidence shows that, while it is essential for a country to achieve economic stability and financial equilibrium and to increase its competitiveness and GNP, this does not trickle down.
On the contrary, it is perfectly possible for indicators to improve, while the situations of the most disadvantaged sectors continue to deteriorate. Quantitative data analysis also finds no correlation between per capita GDP growth and macroeconomic stability, openness or government size. Even if some growth is attained, it is often accompanied by unemployment, marginalisation, lack of participation, weakening of national culture or environmental degradation, thereby rendering that growth fruitless.
This explains why most of the Third World countries have failed to eliminate poverty while the world as a whole has experienced GDP growth. This trend is also true within the context of a particular country where GDP growth does not improve economic inequality, such as Bangladesh which, except for per capita income, has experienced the most improvement in terms of human development indicators among all South Asian countries.
The discussion above shows that neither industrialisation nor neo-liberal macro-economic policy offers opportunities for increasing income for people in the developing countries, especially the lower two-thirds of the population. This necessitates the search for an alternative approach to reach the goal of improving the lots of the poor within the existing economic context of developing countries like Bangladesh.
The writer is a Monbusho Scholar in the Global Studies Programme, Sophia University, Japan. He may be reached at 'mahmud735@gmail.com'
THE historical contour of the development discourse posits that during the great depression of the 1930s in the US, Keynesianism emerged as the dominant economic policy. With its success in the US, it was applied to the reconstruction of the post-war European economy through the Marshall Plan. Thus, state intervention by means of real investment (in new factories, tools, machines, inventories of goods, etc.) was taken as necessary in order to achieve full employment and to generate ways out of the stagnation and depression in the capitalist economy, and this has become orthodoxy in the field of development.
However, the Cold War, decolonisation, and competition for the commitment of the Third World countries to either capitalism or socialism led the US and its European allies to bring the economic development project to the underdeveloped Third World countries in Latin America, Africa and Asia. Thus, Keynesianism became the foundation of the global theory of growth with industrialisation as the means to reach the goal of development.
While Keynesianism fulfilled its promise to end mass unemployment in the West, the same policy in the developing world has failed to achieve the goal because of the inappropriate adoption and implementation. However, the worldwide debt crisis together with some political development in the dominant West, has generated strong belief in neo-liberal ideology, which gives the state a very limited role to play.
In the face of globalisation, the role of the nation state has been declining, and giving way to the development of the new international division of labour (NIDL). There are three distinct preconditions for this to occur: first, the existence of huge armies of cheap and exhaustible labour in the developing countries that are docile and easily exploited by overwork (viz poor, women, children, immigrants, ethnic minorities); secondly, the unprecedented division and subdivision of labour that facilitates manufacturing operations with nominal training that can be learned in a very short time; and thirdly, the phenomenal development of transport and communication that has created the possibility for producing goods partially or completely at any site in the world.
Focusing on the textile and garments industries, a dramatic decline of this industry has been observed in the developed countries and a corresponding export-oriented industrialisation in the developing countries through relocation. This process has enhanced production rationalisation by cutting costs and any company that wishes to survive is compelled to follow this fashion. Consequently, in the developed countries, workers are consistently losing jobs and the state's tax revenues have been shrinking.
On the other hand, in developing countries, workers are being hired under terms that favour industrialists and states have to ensure protection of the private industry through priority taxation and other benefits, and by keeping the labour force under repression (low salary, limited job-related training and compensatory packages, etc.) and ensuring the openness of markets. Therefore, it is concluded that the reduction of unemployment, training of skilled personnel, access to modern technology, and increase in foreign currency -- in a word "development" -- is not attainable through new industrialisation in the developing world.
There are some who argue that private capital has completely overpowered the state and workers in three ways: first, the appropriation by capital of a significantly higher share of surplus from the production process; secondly, a substantial change in the pattern of state intervention, with the emphasis shifting from political legitimacy and social redistribution to political domination and capital accumulation; and lastly, the accelerated internationalisation of all economic processes, to increase profitability and to open markets through the expansion of the system.
The main visible characteristics of this system by which private capital acquires the lion's share of profit are extremely high productivity of technology, lower wages, reduced welfare and safety standards at work, dramatic expansion of the informal economy, growing participation of women, children, immigrants and those most vulnerable both in society and market and a weakening of trade unions.
The state's new role is visible in the relaxation of social and environmental control in the work place, shrinkage of the public sector through privatisation, repressive tax reform favouring the large corporations and upper-income groups, support in high technology R&D, stimulation of high technology-based defense sector and reinforcing military power, shrinkage of welfare in favour of the powerful groups, and tight monetary policy. The process of internationalisation connects every local market into the global economic order. This increases differentiation among societies vertically while homogenising markets horizontally.
For those who view development as the maximisation of national welfare via technological advances in industry and agriculture, development was a political strategy of the post-war era to stimulate nationally managed economic growth. The world debt crisis has dismantled the development discourse and a new principle of "globalisation" has become instituted as an alternative with the underlying message that nation-states no longer develop. Instead, transnational companies (TNCs) and multinational corporations (MNCs) play the role of stimulating economic activities in the free market economic system.
The most striking feature of globalisation is that the reach of economic globalisation is extremely limited in terms of its beneficiaries, but has a profound impact for the whole population. The beneficiaries are the handful of transnational capitalists who move back and forth over the globe in search of the most favourable conditions for management, production and control of their financial operations so as to secure maximum profit. As such, Joseph Stiglitz argues that trade liberalisation, contrary to the aim of moving workers from low-productivity jobs to high-productivity ones, moves them from low-productivity jobs to unemployment. According to Stiglitz, this is due to the undemocratic management of globalisation by the leading officials of such organisations as the WTO, WB and IMF which lack accountability and which respond only to the interests of the global elite.
Global financial organisations (WB, IMF, etc.) protect the interests of the developed nations while squeezing the space for development for the developing nations through multilateral and bilateral agreements between the developed and developing nations. For example, taken together, the three international agreements -- TRIMS, TRIPS and GATS -- greatly limit the right of states to carry out policies that favour the technological upgrading and growth of domestic farms and industries. Therefore, Arrighi and his associates declare that industrialisation has become redundant as the means towards development. They argue that opportunities for economic advancement by industrialisation are not equivalent for all countries all the time.
According to the product cycle model, those with innovations in the market place receive spectacular prize of their product due to the fact of less competition. However, that particular innovation becomes ordinary with time and the return diminishes gradually for the latecomers. Thus, the countries that develop it first get the "spectacular prize" and the followers get proportionately smaller shares and sometimes even lose. The developing countries tend to overrate their chances of winning the "spectacular prize" that the developed countries got through industrialisation, and correspondingly, tend to underrate their chances of becoming the losers.
The apparent failure of development through earlier industrialisation approach to development has led to the rise of the neo-liberal doctrine of free market and trade liberalisation that holds that market mechanisms will generate growth and that the economic and financial equilibrium will usher "trickle down" that growth to the entire population including the poor leading to development. However, the evidence shows that, while it is essential for a country to achieve economic stability and financial equilibrium and to increase its competitiveness and GNP, this does not trickle down.
On the contrary, it is perfectly possible for indicators to improve, while the situations of the most disadvantaged sectors continue to deteriorate. Quantitative data analysis also finds no correlation between per capita GDP growth and macroeconomic stability, openness or government size. Even if some growth is attained, it is often accompanied by unemployment, marginalisation, lack of participation, weakening of national culture or environmental degradation, thereby rendering that growth fruitless.
This explains why most of the Third World countries have failed to eliminate poverty while the world as a whole has experienced GDP growth. This trend is also true within the context of a particular country where GDP growth does not improve economic inequality, such as Bangladesh which, except for per capita income, has experienced the most improvement in terms of human development indicators among all South Asian countries.
The discussion above shows that neither industrialisation nor neo-liberal macro-economic policy offers opportunities for increasing income for people in the developing countries, especially the lower two-thirds of the population. This necessitates the search for an alternative approach to reach the goal of improving the lots of the poor within the existing economic context of developing countries like Bangladesh.
The writer is a Monbusho Scholar in the Global Studies Programme, Sophia University, Japan. He may be reached at 'mahmud735@gmail.com'