Globalization and Its Contradictions

Globalization and Its Contradictions

Democracy and Development in the Sub-Continent

http://www.bisa.ac.uk/2006/pps/thadani.pdf

Veena Thadani

New York University

Paper Presented at the British International Studies Conference

University College Cork

December 2006

The implications of globalization for development and democracy are the subject of

much contention. It has been said of globalization that it is a "buzz" word that has no

precise definition. It takes on many meanings, drawing both fervent support and

opposition (Cooper 2004).

The advocates of globalization claim that it has contributed to a period of sustained

economic growth and development, spreading the benefits of prosperity and welfare

around the world, including in some of the most impoverished regions of the third world.

Jagdish Bhagwati, for example, in his recent book In Defense of Globalization focuses on

the economic dimensions of globalization and concludes that its effects are

unambiguously beneficial and that the poorest regions of the world need more

globalization rather than less.

The critics of globalization, by contrast, point to the "globalizing juggernaut" as the

source of increasing impoverishment produced by the unfavorable conditions imposed on

third world countries by global financial institutions and by predatory corporations that

undercut labor, lower wages, promote child labor, and imperil democracy. Thus Joseph

Stiglitz, in his recent book Globalization and its Discontents portrays the devastating

effects of globalization on some of the poorest and least developed countries of the

world.

It is these issues of the effects of globalization on development and democracy that are

examined in this paper in the context of the Indian subcontinent. The question to be

addressed is whether globalization, in its current framework of neo-liberal principles,

with the emphasis on free markets, free trade, and the free flow of capital advances or

endangers the cause of development and democracy. Adopting definitions that are

admittedly selective, given the diversity of interpretations of the terms 'globalization',

'development', 'democracy', the discussion centers on the broader conceptions of

development as human development and of democracy, in its substantive rather than

procedural aspects, as the economic empowerment of the majority, the disenfranchised

poor.

Defining globalization as "the closer integration of the countries and peoples of the

world…the breaking down of artificial barriers to the flow of goods, services, capital,

knowledge…", Stiglitz points to the international institutions—the World Bank, the

International Monetary Fund, the World Trade Organization, and the transnational

corporations that are the agents and directors of the forces of globalization-- writing the

rules, setting the agenda, mandating change (2002: 18-19).

In "Models of Democracy", David Held defines democracy as "a form of government in

which, in contradistinction to monarchies and aristocracies, the people rule" (1987:2).

What does it mean for people to rule? Held suggests a partial list of common meanings,

from which, for our purposes here, I select the following:

--"that rulers should be accountable to the ruled; they should, in other words, be obliged

to justify their actions to the ruled and be removable by the ruled

--that rulers should be chosen by the ruled

--that rulers should act in the interests of the ruled".

The idea of democracy as popular political participation raises substantive and procedural

issues: substantively, democratic regimes promise goods, services, social and economic

opportunities to the people, that is, to a substantial majority of the population on an

egalitarian basis; procedurally, the emphasis is on fair and open elections, held on a

regular basis, based on universal franchise.

Definitions of development too are diverse in that some conceptions emphasize

economic growth, the growth of national productive capabilities. Others, such as Dudley

Seers and Amartya Sen, question the conception of development in terms of economic

growth alone, the expansion of production, the growth of a nation's GDP. In

"Development as Freedom", Sen defines development in terms of human capabilities; the

freedom to lead a life of well-being—freedoms that include the acquisition of sufficient

food, freedom from disease and ill-treatment, access to education, freedom from

unemployment. The concerns of development are ultimately about what people can or

cannot do: whether they are well-nourished, whether they can read and write, whether

they can escape avoidable illness, whether they can live long. Seen in these terms,

development is a broad process of social transformation, the elimination of poverty, the

reduction of unemployment and inequality, rising levels of schooling and literacy.

The development project was understood as a nationally-organized, nationally-directed

process of economic growth with a prominent, in some cases dominant, role for the state.

The developmental state as an activist state was based on the idea that state planning and

public investment were necessary in third world, underdeveloped countries given market

imperfections and the need to finance, through state enterprises, the building of the

infrastructural prerequisites of industrial development.

This idea of development as a project of national economic management has been

profoundly transformed under the auspices of the Bretton Woods system and the neoliberal

agenda. A nationally directed and autonomous path of development has been remade

to one of globally directed economic policies with ever-increasing global economic

integration. This has led to profound adjustments in the economic and social priorities of

third world states. The goal of development as managed national economic growth has

been transformed into a globally-managed program in line with a neo-liberal agenda

emanating from the major industrial economies of the (then) G-7, primarily the U.S. The

economic policies of neo-liberalism—fiscal austerity, free trade and free markets,

privatization, minimizing economic regulation—has had the effect of shrinking the role

of the state and increasing the role of global institutions in the management of national

economic policy making (Cohn 2005: 208).

Stiglitz points out the problems of governance, of representation and of legitimacy in the

dominance of global institutions in the national development of third world states: "who

decides what they do? The institutions are dominated not just by the wealthiest

industrial states but by commercial and financial interests in those countries, and the

policies of the institutions naturally reflect this…While almost all of the activities of the

IMF and the World Bank today are in the developing world (certainly, all of their

lending), they are led by representatives from the industrialized nation ….The institutions

are not representative of the countries they serve" (2002:18-19).

The debt crisis of the 1980's led to this new global configuration in which national

economic policies are globally managed, in which governments adopt policies advocated

by global institutions, shaped in accord with global rather than national considerations,

significantly eroding the sovereignty of third world states (McMichael 2000:133-137;

Khor 2001: 10). Central global institutions, corporations and international agencies wield

enormous authority over a majority of third world governments that depend on them for

loans and capital for development.i Most developing countries ran into debt service

difficulties in the 1980's after borrowing sprees in the 1970's. The creditors, the World

Bank, the IMF, private banks made the re-negotiation of their debt conditional upon the

acceptance of global management and oversight of national economic policies.

The financial power of these global, multilateral institutions enabled them to extract

major concessions from the states that turned to them for assistance to meet their debt

repayment obligations; they were required to adopt more open economic policies, trade

liberalization, de-regulation, privatization, fiscal austerity. As The South Commission

declared in 1990:

"What is abundantly clear is that the North has used the plight of developing

countries to strengthen its dominance and its influence over the development

paths of the South. Developing countries have been forced to reshape their

economic policies to make them compatible with the North's design…. The most

powerful countries in the North have become a de facto board of management for

the world economy, protecting their interests and imposing their will on the

South. The governments of the South are then left to face the wrath, even the

violence of their own people, whose standards of living are being depressed for

the sake of preserving the present patterns of operation of the world economy"

(1993:12-13).

The debt regime imposed on third world countries stripped the developmental state of

much of its role in development. Keynesian ideas of public investment and state

intervention in the economy were discarded in favor of dismantling the state apparatus of

development—in the interests of efficiency, ostensibly—and increasing the role of the

market, in line with neo-liberal ideas of privileging private initiative.

"In sum, the debt regime reformulated the terms of economic management,

shifting power from former third world states to global agencies. Countries

surrendered economic sovereignty as First World governments and financiers,

both private and public, concentrated managerial control of the global economy in

their own hands" (McMichael 2000:145).

The social and distributional effects of the dismantling of the developmental state were

indeed severe, as pointed out by the aforementioned South Commission. The renegotiation

of the debt of third world countries was made conditional upon the

acceptance of structural adjustment loans that were basically a re-organization of

economic priorities, requiring governments to balance their budgets by cutting what are

considered non-essential expenditures, that is social expenditures on food subsidies,

nutrition, education, healthcare. The drastic reduction in public spending on social

programs brought about radical "adjustments in economic and social priorities…These

adjustments overrode the original development goal of managed national economic

growth with managed global economic growth….In effect, these actions stabilized

indebted economies so that they could at least service their debt—that is, repay the

interest due to the banks and the Bretton Woods financial institutions" ( McMichael

2000:130).

The result of these stabilization measures was to drastically reduce public spending on

social programs, such as public subsidies for the poor, and to increase unemployment

with the laying off of workers with the sale of public companies, often to foreign

ownership, through privatization. The developmental state committed to social welfare

principles was transformed into a compliant state managed by global institutions

committed to neo-liberal principles—free markets, privatization, reduction of social

entitlements, and foreign investment concessions. It brought with it the gradual

disembedding of the national social contract between state and society (Falk 1999:40).

It weakened considerably the state's capacity to pursue a path of autonomous national

development in the interests of the majority of its citizenry.

Globalization and Poverty: India

India's economy is among the world's 5 largest economies. We have heard a great deal

recently of the robust economic growth in India in the late 1990s and early 2000s. The

principal beneficiaries of these remarkable economic gains have been India's relatively

small middle class; poverty, hunger, disease continue to remain entrenched,

undermining India's much vaunted open, competitive electoral system. The paradox of

both an expanding sector of high tech industry and the existence of mass poverty

exemplifies these persistent economic disparities.

The question of whether poverty and inequality have been mitigated or worsened by the

neo-liberal policies of the Indian government in the 1990's has been the subject of much

discussion and dispute. Robert Wade's comment in the context of global poverty and

inequality are equally apt in relation to the issue of poverty within India: "perhaps all the

thunder and lightning about trends diverts attention from the main issue: the sheer

magnitude of poverty and inequality….The magnitude is unacceptable…" (2004: 441).

Over 40% of the population in the late 1990's lives on less than $1 per day in conditions

of desperate poverty, according to World Bank estimates. 45% of children are stunted

from malnutrition according to a 2006 World Bank Report (New York Times March 3,

2006, A6). Nearly 50 percent of adults are illiterate (Human Development Report 2002).

There is great disparity within India in living conditions, with some regions as badly off

in terms of infant mortality, life expectancy, literacy as the most deprived countries of the

world (Sen 1999:100-101).

Conforming to a typical developmental state, India's development strategy till the 1990's

had been based on both nationalist and, rhetorically, socialist goals. Economic policy

was driven by a nationalist capitalism, the pursuit of economic autonomy, controls over

foreign investment and of foreign enterprise; state intervention in the economy was

legitimized on socialist grounds, to achieve social objectives such as the alleviation of

mass poverty (Udayagiri 1994: 221).

In 1991, unable to meet the requirements of international creditors, India bowed to

IMF/World Bank pressures and adopted the prescribed elements of structural adjustment

applied to third world countries experiencing debt repayment problems. The IMF/World

Bank "economic reform" package entailed the opening of India's previously protectionist

economy to foreign trade and investment, liberalizing imports, privatizing state

enterprises, and substantially reducing government spending and social subsidies in

agriculture, health, education, public employment.

These reforms amounted to a major re-direction of the Indian economy. They were

driven by an ideological perspective of substantially curtailing, if not eliminating, state

participation in the economy and dismantling the system of state-assisted development.

With the shift from state-directed to market-oriented policies, the role of the state was

usurped by the free market. The social impact of the cuts in social spending has been to

deepen poverty and increase inequality (Seddon and Walton 1994: 226-227;

Chossudovsky 1996: 126).

Structural adjustment has led to the emergence of the "new poor". As Mustapha Kamal

Pasha has stated it, the march of neo-liberalism in the subcontinent and

"the promise of material salvation is intensely refuted by the simultaneous

presence of grotesque concentrations of wealth and privilege on the one

hand, and an unprecedented scale of poverty, squalor, inequality and

marginalisation on the other. Above all, globalization exposes vast

populations in virtually all parts of the world to a relentless market

rationality, furthering already existing disparities and deepening social

destitution" (1999: 180-181).

These developments in the current wave of globalization—the ever-increasing degree of

economic integration in the global economy, the erosion of the sovereignty of the

national developmental state, the shift in power from the third world state to global

institutions, economic reforms and the restructuring of third world economies—has

profoundly altered the relations of the state to civil society and the nature of the

democratic process. These mechanisms may be seen to operate on two levels: that of the

state in relation to international global forces and secondly, the state in relation to the

domestic polity.

In relation to the state and the global institutions that dominate the international economic

arena, the national developmental state has in effect become the compliant agent of

multilateral global institutions. By so doing, it no longer functions as the traditional,

nationalist autonomous developmental state acting as the agent of its citizens interests.

Stripped of much of its power and resources, accountable to external global powers, it is

accordingly less accountable to its citizens and less responsive to their interests. The

democratic commitment to popular empowerment is undermined by the unaccountability

of the state to its citizenry and the erosion of its capacity and resources to implement an

egalitarian vision of democracy.

The impact of these developments, the re-structuring of the state to reflect the interests of

global institutions, is reflected also in the shift in focus from issues of equity and social

justice, the broad general welfare aspects of development to the economic concerns of

efficiency and economic growth. Issues of distributive justice have once again been

eclipsed by the emphasis on economic growth.

In a society as highly stratified as India's, in both economic and social terms, economic

growth refracted through the prism of such stark inequality tends to perpetuate patterns of

inequality to the detriment of the goal of equal political dignity at the core of the

substance of democracy. For the large segment of the society that remains in conditions

of degrading poverty, that depends on the power of the state to support mechanisms of

redistribution, the globalization project has indeed eroded the promise of equality and

equal political dignity.

z

References

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Zed Books 2002

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World Bank Reforms Zed Books 1996

Cohn, Theodore Global Political Economy: Theory and Practice

Longman 2005

Cooper, Richard "A False Alarm. Overcoming Globalization's Discontents"

Foreign Affairs January-February 2004

Held, David Models of Democracy Stanford University Press 1987

McMichael, Philip Development and Social Change. A Global Perspective

Pine Forge Press 2000

Pasha, Mustapha Kamal "Globalization and Poverty in South Asia" in

Poverty in World Politics. Whose Global Era?

Edited by Sarah Owen Vandersluis and Paris Yeros. St Martin's Press 1999

Sen, Amartya Development as Freedom Anchor Books 1999

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Commission Zed Books 1993

Stiglitz, Joseph Globalization and Its Discontents Norton and Company 2002

Wade, Robert "Are Global Poverty and Inequality Getting Worse?" in The Global

Transformation Reader 2nd edition edited by David Held and Anthony McGrew

Polity 2003

Udayagiri, Mridula "The Asian Debt Crisis: Structural Adjustment and Popular

Protest in India" in Walton and Seddon 1994

Walton, John and David Seddon Free Markets and Food Riots

Oxford 1994

i Over the decades, the Bank has wielded enormous power and influence; it has become the deciding voice

in determining which countries will receive international loans. While the Bank's own rules, its Articles of

Agreement, state that it "shall not interfere in the political affairs of any member" and that "only economic

considerations shall be relevant to its lending decisions", the Bank has not abided by these principles. The

Bank's lending practices have clearly favored those countries that have agreed, usually under pressure, to

adopt policies that promote private enterprise, free trade, open markets—a free market orientation in accord

with the advanced industrial countries. This gives the World Bank and its sister institutions the power not

only to determine the countries considered ideologically friendly to be credit worth, but also to dictate the

terms on which development loans are given and the economic policies and development strategies of the

underdeveloped countries—a degree of intrusion in their economies that harkens back to colonial times.