Development Studies

MSc. Development Studies                                                                           

topic:  

— “The globalization fiction and the fundamentalist view promote not very rational policies and bad results. This is because such policies subordinate the administration of available resources, the accumulation of capital and technological change to the interests and objectives of economic and social agents that control only a minor share of resources and markets. Therefore, it is not surprising that in several countries the productive sectors are being divided into dynamic sectors, those associated with transnational enterprises, and stagnant sectors, the majority of the productive apparatus, where marginalization and unemployment prevail. This results is a formidable loss of resources, the deterioration of production and social and political instability”. (Aldo Ferrer, “MERCOSUR and Alternative World Order”, 1998).  —Discuss the above statement utilizing case studies.

By: Khinh Sony Lee Ngo
Faculty of Social Science, South Bank University, London, , February 1999.         

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Key words: World economy, globalisation and development, debt and developing countries.;                    .
Contents::

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 1. Introduction

       For the purposes of this essay I would define primary the so called ‘globalisation’ as being ‘fundamental ... from which others words are derived from Aldo Ferrer’s statement’.  Applying this definition I would identify the whole notion of globalisation.  Explaining this requires me to say—briefly—what I understand the term to mean integration of the world economy, and, then to make clear what I understand to be the root causes behind the process of globalisation.  This essay, I explain what I understand to be the main consequences of globalisation for the prospects of economic development in the Third World states in the context of consequences for other political institutions and social and economic groups of the First World in regard to Aldo Ferrer’s  statement.

      In addition, this essay I would briefly outline the fundamental role performed by an international monetary system such as the IMF and the World Bank. The  transnational corporations agencies and Western banks such as the Paris Club and the London Club together with the US policies such as ‘the Washington Consensus’ and ‘neo-liberalism’. I describe how they pursuing their policies in order to achieve their goals for their hegemonic powers  by viewing how the IMF and other institutions attempts to satisfy this role. I also raised the debt crisis issue and I reviews some experience of the IMF and the World Bank which they has launched their policy and adjustment packages in different regions of the world and concludes that whilst these examples serve different political and economic ends, in a transnational globalized economy, the role of these institutions is crucial and might offer a huge impact and consequences on the socio-economic development of the Third World.

    I ended the essay by pointed out the need to tailor out thinking about development strategies and our policy recommendations to the distinctive problem of developing countries, coupled with the continuing process of globalisation and the evolution of the global economy, requires that we keep learning and adapting our views. Otherwise, yesterday’s truths may well become tomorrow’s mistakes.

 2. Globalisation

        "‘Globalisation’ has become an everlastingly buzzword, used in any and every context.  International discourses, both official and non official, and more so within the last decade or so, the term is often used in an adjectival form.  This ‘globalisation phenomenon’ and in the context of the interdependence of economies and nations". [i]

 And while the term is being increasingly used by various people and journalists and media more than others are often to blame, to describe wide-ranging and often times dramatic changes in the world, ‘globalisation’ and development is correctly speaking, used to describe certain economic developments. Within the realm of world economic development, or the new economic order, ‘globalisation’ is acquiring a wide variety of uses: 

 “The emergence of a new asymmetric international division of labour along with greater dispersion of economic activity directed by corporate strategic planning that has replaced governmental or state efforts in various countries.  It also seems to be used in terms of the current situation - the erosion of the post-war US dominance of the world economy by rising competitiveness of Western Europe and Japan and the rise of regional spheres of influence". [ii]

      In the context of the collapse of centrally planned economies and  the capitalist system dominating most of the world - even in country like China where the political system is still being maintained, there are increasing moves away from the command economy towards market economy - the term globalisation is also used describe the Worldwide spread of capitalism.  Globalisation is also being used synonymously for ‘liberalization’ and greater openness of economies, implying both liberalization.

     When the talks of globalisation and development in the economic sector, one is thus talking about economic and economic related structures knit together and across the world of nations. Globalisation and development and the term ‘integration’ often used with it, is really manmade and the outcome of several elements of politics, economic, industrial processes and within countries and across countries and relationships.

     No doubt the advances in technology - in the technology of transport, and advances in communication and information technology and with it the transportation of ideas and information across the global globalisation have contributed to and helped this process.  and the major corporations of the world - mostly those centred in North America and in Europe, as also Japan in the Far East - in the pursuit of their profit-maximization and capital accumulation objectives have been exerting their pressures and influence on their governments to facilitate this type of integration, through the process of globalisation, that is, the transnationalisation of the world economy.

     “Globalisation is really a euphemism for ‘transnational corporations (TNCs) into the world economy, particularly into the economies of the developing countries. Multilateral organisations such as the World Trade Organisation WTO (the successor to GATT), the International Monetary Fund (IMF) and the World Bank are playing a key role in this process.”  [iii]

     Transnational corporations dominate virtually every sector of global industrial, economic and financial activity.  Between them they control a significant proportion of world trade, investment, know-how and employment.  They are predominantly of US origin, but the last two decades have witnessed an enormous expansion in the number of Japanese, German, and even Third World domiciled TNCs.  Since they control considerable resources, their activities and corporate decisions can have profound consequences for communities in disparate parts of the globe.  For instance, in the late 1990, the giant Phillips corporation announced a complete global reorganization.  This involved the shedding of some 45.000 jobs in its subsidiaries across Europe, South-east Asia, Latin America, Africa and North America.  Many individuals and local communities in very different parts of the world suffered the consequences of this single boardroom decision taken in Holland.  The power of transnational capital is thus considerable. — As Dicken concluded:

“much of the changing shape of the global manufacturing system is sculptured by the TNC through its decisions to invest or not to invest in particular geographical locations...there are few parts of the world in which TNC influence is not important. In some cases...the influence of TNCs on an area’s manufacturing fortunes can be overwhelming.” [iv]

     Across the Third World the consequences of this increasing global integration of productive capital have been to sharpen structural inequalities within and between nations.  Differentiation occurs between those states increasingly integrated into a global system of production and those which are marginalized: in effect, the NICs (Newly Industrializing Countries) versus the Fourth World or LLDCs (Least developed countries).  Even within the former, social divisions emerge between those communities and groups incorporated into the global production network and those which are bypassed.— “The globalization of capital thus establishes parallel tendencies are acutely evident in the clothing, textile and electronics industries where they also intersect with a growing international sexual division of labour.” [v]

    In the globalisation world, competition among transnational enterprises in sophisticated products and services ..etc., is also competition among system.. For the global globalisation corporation competing in the international economy, it means competing under the ‘same set of rules’ - that is the same set of domestic rules in different countries.  However, the industrialized countries  did not focus on the markets of the developing world, but rather on each other’s markets, and because of the transnational corporations (TNCs) and their productive activities, trade liberalization measures were designed to further the intra-industry trade among themselves.  Their more or less equal technological and other capabilities and production resulted in intense product differentiation and intra-industry trade as well as intra-firm trade.  All the successive tariff cuts and other measures were aimed at facilitating this, with the corporations in effect lobbying their government.

      In the immediate post-war period the US has allowed Europe to discriminate against the US while receiving full benefits.  Similarly for a long time within the General Agreement on Tariffs and Trade (GATT), the developing countries which were not major markets, were allowed to benefits from the concessions exchanged by the industrialized countries among themselves, without having to give any reciprocal concessions or benefits.  Side by side with the trading rules to promote transnationalisation, the major industrialized countries, particularly the US which really controls the International Monetary Fund (IMF) and the World Bank, has been pushing these institutions to further this same goal of global globalisation and development through their own policies.

3. The Washington Consensus

    First used by John Williamson of Institute of International Economics, the term does not mean consensus reached at Washington by the international community at an inter-governmental level. It means, as Paul Krugman puts it in the Foreign Affairs (July/August 1995, vol 74, No. 4, pp 28-29), ‘the network of opinion leaders centred in the world’s de facto capital - the International Monetary Fund, think tanks, politically sophisticated investment bankers, worldly (mark the term worldly, not the world’s) finance ministers, all those who meet each other in Washington and collectively define the conventional consensus wisdom of the movement...’ Williamson himself called the ‘Washington Consensus’ as the consensus of ‘both the political Washington of Congress and senior members of the administration, and the technocratic Washington of the international financial institutions, the economic agencies of the US government, the Federal Reserve Board and the think tanks...’—consensus on the character of policy reforms that debtor countries should pursue. [vi]

        The links between globalisation and development are complex, involving classic and contemporary issues of political economy, political science and social development. “Dominant thinking  about development today sees globalisation as a matter of life or death for less developed countries.  If embraced, it is argued, globalisation will quickly propel developing nations into modernity and affluence; if resisted it will either crush them or throw them by the wayside. The matter, unfortunately, is not so clear and simple.  The recent experience of much of sub-Saharan Africa shows that failure to catch the global train can prove deadly for underdeveloped countries.  But a ride on that train does not provide a sure ticket to fast, stable, and equitable growth.  Globalisation may allow a few poor countries to leapfrog out of the backwater ”;[vii]  but as the recent financial troubles in East Asia or more recently the panic in Russia and the financial scam crisis in Brazilian suggest, embracing global financial markets can also be treacherous, and costly.

       The sharply unequal effects of globalized finance and production across and within developing countries stand in sharp contrast to the widely shared image of globalisation as a formidable equalizer of tastes, incomes, outlooks, and lifestyles.  Greater economic openness has made small parts of the developing world full-fledged members of the global village.  But in many developing nations, globalized islands of prosperity are thriving alongside vast and growing expanses of economic stagnation and human deprivation.  Nothing is more common for an upper-middle-class professional in a large emerging market such as Brazil or Mexico than to switch off the Internet and, before stepping out the door, to switch on a heightened awareness of his or her surroundings in order to survive the dangers of the darker side of the global village.

       Rather than allowing developing nations to quickly catch up, globalisation has greatly exacerbated inequalities among and within them.  Its mixed record at century’s end has dampened the euphoric optimism of the 1980s and given rise to a more sober mood.  Advocates of globalisation continue to see it as essentially good new for lagging economies.  While still calling for greater openness, they have also begun to recognize globalisation’s many costs and admit to the importance of effective state institutions in allowing developing nations to actually profit from it.  Most illustrative of this new mood is the World Bank’s tempered rehabilitation of the centrality of the state in its latest World Development Report. [viii]

     The belated recognition by free marketers of the importance of effective institutions in mediating globalisation’s impact on economic development—a bit ironic given their committed efforts throughout the 1980s to dismantle state institutions—is a welcome sign.  Heightened exposure to world markets will only become a true lever of economic development in the presence of institutions able to mitigate market failures and manage the competitive challenges and domestic dislocations produced by openness.  Contrary to conventional wisdom, however, the absence of the requisite institutional conditions is not necessarily self-correcting.  In countries lacking the institutional capacity to regulate markets and compensate losers, openness does not necessarily lead to economic stagnation or social collapse.  Exposure to global markets can promote exclusionary types of growth based on dynamic export enclaves and highly profitable—albeit volatile—domestic financial markets.  Supported rather than punished by failure-prone global financial markets, and buttressed by political arrangements that limit losers’ ability to organize, these disjointed and exclusionary varieties of outward-oriented growth may persist for long periods of time.  Liberalization and globalisation are unlikely to promote stable and equitable development.  The  type of growth and the kind of society produced by economic openness hinge more on the number and the quality of a given nation’s institutional resources.  The problem for less developed countries is that exposure to unbridled international financial markets will not automatically generate the correct—let alone the best—institutions and may make efforts to assemble and pay for them increasingly costly and difficult.

     Globalisation in development is the expression to characterize the vast changes that have taken place over the past two decades in the international economy - the rapid and pervasive diffusion around the world of production, consumption and investment of goods, services, capital and technology. Among the images associated with globalisation, the most popular portrays it as a world-wide process of converging incomes and lifestyles driven by ever larger international flows of goods, images, capital, and people. “In throwing hamburgers, money, and television shows into same global hodgepodge, this conventional and immensely seductive view fails to single out what is truly distinctive about globalisation.” The basic engine behind the emergence of a globalised world economy lies not in goods, people, money, and ideas becoming increasingly and similarly transportable across national frontiers.  It lies, rather, in capital becoming historically more portable and more internationally mobile than any thing else.  Capital, moreover, is not only winning the international mobility race: it is also largely driving the globalisation of all the rest.

      Successive waves of financial deregulation in advanced economies along with new information and communication technologies helped power the dizzying growth experienced by international finance over the last 30 years.  Initially fueled by the dramatic expansion of world trade and by growing competition among United States, European, and Japanese firms for one another’s domestic markets, financial deregulation accelerated in the 1970s in the midst of the petrodollar boom, leading to a truly phenomenal resurrection of international finance.  “Cross-border transactions in equities and bonds in major advanced economies, for example, jumped from less than 10 percent of GDP (Gross Domestic Product) in 1980 to well over 100 percent in 1995.  Relative to world GDP, total foreign direct investment (FDI) flows doubled between 1980 and 1994.  The most explosive growth has occurred in the foreign exchange market, where the average daily turnover surged from about $200 billion in the mid-1980s to around $1.2 trillion in 1995—approximately 85 percent of total world reserves.” [ix]

Table 1

Capital Flow into Developing Countries

(Annual averages in billions US.$)

Source: IMF, International Capital Markets: Development, Prospects, and Policy Issues (Washington: IMF, August, 1995)

    Foreign direct investment (FDI) is mainly the province of giant transnational corporations. —“As of the early 1990s, there were 37,000 transnational corporations, two-thirds based in the First World, holding a total of $2 trillion in foreign direct investment. This FDI is highly concentrated. One per cent of transnational corporations own half of the total stock of foreign assets, and the largest 100 alone hold 14% of the total.” [x]  FDI, whatever its virtues or vices, is reasonable stable. Portfolio investment isn’t.  Liquidity - ‘the quality of being able to “touch your money” at short notice’, as economist Joan Robinson put it - is the highest virtue in the world of finance. Money capital seems to thrive on frequent changes in its form, from shares in IBM to a forward contract on the Malaysian ringed. [xi]

      Traditionally, banks were the principle source of external financing in the Third World. Banks made loans and kept them on their books until they were repaid. This policy changed, however, when - in the aftermath of the of the debt crisis of the early 1980s - bond and stock markets replaced banks as the key source of capital. Debt owned to banks were transformed into bonds, which can bee easily traded in the financial markets. The original buyer of a new bond can be thought of as making a loan, but very few bond buyers hold these debts for very long; instead, they sell them for cash and then flow the money into some new asset. Liquidity has become increasingly valued over long-term relationship. — “Between 1990 and 1994, $524 billion in capital - FDI and portfolio investment combined - flowed in to what are optimistically called the developing countries, feeding the emerging-market boom. This translates into an average of over $105 billion a year. That is three times the annual average that prevailed during the pre-crisis bank-lending boom years of 1977-82, and 12 times the levels of 1983-89 [as showed in table 1] . Portfolio investment in particular swung from a large outflow (a symptom of capital flight) to a huge inflow. The debt crisis was declared over for the banks, for those middle-income countries that has seen an influx of foreign capital, and as a threat to the international financial system.  It was not over, however, for the poorest countries and regions for which capital inflows were almost unimaginable. - Because, it’s clearly become a BIG business for banks and the capitalists of the First World. 

     The growth of international finance has radically reshaped the structural and institutional makeup of the world economy.  Few areas have been left untouched.  Capital mobility and technological change have allowed production to become more transnationally integrated, which has introduced major changes in international trade.  The share of world commerce channeled and managed by global corporations has spiraled upward.  As a result, trade and investment have ceased to be substitutes for one another and have become mutually reinforcing.  The mounting importance of intrafirm trade has contributed to the continued expansion of world commerce.  Since intrafirm is less sensitive than arm’s length trade to exchange rate movements as well as to a variety of trade policy instruments, the ability of governments to shape trade flows has declined.

        Globalized financial markets have greatly heightened the structural power of capital holders and have drastically reduced the policy options open to governments.  Room for sustaining, let alone building, the kinds of extensive welfare systems that allowed small open economies in Europe to reconcile high trade openness with domestic social stability during the post-war period has dramatically narrowed.  The same hold holds for the activist industrial and financial policy strategies employed by the miracle economies of East Asia from the 1960s through the 1980s.  Thus, with untrammeled capital mobility the highly interventionist credit allocation schemes deployed by the South Korean government during the era of super-high growth have become unworkable and unthinkable.

        The newest developmental orthodoxy of free markets and sound money has yet to prove its merits.  Ever more fierce competition for financial resources and export markets can help limit monetary and fiscal folly and may well generate important efficiency and productivity gains.  But the kind of growth promoted by the disciplining embrace of global markets is not necessarily high, stable, balanced, and equitable;  Unfortunately, not all good things go together.  A country—such as Mexico during the first half of the 1990s—may open up but then experience slow, polarising, and unstable growth.  Or take Thailand, furiously embracing free and open finance in the early 1990s only to find itself saddled in 1997 with a banking system on the brink of collapse, the prospect of slower growth, and no option but to cut back on investment as well as on attempts to reduce poverty or upgrade human capital.  This global financial crisis as Michel Chossudovsky, Professor of Economics at the University of Ottawa concluded that:  “In the new financial environment that has emerged as a result of the collapse of the Bretton Woods system of fixed exchange rates, and policies of financial deregulation, speculation rather than productive economic enterprise is the dominant activity.  The world community must recognise the failure of this system which threatens to flung the world into a global economic depression and adopt instead a coherent structure of financial regulations and inter-governmental co-operation.” [xii]

       A major claim in globalisation  literature is that the world’s economic are integrating rapidly and in ways that facilitate the development of productive capitalist economies for the benefit of all peoples; in other words, that transformation and not marginalization is the order of the day.  It is clear that development requires productive linkages to the globalizing economy, but it is not clear that all countries can establish such productive ties with even roughly equal ease.  A key indicator of this was the international debt crisis that exploded with Mexico’s dramatic default on its $84 billion foreign debt in August 1982. [xiii]

Table 2

Debt and Trade Aggregates for Developing Countries ( $ bn)

  wArgentina, Brazil, Indonesia, Korea, Mexico, Philippines, and Venezuela.  

Source: IMF World Economic Outlook,  Revised Projections, September 1984.

      As has now become so apparent, globalisation and the financing development structure through commercial bank debt carries some drawbacks. Interest rates are generally higher than on loans (as showed in Table 2, a huge of total of debt increasing year after year despite surpluses in Trade Balances);

  “The debt problems of 1980s have been caused by very high real interest rates. As the international cost from borrowing turned from rock-bottom to sky-high, countries’ payments on debt went through the roof.  Raising interest rates was the policy adopted by the US administration under President Reagan in 1981.  Rates went still higher as US tax cuts conspired with massive government spending - notably on a major rearmament programme - to send the US heavily into deficit.” [xiv] “High interest rates in other Western countries rose to keep up. With every 1 per cent rise in the interest rate an estimated $2 billion was added to poor countries’ annual interest bill.” [xv]

As the result, annual interest payments relative to export earnings rose spectacularly. “In 1974, Latin America spent 9% of its export earnings on interest payments; by 1983 the ‘worst’ year of the ‘debt crisis’, the ratio had risen to 41%”. [xvi]

      With the debt crisis came increased efforts at economic reform under the auspices of the IMF and the World Bank, as well as rapidly evolving mechanisms for coping with the threat debt posed to the stability of the international financial system. Fierce competition between capitalists backed by nation-states lies behind the appearance of a homogenised global system—and that means winners and losers.

4. What role for the World Bank and the IMF

     The end of the Second World War and its immediate antecedents provided the motivation and the occasion for the creation of an array of institutions of international economic co-operation.  These institutions, near universal in scope and membership, provided the framework for the conduct of international economic policy during the post-war period, and were a major factor in setting the tone of world economic development during this period and determining the participation of individual countries therein.  The development problems and prospects facing the underdeveloped countries could not therefore but be heavily influenced by the existence and role of these institutions.

     The United States, in taking the lead and providing the main driving force for the establishment of these institutions.  US policy markers started early planning for a post-Second World War institutional framework that could cope with the problems of transition to peace-time conditions and could provide a framework for a smoothly functioning international economy.  The major issues that need to be dealt with included reconstruction finance for repairing the heavily war-damaged economies of Europe, monetary co-operation arrangements to deal with the problem of exchange rate stability and currency convertibility, and trade co-operation arrangements to ensure that governmental barriers to trade were kept under control.  These are issues that had all come to plague the international economy during the inter-war years and had constituted a hindrance to the expansion of world trade and prosperity. [xvii]

   The United Nation was also assigned an important role in post-war economic planning, particularly in the co-ordination of full employment policies.  This role was never allowed to develop, however, and instead the UN became the main forum where attempts were made to deal with the specific problem of the less developed countries.

     Ideas for post-war multilateral economic co-operation focused on two main areas: 

monetary and financial institutions to deal with the problems of exchange rates, currency stabilization, reconstruction finance and international investments; and a trade organisation to deal with the problems of commercial policy and to promote the liberalization of trade.  The former led to the Bretton Woods Conference from 1st July 1944 and the establishment of  the International Monetary Fund (IMF) to supervise and maintain global financial relations and the International Bank for Reconstruction and Development - IBRD, popularly called the World Bank, the General Agreement on Tariffs and Trade (GATT), was put into effect.

     As originally conceived, both the ‘Fund’ and the ‘Bank’ were to play a major role in the restoration of economic equilibrium after the war. [xviii]

It was not long after these institutions were formally established, however, that it became apparent that they were not play this role.  The ‘Fund’ was supposed to grant assistance for short-term stabilisation, but in the immediate aftermath of the war what was really needed was assistance for reconstruction.  And while the ‘Bank’ made an early start in fulfilling its role, it quickly became apparent that the resources at it disposal were far short of what was needed for the reconstruction of Europe.  A major shift in American policy, spurred on by political development in Europe, that led to the launching of the ‘European Recovery Programme’ or ‘Marshall Plan’ under which the United States undertook to provide massive reconstruction aid to Europe under bilateral programmes outside the framework of the Bank. The emphasis shifted from the pursuit of world-wide multilateralism through the Bretton Woods institution to the more limited objective of the recovery and ‘integration’ of Western Europe. [xix]

      It was clear from the outset that the Bretton Woods institutions would be under American control, notwithstanding the obvious international character of these institutions.  The US developed the original ideas for these institutions (with significant British inputs) and brought them into being, and the US would be putting up the bulk of the Funds required to make them operational.

    Stand-by arrangements, introduced in the policy decision in 1952, and intended to assure a member that, on the basis of prior negotiations with the Fund, drawings up to specified limits and within an agreed period might be made without reconsideration of its position at the time of drawing, were soon to became the centre-piece of the policy on conditionally.  From the Fund’s point of view these stand-by arrangements offer more effective opportunities for influence and control over policies of borrowers.

5. The US, the World Bank, the IMF, the Paris Club and the London Club -Hegemonic powers co-operation: Globalisation for Marginalization and the International Underclass.

       “By the mid-1990s, many analysts were pronouncing the debt crisis over.  In the sense that it no longer posed a major threat to the international financial system, this is true and is a testament to creative international co-operation by a wide variety of actors, including the Paris Club and the London Club.  The debt crisis was not resolved for all countries, however, it has become increasingly clear that some are less able to benefit from internationally sponsored economic reform and thus less able to grow their way out of debt service difficulties.  Today, rather than becoming more integrated into the world economy, these countries appear to be increasingly marginalized.” [xx]

      Capital is instead flowing again, at increasing rates, to key “emerging market” regions of the world, especially East and Southeast Asia and Latin America.  State failure, war, and civil trifle have been accelerated by the costs and consequences of economic reform that has come to very little in many places, all aggravated by insufficient debt relief.  What is taking place today in many African countries may well play out in similar ways on the rim of the former Soviet Union and among weak states elsewhere.  Again, according to professor Callagphy,  “ the Paris Club is a complex and powerful, yet rarely recognised, hybrid international organisation that reveals a lot about the evolution of the international political economy and the nature of transgovernance processes.  Over the last several decades it has directly affected the lives of millions of people, although technically it does not exist.  It is not a formal organisation with a charter, legislated set of rules, fixed membership, large bureaucracy, or fancy building; it is usually described as an ad hoc “forum” of creditor countries that reschedules the public and publicly guaranteed debt of developing countries.  It is far more, however, and has involved significantly since it began operations in 1956 when it rescheduled Argentina’s $350 million bilateral debt.  From that modest beginning, the number and variety of debt reschedulings has accelerated dramatically: 26 between 1956 and 1976, 150 between 1977 and 1990, and well over 200 by the mid-1990s, with more to come.” [xxi]

         Since the later 1970s, the Paris Club has become increasingly nested in a complex of interactions with other important actors in the international political economy—the IMF, the World Bank, regional development banks, the United Nations Conference on Trade and Development, the Organisation for Economic Cooperation and Development (OECD), the Bank for International Settlements, the London Club (the private debt rescheduling forum of international banks), the Consultative Groups (country aid consortia), investment bank advisory groups that sometimes represent debtor countries.  These actors take part in Paris Club operations or are involved as observers and advisers.  More recently, private volunteer organisations such as Oxfam have become interested in the Paris Club and have put forward debt reform proposals, which is seen by some as evidence of the emergence of an international civil society concerned with management of a global commons

      “Debt rescheduling is one of the easiest and quickest ways to provide badly needed foreign exchange to countries in economic, social, and political trouble, but rescheduling is possible only if the debtor country has economic reform programs in good standing with the IMF and the World Bank.  In addition, London Club rescheduling is supposed to come only after Paris Club rescheduling, and Consulative Group aid co-ordination is also linked to Paris Club rescheduling;” [xxii]

       By the early 1990s, it had become clear that many of the poorest states that had come before the Paris Club had an insolvency rather than a liquidity problem.  In 1996 the IMF and the World Bank designated 41 of their member states as “heavily indebted poor countries” (HIPCs)  whose debt was not likely ever to be repaid in full.  The total external debt of these countries, mostly public or official rather than private, rose from $55 billion in 1980 to $183 billion only a decade later and to $215 billion by 1995, a sum more than twice their export earnings.  Of the 41, 32 are from sub-Saharan Africa.  Most of the HIPCs have high levels of poverty and limited domestic resources and, in effect, constitute an international underclass of states on the margins of the globalizing world economy.  All but 6 fall into United Nations Development Program’s lowest human development category.  According to Oxfam, these countries are in vicious circle of economic and social decline; (as showed in Table 3):

Table 3

Economic decline in 22 distressed sub-Saharan countries, 1980-861

1 Benin, Coromos, Equatorial Guinea, The Gambia, Ghana, Guinea-Bissau, Liberia, Madagascar, Mali, Mauritania, Mozambique, Niger, Säo Tomé and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Zaïre and Zambia.

2  Current prices.

Source: World Bank, World Debt Tables, 1987-1988, World Bank, Washington DC, 1988, Vol. 1, pp.19.

      In sharp contrast to other developing countries, the HIPCs have weak economic growth and export performance.  Average gross domestic product growth between 1985 and 1990 was 2.2 percent and fell to only 1 percent between 1990 and 1995.  In 1993, 32 of them had gross national product per capita figures of $695 or less, debt to export ratios higher than 220 percent, and debt to GNP ratios of more than 80 percent.  Over half often have annual debt service due of more than 20 percent of government revenue.  The debt payment of Zambia and Nicaragua, for example, use one of every two dollars received in aid, which diverts scarce resources from both economic reform and poverty reduction efforts.

       The causes of underclass status are many and complex: external trade and other shocks, heavy reliance on primary commodities, weak formal economies and economic reform efforts, corrupt and oppressive governments, civil conflict and war, environmental degradation, and disintegrating physical and social infrastructure.  All this is reinforced by limited access to private international capital flows despite the implicit bargain with the IMF and the World Bank that such access would sustain economic reform efforts.  A number of these countries are failed or failing states—Somalia, Liberia, Sierra Leone, Chad, Cameroon, Central African Republic, and both Congo’s.  Other suffer from ongoing civil strife—Rwanda, Burundi, Sudan, Uganda, Angola.  Even some HIPCs with major resources, such as Nigeria and Sudan, are in serious trouble.  In addition, another group of weak states exists that are not yet classified as HIPCs because they have only recently had access to official and private international finance.  Three states of the former Soviet Union, for example—Kazakhstan, Uzbekistan, and Belarus—are mixed in with African states at the bottom of international credit ratings, and others are not yet rated; they are likely to be future HIPCs. [xxiii]

       Developing countries today are a much more heterogeneous group than at the beginning of the post-war period.  Globalisation is not helping them become more equal; the poorest are not catching up the fastest.  Instead, globalisation is making the differences between developing countries increasingly deep and wide:  “For many millions of people, globalisation has mean greater freedom and prosperity.  But for millions of others, the same process has brought economic disadvantage and social disruption.” [xxiv]

     Since the 1980s, poverty has grown in absolute terms throughout developing countries and has increased in both absolute and relative terms in much of Africa and Latin America.  In the later, after a sharp rise in the 1980s, the proportion of poor people started to slowly decrease from the early 1990s onward, but in only two countries: Chile and Colombia.  In the rest of the region poverty has continued to grow and, if current trends persist, will continue to do so in the 10 years at the rate of two more poor people per minute.  “Globalization is not making the world less diverse and more equal.  A growing but still small part of the world’s population is becoming more similar in what it eats, buys, wears, and thinks.  And more and more people across the planet have become increasingly exposed to the amenities of the global marketplace, although mostly as permanent window-shoppers and silent spectators.  The large majority of humankind, however, is rapidly being left outside and far behind.” [xxv]

  6. Globalisation - a process of growing poverty in Latin America

     In the past decade, most Latin governments have adopted what is called the “Washington Consensus” as I have outlined earlier :—reforms backed by the IMF and the United States Treasury Department that include lifting restrictions on trade and foreign investment, privatizing state enterprises, stabilizing local currencies, and clamping down on government spending to achieve balanced budgets.

   The reforms have created a dramatic turnaround in Latin American economies, ending the state dominated populist and protectionist regimes. Yet implementing the policy package that Latin call “neo-liberalism” has been costly: —million have lost jobs because of privatization, public services including health care and education have been sharply reduced, and in many countries the number of people living below the poverty line has increased. Benefits have accrued to the reformed countries as trade and foreign investment have increased and sound finances have spurred growth. But as the August rout proves, Latin America remains subject to recurrent crises. [xxvi]

   As Elizabeth and Arnoldo puts it:—“‘Neo-liberalism’ is a set of economic policies that have become widespread during the last 25 years or so. Although the word is rarely heard in the United States, you can clearly see the effects of neo-liberalism here in Latin-America as the rich grow richer and the poor grow poorer..; ‘Neo’ means we are talking about a new kind of liberalism which is a new kind of ideas or new set of policies. Such ideas were ‘liberal’ in the sense that they advocated no controls. This application of individualism encouraged ‘free’ enterprise and ‘free’ competition - which came to mean, free for the capitalists to make huge profits as they wished.” In this sense, “neo-liberalism means the neo-colonisation of Latin America”.[xxvii]

7. Neo-liberalism, the case of Chile and Mexico

   The first clear example of neo-liberalism at work came in Chile, after the Central Intelligence Agency CIA-supported coup against the popularly elected Allende regime in 1973. According to Dr. Atillo A Boron, a Executive Secretary of Consejo Latinoamericano de Ciencias Sociales (CLACSO), the essentials of neo-liberal economic reform which has been imposed by powerful financial institutions like the IMF, the World Bank and the Inter-American Development Bank “are well-known: monetary stabilisation, economic liberalisation, balanced budgets, deregulation, privatization, downsidezing of the state, and free rein to market forces. This ‘blue-print’ was adopted, with varying degrees of enthusialism, in all the countries of the region.” However, after 15 years or more, it is time to arrive a balance. The results of these policies are crystal clear: “the ideological accomplishments of neo-liberalism far exceed its modest economic achievements, which in any case have imposed enormous social costs.” [xxviii]

   Consider the case of Chile, currently cited as the paradigm of neo-liberal success:— “By 1988, after 15 years of economic restructuring, per capita income and real wages of workers are not much higher than in 1973, notwithstanding an average unemployment rate of 15% between 1975-85 (with a peak of 30% in 1983). Between 1970-87 the poverty rate increased from 17%  to  38%, and in 1990 the per capita consumption in Chile was still below its 1980 level.” [xxix] Chile’s former president Patricio Aylwin one commented that in his own country, “the most pressing issue confronting democracy was to redress the current ‘social debt’.” As Aylwin’s remark indicates, “the new democratic institutions have disappointed citizen expectations not only in Chile but throughout Latin America. Against the opinion of the mainstream political scientists the citizenry in our region does not conceive of democracy as simply a system of rules to organise electoral competition. People in Latin America expect democratic regimes to provide the essential goods and services needed to live a decent life. Yet the emergence of democratic process in Latin America unfortunately coincided with the ruthless adoption of the so-called neo-liberal economic ‘reforms’. And these reforms have had disastrous consequences for ordinary citizens.”

   In Mexico, more than a decade of orthodox adjustment has produced manifest social and economic involution. According to official Mexican data, “per capita national income fell 12.4% between 1980 and 1990, despite the triumphalist rhetoric used by Institutional Revolutionary Party (PRI) government to ‘sell’ their conversion to neo-liberalism. Between 1982 and 1988 real wages dropped 40%, and have remained close to their 1988 level ever since while the unemployment rate - traditionally high in Mexico - increased, per capita consumption dropped 7% between 1980-90”.  According to Dr. Atillio A. Boron, in a recent official document - which includes a section on ‘Chile as a Model’ - the former World Bank Chief Economist Sebastian Edwards fails to mention these disturbing facts: “The disappointing results of this ‘free-market fundamentalism’ extend throughout the region, and are not at all confined to Chile and Mexico, the countries one advertised as ‘success’ stories. Neo-liberal policies have vastly increased the numbers of the poor and ‘extremely poor’, and widened the gulf separating rich and poor.” [xxx]

Table 4

Selected economic statistic for Latin America and Africa, 1981 - 1985

GNP per capita (constant prices; US dollars)

Sources: IMF, International Financial Statistics Yearbook, 1997, World Bank, World Development Report, 1983, 1985, 1987; ECLAC, Economic Survey of Latin America and the Caribbean, 1986, 1988.

    It is now become clear that from the early 1980s most African and Latin American countries began to ‘underdeveloped’. This much is obvious from a reading of “a most basic macroeconomics indicator: GDP per capita” (as showed in Table 4).    Thus, after decade of pursuing its development, the Economic Commission for Latin America and the Caribbean concludes:— “Poverty is the great challenge for the economies of Latin America and the Caribbean, between 1980 and 1990 it worsened as the result of the crisis and the adjustment policies, wiping out most of the progress in poverty reduction achieved during the 1960s and 1970s. Recent estimates place the number of poor at the beginning of this decade, depending on the definition of poverty, some where between 130 and 196 million. Recession and adjustment in the eighties also increased income inequality in most of the region. In the countries with the most highly concentrated income distribution, the richest 10% of the households receive 40% the total income”.  And, a recent report, the 1997 Social Panorama of Latin America, noted that “in the 1990s the high concentration of incomes has been maintained or accentuated in the countries of the region, making Latin America one of the more backward areas in terms of social equity.” [xxxi] Thus, the medium-and long-term consequences of neo-liberal reforms have been an increase in the economic inequality of Latin America societies.  

8. Global power structure - A threat to US interests

   A key aspect of the global globalisation and development relationship is inequity: - in power, capacity and resources to begin with, - in trading and economic relationship, - in the distribution of gains and losses.  The way the world economic and trading system is set up is very inequitable; - the term of trade,  finance, investment and technology transfer are inequitable; - the distribution of benefits or losses is inequitable.  In general, the more powerful parties gain from international economic relations; - other countries gain as a whole by less; - still other countries actually stand to lose.  And, at least within the later two categories of countries, the weaker sections of society suffer most from the costs of adjustment.  This crucial role of state power, whether it be  military, political, or economic, is perhaps clearest in natural resource sectors like oil.  Here the historic rivalries among the United States, Britain, France, Germany, Italy, and Japan for control of this crucial industry have in the last analysis been settled by the ultimate test of state power, - war making ability.  “As with the International Monetary Found (IMF), voting powering the Bank was determined by capital subscribed, which ensured that the Bank to worked primarily for the interests of capital in the developed countries and not for the Third World.  However, that the World Bank loan were ultimately intended to promote economic development in the Third World, the reality in that their role was to promote private foreign investment in those countries.  A good example of the Bank’s real motives can be seen in the oil area, where for decades the bank stubbornly refused to lend money for Third World governments for highly profitable investment in oil refunding and production, insisting instead that foreign investors be given these lucrative opportunities.” [xxxii]

    The process of world globalisation and development is playing a more and more crucial role in the determination of the effects of trade, other external economic relation, national development strategies, and human rights fulfillment.—"Due to inequities in world economic structures, the developing countries is transferring several hundreds of billions of dollars of economic resources to the developed countries annually in terms of term of trade losses, debt servicing, profit outflows, etc.... This drain is major cause of lack of resources in the developing countries, profoundly affecting the ability to meet basic needs and thus having a determining effect on human rights". [xxxiii]

  Table 5. A net outflow of resources (Brazil is an example)

Comparison of Two External Shocks (US$ billion)

defined as total loans plus suppliers less amortizations. Figures for 1982/84 do not include IMF loan.

Source: see in The Development Crisis: Blue Print for Change, published by the International Center for Economic Growth, 243 Kearny Street, San Francisco, California 94108 U.S.A) ed. 1987.

      Every year the developing world has transferred to the North more financial resources than it receives - (an example as showed in Table 5, a substantial net outflow of resources in the case of Brazil).  According to United Nations data drawing on all major sources of financial flows (loans, foreign investment, aid, etc.), a sample of 98 developing nations shipped a net $115 billion to the developed world in the period 1983-1988.  The World Bank, looking only at banking transactions, estimates that the debtor countries transferred to foreign creditors more than $50 billion in 1988 alone, followed by another estimated $50 billion in 1989. [xxxiv]

      A central structural dilemma for the global economy is the emergence of an international underclass of weak states and economies that they may not be able to benefit easily or quickly from economic reform and democratization. It poses major difficulties for the functioning and evolution of the international political economy and for international peace and conflict well into the next century;— this structural dilemma has largely driven the evolution of the IMF, the Paris Club and the London Club. By the 1970s, while continuing to deal with middle income countries, it focused increasingly on weak states. Such states often get into debt service trouble quickly and do not come out easily because economic reform has not worked well for them. [xxxv]

9. Conclusion & An Agenda for the Future

      Since the end of the Cold War, the theory of ‘globalisation’  has grown in influence in academic and public policy circles. According to this emerging orthodoxy, long-standing conditions of time, space and territoriality have been transformed by worldwide trends. With new communications technologies facilitating 24-hour round the world financial transactions, ecological damage taking on global proportions, and rising world-scale unemployment, starvation and mass migratory pressures, nations and their states are supposed to have lost much of their capacity to maintain control. Globalisation theory conjures up a picture of society which is “rudderless and anchorless, a lifeboat tossed on a sea of turbulence and threats with little chance of controlling the forces below the waves.” [xxxvi]

     This world globalisation and development in turn is seen as largely the result of parallel technological explosion in computerisation, telecommunication, and rapid transportation.  Today, however, in addition to the relative ‘size’ of companies versus countries, the emphasis is on trends like the rapid flight, which many forces national governments to bow to the will of companies.  These facts are pointed to as examples both of increasing world globalisation and of the impotence of national governments to stop it.  In the world globalisation and development, the balance of power in world politics has shifted in recent years from territorially bound governments to governments that can roam the world.   “The tentative conclusion that can be reached at the end of this survey is that as the twentieth century closes, and, the concept of globalization has become seriously overworked over the last few years and its use often conveys very little of significant.” [xxxvii]

     The failure to prevent, and the desire to fix, may both  stem from processes of globalization.  “On the one hand, the global spread of capitalism, Western media, cultural influences and democratic ideals may have fostered economic, social and political tensions to the point were some states are regarded as having collapsed or failed.  This has been referred to as ‘structural violence’, meaning the build-in disparities which ensure that societies are forced to struggle for bare survival.  On the other hand, there is a potent mix comprising technological power, a sense of universal human values and obligation to relieve suffering, and a perceived ability to provide assistance and policing as measures to improve global security.” [xxxviii]

     However, globalisation will be result in all societies being exposed to the global culture.  Today violence,  crime and sex already dominate the screens.  In most of the developed countries the number of crime and suicide were increasing year after year, and people were living isolated as never.

   There are, quite simply, above argument. The current orthodoxy does not quite suggest that the late twentieth-century free-market capitalism has attained a state of perfection. The slow growth, the high unemployment, the crippling debt burden for the developing world, the loss of habitat, the rise in crime, the bouts of severe foreign exchange turbulence do not suggest to us that this is the right way of the economic development mechanism. As I have detailed earlier in this essay what had happening for the developing world after decades of economic austerity imposed by the International Monetary Fund, the World Bank, and the so called Washington Consensus. One have to claims that for the global capitalism have been undermined by the chronic unemployment and social breakdown world-wide, and, in particular, the foreign exchange crisis and pollution cloud that engulfed south-east Asia in the late summer and autumn of 1997. The humbling of the tiger economies of Thailand, Malaysia, Indonesia and South Korea by currency speculators and the smog that descended over Jakarta, Singapore and Kuala Lumpur as a result of forest fires burning out of control served notice that the downside of globalisation was the financial instability caused by trillions of dollars sloshing around unchecked in financial markets and a cavalier attitude towards a fragile ecosystem.

     The IMF has long been a target for those seeking international financial reform, but since the Asian crisis erupted a growing chorus of voices has found fault with its policies and management;— the IMF’s critics call the organization “ineffective, unnecessary, and obsolete”, and they claim that “it is the IMF’s promise of massive intervention that has spurred a global meltdown of financial markets”. [xxxix]

    The failure to maintain credible monetary, fiscal, and international economic policies has brought many of the developing countries into a vicious circle with global currency traders;— “Honing in on such weaknesses as large current account deficits, an inability to collect taxes, or failure to control the money supply, speculators bet against currencies, often leading to devaluations, problems in the exposed banking sector, further economic instability as citizens panic, ” [xl]

 and, in the Russian case, a default on the outstanding debt, and recently the Brazilian financial scam. It is, and that is now required in the interest of system stability. The world economy needs rules and institutions that must be made clear to all market participants.

      Nevertheless, the time is ripe for a systemic change.  The triumph of economic liberalization is already on the wane as the prospect of growing unemployment overshadows the elevated rhetoric about the virtues of the market friendly regime.    In my view, there should be a re-balancing of the roles of the state and the markets.  At least, the governments have to consider having strong regulation to prevent private banks, financial institutions and companies from making mistakes, especially in relation to foreign-currency loans. The state therefore has a critical role in planning and controlling the pace and type of development.  It is time that the states, acting individually and together, regionally or multilaterally, play the role for which they can put in power to protect their citizens and the public from the mistakes of the markets and the manipulations of predatory forces. To the extent that markets need strong governments that can enact and enforce the rule of law, economic  liberalization must be accompanied by a process of state building.—  “good governance” has become the newest Spirit of the Age, for because we have to fight for the World Development and Right,  for because, as Aldo Ferrer put it: “The globalisation fiction and the fundamentalist view promote not very rational policies and bad results..., such policies subordinate the administration of available resources, the accumulation of capital and technological change to the interests and objectives of economic and social agents that control only a minor share of resources and markets.” [xli]

     Such irrational policies agenda suits Western elites. In the past, Third World poverty acted as a powerful illustration of the bankruptcy of global capitalism. Today this charge is stood on its head. It is accepted that nothing much can be done to develop Third World economies and societies. Instead, the peoples of these societies much learn to live within limits. The problem is redefined as one of modifying their behaviour—with the assistance and direction, of course, of various Western agencies, from the IMF, the World Bank, the WTO to UN intervention forces. In such a climate, capitalism is let off the hook.

    I should pointed out that it is important to recognize that the dominant processes of globalization have intimate connection with processes of Westernization.  Moreover, far from being a completely novel or predominantly contemporary phenomenon, “a globalizing imperative has been evident in previous periods of history, and is perhaps most powerfully visible in nineteenth-century imperialism.  Globalization in the 1990s is neither an historically unique process nor necessarily the harbinger of a world society.” [xlii]

   Finally, as students of World-Development-Studies it is necessary for us to realize that we can make an important contribution to the development debate, and that:

— “ being among the world’s privileged, you and I have a special obligation to think and act as a global citizen, to be steward of what ever power we hold, to contribute to the transforming forces that are reshaping the world. The future, of human society, of our children, depends on each of us ”; [xliii]

  Today, as after 50 years later, far from the advancement of all peoples in the world, UN Development Program (UNDP) reports that ‘the vast majority of all peoples are being deprived, by trade barriers, interest manipulation, and other structural inequities’. “Globalisation can simultaneously contribute to increased food production and increased hunger: the South produces over 40 percent of the world’s food, but the majority hungry people live in the South.  Hunger in the South is not being reduced, because self-sufficiency is being replaced by cash-crop production for agribusinesses, which are now a powerful force in global politics”. [xliv]

   Today, everybody looks to the Western powers to “save the Third World from itself”. No longer is the world seen to be divided between the exploited and the exploiters. Today’s world is divided between nations that are civilized and those that are deemed uncivilized; between those which always have right on their side and those that are inherently evil. It is not simply that the South is morally condemned; now the West can claim the moral high-ground.

   Today, after half a century of globalisation and development, the disparity in income-earning between the richest one-fifth of humankind had not been reduced, in fact it has been increased.  If the world policies  (especially the United States and developed countries) continue, before long one in every three human being on global will be living in absolute poverty. indeed, as Dr.Rojas put it: “it would have destroyed all our societies and our planet Earth”;  [xlv]

    Globalisation and the inversion of the old realities means that it is time for a new approach from the opponents of imperialism. We need a new kind of politics for to meet the challenge of a World development where the rules of the game have been turned upside down./.

Notes and References