Chapter 2: Globalization and Working Towards Alternative Development Paradigms, by M. A. Oomen
Professor, Dr. Oommen is an economist and Senior Fellow of the Institute of Social Sciences, New Delhi, India.
Globalization: definition, magnitude and trends
Globalization means different things to different people. For the economist, sociologist, politician, businessperson, journalist, environmentalist and lay person, it means different things. The dominant issue may range from genocide to drug trafficking, to child prostitution, to integration with global market. I will confine this paper essentially to the economic dimension which really is the most prominent aspect of globalization. From an economists perspective globalization is: transnationalization of production and capital, standardization of consumer tastes, legitimization of global capitalism through transformation/creation of international institutions. Transnationalization can happen only in a borderless world. Tariff walls, quota restrictions regarding the movement of goods and services, opening up of financial services, removal of foreign exchange restrictions, and regulations – in brief all hindrances to free trade and transactions have to be done away with to facilitate a borderless world market. Truly the end of geography! Goods are produced in not one country, but in several countries. Ford-Escorts are produced in 18 countries, but assembled in London or in Chennai. In such a world, consumers have to be globalized. Coca cola is consumed in 192 countries. There are Honda bikes in every country. A good many food items are standardized. No wonder some people call globalization Macdonaldization’.
Of the features of globalization, the most important is the transnationalization of capital. The character of capital remains the same, viz pursuit of profit and accumulation. But the nature of capital has undergone a sea change. One important textbook classification of capital is into finance capital and productive capital. In a money economy production is organized with the help of finance. So also is trade and commerce. But today under globalization accentuated by the forces of technology, transport and telecommunication, productive capital is comparatively insignificant, with finance capital being more dominant. Today the job of finance capital is not just oiling the wheels of production, more pertinently it is to indulge in speculation which includes currency hedging.
There is a lot of currency hedging and trade in futures. The most sophisticated variety of futures is called derivatives. Derivative securities are contracts whose values are derived from the values underlying widely held and easily marketable assets such as commodities, foreign exchange, bonds, equities, or even price index, bond index etc. There is no problem in characterizing all these categories as fictitious capital. These are hyper-mobile, moving round the clock in jet speed in search of profit. Computerized dealing systems dispatch huge sums across national boundaries every working day. Of course, this includes foreign portfolio equity investment which can contribute to the financing of domestic enterprises and is most direct when investment is made in the local national market for primary issues or in the international market through investment in international equity offerings or issues of depository receipts. On a rough reckoning about 2 trillion dollars worth of transactions in foreign exchange and commercial papers take place every day. Assuming 300 working days a year, the total transactions work out to 600 trillion dollars. Look at the volume of merchandise traded (imports + exports). It is less than 11 trillion dollars and the world’s total GDP is only 28 trillion dollars. Clearly financial capital is on a self-expanding path. There is complete decoupling of finance and productive capital. In this process the world has been reduced to a casino in which these speculators play snakes and ladders with the lives of millions and millions of people. They influence exchange rates, interest, inflation and other variables that directly influence the real life of people. Here is a casino where the stakes of the game go beyond that of the players. Non-players are affected much more than the few players.
With transnational corporations (TNCs) not requiring much outside capital, large banking funds will have to seek outlets on a global scale. Also a large number of non-banking financial intermediaries like mutual funds, pension funds, etc., have been strong and active in national and international portfolio investment area. There is substantial concentration of financial resources in the hands of institutional investors. During the last three or four years big financial institutions (FIIs) like Morgan Stanley, Merrill Lynch, Taurus, Fidelity, Jardine Fleming etc. have become big actors in India. Nearly 440 FIIs have registered with SEBI. The Global Depository Receipts (GDRs) of India are popular in bourses abroad. India, where there was no FII in 1992, has today become financially global, although full convertibility of currency is still awaited.
Turning to productive capital, in 1996 foreign direct investment (FDI) stock was $ 3.2 trillion as against $1 trillion in 1987. Its rate of growth over the past decade (1986-1995) was more than twice that of gross fixed capital formation indicating an increasing internationalization of national production systems. The worldwide assets of foreign affiliates is valued at $ 8.4 trillion in 1994, or about 34 per cent of the GNP of the world.
FDI flows to developing countries is increasingly going up. FDI flows set a new record level of $350 billion in 1996. Out of this $129 billion or 37 per cent was to developing countries. It was 43 per cent more than in 1995.
An interesting aspect of the boom in FDI is the increasing mergers and acquisitions (M&As). The value of M&As increased by 16 per cent in 1996 to $ 275 billion. It was only $123 billion in 1989. Complementing the increases in M&As and FDI flows, the number of cross border interfirm agreements has increased. In 1995 nearly 4,600 such agreements were concluded, compared to 1,760 in 1990. Most of them were between firms in the developed countries. Union is always strength except for those who are at the mercy of those who have combined.
In spite of the tremendous growth of FDI flows, technology sharing is concentrated among a few developed countries. In 1995, United States firms received an estimated $27 billion in royalties and license fees accounting for 56% of global receipts. “Technology exchanges in terms of patents, royalties and license fees between the US on the one hand and Japan, Germany, the UK, France and the Netherlands on the other have been large and increasing” (UNO, 1997, p. 2l). Actually there is no technological globalization. Technology especially through TRIPS and strategic alliances and agreements has become an instrument of power and profit accumulation.
The predominant actors in globalization are TNCs. The world’s 44,000 TNCs and their 280,000 affiliates now control 75 percent of all world trade in commodities, manufactured goods and services. One-third of this trade is intra-firm -making it difficult for governments or even international trade organizations to extend any control. Firms rely increasingly on sales from international production rather than on exports to service foreign markets. Actually only about 100 TNCs really matter. The turnover of companies like Royal Dutch! Shell, General Motors, IBM, Ford, Toyota, etc., are larger than that of the GDP of most countries of the world. Their resources are so large that through strategic alliances they can control world development the way they want. Globalization certainly has been the result of the activities of these big juggernauts. The largest 100 TNCs ranked on the basis of size of foreign assets own $1.7 trillion in their foreign affiliates controlling one-fifth of global foreign assets. In the US, 25 TNCs are responsible for half of that country’s outward stock, a share that has remained almost unchanged during the last four decades. The Triad (EU, US and Japan) is home to 87 per cent of the top 100 TNCs. With foreign sales amounting to $2 trillion and foreign employment close to 6 million persons in 1995, the largest 100 TNCs are prominent actors in international production.
The process of transnationalization has been legitimized largely through three international organizations, viz the IMF, the World Bank, and the WTO. IMF and World Bank also provide the theoretical underpinning and policy package called stabilization and structural adjustment. WTO contributes to the regulatory framework to facilitate free trade and discipline detractors. The politics that followed has created a world of dependence and domination.
Two important purposes of IMF were exchange stability and providing resources to tide over balance of payments disequilibrium. Since 1973 through a conspiracy of circumstances and US self-interest this arrangement was thrown overboard. America entered the floating exchange rate system and compelled the world to follow suit. Drawings above 50 percent of quota are associated with conditionalities. Today they are not called drawing rights but credit. There are different types of credit called facilities. The borrowing country has to enter into a standby agreement every time credit is taken to implement a package of programmes called stabilization. Stabilization to restore external balance of payments equilibrium by promoting exports through devaluation and internal balance through reducing fiscal deficit by reducing expenditure and borrowings (except probably from IMF, World Bank, etc. and with their approval from foreign commercial markets). The basic idea of the IMF-World Bank package is to curb the level of aggregate demand or purchasing power in the economy, especially the expenditure of governments while promoting privatization and competitive markets. Structural adjustment is the name given to the World Bank part of the reform with an accent on the supplyside. Very briefly, structural adjustment means privatization, liberalization of all regulations governing trade, commerce industry so that full play of market forces is permitted and promoted. ‘Set prices right’ on market terms, everything else will be added unto you! The main thrust of the package of the Bank-IME duo is to shift resources from the government, or public sector, to the private sector from import competing activities to export. In brief, the policy packages are meant to promote the untrammeled assertion of market forces in a global setting on the explicit assumption that this will lead to efficient utilization of the worlds resources.
IMF, which was conceived as a conservative ‘stabilizer”, has emerged as the strongest protector of metropolitan capital in strong alliance with its sister institution, the World Bank. Through a process of protracted negotiations called the Uruguay Round the GATE was virtually transformed into an organization called the WTO. This trinity now presides over the management of the world’s resources.
WTO is a self-executing treaty with the institutional mechanism to enforce it. It is comprehensive as it covers almost every aspect of human life, agriculture, industry, investment, insurance, banking, property ownership, trade, services, intellectual property, health, environment, media, etc. Many agreements such as the one on subsidies (these are “actionable subsidies”) TRIMS, TRIPS and GAIT are against the letter and spirit of the Indian Constitution, especially Part IV which seeks to ensure “Justice with Freedom”.
TRIMS is the most powerful measure that protects the interests, income and wealth of foreign investors against all actions including restrictive trade practices such as market allocation, collusive tendering, differential pricing, predatory pricing, transfer pricing, etc. GATT seeks to provide, “immediately and unconditionally”, Most-Favored-Nation-Treatment (MFN) to services such as banking, insurance, telecommunications, air transport, etc. For all practical purposes it will be difficult for a state to have monopoly service of its own within its borders.
TRIPS seeks to change the entire concept of patenting by drawing into the realm of patentability not only inventions but naturally occurring life forms as well. This is dangerous for countries like India which has one of the highest bio-diversity potential of the world.
Why Search for Alternative Paradigms?
Quite often it is held that globalization is a natural and inevitable outcome of the evolution of human history. Francis Fukuyama saw ‘the end of history as such: that is the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government” (Francis Fukuyama, The End of History”, The National Interest, Summer, 1989, p. 4). It is not only the affirmation of Western liberal governments, it is also the affirmation of global capitalism. Can we accept unchallenged the neoclassical worldview of development and governance? To quote the telling words of Partha Chatterjee (1994), “If there is one great moment that turns the provincial thought of Europe to universal history, it is the moment of capital – capital that is global in its territorial reach and universal in its conceptual domain. It is the narrative of capital that can turn the violence of mercantilist trade, war, genocide, conquest and colonialism into a story of universal progress, development, modernization and freedom”. We probably have to start from here in our quest for alternative paradigms”.
Globalization is not an outcome of natural evolution. It is shaped and continuously being shaped from the days of colonization. Even science, technology and the whole knowledge systems got shaped in the process. Unfortunately, science and technology have never been designed to serve the larger interests of humanity. Several social science disciplines, notably economics, have also failed to go beyond the phenomenal form of commodity flow. No wonder it has provided the rationalization for the most iniquitous distribution of income and wealth.
The dominant technological choices have come to be decided by the needs of the military and the resource endowment of the West which have controlled science and technology from the days of the Industrial Revolution. They suit the population growth rate of the West, which is declining but not the 86 per cent of the youth of the world who inhabit the developing countries.
Capital, naturally, hated labour, especially trade unionization. The chosen technological paradigm suited it as technology tirelessly strove to eliminate labour. Globalization is now seeking social paradises free from unionizations. This is easy under the free borderless world of today.
Since 20 percent of the world’s population commands 85 percent of worlds income, the market will respond only to the wants of these people. The production structure and pattern, resource use and technological choices will naturally have a bearing on the interests of these categories.
The economic governance of the world today is virtually in the hands of G-7 countries, the IMF, the World Bank the World Trade Organization, the G-Thirty and the World Economic Forum. People call this Washington Consensus. By Washington Consensus is meant not only the US government but the network of opinion leaders centred in the World’s de facto capital – the IMF, the World Bank and the WTO think tanks, politically sophisticated investment bankers and worldly finance ministers, and all those who meet in Washington and collectively define the conventional wisdom of the moment (Paul Krugman: pp. 28-29). The political management of the world is done by the G-7 through the United Nations Organization. Is this political globalization leading to a just society or a desirable development paradigm?
Before we go into outlining some important specific reasons for exploring alternatives to market- mediated growth strategies one other aspect also needs to be noted. In the development literature as well as in the language touted by all international institutions, the term developed, developing and less developed economies / countries is used. Implicit in this terminology is the assumption that the less developed or developing countries have a model to be faithfully followed, viz the developed countries of the world. Even the former Soviet Union and China could not be considered to have been free from this. This tadpole-frog development paradigm is a questionable paradigm although it is so well entrenched and formidable to be attacked, let alone dislodged. Can we attain global civilization by following the global capitalist paradigm or escaping from it? This monolithic, homogenizing paradigm does not provide for any alternative.
There is a profound spiritual emptiness in the market-mediated development paradigm. This, to my mind, is its Achilles’ heel although it is seldom recognized, quite understandably so, because the neoclassical economic postulates are basically value neutral. The critique given in the rest of this section seeks to bring home the spiritual / moral weaknesses of this paradigm.
Market-mediated development is a system that excludes the so-called poor, or less endowed, the property less or any one without exchange entitlements from participating in the market. Therefore they who have the purchasing power decide the pattern of production. It has created the impression and the value premise that the generation of exchange values is the legitimate goal of the organization of any economy. Production of use-values assumes importance when they command exchange values only.
The basic principle underlying the organization of society is profit-making through competitive pricing. This leads to the exploitation of labour and continuous technological innovation that makes labour or human beings redundant. Exclusion becomes an inevitable part of progress. Expansion and exclusion happen in the same breath under this regime. Resource power rules over labour power in this culture of development. We have seen how, thanks to globalization, a few TNCs control and manage the resources of the world to make profit. They also indulge in a series of mergers and acquisitions. Technology is monopolized and manipulated for the military (production of military hardware is the most lucrative business) or production of consumer goods for the rich. Plenty, economic growth and poverty co-exist and is being legitimized.
The worst and probably most inhuman dimension of the market-mediated development paradigm is the justification of growing inequality in income and wealth. All these and globalization are justified on the basis of micro-level efficiency of resource use. Not only IMF and World Bank, even UNCTAD has pressed into service neoclassical textbook economic theory to justify globalization using the long discarded Pareto optimality logic of efficiency under competitive equilibrium. According to the World Investment Report, 1997, “Economic efficiency refers to a situation in which participants of an economy make economic choices that accurately reflect the relative scarcities of goods, services and resources available for consumption and production. When production and consumption take place efficiently the economic welfare of a society (the consumers and producers taken together) is maximized, in the sense that it is not possible to make any member of the economy better off without making someone else worse off’ (UNO, 1997, p.124). For one, polarizing society into consumers and producers however ‘economically” neat it may be, it is incorrect. Secondly, will the poor be made better off without making the rich a little worse off, especially in an extremely unequal society? Given theories like this no one need be surprised at the lack of horror at the growing misery along with filthy affluence. Thirdly, perfect competition exists only in economic textbooks and never in reality. It is built on extreme unrealistic assumptions. Some Marxists argue and correctly so that the so-called Pareto optimality or efficiency serves an ideological purpose by presenting a picture of capitalism as a harmonious system and distracting attention from its exploitative nature. This is exactly why the protagonists of globalization try pressing into service neoclassical economics. Fourthly, it is probably not wide of the mark to recall here John Rawl’s famous contention that inequalities that are not to the benefit of all is injustice.
Globalization is rooted not only in neoclassical economics, it is as much grounded on the neoclassical liberal ideology of individualism. The Universal Declaration of Human Rights affirms the right to property as fundamental individual human right (Article 17). While recognizing that no one shall be arbitrarily deprived of his property (somewhat in Pareto fashion), the Declaration does not uphold the community’s right to common property which is a traditional right of many countries in the East, very much so of India. Indeed, property does provide self-respect, dignity and exchange entitlements. But the inhumanity and havoc involved in denying property to millions of people even as growth rate may reach a two-digit level under global capitalism nowhere finds serious mention except probably in the UNDP’s human development reports. Those who are denied property are not only below the poverty line, but they are as much below the power line and, in the case of India, below the pollution line! Equally important to focus is the invisibility of the rights of women in the Universal Declaration. Women by virtue of Nature’s division of labor are responsible for the continuation of the human species and definitely concerned with the protection of life (How many women murderers are there in human history?)
Global capitalism, which is but globalization is to be resisted because it promotes these inhuman activities. Uncaging the tiger in man is good only if it is explicitly recognized that pursuit of profit, property and power can brutally endanger the common good.
Although a lot of political management of the world today is done by the G-7 through the UN and the Washington Consensus and national sovereignty in several countries is seriously threatened by globalization, nation-states are still alive and are likely to play important roles in world affairs in the years to come. Samuel P. Huntington argues that the behavior of nation-states in the post-Cold War era is increasingly influenced by their cultural identity along with the pursuit of power and wealth, so that “the rivalry of superpowers is replaced by the clash of civilization” (Huntington P. Samuel p.28). Briefly, his argument is that as the power and self-confidence of non-Western societies / civilizations (like Islam, Sinic, African, Hindu, Latin American, Japanese, etc.) increase, they will assert their own cultural values and reject those imposed by the West through colonialism and capital. While I do not agree with Huntington’s contention that the critical factor in the post-Cold War world is not ideological or economic, but cultural, I venture to hypothesize that the ongoing struggle for cultural identity including religious fundamentalism is due to the moral and cultural emptiness of the neo-classical paradigm of development.
It is high time we recognize that global capitalism is an unsustainable paradigm of development for a variety of reasons. First, based on the untenable postulate of unlimited wants or consumerism, it has violently interfered with the ecosystem and environment. It is now fairly well documented that Green House Gases (GHGs) like carbon dioxide, nitrous oxide and methane blanket the earth and warm up the atmosphere with disastrous consequences to sustainable living (See Oommen, 1997). Although the Rio Conference and several Climate Conferences addressed the problem, precious little has happened on the ground to arrest the rot. Unless the consumerist lifestyle is reserved, how can we stem the tide? The two quotations from a Dutch economist, Thifs dela Court, are cited to show the unsustainability of globalization and the development paradigm underlying it. “The population of the United States has used more energy in the past fifty years than humanity has burned up in its entire history. If everyone were to consume as many resources as the American citizen, the World’s annual production would have to be 130 times higher than it was in 1979!” (Court, p.111). The poignancy of this overuse and misuse of resources in the name of efficiency of global resources is heightened by the fact that a sizeable proportion of the opulent lifestyle of the North is made possible through a regular reverse flow of resources (through unequal terms of trade, debt-servicing etc.) from the South. To quote Court again: “Development defined as material growth has become the doctrine of colonialism. As the problems associated with this doctrine become more urgent – the difference between rich and poor is skyrocketing violence is on the rise and the environment faces destruction – the doctrine itself is being questioned’. (Court, p.109).
Search for alternative development paradigms
The search for alternate development models that would avoid the evils and unsustainability of global capitalism is no easy task. We do not bother to outline even vaguely any blueprint on a conceptual or operational domain. What is attempted below is to indicate certain broad contours that should govern any search for a humane world order.
To start with, it is important to recognize that the present international division of labor is unjust and must therefore be restructured. This can only be achieved through an intense struggle to reform those institutions like the World Bank and the IMF which have imposed their “surveillance” and domination over the so-called developing countries. These and the UN are institutions formed during the colonial days and are built on the most undemocratic principles of management and governance. Vital issues like global accumulation without accountability to the global society, drug trafficking and money laundering, global arms trade, rampant sex tourism, global gambling and endemic currency crises, the lack of a global currency, unequal exchange, growing inequalities in income and wealth along with growing poverty do not find a place in the agenda of global institutions. The World Bank and the IMF are preoccupied with structural adjustment asking developing countries to stay in sack cloth and ashes for their sins of the past. Campaigning for a new Constitutional Assembly that will spell out the details of the new institutions may have to start along with worldwide discussions on the nature and character of the new institutions to be formed in 1998 which marks 500 years of the arrival of Vasco da Gama in India.
Development has to be culturally rooted. There is tremendous need to build counter cultures which could pose a threat to aggressive consumerism. The middle class all the world is are compulsively consumerist and in conquering their mind lies the way to developing alternative development paradigms. Non-hegemonic and equal relationships between cultures has to be accepted while building counter cultures. There is much to learn from each other. Unlike what Huntington thinks the West too has to learn from other cultures. Cultural ponds are dangerous places. Any culture that perceives nation-states as markets has to be challenged. Such cultures can treat nature only as raw materials to be plundered for profit. Homo sapiens have to line in continuous harmony with nature for they get their life-supporting werewithals from nature. We hear so much about the “emerging markets” of Asia, but very little about the peoples and their well being.
The dominant technological paradigm of development that dominates global capitalism has to be challenged in a more meaningful way. A technological paradigm that continuously renders human beings obsolete in the process of social production is hailed as modern, advanced and rational. That more than 1.5 billion people of the world have to struggle for survival despite the extension of the Western cultural and technological model of development (this includes the people of the land of Dacca muslin and Kashmir shawls fame) during the last two centuries of Industrial Revolution is an uncomfortable fact of history. It suits well the strategy of “industrialization for war” and the industry-military-politician nexus of the USA and other military powers. We have already noted how science and technology has been manipulated by the big military powers and TNCs for power and for profit. The movement towards the promotion of appropriate technology and durable peace will have to be promoted as part of the process of building counter cultures throughout the world. The need to rediscover the spirit and message of Gandhi is felt today more than ever before to fill the yawning moral vacuum in the world. If Gandhi’s ideas of autonomy and empowerment of each individual, village, state or country is pursued along with his ideas of living in symbiotic relationship with nature, it will be difficult to have an exploitative world order of the type which obtains today.
Any new development paradigm should work towards an inclusive society. Even the most stratified and oppressive caste system of India was not an exclusive arrangement. Everyone had some claim on the social product. The problem of exclusion cannot be permanently addressed unless the structures of exploitation – economic, cultural, social and political – that seek to exclude large sections from the resources of the nation are identified and attacked. Amartya Sen’s treatment of the collapse of exchange entitlements and the UNDP’s Human Development Reports emphasis on building capabilities and widening the choices of all (UNDP definitely has great intellectual indebtedness to Sen on this) are definitely positive steps towards this, although they do not go far in addressing the malady of development and under-development coexisting under the market-mediated paradigm. Of course, the capability building approach is any day better than the so called basic needs or minimum needs approach. As Sen points out, needs is a more passive concept than capability and it is arguable that the perspective of positive freedom links naturally with capabilities (what can the person do) rather than with the fulfillment of their needs (what can be done for them?). The ‘BJP’s plea for economic nationalism or Swaraj mentioned in its 1998 election manifesto is but empty rhetoric, a ploy to capture vote and power. It could be dangerous in the extreme and detrimental to the dispossessed if implemented.
While still on the question of ‘inclusion’, the alternative paradigm will have to recognize the rights of the community to own property and participate in the governance of their lives. Most importantly, this relates to building the rights of women in the society (Of course, this can be effective only through building their capabilities via knowledge, skills, health, dignity and self-confidence). We can only reiterate here our criticisms against the Declaration of Human Rights already made. In a world of stark economic deprivations, what is the meaning of the fundamental rights to property, except as an instrument of further exploitation and class polarization? Then the question is, whose rule of law the Declaration upholds.
The state obviously has failed to promote equity and participation. In promoting globalization, the state is increasingly retreating from its socio-economic function of promoting equity and building the capabilities of the people who are excluded from the exchange regime. Herein comes the role of genuine voluntary organizations. They have to be actively promoted in the pursuit of any alternative development order. Incidentally, why cannot the innumerable parish outreaches function as micro-local agencies of equity, participation and democracy?
To conclude, our critique of globalization as well as the outline of alternatives which follows from it are only meant to stimulate research and action towards a better society. Not with standing the colossal failure of the historical experimentation of socialism there is great need to rediscover socialism. Genuine socialism has a humane face only. An appropriate mix of Marx and Gandhi has both theoretical appeal and pragmatic relevance. Only a participatory democracy can work towards a truly socialist society. India’s panchayati raj system has immense potential for building institutions of self-government at the local level. This is one important way to enhance the capabilities of the disadvantaged. Decentralized governance is something that is to be kept in the pursuit of alternative paradigms.
Dela Court Thijs (1992) Different Worlds: Environment and Development beyond the Nineties, International Books.
Fukuyama, Francis (1989) “The End of History”, The National Interest, Summer, 1989.
Huntington, Sammuel P. (1996) The Clash of Civilizations and the Remaking of World Order, Viking/Penguine
Krugman, Paul (1995) “Dutch Tulips and the Emerging markets” Foreign Affairs, July-August
Oommen, MA, (1997) “Climate Change and the Quest for Sustainable Development”, Mainstream Annual, December 1997
Rawis, John (1973) A Theory of Justice, Oxford University Press.
Sen, Amartya (1981), Poverty and Famines: An Essay on Entitlements and Deprivations, Clarendon Press Oxford.
Sen, Amartya (1984) Resources, Values and Development, Oxford University Press, Delhi, World Investment Report 1997, New York.