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Politics of globalisation

Print edition : May 06, 2005 T+T-

The Geopolitics of Globalisation: The Consequences for Development by Baldev Raj Nayar; Oxford University Press, New Delhi, 2005; pages 301; Rs.595. The Politics of Economic Reforms in India, Edited by Jos Mooij; Sage Publications, New Delhi, 2005; pages 369, Rs.680.

THE books brought together here deal with two aspects of a common theme, the political dimensions of globalisation. The former is concerned with its international manifestations and the latter with its national features.

Globalisation is often seen, both by its supporters and by its opponents, as primarily an economic phenomenon. But it has other dimensions also - technological, sociological, cultural and political. The political aspect of globalisation, including the military aspect, is brought out bluntly by Thomas Friedman in his widely read book on the subject. He said: "The hidden hand of the market will never work without a hidden fist... . And the hidden fist that keeps the world safe for Silicon Valley's technologies to flourish is called the U.S. Army, Air Force, Navy, and Marine Corps." (The Lexus and the Olive Tree, page 464)

Unmasking this hidden (really?) fist of the political and military clout of the United States, which has been pushing globalisation selectively to different parts of the world, is the main theme of Baldev Nayar's study. Behind contemporary globalisation, claims Baldev Nayar, "lies the fact of the present-day global economic order, having been shaped, as were such orders earlier, by a hegemonic power that has been militarily and economically dominant" (page 6). Geopolitics is "understood... as encompassing the politics of grand strategy of states concerning the global distribution of power" (page 7).

After dealing with the advance of globalisation in recent decades (which is described as the deep integration of the global economy as against the shallow integration already achieved by the end of the 19th century) and its truncated nature, confined substantially to the U.S., the European Union and Japan, Baldev Nayar moves on to show how the U.S. has been shaping the global economic order since the end of the Second World War. The first part of the strategy was to curb the power and influence of the Soviet Union through a range of political and military alliances, mainly in Europe, ensuring that the allies would support but not interfere with the grand American designs. The post-War reconstruction of Japan (more on this soon) was also part of the same design. "The denial of Japan's industrial capacity and potential to the Soviet bloc became a pivotal requirement, and it was turned into the fulcrum around which the entire American strategy in East Asia and South East Asia was designed. In short the U.S. made Japan the cornerstone of its containment strategy in Asia" (page 148). Interestingly, the same consideration led to a reversal of the U.S.' attitude and economic relations with China after the latter fell out with the Soviet Union.

Another part of the U.S. global design was the shaping of the international financial and trade-related institutions. In setting up the International Monetary Fund (IMF) and the World Bank, the underlying principle was that the U.S., not the United Kingdom, would be the leader of the post-War "free world", the dollar replacing the pound as the world's lead currency. "The British proposed, the Americans disposed," as a British writer pithily recorded (quoted on page 69). As for the General Agreement on Tariffs and Trade (GATT), it was well known right from the beginning that notwithstanding the many pronouncements about multilateralism and free trade, its primary objective was to protect the interests of the U.S. and its allies.

There was a third part to this strategy about which Baldev Nayar is rather silent - the big boost that post-War U.S. administrations gave to U.S. private corporations to move their production units first to Europe and then to Asia and other parts of the world, which redefined international division of labour and trade leading on to U.S.-sponsored globalisation subsequently.

A second and related theme that Baldev Nayar develops is how the U.S. opened up its domestic market to Japan first and then to South Korea and Taiwan, which made it possible for these countries to go in for an export-led growth strategy.

Immediately after the end of the War, U.S. policy towards Japan was one of punishment. But soon it was realised that in the Cold War against the Soviet Union, Japan had a strategic role and so its economic recovery became the prime objective from about 1948. The communist takeover in China a year later gave urgency to this thrust. With the outbreak of the Korean War in 1950, the U.S. had little choice but to make Japan its regional arsenal. The U.S. procurement policy of massive reliance on Japan for equipment and supplies was something of a Marshall Plan, notes Baldev Nayar, for it provided Japan an economic windfall of immense proportions. Military procurement of the U.S. amounted to about 70 per cent of Japan's exports from 1950 to 1952. In turn, it provided great stimulus to Japanese industrialisation. Thus, the war in Korea set the stage for what later came to be celebrated as the Japanese "miracle". The U.S. pushed Japan's entry into GATT in 1955, in spite of the strong opposition of its European allies. Observes Baldev Nayar: "Ultimately, the U.S., as patron, hegemon, allowed Japan, in the larger cause of containment, greater access to its own market, despite protests from domestic producers, and in this manner launched Japan on an irreversible course of export-propelled growth" (page 155). Soon Japan came to be noted for its double-digit rates of growth.

Similar were to be the rapid growths of South Korea and Taiwan which, along with Japan, soon came to be known as the Asian Tigers. South Korea and Taiwan also came under the strategic considerations of the U.S. from military and economic perspectives. Between 1953, when the war in Korea ended, and 1958, Korea received more aid per capita than any other developing country. Taiwan was not far behind. Baldev Nayar writes: "American economic aid to Korea covered five-sixths of its imports; according to one estimate, it constituted some 80 per cent of the country's gross capital formation between 1953 and 1962. Such aid to Taiwan amounted to 6 per cent of its GNP [gross national product] and constituted nearly 40 per cent of its gross investment; the U.S. supplied about 35 to 45 per cent of Taiwan's imports" (page 161). The U.S. aided and pressured the two countries to accept export-driven industrial development policies as well.

American geopolitics had its influence on China also. China's economic policies, of course, have been largely determined domestically. For the first few years after the establishment of the People's Republic, China remained closed as an economy and a polity. During this period the U.S. treated China as the Soviet Union's Asian ally. But as tension started surfacing in Sino-Soviet relations, the U.S. started thinking of establishing contacts with China as part of the global strategy to contain Soviet influence. As is well known, the breakthrough came in 1971 when President Richard Nixon and Secretary of State Henry Kissinger established formal relations with China. And from then on for two decades the U.S. and China, with fundamentally different economic and political systems, worked together against the Soviet Union, which they both felt was a common enemy. For a while the U.S. directed its economic and military dealings with China via third parties such as the U.K. The U.S. recognised China officially only in 1979, in the post-Mao Zedong era, that is, and invited the Chinese leader Deng Xiaoping to the U.S. for an official visit. The Jimmy Carter administration extended the Most Favoured Nation status to China, bringing it into the growing economic multilateralism. It became a big boon to China, which was contemplating a massive export programme then. The economic relationships between the two countries increased rapidly notwithstanding political irritations such as the Tiananmen Square episode of 1989, differences in the approach towards Taiwan, the human rights issue and so on. Economic as against military considerations were strengthened after the collapse of the Soviet Union in the early 1990s. U.S. capital now moves freely into China and China has made the U.S. economy dependent on its mass-produced consumer goods. Interestingly, a considerable part of Chinese exports are the products of U.S. companies located in China - a typical feature of contemporary globalisation.

Having dealt with Japan, South Korea, Taiwan and China as indicating the impact of U.S. geopolitics (as also briefly with the countries of the Association of South East Asian Nations - Indonesia, Malaysia, the Philippines and Thailand), Baldev Nayar turns to India and Pakistan. India is presented as a counter example of a country that did not, for four decades, follow the export-led strategy but instead tried out its opposite, an import-substituting industrialisation policy. And Baldev Nayar comes to the conclusion: "India's experience reinforces the point that outward orientation has been associated with higher economic growth rates while inward orientation seems to have depressed growth rates" (page 237). Baldev Nayar also makes a comparison, by juxtaposition, between India and Pakistan. If Pakistan had a development strategy, it was neither export-oriented nor import-substituted and the outcome was not particularly impressive either.

Baldev Nayar makes a well-documented presentation of his main theme that globalisation is not an automatic economic movement that has a linear expansion path which will result in an even spread. He unmasks quite effectively the not-too-hidden U.S. fist that has been pushing and prodding the process resulting in the economic, political and military might of the U.S. in key centres of the globe and weakly moving to other parts as well. That is what contemporary globalisation is in a unipolar world dominated by the U.S. Baldev Nayar further puts forward the view that since geopolitical factors are constantly in a state of flux, they can, in the not-too-distant future, undermine U.S. domination and thus change the character and course of globalisation also, possibly leading to some reversals as well.

Even some informed speculations on how this is likely to happen - for instance, whether American authority would be undermined by a politically united Europe, or the surging economic progress of Asia, or its own military blunders in West Asia - would have been fascinating. But Baldev Nayar does not enter into this question at all. Instead, he dissipates an excellent opportunity by choosing to roam about partly in terrain that he is not sure about and partly in territory that is well-trodden.

Examples of the former are where he subscribes to the view that Muslim states are innately revisionist (pages 244-45) and in the inconclusive discussions spread throughout the book about the need to have authoritarian regimes to achieve rapid economic transformation. Of the latter, his treatment (or lack of it) of the export-led versus import-substitution strategies is the best example. After showing that the U.S.' geopolitical interests were responsible for Japan, South Korea and Taiwan resorting to the export-led strategy, he does not enter into an examination of why Pakistan, a military ally of the U.S. in a crucial region of American interest, did not adequately adopt it. More important, if a "market of first resort" (an expression popularised by Lester Thurow) was a precondition for the adoption of an export-led development strategy and the U.S. was willing to make it available to the East Asian countries but not to India, could India have adopted that strategy even if it wanted to? So, was not the choice of the import-substitution policy by India in the early years rational? And, if by the 1990s India had clearly overtaken Pakistan in terms of per capita income (noted on pages 254-55) in spite of massive U.S. aid to Pakistan all these years, was it not a validation of Mahalanobis' claim: "It would be desirable to invest more on the consumer goods industries provided we are interested in the immediate future. If, on the other hand, we are interested in the more distant future, relatively larger investments on investment goods industries would give distinctly better results" (quoted on page 221).

THE volume edited by Jos Mooij does not take any firm positions about the politics of economic reforms in India. One of the papers provides empirical evidence to show that in the 1990s the per capita income gap between the richest and the poorest States increased substantially. The ratio of the highest to the lowest average per capita income among the States went up from 1.87 in the early 1960s to 3.52 in the late 1990s, a near doubling. In terms of many indices of human development, the performance of the better-off States has improved more than that of the poorer States. This is a politically explosive matter. The authors take the position that in a democratic set-up the state must accept responsibility to correct growing regional imbalances.

Practically all other papers in the collection (there are 10 papers apart from the editor's `Introduction') are exploratory in nature. With specific reference to Uttar Pradesh, Andhra Pradesh and Gujarat, a set of papers examines the relationship between the economic reforms of the post-1991 period and the ongoing democratic processes in the country. Uttar Pradesh is a case where political issues - in the broadest sense of the term - dominated the 1990s and early 2000s and so economic reforms did not pick up although at least a couple of regimes made deliberate attempts to implement the reforms. But as a result of the Mandal reforms and to some extent the Ayodhya events, politics in Uttar Pradesh underwent a radical transformation. The coming to power of the Bahujan Samaj Party (BSP) led by Mayawati in 1995, the first Dalit woman to become Chief Minister in the country, symbolised the change that came to Uttar Pradesh, for long the bastion of upper-caste domination.

Andhra Pradesh, under N. Chandrababu Naidu, is the opposite extreme from the point of view of implementation of reforms demonstrating - so it seemed until the elections of 2004 - that a democratic regime does not come in the way of pushing ahead with economic reforms quite openly. But then, why was Chandrababu Naidu and the Telugu Desam Party (TDP) routed in 2004?

Gujarat raises another issue. The State under the Bharatiya Janata Party (BJP) has been most successful in terms of implementation of reforms, giving the impression of a progressive State. The query posed in the paper dealing with the State is how this sense of reform and modernisation is to be reconciled with the extreme conservatism and communalism manifested through the carnage of 2002?

There are other paradoxes of a general nature. While the economic reforms are an aspect of globalisation, politics appears to be taking strong regional tendencies. Also, though the market-oriented reforms put the accent on integration, experience in politics is one of disintegration based on diverse identities - religion, caste, language and so on. Economic reforms emphasise rational calculations; politics appears to be dominated by popular sentiments. While in power, political parties, irrespective of ideological positions, push the reforms forward, but come elections, they all suddenly discover "the human face".

A couple of papers deal with the attitude and role of the bureaucracy in the reform process, one in general terms and the other with special reference to the reforms in the power sector. The latter brings out how the market-oriented reforms provide new avenues for corruption.

There is also a set of papers dealing with labour-management relationships in specific enterprises. The one relating to the public sector Andhra Pradesh State Road Transport Corporation shows how the workers succeeded in stalling the attempted privatisation of the enterprise. The study of two private sector multinational enterprises in Karnataka deals with the efforts of the management to force their workers into individual negotiations regarding conditions of work and remunerations and the inclination of the State to favour the management.

The broad theme that runs through these papers (and an inadequately explored sub-theme in Baldev Nayar's work) is the relationship between a democratic polity on the one hand and economic reforms and growth on the other, especially the current market-oriented reforms. The discussion that calls for some introspection and depth is frequently scuttled by the very manner in which the issue is posed, identifying democracy with a set of ready-made institutions and viewing economic reforms as an externally designed and a priori sequenced package. The question then becomes whether that package is compatible with the prevailing institutions. Those whose primary interest is with the economic package will either explore the possibilities of smuggling it into the existing institutional frame (the "reforms by stealth" proposition) or propagate the need for alternative structures of polity that are reforms compatible or reforms-friendly.

There is, however, another way of approaching the basic issue of the relation between the polity and the economy. It is to recognise that in the final analysis both polity and economy are about people and must become amenable to what people want. Of course, this is not as simple (or naive) as it may appear. For, people differ on their perceptions on what is good for them, and the polity and the economy are institutionally embedded clusters of such diversity of perceptions. The state being the intersection of the two clusters will reflect all the pulls and pressures, tensions and turbulences. The democratisation process is one of those powerful pulls, but will countenance other, including opposite, tendencies.

The Indian scene may be revisited in this light. The Constitution did not establish democracy. It spoke in the name of all the people, enshrined some basic principles, guaranteed some rights, removed some age-old discriminatory practices and established a wide range of institutions - all to ensure that the process of democratisation will move forward. And so it has done, by and large. Restructuring institutions has been a major part of that process. An issue that came up for discussion almost immediately after the democratic process was launched formally was whether planning for economic development was compatible with democracy. At the abstract level the two appeared to be incompatible. But when the modalities were worked out - some protective measures, some subsidies and some regulations - it was recognised that the two could go forward. It must be noted that while planned economic development had some compulsions of its own and may have been projected as a comprehensive package (much more than the present-day reform package), in actual fact it was quite adaptable. Indeed, four decades of planned economic development, in retrospect, can be seen to have been a period of experiments, mid-course corrections, modifications - all that makes life in society what it really is. Political processes have also taken a similar course. And life goes on.

A re-evaluation of the contemporary situation is called for and is possible. Going back to the papers in the Jos Mooij volume, should one write off the democratic processes in U.P. just because "the reforms" have not made much progress? Or should the U.P. experience be interpreted to mean that people at the margin of subsistence prefer dignity and power to immediate economic benefits (they are entitled to make that choice, are they not?) in the hope that they can shape the polity and economy in their favour if they come to have power? Why should people in Andhra Pradesh vote a regime back to power if its policies made no difference to their lives in spite of the glitter that the policies brought in some places and to some people? Is not the Gujarat riddle solved if, as suggested in the paper, both progress in the economic reforms and the outburst of communal violence were expressions of "elite revolt"?

In order to understand the interaction between economy and polity, therefore, it is necessary to get away from the notion that the former is all about the logical relationship among a set of numbers - gross domestic product, its growth rate, budgets, taxes, deficits and so on - while the latter is primarily a set of institutions - parties, elections, Parliament, bureaucracy. After all, these perceptions largely reflect the professional discourses. But viewed as two facets of the experiential reality of people, economy and polity are constantly being reformulated, thereby resolving many apparent riddles, but also throwing up new problems to be dealt with.