Is globalisation irreversible?

Questioning Globalization by Kavaljit Singh; Madhyam Books, 2005; pages 192, Rs.200.

GLOBALISATION is the cliche of our times. Its proponents use it to sing paeans to the efficiency of markets. Its opponents decry it for bringing misery to ordinary folk around the world. In terms of its economic ramifications, globalisation essentially means the breakdown of national barriers against trade and finance. Proponents of globalisation would like us to believe that the ongoing process of globalisation is unprecedented. However, those who place a stronger emphasis on history argue that globalisation has always been an abiding feature of capitalism. After all, colonisation of nations was in some ways a globalisation process. In short, it was nothing but the relentless search for the opening up of markets throughout the world. But, what is so different about the current epoch of globalisation? That remains the most important question.

Kavaljit Singh, director, Public Interest Research Centre, New Delhi, addresses this issue with some clarity. Indeed, this book, along with his earlier one, Taming Global Financial Flows: Challenges and Alternatives in the era of Financial Globalisation (Zed Books, 1998), should be essential study material for those who are seeking answers to the processes governing globalisation. They offer an excellent critique of the ruling orthodoxy that justifies, defends and promotes globalisation on a world scale. It is also an antidote to the sense of despondency that the orthodoxy promotes, that globalisation, in its current form, is unstoppable or even irreversible.

Kavaljit Singh argues that, contrary to what neoliberal protagonists would like the world to believe, the phenomenon of contemporary globalisation is neither "natural" nor "autonomous". Instead, he argues: "It is shaped by complex and dynamic set of interactions between transnational capital and nation states." It is not surprising that globalisation is such a divisive issue. Those who stand to gain from the free flow of trade and finance in a borderless world are obviously on one side of the divide, arguing passionately for "more" of the same set of policies. But the labour and popular movements across the world, which have lost a great deal from the opening up of national markets, see things differently. Economic growth has been sluggish; and, whatever growth has occurred has been at the expense of jobs; in other words, "jobless growth". Inequalities, both within and among nations, have risen sharply in the past two decades. This unevenness and asymmetry is best exemplified by the contrast between the mobility of capital vis-a-vis labour. While trillions of dollars move across a seamless world every day, labour mobility is severely restricted, except in the case of niche jobs for highly skilled professional workers in the advanced countries. Globalisation, argues Kavaljit Singh, "is a paradox". "It integrates the rich and affluent classes while marginalising the poor masses who lack requisite skills and resources to profit from world markets."

TRADITIONALLY, proponents of globalisation have argued that the free flow of capital across national frontiers generates all-round welfare. It was argued that the free play allowed to markets makes national economies more efficient. In the realm of financial markets, it was argued that if they are freed from state intervention they would be more efficient, leading to increased savings in national economies. Moreover, the "distortions" caused by state intervention, would be removed. Greater competition, resulting from the dismantling of controls, would make them more efficient, implying lower interest rates for consumers.

Since the 1970s, the International Monetary Fund (IMF) and the World Bank, with the help of the "Chicago boys" (economists from the University of Chicago, who have advised liberalisation programmes in several developing country governments) have treated the developing world as a laboratory for the neoliberal experiment. With evangelical zeal they have pushed and prodded developing country governments to not only move towards capital account convertibility but also implement measures to liberalise financial markets.

The free mobility of capital can destabilise national economies. For instance, there were huge inflows of capital into Latin America during the 1990s. The quantum of capital inflows into Chile, Argentina, Brazil and Mexico - mostly from banks in the United States - ranged from 5 per cent to 10 per cent of gross domestic product (GDP). These countries had all opened up their financial sectors earlier, following the implementation of the now-notorious Structural Adjustment Programme (SAP) of the IMF. Indeed, the sharp increase in inward movement of investments was provoked by the fall in interest rates in the U.S. In effect, the money was entering these economies in search of short-term profits.

The belief that Foreign Direct Investment (FDI) will fill the vacuum caused by the sharp cutbacks in public investment has also been belied. In fact, FDI flows from the developed countries are heavily concentrated in a few countries. In the 1990s, about 85 per cent of all FDI and portfolio investment (generally short-term and speculative capital) in developing countries was concentrated in 14 countries - particularly Brazil, Argentina, China and Mexico.

Kavaljit Singh points out that several countries - notably India and China - have managed to attract sizeable amounts of foreign investment even while pursuing a more restrictive financial regime. He points out that Japan, China and South Korea are examples of countries that have managed to perform very well without following the liberal prescription for financial markets. China, the darling of international investors, has not liberalised its financial markets, although it is under pressure at the World Trade Organisation to do so by 2006. He warns that the small and medium enterprises, which have played a key role in the boom, are likely to be affected if and when China undertakes financial liberalisation. These units, which have been provided credit by state-owned financial institutions, are likely to be affected if state control on banks is eased.

The standard prescription for the opening up of financial markets has resulted in what has been termed as the "twin crises", which results in the collapse of the banking system as well as sharp and severe fluctuations in the value of national currencies. Both these have played havoc with national economies. While the almost overnight collapse of banking systems has wiped out large swathes of industries even in economies that are fairly mature (Korea, for instance), fluctuations in the currency markets have wiped out producers (particularly exporters) who are intimately tied to the global markets. Kavaljit Singh estimates that about 100 such crises have occurred in the past three decades, resulting in adverse consequences for jobs and output.

However, the global banks have benefited from globalised financial markets. They have become huge in size, particularly because they have been able to acquire banks and financial institutions in the developing world. Indeed, the banking crises have suited them fine because they have been able to acquire assets in developing countries at rock bottom prices. In Eastern Europe, for instance, foreign banks hold more than half the assets held by the banking industry.

The mirage of micro-finance is offered to those who are devastated by the liberal prescriptions. It is the new mantra, a panacea for poverty reduction and for development. Kavaljit Singh points out that this is no longer a marginal activity; indeed, it is a globalised industry, worth over $10 billion. Targeted at women organised in self-help groups, non-governmental organisations (NGOs), banks, multilateral institutions and donor agencies are excited about the opportunities in this sector. That is not difficult to understand. There is ample scope for profits. They have found that while interest rates are very high, the repayment rates are also very good, particularly by women borrowers.

Kavaljit Singh quotes evaluation studies of the Grameen Bank's micro-finance programme in Bangladesh to disprove the popular notion that it has been an outstanding success and a model for other developing countries. He observes that Grameen Bank workers and peer group members put pressure on women borrowers to ensure timely repayment of their loans, "instead of devising a strategy for collective responsibility and borrower empowerment, as originally envisaged by the Grameen Bank. Often women borrowers borrow from other sources to repay their debts to the Bank - the surest indicator of being in a debt trap. The increased liability aggravates family tensions and "produces new forms of social dominance including violence on women borrowers", notes Kavaljit Singh.

One of the fundamental paradoxes of the current epoch of globalisation is that apparent political choices do not translate into alternative economic policy choices. Around the world, in countries as diverse as India and the U.S, for instance, choosing one party over the other does not mean a significant movement away from the neoliberal prescription. What explains this? The answer probably lies in the very nature of globalisation, which is dominated by finance capital. Finance capital, in search of a borderless world, requires that countries allow free mobility of capital so that it can come in and go out of countries at will. Seen from this perspective, liberalisation (or economic reforms) is nothing but a set of policies that position national economies to fit into the vision of a globalised world as dictated by the demands of finance capital. Political parties of all persuasions, including those of the Left, are virtually held to ransom by the caprices of finance capital. Any effort to resist or shift gears away from the liberal agenda is met with the threat of a pullout of capital (capital flight), which is nothing but economic blackmail.

Kavaljit Singh observes that neoliberal globalisation is not merely an economic project. It has political ambitions as well. Realising that the diversity in economic, social, legal and administrative systems is a hindrance to the free play of markets, the Fund-Bank-WTO triumvirate is attempting "to create a uniform political, administrative and legal system at the global level". He observes that the multilateral agencies have taken upon themselves the task of promoting democracy. This project, he points out, "has become an integral part of the emergent global economic order".

Realising that the SAP has become discredited, the Fund and the Bank have changed tack. The new jargon is reflected in the poverty reduction strategy papers that they prescribe for member-countries. Indeed, they have now changed the focus from markets to institutions. Earlier, the emphasis was on `getting prices right'; now the emphasis is on `getting institutions right'. This is reflected in the overbearing role that the criteria for `good governance' plays in the list of conditions that the two institutions insist on when member nations approach them for loans or assistance.

The notion that individual nation states are powerless has become a favourite argument for those who wring their hands in despair in the face of the neoliberal onslaught. Kavaljit Singh dismisses this effectively. By doing this he not only paints a carefully drawn picture of what globalisation is in its current form but also offers hope for those struggling against it about how it might be rolled back.