http://epw.in/epw/uploads/articles/16792.pdf
COMMENTARY
Economic & Political Weekly EPW november 26, 2011 vol xlvi no 48 27
This paper was presented at a workshop on
“Global Crisis: Responses and Impacts in the
Global South”, Global Development and Justice
Research Group, School of Politics and
International Studies, University of Leeds, UK,
on 4 March 2011.
Hugo Radice (h.k.radice@leeds.ac.uk) is Life
Fellow, University of Leeds.
The Crisis and the Global South:
From Development to Capitalism
Hugo Radice
Current trends in the world
economy and global politics
provide evidence that the global
south has now arrived, at last, at
“normal” capitalism, bringing
with it new patterns of uneven
development, inequality and
injustice. Its newly confident élites,
now fully engaged in global circuits
of trade, investment and finance,
and in global governance too,
appear to have left behind their
previous colonial-comprador role.
T
hirty years ago, ambitions for a
New International Economic Order
based on autonomous postcolonial
development foundered on the debt crisis
that shattered the unity of the Third World
as we then conceived it. Today, rapid economic growth appears to have spread
from east-south Asia to Latin America and
now Africa, and, while much of the old
capitalist heartland is mired in economic
stagnation and fiscal crisis, the “emerging
economies” face an investment glut. In
this essay I argue that current trends in
the world economy and global politics
provide evidence that the global south has
now arrived at “normal” capitalism, at
last, bringing with it new patterns of
uneven development, inequality and injustice. Its newly confident élites, now fully
engaged in global circuits of trade, investment and finance, and in global governance too, appear to have left behind their
previous colonial-comprador role.
While the true import of the banking
and financial crisis of 2008 remains contested, its impact on the world economy
has followed a path that diverges sharply
from the experience of past crises, and
from the expectations of most western
observers. Overall, it is clear that the global
south, or in élite-speak the “emerging
economies”, has suffered less and recovered more quickly than the advanced capitalist heartland. In addition, in 2011 it now
seems that the patterns of political impact
– not in the sense of immediate crisis
measures, but of longer-term “tectonic”
shifts – may be equally significant and
unexpected. While political élites in the
United States (US), western Europe and
Japan struggle to find paths of recovery
that are acceptable to their confused and
divided electorates, remarkable changes
of various kinds are observable across
Asia, Africa and Latin America.
Many commentators have tried to identify specific historical crises in the hope
that a comparative analysis could shed
light on current events, the most common
being the crisis that followed the 1929
Wall Street crash. After all, that was also a
crisis that had its immediate origin in
excessive financial speculation centred in
the US, and soon assumed a global scale
with dramatic effects both economic and
political (notably the collapse of world
trade and the rise of Hitler). But while
there are clear parallels in relation to the
points of origin of the two crises and their
unfolding in the economies of the US and
Europe, the effects on the wider world have
been so different in so many ways that we
are immediately drawn to an examination
of the intervening decades in search of
deeper understanding. I think that it is
more fruitful, therefore, to situate the
present crisis in the context of the post-
1945 period, which for this purpose can be
divided into two: from 1945 until 1982 (the
Mexican debt crisis), and from 1982 to
2007 when the current crisis began. In the
next section, I sketch these two periods as
the rise and fall of developmentalism as a
unified global process. I will subsequently
argue that the present crisis reveals that
the unravelling of developmentalism since
1982 can be reinterpreted as the transition
to what I call normal capitalism in the
global south.
1 The Rise and Fall
of Developmentalism
After 1945, the “golden age” of post-war
economic growth and the worldwide movement for decolonisation provided not only
a new historical subject on the global
stage, the Third World, but a strategic task
for that subject: development. Given the
intensity of the political and military
struggle for liberation from colonial rule,
and the global context of confrontation
between capitalism and communism, there
was in retrospect a remarkable degree of
agreement on the actual objective – the
condition of having achieved development.
In essence, this centred on industrialisation,
urbanisation and the building of an effective
modern state apparatus. In pursuit of this
common objective, the political economy of
development could of course be elaborated
from a wide variety of ideological positions,
from free-market liberalism, through the
mainstream of Keynesian theory and the
critical school of underdevelopment and COMMENTARY
28 november 26, 2011 vol xlvi no 48 EPW Economic & Political Weekly
dependency, to the orthodox communist
model of central planning. As the post-war
boom drew to a close in the late 1960s,
both the theory and the practice of development were debated in academic and
policy circles primarily between the mainstream and the dependency school.
For the mainstream, a benevolent and
hopefully democratic state could guide
the development of a mixed economy, in
which the public sector mobilised resources
for physical and social infrastructure,
while the private sector – including foreign
investors – implemented the transformation from agricultural predominance to
that of manufacturing. For the dependency
critics, this rosy vision ignored the realities of extreme inequalities of wealth and
power, and above all, the pervasive
dependence of postcolonial economies on
access to the finance, technology and markets that only the advanced industrial
countries could provide. Aside from advocating complete national closure – a strategy which became associated for all time
with the brutalities of Cambodia under Pol
Pot – the critics typically argued for a larger
role for the state in economic development. But they also recognised that Third
World élites were substantially complicit in
the reproduction of external dependency,
maintaining a comprador character linked
to the persistence of a colonial international
division of labour (Baran 1957). The implication was that the interests of workers
and peasants needed to be explicitly recognised in the policy practices of development, especially with regard to limiting
reliance on foreign capital and nurturing
an autonomous national industrial base.
1970s Events
In the 1970s the economic dynamism of the
capitalist west was hit by a series of more
or less unexpected blows. The collapse of
the post-war international monetary order,
created at Bretton Woods in 1944, in large
part the result of western Europe and
Japan challenging US industrial hegemony,
created uncertainty in international trade
and investment, and transmitted inflationary pressures around the world economy. The action taken by the Organisation
of Petroleum Exporting Countries (OPEC)
in 1973 to reverse the declining purchasing power of its oil generated a global
recession, and spurred developing countries
to come together and shape demands for
a New International Economic Order to
redress the north-south balance of wealth
and power. This coincided with the period
of east-west détente after Nixon’s visit
to China and the negotiations to end the
Vietnam war. The availability of recycled
petrodollars as an alternative way to finance
development, together with economic and
political stagnation in the US and the fall of
the Shah of Iran, seemed at the decade’s end
to presage a dramatic shift in the dynamics
of world economy and the international
order. A clear implication was that the
development of the Third World might at
last be freed from its postcolonial shackles.
Yet within a few years, the US and its
allies, particularly Britain, had achieved
a dramatic turnaround in these trends.
Carter’s 1979 appointment of Paul Volcker
as chair of the US Federal Reserve signalled a return to free-market economics
after the stagflation and policy muddles of
the previous 10 years. The Fed’s ultrarestrictive credit policies drove up interest
rates and shocked the US economy into the
deepest recession since the war. By 1982,
developing countries that had relied on
cheap foreign loans to finance faster growth
were hit by a triple whammy: primary
export volumes declined, export prices
fell, and the cost of servicing and rolling
over dollar-denominated loans soared. The
Mexican default of August 1982 ushered in
the Third World debt crisis, a “lost decade”
in Latin American and African development, and the rebirth of the International
Monetary Fund (IMF) and the World Bank
as global enforcers of market discipline.
By the time the Soviet bloc collapsed in
1989-91, the Washington Consensus was
firmly in place, imposing neo-liberalism in
almost every corner of the world.
The exception was, of course, east Asia,
where South Korea and Taiwan adapted
the post-war growth strategy and policies
of Japan and launched the final flowering
of post-war developmentalism: the developmental state (DS) model. While African
economies shrank and Latin America
stagnated, this model scored remarkable
successes, notably in high levels of economic growth, rapid modernisation, and
an end to reliance on foreign capital. A
major factor, already evident by the late
1980s, was the even more remarkable
transformation of China, as market reforms
opened up its economy to foreign trade and
investment, and unleashed an unprecedented growth dynamic that has continued,
with only minor slowdowns, even since.
Both South Korea and Taiwan also underwent considerable democratisation, something that was clearly absent (and remains
so) in mainland China. The widespread
emulation of the DS model across southeast Asia led to break-neck but uneven
regional growth. Although the inflow of
hot money from the new circuits of global
finance led to the east Asian fi nancial
crisis of 1997-98, recovery was remarkably
quick and rapid growth resumed; but by
then, the DS pioneers had pretty much
abandoned their distinctive pattern of
state-led development, and the model lost
its iconic status (Radice 2008).
Changes in Latin America
The 1990s also saw significant changes in
Latin America, centred on the retreat of
the generals, the easing of the debt crisis
and the adoption of more liberal economic
policies. Growth in output and trade
recovered, although the distribution of its
benefits was extremely uneven. Privatisation of state enterprises and the erosion of
populist and clientelist welfare systems
also signalled a substantial departure from
the development model of earlier decades.
Perhaps most dramatically in the 1990s
Mexico, despite a major financial crisis in
1994, joined the North American Free Trade
Area (NAFTA), liberalised trade and investment and abandoned the corporatist model
that the Institutional Revolutionary Party
(PRI) had presided over for seven decades.
Between 1982 and the century’s end,
then, both the geopolitical unity of the
Third World and the ideology of developmentalism had largely disappeared. The
Third World had fragmented into a growing number of criss-crossing regional and
sectoral groupings, making it relatively
easy, especially after the demise of the
Soviet Union, for the advanced capitalist
states to dictate the terms of engagement
within the world economy. A good example
is the question of state policies on inward
foreign direct investment. In the mid-1990s,
the Organisation for Economic Cooperation and Development (OECD) proposed a COMMENTARY
Economic & Political Weekly EPW november 26, 2011 vol xlvi no 48 29
Multilateral Agreement on Investment (MAI)
which would severely restrict the right of
host governments to impose conditions on
transnational investments. When the MAI
came up against stiff resistance from both
developing countries and the increasingly
active development NGOs, it was quietly
dropped. Instead, leading investor states
negotiated a web of bilateral investment
treaties (BITs) which achieved very much
the same outcome.
It has become commonplace to see the
years after 1982 as the age of neo-liberalism.
But before examining the events of 2007-08,
let alone the question of whether that age
might be drawing to a close as a result of the
current crisis, it is vital to look more closely
at the political sociology of neo-liberalism
during this period. In particular, it seems
clear that the new order was by no means
just the result of economic (and at times
military) coercion by the US and its allies.
Instead, it can only be understood as a set
of transformations in the nature of class
divisions and political régime norms that
was not just reluctantly accepted, but enthusiastically embraced by élites throughout the global south. It is these changes that
lie at the heart of “normal capitalism”.
2 Normal Capitalism
in the Global South
Between 1994 and 2001 a sequence of
dramatic financial crises struck the global
south, most notably in Mexico 1994, via
east and south-east Asia 1997-98, Russia
1998, Brazil 1999 and on to Turkey and
Argentina in 2001. This succession of crises,
characterised in particular by capital
flight, financial sector insolvencies and
huge fiscal deficits, were seen at the time
by the mainstream as the consequence of
incomplete liberalisation and inadequate
economic governance; and by left critics
as a clear indication of excessive or at least
poorly-sequenced liberalisation and the
abandonment of developmentalist policies.
The critics also saw them as symptomatic
of broader strains in a global financial sector
characterised by rampant speculation and
greed, part and parcel of a “financialised”
global capitalism that also generated the
collapse of the brilliantly misnamed investment fund Long Term Capital Management,
the dot.com crash of 2000, the Enron and
WorldCom scandals, and increasingly
frequent asset bubbles in securities, commodities and property markets. From this
perspective, the 2007-08 crisis is seen as
confirming such a diagnosis, leading critics to forecast the end of neoliberalism,
the end of globalisation, and for many, a
lengthy global slump.
However, it is important not to see these
dramatic financial episodes collectively as
evidence of an aberrant form of capitalism.
Rather, they are the consequence of much
broader changes in global capitalism encompassing the international division of labour,
the rise of new centres of capital accumulation, and the social and political order
both within nation-states and at the regional
and global levels. Perhaps because of a
reluctance to abandon the developmentalist
perspective, the focus of attention has
largely been on a global capitalism understood as external to and imposed upon the
global south, for example in relation to the
agendas of the Bretton Woods Institutions,
such as the World Trade Organisation’s Doha
Round. We still far too often assume that
a common and collective national interest
still exists in the global south, despite
the abundant evidence to the contrary, and
despite a longstanding central tenet in
dependency theory, that foreign (i e, northern) capital “disintegrates” the national
political economies of the south, socially
and politically as well as economically
(Sunkel 1973).
In the sphere of production, the vast literatures on supply or value chains in both
industry and agriculture, chart the everdeeper nature of that national disintegration. Strategies of national food selfsufficiency have been abandoned in pursuit
of foreign exchange from supposedly highvalue agri-exports, hoping that imports can
substitute for domestic food staples. In
manufacturing, host governments compete
fiercely to move up the value chains, finding
that securing lasting success in this regard
requires not just cheap labour, but expensive infrastructure and high-quality local
supply networks. In turn, these developments imply the nurturing of a more educated “middle class” of small entrepreneurs,
professionals and technicians who need to
be trained, and to be persuaded to stay by
the promise of a middle-class lifestyle:
hence the growing importance of higher
education, a western-style consumption
infrastructure, and practical good governance in the sense of a public administration more effective in both collecting and
spending tax revenues, dispensing justice
and providing existential security. And a
central requirement for all these things is
a dynamic fi nancial services sector that
can provide credit to households, businesses and government, and services such
as pension funds and insurance.
If the developmentalist creed was one
of catching up with the advanced capitalist
countries, then the new capitalism in the
south surely amounts to development. But
this is not development towards the benign capitalism of the post-war Keynesian
welfare states of Europe and North America,
because those states have themselves
been transformed under neo-liberalism.
The east European experience has been
especially poignant in this regard: urged
to overthrow an oppressive and economically stagnant communism, the peoples of
the region imagined that they would arrive
in Sweden, but instead found themselves
in Mexico. Meanwhile, the Mexicans,
abandoning the comforts of authoritarian
corporatism for NAFTA and electoral democracy, found themselves not in Johnson’s
full-employment “Great Society” of the
1960s, but instead in an extreme form of
the grotesque inequalities of wealth and
power that now characterise the US.
In these circumstances, management of
the vast discrepancy between expectation
and reality becomes central to both
domestic and international politics. It is
commonplace to see the ruling classes of
the global south as facing both ways –
externally towards the rapacious powers
of foreign capital and internally towards
their own fractious citizenry. But we need
to take full account of how these social
forces are structured in a given period,
as well as across different regions and
individual countries. Externally, the ruling
classes have been increasingly integrated
into the global networks of business and
politics, with their supportive realms of
higher education, finance, media and culture. Internally, they have mostly come to
realise that their position is more effectively ensured by the nurturing of a significant middle class of the kind outlined
earlier, and a “democracy lite” of competing
parties to provide a semblance of voice COMMENTARY
30 november 26, 2011 vol xlvi no 48 EPW Economic & Political Weekly
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Economic & Political Weekly EPW november 26, 2011 vol xlvi no 48 31
and choice. The democratic revolution
that ended fascism in Europe in the 1970s,
Latin American dictatorships in the 1980s
and communism in the 1990s even appears
to be reaching west Asia and North Africa
through the Arab Spring.
3 The Crisis of 2007-08 and After
As already noted, the crisis of 2007-08
was not a rerun of the 1929 Wall Street
crash. For the global south, two major differences are critical. First, in remarkably
short order the existing structures of global
governance were mobilised to support, and
at least minimally coordinate, the deployment of the fiscal and monetary powers of
the central banks and Treasuries of the
largest economies. The responses of the
IMF, the Bank for International Settlements
(BIS) and the G7-G20 stand in stark contrast
to the utter failure of the international
system after 1929, when international trade
and finance collapsed, and the great powers
each sought their own salvation. Through
the summer of 2011, it has become clear
that maintaining the momentum of such
international collaboration, in the face of
the eurozone debt crisis and the threat of
a return to global recession, is proving to
be very difficult. Critics have castigated
our global governors for not having yet
agreed on measures to re-regulate the
banks, to tame fi nancial speculation, or to
coordinate macroeconomic management.
However, we should remember that after
1929 it took four years before the GlassSteagall Act was passed in the US, while
only Hitler and Stalin achieved full employment in their respective national
economies before war broke out in 1939.
Second, again in stark contrast to the
1930s, both the credit crunch and the
recession have had more impact on the
advanced capitalisms of the north than on
the global south. Of course, the immediate
response of mobile global capital, as in
earlier crisis episodes, was flight to the safe
havens of the US and Europe, to gold and
to “triple-A” securities; and of course the
immediate impact upon working people in
the global south was far more severe. But
as economic growth resumed in 2009, it
was the so-called emerging economies that
recovered far more quickly, and it has
become a cliché that the BRIC economies,
and China in particular, were driving a
recovery that, at the level of aggregate
global production and trade, was remarkably robust. Even if some of the bubble
markets around the world remained deflated (US and most European housing
most notably), once short-term speculative
forces are taken into account the rising
prices of food and industrial commodities
reflected that recovery. What is more, this
was a resumption of a decade-long higher
growth trend in Africa as well as Asia
and Latin America. The apparent return
to slower global growth and renewed
financial uncertainties in 2011 has not
reversed the shift in the relative dynamism of north and south.
Despite the grossly unequal distribution
of the benefits of this growth, it seems hard
to deny that capitalism – normal capitalism
– is working across the global south. For
normal capitalism is not the capitalism of
the post-war “golden age”, or of the developmental ambitions of the 1960s and 1970s.
It is an economic system prone to destructive booms and slumps, to financial crises
that wipe out household savings and government fiscal strategies alike, to polar
extremes of wealth and poverty, and to a
continuing reckless consumption of the
global commons. It is also a political order
constituted first and foremost on the defence
of private property, in which the reach of
democratic and electoral accountability
stops at the entrance to the gated communities and tax havens of the super-rich,
whether they hail from Omaha or Beijing.
In the Davos World Economic Forum, the
Bilderberg meetings and the Group of
Thirty (set up in 1978 as a think tank of
top bankers and finance experts), the
eager and willing servants of the super-rich
figure out how to manage the affairs of
the rest of us, so as to keep the global
“middle classes” onside and the rest too
fascinated by the possibility of prosperity and
too terrified of exclusion from it, to contemplate a real and sustainable alternative.
Two years before the Wall Street crash,
the French writer and journalist Julien
Benda published La Trahison Des Clercs
(Benda 1927), in which he indicted the
intellectuals of the day for abandoning the
Enlightenment ideal of a disinterested
pursuit of knowledge and truth, in favour
of serving one or another earthly power.
Today as always, society should expect that
those citizens who possess the necessary
knowledge will analyse and expose the
workings of capitalism, and do all they can
to develop an alternative order based on
equality and social justice. The present crisis
may not signal an end to neo-liberalism,
but it should certainly signal the urgency
of this task.
References
Baran, Paul (1957): The Political Economy of Growth
(New York: Monthly Review Press).
Benda, Julien (1927): La Trahison Des Clercs (Paris:
B Grasset). English translation: The Betrayal of the
Intellectuals (Boston: Beacon Press, 1955).
Radice, Hugo (2008): “The Developmental State under
Global Neoliberalism”, Third World Quarterly,
29(6): 1153-74.
Sunkel, Osvaldo (1973): “Transnational Capitalism
and National Disintegration in Latin America”,
Social and Economic Studies, 22(1): 132-76.
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