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Tuesday 22 November 2011

The Crisis and the Global South: From Development to Capitalism
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 ( 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.
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 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
China after 1978: Craters on the Moon
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Contact: info@orientblackswan.comCOMMENTARY
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.
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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