Globalization and its Discontents

Lecture 1

Structural Adjustment Programs (SAPs).

Structural Adjustment (SAPs) work like this:

1. Abolition or liberalization of foreign exchange and import controls.

2. Devaluation of the official exchange rate.

3. A stringent domestic anti-inflation program consisting of:

(a) control of bank credits to raise interest rates and reserve requirements;

(b) control of the government deficit through curbs on spending, especially in the areas of social services for the poor and staple food subsidies, along with increases in taxes and in public enterprise prices;

(c) control of wage increases, in particular insuring that such increases are at rates less than the inflation rate (i.e., abolishing wage indexing); and

(d) dismantling of various forms of price controls and promoting freer markets

4. Greater hospitality to foreign investment and a general opening up of the economy to international commerce.

And I said, "… if we look carefully at the list, we find that most of these measures are now being replicated in Western countries, not just Third World ones, and that if they continue, the gap between rich and poor already seen in our societies is going to increase to the point where there will no longer be a distinction between First and Third worlds. And since it is this sort of income and wealth disparity that causes many of the ecological problems in the world, it cannot be ignored."

I would suggest that this thread, which is likely to be much more theoretical than my other two initiatives and also something of a soapbox (sorry folks), start with a detailed look at SAPs and the GATT ‘treaty’, the General Agreement on Trades and Tariffs, from which they originate. I put ‘treaty’ in quotation marks because GATT is not dissimilar to the Indian treaties of early American history, or their counterparts in my own country, Australia, in that they are ‘agreements’ forced onto weaker groups by stronger ones, in this case by Western governments and agencies onto Third World countries. The relevant agencies are the World Bank, the International Monetary Fund (IMF) and the International Trade Organization (ITO).

This thread will be distressing to anyone who still believes in the American Dream, Capitalism. And just to (hopefully) pre-empt any stupidities about my ‘obvious’ Communist sympathies, let me state categorically that:

(a) I consider Communism and Capitalism to be two sides of the same coin, and I reject both equally;

(b) Although I have some sympathy for certain of Karl Marx’s ideas (which, incidentally, have very little practical connection to either Russian or Chinese Communism), I am not even a Marxist, as there are also severe weaknesses in some of his and his followers’ arguments, not least of which is his insistence that everything is economic (through the Division of Labor argument) and the Marxist acceptance of the development model. They just want to do it differently to Capitalists, but the end result is just as devastating to the environment.

The connection between the issues involved in economic globalization, which is what this thread is primarily concerned with, and the environment are not buried very deeply. It is, as most of us would probably agree, economic greed which drives much of the environmental and human degradation in the world today, and economic globalization is the flagship of the economically greedy, in particular the TNCs who mostly run the economic practice (including government) in today’s world, either directly through the power of their money and employment, or indirectly through lobbying and ‘old boys’ networks.

But even where some of this essay may seem to move right away from ecological issues, I would point out that the human environment is just as important as the physical environment, and so globalization must surely cover discussion of the human degradation the world is suffering. It is in this area, through the issues of poverty, development, human rights, and equality that globalization is the most guilty party, and GATT, the World Bank, the IMF, and the TNCs are the vehicles through which globalization is enforced and imposed onto a mostly unwilling world.

A former chief economist in the World Bank, economic adviser to Bill Clinton, and last year's Nobel Prize winner for Economics, Professor Joseph Stiglitz, has just released a book whose title is that of this thread. Although I have yet to read the book (it's on order), the coincidence is no coincidence, and I will undoubtedly be bringing Professor Stiglitz's comments to bear on the subject, as he has become one of the most important and credible critics of the current state of international economic affairs.

Lecture 2

According to contemporary western neo-liberal policy (the Washington Consensus), free trade is a 'good' thing, and this is what drives the GATT treaty. GATT is an agreement by which trade barriers that countries have set up to protect certain areas of their economy and society have to be removed, thus obliging the countries to open their markets to goods from all over the world. This new free trade policy assumes that all trading partners are equal, and that by using the principle of comparative advantage all trading partners will benefit. But in practice the weaker partners, above all Third World countries, will be forced to accept regulations that threaten their national sovereignty. They have to make their agricultural sector dependent on the TNCs and they have to abandon their policy of food self-sufficiency. They have to allow Northern firms to set up their ‘dirty’ industries in their territory (just one of the ways in which economic issues impact the environment). They have to open themselves up to Northern banks and insurance companies and above all, through the GATT clause on Trade Related Intellectual Property Rights (TRIPs), they have to allow foreign countries and scientists as patent holders to privatize, monopolize and commercialize their biological and cultural heritage and common property.

In the thread 'Boycott Suggestions' I gave one example of the results of this form of 'free' trade, the shrimp farms in India, but there are many, many more, where Western (or Western-oriented) TNCs come in, use their political and economic clout to buy up land normally used to feed the local population, grow cash crops for export on this land, usually using high concentrations of chemical fertilizers/pesticides, and abandon the land when it is finally used up and useless. The money made does not stay in the country; any local labor used is paid at slave labor rates; and the resultant poverty forces many of the locals to migrate to urban situations where there is nothing facing them but more poverty and deprivation.

These issues are environmental, economic, political, but above all, moral issues.

Lecture 3

The Green Revolution is a prime example of the basic differences in approach between development theory and the subsistence perspectives. The originators of the project were undoubtedly well-meaning; it was conceived as an answer to the looming threat of Third World famine, and its early results seemed positive. However, there were unexpected negatives even before it became apparent that the positives were to be short-lived. The negative consequences of the Green Revolution fall into three major categories: ecological, economic, and social. In this post I will look at the ecological problems.

The ecological costs are numerous, but most revolve around the monoculture process. Indigenous cropping systems are based only on internal organic inputs, with fertility controlled by farm output (manure, compost etc.), replacement crops by self-seeding, and pests by biodiversity. Modern agricultural science will deny that pests can be controlled in this way, but the evidence is there - if one accepts the different priorities of indigenous systems, which are not particularly concerned with product presentation or uniformity. The loss of biodiversity removes this natural pest control.

Indigenous varieties are resistant to locally occurring pests and diseases. Even if certain diseases occur, some of the strains may be susceptible, while others will have their resistance to survive. Crop rotations also help in pest control. Since many pests are specific to particular plants, planting crops in different seasons and different years causes large reductions in pest populations. On the other hand, planting the same crop over large areas year after year encourages pest build-ups. Cropping systems based on diversity thus have built-in protection.

Crop-diversity is also essential for maintaining soil fertility. Monocultures fed on chemical fertilizers destroy the basis of soil fertility; biodiversity enhances it. The crisis of biodiversity is not just a crisis of the disappearance of species which have the potential of spinning dollars for corporate enterprises by serving as industrial raw material. It is, more basically, a crisis that threatens the life-support systems and livelihoods of millions of people in Third World countries.

In addition, artificial pesticides at first lower, then ultimately increase, costs as pests become more chemical resistant and also as the chemicals poison the soil. What ecological critiques of the Green Revolution fear is that, even if these destructive practices are stopped, will the soil degradation caused by excessive fertilizer and pesticide use be reversible? An associated example is found in the consequences of commercial shrimp fisheries in the delta area of India’s east coast: rice-growing land has been appropriated for this purpose, and although there are valid criticism to be made of the practice on purely economic and social grounds, the primary problem is that land used in this fashion, which requires flooding with salt water, renders the ground useless for generations after the shrimp farms, which have a strictly limited life-span, are gone.

As we find with the forestry monoculture system (see the post on Chipko in Grassroots Activism), diversity becomes a nuisance to commercial frames of mind. Yet it is this very biological diversity which allowed the creation of the hybrid strains in the first place, and when we consider their susceptibility to pest and disease, the time will come when the practice of destroying the very building blocks on which the technology depends is going to come back and bite us. This is analogous to taking stones from a building’s foundation to repair the roof.

The Green Revolution technology works perfectly in the artificial environment of the laboratory, where every variable can be controlled, and where the exact doses of water, fertilizer, etc., is handled by highly trained laboratory staff. It does not translate well, however, to the natural environment. This is especially so when the technology is forced on people who find it entirely contradictory to their belief system, their social system, and the local knowledge and traditional wisdom.

Lecture 4

Critics of the Green Revolution believe that, whatever the goodwill involved in the original development of this technology, it has now been appropriated by the TNCs that control and sell the seeds, the chemicals, the machinery, the ‘expertise’, and the fuel, and by the indigenous elites who accept monetary gain to support the TNCs. In light of the boycott suggestions thread, I might mention that Monsanto is one of these TNCs. In this view, the mounting evidence of inadequacy and outright environmental damage is ignored because too much money is invested in continuing the Green Revolution technology. It is no longer, if ever it was, about aid - it's about making profits.

A village of peasant rice-growers, prior to the Green Revolution, had a workable and integrated subsistence technology, perhaps increasingly supplemented by wage labor and widening markets with the growing city populations to feed, in which most of their needs were provided by the very processes of their subsistence agriculture. Rice is not just grain, it provides straw for thatching and mat making, fodder for livestock, bran for fish ponds, husk for fuel. Local varieties of crops are selected to satisfy these multiple uses. The very animals used in plowing and other heavy agricultural work also provided dairy products and fertilizer. Their economies were primarily subsistence, there was little hierarchical disparity in wealth, and the common good was the primary motivation of most activity. But to Western perceptions, such a life is ‘poor’ and ‘primitive’, and with typical missionary zeal, Western scientists and development experts set out to ‘improve’ the natives’ lot.

Supporters of the Green Revolution claim that it has brought economic improvement to peasant farmers. However, they place all their eggs in the economic basket, as though economics can make up for all the ecological and social costs of the project. But although they quote impressive figures for rises in yields, exports, and incomes in general, no note is made of the rise in actual cost of living brought about by the large ancillary costs to local farmers. Even supporters of the concept accept that the project has widened income disparities, while simultaneously claiming that there is no impoverishment.

All of these analyses omit to mention the loss of all those peripheral products created in subsistence agriculture - food, fuel, fodder, fertilizer, fiber and medicine and so on - all of which have to be replaced by infinitely more expensive and often ecologically damaging replacements - the seeds, the chemicals, the machinery, the ‘expertise’, and the fuel, for instance.

They also omit to mention that the claims for the products themselves are often inflated or outright incorrect. Shiva suggests that the ‘high yield’ claims are little more than advertising rhetoric. The impression given is that these seeds are high-yield in comparison with local seeds, when in fact they are not - much as New and Improved OMO is 25% Cleaner and Whiter. The fact is that most of the local varieties will show similar or better yield improvements from similar fertilizer and irrigation inputs, but the local varieties are not popular in Western supermarkets (‘sticky’ rice, for instance, a local staple in many parts of SE Asia), nor do they require the services of seed companies. In essence, these so-called HYV varieties increase grain production, by decreasing all other outputs, increasing external inputs, and introducing ecologically destructive impacts.

As I've said elsewhere, the good motives of the individual scientists and development experts is rarely in question, but they have little if any influence over what is done with their research or development projects. Bottom line is always the final adjudicator. And the course of such projects is also always driven by the context of the more powerful partner. Our Western concept of poverty revolves around issues almost entirely alien to most peasant societies, and our Western arrogance in seeing ourselves as arbiters of the 'good life' for everyone else, whether they want our version or not, drives most of our interactions with the Third World. As individuals, few of us get to see through the contextual belief systems we live in - and those who do are called radicals and troublemakers. So be it.

I could provide a lengthy appendix of supporting citations, but this is not an academic setting, so I won't unless specifically requested to.

Lecture 5

The Green Revolution

Social Costs:

‘Development’, as a culturally biased process destroys wholesome and sustainable lifestyles and instead creates real material poverty, or misery, by denying the means of survival through the diversion of resources to resource-intensive commodity production. Cash crop production and food processing, by diverting land and water resources away from sustenance needs deprive increasingly large numbers of people from the means of satisfying their entitlements to food. The processes of the Green Revolution change a sustainable economy, even if of low standard-of-living by Western parameters, into destitution and endemic poverty.

Monoculture cannot effectively be applied to the small acreage that we find in typical peasant landholdings; the technology is designed for mass production agribusiness. The attempt to translate this big business model to a family farm context alters the economic balance within what are normally reciprocal economies, creating a climate of entrepreneurship in line with Western ideology, in which the better competitors displace the weaker. The essentially egalitarian nature of the social contract is transformed into a hierarchical and competitive system. Perhaps more importantly, agribusiness technology dramatically alters the need for, and therefore the economic value of, human agricultural labor. The result is a massive reshaping of the social roles and practices of agricultural communities.

Those who cannot compete effectively lose their farms and become either seasonal wage laborers without the capacity to support themselves in the off season, or they are forced to migrate, either in search of other seasonal work, or to the cities where they live in abject poverty. In many cases this forces the break-up of family units, which were previously the primary support structure of the Third World individual.

One of the most iniquitous results of this change to monocultures and cash cropping is the phenomenon, most notable in South and Central America but also found in parts of Africa and Asia, of local populations suffering malnutrition and deprivation in the midst of plenty, because the fruits of their labor are grown for export to the North, or their agricultural acreage used for other export items: for example, strawberries from Mexico, vegetables from Senegal, asparagus from Mexico, subsistence agricultural and forest land in Brazil and Argentina cleared for beef cattle production for the hamburger chains of North America, Soya beans in Brazil for cattle feed in the North, or bird seed grown in famine-stricken Sudan, or any of a hundred more possible examples, while the workers who grow them go hungry. The choice land has all been subsumed for cash cropping, and subsistence crops are neglected.

Some of the consequences to Third World peasants of these practices are the destruction of areas traditionally used to feed the local population, concentration of the land and dispossession of the existing peasantry, chemical contamination of the soil and water. The shrimp farms I mentioned earlier in another context have similar consequences: the destruction of the local fishing and farming villages, who have lived from rice paddies and fishing for ages, have been robbed of their basis of subsistence.

Another consequence of the monoculture ideology and the demand for food products to suit western tastes is the destruction of local plants which provide high levels of nutrition. Dietary experts have long criticized the processed white rice Westerners prefer to the brown and sticky rice varieties produced in Asia as lacking nutrition. By forcing Asian farmers to grow these Western varieties, and treating local ‘coarse grains’ with high nutritive value (such as mandua and ragi) as weeds because they inhibit the growth of the weaker hybrid seeds, the dietary consequences of economic deprivation are exacerbated by removal of local, high-value dietary supplements.

Bathua is a local crop in India which has been labeled a weed by Western agricultural science because, given the same fertilizer, it is highly competitive with hybrid seeds; it is a high-nutrition, natural source of vitamin A, which is important in the growth of children because its lack causes blindness; yet despite there being 40000 new cases of blindness in children each year in India, bathua is systematically poisoned to make way for export crops.

These are the social consequences of the Green Revolution.

I have to ask myself: what is the point of destroying my way of life to grow crops for export which give me insufficient cash return to buy the food and other necessities I had before I changed over, for the financial benefit of people living in luxury thousands of miles away? Yet if I ask this question, I am told I am primitive and irrational.

It reminds me of Shrub Wayne the other night accusing the United Nations of having no backbone because it is standing up to him. In the same breath he suggests that agreeing with him is to show backbone. Pardon me? It is precisely this sort of ludicrous doubletalk that infests the entire 'development' debate. When is aid not aid? When it's called the Green Revolution.

Lecture 6

As I pointed GATT is an agreement by which trade barriers that countries have set up to protect certain areas of their economy and society have to be removed, thus obliging the countries to open their markets to goods from all over the world. GATT has a clause on Trade Related Intellectual Property Rights (TRIPs), from which the concept of bioprospecting has developed. This is sheer hypocritical piracy, backed up by the World Trade Organization. It is basically intellectual enclosure, just like that practiced on peasants since the beginnings of the industrial revolution.

In simple terms, a Western biologist takes a local product, let’s say the neem tree, and patents it. From that point on, the biologist and his company can claim royalties every time a product of the neem tree is used. He or she doesn’t even have to modify the product in any meaningful sense.

For centuries, the Western world ignored the neem tree and its properties: the practices of Indian peasants and doctors were not deemed worthy of attention by the majority of British, French, and Portuguese colonists. In the last few years, however, growing opposition to chemical products in the West, in particular pesticides, has led to a sudden enthusiasm for the pharmaceutical properties of neem.

The Indian Central Insecticide Board refused to register neem as a commercial product on the reasonable grounds that neem materials had been in extensive use in India for various purposes since time immemorial, without any known deleterious effects, and that it was in the public domain. But local autonomy means nothing in a globalized world, and the WTO rules override national ones. Or so it seemed.

Tony Larsen, an American, acquired the patent for all neem products and sold it to the TNC W. R. Grace; he had discovered nothing new, but had made the ancient Indian knowledge his private property and then sold it. After this, Indians who wished to produce anything from neem had to pay license fees to Larsen and W. R. Grace.

In a long drawn out fight, Vandana Shiva and Jeremy Rifkin fought successfully against this bio-piracy before the US Patent Office. Neem is once more in the public domain, one of the few wins in the fight against Biopiracy. But the same process continues in the seed sector. A fast-growing local crop is modified slightly for, say, high oleic acid content, as has happened with a sunflower variety. The Patent Office granted a patent in the United States to a biotechnology company, Sungene, for a sunflower variety with very high oleic acid content. The claim allowed was for the characteristic (i.e., high oleic acid) and not just for the genes producing the characteristic. Sungene has notified sunflower breeders that the development of any variety high in oleic acid will be considered an infringement of its patent. Multiply these examples a thousand fold, and think for a minute.

Such are the Discontents of Globalization. Is it any wonder people in the Third World are angry with and distrustful of the United States and its other Western allies?

Lecture 7

The discontents of globalization are a major reason behind the widespread hatred and distrust of Western governments, particularly the USA, which is seen, accurately, as the ringleader. There is no doubt that, the war on Islam aside, the excesses of economic globalization are significantly to blame for the rise in world terrorism. The poorest of the poor are getting angrier and angrier.

TNCs and the Bretton Woods organizations (IMF, World Bank etc.) are seen as the main culprits. I've looked at the latter in previous posts. TNCs have come under increasing attack recently due to their perceived exploitation of labor in the Third World. Companies such as Nike, Coca Cola, Microsoft and many clothes makers have been criticized for paying Third World workers (mainly women) poor wages and for ignoring the shocking work conditions they endure. TNCs are also criticized because they support oppressive and violent regimes through their investment in Third World factories, which really only provide benefits to a corrupt elite within the nations themselves and to First World investors. Countries with terrible human rights records (some much worse than Iraq) are also those with the largest numbers of TNCs operating in their borders, such as China, Indonesia, Thailand, Brazil, Mexico and South Africa, to name but a few.

As bans have been imposed on particularly dangerous pesticides in industrialized countries, manufacturers have marketed them in developing countries instead. There, poorly regulated, they have created in the bodies of local populations the world’s highest concentrations of pesticides. Similarly, as environmental concerns have limited disposal sites for trash and the toxic ash from trash-burning incinerators in the United States, efforts have been made to get rid of these pollutants - not always successfully - in developing countries.

The TPI (Transnational Pharmaceutical Industry) also has played a massive role in this exploitation of the Third World: pharmaceutical companies, in the face of bans on drugs in the Western World because of side-effects or contra-indications, sell the very same drugs to 3^rd World countries where the bans have not been instigated. This may make good economic sense; it makes no ethical sense whatsoever.

Today there are an estimated 100,000 drugs on the market but a large number of these are ‘me too’ drugs which offer little therapeutic improvement over existing drugs but whose development and promotion are central to the economic strategies of the TPI. Numerous studies have shown that only four to ten percent of new formulations coming onto the market can claim modest or important therapeutic gain. A WHO expert committee, after careful study, produced a list of 200 essential drugs (0.2% of the total on the market) regarded as sufficient to meet most of a country’s pharmaceutical needs.

When the governments of Sri Lanka and Bangladesh attempted to control the proliferation of drugs, tackle over-pricing and set up a national drugs industry, British, German and American companies went on the offensive. They mobilized the political support of their governments, threatening to suppress aid and stop all future investment in their countries.

These are just three of the examples we can find of the sort of greed and self-serving hypocrisy the West hands out to the Third World. The difference between the Islamic world and the rest of the non-Western world, much of which is Hindu or Buddhist and theoretically non-violent, is that Islam has a war-like background and 1300 years experience of being attacked by Christianity (for which read - the West), and relatively fewer Muslim leaders have been seduced by Western money and values. Their response has been accordingly violent, and in their terms justified. Our Western approach to life would, I have no doubt, result in equally violent reaction if the situation were reversed, which it may well become in the next fifty years. But if the gap between rich and poor continues to grow in non-Islamic parts of the world economy, how long will it be before we have similar attacks coming from other groups?

Lecture 8

I am currently reading an interesting book edited by Walden Bello, Nicola Bullard, and Kamal Malhotra, entitled Global Finance: New Thinking on Regulating Speculative Capital Markets (The University Press, Dhaka; Zed Books, London and New York, 2000). I’m not ready yet to comment on the book in its entirety, but it has put forward an amusing description of the three major current approaches to the global financial crisis.

The first approach is titled, It’s the wiring, not the architecture, which is the position taken by the US and the G7 (excepting Japan), which wants business as usual but with stricter control of Asian financial systems to avoid their bad management and greed. I must be missing something.

The second approach is the Back to the Bretton Woods System, a return to Keynesian economics but in a way that stops trying to impose one model of economic growth on everybody.

The final approach, my own, is the It’s the Development Model, Stupid approach, which sees the IMF and the WTO as malicious dinosaurs and which seeks a fundamental change in the development paradigm.

Both the last two agree that resuscitating the AMF is a crucial step. At this stage I am inclined to recommend the book, as the authors appear to be on the same page I’m on.

Opponents of globalization, like me, are often seen by our opponents as left-wing, radical, biased, and so forth. Perhaps in some cases we are, although not without good reason. However, the same cannot be said of Joseph Stiglitz.

I have mentioned Stiglitz before; the title of this thread, for instance, is taken from his book. Stiglitz is a member of the US Establishment; a free trader, capitalist, believer in globalization, he accepts the 'paternal' role of the rich countries in running the world economy. He shared last year's Nobel Prize for economics; he was financial advisor to Bill Clinton; until the US Treasury got him sacked last year he was chief economist and Vice-President of the World Bank. The next series of posts from me in this thread will be drawn directly from his book, which I have finally got a copy of.

For instance:

“Those who vilify globalization too often overlook its benefits. But the proponents of globalization have been, if anything, even more unbalanced. To them, globalization (which typically is associated with accepting triumphant capitalism, American style) is progress; developing countries must accept it, if they are to grow and to fight poverty effectively. But to many in the developing world, globalization has not brought the promised economic benefits.”

Joseph Stiglitz “Globalisation and its Discontents” p5

London: Penguin Books, 2002

“Globalisation and the introduction of a market economy has not produced the promised results in Russia and most of the other economies making the transition from communism to the market. Those countries were told by the West that the new economic system would bring them unprecedented prosperity. Instead, it brought unprecedented poverty: in many respects, for most of the people, the market economy proved even worse than their Communist leaders had predicted.”

Joseph Stiglitz “Globalisation and its Discontents” p6

London: Penguin Books, 2002

“The critics of globalization accuse Western countries of hypocrisy, and the critics are right. The Western countries have pushed poor countries to eliminate trade barriers, but kept up their own barriers, preventing developing countries from exporting their agricultural products and so depriving them of desperately needed export income.”

Joseph Stiglitz “Globalisation and its Discontents” p6

London: Penguin Books, 2002

These, and many other, quotes from Stiglitz will point out the self-serving hypocrisy of the Western establishment, as epitomized in the American-dominated so-called 'Washington Consensus'. This program of enforced globalization will be clearly shown to be the prime culprit in the issues of global poverty, Third World environmental degradation, the rising gap between rich and poor, and the myth of overpopulation, all of which create the fertile breeding ground for international terrorism

In a way, it is a shame I have to showpiece Stiglitz, because this downplays the important work done, long before Stiglitz came to his own conclusions, by hundreds of other, equally qualified, equally objective writers who do not have the international kudos that a Nobel Prize and Stiglitz's other achievements give him. These are the writers whose work has changed me from a moderately conservative capitalist into the rather angry radical I now am, and whose work I often utilize in my contributions.

Lecture 9

In its original conception the International Monetary Fund was based on a recognition that markets often did not work well - that they could result in massive unemployment and might fail to make needed funds available to countries to help them restore their economies. The IMF was founded on the belief that there was a need for collective action at the global level for economic stability, just as the United Nations had been founded on the belief that there was a need for collective action at the global level for political stability.

Over the years since its inception, the IMF has changed markedly. Founded on the belief that markets often worked badly, it now champions market supremacy with ideological fervor. Founded on the belief that there is a need for international pressure on countries to have more expansionary economic policies - such as increasing expenditures, reducing taxes, or lowering interest rates to stimulate the economy - today the IMF typically provides funds only if countries engage in policies like cutting deficits, raising taxes, or raising interest rates that lead to a contraction of the economy.

The most dramatic change in these institutions occurred in the 1980s, the era when Ronald Reagan and Margaret Thatcher preached free market ideology in the United States and the United Kingdom. The IMF and the World Bank became the new missionary institutions, through which these ideas were pushed on the reluctant poor countries that often badly needed their loans and grants. The ministries of finance in poor countries were willing to become converts, if necessary, to obtain the funds, though the vast majority if government officials, and, more to the point, people in these countries often remained skeptical.

But the IMF took a rather imperialistic view of the matter: since almost any structural issue could affect the overall performance of the economy, and hence the government’s budget or the trade deficit, it viewed almost everything as under its domain. It often got impatient with the World Bank, where even in the years when free market ideology reigned supreme there were frequent controversies about what policies would best suit the conditions of the country. The IMF had the answers (basically, the same ones for every country), and while the World Bank debated what should be done, saw itself as stepping into the vacuum to provide all the answers. A half century after its founding, it is clear that the IMF has failed in its mission. It has not done what it was supposed to do - provide funds for countries facing an economic downturn, to enable the country to restore itself to close to full employment. In spite of the fact that our understanding of economic processes has increased enormously during the last fifty years, and in spite of the IMF’s efforts during the past quarter century, crises around the world have been more frequent and (with the exception of the Great Depression) deeper.

These few paragraphs are derived from Stiglitz, but now I'd like to shift to Waldo, who I mentioned in this thread a few posts back, with his statement of the three main responses to the failure of the IMF. It’s the wiring, not the Architecture. One might say that this is basically the US position. In sum, it seems fairly obvious that, especially given its priority of transforming developing country financial systems using Northern standards, one of the key objectives of this approach is to extend the reach and deepen the global hold of Northern finance capital in developing economies under the guise of reforming the global financial architecture and stabilizing global financial flows.

Back to the Bretton Woods System. The second school of thought would impose tougher controls at the global level, in the form of the Tobin Tax or variants of it. The Tobin Tax is a transactions tax on capital inflows and outflows at all key points of the world economy that would ‘throw sand in the wheels’ of global capital movements. Controls at the international level may be supplemented by national-level controls on capital inflows or outflows. A model of such a measure was the Chilean inflow measure that required portfolio investors to deposit up to 30 percent in an interest-free account at the Central Bank for a year, which was said to be successful in discouraging massive capital portfolio inflows. In addition to controls at the national and international level, proponents of this view also see regional controls as desirable and feasible. The Asian Monetary Fund is regarded as an attractive, workable proposal that must be revived. The AMF was proposed by Japan at the height of the Asian financial crisis to serve as a pool for the foreign exchange reserves of the reserve-rich Asian countries that would repel speculative attacks on Asian currencies. Not surprisingly, Washington vetoed it.

When it comes to the world bank, the IMF, and the World Trade Organization, the thrust of this school is to reform these institutions along the lines of greater accountability, less doctrinal push for free trade and capital account liberalization, and greater voting power for developing countries. In other words, the Fund, the World Bank, and the WTO continue to be seen as central institutions of a world regulatory regime, but they must be made to move away from imposing one common model of trade and investment on all countries. Instead, they must provide a framework for more discriminate global integration, that would allow greater trade and investment flows but also allow some space for national differences in the organization of global capitalism.

It’s the Development Model, Stupid! Let us proceed to the third perspective. Those that we classify as belonging to this school regard the IMF and WTO, in particular, as Jurassic institutions that would be impossible to reform owing to both their deep neoliberal indoctrination and the hegemonic influence within them of the United States. Indeed, the world would be better off without them since they serve as the lynchpin of a hegemonic international system that systematically marginalizes the South. This very much tends to be my own approach, although I can see strengths in the second approach as well. Where the proponents of this view differ from the Global Keynesians is that fact that their advocacy of capital controls is accompanied by a more fundamental and thorough critique of the process of globalization that goes beyond its blasting away legitimate differences among national capitalisms. Buffering an economy from the volatility of speculative capital is an important rationale for capital controls. Even more crucial, however, is the consideration that such measures would be a sine qua non for a fundamental reorientation of an economy toward a more inner-directed pattern of growth that would entail, in many ways, a process of de-globalization.

Lecture 10

It has become increasingly clear not just to ordinary citizens but to policy makers as well, and not just those in the developing countries but to those in the developed countries as well, that globalization as it has been practiced has not lived up to what its advocates promised it would accomplish - or what it can and should do. In some cases it has not even resulted in growth, but when it has, it has not brought benefits to all; the net effect of the policies set by the Washington consensus has all too often been to benefit the few at the expense of the many, the well-off at the expense of the poor. In many cases commercial interests and values have superseded concern for the environment, democracy, human rights, and social justice.

Unfortunately, we have no world government, accountable to the people of every country, to oversee the globalization process in a fashion comparable to the way national governments guided the nationalization process. Instead, we have a system that might be called global governance without global government, one in which a few institutions -the World Bank, the IMF, the WTO - and a few players - the finance, commerce, and trade industries, closely linked to certain financial and commercial interests - dominate the scene, but in which many of those affected by their decisions are left almost voiceless. What we end up with is a situation which Noam Chomsky describes as 'a welfare state for the rich dedicated to a lunatic form of Keynesian economic intervention that enhances state and private power while mortgaging the country’s future'. This is how America and Britain are treated by their ruling elites, and how they, and their global allies, treat the rest of the world.

I am returning to Stiglitz for this post, with a collection of quotes which tell the story of what the IMF did in Ethiopia, a wonderful example of the 'market fundamentalism' that critics of globalization talk about. It's not simple in either language or concept, but worth reading through. Not only did Ethiopia have a sound macroeconomic framework but the World Bank had direct evidence of the competence of the government and its commitment to the poor. Ethiopia had formulated a rural development strategy, focusing its attention on the poor, and especially the 85 percent of the population living in the rural sector. It had dramatically cut back on military expenditures - remarkable for a government which had come to power by military means - because it knew that funds spent on weapons were funds that could not be spent on fighting poverty. Surely, this was precisely the kind of government to which the international community should have been giving assistance. But the IMF had suspended its program with Ethiopia, in spite of the good macroeconomic performance, saying it was worried about Ethiopia’s budgetary position.

A government’s budget is in balance so long as its revenue sources equal its expenditures. Ethiopia, like many developing countries, derived much of its revenues from foreign assistance. The IMF worried that if this aid dried up, Ethiopia would be in trouble. Hence it argued that Ethiopia’s budgetary position could only be judged solid if expenditures were limited to the taxes it collected. Using the IMF reasoning about stable sources of revenue, Ethiopia, and other developing countries, should have counted foreign aid but not included tax revenues in their budgets. And if neither taxes nor foreign assistance were to be included in the revenue side of budgets, every country would be considered to be in bad shape.

Ethiopia had repaid an American bank loan early, using some of its reserves. The transaction made perfect economic sense. In spite of the quality of the collateral (an airplane), Ethiopia was paying a far higher interest rate on its loan than it was receiving on its reserves. I, too, would have advised them to repay, particularly since in the event that funds would later be required, the government could presumably readily obtain funds using the plane as collateral. The United States and the IMF objected to the early repayment. They objected not to the logic of the strategy, but to the fact that Ethiopia had undertaken this course without IMF approval. But why should a sovereign country ask permission of the IMF for every action which it undertakes? One might have understood if Ethiopia’s action threatened its ability to repay what was owed the IMF; but quite the contrary, because it was a sensible financial decision, it enhanced the country’s ability to repay what was due.

One of the prime objectives of a good banking system is to provide credit at good terms to those who will repay. In a largely rural country like Ethiopia, it is especially important for farmers to be able to obtain credit at reasonable terms to buy seed and fertilizer. The task of providing such credit is not easy; even in the United States, at critical stages of its development when agriculture was more important, the government took a crucial role in providing needed credit. The Ethiopian banking system was at least seemingly quite efficient, the difference between borrowing and lending rates being far lower than those in other developing countries that had followed the IMF’s advice. Still, the Fund was unhappy, simply because it believed interest rates should be freely determined by international market forces, whether those markets were or were not comparative.

Ethiopia resisted the IMF’s demand that it ‘open’ its banking system, for good reason. It had seen what happened when one of its East African neighbors gave in to IMF demands. The IMF had insisted on financial market liberalization, believing that competition among banks would lead to lower interest rates. The results were disastrous: the move was followed by the very rapid growth of local and indigenous commercial banks, at a time when the banking legislation and bank supervision were inadequate, with the predictable results - fourteen banking failures in Kenya in 1993 and 1994 alone. In the end, interest rates increased, not decreased. Faced with Ethiopian reluctance to accede to its demands, the IMF suggested the government was not serious about reform and, as I have said, suspended its program. Happily, other economists in the World Bank and I managed to persuade the Bank management that lending more money to Ethiopia made good sense: it was a country desperately in need, with a first-rate economic framework and a government committed to improving the plight of its poor. World Bank lending tripled, even though it took months before the IMF finally relented on its position.

They're damned if they do, and damned if they don't.

Conclusion

We've probably had enough of Stiglitz for the time being, but I'll finish him off with two more points he makes about the IMF. Originally designed as an agency to help countries in trouble, the IMF now sees itself as shaping policy. And it can do this because its position is based on an ideology - market fundamentalism - that requires little, if any, consideration of a country’s particular circumstances and immediate problems. IMF economists can ignore the short-term effects their policies might have on the country, content in the belief that in the long run the country would be better off; any adverse short-run impacts would be merely pain that was necessary as part of the process. Soaring interest rates might, today, lead to starvation, but market efficiency requires free markets, and eventually, efficiency leads to growth, and growth benefits all. Suffering and pain became part of the process of redemption, evidence that a country was on the right track. The evidence to refute this market fundamentalism is now overwhelming, to the point that many other political economist and development 'experts' than merely Stiglitz are raising structural questions and issues which may, we can only hope, change the IMF direction.

It is an example of the arrogance of the West, especially America, to believe that it knows better, part of what is seen as a missionary zeal to control the world. We see this also in America's desire to police the world militarily. But in their arrogance, they forget that the developing world now has its own economists - many of them trained at the world’s best academic institutions. These economists have the significant advantage of lifelong familiarity with local politics, conditions, and trends. The IMF is like so many bureaucracies; it has repeatedly sought to extend what it does, beyond the bounds of the objectives originally assigned to it. As IMF’s mission creep gradually brought it outside its core area of competency in macroeconomics, into structural issues, such as privatization, labor markets, pension reforms, and so forth, and into broader areas of development strategies, the intellectual balance of power became even more tilted. We have to accept that non-western societies have not only the right to make their own decisions, they also have the ability to do it adequately, even if, as I've tried to show in the Subsistence Perspective thread, they do some from a theoretical base quite different form the one we, as Westerners, are familiar with.

Appendix

"The gains of India’s Green Revolution have been offset by environmental damage to cropland and by population increases of 19 million per year, leaving it with no real margin for safety. Per capita food consumption was sustained but not increased. Despite significantly increased aggregate food production, output on a per capita basis is actually well below what it was in the early decades of the century."

George D. Moffett "Critical Masses: The Global Population Challenge" p71

New York: Viking, 1994*

"Even though a substantial amount of agricultural research is devoted to maintaining the gains of the green revolution, many other experts believe the era of dramatic yield increases based on the package of green revolution technologies is about over. One reason is that in many irrigated areas, especially in South-East Asia, plants have reached the limits of their capacity to absorb the nutrients in fertilizer. That means a point of diminishing returns has been reached, at which increases in fertilizer no longer convert into the high yields achieved during the peak years of the green revolution." (Moffett 1994:74)

"The vaunted ‘Green Revolution’ - that is, the transition to the newly developed higher-yielding strains of rice and wheat and the like - required much more artificial fertilizer and much more irrigation, meaning more machinery to operate the irrigation, much more oil to operate that machinery. Since the increased yields of that ‘Green Revolution’ barely kept pace with the increased food requirements of the steadily growing population …., any diminished ability of these countries (e.g., India) to pay for the import of oil and artificial fertilizer means an immediate reduction of the standard of living and, looming not far behind the horizon, outright famine." (Paul Neurath (1994) "From Malthus to the Club of Rome and Back" p153-154)

"In the Green Revolution package, yields are intimately tied to purchased inputs of seeds, chemical fertilizers, pesticides, petroleum and to intensive and accurate irrigation. High yields are not intrinsic to the seeds, but are a function of the availability of required inputs, which in turn have ecologically destructive impacts." (Vandana Shiva (1993) "Monocultures of the Mind: Perspectives on Biodiversity and Biotechnology" p42)

"Consider the ‘Green Revolution’ in agriculture. This development was the product of intensive agricultural research aiming to increase the yield of staple food crops. Among the techniques used to achieve higher yields were the introduction of hybrid strains of the crops that generated the highest yields under experimental conditions; the intensive use of carefully calculated amounts of chemical fertilizers; the employment of irrigation systems to regulate precisely the amount of water the crops received; and the intensive use of pesticides to control infestation. … Compared with the local species, these strains consumed more nutrients, were meant to be farmed more intensively (preventing natural regeneration of the soil), and were more sensitive to the soil’s chemical balance, thus requiring fertilization …; and as a monoculture, without the genetic diversity to be found in natural crop strains, they were more vulnerable to blight and infestation." (Joseph Rouse (1987) "Science & Power" p233)

A tiny selection of supporting material.