Lecture 5: Economic Cultures From Reconstruction to Growth to Instability

• 
  Although capitalism is a powerful productive force, it remains (in spite of classical theory) at times exploitative, wasteful of labour and natural resources, and has not solved the problems of distribution of wealth which is at the heart of social stability and social justice, in spite of efforts to model responsible and ethical corporations for the 21^st century (Wilenius 2005; Saul 1997; Henderson 1998, p239). On this basis, current asymmetrical accumulations of wealth will exacerbate power differentials among nations, classes and different cultural groups. In the worst case scenario this would increase violence and competition in the international system, increase turbulence in globalisation processes (see lectures 1-4), and well as strengthen the backlash against globalisation and support the 'anti-globalisation' movement (Ward 2004). On this basis, the linked problems of poverty and balanced development may return to the heart of the dialogue on how to create a more peaceful international order. The reduction of poverty has returned with increased force as a major issue for the World Bank, the UNDP, and the G8 (founded as the G7 meetings from 1975) through 2002-2007, strongly pushed again in June 2007 by the UK in an effort to follow up from earlier agenda (Australian 2002). This theme was also at the heart of the March 2002 United Nations International Conference on Financing for Development and the Millennium Development Goals. The G8, in part lead by the policies of PM Blair and due to increased global media coverage, have returned to this issue in 2005, seeking to reduce debt to the poorest nations, and in particular African states, though these policies may in part be tied back to anti-corruption measures and government transparency (Africa News Service 2005). The package could help write off $40 billion of African debt, with Zambia, for example, being able to 'write of' $6.7 billion of IMF debt (Errington & Van Onselen 2005; ABC Online 2006a). However, the biggest debt cancellations were for Iraq and Nigeria, with real aid flows from the G8 only up 9% through 2005, with aid from G8 nations averaging 0.27% of Gross National Income, well below the UN target of 0.7% (ABC Online 2006). Likewise, it as been suggested that G8 claims do not always appear solid under close scrutiny, e.g. claims of new funds pledged in June 2007: -
  

At Gleneagles, the G8 promised £25 billion in new aid by 2010, a sum equivalent to one child dying every 3.5 seconds from poverty instead of every three seconds. Yet OECD figures show that the G8 is way off target to meet that pledge in fact £15bn off.

• 
  An extension of Marxist theory, called dependency theory (theoretically explored in the Latin American context by thinkers such as Raul Presbisch), has suggested that a rich, core 'north' exploits and uses a poor 'south' periphery, using cheaper labour and less control environmental regimes, creating a world divided by economic operations (Atkins 1999, pp67-72; Williamson 1992, pp333-334; Henderson 1998, p240). This theory now needs to be modified to account for a two-way interdependence, and for the advent of NICs (Newly Industrialised Countries) in Asia and South America (Brazil, Argentina, Chile). On this basis, a strong global economy with modest, stable growth is need for international regime maintenance. Yet crises in Mexico through 1994-1995, in East Asia through 1997-1998, and again in Argentina through 2001-2002, indicated such economies can be undermined by global financial flows that can be controlled by no single state (see below). Developmental models based on growth cannot assume that this growth is insulated from political or transnational shocks, e.g. international terrorism, SARS, the partial collapse of international airlines, interruption of energy flows and sustained high oil costs, or crises in the governance of major international corporations. It has been suggested that these risks the reverse face the very benefits flowing from engagement in the global economy and global finance, i.e. to the logic of the current phase of globalisation (Abdelal & Segal 2007).
  

• 
  The current political economy has slightly reduced absolute poverty but not radically reduced the gap between rich and poor nations. A group of NIC countries has managed to improve their standing as relatively strong national economies, e.g. Singapore (now developed), South Korea, Taiwan, and to some degree Brazil. However, even in these NICs serious problems can occur, e.g. the gap between rich and poor in Brazil, and South Korea exposure to financial crisis in 1997-1998. Other countries such as India (see Kumar 1999), Indonesia, Pakistan, Bangladesh, Sri Lanka and Ghana remain very poor, whether measured in terms of GNP/GDP per capita (in many cases less than $500 per capita per year), or in terms of more complex qualitative measures such as PQLI (the physical quality of life index, see Henderson 1998, pp250-252), or the Human Development Index (the HDI, recently favoured in UN development studies; for problems with GDP measures and new indices such as the Index of Sustainable Economic Welfare which include social and environmental costs, see Davies 2004, pp23-30). On average, many of these countries provide less than 2500 calories of food per head of population: not enough to sustain a moderately active working adult (Webber & Rigby 1996, p45). Further serious reduction of poverty, in India for example, as suggested by Government policy, will require annual growth of 6% GDP (sustained over a decade), combined with deepened provision of minimum services (water, health care, education, public housing assistance, food security, road infrastructure), and special attention to poor and 'socially disadvantaged groups' (Kumar 1999). Depending upon your definition, between 1 and 3 billion persons still remain in severe poverty, in spite of modest gains over the last decade. In terms of the more inclusive Human Development Index, countries such as India and PRC have made some improvement, but have a long way to go in reducing poverty: -
  

(PPP$)1994 (PPP$) rank

• 
  Unregulated resource extraction is often seen as a prime cause of environmental destruction and degradation (discussed further in week 7), though national regulation has sought to limit environmental impact, and some corporations have tried to adopt the concept of the 'sustainable corporation' and the 'socially conscious corporation' using versions of sustainable development in their public image (see Clikeman 2004). However, these areas often suffer from varying trends in government enforcement of policy and strong competitive pressures, e.g. destruction of Amazon rainforest had begun to slow through the late 1990s, but accelerated again through 2001-2003, with an increase in the deforestation rate through 2002-2003, with some 10,000 square miles lost to logging (mainly illegal) and new soya farms (Vidal 2003).
  

• 
  Though free-market capitalism and transnational corporations are now the strong engines of globalisation, it remains true that cultural and national influences can adapt the way that business is conducted and the way transnational corporations operate (see Hampden-Turner & Trompenaars 1993; Huntington 1996; Chen 1992). On this basis, the market is not free from cultural and political influences, but on the contrary often carries and engages with these values, both through cultural commodities as well as through educational, media and informational services, as well as business practices. On this basis, it has been argued by the UNDP that cultural liberty is need to support democracy as well equitable growth, and that multicultural democracies are needed to support inclusive patterns of development (see UNDP 2004).
  

• 
  From the 1970s a pattern of growing openness in trade, investment and financial systems had greatly reduced barriers but also reduced the ability for governments to tightly regulate or control economic flows through, across, and even within their countries. GATT agreements, the WTO, NAFTA, APEC and other international agreements have made it difficult for individual countries to restrict how international activity impacts on their own economy, and to maintain protective barriers for their own industries. Even a powerful economic entity such as the U.S. in reality found its very difficult in the 1990s to use special laws such as the 'Super 301' provision (of the Omnibus and Competitiveness Act of 1988, designed to remove foreign barriers to American trade) or use regular reviews of MFN status (most favoured nation) to control what it perceived as unfair trading practices internationally (JEI 1999). In this sense, WTO has had some past success (with the exception of reform in liberalising agriculture) in setting up a partly-enforceable trading regime (Soros 2002) that is multilateral but driven by an implicit model of globalisation. Likewise, currency markets have opened up large international flows that directly affect national wealth, national reserves, government budgets and trade balances, a trend only partly stabilised by the International Monetary Fund (see further below).
  

• 
  Although international capitalism might be good at creating wealth, some have begun to wonder whether patterns of governance and international control are adequate to deal with a largely de-regulated currency, financial, investment, and stock-market systems, especially after the cycle of currency instabilities in much of Asia during 1997 and 1998, followed by Russia and Turkey, and in Argentina through 2001-2002 (Stein 2007). Even by 1987, more than $400 billion was exchanged daily on the world's currency exchanges, and 2 trillion by 1997 (Webber & Rigby 1996, p2; Hurt 1997). The volume and velocity of such financial transactions has since greatly increased, reducing the ability nations to individually shape these flows (see below). On this basis, questions of stability, transparency and rationality of outcomes become paramount for national economies that experience vulnerability in their currencies, stock markets, and patterns of investment.
  

Put another way, the structure of the economic, financial and political systems are deeply entwined. Strong economies are seen as the basis of any secure nation-state, but the exact nature, structure and control of the transnational economic system is now fiercely debated. Some would argue that the vaunted golden age of industrial and trade-driven growth in mature economies is over, and that the current economic system is either unstable, or will greatly undermine the current pattern of global power relations, as well de-stabilise the well-being of millions of workers globally (see Martin 1997; Soros 2002; Webber & Rigby 1996, pp58-63). Others would argue that without some kind of clear standard linking international financial markets to underlying production-based economies, the currency markets of today are a virtual house-of-cards, with contagion easily spreading from one country to another. More radical thinkers (barefoot economists such as the Chilean economist Manfred Maxneef in his studies of Human Scale Economics designed to revitalise local communities) would suggest at the local level communities need to develop strategies to buffer themselves against the negative fluctuations of commodity and financial markets, including diversifying national economies, building up local subsistence crops and skills (paths taken in diverse regions in South America, South Asia, Turkmenistan which was over-reliant on cotton production, and even recommended in Malaysia in 1997-1999, and turned to in desperation in North Korea), or use regional barter and credit trade patterns to avoid building up debts in stronger currencies, a strategy partly used by ASEAN and North East Asia (see further Bunyaratavej & Hahn 2003). Likewise, other critics have suggest that free-market fundamentalism gives too little attention to human security, local tradition and human-centred patterns of globalisation (Rankin 2001; Ward 2004). In general, through the 1990s restructuring programs for developing countries (as outlined by the IMF and World Bank), tended to suggest deeper engagement with cash and export crops, and thereby greater opening the global economy, in part based on the need for FDI in developing economies. Depending on the commodity chosen, this does not always lead to a balanced economy nor to reductions in local poverty, especially when highly competitive commodities were chosen as the focus for development, e.g. coffee, mineral extraction etc. Studies in some regions have suggested that inflows of FDI do support growth in national economies, but do not always lead to averages increases in the income of the poor, nor in general terms to state stability, e.g. long term prospects for Southeast Asia, Brazil and Argentina (Jalilian & Weiss 2002; Gordon 2001).

• 
  Post-World War II, the international currency system had been linked to the American dollar, the value of which was partly based on gold reserves. However, U.S. government deficits, the decline of U.S. manufacturing compared to West Germany and Japan, the cost of the Vietnam War, and 'the growing volume of dollars financing international trade', that outstripped the volume of god produced' put pressure on this gold standard (Webber & Rigby 1996, p27). By the 1968-1971 period the dollar moved off this gold standard. The major reserve currency remained the dollar, but it too came to be a floating currency. In the 1980s, other major currencies emerged such as the Deutschmark and the yen, and now the Euro.
  

• 
  In 1973-1974, OPEC lifted the price of oil and limited supply onto the world market. This sent shock waves through economies dependent upon imported energy in their economies, especially the U.S., Japan and some European nations. This placed further pressure on their economic reserves and national economies. Through 2005-2007, it has also been suggested that oil prices will remain high, with strong imports driven by the developed world, and developing economies such as India and China. As such, this will continue as an ongoing pressure for developed countries, and may eventually set limits to growth in developing economies such as China, India, and possibly Brazil.
  

• 
  By the early 1980s, petro-dollars had become a huge mass of investment which the OPEC countries could not absorb into their national economies. As a result, large flows of this money moved into international banks in Europe and North America, and from there into soft and often fairly insecure loans into the developing world. This deepened the debt crisis, whereby even fairly resource-rich countries such as Mexico had to go through extensive debt restructuring. The result has been a wholesale delaying of debt repayments to avoid serious defaulting and the subsequent collapse of lending institutions (the 'debt bomb'). Through the late 1990s developing 'South' countries owed some $1.3 trillion, with countries sometimes paying more than 30% of their GNP to service such debts (Henderson 1998, p257). Debt servicing (usually of interest on the loans, not the principle) also undermined national infrastructure development, pushed the rapid destruction of primary resources (minerals and timber) and prevented the maintenance of adequate health and social programmes. These trends suggested that the progressive idea of all countries moving from less developed to fully mature capitalist economies was not possible, even with continued foreign investment, increasing exports, and international loans. The key question is whether such in-flows are used to create productive industries and economic activities that can be sustained in the middle and long term.
  

• 
  Problems in the global distribution of productivity (.i.e. an imbalance in productive power, see Pettman 1991) have led to a large number of political and diplomatic responses, e.g. the creation of the Group of 77, G-77 (formally this is UNCTAD, The UN Conference on Trade and Development, meeting every four years and comprising 120 states) and the Group of 15 developing states. Likewise, in recent years the Non-Aligned Movement has sought to engage in debates about global economic justice and proper paths for the development of poorer nations. From 2003, President Lula da Silva of Brazil has suggested that Latin American countries need to align their interests to gain stronger bargaining positions over trade with developed countries, especially as their countries open up to the North American economies as part of the ongoing progress towards the FTAA, Free Trade Area of the Americas (Associated Press 2003), as well as linking these issues in dialogue with the G-8 countries through 2003-2006. Likewise, through 2006-2007, the World Bank has sought to focus effort on Africa, with former President Wolfowitz at the Africa Growth and Opportunity Act Investment Summit (AGOA) in June 2006 stating: -
  

And I would start with a sort of dismal fact which was not a surprise, and which is why I have said from the beginning that Africa has to be the first priority of the World Bank at this stage in history. And it's the sad fact that in a period of the last 20-25 years, when we have seen throughout much of the developing world, remarkable strides at reducing poverty. By some measures, half a billion people have escaped poverty in the last two decades, the largest single number in China, of course, thanks to very strong growth in that country, but large numbers in India, large numbers in Latin America. And the one dark spot in that picture is Africa, where 20 years ago we had 150 million people in extreme poverty. Today, that number has doubled, and it's roughly 50 percent of the population of sub Saharan Africa. That has to be a concern of not just of African, but has to be a concern, I think, of all human beings. And if you can't take it from just a human and moral point of view, I think it's also from a matter of self-interest. It's not a healthy world, when a major part of world is falling behind. (Wolfowitz 2006)

• 
  Three
  
  Download 166.3 Kb.
  
  Share with your friends: