At the end of the twentieth century, neo-classical
economics once again holds unquestioned sway as the basis of economic
policy, just as it did at the end of the nineteenth century. The belief
in the efficacy of the free market which had received a jolt during the
Great Depression of the 1930's was set aside in favour of state intervention
for the next fifty years: In the Keynesian form in the capitalist countries
and central planning in the socialist countries. Mainstream economics
has now returned to the elegant certainties reminiscent of an earlier
period. Yet new doubts are beginning to emerge whether this theoretical
edifice is sustainable in the face of the problems of intolerable debt
burdens in some countries, persistent poverty in many countries, and environmental
degradation worldwide. In dealing with these problems the doorway of the
next millennium may well open into a new way of looking at the relationship
between the individual, state and the market.
Development economics and post-war economic
policy
Development economics in the post war period
emerged from a recognition that the free market mechanism by itself was
not an adequate framework for ensuring the development of underdeveloped
countries. The structure of the world economy at the end of the colonial
period was characterized by the developed countries specializing in manufacturing
and the underdeveloped countries specializing in the production and export
of primary commodities. A whole range of economists from Raul Prebisch,
Myrdal at one end, and Paul Baran, A.G. Frank, Emmanuel, Samir Amin, and
Rosa Luxembourg at the other end of the theoretical spectrum were able
to show that the so called free market in the twentieth century on a world
scale operated as a mechanism of real resource transfer from the under-developed
to the developed countries. They showed that the prescription of comparative
advantage based on the world market mechanism would simply reinforce the
economic structure of raw material exports that was inherited from the
colonial period, and which was the fundamental cause of under-development.
Out of this charged intellectual atmosphere emerged a consensual view
that industrialization was a necessary condition for self-reliant development
and this required conscious state intervention.
In those heady days of intellectual ferment while the argument for state
intervention in the economy of an under-developed country was formulated
with admirable rigour what was not systematically specified was the particular
form that such intervention should take. Even less thought was given to
the impact on development of a large bureaucracy that was not only inflexible,
corrupt and incompetent to "deliver" the results in most cases,
but was culturally conditioned to further the metropolitan economic interests
rather than the interests of the poor in their own countries.
The economies of most Third World countries continued to be structurally
integrated with the global capitalist economy and no fundamental change
took place either in the internal distribution of productive assets or
in the social basis of the power structure. Therefore, it was eminently
predictable that non-productive expenditures and income inequality would
increase rapidly. Moreover, it was only a question of time before loan
dependence and endemic poverty emanating from these trends would threaten
both economic sovereignty and political stability of these states. Thus
large budget deficits, heavy debt and growing poverty which are today
causing such anxiety in the world community were actually inherent in
the form of intervention adopted by Third World regimes in the post war
period, i.e., intervention by centralized state structures allied with
traditional economic elites on the one hand and locked into the global
market on the other. Of course, intervention by centralized states did
produce dramatic results in a few countries but these were mostly restricted
to cases where traditional economic elites had been overthrown through
revolutionary upheavals and where there was a structural delinking from
the economies of the advanced capitalist countries. Thus the Soviet Union
and China achieved self-reliant industrialization and alleviation of poverty
within a relatively short period of time. But even in these countries
the inefficiency of centralized bureaucracy resulted in such large resource
losses that by the 1980's they were obliged to seek a decentralization
of economic decision making. The Soviet Union through Perestroika, and
China through the Four Modernization Programmes. In the capitalist Third
World too there were success stories such as the NICs. (New Industrializing
Countries) of South Korea, Taiwan, Hong Kong and Singapore. However, because
of their small size and massive inflow of multinational capital and technology,
their impressive economic performance can be attributed essentially to
the phenomenon of internationalization of production and finance rather
than an indigenous economic base constructed by the policies and institutions
of the Nation State.
Notwithstanding the relative success of NICs, so far the post war development
attempts in much of the Third World, have succeeded neither in overcoming
poverty nor in establishing a sustainable basis for rapid economic growth.
What then is the solution? It is clear that the radical alternative of
state ownership of the means of production by regimes claiming to represent
the proletariat, can by no means be propounded with the same confidence
that marked the first half of the twentieth century. However, what is
equally clear is that the solution does NOT lie in the other extreme of
laissez faire. This view is rooted explicitly in the nineteenth century
theory that the free market mechanism is the best framework of resource
allocation.
Is the IMF prescription feasible?
The recent experience of Third World countries
of producing according to the policy of "comparative advantage"
within the framework of IMF loan conditionality, points to the potentially
devastating consequences of such a policy. For example, the IMF pressure
on African countries to service their heavy debt through the export of
primary commodities, forced these countries to over-use their fragile
soils resulting in rapid desertification. According to the United Nations
Report of the World Commission on Environment, the consequence was that
almost one million people died of famine and the survival of 35 million
people was put at risk during the period 1984 to 1987. The report indicates
that this "recent destruction of Africa's dry land agriculture was
more severe than if an invading army had pursued a scorched earth policy".
Similarly, in Latin America the debt servicing obligations through primary
exports has resulted in a situation where "the region's natural resources
are now being used not for development but to meet financial obligations
of creditors abroad." The Report goes on to show that such a policy
requires "relatively poor countries simultaneously to accept growing
poverty while exporting growing amounts of scarce resources".
With the lowering of tariffs on imported manufactured goods under the
WTO agreements, many developing countries will be unable to face the challenge
of international competition due to poor governance and inadequate infrastructure:
They are consequently likely to suffer a sharp slow down in economic growth,
increased poverty and intensification of their debt servicing problem.
Under these circumstances, IMF stabilization programmes which while pressurizing
borrowing countries to cut down public expenditure (which often translates
into reduced development expenditure), without specifying policies for
accelerating GDP growth, may push such countries into deeper recession,
poverty and debt. Such narrowly conceived IMF "Structural Adjustment
Programs" can be regarded neither as a prescription for economic
efficiency nor of economic stabilization.
Today as we stand amidst the global economic and ecological crisis, it
is evident that twentieth century mainstream economics needs to be transcended
by a new economics for the twenty first century. This economics would
contribute to achieving a new relationship between human beings, nature
and growth. Such a relationship would be sought in a world where nations
struggle to achieve a decentralized democracy within states, local communities
are empowered, and global cooperation is undertaken to preserve the ecology
of our planet, to maintain peace and to overcome poverty.
Human Community as the Focus
The focus of economics must shift from mere resource
allocation and higher GNP as the end product. Economics will need to focus
on the problems of fulfillment of the human potential, within the context
of culture, social organization and environmental conservation. The emphasis
would therefore shift away from short term profit maximization at the
micro level and value indices of GNP at the macro level. Instead the new
performance criteria would be the quality of life within an inter-generational
perspective. What is needed is a wide ranging measure that takes account
of specific features of the quality of life and the mechanisms of change.
For example, how many more people have been provided with clean drinking
water, what is the state of housing, transport and education, what new
forms of production organization and cultural norms have emerged that
unleash the creative possibilities of the individual and which enable
control by the local community over its economic, social and ecological
environment?
Interlocking Crises and the need for New Finance
Concepts
The new economics must come to grips at the global
level with the interlocking crises of economy and ecology. Mechanisms
of finance, production and distribution must be found, which can enable
nation states to achieve a selective delinking from the current centralized
processes of finance and accumulation. At the same time forms of international
finance must be developed that ease the capital constraint of Third Wold
countries without locking them into a crippling debt trap. The debt write
off scheme for HIPCS (Highly Indebted Poor Countries), devised by the
advanced industrial countries is a recognition of market failure for such
countries. Yet the scheme itself only provides in effect a one time grant.
It addresses neither the structure of international finance and capital
flows, nor the economic structure of developing countries, which reproduces
the problem of intolerable debt burdens. International financial relations
must reflect our awareness that the systematic transfer of non-renewable
resources from the Third World to the First World and the endemic poverty
crisis will have adverse repercussions at a global level for the preservation
of peace and ecology.
|