India's National Magazine
From the publishers of THE HINDU
Vol. 15 :: No. 22 :: Oct. 24 - Nov. 06, 1998
COVER STORY
Amartya took his concern for society forward: K. N. Raj
AMARTYA SEN once wrote to me in reply to my response to his book
Poverty and Famine: "I have never had the illusion that I was saying
something that had not been said before. But I did think that I was
saying things that could have saved some lives if they were reflected
in policy. To use Ashok Mitra's phrase, if our great-grandmothers ran
governments, they would have saved many lives indeed."
This is a statement typical of Amartya and in a way is a reflection of
his important contribution. Because, as I told him, I think that most
of the things that welfare economists talk about are those that are
obvious to all of us, especially the common people. In fact, even a
pure philosopher and religious thinker like Sree Narayana Guru, who
achieved a social transformation in Kerala, spoke about the very same
things that welfare economists speak about today: education, health
care facilities, even small-scale industries. But economic theory was
all about how production is organised and so on, and not about how it
affects the welfare of the community or a particular segment of the
community.
Earlier economists such as Adam Smith, David Ricardo, Thomas Robert
Malthus and Karl Marx were indeed concerned about society. However,
after Marx, conservative economists perhaps thought it better to leave
all these problems aside and concentrate on what is called the pure
theory of value and distribution. It had nothing to do with
institutions. This trend was somewhat altered by people like John
Maynard Keynes, because they were concerned about the problem of
unemployment. Amartya took this concern for society forward, and when
speaking about its practical side he always referred to India in
general, and Kerala in particular. In fact, he claimed, and he did
demonstrate, that Kerala had done much better than China in some
fields of development.
Amartya has always been very sensitive about the question of famine,
because he himself grew up at the time of the Bengal famine. He was
struck by the absolute helplessness of the people some of whom having
travelled distances died right outside his house. That experience made
a very deep impression on him. He went on to study the question of
famine and demonstrated that it did not always occur owing to shortage
of food, but it was a question of distribution as well. This is where
questions of welfare come in, obvious questions like "if distribution
of food was proper, why should only some people die?"
Amartya showed how in China, a Communist country much concerned about
distribution, lack of information became the real reason for the
famine of late 1950s. Officials and the media were trained to report
only what was good, and Beijing had no clue that there was a famine.
C. RATHEESH KUMAR
Amartya referred always to the comparisons between the famine in China
and in Bengal. In the latter case, it was really a question of
distribution, black-marketing and so on - events governed by market
principles. Because he saw the terrible effects of famine as a child,
it was natural for him to investigate the Chinese famine as well. He
fished out the truth, which was unwelcome to the Chinese. He showed
that the important determinants of entitlement in that context were
political pressure and administrative force and, negatively, the
authority's ability to suppress information by keeping the stories of
starvation out of the newspapers.
Amartya once wrote to me: "If the government can 'afford' to have
famines, then in a poor country from time to time it will have
famines, since it will not be forced to organise relief and, if
necessary, import food from abroad, and it could continue to carry on
its insensitive policy with quiet dogmatism."
Amartya is not a Marxist. But he is sympathetic to Marxists because
Marxists have been concerned about the poor. Many people like me
practised welfare economics without knowing that it was welfare
economics, because we were anxious that economics should help the
poor. But people who take economic theory literally would say that
this is not our problem. Amartya was very good at theory. He went
along with that. But he very quickly understood the limitations of
that kind of pure theory.
His welfare theory goes into the realm of philosophy. Most economists
are not like that anymore, although the fundamental contribution of
Adam Smith, the founder of modern economics, was the book Theory of
Moral Sentiments. That was, however, forgotten by neo-classical
economists who had nothing to do with moral sentiments. Perhaps, that
reduces their theoretical rigour. How will you make a theory in
morality? You cannot make a model out of morality!
Amartya is a superb teacher; he is one of the best I have known. At
the Delhi School of Economics (DSE), where Amartya joined as a fellow
teacher, his classroom always overflowed with students from other
classes. There was no need for taking attendance and Amartya always
considered it an absolute waste of time. When our department finally
put up a proposal for doing away with the practice of taking
attendance, there was opposition from every other department. However,
the Vice-Chancellor, C.D. Deshmukh, being a civil servant who knew how
to manage rules, allowed our department alone to discontinue the
practice. In Amartya Sen's case, and for all of us in the department,
it made no difference at all.
The DSE was at the peak of its popularity and was one of the strongest
departments in the world when it had Amartya, Jagdish Bhagwati and
Sukhamoy Chakravarty. The DSE celebrates its golden jubilee on
November 14, and if they invite Amartya I am sure he will attract a
huge crowd.
Amartya was very closely linked with the Tagore family. I think it is
because of this factor that despite the difficulties involved in
getting his passport renewed frequently (because he travels a lot) he
remains an Indian citizen. Once, when my wife asked him whether he had
changed his citizenship, he got very angry and said: "Sarasamma, how
dare you ask such a question?" That is why I used to say that he is
one of the few "fanatic" Indians that I know. Amartya is a delightful
person to know. We were neighbours in our DSE days, and our families
also got to know each other very well.
http://www.hinduonnet.com/fline/fl1522/15220150.htm
Handbook on maximising profits
K. SUBRAMANIAN
The book attempts to ride two horses — economic theory and management
guide
PROFIT POWER ECONOMICS — A New Competitive Strategy for Creating
Sustainable Wealth: Mia de Kuijper, Oxford University Press, 198
Madison Avenue, New York. $ 34.95.
Classical economics of the Adam Smith variety and its latter day
variants had no theory of foreign direct investment (FDI) or the
growth of multi-national corporations (MNCs). In the post-Second World
War years, economists like Raymond Vernon posited “product cycle”
theories which were U.S.-centric.
A radical breakthrough was made in the 1960s when Stephen Hymer
explained FDI as the defining feature of the MNC and related its
advantages vis-À-vis the other forms of foreign operations such as
licensing.
Coasian concept
While Hymer hinted at the idea of ‘internalisation’ of knowledge as
the driver of MNC growth, it was Ronald Coase who provided a
theoretical framework known as “internalisation.” Since then, a rich
body of theoretical literature has been built around the Coasian
concept of “transaction cost.” No wonder, he received the Nobel Prize
for his unique contribution.
Transaction cost is not the cost of a transaction but the cost
inherent in the transaction itself. Contracts fail and cannot be
enforced with all available legal resources. The issue turns critical
when a corporation has to trade in assets that are proprietary — brand
names, secrecy of process and products, managerial skills, and so on.
To avoid costs such as misappropriation and to maximise gains, the
MNCs internalise the assets within their structure.
The field was taken over by Dunning and a number of economists in the
Manchester School. They developed what is called the ‘OLI
Paradigm’ (also known as eclectic) which combines the advantages of
Ownership, Location, and Internationalisation.
Oliver Williamson who received the Nobel Prize this year advanced our
understanding richly. He applies “transaction cost” ideas in different
settings to figure out governance structures in different
circumstances.
MNC theories
The endeavour in current work is to establish that the MNCs create
internal markets and take steps to handle situations where the
external market does not exist or fails. There is no longer reliance
on vertically integrated formations. It takes an array of alliances or
networks as long as there is broader control over the formation as a
whole. They provide for cultural variety across the borders and for
the problems inherent in control from long distances.
The ideas of Mia de Kuijper, author of this book, have to be tested
against these trends in MNC theories. de Kuijper has her feet firmly
in both academia and giant corporations; she was associated with
companies such as Royal Dutch Shell and PepsiCo.
Critical to her exposition is the notion of “profit power,” which is
derived from “power nodes.” She has identified 12 such nodes. In
defining them, there is confusion or mix-up between assets and
strategies. For instance, nodes like brand, secret ingredients, and
focussed and proprietary processes are assets. The others such as
“regulatory protection”, “financial resources”, and “customer base”,
are strategies.
By describing ‘profit power’ as “economic clout — the ability of a
company to hold on to the value it itself has created, as well as to
extract a share of profits from competitors, to create incremental
value for itself and its partners in business relationships, and to
shape the risks it and others will take on” — she engages in
tautology. Profit power flows from holding on to proprietary assets
and internalising them. Indeed, strategies may, and will, change from
time to time.
Transparency
There is vagueness or a mystique attached to her idea of “value
addition” along the chain. It is difficult to envision how, without
the controlling influence or the “invisible hand” from headquarters,
it can be added or sustained.
Another key theme running across the book is the role of
“transparency” and the impact of information technology. There can be
no disagreement that access to information has increased exponentially
and the cost of collection has come down precipitously. Informatics
and outsourcing are indeed integral parts of current corporate
management and strategies. However, it will be naïve to conclude, as
de Kuijper does, that all information is in the public domain and
accessible. Supply of information will continue to be limited and
guarded and those vital for corporate growth will be held back.
de Kuijper says “the contribution of this book to economic theory is
to demonstrate why markets do not work perfectly even when, or rather
especially when, information becomes perfect, and to show how we can
make practical use of this insight.” At another place, she says how it
can be a source of “extraordinary profitability.”
From a theoretical level, the book lowers its bars and turns into a
guide for corporate executives on developing ‘nodes”, adopting rules
to maximise profits, and drawing up action plans to achieve that goal.
The book attempts to ride two horses — economic theory and management
guide. While it fails in the former, it is more successful as a
practitioner’s handbook.
Online edition of India's National Newspaper
Tuesday, Jan 05, 2010
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Volume 17 - Issue 21, Oct. 14 - 27, 2000
India's National Magazine
from the publishers of THE HINDU
BOOKS
Analysing China's performance
C.T. KURIEN
Economics Blue Book of the People's Republic of China, 1999: Analysis
and Forecast, Edited by Sun Wenbin, Michelle H.W. Fong, Geof Wade;
Centre of Asian Studies, University of Hong Kong; 1999.
THE main theme of this, the second volume of the authorised annual
English language publications on the performance of the Chinese
economy, authored by researchers of the Chinese Academy of Social
Sciences, other scholars and state officials, is the same as that of
the first-one, "the track alteration" the economy of China has been
undergoing in recent years. The change of track is from a
predominantly state-owned and controlled economy to a socialist market
economy. The process was initiated in 1978 an d gained momentum from
1987.
One of the perceptible achievements of the change has been a sudden
spurt in the rate of growth of the Chinese economy. For several years
since 1978, the growth rate was over 10 per cent per annum, touching
15.2 per cent in 1984 and 14.2 per cent in 1992 . By the middle of the
1990s, the economy had become overheated, leading to a high level of
inflation. A "hard landing" was then attempted which also had some
adverse consequences. In 1996 and 1997 there was a shift to "soft
landing". The application of brakes of both varieties had the intended
result of slowing down the economy. Both 1997 and 1998 have been
described as years of "mild deflation". One issue debated in the
present volume is whether the same will continue in 1999 or whether it
will turn o ut to be a year of recovery.
In 1998, the Chinese economy faced some unanticipated problems, both
internal and external. The internal problems were caused by heavy
floods in the midstream and downstream portions of the Yangtze River,
with an estimated economic loss of 160 billion re nminbi (RMB). (By
way of comparison it may be noted that this amount was almost 85 per
cent of the total value of exports of the year and more than the total
value of imports.) Fortunately, the floods did not reduce the total
grain output which, in fact, slightly exceeded the 1997 figures. But
the production of cotton and tobacco was hit badly. Apart from the
adverse impact on production, the floods showed the vulnerability of
vast expanses of territory and of the country's ecological environment
in gen eral which has a bearing on the lives and livelihoods of the
people.
The external shock was not so visible, but was no less serious. The
financial and currency crisis that dramatically affected South Korea,
Thailand and Indonesia ina 1997 and the continuing stagnation of the
Japanese economy and the depreciation of the Ja panese yen cast a
shadow over China's conditions. In spite of the fall in the value of
most currencies in Asia in relation to the U.S. dollar, a deliberate
decision was made not to devalue the RMB, which in turn affected the
growth of exports. It also le d to the realisation that the growth of
the Chinese economy depends primarily on internal factors - a fact
which may have been overlooked for a while because of all the
excitement of opening up of the economy after decades of self-imposed
isolation.
However, it was no longer possible to go back to old economic policies
as money and markets had changed the functioning of the economy and
the rise in the levels of income of the bulk of the population had
altered patterns of expenditure. With the change in the ownership of
enterprises - from primarily state-owned or collective to increasingly
private-owned - credit and borrowing and interest rate regimes had
come to occupy a prominent role. In an attempt to stimulate domestic
activity, interest rates w ere reduced five times in 1998, but without
leading to the expected results. Changes in fiscal policies have also
been attempted. Several tax reductions - on stamp duties on bond
transactions, tax rebates on textile machinery and shipping - were
effected . Public investment was also stepped up. And, in order to
finance investment, RMB 100 billion worth of treasury bonds were
issued, in part to mobilise savings of the households and channel them
into productive activity.
But a constant refrain in the Blue Book is that the crux of the
economic problem of the Chinese economy currently is that consumer
spending is not going up as much as it should. A variety of
explanations are offered. Personal disposable income in both ur ban
and rural areas increased at a slightly higher rate than in 1997.
However, the growth of personal income fell behind gross domestic
product (GDP) growth rate. It is pointed out that in the early- and
mid-1980s, the general complaint was that "salarie s were eating up
profits" (during the high growth period from 1986 onwards, the annual
average family income growth rate was only 6.3 per cent, considerably
below the growth rate of GDP) and that consequently the proportion of
average personal income to GDP at constant prices fell from 57.5 per
cent in 1986 to 45.5 per cent in 1996. This is recognised as a failure
of the market economy to guarantee that labour income will
automatically grow with GDP growth. A recommendation made is that
salaries of thos e who work in the areas of education, science, art,
health and government should be increased and that it could be done
through appropriate fiscal adjustment.
Three other reasons are put forward as explanations for low consumer
expenditure. First, consumer spending was suppressed by the
uncertainties about future income owing to the possibility of
unemployment and the expected increase in the future expenses o n
education, medical care and retirement. In other words, Chinese public
expenditure in the social sectors is not adequate enough to maintain
rising private expenditure - indeed a significant finding that should
have a bearing on policies in the evolving socialist market economy.
Second, Chinese consumers have passed the stage where basic consumer
necessities could be met through supply managements alone. That is,
the Chinese economy has moved out of a sellers' market into a buyers'
market. Producers ha ve to respect consumer preferences for the kinds
of goods that their higher incomes permit to buy. Third, in 1997
registered unemployment rate was 3.1 per cent of the labour force. But
when the number of people waiting to be employed was also taken into
account, the rate went up to 8 to 9 per cent.
As already noted, in 1998 the Chinese economy was affected by external
factors as well. The poor performance of the Japanese economy and the
fall in the external value of many Asian countries had an adverse
impact on China's exports. However, imports als o got reduced and so
the year ended with a trade surplus as well as a higher foreign
exchange reserve. The Asian financial crisis also had some impact on
foreign direct investment in China. Investment from Asian countries -
Hong Kong, Taiwan, Japan, Phil ippines, Thailand, Singapore, South
Korea and others - which constituted about 75 per cent of the total in
1997 came down to a little above 70 per cent and declined in absolute
terms also. At the same time, investment from Europe and the U.S.
increased.
A brief reference to Hong Kong may be made in concluding this review
mainly because of the fact that on July 1, 1997 the British handed
over Hong Kong to China and it became the Hong Kong Special
Administrative Region based on the "one country, two (econ omic)
systems" principle. It is unfortunate that this transfer happened at a
time when the Asian financial crisis was setting in. The growth rate
of Hong Kong suffered as a consequence. Particularly affected were
activities in finance, real estate, retai l trade and hotels.
Unemployment increased and problems related to it became very visible
as there was also an increase of new immigrants from the Mainland. The
banking sector and the stock market came under severe strain. However,
the administration suc ceeded in keeping matters under control.
The Blue Book is meant for outsiders who are interested in the Chinese
economy and it certainly serves a useful purpose. As an interested
user I would make some comments about its contents and format. One
would see more statistical information in the vol ume. Statistical
information is available throughout, but the appendix containing
consolidated statistics constitutes only seven pages out of a total of
over 500. It will be helpful to have critical evaluation of official
statistics also. In the 50 artic les that form the substance of the
volume there is a great deal of repetition. In a compilation of this
kind some repetition is unavoidable. But it should be possible, in the
future issues, to reduce it considerably.
I must also add that Chinese scholars who have authored the articles
seem to suffer from want of appropriate theoretical tools to analyse
the Chinese economy in its present phase. They have relied almost
exclusively, though not uncritically on Western ma cro economic theory
and its analytical corpus. However, macro economic aggregates are
premised on micro economics, particularly the nature and objectives of
the basic production units of a capitalist economy. Since China
differs significantly from Wester n economies in this regard, it is
necessary to use theories and tools suitable for the country's
conditions. This is not an easy task. But if the Chinese scholars
succeed in adapting Marxist theory to suit their conditions, it must
be possible for them t o evolve economic theories and analytical tools
to deal with the kind of market socialism they are trying to put into
practice.
Two articles on the Chinese economy, based on the first Economics Blue
Book and other writings were published in Frontline, September 11 and
September 25, 1998.
http://www.hinduonnet.com/fline/fl1721/17210760.htm
Volume 19 - Issue 04, Feb.16 - Mar. 1, 2002
India's National Magazine
from the publishers of THE HINDU
BOOKS
Economics and values
V. SURJIT
R. MOHAN
The Values of Economics - An Aristotelian Perspective by Irene van
Staveren; Eburon Publishers, 2001; pages 242, £18.99.
IN her book The Values of Economics - An Aristotelian Perspective,
Irene van Staveren discusses how the values of freedom, justice and
care have been kept beyond the pale of modern economics and examines
related issues incisively. She won the Gunnar Myrdal Prize for 2000
for her dissertation "Caring for economics - An Aristotelian
perspective", from which this book evolved. Staveren is a lecturer in
Labour Market Economics of Developing Countries at the Institute of
Social Studies at The Hague.
The study of economics in universities is dominated, by a large
extent, by the neoclassical or orthodox approach, which rests on
axioms about consumer preferences and on the assumption of rationality
of consumer behaviour. The actor is constructed as the 'rational
economic man' or Homo Economicus. Economics is introduced as a subject
that deals with the price system, rational utility maximising
individuals who are price takers, their demand curves, the profit
maximising firms' supply curves, indifference maps, constrained
maximisation behaviour, and the Pareto optimal situation in which no
one can be made better off without making someone else worse off,
which is learnt by the calculus method, more recently by using set
theory. Quotations from the Fable of bees: Or Private Vices and Public
Virtues by Bernard Mandeville (1670-1730) and from Adam Smith -
regarding each one's maximisation of self-interest leading to maximum
social good - are often adverted to.
The concept of Utils though can be argued as being analogous to
weight, volume and temperature, its measurement in numbers being
nothing but the whim of the author. In this book the author looks at
the missing ethical capabilities of the rational economic man and at
what has been lost in the evolution of the dominant strand of
economics. She conducts an elaborate inquiry into this and offers a
reasoned critique. The book encourages students of economics to look
beyond the world of axioms, constrained maximisations and
optimisations.
The author lays emphasis on the value domains of Freedom, Justice and
Care, how closely they are interwoven and how an excess or deficiency
in one can result in an inability to feed on one another and how an
excess of one can create problems. The preface of the book starts with
the passage, "Somewhere along the route of modernisation economics has
lost its connection to the most basic characteristics of human
behaviour. It has come to disregard human motives, emotions,
evaluation and the different forms of interaction through which human
actions in economic life provide for themselves and for others. With
this neglect the discipline not only lost much of its charm but also
became less persuasive."
The author narrates the case of two victims who suffered brain damage
in accidents but were later cured. One of them, Phineas Gage, who was
25 years old at the time of the accident in 1848, was a foreman. A
1.10-metre-long iron bar weighing 6 kg pierced his skull from the left
cheek, passed through the front of his brain and the top of his head,
and landed 30 metres away. After treatment for two months, he was
cured, though he lost one eye.
However, Gage's personality underwent a metamorphosis. The polite,
precise and committed person became rude, blasphemous, stubborn and
capricious. He lost his job, broke up his family and ended up as a
vagabond. He was incapable of planning ahead or earning a living,
though he had not lost his rational capabilities or his ability to
read and talk, remember and process information and to direct his
hands to do a task. The author characterises this person as a real-
life clone of the rational economic man. The deficiency of the
rational economic man is that he interacts with society without being
influenced by it and he interacts only through an ideal market in
which prices form the only means of communication. He is depicted as
having a utility function and his foremost aim is to maximise it.
Values are not ends in themselves. According to the author,
commitment, emotional attachment, deliberation and human interaction
all express human values, and to some extent all these values are
shared and contested among individuals in a society. The problem
conceived by the author is how to address the role of such values in
economics without, on the one hand, moving too far away from economics
into sociology and without, on the other hand, reducing values to
axioms that exclude any meaningful rationality, as in the case of
neoclassical economics. Neoclassical economics is not value neutral.
It takes value freedom for granted. She cites passages from Free to
Choose, authored by Milton Friedman, and Rose Friedman, to bring home
this point. The commitment to liberty in neoclassical economics is
expressed as free individual, free choice and free exchange. The
defence of liberty is based on a free exchange that leads to efficient
markets.
Justice is described as a natural counter-value to freedom. Excessive
pursuit of freedom will have negative consequences for others. For
example, a pursuit of profit that results in the exploitation of
workers, the unequal distribution of gains from international trade
and so on. The author also cites from John Rawls' A Theory of Justice
(1971). Can the poor suffer for the cause of a Pareto superior utility
gain, the aggregate of which may benefit only or mainly the rich? Thus
free exchange will not occur without a substantive form of justice.
CARE is another value that the author says modern economists excluded
from the sphere of the subject. "Species activity that includes
everything that we do to maintain, continue and repair our world so
that we can live in that as well as possible" (Joan Tronto, 1993). In
economics the relevance of caring commitments were recognised by
Amartya Sen (1981), Jon Elser (1983) and Robert Frank (1988). Feminist
economists have also made contributions on caring labour.
The author cites an interesting example of Sen's illustration of Ali,
an immigrant shopkeeper in London who has a friend called Dona. Dona
gets information about some racists planning to attack Ali and does
not know how to warn him. Complaining to the police is not of any use
as they dismiss Dona's story as a product of paranoid fantasy. Dona
knows that Ali keeps Charles, a business contact informed about his
movements. The only way she can warn Ali is by breaking into Charles'
room and leaving a message about the planned attack. Under utilitarian
thinking and justice reasoning there is no reason for breaking into
Charles' room. Charles is a self-centered egoist, who will be more
disturbed by his room being broken into than by Ali getting beaten up.
From a justice perspective, there is no justification as Ali's life is
not in danger, only his health and dignity. From a utilitarian
perspective Charles' utility will decrease and Ali's further utility
loss as a consequence of the bashing will be less than the utility
gains by ten racist attackers. Does the very idea appear preposterous?
If so, you value care as an end in itself. Sen encourages Dona to
follow her "deeply held and resilient conviction that she must save
Ali". Care is one's responsibility toward the community that one feels
part of. Without responsibility, negative external effects will
rapidly restrain the economic process, says the author.
Staveren says that Adam Smith's contribution to the domain of justice
and care has been undervalued. Smith, widely known as the author of
Wealth of Nations, had also authored The Moral Sentiments. He
recognised the two objects of the economy: "first to provide a
plentiful revenue or subsistence for the people, or more properly to
enable them to provide such a revenue or subsistence for themselves;
and secondly, to supply the state or commonwealth with a revenue
sufficient for public services" (Adam Smith, 1776, Book IV;
Introduction: 428).
Smith also recognised the role of the care economy at home in moulding
the labour force of the future. He recognised that labour, like
capital, is a produced factor. His writing quoted below evidences
Smith's contribution to the domain of justice: "No society can surely
be flourishing and happy, of which the greater part of the members are
poor and miserable. It is but equity, besides, that they who feed,
cloath and lodge the whole body of people, should have such a share of
the produce of their own labour as to be themselves tolerably well
fed, cloathed and lodged." (Smith 1776, Book I. VIII: 96).
The author examines the views of John Stuart Mill, Plato and Karl Marx
in his writing. Margaret Reid's pioneering contribution to home
economics is also discussed. The idea of care economy was developed
from the experiences of women, their role as consumers and as unpaid
labour at home. Her idea of a 'fair market' from a consumers' point of
view has been dealt with by the author in Consumers and Market (1942).
Another researcher on the home economy of care introduced by the
author is Charlotte Perkins Gilman who wrote her books at the end of
the 19th century and the beginning of the 20th century - The Home
(1903) and Women and Economics (1899).
Gilman argued that the unpaid care labour of women at home is not
compensated for by the income earned by their husbands. She described
care as a basic human sphere and considers the valuing of the sympathy
and care of a mother in market terms as unthinkable. Staveren
considers this view more realistic than Pigou's famous statement that
gross domestic product (GDP) decreases when a man marries his
housekeeper. To generate a hypotheses on the behaviour of economic
actors and each value domain, the author employed unconventional
research methods - at least in economics, field surveys and focus
groups. She also discusses the extended utility function espoused by
Garry Becker and McCloskey's methods for a via media between
individual and social approach.
The values of freedom, justice and care cannot be aggregated into one
value, as they are incommensurable. They cannot be made to occupy a
hierarchy of importance. They cannot be subordinated to utility.
Staveren hopes that the outline of the empirical framework can guide
further theoretical enquiry into care and other values in economics.
In dealing with care economics she deals with the issue of
privatisation of health-care. For more than a decade or so, hard-
boiled votaries of privatisation and some half-boiled experts have
considered privatisation a magic wand that can exorcise the ghost of
inefficiency that they attribute to the public sector. The importance
of cost recovery fees, including in health care, is insisted upon in
revival packages. In the health sector, privatisation results in
making healthcare more expensive and this can in turn result in a
lower demand for privatised healthcare. This case of a downward
sloping demand curve can hardly be found objectionable by
neoclassicals. This reduced demand will cause an increase in
malnutrition and health problems, particularly for women and children.
This has the effect of undermining the productivity of future
generations in the labour market.
Cuts in health budgets, which aim to peg fiscal deficit at a fixed per
cent of GDP, whatever the cost, and the draining of capable doctors
from the public to the private sector, will cause longer waiting lists
and queues in clinics. People who cannot afford expensive healthcare
need more care at home. This will mean that women have to divert more
time to care at home and less to other activities. This is a typical
case of the substitution effect described in economics textbooks. The
argument of efficiency is actually an argument of false efficiency,
causing intergenerational loss of productivity and intragenerational
loss of output. This is a classic case of privatisation adversely
affecting productivity and output. It is interesting to note how the
author uses concepts of traditional economics to show how its
conclusion is unworkable. The magician who is recommended for
exorcising public sector inefficiency is chased away using his own
magic wand.
The author also points out how the oft-criticised 'inefficient state
organised distributive measures' have in fact aided the growth of GDP
in newly industrialising South-East Asian countries. Studies by
believers of neoclassical paradigms of growth have shown that a fair
distribution of income has in fact stimulated GDP growth. (Robert Baro
1991; Nancy Birdstall, David Ross and Richard Sabort 1995; United
Nations Development Programme 1995, 1996, 1997; Sen 1998). Other
things being equal, economies with lower inequalities at the start of
1960-85 grew faster (Birdstall, Ross and Sabort 1995; 50).
THE author identifies the domain of values - freedom, justice and
care. When one is deficient it cannot adequately perform a role in the
economy. "A deficient value domain is not able to feed into the other
value domains to diminish the respective deficiencies." Each domain
needs a threshold to feed the other. She argues that in the former
Union of Soviet Socialist Republics (USSR), the domain of freedom was
deficient, which led to substantial inefficiencies in the economy. In
post-1990s Russia, the domain of justice is deficient. Likewise, the
excess of any one domain is also problematic. Excesses in the domain
of justice lead to bureaucratic over-regulation and oppression. Virtue
is considered a mean between deficiency and excess. This develops
through the rational behaviour of actors in each domain using all
their ethical capabilities to further each domain's value, and
therefore involves a 'balancing act' between them.
One most likely answer to the criticism of the rational economic man
with missing ethical capabilities is that only in theory is the
abstraction and ruling out of external influences permissible. The
author does not disagree with this but adds, by way of caution, that
the abstraction should reflect, although it is abstract in form, real,
healthy human behaviour if it intends to explain the economic
behaviour of human beings. Kaushik Basu is of the opinion that even
though he has criticised conventional economics and positive political
economy, he does not mean to detract from the many achievements of
modern economics. The discipline's rigour and comprehensiveness have
undoubtedly contributed to our understanding of the marketplace. A
regrettable consequence is that it has spilled over to domains where
we have little reason to be confident. Not only the individual self-
interest but institutions also matter (Kaushik Basu, Prelude to
Political Economy).
The book gives a good exposure to the basic idea of the value domains
of freedom, justice and care and the limitations of looking at
economics from the neoclassical point of view. It discusses writers
and their ideas, which get little importance in the economics
curriculum of the universities today.
V. Surjit and R. Mohan are research scholars at the Centre for
Development Studies, Thiruvananthapuram.
http://www.hinduonnet.com/fline/fl1904/19040760.htm
Volume 19 - Issue 15, July 20 - August 02, 2002
India's National Magazine
from the publishers of THE HINDU
BOOKS
In defence of development economics
C.T. KURIEN
Development Economics - Nature and Significance by Syed Nawab Haider
Naqvi; Sage Publications, New Delhi, 2002; pages 269, Rs.450.
A QUICK survey of "development economics" in the past half a century
will be somewhat as follows. In the 1950s it emerged as a specialised
field of studies in universities in different parts of the world,
particularly in the United States. Research and publications
flourished and the field became quite prestigious in the 1960s, partly
as an extension of the Keynesian emphasis on the role of the state in
the economic sphere and partly as a revival of the classical
economists' concern with long-term growth. The resurgence of neo-
classical economics in the 1970s and the claim that rational economic
calculation by individuals is the basis of all economic activity
started to challenge the need for a separate discipline of development
economics. This in turn led in the 1980s to some defence of
development economics, but also to many obituaries. In the "state vs
market" debate of the 1990s, development economics came to be
identified with the state, and neo-classical economics as the
theoretical champion of the "free market" appeared to have scored a
technical knock-out of the already emaciated development economics.
It is against this background that Syed Naqvi presents his new defence
of development economics. The author had his training in economics in
the well-known American universities of Princeton, Yale and Harvard,
where he must have had a thorough exposure to neo-classical economics
and its imperialistic claims of universality.
He then returned to his own country, Pakistan, taught in the Quaid-I-
Azam University in Islamabad, served as Director of the Pakistan
Institute of Development Economics and was for some time a member of
the Pakistan Planning Commission. Anyone who is trained in neo-
classical economics but deals with practical problems of development,
discovers the emptiness, if not the perversion, that lies hidden
behind the rigour and elegance of neo-classical economics. Some make
desperate attempts to defend and justify neo-classical economics.
Others expose its pseudo-universality and insist that a different
approach is necessary to understand development problems and seek
remedies for them.
Naqvi belongs to the second group. Therefore, his defence of
development economics as a separate discipline is a reasoned but
unfortunately repetitive critique of neo-classical economics. The
work, thus, is primarily academic. I recommend it to students of
economics and development economics, particularly those at the post-
graduate level, because apart from being a logical critique of neo-
classical economics, it is also an excellent survey of the literature
available, mainly on development economics. Non-academic readers with
practical interest in development problems may find the prolific
reference to the literature, a dozen and more per page at times,
somewhat distracting.
However, the author's defence of development economics (against the
onslaught of neo-classical economics) can be salvaged from the jargon
of the professional. On page 190 there is a clear statement of what
development economics is: "The basic aim of development economics, as
described in this book, is to explain the nature and mechanics of the
development process as it has unfolded in the developing countries so
far, and to change this state for the better by increasing per capita
incomes, reducing distributional inequities, lowering the incidence of
poverty and improving human capabilities to convert increment in per
capita income into some meaningful metric of personal well-
being" (emphases as in the original).
Neo-classical economists may not oppose this statement of what
development economics aims to achieve, but they may find it difficult
to accept these social objectives as a statement of the purpose of a
science. Their statement of the nature of the science of neo-classical
economics is that it is an attempt to understand an economy as the
maximisation of a representative agent's utility over an infinite
future and rules of behaviour compatible with this objective derived
logically from a set of stated axioms.
Two very different perspectives are represented here. The matter could
have been left to be debated by scholars in their secluded cloisters.
But the problem is that the two perspectives lead to divergent, indeed
contradictory, policy prescriptions. Thus, one of the implications of
neo-classical economics is said to be that the most rational policy is
to leave all economic issues to be settled by the logic and laws of
the markets, leading to the "leave it to the market" dictum.
Development economics, on the other hand, assigns a significant role
to the state in matters of economic policy. In fact, it will go
further and argue that some of the key development objectives, such as
eradication of poverty, reduction of inequalities and universalisation
of education and health care, cannot be achieved without the active
intervention of the state.
How are these differences to be tackled? Naqvi devotes a good part of
the book to attempting to resolve the "state vs market" debate. There
has been a proliferation of literature on this topic and the author
provides a critical review of it. The only way to settle the debate,
if it can be settled at all, is to insist that the exercise of
authority and involvement in mutually beneficial transactions are both
common to, and basic ingredients of, any human community and that,
therefore, there is no way to choose between them.
Hence the policy issue is how the authority of the state and the
operations of the market are to be combined and that there cannot be
an a priori answer to that question because that combination depends
on the community concerned (a family, a firm, a country) and will
change over time. If so, it is not very helpful, and not very
satisfactory, to reduce the problem to that of the coexistence of the
public and private sectors and then argue that the right solution is
to go in for a "mixed economy". Even granting that all functioning
economies (as opposed to conceptual economies) are "mixed economies",
there is the need to indicate the nature of the mixture: it is
contextual and will vary over time. Also, the basic issue is not to
decide on how two independent sectors are to be optimally combined,
but how to coordinate decisions in the context of a plurality of
overlapping agencies.
It is doubtful whether the nature and significance of development
economics as a separate field of study can be established through an
argument with neo-classical economics in terms of specifics such as
the "state vs market" theme, although it is central to an appreciation
of the differences between the two fields.
There are two fundamental differences between neo-classical economics
and development economics. The first is that for neo-classical
economics the primary units of analysis are all homogeneous
individuals, in the sense that all individuals are maximisers of
utility or satisfaction though they differ in terms of their tastes
and preferences. The grouping of these individuals - into owners,
producers and consumers, for instance - is a mere analytical device
meant to establish certain propositions.
Development economics, on the other hand, deals with real-life human
beings living in historically contexted groups, societies and nations.
Secondly, and arising from the first, the problematic of development
economics consists of real-life problems of production of goods and
services within noticeable institutional arrangements, with equally
traceable arrangements that decide how what is produced will be shared
among members of society. Development economics diagnoses social
problems, but is also committed to treating them with some clear
notions about the nature of a healthy social order. If it is a
science, it is similar to medical or health science. Neo-classical
economics, on the other hand, claims to be a "pure" science, deriving
its propositions or theorems logically from a set of stated premises
whose validity or realism is not subject to empirical verification. It
is a constructed theoretical system.
Scoring debating points over neo-classical economics, therefore, is
hardly the way to establish the credentials of development economics.
As a policy-oriented discipline, the task of development economics is
to get on with the job, meticulously diagnosing the nature of the
problems it has chosen to deal with and suggesting remedies to achieve
authentic human development within just and participatory social
arrangements. To the extent that neo-classical economics (or any other
"school" of economics) can help in this process, use it; if not, just
dump it.
http://www.hinduonnet.com/fline/fl1915/19150710.htm
Volume 21 - Issue 11, May 22 - Jun 04, 2004
India's National Magazine
from the publishers of THE HINDU
BOOKS
Teaching a relevant economics
VENKATESH ATHREYA
Globalisation and the Developing Economies: Theory and Evidence edited
by Aditya Bhattacharjea and Sugat Marjit; Manohar Publishers and
Distributors, New Delhi, 2004; pages 234, Rs.475.
A DIFFICULTY that serious teachers of economics in colleges and
universities face is the absence of books that deal cogently with
problems specific to developing countries, and in a manner that is
ideally accessible to the post-graduate student or at least to the
teacher. The Anglo-Saxon neoclassical tradition is dominant in the
leading universities of India and many other developing countries, a
fact not unrelated to the economic as well as ideological hegemony of
the metropolitan countries over their erstwhile colonies in the post-
Second World War period. While mainstream neoclassical economics
provides a useful tool kit for certain microeconomic problems of
limited interest, it is singularly unhelpful in dealing with macro
economic issues. In fact, neoclassical economics implicitly denies the
possibility of a macroeconomics, which is not deducible from axiomatic
microeconomic foundations. It tends to view many problems of great
complexity and contemporary interest through the methodological prism
of individualism and does not grapple with structures or processes at
meso- or macro-levels in an economy. It claims to be universally
applicable and shows scant regard for differences in the nature of
economic institutions and their implications for answers to economic
questions. But as Professor Amiya Kumar Bagchi points out in his
foreword to the book under review: "... [E]conomics as a discipline
within the broad area of human sciences is necessarily context-
specific." In a hugely unequal world, where the majority of countries
are ex-colonies deformed by colonial and continuing neocolonial
exploitation, the context becomes all the more important in the case
of development economics. The book is a very innovative effort to
address the problem of developing material for use in teaching
economics at the postgraduate level in a developing country context.
It is the outcome of a conference held in December 1999 at the Centre
for Studies in Social Sciences in Kolkata with the support of the
United Nations Educational, Scientific and Cultural Organisation
(UNESCO).
The book consists of nine essays, each dealing with a distinct issue,
but there is an overall unity to the book in the sense that most
essays attempt to grapple with contemporary problems of great
relevance and complexity using theoretical-empirical frameworks that
go well beyond conventional neoclassical economics. The first three
essays are country-specific studies dealing respectively with the
disastrous economic transition in Russia, the South Korean experience
and Malaysia's handling of the East Asian crisis as it affected that
country. The next four essays deal with different but important
aspects of the contemporary international economy and its implications
for developing economies, addressing critically in the process the
mainstream understanding of the relevant issues. The penultimate essay
deals with the crucial issues of malnutrition and poverty in India
over the last three decades. The final essay focusses on the socio-
economic aspects of the issue of reproduction and the family. Most of
the essays are carefully constructed, with an evident effort at
pedagogical clarity as well.
IN an elaborate and insightful essay, the veteran Russia specialist
Professor Nirmal Chandra raises the question whether Russia will
survive the International Monetary Fund (IMF) medicine. Tracing the
key indicators of the Russian economy through the 1990s, Chandra shows
that the Russian economy has been devastated by the neoliberal shock
therapy forced on it by the IMF and implemented by a venal political
leadership. The Russian economy has been in a state of depression for
quite some time. There has been massive capital flight from Russia.
The country's political rulers are in league with financial oligarchs
and criminals and are dependent on the Western powers, especially the
United States, for survival. Finally, Russia has experienced a
demographic catastrophe with a sharp decline in birth rates, a steep
increase in death rates and a sizeable absolute decline in population.
Chandra draws attention to the fact that the interests of the Russian
mafia-oligarchs and Western governments were often intertwined.
Supporting a joint statement issued in June 2000 by a group of
distinguished economists from both the U.S. and Russia, which
essentially amounts to a repudiation of the reforms imposed by the IMF
in Russia at the behest of the Western powers and in line with its own
flawed understanding, Chandra raises a question. If the illegal
privatisations are annulled, as implicitly suggested by the joint
statement, most firms will either fall into the hands of foreign
investors who alone will have the wherewithal to buy the firms at
appropriate prices, or in the likely event of strong popular
opposition to such a move on both economic and nationalist grounds,
the firms will revert back to state ownership. Will the U.S.
countenance such a possibility? Chandra, citing Nobel laureate Joseph
Stiglitz, believes that the U.S. will not, and concludes: "Either
Russia must forsake its dependence on the IMF and the U.S. treasury,
or go on suffering indefinitely."
In a fascinating account of the evolution of South Korea's economic
policies over the decades of its emergence as an economic powerhouse,
Chul Gyue Yoo brings out the fact that South Korea's rapid
industrialisation occurred during the period when financial policy was
subordinate to and run as an accessory to industrial policy. This has
obvious implications for other developing countries. A policy regime
that subordinates the interests of industry and agriculture, and of
productive investment more generally, to the dictates of finance
cannot deliver sustained economic growth over a long period. As Yoo
says, such a policy as the one followed in South Korea meant that "...
the interests of the financial class were repressed... based on the
view that the financial rentier class was... a parasitic group... "
The much maligned "financial repression" is not such a bad thing after
all. Unfortunately for South Korea, monetarist thinking, imposed by
the IMF, displaced the earlier focus on material economic growth and
put "... the interest of the financial sector before that of the
industrial sector... "
Yoo draws attention to the fact that globalisation and neoliberal
ideology, which in his view derive their influence less from anonymous
market forces and more from political intervention through
institutions like the U.S. government and international organisations,
try to promote homogenisation among national capitalist economies. He
makes the important point that "... the effects of the neoliberal
regime on individual countries, despite strong pressure for
convergence towards one model of capitalism, will always be mediated
by the distinctive institutions and practices specific to each
country".
The essay by Eu Chye Tan takes a rather more sanguine view of
speculation in forex markets than would be warranted by global
experience, but in the specific context of Malaysia since 1998. Tan's
view that speculation will help stability in forex markets and that
economic agents will learn to hedge against exchange rate risk is
unconvincing. In contrast, in a brief but pithy paper, Professor Amit
Bhaduri shows that speculation can be destabilising under reasonable
assumptions about the real world. He argues against a binary divide
between control and deregulation, taking the position that exchange
rate deregulation can be combined with greater regulation of short-
term portfolio capital flows and by adopting a cautious policy towards
foreign borrowing. A point that needs to be made here is that formal
mathematical models only give you what you have put into them in the
first place. In most cases, they are at best aids in stating elegantly
what is plausible, but at the risk of concealing assumptions about the
real world in a maze of algebra, as the late Maurice Dobb had warned
more than 60 years ago in a brilliant essay entitled "Some tendencies
in modern economic theory".
ADITYA BHATTCHARJEA'S essay is easily one of the best in this
collection. In a careful and rigorous reading of the more recent
literature on the relationship between increasing returns to scale,
trade and development that makes an effort to go beyond the dominant
neoclassical paradigm, the author demonstrates that the new literature
continues to be hampered by its roots in the same paradigm. However,
the author also notes that they "... capture some of the important
stylised facts of development and of production subject to IRS
(increasing returns to scale) that cannot be dealt with satisfactorily
in traditional versions trade theory".
In an essay on wages, labour mobility and international migration,
Sugata Marjit and Saibal Kar take an unwarranted dig at the student
movement when they assert: "Often sound economic judgment has to take
a back seat because of the shameless hypocrisy of the so-called
egalitarian student movement. Higher education invariably accommodates
students coming from more privileged segments of society and they
always protest vehemently if the subsidy is reduced even by a bit."
The presumption that higher education must not be subsidised is not
validated by the fact that the services of a section of those
receiving subsidised higher education are lost to a country because of
emigration. What such a situation calls for is a more nuanced approach
to the issue than simple and unargued railing against subsidy, and in
the bargain, innuendo against an undefined "so-called egalitarian
student movement". From the standpoint of scientific and technological
self-reliance, the case for subsidising higher education remains
valid. The modalities of delivering subsidy effectively to those most
in need of it do certainly need to be explored.
Prabirjit Sarkar's essay on export diversification and market shares
notes that in spite of the increasing importance of manufactured
products in the exports of the countries of the South to the countries
of the North in the period since the Second World War, the commodity
terms of trade (CTT) of the South has continued to deteriorate. As
Sarkar points out, diversification of export structures has helped
some developing countries in market penetration in the sense that the
more diversified a country's export structure is, the more is its
share in world exports. However, the rate of deterioration in its CTT
does not decline even if its exports are more diversified. What this
means, in layman's terms, is that the purchasing power of the exports
of developing countries and their relative gains from trade are being
constantly reduced. What also needs to be borne in mind is that the
intra-firm trade of multinational corporations dominates world trade
and they use the technique of transfer pricing to siphon out surpluses
from Third World countries bypassing extant regulations in the
process.
Professor R. Radhakrishna and his co-authors have examined the issues
of nutritional intake, nutritional status and changing food
preferences in India over the last three decades. While their focus on
changing food and more generally consumer preferences tends to
obfuscate matters a bit, their overall findings are clear and
sobering. They conclude that India has "... failed to make much dent
in reducing widespread malnutrition. As many as half of the preschool
children suffer from malnutrition and close to half the adult
population suffer from chronic energy deficiency in rural areas".
Moreover, "The bottom 30 per cent of the rural population had a per
capita intake of only 1,670 kcal per day, compared to the nutritional
requirement of 2,200 kcal per day". The authors note that "Economic
growth, left to itself, may not have a dramatic impact on the
nutritional situation in the near future... ", a point which does not
figure in the official celebrations of `India Shining'.
The final essay in the book is by Professor Nirmala Banerjee on the
socio-economic analysis of reproduction and the family. It is an
insightful and fascinating survey of the relevant literature.
While the editors' claim that "... getting familiar with the materials
presented here will not cause any undue burden on the students of the
Third World... " is perhaps overly optimistic and ambitious, the book
will be an excellent aid to serious teachers of economics at the post-
graduate level.
http://www.hinduonnet.com/fline/fl2111/stories/20040604000507300.htm
Our collective future
CHINMAYA R. GHAREKHAN
Chris Patten’s take on the big questions about the global condition
and the bumpy road ahead
WHAT NEXT? — Surviving the Twenty-first Century: Chris Patten; Allen
Lane, an imprint of Penguin Books, 11, Community Centre, Panchsheel
Enclave, New Delhi-110017. Rs.795.
Anyone who has read Chris Patten’s Not Quite the Diplomat, a highly
readable memoir, would look forward to reading his What Next? It is a
more serious work in which the author analyses, in simple and witty
language, major issues confronting humankind in the 21st century and
outlines answers to deal with them. When everything that can be said
about the challenges of the day has already been stated in numerous
books, it is not surprising that What Next does not contain too many
original thoughts. What is distinguishing about this book is the ease
and facility with which the author explains complex issues in simple
yet serious tone.
Challenges
What Next covers practically the entire gamut of issues, from
proliferation to illicit trade in small arms, drugs to diseases and
epidemics, water shortage to energy crunch, terrorism to climate
change. One thing comes through repeatedly and clearly. Patten is a
committed liberal internationalist. He has enormous sympathy and
empathy for developing countries. If ever there would be a world
government, the author would be a frontrunner for the job of Minister-
in-charge of development. He is merciless in his criticism of the
“hopeless and dangerous unilateralism of the first years of the Bush
Administration,” which he admits, was a major provocation for his
decision to write the book. He is very critical of the Anglo-American
intervention in Iraq which, he says, “has made the world less safe and
the effort to contain terrorism more onerous.”
Climate change
The most serious challenge, he argues at length and with conviction,
is global warming and climate change, an issue that cuts to the heart
of how we manage our lives, our households, our societies. “The damage
we are doing to our environment is perhaps the only one which is truly
new in nature and in scale, the only remotely existential challenge
that we face.” He is ‘moderately optimistic’ about solving the climate
problem, despite the American government’s obstinate unwillingness to
come to terms with the crisis. He is somewhat less demanding in his
prescription than many others. He seems to believe that a call to go
back to the 1990 level is not realistic. He says it is too late now to
avoid a temperature rise of 2º C over the pre-industrial levels. “If
we are lucky, we may be able to put the ceiling there; if we are
unlucky, we will find ourselves in the danger zone beyond 3º C. So the
task is to ensure that greenhouse emissions peak within 15 years and
fall to half their present levels by the middle of the century.” In
other words, he believes that it is not too late to start acting now.
In the context of the climate change problem, the author quotes what
Mahatma Gandhi said as far back as in 1928: “God forbid that India
should ever take to industrialism after the manner of the West. If an
entire nation of 300 million took to similar economic exploitation, it
would strip the world bare like locusts.” He calls upon the E.U. to
demonstrate global leadership on climate change and adds that at the
heart of any effective global agreement will be a settlement between
the U.S. and China.
On terrorism
In an excellent chapter on terrorism entitled “Skies of Flame”, the
author makes a distinction between “the war on terror” and “the war
against terrorists”. He believes that the war on terror is essentially
unwinnable. “Anytime you declare victory, you can find that your
crowing is the precursor to this or that extremist strapping bombs to
his or her body.” He cautions the readers against misinterpreting his
view on unwinnability of the war on terror against leading to the
conclusion that the battle against terrorists too is unwinnable. His
intellectual integrity leads the author to admit that the world has
made some progress in the battle against terrorists on President
Bush’s watch despite his strategy but because of some of his tactics.
A settlement of the Palestinian problem, he is convinced, “would do
more to hack through the roots of terrorism in the Middle East than
anything else.” He emphasises the generally recognised but unheeded
need to reject the confrontational view of Islam.
Quoting Amartya Sen, the author believes that the only way to “win”
the war on terror is to remember our humanism, the foundation of any
global civil society. Democracies, he says, should live by their
principles in fighting terrorism. However, he comes to what for him is
obviously an unpleasant conclusion, namely, that “terrorism is
something that is very unlikely to be expunged from our lives.”
Rising China
Patten is a strong supporter of the U.N. despite its inadequacies and
imperfections. He is highly sceptical of the proposed Alliance of
Democracies. The importance he gives to China in the 21st century
order of things comes through repeatedly but he is not ready to accord
the status of a superpower to China. “If the Chinese are to become a
superpower, they are going to have to square a lot of circles, solve a
lot of problems, in the coming century.” He has a balanced approach
towards non-proliferation issues. As for Iran, he has this to say: “If
there was ever a measure of the degree to which America’s problems in
the world are self-inflicted, Iran is it.”
The one problem with the book is its size, its verbosity. What has
been expressed in 450 pages could easily have been compressed in about
350, without sacrificing any of its substance. All in all, however,
What Next? is a one volume reference book, which libraries as well as
individual scholars would find extremely useful for the study of the
major challenges facing humankind today and in the years ahead.
(The reviewer, Chinmaya R.Gharekhan, is the author of “The Horseshoe
Table: An Inside View of the UN Security Council”.)
http://www.hindu.com/br/2008/12/16/stories/2008121651181300.htm
Book Review
Contemporary globalisation
VENKATESH ATHREYA
GLOBALIZATION AND DEVELOPMENT: Sunanda Sen; National Book Trust,
India, 5 Institutional Area, Vasant Kunj, Phase II, New Delhi-110070.
Rs. 40.
This book is by a distinguished teacher and researcher of economics
who has specialised in international trade and finance. It explains
the actual implications of contemporary globalisation (as opposed to
the claims made on its behalf by neoliberal theology) for developing
countries and for the various sections of the people in these
countries. In the process, it also provides a critique of several
claims of mainstream economic theory concerning the efficiency
properties of liberalised markets and their efficacious implications
for economic growth. It argues that globalisation as is currently
occurring results in highly inequitable and unsustainable growth.
Features
The book consists of five chapters. The first chapter seeks to
identify the key, distinctive features of contemporary globalisation.
The second chapter deals with the changes in the world order and
assertion of hegemony by the rich countries through globalisation from
the 1970s. The end of the Second World War saw the weakening of the
imperial powers, the rise of a socialist camp and a wave of
decolonisation, and for a brief while, the onward march of capitalist
globalisation appeared to slow down. Between 1950 and the early 1970s,
several developing countries, especially in Asia and Latin America,
sought to pursue a relatively independent path of national
development, taking advantage of the changed global situation. From
the early 1970s, however, the powerful club of rich countries began to
reassert their hegemony. The rise to dominance of finance capital by
the end of the 1970s consolidated the forces of globalisation.
Hegemonic nations (G7) and multinational institutions (the IMF, World
Bank and the WTO) exercise authority over developing countries,
dictating economic policies. There is also an emerging cosy
relationship between the elite of the developing countries and the
rich country elite.
Critique
In the third chapter, the author provides a critique of neoclassical
economics in relation to the alleged virtues of the free market,
contrasting these claims with the rather different results on the
ground. This chapter also brings out the widely varying performance of
a number of developing countries pursuing the path of liberalisation
and globalisation, with only a very few registering even respectable
rates of economic growth. It goes into the various agreements under
WTO and how they have hurt the developing countries while helping the
advanced ones. It then deals with the process of financial opening up
in India and shows how it has led to financial exclusion, hurting
agriculture and, small and medium industries. In the fourth chapter,
the question of technological change, its impact on different sections
of the people, and issues of control over technology and the process
of generation of new knowledge and techniques are discussed. The new
post-TRIPS (Trade Related Intellectual Property Rights) dispensation
makes technological catching-up well nigh impossible for the
developing countries. In the fifth and final chapter, the author goes
into the relationship between globalisation and development. It argues
that globalisation may deliver growth (though not always and
everywhere) but fails to deliver development. The link between growth
and development only works when growth is also “people-centred.”
Noting that in an economy open to unregulated flows of capital, the
state policy is primarily directed to preventing capital flight, the
author draws attention to the resultant “democracy deficit.”
Agents of change
While seeking to identify forces that can change things for the
better, this chapter privileges a heterogeneous collection of NGOs,
social activists and social movements as agents of social change, but
omits to note the crucial role played by the Left both in fighting
neoliberal policies, raising people’s consciousness in the process,
and its record of impressive land reforms which should be part of any
alternative to the neoliberal regime. The book will be useful to
students of economics as an introduction to issues of globalisation
and development. It will also be of use to the non-specialist reader
in providing a critical viewpoint on globalisation. The exposition
sometimes gets cluttered by the author’s constant engagement with
neoclassical economics as part of her attempt to refute it. This has
made the book a little less readable at some points in the text. To
provide an exposition of the complex economic and political issues
associated with the process of globalisation that is both
comprehensive and simple is of course a huge challenge, and the author
deserves our warm appreciation for an excellent effort. The publisher
is also to be commended.
Online edition of India's National Newspaper
Tuesday, Dec 16, 2008
http://www.hindu.com/br/2008/12/16/stories/2008121651171300.htm
Book Review
Banking in a developing economy
S. ARUNAJATESAN
FINANCIAL INTERMEDIATION IN A LESS DEVELOPED ECONOMY — The History of
the United Bank of India: Indrajit Mallick, Sugata Marjit; Sage
Publications India Pvt. Ltd., B 1/I-1, Mohan Cooperative Industrial
Area, Mathura Road, New Delhi-110044. Rs. 795.
There is a popular saying that the history of the State Bank of India
is the history of banking in India. But after reading this book it is
evident that the history of all the old and well-run banks, more
particularly the public sector banks, reflects the history of banking
in India. The authors while focusing on the United Bank of India have
analysed a number of critical issues relevant to development of
banking in the country. The issues range from absence of banking
regulations act and the central bank as the regulator for a fairly
long period in the early days, nationalisation of banks, priority
sector lending, high level of non-performing assets, delay in judicial
process, deposit insurance, capital adequacy norms, importance of
prudent banking, frequent waiver of loan repayment, militant unions,
technology adoption, human resource policy and autonomy. Perhaps each
issue warrants detailed study and documentation. The authors have done
an excellent job in crystallising the issues in clear terms so that
the scholars and experts in banking may work further on those matters.
Case study
The origin of the United Bank of India is traced to Comila Banking
Corporation, established by N.C. Dutta in 1914. His son also a lawyer
of repute joined him. Both of them shaped the bank and guided its
destiny. Many more small banks were merged with Comila Bank and it was
named as the United Bank of India. The bank rapidly grew in size,
spread its activities. It was one among the top 14 banks in India and
was therefore nationalised in 1969. The bank which started as a town
bank became a regional bank and ultimately a national bank with a
dominant presence in the eastern and north-eastern region. Government
ownership conferred certain privileges and advantages, but also caused
several constraints. Before 1969 the role and functions of the United
Bank of India, like many other sound private sector banks were
strictly pure banking, customer service and profit, but the post-
nationalisation period was complex, frustrating and painful.
Wide-ranging issues
The authors in their wisdom and experience have expressed the views on
several issues. On the matter of capital adequacy norms, they are of
the view that capital at 9 per cent or 10 per cent is of no guarantee
for safety, if the risk management and lending norms of the bank are
sloppy. Solvency depends more on sound policy, careful investment and
lending with conservative approach. In fact, the recent crisis in the
U.S. proved that the culprit is sub-prime lending and not inadequate
capital. On priority sector lending, the authors’ views are that
social banking is incompatible with commercial banking and
dysfunctional. Social welfare and support to weaker sections are
important but banks are not the appropriate instruments for this
purpose.
The abnormal size of non-performing assets (NPA) at 7 per cent of the
aggregate loans was the result of wrong credit policy and programme
either enforced by the government or caused by temptation to make
super profit. Even today NPA as absolute figure is rising although as
a percentage to total advance has come down from seven per cent to one
per cent. Further real position is distorted by purchase and sale of
NPAs between banks and asset reconstruction companies and debt
restructuring. The problem has worsened by the inordinate delay in
judicial process in dealing with bank cases. The authors have also
discussed the issues relating to staff union, staff productivity and
bank merger. The book is certainly a valuable addition to the
literature on banking and timely.
http://www.hindu.com/br/2008/12/16/stories/2008121651161300.htm
Book Review
Migration trade-offs
SURESH NAMBATH
Impact of India’s rising economy on the Indian diaspora in East Asian
countries
RISING INDIA AND INDIAN COMMUNITIES IN EAST ASIA: Edited by K.
Kesavapany, A. Mani and P. Ramasamy; ISEAS Publishing, Institute of
Southeast Asian Studies, 30, Heng Mui Keng Terrace, Pasir Panjang,
Singapore-119614.
Does India’s economic growth and widening influence hold implications
for Indian communities in other countries? For long, people loosely
identified as of Indian origin who had settled in other countries,
especially East Asian nations, were thought of as being better off
than the Indians in India. Those who managed to leave India also
escaped from its poverty. However, this long-held perception is now
changing. The boom in the Indian economy and the political and social
pressures on Indian communities in the East Asian region in recent
years seem to have more than closed the gap in economic prosperity
between Indians in India and Indian communities in East Asia.
Case of Malaysia
Rising India and Indian Communities in East Asia, a collection of
papers presented at a conference on the same subject organised by the
Institute of Southeast Asian Studies in Singapore, seeks to reveal the
relationship between the rise of India and the lives of Indians in
East Asia. The spread of India’s influence beyond the South Asian
region opens up new avenues for Indian communities in other countries.
There is greater expectation that India will be able to pressure the
smaller East Asian nations to look into the grievances of the Indian
communities. As the book puts it, “Politically, India might only exert
a mild influence. However, economically and especially in the
development of the software industry, India is expected to have a
great impact.” Also, Indian communities that earlier viewed any
assertion of the Indian identity as problematic in the countries of
their residence now see advantages in seeking to re-establish an
affinity with their “ancestral” land.
Malaysia, a country where political representation is organised on the
basis of ethnicity, lends itself as a fit subject for study in the
book. Home to a considerable Indian population, mostly Tamils who came
as indentured labour during the British colonial period, Malaysia has
witnessed a forceful assertion of Indian and Hindu identity in the
last few years under the leadership of Hindraf or Hindu Rights Action
Force. Unlike the Malaysian Indian Congress (MIC), which has formal
representation in the ruling coalition, the Barisan Nasional or
National Front headed by the United Malay National Organization
(UMNO), Hindraf is an oppositional group that is outside the official
political framework of Malaysia.
Even the political rivals of MIC, the Indian Progressive Front and the
People’s Progressive Party, have been co-opted into the political
framework of Malaysia and are now supportive of the ruling coalition.
As P. Ramasamy argues in “Politics of Indian Representation in
Malaysia”, the MIC’s “basic methodology of representation is the
cultivation of personal friendship with UMNO leaders at the national
and state levels so that some minor concessions could be derived for
the community.” A large number of Malaysian Indians thus feel the need
for a political formation that would not compromise with the
establishment and would speak for their rights from a position of
strength.
Singapore
In Singapore, however, the situation is very different. Singapore’s
population policy encourages skilled Indians to settle in Singapore.
“The local Indian population should benefit from this influx through
assimilation in the longer term,” according to G. Shantakumar and
Pundarik Mukhopadhaya. The stress on immigration of professionals
could also explain why the Indians lag in terms of sex ratios, with
Singapore showing more males beyond age fifty. However, the Indians
still have a long way to go to match the attainment of the Chinese
population, who enjoyed a historical advantage in capital
accumulation.
But globalisation of the Singapore economy as well as the Indian
economy meant that Indian skills and capital could move easily to the
city-state. Whether this could also end the market discrimination
against Indian labour and reverse a situation in which qualifications
from the Indian sub-continent are less-recognised is still moot,
according to the authors of the paper on “Demographics, Incomes and
Developmental Issues in Singapore”.
No assimilation
In Thailand and the Philippines, the Indian migration was mostly from
the Punjab and the Sindh. As non-Muslims from these areas were
extremely conscious of their ethnicity vis-À-vis Islam, they preserved
their religious identity as Hindus and Sikhs after migration by
maintaining close kinship ties, points out A. Mani. But Tamils in
Thailand have been assimilated into Thai society through inter-ethnic
marriage as they were small in number and felt no compulsion to
zealously protect their Indian or Hindu identity.
In Japan, the migration of Indians is more recent. Many Indians came
in from the 1990s onwards to work in the IT industry and stayed on.
The migration is also on account of globalisation and liberalisation
in India and the involvement of Japanese companies in the Indian
economy. Indian workers in Japanese companies were sent to Japan for
training. Japan being a developed economy, the situation of the Indian
migrants is not comparable to that in other countries of East Asia.
Overall, Indians in East Asia did not undergo any assimilation process
in the countries of the adoption. The book seeks to explain this by
arguing that the requirement to assimilate was not strong on Indians
because Indians, “unlike the Chinese,” were not considered a threat in
the countries of their adoption. Whether a rising India will change
the situation is difficult to foretell.
Online edition of India's National Newspaper
Tuesday, Dec 16, 2008
http://www.hindu.com/br/2008/12/16/stories/2008121651231400.htm
Working out a secure future
Contemporary Macro-Economics
Ed by Amitava Bose et al
Macro-Economic Stabilization and Adjustment
By M.J. Manohar Rao and Raj Nallari
*Publishers: Oxford University Press, New Delhi (for both)
*Price: Rs 595.
*Price: Rs 650.
SINCE the 1930s macro-economic thinking has assumed greater
significance with the advent of Keynesian Revolution. In the 1980s the
financial programming of the IMF and the financial requirements
approach of the World Bank have further added new dimension al
dynamics in the macro-economic spectrum. The aggregates of National
Income Accounting, National Production Matrix and National Employment
Generation are pointers in indexing macro-economic growth in all types
of economies.
Both books under review are complementary in their theoretical focus
and supplementary in their practical policy initiatives. A combined
reading of the books will enrich the understanding of macro-economics
even to general readers.
Contemporary Macro-economics is a compendium of 10 well-researched
papers dedicated to Professor Mahir Kanti Rakshi by his students in
Presidency College, Kolkota. The papers are conveniently classified
into five sections. National Income, Development, D ynamics, Finance
and Institutions focussing on the contemporary issues in macro-
economic theory.
Pradip Maiti's paper clarifies the concept of real GDP as used in the
national income accounting literature and shows how it can be obtained
from outputs of individual producing units. Maiti also builds up a
theoretical structure of flow of funds relatio ns for the broad
sectors of the Indian economy and estimates the various aggregates in
these relations for a selected year.
In recent years, there has been a renewal of interest in the concept
of Net National Product (NNP) as a measure of welfare. Would the
equality between the value of current investment and the present value
of future welfare hold in this simplified world?
In their joint paper, Swapan Dasgupta and Tapan Mitra point out that
the equality is indeed satisfied if the competitive programme is also
an optional programme, or if an additional condition is met. The
importance of additional condition arises from the well-known fact
that when the future is open ended, not all competitive programmes are
optimal. A competitive programme, for which NNP is an exact measure of
current and future welfare, does lead to sustainable development if
and only if the value of in vestment, net of the depreciation of non-
renewable resources, is never negative.
Amitava Krishna Dutt's paper, attempts to compare and synthesise
models which show how the agricultural sector can constrain industrial
growth in less-developed countries (LDCS) through demand and wage-
goods constraints. Sugata Marjit et al explore the i mplications of
free trade for income distribution, especially for the relative wage
between skilled and unskilled workers in the context of a less-
developed country. The study shows that skilled/unskilled wage-gap is
likely to worsen with capital mobilit y.
Macro-economic theory has been characterised by a resurgence of
interest in the theory of economic growth. Dipankar Dasgupta attempts
to summarise some of the developments in the area of New Growth Theory
(NGT) in terms of an elementary supply-demand fra mework, where the
object of demand as well as supply is the rate of growth itself
Dynamic Optimisation Models are currently in use in a number of
different areas in economics, to address a wide variety of issues.
The relationship between the Dynamic Optimisation Model and the
(optimal) policy function associated with it is central to such
applications. Tapin Mitra's paper presents a selective survey of
results relevant to understanding this relationship. While Su dipto
Dasgupta paper focuses on how financing decisions affect product
markets, Bhaswar Moitra's paper discusses some basic issues related to
sovereign debt.
One of the most exciting recent developments in economics is the
explicit study of institutions. In its broadest sense, an institution
may be regarded as a contextual device within which social and
economic relationships are framed. Gautam Bose's paper r epresents a
selective study of different institutional arrangements that
facilitate intermediation of trading processes. He shows that if both
intermediation and private meetings are permitted, those agents with
greater potential gains from trade will ta ke the intermediation
route, while the remaining agents will wait for private trades.
The theory of implementation is concerned with the extent to which
social goals can be achieved or implemented through decentralised
decision-making procedures. In his paper Bhaskar Dutta surveys a class
of conditions, known as `preference reversal condi tions', that can be
used as litmus tests for determining whether a given social choice
correspondence is implementable or not. Naturally, these conditions
vary with the equilibrium concept that is used to describe agent
behaviour. Dutta provides a unifie d treatment of both the conditions
themselves, and the way in which they vary with the equilibrium
concept.
The book is refreshing in its methodological approach and rewarding in
its practical revelations. A useful guide to the students, researchers
and scholars in economic studies.
M.J. Manohar Rao and Raj Nallari's treatise is a technical
introduction to the theory and design of stabilisation and growth-
oriented structural adjustment programmes. This book attempts to
bridge the analytical framework gap between macro-economics and
development economics by adapting the existing theory of short-run
macro-economic stabilisation to the particular conditions and
structural characteristics of developing economies. The contents of
book are presented in five parts-macro-economic framework and
policies, analytical framework for stabilisation and adjustment,
monetary, fiscal and external sector adjustments, redistribution,
adjustment and growth and lessons of adjustment experience.
The first part focuses on macro-economic relationship and policies.
The second chapter discusses certain basic accounting concepts
revolving around three key macro-economic relationships and between
four key sectors (the government private, monetary and external
sectors. The third chapter discusses macro-economic adjustment from a
policy perspective. It focuses on monetary, fiscal, and exchange rate
policies in developing countries.
The fourth chapter discusses the Polak model against the background of
the theory it was partly responsible for creating, viz. the monetary
approach to the balance of payments. The following chapter initially
discusses the accounting framework underlying growth and resource gap
models, and the next chapter relates the analytical approaches of the
Fund and the Bank and integrates growth into the basic monetary model,
thereby highlighting the joint determination of inflation and growth.
The third part of the book integrates monetary, fiscal, and external
sector adjustments into the basic inflation/growth processes
underlying the merged Bank-Fund model. Chapter 7 discusses the concept
of financial repression and monetary sector reform wh ich is followed
by an overview of the specific features of interest rate policy. The
underlying implications of fiscal arithmetic and provides empirical
evidence regarding monetary accommodation and the analytical framework
for formulating an external de bt strategy in terms of a sustainable
debt-output ratio and the role of the exchange rate in the analysis
are also discussed in this part.
The fourth part of the book highlights areas of development macro-
economics that have been particularly active in recent years. The
concept of `adjustment with a human face' with special reference to
the relationship between poverty, income distribution, and growth is
highlighted in one of the chapters. Further discussions centre around
the several alternative approaches to adjustment with growth.
The fifth and final part of the book dwells on the lessons of the
adjustment experience, in particular, the impacts of financial and
economic policies on growth. The basic characteristics of financial
crises, with special reference to the types, origins, identification,
and signals of such crises, as also the issues involved in
liberalisation with stabilisation with special reference to the
optimal sequencing of reforms and the high-inflation trap are the
topics analysed.
Finally, the lessons of experience are briefly summarised and the book
with a few brief injunctions to policy makers in the form of specific
economic policy guidelines.
Having analysed rigorously the genesis of the East Asian contagious
financial crisis, the authors have presented a theoretical model of
financial crisis. Against the backdrop of high financial
vulnerability, one of the most fundamental propositions of op en-
economy macro-economics is that it is theoretically impossible for the
government to simultaneously aim at stable exchange rates, financial
openness, and monetary independence, the so-called `impossible
trinity'-- and therefore the sustainability of a ny instrument/target
mix under increasing capital mobility requires continuous policy co-
ordination.
The empirical results of the Indian economy indicate that a currency
crisis, in the form of a speculative attack, can be prevented only if
there exists substantial policy flexibility which enables the
authorities to continuously respond and adjust to ext ernal shocks.
The main derivative of this study is that macro-economic stability,
which is often synonymous with reduced inflation and improvements in
the BOP, is essential for long-run growth. Therefore, more than
anything else, macro-economic policies should be designed to stabilise
real output in the face of erogenous disturbances.
While liberalisation is essential in the medium term the sequencing of
economic reforms is critical in the short-run. In effect, the domestic
sector has to be liberalised first. Long-run economic growth is a very
gradual process and needs sustained stabi lisation, a competitive real
exchange rate to promote exports, a high rate of savings, and adequate
supply-side policies to increase the productivity of investment.
Institutional developments, with special reference to the central bank
and the banking system financial and capital markets, as well as
regulatory and supervisory agencies, are crucial for sustained long-
run growth. Regardless of whatever other sacrifice s the economy is
compelled to make in the process of adjustment, there should be no
reductions in government expenditures on education. Above all, macro-
economic policies can explain only a certain part of a country's
economic performance. A well-planned stabilisation and growth-oriented
structural adjustment programme will provide a solid foundation for
the continuing success of government policies.
The contents of the book create new waves of theoretical insights and
policy perspectives in macro-economic stabilisation and adjustment
dynamics. A good referral to macro economists, research pilgrims, open
economy champions and development policy pundi ts.
P. Jegadish Gandhi
The reviewer is Honorary Director, Vellore Institute of Development
Studies.
Financial Daily
from THE HINDU group of publications
Monday, July 09, 2001
http://www.hinduonnet.com/businessline/2001/07/09/stories/120909aa.htm
Volume 26 - Issue 15 :: Jul. 18-31, 2009
INDIA'S NATIONAL MAGAZINE
from the publishers of THE HINDU
BOOKS
New look at growth
ASHISH KOTHARI
The author challenges set notions of development and stimulates new
ideas on how humanity can achieve sustainable living.
THIS book could not have been better timed, coming as it does in the
midst of the worst economic crisis the world has faced for decades.
Debal Deb, a researcher at the Centre for Interdisciplinary Studies in
Kolkata, has written an incisive analysis of what is fundamentally
wrong with the global economic system. He also presents a framework
for an alternative path of human welfare that does not imperil the
very earth that sustains us, and is available to all people. He
combines various disciplines and perspectives in an impressive
synthesis.
Deb’s basic contention is that the ideology of development, narrowly
defined in terms of material wealth to be achieved through industrial
growth, has become an unquestioned fetish. It is what Deb calls
“developmentality”, a mindset “which equates affluence with
development, measures development in terms of GNP [gross national
product] growth, and accepts development to be the destiny of
civilisation”.
The first half of the book is dedicated to an illuminating analysis of
the origins, evolution and impacts of developmentality. This includes
various dubious biological and sociological justifications for
subjugating indigenous peoples and poor countries, leading to the
colonisation of the globe by a few European nations. As capitalism
spread rapidly into the colonies, subsistence societies were overtaken
by the monetised economy, common resource management by private
landholdings, and diverse local knowledge systems by the Western
“rationalist” one. All this (and more) culminated in the ideology of
developmentality, with human progress being defined narrowly in terms
of indicators such as GNP or per capita income (PCI), promoted
vigorously by agencies such as the World Bank and the International
Monetary Fund (IMF).
The past few decades of development have witnessed environmental
destruction never before seen in human history, with the collapse of
many ecosystems, a global extinction crisis, and climate change
threatening to engulf all of us. Simultaneously, several hundred
million people have remained in abject poverty and deprivation (nearly
40 per cent of South Asians are below the poverty line; one in three
Asians do not have access to safe drinking water and one in two to
sanitation). Inequalities have grown to obscene levels, exposing the
hollowness of the “trickle-down” theory.
The New Economics Foundation (NEF) estimates that between 1990 and
2001 “for every $100 worth of growth in the world’s per person income,
just $0.60 found its target and contributed to reducing poverty below
the $1-a-day line”. Communities or countries that have resisted or
hesitated to adopt the “development” ideology have been cajoled,
bribed, or threatened into conforming. Foreign aid and trade have been
used to increase the stronghold and profits of multinational
companies, mostly under the clever guise of helping poor nations in
their quest to “develop”.
So successful has been the brainwashing that decision-makers in
virtually all countries now aspire to the same economic goals (GNP,
etc., measured in percentage growth rates), hardly stopping to assess
whether this actually improves the welfare, happiness and satisfaction
of all people. This is true not only of capitalist economies but also
of socialist and communist countries where industrialisation has
wrought havoc on the environment and people.
The author debunks, in detail, the myths of classical (so-called
“neoliberal”) economic theory that provide the intellectual
justification for developmentality. These include the notion that
every “rational” individual acts only out of self-interest, the blind
faith in technology being the answer to all problems, and the dogma
that nature and natural resources are only to be valued for their
utility or monetary worth.
ASHOKE CHAKRABARTY
In Bhubaneswar. Pro-Market policies and unbridled consumerism allow
the rich to plunder the earth, says the author.
Deb also takes on the popular notions of population growth and poverty
being at the root of the ecological and social crises, showing that it
is government policies of free market and industrialisation, unbridled
consumerism and power inequalities that allow the rich to continue
plundering the earth. For instance, an average citizen of the United
States “consumes 50 times more steel, 56 times more energy, 170 times
more synthetic rubber and newsprint, 250 times more motor fuel, and
300 times more plastic than the average Indian citizen”.
Though the book provides examples from various countries, Deb provides
more detailed case studies from India. There is a sharp critique of
the Green Revolution from the 1960s to the present, which has been
uncritically credited with the significant rise in foodgrain
production in India and has on the other hand led to problems with
declining soil productivity, water pollution and shortages, loss of
biodiversity, and displacement of small farmers.
In the second half of the book, Deb turns to the search for
alternatives. He critiques a number of solutions offered by proponents
of what he calls “weak sustainability”, such as environmental
economists who attempt to build in ecological costs, for instance, of
pollution, into economic planning and budgeting. He contends that even
proponents of sustainable development, such as the famous Brundtland
Report Our Common Future, have only a limited vision, for they do not
see the impossibility of ever-increasing economic growth.
For more fundamental alternatives (“strong sustainability”), Deb draws
on some of Marx’s writings on the rift between people and nature, on a
number of other writers and activists who have questioned the
domination of the Western world view, and on the continuing traditions
and ethics of indigenous peoples or “ecosystem communities” such as
the Bishnois or the women of the Chipko movement. In more recent
times, there have been new insights provided by “sustainability
science” and ecological studies, the revolutionary zero-growth models
of ecological economics, and a greater understanding of the
contemporary relevance of traditional knowledge systems and common
resource management regimes. Underlying all this is also a call for a
new politics, with more participatory forms of democracy that do not
accept either centralised state systems or the dictates of the “free
market”.
It is this heady combination that Deb terms “inclusive freedom and
sustainability”, the subtitle of his book. Leading the movement
towards such alternatives is a range of civil society organisations,
mass movements and radical individuals in various fields. But there
are also formidable challenges: the powerful “bureaucrat-politician-
academic” clique that defines and imposes conventional development
ideology, the close links of private corporates with scientific bodies
and even many non-governmental organisations (NGOs), the failure of
the traditional Left to fathom and respond to the ecological crisis, a
media that continues to brainwash the public with visions of
consumerist and industrial utopias, and an educational system that
promotes conformity. Nevertheless, says Deb, it is possible to move
towards a saner future through ecological literacy and ethics, civic
democracy, inclusive freedom, and the revival of the commons.
One of the book’s strongest points is its wide-ranging use of
literature and thoughts from economics, ecology, sociology, political
science, philosophy and indigenous knowledge systems. It is,
therefore, surprising that he does not use Gandhian thought at all.
Gandhi’s challenge to development is as powerful as anyone else’s.
Moreover, his vision of an alternative world and his undoubted
contribution to many of the people’s movements that Deb justifiably
posits as important forces towards a saner world, are impossible to
ignore. Yet Gandhi figures only in passing in the context of Nehru’s
post-Independence push to industrialisation.
Deb also, surprisingly, omits reference to recent global attempts at
understanding humanity’s impact, including the seminal Millennium
Ecosystem Assessment ( www.millenniumassessment.org) and the exciting
Ecological Footprint network ( www.footprintnetwork.org). Another
relatively minor criticism is that the book would have been much more
readable if it was shorter and the language simpler. There is
considerable repetitiveness, for example, of the concepts and
criticisms of developmentality. The language used is often difficult
and jargonish (One example: “Environmentalism rejects the primacy of
Eurocentric cultural positivism, but opposes the post-modernist
escapism into non-committal pluralism.”). I do hope Deb will write a
simpler, shorter version, for his work challenges set notions and
stimulates new ideas on how humanity can achieve sustainable living,
and therefore deserves a much wider audience. •
Ashish Kothari is with Kalpavriksh – Environmental Action Group.
http://www.hinduonnet.com/fline/fl2615/stories/20090731261507300.htm
Volume 20 - Issue 09, April 26 - May 09, 2003
India's National Magazine
from the publishers of THE HINDU
BOOKS
India's informal economy
KARIN KAPADIA
India Working: Essays on Society and Economy by Barbara Harriss-White;
Cambridge University Press, Cambridge, 2003; pages 316, Rs.950.
BARBARA HARRISS-WHITE has been producing remarkable work for two
decades in the varied field of development issues. Much of this work
has drawn on insights from her fieldwork in northern Tamil Nadu and
she uses these insights to illuminate important questions of wide
relevance. In this valuable and provocative book she engages with a
range of debates, drawing the reader into an intense argument right
through the book's 300 pages. I found myself disagreeing with several
of her arguments, but I learnt a great deal from each one of them.
The book is not an easy read. It is densely written and its heavily
footnoted text draws on a vast and diverse array of academic research.
However, it repays close attention from the reader. Harriss-White
tries to do something that few development economists try to do - she
attempts to set the economic data on India within its socio-political
contexts. This is a task that mainstream economists do not even think
of attempting since they are not willing to acknowledge that economic
reality is very different from the abstract models they prefer to
study. For this reason, Harriss-White's book deserves applause and
wide readership.
The book's focus is on India's informal economy, what Harriss-White
calls "the economy of the India of the 88 per cent". This term is used
since more than 74 per cent of the population is rural and another 14
per cent lives in towns with a population below 200,000. The remaining
12 per cent lives in metropolitan cities (page 1). The informal
economy generates 90.3 per cent of all livelihoods in India and 60 per
cent of the country's net domestic product (page 5). Her study of the
informal economy leads us, as well, into the country's black economy,
with which the informal economy overlaps at several points.
Harriss-White's central argument in the book is that "the social
structures of accumulation" in India create "the matrix through which
accumulation and distribution take place" (page 13). She argues: "In
the India of the 88 per cent, it is clear that a range of non-State
social structures, and the ideas and cultural practices attached to
them, are even more crucial for accumulation than they are in
industrial societies. Six, in particular, are explored in this book:
the structure of the workforce, social classes, gender, religion,
caste and space" (page 15). Thus her book has ambitious goals - she
tells us that it seeks "to describe and analyse the economy of India's
88 per cent" by examining the socio-cultural and political elements of
"the social structures of accumulation". It also hopes "to contribute,
however modestly, to the analysis of contemporary capitalism" in India
(page 15).
Harriss-White draws primarily on data on small-town India, arguing
that this is where one can best examine "the non-corporate (economy)
in which 88 per cent of Indians live and work" (page 239). To
delineate the micro-economies of small-town India where the
"intermediate classes", who are her main focus, reside, she draws on
her own field research from northern Tamil Nadu.
Harriss-White's research on the local economy, seen within its
cultural matrices, is insightful. This "field economics", focussed on
the business classes in their daily dealings with each other, with
their workforces and with the local state, reveals the ways in which
the local economy is very tightly - though "informally" - controlled
and regulated by these mercantile business classes. Her detailed
documentation of the business methods of these "intermediate classes",
shows the ways, mainly hidden but sometimes brazen, by which the
state's control is neutralised and rendered harmless, competition is
eliminated, and new entrants kept out of the market.
Harriss-White argues that throughout India small-town and rural
economies are dominated by these intermediate classes, which are
constituted by "a loose coalition of the small-scale capitalist class,
agrarian and local agribusiness elites, and local state
officials" (page 241). The interests of the intermediate classes are
significantly different from those of corporate capital. Harris-White
argues that the former "directly appropriate the returns to rents of
all kinds and are able to do this through oligopolistic collusion in
markets and through structures of regulation that remain hardly
touched by liberalisation. They connive with local officials to secure
the protection of rents and of the state resources they capture. They
seek state subsidies, but more importantly they secure beneficial
concessions by influencing policy in its implementation.... Their
evasion of tax is the equivalent of a major subsidy to [their]
mercantile accumulation, while depriving the state of capacity and
legitimacy" (page 241).
Harriss-White argues that it is these intermediate classes that are,
in fact, the dominant segment in India's economy. She defends this
thesis by arguing that the informal economy, in which the intermediate
classes are hegemonic, "accounts for two-thirds of Gross Domestic
Product (GDP)" and that "at least half of the informal economy is
`black'" (page 246). This is why she characterises the informal
economy as "anti-social" - it is regulated by the intermediate classes
and ruled by their narrow values based on self-interest.
Harriss-White further argues that the size of the intermediate classes
is growing and a "new wave of small capital, based on primary
accumulation, is reinforcing and expanding the informal and black
economy, intensifying the casualisation of labour and transferring the
risks of unstable livelihoods to the workforce" (page 246). The
severely exploited labour force is radically subordinated and "labour
is regulated through the social structures of gender, religion and
caste, and of local markets" (page 241). Her study of the local
hegemony of the intermediate classes leads her to conclude: "Fraud and
tax evasion are part and parcel of Indian capitalism.... The bulk of
the economy is beyond the direct control of the State... . Countering
this literally anti-social economy calls for the emergence of a more
robust and active culture of collective accountability" (page 247).
It is impossible to do justice to the richness and complexity of this
book in a short review. Among the many interesting issues that it
raises are arguments relating to the impact of India's religious
pluralism on the structure of its economy and the question of whether
capitalism in India is proving to be the "social solvent" that it was
widely expected to be (page 245). A major contribution of this book is
its discussion of the debates on "industrial clusters" (or "industrial
districts") in India. Here Harriss-White argues that the overly
positive view of "industrial clusters" and "flexible specialisation"
in India, that currently prevails, is quite mistaken. Her arguments
here are well taken. She points out that industrial clusters are a
common, not exceptional, form of development in India. Low technology
is usual in these industrial districts. Contrary to what cluster
theory enthusiasts, whose numbers are growing, claim, most industrial
clusters do not have the "developmentally positive potential" (page
208) shown by highly exceptional clusters like Bangalore and Tirupur.
In fact, most industrial clusters in India excel in the "super-
exploitation" of workers, especially women and children (page 222).
Importantly - and this is a fact that cluster enthusiasts often choose
to ignore in studied silence - a lot of field research shows that
entrepreneurs demonstrate "a complete disregard for anything other
than private profit". This, coupled with "the inadequate and negligent
enforcement of effluent standards" by the co-opted state, has resulted
in vast tracts of agricultural land being rendered unfit for
agricultural use, while large sections of local populations have been
deprived of their sources of drinking water, because these are now
toxic (page 237). In Tamil Nadu such disasters have occurred in the
Palar Valley (due to tanneries) and in Tirupur (due to the hosiery
industry). The state has remained indifferent or slow and extremely
reluctant to act against the entrepreneurial class (page 237), with
whom it is in close collusion. The result is that the burden of these
"negative externalities", created by highly profitable (and much
admired) industries, falls, crushingly, on those least able to bear
this environmental disaster - the virtually disenfranchised rural
poor.
The book's postscript turns to the contemporary political context.
Entitled, "Postscript: proto-fascist politics and the economy", it
examines "the key elements of fascism" and "the class origins of
fascism" in order "to evaluate the prospects of fascist currents in
India" (page 253). While this is helpful, even more interesting is
Harriss-White's argument, made at several points in her main text,
that, in the final analysis, it is likely to be economic reasons that
lie behind Hindu communal attacks on Muslims, even though these are
camouflaged and covered up in political rhetoric about "religion" and
"Hindutva". This argument is extremely persuasive, especially given
the fact that anecdotal evidence so far suggests that this was the
motivation behind the Bharatiya Janata Party's supervision of the
shocking pogroms against Muslims in Gujarat in 2002.
Harriss-White's book, with its pragmatic, undeterred attention to the
unlovely realities of the structuring forces behind the economy, is a
wake-up call. It documents the strength of the powerful political and
institutional forces that rule the economy today, in unholy alliances
that have institutionalised corruption and fraud, making them an
accepted, everyday part of the economy. These hegemonic forces have
created almost overwhelming obstacles to the possibility of
"democratically determined accountability" (page 247).
But, though overwhelming, these forces and their "anti-social economy"
can and must be challenged. To do so requires, as a first step, a
dispassionate recognition of the reach and nature of the ugly
political and economic realities that encircle us. In this task this
book is a useful guide.
http://www.hinduonnet.com/fline/fl2009/stories/20030509000107100.htm
Online edition of India's National Newspaper
Monday, Aug 25, 2003
Business
There's no immutable law in economics
IN A recent public speech on economic policy, Bimal Jalan, Governor of
the Reserve Bank of India, explained the realism which drives India's
exchange rate policy. (Dr Jalan lays down office in October).
Coming from a person who steered the country's external sector through
the turbulent second half of the last decade (marked by major
international events such as the Asian currency crisis, and global
market shocks) with a steady hand and a definite, medium-term vision,
Dr Jalan's comments are a great lesson for everybody.
There can be no doctrinaire, orthodox, rule-bound approach to the
financial markets and economics and more generally the social
sciences. That is the most important message flowing from Dr Jalan's
speech. Equally interesting was his declaring the central bank's
openness to suggestions and feed back in the process of policy
formulation.
Since it has taken place in fairly quick succession, one cannot but
compare Dr Jalan's pragmatic approach with the almost obsessive rule-
bound approach of the International Monetary Fund (IMF) to economic
policy issues. This dogmatic approach was articulated by its (IMF's)
Chief Economist, Kenneth Rogoff a few days before Dr. Jalan's speech.
On a recent visit to India, Mr. Rogoff almost instinctively talked
about India's fiscal deficit being completely unsustainable and it
being the root cause of all its economic malaise. Now, this line on
fiscal deficits has been the standard of the IMF for such a long time
that its representatives almost instinctively parrot out the
argument.
Quite oblivious to the fact that this has been turned on its head in
the most convincing manner in many countries across the world.
For instance, one is reminded of Lawrence Summers, a former US
Treasury Secretary, publicly recommending that Japan pump-prime more
(even as its public debt was well over 150 per cent of its GDP)
precisely when the IMF / rating agencies were ringing the alarm bells
on its deficits and one agency actually downgraded Japanese debt.
Japan has continued to pump-prime and though things have certainly not
improved, neither have they got any worse. There is more to Japan's
economic malaise than just the fiscal deficits.
More recently, Alan Greenspan, Chairman of the U.S. Federal Reserve,
publicly supported the fiscal stimuli package of the Bush
Administration as soon as it was unveiled while the same Chairman had
some time earlier spoken eloquently about the virtues of balanced
budgets. One can only ascribe the Chairman's turnaround on budget
deficits — if it can be called a turnaround — to his pragmatic
approach to economic circumstances.
A budget deficit while undesirable at a point in time for an economy
becomes necessary some other time for the same economy. One cannot
have a single policy for all times. (The deficit constraints which the
Maastricht Treaty has imposed on Euro zone countries and the tensions
this is causing in the Euro zone is another stark pointer to the non-
sustainability of rule-bound economic policies).
So much for practical economics in the advanced countries being out of
sync with the IMFs doctrinaire approach. A more telling example is
available in itself.
The country is in the midst of a stubborn run of budget deficits over
the past decade — averaging around 7 per cent of GDP and which is
certainly not yet through its course — that Indian interest rates have
fallen to their all time low around 5.50 per cent. Indeed, yields on
10 year Indian government bonds which were ruling around 15 per cent a
decade ago are now around 5.50 per cent and could fall more. And India
continues to post sizable deficits which do not seem like reversing in
the foreseeable future.
What is particularly noteworthy is that the Indian developments seem
to have comprehensively negated some core tenets of the IMF approach.
Not only has India posted huge deficits, it has also heavily monetised
those deficits over the course of the decade (though the level of
monetisation has come down in the recent past).
Runaway inflation and severe upward pressure on interest rates — that
is what the IMF has been warning will follow big government deficits
and their monetisation. What has happened in India?
While inflation has continued to behave (averaging around 6.5 per cent
in the past decade), interest rates, as mentioned earlier, are still
to bottom out. While there are definitely concerns about how Indian
inflation is being measured (inflation in the services sector, for
example, is not reckoned at all), the country is not near runaway
inflation. The Indian currency is still maintaining its integrity, by
and large, as a store of value and means of payment.
The Indian situation is somewhat analogous to the Japanese. That is,
things have certainly not improved here dramatically (for instance,
there is no double digit growth with these ultra-low interest rates)
but they are not deteriorating either. The larger message being: there
is more to the economy and the lacunae in it than just some text-book
prescriptions on fiscal deficits.
By the way, it is quite possible that over the course of the next few
months, Indian bond yields could be on par with those on U.S.
government bonds. Ten year US bonds are now yielding around 4.50 per
cent. There is no immutable law in economics which says Indian bond
yields cannot match U.S. Treasuries.
T. B. Kapali
(The author is Asst Vice President (Treasury) in ING Vysya Bank. These
are purely his personal views which do not reflect those of his
employer).
http://www.hinduonnet.com/thehindu/biz/2003/08/25/stories/2003082500080200.htm
Book Review
On economic reforms
S. MAHENDRA DEV
The book is a fitting tribute to Prof. Bagchi’s contribution to social
sciences
POST-REFORM DEVELOPMENT IN ASIA — Essays for Amiya Kumar Bagchi:
Edited by Manoj Kumar Sanyal, Mandira Sanyal, and Shahina Amin; Orient
Blackswan Pvt. Ltd. 3-6-752, Himayatnagar, Hyderabad-500029. Rs. 695.
Economic reforms have influenced the development strategies in recent
decades. There have been some improvements in economic growth and
other indicators in the post-reform period.
However, there are concerns regarding poverty reduction, quantity and
quality of employment generation, human development, and inequalities
in the economy and society — rural-urban, man-woman and so on. It is
known that economic growth is only one of the means or instruments for
achieving the end — the well-being and freedoms of the people.
A festschrift volume for Prof. Amiya Kumar Bagchi, the book under
review deals with post-reform developments in Asia. Bagchi is an
eminent economist, a social scientist, and an institution-builder. His
research on various development issues is widely known. He interacted
with renowned economists and social scientists. As indicated in a
‘tribute’ to him in the volume, he acknowledged “his debt to his
teachers Maurice Dobb, R.M. Goodwin and Joan Robinson in particular”
at Trinity College. He also records his debt to Amartya Sen and
Sukhamoy Chakravorty and recalls his useful interactions with the
students of the Presidency College, Calcutta (now Kolkata).
As mentioned in the ‘preface,’ the essays are an “attempt to grapple
with the issues often raised in the development debate on whether neo-
liberal reforms in developing nations have raised poverty, food
insecurity and income inequality, hindered empowerment of women,
raised agrarian distress, reallocated resources for private
profitability as against social gain and facilitated the rise of multi-
national oligopoly.” These issues have been examined on the basis of
empirical data drawn from China, India, and Bangladesh. The volume
contains 11 essays — six on India, two on China, and one on
Bangladesh; the other two papers deal with theoretical issues.
Inequality
The papers on China focus on the inequality across regions and the
rural-urban disparities. Inequalities increased in China in spite of
rapid economic growth. Those on India have as their themes food
insecurity, growth-poverty-employment relationship, gender
discrimination in the labour market, agrarian distress caused by
withdrawal of state support to small farmers and, policy shift in
‘priority sector lending’ to the detriment of small and marginal
farmers and entrepreneurs.
One of the papers refers to the paradox of higher GDP growth, lower
poverty, and higher unemployment in the post-reform India and the
authors discuss it using the data up to 1999-2000. But if we use the
more recent 2004-05 data, the employment growth rate will be high.
Although unemployment increased, it is still less than 10 per cent.
Apart from unemployment, a basic problem in India is that of “working
poor.” People are working but at low wages, in low working conditions,
and without any social security. In other words, there is no paradox
of low poverty and high unemployment in India.
Child labour
The paper on Bangladesh revisits poverty issues in the context of
child labour. It indicates that the determinants of children’s market
work and household work will have to be examined in separate models.
The last two papers discuss an analytical framework for understanding
the issues relating to the recent rise of multi-national firms and the
rapid growth of India’s software technology.
One can differ with the methodology used and the analysis made in some
of the papers. It may be noted that the impact of economic reforms
depends on initial conditions and other factors. In general, the
international experience shows that reforms have not succeeded in
Latin America and Africa.
On the other hand, the experience of South East Asia and East Asia
with economic reforms and poverty reduction has been much better. For
example, in China, although inequalities increased, their official
data show that the poverty ratio is very low and children suffering
malnutrition is eight per cent. This does not mean that everything is
good about these regions. Countries here also suffered on account of
the financial crisis in the late 1990s. As pointed out in the book,
these countries and those in South Asia have to focus more on
inequalities, employment, poverty, human development, and other social
and economic problems apart from accelerating economic growth.
Moreover, economic reforms have given greater importance to the
financial sector as compared to the real sector. The Indian experience
with reforms over the past 18 years reveals that there have been
achievements on the growth front but inequalities widened and the
performance in terms of the quality of employment and progress in
social sector is far from satisfactory. For example, malnutrition
among children was stubborn at 45 per cent during the period
1998-2006. Fortunately, there is a growing recognition in countries
like India that an equitable or inclusive development is imperative
since the social and economic disparities are persistently high and
worsening, in spite of the higher economic growth. Compared to other
countries, India has done well in the present financial crisis because
of its cautious approach.
To conclude, this book is a significant addition to the literature on
economic reforms and a fitting tribute to Prof. Bagchi’s contribution
to social sciences.
Online edition of India's National Newspaper
Tuesday, Oct 06, 2009
http://www.hindu.com/br/2009/10/06/stories/2009100650631200.htm
All the world's a market
*Selling Globalisation
The Myth of the Global Economy
By Michael Veseth
Publishers: Lynne Rienner
Price: not mentioned.
THIS book began as a project to explore the application of chaos
theory -- the analysis of non-linear dynamical processes -- to
international political economy, especially to the study of
international financial movements. Case study of four `global' fir ms
-- Boeing, Microsoft, Nike, and the Frank Russell Company - enables
the author ``think creatively about what actual globalisation is and
what it means, which led me to the truth behind the myth.''
About the G-word: Globalisation, ``one of the most powerful and
persuasive images of today's world'', -- as promise or as threat --
the book argued that globalisation is badly misunderstood. It is
quantitatively and qualitatively different from the conve ntional
wisdom. Global financial markets have a built-in tendency toward chaos
and crisis, and the instability worsens as markets expand.
For the author, globalisation is really a delivery system, not a final
product. When one accepts the image of hyperglobalisation, one
simultaneously accepts, usually without question, a number of other
images -- political, economic, and intellectual.
Again, globalisation has many faces. It is, in fact, a complex dynamic
process. Veseth tells first of the four stories, which features Nike
-- how the threat of globalisation can be used effectively to promote
private interests even in a situation in whi ch the global connection
is clearly irrelevant. And finally, the fourth story looks to the pro-
democracy movement in Indonesia to provide an example of how
globalisation can be used to promote all sides of an issue.
Nike seemed to be playing the various state and local governments
against one another, looking for the best deal. Nike was able to
bargain with local governments for concessions in part because of its
image as a footloose global firm. The belief in footl oose
globalisation as a general feature of corporate behaviour was enough
to induce local governments to scramble to offer concessions to Nike,
which improved Nike's position in bargaining for its Oregon home turf.
Hyperglobalisation was a useful image t hat served Nike well in these
negotiations.
The second story shows how the image of globalisation can be
manipulated and used to promote public policies that are at best
tangentially related to global markets.
The third story is about the Boeing-McDonnell Douglas merger, shows
how the consequences of actual globalisation do not always follow the
hyperglobalisation model. At first glance, the merger of two global
industrial and technological giants, creating th e largest aerospace
and defence manufacturer in the world, seems to be quintessential
hyperglobalisation. The EU threatened to impose crippling fines and
sanctions on Boeing if the merger with McDonnel Douglas went through
as planned. The EU action was n ot about monopoly power; rather, it
was about national interest.
In the fourth case, captioned `Globalisation and Democracy in
Indonesia', it is shown that as global firms and markets gain power,
citizens lose it.
The book has shown four faces of globalisation, but it really has a
thousand faces. Globalisation, Galbraith writes, is not the death of
the welfare state, but a reason to extend it. Globalisation is as
highly marketable a product in the ivory tower as i t undoubtedly is
in politics, business, and the media. So useful is this concept, in
fact, that if it did not exist, we might need to invent it.
As per the author, Ricardo Petrella has made some progress towards a
working definition of globalisation. Petrella considers
internationalisation to be a process in which raw materials, goods,
and services are exchanged across national borders. Multinati
onalisation is a further development in which especially capital but
also some labour moves across national borders as part of the
production process. Petrella's list suggests the multidimensional
nature of globalisation, but it suffers the obvious flaw that it
defines globalisation in terms of itself. Globalisation is the process
of economic, political, and social change that occurs when all agents
in a system have access to a common pool of resources.
Since Coca-Cola and McDonald's are the quintessential global
businesses in most people's minds, it is useful to consider the degree
to which they really remain multi-local enterprises. A trip through
the Coca-Cola museum in Atlanta reveals surprising deg rees of product
adaptation to local market conditions. Coca-Cola is a successful
global brand precisely because it is so successfully multi-local.
Likewise, McDonald's product lines adapt to local market conditions to
a surprising degree. The book cites the example in India. The new
stores in India make their hamburgers from lamb. Local pools are the
key to global competitiveness. Globalisation is clearly not the end of
geography. No amount of electronic technology can eliminate the
importance of local factors to global businesses.
The state will persist because the need for the state has grown, but
also because the local resource pools and socio-economic problems on
which states are based are undiminished.
Nike's famous roots are, of course, very local. The first Nike shoes
were made in Japan, and over the years more than 99 per cent of Nike
shoes have been imported through a global commodity chain that links
Nike's mainly core markets with its contract pr oducers in the semi-
periphery (e.g., South Korea) and the periphery (e.g., China and
Indonesia). Nike is truly global by my definition because it swims in
both pools. Nike does not have many employees (only about 14,000 in
1995) for a corporation with al most $5 billion in sales. Nike invests
heavily in creating demand for its products by building its stable of
celebrity endorsers and making the swoosh a symbol of their
lifestyles. Most Nike shoes and other products are made in Asia. Nike
does not own th e factories that make its shoes.
Boeing's global commercial sales are so large that they alone can skew
the balance of payments statistics of the rest of the US economy.
Boeing is almost big enough to be a nation in many respects, and a
look at Boeing actually tells us something about b oth global business
and the condition of the nation-state. Nike is a creature of the
market. Boeing is a creature of the state.
The book has looked at four examples of actual globalisation: Nike,
Boeing, Frank Russell, and Microsoft. However, as the author believes,
only Nike is global in the sense that he has defined this term; Boeing
shows that state power is an important facto r in economic
globalisation; the Frank Russell Company demonstrates that people
matter more and that technology perhaps matters less than is often
suspected in global businesses. Microsoft highlights several important
aspects of globalisation.
Moving further to the political economy of globalisation in Chapter
VI, it is held, globalisation is a lever that special interests can
use to pry open certain public policy doors that would otherwise be
tightly shut. Economic interdependence, strengthen ed by technological
change and scientific advances, made the nations of the world so
interdependent, especially in terms of finance, that sovereignty was
an obsolete concept. An unambiguous lesson of the last forty years is
that increased participation i n the world economy has become the key
to domestic growth and prosperity.
The penultimate chapter deals with ``Unsettled Foundations''.
Globalisation is all about markets. Hyperglobalisation is, what David
Sousa calls: `garbage can' politics: `the global economy' is an
enormously attractive problem. Economic ideas like global markets are
exploited by both politicians, as Krugman notes, and economists who
have a policy axe to grind.
Globalisation, seen through the lens of economics, is a highly
efficient and altogether admirable process driven by greed or the
desire of wealth or the love of money or purposeful behaviour.
Globalisation, being the ultimate expansion of markets to a gl obal
scale, is therefore everything an economist believes in.
Joseph Schumpeter addressed this important problem in his 1939 books
Business Cycles. It is the dynamical interaction of these cycles,
Schumpeter argued that creates macroeconomic cycles. Schumpeter's
vision of economic was dynamic, and ultimately chaoti c. Schumpeter
lacked the sophisticated mathematical tools necessary to make his
vision of a theory non-linear dynamical economics a reality.
The last chapter `rethinks' globalisation. By some measures, the world
is less thoroughly integrated today than it was in the period before
World War I that Keynes has idealised. When people think of
globalisation, for good or for bad, they think about a world of Nike,
which is unequal, envious, performance-oriented, capitalist world.
Among the many forces that limit the extent to which true
globalisation can happen is the fundamental instability of global
financial markets. If globalisation is not new, not ubiquitous, and
not unstoppable, then why does it get so much attention? Globalisation
gets attention because it is a useful concept, globalisation has been
so effectively marketed is that attempts to provide a sound economic
critique of this concep t have thus far been ineffective.
An erudite treatise that the book constitutes, it makes an apt and
timely contribution of great significance to the complex term which
globalisation connotes.
Raghu Dayal
Financial Daily
from THE HINDU group of publications
Monday, January 22, 2001
http://www.hinduonnet.com/businessline/2001/01/22/stories/122209b2.htm
"We're in the Money": Sid Harth
http://groups.google.com/group/soc.culture.indian.marathi/browse_thread/thread/3bc67593a8a0ac5b#
Madam I 'm Adam: Sid Harth
http://groups.google.com/group/soc.culture.indian.marathi/browse_thread/thread/fbe56c67d373c696#
It's the Economy, Stupid: Sid Harth
http://groups.google.com/group/soc.culture.indian.marathi/browse_thread/thread/a46d86d4a3976279#
BRIC-a-BRAC: Sid Harth
http://groups.google.com/group/soc.culture.indian.marathi/browse_thread/thread/1d0dab2a874d0f26#
Big Bang: Sid Harth
http://groups.google.com/group/soc.culture.indian.marathi/browse_thread/thread/293ffa6b644467ef#
Indian Economic Survey: Sid Harth
http://groups.google.com/group/soc.culture.indian.marathi/browse_thread/thread/83574501e1c1ee72#
World's Baked Billionaires: Sid Harth
http://groups.google.com/group/soc.culture.indian.marathi/browse_thread/thread/42a9c3eca9882e80#
Below Poverty line, Line: Sid Harth
http://groups.google.com/group/soc.culture.indian.marathi/browse_thread/thread/097e4867b8baf22a#
Outsourcing Sorcery: Sid Harth
http://groups.google.com/group/soc.culture.indian.marathi/topics?start=300&sa=N
Globalization Gobbledigook: Sid Harth
http://groups.google.com/group/soc.culture.indian.marathi/browse_thread/thread/bea6b5954e7332f4#
Indian Budget Bonanza: Sid Harth
http://groups.google.com/group/soc.culture.indian.marathi/browse_thread/thread/40cc05563d71e4a4#
Pranab Mukherjee, my Main Man: Sid Harth
http://groups.google.com/group/soc.culture.indian.marathi/browse_thread/thread/0ce38c4203700750#
...and I am Sid Harth