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Denying the Devil Its Due

Sugata Marjit Reading Globalisation and Development edited by Ashwini Deshpande has been a refreshing experience. The volume is a collection of articles presented in a conference in 2005 on a theme, which is of critical significance for policymaking all around the globe. The orthodox approach of trade and investment liberalisation as a necessary and sufficient means for prosperity of the developing world is put under the scanner by a set of skilfully done analytical papers. Researchers included in the volume have gathered from various corners of the world and done a fairly commendable job. By now it is well recognised that several critiques on either side of the fence often tend to engage in rhetoric while discussing the pros and cons of globalisation. The so-called

Economic & Political Weekly EPW june 14, 200829Denying the Devil Its DueSugata Marjit Reading Globalisation and Develop-ment edited by Ashwini Deshpande has been a refreshing experience. The volume is a collection of articles pre-sented in a conference in 2005 on a theme, which is of critical significance for policy-making all around the globe. The orthodox approach of trade and investment liberali-sation as a necessary and sufficient means for prosperity of the developing world is put under the scanner by a set of skilfully done analytical papers. Researchers in-cluded in the volume have gatheredfrom various corners of the world and done a fairly commendable job. By now it is well recognised that several critiques on either sideof the fence often tend to engage in rhetoric whilediscussing the pros and cons of globalisation. The so-called “Washington Consensus”, now being torn to pieces by scholars with various levels of progressive inclinations, is taken to task in this volume. But the volume stands apart from populist witch-hunting and focuses more on serious academic judgment. This is a positive contribution of this volume.The volume is divided into six sections – Trade Regimes and Exchange Rate Poli-cies, Financial Fragility, Currency Con-vertibility and Monetary Policy, Labour and Employment, Issue in Cross-national Growth Comparisons, Lessons from China and Creating Policy Space.All the chapters except the last one by Jean Dreze on the National Rural Employ-ment Guarantee Act (NREGA), are directly related to the problems of open develop-ing economies. I am not fully convinced of the reason the editor cites for including Dreze’s lecture. Although the inaugural chapter in the volume talks about the shrinking policy space for the government under more liberal economic regimes, which empower private capital and market incentives to play a more dominant role in the process of development, employment guarantee for the poor has been an age old concern even for a less globalised India. I do not immediately see the reason for relating the article to this specific volume as there is little empirical evidence corroborating the fact that it is “globali-sation” which has specially hurt the real income of the rural poor.I am going to pick and choose some chapters of the volume to highlight the specific issues that are being discussed. This will be essentially a representative sample. I do not intend to undermine the papers that I shall not discuss much. The exclusion is needed for economising on space and directing my comments to the relevant content of the analyses.Needless to say, Deshpande’s introduc-tion to the volume, though it does not hide her ideological inclinations, is very well written and is very helpful to anyone who has little time to go through all the chap-ters. The introduction brings out the essence of each chapter, relates one another nicely with intelligent and accessible comments.Shrinkage of Policy SpaceHa-Joon Chang talks about globalisation- induced shrinkage of policy space, the space which allows the nations to intervene unilaterally, design local poli-cies and pursue national objectives. While admitting the fact that liberal trade and industrial policies do not give much room for policy interventions, one must wonder what such privilege, in the pre- globalisation regime, did achieve for the developing world in general. If one traces back in history, in the 1950s, 1960s and 1970s, the dominant paradigm used to support import substitution and regulated industrial regimes. Government was everywhere – it decided everything. It is also well recognised now that such unfet-teredcontrol over the economic life of the people did not accomplish most of the objectives. Being able to freely intervene and broaden the space of intervention also means tampering with the potential eco-nomic freedoms and aspirations of many. Even staunch opponents of the liberal capitalist order will argue for some shrink-ageof policy space relative to a situation ofstifling regulations. Competition does act as a disciplining device, not only for economic agents but also for the state. Forexample, one should not deny the fact that the prosperity of India’s external sector owes a lot to the restraints imposed on the government against deviation from liberal policies. It is undoubtedly the case that the developed nations continue to, as they havealways done, pursue various anti-trade policies in the name of free and fair trade.But the world without the World Trade Organisation(WTO) would not have greatly benefited the developing countries either. This is one methodological problem that I have confronted in some of the arti-cles in the volume. The WTO may favour the developed nations, but without the WTO it would have been far more damag-ing for the developing world. Bilateral threats and arm-twisting would have hurt them to a much greater extent. Also the fact that the developing countries can form a group and enforce alternatives in trade agreements is definitely a positive outcome of multilateralism. Let us take for example Beena’s paper on textile and clothing trade. It is argued that even after removal of Multi-Fibre Agreement (MFA) quotas, the developed countries have retained many non-tariff barriers for protecting their domestic markets. Removal of quota has not led to an increase in growth of trade in textiles in south Asia. However, such arguments do not prove that removal of quota was not beneficial to the quota-affected coun-tries. In fact Chinese entry into the WTO has created problems for some of the tex-tile exporting nations. That the south Asian countries have not done better could well be due to problems internal to this group and possibly due to entry of China Globalisation and Development – A Handbook of New Perspectivesedited by Ashwini Deshpande; Oxford University Press, New Delhi, 2007; pp 301, Rs 695.book review
BOOK REVIEWjune 14, 2008 EPW Economic & Political Weekly30into theWTO. Thus it will not be judicious to label liberal trade policies and the WTO as the real culprits. It is difficult for any multilateral forum to work with too many country-specific policies as suggested in the paper. Also the proposition that SAARC has to be made more effective is at fault with the fact that the volume of trade among member nations is unlikely to be of any significance for the member countries. One necessary precondition for any successful trading block is that trade crea-tion measures substantially increase the volume of trade. Otherwise nothing useful would be achieved in the end.Financial Fragility and Monetary PolicyThe section on financial fragility and monetary policy delivers well-written chapters in particular by Abeles and Libanio. Financial openness can very well make the financial system quite fragile and risky. Also fiscal imbalances do not neces-sarily lead to financial crises. The Asian financial crisis, a well known example of this phenomenon, speaks volumes about the need for agile and informed regulatory control of financial flows. Privateforeign over-indebtedness, according to Abeles, was the main reason for Argentina’s crisis in 2001, rather than fiscal imbalance. This was typical of Asia as well. Indonesia, for example, in the period prior to the Asian turmoil, went overboard with careless foreign borrowing, learning heavily on short-term risky foreign debt. Overexposure can be optimal for a single financial entity when social externality of such risks can be enormous. However, one must note that such classic private-public conflict of interest is an outcome, not so much of increasing financial openness, but of a lack of solid regulatory structure. If we agree that we should stop financial flows because they are risky, we shall unneces-sarily hurt output and employment. Libanio’s paper looks at the monetary policy for three countries, Brazil, Chile and Mexico. Inflation targeting has been a preoccupation of those who think that tampering with the natural rate of un-employment is not a good policy. But as has been demonstrated recently through repeated rate cuts by the Federal Reserve System (the Fed) in the US, philosophy and practice are two entirely different ball games. The World Bank, IMF and Washington Consensus driven prescription for fixing low growth and a high fiscal burden has been monetary contraction. Whenyouneeditmost to get out of stagna-tion, the consensus of the privileged has been to take the punishment path. But it is straightforward to arguethatunderstag-flation pro-cyclical monetary policy, i e, containing money supply during recession is utterly damaging for any economy. Libanio’s paper provides a rigorous analysis of this problem. It shows that inflation targeting has not only increased output vola-tility but is also likely to result in negative effects on growth rates in the long term.The section on labour and employment contains three papers. The last one by Kiziprimak provides a discussion on labour market participation by married women in Turkey. I have failed to understand how this is related to globalisation and the so-called Washington Consensus. Hence, I shall discuss the other two.Jobless GrowthTregenna’s paper revisits the issue of job-less growth and shows in terms of a very carefully done analysis that greater invest-ment in South African manufacturing has not meant greater employment. Increas-ing capital intensity of production is a major problem and output growth could not foster substantial growth in employ-ment, a story common to many developing and developed countries. Technology has been a major culprit all over the world pro-moting employment of “skilled” workers and the critical cut-off skill progressively moves up the ladder. But what is sadly missed in such analyses that use only for-mal or organised (official) sector data is the phenomenal growth in informal em-ployment. There is a substantial literature, which includes studies on Africa, and which discusses the emergence of a pro-ductive informal segment in a globally integrated production environment result-ing in higher wage to the informal workers. Ignoring such works may help in esta-blishing a particular line of thinking, but does injustice to honest scholarly work. It seems that the author is unaware of seve-ral related papers published in well known journals. The analysis would have been pertinent if the share of employment in informal manufacturing is really insigni-ficant or the new investment in no way could affect the employment in the infor-mal sector. Persistence and growth of the wage-differential between the skilled and the unskilled in Turkey has been highlighted in Memis’ paper. Although most of Turkey’sexportsischar-acterised by labour-intensive technology, a policy of export-promotion could not reduce wage disparity. The author takes this as a counter to the usual proposition of Heckscher-Ohlin trade theory which suggests that growth in labour intensive exports should increase real wage of the unskilled both in absolute and relative terms. While one could not agree more with the empirical analysis conducted by the author, one has to be careful in judg-ing whether such an outcome clearly refutes the theory.The commodity price-factor price rela-tionship in trade theory is a ceteris paribus Call for PapersAgenda for Emancipation and Empowerment of Dalits and Tribes4-6.09.2008The PG & Research Centre, Department of Economics, Scott Christian College (Autonomous), Nagercoil is organizing a three-day national seminar on Agenda for Emancipation and Empowerment of Dalits and Tribes, sponsored by the UGC. The seminar will be held on 4th-6th September, 2008. Participation of Professionals from diverse disciplines of Economics, Sociology, History and Law is welcome.Papers reflecting the following sub-themes are invited.Casteism – a Historical Perspective, Economic Backwardness of Dalits and Tribes, Educational Backwardness, Cultural Backwardness, Untouchability, Atrocities on Dalits and Tribes, Role of NGOs and Political Parties in Emancipation and Empowerment, Agenda for Emancipation and Empowerment.Full papers, not exceeding 20 pages with the abstract not exceeding 250 words together with the soft copy should be submitted by August 16th 2008. Address for Communication: Dr.J.Cyril Kanmony, Reader in Economics, PG & Research Centre, Scott Christian College (Autonomous), Nagercoil-629001. 04652-236228®, 9943869198(Mobile), Email:jcyril@dataone.inA limited amount of travel grant is made available by the UGC to support some of the participants (Age below 45) and the paper presenters. Registration fee is Rs.300 per participant.
BOOK REVIEWEconomic & Political Weekly EPW june 14, 200831proposition. Any empirical analysis must make a room for other factors changing at the same time. The author claims that rising supply of migrant workers from agriculture to industry has a depressing impact on wage. This is a case when labour supply itself changes and that has a separate impact on the wage. If one really has to confront the theory, one should control for several other factors and then check the impact of trade on wages. One should also take note of the fact that trade theory has been extended in many directions to capture the empirical findings related to trade and wage distri-bution across the globe [Marjit and Acharyya 2003, 2008]. The Heckscher-Ohlin theory reinterpreted in more mean-ingful ways does accommodate such concerns. As with the previous paper, this case also calls for a better reading of the existing literature. The most impressive article in the volume comes from Fedderke, Luiz and Kadt on fractionalisation indices and cross-country analyses of growth. The authors question the basis of using ethno-linguistic fractionalisation as an explana-tory variable in cross-country growth regressions. First, growth may itself affect ethno-linguistic diversity or the intensity of such conflicts. Second, there are various dimensions or elements characterising such diversity. It is not clear how one can come up with a suitable scalar measure when different elements exhibit different trends. Growth itself may impact fraction-alisation and the direction of such impact has to be endogenous, not assumed. The authors find that a suitably designed measure of fractionalisation is not static but varies strongly over time.On ChinaThe next section on China predictably contains two papers; one by Jankin Zhang, who analyses the virtues of directed for-eign direct investment (FDI) programmes of China and the other by Mario Biggeri who takes the country to task for low wages, sectoral imbalance and reduction in govern-ment initiatives in rural areas. While both papers adequately reflect on the two faces of the Chinese success story, a more excit-ing line of analysis could have been the following. Does the Chinese case stand apart as a classic example demonstrating that only a communist regime can guarantee the political preconditions for unfettered capitalistic economic growth in a poor country by suppressing human rights and resistance? Liberal trade and investment policies tend to limit the control of bureaucracy and political lobbies in a democracy, but possibly achieve nothing in terms of guaranteeing greater political freedom and human rights in a command society. Greater labour discipline achieved through regimentation and low wages are critical for the success of Chinese economic policies. Displacement in China is never hard fought as it is in India. What is miss-ing in this section is that crucial link between the chapters in this section, the link that relates success of FDI to political and social regimes in China.The last chapter by Jean Dreze on the Employment Guarantee Act talks about the human rights of poor and working people. Undoubtedly such an Act has allowed people to talk more openly about their rights to and claims on government support. Notwithstanding the limited operational successes of the National Rural Employment Guarantee Scheme so far, one would have to admit that this is a landmark Act for steering the cause of the rural poor. Free trade generates winners and losers and the role of state is crucial in designing appropriate compensation schemes. This is age-old wisdom of main-stream trade theory often misunderstood and left in oblivion by those who are more intent in critiquing than learning.NREGA can be thought of a compensatory mecha-nism if a more open economy specially hurts the poor. Let us look a bit deeper into the issue. It is mentioned somewhere in the intro-duction that theWTO predominantly ensures legal and property rights of the privileged, but not of the poor and working people. But to my understanding, trade reduces import prices, creates more oppor-tunities for the working and poor popula-tion, promotes entrepreneurship and there is evidence to this effect that this has happened in post-reform India. In the last decade informal productivity and real wages have shown a significant upward trend across all states. There is no evidence that greater globalisation as such has increased the need for implementing the NREGA. The need was there to start with, globalisation or no globalisation. Ques-tions must be raised as to why during the entire pre-reform era, the many state-sponsored subsidy and welfare schemes for the poor have failed miserably all over India or what globalisation or WTO hadtodo with the rampant leakage and corruption in government schemes in our country. After all policies related to ‘garibi hatao’ or “food for work” were outcomes of political concerns for the poor. Has globalisation really improved or worsened the general environment of governance? The argument that establishes the increased necessity ofNREGA in an era of globalisation is not well developed in the volume.The so-called Washington Consensus has been criticised time and again and none would question the merit of such criti-cisms.Butat the same time, a market-based incentive system, cautious and right use of state control, encouraging people to become entrepreneurs, promoting less regulated competitive markets, smoother flow of capital and labour – all have been more or less accepted as general policies by the entire developing world. It would beunjustnot to look back at the history and philosophy of the interventionist development strategies of the 1950s and 1960s. Denial of the market as the main driving force of development was the order of the day and the “devil” was ruth-lessly marginalised for many years. It was also a kind of “consensus” the developing world had to suffer from. Any proclaimed “consensus” is often intolerant of potential alternatives. As the extremists push the world from the consensus of full control to no control, we have also transited througha phase where the devil of the yesteryear has acquired its rightful place in development discourse. Is it fair to deny that devil its due?Email: smarjit@hotmail.comReferencesMarjit, S and R Acharyya (2003): ‘International Trade and Wage Inequality and the Developing Economy – A General Equilibrium Approach’,Physica (Springer) Verlag Heidelberg, New York. – (2008): Trade and Wages – Princeton Encyclopedia of World Economy, Princeton University Press (forthcoming).

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