Development And Globalisation / Edition 2

by Yash Tandon, Yashpal Tandon, W Benjamin Mkapa

Overview

Challenging the misdirected policies of the last 30 years regarding the South's responsibility to develop itself rather than expect the North to carry the burden, this book offers alternative concepts and paradigms of development for policy makers and peoples' movements on a wide range of issues. It invites readers to "dare to think differently" and be aware of what globalization has turned into in recent years.

Product Details

ISBN-13:	9781906387518
Publisher:	Fahamu
Publication date:	10/29/2009
Edition description:	2nd Revised ed.
Pages:	190
Product dimensions:	5.06(w) x 7.81(h) x 0.40(d)

About the Author

Yash Tandon is a senior advisor and writer for the South Centre, Geneva, an intergovernmental think-tank of developing countries, and has been a policy maker, political activist, professor, and public intellectual. He has written more than 100 scholarly articles and has written and edited books on subjects ranging from African politics and international economics to human rights. Benjamin W. Mkapa is the former president of Tanzania.

Read an Excerpt

Development and Globalisation

Daring to Think Differently

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By Yash Tandon

Fahamu

Copyright © 2009 Yash Tandon
All rights reserved.
ISBN: 978-1-906387-51-8

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CHAPTER 1

Rethinking the development paradigm

Introduction

The German philosopher Karl Mannheim defined ideology as the total system of thought held by society's ruling groups that obscure the real conditions and thereby preserve the status quo. He said that in class-divided societies a special stratum of individuals 'whose only capital consisted in their education' develop their ideas to advance the interests of different classes. Among them are those that serve the ruling classes; they provide the knowledge that forms the kernel of the ruling ideology, the dominant Weltanschauung. These are opposed by another stratum that challenges the ruling orthodoxy, including the production of knowledge. Mannheim argued that the prevailing ideology makes the ruling groups opposed to knowledge that would threaten their continued domination.

To his credit Alan Greenspan, the former head of the Federal Reserve of the United States, admitted that he found a 'flaw in the free market theory'. When asked, 'You mean that your view of the world, your ideology, was not right, it was not working?' Greenspan replied, 'Absolutely, precisely. You know that's precisely the reason I was shocked, because I have been going for 40 years or more with the very considerable evidence that it was working exceptionally well.' This should be a lesson to the leaders of the countries of the South when they rush to the International Monetary Fund (IMF) and the World Bank, or when they go, cap in hand, to get 'aid' (known by the official misnomer as 'development assistance cooperation'). Packaged in 'aid' is the anti- development paradigm of these institutions. These are institutions of ideological obscurantism; they are part of the problem and not part of the solution.

The American physicist, Thomas Kuhn, in his classic The Structure of Scientific Revolutions, argued that science evolves through alternating 'normal' and 'revolutionary' phases. Kuhn described normal science as 'puzzle-solving'. Because its puzzles and their solutions are 'familiar science', the theorists seek to solve the puzzles within the existing paradigm. Revolutionary science, on the other hand, seeks to provide new thinking outside the existing paradigm (a paradigm shift), thinking outside the box. Of course, Kuhn's book received a hostile reception during his time because as Mannheim explained to us, the ruling intellectual oligarchy fights hard to protect their orthodoxies. The challenge that the modern intelligentsia faces, then, is to try and produce knowledge that will liberate the people as well as their political leaders from the prevailing obscurantist mindset.

The essays in this chapter were written at various times as editorials for the South Centre fortnightly bulletin, Reflections and Foresights. They seek to analyse the backward and anti-develop-mental character of present institutions and mainstream 'development' policies, and advocate the need for alternative knowledge systems. The first essay, 'Neoliberal obscurantism and its ill-fated children', challenges those leaders in the South who think that their 'sovereign funds' or reserves can be used to save the financially stressed IMF. It argues that bailing out the IMF would be '... the greatest irony of our present times — a parody of History. It would be like allowing the fox back into the henhouse'.

The second essay, 'The global financial meltdown and lessons for the South', agrees with the now well-recognised fact that the market does not have a self-correcting mechanism. Those who argue that the South must be forced to liberalise, and if people suffer that is just 'regrettable collateral damage', have the same flawed reasoning that Israel has used in its war against the people of Gaza. Western leaders do not pretend anymore that they comprehend the nature of the present financial crisis. They talk of removing 'toxic' or cancerous paper from the system. The whole system, we argue, is metastasised, has become cancerous. It is thus not simply a question of 'market failure': Western leaders are facing a crisis of cognitive paradigmatic failure. They simply do not know what has hit them and how to get out of the mess.

Therefore, those global institutions that pretend to be the 'knowledge' banks of the world such as the World Bank and the International Monetary Fund (IMF) must self-destruct, or be radically reformed (which, given the present geopolitical configuration, is unlikely). The South Centre, to our knowledge, was the first intergovernmental body to argue for a new Bretton Woods conference. 'Time for a new Bretton Woods conference', written on 16 October 2008, reflects on how times have changed:

• The US-dominated, unicentric world is now replaced by a polycentric world.

• The neoliberal ideology and the so-called 'Washington Consensus' are in tatters; the ships that were supposed to lift are sinking, and the US 'Titanic' is wobbling.

• The Doha round, in which the North had put so much faith, is frozen; the South has successfully put the development horse before the trade cart.

• The IMF and the World Bank are desperately searching for survival strategies; last year's IMF's voting reform was a travesty that both recognised IMF's own legitimacy deficit, and its failure to do anything about it.

• The West is trying desperately to monopolise corporate knowledge in the form of intellectual property, but is facing serious resistance from the South in the World Intellectual Property Organisation (WIPO) and other similar institutions.

• Climate change is a hot issue for the North, and the World Bank is trying to undermine the United Nations Framework Convention on Climate Change (UNFCCC), but for the South it is a development issue for survival and poverty eradication.

• The financial meltdown is worse than that of the 1930s. The Smoot-Hatley Tariff Act triggered the Great Depression (GD1), but the collapsing 'real' economies (and not just the banks) and rising unemployment in the West, and the re-emergence of protectionism (stigmatised as worse than crime when the South sought to protect their economies) portend worse things to come with GD2.

However, we are not optimistic that things will change any time soon: Why? Because the imperial powers have buried their heads in the sand and do not wish to recognise the historical necessity for a fresh start. After every major war, there is reconstruction. This happened at the end of the First and Second World Wars. A third war, partly avoided on account of the nuclear threat, has taken the form of the North's 'war' on the South in the name of globalisation. This war has not yet ended. The initiative this time has to come from people, bottom — up.

In 'Ecuador's proposal on the financial crisis' we argue that the President Bush-initiated G20 meeting in Washington DC following the financial collapse produced a declaration that boils down to blaming market failure, insufficient coordination of macroeconomic policies and inadequate structural reforms. It lacks empirical correspondence to the reality and theoretical depth. In contrast to the globalised integration model advocated by the G20, Pedro Paez Pérez, Ecuador's minister of economic policy coordination advocated a regional model, including 'decoupling from the dollar's crisis logic' at the Interactive Panel of the United Nations General Assembly. Pérez's perspective is similar to my own in my recently published book Ending Aid Dependency (see www.aidexit.org).

'Decoupling' is the idea that the economies of the industrialised and the developing countries are no longer closely related and that a slowdown in the former can be offset by growth in the latter, especially in the BRIC countries — Brazil, Russia, India and China. This is only half-true. The BRIC countries partially escaped from the sub-prime housing crisis because their banking systems were not that deeply integrated with the global banking system. Their economies are now suffering to the extent that these are integrated in the global trading and investment networks. However, we argue that if decoupling has not occurred, it is imperative for the South that it does. In one of the earliest editorials (in October 2007) we engaged in the debate that had just started in the media on decoupling. In 'The decoupling imperative', we argued, following the sub-prime crisis but well before it escalated into present financial crisis, that '... the sub-prime crisis shows that it is imperative for the South, above all, to decouple or "selectively disengage" from the contagious effects of Western financial and speculative markets. These and asset pricing mechanisms are even more risky for the South than terms of trade. Decoupling, if it has not happened, is now an economic and political imperative for the South'.

The leaders of the South who thought there was no option but to integrate in a globalised world, and even those who talked about 'fair globalisation', must step back and review their positions.

In this context, in the 'Banco del Sur — another step towards decoupling' editorial we welcomed the launch of the Bank of the South in December 2007 and challenged Western criticism that it would not take off because it would be 'dominated by Chavez'. On the contrary, we argued that the Banco del Sur has the potential to grow into a continental bank for Latin America. If followed through, its logical and historical necessity would free the region from the IMF, the World Bank and the Inter-American Development Bank conditionalities that have for decades chained their economies to the failed macroeconomic policies of the Bretton Woods institutions.

In 'A new geopolitical double paradox stalks the world' we examine the development of an interesting paradox in the global political economy. While a large number of countries in the South are getting deeper into the mire of poverty and marginalisation, there are some countries in the South that are now engaged in recapitalising Northern economies which are in the throes of a deepening credit squeeze. The implications of this paradox have not been fully understood let alone analysed. Plenoxia — the desire to have more and more, in this case of wealth — has seized the psychology of the newly rich in the rich countries of the South as well as the rich in the older countries of the North. Is its one consequence the forced anorexia of the poorer nations and, worse, the poorest people within the poor nations? Is there something missing here? Should not the relationship between countries of the South (South — South relations) be built on a different model from the greed and profit- driven model of the North — South relations?

We partly address this question in the piece on 'The Non-Aligned Movement and the collapse of the Doha round', written in July 2008, when we witnessed the collapse of the Doha round of trade negotiations at the same time as the 118 member states of the Non-Aligned Movement concluded a successful ministerial meeting in Teheran. These are symptomatic events. The first is the futile attempt by the power holders of the old order to sustain that order, including an outdated and unfair trading regime. The second is the countervailing power emerging in the South that is challenging the old order and trying to mould a South — South relationship built on the Bandung principles of solidarity and non-interference in the internal affairs of sovereign countries. We live in a twilight zone — the world is going through a period of transition, from one order to another.

These are the major themes of this chapter. Although some were written before the present financial crisis boiled over, the editorials have sought to expose the essential character of the present imperialist-dominated global economic system — fragile, ineffective and illegitimate. The basic thrust of the arguments in the editorials has been to caution Southern leaders and peoples against the dangers hidden behind the ideology of neoliberal globalisation. This ideology has for too long limited the mindset of our political leaders to 'puzzle-solving' (as Kuhn put it) within the existing failed paradigm. Another paradigm of development, it is argued in these editorials, has become a historical necessity.

Neoliberal obscurantism and its ill-fated children

1 November 2008

On close questioning from the US Congressional hearings Mr Alan Greenspan, who for 18 years has been at the apex of the Federal Reserve of the United States, admitted that he found a 'flaw in the free market theory'. Representative Waxman relentlessly pursued this in his questions. You, mean, he asked, 'that your view of the world, your ideology, was not right, it was not working?' Greenspan replied, 'Absolutely, precisely. You know that's precisely the reason I was shocked, because I have been going for 40 years or more with the very considerable evidence that it was working exceptionally well.'

Mr Greenspan should be commended for his honesty. This is more than one can say for literally hundreds of ideologists, clustered around some of the best universities in the North and also in the South, and economists in the World Bank and the International Monetary Fund (IMF). From their cloistered and hallowed sanctuaries they design policies for the distressed nations of the South whose leaders rush to them for advice and financial bailouts. They should be warned that in their rush to the IMF and the World Bank they are not necessarily helping their people. These are institutions of ideological obscurantism; they are part of the problem and not part of the solution.

The German philosopher Karl Mannheim defined ideology as the total system of thought held by society's ruling groups that obscure the real conditions and thereby preserve the status quo. In his classic Ideology and Utopia: An Introduction to the Sociology of Knowledge, he analysed the relationship between sociology and social policy and the role of the intelligentsia. Borrowing from Karl Marx, Mannheim argued that the ideological structure of thought is conditioned by the class structure of society. He went on to say that in class-divided societies a special stratum of individuals 'whose only capital consisted in their education' develop their ideas to advance the interests of different classes. Among them are those that serve the ruling classes; they provide the knowledge that forms the kernel of the ruling ideology, the dominant Weltanschauung. These are opposed by another stratum that challenges the ruling orthodoxy, including the production of knowledge. Mannheim argued that the prevailing ideology makes the ruling groups opposed to knowledge that would threaten their continued domination.

We are at this critical moment in history. We are at a crossroads between the neoclassical theory that has ruled for nearly 40 years (as Greenspan says) and produced the failed ideology of neoliberalism on the one hand, and on the other hand the challenge that the modern intelligentsia faces to produce knowledge that would liberate the people as well as their political leaders from the prevailing obscurantist mindset.

So where do we start? We start with Mr Alan Greenspan's honest admission about the flawed ideology of the free market. The commonplace understanding of the market is a place where people come to buy or sell. The capitalist market, however, is much more complex and works at many different levels. What we need to understand, to start with, is that in the present phase of the evolution of capitalism, finance is the king. Everything that enters the market is financialised. Consider the housing market in the United States, for example. What explains the housing bubble that burst in September 2007, leading to what is known as the sub-prime crisis?

Simply explained, it starts with the financing of house purchase. House buyers were persuaded by the banks to borrow from them at cheap rates and with long redemption dates. The banks had too much liquidity on their hands — not hard cash, but fictitious money (for every dollar in cash, banks can 'create' many more dollars as credit). They targeted the housing market. Until five or ten years ago, the banks would take the houses as collateral against which to make the loans. But capitalism thrives on greed; it is its basic nature — like it is for the leopard to kill. So the banks went for the kill. They developed innovative ways of doubling or quadrupling their profits by collateralising the mortgages. How did they do it?

Ordinarily, investment banks deal in stocks and bonds. These, depending on their performance, are rated by the rating agencies (such as Moodys) as AAA (triple A) for the best performers and CCC for weak performers. Driven by the profit motive (greed), and using new sophisticated computer models, the investment banks packaged housing mortgages with triple A stock and created new commercial instruments called collateral debt obligations (CDOs). These included bonds classed as senior debt, mezzanine debt, subordinate debt and equity, and some unrated securities, or junk bonds, which the present US Secretary of the Treasury Henry Paulson, from hindsight, described as 'toxic' paper. These CDOs were then sold as collateralised bonds in the global market. By the year 2007, the US banks had issued approximately $2 trillion worth of CDOs. According to the IMF, in the US financial sector $23 trillion is subject to potential writedowns. The estimated losses are $1.4 trillion and of these, losses on sub-prime loans are estimated at only $50 billion while estimated losses on CDOs/ securities are $980 billion. It would seem there was very little 'prime' or even 'sub-prime' in the CDOs.

Furthermore, worse was to come: the banks also removed some of their assets from their balance sheets and transferred these to the CDOs portfolio. Why did they do this? They did this to escape from the regulatory capital requirements such as those imposed by their own national regulatory authorities and the Basle Convention. Some of them used what they called special purpose vehicles (SPVs). These are special companies ostensibly aimed at protecting specific assets, but in reality they became a way of hiding debts, as we saw with the collapse of Enron.

(Continues...)

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Excerpted from Development and Globalisation by Yash Tandon. Copyright © 2009 Yash Tandon. Excerpted by permission of Fahamu.
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Table of Contents

Contents

Title Page,
Copyright Page,
Foreword - Benjamin W. Mkapa President of Tanzania 1995 - 2005,
Dedication,
Acknowledgements,
Abbreviations,
Part I - Imperatives of paradigm shift,
1 - Rethinking the development paradigm,
2 - Restructuring global governance,
Part II - Some specific issues,
3 - Industrialisation, technology, innovation and intellectual property,
4 - Climate, energy and the food challenge,
5 - Putting trade into perspective,
6 - Ending aid dependence,
7 - The Palestine - Israel question,
Part III - Role of the South Centre: recalling Nyerere,
8 - The role of the South Centre: recalling Nyerere,
About the author,
Development and Globalisation: Daring to Think Differently,

Editorial Reviews

"Tandon's perspectives on global issues are indeed incisive."  —Desmond Davies, African Prospects

From the Publisher