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Global Perestroika

If the developing world has to resolve the paradox of extreme poverty amidst high economic growth, they will have to adopt an alternative framework to promote inclusive   development where principles of universal access to basic needs and social wage are given prominence. 

This paper was presented at the UNCTAD Public Symposium, Geneva, June 25, 2013.

For R. Krishnamurti, chef de cabinet to Raul Prebisch, UNCTAD.

United Nations (UN) reports make for dreary reading. United Nation High Commissioner for Refugees (UNHCR) and UNESCO accounts from Syria paint the misery of that enduring conflict. Updates from the peacekeepers tell us that no political solution is on the horizon of the Great Lakes of Africa. The International Labour Organisation (ILO) documents confound us with percentages of structural unemployment and the attendant social unrest. The Food and Agriculture Organisation (FAO) frightens us with data on hunger and food insecurity. Bleak accounts from UN Women tell us that violence against women seems unabated. The ILO’s report Ending Child Labour in Domestic Work, June 2013, shows that 15.5 million children under 18 years work as domestic labourers. Of them, ten million work in “conditions tantamount to slavery”. These are mainly young girls (73 %), who have forfeited their childhood and right to education.

Good news rarely comes from the UN. The UN can document what is wrong, offer its texts of misery, but it seems incapable of being able to provide a coherent account of why things are in bad shape. Of course there are some narratives that do frame the conclusions of these reports, but these are typical chantings of the neoliberal sutra – less regulation against money, more freedom to the market. Regardless of the prognosis of the analyst, the prescription is always the same – reform and liberalisation. Thirty years into this orthodox medication, it has become clear to anyone with an eye to the social costs of these policies that they are bitter and wrongheaded. Giving markets the run of things is tantamount to allowing congealed money power the right to do with the world as it pleases. This was well-known to Adam Smith in the 18th century, to Karl Marx in the 19th century and to John Maynard Keynes in the 20th century. In our time such critical assessments are hardly ever voiced. They have begun to sound like nails on a chalkboard to those who hoped that the exorcism of Keynesianism from the UN’s corridors in the 1970s had removed such heresy. But reality is stubborn.

Poverty Amidst High Growth

Tenacious reality confounded the International Monetary Fund’s (IMF) representative in Nigeria, W. Scott Rogers who could not fathom what he called a “conundrum”‒ a high gross domestic product (GDP) growth for Nigeria at 7.2% while 62% of Nigerians still lived below the poverty line. “Income per capita has gone up”, he noted in Abuja on May 21, 2013, “yet poverty isn’t improving and we’re having a difficult time understanding why that is or how that could be”. In the insular world of the IMF the elementary critiques of neoliberal pathways of GDP growth are not digested. If they read these critiques, they would recognise that the kind of policies that propelled Nigerian growth are precisely what generate high rates of inequality, and so despite higher per capita income poverty rates remain stable or rise. Growth is not a neutral process. A certain kind of growth trajectory might not reduce poverty, but indeed increase it. The IMF approach, which has not helped Rogers understand the puzzle, is the consensus approach – and this has policy implications: namely, that liberalisation and structural adjustment are the motors attracting foreign direct investment (FDI), and that it is this FDI that is destined to generate GDP growth and, miraculously, lift millions out of poverty. This is the religion of our times.

But the data undermines the celebrations. The pool of middle-class has increased a little, and in vast demographic containers such as China and India these modest additions are greatly magnified by their social power and their ability to influence the media and the cityscape . India is not its middle class, which is a numerical minority. Only 4. 6 % of the Indian households own all of the following – a television, a telephone, a computer and a car. That is a very small slice of the population owning pretty modest modern appliances.

Governments play around with poverty statistics. In 2012, the Indian government, for instance, reported that 29.8% of the Indian population – i.e. 360 million out of 1.21 billion – lived under the poverty line. As the government suggested, the drop from 37.2 % (2004-05) to 29.8% (2012) was a result of the policies pursued by it. Others noted that this might have had a great deal to do with the benchmarks chosen (th0e government fixed the urban poverty line at Rs. 28.65, while the Planning Commission had recommended Rs. 32). A glance at the United Nations Development Programme’s (UNDP’s) Human Development Report (2010) titled The Real Wealth of Nations shows that 55 % of the Indian population lives in poverty according to other indices. An official government commission claimed that the more accurate number was 77% people living below the poverty line. The UNDP study offered a new measurement to study poverty. It developed a Multidimensional Poverty Index which took into consideration not just the earning power but, significantly, “poor health and nutrition, low education and skills, inadequate livelihoods, bad housing conditions, social exclusion and lack of participation.” Based on this much more accurate assessment of deprivation, the UNDP found that 8 of India’s 28 states housed 421 million multi-dimensionally poor people, more than the 410 million equally poor people who lived in the 26 poorest countries of Africa. The Indian example has been cited because of my own origins, and one could have equally looked at China or Nigeria.

If the South has its problems, there can be no smile on the face of the North. The entrails of the present global system reveal that the Northern power has dissipated. Implementation of the austerity regimes has torn into its social fabric, led to endemic employment problems and at the same time enriched the financial class who has been relatively immune to the downturn. It will be the misery of the gated community that will greet the financiers, who would then have to hide behind high walls and in skyscrapers from the social consequences of their manipulations. In global forums, this weakened northern power can be measured by the less diffident attitude of the South. It is this what has propelled the BRICS.

Against Global Perestroika

When Manmohan Singh, the current Indian Prime Minister, was the Secretary General of the South Commission in 1988, he was confronted by two facts: that the catastrophic debt crisis had hampered the ability of the South to create any economic growth, and that the intellectual property regime pushed by the North had prevented the South from benefitting from any scientific and technological improvements. The global South seemed fated for millennia of poverty and wretchedness. The problem before the South was not simply its internal shortcomings. It was, as Singh argued, the rules set largely by the North on its behalf that constrained the ability of the South to breathe.

At a press conference in Geneva on 18 July, 1988, Singh concentrated his attention on the appalling debt overhang that shrouded the third world. New ways to deal with this debt crisis had to be imagined. “This is the harsh reality,” he said, “and unless you organize publically, unless the collective views of the Third World can be articulated in meaningful dialogue, no amount of mere technical solutions will solve the problem of debt.” Taking the point further Secretary General Singh said, “What we in the Third World need is global perestroika, restructuring of international economic relations which would take into account the legitimate aspirations of the four-fifths of humanity that lives in the Third World, for better life for their peoples.”

The use of the term “perestroika” was cheeky. It had become well known during the previous year when Mikhail Gorbachev had used it to refer to the restructuring of the Union of Soviet Socialist Republics (USSR). Singh used it to refer to the need for the reformation of global institutions, such as the IMF, the World Bank and the United Nations Security Council. But in 1988 there was little hope that the views of the South would be taken seriously. Indeed, reform of the UN had been on the agenda of the North-South dialogue since the late 1960s, but no progress had been made. The United States (US) government, spearheading the North, had pointed out that UN reform was not to be permitted – and indeed that the South must never control the UN budgetary process. If it this was permitted, the US Mission at the UN noted in 1973, the UN would fall prey to “irresponsible manipulation”, and to prevent it the US would “withhold contribution” to the UN. In the same vein as the 1973 assessment was the 2010 remark from the US Ambassador to France Craig Stapleton to the former French PM Michel Rocard, “We need a vehicle where we can find solutions for these challenges [the growth of India and China] – so when these monsters arrive in 10 years, we will be able to deal with them.” The North had set an agenda against “global perestroika.”

The tide shifted in 2007-08 as the credit crunch sent the managers of the North in search of the surpluses of the South. Hastily they convened the G-20 which comprised their core executive, the G-8, and the large states of the world that had not been so badly mauled by the financial mayhem. Over the course of 2009 and 2010, the G-20 met four times, and at each of these meetings all kinds of promises were made to promote global perestroika; that the G-8 would be wound up and replaced by the G-20, that voting shares in the IMF and World Bank would be increased for the South, and that leadership over the world’s economy and politics would not be monopolised by the G-8. Surplus capital from China and India went into various kinds of stabilisation funds.

As the stock markets started to recover, all promises of perestroika vanished. The grave worries about “irresponsible manipulation” returned with the North eager to insulate its banking sector from the Southern reformers. There was to be no structural adjustment in the North. Its representatives at the United Nations Conference on Trade and Development (UNCTAD) conference in 2012, tried to scuttle any investigation of the financial shenanigans of Northern banks in the credit crisis. At the World trade Organisation (WTO) the stalled negotiations on trade rules could not move forward because of the Northern obduracy on its agricultural subsidy regime and because of the Southern reticence to adopt the strict intellectual property framework favoured by the North. In both the UNCTAD and the WTO the North has tried to make its issues universal concerns, unwilling to consider the sentiments of the South. It was as if 2007, had not happened.

BRICS and its Limitations

The BRICS bloc (Brazil, India, Russia, China and South Africa) is a demographic powerhouse – it constitutes 40% of the world’s population and is sprawls over 25% of the world’s landmass. Of the total world GDP, the BRICS produces a quarter. The five countries in the bloc are divided by culture, language, religion and social mores. They are also differentiated by their economic trajectories – some of the states are governed by the logic of export-oriented industrial production, while others are reliant upon raw material export.

Such differences, however, do not reduce the political value of the bloc. In conventional terms these are not minor states – three of the five are declared nuclear powers, two hold permanent seats on the UN Security Council and two others are aspirants for such seats. They have created, so far, a multilateral platform. Their ambition is to use their combined weight as a counter-balance to the Northern supremacy and provide a forum to raise issues and analyses that have not been able to rise to the surface. Assertions in the realm of intractable political arenas (even the Palestine-Israel conflict) and the debate on financial reforms as well as development strategy, marks the BRICS attempt to make its presence felt on the world stage as a political platform. But this level of assertion is constrained by hesitancy harboured by the leaders of the states comprising the BRICS – they are uneasy about challenging the North. They prefer to operate passively‒ building trade relations amongst their countries, planning the creation of the BRICS development bank and forging a development program for the South that will rotate around their own growth agendas. There is no frontal challenge to the Northern institutional hegemony or to the neoliberal policy framework. BRICS, as of now, is a “conservative attempt” by the Southern powerhouses to earn themselves what they see as their rightful place on the world stage.

The BRICS platform is limited in several ways. The domestic policies adopted by the BRICS states can be described as neoliberal with southern characteristics – with a focus on sales of commodities, low wages to workers along with the recycled surplus turned over as credit to the North, even as the livelihood of their own citizens is jeopardised. Rather than turn over the social wealth in transfer payments or in the creation of a more robust social wage, the countries seem to follow the World Bank president Robert Zoellick’s advice to turn over its surplus to “help the global economy recover from the crisis”. There is something obscene about making the “locomotives from the South” pull the wagons of the North (particularly given the North’s own reticence to allow for a new surplus recycling mechanism during the debt crisis of the 1980s).

The BRICS alliance has not been able to create a new institutional foundation for its emergent authority. It continues to plead for a more democratic UN and for more democracy at the IMF and the World Bank. These pleas have made little headway.

The BRICS formation has not endorsed an ideological alternative to neoliberalism. There have been many proposals for the creation of a more sustainable economic order, but these have been relegated to the margins. The Rio formula for “separate and differential treatment” allows the South to make demands for concessions that the North refuses to endorse (for example, on climate change). This is a defensive stand. There is no positive alternative that has been taken forward as yet. It might emerge out of the convulsions from below, where there is no appetite for a system that most people see as fundamentally broken.

Finally, the BRICS project has no ability to counter the military dominance of the US and North Atlantic treaty Organisation (NATO). When the UN votes to allow “members states to use all necessary measures,” as it did in Resolution 1973 on Libya, it essentially gives carte blanche to the Atlantic world to act with military force. There are no regional alternatives that have the capacity to operate. The US is a global force with bases on every continent and with the ability to strike almost anywhere. Regional mechanisms for peace and conflict-resolution are weakened by this global presence of the NATO and the US. Overwhelming military power translates into political power.

There is no alternative to the conundrum faced by IMF’s Rogers. There is no public debate on the horizon: a debate that would be an accurate reflection of where we are in the world rather than a religious adherence to first principles of free markets and unfettered capital. A defensiveness circumscribes the emergent South, and an anarchic politics governs the streets of the North, whether in Athens or in New York City. What shall be the policy space for an alternative?

Alternative Path

The optimistic Human Development Report of 2013, is called The Rise of the South: Human Progress in a Diverse World. The authors of this report note that it would be a good idea to “establish a new South Commission to bring a fresh vision of how the South’s diversity can be a force for solidarity”. If such a Commission were to be established, and if it were to have the full backing of the BRICS ‒ as it should ‒ what would it propose? What are the principles that would anchor it? None are currently clearly outlined, and there is no consensus on common principles –apart from multilateralism and regionalism –amongst the BRICS nations.

Better ideas do not by themselves change the world. The suffocation of a certain balance of social forces precludes alternative ideas from being taken seriously. There are hundreds of designs in engineering labs for smoke-less chimneys and water-less toilets, but their existence has not meant that they have been adopted for mass usage. It will require a shift in social power to allow new ideas and new technologies to become acceptable in our times. In absence of such a change, an “alternative” will simply mean a solution of a practical nature that is not capable of being fully embraced.

What is possible within the current dispensation is social welfare. Though this is not a systematic alternative, but it is nothing to be scoffed at. When the social crisis is acute, as it is now, any form of relief is to be welcomed. Measures to bring down the prices of foodstuffs, provision of unemployment benefits or government employment schemes etc. are necessary, but they should not be confused with an alternative path.

Does this mean that alternatives are impossible? Far from it. Popular struggles and innovative social incubators have given rise to several policy ideas that languish in the bin of Yesterday or else of Idealism. These ideas often emerge from the energy of mass social movements, but they are given short shrift by a media that does not speak its language.

Universal Access ‒ The idea of basic needs came out of the UN and then was impounded by the neoliberal framework of the Millennium Development Goals (MDG). What was lost in the MDG’s accountancy was the principle of universal access by every person to certain basic needs – food, healthcare, employment, social security and so on. The core demand of the basic needs campaign, clear to the majority of the world, is that access must be institutionalised. Those in authority cannot discount these demands. What they do is to accept them in principle and then hollow them out in implementation. They say that universal access is too expensive. Well it is certainly expensive, but it is not beyond our means. Given the way the social surplus is appropriated by very few and is spent on wars and security, such demands are certainly impractical. But that is a political problem, not an economic one. Because it is a political problem, two elements have to considered – the growth of political movements to champion and defend universal access, and the role of UN agencies to monitor such access.

Economic Power ‒ When economics became a technical science, it abjured considerations of economic power. It seems an embarrassment to talk about land reforms and trade unions. Control over land is crucial in Africa and Asia, where farmers continue to battle against all odds to maintain their sovereignty over their livelihood. Alongside this lingering and urgent demand for control over land, is that of control over industrial processes. The global commodity chain has annulled the policy of nationalisation – rendering mute the ability of a state to take hold of its industrial plants. This means that those whose tentacles stretch across continents exercise power over industry. These multinational corporations had once been studied by the UN at the Centre for Transnational Corporations, set up in 1974, but Northern power closed down that office in 1993. It is hard for workers to build their own power against these firms (leading to the catastrophic “accidents” as in Bangladesh), and it is hard for the UN to even study the way in which corporate power operates outside the purview of democratic accountability. If the UN cannot take hold of multinational companies, it certainly has no regulatory authority over money. Seemingly mysterious social forces, hidden behind ratings agencies and ideas such as “confidence of the markets,” dampen the ability of states to widen their policy framework – if novel policy decisions are taken, money goes on strike. The price of borrowing is a form of power that is rarely understood in public, and the idea that economics is a kind of undecipherable hieroglyphic simply reinforces the undemocratic way in which money commands economic activity.

Social Wage ‒ Any investigation of an alternative, in an age of ecological crisis and structural unemployment, has to take seriously the forgotten idea of the social wage. Better public goods, forged with the best of today’s science, would not only reduce the burdens on individuals and families, but it would enable societies to create socio-ecological solutions to problems. Rather than using private cars with high insurance premiums, people will use more public transport such as light rail. The focus should be on high-quality public rather than private healthcare. These are elementary policies burdened by the calculated failures of the public sector in an earlier era and overshadowed by the highly subsidised and malignant private sector of our times. Absent a discussion about the creation of public goods, it is doubtful if any solution to the climate catastrophe can be envisaged.

This is the framework of an alternative. These are the principles that should anchor the new thinking if there is to be a second South Commission, and certainly it should be a formulation that should be taken seriously in the WTO and UNCTAD.

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