RETHINKING DEVELOPMENT

1.    INTRODUCTION

It needs to be clear from the beginning that there are different ways of organising an economic system and countries should be able to do this in a way that suits them best - economically and socially. However, in the last 30 years, we have been told that there is only one way - the American-style free-market way (Chang : 2003). Alternatives do exist.

Neoliberalism has become the hegemonic form of governance in the international arena, even though there is increasing dissatisfaction due to its terrible economic performance, particularly in developing countries such as India under strong pressure by major institutions and rich countries that, through aids and loans, set difficult conditions and make them their puppets. Neoliberal globalisation is basically a system that ensures the rich get richer and the poor get poorer. They feel a great pressure to adopt a set of 'good policies' and institutions' to foster their economic development. ‘Good policies' are the ones prescribed by the ‘Washington Consensus’ and promoted by major international institutions such as the IMF, the World Bank and the US Treasury Department. They include liberalisation of international trade and investment, privatisation, deregulation and restrictive macroeconomic policy. These policies and institutions are currently being recommended to developing countries but are not the same as those adopted by the developed countries when they themselves were developing.

INDUSTRIAL, TRADE AND TECHNOLOGY POLICIES (ITT)

                          

In Kicking Away The Ladder, Chang uses history to assess the range of strategies deployed by NDCs when they were in catch-up position. As Chang (2002a) highlights most countries used industrial, trade and technology policies (ITT) in order to promote infant industries. Some countries, such as the US and UK kept on pursuing activist policies even after they had successfully achieved their desired position. Governments made wide use of tariff protection, duty drawbacks and subsidies in order to encourage exports, public investment programmes and industrial subsidies, especially in infrastructure but also in manufacturing. By giving financial support for education, training, research and development, governments were willing to develop domestic technological capabilities in order to gain competitive advantage (Chang 2002a: 18).

These were the policies used by NDCs. Today, they are paradoxically and simultaneously the very ones NDCs strongly disapprove, if not ban through multilateral and bilateral agreements.

What we are experiencing today was already happening at the time of unequal treaties when powerful Western countries, particularly Britain, forced poor countries such as India and Japan to accept conditions which could never have been advantageous to them (Chang 2002a). They were asked to open up their market and brutally cut back tariff barriers even though they were not at the same level of development. These requests could only have been fair and useful to foster progress if applied to countries at the same level of development. Thus, “levelling the playing field" should be a primary concern.

An example for the history will help us to understand the dynamic. When USA accorded over 40% average tariff protection to its industries in the late 19^th Century, its per capita income in purchasing power parity (PPP) was around three-quarters that of Britain. Compared with this, India set the trade-weighted average tariff rate at 71% just before the WTO agreement while its per capita income in PPP terms was only 1/15 that of the USA. However, following the WTO agreement, India had to cut back its trade-weighted average tariff to 32% (2002a: 27-28). Thus, depriving the country of its tariff autonomy has contributed to further impoverishment and was a considerable handicap (Chang 2002a:52-55) in addition to a reduction in tax collection.

The currently recommended package of 'good policies'  which include free trade and other laissez faire ITT policies, clashes with the historical experience since they were not used by the countries that are now recommending them when they were at the same level of development (Chang 2002a). The US and UK, the two nations which supposedly climbed the edge of the world economy through free-market and free-trade policies, are the countries that have mostly used subsidies and protection (Chang 2002a: 59). England went from being an exporter of raw wool to Low Countries to being the world leader in that sector and the hegemony power of the world becoming the promoter of so called "bad policies" that are claimed to be hindrances for development. Thus, it happened that when NDCs reached the technological frontier and joined the league, they used a set of policies in order to leave behind existing and potential competitors. Britain, due to the length for which it retained the position of ‘frontier economy’ is the most obvious example however, other countries deployed the very same strategy when they could. In fact, the same disappointment may be express today, when American trade negotiations glorify the virtues of free trade to the developing countries by forgetting history and how they became such a powerful country.

In a substantial article, Kasrils (2013), a South African politician, blames himself and the South African government for having opened up the doors to further deprivation when Neoliberal policies were "embraced" in South Africa. As he states:

[...] Extremely tight budgetary obligations were instituted that would tie the hands of any future governments; obligations to implement a free-trade policy and abolish all forms of tariff protection in keeping with Neoliberal free trade fundamentals were accepted [...].

He recognized the huge mistake South Africa and, more broadly Africa, made. However, who pays the price, as he said, are the poor people, those already deprived and India perfectly fits in this scenario.

Industrial upgrading is necessary for economic development and it will not happen purely through market forces but require government interventions. Indeed, Indian Government should provide direct and indirect subsidies to small entrepreneurs as well as to essential assets.

A striking examples has been provided by Japan. In fact, it protected its infant car industry (Toyota) with high tariffs for nearly four decades, providing lot of direct and indirect subsidies, and virtually ban foreign investment in the industry before it could competitive in the world market (Chang:113). Nevertheless, tariff protection was not, and is not, the only policy tool available for a state in order to develop new industries or upgrade old ones. This is the case with Germany and Japan. Indeed, policy mix is fundamental according to the objectives that a country wants to pursue and the conditions it is facing. There is no ‘one-size-fits all’ model for industrial development - only examples from which to learn. Surely, every country should be allowed to have its tariff autonomy and decide upon their policy (Chang 2002a: 64-66).

Concluding this section, As Chang pointed out ( 2002a : 126-127) the restrictions imposed by the WTO on the ability of developing country to pursue their own activist ITT policies is a “modern and multilayered version of the unequal treaties” that Britain and NDCs deployed towards semi-independent countries at that time. Today we are still denying those countries the ability to pursue the policies they want and we have gone a step further. As Monbiot points out (2008) Britain, like many other countries discovered the enthusiasm for free trade only after it had achieved economic dominance.

 DEVELOPMENT AS FREEDOM

The level playing field Chang advocates cannot happen unless people are allowed the freedom to ‘do and be’ says Amartya Sen. Acknowledging great disparities between and within countries and the lack of freedom people suffer, Sen proposes the main reason for economic development should be to help people break the chains that hold them back from living the life they value.

Sen’s major contribution lies in the “capabilities approach", the freedom to achieve various lifestyles. He feels economic development needs to be perceived as a process of expanding substantive freedoms and believes a successful society relies on freedoms from which its members can benefit (Sen 1999:75).

Developmental Economics is largely seen in terms of income maximisation. Thus, the main variables are GNP, unemployment rates, and income distribution, whereas Sen strongly criticizes the “utilitarian view” as it fails to recognize free agency - the ability to act on what one values

Reasons for feeling a lack of freedom to live life as one would choose are poverty, social deprivation, lack of public facilities, poor economic opportunities and the denial of political and civil liberties. These issues need to be eliminated through social economic development.

Socially based investments such as education and health care do not need to be postponed until a country has achieved relative richness. A poor economy may have less money to spend on health care and education but it needs less money to provide the same services which would cost much more in richer countries. This is a recipe for achieving a higher quality of life. Human development is not a luxury that only rich countries can afford to undertake. Education and health care greatly influence and foster economic growth since workers can work better and be more productive by using the skills they have acquired if they are healthy.

For those reasons, India’s needs of hygiene and education should be seriously taken into consideration. Indeed, the country currently has the largest population of illiterate adults in the world with 287 million (The Indu, 2016) and despite those poor performance the Government has been reducing the expenditure on education from the entire budget for the past three year by reaching the debatable point of 3.65% of the entire GDP. Even more questionable is the political choice imposed by the 14th Financial Commission to the Government of shrinking even further the funding for secondary and higher education. The scenario is quite dramatic as in higher education the enrolment ratio is below 24% for the 18-23 age group.

Furthermore, the Prime Minister Narendra Modi in 2014 launched the campaign to end open defecation by 2019 though subsidising toilet building. However, three main concerns can be addressed. Firstly, the poor quality of the toilet which is strictly connected with the small amounts of money allocated to promote better hygiene and trigger a behavioural change. Thirdly, the campaign has become only a matter of number and particularly reaching the target of 17 millions of toilets per year for five years.  Thus, the budget set, which accounts for £1.6m, brought ineffective and unsatisfactory results. Indeed, the implementation phase is pivotal in order to make a real difference at stopping the open defecation phenomenon . Especially, the Government should be willing to invest more so to make the campaign a political will. In fact, according to the World Bank estimates, the lack of sanitation facilities costs India over 6% of the GDP.

4. DANI RODRIK: CAUTION GLOBALIZATION DESERVES

As Dani Rodrik points out (1997), globalization can succeed and be sustained only if appropriate domestic policy measures are undertaken to soften the impact on groups that are affected and to equip all sectors of society to take advantage of the benefits of globalization rather than be undermined by it. Globalization’s advantages and disadvantages for important groups within the society as well as for the country as a whole need to be made clear. Basically, we have to consider globalization’s stakeholders before making any decision.

The most important challenge for the world economy is making globalization compatible with domestic, social and political stability by making sure that international integration does not contribute to domestic social disintegration. In fact, globalization increases the demand on the state to provide social insurance while reducing the ability of the state to perform that role effectively (Rodrik 1997:53).

Globalization that comes at the price of social disintegration will be a very hollow victory. If, global economic integration is not handled properly, the result will be bad economics and bad governance. Globalization has loosened the civic glue that holds societies together and has delivered a strong blow to social cohesion since fundamental beliefs regarding social organization come under attack. Moreover, social fragmentation is detrimental to economic performance (Rodrick 1997: 69-72).

Rodrik believes that the big challenge is to enable countries that are willing to enlarge in greater harmonization of domestic policies to do so, while allowing them to delink from international obligations in case those obligations come into conflict with domestic norms or institutions.

5. CONCLUSION

Neoliberal developmental policies have been poisoning the world with the establishment of its hegemony in most areas of our lives.

Such policies which were supposed to bring about development and growth, led to a miserable impoverishment of people's lives. It mostly happened because of its commitment and alignment with the interests of big businesses, transnational corporations and finance at the expense of people's real needs.

We could say that as Sen considers freedom both the means and end of development, neoliberalism does the same with global free markets. It only proposes and imposes one path that everyone has to follow, not caring that developing countries would be best served through different policies like limiting domestic vulnerability due to their fragile conditions and their inability to compete openly. No matter how developed a country is, they have no choice as M. Thatcher famously said. Neoliberal development theories are still alive and in the halls of economic and political power (Henry 2012). Manitob (2016) stresses that Neoliberalism is the root of all our problems. We can easily confirm those judgments by bringing out some current examples: the 2007/2008 financial crisis, the collapse of our education, the rise of Donald Trump in the US, and the results of so many recent environmental disasters in third world countries around the world. As Verhaeghe suggested, Neoliberalism has brought out the worst in us. As every economic change profoundly affects our values and personalities, Neoliberalism is certainly no exception.

Solidarity has become an expensive luxury; the main concern seems to be to extract as much as you can and win over as many people as possible. We pessimistically have to admit that the freedom we perceive is the greatest untruth of the our day and age. We’ve "Never been so free, never been so powerless" as Bauman dramatically says (Verhaeghe 2014). The most harmful impact of Neoliberalism is not the economic crisis but the political crisis. Since the realm of the state is reduced, our ability to change the course of action through political participation is shrinking as well. Neoliberal theory assumes that people can exercise their choice through spending; however some have more of the cake than other. Sen and Chang want to prove that new directions are possible and highly recommended if we want a shift to a better world, where development is meant as a process that goes beyond empty indexes with no trace of human beings but instead a fair and even course which in the last instance reallytells how happy we are and how well we live.

Instead, Rodrik show us the deep interrelation between globalization and neoliberal economy. Indeed, He is not saying that globalization should be avoided but simply wisely managed so that the bottom of the society, the larger part of a country, is safeguarded and doesn’t end up paying the price and swallowing the “bitter pill” as well in order for countries to maintain their autonomy.
- Stefano 



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