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THE IMPACT OF GLOBALIZATION ON

NEW AND RESTORED DEMOCRACIES

Rehman Sobhan

June 2003

Dhaka

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THE IMPACT OF GLOBALIZATION ON NEW

AND RESTORED DEMOCRACIES

INTRODUCTION

The Argument of the Paper

This paper argues that the process of globalization represents an involuntary

constraint on the sovereignty of decision making in a country. To this extent

globalization may appear to be inimical to democracy which represents the sovereign

will of the people. Countries with weak democratic institutions and undiversified,

externally dependent economies are particularly vulnerable to the pressures of

globalization. The extent to which a country can cope with globalization depends on

the strength of their democratic institutions and their capacity to structurally diversify

their economies. Strengthening democracy and widening the incidence of benefits

from globalization will serve to enhance the legitimacy and sustainability of the

process.

The Scope of the Paper

Globalization, as a process, impacts on all countries, old democracies, new

democracies, restored democracies and even non-democracies. The point of departure

of this paper is to trace the impact of globalization on a sub-set of countries which

have been rather loosely categorized as new and restored democracies (NRD). To

establish such a linkage it is useful to spell out what we mean by globalization, and

what variety of countries may fall into the category of new and restored democracies.

We would then need to identify the specific structural characteristics of such variants

of democracy and to examine the extent to which globalization may have a

differentiated impact on these countries.

The paper is structured into four parts:

(i) The concept of globalization, the varying approachs and incidence of

globalization and its underlying political economy.

(ii) The concept of the NRD and an evaluation of the state and sustainability

of their democratic institutions

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(iii) The interface between globalization and democracy in the NRDs

(iv) The scope and ways to enhance the capacity of the NRDs to more

beneficially participate in the globalization process.

I: GLOBALIZATION

The concept of globalization

There is a well developed discourse on globalization which does not merit repetition

(Oxfam, Stiglitz, Rodrik). For our purposes we need to isolate specific features of the

globalization process which are likely to impinge on the workings of the

democratization process. In any understanding of globalization it is important to

differentiate between globalization as a verb, which is a process, and globalization as

a noun, which relates to a set of policy interventions ostensibly designed to expose

countries to the benefits of globalization. This distinction is more than just an exercise

in semantics.

The verb globalization, remains a process where the participation of countries has an

element of the involuntary which originates in the structural feature of a country’s

economy and its interface with the global economy. The noun globalization, on the

other hand, derives from conscious policy decisions, which may serve to enhance or

even erode the capacity of a country to became part of the globalization process. It

can of course be argued that many countires are left with little choice but to embrace

globalization-oriented policies. However, it is this very issue of choice, available to

countries on variable terms, which governs their interface with globalization, which

will be used in this paper to establish connectivity between globalization and

democracy.

Globalization as a process

Globalization as a process is part of a country’s historical experience. Over the

millennia countries, in varying degrees, have been exposed to globalization. Exposure

to globalization has come through trade, capital flows, technology transfer or

movement of people. Some of these exchanges have originated in the market place.

Others have owed to conquest and its institutionalization in the structures of

colonialism so that the incidence of globalization has been far from equitable.

Participation in the process has thus not always been voluntary and the terms of

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participation owe more to the discipline of political economy than the laws of

economics.

Whilst the process of globalization may be universal the extent of a country’s

exposure to globalization depends on its history, geography and economic structure.

More mature DCs such as China, Brazil, India or ROK participate in the process on

quite different terms from Bangladesh, Chad or Bolivia. Similarly, a person with a

degree in computer science, in a DC will face a quite different set of opportunities as

a globalized world from those available to a subsistence farmer or garment workers.

This paper suggests that attempts to force the pace of globalization on a country

through an indiscriminate application of a set of externally driven policy reforms

could have quite unforseable consequences not just on its economy but its politics.

The calibrated exposure to globalization registered in the more mature developing

economies was, however, quite distinct from the externally driven globalization

process which was vouchsafed most developing economies and particularly the least

developed countries (LDCs). For most of the DC and transitional economies (TEs)

drawn from the former Socialist countries of the USSR and Eastern Europe, exposure

to globalization was driven by a regime of policy reforms largely induced by pressure

form the Bretton Woods Institutions (BWI), the IMF and the World Bank (Stiglitz). It

was these countries who were compelled, under IMF stabilization programmes and

World Bank driven Structural Adjustment Reforms (SAR) to further integrate

themselves into the global economy. The BWI version of structural reforms was built

upon the ideology of the so-called Washington Consensus, which emphasised a

regime of import liberalization, privatization, budget stabilization and financial

deregulation, which included the exchange rate, interest rates and the opening up of

the capital market. This interpretation of the Washington Consensus has recently been

rejected by its intellectual author, John Williamson, who argues that his version

presented a more nuanced view of policies of liberalization which has been confused

with the more neo-liberal policy agendas associated with the Reagan and Thacher

regimes (Williamson et al). The BWI appears to have been more influenced by the

neo-liberal paradigm. For the purposes of this paper we will use the SAR policy

package as being used interchangeably with the Washington Consensus as it is

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popularly conceived. The SAR must accordingly be seen as the policy instrument of

choice to enhance the links of a country with the globalization process.

Varying Approachs to Globalization

The SAR package, as it was deployed by the BWI as part of its lending strategy in the

1980s and 1990s across the DCs and TEs, was homogenized and applied to countries

of all sizes and structures from Brazil to Nepal. However, the East Asians, particularly

ROK, Taiwan Province (TP), Singapore, introduced their own policy variants to

define their terms of interaction with globalization, which remained distinctive from

the BWI reform agenda (Amsden, Wade). The South East Asian integration process

followed its own distinctive path specific to each country.

A particular feature of the approach of ROK and the South East Asian economies

such as Indonesia, Thailand and Malaysia, to globalization had been to regulate their

capital account and exchange rate. This policy sought to insulate their economies

from short term speculative inflows of capital and unanticipated fluctuations in the

external value of their currency. Throughout their phase of rapid growth in the 1970s

and 80s, this policy served the East and SE Asians well (Stiglitz). Eventually the East

Asians were put under international pressure to deregulate their capital market (ibid).

In the case of ROK, capital market liberalization was made a precondition for their

admission as a member of the rich man’s club, the OECD. Otherwise there was no

strong reason for ROK to abandon a policy which not only discouraged short term

capital inflows but was not even very receptive to FDI (Amsdem). Whatever FDI was

admitted into ROK had to meet a variety of stringent preconditions about enhancing

the domestic content of the investment within a time-bound framework (ibid).

This selective approach to FDI has also been applied by China which is today the

world’s second largest recipient of FDI after the United States. Other South East

Asian countries had a much more open approach to FDI than ROK, but with the

exception of Singapore and Hong Kong, they restricted short term capital inflows.

The move in the 1990s to open up their economies to short term capital inflows

encouraged a surge of speculative inflows from abroad to take advantage of their

booming economies and strong capital market which left them vulnerable to the

instabilities of the global capital market (Islam). It has been argued that it was this

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opening up of their economy which precipitated the Asian financial crisis of 1997

(Islam, Stiglitz, Rodrik).

Measures of globalization

The globalization of the world economy remains driven by structural compulsions

both of an economic and political nature. Some countries, by virtue of their economic

structures are going to remain highly globalized whatever may be their policy

direction. It may be useful to assess the varying measures of globalization by looking

at the trends in a selection of countries classified as new and restored democracies

(NRDs). In table I, we attempt to measure the globalization of these NRDs by looking

at two indicators, export of goods and services and overseas development assistance

(ODA). The ODA enables countries to enhance their import levels beyond their

export earnings. Table I, shows that a large number of NRDs have enjoyed a high

external exposure and that many of these have been strongly exposed to globalization

even in the pre-reform period of the 1960s.

This globalization may in many cases be driven by a high level of export dependence

or may originate in rising aid dependence. Thus, for example, some countries such as

Niger and Burundi who have relatively low export dependence retain a high aid

dependence. Countries such as Libya, Algeria, Gabon and Nigeria with a heavy

dependence on energy exports, were much less aid dependent. Some countries such as

Zambia, which remains heavily dependent on copper exports, has supplemented its

export dependence with a rise in its aid dependence.

This external dependence amongst NRD’s derives from their economic structures

which are dependent on the export of a narrow range of primary products, goods and

services. Among the NRDs the LDCs operate from a narrow production base which

has constrained their development, reduced their savings and investment capacity and

has driven such countries to depend on aid to both sustain public investment and even

current consumption. Thus, the very economic survival of many NRDs whether they

be wealthy energy exporters or LDCs, depends on their participation in the global

economy, as exporters and/or aid recipients.

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In most of these countries with a high external dependence the state of the global

economy, insofar as it impinges on the market and price of their principal export

products, narrows their economic as well as political choices. To the extent that the

development of these resources remain dependent on FDI, these countries also have to

be particularly sensitive to the dictates of an external capital market. Those with a

high aid dependence are faced with a further narrowing of their policy options, which

tend to be influenced by the policy agendas imposed on them by their respective aid

donors in order to remain eligible for aid (Sobhan 1982 and 1990). In such

circumstances, what may pass for democratic opinion at home, has to be subordinated

to the need to attract FDI as well as the dictates of the market. In particular countries,

foreign investors assume a larger than life role with a capacity to influence domestic

economic and even political policy (Hertz).

The political economy of globalization

In most countries listed as NRD, more enhanced exposure to globalization originated

in a set of policy decisions which were taken by their respective governments over the

course of the last two decades. While some of these countries may have taken the

decision to reform their economies, suo moto, most were induced to reform their

economies through the policy conditionalities imposed by the BWI in extending loans

under various SAR and stabilization programmes (SAPRIN). Without entering into a

more detailed review of the decision making process in each of the respective

countries under review it is difficult to say how far these policy reforms, designed to

enhance the global exposure of their economies, would have moved ahead at the pace

and to the extent that they did, without such external pressure.

Much more rigorous research is required to work out the precise mix between

structural constraints, autonomous decision making in the country, and BWI pressure

in defing the pace, intensity and outcome of the SAR process. Out of such research

we may come to a clearer understanding of the extent to which national sovereignty

and democratic concerns are overridden by exposure to globalization. Within this

paper we will attempt to summarily diagnose the underlying political economy of the

globalization process which compromises the autonomy of policy making at the

national level.

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In most NRDs, the commitment to a policy agenda to promote globalization does not

necessarily originate in a democratic mandate such policies are more likely to depend

on the prevailing objective conditions and political economy of the country. In

countries where a protected and overregulated economy, with a bloated and

misgoverned state sector has become a fetter on the expansion of productive forces

there will be strong domestic pressure for reform. However, the manifestation of such

pressure will depend on the openness of the political environment and the strength of

civil society to give voice to the specific group concerns which are constrained by

state policy.

The distinctive feature of the NRDs lies in their relatively underdeveloped democratic

institutions as well as the weak voice of civil society in projecting its concerns before

the state. The extent to which the state responds to the democratic aspirations of its

citizen’s measures the health of the democratic system. If we look at the upper end of

the democratic spectrum, the states of Western Europe and North America are

characterized by strong democratic institutions which include a plural political

system, a functioning parliament which holds the executive accountable for its

actions, an independent judiciary which protects the rights of the citizen and a free

press. The sustainability of such institutions requires a strong civil society which give

voice to the concerns of citizens on every aspect of public life from the state of the

environment to the deprivatization of single mothers. In such societies, political

misgovernance and policy failure are normally punished by the electorate through a

system of free and fair elections.

We, however, need not be too carried away with this idealized would of democracy.

In many of the NRDs, democracy is becoming a process in which only the rich can

participate as candidates or sources of policy influence (Hertz). The free press is less

free than it seems, since much of it is owned by wealthy people who use it to pursue

their own private agendas (Hertz, Klein). Legislatures are often used as lobbies for

special interest groups. However, making due allowance for the limitations in the

working of the democratic system in the West, it does tend to provide checks and

balances to the functioning of the state rather more effectively than in the NRDs.

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II. THE NEW AND RESTORED DEMOCRACIES (NRD)

Conceptualizing the NRD

The concept of the NRDs raises it own analytical problems. The dividing lines in the

characterizing of these countries between new, restored and old democracies remains

narrow. New democracies presumably refer to countries which had never been

exposed to the norms of a democratic system. Presumably, this categorization would

apply to the former Socialist states of Europe (FSE) or the one-party states of Sub-

Saharan Africa (SSA) such as Tanzania and Zambia or the autocracies such as Zaire

or Pakistan under military rule. However, even here there are grey areas. Singapore,

Malaysia, Kenya or Mexico, were states which for many years were ruled by one party. But all these states retained power through a process of elections where the

dominant party, time and again, renewed its mandate to rule. In the case of both

Malaysia and Singapore, notwithstanding the autocratic nature of the state and the

limited pluralism of it’s democratic order, both regimes enjoyed electoral legitimacy

based on their strong economic performance and effective governance.

In contrast, both Mexico and Kenya which have been virtual one party states for

many years, have recently seen the dominant party defeated in elections. The fact that

such regimes stayed in power for so long, notwithstanding a poor record of

governance, also implies that the democratic system did not work so well over many

years. Thus, the `newness’ of their democracy originates in an hithertoo unfair system

of elections being reformed sufficiently to provide the political space to the opposition

to contest and defeat the ruling party. The precise circumstances whereby this space

was created to permit a democratic opening, merits investigation and analysis.

In contrast to the new democracies, the restored democracies are supposed to have

once had exposure to democracy. Countries such as Argentina, Chile, Peru, Brazil,

Bangladesh, Nepal, Pakistan, Philippines, were once functioning democracies. Some

of these countries such as Bangladesh, Pakistan, Ghana, Argentina and Brazil, have

had long exposures to democracy but this was periodically interrupted by military rule

(Przeworski et al). These countries have thus been exposed to several episodes of

`restoring’ democracy. Between 1958 and 2000 Pakistan has been exposed to 4

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episodes of military interventions to overthrow parliamentary rule with each

intervention being punctuated by periods of democracy. Bangladesh has been exposed

to two episodes of military coups in 1975 and 1982. Argentina between 1950-90 was

exposed to eight regime changes between various forms of autocracy and democracy.

In a number of the countries military coup makers have shed their uniform and had

themselves elected, often under questionable circumstances, as political leaders. It is

not clear whether such regimes should be classified as democratic or really as

autocracies in the garb of democracy.

Very few countries in the developing world have enjoyed an unbroken exposure to

democracy. However, within the NRDs themselves, countries which have had longer

exposure to democratic rule, before succumbing to a military coup, may be expected

to have stronger institutions of democracy as well as civil society. In such countries

political parties, with a strong popular base and organizational structures, may survive

the oppression of military rule and remain strong enough to organize a democratic

resistance to autocratic rule. This survivability of democratic forces in particular

NRDs obviously depends both on the intrinsic strength of these forces and the

ruthlessness of the autocratic regime in suppressing democratic voices. However,

strong political parties and traditions survive, it may also do so because of a strong

civil society (Haggard et al). Both political and civil society institutions help to

sustain the struggle to restore democracy and enhance its effectiveness when it is

restored.

The state of democracy and governance in the NRDs

In most of the NRDs absence of any exposure to democracy or the damage inflicted

on its institutions, through long exposure to autocratic rule, leave weak political

institutions. This weakness compromises the workings of the democratic process. In

Table II we have attempted to measure the quality of democracy in particular NRDs.

In constructing this table we have drawn upon the classifications developed in the

latest UNDP Human Development Report of 2002 on Deepening Democracy in a

Fragmented and World . In this report UNDP has rather heroically attempted to

quantify subjective and objective indicators of democracy and governance which may

provide a useful proxy of the strength of democratic institutions. As in all such

exercises which attempt to measure such imprecise concepts as democracy and

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governance and to assign relative rankings, the available data has to be used with

great caution. Most of these indices developed by such institutions as Freedom Watch

or Transparency International are enumerated on the basis of subjective assessments,

provided by a small sample of focus group interviews in each country, so their

accuracy is open to challenge. To attempt inter-country comparisons remains even

more problematic since different groups of people chosen from each country, rather

than a single set of global examiners, have provided their subjective assessments.

Table II, evaluates the state of democracy and governance in 79 NRD countries. We

have set certain arbitrary cut off points, based on the measures used by UNDP in each

column, in order to determine sub-standard performance of particular institutions of

democracy and governance in each country. Obviously countries which rank one

point above or below the baseline used by us as a cut off point may be no better than

those within our subset, so again our assessments remain indicative rather than

definitive.

The most conspicuous evidence from Table II, indicates that the Sub-Saharan African

countries score rather poorly on the democracy and governance scale, whether we

look at the polity score, civil liberties, freedom of the press or law and order . From 50

to 80% of the listed NRDs from SSA score poorly. In contrast Latin America and the

Caribbean countries score better in the area of the polity, civil liberties, political rights

and press freedom but remain weak in political stability , voice and accountability, law

and order , rule of law, government effectiveness and graft . The Asian record is better

on the polity score (40%), and political rights (30%), law and order and government

effectiveness, but they score poorly in corruption, rule of law, voice and

accountability and press freedom. One of the most poorly performing regions remains

the states of the former USSR (FSU for short). With the exception of the polity score

(40%) and law and order (40%), 70-80% of the FSU states remain sub-standard

performers. However, in the case of law and order only 2 out of 10 FSU states under-

perform. This is surprising given the reported extent of crime in some of these

countries such as Russia (Reddaway).

In contrast, the former European socialist states (FES for short), perform better in

most countries than all other NRD regimes, except in the area of government

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effectiveness and graft where 4 out of 7 FES states score below our performance line.

The general average for the FES is good where no state scores below the line in

polity, or in voice and accountability. This suggests that amongst all the NRDs the

FES states have assimilated the democratic process more effectively than in other

regions. However, this evidence, in some areas, remains open to challenge for

particular FES countries.

However, we should keep in mind that Table II, reviews the evidence on the NRDs

from a more aggregated regional perspective. If we look at Annexure I, from which

Table II, is derived, we see considerably variations in country performance, within the

respective regions.

If we were to sum up the evidence on the state of democracy in the NRDs it is evident

that the introduction to or return to democracy remains in most countries rather

shallow. If the polity score serves as a proxy for the workings of democratic

institutions then such institutions in the NRDs have a long way to go before they

become effective enough to ensure a sustainable democratic process.

In most NRDs across the world political stability and lack of violence, weak rule of

law, lack of law and order , weak government effectiveness and graft, appear endemic.

These measures of weak governance reflect the lower levels of democratisation in

these countries. However, even countries with a better record of democratization, such

as Romania and Bulgaria or Moldova and Indonesia, have lagged behind in

addressing the issue of rule of law, law and order or corruption. In contrast, some

countries with low levels of democratization appear effective in maintaining political

stability, as well as law and order. For example, Morocco, Tunisia, and Malaysia have

low or weak performances in such areas as polity, civil liberties, press freedom but

score well on account of stability, law and order, rule of law and government

effectiveness.

The weaknesses in the democratic process in the NRD which has led to poor

governance owes to many reasons which relate to the political history, economic

structures, institutions and social arrangements of each country. More careful

investigation of these underlying forces may in some cases provide an altogether

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different assessment of the state of democracy in these countries, compared to the

relatively simplistic measures which have been used in the UNDP study (Reddaway

and Glinski). Whilst there is a well developed literature which draws on these political

numerates to link democracy with development, there is no corresponding literature to

assess how far exposure to globalization has in fact impacted on the workings of

democracy. We can at best aim to develop a working hypothesis to establish such a

causality, which can eventually be exposed to more rigorous analysis and empirical

validation.

III. THE INTERFACE BETWEEN GLOBALIZAITON AND DEMOCRACY

Policy ownership in a globalized world

It is argued in this paper that the globalization process has itself contributed to the

erosion of state sovereignty which has thereby weakened democratic institutions and

compromised the legitimacy of the elected governments under the NRDs. This

erosion in state legitimacy has, in turn, compromised the quality of governance in

particular countries and weakened their capacity to implement reforms. The central

argument in this paper states that the exposure to the process of globalization has

weakened the capacity for policy action by elected governments. The extent to which

freedom of action is compromised naturally depends on the economic structures of a

country. But this freedom of action can be enhanced by strong democratic institutions

and effective governance.

Increasing exposure to globalization makes affected countries vulnerable not just to

changes in the health of the global economy but the policy regime of the more

advanced countries. Policy changes in these countries may influence not just the

aggregate level of trade but its direction. Thus, all DCs remain sensitive to policies in

such countries which may enhance or reduce market access or provisions of ODA.

Since many such decisions originate from political and strategic concerns, democracy

and governance in the developed world is as relevant as in the NRDs. Thus, for

example, political decisions behind the Everything but Arms (EBA) initiative offered

by the European Union to the LDCs at the LDC conference in Brussels in the spring

of 2001 and the U.S. Trade and Development Act (USTDA), offering duty and quota

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free access to the US market, to Sub-Saharan and Caribbean Basin countries, remain

of crucial significance in influencing the globalization process for the affected DCs.

Constraints on sovereignty

Whilst we all recognize the growing influence of globalization the relevant point at

issue is its impact on the autonomy of decision making in the NDRs. Here it is not the

extent of external exposure of a country which is relevant but the nature of this

exposure and the constraints on sovereign decision making. Countries with a limited

resource basis and weak capacity to make decisions remain the most vulnerable. Most

LDCs fall into this category. However, many NRDs who are not LDCs remain no less

vulnerable. The Baltic States for example, remain more heavily dependent than

Bangladesh or Nepal not just on world exports markets but also on capital flows to

sustain their economic growth.

Even China, which is today the largest exporter of goods and recipient of FDI in the

developing world remains much more sensitive to the workings of the globalization

process than it was a decade ago. It is, thus, argued here that this exposure to

globalization abridges the freedom of decision making by governments in both China

as well as Bangladesh. China today has had to digest quite significant changes not just

in its economic policies but its economic institutions in order to obtain membership of

the WTO. This was accepted by China, because they deemed membership of the

WTO as crucial to its future economic fortunes. Correspondingly China has had to

accommodate its external positions and policies, to ensure that its access to its

principal economic markets remains uninterrupted. In the same way, Bangladesh’s

external relations today are driven by its dominant concern for ensuring unrestrictedaccess not just to the European market but to the US market, which accounts for 40%

of its RMG exports, in order to retain its competitiveness vis a vis the more privileged

beneficiaries of market access under the USTDA.

Structural constraints

Whilst countries such as China are strong enough to exercise significant negotiating

leverage in determining the terms of their entry in the globalization process, weaker

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economies, particularly LDCs, feel compelled to tailor their domestic policies to the

advice of the BWI and demands of the WTO. The BWI points out to all countries

seeking their assistance that in order to retain access to both markets and capital

inflows, countries have to accommodate their domestic policies to the dictates of the

SAR. It has been argued by the BWI that in an open trading regime, unregulated

financial and foreign exchange markets and macro-economic stability are essential to

sustain both export and capital inflows. The BWI point out that accepting such

policies is not a matter of ideology but derives from what capital markets demand of

capital importing countries.

This argument by the BWI has a strong element of truth in it but does not command

universal applicability. Countries such as ROK and China, have protected their

domestic markets, managed their interest rates and external value of the currency,

restricted the terms of capital inflow and have sustained a strong state sector (Rodrik).

Such a policy regime has not prejudiced either their export growth or access to FDI. It

is perhaps more likely that short term capital inflows may be less prone to enter

markets with restricted capital account convertibility and will look for a regime of

high interest rates to enter such markets. It is no less evident that macro-economic

stability or an unregulated financial system encourages the inflows of FDI to all

countries. However, the early ROK and contemporary Chinese experience suggest

that there are other dynamics at work than a faithful adherence to the Washington

Consensus. Their experience suggests that the relevant issue is not the financial and

trade liberalization reforms but the underlying dynamics of domestic and export

growth in a country and the specific types of capital inflows needed to sustain such

growth (Amsden).

It is argued that most developing countries have been pressured by the BWI to

liberalise their economies on the questionable assumption that capital inflows are

essential to the growth of their economies. This argument for capital market

liberalization minimizes the distinction between encouraging FDI and short term

capital inflows. There would be few economists who would argue that FDI deserves

to be encouraged in developing countries. It was the guru of most British trained left

wing economists, Joan Robinson, who once presciently observed that the only thing

worse than being exploited by foreign capital is not being exploited by it. Attracting

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FDI does not need comprehensive capital account liberalization but needs to ensure

that investors can earn a good profit on their investment which can be freely

repatriated along with their capital if and when the feel they need to do so.

Globalization and democratic choice : The Asian Financial Crisis

The compulsion to encourage short term capital inflows, in order to sustain growth or

exports, is thus far from convincing. The financial crisis in East Asia in 1997,

successive crises in Latin America and in Russia, have originated in the opening up of

the capital market to short term movement of speculative capital (Stiglitz). The

opening of the capital market in Russia in the early 90’s, as part of the programme of

shock therapy applied by the IMF to marketise the economy, led to massive outflow

of capital from the country, including a significant part of the associated IMF loan

(Reddaway).

The critical problem associated with such capital movements is the policy

compulsions it imposes on host governments in determining domestic interest rates as

well as establishing the external value of the currency. To balance a budget in order to

attract short term capital flows, may demand budgetary austerity. The universal advise

of the IMF to any country facing a speculative outflow of capital, whether in East

Asia or Latin America, has been to cut public expenditure and raise interest rates. In

most cases, but particularly in East Asia, this advise exacerbated their financial crisis

by propelling the economy into a deflationary spiral when it needed a strong stimuli

package to boost economic activity (Stiglitz, Feldstein).

When it is argued that domestic policymakers have become hostages to the forces of

globalization it is their compulsion to open the economy to short term capital inflows,

which is cited as one of the main examples of the tyranny of globalization (Hertz).

However, what we need to recognize is that it is not the process of globalization but

the particular policy portal through which a country chooses to connect with the

global market which is at issue. The compulsion to keep the economy open to such

short term capital inflows, correspondingly constrains the policymaker’s ability to

stimulate economic activity through deficit financing, to lower interest rate policy to

stimulate aggregate demand and sectoral investment and to use exchange rate policy

to contain a potentially destabilizing outflow of capital or to stimulate exports

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(Stiglitz). The apprehension that such heterodox policy measures will go against some

`immutable’ laws of globalization rather than insulate an economy from speculative

movements of capital in and out of its economy, needs to be laid to rest.

Countries such as China, Vietnam, Malaysia and most of South Asia, have chosen to

make this distinction between short and long term capital inflows. These countries

have all restricted short term capital movements. This policy has served to insulate

them from the more damaging effects of the Asian financial crisis of 1997 and had

left them with a degree of autonomy in managing their domestic economies. In

contrast, ROK, Thailand and Indonesia who were exposed to a severe flight of short

term capital felt compelled to seek assistance from the IMF to contain the impact of

the 1997 crisis. For this commitment to openness they paid a heavy price in having to

accept the IMF’s stabilization programme to qualify for financial relief as also a

financing package put together by the World Bank and the Asia Development Bank

(ADB). More to the point the IMF held out the inducement that acceptance of their

stabilization package would facilitate the rescheduling of the external debt and open

these countries up to a return of the fugitive short term capital which destabilized their

economies in the first place.

The three countries in East Asia who opened themselves up to the IMF programme,

following the 1997 financial crisis were influenced by the structure and strength not

just of their domestic economy but by the strength of their political institutions

(Rodrik, Haggard). The strength of their institutions impacted on their ability to bear

the political the costs of the remedial measures needed to address the crisis. Thus, all

three countries went through a process of regime change, sometimes peacefully,

where the system of free elections served to bring new governments to power

respectively in ROK and Thailand.

In contrast, in Indonesia, a mass uprising was needed to precipitate regime change

because the state of the political system did not permit for a peaceful transfer of

power through free elections (ibid). In Indonesia, the uprising originated from the

austerity programme imposed on the country by the IMF. This externally driven

reform process was epitomized by the eloquent picture of the President of the IMF,

Michael Camdessus, standing with crossed hands, in the image of a feudal overlord,

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over President Suharto, as he signed the agreement between Indonesia and the IMF.

This externally imposed austerity programme did not enjoy a democratic mandate

since it exposed the common people of Indonesia, to rising prices of public services

which fuelled inflation while budgetary austerity promoted unemployment and

aggravated the impact of the recession. An economic crisis, originating from

externally driven reforms, delegitimized the authority of Suharto in the eyes of the

average Indonesia and created the preconditions for the downfall of a regime which

had exercised absolute state power for over three decades.

Democracy and Globalization in the Transition Economies

The case of Indonesia represents a parable of the political impact of globalization.

There are many other case histories which merit similar scrutiny. One of the most

severe casualties of a reform process designed to rapidly globalize their economies

was the exposure of the Transition Economies of the FES and FSU to the shock

therapy administered by the IMF. Shock therapy exposed a country such as Russia

which was once deemed a global superpower, to instant pauperization (Reddaway,

Dudwick). Under pressure from the IMF the shock deregulation of prices wiped out

the savings of an entire generation and reduced a large segment of the population,

including the emerging middle class, to penury and a life of continuing insecurity.

The impact of the shock therapy varied in its outcome on the different countries of the

FSU as well as the FSEs. The reform package of budgetary stabilization,

desubsidisation, deregulation and privatization, destabilized the economies of all the

countries, exposing them to a rapid decline into poverty which had been virtually

banished from these countries over the last three decades and contributed in most

cases to a deterioration in their human development (UNDP Regional Bureau,).

Obviously, there were variations, in the depth of the crisis, depending on the structure

and institutions of the country, the strength of democratic institutions and the quality

of governance.

Table III shows that most TEs experienced deterioration in their GDP growth during

the 1990’s, faced a sharp rise in poverty and a conspicuous increase in income

inequality. This deterioration in the condition of life as a result of the exposure of

these countries to the forces of globalization was not without impact on the political

life of these countries. Governments in Poland, the Czech Republic, Hungary and the

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Baltic states, which presided over the reform process were rejected by the electorate.

In some countries such as Poland, Hungary and the Czech Republic, the former

communist parties, now reincarnated as Social Democrats, were returned to power. In

Poland where the Communist’s returned to power, a more flexible application of

reforms has permitted a degree of economic recovery not visible in the FSU states or

even most FES states (ibid, Reddway). However, in most other countries there was

little scope for changing the direction of policy so that the ex-Communist Parties,

even in Poland, felt compelled to persist with the policy reforms designed to enhance

the integration of their economies into the globalized system. For the Czech Republic,

Poland, Hungary and the Baltic States, the more immediate goal was integration into

the European Union. The neo-liberal policy reforms which had to be embraced by

these governments as pre-conditions for their acceptance into the EU, left little scope

for exploring more flexible policy alternatives in these aspirant countries. Bulgaria

and Rumania, who also remain in line for later entry into the EU and have had to

structure their policies according to the dictates of the EU, were also exposed to

severe economic and social crises.

The fact that most regimes in the FES could be politically evicted by their electorate

due to the heavy cost of their globalization points to their relatively healthy political

institutions. The fact that the newly elected regimes could do little to resolve the

problems of these countries points to the transcendence of global forces over the

workings of democratic institutions in the FES.

Policy failure and the crisis of democracy in the FSU

In contrast to the European experience, most of the FSU countries have managed to

escape regime change inspite of the much sharper deterioration in their economies,

compared to the FES. The only ex-Socialist country outside the FES which has

witnessed regime change has been Mongolia, where sharply deteriorating economic

conditions, as a consequences of their exposure to globalization, has led to the return

of the former Communist party to power. This suggests that Mongolia’s democratic

institutions appear to be one of the most robust amongst all former Socialist countries.

This impression is supported by the indices of democracy cited in Annexure I.

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In the case of the FSU countries, led by Russia, incumbent regimes have survived in

power in Russia, Ukraine, Belarus, Georgia and Central Asia inspite of an

extraordinary decline in their conditions of life and contraction in their economy. The

growing degree of exposure to globalization in the form of exposure to shock therapy

in Russia through aggressive measures of rapid import liberalization, ending of

subsidies and extensive privatization had a devastating effect on the Russian economy

(Reddaway and Glinski). GDP per capita in Russia in 2000 was 35% below levels in

1989 whilst investment declined at a rate of 13.3% between 1990 and 1999. Poverty

levels in Russia have risen from 2% in the late 80s to 45% in 1993/94, whilst the Gini

coefficient measuring inequality rose from 0.27 to 0.41 in the same period.

The re-election of Boris Yeltsin as President of Russia in 1997, inspite of the

unprecedented deterioration in the economy and impovishment of a large segment of

the population reflected the weaknesses in the democratic system in Russia, at the

time (ibid). The monopoly of the Russian media by a number of powerful financial

oligarchs who had a heavy stake in the reelection of Yeltsin, the weaknesses in

establishing the norms of a system for holding free and fair elections, and the resort to

more blatant electoral malpractises may have contributed to the outcome of the

Russian elections (ibid). However, the substantive problem may lie in the political

parties themselves and the general disillusion of the electorate with the democratic

process.

In most of the other countries of the FSU the very nature of the democratic process

may have compromised the credibility of the electoral process. Thus, the ruling

parties have effectively remained unaccountable for their stewardship of the economy

and their ability to better the life of the population. In all such cases, casual

generalizations, seeking to link economic performance with their democratic

outcomes, demands more specific investigation. Some of the work in the realm of

development politics, attempts to address such issues in the context of a selected

group of the more advanced DCs (Haggard). But this literature has not succeeded in

linking the impact of particular policy regimes and their outcomes to the actual

quality of the democratic process as distinct from the actual outcome of the electoral

system. We need to develop an analytical basis for seeing how far the quality of

economic management and its outcomes automatically translates into particular

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political outcomes and how far this causal linkage can be compromised by the

workings of the political system. Correspondingly we need to understand how far the

efficacy of economic reforms and their outcome are, in turn, influenced by the

efficacy of the political system.

If we look at Annexure I, which evaluates the quality of democracy and governance in

the NRDs we can observe the state of democracy in the FSUs. In the area of

democracy, most countries reported a negative score, though Russia scored 7 out of

10. This figure from Russia is somewhat surprising because the corresponding scores

for civil liberties, political rights press freedom, voice and accountable and political

stability are not impressive. Nor are Russia scores on account of the quality of

governance impressive. The more comprehensive analysis of Russia under Yeltsin by

Reddaway and Glinski indicates a far from healthy polity in Russia.

The data in Table III and Annexure I, needs to be more systematically analysed and

correlated with two sets of data: (i) on economic performance and social outcomes (ii)

on the change of regimes via the democratic process. This exercise may be attempted

more substantively in another paper where the actual quality of democracy can be

evaluated with the same rigour as was attempted in the work of Reddaway and

Glinski on Russia.

Policy making under globalization

We have observed that the globalization process has served to abridge the autonomy

of decision making in many countries. The structural constraints of the economy

generate a sense of helplessness in many of the less developed countries. But in mostcountries it is the hegemony over policy choices which has been established by the

BWI which has eroded domestic ownership over the policymaking process. In the

specific case of the European NRD their policy options are further constrained by the

need to conform to the demands of the EU which has laid out a strict policy regime

for prospective new members wishing to establish their eligibility for joining the EU.

The emergence of the WTO has now imposed its own constraints on the freedom of

choice of all countries which are its members or aspire to be members. In most cases

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the BWI and WTO policy agendas overlap. In many areas the BWI agenda is more

advanced and comprehensive than that of the WTO and many NRDs have already

embraced policy reforms under the aegis of the BWI well before they were obliged to

do so by the terms of their accession to the WTO.

In such circumstances the average Finance Ministers of an NRD may feel that he

enjoys few economic policy choices. The freedom to pursue an industrial policy,

which seeks to usher in a new generation of industries, needed to diversify the

production and export base of the economy is constrained by the pressure to liberalise

the economy (Amsden). The regime of protection for infant industries, once available

to promote the industrialization, is no longer an acceptable option for NRDs.

Commitments on budgetary balances, in order to attract capital inflows, impinges on

the volume and prioritization of choices in public expenditure. The move to privatize

infrastructure development, which was once the domain of the public sector where it

was heavily supported by the aid regime, has both affected the volume of public

investment as also its pace and scheduling. In all such areas, policy advise from the

BWIs is sanctioned by the denial of ODA in areas disfavoured by the donors is

increasingly being targeted to areas preferred by donors.

Obviously the degrees of freedom enjoyed by NRDs to make their own policy

decisions will depend on the strength of the economy as well as the political

institutions in a country, China, may in most cases, exercise greater freedom of choice

over its policy decisions because it has a strong political support base, is much less

dependent on aid and can, in most cases bargain on equal terms with FDI partners.

Nepal or Togo may not enjoy such degrees of freedom because they are more aid

dependent, their political support base is not strong enough to lend itself to any

serious disagreement with donors or investors.

A country with a strong economy and political base can thus negotiate better terms of

engagement with the global system so that its choices may, more closely reflect what

it aspires to do. The position of such countries draws strength from the degrees of

support they command at home to enforce their own policy. In practicing

democracies, building a political consensus behind globalization-oriented reforms

remains a feasible political option. But in the case of countries with weaker polities,

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such as the NRDs, the power to suppress or divert dissent against the direction and

consequences of globalization, may constrain the choices of political leaders seeking

autonomy in negotiating entry of their country into the WTO.

In such circumstances globalization policies, tend either to be externally driven

through incurring commitments to the BWI as part of aid induced SAR or to the

WTO. In only a few cases are reforms embraced by the political leadership of a

country, out of an awareness of the appropriateness of the polices. In most cases there

is a range of choices before the leadership, from total compliance under external

pressure to considerable overlap in the agenda of national policymakers and external

sponsors. Here again the actual literature on how far such reforms enjoy popular, as

distinct from regime support, is less evident. In fact even within reforming regimes,

policy reforms tends to be ghettoized in the Finance Ministry. In many such NRDs,

Finance Ministers tend to be unelected technocrats who often derive their support

from the patronage of the BWI rather than a democratic mandate. Thus, globalization

reform often becomes a clandestine process negotiated in Washington DC, outside the

scrutiny of the public or parliament of the reforming country. The unpopularity of

many such reforms is not surprising. The ongoing demonstrations against

globalization, at every international event, remain the most immediate and generalized

manifestation of the discontents with globalization (Klein). But in most countries

dissent, whether pervasive or episodic, suppressed or vocal, remains an ongoing

byproduct of the globalization process.

The inequity of globalization

Globalization has served to open up a growing divide between governments in the NRDs and their citizens (Klein, Hertz). This divide reflects the external sponsorship

of the process and the weakness in the democratic institutions in these countries.

Whilst globalization may be immediately beneficial to some people, in the longer run,

many more may be affected by its discontents. The democratic process demands that a

large number of people, perhaps an electoral plurality, should be persuaded at the time

the policy is being finalized that such a process is advantageous for them as

individuals and for the country as a whole.

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In country after country exposed to globalization a segment of people from workers in

export oriented industries or agriculture, to migrant workers, have been directly or

indirectly benefited by globalization, though few would appreciate this. A much

larger number of worker and farmers as well as those affected by budget cuts or more

expensive water and electricity, have been disaffected by the process. It is only a very

narrow segment of people, owners of export oriented enterprises and the collateral

beneficiaries of this process, brain drain professionals, a class of aid intermediaries

such as consultants, contractors, commission agents, and a larges class of importers

benefiting from a liberalized trade regime, who are enjoying the income and fruits of

a liberalized economy, who have emerged as the unquestioning votaries of

globalization. But this class is numerically very limited. Their presence reflects the

increasing social polarization and concentrated nature of political power in NRD’s

exposed to globalization.

In country after country the political task of coping with the growing inequalities is,

undermining the sustainability of the democratic process (Hertz). A political

leadership committed to an agenda of globalization, linked to a privileged elite, is

now compelled to retain political power to sustain the globalization process. It is not

surprising that there is very little attempt to build a political consensus or public

support for globalization. Because of the externally driven nature of this process and

its narrow support base, globalization today lacks political legitimacy in most

countries. To the extent that political leaders embrace such policies, under external

pressure, often at the cost of their electorate, correspondingly devalues the quality of

the political institutions in such countries.

Our paper argues that a delegitimised leadership can only sustain itself in power

through a malfunctioning political system. Otherwise regimes, which preside over

irregular growth, rising inequalities, persistent poverty and visible manifestations of

malgovernance, would not normally expect to be elected or be able to stay in power.

It is not surprising that the polities in such societies, reflect weak political institutions,

with an unaccountable executive, malfunctioning legislatures, a media dominated by

financial interests, a weak civil society mostly sustained by aid money, the growing

power of special interest groups and is exposed to endemic corruption. The available

numbers from Annexure I provide a certain superficial validation of this hypothesis.

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But such numbers cannot tell the full story of how the numbers interconnect to

compromise the effectiveness of the political system and serves to alienate citizens

from the globalization process.

IV. COPING WITH GLOBALIZATION

Enhancing Democracy

The process of globalization is here to stay. The relevant issue is to determine the

construct of the globalization process itself and the terms on which individual

countries connect to this process. Global institutions can play an important role in

helping countries, such as the NRDs to cope with the specific pressures originatingfrom globalization. However, such international interventions need to be reinforced

by enhancing democracy at the national levels. Thus, coping with globalization

demands more not less democracy at the global as well as the national level. NRDs

need to enhance their democratic capacities whilst global institutions need to both

help NRDs in strengthening their policymaking and governance capacities whilst also

democratizing the global order.

The role of global institutions

The Elusive Quest for a New International Economic Order

Global democracy has been on the table for a long time. During the 1970s the search

for a New International Economic Order (NIEO) was central to what came to be

known as the North-South dialogue. The goal of this dialogue was to build a more

democratic world order which would eradicate the structural injustices of the global

economic system and give the Third World greater voice in its management. The

search for NIEO became an incidental casualty of the neo-liberal revolution of the

1980s. However the policy failures, crisis in governance and lack of unity in the Thrid

World were no less responsible for the lack of success in the quest for a NIEO.

In the last two decade of the 20th century, the global system, not only witnessed the

weakening of the institution of the United Nations, but saw the erosion in aid flows

and the growing ascendance of private capital transfers as the central dynamic of the

global economic system. Not only were Third World governments marginalized from

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the decision making process in the international system but within their own countries

there was an erosion of sovereignty over the decision making process. The policy

preferences of the BWI, and the interests of foreign investors, were prioritized by

these governments over their obligations to their electorate.

Today everyone is in agreement that global democracy needs to be enhanced.

However, the way in which some of the major powers have overridden democratic

opinion in the United Nations on the waging of war and enforcing the peace does not

bode well for building a democratic world order. In the event that a multilateral world

order can be salvaged from the debris of the war on Iraq the need to reconstruct the

World Bank, the IMF and the WTO, would demand urgent attention. This is a long

standing issue with its own literature, which needs to be addressed elsewhere

(Oxfam).

Enabling NRDs to participate in the globalization process

If we move beyond the issue of democratizing the international institutions we need to

enhance the capacity of countries to participate more effectively in the world trading

system. Some of the more advanced DCs have indeed developed a strong capacity to

benefit from the global system. Some NRDs, for example the FES states and the

Baltic republic, are seeking to secure their future by integrating themselves with the

European Union. Some LDCs have established new market niches for themselves in

the global economy, though these gains may not be sustainable. However, the

majority of the NRDs, particularly the LDCs, still remain captive to the unequal

incidence of the globalization process and its destabilizing features.

In order to cope with globalization, the most underprivileged among the NRDs, the

LDCs as a group, have made a variety of demands on the international system. These

expectation have been captured in the recommendations of the LDC conference in

Brussels held in the spring of 2002. However, the most recent set of concerns voiced

by the LDCs relates to the emerging dangers faced by them from their accession to

the WTO process. The following programme of action is therefore suggested for the

LDCs to help them to cope with globalization as it impacts on them through the

WTO:

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(i) The people in the LDCs should be given an opportunity to participate and

benefit from the globalised world market. For this, the granting of duty free

and quota free market access by developed countries to all products exported

by LDCs is an immediate priority. The consolidation of such duty free and

quota free treatment, within a contractual instrument in the WTO, should be

the first priority at the WTO conference in Cancun to be held later this year.

(ii) Duty-free and quota free access must be complemented by improved and

simplified rules of origin that take into account the industrial weakness and

technological backwardness of LDCs and their difficulty in adding value so

that LDCs exports will actually benefit from these preferences. There should

also be binding obligations to provide LDCs with the necessary measures,

including technical and financial assistance, to enable them to overcome

difficulties in enhancing their capacity to both negotiate and trade.

(iii) Free access to markets will not be meaningful for LDCs, if they are required to

compete with the treasuries of the richest countries. Export subsidies,

including export credits, on agricultural products which compete with those

produced by LDCs, should be eliminated as a matter of priority. Domestic

subsidies which result in such products entering world markets at dumped

prices should also be eliminated.

(iv) Given the overwhelming importance of the agricultural sector in the

economies of LDCs in particular its role in human development, food security

and rural development, LDCs should retain full flexibility in this sector, and as

such not be required to make commitments on subsidies or tariffs.

(v) LDCs should also have the opportunity to participate in world trade in

services. This requires more commitments in their favour with respect to

movement of natural persons (MNP) and temporary migration. In a globalized

world the labour market also needs to be gradually opened up in the same way

as the market for goods and capital. People from the DCs should, thus, be

given the right to enter the labour market of the developed world on a

temporary base so that DCs can exploit their national comparative advantage.

(vi) LDCs must also be enabled to compete in the global market. This would

require (a) effective access to global markets in the developed world (b)

Substantial revisions in WTO provisions to enable LDCs to protect the rights

of farmers, indigenous people and local communities, including by the

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formulation of a sui generis system of protection of plant varieties, and (c)

Prohibiting patents on life forms.

(vii) A major commitment needs to be made to enhance ODA flows into the LDCs.

Currently very few industrial countries have met their obligation to channel

ODA to a level of 0.7% of their GDP, to the DCs. This enhanced flow of aid

should not be encumbered by excessive aid conditionalities imposed by

donors. Such conditionalities are today growing in their scope and

intrusiveness to a point where democratic decision making in the NRDs may

be undermined. Instead, the capacity of DCs to design and own their policy

reforms should be significantly enhanced.

(viii) ODA needs to be targeted to the following areas:

(a) Human resource development

(b) Infrastructure development

(c) Enhancing their access to Information Technology

(ix) Resources will be needed from both ODA as well as FDI to support LDCs in

diversifying their production base to enable them to compete in the global

system. Access to such ODA and FDI should move away from the

ideologically driven agenda of the BWI so as to develop a more flexible policy

regime where the use of industrial policy should not be excluded. To enable

LDCs to design and enforce an industrial policy will require significant

investment through both technical assistance as well as foreign investment.

Coping with globalization at the national level

We will briefly focus on the issue of how the approach to globalization, at the nationallevel, can be more effectively linked to the development and sustainability of

democracy.

It is argued that in order to cope with globalization all countries need to:

• Build strong states

• Strengthen the democratic system

•

Strengthen the institutions of civil society

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These institutional changes will enable such states to:

• Improve the terms on which a country relates to the globalization process

• Help to restructure the economy to democratise the benefits from globalization

Building Strong States

Building strong states is integral to responding to the eroded legitimacy of the state.

Table II, and Annexure I, have already measured the ineffective nature of the state in

many NRDs. In an era of externally driven reforms there has been a persistent effort

to emphasise the worthlessness of governments and their need to withdraw from most

areas of economic life. This has undermined the authority of elected leaders and

sapped the morale of public officials. In such circumstances a directionless and

undermotived state is more inclined to lapse into predatory habits. It is not surprising

that in an era where the state is supposed to have been in retreat from all segments of

the economy, corruption has grown exponentially in most NRD countries, indeed in

most countries.

Unless governments can both enhance their credibility by widening their democratic

outreach as well as strengthening their professional capacity, they will be reduced to

spectators of the globalization process. Such countries will retain few levers to control

their own affairs so that their capacity to cope with the downside of globalization will

be severely compromised. In such circumstances the widening social divisions created

by globalization may lead to a progressive breakdown in law and order and the

corresponding spread of terrorism inspired by those who feel totally alienated from

the process of globalization and remain hostile to its inequitable outcomes.

Strengthening the democratic system

A strong state can only build its strength through consolidating its democratic

mandate. A weak state is the handmaid of a weak democratic system which has

surrendered its decision making prerogatives to external forces. Strengthening the

democratic mandate of governments will give the state greater authority to negotiate a

programme of reforms which commands sizeable popular support. Building such a

democratic mandate involves two components:

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The voice of Civil Society, represented not just by NGOs but community based

organizations (CBOs), human rights activists and advocacy groups, are worth hearing

insofar as they voice the concerns of the deprived. However, engaging with civil

society should not be seen as a substitute for consulting with the deprived.

It should be kept in mind that there is also an institutional face to civil society in the

form of trade unions, farmer’s association, business communities, professional bodies,

faith based organizations. These groups articulate specific interests, but should be

heard because they often have a greater capacity for collective action to resist or even

support reforms since their group interest may be involved. When we are gauging the

strength and relevance of civil society we should not limit ourselves to head counts of

registered NGOs. It should be kept in mind that many NGOs are sponsored and

sustained by donor funding and mostly exist as aid contractors who deliver particular

public services on behalf of donors (Babar Sobhan). Many such NGOs eschew

advocacy which is seen as contrary to their primary mission of service delivery. In

such circumstances, we need a more focused and sensitized assessment of the strength

and relevance of civil society, in all its manifestations, in all the NRDs. Such an

exercise would need to be able to guage the quality and efficacy of these institutions

and should be able to assess the strength and impact of civil society in influencing the

policy making and governance process.

Developing Stakeholders

In the final analysis globalization has to be an inclusive process if it is to enjoy a

popular mandate. However much a government may consult with its citizens to build

support for reforms, unless it can assure them that there is some benefit from such a

process they will remain skeptical of its outcome. The reality however indicates that

the benefits of globalization have tended to be limited and remain highly

exclusionary. Thus, to measure the outcome of globalization in terms of GDP growth

or even a strengthened balance of payment, may be `sound’ macro-economics, but

remains poor politics. There may or may not be a trickle down effect from growth on

poverty reduction. The current academic fashion popularized by the World Bank of

using economic models to establishing a statistical correlation between high growth

and poverty reduction is good for seminars but carries little conviction in electoral

debate or with the poor themselves (World Bank 2001). Poor people do not see import

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liberalization or capital account convertibility as a source of improvement in their

lives. What they see is lost jobs from closed factories.

If people are to be benefited from globalization they have to be given a direct stake in

the process (Sobhan, 2001). This stake may extend from enhanced job opportunities

for the working poor to higher market or procurement prices for small farmers. It

must provide visible evidence of new and better schools and health care facilities,

better roads connecting farmers to markets and factories to ports, ubiquitous and

regular power supply, including to rural entrepreneurs, stable prices for consumers,

particularly of basic staples and improved security for all where the workings of the

state machinery are not commoditized in the service of the rich.

However, ordinary people may need to be moved beyond low wage jobs and stable

prices and may need to share in the value addition provided by access to global

markets. This enhanced stake in the market can be realized if the poor are given

ownership rights not just in the land they till but in the enterprises which add value to

their labor and primary produce (ibid). This rethinking of the poverty discourse would

take the policy agenda beyond micro-credit, which has played a very salutary role in

reducing poverty. We would need to ensure that poor people, including workers, can

be given opportunities via the macro-financial system, to own corporate wealth,

where marginal farmers and producers of cash crops can become shareholders in

agro-processing enterprises both at the national and multinational level, where

workers in mines and in energy extracting conglomerates can be given shares in these

enterprises and citizens in various tourist paradises can be given an ownership stake in

the tourism sector (ibid).

In the final analysis globalization is an inexorable process. However, unless the

pervasive concerns of the deprived, spread across the world, are recognized and

structural changes initiated to make them direct stakeholders in the benefits of

globalization, this process will remain under perpetual challenge. This challenge will

not just involve demonstrations at Seattle or Evian but could escalate into a challenge

on the sustainability of the democratic order not just in the NRDs but across the

world.

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Table I

Measures of GlobalizationAmong new and restored Democracies

Exports of goods and services(as % of GDP)

Official development assi(net disburs

As % of

Country

1965 2000

Manufactured exports(as % of merchandise exports)

2000

1990

AfricaSeychelles 78 .. 9.8

Libya 53 .. .. ..

Tunisia 19 44 77 3.2

Cape Verde 23 .. 31.8

Algeria 19 42 2 0.4

South Africa 27 29 54c

..

Equatorial Guinea 95 .. 46.0

Gabon 43 37 .. 2.2

Morocco 18 31 64 4.1

Swaziland 66 ..d

6.4

Zimbabwe .. 30 28 3.9

Ghana 17 49 15 9.6

Kenya 31 26 21 13.9

Congo 79 .. 7.8

Comoros 26 8 18.1

Sudan 15 17 3b

6.2

Togo 20 36 31 16.0

Madagascar 16 25 50a

12.9

Nigeria 13 52 (.)

Djibouti 45 .. 46.4

Uganda 26 10 6 15.5 Zambia 49 31 .. 14.6

Senegal 24 31 30 14.4

Democratic republic of Congo

36 .. .. 9.6

Côte d ’Ivoire 37 46 14 6.4

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Exports of goods and services

(as % of GDP)

Official development assi

(net disbursAs % of

Country

1965 2000

Manufactured exports

(as % of merchandise exports)2000

1990

Eritrea 16 .. .. Benin 13 15 3

b14.5

Guinea .. 26 30 10.4

Gambia 48 5b

31.3

Angola 90 .. 2.6

Malawi 26 .. 26.8

Mali 12 25 .. 19.9

Chad 19 17 .. 18.0

Burkina Faso 9 11 .. 12.0

Mozambique .. 15 10a

40.7

Burundi 10 9 (.) 23.3

Niger 9 15 2b

16.0

Sierra Leone 30 17 .. 6.8

Some Other Countries

Macedonia, TFYR ..

Armenia ..

Philippines 2.9

Maldives 10.7

Albania 0.5

Kyrgyzstan ..

Moldova, Rep. Of ..

Tajikistan ..

Mongolia ..

Cambodia 3.7

Pakistan 2.8 Nepal

Bangladesh 7.0

Source: Compiled from Table 9 from World Development Report 1989 financial Systems and Development World Development I

Human Development Report 2002: Deepening Democracy in a Fragmented World, UNDP. Note: a. Data refer to 1999

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b. Data refer to 1998

c. Data refer to the South African Customs union, which comprises Botswana, Lesotho, Namibia, South Africa and Swaziland

d. Included in the data for South Africa

e. ODA receipts are total net ODA flows from DAC countries, other OECD countries, multilateral organisations and Arab countriesvalue indicates that the repayment of ODA loans exceeds the amounts of ODA received. Aggregates include net official aid. See

Source: column 2 and 3: World Bank 2002b; aggregates calculated for the Human Development Report Office by the World Bank. Colum

ODA from OECD, Development Assistance Committee (2002d) and data on GDP from World Bank (2002d).

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Table II

Indicators of Governance (Subjective and Objective)

Democracy

Country (no. of

total countriesused for data

analysis)

Polity scorea

2000(-10 to 10)

No. of

negative score

Civil

Liberties b

2000

(7 to 1)

4 - 7

Political rights b

2000(7 to 1)

4 - 7

Press freedomc

2000(100 to 0)

50 - 100

Voice and

accountabilityd,e

2000-01

(-2.50 to 2.50)

No. of negative

points

Political stability and

lack of violenced

2000-01

(-2.50 to 2.50)

No. of negative points

Law and

order f

2001

(0-6)

1 - 3

Africa (38) 21 31 28 29 29 25 20

Latin America and

Caribbean (12

1 3 2 2 6 5 7

Arab world (2) 2 2 2 2 2 1 1

Asia (10) 6 3 5 6 5 4

Former USSR (10) 4 7 7 8 7 7 2

European Socialist

Countries (7)

0 1 2 1 0 3 1

Source: Compiled and calculated from Human Development Report 2002: Deepening Democracy in a Fragmented World, UNDP

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Table III

Income, Poverty & Human Development Indicators in the Transition Econo

Countries Poverty: headcount index

(% of population)

Real net wages

(1989 = 100)

Human Development

Index

Daily Calorie intake per

capita

GDP growth

(annual %)

L a t e

1 9 8 0 s a

1 9 9 3 / 1 9

9 4

1 9 9 5 a

1 9 9 5

1 9 9 7

1 9 8 9

1 9 9 4 /

1 9 9 5

1 9 9 0 ’ s

a v e r a g e

b

Central Europe

Average

1.8 6.0 81.1 0.864 0.862 3216.8 2864 0.7

Eastern Europe

Average

3.0 34.5 48.4 0.703 0.794 3054.5 2580 -3.0

Baltic States

Average

1.0 37.0 51.4 0.829 0.750 2685.0 .. -4.6

Slavic Republics

Average

1.7 36.3 48.2 0.859 0.762 3234.0 2598 -6.0

Caucasus Average 20.3 .. 13.1 0.707 0.641 2606.0 1956.5 -8.7

Central Asia

Average

20.8 59.5 .. 0.721 0.664 .. .. -6.5

Transition

Economies Average

8.1 34.7 48.4 0.780 0.745 2959.3 2499.6 -4.7

OECD countries

Average

.. .. .. 0.919 0.911 .. .. 2.0

World Average .. .. .. 0.759 0.764 .. .. 2.0

Source: Compiled from the statistical appendix of Regional Bureau for Europe and the CIS, July 1998 Poverty in Transition UNDPSources: Countries include: Central Europe-Czech Republic, Hungary, Poland, Slovakia; Eastern Europe- Albania, Bosnia and Herzegovina, Bulgaria, Croatia, MoYugoslavia; Baltic States-Estonia, Latvia, Lithuania; Slavic Republics- Belarus, Russia, Ukraine; Caucasus- Armenia, Azerbaijan, Georgia; Central Asia- Kazakhst

Uzbekistan

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Source: column 1-2: World Bank 1997a; column 3: UNICEF1997a; column 4-6: UNDP 1995 and UNDP 1997; column 7 – 9: UNICEF 1997a; column 10: own cal

12: own calculations based on World Bank 1997a and UNICEF 1997b; column 13: World Bank 1997a. Note:

a. data for Armenia, Azerbaijan, Georgia and Tajikistan taken from Atkinson et al 1992. data for remaining countries taken from Milanovic 1996

b. for the period 1990 - 1997c. for the period 1990-1997; Czech Republic, Bulgaria, Slovakia, Bosnia and Herzegovina, Yugoslavia: for the period 1994-1997

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Indicators of Governance (Subjective and Objective)

Democracy Governance

La

elelo

sin

HDI

rank

Country Polity

scorea

2000

(-10

to 10

Civil

Liber-ties

b

2000

(7 to

1)

Political

rights b

2000

(7 to 1)

Press

free-dom

c

2000

(100

to 0)

Voice

andaccount-

abilityd,e

2000-01

(-2.50 to2.50)

Political

stabilityand lack

of

violenced

2000-01(-2.50 to

2.50)

Law

andorder

f

2001

(0-6)

Rule of

lawd

2000-

01

(-2.50

to 2.50)

Govern

menteffectiv

enessd

2000-

01(-2.50-

2.50)

Graft

(corruption)d

2000-01

(-2.50-2.50)

Ye

Africa

47 Seychelles .. 3 3 51 .. .. .. .. .. .. 19

97 Tunisia -3 5 6 74 -0.61 0.82 5.0 0.81 1.30 0.86 19

100 Cape Verde .. 2 1 32 0.92 .. .. 0.15 .. .. 20

107 South Africa 9 2 1 23 1.17 0.07 2.0 -0.05 0.25 0.35 19

111 Equatorial Guinea -5 7 7 79 -1.30 .. .. -1.20 .. .. 19

117 Gabon -4 4 5 55 -0.40 -0.44 3.0 -0.44 -0.45 -0.58 20

125 Swaziland -9 5 6 77 -0.93 .. .. 0.15 .. .. 19

128 Zimbabwe -5 5 6 69 -0.90 -1.25 0.5 -0.94 -1.03 -1.08 20

129 Ghana 2 3 2 55 0.02 -0.11 2.0 -0.08 -0.06 -0.28 20

134 Kenya -2 5 6 70 -0.68 -0.83 2.0 -1.21 -0.76 -1.11 19

136 Congo -6 4 6 71 -1.38 -1.36 2.0 -1.11 -1.58 -0.49 19

137 Comoros -1 4 6 38 -0.35 .. .. .. .. .. 19

139 Sudan -7 7 7 85 -1.53 -2.01 2.0 -1.04 -1.34 -1.24 20141 Togo -2 5 5 72 -1.06 -0.62 3.0 -0.82 -1.32 -0.48 19

147 Madagascar 7 4 2 32 0.28 -0.34 3.0 -0.68 -0.35 -0.93 19

148 Nigeria 4 4 4 55 -0.44 -1.36 2.0 -1.13 -1.00 -1.05 19

149 Djibouti 2 5 4 63 -0.44 .. .. -0.19 .. .. 19

150 Uganda -4 5 6 40 -0.79 -1.13 4.0 -0.65 -0.32 -0.92 20

Annexure I

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La

ele

lo

sin

HDI

rank

Country Polity

scorea

2000

(-10to 10

Civil

Liber-

ties b

2000(7 to

1)

Political

rights b

2000

(7 to 1)

Press

free-

domc

2000(100

to 0)

Voice

and

account-

abilityd,e 2000-01

(-2.50 to

2.50)

Political

stability

and lack

of violence

d

2000-01

(-2.50 to

2.50)

Law

and

order f

2001(0-6)

Rule of

lawd

2000-

01(-2.50

to 2.50)

Govern

ment

effectiv

enessd 2000-

01

(-2.50-

2.50)

Graft

(corruption)d

2000-01

(-2.50-2.50)

Ye

153 Zambia 1 4 5 62 -0.17 -0.42 4.0 -0.39 -0.75 -0.87 20

154 Senegal 8 4 3 34 0.12 -0.68 3.0 -0.13 0.16 -0.39 20

155 Democratic

republic of Congo

..g

6 7 83 -1.70 -2.59h

1.0 -2.09 -1.38 -1.24 19

156 Côte d ’Ivoire 4 5 6 77 -1.19 -0.95 2.5 -0.54 -0.81 -0.71 20

157 Eritrea -6 5 7 68 -1.04 -0.38 .. -0.43 .. -0.97 19

158 Benin 6 2 2 30 0.47 -0.72 .. -0.57 0.12 .. 19159 Guinea -1 5 6 71 -0.98 -0.99 3.0 -0.59 0.41 0.13 19

160 Gambia -5 5 7 70 -0.73 0.49 5.0 0.00 0.41 0.13 20

161 Angola -3 6 6 80 -1.26 -1.98 3.0 -1.49 -1.31 -1.14 19

163 Malawi 7 3 3 52 -0.14 0.03 3.5 -0.36 -0.77 0.10 19

164 Mali 6 3 2 22 0.32 -0.13 3.0 -0.66 -1.44 -0.41 19

166 Chad -2 5 6 72 -0.88 .. .. -0.86 .. .. 19

169 Burkina Faso -3 4 4 39 -0.26 -0.54 4.0 -0.79 -0.02 -0.93 19

170 Mozam-Bique

6 4 3 48 -0.22 0.20 3.0 -0.32 -0.49 0.10 19

171 Burundi -1 6 6 80 -1.35 -1.54 .. -1.07 -1.14 -1.40 19

172 Niger 4 4 4 62 0.11 -0.61 2.0 -1.17 -1.16 -1.09 19

173 Sierra Leone ..g

5 4 75 -1.35 -1.26 3.0 -0.38 -1.60 -0.45 19

LiberiaSao Tome

Somalia

Latin America and Caribbean

34 Argentina 8 2 1 33 0.57 0.55 4.0 0.22 0.18 -0.36 20

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La

ele

lo

sin

HDI

rank

Country Polity

scorea

2000

(-10to 10

Civil

Liber-

ties b

2000(7 to

1)

Political

rights b

2000

(7 to 1)

Press

free-

domc

2000(100

to 0)

Voice

and

account-

abilityd,e 2000-01

(-2.50 to

2.50)

Political

stability

and lack

of violence

d

2000-01

(-2.50 to

2.50)

Law

and

order f

2001(0-6)

Rule of

lawd

2000-

01(-2.50

to 2.50)

Govern

ment

effectiv

enessd 2000-

01

(-2.50-

2.50)

Graft

(corruption)d

2000-01

(-2.50-2.50)

Ye

38 Chile 9 2 2 27 0.63 0.87 5.0 1.19 1.13 1.40 20

73 Brazil 8 3 3 31 0.53 0.47 2.0 -0.26 -0.27 -0.02 ..

93 Ecuador 6 3 3 40 -0.14 -0.80 3.0 -0.76 -0.94 -0.98 19

94 Dominican

Republic

8 2 2 30 0.42 0.46 2.0 0.01 -0.24 -0.20 19

103 Guyana 6 2 2 22 0.94 -0.70 4.0 0.13 0.02 -0.45 20

104 El Salvador 7 3 2 37 0.21 0.62 3.0 -0.65 -0.25 -0.33 20

116 Honduras 7 3 3 45 -0.04 0.25 1.0 -1.06 -0.58 -0.63 20

118 Nicaragua 8 3 3 40 -0.06 0.31 4.0 -0.79 -0.73 -0.80 20

120 Guatemala 8 4 3 49 -0.33 -0.77 2.0 -1.00 -0.63 -0.69 19

146 Haiti -2 5 6 59 -0.80 -0.38 2.0 -1.45 -1.32 -0.84 20

Asia

27 Republic of Korea 8 2 2 27 0.98 0.50 4.0 0.55 0.44 0.37 20

59 Malaysia 3 5 5 70 -0.13 0.31 3.0 0.34 0.53 0.13 19

70 Thailand 9 3 2 29 0.37 0.21 5.0 0.44 0.10 -0.46 20

77 Philippines 8 3 2 30 0.53 -0.21 2.0 -0.49 0.03 -0.49 20

98 Iran 3 6 6 72 -0.36 0.02 4.0 -0.39 -0.21 -0.64 20110 Indonesia 7 4 3 47 -0.40 -1.56 2.0 -0.87 -0.50 -1.01 19

113 Mongolia 10 3 2 28 0.73 0.72 4.0 0.42 0.39 -0.19 20

130 Cambodia 2 6 6 61 -0.77 -0.13 .. -0.38 0.34 0.34 19

142 Nepal 6 4 3 57 -0.06 -0.26 .. -0.65 -1.04 -0.31 19

145 Bangladesh 6 4 3 60 -0.20 -0.57 2.0 -0.76 -0.54 -0.64 20

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La

ele

lo

sin

HDI

rank

Country Polity

scorea

2000

(-10to 10

Civil

Liber-

ties b

2000(7 to

1)

Political

rights b

2000

(7 to 1)

Press

free-

domc

2000(100

to 0)

Voice

and

account-

abilityd,e 2000-01

(-2.50 to

2.50)

Political

stability

and lack

of violence

d

2000-01

(-2.50 to

2.50)

Law

and

order f

2001(0-6)

Rule of

lawd

2000-

01(-2.50

to 2.50)

Govern

ment

effectiv

enessd 2000-

01

(-2.50-

2.50)

Graft

(corruption)d

2000-01

(-2.50-2.50)

Ye

Former USSR (FSU)

42 Estonia 6 2 1 20 0.94 0.73 4.0 0.78 0.86 0.73 19

49 Lithuania 10 2 1 20 1.00 0.29 4.0 0.29 0.26 0.20 20

56 Belarus -7 6 6 80 -1.04 0.04 4.0 -0.81 -0.99 -0.06 20

60 Russia 7 5 5 60 -0.35 -0.41 3.0 -0.87 -0.57 -1.01 19

76 Armenia 5 4 4 59 -0.22 -0.84 3.0 -0.35 -1.03 -0.80 1981 Georgia 5 4 4 53 -0.07 -1.00 .. -0.43 -0.72 -0.69 19

88 Azerbaijan -7 5 6 76 -0.70 -0.70 4.0 -0.78 -0.95 -1.05 20

102 Kyrgyzstan -3 5 6 61 -0.57 -0.32 .. -0.72 -0.61 -0.85 20

105 Moldova 7 4 2 59 0.12 -0.29 5.0 -0.42 -1.10 -0.83 20

112 Tajikistan -1 6 6 79 -0.69 -1.77 .. -1.25 -1.31 -1.08 20

Former European Socialist (FES) Countries

33 Czech Republic 10 2 1 24 1.04 0.74 5.0 0.64 0.58 0.31 19

35 Hungary 10 2 1 28 1.19 0.75 4.0 0.76 0.60 0.65 19

37 Poland 9 2 1 19 1.21 0.69 4.0 0.55 0.27 0.43 2062 Bulgaria 8 3 2 26 0.59 0.37 4.0 0.02 -0.26 -0.16 20

63 Romania 8 2 2 44 0.50 -0.08 4.0 -0.02 -0.54 -0.51 20

65 Macedonia 6 3 4 44 0.03 -1.45 .. -0.33 -0.63 -0.51 19

92 Albania 5 5 4 56 0.01 -0.60 2.0 -0.71 -0.89 -0.60 20

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43

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