9:06 AM Jul 14, 1993


Geneva July (Chakravarthi Raghavan) -- The mutually reinforcing processes of adjustment and globalization in the world economy have intensified poverty and inequalities, undermined post-war social alliance and national consensus and now pose serious threats to political stability and sustainable growth, according to Dharam Gai of the UN Research Institute for Social Development.

In a discussion paper, "Structural Adjustment, Global Integration and Social Democracy", Dharam Gai argues that these critical social problems need clear articulation and implementation of an agenda of reform to address them.

The adjustment process, or the "increased reliance on market forces and reduced role of the state in economic management", and the globalization process or "the increasing integration of the world economies", together have intensified poverty and inequalities within and among countries and contributed indirectly to a range of social problems.

They have also led to important shifts in balance of power nationally and internationally and have contributed to "an increasing gap between power and accountability and resources and responsibility".

"The result," Gai argues, "is a growing paralysis in the handling of social problems at the national and international levels... Unfortunately, national states are increasingly both unwilling and unable to cope with the social crises. At the same time, the economic power wielded by the new dominant forces nationally and internationally has not been matched by a corresponding shift in their political and social responsibilities for global welfare or in their accountability to the peoples of the world.

"It is a task of the highest importance to explore the political, social and economic configurations of new arrangements to articulate and implement an agenda of reform addressing the major social problems of the era," Gai stresses.

Structural adjustment policies -- liberalization, deregulation and privatization -- originated in the industrial countries and were then "exported" to the developing countries and other regions of the world, In both groups of countries it was the result of conjunctural and secular forces.

In the industrialized countries, the structural adjustment policies represented elements of continuity as well as break with the economic and social policies of the post-war period. But the opportunity provided by a favourable combination of conjunctural and secular factors was seized by conservative forces to press their own agenda of balanced budget, reduction in progressive taxation, social security and welfare and a diminished role of the State in economic management.

But in developing countries, structural adjustment policies forced a sharp break with earlier policies of state-directed modernization and growing reliance on administrative methods for resource allocation.

While liberalization in the industrialized countries was a continuation of the post-war trend, the reforms were not undertaken with the same zeal in all domains.

In three respects at least, the developments of the past decade and half in these countries represent violations of the liberal creed of the age of reform.

In a period characterized by sweeping deregulation, there was an intensification of agricultural protection, growing restrictions on some categories of international trade and increasing barriers on immigration of unskilled persons.

In most industrial countries agricultural protection increased in the 1970s and 1980s. The transfer to agriculture from consumers and tax payers rose from $61 billion in 1979-81 to $270 billion in 1988.

There has also been a reversal in the liberalization trend in trade in manufactures. Quantitative restrictions, voluntary agreements to limit exports, managed trade, subsidies and anti-dumping actions have multiplied, affecting not only labour-intensive products -- such as textiles and clothing, toys and leather goods -- but also automobiles, electronics and steels.

A third area in which the liberal creed has been violated is emigration from developing countries with increasing restrictions on movements of unskilled labour.

While these departures from the liberal trends of the 1980s have negatively affected the interests of a few industrialized countries, they have been most harmful for the developing countries.

All these policies of structural adjustment and globalization have contributed to a significant redistribution of income and wealth from the poor to the rich, nationally and internationally.

At the international level, the inequality in income distribution worsened between 1970 and 1989 -- the countries with the richest 20 percent of world population increased their share of global GNP from 73.9 percent to 82.7 percent, while the countries with the poorest 20 percent of the world population saw their share falling from 2.3 percent to 1.4 percent.

The ratio between the average incomes of the two groups of countries rose from 32:1 to 59:1 over the period and the Gini coefficient, a measure of the overall inequality, rose from 0.71 in 1970 to 0.87 in 1989 -- a figure far in excess of anything seen in individual countries.

The redistribution of income in favour of the rich countries has not prevented a worsening of income distribution there nor even an increase in the incidence of poverty in many cases. Between late 1970s and mid-1980s, the income distribution worsened in the eight major industrial countries, including Japan, the Netherlands and Sweden. More recent data of the late 1980s show the continuation or even accentuation of thee trends.

In most of Latin America, the incidence of poverty increased and income distribution worsened in the 1980s. In the African region where comparable data are not available, trends in per capita income, employment, real wages and government expenditures all point to increasing incidence of poverty. In several Asian countries, the proportion of people living in poverty has declined, but income distribution seems to have worsened in many, including in South-East and East Asian countries.

The growth of poverty and glaring inequalities in consumption have severely strained the social fabrics of these countries and many of them have experienced a marked increase in crime, violence, smuggling and trading in illicit goods. There is also a growing reliance, as part of the survival strategy, on child labour, prostitution and intensification of female labour.

An increasing number of people have taken to migration in search of employment opportunities, while social tensions have increased -- with these frustrations often finding expression in social explosions, ethnic conflicts and growth of fundamentalist and extremist movements.

The global distribution of income and wealth will be increasingly affected by flows of capital and technology primarily through TNEs. These in turn will be determined largely by the cost effectiveness of different countries as centres of production.

Internationally, these forces have shifted the balance away from developing countries to the benefit of foreign creditors and investors, international financial organizations and industrialized countries -- with a concentration of power in the Group of Seven, principally Germany, Japan and the United States.

"Yet everywhere the power and reach of the state have declined. Internally, there has been a significant shift of power in favour of capital, especially that linked with the international economy, and away from the organized working class and to some extent the middle class.

"The decline in power of developing countries has been mediated by the slump in commodity prices and growth in burden of foreign debt. Their bargaining power has been further weakened by the collapse of the communist regimes in the Soviet Union and Eastern Europe.

"The weakened state of the Third World is reflected in an effective transfer of decision-making in vital areas of economic and social policy to an alliance of international financial organizations, corporate capital and the industrialized countries."

This weakness finds concrete expression in an ever increasing list of conditionalities attached to economic policy, social priorities, military expenditures, political systems and human rights.

While this temporal coincidence of economic reform with liberal democracy has led many to postulate an organic relationship between the two, "there is however little theoretical or empirical justification for such a relationship," Dharam Gai points out.

Capitalism preceded political democracy by centuries in some cases, and by decades in others. In recent history, economic regimes based on market forces such as in East and Southeast Asia were characterized until a few years ago by authoritarian political systems. On the other hand, until their relatively current economic reforms, several of the democratic regimes, such as in India and Sri Lanka, have long been considered examples of highly regulated economies.

In the short to medium term atleast,there are some obvious conflicts between the processes associated with adjustment and globalization and consolidation of new democracies. The adverse social consequences are occurring precisely when democratic process is generating demands for additional services and resources. As it becomes increasingly difficult to meet these demands, the democratic reform is robbed of its social and economic content...the economic crisis and adjustment measures may undermine the very foundations of a democratic society.

Power in social and economic matters have shifted to TNEs, international financial agencies and a handful of industrial countries.

"But the concentration of economic power, however, has not been accompanied by a corresponding shift in political and social responsibilities for global welfare or their accountability to the peoples of the world. This imbalance is one of the greatest challenges facing the world community in the 1990s and into the next century.

"Over the long haul," the paper underlines, "the processes of economic and social globalization are irreversible and accelerating and nation states are condemned to a steady and progressive erosion of their sovereignty. The incapacity of States to cope with pressing problems also extend to such areas as environment, traffic in illegal drugs, spread of infectious diseases, organized crime and violence.

"The gravity of the social and economic problems confronting the world requires a redefinition of the role and responsibilities of the major forces shaping the international economy and society and calls for a better balance between power and accountability and resources and responsibility....It is a task of the highest importance to explore the political, social and economic configuration of new arrangements to articulate and implement an agenda of reform addressing the critical social problems of the world".

Some could only be done at international level, some at regional level and others at national level and implemented at sub-national and grassroots levels. But only a reform effort of these multiple dimensions can provide a basis for renewal of social consensus and solidarity necessary for political stability and sustainable growth on a global scale.