A new Bandung?

ARTICLE IN PRESS FUTURES Futures 40 (2008) 721–734 www.elsevier.com/locate/futures A new Bandung? Economic growth vs. distributive justice among emerging powers$ Ravi Arvind Palat Department of Sociology, State University of New York at Binghamton, Binghamton, NY 13902, USA Available online 23 February 2008 Abstract The demographic weight and the scale and magnitude of economic growth in China and India—as well as in Brazil and South Africa—marks a seismological transformation in world politics. However, despite their economic clout, the emerging powers of the global South have done little to challenge the Euro-North American domination of the international stage—leaving that task to Bolivia, Venezuela, and Iran. The reluctance of the large states of the global South to challenge the contemporary world order—and the widening income and wealth inequalities within their borders— suggests that they are increasingly complicit in this new world order. However, as growing inequalities unleash greater political instability, it is in the interests of states in the global South to cooperate with each other to change the rules of the game. r 2008 Elsevier Ltd. All rights reserved. Rapid economic growth registered by, and greater cooperation over a broad spectrum of issues among, states of the global South have revived the hope (or specter) of a new ‘Bandung’—just over a half-century after leaders of 29 African and Asian states met in that Indonesian hill resort town1 to ‘inject the voice of reason in world affairs,’ as President Sukarno put it [1]. Though that project floundered because of the structural fragility of their economies which were still linked more to the former colonizers than to each other, and to the weakness of their governments, 50 years of national economy-making have forged powerful links between states of the global South, some of which also hold large foreign exchange reserves and consistently run trade surpluses with high-income states in the North. Yet, despite greater economic clout and an incomparably stronger domestic institutional structure leaders of the ‘emerging powers’ of the global South seem hesitant to ‘inject the voice of reason in world affairs,’ and challenge the Euro-North American domination of world affairs. Unlike their predecessors, who loudly condemned imperialism, the contemporary leaders of Brazil, China, India, and South Africa have been timid $ Earlier versions of this article were presented at the ‘‘Come studiare i Sud?’’ (‘‘How to study the South?’’) Workshop, Camigliati della Sila (Cosenza), Italy, 25–30 June 2006; and at the XVIth World Congress of Sociology, Durban, South Africa, 23–29 July 2006. E-mail address: [email protected] 1 Sponsored by Burma, Ceylon, India, Indonesia, and Pakistan, the conference was attended by Afghanistan, Cambodia, China, Egypt, Ethiopia, Gold Coast, Iran, Iraq, Japan, Jordan, Laos, Lebanon, Liberia, Libya, Nepal, the Philippines, Saudi Arabia, Sudan, Syria, Thailand, Turkey, North Vietnam, South Vietnam, and Yemen. 0016-3287/$ - see front matter r 2008 Elsevier Ltd. All rights reserved. doi:10.1016/j.futures.2008.02.004 ARTICLE IN PRESS 722 R.A. Palat / Futures 40 (2008) 721–734 to challenge the US-led invasions of Afghanistan and Iraq, or the Israeli invasion of Lebanon and its continuing occupation of Palestine. Even in the run up to the US invasion of Iraq in 2003, it was the ‘old’ Great Powers—France and Germany—rather than the leaders of the ‘emerging powers’ who spearheaded the successful drive to block a United Nations Security Council resolution to legitimate an illegal invasion. In the global South, opposition to the Euro-North American domination has come, instead, from Venezuela’s Hugo Chavez, Bolivia’s Evo Morales, and Iran’s Mahmoud Ahmedinejad. Wang Hui [2] and Han Yuhai [3] have even argued that Deng Xiaoping’s policy of opening China to the world market and the setting up of Special Economic Zones along its southeastern coasts represented a shift in its relations with the global South and was akin to attempts by the Japanese state since 1898 of ‘shedding Asia and entering Europe.’ The reluctance of leaders of the emerging powers of the global South to challenge the reigning orthodoxy in world politics should not come as a surprise since they represented elites who benefited hugely from economic de-regulation and what has been called ‘accumulation by dispossession’ [4] or ‘accumulation through encroachment’ [5]—the expropriation or purchase at throwaway prices of assets including the privatization of state assets. Indeed, unlike the ferocious egalitarianism pursued by Mao Zedong, as Fig. 1 indicates, income inequalities are greater today in China than in India, though the levels of absolute deprivation remain higher in the latter as demonstrated by Fig. 2. The higher levels of absolute deprivation in India, moreover, underscores the fact that despite registering high rates of economic growth since the de-regulation of the economy in 1991, rates of growth for industrial and agricultural production in the 1990s were no higher than in the previous decade [6]. Looked at another way, though the United States with a per capita income of $38,000 and China with $1700 are virtually at opposite ends of the spectrum, their Gini coefficients are now virtually identical—0.41 for the US and 0.45 for China. The shift from the egalitarianism of the Mao era is even more marked when the more skewed Gini coefficient for China is placed in the context of a worsening Gini coefficient for the United States from 0.35 in 1970 to 0.41 today. Moreover, the rising rate of rural-to-urban migration in China has had little impact on rural–urban inequalities as the per capita incomes of the top 35 cities in 2004 were more than three times the level of those in rural areas. Finally, the Chinese Academy of Social Sciences noted in a recent report that average incomes of the lowest quintile of urban workers was less than 5% of the average income of the highest quintile [7]. On the international stage, though the United States toned down its rhetoric against China after 9/11, it has courted India, and encouraged the ambitions of the South Asian state to become a world power by offering it a special deal that undercuts the nuclear Non-Proliferation Treaty and recognizing India as a ‘responsible’ Fig. 1. Income inequality: percentage share of income by population quintile. ARTICLE IN PRESS R.A. Palat / Futures 40 (2008) 721–734 723 Fig. 2. Poverty: percentage of population below $1 and $2 a day. nuclear weapons state. This is part of a world-wide US strategy to enlist regional powers including South Africa and Brazil in a global hub-and-spoke arrangement so that their relationship to the US is more important than their relationships to each other [8]. Despite all this, and the US using the cover of its ‘war against terrorism’ to re-animate defense agreements with the Philippines and Indonesia and to initiate defense agreements and install military bases in Central Asian states to encircle China, the Chinese leadership has been reluctant to challenge US policies even with regards to its attempts to impose sanctions on Iran for allegedly seeking to develop nuclear weapons, and on North Korea for conducting a nuclear test. Of course, given the divergent ideological composition and social bases of support for governments in the global South, it may be too much to expect them to pose a collective challenge to Euro-North American domination. Even in 1955, to deflect US opposition to the invitation of China to Bandung, and to ensure the attendance of some US allies, the Indonesian organizers shifted the date of the conference from the last week of April as originally decided to April 18—to commemorate Paul Revere’s ride across the New England countryside and the beginning of the US War of Independence [9]! This did not, however, prevent the bombing of a chartered Air India jet ferrying Chinese delegates to the conference, allegedly by the CIA. In part, attempts to placate the United States stemmed because the anti-imperialist credentials of the US had not yet been irretrievably tarnished by the mid-50s: except for the Philippines, the US had not had any colonies in Asia or Africa; it had supported many nationalist movements; and above all, had pulled the plug on the Anglo-French-Israeli attempt to seize control of the Suez Canal in 1956. Be that as it may, despite considerable differences amongst the leaders of the 29 states, as Richard Wright, an African-American observer noted: As I watched the dark-faced delegates work at the conference, I saw a strange thing happen. Before Bandung, most of these men had been strangers, and on the first day they were constrained with one another, bristling with charge and countercharge against America and/or Russia. But, as the days passed, they slowly cooled off, and another and different mood set in y As they came to know one another better, their fear and distrust evaporated. Living for centuries under Western rule, they had become filled with a deep sense of how greatly they differed from one another. But now, face to face, their ideological defenses dropped. Negative unity, bred by a feeling that they had to stand together against a rapacious West, turned into something that hinted of the positive y Day after day dun-colored Trotskyites consorted with dark Moslems, yellow Indo-Chinese hobnobbed with brown Indonesians, black Africans mingled with swarthy ARTICLE IN PRESS R.A. Palat / Futures 40 (2008) 721–734 724 Arabs, tan Buddhists associated with dark brown Hindus, dusty nationalists palled around yellow Communists, and Socialists talked to Buddhists. But they all had the same background of colonial experience, of subjection, of color consciousness, and they found that ideology was not needed to define their relations [10]. Though this solidarity proved to be a utopian movement, and several governments in the global South, by instituting import-substitution policies and nationalizing their mineral and fossil fuel assets succeeded for a while in raising their shares of global wealth, their economies and institutions were never strong enough to consolidate these gains and most of them collapsed over the debt crisis of the 1980s for reasons discussed elsewhere [11]. The re-emergence of several states in the global South—most notably Brazil, China, India, and South Africa—since the 1990s have been on an entirely new basis. As we shall see in the first section, after several decades of national economy-making, as these autarchic economies opened to the world market, they transformed conditions of production, trade, and investment across the globe. In particular, the greater density of inter-relations between the ‘emerging economies’ have enabled them to thwart, or at least blunt, the thrust of some changes to interstate economic relations sought by the high-income states as indicated by the leadership exercised by Brazil, India, and South Africa in world trade negotiations, and by the massive foreign exchange reserves commanded by China. The demographic weight of China and India and the scale of their economic transformation also have deep reverberations felt across the globe. Nevertheless, despite these favorable conditions, state and business elites in the major states of the global South have been reluctant to challenge Euro-North American domination of the globe. The second section locates this reluctance in the social bases of these elites and the changes in the geopolitical ecology of capitalist production that underlay the re-emergence of these economies. 1. Great leap forward The dramatic rise of China to become the ‘workshop of the world’ and India’s attempts to be the ‘world’s back office’ has once again turned the spotlight on these two Asian giants just as their emergence from colonialism and foreign occupation in the late 1940s had also thrust them into the limelight when they were hailed as models of centrally planned and mixed economies, respectively, and both experienced massive social transformations.2 Yet, despite achieving significant gains, their performance was surpassed by Italy, Japan, and Israel in the 1950s and 1960s, by the Latin American ‘miracles’ in the 1970s, by the Asian ‘miracle economies’ in the 1980s and early 1990s, and by the dot-com bubble in the US in the late 1990s. If economic models have a short shelf life, the contemporary rise of China and India is different because the scale and magnitude of their economic growth and their demographic weight radically transforms the global ecology of production, investment and trade—‘the world begins to feel the dragon’s breath on its back,’ as Martin Wolf titled a recent article in the Financial Times [13]. Shanghai’s GDP of $80 billion is equivalent to the GDP of Hungary, Chile, and Pakistan to take just one indicator of scale [14]. The opening of China and India to the world market has led to a decline in the prices of labor-intensive goods and services in relation to commodities; to a greater intensity of relations between states of the global South; and to massive shifts in the global distribution of income and wealth. In the first instance, the opening of China and India to the world market and the entry of some 20–25 million workers from these economies into the labor market each year has led to a relentless hemorrhaging of jobs to these two Asian giants. What is more, an estimated 200–300 million workers from these economies, or the equivalent of the entire labor force of North America or the European Union will enter the world market over the next 20 years. While China’s population will age rapidly in the next 10–15 years, half of India’s population of over 1.1 billion are under the age of 20 and its demographic weight will only increase: in the next 5 years alone it is estimated that 71 million will be added to India’s labor force which will then have a workingage population of 762 million [15]. 2 Freed from colonial conditions, growth rates in India increased substantially since the early 1950s as 5-year plans were implemented: between 1900 and 2001 and 1946 and 1947, the average growth of GDP in real terms was 1.15% a year and during this period, per capita GDP increased from Rs. 224 to Rs. 233 (in 1948–49 prices). From 1951 to 1980, the annual average growth of GDP was 3.6%, and the annual average per capita GDP growth was 1.6% [12]. ARTICLE IN PRESS R.A. Palat / Futures 40 (2008) 721–734 725 Equally important are estimates that wage disparities between China and India and the high-income states are likely to increase in the next few years. Given that average hourly wage rates in manufacturing in the United States or Western Europe range between $15 and $30 compared to average hourly wages of less than a dollar in China, a study by the Boston Consulting Group suggests these disparities will increase even if Chinese wages rise sharply. If Chinese wages increase by an annual average of 15% over the next 5 years and wages in Western Europe and the US by only 3–4%, the typical hourly wage in China in 2009 will be $2 as opposed to between $18 and $35 in the United States and Western Europe [16]. Similarly, Ashok Deo Bardhan and Cynthia Kroll estimate that in 2002–03, the average wages of white-collar employees like telephone operators, medical transcriptionists, and payroll clerks averaged between $13 and $15 in the US and ranged from less than a dollar to $2 in India [17]. No amount of tinkering with exchange rates will resolve this situation in favor of core states. The spectacular expansion of production and exports from China and India are not limited to low-value bulk goods but are increasingly in high-value goods. In many industrial sectors—most notably in electronics and motor vehicles—while the Chinese government welcomed foreign investors, it fashioned an industrial strategy that ensured technology transfer by requiring foreign investors to enter into joint ventures with domestic firms, often state-owned enterprises, insisting on foreign investors achieving a high level of domestic content rapidly, and not enforcing intellectual protection laws to enable local manufacturers to reverse engineer products whenever it was feasible. The fact that foreign investors have not resorted to higher imports of inputs when domestic content requirements were eased as a precondition to China’s admission to the World Trade Organization (WTO) is testimony to the success of these policies and Dani Rodrik [18] has calculated that China’s export profile matches that of an economy with a per capita income level three times that of China. India is also an outlier and, as Rodrik only tracks commodity exports and does not include software exports, it could be expected to occupy a similar position. Indeed, after the first wave of outsourcing brought an estimated 348,000 jobs in call centers and associated back office operations to India since the late 1990s, a second wave of outsourcing is transferring more sophisticated jobs ranging from processing student applications to universities and editing legal and professional documents to architectural and visual design of offices and buildings, three-dimensional modeling in aerospace, automotive, and industrial machinery, and medical diagnostics [19]. In turn, the US trade balance in high technology goods turned from a surplus of $33 billion in 1990 to a deficit of $24 million in 2003 [20]. The increased technological quality of products from the large states in the global South is paralleled by a decline in science and education in the high-income states, especially in the US. According to one estimate, compared to the 70,000 engineers who graduate in the US each year, India and China graduate a collective total of 950,000 engineers and that due to wage disparities, a company can hire five chemists in China for the price of one in the US or 11 engineers in India.3 Put differently, of the 120 large chemical plants, each costing more than a billion dollars, being built across the world, only 1 is in the United States and 50 are in China [22]. To take advantage of these massive reservoirs of cheap scientific and engineering talent, large corporations are increasingly relocating their research and development (R&D) facilities to China and India. In just 2 years, from 2002 to 2004, the number of foreign R&D centers in China shot up from 200 to 600 and the number of IBM employees in India rose from 9000 in 2004 to 43,000 in early June 2006 when the company, announced a tripling of its investments in India over the next 3 years. As the information technology sector in India grew by 30% in 2005 over the previous year, other companies have similarly raised their investments in the country [23]. India already enjoys 12% of the engineering services outsourcing market and its share is widely predicted to grow substantially in the next few years when it is also expected to corner two-thirds of the global knowledge process outsourcing market [24]. Reflecting these realities, Samuel Palmisano, the Chairman and CEO of IBM claimed that the ‘emerging business model’ for the present century is not a ‘multinational’ but a ‘globally integrated enterprise’—that rather than shifting production operations to take advantage of wage and cost differentials, ‘shared technologies and shared business standards’ permit companies to ‘treat their 3 In 2005, India graduated 200,000 engineers—about three times as many as the US—and had 450,000 students enrolled in 4-year engineering colleges implying that the numbers of engineers it graduates would double by 2009. However, the rapid growth of private engineering colleges to cater to this demand—between 2003 and 2004, the numbers of applicants to a relatively mediocre engineering school rose from 7000 to 44,000—means that the quality of education varies widely [21]. ARTICLE IN PRESS 726 R.A. Palat / Futures 40 (2008) 721–734 functions and operations as component pieces’ which can be put together in different combinations depending on local circumstances [25]. If the emergence of China—and of India to a lesser extent—as low-cost manufacturers has led to an evisceration of manufacturing sectors, especially in high-income states, it has also been a major factor in curbing inflationary tendencies on a global scale. In the United States, for instance, Wal-Mart has been able to hold down prices by expanding its procurement from China-based factories. Between 1996 and 2003, the share of imports in the merchandise sold by the discount chain store increased from 6% to 60% and 80% of the 6000 factories supplying products to the chain are located in China. If Wal-Mart were a nation, it would be China’s eighth largest trade partner! The decline of manufacturing was also accelerated by the increasing organic composition of capital—the mechanization, automation, and computerization of operations—and especially the greater resort to informalization so that some 22 million manufacturing jobs were lost world-wide between 1995 and 2002 including a 15% fall in manufacturing employment in China [26]. More notably, China’s transformation into the world’s workshop has also not come at the expense of its neighboring states. Malaysian Prime Minister, Abdullah Ahmad Badawi even noted in 2004, ‘China is today a creator of prosperity of the highest order’ [27]. The expanded scale of manufacturing in China from 2.4% of global industrial production to 4.7% in 2002 triggered a sharp escalation in Chinese imports of raw materials and sophisticated components and capital goods. Industrialization on a massive scale and at a historically unprecedented pace has pushed China and India to forge agreements with governments in Africa, Latin America, and the Middle East to assure themselves sources of strategic raw materials and fossil fuels. In 2004, China alone accounted for 33% of the world’s steel, 31% of its coal, 20% of copper, 19% of aluminum, 10% of electricity, and more than 8% of petroleum [28]. In turn, the voracious demand for raw materials and energy has pushed up commodity prices up. The International Energy Agency estimates that between 2002 and 2005, 43% of the increased demand for oil came from Asia—26% from China alone—and that, deflated by the export prices of high-income countries, oil prices are now as high as they were during the second ‘oil shock’ of 1979. Almost 50% of China’s foreign direct investments have been in Latin America to obtain raw materials and Chinese trade with the continent grew four-fold in the first 5 years of the present decade. The prices of metals have similarly increased to levels unmatched since 1989 and after years of decline, even the real price of foodstuff have stabilized [29]. This pattern of trade meant that China’s trade surplus with the US of $103 billion in 2002 was accompanied by a $68 billion deficit in its trade with the rest of Asia. Bilateral trade between China and Southeast Asia has grown at an annual rate of almost 20% since 1991 while China (including Hong Kong) became Japan’s most important two-way trade partner and South Korea’s largest export market. China has also pushed to create a free trade agreement with ASEAN between 2010 and 2015 and committed itself to aid Myanmar to the tune of $100 million, develop natural gas reserves in Indonesia, infrastructure in the Philippines, establish highway links to Cambodia, Singapore, and Thailand, and make the Mekong more suited to commercial navigation by dredging it along parts of Laos and Myanmar [30]. Even though China had a $124 billion trade surplus with the US in 2003, in its overall trade it had a $5 billion deficit. Since Chinese wages are about 20% of the rates in Malaysia and Taiwan and about 10% of the rate in Singapore, many corporations in these jurisdictions ship products for final processing in China—making it the favorite villain for the loss of jobs in the US. Increasing economic integration within the region is not limited to merchandise trade: Singapore, Hong Kong, and even Thailand, have been focusing on banking, education, healthcare, and tourism to compensate for the loss of low-wage manufacturing jobs to China. Recognizing the importance of reorienting the Japanese economy towards new growth sectors, the Ministry of Economy, Trade, and Industry also proposes to spend f24,000 billion over the next 5 years on information technology, environment, biotechnology, and nanotechnology. Similarly, unemployment in South Korea has held steady at 3.3% despite the increasing migration of manufacturing jobs to China, suggesting that the disappearing factory jobs were being replaced by other employment opportunities. Greater density of economic networks in East Asia has been complemented by better political relations. During the economic and financial crisis of 1997–98, although China opposed a Japanese proposal to create an AMF that would have significantly cushioned the adverse impact of the meltdown, its decision not to devalue its currency was greatly appreciated. At the same time, the economies suffering the most were resentful that the US did not argue for more favorable terms for IMF loans to help them ride out the storm. ARTICLE IN PRESS R.A. Palat / Futures 40 (2008) 721–734 727 This has led to greater inter-governmental attempts to create closer regional ties ranging from bilateral trade agreements and economic cooperation to currency swaps. In the last few years, China has also peacefully resolved its territorial disputes with all its neighbors except India and even there, considerable progress has been made and the two states have even started holding joint military exercises. Since 1999–2000, China has increasingly participated in regional associations like ASEAN, the ASEAN Regional Forum (ARF), and the Council on Security Cooperation in the Asia-Pacific (CSCAP). China has also launched the Shanghai Cooperation Organization with Russia and the Central Asian states. Putting its bitter border skirmish with Vietnam in 1979 behind, China has begun to aid its southern neighbor to the tune of $1 billion a year as well as to conduct joint military exercises. And it has started convening a regional equivalent to the Davos meeting of business and government leaders in Hainan Island called the Boao Forum. The ASEAN has also begun to hold expanded meetings with Australia, China, India, Japan, New Zealand, and South Korea—pointedly excluding the United States! Likewise, in its search for raw materials—oil from Angola, Nigeria, and the Sudan; tropical timber from Congo-Brazzaville; iron ore from South Africa, copper from Zambia; and platinum from Zimbabwe— Chinese investment has quadrupled in the first 5 years of the present decade and some 600 Chinese funded companies have begun operations in Africa over the last 10 years. These include not only companies to extract raw materials, but also those seeking to avail themselves of opportunities for duty-free export to the United States and the European Union granted to some of the Least Developed Countries. In Angola, where the IMF has withheld funds due to concerns about the government’s management of its revenues from oil, China has offered credits and is rebuilding the Benguela railroad [31]. In December 2005, the China National Petroleum Corporation and India’s Oil and Natural Gas Corporation also bid jointly to buy $1 billion worth of Syrian assets [32]. These developments imply that the material conditions for South–South cooperation and for the subversion of the Euro-North American world order has never been better. Unlike the earlier Bandung, when leaders of independent states in Asia and Africa had moral authority but their economies were weak, leaders of several large states in the global South have much greater room to maneuver because their economies are stronger. India, Brazil, and South Africa—a trilateral IBSA partnership was formalized in July 2003 through the Declaration of Brasilia—have taken the lead in forging joint positions in international fora on world trade and emerged as strong power brokers by leading variously constituted groups of low- and middle-income countries: the Group of 20,4 the Group of 33,5 the Group of 110,6 and the 79-member grouping of Africa Caribbean Pacific (ACP) countries. Culturally, the existence of large diasporas, the Internet, the circulation of video and audio cassettes, cheap international flights, and phone calls are also bridging distances like never before. The transnational expansion of businesses have also led to cultural exchanges on several levels—Korean restaurants following Korean investments, the popularity of Indian movies across the Middle East and Asia, the spread of Ethiopian and Thai restaurants, Japanese karaoke bars, and Latin music and dance. Increased trade with China has led to greater prominence for local Chinese communities in Southeast Asia—symbolized by the opening of a new museum devoted to Chinese-Filipino heritage and by pilgrimages made by former Philippine President Corazon Acquino and the former Thai Prime Minister Thaksin Shinawatra to their ancestral homes during state visits to China [33]. Fifty years ago, as states in Asia and Africa were emerging from colonialism, cultural ties among these states were virtually non-existent (except for some diasporas which were created by colonial labor exchanges, and by subordinate financial and business communities like the Indians in East Africa and the Chinese in Southeast Asia). The elimination of tariffs and subsidies, and the greater commodification of resources has also led to movements for better social protection and as the integration of the world-economy proceeds apace, these movements have also become increasingly transnational—as manifested by Porto Alegre, the World Social 4 The group of countries with special interest in agriculture: Argentina, Bolivia, Brazil, Chile, China, Cuba, Egypt, Guatemala, India, Indonesia, Mexico, Nigeria, Pakistan, Paraguay, the Philippines, South Africa, Tanzania, Thailand, Uruguay, Venezuela, and Zimbabwe. 5 The group currently has 40 members, some of which like Indonesia, Nigeria, and the Philippines are also part of the G-20 while other states including some Central American states which have free trade agreements with the United States have not joined the G-20 for fear of US retaliation. It lobbies for special and differential treatment for specific commodities of importance to its member states. 6 Consists of the 50 Least Developed Countries plus other members of the ACP. ARTICLE IN PRESS 728 R.A. Palat / Futures 40 (2008) 721–734 Forum, and a slew of anti-globalization movements. Indigenous peoples everywhere are uniting to resist their marginalization, most notably in recent days in Bolivia. But these movements also address issues of ecological degradation, poverty, and more inclusive modes of political action. Concern with environmental degradation also ties in with feminist movements across the world. In marked contrast, governments of the larger states in the global South have offered little support to anti-systemic movements in a range of countries from Zimbabwe to Myanmar and their investments in these states and sales of military equipment have bolstered repressive military juntas and authoritarian governments. In their drive to secure strategic raw materials and fossil fuels, they have been eager to sign deals with the Sudan and other countries where governments have been involved in brutal ethnic conflicts. The Chinese government has consistently blocked attempts to impose sanctions on the Sudan and has in fact increased sales of fighter aircraft and set up facilities to manufacture weapons and ammunition which undercuts embargos on military supplies to the rebels in Darfur. Chinese appetites for aluminum, nickel, copper, and steel has led to a project to construct the world’s second largest dam to provide electricity to the mines in the Amazon basin on the Xingu River which is predicted to cause extensive environmental damage and displace many indigenous peoples [34]. Elsewhere, there have been allegations that cheap Chinese imports have displaced local production as garment factories have closed in Lesotho and other states in Africa. Chinese companies have also been chastised for preferring to employ Chinese workers in Africa, and to provide poor working conditions when they employ Africans [31]. Similarly, the expansion of Johannesburg-based businesses in the construction, financial services, mining, mobile phone, retail, television, and tourism sectors in Africa has raised the charge of South African subimperialism [35]. In China, a report by the International Confederation on Free Trade Unions indicates that while WTO membership has boosted incomes of owners of private enterprises and skilled white-collar workers, it has had an extremely adverse impact on blue-collar workers, farmers, and unskilled office workers. Imports of subsidized US cotton, for instance, is estimated to result in a loss of 720,000 jobs mostly in two of China’s poorest regions—Gansu and Xinjiang. To compensate for similar job losses over the next decade in agriculture and state-owned enterprises, it estimated that China needs to create 300 million new jobs over the next 5 years. Further, as 47% of the population live on less than $2 a day—and 250 million on less than a dollar a day the people who provide everything from T-shirts to DVD players to the world’s consumers have 60–70 hour working weeks, live in dormitories with eight to 16 people in each room, earn less than the minimum wages that go as low as $44 per month, and have unemployment as the only prospect if they should get injured in the factories [36]. Just as subsidized imports of cotton caused distress in Chinese provinces, cheap imports of subsidized cotton and other agricultural crops have caused agrarian distress in India—most evident by a spurt of suicides by farmers, some 8900 cases between 2000 and 2005 according to official sources. It is significant that the incidence of suicides come from states with the most diversified agriculture—Andhra Pradesh, Gujarat, Karnataka, Kerala, Maharashtra, Punjab, and Tamil Nadu—where the political leadership is drawn from farming communities. The reason why agrarian distress manifests in suicides rather than rebellions or flight from the land, it has plausibly been suggested is due to the impact of the green revolution which—by the greater use of farm machinery, monoculture under market pressure, and increased numbers of small holdings—have rendered cooperation anachronistic, the import of subsidized agricultural products, the high cost of seeds, fertilizers, and other inputs, and the parallel rise of expenditures especially in education in the drive to send their children to private schools. Moreover, though two-thirds of the population of India lives in rural areas, they share less than a quarter of the national income [37]. Perhaps the clearest instance of changes in the social bases of support for ruling elites in China and India comes from their reluctance to support a genuine people’s movement for democracy and greater egalitarianism on their borders—their support for King Gyanendra and their aversion to the Maoist rebels who control over two-thirds of Nepal and with whom leaders of political parties in Nepal had reached an accommodation. Hailing the king as the world’s only Hindu monarch, the BJP-led government had regularly provided arms and military training to the Royal Nepalese Army to suppress the Maoist rebellion. When the Congress-led ARTICLE IN PRESS R.A. Palat / Futures 40 (2008) 721–734 729 government ceased military supplies after Gyanendra dismissed the parliament, the Chinese stepped into the breach [38]. The reluctance of the Chinese political leadership to support even Maoist movements in other countries perhaps stems from the growth of increasing wealth and income inequalities in China itself. India, moreover, confronts a domestic Maoist insurgency of its own with some 20,000 fighters. While these numbers are small when compared to the 38 million unemployed, given the world-wide decline in manufacturing employment noted earlier, the task of finding jobs for the 71 million people set to enter the working population in the next 5 years is forbidding [15]. In short, the rapid resurgence of China and India—due to their demographic weight—has radically altered the global geopolitical ecology of investment, production, and trade. Their vastly expanded scale of operations has generated a tidal wave of demand for capital and intermediate goods, raw materials, and energy that by pushing commodity prices, they have lifted many other low- and middle-income economies as well. Intensifying economic relations have been accompanied by closer political, diplomatic, and cultural relations. However, this has often meant that the larger states of the global South, with their virtually unquenchable thirst for raw materials and energy have tended to prop up authoritarian regimes and military juntas across the world. In part, I have also suggested, their support for these regimes stem from their inability to address deepening inequalities in income and wealth within their own jurisdictions—a factor that also underpins their reluctance to frontally challenge Euro-North American domination of the world as we see in the next section. 2. One step forward, two steps back The reluctance of governments of the major states of the global South, despite their far more favorable position than in 1955, to challenge the Euro-North American domination of the world order is attributable not only to the collapse of the Soviet Union and thus to the possibility of playing off the two superpowers against each other but also to the wide-ranging transformations in the geopolitical ecology of production, trade, and investment that underlay their rise. In particular, they can be traced to the recurrent proclivity of capitalist production to generate capital above and beyond that which could be invested profitably in the production and circulation of commodities. Rosa Luxemburg and Hannah Arendt had underscored that the emergence of such tendencies in the second half of the nineteenth century had not only led to export of capital to areas forcibly incorporated into the capitalist world-economy, but also of the human debris that every crisis, following invariably upon each period of industrial growth, eliminated permanently from producing society. Men who had become permanently idle were as superfluous to the community as the owners of superfluous wealth y The new fact in the imperialist era is that these two superfluous forces, superfluous capital and superfluous working power, joined hands and left the country together [39]. While the present epoch has several parallels to this as Harvey [4] has underscored there are several clear differences as well; formal colonization and the division of the planet into competing imperial formations as in the late nineteenth century is unimaginable. The largest military power in human history—the United States— despite some 12 years of crippling sanctions and the dropping of more bombs than on Vietnam, has been unable to pacify Iraq after 5 years of occupation and no other high-income state can even envisage militarily subjugating a large low- or middle-income state. This suggests that interstate capitalist rivalry no longer implies the carving of the world into distinct ‘spheres of influence.’ In fact, Palmisano’s notion of a ‘globally integrated enterprise’ model suggests more the cooptation of government and business elites from different jurisdictions for their mutual benefit at the expense of the large majority of their domestic populations. Moreover, unlike in the nineteenth century which was marked by massive emigration of the ‘human debris’ from Europe to the ‘countries of recent European settlement,’ even the possibility of such migration cannot be entertained today—when in fact migrants from low- and middle-income states continue to arrive in highincome states in record numbers. In these conditions, ‘accumulation by dispossession’ takes place by the privatization of state assets and the expropriation of the commons—both of which suited business and state elites in the major states of the global South. In the early 1970s, as the US was seeking to manage its withdrawal from Vietnam and sought rapprochement with China, the People’s Republic signaled its intentions of behaving like a ‘responsible’ state ARTICLE IN PRESS 730 R.A. Palat / Futures 40 (2008) 721–734 by joining the two superpowers and India in helping suppress the rebellion spearheaded by the Janatha Vimukthi Peramuna (People’s Liberation Front or JVP) in Ceylon (Sri Lanka) in 1971.7 As the victims of the Cultural Revolution were gradually rehabilitated in the 1970s, Deng Xiaoping began to implement measures to give greater autonomy to enterprises in 1975 and, three years after the end of the Vietnam War, to open ‘special economic zones’ to attract Japanese and other overseas investments. After de-regulating agricultural prices and disbanding rural collectives which rapidly increased rural incomes in coastal areas, the Chinese government began to de-regulate industries. In this process, former state managers and sons and relatives of party officials emerged as a new stratum of nouveau riche as they used their connections to acquire assets at bargain prices [2]. The collapse of guaranteed employment and the social welfare system meant that marketoriented reforms failed to generate sufficient domestic demand and the economy was increasingly dependent on exports. Thus, as China increasingly becomes the world’s industrial workshop, income and wealth inequalities are widening rapidly. Though the immediate trigger for liberalization of the economy in India was the collapse of the Soviet Union which had been its major trading partner in 1991 and a consequent foreign exchange crisis the following year when there were hard currency reserves to pay for only 2 weeks’ worth of imports, a strong lobby for change had gradually been slowly consolidating among the middle classes. The Indian bourgeoisie, which had already been the most class-conscious capitalist class during the late colonial period, had successfully used industrial regulations under the import-substitution model to capture market segments and keep potential new entrants—with a few notable exceptions like the Reliance group—out of lucrative production lines. As the size of the market increased, the pressure of new aspirants to enter these lucrative segments mounted and barriers to entry for domestic firms began to be relaxed by diluting provisions of the Monopolies and Restrictive Trade Practices Act beginning in 1980. Shielded for decades from foreign competition, domestic firms were not at all confident of their chances against foreign transnational corporations and as late as 1995, the Confederation of Indian Industries chastised the government for not adequately protecting domestic firms from foreign competition [40]. Hence, unlike the case of China, there was significant opposition to foreign investments—and the Indian reforms are more accurately characterized as ‘business-friendly’ rather than ‘market-friendly.’ This explains largely why industrial growth in the first decade of reforms in the 1990s was no higher, and perhaps marginally lower, than in the 1980s as indicated by Table 1. Notably, too, when the reforms in industrial policy were announced in 1991, they were embodied in a government ‘statement’ rather than a ‘resolution’ to sidestep a parliamentary discussion and vote [41]. Rather than industrial or agricultural production, the main engine of growth was the information technology sector and the growth of call centers and other back office operations. Likewise in Latin America, under the banner of increasing competitiveness, between the assumption of office as President of Chile by Patricio Aylwin on 11 March 1990 and of Lula as President of Brazil on 1 January 2003, ‘democratization’ was followed by the privatization of state assets. Modeled on Pinochet’s 1973 ‘Law for the Defense of Free Competition,’ a series of measures were implemented to de-nationalize state assets and curb the power of labor: the ‘Law to Promote and Protect Free Competition’ in Venezuela and the Peruvian Institute for the Defense of Competition and Intellectual Commission in 1992; the creation of the Mexican Federal Competition Commission created the following year; Brazil’s ‘Law for the Defense of Economic Order’ in 1994 to a series of measures in Central America designed to be pro-market and facilitate privatization to the creation in Argentina of the National Tribunal for the Defense of Competition in 1999 [42,43]. The United States has also played on the aspirations of the elites of the large states of the global South, except of course China, by recognizing them as regional leaders in a hub-and-spokes approach. This is evident in designating South Africa as the lead state in dealing with Zimbabwe, recruiting Brazil for peacekeeping missions in Haiti, and above all in sponsoring an India-specific exception to the nuclear Non-Proliferation Treaty while pointedly refusing a similar arrangement for Pakistan [8]. The US Secretary of State, Condoleeza 7 Australia, Britain, Egypt, Pakistan, and Yugoslavia also gave military assistance to the Ceylonese government to crush the JVP’s April 1971 insurrection [44]. Subsequently, the JVP leadership was imprisoned and most of them were released by the late 1970s. Disavowing their radical leftist past, the JVP resurfaced during the ethnic conflicts that wracked Sri Lanka in the 1980s as a Sinhala chauvinist party before they were decimated by the Sri Lankan armed forces in the late 1980s. ARTICLE IN PRESS R.A. Palat / Futures 40 (2008) 721–734 731 Table 1 Compared growth rates in India GDP growth Industrial growth Agricultural growth Gross investment/GDP 1950–64 1965–79 1980–90 1991–04 1980–04 3.7 7.4 3.1 13 2.9 3.8 2.3 18 5.8 6.5 3.9 22.8 5.6 5.8 3 22.3 5.7 6.1 3.4 22.5 Rice even announced in March 2005 that Washington was determined to ‘make India a global power’ and if this catered to the ambitions of Indian elites, they did not pause to wonder what substance ‘a global power’ status could have if it could be conferred by a United States administration at its will! How could India project its military power across the globe without aerial reconnaissance and refueling capabilities, long-range aircraft, attack helicopters, and aircraft carrier groups, especially when even the much better equipped states of the European Union had to depend on the United States military to intervene in the Balkans [44]. To fulfill their aspirations to be global players, and to show that they are responsible powers, Brazil and India were instrumental in getting states of the global South to accept a loop-hole ridden agreement in favor of high-income states at the Hong Kong ministerial meeting that saved the WTO after the failed meetings at Seattle and Cancun. In return, these two states along with the European Union and the United States came to form an informal grouping called the New Quad to set the agenda for global trade talks.8 Though the US-led alliances are increasingly directed against China, the Chinese leadership has been reluctant to challenge US domination in world politics and indeed the repatriation of Chinese—and other East Asian—trade surpluses to the United States in a bid to maintain favorable exchange rates for their currencies has in fact allowed the George W. Bush administration to conduct an expensive occupation in Iraq and maintain military spending at a level higher than all other states combined while actually cutting US taxes! In February 2006, China surpassed Japan as the largest holder of foreign exchange reserves—by October 2006, Chinese foreign exchange reserves stood at a staggering $1 trillion—and China typically maintains threefourths of its reserves in dollar-dominated sources such as US Treasury bills [46]. Peter Garber, a Deutsche Bank economist has argued that the repatriation of current account surpluses to the United States to help it fund its trade deficits and maintain low domestic interest rates is essential to absorb the millions of Indians and Chinese low-wage laborers entering the world market [47]. Looked at another way, however, the repatriation of trade surpluses is vital to propping up US dominance in the world. The greenback’s role as world money since the end of the Second World War meant that the US was committed to running consistent current account deficits with its major partners. This allowed its rivals to exploit the production frontier and install the latest technologies as they rebuilt their economies. While this is a common pattern for hegemonic powers, unlike previous hegemons which had balanced their deficits with expropriations from their colonies—most notably the ‘Home Charges’ levied on India by the British government—the United States could not similarly compensate for capital outflows and attempts to turn Iraq into America’s India seems doomed to failure [5]. In this context, the willingness of East Asian states, particularly China, to buy the US treasury notes and provide the more than $2 billion a day that is required to balance the US current account deficit is vital to the preservation of US dominance. Indeed, because US assets are denominated in foreign currencies and its liabilities in dollars, the US is wellplaced to reap substantial gains in its gross positions if the dollar was to fall due to a withdrawal or substantial 8 The deal accepted the so-called Swiss formula for Non-Agricultural Market Access which disproportionately trims higher tariffs than lower ones. This impacts poorer states more adversely as they tend to have higher tariffs to protect their domestic industries—and may in fact help India and Brazil because of their more advanced industrial structures but not the smaller countries which they aspire to represent in international fora. Similarly, while the agreement called for an end of formally defined export subsidies in agriculture by 2013, it allows for other forms of export subsidies. It is estimated that this loophole will allow the European Union to subsidize exports to as much as 55 billion euros after 2013. In turn the low-income states, in a ‘aid for trade’ deal which ignored the demands of West African cotton producers for compensation for US export subsidies and permitted the US to continue the subsidies for an extra year after they had been found inconsistent with WTO agreements, and to accept aid to make their economic regulations consistent with the new WTO requirements [45]. ARTICLE IN PRESS 732 R.A. Palat / Futures 40 (2008) 721–734 decline of capital inflows. Consequently, while a fall in the value of the dollar may reduce private capital inflows to the US, it is often compensated by foreign central banks increasing their holdings of the US treasury bonds. Hence, when the dollar fell by some 20% between 2000 and 2003, and net capital inflows by private overseas investors began to decline in 2004, the US Treasury Department reported that intervention by foreign central banks prevented a massive economic contraction [48]. The cost of repatriating surpluses to the United States however is a dampening of domestic consumption and widening income and wealth differentials in Asia, especially in China and India. Inadequate domestic demand makes them reliant on the US as a market of last resort and though there has been increasing consumer credit in countries like South Korea and Thailand and there is considerable potential for further growth as credit card usage is in its infancy in India, China, and Japan which collectively account for 70% of consumer expenditure in Asia [49]. When the euro represents an alternative world money to the dollar, a falling dollar and growing Asian-EU trade means that Asian central banks have less incentive to prop up the greenback as private investors have already realized. A drying-up of cash inflows, in conditions of high current account deficits, would lead to a sharp rise in domestic the US interest rates, the effects of which will be catastrophic as low interest rates has led to household debt rising twice as fast as household income between 2000 and 2003 [50]. In this context, the surge in commodity prices as a result of expanded production in the global South means that the real challenge to the Euro-North American domination of world politics has emerged from resourcerich states, most notably Venezuela and Bolivia, and less significantly from Iran. By placing nationalization of resources and expropriation of land back on the agenda Hugo Chavez and Evo Morales—reflecting their social bases in the urban poor and indigenous communities—have been at the forefront to reverse the neoliberal turn. Unlike some other Oil and Petroleum Exporting countries (OPEC) which have also repatriated the profits they have gained from the spurt in oil prices,9 Venezuela has used its oil revenues to purchase $2.5 billion in Argentine debt, selling oil at below-market prices to 13 Caribbean states, financing better healthcare for Latin American states through Cuban doctors, providing aid to African states, and even subsidizing heating to some poor neighborhoods in the United States [52]. To recapitulate, reopening of China and India—and the consequent entry of hundreds of millions of cheap laborers into the world marker—has the potential to reshape the world-economy fundamentally. With improvements in communications and transport, virtually no job other than those occupations that by their very nature have to be performed on site is immune to being transferred to these locations. The scale and magnitude of their expansions have not only exerted a massive deflationary pressure but have also led to a rise in the prices of strategic raw materials and energy providing richly endowed economies with substantial cash infusions. While it is possible that search for new sources of supplies and the development of substitutes could lower prices, for now greater South–South links have bolstered many authoritarian regimes and military juntas though it has also enabled progressive governments like those in Venezuela and Bolivia to challenge the neo-liberal world order and bring nationalization of mineral resources and land appropriations back on the agenda. The opening to the market in most countries have, however, only benefited narrow elites— the creation of ‘globally integrated enterprises’ symbolize more an interstate alliance of business and government elites—and have widened inequalities in income and wealth within almost every state. 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Yuhai, Assessing China’s reforms, Economic and Political Weekly XLI (22) (June 3, 2006) 2207. 9 While it is difficult to determine the extent of OPEC purchases of US Treasury bills as some of them channel their investments through banks in London and the Caribbean, it is estimated that they must have bought at least $21.2 billion between the end of 2003 and the end of 2005 [51]. ARTICLE IN PRESS R.A. Palat / Futures 40 (2008) 721–734 733 [4] D. Harvey, The New Imperialism, Oxford Universtiy Press, Oxford, 2003. [5] P. Patnaik, The economics of the new phase of imperialism, /http://www.networkideas.org/themes/world/aug2005/we26_ Economics_New_Phase.htmS, 2005 (accessed 30.09.05). [6] P. Balakrishnan, Macroeconomic policy and economic growth in the 1990s, Economic and Political Weekly, September 3, 2005, 3969–3977; D. Nayyar, Economic growth in independent India: lumbering elephant or running tiger? Economic and Political Weekly, April 15, 2006, 1451–1458. [7] S. 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