Microcredit: False Hopes and Real Possibilities

Making credit accessible to poor people is a laudable aim. But as a tool for fighting global poverty, microcredit should be judged by its effectiveness, not good intentions.

How effective is micro credit as a poverty-fighting tool? In 1976, Muhammad Yunus, the 2006 Nobel Peace Prize winner, launched the pioneering institution in the field, the Grameen Bank in Bangladesh. The industry’s growth has been explosive since Grameen opened its doors. According to a recent story in The Economist, “there are now some 10,000 microfinance institutions lending an average of less than $300 to 40 million poor borrowers worldwide.” These institutions have made important advances relative to the array of moneylenders and pawnbrokers that had previously controlled the provisioning of banking services to the world’s poor.

At the same time, considered on its own, Grameen-style initiatives have limited capacity to fight global poverty, especially when placed in a policy setting dominated by neoliberalism.

Neoliberalism became the ascendant economic model throughout the developing world in the late 1970s, at roughly the same time that the Grameen Bank began operations. The main tenets of neoliberalism include macroeconomic policies focused on eliminating inflation rather than expanding job opportunities; cutting government subsidies -- including credit subsidies -- and related systems of support for domestic businesses, including micro enterprises; and opening domestic markets to imports, multinational investors and speculative financiers. These policies in developing countries have produced slower economic growth, increasing inequality, and no progress in reducing poverty -- that is, an insurmountable headwind countering the efforts of the Grameen Bank and its confederates.

How the Grameen Model Works
Regardless of the larger policy issues, the Grameen model has made undeniable contributions in bringing financial services to poor people. The first contribution is the simple recognition that credit and related services -- including bank accounts and insurance policies -- can be important resources for advancing the well being of the poor, just as they are with everyone else. The second is in targeting women as loan recipients, empowering the women within their families and helping them to sustain their home-based micro enterprises.

Grameen’s most important advance has been to develop an alternative to traditional collateral as a basis for lending to the poor. Under a traditional system, you can’t obtain a loan until you have sufficient assets to surrender to the bank, moneylender, or pawnbroker in the event that you fail to make loan repayments. But poor people, by definition, have few assets to pledge -- perhaps a few livestock animals, a small plot of land, or jewelry. Losing these few assets to a creditor would likely bring destitution. Grameen’s innovation was to create borrowing groups, typically of five women. Each group member could receive loans only as long as everyone made payments. This promotes both mutual support among group members as well as peer pressure to keep up with payments. It also created opportunities for large numbers of poor people to become creditworthy for the first time.

Counteracting these positive innovations, the average lending rates by Grameen and other micro finance institutions far exceed standard measures of affordability. Real annual interest rates (i.e. after controlling for inflation) on group loans range between 30-50%, according to a 2004 survey in Microbanking Bulletin. These rates are perhaps lower than what moneylenders typically charge, but remain punishingly high. Imagine a working class family in the U.S. taking out a $100,000 mortgage to purchase a home, then having to pay $30-50,000 per year in interest alone in order to keep their home. Defenders of such arrangements in the micro finance world contend that, accounting for the risks to the lender, these rates are appropriate; and that anything less will not attract profit-seeking bankers into this market. According to this approach, micro finance can only reach its full global potential -- lifting out of poverty the more than 1 billion people of the world now living on roughly $1/day -- if it can attract profit-seekers into the business, not just aid agencies and private do-gooders.

In addition, the Grameen Bank has long prided itself on maintaining repayment rates as high as 95%. However, the accuracy of these figures have been disputed, including in a careful Wall Street Journal report in 2001. Some observers contend that, in fact, Grameen allows distressed borrowers to roll over or stretch out their repayments rather than declaring them in default. This may well be the most effective and humane approach under the circumstances. But again, it is clearly inconsistent with the hard-nosed business model supported by an increasing share of micro finance enthusiasts.

Context is Everything
But whether the credit terms are low or high, micro enterprises run by poor people cannot be broadly successful simply because they have increased opportunities to borrow money. For large numbers of micro enterprises to be successful, they also need access to decent roads and affordable means of moving their products to markets. They need marketing support to reach customers. They need a vibrant, well-functioning domestic market itself that encompasses enough people with enough money to buy what these enterprises have to sell. Finally, micro businesses benefit greatly from an expanding supply of decent wage-paying jobs in their local economies. This is the single best way of maintaining a vibrant domestic market. In addition, when the wage-paying job market is strong, it means that the number of people trying to survive as micro entrepreneurs falls. This reduces competition among micro businesses and thereby improves the chances that any given micro enterprise will succeed.

These additional measures for supporting micro enterprises -- a decent transportation infrastructure, support in marketing the products of micro enterprises, a high level of domestic demand, and an abundance of decent wage-earning jobs -- have all been closely associated with what used to be termed the “developmental state” economic model. Different versions of the developmental state model -- including state socialism, import-substituting industrialization, and the East Asian state-directed economies -- prevailed in developing countries for the first 30 years after World War II, before these models were overtaken by neoliberalism. Each of these developmental state models encountered serious problems. But on balance they all achieved successes in promoting economic growth and greater equality. This is in contrast with the neoliberal record of declining average growth rates and rising inequality.

One of the key institutions of the developmental state model that was largely dismantled under neoliberalism is the state-directed development bank. State-directed development banks provided cheap, long-term credit for domestic businesses that enabled these businesses to develop their productive and marketing capabilities at a sustainable pace. The MIT development economist Alice Amsden concludes in her major study The Rise of the Rest: Challenges to the West from Late-Industrializing Economies: “From the viewpoint of long-term capital supply for public and private investment, development banks…were of overwhelming importance.” Amsden documents this in the cases of Mexico, Chile, Korea, Brazil, and Indonesia. Amsden also points out that the government’s role in providing subsidized long-term credit was substantial even in developing countries where development banks themselves were of relatively minor importance. These cases included Malaysia, Thailand, Taiwan, and Turkey.
It is true that, in the countries that Amsden cites, the subsidized credit went to large-scale enterprises focused on breaking into export markets. But the general approach can also be adapted to dramatically expand the availability of affordable credit to small and micro enterprises producing primarily for domestic markets.

A Proposal for Kenya
A good case study of how this might be done is Kenya, where, under the auspices of the International Poverty Centre of the UN Development Program, two colleagues and I are working on an “employment-targeted” development model that gives prominence to issues of credit access for the poor. At present, Kenya already has a widespread system of micro-finance institutions in place. Its commercial banking system is also generally well-developed.
Despite this, Kenyan farmers, small formal businesses and informal micro enterprises are starved for credit. This is because commercial banks do not generally lend to these sectors while the micro finance institutions themselves do not have sufficient resources to provide large-scale funds.

The solution seems straightforward: to bring into much closer alliance the formal commercial banking system and the micro-finance institutions. Our proposal is to inject a major pool of subsidized credit equal to roughly 20% of total private investment in Kenya. These funds would be made available to commercial banks on condition that they in turn make loans to the microfinance institutions. The micro-lenders will be far more adept than the traditional commercial banks at making loans to small businesses, informal enterprises, and agricultural small holders.

We propose that government guarantees be set at 75% of the total amount of loans that commercial banks make to microfinance institutions. This will enable interest rates to fall dramatically -- specifically by the amount at which the loan is being guaranteed and the bank’s risk is correspondingly reduced. This means that, with a 75% government loan guarantee, if the market rate for a micro-credit loan was 40%, the subsidized rate would be 10%. This would make the loan affordable for borrowers while still maintaining market incentives for lenders. The creative methods of establishing eligibility for loans pioneered by the Grameen Bank could be applied effectively within this framework.

Even assuming default rates on these guaranteed loans as high as 30%, the total cost to the Kenyan government of paying off the guaranteed portion of the loans to creditors would be no more than about 5% of its total fiscal budget. This is a relatively small price for creating credit access for the poor throughout the country at interest rates 75% below market rates.
This example suggests that the way to realize the promise of micro credit is to embed the best features of the model within a broader developmental strategy for promoting growth, decent employment, and poverty reduction. Operating within the context of a neoliberal policy framework, micro credit initiatives will continue to face overwhelming obstacles in fighting global poverty.

Robert Pollin is professor of economics, co-director of the Political Economy Research Institute at the University of Massachusetts-Amherst, and a contributor to Foreign Policy In Focus (www.fpif.org). His most recent books include An Employment-Targeted Economic Program for Kenya (forthcoming 2007 UNDP co-authored) and An Employment-Targeted Economic Program for South Africa (2006, UNDP and Edward Elgar, co-authored) .

intellectual fraud

"Augustus was sensible that mankind is governed by names; nor was he deceived in his expectation, that the senate and people would submit to slavery, provided they were respectfully assured that they still enjoyed their ancient freedom." Chapter 3 (Gibbons)

bored...

The differences in human opinions always lead to discontent and disputes. We seems to lack the desire to see the whole picture of the end of inter-relationships of human beings. The ego to prove our conviction materialise the invisible thick lines in our society that normally ends in serious repercussions.

The intellectual fraud that we perceive will always be the answer to our salvation.

renungan

"Abu Laits As-Samarqandi adalah adalah seorang ahli fiqh yang mashur. Suatu ketika dia pernah berkata, ayahku menceritakan bahawa antara nabi-nabi yang bukan rasul ada menerima wahyu dalam bentuk mimpi dan ada yang hanya mendengar suara.

Maka salah seorang nabi yang menerima wahyu melalui mimpi itu, pada suatu malam bermimpi diperintahkan yang berbunyi, “Esok kau hendaklah keluar dari rumah pada waktu pagi menghala ke Barat. Engkau dikehendaki berbuat :

Pertama : Apa yang engkau lihat (hadadapi), maka makanlah.

Kedua : Engkau sembunyikan.

Ketiga : Engkau terimalah.

Keempat : Jangan engkau putuskan harapan.

Kelima : Larilah engkau daripanya.”

Pada keesokan harinya, Nabi itu keluar dari rumahnya menuju ke barat dan kebetulan yang pertama dihadapinya ialah sebuah bukit besar yang berwarna hitam. Nabi itu kebingungan sambil berkata : “Aku diperintahkan memakan pertama aku hadapi, tetapi sungguh aneh, suatu yang mustahil yang tidak dapat dilaksanakan”. Maka Nabi itu terus berjalan menuju ke bukit itu dengan hasrat untuk memakannya. Ketika dia menghadapinya, tiba-tiba bukit itu mengecilkan diri sehingga menjadi sebesar buku roti. Lalu Nabi itu mengambilnya lalu disuapkan kemulutnya. Bila ditelan terasa sungguh manis bagaikan madu. Dia pun mengucapkan syukur Alhamdulillah.

Kemudian nabi itu meneruskan perjalannya, lalu bertemu pula dengan sebuah mangkuk emas. Dia teringat akan arahan mimpinya agar disembunyikan, lantas Nabi itu mengali sebuah lubang lalu ditanamkan mangkuk emas itu, kemudian ditinggalkannya. Tiba-tiba mangkuk emas itu terkeluar semula. Nabi itu menanamkanya semula sehingga tiga kali berturut-turut. Maka berkatalah Nabi itu, “Aku telah melaksanakan perintahmu”. Lalu dia pun meneruskan perjalannya, tanpa disedari oleh Nabi itu, yang mangkuk emas itu keluar semula dari tempat ia ditanam.

Ketika dia sedang berjalan, tiba-tiba dia ternampak seekor burung helang sedang mengejar seekor burung kecil. Kemudian terdengarlah burung kecil itu berkata, “Wahai Nabi Allah tolonglah aku”. Mendengar rayuan itu, dia merasa simpati lalu dia pun mengambil burung itu dan dimasukkan kedalam bajunya. Melihatkan keadaan itu, lantas burung helang itu datang menghampiri Nabi itu sambil berkata, “Wahai Nabi Allah, aku sangat lapar dan aku mengejar burung itu sejak pagi tadi. Oleh itu janganlah engkau patahkan harapanku dari rezekiku”. Nabi itu teringat pesanan arahan dalam mimpinya yang keempat, ia tidak boleh putuskan harapan. Dia menjadi kebingungan untuk menyelesaikan perkara itu. Akhirnya dia membuat keputusan untuk mengambil pedangnya lalu memotong sedikit daging pehanya dan diberikan kepada helang itu. Setelah mendapat daging itu, helang pun terbang dan burung kecil dilepaskan dari dalam bajunya. Selepas kejadian itu, Nabi meneruskan perjanannya.

Tidak lama kemudian, dia bertemu dengan satu bangkai yang amat busuk baunya. Lalu dia bergegas lari dari situ kerana tidak tahan menghidu bau yang menyakitkan hidungnya. Setelah melalui kelima-lima peristiwa itu, maka kembalilah Nabi itu kerumahnya.

Pada malam itu, Nabi pun berdoa. Dalam doanya dia berkata, “ Ya Allah aku telah melaksanakan perintah Mu sebagaimana yang diberitahu di dalam mimpiku, maka jelaskanlah kepada ku erti semua ini.

Di dalam mimpi Beliau telah diberitahu oleh Allah S.W.T bahawa :

“Yang pertama engkau makan ialah marah. Pada mulanya nampak besar seperti bukit tetapi akhirnya jika bersabar dan dapat mengawal serta manahannya maka marah itu akan menjadi lebih manis daripada madu.

Kedua, semua amal kebaikan (budi) walaupun disembunyikan maka ia Tetap akan nampak juga.

Ketiga, jika sudah menerima amanah seseorang janganlah kamu khianat kepadanya.

Keempat, jika orang meminta kepadamu maka usahakanlah untuknya demi membantu kepadanya meskipun kamu sendiri berhajat.

Kelima, bau yang busuk ialah ghibah ( menceritakan hal seseorang ), maka larilah dari orang-orang yang sedang duduk berkumpul membuat ghibah.”

Saudara-saudaraku, kelima-lima perkara ini hendaklah kita semaikan dalam diri kita, Sebab kelima-lima perkara ini sering sahaja berlaku dalam kehidupan diri kita sehari-hari. Perkara yang tidak dapat kita elakkan setiap hari ialah mengata hal orang lain, memang menjadi tabiat seseorang itu suka mengata hal orang lain. Haruslah kita ingat bahawa kata mengata hal seseorang itu akan menghilangkan pahala kita. Sebab ada sebuah hadis yang mengatakan bahawa di akhirat nanti ada seorang hamba Allah yang terkejut melihat pahala yang tidak pernah dikerjakannya. Lalu dia bertanya “Wahai Allah, bahawa pahala yang kamu berikan ini tidak pernah aku kerjakan di dunia dulu”. Maka berkata Allah S.W.T “Inilah adalah pahala orang yang mengata-gata tentang dirimu”. Dengan ini haruslah kita sedar, bahawa walaupun apa yang kita kata itu memang benar, tapi kata mengata itu akan merugikan diri kita sendiri. Oleh kerana itu, janganlah kita mengata hal orang lain walaupun benar melainkan perkara-perkara yang dibenarkan oleh syarak dan agama. "

Gelombang Tujuh

Gelombang tujuh ini ku ceritakan
Gelombang tujuh jadi ingatan
Satu perbahasa ini ku sampaikan
Kepada tengku dan para pimpinan

Gelombang tujuh mesti di rasa
Oleh manusia para pemuka;

Yang pertama rugi dana
Yang kedua badan lelah jua
Yang ketiga berharap ke sana
Ke empat kerja bertambah jua
Yang ke lima dia di caci pula
Ke enam hatinya gundah gulana
Yang ke tujuh di ganggu syaitan

Dia di ganggu itulah ujian
Tujuh hal ini mesti di rasa
Gelombang tujuh itulah maknanya

Kalau semua bisa di lawan
Mendayung perahu selamat di jalan
Kalau ada yang di muafakatkan
Dia diminta jadi pimpinan terdepan

Semisal orang menjadi raja
Gelombang tujuh mesti di cuba
Sungguh payah menjadi raja
Pahit hempedu akan di rasa

Memikirkan rakyat di dalam kampung
Bagaimana agar maju dan beruntung
Merenung sambil bertopang dagu
Menerima tuduhan dari kanan dan kiri
Bagai nabi di zaman bahari

Pendek kata, pendek kata
Kalau jadi pemuka
Siapapun manusianya
Gelombang tujuh mesti di cuba

Kalau tak begitu boleh di kata
Belum boleh jadi pemuka
Begitulah kalam untuk diingat selalu
Kini kusampaikan kepada para tengku

Pantun buat beringat

Pulau pandan jauh ke tengah,
Gunung daik bercabang tiga,
Hancur badan di kandung tanah,
Budi yang baik di kenang juga..

Pergi ke kali mencari gelama,
Sampan kolek putus tali,
Kita berbudi selama-lama,
Dari hidup sampai ke mati..

Lebat daun bunga tanjung,
Berbau harum bunga cempaka,
Adat di jaga pusaka di junjung,
Baru terpelihara adat pusaka..

Bunga cina di atas batu,
Jatuh daunnya ke dalam ruang,
Adat dunia memang begitu,
Sebab emas budi terbuang..

Padi merbuk padi di Acheh,
Hendak di jual di tengah pekan,
Biarlah buruk hatinya kasih,
Orang cantik tak boleh di makan..

Pisau raut dua tiga,
Letak di peti di dalam perahu,
Dalam laut boleh di duga,
Dalam hati siapa tahu..

Cahaya redup menyegar padi,
Ayam berkokok mengirai tuah,
Jikalau hidup tidak berbudi,
Umpama pokok tidak berbuah..

Theories of Development Economics

Linear stages of growth model

The earliest theory of development economics, the linear-stages-of-growth model was first formulated in the 1950s by W. W. Rostow in The Stages of Growth. This theory focuses on the accelerated accumulation of capital, through the utilization of both domestic and international savings as a means of spurring investment, as the primary means of promoting economic growth and, thus, development.

The linear-stages-of-growth model posits that there are a series of five consecutive stages of development which all countries must go through during the process of development. These stages are “the traditional society, the pre-conditions for take-off, the take-off, the drive to maturity, and the age of high mass-consumption” This theory gave further rise to the Harrod-Domar Model which serves to explain through mathematics the basic assumption that improved capital investment leads to greater economic growth.

This theory has been criticized for not recognizing that, while necessary, capital accumulation is not a sufficient condition for development. That is to say that this early and simplistic theory failed to account for political, social and institutional obstacles to development. Furthermore, this theory was developed in the early years of the Cold War and was largely derived from the successes of the Marshall Plan. This has led to the major criticism that the theory assumes that the conditions found in developing countries are the same as those found in post-WWII Europe.

Structural change theory

Structural-change theory deals with policies focused on changing the economic structures of developing countries from being primarily comprised of subsistence agricultural practices to being a “more modern, more urbanized, and more industrially diverse manufacturing and service economy.” There are two major forms of structural-change theory; W. Lewis’ two-sector surplus model, which views agrarian societies as consisting of large amounts of surplus labor which can be utilized to spur the development of an urbanized industrial sector, and Hollis Chenery’s patterns of development approach, which is the empirical analysis of the “sequential process through which the economic, industrial and institutional structure of an underdeveloped economy is transformed over time to permit new industries to replace traditional agriculture as the engine of economic growth.”

Structural-change approaches to development economics have faced criticism for their emphasis on urban development at the expense of rural development which can lead to a substantial rise in inequality between internal regions of a country. The two-sector surplus model, which was developed in the 1950s, has been further criticized for its underlying assumption that predominantly agrarian societies suffer from a surplus of labor. Actual empirical studies have shown that such labor surpluses are only seasonal and drawing such labor to urban areas can result in a collapse of the agricultural sector. The patterns of development approach has been criticized for lacking a theoretical framework.

International dependence theory

International dependence theories gained prominence in the 1970s as a reaction to the failure of earlier theories to lead to widespread successes in international development. Unlike earlier theories, international dependence theories have their origins in developing countries and view obstacles to development as being primarily external in nature, rather than internal. These theories view developing countries as being economically and politically dependent on more powerful, developed countries which have an interest in maintaining their dominant position. There are three different, major formulations of international dependence theory; neocolonial dependence theory, the false-paradigm model and the dualistic-dependence model. The first formulation of international dependence theory, neocolonial dependence theory has its origins in Marxism and views the failure of many developing nations to undergo successful development as being the result of the historical development of the international capitalist system.

Neoclassical theory

First gaining prominency with the rise of several conservative governments in the West during the 1980s, neoclassical theories represents a radical shift away from International Dependence Theories. Neoclassical theories argue that governments should not intervene in the economy; in other words, these theories are claiming that an unobstructed free market is the best means of inducing rapid and successful development. Competitive free markets unrestrained by excessive government regulation are seen as being able to naturally ensure that the allocation of resources occurs with ergdgthe greatest efficiency possible and the economic growth is raised and stabilized.

It is important to note that there are several different approaches within the realm of neoclassical theory, each with subtle, but important, differences in their views regarding the extent to which the market should be left unregulated. These different takes on neoclassical theory are the free market approach, public-choice theory, and the market-friendly approach. Of the three, both the free-market approach and public-choice theory contend that the market should be totally free, meaning that any intervention by the government is necessarily bad. Public-choice theory is arguably the more radical of the two with its view, closely associated with libertarianism, that governments themselves are rarely good and therefore should be as minimal as possible.

The market-friendly approach, unlike the other two, is a more recent development and is often associated with the World Bank. This approach still advocates free markets but recognizes that there are many imperfections in the markets of many developing nations and thus argues that some government intervention is an effective means of fixing such imperfections

Topics of Research

Development economics also includes topics such as Third World debt, and the functions of such organisations as the International Monetary Fund and World Bank. Many economists in this field are interested in ways of promoting stable and sustainable growth in poor countries and areas, by promoting self reliance and education in some of the lowest income countries in the world. Where economic issues merge with social and political ones, it is referred to as development studies.

Criticisms

Per capita Gross Domestic Product (GDP per head) is used by many developmental economists as an approximation of general national well-being. However, these measures are criticized as not measuring economic growth well enough, especially in countries where there is much economic activity that is not part of measured financial transactions (such as housekeeping and self-homebuilding), or where funding is not available for accurate measurements to be made publicly available for other economists to use in their studies (including private and institutional fraud, in some countries).

Even though per-capita GDP as measured can make economic well-being appear smaller than it really is in some developing countries, the discrepancy could be still bigger in a developed country where people may perform outside of financial transactions an even higher-value service than housekeeping or homebuilding as gifts or in their own households, such as counseling, lifestyle coaching, a more valuable home décor service, and time management. Even free choice can be considered to add value to lifestyles without necessarily increasing the financial transaction amounts. More recent theories of Human Development have begun to see beyond purely financial measures of development, for example with measures such as medical care available, education, equality, and political freedom.

One measure used is the Genuine Progress Indicator, which relates strongly to theories of distributive justice. Actual knowledge about what creates growth is largely unproven; however recent advances in econometrics and more accurate measurements in many countries is creating new knowledge by compensating for the effects of variables to determine probable causes out of merely correlational statistics.

Recent developments

The most prominent contemporary development economist is perhaps the Nobel laureate Amartya Sen. Recent theories revolve around questions about what variables or inputs correlate or affect economic growth the most: elementary, secondary, or higher education, government policy stability, low tariffs, fair court systems, available infrastructure, availability of medical care, prenatal care and clean water, ease of entry and exit into trade, and equality of income distribution (for example, as indicated by the Gini coefficient), and how to advise governments about macroeconomic policies, which include all policies that affect the economy.

Education enables countries to adapt the latest technology and creates an environment for new innovations. The cause of limited growth and divergence in economic growth lies in the high rate of acceleration of technological change by a small number of developed countries. These countries’ acceleration of technology was due to increased incentive structures for mass education which in turn created a framework for the population to create and adapt new innovations and methods. Furthermore, the content of their education was composed of secular schooling that resulted in higher productivity levels and modern economic growth.

References

Todaro, Michael and Stephen Smith. Economic Development. 9th ed. Addison-Wesley series in economics, 2006

Arndt, H.W. Economic Development: A Semantic History. “Economic Development and Cultural Change.” Vol. 29, No. 3. (Apr., 1981), pp. 457-466. Chicago: The Chicago University Press.

Rostow, W.W. The Five Stages of Growth. Development and Underdevelopment: The Political Economy of Global Inequality. 3rd ed. pp. 123-131. Eds. Seligson, Mitchell and John Passe-Smith. Boulder, CO: Lynne Rienner Publishers, 2003.

Further reading

Jomo K.S. (2005), Pioneers of Development Economics: Great Economists on Development, Zed Books - the contributions of economists such as Marshall and Keynes, not normally considered development economists

Gerald M. Meier (2005), Biography of a Subject: An Evolution of Development Economics, Oxford University Press

Gerald M. Meier, Dudley Seers[editors] (1984), Pioneers in Development, World Bank

Jeffrey D. Sachs (2005), The End of Poverty: Economic Possibilities for Our Time, Penguin Books

Ben Fine and Jomo K.S. (eds, 2005), The New Development Economics: Post Washington Consensus Neoliberal Thinking, Zed Books

Peter Griffiths (2003), The Economist's Tale: A Consultant Encounters Hunger and the World Bank, Zed Books

George Mavrotas and Anthony Shorrocks (eds, 2007), Advancing Development: Core Themes in Global Development, Palgrave Macmillan

World Institute for Development Economics Research Publications/Discussion Papers
The Center for Global Development

Easterly, William (2002), Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics, The MIT Press

Utusan Malaysia - Projek paip minyak Kedah ke Kelantan sukar, babitkan kos tinggi

Datuk Seri Abdullah Ahmad Badawi berkata, pembinaan saluran paip bagi menyalurkan minyak dari utara ke Pantai Timur Semenanjung dijangka sukar kerana ia merentas banjaran gunung dan melibatkan kos yang tinggi. Sehubungan itu, kata Perdana Menteri, beberapa syarikat yang mengemukakan cadangan kepada kerajaan untuk membina saluran paip itu perlu meneliti pelbagai perkara sebelum memulakan projek tersebut.

Menurutnya, antara perkara yang perlu diberi perhatian ialah pembinaan kemudahan marin di kawasan utara dan Pantai Timur yang dijangka memerlukan pelaburan besar serta kajian terperinci mengenai kesesuaiannya sebagai pelabuhan utama. Selain itu, tambah beliau, analisis perbandingan kos antara penggunaan saluran paip dengan penggunaan kapal pengangkut minyak yang besar untuk membawa minyak dari kawasan utara ke Pantai Timur juga perlu dilakukan. Abdullah berkata, pemerhatian juga harus diberikan terhadap kajian impak ke atas alam sekitar termasuk risiko pencemaran sekiranya berlaku kebocoran saluran paip atau tangki penyimpanan minyak serta kajian impak sosial ke atas penduduk setempat. ‘‘Selain itu, komitmen penggunaan kemudahan yang disediakan oleh pembekal dan pembeli minyak juga perlu memandangkan daya maju projek itu bergantung kepada jaminan pihak terbabit,’’ katanya.

Perdana Menteri berkata demikian dalam jawapan bertulis kepada soalan Dr. Mohamed Hayati Othman (Pas-Pendang) pada persidangan Dewan Rakyat hari ini.Mohamed Hayati meminta Perdana Menteri menyatakan jumlah penduduk yang terpaksa berpindah dari kampung-kampung yang terlibat dalam projek pembinaan loji penapisan minyak di Yan, Kedah dan Bachok, Kelantan serta pembinaan saluran paip minyak merentasi Semenanjung.

Abdullah berkata, secara prinsipnya kerajaan bersetuju dengan konsep yang dicadangkan oleh syarikat-syarikat tersebut berdasarkan ia akan dibiayai penuh oleh pihak swasta. Tambahnya, cadangan yang dikemukakan itu antara lain bertujuan untuk mengurangkan kesesakan dan kemalangan di perairan Selat Melaka.

Bina upaya Kelantan untuk maju

Pembinaan keupayaan untuk merangsang dan meningkatkan aktiviti ekonomi adalah penting, termasuk pembangunan modal insan, pengurusan dan organisasi.

Bagi Kelantan ia memerlukan tindakan bersepadu untuk mengintegrasikan ekonominya dengan ekonomi negeri-negeri lain yang sealiran dengan arus pembangunan nasional, menentukan bahawa aliran pertumbuhan ekonominya adalah seiring dengan kadar pertumbuhan negara keseluruhannya.

Jurang perbezaan pendapatan per kapita harus dikurangkan secara berperingkat-peringkat jika tidak dapat dihapuskan sama sekali.

Kini di akhir 2005 nisbah jurang ekonomi negeri Kelantan adalah hampir 1:2.13 dari pendapatan per kapita nasional, iaitu, RM8,247 bagi Negeri Kelantan berbanding RM17,741 bagi Malaysia seluruhnya. Bahkan ada setengah pendapat bahawa jurang berbezaan pendapatan ini adalah lebih besar sehingga 1:3. Ini bererti jika pendapatan purata Malaysia ialah RM17,741, maka pendapatan per kapita negeri Kelantan ialah RM5,912 sahaja.

Di sebalik perbezaan pendapatan ini, ada yang berpendapat bahawa dari segi pariti (atau kuasa membeli), nilai pendapatan Kelantan adalah lebih tinggi dari nilai pendapatan purata Malaysia seluruhnya.

Dengan lain perkataan, orang yang bergaji RM1,000 sebulan di Kelantan adalah sama dengan orang yang bergaji RM3,000 sebulan di Kuala Lumpur, misalnya, oleh kerana kos hidup di Kelantan adalah lebih rendah.

Pembangunan keupayaan mempunyai dua bentuk, fizikal dan sosial. Pembangunan modal insan ialah pembinaan ilmu pengetahuan dan kemahiran dalam semua bidang dikalangan rakyat semua golongan dan status sosial, khususnya dalam bidang sains dan teknologi.

Dari segi pembangunan sektor pertanian, misalnya, penggunaan sains dan teknologi adalah amat diperlukan bagi mempertingkatkan produktiviti dan mempelbagaikan pengeluaran melalui pembaikan tanah, penggunaan alat-alat moden, bahan-bahan hasil penyelidikan dan pembangunan (R&D) selain daripada keupayaan infrastruktur fizikal seperti parit dan tali air dan jalan raya yang berkeupayaan tinggi (yakni yang mampu digunakan oleh kenderaan berat atau trafik yang tinggi, baik barangan atau penumpang).

Jalan raya di kampung-kampung adalah amat penting sebagai kemudahan untuk meningkatkan keupayaan ekonomi luar bandar, menggalakkan kepelbagaian pertanian dan meningkatkan nilai hasil usaha pengusaha-pengusaha kampung dan memperluaskan pasaran hasil mahsul mereka.
Juga penting ialah kemudahan perhubungan darat, laut, udara dan telekomunikasi di antara Kelantan dengan negara-negara jiran seperti Thailand, Kemboja, Laos dan Vietnam dalam konteks kerjasama negara-negara ASEAN dan dasar perdagangannya, iaitu, Kawasan Perdagangan Bebas ASEAN (AFTA).

Setidak-tidaknya perhubungan dua-hala harus dipertingkatkan lagi diantara Kelantan dengan selatan Thailand, dan pada masa yang sama mula mengambil inisiatif bagi mendekatkan Kelantan dengan Kemboja, Laos dan Vietnam demi kemajuan ekonomi geo-politik Kelantan.
Perhubungan ini perlu dimulakan dengan penyertaan para pemimpin politik Kelantan, pegawai-pegawai tadbir negeri, pemimpin-pemimpin dewan perniagaan dan perindustrian, persatuan nelayan, persatuan pembatik, persatuan kraf tangan, persatuan peniagawati, persatuan penternak dan juga diantara pensyarah-pensyarah universiti tempatan dengan universiti-universiti di negara berkenaan.

Matlamat terakhirnya ialah memperluaskan perhubungan perdagangan dan pengaliran pelaburan melalui perkenalan individu, pertukaran maklumat dan peningkatan pengetahuan mengenai sistem pentadbiran, organisasi perniagaan, tabiat pengguna, sistem percukaian, undang-undang kastam dan eksais dan imigresen, adat resam dan budaya masyarakat negara-negara jiran yang berkaitan.

Kelemahan-kelemahan ini perlu dihapuskan sama sekali demi mencapai taraf ekonomi dunia maju dan bukan taraf ekonomi dunia ketiga. Perancangan jangka panjang seharusnya memberi pertimbangan ini sebagai satu aliran penggunaan sumber semula jadi Kelantan.

Sehubungan dengan itu, pembangunan modal insan dalam jurusan industri perkapalan dan marin dari semua aspek harus dimulakan sebagai kurikulum universiti tersebut selain dari jurusan sains dan teknologi tinggi yang mampu memajukan industri tani, bioteknologi, nutraseutikal atau bioteknologi makanan, farmaseutikal atau bioteknologi kesihatan, dan aromatikal atau bioteknologi bau-bauan dan wangai-wangian, iaitu, lima bidang ilmu pengetahuan yang akan menjana kadar pertumbuhan ekonomi rakyat Kelantan di masa hadapan selain dari industri perkapalan yang disebutkan diatas.

Di sini kita nampak dengan jelas bahawa cadangan untuk menubuhkan sebuah universiti di Kelantan sewajarnya dilaksanakan juga demi memberi krebiliti kepada Majlis Kemajuan Kelantan (MKK) dan mendapat sokongan para profesional yang berasal dari Kelantan.

Sementara perhubungan jalan raya, perkapalan, penerbangan, telekomunikasi, air dan elektrik memainkan peranan yang amat penting kepada ekonomi geo-politik Kelantan bersamaan dengan negeri-negeri yang berjiran dengannya. Ini bererti Kelantan akan menjadi lebih maju jika kemudahan infrastruktur seperti jalan raya yang berkeupayaan tinggi diadakan secara meluas, bukan sahaja dengan Terengganu, Pahang, Perak, Kedah, Pulau Pinang, Selangor, dan Wilayah Persekutuan Kuala Lumpur tetapi juga dengan selatan Thailand melalui tiga pintu masuk, iaitu, Pengkalan Kubor, Sungai Golok dan Bukit Bunga dekat Jeli.

Adalah dicadangkan agar Kerajaan membina sebuah lebuh raya 4-6 lorong dari Kuala Lumpur ke Kota Bharu dan Pengkalan Kubor disempadan Thailand sebagai strategi utama memperkecilkan indeks perasingan dan mempertingkatkan proses integrasi ekonomi Kelantan dengan ekonomi negara dan ekonomi serantau ASEAN bermula dengan pelancaran Rancangan Malaysia Kesembilan (RMK-9).

Industri perkapalan akan dapat mempertingkatkan pertumbuhan ekonomi Kelantan dan juga negara-negara jiran di Asia Tenggara oleh kerana Laut China Selatan adalah kaya dengan sumber laut seperti ikan dan makanan laut yang lain, minyak mentah dan gas asli. Kerajaan harus membuat pertimbangan jangka panjang mengenai kemajuan ekonomi Kelantan secara optimum. Proses pemodenan ini adalah amat penting bagi ekonomi Pantai Timur Semenanjung Malaysia.

Sehingga kini masih banyak kampung yang tidak mempunyai jalan raya yang diturap dengan sempurna untuk membolehkan kenderaan berat menggunakannya. Kerajaan yang memerintah sesebuah negeri seharusnya memberi keutamaan kepada kemudahan-kemudahan infrastruktur, bukan sahaja dalam bentuk jalan raya tetapi juga dalam bentuk bekalan air, api, telefon, hospital dan klinik kesihatan demi keselesaan hidup dan peningkatan produktiviti, sosial status dan jati diri, terutama sekali anak-anak mereka dan juga warga emas yang sedang meningkat bilangannya.

Kalau dahulu strategi membuka rancangan tanah besar-besaran adalah diutamakan, di era abad ke-21, pendekatan baru perlu difikirkan. Apa salahnya kita buka minda kita seluas-luasnya untuk mengadakan industri baru seperti perkapalan, pelayaran, pembinaan limbungan kapal, industri ikan laut dalam, pembinaan hidhrofoil overkraf, feri laju, bot berkuasa tinggi, katamaran dan kapal layar di perairan Laut China Selatan dalam konteks pembangunan serantau negara-negara ASEAN.

Jika kita bina ekonomi Kelantan melalui kejuruteraan marin, perkapalan dan pelayaran, perikanan laut dalam dan industri petroleum dan gas, maka prospek untuk membina industri marin dan pelancongan akan terbuka luas

Oleh: WAN YUSOFF WAN ISMAIL

The crisis of US imperialism in historical perspective

The following is an edited version of a report delivered by Nick Beams to a meeting of the Socialist Equality Party (Australia) on the weekend of October 25-26. Beams is the SEP national secretary and a member of the International Editorial Board of the World Socialist Web Site. He has written and lectured extensively on Marxist political economy.

The 2006 American elections have a truly global significance. They are taking place in conditions where the Bush administration and the entire US ruling elite is embroiled in a deep-going political crisis, precipitated by the disastrous consequences of the invasion and occupation of Iraq. As numerous books, articles and comment pieces—many of them echoing positions articulated within the American military—have made clear, the invasion of Iraq has been a fiasco. The underlying position of the various critics from within ruling circles is that it has weakened both the immediate and the long-term strategic position of the United States.
How to resolve this crisis? A Financial Times columnist recently suggested that anyone who could do so, ought to be awarded the Nobel Prize. No one has an answer. A situation has developed where all the options are bad—that is to say, any proposal immediately throws up new problems and contradictions.

The Iraqi government, as has been widely reported, has been given about two months to move toward bringing the situation under control. Just what that means, however, is not clear. Having denounced the insurgents as terrorists and Baathist dead-enders, the Bush administration is insisting that there should be an amnesty and they should be brought into the political process. But to bring back the Baathists means a bloody crackdown on the Shia militias, and above all on the Sadrists. Such a military bloodbath is now being prepared.

The report of Iraq Study Group headed by James Baker III will be issued after the elections. Among the options being considered is the division of Iraq into three—a Kurdish region in the north, a Shia-dominated region in the south and a Sunni-dominated region in the centre. But this option appears to have been rejected, at least for the present, on the grounds that it would result in even bigger conflicts, coupled with large-scale ethnic cleansing. The present sectarian conflict is largely the result of dividing the polity along religious lines. What would happen if there were to be a geographical division of the country? A Kurdish state in the north would create problems for Turkey, and the Saudi regime could be weakened by a Shia regime in the south, while Iran would be strengthened.

One proposal, which seems likely to come from the Baker report, is discussions with Iran and Syria to try to stabilise the situation. But concessions would have to be made to both Iran and Syria to effect such an agreement—at least, some kind of normalisation of relations and a rejection of the perspective of “regime change”. In the case of Iran, this would involve the reversal of US policy going right back to the immediate aftermath of World War II. And any agreement with Iran and Syria would raise the issue of US relations with Israel.

Aside from these immediate questions, the Iraq debacle has provoked discussion in American foreign policy circles about the long-term position of the United States.
Former State Department official and now president of the Council on Foreign Relations, Richard Haas, wrote an article in the latest issue of Foreign Affairs entitled “The New Middle East” which reviews some of these issues. He begins as follows:
“Just over two centuries since Napoleon’s arrival in Egypt heralded the advent of the modern Middle East—some 80 years after the demise of the Ottoman Empire, 50 years after the end of colonialism, and less than 20 years after the end of the Cold War—the American era in the Middle East, the fourth in the region’s modern history, has ended. Visions of a new, Europe-like region—peaceful, prosperous, democratic—will not be realised. Much more likely is the emergence of a new Middle East that will cause great harm to itself, the United States, and the world.

“All the eras have been defined by the interplay of contending forces, both internal and external to the region. What has varied is the balance between these influences. The Middle East’s next era promises to be one in which outside actors have a relatively modest impact and local forces enjoy the upper hand—and in which the local actors gaining power are radicals committed to changing the status quo. Shaping the new Middle East from the outside will be exceedingly difficult, but it—along with managing a dynamic Asia—will be the primary challenge of U.S. foreign policy for decades to come.”

According to Haas, the end of the Cold War and the demise of the Soviet Union provided a situation that gave the United States unprecedented influence and freedom to act. However, this era is now over.

“What has brought this era to an end after less than two decades is a number of factors, some structural, some self-created. The most significant has been the Bush administration’s decision to attack Iraq in 2003 and its conduct of the operation and resulting occupation. One casualty of the war has been a Sunni-dominated Iraq, which was strong enough and motivated enough to balance Shiite Iran. Sunni-Shiite tensions, dormant for a while, have come to the surface in Iraq and throughout the region. Terrorists have gained a base in Iraq and developed there a new set of techniques to export. Throughout much of the region, democracy has become associated with the loss of public order and the end of Sunni primacy. Anti-American sentiment, already considerable, has been reinforced. And by tying down a huge portion of the US military, the war has reduced US leverage worldwide. It is one of history’s ironies that the first war in Iraq, a war of necessity, marked the beginning of the American era in the Middle East and the second Iraq war, a war of choice, has precipitated its end.”

In the future, he points out, the US will increasingly be challenged by the foreign policies of other outsiders in the Middle East. Haas can offer no way forward, warning that there are no quick and easy solutions for the problems the new era poses and that the Middle East will remain a troubled and troubling part of the world for decades to come—enough to make one nostalgic for the old Middle East.

The decline of the US

Michael Lind of the New America Foundation, a thinktank established in the recent period to promote alternatives to the Bush administration, points to the decline in the long-term strategic position of the US and the collapse of the perspectives developed in the post-Cold War period.
In a recent article entitled “The World After Bush”, he writes:

“On 20th January 2009, George W Bush, barring his death, resignation or impeachment, will be succeeded by the 44th US president. Whether Republican or Democrat, the next president will not only inherit a number of crises, but will be in a considerably weaker position to deal with them.

“Much of America’s weakness will be the result of self-inflicted wounds: the unnecessary invasion of Iraq, along with the Bush administration’s gratuitous insults to allies, its arrogant unilateralism and its hostility to international law. But as tempting as it may be to put all of the blame on the Bush administration, the truth is that most of the trends that will limit American power and influence in the next decade are long-term phenomena produced by economic, demographic and ideological developments beyond the power of the US or any government to influence. The rise of China, the shift in the centre of the world economy to Asia, the growth of neo-mercantilist petro-politics, the spread of Islamism in both militant and moderate forms—these trends are reshaping the world order in ways that neither the US nor any of its allies can do much to control.

"In retrospect, we can view the period in US and world history that has just ended as ‘the long 1990s’. Those years began in euphoria with the fall of the Berlin Wall in 1989 and expired in frustration in late 2003, when the swift victory of the US and its allies over Iraq’s armed forces was succeeded by an insurgency that exposed the limits of US power. But even if 9/11 and the Iraq invasion had never occurred, the conventional wisdom of the long 1990s would have crumbled at some point after colliding with reality.

“Take the central assumption that at the end of the cold war a bipolar world was replaced by a unipolar one. This was true only in the military dimension—and even there American power was exaggerated. The US has no peers when the task is breaking the conventional armed forces of second and third-tier states like Iraq and Serbia. But when it comes to asymmetric warfare, in the form of campaigns against insurgents like those in Iraq and Afghanistan, the US military, like all conventional militaries, finds itself in the position of a clumsy Goliath trying to quash a nimble and determined David. Stealth bombers and world-class fleets are no help in house-to-house fighting, and missile defences are no good against improvised explosive devices. As the wars in Vietnam and Iraq tragically demonstrate, the US military is not very good at ‘military operations other than war’—and America’s enemies know it.”
Turning to the underlying economic issues, he writes:

“The conventional wisdom of the long 1990s was correct that capitalism had defeated socialism, but mistaken to assume that the libertarian capitalism fashionable in the US in the late 20th century was the winner. The Japanese never adopted laissez-faire capitalism and China and Russia in recent years have devised their own mixes of state capitalism and free markets.

“The growth of China and India, which was supposed to herald a global free market, may instead inaugurate a new age of mercantilism, as Asian industrial powers like China, unwilling to rely on free markets for energy sources and commodities, engage in negotiations with supplier countries. Already bilateral contracts are displacing free markets in oil and gas, and regional trade pacts are proliferating even as global trade talks are stalled. The competition between the rising industrial nations of Asia and the older industrial democracies enhances the leverage of authoritarian and nationalist states endowed with critical resources, particularly oil-producing countries like Iran, Russia, Venezuela and Saudi Arabia. These countries view China not only as a customer but also as a counterweight to the US.”

Lind maintains that the “conventional wisdom of the long 1990s ... was mistaken in every respect. The world did not become unipolar in the 1990s; it has been effectively multipolar since the 1970s. Ethnic nationalism, not liberalism or democracy, is the most powerful force in the world today. And the competition of the industrial nations for sources of supply and markets is bolstering mercantilism and economic regionalism, incompatible with the laissez-faire utopia touted by panegyrists of globalisation in the long 1990s.

“All of these trends would constrain US foreign policy, even if Al Gore had been inaugurated in 2001 rather than George W Bush. It will now be additionally constrained by the legacy of the eight-year Bush administration. When the next president is inaugurated, the US will almost certainly still be in Iraq. Rather than have the world witness the inglorious departure of US forces from a chaotic Iraq in the final years of his presidency, Bush is likely to cede the problem to his successor.”

He concludes that the collapse of the neoconservative perspective in the Middle East and the world does not mean success for what he calls the neoliberal perspective of the Democratic Party. “Neoliberals agree with neoconservatives about the goal of US foreign policy—a global free market in a world policed by a benevolent, hegemonic US. Their differences are in the details. Although they are as opposed in practice to a multipolar world order as neoconservatives, neoliberals argue that the US should make its global hegemony more palatable to other countries by endorsing international law and working through international institutions like the UN and NATO.”

He notes that while some neoliberals call for a vast program of investment in developing countries, the Middle East in particular—a kind of new Marshall Plan—this will never be tested, because the money is not there in the first place.

While Lind does not go on to develop the argument, this fact does point to the underlying reason for the resort to militarism—the economic decline of the United States. His perspective is for what he calls a “concert of great powers, organised and led by the US” as the best hope for reconciling international peace with liberal order.

But what happens if those powers do not find it in their interest to be led and organised by the US? Such a concert is only possible provided the US is prepared to make concessions to its rivals and potential adversaries. Here, however, lies the fundamental problem. The US is not in a position to do that. As we have previously noted, the invasion of Iraq was directed not so much against Saddam Hussein, as against the European rivals of the US in the Middle East. The aim was to establish a puppet regime in Iraq and in that way reinforce the position of the US against its European and Asian rivals. The same is true of Iran.

The reason the US pursues such a belligerent policy is rooted in its long-term economic decline. In the immediate post-war period, the US financed the Marshall Plan and consciously rebuilt the other major capitalist powers—except Britain whose empire it was seeking to dismantle. Under today’s conditions, a “concert of great powers” can at best only be an unstable truce.

The historic context

The present situation has to be placed within its broad historical context—that is to say, examined on the basis of the historical development of the world capitalist system.
Following Leon Trotsky, we can delineate very definite phases or periods in what he called the curve of capitalist development, and a number of important features of the present situation clearly emerge.

When Marx and Engels wrote the Communist Manifesto in 1847, they pointed to the stupendous achievements of capitalist civilisation. But in many ways what they wrote was only a brilliant anticipation of what was to come. Over the next 25 years, there took place the great Victorian upswing of the mid-nineteenth century.

Following the revolutions of 1848, which cleared away the remaining feudal encumbrances and barriers, at least in Western Europe, came a mighty economic expansion. It was spearheaded by the railway industries and organised by British capital. This was the heyday of British commercial imperialism. British capital financed expansion in Western Europe and the United States. Britain with its empire and navy was the pre-eminent capitalist power, but it laid the basis for the expansion of the other capitalist powers.

The first great upswing in the curve of capitalist development came to an end with a series of financial crises in 1873. While the immediate crisis passed, it did not signal a return to the previous period. Rather, 1873 marked the beginning of what is known in economic history as the Great Depression of the nineteenth century. In contrast to the upswing of the previous quarter century, this was a period of enormous downward pressure on profits.

This pressure, in turn, was the driving force behind some of the great changes of that period. In America, and to some extent Germany, new forms of industrial organisation and industrial processes emerged—in steel-making, in chemicals, the beginnings of assembly line production in the food and meat industries, and the application of steam power to shipping, to name a few. This was the period of the rise of colonial empires, exemplified by the carve-up of Africa in just 20 years. But it was also, although not fully recognised at the time, the beginning of the decline of British hegemony. The very expansion of capitalism, financed by Britain in an earlier period, created the conditions for a weakening of its relative position.

The period of the Great Depression also brought great social changes. The development of new industrial processes saw the emergence of the industrial working class as a powerful social force. In the days of the Communist Manifesto, the working class, except in England, was not highly concentrated. Old artisan forms still remained and factories tended to be small scale. All that changed in the last quarter of the nineteenth century.

These objective processes found their expression in the development of the mass trade unions and the socialist and labour parties. The rise of Marxism as the theoretical and political guiding force of the socialist movement was expressed in the founding of the Second International. The First International had been wrecked by the anarchists and petty-bourgeois radical forces and by the impact of the defeat of the Paris Commune in 1871. But by 1889, Marxism had asserted its supremacy over these tendencies. Just 28 years after the founding of the Second

International, the first successful socialist revolution was carried out in Russia in October 1917.
In the Communist Manifesto, Marx emphasised the global character of the capitalist system. But here, again, this was more a brilliant anticipation than an empirical description. In the last quarter of the nineteenth century, the capitalist system started, so to speak, to catch up to Marx and the process we now designate as globalisation went ahead in leaps and bounds. Far-flung regions of the world were drawn into the capitalist processes of production, united by new forms of transport and communications.

Minerals and raw materials, some of them new, such as rubber, as well as agricultural products, were transported in bulk to be processed in factories. Finance capital spread across the world as banks financed vast undertakings, in particular the development of infrastructure. The cheapening of raw materials and food, which these developments made possible, assumed vast importance for the development of industrial capitalism, in the same way that the drive to secure ever-cheaper forms of labour does today.

This “second industrial revolution” in the last quarter of the nineteenth century eventually brought an end to the Great Depression in prices and profits. A new capitalist upswing began from around 1895. But it was not a repeat of the earlier upward phase.

Beneath the prosperity, all manner of problems were emerging. One of the crucial differences with the earlier period was that rather than taking place under the aegis of a dominant power, whose economic might worked to ensure the expansion of the capitalist economy as a whole, the new upswing took place amid growing rivalries and antagonisms among the major powers.
The old economic power, Britain, was losing its position. At the turn of the century, it suffered a shock when the Boer War, which was expected to present few problems, turned into a bloody disaster. Britain’s weaknesses had been exposed and, over the course of the next seven years, she abandoned the previous policy of “splendid isolation” and entered into a series of alliances—with Japan, France and Russia—which were to play a significant role in propelling her into the Great War.

War and depression

The eruption of the war in 1914 marked the beginning of a new downswing in the curve of capitalist development. But, as Trotsky was to remark later, it was not so much that the war produced the downswing, rather that the downswing was the key factor in triggering the war. The fundamental economic shift that led to the eruption of the war can be seen in the fact that it was not until the latter 1920s that post-war production in Europe began to attain the levels reached in 1913—only to collapse again with the onset of the 1930s Great Depression.

From the standpoint of globalisation, the inter-war period can be designated as the period of the great reversal. By the beginning of the 1930s, the world market had, to all intents and purposes, ceased to exist. Trade had contracted by two-thirds, and international finance had come to a virtual standstill. The world was divided among competing empires and spheres of influence.
From the standpoint of the dominant capitalist power, the United States, the Second World War was not a struggle against fascism, so much as a war waged to end the empires of the rival capitalist powers, and to restore the world market and the free movement of capital and trade, upon which American capitalism, and the capitalist system as a whole, depended.

The defeat of Germany and Japan opened the way for the reconstruction of the world economy and made possible the adoption on a world scale of the new, more productive, techniques of the American production. This gave rise to a new upswing in the curve of capitalist development.
One is struck today by the parallels with the mid-nineteenth century upswing. Just as the 1848 revolutions removed constrictions on the expansion of capitalism, so the Allied victory in the war, led by the US, opened the way for the extension of the world market. Just as the mid-Victorian boom rested on the economic might of the dominant power, Great Britain, so the post-war economic boom took place under the aegis of the United States, whose vast economic power and superiority over its rivals enabled it to undertake the task of reconstructing the capitalist system as a whole. However, the very measures it undertook weakened its relative position.
The world economic crisis of the early 1970s, when the profit rate began to fall, signalled the onset of a new downswing in the curve of capitalist development. Over the next two decades, the fall in the rate of profit became the driving force for vast changes in the structure and functioning of capitalist production. These changes, bound up with the application of computer technologies to all aspects of communication and production, have resulted in a quantum leap in the globalisation of production.

Whereas in all previous epochs, surplus value was extracted from the working class within the confines of a given nation-state, this now takes place on a global scale. Capital exists in three forms: as money (the end of the capitalist production process with the sale of commodities and the start of a new round of production), as commodity capital (which emerges from the production process) and as productive capital (the means of production that are employed to extract surplus value from the working class in the course of the production process). Commodity capital and money capital became citizens of the world in an earlier period. Productive capital, however, still retained a certain national identity. But now the disaggregation of the production process beyond the framework of the nation-state means that productive capital has become truly global.

The globalisation of production since the mid-1970s has had vast social and political implications. If the downswing in the latter part of the nineteenth century was the trigger for the establishment of the mass organisations of the working class that held sway for the majority of the twentieth century, then the changes over the past three decades have brought about their disintegration and collapse. This was the significance of the demise of the Soviet Union in 1991.
Capital responded to the downturn in the rate of profit in the 1970s in the same way as it had in the past. It undertook a desperate struggle to revolutionise the process of production. The globalisation of production is the outcome.

The rate of profit

The question now arises: has this produced an upswing in the rate of profit? There is some evidence that it has. But whether this means a new period of capitalist stability is altogether another question. In fact, an examination of the way this profit upturn has been achieved reveals that it has the most explosive social and political consequences.

An article published in the Financial Times on October 14 notes the following: “In Britain, company profits were the highest last year since records began in 1965; yet median weekly earnings, adjusted for inflation, fell by 0.4 percent. It is the same story in all the rich countries of the west. In a recent research note on the US economy, Goldman Sachs, the US investment bank, said: ‘As a share of GDP, profits reached an all-time high in the first quarter of 2006. Several factors have contributed to the rise in profit margins. The most important is a decline in labour’s share of national income.’”

According to a New York Times article published on August 28, the current expansion in the US economy could become the first period of sustained economic growth since World War II that fails to offer an increase in real wages for most workers. The median hourly wage for American workers has declined by 2 percent since 2003 in real terms. This means that wages and salaries now make up the lowest share of GDP since the government started recording the data in 1947, while corporate profits have reached their highest levels since the 1960s.

In the first quarter of 2006, wages and salaries represented 45 percent of GDP, down from almost 50 percent in the first quarter of 2001 and a record 53.6 percent in the first quarter of 1970. Each percentage point now represents about $132 billion.

These aggregate figures tend to mask the real situation, because they include income paid to the highest earners. In 2004 the top 1 percent of income earners in the US, including many chief executives, received 11.2 percent of all wage income, compared to 8.7 percent a decade earlier and less than 6 percent three decades ago.

The increase in the rate of profit, the result of the increased profit share in GDP, is in part the outcome of the vast changes in the structure of the world economy resulting from the integration of China and the former Soviet Union into the world labour market. A recent study by Harvard labour economist Richard Freeman notes that a process he calls “The Great Doubling” has seen the global labour force available to capital increase from about 1.46 billion to around 2.93 billion. This has dramatically changed the balance between capital and labour in the global economy. According to Freeman, the ratio of capital to labour in 2000 was about 61 percent of what it would have been had China, India and the ex-Soviet bloc not been integrated into the world economy. Of course, these figures are only approximations, but they do give a sense of the historic dimension of the transformations taking place.

The process, which began with unskilled labour, has not stopped there. A whole series of jobs that were once considered relatively immobile can now be transferred. In effect, any process that can be digitised can be outsourced to anywhere in the world.

Capital has thus been able to bring about a certain restoration in the rate of profit. In other words, there has been a benefit to capital from the dissolution of the Soviet Union and the integration of China and India into the world market. Previously, capital boosted the profit rate by plundering raw materials and resources. Today it does so by plundering cheap labour. But it is far from establishing a new equilibrium. In fact, the situation is highly unstable. Capital accumulation, as measured by the rate of profit, depends more and more on the reduction of the share of national income going to labour in the major capitalist countries. And even where there is a tendency for wages to increase in China and India, the process of accumulation is also highly unstable. Already sections of Chinese labour are becoming too highly priced in relation to what can be obtained in Vietnam or Bangladesh.

There are distinct parallels with the period before 1914. Then, the upturn in capitalist profit was occasioned, at least in part, by the first phase of globalisation—the exploitation of cheap raw materials and agricultural products. Today, it is being fuelled by the increased supplies of cheaper labour. But this mode of accumulation is bound to bring social and political instability because it is dependent on ever-deepening social inequality, which can have far-reaching consequences in both the advanced capitalist countries and the new entrants into the global market.

Like the period before 1914, there is an intensifying conflict among the major powers. The relative economic decline of the US, like that of Britain before it, has extended over several decades. However, it has now become an explosive factor in world politics, as the US attempts to compensate for its loss of economic hegemony by military means. There are criticisms of the Bush doctrine of militarism from within American ruling circles, given the disaster that has unfolded in Iraq. But whenever one reads the alternative proposals—a concert of powers, a return to multilateralism—one is struck by the fact that they all involve some weakening of the position of the US. For three and a half decades, ever since it unilaterally removed the gold backing from the US dollar and ended the Bretton Woods monetary system because it was not able to honour its obligations, the US has been seeking to resolve its economic problems at the expense of its rivals. That process is not going to be reversed. In a sense, the turn to military means represents the intensification of a process that has been unfolding over the entire preceding period.

Timothy Garton Ash of the Guardian wrote last year: “If you want to know what London was like in 1905, come to Washington in 2005. Imperial gravitas and massive self-importance. That sense of being the centre of the world, and of needing to know what happens in every corner of the world because you might be called on—or feel called upon—to intervene there. Hyperpower. Top dog. And yet, gnawing away beneath the surface, the nagging fear that your global supremacy is not half so secure as you would wish. As Joseph Chamberlain, the British colonial secretary, put it in 1902: ‘The weary Titan under the too vast orb of his fate’ ... The United States is now that weary Titan’” (cited in Ismael Hossein-Zadeh, The Political Economy of American Militarism, p. 36).

Just as in the late nineteenth and early twentieth centuries, the previously dominant imperialist power, Great Britain, had to increasingly resort to military means in the face of rising challengers (Germany, rival European powers and the US) so today the US faces direct threats to its position. These are the underlying driving forces of the deepening political instability, growing great power rivalry and war that we are witnessing today.