Chapter 8-The failure of the growth economy in the South [ The Multidimensional Crisis and Inclusive Democracy, Takis Fotopoulos ]

The fundamental question with respect to development in the South is not why the growth economy in it has not been as successful as in the North[1] but why in the first place should the model of economy and society that was established in the North be considered as a universally feasible and desirable societal model. As regards the feasibility of the model, as we’ll see next, the chances of this model being universalised are close to nil. Also, as regards the desirability of the model, the historical experience of the last 200 years has shown unequivocally that the flourishing of the market economy and the consequent rise of the growth economy have led to a huge concentration of economic power and to an ecological crisis that threatens to develop into an eco-catastrophe, let alone the destruction of the countryside, the creation of monstrous mega-cities and the uprooting of local communities and cultures. In other words, it has become now obvious that this system of economic organisation only partially, and for a small minority of the world population, serves the objective of satisfying human needs and improving human welfare, whereas, generally, it has created a new type of heteronomous society based on economic power, competition, greed and individualism.

However, both liberals and Marxists (including the related dependency and regulation approaches) explicitly or implicitly adopted the growth ideology and the desirability of the growth economy, differing among themselves only on the question whether capitalism, or, instead, some kind of socialist statism, is a better way to achieve it. Thus, these approaches, taking the feasibility and desirability of the growth economy for granted, ignore the fundamental issue of the power structures and relations implied by it. In other words, the conventional approaches ignore the fact that the concentration of power ―an inevitable outcome of the dynamic of both the capitalist and the “socialist” growth economy― implies that the decisions about what the economic and other needs of a society are, as well as about the ways to cover them, are taken not by the peoples themselves but by elites who control the political and economic process. No wonder that the main focus of these conventional approaches is on whether a country has already achieved the standard of a growth economy in the North (in which case it is classified as an “advanced” country), or not, (“underdeveloped” or, euphemistically, “developing”). By analogy, the quantitative expansion of an advanced economy, measured in terms of increases in per capita income, is defined as growth, whereas the qualitative social and economic changes needed for its transformation into an advanced growth economy are defined as development.

Thus, the common characteristic in all definitions of development is that human welfare is identified with the expansion of individual consumption or, generally, the unlimited development of productive forces. For instance, a typical liberal definition defines development as “a rise in the present value of average (weighted) consumption per head.”[2] Marxists identify development with the development of productive forces and define underdevelopment as a case of dominance of pre-capitalist modes of production, a case of backwardness.[3] Similarly, dependency theorists identify underdevelopment with dependence, which, in turn, is defined as “a conditioning situation, in which the economies of one group of countries are conditioned by the development and expansion of others.”[4] Finally, the regulation school defines the “periphery” as “that part of the world in which the regime of accumulation found in the most developed capitalist countries has not been able to take root.”[5] It is also revealing that even when orthodox and radical economists discuss the need to introduce alternative definitions and measures of development the issue of power structures and relations is, again, set aside. This is the case even with definitions that allow for the compositional or the distributional aspects of development (i.e. the production of what and for whom is considered development). Needs, the ways to satisfy them, as well as whose needs are to be met in the first place, are all issues that are supposed to be settled “objectively” and not within an authentic democratic process. But, what is meant by “objectively” is that these crucial problems are “solved” either through a “rationing by the wallet” mechanism, as in market economy, or through the bureaucratic decisions of the planners, as in socialist statism.[6]

The grow-or-die dynamic of the market economy was bound to lead to its spreading all over the world, after its emergence in Europe, two centuries ago. But, whereas the indigenous market economy in the North led to the creation of a type of growth economy which thrives in the form of a “two-thirds society”, the imported market economy in the South led to a much more uneven development than in the North, i.e. to a bad copy of the latter’s growth economy. So, the present near-catastrophe at the economic, social and ecological levels in most of the South simply constitutes a distorted reflection of the multi-dimensional crisis that affects the North.

Thus, the post-war process of decolonisation led not only to political “independence” in the South but also to the spreading of the “growth economy” ―a process that continued and expanded the South’s marketisation initiated by colonialism. Depending on the class alliances formed in the newly independent countries, the growth economy in the South, following a similar process to that in the North, has taken initially the form of either a capitalist or a “socialist” growth economy. At the same time, the growth ideology and the implied ideology of domination over Nature have become the dominant ideologies in the South. The growth ideology, in a similar way as in the North, complemented the liberal ideology of the capitalist growth economy and the socialist ideology of the socialist one. Today, despite the fact that communist parties still monopolise political power in some parts of the South (notably Vietnam, Laos, Cuba etc.) the socialist growth economy, as defined in chapter 2, is being, effectively, phased out from the South, following its collapse in the North.

The spreading of the growth economy in the countries of the South has been a dismal failure. This failure has been basically due to the fact that this economy did not develop indigenously, but was, instead, the outcome of two processes: the penetration of the market economy system, which was aggressively encouraged by the colonial elites, and the consequent emergence of the growth economy, which was "imported" by the newly formed local elites in the post-Second World war period.

The failure of the growth economy in the South becomes obvious if we consider the economic gulf between it and the North, which, far from diminishing, has continued widening since the market economy of the North was transplanted to the South, initially by the colonization of their economies and later by their internationalisation. About two hundred years ago, when the marketisation process was just beginning in the North and simultaneously was being transplanted (through colonisation) to the South, the average per capita income in the former countries was only one and a half times higher than that in the latter.[7] A hundred years later, in 1900, it was six times higher, and by the time of the importation of the growth economy into the South in the early fifties, it was 8.5 times higher. The gulf has increased dramatically since then. Thus, by 1970 the per capita income in the North was 13 times higher than in the South,[8] and in 1978 the per capita income in the North was 40 times higher than that of the low-income countries in the South and 6.5 times higher than the per capita income of the middle-income countries in the South. Finally, by 1999, the gap had widened even further and the per capita income of the North (where presently about 15 percent of the world population live) was about 63 times higher than that of low income countries in the South (where 40 percent of the world population live)[9] and about 13 times higher than the income of the middle-income countries (where about 45% of the world population live)! No wonder that the North produces about 74 percent of the world’s output and accounts for 63 percent of the world’s exports![10]

The above data imply that the system of the market economy is not inherently capable of transforming the South’s economy into an economy similar to the North’s growth economy, that is, a type that produces a large consumerist middle class which extends fully to about 40 percent of the population and partially to another 30 percent (which is insecure but definitely in a better position than the vast majority of the population in the South). An indication of this fact are the poverty figures. According to World Bank data, today about 51 percent of the population in Latin America and Sub-Saharan Africa and 40 percent in South Asia live under conditions of relative poverty.[11] This means that the famous “trickle down effect” (i.e., that economic growth, in time, will generate additional national wealth that will then trickle down to all), even if it did (even partially) work in the North, certainly did not work in the South. This is due to the enormous concentration of income and wealth at the hands of privileged social groups, as is indicated by the fact that 10 percent of the population in the poorest countries of the South take more than 35 percent of the total income whereas one-fifth of the population receives, on the average, almost half the total income.[12] In fact, the evidence of the past two decades indicates that very little trickle-down has ever taken place. It has been estimated, for instance, (on the basis of growth rates achieved between 1965-84, which are considered to be the best years of capitalism), that it will take over 300 years for the 28 poorest countries to rise from their present per capita average income to just half of the present average of the rich Western countries.[13]

Of course, this does not mean that development towards a growth economy has not taken place in the South. It certainly has. In fact, today, a process of economic decentralisation is in full swing within the world market economy system ―a process in which financial and technological factors play a crucial role. Trans-National Corporations (TNCs) now have the financial and technological capability of transferring stages within the production process (or sometimes the production process itself) to the South, in order to minimise production costs ―particularly labour and environmental costs. This process has already led to the creation of a handful of supposedly economic “miracles” in South East Asia which, however, could neither have been universalised nor sustained, as the crisis to which they entered at the end of the 1990s showed.

In fact, the temporary emergence of such “miracles” in the South is not a new phenomenon. In the 1980s, orthodox economists were celebrating the rise of some miracle-cases in Latin America (Brazil, Mexico etc) which, however, by the end of that decade, proved to be mirages that had to be bailed out of bankruptcy by the North, under the condition that they would open and liberalise their markets so that they would be fully integrated into the internationalised market economy. The same story was repeated in the 1990s, this time with the “Asian Tigers”. Thus, the spectacular growth of countries like South Korea, Taiwan, Hong Kong, Singapore, Malaysia and Thailand have given rise to a new mythology, which was also adopted by parts of the self-styled “Left”, that the capitalist growth economy had, finally, proved capable of being universalised. Some,[14] even talked about a radical shift in global wealth and output from the West to East Asia, if not from the North to the South.

This new myth was based mainly on the much publicised fact that the average annual growth rate of the “Asian Tigers” (minus Taiwan) was almost three times higher than that of advanced capitalist countries in the period 1970-93, closing fast the gap between the two groups of countries. However, what was usually not mentioned was that, apart from the exceptional cases of the small “city-states” (Singapore and Hong Kong), there was still a huge gap separating these countries from the North. Thus, in 1993, the per capita income of S. Korea was still one third of that of advanced capitalist countries, that of Malaysia one seventh and that of Thailand less than one tenth! This fact implies that, even if those spectacular growth rates were sustained, it would have taken a very long time indeed for the gap with the advanced capitalist countries to be closed. But, this was not the case. After the crisis of those countries in the late 1990s, S. Korea’s and Malaysia’s per capita income is still one third of that in the high income countries of the North, whereas that of Thailand is less than one thirteenth ![15] Yet again, the transnational elite, through the IMF etc, bailed out these countries on the condition that they will fully open and liberalise their markets. And this, at the very moment that, as a number of studies has shown,[16] the expansion of the Asian Tigers was based on massive state intervention that boosted their export sectors, through public policies involving not only heavy protectionism[17] but even the deliberate distortion of market prices to stimulate investment and trade.[18] No wonder that, according to some analysts, the crisis itself was the outcome of the transnational elite’s attack against East Asia’s statism. Thus, as the executive vice president of the New America Foundation[19] points out:

The outcome of the crisis in these countries and particularly in South Korea, which was the strongest of the group, was that the value of their currencies, as well as of their Stock Exchange shares has fallen drastically with respect to the US dollar, a fact which, in combination with the opening of their markets, gives the opportunity to foreign capital to buy cheaply their assets and create a useful profit repatriation flow to the North.[20]

In the context of today’s neoliberal internationalised market economy, it is doubtful whether the old distinction between North and South makes much sense anymore. If, for instance, we use the familiar ―and almost meaningless― per capita GNP indicator to classify countries in the North-South divide, we ignore the fact that the rapidly widening gap between privileged and non-privileged social groups has already reproduced huge “South” enclaves in the heart of the North. In other words, it seems that the “trickle-down effect” has recently become significantly weaker than in the past, even in the North, and not just because of the recession, but mainly because of the intensification of the neoliberal globalisation, which has widened further income inequality, particularly in the Anglo-Saxon countries. This implies that a new "North-South" divide, cutting across the traditional boundaries of the North and the South, has already been set into operation. In Britain, for instance, in the past 20 years income inequalities have widened significantly. Thus, according to the report of a think tank appointed by the Blair government: “Between 1979 and 1998-99, the real incomes of the bottom decile of the income distribution rose by 6% in real terms whereas the real incomes of those in the top 10% rose by 82%. Mean income rose by 55%”.[21] Also, in the US, 60 per cent of income gains over the period from 1980 to 1990 went to the top 1 percent of the population, while the real income of the poorest 25 percent has remained static for 30 years.[22]

Furthermore, if we use alternative indicators concerning the degree that essential needs are covered by segments of the population, irrespective of whether they live in the “North” or the “South”, the question arises as to which group a country like the United States belongs when one in five US children live in poverty and 8 million of those children lack health care. Similarly, In Britain, a recent survey based on fieldwork from the Office for National Statistics by Bristol, York, Loughborough and Herriot-Watt universities found that by the end of 1999, a quarter (26%) of the British population was living in poverty, measured in terms of low income and multiple deprivation of necessities. The survey confirmed also that poverty rates have risen sharply during the era of neoliberal globalisation. Thus, in 1983, 14% of households lacked three or more necessities because they could not afford them; by 1990 this proportion had increased to 21% and by 1999 to over 24%![23] No wonder that according to a UNICEF report,[24] compared to their per capita income, the United States and Belgium from the “North” performed much worse in child survival, nutrition and education than Jordan, Syria, Poland, Romania, Bulgaria and Kenya in the “South” and that, according to the same report, if we rank the countries of the world in terms of the well-being of their people ―and particularly children― then, at the top of the list we find such countries as Vietnam, Sri Lanka, Nepal, Cuba and Burma, which have far lower infant mortality rates and records of junior school attendance than what would be expected from their per capita GNP.

The above discussion raises not only the issue of whether the old distinction between “North” and “South” makes sense; it also raises the issue of the indicator itself that can be used for such a classification. In particular, the question arises whether it is feasible or desirable to develop a common indicator to classify countries with very different cultural and economic needs. However, despite the obvious problems of measurement involved, it may still be useful to keep the “North-South” distinction, provided that we redefine our terms. Thus, the “New North” could be defined as all those social groups that benefit from the neoliberal globalisation process, whether they live in the old North or South. In general, we may say that this New North consists of the “40 percent society”[25] in the old First World and a small minority in the old Second and Third Worlds. The beneficiaries from the marketization process in the old First World do not just include those in control of the means of production, which constitute the bulk of the ruling elite, but also the large middle classes that have flourished in this process (professionals, skilled workers, etc.). Similarly, the beneficiaries in the old Third World include not just the ruling elites (big landowners, importers and so on), but also a rudimentary middle class of professionals, top state employees, etc.). Finally, the beneficiaries in the old Second World include the new ruling elite, which has been emerging in the marketisation process (usually, ex-members of the old party nomenclatura) and a very small middle class of professionals.

Today, increasing numbers of people do not have access to the political process (except as voters), to the economic process (except as consumers) or to the environment (except as conditioned by their roles in the economic and political process, defined by the market economy and representative “democracy” respectively). Thus, at the political level, it is the elites of professional politicians who take all significant political decisions. Similarly, at the economic level, what is produced in a country is not determined by the democratic decisions of its citizens but by property relations and the income distribution pattern. Finally, the sort of “protection” the environment is entitled to have is effectively determined by the political and economic elites which control the market/growth economy. Moreover, a process leading to the further concentration of power at all levels is in full motion.

In this book’s problematique, it is neither colonial exploitation ―which, however, played a significant role in the violent destruction of the economic self-reliance of many countries― nor simply the corruption of elites in the South or the conspiracies of those in the North that have led to the failure of the growth economy in the South. Contrary to the classical Marxist thought, which saw colonialism as a “necessary evil” because it contributed to the development of capitalism in the periphery,[26] I would argue that the fundamental cause of this failure is an inherent contradiction in the process of internationalising the growth economy.

Thus, the growth economy can only survive through its continual reproduction and extension to new areas of economic activity. One way to achieve this is through the creation of new areas of economic activity, as a result, mainly, of technological changes, in mature growth economies. A second way is through a process of geographical expansion that, in fact, implies the destruction of the economic self-reliance of every community on earth. But, from the moment economic self-reliance is destroyed, either violently (colonialism), or through the market, and, as a result, two parties with unequal economic power (in terms of productivity, technology and income differentials) come in direct economic contact, then the automatic functioning of the market mechanism secures the reproduction and extension of inequality between the two parties. The essence, therefore, of the South’s failure lies in the hugely uneven control over incomes and productive resources, which inevitably follows the establishment of a market/growth economy. It can easily be shown that in a market economy system, dominated by the growth ideology and personal greed, “maldevelopment” is a matter of the automatic functioning of the system itself, since it is the purchasing power of the high-income groups in the North and of the elites in the South that determines what, how and for whom to produce.[27] In other words, what is true for a “domestic” market/growth economy, which ―barring any effective social control of the market forces― can only be grounded on inequality in the distribution of economic power and unevenness in the development of various economic sectors, is equally (if not more) true for an internationalised market/growth economy.

Therefore, what is needed today is the development of a new approach that aims at the self-determination of individuals and communities, at the economic, social and political levels. Such an approach should be based on the formation of new political, economic and social structures that secure citizen control over their own resources. Human needs do not have to be conditioned and infinitely induced to expand by a growth-oriented system; they could instead be constantly adjusted and limited by the community itself. Furthermore, the needs of the significant part of the population that belongs to the non-privileged social strata in the North do not differ significantly from the needs of most of the population in the South. The problem is how the “New South”, that is, the non-privileged social groups in the North and the South which constitute the vast majority of the world population, would force the “New North”, in other words, a small (but powerful, because of its monopolisation of all effective means of power) minority, to realise the simple fact that the fundamental cause of the present economic, ecological and social crisis is the oligarchic political and economic structures that secure the maintenance and reproduction of its privileges.

The problem of “development” is not therefore one of how the South could install a properly functioning market/growth economy, as the conventional approaches to development and the ruling elites in the South assert. The problem is how a new inclusive democracy could determine collectively the basic needs of the population and find such ways to meet them that minimise the harm on the natural world.

[1] We may roughly define the North as the set of those countries that are members of the Organisation for Economic Co-operation and Development (OECD) which the World Bank classifies as “high income economies", i.e. mainly, United States, Canada, Japan, Australia, New Zealand, the European Union , Switzerland and Norway.

[2] Ian M. D. Little, Economic Development: Theory, Policy and International Relations (New York: Basic Books, 1982), p. 6.

[3] Anthony Brewer, Marxist Theories of Imperialism: A Critical Survey (London: Routledge & Kegan Paul, 1980), p. 18.

[4] T. Dos Santos, “The Crisis of Development Theory and the Problem of Dependence in Latin America” in Underdevelopment and Development, Henry Bernstein, ed. (Middlessex, United Kingdom: Penguin, 1973), p. 76.

[5] Alain Lipietz, Miracles and Mirages (London: Verso, 1987), pp. 29-30.

[6] See for a discussion of the narrow perspective taken by supporters of the growth economy in both the orthodox and the radical economics camps TID, Ch. 3.

[7] P. J. McGowan and B. Kurdan, “Imperialism in World System Perspective,” International Studies Quarterly, Vol. 25, No. 1 (March 1981), pp. 43-68.

[8] Paul Bairoch, The Economic Development of the Third World Since 1900 (London: Methuen, 1975), pp. 190-92.

[9] Data calculated from The World Bank's World Development Report 1980 & 2000/2001, Table 1.

[10] Data calculated from The World Bank's World Development Report 1998/99, Tables 1 & 20.

[11] World Bank, World Development Report 2000/2001: Attacking Poverty, Table 1.2.

[12] Ibid., Table 5.

[13] Ted Trainer, Developed to Death (London: Greenprint, 1989) p. 39.

[14] The Economist (1 October 1994); quoted by Paul Hirst and Grahame Thompson, Globalisation in Question (London: Polity Press 1996), p. 99.

[15] World Development Report 2000/2001, Table 1.

[16] See Robert Pollin and Diana Alarcon, “Debt Crisis, Accumulation and Economic Restructuring in Latin America,” International Review of Applied Economics, Vol. 2, No. 2 (June 1988); and Takis Fotopoulos, “Economic Restructuring and the Debt problem: The Greek Case, International Review of Applied Economics, Vol. 6, No. 1 (1992).

[17] Bruce Cumings “The Abortive Abertura: South Korea in the Light of Latin American Experience”, New Left Review, No. 173 (Jan.-Feb. 1989), p. 13.

[18] See A. H. Amsden, Asia’s Next Giant: South Korea and Late Industrialisation (Oxford: Oxford University Press, 1989), Ch. 6.

[19] Steven Clemons, “United States: all-powerful but powerless”, Le Monde diplomatique (October 2001).

[20] See Marc Atkinson, Washington Post/Guardian Weekly (11/1/98).

[21] Patrick Wintour, The Guardian (April 27, 2001).

[22] Anthony Giddens, The Third Way: The Renewal of Social Democracy (Polity Press, 1998), p. 105.

[23] Ibid.

[24] UNICEF Report 1994, The Guardian (22 June 1994).

[25] See for a detailed description of the “40 percent society”, TID, pp. 37-38.

[26] Avineri, Karl Marx on Colonialism and Modernization.

[27] Trainer, Developed to Death.