Markets and Good Government

by Robert Archer

Table of Content

• PREFACE
  • The Way Forward for Economic and Social Development?
  • Some Definitions
• OVERVIEW
• COMMENTARY
  • MARKETS
  • GOVERNMENT
  • CIVIL SOCIETY
• CRITIQUE
• INTERNATIONAL GOVERNANCE AND AID CONDITIONALITY
• CONCLUSION

CONCLUSION

"Development" is about achieving a higher quality of life (fairly distributed) by making sustained and rapid alterations in a society's productive capacity and social organisation. Such a process almost always has revolutionary social implications. The linkage now being made between democracy and pluralism on the one hand, and successful marketisation of backward economies on the other raises basic questions about power relations and development.

If development is a revolutionary process, it is by definition an oppressive experience for some sections of the population. In the case of South Korea, landlords were dispossessed and peasants were ferociously repressed as productive resources were shifted brutally from agricultural to industrial production. Many other examples can be found. Most studies of contemporary structural adjustment programmes indicate that the rural and urban poor appear to suffer particularly from market reforms. If development cannot be achieved without forms of violence (or at least forthright expropriation) what moral and political status do we give to the demand for development compared with the demand for human rights and democracy?

What status, too, should be given to cultures, and the social values they sustain? Small cultures are no less vulnerable than small economies to invasive competition. The global spread of markets is led and accompanied by the globalisation of "Western culture", with a capacity to marginalise and dislocate different social values that is unique in history. Arguably the need to achieve social sustainability is as challenging a task for humanity at the end of the 20th century as environmental sustainability.26

Discussion of the revolutionary implications of development raises a further question about markets. In most of the poorest countries, the majority of the poorest people live by agriculture and benefit marginally from government services or international aid programmes. In many cases, the rural poor are positively exploited. IFAD programmes, and the experience of NGOs have shown that the urban and rural poor can increase their production very significantly if they receive small but well-aimed technical and financial support.27 It is argued that they compete very efficiently if they are enabled to enter the market. This raises important questions for NGOs as well as governments. Should we embrace the market model and help the poor go to market, if a convincing case can be made that they will benefit? Can markets really be made to work for those who have so few things to sell?

Footnotes

1. Most of the poorest countries are in Sub-Saharan Africa (*). The Least Developed Countries (LDCs) are: Afghanistan, Bangladesh, Benin*, Bhutan, Botswana*, Burkina Faso*, Burundi*, Cambodia, Cape Verde*, Central African Republic*, Chad*, Djibouti*, Equatorial Guinea*, Ethiopia*, Gambia*, Guinea*, Guinea Bissau*, Haiti, Kiribati, Laos, Lesotho*, Liberia*, Madagascar*, Malawi*, Maldives, Mali*, Mauritania*, Mozambique*, Myanmar (Burma), Nepal, Niger*, Rwanda*, Sao Tome & Principe*, Samoa, Sierra Leone*, Solomon Islands, Somalia*, Sudan*, Togo*, Tuvalu, Uganda*, Tanzania*, Vanuatu, Yemen, Zaire*, Zambia*.

2. Aid from the Organisation for Economic Development and Co-operation (OECD) is managed through the Development Assistance Committee. Its members are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, the United States and the European Commission. The World Bank and International Monetary Fund were established after the Second World War under the Bretton Woods Agreement. Almost all the world's governments belong to these institutions, but the majority of votes on their Boards are held by the largest donors - who are the same OECD governments.

3. It was this concern that enabled a number of authoritarian governments to challenge the principle of universal human rights in advance of the 1993 UN human rights conference in Vienna.

4. Communist States are usually identified by their support for public (or State) ownership of the means of production. Their different attitude to the law is also a a defining characteristic. In common with authoritarian governments (but for different reasons), most did not separate judicial from political authority and as a result there was no effective system of appeal against official decisions over commercial or personal matters. The lack of a "rule of law" (as defined) had profound effects upon social, economic and political life, which may have been as important as the effects of state ownership of economic resources.

5. Most of the world's private investment ($132bn in 1989) flows between North America, Western Europe and East Asia (including Japan). Developing countries (representing 80% of the world's population) attracted only 13% of global direct investment in 1989 (compared with 24% in 1980). This was itself distributed unevenly. About two thirds went to East Asia (especially China, Malaysia and Thailand) and Latin America (Brazil, Argentina, Mexico and Colombia). Sub-Saharan Africa (one tenth of all people) attracted just 1.1%; and most of this, in turn, went to a handful of countries (such as Nigeria, Ivory Coast, Zimbabwe, Cameroon). World Bank figures, quoted in Finance & Development, March 1992. (Note: South Africa is excluded; some Asian economies - Singapore, Hong Kong - are listed as developed; Taiwan is integrated with mainland China.)

6. Though see Governance and Development, World Bank 1992, which sets out the links between law and economic development.

7. Taiwan is close to meeting the requirements, having introduced democratic elections in 1992. Singapore does not have a free press, South Korea retains some features of a national security state, Hong Kong does not have a fully-elected legislature. However, all developed a well-run administration and sophisticated planning mechanisms, and all invested heavily in public education, public health and infrastructural development. All were also able (for different reasons) to attract international capital.

8. Universal Declaration of Human Rights and the International Covenant on Civil & Political Rights.

9. This argument should be separated from the issue of discrimination. It is of coure true that those who are poor, illiterate or unconnected may be so because they suffer discrimination -- for example, because they are women or black. They should not be conflated, however. Discrimination is not about capacity. Whereas illiteracy or posverty are objective conditions that can be mitigated or repaired by the action of the sufferer or by social policies designed to provide them with information, discrimination on grounds of race or gender or religion reflects action against those who discriminate; illiteracy requires action to increase the capacity and knowledge of those who are illiterate.

10. For example: € "...respect for human rights, respect for the rights of minorities, freedom of speech and of the press, an independent legislature, an independent judiciary, fair distribution of the nation's wealth, social services and amenities, education for all, and an obligation for government to govern constitutionally." (A. Oyowe, in The Courier No 28, July-August 1991.) € "The right to disagree and not be afraid.' (Jan Pronk, Dutch Minister of Development, in The Guardian, 18 May 1992). € "A rule-based approach to taking decisions, at the centre of which are the core values of respect for the individual and the affirmation of community." (Democracy, development & hope, Christian Aid, 1992.)

11. Britain's good government policy "is not an attempt to promote Westminster-style democracy. Systems of government must be appropriate to the social and political structures in individual countries." Baroness Chalker, UK Minister of Overseas Development, 25 June 1991, speech to ODI. See also the EU resolution, on page 2 of this paper.

12. This is one of the reasons given by some repressive governments for resisting the introduction of multi-party democracy.

13. For example, the World Bank argues that "the efficiency and effectiveness of economic actors, and the competitiveness of markets, requires broadly based access to relevant information." Governance and Development, World Bank, p. 40-41. The report notes the importance of transparency in the commercial and financial sectors in providing information about company audits; in relations between commercial banks and their clients; within banking systems etc.

14. In the quotation at the beginning of this section, Lawrence Summers suggests that democracy has hidden savings. This is a new line for the World Bank, which for many years took a neutral stance (economically) towards authoritarian regimes. It ought surely to be true that democracies are a cheaper form of government if they do avoid wars, famine and other forms of social and economic catastrophe.

15. See Amartya Sen, Development Strategies: the Roles of the State and the Private Sector in Proceedings of the World Bank Annual Conference on Development Economics, 1990, p. 422-423.

Proportion of the population in tertiary education (per cent*)

* Weighted average. Source: World Development Report, 1991

16. This issue has been addressed at length by the World Bank in The East Asian Miracle, Economic Growth and Public Policy, Oxford University Press, 1993, 389p. The report concluded that East Asian economies do offer a model for poor developing countries, a view that is likely to have important implications for policy in the 1990s.

17. Taiwan and South Korea were of considerable strategic importance to the United States, and for many years received large injections of private capital and official assistance. Both countries industrialised in the 1970s on the back of a domestic arms industry that was not discouraged by the United States. The US alliance and the proximity of Japan meant that both countries had export markets and opportunities for technological transfer. Hong Kong was differently endowed: it benefitted from a flood of capital and entrepreneurial skill out of China during the revolution, while Britain provided an orderly political environment, and Hong Kong's harbour guaranteed its value as a trading centre.

18.This was particularly true of Taiwan and South Korea

19. In the way that some countries in the Middle East, notably Israel and Egypt, are still able to do.

20. See World Bank Debt Tables, 1992; Roger Riddell, Losing the 90s, CIIR, 1992; Robert Archer, The Development Deficit, Christian Aid, 1992.

21. Imagine a race open to all new-comers from New York to Brussels via Tokyo. There are valuable prizes for the first few entrants home but competitors share costs equally. The rules permit trained teams equipped with maps, cars, coffee and air tickets to compete against the infirm and those without experience of foreign travel. The top teams have a veto on the rules. It is easy to see who will win and who will lose, but such a race is competitively fair., Who will argue that it would be rational to empty the wallets and remove the shoelaces of the best teams? Even if you did, how could you discount their fitness and experience?

22. See, for example, the Financial Times, April 29 1991: Challenge to foster human capital. The International Finance Corporation (IFC), and associate of the World Bank, does lend to private commercial projects, but its portfolio is relatively small. It should be added that Non-Governmental organisations too have resisted the option of financing privately-owned productive activity. Most development NGOs have spent their resources on programmes that strengthen community organisation and the provision of basic services.

23. A figure often quoted: The GNP of Sub-Saharan Africa, which contains the majority of LDCs, and the GNP of Belgium are approximately equal.

24. Tony Killick and Christopher Stevens: Eastern Europe - Lessons on economic adjustment from the Third World, in International Affairs 67 (4), 1991, pp. 696.

25. At its High-Level Meeting in December 1993, the Development Assistance Committee (DAC) of the OECD agreed to revise its list of countries and territories receiving aid. According to the DAC, this change was made to reflect the success of the development process in a growing number of developing countries and territories, and the importance of new aid recipients in Central and Eastern European countries and the New Independant States of the former Soviet Union.

26. Its importance will be measured by international response to the World Conference on Social Development, due to address unemployment, marginalisation (insecurity) and poverty, in Copenhagen in March 1995. Will it attract the attention given to the UN Environment and Development Conference held in Rio in 1993?

27. International Fund for Agricultural Development. The State of World Rural Poverty, an inquiry into its causes and consequences, IT Publications, 1992, 450 pp.