the global crisis and transformative social change

International Political Economy Series

Series Editor: Timothy M. Shaw, Visiting Professor, University of Massachusetts, Boston, USA and Emeritus Professor, University of London, UK

Titles include:

Leslie Elliott Armijo (editor)FINANCIAL GLOBALIZATION AND DEMOCRACY IN EMERGING MARKETS

Robert BoardmanTHE POLITICAL ECONOMY OF NATURE: Environmental Debates and the Social Sciences

Jörn Brömmelhörster and Wolf-Christian Paes (editors)THE MILITARY AS AN ECONOMIC ACTOR: Soldiers in Business

Stuart S. Brown (editor)TRANSNATIONAL TRANSFERS AND GLOBAL DEVELOPMENT

Gerard Clarke and Michael Jennings (editors)DEVELOPMENT, CIVIL SOCIETY AND FAITH-BASED ORGANIZATIONS: Bridging the Sacred and the Secular

Gordon CrawfordFOREIGN AID AND POLITICAL REFORM: A Comparative Analysis of Democracy Assistance and Political Conditionality

Fred P. GaleTHE TROPICAL TIMBER TRADE REGIME

Meric S. Gertler and David A. WolfeINNOVATION AND SOCIAL LEARNING: Institutional Adaptation in an Era of Technological Change

Anne Marie Goetz and Rob JenkinsREINVENTING ACCOUNTABILITY: Making Democracy Work for the Poor

Andrea GoldsteinMULTINATIONAL COMPANIES FROM EMERGING ECONOMIES: Composition, Conceptualization and Direction in the Global Economy

Mary Ann HaleyFREEDOM AND FINANCE: Democratization and Institutional Investors in Developing Countries

Iain HardieFINANCIALIZATION AND GOVERNMENT BORROWING CAPACITY IN EMERGING MARKETS

Keith M. Henderson and O. P. Dwivedi (editors)BUREAUCRACY AND THE ALTERNATIVES IN WORLD PERSPECTIVES

Jomo K. S. and Shyamala Nagaraj (editors)GLOBALIZATION VERSUS DEVELOPMENT

Angela W. LittleLABOURING TO LEARN: Towards a Political Economy of Plantations, People and Education in Sri Lanka

José Carlos Marques and Peter Utting (editors)BUSINESS, POLITICS AND PUBLIC POLICY: Implications for Inclusive Development

S. Javed MaswoodTHE SOUTH IN INTERNATIONAL ECONOMIC REGIMES: Whose Globalization?

John MinnsTHE POLITICS OF DEVELOPMENTALISM: The Midas States of Mexico, South Korea and Taiwan

Philip NelTHE POLITICS OF ECONOMIC INEQUALITY IN DEVELOPING COUNTRIES

Pia RiggirozziADVANCING GOVERNANCE IN THE SOUTH: What Are the Roles for International Financial Institutions in Developing States?

Lars Rudebeck, Olle Törnquist and Virgilio Rojas (editors)DEMOCRATIZATION IN THE THIRD WORLD: Concrete Cases in Comparative and Theoretical Perspective

Eunice N. SahleWORLD ORDERS, DEVELOPMENT AND TRANSFORMATION

Suzana Sawyer and Edmund Terence Gomez (editors)THE POLITICS OF RESOURCE EXTRACTION: Indigenous Peoples, Multinational Corporations and the State

Benu Schneider (editor)THE ROAD TO INTERNATIONAL FINANCIAL STABILITY: Are Key Financial Standards the Answer?

Adam SneydGOVERNING COTTON: Globalization and Poverty in Africa

Howard Stein (editor)ASIAN INDUSTRIALIZATION AND AFRICA: Studies in Policy Alternatives to Structural Adjustment

Peter Utting, Shahra Razavi and Rebecca Varghese Buchholz (editors)THE GLOBAL CRISIS AND TRANSFORMATIVE SOCIAL CHANGE

William VlcekOFFSHORE FINANCE AND SMALL STATES: Sovereignty, Size and Money

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The Global Crisis and Transformative Social Change

Edited by

Peter Utting

Shahra Razavi

and

Rebecca Varghese Buchholz

© UNRISD 2012

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v

Contents

List of Tables vii

List of Figures viii

List of Abbreviations and Acronyms ix

Preface xii

Notes on Contributors xiii

Overview: Social and Political Dimensions of the Global Crisis: Possible Futures 1Peter Utting, Shahra Razavi and Rebecca Varghese Buchholz

1 Narratives of Crisis and Crisis Response: Perspectives from North and South 23

Bob Jessop

2 The Perils of Paradigm Maintenance in the Face of Crisis 43 Andrew Martin Fischer

3 Social Reproduction in the Global Crisis: Rapid Recovery or Long-Lasting Depletion? 63

Diane Elson

4 Shifting Global Social Policy Discourse and Governance in Times of Crisis 81

Bob Deacon

5 Financialization and Social Policy 103 Ben Fine

6 Policy Change in Turbulent Times: The Nationalization of Private Pensions in Argentina 123

Camila Arza

7 Rebounding from Crisis: The Role and Limits of Social Policy in China’s Recovery 141

Sarah Cook

8 The Global Economic Crisis and Labour Markets in the Small States of the Caribbean 161

Andrew S. Downes

vi Contents

9 From Agrarian Crisis to Global Economic Crisis: Neoliberalism and the Indian Peasantry 177

Arindam Banerjee

10 Restructuring Development to Address the Global Financial Crisis: Lessons from India 199

Indira Hirway and Seeta Prabhu

11 A Political Economy Analysis of Crisis Response: Reflections on India and Thailand 219

Dev Nathan and Govind Kelkar

12 Trade Unions and the Politics of Crisis 237 Björn Beckman

13 Chinese Migrant Workers in the Global Financial Crisis: Government and Stakeholder Interactions 257

Ying Yu

Index 281

vii

Tables

4.1 Comparison of drafts and final outcome documents of UN crisis conference 92

5.1 Social expenditures as a percentage of GDP 117 7.1 Investment portfolio of the stimulus package 144 7.2 Central government expenditure on social security and

other social programmes and year-on-year growth, 2007–10 147 8.1 Unemployment rate in selected Caribbean countries, 2003–09 167 8.2 Number of unemployment claims received in Barbados,

2005–09 168 8.3 Labour and social policy responses in the Caribbean 172 9.1 Trends in number of branches, credits and deposits of

SCBs in rural India 183 9.2 Income and interest payments situation across peasant classes 187 9.3 Per worker real GDP sector-wise 189 11.1 NREGA in India, 2008–09 225

viii

Figures

2.1 US current account deficit (reversed) and China current account surplus 54

3.1 Visualizing social reproduction 66 3.2 Real GDP, percentage change from a year earlier 68 3.3 Alternative medium-term scenarios for growth of world GDP 69 3.4 Average time spent per day by surveyed population on

activities by SNA category, country and sex 70 3.5 Distribution of male and female population, by minutes

spent on unpaid care work, Argentina 71 3.6 Distribution of male and female population, by minutes

spent on unpaid care work, India 72 6.1 Coverage in the contributory pension system, 1993–2006 126 6.2 Pension benefits as a percentage of the mean

wage, 1995–2008 129 9.1 Trends in real Wholesale Price Indices for different crops

and crop-groups 181 9.2 Percentage distribution of cash loans by interest rates

for rural households 18510.1 Average monthly income of the workers before and after crisis 204

ix

Abbreviations and Acronyms

ACFTU All China Federation of Trade UnionsAFJP Administradoras de Fondos de Jubilaciones y Pensiones

(Association Fund for Retirement and Pensions)AIDS acquired immunodeficiency syndromeAIDIS All-India Debt and Investment SurveyALBA Alianza Bolivariana para los Pueblos de Nuestra América

(Bolivarian Alliance for the Americas)ANC African National CongressANSES Administración Nacional de la Seguridad Social (National

Social Security Administration)ASEAN Association of Southeast Asian NationsBOP balance of paymentsBRIC Brazil, Russia, India, ChinaCARICOM Caribbean CommunityCCT conditional cash transferCOSATU Congress of South African Trade UnionsCPE cultural political economyCPI-AL Consumer Price Index for Agricultural LabourersCSR corporate social responsibilityCTP cash transfer programmeDB defined benefitDC defined contributionDFID Department for International DevelopmentDWS developmental welfare stateECLAC United Nations Economic Commission for Latin America and

the CaribbeanECOSOC United Nations Economic and Social CouncilESF Exogenous Shocks FacilityEU European UnionFDI foreign direct investmentFGS Fondo de Garantía de la Sustentabilidad (Guarantee and

Sustainability Fund)FLI farm labour incomeFRA Forest Rights ActG-2 Group of Two (China and the United States)G-7 Group of Seven (Canada, France, Germany, Italy, Japan, the

UK, the US)G-8 Group of Eight (Canada, France, Germany, Italy, Japan, Russia,

the UK, the US)

x List of Abbreviations and Acronyms

G-20 Group of Twenty (leaders of 19 countries plus the EU)G-77 Group of 77 (intergovernmental organization of developing states

in the United Nations)GDP gross domestic productGEAR Growth, Employment and RedistributionGPN Global Production NetworksGTZ Gesellschaft für Technische Zusammenarbeit (German Agency

for International Cooperation)GVO gross value of outputHDI Human Development IndexHIV human immunodeficiency virusHYV high-yielding varietyICSW International Council on Social WelfareIFC International Finance CorporationIFI international financial institutionIGO intergovernmental organizationsILO International Labour OrganizationIMF International Monetary FundITUC International Trade Union ConfederationLASCO Labour and Civil Society CoalitionMDG Millennium Development GoalMOST Management of Social Transformation Programmes (UNESCO)NAFTA North American Free Trade AgreementNBLSS National Basic Livelihood Security SystemNCEUS National Commission for Enterprises in the Unorganized SectorNDRC National Development and Reform CommissionNedlac National Economic Development and Labour CouncilNEST National Economic and Social TransformationNGO non-governmental organizationNLC Nigeria Labour CongressNPC National People’s CongressNREGA National Rural Employment Guarantee ActNSSO National Sample Survey OrganisationODA official development assistanceODI Overseas Development InstituteOECD Organisation for Economic Co-operation and DevelopmentOECS Organisation of Eastern Caribbean StatesOIP outstanding interest paymentOPEC Organization of the Petroleum Exporting CountriesPATH Programme of Advancement through Health and EducationPAYG pay-as-you-goPBU Prestación Básica Universal (flat-rate benefit)PDS Public Distribution SystemPPP public–private partnership

List of Abbreviations and Acronyms xi

PRC People’s Republic of ChinaPSSOP Public Sector Systems of ProvisionRRF Rapid Response FacilitySACP South African Communist PartySACTWU Southern African Clothing and Textile Workers’ UnionSAMWU South African Municipal Workers UnionSAP structural adjustment policySC Scheduled CastesSCB scheduled commercial bankSDC small developing countrySNA System of National AccountsSRM social risk managementST Scheduled TribesTNC transnational corporationTUC Trade Union CongressUID Unique Identification (Authority of India)UK United KingdomUN United NationsUNCEB United Nations System Chief Executives Board for

CoordinationUNCTAD United Nations Conference on Trade and DevelopmentUNDESA United Nations Department of Economic and Social AffairsUNDP United Nations Development ProgrammeUNESCO United Nations Educational, Scientific and Cultural

OrganizationUNFPA United Nations Population FundUNICEF United Nations Children’s FundUNRISD United Nations Research Institute for Social DevelopmentUS United StatesWHO World Health OrganizationWIEGO Women in Informal Employment: Globalizing and OrganizingWTO World Trade Organization

xii

Preface

Global crises not only deeply impact the economy and people’s livelihoods, but they also unsettle basic ideas and assumptions about the meaning and drivers of development. This collection of theoretical and empirical studies contributes to the global debate about the substance and politics of pol-icy change associated with the global financial crisis of 2007/8. It exam-ines the challenges and dynamics involved from the perspective of social development and developing countries. In doing so it engages with some of the most pressing and contested issues: To what extent does the crisis provide an opportunity for moving away from the doctrines and policies that reinforced inequality and vulnerability? What new directions in policy, especially social policy, are required, and are developing countries moving in such directions? Are social forces and political coalitions supportive of transformative change able to mobilize? While the political underpinnings of policy change conducive to social reform, namely contestation, social mobilization and coalition politics, are energized in the context of crises, the nature of demands and the responsiveness of elites can vary considerably.

In November 2009, one year into the crisis, as it became clear that lim-ited attention was being paid to key social, political and developmental dimensions of the crisis, the United Nations Research Institute for Social Development (UNRISD) organized a conference based on a ‘Call for Papers’ to draw attention to these critical, but little-discussed, issues. Several papers presented at the conference were subsequently revised and form the basis of this volume.

In preparing this volume we have accumulated many debts, among them to the chapter contributors who responded positively to our suggestions for revision, to two external referees for providing critical feedback, to Anita Tombez for doing excellent copy-editing (just before her retirement) and to Chris Kip, Agnes de Mauroy and Kiah Smith for research and editorial assistance.

UNRISD would also like to thank the governments of Denmark, Finland, Mexico, South Africa, Sweden, Switzerland and the United Kingdom for the core funding they provided during the period 2009–11.

xiii

Contributors

Camila Arza is a research fellow at the Latin American School of Social Sciences and Consejo Nacional de Investigaciones Científicas y Técnicas (CONICET), Argentina. Her most recent publications include Pension Reform in Europe: Politics, Policies and Outcomes, co-edited with M. Kohli (2008); ‘The political economy of pension reform in Europe’, co-authored with M. Kohli, in R. H. Binstock and L. K. George (eds), Handbook of Ageing and the Social Sciences (2010); and ‘The limits of pension privatization: lessons from Argentine experience’, World Development (Vol. 36, No. 12, 2008).

Arindam Banerjee is Assistant Professor of Economics at the School of Liberal Studies, Ambedkar University, Delhi (AUD), New Delhi. His recent publications include ‘Food, feed, fuel: transforming the competition for grains’, Development and Change, Vol. 42, No. 2, March 2011; ‘Peasant classes under neo-liberalism: a class analysis of two states’, Economic and Political Weekly, Vol. 44, No. 15, 11 April 2009; and ‘Hunger and Its Underlying Causes: A Broad Indian View’, IDEAs Featured Article, (2008, www.networkideas.org).

Björn Beckman is Emeritus Professor in the Department of Political Science, Stockholm University. His recent publications include Trade Unions & Party Politics: Labour Movements in Africa, co-edited with S. Buhlungu and L. Sachikonye (2010); ‘Union power and the formal-informal divide’, co-authored with Gunilla Andrae, in A. C. Bergene, S. B. Endresen and H. M. Knutsen (eds), Missing Links in Labour Geography: The Dynamics of Economic Space (2010); and ‘Trade unions and popular representation: Nigeria and South Africa compared’, in O. Törnquist, N. Webster and K. Stokke (eds), Rethinking Popular Representation (2010).

Rebecca Varghese Buchholz is working as a Trade Policy Adviser at Traidcraft, United Kingdom and a former research analyst of the United Nations Research Institute for Social Development (UNRISD), where she par-ticipated in the Markets, Business and Regulation programme, co-writing a chapter ‘Business, power and poverty reduction’ for the Institute’s flagship report, Combating Poverty and Inequality: Structural Change, Social Policy and Politics (2010).

Sarah Cook is Director of UNRISD. Specializing in China’s economic and social transformations, her recent publications include Social Protection as Development Policy: Asian Perspectives, co-edited with Naila Kabeer (2010); and Economic Growth, Social Protection and ‘Real’ Labour Markets, co-edited with James Heintz and Naila Kabeer, IDS Bulletin (Vol. 39, No. 2, May 2008).

xiv Notes on Contributors

Bob Deacon is Emeritus Professor of International Social Policy at the University of Sheffield, and Senior Research Fellow and UNESCO chair in Regional Integration, Migration and the Free Movement of People at the United Nations University – Centre for Comparative Regional Integration Studies (UNU-CRIS) in Bruges, Belgium. He is founding editor of the jour-nal Global Social Policy. His recent books include World Regional Social Policy and Global Governance (2010), Global Social Policy and Governance (2007) and Social Policy and International Interventions in South East Europe (2007).

Andrew S. Downes is Professor of Economics and Director of Sir Arthur Lewis Institute of Social and Economic Studies (SALISES), University of the West Indies, Barbados. His recent publications include Flexible Labour Markets, Workers’ Protection and Active Labour Market Policies in the Caribbean (2009), Labour Markets in Small Developing States (2008) and The Impact of a Minimum Wage Policy on the Economy of Barbados (study prepared for the Centre for Policy Studies and the Barbados National Productivity Council, 2008).

Diane Elson is Emeritus Professor of Sociology at the University of Essex. Her recent publications include Visions for a Better World: From Economic Crisis to Equality, co-authored with Devaki Jain (2010); ‘Gender equality and economic growth in the World Bank World Development Report 2006’, Feminist Economics (Vol. 15, No. 3, 2009); and ‘Auditing economic policy in the light of obligations on economic and social rights’, co-authored with Radhika Balakrishnan, Essex Human Rights Review (Vol. 5, No. 1, 2008).

Ben Fine is Professor of Economics at the School of Oriental and African Studies, University of London. His recent books include From Political Economy to Economics: Method, the Social and the Historical in the Evolution of Economic Theory, awarded the 2009 Gunnar Myrdal Prize and From Economics Imperialism to Freakonomics: The Shifting Boundaries Between Economics and Other Social Sciences, awarded the 2009 Deutscher Prize, both with Dimitris Milonakis (2009); and Theories of Social Capital: Researchers Behaving Badly (2010), The Political Economy of Development: The World Bank, NeoLiberalism and Development Research (2011) as contributing editor, with K. Bayliss and E. van Waeyenberge; and Beyond the Developmental State: Industrial Policy into the 21st Century (forthcoming) with J. Saraswati and D. Tavasci.

Andrew Martin Fischer is Senior Lecturer of Population and Social Policy at the Institute of Social Studies (ISS) in The Hague, part of Erasmus University Rotterdam. Specializing in China’s development and on international devel-opment agendas more generally, his recent publications include ‘Is China turning Latin? China’s balancing act between power and dependence in the lead up to global crisis’, Journal of International Development (Vol. 22, No. 6, 2010); ‘Towards genuine universalism within contemporary development policy’, IDS Bulletin (Vol. 41, No. 1, January 2010); ‘Putting aid in its place:

Notes on Contributors xv

insights from early structuralists on aid and balance of payments and les-sons for contemporary aid debates’, Journal of International Development (Vol. 21, 2009).

Indira Hirway is Director and Professor of Economics at the Centre for Development Alternatives, Ahmedabad, India. Her recent works include Employment Guarantee Programme and Pro-poor Growth in Developing Countries: Analysis of Multiplier Impact of NREGA Works through SAM Modelling (2010), Impact of the Global Financial Crisis on Workers and Small Producers in India: Emerging Issues and Implications (2009) and Unpaid Work and the Economy: Gender, Time Use and Poverty, co-edited with Rania Antonopoulos (2009).

Bob Jessop is Distinguished Professor of Sociology and Co-Director of the Cultural Political Economy Research Centre at Lancaster University. Currently working on economic, political and social crisis-tendencies, his major publications include State Power: A Strategic-Relational Approach (2007), Beyond the Regulation Approach: Putting Capitalist Economies in Their Place, with Ngai-Ling Sum (2006), The Future of the Capitalist State (2002) and State Theory: Putting Capitalist States in Their Place (1990).

Govind Kelkar is Senior Advisor, Programme and Research, Economic Empowerment Cluster, UN Women South Asia Sub Regional Office. Her research interests include climate change and indigenous populations, and gender and productive assets. Her recent publications include Adivasi Women: Engaging with Climate Change (2009), International Trade and Global Civil Society, co-authored with Dev Nathan (2008) and Patriarchy at Odds: Gender Relations in Forest Societies (2003).

Dev Nathan is Visiting Professor, Institute for Human Development, New Delhi and Visiting Fellow, Duke University, Durham, NC. His recent pub-lications include Global Production Networks and Labour in India, co-edited with Anne Posthuma (2010), International Trade and Global Civil Society, co-authored with Govind Kelkar (2008) and Globalization and Indigenous Peoples in Asia: Changing the Local-Global Interface, co-edited with Pierre Walker (2004).

Seeta Prabhu is Senior Advisor, United Nations Development Programme (UNDP), India. Before joining UNDP in November 2000, she was Professor of Development Economics at the University of Bombay. Her research inter-ests are in the areas of social security, health, gender, poverty, budget analy-sis and human development. Prominent among her recent publications are Gender and Macroeconomics, co-edited with Ritu Dewan (2009), Conditional Cash Transfers for Alleviating Human Poverty: Relevance for India, Discussion Paper (2009), and ‘Impact of financial crisis on India’s march towards the MDGs’, in Global Financial Crisis: Impact on India’s Poor (2009).

xvi Notes on Contributors

Shahra Razavi is a research co-ordinator at the UNRISD, specializing in gender dimensions of social development. Her recent publications include Underpaid and Overworked: A Cross-National Perspective on Care Workers, co-edited with Silke Staab, Special Issue of International Labour Review (Vol. 149, No. 4, 2010); The Unhappy Marriage of Religion and Politics: Problems and Pitfalls for Gender Equality, co-edited with Anne Jenichen, Special Issue of Third World Quarterly (Vol. 31, No. 6, 2010); and the edited volume The Gendered Impacts of Liberalization: Towards ‘Embedded Liberalism’? (2009).

Peter Utting is Deputy Director of the United Nations Research Institute for Social Development (UNRISD). His recent publications include ‘The impli-cations of civil society innovations for good governance in China: exem-plification of a voluntary charity-oriented sphere’, in Zhenglai Deng and Sujian Guo (eds), China’s Search for Good Governance (2011), Business, Politics and Public Policy: Implications for Inclusive Development and Corporate Social Responsibility and Regulatory Governance: Towards Inclusive Development? both co-edited with José Carlos Marques (2010) and the edited volume Reclaiming Development Agendas: Knowledge, Power and International Policy Making (2006).

Ying Yu works as a research fellow at the School of Contemporary Chinese Studies, University of Nottingham. Recently working on China’s conten-tious politics, her publications include ‘Olympic aspirations: Reconstructed images, national identity and international integration’, International Journal of the History of Sport (27/16–18, 2010), ‘Governing security at the 2008 Beijing Olympics’, co-authored with F. Klauser and G. Chan, International Journal of the History of Sport (26/3, 2009) and ‘The role and future of civil society in a transitional China’, Political Perspectives (Vol. 1, No. 1, 2007).

1

Overview: Social and Political Dimensions of the Global Crisis: Possible FuturesPeter Utting, Shahra Razavi and Rebecca Varghese Buchholz

Introduction

Soon after the collapse of the capital markets in the United States (US) and the United Kingdom (UK) in 2007 it became clear that the crisis had spread not only to global financial markets but also to the ‘real economy’. While most developing countries were not exposed to subprime debt due to limited direct financial linkages between many low-income countries and those at the epicentre of the crisis, the financial crisis spread through their econ-omies by three main transmission channels: first, the limited availability of credit for working capital; second, cautious spending decisions, leading to lower output, employment and prices, in turn, affecting confidence among consumers and investors; and third, international trade and investment linkages with falling export revenues and remittance flows (ILO 2008). Though not having significantly contributed to the crisis, many developing countries suffered severely from the indirect impacts, and these economic impacts were magnified as a social crisis unfolded. The economic impacts and social consequences, however, differed, depending on the level of inte-gration, size of economy and structural conditions in individual countries (ODI 2010; Sumner and McCulloch 2009).

Discussions at the global level focused primarily on the channels through which the crisis in financial markets was transmitted to the real economy, the largely unforeseen economic consequences of financialization, the eco-nomic impacts of the crisis, and the regulatory gaps that needed to be filled in order to avert a future crisis. On the other hand, social and political dimensions were being discussed very superficially at best. Which social groups in developing countries were most affected by the crisis, and how were they coping? What role can, and should, social policy at both national and global levels play in addressing the social impacts of the crisis? Was the crisis likely to prompt a significant questioning of the dominant neoliberal paradigm in policy circles and enlarge the space for alternative development agendas that were democratic, developmental and equitable? What sort of

2 Global Crisis and Transformative Social Change

politics was conducive to ‘transformative’ change, that is, change that re-embeds ‘the social’ (social development and equality) as a central objective in national and international policy making?

About this volume

This volume aims to contribute to the global debate on the substance and politics of policy change. It examines the challenges and dynamics involved from the perspective of development and developing countries. One year into the crisis, it was clear that, while the ideological and policy debate was gathering momentum, limited attention was being paid to key social, polit-ical and developmental aspects of the crisis. To this end, the United Nations Research Institute for Social Development (UNRISD) organized a conference on the Social and Political Dimensions of the Global Crisis: Implications for Developing Countries, held in November 2009.1 Several papers presented at this conference were subsequently revised and form the basis of this volume.2

This introductory chapter distils, from the 13 chapters that follow, insights and findings concerning three main questions. First, how resilient is neoliberalism? To what extent does the current context of crisis provide an opportunity to change course – moving away from economic doctrines and policies that promoted patterns of market-led development which rein-forced vulnerability and inequality? Core features of such patterns included privatization and financialization, which not only signified the greater weight of firms and finance in economies, but also their engagement with an ever-expanding range of activities associated with both economic and social reproduction. Second, what new directions in policy are required, particularly in the field of social policy, and to what extent are developing countries moving in such directions? Third, can social and political forces and coalitions supportive of transformative change mobilize effectively to push through such policy and institutional changes?

New thinking, policies and politics suggest a variety of possible futures as regards the trajectory of development models. In a context where the scale of the global financial crisis unsettled conventional thinking about development paths and strategy, this overview chapter also considers the substance and likelihood of three scenarios of change. These include ‘skewed recovery and development’, which prioritizes but re-regulates market-led growth strategies; ‘embedded liberalism’, which attempts to address both market failure and inequality through significant but partial reforms of mainstream institutions; and ‘transformative restructuring and social change’, which implies more fundamental institutional and struc-tural reform. A concluding section reflects on which scenario may be ma-terializing given the relative strength of different ideational and political forces.

Social and Political Dimensions of the Global Crisis 3

How resilient is neoliberalism?

Much of the blame for not only the financial crisis that erupted in September 2008, but also the recurring crises since the early 1970s, can be put at the door of economic doctrines, macroeconomic policies, donor conditionali-ties and changes in power relations associated with neoliberalism or, to be more precise, the political ascendance of finance capital (Bellamy Foster and Magdoff 2008, Ghosh and Chandresekhar 2003). This set of ideational, policy and political arrangements emphasized and prioritized the liberaliza-tion of markets (in finance, but also in goods and labour), low inflation, the capacities and virtues of self-regulating markets, the rolling back of some areas of state intervention in the development and regulatory domains, export-orientation, short-term borrowing and pro-cyclical policies in many developing countries. Full employment, standing in as a proxy for social de-velopment, was no longer seen as an objective that macroeconomic policy had to pursue.

From a social development perspective, the crisis presented not only a regulatory failure but was a symptom of a much larger ideological failure that had contributed to policies that prioritized the profits of financiers (in the name of ‘market efficiency’ and growth, the latter remaining elusive for many developing countries) at the expense of long-term economic dyna-mism (‘catch-up’), equality and social development.

Two main assumptions held by market actors and regulators were dis-credited by the crisis. First, that markets always correct themselves and, as a corollary, are a superior mechanism for organizing resources; and se-cond, that financial markets efficiently aid the real economy but are of sec-ondary nature (Gowan 2009). In reality, the crisis presented a widespread market failure and showed the influence of the financial sector over real economic trends. Hence, the broader issue with the financial sector was not confined to excessive leverage, risk-taking and lack of transparency. Instead, the structural dimension of increased financialization, whereby the finan-cial sector dominated economies and non-financial economic activities, in-cluding public services and food and commodity markets, led many to argue that the real challenge lies in reasserting control over the financial sector (Blankenburg and Palma 2009). But, more importantly, the crisis proved the dominant belief in efficient markets wrong with important consequences for the ideology underpinning policy choices in the economic and social spheres.

Another assumption was that inequality did not matter for development – an assumption that was beginning to be questioned even by the IFIs them-selves (World Bank 2006). Within-country income inequality increased considerably in most countries in the 1980s and continued throughout the 1990s. Examining 85 countries, the ILO found that during the 1990s more than two-thirds experienced an increase in inequality, as measured by the


Gini coefficient (ILO 2008: 9). This is partly accounted for by changes in the functional distribution of income, that is, the relative share of profits and wages in gross domestic product (GDP), which has moved sharply against the latter (UNRISD 2010). Disregard for such trends not only ignored basic issues of human rights, but also other economic and social implications, such as persistent poverty in low-growth sectors, lower levels of effective de-mand, constraints on human capital formation, and incentives to business to compete on the basis of low wages as opposed to labour productivity (UNRISD 2010: 61–62).

A key question, then, addressed in this volume relates to whether the crisis has seriously wounded this paradigm. Several chapters question this assumption. Rather they emphasize its considerable resilience (see chapters by Bob Jessop (Chapter 1), Ben Fine (Chapter 5), Bob Deacon (Chapter 4) and Björn Beckman (Chapter 12)3).

The prospects for social transformation in the wake of crisis are heavily dependent on certain paths of pre-crisis structural change. For example, the financialization of the social sectors, in particular pensions and health-care (Ben Fine, Chapter 5), the long-term decline of smallholder agriculture since the 1990s along with high levels of indebtedness and food insecurity among the peasantry (Arindam Banerjee, Chapter 9), extensive labour market informality and livelihood insecurity (Indira Hirway and Seeta Prabhu, Chapter 10) and the depletion of human capabilities and disrup-tions in family life and social reproduction (Diane Elson, Chapter 3) curtail what governments see as the options available to them in the social and labour-market policy arenas. In recent decades, the structuring of global value chains and of national economies around production for export has also reinforced patterns of post-crisis economic restructuring in favour of further trade liberalization, more ‘flexible’ labour markets and the transfer of risks and costs down corporate supply chains (Bob Jessop, Chapter 1). Despite the growing body of evidence that is critical of privatized social ser-vice provisioning and pension systems, many countries continue to pursue such policies, given the vested interests in private for-profit provision (clin-ics, pension funds and so on), as well as the difficulties of constructing cross-class alliances in the context of deeply segmented modes of welfare provision where the middle classes have turned to fee-based private for-profit provision of welfare services and transfers.

In addition to these aspects of ‘structural power’, elites that benefited from neoliberalism have shown remarkable capacity to shape the post-crisis recovery process through both ‘instrumental’ and ‘discursive power’ (Fuchs 2005). The former refers to the capacity to influence policy design and im-plementation through lobbying, revolving doors and participation in con-sultative and decision-making processes. The latter refers to the capacity to frame common sense understandings of crisis and crisis response, that is, of what went wrong, who is to blame and what is the solution?


Several chapters examine these dimensions. They include the capacity of pre-crisis elites (such as those well connected to finance capital) and elite institutions (such as the IMF) not only to design the recovery policy agenda but also to dominate the terrain of discursive or ‘hegemonic’ struggle in the Gramscian sense. This means that very selective and partial explana-tions of crisis and crisis response end up framing public and policy debates (Bob Jessop, Chapter 1; Bob Deacon, Chapter 4). It also means that pro-posed solutions may well serve to transfer risks and costs onto subaltern social groups and developing countries (Andrew Fischer, Chapter 2). In Chapter 2, Fischer draws parallels between the 1982 debt crisis and today’s predicament. While the 1982 crisis was fundamentally rooted in disequi-libria related to the breakdown of the Bretton Woods system, it was recast as a problem of surpluses emerging from oil price shocks in the 1970s and subsequent ‘irresponsible’ borrowing by developing countries (especially in Latin America) ready to recycle these surpluses. Today, he suggests, there are similar voices framing the sources of the US financial bubble in terms of excess savings in the rising East Asian peripheries, especially Chinese external surpluses.

New directions in social policy

Two years after the financial collapse, with growth slowly picking up in some advanced industrialized economies and large developing countries such as China and India experiencing high growth rates, it was easy for pol-itical élites to neglect the severe social consequences of the crisis. Financial and economic crises, however, dramatically impact poverty rates. According to the Human Development Report 2010, the Asian crisis of the late 1990s cast 19 million Indonesians into poverty, and the Argentine financial crisis increased the national poverty rate by 15 per cent (UNDP 2010: 80). The United Nations has estimated that between 47 million and 84 million more people remained poor or fell into poverty in developing and tran-sition economies in 2009 than would have been the case with pre-crisis trajectories continuing (United Nations General Assembly 2010). The World Bank estimates put the number of people pushed below its poverty line of US$1.25 a day at 64 million by the end of 2010 (UN General Assembly 2010: 7). Not only did global unemployment increase following 2007, it also failed to decline once economic growth resumed in 2009 and 2010. The global unemployment rate, which had decreased consistently since 2004 to approximately 177 million in 2007, increased to 205 million in 2009 and is estimated to remain at that level in both 2010 and 2011 (ILO 2011: 74).4 In many emerging and developing countries, there are signs of a V-shaped re-covery, with employment quickly returning to pre-crisis levels in 2010. For 33 countries analysed, however, there is an employment deficit of some 7 million jobs, if employment rates were to be restored to their pre-crisis levels (ILO 2010a: 2).


Unemployment is only the tip of the iceberg in many developing coun-tries, where a much larger share of the workforce ekes out a living in the informal economy through self-employment and informal wage work. Here wages and earnings tend to be lower than in the formal labour market, access to social security provisions often non-existent or, at best, minimal, and workers experience multiple other forms of labour market insecurity (Standing 2011: 10). As formally employed workers lose their jobs or see their earnings reduced, other members of the household are pushed into the workforce to meet family needs. Studies of labour market dynamics dur-ing previous crises in Latin America have shown that women’s labour force participation may increase in the context of rising unemployment and job instability (Arriagada 1994; Cerrutti 2000). In the absence of comprehensive social insurance programmes, the impact of the crisis on the labour market has manifested itself by the increase in informal or vulnerable types of em-ployment (Breman 2009; Horn 2009), as well as deteriorating conditions of such work as shown by Indira Hirway and Seeta Prabhu (Chapter 10).

Many of the chapters highlight employment as a key dimension of the crisis. Prior to the crisis, the concern was with periods of ‘jobless growth’ and the large informalization of employment, which posed real obstacles to inclusive growth paths in many countries. With the onset of the crisis, these problems have become more pronounced.

The post-crisis development path envisioned by various authors in this volume is one which addresses the structural dimensions which have led to the neglect of ‘decent work’. Several chapters propose a development model that is centred on formal job creation, a shift towards stimulating domestic demand rather than excessive reliance on export-oriented growth, and greater attention to redistribution and social policies, all of which need to be addressed through a greater role of the state.

What remains invisible, however, in both labour market statistics and cal-culations of GDP, is the unpaid work that goes into sustaining people (cook-ing, cleaning, caring for children, the sick and frail elderly people (Diane Elson, Chapter 3). Evidence from previous crises attests that the time that is allocated to these unpaid care activities tends to increase to make up for the shortfall when goods (for example, processed grains) and services (for ex-ample, healthcare) cannot be purchased due to income constraints, and also that much of the burden of this work falls on the shoulders of women and girls, leading to depletion of human capabilities (Pearson and Sweetman 2010).

In many developing countries with rudimentary social security systems, those people hardest hit by the crisis tend to have limited, if any, access to formal social assistance and social insurance, and instead rely heavily on coping strategies at the household and community level. However, these informal coping mechanisms are heavily constrained by structural changes associated with migration, agrarian decline, informalization and the burden


of having to deal with multiple crises. It is dangerous therefore to idealize the ‘coping strategies’ of those who are adversely affected by recurrent crises; breaking point may be reached with harmful and long-lasting effects.

The limits of local solutions and coping strategies justify a stronger role for the state in the social policy arena. Social policy is often treated as an add-on to a largely unchanged economic policy agenda centred on the liber-alization of markets along the lines already mentioned. In recent years many governments in developing countries have tended to adopt fragmented so-cial protection instruments (for example, narrowly targeted conditional cash transfers) that focus on ‘targeting the poor’. Indeed, in many develop-ing countries, social protection is piecemeal and assists only a small per-centage of poor people (ODI 2009). UNRISD and other research, however, has shown that social policy, when more broadly conceived, can contribute to development in multiple ways, not only by providing social protection, but also by addressing overarching concerns with redistribution, equity, production, demand-driven growth, social reproduction and social cohe-sion (UNRISD 2010).

One of the key questions addressed by this volume is whether we are see-ing a shift towards more inclusive social policies. Some crises in the past have yielded such outcomes. Following the East Asian crisis in 1997, some governments expanded their social welfare programmes. When the crisis hit the economies of East Asia, most of them did not have well-developed formal social welfare provisions (Lee 1998). The severe social consequences led to initial international support to establish a Western-style social con-tract that could underpin the creation of formal social insurance schemes (Birdsall and Haggard 2000). However, with the urgency of the crisis averted, the social consequences lost their political urgency. Nonetheless, following the East Asian crisis, some countries in the region paid greater attention to social policies, especially where democratic politics facilitated public pres-sure for a shift towards a relatively more extensive welfare system, as seen in the Republic of Korea and Taiwan Province of China (Kwon 2005). The extent of changes that were introduced to include more active social policies depended, to a large extent, on the ideational and political forces in each country.

It is not clear from the international policy response that developing countries are being encouraged to comprehensively respond to the social crisis; indeed, the messages that are being sent seem to be mixed, as Bob Deacon shows. The G20 and the IMF have been promoting trade, invest-ment and growth as the main pillars of their policy packages. While the focus on jobs and the value of social protection is included,5 it is less clear whether the resources that are made available for these areas are in any way sufficient. Moreover, there is concern that debt incurred by financial sector bailouts, pressures to reduce budget deficits and ongoing conditionalities attached to new loans will constrain policy space to pursue countercyclical


measures, expand social policy and address unemployment (Molina-Gallart 2009; UNDESA 2011).

Yet there are signs that other institutions are paying more attention to the need for universal social policy. Particularly relevant are the efforts of sev-eral UN agencies to promote a ‘Global Social Floor’ consisting of a package of old age pension and disability benefits, child benefits, universal health care and minimum employment guarantee schemes. However, as Deacon suggests, such efforts run the risk of perpetuating an approach to social policy centred on poverty reduction and protection, rather than a more rights-based and redistributive approach.

What about realities on the ground? Social policy can play a key role in economic recovery and demand-led growth. The Social Watch Report 2010 notes that,

The fast and strong recovery of the Brazilian economy in 2009 was mostly due to a combination of non-orthodox compensatory policies ... Recovery was achieved on the strengths of domestic demand, fed by pol-icies to [raise] the minimum wage; social policies, of which Bolsa Família (Family Grant) is the most important; credit expansion policies led by public banks; and, to a lesser extent, fiscal policies. (Bissio 2010: 72)

China, as is well known, achieved remarkable rebound with expansionary macroeconomic policies and a massive four trillion Yuan (US$586 billion) fiscal stimulus package. The package, as initially announced, included sig-nificant spending on infrastructure. Following some criticisms of the lim-ited amount allocated to social spending, subsequent revisions announced in April 2009 allocate a larger proportion to social programmes, including pensions, medical reform and social assistance. However, as Sarah Cook shows, there remains a large gap between national policy goals and im-plementation at the local level. A major constraint is the limited capacity of the central state to manage competing local, regional and bureaucratic interests, or to set incentives and create monitoring mechanisms that ensure compliance among different actors and at different levels in the governance structure. What lies behind these constraints ultimately, she argues, is a di-vergence of interests and motivations: ‘while the Party leadership is driven to invest in social policies by the need to maintain stability as a basis for its legitimacy to govern, local governments are driven by the politics of accu-mulation and the need to maintain growth in revenues.’

In Argentina steps were taken to deal with the negative consequences of privatization of social policy, for example, through the nationalization of the pension system analysed by Camila Arza. Nationalization entailed the transfer to the state of all the assets accumulated in individual accounts and the elimination of the private branch of the mixed pension system estab-lished in 1994. There are nevertheless concerns about the fiscal and political


sustainability of the new system, as well as its capacity to address other long-standing problems that have afflicted pension programmes in Argentina, such as narrow coverage (which excludes the large share of the workforce that works informally), gender inequality and benefit adequacy.

Caribbean countries, which are highly dependent on external markets, as Andrew Downes argues, have used a series of measures to respond to the employment and social impacts of the crisis, including macroeconomic sta-bilization policies to keep up aggregate employment levels. Pre-crisis social and labour market policies acted as built-in stabilizers and cushioned the effects of economic shocks associated with falling commodity prices and declines in remittances and tourism. Active labour market policies, for ex-ample, have included the establishment or extension of skills training and retraining programmes using funds from social insurance schemes where those schemes were already in place (for example, Barbados, the Bahamas and Jamaica), while unemployment benefits, increases in the minimum wage and pensions, and conditional cash transfers have been used to cushion the effects of the crisis. These policies have placed additional pressure on the fiscal accounts of Caribbean governments, but the expectation by govern-ments in the region is that the recession would be short lived. ‘If there is deterioration in the economic conditions’, warns the author, ‘governments would be unable to maintain their original policy stance’.

In India, as Indira Hirway and Seeta Prabhu show, much of the country’s vast informally employed workforce remains off the radar of social policy, despite some noteworthy efforts made in recent years to propose social policy breakthroughs for bringing the informally employed workforce into the ambit of social policy (for example, the reports of the National Commission for Enterprises in the Unorganized Sector/NCEUS; see Srivastava 2008 and Breman 2010). Nevertheless, a range of initiatives, focusing in particular on the rural sector, have been promoted recently, including most notably a sig-nificant expansion of the workfare programme mandated by the National Rural Employment Guarantee Act of 2005.

However, it is important to bear in mind that putting in place social pro-tection measures, even if these include broad-based social assistance pro-grammes (cash transfers, workfare), is not sufficient to prevent future crises. Nor can it substitute for the lack of robust and decent employment gener-ation. It is worth recalling that an integral component of successful welfare regimes has been their ability to regulate and discipline capital. Another in-tegral ingredient of success was their capacity to create decent employment on a sufficiently large scale.

Expanding the scope and substance of social policy will require rebuild-ing state capacities that have been eroded in many developing countries in recent decades. Such capacities relate not only to resource mobilization and service delivery but also strengthening state accountability to social demands and the democratization of policy making. As several chapters


in this volume (especially those by Björn Beckman and Ying Yu) suggest, a minimalist view of democracy, even if it could have some purchase in countries which have already achieved a relatively high level of economic development and democratic consolidation, is clearly not compelling in contexts marked by extensive deprivation and alarming levels of inequality. In these contexts the legitimacy of governments (and even the stability of the nation-state) largely depends on their capacity to deliver and be ef-fective, and failure to do so creates a vicious circle of low effectiveness-low legitimacy (White 1998). Given the generally high levels of income inequality, extensive poverty, and deep-seated ethnic and gender stratifica-tions that afflict many developing countries, it is all the more important – in both ethical and political terms – that formally democratic states are not just empty shells, but are able to deliver socially inclusive patterns of economic development that can eradicate both absolute and relative pov-erty, and correct glaring inequalities between classes, regions, genders and ethnic groups.

Mobilizing for change

In the midst of economic turmoil and the severe social consequences lies the optimism that this crisis will lead to change. Often compared to the 1929 economic crisis (United Nations 2009), which led to a more pro-active management of the economy by the state and the extension of various so-cial policies embodied in the New Deal, many commentators argued that the current crisis could create the political space for a structural transform-ation needed for the challenges in the social, economic and environmental sphere (NEF 2008). Indeed, one argument is that crises are conducive to policy change when they enable societies to enact measures that would be impossible to enact in less distortionary circumstances (Hirschman, cited in Drazen and Grilli 1993).

The trajectory of policy reform will reflect, to a large extent, the config-uration of social forces, institutional path dependence and the changing geopolitical landscape. Given the resilience of neoliberalism, what pros-pects are there that social forces and coalitions supportive of progressive reform, as well as progressive configurations within the state, will be able to challenge orthodox and reactionary positions? Several chapters empha-size the key role of contestation, civil society advocacy, coalition building and ‘counter-hegemonic’ discursive struggle in crafting progressive policy responses. This focus on the politics of crisis response points to the need to go beyond the technocratic prescriptive approach commonly espoused in policy-applied research by identifying key institutional, political and structural conditions that need to be in place for transformative change to occur.

The challenges to neoliberalism have come from diverse quarters, most notably social movements and some governments of the Global South.


Some of the key actors and spaces for change identified in this volume in-clude the following:

the role of intellectuals and ‘defiant bureaucrats’ within intergovernmental ●

institutions and processes associated with policy reform. Particularly rele-vant in this regard are various initiatives discussed by Bob Deacon;relatively autonomous regional solutions, such as the Bolivarian Alliance ●

for the Americas (ALBA) noted by Bob Jessop, as well as other trends asso-ciated with regional integration and South–South cooperation and fund-ing (Bob Deacon);democratization, variations in the nature of electoral competition and ●

alliances with political parties as elaborated in the contribution by Dev Nathan and Govind Kelkar, which, they argue, partly explain differ-ences in the social policy response of governments in relation to rural constituencies;the vibrancy of social movements, increasingly connected globally via ●

networks and forums, such as the World Social Forum, and focused on a range of alternatives to global injustices associated with capitalism, im-perialism, patriarchy and racism (Bob Jessop);the role of civil society organizations in both advocacy and as inter- ●

mediary institutions that can connect grassroots concerns or demands and state capacities. This dimension is the focus of Ying Yu’s analysis of China where grassroots contestation is prevalent but state structures are often unresponsive. The strengthening of civil society in China is also crucial given the extent of state capture by elite interests and the need to build countervailing centres of power (see Chapter 7);efforts that address the serious limitations of civil society activism, ●

namely fragmentation and dispersion, by building broad-based coali-tions. As Björn Beckman argues, of particular relevance in this regard are the efforts of trade unions to create broad-based alliances by engaging with new constituencies of informally employed workers, and bringing social concerns onto the negotiating table with governments and employ-ers (as in the case of the Congress of South African Trade Unions/COSATU in South Africa), or giving them wider public hearing in contexts where unions only organize a minor part of the population (as in the case of trade unions in Nigeria).

Possible futures

Global crises not only deeply impact economic growth and people’s liveli-hoods, but they also unsettle basic ideas and assumptions about the mean-ing and drivers of development. In the wake of the global financial crisis a vibrant debate has unfolded about ‘where do we go from here?’ There was an instant revival of Keynesian ideas, which, in contrast to neoliberalism,


elevated the role of the state and of countercyclical public expenditure in development strategies. Just as developmental states and welfare states eventually emerged as part of the solution for the crisis of the 1930s, the question arose as to whether a different approach to development might gather momentum in these turbulent times. Or less ambitiously, would the type of social policy reforms that were introduced in some countries in the wake of the 1997 Asian financial crisis (Kwon 2005) be replicated in this crisis? Much of the commentary on the 2007/08 crisis had in fact praised the ‘automatic stabilizers’ built into the welfare states in developed coun-tries as effective counter-cyclical mechanisms which could also be useful in developing countries (Green et al. 2010:38; ILO 2008).

Skewed recovery and development

From the perspective of corporate-led and finance-led capitalist develop-ment, perceptions of crisis and priorities for recovery will be quite different to those associated with Keynesianism and sustainable development. Crises and ‘creative destruction’ – whereby some firms and industries decline or collapse, as others emerge – are seen as natural features of a capitalist system (Bello 2005; Crotty 2003; Schumpeter 1976). Some interests will push for an early return to ‘business-as-usual’. Indeed, those that played a central role in designing policies to deal with the crisis in the United States and elsewhere were often key figures associated with finance ministries, central banks and the financial services industry, that is, those which had been the main archi-tects and beneficiaries of neoliberal policies promoting financialization.

Policy responses at the first instance included massive liquidity injections into the financial system and direct support to major financial institutions. The United Nations estimated that public funding in the region of US$18 trillion (almost 30 per cent of gross world product) was made available to re-capitalize banks, nationalize financial institutions and provide guarantees on bank deposits and other financial assets (United Nations 2009). Much of the criticism of the bail-out of the banks has been that it restored ‘Wall Street’ and executive pay but not enterprise and employment on ‘Main Street’. While there were signs of global economic recovery in 2009 and 2010 – in terms of real GDP growth, real private consumption, investment and trade volume – the world had experienced a ‘jobless recovery’ (ILO 2011) as noted above.

As Bob Jessop observes in Chapter 1, government policy may have pre-vented a general financial meltdown, but mainstream policy discourse also narrowed the effective scope of public debate to a limited set of policy options and diverted attention from questions of institutional design, as well as from deeper causes that reproduce crisis-tendencies. At a systemic level, a major challenge for elite economic interests relates to finding outlets for surplus capital by creating or expanding markets in develop-ing countries, new industries, international commodity speculation,


militarization, commodification and privatization (Harvey 2010; Ghosh 2010). Another is to continue to take advantage of surplus labour through policies and practices associated with the flexibilization of labour markets and precarious employment (Standing 2011), as well as transferring risk and costs along global value chains, while ensuring that social discontents do not become major sources of instability. There are, however, growing signs of social discontent, declining levels of trust in governments, and unrest in response to rising food prices, labour retrenchment and austerity measures (ILO 2010a), as seen with the indignados in Spain, and Occupy Wall Street movement. If the latter cannot be controlled then the skewed recovery and development scenario may need the backing of repressive states. While deep-seated and locally specific factors underpin the ‘Arab spring’ uprisings, the high rates of unemployment, precarious livelihoods and repressive state practices are common sources of discontent that feed popular unrest. In contexts where there is deep social insecurity, limited resilience of social institutions to cushion the effects of crises on people, and weak and fragile democracies, the possibility of authoritarian resur-gence cannot be ruled out.6

Even in European countries with consolidated democracies, as austerity measures are taken to cut benefits, diminish health and education services, and make jobs more temporary, crisis is becoming a way of life with un-savoury political implications. From France to Germany, from Austria to The Netherlands, even mainstream political parties, and not just the far Right fringe parties, are finding it acceptable to stress the ‘threat from immigra-tion’, thereby giving credibility to populist racism, in what has been termed ‘barbarism with a human face’ (Zizek 2010). Contradictions and crises in some of the advanced capitalist countries may also be prompting a shift from the politics of hegemony to the politics of coercion and protectionism (Reich 2010). Indeed, in the United States, carceral relations centred on pris-ons and personal debt have become increasingly important, pervading the lives of certain sectors of the population (LeBaron and Roberts 2010).7 These developments, associated with coercion, protectionism and anti-immigrant politics, have potentially major implications for sub-altern groups in the global North and South.

Embedded liberalism

The above approach, which centres on narrow interest group preferences, is politically constrained. Elites and other groups that benefit from neo-liberal dynamics need to remain in the driving seat of both policy reform and discursive struggle, which aims to frame reform agendas and common sense perceptions about the nature of ‘the problem’ and what to do about it. Contexts and goals associated with democracy, modernization and stability mean that this is likely to involve not simply crude interest group prefer-ences and agendas but also attempts to accommodate other interests and


perspectives. The solution to the economic and social crises of the Great Depression and the World Wars was ‘embedded liberalism’ (Ruggie 1982), an ideology and project associated with Keynesianism and the strengthen-ing of the welfare state and state-led regulation. In practice, these features of embedded liberalism were applied only in certain countries and benefitted certain social groups, primarily in the advanced industrialized countries.

In today’s world, embedded liberalism means recognizing the reality of economic liberalization and globalization, but ensuring that such processes are shaped by shared values and by institutions that can mitigate market failure, injustice and inequality. But compared to the idealized version of the past, contemporary embedded liberalism differs in several respects. First, the scope for universal social policy and state autonomy and regu-lation is more constrained. Progress along an embedded liberal path may resemble more a ‘post-Washington consensus Plus’. In other words, just as the mainstream response to the failings of the post-Washington con-sensus and structural adjustment in the 1980s promoted a new consensus that added targeted social protection and ‘good governance’ reforms onto macro-economic fundamentals of fiscal discipline and export-led growth, contemporary embedded liberalism may simply ratchet-up such reforms. Under this scenario, there is no fundamental change as regards patterns of financialization, speculative activities and corporate-led trade and invest-ment. De-regulated sectors, notably financial services, would, however, be partially ‘re-regulated’. Achieving rapid economic growth remains the over-riding priority, achieved partly on the basis of new engines of growth such as the green economy and a shift to demand-led growth, particularly in developing countries. More attention is paid to social policy and increasing real wages not only for reasons of social justice and stability but also as a key mechanism to boost domestic demand and lower debt-to-income ratios (Brown 2010; Kumhof and Ranciere 2010). New ways of doing business are also a feature of an emboldened embedded liberalism project, including so-called inclusive business models, the ‘Bottom of the Pyramid’8 and corporate social responsibility (CSR), as well as public–private partnerships (PPPs) and private or multistakeholder standard-setting institutions.

The second change relates to global governance reform. New institutions like the G-20 or emerging coalitions of governments such as the ‘BRICS’9 which take account of the changing geopolitical landscape, are needed to pro-mote this agenda. And old institutions that were central to the Washington consensus, notably the IMF and the World Bank, are being strengthened with injections of funds on the condition that they flag up their develop-mental and social credentials and reform their governance structures.10 The IMF not only received additional resources at the G20 London summit in 2009 but agreed with the ILO the following year to attach greater priority to employment creation and decent work in the recovery effort. Similarly, in late 2010, the World Bank received pledges totalling nearly 50 billion


dollars from 45 governments for the World Bank’s ‘Fund for the Poorest’, an increase of 18 per cent in relation to the previous replenishment.11

There are fundamental questions about the realization of the embedded liberalism scenario. First, where the crisis in private finance is transmitted to public finance, governments come under pressure to reduce levels of public expenditure by cutting down on public services and benefits, and adopting other measures associated with neoliberal fiscal austerity. This is likely to exacerbate social discontent and tensions. Second, corporate and financial elites are highly versed in the art of defusing regulatory mo-mentum, for example, by engaging more proactively with corporate social responsibility initiatives, or unravelling regulations that make it onto the statute books.12

Third, will the IFIs change their spots? While there are some signs that increased developing country influence over lending policy and the IMF’s need to find new borrowers may favour countercyclical policies, there are concerns that the Fund’s particular intellectual and professional culture – or what the IMF’s Independent Evaluation Office calls ‘intellectual capture’, ‘the high degree of groupthink’, a ‘silo mentality’, ‘inadequate analytical approaches’ and the lack of incentives to ‘speak truth to power’ (IEO 2011)—may inhibit change. While the IMF announced a major increase in con-cessional lending to low-income countries in 2009, this took off extremely slowly (United Nations 2011). In 2008, 2009 and the first half of 2010, not only were resources committed by the Fund a fraction (about a quarter) of usable resources, but also only a third of committed resources were actually furnished to developing and other countries strongly affected by the crisis (UNDESA 2011). Furthermore, several studies have found that both actual loan agreements and IMF policy advice to developing countries ‘points es-sentially to a contractionary fiscal stance in the midst of crisis’ (UNDESA 2011).

Fourth, creating or improving the terms on which workers are integrated into global value chains is also likely to be constrained by low levels of global demand. While it may be possible for some countries (China, for ex-ample) to raise the minimum wage and assist enterprises and factories, this is far more difficult in other contexts where governments have very little fis-cal space within which to manoeuvre. Governments, especially at the epi-centre of the crisis, also face a loss of legitimacy in the eyes of large sections of the population for the ‘unfair’ manner by which they have handled the financial crisis, effectively socializing the costs of private risk-taking by a small group of very influential financiers who have amassed unprecedented levels of wealth in recent decades.

The political backdrop to such an approach involves a greater voice and influence for some large emerging market economies, but no fundamental change in the configuration of social forces. Within some emerging market economies, various combinations of contestation, civil society activism and


democratization point to another variant of embedded liberalism. There are signs that so-called developmental states, notably China, and, to a lesser extent, Brazil, are leaning towards what has been referred to as ‘welfare developmentalism’ (White and Goodman 1998). Such a model involves the state assuming a key role in guiding the development process in the context of economic liberalization but increasingly ratcheting-up social protection. Indeed recent evidence from Latin America suggests that higher and more progressive non-contributory government transfers that reach a significant proportion of low-income households, such as Bolsa Familia in Brazil and Oportunidades in Mexico, as well as education policy that has reduced the wage gap between skilled and low-skilled workers, have contributed to the decline in income inequality in the first decade of the twenty-first century (Lustig et al. 2011).

Transformative restructuring and social change

In the midst and wake of the global financial crisis another approach to re-form and restructuring has gathered momentum. This has emphasized the centrality of equality, redistribution and empowerment or ‘transformative’ change.

Calls for deep institutional and policy reform that imply fundamental changes in regulatory and governance institutions, as well as in North–South power relations, have become far more vocal, within not only activist and academic circles, but also some United Nations (UN) circles. In 2008, the UN General Assembly Stiglitz Commission’s analysis of both the current crisis, and the high rate of recurring crises since the 1970s,13 pointed the finger of blame squarely at neoliberalism. This paradigm, it was argued, had encouraged financialization and pro-cyclical policies, as well as patterns of inequality that, inter alia, constrained demand-led growth (United Nations 2009). Gross inequalities in income and wealth, reflected for example in the long-term shift in the functional distribution of income, against wages and in favour of profits (UNRISD 2010), as well as in the increasing share of national income accounted for by the very rich, constitute structural condi-tions that underpinned the global financial crisis (Saith 2011). Not only did they constrain demand-led growth, they also fuelled ‘casino’ capitalism and the capacity of elites to influence public policy through both the structural power of capital and instrumental power of business interests (Marques and Utting 2010).

Neoliberalism had also encouraged de-regulation of selected markets, not-ably finance, and the belief that markets were self-regulating, and hence did not require long-term planning horizons and effective state regula-tion. Proposals for policy reforms, therefore, centre on the regulation of fi-nance, countercyclical policies, demand-led growth, redistributive policies, more assertive developmental and welfare states and domestic resource mobilization, a shift to universal social policy, the reform – in particular,


democratization and reorientation of roles – of global governance institu-tions, including the World Bank and the IMF, the strengthening of weak ones, such as the ILO and the United Nations Economic and Social Council (ECOSOC), the creation of new ones, such as a UN Economic Security Council, and greater emphasis on regional integration (Wade 2008; United Nations 2009; Bissio 2010; Green et al. 2010, Martens 2010). Others suggest that dealing with current and recurring economic crises requires not only rolling back neoliberal policies and strengthening and democratizing global governance but also a more fundamental restructuring of capitalist power relations which lie at the root of dispossession, displacement and environ-mental degradation. The challenge is to reassert social control over finance, production and distribution (Harvey 2010), and to create patterns of growth that are wage led rather than profit led14 (Seguino and Grown 2007; Elson 2009).

Politically, such an approach would require ongoing shifts in global and regional governance favouring developing countries; emboldened social movements, coalitions and active citizenship concerned with global justice and inclusive development; and institutions of social accountability to con-trol for lobbying, capture and rent seeking.

Some proponents of this approach pin their hopes on the long-term pos-sibility that a cohesive coalition capable of challenging a capitalist class will emerge, involving social movements, non-governmental organiza-tions (NGOs), trade unions, grassroots organizations and left-leaning pol-itical parties (Bello 2005; Harvey 2010). In the shorter term, some also look to the overtly ideological state-led alternatives of the type being pur-sued within ALBA, as well as the scaling-up and ongoing proliferation of myriad local ‘social economy’ initiatives centred on livelihood security and empowerment.15

Concluding remarks

From the perspective of inclusive and equitable development, times of deep economic crisis pose fundamental short- and longer-term challenges: first, how to re-regulate the economy and re-allocate resources so that growth, employment and livelihoods are quickly restored; second, how to extend social policy to assist individuals and social groups whose livelihoods have been immediately affected, and to promote equality and demand-led growth; and third, how to reassert social control over markets and elites to rein in casino capitalism and relegate markets to being servants rather than masters of development. Both crisis recovery and prevention fundamentally require the restructuring of production, distribution and reproduction in ways that enhance longer-term livelihood security and inclusive social pro-tection systems, as well as equality and sustainability (economic, social and environmental).


As the discussion above on possible futures suggests, how to do this, of course, is heavily contested. The political underpinnings of policy change conducive to social reform, namely contestation, social mobilization and coalition politics, are likely to be energized, but the nature of demands and the responsiveness of elites, policy makers and institutions can vary considerably. As Bob Jessop (Chapter 1) makes clear, while there are many different interpretations of the crisis, asymmetries of power are key in de-termining which crisis-interpretations are institutionalized and translated into policy.

The analysis in this volume suggests that the crisis has provided a fer-tile terrain for thinking about socially progressive alternatives. Numerous spaces for action exist and are emerging that point to the possibility that neoliberal hegemony might be challenged. This, however, seems to be a long-term prospect. In the meantime, two interrelated trajectories seem to be unfolding. The first involves piecemeal and fairly superficial reform, driven largely by elites and technocracies, adapting and accommodating in order to regain control and legitimacy. The second involves some Southern governments, taking advantage of rapid growth, rising commodity prices, enhanced policy and political space, and drawing on their own institutional histories, to craft models that combine features of developmentalism with economic liberalization and the scaling up of social protection.

It is important to avoid sweeping generalizations about the direction of ‘progressive’ or ‘regressive’ change. As Ben Fine (Chapter 5) points out, each area of policy (for example, labour markets, health, education, fiscal, trade) is likely to be shaped by different social, political and institutional dynamics, and each may follow a different trajectory in terms of social or distributive outcomes. Spaces for progressive change may open in one area, only to close in another. Diverse and often contradictory approaches are likely to coexist. Developmental states increasingly liberalize. Governments supporting ALBA, for example, simultaneously are locked into free trade agreements with their ideological adversaries. Agricultural producers par-ticipating in social economy initiatives simultaneously integrate into global value chains. Returning to the possible futures referred to above, eclectic hybrids rather than anything approaching the ideal-type futures are more likely outcomes.

At the time of writing, however, the political and ideational momentum seems to be firmly behind the ‘skewed development’ and the ‘embedded liberalism’ scenarios. While corporate profits and the banking sector show signs of recovery, the same cannot be said for the social condition of much of the world’s population. Indeed, austerity measures in Europe and elsewhere suggest that initial Keynesian responses may be very short lived. What is clear is that minimalist top–down reform that tinkers with financialization and social protection looks increasingly out of kilter with the scale of the social dislocation and insecurity that persists.


Notes

1. The conference, ‘Social and Political Dimensions of the Global Crisis: Implications for Developing Countries’, was held 12–13 November 2009 at the United Nations in Geneva (see UNRISD 2009).

2. Inevitably for a volume that is based on a call for papers, there are both regional and thematic gaps. The Middle East and North Africa (MENA) region is conspicu-ously missing from the collection. It would also have been useful to have a more detailed examination of policy debates and efforts to put in place more stringent regulation of global finance to prevent future crises, as well as some analysis of the changing dynamics of transnational migration and remittance flows.

3. Names that are highlighted in this introductory chapter refer to the authors of the chapters in this volume.

4. ILO (2011) provides estimates for 2010 and 2011 of 205 million and 203 million, respectively.

5. At the 2011 Summit in Cannes, G20 leaders emphasized their commitment to jobs and social protection, establishing a Task Force on employment and rec-ognizing the importance of investing in nationally designed social protection floors.

6. At the UNRISD conference on Social and Political Dimensions of the Global Crisis, this scenario was described by Jorge Nef in relation to the Americas. According to his analysis, even in Latin America, a region associated with three decades of democratization, the spectre of repressive regimes is ever present, given a combination of ‘low intensity democracy’ and the ongoing strength of elements of the ‘national security state’ (Nef 2009).

7. The United States currently leads the world in terms of incarceration rates, with 1 per cent of adult population now in prison or jail; if those on probation and parole are added, 3.2 per cent of the adult population is under some form of criminal justice supervision. Overall more than two-thirds of those in prison are black or Latino (Pew Centre 2009, cited in LeBaron and Roberts 2010).

8. The Bottom of the Pyramid approach was popularized by Prahalad (2004), who called attention to the significant business and pro-poor development oppor-tunities that can be derived from offering products and services adapted to the needs and purchasing power of the poor, and by integrating local producers in supply and distribution networks.

9. Brazil, Russia, India, China and, more recently, South Africa.10. Such a policy agenda, promoting aspects related to re-regulation, growth, social

policy, PPPs, CSR and reformed institutions of global governance, is outlined in some detail by Gordon Brown (2010).

11. Namely the International Development Association (IDA), which provides grants and non-interest loans to 79 of the world’s poorest countries to support mainly infrastructural, health, education and other social development projects.

12. Such concerns have arisen in particular with the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into US law in July 2010, which introduced extensive changes to financial regulation.

13. Financial crises and resultant economic recessions, or boom and bust cycles, are an inherent feature of capitalist development. Since the world wide recession of 1974–75, crises have become markedly more frequent, especially in develop-ing countries. To name but a few, the debt crisis in 1982, the Mexican crisis in 1994–95, the Japanese asset bubble collapse in 1989, the East Asian crisis in


1997, the Russian financial crisis in 1999, the Argentinean crisis in 2001 and the bursting of the dot-com bubble in 2001.

14. In wage-led strategies production is oriented towards supplying a broad-based domestic market based on rising labour productivity and rising wages, rather than towards supplying an export market based on keeping wages below rises in productivity and channeling the proceeds to increase the share of profits in the national income.

15. These social economy initiatives create economic circuits grounded in a logic predicated on social needs rather than profit, and undermine market hegemony by making visible the market’s true social and environmental costs (Vail 2010).

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23

1Narratives of Crisis and Crisis Response: Perspectives from North and SouthBob Jessop

Introduction

This chapter explores attempts by different social forces to interpret the complex global financial and economic crisis as it unfolded from 2006 to the end of 2009. Much mainstream commentary has read the crisis from the viewpoints of capital accumulation rather than social reproduction, the global North rather than the global South and the best way for states to restore rather than constrain the dominance of market forces. Such com-mentaries reflect government responses to the crisis, especially in the global North. Executive authorities reacted quickly with emergency measures to safeguard the monetary, banking and credit systems to prevent large banks and firms going bankrupt, and to restore the conditions for capital accumu-lation. They have been slower to respond to the needs of ‘social reproduc-tion’ in daily, life course and intergenerational terms (see Chapter 3); and to take effective action on impending environmental, food and fuel crises. I will explicate these differences in terms of how competing narratives about the crisis framed policy responses, and how structures of economic, polit-ical and ideological domination enabled economic and political elites in key power centres to push the risks and costs of crisis-management onto subaltern groups and developing countries. Thus, besides identifying the key responses from the global North, I examine developing countries’ en-gagement through, for example, the G-20, the so-called Stiglitz Commission established by the President of the 63rd General Assembly of the United Nations and the associated summit (United Nations General Assembly 2008; United Nations 2009a, 2009b), the G-77 and the People’s Republic of China (hereafter China), and efforts at South–South cooperation. I also comment briefly on social movement and activist groups and post-neoliberal futures.

I address these questions through a cultural political economy (here-after CPE) approach. This explores the dynamic interaction of semiosis


(the production of intersubjective meaning-making) and structuration (the articulation of social relations) and offers a way to critique ideology and domination. Meaning-making is foundational to all social relations because actors must simplify the complexities of the real world in order to ‘go on’ within it. Such reductions are never wholly ‘innocent’: in construing the world, these discourses frame lived experience, limit perceived courses of action, and shape forms of social contestation, alliance building and dom-ination. Moreover, to paraphrase Orwell, while all actors engage in con-strual, some construals are more equal than others. Thus we must ask why some are translated into policy and get institutionalized, and others do not. This is not just a question of coherence, rhetoric, resonance and so on; it also depends on capacities to translate discourses into effective strategies and policies. Relevant factors include differential location in key organi-zations, networks and institutional configurations of inclusion, exclusion and domination; relative control over specific strategic resources, technical capabilities, communication media, disciplinary instruments and means of coordination; and the qualities of particular individual and collective agents in relation to particular conjunctures. Rather than elaborate the gen-eral principles of CPE, however, I illustrate how they can be applied to the semiosis and materiality of crisis.1

Relevant conceptual aspects are addressed in the section following this introduction. The following section examines the nature of the crisis and, in particular, its relation to neoliberalism. The chapter then identifies and contrasts the varied interpretations of the crisis and proposed solutions. A concluding section reflects on the implications of crisis response for both neoliberalism and counter-hegemonic projects.

Interpreting crisis

Crises disrupt accepted views of the world and how to ‘go on’ within it and also call established theoretical and policy paradigms into question. Viewed objectively, crises are complex moments of indeterminacy, where ‘decisive’ action can make a major difference to future developments. Ideas and imag-inaries2 shape the interpretation of crises and the responses thereto. At one pole of a continuum, some crises appear ‘accidental’, that is, are readily (if sometimes inappropriately) attributable to natural or ‘external’ forces (for example, a tsunami, crop failure, AIDS). At the other pole, there are form-determined crises, that is, crises rooted in crisis-tendencies or antagonisms associated with specific social forms (for example, capitalism). Another use-ful distinction is that between crises in a given social configuration and crises of that configuration. Crises in occur within the parameters of a given set of natural and social arrangements. They are typically associated with routine forms of crisis-management that restore the basic features of these arrangements through internal adjustments and/or shifting crisis effects

Narratives of Crisis and Crisis Response 25

into the future, elsewhere, or onto marginal and vulnerable groups. This is exemplified in alternating phases of unemployment and inflation in the post-war advanced capitalist economies and their treatment through coun-tercyclical state economic policies. Crises of a system are less common. They occur when there is a crisis of crisis-management (that is, normal responses no longer work) and efforts to defer or displace crises encounter growing resistance. Such crises are more disorienting than crises ‘in’, indicating the breakdown of previous regularities and an inability to ‘go on in the old way’. Crises of crisis-management can cause social stasis or regression, attempts to restore the old system through force majeure, fraud, or corruption; efforts at more radical social innovation for good or ill, leading in some cases to exceptional regimes (for example, military dictatorship, fascism), or else to attempts to break the power of such regimes and initiate moves (successful or not) towards democratization. This can be illustrated from the crisis of the post-war mode of growth, reflected in the declining effectiveness of Keynesian economic policies, which created the conditions for a transition to a neoliberal regime shift and a finance-led mode of economic growth.

A CPE approach to major social crises examines (i) how crises emerge when structural contradictions, crisis-tendencies and strategic dilemmas are in-tensified and/or when established patterns of crisis-management no longer work as expected and, indeed, when continued reliance thereon may ag-gravate matters; (ii) how contestation over the meaning of the crisis shapes responses through processes of variation, selection and retention that are mediated through a changing mix of semiotic and extra-semiotic mecha-nisms. A crisis will be most acute when crisis-tendencies and tensions accu-mulate across different but interrelated moments of a given system, limiting the scope for manoeuvre for any particular problem. Shifts in the balance of forces may also intensify crisis-tendencies by weakening or resisting estab-lished modes of crisis-management (Offe 1984). This produces a more or less acute crisis, a potential moment of decisive transformation, an opportunity for decisive intervention or a moment when the dialectic of revolution-restoration favours restoration. This opens space for strategic interventions to significantly redirect the course of events rather than ‘muddle through’ in the hope that the crisis is resolved in due course or that the status quo ante can be restored by taking emergency measures to return to ‘business as usual’.

The disorienting and disruptive effects of crises tend to provoke many competing interpretations. While many of the initial accounts prove arbi-trary and short-lived, lacking long-term consequences for power relations and overall social dynamics, some do get selected as the basis for crisis-man-agement and/or for attempts to move beyond crisis. While some narratives need to convince only a few key policy makers or strategists leading to more administered, indirect, market-mediated or molecular changes that in-volve limited participation from subaltern groups, others are effective only


through their capacity to mobilize significant support from a broader range of social forces. Such transformative narratives connect personal experi-ences, the narratives of key stakeholders and organized interests, and grand narratives that provide broader context for making sense of the crisis. In the latter cases, the plausibility of narratives and their associated strategies and projects depends on their resonance (and hence capacity to reinterpret and mobilize) with the personal (including shared) narratives of significant classes, strata, social categories or groups affected by the crisis. Moreover, although many plausible narratives are advanced, their narrators will not be equally effective in conveying their messages and securing support for the lessons they hope to draw.

Crucial here are discursive selectivities, the organization and operation of the mass media, the role of intellectuals in public life and the structural biases and strategically selective operations of various public and private apparatuses of economic, political and ideological domination. Such matters take us beyond questions of narrativity and specific organizational or insti-tutional genres towards issues of the extra-discursive conditions of narra-tive appeal and stable semiotic orders and their structural and technological reinforcement. That institutional and meta-narratives resonate powerfully does not mean that they should be taken at face value. All narratives are se-lective, appropriate some arguments rather than others and combine them in specific ways. So we must also consider what goes unstated or silent, repressed or suppressed, in specific discourses. Nonetheless, if the crisis can be plausibly interpreted as a crisis in the existing economic order, minor reforms may first be tried to restore that order. If this fails or the crisis is initially interpreted primarily as a crisis of that order, more radical changes may be explored. In both cases conflicts are likely over the best policies to resolve the crisis and allocate its costs as different social forces propose new visions, projects, programmes and policies and struggle over hegemony.

Crisis interpretations may address a more or less broad range of questions: the challenge of making sense of a ‘crisis’ (and its uneven development), attributing material, institutional, organizational and personal blame for the ‘crisis’, deciding in broad terms whether it is crisis in or of the relevant arrangements, charting alternative futures and recommending specific lines of action oriented to different spatio-temporal horizons. In the present con-text, this poses crucial problems around delimiting the origins of a crisis in space-time, establishing whether it is purely economic or has broader roots and effects, and reducing its complexities to identifiable causes that could be targeted in the search for solutions (for a study of the 1997 ‘Asian’ crisis in the Republic of Korea on these lines, see Ji 2006). Often, wider ideational and institutional innovation going beyond the economy narrowly conceived is needed, promoted and supported by political, intellectual and moral lead-ership. Indeed, as Milton Friedman (1962: 32) put it hyperbolically but tellingly, ‘[o]nly a crisis produces real change. When that crisis occurs, the


actions that are taken depend on the ideas that are lying around.’ It follows that preparing the ground for crisis-induced strategic interventions helps to shape the nature and outcome of crisis-management and crisis responses. This preparation may include a new ‘economic imaginary’ linked to new state projects and hegemonic visions that can be translated into material, social and spatio-temporal fixes that would jointly underpin continued ac-cumulation. Conversely, lack of preparation (for whatever reason) will make it harder to influence the struggle over crisis-interpretation and crisis-man-agement, however adequate, with hindsight, the crisis-diagnosis may prove to have been.

It is a truism that getting consensus on interpretations about the crisis (or crises) and its (their) most salient features is to have framed the problem. In particular, to blame successfully one set of factors and/or actors distracts blame from oneself and sets the stage for efforts to resolve crisis. This depends partly on access to key deliberative forums (see below) and partly on persua-sive power and resonance. Other things being equal, more resonant inter-pretations will get selected as the basis for action, whether this takes the form of restoration, piecemeal reform or more radical innovation. But other things are rarely equal. There is many a slip between the discursive reson-ance of particular interpretations and proposals in a given conjuncture and their translation into adequate policies, effective crisis-management rou-tines, durable new social arrangements and institutionalized compromises that can underpin new patterns of economic, political and social stability in a given spatial and temporal context. Crucial here is the correspondence, al-ways limited and provisional, between new imaginaries and crisis-solutions and real, or potentially realizable, sets of material interdependences in the wider natural and social world.

The consensus can vary in interesting ways. When crisis-management is reduced to issues of the best policies, defined through hegemonic or dom-inant forces, opportunities for more radical solutions are marginalized (Wolff 2008). This holds not only for regional, national or federal political regimes but also for the international system, where the policies of major international institutions and forums are at stake (see below on the Bretton Woods institutions, United Nations (UN) agencies and alternative inter-national groupings). Limiting crisis-management to the search for correct policies also implies that the crisis is due to incorrect policy or inadequate regulation rather than being rooted in deeper structural causes that are linked to patterns of economic, political and social domination.

Forums matter too. Powerful narratives without powerful bases from which to implement them are less effective than more ‘arbitrary, ration-alistic and willed’ accounts that are pursued consistently by the powerful through a de facto exercise of power. This has proved important in the global crisis because some international institutions and some national states are clearly more important than others: even if the UN General


Assembly adopted an agreed position on the global crisis, it would have been less influential (even if more legitimate) than bodies such as the International Monetary Fund (IMF), World Bank and the World Trade Organization (WTO), because of its slow-footedness in reaching agreement, its weak capacities to implement decisions and the ability of leading states to block radical recommendations. Moreover, as the Stiglitz Commission demonstrates, UN deliberations are shaped by particular theoretical and policy paradigms as well as power plays that limit serious consideration of radical alternatives. At best, then, the UN family of organizations provides scope for developing sub-hegemonic narratives, that is, accounts that are widely accepted in regional forums and subaltern organizations, but do not challenge mainstream paradigms. This indicates the need to address the overall architecture of global, regional and national organizations and the differential capacity to jump scales to pursue solutions at the most effective scale(s) of action and intervention. The scope for pursuing counter-hegem-onic narratives is even more limited within this institutional architecture and points to the increased importance of regional forums, local initiatives and social movements (see below).

Timing and sequencing also matter. Because this crisis was not only ‘made in the USA’ but broke there, with contagion spreading first to other neoliberal, finance-led regimes, crisis interpretations and reactions were initially shaped by readings in these heartlands. Developed nations fo-cused on their own financial market stability rather than addressing cri-sis-induced global repercussions. It was clearly harder in 2006–08 than in 1997–08 to blame East Asian ‘crony capitalism’ or the spread of con-tagion from indebted, incompetent or weak emerging economies. The re-verse flow, from the centre to semi-peripheral and peripheral formations, developed mainly from October 2008. Even then some economies were relatively insulated because they were less exposed to the world market (for example, Brazil, India and Indonesia). Regarding the others, the impact began in developing economies with the most globally integrated finan-cial sectors (notably in Eastern Europe). It was then relayed through trade relations as manufacturing and commodity prices and/or volumes dropped (notably in East Asia, sub-Saharan Africa and through ties to Russia and Central Asia). Subsequently, it was mediated through falling remittances from migrant workers and through other repercussions on the informal sector that affected the most vulnerable groups in many economies. And most recently, it has been intensified through its effects on public sector finances, which, even without the weak fiscal and institutional capacities that characterize many less developed economies, are limiting the scope to pursue countercyclical policies and cushion the impact of the crisis (see Oxfam International 2010). The impact outside the developed economies was often slower than in comparable crises in the 1980s and 1990s. This is reflected in the initial relative lack of mass upheavals or mobilization of


radical social movements, especially where centre-left governments were in power and may have been vulnerable to hostility from right-wing parties and movements.3

Finally, power matters. Although I have already noted that not all dis-courses and their spokespersons are equal, it is particularly important dur-ing periods of crisis to recall Karl Deutsch’s definition of power, namely, the capacity not to have to learn from one’s mistakes (Deutsch 1963: 37). We shall see below that the asymmetries of power in the geo-economic and geo-political field are especially significant in the selection of crisis-inter-pretations and their translation into crisis-responses. This is a fundamental factor behind the re-assertion of key elements in the neoliberal project des-pite the initial shock to that project from the form, timing, location and incidence of the current crisis.

The global crisis and neoliberalism

The origins of the present crisis and the social malaise of the past three decades are closely linked, as the editors’ introduction notes, to a neoliberal development framework (UNRISD 2010). But the crisis involves more than neoliberalism, however expansively this is defined; and this fact must inform any analysis of the adequacy of crisis interpretation and crisis responses. A preliminary account would note at least five interrelated crises: a global en-vironmental crisis; a crisis in the world market as it underwent continuing neoliberalization; a decline in United States of America’s (USA) hegemony, dominance and credibility in the post-Cold War from the late 1990s on-wards; a range of structural or branch crises in important sectors (such as automobiles and agriculture); and a crisis in finance-led growth regimes in major neoliberal regimes. These have been superimposed on more local (re-gional, national, sub-national regional, local crises) and linked to other crises (fiscal, legitimacy, institutional and so on). The fuzziness of neoliberalism makes it a highly contested term that serves to organize struggles across the economic, political and ideological fields. It has been mobilized both to advance the neoliberal cause and to identify a common enemy for counter-hegemonic and subaltern forces. A detailed analysis should certainly distin-guish forms, stages, phases and steps of neoliberalization on different scales and at different sites. In this context it is useful to distinguish four main forms of neoliberalism that emerged during the 1970s and 1980s, and iden-tify their contribution to the crises that unfolded in the mid- to late-2000s (see also Jessop 2010).

The most radical form is neoliberal system transformation. This was tried in the states that emerged from the decomposition of the former Soviet Bloc, with Russia and Poland providing two well-known examples. This tabula rasa approach was premised on the view that ‘creative destruction’ of inherited state socialist institutions was expected to lead somehow to the


spontaneous emergence of a fully functioning liberal market economy and society and a more gradual development of liberal democracy.

More significant in the leading liberal market economies have been neo-liberal regime shifts, including Australia, Canada, New Zealand, the United Kingdom, the USA and, most recently, Iceland. This shift rolled back policies and institutions associated with the Keynesian welfare post-war settlement and rolled out or restructured institutions to consolidate the new regime, tilt the balance of forces more heavily in favour of capital and institution-alize the neoliberal economic imaginary. Similar transitions occurred in Latin America during the 1970s–1990s in response to crises in the import-substitution industrialization model.

A third form comprises more or less wide-ranging neoliberal structural adjustment programmes. These involve adopting policies in line with the ‘Washington consensus’ to qualify for financial and other assistance to crisis-hit economies. These measures are more exogenous, resulting from imposition by the leading capitalist powers and/or transnational economic institutions and organizations more than from domestic politics, whether liberal democratic or authoritarian in nature. But they may well be endorsed by certain local capitals and state managers. Where there is relatively uni-fied political opposition (as in Mahathir’s Malaysia during 1997–08), how-ever, such measures may be diluted or waived. While often presented as technical or technocratic solutions to economic crises, they also have un-even economic, political and social impacts domestically.

Fourth, there are relatively pragmatic, modest and potentially reversible neoliberal policy adjustments. These are deemed necessary to maintain al-ternative economic and social models in the face of internationalization and a global shift in the balance of forces, and are often associated with the survival of corporatist and/or statist features from the relevant models. Nordic social democracies and so-called Rhenish capitalism, associated, for instance, with Germany and the Netherlands, provide examples.

The coincidence of these four forms in the first half of the 1990s marked the highpoint of neoliberalism. Yet this was also when signs of failure emerged and it became clear that (i) neoliberal system transformation had largely failed as a ‘grand project’; (ii) neoliberal regime shifts need to be flanked and supplemented by various forms of ‘third way’ policies, net-works and public–private partnerships (PPPs) to maintain their momentum despite growing resistance and/or signs of failure; (iii) neoliberal structural adjustment rarely produced the promised results, often aggravated the underlying problems and could provoke a political backlash as populist pol-itics were revived; and (iv) neoliberal policy adjustments rarely led to neo-liberal regime shifts (witness, Sweden and Germany in the 1990s, where conservative governments worked within their inherited models of social compromise). Each form of neoliberalism (and its associated crisis-tenden-cies and failures) contributed to the current crisis in its own way. Neoliberal


regimes promoted unsustainable finance-led accumulation, tried to impose neoliberalism elsewhere in the world market through structural adjustment programmes, redesigned the architecture and rules of the game of an in-creasingly integrated world economy. It is this model that has been most heavily discredited in the current global economic crisis.

Neoliberalism tends to judge all economic activities in terms of the pre-vailing global average rate of profit and all social activities in terms of their contribution to capital accumulation. For it is capital in its exchange-value aspect that is most easily disembedded from broader socio–spatial–temporal contexts and thereby freed to ‘flow’ relatively smoothly in search for profit world-wide. Unsurprisingly, coupled with the continuing deregulation of capital, world market integration and a commitment to shareholder value, neoliberalism benefited highly leveraged, hypermobile financial capital, rewarding ‘financial innovation’, reinforcing its share of total profits and boosting its ability to displace and defer problems onto other economic actors and interests, other systems and the natural environment. Neoliberalism has also encouraged the extension of profit-oriented, market-mediated accumu-lation into spaces where it was previously absent. Through these and other mechanisms, the expanded reproduction of capital tends to weaken the structural constraints associated with other societal sub-systems or institu-tional orders and/or to resist their agents’ efforts to control the economy.

Even finance capital (let alone capital in general) cannot escape its long-term material dependence on the need to produce real surplus-value before it can be realized and distributed. Nor can capital escape its material de-pendence on the existence and performance of other institutional orders (for example, protection of property rights and contracts, basic education, legislation and its enforcement, scientific discoveries). And, of course, it al-ways remains the prisoner of its own crisis-tendencies. Thus the over accu-mulation of deregulated financial capital, combined with the deflationary impact of neoliberalism, eventually pricked financial bubbles around the world. This has not ended the influence of neoliberalism, however, thanks to the legacies of policies, strategies and structural shifts dating from the neoliberal highpoint, continuing attempts to impose neoliberal logic after the crisis, and the adaptations forced on other social formations as they react to the crisis. Crucial in this regard are the asymmetries of power in the world market and the interstate system and architecture of global economic governance, which have enabled unreformed international financial insti-tutions (IFIs) and the usual ‘financial suspects’ to shape the initial response to the crisis.

Made in the USA, broke in the USA

From the first significant translation of neoliberalism into policy in Chile in 1973, the USA has pushed for neoliberalism via global, multilateral and


bilateral measures, backed by key international financial, trade and regula-tory regimes. In doing so, despite claims to have boosted prosperity, it has prompted crises around the world. The current crisis is the first global crisis of post-war capitalism that was not only ‘made in America’ but also broke out there. This makes it comparable with the Great Depression. However, whereas the USA was an ascending geo-economic power in the 1930s, it has now lost its post-war hegemony and is losing economic and political dominance at different rates and in different ways relative to Brazil, China, the European Union, India, Japan, Russia and other growing economies. This can be seen in the USA fiscal, budgetary and trade deficits and the re-emergence of a multipolar world. Yet the USA remains structurally dom-inant due to its weight in the world market, its implication in the negative externalities flowing from the many disproportions in that market and the global distortions it has created on strategic and policy grounds. An im-portant element here is the positive feedback effects of the international trade and financial imbalances between the USA and China, and the envir-onmental destruction generated by the unsustainable growth of Chinese production and USA consumption. In addition, the capacity of USA capital and state to displace and defer the contradictions of neoliberalism onto other spaces and times at small cost to themselves (as opposed to USA work-ers and the wider population) has reached its limits. This is reflected in ‘blowback’ (Johnson 2000) in the form of neoliberal crisis at home, with, as is evident, massive potential to damage the growth dynamic of the USA economy.

In the global North, especially the leading neoliberal regimes, the main crisis interpretations and measures taken are typical of those taken by liberal-democratic political regimes in the face of crisis. Broad (and often ill-defined) discretionary powers have been granted to the executive, or its nominees, to solve the crisis (Rossiter 1948; Scheuerman 2002). In the present case, such measures were declared essential to ensure timely, tar-geted and temporary action to return the economy to robust good health. Political power was concentrated and centralized in the hands of a small group of decision makers (often recruited directly from the financial sector), with broad consensus among the leading political parties on the emergency measures to be taken. While this prevented a general financial meltdown, it also narrowed the effective scope of public debate to a limited set of public alternatives and diverted attention from questions of institutional design, as well as from deeper causes in the basic social relations that reproduce crisis-tendencies and shape the forms that they take. In the USA, this has been further reinforced by an American version of ‘crony capitalism’, mas-sive lobbying and partisan obstruction of even those limited measures of financial and banking reform that have been proposed by the Obama Administration.


The unfolding crisis and its contested interpretation

Paraphrasing Baudrillard (1995) on the Gulf War, one could say ‘the Crisis’ did not happen. Given its complexity and the wide range of possible entry points and standpoints from which to read it, there are countless interpretations, explanations, strategic plans and specific policy recom-mendations. These range from early claims about the terminal crisis of capitalism through to the equally fanciful initial belief that it was a tem-porary blip in an otherwise well-functioning, self-correcting free market system. Even ‘mainstream’ interpretations, explanations, blame and pro-posed solutions reflect different regional, national and macro regional economies’ experiences of ‘the’ global financial crisis and its broader repercussions. A CPE approach explores which of these interpretations gets selected as the basis for private and public attempts to resolve the crisis. This is not reducible to narrative resonance, argumentative force or scientific merit (although each may have its role), but also depends on im-portant structural, agential and technological selectivities. Critical here is that most accounts lack support from economic and political actors with enough economic, administrative, fiscal or legislative resources to offer ‘necessary’ institutional and policy solutions on the most relevant scales of action.

My current research suggests that the dominant crisis-interpretation in liberal market economies after the initial emergency measures is that this is a crisis in finance-led accumulation or, at most, in neoliberalism. As such it can be resolved through a massive, but strictly temporary, finan-cial stimulus, recapitalization of the biggest (but not all) vulnerable banks, (promises of) tighter regulation and a reformed (but still neoliberal) inter-national economic regime. This will allegedly permit a return to neoliberal ‘business as usual’ at some unfortunate, but necessary, cost to the public purse, some rebalancing of the financial and ‘real’ economies and, in the medium-term, cuts in public spending to compensate for the costs of short-term crisis-management. One reason for the lack of popular mobilization against the crisis and these measures in the heartlands of neoliberalism may be the widespread belief that ‘everyone’ is to blame because of general-ized ‘greed’ based on the financialization of everyday life in the neoliberal economies. This implies that the housing bubble and financial meltdown were due to excessive consumption rather than unregulated, profit-oriented supply of loans, and distracts attention from the explosive growth in un-regulated derivatives. A more significant account, especially in the USA, ‘blames’ China for its exchange rate policy, sweated labour, excess savings and so forth, and, accordingly, demands that it bears a significant part of the burden of economic restructuring in the immediate post-crisis period (see Chapter 2).


To labour the obvious, the crucial sites for crisis-interpretation and crisis-management following the outbreak of crisis during 2006–08 have been the USA and the IFIs that it dominates. Beyond this, we have seen advocacy of a G-2 (with its proposed membership having switched from the USA and the European Union to the USA and China) as the most appropriate and most effective partnership to lead crisis-management and the redesign of inter-national governance (for example, Bergsten 1999, 2008). Although there have been many bilateral USA–China high-level dialogues, an effective working partnership is lacking. Hence the most heavily promoted forum for resolving the current financial and economic crisis has become the G-20, at first informally, then formally. This self-elected group of 19 key industrial and emerging market economies (plus the European Union, the IMF, World Bank and other major IFIs) has become the de facto global crisis committee. This reflects growing recognition of the actual and potential influence of the ‘BRIC’ economies (Brazil, Russia, India and China) and the creditor position of major East Asian economies. Thus, the G-20 Summit in November 2008 expanded the Financial Stability Forum to incorporate creditor nations, in-cluding China; and, in April 2009, it established a Financial Stability Board with a wider remit. This has integrated the leading ‘Southern’ economies into problem-solving and burden-sharing, thereby strengthening the lead-ing IFIs, and has also reinforced an unsustainable growth-oriented global economy. But the informal, self-selected status of the G20 means that it cannot replace the United Nations, IMF, WTO and other official bodies in crisis-management, with their official status and, in some cases, significant strategic intervention capacities (Bello 2009).

A sometimes favoured alternative is the G-77, which comprises a loose union of developing nations. Despite its association with China, it lacks, however, clout in international decision making. Yet its members are gen-erally among the worst-affected victims of the crisis, due to contagion and/or spillover effects, and are suffering from the longer-term and more wide-ranging effects of climate change produced over many decades by the developed economies. The G-77 has been a major voice calling for more con-certed action to deal with world poverty and the Millennium Development Goals (MDGs), including a debt moratorium, enhanced IMF resources and increased official development assistance (ODA) (for example, Ministerial Declaration 2009). It has also demanded that polluters pay for climate change, the stalled Doha Development Round negotiations be re-activated, mutually beneficial South–South trade arrangements and regional cooper-ation among developing economies be pursued, technology be transferred in ways that do not reproduce dependence on the developed economies, and the global South be more effectively integrated into global economic governance through reform of the international financial and economic institutions. This could also include new forms of international reserve (for example, BRIC arrangements) as an alternative to the dollar, euro, yen and


Special Drawing Rights. With fewer resources, however, many members of the G-77 have been forced to pursue procyclical monetary and fiscal pol-icies, adversely affecting their economies.

Looking beyond the leading neoliberal economies and their house-trained IFIs, the crisis is more often read by leading forces in other capitalist regimes in one or both of two ways: (i) as a crisis of finance-led accumula-tion, prompting efforts to limit the influence of the financial sector through more radical re-regulation, restrictions on the size and activities of banks, and greater investment in the ‘real economy’; and/or (ii) as a crisis of neo-liberalism, which has led to efforts to roll back neoliberalism at home and impose more controls on market forces in supranational and international contexts. Even in more neostatist or neocorporatist advanced capitalist economies, however, this has not yet prompted leading forces to question the broader commitment to world market integration or to take seriously sub- or counter-hegemonic proposals from subaltern nations, institutions, agencies and social forces.

Dominant and prominent approaches

Overall, taking account of responses across the broad spectrum of advanced capitalist economies, whether more or less neoliberal in orientation, eco-nomic and political elites have looked to solutions that involve variable combinations of the following.

The restructuring, recapitalization and nationalization of banks, as well ●

as isolating toxic assets in state-owned or state-supported ‘bad banks’. This is a core plank of crisis-management in neoliberal and other econ-omies and has been pursued through emergency legislation and executive discretion, and behind a veil of secrecy.State-sponsored Keynesianism, involving a shift from ‘private ●

Keynesianism’ – where consumer debt sustained demand despite declining real wages – to massive expansion of demand through quantitative eas-ing and short-term stimulus to some of the hardest hit industrial sectors. Both solutions are handicapped because neoliberalism has weakened state capacities ideationally and materially and reinforced dependence on pri-vate sector financial expertise, that is, on the same forces that created the crisis. Deregulation and liberalization also led to a loss of steering ability, hence the resort to printing money which is one of the least demanding of state responses, and in historically low interest rates with the resulting risk of debt-deflation. The economic crisis has also intensified the loss of temporal as well as territorial sovereignty, and this is reflected in the re-sort to fast policy and the concentration of political power in few hands.A medium-term strategy of restructuring the international financial archi- ●

tecture. This is proving difficult to realize in a concerted and coherent


way. It appears easier to introduce new institutions than reform old ones, which leaves the latter in place and in power. The displacement of the G-8 by the G-20 illustrates this well and the key players still seem to be committed to more free trade, de-regulation and so on. The opportunity for tighter regulation seems already to have been lost as the semblance of ‘business as usual’ has been restored – although few experts claim the crisis is fully resolved.The turn to rapidly growing market economies like the BRIC quartet as ●

offering good prospects for investment and an exit strategy from the slow-er-growing developed economies, as well as potential allies in multilateral re-regulation.The remoralization of capitalism in tune with corporate social responsi- ●

bility (CSR) and responsible competitiveness (Sum 2009).A Green New Deal, which is being heralded in many quarters as a ‘magic ●

bullet’ (Brand 2009) – capitalism’s best hope to create jobs, restore growth, deal with the problem of peak oil and limit climate change (for example, NEF 2008). Little agreement exists, however, on how to proceed, let alone how to translate promised action into binding multilateral commitments, as shown by the 2009 Copenhagen Summit. It is associated with many different visions and strategies, with neoliberal, neocorporatist, neosta-tist and neo-communitarian inflections that prioritize, respectively, market incentives, social partnership, societal steering and solidarity. At stake, however, are the form, manner and likelihood of its retention as a powerful imaginary that can be translated into accumulation strategies, state projects and hegemonic visions. Currently, it seems likely that the Green New Deal will acquire a strong neoliberal inflection in the leading national economies whatever its form beyond them and/or at local level.

Alternative voices and solutions

There are many other accounts of the crisis and proposals for reform, but they are not backed by economic and political actors with enough eco-nomic, administrative, fiscal or legislative resources to offer effective crisis-management solutions or long-term prospects for another type of global economic order. The attempt by the United Nations General Assembly to take a lead in the global debate on the crisis illustrates this well. In October 2008, the President of the General Assembly established a commission of experts with the mandate ‘to review the workings of the global financial system, including major bodies such as the World Bank and the IMF, and to suggest steps to be taken by Member States to secure a more sustainable and just global economic order’ (United Nations General Assembly 2008). The General Assembly also convened a three-day summit in June 2009 ‘to iden-tify emergency and long-term responses to mitigate the impact of the crisis, especially on vulnerable populations, and initiate a needed dialogue on


the transformation of the international financial architecture, taking into account the needs and concerns of all Member States’ (see United Nations 2009a). These initiatives aimed to give a voice to the interests of developing countries, which are not fairly represented in the existing institutions of global economic governance.

But as the ‘Stiglitz Commission’ prepared its report, the main lines of policy response were already being set by the leading economies (the USA, the European Union, China) and institutions of global economic govern-ance. Furthermore, sharp differences of opinion emerged between the G-77 group of 130 developing countries that pushed for a major role for the United Nations in dealing with the crisis and backed a comprehen-sive set of reforms, and Northern countries, including the USA and the European Union, that played a blocking game (Brettonwoodsproject 2009). Although the Commission’s outcome report mentioned the disjunction between growing world market integration and the weakness of represen-tative global economic governance, identified problems of institutional de-sign and the inequities of the international reserve system, and the need for economic and social measures to protect the most vulnerable, the specific proposals that it actually recommended did not measure up to the critique (United Nations 2009b). The Commission failed to propose an alternative to finance-led growth (Amin 2009; Khor 2009) or question the basic logic of profit-oriented, market-mediated capital accumulation and its implications for the ‘triple crisis’ of finance, development and the environment.4

By the end of 2009 and from the limited vantage point of the global North, the financial crisis appeared to have been managed relatively effec tively within a broadly neoliberal framework. The leading developed economies had emerged (or were emerging) from recession and the costs of crisis-man-agement had been passed on to small and medium enterprises, the ‘mid-dle classes’, organized labour and vulnerable groups in both developed and developing countries.

The challenges to neoliberalism have come primarily from social move-ments and some governments in the global South. It is possible to identify nine sets of sub- or counter-hegemonic discourses, projects and practices that have gained currency in the context of the crisis.

A trend towards relatively autonomous regional solutions and/or multi-1. polar cooperation aimed at de-coupling from the neoliberal dynamic of the global North with its inherent deflationary bias. Two prominent examples are the revival of proposals for an Asian monetary fund and the Bolivarian Alliance for the Americas (ALBA), which (following the withdrawal of Honduras) currently comprises eight Latin American and Caribbean member states. Instituted in 2004 by Venezuela and Cuba to promote South–South solidarity and fair trade as an alternative to neo-liberalism, ALBA has nevertheless been weakened by the crisis and faces


domestic opposition from right-wing populist groups and external neo-liberal forces.Demands for a re-adjustment of the balance between capital and labour 2. to boost demand, employment and decent work. This makes most sense in more developed economies without large informal sectors.Emphasizing the close connection between economic development and 3. social protection and the fact that measures of social protection, should also contribute to economic recovery.Relatedly, neoliberal trickle-down policies are being rejected in favour of 4. a trickle-up approach on the grounds that money ‘invested in the poor’ has an immediate economic stimulus impact and also contributes to so-cial development. This policy can have a neoliberal inflection (witness the idea of ‘the bottom billion’ (see Collier 2007)), or be aimed at pro-moting a social economy and social empowerment.A human rights approach is being advocated to economic development, 5. environmental justice, global governance and transparency. This focuses not only on strengthening soft and hard law but also active citizen-ship and claims making, which are seen as crucial for the realization of rights.There are demands for tax reform through closure of tax havens, clamp-6. down on tax evasion and imposition of a ‘Robin Hood’ tax on financial transactions to release billions of dollars for investment in poverty reduc-tion and social infrastructure.The exhaustion of neoliberal theoretical and policy paradigms is com-7. plemented by the activities of the World Social Forum, its regional affili-ates and similar bodies concerned to promote South–South cooperation, mutual learning and policy transfer on the basis of social movements and social activism with a strong emphasis on various anti-imperialist, anti-capitalist, feminist, environmentalist, anti-racist, socialist and au-tonomist alternatives.Many local and regional initiatives are pursuing alternative development 8. strategies based on fair trade, a solidarity economy, local trading schemes, eco- and agri-tourism, slow food and so on.The benefits of revamped developmental states for a post-neoliberal world 9. are being asserted – with even grudging, half-hearted recognition from bodies such as the IMF and World Bank.

Conclusions

This chapter has addressed attempts to draw and implement appropriate lessons for economic and social governance and policy and considered how they are constrained by the world market, the interstate system and global governance regimes, and an asymmetrical ‘global civil society’. It has indi-cated, without fully being able to establish, the wide range of interpretations


of the global economic crisis; and it has also indicated how, from the initial proliferation of interpretations, those more congenial to the leading social forces have been privileged for action. Until the fiscal crisis of the state (in-cluding local and regional states as well as sovereign states) re-emerged with a vengeance in 2010, many individuals in the developed economies seem to have accepted the crisis as a fact of life and turned to coping strategies, populist anger against ‘banksters’ and politicians seemed to have been defused, financial capital was blocking serious reform attempts, and a re-turn to capitalist normality seemed to have occurred. In short, it seemed that a phase of normalization had been reached as the main lines of national and international response had been agreed and were being pursued. Indeed, one important general conclusion is that the overall project of neoliberalism has emerged stronger even if finance-led accumulation has been discred-ited. Initial worries about strong protectionist responses that would be hard to remove and slow the economy were not realized:

For months, we’ve heard that the economic crisis would unleash protec-tionism, trade conflict and ‘de-globalisation’. But far from unravelling, the world economy seems likely to emerge from the crisis more, not less globalised ... the crisis has actually spurred more efforts to liberalise trade than restrict it, as a way of cutting costs, attracting investment and boost-ing competitiveness ... So why didn’t globalisation implode? One reason is that the international economic system has proved stronger than even its defenders had hoped. (Hancock and Greenhill 2009)

Nonetheless, while the overall trend emerging from crisis interpretation and response appears to have been the further strengthening of the neo-liberal project at the cost of some modest (and capitalistically necessary) limits on finance-led accumulation, it is also evident that the crisis has opened space for sub- and counter-hegemonic discourses, projects and prac-tices. Of course, these have not become hegemonic or dominant responses for reasons explored above, but they have proved significant sources of local and regional resilience and have put social and environmental protection on the agenda away from the mainstream forums. There is widespread evi-dence (illustrated in other contributions to this volume) that local solutions can be developed to address the short-term effects of the crisis in its various local manifestations, and the challenge is to establish ways to exploit this real-time experimental laboratory to find what works, for whom, when and why, as a basis for mutual learning and policy transfer among subaltern groups. But a global crisis cannot be solved at local level (even in a slower, less runaway world that is partly decoupled from the world market and that emphasizes local sustainability).

To overcome the fragmentation of parochial solutions (which might also intensify uneven development and global inequalities), new international


solutions are required with a massive reallocation of resources and enhanced state capacities accountable to popular social forces. However one judges the impact of the crisis on the legitimacy and credibility of neoliberalism, the legacies of 30 years of the neoliberal project in its various guises will con-tinue to shape the dynamics of the ‘triple crisis’ and the geopolitical con-juncture in which it must be managed. The crisis of neoliberalism on global scale does not mean that neoliberal era has ended: it will continue to have path-dependent effects for many years.

Thus there can be no quick-fix to the crisis. Events in the European Union in early 2010 and the more general signs of a double-dip recession indicated that the global economic crisis had not disappeared, and that the emer-gency measures had produced only an illusion of business-as-usual while downgrading the urgency of other moments of the multiple crises con-fronting global capital and marginalizing the voices of the ‘global South’. Attention was redirected from the crisis in the financial sector and the real (but private) economy to the public sector, framed in terms of accumu-lated government debt, unsustainable public spending and public sector employment.

Neither can there be a global solution to the crisis, and it would be espe-cially presumptuous to prescribe remedies for the global South in this con-text. An exception can perhaps be made for calls to develop forums in which the lessons of local struggles and local experiments can be connected, gen-eralized and provided with adequate resources. It is also crucial to reassert the urgency of addressing other global crises that have been downgraded and marginalized as leading forces address the global financial crisis.

Notes

1. On CPE, see Jessop and Sum (2001); Jessop (2009); Sum (2009); and Sum and Jessop (forthcoming).

2. The term imaginary refers here to sets of cultural elements common to a par-ticular social group (or groups) that shape ‘lived experience’ and help to repro-duce social relations.

3. On the Latin American case, see Petras and Veltmeyer (2009).4. Regular updates on the crisis have been posted on the TripleCrisis web site: www.

triplecrisis.com.

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Offe, C. (1984) Contradictions of the Welfare State (London: Hutchinson).Oxfam International (2010) The Global Economic Crisis and Developing Countries:

Impact and Response (Working Draft for Consultation) (Oxford: Oxfam). www.oxfam.org.uk/resources/policy/economic_crisis/downloads/rr_gec_developing_coun-tries_consultation_draft_270110.pdf, accessed on 31 December 2010.

Petras, J. F. and H. Veltmeyer (2009) Neoliberalism and the Dynamics of Capitalist Development in Latin America. www.globalresearch.ca/index.php?context=va&aid=16167, accessed on 31 December 2010.

Rossiter, C. L. (1948) Constitutional Dictatorship: Crisis Government in the Modern Democracies (Princeton, NJ: Princeton University Press).

Scheuerman, W. E. (2002) ‘Rethinking crisis government’, Constellations, 9(4), 492–505.

Sum, N. L. (2009) ‘The production of hegemonic policy discourses: “competitive-ness” as a knowledge brand and its (re-)contextualizations’, Critical Policy Studies, 3(2), 184–203.


Sum, N. L. and B. Jessop (forthcoming) Towards Cultural Political Economy (Cheltenham: Edward Elgar).

United Nations (2009a) United Nations Conference on the World Financial and Economic Crisis and Its Impact on Development, 24–26 June. www.un.org/ga/econcrisissummit, accessed on 31 December 2010.

United Nations (2009b) Report of the Commission of Experts of the President of the United Nations General Assembly on Reforms of the International Monetary and Financial System, 21 September 2009 (New York: United Nations). www.un.org/ga/econcrisis-summit/docs/FinalReport_CoE.pdf, accessed on 31 December 2010.

United Nations General Assembly (2008), Report by the Office of the President of the General Assembly on the Inter Active Panel on the Global Financial Crisis, 30 October 2008, United Nations, New York www.un.org/ga/president/63/interactive/gfc/re-port_gfc101108.pdf, accessed on 3 April 2010.

UNRISD (United Nations Research Institute for Social Development) (2010) Social and Political Dimensions of the Global Crisis: Implications for Developing Countries (Geneva, 12–13 November 2009) Conference News, No. 25 (Geneva: UNRISD).

Wolff, R. (2008) ‘Policies to “avoid” economic crises’, MR Zine, 6 November. http://mrzine.monthlyreview.org/index061108.html, accessed on 31 December 2010.

43

2The Perils of Paradigm Maintenance in the Face of CrisisAndrew Martin Fischer

Introduction

In the wake of the global financial crisis, two ideas became new conven-tional wisdoms. One was that the mainstream economic consensus of the past decades had been shattered. The other was that the turbulence was beyond comparison to any other since the Great Depression. Both suppo-sitions can be questioned, not for the sake of provocation but for remem-bering a more recent past – the 1960s and 1970s – as a guide to what might be around the corner. This was the last time that US hegemony was seri-ously challenged. But it was then aggressively revived through monetarism and militarism, effectively ending the ‘Golden Age’ of Keynesianism in the North and developmentalism in the South. The resulting economic policy package became known as neoliberalism or, in more innocuous terms, the ‘Washington consensus’, that is, the consensus that is now supposed to be shattered. Then, as now, we tend to assume that systemic crisis signals the end of hegemony.

Moreover, there now seems to be a sober consensus among supposedly humbled economists that we are returning to some form of Keynesianism. Even the return to public austerity following private bail out is supported by the convenient recollection that Keynes, after all, had not advocated for permanent deficits, only cyclical deficits to be balanced over the course of the business cycle. Yet, ironically, this Keynesian narrative has been usurped to a large extent by erstwhile propagators of the orthodox policy paradigm and, through a variety of rhetorical twists devoid of Keynes’s most essen-tial insights, is being used to reconstitute this orthodoxy. This process of paradigm maintenance needs to be urgently addressed if the opportunity presented by the crisis is to be leveraged for a return to a more progres-sive, inclusive and developmental policy paradigm in both the North and the South. Failing this, current orthodoxies risk being reconstituted or even reinforced. Through a sense of complacency that the ‘consensus has been shattered’ – a conventional wisdom common among both Left


and Right – we risk finding ourselves soon entering a new round of radical systemic adjustments producing development debacles similar to those of the early 1980s.

This argument is developed in three parts. First, several contemporaneous debates are revisited concerning the lead up to the 1982 debt crisis, which marked a decisive turning point in US global hegemonic revival. In partic-ular, the recasting of this crisis as primarily a problem of surpluses emerging from oil price shocks in the 1970s and subsequent borrowing by developing countries is discussed. Second, the chapter examines how the crisis today has been quickly framed by leading public economists, usually with plati-tudinous references to Keynes, as a problem of excess savings, particularly those deriving from Chinese surpluses, thereby deflecting attention away from the more fundamental cause of rampant financialization intimately connected to the maintenance of US hegemony. Then the chapter discusses how this logic is profoundly un-Keynesian, and an alternative explanation is provided. The conclusion explores some of the implications of this ideo-logical reconstitution that is taking place before our very eyes even in the midst of the ongoing crisis, with very dubious implications for publics in both the North and the South.

Revisiting the 1982 debt crisis

Recalling certain debates during the lead up to the 1982 debt crisis is important precisely because this crisis marked the decisive turning point of US global hegemonic revival, ending the slow erosion of US control on economic, political and military fronts during the troubled decade of the 1970s. In particular, a certain stereotype of this period has since become a truism through the force of repetition, despite being the focus of intense disagreement among leading economists at the time. This is the idea that inflation and increased international US dollar liquidity in the 1970s, and hence stagflation in the North and the accumulation of debt in the South (especially Latin America), was primarily due to the first oil shock in 1973, when the Organization of the Petroleum Exporting Countries (OPEC) quin-tupled the price of oil, followed by the subsequent recycling of petrodollars in the international financial system. Accordingly, newly liberalized inter-national finance had merely served as efficient conduit for these imbalances that were, ultimately, the result of market interventions by countries unable to absorb the consequent surpluses. The logic of this streamlined represen-tation served an important legitimizing role for the belief, famously edified by Thatcher, that ‘there is no alternative’ to correcting the consequences of years of interfering with sound market principles.

While obviously containing elements of truth, this stereotype sidesteps the fundamental sources of these imbalances in the 1970s. Despite intense debates at the time about the exact reasons for stagflation, it was very clear

Perils of Paradigm Maintenance in the Face of Crisis 45

that the proximate vehicle of global inflation had been sharp increases in international dollar liquidity from the late-1960s onwards. Moreover, it was well recognized that these had been primarily due to persistent US fiscal deficits from the mid-1960s onwards, in part due to the expenses incurred by the Viet Nam war combined with the end of ‘easy Keynesianism’,1 and amplified internationally by the liberalizing offshore Eurodollar market.2 Indeed, the United States went off the gold standard in 1971 due to the unsustainability of its position, thereby allowing itself to adjust its imbal-ances through devaluation, particularly with respect to rising competition from Germany and Japan.3

Although these events occurred well before the first oil price shock in 1973, subsequent oil price shocks gripped popular imagination as the obvious and convenient scapegoat for inflation and slow-down. Responding to such myopia, Robert Triffin (1978/79: 270–71) noted that world ‘import and export prices ... rose by less than one per cent a year in the 1960s, but by more than six per cent a year from 1970 through 1972, and by as much as 30 per cent in the last 12 months before the explosion of oil prices in the fall of 1973’ (emphasis in original). He argued that this was connected with mounting US fiscal deficits, which had doubled world reserves from the end of 1969 to the end of 1972, increasing them by as much in these three years as in all previous centuries of recorded history. In comparison, he contended that the oil price shock played a minor, albeit aggravating, role, contrary to popular perception and much academic assertion at the time. Indeed, the OPEC cartel was in part an emergency response to the fact that, in the face of accelerating inflation in the early 1970s, the terms of trade of petroleum exports had fallen to their lowest level since the 1930s (see Toye 1993). While the cartel was more than successful in correcting this decline, many argued that the surpluses generated by the oil-exporting countries accounted for a relatively minor share of the increase in global dollar liquidity in the 1970s and they were largely exhausted by the end of the 1970s in any case.4

This contemporaneous debate is worth recalling because it demonstrates the rapidity, even then, with which proximate events displaced the short-term memory of obvious underlying causes of global imbalances in the public consciousness. These lay in US monetary policy, US reliance on its seigniorage rights, and the liberalization of international banking from the mid-1960s onwards. These factors, more than petrodollars, were at the root of the debt accumulation that emerged in the 1970s due to very low and sometimes negative real interest rates, increasingly abundant money, and very bullish international bank lending operations right up to the eve of the debt crisis.5 Notably, there was no particular ideological proclivity to this norm; right-wing and radically monetarist military regimes in Chile and Argentina, as well as socialist Poland, oil importers and exporters, many Organisation for Economic Co-operation and Development (OECD) coun-tries and even the Republic of Korea had engaged in heavy borrowing during


this period, with the very proactive complicity of international banks. However, the fact that trade surpluses temporarily shifted to oil-exporting countries nonetheless created a convenient scapegoat that has since been a recurrent theme into the present.

With regard to the debtors, it is important to recall that Latin American countries fell into crisis only when the United States radically changed the game in the early 1980s by sharply raising interest rates, up to a peak in the federal funds rate of 20 per cent in June 1981. As noted at the time by Carlos Diaz-Alejandro (1984: 335), ‘what could have been a serious but manageable recession has turned into a major development crisis unprecedented since the early 1930s mainly because of the breakdown of international finan-cial markets and an abrupt change in conditions and rules for international lending.’ In these murky waters leading up to crisis, it is clear that responsi-bilities and potential risks were shared by creditors and debtors alike, as well as by the North and the (Latin) South. However, in hindsight, we know that the costs were mostly borne by the latter, to the extent that Latin American governments willingly or unwillingly socialized large amounts of privately contracted debt and adopted stabilization policies that quickly generated trade surpluses by crippling their economies in order to service these social-ized debts.6 For the first time in the history of Latin American debt crises, there was little if any sustained default.

From the perspective of Northern finance, this outcome was a resounding success compared to how things could have been. However, it is also clear that the narrative of placing singular blame of financial irresponsibility on the Latin debtors served an ideological role to justify the fact that Northern financial sectors escaped the crisis relatively unscathed, albeit at massive social costs to Southern publics. It also served to divert blame in the North, where workers were also suffering under the highest unemployment rates witnessed since the Great Depression (higher than the rates witnessed in the recent US crisis). To borrow the opening words of the seminal anal-ysis of the debt crisis by Diaz-Alejandro (1984: 335), ‘Blaming victims is an appealing evasion of responsibility, especially when the victims are far from virtuous.’

The power of this narrative was that it simultaneously succeeded in placing the blame of instability and imbalances on the most obvious surplus culprits (oil-exporting countries), while legitimizing policies that shifted the burden of systemic adjustment onto the most industrially advanced and integrated peripheries of the international system. The hypocrisy was espe-cially notable given that Northern economies profited from the stimulus of fleeing capital from these routed peripheries. Indeed, the debt crisis was arguably one of the key mechanisms that allowed for the reassertion of US hegemony on an entirely new structural footing of current account deficits rather than surpluses, through financial means combined with a massive return to militarism under Reagan from 1983 onwards.7


The emergent monetarist consensus of the 1980s thereby managed to recast its policy failures in dealing with the 1982 debt crisis into ideological triumph by focusing on the symptoms of crisis as if these were the main causes. This revisionism in the face of systemic crisis was so successful that the resulting narrative is rarely challenged or questioned in the mainstream development studies literature today, even by many scholars on the Left. Indeed, it is often noted that the current crisis is the first major crisis since the 1930s to have emerged from the centre rather than the peripheries, even though the 1982 debt crisis was arguably also an outcome of building dise-quilibria emanating from the centre.

Of US credit bubbles and excessive Chinese savings

Debates on the current financial crisis have also been serving, to a certain extent, as an effective distraction from ideological reconstitutions simulta-neously taking place in the midst of crisis, similar to the 1970s. The double irony is that these reconstitutions are usually couched in loosely substan-tiated evocations of Keynes. As if a refrain, the narrative is again focused on blaming the peripheries for crisis in the centre. The target is again the most obvious surplus country – China. The charge is that its interventionist economic strategies and its understandable but mistaken obsession with amassing foreign exchange has been an important, if not dominant, under-lying cause of the credit bubble in the United States. The logic is that a foreign exchange savings glut emanated from Asia as an outcome of specific policy choices taken in the aftermath of the East Asian crisis of 1997–98. This savings glut was then recycled in the United States, given that most foreign exchange reserves are held in US Treasury securities and, increas-ingly, in non-government investments, including the notorious securitized subprime mortgages. Hence, the Asian savings glut crucially fuelled the US credit bubble. The Keynesian allusions are presumably based on the idea that such savings will ultimately be self-defeating when bubble turns to bust and that surplus countries should be penalized. China, in particular, must now make painful adjustments to correct its previous policy blunders, not only by contributing to stabilizing the international financial system, but more fundamentally by allowing its currency to appreciate, and by liberalizing its financial sector.

A powerful voice in the popularized propagation of this narrative has been that of Martin Wolf from the Financial Times. At the end of 2008, Wolf (2008b) iconically alluded (without attribution) to the famous quote by Paul Samuelson (often attributed to Milton Friedman) that ‘we are all Keynesians now’, referring to the apparent shattering of the consensus which, it should be recalled, he had supported until it became obvious that the party was ending in 2007. However, despite this claim, he has maintained the supply-side thrust of his condemnation of China’s ‘mercantilist’ currency policies,


as laid out in Wolf (2008a) more or less along the lines expressed above. For instance, in Wolf (2009a), he concurs with a publicly unavailable paper from Goldman Sachs that the newly emerging savings glut from Asia caused the low bond yields that ‘drove the crazy lending whose results we now see’. He suggests that although the mess would have been smaller with better regulation, ‘someone had to borrow this money ... This is as much a macroeconomic story as one of folly, greed and mis-regulation.’ He there-fore concludes that China’s policy decision was ‘a blunder’ and it now has to accept the consequences, particularly if it does not want to face default from its debtors (that is, the United States). In order to do this, China must, above all, correct its exchange regime. He reaffirms his position in Wolf (2009b), this time concurring with a paper by Goldstein and Lardy (2009) from the Peterson Institute for International Economics. During Obama’s visit to China in November 2009, Wolf (2009c) again stepped up the tone of urgency, insisting that ‘the US is entitled to protect itself against such mercantilism ... We have spent long enough discussing China’s exchange rate policies. It is time for action.’

It is not unsurprising that this is more or less the same position taken by the Obama administration, and even the Bush Junior administration for that matter. Indeed, one of the first acts of Tim Geithner as US Treasury Secretary was to declare China a currency manipulator in January 2009, although he quickly stepped down from this very aggressive stance. Notably, the Bush administration had been previously toying with this threat for several years but had not yet taken a stand. Similarly, on 19 October 2009, US Federal Reserve Chairman Ben Bernanke argued that the US-centred crisis had been fuelled by giant capital inflows that overwhelmed both market disci-pline and regulatory safeguards against the mispricing of risk (see Guha 2009). In other words, similar to Greenspan before him, his interpretation of causality runs from surpluses to capital inflows and then to liquidity and regulatory failure, albeit Greenspan never made it to the last point during his tenure as Fed Chair, given his avowed belief in the sophisticated ability of US financial markets to absorb such liquidity. Bernanke qualified this belief in line with the more dire times. However, his contention was similar, in that the East Asian push towards trade surpluses following their experience with the 1997 crisis subsequently produced imbalances between national savings, consumption and investment, which then produced the global imbalances.

Some otherwise critical ‘liberal’ aka ‘Left’ economists have reinforced this narrative by also explaining the crisis as a problem of excess savings. For instance, Paul Krugman, the flag bearer for the ‘New Keynesians’ in the United States,8 places emphasis on China’s exchange regime and its accu-mulation of reserves, recounting more or less the same narrative as above. In Krugman (2009b), he clearly identified the current crisis as a liquidity trap, whereby ‘America has too large a supply of desired savings' (emphasis in


original). ‘To put it another way, we’re facing a global paradox of thrift, and everyone wishes everyone else would save less.’ Like Wolf, he became more forceful as the economic crisis was waning in the autumn of 2009, encour-aging a more bullish approach with regard to negotiations with China on currency manipulation (for example, see Krugman 2009d).

A similar narrative has found a hold even further to the Left. For instance, Robert Wade (2009: 542–43) emphasizes the role of global imbalances in the financial crisis at the domestic level in the form of credit recycling, rather than at the international level in the form of currency recycling. Although somewhat ambiguous, his condensed interpretation of the crisis seems to imply more or less the same logic as above, that foreign exchange surpluses in Asia drove the credit bubble in the United States. This is somewhat para-doxical, given that he usually opposes Martin Wolf on most issues, but here he seems to find an affinity in the savings supply-side interpretation of the crisis, despite his repeated evocation of Keynes and Keynesian remedies.

It is precisely this de facto consensus across much of the Left and Right that provides the potential for a powerful ideological reconstitution. Perhaps the guise of the reconstitution would not exactly match the neoliberalism that the Left so despises, but it would effectively legitimize a strategy of shifting the burden of adjustment onto the most obvious peripheral surplus country that, in the end, is deeply integrated into international produc-tion networks, increasingly dominated by Northern corporations. In other words, despite the attention to global imbalances, these narratives ignore the underlying structures of production, distribution and ownership – or of power – that drive these imbalances.

Keynes in Beijing

In order to understand the last point, it is important to question whether these emerging narratives have understood the causality the right way round. According to savings-glut logic, the US financial sector might not be efficient in the sense of avoiding bubbles, but it definitely does its job with a vengeance, even if somewhat hectically. However, it could not do this job if the global imbalances had not provided a source of liquidity to slosh.

Despite the ritualized claims on the intellectual soul of Keynes that have become a litany accompanying these narratives, this underlying logic is profoundly un-Keynesian. To borrow the words of Geoff Tily, from a Keynesian perspective the logic amounts to the tail wagging the dog.9 In other words, it is based on the principle that supply creates its own demand, that is, that Asian savings drive US aggregate demand. It was precisely this logic that was at the heart of Keynes’ rejection of what he called ‘the clas-sics’. Instead, he argued that aggregate savings adjust to aggregate demand, not the other way around. To translate this into the current context, US aggregate demand drives US external imbalances, which in turn drive the


imbalances of those economies oriented towards servicing US demand, primarily through investment demand in those economies, to which aggre-gate savings adjust. Changes in US aggregate demand are influenced by deficit spending, which in turn is influenced by warmongering and ideo-logical obsessions with cutting taxes and subsidizing the wealthy, and by private demand augmented by phases of financial deregulation, innovation and resultant credit bubbles.10 In other words, another phase of rampant financialization in the centre drives global imbalances. From the perspec-tive of China, China’s investment rates are not high because the Chinese save a lot. Rather, China’s aggregate monetary savings are high because of high rates of investment, which are in part responding to aggregate demand from the United States and Europe, among other factors. China’s growing external surpluses and building foreign exchange reserves are outcomes of these processes rather than causes.

There is a strong case to be made that this Keynesian interpretation fits the historical stylized facts quite well, at least much better than the supply-side (neoclassical) interpretation. This can be illustrated through an exami-nation of four issues in China; the low consumption to gross domestic product (GDP) share, the high savings rates, currency undervaluation and the sequencing of Chinese surpluses and US deficits.

Consumption to GDP share

To start with, it is important to recognize that the Chinese authorities have been keenly aware of the dilemma of the low consumption to GDP share for much longer than is typically acknowledged by most Western commenta-tors. Raising this share has been an explicit goal of the government since at least 2003, if not before, such as in 1997–98 when one of the main reactions of the government to the East Asia crisis was to boost domestic demand. It has since been a subject of much domestic debate. For instance, Hu Angang, a prominent and influential economist based at Tsinghua University in Beijing, had vigorously argued in the late 1990s for much greater emphasis on rural and agricultural development and on improving household incomes versus aggregate economic output as a means to deal with both sluggish domestic demand and rising regional inequalities (see Hu 2000). However, despite many government efforts, the consumption share continued to fall in the 2000s.

The failure to achieve this goal can hardly be called a ‘choice’ or, if so, it has been a choice without any obvious or desirable alternative. It is not the case that, as suggested by Krugman (2009a), China acquired its ‘stash ... in a fit of absence of mind’, only recently waking up to the problem. Rather, in recognizing its inability to balance its external position, the central government quickly and very consciously opted for the contingency option of at least managing the imbalances through sterilization.11 Its choice to


ride the wave of global economic restructuring is understandable; balanced or not, growth was nonetheless a priority given the enormous challenges facing China, still a poor country, including fairly high levels of urban unemployment,12 persistent rural poverty and the planned urbanization of approximately one-third of the country’s population over the next genera-tion, already in motion since the 1990s. Given these priorities, if growth could not be consumption led, then it must be investment led, not merely by choice but by necessity.

Savings rates

Moreover, the common assertion that China’s high savings rate derives from high household savings, which, in turn, drive investment versus consump-tion, is another caricature worthy of some attention. The usual argument is that high household savings rates are either ‘precautionary’, meaning that they are due to rising health and education costs and lack of social secu-rity and public pensions, or else they are the result of a combination of financial repression and industrial policy, which, it is argued, ‘shifts massive amounts of income from households into corporate profits’ (Wolf 2009b). Revaluing the renminbi (RMB)13 is therefore seen as central to correcting the imbalance between production and consumption, alongside financial liberalization that allows for proper pricing in savings and credit markets and diversified options for household savings other than through state-re-pressed channels.

While these arguments contain elements of truth, they generally involve a blurring between conceptions of savings as household savings (that is, choices between consumption and saving out of total household income) and the residual concept of ‘national savings’ in national accounting (that is, the difference between aggregate output and aggregate consumption). The latter conception assumes that aggregate savings equal aggregate invest-ment, whether by a neoclassical logic whereby savings drive investment, or else by a Keynesian logic whereby savings adjust to aggregate demand, which is driven by consumption and investment decisions. Notably, there is nothing implicit or explicit in national accounting that predisposes it to the neoclassical logic.

The distinction is important because there is much contention around the caricature of Chinese household thrift. For instance, He and Cao (2007) point out that the high levels of national savings in China are not explained by the household sector but by the government and corporate sectors. In reality, the average household savings rate had fallen since the mid 1990s (up to 2004, their most recent data) due to urbanization, whereby a compo-sitional shift from higher saving rural households to lower saving urban households resulted in a fall in the overall average savings rate. Moreover, they note that aggregate household savings accounted only for a shrinking fraction of total national savings, falling from 52.3 per cent of national


savings in 1992 to 41.6 per cent in 2001 (He and Cao 2007: 3–5).14 He and Cao therefore dismiss the ‘precautionary savings hypothesis’ to explain high and rising national savings rates in China.

Through a flow-of-funds framework,15 He and Cao explain that the high national savings rate is in part attributable to fast growth of savings in the government and non-financial corporate sectors, whereas insufficient consumption demand is also the result of a decreasing share of household to national disposable income since 1996 (He and Cao 2007: 6). This point is similar to some of the arguments regarding industrial policy mentioned above, although the detailed analysis by He and Cao reveals an implicit Keynesian slant that marks a crucial distinction. Notably, despite the high and increasing levels of savings in both the government and non-finan-cial corporate sectors, such savings were insufficient to meet investment demand. The government was covering its shortfall by issuing large amounts of government bonds.16 Similarly, non-financial corporate savings (that is, retained earnings) covered only about half of that sector’s investment needs up to 2001 (the most recent data covered by the authors). Bank lending was the major source of financing to cover the gap, although other sources included portfolio finance and an increasing share of financing from abroad, the latter reaching 39 per cent of bank loans already by 2001, up from 22 per cent in 1992 (He and Cao 2007: 10–11). In other words, the appear-ance of rising national savings rates up to this time, in large part, reflects monetary expansion, credit creation, increasing levels of foreign financing and increasing levels of reinvested corporate earnings, all in response to investment demand.

This would also help to explain the falling share of household dispos-able income in national income, despite very high rates of growth in such household incomes that are the envy of most developing countries. It is in this sense that the high residual category of national savings should not be conflated with a notion of repressed consumption or savings-led investment but, rather, as an attribute of the speed by which China has been catching up. While they recommend a variety of government-directed redistributive policies and further reform in the domestic financial sector to deal with the resultant imbalances, currency appreciation and international financial liberalization are absent from their recommendations.

Currency undervaluation

The issue of currency revaluation reveals another fallacy of the savings-supply-side assessment of the Chinese growth experience. Namely, it is not at all clear whether revaluation would have any impact on China’s external surpluses, nor is it clear whether the Chinese renminbi is even undervalued in the first place. Among the substantial debate on this issue,17 a notable contribution in defence of China was made by Lau and Stiglitz (2005) during the peak of the campaign for China to revalue in 2005. Among their


various points, they highlighted that the high import content of China’s exports to the United States (which they suggested is as high as 70–80 per cent) would counteract the price impact of appreciation because higher prices for exports would be offset by lower prices for the imported inputs for these exports. On the other hand, they noted that revaluation would place an immediate downward pressure on Chinese agricultural prices and thus on rural incomes. A related issue not mentioned by Lau and Stiglitz is the fact that export-oriented enterprises would likely respond to whatever loss of competitivity that appreciation would entail by attempting to lower unit-costs either by repressing wage rates and/or raising labour productivity. Indeed, elements of both tendencies have been observed since 2005, and both would have had the effect of exacerbating the lag between household disposable income growth and national income growth by raising the share of enterprise earnings vis-à-vis wages.

Despite these arguments against appreciation, the Chinese government nonetheless allowed the renminbi to appreciate against the US dollar by about 20 per cent from July 2005 to July 2008. Simultaneously and in apparent contradiction, the trade surplus in goods exploded from around 3 per cent of GDP in 2004 to a peak of over 9 per cent in 2007.18 More specifically, the value of the trade surplus with the United States more than doubled between 2004 and 2007, increasing from about 4 per cent to 5 per cent of nominal Chinese GDP converted into US dollars at market exchange rates (that is, even after accounting for the effect of revaluation on this nominal calculation). This simple observation seems to be ignored by the proponents of further currency appreciation now. It suggests that the external imbalances have borne little relation to the exact relative valuation of the Chinese currency but, rather, to underlying structural changes in the organization of international trade and production.

Sequencing of China surpluses and US deficits

Even if we reject the notion that excess savings have been driving these surpluses, an argument could still be made that artificially high levels of investment, encouraged and subsidized by government industrial policies, have caused the excess output, and hence the external imbalances. However, this obviously begs the question, ‘what allowed for the consumption of such output surpluses?’ In other words, what were the international factors that enabled the government to follow such strategies in the first place? After all, at the end of the 1990s and in the wake of the East Asia crisis, the Chinese economy was facing serious problems with overproduction in many sectors, as well as generalized price deflation in the economy, particularly for agri-cultural and manufactured goods. From the vantage point of the time, it was not obvious whether the government would be able to continue an investment-driven strategy.


Many economic commentators in the United States have suggested that US consumption of this surplus was more or less induced by the imbalance, given the responsiveness and absorptive capacity of its mature free market economy. The alternative hypothesis is that financially lubricated corporate restructuring and expansion in the United States and other Northern econo-mies drove Asian surpluses. In order to analyse this question, it is useful to examine the sequencing of Chinese current account surpluses and US current account deficits, presented in Figure 2.1. The US deficits and China’s reserves are presented with reversed signs in order to more effectively evaluate the evolution of this bilateral comparison. The values are in current US dollars as this best represents the respective monetary weights of the imbalances in the international economy, particularly in comparison to each other.

Through this simple comparison, it is quite clear that the argument that Chinese surpluses had been fuelling the credit bubble in the United States equates to placing the cart in front of the donkey. China’s current account surplus shrank from a brief East Asia crisis high of US$40 billion in 1997 to US$17.4 billion in 2001 (1.3 per cent of its GDP), while the US current account deficit simultaneously fell from –US$141 billion to –US$398 billion. The burst of the dotcom bubble in 2000 and the ensuing recession in the United States caused a slight correction to this trend in 2001, but thereafter the US current account deficit continued its precipitous decline, whereas the Chinese current account started to increase only at a comparable pace after 2004 (in terms of year-on-year increase in nominal value, not in terms

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Figure 2.1 US current account deficit (reversed) and China current account surplus


of pace of change). Up to 2004, China’s surplus had increased only gradu-ally to US$69 billion, less than twice the amount in 1997, whereas the US current account deficit had fallen to –US$631 billion, increasing 4.5 times since 1997. It was only from 2005 onwards that the current account surplus of China started to explode at a pace comparable to the US freefall into deficit that had been well in course since the East Asian crisis. Moreover, the US credit bubble had already been well in progress by 2005 and, even by 2008, the Chinese current account surplus remained about US$280 billion less than the US current account deficit in the same year.

In terms of bilateral trade between the United States and China, China’s surplus with the United States did accelerate in 2001 and increased more or less continuously up until 2008, as did its surplus with Europe.19 Indeed, the surplus with Europe grew even faster; it started from almost zero in 2001 and actually surpassed the surplus with the United States in 2008 for the first time (exports to Europe were actually greater than exports to the United States, but so were imports from Europe). However, these observations need to be qualified by China’s equally dramatic descent into deficit with the rest of Asia (mostly East and Southeast Asia), from a slight surplus in 1999 and a slight deficit in 2001, to a sudden increase in the trade deficit to about US$74 billion by 2004, almost equal to the surplus with the United States of US$81 billion in the same year. This descent stalled from 2005 onwards, not because of a slow-down in trade, but because China’s exports to Asia started to catch-up with imports from Asia. As discussed below, much of this trade with Asia represents production-sharing within international production networks.20

Returning to the overall picture presented in Figure 2.1, the trend of rising imbalances on the side of China also appeared sooner in terms of reserve accumulation. Reserves started to increase in 2001, although still slower than the increasing current account deficits of the United States. Notably, this was because of a huge surge of capital inflows into China between 2001 and 2005, in large part related to increased net inflows of foreign direct invest-ment (FDI) parallel to China’s World Trade Organization (WTO) accession in 2001 and to speculation on renminbi revaluation up to 2005. In other words, these capital flows were a reflection of financialization in the United States rather than a cause of it. It can hardly be said that such surpluses on the capital account subsequently contributed to the credit bubble in the United States, given that much of the capital inflows derived from credit expansion in the United States in the first place. The fact that the surge on the capital account preceded the surge on the current account by about three to four years also suggests that the latter were being led by the former.

While there is a strong case to be made that China’s surpluses were responding to imbalances in the United States, the sudden emergence of major surpluses in China after 2001 admittedly has raised many questions. The emergence has been obviously related to China’s accession to the WTO in 2001, although this explanation alone remains quite superficial. More


fundamentally, it has been based on the systemic rerouting of East Asian-centred international production networks through China that followed the East Asian crisis in 1997–98, which WTO accession apparently facili-tated and encouraged.

A growing body of literature on transnational corporations (TNCs) in Asia confirms this reasoning,21 providing strong evidence of China’s subordi-nate third or even fourth-tier position within these production networks. Athukorala and Yamashita (2009: 41) argue that the growing trade deficit between China and the United States is structural, ‘related largely to the pivotal role played by China as the final assembly centre in global produc-tion networks’. This role, they argue, has been ‘based on its ample supply of labor, and moves taken by US firms to supply high-end parts and compo-nents from their Asian bases to China’ (Athukorala and Yamashita 2009: 54–55). Yao (2009: 63) similarly argues in a strong critique of Rodrik (2006) that the export surge in the sector of machinery and electrical machinery and parts in China does not necessarily represent technological upgrading but, instead, is ‘closely associated with its processing trade regime and foreign outsourcing to China’. These arguments confer with the previous observation from He and Cao (2007) that finance from abroad has been quickly rising in prominence in the late 1990s and 2000s as a source of funding for non-financial corporations.

Arguments for renminbi revaluation largely avoid this emerging role of China as mass processor in the final assembly of goods destined for US and European consumption through networks increasingly dominated by Northern TNCs. They also avoid the parallel processes of financialization in the United States and Europe that fuelled not only consumption in these final trade destinations but also Northern consolidation of control over these production networks since the late 1990s. This crucial missing link leads to a completely different line of analysis regarding the significance of China’s imbalances and, more importantly, the effective ownership and control over the wealth that they represent. For instance, Zheng and Yi (2007: 19) note that China’s foreign exchange reserves imply a rather sizeable indirect debt that China would eventually have to pay back. Similarly, in communications with Jan Kregel, he indicated that from information presented to the recent meetings of the Commission of Experts of the President of the UN General Assembly on Reforms of the International Monetary and Financial System, it was quite clear that the external figures on the foreign exchange holdings of China are meaningless for most purposes, especially since a large propor-tion are apparently non-repatriated profits of joint ventures with foreign multinationals.22 Writing more broadly on the role of late industrializing developing countries in international imbalances, Kregel (2008: 28) notes that ‘it is possible that a deterioration of the recorded US trade balance could be reflected in the increased profitability observed in the past ten years for US companies operating in the global market.’ Athukorala and Yamashita (2009: 40) draw a similar conclusion.


It is vital to view the current debates regarding global imbalances in this light. The presumption that China is in a position of strength and should thus adopt a much more pro-active position of mediating imbalances in the international monetary and trading system through greater openness and less interference in its exchange rate is one that treats China as if it were one of the central powers behind the expansion and regulation of this monetary and trading system. A false evaluation of such strength could have dramatic implications for China, particularly if the proposed strategies of currency and financial liberalization would result in accentuating vulnerability to volatile capital flows in the near-future reverberations of the current crisis. This concern is all the more important, given that, despite the attention focused on China’s reserves, these have been in fact dwarfed by the volumes of international liquidity that contributed to the build up to the current crisis or that resulted from the crisis, in both cases generated by Northern financial systems. In the wake of such huge surges of international liquidity, it is plausible that China’s own foreign exchange reserves today could be quickly eroded in the medium term. From this perspective, China’s leaders are probably quite rightly concerned with falling back into the stringent external constraints typical of post-war late industrializers, from which China only very recently escaped on the basis of riding a wave of financiali-zation and industrial restructuring emanating from the West.

Conclusion

This chapter focused on ideological reconstitutions in the face of financial crises past and present. First, several contemporaneous debates were revis-ited concerning the lead up to the 1982 debt crisis, which marked a decisive turning point in US global hegemonic revival. While this crisis was funda-mentally rooted in disequilibria related to the breakdown of the Bretton Woods system, it was recast as a problem of surpluses emerging from oil price shocks in the 1970s and subsequent irresponsible borrowing by developing countries ready to recycle these surpluses. This recasting created the ideo-logical justification in support of policies that shifted most of the burden of adjustment from Northern financial sectors to developing country govern-ments. The emergent monetarist consensus of the 1980s thereby managed to recast its own policy failures in dealing with the debt crisis into ideological triumph by focusing on the outcomes of crisis as if these were the principal causes of crisis. This instant revisionism in the face of systemic crisis was so successful that the resulting narrative is rarely challenged or questioned in the mainstream development studies literature today.

Second, the chapter examined how the crisis today has been quickly framed by leading public economists, usually with platitudinous references to Keynes, as a problem of excess savings in the rising Eastern peripheries. Chinese external surpluses in particular receive the brunt of blame as one of the primary sources of excess savings. As a logical corollary, it is argued


that China must carry its share of the resultant costs of adjustment, princi-pally by allowing its currency to appreciate and by reforming itself through financial and other liberalizations.

Third, the chapter questioned these narratives and proposed an alternative interpretation of global imbalances from the perspective of a correct under-standing of Keynes. From this perspective, the appropriate logic would be that US aggregate demand drives US external imbalances, which in turn drive the imbalances of those economies oriented towards servicing US demand, primarily through investment demand in those economies, to which aggre-gate monetary savings adjust. Placing this in the context of China, China’s aggregate monetary savings are high because of high rates of investment, which are in large part responding to aggregate demand from the United States and Europe, among other factors. China’s growing external surpluses and foreign exchange reserves are outcomes of these processes rather than causes. In other words, another phase of rampant financialization in the centre drives global imbalances in the peripheries, similar to the conditions surrounding the break down of the Bretton Woods system in the 1970s.

There is a strong case to make that this Keynesian interpretation fits the historical stylized facts much better than the dominant narrative. This can be construed from the futile efforts of Chinese authorities to lower depend-ence on investment over the past decade, the characteristics of high national savings rates in China and through an assessment of whether the Chinese currency is in fact undervalued. Finally, an analysis of the sequencing of US current account deficits and Chinese current account surpluses presents a strong case that the Chinese current account surpluses have been responding to imbalances in the United States and have been intimately related to the systemic rerouting of East Asian-centred international production networks through China that followed the East Asian crisis in 1997–98. Arguments for renminbi revaluation more or less avoid the implications of this emerging role of China as subordinate mass processor in the final assembly of goods destined for US and European consumption through networks dominated by Northern TNCs.

As in the past, the danger with the dominant narrative is that it facilitates an ideological reframing that justifies shifting the burden of adjustment away from Northern financial sectors and towards the most obvious Southern scapegoats within the international economic order. In this manner, an ideo-logical reconstitution is taking place before our very eyes even in the midst of the ongoing crisis and ironically in the name of Keynes, albeit in a way that severely distorts Keynes’ most essential messages. Moreover, this narrative has captured the imagination of many on the political Left and Right in their attempts to explain the current crisis; hence the potential for ideological recon-stitution that cuts across traditional political positions in the North and taps into important currents of popular public perception and opinion. These proc-esses of paradigm maintenance need to be urgently addressed if the current


crisis is to be leveraged for a return to a more progressive, inclusive and develop-mental policy paradigm in both the North and the South. Failing this, current orthodoxies risk being reconstituted or even reinforced. Through a sense of complacency that the ‘consensus has been shattered’ – a conventional wisdom common among both Left and Right – we risk finding ourselves soon entering a new round of radical systemic adjustments producing development debacles similar to those of early 1980s.

In other words, the currently emergent narratives of global imbalances directed at China can be understood as potentially playing the same role that neoliberal ideologies played in the 1980s and 1990s, legitimizing strat-egies from the centre that ultimately tend towards discipline and subordi-nation. The advocated strategies are unlikely to solve the issues that they purport to address, but in the havoc potentially created they could enact a reconsolidation of US economic hegemony, albeit with dubious implications for publics in both China and the United States. For, if we see US–China trade in terms of bilateral arms-length transactions of finished goods as per conventional conceptions of trade in economic theory, it is true that China cannot continue to rely on over-indebted US consumers to continue to consume its surpluses. But if we see the organization of this trade not in terms of countries but in terms of corporations and their networks control-ling wealth, then yes, the imbalances can and probably will continue because they are not expressions of market outcomes but of structures of power. The narratives of global imbalances must therefore be seen as the emerging ideological discourses of such power, whether or not their propo-nents are aware of this implication.

Notes

1. See Brenner (1998) and Arrighi (2003) for a debate on the causes and conse-quences of the slow down.

2. Kregel (2008) notes that the first major post-war expansion of international pri-vate finance started with the credit crunch in the United States in 1966. See also D’Arista (2009).

3. Again, see Brenner (1998), Arrighi (2003) and D’Arista (2009) on the US strategy of devaluation.

4. See this view in Triffin (1978/79) and Shadlen (2006). 5. See Diaz-Alejandro (1984) for a seminal analysis of the crisis. 6. For an excellent discussion of these outcomes, see Diaz-Alejandro (1984); see also

Kregel (2008), Dymski (2008), Shadlen (2006) and Fischer (2009). 7. See Arrighi (2003) for a powerful argument along these lines. 8. For instance, see Krugman (2009c). 9. Geoff Tily made this point during the question period that followed a talk by

Prabhat Patnaik at the London School of Economics in July 2009 in which he was a discussant (see also Tily 2009: 12).

10. See Dymski (2010) and Kregel (2008) for excellent discussions of these financial processes.


11. Sterilization is the standard policy tool used by central banks to absorb the domestic liquidity generated by foreign exchange surpluses, usually by means of issuing domestic bonds. For instance, in the case of China, the Bank of China exchanges yuan for the dollars earned by exporters or transferred by foreign investors. This injects extra cash liquidity into the domestic economy, which could have inflationary consequences. In order to prevent this, the government issues bonds to simultaneously soak up yuan in the domestic economy. As a result, the Bank of China is left with complex sets of assets and liabilities which it must manage. See Sun (2009) for a very interesting discussion of monetary policy in China, in particular its use of sterilization as a means to regulate money supply in the context of imbalances.

12. See Hussain (2003: 22–24) for an excellent discussion of urban unemployment in China.

13. Official currency of the People’s Republic of China, whose principal unit is the yuan.

14. This share has presumably fallen further since 2001, given rising shares of gov-ernment consumption in total consumption and gross capital formation in total GDP up to the most recent data in 2008 (see CSY 2009: Table 2–17 and 2–18).

15. Flow of funds data report financial transactions and financial positions of differ-ent sectors of an economy such as households, businesses and firms.

16. Also see the discussion of bond issuance in Sun (2009).17. Adamant proponents of the argument that China is a currency manipulator

include Goldstein (for example, 2003, 2004, 2006) and Goldstein and Lardy (2005, 2009). A more balanced approach is provided by Frankel and Wei (2007). For more critical perspectives, see Yang and Dou (2004), Funke and Rahn (2005), Zhang and Fung (2006), Groenewold and He (2007) and Wang et al. (2007).

18. Calculated from various China Statistical Yearbooks; for more detailed analysis, see Fischer (2010).

19. Data on the trade accounts in this and the following paragraph are calculated from data compiled from CSY (2009: Table 17–8) and equivalent tables in earlier statistical yearbooks.

20. For more detailed analyses of the trade data, see Athukorala and Yamashita (2009) and Fischer (2010).

21. In particular, see excellent contributions by Athukorala (2007, 2009), Li et al. (2007), Sung (2007), Athukorala and Yamashita (2009) and Yao (2009). See also Bergsten et al. (2006).

22. Email communication with Jan Kregel, 22 August 2009.

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63

3Social Reproduction in the Global Crisis: Rapid Recovery or Long-Lasting Depletion?Diane Elson

Introduction

This chapter examines the social dimensions of the recent global economic crisis through the prism of social reproduction, allowing us to examine the invisible, unpaid parts of economies, as well as the much more visible paid parts. The crisis has been a crisis of capital accumulation, with falling in-vestment, output and employment. But it has also been a rupture in social reproduction, understood as ‘the process by which all the main relations in the society are constantly recreated and perpetuated’ (Mackintosh 1981: 10) This process requires non-market and not-for-profit activities as well as market and for-profit activities, and includes unpaid work in families as well as paid work in businesses (Elson 1998). Social reproduction involves the re-production of labour as well as of capital. It is a contested and contradictory process, and, from time to time, action by the state is required to try to safe-guard it. In the recent crisis, there was swift action by governments to safe-guard some aspects of social reproduction, but not of others. This chapter asks why, and examines some of the consequences.

The banking crisis in autumn 2008 put in jeopardy the social reproduc-tion of capitalist, market-based financial relations, as some banks failed and many others were in danger of failing. The subsequent recession put in jeopardy the social reproduction of capitalist production relations, as some very large firms were in danger of bankruptcy and many others retrenched employment. The resulting livelihood crisis put in jeopardy the social reproduction of a pool of labour equipped with all the cap-acities needed by productive workers, and the social reproduction of the kind of family relations that enable people to ‘feel like human beings, in a system that treats them like commodities’ (Picchio 1992). There was swift and comprehensive action by states to safeguard capitalist money and large-scale capitalist firms, but only slow and partial action by states


to safeguard human beings. Perhaps this was because governments were confident that households and communities can provide their own safe-guards, their own ‘coping strategies’. But we must ask whether some people do not cope but are driven instead to ‘desperation measures’ that fail to se-cure the social reproduction of human beings. Perhaps it was also because the social reproduction of capitalist societies can survive failure to ensure that people thrive more easily than it can survive failure to ensure that the banking system thrives.

Visualizing social reproduction

To discuss social reproduction, allowing for these various possibilities, I will use a diagram that shows how the main productive sectors of a capitalist economy are linked by market and non-market flows (see Figure 3.1).1 These flows are continually repeated but are also vulnerable to disruption. The three sectors are the private sector, the public sector and the domestic sec-tor. The private sector includes all privately owned enterprises and activ-ities that produce goods and services for sale, including everything from multinational corporations and international banks to family farms, micro-enterprises and self-employment. The public sector includes all the offices and departments of all levels of government, public services and public enterprises. The domestic sector not only consumes the output produced by the other sectors2 but also produces care and care-related services for its members, enabling it to supply labour services to the other sectors, and to create intangible social assets such as trust, reciprocity and ethical norms.3 Although these sectors are shown as separate spaces on the diagram, these are conceptual spaces, not geographical spaces. Family businesses often oc-cupy the same geographical space as housework and childcare. The work-place of paid domestic workers is also a home in which family members care for one another without pay.

Despite occupying the same geographical space, activities can occupy dif-ferent conceptual spaces in relation to how economic activity is measured. All economic activity in the private and public sectors is within the scope of the System of National Accounts (SNA) and the output these activities produce is measured as the gross domestic product (GDP) of a country;4 however, most production that takes place in the domestic sector does not come within the SNA. The exceptions are production of food for own con-sumption and gathering fuel and water for own consumption: the 1993 re-vision of the SNA brought these within the SNA. However, in practice they are rarely measured and included in the GDP. Care services, including cook-ing, cleaning, laundry and care for children, sick and frail elderly people, remain outside the SNA and are not, as a matter of principle, included in the GDP. However, they are now recognized as productive activities, and are sometimes referred to as Extended-SNA activities (and in some countries are

Social Reproduction in the Global Crisis 65

captured through ‘satellite accounts’ that complement the official national accounts).

The internal operation of units in all three sectors is best characterized in terms of ‘cooperative conflicts’ (Sen 1990), in which their members stand to gain from cooperation in production but have conflicting interests in the terms of the distribution of the benefits. All three sectors are gendered, in the sense that the way they operate is built upon the prevailing gender order, the set of gender relations and norms that produce a specific gender division of labour, and specific gender inequalities in the ownership of assets and the distribution of income. Although there are important variations, the pre-vailing gender order produces a division of labour in which women and girls do more of the unpaid work and men and boys more of the paid work; and in which women own fewer assets and receive lower incomes than men.

Figure 3.1 highlights some key flows that link the three sectors: supplies of labour services from the domestic sector to the other sectors; flows of money payments and sales of goods and services from the private sector to the other sectors; flows of public expenditure (net of tax and user fees), embodied in services and infrastructure, from the public sector to the other sectors. But as well as these flows, recognized by every economist, social norms and values are also created in these sectors and transmitted between them by a variety of communication channels. Some dominant values are identified in the figure, in a shorthand way, as commercial values, regulatory values and provisioning values (Elson 1998). The rationale for singling out these values stems from an examination of the conditions of reproduction of each unit – what do they have to do to sustain their normal functioning? Private sector enterprises have at least to cover their money costs, and if they are joint-stock companies, then they must also make a profit that matches that of comparable firms. They need to operate commercially, though that is not to say that their only values are commercial values. Public sector organi-zations are not constructed in the same way since their costs may ultimately be financed by taxation rather than sales. But in order to tax, governments have to make rules and persuade people to comply with them. They need to communicate rule-based values, which is not to say that the rules are always observed, or that these are the only values that governments com-municate. To reproduce themselves, households have to meet the needs of their members for food, shelter and clothing, and affection and emotional warmth. They foster values of provisioning not only for oneself but also for others, which is not to say that household members are always altruistic. We might sum this up by saying that the private sector is structured by a dynamic of cost recovery and profit seeking; the public sector by a dynamic of regulation; and the domestic sector by a dynamic of provisioning. There are negative and positive aspects to the values each transmits: commercial values may be crass and opportunistic, but they may also be thrifty and innovatory; regulatory values may be petty and bureaucratic, but they may


also be orderly and democratic; provisioning values may be caring and giv-ing, but they may also be patriarchal and hierarchical. Moreover, there need to be some moral values that are shared, however imperfectly, throughout the three sectors if social reproduction is not to be overwhelmed by con-flict or by the costs of containing conflict. One such value is that people have some intrinsic worth, irrespective of whether they are employable in the public and private sectors; without some acknowledgment of this value, there would be no reason to keep alive anyone who is not employable, by virtue of bodily and mental frailty.

The flows between sectors are also gendered (Elson 1998). For instance the flows from the state to the domestic sector are frequently structured quite explicitly upon assumptions about gender roles, such as conditional cash transfers that go to mothers; or public pension systems that assume that women are dependents of a male breadwinner. Markets may seem more egalitarian – but the structuring of market transactions is gendered in a way that frequently disadvantages women; sometimes overtly, in that women are not allowed to enter into contracts of certain kinds, or are excluded from certain marketplaces, or are paid less for the same job or product; frequently more subtly, in terms of whether bargaining about wages is done on a col-lective or individual basis (women tend to do worse than men in individual bargaining); or how goods are organized into ‘lots’ for sale (women are dis-advantaged when the ‘lots’ are large); or how information is disseminated (women are disadvantaged by ‘old boy networks’).

Marketed goods and services

Commercial values

Public services Public services

Regulatoryvalues

Regulatoryvalues

Provisioning values

Domesticsector

Publicsector

Privatesector

Labour services: physical,technical, social capacities

Depletion of humancapacities andProvisioning values

Figure 3.1 Visualizing social reproduction

Source: Elson 1998.


Each sector needs inputs from the others in order to reproduce itself – the reproduction of the economy as a whole is social in the sense that non-market as well as market processes are required. Signals – in the form of prices, rules and values – travelling along the circuits that link them, help to coordinate the diverse activities of the three sectors. However, the coord-ination is subject to multiple failures. The activities of the three sectors may be mutually supportive and self-reinforcing; or may serve to undermine one another, leading to a degree of disintegration, incoherence and transform-ation. The circuits may function well and the signals (prices, rules, values) may be well defined. Alternatively the circuits may have barriers, bottle-necks, breaks, leakages and spillovers; and the signal may be faint, fuzzy or convey mixed messages. Markets, bureaucracies and networks are all subject to failure of one kind or another. Moreover, the internationalization of mar-kets and networks, and the extension of the private sector across national boundaries, complicates the interactions and increases the level of systemic risk of malfunction or disconnection, as the recent financial crisis has once again reminded us, sending shock waves throughout the private and public sectors of a large area of the world.

The domestic sector is often seen as the absorber of such shocks, the safety net of last resort, a sector that can be largely left to take care of itself, even as governments act to safeguard key elements of the private sector. But we shall argue that this is a one-sided view of the domestic sector. Its capacity to absorb and compensate for malfunctions elsewhere in the system may not be unlimited. It may be undermined by lack of resources, insecurity and demoralization, which may lead to lack of concern for provisioning the needs of family members. The production of human capacities (physical, technical and social) depletes human energies, which need replenishing if the level of capacities is to be maintained. Replenishment requires inputs from the public and private sectors. The domestic sector cannot therefore be seen as a bottomless well upon which the other sectors can draw at will: unless the inputs from the public and private sector are sufficiently nour-ishing, human capacities will be destroyed and they will drain away from the circular flow. This possibility is shown in Figure 3.1, as a flow of human capacities and provisioning values that drains away from the economy and is not reproduced. Of course, if this depletion is very extensive it will have negative feedbacks on production in the public and private sectors, as there will be a shortage of capable labour.5 But technological and organizational innovations enable reduction of demand for labour in the public and pri-vate sectors. Failure to ensure that everyone in the domestic sector thrives does not necessarily compromise the reproduction of the private and public sectors.

Figure 3.1 draws to our attention the possibility that the reproduction of the public and the private sectors may be compatible with the depletion of the domestic sector, the destruction of human capacities and possibly,


also of provisioning values, through the breakdown of family relationships. It draws attention to the possibility of irrecoverable losses: an increase in mortality rates, an increase in the number of stunted children whose devel-opment will never fully recover, fracturing of families and communities.6 Conventional representations of economic crisis are far more comforting, as will be shown in the next section.

Conventional representations of the economic crisis

There are plenty of charts available that show the trajectory of indicators for GDP, trade and investment, typically showing a picture that is V-shaped (rapid recovery) or U-shaped (slower recovery). Two examples are shown in Figures 3.2 and 3.3, reproduced from a 2009 International Monetary Fund (IMF) report, World Economic Outlook and Recovery. Figure 3.2 shows the fall in growth rates of GDP, covering the output of the private and public sec-tors, after the onset of the financial crisis in autumn 2008, together with projections of recovery. It shows that while the advanced economies expe-rienced a recession (negative growth), the emerging economies experienced a slowdown – their growth rate fell but did not become negative. Because of that, the rate of change of world GDP narrowly avoided becoming negative. The IMF projects a recovery in both emerging and advanced economies, with an end to the recession in the advanced economies.

10

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2000 2002 2004 2006 2008 2010

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% c

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Figure 3.2 Real GDP, percentage change from a year earlier (% change GDP)

* Advanced economies: Australia, Canada, Czech Republic, Denmark, Euro Area, Hong Kong SAR, Israel, Japan, the Republic of Korea, New Zealand, Norway, Singapore, Sweden, Switzerland, Taiwan Province of China, the United Kingdom and the United States.

Source: IMF (2009: figure 1.8: 15).


Figure 3.3 shows longer run projections for the world as a whole, with the upper line showing a faster recovery (V-shaped) and the lower line a slower recovery (U-shaped). Recovery in terms of growth is projected as a certainty – the only doubt is about its speed. We lack similar charts show-ing the trajectory for indicators relevant to irrecoverable loss: mortality rates, morbidity rates, malnutrition rates, rates of domestic violence and family breakdown and so on. We also lack similar charts on the trajectory of the output of the domestic sector in the crisis. Although the 1995 Beijing Platform for Action7 called for the construction, on a regular basis, of ‘sat-ellite accounts’ that would show the monetary value of the output of the domestic sector, this has not happened.

Measuring production in the domestic sector

Although we have no regular satellite accounts measuring the money value of output in the domestic sector, we do have large-scale time use surveys for a growing number of countries that can be used to measure the amount of time spent on activities that take place in the domestic sector. Figure 3.4 provides an example. It shows, for six developing countries, the average time spent per day, by all the population covered by the time use survey, on activities that are included in the SNA (covering the private and public sectors, plus a few unpaid activities that take place in the domestic sec-tor, such as collection of fuel and water, and production of food for home consumption); on activities that are included in the Extended-SNA (cover-ing unpaid care work); and on activities considered non-productive, such as sleep, leisure and care of oneself.8 The time is shown separately for males (left-hand bar charts) and for females (right-hand bar charts).

In all six countries, women and girls spend considerably more time on the Extended-SNA domestic sector activities than do men and boys. For all six countries, the average time for women and girls is more than twice that

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Figure 3.3 Alternative medium-term scenarios for growth of world GDP (% change GDP)

Source: IMF (2009: figure 1.16: 33).


for men and boys. The reverse is true for SNA activities. Time spent by both the population on Extended-SNA activities is around two-thirds of the time spent on SNA activities. Thus in Argentina, the average minutes per day the population spends on Extended-SNA activities is 345 minutes, and on SNA activities is 513 minutes, while in India, Extended-SNA activities take 390 minutes, and SNA activities 612 minutes.

The average masks the fact that some people spend virtually no time on an activity and some people spend a lot (just as GDP per capita masks the unequal distribution of income). Figures 3.5 and 3.6 show the distribution of time spent on unpaid care work9 in Argentina and India for males and females.

In Argentina, the distribution is more unequal for males than for females. A little over 25 per cent of males do almost no unpaid care work, compared with a little over 5 per cent of females. Just over 5 per cent of females spend more than 810 minutes per average day on unpaid care work, while almost no males do.

ArgentinaM

India M Korea M NicaragM

S AfricaM

TanzaniaM

ArgentinaF

India F Korea F Nicarag F S Africa F TanzaniaF

Non-productive 1019 972 1035 966 1116 1008 1003 906 1003 942 1052 961

Extended SNA 89 36 43 90 89 76 256 354 227 342 246 174

SNA 333 432 362 384 234 357 180 180 210 156 143 305

–160

40

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1040

1240

1440M

inu

tes

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Figure 3.4 Average time spent per day by surveyed population on activities by SNA category, country and sex

Notes: The Argentina survey, conducted in 2005, covered only Buenos Aires, age range 15–74. The India survey, conducted in 1998/09, covered six states and all household members. The Republic of Korea national sample survey, conducted in 2004. The Nicaragua national sample survey, conducted in 1998. The South Africa national sample survey, conducted in 2000, age range 10 years and above. The Tanzania national sample survey, conducted in 2006, age range 5 years and above.

Source: Budlender 2008: 10.


In India, around 35 per cent of males, and a little over 15 per cent of females, do virtually no unpaid care work. But many women do more than 8 hours (480 minutes) of unpaid care a day.

Unfortunately large-scale time use surveys are not conducted on a quar-terly basis, so we cannot chart the trajectory of time spent on unpaid work in the domestic sector over the course of the crisis. We can review the evi-dence from previous crises and examine small-scale case studies of the 2008/2010 crisis.

The domestic sector in times of economic crisis

Available evidence on the impact of previous economic crises on the amount of time spent in unpaid care work is limited but does suggest that the time tends to increase. For instance, a study of the impact on the Mexican eco-nomic crisis of the early 1980s on a group of households in Mexico City found that unpaid care work increased (Beneria 1992). A study of the im-pact of the Asian financial crisis of 1997/98 found that women in Indonesia spent more time in accessing resources for their children, such as food supplements at child-weighing centres, and queuing at hospitals and clin-ics, as their children were more frequently ill (Knowles et al. 1999: 41).10

Quisumbing et al. (2008) note that its takes more time to prepare cheaper starches like millet and cassava, to which poor households often switch in

% o

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Figure 3.5 Distribution of male and female population, by minutes spent on unpaid care work, Argentina

Note: Covers population age 15–74.



times of crisis. Experience of previous crises suggests more of the additional unpaid care work is supplied by women and girls than by men and boys.

Most studies of the impact of crises on households have been small scale. An exception is a study of the impact of the Argentine 2001/02 crisis, which used a specially designed nationally representative household survey con-ducted in 2002 (Fiszbein et al. 2003). Respondents were asked whether the household had increased home production of consumption goods since the onset of crisis at the end of 2001. In reply, 60 per cent of respondents said they had increased home food production. Female-headed households were found to be more likely than male-headed households to increase produc-tion of food for own consumption. The study is valuable in making use of a large-scale representative sample, but has some limitations. The respondent was the household head (though attempts were made to get information from other household members if the head did not know the answer to a particular question); and the responses were not disaggregated by sex and age, but by household type.

An increase in domestic production may provide an invisible safety net for some households, which may ensure the reproduction of the household and its members, and prevent the depletion of human capacities. But the net

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Figure 3.6 Distribution of male and female population, by minutes spent on unpaid care work, India

Note: Covers population age 15–64.



may be too weak, resulting in malnutrition, ill-health and premature death. Women (and some men) who are already spending long hours in unpaid care work have no spare capacity to expand production for own consump-tion. Unfortunately the Argentine study did not investigate whether produ-cing more for home consumption allowed households to cope successfully: no questions were asked on education or health; on tension or violence in the household; or on what happened to time for care, sleep and leisure.

Some evidence for the 2008/09 crisis is provided by the study on the impact of crisis on informal workers in ten cities: Durban (South Africa), Blantyre (Malawi), Nakuru (Kenya), Lima (Peru), Bangkok (Thailand), Malang (Indonesia), Kasur (Pakistan), Pune (India), Bogota (Colombia), Santiago (Chile) (Horn 2009).11 Interviews were conducted with 164 in-formal workers (79 per cent of them women) in three occupations: waste pickers, home-based paid workers,12 street vendors. Many of them reported increasing unpaid home-based production: ‘I try to economize by spending money only on necessary things. I take leftover cloth and make clothes for myself now’, said a home-based woman garment worker in Bangkok (Horn 2009: 19). Another home-based worker reported no longer buying prepared meals for her family, but cooking meals herself.

A United Nations Development Programme (UNDP) online forum on Gender and the Economic Crisis carried several reports in 2009 of similar responses. In Ethiopia, some women reported reducing purchases of ready prepared food from street vendors and spending more time preparing food at home. In Chile, some women reported dismissing their paid domestic workers and doing unpaid domestic work themselves.

Evidence from previous crises suggests that as well as increasing unpaid care work, women try to safeguard their families by increasing their partici-pation in informal paid work in the private sector. Beneria (1992) found this in Mexico City after the Mexican crisis in the early 1980s. It was a notable feature of response to the Asian financial crisis. Knowles et al. (1999) found this in Thailand, Indonesia and the Philippines. The study of the Argentine crisis (Fiszbein et al. 2003) of 2000/01 found that 13.4 per cent of house-holds had additional members participating in paid work; and in 14.8 per cent of households, members worked longer hours in paid work. Household members had also begun to make items at home for sale;13 14.7 per cent of households started producing goods at home for sale, often in the barter markets that were organized in many districts in response to the crisis.

The study of informal sector workers in ten cities (Horn 2009) in 2008/09 found that a quarter of respondents who were street vendors and home-based paid workers had increased their hours of work to try to make ends meet. But sales were falling, competition from new entrants into informal work was increasing and they were unable to sustain their incomes.

Additional work, whether paid or unpaid, is often not sufficient to repro-duce human capacities and provisioning values. The Asian financial crisis


adversely affected poor households, especially female-headed households (Knowles et al. 1999). Women in poor households had to try to feed their families on less. In Thailand, their health was jeopardized by anaemia, as they reduced their own consumption to try to provide for husbands and children. In Indonesia poor families ate less or went down to two meals a day, as they also did in the Philippines. In the Philippines poor women reported domestic violence prompted by arguments with husbands on how to cope (Knowles et al. 1999). There were increases in the number of street children in Thailand, Indonesia and in the Philippines, and in the number of low birth weight babies in Thailand and Indonesia (Knowles et al. 1999). In Indonesia, girls were taken out of school (Knowles et al. 1999). In con-clusion the study found that, while middle- and upper-income groups could cope with the crisis by using strategies that avoided long-term damage, the same was not true of the poor.

In the case of Argentina in 2001/02, 73 per cent of households reduced food consumption and 37 per cent were not able to buy medicines that they needed. Households with three or more children were especially likely to have to go without food and medicine: 92 per cent reduced food consump-tion and 56 per cent had to go without needed medicines (Fiszbein et al. 2003: 16). Female-headed household were more likely to undergo these dep-rivations than male-headed households. The study does not reflect on the potential long-term harmful effects of these deprivations.

The Women in Informal Employment: Globalizing and Organizing (WIEGO) study of urban informal workers in the 2008/09 crisis reports poor informal workers using similar strategies, reducing from three meals a day to two, from two meals a day to one, and cutting out milk and meat for children (Horn 2009: 18). A waste picker in Bogota, Colombia, asked, ‘Do you have any idea what it’s like to have your kids awake at midnight telling you they are hungry?’ (Horn 2009: 19) Informal workers themselves were becoming exhausted. One reported, ‘If I got 30,000 pesos before, now you have to kill yourself three times – waking up earlier, going to bed later, being on the streets for longer periods – to get 30’ (Horn 2009: 16). Many respond-ents were experiencing distress and anguish (Horn 2009). The WIEGO study concluded that the crisis is pushing urban informal workers further into poverty, and is likely to have long-lasting harmful effects on them and their families (Horn 2009).

An Oxfam study (Green et al. 2010) with partners in 11 countries (Armenia, Cambodia, Ecuador, Ghana, Indonesia, Nicaragua, the Philippines, Thailand, Vanuatu, Viet Nam and Zambia) found that while many groups displayed re-silience in the 2008/09 crisis, there were limits to this: ‘Assets once depleted take years to recoup; working extra hours in second or third jobs leaves a legacy of exhaustion; loans taken on to finance consumption accumulate into crushing debt burdens; and meals forgone can affect children for their entire lifetimes’ (Green et al. 2010: 5).


Growth rates have recovered in many developing countries, but employ-ment lags and livelihoods are still under pressure. The restoration of social reproduction is at best uneven.

Sustaining the domestic sector: economic and social rights

Governments across the world responded to the crisis: acting swiftly where banks were failing, introducing fiscal stimulus packages to try to safeguard businesses and jobs in the formal sector and in some countries introdu-cing social policies that helped to sustain the domestic sector. A report from Oxfam (Green et al. 2010) suggests that countries with universal social enti-tlements were best able to respond, as such entitlements result in automatic disbursements for which systems are already in place. Some countries with cash transfer programmes targeted to poor families were able to extend the coverage to cover some of those newly poor; for instance, the Brazilian gov-ernment extended its Bolsa Familia14 to an additional 1 million households. But the majority of developing countries do not have systems in place, and so responses are discretionary and fragmented. Some parts of the domestic sector have been protected, generally those households whose income comes at least in part from formal employment; but the households that rely on income from informal employment and migrant remittances have been in many cases neglected. Gender has been neglected in the design of responses virtually everywhere.

The International Labour Organization (ILO) has advocated the devel-opment of a comprehensive Social Protection Floor, which would include access to health care, pensions for the elderly, child benefits, cash transfers and employment guarantee schemes (ILO 2009). But, at present, in many developing countries, social protection is piecemeal and fragmented, and assists only a small percentage of poor people (ODI 2009). Economists em-phasize that comprehensive social protection will not be sustainable without a sustainable economic strategy; and some, including many associated with the United Nations Research Institute for Social Development (UNRISD), call for a renewed emphasis on ‘developmental welfare states’, in which gov-ernments play a more pro-active role in guiding economic development; and in which rapid economic development creates jobs and reduces absolute poverty.

It is good to see some recognition that the domestic sector needs support from the public sector. What appear at first sight to be ‘coping strategies’ may in closer examination turn out to be ‘desperation measures’ that cannot prevent depletion of human capacities. However, the term ‘social protection’ may encourage a view of people as ‘vulnerable groups’ in need of assistance, which is at the discretion of governments; and ‘developmental welfare states’ have included authoritarian governments. It would therefore be more trans-formatory to focus on the realization of economic and social rights.


The Universal Declaration of Human Rights makes it clear that everyone in the world has economic and social rights by virtue of being human, and that these should be enjoyed by all on a basis of non-discrimination and equality. Article 22 specifies the right to social security; article 23, the right to work; article 24, the right to rest and leisure; article 25, the right to an adequate standard of living, including the right to food, clothing, housing and health care; and article 26, the right to education. The International Covenant on Economic, Social and Cultural Rights spells these out in more detail. It recognizes that they will not be achieved overnight, but calls for their progressive realization. It places obligations upon governments to re-spect, protect and fulfil them. These entail obligations of conduct: govern-ments are obliged to behave in ways that can reasonably be expected to realize the enjoyment of these rights; and obligations of result: an improve-ment in the enjoyment of the rights. There is an international system for monitoring how far governments have complied with their obligations – though this does not include an international court of social justice before which errant ministers could be arraigned. Some developing countries in-clude social and economic rights in their constitutions, and/or have laws providing for specific social entitlements. But claiming those rights is not easy.15

A focus on the realization of economic and social rights is thus not a panacea. But it has several advantages. The discourse of human rights positions people as active agents to whom governments have obligations. People mobilizing to change their conditions frequently use the language of rights, and contrast having rights with being recipients of charity, or of government hand-outs to the needy. Economic and social rights embrace three important areas of policy: social security through tax and transfer mechanisms; labour rights; and the enjoyment of critically important goods and services, such as food, housing, education and health care. A focus on rights calls attention not only to the quantity of income, employ-ment, goods and services, but also their quality, and the process through which they are accessed. It introduces countervailing forces against a top-down, bureaucratic approach to sustaining the domestic sector. Support from the public sector to the domestic sector is too often accompanied by intrusive regulations and conditions that seek to police the behaviour of its recipients.

The value of a focus on economic and social rights is demonstrated by a recent report of the United Nations Independent Expert on the Question of Human Rights and Extreme Poverty (United Nations General Assembly 2009).16 The report discusses cash transfer programmes (CTPs) (both condi-tional and unconditional) in developing countries, emphasizing that they must comply with general human rights principles, such as equality and non-discrimination, accountability, transparency, access to information and participation (paragraph 22). They should also comply with the right to


social security, in terms of being established by law with clear government obligations for effective administration or supervision (paragraph 26).

The report finds many shortcomings. Whereas some CTPs are established by law (as in Brazil and South Africa), and must be funded, in many cases the legal basis of the CTP is precarious, resting on presidential decrees, policy statements and operational manuals. Many are externally funded, time-limited programmes. Without a secure institutional and legal frame-work, people are not in a position to know and claim their rights. While some CTPs are universally provided (such as old age pensions to all people above a certain age), many CTPs are means-tested in ways that are not trans-parent to potential beneficiaries (paragraph 38). Some CTPs have target-ing mechanisms that stigmatize beneficiaries (paragraph 40). There are also many barriers to potentially eligible people obtaining information about the CTPs and applying for them (paragraphs 41–43). Some CTPs have no accountability and redress mechanisms, rendering them liable to be used as tools of clientelism, manipulated by politicians in order to win votes (para-graph 47).

The Independent Expert notes that while there are some arguments in favour of attaching conditions to cash transfers, there are also arguments against. She finds that,

The exclusion of an individual or a household from a CTP because of failure to satisfy the imposed conditions raises strong human rights con-cerns. Non-compliance with conditionalities should assist programme officials in identifying and acting on problems. For example, in some countries girls are not going to school (a condition of the CTPs) because they are sexually harassed, pregnant women are not going to a health clinic because the quality of service is very low or the clinic is too far away. In such cases, the CTP should have a mechanism in place to help families that are not complying with the conditionalities, without any pu-nitive outcomes (United Nations General Assembly 2009: paragraph 59).

In conclusion, the Independent Expert recommends that CTPs be integrated within a comprehensive system designed to realize the right to social se-curity, including social insurance based on contributions; non-contributory schemes, both universal and means-tested; and privately run and commu-nity-based schemes.

The right to social security will not become a reality unless people know about their rights and act to claim them. Collective action is often required for individuals to enjoy their rights. There are many non-governmental organizations (NGOs) mobilizing to enable people to claim their rights, some with a specific focus on the right to social security. An example is the Programme on Women’s Economic, Social and Cultural Rights (PWESCR),17 which works with women in South Asia to develop their understanding of


the right to social security, and how it can be realized for women, especially for those who are informal workers. It analyses the difficulties women have in accessing social security as independent human beings rather than as dependents of male relatives, clarifies how social security can be organized in ways that treat women and men equally and campaigns to improve legis-lation on social security.

Other organizations help poor people to make claims for various forms of social security, assisting them in filling in forms and negotiating with offi-cials. An example is the National Street Vendors Association in the Republic of Korea, which works in conjunction with People’s Solidarity for Anti-Poverty, to assist poor elderly street-vendors to claim benefits due to them under the National Basic Livelihood Security System (NBLSS).18 The NBLSS was introduced in the Republic of Korea in 2000 as a response to the Asian financial crisis of 1997. It was explicitly framed in terms of rights, following the successful mobilization of NGOs who campaigned for a human rights approach to poverty. However, it takes more than legislation to change a culture in which family members, rather than governments, are held re-sponsible for ensuring that everyone enjoys an adequate standard of living. Action is required at local level to ensure people know their rights, and to help them overcome barriers to enjoying them.

Economic and social rights require supportive fiscal, monetary, banking and trade policies, including the appropriate regulation of the private sector. Ministers of Finance and Trade and Industry have human rights obligations, not just Ministers of Justice. They are obliged to implement macroeconomic policies and development strategies that are in compliance with human rights. What this means in terms of specific policies is discussed for the case of the United States and Mexico in Balakrishnan and Elson (eds, 2011), which concludes that heterodox economic policies are more likely to be sup-portive of the realization of economic and social rights, provided they are carried out in ways that are compliant with the principles of equality and non-discrimination and participation, transparency and accountability.

The actions of the public sector are critical for ensuring that the economic crisis does not result in long-lasting depletion of human capacities, and to en-suring that national and international regulations are put in place to prevent similar crises in the future. This requires more than systems of social protec-tion. It requires a more holistic focus on realizing economic and social rights.

Notes

1. This section draws upon Elson 1998.2. Some authors sometimes refer to the domestic sector as the reproductive

economy.3. In a more complex representation one could include an NGO sector covering

all NGOs, both secular and religious that produce goods and services for the domestic sector (often on subcontract for the public sector), goods and services


that include advocacy and information, as well as health and education. See for instance Elson (ed.) (2000: 26).

4. Measurement is in practical terms imperfect, so that informal economic activ-ities of self-employed people and micro enterprises are undercounted.

5. As Marx argued, a reserve army of labour facilitates capital accumulation. 6. For evidence about irrecoverable losses in previous crises, see Harper et al. (2009). 7. The Beijing Platform for Action was agreed at the United Nations Fourth Women’s

Conference in Beijing in 1995. 8. That is, bathing, brushing one’s teeth and so on. 9. Unpaid care work is defined in Budlender 2008 as housework and care of other

persons.10. This study used focus group discussions, interviews with key informants and

small scale household surveys.11. This study was initiated by WIEGO and conducted in collaboration with organi-

zations of informal sector workers.12. Some worked on subcontract for large commercial enterprises while others were

self employed.13. In terms of the three-sector framework used in this chapter, production of goods

at home for sale is equivalent to setting up a microenterprise.14. The Bolsa Familia is a cash transfer programme for low-income families.15. For an excellent account of the problems that poor people have in claiming their

social rights in the Republic of Korea, see Lee (2010).16. The UN Human Rights Council appoints Independent Experts from time to time

to investigate the human rights dimensions of economic and social issues, and to make reports.

17. See www.pwescr.org18. This paragraph draws on Lee (2010).

References

Balakrishnan, Radhika and Diane Elson (eds) (2011) Economic Policy and Human Rights (London: Zed Books).

Beneria, Lourdes (1992) ‘The Mexican debt crisis: restructuring the economy and the household’. In Lourdes Beneria and Shelly Feldman (eds), Unequal Burden: Economic Crises, Persistent Poverty and Women’s Work (Boulder, CO: Westview Press).

Budlender, Debbie (2008) The Statistical Evidence on Care and Non-Care Work across Six Countries. Programme on Gender and Development, Paper No. 4 (Geneva: UNRISD).

Elson, Diane (ed.) (2000) Progress of the World’s Women 2000 (New York: UNIFEM).—— (1998) ‘The economic, the political and the domestic: businesses, states and

households in the organisation of production’, New Political Economy, Vol. 3. No. 2 189–208.

Fiszbein, Ariel, Paula Giovagnoli and Norman Thurston (2003) Household Behaviour in the Presence of Economic Crisis: Evidence from Argentina, 2002. Mimeo (Washington, DC: World Bank).

Green, Duncan, Richard King and May Miller-Dawkins (2010) The Global Economic Crisis and Developing Countries: Impact and Response. Oxfam Research Report (Oxford: Oxfam International, May).

Harper, Caroline, Nicola Jones, Andy McKay and Jessica Espey (2009) Children in Times of Economic Crisis: Past Lessons and Future Policies. ODI Background Note (London: Overseas Development Institute, March).


Horn, Zoe Elena (2009) No Cushion to Fall Back On: The Global Economic Crisis and Informal Workers. Synthesis Report, Inclusive Cities Study led by WIEGO (Manchester: WIEGO).

ILO (International Labour Organization) (2009) From Crisis Response to Recovery, Jobs and Sustainable Growth. Statement by Juan Somavia, Director-General of the ILO, to International Monetary and Finance Committee and Development Committee, Istanbul, 4–5 October (Geneva: ILO).

IMF (International Monetary Fund) (2009) World Economic Outlook and Recovery (Washington, DC: IMF).

Knowles, James, Ernesto Pernia and Mary Racelis (1999) Social Consequences of the Financial Crisis in Asia. Economic Staff Paper No. 60 (Manila: Asian Development Bank).

Lee, Eunna (2010) Human Rights and Social Welfare after the 1997 Financial Crisis in South Korea. PhD Thesis, University of Essex, Colchester.

Mackintosh, Maureen (1981) ‘Gender and economics: the sexual division of labour and the subordination of women’. In Kate Young, Carol Wolkowitz and Roslyn McCullagh (eds), Of Marriage and the Market (London: CSE Books).

ODI (Overseas Development Institute) (2009) The Global Financial Crisis: Poverty and Social Protection (London: ODI).

Picchio, Antonella (1992) Social Reproduction: The Political Economy of the Labour Market (Cambridge: Cambridge University Press).

Quisumbing, Agnes, Ruth Mienzen-Dick and Lucy Basset (2008) Helping Women Respond to the Global Food Price Crisis. IFPRI Policy Brief (Washington, DC: Institute for Food Policy Research).

Sen, Amartya K. (1990) ‘Gender and cooperative conflicts’. In Irene Tinker (ed.), Persistent Inequalities: Women and World Development (Oxford and New York: Oxford University Press).

United Nations General Assembly (2009) Promotion and Protection of All Human Rights, Civil, Political, Economic, Social and Cultural Rights, Including the Right to Development. Report of the Independent Expert on the question of human rights and extreme poverty, Magdalena Sepúlveda Carmona. Human Rights Council, Eleventh Session, UN Doc. No. A/HRC/11/9, 27 March. www2.ohchr.org/english/bodies/hrcouncil/docs/11session/A.HRC.11.9_en.pdf, accessed in December 2010.

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4Shifting Global Social Policy Discourse and Governance in Times of CrisisBob Deacon

Introduction

In recent decades, approaches to social policy that were sensitive to develop-ment issues and contexts became relegated to a residual safety net approach.1 The dominant focus of the World Bank, the International Monetary Fund (IMF) and much of the aid industry, supported by the Millennium Development Goals (MDGs) approach of the United Nations (UN), centred on the poorest of the poor. Furthermore, it was assumed erroneously that the question of poverty could be solved without addressing issues of equity, social inclusion and the role of the state in fostering a developmental pro-ject for the benefit of all social groups. In the context of the global economic crisis, it has become imperative to break from this ‘global politics of poverty alleviation’ paradigm and (re)build developmental welfare states and a uni-versal approach to social policy.

This chapter asks whether the crisis provides an opportunity for this to occur. Such a change would require a fundamental shift in global social policy thinking and practice. Although most countries still have significant capacity to shape their own social policy, the ideas about desirable social and economic policies articulated by international organizations and epi-stemic communities are instrumental in framing national decision making (Bøas and McNeill 2004). The analysis of global social policy over the past 20 years has taught us about the relevance and importance of discursive or hegemonic struggle through which different interests and actors jostle to be in the driving seat of ideas and worldviews about development and change (see also Chapter 1 by Jessop).

This chapter therefore examines empirically the nature of shifts occur-ring in global social policy thinking and practice. It assesses the extent to which the global crisis has facilitated a counter-hegemonic struggle against the previously dominant safety net approach to social policy, and how this


is playing out in practice. First, the chapter examines the rise, strength and limitations of a new policy approach involving the Global Social Floor or Minimum Social Protection Package promoted by certain UN entities and international non-governmental organizations (NGOs). Then the chapter examines other ideational currents and policy approaches that are being promoted in the wake of the crisis. While there are some signs of a shift in approach that refocuses attention on state-led development and univer-salism, there is still the risk of perpetuating a narrow approach to social protection. Given the constrained prospects for fundamental change in social policy, the chapter ends by considering alternative global and re-gional governance arrangements centred on a Southern-centred agenda and politics.

Towards a Global Social Floor?

As is now well understood, the state-led development strategies in Africa, Latin America and Eastern Europe were challenged and largely destroyed during the structural adjustment period of the 1980s and 1990s. In alli-ance with social development NGOs the World Bank played a key role in crafting a social safety net future that posed a powerful challenge to those within the European Union (EU), the International Labour Organization (ILO) and elsewhere who defended universal social security-based welfare states (Deacon 2007). The World Bank’s insistence on user charges prevented access to education and health. Its beneficiary index, which demonstrated that public spending often benefited those other than the poor, was used in effect to undermine the embryonic welfare states of Latin America, South Asia and Africa. The losers were the urban middle class who had depended upon state universities, hospitals and pensions. These losers were in danger of being thrown into the arms of new global private service providers and, as a consequence, abandoning their historic role as state builders.

This dominant logic did not go unchallenged. The ideas about desirable national social policy carried and argued for by the international organ-izations in the early years of this century revealed something approach-ing a ‘war of position’2 between different agencies and actors within them (Deacon 2007). Some continued to argue for a more selective, residual role for the state, together with a larger role for private actors in health, social protection and education provision. Others took an opposite view. This div-ision of opinion often reflected a disagreement as to whether the reduction of poverty was a matter of targeting specific resources on the most poor or whether it was a matter of major social and political-institutional change involving a shift in power relations and a significant increase in redistribu-tion from rich to poor. At the level of the global social policy discourse, pro-gressive ideas about social policy as a desirable social investment were being reinvented, the notion that services for poor people are poor services was

Shifting Global Social Policy Discourse and Governance 83

rediscovered, the finding that inequity might be bad for business and se-curity was remerging, and the importance of middle class buy-in was being remembered. Below we examine one aspect of this shifting discourse in more detail: the emergence of the idea of a Global Social Floor – an idea that has been propelled to centre state in the context of the global economic crisis.

The emergence of the Global Social Floor

Various meetings held in the wake of the global financial crisis have pro-moted the idea of a more progressive approach to global social policy. These included, for example, a public presentation of the campaign for a Global Social Floor by representatives of the ILO, the United Nations Department of Economic and Social Affairs (UNDESA), the United Nations Children’s Fund (UNICEF) and HelpAge International3 at a public side event of the Doha Financing for Development Conference in December 2008. The publicity material for this event, A New Deal for People in a Global Crisis, asserted that,

The current global financial crisis is an opportunity to create a Global New Deal to deliver social protection in all countries through basic old age and disability pensions, child benefits, employment programs, and provision of social services ... Social security is a human right (Articles 22 and 25 of the Universal Declaration of Human Rights) and it is af-fordable, a basic package is estimated to cost from 2 to 5 percent of a country’s GDP [gross domestic product] as an average. It is feasible if the international system commits to providing financial support for a Global New Deal to jump start an emergency response to the urgent social needs of our times. (United Nations Commission for Social Development Side Events 2009)

Similar events have taken place in the context of different UN regional and global meetings, such as the United Nations Commission for Social Development in February 2009, or the World Bank Conference on the Financial, Fuel and Food Crisis, held in Cairo in June 2009.

There is no one clear starting point to the emergence of the policy ideas with which this network is associated and several strands of activity feed into the rather more sharply defined ‘campaign’ for a ‘Global Social Floor’ or ‘Minimum Social Protection Package’ (Deacon et al. 2009). First was the work of the ILO (2003) in its Global Campaign on Social Security and Coverage for All, initiated after the 91st Labour Conference by ILO Director-General Juan Somavia. This was picked up by the work of the ILO’s World Commission on the Social Dimension of Globalization, published in 2004, which called for a Global Social Floor (ILO 2004b: 110). The ILO’s Programme on Socio-Economic Security also advanced the case. It culminated in the report


entitled Economic Security for a Better World (ILO 2004a), which argued for a range of policies including a citizenship income and cash transfers to cat-egories of recipients such as children or the elderly. Subsequently, Michael Cichon, Director of the ILO’s Social Security Department, argued to main-stream within the ILO some elements of the legacy of the Socio-Economic Security work by reconciling the idea of universal cash transfers with that of extending social security. Thus emerged the call for a new Social Protection Floor and a new ILO Social Protection Standard (ILO 2008).

Other activities and coalitions contributing to the emergence of the Global Social Floor concept included,

the work of the Globalism and Social Policy Programme (GASPP); ●

the work of individuals in the Organisation for Economic Co-operation ●

and Development (OECD), as well as the OECD’s Development Assistance Committee’s (DAC) Social Development Advisor’s Network;the drive by a team of like-minded colleagues in UNDESA to produce UN ●

social policy (Ortiz 2007) advice to counter World Bank thinking;the campaigning work of the International Council on Social Welfare ●

(ICSW) to shape the UN agenda on social issues;the Kellokoski, Finland Expert’s Meeting on Social Policies for Development ●

in a Globalizing World, held in November 2006, which generated the document Comprehensive Social Policies for Development in a Globalizing World (Wimann et al. 2006); andthe Campaign for a cash transfer approach to social protection, in par- ●

ticular for Universal Social Pensions in Africa, led by HelpAge International, which culminated in the adoption of the idea at the first ever meeting of Ministers of Social Development in Africa in November 2008 (Deacon et al. 2010).

The crystallization from this broader progressive global social policy stream of the specific campaign for a Global Social Floor can probably be dated to November 2007 when a bid was drafted for funds for a campaign to es-tablish a Coalition for a Global Social Floor.4 Then it was envisaged that there would be ‘an alliance of organizations united in the common pur-suit of a fairer globalization and the right to social security for all, driven by the conviction that a Global Social Floor is achievable and essential to fast-track poverty reduction’. It was expected that the core groups of the co-alition would consist of international organizations (UNDESA, the United Nations Development Programme’s (UNDP) International Poverty Centre (IPC),5 the ILO, UNICEF, the United Nations Population Fund (UNFPA), the World Health Organization (WHO), bilateral aid agencies (German Gesellschaft für Technische Zusammenarbeit/GTZ), UK Department for International Development/DFID, the Swedish International Development Cooperation Agency/SIDA), social partners (the International Trade Union


Confederation (ITUC), the International Organisation of Employers (IOE)), international non-governmental organizations (HelpAge International, Save the Children, ICSW). No such funding was secured but the informal networking, including public campaigning at the level of senior players in UNDESA, ILO, UNICEF, HelpAge International and other organizations, took place, as described above, and led, as seen below, to the adoption of this policy at senior policy-making levels of the UN system.

Appraising the Global Social Floor

Before celebrating the advance of the idea of the Global Social Floor made possible by the global economic crisis, we need to assess whether it repre-sents a fundamental break from the ‘social-policy-as-safety-net’ discourse of the 1989s and 1990s. Can the Global Social Floor facilitate a shift from the ‘global politics of poverty alleviation’, focused on the poor (Deacon 2009), to the ‘global politics of welfare state (re)building’, focused on the alliances that need to be constructed between the poor and non-poor (especially the middle class) to rebuild bonds of solidarity nationally and internationally?

The emergence of the global discourse on a Global Social Floor, on uni-versal or conditional cash transfers and a minimum social protection pack-age has not yet shifted us far enough towards the global politics of welfare state (re)building. The Global Social Floor or minimum social protection packages being argued for by Cichon at the ILO and Ortiz (formerly) at UNDESA are still essentially packages for the poor. A key issue, which the Global Social Floor sidesteps, relates to the middle class and its historic role in state-led development. Effective functioning states which meet the wel-fare needs of their citizens and residents do so because they also meet the welfare needs of their state builders. In sum,

A focus on the poor distracts from building cross-class solidarity. ●

A focus on the poor undermines the middle class commitment to pay ●

taxes.Countries need higher education as well as primary, city hospitals as well ●

as rural clinics, and wage-related pensions as well as social pensions and cash transfers to the poor.Civil servants, judges and tax collectors need to be paid more money to ●

avoid endemic corruption.Overseas development assistance needs to provide general financial aid to ●

cover recurrent budget deficits.

Notwithstanding the progressive aspects of the Global Social Floor, the ques-tion remains as to whether we can re-establish this global politics of wel-fare state (re)building within the context of globalization and the economic crisis. In this global era the middle class, who have been abandoned by their states (with a bit of help from the World Bank and IMF), have become


outward looking and aspire to have their needs met by attachment to global markets rather than national states, and to transnational actors rather than national ones. Can this be reversed?

There has been some recognition of this issue in recent scholarly and policy-related publications. Shana Cohen (2004: 114), researching the global aspirations of the middle class in Morocco notes,

the political goal of the global middle class would be to obtain access to services formerly subsumed within the province of the state, that now increasingly comes from the non-located, heterogeneous social relations that signify and support globalization ... [As a result] the social and pol-itical bond between elite and non-elite falls apart globally and locally leaving only economic benefit and exploitation.

Reflecting on the Tanzanian and other African experiences, Finnish scholar Jeremy Gould (2005: 148–49) has demonstrated that the overseas aid business has played a major part in seducing the professional and middle class of developing countries from the developmental role they used to occupy:

Seduced by access to the dollar economy, they prioritise acquiring skills for ... the requirements of the aid cartel ... at the expense of contributing to the development of domestic manufacturing and processing indus-tries that would generate actual wealth within the national economy ... [T]he intellectual and entrepreneurial class must choose between a self- referential and parasitic post-developmentalism, and national(ist) development projects – enhancing domestic savings and productive in-vestment, improving the productivity of land and labour, building the revenue base of the public economy.

Some policy documents have begun to address the issue. Policy analysts like Nancy Birdsall (2007, 2008) have associated political stability with a large middle class. Like modernization theorists before her, Birdsall makes the assumption that the middle class, educated and dependent on modern insti-tutions and technologies, will engage in civic activism and support political liberalization. Analysing the failure of relatively successful African econ-omies to undergo political transformation, she remarks,

Africa seems to be subject to a different kind of trap [in addition to the poverty trap] – that created by the lack of a healthy middle class and the institutions that support and reinforce the middle (Birdsall 2007: 3).

The UK DFID (2006: 22) White Paper Eliminating World Poverty: Making Governance Work for the Poor comments that ‘a growing middle class, more educated citizens, and a greater willingness by civil society and media to


speak out’ puts pressure on political leaders to improve the performance of the state. It also guards against worsening the problem identified by Gould. ‘It is essential that international partners avoid doing things that undermine a country’s capability’ (DFID 2006: 25). The White Paper cites as examples AIDS projects that ‘have recruited professional staff from gov-ernment health services which are already struggling to provide health care’ and the practice in fragile states, such as Afghanistan, of ‘giving aid only through non-governmental organizations (NGOs) or private contractors [which] can actually hold back the process of building the capability of the state’ (DFID 2006: 25). Birdsall (2007: 4) too writes that a consequence of aid can be the ‘diversion of talented, educated citizens from government and from small businesses to work for donor and UN agencies and international NGOs, where salaries are higher and more secure’.

What then would be a global social policy strategy after the crisis to over-come the problems of middle-class neglect, consequentially inadequate services for the poor and the outward looking global aspirations of the glo-balized and neglected middle class?

According to Cohen (2009),

A policy approach to fostering an educated, middle-income population identified with more vulnerable populations entails integrating inter-national health, social, governance, infrastructure, and environmental policies with national employment strategies. Broadly, this means con-necting job creation and employment trajectories across the public, pri-vate, and voluntary sectors to the achievement of global objectives, such as the Millennium Development Goals, and local social change. Such an approach may entail re-organizing the division of labor, creating new kinds of jobs to lower unemployment and meet social need while en-couraging individual ambition to shift from accumulation to collective good.

Essentially this policy choice takes us far beyond the limited steps being taken to fashion a Global Social Floor.

Contending global ideas and approaches

The question therefore becomes what other shifts in thinking about social policy and social development have been engendered by all the conferen-cing that has taken place in the wake of the global economic crisis. To what extent might we see a return to a safety-net approach or a more progressive and comprehensive approach to social policy?

In terms of the first coordinated world response to the crisis, it fell not to the United Nations, not to the World Bank, not to the IMF, but to the meet-ing of the G-20 at heads of state level at the 2 April 2009 G-20 summit to


fashion global policy on the hoof. It committed US$1.1 trillion to support countries in crisis, as follows: US$750 billion to an unreformed IMF, US$250 billion for trade facilitation, and only US$100 billion for development pur-poses (including social development), through unreformed multilateral de-velopment banks. The United Nations was only given a marginal role, to monitor the crisis, with no additional resources. So, in April 2009, we were faced with an interesting paradox. The world’s rich countries were embark-ing on huge fiscal stimulus packages involving often large social spending, guided by long forgotten Keynesian principles, while for the poorer coun-tries the equivalent task was being given to the IMF. There was not a word of comment about the fact that the IMF historically had focused on forcing countries to adopt macroeconomic policies that promoted neoliberal short-term pro-cyclical budget balancing. Such policies were the total opposite of that now being prescribed for rich countries. The key question (addressed below) was whether the IMF was about to change its spots and embark on a policy of encouraging poorer countries to invest in social expenditures to spend their way out of their crisis.

This fore-fronting of the G-20 and the IMF as the global agencies to address the crisis annoyed many in the UN system and, concretely led to a meet-ing of the United Nations System Chief Executives Board for Coordination (UNCEB)6 in Paris later in April, which generated the CEB Issue Paper, The Global Financial Crisis and Its Impact on the Work of the UN System (Somavia 2009). The meeting was able to draw upon an earlier draft report consid-ered in February 2009 by the CEB’s High-Level Committee on Programmes. The report called for coordinated action across the UN system in eight key policy fields: (i) finance; (ii) trade; (iii) employment and production; (iv) environment; (v) food security; (vi) social services, empowerment and pro-tection of people; (vii) humanitarian, security and social stability; and (viii) international cooperation for development. In terms of specific policies, the ILO would lead on a Global Jobs Pact and ‘[t]o help developing countries cope with the crisis, a counter-cyclical global jobs fund could be established’ (Somavia 2009: 14).

Most important from this chapter’s point of view was initiative (vi), which was to work towards a global Social Protection Floor which ensures ‘access to basic social services, shelter, and empowerment and protection of the poor and vulnerable’ (Somavia 2009: 31). This has subsequently been elaborated in June 2009 as a ‘floor [that] could consist of two main ele-ments: (a) Services: geographical and financial access to essential public services (such as water and sanitation, health, and education); and (b) Transfers: a basic set of essential social transfers ... to provide a minimum income security’ (Somavia 2009: 20). The ILO and WHO would lead on this policy, supported by a host of other agencies including UNICEF and UNDESA. The Global Social Floor had become UN policy, at least in terms of the UNCEB.


In November 2009, the policy was discussed (United Nations 2009) at the Second Committee of the General Assembly7 at which it was reported that col-laborating agencies and a group of supporting donor agencies had met in the ILO Training Centre in Turin in October to develop a blueprint of a manual for joint country activities on the Social Protection Floor. The interagency meeting was attended by several UN agencies (the Food and Agriculture Organization of the United Nations/FAO, Office of the High Commissioner for Human Rights/OHCHR, Joint United Nations Programme on HIV/AIDS–UNAIDS, UNCEB, UNDP, UNDESA, United Nations Educational, Scientific and Cultural Organization/UNESCO, UNFPA, United Nations Human Settlements Programme/UN-HABITAT, UNICEF, World Food Programme/WFP, WHO), the World Bank and the IMF, and a number of observers, which included mainly bilateral agencies and NGOs (German Federal Ministry for Economic Cooperation and Development/BMZ, DFID, Finnish Ministry of Foreign Affairs, GTZ, HelpAge International, Save the Children), as well as the Asian Development Bank (ADB). The experts approved in principle a draft Manual on the Strategic Framework for joint UN operations for na-tional social protection floor initiatives (ILO/WHO 2009a). The manual brings the respective tools and competencies of different agencies together and establishes a comprehensive set of guidelines for UN regional coordina-tors/country directors and country teams who are expected to take the lead in organizing the UN support for national social protection floor initiatives (ILO/WHO 2009b).

It remains to be seen how this initiative translates into practice. There are some positive signs. Even UNICEF, which has been reluctant to throw its lot in with the ‘ONE UN’ policy which aims to ensure UN system-wide coherence, seems to be on board, emphasizing the need for social protec-tion investments to smooth the experience of the crisis (UNICEF no date). UNICEF hosted a conference, The Global Economic Crisis – Including Children in the Policy Response, jointly with the Overseas Development Institute (ODI) in the United Kingdom. It examined the ways in which the food and fuel price volatility, financial market volatility and global eco-nomic slowdown are affecting children and youth in both developing and developed countries and recommended policy responses. It took place on 9–10 November 2009 in London, and was concluded by an address from Isabel Ortiz.8 Echoing the 1987 call by UNICEF’s Giovanni Cornia, Richard Jolly and Frances Stewart (1987) for Adjustment with a Human Face, Isabel Ortiz (2009a) called for a Recovery with a Human Face. An on-line email discussion has been initiated by Jolly, Cornia and Ortiz to pursue this theme. In a speech at the September 2009 G-20 meeting of Ministers in New York (UNDP Newsroom 2009), the UNDP Administrator, Helen Clark, also acknowledged this new policy. While Michael Cichon, Head of Social Security at the ILO, has been at the forefront of the global campaign for a social protection floor within the ILO, this policy still has to jostle for


attention with the dominant Decent Work campaign (ILO 2009) (within which, of course, social protection plays a part). The tripartite organization is still finding it hard to address issues of human rights and overall poverty as distinct from workers’ rights and wages policy. However the International Labour Conference in 2011 did agree that its next one in 2012 would agree the form of a Recommendation to countries concerning the establishment of Social Protection Floors. A draft Recommendation is available at http://www.ilo.org/ilc/ILCSessions/101stSession/reports/reports-submitted/lang--en/index.htm.

It is hard to determine whether the World Bank’s formal membership of the UNCEB and its formal participation in the Global Social Protection Floor UN initiative is changing its policies and practices on social protection. At the time of writing the World Bank is undertaking a consultation concern-ing a revised Social Protection and Labour Strategy for 2012–2020 and we wait to see whether it endorses the Social Protection Floor policy. Its two flagship training programmes on pensions and safety nets are going ahead as before. The World Bank did sign up to the joint Statement with UNICEF and a host of other UN agencies and international NGOs on Advancing Child Sensitive Social Protection (UNICEF 2009). Interestingly, in the wake of the impact of the global financial crisis on the sustainability and utility of private defined contribution (DC) pension schemes, the World Bank’s current work is focused on social pensions (see contributions by Fine and Arza (Chapters 5 and 6)). Its recent publication on Closing the Coverage Gap: The Role of Social Pensions and Other Retirement Income Transfers captures well the reasons why a reliance on contributory schemes of either the defined benefit or defined contribution kind have their limitations:

A sustained expansion of the contributory system in the average low- or middle-income country would require fundamental changes in the pro-ductive structure of the economy and the functioning of its product and labor markets...

Against this background, social pensions and other retirement trans-fers emerge as an important instrument for bridging the coverage gap – at least for the time being – by focusing on individuals with no or lim-ited saving capacity, who are more likely to be outside the contributory system (Holzmann et al. 2009: 17–18).

Noteworthy in this context is the World Bank’s belated concern that defined contribution pension schemes might not provide a decent pension for those forced to retire during the crisis. That this in turn might encourage countries to reverse recent reforms centred on private schemes and return to state pay-as-you-go (PAYG) schemes (as in the case of Argentina, elaborated by Arza in Chapter 6) has prompted the World Bank to caution against radical reversal and to offer public subsidy for a short while to those affected (World Bank


2009). At the time of writing the World Bank is undertaking a consultation concerning a revised Social Protection and Labour Strategy for 2012–20 and we wait to see whether it endorses the Social Protection Floor policy.

Where, then, is social policy headed in the wake of this series of crisis meetings? Are they taking us back to safety nets, forward to a Global Social Floor or on to renewed state-led development? It appears that a step has been taken in the direction of the ONE UN lining up behind the minimum social protection package or Global Social Floor. At the same time, however, a further UNCEB initiative, Additional Financing for the Most Vulnerable, would ensure ‘countries with limited fiscal space [would have] additional financing in the form of concessional resources’ (Somavia 2009: 24). This initiative gave support to the Vulnerability Fund (VF) that had been initially proposed by the President of the World Bank when he called upon countries to commit 0.7 per cent of the funds being made available for ‘fiscal’ stimulus to be allocated to a vulnerability fund for developing countries for safety nets and other purposes. The UNCEB agreed that this initiative was to be driven by UNDP and the World Bank.

The outcome may be less of a new step in the direction of ONE UN with ONE (Global Social Floor) policy under ONE leadership with ONE budget, but rather, the old story of the ILO-WHO universal global social floor approach with no funds behind it and a World Bank vulnerability fund to be used for, among other things, safety nets. An empirical question yet to be answered is how much money will be donated to these contending funds or approaches. Indeed as McCulloch and Sumner (2009: 105) conclude in their review of the likely impact of the crisis on the development paradigm, ‘In short, the crisis may increase the leverage of advocates of social protection in developing countries, but in many countries, their success will depend on whether donors are able to support sufficient fiscal space for the budget reallocations involved.’

In the build-up to the UN Conference on the World Economic Crisis and its impact on Development, eventually held during 24–26 June 2009, atten-tion turned to the possibility of other approaches to get to grips with the world economic crisis. Surely with G-77 influence, there would be neither a retreat to safety nets, nor just a timid advance to the Global Social Floor, but rather renewed calls for state-led social and economic development. This conference had been called for at the December 2008 UN Conference on Financing for Development and had been pushed hard for by the President of the General Assembly. Positioning himself differently from the Secretary-General of the United Nations, he was much more inclined to work with the G-20 as a centre of global power. In the words of the Transnational Institute’s spokesperson Nick Buxton (2009), however, it was not to be:

Miguel D’Escoto Brockmann, the avuncular Nicaraguan priest and elected President of the General Assembly of the United Nations ... had


dared to inject huge energy into the process by pulling together a high level UN commission chaired by Nobel Prize heavyweight Joseph Stiglitz and calling for radical changes in the institutions and rules that led to the crisis.

Western diplomats were soon briefing journalists that Brockmann was a ‘radical socialist’ trying to impose its vision on the world com-munity. Then when it became clear that the largest block of countries, the misnamed Group of 77 (in fact made up more than 130 nations) was also pushing forward many of the same ideas, the rich countries played down the importance of the conference and refused to send high-level representation.

Finally the rich countries went through the G77 declaration and removed anything that entailed any reform to either the institutions (such as the IMF, World Bank and World Trade Organization) or the inter-national rules and laws that enabled the crisis to spread and deepen. The result was an anaemic final UN document that does little to tackle the root causes of the financial crisis.

Table 4.1 compares some aspects of Brockmann’s draft outcome document with both the revised draft (after EU and other interventions) and the final outcome document.

In terms of the concerns of this chapter, the challenge to traditional IMF conditionalities was watered down, the policy on innovative forms of fi-nancing was diluted and the proposal to strengthen the United Nations Economic and Social Council (ECOSOC), by creating the Global Economic Council, was abandoned.

Table 4.1 Comparison of drafts and final outcome documents of UN crisis conference

18th May draft22nd June draft after changes Outcome

Causes of crisis Concentration of income and wealth (para. 6)

Systematic fragilities and imbalances (para. 9)

Same as

IMF conditionalities Without unwarranted conditionalities (20)

Streamlining conditionalities (17)

Same as

New sources of finance

Establishment of new innovative forms of financing (28)

Establishment, where appropriate, of voluntary innovative (31)

Same as

Economic Security Council

Establish a new Global Economic Council (53)

Gone Same as

Source: Compiled by the author.


Meanwhile, UNESCO, through the Social and Human Sciences Division’s Management of Social Transformations (MOST) programme, examined the impact of the global financial crisis in its September 2009 meeting in Paris. The MOST programme, often overlooked by analysts, regards itself as a United Nations programme contributing to the development of better policies through social science research (UNESCO 2010). Unfortunately its deliberations rarely reach detailed policy conclusions. Of note however was the contribution of the United Nations Research Institute for Social Development (UNRISD) representative, Katja Hujo, who outlined the im-pact of the global financial crisis on developing countries. She ‘went on to look at four areas of social policy responses. The first area was health and education where she spoke of maintaining and expanding social in-frastructure in health, education and care services which would create job opportunities for women who are suffering more than men in this global financial crisis. The second area was investment in water, sanita-tion, transportation, housing etc. which all have beneficial impacts on health. The third area was social protection where governments should expand and create cash transfer and employment programmes with wider eligibility conditions, increased amounts of benefit or increasing their duration. Fourth was the expansion of labour market policies by com-bining short-term with long term measures’ (ICSW 2009: 2). Finally in terms of a shift towards the idea of state-led investment and development, the United Nations Conference on Trade and Development’s (UNCTAD) The Least Developed Countries Report 2009 argues the case that ‘the develop-mentally-oriented elite ... should establish a social compact through which broad sections of society support the developmental project’ (UNCTAD 2009a: 51).

Is the IMF changing its spots?

The former head of the IMF, Dominique Strauss-Kahn, insisted that a new IMF now exists. According to its website,

The IMF is trying to ensure that economic adjustments taken to combat the impact of the crisis also take account of the needs of the most vulner-able by developing or enhancing social safety nets.

Social spending is being preserved or increased wherever possible. For instance, in Pakistan expenditure will be increased to protect the poor through both cash transfers and targeted electricity subsidies. About a third of programs in low-income countries include floors on social and other priority spending.

Structural reforms are designed in a way to protect the most vulner-able. For instance in Hungary, low-income pensioners were excluded from benefit reduction. (IMF 2009)


Even if we take this at face value, the drift of the argument is not for social expenditures as social investments to support a renewed state-led develop-ment project. It is not even for a global social protection floor. At best, it is for a targeted approach to poverty alleviation and a residual means tested approach to social policy.

While the IMF has led the argument for large-scale fiscal stimulus in the rich world to kick-start economic growth, the Centre for Economic Policy Research (CEPR 2009) finds that agreements negotiated by the IMF since September 2008 with several Eastern European countries, El Salvador and Pakistan contain some elements of contractionary policies. These include fiscal (budget) tightening, interest rate increases, wage freezes for public employees and other measures that will reduce aggregate demand or pre-vent economic stimulus programmes in the current downturn. Similarly Eurodad’s analysis (Molina-Gallart 2009) of ten IMF agreements signed after the global financial crisis shows that the IMF is still advising stringent fiscal and monetary policies to low-income countries, as well as controver-sial structural reforms. The paper comments that ‘If the Fund is to provide funding to poor countries to meet the financial gaps created by the crisis it has to change and it has to do it soon. Reacting poorly and reacting late may mean death and starvation for millions of people in poor countries.’ Other research on loans to El Salvador, Latvia and Ethiopia come to the same conclusions (Molina-Gallart 2009: 4). Similarly UNCTAD in its 2009 annual trade and development report notes that, ‘In reality, the conditions attached to recent lending operations have remained quite similar to those of the past. Indeed, in almost all of its recent lending arrangements, the Fund has continued to impose proc-cyclical economic tightening.’ The re-port goes on to argue,

The scope for counter-cyclical policies among smaller developing coun-tries and countries in transition varies greatly. Many countries with cur-rent account deficits and a weak currency are pushed by their creditors to lean towards pro-cyclical macroeconomic policies with high interest rates and fiscal conservatism. However, a departure from the traditional policy practices and policy rules is warranted, indeed indispensable. (UNCTAD 2009a: 56)

Overcoming the global governance impasse

Returning then to the central questions of concern to this chapter, where do things stand in relation to the power of different ideas and approaches to social policy in the context of crisis? To what extent do the ideas emerging from intergovernmental organizations give support to the rather more pro-gressive policy (the criticisms above notwithstanding) of the Global Social Floor to protect people from the consequences of the crisis? At the level


of global discourse and the UNCEB, this would appear to be the case, but whether funds follow to back this policy up is another matter.

And are there any grounds for thinking that the emerging ideas herald a rediscovery of the central place of social policy as social investment in the context of a rediscovered Keynesianism which understands the contri-bution of social expenditures to economic growth? Such an approach has clearly resonated to some extent among the developed countries. To the extent that this is a further nail in the coffin of a failed neoliberal project it could empower those within the United Nations and others who put for-ward such arguments. But again there is the question of the resources avail-able to poorer countries.

Or are we seeing a return to the global policy of poverty alleviation with its focus on safety nets, justified on the basis that crisis-affected govern-ments cannot afford anything else? The above analysis suggests there is a hint of this in the approach of the World Bank’s vulnerability fund, as well as in ongoing IMF policies and conditionalities.

In sum quite different approaches are being pushed in different quarters. The UNCEB endorses the Global Social Floor; the G-20, the World Bank and IMF continue to lean toward safety nets; and UNESCO’s MOST, UNRISD and parts of UNCTAD have called for a state-led social investment strategy. The United Nations’ failed June 2009 conference might have supported this too had the global North not ruined it.

On balance, it appears that the G-20 and the more or less unreformed IMF are driving the post-crisis agenda vis-à-vis developing countries, while the United Nations presents all of its usual contradictory features to en-gender despair in its supporters. On the one hand, it advances at the level of ideas towards a global social floor but cannot stop the IMF and the World Bank pursuing a more modest agenda. It arranges set piece global conferences with the prospect of making a major global advance, only to be derailed by an alliance of mainly Northern national interests. What is to be done?

In a thoughtful piece, the ODI notes that ‘ECOSOC has the broad man-date and the legitimacy, but finds it hard to deliver. The G-20 has neither the full mandate nor the accountability, but can deliver’ (ODI 2009: 27). We might question the ability of the G-20 to deliver without having a sec-retariat but, as far as economic and social policy are concerned, the co-existence for now of these two centres of power is a fact. At the same time the shift in the locus of global power from the G-8 to the G-20 is a sign of progress from the point of view of much, but not all, of the global South. The ODI concludes,

Leaders then have two options in April. Either, they give up on the UN and opt for further strengthening of the G-20, with a wider mandate and with a permanent secretariat. We could see G-20 Summits running


in parallel with and eventually superseding the G-8. Or they could turn their backs on élitist bodies like the G-20, insist on reform of ECOSOC, and demand better performance from the UN.

Or – an attractive compromise – they could do both. The G-20 is the right short-term solution. The UN is the right long-term solution. That suggests that the G-20 should have UN issues on its agenda in April and also avoid taking actions that will make UN reform more difficult. The G-20 should channel some of the extra money it will raise through the UN, especially in the form of grants rather than loans for the poorest countries (ODI 2009: 27).

Kermal Dervis, former head of UNDP and, at the time of writing, advisor to the UN Secretary-General on the G-20, talks of bringing the informal G-club system of governance and the formal UN system together (Dervis 2009). The Institute for Global Policy wants ECOSOC to elect a G-20. The Stiglitz Committee had called again for an Economic Security Council and, interestingly, a Scientific Advisory Panel to pool the best advice on the so-cial and economic aspects of the crisis. Even Pascal Lamy of WTO suggested in a speech at Warwick on 15 July 2009 that ‘I see a new triangle of global governance emerging that we need to strengthen. A “triangle of coherence”. On one side of the triangle lies the G20, providing political leadership and policy direction. On another side lie member-driven international organisa-tions providing expertise and specialized inputs whether rules, policies or programmes. The third side of the triangle is the G-192, the United Nations, providing a forum for accountability’ (WTO 2009). Exactly how these three sides were to work together was not clear.

Meanwhile the key UN players, of course, stick to the G-77 line that the United Nations is the agency to take overall responsibility for economic and social affairs. Thus the UNCTAD report, The Global Economic Crisis: Systemic Failures and Multilateral Remedies, insists,

The United Nations must play a central role in guiding this reform pro-cess. It is the only institution which has the universality of membership and credibility to ensure the legitimacy and viability of a reformed gov-ernance system. It has proven capacity to provide impartial analysis and pragmatic policy recommendations in this area (UNCTAD 2009b: v).

Towards a more Southern-centred agenda?

The impact of the economic crisis on thinking and practice at a global level about social policy and development on the one hand and global govern-ance on the other reveals, as was to be expected, contradictory elements. On the one hand those (ILO, UNICEF) wishing to advance a comprehensive and universal social protection agenda have found their corner strength-ened against those who still favour a residual approach because of the UN


Chief Executive Board picking up the banner of a Global Social Floor. At the same time monies provided by the global North to help countries in the global South steer their way out of the crisis are still being channelled through an IMF which, despite its web-page makeover, still clings to con-serving the social protection only of the poor. Those within UNCTAD, UNRISD, UNESCO-MOST who argue that we should advance beyond both residualism and a minimal global social floor in the direction of a new wave of state-led social development find little support among donors for this, al-though the message is readily understood in much of the global South.

There has been a major break from the unaccountable G-7/8 Northern club form of global governance with the coming in to its own of the G-20. Much, but clearly not all, of the global South is finding a voice in that arena. At the same time this sidelines even more the United Nations and its legit-imate claim to be the paramount body responsible for world economic and social policy. However much the UN Chief Executive Board has used the crisis to strengthen the ONE-UN agenda, the deliberations on global eco-nomic and social policy at the United Nations General Assembly are even more marginalized. While the G-77 champions the United Nations at this time of crisis, the European Union and the United States (still) put their main energies into the G-20 where their voice has more influence.

These contradictory tendencies and the continuing stalemate between those wanting a more progressive social development agenda fashioned by the United Nations and those pragmatically going along with a G-20 reflect the now long-standing impasse that I have elsewhere called the North–South impasse (Deacon 2007). Given this social policy and social governance-reform impasse at the global level, some have argued to bypass the impasse by a renewed focus on both new forms of South–South cooper-ation, policy lesson learning and even South–South funding. The UNESCO MOST programme has been an important player in facilitating dialogues between Ministers of Social Development in Africa and elsewhere. China’s increased interest in Africa means, as Cook and Gu (2009: 44) have con-cluded, that ‘Having the new rising power as a partner gives Africa an un-precedented policy-space.’ Rather than continued frustrating engagement with the stalled policy and governance agenda at a global level, it might be better for the global South to fashion its own social development policies in the new spirit of South–South cooperation and regional co-operation.9 Indeed as McCulloch and Sumner (2009: 106) conclude,

it seems likely that this crisis will result in much greater activism by developing countries in the design and implementation of their own de-velopment policies. The Washington Consensus was already under siege before the crisis – it is now dead – at least in the sense that Western policy prescriptions are perceived by many developing country policymakers as having been completely discredited by this crisis. The hope is that we


will see the emergence of development policies which are much more context- and country-sensitive as a result.

It is in this context that investing in forms of regional governance in the global South becomes important (Deacon et al. 2010).10 There is much that is happening in the wake and context of the global economic crisis to strengthen the case for regions claiming more power in a reformed archi-tecture of global social governance. Regional formations of government (the European Union, Association of Southeast Asian Nations/ASEAN, the African Union), or at least some of them, are integrated into the G-20 system. Regional South–South banking arrangements are already in existence in the form of the Islamic Development Bank and others emerging in Latin America and East Asia. The ASEAN Plus Three (APT)11 countries are moving towards a US$120 billion Asian Monetary Fund, and South America’s Bank of the South (BancoSur) was launched in May 2009 with $7 billion in initial start-up capital (Ortiz 2009b).

Not all would agree, however. Marx Saxer (2009) for the Friedrich-Ebert-Stiftung (FES) Dialogue on Globalization project argues,

While regional integration processes are making reasonable progress in some regions (e.g. West Africa, Southeast Asia), there is no reason to ex-pect this situation to materialize in every region. It is thus unrealistic to speak, for the medium term, of a global governance architecture building on regional integration processes (p. 5) ...

The regions in which integration processes are no[t] making headway – South Asia, North Africa and the Middle East, or East Asia – will have to be integrated into the global architecture by other means ... the global architecture will, in the medium term, be more likely to build on a mix of regional governance and efforts to integrate individual major actors like China, India, Russia, Brazil, Mexico, and South Africa directly at the global level (p. 9).

To conclude, whether the focus is on global social policy discourses and govern-ance, regional discourses and governance or national discourses and governance the world economic crisis only reinforces the urgency of the common pol-itical task that still faces us, as was expressed quite cogently by Cox (1999: 26) in assessing the tasks facing Gramsci’s organic intellectuals in today’s world:

Their task now is to bridge the differences among the variety of groups disadvantaged by globalization so as to bring about a common under-standing of the nature and consequences of globalisation, and to devise a common strategy towards subordinating the world economy to a regime of social equity. This means the building of a counter-hegemonic historic


bloc that could confront the hegemonic forces of globalisation in a long term ‘war of position’ ... Their task now is to be able to work simultan-eously on local, regional and world levels.

The global economic crisis has made this task more urgent and had opened, albeit possibly briefly, a policy space for these counter-hegemonic ideas to take firmer root.

Notes

1. See Deacon (2007), Mkandawire (2004), de Haan (2007). 2. Gramsci’s concept of ‘war of position’ refers to the struggle of ideas and values

promoted by different social actors. 3. Representing these organizations, respectively, were Michael Cichon, Isabel

Ortiz (now at UNICEF), Gaspar Fajth and Silvia Stefanoni. 4. Research into the development of the Social Protection Floor policy which I am

currently undertaking at the time (January 2012) would lead me now to give greater emphasize to the process of developing this policy within the ILO from about 2005 onwards. This new research will be published as 'Towards a Global Social Floor' in 2013.

5. The IPC was subsequently renamed the International Poverty Centre for Inclusive Growth (IPC-IG).

6. The CEB is the main instrument for executive heads of the UN system to coord-inate their actions and policies.

7. The Second Committee is also known as the Economic and Financial Committee (ECOFIN).

8. Isabel Ortiz is currently Associate Director of Policy and Practice at UNICEF. 9. It is noteworthy that at the Seoul 2011 and Cannes 2011 the new Development

Committee of the G20 has advanced a heavy programme of policy formulation drawing on the advice of UN agencies.

10. See also the work of the United Nations University Comparative Regional Integration Studies programme (UNUCRIS) which is examining the extent to which there are world-regional social development polices being pursued by ac-tually existing regional forms of governance, as well as the potential and limits of further developing regional social policies.

11. The ASEAN Plus Three countries comprise Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Viet Nam; Plus Three: Japan, People’s Republic of China and the Republic of Korea.

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103

5Financialization and Social PolicyBen Fine

Introduction

No one can doubt that the evolution of social policy over the past 30 years, in developing and developed worlds, has been heavily influenced by ‘neo-liberalism’. It has been associated with fiscal constraints, privatization, com-mercialization, user charges and so on. But the global crisis from 2007 has thrown reliance upon market forces into doubt, necessitating reassessment of how such reliance came to predominate and what is to be done about it by way of alternative.1

In this light, there are reasons for optimism because the current crisis appears to signal a crisis of legitimacy for, if not of, neoliberalism. For, two of the most popular defining characteristics of neoliberalism are its regressive impact on income distribution and its equally regressive antipathy to social policy in deference to individual and market responsibility.2 This raises the question of whether the current crisis places more progressive stances on ine-quality and social policy back on the agenda, not least as it has already offered a stunning and paradoxical episode in the evolution of neoliberalism. For the ideology of free markets has given way to successful demands for extensive state intervention, even if especially to sustain the financial system that had been on the verge of, or even beyond, collapse and had, in any case, prompted a major recession whose depth, breadth and duration remain uncertain. Does such overt renewal of state intervention signal the end of neoliberalism or is neoliberalism reinventing itself in a new form? This chapter addresses this question and the corresponding implications for social policy.

To assess the resilience of neoliberalism, the chapter first specifies three cru-cial aspects: its attachment to ‘financialization’; its division into two phases roughly demarcated within the early 1990s; and its complex, contradictory and shifting amalgam of scholarship, ideology and policy in practice. Then the chapter examines the way in which World Bank stances on social policy have come to reflect the second phase of neoliberalism and are liable to push further private participation in public provision in the wake of the crisis. But


the World Bank’s stance on social policy is rift with tensions, as revealed by its ambivalence towards conditional cash transfers (CCTs), which are examined next. Widely welcomed as an instrument of poverty alleviation, CCTs remain ambiguous on how conditioned public services will be provided and they constitute an uncertain stepping stone towards universal provision of pub-lic services. Alternative approaches are discussed in the next section. These include current thinking about developmental welfare states and public sec-tor systems of provision (PSSOP). The latter approach seeks to contextualize social policy by programme and (national) location and attach it to the devel-opmental goals associated with the building of a welfare state. The conclud-ing section emphasizes that social policy needs both a reconceptualization and far more resources than are currently accorded in government budgets and the global policy response to the crisis.

Core features of neoliberalism

It’s financialization stupid!

While the nature of neoliberalism, and indeed whether it is a legitimate category of analysis, is rightly questioned, three aspects render it a real-ity and one that must be strategically contested. First and foremost, and brought sharply into relief by the current crisis and the responses to it, neo-liberalism, and its counterpart in globalization, are heavily underpinned by an extraordinary expansion and promotion of financial activity. This goes far beyond the proliferation of the financial markets themselves, and corresponding speculative activity, for it is the extension of those markets (not their inner parasitism in the form of derivatives, for example) to an ever-expanding range of activities associated with both economic and social reproduction that has marked the neoliberal era. Such developments are well captured by the notion of ‘financialization’, signifying not only the greater weight of finance in economies but its greater scope of application (Fine 2009a). To put it pithily, the expansion of markets in general under neoliberalism (as with all aspects of privatization and commodification) has underpinned the expansion of finance in particular. Further, financializa-tion as the key distinguishing feature of the neoliberal era is what justifies the term both in itself and in its effects by marking the contrast with, and even the reversal of, the previous Keynesian period. This is not simply a matter of macroeconomic policy but the heavy subordination of economic and social policy more generally to the dictates of the promotion of markets, especially of finance.

Of course, the relationship between financialization and social policy is neither uniform nor always or even primarily direct. It is more so where the private has displaced the public sector with corresponding incorporation of financial markets into the process of provision, as is most notable with hous-ing and pensions. But any form of privatization has the potential to induce

Financialization and Social Policy 105

financialization since it creates a stream of revenue that can be consolidated into assets that can become part of a derivative that is speculatively traded. At this point, the asset appears to have floated free from its roots in real activity and provision. This is an illusion for two reasons. First, financiali-zation is itself diverse across varieties of assets and, second, the continuing attachment to, and ultimate dependence upon, the non-financial activities from which they derive is also diverse from housing to health and, indeed, how these are themselves provided.

Privatization, then, in general, and of provision associated with social policy, in particular, has both underpinned and been promoted by finan-cialization directly and indirectly. This is, however, only part of the pic-ture. The period of neoliberalism, and its dependence upon, and support of, financialization, have involved (Fine 2009a),

reductions in overall levels of accumulation of real capital as financial 1. instruments and activities expand at its expense – global slowdown over the past 30 years;priority to shareholder value, or financial worth, over other economic 2. and social values;pushing of policies towards conservatism and commercialization in all 3. respects;extending influence more broadly, both directly and indirectly, over eco-4. nomic and social policy;placing more aspects of economic and social life at the risk of volatility 5. from financial instability and, conversely, placing the economy at risk of crisis from triggers within particular markets; andthrough New Public Management and the like, the erosion of the institu-6. tions, capacity and ethos associated with a more interventionist role for the public sector in direct provision.

Many of these features have reinforced the demands upon social policy (low levels of wages, development, productivity increase, social provision and growing inequality, and so on). Even so, the prospects for alternative social policy require much more than formulating an alternative set of poli-cies since their implementation, impact and monitoring will depend upon transformations not only in the financial system but in governance as well broadly interpreted. For, as responses to the crisis unfold, it is already appar-ent that even minimal economic and social reordering is in doubt, with reregulation of the financial system uncertain and backsliding on token cutback of finance bonuses.

From roll back to roll out?3

This is indicative of the extent to which neoliberalism is not simply a set of policies to be reversed but also a transformation in the mode of governance


in which the imperatives of finance and of private capital in general have taken precedence. This is despite, or even a reflection of, a second, crucial feature in untangling neoliberalism that broadly it has gone through two roughly delineated phases. The first is appropriately understood as the ‘shock’ phase even though of much wider and earlier, if less dramatic, appli-cability than to the transition economies of Eastern Europe alone, although they are indicative. This is the classic phase of neoliberalism in which the role of markets (for which read the interests of private capital) is pushed with limited regard to the consequences. It is aptly summed up in the phrase ‘Just do it’, and ranges over user charges through to privatization. In the case of health provision, for example, by 1993, 32 African countries were impos-ing user fees, in response to World Bank and International Monetary Fund (IMF) conditionalities, and governments had even internalized the logic underpinning these (Graham 2009).4 What is striking about this first phase is not that it is universally applied but that it should be pushed through as far as possible both against resistance and, in the first instance, irrespective of the logic and experience of provision itself. The private sector is to be involved where it is profitable and/or possible.

The first, shock, phase of neoliberalism is significant for setting the stand-ard against which the second phase is a reaction, not least as the first phase failed to deliver promises and worse with user fees for health, for example, impacting negatively on utilization and poverty (Graham 2009). More gen-erally, this reflects the shift to the second phase of neoliberalism, dating from the early 1990s, which itself has two aspects. On the one hand is the need to respond to the dysfunction and conflict that has resulted from the first phase. On the other hand, as most dramatically revealed by the current financial crisis, is the imperative of sustaining and not just ameliorating the process of financialization. Symbolic of this is the level of state funding that is being made available to support the financial system in circumstances of extreme crisis when, in better times, such funding could not be made avail-able for health, education and welfare.

While financial contagion from the current crisis, as opposed to transmis-sion mechanisms from recession, has been less damaging to most develop-ing countries, this is, in part, because of the expensive dollar reserves held to guard against financial instability in the wake of more or less enforced liberalization of capital controls.5 Here, it is important to recognize that this is not merely a set of policies that have been more or less detrimental. Just as the hand of the financial elite has been strengthened across the developed world, most notably in the United States, so has the same occurred across the developing world, together with the creation of a corresponding financial elite. It has little or no attachment to alliances promoting alternative forms and content of policy making, with its orientation being toward internation-alized financial dealings (Robinson 2010). This is crucial in explaining why attempts at policy making, for example, in allowing for alternative forms of


public provision, have been undermined and constrained even where they do manage to emerge or to survive (Fine and Hall forthcoming).

Moreover, as with privatization, the second phase of neoliberalism rests less on a rethink of its virtues than on rationalizing the use of the state’s (and donors’) resources and capacities to incorporate the private sector in social policy more or less irrespective of the extent and nature of provision. For the World Bank (2009a), for example, core spending is perceived to be at risk and needs to be defended, but without reference to how that spending should be transformed (other than ticking boxes around corruption and pri-vate participation, and so on). There is even the claim of better capacity to deal with problems as a result of past policies to accumulate precautionary reserves, without any sense that these policies may themselves have been causal in liberalizing capital markets in the first place. Particularly worri-some, though, is the projected continuation of the increasing role of the International Finance Corporation (IFC), as the instrument for World Bank promotion of private capital.6 As Zoellick (2008) puts it, ‘Private capital – and especially equity – will be the critical factor in building infrastructure, supplying energy, financing businesses and trade, fostering regional inte-gration within an open global economy.’7

Neoliberalism as scholarship, rhetoric and policy

Paradoxically, of course, the second phase of neoliberalism – the so-called post-Washington consensus – can, like Third Wayism and the social market, be presented as a departure from neoliberalism itself. This is indicative of the need to acknowledge that neoliberalism is constituted out of separate components around scholarship, rhetoric (or advocacy and ideology), policy in practice and putative representation of reality.8 Each of these aspects is not necessarily consistently addressed across time, place and issue. And the same applies to their consistency with one another with, for example, the shift in World Bank stance on privatization coming much later than the shift from Washington to post-Washington consensus.

In general, then, there are tensions within and between the different com-ponents that remain unresolved. Broadly, though, in the context of devel-opment, the shift between the two phases of neoliberalism can be identified with the shift between the Washington consensus and the post-Washing-ton consensus. This shift has been primarily pitched at the levels of schol-arship and ideology, with the corresponding launch of the Comprehensive Development Programme, Poverty Reduction Strategy Papers (PRSPs), Millennium Development Goals (MDGs), good governance and so on. The post-Washington consensus justifies piecemeal intervention to enhance the imperfect workings of markets and institutions. The Washington consen-sus had also involved considerable discretion for intervention but on the rationale of freeing markets to work. Policies in practice, though, tell an entirely different story and might even be adjudged to have strengthened


those associated with the Washington consensus, not least in aid alloca-tion (van Waeyenberge 2009), and the promotion of the private sector in changed circumstances.

Messing with the World Bank

As will be seen, this has significant implications for the way in which social policy has been and is liable to be reconstructed, especially in the develop-ing world insofar as it comes under the influence of the World Bank and the IMF. Ironically, their roles have been strengthened in the current crisis, despite their complicity with the policies and developments that have pre-cipitated it. The second phase of neoliberalism provides the prism through which to review the evolving contributions emanating from the World Bank.

Despite the increased attention to social dimensions of development, the World Bank has adopted a fragmented approach. Moser (2008: 47), for example, complains:

The World Bank does not have a specifically defined social policy as such. Within the institution, three predominant social policy ‘domains’ can be identified: social sectors, social protection, and social development. The fact that each has a distinct location within the organization has served to create artificial conceptual and operational barriers to a holistic social policy.

Of these domains, social development is seen as the least developed. While her jointly edited volume showcases the role of ‘assets’ as a means of pursu-ing social policy, her own take on its absence from the Bank might better be seen as being the social policy itself to which piecemeal and fragmented correctives are now being appended. The review of Holzmann et al. (2009: 1) of World Bank policy over the course of the first decade or so of the new millennium reports that,

The first social funds were prepared in the late 1980s to help communi-ties cope with short-term adverse impacts of structural reforms. These funds expanded rapidly to become a central part of the Bank’s poverty reduction efforts in low income countries.

Following on from the pensions and financial crises of the 1990s, ad hoc arrangements eventually gave way to a new framework integrating social protection and labour, ‘based on the conviction that risk and access to risk management instruments matter for development’ (Holzmann et al. 2009). Their own figures, though, tell a different story. Over the eight years from 2000, total expenditure on ‘Social Protection and Labour Lending’ amounted to a little less than a mere US$10 billion.9 However in relation


to the dollar-a-day poverty count, this is in the region of a dollar per year for the world’s poor. Much more significant is the number of country Risk and Vulnerability Assessments, which total 127 over the period. At about US$10 million offered per country per assessment per year, the Bank might be thought to have purchased any corresponding influence over policy at an extremely low price.

Similar considerations apply in case of privatization. As demonstrated at length in Bayliss and Fine (2008), the policy and rhetoric of the Washington consensus were to privatize as much of the public services as possible, with little or no attempt at scholarly justification. Equally, there was limited attention to the realities underpinning provision with, for example, no survey of regulatory capacity of developing countries until 2004 (Wallsten et al. 2004). At that point, in an apparently dramatic turnaround, the early 2000s witnessed a remarkable rethink on the part of the World Bank, which even confessed that it had been mistaken in being so ideologically committed to privatization. This seemed to be inspired by the failure of privatization to materialize in practice in some instances, the failure for it to generate the promised levels of private sector investment, and increas-ing problems with disputed and broken contracts. But, in practice, what the Bank proposed was less a rethink than a demand upon the state to use its own resources and capacities to facilitate further privatization. As it were, the shock therapy had already accrued the easy and/or the profitable (or profitably made) privatizations; now something more was needed to sustain the process. Simultaneously, the Bank began shifting infrastruc-tural aid into its private sector wing, the IFC, in order to leverage the par-ticipation of the private sector in public sector provision. Further, there was even a pecking order of sectors – running from telecommunications through energy and transport to water and sewerage – in terms of those that were most likely to be able to garner private sector participation. Such initiatives to prioritize the role of the private sector, despite the failure of privatization to materialize or to deliver, are particularly disturbing in sub-Saharan Africa where 90 per cent of delivery of such services will continue to depend upon the public sector, even on a best case scenario of private sector participation.

In the wake of the financial crisis, although it is currently too early to tell, the potential for private sector delivery (in partnership or not) of public sec-tor services is liable to be severely restricted. Especially, but not exclusively across the developed world, finance for public–private partnerships (PPPs) is simply drying up. And as Hall (2009: 6) reports,10

The IFC, the private sector financing arm of the World Bank, believes that the credit squeeze will make it even harder to finance PPPs. It estimates that $110 billion worth of proposed PPPs may be delayed or cancelled, and that $70 billion of existing PPPs are at risk because of increased costs of financing these projects for the private sector.


On the other hand, though, and potentially more positively, the failure of the financial sector, and the corresponding fear of recession, open up the pos-sibility of a major renewal of public-sector led infrastructural investment.

Thus, what marks the current stance of the World Bank on social policy are three fundamental characteristics. The first is the continuing influence of its roots within the rhetoric, scholarship and policy perspectives of the Washington Consensus. There is a corresponding lingering presumption of social protection as the response to random shocks that induce individual or household vulnerability that requires at most temporary relief in defer-ence to market solutions. Second, though, is the flexibility and discretion that is exercised in departing from the Washington Consensus. As already indicated, more or less anything can be incorporated on a piecemeal but also, to some extent, an umbrella basis. But this is precisely where the World Bank falls totally short on a more general scale despite the two other fea-tures of departing the Washington Consensus and incorporating more or less anything as social policy and in its interactions with more or less any-thing else. For, as a third aspect of the Bank’s new social policy, it becomes developmental without any notion of development, able to include any-thing that is associated with development (good or bad, to be promoted or alleviated, and, inevitably, technicist for the purposes of economic and social engineering). In a sense, putting aside the scope of what is included and the marginally more favourable stance towards the state as against the market, this marks a major continuity with the Washington consensus, for each shares in common a method to get development without a specifica-tion of what it is! For the Washington consensus, it is reliance upon market forces, whereas its successor depends upon correcting market and institu-tional imperfections as well as their accompaniments of poverty, bad gov-ernance and inequality, to include anything else for legitimacy or discretion in policy.

This is brought out very clearly in the contributions of Holzmann and Kozel (2007a, 2007b) with social policy perceived as social risk manage-ment (SRM), with little regard to endemic poverty, which is hardly a risk to be managed. Poverty and social policy/protection cannot legitimately be treated as if attached to income and ‘shocks’ alone. As Guenther et al. (2007: 17) puts it, ‘In policy terms, SRM leads to interventions that focus on tran-sitory income shocks rather than on structural determinants of poverty.’ Indeed, the presence of the analytical and policy tensions involved in all of this is confirmed by Ravallion’s suggested response to the financial crisis in ‘Bailing out the World’s Poorest’. Is poverty short term or long term; do we target temporary or permanent measures? For,

Even a highly successful effort to protect the living standards of the world’s poorest from the global crisis will leave a reality in which poor


people face multiple risks on a daily basis, well after the crisis. If the crisis does create the opportunity for building an effective safety net then it should become permanent, dealing simultaneously with crises and the more routine problems of transient poverty in normal years. It will be an integral part of the country’s poverty-reduction strategy, recognizing that the impact of a shock is intimately connected to deeper problems of underdevelopment: credit and insurance market failures, underinvest-ment in local public goods, and weak institutions. The synergies between safety net interventions and longer-term poverty reduction can be rein-forced by explicit de[s]ign [sic] features, such as incentives to encourage the children of poor families to stay in school or emphasis on building assets of value to poor communities (Ravallion 2008: 21).

So, everything is connected to everything else in both analytical and policy terms, and Ravallion (2008: 21) can close:

There will no doubt be relatively low frequency events, such as the cur-rent global financial crisis, for which extra external aid will be needed, and certainly justified on moral grounds when it was the rich countries of the world that were largely responsible for the crisis. However, the domestic resources should be sufficient to cover a normal sequence of shocks as well as modest demand in normal years. The budgetary cost of such a permanent safety net need not be very high and it could well bring longer-term efficiency gains to the economy. The budgetary outlay could well be highly variable over time in risk-prone settings, entailing some fiscal stress.

But if developing countries can, and should, take responsibility for them-selves except when subject to financial crises other than of their own mak-ing, how does this relate to a more systemic role not only in ‘promoting longer term recovery’ – the term deployed in Ravallion’s abstract for his working paper, and begging the question of recovery to what – but also in bringing about economic and social transformation? This raises the issue of how to locate social policy in the broader contexts of systemic analysis and development as transformation.

From CCTs to welfare state via universalism?

There are, then, considerable and shifting tensions in the World Bank’s posi-tions on social policy across ideology, scholarship and policy. These can be highlighted by addressing the one major innovation that has marked policy over the recent past and continues to sustain considerable momentum – con-ditional cash transfers (CCTs). CCTs have rapidly shot to prominence over


the past decade, particularly in Latin America but also elsewhere, including Bangladesh, Cambodia, Kenya and Pakistan:11

Paralleling the rise in the number of countries (now 29) with programs has been an increase in the size of some programs. Mexico’s program started with about 300,000 beneficiary households in 1997, but now cov-ers 5 million households ... Today, the federal Bolsa Família program [in Brazil] serves 11 million families or 46 million people. In other countries, the increase in size has been less explosive, but still notable. (World Bank 2009b: 32–33)

There are, however, wide variations in both absolute and relative coverage of such programmes by country, as well as their cost as a percentage of gross domestic product (GDP) and the generosity of benefits as a percentage of mean household consumption.

For the World Bank, CCTs serve in some respects as an ideal instrument in response to the second phase of neoliberalism in crisis. Yet, as Chief Economist, Justin Lin, puts it,

Even the best-designed CCT program cannot meet all the needs of a social protection system. It is, after all, only one branch of a larger tree that includes workfare, employment, and social pension programs ... As the world navigates a period of deepening crisis, it has become vital to design and implement social protection systems that help vulnerable households weather shocks, while maximizing the efforts of developing countries to invest in children. CCTs are not the only programs appropri-ate for this purpose, but as the report argues, they surely can be a compel-ling part of the solution. (World Bank 2009b: xii–xiii)

Accordingly, the level and design of the programmes in practice are discre-tionary; the boxes of addressing the poor, children, and health and educa-tion are ticked; there is potential for institutional and other externalities into broader social provision; ambition in potential is matched by modesty of aspiration; and, analytically, there is scope for spillovers, and general equilibrium effects, empirical investigation of short-run as opposed to long-run impact, and for theory drawing upon market and institutional imper-fections to be corrected on a piecemeal basis.12

Most telling, though, is the detachment of CCTs from broader economic and social provision other than as the context in which they may or may not succeed. Conditioning income support on accessing health and/or edu-cation is contingent upon these being available. As noted by the World Bank (2009b: 202),

Clearly, a supply of health and education services of adequate quality must be developed ... Cash transfers may be the right policy instrument


to alleviate poverty in the short run, but their contribution to longer-term poverty reduction also will depend on what happens on the supply side.

As Soares (2009) concludes,13

In sum, CCTs are not panaceas to strengthen the (emergency) resilience of families and states. But they have features that can be used to lessen the impact of a crisis as long as they are integrated in a broader social protection strategy whose goal is not solely to work as a minimal and temporary safety net.

Such integration cannot, of course, be guaranteed. Mattei and Sanchez-Ancochea (2010), for example, find that while the Brazilian Bolsa Familia has offered some poverty relief, it has done very little for longer-term educa-tional and health outcomes, with conditionalities either merely being met in a token fashion or given levels of provision being redistributed across the poor.

Freeland (2007: 75) dismisses CCTs as ‘Superfluous, Pernicious, Atrocious and Abominable’. Drawing upon Samson (2006) and a South African case study, he finds ‘it is typically the poorest and most vulnerable who will find it most costly to comply with any conditionalities, and are therefore the most likely to be deprived of benefits if they fail to do so’ (Freeland 2007: 77). Conditioning transfers on meeting criteria of children’s health and edu-cation falters on lack of facilities to deliver and/or access these, and weak capacity to deliver conditioned transfers (Freeland 2007: 75).

Even programmes that meet certain criteria of success may prove unsus-tainable administratively or politically. Despite various achievements, the Nicaraguan CCT programme, attached to child education and health, was discontinued. According to Moore, this was due to a lack of understand-ing and misrepresentation of its achievements upon transfer of responsi-bility from one ministry to another. She closes with the observation that, ‘Although RPS [Red de Protección Social] had a disappointing conclusion, all is not lost.’ For, ‘in its own uniquely complex environment [we] can remind policymakers to be aware of the balance they must keep in performing well for international stakeholders while securing domestic acceptance of their own programmes’ (Moore 2009: 36). But how to guard against the transfer from one ministry to another, the shifting interests of external agencies and so on?

In this respect, like all social policy, outcomes necessarily both reflect and contest entrenched structures, processes, powers and agencies. At a specific level, let alone more generally, the idea that there will be universal solutions on how to balance (or more exactly transform and promote, respectively) one against the other borders on the ridiculous in both analytical and stra-tegic terms.14


While there are those that express support for CCTs as a major success with continuing potential subject to careful, contextual implementation (Fajth and Vinay 2010), the more sceptical at most perceive CCTs as wel-come if providing momentum towards universalism in social policy: ‘its ultimate success depends on a simultaneous expansion and improvement of universal services in health and education’ (Mattei and Sanchez-Ancochea 2010: 2). Universalism is set against the conditional, targeted ethos of CCTs, and viewed as more effective and secure in practical and political terms.15

In this respect, there is a stunning silence across the World Bank litera-ture, and much more besides. It is as if the welfare state as the embodiment of universalism does not, and has never, existed. And, of course, much the same is true of the absence of the (radical) political economy of welfare literature that approached the status of orthodoxy a generation or so ago, focusing on the design and function of welfare for advanced capitalism.16 These absences are hardly surprising for the Washington consensus, not least with its neoliberal and Americanized inspirations, but why should it be so for the post-Washington consensus, not least with its rediscovery of its own version of Keynesianism, market imperfections, public and merit goods, and so on? By contrast, the modernization aspirations of what might be termed the pre-Washington consensus were heavily influenced by the notion of emulating the welfare states of Western Europe.

This, possibly less than curious, absence within the current literature is in part explained by the extent to which the treatment of welfare by main-stream, market-imperfection, economists has eschewed systemic appeal to the welfare state and surreptitiously incorporated in its place models around individual (or household) risk management, insurance, safety nets and so on. That such analytical frameworks should be imposed upon develop-ing countries is to be expected. In addition, particularly in the context of development, under the Washington consensus, the main focus for dissent around welfare placed emphasis on adjustment with a human face. It was complemented by opposition to the orthodoxy by appeal to the develop-mental state as alterative with East Asian newly industrialized countries (NICs) to the fore. Along with other issues, the developmental state para-digm, tended to overlook the role of welfare altogether. This was in part a wish to emphasize the role of industrial policy and, possibly, also a wish to overlook what was presumed to be a neglect of welfare and, therefore, a mark against the developmental claims of the developmental state.

Towards alternative approaches

This has changed over the past few years, as the breach between the devel-opmental state and the welfare state has begun to be closed. While still only marginally influential, the idea of the developmental welfare state (DWS) has come to the fore. In the case of East Asia, this is because the response


to the financial crisis of 1997/98 induced both an unexpected expansion of social policy to provide safety nets and a closer study of previous levels of provision, their diversity across programmes and countries, and the reasons for these; see especially Kwon (2005) as part of the United Nations Research Institute for Social Development (UNRISD) social policy programme. In the case of Latin America, the historical passage towards a developmental wel-fare state is seen to have been interrupted by the period of the Washington consensus, but to have been resumed, to some extent, with the latter’s demise in light of some return of more progressive governments and the adoption of the new Latin American social policy.17 The issue is whether this can depart from the second phase of neoliberalism, as I have described it earlier. For Draibe and Riesco (2007b: 65),

The Neo-LADWS [Neo-Latin American Developmental Welfare State] project seems rooted not only in the twentieth-century experience, from which it will probably draw inspiration, but also over the inheritance of Neoliberalism in LA as well. The emerging paradigm implies a radi-cal change of direction away from Washington Consensus-style poli-cies, and, in fact, it is being conceived over the criticism of that model. Nevertheless, the new project seems to inherit quite a lot from the Neoliberal period as well.

It is also important to recognize the considerable diversity in social policy across countries and programmes. Such diversity suggests that while the goal of universalism is admirable, it is extremely blunt as an analytical instrument. Furthermore, the role of the developmental (welfare) state as an approach to analysis and policy remains limited.

Much more influential in the study of welfare in developed and devel-oping countries by non-economists has been Esping-Andersen’s notion of welfare regimes, with a number of ideal types posited along the lines of correspondence to those associated with Scandinavia (social democratic), Germany (authoritarian) and the United States (US) (liberal). This approach, however, is insufficiently sensitive to differences between countries, and unduly neglects how those differences affect outcomes across the different components that make up social policy (Fine 2007).

Much the same is true of other universal approaches to social policy, which, like the welfare regime paradigm, focus on power and resources and/or commodification, decommodification and recommodification, possibly themselves reflecting the rhythm and pace of privatization, imposition and withdrawal of user charges, and so on. Such conceptualizations offer too blunt a set of instruments for comprehending the complexities and diversity of social policy. Each experience of re- and de-commodification has sys-temic impacts that are neither mutually consistent nor certain. For example, public sector housing programmes for subsidized rent (decommodification)


can expand private sector construction and serve as a conduit for finance. Similarly, free health care for workers may expand private health care provi-sion, depending upon how it is provided and by whom.

The issue, then, is how to deal with the specificity of particular elements of social policy, in terms of their diversity of causes, content and conse-quences, without losing grip of the bigger picture. Currently, as seen, there have been a number of solutions on offer, such as appeal to (modified or hybrid) welfare regimes, transformative social policy or the developmental welfare state. My own approach, grounded on policy-applied research on social and economic infrastructure in post-apartheid South Africa, has been to posit the notion of PSSOP. Specificity is incorporated by understanding each element of social policy and social provision as attached to an integral and distinctive system – the health system, the education system and so on. Each PSSOP itself should be addressed by reference to the structures, agen-cies, processes, power and conflicts that are exercised in material provision itself, taking full account of the whole chain of activity, bringing together production, distribution (and access) and use, and the conditions under which these occur.

Thus, the PSSOP approach has the advantage of potentially incorporat-ing each and every relevant element in the process of provision, investi-gating how they interact with one another, as well as situating them in relation to more general systemic functioning. This allows for an appropri-ate mix of the general and the specific and, policy-wise and strategically, signals where provision is obstructed, why and how it might be remedied. This is in contrast to unduly focused approaches, for example, those that emphasize mode of finance alone; unduly universal approaches, such as those that appeal to market and/or institutional imperfections or welfare regimes; and those that fail to recognize that forms of provision vary con-siderably from one service to another, as well as in different contexts. In other words, there is something different about water and housing, just as there is something different about South Africa and India. Furthermore, this allows for the results of existing studies to be incorporated into the PSSOP approach to the extent that they identify, however partially, the fac-tors involved in provision.18

Concluding remarks

One virtue of crises in general, and of this one in particular, is to shed a bright light on at least part of the nature of the world in which we live to those willing to see. Policy priorities have been revealed with a stunning clarity. As Hall (2008: 6) has observed,

Another way of seeing the scale of the rescue is to note that the total cost of constructing sewers and water systems throughout the world’s cities,


to provide household connections for water and sewerage for over ¾ of the urban population in developing countries, would require only about €280billion – about 5% of the guarantees already given to the banks.

And the response of the G-20 is no less transparent, as reported by Naudé (2009):19

Many have already remarked on the fact that huge amounts of money have been found at short notice to bail out banks, but that money to bail out the world’s bottom billion can never be mobilized. Contrast for instance the $50 billion agreed on for developing countries at the summit with the estimated $8.4 trillion for bailing out banks. As Oxfam recently remarked, the latter amount is sufficient to end extreme poverty worldwide for 50 years.

As Table 5.1 reveals, social expenditure does not command vast resources in developing countries, certainly relative to need. This should be borne in mind, especially in the context of response to impact of recession. Yet social policy is also a marker of policy that may be more significant than its direct and immediate impact and command of resources.

As noted by Guy Standing (2007: 28), the core institutions of social sup-port have been in decline throughout much of the world:

Globally, social protection systems are in a mess. The family as an institu-tion of social support is weakening; local communities are often unable to provide social and economic security because of the tendency for whole communities to be struck at the same time; the state has been cutting back on universalistic income support; social insurance is giving way to social assistance, with an array of poverty traps and unemployment traps; and enterprises of employment are cutting back on their social benefits and services, at least for their workers.

Table 5.1 Social expenditures as a percentage of GDP

Region Social expenditure as percentage of GDP

Asia and the Pacific 2.2Middle East 2.2Africa 2.8Latin America and the Caribbean 4.5Northern Africa 6.4Central and Eastern Europe and former

Soviet Republics11.5

Advanced economies 14.2

Source: Adapted from ILO (2009: 19).


This chapter began by suggesting that the mess that surrounds social policy is a consequence of neoliberalism, a chaotic and shifting ensemble of ideol-ogy, scholarship and policy in practice whose leading thread has been to promote and defend financialization, with direct and indirect implications for demands upon, and response of, social policy. Although neoliberalism has now suffered, at least a momentary, material and ideological crisis, as especially shown in the second section, its more than lingering influence remains substantial, not least in the policies and stances of the World Bank and the IMF, the erosion of capacities to deliver alternatives, and failure to attach social policy to the developmental goals associated with the creation of a welfare state with attention in contextual detail to specific policies for health, education, welfare and so on. As Katz puts it in critical response to the Sachs (2001) report, ‘Primary health care is, of course, one of the pub-lic services required to provide the conditions for good population health’ (Katz 2004: 763). Yet, ‘We have 100 years of solid public health experience demonstrating that access to decent food, clean water, adequate sanitation, and shelter are the major determinants of health’ (Katz 2004: 756). And much the same, albeit different by context and meaning, could be said of education, nutrition, housing and so on.

Notes

1. However, the corridor talk at the conference was one in which the confidence of neoliberalism had been momentarily shaken but that the moment for alterna-tives had already been lost!

2. The difficulty associated with provision of a public health service in the United States is, however, a salient reminder of the continuing depths and strength of neoliberal ideology and policy making.

3. See Ruckert (2009) for an overview. 4. The theory, or dogma, being that the policy (i) improves access; (ii) rations the

use of health services; (iii) increases equity; (iv) improves quality; (v) promotes efficiency; (vi) mobilizes revenues; and, (vii) fosters private sector development.

5. Costing developing countries 1–2 per cent of GDP that could otherwise be devoted to social or other policy (Rodrik 2006).

6. This is particularly strong for health where, for example, 60 per cent of new provision in Africa is projected to be sourced from the private sector (IFC 2009). The approach to education is more mixed, with state support alongside a lesser but unambiguous push for privatization, and so on (see World Bank 2009c and Patrinos et al. 2009), allowing for discretion (and private participation) in prac-tice. See also special issue of Compare (2009), Vol. 39, No. 2.

7. See also Doha Declaration on Financing for Development (United Nations 2008). 8. For exploration of these themes in the context of the World Bank, see Bayliss

et al. (2011). 9. See Holzmann et al. (2009: 6–9) for more details by different programmes and

regions.10. See IFC (2008).11. For an overview of Latin America, in particular, see Bastagli (2009).


12. Reasons for CCTs include ‘imperfect information, myopia, and incomplete altruism’, that ‘governments typically do not behave like textbook benevolent Dictators’, and ‘levels of human capital investment by the poor ... might not be socially optimal because of the presence of market failures, particularly, exter-nalities’ (World Bank 2009b: 50).

13. Whether such problems render unconditional transfers more palatable, as would be argued by proponents of a Basic Income Grant, remains an open question (see the special issue of Basic Income Studies (2009).

14. For recent assessment of CCTs, see special issue of Global Social Policy (2009).15. See Chiwele (2010) for a useful discussion of the costs of implementing CCTs, the

need for institutional capacity to deliver, and the prospects for corruption – all of which might best be addressed across a broader range of policies and provision.

16. Note that Ravallion’s (2008) own contribution only references at most a few pieces from outside the immediate orbit of the World Bank, an endemic feature of its research, as commented upon by the report produced with Angus Deaton as Chair (Banerjee et al. 2006), on which see Bayliss et al. (2011) for a critical appreciation.

17. For Latin American social policy more generally, see special issues of Social Policy and Administration (August 2006) and Development and Change (September 2008).

18. In addition, as highlighted in earlier accounts of the approach, not only is each PSSOP uniquely and integrally organized in provision, by country and sec-tor, each will also be attached to its own meaning and significance for those engaged with (or excluded by) it. Without going into details, the culture and meaning of social policy, thereby, becomes subject to what I have termed the 8Cs – Constructed, Contextual, Chaotic, Construed, Contradictory, Contested, Collective and Closed. Note that the practice and meaning of ‘universalism’ will also be subject to these tensions. See also Fine (2009b).

19. The G-20 Summit in April 2009 put together a US$1.1 trillion package of which US$50 billion, less than 5 per cent, was designated for the world’s 49 poorest countries. For an account of impact of, and response to crisis, in a selection of developing countries, see ODI (2009).

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6Policy Change in Turbulent Times: The Nationalization of Private Pensions in ArgentinaCamila Arza1

Introduction

Argentina has been one of the ‘pioneers’ in Latin American social security development, offering relatively broad coverage for the risks of old age before most other countries in the region (Mesa-Lago 1991, 1994). The first pension scheme for civil servants was created in 1904. After that, a number of schemes catering to specific occupational groups proliferated until pension rights were finally extended to the working classes in the 1940s and 1950s. By 1975 the system provided about 1.65 million ben-efits (including old-age and widow pensions). However, the financial bal-ance of the system was weak and further deteriorated with the elimination of employer social security contributions by the military government in 1980. After democratization in 1983 employer contributions were reintro-duced, but the financial imbalances in the mature social security system continued, leading to poor indexation, falling real benefit and growing pensioner litigation against the state. In the 1990s, a process of neolib-eral structural reforms initiated a policy shift to the market. The reform package also included the transformation of public pensions into a mixed public–private system of individual funded accounts inspired by the ‘new ideas’ emanating from the international financial institutions (IFIs) and conservative think tanks.

Pension privatization, implemented in 1994, was a paradigmatic policy change which modified the roles of the state and the market in providing for old-age income security. The existing public pay-as-you-go (PAYG) sys-tem was replaced by another where workers could choose between public or private administration. In the private scheme worker contributions started to be accumulated in individual accounts and invested in a variety of instru-ments, such as state bonds, bank deposits and equities. Benefits no longer depended on past earnings but were linked to the value of individual assets


accumulated upon retirement. The performance of the private scheme was not without problems. Low coverage rates, volatile returns on investment and high administrative costs raised doubts about the structural capacity of private pensions to provide affordable benefits, universal coverage and secure retirement (Mesa-Lago 2006; Goldberg and Lo Vuolo 2006; Arza 2008a).

By the end of 2008, shortly after the global financial crisis unfolded, the Argentine government announced the nationalization of pension funds, reversing the privatizing trend that had spread over the 1990s. The reform re-established a fully public PAYG system, and the National Social Security Administration (Administración Nacional de la Seguridad Social/ANSES) started to manage the resources that workers had accumulated over 14 years, which were collectively transferred to the state. It also increased the pros-pects for future social security spending as the public system now guaran-tees defined-benefit pensions to all formal workers (including those who were previously affiliated to a private pension scheme). This has been the first Latin American experience where a previously privatized pension sys-tem returned to public administration.

The chapter investigates this policy shift, looking both at the institu-tional changes and their likely effects on pension system performance and outcomes. The structure is as follows. After this introduction, the chapter briefly examines the operation of the mixed public–private system that has now been abandoned. It then turns to the recent reform process, looking at the rebalancing of the public-private mix that took place a few years before nationalization. Finally it analyses pension fund nationalization itself and deals with the remaining challenges for future pension policy, focusing on key issues of coverage, gender equality, benefit adequacy and financial sustainability.

The performance of individual private pension accounts

The privatization of the pension system in 1994 was expected to overcome the structural problems of the public pension system which had become salient during the pension crisis that unfolded over the second half of the 1980s. However, shortly after the reform was implemented, academic and policy-oriented studies alike pointed to a number of weaknesses in the new model (Goldberg and Lo Vuolo 2006; Arza 2008a; Mesa-Lago 2004, 2006). These shortcomings later combined with fiscal crisis, public debt default (declared in 2001–02) and the international financial crisis (2008) to raise further doubts about the suitability of the private pension system to guaran-tee old-age security for coming generations of workers and pensioners.

A first problem with the private pension system was the financial cost of the transition from the PAYG system to funded accounts. With the creation of individual pension accounts, part of the resources previously allocated to

Nationalization of Private Pensions in Argentina 125

pay for benefits were no longer available. Between 1994 and 2003 revenues from wage contributions in the public social security system fell sharply, as a result of both transition costs and a number of contribution cuts simul-taneously applied. The financing gap had to be met with non-contributory resources raised through taxes. This, in turn, brought short- and medium-term pressures on public finances and further constraints on the size of the pension budget available to pay for benefits. Non-contributory rev-enues going into the social security system grew to represent more than half of total revenues in 2005. Total social security expenditures, however, remained relatively stable between 1993 and 2001 (when the Argentine cri-sis broke out).

A second problematic aspect was coverage. Large informal labour markets and harsh contributory requirements constrained universal access to ben-efits. Under the rules implemented in 1994, workers needed to accumulate 30 years of contributions to claim benefits. This was feasible only for those who had close to life-long formal employment. As a result, the percentage of the elderly with a pension benefit started to decline after the reform. Growing informality of the labour market and unemployment also reduced coverage among workers.

Coverage gaps have been a problem of Latin American social security sys-tems for a long time (Isuani 1985). It was sometimes argued that coverage gaps partly emerged due to the disincentives in defined benefit (DB) sys-tems (that is, the fact that benefit levels did not exactly reflect contribu-tion efforts). Some thought that if these disincentives were removed, for instance, by creating a closer connection between individual contributions and benefits (as in the private system), then coverage would also rise.

This did not happen in practice. In fact, only in a few Latin American countries did coverage rates increase after reforms were implemented (see Gill et al. 2005; Rofman et al. 2009). In Argentina, the percentage of the eco-nomically active population contributing to social security actually fell after the reform, from 45.5 per cent in 1994 to 35 per cent ten years later (50.9 to 39.5 per cent of the employed population in the same period) (Rofman et al. 2009: 30). To make matters worse, coverage became increasingly stratified by income level. Between 1994 and 2006, coverage increased in the top income quintile but fell sharply in the lowest quintile (see Figure 6.1). The segmentation of the population into ‘insiders’ and ‘outsiders’ of the social security system deepened and became increasingly tied to income levels (Arza 2008b).

However, even workers who could meet the contributory conditions faced problems. In the funded system new risks (notably investment risks) emerged, while others (like political risks) did not disappear. The incidence of both these risks has turned out to be important. In Argentina, invest-ing in public bonds has not been very secure either. The 2001 economic and political crisis in Argentina showed the magnitude of the risks involved


in individual accounts. By the end of December 2001, when public debt default was declared, about 65 per cent of pension assets were invested in state bonds (see SAFJP 2003); this raised serious concerns about the impacts the public debt default could have on pension accumulation and future ben-efit levels. In practice, debt default made it necessary for the regulator to intervene to spread the costs across generations in order to reduce the dam-age borne by workers close to retirement.2 This helped manage the impact of debt default on pension benefits.

Individual accounts were also highly costly. Between 1995 and 2001, workers affiliated to private pension funds had to allocate about 3.5 per cent of their wages to pay the administrative costs (including death insurance premium, and about 2.6 per cent without). This was a relatively high figure, especially when compared to the administrative costs in the public scheme. Costs fell in 2002 as a result of new public regulations, and then again, sig-nificantly, in 2008 following new measures introduced by the 2007 Pension Act. While over the post-reform period operation costs represented between 15.6 per cent and 37.8 per cent of revenues in private pension funds, they were only between 1.4 per cent and 2.4 per cent of revenues in the public branch (Arza 2008a). The difference may be partly explained by hidden costs in public administration but also by reduced economies of scale in pri-vate pension funds (compared to the public scheme), and the high costs of advertising and promotion undertaken by private pension funds to attract new clients.

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Figure 6.1 Coverage in the contributory pension system, 1993–2006 (% of economi-cally active population)

Sources: Elaborated from Rofman and Lucchetti 2006; Rofman et al. 2009.


Pension privatization was unable to eliminate political risks. Even after the system was under private administration, governments repeatedly rede-fined pension rules, forced pension fund administrators to make hazardous investments and put pension fund investment at major risk as a result of debt default (see Kay 2009). The recurrent modification of the parameters of the system has also made pension policy rather unstable. The use of pension policy for purposes other than old-age security remained a risky policy prac-tice even after the system was privatized. In a fragile institutional setting, the pension system has become subject to pendular economic and political decisions. This has weakened the capacity of the system to make long-term plans. Past PAYG systems also suffered from political risks but, while under the old public defined-benefit system, pensioners could (at least in theory) claim their benefit entitlements from the state (for example, in the courts), in the private defined-contribution system benefits are ‘undefined’ and political risks directly reflect on benefit entitlements.

Finally, the new market created by private pension funds did not seem to work as expected: providing ‘choice’ to consumers and competition among providers. Workers could not easily exercise their right to ‘buy’ the best pension fund in the market (Arza 2008a). This was partly due to regulatory restrictions (for instance, the prohibition for workers to shift back to the public branch up until 2007) and partly due to lack of information on com-plex financial performance issues. Most workers entering the labour market failed to choose with which system to affiliate and were thus automatically allocated into the private system (the ‘default’ up until 2007). In 2006, 81 per cent of the new affiliates to private pension funds had joined the sys-tem in this way (that is, without making an explicit choice). Competition among pension funds was also limited as market concentration deepened. Out of the 26 pension funds established when the system was created, only 11 existed in 2008. The concentration of affiliates in a few ‘top’ pension funds (Administradoras de Fondos de Jubilaciones y Pensiones/AFJP) was also remarkable: by 2008 the ‘top’ three AFJP controlled roughly half of the entire pension market and the top five almost three-quarters of it (see ANSES 2008).

Expanding the state: policy trends before nationalization

The weaknesses of the private pension system, the shock of the economic and fiscal crisis of 2001 and a change in government, opened up a win-dow of opportunity for reform. Most changes however were adopted some years after the crisis had passed and the economy had recovered. From 2005 onwards, a number of policy measures increased state participation in old-age pension policy up until the complete nationalization of individual accounts and the elimination of the private pension system in November 2008.


The 2001 crisis left a large informal labour market and high rates of unemployment in its wake. This reduced the resources going into the social security system (in per cent of GDP) after 2001. However, total social secu-rity expenditures also dropped partly as a result of poor benefit indexation. With economic recovery, both informality and unemployment fell, increas-ing the resource flows into social security accounts. The financial balance, which had been badly affected by transition costs, employer contribution cuts and economic crisis, finally improved. The number of workers contrib-uting to the pension system (both public and private) also rose steadily from about 4.8 million in 2002 to 7.3 million in 2006 (MTESS 2009: 17). This had a positive effect on social security finances, which started to generate a significant surplus.

In this context a number of policy measures have been taken since 2005 to increase pension coverage by allowing workers to either retire earlier or to retire with limited or no contributory records. The most important of these measures was the so-called Moratorium, a wide-ranging programme that extended benefits to the uncovered elderly who could not meet the contributory requirements in order to obtain ordinary retirement pensions. Intended beneficiaries had to join a payment plan for unpaid contribu-tions, which entitled them immediately to pension benefits and healthcare insurance.

For over a decade, the number of individuals receiving pension benefits had remained stagnant due to the stringent eligibility criteria introduced in 1994, and the number of beneficiaries even fell after 1998. The moratorium produced a significant turn-around, bringing in over 2 million new benefi-ciaries (MTESS 2008) and taking coverage rates from about 62 per cent in 2005 up to 82.7 per cent in 2008. Given women’s longer life expectancy and lower rates of coverage, the majority of the new beneficiaries were women. This has also helped to close the gender gap in pension coverage.

Greater state involvement before nationalization resulted both from the expansion of coverage and from the new public–private balance following a pension reform implemented in 2007. The 2007 reform included a number of important innovations and expanded the role of the state but without yet eliminating the private system. It increased future benefit entitlements for workers in the public branch3 and introduced other new regulations to boost affiliation to the public branch, in contrast to policies in the 1990s when all rules were designed to favour the expansion of the private system.4

The reform modified the public–private mix, increasing the number of affiliates to the public pension branch from 2.4 to 5.5 million between December 2006 and September 2008. In the same period, affiliates to the private system fell from 11.5 to 9.7 million workers (ANSES 2008). The trans-fer of workers’ contributions and assets to public administration increased resources in the pension system but also generated growing expenditure


commitments for the future (Cetrangolo and Grushka 2008). Surpluses in the public social security system reached ARS 9 billion5 in 2007 (about 1.2 per cent of GDP) and became one of the key sources of government finance over the period (Lo Vuolo and Seppi 2009). So reform not only increased affiliation to the public branch of the system, but it also increased public system resources.

While the public–private mix mostly concerned future pensioners, one of the main problems facing current pensioners since privatization has been the low benefit levels and limited indexation. Between 1991 and 2001, inflation was very low but after the 2001 crisis inflation reappeared and benefits were left unprotected. From 2002 to 2008, the government started to implement some benefit rises which, for the most part, concentrated on the minimum benefit. From a value of 150 ARS/US$ in 2001 (17 per cent of the mean wage), the minimum reached 690 ARS (about 200 US$) in 2008, or 26 per cent of the mean wage (Figure 6.2). However, benefits above the minimum level lacked any automatic indexation and, apart from a few ad hoc increases, they remained unprotected over the period. This produced a flattening of the benefit pyramid. By 2008, the mean benefit (including both old-age and widow pensions) was worth 33 per cent of the mean wage, still below the pre-crisis level. The reduction in the mean benefit relative to the mean wage was however also partly due to the expansion of coverage to workers with limited contribution records (under the moratorium) who typically received lower benefits.

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Figure 6.2 Pension benefits as a percentage of the mean wage, 1995–2008

Source: Elaborated from MTESS (2008).


As inflation eroded previous benefit levels, some pensions lost track with earnings and a massive number of legal processes followed. In 2007, a favourable ruling by the Supreme Court of Justice on the so-called Badaro case boosted the submission of thousands of demands by pensioners. The ruling consisted of the recognition of Mr Badaro’s right for benefit indexa-tion in the post-crisis period. The courts argued that his pension should be adjusted following wage rises between 2002 and 2006, leading to a significant benefit increase. According to information from the press, in 2008, about 4,782 new cases were initiated each month, as compared to 3,430 in 2007, and in 2009 the number of cases almost doubled, reaching an average of 9,132 per month, which saturated the Social Security Courts (La Nación, 6 June 2009). In 2008, the National Congress finally approved a Pension Indexation Act, establishing an automatic mechanism to adjust pension benefits applicable from March 2009. Although the new rule was a significant improvement over the previous situation, it included no pro-vision to compensate for the loss of purchasing power over the period 2002–08.6

Pension fund nationalization

The government plan to nationalize pension funds was announced at the end of October 2008, and the new Pension Act was promptly passed by the National Parliament one month later. The pension reform was a simple piece of legislation which did not regulate the entire system (the previous Act con-tinued to rule). It eliminated private pension funds and reassigned all work-ers to the existing public system administered by ANSES. Private pension assets with a value of 9 per cent of GDP (94.5 billion ARS/30.2 billion US$) were transferred to state administration. Individual saving accounts, created about 15 years before, ceased to be part of the mandatory pension system. A Bismarckian model based on public, PAYG and earnings-related benefits was (re)established.

From a policy-making point of view, the swiftness with which nation-alization was applied has been regarded as an indicator of the institutional and political fragility of the private pension systems established in the region (Lo Vuolo 2009). Path-breaking reform was probably easier to make due to the tradition of public pensions which remained well-rooted in the minds of the population. In fact, even after privatization many pensioner organizations continued to demand the ‘82 per cent indexable benefit’ (a long-standing claim for a benefit right existing before), although the very conception of a ‘defined’ replacement rate had ceased to exist with priva-tization in 1994. The elimination of the AFJP thus marked a return to the older idea of state pensions.

The project proposed by the Executive was rapidly passed without much change in both Chambers of Parliament. On the basis of the traumatic


experience of recession and debt default left by the decade of structural adjustment in the 1990s, the justification for reform was more focused on the negative outcomes of the private pension system which it was to replace than on the advantages of the new public system (Lo Vuolo 2009). The pri-vate system, identified with the frustrating experience of public policies of the 1990s, had misperformed in a number of respects. But the public system that existed before privatization also had important shortcomings, many of which had become evident during the 1980s.

There was, however, limited discussion on the way in which the pen-sion system emerging from nationalization could be equipped to avoid and overcome the problems of the past. In practical terms, the transition back to the public system was relatively easy because a public PAYG scheme already existed in the mixed and parallel system established in 1994. The strategy was to give all workers in the private pension funds the same rights they would have got if they had been affiliated to the public system from the start. The actual accumulation of funds in their accounts no longer mattered.

As mentioned above, the first immediate impact of nationalization was the massive rise in the resources managed by ANSES. Resources increased both in terms of the ‘stock’ of individual pension accounts and the ‘flow’ of the contributions paid by workers previously affiliated to private pen-sion funds, who started to contribute to the public system. In September 2008, shortly before nationalization, there were about 4.8 million work-ers contributing to the private pension system, as compared to 3.4 mil-lion in the public system (ANSES 2008). Nationalization has therefore more than doubled the number of workers contributing to ANSES. The stock of resources managed also increased exponentially with the transfer of worker assets in individual accounts to the Sustainability Guarantee Fund (Fondo de Garantía de Sustentabilidad/FGS), managed by ANSES (the FGS, created after the 2007 Pension Act).

With nationalization and state management of pension assets, political risks (which had been very much present over private administration; see Kay 2009) acquired renewed importance. One of the key issues was whether (and how) the state would be able to guarantee sound financial planning to meet pension promises in the medium- and long-term. Concerns were connected to the way in which the pension fund assets transferred to the state would be managed, as well as to the prospects for state expenditures in the forthcoming years, as more workers became entitled to a state pen-sion. A revision of the history of pension policy warranted these concerns: a combination of limited actuarial planning, generous eligibility criteria, repeated recourse to contribution cuts as an instrument to boost employ-ment and activity and high levels of informality and tax evasion had recur-rently affected the balance of public pension accounts in past decades.

One novelty of this reform process was the emergence of a buffer fund in the public pension system. In mature PAYG pension systems, buffer funds can


help to achieve long-term financial balances in a context of changing labour markets or demographic structures. In general, buffer funds organize the accu-mulation of resources in periods when economic or the demographic contexts permit, to use them when these contexts become less favourable. Around the world they have become a key element in intertemporal planning to guaran-tee that pension promises can be met in the future. While in most countries, buffer funds have been constructed by setting aside part of the social security revenues to save for the long term, in Argentina the FGS was created after the 2007 Pension Act and massively expanded with the transfer of all assets in individual accounts following nationalization. The regulations for investment and the accountability of management decisions became at this point key for future pension financing.

By August 2009, the FGS had accumulated social security funds of about 120.1 billion ARS (about 31.4 billion US$). As assets from pension funds were transferred in kind, much of the initial distribution of investment did not change. Most of the resources continue to be allocated in public credit instru-ments (largely public bonds). Two other significant investments are equities, followed by fixed-term deposits. One of the novelties introduced by the FGS is a significant growth in investment in infrastructure and productive projects, which by October 2010 represented 5.9 per cent of the fund value.

The way in which these assets are managed and invested will be decisive for future pension performance. Given the short-term incentives for govern-ments to use these funds for several purposes (not necessarily favourable to social security objectives), it is important to build transparent mechanisms to guide management and investment decisions in the FGS. Here again the history of pension policy in Argentina calls for caution. In the past, when the pension system was ‘young’, significant assets were depleted due to investment in public bonds yielding negative real interest rates. According to recent analysis, this also happened shortly before nationalization, with the investment of part of the surpluses of ANSES in Treasury Bonds and Central Bank Bonds (see Cetrangolo and Grushka 2008: 31).

Remaining challenges for an adequate, equitable and sustainable pension system

Recent years have seen a period of major changes in pension policy making in Argentina. After significant reforms taking place, the remaining issues to be addressed relate, in one way or another, to the capacities of the system to provide equitable and adequate pensions today and in the future. Four of these issues will be analysed here: (i) coverage of the contributory system, (ii) gender equality, (iii) benefit adequacy for income smoothing and (iv) medium and long-term financial sustainability.


Coverage

Despite the recent period of economic growth and some reduction in labour market informality, there is still a large share of the Argentine workforce that works informally. Under a fully contributory pension system, the main issue is how to provide adequate old-age protection for the entire popula-tion when not everybody contributes. In 2010, about 34.6 per cent of wage-earners were not making social security contributions. The problem is even more acute among own-account workers. Some workers make contribu-tions at a particular point in their working lives but not every year, which increases the chances that they may also fail to reach the requirement of 30 years of contribution established in the legislation. As the incidence of labour informality varies across income groups, a stratified distribution of social security coverage emerges: uncovered workers are more likely to be among the poorest income strata.

The moratorium launched in 2005 significantly improved pension coverage. Over 2 million people joined the programme and obtained a pension benefit. However, it has not solved the structural problems of the contributory system for the future. At present, the moratorium allows intended pensioners to cancel unpaid contributions for work done before September 1993. Given that time limit, the opportunities for workers to use this facility will gradually reduce as time passes (for example, younger workers have shorter periods of work before 1993). In the future, the retire-ment options for informal workers with insufficient contributory records may thus be more limited.

Workers who are not eligible for retirement pensions may be able to get non-contributory benefits under more restrictive conditions.7 The exten-sion of these benefits has in practice strongly depended on resource avail-ability and political will. In recent years, more funds have been allocated to this programme, leading to increases in both the number of benefits and benefit levels. However, there is no certainty that this will continue in the future, especially if fiscal constraints arise. In the recent expansion of both contributory and non-contributory pensions, political will and resource availability (in a context of economic growth and social security surpluses in ANSES), have been crucial. However, in order to guarantee coverage for all over time, it is necessary to make access to pension benefits not easy targets for retrenchment as soon as resources become more limited or gov-ernment priorities change. A universal non-contributory pension scheme, which effectively consolidates the right to protection for all, could be both more effective and politically more resistant to budget cuts. The greater attention that this issue has recently received in policy discussions both in Argentina and beyond may be auspicious for further developments in this direction.8


Gender equality

The return to a defined-benefit PAYG system has favoured women because it has re-established mortality risk-sharing. In other words, women no longer bear the costs of living longer as they did under the private defined contribu-tion (DC) system because in the new system benefits are not adjusted to life expectancies. However, gender inequalities deriving from the differences in labour market participation and earnings between men and women remain, and are likely to affect the future value of women’s pensions.

In Argentina, as in other countries, the gender gap in both labour mar-ket participation and earnings is wide. Only 63.7 per cent of women in working ages (as compared to 92.3 per cent of men) are in the labour force. Monthly labour income is 23 per cent lower for women than for men, partly because women work fewer hours and take more part-time jobs. Women are also more likely to be unemployed, and less likely to have their own pen-sion rights than men.9 The gender gap is even wider for high-level positions (mangers, legislators, senior officials) where there are only 30 women for 100 men (Hausmann et al. 2008). The labour market gaps often translate into unequal pension entitlements for men and women. Although many women can obtain widow’s benefits if their entitled husband dies, unmar-ried or divorced women, as well as those married to an informal worker, may be in a particularly vulnerable situation in old age.

The gender earnings gap is one of the factors that contributes to differ-ences in pension levels between men and women. In earnings-related sys-tems, lower earnings generate lower pensions in old age. In Argentina, there is a flat-rate component of the pension benefit (Prestación Básica Universal/PBU), which favours women and low-income workers in particular. However, this component has reduced in relative terms in the past few years due to insufficient indexation. In contrast, the increase of the minimum benefit has benefited low-income earners (including women).

Incomplete contributory histories also affect women’s chances of getting benefits and the value of the benefits they may get. Career breaks and lack of participation in the labour market are more common among women than men. This is partly explained by maternity, childrearing and other house-hold duties, which are part of the reproductive and non-remunerated work often performed by women. In a fully contributory pension system, women are less likely to obtain their own pensions than men, which (together with longer life expectancies) explains why the entry options opened with the moratorium were mostly used by women. In 2009 after the broad expan-sion of benefits, 81 per cent of women over the retirement age were covered (compared to about 56 per cent at the beginning of 2005).10

However, the absence of a permanent mechanism to reduce the effects of contributory pensions in a gendered labour market may widen the gender gap in the future. The 2007 and 2008 reforms have not tackled this problem. Pension system rules maintained a strong link between contributions and


benefits, as well as the eligibility requirement of 30 years of contributions, and included no provisions to reduce the impact of childbearing and career breaks (due to maternity or care-related reasons) on future benefit levels. In a country where the availability of public childcare services is limited, career breaks for childcare are common. Policy options for gender equality may range from creating a universal non-contributory pillar, to more spe-cific compensations for women’s interrupted careers (offering ‘contribution credits’ for childrearing, for instance, as Chile has recently done). A larger flat-rate benefit for all may also reduce the impact of earnings gaps.

Benefit adequacy

The Argentine pension system has historically been designed as an earnings-related scheme whose main purpose was to replace the earnings of workers and families. This was to be achieved through intergenerational transfers in the PAYG system. With the creation of individual funded accounts in 1994, a DC model partly replaced intergenerational transfers with savings as the mechanism for income-smoothing. Nationalization returned to the DB system and re-established the idea of a ‘defined’ pension, which would no longer be a fixed percentage of the salary, as it was before 1994, but cal-culated per year of contribution.

According to current rules, a mean wage worker with a contributory his-tory of 30 years, flat-earnings profile and full indexation could obtain a replacement rate of roughly 60 per cent of final salary.11 For a number of rea-sons, including insufficient indexation and other benefit calculation mech-anisms, the mean pension benefit represents in practice a lower percentage of the mean wage. In 2000, that is, before the last local economic crisis, the mean old-age pension was worth 46 per cent of the mean wage (41 per cent if widow benefits are included). By 2008 the average replacement rate had fallen to 33 per cent of the mean wage, partly because of insufficient indexation, and partly because the inclusion of a massive number of new pensioners with lower benefits under the moratorium has pulled the mean benefit down, in a period of real earnings growth.

Benefit adequacy is therefore one of the pending problems that needs to be tackled. In the private system, the main risk for benefit adequacy was the ‘undefined’ nature of benefit calculation, which was subject to varia-tions following investment risk, labour market risks and macroeconomic risks, among others. Benefits were undefined because it was impossible to know in advance the future benefit level, or the future replacement rate, which depended on contributions, pension fund performance and future life expectancies. However, the return to a ‘defined-benefit’ system follow-ing nationalization is not by itself a full guarantee of adequate benefits. Pensions continue to depend on individual working histories, indexation and, more generally, on the financial capacities of the system to pay for the benefits it promises.


The close link between benefits and contribution history makes future benefits depend on working careers and, in the absence of compensating mechanisms, on certain ‘risks’, such as maternity, unemployment and pre-carious employment. A policy aimed at benefit adequacy needs to adopt a benefit calculation formula which is consistent with the labour market context in which it will be applied (for instance, in terms of the ‘normal’ working careers and earnings profiles). One way to do this in an earnings-related system is to compensate ‘high risks’ (women, informal workers and so on) for their incomplete contributory records.

Inflation risks can also have important impacts on benefit adequacy. In Argentina, inflation has repeatedly contributed to the erosion of pension replacement rates and the capacities of the system to effectively work as an income-smoothing mechanism. The high degree of litigiousness resulting from the inadequate application of the constitutional right to ‘indexable pensions’ has not only entailed massive costs on the public purse in the form of legal processes, but also growing inequalities due to the gaps in access to legal help. Despite some limitations already mentioned, the recently sanc-tioned Pension Indexation Act may offer better coverage against inflation risks for future generations of pensioners.

Financial sustainability

The problem of financial sustainability has always surrounded pension pol-icy in Argentina. Privatization in the 1990s deepened financial imbalances, and the cuts in contribution (both over and before the 1990s) also affected pension finances. With the return to economic growth after the 2001 crisis, and pension fund nationalization in 2008, the financial situation of the social security system improved because new contributions and assets were transferred to the state. But public expenditure has also increased with the extension of coverage and is likely to continue to grow in the medium- and long-term as more workers become entitled to a state pension, and since benefit calculation formulas have been made more generous. However, there is limited knowledge regarding the medium- and long-term financial balance of the system.

According to some scholars, one of the difficulties in making long-term projections for the system is that it would require a certain degree of normative stability, which is currently lacking in the Argentine context (Cetrangolo and Grushka 2008). Repeated modifications in pension system rules over the past few years, and the probability that more changes will follow in the near future, make it difficult to produce meaningful projec-tions.12 ANSES has recently published a study for the years 2009–11 (ANSES 2009), which predicts that social security surpluses will continue to be large over those years.

A central aspect for future policy making after the recent pension reforms in Argentina is the construction of a long-term pension strategy which


could combine concerns about financial sustainability, benefit adequacy and coverage expansion. This has been a deficit of Argentine pension policy for a long time. Many policy decisions taken in the past (whatever their intentions and impacts) have tended to privilege the short-term. For these reasons, the capacity of the new pension system to provide secure retire-ment in the future is likely to depend on the extent to which recent reforms can consolidate a process of institutional building and long-term planning that can guarantee the realization of current pension promises and worker expectations in the future.

Concluding remarks

The nationalization of pension funds has inaugurated a new stage in pen-sion policy making in Argentina. It is a critical juncture on which future policies will be built. Nationalization entailed the transfer to the state of all the assets accumulated in individual accounts and the elimination of the private branch of the mixed pension system established in 1994.

In the past few decades many Latin American, Eastern European and ex-Soviet Union countries have privatized part or all of their pension arrange-ments. Among these, Argentina has been the first one to have reversed its pension privatization policy. Whether other countries will follow the same route remains to be seen. It will depend on the performance of existing arrangements, and the legitimacy they can gain, but also on the political processes and actor constellations in each country. In recent years, dis-satisfaction with the operation of private pension systems has prompted a number of reforms in Latin America (Calvo et al. 2010), but the policy shift in Argentina has been especially radical.

This experience may thus be of particular interest to other countries with similar pension arrangements or policy trajectories. In Argentina, two imme-diate outcomes of the return to a public PAYG and defined-benefit system have been a massive increase in the resources administered by the National Social Security Administration and the reduction of the impacts of financial market risks and administrative costs on individual benefit entitlements.

Despite wide-ranging reform, however, a number of shortcomings remain. Probably the most important challenge remaining after nationalization is how to guarantee universal coverage under a contributory system. Beyond the moratorium (which tackled the problem in the short term), nationaliza-tion maintained contributory requirements for pensions and did not include any other pillars that could offer coverage for all in a largely informal labour market.

Secondly, although the shift back to a DB system has favoured women as a result of the re-establishment of mortality risk-sharing, the gender gaps in labour market participation and earnings will continue to produce gender differentials in benefit entitlements. Hence there is still room to improve


gender equality using alternative mechanisms such as contribution credits or universal benefits which could at least partly compensate for the gender division of labour between remunerated and non-remunerated work in the household.

Thirdly, the adequacy of future benefits is not automatically secured by the return to public pensions. If the aim is to replace earnings, then benefit ade-quacy depends on the replacement rates, as well as on the indexation mecha-nisms applied over the retirement period. In order to offer adequate income replacement, the calculation formulas also need to be consistent with typical working careers in the country and include full indexation after retirement to maintain the purchasing power of benefits. Although the establishment of an automatic indexation mechanism has been an improvement over the previous situation, the relative loss that several pensioners with benefits above the minimum have suffered after 2001 has not been repaired.

Fourthly, in the light of past experiences, the return to the fully public PAYG system has raised concerns about the financial sustainability of cur-rent pension promises in the future, and the effective management of the sizeable funds that have been transferred from pension funds. Long-term financial sustainability is a key challenge for the new system, especially after coverage expanded, pension funds were nationalized and more work-ers became entitled to a state pension. It is also one of the most impor-tant factors to guarantee intergenerational equity in the pension system and a necessary condition for the future maintenance of current pension promises.

More structurally, the challenge for future policy is to consolidate a pen-sion system which could be resistant to macroeconomic, fiscal and demo-graphic shocks, and which could, for the same reason, better serve to cushion the impacts of those shocks on workers and pensioners. This refers to all the issues previously addressed, and to the interaction between them in the construction of a long-term strategy for old-age income protection.

Notes

1. An earlier version of this chapter appeared as a working paper of the Centro Interdisciplinario para el Estudio de Políticas Públicas (CIEPP) Nr. 73–2009. Funding from Agencia Nacional de Promoción Científica y Tecnológica under project PICT-2007 No. 792 BID 1728/OC-AR is gratefully acknowledged.

2. As the market value of state bonds plummeted following debt default, the regula-tor established that, for the purposes of the calculating the value of pension fund assets and returns, state bonds would be taken at a ‘technical value’, which was higher than the market value but was expected to converge with it over time. On debt default and private pension funds, see FIEL (2005).

3. From 0.85 per cent to 1.5 per cent of earnings per year of contribution.4. Since 1994, workers entering the labour market had been automatically enrolled

into a private pension fund unless they made an explicit demand to join the public branch within a limited period of time. This generated the pro-private bias


with which the system had operated since 1994. In contrast, the 2007 reform made the public system the ‘default’ system for new workers, allowed workers in private pension funds to voluntarily shift back to the public system every five years, and transferred older workers with limited pension fund accumulation back to the public system.

5. Argentine pesos (ARS). 6. The indexation formula was based on both the evolution of earnings and fiscal

resources per beneficiary in the social security system, and included a maximum indexation threshold equivalent to the variation of total social security resources per beneficiary, increased by 3 per cent (see Law 26,417).

7. Conditions include 70 years of age, no other pension benefit in the household, and absence of goods, income or resources of any kind which could afford eco-nomic subsistence.

8. See, for instance, Goldberg and Lo Vuolo (2006); Arza (2008b); Molina (2006); Holzmann et al. (2009).

9. Working ages from 25 to 65 years. Data refer to the first semester of 2009, taken from Socio-Economic Database for Latin America and the Caribbean (CEDLAS and the World Bank), accessed on 1 October 2010.

10. Own calculation based on Permanent Household Survey, National Institute for Statistics and Census (Instituto Nacional de Estadística y Censos/INDEC).

11. On the basis of a mean wage of ARS 2681.7 (taken from MTESS 2009: 23), and a flat-rate benefit (PBU) worth ARS 364.1 (taken from Resolution ANSES 135/2009), both values corresponding to March 2009, the replacement rate for a mean-wage worker with 30 years of contributions would be 58.6 per cent of earnings.

12. Cetrangolo and Grushka (2008) review a number of uncertainties that explain why making long-term projections is currently problematic: (i) uncertainties on future contribution compliance and the contribution base of own-account work-ers, (ii) uncertainties on how judicial processes will affect spending, (iii) uncer-tainties on whether further ‘moratorium’ will be opened if coverage rates worsen, (iv) uncertainties on the returns of investments in the FGS and (v) uncertainties on the evolution of benefits in special regimes and provincial pension schemes.

References

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—— (2008b) ‘Pension reform in Latin America: distributional principles, inequali-ties and alternative policy options’, Journal of Latin American Studies, Vol. 40, No. 1 1–28.

Calvo, E., F. M. Bertranou and E. Bertranou (2010) ‘Are old-age pension system reforms moving away from individual retirement accounts in Latin America?’ Journal of Social Policy, Vol. 39, No. 2 223–34.

CEDLAS (Centro de Estudios Distributivos, Laborales y Sociales, Universidad Nacional de La Plata) and the World Bank, Socio-Economic Database for Latin America and the Caribbean. www.depeco.econo.unlp.edu.ar/sedlac/eng/index.php, accessed on 1 October 2010.


Cetrangolo, O. and C. Grushka (2008) Perspectivas Previsionales en Argentina y su Financiamiento tras la Expansión de la Cobertura. Serie Financiamiento del Desarrollo 205 (Santiago de Chile: CEPAL).

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Gill, I., T. Packard and J. Yermo (2005) Keeping the Promise of Old Age Income Security in Latin America (Washington, DC: World Bank).

Goldberg, L. and R. M. Lo Vuolo (2006) Falsas Promesas. Sistema de Previsión Social y Régimen de Acumulación. (Buenos Aires: Miño y Dávila y Centro Interdisciplinario para el Estudio de Políticas Públicas/CIEPP).

Hausmann, R., L. D. Tyson and S. Zahidi (2008) The Global Gender Report (Geneva: World Economic Forum).

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141

7Rebounding from Crisis: The Role and Limits of Social Policy in China’s RecoverySarah Cook1

Introduction

The financial crisis threatened devastation on the global economic sys-tem just as China overtook Germany to become the world’s third largest economy. Predictions by some that China, together with much of East Asia, was ‘decoupled’ from the global economy and would thus emerge relatively unscathed from the fall-out of financial failure in the West were swiftly proved wrong, as was the idea that China, with its vast foreign exchange reserves, could ‘bail out’ the United States (US) and other developed capital-ist economies. The speed with which the crisis passed through to the real economies of China and its export-dependent neighbours quickly put an end to these speculations, but not to the recognition that China remained critical to global recovery – through facilitating credit to badly hit econo-mies, maintaining growth, stimulating demand and contributing to macr-oeconomic rebalancing. How China managed its domestic economy clearly had implications that would extend well beyond its own borders.

Like several major economies, China was quick to introduce a massive fiscal stimulus package in an effort to reduce the negative impacts on the real economy – jobs, enterprises and incomes. One dimension of this response which deserves close attention is the social policy expenditures and programmes planned as part of the package. These included a range of interventions aimed at boosting consumption and protecting the vulner-able, together with investments in social infrastructure such as affordable housing. The stimulus package came as China was already embarking on a significant expansion of its welfare provisions, constructing a new wel-fare regime and renegotiating the shattered social contract of the ‘iron rice bowl’ era.2 This chapter examines the role played by social policy in China’s response to economic crisis, and explores what this might mean for the logic and likely directions of social welfare reform in China.


China’s experience may be usefully compared with the policies of some of its neighbours during the Asian crisis of the late 1990s. Like its neighbour-ing East Asian developmental states (particularly the Republic of Korea and Taiwan Province of China), strong constituencies within China recognize the need to adapt its social policies to lay the foundations for sustainable and inclusive growth, based on stronger domestic demand and greater soci-oeconomic security for the majority of the population. These voices have become more prominent in the aftermath of crisis. The question remains as to what path China will follow in achieving these objectives. Can the Chinese government use social policies as an instrument to assist the neces-sary restructuring of its economy, as was done by the developmental states of East Asia following the 1998 crisis (Kwon 2005)? Or are the challenges facing China fundamentally different, thus generating different options? If so, what will be the likely implications for processes of social and economic development, and ultimately political change, in China?

The discussion proceeds as follows. The chapter first outlines in some detail the content of the government’s recovery agenda centred on expan-sionary macroeconomic policies and social spending. It then assesses the significance of the responses. Particular attention is focused on whether the measures undertaken indicate the potential of the state to use social policy for developmental purposes and a move towards more inclusive wel-fare arrangements. The analysis also considers the alternative possibility that the central government response is driven principally by internal con-cerns about stability and the legitimacy of the Party-state leadership, and secondly (and particularly at the local level) by the maintenance of high economic growth rates, which may ultimately mitigate against longer-term development goals. A concluding section sums up the achievements and limitations of policies associated with the use of welfare policies for sus-tained and equitable growth.

China: crisis and response

The crisis in the developed capitalist countries passed surprisingly swiftly through to China’s export-dependent economy. Prior to the crisis, China’s leaders had already taken actions to cool down and rebalance the economy, and initial measures were being rolled out to address housing and stock market ‘bubbles’, bring down inflation, boost domestic consumption and promote more equitable and sustainable growth (Xue 2008). As the crisis unfolded, China was initially considered by many to be well situated to weather the downturn, with its huge reserves and relatively well-insulated financial institutions. The major anticipated impacts were through reduced demand for exports and associated job losses, and falling consumer confi-dence translating into reduced consumption (Fan 2008).

Role and Limits of Social Policy in China’s Recovery 143

The effects on the real economy were nonetheless dramatic and their extent largely unanticipated. From January to April 2009, year-on-year exports declined by 20 per cent, and imports by 28.7 per cent. Export producers in southern China collapsed, with widespread company clo-sures and bankruptcies among small and medium enterprises in export production supply chains. In December 2008, officials reported around 670,000 small firm closures during 2008 with a loss of around 6.7 million jobs, many in the export hub of Guangdong (Tan 2008). The Ministry of Human Resources and Social Security reported a loss of 560,000 urban jobs in the last quarter of 2008 and a rise in the official urban (exclud-ing migrants) unemployment rate to 4.2 per cent (or 8.86 million) (South China Morning Post 2009). By January, reports of migrant job losses reached 20 million with 6–7 million new workers expected to enter the migrant labour force during the year (McCabe 2009). By March, a figure of up to 30 million jobless migrants was being cited (Tang 2009). Among new gradu-ates, an estimated 12 per cent (1.5 million) were jobless at the end of 2008, with 6.1 million expected to enter the job market in 2009. China’s general fiscal situation also worsened (Tan 2008). In January 2009, the Ministry of Finance reported a 17.1 per cent decline in fiscal revenues (Xinhuanet 2009a), while from January to April the average decline was 9.9 per cent, compared with increased expenditures of 32 per cent (Ministry of Finance 2009a).

Despite these trends, the government reiterated its target of 8 per cent growth for 2009 – the minimum level generally considered necessary to secure an acceptable level of employment and avoid social disruption. While most forecasts were revised downwards during the first quarter to around 6 per cent, compared with 11.7 per cent in 2007 and around 10 per cent in 2008, official statements continued to sound a note of optimism that, with appropriate fiscal stimulus, 8 per cent remained possible. Such optimism appeared justified by strong economic fundamentals, a current account surplus and huge reserves, giving China the policy space and resources to respond aggressively to the slowdown (World Bank 2009). China in fact remained the most robust source of growth in the context of global reces-sion. In November 2009, trade returned to growth for the first time since the crisis hit and quickly picked up in the second quarter of 2010, with a robust 43.1 per cent increase in the first half of 2010. By end June 2010, gross domestic product (GDP) growth for the quarter had rebounded to 10.3 per cent. More surprisingly, registered unemployment decreased by 80,000 to 9.1 million in the first half of 2010.3 The Ministry of Human Resources and Social Security reported that 6.4 million new jobs had been created in urban areas, while 3.1 million laid-off workers found employment (People’s Daily 2010). The anticipated crisis of unemployment leading to social unrest appeared to have been avoided.


Fiscal stimulus and other measures

China achieved this remarkable rebound with expansionary macroeco-nomic policies, including a massive four trillion yuan4 (US$586 billion) fiscal stimulus package. The package as initially announced included significant spending on infrastructure, with an emphasis on areas that affected people’s livelihoods (housing, rural infrastructure and social sectors), transportation and the environment, as well as industry-specific support for industrial growth and upgrading (Table 7.1). Financing of the package was to be split between central and local government, with the centre committing 1.18 trillion, while the remaining 2.82 trillion would be matched by local gov-ernments and other financial sources (including local government budget, bonds and state loans). A revised version was announced in April 2009, fol-lowing some criticisms of the limited amount allocated to social spending (Wang 2009; Economic Observer 2008). The change included a reduction in infrastructure investment (including low-income housing) by 300 billion yuan; and a 140 billion yuan reduction in spending on projects focused on energy conservation and sustainability. Technology projects would get an additional 210 billion yuan, while spending earmarked for certain rural public works projects and social welfare programmes would rise by 120 bil-lion and 110 billion yuan, respectively.

A series of complementary measures were also taken:5 interest rates were successively lowered (five times in four months from mid-September, by 2.16 per cent), credit controls relaxed and reserve ratios reduced, taxes cut,

Table 7.1 Investment portfolio of the stimulus package (billions of yuan and % share of the total investment)

Components of the stimulus of the package November 2008 March 2009 (revised) Change

Social welfare (healthcare, education, and so on)

40 (1%) 150 (3.75%) 110

Technical upgrading and R&D

160 (4%) 370 (6.25%) 210

Public housing 280 (7%) 400 (10%) 120Energy conservation and

environment350 (8.75%) 210 (5.25%) –140

Rural infrastructure 370 (9.25%) 370 (9.25%) 0Post-earthquake

reconstruction1,000 (25%) 1,000 (25%) 0

Transport and power infrastructure

1,800 (45%) 1,500 (37.5%) –300

Total 4,000 4,000

Note: Social initiatives were defined as including social welfare, public housing, rural infrastruc-ture and post-earthquake reconstruction.

Source: National Development and Reform Commission, cited in Wang (2009).


rebates provided to exporters, funds set up to pay wages owed to laid-off workers in bankrupt enterprises and a number of initiatives introduced to assist or retrain laid-off migrant workers and unemployed college leavers. In subsequent months, the government introduced further sector-specific stimulus packages aimed at boosting industrial growth and domestic con-sumption for ten key industries (including the auto and textile sectors) which together account for nearly 80 per cent of China’s industrial output value-added and one-third of GDP (China Review News 2009). A subsidy pro-gramme for rural households to purchase appliances contributed to a 30 per cent year-on-year increase in sales of household appliances.

Provincial governments introduced their own packages to spur growth and employment locally. Coastal Zhejiang province, for example, slashed 152 items of administrative fees and introduced stimulus packages for the manufacturing and export sectors (Xinhuanet 2009b). Several municipal governments issued consumption vouchers to low-income families dur-ing the Spring Festival holiday as a way to boost local consumption (China Economic Times 2009; Huaxia Times 2009).

Given the major concerns about unemployment and its associated social consequences, a number of measures were aimed principally at easing the financial burden of enterprises in difficulties with a view to the longer-term maintenance of employment. The ‘5 delays and 4 reductions’ programme announced in late 2008, allowed for flexible social insurance payments aimed at helping enterprises to reduce production costs in order to avoid lay-offs and bankruptcy. This in turn would minimize the negative impacts both on employment and on social insurance contributions. Specifically enterprises facing difficulties (kunnan qiye) were able to delay company con-tributions to basic insurance schemes for up to six months, while workers in such enterprises were able to reduce their contributions for up to 12 months. Funds from the Basic Social Insurance Scheme were also made available to promote employment through various forms of subsidy and training and by allowing flexibility over hours and wages. The new labour contract law was temporarily suspended. Such measures are estimated to have allevi-ated the financial burdens of enterprises by 16.6 billion yuan (Zheng 2010), reversed the falling trend of basic social insurance enrolment (following steep declines in late 2008) and maintained social insurance funds.6 These policies of course primarily benefited urban workers: rural migrant workers were quickly released from enterprises in distress; few had formal contracts and social protection, or were in a position to benefit from measures linked to social insurance.7

Social policy measures

A number of additional social programmes were introduced in subsequent months representing further significant increases in social spending. While it is not always clear which programmes were part of the stimulus


package as initially announced, the increase in commitments is remark-able. In 2009 Premier Wen Jiabao pledged to increase spending on social programmes, including pension and medical reform. The health care plan announced in January 2009 committed an additional 850 billion yuan for health care over three years, including an allocation of 331.8 billion yuan from the central government. The central government also committed an additional allocation of 293 billion yuan for social assistance. Increases in social benefits, such as the minimum living standard guarantee, dibao and basic pensions for enterprise retirees, along with programmes such as cash vouchers, were announced. Other new initiatives included the launch of a rural pension programme and the expansion of social insurance pro-grammes to include migrant workers. The State Council guidance note of September 2009 proposed a pilot rural pension programme, aiming at cov-erage of 10 per cent of all counties by 2020. In December, the State Council issued a provisional measure enabling migrant workers to transfer their personal contributions to a basic pension scheme when they moved to a new job or region, taking effect from 1 January 2010. In June 2009, the government also announced a low-rent housing development plan aimed at addressing the housing needs of 7.47 million households by 2011 with an investment of 900 billion yuan (Ministry of Housing and Urban-Rural Development 2009).

While it is too early to provide a detailed assessment of the impacts of the stimulus package and related programmes, there is evidence of increas-ing expenditures, while clearly the worst fears of the impacts of crisis have been avoided. Two major updates by the National Development and Reform Commission (NDRC) on the disbursement of the stimulus funds were made in May 2009 and March 2010. On the first occasion the NDRC reconfirmed the central government’s investment of 1.18 trillion, while local govern-ment and other financial sources should match the remaining 2.82 tril-lion by 2012. Actual disbursements and how they are ultimately used are harder to track. As reported to the National People’s Congress (NPC) in March 2010, central government public investment for 2009 was 924.3 bil-lion, an increase of 503.8 billion, compared with 2008 (Ministry of Finance 2010). Of this, 44 per cent was invested in low-income housing, projects to improve the well-being of rural residents and social programmes; 16 per cent in independent innovation, restructuring, energy conservation, emissions reductions and ecological improvement; 23 per cent in major infrastructure projects and 14 per cent in earthquake recovery and reconstruction, fol-lowing the Wenchuan (Sichuan) earthquake of May 2008. Expenditures on social security and related social programmes are shown in Table 7.2.

While the majority of spending remains focused on infrastructure, there has nonetheless been an increasing emphasis on investments that have social benefits, such as low-income housing and basic rural infrastructure. More detailed analysis would be needed to assess the actual impacts. As


always, the question is how these funds are distributed, and how alloca-tions are actually used, how or whether local matching funds are raised and the details of the implementation process. There is no doubt, however, that China returned rapidly to growth, trade revived and employment rose. Wages have shown a rising trend, with labour shortages emerging in some coastal regions (Caijing 2010). Minimum wages have increased since early 2010 across China, with the export hubs of Jiangsu and Guangdong taking the lead: Jiangsu raised its minimum wage by 12 per cent in February and Guangdong by up to 20 per cent in April (Xie 2010; Pomfret 2010). A second wave of minimum wage increases was reported in July (China Broadcast website 2010). Spending on social assistance benefits, such as dibao and the basic pension, also rose. At the end of 2008, the central government pro-vided an advance disbursement of 27.6 billion yuan to local governments for the rural and urban dibao subsidy for 2009. By July 2009, the govern-ment had disbursed 54 billion yuan – an increase of 48.95 per cent as com-pared with the full year figure for 2008. In 2009, the government raised the dibao standard again by 15 yuan and 10 yuan per month for urban and rural dibao holders, respectively (People’s Daily 2009). Between 2007 and 2009, almost all provinces increased dibao expenditure by at least 50 per cent. The urban basic pension for workers also increased on average by 10 per cent

Table 7.2 Central government expenditure on social security and other social pro-grammes (in billion yuan) and year-on-year growth, 2007–10

2007 2008 2009 2010

Social security and employment

230.32 (+13.7%) 274.36 (+19.2%) 329.67 (+24.1%) 358.23 (+8.7%)

Healthcare 66.43 (+296.8%) 82.68 (+24.5%) 127.32 (+20.2%) 138.92 (+8.8%)

Education 107.64 (+76%) 160.37 (+49%) 198.14 (+49.5%) 216 (+9%)

Quake reconstruction

n.a. 60 96.99 (+60%) 78.01 (–18.65%)

Low-income housing

n.a. 18.19 (+114.3%) 55.06 (+202.7%) 63.2 (+1.4%)

Sub-total 404.39 595.6 807.18 854.36

% of total central government expenditure

13.7% 16.4% 18.4% 18.3%

% of total national social expenditure

n.a. 3.1% 7.7% n.a.

Note: 2010 data refers to the budgeted fiscal spending for 2010.

Sources: The implementation of fiscal budget of central and local government of previous year and the fiscal budget for the coming year (Ministry of Finance 2007, 2008, 2009b, 2010).


per year between 2008 and 2010, or by an average of 100 yuan per month in 2008, 110 yuan in 2009 and 120 yuan in 2010, from the monthly pen-sion level of 963 yuan (Economic Observer 2008; PRC Government website, 2009). In some provinces increases were higher: Jilin for instance raised the monthly pension level by 13.3 per cent on average for 2010. Moreover, the expansion of more inclusionary social programmes – especially those extending to migrants and the rural elderly – points to a fundamental shift in China’s approach to social policy being consolidated during the period of crisis response.

These developments in the context of crisis suggest with greater clarity the contours of an emerging welfare regime. Like the East Asian economies, there has been an expansion of social insurance as the core of the welfare system, with more inclusive forms of social assistance playing a significant role in the crisis response. Greater emphasis is being placed on human capi-tal investments through equalization of access to health and education – a recognition of the productive dimensions of social policies, as well as the potential social and economic costs of inequalities caused by the effective privatization of social goods. The central government is playing a more prominent role in the financing of social programmes: social spending as a share of GDP increased from 3 per cent to 7 per cent between 1995 and 2009. While social spending increased almost 14-fold, from 176 billion yuan to 2.4 trillion yuan, over this period, central government spending as a share of total social spending increased from 20.9 per cent to 33.7 per cent. Most recently the language of ‘inclusive growth’ has entered the public dis-course, following its use by Hu Jintao (China Economic Weekly 2010).8 Many of these programmes and directions were underway before the crisis: what appears to be new is the stronger commitment of the state to social policies as part of a strategy of shared growth, with more explicit recognition of the essential role social security must play in maintaining a more equitable and sustainable pattern of consumption-led development.

The crisis response in context

The evolution of China’s reform era social policy

Placing China’s remarkable recovery from crisis, and the social policy responses described above, in the longer-term post-reform context, does the response mark a significant shift in welfare policy? Is it a temporary break in policy or the start of a new trajectory? Or is it a continuation of earlier trends? The crisis has undoubtedly elevated to the forefront of policy discus-sions the shortcomings of welfare reforms over the previous two decades, highlighting issues that had emerged prior to crisis as part of China’s long-er-term structural transformation. The de facto commercialization of basic services, including health and education, that accompanied rural decollec-tivization in the 1980s undermined social provisioning and raised the costs


of basic goods for farmers. State sector restructuring in the mid- to late-1990s meant that urban workers also lost many of the accustomed benefits associ-ated with the ‘iron rice bowl’ (Cook 2002). Rising inequality and new forms of poverty and exclusion were increasingly a source of concern: ill-health and catastrophic health expenditures had become a leading cause of pov-erty; inability to fund basic education or to afford basic services, along with increasingly tenuous land rights for farmers, were creating marginalization and social unrest, while a new excluded class of urban poor were emerging. The costs of economic transformation fell heavily on those least able to cope (Shue and Wong 2007). In response, the government set about reconstitut-ing a safety net starting in urban areas, establishing dibao alongside the expanded social insurance programmes which principally benefited those in formal employment.

By the turn of the twenty-first century, there was a greater acknowledge-ment of the need for stronger state interventions to ensure more stable and equitable development. In addition to abolishing regressive taxation on farmers, the central government started to reinvest in rural education and health care. Tentative steps were being taken by the mid-2000s towards greater inclusion, seen, for example, in the expansion of the dibao to rural areas and an innovative rural health care programme (the New Cooperative Medical Scheme). Much of this was promoted under the slogans of creat-ing a ‘well-off’ (xiaokang) and ‘harmonious’ (hexie) society through ‘people-centred’ development. Thus the government was indeed taking cautious steps to address critical issues of inequality, exclusion and the lack of social protection, prior to the crisis, while the existence of basic social protection programmes such as the dibao almost certainly made it easier to respond when the crisis hit.

Looked at from the perspective of the central state, welfare policies seemed to be moving tentatively away from a laissez-faire model of mar-ket-led growth accompanied by residual safety nets, and towards a more comprehensive and unified welfare system combining social insurance and assistance. Such policies have the potential to underpin both social stabil-ity and economic transformation. The view from the local level, however, looks less clear: there have been limitations in the expansion of social poli-cies from the centre – inadequate financing and the weak capacity of local governments to raise revenues necessary to match central transfers, along with an often inefficient and corrupt bureaucracy and weak incentives, have hampered efforts to extend coverage. Major population groups (par-ticularly migrants, the rural elderly and the disabled) still fall outside most programmes. The leeway given to local governments in design and imple-mentation, while building in a necessary degree of flexibility to respond to China’s vast regional variation in needs and resources, also creates uneven implementation, coverage, gaps and fragmentation in the system (Cook 2011). The safety net – despite the significant expansion of programmes


and coverage – remains patchy and fragmented. For many looking from the micro level, the observed reform trajectory still reflects a residual approach that, far from addressing the structural causes of inequality and exclusion, often serves to reinforce them.

Nonetheless, one can also see the possible seeds of a new social con-tract, one based in rights or entitlements of citizens to basic protections from the state in the event of contingencies such as loss of employment or inability to work. Arguments were being made for a national legislative framework for social insurance (a Social Insurance Law was adopted in October 2010 after 17 years of drafting9); and for more inclusive state-led programmes rather than reliance on market-led solutions (particularly in the case of health care). Increasingly, the language of social justice is being invoked in making the case for this policy direction. Could the crisis be an opportunity to consolidate these directions in support of an inclusive developmental agenda, one with the potential to deliver sus-tained and more equalizing economic growth, social stability and greater inclusion?

Inclusive developmentalism or welfare authoritarianism?

A year on from China’s remarkable return to growth, how should we assess the longer-term welfare reform trajectory? While employment, incomes and social stability have been maintained with the support of a significant expansion in welfare spending, a focus on the institutional and political dimensions of these processes offers some more cautious reflections. In par-ticular, a comparison with the developmental states of East Asia provides a useful framework, which suggests some shortcomings in China’s political and institutional arrangements which may act as critical obstacles to ‘inclu-sive’ development.

Reflecting on China from the perspective of the developmental state liter-ature, Tsai and Cook (2005) identified distinctive features which set it apart from its neighbours. Key features of developmental states include the ability of the state and bureaucracy to play a strategic role in economic develop-ment and to direct capital towards key economic objectives. China has dif-fered from other developmental states on a number of dimensions. First, as a transitional economy, it faced the dual task of dismantling socialist insti-tutions while building market-oriented ones. Second, as a ‘late liberalizer’ it faced different global conditions from the East Asian ‘late industrializers’, liberalizing in a global environment that was less conducive to negotiating development strategies and institutional reorganization in a purely domes-tic manner. Third, its size, diversity and political system complicate effective and consistent implementation of policy from the centre; and by extension, sub national governments have greater autonomy for determining the terms of local development. The nature of local state developmentalism (Blecher 1991) or corporatism (Oi 1992) potentially weakens the use of social policy


as an instrument for ‘welfare developmentalism’ seen in other East Asian states.10

The concept of welfare developmentalism emerged following the Asian crisis to describe the use of welfare arrangements to meet the strategic priorities of economic development by which progressive redistribution remained subordinate to economic efficiency (Kwon 2002, 2005). In East Asia, the system traditionally discouraged dependence on the state; it was marked by relatively low government spending with the promotion of pri-vate resources and reliance on the family (through social insurance and selective coverage). Programmes were introduced by elites rather than popu-lar demand (Goodman et al. 1998). The use of welfare policies to rebalance economies, reduce export dependence, increase domestic demand and com-pensate losers in the context of the 1997 crisis, illustrated in particular in the case of the Republic of Korea, also led to an expansion of programmes towards more inclusive social policies and greater responsiveness to popular demands. This occurred in the context of more democratic politics, a proc-ess also seen in Taiwan Province of China which, although not affected by crisis, similarly moved towards more inclusive social policies based on social consensus (Kwon 2005: 13–14).

As the earlier discussion of China’s distinctive features would suggest, China faces constraints in pursuing a path towards inclusive social policies pursued by some of its neighbours. Key differences include the level and pattern of economic development (with a significantly lower level of aver-age per capita income and much greater inequality), and the lower degree of central government control over the sub national economy. A major con-straint is the limited capacity of the central state to manage competing local, regional and bureaucratic interests, or to set incentives and create moni-toring mechanisms that ensure compliance among different actors and at different levels in the governance structure. These factors raise significant challenges for the Chinese leadership in financing and implementing cen-tral policy objectives, even when central goals are clear. What lies behind these constraints ultimately is a divergence of interests and motivations: while the Party leadership is driven to invest in social policies by the need to maintain stability as a basis for its legitimacy to govern, local governments are driven by the politics of accumulation and the need to maintain growth in revenues.11 Two illustrative case studies based on field visits in the early phase of the crisis revealed some of the potential gaps and limitations con-cerning the capacity of the central state to ensure policy compliance, the misaligned structure of incentives and the weak mechanisms for reconcil-ing diverse interests.

Research in a prefectural city in the central province of Hebei, bordering Beijing, illustrated the weakness of incentives and local capacities, and the problems of constrained resources. In this case, typical of areas where indus-trial development has been limited and revenue sources for the prefecture


come largely from the rural counties surrounding it, the expropriation of land for industrial or other purposes had become a key mechanism for local governments to increase their revenues. While transferring land to indus-trial and urban purposes may generate income for the local government in the short term, it creates new livelihood and welfare problems for the popu-lation. In this prefecture, investments focused principally on infrastructure (particularly transportation) as the mechanism for stimulating growth. The traditional bureaucratic incentives which have dominated cadre evaluations (growth and family planning) remained in place, while the grasp of cen-tral government objectives related to the ‘harmonious society’ and their interpretation was restrictive. Neither the incentives nor the capacities for developing ‘soft infrastructure’ – social protection systems that were more inclusive of those being marginalized through development processes – were present. Even with transfers of resources from higher levels of govern-ment, it is unclear whether local implementation capacities would enable the delivery of central government objectives.

A second visit, to a developed coastal export-processing zone, illustrates a contrasting situation. In this case, local capacities were strong and fiscal rev-enues stable, with the immediate costs of crisis largely passed on to migrant workers. Nonetheless the gap between central government intent and the incentives and priorities of the local government remains large. Here the main distinction was between the interests of the locality versus that of other regions and of workers from elsewhere. Migrant workers bore the brunt of the crisis: while the government leaders reported limited impact from the crisis in terms of revenues, most factories had laid off the major-ity of migrant workers. Expanding security for these ‘non-local’ workers was not seen as the responsibility of the locality: if the central government wished to expand such programmes, officials argued, it should provide the resources. A measure of this attitude was reflected in the budget expendi-tures on education and public security: education expenditures were below the national average, as most migrant workers could not educate their chil-dren in the cities, while public security was above average – reflecting the perception of migrants as a source of insecurity. A principal goal with regard to fiscal expenditures and social welfare was the protection of ‘local’ inter-ests, that is, those of the ‘resident’ population.

Together with other evidence emerging in the wake of crisis, these brief cases highlight some of the continued challenges facing the Chinese leader-ship. More generally, in the early stage of the crisis, conflicting regional pri-orities were quick to emerge. Wealthy coastal areas that had benefited from an extended export boom based on cheap migrant labour had few incentives to invest in welfare systems that would benefit a mobile labour force. By contrast, migrant sending areas, faced with a loss of remittance income and unemployed return migrants, required greater fiscal transfers or centrally funded welfare programmes to cope with the downturn. While the wealthy


coastal regions have been the beneficiaries of the extended export boom, the pattern of growth appeared to shift inwards with the crisis (Wang 2009). Hard-hit coastal areas may have the highest incentives to restructure away from export-processing towards higher value-added manufacturing, but equally appeared initially to be least willing to take on the long-term cost of an expanded social protection system involving obligations to a largely migrant (interior) workforce. By contrast, central regions may see the oppor-tunity to attract investment inwards and create jobs for returned migrants, potentially through inefficient investments at a time of relaxed credit avail-ability, and possibly at the expense of longer-term restructuring and the environment. Interior regions are also likely to voice stronger demand for support in dealing with returned migrants, the loss of remittance income and the need for social protection. Given the rapid relaxation of credit and the absence of adequate risk assessment, the result may well be an increase in inefficient or polluting projects and ultimately in non-performing loans, as local governments in the interior seek to increase growth. Without ade-quate monitoring and incentive structures, such activities at the local level could easily undermine the overall restructuring objectives of the central government.

In the immediate context of the crisis, the priority of the government was to deal with the internal impacts and tensions generated or exacerbated by the downturn. The leadership recognized the huge challenge of balanc-ing the immediate needs of restoring growth and creating employment in order to avoid serious social disruption, with the more fundamental goal of reorienting the economy, reducing export dependence, promoting domestic demand and moving towards higher value-added production. It increasingly acknowledges that any restructuring process needs to include measures to redress huge social inequalities. Fundamental fault lines are emerging that are not limited to the regional or rural–urban divisions that have long been a feature of China’s uneven development, but involve increasingly varied and complex interests along other dimensions of wealth, power and control over resources.

The central government is thus engaged in managing a complex set of domestic interests – between regions that are differentially affected by crisis, between different levels of government and increasingly between divergent social and interest groups. Resolving these competing interests is compli-cated by the potential trade-off between short- and long-term objectives, and the inherent conflict between the politics of legitimacy at the centre and the concerns with revenues and growth in the locality. A number of institutional bottlenecks (as seen in the misaligned incentives, limited capacity and weak monitoring or accountability mechanisms) hinder the achievement of these goals.

A notable feature of China’s remarkable reform trajectory to date has been the ability to find institutional and technical responses to overcome


such difficulties, and to release bottlenecks at critical stages of the reform process. But, as Pei (2006) has argued, there may be inherent limits to this strategy: China may find itself in a ‘trapped transition’. The emergence of more complex central–local relations, divergent interests between different social, economic and political groups and increasing social fragmentation alongside the lack of mechanisms for the expression or reconciliation of interests, create threats to long-term social cohesion which are probably beyond the means of redistributive welfare programmes to address. The inability of marginalized groups, or those adversely affected by economic and social transformation, to organize around their interests, to provide consistent pressures on the state (whether central or local) to deliver services or programmes which benefit them, or to seek redress, remain barriers to sustained inclusion. Social policies can potentially offer the opportunity to develop a new social contract including mechanisms for greater represen-tation, reconciliation of interests and social cohesion. What we have seen from the expansion of welfare entitlements in China over the past decade is indeed a greater recognition of the responsibility of the state to citizens, and in turn the legitimacy of citizens making certain claims on the state. This raises expectations and demands on the state, while also increasing the potential for dissatisfaction. The space for the state to manoeuvre in deliver-ing its goals in a top–down fashion thus becomes circumscribed.

China still retains a set of political and institutional arrangements that, far from providing channels for the representation of diverse interests and mediation of conflicts, on the contrary are likely to reinforce structural ine-qualities, protecting the interests of groups with wealth, economic interests and power. While increased fiscal expenditures can assist in maintaining short-term stability, without more systemic reforms such positive impacts may be limited by the failure to address the institutional underpinnings that reinforce exclusions and inequalities. Whereas the crisis in East Asian developmental states led to greater responsiveness to popular demands in a context of new democratic regimes, China’s response continues to reflect an elite-led process of ‘welfare authoritarianism’, responding to fears of instability but limiting wider space for participation or representation. The evidence from other developmental states suggests that few can long sus-tain such welfare authoritarianism alongside a market economy. The critical question thus remains as to whether China will be able to develop new insti-tutional arrangements that can ensure greater social cohesion and political legitimacy, deliver on social welfare and ultimately sustain an inclusive pat-tern of growth.

The domestic challenges of the central leadership to resolve these internal contradictions in order to facilitate a return to sustainable growth must also be balanced against strong external demands and expectations in the inter-national arena. China faces international pressure over a range of issues, including its exchange rate, currency reserves and the environment. It is


also now expected to play a leading role in global negotiations to find solu-tions to the crisis which avoid protectionism, stabilize exchange rates and rebalance the global economy, and to take on greater responsibilities as a global actor in any new global governance arrangements (Cook and Gu 2009). The very strength of China’s recovery revival opens it up to greater scrutiny and pressures in this regard, affecting its room for manoeuvre in both its domestic and international policies.

Conclusion: turning danger to opportunity?

How is the Chinese state navigating these turbulent waters? Do we see evi-dence of China’s developmental credentials? Has the crisis provided the opportunity to shift from a socially unsustainable model that was at risk of undermining longer-term growth? China has clearly responded well to crisis: it has pursued a strategy to sustain growth in the short term and con-tained threats to social instability through policies concerning employment and social benefits. The Party leadership has once again demonstrated its capacity to buy social peace, at least in the short run, and thus maintain its own legitimacy. But there appear to be limits to such responses. There is less evidence that China has successfully used the ‘opportunity’ of crisis to shift priorities to social and sustainable development objectives for the longer term, although that remains a stated priority. There is increasing evidence of the constraints to the capacity of the central state to translate these objec-tives into reality at the local level, and of the greater political challenges it faces in this endeavour.

The question remains as to whether goals of short-term recovery and sta-bility have trumped economic restructuring. Economic recovery and social stability have been overriding factors in how fiscal stimulus resources have been used, as demonstrated in the emphasis on infrastructure investment, support to enterprises and employment. In some cases, such spending may be at the expense of longer-term economic restructuring; in any case, the shift to domestic demand-driven growth will inevitably be a longer-term project – delivered not only through increasing incomes for the lower income popu-lation, but also through building trust in the newly emerging social policy institutions and programmes designed to guarantee future security. This will also require redistributive measures that go beyond fiscal transfers to address the gaping inequalities in wealth and property. More importantly, however, the government’s ability to achieve a more sustainable and inclusive pat-tern of growth that generates social cohesion is increasingly limited by the absence of appropriate institutional and governance mechanisms.

While recognizing the pragmatism of China’s leadership, and its proven ability to respond to threats or institutional bottlenecks (whether economic, social or political) to maintain its power, the policy space for continued technical and institutional responses may become narrower. On the one


hand, we see a state that has taken bold strides towards more inclusive wel-fare provisions, prioritizing inclusion in its programmes and policy goals. On the other, it appears to be constrained in the nature of its redistribu-tive mechanisms, its modalities for enforcing policies or its monitoring and accountability mechanisms. China’s form of welfare developmentalism is limited by the size, diversity and complexity of its system; the inequalities and multiple layers of government; a combination of decentralization with limited local capacities and resources. While the opportunity offered by crisis for expanding welfare provisions has not been wasted, the longer-term challenges persist: these involve the institutional arrangements, incentives and ultimately the political channels necessary for forging a new social con-tract that can address inequalities and meet diverse needs in an increasingly fragmented society with divergent interests. The absence of mechanisms for interest representation or reconciliation, for popular participation or for meaningful accountability, means that while the state can continue to make progress through the redistributive mechanisms at its disposal, it will eventually reach the limits of such centrally determined welfare policies.

The central government may find itself with shrinking policy space in which it can use social policies to support its growth objectives. While the past decade has seen a necessary shift from residual to more redistribu-tive welfare policies, the government will need to move still further if it is to readjust the growth path towards the stated aims of greater inclusion and broad-based domestic consumption, which will be necessary for social cohesion and stability into the future. But it is not yet clear whether this on-going transition process is ‘trapped’, or whether the institutional arrange-ments and incentives can be sufficiently flexible and adaptive. As welfare entitlements are strengthened, stronger claims will be made by citizens on the state, leading in turn to the need for stronger and more transparent accountability mechanisms. This will also require the rise of a middle class alongside elites willing to contribute through taxation or other redistribu-tive mechanisms to greater public spending. The way in which the Chinese Party-state responds to this challenge – of balancing competing and increas-ingly contentious issues within authoritarian political structures that cur-rently have limited flexibility to respond – will determine the longer-term reform outcomes.

While China appears to have weathered the immediate crisis extremely well, and provided the dynamism to restore growth across its regional pro-duction networks and beyond, it continues to enter uncharted territories in managing its on-going domestic economic, social and political transforma-tions, while assuming greater responsibilities on the global stage. Internally, the consequences of its uneven development process have once again been managed and contained but not resolved. The risks of not addressing them have been made more apparent by the global crisis: the consequences of economic slowdown or social instability in China are clearly unlikely to be


a purely domestic issue, but would have global implications. Yet the path to achieving this transformation, of forging new state–society relations, social coalitions and institutional arrangements that enable a more sustainable development path, will need to be charted and negotiated domestically.

Notes

1. Excellent research assistance from Wing Lam is acknowledged with gratitude. 2. The iron rice bowl refers to the cradle-to-grave welfare provisions provided to

Chinese urban workers by their enterprises prior to market reforms. 3. Unemployment leading to social unrest was a major concern of the government:

as Premier Wen noted in his speech to the National People’s Congress in March 2010, boosting the economy is essential not only for increasing people’s income but more importantly to ensure social stability.

4. The renminbi is the official currency of the People’s Republic of China. The yuan is the primary unit of currency.

5. Also see Cook and Lam (2011) for further details of these policies. 6. Following an initial decline, by September 2009 the year-on-year increase in the

fund had risen to 17.5 per cent (see Zheng 2009; Pan 2009). 7. See Ying Yu (Chapter 13) for a more detailed discussion of the impacts of crisis

on migrants in China. 8. Hu Jintao first mentioned the term ‘inclusive growth’ at the Fifth Asia-Pacific

Economic Cooperation (APEC) Ministerial Meeting on 16 September 2010. The term has subsequently been used in speeches by Hu and other leaders, and is likely to be prominent in China’s 12th Five-Year Plan (China Post 2010).

9. The drafting of the Social Insurance law began in 1993 and a draft was submitted to the NPC for review in 2007. After four readings, it was finally approved by the Standing Committee of the NPC in October 2010. The Law specifies a common right for all citizens to access and enjoy five forms of insurance: a basic pension, basic medical insurance, employment injury insurance, unemployment insur-ance and maternity insurance.

10. See Goodman et al. (1998) for a comparative discussion of the state and welfare policies in East Asia.

11. Lee (2005) makes a similar argument with reference to the livelihood struggles of urban workers.

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161

8The Global Economic Crisis and Labour Markets in the Small States of the CaribbeanAndrew S. Downes1

Introduction

The global financial crisis translated into a real sector economic crisis as reductions in income, wealth and credit resulted in a reduced demand for goods and services, and subsequently inventory decumulation and produc-tion cutbacks. Since the majority of developing countries are closely linked through trade and investment channels to developed economies, the eco-nomic crisis has severely affected them.

The global economic recession has had different effects on develop-ing countries, with some being able to weather the crisis better than oth-ers. The severity of the impact of the economic crisis especially on small developing countries (SDCs) depends on several factors: the state of the country’s social and economic system at the beginning of the crisis, the degree of the country’s integration with the global economy (especially the sources of the crisis) and the policy responses implemented by the coun-try. For SDCs, the main effects have emerged through the reduction in the export of goods and services, remittances, foreign direct investment (FDI) and access to international credit. In developing countries with small open economies, the external sector plays a critical role in the development process. Indeed, SDCs are regarded as highly vulnerable to economic (and environmental) shocks, which can disrupt the social and economic life of the population. External shocks, such as the 2007/08 economic crisis, can adversely affect the balance of payments (BOP), fiscal accounts, the labour market, poverty and other socioeconomic variables. Skilful economic and social engineering is therefore critical to dampening the adverse effects of external shocks on the domestic economy and society of SDCs. They have to build resilience through the maintenance of macroeconomic sta-bility, institutional development, good governance and social development (Briguglio et al. 2006).


This chapter examines the impact of the global economic crisis on the labour markets in the SDCs of the Caribbean. The focus is mainly on the countries within the Caribbean Community (CARICOM), namely, Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, and Trinidad and Tobago. These countries have achieved a high level of human development and have been making steady progress towards the achievement of the Millennium Development Goals (MDGs), (for example, Barbados has recently been classified as a country with a ‘very high level of human development’ and ranks among the top 40 countries in the Human Development Index/HDI). Nevertheless, the eco-nomic crisis has had a profound effect on the labour markets and patterns of employment, even in the more developed states.

The labour market (formal and informal) constitutes the main source of income for a very large segment of the population in these countries. Since the demand for labour (employment) is derived from the production and demand for goods and services, any shock in the commodity market (for example, a reduction in the level of export of goods and services) will have both direct and indirect effects on the labour market. The severity of the impact depends on the initial level of unemployment, the size of the infor-mal sector, the existence of a social protection system, the ability to engage in social dialogue and the adoption of creative labour market strategies and measures. For SDCs which are constantly exposed to external shocks, it is important to develop labour market institutions which can minimize any adverse effects emerging from these shocks.

The chapter is structured as follows: in the next section, an overview of the impact of the crisis on the Caribbean economies is presented. The chap-ter then examines the impact of the crisis on the labour markets in the region. This is followed by an analysis of the policy responses adopted by Caribbean governments from a labour market perspective. This section also includes a discussion of the coping strategies adopted by households during the recession. The chapter concludes with a set of lessons and recommenda-tions which can be identified from the Caribbean experience.

The impact of the crisis on Caribbean economies: an overview

Caribbean economies are small, open, developing and vulnerable to exter-nal economic shocks. These economies are closely linked to Canada, the United States of America, the United Kingdom and Europe with respect to the export of goods and services (for example, sugar, bananas, tourism, financial services) and FDI. Furthermore, many of these economies rely on tourism for a significant part of their gross domestic product (GDP).

The direct effects of the financial crisis do not appear to have been signifi-cant in the Caribbean because Caribbean financial institutions are not fully

Labour Markets in the Small States of the Caribbean 163

tied to the financial institutions affected by the crisis in the United States. Furthermore, the Caribbean economies have relatively unsophisticated financial markets. Only a few large financial institutions have reported some losses due directly to the financial crisis. For example, the largest insurance company in Barbados, Sagicor, reported a 0.2 per cent loss in its investment portfolio.

The more significant impact of the global crisis has been felt through the ‘real’ economy, that is, the reduction in demand for exports (goods and services). An examination of the growth rates in Caribbean states indi-cates a decline in 2008 and a further decline in 2009 after a period of rela-tively modest economic growth over the 2003–07 period (see IMF 2010). Significant declines in economic growth were evident in the Bahamas, Jamaica, St. Vincent and the Grenadines and, to a lesser extent, Trinidad and Tobago.

The number of long-stay tourists declined in several Caribbean countries between 2007 and 2009.2 The Bahamas, for example, was severely affected by the reduction in tourist arrivals and the demand in second-homes mar-ket. Long-stay visitors to St. Vincent and the Grenadines fell by 6 per cent over the 2007–08 period. Although there was a slight increase in tourist arrivals in Jamaica, the decline in the demand for bauxite exports adversely affected the economy. Cruise passenger arrivals also recorded a decline over the 2007–08 period, with significant reductions recorded in Antigua and Barbuda, St. Vincent, the Grenadines, and Trinidad and Tobago. Estimates for 2009 indicate that long-stay visitors declined by an average of 10 per cent in ten reporting countries, with only Guyana and Jamaica recording a slight increase of 6.2 and 3.6 per cent, respectively. Cruise ship arrivals, however, increased in all the countries except Jamaica in 2009. Key inform-ants in the tourism industry, however, indicate that the average expenditure and length of stay have both declined, thus yielding a lower overall level of revenue from tourism.

Several countries also recorded reductions in private sector construction activity as foreign construction projects were scaled back due to the reduc-tion in financial credit and a reassessment of future economic activity. Economic growth in Trinidad and Tobago was affected by the decline in oil prices in mid-2008, as the Cushing, Oklahoma, West Texas Intermediate (WTI) spot price for oil rose from US$60 per barrel in January 2007 to US$145 per barrel in July 2008 and then dropped to US$39 per barrel in December 2008. The Government of Trinidad and Tobago was therefore forced to scale back its expenditure in light of a shortfall in revenue. The global economic crisis further compounded the situation with a reduction in aggregate demand.

The moderation of oil price increases during late 2008 helped to ease the inflationary situation in the region. During the late-2007 and early-2008 periods, both food and energy prices spiraled, creating a spurt in the


inflation rates through the region. The dampening of these prices during late 2008 resulted in a reduction in inflation which continued into early 2009. Inflation rates remained relatively low in the region for 2009, which eased the management of a difficult economic crisis.

Migration, either on a temporary or permanent basis, has been a his-torical feature of the SDCs of the Caribbean. Emigration to such countries as the United States, Canada and the United Kingdom has resulted in an inflow of remittances to the region. Remittances have flowed from two sources: workers on temporary contracts of work (farm labour programmes, hotel workers and so on) and permanent/semi-permanent residents. While remittances to the region showed a steady increase between 2003 and 2008, there is evidence of a slowdown in the flow in 2008 and 2009.3 Guyana recorded a decline in the nominal value of remittances in 2008, while there was a slowdown in the rate of increase in other Caribbean coun-tries. Data for Jamaica indicate that net remittances declined by 12.9 per cent over the period January–August 2008 (US$1142m) to January–August 2009 (US$994.5m). As job losses increase in the source countries (United States and Canada) and opportunities in temporary worker programmes fall, the remittance inflows would continue to decline until these econo-mies recover.

The global economic crisis has placed a significant degree of pressure on the balance of payments (BOP) of Caribbean states. The external current account deficit as a percentage of GDP increased in almost all the coun-tries between 2007 and 2008 due to the increase in food and energy prices, the drop in tourism and other exports and the general increase in imports. For example, the ratio for Barbados increased from 5.4 per cent in 2007 to 10.5 per cent in 2008 and, in Belize, it jumped from 4.0 per cent in 2007 to 10.2 per cent in 2008. Member countries of the Organisation of Eastern Caribbean States (OECS) were already experiencing high ratios of over 20 per cent since 2006. Only Trinidad and Tobago, because of its oil revenue windfall, was able to record a surplus in its current account over the 2003 to 2008 period. There was also some deterioration in the external capital account as a percentage of GDP in Barbados, Bahamas, Belize and the OECS over the 2003–08 period. The gross international reserves of the countries in the region still remained strong in 2008 compared with 2007. There was, however, a slippage in the foreign exchange position of the countries between 2008 and 2009.

The deterioration has been particularly severe in Anguilla, Antigua, Grenada, St. Vincent and the Grenadines, and Barbados. Several OECS coun-tries have had to seek financial assistance from the International Monetary Fund (IMF) under its various schemes (Rapid Response Facility/RRF and Exogenous Shocks Facility/ESF): Dominica, St. Kitts and Nevis, St. Vincent and the Grenadines, and St. Lucia. Grenada has sought additional IMF assistance, while Jamaica and Antigua and Barbuda have recently negotiated


standby agreements. Barbados plans to access some of its (IMF’s) reserves. There were no major changes in the debt service ratios for the region over the 2007–08 period, and the debt service ratio still remains high for the OECS (25 per cent in 2008).

Caribbean countries with a ‘flexible’ exchange rate regime with the US dollar recorded a slight depreciation over the 2007–09 period. For exam-ple, in Guyana, the exchange rate moved from G$200.754 for the US dol-lar in January 2007, to G$206.16 in September 2009, while in Jamaica, the rate moved from J$80.475 to J$89.08 for US $1 over the same period. The Trinidad and Tobago exchange rate moved marginally from TT$6.276 for US$1 in January 2007 to TT$6.36 in October 2009.

The crisis has also affected the fiscal balance of Caribbean countries as government revenue has declined in light of the fall in economic activity. At the same time, the governments have been required to adopt counter-cyclical fiscal measures through expanding government expenditure and/or reducing taxes, providing incentives and subsidies and reducing interest rates. The available data for the region indicate that the public sector overall balance as a percentage of GDP increased over the 2003 to 2009 period. The fiscal deficit as a percentage of GDP ranged from 1.1 per cent in Belize to 5.9 per cent in Barbados in 2008. The situation worsened in 2009, with the percentages ranging from 3.1 per cent in St Kitts and Nevis to 19.6 per cent in Antigua and Barbuda. With little government savings on current account, there is little fiscal space to engage in significant fiscal expansion without adversely affecting the BOP. The governments have had to find creative ways of resolving their fiscal challenges. Trinidad and Tobago is the only Caribbean country which was able to record a fiscal surplus over the study period. Indeed, the Trinidad and Tobago government has provided financial resources to other countries in the region through stabilization and development funds.

There was a general decline in the inflow of FDI into the region between 2006 and 2008. Belize, Grenada, Guyana and Trinidad and Tobago, how-ever, recorded an increasing trend over the period. The FDI inflow into these countries related to reconstruction capital investment associated with hurricane damage (for example, Grenada) and also a major drive in the oil and gas sector (for example, Trinidad and Tobago). The tourism-oriented countries – Antigua and Barbuda, Bahamas, Barbados, Jamaica and St. Lucia recorded significant declines in FDI inflows in 2008 as several hotel expansion projects were either stalled or scaled back. For example, the con-struction of the Four Seasons Hotel in Barbados was halted because of the uncertainty of the economic climate.

The financial sector in the region was adversely affected by the collapse of CL Financial, a conglomerate based in Trinidad and Tobago, with inter-est in insurance, financial services, manufacturing, real estate, inter alia. The Trinidad and Tobago government provided bail-out assistance, while


the governments of countries in which CL Financial has economic interests provided various forms of assistance and assurance to avoid a collapse of the insurance market. The collapse of the Stanford Group, based in Antigua and Barbuda, also resulted in a bail-out of the Bank of Antigua by the Antiguan government, with assistance from the Eastern Caribbean Central Bank (ECCB).

The financial and economic challenges experienced by the region also resulted in a downgrading of Caribbean economies by credit rating agen-cies, although some have still been able to maintain an investment grade for their financial instruments. This downgrading, along with a tight financial market, can adversely affect access to credit in private financial markets. The global economic crisis is still unfolding in its effects on the Caribbean economies. It is generally recognized that the adverse effects of external economic shocks are fairly rapid on Caribbean economies, but that recovery from major shocks takes some time (8 to 12 months after recovery in the developed economies).

Impact of the crisis on Caribbean labour markets

The effects of the global economic crisis on the labour markets are prima-rily transmitted through changes in the commodity market, namely, the decline in aggregate demand. Although at the enterprise level there are sev-eral ways of responding to a demand or credit shock, at the macroeconomic level, the crisis has resulted in a decline in employment and/or a rise in the unemployment rate. After a period of declining unemployment rates in the region between 2003 and 2007, due to moderate economic growth, the rate began to rise in 2008 and continued to increase in 2009 (see Table 8.1). With the exception of Trinidad and Tobago, the unemployment rate has risen to over 10 per cent. Trinidad and Tobago’s relatively low rate of unem-ployment is partly due to the growth in the economy and also to the way unemployment is defined compared with other Caribbean countries (see Downes 1998). Trinidad and Tobago uses a three-month reference period for job search rather that one week used in some countries. The young cohorts of the labour force, especially females, have been greatly affected by the decline in economic activity. Youth unemployment tends to be two to three times higher than the national rate. For example, the survey for Trinidad and Tobago (April–June 2009) recorded an unemployment rate of 8.6 per cent for males between the ages of 20 and 29 years and 20 per cent for females between the ages of 15 and 19 years. In Jamaica, the unemploy-ment rate among the 20–24 years group was 22 per cent in 2008, while the national rate was 10.6 per cent. The overall unemployment rate also tends to be higher for females than for males in the total labour force (see ECLAC 2009a).

While the unemployment rate tends to be the focus of attention, it is also important to examine the degree to which employment or job creation takes


place. Available data suggest that employment growth over the period 2006 to 2008 slowed significantly. This suggests a low rate of job creation or hir-ing. Data for Trinidad and Tobago on new jobs created indicate that, while there was some job creation taking place in 2008, there was significant job destruction in 2009 (see Central Bank of Trinidad and Tobago 2009a: 11). Using data for economic growth and employment growth rates, estimates of the average employment elasticities were calculated for the period 2006–08. The results indicate relatively low values for Trinidad and Tobago, Barbados and Suriname (less than 0.50). This suggests a slow employment recovery as the economy begins to grow (that is, a jobless recovery). The high values for Belize (4.10) and St Lucia (2.34) partly reflect the high labour intensity of their agricultural production systems. The values for the Bahamas and Jamaica were 1.32 and 1.04, respectively.

The decline in private sector employment – tourism, construction, man-ufacturing and retail/distribution – was buttressed with the government holding up public sector employment. Indeed, the policy objective of sev-eral governments in the region, such as Barbados, Guyana, Trinidad and Tobago, and St Lucia, was to maintain employment levels subject to the limits of their fiscal capacity.

The decline in economic activity creates two effects in the labour mar-ket: an ‘added worker effect’, when persons within the household who were hitherto outside the labour force enter the labour market as the main breadwinner(s) is(are) laid off; and a ‘discouraged worker effect’, as persons withdraw from the labour market as the job search process becomes diffi-cult. While the added worker effect increases the labour force participation rate, the discouraged worker effect reduces it. Furthermore, new work force entrants (for example, school/university/college graduates) find it difficult to get jobs during a recessionary period.

The available data on the labour force participation does not deter-mine whether the added worker effect outweighed the discouraged worker

Table 8.1 Unemployment rate in selected Caribbean countries, 2003–09 (%)

Country 2003 2004 2005 2006 2007 2008 2009

Bahamas 10.8 10.2 10.2 7.6 7.9 8.7 14.2Barbados 11.0 9.6 9.1 8.7 7.4 8.1 10.2Belize 12.9 11.6 11.0 9.4 12.1 n.a. 13.1Jamaica 11.4 11.7 11.2 10.3 9.9 10.6 11.3b

St Lucia 22.3 18.2 18.6 15.8 14.0 n.a. n.a.Suriname 7.0 10.0 15.0 n.a. n.a. n.a. n.a.Trinidad and Tobago 10.5 8.6 6.7 6.2 5.5 4.6 5.7a

Notes: abased on the average of the 1st, 2nd and 3rd quarters. bbased on January, April and July.

Sources: Caribbean Centre for Money and Finance (CCMF no date) website: websites of the National Statistical Offices.


effect. The labour force participation rate has been relatively constant for the Caribbean countries. There is some slight evidence that the discour-aged worker effect may have outweighed the added worker effect over the 2007–09 period as the labour force participation rates declined in the Bahamas, Barbados, Jamaica, and Trinidad and Tobago.

Empirical research on the impact of remittances on the labour market in the Caribbean indicates that remittances to a household result in the decision not to participate in the labour market (that is, a reduced participa-tion rate) and in persons remaining unemployed for extended periods (see Downes 2008). The reduction in remittances to the region can therefore result in either an increased participation rate or persons actively seeking jobs. Jamaica, which is a major recipient of remittances, recorded an increase in the job seeking rate for males for the first three quarters of 2009 (6.0 per cent), compared with the same period in 2008 (4.8 per cent). It should also be noted that long unemployment spells can result in the depreciation of skills.

The inability to find jobs in the formal sector, due to a reduced demand for labour, can result in persons seeking employment in the informal sec-tor or becoming self-employed in microenterprises. Seeking such low-paid work may be the only option available, especially in a context where unem-ployment insurance is not available. Barbados is the only country in the region with a well-established unemployment insurance scheme. The data suggest an increase in the pressure on the scheme as a result of the crisis. The number of claims received increased by 6.4 per cent between 2006 and 2007, and 23 per cent between 2007 and 2008. In 2009, there was a continu-ous increase in the claims received (see Table 8.2). The Bahamian govern-ment recently established its unemployment benefits scheme in April 2009 and paid US$16 million to about 12,000 unemployed persons who qualified within the first three months of the scheme.

For others, however, who cannot resort to unemployment insurance, self-employment may be the only available option. Some workers convert hobbies (cake-making, cooking and so on) into income-generating activities. There is no recent data on the informal sector, but it is likely that the recession could have resulted in an increase in informal labour market activity. The

Table 8.2 Number of unemployment claims received in Barbados, 2005–09

Year I II III IV Total

2005 2,733 3,286 3,574 2,366 11,9592006 2,889 3,002 3,253 2,360 11,5042007 3,235 3,122 3,191 2,693 12,2412008 2,642 3,196 3,184 3,389 12,4112009 4,094 4,621 4,442 3,712 16,869

Source: Central Bank of Barbados (2010).


importance of hustling and the informal sector activity in some Caribbean countries was recognized when the Jamaican and Grenadian governments removed the duty on imported barrels of household items sent by family members in usually more developed countries.

At the household level, members have had to draw on past savings, con-vert hobbies into income-earning microenterprises, engage in training and retraining programmes, access credit from formal and especially informal institutions, engage in strict budgeting and greatly reduce discretionary spending. The Caribbean social structure provides for a sharing system within households, families and communities. The bonding elements of social capital are usually strengthened in times of crisis.

The fall in employment or reduced working hours reduces household income, thus pushing some households below the poverty line. Data on poverty in the Caribbean indicate that a significant percentage of the popu-lation lives below the specified poverty lines, between 14 and 39 per cent over the 1996 to 2008 period (see Bourne 2008). A recession of the cur-rent magnitude can certainly increase the level of poverty in the region and therefore impact on the achievement of the MDGs. Handa (2004) has shown that during recessions in Jamaica there is a significant increase in transient poverty as middle income households fall below the poverty line when a major breadwinner loses his/her job.

While the increase in food and energy prices over the 2007–08 period would have resulted in a reduction in real income (wages and salaries), the recession has brought a positive effect on real wages/salaries. To cope with the reduced real wages, some countries – Antigua and Barbuda, Dominica, St. Kitts and Nevis, and Jamaica – increased their national minimum wages. A freeze on public sector wages was under discussion in some countries as governments sought to bring their fiscal account under control. In the case of Jamaica, public sector employees have been laid off and a wage freeze introduced in order to reduce the fiscal deficit. The government has also contemplated a reduction in public sector salaries.

The recession has made wage and salary negotiations very difficult as negotiators are faced with the option of wage/salary increases or lay-offs. Available data for Barbados, and Trinidad and Tobago indicate that wage set-tlements have been relatively low and generally in line with inflation rates (Central Bank of Trinidad and Tobago 2009b; Barbados Workers Union, personal correspondence). The focus has been on alternatives to lay-offs: shorter working hours, work-sharing, pay freeze and performance-based pay (gain-sharing). The labour unions have engaged in social dialogue with the government and the private sector in order to find creative ways of resolving the crisis. National consultations also took place in several Caribbean countries during 2009: Antigua and Barbuda, St Kitts and Nevis, St Lucia and Grenada. The OECS countries have also adopted an eight-point stabilization and growth programme in response to the adverse impact of


the global economic crisis, and also to advance the process towards eco-nomic union.

The widespread effect of the crisis in the Caribbean has adversely affected the mobility of labour within the CARICOM integration system. The slow-down in economic activity in the construction and tourism sectors has forced Caribbean migrants to return to their homelands. The economic recovery would therefore be critical to the deepening of economic integra-tion in the region.

In sum, the global economic crisis has had an adverse effect on the Caribbean. The available data indicate an increase in the unemployment rate and a slowdown in the rate of job creation. Although full information is unavailable, previous research indicates that such a shock results in an increase in poverty, informal labour market activity and unemployment insurance claims. The reduction in remittances tends to affect labour force participation and increase job search. While the food and energy price increases reduced real income (wages/salaries), the dampening of the infla-tion process has halted the decline in real incomes.

The response to the crisis: a labour market perspective

Caribbean governments have developed and implemented various policies and programmes to respond to the global economic crisis. These include monetary and financial policies, fiscal policies, exchange rate and foreign trade policies, sectoral policies and programmes, and labour market policies and social policies and programmes (see ECLAC 2009b).

The challenge facing policy makers with respect to the labour market is tackling the potential trade offs ‘between minimizing short-term job losses as well as declines in earnings and catalyzing long-term growth; and between protecting those most vulnerable and those most impacted’ (Paci et al. 2009: 2). Given the uncertainty associated with the depth and dura-tion of the recession and the response of the labour market to economic recovery, policy makers face an intertemporal trade-off problem: short-term versus long-term. The governments have been pushed to provide short-term assistance to workers in order that they can cope adequately with the adverse effects of the crisis. But as indicated earlier, Caribbean governments have little room for fiscal manoeuvring.

Governments in the region have sought to maintain employment levels as close to the pre-crisis levels as possible within the limits of the available fiscal space. They have engaged in countercyclical policies in the Keynesian tradition through fiscal expenditure on housing, road works and other social infrastructure, cuts in a range of taxes and lowering interest rates and extending credit to businesses. Some of the OECS countries, for exam-ple, Antigua and Barbuda, have adopted a National Economic and Social Transformation (NEST) plan which calls for fiscal consolidation, economic stimulus action, social protection and transformation, and financial sector


stability. The NEST is viewed as a subset of the broader OECS Stabilization and Growth Programme. In addition, the governments have moved to boost production in such key sectors as tourism, agriculture, manufacturing, and small and medium enterprises (see ECLAC 2009b).

In terms of social and labour policy measures, Paci et al. (2009) have clas-sified the policy measures as policies to support employment (access to credit, temporary pay roll tax holidays and wages subsidies, temporary reduction in hours worked), policies to facilitate transitions (such as training programmes, job search assistance and self-employment assistance) and policies to protect job losers (unemployment benefits, public works, cash transfers).

Caribbean governments have drawn on this range of policy options to help citizens cope with the global economic crisis (see Table 8.3). Both active and passive labour market policies have been used. Active labour market policies (ALMPs) have included the establishment or extension of skills training and retraining programmes using funds from social insurance schemes (for example, Barbados, Bahamas and Jamaica), partly subsidized employment (for example, Trinidad and Tobago, Barbados) and activation which ‘provides incentives for the unemployed to increase job search either directly through benefit sanctions or through mandatory participation in training or subsidized employment’ (Boeri and Van Ours 2008: 255). Elements of activation have been used in Barbados, Bahamas and Jamaica through unemployment insurance and the Programme of Advancement through Health and Education (PATH) schemes. Workforce programmes have also been established on a small-scale basis as a component of social and environmental programmes.

Passive labour market policies (PLMPs), which correspond to Paci et al.’s category of policies to protect job losers, provide income replacement such as the unemployment benefits in the Bahamas and Barbados, increasing the minimum wage as in Antigua and Barbuda, Dominica, St. Kitts and Nevis, and pensions in Barbados, Antigua and Barbuda, and St. Vincent and the Grenadines. Conditional cash transfers have been used in Jamaica, St. Kitts and Trinidad and Tobago and are planned for Belize, Barbados and the OECS. Regional governments have also strengthened the social programmes to cushion the poor from the harsh economic conditions – health, hous-ing, education and transportation. In addition, they have provided credit for micro and small enterprises to continue to operate and strengthened welfare-to-work programmes.

The adopted labour and social policies and programmes have placed addi-tional pressure on the fiscal accounts of Caribbean governments, which have had little space for fiscal engineering. But the governments have been determined to maintain employment levels and keep up their social pro-grammes in the short term with the expectation that the recession would be short lived. If there is deterioration in the economic conditions, the govern-ments would be unable to maintain their original policy stance.

Tabl

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3 L

abou

r an

d s

oci

al p

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y re

spon

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in t

he

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ou

t of

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all

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nem

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per

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s ca

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its

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age

for

a p

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d o

f 13

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Use

of

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an

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wag

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that

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s).

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pro

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t th

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EC

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atio

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In some countries, the government has collaborated with the private sec-tor and labour unions to work on a programme of stabilization, recovery and growth. Barbados has had a long tradition of such social dialogue in the form of a Social Partnership (see Downes and Nurse 2004; Fashoyin 2003). The Barbadian authorities have also established a tripartite Council of Economic Advisors to work with the Social Partners on a programme to deal with the global crisis and its aftermath. Other countries in the region have followed Barbados through the hosting of national consultations.

Social dialogue has proved to be an effective mechanism for dealing with economic crises (see Rychly 2009 and Cazes et al. 2009), and permits the sharing of information and the development of workable solutions to eco-nomic problems. However, it requires a high degree of maturity on the part of the participants and a non-adversarial industrial relations climate. In the case of Barbados, these conditions have been in place and have allowed the preparation of five Protocols (1993–95, 1995–97, 1998–2000, 2001–04 and 2005–07), dealing with labour market issues (prices and incomes policy, employment) and other social and economic concerns (taxation, productiv-ity, crime, environment and so on).

The labour unions have been accommodating when negotiating collec-tive bargaining agreements. They have placed job security high on the negotiating agenda, and have agreed to lower wage increases, pay freezes, work-sharing and productivity-based pay as alternatives to lay-offs. With a dampening of the inflation rate in 2009 and bleak employment prospects, these measures have taken root in Caribbean labour markets. The need to keep persons in jobs is also vital to the labour unions’ survival, since they depend on members’ dues for their own viability.

Conclusion

The current global economic crisis has been having a significantly adverse effect on the developing world. The small states in the Caribbean have been experiencing declines in exports, output and employment. Pressure has been placed on both the fiscal and balance of payments accounts as defi-cits increase. In the labour market, unemployment rates have increased as employment growth slows down and lay-offs occur. Since the labour market is the main source of income for most Caribbean households, unemploy-ment sends households/individuals below the poverty line. In addition, informal sector activity (hustling) increases as people try to eke out a living in a depressed economy.

The governments in the region have tried to cushion the adverse effects of the decline on the labour market by a set of macroeconomic and labour/social policy measures. The macroeconomic policy measures have been countercyclical in an effort to keep up aggregate demand, while labour and social policies have been designed to alleviate the pressure on members of households. Built-in stabilizing measures, such as unemployment insurance,


improved social assistance programmes, increases in minimum wages, the provision of training and microcredit programmes and tax concessions, have been used to cushion the shock on the labour market.

Since there is a lagged effect of the recovery in the commodity market on the labour market, the labour and social policy measures are likely to be in place for some time. Furthermore, there is some degree of uncertainty regarding the duration of the crisis and the timing of the recovery.

The small developing countries of the region have very little fiscal space in which they can manoeuvre, so that labour and social policies have to take into consideration both short- and long-term aspects of the economic cycle. It is important that the countries build a sustainable and coherent framework for labour and social policies. Such a framework should include enhanced social partnership and dialogue on an ongoing basis, using the Barbados case as a model. Such an institutional arrangement would allow greater information sharing and discussion on dealing with economic shocks and their effects on the labour market. It would also allow some degree of sharing of the burden of adjustment when there is limited fiscal space. The development of labour market monitoring and information systems to track changes in the labour market is also critical. Labour market infor-mation in the region is weak, so that the effects of economic shocks cannot be adequately assessed and appropriate policies/programmes designed to ease the labour market situation. The implementation of ongoing active labour market policies, especially in the area of training and retraining needs to be maintained so that workers become multi-skilled and flexible. The current crisis has reinforced the need for built-in stabilizing schemes (for example, unemployment insurance), which would provide short-term income support for laid-off workers and the associated advice on job coun-selling and job search. Additional elements that may be considered are the establishment of conditional cash transfer schemes, the use of creative con-cession and productivity bargaining which would promote gain-sharing schemes, job/work-sharing, work place flexibility and the modernization of labour legislation both to protect workers and to instil greater flexibility in the labour market.

These labour and social policies and programmes would assist Caribbean states in being better able to manage future economic crises and their effects on the labour market.

Notes

1. A longer version of this chapter is available from the author.2. See the website of the Caribbean Tourism Organization.3. See Inter-American Development Bank website for the Multilateral Investment

Fund (www.iadb.org).4. Guyanese dollar (GYD/G$).5. Jamaican dollar (JMD/J$).6. Trinidad and Tobago dollar (TTD/TT$).


References

Boeri, T. and J. Van Ours (2008) The Economics of Imperfect Labour Markets (Princeton, NJ: Princeton University Press).

Bourne, C. (2008) Economic Growth, Poverty and Income Inequality (Barbados: Caribbean Development Bank).

Briguglio, L., G. Cordina and E. J. Kisanga (eds) (2006) Building the Economic Resilience of Small States (London: Commonwealth Secretariat and Islands and Small States Institute, University of Malta).

Caribbean Centre for Money and Finance (no date): websites of the National Statistical Offices. www.ccmf-uwi.org/?q=node/219, accessed in January 2011.

Cazes, S., S. Verick and C. Heuer (2009) Labour Market Policies in Times of Crisis. Employment Working Paper No. 35 (Geneva: ILO).

Central Bank of Barbados (2010) Economic and Financial Statistics, June 2010. www.centralbank.org.bb/WEBCBB.nsf/vwPublications/B7CFA4F6970B495D0425775A0044D47E/$FILE/EFS_JUN_2010-RV.pdf, accessed on 25 January 2011.

Central Bank of Trinidad and Tobago (2009a) Summary Economic Indicators, June 2009. www.central-bank.org.tt/publications/issues/seib1248362747.pdf, accessed in January 2011.

—— (2009b) Annual Economic Survey 2009: Review of the National Economy. www.cen-tral-bank.org.tt/publications/issues/aes1265400481.pdf, accessed on 25 January 2011.

Downes, A. S. (2008) Labour Markets in Small Developing States (London: Commonwealth Secretariat).

—— (1998) An Economic Analysis of Unemployment in Trinidad and Tobago. Working Paper No. 381 (Washington, DC: IDB). http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=788200, accessed in January 2011.

Downes, A. S. and L. Nurse (2004) ‘Macroeconomic management and building social consensus: an evaluation of the Barbados Protocols’, Journal of Eastern Caribbean Studies, Vol. 29, No. 4 1–41.

ECLAC (United Nations Economic Commission for Latin America and the Caribbean) (2009a) The Impact of the Financial Crisis on Women in the Caribbean (Port of Spain, Trinidad and Tobago: United Nations, December).

—— (2009b) The Reactions of the Governments of the Americas to the International Crisis: An Overview of Policy Measures up to 31 July 2009 (Santiago: United Nations).

Fashoyin, T. (2003) Social Dialogue for Sustainable Development: The Case of Barbados and Implications for the Caribbean (Geneva: ILO, April).

Handa, S. (2004) ‘Poverty paradox: social-sector strategy’. In Inter-American Development Bank (ed.), Revitalizing the Jamaican Economy: Policies for Sustained Growth (Washington, DC: IDB).

IMF (International Monetary Fund) (2010) World Economic Outlook: Rebalancing Growth (Washington, DC: IMF, April). www.imf.org/external/pubs/ft/weo/2010/01/index.htm, accessed in January 2011.

Paci, P., A. Revenga and B. Rijkers (2009) Coping with Crises: Why and How to Protect Employment and Earnings. Policy Research Working Paper No. S 5094 (Washington, DC: World Bank).

Rychly, L. (2009) Social Dialogue in Times of Crisis: Finding Better Solutions (Geneva: ILO, May).

177

9From Agrarian Crisis to Global Economic Crisis: Neoliberalism and the Indian PeasantryArindam Banerjee

Introduction

The rural economies in most developing countries were already gripped with stagnation prior to the unfolding of the current crisis as a result of the structural adjustment measures that had been adopted in different guises and for varying lengths of time. Cutbacks in public expenditure on agricul-ture, which were a common feature of the neoliberal agenda, have mostly had negative implications for the rural economies of the South, and par-ticularly so for smallholder peasant agriculture. The impacts of the current crisis are therefore being felt in contexts where production conditions (for smallholder agriculture) were already adverse, and where the rural popula-tion was already vulnerable and food-insecure.

This chapter attempts to re-examine the agrarian crisis in India that emerged in the period of economic reforms after 1991, with a view to understanding the structural conditions, inequalities and vulnerabilities under which the 2008 crisis has unfolded. The chapter is organized into three sections. The section on smallholder agriculture under neoliberal-ism provides a brief background on how smallholder agriculture in the developing world has faired under neoliberal policy prescriptions. The following section on the Indian agrarian crisis provides a more in-depth examination of the agrarian crisis in India, considering both the produc-tion constraints that have emerged since the 1990s as well as the extreme vulnerability of significant segments of the Indian peasantry to both debt and food insecurity. Finally, the chapter assesses the potential impacts of the global economic crisis on Indian agriculture and draws out some ele-ments of alternative strategies, outside the domain of the neoliberal ration-ale, needed to redress the concerns about production, redistribution and food security highlighted in the chapter.


Smallholder agriculture under neoliberalism

Smallholder agriculture, which dominates large tracts of land in developing countries, is slowly regaining its importance after decades of neglect under neoliberal policies. With the Bretton Woods Institutions recommending large-scale corporate agriculture as the way forward, small-scale peasant agriculture was considered more of a hindrance to the capitalist develop-ment and progress of developing countries. However, the recent food crisis, which raises questions about corporate agriculture, food production and northern bio-fuels policies, perforce has shifted the attention of policy mak-ers, at least in some quarters, towards the need to boost small-scale agricul-ture (FAO 2008).

The experiences of smallholder agriculture in several developing coun-tries under trade-liberalization regimes are strikingly similar. In Mexico, for example, structural adjustment policies (SAPs) introduced in the 1970s had highly adverse outcomes for agricultural productivity and food pro-duction, thereby reversing the gains made during the preceding 30 years under reformist policies. Further, the policies of trade liberalization and, in particular, the North American Free Trade Agreement (NAFTA) in the 1990s transformed the country, which was once an abundant producer of food, into a net food importer, completely dependent on corn imports from the United States (US). The country that had domesticated corn witnessed demonstrations of tens of thousands of people in 2007, when US corn prices surged by 60 per cent (Bello and Baviera 2009).

In the aftermath of structural adjustment policies which sought to reform African agriculture, scholars have clearly outlined the process of depeasan-tization or deagrarianization that has set into the countryside, destroying millions of livelihoods in the rural sectors of the different African coun-tries (Bryceson 2004, 2009). The dismantling of public crop-procuring par-astatals and various subsidies to support smallholder cultivation has led to a severe decline in productivity and food output in the region (Bello and Baviera 2009), which is also home now to the largest proportion of hungry people in the world.

There has been an increasing dependence of these countries on the world markets for food security, which increasingly remained elusive as food prices started moving adversely relative to the export crops that these countries had started producing. The stark decline in energy intakes by the African population and gross increase in undernourishment has fol-lowed (Patnaik 2007; FAO 2008). Earlier in this decade, the severe Malawian famine was ended when the government reintroduced the fertilizer sub-sidies that had previously been abolished, acting against the wishes of its international lenders. The fact that Malawi not only ended its famine but also became a food surplus nation thereafter illustrates the effectiveness of

From Agrarian Crisis to Global Economic Crisis 179

public expenditure support that African agriculture has been starved of for decades now (Banerjee 2007).

The neoliberal economic regime has therefore relegated the agricultural sector to one of secondary importance, thereby imposing mass deflation on the millions who live and depend on agriculture for their livelihoods. In India, which is the focus of the following section, a persistent stagnation was witnessed in the agricultural sector, which very soon turned into an agrar-ian crisis, even as the rest of the economy grew at fairly high rates (Patnaik 2002). The process of capital accumulation and further investments in the agricultural sector was also severely hampered and nearly arrested by the deflating levels of farm income which perpetuate the stagnation in the sec-tor (Banerjee 2009). Apart from the fact that farmers are not able to generate enough income for reinvestment, there has also been large-scale debt-driven farmer suicides (Nagaraj 2008), predominantly in areas of export agricul-ture over the last decade, indicating that even the simple reproduction of the farm economy has become implausible under the current regime.

The contours of the Indian agrarian crisis: a historical view

It is important to review the agrarian situation in India in a historical time-frame in order to trace the different processes that have operated under the neoliberal regime to cause stagnation in the agricultural sector. There are three important developments that are crucial facets of the agrarian crisis. First, there has been a gradual decline in the real prices of crops implying that the producers have been worse-off in terms of the returns that they accrue from cultivation. The second aspect of the crisis has been the grow-ing dependence of farmers on non-institutional sources of credit, available at exorbitant interest rates. Finally, due to falling incomes, there has been a shift in the workforce to non-farm occupations – this has not always been to work that is better remunerated, thereby showing characteristics of ‘distress employment’.

Falling real output prices

The real returns in agriculture started declining, particularly for commer-cially cultivated crops, under the period of economic reforms. Since the liberalization of trade in agricultural commodities in the mid-1990s, the movements in food grains prices have mostly been unfavourable relative to the prices of non-food grains and other commercial crops. Since the mid-1990s (and until around 2000) the nominal world prices of primary prod-ucts have declined as a result of excess supply on world markets (Patnaik 2002). The falling prices adversely affected farmers in India, especially those who had shifted to the cultivation of commercial crops, entailing large investments. The strategy of producing and exporting commercial crops


and importing food at cheaper prices did not succeed due to the price trends in the world market during this period. Food prices also declined towards the end of the 1990s, but at a far lower rate than primary product prices.

With world prices affecting domestic prices under a trade-liberalized regime, the returns to agricultural production started falling even within the domestic economies, further compounding the problem for the large rural populace in these countries. Since the turn of the century, the nomi-nal prices of primary products started to rise. Also, food prices rose on the world market at a similar rate, if not faster. For the small-scale primary pro-ducers in the developing world who are mostly net food buyers, this meant that the real product prices they faced declined over the past decade also.

The rising food prices in the new century, especially the phenomenal upsurge in global food and fuel prices witnessed after 2006 during the global food crisis adds a newer dimension to the issue. High oil prices and the new linkages between food and oil prices due to grain-based ethanol production (Mitchell, 2008; Banerjee, 2011) and the entry of speculative finance into the commodity futures markets (Ghosh, 2010) have multiplied the volatility of agricultural commodity prices. The credit crisis in the US and the reforms in legislation governing US commodity futures markets have enhanced greater participation of financial players in commodity exchange markets. Recent trends show increasing volumes of trade in emerging economy commod-ity exchanges like the Dalian exchange in China or the Multi-Commodity Exchange in India, though global finance is yet to enter these markets sig-nificantly (Berg 2010).

The use of grains for ethanol, which has an enormous demand given the large use of fuels in automobiles, presents an opportunity for endless upward price speculation, more so in the short run, till there is a large drop in oil prices that makes ethanol production from corn uneconomic. The bio-fuel linkage also creates a situation where price speculation in oil markets gets seamlessly transmitted to food prices. It needs to be examined whether this upsurge in food and non-food commodity prices have finally placed agri-cultural producers in developing countries at an advantageous position or is it that the situation for the large number of net food buyers, say in India, continue to remain unfavourable in terms of their real earnings.

To comprehend this, we look at the trends in the real producer prices for the major crops in the post-reform period. The movements in the real pro-ducer prices in India are unambiguously portrayed by Figure 9.1, where we have plotted the real Wholesale Price Indices (at 1991–92 prices) for different crops and product-groups for the period between 1991–92 and 2009–10.

With certain assumptions, the real producer prices capture the changes in the purchasing power of cultivators. The trends in the wholesale price indices deflated by the Consumer Price Index for Agricultural Labourers (CPI-AL) represent the changes in the capacity of the producers to pur-chase a particular commodity basket over time, assuming that the costs of


cultivation as a proportion of output and the output share appropriated by middlemen and commission agents have remained more or less unchanged. The first assumption is a particularly problematic one, given that with deregulation of input markets the prices of seeds and chemical inputs have increased significantly.

The real producer prices for rice remained stable throughout the early 1990s, but experienced a surge in the latter half of the decade. However,

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Figure 9.1 Trends in real Wholesale Price Indices for different crops and crop-groups (at 1991–92 prices)

Note: The period of analysis for pulses is 1993–94 to 2009–10 as the price indices for pulses as a group are not available for the years 1991–92 and 1992–93.

Source: Based on Wholesale Price Index data published in various reports of the Government of India, Commission for Agricultural Costs and Prices.


this gain quickly tapered off and the real prices reached the early 1990s level due to stagnated nominal prices and higher inflation in the new century. Similarly, real wheat prices also increased until 1999–2000 and faced stag-nation, and then a downturn thereafter. Similar trends are visible for pulses where the real prices have fast declined post 2001–02 to the early 1990s level after a brief upsurge at the turn of the century. The real prices for maize have been more volatile, but remained consistently below the 1991–92 level throughout the period. In fact, the period after 2005–06 when the global rise in nominal prices for food crops was quite significant, there was no gain in real terms for rice, wheat and maize from the producer’s point of view (see Figure 9.1).

The trends for the real prices for non-food products are significantly dif-ferent from what we observed for food crops. The real producer prices for oilseeds have secularly declined during the 1990s to low levels. The subse-quent rise for oilseeds after 2000–01 was more due to inadequate supply and poor quality production, owing mainly to the drought conditions in the early years of the new century; this implies that no real benefits were accrued by producers due to this increase, which also got partially reversed in the last three years of the period of analysis. Raw cotton, which has been at the centre of the agrarian crisis in India, exhibits an unambiguous declin-ing trend in real prices ever since the markets were liberalized in the mid-1990s. From a high in 1994–95, the real prices have fast dwindled and even slipped under the low value that existed in 1992–93. The large rise in global raw cotton prices in 2007 and 2008 has led to some gain in the real pro-ducer’s price, but this hardly compensates for the long-term decline in real earnings of cotton growers since 1994–95.

These price trends explicitly reveal a more systemic income deflationary process under trade liberalization for commercially cultivated crops like cotton and oilseeds rather than mere intermittent shocks. For food crops also, there is a clear erosion of real value of prices from around 2000. The other important aspect to note is the rise in the cost of chemical fertilizers and pesticides with the deregulation of markets in the early 1990s. This has pushed the overall costs of cultivation upward in this period. For example, the prices of Urea, the most commonly applied fertilizer in Indian agricul-ture, increased by 75 per cent between 1991 and 2003 (Fertilizer Association of India 2009). When we take this increase in cultivation costs into account, then the decline in the purchasing power of the producers is even greater than what we observe in Figure 9.1.

Worsening rural credit availability

The second critical development that has intensified the agrarian crisis in India has been the retreat of institutional banking from the rural econ-omy. The banking statistics for scheduled commercial banks (SCBs) reveal a gradually shrinking trend of the institutional banking sector in rural


areas (Table 9.1). The percentage of rural branches in total branches started declining post-1991; the decline in the 1990s and afterwards not only off-set the increase during the 1980s but also went further below the level of 1981. Nearly 5,000 rural bank branches were closed between 1991 and 2007. During these 17 years, the share of rural areas in total bank branches came down from 58.1 to 41.5, a reduction of more than 16 percentage points.

On the other hand, the percentage of rural credit to total credit advanced also exhibits a similar trend. This figure increased from 11.9 per cent to 14.7 per cent between 1981 and 1991, but fell sharply to 8.0 per cent by 2007. In contrast, the share of rural deposits did not show any significant reduction at least until 2000. However, after 2000, the percentage of rural deposits also started falling rapidly for SCBs; by 2007, this share was only 9.7 per cent, compared to 14.7 per cent in 2000. This can be attributed as a joint outcome of a decade of continuous income-deflationary policies, aggressive financial reforms and the precipitation of an agrarian crisis.

It is clear from these figures that the banking sector has been steadily curbing its operations in the rural credit market in the face of a crunch in the rural economy. The foundations of the financial reforms were laid down in 1991 by the recommendations of the Committee on the Financial System (CFS) under the chairmanship of M. Narasimhan. The priority sector lending norms that effectively served agriculture, small industry and self-employment after the nationalization of banks in 1969 were phased out by the Narasimhan Committee.

The immediate result was a decline in the priority sector lending by banks, which consistently fell short of the 40 per cent target until 1996. The share of the priority sector lending started increasing after 1996 but that was mainly due to the redefinition of the norms and the inclusion of new categories under the priority sector.1 As a result, lending to agriculture by the banks kept on declining even after 1996. This served to increase the vulnerability of cultivator households to private moneylenders in several parts of the country.2

Table 9.1 Trends in number of branches, credits and deposits of SCBs in rural India

Year

No. of bank branches Credit advanced Deposits

Rural (Number) % to total

Rural (in Rs. Crores) % to total

Rural (in Rs. Crores) % to total

1981 19,453 51.2 3,600 11.9 5,939 13.41991 35,216 58.1 19,688 14.7 33,163 15.12000 32,673 48.7 48,753 10.6 120,539 14.72007 30,393 41.5 154,898 8.0 253,014 9.7

Note: Indian rupees (INR/Rs.). 1 crore = 10 million rupees.

Sources: Ramachandran and Swaminathan (2002) for the figures pertaining to 1981, 1991 and 2000; and RBI 2001–07.


Credit availability to rural households is better illustrated if we look at the issue from the perspective of the rural households themselves. The National Sample Survey Organisation (NSSO)-conducted All-India Debt and Investment Surveys (AIDIS) of 1991–92 (48th Round) and 2002–03 (59th Round) reveal a decrease in the share of institutional credit sources in the total outstanding cash dues of rural households from 64 per cent in 1991–92 to 57.1 per cent in 2002–03 (Government of India, NSSO Report Nos 420 and 501). During the same period, all major states, except Maharashtra and Orissa, experienced significant declines in this variable. While access to formal credit for rural households was already low for states like Andhra Pradesh and Rajasthan in 1991–92, others like Bihar, Punjab and Haryana witnessed large declines in this share during this period. Most of the other states, including Kerala and West Bengal, experienced a moderate fall in this share, and these were the two states where access to institutional credit for rural households had been the highest in 1991–92. By 2002–03 there was an increase in the number of states where informal credit sources were domi-nating the rural credit markets, that is, supplying more than half of the credit requirements of rural households. In this respect, Haryana, Bihar and Tamil Nadu joined the ranks of Andhra Pradesh and Rajasthan by 2002–03; the latter were already in that situation in 1991–92.

The shrinkage in institutional credit for rural households implies a greater stranglehold of private moneylenders and traders, charging usurious inter-est rates. As a result, the interest rate structure of the credit market shifts towards higher rates, causing a greater diversion of capital from the produc-tion system in the primary sector to meet the demands of creditors.

The changes in the interest rate structure in rural areas for the country between 1991–92 and 2002–03 can be observed from Figure 9.2. For all-India, the distribution of cash loans shifted in favour of the higher interest rates between the 48th and the 59th Rounds. The percentage of credit taken by rural households that had an interest rate between 10 and 15 per cent was lower at 33.1 per cent in 2002–03, compared to 39.8 per cent in 1991–92. While this bracket still remained the dominant range of interest rate on credit, its share has undergone a decline over this period. The share of cash loans with an interest rate of less than 10 per cent has also declined by a small percentage in this period. As opposed to this, the share of the higher interest rate brackets has increased. The percentage of cash loans with an interest rate between 15 and 20 per cent shows a significant rise of 5 per cent over this period. However, what is most disconcerting is that the high-est range of interest rates (more than 30 per cent) witnessed the largest rise from 10.2 per cent in 1991–92 to 17.4 per cent in 2002–03.

While looking at the cash loans distribution by interest rate for all the states would be too cumbersome for the scope of this chapter, we have tried to look at a few states with two distinctly different situations. We noted earlier that Andhra Pradesh and Bihar were two states where the share of


formal credit in rural areas was less than that of informal credit. In such states with low quantities of formal credit, we can observe that the shift of the distribution towards higher interest rates was quite large. For Andhra Pradesh, there is a large increase for the ‘30 and above’ interest rate bracket from 17.6 per cent in 1991–92 to 30 per cent in 2002–03; in Bihar, the increase was even higher (from 14.7 per cent to 41.7 per cent). In Bihar, corresponding to this large rise for the uppermost interest rate bracket, the share of cash dues in the lower range of 10 to 15 per cent interest rate has drastically fallen from 58.6 per cent to 28.2 per cent over the same period (AIDIS, 48th and 59th Rounds, Government of India, NSSO Report Nos 420 and 501).

In contrast, for states like West Bengal or Punjab, where access to formal credit for rural households was still quite high in 2002–03, the situation is slightly different. The dominant interest rate bracket for rural households was still the ‘10 to15 per cent’ bracket in 2002–03. However, even in these states, one cannot ignore the fact that the share of the higher interest rate range like the ‘20 to 30 per cent’ or ‘above 30 per cent’ brackets has increased in the period of economic reforms. There was an increase by more than 15 per cent for the ‘20 to 30 per cent’ bracket for Punjab between 1991–92 and 2002–03 while, for West Bengal, the ‘greater than 30 per cent’ bracket increased its share by nearly 5 per cent (AIDIS, 48th and 59th Rounds, Government of India, NSSO Report Nos 420 and 501). This implies that although levels of informal credit are still low in such states, the general

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Figure 9.2 Percentage distribution of cash loans by interest rates for rural house-holds: all India, 1991–92 and 2002–03

Sources: Based on data from AIDIS, 48th and 59th Rounds (Government of India 1992, 2002–03).


increase in the role of informal credit sources, accompanied by usuriously high interest rates in rural India, are also visible in these states.

The two constraints analysed here – that of declining real prices and reduced credit availability – have seriously depressed farm incomes in rural India, thereby also affecting the farming population’s standard of living. Some of the results in a primary survey conducted in 2006 reconfirm this trend. The household sample survey covered five villages, two in West Bengal and three in Andhra Pradesh. In Table 9.2, we have presented the farm labour incomes (FLIs)3 of different peasant classes in the two states and also the share of FLI that is drained by outstanding interest payments (OIPs).4 The FLI represents the income of the farm households from culti-vation, prior to making payments on account of ground rent and interest payment. For each peasant class, we have an average household FLI. In order to assess the impact of credit monopoly on the production process under the real situation, we look at the share of the FLI that is required to clear all OIP for the average household in each class. The OIP is the accumulated interest from all unpaid loans, including those taken in previous production cycle(s).

We can observe that for most classes either the FLI is abysmally low or the OIP depletes a considerably large share of the farm income. While the share of FLI required to clear all OIP is around 35 per cent in West Bengal, the same figure is nearly 74 per cent in the cotton-growing region of Andhra Pradesh. In West Bengal, for both the lower peasantry classes, the OIP exceeds the FLI. This indicates that for these classes, it is not at all viable to depend on small-scale agriculture for their livelihoods and they are mostly semi-proletarian land-owning households. The labour-exploiting upper peasantry classes, which constitute a majority of households in Raina, West Bengal, are comparatively in a much more comfortable situation as far as their pending interest obligations are concerned. The lesser extent of export crop cultivation in the West Bengal region was one reason why they have been relatively better shielded from the volatility of world prices. Also, the better functioning of a cooperative credit society in this region and other institutional interventions by the Left government that ruled in this state prevented the emergence of heavy farm indebtedness that characterized the Andhra Pradesh region.

The field enquiry was conducted as part of the author’s doctoral research in Jawaharlal Nehru University, New Delhi, between February and August 2006, collecting household-level disaggregated crop-wise and farm opera-tion-wise data on labour-use and input costs, output volumes and prices, outstanding loan details, owned and operational landholdings and asset ownership. Data were also collected on paid employment, both farm and non-farm, regular and casual wages and income generated from self- employed activities. This enabled us to estimate the farm incomes as well as


total household incomes, taking into account the various non-farm income sources.

The situation of indebtedness and depleting farm incomes is more strin-gent in the Andhra Pradesh region. Small and middle peasants are unable to cover their OIP through the FLI generated from agricultural activities. The share of the FLI that is depleted in the process of clearing the OIP is high not only for the poor peasant class but also disturbingly high for the rich peasant class (71.5 per cent). Unlike the situation in the West Bengal region, a tight constraint on production emerging out of credit relations is not restricted to the lower peasantry alone, but also seriously afflicts the middle and rich peasant classes in this region. In fact, the rich peasant class which generates a sizeable FLI from cultivation is left with a disposable income post interest payments that barely allows them to meet minimum consumption norms, let alone the funds to invest in their farm. The sole landlord household seems to be the only household that is at ease in the credit market.

There are two distinct impacts that can be traced from the point of view of the larger agrarian question. For the majority of peasant classes under-taking cultivation, including some from the upper peasantry, it is difficult to carry out even a simple reproduction of the peasant economy. A simul-taneous default in interest payments and depression of own-consumption to sub-standard nutritional levels are the strategies of survival (or death) for these classes. On the other hand, the few classes that retain some nota-ble surplus through the use of modern and capitalist modes of agricul-tural production are the rich peasants in both regions. However, given the income volume that they generate from agriculture and allied activities, it is difficult even for these upper peasantry households to undertake large investments to upgrade their cultivation techniques without cutting down

Table 9.2 Income and interest payments situation across peasant classes: various regions

Class

Raina, West Bengal Saidapur, Andhra Pradesh

FLI(in Rs.)

OIP(in Rs.)

OIP as % of FLI

FLI(in Rs.)

OIP(in Rs.)

OIP as % of FLI

RL 400 400 100.0 –65 7,336 OIP>FLIPP 1,253 1,264 OIP>FLI 8,330 5,449 65.4SP –4,146 8,669 OIP>FLI 2,776 4,354 OIP>FLIMP 12,990 3,014 23.2 10,411 12,764 OIP>FLIRP 28,964 8,980 31.0 106,968 76,431 71.5LLD 0 0 0.0 246,497 38,000 15.4Total 14,186 4,996 35.2 22,574 16,683 73.9

Notes: FLI = farm labour income; OIP = outstanding interest payment; RL = rural labour; PP = poor peasant; SP = small peasant; MP = middle peasant; RP = rich peasant; LLD = landlords.

Source: Banerjee 2008.


their consumption requirements. A comparison of their monthly per capita incomes with the monthly per capita expenditure corresponding to the minimum nutritional norm (required at the poverty line) reveals that even these classes were barely just crossing into the non-poor domain (Banerjee 2009).

Shrinking farm employment and the shift in the workforce

With the decline in farm incomes, there has been considerable loss of employment in agriculture. A visible trend during the reform period has been the shift out of agriculture to non-farm activities in rural areas, espe-cially by men. There has also been a considerable migration of workers into the informal urban economy. Looking at the broad changes in employment patterns that have occurred under economic liberalization helps us to com-prehend this issue in a better manner.

The employment distribution across sectors shows a moderate but signifi-cant shift in the 1990s. The data from NSSO Employment-Unemployment Surveys (Government of India, NSSO Report Nos 409 and 516) show that the percentage share of the primary sector in total usually employed per-sons in the rural areas declined from 78.4 in 1993–94 to 72.6 in 2004–05. Although this change in the employment structure is relatively small and the majority of the workers in rural areas are still engaged in agriculture, in absolute terms this implies that roughly 18.3 million rural workers shifted from the primary to the secondary and tertiary sectors by 2004–05. This can be attributed to the stagnation in the primary sector and the relatively buoyant performance of the secondary and tertiary sectors.

A large part of this shift from the primary sector in the rural areas has been to informal types of work. A detailed study by Abraham (2008) points to the distress-driven nature of this shift. There has been increasing work participation by the female and aged population in this period of agrarian crisis, which substantiates the character of this shift. Simultaneously, there has been a replacement of paid labour by ‘family labour’ (mostly female labour) in agriculture, owing to the low returns in the latter. The relatively lower income in the primary sector during this period caused this shift of the workforce towards non-agricultural activities, even if the new employ-ment opportunities were largely informal in nature and on unfavourable terms and conditions.

As Table 9.3 shows, it is important to point out that productivity in the agricultural sector has not undergone any significant increase during this period when there has been a shift of the workforce away from the sector. The output–worker ratio in the primary sector increased at a meagre annual rate of 1.4 per cent between 1993–94 and 2005–06. This was lower, com-pared to the growth rates in the secondary sector, and much below that in the tertiary sector. This underscores the fact that the transition of the work-force from the primary to the non-farm sectors in the recent past has not


been accompanied by the precondition of rising farm sector productivity that the typical Lewisian theories envisage. However, Ghosh (2009) points out that there has been a significant rural–rural or rural–urban migration of labour in recent years, and one cannot ignore the importance of the eco-nomic remittances sent by the migrants to their native villages in the back-drop of the low returns in agriculture.

Global economic crisis and the way ahead for agriculture

The Indian economy has been witnessing very high rates of growth over the past decade. This growth process, however, has been starkly dual. While the secondary and tertiary sectors mainly located in the urban areas have expe-rienced phenomenal growth rates, the primary sector on which millions depend for their livelihoods has been growing at less than 3 per cent per annum. This is merely the reflection of the agrarian stagnation which we have elaborated above. Given this dual character of the Indian growth story, we will locate the possible impacts of the financial crisis on smallholder agriculture in this section.

The only partial liberalization of the financial sector in the Indian econ-omy has meant that the Indian banking sector has been less exposed to international finance. While the banking and financial sectors may not, therefore, have to line up for bail-out packages, the ‘real’ sectors of the Indian economy will be significantly affected, given their increasing dependence on export-led growth strategies. The shrinking aggregate demand in the world market as a consequence of the crisis will hurt the exporting manufacturing industries in the country. This is already evident in certain export-driven industries like textiles, leather or gems and jewellery, where there have been significant job losses. This, along with a squeeze in the high-income service sectors like financial services, hospitality or tourism, will lead to a reduction in consumption spending and overall demand within the domestic econ-omy. A direct consequence of this is a simultaneous loss of existing informal

Table 9.3 Per worker real GDP sector-wise (at 1999–2000 prices)

Sector1993–94(in Rs.)

2004–05(in Rs.)

Average annual growth rate (%)

Primary 18,048 20,894 1.4Secondary 89,713 108,231 1.9Tertiary 209,409 329,469 5.2Total 47,160 75,150 5.4

Source: Calculations by the author, based on GDP data from the Reserve Bank of India 2007; and NSSO data on usually employed persons (Government of India 1993–1994, 2004–2005).


sector employment and lower generation of new non-farm employment in the economy.

In this emerging context, there is also a clear possibility of an aggravation of the current agrarian distress in the rural areas through different chan-nels. The implications of the financial crisis for the rural economy can be identified as the intensification or emergence of three constraints on rural production systems. Two of these constraints can be categorized as a direct impact of the financial crisis, namely, plummeting product prices of agri-cultural commodities and the declining availability of credit to small-scale agriculture. This would reinforce the situation of meagre farm incomes and high peasant indebtedness that has characterized the agrarian crisis, as was elaborated above. The third constraint is more indirect in nature arising from the shrinkage of non-farm employment opportunities in the second-ary and tertiary sectors and increasing pressure of the work force on the primary sector. Below we examine each of these processes.

One major impact of the current crisis is the decline in world demand and prices of primary agricultural products which are cultivated on a commer-cial basis with the purpose of export. When we locate this phenomenon in the context of the already declining real returns from agricultural produc-tion, especially for commercial crops, in the post-liberalization period, it implies that the economic viability of cultivation will experience a further setback. The onset of a global economic crisis has reinforced the income deflation that the primary sector in the country has witnessed over the past decade or so. This is evident from the collapse of some major export crop prices, as discussed below.

The renewed price shocks triggered by the financial crisis have intensi-fied the pressure of inadequate output prices in cultivation. Nominal price increases of most commercial crops prior to the crisis had induced more farmers to shift to export crop cultivation. However, the simultaneous phe-nomenal surge in global food and fuel prices, and the high inflation rates in 2008 in the Indian economy, also meant that their real returns did not increase as much as the nominal prices did. Moreover, the volatility of com-mercial crop prices has meant that periods of high prices have not been long lasting. Often, the premium of high prices at the start of a growing season withers well before the harvesting season or by the next growing season, preventing any significant rise in the average rate of return from cultiva-tion of these crops. As a result, farmers who were induced to shift to these crops due to the high export prices are prone to accumulate sizeable losses due to the investments that they have already undertaken for growing these crops.

The recent price trends of some major commercial crops illustrate this fact. The weekly rubber prices in the Kottayam market exhibited a steady increase in 2008 until the onset of the global financial crisis. From less than Rs.10,000 per quintal in January 2008, the prices of rubber increased to


more than Rs.14,000 per quintal by August 2008; this meant a rise of 40 per cent over a span of eight months (Government of India 2008). The prices crashed in mid-October in the 38th week and returned to levels much lower (Rs.6,350 in week ending of 13 December 2008) than that in the initial weeks of 2008 when prices started increasing. Similar trends can be dis-cerned for coffee prices, where prices have been declining since September 2008. Prices for Robusta coffee had experienced a rise in 2008 and were at a high of Rs.5,225 per 50 kg in August. After the unfolding of the global crisis, the prices crashed. By December 2008 (Rs.4,100 per 50 kg), the price was already as low as that in March 2008 (Rs.4,125 per 50 kg), implying that the cycle of high prices had lasted for barely ten months (Government of India, Coffee Board of India, Month-End Raw Coffee Prices).

By contrast, the prices for pepper started rising from Rs.113 per kg in January 2007 and this rise was sustained until August 2008 (Rs.143 per kg). The financial crisis and the world demand crunch started pushing the prices downwards from September 2008, and by December 2008 the price was as low as Rs.106 per kg (Government of India, Ministry of Commerce, Spices Board of India). The entire gain in prices over 20 months has been drained in a short span of four months as a result of the global meltdown.

Unlike pepper prices, cotton prices started rising from December 2007 and reached a high peak by September 2008. Thereafter, prices declined to levels that were more typical of the early-2006 period. The world cotton prices as represented by the Cotlook A Index (Cotlook Monthly, December 2008), however, sustained high levels for the whole of 2007 and most of 2008. The prices crashed in October 2008 with the meltdown of the finan-cial markets and reached abysmally low levels that were reminiscent of the period in early 2007 when speculative activities started gaining at the New York Commodity Exchange.

In the gross analysis, the short-lived character of high prices in the case of commercial crops is predominant, as our recent experience shows. This causes hardships for small-scale farmers in the form of poor average returns. Given that backdrop, the crash in prices due to the financial crisis will accen-tuate losses particularly for those farmers who shifted to commercial crop cultivation and undertook large investments, attracted by the high prices within the past couple of years. In the longer time frame, with real crop prices already on a downward trend for the past decade, the recent crash in nominal crop prices and the high food prices that are still predominant in the markets since the 2007–08 global food crisis imply a serious challenge to the economic viability of cultivation and the purchasing power of peas-ant producers. The large food stocks that have accumulated in the coun-try between 2007 and 20115 are one indication of this depleted purchasing power. The massive build-up in food stocks in years of good, but not unex-ceptional, food-grains production, has been mainly due to the persistent double-digit food inflation rates in these years. The year-on-year inflation


rate for agricultural labourers was 11.14 per cent in December 2008 and fur-ther increased to 17.57 per cent in December 2009 (Government of India, Labour Bureau, Consumer Price Index for Agricultural Labourers). Although, crop prices have partially recovered after the initial downturn in late 2008, the high inflation rates have prevented any meaningful gain in the real income of producers.

The other direct impact of the world financial crisis has occurred in the arena of credit availability to small-scale agriculture and other rural liveli-hoods. Given the nature of the financial crisis comprising high default rates and the plunging of lenders’ confidence, it is very much plausible that the banks increasingly adhere to stringent credit disbursal norms. There is a possibility that a regime of credit rationing by banks will be triggered by the crisis, in which case small and petty producers in the rural economy, operat-ing under uncertain production conditions, will find it all the more difficult to access formal credit. This will further expedite the alarming trend of a gradual but systemic retreat of the institutional banking services from the rural areas already explored above.

In reality, the data on credit disbursement from the banking sector show a sizeable rise in agricultural credit flows from Rs.3.01 trillion in 2008–09 to Rs.3.67 trillion 2009–10 (provisional figures from Government of India 2010). This trend is in keeping with the recovery of agricultural credit dis-bursements since 2004–05. However, studies (Chavan 2010) have shown that this enhanced agricultural credit was mainly on account of definitional changes in 2007 that allowed loans in excess of Rs.1 crore (10 million) to be included under priority sector lending to agriculture. The recent growth in agricultural credit, including after the financial crisis, has been due to increase in the number of loans, valued more than Rs.10 crores. These loans, obviously, are not taken by small and marginal farmers, but reach large cor-porations engaged in value chains of agriproducts.

This re-orientation of agricultural credit towards large agri-business com-panies is also corroborated by the increasingly urban nature of agricultural credit. For example, in 2008, half of the agricultural credit in the state of Maharashtra was disbursed in urban metropolitan (42.6 per cent only in Mumbai), that is, to the companies with their headquarters mostly in Mumbai. Similar trends are witnessed for the rest of the country. Though, these trends are a result, primarily, of domestic banking reforms, the finan-cial crisis coupled with volatile conditions in agriculture have further emboldened this phenomenon of directing credit away from marginal and small farmers in favour of large corporations.

The continued exclusion of small-scale rural producers from the insti-tutional credit coverage, as a result of the banks’ response to the financial crisis, has accentuated the already tight grip of private moneylenders on the rural credit market. Usurious interest rates and stringent repayment condi-tions that come along with informal credit will aggravate farm indebtedness


that is already a major social and economic problem in many parts of the countryside. This will not only cripple the production systems of small-scale producers but also intensify the tragic phenomenon of mass suicides of farmers that has been occurring in the country for over a decade now. The recent Agricultural Debt Waiver and Debt Relief Scheme that the government was forced to implement in 2008, in response to the nearly 160,000 farm suicides (Nagaraj 2008) between 1997 and 2005, have extended some lifeline to the Indian peasantry. However, much of this relief would become mean-ingless over the medium term if there was no significant revamp of insti-tutional credit availability in rural areas in years to come, especially given that the government scheme of debt relief leaves the enormous indebted-ness of farmers to private moneylenders and other non-institutional sources outside its scope.

The indirect consequence of the crisis on the rural sector has originated from the slowdown experienced by the secondary and tertiary sectors. We have already noted that the agrarian crisis that precipitated over the past decade has caused a shift in the employment pattern in the economy towards more non-farm employment, particularly self-employment in the informal sector. The fact that the present crisis will potentially deceler-ate the manufacturing and service sectors means that occupational diver-sification, even if on unfavourable terms, will become more difficult to achieve.

Certain manufacturing sectors dependent on the export market, like the textiles or leather industry, have already witnessed significant job losses due to the global financial crisis and the consequent slowdown in demand for manufactured products (see Chapter 10). A study by UNCTAD India (2009) of the impact of the crisis on Indian exports revealed a loss of around 1.16 million jobs in 2008–09, primarily in sectors like textiles, gems and jew-ellery, and ores and minerals. Micro-level evidence from different sectors shows that this figure is probably an underestimation and job losses have magnified with time. According to industry estimates, the export segment of the clothing and textile sector alone witnessed a loss of 1.2 million jobs by March 2009 (UNDP India 2009). Similarly, the gems and jewellery indus-try in Surat, Gujarat, shed nearly 0.2 million jobs by March 2009 (UNDP India 2009), orchestrating large-scale reverse migration of workers to their native villages in Berhampur, Orissa (Sainath 2009). Moreover, with the construction sector hit badly by the recession, there have also been signifi-cant job losses reported from the building materials sector. On the other hand, export-oriented high-productivity and high-income service sectors like the Information and Communications Technology (ICT) or the hos-pitality sector are also witnessing a squeeze due to the downturn in world markets. A consequent contraction of consumption spending on the part of those employed in these sectors is likely to reduce aggregate demand in the economy.


The direct and indirect loss of employment in the secondary and tertiary sectors has, in turn, had a crucial impact on the livelihoods of the popu-lace engaged in primary economic activities. In the context of the distress-driven occupational diversification that has been occurring in the recent past, the drying up of remittances from the informal non-farm economy in the short run considerably worsened the already low living standards in rural areas. On the other hand, a relative increase in dependence of the workforce on agriculture meant a rise in disguised unemployment, given the stagnant productivity levels in agriculture.

The current financial crisis has reinforced the existing crisis in Indian agriculture, demonstrated the fragility of the situation of smallholders and consequently caused a fall in the consumption and living standards of the rural population – thereby tightening the recent structural constraints that emerged in the rural economy under neoliberal reforms in India. The finan-cial crisis has worsened the agrarian crisis, intensified income deflation in rural areas and further aggravated the already alarming levels of hunger and malnutrition in the countryside.

In the context of shrinking demand for world markets and deteriorat-ing prospects for exports, a major emphasis on alternatively revamping domestic demand in the economy is required. Such an alternative policy to tackle the pitfalls of the financial crisis will require emboldened Keynesian policies in the form of enhanced public expenditure support targeted at the rural economy. However, this requires the government and the policy estab-lishment to emerge from the hegemony of ‘sound finance’ that has led to systemic decline in public expenditure. Within the broad policy of enhanc-ing domestic demand, several specific policies are necessary with regard to the principal impacts that we have identified.

The crashing prices of cash crops require some enhanced interventions by the different marketing boards in the form of providing the cash crop growers with support prices during the period of low and inadequate mar-ket prices. In order to mitigate losses in commercial crop cultivation due to the price crash and prevent any withering of livelihoods in the rural areas, revamping the marketing boards and their procurement functions is ardently required. Simultaneously, the constitution of a price stabiliza-tion fund can be used to provide a ‘minimum living price’ to the farm-ers in the face of the crisis. This is all the more necessary as the agrarian crisis that has precipitated over the past decade is primarily located in the dryland areas cultivating export-oriented commercial crops. The demand for a price stabilization scheme and just minimum prices for crops have featured among the demands of the major farmers’ organizations in the country. The Radhakrishna Committee (Government of India 2007) on rural indebtedness set up by the government also recommended in 2007 the setting up of a price stabilization fund, but this is yet to come into operation.


Increased cultivation of food crops in the medium term will be another desirable step for farmers in the face of the collapsing export prices for com-mercial crops. However, there is a concern with regard to food prices also in the near future. While food crops are relatively less sensitive to the down-turn in export markets, their prices may also decline via the route of future markets in a situation of crisis. Therefore any shift by the cultivators to food grains cultivation can be facilitated only with a revamped public policy of procurement. Simultaneously, the concern over declining real returns to agricultural activities that we have witnessed over the long run call for a rejuvenation of the Public Distribution System (PDS) to pre-targeted PDS levels that can provide food at cheaper prices to rural households which are mostly net food buyers. The high levels of calorie-deprivation that are existent in rural areas require urgent attention. The Right to Food Security Bill, an idea floated recently by the government, has been a positive step in this direction, although the finer points in this bill still need to be debated before legislation and implementation.

With regard to the possibility of a squeeze in credit availability in rural areas, an important initiative that needs to be adopted is the building up of institutions based on the principle of cooperatives that will provide an alter-native framework of livelihood generation in the rural economy as opposed to the dominant logic of markets under capitalism. Institutions like credit unions or self-help groups can go a long way in addressing the problem of waning credit availability for economic activities in the primary sector. The large number of ailing cooperative credit societies in rural areas need to be revamped and capitalized in order to arrest the growing dominance of pri-vate creditors in the rural economy.

Finally, the phenomenon of reduced non-farm employment opportuni-ties and its adverse effects on the agrarian economy is a serious problem that needs to be tackled. As the agricultural sector will possibly require some time before it is revamped, especially in a situation of economic slowdown, it is necessary to implement employment-generating programmes like the National Rural Employment Guarantee Act (NREGA) more vigorously and with higher budgetary allocations. This is necessary to protect the liveli-hoods of the millions of rural workers whose livelihoods stand threatened by the financial crisis. The emerging situation calls for a well-drafted frame-work of economic policies addressing different concerns for effectively tack-ling the impending consequences of the global financial crisis on the rural economy in India.

Notes

1. The inclusion of investments in new infrastructure funds and special bonds of State Financial Corporations and credit advances to the food processing industry under the new definition meant that even loans disbursed to multinational cor-porations like Pepsi or Kellogg qualified as priority sector lending.


2. The shrinkage of bank operations in rural areas as a result of the Narasimhan Committee recommendations and, in particular, the decline of priority sector lending to agriculture has been discussed and documented comprehensively in Ramachandran and Swaminathan (2002, 2005), and Chandrasekhar (2004).

3. Farm labour income (FLI) = gross value of output (GVO) – [total material input costs + paid-out labour costs]. The GVO is the sum of crop output, by-product and livestock product. The total material input costs is determined by the following relation:

Total material input costs � [Sf � livestock feedf � Mf] � [Sp � livestock feedp � livestock maintenancep � Mp � Fp � fuelsp � irrigation chargesp � Pp � service chargesp] � amortization cost.

where ‘S’, ‘M’, ‘F’ and ‘P’ denotes seed, manure, fertilizers and pesticides respec-tively. The suffixes ‘f ’ and ‘p’ denote farm-produced inputs and purchased inputs respectively. The total paid-out labour costs comprised wages paid in both cash and kind. The yearly amortization cost for productive assets has been derived by a straight-line depreciation exercise based on the data on expected life of these assets.

4. The peasant classes have been determined on the basis of the Labour Exploitation criterion developed by Patnaik (1976).

5. The 1 June 2009 food stocks were 54.8 million tonne, far in excess of buffer needs, while 1 March 2010 stocks were already 45.8 million tonne and rising, accord-ing to the Reserve Bank of India’s Macroeconomic and Monetary Developments in 2009–10, released on 19 April 2010. By June 2011, food stocks were at an all-time high in post-independence India at 65.6 million tonnes (Month-wise Foodgrain Stock in Central pool, Food Corporation of India, accessed at http://fciweb.nic.in/upload/Stock/6.pdf on 20 January 2012).

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199

10Restructuring Development to Address the Global Financial Crisis: Lessons from IndiaIndira Hirway and Seeta Prabhu

Introduction

The world continues to reel under the impact of the global financial crisis, notwithstanding the recent reports of ‘green shoots’ signalling recovery. The initial thinking that developing countries would be ‘decoupled’ from the global crisis is no longer accepted. The extent of the impact has depended on the nature and extent of globalization of the economy, on the one hand, and the weaknesses of the development policy framework or development model of the country, on the other. The former has determined the strength of the channels through which the global crisis has been transmitted to the economy, while the latter has shaped the vulnerability of the population to the global crisis. In effect, the recent financial crisis has once again sharply highlighted the structural weaknesses in many countries while revealing the shortcomings of the development paradigm being followed.

The first section of the chapter starts with a discussion on the impact of the global financial crisis on the Indian economy and observes that the intensity of the impact was not only due to the nature of the crisis, but also due to poor social protection and low social indicators in the country. The second section presents the findings of a six sector study, coordinated by the first author, on the impact of the global crisis on the Indian economy, with special focus on small producers and informal workers.1 The last section draws lessons from the six-sector study, makes recommendations to fight such crises in the future and draws an outline of an alternative development paradigm for India.

The globalized Indian economy and the financial crisis

India has seen a high gross domestic product (GDP) growth rate of over 8 per cent in most years since 2003–04; however, this was not accompanied


by a corresponding rise in employment. Also, the starkly dualistic features of the Indian employment scene persist, with 92 per cent of the workforce continuing to be employed in the informal sector without any social protec-tion. Employment in the formal sector has remained stagnant. In the year 2005–06, the latest year for which such data are available, it is estimated that even in the formal sector 46 per cent of the 54.45 million workers were employed on informal contracts (Government of India 2007). In other words, the percentage of workers enjoying even minimum social protection is very small in the economy.

Between 1991, when economic reforms were introduced, and 2007–08, the total value of exports increased almost 20-fold. The export–GDP ratio also increased from 5.72 per cent in 1990–91 to 13.58 per cent in 2007–08. Although the capital account has not been opened up in India, over the same period gross capital inflows and outflows exhibited a sharp rise (from 12 per cent of GDP in 1990–91 to around 64 per cent in 2007–08). In other words, the Indian economy grew rapidly, with the growth becoming increasingly dependent on the globalization of the economy (Banerjee and Piketty 2003).

The 9 per cent decline in world trade which followed the global finan-cial turmoil – the biggest since the Second World War – led to the collapse of the exports of major industries like textiles and garments, engineering goods, gems and jewellery, among others. This led to a crash in employment and wages of the workers in these sectors, on the one hand, and adversely affected industrial growth, as well as the overall growth of the GDP, on the other. Indian exports declined by more than 14 per cent between June 2008 and June 2009 (CMIE 2009).

The crash in the financial sector in the United States was transmit-ted through capital outflows from India, mainly of portfolio investment. Indian equity markets plunged by more than 50 per cent in 2008, and have remained volatile ever since (Chhibber and Palanivel 2009; Kumar et al. 2009). These developments led to a severe liquidity crunch in the economy, with the small and informal sector suffering the most. The pressure on the exchange rate, coming from capital outflow, declining reserves of foreign exchange and decline in export earnings, reduced the value of the Indian rupee. This depreciation of the Indian rupee raised the cost of imported raw materials and intermediary goods, increasing the cost of production in the concerned industries. Although the prices of export goods declined in the global market, there was also an overall decline in global demand. In addition, the decline in the demand for tradable services, such as tour-ism, Information Technology services, and so on, led to a further decline in the growth rates of GDP and employment. As per the quarterly studies by the Labour Bureau (Ministry of Labour, Government of India), the Indian economy lost about half a million jobs during October–November 2008. Another 100,000 jobs were lost during January 2009 (Government of India 2009a, 2009b, 2009c).

Restructuring Development 201

In addition, the other channels of the transmission of the crisis to India were the decline in public revenue (caused by a decline in export revenues, foreign direct investment/FDI and official development assistance/ODA and overall decline in the economy) and the fall in remittances. The overall growth rate was adversely affected for a relatively short period (between August 2008 and March 2009), which caused a decline in public expendi-ture on health and education (Gangopadhyay 2009), an increase in unem-ployment (Government of India 2009a) and a likely increase in the number of poor people in the country (Government of India 2009b).

Social indicators

According to official figures, the headcount ratio of poverty is 37.2 per cent, 41.8 per cent in rural areas and 25.7 per cent in urban areas (Government of India 2009d).2 The National Commission for Enterprises in the unorgan-ized sector (Government of India 2007) estimated that in 2004–05, 77 per cent of the population, an estimated 836 million, were poor and vulnerable surviving on less than US$2 a day in purchasing power parity. Obviously, the benefits of the high growth in recent decades have not been distributed widely.

Despite continuous efforts in the health and education sectors, India still lags behind many other developed and developing countries. Adult literacy rate for the country stood at 66 per cent in 2007, whereas most of India’s Asian neighbours, like Sri Lanka, Malaysia and Thailand, have much higher literacy rates at above 90 per cent. Malnutrition, as measured by underweight children below three years, affected 45.9 per cent of the population, as per the National Family Health Survey (NFHS) 2005–06 (IIPS 2007). While the economy experienced high growth rates from 1998–99 to 2005–06, there was only a marginal decline in the extent of malnutrition. It is no surprise then that India’s rank on the Human Development Index (HDI) at 134 is much lower than that of other Asian countries, including Bhutan (UNDP 2009).

Despite the large backlog of deprivation in the country, public expendi-ture on social sectors has been relatively low.3 Large national flagship programmes for employment (National Rural Employment Guarantee Programme), education (Sarva Shiksha Abhiyan) and health (National Rural Health Mission) have been formulated by the central government and are being implemented with the support of state governments; they seek to redress the situation of low fiscal priority. While these programmes will have an impact in the next few years, they may not enable the country to reach many of the Millennium Development Goals (MDGs) by 2015.

In short, the high proportion of population below the poverty line, the slow growth of employment and the high vulnerability of the majority of workers due to the informal nature of their employment have resulted in relatively small increases in income for the majority of the poor, limiting


the size of the domestic market. Attempts to expand markets for domestic production have led to the exploration of external markets by promoting globalization of the economy.

Findings from the six-sector study

The broad-brush picture revealed by the macro data above, however, does not tell the full story. It does not reveal the ground realities of the impact of the economic crisis on small producers and informal workers who predom-inate the Indian economy. The United Nations Development Programme (UNDP) office in India supported a quick survey (April 2009 to June 2009) in the major affected sectors in selected states in India to get a better under-standing of the impact of the global crisis on the Indian economy with a focus on small producers and informal workers. The sectors selected were gems and jewellery, engineering, auto-parts, agriculture, textiles (Chikan craft4) and home-based garments.

The six sectors broadly represent the range of the affected sectors in the economy. Gems and jewellery (diamond cutting and polishing) are highly integrated in the global market, depending almost entirely on imports for raw materials and exports for sale; the garment and textile industries, as well as the auto-parts and engineering industries, export a significant part of their output, but also have a well-developed domestic market, while agricul-ture is the least globalized sector with only some regions exporting selected agricultural produce. The sectors also vary in organization of production, with Chikan craft and garments being significantly home-based, agriculture carried out on family farms with participation of family members, while auto-parts, engineering and diamond cutting and polishing are based in small factories. Again, home-based garments and Chikan craft employ large numbers of women; there is a significant participation by women in agricul-ture, while in the remaining three sectors women constitute less than 5 per cent of the workforce. The common features, however, are that the sectors have grown quickly in recent years thanks to the growing export markets; small producers or informal units are predominant in all of them; and the workers are predominantly informal (Hirway 2009).

Studies of all sectors have followed a common approach, consisting of analysis of the available literature and secondary data to understand the impact of the global crisis on the selected sector; selection of one or two cen-tres for an in-depth empirical study to understand the impact of the crisis at the local level; a sample survey of 100–150 workers and small producers, selected purposively on the basis of their characteristics and location; and focus group discussions and case studies to understand the impact at the household level.


Profile of workers

The workers in these sectors are, on the whole, young, with average age varying from 30 to 36 years. Their level of literacy is quite low, with the share of illiterate workers varying from 60 per cent in agriculture to less than 20 per cent in engineering. Most workers have dropped out of school and have taken on job training in their specific sectors. Almost all workers are non-permanent workers (what in India is referred to as ‘regular’5 work-ers, contract workers and casual workers) and they receive hardly any social security benefits.

Impact of crisis on employment, wages and incomes

The impact of the crisis on workers was felt in three ways: workers lost their jobs and became unemployed; they got much less work than before in the same sector; or they shifted to other work, usually of lower productivity and less remunerative, such as petty services (domestic service, helper to driver or to mason, office peon and so on), petty trade (vegetable selling, street vending and so on) and home-based work (manufacturing incense sticks, and so on). However, there were some workers who did not experience any change. The highest unemployment was experienced in the sector of gems and jewellery, where 30 per cent of workers were rendered unemployed due to the crisis. This rate can be compared to unemployment rates around 5 per cent in home-based garments, Chikan craft and agriculture, where a large number of workers have remained in the sectors but with much less work. Forty-five per cent of workers in engineering, 37 per cent in auto-parts and 14 per cent in garments have not experienced any change in their work status after the crisis.

Evidence also showed that workers shifted from skilled to unskilled work: 32 per cent of workers in gems and jewellery, 8 per cent in auto-parts, 8 per cent in engineering and 38 per cent in Chikan craft (hence, 11 per cent on average) shifted to unskilled work, implying a waste of skills acquired over the years. Similarly, workers shifted from ‘regular’ to ‘casual’ or ‘temporary’ status, implying less regularity of work and increased employment insecu-rity. Between 25 and 27 per cent of workers in garments and engineering, 61 per cent in gems and jewellery and 70 per cent in auto-parts experienced this increased insecurity.

About 80 per cent of workers experienced a decline in their monthly income, ranging from 67 per cent in home-based garments, 47 per cent in gems and jewellery, 41 per cent in auto-parts, to 10 per cent in engineering. Even in Chikan craft, where the monthly income was a mere Rs.978, the income has declined by 36 per cent, reaching Rs.621 per month, which is clearly below the poverty line, indicating increased poverty in the affected households.


One important consequence of this economic downturn was a drastic decline in remittances. Before the crisis, about 40 per cent of workers sent money back home, while after the crisis half of these workers stopped doing so. The average amount of remittances declined by more than 75 per cent, and this resulted in a severe setback to the concerned families as well as to local economies.

Help received from different agencies

In the absence of any formal social security system, most workers did not receive any help either from the government (central or state governments) or employers, or from industry associations, chambers of commerce, trade unions or civil society organizations. The study showed that, although some assistance was given for consumption support, it was far from adequate in terms of content and coverage. The government provided some food assist-ance and cash doles to 16 per cent of workers in gems and jewellery and to 6 per cent of workers in auto-parts. Employers and industry associates extended some small cash doles (one-time cash up to Rs.1000), again in these two industries. The major source of help came from friends and rela-tives, who provided a small amount of help to workers in all the sectors. Assistance to workers in getting new employment, except for the auto-parts sector, was not forthcoming. Considering the fact that assistance provided by the public or the private sector was far from adequate in most cases, a large number of workers had to manage on their own without much support from outside.

0500

1000150020002500300035004000450050005500600065007000

Gems andJewellery

Auto partsindustry

Engineeringindustries

Garment Agriculture Chikan Craft

Sector

Mon

thly

inco

me

(Rs.

)

Before crisis After crisis

Figure 10.1 Average monthly income of the workers before and after crisis

Source: Based on the primary surveys conducted in these sectors.


Coping strategies

In the absence of any reliable support, workers were forced to use various strategies to meet their basic needs.

Dis-saving, pawning and sale of assets

Workers in relatively rich sectors (such as gems and jewellery, auto-parts and engineering) used dis-saving, with about 50 per cent of workers dipping into their savings. Similarly, pawning and sale of assets were used more by the workers in gems and jewellery, engineering and auto-parts industries, with 10 to 30 per cent of households pawning and selling assets. The poor households in Chikan craft and garments were also forced to pawn and sell their meagre assets to make ends meet.

Borrowing from different sources

Borrowing was the next step for survival, if the dis-saving and sale of assets could not go far enough. The percentage of households which borrowed money increased from 21 to 61 per cent in gems and jewellery, 23 to 86 per cent in auto-parts, 1.5 to 47 per cent in engineering and 3 to 17 per cent in Chikan craft. The most important reason for borrowing was consump-tion for survival, followed by health expenses. The importance of social functions as a reason for borrowing declined considerably after the crisis. The average amount of debt per household varied from Rs.41,110 in gems and jewellery to about Rs.10,000 in Chikan craft and garments. The burden of the debt was indeed very high, with decreased household incomes and increased uncertainty.

Reduction in consumption expenditure

The main strategy of survival for most households, however, was to reduce consumption, mainly of food and other consumption items, as well as on education and health. It is interesting to note that almost all households – those who have experienced a decline in income and those who have not experienced a decline – have reduced their consumption expenditure due to the overall uncertainty looming large over the sectors.

Food consumption

The most common ways of cutting down food consumption was (i) stop-ping or reducing eating out; (ii) stopping or reducing consumption of qual-ity (expensive) food, such as milk, fruit, vegetables, eggs, meat and chicken; and (iii) skipping a meal or two per day. About 88 per cent of households in gems and jewellery have reduced their food consumption, with 50 per cent reducing eating out (that is, the cash-poor households now eat cheap food at home) and 39 per cent reducing consumption of quality food at home. The percentages of the households reducing food consumption are


27.20 per cent for auto-parts, 27.5 per cent for engineering, 48.50 per cent for garments, 47 per cent for agriculture and 45 per cent for Chikan craft. The percentage of households reporting skipping a meal per day (usually morning breakfast) was 19 per cent in auto-parts, 10 per cent in Chikan craft and 6.5 per cent in garments. These reductions clearly had an adverse impact on the nutritional and health status of workers – though it is not pos-sible to give any concrete estimates of the impact. It is clear, however, that a significant number of households, particularly in garments and Chikan craft, have fallen far below the minimum levels, implying a further increase in poverty.

Expenditure on education and health

Reduction in household expenditure on education and health has been another major strategy adopted by the workers. On average, nearly half of all households reported reducing their expenditure on education by (i) withdrawing their children from school; (ii) shifting children to cheaper (government/municipal) schools; (iii) not paying fees; and (iv) reducing expenditure on books, uniforms, and so on. The percentages of households which have reduced their expenditure on education vary from 87 per cent in gems and jewellery, 56 per cent in auto-parts, 67 per cent in Chikan craft, 30 per cent in agriculture, to 20 per cent in the engineering industry. Almost 20 per cent of households in gems and jewellery have withdrawn their children from school.

Households also reduced their health expenditure by reducing the number of visits to doctors/hospitals and by using home-based remedies and medicines as far as possible. The percentage of households reducing their health expenditure in this manner were 71 per cent in auto-parts, 69 per cent in Chikan craft, 67 per cent in gems and jewellery, and 44 per cent in engineering.

Women as shock absorbers in crisis

Women emerged as the main shock absorbers in the crisis. They absorbed the shock as producers, wages earners and as home-makers.

Increased work participation in the labour market

To start with, on average, 17 per cent of the households sent women who were previously not in the workforce to seek part-time work, and the same percentage of households sent women for full-time work. That is, about one-third of all households sent out women, who were previously outside the workforce, in search of remunerative work. The highest percentage of households reporting non-working women joining the labour market was in Chikan craft and in gems and jewellery, which are the worst-affected sectors in the crisis. The work these women have taken up includes home-based work (for example, making incense sticks, embroidery), service sector


occupations like domestic service and construction work (mainly as helpers to masons and other manual labour). Self-employed women usually oper-ate at a low level of technology and investments, and do not have enough opportunities to expand into higher-income small-scale ventures. Although these problems existed before the crisis, they have multiplied since. The major problems they face are poor access to credit (which has almost dried up after the crisis), low levels of infrastructure support, poor access to mar-kets and far from adequate support in technical up-gradation, skilled train-ing and so on.

Increased unpaid work

On average, about 39 per cent of households have reported an increase in the unpaid work performed by women. The unpaid work has increased because (i) cash-poor households have brought many market-oriented activ-ities within the purview of domestic work; (ii) paid medical services have turned into unpaid services; (iii) un/under employed men at home need more work/caring from women; and (iv) women have increased their free collection of goods, such as fodder, vegetables, leaves and fruit, particularly in rural areas, in the case of return migrants. The percentage of households reporting increased unpaid work by women is 53 per cent for agriculture, 49 per cent for Chikan craft, followed by 46 per cent in garments, 25 per cent in gems and jewellery, 28 per cent in auto-parts and 15 per cent in engineering.

Increased tension, conflict and domestic violence

The sudden drops in income and employment, and the lack of reliable assistance and uncertainty about the future have caused a lot of tension in households, intensifying conflict and violence. Cases of suicide of some depressed and frustrated workers have also been reported. On average, close to 40 per cent of households have reported increased mental and physical illness caused by the crisis, 43 per cent have reported increased domestic conflicts and violence and 28 per cent have reported an increase in smok-ing and drinking caused by tension and frustration. Women are the worst sufferers as they are frequently subjected to violence and have to deal with the loss of income through men’s smoking and drinking.

Return migration to villages

Since many urban workers in export-oriented industries have migrated from villages, and in a few cases from small towns, a major coping strategy of the affected workers was to go back to their villages and to their families. The main reasons for going back to villages were (i) village life being cheaper in terms of shelter (rent), cost of energy/fuel, food and so on; (ii) they can live with their families-parents, relatives; and (iii) many of them have some land which they can fall back on. Return migration is observed in gems


and jewellery, auto-parts, engineering and, to some extent, in the garment industry. An in-depth study of return migrants of gems and jewellery work-ers threw useful light on this group.

As migrant workers were forced to come back to the villages from which they had escaped initially due to lack of opportunities, there was a sense of disappointment and frustration among these workers. Given the limited scope for skilled work in the villages, many of them took up manual work in agri-culture and construction where employment levels are low, work is precarious and where wages are also much lower than in urban areas. The workers there-fore experienced a huge decline in terms of employment, wages and income – much more than that experienced by the workers who have remained in the city. Many of these workers incurred a huge debt to meet minimum con-sumption needs, and pushed non-workers (women, children and the elderly) to enter the labour market to take up low-productivity, low-earning work. These households have also reduced their consumption of food, health and education drastically, in many cases moving into absolute poverty.

In situations where the number of returned migrants was large, the migrants had a highly adverse impact on village economy: firstly because the reduction in remittances resulted in closing down of small shops and tea shops in the villages, and secondly because the sudden increase in the sup-ply of workers depressed the prevalent wage rates in the local labour market. In the case study villages, the market wage rates declined by 25 to 40 per cent, reducing the incomes of village residents.

Once again, women were the worst sufferers of the crisis, as they were pressurized (more than their counterparts in urban areas) to contribute to household incomes. They took up whatever activities were available, includ-ing unpaid drudgery, to support their own households. Our study showed that these women earned around Rs.25 per day in making incense sticks or doing masonry work.

Small producers and microenterprises

The non-viability of small and microenterprises is a major problem in the Indian economy. The crisis reinforced their vulnerability. The sector studies showed small producers and microenterprises to be among the worst-af-fected producers. About 10 to 50 per cent of small producers/self-employed (with a small number of hired workers) closed down after the crisis. The owners of the closed enterprises on an average (i) took up petty trade or petty services (15 per cent); (ii) started a new enterprise in a new and similar sector (15 per cent); or (iii) started working as hired labourers for others. The majority of small enterprises (about 60 per cent) experienced lower employ-ment, lower incomes and more insecurity. The crisis highlighted some of the structural weaknesses in this sector.


Access to credit

Though small and microenterprises contribute more than 30 per cent of national exports and provide large-scale employment, their share of insti-tutional credit is between 2 and 4.3 per cent (Government of India 2008). The efforts made by the government to help them have not been effective. The liquidity crunch under the crisis has made the situation much worse, as financial institutions are even less willing to lend to the affected sectors, in general, and to small enterprises, in particular. In the case of the gems and jewellery sector, for example, even after the recommendations made by the Reserve Bank of India (that is, the central bank of India) Taskforce to lend to this sector and particularly to small units, the access of the units to credit remained miserably poor (Reserve Bank of India 2009). The same was true for auto-parts and engineering, as well as home-based enterprises, where the demand for credit was far from met.

High and fluctuating prices of raw materials

Another major problem these enterprises face is the highly unstable prices of raw materials and intermediary goods. This reduces their regular access to these goods and makes it difficult for them to survive. The depreciation of the rupee in the crisis raised the prices of imported raw materials and inter-mediary goods, making it more difficult for these units to manage.

Low technology and low productivity

Despite the decline in the global demand for exports, there was still some demand for high-value-added quality products in the global market. However, this demand could not be entertained by small enterprises due to their low-value-added goods.

Poor access to infrastructure and absence of level playing field

Small and microenterprises do not get the kind of infrastructural support that is given to medium and large enterprises in the Indian economy. This is particularly true with respect to land, water, power, credit, markets and technology. All the sector studies have observed that there is a need to strengthen support to small enterprises to make them viable.

Absence of adequate database

Most of the small enterprises are unregistered units, with the result that there is no accurate information on their overall number nor their work-ers. This inadequate information has become a major constraint during the crisis, as it was difficult to reach small units, on the one hand, and identify workers, on the other hand. It also became difficult to design schemes and to allot adequate funds to help them.


To sum up, this study of the six export-oriented sectors under the crisis has drawn attention to the plight of the workers and producers in a volatile global market. The global crisis has impacted all dimensions of the work-ers’ employment: the direct loss of employment has been up to 30 per cent, the wage rate in the industries declined almost by half and the monthly income of the workers declined by almost 47 per cent. There has also been a deterioration in the employment security of workers, even within informal employment, and a shift of skilled workers to less skilled work.

In the absence of any significant institutional support coming from the government, industry associations, employers or non-governmental organi-zations (NGOs), the majority of workers were left to fend for themselves. After trying the limited scope of dis-saving, mortgaging and selling of assets and borrowing, workers had no alternative but to reduce their own consumption expenditure on food, education and health – all of which raised the level of deprivation and vulnerability. The conditions of return migrants have been particularly dire, given that they had to return to areas which they had sought to escape due to poverty and unemployment. Similarly, small producers who lacked adequate support in technology and skills, credit and infrastructure suffered from a severe liquidity crunch during the crisis.

Learning lessons from the Indian experience: restructuring the development model

Take a fresh look at globalization

The evidence documented in the previous section has important implica-tions for the growth path that India has chosen. The first question that arises in this context is about the gains of globalizing at the lowest end of the value chain, where the work is labour intensive, the value added is small, the employment gain is positive but the quality of employment is very poor, and the control or the decision-making power is in the hands of Global Production Networks (GPN) located in developed countries. This is the case for most export-intensive industries in India, such as textiles, garments, leather and leather products, engineering, auto-parts, chemicals, and gems and jewellery. The recent crisis has, however, revealed some additional limi-tations of this pattern of globalization. First, a crisis in the developed world impacts the developing economies severely, even when developing econo-mies have managed their own economies ‘well’. This is because the crisis enters the developing economies through multiple channels and in mul-tiple ways. Second, the highly competitive markets in the developed world may become inaccessible during a crisis, as the developed countries adopt protectionist policies to protect their own economies. As Stiglitz (2009) has observed, developing countries are denied access to markets in the developed world through systematic protectionist policies. Protectionism has occurred in both direct and indirect ways, and in intentional and unintentional


manners, and has been pervasive. For example, the United States stimulus package included a ‘Buy American’ provision; several advanced countries, including the United States, discriminated against goods coming from poor countries.

This raises a fundamental question about the effectiveness of a strategy that depends on exports as the main driver of economic growth and indus-trialization. By treating exports as a goal in itself, rather than a means to increase employment and well-being of workers, and/or as a means to reduce poverty and promote human development, the real developmental goals are kept outside the purview of the globalization-related policies, includ-ing trade policy (Papola 2008). In order to integrate developmental goals with the growth process, it is necessary to ensure the well-being of workers through universal social protection, on the one hand, and universal access to human development, on the other hand. In fact, universal social protec-tion will not only be a programme to protect workers in times of crisis, but it can also be seen as a development strategy that will expand the purchas-ing power of large numbers of informal workers in the economy, giving a big push to aggregate domestic demand (especially in a country such as India with a large domestic market). In addition, a rights-based approach to health and education will ensure levels of human development and higher labour productivity, on the one hand, and the expansion of the domestic market, on the other hand. In subsequent rounds, the production of wage goods within the economy will expand employment opportunities in the mainstream economy.

Towards an alternative model

One alternative suggested frequently is for developing countries to move up in the global value chain and acquire a more stable place in the GPN – a pro-tection against the volatility of demand in the global market. Similarly, by integrating vertically and by creating global brands, the textile and garment industries, it is argued, can stabilize their position in the global market. This can be a formidable task, however, as it involves changing the glo-bal structure of production in favour of developing countries. One study of restructuring of production and labour under globalization (Hirway 2010) has shown that (i) new producers in developing countries find it difficult to compete with well-established brands of multinational corporations in the global market, (ii) these developing country producers very often do not have access to the latest technology and latest designs in order to com-pete and (iii) they find it difficult to establish their own brands even in the domestic economy. In short, it is difficult for them to develop strong vertical value chains when they have little, if any, control over the design, sale and marketing channels in the top-end of global markets.

What is more important, however, is that this kind of strategy does not address the root causes of the crisis, namely, the ideology and interests that


support and drive policies of financialization, privatization and deregulation, aiming at high GDP and high consumption at almost any cost. It ignores the highly unequal economic and financial structures at the global level. At the national level, the plight of workers of export industries emanates from the non-integration of national labour policy with national trade policy and industrial policy. While trade and industrial policies are designed together to take maximum advantage of new global opportunities, a concern for labour conditions is nowhere in the picture. When industry and trade ministries work together to promote economic growth, labour standards are ignored because of the fear that complying with these standards may raise the cost of production and thereby adversely affect the access of these industries to the global markets. A rise in exports and in GDP is seen as the end in itself rather than as a means for increasing people’s well-being.

Hence, what is needed is a redefinition of development goals – placing the well-being of the population as the key objective, while GDP growth or trade expansion are seen merely as the means for achieving develop-ment. Trade policy then needs to be seen as a component of the national development model, and a means for achieving poverty reduction, and a development trajectory that is sustainable, equitable and conducive to human development. There needs to be a better balance between differ-ent sources of growth so that domestic markets are also developed to pro-mote growth. Global policy frameworks and institutions should provide space for national economies to follow their own path to development, giving them the freedom to determine the sequencing and pace of trade liberalization.

The redefinition of the national development strategy should also include the provision of a reliable social welfare system that includes a minimum package of social protection measures for all workers. The following sugges-tions are relevant in the post-crisis restructuring of the Indian economy, and indeed many of the elements highlighted below are being promoted in India by policy advocates and civil society actors.

Universal social protection for workers

The present study has drawn attention to the fact that the workers who contribute to exports and to the rapid growth of the economy have been thrown into the volatile global market without any safety nets or social protection measures. In the absence of any protection, they have adopted coping strategies that have intensified their misery. There is an urgent need therefore to design and institutionalize a universal package of basic social security that addresses the needs of all workers. Such a pack-age should include (i) unemployment insurance and assistance, (ii) health insurance, (iii) old-age pension, (iv) maternity benefits and (v) compensa-tion against injury, disability or death. The recent social security act (Aam Admi Bima Yojana, which is Insurance Scheme for Common Man) passed


by the Indian Parliament is far from adequate, and there is a need to adopt comprehensively the bill that the National Commission for Enterprises in the Unorganized Sector (NCEUS) designed in May 2006.6 A National Fund for social security should also be created for this purpose, and appropriate legal, financial, institutional and administrative steps should be taken to institutionalize this minimum package of social protection for all workers in the economy.

Ensuring employment services and training for workers

Our study has shown that when skilled workers lose their jobs, they do not get any support to find a new source of income; skilled workers are frequently forced to take up unskilled petty work (where their skills are wasted) or remain unemployed. There is a need to support workers in a competitive market to move from one (skilled) job to another. This requires well-organized employment services, such as labour market information services, counselling, training and retraining schemes (if necessary, by linking them with suitable training institutes) and help in moving to new jobs.

Skilled training/retraining is important, even for skilled workers to enable them to move upward in the value chain or to acquire new skills when the demand for old skills declines. On-the-job skilled training of school drop-outs, which is predominant in India, is not a good way of acquiring skills. This is because school drop-outs do not have a sound foundation either to acquire new types of skill when necessary or to acquire highly skilled training with a high level of productivity. The best way is to impart high levels of skill through technical institutions after sound basic general edu-cation. Universalization of education up to 10th standard is therefore very important.

Large-scale public works programmes with employment guarantee

In order to address the high level of un/under employment of the affected workers, undertaking public works programmes, with an employment guar-antee, if possible, could be a very important strategy. Such programmes (i) will act as safety measures by providing work at minimum wages to the affected workers, (ii) will work against depressed wage rates, (iii) will build productive assets and (iv) will raise aggregate effective demand in the econ-omy. India already has a National Rural Employment Guarantee Act for rural areas. It will be useful if the coverage of the act is extended to urban areas. The recent report of the Ministry of Labour (Government of India 2010), entitled Annual Report to the People on Employment, has proposed to launch an urban employment guarantee scheme on the lines of the National Rural Employment Guarantee Act. Although no firm decision has been taken on this, the scheme is under consideration by policy makers at the highest level.


Improving the database on informal units and workers

It is highly desirable to take this opportunity to strengthen the database of informal units and informal workers employed in formal and informal units. This calls for universal registration of all production units, as well as preparing comprehensive records of informal workers in the economy. Issuing identity cards to all informal workers is very important in this con-text, as is the registration of units under the Factories Act, or under any other appropriate act. In the case of the gems and jewellery industry, even though all units in this industry fall under the purview of the Factories Act, less than 10 per cent are actually registered. The reason for this is that many do not see any advantage in getting registered and, in fact, consider regis-tration as a major disadvantage (since employers would have to pay social security to workers). This problem is relevant to all sectors, and means that positive incentives have to be put in place for registration, on the one hand, and strict actions for non-registration, on the other hand.

Ensuring food, health and education for all

The adverse impact of the crisis on workers and small producers could have been avoided if critical gaps in public social provision of health, education and skills had been ensured. The study has shown that the large number of programmes and schemes that promote education and health are inad-equate, given their limited coverage and poor financing.7 There is a need to adopt a rights-based approach for ensuring basic human development to all, as this has to be a primary obligation of the government. The recent Right to Education Act is a very good beginning. However the state still has to go a long way to ensure basic food, health and education security for all.

Addressing the problems of small producers and microenterprises

The study has shown that small producers, including the self-employed, are the worst-hit group of producers. This is largely because they have poor access to advanced technology, credit, markets, raw material and infrastruc-tural facilities. Given the fact that financial institutions are not going to give credit to these units, there is an urgent need for special funds at the central and state levels targeted to these units. Instead of addressing the sectoral problems through bail-out packages, special packages should be designed for small producers to strengthen them, for example, through priority sec-tor lending, or giving them soft loans. We reiterate the importance of the creation of a special fund for them, as recommended by the NCEUS.

Bail-out packages for women

The chapter has shown the particular constraints that women face in contexts of crisis, given their multiple roles as producers, wage earners and home-makers. There is a clear male bread-winner bias on the part of


employers (women are the first ones to lose their jobs), as well as the gov-ernment (which does not address women’s needs for employment), a point which contradicts the fact that a considerable proportion of women in India need to work and actually engage in some kind of income-earning activity to support their households.

As producers/employers, women should get access to credit, technology, ●

infrastructure facilities and markets. A special ‘stimulus package’ should be designed for them, keeping in mind the specific needs of women pro-ducers/own account workers.Separate employment targets, including skilled training targets, for ●

women should be set up so that their employment is not sacrificed under the male bread-winner bias.

Though treating women separately may not always be desirable, it can be beneficial when they do not get their due share from common funds. Considering the fact that women suffer much more than men in a crisis, it is important that exclusive funds are created for women.

The construction of social infrastructure can go a long way in reducing ●

the amount of time and energy that women (and girls) contribute on an unpaid basis for the unpaid domestic services.The expansion of social services (such as health and primary education) ●

which strengthens the well-being of children and adults can also have many indirect benefits by reducing the amount of time that women con-tribute to caring for children and adults in their households.Universal childcare facilities should be organized to release women from ●

the burden of work, and more importantly to ensure healthy early child-hood development of children.

Social and political feasibility of a new development paradigm

The adoption of the neoliberal policies in India can be traced to the severe financial crisis experienced by the country in 1991 that forced the gov-ernment to borrow money from the International Monetary Fund (IMF) and to accept the conditions laid down by the World Bank/IMF-supported ‘Washington Consensus’. The other reason was, of course, the commitment of Indian decision makers to a neoliberal orthodoxy. Policy makers believed that privatization, liberalization and globalization would promote economic growth, which would then trickle down and reduce poverty and promote human development.

While India has indeed experienced high rates of economic growth, the rate of poverty reduction has declined and inequality has clearly increased.


The global crisis initially raised some questions about the dangers of eco-nomic liberalization and the adequacy of markets in addressing the needs of the majority of the population that remain trapped in the informal econ-omy. However, with the subsequent improvement in the growth rate (6.5 per cent for 2008–09) and the projected 8 per cent growth rate for 2010, questions about India’s development strategy seem to have been pushed to the margins again. The government seems keen to go back to the high-growth path scenario without worrying about its composition and impacts. The trade policy announced in August 2009 for the 2009–14 period aims at ‘arresting the declining trend of exports’ and aims at ‘doubling India’s share of exports by 2020’ (Economic Times 2009). The target is to achieve 25 per cent growth of exports each year. The government is also moving forward in carrying out the reforms in the areas of trade and financial liberaliza-tion. It looks like India has missed the opportunity to rethink its develop-ment model and to restructure its development path along a more inclusive path.

The picture, however, is not entirely bleak. The National Rural Employment Guarantee Act, the Right to Information Act, the Social Security Act for Unorganized Workers (despite its delusion), the Right to Education Act and the proposed Right to Food Security Act are some important positive devel-opments that recognize the rights of the majority. It is to be seen whether these acts will be used as a platform for rethinking the economic model in ways that make development more inclusive and equitable.

Notes

1. This study was undertaken by a team of researchers located in different organiza-tions: Centre for Development Alternatives (Prof. Indira Hirway), Gujarat Institute of Development Research (Prof. Amita Shah), Entrepreneurship Development Institute, India (Dr. Santosh Kumar and Dr. Jignasu Yagnik) and Self Employed Women’s Association ( Self Employed Women’s Associations (SEWA) Teams in Uttar Pradesh, Madhya Pradesh and Gujarat). Prof. Indira Hirway coordinated the study.

2. The poverty estimates have been revised recently, based on the report of the Expert Group set up to review the methodology for estimation of poverty (Government of India 2009d). The definition of poverty was expanded to include household expenditure on a number of items going beyond food.

3. For example, in 2007, the public expenditure on health in India was 3.4 per cent of total government expenditure, as compared to 9.9 per cent of government expenditure in China (UNDP 2009).

4. Chikan craft, an important handicraft, is a fine art in which embroidery is done with white untwisted yarn on a fine cloth (viol, silk, cambric, georgette, terry cot-ton and so on). This is mainly a home-based industrial activity, largely performed by women artisans and workers.

5. ‘Regular workers’ are not ‘permanent workers’ and therefore are not entitled to social security and other benefits (for example, casual and earned leave, medical


leave and so on), but they have an oral (and sometimes written) contract with the employer and are employed on a regular basis. They also get benefits like a weekly holiday, casual leave and monthly salary.

6. Though the Indian parliament has recently passed an act on social security for unorganized workers, the act does not include the full minimum package of social security.

7. The experiences have revealed that though Sarva Shiksha Abhiyan (SSA), the National Rural Health Mission (NRHM), the Integrated Child Development Scheme (ICDS), the Public Distribution System (PDS) and so on, exist, they are limited in both scope and funds. There are several gaps in public health and edu-cation, resulting in failure to help people during crises.

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11A Political Economy Analysis of Crisis Response: Reflections on India and ThailandDev Nathan and Govind Kelkar

Introduction

In response to economic downturns, two key questions arise. The first regards the nature of the response, whether stimulus, trade restrictions or otherwise. If it is accepted that stimulus measures are needed, the second question is, what determines towards whom they are directed? Along with a brief discussion of the first question, this chapter seeks to answer the second question, comparing mainly the experiences of India in the 2007/08 global crisis with those of Thailand in the 1997/98 Asian crisis.

The chapter begins with a brief discussion of stimulus measures in the global economy as a whole, contrasting the current policy responses with those of the late-1990s’ Asian crisis. The current global recession, like the Asian crisis, is seen as a largely urban phenomenon with export-centred job losses. But urban–rural linkages in the form of circular and seasonal migra-tion transmit the global slowdown to the rural economy. Thus, we need to consider the nature of migration which can shape the effects of stimulus packages and coping mechanisms. The differences in the stimulus or safety net packages mainly between the late 1990s in Thailand and current India are then drawn out and the political economy basis of these differences explained. The chapter ends with a brief section on developing rights-based, universal and portable safety net measures as we move forward out of the crisis.

Recessions and fiscal stimulus

During the late-1990s’ Asian crisis, the Washington consensus held sway in global financial institutions. In line with the doctrine, the World Bank and the International Monetary Fund (IMF) both opposed stimulus measures during the recession in the Southeast Asian economies. Malaysia was the


only country in the region that defied the Washington consensus, institut-ing capital controls and carrying out a domestic fiscal stimulus package. In comparison, Thailand did not initiate stimulus measures until two years after the crisis broke.

At the time of the Atlantic financial crisis in late 2008, however, there was virtually no mention of policies to avoid fiscal deficits. Rather it was accepted that the Atlantic financial institutions were ‘too big to fail’ and required fiscal deficit-financed public bailouts. Along with financial bail-outs, most of the Atlantic economies also undertook deficit-financed public expenditures to sustain employment in the wake of shortfalls in private investment and spending. Meetings of the G-20 suggested that all countries should undertake fiscal stimulus measures to prevent the recession from turning into a depression.

Along with fiscal stimulus measures there was also little overt protection-ism. There were minor protectionist moves – greater inspections of goods, hold-ups at ports and so on – but nothing like the protectionist Smoot-Hawley Tariff of the Depression Era United States, which had a major role to play in transmitting the United States (US) Depression to the rest of the world. The World Trade Organization (WTO) and the United Nations Conference on Trade and Development (UNCTAD) reported in September 2009 that there were limited effects of a combination of ‘tariffs, non- tariff measures, subsi-dies and burdensome administrative measures ... [which amounted to] sand in the gears of international trade’ (WTO 2009).

Here it should be noted that even while the US administration, President Obama included, has at various times made noises about ‘Buy American’ and ‘Invest in America’, big US corporations, like IBM, have continued to make fresh investments in countries such as India. In some quarters these have been branded ‘Un-American’ actions. But global corporations, in search of cost minimization, continue to locate their production and research facili-ties wherever it is most advantageous for them to do so.

The global fiscal stimulus measures have continued through mid 2010. But there are disquieting signs that these measures may be withdrawn, par-ticularly in Europe. The recently elected right–centre government in the United Kingdom has already announced reductions in expenditures and increases in taxes. The German government, having to bear some of the burden of debts of other Eurozone countries, is also pushing for a quick, if not immediate, reduction in government deficits. In a situation where households and businesses alike are repairing their balance sheets and, consequently, monetary policy is ineffective in promoting investment, it is crucial for government deficits to continue to support overall demand. Failure to do this may well push the world economy not just into a ‘double-dip recession’, but into a prolonged stagnation or even long-lasting depres-sion. As India’s Prime Minister warned at the G-20 meeting in Toronto (June 2010), at present it is deflation, rather than inflation, that is a greater threat

A Political Economy Analysis of Crisis Response 221

to the world economy. What this means is that it is critical for fiscal deficits (which in 2009 were close to 15 per cent of gross domestic product/GDP of the G-20) to be continued – until corporate investments revive sufficiently to cover savings. Any move to reduce the fiscal stimulus would only lead to another dip in the world economy.

Migration and the transmission of urban-centred downturns to the rural economy

The effect of employment protection measures in the context of an eco-nomic downturn would vary with the type of workers, whether fully urban or migrant, and even the type of migrant. Since the job losses are in indus-trial, predominantly urban, employment, it might be readily assumed that an urban-centred employment programme or other safety net measures would be adequate to deal with the negative welfare effects or urban job losses. But while an urban-centred job scheme would cover those workers who are fully settled in cities, it would leave out of its ambit those who, on losing their jobs, are forced to return to their rural homes. This secondary effect, in which an economic downturn of urban origin is transmitted to the rural economy, can easily be missed in the analysis and thus in framing policy responses to economic downturns. Consequently, in order to assess the nature of crucial safety measures, it is necessary to take account of the nature of migration. In this section we summarize some of the literature on the nature of rural–urban migration in Thailand (Nathan and Kelkar 1999) and India (Bhaskaran and Mehta 2010; Deshingkar and Farrington 2009).

One type of labour movement includes ‘commuting’ migrants – those who travel from (primarily) rural to urban locales for daily work. For instance, near urban centres such as Khon Kaen in northeast Thailand, there is the widespread phenomenon of men who live in villages commuting every day to work in the cities. The same can be observed around Delhi and the National Capital Region, with large numbers of workers and office staff commuting daily to their jobs in the cities.

There is yet another type of labour movement, that of seasonal migra-tion. Many of these seasonal migrants are families of agricultural labourers or Scheduled Tribes or indigenous peoples, who leave their villages after only one harvest in order to work in brick kilns, road construction or sugar-cane cutting. They work from around November until May of the next year, returning to their villages in time for the new agricultural season.

There are also longer-term migrants – those who work outside their vil-lages for at least nine months in a year throughout their working lives, even though their families remain in the village. The motivations behind this type of migration may vary, from the difficulty of getting reasonable fam-ily accommodation at an affordable price in the city, to the necessity of some members of the family remaining in a village to carry out agricultural


operations and/or looking after older family members. The migrant work-ers’ return visits usually coincide with some key agricultural operation, such as ploughing, if they are small farmers, or for major festivals. This type of migration has led to the phenomenon of the growing feminization of agricultural labour in India, as documented for Bihar (Rodgers and Rodgers 2010; Da Corta and Venkateshwarlu 1999).

In India, when migrant workers find somewhat better and regular jobs in industry, they bring their families to live with them in the cities, frequently because of the better quality of urban schools. However, because of the dif-ficulty in finding reasonable urban accommodation, it is important to note that only about 30 per cent of studied migrants planned to settle down in Delhi (Bhaskaran and Mehta 2010).

For both circular and seasonal migrants, the rural home and economy plays an important role in the creation and recreation of labour power. There is obviously both a push and a pull factor in all such migration. Employment and livelihood conditions do not afford a reasonable living in the villages, while more employment opportunities are available in the cit-ies, even if they are placed on the lowest rungs of the working class.

Do the migrants and their families benefit from this circulation of male labour? On the one hand, capital benefits as the circulation of labour ena-bles urban wages to be kept down, since part of the cost of the reproduction of labour is borne by the household labour of women in the village. On the other hand, studies (for example, Paris et al. 2005 and, more recently, Bhaskaran and Mehta 2010) point out that, even among agricultural labour-ers, the families with at least one migrant worker are better off than those without any migrant workers. The very large out-migration of agricultural labourers from various parts of Bihar has led to substantial remittances (about 50 per cent of household consumption is estimated to be due to remittances [Bhaskaran and Mehta 2010]), and families of migrant workers invariably now have a mobile phone. In Samastipur District, Bihar, ‘nearly 97 percent of the migrants and their households believe that migration helped to improve the standard of living of the sending households which is a direct income impact of migration’ (Bhaskaran and Mehta 2010: 5). Migration has also tightened the agricultural labour market in the state, seen in the substantial increase in agricultural wage rates there.

Rodgers and Rodgers (2010) estimate that about 4 per cent of Bihar state’s GDP is due to remittances, while Deshingkar and Farrington (2009) estimate remittances to be as much as 7 per cent of state GDP. In Thailand just prior to the Asian crisis, it was estimated that about 30 per cent of rural income came from urban remittances (Nathan and Kelkar 1999).

The circular nature of much migration means that there are strong con-nections between urban and rural economic conditions. In particular, migration can be seen as an important transmission mechanism of the glo-bal financial crisis and the attendant global economic slowdown. Even if


the immediate impact of the slowdown is urban centred, the income fall is transmitted to the rural economy through a fall in remittances from migrants. This is compounded by the increased demands on rural income due to the consumption requirements of migrants who have lost their urban jobs. Both India and Thailand show a strong urban–rural connection. As a result of this connection, income losses due to urban lay-offs were quickly transmitted to rural areas, through a fall in remittances and, then, the return of job-losing migrants.

Indian responses to the global crisis

After initially denying that the Atlantic financial crisis would have much of an impact on the country, the government of India went about putting together a fiscal stimulus package in December 2008 to offset the impact of the crisis. Monetary policy was also brought in, with lowered credit costs. But in a period of uncertainty over the immediate future of economic activ-ity, private sector investment did not expand. The reduction in demand due to the fall in exports and the fall in investment together needed to be made up by a fiscal stimulus.

The government’s original budget estimate for 2008–09 was a deficit of 2.5 per cent of GDP,1 although with the revised estimates for the year, the deficit increased to 6 per cent of GDP. In fact, the deficit was kept lower than it would have been by issuing bonds for food, fertilizer and petroleum companies to the tune of 1.8 per cent of GDP. All this together would mean a stimulus of close to 7.8 per cent, above the pre-Lehman expected deficit of 2.5 per cent of GDP.

Of what was this stimulus composed? As Shetty (2009) points out, most of it originated from uncovered expenditures during the year relating to pay and pensions for the government staff as per the Sixth Pay Commission’s recommendations, funds for the continuing food and fertilizer subsidies, the agriculturists’ loan waiver scheme and additional funds for schemes under the National Rural Employment Guarantee Act (NREGA). The announced stimulus included additional government spending, government guaran-teed funds for infrastructure, cuts in indirect taxes, additional support for exporters, increased guarantee cover for credit to micro- and small-enter-prises and reduction in indirect taxes. Together, however, these amounted to less than 1 per cent of GDP, and were much less than the stimulus pro-vided by the measures already in place through increases in government salaries, agriculturists’ loan waiver and NREGA.

Thus the stimulus provided by measures already in place pre-Lehman Brothers was much more than the deliberate stimulus measures formulated post-Lehman Brothers. These measures were taken up through the working of the mechanisms of the Indian politico-economic system and just fortui-tously happened to take place when the crisis hit.


Of these, the increase in government salaries is a periodic measure under-taken through the regular Pay Commissions’ system. However, more impor-tant than the boost to demand through salary increases was the arrears government employees received. Secure (if not sufficient) pensions meant that savings of government employees would be less than those of, say, simi-lar earning employees in non-pensionable jobs in the private sector. Thus, their spending on consumer durables out of arrears would be quite high. For weeks after the new scales were announced, sales of small cars, two-wheelers and domestic equipment all received a considerable, if one-time, boost.

As in other countries, Indian government employees have substantial influence over fiscal policy. Over the past two decades, the Pay Commission’s decisions also seem motivated by the need to increase incentives to govern-ment staff, as an anti-corruption measure and, in the process, to close the gap between government and private sector remuneration. Coming in early 2009, the arrears received by government employees served as a boost to the then-flagging automobile and two-wheeler markets, which had been affected by the earlier credit squeeze.

Subsidies to farmers, primarily to middle and large landowning farm-ers, for buying fertilizers is an old policy of the government dating back to the mid-1970s’ Green Revolution period. At that time, in support of Green Revolution agriculture, it was necessary to boost fertilizer use. But fertilizer use has become a regular practice and irrigated farming with high-yielding varieties (HYVs) could not be continued without it. Further, subsidy in the pricing of inputs clearly promotes over-use of these inputs.2 No government has had the political courage to remove the fertilizer subsidy. More than government employees, middle to large landowning farmers in irrigated areas are an important political lobby, quite critical in gathering the votes of the rural electorate.

The extent of the fertilizer subsidy depends on the international price of oil. The high price of oil for the whole year, and even more preceding the crash, meant that there was a higher subsidy than budgeted. This added to the fiscal deficit, becoming an additional stimulus measure which boosted the profits of fertilizer producers. To the extent that higher fertilizer prices were reflected in higher prices of agricultural commodities, which was the case in the inflation immediately preceding the crash, there was a boost to rural demand. In fact, the pre-crash inflation in commodity prices was concentrated in food prices and thus was a boost to rural incomes, while it reduced the incomes of the urban poor and fixed-income earners.

The loan waiver for agriculturists was a response to the agrarian crisis of cash-crop farming in the semi-arid areas of the Deccan Plateau of India (cov-ering central and southern parts of the country). This crisis, possibly brought about by increasing input prices and declining yields, was manifested in numerous suicides, largely by male farmers. The suicides were not by the landless or even the poorest, but by those facing the distress of mounting


debt burdens with falling net incomes. After numerous small steps, the government announced a waiver of farm loans in the affected regions. Of course, the waivers were of loans to largely government-owned commercial banks, which are the only commercial banks that operate in most rural areas. Farmer debts, however, were most often not just to commercial banks but even more to moneylenders – and the debts to moneylenders were not covered by the waivers. But given that most of those with commercial bank debt were also indebted to moneylenders, the waiver of commercial bank debt would have been a clearly felt relief to these farmers.

Initially when the waiver was being discussed, there were the usual com-plaints about the ‘moral hazard’ involved in the action. If debts could be written-off, would there not be a perverse incentive for farmers to take up even more risky debt without heed to the likely consequences? After the multi-trillion dollar bailout of the banking system in the Atlantic countries, such questions of ‘moral hazards’ were not heard anymore.

For agricultural labourers, the NREGA came into effect much before the Atlantic financial crash. It provides for up to 100 days of employment for a poor, rural household. Subsequently, an emphasis on the employment of women was added to the scheme, with the provision that women must con-stitute at least one-third of those employed under the scheme. Given that, before the crash, NREGA days were not fully utilized, the scheme provided an automatic stimulus – the number of days of employment sought in areas affected by the economic crisis, chiefly return migrants who had lost their urban jobs, could increase with demand until the full 100 days were used up. The amount spent on NREGA could increase or decrease, depending on the demand for rural employment. In this case, the amount spent on NREGA during 2008–09 (see Table 11.1) was double that originally provided for in the budget. The total number of days of employment under NREGA in October 2009 was reported as 1.2 billion person days to 31 million house-holds (Ministry of Rural Development 2009).

Scheduled Castes (SCs) and Scheduled Tribes (STs), who make up about 22 per cent of the total population, and are generally poorer, received just

Table 11.1 NREGA in India, 2008–09

Employment provided to households 31.2 million

Person days (in millions)TotalScheduled Castes (SCs)Scheduled Tribes (STs)WomenOthers

1,224 million29.9%21.8%50.78%48.3%

Source: Compiled by authors from Ministry of Rural Development (2009).


above 50 per cent of the total days of employment, while women received more than 50 per cent of employment days. With NREGA wage being pegged at the level of the local minimum wage, there is an inbuilt self-selection mechanism which targets such employment to the poorer sections of the rural population.

Since NREGA put additional income in the hands of the rural poor who would have high marginal propensity to consume, the multiplier effects of NREGA were seen to be significantly contributing to economic stimulus. If additionally the NREGA expenditures resulted in an increase in rural pro-ductive assets, it could contribute to the long-term development of agricul-ture and effectively reduce poverty. The expenditure incurred on NREGA, however, ‘would be non-inflationary because it will spur agricultural growth upon whose foundation a whole range of sustainable livelihoods will be built’, with private investments leading to secondary employment opportu-nities (Shah 2007: 46).

India’s Ministry of Rural Development pointed out that the programme had been successful in addressing ‘the problem caused by reverse migration as thousands of unskilled workers return home due to slowdown in infra-structure and other sectors’ (Indo-Asian News Service 2009). Reports show (Hirway 2008), however, that not all return migrants were willing to take up the low-skilled, manual labour jobs being offered under NREGA. Workers in the diamond industry were not willing to take up the NREGA jobs on offer, and preferred to take up other urban jobs which paid less than what they had earned in the diamond sector; though there are also reports (The Economist 2009) that some laid-off diamond workers did take up NREGA work. What is likely is that rural migrant workers in construction – the other sector that suffered a major downturn – were the ones who largely took up the manual construction jobs that NREGA offered.

Dimensions of responses in Thailand

Our analysis of the 1997 Asian crisis (Nathan and Kelkar 1999) showed that in Thailand there was no such support provided to those who lost their urban jobs and therefore returned to rural areas. Importantly, women had to bear the burden of providing food to additional members in the home and for household maintenance, in the absence of any rural employment programme (Kelkar and Osawa 1999). Thus, the stimulus or safety net interventions in Thailand were primarily urban, leaving returning rural migrants out of their scope. Since women were more represented among the temporary or casual workers, they were also more likely to lose their jobs than men, who tended to have more permanent positions. Perhaps the gov-ernment did not feel as threatened by mass female unemployment and thus was less willing to put in place stimulus packages for them. Further, even in the case of women who did not return to their rural villages, they could not access the newly created jobs. Most of the new jobs were machine-operating


jobs in urban infrastructure construction – defined as ‘male’ – from which women were excluded.3

With return migration to rural areas, where it is virtually impossible to increase the area of land under cultivation (or at any reasonable cost), the effect is to increase the numbers working on the land, but with a zero marginal productivity of the increased labour. In terms of the production system, the effect is what Clifford Geertz (1963) first dubbed ‘agrarian invo-lution’ in the case of Java. It results in a sharing of income and work, which without any increase in income, means a sharing of poverty. This is what Pasuk Phongpaichit and Chris Baker (1998) call the ‘family rice bowl’, as compared to the collective ‘iron rice bowl’ of Mao’s China.

The Thai government had, even in recessions before the Asian crisis, relied upon the village to act as a cushion. ‘Most of the people still lived on the land and grew their own rice. Many in the cities retained links to the village. If the deflationary policies depressed the urban economy, they could still go back home and share in the family rice bowl’ (Phongpaichit and Baker 1998: 74–75).

Of course, women did the majority of work on this family rice bowl – reflecting the prevailing social convention that women are responsible for food provisioning and family food security. This social responsibility had two consequences, different for women and men. In the case of women, it meant that they took up any kind of income-earning activity, even if it had very low returns, in times of stress. Men, on the other hand, were unwill-ing to take up such low-paying jobs and thus maintained a high reservation wage, even in times of stress. Men would rather spend their time looking for non-existent work than doing whatever little work could be found to aug-ment the family rice bowl (Nathan and Kelkar 1999).

Initial stimulus measures in Thailand, as the above description shows, were largely urban based. The 1997 crisis was seen as an urban crisis, in which the role of the rural economy was to act as a cushion to absorb migrant labour made redundant by the recession. Subsequently, however, when non-employment social safety net measures, as in the area of health care, were taken up, the measures were extended to the rural population as well. The ‘30-Baht’ system extended health insurance to those sections, informal workers and farmers, who were not otherwise covered by health insurance. This, however, was done more than two years after the initial crisis and thus could not be classified as part of the employment stimulating package. But it was a welcome extension of the social security system, par-ticularly in the all-important area of healthcare, to the rural population.

Differences between India and Thailand

The first difference between the Asian Crisis and the present global cri-sis is the shift from a Washington Consensus policy of ‘let the markets take their course’ and the insistence on not allowing budget deficits, to


one where massive government stimulus and regulatory packages became legitimate (for at least some countries). As is well documented, the restric-tive fiscal and monetary policy during the Asian crisis intensified human suffering through job and income losses. It also made companies affected by the downturn prey to takeover by capitalists from other countries. On the other hand, the current policy regime is all in favour of fiscal stimulus and specific bailouts, not just of the financial institutions, but even of manufacturing corporations, including American icons, such as General Motors.

At one level, this questioning of the Washington Consensus is clearly to be welcomed. If the fiscal stimulus plans and bailouts of the financial compa-nies had not been carried out, there is little doubt that the Atlantic financial meltdown would have pushed the world economy into a global depression. But why did the Washington Consensus play such an important role at the time of the Asian crisis but not in the current Atlantic-centred global cri-sis? One reason is that the Asian crisis did not turn into a global crisis, as did the Atlantic crisis. Asia, at the time, was not as important to the world economy as it is now. But it still needs to be asked whether the fact that the financial meltdown and economic downturn enormously affected both the Atlantic economies and Atlantic peoples, did not in fact have a major role to play in enabling a move away from the Washington Consensus? The financial systems of the countries that were at the forefront of formulat-ing and pushing the Washington Consensus were themselves affected by the Atlantic financial crisis. Without the bailouts, not only would the cri-sis have spread drastically around the world, but the capitals that had not been devastated (for instance the Sovereign Wealth Funds of many Asian and other countries) would have been the ones buying up Atlantic capi-tal at fire-sale prices. There surely was a realization in policy circles in the Atlantic economies that ‘letting the markets take their course’ would have meant a large-scale sell-out to Asian and the Organization of the Petroleum Exporting Countries (OPEC) capitals. Along with stopping the slide towards world-wide depression, the bailouts also prevented the fire-sale of Atlantic financial institutions. Historians of economic policy will surely analyse the factors that led to the demise of the Washington Consensus and the timing of its demise.

The second point of difference between responses to the Asian crisis and the current crisis is the specific rural orientation of a substantial part of the stimulus packages in India (as well as in China, on which see Chapter 7). The two measures in India with a rural orientation are the loan waivers for farmers and the employment guarantee for poor rural households. Both these measures were formulated well in advance of the global downturn, though they came in handy as automatic stimulus measures after the crisis broke out. Both of them were responses to the growing agrarian crisis (see Chapter 9) and the resulting unrest.


These measures were also part of what the ruling Congress Party in India has been portraying as ‘inclusive growth’. This slogan itself is a result of the realization that India’s rapid economic growth has not translated into equal benefits for all sections of the population, and that there is a grow-ing rural–urban inequality. The study by Sandip Sarkar and Balwant Mehta (2010) demonstrates the growing rural–urban inequality in the post-reform period in India. To summarize the picture, the ratio of urban to rural aver-age income increased from 1.56 in 1983 to 1.66 in 2004–05. Further, as Sarkar and Mehta (2009) show, most of the increase in rural–urban inequal-ity is due to the rapid growth of consumption among the top deciles of the urban population.

Branko Milanovic (2005) points out that urban India and urban China are pulling closer to the developed countries in terms of income, while the inequality between these two and their respective rural counterparts is now the crucial factor in world inequality. With the increasing feminization of agricultural work in India (and in China too), contemporary rural–urban inequality in these countries is also a matter of gender inequality.

The growing rural–urban inequality in both of these major Asian coun-tries, similar to others such as Thailand (Milanovic 2005), has been mani-fested in various forms of unrest. In China, this has taken the form of tens of thousands of incidents of rural protest, including attacks on state and Communist Party officials. In India, there is the spread of armed agrarian movements (the so-called Maoist movements) in areas largely populated by indigenous peoples (or, Scheduled Tribes as they are known in India), who have not only been bypassed by India’s rapid growth, but have also suffered from losing access to land and forests in the context of controversial indus-trial, mining and other development projects.

Along with the agrarian protest movements, there is an important politi-cal economy factor that differentiates India from Thailand – the role of the rural electorate in India’s political system. Since more than half of India’s electorate is rural, the rural vote thus counts in determining the fate of political parties. Of course the importance of the rural vote also includes the role of rural elites and caste/community leaders who can influence voting patterns. It also includes the effect of social mobilization, as in anti-caste or agricultural labour movements. Failure to take some measures, or to be seen as taking some measures, to support rural livelihoods, can result in what is known as the ‘anti-incumbency’ factor, leading to a ruling party’s loss in elections. The Congress Party seems to have realized the importance of the rural vote in winning elections and thus deliberately set out on the path of ‘inclusive growth’ in its two periods in office (2004 onwards).

Further, obtaining the rural vote is no longer simply a matter of secur-ing the support of rural bosses (landlords or the upper caste elite). Various sections of the rural population – smaller farmers, landless labourers, the dalits and adivasis (or indigenous population), and women in these social


groups – have also been asserting their distinct interests. Consequently, there have been a number of policies to cater to their varied interests. Among the most prominent of these are the loan waivers for farmers, NREGA for the rural poor, the Forest Rights Act (FRA) for adivasi rights in agricultural land and village common forests, the 50 per cent reservation of seats in village administration (gram panchayats) for women, and the equal rights of women in ancestral property, including land, in Hindu inheritance laws and joint titles for women and men in the FRA.

Many of these redistributive measures show a recognition of the problems various sections of the rural population are facing. It is not our argument that they are adequate or represent a solution to the problem of growing rural–urban inequality, nor do we suggest that they will be sufficient on their own to realize inclusive growth. Rather, there is no doubt that they are real, even if limited, steps forward, with some potential for benefiting the rural population.

The FRA, for instance, is a landmark measure in that it provides not only for tenure security of forest dwellers’ agricultural lands but also recognizes the important category of village common forests, which constitute a key resource of forest dwellers’ livelihoods. These rights are a major step when compared to the long-prevailing situation in which the forest-dwelling adivasis were literally legal interlopers on the lands and forests they uti-lized, with no security of tenure. It is still a measure, however, that needs to be implemented, and its implementation will no doubt be hampered by numerous attempts by sections of the bureaucracy and the elite. But the fact that such rights have been recognized and legalized provides the ground for movements of the adivasis to press for their adequate implementation.

In contrast to the Indian political situation, in Thailand, the rural vote has failed to make a stable articulation in the political arena. Industrial elites and the urban professional classes have dominated the Thai political scene. Granted, the former Prime Minister, Thaksin Shinawatra, made an attempt to mobilize the rural vote, also taking measures to reduce the power of the bureaucracy and increase that of business groups. ‘Gate-keeping’ rents, that is, earnings of bureaucrats and politicians for performing their official duties decreased, as witnessed by Transparency International’s reporting a fall in corruption during the Thaksin regime (Phongpaichit and Baker 2008). In place of gate-keeping rents, the Thaksin regime enabled business groups to earn surplus profits through the market, including the stock exchange. These surpluses of selected businesses could then be redistributed through populist policies, including the provision of public goods (public facilities and even some local welfare schemes) to their constituents.

Sections of Thai industry and urban professional interests have denounced measures of decentralization and rural stimulus as ‘populism’, and opposed them with demands to limit the extent of election-based seats in parlia-ment (see Chaiwat and Phongpaichit 2008 for an analysis of the changes


brought about by Thaksin Shinawatra in the nature of Thai politics). ‘Most of the criticism against Thaksin that emerged from 2004 onwards can be related to the difficulties and failures in the attempt to establish a new pat-tern of control and distribution of rents ... The partial or complete exclusion of groups that had benefited under the old system gave rise to criticism of populist policies for diverting such a large share of rents’ (Phongpaichit and Baker 2008: 264). Overall, the rural vote in Thailand has still to put its impress on Thai politics and, consequently, on economic measures too. The recent (mid-2010) confrontation between the largely rural ‘Red Shirts’ and the largely urban Yellow Shirt-supported Thai Government are a continua-tion of this saga, a saga of which the decisive chapter has yet to be written.

In India, on the other hand, the importance of the rural vote and the various class and other interests that constitute the rural vote are now quite well-recognized in political analysis. Not only is the rural vote important, but within that women have emerged as an important constituency.

Political economy of stimulus measures

What the above discussion of the differences between India and Thailand shows is that policy decisions regarding the need for fiscal stimulus meas-ures are not the end of the story of stimulus measures. Two further questions need to be resolved in deciding the nature of the stimulus package. The first is with regard to the particular interests towards which the stimulus would be directed. The second concerns the question of what is to be done with the stimulus funds.

To take up the first question, once the extent of the stimulus package was decided in India, the decision was taken to direct it more towards the rural population, not just farmers but also wage labourers, including the women. Urban workers were not specifically targeted. As a result, when diamond workers lost their jobs, they moved back to their villages and, in early 2009, when there was a revival in the demand for diamonds, enterprises found it difficult to get enough skilled workers since they had moved away and could not be traced. This resulted in a loss of skill and a waste of productive capac-ity. More recently, in 2010, the government of India has been considering setting up an urban employment guarantee scheme on the lines of NREGA. The role and possible use of skilled workers in such a scheme would have to be considered.

With political economy interests influencing, if not determining, which classes would benefit from the stimulus package, it is also necessary to see what activities will be undertaken. This is particularly important in an open economy. In a closed economy, Keynes’s famous quip that stimulus funds could be used to employ workers to dig holes and fill them up again, was valid since there was no particular compunction to take account of produc-tivity. The important objective was to create employment until the market


revived and businesses took up accumulation and growth once again. In an open economy, however, the necessity of sustaining international com-petitiveness means that productivity considerations need to be taken into account.

Both the waiver of farmers’ debt and NREGA constitute income transfers. As transfers of income, there is no further income or productivity effect that would be manifested, other than the likely improvement in health sta-tus of the poorest rural labourers, which might itself increase productivity. An improvement in food consumption of the poorest is certainly desirable in itself. But, like other income transfers, there is no additional incentive effect on productivity. On the other hand, the FRA is definitely produc-tivity enhancing. By providing tenurial security, it increases the returns to productivity-increasing investments, thus promoting investment and productivity.

NREGA could also increase productivity if the schemes improve water retention and storage, for example. To the extent that the schemes are well executed, there could be productivity-enhancing effects. But the question is whether the schemes are well executed or approached as merely income-providing schemes. It remains to be seen whether NREGA schemes are of sufficiently good quality as to increase productivity in agriculture.

There could be yet another productivity-enhancing effect of NREGA. If they have the effect of reducing gender inequality, that could be beneficial to productivity, both by increasing women’s socioeconomic status and by giving them an incentive to perform more and better quality work. This is a conjecture, but it is likely that a reduction in gender inequality will give women more of an incentive to improve their work contribution. This, however, requires that NREGA be backed up with unmediated asset man-agement by women; a process to enhance agricultural management skills and knowledge; and a widespread gender sensitization of rural institutions through information and communication technologies, which would help in developing the social understanding of women as workers, farmers and economic contributors. In other words, unmediated control rights to pro-ductive assets created under NREGA, new technologies and management skills are most likely to provide women and their households a livelihood with equality and dignity. At the same time this is a stronger measure in overcoming poverty and social inequality (Kelkar 2009).

A way forward

In this chapter, we have seen the contrasts between stimulus packages in India in the current global crisis and Thailand in the late-1990s’ Asian cri-sis. In the former, there has been a substantial rural income package, in the form of employment through NREGA and through the farmers’ loan waiv-ers. In Thailand, on the other hand, the response put in place was an almost entirely urban package. These differences in the package, we argued, are


related to the different political economies of the two countries. In India, the rural vote is important in the electoral system and, due to numerous social movements of the traditionally lower social groups, including women, there has been some impact of the interests of the rural poor in the policy formu-lation process, leading to measures such as the National Rural Employment Guarantee Act and the Forest Dwellers’ Rights Act. In Thailand, on the other hand, rural interests hardly made an impact on stimulus measures in the wake of the late-1990s’ Asian crisis. The rural economy and rural women, in particular, were understood to have to play a cushioning role in the crisis. It is only over the past few years that rural interests, including those of the rural poor, have become more assertive in Thailand’s national politics. But the struggle to put the impress of varied rural interests on national policies is yet to achieve a measure of success.

The important lesson from this analysis is that political articulation is key to the nature of stimulus packages in terms of the sections of citizens towards whom the safety net measures are directed. The mere existence of a democratic electoral framework does not guarantee that the interests of various sections of citizens or, even more so, of various sections of the poor will be represented. Numbers do count, but relatively unarticulated num-bers do not. Numbers have to be made to count through a political process of mobilization. This process seems somewhat advanced in India. The pres-ently tumultuous phase of politics in Thailand is a process of confrontation as the newly articulated rural interests, including those of the rural poor, try to create an adequate space in Thailand’s national politics.

As the Indian and Thai economies recover their growth rates, it will become increasingly necessary to pay attention to the growing forms of inequality that have characterized the just-ended period of growth – of rural–urban inequality, inequality in wages between skilled and low-skilled workers, increasing share of profits in income, and inequality between women and men. Further, the stimulus packages themselves need to target these inequalities and to increase the post-stimulus productive base of the economy.

Both India and Thailand used safety net systems to deal with the effects of economic downturns. In the former case, the safety net was more rural based and, in the latter case, it was urban based. The way forward in social safety net measures lies in universalizing these systems. As pointed out in the case of Thailand,

Over the last generation, the society has relied heavily on the rural econ-omy and community to provide a cushion for the strains to urbaniza-tion. The village has provided a refuge in times of crisis, a counterweight to unemployment, and a retreat in old age. Over time, this works less and less effectively. As more people are bound primarily to an urban economy, the demand for more appropriate social provisions grows. The


popularity of the Thaksin government’s populist schemes was clear evi-dence. Meeting this demand is a challenge no government can now avoid (Phongpaichit and Baker 2008: 277).

With the growing rural–urban connection through circular and seasonal migration, safety net measures need to be not just universal but also port-able. Restricting the capacity to access welfare measures only in the place where one is registered would mean that many who shift between rural and urban locations would not be able to access these measures. As the title of Deshingkar and Farrington’s (2009) book points out, circular migration is a way of carrying out multi-locational livelihood strategies. Consequently, portability of entitlements (at least within the country as a first step) is necessary in order to universalize safety net measures. The need for port-ability of entitlements brings out the importance of the Government of India’s step to create a number-based Unique Identification (UID) for every person in the country. The UID could simultaneously promote conver-gence of various government schemes and portability of entitlements.

What should be the basis of entitlements? In Thailand, as noted above, measures in favour of the rural population are seen as populist schemes, forms of patronage-based redistribution of rents. In India, on the other hand, NREGA now has the status of a right. This gives it a firm basis as part of the meaning of being a citizen, albeit a rural citizen. The universaliza-tion of social safety net measures should be accompanied by an extension of these measures from the sphere of patronage, or even policy, to the realm of rights of citizens. Even with that, it is still some way to formulate more gender-sensitive and equality-based inclusive growth strategies.

Notes

1. All data from Shetty (2009), on which this section is based.2. Underpriced inputs also include irrigated water and electricity. With a low price

of electricity there is no premium on utilizing energy-efficient pumps. Similarly, there is no incentive to adopt either less water-intensive crops or less water-using methods of irrigation.

3. This was so not only in Thailand but also, for instance, in Indonesia, where, ‘During the Asian crisis, Indonesian policy had a public works program more suited to men’ (Durano and Hung 2009: 17). But in what way was the ‘employ-ment policy more suited to men’? It would be more suited to men only if the ‘nor-mal’ division of labour in infrastructure work were taken to be the only socially possible division of labour. A deliberate gender-sensitive policy on infrastructure construction could, however, change the usual division of labour and the same construction jobs could be carried out by women as by men. This requires a delib-erate policy of gender equality and the subsequent training of women to take on skilled jobs in construction. That such gender-sensitive construction policy is possible is seen by the experience of Bangladesh’s Local Government Engineering Department. In a number of road and market construction projects, women have


been trained to carry out jobs of making pre-cast concrete blocks, doing most market shed construction works and generally being part of some infrastructure projects, including those in projects financed and designed by the International Fund for Agricultural Development (IFAD) and others. Of course, the critical jobs of masons have still not been carried out by women. But, what the example shows is that it is not that some types of construction policies are suited for men, but that without a conscious gender equality policy these jobs ‘naturally’ fall to men. A stimulus policy too needs a conscious gender policy to be able to bring women into its ambit.

References

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237

12Trade Unions and the Politics of CrisisBjörn Beckman

Introduction

Who will advance a popular democratic agenda in opposition to the pre-vailing neoliberal global order and, specifically, in response to the current global crisis? I argue in this chapter that unions in the North need to ally themselves with the rising workers’ rights movement in the South if ‘the race to the bottom’ is to be avoided. A strong global labour movement is needed to make workers’ rights, including the rights of organization and representation, a precondition for the continued internationalization of capital. These rights, however, are unlikely to be promoted as part of a neoliberal world order. The advancement of rights, therefore, has to go hand in hand with a more fundamental change in macroeconomic policies. Trade unions, it is suggested in this chapter, are best placed to make it happen, but they cannot do it on their own. The wage-earners are growing globally and their struggles for more decent work and organiza-tional rights provide the backbone for a popular democratic movement. Northern unions have to realize that the centre of global unionism has shifted and that their own capacity to respond effectively to the crisis of the neoliberal turn depends on the success of the organizing efforts of the unions in the periphery.

Global unions and the crisis

Redundancies and a sharp rise in mass unemployment as a result of the cri-sis have been the major concerns of the labour movement globally as in the case of the International Trade Union Confederation (ITUC).1 It is reflected, for instance, in its attempt to shadow the G-20 meeting on the crisis which took place in the United Kingdom in early April 2009 and its follow-up in Pittsburgh in September of the same year, providing its own alternative views of what has to be done (ITUC 2009a, 2009b; ITUC/TUAC 2009; TUAC 2009; ITUC/TUAC/Global Unions 2009). The preoccupation has been with


the re-regulation of collapsed global financial markets, including new forms of financial control that allow a greater say for labour. In a joint statement on the G-20 meeting with the Trade Union Advisory Committee (TUAC) to the Organisation for Economic Co-operation and Development (OECD), it is assumed that the crisis implies the collapse of the market-oriented and unregulated world economic order. It suggests that ‘governments must begin to work on a framework of governance that changes the failed paradigm of market fundamentalism that has dominated policy and major international institutions for the past three decades’ (ITUC/TUAC 2009: 8). It is argued here that this is unlikely to happen, in any case not as a result of union pressures in the North.

As economic stagnation and decline are accompanied by mass unemploy-ment and political turmoil, the collapsing neoliberal financial order causes leading trading economies and international financial institutions (IFIs) to engage in rescue operations. One outcome is a more interventionist state, compensating for market failures through state spending and tighter finan-cial regulations. It is unlikely to lead to an end of the neoliberal trading regime and more likely to bring about its reconstruction. The crisis may even create openings for further ‘liberalization’, not the least in labour rela-tions. Capitalists, and the states that look after their interests, are likely to take advantage of the crisis to shift the balance of forces to the further dis-advantage of organized labour.

There is little that suggests that the unions in the North are prepared to push for an alternative to the current neoliberal paradigm. The global crisis is unlikely to generate a reform movement at the centre of the system that changes the balance of forces in favour of the working classes and a more popular and democratic agenda. If anything, the crisis seems to have tipped the balance radically against labour and is likely to generate new opportuni-ties for the state and capital to repress and sideline the organizational efforts of the working classes. Formal wage employment is bound to be under par-ticular pressure. Workers will be compelled to make major concessions, not just in terms of wage demands but in terms of organizational rights and achievements, for instance, the right to collective bargaining. Although rul-ing classes are anxious to rein in miscreant financial institutions, primarily with the help of massive public spending, the net result will at most be a re-regulation of financial markets, including possibly the regulation of ‘tax-havens’ and directors’ bonuses. These may be significant issues in their own right but no significant changes are likely to occur in the dominant anti-union, market orientation of the neoliberal order.

A shrinking and beleaguered union movement in the North is threatened with the rolling back of many of its past achievements, including its rights of organization and representation. These are the very rights that workers in the South are struggling to achieve for themselves and their unions.

Trade Unions and the Politics of Crisis 239

Unions as a popular democratic force

Central to our understanding is that unions in the South have the potential to be a popular democratic force even in societies where they only organize a minor part of the population. The growth of the formal wage economy is obstructed by the uneven development of productive forces. The workers of the formal economy offer voice and leadership to a wider range of popular groups because they are centrally located in the class contradictions that constitute these societies as peripheral capitalist ones. The limited and par-tial mode of transformation is decisive not just for a society’s current posi-tion in the global division of labour, but also for the likely routes open to it in seeking to address the welfare aspirations of its citizens. Working class organizations are situated in the nexus that connects society to the world economy and they develop responses that go beyond the immediate issues of employment and wages.

The emergence of alternative popular democratic organizations is obstructed by the predominance of self-employment, fragmented class rela-tions and multiple class identities. Trade unionists themselves may also be inept in responding to the needs of both their own members and wider society. Their ability to realize their potential as a popular democratic force is therefore an empirical issue. This chapter, however, suggests the need to pay particular attention to the way in which unions combine strategies of defending their own base with interventions to influence the direction of national development.

South African and Nigerian experiences compared

The paper looks in particular at two union centres: the Congress of South African Trade Unions (COSATU) in South Africa and the Nigeria Labour Congress (NLC) in Nigeria. It draws on current work on African labour (Beckman 2002, 2003, 2005a, 2005b, 2007, 2010; Beckman and Sachikonye 2001; 2010), including work with Gunilla Andrae on organizing across the formal–informal divide (Andrae and Beckman 2008, 2010a, 2010b, 2010c). To what extent are unions in Nigeria and South Africa able to take advantage of the crisis to push for a reorientation of government policy and generate the institutions that they believe are necessary for that pur-pose? The paper explores the scope for union action and the institutional preconditions for change. It pays special attention to the way in which unions are inserted in the ‘national development project’, their superior organizational capacity and their ability to offer leadership for a wider group of popular forces.

Trade unions in South Africa and Nigeria respond very differently to the global economic crisis. In the South African case, unions play a leading role


in formulating official strategy. It does so on a tripartite basis, involving both government and the organized (mostly white) business community. The outcome is therefore bound to reflect the views of the other parties, including those of a government that is anxious to have everyone on board. Although such constraints have to be considered, it does not prevent unions from pushing their own positions in order to influence the general orienta-tion of the joint response. Unions are used to negotiate on a tripartite basis both internationally, as in the International Labour Organization (ILO), and locally, as in the National Economic Development and Labour Council (Nedlac). By participating actively, unions provide an important element of popular political influence. The issues that are pushed by unions in South Africa are determined partly by the class position of their members, and partly by their attempt to reach out to a broader popular base. The wide popular support for the anti-privatization strikes, for instance, underscores that unions are not just defending the narrow ‘vested interests’ of their members.

In the case of Nigeria, no procedures exist that give unions an institu-tionalized say in policy making. There is an element of lobbying in rela-tion to the National Assembly, and unions and employers act together in petitioning the government on grievances that are specific to a particular sector, for instance, the textile industry where they make joint demands on tariffs, custom services, illegal imports and public subventions. The primary avenue, however, lies in the ability of the unions to rally other social groups, such as students, market women and professional associations, in support of a particular policy or, rather, in opposition to government policy. In recent years, the Labour and Civil Society Coalition (LASCO) has provided a forum for such alliances. In the absence of credible political institutions for popu-lar representation, the trade unions in Nigeria are assigned a leading role in voicing popular grievances.

Despite the apparent differences, the chapter suggests that unions in the two countries play a critical role in enforcing a popular democratic response to the crisis. Their mode of insertion in a highly unequal global order defines a commitment to the modernization of society in opposition to the prevail-ing market economy. Their credibility as part of the popular democratic forces, however, depends not only on their ability to represent the interests of their members, but also on the way they fight for the right to voice griev-ances and to organize in their societies more broadly.

South Africa

In contrast to the positive growth rates since the African National Congress (ANC) took over in the mid-1990s, by the second quarter of 2009, South Africa’s gross domestic product (GDP) had shrunk by 3 per cent, compared


to the last quarter of 2008 (Makgetla 2010). Although still primarily an exporter of minerals, gold in particular, South Africa is by far the most industrialized country on the continent. The manufacturing industry has changed from extreme levels of protection under the apartheid regime to being very exposed to the world market in the post-apartheid period. In particular, the automobile industry, either assembling for local markets or making vehicle parts for international producers, has prided itself in find-ing its niche. By mid-2009, however, according to a shocked COSATU (4 August 2009), vehicle sales had dropped for more than a year and exports were down by almost two-thirds as compared to mid-2008. Other sectors too were affected. The textiles and garments industry, for instance, a major employer of labour, had experienced a spate of factory closures. Although cut by half already in the 1990s it had continued to restructure and generate employment for some 100,000 wage workers (Beckman 2008). The 2008–09 crisis accelerated the decline.

A major problem, exacerbated by the crisis, was the inability of South African economy to engage a growing population without formal waged employment. Unlike in much of Africa, the growth of an informal economy of traders, small businessmen and independent agricultural producers had been obstructed by the legacy of apartheid. South Africa ranks as one of the ten countries with the lowest employment levels in the world (Makgetla 2010). Before the recession, official figures suggested that one-quarter of the work force was unemployed. An official ‘Labour Force Survey’ released in October 2009 suggested that another half-a-million workers had been added as a result of the crisis. The official figures were regarded as gross underes-timates by the unions. If those who were not formally registered were to be included, unemployment would be more than one-third (COSATU 29 October 2009). COSATU spoke of ‘a national unemployment emergency’, a ‘job loss bloodbath’ (COSATU 28 July 2009). Union rights were undermined and the reliance on outsourcing, labour brokers and casual labour accelerated.

The ‘Framework’: a joint response to the crisis

A Framework for South Africa’s Response to the International Economic Crisis was published by the government already in February 2009. It had been pre-pared by a Presidential Economic Joint Working Group, a tripartite forum, in response to the ‘deepest and most serious economic crisis in at least the last 80 years’ (Government of South Africa/Nedlac 2009: 2). It asked for more public investment in economic infrastructure, more skills develop-ment, higher levels of private investment, improved government delivery and regulation, improved economic efficiency, and ‘macroeconomic poli-cies that support decent work and sustainable growth’ (p. 4).

Manufacturing industry, the backbone of modernization, was in deep cri-sis and the state was urged to provide more ‘effective industrial and sector


strategies’ (p. 4). Special government support was required for labour-inten-sive industries, such as clothing and textiles, but also for the technically more advanced automotive and capital equipment sectors. The National Jobs Initiative in the Presidency was expected to increase spending, and local procurement was to be preferred wherever possible ‘in order to main-tain and increase local output and employment levels’ (p. 11). The Proudly South African campaign would be intensified and international commit-ments urgently reviewed to protect the local economy. For instance, cus-toms fraud and illegal imports were to be dealt with more decisively.

The ‘Framework’ emphasized employment throughout. Companies should do ‘everything in their power’ to avoid retrenchments. The gov-ernment is expected to review its outsourcing programme and its use of casual labour in order to encourage stable employment. In particular, more resources were directed to the Expanded Public Works Programme, which had been a major source of temporary employment in the recent past. ‘Social measures’, including emergency food relief, improved food produc-tion, improved access to basic services, as well as the Child Support Grant and the old age pension, were seen as other means of dealing with the impact of the crisis.

The ‘Framework’ of February 2009, as a ‘joint response’ to the economic crisis, demonstrated the unity among South Africa’s ‘social partners’. It also reflected the special concerns of the unions with industrial strategy and the need to protect vulnerable industries and the national market. In the par-ticular cases of outsourcing and the increasing use of labour brokers, Nedlac was asked to ‘expedite’ its involvement ‘in view of addressing labour’s con-cerns’. The ‘social partners’ agreed ‘to ensure full respect for and observance of fair labour standards and national legislation’ (Government of South Africa/Nedlac 2009: 18).

In assuming state power in 1994, the ANC no longer represented just the social forces that ensured its victory as a liberation movement. It also had to cater for the interests of the capitalist classes and white profession-als who were seen to be in a position to make or break the new nation. The Reconstruction and Development Programme (RDP), which served as the first election manifesto of the Alliance, was replaced by a strategy for Growth, Employment and Redistribution (GEAR), where liberal, world mar-ket-oriented elements of the bourgeoisie were accommodated in the hope of bringing about the modernization of the economy. Gelb (2005), one of the architects of GEAR, suggests that the ‘agreement’ between big business and an emerging black bourgeoisie was central in constituting the new eco-nomic order. According to Webster (2005), the view ignores the role of the unions in sustaining the deal. Unions continued to be a vital, albeit reluc-tant, party to the ‘class compromise’ that underpinned the post-apartheid order (Webster and Adler 1999).


Polokwane and the underlying divisions within the Alliance

The ‘Framework’ was produced in February 2009, that is, at an early point of the crisis when the South African economy was in the early stages of decline. Worse was still in the pipeline. By the third quarter of the year, unemploy-ment, already problematic, had reached alarming proportions. The appar-ent unity concealed underlying divisions. The leadership of COSATU was torn between, on the one hand, its conviction that only a dramatic change in government policy would stand a chance of meeting the demands of the situation and, on the other hand, its loyalty to the ANC government under Jacob Zuma, whom COSATU itself had been central in installing.

Although officially supportive of the ANC, COSATU repeatedly clashed with the ANC government over mass unemployment, which unions saw as the result of the excessively neoliberal orientation of government policies. The ANC had broad popular support but depended, especially at election times, on the other members of the Alliance that emerged out of the anti-apartheid struggle and, in particular, on its trade union leg. The divisions within the Alliance were brought to a head at the ANC National Conference in Polokwane in December 2007, where COSATU and the South African Communist Party (SACP), another member of the Alliance, led the bitter fight over leadership, causing the defeat of Thabo Mbeki and the victory of Jacob Zuma, a presumably more labour-friendly candidate (Southall and Webster 2010). The victory at Polokwane was followed by Mbeki’s resig-nation in September 2008, when Parliament elected an interim National President, and by the confirmation of Jacob Zuma in the general elections of April 2009.

This dramatic political transition took place at a time of deepening eco-nomic crisis, growing mass unemployment and industrial decline. What appeared to be a significant advance in labour’s political influence was undercut by the falling bargaining power of organized labour. The Zuma government was anxious to reassure foreign and domestic capital, weary of the way both COSATU and the SACP had mobilized at Polokwane, that no major changes would take place in the direction of policy.

In forming the new government, Zuma created important openings for the coalition of forces that were behind his victory at Polokwane. COSATU and SACP leaders were awarded positions, including the post as Minister for Economic Development given to Ebrahim Patel, the General Secretary of the Southern African Clothing and Textile Workers’ Union (SACTWU), an experienced policy maker and a principal architect of Nedlac. Nedlac, which was established as a major tripartite policy institution in the post-apartheid order, had been increasingly sidelined by the Mbeki government, according to the unions. Simultaneously, Trevor Manuel, Mbeki’s Minister of Finance, was retained as Minister of Planning, ensuring that the ambiguities of the new policy orientation were built into the government itself.


COSATU’s ‘new growth path’

COSATU’s position reflected these ambiguities but also its commitment to offering an alternative. Speaking to the National Congress of the South African Municipal Workers Union (SAMWU) in early November 2009, the General Secretary of COSATU, Zwelinzima Vavi, emphasized that the five priority areas of the ANC – decent jobs, education, health, rural development and crime – were also those of COSATU, and that the Policy Framework of the ANC Manifesto had demonstrated ‘once and for all that Polokwane was a watershed in the alignment of class forces’. Things, he claimed, were going ‘our way’ and labour was ‘increasingly leading society as a whole’ (COSATU 3 November 2009).

Yet the obstacles confronting labour were many. The crisis was the ‘the greatest ever faced by our country’. Jobs were ‘haemorrhaging’ at a frighten-ing pace and the real unemployment rate, according to COSATU, was now more than 34 per cent. The manufacturing sector, expected to provide the ‘engine of growth and job-creation’, had lost 150,000 jobs, while 110,000 had been shed in the wholesale and retail trade. If those who had opted out of the labour force were to be included, almost a million jobs had been lost since the beginning of the year. Vavi acknowledged that the achievements since 1994 were many, but that the gains had been undermined not only by the economic crisis but also by the failure to shift decisively to a new growth path. The new government was dragging its feet, making unions ‘nervous about the slow pace’ (COSATU 3 November 2009).2

The blame, according to Vavi, could not be attributed to the international economic crisis alone. ‘We have been sitting on a ticking bomb since the 1994 democratic breakthrough.’ South Africa inherited ‘a disastrous growth path from the apartheid era’, and it continues to be based on the extrac-tion of mineral resources for the benefit of building industrial power in the North. This is neocolonialism and it has to be stopped. The macroeconomic policies of the Mbeki government had aggravated matters, including the cutting of customs tariffs, the privatization of basic services, and fiscal and monetary conservatism. As a result, people are unhappy, causing ‘a wave of community service-delivery protests’ that reflect both specific local griev-ances and more general structural problems (COSATU 3 November 2009).

South Africa is the most unequal and exploitative society of the world, according to COSATU. A few business tycoons and members of the black middle class have joined the race for wealth but ‘the working class in Polokwane decided that we shall no longer walk down this path to our extinction as a nation’. It demands ‘a new growth path, based on the urgent need to restructure the economy, informed by an active industrial policy that is guided by a developmental state in pursuit of decent work and the eradication of poverty’. In the building of a more ‘egalitarian, non-racial,


non-sexist and democratic society’ and a ‘national democratic revolution’, we cannot be content, says Vavi, with ‘the mere transfer of political power’ (COSATU 3 November 2009).

The commitment to an alternative ‘growth path’, a ‘national democratic revolution’ and a ‘developmental state’, on the one hand, and to Zuma and Polokwane as a harbinger of radical change, on the other, were both incon-gruent and compatible. By insisting on a radical interpretation of Zuma and Polokwane, COSATU was attempting to push the new government in a more radical direction. Yet the underlying divisions were real enough. They pointed to the contradictions of South Africa’s transition from apart-heid. Although primarily driven by popular forces confronting and under-mining the old order from within, it had simultaneously sought to bring on board those who were in control of real resources, capital, skills and entrepreneurship.

South Africa as a ‘special case’?

COSATU’s radical aspirations reflected the special position of South Africa’s labour movement in the anti-colonial revolution. Unions had played a cen-tral role in the anti-apartheid struggle and obtained major concessions as part of the transition. By international standards, South Africa’s labour leg-islation was advanced and union friendly. Through Nedlac, unions played a significant role in policy making. COSATU had special access to post-apart-heid governments as a key member of the Alliance. All this was unique in the sense that apartheid South Africa was a unique historical construct in its combination of persistent colonial features and a high level of industrializa-tion and working class formation.

This uniqueness does not make South Africa less relevant as a breeding ground for working class aspirations in confronting the neoliberal global order. In his address to the SAMWU congress, the General Secretary of COSATU spoke of the ‘massive inequalities worldwide’ as largely responsi-ble for the crisis. Although the focus was on rejecting the macroeconomic policies of past South African governments and the need for an alternative growth path, notions of ‘national democratic revolution’ and ‘development state’ point to the challenge of the world order. Neocolonial domination stood in the way of national emancipation and nothing less than a demo-cratic revolution, a transformation of society based on popular democratic aspirations, would be able to achieve this. A ‘democratic developmental state’, that is, a state informed by such aspirations, was expected to provide the institutional means.

COSATU as a spent force?

The remarkable contribution of the labour movement to the liberation of South Africa is widely acknowledged. A recent review is more critical of


COSATU’s post-liberation achievements. Much has happened, according to Bhulungu (2010a), both with COSATU and with South African society to alter the role of unions as a leading democratic force. Most importantly, in its attempt to reintegrate into the global economy, South Africa has been obliged to adjust to a global market economy that gives little space for unions, and membership in manufacturing has declined sharply. Although post-lib-eration legislation has allowed large new groups of public sector workers to join, in most cases they have little experience of struggle. Demographically, South Africa’s working class is getting younger while union leadership is ageing and often incorporated into an assertive class of political and busi-ness entrepreneurs. Ideologically, unions may retain a radical stance but in practice they fail to have much impact on the direction of policy (Bhulungu 2010a).

All this may be true. Unions continue, however, to represent an organized community with notions of development that transcends South Africa’s integration into the world economy. They have vested interests in protect-ing wage employment and workers’ rights. Like most peripheral countries of the world, South Africa continues to be subjected to neo-colonial domina-tion. The size and organizational experience of South Africa’s working class continues to give COSATU a vanguard role in fighting the prevailing global order.

Nigeria

The oil economy and the economic crisis

Nigerian oil exports made the economy less vulnerable to the global eco-nomic crisis of 2008–09. Although oil prices at first slumped, they reverted to high levels in 2009. In the pre-oil period before the 1970s, Nigeria’s wealth rested on agricultural exports (cocoa, palm oil, groundnuts, cot-ton), but with the rise of the petroleum economy, the commercial agrar-ian base disintegrated. Manufacturing industry, primarily for domestic markets, once substantial by African standards, peaked in the early 1980s. But it declined under policies of structural adjustment from the late 1980s onwards. The formal wage economy was undermined by privatization and liberalization but also by the failure to provide basic economic infrastruc-ture. Massive imports from China, India and other expanding economies in the East undercut local production well before the current crisis. Import tariffs did not help much as local borders were easily penetrated. The Yar’adua government (2007–) pushed ahead with the ‘de-regulation’ agenda inherited from the Obasanjo regime (1999–2007). De-industrialization and de-unionization accelerated. Although such processes predated 2008–09, they were reinforced by the economic crisis, underscoring the global shift in productive capacity. Private investors responded by stepping up local disinvestments.


Unlike South Africa, Nigeria lacks credible employment statistics, and it is not clear to what extent the global crisis of 2008–09, or the ‘meltdown’ as the NLC prefers to call it, was translated into an additional increase in mass unemployment. It certainly fuelled resistance to the neoliberal project.

The Nigeria Labour Congress

The NLC was created by the military government in 1978 in an attempt to control the labour movement, make it amenable to the development strategies of the military and block its foreign alliances. Unions in the past were organizationally divided between rival centres with links to separate organizations globally, often involved in intense competition sponsored by cold-war adversaries. The intervention by the military pre-empted a local unity movement which was seen as a threat to military control. It is widely assumed that the intervention backfired and that it actually accelerated the unity movement and enhanced the radical union leader-ship under Hassan Sunmonu (Hashim 1994; Beckman 1995; Andrae and Beckman 1998).

The reforms contained a virtual organizational monopoly at the national centre and in individual sectors, as well as compulsory payments of union fees through ‘check-off’ payments by the employers. They were contested by successive governments that were resentful of the outcome but also within the unions themselves. ‘Monopoly’ was seen as entrenching union offic-ers at the expense of democracy and membership control (NLC 2009d). Repeated bans in 1987 and 1994, most prolonged during the dictatorial regime of General Abacha (1994–98), reinforced the preparedness of indi-vidual labour leaders to ‘accommodate’ to the powers that be (Beckman 1995). New labour laws during the Obasanjo and Yar’adua regimes stipu-lated ‘freedom of association’, that is, the establishment of multiple labour centres (NLC 2009b).

In practice, the organization of the NLC and its affiliated industrial unions remained intact even if their control over individual work places was under-mined. The only other labour centre was the Trade Union Congress (TUC) that organized some of the senior staff associations. Simultaneously, struc-tural adjustment and liberalization of the economy destroyed local indus-tries, not least in the once powerful textile sector, and privatization hit hard at some of the public sector unions as in electric power production. At the national congress of the NLC in 2007, the expanding teachers’ union, now one of the biggest public sector unions, replaced the textile workers as king makers. The National Secretariat of the NLC continued to assert itself as one of centres of radical political power in Nigeria’s ‘civil society’.

Unions and politics

Unlike in South Africa, for the unions the main challenge is not primarily one of drawing on political access to the government in order to maximize


influence, but of fighting a government that is seen as corrupt and inef-ficient. Unions demand basic industrial infrastructure and an electoral reform that makes the government accountable to the electorate. The rela-tions between trade unions and the ruling party are antagonistic. In their effort to change the development agenda, trade unions reach out to their allies in ‘civil society’ and the informal economy.

In Nigeria, as in many African societies, trade unions see themselves as an alternative source of political power, often aspiring to replace existing governments (Beckman and Sachikonye 2010). This is partly due to the insertion of wage work in the dynamics of modernization, as discussed above, which makes unions feel that they know what ‘national develop-ment’ should mean. Union claims to power are equally based on their perception of the immaturity, incompetence and greed of the prevailing ruling classes and their ramshackle political organizations. While some union leaders may be corrupt themselves, structurally they are more con-strained, being part of formal membership organizations with systems of accountability rooted in the contradictions that workers confront in the work place. Relations between employers and employees alert workers to injustices and make them seek collective solutions when confronting either management or collaborationist or corrupt union leaders (Andrae and Beckman 1998). They are suspicious of being short-changed by union lead-ers and readily take recourse to violence in disciplining those who fail to deliver. Competition for elected office in both work places and for national offices is no doubt also plagued by devious practices, ethnic mobilization and corruption. Unlike in national and party politics, however, the out-come is more likely to be influenced by real contradictions, related to the working conditions of the members.

Union attempts to intervene more directly in party politics are fraught with their own difficulties and disappointments, as in the case of trade unions in Zambia taking the lead in ousting the government of Kenneth Kaunda and their problematic role in Zimbabwe’s Movement for Democratic Change (MDC) (Beckman et al. 2010). Beckman and Lukman (2010) have shown how the recent effort to build a Labour Party in Nigeria was a dismal failure.

Central to the self-image of the NLC is a notion of its key role in ‘civil society’ and its ability to lead a wider alliance of popular democratic forces in opposition to ruling-class elite politics. It suggests an alternative avenue to political power and influence that side-lines the sectionalism of Nigeria’s elite politics. Other actors in ‘civil society’ have been anxious to involve NLC in joint actions, allowing them to draw on the organizational clout of labour in reaching out to various parts of the country as well as providing some protection against state repression.

Unionists continue to claim that they can provide superior government, not only in terms of the substance of policies but also in terms of the popular


democratic basis of the political process. In the Nigerian case, the current crisis has reinforced awareness that the ‘meltdown’ not only threatens past achievements but also assigns it with special responsibilities for ensuring ‘national development’.

Petrol prices and the popular democratic agenda

Two issues in particular have in recent time offered a basis for popular mobi-lization: petrol prices and electoral reform. The federal government has made recurring attempts to raise the price of petrol products to reflect the world market price of oil, as demanded by the World Bank (Beckman 2002, 2004). Unions have spearheaded resistance, arguing that an increase would have disastrous consequences for ordinary people, whose daily livelihood depends on petrol prices, not least for food. Moreover, they argue, oil is a national asset,and ordinary Nigerians should be allowed to benefit from it. Unions are particularly outraged by the failure of the government to ensure that local refining capacity is maintained. Imports, they argue, are lining the pockets of politicians and petrol merchants. Major investments in resus-citating the three local refineries have been a failure because well-placed individuals, unions claim, make money from importing refined products for the local market.

This is not, however, only an issue for the union and its members, and the NLC has been anxious to make its campaigns over petrol prices a mat-ter of wide popular support. It has provided a platform for informal alli-ances with other ‘civil society organizations’, and, in more recent years, for the establishment of a formal body, LASCO. The coalition includes professional organizations, student unions and a wide range of human rights groups. Market women and other popular groups are not formally members of the coalition, but their mobilization is crucial in making the campaigns effective. They help to enforce adherence and discipline. A series of seven rallies in the different ‘geopolitical zones’ of the coun-try were organized between May and October 2009 (NLC 2009a, 2009c; LASCO 2009).

Electoral reform: a rallying cry for political change

As Gunilla Andrae and I visited Labour House, the NLC offices in Abuja, preparations were well ahead for the final rally of that year’s LASCO campaign in the federal capital (Omar et al. 2009; Andrae and Beckman 2010a). Rather unexpectedly, electoral reform was a central feature of the campaign. The federal government had chosen to ignore key demands of a committee on electoral reform that it had appointed. Much of what was seen as wrong with Nigerian politics was attributed to the manip-ulation of elections by those in control of the Independent National Electoral Commission (INEC). Most of Nigeria’s post-Independence gov-ernments have been in the hands of the military, and the return to ‘civil


rule’ in 1999 generated widespread expectations of a more transparent and responsible government, including some ‘dividends of democracy’. The gross misuse of public office by the Obasanjo regime, first elected in 1999 and re-elected in 2003, however, and the instalment of his hand-picked successor in 2007, Umaru Yar’adua, had underscored the bankruptcy of electoral politics.

Fresh expectations were created by the decision of the newly installed Yar’adua government to appoint a committee under the chairmanship of Justice Uwais to review the electoral process. The decision reflected the apparent illegitimacy of the new regime and its effort to appease its enraged opponents. The committee was broadly constituted, including a representa-tive of the NLC, which made its own submission (NLC 2008d). It was care-fully watched (NLC 2008a, 2008b, 2008c; NLC/CSCC 2008). The decision by the government to ignore some of its central demands, including the demand for an autonomous electoral commission, was met with popular outrage. The current commission was widely seen as a tool of the state in manipulating the election results. The NLC had agreed to serve on the com-mittee, it said, because it had thought that Yar’adua ‘was genuinely commit-ted to the reforms’ (NLC 2009a).

Upholding the recommendations of the Uwais Committee became a key feature of the 2009 LASCO campaign (NLC 2009a, 2009c; Omar et al. 2009; LASCO 2009). The coalition was convinced that the Yar’adua government was unable to reform itself and that it had to go. It should be replaced by ‘a government that will end suffering and defend the people’, not by another one made up of ‘exploiters and agents of the World Bank and the IMF’. LASCO was determined ‘to struggle along with our people to defeat the alli-ance of Nigerian oppressors and their masters’ (LASCO 2009). Resistance to specific policies of the government on privatization and petrol prices was coupled with demands for a change of government, suggesting a fundamen-tal redirection of national state power.

Conclusions: the shifting location of the global working class

In pointing to trade unions as a popular democratic force ready to contest state power, South Africa’s and Nigeria’s experiences are not conclusive on their own. We may also decide, justifiably, to focus on other issues such as the dynamics of internal democracy where there is an ongoing debate, including within the unions themselves (Bhulungu 2010b; NLC 2009d). Even when it is agreed that the particular experiences of South Africa and Nigeria may point to the possibility of union power, other examples read-ily come to mind, suggesting that unions have either been incorporated or subdued by the state, as, for instance, in Kenya and Uganda (Andrae 2004).


Nor is there a shortage of venal leaders who use the union ladder to access private wealth and power.

Union experiences in South Africa and Nigeria, however, are reinforced by the rise in organizational capacity of workers elsewhere. It is a global shift, reflecting the changing location of production. It is not a new phe-nomenon; it has been observed for some time (Hall-Jones 2007), but it is accentuated by the current global crisis. There is a dramatic shift in the loca-tion of the wage-earning population globally. This is not just about the rise of major exporters as such as in China and India, but relates to a wide range of countries in Asia and Latin America. In some instances, like in China, trade unions are constrained by a repressive party-state, while in India the labour movement is weakened by a multiplicity of party-related unions and segmented work-place relations where only small minorities are allowed to unionize. The dramatic growth in work-place unrest, however, despite offi-cial state and party control, suggests a transitional phase where new forms of labour organization are likely to emerge.

The centre of global union power is shifting, and the process is acceler-ated by the current global crisis. The crisis reinforces anti-union tendencies globally, but it also prompts fresh resistance and expectations of union-led alternative development paths. Not surprisingly, the most notable advances in building union rights are made in countries that historically had less waged employment or where rights have been severely repressed. Major advances have been made in unionization in the face of fierce resistance from state and capital in countries like South Korea and Brazil. It is an ongo-ing process.

Partly, it is a matter of independent organizing and new international organizations. Unions in South Africa, the Republic of Korea and Brazil, for instance, provide the backbone of the Southern Initiative on Globalisation and Trade Union Rights (SIGTUR). Partly, it is a refusal to accept ‘Western’ leadership within existing labour internationals and ‘Global Unions’, that is, what used to be called ‘Trade Secretariats’. SACTWU, which we follow closely, has been pressurizing the International Textile, Garment & Leather Workers’ Federation (IGTLWF), for instance, for more radical interventions. Also at the regional level, ‘Southern’ union power is assert-ing itself. There is close cooperation between COSATU, NLC and Ghana’s TUC.

Unions in the advanced countries continue to struggle for survival in the face of the anti-union offensive that followed the ‘neoliberal turn’, and that is being reinforced by the current global crisis. Higher levels of unemploy-ment are accompanied by more individualization of work tasks and greater flexibility in employment relations. The ability of unions in the North to defend their rights depends on effective alliances with the new centres of union power in the South. Only a truly global union movement that reflects


the shift in the global working class will be able to impress on governments and companies that union rights have to be universally recognized and respected. It is bound to lead to a shift in the leadership of the interna-tional labour movement. In the past, unions in advanced countries have been in the lead. In some cases, governments have channelled public funds for ‘development cooperation’ through the unions, reinforcing their pater-nalistic, missionary role. Cooperation has to be based on an understanding of mutual gain.

Two sets of alliances, however, may be necessary in order to build an alter-native agenda in defence of national development and popular democracy. Wage workers in much of the South, not least in Africa and the other periph-eral regions, continue to operate in an environment dominated by small, independent producers and traders in the informal economy. The ability of trade unions to defend workers’ rights, for themselves and globally, may therefore depend on reaching out to the organizations of the informal economy. This is a provisional suggestion, drawing on current studies with Gunilla Andrae. The argument is more fully explored elsewhere (Andrae and Beckman 2010a, 2010b, 2010c).

Experiences in South Africa and Nigeria, especially when situated in a context of a shifting balance of forces globally, suggest that trade unions, although representing only a small fraction of the population, especially in Africa, provide an alternative to the neoliberal world order, including an alternative route out of the current crisis. Apart from advancing and protecting democratic rights, they have a self-interest in modernization as manifested in the growth of formal wage-employment. They constitute the best organized section of civil society. Other popular groups look to them for leadership. In the global South, their importance is enhanced by the way societies are being inserted in subordinate position within a world order that is dominated by the economically and militarily powerful.

Notes

1. ITUC is the former ICFTU (International Confederation of Free Trade Unions), headquartered in Brussels.

2. Other occasions for major COSATU pronouncements on the economic crisis and its effects: COSATU response (COSATU 3 April 2009) to the G-20 meeting in London and its declaration on 2 April 2009; speech by the General Secretary of COSATU to the National Congress of the National Union of Mineworkers (NUM) (COSATU 28 May 2009); a meeting of the Central Executive Committee (COSATU 4 June 2009); Annual Summit of Nedlac in early September 2009; 10th National Congress of COSATU (21–24 September 2009); COSATU’s response to the Green Paper on National Strategic Planning (COSATU 16 October 2009); Address to ILO Conference on The Social Economy: Africa’s Response to the Global Crisis (COSATU 22 October 2009).


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257

13Chinese Migrant Workers in the Global Financial Crisis: Government and Stakeholder InteractionsYing Yu

Introduction

The global financial crisis in 2008 has been a great challenge for China’s economy in this interdependent international market. Such economic impact has hastily rippled to the socio-political dimensions. The slowing down of the gross domestic product (GDP) growth rate and the recession of export-dependent industries have directly contributed to the torrent of unemployment, increasing income discrepancy and socio-political instability. However, at the bottom of the hierarchy of victims are still previously deprived, disadvantaged and marginalized groups of people – peasants, migrant workers and the urban unemployed. The Chinese gov-ernment admits that migrant workers have been hit the hardest during the crisis because of the decline of international market demands and bankruptcy of labour-intensive manufacturers in east coastal areas, the Pearl River delta and the Yangtze River delta. By the end of 2008, many of China’s estimated 225 million migrant workers (BBC Chinese 2009), who had gained the right to leave their land, seek a job and better life in towns and cities since the 1978 reforms, were facing the prospect of returning to the countryside without jobs. About 70 million joined the waves of ‘return-ing home’ before the Spring Festival in 2009, and although 80 per cent flowed back to the cities after February, there are still 23 million migrant workers struggling with little hope of re-employment, or intention to farm at home (BBC Chinese 2009). More disturbing are the facts that 13 per cent of those returning and jobless migrant workers have been affected by wage arrears due to their employers’ closure; 5.7 per cent have their salaries deferred as a result of staff cuts; about 1.38 million do not even have lands to cultivate, which means they have been deprived of their last resort to take up farming again (National Bureau of Statistics 2009a; CCSR 2009a). The primary critical challenge for migrant workers in the global


financial crisis is mass unemployment because of limited life choices and unequal opportunities.

The problems attached to migrant workers are not new in China. Though administrative restrictions to rural–urban migration and mobility have been largely lifted since the reform (Forbes and Linge 1990), the powerful institution of hukou (a registration system to divide and manage rural and urban population since 1958) still exists and discriminates against these rural migrant workers, who have a rural hukou, in many basic aspects of life (Yang 1997; Wang 2005; Naughton 2007; Chan 2009). It is an institutional barrier for them to get access to the local urban citizenship-based services and welfare. Their problems have become acute and significant in recent years: their grievances of poor working condition and housing, unpaid wages or compensations, absence of social welfare, lack of human capital and social capital, restriction in children’s education, conflicts in identity, difficulties in community integration and other socioeconomic issues are gradually exposed to the mass media, policy makers and a number of stake-holders, becoming a dissonant chord in the symphony of China’s reform. The global recession has undoubtedly worsened the status quo of this vul-nerable group, intensified diverse contradictions and conflicts, and alarmed the authorities of the deep sociopolitical implications and potential insta-bilities behind the above-mentioned statistics.

This has become a crucial time to test the capability of crisis management at both the official and popular levels. On the one hand, the central and local governments have actively responded to this global financial tsunami and dealt with migrant workers’ problems through stimulus packages, policy adaptation, and other proactive and responsive strategies. There has been fur-ther involvement of corporate sectors, civil society organizations, academics, foreign governments and international organizations in cooperating and pro-moting such top–down endeavours. On the other hand, nation-wide conten-tious activities have emerged from the migrant workers themselves, as well as grassroots service providers in response to their long-standing problems and worsening situation. Migrant workers’ own spontaneous organizations such as laoxianghui (township-based community groups), other grassroots civil society organizations and human rights activists have been the major forces to lead such bottom–up attempts to address and defend migrant workers’ rights. In addition, there has been a weak but increasingly evident tendency to coordinate efforts from both directions, to initiate a broader multilogue among different stakeholders, including the vulnerable groups themselves, to strengthen the capacity of the government in communication, self-refor-mation and innovation, to expand the influence of social mediatory groups from social service provision into policy advocacy, and to turn the negative instability and vulnerability of migrant workers into positive and construc-tive forces for a harmonious society that is desired by both the authorities and the populace. Although it is still fragmented and less challenging in

Chinese Migrant Workers in the Global Financial Crisis 259

terms of state–society relations compared to civil society in Western democ-racies, it has indicated a localized, law-based and participatory approach that mediates the top–down and bottom–up directions. This chapter will provide a comparative and critical discussion on how civil society advocacy has played an important role in promoting progressive social policy initia-tives in responding to the needs and demands of Chinese migrant workers in the context of the financial crisis. The main methodology of this chapter is documentation based on journal articles, research reports, media reports, activity reports, project documents and videos of civil society organizations, and literature both on migrant workers in contemporary China and on com-munity participation technology.

Top–down models

The major players for policy making and implementation are the central and local governments during crisis management. It can thus be summa-rized as four models that are active in solving the problems with migrant workers in a top–down manner.

Governmental policy input

The first model is a direct large-scale governmental policy input. In order to boost domestic consumption and create jobs, the Chinese government has launched a massive spending programme contained within the 4 tril-lion yuan1 (US$586 billion) stimulus package. It focused on ten major areas, including low-income housing, rural infrastructure, water, electricity, transportation, environment and technological innovation (Tan 2009; Cha 2009).

The provincial and municipal governments have been both actively and passively responding to the sharp economic downturn, since the central government is providing 29.5 per cent of the funding for the overall stimu-lus programme, with the remainder coming from local governments and other sources (China Daily 2009). Besides the stimulus package for job crea-tion, local governments have launched numerous initiatives designed to improve conditions of migrant labourers. Indeed, the fate of being laid off indicated the low educational/skill level, lack of training and shortage in human capital of those jobless migrant workers. Those with an education of only junior school or below amounted to 82.9 per cent (National Bureau of Statistics 2009a). On the other hand, for those who returned home and sought business opportunities in local villages and towns, financial defi-ciency could be the major problem. Vocational training and entrepreneur-ship are then adopted and regarded as the two most prominent panaceas to the problem of mass unemployment (O’Brien 2009).

China’s labour-exporting provinces have often used preferential policies to help returning migrant workers, including job-training programmes,


offering microloans and tax incentives to help migrants start small busi-nesses at home (Xinhua News 2009a). For example, Henan Province aimed to provide vocational training for two-thirds of the 3 million migrant workers who were staying at home after the Spring Festival, and it has put aside 1.5 billion yuan of small-volume loans to encourage about 100,000 peasants to start businesses (Xinhua News 2009b). Aid has also come in many different, flexible and strategic forms. During the most difficult times of unemploy-ment, local authorities have handed out food coupons, and distributed veg-etable oil and other essentials (Cha 2009).

Horizontally and vertically, party and governmental departments, trade unions and other government-sponsored organizations have planned or been involved in providing aid programmes. China’s Central Communist Youth League and the Ministry of Human Resources and Social Security have jointly issued a circular to initiate a two-year training plan for young migrant workers coming to work in the cities. The China Staff Education and Vocational Training Association, China Home Service Association, China National Household Electric Appliances Service Association and the China Cuisine Association have all cooperated to offer training courses and job-seeking services after the training. In addition, youth leagues and human resource departments at local levels have been asked to contact the rele-vant industry associations to arrange training programmes in their regions (CCSR 2009b). Official media have also participated in the campaign: with the support from the National Propaganda Department and the Ministry of Education, China Education Television has opened a new channel to offer vocational training and educational services to the masses, with some seg-ments designed explicitly for migrant labourers (Lu 2009).

The All China Federation of Trade Unions (ACFTU) is another powerful associational chain, spanning central to local levels, that is sponsored by the government. It has decided to allocate a certain percentage of its poverty elimination fund and arrange special funds to help migrant workers find employment and provide for their subsistence. Meanwhile, trade unions of all levels have been required to make full use of their resources and make innovations to help migrant workers. There have been up to 3,096 aid cen-tres in China at levels higher than local counties. A hundred national trade union employment training centres have also been set up since 2009 in the provinces with the largest number of migrant workers (CCSR 2009c).

Besides the severe situation of unemployment that demands immediate policy responses, social welfare for migrant workers is another problematic policy area that is deeper rooted. The fact that this group of urban ‘rural’ poor, unlike the urban ‘urban’ poor, are mostly excluded from the ‘urban’ welfare and social security system (Chan and Buckingham 2008) has become more aggravated and alarming. Welfare reforms have come into being since early 2000 and have received growing central-level attention, financial sup-port and resources, especially during the financial crisis. According to the


National Bureau of Statistics (2009b), great achievements have been made: migrant workers who joined the pension insurance amounted to 23.8 mil-lion, 41.53 million joined the medicare insurance, 15.18 million unemploy-ment insurance, 50.54 million injury insurance until 30 June 2009. However, the hidden long-term institutional problem behind the welfare distortion is still hukou. The Chinese hukou residential registration system has made rural migrants’ movement and citizenship totally separate, which becomes an institutional barrier preventing access to local urban citizenship-based services and welfare, such as public housing, health insurance, unemploy-ment insurance, pension fund, housing provident fund, children’s educa-tion and so on (Chan 2009; Zheng et al. 2009). Their ‘temporary’ nature has also rendered them easily expendable, disadvantaged, vulnerable and often subject to exploitation and labour abuse. Partial and experimental reforms have been made from the abolition of custody and repatriation system in 2003 to a relaxation of standards and conditions for migrant workers to set-tle down in small- and medium-sized cities from October 2008. There are other governance innovations, such as rewarding 1,000 ‘National Excellent Migrating Workers’ at the end of 2008 by qualifying them with a hukou of the city where they work (Wen 2009). However, these efforts have little national, large-scale or sustainable effects.

Strategic response to contentions

If the above-mentioned policy inputs are proactive strategies for crisis man-agement in preventing potential social unrest, then this model of strategic response is about how different stakeholders are cooperating to respond effectively to the actual contentions of migrant workers. From the view-points of the authorities and the top–down perspective, these stakeholders include central and local governments, governmental departments, trade unions, corporate sectors and law enforcement institutions. An effective response means to strategically (i) keep contentions in low profile and non-confrontational status, and avoid small cases turning into riots; (ii) project the government’s positive image in problem resolution, pacify any conflicts and minimize any threats against social stability.

The most common and visible trigger for migrant workers’ discontent and contention is still the unpaid or delayed wage, severance, subsidy or compensation, which has worsened since the global financial crisis. Labour disputes and protests over lost back payments have surged regularly and fiercely, igniting fear in both central and local officials concerning social unrest. Guangzhou, one of the largest harbours for migrant workers as well as for China’s exports, reported not only a sharp decline in GDP and export growth, but also 10 per cent more mass labour disputes2 in the fourth quarter than the third quarter in 2008 and 4.4 per cent more in January 2009 than in December 2008, as recorded by the Guangzhou Stability Maintaining Office (Xinhua News 2009b).


The ‘bread and butter’ demands of migrant workers are not difficult to meet. The government has not only rhetorically addressed their needs but also adopted practical policies. Every year just before the Lunar New Year, there has been a nationwide campaign, sponsored by the government, to help migrant workers recover their wage arrears. As for the newly emerging severity of unpaid wages, the government has made greater efforts to be more accountable and responsible. If bankrupt factory bosses skipped town before payday and stirred up contentions, local officials then helped pay arrears, offered retraining and helped find new jobs. However, there were so many wrongs to be righted. Shenzhen, whose government was required by law to provide back-pay for failed factories and had one of the best track records, covered only about 80 per cent of what was owed (Huang 2009). Facing a wave of marches, sit-ins and general unrest which were triggered by the deteriorating financial environment, government officials have been forced to respond with a mixture of pay-offs and crackdowns on leaders of the movements (Cha and Fan 2008).

Besides administrative responses, a new labour contract law took effect from the beginning of 2008. According to the law, if a boss dismisses a worker, he has to pay compensation – one month’s salary for every year in service to his employer (Labour Contract Law 2008). Provisions on mass lay-off and collective dismissals were recently reorganized, so that firms seeking to lay off more than 20 people, or 10 per cent of their workforce, needed to explain the layoff to trade unions or all their workers 30 days in advance (Xinhua News 2009b). There were cases when the court fined an employer for dismissing a worker without notifying the trade union (Chengdu Commercial Daily 2009).

The official ACFTU has also realized that the rights-defending contentions of migrant workers are generally short of organizational and legal support. It has then encouraged the forming of trade unions through the plan to add more than 5 million new migrant workers to trade union membership (CCSR 2009c). It has also initiated a national campaign to offer aid to mil-lions of migrant workers, including support in rights protection. Observers say the trade union itself has been more aggressive in not only unioniz-ing a growing number of companies, but also striking collective bargain-ing agreements with companies such as Wal-Mart for the retailer’s Chinese operations (Mitchell 2009).

However, for the authorities, there is a balance to be kept between (i) defending the rights of migrant workers and (ii) easing the challenges facing the enterprises due to the economic downturn and a new labour contract law that makes it much harder to hire and fire workers. There were circum-stances during which ACFTU was reined in because of the government’s concerns over the economic outlook. In November 2008, Kong Xianghong, vice-chairman of ACFTU’s Guangdong branch, told the media that, ‘Since most companies are having a tough time at present, we will temporarily stop


collective bargaining. It will be resumed depending on the economic situ-ation’ (Mitchell 2009). More cooperation is needed among labour dispute arbitration departments, trade unions, corporate sectors and law enforce-ment institutions in solving interest conflicts and fluctuation.

As for local confrontation during the contentions, the central govern-ment has become more aware of the perils caused and public anger triggered by local officials’ improper handling of mass incidents. To improve local officials’ capacity to deal with conflicts, the Ministry of Public Security launched a programme to train about 3,000 county public security directors in Beijing in early 2009. They took lessons such as ‘maintaining social sta-bility and handling emergencies’, and ‘how to neutralize rallies and strikes before they blossom into so-called mass incidents’ (Xinhua News 2009b; Jacobs 2009). However, the central–local inconsistency in policy making and implementation, the dominance of local vested interest groups, the central financial pressure and local protectionism have all led to a general ignorance or victimization of the real interests of migrant groups and inef-ficiency in problem-solving.

There are another two models that have obtained growing profile, impact and attention, which also represent the eminence of a non-state and tran-snational sphere for participation in China’s domestic policy advocacy.

Academic advocacy

This model is the collaboration of statistics bureaux, universities, think tanks, policy-making agencies, research institutions and the media. The goal is to make consensus in policy research and discussion while publiciz-ing such consensus through conferences, seminars, publications and media exposure. Information collection and empirical research are the first steps to identifying concrete problems and drawing up a policy blueprint. National and provincial bureaux of statistics, as government organs, have played important roles in mobilizing resources and obtaining preliminary and up-to-date data on migrant workers. Based on authoritative figures, leading policy makers such as Liu He, deputy director of the Office of the Central Leading Group on Finance and Economy, were then able to prioritize items like ‘providing occupational training and education for the migrant work-ers’ to top the policy agenda at that moment (Fu 2009). As he said to the media, in the short term, the employment problem could be cushioned, as the government intended to channel some of the jobless migrants back to their homes, encouraging them to start farming by offering subsidies and professional training. In the long run, strategic arrangements should focus on revamping China’s industry and income distribution policy. The government should continue to support labour-intensive industries and increase domestic consumption to create more jobs for migrants. In addi-tion, migrants should be given urban household registration rights and the same social welfare as city residents (Fu 2009). Although still at the stage of


rhetoric, the proposal based on practical figures appears more convincing for the central decision-making bodies.

Social scientists engaged in such policy discussions have become opin-ion leaders and public intellectuals in offering perspectives, suggestions, arguments and evidence to shape policy orientation. They have been reg-ularly quoted by the official and mass media and, to some extent, are shaping the policy agenda. Zheng Zizhen, the director of the Institute of Sociology and Population in Guangdong Academy of Social Sciences, said, ‘The training can help sharpen their competitive edges so that they can get better jobs after the global financial crisis ... After all economic competition is the competition of human resources. But the training has to meet the migrant workers’ real demands or market demand’ (Xinhua News 2009b). Wang Chunguang, a researcher on migrant workers for the Chinese Academy of Social Sciences (CASS), thought that most peasants going back to their rural homes was not a long-term solution. He said, ‘It’s a way to tide things through the crisis, but China will have to have the migrant workers integrated into cities during the country’s moderniza-tion, since China’s urbanization rate is even lower than the world average’ (Xinhua News 2009b).

There is also a wide range of submits and symposiums involving both policy makers and scholars in discussions on China’s social policy during the global financial crisis with either governmental or academic initiatives. A case in point was one recently organized by the CASS in Beijing, in June 2009. Directors, experts and professors from the China National School of Administration, Nankai University, and the Development Research Centre of the State Council suggested the Chinese government should consider launching a second stimulus package focused on social welfare, includ-ing social security and education, in response to the global financial cri-sis, which was ‘far from over’ (Tan 2009). There were arguments that the Chinese government’s intervention during the crisis focused too much on economic issues and infrastructure construction, but it did not chalk out ways to ‘promote long-term sustainable development’, ‘setting up substan-tial social systems’ and ‘powering up human capital’. Experts also suggested that China could get some good ideas from social policies adopted in other major economies (Tan 2009). Behind these efforts, realistic or idealistic, though effective in promoting elite and intellectual communication, still lies the big question of who has the real decision-making power.

Global partnership

This fourth model sees an emerging tendency of transnational and mul-tinational partnerships between (i) Chinese governmental agencies and non-governmental organizations (NGOs) and (ii) global players, including mainly foreign governments and NGOs, and intergovernmental organiza-tions (IGOs).


For example, the World Bank’s four-year project – ‘the Rural Migrant Skills Development and Employment Project for China’, approved in June 2008 – was proposed to support the transition of rural workers to urban areas in order to have better access to employment opportunities as well as law and justice. There were four components to the project. The first one was skills development. It aimed to (i) enhance capacity of the project provinces to deliver training to potential migrants; (ii) improve the quality, relevance and flexibility of the training offered, consistent with migrant and market needs in receiving areas; and (iii) improve functioning of the training mar-ket. The second component was employment services. It aimed to improve the provision of labour market information and public employment services for rural migrants, and further develop policies and institutions for employ-ment services and support the development of the market for employment service provision. The third component was worker protection. It aimed to improve the employment conditions of migrant workers and increase awareness of workers’ rights and support legal services for migrants. Finally, the fourth component was policy analysis, monitoring and evaluation, and project management. Its target was to (i) support a policy-oriented research programme, and the sharing of information and knowledge concerning rural–to–urban migration; (ii) help improve the monitoring of government programmes in skills development, employment services and worker protec-tion, and conduct impact evaluations of selected policy interventions; and (iii) support project management and capacity-building in general manage-ment and planning (World Bank 2008).

Another piloting project beginning in January 2007, entitled ‘Enhancing Legal Aid Service for Migrant Workers in China’, has brought together national and international partners of the United Nations Development Programme (UNDP), the Belgium Government, the All China Lawyers’ Association (ACLA) and the China International Centre of Economic and Technical Exchange (CICETE) under the Ministry of Commerce, as well as local lawyer firms and voluntary lawyers. This project, accomplished and disseminated in Beijing in April 2008, has successfully established a net-work of working stations that provide professional legal aid to migrant work-ers in over 20 provinces, municipalities and autonomous regions in China. Through services of these working stations, thousands of migrant workers, both women and men, were able to gain easy access to free and professional legal aid, such as legal consultation and case presentation. As a result, mil-lions of yuans of defaulted wages and other compensations were paid back to migrant workers. The capacity of migrant workers to protect their own rights was also enhanced through training and awareness-raising sessions conducted by the working stations. Policy issues, such as NGOs’ role in legal aid and how to better give voice to migrant workers in the revision of related government regulations, were also tackled through this project by the All China Lawyers Association’s (ACLA) policy recommendations to relevant


ministries of the Chinese government. This initiative was regarded as an important catalytic role to mobilize additional Chinese resources in nurtur-ing the ownership of the solution to this issue by all the Chinese competent actors (United Nations in China 2008).

From selective cases, we see that only Chinese NGOs with strong gov-ernmental backgrounds and high profiles (or so-called GONGOs, govern-mental organized non-governmental organizations) have exclusive access to information and are qualified to participate in the global partnership. However, the success of such project-based efforts is decided by whether it has both gained executive power/capacity and has been able to reach down to the very grassroots.

Insufficiencies

The biggest problems with such top–down mobilization are redistribution, implementation and supervision. China’s government and the public sec-tor actually redistribute benefits towards locations and population groups that are already advantaged, since vested interest groups are still powerful. It is also criticized that much of the bailout is going on government-driven projects, reinforcing the government’s rent-seeking. If labour reforms that protected workers raised costs, it would be given a second thought. In some places, officials have grown more lax about enforcing 2008 laws that strengthened rules on contracts and social-security payments (Huang 2009). Although there is increasing involvement of high-profile non-governmental agencies, some being international, they cannot form an effective super-visory institution while the government still dominates cooperation. The well-intentioned policies cannot actually reach the locality.

The deficit of elite and intellectual collaboration lies in the paralysis of effective action plans, because major players in policy discussion are identi-fying problems and proposing solutions without engaging migrant worker as equal partners. The immediate policy or strategic responses to problems and contentions have often failed to see the whole picture and deep causes. The local handout programmes are limited with only temporary effects (Cha 2009). The government paying compensation for runaway or bank-rupt factory bosses is indeed a makeshift method. The short-term training programmes may miss the point of migrant workers’ own inferiority in edu-cation and inequality in education opportunities in general, behind which the stubborn institution of hukou still plays an important role in shaping unequal life chances across the urban–rural divide. The number of migrant workers joining the social security system is on a constant increase; however, the rate of coverage is admittedly still very low. Many migrant workers have even withdrawn from the pension system because of their own mobility, instability of employment and the gloomy economic environment (Chen 2009). Their helpless rationality behind such irrational behaviour still needs further exploration. How to include all migrant workers who were hitherto


excluded still requires an endeavour to pacify different conflicting interest and coordinate different stakeholders. The authorities who have adopted only top–down approaches should reflect on why such irrational behaviour takes place.

Bottom–up movements

The bottom–up approach of crisis management mainly indicates (i) on the one hand, migrant workers’ contentions and activism in defending their rights, and their self-organization and self-help in reaction to the difficult times; (ii) on the other hand, grassroots help and service provision for them in response to their long-standing problems and the worsening situation in recession.

Migrant workers’ networks and protests

The main organizing principle of migration chains is on the basis of kinship and native place. Blood ties and native ties – as a form of human relations and social capital – still determine the conception and behaviour of migrant workers facing grievances and still solve problems. These township-based community groups (Laoxianghui) are fraternities in nature, but they have taken up various functions that formal institutions did not cover or failed to respond to. Statistics show that migration operates at a very low organi-zational level: 93 per cent of migrant workers are seeking jobs either alone or through families and friends, only 7 per cent being introduced through organizational labour output or the labour market (Fan 2005). The percent-age of contracting labourers and trade union membership is even lower, which makes it difficult to defend their rights and pushes them to resort to Laoxianghui when being injured, deceived or ill-treated, or when receiv-ing deducted or delayed wages, without formal contracted or organizational protection.

In this way, Laoxianghui has become the main organizational and leader-ship resource for the fragmented contentious activities of the weak against the powerful. ‘Laoxiang (people with native ties) should help laoxiang’ is a traditional concept for migrant workers’ self-organization and self-help. Laoxianghui would also negotiate with workplace managers as an informal trade union when encountering problems. Generally these negotiations have a high possibility of success: sometimes the leader takes a group of members to the workplace and exerts pressure by sheer numbers and even violence; at other times the representative gets the advantage and atten-tion through dialogue and the status derived from representation. Besides negotiation, they occasionally led the strike and mass protests of migrant workers in front of company or local government buildings.

As stated above, labour disputes have multiplied during the economic recession, especially in export-related manufacturing industries. Migrant


workers have learned that collective protesting actions are effective through occupation-based mobilization and township-based spontaneous organiza-tions. Contentious cases were spreading all over China. In November 2008, workers ransacked an office at the Kader Company’s (Hong Kong-based toy manufacturer) Dongguan branch (in Guangdong province) after the man-ager chose not to renew 400 workers’ contracts (Mitchell 2009). In February 2009, over 2,000 workers launched a two-round protest, including a strike, a sit-in and blocking traffic after their employer delayed the paycheck, closed down the factory and fled Shenzhen (AFP 2009a). In April 2009, closure and job losses at a Baoding (Hebei province) textile factory (Hong Kong based) sparked an unprecedented attempt by over 1,000 workers to mount a mass protest march of 140 kilometres to Beijing to present a petition. Although the local authorities talked the protesters out of the march after they had gone several kilometres, and provided buses to bring them back to Baoding, demonstrators were still sceptical of the sincerity of officials for problem solving (AFP 2009b).

The wave of factory shutdowns is emerging at a time when migrant work-ers are more aware of their legal rights and know-how to put pressure on local governments, thanks to the new labour law which requires compa-nies to pay severance and give out more long-term contracts (Wong 2008). Both law-based and spontaneous forms of contentions prevail, such as petitioning at the labour bureaux or related governmental departments, sit-ins, kneeling, parades, strikes, blockades, threats and violence against the managers, destruction of property and so on. Moreover, the unwritten rules of contention of these disadvantaged groups show that making big trouble will earn a complete settlement of the problem, mild trouble partial settlement, no trouble no settlement. The weak group of migrant workers has been developing their own strategic and delicate way of contention to satisfy their demands, while trying to keep the action within the bound of state toleration.

Corporate, charitable and individual help

Besides the migrant workers’ self-endeavours, a wide range of support and help surfaced from corporate, charitable and individual actors. Corporate social responsibility (CSR) is emphasized and merited during tough times through exemplification of good responsible companies. For instance, while most electronics companies are busily cutting staff, the Chinese electronics retailer Gome has announced plans to hire 20,000 migrant workers for its four subsidiaries. They will recruit unemployed migrant workers to work in departments such as home appliance distribution, installation and mainte-nance. At the same time, these companies will offer pre-job training to these migrant workers to improve their working skills (CCSR 2009d). Such effort is widely publicized by mass media and highly appreciated by the authori-ties and populace as responsible and philanthropic.


Individuals and charities step in to help migrant workers in times of crisis. Wealthier citizens are trying to fill the gap between what the government is offering and their neighbourhoods’ needs by starting soup kitchens and other charitable endeavours (Cha 2009). The annual, epic-scale mass move-ment of humanity in China during the Lunar New Year interlude, known as ‘spring movement’ (chunyun), involved more migrant workers returning home in early 2009 (Chan 2009), some of whom were already laid off and most uncertain about future employment. There were good-hearted people and charity organizations in Guangzhou and Shenzhen helping migrant workers without the money to return home for the Spring Festival by provid-ing them with train tickets, cash and essentials (NetEase 2009). There were also volunteers visiting homes of poor migrant worker children, as Chevrolet Charity Teaching and Shanghai Youth Media volunteers did in Shanghai through the ‘Red Collar Movement’, with the slogan that ‘Whether you are blue collar, white collar, or grey collar, as long you have a caring heart, you are a red collar!’ (NetEase 2008).

Legal support is still a rare resource for migrant workers. However, a few grassroots legal aid centres, rights-defending (weiquan) lawyers and human rights organizations are now more ready to provide legal services in labour disputes caused by the recession. The Internet is also regarded as an effective channel to mobilize popular sympathy, support and resources.

Insufficiencies

The bottom–up grassroots movements still focus on spontaneous con-tentious activities and rights-defending actions by the migrant workers themselves, complemented by a small amount of external help from cor-porations, civil society groups and individuals. Although such contestation has received positive responses from the authorities, equal negotiation and dialogue are usually missing. The fact that migrant workers were disad-vantaged within labour-capital relations has hardly changed. On the other hand, the migrant workers have less intellectual, economic and social net-working resources than the local population, and their ability to get new access to these resources is also limited. When migrant workers were fight-ing against problems, such as unpaid wages, unfair contracts and unjust redundancies on an individual, collective or Laoxianghui basis, the lack of formal organizations and necessary legal support and channels would lead to unnecessary conflicts and social unrest.

The government is still cautious about human rights groups, grassroots rights-defending organizations or lawyers. For example, Han Dongfang, who was imprisoned for seeking to organize an independent union during the 1989 Tiananmen Square protests, is now the director of the Hong Kong-based China Labour Bulletin, and recognized by Beijing. However, they have apparently been told to take a softer line during the current crisis, and their website was not accessible on the Chinese mainland (Mitchell 2009).


Without a full legal status, the role that these grassroots groups can play has been largely constrained.

Generally the voice of migrant workers is weak and soft within main-stream society, and still not being well heard or understood by the outside world. The global financial crisis has reinforced the identity crisis of migrant workers, for whom the city has become merely a place where to work but not to live in. When job opportunities are lacking, migrants have few options but to leave the city (Zheng et al. 2009). There have been inequalities and misunderstandings between migrant workers and the government, as well as between migrant workers and other social groups or strata in the cities. A new approach to bridge and surmount such cleavages is in great demand.

A localized, law-based and participatory approach

Although grassroots forces are weak and fragmented, the expanding range of social activism and wider international attention has created more opportu-nities for progressive policy and institutional reforms. Civil society groups, including global NGOs and IGOs, have played an important intermediate role by proposing a participatory, collaborative and inclusive approach, and facilitating the two-way policy advocacy flows from both bottom–up and top–down. This approach aims to initiate a broader multilogue among dif-ferent stakeholders and overcome the insufficiencies of traditional styles in problem-solving that cannot be avoided by the elite or grassroots players themselves. The innovation of the approach is (i) to regard migrant workers as equal stakeholders in the localities; (ii) to have their negative instability and vulnerability channelled and directed through the rule of law; while (iii) their subjectivity, agency and activity are recognized and realized to a full extent. The outcome of this inclusive participation and collaboration should be an improvement in the position of civil society in policy advo-cacy and in effective representation. The following statements of each ele-ment show the budding tendencies and prospective orientations.

Localism and mutual trust

Localism means the mutual interaction among central policy makers, local executives, academics and migrant workers in the intersection points of local-ities. The above-mentioned training and entrepreneurship programmes, and welfare policies, all need to take into account the local particularity and the voice of migrant workers. Then the practice of policy implementation will be more scientific and specific, concerning what requires urgent attention and how to reasonably distribute limited resources. For example, one Zhejiang county is subsidizing migrants’ purchases of tea-processing machines and teaching them how to grow tea leaves, while a Jiangxi county is encourag-ing unemployed migrants to turn to forestry by giving out free tree seeds (Liu 2009). To offset potentially destabilizing waves of layoffs, many cities


across China have set up alarm systems by mobilizing the grassroots units to detect bankruptcy signs in advance. For instance, a network has been set up from the grassroots – for example, in the streets, villages, communities or factories – to detect signs that might lead to conflict in Guangzhou. They could then inform workers through text messages and prevent them from returning to the bankrupt factory after the Spring Festival in early 2009 (Xinhua News 2009b).

Meanwhile, during the working process of China’s social welfare system by the National People’s Congress, a proposal to create a universal safety net, including unemployment insurance for all citizens, was released for public comment in December 2008 (Cha 2009). It indicates that govern-ment agencies want to engage more intellectual and public input into its policy circle by creating more censors and channels in localities. They are also learning how to communicate with the populace, so that policies are better designed, understood and implemented, rather than being merely regarded as the official rhetoric and propaganda. There are signs that some form of deliberative democracy with Chinese characteristics3 is emerging, encouraged by moderate types of public hearing and consultation promoted by development agencies.

There is also a process of mutual trust building among different stakehold-ers and the critical prerequisite is to establish an equal relationship among those parties. The equal relationship is then based on a mutual understand-ing and a joint endeavour for resolution of migrant workers’ conflicting identities. Because of the lack of citizenship and the extreme hardship in cities, most migrant workers mentally feel a deep inferiority complex and lack a sense of belonging. Therefore, it is important to respect a migrant worker as an equal stakeholder who will suffer or benefit from any relevant policy changes, especially in localities. It will be a helpful perspective for better identifying the problems of migrant workers, rather than imposing or attaching problems to them by policy makers or academics. With closer and more trustworthy relations with migrant workers, narratives of public intellectuals and political elites can turn into policy advocacy more directly and successfully. Meanwhile, the mutual trust between authorities and civil society, between different social associations of/for migrant workers should also be enhanced to avoid negative competition/repetition of resources and to ensure better accountability. New policy amendments or adaptations will then be put forth and initiated by stakeholders of different public sectors, private sectors and migrants through negotiations and multilogues.

Rule-of-law capacity

It is predicted that the labour laws could lead to more labour disputes and protests (Wong 2008). However, the aim of contentions is not only rights-defending, but more importantly the rule of law. The rule-of-law capac-ity should be strengthened among migrant workers, corporate sectors,


government agencies, trade unions, law enforcement institutions and the general public. Notably the concession-driven contentions should be head-ing into law-based civil society activism. In order to reduce the confliction and instability of labour contentions, the authorities have also realized that the process of defending labour rights should be socialized and institution-alized. This means that, with governmental guidance and supervision, a variety of social organizations would be allowed to establish and take the role in defending labourers’ economic interests, social welfare and human rights. There is official encouragement for the establishment of society-sponsored and voluntary organizations, with the limited features of charity or mutual aid. Laoxianghui for migrant workers with native ties are generally tolerated and some have turned into rights-defending organizations.

A more controversial issue related to the legitimizing of NGOs and civil society groups is the independence and autonomy of trade unions. Since labourers in China are not allowed to organize themselves in authentic trade unions, they have little effective mechanisms to articulate and aggre-gate their interests (Zheng and Fewsmith 2008: 4). Grassroots organizations with the nature of trade unions are usually subject to state restriction and repression. On the other hand, civil society organizations engaging in pov-erty reduction and service delivery often have to work in partnership with local governments, development agencies and the business sector. Under such circumstances, the function of civil society groups as check and bal-ance to any arbitrary corporate or state power will be easily compromised.

More communication and trust is to be established between governments and international/domestic human rights labour groups. However, China’s general hostility to foreign NGOs has changed. Foreign NGOs have cooper-ated with domestic social groups, academics and corporations with innova-tions. For example, the Denmark-based Human Rights and Business Project, at the time of writing, was involved in a programme, from October 2007 to December 2010, to secure the increased protection of migrant workers in Chinese law and practice. The project consisted of institutional capacity-building with various NGOs and academic institutions. The objectives of the project included awareness-raising, improvement of legal aid mecha-nisms, development of negotiation skills, entrenchment of communication with management, and the adoption and enforcement of laws protecting migrant workers. The project included the creation of a Chinese CSR train-ing package (Human Rights and Business Project 2007).

The rule-of-law capacities of migrant workers should then be improved through legal provision from multiple sources and further institutionaliza-tion of existing government-dominant trade unions/labour departments. Although most official trade unions were unwilling to challenge an unfair or illegal dismissal in recession, the new labour law has clearly and legally empowered unions to protect their members. They should be more proac-tive and assertive in challenging employers’ violations of the labour laws.


On the other hand, the labour dispute arbitration office is an important governmental department, but it is not strong or neutral enough. Their work should be further clarified, as Wenzhou did in 2009. The Wenzhou government-issued regulation illustrated that labour dispute arbitration departments at all levels should deal with appeals immediately, pay off wages and deposits, urge enterprises to sign labour contracts with migrant workers, sue and punish any illegal behaviour with relative administrative fines, deal with outbreaks of mass incidents immediately and maintain social instability, set up enterprises’ monthly wage reporting systems, pro-file enterprises that delay payments and establish alert systems for labour disputes, strengthen the trust and credit system, and record on the credit information platform all the enterprises being punished (Zhejiang Bureau of Statistics 2009). The purpose is not only to protect migrant workers’ legal rights, but also to enhance rule-of-law capacity and promote institutional reform of government agencies.

The capacity and influence of public supervision should also be strength-ened. There is a torrent of public discussion and perspectives from diverse angles on the huge stimulus package and its impact on the Chinese as well as the global economy. The function of public supervision is to ensure the transparency and accountability of governmental bailout, to restrain the advantages distributed to vested interest groups and to prevent corruption of public sectors, and even of civil society organizations. The growing inde-pendent mass media and relatively autonomous Internet have played an important role in such public supervision.

Inclusive participation

Inclusive participation is not a slogan-style idealized objective, but a prac-tical method concerning project-based or community-based participation involving as many social actors and forces as possible. This method is not only to aggregate a variety of stakeholders on board, but also to exercise a multicentred and multipolarized power relationship in the policy process. The aim is for capacity-building of NGOs and ordinary citizens, in particu-lar, realization of migrant workers’ subjectivity, agency and activity.

The project-based participation differs from the high-profile stakehold-ers’ partnership or grassroots service provision; and it mainly connects the activism from both directions and facilitates a complete policy cir-cle. A case in point is the China Development Marketplace launched by the World Bank to alleviate poverty, in partnership with the government (State Council Leading Group for Poverty Alleviation and Development, Ministry for Civil Affairs); multilateral agencies (Asia Development Bank, European Union, International Finance Corporation); business associations (American Chamber of Commerce in China, European Union Chamber of Commerce in China, China Enterprise Confederation); and civil soci-ety organizations (World Bank/International Monetary Fund Staff Marco


Polo Society, Non-Profit Organization Network (NPO), China Association for NGO Cooperation, Mercy Corp, Oxfam). This top–down initiative is a programme aiming to identify and support innovative bottom–up develop-ment of ideas and practices through funding, knowledge sharing, recogni-tion, publicity and partnerships. A few creative and multimedia migrant workers-related projects have been selected and carried out by local civil society groups, such as anti-AIDS action for migrant workers during the 2008 Olympic Games, and the interactive training of rights-defending techniques for migrant workers in 2008.4 It has been established that civil society organizations in China have been more actively engaged in serv-ice delivery to the poor through implementing projects at the grassroots level. They have often developed innovative approaches to addressing local development needs, while mobilizing public opinion around key issues and leveraging other resources to broaden supportive collaboration (World Bank 2005). Such events will also provide civil society organizations with a government-approved national platform to demonstrate their contributions to the empowering disadvantaged groups. In this way, local civil society organizations are building capacity of not only service providers, but also policy advocacy in influencing future decision-making and agenda-setting processes in the policy circle. One significant aspect is that they have gradu-ally gained sophisticated negotiation skills in dealing with other powerful stakeholders and in reshaping power relations.

Community-based participation means both the daily life integration of migrant workers into urban communities and the purpose-driven multi-logues into community policy advocacy, with participatory and action-ori-ented methodology. They respectively indicate an inclusiveness of identity and an inclusiveness of activism/opinion. For the former case, due to bar-riers to urban hukou and associated benefits, labour market discrimination, social segregation and inferiority, most migrant workers had little sense of belongingness to their resident city. Awareness about discriminatory atti-tudes towards migrant workers by urban residents, employers and service professionals are also raised in public. Such cultural and identity conflicts basically barricade migrant workers from community integration. According to the surveys by the organization Migrant Workers’ Home, it was discov-ered that many people do not like the widely used term nongmin gong – rural migrant workers – since they consider ‘rural’ as derogatory to their ears, carrying an implicit judgement, a sense of poverty, underdevelopment and lack of civilized values. They prefer xin gongren (‘new workers’) or even xin gongmin (‘new citizens’) (Jiang 2009).

This suggests there should be more official, academic and civil society input to de-label such a stereotype, while promoting multidimensional integration. More community-based activities and broadcasts should be targeted at this vulnerable identity group. There are already a few art and cultural groups, responding to the thirst for entertainment among migrant


workers, which are trying to make their culture visible, with an apprecia-tion on the value of labour. An impressive example is the New Worker Art Troupe – the first art troupe in Beijing to specifically target migrant workers as its audience. They presented a play at the First Culture and Art Festival for and by migrant workers supported by Oxfam Hong Kong in January 2009. The play was invited to the Beijing Youth Theatre Festival by Meng Jinghui, one of China’s most famous drama directors. They aimed to communicate with all sectors of society through the play they produced (Jiang 2009). On the other hand, the loose and informal organizations of laoxianghui should be expanded into broader social networks, and integrated more into urban communities and community-based organizations. As their identities are under transformation and urbanization, there is a great potential need for them to manage and improve their social networks in the process of adapt-ing to a new city life and balancing their old rural social relations (Wang et al. 2009).

For the latter type of community-based participation, Open Space Technology has proved to be an effective way to enable all kinds of people, in any kind of organization, to work together to create inspired meetings, events and extraordinary results. This methodology was first originated by an American, Harrison Owen, in 1985. In Open Space meetings, events and organizations, participants create and manage their own agenda of parallel working sessions around a central theme of strategic importance, such as, What is the strategy, group, organization or community that all stakehold-ers can support and work together to create? With groups of five to 2,000 plus people – working in one-day workshops, three-day conferences or the regular weekly staff meetings – the common result is a powerful, effective connecting and strengthening of what is already happening in the organi-zation: planning and action, learning and doing, passion and responsibility, participation and performance (Owen 2008). This method has been exten-sively exercised through collaboration of NGOs since 2006. It has involved both top–down and bottom–up players and participants, including com-mon citizens and migrant workers, and has generated multilogues and pro-duced action plans, with the potential to invite more future community participation as well as policy advocacy.

In 2006, the American Bar Association (ABA) sponsored three-day Future Search Conferences ‘Living in Beijing (Nanjing) – Equal Rights and Development Opportunities for New and Old Citizens’ in August (Beijing) and in October (Nanjing).5 New citizens included migrant workers floating into cities. Such Future Search Conferences brought together people of dif-ferent interest groups to deliberate on a common topic and allowed them to review the past, reflect on current challenges, envisage the future and find common goals so that participants could engage in mutual learning, open dialogue, vision building and joint planning. Its aim was to find solutions contributed by different stakeholder groups (such as new and old citizens,


neighbourhood committee officials, local government officials, scholars and media workers).

It has been established that the novelty and complexity of migrant work-ers’ problems have made it difficult to engage relevant stakeholders in a meaningful dialogue on what kinds of initiatives and policy changes are needed, and on how to move towards these changes. In April 2007, the Rule of Law Initiative, in conjunction with the China Association for NGO Cooperation (CANGO), held a national training session on the method of Open Space Technology to foster community dialogue regarding the inte-gration of rural migrant workers into China’s urban areas (ABA 2007). One of the foundational principles of this methodology is that all participants are on equal footing with an equal right to speak and determine what is dis-cussed, thus situating government officials and citizens as co-equal mem-bers of the communities in which they work together, and creating a space in which citizens’ voices can be heard (ABA 2007). Following the training, there have been a series of Open Space activities across China concerning the policy resolution, action plan and local community participation and integration concerning migrant workers.

Reflections

As Mr. Han Dongfang from the China Labour Bulletin said, ‘The financial crisis should be an opportunity for government and union officials to be more aggressive in terms of addressing problems at factories. Then there would be fewer street actions and conflicts could be avoided’ (Mitchell 2009). However, besides government policy adaptations and grassroots contentions, there should be more reflection on the role of Chinese civil society in reshaping public policy discussions for migrant workers. Although still in the embryo stage, Chinese civil society organizations have their own strength and ability to target poor and vulnerable groups, and to effectively transfer resources. They have the potential to function as a bridge and advocate in developing a localized, law-based and participatory approach for not only crisis management but also long-term community establishment.

Therefore, the purpose of this chapter has been not only to demonstrate the existing, intensifying and emerging problems of migrant workers during the global financial crisis and how to address them, but more importantly to bring forth the methodological implications of crisis management through the examination on the traditional top–down and bottom–up approaches, as well as the innovative two-dimensional approach. The insufficiencies of the traditional styles in problem-solving cannot be overcome by elite or grassroots players themselves, but a third-way approach to bring the two flows together into an equal relationship should be introduced through a representative and collaborative involvement of civil society forces, be they international, national or local.


The resolution to migrant workers’ problems is not only to guarantee employment and economic interest, but also social security and labour rights; not only to defend rights, but also to promote the rule of law; not only to pacify social unrest, but also to boost social harmony and rural-urban integration. Methodologically, the Open Space Technology is par-ticularly suited to enable diverse stakeholders to address complicated, multifaceted problems, such as those of migrant workers in China, and for different social forces to work together to develop concrete action plans. In the future, a multiplicity of civil society forces and actors should be more intensively and extensively involved in promoting better interaction among the government, vulnerable groups and other stakeholders. Only in this way can such interaction provide remedies, shift the development agenda and priority, and further the reform in a more just, equal, law-based and people-oriented manner.

Notes

1. The renminbi is the official currency of the People’s Republic of China. The yuan is the primary unit of currency.

2. ‘Mass’ labour disputes are defined as involving more than 30 workers.3. For a more comprehensive analysis, see Leib and He (2006).4. See the Development Marketplace website at www.developmentmarketplace.org.cn5. The videos of the meetings are available on www.youtube.com

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281

Index

academic advocacy, 263–4active labour market policies (ALMPs),

171, 175added worker effect, 167Africa

agriculture in, 178–9China and, 97

aggregate demand, 49–51, 58, 94, 163, 166, 174, 189, 211

aggregate supply, 49–50agrarian crisis, 177–95, 224–5, 228agri-business, 192agriculture, 177

in Africa, 178–9declining output prices in, 179–82fertilizer use, 224global financial crisis and, 189–95in India, 177–95shrinking employment in, 188–9smallholder, 4, 178–9, 192–3subsidies, 224

ALBA, see Bolivarian Alliance for the Americas (ALBA)

All China Federation of Trade Unions (ACFTU), 260, 262–3

All China Lawyers’ Association (ACLA), 265–6

Anguilla, 164Antigua, 163, 164, 165, 169, 170,

171, 173anti-immigration policies, 13Argentina, 8–9

crises in, 125–6economic crisis 2001/02, 72, 74nationalization of pensions in,

123–39ASEAN Plus Three (APT), 98Asian financial crisis, 7, 12, 28, 47,

56, 71impact on households, 73–4response to, 219–20, 226–31

Asian monetary fund, 37austerity measures, 13, 15, 18, 43automatic stabilizers, 12

Bahamas, 164, 172balance of payments (BOP), 164Bank of the South (BancoSur), 98banks and banking, 35

see also financial sectorbailouts, 12, 220, 228rural, 182–8, 192–3, 195

Barbados, 162, 164, 165, 167, 171, 172, 174

Barbuda, 163, 164, 165, 169, 170, 171, 173

Beijing Platform for Action, 69Belize, 164, 165, 171, 172Bernanke, Ben, 48Birdsall, Nancy, 86Bolivarian Alliance for the Americas

(ALBA), 11, 37–8Bolsa Familia program, 112, 113boom-bust cycle, 19n13borrowing, 205Bottom of the Pyramid approach, 19n8boys, time use by, 69–71Brazil, 16, 75, 113Bretton Woods system, 57, 178BRIC countries, 34, 36

see also specific countriesbuffer funds, 131–2Bush administration, 48

capitalexchange-value of, 31finance, 3, 31labour and, 38private, 107

capital accumulation, 23, 31, 35, 39, 63, 179

capitalism, remoralization of, 36care work, unpaid, 64–5, 69–71, 73, 207Caribbean countries, 9, 161–75

impact of financial crisis on, 161–75labour markets in, 166–75social policy in, 170–4

cash transfer programmes (CTPs), 76–7, 84, 111–14

282 Index

casino capitalism, 16change, mobilization for, 10–11charitable giving, 268–9children, impact of financial crisis

on, 89China, 5

Africa and, 97bottom-up policy models in, 267–70consumption to GDP share in, 50–3current account surplus, 53–7, 58economic growth in, 51, 143, 155–6excessive savings in, 47–52, 57–8exchange rate policy, 47–9, 52–3,

56–7, 58financial crisis and, 33, 47–57, 141–57,

257–77fiscal stimulus measures in, 8, 144–8Keynesianism and, 49–50migrant workers in, 257–77NGOs in, 264–6, 270–6poverty in, 51rural–urban inequality in, 229social policy in, 141–57top–down policy models in, 259–67trade between US and, 55–6, 59trade surpluses, 53–7US and, 32, 34welfare developmentalism in, 16welfare regime, 148–50

civil society, 11, 38–9, 270–6climate change, 34coercion, 13coffee prices, 191collective bargaining, 238commodification, 13, 104commodity markets, 180community-based participation, 273–6Comprehensive Development

Programme, 107conditional cash transfers (CCTs), 104,

111–14Congress of South African Trade Unions

(COSATU), 239–46construction industry, 163Consumer Price Index for Agricultural

Labourers (CPI-AL), 180–1, 191–2consumption

to GDP share, in China, 50–3reduction in, 205savings and, 51–2US, 54

cooperative conflicts, 65coping strategies, 64, 75, 205–6corn, 178corporate savings, 52corporate social responsibility, 15, 36,

268–9cotton, 182, 191creative destruction, 12, 29–30credit

access to, 209rural, 182–8, 192–3, 195

credit bubbles, 47–9, 50, 54crisis, see economic crisiscrisis management, 24–7, 33–7, 258

see also policy responsesbottom–up models, 267–76top–down models, 259–67

crony capitalism, 28, 32crop prices, 179–82, 190–2, 194–5cultural political economy, 23–4, 25–9currency valuation, 47–9, 52–3,

56–8, 200current account deficits, 46, 53–7, 58current account surpluses, 53–7, 58

debt crisis, of 1982, 5, 44–7, 57deficit spending, 50

see also fiscal stimulusdeflation, 220–1demand-led growth, 8, 14, 16democratization, 11deregulation, 14, 16–17, 31, 35, 50, 212derivatives, 104, 105Dervis, Kermal, 96Deutsch, Karl, 29developing countries

see also specific countriesimpact of financial crisis on, 1, 5–8,

28–9, 161–75labour markets in, 5–6lending to, 15rural economies in, 177–96

development, skewed, 12–13developmental models, 2, 210–16developmental welfare states, 75, 104,

114–16, 150–6discouraged worker effect, 167–8discursive power, 4dis-saving, 205Doha Development Round, 34domestic demand, 211

Index 283

domestic sector, 64–8during economic crisis, 71–5measuring production in, 69–71sustaining, 75–8

domestic violence, 74, 207Dominica, 164, 169, 171, 173double-dip recession, 40

earnings gap, gender-based, 134East Asia

response to crisis in, 142social policy, 114–15

East Asian crisis, 7, 12, 28, 47, 56, 142Eastern Europe, 94, 106economic crisis

see also East Asian crisis; global financial crisis

domestic sector during, 71–5interpretations of, 24–9responses to, 26–7

economic development, human rights approach to, 38

economic growth, 68–9in China, 143, 155–6demand-led, 8, 14, 16in India, 189, 215–16

economic recovery, social policy and, 8

economic rights, 75–8ECOSOC, see United Nations Economic

and Social Council (ECOSOC)education, 206, 214education policy, 16Egypt, 13elites, 4, 5, 13, 106El Salvador, 94embedded liberalism, 2, 13–16emerging markets, 15–16, 36employment

see also labour markets; unemployment

impact of financial crisis on, 203–4protection, 221services, 213

ethanol fuel, 180European Union (EU), 40, 82, 220exchange rate policy, 47–9, 52–3, 56–7,

58, 165export crops, 178, 195exports, 211Extended-SNA Activities, 64–5, 69–71

family businesses, 64family relations, 63, 68farm employment, 188–9farm labour incomes (FLIs), 186–7farm subsidies, 224fertilizer use, 224finance capital, 3, 31financial innovation, 31, 50financial instability, 106financialization, 2, 3, 12, 14, 33, 44,

50, 212social policy and, 103–19

financial regulation, 19n12financial sector, 3

in Caribbean, 165–6re-regulation, 35restructuring of, 35–6U.S., 200

Financial Stability Board, 34financial stimulus, 35fiscal deficits, 221fiscal stimulus, 8, 88

in China, 141, 144–8IMF position on, 93–4in India, 223–6political economy of, 231–4as response to crisis, 219–21,

227–31in Thailand, 226–7

flexible labour markets, 4, 13flow-of-funds framework, 52food, 214food consumption, 205–6food prices, 180foreign direct investment (FDI), 55, 165Forest Rights Act (FRA), 230, 232–3forums, 27–8Friedman, Milton, 26–7

G-20, 34, 36, 87–8, 95–8, 117G-77, 34–5, 96, 97Geithner, Tim, 48gender

earnings gap and, 134economic crisis and, 73pension systems and, 134–5gender order, 65gender roles, 66

Germany, 30, 220girls, time use by, 69–71global civil society, 38–9

284 Index

global financial crisisalternative voices in, 36–8Caribbean and, 161–75China and, 47–57, 141–57, 257–77conventional representations of, 68–9events of, 33–5global unions and, 237–8impact of, 1–2, 5–8, 28–9, 199–210India and, 189–95, 223–6interpretations of, 23–40labour markets and, 166–75narratives of, 43–59neoliberalism and, 29–31, 33, 103Nigeria and, 246–7policy responses to. see policy

responsesrecovery from, 68–9responses to, 23, 32–40, 75, 87–93,

142–57, 170–4, 205–6, 219–35shifts in global social policy and,

81–99social reproduction in, 63–79South Africa and, 241–3spread of, 28U.S. and, 31–2, 34, 200

global governance, 14–15, 94–9global imbalances, 48–50, 53–9Globalism and Social Policy Programme

(GASPP), 84globalization, 14, 39, 200, 210–11global markets

access to, 210–11competition in, 211–12

global partnerships, 264–6Global Production Networks (GPNs),

210Global Social Floor, 8, 82–96global social policy, 81–99global value chains, 4, 15gold standard, 45governance

global, 14–15, 94–9regional, 98transformation of, 105–6

governmentlegitimacy of, 10role of, in social policy, 82, 107

grants, 96Great Depression, 32, 46, 220Green New Deal, 36

Greenspan, Alan, 48Grenada, 164, 173Grenadines, 163, 164, 171, 173gross domestic product (GDP), 64,

68, 69Guyana, 165, 167, 172

health care, 118, 206, 214household income, 169, 203–4households

see also domestic sectorimpact of financial crisis on, 71–5

household savings, 51–2housing bubble, 33Hu, Angang, 50Human Development Index (HDI),

162, 201human rights, 38, 76human worth, 66

immigration, 13import-substitution industrialization, 30incarceration rates, 19n7inclusive growth, 148, 150–5, 229inclusive participation, 273–6income inequality, 3–4, 10, 16, 29, 215India, 5, 116

agrarian crisis in, 177–95, 224–5, 228alternative developmental models for,

210–16economic growth in, 215–16financial crisis and, 189–95,

199–210labour movement in, 221–3, 226neoliberalism in, 215–16politics in, 229–30, 231response to crisis in, 205–6, 223–34rural credit in, 182–8rural-urban inequality in, 229small producers and microenterprises

in, 208–10social indicators, 201–2social policy, 9social protections, 204women in, 206–8

Indonesia, 234n3inequality, 3–4, 10, 16, 215, 229inflation, 25, 44, 45, 164informal economy, 6, 9, 73–4, 133,

168–9, 189–90, 200, 214

Index 285

infrastructure, 107, 116, 132, 141, 144, 209

instrumental power, 4intellectuals, 11International Development Association

(IDA), 19n11International Finance Corporation

(IFC), 107, 109international financial architecture, 35–7international financial institutions

(IFIs), 3, 15, 34–5, 123, 238International Labour Organization

(ILO), 75, 82–4, 240International Monetary Fund (IMF), 14,

15, 28, 68, 81, 88, 93–5, 219international reserve, 34–5International Trade Union

Confederation (ITUC), 237–8Islamic Development Bank, 98

Jamaica, 163, 164, 165, 169, 172job creation, 166–7jobless growth, 6, 12

Kenya, 250Keynesianism, 11–12, 14, 30, 35, 43,

45, 95China and, 49–50rediscovery of, 114

Korea, social welfare programs in, 78Krugman, Paul, 48–9, 50

labour, 38see also workersgendered division of, 65

Labour and Civil Society Coalition (LASCO), 240

labour conditions, 212labour markets

in Caribbean, 9, 166–75flexible, 4, 13gender and, 134–5India, 200informal, 73, 74, 133, 168–9, 189–90,

200, 214insecurity, 6women in, 6, 206–7

labour movement, 207–8, 221–3, 226, 237

see also trade unions

labour unions, see trade unionsLatin America

debt crisis in, 46social policy, 115

liberalization, 35Lin, Justin, 112localism, 270–1

Malawi, 178–9Malaysia, 30, 219–20male bread-winner bias, 214–15market efficiency, 3market signals, 67men, time use by, 69–71Mexico

cash transfers, 112economic crisis in, 71smallholder agriculture in, 178

microenterprises, 208–10middle class, 85–7Middle East, uprisings in, 13migration/migrant workers, 164, 170,

207–8, 219, 221–3, 226, 257–77militarism, 46Millennium Development Goals

(MDGs), 34, 81, 107, 162Minimum Social Protection Package,

82–4, 88–93minimum wage, 8, 9, 15, 175monetarism, 43, 47monetary policy, 223MOST programme, 93, 95, 97multilateral development banks, 88multi-polar cooperation, 37–8mutual trust, 270–1

National Basic Livelihood Security System (NBLSS), 78

National Development and Reform Commission (NDRC), 146

National Economic and Social Transformation (NEST) plan, 170–1

National Rural Employment Guarantee Act (NREGA), 9, 195, 213, 216, 223, 225–6, 230, 232–3

national savings, 51–2neoliberalism, 43, 88

challenges to, 10–11, 37–8core features of, 104–8financial crisis and, 29–31, 33, 103

286 Index

neoliberalism – continuedin India, 215–16policy adjustments, 30regime shifts, 30resilience of, 2–5, 103–4smallholder agriculture and, 178–9structural adjustment programmes, 30system transformation, 29–30US and, 31–2

Netherlands, 30Nevis, 164, 165, 169, 171, 173newly industrialized countries

(NICs), 114New Public Management, 105Nigeria, 239–40

impact of financial crisis on, 246–7politics in, 248–50trade unions in, 239–40, 247–50, 251

Nigeria Labour Congress (NLC), 239–50non-governmental organizations

(NGOs), 82, 264–6, 270–6North American Free Trade Agreement

(NAFTA), 178

Obama administration, 48, 220official development assistance

(ODA), 34oil economy, in Nigeria, 246–7oil-exporting countries, 45–6oil prices, 5, 44, 45, 163–4, 180, 249Open Space Technology, 275Organisation for Economic

Co-operation and Development (OECD), 84, 238

Organisation of the Petroleum Exporting Countries (OPEC), 44, 45, 228

outside interest payments (OIPs), 186–7

Pakistan, 94passive labour market policies

(PLMPs), 171pawning, 205pension systems, 90

benefit adequacy of, 135–6, 138buffer funds, 131–2challenges for, 132–7in China, 146, 147–8coverage of, 133financial sustainability of, 136–7

gender equality and, 134–5nationalization of, 8–9, 123–39privatization of, 123–7

pepper prices, 191Poland, 29policy reform, 10–11, 16–17policy responses

bottom–up models, 267–70to crisis, 12–13, 16–18, 210–16localized, law-based, and

participatory models, 270–6top–down models, 259–67

political economy, of stimulus measures, 231–4

poor, impact of financial crisis on, 74poverty, 149, 169, 201poverty alleviation, 81, 82–7, 110–11

see also social protectionsglobal policy on, 81–99

poverty rates, 5Poverty Reduction Strategy Papers

(PRSPs), 107power, 29precautionary savings hypothesis, 52private capital, 107private sector, 64–8

delivery of social services by, 109–10

privatization, 2, 13, 104, 105, 107, 109, 212

of pensions, 123–7of social policy, 8–9

production, domestic sector, 69–71Programme on Women’s Economic,

Social and Cultural Rights (PWESCR), 77–8

project-based participation, 273–6protectionism, 13, 210–11, 220Public Distribution System (PDS), 195public–private partnerships (PPPs), 30,

109–10, 174public sector, 64–8public sector systems of provision

(PSSOP), 104, 110, 116public works programs, 213

racism, 13raw material prices, 209Reagan administration, 46real economy, 1–2, 35, 143, 163

Index 287

recessionssee also economic crisisfiscal stimulus and, 219–20

recovery, skewed, 12–13regime shifts, 30regional initiatives, 38, 97–8regulation, 14, 15remittances, 28, 164, 168, 201, 222renminbi, revaluation, 52–3, 56–8re-regulation, 35, 36, 238reserve accumulation, in China, 55residual safety net approach, 81Rhenish capitalism, 30rice, 181–2Right to Education Act, 214Risk and Vulnerability Assessments, 109rubber prices, 190–1rule-of-law capacity, 271–3rural credit, 182–8, 192–3, 195rural economies, 177–96, 221–3rural–urban inequality, 229, 234rural vote, 229–31Russia, 29

safety net approach, 81–2, 87, 90–1, 93, 149–50, 212–13, 233–4

savingsin China, 47–52corporate, 52demand and, 49–50excessive, 44, 47–52, 57–8household, 51–2national, 51–2

Saxer, Marx, 98scheduled commercial banks, 182–3self-employment, 6, 168–9semiosis, 23–4shareholder value, 31, 105skewed recovery and development, 2,

12–13skilled workers, 213small developing countries (SDCs),

impact of financial crisis on, 161–75small enterprises, 208–10smallholder agriculture, 4, 178–9, 192–3Smoot-Hawley Tariff, 220social change, 2, 16–17social contract, 150social crises, interpretations of, 25–9social dialogue, 174, 175

social expenditures, 117, 141, 145–8, 201

social movements, 11, 29, 37–8social policy, 1, 2, 5–10

alternative approaches to, 114–16in Caribbean, 170–4in China, 141–57financialization and, 103–19global, 81–99in India, 9reforms, 11–12universalism in, 114, 115World Bank and, 103–4, 108–14

social protections, 75–8, 117, 204, 212–13

social reproduction, 23, 63–79social rights, 75–8social risk management (SRM), 110–11social security, 75–8

see also pension systemscoverage gaps in, 125

social transformation, 4, 111, 154, 170–1social welfare programs, 6–7, 75South

social policy and, 96–9unions in, 239–52

South Africa, 116, 239economic of, 240–1response to crisis in, 241–3trade unions in, 239–46, 251

Southern-centered agenda, 96–9South–South cooperation, 37–8, 97–8South–South trade, 34Sovereign Wealth Funds, 228stagflation, 44–5state, role of, in social policy, 82, 107state-led development, 93–4, 150–5, 156Stiglitz Commission, 23, 28, 37stimulus, see fiscal stimulusSt. Kitts, 164, 165, 169, 171, 173St. Lucia, 164, 173Strauss-Kahn, Dominique, 93structural adjustment programmes, 30,

82, 177, 178structural power, 4structural reforms, 94structuration, 24St. Vincent, 163, 164, 171, 173System of National Accounts (SNA),

64–5, 69–70

288 Index

tariffs, 220tax reform, 38Thailand

inequality in, 233response to crisis in, 226–31rural–urban divide in, 230–1social policies, 233–4

time use surveys, 69–71Tobago, 163–7, 169, 172tourism, 163trade deficit, between US and China,

55–6, 59trade liberalization, 4, 178, 180Trade Union Advisory Committee

(TUAC), 238trade unions, 11, 174, 237–52

in China, 260, 262–3as democratic force, 239financial crisis and, 237–8global, 237–8, 250–2global working class and, 250–2in Nigeria, 239–40, 246–51in South Africa, 239–46, 251

training, 213transformative restructuring, 2, 16–17transnational corporations (TNCs), 56trickle-up approach, 38Trinidad, 163–7, 169, 172Tunisia, 13

Uganda, 250unemployment, 5, 6, 8, 13, 25, 46, 145,

166–8, 203, 237, 238UN General Assembly, 27–8, 36–7UNICEF, 89, 90unions, see trade unionsUnited Kingdom, 220United Nations (UN), 81, 88, 91–2,

96, 97United Nations Conference on Trade

and Development (UNCTAD), 220United Nations Development

Programme (UNDP), 265United Nations Economic and Social

Council (ECOSOC), 17, 92, 95, 96United Nations Educational, Scientific,

and Cultural Organization (UNESCO), 93, 95, 97

United Nations Research Institute for Social Development (UNRISD), 2, 93, 95, 115

United Nations System Chief Executives Board for Coordination (UNCEB), 88, 90

United Statescredit bubbles, 47–9, 54current account deficit, 53–8financial crisis and, 31–2, 34, 200fiscal deficits, 45fiscal stimulus in, 211hegemony of, 32, 43, 44incarceration rates, 19n7monetary policy, 46–7protectionist measures in, 210–11, 220trade between China and, 55–6, 59trade deficit, 53–7

Universal Declaration of Human Rights, 76

universalism, 114, 115unpaid work, 6, 64–5, 69–71, 73, 207US dollar, 45, 53user charges, 82, 103, 106, 115

values, 65–6Vulnerability Fund (VF), 91

Wade, Robert, 49wages, 169, 203–4Washington consensus, 14, 30, 43,

97, 107–10, 114, 115, 215, 219–20, 227–8

welfare authoritarianism, 154welfare developmentalism, 16,

150–5, 156welfare regimes, 115, 116, 148, 149–50welfare state, 12, 14, 114, 116Wolf, Martin, 47–8, 49women

bail-out packages for, 214–15impact of financial crisis on, 206–8,

226–7in labour force, 6, 206–7in Thailand, 226–7time use by, 69–71unpaid care work by, 69–71, 73, 207

workersemployment services and training

for, 213informal, 73, 74, 133, 168–9, 189–90,

200, 214migrant, 207–8, 221–3, 257–77social protections for, 212–13

Index 289

workers’ rights movements, 237working class, global, 250–2World Bank, 14–15, 28, 81, 82, 90, 95,

265conditional cash transfers and, 111–14IFC and, 107, 109

on social policy, 103–4, 108–14World Social Forum, 11, 38World Trade Organization (WTO), 28,

55–6, 220

Yemen, 13