Globalisation, Growth and Justice Author(s): Pulapre Balakrishnan Reviewed work(s): Source: Economic and Political Weekly, Vol.

38, No. 30 (Jul. 26 - Aug. 1, 2003), pp. 3166-3172 Published by: Economic and Political Weekly Stable URL: http://www.jstor.org/stable/4413829 . Accessed: 21/02/2012 16:50
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.

Economic and Political Weekly is collaborating with JSTOR to digitize, preserve and extend access to Economic and Political Weekly.

http://www.jstor.org

Perspectives

Growth Globalisation, and Justice

Thisessay critically evaluates the exhortationto developing economiesthat they embrace globalisation, considers the consequencesof globalisationfor equalityand discusses the issue ofjustice in the currentglobal economic order.
PULAPREBALAKRISHNAN

due to Paul Krugman. The only model worth pursuing any longer, it was said, J shallengagewiththreethemesrelated was one of free markets and open econoto the issue of globalisation.First, I mies. This perspective, if one may call it shall first criticallyevaluatethe core that,was rapidly adoptedby the influential of theexhortation thedeveloping to econo- multilateral lending agencies. The stage mies that they embraceglobalisation.I was set for the embrace of globalisation. mightquicklyaddthatthis begs the nag- The preponderantadvice to governments is now became one that exhorted the impleging questionof whetherglobalisation somethingcountriescan adopt and dis- mentation of policies friendly towards the cardat will. Then I shall turnto what I internationalinvestor. Two elements may consider central the in question thecontext be identifiedin thispackage.They revolved of globalisation fromthe pointof view of around procedures for quick approval of economictheory, the perhaps mostimpor- proposals for foreign direct investment tant issue for economists.This concerns (FDI) and the removal of erstwhile the consequence of globalisation for business barriers to commercial activity, trade.I shall equality.Ourconclusionshere matterto includingnotablyinternational us in a deep sense for they wouldqualify deal critically with each of these proposals. the success of our profession.Finally, I While attracting FDI is indeed useful, turnto the issue of justice in the current it is important to recognise two things. global economic order, a relatively First, we know from history thatFDI flows but issue, to vibrant economies seemingly living by neglected profoundly important and not just for economists. the adage 'to him that hath will be given'. This is clear from the history of the US I economy which has remainedtheeconomy Globalisation Policy as receiving the largest FDI flows for perhaps the past 150 years. There is also a kind While the steadyprogressof the inter- of contradiction in associating FDI with economiesof eastAsia competition. Actually,- given the unnationally engaged hadlong been noticedit was perhaps the certainty associated with investing in a collapse of the Berlin Wall that finally developing economy, FDI requires high isolatedthoseholdingoutforcentral plan- profit margins. High margins actually ning as a model of economic arrange- reflect the absence of competition. ments.Even thoughthe politicalsignifiSecondly, historically we would be hard canceof this event far exceededthe eco- put to think of FDI having contributed to nomic there was no holding back the the wider development of a country's of vanguard the marketrevolutionso to economy. Even if FDI did not necessarily speak.While the core of the economics depend upon high growth in the destinaremained moreor less assured tion economies it is of importanceto ascerprofession of the relativestrengthsand weaknesses tain the commitment of global investors of the market, the historical moment towards local infrastructure,perhaps the to appeared providea window of oppor- one single most crucially absent element a tunityto the 'policyentrepreneur', term in a developing economy. Thereis of course

the case of British capital in the building of the railways on the American continent, both north and south. However, while the figures may have been large by contemporarystandards,the US in the mid- 1800s was a far less complex economy thanIndia is today, and with a far lower backlog of poverty. Thus, by taking the economic history of the United States as the prototype, the developmental role of foreign capital it appears can be exaggerated. The one economy held out as an example of the role of FDI is China, and unfavourablecomparisonsbetween Indiaand China on this account are commonplace. This, however, stems from an inadequate appreciation of the nature of recent economic development of China. FDI begins to emerge as a major factor in the Chinese economy only in the 1990s, perhaps a full decade and a half after the beginning of the liberalisation of the Chinese economic regime. Moreover, by then China had demonstrated quite extraordinaryrates of growth of her agriculture, rates so high that the estimates have been queried. But the feature of the Chinese economy that tends to get overlooked most is that it is an economy with very high rates of domestic investment. Investmentas a share of national income is estimated at approximately 40 per cent of GDP. This is very high by current and historical standards anywhere. In India it is barely over 20 per cent presently.This must leave us to ponder the promise that FDI will flood India soon as we have an investor- friendly rule book. While no reasonableeconomist could have an objection to making the investment regime more friendly for potential investors, perhaps something more than altering the policy regime is necessary to ramp up investment in an economy. In all of this there is too much emphasis on investment or factor accumulation - a strange throwback to debates on growth in the former Soviet Union. But what of productivity growth? Perhaps FDI is needed for higher productivity growth? Technology and newer ways of organisation certainly are inputs into raising productivity, and these are seen as byproducts of FDI. But these are not the only inputs into productivity growth, nor are new technology and newer ways of organisation solely dependent upon FDI.

3166

Economicand PoliticalWeekly July 26, 2003

The argument aboutFDI is reallyonly a subsetof the largerargument openthat nessis goodforgrowth. Herethestrategy, I meanthe strategy argumentation, of has success beento pointto the extraordinary of theeastAsianeconomics,the so-called AsianTigers. is indeedcorrect these It that economieshave leveragedglobalisation with extraordinary success. They are, at leastby today,relativelyopen economies bothinterms policystance- employing of a low tariffrate- andin termsof the share of tradein GDP. However,by my very of reference thesetwo indicators opento ness, i e, tariffslevels andtradeintensity, I have touchedupon a contentiousissue in thediscourse development on strategy. A debateexists thatrevolves aroundthe of disentanglement cause and appropriate effect. It has been pointedout thatto say thatexportsare good for an economy in thesensethattheyraisethelevel of output is trivial.Afterall, we mayrecallfromour first course in macroeconomics nathe tionalincomeidentityY = C+I+G+X-M. So, that exportsare a good thing is not The contentious. realquestionis whether opennessdefinedas low tariffsis a sufficientcondition bringing for aboutan increasein exports.Apartfrom our knoweast ledgethatsomeof theprincipal Asian

the central issue then? It is that of convergence. What is this convergence being spoken of? A popular version of the convergence hypothesis is that poor nations will steadily approach the income levels of the rich,currentlythe industrialisedones. This implicitly means a higher growth rate for the poorer economies. But while the convergence hypothesis predicts a faster growth of the poorer countries why must there be convergence in the first place one might ask? There must be, is the answer, for as factor prices are equalised with globalisation - seen here as the integration of economies - so must become per capita incomes across the world. Note then that the convergence hypothesis predictsthreeinterrelatedoutcomes: faster growth of poorer countries, declining world poverty and, above all, declining income inequality.Given the extraordinary differences in income between countries currently, perhaps only a relative equalisation of incomes is being predicted. Strict 'catch up', or poorer countries becoming as rich as the richest ones is simply a useful myth to organise the work of economists. Let us now look at the state of the current international debateon thetrendsin poverty and income distribution as the global economy has become progressively inteeconomies - notably South Korea - had grated. The strongest claims on the trend firstpursued policyof import a substitution in these two variables have emanated from - presumably behind a tariff barrier- we the World Bank (even though at times from have little groundin economictheoryto researchersbased there but writing in their believe that a policy of low tariffs and personal capacity). This is not surprising, nothingelse can do the trick.Indeed,and for the Bank has a monopoly on the related againfromour knowledgeof the history data, supplied to it and to it alone by the of eastAsia,there everyreason believe national governments that form its memis to that active 'export promotion'may be bership. It is a strength and weakness. It needed, even though this proposal is is a strength of course in that any report in international on poverty and inequality issued by the anathema someinfluential late circles.Succesful industrialisers Bank is based on actual estimates, howpolicy an have,through industrial policy,aligned ever arrivedat. It is a weakness in thatrival to sets of estimates arenot easily found. Since interest-rate subsidywithexporttargets ensureincentivesfor complianceandju- the World Bank is a major player on the worked exchange mecha- world stage and has a stake in the interthe rate diciously nism to maintain competitiveness.Of national debate on economic policy a is the course, challenge, however, toensure conflict of interest surely arises. What do thatinterventions aimedat exportpromo- the numbers show us anyway? In a recent tion are not captured vested interests, report1 on globalisation the institution has by which has unfortunately been the record cited work by its researchersshowing that in of so muchof stateintervention India. between 1980 and 1998 the numberof poor in the world have come down by 200 million. While 200 million is a very large II number indeed it is yet not prepossessing Globalisation Process as when seen on a world scale. However, It maybe argued for seriousecono- what invests the finding with significance that mistsall thatI havesaidso far,thoughnot is that this trend in the number of poor is to withoutinterest,is but peripheral the seen to be one of the very few instances centralissue of globalisation. what is of reduction in poverty in close to two So

centuries. The Bank puts this down to the greater integration of the world economy since 1980, the period representing the most recent bout of globalisation. Some scepticism regarding the finality of these estimates has been voiced2by Robert Wade of the London School of Economics. While not providing alternative estimates himself. Wade has pointed out thatthese estimates arecontingent upon the definition of the poverty line and the methodology used, being based on household surveys. While not proposing outright rejection of the Bank's claim of a lower number of persons in absolute poverty as the world has become more globalised since 1980, Wade recommends agnosticism. Wade has also contrasted this finding of a decline in poverty with the estimated constancy in the number of the poor - defined, as is the Bank's practice, as those living on less than one dollar a day - between 1987 and 1998 reported in the Bank's World Economic Indicators 2001, published only a little earlier in 2002. It is of some significance that two separate publicationsin the same yearby the world's pre-eminent multilateral financial institution report contradictory findings on the trend in poverty during period since 1980. This points to the tenuousness of our knowledge on the matter. By now the issue of the conflicting estimates from the World Bank has been addressed by one of the world's leading poverty researchers. Angus Deaton of Princeton is able3 to reconcile the two announcements in terms of a lag in the emergence of fresh informationon poverty trends, and concludes that global poverty has actually declined since 1980. Further, in his view, this is not surprising once one takes into account the very significant decline in poverty following faster growth in China and India where most of the world's poor reside. Deaton does, however, caution against pronouncing with exactitude on the numbersgiven the nature of the data base. Finally, and even though the World Bank's estimates of poverty reportedhere are of absolute numbers of poor, Wade has flagged the practice of evaluating trends in poverty on the basis of the headcount ratio. This measures the ratio of the absolute memberof poor to the total population. As the total populationgrows, this measure must show a decline in poverty even if the number of the poor is constant. Thus a declining headcount ratio cannot by itself signal anything definitive aboutthe impact

Economicand PoliticalWeekly July 26, 2003

3167

of economicpolicy,orinthecontextof our from a political standpoint but also from the presentconcerns,regarding impactof the point of view of assessing the impact per globalisation se. Thisneedsto be borne of globalisation. in mind when evaluatingthe pronounce- The second issue in the measurementof ments on povertyof the governmentof the trend in equity, whether global or India which are routinelyin the form of domestic, is the index of inequality. At the measuresof the 'percentage poor'. A cost of some simplification, we might say of declining percentageis also consistent that there are two options. First, there are in withanincrease theabsolute number of the measures that summarise the distribution such as the Gini coefficient which is the poor. Let us now turnto the recentevolution a quantification of the extent of deviation It of inequality. has been arguedthat as from a perfectly equal distribution of international are equitymeasures basedon income. Then there are measures based on on a comparison of the per capita income of national incomedata,they areperhaps than aslightly betterfooting globalpoverty say the richest 10 per cent or top decile of measures basedon household surveys.But the population with the per capita income thismustbe seen as a statement purely of the poorest 10 percent. Some argue that of relative strength, for despite any such the latteris more appropriatein the context strength derivingfromthedatareliability, of globalisation for such a measure capthe verdicton the trendin inequalityis tures the 'polarisation' that may have contingent on the index of inequality occurred as part of globalisation. This has data and adopted the underlying used.Let in turn been countered by the argument us look at the variouspossibilitiesfirst. that, in the context, choosing to work with A comparison theincomesof different this measure would be tantamountto selfof in each measured theirnational selection. Altogether, we can see thatthere countries currencies possibleonly with the aid of is room for discussion on the appropriate is a numeraire. The dollar is inevitably measure of dispersion of income. At least, chosen.Now thecrucialquestionarisesas there is no single best measure. to whetherwe ought to convertnational We may now turn to the extant set of income in domestic currencyinto their results on the trend in inequality in recent dollarequivalent market decades, the period treatedas representing usingthecurrent rate.Whenthisis donewe would a quickening of globalisation. A broad exchange have,say, India'sGDPin dollars.Instead account of the finding is when the trend we may wish to correctfor the deviation in inequality is captured via a comparison of market ratesfrompurchasing- of the relative incomes of persons at the exchange for (PPP),a metaphor a vir- extremes of the distribution - say the power-parity tuous,so to speak, exchangerate.When distance between the incomes of the richest this is done we would have India'sGDP and the poorest deciles - at different points in PPP dollars.Such an exercise usually in time, inequality has unambiguously has the consequence raisinga develop- worsened around the turn of the last cenof ing economy'sGDP and loweringthatof tury. On the other hand, when a summary a developed one. Forinstance,Indiais the measure of the distribution of income is world's fifthlargest economyinPPPterms, adopted the inference is contingent. Overa rank much higher than what she can all the evaluation of the state of our knowaspire to when her national income is ledge on the issue by a leading internaconverted to dollars using the market tional observer of globalisation's progress, exchangerate.We can see immediately Robert Wade: that an indicatorof international Purchasing power parity figures show equity trends in world income distributionthat would vary accordingto the measureof aremoreambiguousthanmarket exchange incomeused.It hasbeenargued when that ratefigures,moreconditionalon precisely considering global equity income-compari- which combinationof measuresone uses. son based on the marketexchange rate But we can be confident of the following alone is relevant,for global exchange is threepropositions. Purchasing powerparity at international inevipriceswithpayment figures show trendsin world income distribution that are more ambiguous than tablyto be madein dollars.The latter,it marketexchange rate figures, more conhasbeenflagged,is particularly crucialfor ditionalon preciselywhichcombinationof indebtedeconomies. The internationally measuresone uses. But we can be confiitself is, however,morerelevant argument dent of the following threepropositions: to inequality between countries rather than of (1) Using decile measurements inequawithin countriesthe evolution inequality lity (richest decile of the world's populaof whichis no less important us notonly to tion over median, poorest decile over

median) rather than the Gini or other measureof inequalityoverthewholedistribution, PPP-adjustedincome distribution has become much mzore unequal over the past two decades, whatever the other choices. World income polarisation, in otherwords,hasincreasedunambiguously, and the results would be still more dramatic using just the top 1 per cent over the median. (2) Using a measurementof the average distributionand weight countriesequally (China = Uganda), inequality between countries' average PPP-adjustedincome has also increased since at least 1980. Measuringinequality in terms of the dispersion of per capita GDPs across the world's (equally weighted) countries,this too rose between 1950 and 1998, especially fastoverthe 1990s.Thedispersionof percapitaGDP growthrateshas also risen over time, suggesting wider variation in performance among countries at each incomelevel. Onestudyusingthesedispersion measuresconcludes that there is "no doubtas to the existence of a definite trend towardsdistributive inequalityworldwide, both across and within countries". (3) Using a measurementof the average distribution but weighting countries by population,inequalitybetween the country averages has been constant or falling since around1980.This is theresultthat... many ...celebrate. But it comes entirely from fast average growth in China and India. If they are excluded even this measure of inequality shows inequality widening since 1980. In any case this last measure- the average incomeof each countryweightedby population - is interestingonly as an approximationto what we are reallyinterestedin, which is incomedistribution amongall the world'speopleor householdsregardless of which countrythey live in. We would not be interested measuring in incomeinequality within the United Statesby calculating the average income for each state and if weightingit by theirpopulations we had data for all households.4 Even as we note that Wade's own summary is less than clear always - whatever, for instance, may be meant by "a measurement of the average distribution"- it alerts us to the feature that the extant results on the trendin inequality depend closely upon the methodology of measurement and on the definition of income. What is of great interestis thatthe one instance of improved equity internationally is dependent upon the superior performance of China and India during the 1990s. As these are lowincome countries, a faster rateof growth in their per capita income would lower any measureof theglobal distribution income of when national averages are weighted by As country populations. countrydistributions

3168

Economicand PoliticalWeekly July 26, 2003

areweightedby countrypopulations,faster growth in China and India lowers the inequality between these countries and those richer than them. The findings on global poverty and inequality that I have discussed thus far have mostly emanated from the World Bank, even though very often via independent writingby its staffers. This monopoly on researchon these two variables has been challenged by Surjit Bhalla. Bhalla has been particularlycritical of the very high increase in the global Gini coefficient as estimatedbyBrancoMilanovic of theBank, flagging its "statistical impossibility"5 in light of changes in inequality over the earlier partof the 20th century. Focusing on the very same period looked at by the Bank's researchers Bhalla has presented estimates to show that in the years since 1980 there are significantly less poor people in the world and that the distribution of income has become more equal than ever before since the time a record is available. However, Bhalla's principled objection to comparing segments of the world income distribution- say the richest in the United States with the poorest in Africa - as involving a selection bias is a non sequitur. For while the distance between the richest and the poorest within' any distribution would always remain of the highest, it is nevertheless of interest to us to know how this metric has fared under globalisation. Thus a finding that the distance itself has widened would legitimately be partof the evidence-other factors having been controlled for - that globalisation is generating inequality. It may be of interestto instinctive critics of the World Bank that on the question of the consequence of globalisation early researchfrom thatinstitutionhas generally shown itself to be more pessimistic of its benefits than that of some independent researchers!At anotherlevel, the conflicting findings on the trendin world inequality - dependentas they are upon conscious choice of data and methodology - should not trouble a sturdy economist, but may well troublethose who expect final answers to questions the response to which may involve some judgment. The contested terrain of the trend in global inequality does not take away from a claim highlighted by champions of the globalisation project that China and India are in the last decade the world's fastest growing economies. But what conclusions regarding the beneficial causal impact of globalisation are we to draw from this

feature? While both China and India are indeed among the world's fastest growing economies right now, it cannot be said that they are the most globalised of the developing economies. Let us scrutinise these two economies both with respect to their respectiveexternal-policyregimes andwith respect to some (outcome) indicators of openness. It may surprisemany that tariffs remain high in both China and India - in fact south Asia is the region of the world where tariff levels arethe highest reflecting yet another feature that we share with Pakistan.Secondly, neitherIndianorChina has adopted capital account convertibility, thus seriously questioning the importance of also this aspect of policy regimes for faster growth or economic development. Now on to a consideration of some outcome-indicators ofglobalisation. Indiahas exceptionallylow levels of FDI fora country its size. China on the other hand has in recent years received the largest annual flows of FDI into any one country, very recently even more than the United States. However, as observed earlier in this essay, even in ChinaFDI volumes arelow relative to estimates of aggregate domestic investment there. What of the most crucial outcome indicator, the trade - exports plus imports- to GDP ratio?While this statistic has risen for both India and China, they are yet among the least globalised of the world 's economies going by it alone. We are able to see then that going by a range of indicators, there are several developing economies which arefarmoreglobalised in terms of the share of tradein GDP, notably the economics of sub-Saharan Africa.Their growth performanceis not only below that of China and India but also in some cases these economies are actually regressing. It has been estimated6that sub-Saharan Africa has, at 29 per cent, a higher export/ GDP ratio than even the developed economies. Clearly, the outwardorientationof an its economy does notguarantee development. This quick survey of the field of developing economies reveals a pattern that is counter-intuitive in terms of the claims made on behalf of globalisation. It appears that in the early 21st century it is the least globalised countries that are the best performers. A rhetorical flourish is often produced to account for this by adopting the category 'globalising' instead of 'globalised'. Now China and India are argued to be the fastest globalisers, i e, integrating with the rest of the world the fastest, even though they are not the most globalised yet. But there is something

incomplete here. We have been served with a post hoc or self-serving explanation ratherthanan account of how globalisation actually works to raise the rate of growth of an economy. The examples of China and India, however, do point out how integration with the rest of the world certainly is not decidedly disadvantageous in every case. Indeed the recent experience of both China and India holds a lesson to many other developing countries. Clearly even the poorest economies can engage with the world beneficially through trade. China actually exports mostly low-tech manufacturing goods such toys, household articles and bicycles. Before concluding this section, I have a final issue to discuss. Itconcernsthe relation between trade, openness and growth. Our resolution of this nexus has serious implications for the appropriate strategy to be adopted by developing economies that are being exhorted to embrace globalisation over everything else. I shall make my position clear by pointing to the temporal relation between economic resurgence and globalisation - measured by the very outcome indicators I have referred to - in the economies of both China and India. We have reason to believe that in both these economies accelerated growth occurred priorto their increased integration with the rest of the world or globalisation. For close to a decade after the introduction of the household responsibility system in 1978, China's powerhouse of an economy had been driven by peasant agriculture, hardly an identifiable feature of the new global capitalist amphitheatere. I must also mention that there is some scepticism among economists regarding the reliability of the extant data on China's economy. In India itself the external sector reforms are as recent as July 1991, while an acceleration of the economy was noticed in the 1980s itself. The 1980s saw two significant developments. First, agricultural growth accelerated. Secondly the public sector, notably its infrastructuresegment, began to perform better. There was some easing of quantitative restrictions in trade but any significant liberalisation of the external sector was a long way away. The acceleration of growth in India predates its heightened global integration. Along with that of China, the Indian experience presents us with a question often raised in the debate on globalisation. Between observed high domestic growth and openness measured by the share of trade lies the issue of causality. Has trade caused faster

Economicand PoliticalWeekly July 26, 2003

3169

growth or faster growth lead to more exports, in turn enabling higher imports, and all of this showing up as a high tradeto-GDP ratio?To cite the latterpossibility is not just to throw a spanner in the works of conventional economic reasoning, we can actually propose a mechanism that links prior growth to external success. Increasingyour marketsharerequires your goods to become more competitive in world markets.From Verdoorn's Law we know thatwith faster growth of output we may expect higher productivity growth. Productivityincrease reduces costs, making exportable goods more competitive. Nicholas Kaldor was prone7 to highlighting this sequence of events, which in turn would lead to our questioning of an automaticlink between prioropenness and economic expansion. Indeed we could conceive of an economy's expansion being in reflectedin a highertradeto GDP ratio, turn often celebrated as 'openness' and misconstruedto be the cause of the expansion.

III

as Globalisation Justice
Thus far I have spoken exclusively on the trendsin growth, poverty and inequality in the era of globalisation. An international debate has focused on the question of whether the world economy has improved in terms of these indicators. An implicit approach here appears to be that if there is an improvement in these indicatorsthen we may conclude thatall is well withglobalisation.It would pay us to reflect on whetherthis is a credible approach. As always, Amartya Sen has enabled8 us to ask the right question. It is whether the arrangements underlyingthe currentphase of globalisation are just? Therefore, to simply state that there is both growth and less poverty is not good enough. For instance, we may wish to know how the increased growth has been shared. Now the questionofjustice emerges directly. Of course, we had considered the trend in inequalityattheveryoutset.But no concrete idea of justice had intruded there, or did so only to a very limited extent. We had been interested in the inequality between nations for that is a central prediction of mainstream economics. Recall that convergence means precisely that. However, this is positive economics, so to speak; there is no evaluation in it. and we cannot duck this exercise altogether. In a brief passage here I shall raise two matters. First, I shall point to the appro-

priate domain when we speak of justice in the context of globalisation. Secondly, I point to a fundamental lack of justice under the current global economic order. Not only do I flag a certainfailureof current practice, but I also point out that it is a departure from the arrangement even in recent history. This, I consider, will provide a useful perspective for it challenges the idea that the current pattern of globalisation is the only one possible, a suggestion inherent in the use of the term 'inevitable' that is so often encountered in current discourse. It is proper for sure, however, thatthe issue ofj ustice be brought into discussions of globalisation. When addressing this issue we are immediately confronted by the anomaly that global justice is mostly identified with international equity. As Sen has pointed out, however, these are not the same, and as notions differ both in terms of their constitutive context and in termsof theirpolicy implications. The contrast between global and international equity bring to the fore of two issues. These are the domzain social and the concept of a persoln. justice As regards the domain of justice, the questionis whetherjustice is appliedonly to individuals within nations with anything of cross-border significance being seen as relations between nations. As regards the concept of thepersonwe may wish to ponder whether a person's identity is contained by nationality, giving this aspect priorityover any other identity that he or she might adopt. What are some of these other identities? Well, these may be based on the person's profession, political beliefs, religion, gender or sexual orientation. Are all of these to be resolutely ignored in favour of nationality? Once we acknowledge that individuals have plural affiliations, as Sen terms it, we see that internationalrelations are a hopelessly inadequate basis for arriving at global justice or equity. As citizens of India we may choose to subscribe to global religions. As citizens of Singapore we may choose to lead what our leaders see as non-Asian lifestyles. An English labourer may empathise more with the rights of Indian workers than with the concerns of Britishmultinationals,as many did in the 1940s when Gandhiexplained to them the rationale of his swadeshi movement. A concept ofjustice based on a parity between the world's nations as enshrined in the concept of sovereignty cannot handle these issues. Global equity means something farwider thanthe internationalequity that gets focused upon in world fora today.

It must addressinterpersonalequity among the people of the world. I now turnto a strictly economic relation and point out that global justice is yet to be achieved, in fact is unattainable,under the present regime of globalisation which is based on international relations. I refer to a central relation in economics, that between capital and labour. In attempting to evaluate the extent of justice adhering to the rules governing their interaction in the current world order we are in need of a theory of justice. While there may be more thanone, I am sufficiently persuaded by the Rawlsian notion of 'justice as fairness' to work with it. For Rawls, fairness for a group of persons involves rules and guiding principles of social organisation that treat equally every individual's interests, concerns and liberties. Rawls is able to persuade us of his conception of justice by suggesting that this is the most likely outcome of a cooperativeexercise of arrivingatprinciples of self-governance by individuals gathered in the 'original position', an imagined state of primordialequality. Centralto this exercise is theso-called 'veil of ignorance'which ensures that not knowing what exactly they will be, in selecting social rules they will not be influencedby a vested interestin their actual position in the imagined society. Rawls then proceeds to the identification of particularprinciples of justice. The first principle enshrines the 'priorityof liberty' and prescribes maximal liberty for each person subject to similar liberty for all. The second principle deals with equity and efficiency in the distributionof opportunities. It includes the 'Difference Principle'. The Difference Principle recommends that alternative social arrangementsbe judged in the terms of the difference they make to the holding of 'primary goods', which are some kindof general-purposeresources including self-respect, by the worst-off in society. This privileging of the worst-off renders the Rawlsian allocation rule 'lexicographic maximin'. We are now sufficiently well-armed to appreciatethatthe currentworld economic order, in respect of the rules governing the relation between capital and labour, is far from just in a Rawlsian sense. Not only is capital mobile across borders but its mobility as FDI inflow into the developing countries has been aggrandised as being central to their development. As I have argued, the idea is debatable, but this need not hold us back at this stage. We only need to remain aware that nothing like a similar

3170

Economicand PoliticalWeekly July 26, 2003

freedom operatesfor labour. Entryrestriction is rife with respect to unskilled labour. Comparedto the barriersto immigration, capital today is spoilt for choice in terms of the earth's geography. The rules governing the movement of capital and labour arethereforeasymmetric.This is so despite the case that some economies may be starved of labour resources as much as others need capital. Not just the territories of white colonisation during 19th century but also the economy of the UK as late as the 1950s and 1960s benefited immensely from immigration. In fact, the UK has benefitedfrom outflow in the mid- 19thand inflow in the mid-20th centuries, respectively. Labour outflow keeps up the wage ratein basin of emigration. Though it must keep down the wage rate at the point of entry this need not always be disadvantageous to labour, for wherever there may be indivisibilities in the use of labour, immigration will actually help maintain employment levels when it enables production. This is the sense in which immigration is likely to have aided economic expansion of the US in the late 19th and early 20th centuries when it rose to become the world's leading economy. The asymmetry between the respective rules for capital and labour demonstrates how in a globalising world economy justice means something other than international equity or equity between nations. While the absence of immigration opportunities for Indianlabourprotects the wage rate of American workers the mobility available to American capital ensures that the employment of the latter cannot be Whencapitalmovesjust across guaranteed. the borderto Mexico to take advantage of lower wages, lax environmentalregulatiqn and often lower taxes it is as if US jobs are being exported. Were labour free to move at will Mexican wages would be equalised with American ones, and capital would be left without an incentive to look outside of the US economy. This example makes it clear to us that not all issues in the context of globalisation revolve with the narrow compass of international relations and national sovereignty. The domain of justice, or the terrain over which justice must be brought to bear, is broader and more complex than what is focused upon in the United Nations, often seen as the arbiterof global justice which, abetted by the instrumentalreasoning of the cold war era, was erroneously identified with internationalequity. Many tend to see the restrictionon the migration of labourto the

US coexisting with the freedom to USbased capital to flow out as an issue of international equity. But they are wrong. There is actually a formal parity between nations here, for neither can American labour move internationallyas Indian and American capital can and do. Only there is no parity between capital and labour. Clearly US workersare left worse off. This also partially explains the presence of the American Federation of Labour in the socalled 'anti-globalisation' protests in the US in 2001. To return to some nuts and bolts economics, when the mobility of a factor is restrictedits elasticity of demand rises. Thus underglobalisationeven a small increase in the US wage rate could lead US-based capital to relocate to Mexico. This leaves labour vulnerable, and insecure, in a way that it would not be were both labour and capital equally mobile. It is this regime of asymmetric rules betweencapitalandlabourthatgives capital so much power globally today, and it is this arrangement that has earned the description 'corporateglobalisation', indicating that what we are witnessing is less than true globalisation. This is the appropriate stage for me to clarify that neither theoretically nor in fact is this form of globalisation the only alternative. Historically the world has seen an equally free movement of capital and labour, notably prior to 1914. Indeed many have pointed out that the world was much more globalised then than it is today. Passports were unheardof before the first world war. Since then the world has settled into a regime where immigration is not always welcome, and even if it is, entry is only on the host country's terms. It is the case though that since the 1980s the US has permitted the migration of highly skilled labour, culminating in the influx of IT professionals in the 1990s. a feature that we in India are by now familiar with. But all this is a minuscule proportion of the world stock of labour, and does not even begin to take away from the feature that currently labour's mobility is curtailed while capital mobility is rife.

Conclusion
I conclude with some observations about India and the world in recent years. In the process I shall attempt to convey that the economic constraintsthatbind its economy are very likely internal ones rather than anything external. The current bout of

globalisation is unlikely to affect her

fortunes dramatically either way. A useful indicator upon which to peg one's evaluation is poverty. If July 1991 may be treated as the beginning of an increasing integration of India with the world economy it would then be pertinentfor us to ask what has come of poverty since then. Perhaps the most authoritative recent study on the issue is the one by Deaton and Dreze9 published late last year. They have concluded on the basis of their own and extant estimates that poverty decline in the 1990s proceeded more or less in line with earlier trends. They have also briefly examined other development indicators relating to health and education, and found that most indicators continued to improve in the 1990s. On the whole, they conclude that there is no support for sweeping claims that the 1990s have been a period of either "unprecedented improvement" or "widespread impoverishment". This is about as clear a message as one is likely to get on the impact of globalisation on the Indian economy as a whole, as opposed to segments of it that are highly integrated with the rest of the world. The simple matteris that most Indians have either very low incomes orvery low skills to be affected by globalisation either way. Low incomes imply that imports don't swamp domestic marketsthusprotectingworkerssomewhat. Low skills imply that Indian workers cannot, under present arrangements, take advantage of greater integration of the Indian economy with the rest of the world. Clearly, integration brings threats and opportunities. In the context then, low buying power wards off the threatto Indian producers from multinationals while low skills leave opportunities unutilised. The relative importance of economic policy for India's economic welfare with or without globalisation may be understood by looking at the record of growth in India in the last 50 years of the 20th century. It may be the case that the rate of growth of the economy is higher since 1991, but it would be wrong to attributethis entirely to globalisation. An even higher rate of acceleration had occurred in the early 1980s when the external sector had yet been liberalised very little. In any case, none of this can match the acceleration in the economy wide rate of growth after Indian independence when those responsible for her economic policy had,forbetteror forworse, consciously turnedthe country away from the rest of the world. Recall that per capita income was more or less constant in the first half of the 20th century when India

Economicand PoliticalWeekly July 26, 2003

3171

had remained under colonial rule. The resurgence in the economy under the leadership of Jawaharlal Nehru can hardly be put down to merely closing the country's borders. On the other hand, it has everything to do with the bold thrust to expand the economy. It remains clear that, with or without globalisation, India's performance will largely depend upon the policies adopted. Whatever may be one's reservations regardingfairness in the currenteconomic order, where a national interest may be identified, there is no doubt that the gatheringintegrationof the worldeconomy - termed globalisation and exaggerated10 for its newness --is actually an opportunity for India to assume a leadership role in the world. As has been remarked, the world can do nothing to marginalise India, a vast region with great potential, a feature only partlyreflectedin the narrowlyeconomistic statistic that it is the world's fifth largest economy in PPP terms. However, she could marginalise herself by not engaging with the rest of the world. S Address for correspondence: balan @ iimk.ac.in

Notes
[Text, edited, of the Second Malcolm Adiseshiah MemorialLecturedeliveredat Chennaion March 17, 2003. I am gratefulto C Selvaraj,head of the Madras Christian College departmentofeconomics, for havinginvitedme to deliverthis lectureandfor V assistingmein thechoiceof topic.I thank K Natraj who chairedthe meetingforhis commentsafterthe lecture,RobertWadefor permissionto quote from his work in progress,Ravi Kanburfor correspondence, and the IIM Kozhikode for institutional and of support. Thegenerosity theElizabeth Malcolm Adiseshiah Trust helped me travel to the sylvan surroundings of my alma mater, the MCC at and Talnbaram, spendan evening therebefore the morning'slecture.I dedicatethis lectureto ChrisKurien. firstandmostinfluential My topherThomas has teacherof economics,Kurien led theprofession for morethanfive decadesfromthecity of Madras. His life has shownoverlappinggenerationswhatit is to tempera calling to social engagementwith a concernfordoingso withoutfearorfavour.Though a meagrerecompensefor so rich a bequest,I hope yet thatthis lecturewill at least serve as evidence of my admirationfor the act.] 1 See WorldBank(2002: Figure3 anddiscussion on p 7). 2 See Wade (2002). 3 See Deaton (2002). 4 See Wade(2002) pp 9-10; editedforcontinuity. 5 See Bhalla (2003) p 79. 6 See Castells (2000), p 109. 7 See Kaldor (1970).

8 See Sen (1999). 9 Deaton and Dreze (2002). 10 See Nayyar (1995).

References
Bhalla, S S (2003): Imagine There'sNo Country: Poverty, Inequalityand Growthin the Era of New Delhi. BooksIndia, Globalisation, Penguin Castells,M (2000):TheInformation Economy, Age: Societyand Culture,volume 1, TheRise of the Network Society, second edition, Blackwell Oxford. Publishers, Deaton, A (2002): 'Is World Poverty Falling?'. Finance and Development, 30, http://www.imf.org/extemal/pub,s Deaton, A and J Dreze (2001_ 'Poverty and Inequality in India: A Re-examination', Economicand Political Weekly,37: 3729-48. N Kaldor, (1970): 'TheCaseforRegionalPolicies', 17:337-48. Scottish Journal Economy, ofPolitical The Nayyar,D (1995): 'Globalisation: Pastin Our Present', Indian EconomicJournal, 43: 1-18. Justice: Sen,A (1999):'Global BeyondInternational Equity' in I Kaul (ed), Global PulblicGoods, Oxford University Press, New York, for the UNDP. Wade, R H (2002): 'Globalisation, Poverty and Does theLiberalArgument Hold?', Inequality: LSE, unpublished. World Bank (2002): Globalisation, Growthand an Economy, Poverty:Building InclusiveWorld Oxford Press, PolicyResearch Report, University New York.

DomesticProductof Statesof India : 1960-61to 2000-01

The EPW Research Foulndation (EPWRF) has just released the above publication. The volume, a first of its kind, presents long 40-year series on state domestic product (SDP) and also some available data on state-level capital formation. It also contains detailed descriptions of the history of SDP estimation and the evolution of its methodology; four separate notes contributed by the senior officers of the Central Statistical Organisation (CSO) constitute a coveted feature of the volume. r- - - -

The publicationis pricedper copy (inclusive of postage) thus:

Inland (Rs)
HardCopy Concessional ratefor students CD 500 350 50

Foreign (US $)
2,000 100

I
I I
L

Copies of the publication or CDs can be obtainedfrom: EPW Research Foundation, C-212, Akurli IndustrialEstate, Akurli Road, Kandivli (E), Mumbai - 400 101. Tel: 2887 3041/ 3038 Fax: 2887 3038 Email: epwrf@vsnl.com see also http://www.epwrf.res.in All remittancesare to be in favour of EPW Research Foundation. OutstationCheques should include Rs 50/- as collection charges.

3172

Economic and Political Weekly

July 26, 2003