1963-2013 - 50 years of Research for Social Change

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Back | Programme Area: Special Events (2000 - 2009)

The Developmental Agenda in the Age of Neoliberal Globalization (Draft)

“Is this the end of economic developmental state?” was the opening title of a modeling exercise by Adelman and Yeldan in the Global Trade Policy Analysis meetings of Odense, June 1999. Referring to the recent Asian crisis as a point of reference, the authors utilized a smooth-functioning neoclassical model with fully flexible commodity and financial markets to show how the neoliberal global agenda severely restricts the autonomy of the developing countries to pursue strategic policies to attain development targets. Accordingly, with the recent attempts towards full liberalization of the capital account under pressures from the US and the IMF (the so-called Washington consensus), governments lost their autonomy in designing a strategic mix of the exchange rate and interest rate instruments for promotion of industrialization targets. Thus, in Grabel’s words:
“These changes, coupled with the ensuing investor euphoria, led to a general speculative appreciation of asset prices, extremely high real interest rates, and an overall shift in aggregate economic activity toward financial trading and away from industrial activities” (Grabel 1995: 128).

The assessment that the process of neoliberal globalization is associated with successive financial crises has further been a recurrent theme in much of the literature on international finance and open economy macroeconomics. Notwithstanding the original proposition of a (Tobin’s) tax on short term capital flows, the detrimental effects of unregulated flows of financial capital have been the topic of active debate in Stiglitz (2000), Rodrik (1997), Calvo, Leiderman and Reinhart (1996), Grabel (1996), Diaz-Alejandro (1985), and Velasco (1987); and also constituted one of the main themes in all of the last five annual Trade and Development Reports of UNCTAD.

In this paper, I attempt to address to the ideas provided in this literature and try to deduce implications for a renewed development policy. After a brief conceptual introduction on the distinguishing characteristics of the recent wave of globalization in the next section, I discuss the development concept as distinct from that of growth in the context of late 20th century financial liberalization and market orthodoxy in section 2. In section 3, I highlight the main mechanisms of how unfettered workings of the global financial transactions restrict the autonomy of the states to pursue indigenous development objectives and deprive them from the classic tools of austerity. Finally in section 4, I sketch some concluding comments.

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