Vol.4 No.1, 06 January 2004

A development perspective on 'Globalisation market reform'

By Johan van Zyl

In a recent SANE Views Margaret Legum emphasised the extraordinary fact that nearly all over the world current political practice is dominated by one particular economic paradigm. The economic ideology of 'free markets' now reigns supreme!

This is perhaps understandable from a 'power politics / multi-national profit-seeking' perspective. But what is the verdict from a genuine development viewpoint? For civil society world-wide this is a major issue.

Two basic strategies for socio-economic renewal: (a) replacement vs (b) transformation

Some critics argue that many of the problems arising from globalization are not just due to poor implementation. These policies are often counter-productive because of the conceptual one-sidedness of the underlying economic theories.

In practical affairs, two very different 'logics’ of change are often involved (Albert Hirschman):

For any development problem there are always two possible responses: (a) switch rather than fight or (b) fight rather than switch. A commitment-based strategy ‘fights’ for renewal by pursuing transformation of existing structures and people. An exit-based strategy sees renewal as only coming from outside through switching. Hence, a basic question is always: to transform the old into the new OR to throw out the old and then import the new?

A market system is driven by the logic of switch rather than fight. It emphasises exit, mobility, flexibility, and liquidity. The opposite logic is important for maintaining internal organisations. It emphasises commitment, loyalty and voice (‘voice’ indicating the variety of mechanisms through which members could try to change an organisation from within).

A factual picture: what do economies look like in the real-world ?

Economies all over the world are made up of both markets and organisations. Most orthodox economists have a broad perception or cogitative map of society in which markets dominate the landscape except for some small ‘market failures’ - known as ‘organisations’.

Critics (especially Nobel Prize winner Henry Simons) point out that economic reality is almost the exact opposite. Instead of thick markets connecting small organisational dots, the real world is thick in organisations with relatively thin markets connecting them. The economies of modern industrialised society can more appropriately be labelled ‘organisational economies’ rather than ‘market economies’. In short, organisational (rather than purely market-driven) decision making predominates.

Yet the key basis for policy-making in current international affairs (for example, in the prominent ‘Washington Consensus’) is essentially a theory of markets. It is firmly based on the one-sided logic of exit.

Any practical barriers to exit - and to mobility, flexibility, or liquidity - are regarded as ‘problems’ and ‘flaws’. Hence, these have to be consistently eliminated by market reforms. All stability is described as rigidity, all commitment as immobility, and all resistance to exit is seen as an affirmation of rent-seeking. This viewpoint is conceived as valid because 'renewal' can only come from replacement of the home-grown old by the imported new.

A more useful development guideline would follow from realising that the development problems faced by society often require different combinations of the above ‘logics’. But the best combination has to be found experimentally i.e. on the ground. This is not an either/or issue but one of striking a sensible balance in a variety of development situations. Is such pragmatism too much for today's economists?

If global organisations like the IMF, WTO and the World Bank should continue to pursue a globalisation crusade to reform societies solely on the basis of the free market logic of exit, its dark side will inevitably emerge. It will seriously undercut the alternative development logic of commitment, loyalty and voice i.e. of people-centredness generally and of investment activities that go hand in hand with human commitment. It will be to the detriment of economic, social and human progress all over the world.

Key implications for South Africa

Promoting localisation and greater local economic self-reliance in South Africa will involve much transformation. Such a thrust would clearly run counter to the globalisation free market ‘logic’ of switching and replacement.

Our marginalised economy is still greatly dependent on external commercial business. Any 'switching' needed will be of a very different kind i.e. a move towards greater local community supply under the control of, say, 'community development associations' (CDA's). But, this could seriously inhibit the orthodox switch and replace strategy that business has, in fact, employed within the entire marginalised sector for tens of decades !

Thus, only the transformation strategy remains - based on commitment and loyalty. For business, the sound option is to adapt accordingly.

Effective 'localisation' will require some tough and courageous decisions by government.

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© South African New Economics Network 2006. Page generated at 17:26; 24 September 2006