global is at ion, growth and justice

8/3/2019 Global is at Ion, Growth and Justice

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Globalisation, Growth and JusticeAuthor(s): Pulapre BalakrishnanReviewed work(s):Source: Economic and Political Weekly, Vol. 38, No. 30 (Jul. 26 - Aug. 1, 2003), pp. 3166-3172Published by: Economic and Political WeeklyStable URL: http://www.jstor.org/stable/4413829 .

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PerspectivesGobalisation,rowtha n d JusticeThisessay criticallyevaluates the exhortation o developingeconomiesthattheyembraceglobalisation, considers theconsequencesof globalisationfor equalityand discusses the issueofjustice in the currentglobal economicorder.PULAPREBALAKRISHNAN

shallengagewith hree hemes elatedto the issue of globalisation.First,Ishall firstcriticallyevaluate he coreoftheexhortationo thedeveloping cono-mies that they embraceglobalisation.mightquicklyadd that hisbegs thenag-gingquestionof whetherglobalisationssomethingcountriescan adoptand dis-cardat will. Then I shall turnto what Iconsider hecentral uestionn thecontextof globalisationrom hepointof view ofeconomic heory, erhapshemost mpor-tantissue for economists.Thisconcernsthe consequence of globalisation for

equality.Ourconclusionshere matter ous in a deepsense fortheywouldqualifythe success of ourprofession.Finally,Iturn o the issue of justice in the currentglobal economic order, a relativelyneglectedbutprofoundlymportantssue,andnotjust for economists.IGlobalisations Policy

While thesteadyprogressof the inter-nationallyngaged conomies f eastAsiahad ongbeennoticed t was perhapshecollapseof the Berlin Wall that finallyisolated hoseholdingout orcentral lan-ning as a model of economic arrange-ments.Eventhough hepoliticalsignifi-cance of thisevent farexceededthe eco-nomic there was no holding back thevanguard f the market evolution o tospeak.While the core of the economicsprofession emainedmoreorless assuredof therelativestrengths ndweaknessesof the market,the historical momentappearedo providea windowof oppor-tunity o the'policyentrepreneur',term

due to Paul Krugman. The only modelworth pursuing any longer, it was said,was one of free markets and open econo-mies. This perspective, if one may call itthat,was rapidly adopted by theinfluentialmultilateral lending agencies. The stagewas set for the embrace of globalisation.The preponderantadvice to governmentsnow became one thatexhorted the imple-mentation of policies friendly towards theinternational nvestor. Two elements maybeidentified nthispackage.They revolvedaround procedures for quick approval ofproposals for foreign direct investment(FDI) and the removal of erstwhilebusiness barriers to commercial activity,includingnotably nternationalrade. shalldealcriticallywitheachof these proposals.While attracting FDI is indeed useful,it is important to recognise two things.First,we know fromhistorythatFDIflowsto vibranteconomies seemingly living bythe adage 'to him that hath will be given'.This is clear from the history of the USeconomy which hasremained heeconomyreceiving thelargestFDIflows forperhapsthe past 150 years. There is also a kindof contradiction in associating FDI withcompetition. Actually,- given the un-certainty associated with investing in adeveloping economy, FDI requires highprofit margins. High margins actuallyreflect the absence of competition.Secondly, historically we would be hardput to think of FDI having contributed tothe wider development of a country'seconomy. Even if FDI did not necessarilydepend upon high growth in the destina-tioneconomies it is of importance o ascer-tain the commitment of global investorstowards local infrastructure,perhaps theone single most crucially absent elementin adeveloping economy.There s ofcourse

the case of British capital in the buildingof therailways on theAmericancontinent,both north and south. However, while thefigures may have been large by contem-porarystandards, heUS in the mid-1800swas a farless complex economy thanIndiais today, and with a far lower backlog ofpoverty. Thus, by taking the economichistory of the United States as the proto-type, the developmental role of foreigncapital it appears can be exaggerated.The one economy heldoutasanexampleof the role of FDI is China, and un-favourablecomparisonsbetween IndiaandChina on this account are commonplace.This, however, stems from an inadequateappreciation of the nature of recent eco-nomic development of China.FDI beginsto emerge as a majorfactor in the Chineseeconomy only in the 1990s, perhapsa fulldecade and a half after the beginning ofthe liberalisation of the Chinese economicregime. Moreover, by then China haddemonstratedquite extraordinaryrates ofgrowth of her agriculture, rates so highthat the estimates have been queried.But the feature of the Chinese economythat tends to get overlooked most is thatit is an economy with very high rates ofdomestic investment.Investmentasashareof nationalincome is estimated atapproxi-mately 40 per cent of GDP. This is veryhigh by current and historical standardsanywhere. In India it is barely over 20 percentpresently.This mustleave ustoponderthe promisethat FDI will flood Indiasoonas we have aninvestor- friendly rulebook.While noreasonableeconomist couldhavean objection to making the investmentregime more friendly for potential inves-tors, perhaps something more than alter-ing thepolicy regime is necessary to rampup investment in an economy.In all of this there is too much emphasison investment or factor accumulation - astrange throwback to debates on growthin the former Soviet Union. But what ofproductivity growth? Perhaps FDI isneeded for higher productivity growth?Technology and newer ways of organi-sation certainly are inputs into raisingproductivity, and these are seen as by-productsof FDI. But these are nottheonlyinputs into productivity growth, nor arenew technology and newer ways oforganisation solely dependent upon FDI.

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Theargument boutFDI is really onlya subsetof the arger rgumenthatopen-ness sgood orgrowth.Here hestrategy,I mean hestrategy f argumentation,asbeen opoint o theextraordinaryuccessof theeastAsianeconomics, heso-calledAsianTigers. t s indeed orrect hat heseeconomieshave leveragedglobalisationwithextraordinaryuccess.They are, atleastbytoday,relativelyopeneconomiesboth nterms fpolicystance employinga low tariff ate and n termsof the shareof trade n GDP.However,by my veryreferenceo thesetwo indicators f open-ness, e, tariffs evelsandtrade ntensity,I havetouchedupona contentious ssueinthe discourse ndevelopmenttrategy.A debateexists thatrevolves around heappropriateisentanglementf cause andeffect. It has beenpointedout that o saythatexportsaregood for an economyinthesensethat heyraise he evel of outputis trivial.Afterall,we mayrecall romourfirst course in macroeconomics he na-tional ncome dentityY = C+I+G+X-M.So, thatexportsarea good thing is notcontentious.The realquestions whetheropennessdefinedas low tariffs s a suf-ficientcondition orbringing boutanin-crease n exports.Apart rom our know-ledgethat omeof theprincipalastAsianeconomies - notably South Korea - hadfirstpursued policyofimportubstitution- presumably behind a tariff barrier wehavelittlegroundn economictheory obelieve thata policy of low tariffsandnothing lse can do thetrick.Indeed,andagain rom ourknowledgeof the historyofeastAsia, here severy eason obelievethat active 'exportpromotion'may beneeded, even though this proposal isanatheman some nfluentialnternationalpolicycircles.Succesfulate ndustrialisershave, hroughn ndustrialolicy,alignedinterest-rateubsidywithexport argetsoensure ncentives orcomplianceand u-diciouslyworkedheexchange atemecha-nism to maintaincompetitiveness.Ofcourse,hechallenge, owever,s toensurethat nterventionsimedatexportpromo-tionarenotcaptured y vestedinterests,whichhas unfortunatelyeen the recordof so muchof state nterventionn India.IIGlobalisations Process

Itmaybearguedhat or seriousecono-mistsall that havesaidso far, houghnotwithout nterest, s but peripheralo thecentral ssue of globalisation.So what is

the central issue then? It is that of conver-gence. What is this convergence beingspoken of? A popular version of the con-vergence hypothesis is that poor nationswill steadily approach the income levelsof therich,currently he industrialisedones.This implicitly means ahighergrowth ratefor the poorer economies. But while theconvergence hypothesis predicts a fastergrowth of the poorer countries why mustthere be convergence in the first place onemight ask? There must be, is the answer,for as factor prices are equalised withglobalisation - seen here as the integrationof economies - so mustbecome per capitaincomes across the world.Note then that the convergence hypo-thesis predictsthree nterrelatedoutcomes:faster growth of poorer countries, declin-ing worldpovertyand,above all,decliningincome inequality.Given theextraordinarydifferences in income between countriescurrently, perhaps only a relative equali-sation of incomes is being predicted.Strict'catch up', or poorer countries becomingas rich as therichest ones is simply a usefulmyth to organise the work of economists.Let us now look at the state of the currentinternational ebateon the trends n povertyand income distribution as the globaleconomy has become progressively inte-grated. The strongest claims on the trendinthese two variables have emanated fromthe World Bank(even thoughat timesfromresearchersbased there butwritingin theirpersonal capacity). This is not surprising,for theBank hasa monopoly on therelateddata, supplied to it and to it alone by thenational governments that form its mem-bership. It is a strength and weakness. Itis a strength of course in that any reporton poverty and inequality issued by theBank is based on actual estimates, how-ever arrivedat.It is a weakness in thatrivalsets of estimates arenoteasily found. Sincethe World Bank is a major player on theworld stage and has a stake in the inter-national debate on economic policy aconflict of interest surely arises. What dothe numbers show us anyway? In arecentreport1on globalisation the institution hascited work by its researchersshowing thatbetween 1980 and1998 the numberof poorin the world have come down by 200million. While 200 million is a very largenumber indeed it is yet not prepossessingwhen seen on a world scale. However,what invests the finding with significanceis that this trend in the number of poor isseen to be one of the very few instancesof reduction in poverty in close to two

centuries. The Bank puts this down to thegreater integration of the world economysince 1980, the period representing themost recent bout of globalisation.Some scepticism regarding the finalityof these estimates has been voiced2byRobert Wade of the London School ofEconomics. While not providing alterna-tive estimates himself. Wade has pointedoutthatthese estimates arecontingentuponthe definition of the poverty line and themethodology used, being based on house-hold surveys. While notproposingoutrightrejection of the Bank's claim of a lowernumber of persons in absolute poverty asthe world has become more globalisedsince 1980, Wade recommends agnosti-cism. Wade has also contrasted this find-ing of a decline in poverty with the esti-matedconstancy in the number of the poor- defined, as is the Bank's practice, asthose living on less than one dollar a day- between 1987 and 1998 reported in theBank's World Economic Indicators 2001,published only a little earlier in 2002. Itis of some significance that two separatepublications nthe sameyear bytheworld'spre-eminent multilateral financial institu-tion report contradictory findings on thetrend in poverty during period since 1980.This points to the tenuousness of ourknowledge on the matter.By now the issue of the conflictingestimates from the World Bank has beenaddressed by one of the world's leadingpoverty researchers. Angus Deaton ofPrinceton is able3 to reconcile the twoannouncements in terms of a lag in theemergence of freshinformationonpovertytrends, and concludes that global povertyhas actually declined since 1980. Further,in his view, this is not surprisingonce onetakes into account the very significantdecline in poverty following faster growthin China and India where most of theworld's poor reside. Deaton does, how-ever, caution against pronouncing withexactitude on thenumbersgiven thenatureof the data base.

Finally, and even though the WorldBank's estimates of poverty reportedhereare of absolute numbersof poor, Wade hasflagged the practice of evaluating trendsin poverty on the basis of the headcountratio. This measures the ratioof the abso-lute member of poorto the totalpopulation.As the totalpopulation grows, this measuremust show a decline in poverty even if thenumber of the poor is constant. Thus adeclining headcount ratio cannot by itselfsignal anythingdefinitive about theimpact

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of economicpolicy,or nthecontextof ourpresent oncerns, egardingheimpactofglobalisation er e. Thisneeds obe bornein mind whenevaluatinghe pronounce-ments on povertyof the governmentofIndiawhichareroutinely n the form ofmeasuresof the 'percentage f poor'.Adeclining percentage s also consistentwithan ncreasentheabsolutenumber fthepoor.Let us nowturn o the recentevolutionof inequality. t has been argued hatasinternationalquitymeasures rebasedonnational ncomedata, heyareperhaps naslightlybetterfootinghanglobalpovertymeasures asedonhouseholdurveys.Butthismustbe seen as a statement f purelyrelativestrength,for despite any suchstrength eriving rom he datareliability,the verdicton the trend n inequality scontingenton the index of inequalityadopted nd heunderlying ataused. Letus look at the variouspossibilities irst.Acomparisonfthe ncomesof differentcountries ach measuredn theirnationalcurrenciess possibleonlywiththeaidofa numeraire.The dollar is inevitablychosen.Nowthecrucialquestionarisesasto whetherwe oughtto convert nationalincome in domesticcurrency nto theirdollar quivalent singthecurrentmarketexchange ate.When his s donewewouldhave,say,India'sGDP n dollars. nsteadwe maywish to correct or thedeviationof marketxchange ates rompurchasing-power-parityPPP),a metaphorora vir-tuous,so to speak, exchangerate. Whenthisis donewe wouldhaveIndia'sGDPin PPPdollars.Such an exerciseusuallyhas theconsequence f raisinga develop-ingeconomy'sGDPandlowering hatofadeveloped ne.For nstance, ndia s theworld's ifth argest conomy n PPP erms,a rank muchhigherthan what she canaspire to when her national income isconverted to dollars using the marketexchangerate.We can see immediatelythat an indicatorof internationalquitywouldvaryaccording o the measureofincomeused.It hasbeenarguedhatwhenconsideringlobal quityncome-compari-son based on the marketexchangeratealone is relevant, or globalexchangeisatinternationalriceswithpaymentnevi-tablyto be made n dollars.The latter, thasbeen lagged, sparticularlyrucial orinternationallyndebtedeconomies. Theargumenttself s,however,morerelevanttoinequality etween ountries atherhaninequalitywithin countries he evolutionof which snoless importanto usnotonly

from a political standpointbut also fromthe point of view of assessing the impactof globalisation.The second issue in the measurement ofthe trend in equity, whether global ordomestic, is the index of inequality. At thecost of some simplification, we might saythat there are two options. First, there arethe measures thatsummarise the distribu-tion such as the Gini coefficient which isa quantification of the extent of deviationfrom a perfectly equal distribution ofincome. Then there aremeasures based ona comparison of the per capita income ofsay the richest 10 percent or top decile ofthe population with the per capita incomeof thepoorest 10percent. Some arguethatthelatter s moreappropriate nthe contextof globalisation for such a measure cap-tures the 'polarisation' that may haveoccurred as partof globalisation. This hasin turn been countered by the argumentthat, in thecontext, choosing to work withthis measure would be tantamount o self-selection. Altogether, we can see that thereis room for discussion on the appropriatemeasure of dispersion of income. At least,there is no single best measure.We may now turn to the extant set ofresults on the trendin inequality in recentdecades, theperiodtreatedas representinga quickening of globalisation. A broadaccount of the finding is when the trendin inequality is capturedvia a comparisonof the relative incomes of persons at theextremes of the distribution - say thedistance between theincomes of the richestand thepoorestdeciles - at differentpointsin time, inequality has unambiguouslyworsened aroundthe turn of the last cen-tury. On the other hand, when a summarymeasure of the distribution of income isadopted the inference is contingent. Over-all the evaluation of the state of our know-ledge on the issue by a leading interna-tional observer of globalisation's progress,Robert Wade:

Purchasing power parity figures showtrends in world income distribution hataremoreambiguous hanmarket xchangerate igures,moreconditionalonpreciselywhichcombinationof measuresone uses.But we can be confidentof the followingthreepropositions. urchasing owerparityfigures show trends n worldincome dis-tribution that are more ambiguous thanmarketexchange rate figures, more con-ditionalonpreciselywhichcombinationofmeasuresone uses. But we can be confi-dent of thefollowingthreepropositions:(1) Usingdecile measurements f inequa-lity (richestdecile of the world's popula-tionover median, poorest decile over

median) rather than the Gini or othermeasure f inequalityoverthewhole distri-bution, PPP-adjustedncome distributionhas become much mzore nequalover thepast two decades, whatever the otherchoices. World income polarisation, inotherwords,has ncreasedunambiguously,and the results would be still more dra-matic using just the top 1 per cent overthe median.(2) Using a measurementof the averagedistributionandweight countriesequally(China = Uganda), inequality betweencountries' average PPP-adjustedncomehas also increased since at least 1980.Measuring nequalityin terms of the dis-persion of per capita GDPs across theworld's (equallyweighted)countries, histoo rose between 1950 and 1998, espe-ciallyfastoverthe 1990s.Thedispersionofper capitaGDPgrowthrateshas also risenover time, suggesting wider variationinperformance among countries at eachincome evel.Onestudyusingthesedisper-sion measuresconcludes thatthereis "nodoubtas to theexistence of adefinitetrendtowardsdistributivenequalityworldwide,both across and within countries".(3) Using a measurementof the averagedistribution but weighting countries bypopulation, nequalitybetween the coun-try averageshas been constantorfallingsincearound1980.This is theresult hat...many ...celebrate. But it comes entirelyfrom fast average growth in China andIndia. If they are excluded even thismeasure of inequality shows inequalitywidening since 1980.Inanycase thislast measure theaverageincomeof eachcountryweightedby popu-lation- is interestingonly as an approxi-mation o whatwe arereally nterested n,which is incomedistribution mongall theworld'speopleorhouseholds egardless fwhichcountry hey live in. We would notbe interestednmeasuringncome nequal-ity within theUnitedStatesby calculatingthe average income for each state andweighting t by theirpopulationsf we haddata for all households.4Even as we note that Wade's own sum-

maryis less thanclear always - whatever,for instance, may be meantby "a measure-mentof theaveragedistribution" italertsus to the feature that the extant results onthe trend n inequalitydepend closely uponthe methodology of measurement and onthe definition of income. What is of greatinterest s that heone instance of improvedequity internationally is dependent uponthe superior performance of China andIndia during the 1990s. As these are low-income countries,a fasterrateof growth intheir per capita income would lower anymeasureof theglobaldistribution f incomewhen national averages are weighted bycountry opulations.Ascountrydistributions

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areweightedbycountrypopulations,fastergrowth in China and India lowers theinequality between these countries andthose richer than them.The findings on global poverty andinequality that I have discussed thus farhave mostly emanated from the WorldBank,even thoughvery often via indepen-dent writingby its staffers.This monopolyon researchon these two variables has beenchallenged by Surjit Bhalla. Bhalla hasbeen particularlycritical of the very highincrease in the global Gini coefficient asestimatedbyBrancoMilanovic of theBank,flagging its "statistical impossibility"5inlight of changes in inequality over theearlierpartof the 20th century. Focusingon the very same period looked at by theBank's researchersBhalla has presentedestimates to show that in the years since1980 there are significantly less poorpeople in the world and that the distribu-tion of incomehas become moreequal thanever before since the time a record isavailable. However, Bhalla's principledobjection to comparing segments of theworld income distribution say the richestin the United States with the poorest inAfrica - as involving a selection bias isa non sequitur. For while the distancebetween the richest and the poorest within'any distributionwould always remain ofthe highest, it is nevertheless of interestto us to know how this metric has faredunder globalisation. Thus a finding thatthe distance itself has widened wouldlegitimately bepartof theevidence-otherfactors having been controlled for - thatglobalisation is generating inequality.Itmaybe of interest to instinctive criticsof the WorldBank that on the question ofthe consequence of globalisation earlyresearch rom that nstitutionhasgenerallyshown itself to be more pessimistic of itsbenefits than that of some independentresearchers!At another evel, the conflict-ing findings on the trend n world inequal-ity- dependentas theyareuponconsciouschoice of data and methodology - shouldnot trouble a sturdy economist, but maywell trouble hose whoexpectfinal answersto questions the response to which mayinvolve some judgment.The contested terrain of the trend inglobal inequality does not take away froma claim highlighted by champions of theglobalisation project that China and Indiaare in the last decade the world's fastestgrowingeconomies. But whatconclusionsregarding the beneficial causal impact ofglobalisation are we to draw from this

feature? While both China and India areindeed among the world's fastest growingeconomies rightnow, it cannot be said thatthey are the most globalised of the deve-loping economies. Let us scrutinise thesetwo economies both with respect to theirrespective external-policyregimesandwithrespect to some (outcome) indicators ofopenness. Itmay surprise manythat tariffsremain high in both China and India - infact south Asia is the region of the worldwhere tariff levels are thehighest reflectingyet another feature that we share withPakistan.Secondly, neither ndianorChinahas adopted capitalaccountconvertibility,thus seriously questioning the importanceof also this aspect of policy regimes forfaster growth or economic development.Now on to a consideration of some out-come-indicators ofglobalisation. India hasexceptionally ow levels of FDI foracountryits size. China on the other hand has inrecent years received the largest annualflows of FDI into any one country, veryrecently even more than the United States.However, as observed earlier in thisessay,even inChinaFDI volumes are ow relativeto estimates of aggregate domestic invest-ment there. What of the most crucial out-come indicator, the trade - exports plusimports- to GDP ratio?While this statistichas risen for both India and China, theyare yet among the least globalised of theworld 's economies going by it alone. Weare able to see then that going by a rangeof indicators, there are several developingeconomies which arefarmoreglobalised interms of the share of trade nGDP, notablythe economics of sub-SaharanAfrica. Theirgrowth performance s notonly below thatof China and India but also in some casesthese economies areactually regressing. Ithas been estimated6that sub-SaharanAfrica has, at 29 percent, a higher export/GDP ratio than even the developed econo-mies.Clearly,the outwardorientationof aneconomydoes notguaranteets development.This quick survey of the field of deve-loping economies reveals a patternthat iscounter-intuitive in terms of the claimsmade on behalf of globalisation. Itappearsthat in the early 21st century it is the leastglobalised countries that are the bestperformers.A rhetorical flourish is oftenproduced to account for this by adoptingthe category 'globalising' instead of'globalised'. Now China and India areargued to be the fastest globalisers, i e,integrating with the rest of the world thefastest, even though they are not the mostglobalised yet. But there is something

incomplete here. We have been servedwith a post hoc or self-serving explanationrather han an account of how globalisationactually works to raise the rateof growthof aneconomy. Theexamples of ChinaandIndia, however, do point out how integra-tion with the rest of the world certainly isnot decidedly disadvantageous in everycase. Indeed the recent experience of bothChina and India holds a lesson to manyother developing countries. Clearly eventhepoorest economies can engage with theworld beneficially through trade. Chinaactually exports mostly low-tech manu-facturing goods such toys, household ar-ticles and bicycles.Before concluding this section, I have afinal issue to discuss. Itconcernsthe relationbetween trade, openness andgrowth. Ourresolution of this nexus has serious impli-cations for the appropriatestrategy to beadopted by developing economies that arebeing exhorted to embrace globalisationover everything else. I shall make myposition clear by pointing to the temporalrelation between economic resurgenceandglobalisation - measured by the veryoutcome indicators I have referred to - inthe economies of both China andIndia. Wehave reason to believe that in both theseeconomies accelerated growth occurredpriorto their increasedintegrationwith therest of theworldorglobalisation. For closeto a decade after the introduction of thehousehold responsibility system in 1978,China's powerhouse of an economy hadbeen driven by peasant agriculture,hardlyan identifiable feature of the new globalcapitalist amphitheatere.I must also men-tion that there is some scepticism amongeconomists regardingthe reliability of theextant data on China's economy.InIndia itself the external sector reformsare as recent as July 1991, while an ac-celeration of the economy was noticed inthe 1980s itself. The 1980s saw two signi-ficant developments. First, agriculturalgrowth accelerated. Secondly the publicsector, notably its infrastructuresegment,began to perform better. There was someeasing of quantitative restrictions in tradebut any significant liberalisation of theexternal sector was a long way away. Theacceleration of growth in Indiapredatesitsheightened global integration. Along withthat of China, the Indian experience pre-sents us with a question often raised in thedebate onglobalisation. Between observedhigh domestic growth and opennessmeasured by the share of trade lies theissue of causality. Has trade caused faster

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growth or faster growth lead to moreexports, in turnenabling higher imports,andall of this showing up as a high trade-to-GDP ratio?To cite the latterpossibilityis notjust to throw a spannerin the worksof conventional economic reasoning, wecan actually propose a mechanism thatlinks prior growth to external success.Increasingyourmarket harerequiresyourgoods to become more competitive inworld markets.FromVerdoorn's Law weknow that with fastergrowth of output wemay expect higher productivity growth.Productivity ncrease reduces costs, mak-ing exportable goods more competitive.Nicholas Kaldorwas prone7to highlight-ing this sequence of events, which in turnwould lead to our questioning of an auto-matic ink betweenprioropenness and eco-nomic expansion. Indeed we could con-ceive of an economy's expansion being inturn eflected n ahighertrade o GDP ratio,often celebrated as 'openness' and mis-construed o be the cause of theexpansion.IIIGlobalisation s Justice

Thus far I have spoken exclusively onthe trends n growth, poverty andinequal-ity in the era of globalisation. An interna-tional debate has focused on the questionof whether the world economy has im-proved in terms of these indicators. Animplicit approachhere appears to be thatif there is an improvement in these indi-cators hen we mayconclude that all is wellwithglobalisation.Itwouldpayus to reflecton whether this is a credible approach.Asalways, Amartya Sen has enabled8 us toask the right question. It is whether thearrangementsunderlyingthe currentphaseof globalisation are just? Therefore, tosimply state that there is both growth andless poverty is not good enough. Forinstance, we may wish to know how theincreased growth has been shared. Nowthequestionofjustice emerges directly. Ofcourse, we had considered the trend ininequalityattheveryoutset.But no concreteidea of justice had intruded there, or didso only to a very limited extent. We hadbeen interested in the inequality betweennations for that is a central prediction ofmainstream economics. Recall that con-vergence means precisely that. However,this is positive economics, so to speak;there is no evaluation in it. and we cannotduck this exercise altogether.In a brief passage here I shall raise twomatters. First, I shall point to the appro-

priate domain when we speak of justicein the context of globalisation. Secondly,I point to a fundamental lack of justiceunder the currentglobal economic order.Not only doIflaga certain ailureof currentpractice, but I also point out that it is adeparture from the arrangementeven inrecent history. This, I consider, will pro-vide a useful perspective for it challengesthe idea that the current pattern ofglobalisation is the only one possible, asuggestion inherent in the use of the term'inevitable' thatis so often encounteredincurrent discourse. It is proper for sure,however, that he issueofjusticebebroughtinto discussions of globalisation. Whenaddressing this issue we are immediatelyconfronted by the anomaly that globaljustice is mostly identified with interna-tional equity. As Sen has pointed out,however, these are not the same, and asnotions differ both in terms of their con-stitutive contextandintermsof theirpolicyimplications. The contrastbetween globaland internationalequity bring to the foretwo issues. These are thedomzain f socialjustice and the concept of a persoln.As regards the domain of justice, thequestion s whether ustice isappliedonly toindividuals within nations with anythingof cross-bordersignificance being seen asrelations between nations. As regards theconceptof thepersonwe maywish toponderwhether aperson's identity is containedbynationality, giving this aspect priorityoverany other identity that he or she mightadopt. What are some of these other iden-tities? Well, these may be based on theperson's profession, political beliefs, reli-gion, gender or sexual orientation. Are allof these to be resolutely ignored in favourof nationality?Once we acknowledge thatindividuals have pluralaffiliations,as Sentermsit, we see that internationalrelationsare a hopelessly inadequate basis for ar-riving at global justice or equity. As citi-zens of India we may choose to subscribetoglobal religions.As citizens of Singaporewe may choose to lead what our leaderssee as non-Asian lifestyles. An Englishlabourer may empathise more with therights of Indian workers than with theconcerns of Britishmultinationals,asmanydid inthe 1940s when Gandhiexplained tothem the rationale of his swadeshi move-ment.A concept ofjustice based on aparitybetween the world's nations as enshrinedin theconcept of sovereignty cannot handlethese issues. Global equity means some-thingfarwider thantheinternational quitythatgets focused uponin worldforatoday.

It mustaddress nterpersonal quityamongthe people of the world.I now turn o a strictlyeconomic relationand point out that global justice is yet tobe achieved, in fact is unattainable,underthe present regime of globalisation whichis based on internationalrelations. I referto a central relation in economics, thatbetween capital and labour.In attemptingto evaluate the extent of justice adheringto the rules governing their interactioninthe currentworld order we are in need ofa theory of justice. While there may bemorethanone, I amsufficiently persuadedby the Rawlsian notion of 'justice as fair-ness' to work with it.For Rawls, fairness for a group of per-sons involves rules andguiding principlesof social organisation that treat equallyevery individual's interests, concerns andliberties. Rawls is able to persuade usof his conception of justice by suggestingthat this is the most likely outcome of acooperativeexercise of arriving tprinciplesof self-governance by individualsgatheredin the 'original position', an imaginedstateof primordialequality.Central o this exer-cise is the so-called 'veilof ignorance'whichensures that not knowingwhatexactly theywill be, in selecting social rules they willnot be influencedbya vestedinterest ntheiractual position in the imagined society.Rawls thenproceeds to theidentificationof particularprinciples ofjustice. The firstprinciple enshrines the 'priorityof liberty'and prescribes maximal liberty for eachpersonsubjectto similarlibertyfor all. Thesecond principle deals with equity andefficiency in thedistributionof opportuni-ties. It includes the 'Difference Principle'.The Difference Principlerecommendsthatalternative social arrangementsbe judgedin the terms of the difference they maketo the holding of 'primary goods', whichare some kind of general-purposeresourcesincluding self-respect, by the worst-off insociety. This privileging of the worst-offrenders the Rawlsian allocation rule'lexicographic maximin'.

We are now sufficiently well-armed toappreciatethat the currentworldeconomicorder, in respect of the rules governing therelation between capital and labour, is farfrom just in a Rawlsian sense. Not onlyis capital mobile across borders but itsmobilityas FDI inflow into thedevelopingcountries has been aggrandised as beingcentral to their development. As I haveargued, the idea is debatable, but this neednot hold us back at this stage. We only needto remain aware thatnothing like a similar

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freedomoperatesfor labour.Entryrestric-tionis rifewithrespectto unskilled labour.Comparedto the barriersto immigration,capital today is spoilt for choice in termsof the earth's geography. The rules gov-erningthemovement of capital andlabourarethereforeasymmetric.This is so despitethe case that some economies may bestarved of labour resources as much asothersneed capital. Not just the territoriesof white colonisation during 19th centurybut also the economy of the UK as late asthe 1950s and 1960s benefited immenselyfrom immigration. In fact, the UK hasbenefitedfrom outflow in the mid- 19thandinflow in the mid-20th centuries, respec-tively. Labouroutflow keeps up the wagerate n basin of emigration. Though it mustkeep down the wage rate at the point ofentry this need not always be disadvanta-geous to labour, for wherever there maybe indivisibilities in the use of labour,immigration will actually help maintainemployment levels when it enables pro-duction. This is the sense in which immi-gration is likely to have aided economicexpansion of the US in the late 19th andearly20th centurieswhen it roseto becomethe world's leading economy.The asymmetrybetween the respectiverules for capital and labour demonstrateshow in a globalising world economy jus-tice means something other than interna-tional equity or equity between nations.While the absence of immigration oppor-tunities for Indian abourprotectsthewagerate of American workers the mobilityavailable to Americancapital ensures thatthe employment of the latter cannot beguaranteed.Whencapitalmovesjust acrossthe borderto Mexico to take advantage oflowerwages, lax environmentalregulatiqnand often lower taxes it is as if US jobsare being exported. Were labour free tomove at will Mexican wages would beequalised with Americanones, andcapitalwould be left without an incentive to lookoutside of the US economy. This examplemakes it clear to us that not all issues inthe context of globalisation revolve withthe narrowcompass of international rela-tions and national sovereignty. The do-main of justice, or the terrain over whichjustice must be broughtto bear, is broaderand more complex than what is focusedupon in the United Nations, often seen asthe arbiterof global justice which, abettedby the instrumentalreasoning of the coldwar era, was erroneously identified withinternationalequity. Many tend to see therestrictionon themigrationof labour o the

US coexisting with the freedom to US-based capital to flow out as an issue ofinternational equity. But they are wrong.There is actually a formal parity betweennations here, for neither can Americanlabourmove internationallyas IndianandAmerican capital can and do. Only thereis no parity between capital and labour.ClearlyUS workers are leftworse off. Thisalso partially explains the presence of theAmerican Federation of Labour in the so-called 'anti-globalisation' protests in theUS in 2001. To returnto some nuts andbolts economics, when the mobility of afactor is restricted ts elasticity of demandrises. Thusunderglobalisationeven asmallincrease in the US wage rate could leadUS-based capital to relocate to Mexico.This leaves labour vulnerable, and inse-cure, in a way that it would not be wereboth labour and capital equally mobile.It is this regime of asymmetric rulesbetweencapitaland abour hatgives capitalso much power globally today, and it isthis arrangement that has earned thedescription 'corporateglobalisation', indi-cating that what we are witnessing is lessthan trueglobalisation. This is the appro-priate stage for me to clarify that neithertheoretically nor in fact is this form ofglobalisation the only alternative.Histori-cally the world has seen an equally freemovement of capital and labour, notablyprior to 1914. Indeed many have pointedout that the world was much moreglobalised then than it is today. Passportswereunheardof before the first world war.Since then the world has settled into aregime where immigration is not alwayswelcome, and even if it is, entry is onlyon the host country's terms. It is the casethough that since the 1980s the US haspermitted the migration of highly skilledlabour, culminating in the influx of ITprofessionals in the 1990s. a feature thatwe in India are by now familiar with. Butall this is a minuscule proportion of theworld stock of labour, and does not evenbegin to take away from the feature thatcurrently labour's mobility is curtailedwhile capital mobility is rife.Conclusion

I conclude with some observations aboutIndia and the world in recent years. In theprocess I shall attempt to convey that theeconomic constraints hatbind itseconomyare very likely internal ones rather thananything external. The current bout ofglobalisation is unlikely to affect her

fortunes dramaticallyeitherway. A usefulindicator upon which to peg one's evalu-ationispoverty. IfJuly 1991maybe treatedas the beginning of an increasing inte-gration of India with the world economyit would then be pertinentfor us to askwhathas come of poverty since then. Perhapsthe most authoritative recent study on theissue is the one by Deaton and Dreze9published late last year. They have con-cluded on the basis of their own andextantestimates thatpoverty decline in the 1990sproceeded more or less in line with earliertrends. They have also briefly examinedother development indicators relating tohealth and education, and found that mostindicators continued to improve in the1990s. On the whole, they conclude thatthere is no support for sweeping claimsthat the 1990s have been a period of either"unprecedented improvement" or "wide-spread impoverishment". This is about asclear a message as one is likely to get onthe impact of globalisation on the Indianeconomy as a whole, as opposed tosegments of it that are highly integratedwith the rest of the world. The simplematter s thatmost Indians haveeitherverylow incomes orverylow skills tobe affectedby globalisation either way. Low incomesimply that imports don't swamp domesticmarkets husprotectingworkerssomewhat.Low skills imply that Indian workerscannot, under present arrangements, takeadvantage of greater integration of theIndianeconomy with the restof the world.Clearly, integration brings threats andopportunities. In the context then, lowbuying powerwards off the threat oIndianproducers from multinationals while lowskills leave opportunities unutilised.The relative importance of economicpolicy for India's economic welfarewith orwithout globalisation may be understoodby looking at the recordof growth in Indiain the last 50 years of the 20th century. Itmay be the case that the rate of growth ofthe economy is higher since 1991, but itwould be wrong toattribute his entirely toglobalisation. An even higher rate of ac-celeration had occurred in the early 1980swhen the external sectorhadyetbeen liber-alised very little. In any case, none of thiscan match the acceleration in the economywide rate of growth afterIndian indepen-dence when those responsible for hereconomic policy had,forbetterorforworse,consciously turned the country away fromthe rest of the world. Recall that per capitaincome was more or less constant in thefirst half of the 20th century when India

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had remained under colonial rule. The re-surgence in the economy under the lead-ership of JawaharlalNehru can hardly beput down to merely closing the country'sborders. On the other hand, it has every-thing to do with the bold thrustto expandthe economy. It remains clear that, withor without globalisation, India's perfor-mance will largely depend upon the poli-cies adopted.Whatever may be one's reservationsregarding airness in the currenteconomicorder, where a national interest may beidentified, there is no doubt that thegathering ntegrationof theworldeconomy- termedglobalisation and exaggerated10for its newness --is actually anopportunityfor India to assume a leadership role in theworld. As has been remarked, the worldcan do nothing to marginalise India, a vastregion with great potential, a feature onlypartlyreflected nthenarrowlyeconomisticstatistic that it is the world's fifth largesteconomy inPPPterms.However, shecouldmarginalise herself by not engaging withthe rest of the world.SAddress for correspondence:balan @ iimk.ac.in

Notes[Text,edited,of the SecondMalcolm AdiseshiahMemorialLecturedeliveredatChennaion March17, 2003. I amgrateful o C Selvaraj,headof thedepartmentofeconomics,MadrasChristian ollegeforhaving nvitedme to deliver his lectureandforassistingme n thechoiceof topic. thankVKNatrajwhochaired hemeeting or his commentsafter helecture,RobertWade orpermission oquotefromhis workin progress,Ravi Kanbur orcorrespon-dence, and the IIM Kozhikode for institutionalsupport. hegenerosityf theElizabethndMalcolmAdiseshiahTrusthelped me travel to the sylvansurroundingsof my alma mater, the MCC atTalnbaram, ndspendaneveningtherebefore themorning's ecture.I dedicatethis lecture o Chris-topherThomasKurien.Myfirstandmost nfluentialteacher f economics,Kurienhas ed theprofessionformore han ive decadesfrom hecityof Madras.His life hasshownoverlapping enerationswhat tis to tempera calling to social engagementwith aconcern ordoingso without earor avour.Thougha meagrerecompense or so richa bequest,I hopeyet that this lecturewill at least serveas evidenceof my admiration or the act.]

1 See WorldBank 2002:Figure3 anddiscussionon p 7).2 See Wade (2002).3 See Deaton (2002).4 See Wade 2002) pp9-10;edited orcontinuity.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).ReferencesBhalla,S S (2003): ImagineThere'sNo Country:Poverty,Inequalityand Growth n the Era ofGlobalisation,PenguinBooksIndia,New Delhi.Castells,M(2000):The nformation ge:Economy,Societyand Culture,volume 1, TheRiseof theNetworkSociety, second edition, BlackwellPublishers,Oxford.Deaton, A (2002): 'Is World Poverty Falling?'.Finance and Development, 30,http://www.imf.org/extemal/pub,sDeaton, A and J Dreze (2001_ 'Poverty andInequality in India: A Re-examination',Economic and Political Weekly,37: 3729-48.Kaldor,N (1970): 'TheCase forRegionalPolicies',Scottishournal fPoliticalEconomy, 7:337-48.Nayyar,D (1995): 'Globalisation:The Past nOurPresent',Indian EconomicJournal,43: 1-18.Sen,A (1999): Global ustice:Beyond nternationalEquity' in I Kaul (ed), Global PulblicGoods,Oxford University Press, New York, for theUNDP.Wade, R H (2002): 'Globalisation,PovertyandInequality:Does theLiberalArgumentHold?',LSE,unpublished.World Bank (2002): Globalisation,GrowthandPoverty:Building n InclusiveWorldEconomy,PolicyResearch eport,OxfordUniversity ress,New York.

DomesticProductof Statesof India : 1960-61 o 2000-01The EPW Research Foulndation (EPWRF) has just released the above publication. The volume, afirstof its kind, presents long 40-year series on state domestic product(SDP) and also some availabledata on state-level capital formation. It also contains detailed descriptions of the history of SDPestimation and the evolution of its methodology; four separatenotes contributedby the senior officersof the Central Statistical Organisation (CSO) constitute a coveted feature of the volume.

Thepublication s priced per copy (inclusiveof postage)thus:r - - - -I InlandRs) Foreign US$) II HardCopy 500 2,000I Concessional ratefor students 350I CD 50 100LCopies of thepublicationor CDs can be obtainedfrom:

EPW Research Foundation, C-212, Akurli IndustrialEstate,AkurliRoad,Kandivli(E), Mumbai- 400 101.Tel: 2887 3041/ 3038 Fax: 2887 3038 Email:[email protected] see also http://www.epwrf.res.inAll remittancesare to be infavour of EPW Research Foundation. OutstationChequesshould include Rs 50/- ascollection charges.

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global is at ion, growth and justice

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