Governmentmatters

GOVERNMENT MATTERS – THE “VISIBLE HAND” AND THE “INVISIBLE HAND” IN THE PERIPHERY

By Jorg Goldberg

[This article published in the fall of 2009 is translated abridged from the German on the Internet.]

“The rule of a privileged society of merchants is the worst of all governments for every country.” This old statement of Adam Smith, the father of liberalism, described the nature of the neoliberal development stage of capitalism. The crisis and the accompanying state interventionism of developed countries gave the lie that the “sleek” state and freedom of the market are central.

Globalized and oligopolized capitalism actually needs the state more than any other historical production method. What is described today as the neoliberal period is in reality the linkage of state and market, economy and politics. This is the attempt to organize public services like individual economic enterprises and adjusting them to the needs of “system-relevant” businesses (Goldberg 2009).

This is also true for the development policy implemented by the international financing institutions as the current crisis makes clear. Considering the current economic recommendations, the blatantly unequal treatment of the industrial counties and several threshold countries on one side and the poor or heavily indebted transformation- and developing countries on the other side is striking. While the first group follows an anti-cyclical policy and accepts widening global imbalances, the second group is forced by conditions from the IFIs (international financial institutions) and resource shortage to a procyclical policy that deepens the crisis and expands poverty (United Nations 2009).

STATE INTERVENTIONISM IN THENORTH – AUSTERITY POLICY IN THE SOUTH

Although the “Washington Consensus” dominating development policy arose as “the smallest common denominator of the Washington institutions (International Monetary Fund/ IMF and the World Bank),” the political consultants to Latin American countries up to 1989, are nothing but a poor imitation of the neoliberal mainstream of developed industrial countries. A chasm seems to be opening up for developing countries between what happens in industrial countries and the prescriptions for poor developing countries.

While high income countries dig deep in the instrument box of state interventionism, nationalize banks and industrial corporations, lower the Central Bank or Federal Reserve interests to zero, draft enormous credit-financed economic programs and accept huge budget deficits, the “advice” of the Bretton Woods institutions bristling with sanctions to the transformation- and developing countries remain the old advice – in any case to those needing the money of the IMF and the World Bank. So the bridging credits of the IMF to countries of Eastern Europe and Asia that fell into solvency problems are still tied to strict economic conditions. On March 24, 2009, Lorenzo Giorgianni from the IMF’s strategy department explained the idea of a new, more flexible credit line of the IMF: “We want to ensure that the recipients have strong and stable fundamental economic data and are committed to following a stability-oriented economic policy in the future” (IMF 2009).

Like positive or balanced balance of payments in the past, “strong fundamentals” means low budget deficits and inflation rates. This means poor countries in the middle of the crisis are forced to higher interests, spending cuts or tax hikes, dismissals in the public service and reducing social benefits. At the end of August 2009, there were conflicts between the IMF and Serbia since the IMF delayed paying the assistance credit (3 billion Euros) with the explanation Serbia did not keep its “reform promise.” The World Bank advised developing countries to “unwind” governments’ high ownership stake in the banking system and abandon that regulatory advantage that protected them from the worst effects of the financial market crisis (World Bank 2009). The condition-based support of the IMF, Nobel Prize winner Joseph Stiglitz said, led to a weakening of national economies in the past. “This kind of conditioning is counter-productive,” he wrote in a journal article (Stiglitz 2009). Even worse, the political recommendations of the IFIs to developing countries contributed to global de-stabilization, as the Stiglitz commission of the UN showed in its provisional report. They were “less than helpful” (United Nations 2009).

“WASHINGTON CONSENSUS” AND MINIMAL STATE

The themes and forms of the “political advice” of the Bretton Woods institutions for developing countries have hardly changed under the pressure of the current financial- and economic crisis. As far as the eye can see, there is no evidence of a paradigm shift, a turning away from market radicalism and standard neoliberal thinking as Ulrich Beck proclaimed hopefully (2009). “Now `pure’ capitalism collapses. There are good reasons to assume we may be witnessing the end of this kind of fundamental neoliberal capitalism that captivated the world and its governments in the years since Margaret Thatcher and Ronald Reagan.” Beck showed he was one of those naïve observers who believe the “minimal state” and unfettered markets are the substance of neoliberalism as suggested by Reagan’s motto “Government is our problem, not the solution of our problems.”

The “minimal state” was not on the agenda at any time in the developed industrial countries. Rather linkage between the economy and politics, the stronger orientation of politics in the needs of the economy and application of individual economic principles in public administration, in short an “oligarchization of decision-making authorities and a de-democratization of society” occurred (Fisahn 2008).

Development was somewhat different in the developing countries, at least in those that came under the thumb of the Bretton Woods institutions in the course of the debt crisis of the 1980s and 1990s. First of all, liberalization of foreign trade and capital transactions, budget discipline, adjustment of monetary policy to the goal of fighting inflation, privatization of public enterprises, deregulation of markets and safeguarding rights of ownership stood in the foreground – corresponding to the salient points of the “Washington Consensus.” These measures conceived as part of the structural adjustment programs (SAP) granted heavily indebted countries were only accepted in those developing countries that depended financially on the IFIs. SAPs were only implemented by the impacted governments – more or less reluctantly – because otherwise economic and political collapse would have threatened. Therefore whoever was able used the economic upswing after 2003 conditioned by raw material prices to get rid of the IMF credits as quickly as possible.

The first generation of the SAPs that stood under the watchword “Getting the prices right” was an economic and social fiasco. This was even admitted by the Bretton Woods institutions themselves. A 1989 World Bank Report on Africa introduced a certain conceptual correction of the structural adjustment policy…

What is expressed here in a roundabout way described a fundamental misunderstanding of the earlier SAPs. The ideologues of the “Washington Consensus,” freed from considering political counter-forces on account of the great pressure of the IFIs, first assumed the markets liberated from government interventions would develop an autonomous growth dynamic. In their naiveté, they understood state and market as structurally equal institutions existing worldwide. The structural adjusters had to first learn that states of the periphery have fundamentally different institutions then the European-North American countries and that functioning markets presuppose both efficient institutions and a developed and socially embedded class of capitalist entrepreneurs… In Africa, the largest and politically-weakest experimental field of market-radical ideologists, the development progress of the 1960s and 1970s drastically declined and the continent has not recovered today: de-industrialization, decline in agricultural productivity, withdrawal of the bulk of economic actors in informality, decline of per-capital income and social indicators in health and education (Goldberg 2008).

NO MARKET WITHOUT THE STATE: “GOOD GOVERNANCE” AS NEOLIBERAL PROJECT

The failures of the SAPS in the 1980s led to the discovery that functioning markets assume an efficient state. Thus the “minimal state” cannot be an option. As a result, strengthening the weak states of developing countries moved into the center of the development policy agenda. “Government matters” was the watchword or, modifying the motto of the first generation of the SAPs, “Getting the institutions right.” The program of the new stage of the Bretton Woods concepts adopted by the whole political development “community” of the North was: production and protection of good governance. Good governance and strengthening periphery states is the decisive prerequisite of development. Therefore development policy must support “good governance” and fight “bad governance.”

This was regarded as a challenge or important modification of the “Washington Consensus” and as a (new) turn to the state. The “traditional concept of structural adjustment was overcome.” The modern concepts were not “thought out systematically,” the German ministry for Economic Cooperation and Development declared (Zattler 2004). Although the turn to the governance approach in development policy occurred in the beginning of the 1990s, the popularized concept was first advanced by the World Bank – still the key international political development organization – in the 1997 World Development Report. The state and its efficiency are “central for the economic and social development as partner, stimulator and facilitator, not as the direct producer of growth” (World Bank 1997).

The market-radical principles of the “Washington Consensus” are by no means abandoned, as development policy practitioners presumed (Borowczak, Friedrich 2009). In the 1990s, it was recognized that the institutional foundations necessary for profitable private firms and functioning markets can only be provided and protected by an efficient state and that many states of the periphery do not have these institutions. This is already implicitly present in the core elements of the “Consensus.” Only an efficient state can effectively safeguard ownership or ownership laws. The state should support businesses but not give them any goals. That is the crucial distinction from the concept of the development state as imagined by UNCTAD. Therefore UNCTAD speaks of “development governance” and no longer of “good governance.”

Governance – “good governance” and “bad governance” are normatively distinguished. But what is “good” and what is “bad”? One of the basic errors of the “Washington Consensus” is reproduced here – that this is the same everywhere in the world and for all times. There is a uniform global assessment range. That what is “good” in one country may be less good or even “bad” in another is impossible.

Empirical indicators for the quality of governance, the “World Governance Indicators” (WGI), applicable worldwide were developed. The annual change of these indicators for 212 countries and territories

serves as a basis for political decisions. By questioning decision-makers, indicators are identified for six dimensions of governance: Voice and Accountability (Political Right to Join the Conversation and Answerability), Political Stability and Absence of Violence), “Government Effectiveness (Efficiency of Government), Regulatory Quality (Quality of Rules), Rule of Law and Control of Corruption. Governance is described as the “totality of those traditions and institutions through which government power is exercised in a country.” This includes procedures for the election, control and change of governments: the ability of governments to conceive and carry out sound policies and gain respect from citizens and the state for those institutions that regulate the economic and social interactions between them” (Kaufmann 2009).

An important criticism of this concept comes from the World Trade and Development conference of the United Nations (UNCTAD). According to UNCTAD, the governance concept is not irrelevant for development policy. Still the answer to the most important question is lacking: whether a government really produces development. The good-governance concept is oriented one-sidedly in processes and procedures and ignores the more important question of the results. “That would be a strange kind of `good governance’ in which the procedures are perfect measured by procedural principles but the result is bad.” Governance can only be described as good when it produces good results or development (UNCTAD 2009).

The governance concept is actually not as formal and neutral toward political contents as seems on first view. The criterion “sound policies” of the World Bank’s definition of governance intimates this. “Sound policies” has two dimensions. The first is introduction of “good governance” in developing countries dependent on the IFIs.

The introduction of a new type of public management that is described as “new policy management” (NPM), organizing state management like businesses, is part of this. The core elements of NPM are:

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Use of professional managers and administrators like businesses

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Dissolving complex management structures in individual organizations that produce certain products and services

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Cost reductions and higher efficiency of the “output” of these units

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Use of market mechanisms and competition

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Development of measurable quantitative indicators for the efficiency of organizations

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Customer-orientation

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De-centralization

(Thorkildsen, quoted in UNCTAD 2009)

Administrations are changed into “profit centers” acting independent of each other whose results are only judged economically and no longer politically.

The second element refers to the goals of governance. Management should be market-oriented, that is governments should provide private businesses with the most favorable conditions by enforcing ownership laws, guaranteeing protection from expropriations and contractual security, guaranteeing low business taxes and keeping out of the production of goods and services. The market process is the criterion for good government action, not the attainment of development goals defined by the state.

Therefore the role of the good governance concept in development policy is criticized by the Stiglitz Commission of the UN as an element of neoliberal condition policy hostile to development. “The use of governance-indicators… is discredited to a great degree. These indicators that decide today over the access of developing countries to international support and credits should be repudiated… They are a hidden form of conditional policy” (United Nations, 2009).

PRIVATIZATION AND SUBSIDIES: “GOOD GOVERNANCE” IN THE EXAMPLE OF THE WATER SECTOR

Michael Goldman showed how this functions and what are the consequences in the example of the water sector. Privatization of the water supply (including sewage disposal) is one of the conditions to which the Bretton Woods institutions and funds tie the award of development assistance and debt remissions (Goldman 2005). A survey of 11 World Bank loans in water from 2001 shows 8 of them had privatization conditions. Seven demanded cost reductions in water supply. The impacted countries are in all regions of the world from Russia to the Comoros. Privatization and cost-reductions are regarded as global solutions despite the different structures of present water supply systems and the different capacities of governments to monitor international conglomerates. Despite the repeated argument that cultural-historical differences are respected, the praxis shows “one-size-fits-all” solutions are still developed in the Bretton Woods institutions. In other words, what functions in India cannot be wrong in Niger. This is obviously completely unrealistic. The Indian government may be powerful enough to control a large international conglomerate but whether the government of Niger can also do this is doubtful.

The internationally-orchestrated privatization initiative in water has led to the explosion of people provided drinking water by private corporations from 51 million in 1990 to 460 million within only 10 years. By 2015, private water conglomerates will have 1.16 billion customers. “Private” automatically means western. The international water market is dominated by a handful of European or North American corporations with two French firms at the top Suez and Vivendi (Veolia Water) that control 70% of the private water market. Thus privatization of the water supply always means its transference to transnational corporations from the developed North… The transfer of the local water supply of poor countries of the South to powerful foreign conglomerates whose financial strength is often greater than the state budgets of the “host countries” can only be described as adventurous. The resources to control international conglomerates are simply lacking impacted governments with “good governance.”

The global water strategy of the World Bank and the international funds is conceived by international networks of governments, big conglomerates and non-governmental organizations (NGOs). The “World Commission on Water for the 21st Century” founded in 1998 plays a central part. Members of this commission are international political heavyweights, former World Bank managers and CEOs of mammoth water firms. The “World Business Council for Sustainable Development,” a coalition of 160 transnational corporations that works closely with the British NGO “Water Aid,” an NGO originated by water conglomerates that uses the slogan “water for the poor” for privatizing water in developing countries.

Opening the access of the poor to clean drinking water (including sustainable sewage disposal) is a central theme of development policy. Water supply is a huge future market that is estimated at annual sales of $200 to $400 billion. “Analysts assume private water will soon be a highly capitalized market like crude oil – andsimilarly8 full of conflict” (UN). “Water for the poor” does not sound like high profits.

The poor can pay little if anything. In 2002, John Talbot, manager of the fourth-largest worldwide water firm “Saur International” posed the question before a World Bank audience whether “water for everyone” is a good and attractive business. At the same time he supplied the solution: subsidies. In Europe and the US, water is publically subsidized. State subsidies and cheap credits are all the more necessary in developing countries. With that, he lets the cat out of the bag or gives the show away.

“Without subsidies, the international water businesses will see themselves forced to the sidelines…”

“Public-Private-Partnership” (PPP) means cooperation between the state and private enterprise. “The largest worldwide water projects were common public-private projects where the states were typically the main investors and private enterprises received the largest share of the contracts. Massive water projects are erected as quasi-public projects where the management and operation are transferred to private firms whose profit rates are guaranteed by the state. The circle of the “good governance” concept closes here. Only states that work efficiently can ensure adequate and stable profits to private entrepreneurs.

THE CRISIS AND THE NEW GLOBAL ECONOMIC ARCHITECTURE

As intimated above, the hope is for a permanent upgrading of the creative role of the state over against the markets reacting chaotically and full of crises.

UNCTAD that developed a detailed concept for a “new development state” is very optimistic. UNCTAD thinks there is “far-reaching agreement… that the state has to play a stronger role in the organization of the economy…” (UNCTAD 2009). Unfortunately there has hardly been any talk about this… A strengthened influence of the basic neoliberal trend may be connected with the greater crisisconditioned dependence of many, especially poor developing countries, on the credits of Bretton Woods institutions.

Whether this trend can ultimately be realized – after the alarm through the crisis – cannot be presently judged (in the fall of 2009). The Stiglitz Commission of the UN proposes a comprehensive reform of the international economic and financial architecture as a radical alternative to today’s system. In its core, it involves two aspects:

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According to Stiglitz, the current crisis shows the past organization of globalization was full of mistakes and that present mechanisms are inadequate and tend to globalize crisis-laden processes instead of controlling or curbing them. “The global economic crisis underscores the deficits of present international organizations” (Stiglitz 2009). The Stiglitz Commission that includes fundamental criticism of the ideology, politics and structure of the IFIs and other multilateral organizations like the WTO seeks to subject the variety of special institutes like the IMF and the World Bank to a Global Economic Coordination Council to be created (a world economic council with similar powers as the UN Security Council) and doesn’t only urge a basic reform of existing organizations.

•

In addition, the disturbed relation between the role of the state and the role of markets (United Nations 2009) should be changed (“restoring a balance between the role of the market and the role of the state”) which amounts to a stronger regulation of the markets. Even if this position gains acceptance, the contents of regulation must still be defined…

A new global economic and financial architecture should not be oriented one-sidedly in the needs and structures of developed industrial countries. That is an important challenge. Rather the global architecture must offer sufficient space so the different institutional conditions of developing countries can unfold. Stiglitz’ statement – that some of the developing countries had “far better regulatory and macro-economic policies than the US and some European countries” (2009) – suggests that the different institutions and organizations of the periphery could provide innovative starting points for a reform of the global economic architecture. What the Stiglitz Commission for the regulation of the financial sector formulates is also true for other political areas. “By choosing their own way, the developing countries recognize there is no uniform model that is right for all countries and for all times” (United Nations 2009). A fundamentally reformed global financial and economic architecture must offer sufficient possibilities and support for this choice.

"Stiglitz identifies the essential elements of the post-Washington consensus: the demand for a more active role of the state particularly in financial sector reform and promotion of growth in education,. training and technology development.. pro-poor growth.." translated from the German

THE CURE IS THE SICKNESS Experiences with Combating Poverty according to the Washington Consensus

By Jorg Goldberg https://www.indybay.org/newsitems/2004/05/20/16816681.php [This article originally published in: Blatter fur deutsche und internationale Politik, Bonn 9/2001, p.1091-1100 is translated from the German on the World Wide Web, http://www.blaetter.de.]

The social movement of “globalization critics” or “global justice” advocates growing since the botched WTO summit in Seattle deserves attention for many reasons, for its global character, its capacity for using modern communication technologies and for the protest itself. This movement is directed against the effects of relatively abstract economic theories and principles and against these theories and principles themselves. If the conflicts between neoliberals and Keynesians, between free traders and protective tariff supporters and between representatives of the “Washington consensus” and the “post-Washington consensus” were waged in lecture halls and luxury hotels (while the consequences of the policies were themes of many bloody conflicts), these arguments have shifted to the streets. This has a certain justice. If supporters of the Washington Consensus recommended abolition of food subsidies all over the world for example in the interests of free markets (1), those who had to convert this recommendation concretely had to dodge stones long after the advisors left. Today the political and intellectual authors of this policy admit that they often had to entrench themselves behind steel bars and armed police when they wanted to discuss proposals. Seemingly abstract debates about financial architecture and intellectual [property rights, currency exchange regimes and monetary policy became themes of mass protests. The movement altogether discusses its themes on a comparatively high technical level, as the Internet makes clear (2).

IS THERE STILL A CONSENSUS IN WASHINGTON? Ravi Kanbur, a leading World Bank economist and coordinator of the 2000 world development report of the World Bank “Attacking Poverty” (who resigned under pressure of the US Treasury Department) declared that the attacks of the global protest movement provoked different acts of defiance among the intellectual and political representatives of the financial faction (3). The final declaration of the G8-summit in Genoa confirmed Kanbur’s speculation. It says quite stubbornly in the introduction: “The most effective strategy for reducing poverty is a strong, dynamic, open and growing world economy” (4).

The siege of their international meetings accompanied by a friendly economic press in a pleasant atmosphere far from the public a few years ago seems to be “a traumatic experience” for representatives of the financial group (5). The cast-iron public reactions by “group A” (6) to the massive criticisms could not hide the fact that they were in great embarrassment with their concepts. The apparent certainties from the first half of the nineties still proclaimed in official declarations have long fallen victim to reality. While it was said dogmatically in the final declaration of Genoa “Open trade and investments are the engines of global economic growth and combating poverty” (Point 10), the economic shack of the financial faction is already burning at all corners. This general assertion is only still defended by a few researchers as evident in publications from the World Bank. Reality actually speaks another language. Thus Kenny and Williams (former colleagues at the World Bank) in a survey article on recent empirical studies on the determining factors of economic growth could not establish a positive connection between openness of trade and economic growth. The authors summarize the results

of the case studies: “We find few indications that open trade policy in the sense of low tariffs and non-tariff trade barriers is significantly related to economic growth” (7).

In a certain way, the massive reaction of demonstrators and the loss of public credibility (8) of the confessions announced again in the final declaration of the G8 is also a response to the attempt of the financial faction at building a monopolistic scientific-political position simply presented as the only possible approach for solving the development problems of the whole world (from unemployment in industrial countries and the mass poverty of the Third world to reconstruction in the transformation countries) after the collapse of the socialist camp and the renunciation on socialist concepts. The “Washington Consensus” was born in 1990 and proclaimed as a “universal convergence” or “one-world-consensus, a scientific-political project of the “end of history”. John Williamson, prominent colleague at the Institute for International Economics, claims to have invented this term (9). He listed ten economic- and socio-political principles as constituting this consensus: · Budget discipline · Orientation of public spending in the most productive areas (education, health care and infrastructure in developing counties) · Tax reform (lowering tax rates, expanding the tax base) · Liberalization of interests · Competitive rates of exchange · Liberalization of foreign trade · Liberalization of capital traffic (direct investments) · Privatization · Deregulation (of markets) · Securing property rights.

At that time, Williamson only oriented the term to Latin America while admitting that his recommendations would not look different for Asia or Africa. “Good policy” in the sense of the Washington Consensus can be paraphrased with these ten principles. The key to development successes lies only in a correct policy mix. Development backlogs, continuing poverty and so forth are referred back everywhere to “bad policy” in the sense of disregarding the ten principles.

Simultaneously the Washington Consensus means that policy that according to Williamson follows four internationally dominant financial institutions located in Washington, D.C.: the US Treasury Department, the US Federal Reserve, the International Monetary Fund and the World Bank. This list assumes absolute US dominance in questions of the world economy and the dominance of three institutions without formal democratic legitimation.

WASHINGTON CONSENSUS + POVERTY REDUCTION = POST-WASHINGTON CONSENSUS The position that was at best a temporary consensus among the above four institutions was scrutinized and ridiculed in the second half of the 1990s. The term post-Washington consensus was formulated in the studies by Burki/Guillermo, Joseph Stiglitz and Ravi Kanbur who was forced to retire as a World Bank economist (10). Like many “post-“ theories, this theory represents a definitional compromise solution and reflects the absence of uniform or standardized

paradigms.

Stiglitz identifies the constitutive elements of the post-Washington consensus: the demand for a more active role of the state particularly in financial sector reform and promotion of growth by favoring investments in education, training and technology development. A broader approach is necessary. “The Washington consensus promoted the use of a few instruments (like macroeconomic stability, open trade and privatization) to reach a narrowly defined goal (economic growth). The post-Washington consensus recognizes that more instruments are necessary and that the catalogue of goals is wider” (p.16). The “post”-consensus (even if it is far removed from a real consensus) underlies the new poverty reduction strategy (11) as an integration of structural adjustment policy, distribution policy and social policy advanced since 1999 by the BrettonWoods institutions. The post-Washington consensus starts from the empirically certain discovery that the policy packages laced up by representatives of the traditional Washington consensus – defined as a combination of measures for producing macro-economic stability and open markets – did not bring any economic growth sufficient for clearly reducing mass poverty. Both the current debates on poverty reduction strategies and the practical experiences with strategy papers (PRSP) presented as prerequisites for reducing debt service in many poor, heavily indebted countries (HIPC) hardly drew practical conclusions from this discovery. A conceptual gap (the necessity of active, socially-oriented growth- and distribution policy) is identified but not adequately filled.

The conceptual helplessness is expressed most clearly in the section of the PRSP-handbook published by the World Bank (12) that discussed the connection between macro-economic structural adjustment, economic growth and poverty reduction and made recommendations (13).

At the outset is the admission: “Macro-economic stability alone does not assure high growth rates” (p.2). The supplementary proposals read like the themes of the Washington consensus: “regulatory reform, privatization, civil service reform, improved government trade liberalization and banking ser5vice reform”. The “Sourcebook” – chapter on the connection between macroeconomic policy and poverty reduction repeats two basic errors of development policy: · Some universally valid supra-historical statements alleged a connection between certain economic-political measures and growth and · Implementing “good policy” in the sense of combining stability policy with market opening is enough to produce economic growth and poverty reduction.

The first error is very striking when one realizes that the addressants of the “Sourcebook” include the poorest 70 countries of the world that lack integrated monetary- and commodity economies… Most rural poor in the poorest countries of the world (with less than one US dollar in purchasing power per day) live from subsistence production. The problem whether they prefer indigenous currency or foreign currency is as real as the question whether they would prefer staying at the Hilton or the Sheraton. That such academic finger-exercises seriously claim to be practical economic recommendations in the real world of poor countries can hardly be believed.

That the second assumption is also a crass error can be shown empirically. In their survey of comparative analyses on the connection between growth and economic policy (and other factors), Kenny and Williams conclude that there is no evidence for the link between growth and

a certain policy mix assumed in the Washington consensus. “Given their structural differences, different political measures are probably appropriate” (p.12). As country comparisons show, neither an open trade policy, an anti-inflation policy nor the removal of budget deficits is empirically connected to growth and poverty reduction. The structural adjustment policy went along with annual growth rates of 0.5% in those African countries where it was applied “conscientiously” (p.10). The authors conclude from the results of numerous country comparisons that universally valid measures of “good policy” simply do not exist. “Empirical examination shows that there is hardly any evidence for the universal validity of a certain political concept” (p.1).

This does not mean that “Washingtonian” packages of measures should be generally rejected and a new “consensus” found that is more effective. The idea that societies function everywhere the same way in the globalized world should be dismissed. The economy is a social science. Thus the bottom is methodically knocked out of the mainstream of past development policy and the present trend to the creation of globally effective mechanisms. The attempt to explain and treat the world with uniform, supra-historical models ultimately goes along with economic globalization in its present form. Social and economic processes are actually highly complex.

This complexity is not global. Measures that function in one country and one region could completely fail in another country, another region or another time period.

POVERTY REDUCTION THROUGH SOCIALLY BALANCED GROWTH (14) The two-year old praxis of the new structural adjustment- and poverty strategy of the BrettonWoods institutions shows the helplessness and lack of orientation in the sourcebook chapter and the strategy papers (PRSPs)… When one considers the economic catalogue of measures, one finds past recommendations on stabilization and market opening on one side and proposals for orienting public budget policy more strongly to the needs in the education- and health areas on the other side. Poverty reduction could result as a combination of classical stability policy and increased expenditures in education and health care. The support activities of the Bretton-Woods institutions are concentrated in stabilization- and budgetary policy so the impression often arises that the strategy papers are mainly concerned with more efficient methods of re-structuring public budgets. This focus is understandable since the papers were accepted by the HIPCcountries as a conditionality for debt relief. Although the Bretton-Woods institutions in the PRSP-process put great weight on “ownership” and “participation” – the strategy papers should reflect national priorities -, the form and the substantive criteria of the papers are still worked out and resolved in Washington. Often the governments of the indebted countries only reluctantly accepted the new conditionality. The PRSPs could only be integrated with difficulty in the national planning processes and as a result frequently strained planning capacities.

The PRSP approach brought novelties to the process. The strategy papers were no longer worked out in private in Washington institutions and national governments but were accompanied by a public discussion process. Therefore the past results of the PRSP-process despite great substantive deficits must be judged positively since broad public debates on distribution, poverty and development options occurred for the first time in many countries and civil society organizations and groups of the South utilized this greater openness to position themselves as development actors in the general public of their countries. Nevertheless a realistic growth

strategy with reference to poverty is lacking in all the documents. Supplying the poor with better basic social services emphasized in the PRSPs would make an important contribution to reducing poverty. However employment and income are crucial. Only when the productive incomes of poor groups permanently increase can there be a general improvement in the situation of the majority of the population in the poor countries of the world. Utilization of social services depends largely on the income situation. People who must worry daily about naked survival have neither the time nor the energy to be properly concerned about the education of their children, hygiene or discussions of community affairs.

The poor are in a vicious circle that actually excludes them from participation in important social processes and binds their energy to the struggle for survival. More and better schools and health facilities are necessary but by themselves do not lead to more employment and income for the poor.

An economic growth with more income and employment of the poor (“pro-poor growth”) – as experience demonstrates – does not arise either automatically as the result of a “correct” policy in the sense of the Washington consensus or only through better supply of basic social services.

What are lacking – and this could be a theme of the post-Washington consensus – are concepts of an active growth policy stressing mobilization of the productive resources of the poor. With a few exceptions (16), hardly any references to this active growth policy can be found in the PRSP-documents. Sectorally or regionally targeted promotion strategies are necessary that include all political fields and start where the greatest lasting poverty reductions (income and employment) can be realized subject to the respective structural realities. The starting point should be identifying the existing economic potentials of a country or region as well as the factors promoting or preventing the development and mobilization of these potentials. This can only occur country by country. Universally valid prescriptions do not exist. To realize these promotion strategies, decision-makers (public and private) must have adequate and effective economic and socio-political instruments.

NATIONAL ECONOMIC POLICY IN THE GLOBALIZATION PROCESS The fact that this globalization process limits the national economic possibilities of poor countries more and more is one central developmental problematic of the current globalization process. This is very manifest in international trade and financial markets where the classical instruments of foreign trade policy can only be applied very restrictedly today on the national scale.

This limitation is not a natural law but the result of conscious political decisions by those with economic and political power. In this case the G7 summit is in fact the right addressant for protests since a small radical minority of states make decisions here that should be landmarks for the whole world economy. That the United Nations has no voice at the G7-summit is not an accident. Political decisions in the areas of currency- and trade policy, international property rights, regulation of capital traffic and so forth are reactions to “objective” economic internalization processes that are irreversible in principle. Ignoring the consequences of internationalization for economic policy and retaining past national instruments do not make any sense. The fact that single-handed national economic efforts are no longer possible or sensible in

certain areas should not be mistaken for general renunciation on (national) control. Replacing national control with a uniform global control also is not a solution. There are no universally valid rules for promoting growth and prosperity! In view of the crass development differences in the world, the claim of the G7 that open trade policy advances prosperity everywhere contradicts all historical experience.

“Pro-poor growth” can only be attained by nationally or regionally adjusted strategies in which regulation of foreign trade relations is important. However adjustment to the respectively different national or regional conditions must be guaranteed by globally valid and enforceable rules that include insurance for poor developing countries against external shocks conditioned by the world market. This is not a new strategy but was once discussed under the symbol of the new international economic order when raw material suppliers temporarily strengthened their position in the 1970s. Industrial countries quickly ended these debates when the raw material suppliers were forced again to the defensive. The consequences of the shock waves of international financial crises (whose starting points could have nothing to do with the policies of the affected countries), uncontrolled price fluctuations for imported- and exported goods, internationally caused shifts in exchange rates and interest changes and so forth can hardly be resisted with national resources by smaller countries. These countries are in a deep development dilemma: · Targeted economic promotion strategies geared to national or regional potentials, shortages and risks are necessary. · The possibilities for implementing these nationally and regionally adjusted measures by national governments or other national or regional actors of poor countries through economic internationalization and through acts of political liberalization are simultaneously restricted under globalization.

Only approaches are viable that secure and guarantee the necessary political possibilities of the national and regional actors of poor countries (including businesses and unions of the South) through corresponding international rules. Beginnings exist, mostly only in the form of (limited) exemptions. The conversion of such an approach implies three things for development policy and international development agents: · Selling the same developmental prescriptions worldwide must be finally dismissed in practice.

The “best practice” in Armenia can have catastrophic consequences in Zambia or vice versa. To speak with Kenny/Williams, “experiences with growth processes in different countries are extraordinarily heterogeneous” (p.12). · Macro-economic stability, free markets and investments in the social realm by themselves do not produce economic growth with the desired poverty reduction. “Pro-poor growth” requires a targeted growth policy that must turn out differently according to substance (what are the growth potentials?) and instrumentally according to land and region. Faith wars over export orientation or import-substitution do not help us advance. Development agencies should promote or prepare the local know-how of poor countries necessary for designing and converting these adjusted concepts. · The practical conversion of adjusted growth strategies presupposes economic possibilities that are often not available or no longer available to poor countries because international rules, decisions of power politics or oligopolist practices of dominant multinationals cut them off. The

function of international development agencies is to provide rules in the stabilization process that secure or make possible these openings needed for the development of poor countries.

The (theoretical) rejection of universal supra-historical developmental prescriptions for the whole world also involves traditional progressive concepts like import substitution or world market uncoupling that are hardly still defended today. The proposal to tackle the poverty- and developmental problem from the respective national or regional conditions (where every case is probably unique) finds an interesting starting point in the often decried colorfulness and alleged conceptionlessness of the movement of “globalization critics”. The claim of the G7 that there is one medicine – namely open markets – suitable for all the sicknesses of the world – is the real sickness. In confrontation with this one-dimensionality, the diversity of the demands, motives and proposed actions (elements) of the globalization movement has proven to be a strength.

Notes (1) What was sensible in some cases had catastrophic consequences in others.

(2) For example, in the European Network on Debt and Development EURODAD (http://www.eurodad.org) and in World Economy and Development – WEED (http://www.weedbonn.de). Gerhard Klas surveys the movement and its themes in "Another World is Possible", in: “Entwicklungspolitik”, 13/2001.

(3) Kanbur calls them “Group A” consisting of leading representatives of treasury departments, international financial institutions and the economic press along with economists who gained their education in the spirit of Anglo-Saxon traditions. Ravi Kanbur, Economic Policy, Distribution and Poverty: The Nature of Disagreements, in: “World Development”, 29/2001, p.1083ff.

(4) http://www.bundesregierung.de/dokumente/Artikel/ix_49466_1305.htm.

(5) Kanbur, op.cit. P.1092.

(6) Ex-BDI head Olaf Henkel, a prominent German representative of “Group A”, still believes “rejection of globalization is as absurd as rejecting the weather”. Cf. “Frankfurter Rundschau”, August 2, 2001.

(7) K.Walde and C.Wood, The empirics of trade and growth: Where are the policy recommendations?, World Bank, Washington D.C. 1999, quot. According to Charles Kenny and David Williams, What do we know about economic growth? Or why don’t we know very much? in: “World Development”, 1/2001.

(8) “DIE ZEIT” on July 27, 2001 quotes a German opinion poll according to which “two thirds of the population was on the side of the protestors”.

(9) John Williamson, What should the world think about the Washington Consensus? in: “The World Bank Observer”, August 2000.

(10) Cf. for example Shahid Javed Burki and E. Perry Guillermo, Beyond the Washington Consensus: Institutions matter, World Bank, Washington D.C. 1998, and Stiglitz, More Instruments and Broader Goals: Moving toward the post-Washington consensus, United Nations University, Helsinki 1998.]

(11) Since 2000, the heavily indebted poor developing countries (according to criteria of the Bretton-Woods institutions, presently 41 states) that want to profit from debt cancellation measures and concessionary credits of the Washington Institute must present poverty strategy papers (“Poverty Reduction Strategy Papers”-PRSP(. On July 1, 2002, 76 countries will have a

right to concessionary IDA-credits through a PRSP. Cf. also “Blatter�, 4/2000, p.456ff.

(12) Poverty Reduction Strategy Sourcebook, on the Internet under http://www.worldbank.org.

(13) B.Ames, W.Brown, S.Devarajan and A.Izquierdo, Macro-economic Policy and Poverty Reduction, draft, World Bank, Washington D.C., April 2001.

(14) That this growth must be ecologically sustainable is mentioned here without further discussion.

(15) The texts can be read under the Internet address of the World Bank.

(16) The PRSPs discuss sectoral and regional growth poles and their influence on the situation of poor populations.