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The Crisis and the Global South:
From Development to Capitalism
Hugo Radice
Discussion Paper CSGP D1/11
Trent University, Peterborough, Ontario, Canada
www.trentu.ca/globalpolitics
Introduction1 2
Thirty years ago, ambitions for a New International Economic Order based on autonomous
postcolonial development foundered on the debt crisis that shattered the unity of the Third World as
we then conceived it. Today, rapid economic growth appears to have spread from East/South Asia
to Latin America and now Africa, and, while much of the old ‘core’ is mired in economic
stagnation and fiscal crisis, the ‘emerging economies’ face an investment glut. In this essay I argue
that current trends in the world economy and global politics provide evidence that the global south
has now arrived at capitalism, at last, bringing with it new patterns of uneven development,
inequality and injustice. Its newly confident élites, now fully engaged in global circuits of trade,
investment and finance, and in global governance too, appear to have left behind their previous
colonial-comprador role.
While the true import of the banking and financial crisis of 2008 remains contested, its
impact on the world economy has followed a path that diverges sharply from the experience of past
crises, and from the expectations of most Western observers.Overall, it is clear that the global south,
or in elite-speak the ‘emerging economies’, has suffered less and recovered more quickly than the
advanced capitalist heartland. In addition, in 2011 it now seems that the patterns of political
impact – not in the sense of immediate crisis measures, but of longer-term ‘tectonic’ shifts – may be
equally significant and unexpected. While political élites in the USA, Western Europe and Japan
struggle to find paths of recovery that are acceptable to their confused and divided electorates,
remarkable changes of various kinds are observable across Asia, Africa and Latin America.
Many commentators have tried to identify specific historical crises in the hope that a
comparative analysis could shed light on current events, the most common being the crisis that
followed the 1929 Wall Street Crash. After all, that was also a crisis that had its immediate origin
in excessive financial speculation centred in the USA, and soon assumed a global scale with
dramatic effects both economic and political (notably the collapse of world trade and the rise of
Hitler). But while there are clear parallels in relation to the points of origin of the two crises and
their unfolding in the economies of the USA and Europe, the effects on the wider world have been
so different in so many ways that we are immediately drawn to an examination of the intervening
decades in search of deeper understanding. I think that it is more fruitful, therefore, to situate the
present crisis in the context of the post-1945 period, which for this purpose can be divided into two:
from 1945 until 1982 (the Mexican debt crisis) and from 1982 to 2007 when the current crisis
began. In the next section, I sketch these two periods as the rise and fall of developmentalism as a
unified global process. I will subsequently argue that the present crisis reveals that the unravelling
of developmentalism since 1982 can be reinterpreted as the transition to what I call normal
capitalism in the global south.
The rise and fall of developmentalism
After 1945, the ‘golden age’ of postwar economic growth and the worldwide movement for
decolonisation provided not only a new historical subject on the global stage, the Third World, but a
strategic task for that subject: development. Given the intensity of the political and military
struggle for liberation from colonial rule, and the global context of confrontation between
1
Presented at a workshop on Global Crisis: Responses and Impacts in the Global South, Global
Development and Justice Research Group, School of Politics and International Studies, University of Leeds,
UK, on 4 March 2011.
2
Life Fellow, University of Leeds: [email protected]. For related recent papers, see
http://www.polis.leeds.ac.uk/about/staff/radice/ .
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capitalism and communism, there was in retrospect a remarkable degree of agreement on the actual
objective – the condition of having achieved development. In essence, this centred on
industrialisation, urbanisation and the building of an effective modern state apparatus. In pursuit of
this common objective, the political economy of development could of course be elaborated from a
wide variety of ideological positions, from the free-market liberalism of Bauer, through the
mainstream of Keynesian theory and the critical school of underdevelopment and dependency, to
the orthodox communist model of central planning. As the postwar boom drew to a close in the late
1960s, both the theory and the practice of development were debated in academic and policy circles
primarily between the mainstream and the dependency school.
For the mainstream, a benevolent and hopefully democratic state could guide the
development of a mixed economy, in which the public sector mobilised resources for physical and
social infrastructure, while the private sector – including foreign investors – implemented the
transformation from agricultural predominance to that of manufacturing. For the dependency
critics, this rosy vision ignored the realities of extreme inequalities of wealth and power, and above
all, the pervasive dependence of post-colonial economies on access to the finance, technology and
markets that only the advanced industrial countries could provide. Aside from advocating complete
national closure – a strategy which became associated for all time with the brutalities of Cambodia
under Pol Pot – the critics typically argued for a larger role for the state in economic development.
But they also recognised that Third World élites were substantially complicit in the reproduction of
external dependency, maintaining a comprador character linked to the persistence of a colonial
international division of labour. The implication was that the interests of workers and peasants
needed to be explicitly recognised in the policy practices of development, especially with regard to
limiting reliance on foreign capital and nurturing an autonomous national industrial base.
In the 1970s the economic dynamism of the capitalist West was hit by a series of more or
less unexpected blows. The collapse of the postwar international monetary order, created at Bretton
Woods in 1944, in large part the result of western Europe and Japan challenging US industrial
hegemony, created uncertainty in international trade and investment, and transmitted inflationary
pressures around the world economy. The action taken by OPEC in 1973 to reverse the declining
purchasing power of its oil generated a global recession, and spurred developing countries to come
together and shape demands for a New International Economic Order to redress the North-South
balance of wealth and power. This coincided with the period of East-West détente after Nixon’s
visit to China and the negotiations to end the Vietnam War. The availability of recycled
petrodollars as an alternative way to finance development, together with economic and political
stagnation in the USA and the fall of the Shah of Iran, seemed at the decade’s end to presage a
dramatic shift in the dynamics of world economy and the international order. A clear implication
was that the development of the Third World might at last be freed from its post-colonial shackles.
Yet within a few years, the US and its allies, particularly Britain, had achieved a dramatic
turnround in these trends. Carter’s 1979 appointment of Paul Volcker as Chair of the US Federal
Reserve signalled a return to free-market economics after the stagflation and policy muddles of the
previous ten years. The Fed’s ultra-restrictive credit policies drove up interest rates and shocked the
US economy into the deepest recession since the war. By 1982, developing countries that had
relied on cheap foreign loans to finance faster growth were hit by a triple whammy: primary export
volumes declined, export prices fell, and the cost of servicing and rolling over dollar-denominated
loans soared. The Mexican default of August 1982 ushered in the Third World debt crisis, a ‘lost
decade’ in Latin American and African development, and the rebirth of the IMF and the World
Bank as global enforcers of market discipline. By the time the Soviet bloc collapsed in 1989-91,
the Washington Consensus was firmly in place, imposing neoliberalism in almost every corner of
the world.
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The exception was, of course, East Asia, where South Korea and Taiwan adapted the
postwar growth strategy and policies of Japan and launched the final flowering of postwar
developmentalism: the developmental state model. While African economies shrank and Latin
America stagnated, this model scored remarkable successes, notably in high levels of economic
growth, rapid modernisation, and an end to reliance on foreign capital. A major factor, already
evident by the late 1980s, was the even more remarkable transformation of China as market reforms
opened up its economy to foreign trade and investment, and unleashed an unprecedented growth
dynamic that has continued, with only minor slowdowns, even since. Both South Korea and
Taiwan also underwent considerable democratisation, something that was clearly absent (and
remains so) in mainland China. The widespread emulation of the DS model across south-east Asia
led to break-neck but uneven regional growth. Although the inflow of hot money from the new
circuits of global finance led to the East Asian financial crisis of 1997-8, recovery was remarkably
quick and rapid growth resumed; by then, the DS pioneers had pretty much abandoned their
distinctive pattern of state-led development, and the model lost its iconic status.
The 1990s also saw significant changes in Latin America, centred on the retreat of the
generals, the easing of the debt crisis and the adoption of more liberal economic policies. Growth
in output and trade recovered, although the distribution of its benefits was extremely uneven.
Privatisation of state enterprises and the erosion of populist and clientelist welfare systems also
signalled a substantial departure from the development model of earlier decades. Perhaps most
dramatically Mexico through the 1990s, despite a major financial crisis in 1994, joined NAFTA,
liberalised trade and investment and abandoned the corporatist model that the PRI had presided over
for decades.
Between 1982 and the century’s end, then, both the geopolitical unity of the Third World
and the ideology of developmentalism had largely disappeared. The Third World had fragmented
into a growing number of criss-crossing regional and sectoral groupings, making it relatively easy,
especially after the demise of the Soviet Union, for the advanced capitalist states to dictate the terms
of engagement within the world economy. A good example is the question of state policies on
inward foreign direct investment. In the mid-1990s, the Organisation for Economic Cooperation
and Development proposed a Multilateral Agreement on Investment which would severely restrict
the right of host governments to impose conditions on transnational investments. When the MAI
came up against stiff resistance from both developing countries and the increasingly active
development NGOs, it was quietly dropped. Instead, leading investor states negotiated a web of
bilateral investment treaties (BITs) which achieved very much the same outcome.
It has become commonplace to see the years after 1982 as the age of neoliberalism. But
before examining the events of 2007-8, let alone the question of whether that age might be drawing
to a close, it is vital to look more closely at the political sociology of neoliberalism during this
period. In particular, it seems clear that the new order was by no means just the result of economic
(and at times military) coercion by the USA and its allies. Instead, it can only be understood as a
set of transformations in the nature of class divisions and political regime norms that was not just
reluctantly accepted, but enthusiastically embraced by élites throughout the global south. It is these
changes that form the core of ‘normal capitalism’.
Normal capitalism in the global south
Between 1994 and 2001 a sequence of dramatic financial crises struck the global south,
most notably in Mexico 1994, via East and South-East Asia 1997-8, Russia 1998, Brazil 1999 and
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on to Turkey and Argentina in 2001. This succession of crises, characterised in particular by capital
flight, financial sector insolvencies and huge fiscal deficits, were seen at the time by the mainstream
as the consequence of incomplete liberalisation and inadequate economic governance; and by left
critics as a clear indication of excessive or at least poorly-sequenced liberalisation and the
abandonment of developmentalist policies. The critics also saw them as symptomatic of broader
strains in a global financial sector characterised by rampant speculation and greed, part and parcel
of a ‘financialised’ global capitalism that also generated the collapse of the brilliantly misnamed
investment fund Long Term Capital Management, the dot.com crash of 2000, the Enron and
WorldCom scandals, and increasingly frequent asset bubbles in securities, commodities and
property markets. Needless to say, the 2007-8 crisis is seen as confirming such a diagnosis, leading
critics to forecast the end of neoliberalism, the end of globalisation, and for many, a lengthy global
slump.
However, it is important not to see these dramatic financial episodes as collectively evidence
of an aberrant form of capitalism. Rather, they are the consequence of much broader changes in
global capitalism encompassing the international division of labour, the rise of new centres of
capital accumulation, and the social and political order both within nation-states and at the regional
and global levels. Perhaps because of a reluctance to abandon the developmentalist perspective, the
focus of attention has largely been on a global capitalism understood as external to and imposed
upon the global south, for example in relation to the agendas of the Bretton Woods Institutions such
as the Doha Round. We still far too often assume that a common and collective national interest
still exists in the global south, despite the abundant evidence to the contrary, and despite a
longstanding central tenet in dependency theory, that foreign (i.e. northern) capital ‘disintegrates’
the national political economies of the south, socially and politically as well as economically.
In the sphere of production, the vast literatures on supply or value chains in both industry
and agriculture chart the ever-deeper nature of that national disintegration. Strategies of national
food self-sufficiency have been abandoned in pursuit of foreign exchange from supposedly highvalue agri-exports, hoping that imports can substitute for domestic food staples. In manufacturing,
host governments compete fiercely to move up the value chains, finding that securing lasting
success in this regard requires not just cheap labour, but expensive infrastructure and high-quality
local supply networks. In turn, these developments imply the nurturing of a more educated ‘middle
class’ of small entrepreneurs, professionals and technicians who need to be trained, and to be
persuaded to stay by the promise of a ‘middle class’ lifestyle: hence the growing importance of
higher education, a Western-style consumption infrastructure, and practical good governance in the
sense of a public administration more effective in both collecting and spending tax revenues,
dispensing justice and providing existential security. And a central requirement for all these things
is a dynamic financial services sector that can provide credit to households, businesses and
government, and services such as pension funds and insurance.
If the developmentalist creed was one of catching up with the advanced capitalist countries,
then the new capitalism in the south surely amounts to development. But this is not development
towards the benign capitalism of the postwar Keynesian welfare states of Europe and North
America, because those states have themselves been transformed under neoliberalism. The East
European experience has been especially poignant in this regard: urged to overthrow an oppressive
and economically stagnant communism, the peoples of the region imagined that they would arrive
in Sweden, but instead found themselves in Mexico. Meanwhile, the Mexicans, abandoning the
comforts of authoritarian corporatism for NAFTA and electoral democracy, found themselves not in
Johnson’s full-employment ‘Great Society’ of the 1960s, but instead in an extreme form of the
grotesque inequalities of wealth and power that now characterise the USA.
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In these circumstances, management of the vast discrepancy between expectation and reality
becomes central to both domestic and international politics. It is a commonplace to see the ruling
classes of the global south as facing both ways – externally towards the rapacious powers of foreign
capital and internally towards their own fractious citizenry. But we need to take full account of how
these social forces are structured in a given period, as well as across different regions and individual
countries. Externally, the ruling classes have been increasingly integrated into the global networks
of business and politics, with their supportive realms of higher education, finance, media and
culture. Internally, they have mostly come to realise that their position is more effectively ensured
by the nurturing of a significant middle class of the kind outlined earlier, and a ‘democracy lite’ of
competing parties to provide a semblance of voice and choice. The democratic revolution that
ended fascism in Europe in the 1970s, Latin American dictatorships in the 1980s and communism
in the 1990s even appears to be reaching the Middle East right now.
The crisis of 2007-8 and after
As already noted, the crisis of 2007-8 was not a re-run of the 1929 Wall Street crash. For
the global south, two major differences are critical. First, in remarkably short order the existing
structures of global governance were mobilised to support, and at least minimally coordinate, the
deployment of the remarkable fiscal and monetary powers of the central banks and Treasuries of the
largest economies. The responses of the IMF, the BIS and the G7/G20 stand in stark contrast to the
utter failure of the international system after 1929, when international trade and finance collapsed,
and the great powers each sought their own salvation. Those who castigate our global governors for
not having yet agreed a programme of coordinated re-regulation of the banks should remember that
even within the USA it took four years, before the Glass-Steagall Act was passed, while only Hitler
and Stalin achieved full employment before war broke out in 1939.
Second, again in stark contrast to the 1930s, both the credit crunch and the recession have
had more impact on the advanced capitalisms of the north than on the global south. Of course, the
immediate response of mobile global capital, as in earlier crisis episodes, was flight to the safe
havens of the USA and Europe, to gold and to ‘triple-A’ securities; and of course the immediate
impact upon working people in the global south was far more severe. But as economic growth
resumed in 2009, it was the so-called emerging economies that recovered far more quickly, and it
has become a cliché that the BRIC and China in particular are now driving a recovery that, at the
level of aggregate global production and trade, is remarkably robust. Even if some of the bubble
markets around the world remain deflated (US and most European housing most notably), once
short-term speculative forces are taken into account the rising prices of food and industrial
commodities reflect that recovery. What is more, this is a resumption of a decade- long higher
growth trend in Africa as well as Asia and Latin America.
Despite the grossly unequal distribution of the benefits of this growth, it seems hard to deny
that capitalism – normal capitalism – is working across the global south. For normal capitalism is
not the capitalism of the postwar ‘golden age’, nor of the developmental ambitions of the 1960s and
1970s. It is an economic system prone to destructive booms and slumps, to financial crises that
wipe out household savings and government fiscal strategies alike, to polar extremes of wealth and
poverty, and to a continuing reckless consumption of the global commons. It is also a political
order constituted first and foremost on the defence of private property, in which the reach of
democratic and electoral accountability stops at the entrance to the gated communities and tax
havens of the super-rich, whether they hail from Omaha or Beijing. In the Davos World Economic
Forum, the Bilderberg meetings and the Group of Thirty3, the eager and willing servants of the
3
Group of Thirty: set up in 1978 as a think-tank of top bankers and finance experts. See www.group30.org.
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super-rich figure out how to manage the affairs of the rest of us, so as to keep the global ‘middle
classes’ onside and the rest too fascinated by the possibility of prosperity, and too terrified of
exclusion from it, to contemplate a real and sustainable alternative.
Two years before the Wall Street Crash, the French writer and journalist Julien Benda,
published La trahison des clercs,4 in which he indicted the intellectuals of the day for abandoning
the Enlightenment ideal of a disinterested pursuit of knowledge and truth, in favour of serving one
or another earthly power. It remains, as always, down to us, from our privileged position in
academia, to analyse and expose the workings of capitalism, and to do all we can to develop an
alternative order based on equality and social justice. The present crisis may not signal an end to
neoliberalism, but it should certainly signal the urgency of this task.
4
Translated as The Betrayal of the Intellectuals (Boston: Beacon Press, 1959).
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