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The Myth of the Minimalist State
Free Market Ambiguities

Corner House Briefing 05

by Nicholas Hildyard

first published 31 March 1998

Summary

The practical outcome of free-market policies has not been to diminish the state’s power -- but to redirect it in favour of transnational interests. Thus the power of many Northern states to intervene in the economic and social affairs of other countries has increased. Resistance to the “free market state” is growing, as is the demand that the state’s powers be used to protect the interests and rights of citizens, not corporations.

Contents

Introduction

Supporters of the "free market" approach to economic and social policy have an ambiguous relationship with the "state". The package of economic reforms promoted in countries around the world, North and South, East and West, over the past two decades -- ranging from privatisation of state or public services and assets to deregulation of labour and environmental laws -- have been intended, in theory, to remove the state from having anything to do with the national economy -- or at least restricting it to a minimal role.

Yet the practical outcome of these policies has not, in most cases, been to diminish either the state's institutional power or its spending. Instead, it has redirected them elsewhere.1 It has also strengthened the power of many Northern nations to intervene in the economic affairs of other countries, notably the indebted countries of the South, the emerging economies of the former Soviet Union, and the weaker industrialised partners of trade blocs such as the European Union.

Far from doing away with state bureaucracy, free market policies have in fact reorganised it.2 While the privatisation of state industries and assets has certainly cut down the direct involvement of the state in the production and distribution of many goods and services, the process has been accompanied by new state regulations, subsidies and institutions aimed at introducing and entrenching a "favourable environment" for the newly-privatised industries.

The state has actually played a central role in implementing free market policies and, moreover, has a continued "intimate and ubiquitous"3 involvement in regulating the minutiae of the market economy -- a direct consequence of the hand-in-glove relationship that free market governments have fostered between "adjusted" state institutions and market interests. Thus the fashionable free market view that states and markets are somehow intrinsically opposed to each other emerges as something of a myth. The "free" market needs the protection of states -- and their powers of enforcement. The minimalist state is, quite simply, utopian -- in the original sense of the word, it exists nowhere.

At issue, therefore, is not whether modern economies require any involvement from the state, but to what ends and in whose interests the state operates.

Stripping Back the State ... ?

Underlying the free market agenda has been an insistence that the state has neither the management capability to run the economy, nor any legitimate authority to do so. Indeed, far from benefiting society, state planning, state ownership of industries, state-initiated social and welfare programmes, and state regulation of wages and economic policy are to be avoided because they undermine entrepreneurial activity, diminish individual freedoms and lead to the inefficient use of resources. In sum, the best government is the least government.

Instead of the state, market competition is said to define and serve best the "public interest"; through the market, individuals are best able to express their choices. Individual freedom and prosperity are maximised as funds are allocated efficiently; people can purchase what they want at prices determined according to supply and demand; and wealth generated by private effort "trickles down" to the benefit of all.

Putting this market competition policy into practice required stripping the state of "excessive involvement" in the economy and in society.4 In the countries of the South, the IMF and World Bank took advantage of the debt crisis during the 1980s to insist that, as the price of getting credit, "debtor countries remove the government from the economy."5 Structural Adjustment Programmes (SAPs) required governments to redirect their spending away from public services and publicly-owned enterprises into debt servicing. State industries were sold off; public services were "contracted out"; development projects "franchised" to private companies; social spending slashed; user charges for basic services introduced or increased; and markets "deregulated".6

In the North, similar measures, although not officially labelled structural adjustment, have also been introduced, supposedly to cut public spending and to raise the efficiency of services.

... or Redirecting the State?

In fact, in OECD countries, state spending relative to the economy as a whole has continued to grow, now averaging 50 per cent of GDP. In developing countries, meanwhile, government spending has dropped only slightly, to just over 25 per cent of GDP on average.7

Moreover, "states are still massively present in the processes of production, distribution and exchange",8 not least through framing taxation policy; setting interest rates (where independent central banks have not been introduced) or interest rate policy; directing subsidies to sectors of industry; farming out government procurement contracts; awarding franchises for privatised industries; setting pollution and health standards; and funding infrastructure projects.

Within those sectors that remain under (albeit looser) state control, education and health, for example, new state structures have grown to train or retrain personnel in private sector business methods, to institute new accountancy and management techniques and procedures, and to instil market discipline.

The repressive powers of many free market states have also been strengthened rather than weakened, and free market governments have begun to intervene in areas of social life which free market ideology nominally places "off limits".9

In Britain, for example, opposition to free market policies during the 1980s led the government to introduce new legislation which increased the powers of the police to restrict the right to protest or to organise in support of strike actions. In India, the security forces have been significantly expanded to "deal" with internal dissent and "to facilitate domestic capital or foreign exchange-bearing entrepreneurs";10 special units of the Indian police are now being trained by Western security experts to "protect the life and property of foreign investors."11 As Smitu Kothari of the Delhi-based human rights group Lokayan notes, "One former finance minister ... stated recently that power should increasingly move from the state to the boardroom."12

Indeed, at national and international levels, the process of redirecting the power and spending of the state has largely been to the benefit of the private sector, especially transnational corporations, and to the detriment of ordinary citizens, particularly in their ability to define, protect and promote the public interest.

Deregulation ...

Four related processes have been integral to this redirection of state power and spending: reregulation; the reallocation of public sector spending; the reallocation of subsidies; and the pooling of national sovereignty to form new trading blocs.

Deregulation -- the dismantling of legal and administrative controls deemed to interfere with the operation of the market -- has been a cornerstone of the free market agenda. Limitations on the free movement of capital between countries have been stripped away through international agreements such as the General Agreement on Tariffs and Trade (GATT).

Governments have sought to attract inward investment to their countries by creating as attractive a "policy environment" for business as possible. Many social and environmental controls that might deter business or add to their costs have been dismantled. Britain's national economic policy, as outlined by the 1992-1997 Conservative administration, for example, was to offer the country abroad as a low wage, deregulated "enterprise zone" with relatively pliant workforces. A 1995 brochure from the government's Invest in Britain Bureau advertises "labour costs significantly below other European countries" and assures potential investors that "no new laws or regulations may be introduced without ascertaining and minimising the costs to business." It continues:

"The UK has the least onerous labour regulations in Europe, with few restrictions on working hours, overtime and holidays ... There is no legal requirement to recognise a trade union. Many industries operate shift work, and 24-hour, seven days-a-week production for both men and women."13

The Conservative government also cut back regulations which companies claimed made them less competitive internationally. By 1993, 605 regulations had been identified for the axe, including measures on health and safety, biotechnology, advertising in sensitive areas, hedgerow preservation, food standards and energy efficiency.14

Active deregulation has also taken place in the newly-emergent economies of the former Soviet Union. In the Russian Far East, for example, land use and tax laws have been reformed to attract foreign investment in mining and forestry; environmental standards are now under pressure.15

In the indebted countries of the South, deregulation is now being extended from the "free trade zones" throughout the wider national economy.16 The rights of workers to organise and strike have been restricted; environmental regulations weakened; foreign ownership restrictions watered down or abolished; and TNCs granted freedom from planning and environmental controls and permission to repatriate profits without restriction.17

Mutual deregulation is also underway. US corporations, for instance, lobby the US government to target EU regulations under GATT, whilst their subsidiaries and partners in Europe (with their connivance) lobby the EU to target US regulations. North American interests, for instance, are seeking to overturn European bans on the use of Bovine Somatotropin (BST), a genetically-engineered growth hormone for cattle, and on the sale of furs from animals caught with steel leg-hold traps. The EU, meanwhile, is challenging US fuel consumption standards in cars; food safety laws, including a ban on carcinogenic chemicals in food; limitations on lead in consumer products; state recycling laws; and restrictions on driftnet fishing and whaling. Several hard-won pieces of European environmental or public health legislation have already been overturned. In May 1997, the WTO ruled against the European Union's ban on imports of beef produced with artificial growth hormones.18

... And Re-Regulation

Yet accompanying the process of deregulation is that of business-friendly re-regulation. As Christopher Pierson, Professor of Politics at the University of Nottingham, notes:

"One of the most keenly felt ironies of the 'withdrawal' of the state from its role as a direct producer of goods and services has been the mushrooming of the apparatus of 'regulation' through which it seeks to exercise a continuing control over its divested functions."19

In Britain, the deregulation of labour markets -- a policy supposedly intended to make market mechanisms rather than income policies the determinant of wage levels -- has meant "an unprecedented level of state intervention in the internal administration of trades unions and a tighter proscription of their lawful actions".20 It has also entailed "an ever tighter regulatory regime for those who are unemployed and/or in receipt of state benefits" and led to the introduction of "a stronger statutory framework in the management of government training programmes".21

In the process, a range of new quasi-autonomous non-governmental organisations or QUANGOS, staffed largely by political appointees of the ruling party, has been set up to administer whole areas of public life, from housing to education and hospitals -- areas which were previously under the control of local government or the national Parliament. Accountable, albeit often inefficient, public bodies have been replaced by new, often secretive, usually technocratic and generally unaccountable agencies. The result has been not the elimination of corruption and inefficiency, but the creation a web of new patronage networks that encourage their own form of political corruption.22 In 1996, according to one estimate, some 7,700 quangos existed in the UK, giving government ministers discretion over 70,000 public appointments.23

In other countries, state institutions have given way to new "market-friendly" semi-public authorities as well. In Guyana, for example, a condition of one recent IMF structural adjustment programme was the privatisation of the state forest company and the setting up of a Natural Resources Agency in order to speed up "development" of the country's interior. With the authority to hand out logging concessions vested in a small, barely accountable government office, opportunities for favouritism and malpractice abound. Most of the large logging concessions given out to Guyanese nationals between 1985 and 1991 were to ministers, members of parliament and supporters of the PNC party which ruled the country until 1992. Moreover, in the five years proceeding 1989, seven companies absorbed 94 per cent of foreign assistance given to the sector, with two companies alone, Guyana Timbers and Demerara Woods, getting 75 per cent.

The World Bank, which, together with the IMF, imposed the structural adjustment programmes that led to the setting up of the Guyana Forestry Commission, has described the Commission as a perfect example of the "capture theory of regulation", whereby the regulatory body ends up being controlled by the industry it is supposed to regulate.24

In many instances, companies themselves have written the new investment and environmental rules which have replaced less business-friendly legislation. In the Philippines, the government introduced a new mining code in 1995, which companies helped to draft; the new code overturned previous laws limiting foreign control of mining companies to 40 per cent and extended foreign ownership to 100 per cent. Companies now also have the right to displace and resettle people within their "concessionary areas" and environmental regulations have been largely dismantled.25

Public Money, Private Gain

As with regulation, public spending has not necessarily been reduced, but directed elsewhere. Many public funds for social and environmental programmes have been cut as a result of structural adjustment. According to a 1996 World Bank report, social spending declined from 1980 to 1993 as a proportion of GDP in half the countries studied, with per capital social spending falling in two-thirds of them.26 Public funds have instead been made available to foreign companies which have been offered generous terms to set up production facilities or extractive industries.

Under a deal agreed by the Guyanese government with the Barama Company Ltd, a Malaysian/Korean logging consortium:

"The company ... enjoys a ten-year tax holiday, including income tax, corporation tax, withholding tax, property tax and income duties on just about everything, including machinery, fuel, building materials, office equipment and medical supplies. Export taxes are only payable on greenheart [wood], while even royalty payments have been fixed in Guyanese dollars over the first twenty-year period -- a gift to the company as the currency devalues. The company is also permitted to hold external accounts, foreign currency accounts within Guyana, employ 15 per cent foreign workers (more if local labour with the right skills is unavailable)."27

In Chile, liberalisation of the forestry sector has also been characterised by government hand-outs to the already rich. As policy analysts Joseph Collins and John Lear comment:

"The neoliberals' stated goals were to curtail sharply the direct role of government in forestry and to let market mechanisms determine the prices and direct the use of resources. Yet government intervention and subsidies were in fact central to reorientating the benefits of forestry production away from the rural population towards a handful of national and foreign companies."28

The government also sold off its interests in the principal forestry processing plants in the country. As in the privatisation of other areas of the economy, "these companies were sold at a discount, according to one estimate, at least 20 per cent below their value."29

Government-subsidised tree planting programmes also directly benefited the private sector. Between 1974 and 1990, total planting subsidies exceeded $88 million; 48 per cent of the area reimbursed for planting was owned by the ten largest forestry companies in Chile.30

MDB Subsidies

In addition to picking up subsidies from national governments, corporations are increasingly availing themselves of a range of new subsidies from multilateral development banks (MDBs). In the past, companies (particularly those from Northern countries) have benefited from contracts for public sector development projects, such as roads, airports and irrigation schemes; these contracts were awarded by governments but financed by MDBs. Increasingly, however, the multilateral development banks are funding (with public money) private companies directly to undertake projects while underwriting the investments through guarantees or providing loans.

India, China, Chile and Mexico, for example, are planning or building thousands of kilometres of private toll roads. Private arrangements are justified by their promoters on the grounds that only the private sector, not indebted governments, has sufficient capital to build large infrastructure projects, and that all commercial risks will be borne by the companies, not the government.

However, the risks are rarely allocated in such a manner, and government/public liabilities are still significant. In Mexico and Chile, the government guarantees to pay compensation to toll road concessionaries if traffic does not meet an agreed minimum level. In Thailand, the multinational Hopewell responded to the July 1997 Thai currency devaluation by asking the government to allow it to raise the tariffs on its Bangkok road and rail project by 15-20 per cent.31

MDBs also lend credibility to projects that companies might otherwise consider too risky.32 The risks for governments, however, of relying on a few foreign funders and operators to provide essential services (which generate only local currency revenues) are rarely spelled out properly to governments by the MDBs.

MDBs also offer indirect subsidies to the private sector in the form of guarantees against the financial and political risks of undertaking projects. The World Bank agency responsible for guarantees, MIGA, provides insurance against political risks (such as renationalisation, losses on currency transfers, war and civil disturbances). In many cases, the cover it offers would not be available at an affordable price on the open market.33

Finally, MDB influence over national governments ensures "an appropriate policy environment" for large corporations. For example, in Pakistan, where the World Bank advised on attracting foreign investment in power stations and provided equity, debt and guarantee backing for transnational power companies, the government gave incentives only to bidders tendering for power stations over 100 megawatts, thus discriminating against the domestic private sector which builds only smaller plants.34

Fixing the Rules: Regional Trade Agreements ...

The emergence over the last two decades of several regional trade agreements35 have not abolished interventions in trade; they have instead led to the emergence of business-friendly transnational state institutions to oversee the agreements and to intervene to the advantage of business rather than the public good.36 Both the North American Free Trade Agreement and the European Union are now fully operational and point the direction in which other regional trade agreements are likely to go.

In the case of the EU, national regulations to protect home industries have gradually been replaced by Europe-wide regulations which protect industries with "European" (and, increasingly, global) reach. Sovereignty over key economic issues has shifted (for the time being) from the nation state to European institutions, such as the European Commission. These are unaccountable to the electorate, yet have proved highly susceptible to corporate lobbying. The most powerful businesses have used the process of setting up the single European market to drive many smaller companies out of production, and to undermine (or block) environmental and public health measures deemed onerous to business. For example, national food and drink standards designed to improve product quality and protect consumers have been replaced by EU-wide standards that, in many cases, are less exacting than national standards. Stricter standards, meanwhile, have been introduced in other areas and then used by large companies to squeeze out smaller competitors who cannot meet them, for example, in the abattoir industry.

With the "playing field" levelled in their favour and capital free to move throughout the EU, many would argue that the result is a union of European business interests rather than "a union of the peoples of Europe" (the stated objective of the Treaty of Rome which first established the European Common market).37

Additionally, many of the rules agreed under free trade agreements pre-empt the possibility of states unilaterally adopting progressive social, economic or environmental legislation.38 To qualify for EU monetary union, for instance, countries must reduce their budgetary deficits (the excess of government spending over tax income) to within three per cent of annual GDP. Those countries which qualify -- and elect to participate -- will surrender all control over monetary policy to an unelected body, the European Monetary Institute, which will formulate the overall orientation of monetary policy and exchange rate policy.

A European Central Bank will supervise their economies and ensure that they adhere to monetarist policies. Excess deficit spending will only be permitted on approval of the European Commission which will assess whether or not the excess constitutes "investment expenditure".39 The implication, critics argue, is that governments will be able to borrow money only for "productive" spending, such as infrastructure programmes: borrowing money for social programmes which supposedly do not yield a financial return -- health programmes or higher pensions or welfare benefits for the unemployed -- is unlikely to be permitted. In cases where a member state persistently fails to reduce its excess deficit, the European Council of Ministers, acting on the recommendation of the European Central Bank, will have the power to impose structural adjustment programmes and to fine the offending state.

... And International Trade Agreements

The same trend is apparent at the international level. Under the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), signed in 1994, signatory governments have agreed to open up their countries' markets by permitting the free flow of capital, reducing tariff barriers, outlawing export subsidies, clamping down on countervailing duties, streamlining customs inspections and licensing procedures, harmonising phytosanitary and technical standards, outlawing restrictions of foreign investment, introducing new intellectual property laws, and subjecting agriculture and the service sector (neither of which were previously covered by GATT) to the discipline of GATT principles.40

The stated intention of this international agreement was again to create a "level playing field" that would supposedly permit free and equal competition. But in practice it is an agreement to tilt the playing field dramatically in favour of the most powerful nations and their most powerful interest groups -- principally TNCs.

GATT's agricultural agreement, for instance, is supposedly intended to remove US and EU export subsidies to achieve the stated aim of preventing the dumping of agricultural surpluses on world markets at artificially low prices, thereby undermining the agriculture of poorer countries. Yet far from dismantling the structure of subsidies in industrial countries, the latest GATT agreement left them largely intact, thanks to a side agreement negotiated bilaterally between the EU and the US. This side agreement determined that direct payments to farmers -- "set-aside" payments in Europe, for example, where farmers are paid to withdraw land from production -- should be exempt from the subsidy cuts agreed under the main GATT agreement on the grounds that such payments do not promote agricultural production and are not, therefore, "trade distorting" measures.41

The side agreement has enabled the EU and the US to increase the level of subsidies to their farmers and farm companies. Direct payments now account for 23 per cent of agricultural subsidies in the industrialised countries, an increase of five per cent over 1986. In the US, by the year 2000, "direct payment" subsidies of up to $16 billion will be permissible -- double the 1995 level of national government support.

Some Southern governments, on the other hand, will be required to implement far-reaching liberalisation in foodstuffs. All but the least developed countries will be required to reduce their tariffs on food imports by 24 per cent over ten years and to increase the minimum level of imports from one per cent to four per cent of consumption. For the corporate agribusiness giants which now control the bulk of the world's trade in foodstuffs, "the liberalisation of the South's agricultural markets offers the prospect of lucrative new markets [such as] the conversion of consumer demand in South-East Asia from locally produced staples such as rice, cassava and grains towards US wheat."42

Exposing rural producers to global markets under these circumstances poses a powerful threat to rural livelihoods, especially given the political and economic power enjoyed by Northern countries. One study suggests that market liberalisation could lead to half a million people losing their livelihoods in the Philippines alone.43

Northern countries, meanwhile, are unlikely to expose their producers to competition from the South.

Through GATT, transnational investors now have the backing of an international legal and political framework which privileges Northern interests over Southern ones; transnational corporations over national and local businesses; and the rights of capital over those of peoples. In the process, state institutions in the most economically powerful countries have gained considerable new powers to impose market discipline outside their own territories. Since the Uruguay Round, for example, trade disputes are now to be settled through a new body, the World Trade Organisation (WTO). Should the WTO rule that a country is in contravention of WTO rules, then the injured party can impose cross-sectoral retaliatory measures.

Redefining the State

The theory and practice of the free market have never gone unchallenged, any more than state-centred development in the years after the Second World War went unchallenged. The challenges today emanate from many quarters and have widely differing agendas, some positive, some profoundly disturbing, some with grassroots constituencies, others more elite-based.

At one end of the spectrum, a range of populist movements have emerged whose response is rooted in exploiting the insecurities of globalisation in order to foment exclusionary, xeno-phobic and socially regressive nationalisms. At the other are movements seeking to build economies based on "cosmopolitan localism".44 The broad diversity of these challenges to existing state and market structures -- a diversity which, in many instances, reflects attempts by civil society "to recover politics from politicians and political brokers" -- illustrates the intensity of the public debate, North and South, now surrounding the role of the state.

Chauvinism and Protection

A number of movements -- many of them led by those whose power base has been threatened by the opening up of national economies -- have made considerable headway in Europe, India and the US by stoking racist and nativistic sentiments in an attempt to build a populist and nationalist response. This xenophobic nationalist response to the free market agenda plays on the insecurities that globalisation and liberalisation have spawned for workers. In some cases, the response has taken the form of a mix of conservative social policies, free-market neo-liberalism and protectionism. In others, it involves the vilification of all things "foreign", a rejection of all external trade and a yearning for "traditional" forms of family and community life, many of which have either never existed or which play to authoritarian power structures.

A protectionism which explicitly eschews policies aimed at curbing corporate power, however, would do little to redress the imbalance of bargaining power between labour and capital in an age of flexible production. Moreover, an aggressive accent by US protectionism on pushing US trading interests overseas would be severely detrimental to the economies of the South. Nevertheless, the xenophobia whipped up by the protectionist lobbies is having severe impacts on immigrant communities and other marginalised groups who fail to "fit" with the new nationalism.

Democratic Pluralism

Resistance to the free market state need not take a chauvinistic form. A number of broad approaches are emerging at the other end of the spectrum to address, at the international and national level, the inequities and social impacts of liberalisation; these approaches, although deeply critical of the current global economy, are not opposed to internationalisation itself. Rather their analysis and resulting demands are primarily addressed to ensuring a genuine level playing field in world trade and national economic policy.

Key to this position is the recognition that neither people or nations enter markets as equal partners, and so "often leave with unequal rewards".45 Viewed from this perspective, the immediate priority is to identify and implement policies "which enable poor people to participate more equitably in markets, at both the national and the global levels". In addition, the stress is on ensuring that efficiency gains in service provision are not made at the expense of workers' rights, accountability, affordability and access for marginalised groups.

Often committed to what Indian activist Vandana Shiva has termed "democratic pluralism", such movements are redefining both the role of the state and of the market through political action rather than abstract debate. As Shiva explains:

"Democratic pluralism recognises the anti-democratic nature of the centralised nation-state on which state protectionism of the past was founded. But it also sees the emergence of corporate protectionism as the real threat to democratic rights and economic livelihoods. Countering this recolonisation requires the reinvention of national sovereignty by democratic processes to create national systems which act in partnership with local communities to protect the natural wealth, the economic livelihoods and the cultural and intellectual heritage of the country."46

More specifically, the appeal of a number of groups is for citizens from groupings of countries:

  • to organise to dismantle corporate control over their individual economies and workplaces;
  • to restrict capital flows -- an "invest here to prosper here" policy;
  • to localise markets, with long distance trade an option of the last resort -- a "site here to sell here" approach;
  • to redirect subsidises away from transnational economic interests towards support for local production for local use;
  • to reclaim political processes and to re-root them within the local community; and
  • to challenge those power structures at the local, national and international level which deny local communities democratic control over their livelihoods.47

Notes and References

1 Pierson, C., The Modern State, Routledge, London, 1996, pp.106ff. The most sophisticated free market thinkers have always openly acknowledged that their programme requires a "strong state" to provide a secure and legal political framework within which business, trade and "family life" can prosper. For a discussion, see Held, D., Models of Democracy, Polity Press/Basil Blackwell, Oxford, 1987, p.244.

2 Lang, T. and Hines, C., The New Protectionism: Protecting the Future Against Free Trade, Earthscan, London, 1993, p.25.

3 Pierson, C., The Modern State, Routledge, London, 1996.

4 For an excellent summary and critique of free market thinking in the late 1980s, see Held, D., Models of Democracy, Polity Press/Basil Blackwell, Oxford, 1987, p.243.

5 Sheahan, J., "Development Dichotomies and Economic Strategy" in Teitel, S., (ed.) Towards a New Development Strategy for Latin America, Inter-American Development Bank, Washington, DC, 1992, p.33, quoted in Bello, W., Cunningham, S., and Rau, B., Dark Victory: The United States, Structural Adjustment and Global Poverty, Pluto Press, London, 1994, p.28.

6 For an overview of the structural adjustment programmes imposed on the South, see Martin, B., In the Public Interest? Privatisation and Public Sector Reform, Zed Books, London 1993; and Bello, W., Cunningham, S., and Rau, B., Dark Victory: The United States, Structural Adjustment and Global Poverty, Pluto Press, London, 1994.

7 World Bank, The State in a Changing World: World Development Report 1997, World Bank, Washington, DC., 1997, p.2, figure 1.

8 Pierson, C., The Modern State, Routledge, London, 1996, p.113.

9 See, for instance, Hutton, W., The State to Come, Vintage/Observer Books, London, 1997, pp.16-17; Bowring, B., "Law and order in the 'New' Britain", Soundings (Special Issue: The Next Ten Years: Key Issues for Blair's Britain) Lawrence and Wishart, London, 1997; Sklar, H., Chaos or Community? Seeking Solutions, Not Scapegoats for Bad Economics, South End Press, Boston, 1995.

10 Kothari, S., "Whose Independence? The Social Impact of Economic Reform in India", Journal of International Affairs, Summer 1997, Vol. 51, No. 1, p.114.

11 Indian Express, 25 August 1995. For examples in Bangladesh, see O'Connell, H., Equality Postponed: Gender, Rights and Development, WorldView Publishing, Oxford, 1996, p.120.

12 Kothari, S., "Rising From the Margins: The Awakening of Civil Society in the Third World", Development, No. 3, 1996.

13 Invest in Britain Bureau, Britain: The Preferred Location -- An Introduction for Investors, Department of Trade and Industry, London, 1993, p.7.

14 Goldsmith, Alexander, "Seeds of Exploitation: Free Trade Zones in the Global Economy" in Mander, J. and Goldsmith, E., (eds.) The Case Against the Global Economy and for a Turn Towards the Local, Sierra Club Books, San Francisco, 1996, pp.267-273.

15 Newell, J. and Wilson, E., The Russian Far East: Forests, Biodiversity Hotspots and Industrial Developments, Friends of the Earth-Japan, Tokyo, 1996.

16 For discussions of free trade zones, see Asia Monitor Resource Centre, Women Workers in Asian Export Processing Zones, Hong Kong, 1997; Asia Alliance of YMCAs et al., Everyone's State: Redefining an "Effective State in East Asia", Hong Kong, September 1997, p.1; O'Connell, H., Equality Postponed: Gender, Rights and Development, WorldView Publishing, Oxford, 1996, p.37.

17 Lang, T. and Hines, C., The New Protectionism: Protecting the Future Against Free Trade, Earthscan, London, 1993, p.81. For a discussion of the impacts of liberalisation on trade union rights, see Thomas, H., Globalization and Third World Trade Unions: The Challenge of Rapid Economic Change, Zed Books, London, 1995.

18 See Hines, C., "Big Stick Politics", The Guardian, 8 October 1997; Retallack, S., "The WTO's Record So Far", The Ecologist, Vol. 27, No. 4, July/August 1997.

19 Pierson, C., The Modern State, Routledge, London, 1996, p.108.

20 Pierson, C., The Modern State, Routledge, London, 1996, p.108.

21 Pierson, C., The Modern State, Routledge, London, 1996, p.108.

22 In the South, deregulation and liberalisation have also been linked to increased corruption. As Helen O'Connell notes, "The economic reforms have had the effect of devaluing politicians and political processes as more and more important decisions are taken outside Southern countries ... Elected politicians have less and less authority or capacity to decide national priorities. Ironically, this has facilitated the entrenchment of power in the hands of rich elites: it has reinforced cronyism in some countries and the trade in political and economic patronage. The result is increasing alienation of women and men from political processes". See O'Connell, H., Equality Postponed: Gender, Rights and Development, WorldView Publishing, Oxford, 1996, p.120.

23 Weir, S. and Hall, W., "Ego Trip: Extra-governmental Organisations in the UK and their Accountability", Democratic Audit and Charter 88 Trust, London, 1996, cited in Hutton, W., The State We're In, Jonathan Cape, London, 1996, p.38.

24 Colchester, M., Guyana: Fragile Frontier--Loggers, Miners and Forest Peoples, Latin America Bureau/World Rainforest Movement/Ian Randle Publishers, London, 1997, p.102.

25 Feedback, Vol.6, No.1, Survival International Action Alert, August 1995. The World Bank's 1997 World Development Report, entitled "The State in a Changing World", explicitly favours private companies having privileged access to policy makers. As a coalition of Hong Kong NGOs has commented, "Rather than rectifying the problem of the wealth and the powerful having a greater influence on the policy process, the Bank implies that this should be institutionalised. The primacy of the interests of private firms over and above the interests of other sectors in civil society is a recurring theme throughout the [World Development] report". See World Bank, The State in a Changing World, World Bank, Washington, DC., 1997, p.83; Asia Alliance of YMCAs et al., Everyone's State: Redefining an "Effective State in East Asia", Hong Kong, September 1997, p.6.

26 World Bank, Social Dimensions of Adjustment, World Bank Experience 1980-1993, World Bank, Washington, DC.,1996.

27 Colchester, M., Guyana: Fragile Frontier--Loggers, Miners and Forest Peoples, Latin America Bureau/World Rainforest Movement/Ian Randle Publishers, London, 1997, p.103.

28 Collins, J. and Lear, J., Chile's Free-Market Miracle: A Second Look, Institute for Food and Development Policy, Oakland, p.206.

29 Collins, J. and Lear, J., Chile's Free-Market Miracle: A Second Look, Institute for Food and Development Policy, Oakland, p.206.

30 Collins, J. and Lear, J., Chile's Free-Market Miracle: A Second Look, Institute for Food and Development Policy, Oakland, p.208. More than 116,000 small farms had to make do with a mere 7 per cent of total agricultural land.

31 Financial Times, 25 July 1997.

32 Friends of the Earth, Cutting Corners: The IFC and Sustainable Development, Friends of the Earth Trust, London, 1994, p.4. For a discussion of the increasing role played by MDBs in private sector development, see Wilks, A., The World Bank's Promotion of Privatisation and Private Sector Development Issues and Concerns, Bretton Woods Project (PO Box 100, London SE1 7RT, UK), 1997; Ryrie, W., First World, Third World, Macmillan Press, Basingstoke, 1995; US Treasury, The Multilateral Development Banks: Increasing US Exports and Creating US Jobs, US Government Printing Office, Washington DC, 1995; Richardson, R.W. and Haratz, J.H., Moving to the Market: The World Bank in Transition, Policy Essay 17, Overseas Development Council, Washington, DC, 1995, p.10.

33 See, for example, Bosshard, P., Case Study on MIGA's Lihir Island Goldmine Project in PNG, Berne Declaration, Zurich, February 1996.

34 "By reserving incentives for projects with more than 1000-MW capacity, the government has effectively ruled out large-scale local involvement and may have sown the seeds for a balance of payments crisis on a massive scale." See Eade, P., "Power to the People Proves Costly Wager", Euromoney, September 1996, p.387.

35 These include the North America Free Trade Area (NAFTA), the European Single Market (subsequently the European Union), the Southern Cone Common Market (MERCOSUR), the Caribbean Community and Common Market (CARICOM), the Common Market for Eastern and Southern Africa (COMESA), the Asia-Pacific Economic Co-operation forum (APEC) and the Central European Free Trade Agreement (CEFTA). See Thomas, C. and Wilkin, P., Globalization and the South, Macmillan Press, Basingstoke, 1997.

36 For discussions of the impacts of globalisation on national sovereignty, see Greider, W., One World Ready or Not: The Manic Logic of Global Capitalism, Allen Lane, The Penguin Press, London, 1997; and Hirst, P. and Thompson, G., Globalisation in Question, Polity Press, Oxford, 1996.

37 See Hoedeman, O. and Doherty, A., "Misshaping Europe: The European Roundtable of Industrialists", The Ecologist, Vol. 24, No.4., July/August 1994, pp.135-141; Lang, T. and Hines, C., The New Protectionism: Protecting the Future Against Free Trade, Earthscan, London, 1993, p.28; Hildyard, N. and Clunies Ross, T., The Politics of Industrial Agriculture, Earthscan, London, 1992, p.76.

38 Greider, W., One World Ready or Not: The Manic Logic of Global Capitalism, Allen Lane, The Penguin Press, London, 1997, p.237.

39 L'Union Européene: Les Traites de Rome et de Maastricht, Textes Compares, Article 104C and Protocol of the Excessive Deficit Procedure, Le Documentation Françaises, Paris, 1995, pp.63 and 210.

40 Dunkley, G., The Free Trade Adventure: The Uruguay Round and Globalism--A Critique, Melbourne University Press, 1997.

41 Watkins, K., "Free Trade and Farm Fallacies: From the Uruguay Round to the World Food Summit", The Ecologist, Vol. 26, No.6, November/December 1996, pp.244-255.

42 Watkins, K., "Free Trade and Farm Fallacies: From the Uruguay Round to the World Food Summit", The Ecologist, Vol. 26, No.6, November/December 1996, pp.244-255.

43 Watkins, K., "Free Trade and Farm Fallacies: From the Uruguay Round to the World Food Summit", The Ecologist, Vol. 26, No.6, November/December 1996, pp.244-255.

44 In between are other constituencies challenging free market policies as they are being implemented today. Those associated with several influential Washington-based think tanks have emerged around attempts to rehabilitate the free market agenda by softening its implementation. Other groupings, particularly among policy-makers in East Asia, argue for states to take a leading and, if necessary, authoritarian role in industrial planning to direct resources to selected, vital sectors which can transform the national economy, with the state's power being used to "manage" the shock of imposing a new value system on society. Another broad grouping has emerged around an agenda aimed at addressing the distributional inequities created (or exacerbated) by economic liberalisation -- for example, by pressing for measures that would create a genuinely level playing field in world trade and that would ensure access to essential public and welfare services as a fundamental right rather than as a privilege of wealth and power.

45 UNDP, Human Development Report, 1993, cited in Watkins, K., "Globalisation and Liberalisation: The Implications for Poverty, Distribution and Inequity", paper prepared for UNDP Human Development Report Advisory Panel, Oxfam, Oxford, 22 January 1997, p.79.

46 Shiva, V., "The Alternative to Corporate Protectionism", Bija--The Seed, Nos 15/16, 1996, p.5. See also Kothari, S., "Rising from the Margins: The Awakening of Civil Society in the Third World", Development, No. 3, 1996.

47 For a fuller discussion, see Hines, C. and Lang, T., The New Protectionism: Protecting the Future Against Free Trade, Earthscan, London, 1993.

 

End Note

This briefing is edited from a report, The World Bank and the State: Dramatic U-Turn or Clever Repositioning? by Nicholas Hildyard, available from The Bretton Woods Project, PO Box 100, London SE1 7RT, UK.