How Bleak?
Susan Rose-Ackerman
Theodore Lowi paints a bleak picture. In the coming global civilization,
national governments are reduced to facilitating international investment
and trade flows. Local governments engage in social control to prevent the
losers in the capitalist race from rising up and destroying the prosperity
enjoyed by the rest of us. His alternative is based on social welfare programs
that provide safety nets and share the benefits of growth, but he seems pessimistic
about its prospects.
Lowi is, I think, too grim. He simply assumes that economic growth will
produce a large pool of losers who must be either controlled or compensated.
Of course, all change produces winners and losers, but considerable evidence
suggests that economic growth is facilitated by a society in which income
is relatively equally distributed. As Dani Rodrik argues, the lack of large-scale
inequalities and the high levels of education of the East Asian economies
helped them to grow.1 The massive inequalities
in some Latin American economies seem to have made growth more difficult.
The old view that countries must become more unequal in order to grow has
been undermined by the very globalization that Lowi discusses. No longer must
a country generate investment funds internally through forced savings. Investment
funds can flow in from outside, and a key to growth is broad-based popular
support. Growth and inequality need not go hand in hand.
To be sure, some countries have followed policies that produced a large
pool of losers, but many of these policies were simply mistaken. Argentina
and Hong Kong, for example, have tried to increase confidence in their currencies
by tying them to the United States dollar. If this strategy does not produce
growth, the result may be overpriced exports, slow growth, and widespread
unemployment. The costs on those at the bottom are severe, but that is the
fault of a flawed policy, not the global capitalist system itself. South Korea
successfully encouraged growth by favoring a few industries and firms that
in turn supplied payoffs and campaign funds to incumbent politicians. When
these firms began to experience economic troubles, they fought to maintain
their privileges as a reward for past support. They received loans that were
unjustified on ordinary financial principles. The result was a sharp and painful
downturn with society-wide costs. But, once again, the problem is not the
global economy per se, but national policies that worked on the upswing,
but could not cope with economic contraction.
Of course, serious economic reform can produce losers. The clearest examples
are the employees of overstaffed public enterprises in the countries of the
former East Bloc and in Latin America. China has yet to face up to the problem
of massive over-employment in its state-owned enterprises. In some countries
the number of civil servants is too large for the tasks of modern government,
and in others private producers receive large subsidies. A wealthy country
such as the United States or Switzerland can subsidize agriculture without
too much effect on overall competitiveness. A poorer country does not have
that luxury. Here it is indeed true that the pressure for efficiency is in
sharp conflict with the interests of the redundant workers. The conflict will
be sharpest when the private sector is weak and not growing quickly. The response
might be social control, but it could also be policies that encourage growth
by reforming unreliable and corrupt government structures.
The conflict between growth and equity is not, then, always as sharp as
Lowi seems to think, and when it is, redistributive social programs can seem
a plausible political choice for a growing country. As Geoffrey Garrett has
demonstrated, growth and overall prosperity can coexist with a social welfare
state. International capital movements do limit a country's options, but do
not make redistribution impossible. Investors may actually prefer a country
that promises a stable political and economic system based on widespread sharing
of prosperity instead of repression. 2
Lowi also argues that governments, especially local governments, are increasingly
engaged in repressive control of the losers. He points to a wide range of
disturbing trends from increased spending on crime control and prisons, to
restrictions on abortion, to strengthened laws for possession of drugs, and
to the booming global arms trade. Lowi is on the strongest ground when he
points to the role of the police and the military. In contrast, it is difficult
to see how most state and local restrictions on behavior contribute to the
suppression of the lower classes. Take restrictions on abortion, for example.
Is Lowi's idea that if poor women are occupied in raising children, then they
will not take to the streets to protest their unfortunate lot? This seems
farfetched. Similarly, although one can view the drug laws as harassing the
poor, it is hard to see how these laws will make them more docile members
of the underclass. Those who are harassed often get angry. If the state were
really concerned with keeping the underclass in check, perhaps it should supply
free drugs to keep people from focusing on their straitened circumstances.
Lowi also ignores the limitations on local governments as instruments of
social control-people can often simply leave a repressive regime and move
elsewhere. Of course, poverty always restricts one's options, but the massive
migration of blacks out of the south in the United States was surely a response
both to better general economic conditions elsewhere and to a less racist
state apparatus. At the international level, globalization has made migration
more, not less, feasible. If a government's policies get too bad, people can
and do leave.
Globalization means that state and national governments face constraints
on their ability to achieve social control. The harder it is to control the
population by fiat, the more attractive it ought to seem to achieve a stable
economic environment through providing benefits. Even hard-nosed profit-seeking
investors will often prefer a system where the population shares in the benefits
of growth and supports policies to assure that growth will continue.
1 Dani Rodrik, "King Kong Meets Godzilla:
The World Bank and The East Asian Miracle," Policy Essay No. 11, (London:
Centre for Economic Policy Research, 1994).
2 Geoffrey Garrett, Partisan Politics
in the Global Economy (Cambridge: Cambridge University Press, 1998).
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