Downside up

It does not really need a crisis to show us that our current development strategy is flawed. Even during the previous boom, the pattern of growth in both developed and developing countries had too many limitations, paradoxes and fragilities. Everyone now knows that it was unsustainable, based on speculative practices that were enabled and encouraged by financial deregulation. But it also drew rapaciously on natural resources. And it was deeply unequal. Contrary to general perception, most people in the developing world, even within the most dynamic segment of Asia, did not gain from that boom.

The financial bubble in the US attracted savings from across the world, including from the poorest developing countries, so that for at least five years the South transferred financial resources to the North. Developing country governments opened up their markets to trade and finance, gave up on monetary policy and pursued ‘correct’ policies that reduced public spending. So development projects remained incomplete and citizens were deprived of even the most essential rights.

Despite popular perceptions, a net transfer of jobs from North to South did not take place. In fact, industrial employment in the South barely increased in the past decade, even in China. Instead, technological change meant that fewer workers could generate more output. Old jobs in the South were lost or became precarious and the majority of new jobs were insecure and low-paying. The persistent agrarian crisis in the developing world hurt peasant livelihoods and generated global food problems. Rising inequality meant that the much-hyped growth in emerging markets did not benefit most people, as profits soared but wage-shares of national income declined sharply.

Export-led model 

Almost all developing countries adopted an export-led growth model, which in turn was associated with suppressing wage costs and domestic consumption. This led to the peculiar situation of rising savings rates and falling investment rates in many developing countries; and to the holding of international reserves that were then placed in ‘safe’ assets abroad. This is why the previous boom was associated with the South subsidizing the North: through cheaper exports of goods and services, net capital flows from developing countries to the US in particular, and flows of cheap labour in the form of short-term migration.

The collapse in export markets brought that process to a sharp stop. But in any case such a strategy is unsustainable beyond a certain point. Not only did it breed global inequality; it sowed the seeds of its own destruction.

In this boom, domestic demand tended to be profit-led, based on high and growing profit shares in the economy and significant increases in the income and consumption of newly globalized middle classes, which led to bullish investment in sectors like financial assets and real estate, as well as in luxury goods and services. This enabled economies to keep growing, even though agriculture was in crisis and employment did not expand enough.

Rape of nature

The patterns of production and consumption that emerged meant that growth also involved rapacious and ultimately destructive exploitation of nature and the environment. The costs – in terms of excessive congestion, environmental pollution and ecological degradation – are already being felt within our societies, quite apart from the effect such expansion has on the forces generating climate change. And the ecological constraints to such growth are already being felt, most unfairly, among regions and people of the world who have gained the least from the overall expansion of incomes.

At the same time, crucial activities that are necessary for the economy were inadequately rewarded. Farming in particular became increasingly fraught with risk. The attack on peasant livelihoods put the crucial task of food production on a more insecure footing in many countries. Meanwhile, non-farm work did not increase rapidly enough to absorb the labour force, even in the fastest-growing economies of the region.

So the recent boom was not stable or inclusive, either across or within countries. The chances are that the slump will be only too inclusive, forcing those who did not gain earlier to pay for the sins of irresponsible finance.

The upside

As the global financial crisis unfolds and creates downturns in real economies everywhere, it is easy to see only the downside. But in fact this global crisis offers a greater opportunity than we have had for some time now to restructure economic relations in a more democratic and sustainable way:

•  There is no alternative to systematic state control of finance. Since private players will inevitably attempt to circumvent regulation, the core of the financial system – banking – must be protected, and this is only possible through social ownership. Therefore, some degree of socialization of banking (and not just of the risks inherent in finance) is inevitable.

•  The obsessively export-oriented model needs to be reconsidered. This is not a just a desirable shift – it has become a necessity, given the obvious fact that the US can no longer continue to be the engine of world growth through increasing import demand. Countries that have relied on the US and the EU must seek to redirect their exports to other countries and, most of all, their economies towards more domestic demand.

•  This means that fiscal policy and public expenditure must be brought back to centre stage. Clearly, fiscal stimulation is now essential in both developed and developing countries, to cope with the adverse effects of the current crisis and prevent economic activity and employment from falling. Fiscal expenditure is also required to manage the effects of climate change and promote greener technologies. Public spending is crucial to advance the development project in the South and fulfil the promise of achieving minimally acceptable standards of living for everyone in the developing world.

•  There have to be conscious attempts to reduce economic inequalities, both between countries and within countries. We have clearly crossed the limits of what is ‘acceptable’ inequality in most societies, and future policies will have to reverse this trend. This is even more complicated than might be imagined, because unsustainable patterns of production and consumption are now deeply entrenched in the richer countries and are aspired to in developing ones. But many millions of citizens of the developing world still have poor or inadequate access to the most basic conditions of decent life. Ensuring universal provision will inevitably require greater use of natural resources and more carbon-emitting production. So both sustainability and equity require a reduction of the excessive resource use of the rich, especially in developed countries but also among the élites in the developing world.

•  This requires new patterns of both demand and production. This is why the present focus on developing new means of measuring well-being and quality of life are so important. Quantitative GDP growth targets can even be counterproductive. For example, a chaotic, polluting and unpleasant system of privatized urban transport actually generates more GDP than a safe, efficient and affordable public one. So it is not enough to talk about ‘cleaner, greener technologies’. Instead, we must think creatively about such consumption itself, and work out which goods and services are more necessary and desirable for our societies.

•  Public interventions in the market cannot be knee-jerk responses to short-term conditions. Instead, planning – not in the sense of the detailed planning that destroyed the reputation of command regimes, but strategic thinking about the social requirements and goals for the future – is absolutely essential. Fiscal and monetary policies, as well as other forms of intervention, will have to be used to redirect consumption and production towards these social goals, to bring about shifts in socially created aspirations and material wants, and to reorganize economic life to be less rapacious and more sustainable.

•  Since state involvement in economic activity is now an imperative, we should be thinking of ways to make it more democratic and accountable. Large amounts of public money are being used – and will continue to be used – for financial bailouts and fiscal stimuli. How this is done will have huge implications for distribution, access to resources and the living conditions of ordinary people whose taxes will be paying for it. So it is essential that states across the world, when formulating and implementing economic policies, are more open and responsive to the needs of the majority of their citizens.

•  We need an international economic framework that supports all this. Global institutions need to become not just more democratic in structure but more genuinely people-oriented in spirit, intent and functioning. Financing for development and conservation of global resources must become their top priorities, which means that they cannot continue to base their approach on a completely discredited and unbalanced economic model.

Jayati Ghosh is Professor of Economics at Jawaharlal Nehru University, New Delhi, India. This is an edited version of her 2009 Bristol Schumacher Lecture.

India’s Viagra - <br />Special Economic Zones

Fields of gold

*Dionne Bunsha* detects the makings of another Indian mutiny.

It’s a breezy Sunday afternoon in Chirner village, just a couple of hours from the bustle of Mumbai. The hills are bursting with bright new foliage after the first monsoon showers. People are busy working in the lush paddy fields. Children are fishing in little trenches in the rice fields.

But all’s not well in this idyllic village. Though they live amidst myriad shades of green, people here can only see red. Their fertile land is being forcibly snatched to make way for a Special Economic Zone (SEZ).

This region has a history of resistance dating back to the Indian Independence struggle. On 25 September 1930, Chirner was the site of a Jungle Satyagraha (civil disobedience) against the British, to defy forest laws that denied them their right to collect firewood. Police gunshots killed 14 people, including a _mamlatdar_ (district official) who refused to give orders to fire. Dr Babasaheb Ambedkar, the icon of the Dalit (lower caste) movement and author of the Indian Constitution, fought the court case for the jungle _satyagrahis_ (freedom fighters).

In Chirner village, people are fighting the second revolt for freedom. The present generation stands at a memorial for the martyrs of the Jungle Satyagraha against the British.

Dionne Bunsha

Now, Chirner is the focal point for another fight, this time for sovereignty against India’s largest conglomerate – Reliance. Envisioned as Mumbai’s satellite city, Reliance’s MahaMumbai SEZ will spread over 14,000 hectares – a third the size of the metropolis itself. The Government is acting as real-estate agent, acquiring 45 villages in Raigad district for the project.

‘We fought the British when they didn’t let us enter our forest. Why shouldn’t we fight now, when Reliance is going to take our homes, our farms, everything?’ asks Kalu Daku Kharpatil, an 88-year-old who witnessed the Chirner Jungle Satyagraha when he was 12 years old. ‘We won’t let malls and highrises come up on our fields of gold.’

Real estate

Even the Reserve Bank of India (RBI) has questioned their viability and asked banks to treat SEZs as ‘commercial real estate’ and charge higher interest rates. Most SEZs are being developed as new townships on the outskirts of cities. That’s why the RBI and several others are concerned that it’s nothing more than easy real-estate development in the guise of export promotion. The Finance Ministry is also anxious about the Rs 1,000 billion ($25 billion) revenue loss from tax sops.

Rahul Bajaj, chair of Bajaj Auto, India’s second-largest motorcycle maker, says SEZs are turning into ‘land scams’. He is worried they will create zones of privilege, while industries outside the zone will be left at an unfair disadvantage. It’s questionable whether SEZs will result in new investment or merely encourage existing companies to shift into these enclaves.

Recently, the Organization of Economic Co-operation and Development (OECD) suggested that the Indian Government should review its tax concessions. Research suggests that they generate very little new investment.

But the fiercest protests have come from those who will be ousted. The massive land grab has stirred mutinies in villages across the country. Some have turned violent.


The mutinies forced the Government to stop granting permissions and to review its policy. Left parties allied to the Government opposed certain clauses, but not the policy itself. Sonia Gandhi, President of the ruling Congress Party, worried that popular support would be affected. But Prime Minister Manmohan Singh – the architect of India’s neoliberal reforms – is adamant that his policy must stay. In April 2007 the policy was unfrozen after the size of an SEZ was limited to 5,000 hectares, of which at least half must be used for export processing. A rehabilitation policy was promised but has yet to be announced.

The Government claims that it will only acquire wasteland or agricultural land that yields just one crop. Yet fertile fields are being taken over. Some of the SEZs are perilously close to protected forests. It’s the companies that decide what land they want, and then the Government acquires it for them.

A colonial law, The Land Acquisition Act of 1894, is still in use. The process is illogical and bizarre. Once notification is issued, public objections are invited. The Government then decides on the compensation package – archaic official records estimate the land value at less than a third of the current market value. But how can people accept or reject a deal before they know what they are getting? On what basis can they file objections without knowing the rehabilitation on offer?

‘We are not against development. But what kind?’ asks Sadashiv Patil, a farmer from Shirki village in Raigad. ‘We haven’t been told anything about where we will be resettled or where we will find an alternative livelihood. If they are truly interested in giving us a fair deal, why don’t they sit across the table and talk to us?

Revolt for freedom

‘Can you see us anywhere in this picture?’ asks Patil, pointing to a glossy brochure for MahaMumbai with pictures of skyscrapers, an airplane and a golfer. ‘We won’t get jobs here. We will only get work washing other people’s dishes.’

The majority of SEZs that have been formally approved are for the IT industry – not a likely place for farmers to find work. Most of the others are large and ‘multi-product’, like the MahaMumbai townships. Large-scale construction in these areas will cause massive environmental damage. There will be greater pressure on water resources. Without any environmental clearance, developers are carving out huge chunks of rock and mud for construction material.

Villagers question the need to acquire their land when previous attempts at industrialization have failed. Across the country, several industrial estates were abandoned after tax concessions ran out. ‘Why can’t the state give out the vacant industrial land for SEZs?’ asks Patil. ‘Or why don’t they dare to acquire the buildings of the rich in Mumbai?’

‘What would my dead father say if he were to see us now?’ asks Kalu Daku Kharpatil. “Are you a moron?” “Are you a eunuch?”’ The 88-year-old is ready for another fight. ‘I’d rather kill them and go to jail than have to wash their dishes.’

Villages across India are preparing for the second revolt for freedom.

*Dionne Bunsha* is a regular contributor to _New Internationalist_ and writes for _Frontline_ in India.

Further reference: (the Indian Government’s website)

Vitamin M

Loads of money dished out by a Korean steel company haven’t yet endeared India’s single biggest foreign investment project to the villagers who will lose their land and livelihoods. *Maureen Nandini Mitra* finds out why not.

Around the picturesque village of Dhinkia, on the Orissa coast, there are wooden ‘check gates’ operated by villagers, restricting access to the hub of a fierce resistance movement. A South Korean steel giant, the Pohang Steel Company (Posco) is proposing a $12-billion mega-project to manufacture steel in the area. Touted as India’s biggest foreign direct investment project, the complex was approved for SEZ status last year.

At a pond in Chirner village.

Dionne Bunsha

In response, for nearly two years, residents of 15 villages have effectively barricaded themselves in, refusing entry to officials of any kind. The situation is so tense that the state hasn’t yet been able to hold scheduled local elections. Fear and distrust are rife. Villagers have on several occasions held Posco and government officials hostage. The last such incident took place in May, when two company employees were held overnight and released only after they signed a letter promising never to come to the area again.

Deal inked

In June 2005 Posco inked a deal with the Government of Orissa State. The massive integrated project includes a steel plant and a hot-strip mill, a port and an iron-ore mine in the Khandadhar hills. The steel plant will require 1,620 hectares of land from the 15 villages. About 30,000 people will be displaced.

The state has already signed over about 459 hectares of government land, but the company hasn’t been able to occupy it. Villagers have been living and farming on much of this land for generations, even though they don’t have legal documents to prove ownership. They are refusing to budge.

‘For 27 generations we have lived here,’ says Karandhi Das, a 70-year-old farmer from Gobindpur village. ‘Now the Government says it’s not our land and wants to give it to a company from another country. We will fight this to our death.’

‘The company is spending Vitamin M [money] like water trying to buy acceptance from villagers, but it’s not going to get very far,’ says Abhaya Sahoo of Posco Pratirodh Sangram Samiti, one of the groups spearheading the agitation. Posco spokesperson Shashank Patnaik says the company won’t set up the project without local consent, but few villagers buy this promise.

Lost livelihoods

People here fear not just displacement, but the loss of a vibrant agrarian and fishing economy. More than 400 families depend on the betel-leaf business, which exports to Pakistan, Singapore and several Arab nations. Annual turnover from the trade is estimated at $2.5 million. Farmers also grow cashew nuts, coconuts and a single crop of paddy.

‘The company is spending Vitamin M (money) like water trying to buy acceptance from villagers, but it’s not going to get very far’

‘Posco says it will give jobs to only one person per family,’ says Kashinath Mahapatra, a betel leaf farmer. ‘But here everybody is employed. Even an 80-year-old has a job in the _paan_ [betel leaf] plantations and can earn up to Rs 5,000 [$125] a month.’

In the proposed port area the local fishing community is worried about the imminent destruction of their livelihood. The river mouth is an important migratory route for hilsa and other marine fish of high market value. Fisherfolk say the port could adversely affect stocks.


Environmentalists say that the entire project – steel plant, port and mines – will play havoc with estuarine ecosystems and protected forests. The port site is home to several endangered species, including Olive Ridley turtles and freshwater dolphins. The mining sites in the Khandadhar hills are in protected tribal areas and the forests there have a huge biodiversity.

Many question the state’s decision to grant Posco tax breaks. It has been allotted ‘captive’ mines where all the company has to do is pay the state a royalty. Until now, foreign mining companies had to buy Indian minerals on the open market.

For old Karandhi Das it feels like history is repeating itself: ‘First the British came and raped the country. Now this company is coming to do the same.’

*Maureen Nandini Mitra* is a Kolkata-based correspondent for _Down to Earth_, a science and environment fortnightly published from New Delhi.

The bottom line

*Jayati Ghosh* argues that the Zones don’t offer quite such a clear path to progress as their advocates claim.

The idea that creating spaces with good infrastructure and simplified procedures assists industrialization is not new. But its latest form goes further – there have to be tax breaks, highly subsidized land and little or no compulsory worker protection as well.

Proponents argue that these concessions are essential to attract investment, in a world of increasingly mobile capital. In fact, many studies have found that good overall infrastructure, economic growth and stable socio-political conditions are more important.

Typically, China is taken as a successful example by the proponents of Special Economic Zones (SEZs). However, the real impetus behind Chinese economic growth and export-oriented production came not from SEZs _per se_, but from massive infrastructure investment by the state. Since the 1980s, China has spent nearly a fifth of its national income on this. Chinese SEZs also provoked wild real-estate speculation called ‘zone fever’, which prompted the Government to impose a blanket moratorium on land-use conversion in 1997.

While the benefits of SEZs based on tax breaks and subsidies are not clear, there are large social and economic costs.

Land acquisition is the most controversial. What is absolutely necessary is that all those affected (not just those with property titles) are adequately compensated. Leaving this to market forces is just not good enough. Tenants and agricultural labourers, for example, would not be compensated. Large purchasers can use pressure tactics, making ‘offers that can’t be refused’ at less than the true value of the land.

Will SEZs actually generate more and better forms of employment? In many countries, minimum wage laws, trade union activity, safety and industrial accident compensation are all given the go-by in these zones, rendering the quality of new employment dubious. It is this exploitative employment that makes the zones internationally competitive.

Apart form the denial of basic workers’ rights, this can worsen the condition of labour elsewhere in the economy. It may not result in additional employment, since existing production may simply be relocated to an SEZ.

The worst feature, however, is the huge revenue losses. India goes beyond generous – 100 per-cent exemption from income tax on profits for the first five years and 50 per cent for the next five years. Even land developers are given tax breaks. The Indian Finance Ministry has estimated that if total investment in SEZs over a decade is around Rs 3,600 billion ($90 billion), the revenue loss to the state would be more than Rs 1,740 billion ($43.5 billion).

To give up such huge resources is a major crime, given the needs of Indian society and the utter lack of social provision.

So, before peddling SEZs as the path to progress, the Indian Government needs to look at the other side of the balance sheet. It may turn out that there are no economic benefits at all.

*Jayati Ghosh* is Professor of Economics at Jawaharlal Nehru University, New Delhi.

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