Demand factors in migration

The bulk of international migration from India, whether historically or even today, has been “structured” from the demand side, i.e., the number, the destination, and the exact characteristics of the migrants have been determined by the requirements of the host economies. Central to that structure are a group of formal or informal “agents” who are not independent operators but are dependent on employers from abroad. These agents in turn access groups of workers with appropriate characteristics through a well-established network, often even involving social and kinship connections, resulting in the mass migration of workers from specific locations.

The 19th century migration of Indian workers, from specific locations in Bihar, East U.P., Andhra, and Tamilnadu, to work on plantations in the West Indies, Mauritius, Fiji, and South Africa, was organized through the mechanism of the “indentured” system, where the selected workers were “tied” to a labor contract for a specified period of time through the payment of advances. Much the same kind of a mechanism was used in the post-oil-price-hike period to organize the large migration of workers, this time mainly from Kerala, to West Asia. These workers were drawn predominantly from three districts (Trichur, Malappuram, and Cannanore) with large Muslim populations.

Incidentally, this pattern of migration being structured from the demand side, which entailed a combination of: (1) the number of migrants being “rationed” from the demand side, (2) the migrants being physically selected, and (3) a system of advances to tie them to a labor contract, was seen even in the case of long-distance internal migration to inhospitable terrains like the Assam tea plantations in the 19th century; it was even in vogue for the recruitment of the noncasual (i.e., non-“badli”) segment of the workforce in the Calcutta jute mills.

This is an interesting paper about an important topic, namely, the effects of globalization on developing countries. It first highlights some “neglected” details about TNCs and FDI. The rest of the paper is then spent discussing how developing country governments should respond to these new challenges, concluding that they should continue to try and use industrial policies to restrain the forces of globalization, largely by controlling the amount of technological transfer that such investment provides. The exposition is certainly clear but, at the end of the day, I must confess that I remain largely unconvinced by the arguments.

“The facts, ma'am, the facts.” The author focuses on several “neglected” details about foreign direct investment. First, most FDI occurs across industrial countries, and is thus not much of a benefit to developing countries. Second, a few favored countries have been receiving the bulk of recent FDI flows. Finally, FDI was not very important in investment and development even in these countries. The overall argument is that FDI's role in development has been overstated.

It is certainly true that most FDI occurs across developed countries, but the issue is considerably more complex than this. The text never mentions the words “greenfield” or “acquisitions,” the two categories into which FDI is generally divided because of their different implications for “real” behavior. Greenfield investment occurs when a company comes in and builds a new plant in a country – in other words, its financial investment in a country is supported by physical investment, as measured in the national accounts.

In “Malthus Redux” Eban Goodstein makes it clear that sustainability and globalization are false opposites. While it is true that the process of globalization we are passing through today is in conflict with ecological imperatives, achieving sustainability requires globalization of a different sort. In broad strokes, Goodstein contrasts these two globalizations, the actual and the necessary, and offers guidance in how to make the transition.

The two goals Goodstein sets before us are balanced, sustainable growth in the South and the development of environmentally benign technologies, initially in the North but to be quickly disseminated worldwide. These are being obstructed by pressures emanating from “actually existing globalization”: the international trading system places trade considerations above ecological ones, and the greater muscle of multinational capital has created a poor political climate for public action. The solutions he proposes are a global fund to finance the enforcement of environmental regulations in the developing world, international arbitration of complaints by nongovernmental organizations (NGOs) that national laws are not being enforced, and aggressive government investment in clean technologies. It is his view that the obstacles to this program are not economic in an objective sense but political. We need only the will to see them through. I agree with the general direction Goodstein has taken; it reflects a happy blend of expertise and good sense. I differ on some of the details of his analysis, however, and the rest of these comments will focus on these differences.

Considering the logic of World Bank and IMF policy makers, one wonders how long it will be until they require that countries receiving their largess abolish laws against slavery. Clearly such social interference with the market reduces efficiency. Consider, for example, the lack of investment in training in many poor countries. If employers could own their workers and thus be sure of attaining the full returns from their training expenditures, surely they would invest more in training programs.

A similar logic, after all, has guided neo-liberal thinking about the environment and land use. In the case of the environment, dumping hazardous waste in poor countries is justified by the low economic value of life and by the claim that a clean environment is a luxury good. With land, from Mexico to Papua New Guinea, Bretton Woods thinking demands that systems of communal land holding give way to private individual plots; this commodification of nature is then supposed to generate economic efficiency and growth.

Argument by reductio ad absurdum is seldom fair, but it does help here to make a point. If the generators of ideology at the World Bank and the IMF will not recognize that their advice on the environment, land, and the general role of markets must be viewed in the context of larger social values and social arrangements, perhaps the specter of slavery will at least make them squirm in their seats – if not revise their policy prescriptions.

Overview

Innovations have been remaking the U.S. system of housing finance over the past two decades. This revolution of privatization, securitization, risk shifting, and deregulation has not occurred in one country: globally, market-based mechanisms for supplying and financing housing are replacing government mechanisms. Is this revolution an inevitable result of financial integration? Does it mean that governments are withdrawing resources from housing finance and leaving housing to market forces? And will this financial transformation make housing finance systems more efficient? This paper investigates these questions by comparing the transformation in U.S. housing finance with concurrent changes in the United Kingdom, France, and Germany.

Other authors have argued that global financial integration is making housing finance systems more efficient by forcing the reduction of governmental subsidies, less risk bearing by lenders, and a higher relative price of housing credit. We come to very different conclusions here. First, global financial integration itself does not explain the marketization of housing finance in every country. Another aspect of globalization is driving this transformation – governments' global financial deregulation and their global retreat from supplying housing to needy households. National deregulation has affected the character of mortgage financing flows far more than has the actual or threatened movement of funds across borders.

Introduction

During the last quarter of this century, we have witnessed a sea change in the prevailing view on the role of the state. The earlier interventionist orthodoxy that ruled the “Golden Age of Capitalism” (1950–73) has been subjected to some severe, and in some areas fatal, criticisms, and currently the neo-liberal vision, which draws its inspirations from the old liberal world order of the 1870–1913 period, dominates. On the domestic front, the current orthodoxy seeks to restore entrepreneurial dynamism and social discipline by rolling back the boundaries of the state through budget cuts, privatization, and deregulation. At the international level, it seeks to accelerate global integration and convergence (a trend that orthodox economists believe started around 1870 but was reversed after the First World War) by reducing restrictions on the international flows of trade, direct and portfolio investments, and technology.

Yet even when considering the shift in the overall intellectual and policy atmosphere, the debate on developing country governments' policies regarding transnational corporations (TNCs) has arguably experienced the most dramatic aboutturn. (For some recent critical reviews of the literature, see Helleiner 1989 and Lall 1993, introduction). Once regarded by many commentators as agents distorting, if not actually hampering, the development of poorer nations, TNCs are now regarded by many, including even some of their earlier critics, as indispensable agents of development, promoting the integration of developing countries into the emerging network of globalized production and thus enhancing their efficiency and growth (e.g., see Julius 1990, 1994; UNCTC 1992b; Michalet 1994; Brittan 1995).

Introduction

High and growing levels of consumption in the developed countries, coupled with high and only slowly declining rates of population growth in less-developed countries, pose a serious threat to the environment and ultimately to human welfare. Local ecological problems faced today are dramatic: overgrazing and overfishing, deforestation, fresh-water shortages, urban air pollution, pesticide poisoning, wetlands loss. Even more challenging are threats to the global environment: global warming, loss of biodiversity, ozone depletion. We need only consider that over the next 50 years world population will likely at least double, and world gross domestic product triple (World Bank 1992, 26), to see the potential for a Malthusian (or “neo-Malthusian”) day of reckoning on the horizon.

Given these grim trends, one can nevertheless still sketch out an approach to achieving a sustainable global future – sustainable in the economic sense of nondeclining welfare for the average person (Pezzey 1992). Following the Bruntland Commission (World Commission on Environment and Development 1987), it is taken here as a given that balanced economic growth in developing countries is vital to insure sustainability. For our purposes, balanced growth means a growth process that significantly raises living standards for the bottom half of the income distribution.

Such growth will be necessary to boost per capita health, sanitation, education, and social insurance expenses to deal with the needs of rapidly growing populations. Provision of these necessities to poor families, in turn, will lay the foundation for lower population growth rates (Dasgupta 1995).

This very good paper raises a number of important questions and sheds considerable light on most of them. What is the relationship between capital mobility and domestic economic outcomes? Are advances in globalization likely to result in wage erosion, growing economic insecurity, declining corporate tax rates, and stingier welfare states (a “race to the bottom”)? Or do advances in openness lead to efficiency and welfare gains (“neo-liberal convergence”)? What, in short, should we expect as globalization proceeds, and what, if anything, can we do about it? Crotty et al. make a persuasive argument that, under current conditions, a race to the bottom is a likely outcome. This claim has been made elsewhere, of course, but few others have defended this claim – and articulated the potential hazards of foreign direct investment (FDI) – as carefully and persuasively as Crotty et al.

I like and appreciate this paper for the reasons that I appreciate so much of the authors' previous work: the paper takes on an important set of issues and presents a rich, provocative argument without dodging the hard questions. And further, Crotty et al. present their argument with terrific clarity. This paper enriches considerably the literature on multinational corporations (MNCs), globalization, and progressive economic policy – a literature that is often too simplistic and, as a consequence, not very enlightening – by presenting a useful framework for understanding and addressing this important but ambiguous set of issues.

Within Europe the most pressing economic problems from an egalitarian point of view are:

1. (1) high rates of unemployment and labor market withdrawal, especially among the least-qualified sections of the labor force;

2. (2) pressures to deregulate the labor market and allow a widening dispersion of pay and increasing numbers of insecure jobs with very low wages;

3. (3) pressures to reduce budget deficits and finance tax cuts by reducing the provision of public welfare services and levels of income support.

These trends have been at their most acute within the U.K., where, between the late 1970s and the early 1990s:

1. (1) the nonemployment rate among the least-educated men of working age tripled to reach one-third;

2. (2) the pay of the worst-paid 10th of wage earners fell by 28 percent as compared to the best paid;

3. (3) the level of state pensions fell by more than one-quarter as compared to average earnings.

Such trends have generated an astounding rise in inequality; by the end of the 1980s the ratio of the incomes of the top 10 percent to the bottom 10 percent had practically doubled, and the U.K. was challenging the U.S. for the title of most unequal of the advanced countries (Atkinson et al. 1985).

Even Sweden, which epitomized the egalitarian model, has not escaped. The rise in unemployment there since 1990, together with a widening of the previously compressed pay distribution and some cuts in the generous welfare programs, have highlighted the strains to which that model has been subjected.

This paper draws an important distinction between two types of effects of openness on equity: those of international economic integration on income distribution, and those on the effectiveness of domestic redistributive policies. Since the last ones ultimately affect also income distribution (and thus the first effects, broadly understood, include the second), and given that the chapter deals mostly with international trade effects, it will be useful to reformulate the paper's questions as follows: What are the effects of more open trade policies on income distribution, given an otherwise intact policy regime? What are the effects on income distribution operating through induced changes in the policy regime? Thus formulated, the two questions are clearly different: a more open trade regime may have little direct effect on wages and employment while, at the same time, by enhancing the negative effects of, say, an exogenous increase in wages on employment, it reduces the effectiveness of labor market policies. This outcome may then lead to their abandonment (institutional convergence at the bottom) with potentially adverse effects on income distribution within a large number of countries that go well beyond the initial effects of greater openness.

In his review of theoretical approaches, Stanford complains that the second question has not been answered in the mainstream literature on the effects of international economic integration. I agree and would add that it has not been asked. The focus there has been on the direct effects.

Amit Bhaduri's chapter is really two papers in one: first, a comparison of globalization “then” (in the pre-World War I period) and “now” (in the late 20th century); and second, a Keynesian model of the macroeconomic effects of foreign capital inflows into developing countries in the latter period. The two parts are connected by one overarching theme: the dominance of internationally mobile financial capital in the contemporary process of globalization. It is difficult to cover so much ground in such a short space, and Bhaduri does a good job of surveying such a vast field without yielding to the temptation of oversimplifying or making excessively sweeping generalizations.

In the historical comparisons, Bhaduri is certainly right to emphasize the extraordinary degree of mobility of portfolio capital as the most striking and unique feature of the current global economy. Indeed, the liberalization of financial markets since the 1970s has meant that one of the key theoretical conditions for “perfect capital mobility” – covered interest parity, in which a country's interest rate premium equals the forward discount on its currency – is now empirically fulfilled in most industrialized countries and in a growing group of developing countries (see Frankel 1991, 1993). The recent financial crises in Mexico (1994) and East Asia (1997) have dramatically illustrated the power of financial capital movements to destabilize entire national economies as well as the degree of interlinkage between financial centers across the globe.

Post-independence India was one of the classic cases of dirigiste – i.e., state-directed – economic development. Not only was the state highly interventionist, but the economy came to acquire a sizable public sector, especially in areas of infrastructure and basic industries. The “mixed” economy that thus came into being, together with the fact that the polity was characterized by multiparty parliamentary democracy with a largely free press and significant freedom of expression, invested the Indian experiment with a novelty and uniqueness, which attracted worldwide attention and gave rise to a vast theoretical literature. Not only did a rich literature on development planning take shape within India, starting with the celebrated plan models of Professor P.C. Mahalanobis, who was a pioneer theoretician of Indian planning (Mahalanobis 1985; Chakravarty 1987, 1993; Byres 1998), but the class nature of the Indian state, the class character of Indian planning, etc., became matters of intense debate, especially in Marxist and radical circles, both within the country as well as internationally (Lange 1970; Bettelheim 1968; Kalecki 1972; Kurian 1975; Mitra 1977).

India's transition in 1991 to a program of “structural adjustment,” which entails a regime of “liberal imports,” a progressive removal of administrative controls, including a move to “free markets” in foodgrains and a whittling down of food subsidies, a strictly limited role for public investment, the privatization of publicly owned assets over a wide field, an invitation to multinational corporations (MNCs) to undertake investment in infrastructure under a guaranteed rate of return, and financial liberalization that would do away with all priority sector lending and subsidized credit, is an event therefore of great historical significance.

Immigration and globalization

Globalization is seen as the growing (and in some versions the unprecedented) international integration of economic life, involving a major rise in trade and foreign direct investment relative to production, an enormous surge in international financial transactions, and the growth of global economic institutions such as the multinational corporation and international organizations such as the European Union, the World Bank, the International Monetary Fund (IMF), the Bank of International Settlements, the Group of Seven, and so on. Many believe that this process is diminishing the economic power of the national state; others emphasize the tendencies toward the globalization of culture – McDonald's, karaoke machines, and satellite dishes. Some of these trends are indeed strong, but most accounts of globalization are probably exaggerated. The globalization of trade and direct investment is not unprecedented; the increases in overall trade and investment are actually highly concentrated in a few countries and leave many poor countries completely out of the process; very few firms seem to be global in a qualitatively “new” sense; I doubt that the national state has lost as much power as many of our rulers would like us to believe.

The impression is widespread that the global movement of people is part and parcel of the broader process of economic and cultural globalization. Labor and other markets are seen as increasingly globalized through the international movement of both workers and capital.