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McMichael – Development and Social Change, 5e – Instructor’s Resources
Chapter 5
Instituting the Globalization Project
Chapter Summary:
This chapter examines the political and economic origins of the demise of the Third World. It describes the
politics of Cold War containment and explains how the defeat of Third World Unity in the form of the New
Economic Order (NIEO) dovetailed with economic differentiation within the Third World. It then examines the
globalization project, a new direction of the world capitalist order born during the debt crisis, which implied a new
way of defining development as global market participation. As transnational banks and corporations grew in
power, they strengthened forms of global governance, such as the WTO, and the Bretton Woods institutions, which
were beyond the reach of the nation-state, but embedded in nation-states. The WTO, IMF and World Bank
subordinated states’ social protections to liberalization as states became surrogate managers of the global economy.
As global finance was deregulated, a global money market emerged. Offshore money markets redistributed
capital to governments as loans, and First World banks supported profligate borrowing by often corrupt Third World
elites. Third World states used these loans for development initiatives that imitated the Newly Industrializing
Countries (NICs), and transnational corporations invested in export production in the Third World. In this way,
public investments underwrote private enterprise. When credit dried up in 1980s, debt repayment meant that the
global South experienced a net loss in capital to the North instead of receiving aid-for-development and TNC
Globalization is not universalist. It assigns specialized roles (including marginalization) in the global
economy. Offers new forms of authority and discipline such as the WTO, World Bank, IMF, and national
institutions, which perform governance functions to enforce free market logic. The WTO Agreements on
Agriculture, Trade Related Investment Measures (TRIMs), Trade-Related Aspects of Intellectual Property Rights
(TRIPs), and General Agreement on Trade in Services (GATS) are modes of global regulation that legislate
liberalization by subordinating citizens’ rights to the rights of corporations. As the “advance guard of the WTO
regime,” regional free trade agreements lock in neoliberal doctrine. In the process, liberalization reorganizes regions
and locales, and social protections decline as communities lose resources and employment.
This chapter demonstrates that the debt crisis transformed the development project into a globalization
project. Financial disciplining of debtor countries by Bretton Woods institutions led to austerity and Third World
charges of a “lost decade.” Debt rescheduling concentrated power in hands of IFIs, conditioned on privatization of
state agencies and erosion of the social contract. “Global governance” was consolidated with lending institutions as
trustees in debtor nations. Debt regimes imposed standard remedies, rather than locally-specific ones, on debtor
states; the burdens of debt were shouldered disproportionately by vulnerable populations.
Chapter Outline:
a. The globalization project succeeded the development project when development, a public project,
was redefined as a private, global project.
b. Why not just “globalization” (without the project)?
i. Calling it a “project” emphasizes the politics of globalization
ii. Despite promises of prosperity with “free markets,” material benefits are largely confined
to only about two-fifths of the world’s population.
iii. Markets are neither natural nor free; they are institutional constructs, managed by
powerful players, including international financial institutions, banks, corporations,
states, and even non-governmental organizations (NGOs)
c. Chapter addresses how the debt crisis transformed the development project into globalization
i. Military and financial disciplining of Third World policies restricting foreign corporate
access to Third World resources and markets
ii. Defeat of effort at Third World Unity (New International Economic Order)
iii. Financial disciplining of debtor countries by Bretton Woods institutions leading to
austerity and Third World charges of a “lost decade”
iv. Export-oriented industrialization fueled economic growth, legitimizing a new “free
market” model of development.
McMichael – Development and Social Change, 5e – Instructor’s Resources
v. Development, defined as nationally-managed economic growth, was redefined as
“participation in the world market.”
vi. The global economy was emerging as the unit of development.
Securing the Global Market Empire
a. Emerging partnership between states and corporations to secure and pry open the Third World,
often through military intervention and orchestrated by the United States as the dominant power
i. 1965 - Indonesian President Sukarno overthrown in bloody coup led by General Suharto
and supported by Britain and U.S. in defense of Western economic interests
1. Birth of a new global order: 1967 meeting in Geneva sponsored by Time-Life,
Inc. with Indonesian General Suharto, his economic advisers, and corporate
leaders to reformulate a development partnership with foreign investment
ii. 1959: U.S. President Eisenhower’s containment policy in South East Asia: Vietnam war
iii. Strategic interventions in Chile, El Salvador, Nicaragua, Panama, Grenada, Iraq
iv. Military and economic aid to secure the perimeter of the “free world” and its resource
b. 1974-1980: National liberation forces came to power in 14 Third World states, perhaps inspired by
the Vietnamese resistance
c. Possibility of a united South in two forms:
i. 1973: Collusion among the Organization of Petroleum Exporting Countries (OPEC) in
hiking oil prices threatened Western economic stability
ii. 1974: G-77 countries proposed a New International Economic Order (NIEO) to improve
position of Third World states in international trade and their access to technological and
financial resources.
1. Dependency Perspective: First World structural power stunted Third World
2. NIEO was a charter of economic rights and duties, designed to codify global
reform along neo-Keynesian lines (public initiatives), a culmination of
collectivist politics growing out of the NAM
3. NIEO: Widely perceived as “the revolt of the Third World”
4. 1974 response from World Bank was to refocus on basic needs via elevating
rural development funding
a. Recognized inequalities within Third World
b. Questioned concept of aggregate growth as goal
5. Strongest NIEO players were presidents of oil-producing nations
6. United front strategy unraveled in large part because of growing divergence
between middle-income and poorer states
d. NIEO coincided with strengthening of First World core with formation of Group of Seven (G-7):
Finance ministers of U.S., U.K., France, West Germany, Japan, Italy, Canada had secret meetings
i. Performed crisis management including containing NIEO and its politics of economic
The Debt Regime
a. 1980s debt crisis
i. Instituted new era of global governance
ii. Spawned debt regime – external rule-based procedures that strengthened grip of the First
World on Third World through international financial institutions (IMF & World Bank)
iii. Used Asian NICs as example to justify for export diversification and neoliberal policies
(although NICs were state-managed economies)
b. Debt was not new in the 1980s.
i. Debt servicing (paying off the interest) accounted for more than 2/3 of new lending in
Latin American and Africa by 1960s
ii. 1970s inflated oil prices and unsecured lending deepened debt vulnerability
c. Debt crisis began in 1980
McMichael – Development and Social Change, 5e – Instructor’s Resources
i. Began when U.S. Federal Reserve Board reduced dollar circulation (with an aggressive
monetarist policy) to stem the fall in the dollar’s value from its over-circulation in the
1970s lending binge
ii. Contracting credit raised interest rates as banks competed for dwindling funds
iii. Lending to Third World states slowed; shorter terms issued
iv. Rising oil prices made some states continue to borrow
1. Higher oil prices actually accounted for more than 25 percent of the total debt of
the Third World
v. By 1986, Third World debt totaled $1 trillion
1. Countries devoted new loans entirely to servicing previous loans
2. Third World countries unable to continue debt servicing
3. First World recession reduced consumption of Third World products
4. Third World export revenues collapsed as primary export prices dropped
5. Third World countries were mired in a debt trap: to repay the interest (at least),
they had to curtail imports and raise exports
6. Reducing imports of technology jeopardized growth, while expanding exports
was problematic, as commodity prices were at the lowest in 40 years.
Debt Management
i. Even though 60 percent of Third World debt was with private banks, the IMF took on
role of supervisor to manage debt, working with the World Bank and its structural
adjustment loan (SAL)
ii. Implemented Structural Adjustment Policies (SAPs) in the mid-1980s: a comprehensive
restructuring of production priorities and government programs in a debtor country
iii. Loan conditions required policy restructuring in return for loan rescheduling, whereby
debtor states received austere prescriptions for political-economic reforms
iv. Debt defined as individual liquidity problem (shortage of foreign currency) rather than a
systemic problem
1. 1982: Mexico with $80 billion in debt (over 75 percent of this was owed to
private banks) became bailout model by IMF, banks and foreign governments
2. Development alliance constituencies—particularly ruling elites and middle
classes used their power to shift debt repayment costs to the working poor via
austerity cuts in social services
Reversing the Development Project
i. Debt regime rules restructured Third World social economies and reversed the
development project
1. Institutionalized the definition of development as “participation in the world
market” focusing on export intensification and “shrinking the state”
2. To soften the impact of austerity, World Bank developed Social Funds
administered by NGOs that provided “social safety nets” including decentralized
feeding and micro-credit programs, but neglected local participation and gender
ii. Adjustment measures:
1. Drastic reduction of public spending (especially on social programs, including
food subsidies)
2. Currency devaluation (to inflate prices of imports, reduce export prices, and
improve the balance of trade)
3. Export intensification (to earn foreign exchange)
4. Privatization of state enterprises (to “free” the market)
5. Reduction of wages to attract foreign investors and reduce export prices
iii. Structural adjustment hurt the poorest and least powerful the most. While some
businesses and export outfits prospered, poverty rates climbed
iv. Impacts of IMF loan conditions
1. Mexico
a. Food subsidies eliminated; malnourishment grew
b. Minimum wages fell 50% between 1983 and 1989; purchasing power
fell to 2/3 of the 1970 level
McMichael – Development and Social Change, 5e – Instructor’s Resources
By 1990, basic needs of 41 million Mexicans were unsatisfied; 17
million lived in extreme poverty
Manufacturing growth rates plummeted, depleting formal employment
Mexico became agro-exporter of farm products such as fresh fruits,
vegetables, and beef
Tanzania, the Sudan, Zambia used more than 100% of export earnings
to service debt in 1983
b. Economies were vulnerable to fall in commodity prices during 1980s
c. Cuts in food subsidies and public services led to urban demonstrations
and riots in Tanzania, Ghana, Zambia, Morocco, Egypt, Tunisia and
3. All development indicators fell under structural adjustment
4. Oxfam: 1993 – World Bank adjustment programs in sub-Suharan Africa were
responsible for reductions in public health spending and 10% decline in primary
school enrollment
v. Case Study: IMF Riots – Citizens Versus Structural Adjustment
1. 1976 – 1992: IMF riots across Second and Third World; 146 riots in 39 of 80
debtor countries
2. Large scale, coordinated urban uprisings protested public austerity measures and
broke into food banks
3. Grievances: unequal distribution of the means of livelihood, state policies of
economic liberalization, collapsing social entitlements, IMF as undermining
national public capacity and popular sovereignty
4. SAPs weaken motivation of states to respond to popular demands, thereby
shrinking democratic space
vi. 1980s: The “Lost Decade”
1. 1978-1992: 70 countries undertook 566 stabilization and structural adjustment
programs imposed by IMF and World Bank to manage their debt, but these
measures did not necessarily resolve debt crisis
2. Debtor countries collective entered the 1990s with 61 percent more debt than
they held in 1982
3. In 1984, direction of capital flows reversed: inflow of loans and investment into
former Third World was replaced by outflow via debt repayment.
4. Debt crisis opened up the Third World, now as the global South, to Northernimposed disciplines, foreign investment, and unsustainable export production to
defray debt.
Challenging the Development State
i. Debt managers demanded shrinking of states of former Third World through reducing
social spending and privatization of state enterprises
1. 1986-1992: Proportion of World Bank SALs demanding privatization rose from
13 to 59%
2. By 1992: More than 80 countries had privatized almost 7,000 public
enterprises—mostly public services such as water, electricity, or telephones
3. Privatization:
a. Reduced public capacity in development planning and implementation
b. Extended reach of foreign ownership of assets in the global South
ii. Banks profited from investment in global South
iii. SALs, State and Society Restructuring
1. World Bank established parastatals to administer SAPs
2. Power shift to central bank, trade and finance ministries over program-oriented
ministries (social services, agriculture, education); from economic regulating
agencies to agencies supporting global enterprise
3. World bank premise: Development states were bureaucratic, inefficient, and
unresponsive to their citizens
McMichael – Development and Social Change, 5e – Instructor’s Resources
Reinterpreted “shrinking” the state to mean a reorganization of state
administration to encourage popular initiatives.
b. Sachs: Revival of “trusteeship” as the IMF is “insinuated into the inner
sanctums” of governments around the world
iv. Case Study: Tanzanian Civil Society Absorbs Structural Adjustment
1. Between 1974 and 1988: Urban dwellers in Tanzania responded to structural
adjustment by intensifying the informal economy
2. 90% of household income from informal businesses operated by women,
children and the elderly
3. Is self-organizing activity a glimpse into alternative, sustainable development or
simply an intensified form of feminized social reproduction?
v. Debt regime relocated power within states in former Third World to global agencies and
1. Imposed standard rather than locally-tailored remedies on debtor states
2. Governments and business elites benefit and the poor are hurt
The Globalization Project
a. 1980s: Central geopolitical strategy of the globalization project was the U. S.-led attempt to build
a free market global consensus
i. Break down the resistance of the Soviet empire (the Second World) to market capitalism
b. Incorporating the Second World Into the Globalization Project
i. East European countries subject to IMF supervision of economies after borrowing from
the West
ii. 1986: Soviet President M. Gorbachev was formulating plans for perestroika
(restructuring) in exchange for participation in Bretton Woods institutions
iii. IMF policies required replacement of central planning by “market-responsive”
enterprises, and reduced food, transport, heating fuel and housing subsidies (economic
rights of the socialist systems)
iv. 1989: Western shock treatment methods deployed once the Soviet Union and empire
1. Precipitous decline in Russian living standards; explosion of organized crime.
v. Unipolar world (instead of the bipolarity of the Cold War era)
c. The Globalization project succeeded the development project
i. Key principle: Implementation of a free world market
ii. Economic nationalism viewed as limiting development as it obstructed transnational
mobility of goods, money and firms in the service of efficient (i.e., private) allocation of
global resources
iii. TNCs represented by institutions such as the World Trade Organization (WTO) that aim
to govern this project
iv. WTO vision of the globalization project:
1. Implementation of “market rule” via restructuring of policies and standards
across the nation-state system
d. Global management of capitalism emerged in the 1980s with Bretton Woods claims to manage a
global economy via the debt regime
i. Global managers: Bretton Woods institutions, transnational corporate elites, governments
restructured for market freedoms
ii. Washington Consensus: Development redefined as “trade not aid” and backed with
financial coercion of multilateral institutional debt management
Global Governance
a. Global institutions have assumed more powerful role in governance, but requires compliance from
governments through consensus or coercion
i. Compliance can be guaranteed through institutionalizing market rule (individual
governmental functions recomposed as global governance functions and enforced
through multilateral protocols)
ii. Case Study: Mexican Sovereignty Exposed: From Above and Below
McMichael – Development and Social Change, 5e – Instructor’s Resources
Mexico’s admission into the Organization for Economic Cooperation and
Development (OECD) via its participation in NAFTA precipitated the 1994
Zapatista uprising in Chiapas
2. Uprising in Chiapas (a region of extraction) unsettled regional financial markets:
Mexican peso lost 30% of value in December 1994, generating negative “tequila
effect” throughout Latin America
3. Financial loan package of $18 billion from U.S., Canada, global banks and IMF
for bailout to stabilize the peso and restore confidence in Mexican economy
4. Chiapas has been occupied by the Mexican federal army ever since,
demonstrating value of foreign investment over human rights
Policies to stabilize these destabilizing global circuits (of debt, money, investment, and pension
funds) now embedded into national economies (and vice versa)
i. Global governance deepens global market relations within states, compromising their
sovereignty and accountability to citizens
1. Open markets reflect conditions favored by global managers—officials of the
international financial institutions (IMF, World Bank), G-7 political elites,
executives of TNCs, and global bankers.
2. Indebted states restructure political-economic priorities to obtain
creditworthiness in the global financial community.
3. Example: Agro-export policy conforms to sound financial policy by enhancing
foreign exchange earnings
ii. Expanding trusteeship role for multilateral agencies: Reorganization is unrepresentative;
decided by global bureaucrats, not citizens
Liberalization and the Reformulation of Development
i. Liberalization downgrades social goals of national development
ii. It upgrades participation in world economy (tariff reduction, export promotion, financial
deregulation, relaxation of foreign investment rules)
iii. Proponents claim it facilitates capital transfer, competition, and trade expansion toward
economic growth
iv. Liberalization is realized through new forms of social inequality
Case Study: Chile – The Original Model of Economic Liberalization
i. 1973: Military coup eliminated democratically elected socialist president Salvador
ii. Eight years of authoritarian rule under General Augusto Pinochet with detentions, torture
and execution of thousands
iii. Implemented “shock treatment” – radical free market reform masterminded by University
of Chicago neo-classical economists
1. 600 state enterprises sold
2. Foreign investment expanded into strategic sectors such as steel,
telecommunications, and airlines
3. GDP became much more dependent on trade (35% in 1970; 57.4% in 1990)
iv. Before authoritarianism, Chile had been most democratic of Latin American countries
v. Debt restructuring in 1980s increased social polarization
1. Social spending fell, wages were frozen, and the peso was seriously devalued.
2. With deindustrialization, unemployment rose to 20-30%
3. 1990: 40% of population of 13 million Chilean people in poverty
vi. Sustained grassroots movement succeeded in regaining elections in 1988, when Pinochet
was defeated
Comparative Advantage – theoretical justification for liberalization
i. 19th Century political economist David Ricardo linked economic growth to optimizing
trade advantage through economic specialization, reflecting a nation’s relative resource
1. When countries exchange their most competitive products on the world market,
national and international economic efficiency results
ii. Ricardo’s theorem did not allow for capital mobility which is central today
McMichael – Development and Social Change, 5e – Instructor’s Resources
iii. Capital mobility leveraged by export credit agencies (ECA’s): loans to southern countries
finance and guarantee foreign investment by northern corporations
iv. Until the 1970s, “comparative advantage” represented a minority strand of economic
v. Corporate countermovement resuscitated neoclassical market theory with neoliberalism,
with welfare reform/reversal, wage erosion, relaxing trade controls, and privatization
vi. Keynesian ideas of state intervention and public investment relegated to the background
Deepening of Natural Resource extraction
i. Firms mobilize cheap land and labor for export production for distant consumers
ii. A selective realization of “high mass consumption,” expanding consumer class with
insatiable appetite for resource-intensive commodities
1. Commercial extraction of natural resources threatens environments and resource
2. Chile’s timber exports over exploited its natural resources beyond the ability to
3. From 1983 to 1988: Timber exports reduced Ghana’s tropical forest to 25% of
its original size, threatening household and national food security
iii. “Export-led collapse:” global glut of exports after structural adjustment produced lowest
commodity prices since 1930s
1. For a $2.70 cup of coffee, farmers receive on average 2.3 cents, while TNCs
receive around $1.33
iv. Export reliance often produces comparative disadvantage for global South
1. Substitutes reliance on the world market for self-reliance
v. Globalization Project’s vision of global order
1. Development project: “Learn from and catch up with the West; now, under
comparative advantage: “Find your niche in the global market”
2. Development project held replication as key to national development;
globalization presents specialization
3. But mechanisms of specialization (wage cutting, ecological homogenization,
privatization, and reduction of social entitlements) are repeated everywhere,
intensifying competition, causing social and economic marginalization,
impoverishment, environment stress and displacement
The Making of a Free Trade Regime
i. 1948: U. S. engineered creation of GATT (General Agreement on Tariffs and Trade) as
an alternative to International Trade Organization (which included provisions from the
UN Declaration of Human Rights concerning full employment, working conditions, and
social security)
1. Through GATT, trade expansion was delinked from the social contract
ii. 1948-80 GATT expanded trade by reducing tariffs on manufactured goods by 75%
iii. 1986 to 1994: U.S. initiated Uruguay Round of GATT to liberalize agriculture and
services (banking, insurance, telecommunications), in which the North held a competitive
1. Liberalization movement supported by an activist lobby of “free trader” agroexporting states, TNCs, and agribusinesses
iv. Northern pressure and promise of open markets for southern products, including
agricultural goods, won acceptance from the South
v. Uruguay round redefined food security as best provided through smooth-functioning
world market
vi. Placed small farmers at comparative disadvantage
vii. Food security “governed” through the market by corporate, rather than social, criteria
World Trade Organization
a. Created January 1, 1995 through the GATT Uruguay Round
b. Governs member states via liberalization
c. Free trade is a misnomer for the reach of WTO rules
McMichael – Development and Social Change, 5e – Instructor’s Resources
i. Challenges national democratic processes
ii. Removes decision making to nontransparent tribunals in Geneva
iii. Uses “market logic” to override individual government policy that interferes with “free
Has independent jurisdiction like the United Nations
i. Sets rules to prevent restricting the movement of goods, money and production across
ii. Privilege corporate rights
iii. Guarantees treatment for TNCs equal to domestic firms and reducing or removing local
restrictions (e.g., labor, health, environmental laws)
iv. Integrated dispute settlement mechanism, e.g. sanctions
v. Threat of complaints against “trade-distorting measures” dilutes national laws protecting
human and environmental health
Depoliticizes social impact of market freedoms
i. Challenges national laws and regulations regarding environment, health, preferential
trade relations, social subsidies, labor legislation
The Agreement on Agriculture (AoA)
a. 1995 AoA advocated universal reductions in trade protections, farm subsidies and government
i. Southern farmers face 30% collapse of world prices for farm goods
ii. U.S. and European states retained (concealed) subsidies
iii. 1990s: 20-30 million people have lost land from impact of AoA trade liberalization
b. Case Study: Global Comparative Advantage – The End of Farming as We Know It?
i. NAFTA has eliminated small farmers across North America
1. 2 million Mexican campesinos lost farms to subsidized corn from the North
2. U.S. faces competitive imports from Mexico and Canada with 33,000 farms
earning under $100,000 per year disappearing
ii. Power of agribusinesses enhanced
1. Companies used foreign holdings to sell imported agricultural goods in the U.S.,
but increasing supply put negative pressures on U.S. agricultural prices
c. Liberalization consolidates a corporate food regime
i. With AoA, states no longer have the right to self-sufficiency as national strategy
ii. Half of foreign exchange of 88 low-income, food deficit countries went to food imports
iii. Comparative disadvantage for unprotected farmers in the South
1. Oxfam: “How can a farmer earning US$230 a year (average per capita income
in LDCs) compete with a farmer who enjoys a subsidy of US$20,000 a year
(average subsidy in OECD countries)?”
iv. 40% of Kenya’s children work on export plantations supplying Europe’s food, but 4
million Kenyans face starvation
Trade-Related Investment Measures (TRIMs)
a. Aim to reduce “performance requirements” on foreign investment by host governments
i. Example: Requirements that a TNC invest locally, hire locally, buy locally and transfer
b. WTO uses TRIMs
i. To manage cross-border movement of goods and services production
ii. To secure investor rights, as if they have no political impact
c. Case Study: Evolving Corporate Property Rights
i. NAFTA Chapter 11: Corporations can bypass domestic courts to sue governments when
local legislations threaten profits
ii. U.S. Metalclad corporation successfully sued Mexico over environmental protection
when a municipal government refused to permit Metalclad to build a toxic landfill in an
ecologically protected zone
d. Argument in favor of TRIMs:
McMichael – Development and Social Change, 5e – Instructor’s Resources
i. They reduce domestic content requirements that misallocate resources, raise costs,
penalize investment, burden consumers, slow technology, reduce quality, and retard
management practices
ii. TRIMs enhance conditions for transnational investment by reducing friction of local
Effects of TRIMs
i. Meant to favor “integration” of foreign investors a program of domestic industrialization
but rather push integration of local producers into world market
Trade-Related Aspects of Intellectual Property Rights (TRIPs)
a. Intellectual Property Rights: Rights given to persons over the creations of their minds
b. TRIPs Protocol: Protection of intellectual property to be administered by WTO
c. Advocates: TRIPS simplifies protection across borders, protects/promotes innovation by
guaranteeing profits from technological development
d. Critics: Biodiversity and generic knowledges should remain available to humankind as global
i. Examples: frog secretion for painkiller, rosy periwinkle for childhood leukemia and
testicular cancer, sweetener from West African berry, Indian neem tree, etc.
ii. Global south contains 90% of global biological wealth but northern scientists and
corporations hold 97% of patents
iii. Biopiracy: Appropriation and commodification of genetic material by foreigners without
payment or obligation
e. TRIPs grew from an attempt to stem pirating of Western commodities in global South but now
sanctions a reverse form of biological piracy, threatening livelihoods
f. IPR regime
i. Privileges governments and corporations and disempowers villagers by disavowing
indigenous, collective knowledge rights
g. 1992 Convention on Biological Diversity
i. Confirmed national sovereignty over genetic resources and nations’ entitlement to fair
and equitable sharing of benefits
ii. How states interpret this right and obligation is controversial
h. Possibility of sui generis system to recognize and secure collective rights for biodiversity
i. Case Study: Big Pharma and the Question of Intellectual Property Rights
i. Case of generic antiretroviral drugs for HIV/AIDS patients (40 million worldwide)
1. Typical antiretroviral AIDS drug cocktail costs U.S.$10,000–$15,000
ii. 1996: Brazilian government produced generic versions prior to TRIPs agreement
1. WTO threatened to dispute
2. UNCHR and WHO intervened on grounds of human rights
3. Negotiated 50% price reduction
iii. South Africa’s Treatment Action Campaign helped shame 39 pharmaceutical TNCs into
settling a suit they had brought to try to stop the South African government from buying
generic drugs from third parties (like Brazil)
General Agreement on Trade in Services (GATS)
a. Services: Defined as “anything you cannot drop on your foot”
b. 1994 GATS opened markets for trade in services with rights for delivery of finance,
telecommunications and transport
c. GATS 2000: Far-reaching protocol to compel governments to provide unlimited market access to
foreign service providers without regard for social and environmental impacts
i. Constraints on government’s ability to protect environmental, health, consumer and
public interest standards
ii. Restricting government funding of public works, municipal services, and social
programs, making them equally available to foreign-based private service corporations
iii. Every service imaginable: drinking water, health care, education, social security,
transportation, postal delivery
McMichael – Development and Social Change, 5e – Instructor’s Resources
iv. Apply to government measures such as labor laws, consumer protection, subsidies,
grants, licensing standards and qualifications, etc.
GATS threatens to replace the social contract between state and citizen with a private contract
between corporation and consumer.
Case Study: Water, Water, Everywhere? Unless It’s a Commodity…
i. Should a basic and precious resource as water be governed by market forces which favor
only those with purchasing power and compromise human rights?
ii. Globalize this and market-induced water shortage threatens
iii. Pressures to privatize water
1. 5% of water resources are in private hands
2. Opportunities to expand privatization, favored by GATS and demanded by IMF
and World Bank as funding conditions
3. Example: Ghana’s 2002 IMF loan required “full cost recovery of public utilities;
national budget downsized; public water service disappeared and water prices
went way up
a. “The rain does not fall only on the roofs of Vivendi, Suez, Saur and
Biwater, neither does it fall only on the roofs of the World Bank and
IMF; it falls on everyone’s roof. Why are they so greedy?
Advocates: Conversion of public entities into privately owned, profit-making concerns eliminates
bureaucratic inefficiency and government debt, provides superior services on a user-pays basis.
Ingredients of the Globalization Project:
i. Washington-based consensus among global managers/policymakers favoring marketbased rather than state-managed development strategies
ii. Centralized management of global market rules by G-7 states
iii. Implementation of these rules through multilateral agencies (World Bank, IMF, and
iv. Concentration of market power in the hands of TNCs and financial power in TNBs
v. Subjection of all states to economic disciplines (trade, financial), varying by geopolitical
position, global currency hierarchy, debt load, resource endowments, etc.
vi. Realization of global development via new class, gender, race and ethnic inequalities
vii. Resistance at all levels: marginal communities, state managers, factions within
multilateral institutions contesting unbridled market rule
a. Globalization project: An alternative form of organizing economic growth with scale and power of
transnational banks and corporations
i. Required forms of regulation such as the WTO that were beyond the reach of the nationstate even if imposed through the system of nation-states
ii. Subordinated states’ social protections to liberalization
iii. States became surrogate managers of the global economy
iv. Liberalization reorganizes regions and locales; social protections decline as communities
lose resources or employment
b. Globalization is not universalist
i. It assigns specialized roles (including marginalization) in the global economy
ii. Offers new forms of authority and discipline governed by the market