Most developing countries are both integrating with the world economy and devolving power to local governments and communities. This combination of globalisation and localisation is best called glocalisation. The centralised nation-state is giving way to both supra-national and sub-national institutions.
Underlying both trends is a single force: the empowerment of individuals and communities at the expense of the monolithic nation state. Glocalisation improves the voice, participation and prosperity of individuals and communities. It is an idea whose time has come.
This reverses decades of centralised rule and autarkic economic policies in developing countries. Colonial experience led them to believe that globalisation meant imperial enslavement. And many claimed that political decentralisation could spark secession, endangering their new-found nationhood. Alas, too often centralisation and autarky proved to be excuses for concentrating all political and economic power in the hands of ruling cliques, thus disempowering citizens.
A few countries like India genuinely sought to use autarkic centralisation for the public good, and made some modest gains. But most developing countries suffered economic stagnation and political oppression. Self-sufficiency and centralisation did not produce prosperous, united countries. Instead they produced more than 100 weak, misgoverned countries which, by the 1990s, needed to be rescued by the IMF. The collapse of the Soviet Union and rise of Deng in China showed that more socialism was not the solution. And so developing countries began moving in two new directions, globalisation and localisation.
Why did post-independence leaders in developing countries go so badly wrong? Mainly because they equated globalisation with 19th century colonialism. They failed to see that, in the late 20th century, globalisation was not political conquest but economic partnership, creating unprecedented opportunities for the poor to rise. This faulty interpretation led to faulty policies aimed at de-globalisation.
Indian socialists cheered as India’s share of world trade fell from 2.5 % at independence to 0.4 % by 1985. They thought such self-sufficiency was a passport to prosperity, and derided outward-looking countries like Singapore and Taiwan as neo-colonial puppets. Alas, the supposed puppets rapidly became rich while India remained poor.
All colonial masters extracted large sums from their colonies. The net transfer of capital from India to Britain averaged 1.5 % of GDP. The drain from Indonesia to Holland was as high as 10 % of GNP. To make these payments, the colonies had to chalk up large trade surpluses, and so were very export-oriented.
India’s export-import ratio ranged from 172.5 % in 1840-69 to 133.4 % in 1913-38. Socialists like Nehru interpreted this to mean that export-orientation was a tool of colonial exploitation, and free trade a ploy to help Britain dump its manufactures on a de-industrialised India.
He and other Third World leaders knew that globalisation in the 19th century had produced alien rule, poverty and transfer of wealth to colonial powers. They assumed that 20th century globalisation would do the same. They were wrong in several ways.
1. 19th century globalisation represented colonialism. 20th century globalisation has been the era of decolonisation.
2. In the 19th century, wealth flowed from colonies to their imperial masters. In the 20th century capital has flowed the other way, through aid and foreign direct investment.
3. 19th century globalisation yielded GDP growth rates of no more than 3 % annually in the fastest-growing countries like the USA. But 20th century globalisation has yielded GDP growth rates of up to 10 % in many developing countries, creating huge opportunities for the poor. Indians moan today their GDP growth rate is only 5.4 %, but this is double the British rate a century ago.
4. In the 19th century, the rich imperial powers grew fastest. But in recent decades the fastest-growing countries have all been in the Third World, mostly in Asia but also in Africa (Botswana, Mauritius). Income per head is now higher in Singapore ($24,740) and Hong Kong ($ 25,920) than in their erstwhile colonial master, Britain ($ 24,430).
5. Low-income countries averaged 4.5 % annual growth in 1980-90 and 3.2 % in 1990-00. High-income countries registered 3.3 % and 2.5 % respectively, lower in both cases.
6. In the 19th century, British manufactures decimated textiles and other traditional industries in India and other colonies, shifting manufacturing jobs from the poor countries to the rich ones. But 20th century globalisation has shifted millions of manufacturing jobs from high-income to low-income countries.
7. In the 19th century, most Western foreign investment in and trade with developing counties was in minerals and agricultural commodities. So Nehru and others thought globalisation was a trap to keep poor countries as commodity producers, as “hewers of wood and drawers of water.” But in the 20th century, foreign investment in developing countries has been overwhelmingly in manufacturing, mostly for export back to rich countries. The share of manufactures in the exports of low-income countries rose to 53 per cent in 2000, and the share in East Asia was a whopping 83 per cent.
8. Developing countries actually chalked up a trade surplus in manufactures with the USA of $57.2 billion in 1997. And developing countries now have their own multinationals, who accounted for 30.2 % of all foreign direct investment in 1997. Globalisation is a two-way street.
9. In the 19th century, and indeed for most of history, poverty was a major disadvantage. But in the 20th century, factories are shifting from richer to poorer countries provided the latter have decent policies, institutions and infrastructure. The poorer the country, the greater is its wage advantage. So, globalisation has made poverty an advantage for the first time in history. That is revolutionary.
10. In the 19th century, the fastest-growing income gaps were between imperial powers and colonies. But in the 20th century, the fastest growing gaps have been between developing countries that globalised and those that did not.
11. Many critics think globalisation has impoverished the poor. The very opposite is true. A new study by Prof. Sala-i-Martin of Columbia University, building on pioneering work by Surjit Bhalla, (The World Distribution of Income), shows that the number of people living on under one dollar a day has fallen from 550 million in 1970 to 350 million in 1999. As a proportion of developing countries population, this is a decline from 17 % to 6.7 %. . Never in history has poverty fallen so rapidly for so many.
Poverty remains stubbornly high in Africa. Most countries there have not created the institutions or policies needed to climb onto the globalisation bandwagon. Many have been autocratic kleptocracies. No wonder they have failed. They deserve to.
All opportunities carry risks. Globalisation has created unprecedented opportunities and unprecedented risks too: remember the Asian financial crisis of 1997-99. Developing countries must take prudential steps to cope with volatility. But globalisation, warts and all, is still a boon.
Does decentralisation have the same potential for change? Not at the macro level. But at the grassroots level it can empower those who have long been supplicants before statism. Localisation can spread the benefits of globalisation to the grassroots.
Global experience of localisation has been very mixed. It works only if rulers are serious about shifting power from the top to the bottom. Creating local governments is not enough: corresponding administrative and fiscal reforms are needed to empower communities with real authority and resources. Local governments must be elected, not appointed. Officials must be made accountable to communities they serve, not national capitals. Communities should participate in the design, execution, monitoring and maintenance of projects meant for their benefit.
Where these conditions are missing, localisation often fails. But where these conditions are met, enormous improvements have occurred. Some examples:
1. North-East Brazil, long the graveyard of anti-poverty schemes, succeeded in the 1990s by switching to a bottom-up approach. Communities have been empowered, 44,000 community-managed projects have benefited 2.5 million of the poorest families. Benefit-cost ratios exceed 3.0, over 95 % of funds reach the poor, and project costs have fallen by 20-30 %.
2. In Indonesia, the Kecamatan Development Program was launched in 1998 to side-step corrupt provincial governments and channel funds directly to villages. It covered 10 million people within 3 years, and greatly improved outcomes. It is now being extended to another 20-30 million people.
3. In the 1980s, donors introduced social funds in countries where money routed through governments was typically wasted or stolen. Social funds financed projects suggested by communities. Over 90 % of World Bank social fund projects succeeded against 76 % of all projects. The Bank is now scaling up social funds into national community driven programmes in Africa.
4. River-blindness, a disease spread by blackflies, once threatened the sight of 34 million people in 11 West African countries. Its eradication has been arguably the biggest development success in Africa. Aerial spraying by donors was supplemented by community action to distribute medicines, detect and treat the disease. This approach is now being extended to malaria control.
5. In Zimbabwe, centralised managed failed to check poaching of wild life. So local communities and district councils were made partners in a new program, called CAMPFIRE. Hunting quotas were sold to hunters, and the revenue shared with communities and local bodies, which now had a stake in checking poaching. The result: wild life boomed.
In India too, experience of decentralisation has been mixed. Panchayati Raj is supposed to shift authority and resources to local governments. But most state capitals have sabotaged such a shift. Real local empowerment has been achieved only in a few states as West Bengal, Madhya Pradesh, Andhra Pradesh, Kerala.
Decentralisation has produced major gains in West Bengal. Poverty has fallen and agricultural productivity improved faster than in any other state. But this is a special case of communist-controlled localisation, not replicated anywhere else.
Overall, panchayati raj is not a proven recipe for success in India. But spectacular gains have been recorded sometimes through community participation, often unlinked to local governments. Some examples:
1. Traditional top-down reclamation of saline farmland in Uttar Pradesh yielded indifferent outcomes. Then in 1993 a new project organised 46,500 beneficiaries to plan and manage reclamation. This approach worked brilliantly: 69,000 hectares were reclaimed against the target of 48,000 hectares, and family incomes rose from Rs 12,065 to Rs 20,082 annually. This approach is now being extended to another 150,00 hectares, and is being copied by other states.
2. In Andhra Pradesh, the irrigation system was silted and run down by the 1990s. Water rates were too low to finance maintenance. Then a new Chief Minister tripled water charges. He made this politically palatable by creating 10,292 elected water users associations to help rehabilitate and manage the irrigation system. In six weeks in 1998 the associations completed 22,887 maintenance works at a cost of just $ 28 million. Effective irrigated area increased half a million hectares, and paddy yield rose 10%.
3. In Madhya Pradesh, no teachers wanted to serve in remote tribal areas, where hamlets were often too small to qualify for government schools. Then a new Chief Minister created an education guarantee scheme. If any 40 people demanded education, provided a hut for schooling, and chose a local person to be a para-teacher, the government paid the para-teachers salary. Within 18 months, 26,000 schools came up with 1.8 million students. Literacy in the state shot up by 20 percentage points in the 1990s.
4. Rural water supply by the state utility failed in Uttar Pradesh. A new bottom-up approach called Swajal was then attempted. Village water and sanitation committees were elected, and empowered to choose from a menu of water supply options. The beneficiaries had to contribute to capital costs and pay user charges for maintenance. The village committees themselves maintained the projects. The approach proved so successful that it is being expanded into all-India scheme.
5. Forest Departments in Andhra Pradesh could not check grazing and felling in forests by locals. So joint forest management was attempted with 2,666 village forest committees, which got a share of forest produce. More than 849,000 hectares of forest are now regenerating under improved management.
Community participation seems to work better than mere decentralisation. Villages are often not united communities but battlegrounds between different castes, and elite capture of benefits is common. Voluntary associations have a social glue that villages or districts sometimes lack, though not always. Water users associations, water and sanitation associations, education associations and micro-credit societies all deliver.
Even if a project is centrally run, making user communities partners in planning, execution and maintenance has often improved outcomes and reduced costs.
I think community participation is best understood as a form of privatisation, where users take over from the state. The results are good because a callous bureaucracy is replaced by users with a stake in success. Community empowerment confers property rights on associations of citizens, harnessing both social capital and entrepreneurial talent. Empowering communities can be more important than empowering local governments: the latter can sometimes constitute a new statism.
Localisation is still an experiment in progress. We know less about it than about globalisation. But we cannot go back on either, since both represent empowerment. The future lies with glocalisation.