By Herman Seran
Introduction
Based on circular – cumulative – causative (CCC) principle, proposed by socio-political economists, agents involve in global economy are interdependent. Promoting specific sectors while undermining the rests is, therefore, prone to failure. Hence, global economic problems should be addressed through holistic and integrative policies and strategies. As a matter of fact, they argue that the negative side of the economic development should be treated as inextricable results of economic development, not as externalities suggested by liberalism economists.
Even though the current stage of the global economy is dominated by free market principles, to some extent, the interventions of governments still exist (Ricupero, 1997). Nevertheless, many challenge the effectiveness of their involvements (Boettke & Leeson (2004), Hertel, (2003)). Hesitation over governments’ ability has reasonable ground, in particular concerning those in developing nations. Given the current state of affairs, the question is then: are these governments able to promote the fifth global economic upswing? To clarify the above issue, the following questions need to be considered furthermore. Do governments have adequate knowledge to provide effective policies? Do politicians and public servants have reasonable motivations or incentives to serve public interests? Do governments obtain adequate legitimacy to act on public behalf? Lastly, do the current global economic and political structures enable governments to perform their role independently? The first two questions are classic problems regarding government interventions, which have been disputed for a long time. The last questions are specifically related to governments in the developing nations.
This paper aims to consider state governance issues, concentrating on the governments in the developing nations, since these nations have relatively abundant resources, yet underdeveloped. Economically, developing nations are left behind by advance economies; accordingly, being a part of the next long wave upswing is a great opportunity to the citizens. In order to build theoretical ground, the discussion, firstly, draws attention to the Kondratieff cycle or wave, followed by further discussion on the failure of neo-liberalism economy and alternative from post-Keynesian economists including the role of states governance. Next discussion is dedicated to the problems regarding developing nations’ governments in promoting the fifth long wave upswing, then recommendations to these governments to promote the long wave upswing. Conclusion follows.
Kondratieff Wave
Kondratieff wave is a phenomenon of regularities observed in the global economy. Economic historians reveal that the global economy experiences certain cycles of boom and bust. More precisely they are similar to wave pattern, which involving upswing when the economy is flourished, and downswing when it experiences recessions. The economists can also predict the relative timeframes for these economic cycles. There are four economic cycles identified in the global economic history. They include Kitchin inventory cycle (3– 5 years), Juglar fixed investment cycle (7 – 11 years), Kuznets infrastructural investment cycle (15 – 25 years), and Kondratieff wave (45–60 years) (http://en.wikipedia.org/wiki/Economic_cycle). These cycles, help the economists to construct better economic models, and guide the policy making (Reati & Toporowski, 2004). Socio-political economists normally base their economic thoughts on the Kondratieff long wave as it involves longer duration.
The Kondratieff long wave was suggested by Nikolai Kondratieff, springing from a Marxian perspective of long run movement of capitalism (Reita & Toporowski, 2004). There have been five Kondratieff long waves during the course of global industrialization (O’Hara, 2006a). First long wave, known as industrial revolution, underwent upswing in 1780s – 1810s and downswing from that on to 1840s. This wave was defined by water-powered machineries, and dominated by cotton, iron ore, and coal related industries. The next wave was large-scale industry (1850s – 1870s/ 1870s – 1890s) distinguished by steam-powered machineries and the introduction of telegraphs, railways and steamships. The third wave, finance capital and imperialism wave, (1890s – 1910s/1910s – 1940s) where steel, copper, and metal alloys was the main inputs in electrified industry, heavy engineering / chemicals and steel products. The fourth wave is known as postwar global fordism (1940s – 1970s/ 1970s – 1990s). This period was marked by internal combustion engines and mass production with the main inputs was oil, gas, and synthetic materials. The fifth wave is still a dispute among the scholars, yet it is believed that now world in the fifth long wave swing. Globalization and internet revolution are the markers for the fifth Kondratieff long wave (see O’Hara, 2006a and Reati & Toporowski, 2004).
Criticisms on the Neo-liberalism Economy
Despite plausible achievements, the neo-liberalism economy has been blamed for triggering global economic recession during 1980s – 2000s. Neo-liberalism, which rather concentrating on economic process than economic growth, has escalated global system imbalances and marginalized the functions of institutions. O’Hara (2005) summarizes the critics on the neo-liberalism economy as follows:
“…heterodox economists argue that the globalised neo-liberalism creates too many negative externalities, and also that it has a negative overall impact upon socioeconomic performance. They tend to see the 1950s and 1960s as the golden age of the Keynesian –Fordist state when social and economic progress occurred, while the gradual emergence of neo-liberal globalization led to problematic development into 1980s – 2000s. Recent times are said to have seen the emergence of many critical global, regional, and national financial crises, declining trust, deteriorating environmental performance, lower rate of per capita growth, and much slower productivity. Globalised neo-liberalism, therefore, has destroyed more than it has created in that it stimulates quick profit over long run rewards, financial dominance over industry, production rather than habitat preservation, and market over human relations.” (p.348).
Many scholars agree that leaving the global economy driven by the free market without adequate governments’ control is likely to result in the escalation of contradictions, which in turn will destroy the whole society. As further suggested by O’Hara (2006a), political economists reveal a large number of paradoxes or contradictions derived from free market economy. To name a few, focusing on supply side has weakened the demand power, which is equally important. Capitalism promotes capital to the highest position leading to the powerlessness of states and workers, unregulated economy, escalating financial speculations. These problems harm industry sector as the powerhouse of the economy. Profit maximization principle has sacrificed the environment, social relationship, and has further deepened the gap between those in center and periphery. Excessive competition has left almost no space for innovation and profit. These contradictions can be addressed, if there are institutions that work concertedly supporting the global economy, instead of leaving them to the work of ‘invisible hand’ in market oriented economy. For instance, neo-liberalism vis-à-vis free competition is believed to be unsustainable since market forces unrestrictedly mobilize economic resources from society to economic development process (dos Santos & da Silva, 2004). Free market principles have further marginalized the underdeveloped countries due to their inability to compete against the advance economies. Neo-liberalism has deprived the power of states to ensure public goods are sufficiently available and sustainable, including the carrying capacity of the planet earth. Short term profit maximizing, derived from aggravating rent-seeking behavior, and uncertainty, have resulted in excessive competition, lack of incentive for long term investment, and declining profit margin, hence lacking economic growth. The power of capital, which overwhelming labor bargaining power, has led to inadequate labor compensations. This has deteriorated purchasing power and global demand. Financial market speculation has further created uncertainty. These problems affect each other via circular – cumulative – causative ways. These facts lead scholars, such as Quiggin (2005), to argue that the economic liberalism has lost its power in global economy. Therefore, there is increasing demand for an alternative philosophy or ideology that bases the new economic policies and strategies.
Post-Keynesian Solutions and Role of Post-neoliberalism Governments
There are alternatives to cover the weaknesses, or solve the problems resulted from the employment of the economic liberalism. Post-Keynesian or neo-Marxist economists argue that the global economy requires institutions that work simultaneously to maintain the balance of the global economic functions (dos Santos & da Silva, 2004). In other words, the new long wave upswing pragmatically requires continuous combination between socialist strategies and the positive elements of the neo-liberalism ideology. These kinds of pragmatism strategies seem to dominate the magnitude of the future economic policies (Quiggin, 2005).
Post-Keynesians observe that the main problems of the economic recession are lacking global demand and enormous degree of uncertainty. These troubles root in the diminishing role of governments in protecting public interests from the free market invasion, as it mostly focuses on the supply side of the economic system. Therefore, the global economy is calling for the re-establishment of balanced institutions of governments, corporations, market, labor, society, or international relationship. Reati and Toporowski (2004) suggest several solutions to remediate the global economic problems. Firstly, it needs to boost the demand through macroeconomic policies that favoring innovations and promoting private consumption. They also urge to reestablish the primacy of productive capital to secure long term investment and curb the financial speculation. The third suggestion is to promote labor – capital equality, including the encouragement of full employment, adequate rewards and incentives for innovation, and technological improvement. The problem regarding flexibility of the labor force within the current dynamic economy is urged to be solved. They also suggest establishing a proper regime of intellectual rights that provide incentives to inventors and promote the transfer of knowledge and technology.
The above discussion implies that the state governance social structures of accumulation (SSA) are a very critical ingredient in order to make the post-Keynesian strategies work optimally. In conjunction to that, O’Hara (2005) urges post-neoliberalism governments to promote productive government roles and pragmatic policies in conjunction with public finance. The governments need to stimulate long term demand and global recovery, promote financial stability, global currency system, and value addition process to primary goods, continuously improve comparative advantage, and foster pro-social capital (O’Hara, 2005, p356 – 360).
The governments in developing countries, however, are unlikely to implement these policies effectively. The reasons are related to the issues of human resource quality, adequate incentives to serve the public interests, legitimacy or moral justification, and inadequate bargaining power resulted from current global socio-economic structures. These governments require favorable preconditions in order to convey their roles effectively. The following paragraphs take a closer look to problems regarding the ability of governments in developing countries.
Pre-requisite for an optimal state governance performance
Simply considering that governments will be able to serve the interests of the society is biased towards the reality. Boettke & Lesson (2004) when assessing the robustness of liberalism and socialism theories conclude that:
“Robust political economy requires that both the assumptions of agent benevolence and omniscience be relaxed, so that both incentive issues and knowledge problems can be adequately addressed.” (p.99).
Such kind of relaxing the real world conditions is only valid in theoretical level. There will be a real matter if scholars left aside the issue of knowledge, incentive, legitimacy, and autonomy of governments when deciding the best for the society. The above issues should be addressed to promote the effectiveness of governments’ functions. In developed countries, where the democracy has been implemented maturely, such preconditions may not be real concern, as voting power might be able to correct the system. Yet, for the developing countries, who just experiencing ‘trial and error’ with infant democratic system, or even still living in authoritarian regimes, election process is hardly to solve these problems.
Research conducted by the World Bank and other institutions, reveal that there is a strong relationship between good governance and the economic growth (Dollar & Pritchett, 1998), even though the relationship is not clear cut (Abdellatif, 2003). These scholars further argue that good macroeconomic management is a pre-requisite for economic growth. Accordingly, the issues of knowledge, motivation, and barrier to act on public behalf are significantly important when discussing governments’ roles in supporting the fifth long wave upswing. The countries like Botswana and Thailand who have good economic management reveal higher per capita growth than those that poorly managed. Dollar and Pritchett (1998) show that poor countries have potential for rapid growth if there are good managerial skills available. Therefore, it is crucial to clarify how these concerns obstruct these governments to play important roles in the next long wave upswing.
Knowledge
Knowledge is the first obstacle hampering the capability of the governments to conduct their role in providing the best alternative to support the society. Without adequate knowledge and information, these governments would not be able to decide, what are strategies and policies that can effectively curb their economic problems. As a matter of fact, the problem of lack of knowledge, in addition to other capacity constraints, has become the main hindrance for governance in developing nations. This concern has been realized by developed nations and international communities. It is proven by their supports in education programs, especially for the public servants from developing nations. Additionally, Brooks and Davidson (2002) in assessing the causes of the East Asian crisis, identify skilled labor shortages and ineffective policy setting as parts of primary and secondary supply-side constraints. Van den Berg (2001), as quoted in Brooks and Davidson (2002), reveals that developing nations’ average university graduates during early 2000s was 1.2 percent of population over twenty five years of age, compared to 21.3 percent of those in developed nations. Assuming these generations are now leading and managing developing countries, one can imagine the degree to which knowledge inadequacy is really impacting. The problem gets even worse, since the brilliant university graduates choose to work for the private institutions, which offering more benefits compared to low paying and bureaucratic career development in public sectors. For example, considerable numbers of government employees from developing countries, who undertake study in developed nations, are reluctant to go back to their home country after finishing study. Hence, issue of brain drain even further restraints the governments’ ability in developing nations. Lacking skills in public sectors leads to the appointment of ‘the wrong man to the wrong place’ which further complicating governance affairs.
Incentive or Motivation
Even if governments having adequate knowledge, what is the incentive for politicians and public servants in developing nations to provide the best service to the society? One may argue that they will lose their jobs through general elections as people vote against them. This is just valid only if the civil society is embraced; vis-à-vis fair democratic processes are applied, not governed by repressive regimes. Nevertheless, considering military coup in Thailand, civil protests related to elections in Mexico and Salomon Island, or authoritarian regimes in China and Singapore, one might think reinforcing governments’ motivation through democracy is a rocky path for developing nations.
Survey conducted by Overseas Development Institute (ODI), on political and governance in sixteen developing countries, reveals that the accountability of the political processes in these countries are very low (Hyde, Court & Mease, 2003). Given score one to five, the average accountability from these nations was just 2.28 or just over 45 percent. For example, the report states that:
“…Most countries do not have ‘recall’ system, which allow the electorate to call for an elected representative’s resignation during his term of service… The issue in many transitional societies, however, is that incumbents often have an advantage over their competitors and can ‘buy’ the support they need to get re-elected…”(Hyde, Court & Mease, 2003, p.24).
The authors, in their survey, also discover the ignorance of public interests by their representatives, such as in Peru, Argentina, Indonesia, and other developing countries. Corruption and political patronage are also real issues deteriorating democratic processes in those nations. Accordingly, democracy is not yet a reliable tool to promote good governance in developing nations.
Another reason, why there is not enough motivation for politicians and governments to work for the interest of their countries, is related to economic problem. Given the condition of lacking law enforcement and public control, public servants tend to abuse their positions for personal gains. Corruption, bribery, and other power abuses are widely encountered in developing nations, which often low payment used for justification. For example, many have objected the abuse of international financial debts that flow to developing nations, as most of them have been spent irresponsibly by governments, including being corrupted and used to increase the public servants’ salaries (Green, 2006).
Power abuses, especially corruption, have been a critical barrier to developing nations to utilize their economic resources effectively. Patrick Tucker (2006) explains the link between corruption and development in developing countries based on USAID report on anticorruption strategy as follows:
“…grand corruption (corruption at the highest governmental levels) may be less immediately visible than corruption among mid-level public officials. But Grand corruption is often more devastating to development because it diverts state institutions, as well as financial and natural resources, in order to meet private and elite goals. Additionally, law enforcement’s attempts to eliminate local power abuse are often crippled by corruption at the highest level.” (p.7).
Legitimacy
The next problem, regarding the role of governments is related to their legitimacy to decide policies and strategies that affect people either within their territory or outside. Group or personal agendas, whether they are legalized by national legislations or international agreements, in many cases are pursued at the costs of other nations or groups. Invasions to other nations that paralyzing local economic socio-economic activities, or the mobilization of resources from other part of nations to satisfy the interests of certain groups under territorial legalities, are the problems that inhibiting resources optimization in supporting the next long wave upswing.
The invasions to Iraq, by the United States and its allies, and to Afghanistan, have destroyed economic activities in these regions. Meanwhile, the decision of China to focus the development in the eastern coast, while leaving those in the west in the name of the economic development strategy, is of question; especially, concerning the rights of those in western regions to enjoy the same level of development or participate equally in economic processes. Or the case of Indonesia, where West Papuans’ natural resources being mobilized to western Indonesia, yet Jakarta refuses the demand for self-determination of those people. These issues are left unsolved. Territorial constraints and other international consensus have left them to the nations themselves to address. Nevertheless, the resources in these regions will not be employed optimally to promote the global upswing if such issues are not addressed.
Large number of political and civil unrests in developing nations, due to human right related problems, has weakened economic development in many developing nations. Stability and security are pre-requisites in promoting both foreign and domestic investments. Indeed, political stability plays important role in East Asian nations’ fast economic growth (Hughes, 1995). Governments in most of African nations, on the other hand, struggle to gain their legitimacy. Yet, the stable countries like Botswana economically are growing very well.
Independency
The current situation of economic and political structures is another problem for governments in developing nations to act independently, even though the problems of omniscience and benevolence are relaxed. Political and economic imbalances among the nations and strong financial power from multinational corporations have put the developing nations in a powerless position to serve their public interests. Developed nations often dictate what the developing nations have to do, especially when it comes to foreign aids or debts. Developing nations, especially those relying on foreign direct investment, are not uncommon securing the multinationals interests, instead of sustainable development interests. Accordingly, independency in policy and strategy implementations is a causative problem derived from global imbalances, which hampering sustainable development of developing nations.
Many developing countries are facing financial problems. Wealthy nations and international institutions, such as World Bank or IMF, normally provide aids and debts to these nations. In many cases, financial supports are equipped with guidelines, which often counter productive or even deteriorating the economic conditions. Good example for this is the IMF policies, which following the funds it provides to the countries that in financial crisis prior to Asian financial crisis. A most recent example is the grievance from non-governmental institutions, since the US allocates a lot of aid to the Afghanistan, yet the projects was designed by the United States and implemented by the US companies.
Multinational companies, given their strong financial power, often diminish the bargaining power of the governments in implementing effective policies or strategies. Revenues obtained from the operations of multinational companies often constitute large portion of the government incomes. In turn, the governments tend to protect the continuity of such sources of wealth, even though at cost of the public interests and unsustainable development. For instance, Indonesian government protects Freeport copper – gold mine in West Papua, regardless the fact that the company polluting the environment with its unpopular tailing disposal system. Further more, some small countries even become footloose in their economic policies due to multinational companies’ domination. As expressed by Swee and Low (1996) when explaining Singaporean’s experience:
“…discretionary policy to promote industries more intensive skills, capital and technology must be appreciated. The ultimate decisions of such industrial policy are, however, set by the multinational corporations (MNCs). The MNCs have the technological capability and access to world market. ... Singapore)* has little choice because technology and product lines are decided by MNCs.” (p.6,) * is added).
In short, governments from developing nations experience a large number of impediments when it comes to playing important roles in promoting the next long wave upswing. Lacking knowledge and motivation of the governments appears to be worsened in these nations compared to developed nations where democracy is working relatively effectively. Meanwhile, territorial and jurisdictional constraints have further left some domestic issues regarding resource efficiency and the right to participate to be solved internally by these governments. The issue of asymmetrical socio-economic-political structures, in terms of power of other nations and multinational companies, has also hampered the autonomy of developing nations in implementing the right policies and strategies even if they have adequate knowledge and integrity to do so. Accordingly, successful post-neoliberalism state governance needs to take into account the problems of the capacity constraints of governments from developing nations.
Boosting the economic development in developing nations
How the economic development in developing nations, especially those with low economic growth can be promoted? In addition to proposals from post-neoliberalism economists or further clarifying them, here are some additional recommendations. Encouraging the participation of the developing nations in the fifth long wave upswing requires both international participation and integral decision making from each nation. International involvements can come in terms of promoting the effective governance, developing human resources and promoting of the basic human rights in developing nations. Governments in developing nations are urged to mobilize the available resources they have, including the human resources and primary products, and promote niche industry based on their dynamic competitive advantage. Standard of living and quality of life should be the main concern of the developing nations in terms of infrastructure development and health, educational improvement.
Good governance is the first requirement to boost the developing nations’ participation in global economy. World Bank considers that the public sector management, accountability, legal frameworks and the accessibility of information should be addressed to promote good governance (Abdellatif, 2003). International community can assist the developing nations in promoting these dimensions. Support for improving the quality of public servants and reliable information can ease some knowledge related constraints. The promotion of justice and human rights through strengthening public control over governments and education can discourage the power abuses from government and politicians in the developing nations. Developing nations should consider good governance as basic requisite to promote sustainable economic growth. The economic crises happened in Indonesia during late nineties as a classic example of fast economic growth built under repressive state governance.
Secondly, human resources development, especially education, should become the main priority to the developing nations. International institutions and developed nations are encouraged to play important role to improve the quality of human resources in developing nations together with the domestic governments. On one hand, well educated citizens will help to boost economic growth domestically; on the other hand, surplus skilled workforces can be employed by nations that facing skilled workers shortages and aging population problems. For example, leaving aside other considerations, skilled workforce shortages in fast growing nations like Australia can be overcome by labor from the Pacific nations if they fulfill the required qualities. On the contrary, large number of nations in this region holds inadequate qualities of human resources that fulfill the requirements. Accordingly, both Australia and its neighbors are worse off.
The next issue is strengthening bargaining position of the governments of developing nations against pressures from international organizations, developed nations, and multinational corporations. A global solution on asymmetrical relationship among social structures of accumulation is strongly recommended for many developing nations are suffering from the related problems. This requires international institutions that continuously reinforcing the issues of accountability and equality of international, multilateral or bilateral, and foreign direct investment by multinational corporation relationships with developing nations. At the same time, governments from developing nations should realize that sustainable development is unlikely to achieve if relying on short term reactions or external pressures instead of comprehensive planning.
The fourth point is infrastructure development, especially transportation and telecommunication infrastructures in remote and underdeveloped regions of developing nations. Vast majority of people in developing nations are living in inadequate infrastructures that inhibiting them from economic and information networks. Such conditions lead to the inefficient employment of the economic resources in these regions. As a matter of fact, the network infrastructures are the effective ways of freeing these regions from isolation and enhancing their participation in such integrated global economy. For example, transportation and communication infrastructures are main considerations for the investors, when deciding to invest in remote regions of developing nations. Primary commodities in developing nations can be exploited and used to develop related industry if transportation and communication infrastructures are available.
The last recommendation to make is regarding the exploitation of comparative advantage. Developing nations are encouraged to optimize economic resources they have to boost their economic development. Referring to the success of the East Asian economic development, many economists such as Hughes (1995) and Krugman (1994) believe that economic resources mobilization is playing important parts in these nations economic development fast economic growth. Regarding comparative advantage, despite the problem of Prebisch-Singer hypothesis, natural resources are the best options to start with as they are location driven investments. The investors have to operate in the area where the natural resources are found. Therefore, promoting foreign direct investment in primary commodity sector is a viable option to the developing nations as their natural resources yet to be developed. Additionally, large number of developing nations experiencing increasing revenues from natural resource sector such as African, Latin American, and Middle Eastern nations (UNCTAD, 2005). Furthermore, niche industry supported by the available primary industry can be developed. Relatively fast developing nations like Indonesia, Thailand, and Malaysia started of their economic development based on primary commodities (Hughes, 1995).
Conclusion
Moving towards the fifth Kondratieff long wave, many are being bothered whether state governance social structures of accumulation are ready to promote it. As argued by post-neoliberalism economists, economic liberalism in circular – cumulative – causative ways has created large numbers of externalities, including to the establishment of unbalanced functions of institutions including state governance. Accordingly, they propose reestablishment of the power of institutions especially governments. They are urged to undertake important roles in promoting the fifth long wave upswing. The leaders from these nations are recommended to promote productive and pragmatic public financial roles. They are also required to stimulate long term demand and global recovery, promoting financial stability, global currency system, promoting value addition process to primary goods, continuously improving comparative advantage, and fostering pro-social capital.
These proposals are unlikely to be implemented successfully by the governments in developing nations due to the problems of knowledge, motivation, legitimacy, and independency of these governments. Knowledge is the first issue hampering the ability of the governments of developing due to lack of qualified human resources and access to reliable information. These hindrances cause ineffective decision making. Secondly, democracy is hardly to motivate the governments in these nations to serve the interests of their public. Hence, power abuse for personal gains remains critical concern in the developing nations. Thirdly, some governments under national legal frameworks or international agreements undermine the rights of certain groups of people including exploiting their resources without giving back to such regions. It results in human rights violation and economic inefficiency. The last issue is regarding the ability of the developing nations’ governments to act independently without pressure from international institutions, powerful nations and multinational corporations. In many cases, these governments are unable to preserve their autonomy as they relying heavily on these institutions.
In order to incorporate the governments and developing nations to play pivotal roles in promoting long wave economic upswing, here are several issues that need to be dealt with by both international institutions or developed nations and governments from developing nations. Securing the new long wave upswing promotions need to promote good governance in developing nations. Next, human resources development vis-à-vis education should be the main concern. Third proposal is improving the bargaining power of developing nations against international institutions, developed nations, and multinational enterprises, through the promotion of accountability and equality relationships. Transportation and telecommunication infrastructures development are important in order to alleviate the economic resources mobilization and tie up such regions to global economic networks. Primary commodity development is likely to bases the next step of the industrialization in developing countries since natural resources are location driven comparative advantage.
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Introduction
Based on circular – cumulative – causative (CCC) principle, proposed by socio-political economists, agents involve in global economy are interdependent. Promoting specific sectors while undermining the rests is, therefore, prone to failure. Hence, global economic problems should be addressed through holistic and integrative policies and strategies. As a matter of fact, they argue that the negative side of the economic development should be treated as inextricable results of economic development, not as externalities suggested by liberalism economists.
Even though the current stage of the global economy is dominated by free market principles, to some extent, the interventions of governments still exist (Ricupero, 1997). Nevertheless, many challenge the effectiveness of their involvements (Boettke & Leeson (2004), Hertel, (2003)). Hesitation over governments’ ability has reasonable ground, in particular concerning those in developing nations. Given the current state of affairs, the question is then: are these governments able to promote the fifth global economic upswing? To clarify the above issue, the following questions need to be considered furthermore. Do governments have adequate knowledge to provide effective policies? Do politicians and public servants have reasonable motivations or incentives to serve public interests? Do governments obtain adequate legitimacy to act on public behalf? Lastly, do the current global economic and political structures enable governments to perform their role independently? The first two questions are classic problems regarding government interventions, which have been disputed for a long time. The last questions are specifically related to governments in the developing nations.
This paper aims to consider state governance issues, concentrating on the governments in the developing nations, since these nations have relatively abundant resources, yet underdeveloped. Economically, developing nations are left behind by advance economies; accordingly, being a part of the next long wave upswing is a great opportunity to the citizens. In order to build theoretical ground, the discussion, firstly, draws attention to the Kondratieff cycle or wave, followed by further discussion on the failure of neo-liberalism economy and alternative from post-Keynesian economists including the role of states governance. Next discussion is dedicated to the problems regarding developing nations’ governments in promoting the fifth long wave upswing, then recommendations to these governments to promote the long wave upswing. Conclusion follows.
Kondratieff Wave
Kondratieff wave is a phenomenon of regularities observed in the global economy. Economic historians reveal that the global economy experiences certain cycles of boom and bust. More precisely they are similar to wave pattern, which involving upswing when the economy is flourished, and downswing when it experiences recessions. The economists can also predict the relative timeframes for these economic cycles. There are four economic cycles identified in the global economic history. They include Kitchin inventory cycle (3– 5 years), Juglar fixed investment cycle (7 – 11 years), Kuznets infrastructural investment cycle (15 – 25 years), and Kondratieff wave (45–60 years) (http://en.wikipedia.org/wiki/Economic_cycle). These cycles, help the economists to construct better economic models, and guide the policy making (Reati & Toporowski, 2004). Socio-political economists normally base their economic thoughts on the Kondratieff long wave as it involves longer duration.
The Kondratieff long wave was suggested by Nikolai Kondratieff, springing from a Marxian perspective of long run movement of capitalism (Reita & Toporowski, 2004). There have been five Kondratieff long waves during the course of global industrialization (O’Hara, 2006a). First long wave, known as industrial revolution, underwent upswing in 1780s – 1810s and downswing from that on to 1840s. This wave was defined by water-powered machineries, and dominated by cotton, iron ore, and coal related industries. The next wave was large-scale industry (1850s – 1870s/ 1870s – 1890s) distinguished by steam-powered machineries and the introduction of telegraphs, railways and steamships. The third wave, finance capital and imperialism wave, (1890s – 1910s/1910s – 1940s) where steel, copper, and metal alloys was the main inputs in electrified industry, heavy engineering / chemicals and steel products. The fourth wave is known as postwar global fordism (1940s – 1970s/ 1970s – 1990s). This period was marked by internal combustion engines and mass production with the main inputs was oil, gas, and synthetic materials. The fifth wave is still a dispute among the scholars, yet it is believed that now world in the fifth long wave swing. Globalization and internet revolution are the markers for the fifth Kondratieff long wave (see O’Hara, 2006a and Reati & Toporowski, 2004).
Criticisms on the Neo-liberalism Economy
Despite plausible achievements, the neo-liberalism economy has been blamed for triggering global economic recession during 1980s – 2000s. Neo-liberalism, which rather concentrating on economic process than economic growth, has escalated global system imbalances and marginalized the functions of institutions. O’Hara (2005) summarizes the critics on the neo-liberalism economy as follows:
“…heterodox economists argue that the globalised neo-liberalism creates too many negative externalities, and also that it has a negative overall impact upon socioeconomic performance. They tend to see the 1950s and 1960s as the golden age of the Keynesian –Fordist state when social and economic progress occurred, while the gradual emergence of neo-liberal globalization led to problematic development into 1980s – 2000s. Recent times are said to have seen the emergence of many critical global, regional, and national financial crises, declining trust, deteriorating environmental performance, lower rate of per capita growth, and much slower productivity. Globalised neo-liberalism, therefore, has destroyed more than it has created in that it stimulates quick profit over long run rewards, financial dominance over industry, production rather than habitat preservation, and market over human relations.” (p.348).
Many scholars agree that leaving the global economy driven by the free market without adequate governments’ control is likely to result in the escalation of contradictions, which in turn will destroy the whole society. As further suggested by O’Hara (2006a), political economists reveal a large number of paradoxes or contradictions derived from free market economy. To name a few, focusing on supply side has weakened the demand power, which is equally important. Capitalism promotes capital to the highest position leading to the powerlessness of states and workers, unregulated economy, escalating financial speculations. These problems harm industry sector as the powerhouse of the economy. Profit maximization principle has sacrificed the environment, social relationship, and has further deepened the gap between those in center and periphery. Excessive competition has left almost no space for innovation and profit. These contradictions can be addressed, if there are institutions that work concertedly supporting the global economy, instead of leaving them to the work of ‘invisible hand’ in market oriented economy. For instance, neo-liberalism vis-à-vis free competition is believed to be unsustainable since market forces unrestrictedly mobilize economic resources from society to economic development process (dos Santos & da Silva, 2004). Free market principles have further marginalized the underdeveloped countries due to their inability to compete against the advance economies. Neo-liberalism has deprived the power of states to ensure public goods are sufficiently available and sustainable, including the carrying capacity of the planet earth. Short term profit maximizing, derived from aggravating rent-seeking behavior, and uncertainty, have resulted in excessive competition, lack of incentive for long term investment, and declining profit margin, hence lacking economic growth. The power of capital, which overwhelming labor bargaining power, has led to inadequate labor compensations. This has deteriorated purchasing power and global demand. Financial market speculation has further created uncertainty. These problems affect each other via circular – cumulative – causative ways. These facts lead scholars, such as Quiggin (2005), to argue that the economic liberalism has lost its power in global economy. Therefore, there is increasing demand for an alternative philosophy or ideology that bases the new economic policies and strategies.
Post-Keynesian Solutions and Role of Post-neoliberalism Governments
There are alternatives to cover the weaknesses, or solve the problems resulted from the employment of the economic liberalism. Post-Keynesian or neo-Marxist economists argue that the global economy requires institutions that work simultaneously to maintain the balance of the global economic functions (dos Santos & da Silva, 2004). In other words, the new long wave upswing pragmatically requires continuous combination between socialist strategies and the positive elements of the neo-liberalism ideology. These kinds of pragmatism strategies seem to dominate the magnitude of the future economic policies (Quiggin, 2005).
Post-Keynesians observe that the main problems of the economic recession are lacking global demand and enormous degree of uncertainty. These troubles root in the diminishing role of governments in protecting public interests from the free market invasion, as it mostly focuses on the supply side of the economic system. Therefore, the global economy is calling for the re-establishment of balanced institutions of governments, corporations, market, labor, society, or international relationship. Reati and Toporowski (2004) suggest several solutions to remediate the global economic problems. Firstly, it needs to boost the demand through macroeconomic policies that favoring innovations and promoting private consumption. They also urge to reestablish the primacy of productive capital to secure long term investment and curb the financial speculation. The third suggestion is to promote labor – capital equality, including the encouragement of full employment, adequate rewards and incentives for innovation, and technological improvement. The problem regarding flexibility of the labor force within the current dynamic economy is urged to be solved. They also suggest establishing a proper regime of intellectual rights that provide incentives to inventors and promote the transfer of knowledge and technology.
The above discussion implies that the state governance social structures of accumulation (SSA) are a very critical ingredient in order to make the post-Keynesian strategies work optimally. In conjunction to that, O’Hara (2005) urges post-neoliberalism governments to promote productive government roles and pragmatic policies in conjunction with public finance. The governments need to stimulate long term demand and global recovery, promote financial stability, global currency system, and value addition process to primary goods, continuously improve comparative advantage, and foster pro-social capital (O’Hara, 2005, p356 – 360).
The governments in developing countries, however, are unlikely to implement these policies effectively. The reasons are related to the issues of human resource quality, adequate incentives to serve the public interests, legitimacy or moral justification, and inadequate bargaining power resulted from current global socio-economic structures. These governments require favorable preconditions in order to convey their roles effectively. The following paragraphs take a closer look to problems regarding the ability of governments in developing countries.
Pre-requisite for an optimal state governance performance
Simply considering that governments will be able to serve the interests of the society is biased towards the reality. Boettke & Lesson (2004) when assessing the robustness of liberalism and socialism theories conclude that:
“Robust political economy requires that both the assumptions of agent benevolence and omniscience be relaxed, so that both incentive issues and knowledge problems can be adequately addressed.” (p.99).
Such kind of relaxing the real world conditions is only valid in theoretical level. There will be a real matter if scholars left aside the issue of knowledge, incentive, legitimacy, and autonomy of governments when deciding the best for the society. The above issues should be addressed to promote the effectiveness of governments’ functions. In developed countries, where the democracy has been implemented maturely, such preconditions may not be real concern, as voting power might be able to correct the system. Yet, for the developing countries, who just experiencing ‘trial and error’ with infant democratic system, or even still living in authoritarian regimes, election process is hardly to solve these problems.
Research conducted by the World Bank and other institutions, reveal that there is a strong relationship between good governance and the economic growth (Dollar & Pritchett, 1998), even though the relationship is not clear cut (Abdellatif, 2003). These scholars further argue that good macroeconomic management is a pre-requisite for economic growth. Accordingly, the issues of knowledge, motivation, and barrier to act on public behalf are significantly important when discussing governments’ roles in supporting the fifth long wave upswing. The countries like Botswana and Thailand who have good economic management reveal higher per capita growth than those that poorly managed. Dollar and Pritchett (1998) show that poor countries have potential for rapid growth if there are good managerial skills available. Therefore, it is crucial to clarify how these concerns obstruct these governments to play important roles in the next long wave upswing.
Knowledge
Knowledge is the first obstacle hampering the capability of the governments to conduct their role in providing the best alternative to support the society. Without adequate knowledge and information, these governments would not be able to decide, what are strategies and policies that can effectively curb their economic problems. As a matter of fact, the problem of lack of knowledge, in addition to other capacity constraints, has become the main hindrance for governance in developing nations. This concern has been realized by developed nations and international communities. It is proven by their supports in education programs, especially for the public servants from developing nations. Additionally, Brooks and Davidson (2002) in assessing the causes of the East Asian crisis, identify skilled labor shortages and ineffective policy setting as parts of primary and secondary supply-side constraints. Van den Berg (2001), as quoted in Brooks and Davidson (2002), reveals that developing nations’ average university graduates during early 2000s was 1.2 percent of population over twenty five years of age, compared to 21.3 percent of those in developed nations. Assuming these generations are now leading and managing developing countries, one can imagine the degree to which knowledge inadequacy is really impacting. The problem gets even worse, since the brilliant university graduates choose to work for the private institutions, which offering more benefits compared to low paying and bureaucratic career development in public sectors. For example, considerable numbers of government employees from developing countries, who undertake study in developed nations, are reluctant to go back to their home country after finishing study. Hence, issue of brain drain even further restraints the governments’ ability in developing nations. Lacking skills in public sectors leads to the appointment of ‘the wrong man to the wrong place’ which further complicating governance affairs.
Incentive or Motivation
Even if governments having adequate knowledge, what is the incentive for politicians and public servants in developing nations to provide the best service to the society? One may argue that they will lose their jobs through general elections as people vote against them. This is just valid only if the civil society is embraced; vis-à-vis fair democratic processes are applied, not governed by repressive regimes. Nevertheless, considering military coup in Thailand, civil protests related to elections in Mexico and Salomon Island, or authoritarian regimes in China and Singapore, one might think reinforcing governments’ motivation through democracy is a rocky path for developing nations.
Survey conducted by Overseas Development Institute (ODI), on political and governance in sixteen developing countries, reveals that the accountability of the political processes in these countries are very low (Hyde, Court & Mease, 2003). Given score one to five, the average accountability from these nations was just 2.28 or just over 45 percent. For example, the report states that:
“…Most countries do not have ‘recall’ system, which allow the electorate to call for an elected representative’s resignation during his term of service… The issue in many transitional societies, however, is that incumbents often have an advantage over their competitors and can ‘buy’ the support they need to get re-elected…”(Hyde, Court & Mease, 2003, p.24).
The authors, in their survey, also discover the ignorance of public interests by their representatives, such as in Peru, Argentina, Indonesia, and other developing countries. Corruption and political patronage are also real issues deteriorating democratic processes in those nations. Accordingly, democracy is not yet a reliable tool to promote good governance in developing nations.
Another reason, why there is not enough motivation for politicians and governments to work for the interest of their countries, is related to economic problem. Given the condition of lacking law enforcement and public control, public servants tend to abuse their positions for personal gains. Corruption, bribery, and other power abuses are widely encountered in developing nations, which often low payment used for justification. For example, many have objected the abuse of international financial debts that flow to developing nations, as most of them have been spent irresponsibly by governments, including being corrupted and used to increase the public servants’ salaries (Green, 2006).
Power abuses, especially corruption, have been a critical barrier to developing nations to utilize their economic resources effectively. Patrick Tucker (2006) explains the link between corruption and development in developing countries based on USAID report on anticorruption strategy as follows:
“…grand corruption (corruption at the highest governmental levels) may be less immediately visible than corruption among mid-level public officials. But Grand corruption is often more devastating to development because it diverts state institutions, as well as financial and natural resources, in order to meet private and elite goals. Additionally, law enforcement’s attempts to eliminate local power abuse are often crippled by corruption at the highest level.” (p.7).
Legitimacy
The next problem, regarding the role of governments is related to their legitimacy to decide policies and strategies that affect people either within their territory or outside. Group or personal agendas, whether they are legalized by national legislations or international agreements, in many cases are pursued at the costs of other nations or groups. Invasions to other nations that paralyzing local economic socio-economic activities, or the mobilization of resources from other part of nations to satisfy the interests of certain groups under territorial legalities, are the problems that inhibiting resources optimization in supporting the next long wave upswing.
The invasions to Iraq, by the United States and its allies, and to Afghanistan, have destroyed economic activities in these regions. Meanwhile, the decision of China to focus the development in the eastern coast, while leaving those in the west in the name of the economic development strategy, is of question; especially, concerning the rights of those in western regions to enjoy the same level of development or participate equally in economic processes. Or the case of Indonesia, where West Papuans’ natural resources being mobilized to western Indonesia, yet Jakarta refuses the demand for self-determination of those people. These issues are left unsolved. Territorial constraints and other international consensus have left them to the nations themselves to address. Nevertheless, the resources in these regions will not be employed optimally to promote the global upswing if such issues are not addressed.
Large number of political and civil unrests in developing nations, due to human right related problems, has weakened economic development in many developing nations. Stability and security are pre-requisites in promoting both foreign and domestic investments. Indeed, political stability plays important role in East Asian nations’ fast economic growth (Hughes, 1995). Governments in most of African nations, on the other hand, struggle to gain their legitimacy. Yet, the stable countries like Botswana economically are growing very well.
Independency
The current situation of economic and political structures is another problem for governments in developing nations to act independently, even though the problems of omniscience and benevolence are relaxed. Political and economic imbalances among the nations and strong financial power from multinational corporations have put the developing nations in a powerless position to serve their public interests. Developed nations often dictate what the developing nations have to do, especially when it comes to foreign aids or debts. Developing nations, especially those relying on foreign direct investment, are not uncommon securing the multinationals interests, instead of sustainable development interests. Accordingly, independency in policy and strategy implementations is a causative problem derived from global imbalances, which hampering sustainable development of developing nations.
Many developing countries are facing financial problems. Wealthy nations and international institutions, such as World Bank or IMF, normally provide aids and debts to these nations. In many cases, financial supports are equipped with guidelines, which often counter productive or even deteriorating the economic conditions. Good example for this is the IMF policies, which following the funds it provides to the countries that in financial crisis prior to Asian financial crisis. A most recent example is the grievance from non-governmental institutions, since the US allocates a lot of aid to the Afghanistan, yet the projects was designed by the United States and implemented by the US companies.
Multinational companies, given their strong financial power, often diminish the bargaining power of the governments in implementing effective policies or strategies. Revenues obtained from the operations of multinational companies often constitute large portion of the government incomes. In turn, the governments tend to protect the continuity of such sources of wealth, even though at cost of the public interests and unsustainable development. For instance, Indonesian government protects Freeport copper – gold mine in West Papua, regardless the fact that the company polluting the environment with its unpopular tailing disposal system. Further more, some small countries even become footloose in their economic policies due to multinational companies’ domination. As expressed by Swee and Low (1996) when explaining Singaporean’s experience:
“…discretionary policy to promote industries more intensive skills, capital and technology must be appreciated. The ultimate decisions of such industrial policy are, however, set by the multinational corporations (MNCs). The MNCs have the technological capability and access to world market. ... Singapore)* has little choice because technology and product lines are decided by MNCs.” (p.6,) * is added).
In short, governments from developing nations experience a large number of impediments when it comes to playing important roles in promoting the next long wave upswing. Lacking knowledge and motivation of the governments appears to be worsened in these nations compared to developed nations where democracy is working relatively effectively. Meanwhile, territorial and jurisdictional constraints have further left some domestic issues regarding resource efficiency and the right to participate to be solved internally by these governments. The issue of asymmetrical socio-economic-political structures, in terms of power of other nations and multinational companies, has also hampered the autonomy of developing nations in implementing the right policies and strategies even if they have adequate knowledge and integrity to do so. Accordingly, successful post-neoliberalism state governance needs to take into account the problems of the capacity constraints of governments from developing nations.
Boosting the economic development in developing nations
How the economic development in developing nations, especially those with low economic growth can be promoted? In addition to proposals from post-neoliberalism economists or further clarifying them, here are some additional recommendations. Encouraging the participation of the developing nations in the fifth long wave upswing requires both international participation and integral decision making from each nation. International involvements can come in terms of promoting the effective governance, developing human resources and promoting of the basic human rights in developing nations. Governments in developing nations are urged to mobilize the available resources they have, including the human resources and primary products, and promote niche industry based on their dynamic competitive advantage. Standard of living and quality of life should be the main concern of the developing nations in terms of infrastructure development and health, educational improvement.
Good governance is the first requirement to boost the developing nations’ participation in global economy. World Bank considers that the public sector management, accountability, legal frameworks and the accessibility of information should be addressed to promote good governance (Abdellatif, 2003). International community can assist the developing nations in promoting these dimensions. Support for improving the quality of public servants and reliable information can ease some knowledge related constraints. The promotion of justice and human rights through strengthening public control over governments and education can discourage the power abuses from government and politicians in the developing nations. Developing nations should consider good governance as basic requisite to promote sustainable economic growth. The economic crises happened in Indonesia during late nineties as a classic example of fast economic growth built under repressive state governance.
Secondly, human resources development, especially education, should become the main priority to the developing nations. International institutions and developed nations are encouraged to play important role to improve the quality of human resources in developing nations together with the domestic governments. On one hand, well educated citizens will help to boost economic growth domestically; on the other hand, surplus skilled workforces can be employed by nations that facing skilled workers shortages and aging population problems. For example, leaving aside other considerations, skilled workforce shortages in fast growing nations like Australia can be overcome by labor from the Pacific nations if they fulfill the required qualities. On the contrary, large number of nations in this region holds inadequate qualities of human resources that fulfill the requirements. Accordingly, both Australia and its neighbors are worse off.
The next issue is strengthening bargaining position of the governments of developing nations against pressures from international organizations, developed nations, and multinational corporations. A global solution on asymmetrical relationship among social structures of accumulation is strongly recommended for many developing nations are suffering from the related problems. This requires international institutions that continuously reinforcing the issues of accountability and equality of international, multilateral or bilateral, and foreign direct investment by multinational corporation relationships with developing nations. At the same time, governments from developing nations should realize that sustainable development is unlikely to achieve if relying on short term reactions or external pressures instead of comprehensive planning.
The fourth point is infrastructure development, especially transportation and telecommunication infrastructures in remote and underdeveloped regions of developing nations. Vast majority of people in developing nations are living in inadequate infrastructures that inhibiting them from economic and information networks. Such conditions lead to the inefficient employment of the economic resources in these regions. As a matter of fact, the network infrastructures are the effective ways of freeing these regions from isolation and enhancing their participation in such integrated global economy. For example, transportation and communication infrastructures are main considerations for the investors, when deciding to invest in remote regions of developing nations. Primary commodities in developing nations can be exploited and used to develop related industry if transportation and communication infrastructures are available.
The last recommendation to make is regarding the exploitation of comparative advantage. Developing nations are encouraged to optimize economic resources they have to boost their economic development. Referring to the success of the East Asian economic development, many economists such as Hughes (1995) and Krugman (1994) believe that economic resources mobilization is playing important parts in these nations economic development fast economic growth. Regarding comparative advantage, despite the problem of Prebisch-Singer hypothesis, natural resources are the best options to start with as they are location driven investments. The investors have to operate in the area where the natural resources are found. Therefore, promoting foreign direct investment in primary commodity sector is a viable option to the developing nations as their natural resources yet to be developed. Additionally, large number of developing nations experiencing increasing revenues from natural resource sector such as African, Latin American, and Middle Eastern nations (UNCTAD, 2005). Furthermore, niche industry supported by the available primary industry can be developed. Relatively fast developing nations like Indonesia, Thailand, and Malaysia started of their economic development based on primary commodities (Hughes, 1995).
Conclusion
Moving towards the fifth Kondratieff long wave, many are being bothered whether state governance social structures of accumulation are ready to promote it. As argued by post-neoliberalism economists, economic liberalism in circular – cumulative – causative ways has created large numbers of externalities, including to the establishment of unbalanced functions of institutions including state governance. Accordingly, they propose reestablishment of the power of institutions especially governments. They are urged to undertake important roles in promoting the fifth long wave upswing. The leaders from these nations are recommended to promote productive and pragmatic public financial roles. They are also required to stimulate long term demand and global recovery, promoting financial stability, global currency system, promoting value addition process to primary goods, continuously improving comparative advantage, and fostering pro-social capital.
These proposals are unlikely to be implemented successfully by the governments in developing nations due to the problems of knowledge, motivation, legitimacy, and independency of these governments. Knowledge is the first issue hampering the ability of the governments of developing due to lack of qualified human resources and access to reliable information. These hindrances cause ineffective decision making. Secondly, democracy is hardly to motivate the governments in these nations to serve the interests of their public. Hence, power abuse for personal gains remains critical concern in the developing nations. Thirdly, some governments under national legal frameworks or international agreements undermine the rights of certain groups of people including exploiting their resources without giving back to such regions. It results in human rights violation and economic inefficiency. The last issue is regarding the ability of the developing nations’ governments to act independently without pressure from international institutions, powerful nations and multinational corporations. In many cases, these governments are unable to preserve their autonomy as they relying heavily on these institutions.
In order to incorporate the governments and developing nations to play pivotal roles in promoting long wave economic upswing, here are several issues that need to be dealt with by both international institutions or developed nations and governments from developing nations. Securing the new long wave upswing promotions need to promote good governance in developing nations. Next, human resources development vis-à-vis education should be the main concern. Third proposal is improving the bargaining power of developing nations against international institutions, developed nations, and multinational enterprises, through the promotion of accountability and equality relationships. Transportation and telecommunication infrastructures development are important in order to alleviate the economic resources mobilization and tie up such regions to global economic networks. Primary commodity development is likely to bases the next step of the industrialization in developing countries since natural resources are location driven comparative advantage.
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