Privatisation in Developing Countries:
The Governance Issue
Prof. Abdul Paliwala
School of Law, University of Warwick
This is a refereed article published on 8 January 2001 in tribute to Dr Lawrence Tshuma. The article has also been published as part of the book ‘Governance, Development and Globalization’, edited by Julio Faundez, Mary E Footer and Joseph J Norton, Blackstone Press, January 2001, and has been submitted to editorial and refereed processes for both the book and LGD.
Citation: Paliwala A, ‘Privatisation in Developing Countries: The Governance Issue’, 2000 (1) Law, Social Justice & Global Development Journal (LGD).
In developing countries, the mantra of privatisation has become ‘common sense’ economics and an indispensable process in development. Privatisation measures have been adopted and implemented under the frameworks imposed by the International Financial Institutions (IFIs), which have been by way of conditionalities attached to loans. However, the process of privatisation in developing countries has not been a spectacular success and the IFIs have come forth with a range of new policy measures including those in the area of law and governance reform to remedy the problem. Nevertheless, while it is assumed that privatisation is an inherent part of good governance, there has not been good governance of privatisation. While further proposals are being made about regulatory reform, it is still too early to guage their impact. It is suggested that privatisation strategies, in conjunction with economic liberalisation constitute part of the onward march of global corporate culture. Without effective good governance of globalisation, the IFI strategies will continue to suffer from charges of cultural imperialism and/or the prospect of incoherent failure.
Keywords: Privatisation, Developing Countries, Governance, Good Governance
Understandably, critics have seen the Bretton Woods Institutions in their new incarnation as handmaidens of international capital and their activities as a form of new imperialism. For their part, the Bretton Woods Institutions celebrated the virtues of markets. However, by the end of the 1980’s and the beginning of the 1990’s they were forced to acknowledge the limitations of market fundamentalism and the role of institutions of good governance in economic regulation. Lawrence Tshuma (2000, p126).
Both in the developed and developing countries, the mantra of privatisation has become ‘common sense’ economics, an indispensable process in development whereas the period of dominance of ‘state owned enterprises’ in developing countries has been portrayed very much as ‘politics’ imposed over economics. There have been significant internal factors supporting privatisation in a number of countries, not least of these has been disaffection with endemic corruption (Chibundu 1997). In countries such as Argentina and Mexico, popular privatisations of historically inefficient utilities such as telecommunications have been used by governments to improve their political image (Ramamurti 1999). Nevertheless, the World Bank, the IMF (termed here international financial institutions or IFIs), OECD and Western donors have been the missionaries of the mantra to crisis ridden developing and transitional economies which have had little alternative but to adopt the moneylenders’ instructions.1 The World Bank’s report ‘Privatisation: The Lessons of Experience’ 1992 championed the cause of privatisation. The advantages of private entrepreneurship against bureaucratic fossilisation are suggested by the very title of the World Bank’s interesting study ‘Bureaucrats in Business’. It talks of ‘a growing consensus that governments perform less well than the private sector in a host of activities’ (World Bank 1995; see also World Bank, 1992, Shirley, 1992, 1997, 1999, Cf. Baev, 1993, Ramamurti, 1999).
Privatisation was prescribed as a conditionality in 74 World Bank loans during 1980-89 (Ariyo and Jerome, 1999). Yet, the World Bank in 1995 expressed frustration at both the pace of privatisation programmes and the lack of success of proposed reforms to state owned enterprises. Nevertheless, since then the process of privatisation has picked up with the main laggard, Africa, becoming a key privatisation region2.
The Bank attributed the problems with privatisation to wider political factors, that is, the reform was either politically undesirable or unfeasible or the government’s efforts were unfeasible (World Bank, 1995, see also World Bank, 1992, Shirley, 1999, Cook, 1997). While commentators welcome the acceptance by the Bank that prescribing privatisation is not enough in itself, they note that there is no shift in the underlying assumptions of the privatisation prescription (Cook, 1997, Ramamurti, 1999). Leys (1996) and Tshuma (1999) have suggested that the IMF/World Bank distrust of bureaucrats and prescription of privatisation is based on ‘public choice’ theory. According to the theory, state institutions as well as politicians and bureaucrats involved will work to maximise their institutional and individual self-interest and power rather than a wider ‘public interest’ (World Bank, 1981, Bates, 1981).
Yarrow (1999) similarly suggests: The rationale for seeking to reduce political influence on economic decision making is, most usually, to improve incentives for economic efficiency at the level of the enterprise. Underlying the case for privatisation is the view that there is ‘government failure’, in the sense that public policy is likely to operate in ways that, for one reason or another, impede the efficient functioning of markets.
‘Property rights’ theorists suggest that state sector inefficiency results from situations in which no individual or group has a clear stake in the assets of the enterprise (Shirley 1999 citing Alchian and Demestz,1972, Barzek, 1989 and others). Consequently politicians and bureaucrats in business will produce inherently inefficient results. The World Bank’s Bureaucrats in Business supported these theoretical assumptions on the basis of a special study of 12 countries, as well as another World Bank funded study of the impact of privatisation (World Bank, 1995, Shirley, 1999, Galal et al, 1994). The market mechanism ensures efficiency by overcoming the problems raised by ‘public choice’ and ‘property rights’.
Nevertheless, the Bank cannot claim a spectacular record of success for privatisation in developing countries and has developed a range of policy measures including those in the area of law and governance reform to remedy the problems (Ramamurti, 1999). The objective of this paper is to explore the implications for developing countries of this particular approach to privatisation using examples drawn mainly, but not exclusively, from African countries. It suggests that the problems may be rooted in approaches to privatisation reform.
2. The Need for Good Governance
It is an interesting co-incidence that ‘Privatisation: The Lessons of Experience’ and ‘Governance and Development’ were both issued in 1992. The Bank’s argument in the governance report is that failures of its programmes were frequently connected to the quality of government or as Yarrow (1999) aptly terms ‘government failure’. The underlying argument of Bureaucrats in Business was also that privatisation and state sector reforms were dependent on suitable regulation. Shirley states the ‘sobering’ conclusion thus:
The experience analyzed above suggests that a country which is not able to create a credible, efficiency enhancing regulatory regime is unlikely to regulate its state-owned infrastructure well (Shirley 1999, p.131).
This link between privatisation and good governance results from a reversal of an approach which involved complete mistrust of the state to one which accepts that the state bears the responsibility for the creation of an appropriate institutional framework. Nevertheless, the institutions in the World Bank’s governance agenda are ones which provide an appropriate infrastructure for the operation of the liberal free market (Faundez, 1997, Tshuma, 1999). It would appear that public choice theory’s prescription of the liberal market has been supplemented by a reliance on new institutional economics which prescribes an institutional framework of property rights, contracting and transaction costs for the effective maintenance of the liberal market (Mercuro & Medema, 1997, 131). Tshuma citing Mercuro and Medema defines the key institutions thus:
Property rights are social institutions that define or delimit the range of privileges granted to individuals to a specific asset. They determine the value of an asset by setting the range of its productivity or exchangeability. Contracting is the process through which property rights are established, assigned or modified. New institutional economics draws a distinction between the process of physically transferring the asset and the transacting process through which legal rights to the asset are transferred. Transaction costs are the costs associated with the creation, maintenance, or modification of institutions such as property rights. They are the costs associated with negotiating, measuring and protecting property rights, and monitoring and enforcing contracts.
These ‘institutions’ resonate with similar legal institutions of property, contract and legal infrastructure. Put simply the argument is that market unfriendly systems of property law, contracts and legal institutions can lead to an increase in transaction costs and therefore reduce the incentives to effective investment, production and trade. The state therefore plays a crucial role in structuring a friendly market. This assumption is too simplistic. The nature of ‘institutions’ is much broader and in many respects defined differently from legal ones. More significantly, while new institutional economics borrows legal ideas, it translates them into economic discourse. The World Bank subsequently re-translates them into the concept of good governance. Governance is defined as:
‘the processes by which authority is exercised in the management of a country’s economic and social resources and the capacity of governments to design, formulate and implement policies, and in general to discharge government functions’ (World Bank, 1992 and Faundez, 1997, Tshuma, 1998).
Key features of ‘good governance’ are an insistence on accountability, transparency and sound legal framework. On the other hand, ‘good government’ permits donor governments to insist further on democratization and human rights (Wickramasinghe, 1996). However, the differences may be less significant than appears in view of the fact that structural adjustment packages are often accompanied by Western aid programmes which promote multi-party democracy in some countries while ignoring democratic principles in others such as Indonesia until recently. In many respects, other good government conditionalities such as multi-party politics and civil rights are intended to reinforce the free market economy of which privatisation is such an essential part.
There is a belief that this combination of privatisation and good governance will result in a reduction of activities such as ‘rent seeking’ and bureaucratic mismanagement which have bedevilled state owned enterprises. Only on this basis can the Bank and IMF justify that policies such as privatisation and downsizing of the state sector do not interfere in internal politics under the World Bank Charter and the IMF Articles of Agreement (Shihata, 1991, Tshuma, 1998). The World Bank has a unit in its Legal Department dedicated to legal reform and private sector development whose function is the provision of technical services to borrower countries on the structuring of institutions for the promotion of private sector involvement (Shirley, 1999).
3. Are Bureaucrats Inefficient by Nature?
The ‘common sense’ combination of privatisation and good governance suffers from considerable criticism. The first criticism is of privatisation itself, the second of the notion of good governance. Much of the critique of privatisation is not in terms of the superiority of the state sector. It is rather of the ideological assumption that privatisation is necessarily a good thing.
Chang and Singh (1997) question the assumption that ‘bureaucrats’ by their nature are necessarily inefficient and suggest that large private sector organisations such as TNCs are equally bureaucratic. They also question whether the discipline imposed on state enterprise bureaucrats by the political system is inherently inferior to that imposed by the market on private corporations and criticise the World Bank for their selective use of evidence and unbalanced policy advice. Jalilian and Weiss (1997) have critically analysed the World Bank’s hypothesis that a large state sector tends to be associated with lower than expected economic growth and suggest that downsizing the state sector in itself should not be a major economic policy objective.
From a perspective which is not unsympathetic to the private sector Ramamurti (1999) has questioned the underlying assumptions made by ‘Bureaucrats in Business’:
‘that SOEs are run by bureaucrats, when in fact most SOEs are separate from and independent of the government and the civil service;
that divestiture will take bureaucrats out of business, when in fact many of the industries in which SOEs operate require regulation after privatisation; or
that there is a consensus on the superiority of private over public ownership, when in fact this assumption is hotly debated in most countries, perhaps not in the abstract, but when applied to particular markets and activities’ (p 137).
He suggests that the economic case for privatisation is made more in terms of what is wrong with SOEs than as a positive case for privatisation and criticises the Bank’s case. In particular he suggests that ‘government failure’ is not inevitable and countries can vary markedly in the quality of government and hence the quality of economic decision making. Thus, reform strategies should be based on the nature and extent of government failures. In particular, he considers the case for privatisation in small poor countries to be particularly weak. The issue in many of these countries has not been political reluctance, but the absence of an adequate infrastructure to support privatisation in situations where local buyers have lacked finance and expertise and governments have had to extend protection and subsidies. In the circumstances there has been heavy reliance on foreign or non-resident nationals. Yarrow (1999) suggests that whatever the relevance of the ‘public choice’ or ‘law and economics’ efficiency argument, the underlying reason for the push for privatisation is the relative increase in the cost of government finance to support SOEs, privatisation therefore became an imperative based on budgetary considerations.
These critiques differ in nature but an undercurrent is that privatisation and downsizing of public enterprises are ideological propositions grounded in a very specific economic theory (Cook and Kirkpatrick, 1997). As Krugman 1996 suggests:
It is based on some powerful but selectively read lessons of experience - experience that in the light of some future orthodoxy may be held to have little relevance, or even to have quite different implications.
4. The Absence of Good Governance
The problems of privatisation are compounded by those of good governance. Bureaucrats suggests that the main problems concerning privatisation are political obstacles. It may be that the real problems lie elsewhere.
Thus Ramamurti suggests:
I believe policy makers in the average developing country are more skeptical than the authors of Bureaucrats about the promise of privatisation, perhaps not in the abstract but when applied to particular firms or industries in the unique conditions of their respective countries. They are far more skeptical about what the local private will be able to deliver, about their ability to regulate privatized firms, and about how the benefit of privatisation will be distributed across society. They are more troubled than the World Bank on relying on foreign capital and expertise, or on local minority ethnic groups, to make privatisation a success (p 145).
There have been various studies of the limitations of the regulation of the process of privatisation and of privatised enterprises (Graham and Prosser, 1991, Prosser, 1990, 1997, Ogus, 1993, Lewis & Harden, 1983), but relatively little work on the Third World (cf Chibundu, 1993,1997, Lissu, 1996, Ahene & Katz, 1991). However, it is clear that regulatory processes are worse in developing countries with new opportunities for corruption. In relation to Thailand and Pakistan, effective privatisation programmes are endangered by unrealistic expectations (Heald), and as Wortzel and Wortzel (1989) suggest, privatisation programmes take up precious time, money, effort and expertise in many developing countries. In Nigeria, the previous authoritarian regime ensured that the final decisions in an apparently technocratic process had to be made by the Federal Military Government, which could give or withhold consent or modify the transaction (Chibundu 1997).
A most remarkable shift has happened in legal system support for privatisation. The constitutions of many countries seemed to rule out privatisation, but these provisions have been changed with the rise of market-economy multi-party constitutions in former socialist countries and the Third World. Courts everywhere have tended to provide market-liberal interpretations to constitutional provisions. In France, a constitutional provision in the Preamble to the 1946 Constitution which seemed to prevent privatisation of natural monopolies has been interpreted to be of limited effect (Prosser 1990). Even the Indian Supreme Court with its strong judicial activist tradition protecting public interests has not been immune to the winds of economic liberalisation, and the Constitution has been interpreted to cede power to the executive (Baxi 2000a). In Zimbabwe, which has witnessed a variety of tussles between the state and the judiciary, the latter, in a series of remarkable decisions concerning cellular phone systems, have decided that Article 20 (1) of the Constitution on freedom of expression demands divestiture of the state monopoly over cellular telecommunications. Among other things, the Court decided that in the light of trends towards privatisation in other democratic countries, it can no longer be claimed that a state monopoly over telecommunications is reasonably justified in a democratic society.3 While some governments have been enthusiastic about privatisation and have used it as a legitimising ideology, as was the case with Zambia (Musambachime, 1997) and Argentina (Ramamurti 1999), other reluctant governments, particularly in the developing countries, have succumbed to external pressures (Sarbib 1997). For example, an IMF Press Release on Tanzania in 1997 suggested:
The IMF said it regretted that privatisation had not moved ahead as fast as planned, and added that a commitment to structural reforms would help the government in obtaining financial support.
The privatisation process may have been formally democratic, but in practice it has been rushed through using various ‘log-rolling’ techniques (Ramamurti, 1999) which in particular have effectively by-passed the democratic scrutiny of the very Parliaments which have been established under the new multi-party constitutions. For example, the Tanzanian legislation gives strong power to the Presidential Parastatal Sector Reform Commission (PSRC) and to the President’s office. The key advisor in the PSRC is a British aid funded member of a TNC management consultancy. Lissu (1997) therefore suggests that the privatisation process insulates the initiative from the people because the key determinants in the process are the executive and global institutions. Braithwaite and Drahos (2000, p587) observe an anthropology of culture change involving ‘model missionaries’ and ‘mercenaries’ located in both centre and periphery:
Foreign educated locals return to their countries to spread a regulatory gospel. They become senior bureaucrats, pushing at home, for example, US models of competition law. Partners in local law firms and accounting firms, realizing the opportunities that foreign models may bring, become experts in foreign regulatory models. Local mercenaries band together with foreign mercenaries.
The extent of the discretion involved in the process of privatisation means that often no criteria are established for valuation of enterprises to be privatised with the results being necessarily subjective (Lissu, 1996). The current World Bank thinking is that there has been an overemphasis on valuation, and that ‘governments have learnt that it is the market which determines values’ (Sarbib, 1997).
The mechanisms for post-privatisation regulation in the south are very weak (Lissu 1996). This is particularly the case in British influenced countries which seem to have absorbed the relatively weak British traditions of anti-monopoly legislation and attempts to prevent abuse of market through price control. That is, the controls are mainly ‘market’ based as opposed to those based in safeguarding the wider human and environmental rights. More significantly, the control process is in the hands of quangos with little role for courts or judicial supervisory bodies such as the French Conseil Constitutionnel (Prosser, 1990)
The main resistance to privatisation actions has often come from the workers. Unfortunately judicial challenges have either been undermined by the weak protection offered by the new multi-party constitutions, creative interpretations of old-fashioned constitutions or the weakness of trade union organisations in promoting workers’ rights (Lissu,1996, Chibundu, 1997 f61). Alternative challenges have come from ‘traditional’ social groups such as the Obong in Nigeria, whose legal challenge has confronted the same legal establishment and structures as has confronted the workers (Chibundu, 1997).
In sum, as it is assumed that privatisation is part of good governance, there is no good governance of privatisation. Yet, historical analyses of the role of regulation in the capitalist market economies emphasise the need for effective regulation in the public interest (Novak, 1993).
There is a tacit acknowledgement by the World Bank group that there may have been poor governance of privatisation until recently in developing countries and transitional economies. Sarbib, the Vice-President of the World Bank, Africa Region, accepts that the first phase of African privatisation may have suffered from a lack of transparency and inefficiencies, and not all stakeholders were involved in the privatisation process (Sarbib, 1997). The new phase would seek to rectify these problems of governance. Nevertheless, there is a contradictory approach to resolution of the problems because of the underlying mistrust of the state. Resulting in the creation of legally and politically powerful privatisation quangos which are insulated from government interference (Sarbib, 1997). In practice, these quangos become more accountable to global agencies at whose initiative and with whose assistance they are created. Jacobs, the head of OECD Program on Regulatory Reform suggests (1999, p1) that these good governance ‘second generation’ regulatory reforms are necessary
‘to realign fractured relations between the institutions of the state, the market, and civil society to sustain market led growth and boost potential social welfare’. In particular, he suggests that ‘New or adapted regulatory institutions supported by civil society are required to maximize the potential benefits of vigorous market competition’4 .
That is, second generation reforms are little more than an attempt to make first generation marketisation reforms work and to promote competition and not to reconstruct in the ‘public interest’in terms defined, for example by Novak 1993.
Moves towards greater transparency and greater post-privatisation monitoring and information flows are welcome. Privatisation agencies are establishing web sites which provide information on privatisation process and attempt to attract investors.5 The recognition of the need to study the impact on workers and consider welfare programmes etc. must also be welcome as is rethinking of regulatory reform. However, market obsession prevents innovative rethinking of the complex web of institutional and policy relationships involved in regulatory processes. In order to serve its objectives, innovative regulation needs to be based on cultural pluralism and local specificities rather than globally uniform rationalisation. An innovative example of alternatives to traditional regulation of health and safety is suggested by autopoietic theory (Paterson and Teubner, 1998, Cf. Jacobs, 1999). The dangers of a subtle transference between promoting transparency and propaganda can be seen in this passage from Sarbib (1997, p.11).
As governments open up, they are realizing the importance of public relations both nationally and internationally. At the same time, the technology revolution is contributing to the process of democratization by providing more information, and in turn, stimulating an increasing demand for information and accountability. Hence, in response to public distrust of privatisation, we now see governments taking steps to address the lack of publicly disclosed information on divestiture procedures, concluded deals, the impact of privatisation, and on the use of sales proceeds. This is a healthy trend which we should fully endorse and support. As I have said, many citizens have yet to see or feel the benefits of privatisation. They need convincing that privatisation is good for the country and for them; and that means keeping them informed. With increasing demand for information and transparency, all the more important now that the major enterprises are on stream, implementing agencies will have to pay attention to improving public relations and communications.
The problems may have been of such an order that the very notions which underlie the definition of good governance in regulatory reform and of privatisation itself are challenged (Nellis 1999). The underlying problem may be a definition of governance which is steeped in institutional economics and property rights theory. As McAuslan (1997, p34) points out:
An agenda which concentrates on the development of a market economy and uses that perspective to advance the cause of good governance is misguided. This model of development assumes that a market economy means less government so that the thrust of law reform is on less regulation, more rules facilitating transactions in the market, the acquisition of private property (where the market forces are assumed to take care of any inequalities in development) and judicial reform aimed at facilitating the settlement of commercial disputes.
While the development of a greater sophistication in regulatory reform is a welcome antidote to the first generation approaches (Jacobs 1999) the underlying approach to governance and regulation remain obsessed with the market.
In sum, while privatisation is promoted purely as a nation based economic strategy, with the main impetus coming from global agencies, its weakness lies in being part of a global agenda for change. The emphasis is on a global market constructed by worldwide de-regulation and market reform. Thus to quote Jacobs again (1999, p2).
The wealth, innovation, and competitive advantage created by these reforms launched a multi-decade process of market-oriented reform that is now a worldwide phenomenon affecting the lives of billions of people. In many countries, these reforms to the roles of the state and the market, in combination with technological changes and global opportunities, are just now beginning to change the structure of markets and methods of production. If the experiences of these pioneering OECD countries can be replicated, we have not yet seen even a substantial fraction of the possible benefits of this transformation. First generation regulatory reforms, within the right institutional framework, could be among the most significant of the policies aimed at alleviating global poverty and inequities.
Therefore, any questioning of retreat from these reforms would jeopardise the ‘extraordinary opportunities that a global marketplace made possible by competition, trade and investment can provide for OECD and the developing world alike’6.
It is clear that it is not possible for national capitalists in many developing countries to compete with foreign capital. Between 1992 and 1995 only 15 out of 95 enterprises privatised in Tanzania were sold to local interests (Lissu, 1996). The figure in Zambia was a bit higher at 88 out of 146 enterprises (Musambachime, 1997). This is a period in which only minnows were being privatized (Sarbib, 1997). There has been some effort to ensure that in ‘sensitive’ ‘crown jewel’ type of operations, privatisation does not involve simple divestiture of large enterprises to foreign interests. Instead, such divestiture is initially of a proportion of the equity (Sarbib, 1997). Nevertheless, the underlying framework is one in which effective management and control is passed over to the foreign equity holder7.
The issue is one of the nature of globalisation. From the IFIs perspective, free market based globalisation is the true path to development. In an era in which communications and information and transportation technologies encourage economic, social, cultural and political intensification at a global level, it is difficult for ‘state enterprises’ to transcend national boundaries (eg. Nolan and Wong 2000). On the other hand, global corporations can draw effective support from its metropolitan home state while playing ‘good citizen’ in a variety of host states. What global corporations demand is a globally consistent matrix promoting liberalisation of regulatory controls on ownership of enterprises, trade, investment and financial flows. In effect therefore, privatisation and good governance have been essential elements of the globalisation process. Yet, the failure of public choice and new institutional economics at the global level has been to ignore until recently the need for good governance of the globalisation process itself (cf. Chayes and Chayes 1995, Commission on Global Governance 1995, Rosenau 1995). Thus as MacEwan (1994) suggests this has been a particular problem ‘for the realisation of economic and social rights because it places emphasis on unrestricted market forces’ (See also Oloka-Onyango, 1995, Baxi, 1994, Aryeetey, 1998).
Regimes such as the WTO and the proposed MAI have emphasised largely liberal free market economics and have only made limited gestures towards developing country social, economic and cultural needs. The belated moves towards regulation or re-regulation have been responses to successive crises for example in relation to the BCCI, the Mexican Peso, the Pound-Lire collapse and most recently the collapse of the South East Asian markets. The need to regulate the banking sector has had some successes with the Basle Agreement, the Bank for International Settlement and the developing collaboration between central bankers (Picciotto, 1996-7, 1999). The South East Asian crisis has brought up issues about control of short term investment flows. Nevertheless, IMF measures have been criticised for their bailing out of rash investment from developed countries and the lack of real understanding of needs of the economies (Chang 1997).
More significantly, none of these measures have tackled real issues of safeguarding global public interests whether in relation to the environment or social, economic or cultural rights (Cf WTO, 1999). Neither have any attempts to control TNCs been successful. It is clear that old regulatory mechanisms, which were based on combinations of state and inter-national institutions, are not as irrelevant as some suggest (Picciotto, 1996-7, 1999). However, they become part of new structures of governance which involve increasing influence of NGOs, other social and economic organisations and movements to strengthen corporate governance. Unfortunately, NGOs suffer from the pressures of incorporation into becoming adjuncts of state and supra-state agencies. New global governance mechanisms developed to meet the emerging crises in capitalism are precisely attempts to safeguard global capitalism and protect it from the ensuing resistance.
That is, the apparent transcendence of national boundaries is not a neutral phenomenon, but what Silbey (1997, p219) has called postmodern colonialism.
Under dominant accounts of globalisation, the dynamics of power are obscured so that social relations seem to be produced by invisible or natural forces. When the operation of power is masked, I argue, justice, and efforts to confine and regulate power, is made less probable.
Santos (1995, p263) uses the term ‘globalised localism’ to describe the same dynamics of power.
It consists of the process by which a given local phenomenon is successfully globalised, be it worldwide operation of TNCs, the transformation of the English language into lingua franca, the globalisation of American fast food or popular music, or the worldwide adoption of American copyright laws on computer software.
More complex accounts of globalisation emphasise the disjuncture between global and local discourses. Robertson and Appadurai both make use of the notion of disjuncture but to very different effect. Robertson begins with the notion of globalisation as the intensification of consciousness of the world as a whole, but emphasises the need to analyse ‘actual intersocietal and intercivilisational encounters’ for an understanding of the phenomenon. He suggests that different global actors may think about different aspects of the global field in different ways at different times. However, for him the tendency is not towards homogenous globalisation or a heterogenous world, but towards syncretisation – a coexistence of different traditions and cultures.
Appadurai (1999, 299) takes the notion of disjuncture a step further by suggesting that the very intensification of global encounters promotes the development of incoherence. While both Silbey and Santos place emphasis on the imperialist aspects of a ‘globalisation’ project, Appadurai focuses on the diasporic imposition of western notions such as democracy, human rights and economic liberalism. He suggests that these can translate into vastly different conceptualisations and actualisations in different environments
Looked at from the perspective of either Silbey, Santos, Robertson or Appadurai, globally introduced strategies of privatisation are highly problematic. At the strongest, Silbey and Santos would regard them as forms of cultural imperialism. For Appadurai, such top down strategies can promote incoherent failure of the objectives. Robertson would probably be less uncomfortable in emphasising the local in any project, but his emphasis on syncretisation suggests that locally conceived projects can integrate within a global environment.
Current IFI strategies on privatisation recognise the political failures of the first phase of privatisation, and promote some need for cultural sensitivity (Shirley, 1999), but the belief in market led globalisation considers cultural sensitivity issues either as ‘political obstacles’ or as ‘eye candy’ of public relations exercises. The contradiction at the root of thinking is the result of public choice, property rights and institutional economics. The first, pre-good-governance phase of privatisation was redolent of the Chicago law and economics school’s faith in the market as a regulatory mechanism in it self.
This contrasts with the New Haven School of Law and Economics which makes regulation a key part of the complex and rich range of institutions. The school is influenced by ‘the richer range of both empirical and theoretical concerns’ which can respond effectively to the needs of a variety social groups and considers the impact of the market on distribution, fairness and justice (Ackerman, 1992, Mercuro & Medema 1997). Such an approach to regulation is not new. As Novak (1993) convincingly demonstrates in relation to the pre-civil war period in the US, the foundation period of US capitalist development, this was a far cry from the neo-classical liberal foundation stone of the unregulated free market economy. Instead, legislatures, courts and regulators were well known for their strong stance on regulation in the public interest. At one level, it might appear that the new phase of privatisation with good governance supports the more flexible regulatory approach of the New Haven School. Both Wolfensohn (1999) and Stiglitz (1998), from different perspectives within the World Bank Group, have acknowledged the need for a more complex framework than pure economic liberalisation. However, the continuing dominance of the market as the foundation of good governance is a sign that in practice not much distance has been travelled. A singular ideology of privatisation, however goodly governed, remains part of an attempt to impose a global corporate culture.
As both Robertson and Appadurai’s different perspectives would suggest, such attempts can have chaotic effects because of the lack of understanding of local needs and variables. Global strategies could conceivably achieve global corporate objectives, but often at the expense of local social, cultural and economic development. On the other hand, approaches which are based on the recognition of difference as an integral part of global reality (eg Fitzpatrick nd) may contribute much of value to discussions on development and governance.
6. Conclusion: Alternatives?
To summarise, this paper has suggested that the claims of success for the strategy of privatisation cannot be taken for granted. In particular, while it is assumed that privatisation is an inherent part of good governance, there has not been good governance of privatisation. Instead privatisation strategies, in conjunction with economic liberalisation constitute part of the onward march of global corporate culture. Without effective good governance of globalisation, the IFI strategies suffer from charges of cultural imperialism and/or the prospect of incoherent failure.
An alternative is provided by ‘developmental state’ analysis, which challenges the new orthodoxy of the IFIs (White, 1987, Wade, 1990).
In a recent paper, Nolan and Wang (1999) challenge the World Bank’s uniform globalist approach on privatisation with an analysis of Chinese restructuring strategies suggesting:
China’s large SOEs are developing new institutional forms that do not neatly fit into existing patterns. China is experimentally changing its institutions through a combination of central policy, local initiative and interaction with international investment. This presents a challenge to the ‘transitional orthodoxy’ and to ideas concerning property rights and government action that works best in all circumstances (p.170).
The underlying strategy is for state promotion of large businesses which can compete in the global market. Similarly, a historical analysis of Korean and Philippine development, both with authoritarian regimes but the former being more home grown and the latter more amenable to western developmental approaches, suggests the relative success of strategies steeped in local cultures (Scipes, 1999).
However, while the ‘developmental state’ provides an alternative economic model, the focus of key countries in East and South East Asia on the economic at the expense of social justice and human rights issues continues to cause concern (Ghai, 1998). Various efforts have been made towards promoting development strategies which combine social justice and development. Sen’s Development as Freedom (1999) ultimately takes a position which is merely ameliorative of corporate globalism in asking for
‘concerted efforts to make the form of globalisation less destructive of employment and traditional livelihood, and to achieve gradual transition’ (p240).
The approach of the UNDP on good governance and development appears to place greater emphasis on human and eco-development:
Sustainable human development places people at the centre of the development process and makes the central purpose of development as creating an enabling environment in which all people can enjoy a long healthy and creative life (UNDP 1998 p4).
The goal of governance initiatives should be to develop capacities that are needed to realise development that gives priority to the poor, advances women, sustains the environment, and creates needed opportunities for employment and other livelihoods (UNDP, 1994).
Yet underlying the arguments about economic development and governance are issues involving the politics of power and specifically of subaltern resistance to the dominant globalizing agencies (Baxi, 1999, 2000, Braithwaite and Drahos, 2000, Picciotto, 1996-7, 1999). As Chomsky (cited by Braithwaite and Drahos, 2000, 629) puts it, the current regulatory mode has given us
‘the rule of law for the weak, the rule of force for the strong; neo-liberalism for the weak, state power and intervention for the strong’.
Such issues have been brought into sharp focus by the new politics of protest in the Prague Autumn and elsewhere even as I write. The underlying thrust of the protests is not about particular forms of economic organisation such as privatisation, but giving real meaning to aspirational statements such as those made by the UNDP above and promoting subaltern perspectives in ways which inject a new dynamism to the global politics of power. The Subaltern Studies journal provided the academic voice to such dynamics. Castells through his analysis of networking in an information age suggests complex new parameters for political interaction.
Braithwaite and Drahos (2000) cautiously promote ‘alternative modelling’ of social justice approaches to regulation in a similar vein to Santos’ (1995) post-modern utopia of constructing alternative common sense discourses. Rajagopal (2000, p578) suggests that subaltern struggles, such as those involving the Polonoroeste project in Brazil and the Narmada dam in India, have a dialogic transformative role on IFI strategies:
The arrival of social movements in international law does not mean that the state has become an insignificant actor in the Third World or in international law. However, it is undeniable that the nature of Third World resistance has undergone a radical transformation due to the emergence of local social movements as independent actors. The response by international institutions to this resistance has reflected the importance of this change by engaging the multiple sites where the Third world is located for these institutions. Clearly, a new form of politics, a new form of power organization, and new methods of expressing resistance are emerging from the grassroots and are only likely to intensify in the coming millenium.
He also acknowledges the flip side that such IFI strategies also have a transformative effect on the social movements concerned. Ultimately, the search for good governance has to contend with a real world contest between discourses.
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1 Braithwaite and Drahos (2000, p586) use the terms model missionaries, model mercenaries and model mongers to describe various participants selling particular models of regulatory reform. The role of the IFI’s probably falls between missionaries and mongers, but perhaps with the able assistance of individual missionaries and mercenaries.
2 Privatisation activity in Africa increased from 298 in 1990 to 497 in 1997 (Sarbib et al 1997).
3 The key decisions are: Retrofit (Private) Ltd. v The Posts and Telecommunications Corporation and AG of Zimbabwe. Judgment No. S.C. 136/95 (Supreme Court); 1995 (9) BCLR 1262 (ZS). See also Retrofit (Pte) Ltd. v The Minister of Information, Posts and Telecommunications. Judgment No. S.C. 238/95 (Supreme Court).
4 Other policies include: 2. effective protection of other collective interests through better institutions and policy tools 3. Flexibility 4. Avoid moral hazard problems through policies consistent with the market 5. Visibly sustained democratic legitimacy and rule of law.
5 See eg Tanzania Parastatal Sector Reform Commission site www.psrc.org.
6 See also IMF website on the benefits of globalisation www.imf.org
7 Nevertheless, in many cases, real power already belonged to TNCs even before privatisation through joint ventures and management agreements and formal privatisation was merely a recognition of the reality of economic power see eg Ghai and Choong,1988.