RN: Globalization: a view from India


Jan Slakov

Date:          Thu, 15 Oct 1998 20:16:46 
Subject:       Financial Globalization: New Challenges for Peoples' Movements
Organization: Public Interest Research Group, N.Delhi

Financial Globalization: New Challenges for Peoples' Movements

By Kavaljit Singh

(Kavaljit Singh is the coordinator of Public Interest Research Group. 
He is author of A Citizen's Guide to the Globalization of Finance 
(Madhyam Books, Delhi and Zed Books, London, 1998). His forthcoming 
publications include Regulating Global Capital Flows: Policy 
Challenges and Alternatives.)

Note: No copyright. You are welcome to reproduce or post on the web-
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There is no denying the fact that the globalization of finance has 
surpassed the globalization of production. With a daily turnover of 
1.2 trillion dollars in 1995, the global currency trading has gained 
a life of its own, and much of it is hardly related to the real 
economy. The deregulation and globalization of financial markets - as 
twin elements of the Washington Consensus - in developing countries 
coupled with lower interest rates and institutionalization of savings 
in developed countries, are the main factors behind the rapid 
transborder capital mobility.  

However, increased global capital mobility has been accompanied by an 
increased frequency of financial crises in both the developed and 
developing countries.1 The fact that there is a positive correlation 
with international financial liberalization and financial crises has 
been well established. Even the International Monetary Fund (IMF) has 
admitted this fact. In a recent study, which looked into the 
empirical relationship between banking crises and financial 
liberalization in 53 countries during the 1980-95 period, the IMF 
also came to the conclusion that banking crises are more likely to 
occur in liberalized financial systems.2

As recent financial crises are the outcome of international financial 
liberalization, there is a growing concern to restructure the present 
international financial architecture. Surprisingly, the need for 
effective and meaningful regulations is not only expressed by 
leftists economists or radical groups, even the true believers of 
liberalization and globalization are also advocating the relevance of 
capital controls and regulatory mechanisms. Critics had never 
anticipated that the tide against free-market financial system would 
turn so quickly. Perhaps, certain recent events, particularly the 
contagion effects of the Southeast Asian currency crisis and the near 
collapse of a multi-billion hedge fund, the Long-Term Capital 
Management, seem to have contributed in the sudden change of mindset. 
Increasingly, it is being admitted that if the international 
financial system is not regulated, no country can remain immune from 
the impact of financial crisis. 

The Response of Peoples' Movements

In recent months, restructuring of the global financial architecture 
has become the key theme in the ongoing international debates, as 
witnessed during the just concluded annual meeting of the World Bank-
IMF.  However, peoples' movements, NGOs, and labor organizations, in 
both developing and developed countries, have yet to respond - 
effectively and critically - to the issues emerging from 
globalization of financial markets. 

There could be two important reasons behind this. Firstly, financial 
markets are a new subject for peoples' movements, which have largely 
been dealing with either foreign direct investment (FDI) or official 
capital flows - multilateral (e.g. World Bank, IMF) or bilateral. 
Second, and perhaps more importantly, there has been a lack of 
information and understanding on issues related to global finance. No 
doubt, financial matters are very complex and require a considerable 
amount of expertise and experience, which, unfortunately, many groups 
do not possess. Therefore, a well-thought and coordinated action 
program by the social movements at various levels is yet to emerge. 

The Indian Scenario

At the political level, except for a few issues such as 
liberalization of insurance sector, there seems to be a growing 
consensus among mainstream political parties in India for financial 
liberalization. This is reflected by the continuation of "reform" 
process of financial sector by three governments belonging to left, 
center and right in the 1990s.3 On the other hand, social movements, 
NGOs, and labor groups, operating at the non-party political space 
have yet to critically respond to these issues.

There is no doubt that in recent years, the Indian groups have shown 
to the world that mass campaigns can be successfully launched 
campaigns against many World Bank-funded projects (e.g. Narmada dam 
and Singrauli power projects). Similarly, many struggles and 
campaigns against FDI have come up in India; examples include 
campaigns against Union Carbide, Cargill, Enron, and Nestle. Since 
the territory of finance capital is new to Indian groups, they are, 
increasingly, realizing the importance of understanding  new issues.4
Like others, the Indian groups also lack the expertise on global 
financial issues. Although a large number of research institutes 
working on financial matters exist in the country, but most of them 
serve the information requests of corporate sector. Since the reports 
and journals published by these institutes are very expensive, the 
activists and movements are unable to afford these. Furthermore, to 
keep in tuned with the changing economic and political scenario, many 
institutes have radically changed their perspectives and as a result, 
have become greater votaries of financial liberalization in recent 

Thus, the task of providing regular information to movements has been 
left to a handful of research groups and socially committed 
intellectuals. With their limited resources and outreach, efforts are 
being made to provide information and campaign tools to activists and 
groups in the country. In recent months, efforts have been made to 
demystify the complex issues related to globalization of finance in 
order to democratize the debates.5 Such efforts need to be further 
supplemented by preparation and publication of educational materials 
for the masses, especially in local and regional languages in India.

What should be the Agenda of Social Movements?

Given the present geo-political conjuncture, one cannot expect any 
major structural changes in the global financial system to take 
place, without mass mobilization and empowerment of people in both 
developed and developing countries. Perhaps, more in the developed 
countries from where the majority of these financial flows originate. 
As the financial crises are, increasingly, becoming global in 
character, the response of the social movements to address these 
issues should also be global. Although the arena of mass struggles by 
the movements may remain national, but transborder alliances and 
linkages with other groups need to be developed and strengthened. 
Further, the struggles against the global financial system cannot be 
fought exclusively, it should be an integral part of wider cross-
sectional movements against neo-liberalism and global capitalism. 
But, the earlier successful methods and strategies of campaigning and 
lobbying with official capital flows (World Bank, IMF) are unlikely 
to work in the case of finance capital. While the World Bank and 
other institutions (multilateral and bilateral) are "public" 
institutions, have a mandate for poverty alleviation and sustainable 
development (although one may dispute the seriousness of intent and 
differ with their approach towards it), on the other hand, private 
finance capital is only looking for profits, has no developmental 
agenda, and is only accountable to its shareholders - with no 
responsibility for public participation and disclosure of 

Furthermore, it is relatively easier to target campaigns and monitor 
the funding by the World Bank, the IMF and the ADB, while much of 
global finance capital is liquid and footloose in nature, moving from 
one country to another within seconds, thereby making it extremely 
difficult for social movements and others to monitor it. Similarly, 
the earlier strategies of campaigning (e.g. labor, legal or 
environmental action) on private capital flows that were largely in 
the form of FDI may not work in the case of footloose finance 

In the given economic and political context, an action program 
calling for total elimination of global financial flows is unlikely 
to succeed, although it may be desirable. The author is of the 
opinion that action programs based on restricting international 
financial liberalization and selective delinking from short-term and 
speculative funds may have better chances of success. This, however, 
does not mean that one is blindly supporting long-term FDI and other 
types of financial flows. There is no doubt that the cost of FDI is 
also high as capital can move out through royalty payment, dividend, 
imports as well as other illegal and legal means.     

The strategies of struggles will differ from country to country 
depending on specific context; still a number of common action 
programs could be planned at both recipient and source countries. 
Some of the common action programs are outlined below. These are not 
definitive but could serve as a starting point for further debate and 

Action Programs in Recipient Countries 

At the national level, the groups and movements should advocate for 
greater regulations with regulatory bodies. Efforts should be made by 
activists and groups to put strict capital controls on the inflows of 
speculative funds in order to prevent the emergence of a crisis-like 
situation. In this context, it will be worthwhile to examine the 
efforts by Chile and Malaysia to put controls on inflows in order to 
restrict "hot money" flows. Similarly, other policy mechanisms (e.g. 
capital gains tax) could also be explored to deal with such flows. 
The recent experience in the recipient countries suggests that policy 
makers and regulatory bodies, very often, tend to overlook the 
problems during the boom periods (when massive capital flows move 
in). However, their response is quicker during the bust periods. The 
policy makers cannot remain blind to the fact that those people 
(usually the upper middle class and rich) who are the main 
beneficiaries during the boom periods are not the real losers during 
the bust periods. While vast sections of society (consisting of the 
poor and lower middle class) do not gain during the boom period, as 
their purchasing power is very limited or negligible - are the worst 
sufferers during the bust phase, which is accompanied by job losses, 
fall in real wages, high inflation, high taxes, and reduced public 

Although with globalization, the power of nation-state to pursue 
independent economic policymaking has weakened, still nation-state 
can restore relative autonomy in the management of its economy, as 
witnessed recently in Malaysia. Despite globalization, the nation-
state is not going to wither away, activists and groups should make 
efforts to make it accountable and democratic. 

Action Programs in Source Countries 

The NGOs and peoples' movements in source countries will have to take 
serious notice of global finance capital. They will have to exert 
public pressure on regulatory bodies for strict regulatory mechanisms 
and disclosure standards. Certain types of financial instruments 
(e.g. hedge funds) are highly unregulated in their source countries. 
The recent collapse of U.S. based international hedge fund, Long-Term 
Capital Management, illustrate this point. There are over 2000 
international hedge funds operating in the international financial 
markets without any regulation.

In source countries, any campaign against the global finance capital 
is unlikely to succeed without the support of middle class investors 
who invest their savings in the mutual funds, pension funds, bonds 
and other financial instruments. Since the size of this community is 
very large, running into millions, the capital collectively 
contributed by them is in trillions of dollars. In U.S. alone, the 
proportion of investment of households/individuals in mutual funds 
account for over 35 percent. The American mutual fund industry with 
assets of $4 trillion, account for over half of the World's mutual 
fund assets. After all, a substantial amount of capital - which the 
international fund managers move across the border - belongs to this 

In recent years, a few attempts have been made by NGOs in U.S. and 
other western countries to sensitize the investor community about the 
wider implications of their investment. Similarly, a number of funds 
(popularly known as socially responsible funds) which invest only in 
socially and environmentally sound projects have come up in recent 
years. However, the recent experience shows that some socially 
responsible funds do not behave differently from any other profit-
seeking fund. These funds also have a tendency to overreact on "herd 
instinct". To illustrate this point from a perspective of a recipient 
country, an example of Thailand is cited here. When the speculative 
attack on the Thai baht was launched in early July 1997, all kinds of 
funds, including socially responsible funds, quickly moved out from 
the region, thereby precipitating the crisis. Thus, from a 
perspective of recipient country, they are not much different from 
any other funds. The NGOs and groups, particularly in the source 
countries, will have to keep this larger picture in mind while 
supporting such funds.  

The Need for International Action

While working at the national level (both recipient and source 
countries), peoples' movements and groups  will also have to address 
the issues at the international level. The need to work at the 
international level is  necessitated by the fact that financial 
globalization can also cause serious damage to world financial 
markets and the real economy. The growing trend towards mega-mergers 
and acquisitions in the banking and financial sectors further calls 
for international action in terms of regulation and supervision. Some 
of the proposals to deal with the financial issues at the 
international level are discussed below.

Tobin Tax: Given the volatility of short-term flows, the Tobin tax 
could serve as perhaps the best instrument to discourage short-term 
flows. However, this idea needs to be updated, modified and debated 
in the present context. The Tobin tax is also desirable from the 
point of view of its revenue potential. It can generate forex 
reserves, which can be used during the period of currency flight. Its 
counterpart domestic currency and financial resources can be used for 
the removal of poverty, hunger, environmental degradation, 
illiteracy, etc. The revenue potential of a 0.25 per cent tax in the 
1970s was relatively modest; with the 1995 global forex volume, 
annual revenue raised would be closer to $300 billion.8 This amount 
is very tempting given the fact that international official aid has 
declined over the years, and the national governments are faced with 
less financial resources for social sector spending due to the 
implementation of structural adjustment programs. 

The idea of Tobin tax has certainly generated a lot of interest among 
many economists, NGOs, trade unions and political groups all over the 
world. This became very evident during the World Social Summit in 
1995, when many social groups and movements advocated the imposition 
of Tobin tax to raise additional resources to finance developmental 
projects. The groups could immediately launch a major international 
campaign for Tobin tax. 

A New Global Institution (World Finance Authority)?: Since the 
existing international financial institutions are unable to deal with 
the global financial issues and cannot enforce regulations, a 
proposal for creating a new global institution (World Finance 
Authority) has been put forward by Lance Taylor and John Eatwell.9 
According to the proposal, this new institution should have adequate 
executive authority to monitor and regulate global financial flows. 
This institution could ensure transparency and accountability of the 
IMF and the World Bank. Besides, it could also monitor and regulate 
the activities of international banks, currency traders, and fund 

At this stage, it is unlikely that such an institution will be 
created, given the hostility of global financial institutions, 
particularly the IMF and fund managers, to have a supranational body 
to oversee their operations. However, the British Prime Minister, 
Tony Blair, who is also chairing the G-7 nations, has recently 
supported the need for such an institution.10 In an unexpected move, 
India's Finance Minister, Yashwant Sinha, has also endorsed the need 
for such an authority.11

The groups will have to closely monitor the developments related to 
the creation of a World Financial Authority. They will have to ensure 
that this authority should function under the UN system, besides it 
should have a wider developmental agenda with an open and democratic 

In the short run, ongoing campaigns against the OECD proposal for a 
Multilateral Agreement on Investment (MAI), which includes capital 
account liberalization, should be further strengthened. Similarly, 
campaigns against the rewriting of IMF articles favoring full capital 
account liberalization as well as against the liberalization of trade 
in financial services under the WTO agreement should be immediately 
launched by the NGOs and movements. 

In the coming days, NGOs and others will have to grapple with and 
take notice of two major international institutions that deal with 
finance capital. These institutions are the Bank of International 
Settlements (BIS) and the International Organization of Securities 
Commission (IOSCO). The BIS is the oldest international financial 
institutions. Located in Basle, its mandate is to monitor and 
regulate private bank lending. While IOSCO, based in Montreal, works 
on securities issues. Unfortunately, both these bodies have not come 
under close public scrutiny, unlike the World Bank and the IMF.12

Towards A New Strategy?

Finally, I am of the opinion that peoples' movements need new tools 
of analysis and advocacy to deal with the globalization of finance. 
It is high time that activists and groups start understanding the 
language, procedures and working of finance capital in order to 
effectively deal with it. Perhaps, activists need to heed the advice 
of Brent Blackwelder of Friends of the Earth, "NGOs need a 'quantum 
leap' from Washington to Wall Street."13

Notes and References

1.  UNCTAD, Trade and Development Report 1998, United Nations, 1998.
2.  Asli Demirguc-Kunt and Enrica Detragiache, "Financial 
    Liberalization and Financial Fragility," Working Paper WP/98/83, 
    IMF, 1998.
3.  Kavaljit Singh, The Southeast Asian Currency Crisis and India: 
    Impact and Implications, PIRG, 1998, (forthcoming). 
4.  Shripad Dharmadhikary, "Campaign Against Narmada Bonds," in 
    Kavaljit Singh, A Citizen's Guide to the Globalisation of Finance, 
    Madhyam Books and Zed Books, 1998.
5.  See, for instance, Kavaljit Singh, 1998, op.cit; Arun Ghosh, 
    Asian Currency Turmoils and WTO Issues: Lessons for India, CSGTSD, 
6.  Welcome Speech by Brent Blackwelder, International Training 
    programme on International Private Finance, Friends of the Earth 
    and National Wildlife Federation, Washington, D.C., July 15, 1998. 
7.  Kavaljit Singh, op.cit, 1998 (forthcoming).
8.  For a detailed discussion on the Tobin tax proposal see, M. Haq, 
    I. Kaul and I. Grunberg (eds.), The Tobin Tax: Coping with 
    Financial Volatility, Oxford University Press, 1996.
9.  John Eatwell and Lance Taylor, "International Capital Markets and 
    the Future of Economic Policy," CEPA Working Paper Series III, 
    Working Paper No. 9, August 1998 (Revised September 1998).
10. Tony Blair, "Designing A New International Financial System 
    for A New International Financial Age, " Speech to the New York 
    Stock Exchange, New York, September 21, 1998.
11. "Ministry to hold talks with vigilance panel," Business Line,   
    September 16, 1998.
12. Talk by Kavaljit Singh, International Training programme on 
    International Private Finance, Friends of the Earth and National 
    Wildlife Federation, Washington, D.C., July 19, 1998. 
13. Brent Blackwelder, op.cit.

The author can be contacted at the following address:
Public Interest Research Group 
142, Maitri Apartments
Plot # 28, Patparganj
Delhi- 1100 92
Ph: 2221081, 2432054
Fax: 2224233
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