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Emerging Third World Powers: China, India and Brazil (page 2 of 2)
By Jerry Harris

The results were millions of poor and working class Indians giving a surprise victory to the Congress Party in the 2004 elections. But the Congress Party is also committed to bringing India into the transnational economy. As noted by Wipro Vice Chairman Vivek Paul, “Let’s remember that Congress was the architect of reforms a decade ago and the first to turn away from the old centralist system. That is a great comfort.” (Luce, Marcelo) The appointment of Manmohan Singh to prime minister and Palaniappan Chidambaram as finance minister has reassured transnational capitalists that India will continue on its path towards global integration. As finance minister in the previous Congress government the Oxford educated Singh was the first to push neo-libreral reforms. Chidambaram is also a Western educated economist from Harvard who as a lawyer represented some of the largest transnational corporations operating in India.

But the Congress Party has positioned itself as neo-Keynesian globalists rather than neo-liberals. This has committed the party to a more cautious approach to privatization while promising to help the rural economy by building new roads and irrigation projects. This would bring India closer to the “Beijing Consensus,” particularly with the strong electoral showing for the CPI (M) and other Marxist parties who are critical of the IMF and the selling of profitable state owned companies. Singh has already abolished the ministry of privatization and has ruled out the sale of some major state owned companies in the oil, gas and energy sector. The central government still owns 240 state companies and foreign direct investment only accounts for 0.7% of the GDP compared to 4.2% for China and 3.2% for Brazil.

Communist influence worries global investors who complain India’s labor laws are too restrictive and fear the new government will fail to make it easier to fire workers and hire temporary labor. In 2003 transnationals contributed only $4 billion dollars in foreign direct investment compared to $50 billion in China. “We can forget labour reform for the time being” says Subir Gokarn chief economist of Crisil, India’s largest domestic credit rating agency. But global capitalists shouldn’t be overly worried. The CPI (M) has governed West Bengal for over 20 years where IBM is one of the state’s largest investors. As Jon Thorn, manager of the India Capital Fund of Hong Kong says, “If Bengal is good enough for IBM then the rest of India should be okay for equivocating foreign investors.” (Luce, 2)

It was the millions of rural poor that put the Congress Party back into power. But reforming the agricultural sector to fit the global economy would cause widespread displacement of small farmers that dominate the countryside. India has subsidized local food production to insure supplies for their population, and about 58% of the national workforce is still on the land. Only 40% of India’s farmland is irrigated with little mechanization and few large-scale farms, and
the World Bank estimates that India accounts for 40% of the world’s poor living on less than a dollar a day. Increasing agricultural productivity eventually means larger farms, more machines and diversification of crops to serve the international food market. Such reforms would throw millions off the land and into the cities. But the industrial sector and infrastructure simply don’t have the ability to absorb such a massive structural shift. Unless the Congress Party and its left allies can devise a different strategy it is doubtful they will be able to avoid future political upheavals from the rural masses.

India’s main insertion into the global economy comes from its rapid advance in information technologies and pharmaceuticals. It’s a high-end strategy that has attracted much attention, particularly as India became the choice for offshoring IT jobs from the US. This model is the opposite of China’s massive integration based on low wage manufacturing. In fact, India’s industrial base lags far behind China offering fewer opportunities for foreign direct investment. While India’s factory wages are low they are still above Chinese standards. China has 100 million workers in its manufacturing sector compared to just nine million in India. This gap shows up in their export figures that in 2003 were $318 billion for China and just $60 billion for India. But China’s strategy has created a greater urban economy attracting millions caught in rural poverty and is more effective in creating a wider consumer base. For example, China sells 35 million televisions a year compared to six million in India and its internal market is three to four times larger than India’s. (Luce and Kynge)

But India shines with its outstanding world-class education system in information technology and business, and its estimated that India’s middle class has grown to 150 million people. Although currently the IT sector only employs one million workers future projections of growth predict a rapid rise. US studies show that within four years IT outsourcing will be a $57 billion a year industry employing four million and responsible for 7% of India’s GDP. In 2003 India had 52% of the global revenues from outsourced IT work and 46% of the employment. Currently 442 foreign companies outsource contracts greater than $1 million dollars to India. In the US, IT employment may lose from 25% to 47% of its jobs to India including software development and maintenance, IT documentation, software reengineering and systems management. (Wired) India’s lead over China is also apparent with $10 billion worth of IT exports compared to $1.5 billion from its northern neighbor. Moreover, 15 Indian technology companies accounted for 40% of China’s IT exports. In return China is investing into India with Huawei building a $100 million plant in Bangalore.

US transnationals have also entered India, some of the biggest investors include General Electric, Intel, Cisco, IBM and Dell. Although outsourcing to India has caused a political uproar in the US most corporations see it as a temporary outcry caused by the presidential contest. In the midst of the controversy IBM acquired Daksh e-Services, the third largest call center in India. This deal was concluded just two weeks after IBM scored a ten-year contract to manage the technology needs of Bharti Tele-Ventures, one of India’s biggest telecommunications group. In 2003 there were 37 cross-border mergers in India’s business process outsourcing sector worth $289 million and the pace of acquisitions continued in 2004. In turn some of India’s biggest IT firms such as Wipro, Infosys and Tata are making acquisitions inside the US, Mexico, Australia and the Philippines.

Outsourcing has become an important part of global production chains and allows transnationals to cut their costs and increase their profits. As S. Golpalakrishnan, Infosys’ chief operating officer points out; outsourcing “is one form of globalisation that enables companies to get high quality resources at lower prices.” (Taylor and Yee) That point is driven home in Washington by the lobbying efforts of the National Association of Software and Services Companies, a New Delhi trade group that includes both US and Indian IT corporations. As Jerry Rao, its vice-chairman argues; outsourcing “is as important to services as what Henry Ford did to manufacturing.” (Roberts and Yee)

Another area of rapid growth is auto components and engineering. India is expected to join China, Brazil and Mexico as a major global sourcing center for manufactured components although most production is based in the lower skill range such as forging and casting. These companies are linked into the global supply chain locked into companies such as Maruti. Majority owned by Suzuki of Japan, Maruti is India’s largest manufacturer and has 300 odd subcontractors churning out parts. The world’s largest component manufacturers, Visteon and Delphi have also set-up operations sourcing to Ford, Volvo and GM. But the best Indian companies have become global competitors even expanding abroad through numerous acquisitions. Tata AutoComp Systems has 12 joint ventures with Europe, Japan and the US, and is opening a plant in Germany to make parts for France. Bharat Forge, the world’s largest maker of front truck axles has two operations in Europe and generates 75% of their sales from overseas.

All this economic growth has attracted foreign portfolio investments with inflows growing to $7 billion in 2003, up from just $739 million the year before. The Bombay Stock Exchange and the National Stock Exchange are among Asia’s best performers with investments spreading out beyond the technology sector to consumer goods, energy, banking and commodities. The danger for India is that $1.5 billion are in short-term funds that can quickly flee if investors get nervous over left influence in the government or if profitable opportunities appear elsewhere.

India’s global links are also reflected in its integration into the Asian hub.
Interregional trade is growing faster than NAFTA or the EU with electronics and computers key components of this activity. Transnationals outsource different stages of work to various Asian countries in a production chain where high-end work is done in Singapore, South Korea and India and assembly in China. But while the Asian economy is surging forward it doesn’t act as a regional economic bloc with a pan-Asian institutional and political framework. Rather its part of a global economy fused with transnational corporations that are deeply integrated into the regional trade flows. As pointed out by Jonathan Anderson, chief Asia economist for UBS; “It’s integration in the production chain; it’s not integration of Asian domestic economies.” (Mallet) With intra-regional trade at $722.2 billion and trade with NAFTA and the EU at $728.2 billion, Asia and the West have built an integrated economy with co-dependence and partnership welded into the system.

BRAZIL

The Workers Party (PT) offered a new road forward in Brazil and was a model for much of the Latin American left. A broad based political party with solid roots in the working class it was intent on winning electoral state power while staying connected to mass democratic struggles. Furthermore it remained firmly socialist in its orientation and its leader, Luiz Inacio Lula da Silva, seemed to embody working class aspirations.

Winning the presidency on his third try Lula has surprised many by following an orthodox economic policy that has made the IMF and international investors unexpectedly happy and prevented the rapid withdrawal of capital. As in China and India, PT leaders see Brazil’s best hope for development as an integral part of the transnational economy. There is no hint of the nationalist developmental policies of the 1960s, nor radical changes to empower workers. Rather the new government has maintained steady but cautious programs to help the poor while applying its most innovative strategies to expand Brazil’s place in the global economy. Lula’s strategy is to increase the bargaining power of developing countries to become stronger and perhaps equal partners with the industrialized North. As Brazil gains greater leverage within the transnationalized economy the hope is for a downward distribution of economic benefits to improve the life of the working class and poor. Rather than a neo-liberal model of globalization this would be similar to the “Beijing Consensus” or neo-Keynesian strategy.

Since winning the presidency Lula has been the most active Third World leader attempting to readjust globalization by developing a power bloc of developing nations. He put together an alliance known as the G-20 with Brazil, India and South Africa at its core. This alliance demanded a host of concessions on agricultural and governance issues at the WTO meeting at Cancun eventually leading to a collapse of negotiations. Since then a lot of hard bargaining ensued.
Taking on the hotly contested issue of agricultural subsides Brazil challenged the US in a WTO case over cotton growers. The US hands out $3 billion dollars to just 25,000 cotton farmers depressing world prices from 12% to 25%. This harms not only Brazil but also some of the poorest countries in Africa.
The WTO gave Brazil a victory when it ruled US subsidies caused “serious prejudice” to producers. This may set the stage for important compromises at WTO Doha meeting and open the door for further cases against US and European farm subsidies.

The Financial Times called the cotton program “one of the most offensive agricultural subsidy programmes in the world” and noted that the ruling “serves a useful reminder that multilateralism, which looks more than a little forlorn in other contexts, is still alive and kicking in international trade. That the US is forced to confront the egregious effects of its domestic agricultural policies by an international agreement is remarkable and welcome.” (FT, 2) Clearly transnational capitalists are applauding Brazil’s effort to curtail nationalist US economic policy and see it as a counterbalance to US military policy.

The Brazilian government followed their WTO policy into the Free Trade Areas of Americas meeting in Miami. This was an attempt by the US to extend NAFTA to the rest of Latin America essentially opening up the continent to further economic integration in a manner benefiting northern transnational corporate powers. Once again Brazil, along with Argentina, walked out of the meeting refusing to sign an agreement. Although the US pressured other countries to join, the victory rang hollow because Brazil and Argentina represent two-thirds of South America’s economic output. Lula continued to push his agenda and in a later meeting with Argentine president Nestor Kirchner both presidents demanded more room for national economies to balance growth with funding social needs. Pursing this strategy further Brazil signed a trade pact with India and South Africa to offset the domination of industrialized nations. Commenting on the importance of the agreement Tarun Das, executive director of the Confederation of Indian Industry stated, “It’s an important new dimension to India’s repositioning in the world.” (Marcelo)

Lula and the Workers Party have put forward the most articulate political position for the Third World globalist’s economic and social policies. These new directions come from experiencing the disastrous results of the Washington Consensus that led many countries to near ruin. Lula’s view of a polycentric world based on fair and equitable trade is not a rejection of globalization or transnational capitalism. In fact, many Western globalists have long recognized the need to build a fully integrated political regime that gives fair room to transnational capitalists from the developing world. The superpower nationalism of the Bush administration has created deep divisions in the world and Lula has seized this as an opportunity to shift the politics of globalization. President of the Workers Party, Jose Genoino, explains the strategy, “With the end of the cold war and a new US foreign policy, the world has acquired a unilateral nature, with the imposition of pre-eminence of US interest. The discord…has created lines of force favoring the formation of a multilateral world. Brazil’s ambitions is aimed at consolidating blocs of forces, producing new significant actors on the continental level and in areas of global relations.” (Greider, Rapoza)

The Workers Party not only represents the Brazilian left, it also has cabinet ministers who come directly from industrial and agricultural corporations. This includes vice-president Jose Alencar, an industrialist from the Liberal Party. Unlike the old pro-US comprador capitalists only 2% of Brazil’s business leaders give Bush a positive rating. Many see the strategy of the Workers Party to increase Brazil’s position in the global economy allied to their own aims. This reflects the growth of the Brazilian transnational capitalist class as it expands its power and reach. “Brazil has become a world-class competitor in several sectors – steel, mining, banking, aeronautics, as well as pulp and paper,” says Marcelo Kayath, co-head of Latin American equities with Sao Paulo’s investment bank CSFB. (Colitt)

This global presence is reflected in the growth of Brazil’s most competitive corporations. Some of the biggest developments and mergers include: Belgium owned AmBev and Interbrew merging to form the world’s largest brewer; Petrobras, South America’s largest company and one of the world’s top ten oil transnationals expanding throughout Latin America, Africa and the Middle East and along with Sinopec from China jointly exploring for oil in Asia, Ecuador and Iran; Embraer, the world’s fourth largest aircraft manufacturer entering into a joint venture with China Aviation Industry Corp; and the Gerdau steel corporation acquiring important assets in the US, Canada and Latin America.

The Brazilian-Chinese relationship has developed with particular importance and speed. One of the most important joint ventures includes Companhia Vale do Rio Doce, the world’s largest iron ore producer, China’s biggest steel producer Baosteel and the world’s largest steel company Arcelor. Their joint venture agreement is to build an $8 billion steel plant to serve Brazil’s car industry. In addition CVRD has entered into agreement with two companies for coal production inside China. Agricultural and animal exports to China have also surged forward at breakneck speed to include soybean, milk, coffee, beef and chicken while other areas of growth cover computer software, textiles and copper. Bilateral trade has quadrupled since 2000 with China becoming Brazil’s third largest trading partner and importing $4.5 billion worth of goods. All this benefits transnationals that are invested in Brazil, particularly in the large soybean trade that includes Cargil and Archer Midland Daniels from the US.

In return Chinese capital is flooding into Brazil. As Edmar Cid Ferreira, president of Banco Santos notes, “The Chinese are looking for long-term suppliers of food and technology and we have both. They’re coming to us to set up joint ventures.” (Colitt, 2) This was underscored by China’s acceptance into the Inter-American Development Bank, a move that would allow Chinese companies better access to infrastructure contracts and to cement its growing commercial influence. Both Brazil and Argentina were important backers of China’s membership.

This growing economic and political relationship was confirmed by Lula’s visit to China which included 450 Brazilian business representatives. Celso Amorin, Brazil’s foreign minister noted that the growing relationship could be part of a “reconfiguration of the world’s commercial and diplomatic geography.” (Lapper) Fifteen value added business sectors were targeted including medical equipment, software, cars, meat and processed fruits. The attraction for Brazilian corporations are labor costs that run a third lower than the average in Brazil and raw materials that are 20 to 30 percent cheaper. As Jose Rubens de la Rosa, chief executive of Marcopolo explained, “It’s almost an obligation for a Brazilian company that wants to be a global player to be in China.” (Wheatley) In addition China and Brazil have agreed to $4 billion dollars in joint investments for infrastructure improvements to expand Brazilian railways, roads and ports.

The trip took a political turn when Lula and Chinese premier Wen Jiabao appeared at the Shanghai Poverty Conference sponsored by the World Bank. Both leaders demanded better deals on trade and aid from rich nations. Lula has positioned his trip to China in strategic terms stating “We want this relationship to be a paradigm for South-South relations.” (Colitt, 3) Later Lula pushed this idea even further suggesting an alliance that would include China, Brazil, India, South Africa and Russia to balance US and EU influence. But this South-South strategy is different from that articulated in the 1960s as part of the non-aligned movement’s attempt to free their countries from the choke-hold of imperialist relations. The new South-South paradigm is designed to carve out a stronger position within the global system with access to foreign direct investments, transnational capital, global production chains, cross border mergers and acquisitions, and greater political recognition. This developmental strategy envisions a trickle down effect with wealth spreading to a larger middle class and eventually creating better conditions for workers and the poor.

Just how far this strategy can be pursued is an open question. As Lula continues courting transnational capital with conservative monetary policies, hoping their confidence will grow and their investments will increase, the patience of Brazil’s working class is diminishing. Although the government has passed progressive labor reform and taken some initiative with land redistribution most supporters have criticized the Workers Party for moving too slowly and doing too little. Unemployment has actually increased while the government’s effort to create jobs has had minimal effect. With growing unrest Lula may not have enough time to unfold his full strategy.

CONCLUSION

Third World globalists have developed a distinct vision of globalization based on the appeal for greater equality and fairness. Yet class differences are widening with gaps in wealth growing in China, Brazil and India. The middle class has expanded but improvement in the social position for the masses lags far behind. To raise the standard of living for the working class and poor means undermining the very element that attracts global investments and makes Third World globalists competitive --- large amounts of cheap labor. Although the strategy may include important advances in health care, education and meeting basic food requirements, when it comes to work one of the most consistent demands of transnational capital is to weaken labor laws, undermine unions and lower wages in a competitive in a race to the bottom. This has always been a fundamental contradiction in the capitalist system, the need to expand the market while at the same time lowering the cost of labor. The answer is not just an anti neo-liberal agenda, although that may well do under the present political circumstances. Globalization needs to be challenged at a more fundamental level of equality and justice. Such a challenge may indeed come from a better-fed and educated working class. Thus if the Beijing Consensus is a transition point towards a deeper social transformation it will play an essentially progressive role. But if it is simply a strategy to integrate Third World capitalists into the new global economic order it will ultimately be of limited use in the struggle for a new world.

Jerry Harris
gharris234@comcast.net

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Notes

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Bork, Ellen. “Keep a common front on arms sales to China.” Financial Times, 13-5-04, p. 13.

Colitt, Raymond. “Brazil groups acquire global perspective.” Financial Times, 9-3-04. P. 18.

_____________. “China fever drives Brazil’s exporters to frenzied activity.” Financial Times, 11-11-03. P. 10.

_____________. “CVRD secures multi-billion-dollar China ventures.” Financial Times, 24-5-04, p. 17.

Daft, Douglas and Niall Fitzgerald. “Business can help bridge the transatlantic rift.” Financial Times, 22-1-04, page 13.

Dickie, Mure. “Operators get the right number.” Financial Times, 16-12-03, page 6.

___________. “LMNT, SMIC to build fabs in Beijing.” Financial Times, 10-3-04, page 18.

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____________________. “The WTO cottons on to a scandal” Financial Times, 28-4-04. p. 14.

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