Kerala, India, and the moral bankruptcy of the neoliberal development project

Image: Bangladeshi sweatshop workers (image from The Institute for Global Labor and Human Rights must-read report on Bangladesh's sweatshops)


The neoliberal theory of development is that sweatshops are good. Poor countries have to leverage their only comparative advantage--cheap labor--in order to bring foreign investments into their country. Bangladesh is certainly not going to beat the first world at software or aerospace engineering, so they should focus on what they can beat the first world at: providing low skill manufacturing at third world prices. Sweat shops are evil, but they're a necessary evil. Only when enough foreign investment enters a country can countries like Bangladesh lift themselves out of poverty. This generation may not have access to an education, but maybe their children will for their sacrifices. This is the path of industrialization the United States, England, Germany, etc took and it is--regrettably--the only way. The real world doesn't care about morality; it's time for Bangladeshis to roll up their sleeves and do what needs to be done.

The problem with the neoliberal development narrative is that it's entirely wrong. A Worker Rights Consortium report found that most countries pursuing this exact policy have seen their workers get poorer, not richer. If the neoliberal development strategy actually worked, the purchasing power of workers should rise slowly, not fall. But it doesn't work. It never did.

The intentional oversights of the neoliberal model are incredible. Child labor doesn't end by workers allowing themselves to be exploited; it ends when a country's political system is motivated by voters to enact--and enforce--a ban. Occupational health and safety regulations aren't gifts of the free market; they're the result of collective bargaining and direct government intervention. Universal primary public education doesn't happen because of an influx of foreign investment; it's the result of mass movements forcing changes in government policy. What, exactly, is the mechanism by which foreign money, flowing directly into the hands of the factory owners who pay their workers 20% of a living wage, results in widespread improvements in education, utilities, or workplace safety? It's certainly not going to help the next generation get an education--not when 9-year-olds are among massive ranks of child laborers.

Neoliberal development theory conveniently overlooks stories that don't fit the model. The monetary gains of Japan's rapid industrialization was shared equitably among the entire population; they now lead the world in health and quality of life indicators. Japan's rapid industrialization didn't occur by allowing their workers to be exploited by foreign capitalists. Rather--even though rural, backwater Japan had no comparative advantage in technology or manufacturing--they realized the potential and used direct government intervention to target these industries for growth. They didn't wait for the market to take it's "natural" course; they used industrial and trade policy to benefit their high tech industries, rank-and-file workers, and to educate the next generation of engineers and scientists. Japan succeeded because of their flight from the neoliberal model, not in spite of it.

It's difficult to--as Nicholas Kristof of the New York Times does--take the neoliberal model seriously:

But while it shocks Americans to hear it, the central challenge in the poorest countries is not that sweatshops exploit too many people, but that they don’t exploit enough.

Talk to these families in the dump, and a job in a sweatshop is a cherished dream, an escalator out of poverty, the kind of gauzy if probably unrealistic ambition that parents everywhere often have for their children...

Seriously? An "escalator out of poverty"? From the Worker Rights Consortium report cited above:

On average, prevailing straight-time wages—pay before tax deductions and excluding extra pay for overtime work—in the export-apparel sectors of these countries provided barely more than a third—36.8 percent—of the income necessary to provide a living wage...prevailing wages in 2011 for garment workers in China, Vietnam, and Indonesia provided 36 percent, 22 percent, and 29 percent of a living wage, respectively. But in Bangladesh, home to the world’s fastest-growing export-apparel industry, prevailing wages gave workers only 14 percent of a living wage.

Kristof is clearly mistaken. A sweatshop offers an escalator out of horrible poverty to merely terrible poverty; from utter misery and destitution to slightly less misery and destitution. In a world with so much, either is indefensible. How can a sweatshop ever be a good thing?

They were exhausted, skinny, dazed and with deep shadows under their bloodshot eyes...In just 21 days in June, these workers were kept in the factory for a stunning 334 hours! And it is common for these workers to toil 14 ½ to 15 ½-hour shifts on their weekly holiday, Friday, from 8:00 a.m. to 10:30 or 11:30 p.m...We met with workers again on Sunday, June 23. On that day, they were kept for a 21-hour shift — from 8:00 a.m. to 5:00 a.m.! On the following day, they worked a 19-hour shift, from 8:00 a.m. to 3:00 a.m.

Despite the mind-numbing mandatory overtime, if an exhausted worker arrives even a minute late to work, he or she will be docked their entire attendance bonus. If a worker punches his or her timecard out a minute early, he or she will be docked an entire hour’s wages.

Physical punishment is the norm at Next Collections. No matter how many hours a worker has toiled, if she makes an error in production, she will be slapped, shoved or even punched.

Anyone who dares challenge the gross human, women’s and workers’ rights violations will be immediately fired.

When a young woman helper makes a mistake, management humiliates her in front of all her co-workers, forcing her to stand in front of her sewing line for one-and-a-half hours.

Living on subpoverty wages:

Bangladeshi workers sewing Gap and Old Navy clothing put in mandatory 100-hour workweeks at the Next Collections factory in Ashulia, on the outskirts of Dhaka...It is common for two, three, or even more Gap workers to share a small six-by-nine-foot room. In one home we visited, workers spread out a blanket to sleep on the concrete floor. They cannot even afford a makeshift wooden bed. Their primitive bamboo roof is torn. They have tried to repair it with cardboard, but the rain still pours in...When our team of investigators met with the workers in their small rooms in June, we were soaked within 15 minutes, dripping in sweat in the humid, 100-degree heat. When we tried to write down the violations the workers were describing at the Next Collections factory, our notebooks became so soaked with sweat that the pages began to fall apart.

The need for a union to provide legal representation is obvious:

Workers are paid in cash, off the books and cheated of 15 percent of their grueling overtime hours...Next Collections has an unwritten rule. When a woman worker is about six months or more pregnant, management coerces her to resign in order to evade paying her legal maternity benefits...

• Zesmin Khatun was six months pregnant when management illegally terminated her, denying her maternity benefits, earned vacation and severance pay.
• Twenty-year-old Morium Begum lost her baby in her seventh month of pregnancy because she was forced to work grueling hours while being sick.
• As they did with every pregnant worker, management attempted to force 24-year-old Taniya Begum to sign a resignation letter. After she refused to do so, her husband was jailed on false charges and beaten by management and the police.

The working conditions are appalling. Human beings are disposable; on a single day in 2013, 1300 garment workers died in a single accident. Deaths due to rampant disregard for safety are common.

Let's learn more about the neoliberal model, again, from Kristof:

When I defend sweatshops, people always ask me: But would you want to work in a sweatshop? No, of course not. But I would want even less to pull a rickshaw. In the hierarchy of jobs in poor countries, sweltering at a sewing machine isn’t the bottom.

Notice Kristof's clever framing of the debate as a choice between two neoliberal options: a sweatshop or something even worse. Non-neoliberal development strategies--like labor unions to collectively bargain for safe working conditions and living wages, a strong antipoverty safety net, universal health care, universal education, universal old age and disability insurance, universal child care, or strong labor and occupational health and safety laws--never even enter into the conversation. They're not serious proposals. In Kristof's lazy opinion piece, this laundry list of socialist development goals sounds impossible. How can poor countries possibly afford these things?

Not only is this menu of socialist development goals possible--it's already been done. It's a model that has been proven viable. The story of Kerala, India shows that another, better development path is possible. The central thesis of this blog is that we already know how to eliminate poverty in developed countries, but we choose not to. And that's true for underdeveloped countries as well. We know what works; we're choosing not to pursue it.

The development model of the Indian Communist Party
Kerala, a state in southwest India, has--for decades--easily surpassed the rest of India in its remarkable human development scores. Since I don't speak any Indian language, it was difficult to obtain current, reliable information, so I'm relying on an older book, Patrick Heller's Labor of Development, published in 1999. I'll cite some present-day data, but I was unable to obtain the extensive data available in Heller's book for the past decade.

Decades ago, Kerala's quality of life indicators were approximately average or lower compared to the rest of India. At one point, the state of Kerala had the highest poverty rate in all of India; from the 1970's to the end of the 1990's, poverty fell by half. In 1999, Kerala's literacy rate--easily the highest in India--was 90.6%, compared to India's national literacy rate of 52.1%. In 1999, Kerala had twice the national average of science and technology personnel per capita, easily making Kerala the Indian state with greatest human capital. Kerala easily has the highest per capita college and university enrollment of any Indian state. Keralan infant mortality, the lowest in India, was 13 per 1000 compared to the overall Indian infant mortality rate of 73 per 1000 live births in 1999. Kerala went from having a life expectancy of 29.5 in 1947--approximately the Indian average--to a 1999 life expectancy of 71, a full nine years longer than the national Indian life expectancy. Kerala has long had the longest life expectancy and lowest infant mortality rate of all states in India (it still does). In years past, Kerala suffered from large health disparities; now--unlike the rest of India--health disparities across gender, ethnic, regional, and city/rural lines have basically vanished. In all, Keralan quality of life indicators were comparable with those of the developed world when Heller's book was written in 1999; now, they are indistinguishable and still years ahead of the rest of India.

The neoliberal model says that economic growth is the only way to improve quality of life. Kerala soundly proves this wrong. Despite having consistently lower than average economic growth rates compared to the rest of the Indian states, and having below average per capita GDP for Indian states, Kerala easily beats the rest of India in all quality of life indicators. And, as Heller points out, Kerala's per capita income is ten times lower than that of Brazil, yet Keralan life expectancy is four years longer than that of Brazil.

(It's worth pausing here to note a common argument against the Kerala model--that it is unsustainable. Critics have been crying unsustainable for decades, yet the Keralan welfare state continues; further, anyone who claims that a state that can achieve quality of life statistics equal to that of the developed world on just 10% the per capita GDP of Brazil does not understand the word "sustainable.")

Kerala is a social democracy
Kerala's amazing progress in quality of life indicators was accomplished through the organizing efforts and political action of the Indian Communist Party. Labor unions and a political party were two arms of a unified Indian Communist Party; together, they organized both urban and rural workers and passed strong social insurance legislation. Kerala is considered a social democracy because of its high unionization rate and large, universal social welfare programs. Kerala has near 100% labor union coverage, and--despite a tiny tax base (again, Keralan per capital income is less than 10% that of Brazil)--Kerala provides universal education, universal public health, and universal health insurance to its 20 million residents. Universal government health and education programs have caused life expectancy, literacy, and advanced degree attainment to soar, and infant mortality to plummet.

Kerala's remarkable success was not made possible by relying on federal government funding to support its welfare state. As Heller points out, in India, increased state spending results in less federal government funding, not more. This is a truly remarkable story.

Weaknesses of the Indian Communist Party development model
The only quality of life indicator that Kerala underperforms is unemployment rate. However, since high unemployment also occurs in third world countries pursuing the neoliberal development model, this criticism is particularly weak. If we compare the unemployment rate in Kerala to the five highest unemployment rates of garment exporting countries studied by the Worker's Right Consortium (linked to above) and the Indian national average, it becomes clear how silly this criticism is:

(Click for unobscured graph)

It's certainly possible that Kerala's development model causes unemployment. But it's also possible that high unemployment is something that can happen in underdeveloped countries:

Similarly, it's worth pointing out that the social democracies in the developed world have had--for decades--lower unemployment rates than most other developed countries. The case that social democracy causes unemployment is untenable.

Further, even if the Indian Communist Party model necessarily results in high unemployment, that would be an exceptionally weak argument against the model. What is the point of having a job except to improve one's life? In the neoliberal model, job creation is supposed to lead to better health, education, and life outcomes. In comparing the quality of life indicators of Kerala with the rest of India and other countries pursuing the neoliberal development model, it should be obvious which strategy is more effective at improving lives.

As discussed above, Kerala also trails the Indian average in economic growth. Again, this is a very weak criticism, for the same reasons. First, many underdeveloped countries have low (or negative) economic growth rates. The Indian Communist Party development model could necessarily result in low economic growth, or it could simply be that low economic growth is something that sometimes happens in underdeveloped countries. Second, the social democracies in the developed world have had--for decades--higher rates of economic growth than most other developed countries. There's no reason to believe that social democracy inevitably leads to low rates of economic growth. Finally, according to the neoliberal model, economic growth is supposed to improve the lives of ordinary people. Again--in comparing the quality of life indicators of Kerala with the rest of India and other countries pursuing the neoliberal model--it should be obvious which strategy is better at improving people's lives. The Worker Rights Consortium report cited above demonstrates clearly that improvements in quality of life in underdeveloped countries usually do not follow massive job creation or economic growth; more frequently, workers get poorer, not richer.

The conclusion is inescapable. Even if Kerala's high unemployment and low economic growth are inescapable consequences of that model (as we've seen, a dubious position), those disadvantages in no way outweigh the advantages. The economy exists to serve ordinary people, and not the other way around.

The race to the bottom
The most popular criticism of the Indian Communist Party development model is that Kerala's economic growth is too low for the model to be sustainable. Yet embedded in this criticism is the solution.* Kerala's low economic growth is always blamed on its high wages and taxes relative to other states of India. In other words, if all of India pursued Kerala's development strategy by raising wages and taxes to support a strong welfare state like Kerala's, the Kerala model would be unquestionably sustainable.

This criticism rests on the view that a race to the bottom is inevitable--that all underdeveloped economies should lure foreign investment by cutting the legs off nascent unionization efforts in order to offer the lowest wages. Yet Kerala has had a near-100% unionization rate for decades, and is thriving.

And--as stated above--it is flatly absurd to cry "unsustainable" for a system that can generate first world quality of life indicators with a per capita income less than 10% that of Brazil.

Please, tell me again about the racial superiority of the Nordic Aryan race
Kerala also lays plain the lie that a society must be homogeneous (like Scandinavia) to succeed as a social democracy. This is an oft-made, never supported claim. Veiled racism never has supporting evidence. This otherwise insightful essay on the problems of the Brazilian health care system opens with:

In other words, universal healthcare looks very different in Brazil than it does in, say, Scandinavia. Finland, for example, provides free healthcare to all its citizens, but the country is smaller and more homogeneous than the state of Minnesota. Brazil, meanwhile, has 200 million people. And it has roughly the same landmass of the continental U.S., if you shaved off the entire West Coast and some of Florida. 

but the entire piece is about issues of underfunding and physicians not wanting to work in the jungle. Despite the opening claim, no evidence is marshaled to support the idea that the mere existence of minorities somehow ruins universal government social welfare programs.**

To the contrary, Kerala has two large minority groups: Christian (21%) and Muslim (18%). Both of these groups tend not to vote for the Indian Communist Party. Clearly, cultural or ethnic homogeneity is not a prerequisite to a strong welfare state. Minority groups aren't so evil that their mere presence causes the collapse of otherwise well-designed welfare states.

This criticism has always been absurd. If cultural and ethnic homogeneity are necessary for universal social welfare programs, how are Social Security and Medicare so successful in the United States? Social Security taxes get deducted from my paychecks even though my coworkers are black, white, Asian, and Latino. My grandmother's Social Security benefits get deposited in her bank account each month even though she doesn't share the same religion as her neighbors.

Conclusion
We live in a world with apocalyptic levels of human suffering. 1 billion people have inadequate food (more than the population of the United States, Canada, and European Union combined). 1 million infants die each year because of vitamin A deficiencies. 2 billion people worldwide have iron deficiencies. One child dies of malnutrition every six seconds. 1.5 million children die of diarrhea each year (more than AIDS, malaria, and measles combined), even though treatment of diarrhea costs pennies. 29 million people worldwide toil as slaves.

We have been relying on the neoliberal development model for decades. Worldwide, extreme poverty is indeed falling. But compare the slow, painful, and often reversed progress of the neoliberal development model to the rapid success of the Indian Communist Party development model. Without doubt, billions continue to suffer needlessly. If these statistics disturb and offend you--if for no other reason that we have a ready-made solution that we are refusing to use--then you should probably think about becoming a socialist.

Related
Universal Basic Income: a thoroughly researched, evidence-based policy

UPDATE (12/03/2014): Vijay Prashad cautions against believing poverty statistics touted by neoliberals:

Take the case of India. Based on official data on poverty, things appear better now than before. But the data is based on a reassessment of the indicators.

The government created a new measure – one is poor if one consumes less than twenty-four pounds of grain per month.

Twenty-four pounds of grain per month--is this a reasonable measure of poverty? Probably not, but it's used because government statisticians realized that the new measure makes a great deal of poverty disappear. Data can lie; in reality, food insecurity is a growing problem:

[Yet i]n 2009, almost three quarters of the Indian population consumed less than 2,100 calories per day. This percentage is up from 64 percent in 2005 and 58 per cent in 1984.

*Heller's book makes the case that the Kerala model is sustainable even with the race to the bottom surrounding it. Obviously, that case is beyond the scope of this post.

**I've argued elsewhere that a country does not have to be small to be a social democracy. Briefly, all programs are organized federally, but administered locally. In other words, it doesn't matter how large a country is, because it will be divided up into smaller, manageable districts anyway. As discussed above, Kerala is home to 20 million people and has no difficulty providing universal social insurance programs to its citizens.