Processes of globalization and adjustment have been associated with important shifts of power at the national and international levels. Internationally, the balance of power has shifted further away from the developing countries to the benefit of foreign creditors and investors, international financial organizations and industrialized countries. Among the industrialized countries, there has been a concentration of power in the Group of Seven, principally Germany, Japan and the United States. Yet everywhere the power and the reach of the state have declined. Internally, there has been a significant shift of power in favour of capital, especially that linked with the international economy, and away from the organized working class and to some extent the middle class.

The decline in the power wielded by developing countries has been mediated by the slump in commodity prices and the growth in the burden of foreign debt. Their bargaining power has been further eroded by the collapse of the communist régimes in the Soviet Union and Eastern Europe. The weakened state of the Third World is reflected in an effective transfer of decision-making in vital areas of economic and social policy to an alliance of international financial organizations, corporate capital and industrialized countries. This weakness finds a concrete expression in an ever increasing list of conditionalities attached to economic policy, social priorities, military expenditures, political systems and human rights.

Among the industrialized countries, the economic pre-eminence of the United States has declined even though its military supremacy has attained new heights. The European Community, Japan and, to a lesser extent, the East and South-East Asian countries, have emerged as rival economic powers. The smaller and medium-sized industrialized countries have become more dependent upon larger countries, especially in the context of various trading arrangements and forms of economic union. Increasingly, there is a tendency for economic and political policy to be co-ordinated by the Group of Seven.

A number of processes have contributed to the erosion of the power of the nation state. All countries have been affected, but the loss of sovereignty varies with their size and military and economic strength. The growing integration of the world economy has steadily diminished the scope and effectiveness of public policies in areas such as taxation, public expenditure, money supply and interest rates, social protection and wage policies. National autonomy has eroded even more severely for countries in regional economic and political groupings.

This limitation on sovereignty in national policy is reinforced by the international mobility of capital, enterprises, and professional and managerial staff. A corollary of this is the trend towards convergence of social and economic policy in a number of key areas of public concern. Two recent examples illustrate these points. Sweden , the pioneer of a model of social democracy widely acclaimed world-wide for economic efficiency, social justice and political participation, was forced to abandon these policies by the pressures exerted by the flight of capital and increased international competition. The sweeping reduction of taxes on corporations and wealthy individuals initiated by the Thatcher and Reagan administrations was followed by tax changes in countries around the world.

In many countries, national sovereignty is also being challenged from below by growing separatist movements based on ties of ethnicity, language, religion and culture. The three extreme examples of this phenomenon are Ethiopia, the former Soviet Union and Yugoslavia, where the process has carried through to its logical conclusion in the disintegration of the country into a number of more or less independent entities.

The countries affected by economic crisis and therefore forced to seek assistance from international financial agencies, creditor countries and commercial banks, have experienced further weakening of the power of the state. A vital part of decision-making in the social and economic domain has been transferred to foreign creditors. The squeeze on state finances has compelled governments to reduce public services, investment in infrastructure, and employment and wage levels in the public sector. The growing privatization, marketization, informalization and internationalization of the economy mean that an increasing proportion of economic activity is slipping beyond the direct control of the state. The power of the state has been further weakened by the loss of qualified officials, decline in the morale of the civil service and increase in crime, violence and lawlessness.

The above changes have also been accompanied by important shifts in the balance of power among different social groups at the national level. As noted above, the foreign investors and creditors, sometimes working in partnership with certain segments of domestic capital, have increased their power and influence in national policy-making. Likewise, the influence of domestic business groups, especially those with links or access to foreign capital, technology and markets, has greatly increased. The working class and parts of the middle classes have seen a dwindling of their power to shape national policies.

These changes are also reflected in social institutions and social movements. Some established social organizations such as the trade unions and co-operatives have declined in power and influence in many countries. In developing countries especially, there has been a significant expansion of private development associations and grassroots rural and urban initiatives to assist the basic needs provisioning and empowerment of marginalized groups. There is also a mushrooming of new movements championing a diversity of causes such as ecology, feminism, ethnic recognition, religious fundamentalism and xenophobia (Ghai and Hewitt de Alcántara, 1991).

In sum, the processes associated with adjustment and globalization have undermined the social alliance and national consensus on economic and social goals and policies established in the post-war period in both the industrialized and developing countries (Ghai, 1991; Singh, 1991; Tironi and Lagos, 1991). A new coalition of social forces underpinning and legitimizing new economic régimes has not yet fully emerged and consolidated itself in most countries. The transitional period is characterized by fluidity and uncertainty. The adverse social consequences generated by the new economic régime have diluted the social and economic content of democracy in the industrialized countries. These consequences are no doubt partly responsible for the widespread malaise and disenchantment with the political processes in these countries, as reflected, for instance, in low electoral participation and distrust of political parties and politicians.

The past decade and a half were marked by the resurgence of democracy, first in Latin America and Asia, then in Eastern and Central Europe and now increasingly in Africa and the Middle East. The temporal coincidence of economic reform with liberal democracy has led many observers to postulate an organic relationship between the two phenomena. There is, however, little theoretical or empirical justification for such a relationship. Capitalism preceded political democracy by centuries in some cases, and by decades in others. In recent history, economic régimes based on market forces such as in East and South-East Asia were characterized until a few years ago by authoritarian political systems. On the other hand, until their relatively current economic reforms, several of the democratic régimes, such as in India and Sri Lanka, have long been considered examples of highly regulated economies.

The recent upsurge of democracy has resulted from varied and complex factors in different regions of the world. Both rapid and broad-based growth as in South Korea and Taiwan, Province of China, as well as acute and prolonged crisis as in Africa and Latin America, have been contributory factors. The internal struggles for democracy in many of these countries have been reinforced by external pressures and assisted by the end of the Cold War era. Nor can one underestimate the influence of dominant ideologies propagated world-wide through a powerful media or the attraction of the western model of liberal democracy and material prosperity.

In the short to medium term at least, there are some obvious conflicts between the processes associated with adjustment and globalization and the consolidation of new democracies (Gibbon, Bangura and Ofstad, 1992; Nelson et al., 1989). The adverse social consequences described above are occurring precisely at a time when the democratic process is generating demands for additional services and resources. As it becomes increasingly difficult to meet these demands, the democratic reform is robbed of its social and economic content. Furthermore, through the weakening of popular organizations, the erosion of the middle class and dilution of institutions of civil society, the economic crisis and adjustment measures may undermine the very foundations of a democratic society. With the discrediting of socialist and radical ideologies, the frustration of popular aspirations for improved living standards may be exploited by demagogic and reactionary forces to fan the flames of ethnic conflicts and religious and cultural fundamentalism.

Some of these developments pose a threat to social solidarity and capacity for durable growth. Social solidarity is built around a widely shared vision of national objectives, due recognition of the legitimate interests of different groups, a perception that both the fruits of growth and the burdens of austerity are distributed fairly, equality of opportunities in access to social and economic services, employment and productive resources and prospects for promotion and upward mobility. The importance of social cohesion and solidarity as a determinant of the rate and sustainability of economic growth is largely neglected in the development literature (Banuri, 1991). Yet it can be argued that the existence or creation of solidarity has made a substantial contribution to the social and economic progress achieved by countries as diverse as Austria, Germany, the Netherlands, the Nordic group and Switzerland in Europe, and Japan, Singapore, South Korea and Taiwan, Province of China, in Asia.

The advent of democratic régimes provides an opportunity to create social solidarity and a national consensus to face the challenges of crisis, adjustment and growth. Ironically, just at a time when they are called upon to play this creative role, states everywhere have watched not only the steady diminution of the resources they control but also their sovereignty in social and economic matters through internationalization of their economies and societies. Power in these spheres has shifted towards transnational enterprises, international financial agencies and a handful of industrialized countries. The concentration of economic power, however, has not been accompanied by a corresponding shift in their political and social responsibilities for global welfare or in their accountability to the peoples of the world.

This imbalance is one of the greatest challenges facing the world community in the 1990s and into the next century. It appears likely that over the long haul the processes of economic and social globalization are irreversible and accelerating and that nation states are condemned to a steady and progressive erosion of their sovereignty.⁵ The incapacity of the states to cope with pressing problems extends also to other areas such as the environment, traffic in illegal drugs, spread of infectious diseases, organized crime and violence. The gravity of the social and economic problems confronting the world requires a redefinition of the role and responsibilities of the major forces shaping the international economy and society. It calls for a better balance between power and accountability and resources and responsibility.

This can only come about through a strengthening and coalition of social groups committed to a better balance between collective needs and individual incentives and between economic advance and social progress. There are many groups and organizations, including workers' unions, environment movements, women's associations, human rights activists, popular development agencies as well as concerned individuals in influential strata in both developing and industrialized countries who are aware of the potentially serious consequences of the continuation of the present social and economic trends and would thus be prepared to support efforts to achieve consensus and solidarity around broad-based programmes of human development. Such efforts would need to extend beyond national frontiers to regional and global levels.

It is a task of the highest importance to explore the political, social and economic configurations of new arrangements to articulate and implement an agenda of reform addressing the critical social problems of the world. Some of the needs can only be met through action at the international level. Some will require initiatives at the regional level. Many problems can be handled appropriately by states at the national level. There are also likely be more opportunities for social programmes conceived and implemented at sub-national and grassroots levels. There will need to be corresponding diversity in the institutions vested with the responsibility for different programmes ranging all the way from international organizations to extended families. Religious bodies, business corporations, charitable societies, neighbourhood associations, village committees and popular development agencies can all be appropriate vehicles for initiating social programmes. The resources for implementing these programmes will also need to be tapped in novel ways from many sources. Only a reform effort of these multiple dimensions can provide the basis for a renewal of social consensus and solidarity necessary for political stability and sustainable growth on a global scale.

5 There is, however, always the possibility that national crisis and pressures exerted by the globalization process could provoke reactions resulting in rolling back the advances in economic integration for limited periods.