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Neo-Liberalism, Globalization and Developing Economies
The issue of Trust and Honesty
Raj Kumar Sen
Fr. John Felix Raj. S.J.

International Economic Conference
Marrakech, Morocco
August 2005


  1. Introduction

  • Rich and Poor Countries of the World

  • Ethics and Values

  1. USA – A Case for Developed Countries

  • Factors Responsible for Development

  • Values as Important Factors for Development

  • Religion – Promoter of Values

  1. Scandalous Realities of Developing Countries

  • Russia as Low Trust Country

  • India – A case for Developing Countries

  • Factors Responsible for Underdevelopment

  1. Impact of Globalization and Liberalization

  2. Conclusions and Suggestions



This paper makes an attempt to establish that values like trustworthiness, truthfulness and honesty play an important role in the economic development of a country, and this is quite important in the cotemporary era of globalisation and dominant theory of neo-liberalism. It is divided into five sections. It first discusses the meaning of trust and honesty in the context of present wide divergent realities of the rich and poor countries of the world. It has also used the Corruption Perception Index and the correlation coefficient between the GDP, corruption and IQ for various groups of countries. Secondly, USA is presented as a case for developed world and the role of values in its development is discussed. In this context, the role of moral and ethical values as propagated by religions is analyzed. In the third section, while discussing the present situation of developing countries requiring urgent improvement, we have presented the erstwhile Soviet Union as a low-trust and less honest country and discussed the case of Indian economy as a case study of the developing countries. Next, the impact of the present globalization and liberalization on the developing economies is discussed in the perspective of widespread corruption and eroded values. Finally, on the basis of experiences of the developing countries like India, it follows, as we discuss in the concluding section, that the conventional understanding of development needs rethinking, and that erosion of values affects economic growth. What are urgently required are political, economic and judicial reforms, based on accountability, transparency and an environment of trust and honesty. We call all governments to introduce measures for making governance more effective, transparent and people-oriented.

Key Words: Trust and honesty, Corruption perception, Development, Globalization, Ethic and Values.


Neo-Liberalism, Globalization and Developing Economies

The issue of Trust and Honesty

Raj Kumar Sen     |    John Felix Raj

Conjoint action is possible just in proportion as human beings can rely on each other. There are countries in Europe, of first-rate industrial capabilities, where the most serious impediment to conducting business concerns on a large scale, is the rarity of persons who are supposed fit to be trusted with the receipt and expenditure of large sums of money.

- John Stuart Mill [i]


Rich and Poor Countries of the World
The earth is one, but the world is divided. Countries of the world are divided into rich and poor, developed and developing, advanced and backward, modern and traditional, south and north, first world (Western Europe, USA and the Pacific- the capitalist), second world (the Eastern Europe – the socialist) and third world (Latin America and the Caribbean, Africa, the Middle East, and Asia except Japan – the developing) and so on. International organizations and institutions – UN, IMF, WB, and WTO - were founded to heal the wounds of division. But the sad story is that they themselves are divided and have become mouthpieces of powerful countries.

Look at Table 1. While the developed countries have, according to purchasing power parity (PPP), more than $ 25,000 as GDP/PC, the developing ones have around $ 2,500 (just one/tenth of the rich countries). World economies are divided according to 2003 GNI per capita, calculated using the World Bank Atlas method, as low income: $765 or less; lower middle income: $766 - $3,035; upper middle income: $3,036 - $9,385; and high income: $9,386 or more. Why is it that rich countries are always rich and poor ones remain always poor? What are the factors for such realities?

Rich Countries

  1. Countries like USA, Germany, Japan have become rich due to domestic resources, stimulation of industry and economy with scientific and technological advancement.

  2. England, France were colonial powers and accumulated resources from their colonies.

  3. Australia, South Africa remained as centers of colonizers.

  4. Singapore, Hong Kong were commercial centers founded by developed countries.

Poor Countries

  1. India, Bangladesh, Pakistan, Sri Lanka and many other countries in Asia were colonies of European countries. They are today characterized by massive poverty and illiteracy. They are dependent on the technology of the rich countries.

  2. Countries like Russia, China are Communist countries with monoculture and homogeneity.

There are many factors, which are responsible for the economic growth and development of rich countries: domestic resources, industrialization, scientific and technological advancement, education, efficiency of labour, investment, commercial interests and trade, colonial accumulations, environmental advantages and so on. In this paper, we want to establish that values like trustworthiness, honesty and integrity play an important role in the development of a country.

Ethics and Values
Business schools teach a lot of things - managerial economics, accounting, marketing, and retailing, among others. Nowadays, they are also trying to instill something they should have been doing all along - plain old-fashioned trust, honesty and integrity. They call it "ethics," and a few of them call it "business ethics" or “development ethics” (as if that was something different from "regular" ethics), but they are all trying to counteract the loss of trust and truthfulness that has been created by the massive business frauds of the last few years.

Ethics is concerned with how a moral person should behave. It refers to principles that define behaviour as right and wrong. Such principles do not always dictate a single "moral" course of action, but provide a means of evaluating and deciding among competing options. [ii] Values are the inner judgments that determine how a person is and behaves. We translate values into principles so that they can guide and motivate moral and ethical conduct. Values are different from ethics. For example, trustworthiness, truthfulness, honesty, integrity are values. The terms “ethics” and “values” are not interchangeable. Ethics flow from values and not vice-versa.

Trust, writes Piotr Sztompka, [iii] may be defined as “a bet on the future contingent actions of others”. When we decide to trust an individual or an institution, we are not completely certain what is going to happen, that is, if the person or institution is going to live up to our trust and in fact prove trustworthy. That is why we differentiate between “blind faith” and trust. Even if we do not sit down and perform a probability analysis of the risks that our trust will be abused every time we decide to trust someone, there is usually an element, however small, of uncertainty. If we were entirely sure that someone was trustworthy, we would have no need for a word like confidence, that is, advance belief. Confidence expresses what we believe in advance in something, but do not know for certain. Trust involves strength, frequency, and reciprocity of successful repeated interaction.

We would define trust as a belief that the other agents would act in a predictable way and fulfil their obligations without special sanctions. [iv] We differentiate between two levels through which trust relationships have to develop. The first level of trust is achieved through a predictability of behaviour of the other actors. The second level of trust is reached through mutual obligations to follow accepted conventions, which are voluntarily taken by the market actors. We also accept a division between one-sided trust in institutions and reciprocal trust among business actors. [v]

Trust and honesty are key factors. A prerequisite of trust is honesty. As Jim Clemmer [vi] explains, honesty is a clear conscience "before myself and before my fellow human beings." Honesty is the awareness of what is right and appropriate in one’s role, one’s behavior, and one relationship. With honesty, there is no hypocrisy or artificiality, which creates confusion and mistrust in the minds and lives of others. Honesty makes for a life of integrity because the inner and outer selves are a mirror image.

Honesty is to speak that which is thought and to do that which is spoken. There are no contradictions or discrepancies in thoughts, words, or actions. Such integration provides clarity and example to others. To have one form internally and another form externally creates barriers and can cause damage, since one would neither be able to come close to anyone else, nor would others want to be close. Some think, "I am honest, but no one understands me." That is not honesty. Honesty is as distinct as a flawless diamond, which can never remain hidden. The worth is visible in one’s actions.

Honesty and integrity are motherhood leadership phrases. And they should be. They are fundamental to leadership. Honesty and integrity produce trust, which produces high levels of confidence. High confidence encourages people to dream and to reach for new horizons. High confidence fosters risk-taking. Risk-taking and initiative are fundamental to organizational change and improvement. Our ability to lead others is directly related to our ability to forge strong relationships. Strong relationships are dependent upon trust. Trust provides the glue.

USA - a Case for Developed Countries
Let us take USA as an example. It is the premier and dominant economy through the post world war II period. With a population of around 285 million, it is known as the “Land of opportunities”. It has a little bit of every country, culture and religion in the world. The USA produces the largest GDP in the world, valued at $9.87 trillion in 2000. Its GDP per capita is around $ 37,600 in 2002. The real GDP, GDP per capita and inflationary rates have been more or less representative of a leading world power over the past several decades.

Factors Responsible for development
Anchoring US’s economic colossus is a strong industrial sector which has been crucial factor in generating economic growth, providing job opportunities, and ensuring national security. Starting from construction boom for canals in 1830s and railroads in 1840s, industrialization has transformed US economy elevating the nation to an economic power with a high level of industrial production capability. A distinctive feature of its successful economy is said to be its heavy reliance upon market mechanism to allocate resources among competing desires. The market remains the distinguishing core, the powerful force of the US economic system.

The multivariate equation has in part contributed to the dynamic efficiency of the private and public sectors as well as the overall economic prosperity of the US. According to DeLong and group’s findings, “we are different but we can live in harmony” has been the formula in the USA where creativity and knowledge are valued. Tolerance and trust have been main reasons for its undisputed economic growth. Unity in diversity breeds creativity. Silicon Valley is a concrete example for this. The Silicon Valley leaders are taking the ethical high road - and betting that it's the road to success.

You ask the people in silicon Valley what makes their company special. The immediate answer is: “integrity”. As George Anders, [vii] a Fast Company senior editor based in SV, puts it, “we live and work in a world where “ the internet changes everything”. But it heartening to see that some of the smartest mavericks believe that honesty is still the best policy.

As Ben W Lewis [viii] observes, roughly three-fourth of US GNP derives from labour inputs. High labour productivity is achieved by trained and skilled labour force, which is in turn, reflects human capital investment, incentive system, management and cultural factors.

According to J. Bradford DeLong, Claudia Goldin, and Lawrence H. Katz [ix], the three major factors responsible for American economic growth are: 1. Human capital – the knowledge and the skills acquired by practice and experience of labour force; 2. Physical capital – the machine, buildings and infrastructure that amplify worker productivity and embody technological knowledge; and 3. The ideas that make the modern industrial technology.

Of these, as they observe, it is the human capital – education, skills, harmony (trust and moral values like honesty) – that must take the first place when we think about policy. This is so for human capital has played the significant role in America’s 20th century economic growth – the increase in average schooling, the positive effects of policies intended to boost the knowledge and skills of people, the proper distribution of income that enables people to lead better lives, a measure of well-being.

There are other factors beneficial for rich countries for their economic development. William Masters and Margaret McMillian [x] say that climatic condition – cold weather is a key stimulus. Cold climate plays two important roles: 1. It makes for the increase of agricultural production; and 2. It saves people from tropical diseases like malaria and improves life span and immune system of people.

Values - Important Factors for Development
Germany is different from the US and is one of the most diverse nations in the wealthy world. Ireland is often shown as the shining example for diversity, tolerance and honesty. Thailand with its long belief in openness and tolerance has been rewarded. G Paschal Zachary [xi] enumerates this idea of how multicultural and peaceful societies grow economically in his book “The Global Me”.

There are contrasts – situations that are different from US or Germany among rich countries. Japan wants the illusion of oneness or China enforces an unbending homogeneity. The communist government upholds the myth of Chinese oneness while completely ignoring the proven benefits of diversity. China is often cited as an awoken giant. But the biggest drawback seems to be that it is the world’s largest official monoculture.

Susan Rose Ackerman [xii] has found in her study that honesty and trust affect the functioning of the state and the market, and conversely, the quality of formal rules and institutions has an impact on personal trust. While analysing the relationship between trust and government, she stresses the mutual interaction between trust and democracy in improving development, and the impact of corruption leading to decline in development.


Corruption Perceptions Index 2003

The CPI 2003 Score relates to perceptions of the degree of corruption as seen by business people, academics and risk analysts, and ranges between 10 (highly clean) and 0 (highly corrupt). A total of 15 surveys were used from nine independent institutions, and at least three surveys were required for a country to be included in the CPI.

SL NO Countries Corruption
Index 2003
GDP/Per Capita 2002 ($) with PPP Average IQ Degree of Development
1 Malaysia 5.20 9300 92 Developing
2 Sri Lanka 3.40 3700 81 Developing
3 China 3.40 4400 100 Developing
4 Thailand 3.30 6900 91 Developing
5 India 2.80 2540 81 Developing
6 Pakistan 2.50 2000 81 Developing
7 Philippines 2.50 4200 86 Developing
8 Vietnam 2.40 2250 96 Developing
9 Papua New Guinea 2.10 2300 84 Developing
10 Indonesia 1.90 2900 89 Developing
11 Myanmar 1.60 1660 86 Developing
12 Bangladesh 1.30 1700 81 Developing
SL NO Countries Corruption
Index 2003
GDP/Per Capita 2002 Average IQ  
1 Finland 9.70 26200 97 Developed
2 Singapore 9.40 24000 100 Developed
3 Australia 8.80 27000 98 Developed
4 UK 8.70 25700 100 Developed
5 Canada 8.70 29400 97 Developed
6 Hong Kong 8.00 26000 107 Developed
7 Germany 7.70 26600 102 Developed
8 Ireland 7.50 30500 93 Developed
9 USA 7.50 37600 98 Developed
10 Japan 7.00 28000 105 Developed
11 France 6.90 25700 98 Developed
12 Italy 5.30 25000 102 Developed


Developed Countries Correlation Coefficients
If integrity is already high, improvement in integrity takes an even greater importance.
  IQ to GDP Corrupt to GDP IQ to Corrupt
GDP 0.5847804 0.723046008 0.557679697
Log GDP 0.5888812 0.709619697  
Developing Countries Correlation Coefficients
If integrity is medium, IQ takes equal importance to integrity.
  IQ to GDP Corrupt to GDP IQ to Corrupt
GDP 0.6096047 0.574192128 0.206513484
Log GDP 0.6863854 0.612479943  
Underdeveloped Countries Correlation Coefficients
If integrity is low, IQ takes a great importance towards GDP.
  IQ to GDP Corrupt to GDP IQ to Corrupt
GDP 0.6031906 0.232614825 0.149918456
Log GDP 0.6901287 0.167734259  
The chart and correlations on this page were done by Parhatsathid (Ted) Napatalung of Thailand.

It shows the correlation between GDP, Corruption and IQ for developed, developing and underdeveloped countries: 1. For developed countries, if integrity is already high, improvement in integrity takes an even greater importance. Higher integrity is associated with higher income; 2. For developing countries, if integrity is medium, IQ takes equal importance to integrity; and 3. For underdeveloped countries, if integrity is low, IQ takes a great importance towards GDP. Lower integrity is associated with underdevelopment. Corruption shows a very high 0.89 correlation to income, while the correlation of IQ to income is a bit lower at 0.67.

Why does trust vary so substantially across countries? How does trust affect growth? Zak and Knack [xiii] in their paper present that trust is higher in more ethnically, socially and economically homogeneous societies and where legal and social mechanisms for constraining opportunism are better developed. High-trust societies, in turn, exhibit higher rates of investment and growth. Agents in this world may trust those with whom they transact, but they also have the opportunity to invest resources in verifying the truthfulness of claims made by transactors. They characterize the social, economic and institutional environments in which trust will be high and show that low trust environments reduce the rate of investment and thus the economy's growth rate. Further, they show that very low trust societies can be caught in a poverty trap.

Stephen Knack [xiv] explains that trust potentially can influence economic performance through either of two major channels, “micro-economic” and “macro-political.” At the micro level, social ties and interpersonal trust can reduce transactions costs, enforce contracts, and facilitate credit at the level of individual investors. At the macro level, social cohesion underlying trust may strengthen democratic governance, [xv] improve the efficiency and honesty of public administration, [xvi] and improve the quality of economic policies. [xvii]

Esa Mangeloja [xviii] of University of Jyvaskyla, Finland, in a study shows that moral institutions and ethics affect the economic development, as for example; trust and honesty are essential requirements for emerging economic activity.

Robert Putnam’s [xix] well-known study of Italy shows that social trust is the density and weight of civil society. Social trust teaches individuals the noble art of living together, which has an impact on economic growth. This is how Putnam introduces the idea:

Whereas physical capital refers to physical objects and human capital refers to the properties of individuals, social capital refers to connections among individuals – social networks and the norms of reciprocity and trustworthiness that arise from them. In that sense social capital is closely related to what some have called “civic virtue.” The difference is that “social capital” calls attention to the fact that civic virtue is most powerful when embedded in a sense network of reciprocal social relations. A society of many virtuous but isolated individuals is not necessarily rich in social capital.

In other words, interactions enable people to build communities, to commit themselves to each other, and to knit the social fabric. A sense of belonging and the concrete experience of social networks (and the relationships of trust and tolerance that can be involved) can, it is argued, bring great benefits to people.

Zak and Knack [xx] demonstrate that interpersonal trust substantially impacts economic growth, and that sufficient interpersonal trust is necessary for economic development. Policies must be trust-raising if policy makers seek to stimulate economic growth. Policies that enhance freedom, build civic culture, reduce income inequalities, raise educational levels, strengthen the rule of law and facilitate interpersonal understanding, all of which raise trust. Trust, honesty and democracy are the foundations of abiding prosperity.

Douglass North [xxi] has argued “the inability of societies to develop effective, low-cost enforcement of contracts is the most important source of both historical stagnation and contemporary underdevelopment in the Third World.” Spot market transactions allow some gains from trade, but most of the potential benefits from specialization will be forgone in the absence of any trust-dependent trades, i.e. trades that occur over time or across space, and which are thus subject to opportunism on the part of one or both parties to the transaction. For example, goods and services may be provided in exchange for a promise of a future payment. Creditors loan money to debtors on the promise of future repayment. Managers hire employees to accomplish tasks that are difficult to monitor or measure.

Leadership quality is directly related to relationship with people. Strong relationships are dependent on values – trust, truthfulness and honesty. Building trust and being truthful is essential for strong relationships and to the success of organisations. Unfortunately, values are not always present. Many studies show that mistrust of management and low morale are significant factors in the widening “we-they” gap between employers and employees. In organizations where there are unethical business practices, cynicism runs rampant and employees feel an ever-diminishing commitment to their organization? [xxii] This situation will never change if there are no strong and trustworthy leadership at all levels.

While crime doesn't pay, being trustworthy does pay off. One study of the eight biggest automobile manufacturers in Japan, South Korea, and the United States, along with 435 of their suppliers, looked at the economic value of trust (defined as "confidence that the other party will not exploit one's vulnerabilities"). The results of the research indicated that in all three countries relationships with higher levels of trust had substantially lower costs. Trust actually adds value to the relationship because it encourages the sharing of resources. [xxiii]

Another study commissioned by MacLeans magazine [xxiv] found that companies whose employees believe their bosses are good people-managers are the ones with the strongest shareholder returns. "Where trust in management is high," says Dawn Bell, a Vancouver-based senior consultant with Watson Wyatt Worldwide, "it is incredible what employees can do to drive business success. In organizations where the trust and confidence has gone, it is very difficult just to keep the lights on."

Here is a first hand report of Venezuelan situation of Mark Tweito. [xxv] “Having now lived for over a year in Venezuela, I have been able to put my finger on one of the reasons I feel that Venezuela is not able to economically advance at the level it could. It is not that Venezuelans are lazy, as many of them work long hours for little pay. It is not a matter of intelligence either, as most Venezuelans are able to grasp difficult concepts and are able to make do with the materials at hand in order to solve problems. However, there is a rampant problem with distrust. This arises from the rampant corruption on the part of many citizens. It is simply harder to make business when trust is lacking. If Venezuelans want to improve their economy, one of the best ways would be to act trustworthy.”

Religion – Promoter of Moral and Ethical Values
Max Weber’s famous theory about capitalism posits that religion affects the economy by influencing certain individual traits. These traits, in turn, may make people more or less economically productive. Weber stressed the Protestant ethic that honesty, ethics and other kind of values influence individuals who influence the economy.

We cannot deny the role of religion or values preached by religion in economic development. Most of the rich countries in the west, the first ones to develop, are Christian – either predominantly Catholic or Protestant or both. Germany is about 50/50 Catholic and Protestant. USA, France, England and other developed countries are more or less in similar situations. Christianity, as an organized religion has spread systematic education and supported scientific and industrial growth in western countries.

Christianity is a 2000-year-old religion and is based on the Bible: Old Testament and the New Testament. Ten Commandments of the Old Testament and the Gospel values as preached by Jesus – love, justice, peace, fellowship have all deeply influenced individuals and communities. Christianity is missionary by nature and has been preaching the Gospel message throughout the world. Although the Church and the State are separated in the modern world, Christian ethics have deep root in the socio-economic life of people. Take for example the motto of USA: “In God we trust”. It is taken from the Old Testament, Psalm 91.

The Church has always emphasized the dignity of human person. “ How we organize our society – in economics and politics, in law and policy – directly affects human dignity and the capacity of persons to grow… The State has a positive moral function as an instrument to promote human dignity”. [xxvi] According to the social teachings of the Church, the economy must serve people, not the other way around. All workers have a right to productive work, to decent and fair wages, and to safe working conditions. They also have a fundamental right to organize and join unions. People have a right to economic initiative and private property, but these rights have limits. No one is allowed to amass excessive wealth when others lack the basic necessities of life.

Catholic teaching opposes collectivist and statistic economic approaches. But it also rejects the notion that a free market automatically produces justice. Distributive justice, for example, cannot be achieved by relying entirely on free market forces. Competition and free markets are useful elements of economic systems. However, markets must be kept within limits, because there are many needs and goods that cannot be satisfied by the market system. It is the task of the state and of all society to intervene and ensure that these needs are met.

All people have a right to participate in the economic, political, and cultural life of society. It is a fundamental demand of justice and a requirement for human dignity that all people be assured a minimum level of participation in the community. It is wrong for a person or a group to be excluded unfairly or to be unable to participate in society.

We are one human family. Our responsibilities to each other cross national, racial, economic and ideological differences. We are called to work globally for justice. Authentic development must be fully human and integrated development. It must respect and promote personal, social, economic, and political rights, including the rights of nations and of peoples. It must avoid the extremists of underdevelopment on the one hand, and "super-development" on the other. Accumulating material goods, and technical resources will be unsatisfactory and debasing if there is no respect for the moral, cultural, and spiritual dimensions of the person.

The Scandalous Realities of Developing Countries
There are 123 developing countries, 44 least developed countries, 25 Central and East Europe and Commonwealth of Independent States (CIS) and 30 OECD Countries in the world. According to WB Report 2003, there are 54 countries with high GNP per capita of $ 9,386 or more; 37 upper middle-income countries ($ $ 3,036 to 9,385); 56 lower middle-income countries ($766 to 3,035) and 61 low-income countries with $ 765 or less. The proportion of people living below poverty line in the world is reported to have fallen from 29 per cent in 1990 to 23 percent in 2002.

The richest 5 per cent of the world’s people have incomes 114 times those of the poorest 5 per cent. The USA, Canada, Brazil, Mexico and Argentina have 95 per cent of the combined GDP of the 35 Countries of Americas. There are built-in inequities, not only in income, but also in the capacity and strength to deal with global issues like trade. Seven countries, - US, Japan, UK, France, Saudi Arabia, Germany and the Russian Federation, hold 48 per cent of the voting power at the IMF, and 46 per cent at the World Bank.

In the evolution of the world economy, there are some countries less favored. In these poor or “developing” countries, the vast majority of people live in inhuman conditions, inimical to human dignity, a scandalous situation rejected by the conscience of every human person. They feel ostracized from the world community. They are also the losers in the battle for survival. What is it that prevents development in developing countries? Why is it that so many developing countries have a per capita income much lower than that in advanced countries?

Joel Mokyr [xxvii] in his outstanding essay asks a major historical question: “Why Was the Industrial Revolution a European Phenomenon? He says that many of the inventive periods that characterized the Industrial Revolution showed up much earlier in China and other countries, yet they did not trigger any important changes in their economies. Mokyr proposes that they lacked an “epistemic base” – a broad set of empirical and theoretical knowledge – in which to embed their discoveries. The failure of many development schemes in poor countries may thus be attributed to their attempt to insert some advanced technology in societies lacking the base of knowledge that allows them to apply it to apparently unrelated processes.

According to the UNDP Human Development Report, the gap between the incomes of the richest countries and the poorest countries was about 3 to 1 in 1920, 35 to 1 in 1950, 45 to 1 in 1975, 75 to 1 in 1992 and it is almost 100 to 1 now. Global inequalities in income have increased alarmingly in the last hundred years. More than 30,000 children die everyday from preventable diseases. Some 120 million children are excluded from primary education. About 500 million women are illiterate. 1.5 billion People have no safe drinking water. One woman dies for every 260 live births – which is one woman in a minute. More than 20 million have died of AIDS, 34 million people are living with HIV/AIDS, and everyday 15,000 are infected. About 790 million people are hungry and 1.2 billion live on less than one dollar a day. [xxviii]

Between 1945 and 2002, 171 wars (excluding the recent attack of USA on Iraq) have been fought in the world resulting in a human loss of 28.6 million persons. The Korean War caused 3 million deaths, the Vietnam and Afghanistan wars 2 million deaths each, Sudan war 1.5 million deaths, Rwanda war 0.8 million deaths. Almost all these Wars were fought in the third world.

We are living in a very challenging environment. Of the 6 billion people living on the planet earth today, 4.9 billion, i.e. 80 percent of the world population, live in the developing countries. These 4.9 billion receive only around $ 6 trillion, i.e. 20 per cent of global GNP. Imagine the demography of the next 25 years: about 2 billion will be added to the planet of which 95 per cent will be in the developing world. Besides the critical global problem of poverty, the demographic disequilibrium is another challenge to be faced now. [xxix] The UN Population Division has projected that global population will increase to 9.3 billion by 1050. The less-developed regions will add 3.2 billion (going from 4.9 to 8.1 billion) by 2050 – the same number as were added between 1950 (when there were only 1.7 billion) and 2000.

Soviet Union as low-trust and less-honest economy
Let us take Soviet Union as an example for low-trust and less honest economy. According to a study of Susan Rose Ackerman and Bo Rothstein [xxx], under Soviet style of socialism, government institutions had become severely discredited among the population. Dishonest behaviour towards them was often seen as acceptable and even praiseworthy in the face of their legitimate power. In general, trust relationships extended little beyond the circle of family and close friends. Their study confirms that countries in transition from socialism face particular problems in developing habits of trust and honesty. They highlight the tensions between interpersonal trust and trust in public institutions.

Vadim Radaev’s [xxxi] study of Russia shows that Market relations were not confined to free competition and price-making mechanism. Market was a part of the economy as instituted process. [xxxii] It was constituted by sets of rules, regulations, and other institutional arrangements, including relations of trust. Russia demonstrated a prominent example of a low-trust society. Formal rules were contradictory and unstable here. There was a lack of their formal enforcement, which produced a high level of uncertainty. The state legislative and regulatory policy was non-predictable by the market actors. As a result, one-sided trust in institutions remained on the low level.

Formal rules were contradictory and changeable there. They became subject to intensive informalization. The state policy was often non-transparent and non-predictable, and therefore, became a major source of institutional instability. This situation produced uncertainty and undermines one-sided trust in formal institutions. Reciprocal trust in the other market actors was also seriously undermined for honesty often did not pay there. Entrepreneurs confronted with a high level of opportunism and malfeasance in business relationships coming from the frequent infringement of business contracts.

India as a Case for Developing Countries
British colonization of India has been a major cause for India’s underdevelopment. While comparing the economic outcomes across areas in India, which were under the direct colonial rule of British administrators with areas, which were under indirect colonial rule, Lakshmi Iyer [xxxiii] says that “ I find evidence that colonial annexation policy was highly selective and concentrated on areas with high agricultural potential. The instrumental variable estimates show that areas under direct British significantly lag behind in public goods provision even as late as forty years after the end of colonial rule.”

With a total population of 1.027 billion persons, which is 16 per cent of the world’s population; with 1/3 of world’s poor; 27.1 per cent below the poverty line; with a per capita income of US$ 2,500, which is 1/13 of the developed countries; ranking 124th in the human development index, India faces, besides economic and political instability, ethnic and communal outbursts which have proved fatal to its development. According to Transparency International (TI) survey (2002) [xxxiv], India stands out as one among the 30 most corrupt countries in the world. TI gives India an integrity score of meagre 2.7 out of clean 10. TI has also found out that Indians pay a whopping Rs. 267 billion in bribes annually with the health sector perceived to be the most corrupt with people being made to pay for what they are entitled to.

Equally surprising is education at the number two position. Corruption has corroded the two key areas of development. Health and education are the two sectors, which are, and ought to be, the undisputed engines of higher growth. There are no two opinions on the liberal allocations made in Plan after Plan for these vital sectors. But if the money is mis-spent, it is a national loss. It slows down progress and harms collective well-being.

Corruption in governance is the root cause of many evils today resulting in slow development. It brings down the quality of governance. A survey of seven government departments conducted in 2002 in five metros [xxxv] in India rated Delhi’s Customs and Excise Department, scoring 8.6 on a scale of 10, the most corrupt. [xxxvi] As Frederick Keith Ross has said, ‘Corruption is a sin; every government denounces it and every government practices it.’

Politicians, bureaucrats and governments in India are involved in scams and scandals. 1990s has been a decade of scams [xxxvii] – the Bofors, the Bank Securities scam, the Hawala scam, the Animal Husbandry scam, the Sugar scam, Telecom scam, Fertilizer import scam, PSE disinvestment scam etc. Indian governments, Centre and States, are full of scandals and corruption charges involving those who occupy top political positions. Corruption manifests itself in many forms: at the highest political level as horse-trading of MLAs and MPs; at the fiscal level in the form of evading taxes; at the corporate level in terms of financing elections by black money and so on.

As Ruddar Datt puts it, [xxxviii] “A strong feeling has grown in Indian political life that corruption has become a way of life. In case, you are caught taking a bribe; you can get rid of the crime by paying a bribe”. Bribe has become an incentive these days, which increases work efficiency in public offices. It is disturbing to note that corruption has brought India among the lowest in the list of countries of the world in the matter of prevalence of corrupt activities. Today government is being gradually transformed into a company/a business enterprise. Can governance become a business? Indian political system as well as the judicial system needs reforms.

A few years ago, John Major, ex-British Prime Minister appointed a committee under the leadership of British lawyer, Lord Nolan to draw up a Charter of Governance in public life. This committee drew up seven principles under the Charter:

  1. Selflessness in service;

  2. Integrity in life;

  3. Objectivity;

  4. Accountability;

  5. Honesty; and

  6. Leadership. These are basic human values meant to build communities towards progress for all. Higher degree of these values being observed in a country will create better working environment for greater investment and productive activity.

Policies and planning are not people-oriented and so, not focused on growth and development. If countries like India have to reach the level of developed countries in GDP, NNP and per capita income, mode of governance at various levels needs to improve. Trust, honesty and transparency must become the guiding principles of all projects and programmes of development. A well-known economist, Kirit Parikh [xxxix] has projected that India could have a per capita income of US$ 30,000 by the year 2047. And an American professor in Business management, A. J. Rosensweig [xl] has said that India’s GDP would exceed that of Japan by the year 2025 and that India would be the third largest economy in the world (behind USA and China). Their projections could become a reality only if there is greater level of trust and honesty among leaders and business community.

India – 70 per cent of its population – lives in villages. It is multi-religious, multicultural and multi-linguistic. It is known to be a cradle of all religions. India has had a long tradition of religious tolerance. It professes secularism as per its Constitution. Secularism means an attitude of equal respect for all religions. Unlike in the West, where secularism came mainly out of the conflict between the Church and the State, secularism [xli] in India was conceived as a system, which sustained religious and cultural pluralism. Secularism as understood in Indian politics today means anti-communalism.

Take an Indian village; people of different religions and castes have lived together for centuries in harmony and peace. But, of late, particularly since independence, communal clashes are common, costing hundreds of human lives and huge destruction of wealth and property. Godhra Massacre of February 2002 in Gujarat where nearly 2000 people, mostly Muslims including women and children, were murdered is a recent case in this regard. [xlii] While religious pluralism is strength on the one hand, it is also a bane to India’s development. The two major religions namely Hinduism and Islam are often at war with each other. Frequent communal clashes keep the environment disturbed with fear and suspicion and reduce the degree of incentives to invest and potential for productive activity. Communal violence is a major hurdle to India’s progress.

Hinduism is not an organized religion. “Hinduism does not rest on the authority of one book or one prophet, nor does it possess a common creed.” [xliii] Their distinguishing characteristics are its diversity and multiplicity. It is not a missionary religion like Christianity. As Jawaharlal Nehru put it, “Hinduism, as a faith, is vague, amorphous, many-sided, all things to all men. It is hardly possible to define it, or indeed to say definitely whether it is a religion or not, in the usual sense of the word.” [xliv] As an unorganized religion, it has not vibrantly contributed to India’s scientific and industrial knowledge and economic growth.

Factors for Underdevelopment
With the foreign debt and the iron rules of the world market against them, the noose around their neck is threatening to strangle the poor countries. They confirm the explanation that these inequalities are caused by a type of relationship, which often has been imposed upon them. The poor countries are convinced that the present status of the rich countries is the outcome of injustice and coercion (colonial economics). Their level of expectations, though somewhat indistinct, goes far beyond a mere imitation of the rich countries (dependency model). They are attempting to overcome material poverty and misery in order to achieve a more just and human society. But their internal diversity and heterogeneity, and the presence of external determinants contribute to the rise of different needs in different groups causing a dynamics of conflictual action.

As Joseph Stiglitz says, [xlv] we are coming to recognize that lack of development is often due to failures of collective action. The problem is not just predatory states but states failing to provide the institutional infrastructure required for a sound economy. It is important that the state undertakes its responsibilities and does so effectively and efficiently. The state, besides ensuring that it performs its own functions well, also has a role to monitor other institutions in a country. The institutional arrangement in a society must be efficiency enhancing, not power and wealth preserving.

A global economy has emerged, but the institutions of global governance are not performing either efficiently or equitably. The Bretton Wood Institutions (IMF, World Bank, GATT/WTO) were created to serve as global institutions for maintaining financial stability and for promoting development and trade. But the impact of policy condition of these institutions falls disproportionately on the poor.

Development, in recent years, has been taken as synonymous with modernization, westernization and reformism. Development strategies promoted by international organizations have been closely linked to governments and groups, domestic and foreign, which control world economy. The rich countries projected themselves as models of development and their approach did not attack the root causes of misery and hunger. Their models have been timid and really ineffective in achieving the desired transformation. Great care has been exercised to protect their vested interests. As Jan Nederveen Pieterse observes, “modernization or catching up with advanced countries, is no longer an obvious ambition. Modernity no longer seems so attractive in view of ecological problems, the consequences of technological change and many other problems. Westernization no longer seems attractive in a time of revaluation of local culture and cultural diversity.” [xlvi]

As Stiglitz puts it: “Anyone visiting a typical developing country could not but be struck by the huge inequalities in living standards. While a few enjoy a life of wealth and luxury, millions live subsistence lives in poverty. In some countries this disparity is a consequence of a feudal heritage; in many it is part of the colonial inheritance, a result, for instance, of European colonial masters appropriating vast amounts of land, leaving others only the residual.” [xlvii] Across the third world, gross inequalities persist and deepen. More of the world’s poor are crowded into more hopeless condition. Yet, the earth’s plenty is far from running out. In nation after nation, a tiny minority of the rich holds vast areas of land and wealth.

Take the social and political contrasts presented by the two arms of the American hemisphere. While the USA in the north enjoys a dynamic economy within a powerful democracy, the numerous countries in Latin America in the south are politically divided, economically underdeveloped, subject to frequent social unrest, and plagued by inflation and poverty. Why should one branch of the continent enjoy enormous affluence and power, while the other languishes in misery and unrest when both attained independence almost simultaneously, and are endowed with a comparable abundance of natural and human resources?

Many economists believe that the underdevelopment of the “developing” countries is only the by-product of the development of “developed” countries. It is the consequence of their total dependence on rich countries. Colonization of Asian countries by European countries has been a major cause for Asia’s underdevelopment. Only Japan and the Kingdom of Siam (modern Thailand) escaped colonization.

Asia, though economically developing, is steeped in a sense of the sacred. We sense a cosmic worldview to life with rich cultural diversity expressed in art, architecture, music, and the rich classical and folk traditions. But modern media, IT and globalisation-liberalisation forces are posing a threat to the much-desired Asian development. The glaring reality of the vast multitude of poor, the varied deprivation and dehumanization, rampant corruption and injustice and the inevitable exclusion of the displaced, untouchables, women, indigenous and migrant communities confront Asia. The exploitation of our eco-systems further aggravates the plight of the poor. [xlviii]

Before 1800, “Asia was the world’s main production and profit generating area. With 66 per cent of world’s population, it accounted in 1750 for almost 80 per cent of wealth produced in the world. China and India were the two great regions most central to the world economy. India and China together accounted for 57.3% of world manufacturing output. Asia was particularly dominant in finished textile products (Indian and Chinese cotton and silk goods) - a sector later to become the globalized flagship industry of the European industrial revolution. [xlix]

Trade-flows between Chinese, Indians, Japanese, Siamese, Javanese and Arabs were much greater than those within Europe. The level of scientific and technical knowledge was high - more so in many fields than that of Europe. India’s competitiveness was explained by its relative and absolute productivity in textiles, by its domination of the world market in cotton goods; that of China by its even greater productivity in industry and agriculture, and in river transport and trade.

European global domination led to the de-industrialization of Asia: that is the disappearance; almost total in India and partial in China, of Asian craft industries. Asian de-industrialization was due to the combined effect of two factors. First, Europe had now acquired a decisive lead in technology: mechanization brought major increases in productivity, resulting in an explosive growth of manufactured goods with lowered production costs. Second, the unequal terms of trade and commerce that the colonial home countries imposed by force: competition from European manufactured goods on the Indian and Chinese markets took place in a context of free trade that was anything but free, since the colonies were compelled to open their borders unilaterally to European products without any quid pro quo.

This process is what led to the creation of the third world and the ever-widening divide during the 19th century between the colonies and their colonizers. Asian decline in comparison with Europe was not only relative but also absolute: in 1860 the standard of living in the colonies was lower than in 1800 owing to European expansionism.

But the transformation that is taking place today in China, also in India disproves the deep - rooted western ethnocentric views that the cultural factors will forever prevent the east (far, near or middle) from attaining modernity, which has been thought of as uniquely western since the European industrial revolution. Indeed, the scale of China’s transformation has provoked questioning and concern in the West about a possible realignment of the world economy towards Asia and, in the longer-run, a fundamental shift in major international equilibrium. Adam Smith’s prediction in 1750 that China and India would emerge as economic powers in the 21st century is coming true, though the transformation process is slow in India. “The West has long been accustomed to consider itself the thinking subject of other peoples’ history. It must now rethink its own history and its rise, no longer exceptional but as a circumscribed moment in world history.” [l]

Where there is absence of trust, honesty and respect for fellow human beings, there is greater degree of corruption. According to a review of Eric Chetwynd, Frances Chetwynd and Bertram Spector [li], Corruption in the public sector - the misuse of public office for private gain - is often viewed as exacerbating conditions of poverty (low income, poor health and education status, vulnerability to shocks and other characteristics) in countries already struggling with the strains of economic growth and democratic transition. Alternatively, countries experiencing chronic poverty are seen as natural breeding grounds for systemic corruption due to social and income inequalities and perverse economic incentives. It is concluded that corruption, by itself, does not produce poverty.

In his recently published book on public corruption, Robert Neld [lii] recalls a meeting with the famous Swedish economist and Nobel Laureate Gunnar Myrdal in the late 1960s. Myrdal’s argument was that western intellectuals often viewed corruption as the exception from normality. But according to Myrdal, [liii] this view was a mistake: from a global and historical perspective, non-corruption was to be seen as the exception. Neld follows Myrdal’s argument and points out that non-corruption came pretty late in history to a small number of countries in a particular corner of the world. It should be added that Myrdal, in his analysis of poverty in Asia, invented the concept of the soft state as early as the 1960s to shed light on the problem nowadays known as quality of government.

Corruption has direct consequences on economic and governance factors, intermediaries that in turn produce poverty. Thus, the relationship examined by researchers is an indirect one. Their review discusses two major models explaining this moderated linkage between corruption and poverty: an economic model and a governance model.

The Economic Model [liv] postulates that corruption affects poverty by first impacting economic growth factors, which, in turn, impact poverty levels. Economic theory and empirical evidence both demonstrate that there is a direct causal link between corruption and economic growth. Corruption impedes economic growth by discouraging foreign and domestic investment, taxing and dampening entrepreneurship, lowering the quality of public infrastructure, decreasing tax revenues, diverting public talent into rent-seeking, and distorting the composition of public expenditure. In addition to limiting economic growth, there is evidence that corruption also exacerbates income inequality; regression analysis has shown a positive correlation between corruption and income inequality.

The Governance Model [lv] asserts that corruption affects poverty by influencing governance factors, which, in turn, impact poverty levels. First, corruption reduces governance capacity, that is, it weakens political institutions and citizen participation and leads to lower quality government services and infrastructure. The poor suffer disproportionately from reduced public services. When health and basic education expenditures are given lower priority, for example, in favor of capital intensive programs that offer more opportunities for high-level rent taking, lower income groups lose services on which they depend. Secondly, impaired governance increases poverty by restricting economic growth and, coming full circle, by its inability to control corruption. Thirdly, corruption that reduces governance capacity also may inflict critical collateral damage: reduced public trust in government institutions.

Many World Bank studies suggest that higher levels of corruption reduce growth through decreased investment and output. One such comprehensive study [lvi] looked at 22 transition countries and examined two forms of corruption – state capture and administrative corruption – and their impact on selected economic and social indicators. Kaufmann, Kraay and Zoido-Lobaton [lvii] have also conducted a research on the relationship among corruption, governance and poverty. Their studies suggest an association between good governance (with control of corruption as an important component) and poverty alleviation. They studied the effect of governance on per capita income in 173 countries, treating “control of corruption” as one of the components of good governance. Analysis showed a strong positive causal relationship running from improved governance to better development outcomes as measured by per capita income.

Impact of Liberalization and Globalization
Today, globalization seems to have become a phenomenon of fear. It is said that liberalization, privatization and globalization (LPG policy) are the rich nations’ millennium strategies floated through multilateral institutions to systematically oppress the third world. Globalization is defined as declining barriers to trade, migration, capital flows, technology transfers, and foreign direct investment (FDI). It is the process of extending and integrating markets and economies so that they are no longer confined to a single region or nations but form part of a global economic system. While mainstream economists suggest that globalization process is a strong force for equalizing per capita income between nations, others say that the developing countries are exposed to threats of further aggravation and marginalisation in the process. [lviii]

Recent World Bank reports [lix] reveal that during the globalization period, the distribution of per capita income between countries has become more unequal. For example, in 1960 the average per capita GNP in the richest 20 countries was 15 times that of the poorest 20 countries. Today the gap has nearly tripled. Emphasizing the multidimensional nature of poverty, the report says that the poor face not only a chronic shortage of income but also a sense of voicelessness and powerlessness and a high level of economic insecurity. This uneven record of development is rupturing human life and development process.

As Robert J. Samuelson [lx] puts it "… Globalisation is a double-edged sword. It’s a controversial process that assaults national sovereignty, erodes local culture and tradition and threatens economic and social stability." Globalization has raised fears all over the world, in the North and in the South that the market forces could rend the social fabric of societies. “It brings instability and unwelcome change… expose workers to competition from imports… undermines governments…” [lxi] Anti-globalizationists proclaim, “The world is not for sale”. Globalization is not being warmly welcomed. It has its gainers and losers. It is said to be good for rich people and rich countries, but bad for poor people particularly the indigenous communities like Tribals, Dalits and so on.

As Henry Kissinger, former US Secretary of State has said, “globalization inevitably challenges prevailing social and cultural patterns… A sense of political unease is inevitable – especially in the developing world – a feeling of being at the mercy of forces neither the individual nor the government can influence any longer”. [lxii] Though there are grounds for defending globalization as Jagdish Bhagwati [lxiii] does, there is substantial evidence that implementation of LPG policies has worsened income distribution in many developing countries, and as a result, long-term growth has been hampered and poverty has increased. According to Human Development Report in South Asia (2001), [lxiv] the number of poor people has increased and the poor are being marginalized in South Asia. The levels of human development have started to stagnate or even decline. “The globalization process in South Asia has focused on integrating markets without improving the conditions of the vast majority of South Asians. About half a million people have experienced a decline in their incomes”.

Take the case of India. In the broad setting of LPG measures in many countries in the 1980s, India was an apparent anomaly. India was facing a macroeconomic crisis that required immediate attention. The crisis provided the opportunity and the necessity to undertake a programme of macroeconomic stabilization and structural adjustments in 1991 with the announcement of the New Industrial Policy Resolution. From 1991 to 2000 was the period of first generation of reforms in India. And from 2000 the second generation began. “This was the period when GDP growth increased to around 6.9 per cent per annum, the highest ever, witnessed consecutively for four years in India.” [lxv] A situation of an inverse relationship between poverty reduction and GDP growth was observed. According to Gupta, [lxvi] the poverty reduction over 1983 to 1990-91 was around 3.1 per cent per annum, but it reversed to 1 per cent in the 1990s. This leads us to a natural conclusion that the ‘trickle down effects’ of the growth process did not benefit the poor. S. P. Gupta held that the reforms were pro-elitist bias.

The number of poor in India remained stable at around 320 million for a fairly long period (1983-1997), due to a countervailing growth in population. Y. V. Reddy points out that over 1/3rd of the Indian population in 1997 could not have the required minimum daily calorie intake, same as in 1990. [lxvii] While Bhalla [lxviii] argues that poverty fell far more rapidly in the 1990s than previously, Sen [lxix] has observed that poverty reduction had been stalled and that the poverty rate had even risen in the 1990s. Martin Ravallion’s study adds that pre-1990s growth did reduce poverty, but in the 1990s, with higher growth, there were signs that inequality had risen within and between states. [lxx] The incidence of poverty which fell from 55.5 per cent in 1972 to 34.3 per cent in 1990 never went below the 1990 level during the reform period of 90s, while Government of India measured it at 26 percent.

During this period, the rate of growth of employment dropped below 1 per cent p. a., while it was 2.07 per cent in the 80s. In India nearly 90 per cent of employment is in the informal (unorganized) sector, such as agriculture, self-employed (60 per cent), and casual labour (30 per cent), many of whom are poor. Over 70 per cent of the labour force in all sectors combined is either illiterate or educated below the primary level. In the 60s and 70s, employment growth in the organized manufacturing sector was determined by the growth of employment in the public sector enterprises. But changes have been taking place since the declaration of the NEP in 1991 and the growing importance given to the private sector investment including investment from foreign countries in the form of FDIs, etc.

The total employment in the public sector which was 19.06 million in 1991 decreased by 1.5 per cent to 18.77 million in 2001. Total workforce in the Central PSEs was 2.18 million in 1991, which declined to 1.74 million in 2001, a 20 per cent decline (1.7 per cent p.a.). [lxxi] The growth rate in the public sector slowed down from 1.52 per cent p.a. to 0.03 per cent p.a. during the post-reform period. [lxxii] In the organized sector where the public sector reform process was introduced, the annual rate of growth of employment was 0.60 per cent during the post reform period (1990-91 to 1999-00) as against 1.73 per cent in the pre-reform period. Between March 31 2001 and March 31, 2002, 4, 20,000 employees have been thrown out of jobs in the public sector. [lxxiii] Another 4 million are likely to be shed during the 10th Five Year plan. [lxxiv]

One of the ways of reforms in India was disinvestment or privatisation of public sector enterprises. There were 234 Central PSEs (111 were loss-incurring) with a total capital employed of Rs 3,30,649 crore in 2001. Many PSEs were sold off to private partners with the objective of raising revenues to meet the fiscal deficits and to improve efficiency. The Government had followed a type of exit policy of public sector. [lxxv] Till December 2004, 48 PSEs have been disinvested out of which 14 have been strategic sales. Profit making entreprises like BALCO, which are in the tribal belt, have been sold off. PSEs in the tribal belt were beneficial to tribal people, giving them employment and livelihood. Privatisation of these entreprises has adversely affected the tribal people and disturbed the regional balance in terms of industrialization. The strategic method has increased ownership concentration. All strategic partners are large business houses like Tata, Sterlite. This calls for some rethinking on the existing policy of disinvestment.

The new initiatives in terms of disinvestment have in fact added oil to the fire of existing burden of unemployment. This is clear from the study [lxxvi] of 14 PSEs, which have been strategically disinvested. The net reduction in these 14 enterprises was 4,719 workers. And the kind of employment the disinvested industries may provide will not be for the 75 per cent of the labour force. The employment growth in India is estimated to be around 2.3 per cent, while the labour force is growing at the rate of 2.5 per cent annually. Plan achievements have always fallen short of targets. The unemployment scene has continued to be the same with more than 7 million every year, and around 18.5 million of accumulated backlogs. The country is facing a challenge of not only absorbing the fresh entrants but also clearing the backlogs.

Consumerism has become a culture today. It is said to be a byproduct of capitalism in which identities are defined in terms of money, power and materials. As Sulak Sivaraksa observes, "Young people define their identities through perfumes, jeans and jewelry. The primary measure of a person's life is how much money he or she has." According to Buddhism, there are three poisons: greed, hatred and delusion. All three are manifestation of self-centeredness and unhappiness. These poisons drive capitalism and consumerism. When Peter House, an American pastor, was asked once about his religion, he answered that he was raised a consumerist. Consumerism has permeated the western society in many ways. ‘It is the religion of the west. The soul of the western society is deeply committed to consumerism. Almost all, irrespective of age, creed, color or religion, are loyal to this modern religion. Globalization measures of recent years have also globalized consumerism. You see it in developing countries among the rich and the middle class. There is a growing craze for consumerism. Raiders of the global economy prey on even the third world poor.

In most countries of the world-if not all-women form disadvantaged section vis-à-vis men. The globalisation of the economies has had an enormous impact on women, their work and health in the developing countries. They are victims of the neo-liberalism – ‘docile’, compliant’, ‘easy to manage’, and ‘difficult to organize’. “...the contradictions women face have never been more bruising than they are now... On every side speechless women endure endless hardship, grief and pain in a world system that creates billions of losers for every handful of winners. It's time to get angry again.” [lxxvii] Globalisation has had such negative consequences for women and children that some commentators argue that 'globalisation is a man' [lxxviii].

Individualism (to be different and to have more than others) and consumerism have become the hallmarks of globalising world. In Many MNCs, employment has been feminized for cheaper and more flexible source of labour. Globalization-forces use the existing patriarchal ideology to make women more subservient to male authority. A large portion of the women who work in the manufacturing or services departments often have very long work days with few breaks. The work environment is hazardous to their health and they are subjected to violence and sexual harassment. MNCs are competing with one another to sell their products to accumulate more surpluses for themselves. [lxxix]

Firms and individuals follow suit in their pursuit of materialism and the creation of status symbols. In the same vain, sexuality and women’s bodies are being commercialized as never before – from pornography, sex-tourism and sex trafficking to advertisements and beauty schemes. Economic globalisation in the form of ‘market democracy’ has also created an image of the New Asian Woman. She is the professional woman, entrepreneur, manager and executive who is articulate, glamorous and assertive. This image is in every women’s magazine, avidly read by the middle class and aspiring working class women who don’t have the means to buy your designer clothes and skin-whitening products. It is also true that while women do suffer under neo-liberalism, women workers in the most repressive situations have fought back, resisting the assaults of employers, governments and the IMF.

Development paradigms in developing countries over the years have been external or ‘foreign’ based on the model of the industrialized countries and promoted by them for their own prolonged domination. As Serge has pointed out, “ the debate over the word ‘development’ is not merely a question of words. Whether one likes it or not, one can’t make development different from what it has been. Development has been and still is the Westernization of the world.” Rajni Kothari rightly says, ‘where colonialism left off, development took over.’ [lxxx]

In this context of global disparities on the one hand, and technological changes and economic reforms, viz. liberalization, privatization and globalization on the other, the issue of development needs rethinking. The conventional understanding of development with the State as its agent is being overtaken by market based approach floated by Bretton Wood institutions and donor countries. There is an urgency to look back and take stock of development perspectives and performance so far – accepting the failures as well as achievements. Rethinking itself is an intrinsic part of the development process.

Conclusions and Suggestions
No economic system can perform as well as free markets in an atmosphere of mistrust and dishonesty. An efficient market requires that parties to transactions trust one another and trust that the information presented to them is accurate. The largest, seemingly anonymous markets like America's stock exchanges are excellent examples of the importance of trust supported by third-party conformation. If stock analysts and everyday investors cannot be confident that they are being given accurate figures regarding the financial health and prospects of all the companies they are considering buying into, they cannot make informed buying decisions. The result is simply gambling or, more likely, an increasing reluctance to invest. The stock market will plummet and investment will dry up, and without investment, there will be no capital improvements, no research, and no prosperity.

Honesty and ethical behavior are not just goods relevant to Sunday morning and the hereafter, they are critical to our economic well-being. We have become, to a great extent, materialistic and consumeristic. We give importance to “having” and not “being”. In being, we grow together, but in having, we perish together. We increasingly are losing our understanding of just what it means to act fairly and honestly. To be sure, we have a multitude of laws on the books that say, in essence, "Thou shalt not lie." However, the very number and complexity of these laws, applied in different ways to almost every aspect of economic life, have blurred the basic point: Lies are evil. The very complexity of our laws has encouraged many professionals and businesspeople to find ways of conducting business that arguably fit within the letter of the law while avoiding its true intent. We have become so tolerant of half-truths, hair-splitting definitions, and the notion that truth is "subjective" that we have lost our ability to enforce basic honesty and truthfulness, even where it is crucial to our economic well-being.

As trust and honesty - important elements of social capital - decline, vulnerability of the poor increases as their economic productivity is affected. When people perceive that the social system is untrustworthy and inequitable, their incentive to engage in productive economic activities declines. Anti-corruption programs that are formulated to address issues of economic growth, income distribution, governance capacity, government services in health and education, and public trust in government are likely to not only reduce corruption, but improve development as well.

It is time we stopped talking and discussing about trust and ethics, and start living it in our lives to bring changes in our organisations and companies. Our life and business depend very much on personal relationships, which are at the core of knowledge management. Trust and honesty are at the heart of the success of these relationships. The relationship between values and economic development though indirect is complimentary. An environment of trust and honesty creates a conducive climate for investment and productive activities. Higher the degree of trust and honesty, which results in strong human bond, smoother and higher will be the process and level of development.

The present political process requires purification so that political will is strengthened to take necessary action against forces that generate black money, and sow the seeds of division, casteism, hatred and communal violence. There is a need for transparency at all levels. India's legal and judicial systems are highly sophisticated and well developed. Despite that, it has not kept pace with the changing needs arising from increasing population, increase in number of laws, increase in industrial activities and other changes resulting in inordinate delays in disposal of cases. The present judicial system does not render speedy justice to people. A comprehensive review of the system is required.

Democracy is a communications-intensive mode of governance in which individuals play a more direct role through “the power of citizen-to-citizen communications” which benefits both themselves and their community. A successful society is one that gives opportunities to its citizens and promotes its capacities in equality so that citizens think freely, work, grow and develop. The contentment of citizens is closely linked to the level of political and social empowerment they have. Where citizens control the agenda, stability and contentment is enhanced. [lxxxi] Even though we have made some progress, government system and administrative functioning have many weaknesses and inadequacies which are proving quite a handicap in providing satisfactory delivery of services to people.

Governance system at various levels must improve. What we urgently require are accountability, transparency and an environment of trust at all levels. Governments should introduce measures for making governance more effective and hassle-free. In order for globalization to bear a “human face”, we need to foster a major democratic participation not only at the local level but also at world level, in international institutions and multilateral organizations. We want a better world, a more peaceful world. It cannot be based on hegemony, in the balance of powers or in persuasion, but it has to be based on dialogue and cooperation, human dignity and justice.

There is an urgent need for a global spirituality that considers persons as subjects and not objects of history. A spirituality that considers men and women as sacred, unique, irreplaceable and irreducible human beings, free by nature and called to transcendence. A spirituality that is human and acceptable to all religions. It should recognize the cultural diversity, the uniqueness of national and local cultures and heritage. Steeped in the sense of the sacred, it should take a holistic approach to life that life is sacred and that all beings journey towards the cosmic unity. Spirituality plays a major role in building human communities based on peace and harmony.

Spirituality liberates and empowers through a sense of shared purpose. Such a sense of purpose is a pre-requisite for a national unity and social cohesion. To lack a shared sense of purpose is to invite drift and division. Spirituality, with its regenerating power, holds the promise of a new beginning. Optimization of the wholeness of humanity with a special focus on human development and well-being is the quintessential spiritual purpose. [lxxxii] It is spirituality that sustains development in society. It is the soul of all human actions. It is a powerful tool, which could bring religions together to fight against the dangers of globalization: materialism, egocentrism, consumerism, and destruction of the environment and the crises of family and neighborhood ties. Our efforts to correct the ill effects of neo-liberalism and globalization depend on spirituality that gives us inner strength. In the absence of such spirituality, development becomes a mere material advancement based on greed and avarice. Earth is one. And all of us have a vocation to maintain this cosmic unity.



[i] Mill John Stuart (1848), Principles of Political Economy,

[ii] Josephson Institute of Ethics (2002), Making Ethical Decisions, www.josephsoninstitue.org

[iii] “Trust, Distrust and Two Paradoxes of Democracy”, The European Journal of Social Theory, vol. 1, No. 1/1998

[iv] Coleman, J. (1988), Social Capital in the Creation of Human Capital, American Journal of Sociology, Vol. 94, Supplement. P. 95-120.

[v] Rose-Ackerman, S. (2001a), Trust and Honesty in Post-Socialist Societies, Kyklos, Vol. 54. Fasc. 2/3. p. 415- 444.

Rose-Ackerman, S. (2001b), Trust, Honesty and Corruption: Reflection on the State-Building Process, Archives of European Sociology, No. 3, p. 526-570.

[vi] Clemmer Jim, “Honesty and Integrity build a Foundation of Life”, www.clemmer.net

[vii] Anders George, “Honesty id the Best Policy – Trust Us”, Fast Company, issue 37, August 2000, p.262.

[viii] Lewis W Ben, “The Market Economy Today”, in John Coleman (ed.) The Changing American Economy, Basic Books, NY, 1967.

[ix] J. Bradford DeLong, Claudia Goldin, and Lawrence H. Katz,
"Sustaining Economic Growth," in Henry Aaron, ed., Agenda for the Nation (Washington, DC: Brookings Institution).

[x] William A. Masters & Margaret S. McMillan, 2000. "Climate and Scale In Economic Growth," CID Working Papers 48, Center for International Development at Harvard University.

[xi] The Global Me - New Cosmopolitans and the Competitive Edge, 2000, Public Affairs.

[xii] Ackerman Rose Susan, Yale Law & Economics Research Paper, No. 255, European Journal of Sociology, Vol. 42, pp. 27-71, 2001.

[xiii] Paul J Zak & Stephen Knack, "Trust and Growth" (September 18, 1998), http://ssrn.com/abstract=136961

[xiv] Knack Stephen, “Trust, Associational Life and Economic Performance”, in J. Helliwell, ed., The Contribution of Human and Social Capital to Sustained Economic Growth and Well-Being: International Symposium Report. Quebec: Human Resources Development Canada, 2001.

[xv] Almond, Gabriel A., and Sidney Verba (1963) The Civic Culture: Political Attitudes and Democracy in Five Nations (Princeton: Princeton University Press).

[xvi] Putnam, Robert D, “Tuning In, Tuning Out: The Strange Disappearance of Social Capital in America” PS: Political Science and Politics 28(4): 664-683, 1995.

[xvii] Easterly, William, and Ross Levine (1997) “Africa’s Growth Tragedy: Policies and Ethnic Divisions”
Quarterly Journal of Economics 112(4): 1203-1250.

[xviii] Esa Mangeloja (2003), Implications of the economics of Religion to the Empirical Research, of University of Jyvaskyla, Finland,.

[xix] Putnam, R. D. (1993) Making Democracy Work. Civic traditions in modern Italy, Princeton, NJ: Princeton University Press.

[xx] Paul J. Zak and Stephen Knack, “Trust and Growth”, Economic Journal, Vol. 111, No. 470, March 2001
Claremont Graduate University - Department of Economics and World Bank - Development Economics Research Group (DECRG).

[xxi] North, D. (1990). Institutions, Institutional Change and Economic Performance, Cambridge University Press.

[xxii] Rothstein Bo, “Creating Trust from Above: Social Capital and Institutional Legitimacy”, Department of political science, Goteborg University, Sweden, April 2001, www.essex.ac.uk.

[xxiii] De Long, Goldin etc.

[xxiv] Clemmer Jim, “Honesty and Integrity produce Trust”, www.clemmer.net.

[xxv] Mark Tweito, “Trust, Honesty and Economic Advancement in Venezuela”, editor@vheadline.com

[xxvi] The Catechism of the Catholic Church, The Vatican, 1992.

[xxvii] Joel Mokyr, paper presented on “The Rule of Law, Freedom, and Prosperity”, George Mason University, November 2001.

[xxviii] UNDP Human Development Report – 2000.

[xxix] Pleskovic Boris and Stern Nicholas (ed.), Annual World Bank Conference on Development – 2001/2002, Wolfensohn D. James, “ Opening Address to the Conference, p. 8.

[xxx] Janos Komai, Susan Rose Ackerman and Bo Rothstein (2004), Political Evolution and Institutional Change, Palgrave Macmillan.

[xxxi] Vadim Radaev is in the research team of the Centre for Political Technologies (Moscow), “How Trust Is Established in Economic Relationships, When Institutions and Individuals Are Not Trustworthy (The Case of Russia)”. The U.S. Centre for International Private Enterprise (CIPE) funded the research.

[xxxii] Polanyi, K. The Economy as Instituted Process, in: Granovetter M., Swedberg R. (eds) The Sociology of Economic Life. Boulder: Westview Press, 1992. p. 29-52.

[xxxiii] Lakshmi Iyer, The Long-term Impact of Colonial Rule: Evidence from India, October 2004, www.mauricio.econ.ubc.ca 

[xxxiv] A survey conducted by ORG-Marg for a non-government organization called the Transparency International India, “ Corrupting Health and Education”, The Tribune, 19 December 2002, Chandigarh, India.

[xxxv] Bangalore and Hyderabad are the fourth and fifth metros. Bangalore was taken as the fifth metro in the survey.

[xxxvi] Manorama Year Book 2003, p. 547

[xxxvii] Rathi Mahendar, “Major Economic Scams in India”, www.apmaheshwari.com.

[xxxviii] Datt Ruddar, Economic Reforms in India, p. 304.

[xxxix] Kirit Parikh, “Economy” in India Briefing – A Transformative Fifty Years, published by M.E.Sharp Inc., New York, 1999, for Asia Society. Parikh’s per capita income forecasts assume a dollar-rupee exchange rate based on purchasing power parity.

Rosensweig J.A., Winning the Global Game, The Free Press, New York, 1998. Rosensweig’s forecasts are also on purchasing power parity basis.

[xli] Mahatma Gandhi had once said, "I swear by my religion, I will die for it. But it is my personal affair. The State has nothing to do with it. The State would look after your secular welfare, health, communications, foreign relations, currency and so on, but not your or my religion. That is everybody's personal concern!"

[xlii] Chenoy Mitra Kamal and others, “Genocide in Gujarat”, Report by SAHMAT Fact finding Team to Ahmedabad, March 2002, www.countercurrents.org.

[xliii] Gandhi, M.K., Hindu Dharma, New Delhi, 1991, p.120.

[xliv] Nehru Jawaharlal, The Discovery of India, New Delhi, 1983, p.75.

[xlv] Pleskovic and Stern (Ed.), Annual World Bank Conference on Development Economics, keynote address by Joseph E Stiglitz, “Development Thinking at the Millennium”, P. 18.

[xlvi] Pieterse Jan Nederveen, Development Theory (New Delhi: Vistaar Publications, 2001), p. 1.

[xlvii] Stiglitz, in Pleskovic and Stern (Ed.), P.15

[xlviii] Raj Felix, “WTO and Asia”: Trading System Must Be Friendly To Developing Nations, The Statesman 07-12-2004.

[xlix] Golub S Philip, “ All the Riches of the East Restored”, Le Monde Diplomatique, October 2004, mondediplo.com/2004/10/04asia.  


[l] Ibid.

[li] Eric Chetwynd, Frances Chetwynd & Bertram Spector, “Corruption and Poverty: A Review of Recent Literature” January 2003, Management Systems International, 600 Water Street, SW Washington.

[lii] Neld, Robert (2002), Public Corruption: The Dark Side of Social Evolution. London: Anthem. Rothstein Bo, op cit.

[liii] Myrdal, Gunnar. 1968. Asian Drama: An Enquiry into the Poverty of Nations. New York: Twentieth Century Fund.

[liv] Eric Chetwynd, Frances Chetwynd and Bertram Spector, op cit.

[lv] ibid.

[lvi] Steven Fries and Sašo Polanec, World Bank, Business Environment and Enterprise Performance

Survey: Overview of the 2002 Results, August 12/2004; “Corruption Choking Growth” - World Bank, by Sonny Inbaraj, ipsnews.net.

[lvii] Kaufmann, Daniel, Aart Kraay and Pablo Zoido-Lobaton. 2000. "Governance Matters: From Measurement to Action." Finance and Development 37 (2). Kaufmann, Daniel, Aart Kraay and Pablo Zoido- Lobaton. 2002. "Governance Matters II, Updated Indicators for 2000/01." World Bank Policy Research Working Paper 2772.

[lviii] Pleskovic and Stern, Cohen Daniel, “Fear of Globalization: The Human capital nexus”, Pp. 69 – 93.

[lix] World Bank Reports, 1999, 2000, 2001, 2002. Also see Imagine There’s No Country, Chapter 11, “Inequality as it is”. www.iie.com

[lx] Samuelson Robert, International Herald Tribune, January 2000.

[lxi] World Bank, WDR 1999.

[lxii] Kissinger Henry, WDR 1999.

[lxiii] Bhagwati Jagdish (2004), In Defense of Globalization, Oxford University Press.

[lxiv] Human Development in South Asia 2001, Oxford University Press, p.3.

[lxiv] Gupta S P quoted in Datt and Sundaram’s book, Indian Economics, 2003, p. 234.

[lxiv] Reddy, Y V: “Indian Economy 1950-2000-2020”, in Uma Kapila’s India’s Economy in the 21st Century, pp.60-61.

[lxiv] Ravallion Martin, “Higher Growth Rate in the 1990s: But how much impact on Poverty?”

[lxv] Gupta S P quoted in Datt and Sundaram’s book, Indian Economics, 2003, p. 234.

[lxvi] Gupta S P, Trickledown Theory Revisited: The Role of Employment and Poverty, V.B. Singh Memorial Lecture at the 41st Annual Conference of Indian Society of Labour Economics, November, 18-20, 1999, p.1.

[lxvii] Reddy, Y V: “Indian Economy 1950-2000-2020”, in Uma Kapila’s India’s Economy in the 21st Century, pp.60-61.

[lxviii] Bhalla S.S. (2003),”Crying Wolf on Poverty, EPW, July 5, 2003.

[lxix] Sen Abhijit (2004), quoted in Ghosh Jayathi, “Income Inequality in India”, People’s Democracy, February 2004.

[lxx] Ravallion Martin, “Higher Growth Rate in the 1990s: But how much impact on

Poverty?” www.siteresources.worldbank.org  

[lxxi] Tata Service Ltd, Statistical Outline of India 2002-2003 and Economic Surveys of India 1991-03

[lxxii] Dutta Dilip, Effects of Globalisation on Employment and Poverty in Dualistic Economies: The Case of India, School of Economics and Political Science, University of Sydney (September 2002)

[lxxiii] PTI, May 16, 2003 and People’s Democracy, Vol. XXVII, August 10, 2003.

[lxxiv] Report of the Special Group on Employment for the 10th Plan period headed by S.P. Gupta; Business Line, June 15, 2002.

[lxxv] Government of India, Public Enterprise Survey - 2001-02.

[lxxvi] Raj Felix, “Disinvestment and Unemployment”, Artha Beekshan, Journal of Bengal Economic Association, Vol.13, No.3, December 2004.

[lxxvii] Germaine Greer, 'Recantation', in The Whole Woman (London, 2000), p4.

[lxxviii] Went R, Globalisation, (London, 2000).

[lxxix] Jean Pyle, an economist at the Centre for Women and Health at the University of Massachusetts Lowell is being quoted in Ingemar Karlsson, Working Life, Newsletter No.2, 2002, www.arbetslivsinstitutet.se 

[lxxx] Serge and Kothari quoted in Pieterse, p. 101.

[lxxxi] www.democraciaparticipativa.net, Christian Democrat & People's Parties International: Resolution on Ideology, Mexico City, 21 November 2001.

[lxxxii] Thampu Valsan, “A Note on Spirituality”, You Can Change the World, Volume 3, No.3, March 2005, FUREC, Spirituality and Religion.



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* Professor and Former Head, Rabindra Bharati University, Kolkata, India.
** Professor and Vice Principal, St. Xavier’s College, Kolkata, India.



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