Neoliberalism and Globalisation: Impacts on Development in the Peripheral States

When India faced a balance-of-payments crisis in 1991, with foreign exchange reserves barely enough to cover three weeks of imports, the government turned to the IMF for an emergency loan. The conditions attached to that loan would reshape the country’s entire development model. This moment was not unique to India. Across Asia, Africa, and Latin America, the late twentieth century saw a sweeping shift from state-led development toward market-driven growth. At the heart of this transformation lay a powerful set of ideas known as neoliberalism, working hand in hand with the forces of globalisation. Understanding how this paradigm took hold, what it promised, and why it remains so fiercely contested is essential for anyone studying comparative political economy.

What is the neoliberal approach? 🔗

Neoliberalism is an ideology and policy model that places free market competition at the centre of economic life. It rests on a belief that sustained economic growth is the best route to human progress, that markets allocate resources more efficiently than governments, and that state intervention in economic and social affairs should be kept to a minimum. According to Britannica, the approach is also committed to the freedom of trade and capital across borders.

This represented a sharp break from the thinking that had dominated the decades after the Second World War. Under the Keynesian model, governments were expected to manage demand, run public enterprises, and direct investment toward national priorities. In much of the developing world, newly independent states built large public sectors and protected domestic industries behind high tariff walls. Neoliberalism challenged this entire framework. It argued that the state was not the solution to underdevelopment but often the obstacle.

The core policy prescriptions 🔗

The neoliberal model crystallised into a set of policies often called the Washington Consensus, named because it reflected the influence of three institutions based in Washington D.C.: the U.S. Treasury, the IMF, and the World Bank. These typically included three pillars. Liberalisation meant removing restrictions on trade and business, lowering tariffs, and opening markets to foreign competition. Privatisation meant transferring state-owned enterprises to private hands and shrinking the role of government. Deregulation meant freeing prices, exchange rates, and capital flows from government control.

For peripheral states, this often arrived through structural adjustment programmes. These were loans extended by the IMF and World Bank to countries in financial distress, but they came attached with strict conditions. As analyses of these programmes note, structural adjustment usually combined devaluation of the national currency to make exports cheaper, higher interest rates to attract international capital, sharp reductions in public expenditure, and large-scale privatisation. The logic was straightforward: reduce government control, restore balance of payments, and growth would follow.

Globalisation as the engine of neoliberalism 🔗

Neoliberalism did not spread in isolation. It travelled on the back of globalisation, the deepening integration of the world’s economies. The two became so intertwined that scholars often speak of neoliberal globalisation as a single phenomenon: an approach to economic integration explicitly built on free-market principles.

The mechanism was powerful. As countries opened their borders to trade and investment, capital could move quickly across the globe in search of returns. Multinational corporations expanded their reach, and developing countries competed to attract foreign direct investment by offering favourable conditions. The promise was that integration into global markets would bring technology, capital, and prosperity to poorer nations. Researchers who have studied the rise of this model argue that the power of economic science and dense connections across a global managerial class gave neoliberalism much of its strength, as one scholarly analysis of its sources explains.

The core and the periphery 🔗

To grasp why critics worry about peripheral states specifically, it helps to understand the language of dependency theory. This framework, developed largely through study of Latin American economies, divides the world economy into a wealthy industrialised “core” and a less developed “periphery.” Theorists like André Gunder Frank argued that the relationship between core and periphery is not accidental but structural, and that it actively prevents developing economies from flourishing on their own terms, as discussed in a critique published by the LSE. From this viewpoint, neoliberal globalisation does not erase the gap between rich and poor nations. It can entrench it, by locking weaker economies into roles as exporters of raw materials and cheap labour.

The Indian experience: from License Raj to liberalisation 🔗

India offers one of the most instructive cases of this transition. Before 1991, the economy operated under what was popularly called the “License Raj”, a system in which businesses needed government permits for almost every economic activity. The state dominated key sectors, industries were heavily protected, and growth limped along at what economists mockingly called the “Hindu rate of growth.”

The crisis of 1991 changed everything. With reserves dangerously low and the country on the brink of default, Prime Minister P.V. Narasimha Rao and Finance Minister Manmohan Singh launched the New Economic Policy. According to research published in the International Journal of Research and Innovation in Social Science, key measures included devaluing the rupee, slashing import tariffs from 125% to 30%, dismantling industrial licensing, and easing restrictions on foreign investment. These reforms, collectively known as the LPG model, marked a decisive turn from a centrally planned economy toward a market-oriented one.

What the reforms delivered 🔗

The results in terms of headline growth were striking. India’s GDP expanded rapidly in the decades that followed, foreign investment poured in, and a vibrant services sector emerged. Reforms in telecommunications and the establishment of software technology parks allowed companies in information technology to position the country as a global hub. By many measures, the economy was transformed, and millions of people moved into the middle class.

The neoliberal critique and its limits 🔗

Yet this is precisely where the debate becomes intense. Critics argue that the neoliberal approach, for all its promises, overlooks the socio-economic realities of peripheral societies and prioritises market freedoms over the wellbeing of ordinary people. Several lines of criticism stand out.

Deepening inequality and the fate of weaker sections 🔗

One of the most consistent findings is that the gains from liberalisation have been unevenly distributed. In India, urban and educated populations prospered while rural and marginalised communities saw far more limited benefits. Income inequality, measured by the Gini coefficient, rose steadily over the post-reform period. The agricultural sector, which employs nearly half the workforce, grew sluggishly while services raced ahead. Reporting on the quarter-century after liberalisation found that declining subsidies and chronic malnutrition continued to afflict the rural population even as the overall economy grew richer.

The withdrawal of the state hit vulnerable groups hardest. When subsidies on fertilisers and agricultural credit were cut, small and marginal farmers faced rising input costs while being exposed to volatile global commodity prices. The result, in many regions, was severe agrarian distress. Globally, this pattern was not unusual. Studies of structural adjustment in sub-Saharan Africa found that the burden of austerity fell disproportionately on women, children, and other vulnerable populations, particularly in public health.

Vulnerability to financial crises 🔗

A second criticism concerns stability. By encouraging the free flow of short-term capital, neoliberal globalisation can leave developing economies dangerously exposed. Research published in Third World Quarterly examined the financial crises that struck Mexico, Turkey, and East Asia during the 1990s and found a common thread: an overdependence on short-term financial flows in settings where capital accounts had been opened prematurely, without adequate regulation. When investor confidence faltered, capital fled and crises followed.

The retreat of the state from social life 🔗

A third concern is broader and more structural. Critics argue that neoliberalism systematically undermines the welfare state and the ideal of collective responsibility. As Britannica notes, opponents contend that under this model the state tends to withdraw from areas of social life, while self-help and individual responsibility are emphasised, and growth and competition are presented as the primary goals of collective action. Public services that once protected the poor are squeezed in the name of fiscal discipline.

The trouble with “good governance” 🔗

As structural adjustment programmes drew growing criticism through the 1980s, the World Bank shifted its language. From the early 1990s, the concept of good governance entered the development vocabulary. Initially, this referred to the efficiency, transparency, accountability, and rule of law that the Bank believed were necessary for markets to function well. On its surface, the idea sounds unobjectionable. Who could oppose governance that is efficient and free of corruption?

The criticism, however, runs deep. Scholars point out that the Bank’s mandate formally prohibits it from interfering in the political affairs of member states, which pushed it toward a narrowly economic reading of governance. As an analysis in Oxford Development Studies explains, the Bank confined itself largely to the economic dimensions of governance. A useful distinction here is that while democracy refers to the legitimacy of government, good governance as the Bank framed it refers to the effectiveness of government, a point developed in academic work on the Bank’s approach to conditionality.

Governance without democracy? 🔗

This separation of effectiveness from legitimacy is exactly what worries critics. By treating governance as a technical matter of efficient administration rather than a political question of who holds power and for whose benefit, the good governance agenda can sidestep democratic participation altogether. A study published in the Brazilian Political Science Review argues that the good governance concept is subordinated to economic imperatives, fading out the centrality of its political dimension. In unequal societies, the article warns, such an apolitical concept of governance can simply reinforce existing power relations rather than challenge them.

The fundamental tension is this. Genuine democratic participation means that ordinary citizens, including the poorest, can shape the policies that govern their lives. They might, quite reasonably, vote for subsidies, public employment, or protection for domestic industry, precisely the policies that neoliberalism seeks to dismantle. When governance is defined mainly as creating a stable, market-friendly environment with secure property rights and low corruption, the needs and demands of the lower classes can be quietly pushed aside. The result is a model of reform delivered to citizens rather than chosen by them.

Weighing the balance 🔗

None of this means the neoliberal experiment was a simple failure. The Indian economy of today, far larger and more globally connected than that of 1991, is partly a product of these reforms, and absolute poverty rates have declined over the period. The debate is genuinely contested, and even critics acknowledge that liberalisation lifted many millions out of destitution.

The deeper question is about distribution, vulnerability, and voice. Who captured the gains of growth? Who bore the risks when crises hit? And whose preferences were allowed to shape the rules of the game? The neoliberal approach answers these questions by trusting the market. Its critics insist that markets alone cannot address the structural disadvantages of peripheral economies or the needs of their weakest citizens, and that democratic participation, not just administrative efficiency, must sit at the centre of any meaningful idea of development.

What do you think? Should development be measured primarily by aggregate growth and global integration, or by how the gains are shared among a society’s weakest members? And can a model that defines “good governance” mainly in terms of market efficiency ever fully accommodate the democratic demands of ordinary citizens?

References

1. https://www.britannica.com/money/neoliberal-globalization
2. https://www.cadtm.org/Structural-adjustment-and-the
3. https://www.files.ethz.ch/isn/102686/8.pdf
4. https://blogs.lse.ac.uk/lseupr/2021/02/18/debunking-the-neoliberal-globalization-success-story/
5. https://rsisinternational.org/journals/ijriss/articles/impact-of-liberalization-privatization-and-globalization-lpg-on-the-indian-economy/
6. https://scroll.in/article/811691/25-years-after-liberalisation-india-is-richer-but-has-more-inequality
7. https://archive-yaleglobal.yale.edu/node/16476
8. https://sites.lsa.umich.edu/mje/2024/04/29/structural-adjustments-complex-legacy-in-sub-saharan-africa/
9. https://www.tandfonline.com/doi/abs/10.1080/01436590013260
10. https://www.tandfonline.com/doi/abs/10.1080/13600818.2014.949651
11. https://www.researchgate.net/publication/228959367_Good_Governance_and_Aid_Effectiveness_The_World_Bank_and_Conditionality
12. https://www.redalyc.org/pdf/3943/394342315002.pdf