[asia-apec 832] Chossudovsky on Global Poverty

[BAYAN]

<excerpt>Date: Tue, 27 Oct 1998 06:25:49 -0500

From: Michel  Chossudovsky <<chossudovsky at sprint.ca>

<excerpt><bold>

GLOBAL POVERTY IN THE LATE 20TH CENTURY


Michel Chossudovsky


</bold>Professor of Economics, University of Ottawa, author of The
Globalization of Poverty, Impacts of IMF and World Bank Reforms, TWN,
Penang and Zed Books, London, 1997. (The book can be ordered from
twn at igc.org)


Copyright by Michel Chossudovsky, 1998. All rights reserved. The author
can be contacted at fax: 1-514-4256224, Email: chossudovsky at sprint.ca 



<bold>THE GLOBALIZATION OF POVERTY 

</bold>

The late 20th Century will go down in World history as a period of global
impoverishment marked by the collapse of productive systems in the
developing World, the demise of national institutions and the
disintegration of health and educational programs. This "globalization of
poverty" --which has largely reversed the achievements of post-war
decolonization--, was initiated in the Third World coinciding with the
onslaught of the debt crisis. Since the 1990s, it has extended its grip
to all major regions of the World including North America, Western
Europe, the countries of the former Soviet block and the Newly
Industrialised Countries (NICs) of South East Asia and the Far East. 


In the 1990s, local level famines have erupted in Sub-Saharan Africa,
South Asia and parts of Latin America; health clinics and schools have
been closed down, hundreds of millions of children have been denied the
right to primary education. In the Third World, Eastern Europe and the
Balkans there has been a resurgence of infectious diseases including
tuberculosis, malaria and cholera. 


I<bold>mpoverishment - An Overview 


Famine Formation in the Third World


</bold>From the dry savannah of the Sahelian belt, famine has extended
its grip into the wet tropical heartland. A large part of the population
of the African continent is affected: 18 million people in Southern
Africa (including 2 million refugees) are in "famine zones" and another
130 million in 10 countries are seriously at risk. In the Horn of Africa,
23 million people (many of whom have already died) are "in danger of
famine" according to a UN estimate. 


In South Asia in the post-Independence period extending through the
1980s, starvation deaths had largely been limited to peripheral tribal
areas. In India, there are indications of widespread impoverishment of
both the rural and urban populations following the adoption of the 1991
New Economic Policy under the stewardship of the Bretton Woods
institutions.


In India, more than 70 percent of rural households are small marginal
farmers or landless farm workers representing a population of over 400
million people. In irrigated areas, agricultural workers are employed for
200 days a year, and in rain-fed farming for approximately 100 days. The
phasing out of fertiliser subsidies (an explicit condition of the IMF
agreement) and the increase in the prices of farm inputs and fuel is
pushing a large number of small and medium sized farmers into bankruptcy. 


A micro-level study conducted in 1991 on starvation deaths among handloom
weavers in a relatively prosperous rural community in Andhra Pradesh
sheds light on how local communities have been impoverished as a result
of macro-economic reform.  The starvation deaths occurred in the months
following the implementation of the 1991 New Economic Policy: with the
devaluation and the lifting of controls on cotton yarn exports, the jump
in the domestic price of cotton yarn led to a collapse in the pacham (24
meters) rate paid to the weaver by the middle-man (through the
putting-out system). <italic>"Radhakrishnamurthy and his wife were able
to weave between three and four pachams a month bringing home the meagre
income of 300-400 rupees for a family of six ($12-16), then came the
Union Budget of July 24, 1991, the price of cotton yarn jumped and the
burden was passed on to the weaver, Radhakrishnamurthy's family income
declined to Rs. 240-320 a month ($9.60-13.00)"</italic>.
Radhakrishnamurthy of Gollapalli village in Guntur district died of
starvation on September 4, 1991. Between August 30 and November 10, 1991
at least 73 starvation deaths were reported in only two districts of
Andhra Pradesh. There are 3.5 million handlooms throughout India
supporting a population of some 17 million people. 


<bold>"Economic Shock Treatment" in the former Soviet Union


</bold>When assessing the impact on earnings, employment and social
services, the post-cold War economic collapse in parts of Eastern Europe
appears to be far deeper and more destructive than that of the Great
Depression. In the former Soviet Union (starting in early 1992),
hyperinflation triggered by the downfall of the ruble contributed to
rapidly eroding real earnings. "Economic shock treatment" combined with
the privatisation program precipitated entire industries into immediate
liquidation leading to lay-offs of millions of workers. 


In the Russian Federation, prices increased one hundred times following
the initial round of macro-economic reforms adopted by the Yeltsin
government in January 1992; wages on the other hand increased ten-fold;
the evidence suggests that real purchasing power had plummeted by more
than 80 percent in the course of 1992. 


The reforms have dismantled both the military-industrial complex and the
civilian economy. Economic decline has surpassed the plunge in production
experienced in the Soviet Union at the height of the Second World War,
following the German occupation of Byelorussia and parts of the Ukraine
in 1941, and the extensive bombing of Soviet industrial infrastructure.
The Soviet GDP had by 1942 declined by 22 percent in relation to pre-war
levels. In contrast, industrial output in the former Soviet Union
plummeted by 48.8 percent and GDP by 44.0 percent between 1989 and 1995,
according to official data, and output continues to fall. Independent
estimates, however, indicate a substantially greater drop and there is
firm evidence that official figures have been manipulated.


While the cost of living in Eastern Europe and the Balkans was shooting
up to Western levels as a result of the deregulation of commodity
markets, monthly minimum earnings were as low as ten dollars a month.
<italic>"In Bulgaria, The World Bank and the Ministry of Labor and Social
Assistance separately estimated that 90 percent of Bulgarians are living
below the poverty threshold of $4 a day</italic>". Old age pensions in
1997 were worth two dollars a month.  Unable to pay for electricity,
water and transportation, population groups throughout the region have
been brutally marginalized from the modern era.


<bold>Poverty and Unemployment in the West


</bold>Already during the Reagan-Thatcher era, but more significantly
since the beginning of the 1990s, harsh austerity measures are gradually
contributing to the disintegration of the Welfare State.  The
achievements of the early post-war period are being reversed through the
derogation of unemployment insurance schemes, the privatisation of
pension funds and social services, and the decline of Social Security. 


With the breakdown of the Welfare State, high levels of youth
unemployment are increasingly the source of social strife and civil
dissent. In the United States, political figures decry the rise of youth
violence, promising tougher sanctions without addressing the roots of the
problem. Economic restructuring has transformed urban life, contributing
to the "thirdworldization" of Western cities. The environment of major
metropolitan areas is marked by social apartheid: urban landscape have
become increasingly compartmentalized along social and ethnic lines. 
Poverty indicators such as infant mortality, unemployment, and
homelessness in the ghettos of American (and increasingly European)
cities are in many respects comparable to those prevailing in the Third
World.


<bold>Demise of the "Asian Tigers"


</bold>More recently, speculative movements against national currencies
have contributed to the destabilization of some of the World's more
successful "newly industrialised" economies (Indonesia, Thailand, Korea),
leading virtually overnight to abrupt declines in the standard of living. 


In China, successful poverty alleviation efforts are threatened by the
impending privatization or forced bankruptcy of thousands of State
enterprises and the resulting lay-offs of millions of workers. The number
of workers to be laid off in State industrial enterprises is estimated to
be of the order of 35 million. In rural areas, there are an estimated 130
million surplus workers. This process has occurred alongside massive
budget cuts in social programs, even as unemployment and inequality
increase. 


In the 1997 Asian currency crisis, billions of dollars of official
Central Bank reserves were appropriated by institutional speculators. In
other words, these countries are no longer able to "finance economic
development" through the use of monetary policy.  This depletion of
official reserves is part and parcel of the process of economic
restructuring leading to bankruptcy and mass unemployment. In other
words, privately held capital in the hands of "institutional speculators"
far exceeds the limited reserves of Asian central banks.  The latter
acting individually or collectively are no longer able to fight the tide
of speculative activity. 


<bold>THE CAUSES OF GLOBAL POVERTY 


Global Unemployment:  "Creating Surplus Populations" in the Global Cheap
Labor Economy


</bold>The global decline in living standards is not the result of "a
scarcity of productive resources" as in preceding historical periods. The
globalization of poverty has indeed occurred during a period of rapid
technological and scientific advance. While the latter has contributed to
vastly increasing the potential capacity of the economic system to
produce necessary goods and services, expanded levels of productivity
have not translated into a corresponding reduction in levels of global
poverty. 


On the contrary, downsizing, corporate restructuring and relocation of
production to cheap labor havens in the Third World have been conducive
to increased levels of unemployment and significantly lower earnings to
urban workers and farmers. This new international economic order feeds on
human poverty and cheap labor: high levels of national unemployment in
both developed and developing countries have contributed to depressing
real wages.  Unemployment has been internationalised, with capital
migrating from one country to another in a perpetual search for cheaper
supplies of labor.  According to the International Labor Organization
(ILO), worldwide unemployment affects one billion people or nearly one
third of the global workforce.


National labor markets are no longer segregated: workers in different
countries are brought into overt competition with one another. Workers
rights are derogated as labor markets are deregulated. 


World unemployment operates as a lever which "regulates" labor costs at a
World level: the abundant supplies of cheap labor in the Third World
(e.g. China with an estimated 200 million surplus workers) and the former
Eastern block contribute to depressing wages in the developed countries.
Virtually all categories of the labor force (including the highly
qualified, professional and scientific workers) are affected, even as
competition for jobs encourages social divisions based on class,
ethnicity, gender, and age. 


<bold>PARADOXES OF GLOBALIZATION


Micro-Efficiency, Macro-Insufficiency

</bold>

The global corporation minimises labor costs on a World level. Real wages
in the Third World and Eastern Europe are as much as seventy times lower
than in the US, Western Europe or Japan: the possibilities of production
are immense given the mass of cheap impoverished workers throughout the
World. 


While mainstream economics stresses efficient allocation of society's
scarce resources, harsh social realities call into question the
consequences of this means of allocation.  Industrial plants are closed
down, small and medium sized enterprises are driven into bankruptcy,
professional workers and civil servants are laid off, and human and
physical capital stand idle in the name of "efficiency". The drive toward
"efficient" use of society's resources at the micro-economic level leads
to exactly the opposite situation at the macro-economic level.  Resources
are not used "efficiently" when there remain large amounts of unused
industrial capacity and millions of unemployed workers.  Modern
capitalism appears totally incapable of mobilizing these untapped human
and material resources. 


<bold>Accumulation of Wealth, Distortion of Production

</bold>

This global economic restructuring promotes stagnation in the supply of
necessary goods and services while redirecting resources towards
lucrative investments in the luxury goods economy. Moreover, with the
drying up of capital formation in productive activities, profit is sought
in increasingly speculative and fraudulent transactions which in turn
tend to promote disruptions on the World's major financial markets. 


In the South, the East and the North, a privileged social minority has
accumulated vast amounts of wealth at the expense of the large majority
of the population. The number of billionaires in the US alone increased
from 13 in 1982 to 149 in 1996. The "Global Billionaires Club" (with some
450 members) has a total Worldwide wealth well in excess of the combined
GDP of the group of low income countries with 56 percent of the world's
population.

 

Moreover, the process of wealth accumulation is increasingly taking place
outside the real economy divorced from bona fide productive and
commercial activities. According to Forbes: <italic>"Successes on the
Wall Street stock market [meaning speculative trade] produced most of
last year's [1996] surge in billionaires</italic>."  In turn, billions of
dollars accumulated from speculative transactions are funnelled towards
confidential numbered accounts in the more than 50 offshore banking
havens around the World. The US investment bank, Merrill Lynch,
conservatively estimates the wealth of private individuals managed
through private banking accounts in offshore tax havens at $3.3 trillion.
The IMF puts the offshore assets of corporations and individuals at $5.5
trillion, a sum equivalent to 25 percent of total world income. The
largely ill-gotten loot of Third World elites in numbered accounts is
placed at $600 billion, with one third of that held in Switzerland.

 

<bold>Increased Supply, Reduced Demand


</bold>The expansion of output in this system takes place by "minimising
employment" and compressing workers' wages. This process in turn
backlashes on the levels of consumer demand for necessary goods and
services: unlimited capacity to produce, limited capacity to consume. In
a global cheap labor economy, the very process of expanding output
(through downsizing, lay-offs and low wages) contributes to compressing
society's capacity to consume.  


The tendency is therefore towards overproduction on an unprecedented
scale. In other words, expansion in this system can only take place
through the concurrent disengagement of idle productive capacity, namely
through the bankruptcy and liquidation of "surplus enterprises". The
latter are closed down in favour of the most advanced mechanised
production: entire areas branches of industry stand idle, the economy of
entire regions is affected, and only a part of the World's agricultural
potential is utilised. 


This global oversupply of commodities is a direct consequence of the
decline in purchasing power and rising levels of poverty. Oversupply
contributes in turn to further depressing the earnings of the direct
producers through the closure of excess productive capacity. Contrary to
Say's law of markets, heralded by mainstream economics, supply doesn't
create its own demand.  Since the early 1980s, overproduction of
commodities leading to plummeting (real) commodity prices has wreaked
havoc particularly among Third World primary producers, but also (more
recently) in the area of manufacturing. 


<bold>Global Integration, Local Disintegration 


</bold>In developing countries, entire branches of industry producing for
the internal market are eliminated, the informal urban sector - which
historically has played an important role as a source of employment
creation - has been undermined as a result of currency devaluations and
the liberalization of imports, including primary commodities.  In
Sub-Saharan Africa, the informal sector garment industry has been wiped
out and replaced by the market for used garments (imported from the West
at 80 dollars a ton). 


Against a background of economic stagnation (including negative growth
rates recorded in Eastern Europe, the former Soviet Union and Sub-Saharan
Africa), the World's largest corporations have experienced unprecedented
growth and expansion of their share of the global market. This process,
however, has largely taken place through the displacement of pre-existing
productive systems, i.e.  at the expense of local-level, regional and
national producers. Expansion and "profitability" for the World's largest
corporations is predicated on a global contraction of purchasing power
and the impoverishment of large sectors of the World population. 


Survival of the fittest:  the enterprises with the most advanced
technologies or those with command over the lowest wages survive in a
World economy marked by overproduction. While the spirit of Anglo-Saxon
liberalism is committed to "fostering competition", G-7 macro-economic
policy (through tight fiscal and monetary controls), has in practice
supported a wave of corporate mergers and acquisitions as well as the
bankruptcy of small and medium-sized enterprises. 


In turn, large multinational companies (particularly in the US and
Canada) have taken control of local-level markets (particularly in the
service economy) through the system of corporate franchising.  This
process enables large corporate capital ("the franchiser") to gain
control over human capital, cheap labor and entrepreneurship. A large
share of the earnings of small firms and/or retailers is thereby
appropriated while the bulk of investment outlays is assumed by the
independent producer (the "franchisee"). 


A parallel process can be observed in Western Europe. With the Maastricht
treaty, the process of political restructuring in the European Union
increasingly heeds to dominant financial interests at the expense of the
unity of European societies. In this system, State power has deliberately
sanctioned the progress of private monopolies: large capital destroys
small capital in all its forms.  With the drive towards the formation of
economic blocks both in Europe and North America, the regional and
local-level entrepreneur is uprooted, city life is transformed,
individual small scale ownership is wiped out. "Free trade" and economic
integration provide greater mobility to the global enterprise while at
the same time suppressing (through non-tariff and institutional barriers)
the movement of small local level capital. "Economic integration" (under
the dominion of the global enterprise), while displaying a semblance of
political unity, often promotes factionalism and social strife between
and within national societies. 


<bold>THE ONGOING INTERNATIONALIZATION OF MACRO-ECONOMIC REFORM

</bold>

<bold>The Debt Crisis 


</bold>The restructuring of the global economic system has evolved
through several distinct periods since the collapse of the Bretton Woods
system of fixed exchange rates in 1971. Patterns of oversupply started to
unfold in primary commodity markets in the second part of the 1970s,
following the end of the Vietnam War. The debt crisis of the early 1980s
was marked by the simultaneous collapse of commodity prices and the rise
of real interest rates. 


The balance of payments of developing countries was in crisis, the
accumulation of large external debts provided international creditors and
"donors" with "political leverage" to influence the direction of
country-level macro-economic policy. 


<bold>The Structural Adjustment Program


</bold>Contrary to the spirit of the Bretton Woods agreement of 1944
which was predicated on "economic reconstruction" and stability of major
exchange rates, the structural adjustment program (SAP) has since the
early 1980s largely contributed to destabilizing national currencies and
ruining the economies of developing countries. 


The restructuring of the World economy under the guidance of the
Washington based international financial institutions and the World Trade
Organization (WTO) increasingly denies individual developing countries
the possibility of building a national economy: the internationalization
of macro-economic policy transforms countries into open economic
territories and national economies into "reserves" of cheap labor and
natural resources. The State apparatus is undermined, industry for the
internal market is destroyed, national enterprises are pushed into
bankruptcy. These reforms have also been conducive to the elimination of
minimum wage legislation, the repeal of social programs, and a general
diminution of the state's role in fighting poverty.

<bold>

"Global Surveillance"

</bold>

The inauguration of the World Trade Organization (WTO) in 1995 marks a
new phase in the evolution of the post war economic system.  A new
"triangular division of authority" among the IMF, the World Bank and the
World Trade Organization (WTO) has unfolded. The IMF had called for more
effective "surveillance" of developing countries' economic policies and
increased coordination between the three international bodies signifying
a further infringement on the sovereignty of national governments. 


Under the new trade order (which emerged from the completion of the
Uruguay Round at Marrakesh in 1994), the relationship of the Washington
based institutions to national governments is to be redefined.
Enforcement of IMF-World Bank policy prescriptions will no longer hinge
upon ad hoc country-level loan agreements (which are not "legally
binding" documents). Henceforth, many of the mainstays of the structural
adjustment program (e.g. trade liberalization and the foreign investment
regime) have been permanently entrenched in the articles of agreement of
the new World Trade Organization (WTO). These articles set the
foundations for "policing" countries (and enforcing "conditionalities")
according to international law. 


The deregulation of trade under WTO rules combined with new clauses
pertaining to intellectual property rights will enable multinational
corporations to penetrate local markets and extend their control over
virtually all areas of national manufacturing, agriculture and the
service economy. 


<bold>Entrenched Rights for Banks and MNCs 


</bold>In this new economic environment, international agreements
negotiated by bureaucrats under intergovernmental auspices, have come to
play a crucial role in the remoulding of national economies.  The 1997
Financial Services Agreement under the stewardship of the WTO, as well as
the proposed Multilateral Agreement on Investment (MAI) until recently
under OECD auspices provide what some observers have entitled a
"<italic>charter of rights for multinational corporations". 

</italic>

These agreements derogate the ability of national societies to regulate
their national economies. The Multilateral Agreement on Investment (MAI)
also threatens national level social programs, job creation policies,
affirmative action and community based initiatives. In other words, it
threatens to lead to the disempowerment of national societies as it hands
over extensive powers to global corporations. 


<bold>Conclusion

	

</bold>Ironically, the  ideology of the "free" market upholds a new form
of State interventionism predicated on the deliberate manipulation of
market forces. Moreover, the development of global institutions has also
led to the development of "entrenched rights" for global corporations and
financial institutions. The process of enforcing these international
agreements at national and international levels invariably bypasses the
democratic process. Beneath the rhetoric on so-called "governance" and
the "free market", neoliberalism provides a shaky legitimacy to those in
the seat of political power. 


The manipulation of the figures on global poverty prevents national
societies from understanding the consequence of a historical process
initiated in the early 1980s with the onslaught of the debt crisis. This
"false consciousness" has invaded all spheres of critical debate and
discussion on the "free" market reforms. In turn, the intellectual myopia
of mainstream economics prevents an understanding of the actual workings
of global capitalism and its destructive impact  on the livelihood of
millions of people. International institutions including the United
Nations follow pace, upholding the dominant economic discourse with
little assessment of how economic restructuring backlashes on national
societies, leading to the collapse of institutions and the escalation of
social conflict.  


</excerpt>

    Michel Chossudovsky

    

    Department of Economics,

    University of Ottawa, 

    Ottawa, K1N6N5


    Voice box: 1-613-562-5800, ext. 1415

    Fax: 1-514-425-6224

    E-Mail: chossudovsky at sprint.ca

    http://www.interlog.com/~cjazz/chossd.htm  

    http://www.heise.de/tp/english/special/eco/  


</excerpt>