Issue 249 of SOCIALIST REVIEW Published February 2001 Copyright © Socialist Review



More global investment is the only way of helping poor countries, says the government. Yuri Prasad explains how the record so far shows the opposite

Price of poverty

  • 16 of the 22 countries with debt packages will spend more each year on debt than on health.
  • Tanzania will pay out $168 million in debt servicing compared to $87 million on health.
  • Nigeria's debt per head is $250.
  • Haiti is paying $60 million a year to service its debt.
  • 'One in five of the world's in abject poverty, in a world of growing material plenty... If the poorest countries can be drawn into the global economy and get increasing access to modern knowledge and technology, it could lead to a rapid reduction in global poverty as well as bring new trade and investment opportunities for all.'

    So says Tony Blair in his introduction to the government's new white paper entitled 'Eliminating World Poverty: Making Globalisation Work for the Poor'. And just to make sure that you are getting the message, Clare Short adds, 'Cynicism and negativism are the enemies of progress. It is when people see that progress is possible that the demand for reform and advance is energised. I hope that this white paper will help people of moral conscience'.

    Tony and Clare seem worried that 'people of moral conscience' increasingly see globalisation, the systems of international aid and trade, and the domination of the world by multinational corporations as the reason why one in five of the world's population live in poverty. So the white paper is written to show that those who favour further globalisation are not just profiteers but philanthropists. They argue that globalisation has the potential to create economic growth in the developing world, and that growth is the key to prosperity. New flows of capital into poor countries can be used to improve health and education--poor people's lives can be improved. So the rhetoric of the white paper is designed to convince us that the task for the countries that constitute the developing world is to attract as much foreign direct investment (FDI) as possible in order that poverty can be eliminated. Those of us who have been opponents of globalisation, arguing that it represents increasing domination of the world by multinational capital, are said to be denying to the Third World the route out of poverty.

    In order to attract FDI governments need to demonstrate that they are allowing the free market to operate without hindrance, and government must be 'transparent'. Therefore price controls on basic foodstuffs, electricity and fuels should be abolished because they distort the market. Laws which support indigenous industry by limiting imports from the developed world are protectionist and therefore distort the market, so they too must be abolished. These politics act as the rationale for the General Agreement on Trade and Services (Gats) which is to be thrashed out at Genoa in July.

    In this vision government still has a role. But 'of course, the state does not need to be involved in the direct provision of public services'. Failure to open up public services like health and education to foreign investment and privatisation would also be a distortion of the market.

    Decades of stagnation

    The young have never had it so good says the Economist and Clare Short
    The young have never had it so good says the Economist and Clare Short

    Those economies that fail to become transparent in this way are in danger of marginalisation. Multinational firms find them unattractive so they receive less FDI, and with little revenue being generated by their existing industry and agriculture their economies are doomed to stagnation or worse. The white paper provides us with a graph showing that most developing countries experienced economic growth rates of about 3 percent throughout the 1970s. The 1980s, when countries in the developing world found that the drop in prices of commodities meant they could no longer meet their debt repayments, were a decade of stagnation. The 1990s were a decade of regression and negative growth. However, another graph shows that China and 17 other developing countries, whose economies are 'rapidly opening', were moving in the opposite direction. By the 1990s they were showing growth rates above 5 percent (much better than even high income countries). Short argues this is proof that it is interference with the market, rather than the market itself, that is the cause of poverty.

    However, even those who believe in the power of the free market think that it must have rules--otherwise who would stop the big players from dominating all the others? And the small players will need help and advice. Hence the need for governing institutions like the World Bank (WB), the International Monetary Fund (IMF) and the World Trade Organisation (WTO). The white paper accepts that in the past some of these institutions were guided by neoliberal fundamentalism and, of the WTO, that it has not always given a listening ear to developing countries. But reform is already under way and those who have argued for the abolition of these bodies would condemn trade to being a system without rules--only the rich would survive. Short does not specify what policies of the WB and IMF she believes to have failed, or why. It seems that although the rhetoric of the white paper is on the side of the poor, the strategies she advocates are against them.

    The system of trade and investment increasingly governed by rules between states has been one of the hallmarks of globalisation. Yet it has been a disaster for the Third World. Most of the developing world has not experienced the kind of economic growth that the IMF holds up as a vision of the future. Even where there has been marked growth and success in attracting inward investment, conditions for the poor have often deteriorated. While the IMF and the WB have altered their language to take account of the growing protests against their policies, the policies themselves remain guided by the neoliberal fundamentalism of which Short complains.

    Governments in the developing world which strove to make themselves transparent and their economies 'accountable' found that they lost the power to dictate their own priorities. Instead these were decided by the IMF's Structural Adjustment Programmes (SAPs). Instead of experiencing economic growth, most developing countries simply failed to develop. Sub-Saharan Africa came off worst.

    A World Bank report published last year entitled 'Can Africa Claim the 21st Century?' admits that Africa is poorer now than at any time since the era of colonial independence in the 1960s. The 48 countries (which exclude South Africa) account for less than 1 percent of global production (measured as GDP). In manufactured exports sub-Saharan Africa's global market share is close to zero. Many countries made gains in the years that followed independence, yet today social conditions are deteriorating. Almost half the population of Africa lives on less than 65 cents a day. Only one in five Africans have access to electricity, and three out of four lack basic sanitation.

    Yet for the past 20 years the WB and IMF have been in control of these economies. Some 33 out the 48 countries are being 'structurally adjusted'. Callisto Madavo, the WB's vice-president for Africa, is undisturbed: 'The temptation is to retreat into pessimism, but I think if you look at what we have been doing recently you can see that we're really on the right track.' According to Madavo, Africa has 'hidden growth reserves' which only the WB knows how to exploit. But as Africa fails to respond to the WB treatment, the Economist magazine too seeks to blame the victims, asking recently, 'Does Africa have some inherent character flaw that keeps it backward and incapable of development?'

    Short's prescription mirrors that of the IMF, the WB and the policies which have led Africa to the brink. Structural Adjustment Programmes have been renamed Poverty Reduction Strategies, and they claim to be the means by which good government can alleviate poverty. In reality the motivation for such programmes is to ensure the repayment of foreign loans, even if that means the collapse of the social infrastructure. In Zambia between 1990 and 1993, for every dollar the government spent on education it spent $35 on debt repayment. By 1995 the Zambian government was spending 30 percent less on healthcare than before structural adjustment. One consequence is that infant mortality rose by 20 percent in ten years.

    The ending of government subsidies for food has seen domestic producers squeezed out of existence as cheap produce from Europe and North America pours in. Food produced in the developed world is itself subsidised by taxpayers, but the Common Agricultural Policy is not deemed to be a significant 'distortion of the market'. The IMF takes control of the price of fuel and, as petrol prices rocket, internal transport disintegrates. As wages are now de-indexed, they can no longer keep pace with the upward spiral of prices and workers cannot afford to buy what they see in the shops. The 'liberalisation' of the banking system means the government can no longer control the key aspects of monetary policy. Instead commercial banks set the rates in order to maximise their own profits. Now that the economy has been liberalised and government is on the road to transparency, foreign investors should feel safe. Privatisation offers the rich pickings that should lure them in. The sale of state-owned companies allows multinational firms to gain access to markets that might otherwise have been closed, as well as picking up assets at bargain basement prices. The proceeds of the sales are used to repay the country's debt and to line the pockets of the local collaborators.

    The unwanted poor

    The earthquake in Gujerad: poor countries' lack of infrastructure makes these disasters worse
    The earthquake in Gujerad: poor countries' lack of infrastructure makes these disasters worse

    If opening developing economies to the ravages of the market has been a disaster in Africa, what of Short's claim that the rapid economic growth of China and the other most 'open' economies points to the future of the Third World? The graphs in the white paper are somewhat misleading. According to War on Want, by 1995 China was in receipt of 44 percent of all FDI in the developing world. The other 17 countries that make up the chart are receiving less than 10 percent between them. China's recent economic growth has been staggering, but there are reasons to be sceptical about its future growth and the benefits that the poor can expect from it.

    The huge investment flows into China have transformed parts of the economy, particularly in the coastal region, but much of China's population live in poverty and are dependent on agriculture for a living. As stories of the new wealth find their way to the provinces, millions have attempted to migrate to the growing cities and their factories. It is then they find that China is now regulated by a system of internal border controls which are designed to keep out the unwanted poor. Manufacturing industry in China is largely dependent upon export earnings for its growth, and its key market is the US. Bosses in the US, reluctant to tolerate mass imports of Chinese goods without similar access to Chinese markets, helped negotiate China's entry to the WTO. Now multinationals around the world are eyeing up Chinese telecom firms and other state assets which are due for privatisation.

    China's other, less profitable industries look less inviting. Shen Jiru, director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, is looking forward to getting rid of the 'lame ducks'. He is adamant that 'this agreement [entry into the WTO] will mean that state-owned enterprises can no longer go on drinking the government's milk. They will have to be weaned now.' Weaning will be a painful process. The Financial Times estimates that entry into the WTO will cost up to 50 million jobs as state subsidies to 'inefficient' enterprises are cut off and import tariffs are reduced. The revenue from the sale of state assests will doubtless make for an expanded, more visible rich. But what happens to the millions who are 'surplus to requirements', or those whose wages are too small to buy the goods? Short makes no mention of them.

    The entry conditions to the WTO are not the only problem on the horizon. If, as expected, the US economy undergoes a slowdown, China's exports are expected to suffer. Chinese economic growth could turn out to be a fragile affair, as prone to slump as those south Asian economies that we were told represented the future of capitalism just a few years ago. Stories of successfully attracting FDI come from all over the world. In 1982 the Mexican government announced that it could no longer meet its debt repayment schedule, and from that point on Mexico has been a patient of the IMF and WB. In 1981 its debt was $95 billion. Six years later, having made $102 billion in repayments, its debt was $112 billion. In the late 1980s the IMF gave the Mexican government the cure--privatisation. Land reform policies which guaranteed peasants 50 percent of Mexican land were abolished, and the farms sold to businessmen and foreign agro-export companies. In Your Money or Your Life, Eric Toussaint charts the effects of the IMF's response to the debt crisis: 'Of the 1,550 state-owned companies that existed in 1982, about 100 remain in state hands... Currently ten groups control 71.2 percent of shares quoted on the Mexico City stock exchange, privatisation has enabled capitalists to acquire companies at cut-rate prices and to repatriate dollars abroad, no questions asked. For foreign capital privatisation has been a heaven sent invitation to buy up companies in the strategic sector, such as telecommunications. The funds that have entered Mexico have not created any jobs; indeed they have been used to buy up companies that already existed, and then to 'streamline' them of a number of employees.'

    Between 1988 and 1994 Mexico used the proceeds of privatisation to make repayments on its debts totalling $125 billion, yet in 1995 the Organisation for Economic Cooperation and Development calculated Mexico's debts at $134.4 billion. No matter how much of Mexico's resources are directed to the repayment of debt, the debt continues to grow. The IMF's medicine failed to cure the debt problem but it had side effects. According to the United Nations Development Programme, in 1995 the total wealth of Mexico's richest individual was $6.6 billion, equal to the combined total annual income of Mexico's 17 million poorest people. In the ten years to 1996 the minimum wage lost more than 80 percent of its buying power. The number of Mexicans living in poverty rose from 48.5 million to 66 million in the ten years to 1992.

    Despite these horrific figures Mexico is regarded as a country on the road to recovery. It receives roughly 10 percent of all FDI in the developing world and is now part of the North American Free Trade Agreement (Nafta) alongside the US and Canada. It is said to be one of the more economically stable countries in Latin America, yet not even Short could describe Mexico as a country that has improved the quality of life of its ordinary citizens through investment, growth and transparent government.

    For the poor, the last two decades have been an era of broken promises and increased suffering. Those countries which failed to attract significant FDI were unable to move away from commodity production as the centre of their economies. Those countries which successfully attracted investment often created greater inequality between the rich and poor. For multinational firms it has been an era of new prosperity. The 'shock therapy' applied to state-owned enterprises in both the developed and developing world has provided them with huge profits. But they are not the only beneficiaries. In every developing country there are those who do not suffer from the ravages of the market--instead they profit. The lack of controls on price and ownership allow them to exploit the poor of their own country. Increasingly their lives resemble their counterparts in the developed world. It is no longer a shock to see gangs of Armani-clad wealthy teenagers tumbling out of a college in New Delhi.

    States of unrest

    Clare Short

    While yuppies in India may not be in the same financial league as those in the City of London, there are some Third World bosses who are. Ratan Tata is the head of the giant Tata corporation, an Indian-based multinational firm. In 1997 Tata made pre-tax profits of 25 billion rupees. The bulk of the profits are made by exploiting Tata's 260,000 Indian employees.

    The rich in the developing world have little incentive to oppose globalisation. The IMF is keen to divide and rule. To keep the rich on its side it ensures that their interests are not compromised in the liberalisation of their country's economy. In other words, they get a share of the wealth. For the poor, protest against 'liberalisation' and the IMF can be a matter of life or death. Over the last year millions have taken to the streets. The World Development Movement report States of Unrest details hundreds of protests and strikes against IMF-imposed austerity programmes across the developing world. It says, 'Since Seattle last year, the media has heralded the dawn of a new movement in Europe and America, epitomised by protests aimed at the WTO, IMF and the World Bank. However, this 'new movement', portrayed by the media as students and anarchists from the rich and prosperous global North, is just the tip of the iceberg. In the global South, a far deeper and wide-ranging movement has been developing for years, largely ignored by the media.'

    Many of those who protest against what globalisation is doing to the developing world have an understanding that the same forces are destroying the lives of working people in the developed world as well. General Motors, the world's biggest multinational, has a bigger turnover than the entire Polish economy. It thinks nothing of sacking thousands of workers across 'developed' Europe in order to make more profit. The pillage of the developing world, led by the IMF and WB, has helped to guarantee cheap raw materials or commodities to multinational firms. Yet there are few benefits from this new colonialism for workers in the developed world. In the years between 1980 and 1997 many commodity prices fell sharply--tea by 33 percent, cotton by 43 percent, coffee by 64 percent and sugar by 73 percent. The drop in prices helped destroy many Third World economies. However, the prices for finished products in shops in Britain did not reflect the drop in prices of the basic commodities. Instead the multinationals and the middle men pocketed the difference.

    Short's white paper paints an optimistic portrait of the future while wishing to distance itself from the reputation of the IMF, the WB and their discredited policies. Her support for globalisation is marked by the zeal of a recent convert. She calls those who point out the true record of the past 20 years 'intolerable'. Yet protest against the policies that she advocates continues to grow and provide hope for the future.

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