<nettime> global poverty

[Michel Chossudovsky <chossudovsky@sprint.ca>]

GLOBAL POVERTY IN THE LATE 20TH CENTURY

Michel Chossudovsky

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@igc.org)

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

THE GLOBALIZATION OF POVERTY

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. 

Impoverishment - An Overview

Famine Formation in the Third World

>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). "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)". 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. 

"Economic Shock Treatment" in the former Soviet Union

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. "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". 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. 

Poverty and Unemployment in the West

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. 

Demise of the "Asian Tigers" 

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. 

THE CAUSES OF GLOBAL POVERTY

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

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. 

PARADOXES OF GLOBALIZATION

Micro-Efficiency, Macro-Insufficiency

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. 


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