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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