Global Poverty In The Late 20th Century

I. 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 programmes.

This "globalisation of poverty" --which has largely reversed the achievements of post-War decolonisation--, 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 of the former Soviet Union

When assessing the impact on earnings, employment and social services, the post-cold War economic collapse appears to be far deeper and 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 programme 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; a British study, confirmed in this regard that real purchasing power had plummeted by 86 percent in the course of 1992.

The reforms have not only dismantled the military-industrial complex, they have torn apart 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 its industrial infrastructure. The Soviet GDP had by 1942 declined by 22 percent in relation to pre-War levels. In contrast in the former Soviet Union as a whole, industrial output plummeted (according to official data) by 48.8 percent and GDP by 44.0 percent over the 1989-1995 period, 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 has shot 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, old age pensions in 1997 were worth two dollars a month... Throughout the region, sizeable population groups (unable to pay for electricity, water and transportation) have been brutally marginalised from the modern era...

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Poverty in the West

Already during the Reagan-Thatcher era, but more significantly since the beginning of the 1990s, the application of harsh austerity measures is gradually contributing to the disintegration of the Welfare State (including the entire system of social security). The achievements of the early post-War period are being reversed, the tendency in the West is towards the derogation of unemployment insurance schemes and the privatisation of pension funds and social services...

With the breakdown of the Welfare State, the high levels of youth unemployment are increasingly the source of social strife and civil dissent. Urban life is transformed, economic restructuring is conducive to the "thirdworldisation" of Western cities. The environment of major metropolitan areas is marked by "social apartheid": the urban landscape becomes increasingly compartmentalised along social and ethnic lines. Poverty in the ghettoes and slum areas of American (and increasingly European) cities is in many respects comparable to that prevailing in the Third World.

Demise of the "Asian Tigers"

More recently, speculative movements against national currencies have been conducive to destabilising the World's most successful "newly industrialised" economies (Indonesia, Thailand, Korea) leading virtually overnight to an abrupt decline in the standard of living. In China, also upheld as an "economic success story", thousands of State enterprises have been earmarked for liquidation or forced bankruptcy leading to the lay-off of millions of workers. This process has occurred alongside massive budget cuts in social programmes.

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, the command over privately held foreign exchange reserves in the hands of "institutional speculators" far exceeds the limited capabilities of Asian central banks, --ie. the latter acting individually or collectively are no longer able to fight the tide speculative activity.

II The Causes of Global Poverty

Global Unemployment

	"Unemployment has been internationalised"

The global decline in living standards is not the result of "a scarcity of productive resources" as in preceding historical periods. The globalisation 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, however, been translated into a corresponding reduction in the levels of global poverty.

On the contrary, downsizing, corporate restructuring and relocation of production to cheap labour 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 labour: high levels of national unemployment in both developed and developing countries have contributed to depressing real wages. "Unemployment has been internationalised", capital migrates from one country to another in a perpetual search for cheaper supplies of labour.

In both the developing and developed countries, poverty has become rampant. According to the International Labour Organization (ILO), Worldwide unemployment affects one billion people or nearly a third of the global workforce. .

"Creating Surplus Populations"

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

World unemployment operates as a lever which "regulates" labour costs at a World level: the abundant supplies of cheap labour in the Third World (eg. China with an estimated 200 million surplus workers) and the former Eastern block contribute to depressing the level of wages in the developed countries. Virtually all categories of the labour force (including the highly qualified, professional and scientific workers) are affected.

Economic restructuring also creates profound divisions between nationalities, social classes and ethnic groups. Within countries, it fragments the labour market and creates social divisions: between white and black workers, between young and old, between the employed, the partially employed and the unemployed...

The Global Cheap Labour Economy

The global corporation minimises labour 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 the need to allocate society's "scarce resources", the harsh social realities are in marked contrast to the dominant economic dogma: industrial plants are closed down, small and medium sized enterprises are driven into bankruptcy, professional workers and civil servants are laid off, human and physical capital stands idle in the name of "efficiency". The drive is towards the "efficient" use of society's resources at the micro-economic level. At the macro-economic level, however, exactly the opposite situation: resources are not used "efficiently", --ie with large amounts of unused industrial capacity and millions of unemployed workers, modern capitalism is totally incapable of mobilising these untapped human and material resources.

The Accumulation of Global Wealth

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: "Successes on the Wall Street stock market [meaning speculative trade] produced most of last year's [1996] surge in billionaires". 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 Collapse in Consumer Spending

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 labour 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 the 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.

The Destruction of Small-Scale Capital

In developing countries, entire branches of industry producing for the internal market are eliminated, the informal urban sector --which historically played an important role as a source of employment creation-- is destroyed as a result of currency devaluations and the liberalisation of imports including commodity dumping. In Sub-Saharan Africa, the informal sector garment industry has been wiped out and replaced by the sale of 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 preexisting productive system, --ie. at the expense of local-level, regional and national producers. Expansion and "profitability" by 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 planned 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.

Impacts of Economic Integration

This process enables large corporate capital ("the franchiser") to gain control over human capital, cheap labour 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.

V The Internationalisation of Macro-economic Reform

The Debt Crisis

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 in the period 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.

The Structural Adjustment Programme

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 programme (SAP) has since the early 1980s largely contributed to destabilising 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 internationalisation of macro-economic policy transforms countries into open economic territories and national economies into "reserves" of cheap labour 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 programmes, etc.

"Global Surveillance"

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" between 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 of 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 clauses of the structural adjustment programme (eg. trade liberalisation and the foreign investment regime) will become permanently entrenched in the articles of agreement of the new World Trade Organization (WTO). These articles will set the foundations for "policing" countries (and enforcing "conditionalities") according to international law.

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

The Multilateral Agreement on Investment

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 conducive to the displacement of entire productive systems. The 1997 Financial Services Agreement under the stewardship of the WTO as well as the proposed Multilateral Agreement on Investment (MAI) provide what some observers have entitled a "charter of rights for multinational corporations".

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

Entrenched Rights for Global Corporations

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 "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 conflicts.

Michel Chossudovsky is Professor of Economics, University of Ottawa, and author of "The Globalisation of Poverty, Impacts of IMF and World Bank Reforms", Zed Books, London, 1997.