Global Policy Forum

By Mark Weisbrot

"Can globalisation be made to work for the poor?" asked Diane Coyle last week. She might start with a more modest question: can globalisation, as presently implemented, be made to work at all?

Among economists, the most basic measure of how well an economy is working is growth - that is, the growth of income (or GDP) per person. The last 20 years of "rapid globalisation" have seen a drastic slowdown in this fundamental measure of economic performance.

In Latin America, per capita income grew by 75 percent from 1960-1980. From 1980-2000, it grew by about 7 percent. These numbers go a long way toward explaining why populist revolts are sweeping across South America - in Argentina, Brazil, Peru, Paraguay, Bolivia, Venezuela, and elsewhere. Unlike the IMF, World Bank, and allied economists, the people of the region are well aware that the "Washington Consensus" has robbed a whole generation of people of a chance to improve their living standards.

In Africa, which grew by a modest but still significant 36 percent from 1960-1980, the last two decades have seen an unprecedented decline in per capita income, by about 15 percent. Of course, some developing countries have actually improved their growth over the last 20 years - most notably China, which has been the fastest growing country in world history. But even including China, with its 1.3 billion people, weighted by its population - along with everyone else - the record of the last two decades is terrible. The rate of growth of per capita income for all low and middle income countries combined, over the last 20 years is less than half of its previous rate (1960-1980).

This is the worst economic failure since the Great Depression. It reflects very poorly on the economics profession that the vast majority of economists, with a few notable exceptions such as Nobel prize-winner Joseph Stiglitz, have chosen to ignore this failure. Rather than hiding these facts for political and ideological reasons - or fear of lending support to the much maligned and misnamed "anti- globalisation" movement - economists should be trying to help figure out what has gone wrong.

The last 20 years have also seen a significant slowdown in progress on the major social indicators in most low and middle-income countries: life expectancy, infant and child mortality, literacy and education. This is exactly what we would expect in a period of sharply reduced growth.

Ms Coyle and her co-authors avoid these unpleasant comparisons by looking at the last half-century as a whole. This is like saying that the United States economy grew at a healthy pace from 1920 to 1970, and ignoring the Great Depression.

She advises the "policy-makers and campaigners" who will gather in Johannesburg next month to look at the evidence. Here I would agree. When we do so, we find the campaigner's case is much stronger than the one that has typically been made by the movement for global justice because the protest movement has tended to ignore the issue of growth and to focus instead on changes in income distribution.

This is a mistake, because the growth slowdown is responsible for much more of the poverty that we see today than any distributional changes that may have taken place over the last 20 years. In other words, even if we assume that there have been no changes in the distribution of income and wealth during this period, we have many millions of people living in poverty today who would not be poor if their economies had grown at rates that were sustainable in the past.

The claim that " globalisation has caused extensive poverty" is therefore quite reasonable, unless one can show that the structural and policy changes associated with the globalisation of the last two decades have had nothing to do with the economic slowdown of this era.

There is plenty of evidence that these structural and policy changes have had everything to do with the economic failure of the last 20 years. The opening up to global capital flows was the major cause of the Asian financial crisis, for example. High interest rates, enforced by global financial markets or more directly by the IMF and the World Bank, have also contributed substantially to the growth slowdown. Less noticed, but quite significant, is the increased reserve holdings that developing countries have had to carry as a result of globalisation: these have shaved anywhere from 0.4 to 2.0 percentage points off their growth rate.

Perhaps most importantly, the replacement of various economic development strategies by a simple formula of opening up to trade and capital flows (not to mention compliance with the patent and copyright laws of the rich countries!) has taken its toll. None of today's high-income countries tried this experiment when they were developing countries. The United States had an average tariff on manufactured goods of 44 percent as late as 1913. Yet for more than 20 years, it has been prescribed by the IMF and World Bank as the only route to growth.

On the role of the major globalising institutions, Ms. Coyle is also dead wrong. The IMF (with the Bank as subordinate partner) runs a creditors' cartel that is able to impose many harmful conditions on developing countries. This is an informal arrangement which allows these institutions to cut off credit from almost all sources, to any government that might put the interest of its own people ahead of those of its creditors, or the wishes of the US Treasury department. The brutality with which the IMF is now squeezing Argentina, in the depths of the country's worst depression - and one that the Fund has much responsibility for causing - should make this painfully clear.

The worldwide movement against these institutions will continue to grow, not only because their authority is widely regarded as illegitimate, but because their economic policies have - by any standard measure - failed miserably.

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C íŸ 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.