Rigged rules and diminished progress: the failure of globalisation

dublin | miscellaneous | opinion/analysis Sunday November 21, 2004 03:56 by Dave Curran - Global Action, UCD (per cap)

The free market solution to world poverty has failed, so countries should be allowed self-determination in their economic policies.

The current religion among much of the economics community is that “openness” to international trade is the best -indeed the only- route out of poverty for the world’s poor countries. This chorus echoing the wondrous ability of free trade globalisation to reduce the obscene levels of poverty in the world today has been backed up by the dominant powers that shape the global economy -institutions like the International Monetary Fund, the World Bank and the OECD, and powerful rich country governments in North America and Europe. And yet, the past twenty five years have seen unprecedented levels of rapid economic “liberalisation” on every continent, and at the end of this period half the world still lives on less than two dollars a day and 800 million people are still chronically undernourished.


The 1980s, which saw the beginning of “rolling back” the state in Latin America and Africa under the IMF’s “Structural Adjustment Programmes”, is now considered by many development agencies to be a “lost decade” in terms of poverty reduction, with economic development slowing in most regions of the world, and with many countries falling back further into poverty. And the 1990s have not been much better. A study by the US-based Centre for Economic and Policy Research found that by all measures of human well being -infant mortality, life expectancy, even economic growth- progress has been slower in the 1980s and 90s than in previous decades, and in the regions subject to neo-liberal economic policies the most, such as Latin America and Africa, growth has been almost zero, with many countries actually experiencing negative growth. In other words, the era of globalisation has resulted in slower economic and social progress, even by its own narrowly defined indicators. Contrary to the assurances of the World Bank and free-market globalisers, the “rising tide” has lifted mainly yachts, and many boats are now sinking fast.


It is not that there has been no growth under globalisation -rather, that the benefits of this growth has gone primarily to a small few. Inequality in most countries has increased to levels never seen before, and hundreds of millions of poor people have seen their situations worsen. The rabid anti-statism of neo-liberal theory saw African countries instructed to cut back on state expenditure on health care and education. In a region now devastated by AIDS, these recommendations were irresponsible in the extreme.


Despite the failures of the neo-liberal model to reduce poverty, it still remains the dominant discourse among the forces that shape the global economic system. Advocates of neo-liberal globalisation, including the myriad of right-wing “think-tanks” that have come to dominate the political landscape over the past few decades (with generous help from the corporate community), still cling to several discredited myths about the benefits of rapid liberalisation.


One such myth is reinforced by studies of “Global Economic Freedom”, which allege to show a strong correlation between “globalising” countries and rich countries. The richest countries, they say, are those that trade more and are more “open” to the global economy. Thus, opening up by cutting back the state and embracing the free market will lead to growth and development. The problem here is one of confused methodology, because economic “openness” has two very different meanings. Openness can refer to an economic outcome -such as if a country‘s economy consists largely of imports and exports- or it can refer to government policies of “opening up”, which usually involve rapid export increase and deregulation of markets. What the studies that claim to show a link between government policies of “opening up” and prosperity actually show is that as countries get richer, they begin to open up. Development leads to trade, and not the other way around.


For example, a recent Oxfam report entitled “Rigged Rules and Double Standards” studies developing countries that embraced “openness” -defined as following neo-liberal doctrine and dismantling state regulation of the economy. These countries are the ones that rapidly privatised state firms, deregulated financial markets, cut state support of infant industries and suppressed unions in order to drive down wages and attract multinational corporations. When these policies are tested, according to the Oxfam report “the World Bank view appears as an upside version of reality.” It turns out that some of the most successful countries “are anything but rapid liberalisers, while many of the most radical liberalisers have actually achieved very little in terms of economic growth and poverty reduction”. For example, South Korea and Taiwan -the very models of successful economic development- achieved growth by ignoring the policy prescriptions of neo-liberals and using massive protectionism and state regulation of the economy. They embraced trade, but very carefully and with strict state guidance. At the other extreme, according to a report by the United Nations Conference on Trade and Development (UNCTAD) in 2004 countries which simply threw open their economies, such as Haiti are some of the poorest in the world.


While poor countries cannot simply trade their way out of poverty, trade if used correctly can be a powerful force for prosperity and poverty reduction. But the current trade rules are totally unfair, and serve to divert the potential benefits of trade away from the poor and toward the rich and powerful. Trade is not free when all the rules have been rigged to benefit western corporations. Poor farmers in Africa cannot “freely” bargain over price with giant coffee conglomerates, because of the huge bargaining power of the companies and the vulnerability of the producers. And a trading system that values the “intellectual property” of drug companies over the lives of AIDS victims should be either reformed or dismantled. For trade to work for the poor, it must be more than free. It must also be fair trade, and must be combined with redistribution, regulation of capital flight, debt cancellation, environmental sustainability and the dismantling of exploitative power relations. The neo-liberal prescription for development, because it ignores all these considerations, is a shallow, self-serving way of redistributing the world’s resources further into the hands of the powerful.


But while free market fundamentalism is a false dawn of world development, its polar extreme is no better. The UNCTAD report earlier this year showed that the poorest countries in the world are on the one hand those that are most open, and on the other hand those that close themselves off to the global economy. It seems that grand theories, from either left or right have failed. Just as the crumbling of the Berlin Wall revealed for the world the failures of communism, the defiant chants of protestors from Seattle to Caracas has drowned out the authoritarian mantra that “there is no alternative” to free market capitalism.


The message for poor countries should be that they do have a choice over which socio-economic path to take. There is no single theory or grand narrative which can solve the problems of world poverty. There are many paths, and there are always alternatives. The message of the global justice movement is that we in the rich countries also have a choice. We can allow globalisation to continue to work for the few, rather than the many. Or we can join together with the progressive movements in the global south and forge a new model of inclusive globalisation, one based not on corporate greed but on the principles of equality, solidarity and social justice.