Gulf betwen rich and poor HIS October, the general assembly of the IMF and the centres around their effects upon poverty world-wide. worth celebration. However, we also need to argue more effecti- vely for change — and for this reason this month's dossier against the policies and programmes of these institutions is We believe that the many years of struggle and resistance at the Bretton Woods conference. the 50th anniversary of their foundation (and also of GATT)
International Viewpoint #258 July 1994
T
HE 1980s will be remembered as the decade of global impoverishment initiated by the 1981-82 world economic
Michel Chossudovsky, Professor of Economics at the University of Ottawa (Canada), has allowed us to publish extracts from recession and the collapse of world comthe introduction to his forthcoming book, The Globalisation of modity prices. The disparities in income
Poverty, where he identifies its root causes.
and life-styles between the "rich" and
We are also reprinting extracts from the manifesto produced by
"poor" have reached unprecedented proportions: an average the Aedenat network in Spain, which forms part of their campaimiddle-class family in gn against the Madrid assembly.
MICHEL
Paris has an income
Anka Hidgens, a worker with Oxfam (Belgium), examines the
CHOSSUDOVSKY more than one hunhypocrisy behind the recently concluded GATT agreement and dred times higher than its repercussions for the South.
a rural household in Southeast Asia; a Phi-
Roland Wood, a former spokesperson for the Cancel the Debt lipino peasant has to work for two years to campaign (Britain), explains the context in which the internatioearn what an average New York lawyer nal union movement has called for a "social clause" in defence earns in an hour. (...)
of minimum labour standards.
The IMF-sponsored macro-economic
And the French economist, Maxime Durand, concludes by stabilisation and "structural adjustment arguing that it is time to put the World Bank on trial. o programmes" (SAPs) are a powerful instrument of economic restructuring which affects the livelihoods of millions of people. The SAPs bear a direct relationship to this process of global impoverishment.
The application of the IMF's economic medicine" has led to the compression of real earnings and to the reinforcement of the cheap labour export economy: the same (...) budgetary austerity, trade liberalisation and privatisation [has been] applied simultaneously in more than eighty indebted countries in the Third World
Eastern Europe and the former Soviet
Union. Debtor nations forego economic sovereignty over fiscal policy, their central banks and ministries of finance have been re-organised, State institutions are undone and an "economic tutelage" installed.
Bogus parliamentary institutions are established in the name of "governance" [and] a "parallel government" which bypasses civil society is established by the international financial institutions (IFIs). Countries which do not conform to the IMF's
"performance targets" are blacklisted.
Neo-liberalism requires the strengthening of the internal security apparatus:
political repression — with the collusion of Third World elites - supports a parallel process of "economic repression". Throughout the Third World, the situation is one of social desperation of populations impoverished by the interplay of market forces.
Anti-sAP riots and popular uprisings are brutally repressed. (..)
ECONOMIC GENOCIDE
Structural adjustment is the contemporary expression of economic genocide carried out through a controlled market process. Its social impact has been devastating -it potentially affects the livelihood of four billion people.
The application of SAPs in a large number of individual debtor countries favours the "internationalisation" of macro-economic policy under the direct control of the IMF and the World Bank, acting on behalf of powerful financial and political interests (for example, the London and Paris Clubs, the G7). This new form of economic and political domination — a form of "market colonialism" — subordinates people and governments through the personal interplay (and deliberate manipulation) of market forces. (...) At no time in history has the "free" market - through the instruments of macro-economics operating at a world level -played such an important role in shaping the destiny of "sovereign" nations.
CAUSES OF GLOBAL POVERTY
At the heart of the debt crisis lies an unequal structure of trade, production and credit which defines the role and position of developing countries in the global economy. The restructuring of the world economy under the guidance of the Washington-based financial institutions increasingly denies individual Third World countries the possibility of developing a national economy: the internationalisation of economic policy transforms countries into open economic territories and national economies into "reserves" of cheap labour and natural resources. (...)
DOMESTIC PRICES
While there are sizeable variations in the cost of living between North and South, devaluation combined with trade liberalisation and the deregulation of domestic commodity markets (under SAPs) is conducive to the dollarisation of domestic prices. Increasingly, the domestic prices of basic food staples are brought up to their world market levels.
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GLOBAL POVERTY DOSSIER
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• International Viewpoint #258 July 1994
This new world economic order, while based on the internationalisation of commodity prices and a fully integrated world commodity market, increasingly functions in terms of a watertight separation of two distinct "labour markets". In other words, this global market system is characterised by a duality in the structure of wages and labour costs between rich and poor coun tries. (...) Whereas the cost of living in many developing countries is now comparable to that prevailing in Western Europe or North America (that is, because domestic prices are aligned with world market values), the levels of earnings are up to seventy times lower.
Income disparities between nations are superimposed on extremely wide income disparities between social-income groups within nations. In most Third World countries, approximately 60% of national income is concentrated in the upper 20% of the population. (...) These vast disparities in income within and between countries are the consequence of the structure of commodity trade and the unequal international division of labour which imparts to the Third World and more recently to the countries of the former Soviet bloc a subordinate status in the global economic system. These disparities have widened in the course of the 1980s as a result of the "remoulding" of indebted Third World countries under SAPs. (...) The application of the IMF economic medicine tends to further depress the terms of trade because it forces individual countries to gear simultaneously their national economies towards a shrinking world market.
It is worth noting that the share of developing countries in world income (has) declined substantially since the onslaught of the debt crisis. For instance, the group of low income countries increased its share of world population by more than 2% betwen 1988 and 1991 while reducing its share of world income from 5.4 to
World Bank as developing economies, alongside "low" and "middle income" countries of the Third World. (...) This shift in categories does not solely result from a change in the treatment of international income statistics; it reflects the outcome of the Cold War: the market oriented reforms are intent upon the "thirdworldisation" of Eastern Europe and the former Soviet Union and the concentration of income and wealth in a small number of "developed" market economies.
ECONOMIC IDEOLOGY DISTORTS CAUSES OF GLOBAL POVERTY
In parallel with the "remoulding" of the global economy, the dominant economic discourse has, since the early 1980s, reinforced its clutch in academic and research institutions throughout the world: (...) social and economic reality is to be seen through a single set of fictitious economic relations which serve the useful purpose of concealing the workings of the global economic system. (...) The universities' main function is to produce a generation of economists who are incapable of unveiling the social foundations of the global market economy. Similarly, Third World intellectuals are increasingly enlisted in support of the neo-liberal paradigm.
The realities of world poverty are increasingly concealed by the blatant manipulation of income statistics. The World Bank "estimates", for instance, that in Latin America and the Caribbean only 19% of the population is "poor": a gross distortion when [even] in the United States (with an annual per capita income of $20,000) one American in five is defined [by the Census Bureau] to be below the poverty line.
Following the precepts of marginal productivity theory, the IMF and the World Bank view these disparities in income between countries as being caused table to differences in productivity. (...) For each dollar of output and income generated in the Third World, between three and ten dollars worth of "value added" accrues to the rich countries without there being any explicit "productive" activity taking place in the developed countries.
APPROPRIATION OF INCOME BY NON-PRODUCERS
The recorded value of rich country imports (for example, in the United States) from developing countries is small in comparison both to total trade and to value of domestic production. (...) Yet as soon as these commodities enter into the rich countries (for example, through the wholesale and retail channels) their prices are multiplied several-fold. A corresponding "value added" is created within the services sector of the rich countries without any material production taking place. This value is "added" to the Gross Domestic Product of the rich country. (...) GDP growth in the rich countries is in this regard "import led": cheap labour imports generate a corresponding increase in economic activity in their services sector. The application of the IMF-sponsored SAPs in a large number of individual countries consolidates this rentier-type economy: each country is obliged to produce (in competition with other developing countries) the same range of staple primary and industrial commodities for the world market.
STRUCTURE OF INTERNATIONAL COMMODITY PRICES
The structure of international prices and their regulation by powerful commercial interests directly affects the livelihood of millions of people in developing coun tries. 80% of world trade is controlled by 500 global corporations. (...) Since the early 1980s, overproduction at a world level has depressed the prices of both primary and manufactured goods. This
4.9%. (...)
The end of the Cold War has also had
It is the structure and a profound impact on the global distribuhierarchy of prices ...
tion of income. Until recently, Eastern which is central to an
Europe and the Soviet Union were considered as part of the developed "North" — understanding of unequal that is, with levels of material consumpexchange tion, education, health, scientific development, and so on broadly comparable to those prevailing in the OECD countries.
While average incomes were on the whole lower, Western scholars nonetheless acknowledged the achievements of the Soviet
Easter bloc countries, particularly in the areas of health and education.
Impoverished as a result of the IMFsponsored sAPs, the countries of the former socialist bloc are now categorised by the by differences in productivity;
"Income in the
Third World is because low labour is unproductive". Because factors of production in the developed countries are so much more
"productive", the group of OECD countries
"contributes" nearly 80% of total world production.
While there are substantial differences in labour productivity between rich and poor countries, the wide disparities in real earnings between countries are not attribustructure of oversupply is in turn supported by the macro-economic policies imposed on indebted countries by the international financial institutions: export promotion policies, engineered by the
Washington-based international financial institutions and applied simultaneously to the same commodities in a large number of individual developing countries, contribute to maintaining this structure of oversupply. Under the guidance of the
Washington-based institutions, a large
Internationa/ Viewpoint #258 July 1994 number of countries are encouraged to shift into non-traditional export crops or develop cheap labour manufactures. These policies tend to (a) further depress the price paid to the direct producers, and b) increase the distance between the price [paid] to the producer and the final sale price.
TERMS OF TRADE ARGUMENT
Powerful commercial monopolies purchase primary commodities from competitive Third World producers appropriating income through the act of buying in one market at one price and selling the same commodity in another market at a higher price. Each of these markets in the hierarchy (of prices) is characterised by a particular set of social relations: for example, at the local level, the farmer sells to the merchant, credit is provided by the village money-lender, the landlord extracts rent from the farmer, and so on. There is at each stage of this hierarchy a social process of price formation characterised by the action and interaction of powerful commercial [social] interests. Mainstream economic theory denies both the movement of a single commodity through several distinct markets as well as the existence of several distinct prices for the same commodity.
The commodity's movement is, therefore, divided into several distinct and separate transactions. (...) Primary agricultural commodities, for instance, are purchased from the farmer by a local merchant who in turn sells them to wholesale merchants and to the large export houses. The social interaction between the social elites in developing countries and international corporate capital supports the integration of Third World production into the world market system. Transacted on the Chicago and London exchanges, our commodity (now in the hands of international agrobusiness and commodity dealers) will "move back" into "national" and "local" level markets for final [retail] in the rich countries.
(...) The disparity between the price paid to the direct producers (...) and the final sale price of the commodity in the developed country markets has widened since the debt crisis. (...)
PRIMARY COMMODITY EXPORTS: THE CASE OF COFFEE
The international price of coffee is US$1.00/kg for green coffee yet roasted coffee retails for approximately US$10.00/kg in developing countries' markets. The farmer in the Third World will receive approximately 25-50 cents/kg whereas 50-75 cents will be appropriated by non-producers in the Third World country in the form of profits, commercial margins associated with transportation, storage, processing and export of the coffee. (...) Of its retail price of US$10.00, US$9.00 will be appropriated by international merchants, distributors, wholesalers and retailers in the OECD countries. The surplus appropriated at this phase -essentially by non-producers — is more than twenty times the farm-gate price. However, only a fraction [of the farmer's 25-50 cents] will actually accrue to the farmer for the work put in: rent must be paid. agricultural loans must be reimbursed, farm inputs must be paid for, and so forth. (...)
Similar patterns of price formation exist with regard to most primary commodities produced by Third World countries.
APPROPRIATION OF SURPLUS FROM THIRD WORLD INDUSTRIAL EXPORTS
It is the structure and hierarchy of prices for any single commodity (...) which is central to an understanding of unequal exchange. The farmer is confined to the local market; he cannot transact directly with the large export houses. Similarly, the local merchant may sell to urban merchants and exporters but does not normally deal on international commodity exchanges. Each market in this hierarchy is a relatively closed compartment (characterised by specific social exchange relations), mark-ups in price occur at each stage in the hierarchy, appropriation of surplus occurs and earnings accrue to nonproducers. The direct producers are excluded from higher-level markets. Commercial profit to merchants and intermediaries accrue (...) at each market transaction, [and] earnings are realised by non-producers. Only a small share of these payments - associated with the real costs of transport, processing, and so on — constitute a real "value added" to the commodity (for example, in the form of payments to transport workers, retail personnel, and so forth).
TOWARDS AN INDUSTRIAL STAPLE ECONOMY
The development of [their] manufacturing sectors was viewed in the post-war Woods institutions, Third World countries increasingly produce "industrial staples" for the world market. The movement of the prices of manufactured goods on the world market responds to the same global mechanisms. As in the case of primary commodities, the world market for cheap labour manufactured goods is also marked by a structure of overproduction which depresses the terms of trade and ensures the transfer of income to non-producers in the rich countries. (...)
The flow of imports from the Third World also constitutes a means of generating fiscal revenues for the State in the rich countries. The value added tax (which applies to consumer goods imported from developing countries) is in excess of 10% of the retail price in most OECD countries. (...)
In the global economy, the services of labour are purchased by capital in several separate and distinct national labour markets, i.e a part of the labour costs associated with transport, storage, wholesale and retail trade are incurred in the "high wage" labour market of the rich countries. For instance, retail salesmen in the developed countries receive a daily wage which is at least forty times higher than that of factory workers in Bangladesh. A comparatively much larger share of the total [dollar] labour costs of producing and distributing the commodity will accrue, therefore, to service sector workers in the high wage countries (one cannot however say that there is a relationship of "unequal exchange" between factory workers in Bangladesh and retail personnel in the Us, [as] service workers in the rich countries are heavily underpaid). (...)
The net industrial profit accruing to the competitive Third World entrepreneur (...) is slightly more than 1% of the total value of the commodity. Third World factories operate in a global economy marked by oversupply, [and] factory prices tend to push profit margins to a minimum. *
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