Bu-lat-lat (boo-lat-lat) verb: to search, probe, investigate, inquire; to unearth facts

Vol. V,    No. 26      August 7- 13, 2005      Quezon City, Philippines

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Has Globalization Eased Global Poverty?

The IMF-World Bank have been promoting neoliberal globalization as the solution to global poverty, but critics say globalization policies have only worsened the problem

 

By Joseph Yu

IBON Features

Posted by Bulatlat

 

The United Nations Development Program recently revealed in its 2003 Human Development Report (HDR) that the world is facing an acute development crisis. According to the HDR, 21 developing countries experienced reversals in key socio-economic indicators in the 1990s. This should not be surprising, given the spread of economic globalization in the 1980s due to the neoliberal policy prescriptions of the International Monetary Fund (IMF) and the World Bank (WB), and the intensification of trade liberalization under the World Trade Organization (WTO), which was formed in 1995.

 

The IMF and WB have long been promoting economic globalization as the solution to the global poverty problem. In a 2000 report, IMF said that “as globalization has progressed, living conditions have improved significantly in virtually all countries, although it conceded that the strongest gains were made by the developed nations. The World Bank in a 2001 report on Globalization, Growth and Poverty said globalization (referring specifically to trade integration) is a very powerful force for poverty reduction. But they also had to admit that billions of people globally are being left out of the process.

 

The two institutions also stated that globalization itself was not to blame for global poverty, but rather the failure of many developing countries to fully integrate into the global economy. But it is precisely the IMF and World Bank’s prescription of neoliberal globalization policies that is the cause of worsening poverty in the developing countries.

 

A portrait of global poverty

 

Based on WB estimates of poverty, half of the world population lives on less than $2 a day and 1.3 billion on less than $1 a day. These measures, with $1 a day indicating extreme poverty and used to gauge poverty in the least developed countries, have been accepted by the United Nations (UN) and used as the basis for the Millennium Development Goals.

 

But critics such as Michel Chossudovsky, author of the book The Globalization of Poverty and the New World Order, argue that the IMF-WB use the $1 and $2 a day measures to legitimize their neoliberal reforms by showing that global poverty is on the decline, thus proving that globalization policies are conducive to long-term prosperity.

 

However, these measures fail to take into account growing global income disparities. In 2004, some 0.13 percent of the world’s population controlled 25 percent of global assets. Consumption was similarly skewed as 20% of the world’s population consumed 86 percent of the world’s goods.

 

The WB’s income-driven estimates also fail to reveal the full dimensions of the poverty problem. For example, poverty also means lack of access to vital services. The WB itself acknowledged that 1.3 billion of the world’s people have no access to clean water, 3 billion have no access to sanitation, and 2 billion have no access to electricity.

 

Structural Adjustment Programs

 

The IMF and WB impose globalization policies on developing countries through their “macro-economic stabilization” and structural adjustment programs (SAPs). These “reform” programs include policies such as trade liberalization, openness to foreign direct investment, privatization of state enterprises, and deregulation or abolition of regulations that impede entry or restrict competition.

 

These policy prescriptions have worsened poverty in developing countries by lessening the access of the poor to vital social services. Under SAPs, these countries have effectively privatized social services by reducing state participation in their financing, administration and delivery.

 

For example in Argentina, Decree 578/93 required public hospitals to obtain contracts with the social security and private sectors, and collect user fees from people without social security or private coverage. Other decrees deregulated social security agencies, decreased health care services that participants received through salary contributions while increasing out-of-pocket costs.

 

In addition, the WB’s support for large-scale infrastructure projects such as hydroelectric dams and agro-industrial projects has also intensified environmental degradation, deforestation and the displacement of millions of people from their lands and livelihoods.

 

Meanwhile, intensified trade liberalization under the WTO has eased the entry of cheap, subsidized agricultural goods into developing countries, forcing farmers off their lands or driving them into exploitative contract growing arrangements of cash crops for export, which sink them into poverty.

 

A February 2003 report of the Institute for Agriculture and Trade Policy (IATP) found that the cost of production for a bushel of wheat in the US in 2000 was $6.24 while its export price was only $3.50. In 2001, US exporters dumped corn at 33% of production cost, soybeans at 29 percent, cotton at 57 percent and rice at 22 percent.

 

These restructuring policies have been done at the behest of the rich countries of the G8 and the Paris Club, who are the primary stockholders of the IMF-WB and other international financial institutions (IFIs), and their corporations. Their agenda is to transform developing countries into open economic territories for their manufactured products and excess capital, and to create “reserves” of cheap labor and natural resources.

 

Thus, industrialized countries’ corporations outsource much of their manufacturing production and services to developing countries where labor costs are low, in order to increase profits by lowering production costs. Rich countries also undertake extractive activities such as mining and oil exploration in developing countries, and export the mined resources back home for use in their industries.

 

In short, globalization worsens global poverty, as developed countries pit developing countries against each other in a “race to the bottom.” Wages are forcibly lowered and basic human needs decline to justify low real earnings. The migration of Third World workers to First World countries to work low-wage jobs is also a consequence of globalization.

 

The application of SAPs also directly benefits local elites and traders in underdeveloped countries who collaborate with transnationals. This results in consolidation of resources among a relative few as these elites accumulate superprofits through trade liberalization and privatization. This is why income disparities in developing countries has remained high.

 

True poverty alleviation

 

Under pressure from organized anti-globalization groups, the IMF and World Bank have undertaken poverty alleviation programs. But these programs, such as the Highly-Indebted Poor Countries (HIPC) initiative and the Poverty Reduction and Growth Facility (PRGF) are still mired in the neoliberal framework.

 

Thus, developing countries are required to draft Poverty Reduction Strategy Papers (PRSPs) before they could qualify for assistance under the HIPC facility or get concessional loans from the PRGF. But these PRSPs were seen as thinly-disguised SAPs. PRSPs continued to emphasize economic growth without addressing how such growth would be redistributed to the poor.

 

True poverty alleviation can not be achieved under the neoliberal framework promoted by IFIs and the industrialized nations. Poverty reduction strategies can only succeed if they address the issue of inequitable distribution of resources through programs such as genuine land reform.

 

Poverty reduction strategies should recognize and respect people’s basic human rights. In addition, these strategies should have empowerment of the poor as a basic element. This means that the poor should be actively involved in the drafting of these strategies, as well as their implementation.

 

But most fundamentally, poverty reduction strategies must ultimately seek basic structural changes in society to eliminate inequitable power relations. It is these unfair social relations that are the ultimate root cause of poverty. Unless these are addressed, true poverty reduction can never really be achieved. IBON Features / Posted by Bulatlat

 

IBON Features is a media service of IBON Foundation, an independent economic policy and research institution. When reprinting this feature, please credit IBON Features and give the byline when applicable.

 

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