2005
Poverty and globalization
What are we
talking about when we talk about poverty?
According to
the Social Summit Programme of Action, “Poverty has various manifestations,
including lack of income and productive resources sufficient to ensure
sustainable livelihoods; hunger and malnutrition; ill health; limited or lack of
access to education and other basic services; increased morbidity and mortality
from illness; homelessness and inadequate housing; unsafe environments; and
social discrimination and exclusion. It is also characterized by a lack of
participation in decision-making and in civil, social and cultural life. It
occurs in all countries: as mass poverty in many developing countries, pockets
of poverty amid wealth in developed countries, loss of livelihoods as a result
of economic recession, sudden poverty as a result of disaster or conflict, the
poverty of low-wage workers, and the utter destitution of people who fall
outside family support systems, social institutions and safety nets.” It further
emphasizes that “Absolute poverty is a condition characterized by severe
deprivation of basic human needs, including food, safe drinking water,
sanitation facilities, health, shelter, education and information. It depends
not only on income but also on access to social services.”
The Millennium
Declaration uses the term “extreme poverty” in probably the same sense as the
Social Summit, since both declarations quote the figure of “more than a billion”
people in absolute or extreme poverty.
Yet the goals
set by the Millennium Declaration combine references to needs (food, water) with
means (income) when promising to
halve, by the
year 2015, “the proportion of people whose income is less than one dollar a day”
and “the
proportion of people who suffer from hunger” and, by the same date, “the
proportion of people without sustainable access to safe drinking water”.
By adopting the
indicator popularized by the World Bank of USD 1 per day to define and measure
poverty, the Millennium Declaration takes some distance from the views of the
Social Summit and that of Nobel Prize-winning economist Amartya Sen: “poverty
must be seen as the deprivation of basic capabilities rather than merely as
lowness of incomes.”
Social Watch
has demonstrated that an index of capabilities which does not include income can
reflect country situations in a way that is consistent with the Human
Development Index used by the UNDP and has the advantage of allowing for
provincial and municipal monitoring. Yet indexes reflect averages and do not
allow the poor to be counted.
Counting the
poor
The figure of
1.3 billion poor people published by the World Bank gained instant success and
has been quoted ad nauseam in any publication or speech related to
poverty. Yet the World Bank has been accused of using a methodology that
underestimates the number of the poor,
basically because it is based on “purchasing power parity” of local currencies,
which adjust according to national average prices, and not according to the
prices actually paid by the people living in poverty.
The USD 1 per
day indicator is also inappropriate for vast regions of the world. In Latin
America the
Economic
Commission for
Latin America
and the Caribbean (ECLAC)
uses USD 2 per
day as the line for extreme poverty. In the United States the threshold is
around USD 12 per day.
While “extreme”
or “absolute” poverty attempt to define a biological survival minimum, the
concept of poverty which people actually use and which influences attitudes and
decisions is socially defined. Thus, in the United Kingdom, the Breadline
Britain measure defines a household as poor if the majority of people in
Britain, at the time of calculation, would think that household to be poor.
According to that measure, poverty grew in the United Kingdom from 21% to 24%
between 1991 and 2001. Even when overall living standards rise, poverty can also
rise if society becomes more unequal.
According to a
preliminary analysis by Social Watch researchers, using national definitions of
poverty instead of the international “extreme poverty” line would result in an
increase of at least half a billion people to the number of poor, counting only
middle and upper income countries. There were 35.8 million people officially
considered as living in poverty in the United States in 2003 (12.5% of the
population, 1.3 million more than in 2002). Around 70 million people are counted
as poor in the European Union, of which only 5 million fall below the
international poverty line. There are 200 million more people living in poverty
in Latin America by national official definitions than those counted
internationally. In lower income countries the World Bank definitions have
frequently become the national official definitions, mainly because of the huge
dependency of those countries on the Bank’s soft loans and grants, which in turn
easily translates into dependency on the Bank’s ideology.
To make matters
worse, most poverty indicators including those not based solely on income but on
the satisfaction of basic needs, are based on household surveys that consider
the family as a unit and assume that all members of a household share equally
the income and resources available, independent of their age and gender. This
results in underestimating the number of women living in poverty, since many of
them are not able to satisfy their basic needs even when living in households
above the poverty lines.
The world is
richer, the poor are poorer
Do we really
need a single international income definition of poverty? In order to mobilize
public opinion and strengthen the political will necessary to implement the
commitments, indications of progress are no doubt required. But the speed of
poverty reduction can be assessed and compared without having to resort to a
common universal poverty line. What really matters is that each and every
country reduces the proportion and number of its own citizens living in poverty.
Such progress would be consistent with the mandate of the International Covenant
on Economic, Social and Cultural Rights, which does not condemn a State because
of the poverty of its citizens but clearly requires that “all appropriate means”
(including international cooperation) be applied “to the maximum of its
available resources, with a view to achieving progressively the full
realization” of those rights.
In fact the
main use of the USD 1 per day indicator is an ideological and political one.
This indicator has led World Bank researchers to claim that “globalization is
working”, since it seems to indicate that the proportion of people living in
poverty in the world as a whole is declining at a rate that will make MDG 1
achievable.
When we look
more closely at the numbers, we find that even according to that indicator,
extreme poverty is not declining and is even increasing in Africa, Latin
America, the Middle East, Eastern Europe and most of Asia, with progress
concentrated in Vietnam, India and China. India and China do register high
economic growth in the last decade, but long term trends of poverty in China are
difficult to establish due to the lack of reliable historical statistical
series, while in India “there is good evidence that the official estimates of
poverty reduction are too optimistic, particularly for rural India.”
And the
“globalization is working” claim collapses when equity issues are taken into
account. According to Professor James K. Galbraith, director of the “Inequality
Project” of the University of Texas, “the ‘global element’ in within-country
inequality was stable from 1963 until around 1971, declined through 1979, and
then rose sharply and steadily for the following twenty years. This pattern is
very similar to that found by Milanovic for inequality between countries. We
believe it constitutes strong evidence that global macroeconomic forces, and in
particular the rise in interest rates, debt crises, and the pressure for
deregulation, privatization and liberalization generally since 1980, have all
contributed to a pervasive rise in economic inequalities within countries.”
“This work -
concludes Galbraith - inevitably raises serious questions about the role of
global economic governance in the rise of inequality and in the present
difficulties of the development process.”
Globalization
increases poverty: Adam Smith was right!
The same
conclusions are reached by the World Commission on the Social Dimension of
Globalization: “The global market economy has demonstrated great
productive capacity. Wisely managed, it can deliver unprecedented material
progress, generate more productive and better jobs for all, and contribute
significantly to reducing world poverty. But we also see how far short we still
are from realizing this potential. The current process of globalization is
generating unbalanced outcomes, both between and within countries. Wealth is
being created, but too many countries and people are not sharing in its
benefits.”
The reason why
this is so was already clear to Adam Smith, 250 years ago: “It is every-where
much easier for a wealthy merchant to obtain the privilege of trading in a town
corporate, than for a poor artificer to obtain that of working in it.”
“The masters,
being fewer in number, can combine much more easily; and the law, besides,
authorises, or at least does not prohibit their combinations, while it prohibits
those of the workmen. We have no acts of parliament against combining to lower
the price of work; but many against combining to raise it.”
In the last 15
years, during which time inequalities have been on the rise and social progress
has slowed down, the rights of transnational corporations have been expanded by
multilateral, regional and bilateral trade and investment agreements, without
any parallel increase in their obligations or in the rights of the workers or of
the governments of the countries in which they operate. Capital can move much
faster than two centuries ago, but workers cannot. They are forced to compete in
a race to the bottom while investment-starved governments compete to offer more
concessions and tax-exemptions. Unbalanced rules create unbalanced results. This
should not be a surprise for neoliberal economists, since that is precisely what
Adam Smith observed and predicted!
If this is the
diagnosis, either globalization is reversed or some form of global welfare
governance is achieved. A globalized economy that can ensure a decent
living for everybody but does not do so seems doomed to be unsure and
politically unviable.
The urgent and
the necessary
It can be
argued that pursuing an ambitious global governance agenda is a long-term
project that fails to meet the urgent needs of people that are desperately poor
and hungry today. The MDGs, while certainly not a summary of all the UN
conferences of the 1990s and definitely not a substitute for them, can
legitimately claim to be an expression of the most urgent needs. Yet meeting the
MDGs is not just another humanitarian task to be met by an increase in aid.
In fact, if
international aid was duplicated tomorrow, the present macroeconomic system
would not allow it to be spent. The World Bank and regional development banks
already have more money available than what countries are allowed to absorb by
the rules of the International Monetary Fund and they are receiving more money
from poor countries than what they disburse to them!
In 2002-2003,
for example, Uganda, which faces a major AIDS crisis, nearly rejected a USD 52
million grant from the Global Fund to Fight AIDS, Tuberculosis and Malaria
because it sought to stay within the strict budgetary constraints it had
agreed to maintain in order to acquire loans from the International Monetary
Fund (IMF).
At the recent
International AIDS Conference in Bangkok (July 2004),
UN experts called for a massive increase in financing for AIDS programs, urging
that USD 20 billion be provided to developing countries by 2007. Yet, a report
published in October 2004 by four major humanitarian agencies
argues that IMF policies that seek to keep inflation at very low levels do so at
the cost of blocking higher public spending on fighting AIDS. Many economists
think inflation and public spending could go higher than what the IMF
systematically determines, and therefore IMF policies are unreasonably
undermining the global fight against AIDS.
The report also
argues that IMF policies make it more difficult for countries to retain
critically important health care workers, as a result of the IMF's caps on the
amount of money countries can spend for public health sector employees.
The low
inflation targets set by the IMF lead directly to limits on the national budgets
of poor countries, which lead to ceilings on national health budgets. “Most poor
countries would like to significantly increase spending on fighting AIDS,” says
Joanne Carter, Legislative Director of RESULTS Educational Fund, a US-based
citizens lobby group that focuses on combating tuberculosis and other “diseases
of poverty” in developing countries. “But they have given up trying to fight
against the IMF because they know that they must comply with IMF loans just to
keep their access to the current levels of foreign aid they are already
receiving. If you go against the IMF, you risk getting cut-off from all other
sources of foreign aid.”
Taxes in debate
In defending
its rules, the IMF has argued that international aid cannot be trusted as a
reliable source of income to support current expenditures (as, for example,
taxes are) due to its volatility and non-contractual character. Which places the
ball back in the court of donor countries and challenges them to redefine flows
to developing countries in a way that is predictable, reliable and non-volatile.
This is
precisely what more than one hundred countries demanded on 20 September 2004 in
New York in their request to consider new mechanisms to fund poverty
eradication, a proposal that has been blocked by a single nation’s veto, applied
to the discussion of anything that might even resemble an international tax.
Faced with
tough externally-imposed restrictions in their budgets for development and
social urgencies, Presidents Lula da Silva of Brazil and Ernesto Kirchner of
Argentina signed on 16 March 2004 the “Copacabana Act”, formally known as the
“Declaration for Cooperation Towards Economic Growth with Equity,” where they
denounce a “contradiction in the present international financial system between
sustainable development and its financing” for lack of “adequate crisis solving
mechanisms” and make a link between finances and trade, which is seen as
“crucial” for growth. To change the system, they agreed “to negotiate with
multilateral credit institutions in a way that does not jeopardize growth and
ensures debt sustainability, allowing for infrastructure investment.”
When a private
corporation invests in infrastructure this is accounted for as asset creation
and only a small percentage of the total investment affects the yearly balance
as depreciation. But national accounts only register income and losses: all of
the money spent is registered as a loss. And the IMF imposes a ceiling on
government expenditure in order to generate a “primary surplus” to ensure debt
sustainability. What Kirchner and Lula proposed, and was endorsed later by all
South American finance ministers, was that in much the same way as private
corporations do, infrastructure investment should be depreciated over several
years and not as a loss at the moment of expenditure.
The immediate
effect of the proposal, currently being studied by the IMF, is of course to
allow for greater government expenditure. But the implications of introducing
the concept of asset creation in national accounts are far-reaching. It could
lead to the end of natural resource depletion (because there would be a
corresponding loss in the assets accounts). And, in the original Argentinean
proposal, the formation of “human capital” should also be exempted from the IMF
imposed expenditure ceilings. Health and education expenditures could be
regarded as “investments” in the same way as spending on infrastructure, and
many economists would argue this is an investment that pays more and faster than
big conventional development projects.
Promises,
promises
These ideas,
together with the demand for increased developing country participation in the
decision-making of the Bretton Woods Institutions, were already present in the
discussions around the Monterrey Consensus that resulted from the Conference on
Financing for Development in 2002.
Yet these
promises are waiting to be fulfilled, just like those made in Doha to start a
Development Round to make trade rules friendlier to developing countries. None
of these promises have materialized yet. Instead, developing countries are
experiencing additional demands in their services sectors (with direct
implications on the provision of basic services for the poor) as a “price” for
concession in the agriculture or textile areas.
In fact, each
of the yearly assessments of promises that Social Watch has studied since 1996
has shown that by and large developing countries have been closer to meeting
their commitments than developed countries. And different independent
evaluations show that among them, the members of the G7 are those lagging
furthest behind.
If anything,
what the adoption of commitments, goals and time-bound targets by the
international community has achieved is to set benchmarks according against
which governments (and the politicians that form them) can be judged
objectively. It is ultimately the judgment of public opinion which makes changes
possible. But the decision-making that will make the difference is scattered in
a multiplicity of fora and institutions attended by different ministers and
officials with results that are frequently contradictory.
For example, on
4 October 2004 the UN Committee on the Rights of the Child strongly recommended
that Southern African countries ensure that “regional and other free trade
agreements do not have a negative impact on the implementation of children’s
rights”. The trade agreement currently being negotiated between the regional
bloc and the United States could “affect the possibility of providing children
and other victims of HIV/AIDS with effective medicines for free or at the lowest
price possible.” Such a resolution has global implications, since the provisions
in the draft text are common to many bilateral trade agreements. Similar
discrepancies between the right to life and intellectual property rights of
pharmaceutical corporations led to a declaration at Doha and a further extension
of that agreement prior to the Cancun Ministerial which had the effect of
revising the application of the TRIPS agreement.
There is no
global supreme court to decide what should prevail when human rights and trade
regulations conflict. Advocates of trade and investment accords and of the World
Trade Organization (WTO) attempt to press their priority over other treaties and
norms at key international forums: the implementation of the Johannesburg Summit
on Sustainable Development, the treaty against tobacco or the ongoing
negotiations around the protection of cultural diversity. At present coherence
can only be achieved at the level of heads of State and government. Which is
what makes the Second Millennium Summit so important.
Notes:
World Summit for Social Development, Programme of Action, Chapter II
“Eradication of Poverty”, para. 19. Copenhagen, March 1995.
Sen, Amartya. Development as Freedom. New York: Alfred A. Knopf, 1999.
Reddy, Sanjay G. and Thomas W. Pogge. How Not to Count the Poor,
(Version 4.5), mimeo. New York: Barnard College, University of Columbia, 2003,
www.socialanalysis.org
Batthyány, Karina, Mariana Cabrera and Daniel Macadar. “The gender approach in
poverty analysis: conceptual issues”. Social Sciences Research Team, Social
Watch Research Advance, 2004.
United Nations, International Covenant on Economic, Social and Cultural Rights,
Art. 2, para. 1.
Kozel, Valerie and Angus Deaton. Data and dogma: the great Indian poverty
debate. World Bank, PovertyNet Library, September 2004.
World Commission on the Social Dimension of Globalization,
A Fair Globalization: Creating Opportunities for All,
New York, February 2004.
www.ilo.org/public/english/fairglobalization/report/index.htm
Smith, Adam, The Wealth of Nations, I.10.100.
Ibid, I.8.12.
ActionAid International USA, Global AIDS Alliance, Student Global AIDS Campaign,
and RESULTS Educational Fund, “Blocking Progress: How the Fight Against HIV/AIDS
is Being Undermined by the World Bank and International Monetary Fund”, The full
policy briefing is available at
www.actionaidusa.org/blockingprogress.pdf
Ibid.
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