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
access 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 in the world.
Yet the goal set by the Millennium Declaration combines 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 publications and speeches
related to poverty. Yet the World Bank has been accused of using a methodology
that underestimates the number of the poor,
mainly because it is based on “purchasing power parity” of local currencies,
which adjusts 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 international 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 reduce 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 ideological and
political. This indicator has led World Bank researchers to claim that
“globalization is working”, since it seems to imply that the proportion of
people living in poverty in the world as a whole is declining at a rate that
will make Millennium Development Goal (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 fulfilled 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 countries are allowed to absorb by
the rules of the International Monetary Fund. The banks are receiving more money
from poor countries than these disburse to the banks!
In 2002-2003, 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 IMF.
At the
International AIDS Conference in Bangkok (July 2004),
UN experts called for a massive increase in financing for AIDS programmes,
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 to fight AIDS. Many economists think
inflation and public spending could go higher than 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 under 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 on 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 concessions 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 against which
governments (and the politicians that form them) can be judged objectively. It
is ultimately the judgment made by public opinion which makes change possible.
But the decision-making that will make the difference is scattered in a
multiplicity of forums 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 of the World Trade Organization (WTO).
There is no global supreme court to decide what should prevail when human rights
and of the WTO trade regulations conflict. Advocates of trade and investment
accords and 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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