In my last post, I considered Adam Smith’s oft-cited argument for international free trade according to which, by analogy to local group economies wherein individuals “specialize in what they do best” and thereby “increase over-all income and prosperity”, individual countries should similarly specialize in whatever the country does best, export the surplus products of this specialized industry, and import everything else from the surplus of other country’s (equally specialized) industries. I pointed out that the argument appeals to a purely economic conception of the good associated with local division of labor, thereby ignoring the good which attaches to individuals’ selecting and practicing professions to which they are inclined. I noted that implementing Smith’s suggestion entails the decimation of the latter good, in requiring that individuals in a given country no longer “specialize in what they do best” but rather specialize in whatever their country does best. I noted that this unsatisfactory consequence may be observed both in the U.S. and in other countries where free trade a la Smith has been strongly encouraged, and that the consequences to individual liberty and flourishing have been especially devastating in the global south, where millions of individuals have been forced (by the destruction of their local economies via privatization and resource extraction) into near-slavery in their country’s “low-cost industry”: grueling labor in the agribusiness or manufacturing industries.
A couple of remarks on the limited scope of this argument. Even if it does show that there is a problem with the sort of free trade Smith is advocating, there might be other motivations for free trade which do not require that countries “specialize in their low-cost industry”; and my argument above wouldn’t immediately tell against such conceptions (unless the mere fact of free trade would inevitably push towards such specialization, which is unclear, at least to me). More generally, it is not my intention to deny that international trade between countries can, implemented appropriately, be a very good thing.
It does, however, appear that something in the ballpark of the Smithian conception is very close to the sort of free trade (of the neoliberal/corporate capitalist variety) that is presently operative, as reflected in Smith’s argument being commonly cited as motivation for present policies, and in countries conforming (by choice or under duress) to a capitalist paradigm being encouraged to embrace strict specialization and open markets. (Of course, in its present manifestation free trade has increasing less to do with Smith’s “kingdoms”: these days, governments appear to be serving mainly as middlemen between a country’s natural and labor resources, and the global corporations whose allegiance is to more abstract entities.)
So, how might defenders of Smithian free trade in its present neoliberal manifestation, understood as involving such forced (or however “encouraged”) specialization, respond? Certainly one line of response is to maintain that the individual goods lost as a result of implementing this program are, contrary to my assertion, adequately compensated by the benefits. Two such benefits are, it seems to me, regularly called out.
The first sort of benefit refers back to Smith’s claim that international free trade, just like local division of labor, will “increase overall income and prosperity”. Even if money can’t buy love, the objector notes, it can buy a lot of other things that could potentially make a huge difference in individual lives: better food, shelter, health care, education, and so on. So even granting my point that neoliberal free trade often involves a loss of some goods, nonetheless this loss is compensated by the greater goods that increased income and prosperity will bring. The second sort of benefit is less tangible and varies widely, but in general involves various personal and social goods that, it is claimed, are frequent concomitants of Smithian free trade. So, for example, it is suggested that when individuals (in particular, women) enter the capitalist work force they gain the benefit of seeing themselves as independent and capable of making a living on their own; people in a global culture get exposed to more information and become more cosmopolitan, etc.
I’ll consider whether Smithian free trade in its present neoliberal manifestation encourages the latter less tangible goods sometime down the line. For now I just want to present what seems to me to be compelling evidence that such free trade does not “increase the overall income and prosperity” of those in the countries in which it is implemented. What follows in the extended post is pages 44-52 of David McNally’s Another World is Possible (2002). McNally has written a succinct, powerful, well-documented book on globalization and the effects of capitalism. This info is so important that I typed this sucker in by hand (my scanner isn’t working and it isn’t available on-line). So do me a favor and read it all (then go buy McNally’s book and read the whole thing).
When supporters of globalization are confronted with evidence of the alarming new powers being bestowed on multinational corporations, they usually shift the terms of discussion. Whatever the weaknesses of these accords, they intone, the one great thing about globalization is that it spreads prosperity around the globe. The Globe and Mail, for instance, […] sang this chorus repeatedly. “Globalization,” proclaimed the paper’s editors, “is a powerful force for good, with the potential to lift millions out of poverty and make the world a safer, richer, better place […] For the first time in history, the end of mass poverty is in clear sight. For the hundreds of millions who live in want, there is finally a way out. That way is globalization”. […]
Now, if this was true, if globalization for all its unhappy effects actually raised millions out of poverty and hunger, if it truly made the world a safer and better place, then many opponents would be obliged to think twice. Curiously, however, the Globe and Mail editors were short on hard facts. Neo-liberal free trade rhetoric and ideology seemed to be enough to persuade them of their cause. [… But] once we look at the actual facts of the matter in these and other areas, the globalizers’ arguments look highly unpersuasive.
Globalization has produced lower rates of economic growth
To begin with, there is no serious evidence that the changes associated with globalization have done anything to raise the rates at which economies expand the production of wealth. As the Washington-based Center for Economic and Policy Research has shown, compared with the previous twenty years, the globalization period has been characterized by sub-standard rates of growth. Placing all the world’s counries into five groups according to wealth, the Center demonstrates that *all* groups of nations, even the richest, have experienced slower growth throughout the era of globalization (1980-2000).
But the most devastating results have been those for the poorest nations, where per capita GDP [Gross Domestic Product] is between $375 and $1,121. While these economies grew by an average of 1.9 per cent throughout the first period, they have experienced negative growth (i.e. a contraction in the amount of wealth they produce per person) under the globalization regime of the last twenty years (Weisbrot, Baker, Kraev, Chen, The Scorecard on Globalization 1980-2000: Twenty Years of Diminished Progress). These processes have produced shocking results:
-- Altogether, eighty countries in the world today have per capita incomes lower than they had thirty years ago.
-- As a result, the number of countries with per capita incomes of less than $900 per year (the UN cutoff for the category of “least developed” countries) has doubled since 1971---from 25 to 49 (Gwynn, “Global Economy isn’t global”, Toronto Star, April 18, 2001); Brand, “Poorest countries demand more help”, Globe and Mail, May 15, 2001).
--One of the results has been a decline in life expectancy in eighteen countries---ten of them in Africa, and either in Eastern Europe and the former Soviet Union.
Put in different terms, we can see just how catastrophic all of this is. The table below looks at what’s happened to per capita income in both Latin America and Africa across these two periods.
Growth to Per Capita Income, 1960-80 and 1980-2000
Latin America (1960-80): +73%; (1980-2000): +7%
Africa (1960-1980): +34%; (1980-2000): -23%
(Source: Dobbin, “Democracy and the Quebec Summit”, Financial Post, April 30, 2001.)
The impact of globalization on economic growth in these two regions has, in short, been disastrous. While Latin America has undergone a devastating decline in the amount of growth taking place, Africa has experienced nothing short of outright calamity, with per capita income plummeting by nearly one-quarter, and life expectancy dropping in many countries.
Globalization has increased world inequalities
At the same time as globalization has been associated with more sluggish economic growth---or with outright contraction---it has also generated greater inequalities in the distribution of wealth. Drawing on new studies done for the World Bank, Robert Wade of the London School of Economics has shown that under the globalization regime the rich have gotten richer, the poor poorer. Looking at the distribution of world income over a mere five years (1988—93), Wade concludes that “the share of world income going to the poorest 10% of the world’s population fell by over a quarter, whereas the share of the richest 10% rose by 8%.” (Wade, “Global Inequality: Winners and Losers”, Economist, April 28, 2001). And these trends have continued with obscene results:
-- The richest two hundred people in the world more than doubled their net worth in the four years leading up to 1998 to more than $1 trillion
-- Merely three billionaires have assets greater than the combined gross national product of the world’s “least developed” nations and their 600 million inhabitants.
-- The income gap between the one-fifth of the human population living in the richest countries and the fifth living in the poorest ountries has gone from 30:1 in 1960, to 60:1 in 1990, and up again to 74:1 in 1997.
-- In the developing world 1.2 billion people are absolutely poor, meaning that they subsist on $1 a day or less.
-- In these countries another one billion adults are illiterate, 2.4 billion lack basic sanitation, and one billion have no access to safe water.
(Data drawn from UN Human Development Report 1999, p. 3, and UN Human Development Report 2000, p. 30, 34, 82.)
And just as global inequalities between nations have increased, so have inequalities *within* nations. Take the examples of the two most “globalized” economies in Latin America. In 1975, the income ratio of the richest 20% of the population of Argentina compared to the poorest 20% was 8:1. As neo-liberal reforms took hold, this ration doubled by 1991 and then soared to 25:1 by 1997. In Brazil, meanwhile, the inequality ratio between these two groups has 44:1. (Petras and Veltmeyer, p. 86). Put baldy, globalization has been nothing less than a *mechanism for a massive transfer of wealth from poor to rich---in other words, exactly what it was designed to be.
World Trade has impoverished sub-Saharan Africa
While the globalizers love to claim that trade in world markets is the path to prosperity, they conveniently ignore the evidence from the world’s most impoverished region, sub-Saharan Africa. After all, as Table 2.3 indicates, this region exports a much higher share of its output than any other part of the world.
Table 2.3 – Share of GDP exported to foreign markets
OECD countries (economically developed countries of North America, western Europe, and Japan): 19%
Latin America: 15%
Sub-Saharan Africa: 29%
(Source: UN Human Development Report 1999, pp. 2, 31.)
Yet, contrary to free trade mythology, high rates of export have done nothing to help the people of the region. According to the World Bank, per capita incomes in sub-Saharan Africa fell by 25% between 1987 and 2000 (World Development Report, 2000). As we have previously noted, life expectancy has fallen in much of the region. In fact, four sub-Saharan African nations have seen staggering declines in life spans, which have dropped by 14% in Botswana, 15% in Uganda, and 17% in both Zambia and Zimbabwe. (UN Human Development Report 1999, p. 130). With world market prices for raw commodities from coffee to copper plummeting, these trends are likely to continue. Yet, desperately needing foreign currency to pay off debts to foreign banks and lenders such as the IMF, African nations have no choice but to continue massively producing goods whose prices are collapsing. In fact, sub-Saharan Africa currently pays $337 million a day in debt payments---an amount that completely eclipses any “aid” that comes from rich nations. The entire region is thus caught in a debt trap in which exports generate declining revenues that are sent to world banks and financial institutions instead of contributing to local investment, health care, or education. The idea that the rising tide of world trade raises all boats is nothing less than an incredible sick joke where the peoples of most of Africa are concerned.
Confronted with this sort of evidence, the globalizers tend to fall back on the claim that these nations just need to stick to the neoliberal road a bit longer, that sooner or later they’ll see the payoff. Unimpressive as this argument is, let’s examine it by looking at some of the developing nations that have most fully embraced the neoliberal model in recent years---South Korea, Argentina and Mexico.
Global Integration and Economic Meltdowns: South Korea and Argentina
Developing on the basis of state-assisted industrialization from the mid-1950’s, South Korea emerged in the 1970’s as one of the world’s most powerful “newly industrializing countries.” By the 1980’s, the country had become a significant force in global electronics, steel, automobile and shipbuilding industries (See Harris, The End of the Third World, 1986, pp. 31-45). At this point, the American government launched an offensive to force Korea to open its markets to foreign goods and investments. In 1983 President Ronald Reagan visited Korea and issued ultimatums to that effect. Then the U.S. government used its “Super 301” trade law---which authorizes Washington to retaliate against “unfair” traders---to break open the Korean economy. So effective was this offensive, all couched in neoliberal jargon, that Korean imports of U.S. agricultural goods skyrocketed from $1.8 billion in 1985 to $5 billion by the end of 1991. In fact, Korea now consumes more American farm products than any other foreign nation (Bello with Cunningham and Rau, Dark Victory: The United States and Global Poverty, 1999, p. 77).
With Korea’s markets pried open, international investors and speculators began pouring in, targeting other East Asian countries such as Thailand, Indonesia, Malaysia and the Philippines as well. Between 1990 and 1995, foreign capital flows into these five Asian countries nearly quintupled, soaring from $20 billion to $95 billion (US). But, as happens in all unregulated markets, the influx of speculative capital overshot all real opportunities for profits. As soon as that became clear, foreign capital started to flee the region. Economic troubles in Thailand then triggered an avalanche of fleeing capital. The inflow of foreign capital to the five countries did a dramatic U-turn, declining by $115 billion (resulting in a net outflow of $20 billion) in 1997, precipitating a catastrophic meltdown.
Once the pride of the region, neoliberalized South Korea now found itself reeling from the effects of its open markets. At the peak of the crisis, 10,000 workers received layoff notices *every day*---a job loss rate of 300,000 per month (McNally, “Globalization on Trial: Crisis and Class Struggle in East Asia” in Wood, Meiksins, and Yates, Rising from the Ashes? Labor in the Age of “Global Capitalism”, 1998, p. 142). Hammered by the effets of this crisis, major Korean corporations have ended up on the auction block. Most recently, General Motors has bought up the auto manufacturer, Daewoo Motors---a deal the American firm signed only after Daewoo agreed to lay off one-third of its 22,000 employees (Choe, “GM to acquire Daewoo”, Globe and Mail, Sept. 21, 2001). Such are the rewards for following the neoliberal road.
But if any country has been perversely punished for accepting the globalization model, it is Argentina. Unlike Korea, which was beaten into submission, at the beginning of the 1990’s, Argentina’s rulers embraced neoliberalism with the fervour of a religious convert. Having found the religion of the free market, Argentina’s government became Washington’s staunchest ally in Latin America. No other country in the region agreed to send troops to participate in America’s 1991 war against Iraq; and only Argentina among Latin American states has consistently voted with the U.S. in international bodies. […]
On the economic front, the country pursued the whole gambit of neoliberal policies: privatization, opening of markets, vicious cuts to social spending. On top of that, the government agreed to *dollarization*---the policy of tying its currency (the peso) to the U.S. dollar. As a result, every time the U.S. dollar rose, so did Argentina’s peso, even though this made its goods more expensive in world market. As prices for its goods rose, Argentina’s exports fell, and the country’s trade deficit mounted. This compelled the government to turn to foreign borrowing to pay its way. And so, as an inevitable consequence of the dollarization policy pushed by Washington, the IMF and the World Bank, foreign debts mounted steadily, hitting $141 billion (US) in 2001.
While the country was sliding deeper into debt, the people were reeling from the effects of privatization, social service cuts, and mass layoffs. The Wall Street Journal estimates that during these years four million people fell below the poverty line, some 10% of the population (Walkom, “Argentina a warning to Canada”, Toronto Star, January 8, 2002). Altogether, 18 million of Argentines are officially unemployed, one of the highest rates of any industrial country in the world (and the real number is certainly much higher). And the IMF and the World Bank managed to make a difficult situation desperately worse.
As the crisis worsened, a “Technical Memorandum of Understanding” was signed between the government and the IMF in September 2000 under which Argentina was required to make a $1.2 billion budget cut in 2001, at the very time it was obviously sinking into recession. In an astonishing section entitled “Improving the Conditions of the Poor,” Argentina was directed to cut $40 per month from the salaries paid under the government’s emergency employment program---thereby driving hundreds of thousands more into poverty.
With the economy in obvious collapse, and industrial production plummeting by 25%, the World Bank president boasted that the country had slashed $3 billion in government spending and cut labour costs. Ignoring economic collapse, soaring poverty and mass layoffs, Bank President James Wolfensohn excitedly praised the country’s new-found “labour market flexibility” (read lower wages) (see Palast, “Argentina: World Bank President’s Secret Plan for Bleeding Nation an Uncharming Mix of Self-Delusion and Cruelty,” January 2002, at www.Americas.org). Meanwhile, the official poverty rate soared to 44% of the population, double its rate ten years earlier (Petras, “Road Warriors,” February 2002, at www.Americas.org). As the downturn turned into an avalanche of despair, provoking riots that have toppled successive governments, the Bank and the IMF refused to provide funds to address a debacle they had created. Today, Argentina is bankrupt, its economy shattered, its people devastated. That is their payment for a decade of slavish devotion to American-style neoliberalism. More than that, it is also a clear indicator of the consequences of the globalization model: full-fledged integration into global markets, alongside privatization and massive cuts to social spending make smaller economies incredibly vulnerable to financial and economic collapse---precisely the opposite of what globalization orthodoxy claims.
NAFTA Devastates the Mexican People
If any nation should be a globalization success story, of course, it is Mexico. Closer than any other poor nation to the world’s largest market, and the only developing country included in NAFTA, Mexico ought to be ideally located to reap the benefits of globalization. Moreover, unlike sub-Saharan Africa, Mexico has received massive amounts of foreign direct investment in the developing world. Indeed, the country’s free-trade exporting zones, known as the *maquiladoras*, have seen new factories built at a staggering rate. By the end of 2000, there were 3,700 maquiladora factories employing 1.35 million people---an increase of a million jobs sine 1987. By globalization standards, then, Mexico is a boom town. Yet, for ordinary people, the results have been devastating. Since the implementation of NAFTA in 1994:
-- The real minimum wage has fallen by 40 per cent.
-- The gap between U.S. and Mexican wages has grown by 30% (Tonelson, “Bush’s Latin American Trade Mirage”, Washington Post, April 17, 2001.
-- In the automotive industry---a major actor in the maquiladora zones---Mexican workers now earn one-twelfth of the wage of an American auto worker---down from one-third in 1980
-- Thirty-six million people with jobs now live below the poverty line---62% of the working population
-- Since 1995, says the Organization for Economic Cooperation and Development, real wages in Mexio have declined by 10% (probably a considerable underestimation) while workers’ productivity has soared by 45%.
(Data for the last 5 points is provided by Prof. John Warnock, “Who Benefits from the Free Trade Agreements?” unpublished article, Spring 2001. Warnock is the author of The Other Mexico: The North American Triangle Completed (1995). I suspect that the OECD estimation of a 10% drop in real wages is too small since Tonelson, using U.S. Dept. of Labor statistics, reports a 20% drop in real wages in Mexico.)
The last point is crucial. Soaring productivity and falling wages translate into massive profits. And that, as I’ve been emphasizing, is what NAFTA and similar agreement are all about. The very essence of the globalization agenda is a concerted campaign to raise the profits of multinational corporations by lowering wages, cutting taxes, loosening environmental regulations, and weakening labour rights. Not surprisingly, then, as one mainstream commentator notes, “Because of NAFTA’s focus on cutting business costs, and because Mexico’s workforce has grown so rapidly, Mexican workers have not benefited” (Tonelson; see above).
What this comment leaves out is an essential aspect of the corporate bonanza in Mexico under NAFTA: police and military repression. After all, Mexican workers, peasants and indigenous peoples have fought back against the globalization agenda. But they have consistently been greeted with brutality by the state.
In the maquiladoras, attempts by workers to organize independent unions have been crushed repeatedly. In June 200, for instance, police brandishing pistols and rifles attacked peaceful strikers at the U.S.-owned Duro factory, beating workers and arresting their leaders. While an international campaign won the release of the strike leaders, the company fired more than one hundred of the strikers and the government refused to certify their union (Yantz, “Mr. Fox, does Mexican democracy include workers?”, Globe and Mail, August 23, 2000). Far from an isolated example, the use of police and thugs to injure, arrest, and intimidate workers in the maquiladoras is widespread.
And this, as the Zapatistas well know, gives us an important clue to one of the dirty secrets of the neoliberal agenda: that it rests on repression and violence. Indeed, without the use of police and troops, the globalization agenda could scarcely get off the ground.