[MAI-NOT] Pauperizing the Periphery
Jonathan Larson
Two Decades of Neoliberal Policies
By M. SHAHID ALAM
http://www.counterpunch.org/alam06072003.html
Contrary to the grandiose claims made by the ideologues, the
neoliberal, open-door economic regimes imposed on the Periphery by
Core capital--starting in the 1980s--have produced no economic
miracles.[1] Instead, these economic regimes have brought economic
ruin or, at best, lack-luster performance to the countries they have
touched most deeply.
Starting with the October Revolution of 1917, sections of the
Periphery began to break away from, or attenuate their linkages to,
global capitalism. After Second World War, this decentralizing
movement embraced nearly all of Asia, Africa, and the Caribbean, who
now joined Latin America to form the Third World. Several of these
countries chose communism and severed their links to global capital.
Others used their newfound sovereignty to re-structure their
relations with global capital, using the power of government to
develop indigenous capital. This was the Periphery's window of
opportunity: its golden hour.
However, this window began to close, starting in the 1980s. For a
variety of reasons, which included geopolitical luck as well as the
still-strong expansive power of capitalism, Core capital staged a
comeback both in the Core countries and in the Periphery. Taking
advantage of the debt crisis, the World Bank and the IMF began to
dismantle the developmental states in the Periphery. In 1994, shortly
after the collapse of Soviet Union, Core capital created the World
Trade Organization in order to deepen and police the neoliberal,
open-door regimes it had imposed on the Periphery. After a hiatus of
some three decades, power was once again centralized in the Core
states.
The orthodox economists argued, as they had since Adam Smith, that
these neoliberal regimes created the best bargains for all parties
concerned. Free markets and open economies, so they argued, would
direct production to countries where their unit costs were lowest;
and if capital were mobile, it would flow copiously from the
capital-rich to capital-poor countries. Indonesia, with cheap labor,
would produce shoes; and United States, abundantly endowed with
capital and skills, would design, finance, advertise and market them.
In the neoliberal paradigm, the capital and skills of Core countries
would fertilize labor from the Periphery. This was a marriage made in
heaven: it would produce prosperity for everyone, and especially for
the poor countries.
There was one problem with this marriage. It had been forced on the
Periphery once before for nearly a century and a half, and it had
only led to abuse and rape of their economies. Of course, the
orthodox economists never saw any of this; they could only see their
side of the ledger, which always showed profits. They could not see
the abuse and rape because they lived in a world of toy economies
with no economies of scale, no externalities, no monopoly power, no
advertising, no racism, and no asymmetries of power. That is scarcely
surprising: every system that produces abuse also produces its
apologists. Always, it is the victims--if only because they are the
victims--who must identify and analyze the abuse that penetrates
their lives.
In order to identify the failure of neoliberal economics, we will
com-pare the growth record of the Periphery in the two decades before
and after 1980. First, consider the two decades preceding 1980 when
nearly all countries in the Periphery protected their manufactures,
regulated their currency markets, engaged in deficit spending, and
their governments took on entrepreneurial roles. By the norms of
neoliberal economics, they violated all the rules of good economic
housekeeping. Yet, they recorded quite impressive growth rates under
these interventionist regimes. The GDP of low-income countries grew
at average annual rates of 4.6 and 4.5 percent during the 1960s and
1970s; the corresponding figures for the middle-income countries were
6.0 and 5.6 percent. There were no strong regional variations in the
growth record for this period. Although growth in Sub-Saharan Africa
faltered during the 1970s, there were nine countries in this region
whose average annual growth rates exceeded 5.0 percent during this
decade.[2]
Over the next two decades, as the World Bank and IMF forced
neo-liberal policies upon them, the growth rates in the Periphery
declined in proportion to their embrace of these policies. The
neoliberal policies took their first toll in Latin America and
Sub-Saharan Africa. Both regions suffered a precipitous decline in
their GDP growth rates to 1.7 percent during the 1980s, producing
declining per capita incomes. The growth rates in Latin America
recovered during the 1990s to 3.4 percent per annum, though this was
significantly below their pre-1980 levels. The growth rate for
Sub-Saharan Africa improved only marginally during the 1990s, and it
was unable to stem the decline in its per capita income.[3]
The collapse of Eastern Europe and Central Asia came next, with their
rapid integration into global capitalism starting in the 1990s. Their
economic decline was striking. Although the growth perform-ance of
these economies had been weakening for some time, they still managed
to log an annual growth rate of 2.4 percent in their GDP during the
1980s. However, their precipitate transition to markets produced
catastrophic results. During the 1990s, their GDP declined at an
annual rate of 2.7 percent, more than wiping out the gains of the
previous decade. It is doubtful if any economic region of comparable
size has experienced a similar decline in its output. Soon, their
fertility rates fell significantly below replacement levels,
producing a declining population.[4]
The economic decline of the Middle East and North Africa since the
1980s has been nearly as steep as in Sub-Saharan Africa. Their GDP
growth rates in the two decades after 1980 were significantly below
those for the two preceding decades. As a result, the region's per
capita income declined between 1980 and 2000. [5] This was not due to
declining oil prices alone. The non-oil economies in this region
shared in this decline; their GDP had grown at 2.9 percent annually
between 1950 and 1980, but this declined to 1.5 percent in the two
decades after 1980. This decline occurred at a time when the non-oil
economies, barring Syria, were liberalizing their trade and payments
regimes.[6]
Most countries in East and South Asia, which had made striking
progress in the transition to neoliberal economic regimes, followed
the same pattern. Their growth rates in the two decades after 1980
were visibly lower than in the two preceding decades. Notably, this
group includes the most advanced countries in the region--Taiwan,
South Korea, Singapore, Hong Kong, Thailand and Malaysia--as well as
the poorer countries: Sri Lanka, Indonesia, Philippines and Pakistan.
There were few countries in the Periphery that escaped the declining
trend in growth rates in the post-1980 period. India and China, the
two largest countries in the Periphery with more than one-third of
the world's population, nearly doubled their GDP growth rates in this
period compared to their record in the three previous decades.
Although both countries enacted market reforms since 1980, they were
still amongst the most illiberal economic regimes in the world,
whether one examines the extent of state ownership in their
industries or their trade and payments regime.[7] A second group of
countries--Myanmar, Laos and Vietnam--experienced dramatic upturns in
their growth rates during the 1990s, without the benefit of a liberal
regime.
These results should surprise no one but the historically myopic. In
the hundred years before 1950, the colonies and open-door countries
performed poorly compared to the sovereign countries in the
Periphery--those that were generally free to choose interventionist
policies.[8] During the post-war interlude lasting into the 1970s,
when most of the former colonies and open-door countries practiced
strongly interventionist policies, they experienced a dramatic
acceleration in their growth rates. It is scarcely surprising that
the forced return to open-door policies in the Periphery, since the
1980s, has repeated the results from the past. It is not clear how
long India and China, the two major countries that have not yet
surrendered their economic sovereignty, can resist conversion to
neoliberal economic regimes.
The re-centralization of power by Core capital that began in the
1980s was quite swift and mostly non-violent, unlike the
centralization that reached its peak in the last decades of the
nineteenth century. Perhaps, this is not surprising. The first
centralization was a pioneering movement: it involved the creation,
extension and deepening of core-controlled systems of transport,
trade, finance, investment, cultural instruments, and subordinate
classes in the Periphery. It took centuries to establish this system,
often involving wars. However, when the colonial powers departed from
their colonies, in most cases, they did not fully liquidate these
long-established systems of control. While they terminated direct
political controls, and ended their military presence, many of the
economic and social linkages, though weakened, persisted in most
former colonies; only the communist countries severed nearly all
their linkages with Core countries. This is what made the second
re-centralization easier.
The Core countries began to reinforce their informal systems of
control as soon as they lowered their flags over their former
colonies. The reinforcements took many forms, including foreign aid,
military assistance, joint military exercises, training programs, and
foreign investments. When Core countries, now working in unison,
articulated their new determination--through IMF, World Bank and the
OECD--to impose neoliberal regimes on the former colonies in the
1980s, there was little resistance. For the most part, the elites in
the Periphery had already been integrated into the hierarchy of power
emanating from the Core; they also understood that resistance carried
unacceptable costs. There was no popular resistance because
re-centralization did not affect the visible symbols of sovereignty.
The communist countries too were re-integrated without firing a shot.
They were overthrown from within, since they failed to deliver
prosperity, freedom or a sense of ownership.
The swift and easy re-centralization of the global economy created a
paradoxical situation. United States still commanded a massive
military force while its main adversary had melted away.[9] Soon,
there were calls to downsize the military, an intolerable prospect
for the industries whose profits depend on military contracts. This
had to be remedied.
The refurbished power of Core capital was creating some domestic
problems too. On the one hand, Core capital began eroding the social
gains made by workers, consumers, and environmentalists since the
1930s. More importantly, the labor force in the Core countries was
beginning to face competition from sections of the Periphery as they
developed manufacturing capabilities. They began losing jobs as Core
capital relocated to the Periphery; a process accelerated by the
internet revolution. In addition, Core capital was also using its
newfound muscle to import workers into their domestic markets. Faced
with a sustained decline in their living standards--the first in the
history of industrial capitalism--a growing number of workers in the
Core countries were gravitating towards anti-Corporation,
anti-globalization movements. This too had to be remedied.
United States would solve these problems by inventing new enemies. It
was in this context that Bernard Lewis, in 1990, advanced his thesis
of the "clash of civilizations" between the West and Islam. He argued
that the Islamist opposition in the Middle East represented "a mood
and a movement far transcending the level of issues and policies and
the governments that pursue them. This is no less than a clash of
civilizations--the perhaps irrational but surely historic reaction of
an ancient rival against our Judeo-Christian heritage, our secular
present, and the worldwide expansion of both in 1990, that the West
was engaged in a veritable clash of civilization with Islam." Three
years later, Samuel Huntington generalized this thesis into a
historical prin-ciple. At the end of the Cold War, he prophesied, the
world is enter-ing a new age of civilizational conflicts, primarily
involving the West and Islam, and the West and China.
The Clash thesis set up the military machine for capture by powerful
special interests and voting blocks within United States. Quickly,
the Israeli lobby, Christian fundamentalists, and oil interests in
the United States joined forces. Each would pursue its specific
goal--eliminate threats to Israel's hegemony, Christianize Islamic
societies, and capture oil profits--by mobilizing America's redundant
military to re-colonize the Middle East. It was not hard selling this
imperialist project to Americans. It would not be difficult painting
the Arab regimes into a corner. They were tyrannies, they possessed
weapons of mass destruction, they were an imminent threat to American
lives, they opposed Western values, and they threatened Israel. A
great nation--the "greatest" there has ever been in the history of
mankind--would have little difficulty manufacturing a clash of
civilizations when it needed one.
M. Shahid Alam is professor of economics at Northeastern University.
His last book, Poverty from the Wealth of Nations was published by
Palgrave (2000). He may be reached at m.a...@neu.edu .
© M. Shahid Alam
References:
[1] The terms Core and Periphery are analytical categories employed
in the neo-Marxist literature to describe the disequalizing dynamics
of global capitalism. The Core consists of the largest concentrations
of capital (physical and financial), working in symbiosis with the
governments of countries where it is headquartered; roughly, the Core
is coterminous with the developed countries, led by United States.
Conversely, the Pe-riphery embraces the rest of the world.
[2] World Bank, World Development Report ,1983 (New York: Oxford
University Press, 1983): 150-51.
[3] World Bank, World Development Report ,2000-2001 (New York:
Ox-ford University Press, 2001).: 295.
[4] World Bank (2001): 295, 297.
[5] World Bank (2001): 295, 297.
[6] Sevket Pamuk, The Middle East and North Africa in the age of
global-ization, 1980-2000 (Paper presented at the 13th IEHA Congress
at Bue-nos Aires, August 2002)
[7] Wacziarg and Welch (2002) maintain that India and China remained
closed economies as of 2000--India more than China--when judged in
terms of their average tariffs, non-tariff-barriers, and
exchange-rate premiums. In addition, state-ownership remained
dominant in heavy in-dustries in India; in China, this included the
financial sector as well. Wacziarg, Romain and Karen Horn Welch,
"Trade liberalization and growth: New evidence (Palo Alto: Stanford
University, November 2002)
[8] The average annual growth rates of PCI in the sovereign countries
were 1.00 percent for 1870-1900, 1.61 percent for 1900-1913, and 1.34
per-cent for 1913-1950. The corresponding figures for the colonies
and open-door countries were 0.59, 0.50 and -0.27. Alam, M. Shahid,
Poverty from the wealth of nations (Houndmills, UK: Macmillan, 2000):
151.
[9] In 1994, according to Conetta and Knight (1997) US military
expen-diture was $288 billion, while that of Potential Threat States
was $167 billion; in 1986 the corresponding figures were $365 billion
and $550 billion. Conetta, Carl and Charles Knight, Post-Cold War US
military expenditure in the context of world spending trends (Project
on Defense Alternatives: January 1997)
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warmest regards
Jonathan
web site at:
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