Structural adjustment programmes call for:
1) Fiscal discipline (reducing expenditure in social welfare)
2) Trade and financial liberalization (opening up weak economies
to powerful capitals)
3) Stronger emphasis on market mechanisms (reducing the capacity
of a large sector of the
population to feed itself)
4) Greater reliance on private investment (which will misallocate
scarce resources to the
production of luxury goods
instead of social goods)
5) New incentive and regulatory systems (giving more protection
to capital and less to
labour)
1 to 5 will have an impact on:
1) sustainability of the style of development;
2) globalization of the internal economy;
3) creation and reduction of poverty;
4) unequal social relations;
5) environmental protection;
6) human development;
7) participation in public policy;
8) institutional development;
If the market forces are not harnessed by the people through the state,
then the style of development will be characterised by all of some of
the following types of growth:
a) JOBLESS GROWTH -the overall economy grows but fails to expand
job opportunities;
b) RUTHLESS GROWTH -the rich get richer, and the poor get nothing;
c) VOICELESS GROWTH -the economy grows, but democracy/empowerment of
the majority of the population fails to keep pace;
d) ROOTLESS GROWTH -cultural identity is submerged or deliberately
outlawed by central governments;
e) FUTURELESS GROWTH -the present generation squanders resources needed
by future generations;
f) DEPENDENT GROWTH -the economy grows, but to meet the needs of
transnational capital, producing for industrialized
countries markets and not domestic markets.
In 1997, the United Nations Conference on Trade and Development argued
that there are "seven troublesome features" of the
contemporary global economy:
1.- Although there are significant exceptions at the country level,
overall the world economy is still growing too slowly -- whether
to generate sufficient employment with adequate pay or
to alleviate poverty;
2.- Gaps between developed and developing countries, as well as within
the latter, are widening steadily. In 1965, average GNP per capita
for the top 20 per cent of the world's population was 30 times that
of the poorest 20 per cent; 25 years later, in 1990, the gap had
doubled -- to 60 times;
3.- The rich have gained everywhere... and not just in comparison to
the poorest sections of society; "hollowing out" of the
middle-class has become a prominent feature of income distribution
in many developing and developed countries;
4.- Finance has been gaining an upper hand over industry, and rentiers
over investors. In some developing countries, debt interest payments
have reached 15 per cent of GDP; trading in existing assets is thus
often much more lucrative than creating wealth through new
investment;
5.-The share of income accruing to capital has gained over that
assigned to labour. Profit shares have risen in developed and
developing countries alike. In four out of five developing
countries, the share of wages in manufacturing value added
today is well below that in the early 1980s;
6.- Increased job and income insecurity is spreading. As rising
interest charges have eaten into business revenues, corporate
restructuring, labour shedding and wage repression have become
the order of the day in much of the North as well as parts of
the South;
7.- The growing wage gap between skilled and unskilled labour is
becoming a global problem. Already an established trend in many
developed countries, absolute falls in the real wages of unskilled
workers 20 to 30 per cent in some cases -- have been common in
developing countries since the early 1980s.
In September 1999, the World Development Report 1999/2000 was honest
enough to state that:
"Fifty years of development experience have yielded four critical
lessons:
Fist, macroeconomic stability is an essential prerequisite for
achieving the growth needed for development;
Second, growth does not trickle down; development must address human
needs directly;
Third, no one policy will trigger development; a comprehensive approach
is needed;
Fourth, institutions matter; sustained development should be rooted in
processes that are socially inclusive and responsive to
changing circumstances."
Of course, like UNDP was arguing in 1992 (4), to avoid the social and
environmental catastrophe gathering through globalization, there is a
need of creating a new world order, based on five concepts of a people-
centred world order:
-New concepts of human security, stressing security of people.
-New models of sustainable human development, stressing full use of
human capabilities.
-New partnerships between between state and markets, combining market
efficiency with social compassion.
-New patterns of national and global governance, to accommodate the
rise of people's aspirations and the steady decline of the nation-state.
-New forms of international cooperation, to focus directly on the needs
of the people rather than on the preferences of nation-states.
The above measures are necessary to avoid what UNDP called "obscenities"
of the market. Obscenities that make impossible creating styles of
development consistent with the idea of sustainability both material and
human. "These are obscenities of excess in a world where 160 million
children are malnourished, 840 million people live without secure sources
of food and 1.2 billion lack access to safe drinking water. These
inequalities demand action".
Surely, the problem about taking "action" is that these "obscenities"
are the "efficient" outcome of a free-market system and not the
"excesses" of some individuals. Thus, if the free-market system
is going to be accepted at face value, we will have to get used
to see millions of human being being victimized by the "obscenities"
of a barbaric system of production (see R. Rojas, "Notes on economics:
assuming scarcity"). (see Table 1)(See BOX 2)
______________________________________________________________________
TABLE 1.- INCOME PER PERSON (in 1987 US$)
DATA FOR THE WORLD POPULATION
Poorest 20% Middle 60% Richest 20%
Year 1960 236 980 7,069
Year 1993 187 731 14,629
------------------------------------------------------------
Change 1960-93 -21% -25% +107%
------------------------------------------------------------
Data processed by Dr. Róbinson Rojas, using the
Human Development Report 1997 tables as sources.
___________________________________________________________
Of course, polarization of such magnitude cannot be only caused by
poor management in less developed societies, the market effect is also
present, the following two tables describe part of the market effect in
a globalized economy:
Table 2_______________________________________________
Diverging prices for commodities and manufactured goods in the
international market during the process of globalization:
UNIT VALUE INDEX
of manufactures OIL All
exported by groups food agric. minerals,
France, Germany, raw ores,
Japan, United Kingdom, materials metals
and United States
1960 100 100 100 100 100 100
1965 108 102 98 98 78 115
1970 117 95 108 103 70 148
1975 221 251 132 164 56 91
1980 329 556 102 106 74 108
1985 275 503 81 83 64 83
1990 446 230 63 61 53 76
1996 504 184 63 62 55 69
2006 529 570 81 59 52 169
----
annual
growth
1960-80 (%) 6.1 9.0 0.1 0.3 -1.5 0.4
1980-06 (%) 1.8 0.1 -0.9 -2.2 -1.3 1.7
Source: From UNCTAD Handbook of Statistics (2007) database at:
http://stats.unctad.org/Handbook/TableViewer/
(data processed by Dr. Róbinson Rojas).
_______________________________________________________________________
The above pattern, where globalization exerts pressure on further
deterioration of terms of trade for less developed commodities, appears
also when we look at the behaviour of net factor income from abroad,
which is net from inflow and outflow of resources for a country,
including aid. Table 3 below illustrates the pressures on less developed
societies leading to further outflow of capital to industrialized
countries:
_______________________________________________________________________
Table 3
SUMMARY FOR FREE MARKET ECONOMIES WITH NEGATIVE
NET FACTOR INCOME FROM ABROAD $ MILLION -1992 PRICES)
------------------------------------------------------------------
1960-1992 1960-1975 1976-1992
TOTAL -3065221.19 -672230.50 -2392990.70
PER Day -254.48 -115.11 -385.66
PER HOUR -10.60 -4.80 -16.07
------------------------------------------------------------------
AFRICA/per hour -2.21 -2.01 -2.39
LATIN AMERICA/per hour -3.26 -1.52 -4.90
ASIA/per hour -1.79 -0.72 -2.79
INDUSTR>/per hour -3.35 -0.55 -5.98
------------------------------------------------------------------
Note: Six industrialized countries received more than 95% of the
above flow (United States, Switzerland, Japan, Germany,
Luxembourg and France)
===Source: World Bank Tables 1995===processed by Robinson Rojas===
________________________________________________________________________
Therefore, a constant deterioration of the ratio exports price/imports
price, and a constant flow of capital from poor countries to rich
countries is very much part of this globalized style of development.
How the market creates this situation of contradiction between "social
efficiency" and "economic efficiency"?
THE DYNAMICS OF A CAPITALIST MARKET
The matrix below (The Dynamics of a Capitalist Market) based on
standard teaching of economic theory, can help to solve the riddle.
The matrix assumes a society of 20 people with distribution of income
at a maximum differential of 1 to 20. From the added income of each
individual we can build the demand curve for the system, which will go
from 1 unit demanded at 20 units of money as the price, to 20 units
demanded at 1unit of money as the price. Thus, producing 1 unit at 20
unit of money as the price will be extremely inneficient from the social
point of view, while producing 20 units at 1 unit of money as the price
will supply "the whole society". It will be socially efficient.
But then, this is a capitalist market, producer will attempt to maximize
profits not output.
My model then incorporates the variables to calculate at what level of
output and what level of price suppliers will maximize profits. Standard
economics is utilized here, where "normal profits" will occur
when suppliers sell their output at cost price (this is because profits,
interest, rent and depreciation of the capital utilized is included in
"costs" as "opportunity costs").
My model also consider a perfectly competitive industry of identical
firms. Assuming that input prices are fixed (due to perfect competition),
the long-run industry supply curve will be represented by AC (average
costs). Thus, following textbook economics, long-run output adjustments
in the industry are achieved by changes in the number of firms, each
operating at the minimum point of their average cost curve (in this case
a constant 5 units of money). Therefore, in this first case, "market
equilibrium" is where the industry supply and demand curve intersect,
yielding an output of 16 and a price of 5 (average cost equals price, or
cost = price, which is the golden rule of textbook economics).
Now suppose the industry is monopolised such that each of the
previously independent firms becomes a plant under a common owner, or
common management, or agreed management, etc. Output can be varied by
altering the number of plants in operation, and so the monopolist's
marginal cost (MC) and average cost (AC) schedule is the same as before,
the AC column, that is. But now, "abnormal" profits can occur,
profits above normal profits. Now, cost price is lower than price, and
we can know where abnormal profits will maximise substracting total
costs (TC, which is 5 times output) form total revenue (TR, which is
Price times output). This yields an output of 8 at a price of 13, and
abnormal profits being 64 units of money. Monopolisation (globalisation,
transnationalization, oligopolization, real markets behaviour) has led
to a reduction in output, increase in price and dramatic growth of extra
profits for the supplier.
When the market was still not globalized, 16 people out of 20 were
able to buy one unit of output each. Only 20% of our population was
excluded from the market. Moreover, income not utilized to satisfy
demand of this particular commodity was Total Income - Total Revenue,
that is, 200 - 80 = 120. There was demand for producing 1.5 times more.
In textbook economics, this income not utilized is known as "the
consumer's surplus". If we assume 20% profits on total revenue,
suppliers will have 16 units of money as "the supplier's
surplus". Clearly, this first case will be the case of a market
working for the consumer.
After the market is globalized, only 8 people out of 20 were able to buy
one unit of output each. Consumer's surplus will be 132 - 104 = 28. There
was a demand for producing 28/104 more ( 0.26 times more). Assuming the
same rate of normal profits, suppliers will pocket 20.8 as normal profits
plus 64 as abnormal profits. Clearly, this second case will be the
case of a market working for the supplier. This case is known as a case
of "economic efficiency" in textbook economics. Now, unlike in
the first case, 60% of the people is excluded of the market and,
conversely, will yield 84.8/20 times more profits. 4.2 times.
Thus, economic efficiency makes 4.2 times more profits for suppliers,
and exclude 60% of the population from average levels of consumption.
Conversely, social efficiency satisfy 4 times more consumer's need, but
reduces suppliers' profits to a quarter.
This is a clear case of "economic efficiency" reducing welfare
in society and multiplying welfare for the capitalist class.
An important point to note is that this welfare is reduced not because
individuals are paying a higher price for the goods they consume under
monopoly/globalization, but rather because there are some people who do
not consume the good despite the fact that their income exceeds the
marginal cost of production.
In a word, they are denied welfare in order to maximise profits by the
big corporations. Like Robert Reich, former US secretary for labour,
wrote in the Financial Times: "what may be rational for each
individual corporation is irrational for society". (5)
How economic efficiency is shaping distribution of income in the
world in an "obsecene and grotesque" is dealt with in BOX 3.
Conclusion: sustainable development is not possible in a globalized
economy UNLESS the capitalist class is forced to produce at the
level of maximum social efficiency through a new international economic
and political order and a new national economic and political order.
........
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