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June
7, 2003
Pauperizing the Periphery
Two Decades
of Neoliberal Policies
By M. SHAHID ALAM
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.alam@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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The Big Lie
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Baroud
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Sharansky: "Crucifixion is a Privilege"
Sam
Hamod
His Own Little Country
Sean Carter
Why Indict Martha Stewart and Not Ken Lay?
David
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Cracks in the Consensus
Stew Albert
Ari's Great Set
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