[A-List] Pauperizing the Periphery

["bon moun" <sherrynstan@xxxxxxx>]

[Good analysis, even though it continues to take for granted the
positive value of "growth."  -SG]

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
compare 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 principle.
At the end of the Cold War, he prophesied, the world is entering 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@xxxxxxxx
C 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)