Globalization editorial

[Michael Perelman <michael@xxxxxxxxxxxxxxxxx>]

A lurker sent me this:


This was an editrial for a paper in Swaziland you may
want to post to the list.

At no time in recent history did a recession in the
developed world not seep through to the developing
world. And, as globalization brings the world closer
together with financial and trade ties, the current
recession in the developed world is likely to have
more of a harmful effect on the developing world than
ever before. The developing world, relegated to a
position of dependency on trade and financial flows
from the developed world, will see its income
resources in both areas dwindle. On the one hand,
demand for incoming products from the developing world
will drop because of reduced in income in the OECD
and, on the other, flows of capital to the developing
world will recede because the developed world in a
recession experiences a shortage of capital itself.

In recessionary times, the role of state funding
reaches paramount urgency. Governments intervene with
fiscal measures such as tax reduction and increased
spending, and monetary measures, such as a reduction
in the interest rates making more money available for
spending by individuals and corporate business. In the
more developed world, a recession is also fought-off
with automatic stabilizers. This stands for a generic
code that means that as more people are forced to
leave their jobs, welfare and unemployment insurance
payments to the poor and dislocated help keep the
purchasing power of the individual at subsistence
level. In other words, the buying power of consumers
does not get too eroded, and/or, the demand for local
goods is not allowed to hit rock bottom. Given the
fiscal constraints on developing economies, these
automatic stabilizers are not significant in the
developing world. Adding insult to injury, when a
recession hits a developing country, the IMF usually
proposes the opposite of fiscal and monetary stimulus.
It demand that countries increase the interest rates
and reduce government spending, hence reducing the
state in the developing world to a debt collection
agency that works for Wall Street and the interests of
big Western financial conglomerates.

Economic growth depends largely on investments,
private or public. When economic growth slows down,
private investments also slow down. The developing
world, and especially Sub Saharan Africa, depend on
steady flows of private foreign investment and
Official development assistance (aid and loans) from
the developed world. Private investment flows have
generally been very small to make a difference, and
growth in Africa depended, in part, on aid and loans.
Over the past decade in SS Africa, official
development assistance has fallen steadily. It now
stands at about a third of what it used to be in the
late eighties. Accordingly, economic growth in this
region suffered. As a point in fact, the average per
capita growth rate in SS Africa, excluding South
Africa, was negative in the past decade.

There is an urgent need to reverse the trend. Equally,
there is an urgent need to increase the flows of
private capital and donor or state sponsored
investments to Africa. However, the current recession
in the developed countries makes capital scarce and
less official development assistance to Africa
represents the likely outcome.

Yet, upon closer examination, this need not be the
case. Long before the much talked about Marshall plan
for Africa that one hears about now,  in mid 2000,
UNCTAD recommended a Big-Push approach to Africa.
Addressing the Trade and Development Board of the
United Nations, UNCTAD asked the donor states to
commit themselves to increasing their levels official
Development assistance and aid to Africa. It asked
them to live up to their commitments under the signed
UN conventions on aid. The majority of the donor
states did not meet these targets yet, and in general,
they avoided making payments using hollow excuses for
their behaviour. UNCTAD asked for a mere 10 $billion,
an amount that will have the effect of increasing the
economic capacity of African countries while creating
simultaneously enough jobs for people to buy back what
they produced. The logic of this was very solid. To
brake from the vicious circle of poor growth, local
people must be able to buy part of they produced
locally. What was strikingly dubious in all of this is
that the donor countries dodged the proposal with the
routine excuse of corruption. Corruption is of course
an ethical issue that has an indirect relationship
with neoclassical economics. It may well be remembered
that the open capital account regime imposed on
African states by the IMF was certainly going to lead
to capital outflows and the ensuing notion of
corruption, yet the IMF went ahead with it anyway. The
IMF knew too well that free capital flows equals
corruption. In any case the amount of requested aid is
too small. What is 10 $billion out of about 30
$trillion, which is the income of the rich countries
in one year. But simple economic accounting can tell
that even this small amount can make a world of
difference if invested in Africa.

At the time these UN proposals were introduced, these
ideas were swept under the rug only to resurface later
in the most recent G8 summit in the guise of the
Marshall plan. Why now?

Globalization is not only about prosperity for the
developed world, it is also about importing the
problems of the developing world. Closer economic
integration means that, in part, the developing world
problems become the problems of the developed world.
Something has to be done about Africa and since
African states are debt ridden or strapped for cash
and cannot stimulate their own economies with
investments, the developed world must provide the
cash. but, even in the best of times when the donors
provided aid they pinned so many conditionalties on it
that in the end they took out much more then they put
in. Imagine what would it be like to intervene in
times of crisis and what conditionalities lie ahead.
No one should be fooled with the Marshall plan, it
will be a plan to marshal the resources of Africa.

But, if initially Africa is afforded with a sizeable
capital injection from official sources then growth
should pick up, and when that happens, private
investments will certainly follow. This is indeed the
desired virtuous circle. Africa will become less
dependent on aid and loans and more dependent on
private investment.

Sadly enough, it is possible to make an immediate turn
around with very little investment, but this will not
be probable. The global mind set is centered on
short-term profit making. What it really wants is to
take much more out of Africa than it will put in it.
Freeing African states from dependency is the last
thing the developed world wants to happen.

--

Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail michael@xxxxxxxxxxxxxxxxx