Documentation: Globalism has slowed world economyby Patrick J. ByrneNews Weekly
, January 27, 2001
The fact that globalism has slowed economic growth over the past 20 years seriously questions the credibility of the International Monetary Fund, the World Bank, World Trade Organisation and US Treasury. Pat Byrne explains.
Globalism advocates claim that deregulated international markets and national economies will deliver higher economic growth rates than if they remained regulated, as they were in the post-war period.
From World War II to the late 1970s, the Bretton Woods Agreement regulated the international financial system in such a way that governments could set their own economic objectives to achieve economic growth and full employment.
As part of this arrangement, the International Monetary Fund (IMF) oversaw the operations of the international financial markets; the World Bank helped to rebuild the post-war economies and then directed its attention to helping to lift the Third World nations out of poverty.
This system wasn't perfect, but when it came unstuck in the late 1970s, the IMF, the World Bank and the US Treasury Department made a radical shift in policy. They called for the deregulation of the international financial markets and national economies.
The promise of this new ideology of globalism was that the deregulated markets would offer greater economic growth and a higher standard of living than regulated capitalist markets.
However, a recent report from the US-based Centre for Economic Policy Research (CEPR) shows that economic growth did not accelerate but slowed in the 20 years since the deregulation process began in earnest. The report -The Emperor Has No Growth: Declining Economic Growth Rates in the Era of Globalisation by Mark Weisbrot, Robert Naiman, and Joyce Kim - uses IMF and other data to compare real economic growth rates per person for the period 1960-1980 with growth in the globalism period, 1980-2000. (Full report at www.cepr.net)
Of about 27 developed nations examined:
* only three had significantly real higher growth rates per person in the period of globalism - Luxembourg, Ireland and the UK;
* two were about equal over both periods - the USA (which grew 55% and 56% in the successive periods) and New Zealand; while
* 22 had substantially lower economic growth rates, including Australia whose growth fell from 61% to 52% over the two periods.
While many advocates of globalism are claiming that it is unstoppable, driven by new technology, the CEPR report points out that "Globalisation is no more natural or inevitable than the construction of skyscrapers.
"[It] has been driven by a laborious process of rule making. It is the establishment and enforcement of these rules that allows Timberland shoes, for example, to make their product in China at wages of 22 cents an hour, and then sell it at the local suburban mall. Advances in transportation and communications did not determine this result.
"Our leaders have rewritten the rules of the game in a way that has driven down wages for the vast majority of American employees. One may agree or disagree with this policy, but it should be understood as a conscious political choice.
"The same thing could have been done to the salaries of doctors, for example. With much less effort and expense than it has taken to negotiate investment and trade agreements like NAFTA [North America Free Trade Agreement] and the WTO [World Trade Organisation], we could license and regulate the training of doctors in foreign medical schools ...
"Interestingly, the savings to consumers from reducing American doctors' salaries to even those of Europe would be enormous: about $US70 billion a year. This is about a hundred times more than the gains from tariff reduction in our most comprehensive trade liberalisation agreements, such as the one that established the WTO five years ago. (emphasis added)
"Huge savings could also be achieved by introducing international competition to the practice of accountants, lawyers, economists, and other professionals. But it is unlikely to happen, because these professionals - unlike the majority of the US labor force - have enough political clout to protect themselves from international competition."
American politicians claim that globalism has produced more new jobs than have been lost offshore.
But as the CEPR report points out, "This claim is simply false, since the United States has been running a trade deficit for 25 of the last 27 years, during which [the nation's] trade as a percentage of the economy has doubled. A trade deficit means that the nation is importing more than it is exporting. Under such circumstances trade can only have a negative effect on employment."
So, has globalism helped or hindered the developing nations?
The CERP report shows that in all the developing regions of the world, economic growth has slowed substantially over the 20 years of globalism, except in East Asia. However, East Asia's higher growth rate in this period is entirely due to the 400 percent growth in the Chinese economy.
But China, with 83% of the region's population, is an embarrassment to the IMF's globalism policies. China began to cast off Communism in 1979. It concentrated on developing its domestic industries, dismantling steadily the cumbersome state run enterprises and encouraging private enterprise.
However, China's resolutely maintained tight control over foreign investment and will not deregulate the financial sector until domestic industries have been strengthened.
In other words, China has succeeded in quadrupling its economy without the IMF's financial deregulation prescriptions. China maintains state control over the banking sector, foreign investment and its currency, which is not convertible.
In stark contrast is the dramatic shrinkage of the economies of the old Soviet Union after Communism collapsed in 1989. Rather than pursuing a slow transition like China, Russia deregulated its financial system, on the recommendation of US advisers.
The result is that the economy of the Russian Federation has almost halved and the number of people in poverty (those living on less than $US4 a day) soared from two million to 60 million by the mid-1990s. Poland is the only country from the old Soviet Empire to have caught up with its pre-transition level of Gross Domestic Product.
The CERP report shows that in the developing nations for which comparative data is available over the 1960-1980 to 1980-2000 period:
* 89 countries (77%) saw their the average rate of growth per person fall significantly from the period;
* 14 countries (13%) saw their per capita rate of growth rise significantly;
* 18 countries - including several in Africa - would have more than twice as much income per person today. The average Mexican would have nearly twice as much income today, and the average Brazilian much more than twice as much.
If they had maintained their previous 1960-1980 rate of growth per person, then on average people in:
* Brazil would be richer than those in Saudi Arabia;
* Greece would be richer than in Belgium;
* Uruguay would be richer than in Mexico;
* Gabon and Trinidad would be richer than in South Korea;
* Ecuador would be richer than in Costa Rica;
* Ivory Coast, Cameroon, Haiti, Lesotho, Togo, and Nigeria would be richer than in China.
Of course, it is difficult to separate out the causal relationships between various economic policies of globalism and the dramatically reduced economic growth of the last two decades. But they can be seen in any number of case and country studies, and although the results vary, the errors are often the same.
For example, cumulative policy errors are now seen to have to been a factor behind the international financial crisis of 1997-98, and the IMF recovery program for East Asia, Russia and Brazil worsened the crisis.
Part of the process of globalism is a deliberate attempt by policy makers to reverse the balance that had been achieved between the once regulated markets and non-market institutions of modern capitalism.
Two decades of globalism's deregulation policies has failed to raise living standards worldwide, and growth has declined sharply, especially in underdeveloped countries.
----------------------------------------------Developing nations lost $US15 trillion in 20 years
Many people have difficulty grasping the enormity of what people in developing countries have lost due to reduced economic growth during 20 years of globalism.
To illustrate the impact, the Centre for Economic Policy and Research looked at 61 such countries that had lost economic growth.
These countries collectively lost almost $US15 trillion dollars in economic output over the period 1980-1999, compared to what they would have had if they maintained their previous rates of growth in the period 1960-80.
Brazil lost 11 times its 1980 output. It's as if everyone in Brazil stopped working for 11 years. Collectively, these countries lost 353 years of economic activity in terms of their 1980 output.
By comparison, the total international debt of the 52 poor countries identified by Jubilee 2000 as urgently needing debt cancellation is $US376 billion - a mere 3% of the value of their lost output over the last two decades.