Global poverty and global wealth

(Source: http://www.geezmagazine.org/affluence/think/9/global-poverty-and-global-wealth)

Global poverty and global wealth

by Pablo Leal

On September 19, 2006, the global civil society coalition, Social Watch, launched its annual Report “Impossible Architecture” in the city-state of Singapore . This report was launched in the same location and at the same time that the World Bank-IMF held their Board of Governors annual meeting. However, the conclusions of the Social Watch report were dramatically different from those being reached within the WB-IMF conference halls.

As was to be expected, the WB-IMF insisted that important headway was being made in the fight against poverty to such an extent that Paul Wolfowitz in his opening speech, entitled “The Path to Prosperity” declared that “history was being made in the fight against poverty”. In that very speech, and in reference to the wealth that was so evident in Singapore , and, in particular in the “splendid convention centre”, Wolfowitz commented the following:

“But the wealth we see around us today is an inspiring reminder that there is a road out of grinding poverty to prosperity.”
(The complete speech can be found at: http://web.worldbank.org)

The new WB anti-poverty rhetoric, speaks of “path to prosperity”, “the path out of poverty”, with repeated references to the global poor’s “road to opportunity”, all illustrating the “landmark commitments” being made towards reaching the Millennium Development Goals.

The path from poverty to prosperity, exemplified in Wolfowitz’s speech by Singapore ’s successful entry into capitalist modernity, is no more than a refried version of the modernization proposal made popular during the 1950s and 1960s. Progress is, specifically, the Western capitalist road to progress as it has been for centuries, only now with the indispensable neoliberal ingredients: private sector growth, access to commercial credit, good governance, and all the structural reforms which make possible the above.

These WB-IMF conclusions were openly defied by the Social Watch report, which explicitly and empirically demonstrates how wealth has systematically flowed from poor nations to rich since nations since 1991; and how the World Bank itself has been instrumental to this modern day sacking.

What this report unmasks is the internal machinery of what can be called an international tributary system, whereby the high living standards (read: mass consumption) of industrialized nations is subsidized by the very low (and lowering) living standards of underdeveloped nations.

Social Watch’s conclusions are by no means new. In fact, the 2004 UNCTAD Annual Report showed how a net transfer of financial capital takes place to the tune of f $200 billion USD a year from poor to rich nations.

All of this places the reaching of the Millennium Development Goals (MDG) – the much touted acronym of development pundits everywhere – into perspective. Especially now that every nation, institution and NGO seems to be into the “poverty reduction” business.

Curiously, the reflections on poverty are rarely, if ever, related to the reflections on wealth. Yet wealth and poverty are intrinsically linked, as if they were two sides of the same coin. As Adam Smith, the father of capitalist economics himself stated Book V of his famous Wealth of Nations:

“Wherever there is great property, there is great inequality. For one very rich man, there must be at least five hundred of the poor, and the affluence of the few supposes the indigence of the many. [. . .] It is only under the shelter of the civil magistrate [read, the police] that the owner of that valuable property, which is acquired by the labor of many years, or perhaps of many successive generations, can sleep a single night in security.”

This, according to Smith himself, is an inherent trait of capitalism. As the capitalist mode of production globalized so to did the tendency to globalize the “rich-poor” dichotomy, only at the level of nation states and entire regions, creating what we have come to know as the underdeveloped or “Third” world.

Thus, we come to understand how proposing to reduce global poverty without touching the structures of global wealth is quickly becomes a meaningless task. To pose one simple example, the United States of America , with approximately 5% of the world’s population consumes over 24% of its petroleum and coal based energy, energy which fuels their levels of production and consumption. How could the remaining 95% of the world aspire to imitating living standards of the “American Dream” under such conditions?

What also becomes readily evident from studies such as Social Watch’s is how there are global political, economic and cultural structures in place that insure that the global tributary system keeps on transferring wealth from the poor to the rich.

What the Social Watch report does not mention is how there are also military structures in place to safeguard the system from acts of defiance or resistance to this modern-day, post-colonial pillage. The bombing of Afghanistan , the invasion of Iraq , the assault on Lebanon , the militarization of the Andean region of South America through Plan Colombia , the militarization of the Triple frontier between Paraguay , Brazil and Argentina are all examples of this.

Global military spending in 2005 surpassed the highest point of military spending during all the years of the Cold War, reaching 1.2 trillion dollars.

The question that nags at the back of humanity’s consciousness is: Can we develop our way out of poverty? Personally, I believe that the answer is a resounding “no”. Poverty can only be abolished by way of transforming the very political, economic, cultural and military structures in place to perpetuate it.

The abolition of human misery will not result from acts of benevolence from wealthy, industrialized nations, but from organized social and popular struggle aimed at social transformation; it will result from human emancipation and not the reproduction of the Western model of “the good life”. The Millennium Development Goals will not reduce poverty in any foreseeable future, but perhaps the Millennium Liberation Goals might.

What follows are some pearls from the Social Watch Report 2006.

World Bank: Taking from the poor…
In every year since 1991, net transfers (disbursements minus repayments minus interest payments) to developing countries from the International Bank for Reconstruction and Development (IBRD, the loan-making branch of the World Bank) have been negative. Since 2002 net disbursements have also become negative. In effect, taken as a whole, the IBRD is not making any contribution to development finance other than providing finance to service its outstanding claims. The situation is much the same for regional development banks. The problem here is that, for reasons related to conditionality and bureaucracy, countries which are eligible for IBRD loans are generally unwilling to borrow as long as they have access to private markets, even when this means paying higher rates. On the other hand, many poorer countries which need external financing are not eligible for IBRD loans.

Short of money… but keeping tanks filled of it
Due to the instability of world finances, developing countries have to keep huge reserves of unused money just to defend their currencies from speculation. To build up those reserves, poor countries are borrowing hard currency from the US at interest rates as high as 18%, and lending this back to the US (in the form of interest on US Treasury bonds) at 3%. Most countries invest their foreign-exchange reserves in relatively safe, short-term assets, such as US Treasury bills. The yields on such instruments are currently very low – well below the interest rates that developing countries pay on their debt.

Debt slavery
Low-income countries received grants of about USD 27 billion in 2003 and paid almost USD 35 billion as debt service. Sub-Saharan Africa has seen its debt stock rise by USD 220 billion despite having paid off USD 296 billion of the USD 320 billion it has borrowed since 1970.

In fact, since 1984, net transfers to developing countries through the debt channel (the net result of inflows as new borrowing and outflows in the form of debt service) have been negative in all but three years. So debt, instead of providing a source of funding for development, has become a major source of leakage of scarce resources from developing countries.

The hidden cost of unfair trade
Trade restrictions in rich countries cost developing countries around USD 100 billion a year. Sub-Saharan Africa, the world’s poorest region, loses some USD 2 billion a year, India and China in excess of USD 3 billion. These are only the immediate costs. The longer-term costs associated with lost opportunities for investment and the loss of economic dynamism are much greater.

Investment flows the other way around
Foreign direct investment (FDI) can contribute significantly to development and it is increasingly seen as the most important link in the development process by many policy makers. Since 1992 FDI has been the largest source of inflows into developing countries, but it has been highly concentrated within a small group of countries such as China , India , Brazil and Mexico . Countries in sub-Saharan Africa , the most in need of capital, get very little FDI. Moreover, increasing amounts of FDI are used for mergers and acquisitions where a foreign firm acquires an ongoing domestic operation, therefore not adding to productive capacity or bringing about technology transfer.

FDI inflows are accompanied by large outflows in the form of profit repatriation. In sub-Saharan Africa , for example, the average rate of return on FDI is between 24% and 30% and the inflow of funds through new FDI is currently exceeded or matched by an outflow of funds as profit remittances on existing FDI.