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Global Capitalism --> Global Poverty?

Hugh Jones | 13.02.2002 19:07 | Cambridge

I'm a student at Cambridge University. We've got a building that houses a big debating society thing. It's kind of posh but it's got some interesting debates.
We had this debate entitled "This House Believes that Free Market Capitalism is Responsible for Continuing Global Poverty". The motion won by 91 votes to 61 ( + abstentions).

Last Thursday saw this term's debating highlight at the Union Society, namely on whether or not "Free Market Capitalism is Responsible for Continuing Global Poverty". The outcome of the debate was quite interesting given the membership's (and this is a sweeping generalisation) predisposition towards conservative views. The trendy left in our university tend to stay away from the Union because it's supposedly elitist. People insist, quite righteously, that only tories can afford the £75 three year membership. I would beg to differ on this because there are plenty of not very rich students at universities far less elitist than our own who regularly spend in excess of £75 on one weekend's clubbing. The atmosphere is indeed a little stuffy and pompous and the main hall does at least vaguely remind me of the house of Lords, as do the accents of at least some of the regulars (jokes about Genuine Interior Mahogany Panels could be made) but interestingly the Union is undergoing a degree of modernisation at the moment and in particular, the black tie requirement for speakers has been abolished. They do on the other hand still all march in, in a cute little ceremonial procession - the committee followed by the speakers, with the person at the front ringing a bell. And the president does still sit on a throne.
I was disappointed to hear that George Galloway MP would not, after all be speaking as he had urgent business to attend to. The Society puts on some interesting events but it does always seem a bit of a con that the 'headlining' speaker, as it were, invariably fails to materialise. George didn't come last year either as he was (and this in my opinion is a far funkier excuse) in police custody (along with other politicians and various members of the clergy) for his activities in the anti- nuclear-weapon protests at the Faslane naval base.
ANYWAY, David Penny of Pembroke College kicked of the proceedings. The free-traders, he asserts, have two claims: first that free market capitalism generates wealth, which trickles down to the masses; and secondly that through this new-found wealth people obtain something called 'freedom'. David argues that both of these claims are false.
He says that there are two possible definitions of wealth and that free market capitalism fails to provide either type to the majority of the world's people.
First, one can measure wealth in purely financial terms. And yet the standard measurement of such wealth - economic growth - is lower in most developing countries since they adopted free market policies. Moreover, what wealth is produced does not 'trickle down' to the majority of the population. The World Bank, that bastion of neo-liberal economics admits that intra-country poverty has increased since the imposition of such economic policies throughout most of the world. Alan Greenspan himself says that unfortunately there is no convincing evidence that deregulation of markets actually creates jobs. David was particularly emphatic that these are not raving communists who are saying these things, but prominent figures within the 'Washington Concensus' - i.e. the free-traders themselves admit that free market capitalism does not help the majority of the people of the world to become less poor. As Greenspan et al have an interest in portraying free market ideology in a favourable light, this admission seems particularly significant.
According to neoliberal theory, "labour market flexibility" is supposed to improve efficiency and is hence desirable. What this flexibility often means in practice is that companies have the right to pay people very low wages and to expect their employees to work in unpleasant working conditions, with little or no health and safety protection.
The World Health Organisation says that removing health and safety regulations leads to more work-related accidents and illnesses and indeed more work-related deaths.
It's all very well, says David to talk about increasing GDP (which actually isn't increasing!) but is it worth it when it's coming at the expense of workers' health and indeed lives.
The other definition of wealth that he proposed was a broader one which included emotional well-being and sense of community. If one's wealth is the sum total of everything one has that one values then surely that should include non-material things as well as just money and cars etc.
He argued that free market capitalism did help people to obtain more of this kind of wealth either.
He also claimed that it did not help make people more free, partly because they are not becoming richer, as they are supposed to, and partly because the effects of unfettered free trade can impinge upon their lives in ways over which they have no control.
He gave the example of the IMF backing a repressive military government's facilitating of a Chevron oil pipeline from Chad to Cameroon, through virgin rain forest. If the locals don't want this environmental destruction in their backyard then there's very little they can do about it. What kind of freedom does that constitute?
Jacqueline Rose on the opposition argued that free market capitalism was actually good for the poor and she discussed what she thinks are the real reasons for continuing global poverty.
She argued that deregulation encourages investment which drives up local wages and demand for local products. She claimed that as GDP rises so does the quality of life of ordinary people.
She said that companies investing can bring direct benefits to the workers, such as certain textile companies providing free education and health care to their factory workers.
She was interrupted from the floor with a comment about how, while this may be the case with some companies, there are other companies who "inject their workers with speed in order to keep them going faster and for longer!".
She addressed the example of the Chad-Cameroon pipeline and said that these problems are the fault of the oppressive military dictatorship of Chad and not of Chevron and the other companies involved. And yet I rather suspect that such companies do have a hand in the evil purportrated by such governments - we all know, for example, about Shell's complicity in the Nigerian government's execution of Ken Sarowiwa.
Jacqueline discussed what she thought was the real cause of continuing global poverty: bad government. She claimed that it is endemic corruption and incompetence that leads to the hyperinflation to which developing countries are prone.
She also blamed "over-regulation" the very opposite of what the proposition were blaming, and also the vast subsidies that are given by western governments to sectors such as agriculture, which mean that 3rd world producers can't compete with the cheap western imports which are 'dumped' at prices below the cost of production. This is indeed a good point and one with which most anticapitalists probably agree. But surely the fact that this particular distortion of the world market by rich western governments is so harmful to the economies of poorer countries does not logically entail that neo-liberalism - the stripping away of all regulations, the privatisation of everything and the slashing of taxes is any more desirable.
There was a comment from the floor about how what's really going on is a 'race to the bottom', whereby wages, employment rights, health and safety standards and environmental standards are plummeting the world over, as countries compete against each other to offer the most favourable terms to business. He said that companies always look for the 'cheapest capital with the least regulation' and that it is this that is driving down standards.
Next up was Ha Joon Chang, a development economist.
He said that he was 'a fan of capitalism but not free market capitalism'. There are many kinds of capitalism, he suggested, including US style, German style, Scandinavian style, Japanese style.. and so on.
He said that he knows what good economic growth can do and he is not against it, but he urged that free market style capitalism has failed to deliver that growth.
Where there had been growth it had in practice only benefited the rich, failing to 'trickle down', as promised, to ordinary people. For this reason, he claimed that GDP is not a particularly useful measurement to take. There was a comment from the floor which pointed out that indeed any measurement based on taking an average is not necessarily very representative because 'you could have one bloke earning a trillion dollars and everyone else earning nothing and yet you'd still have a high average'. Everyone ignored him because he didn't articulate his point in a very eloquent way. It was still a very good point though. And at the same time, Chang said, levels of growth even when measured in the free-marketeers' own terms - GDP, have actually been substantially lower than before the free market craze took off.
He identified two main eras in recent economic history: 1960 to 1980 and 1980 to the present day.
In his native South Korea, growth had been a solid 3% per year between 1960 and 1980 but after 1980 it has been around 2%. Similarly, Latin America enjoyed 2.6% before 1980 but now it's stuck at almost 0%. Africa was at 1.5% but is now shrinking at -0.8% and has been since about 1980. Russia, he claims, has suffered a complete collapse of living standards since it's conversion to free market ideology.
He concluded that free market capitalism fails to deliver benefits even when measured in its own (arguably not very useful) terms of GDP.
Now at this point I would like to point out one of the most common tactics employed by those who lie with statistics - the use of the correlation.
Say you have two trends A and B and that there's a correlation between A and B. Then there are four possibilities: 1) A causes B. 2) B causes A. 3) A and B are both caused by some other factor but apart from that are independent of each other. 4) It's just a coincidence.
People often like to point out that there's a correlation between two things and then go on to claim that therefore the one causes the other. But clearly this is not always a valid argument.
While I'm inclined to believe that the downward turn in the developing world's economy and the continual widening of the gap between the rich and the poor (and it's not just the rich getting richer - the World Bank itself admits that the poor are actually getting poorer) since the move towards continual liberalisation of the economy... While I'm inclined to believe that all this is because of free market capitalism, Chang's argument on its own is not conclusive proof of this.
Yet, while his figures don't conclusively prove that the free market has made things worse (which I believe it has) it's more clear to see that they haven't made things better like they were apparently supposed to. Extra wealth has not been generated and wealth has 'trickled down' less and not more.
Chang finished by saying that there was no substance to the argument that only free market capitalism can reduce global poverty and that there is nothing inevitable about the world's conversion to this ideology and practice - 'it's not some law of nature'.
Next up was an American (if that's relevant) called Amy Lewis. Amy is man (if t hat's relevant).
He made two main points: first that regulation hurts people because goods become more expensive and secondly that goods are also more expensive when certain countries get together in trading blocks rather than competing openly on the world market.
A member of the audience pointed out that a lot of these regulations that are being removed are things like having a minimum wage and a maximum number of working hours and basic social provisions.
Lewis suggested that on the free market, companies compete to see who can offer the best wages and living conditions. This clearly not true. In many situations, people are forced to take any work they can find because there is a shortage of jobs. Therefore, the exact opposite (of what the Lewis said) is the case - workers are competing against each other to see who can work for the lowest wages in the worst conditions, as companies are in a position to say no to anyone who demands better conditions in return for their labour. In particular trade unions are often not allowed and thus workers have less bargaining power.
The next speaker for the proposition was economist Gabriel Palman, a Chilean and currently a fellow of the University of Cambridge. Palman came to this country as a political exile during the reign of General Pinochet - a man who believed so fervently in economic freedom that he felt it necessary to crack down on social freedom in order to achieve his aims. Large numbers of dissenters were murdered or tortured during the Pinochet era.
Palman repeated the assertion that an increase in deregulation has coincided with a decrease in growth even though it was (apparently) supposed to have the opposite effect.
He said that the gap between the rich and the poor had grown and that in particular the richest 10% of Latin Americans are 60 times richer than the poorest 10%, as opposed to in 1960s when the ratio was about 20.
He said that malnutrition in the 3rd world has been sharply increasing, even though the world produces enough food to feed the whole world many times over. (The USA in particular produces enough food to feed the entire world four times over).
There was an interruption from the floor about how China and India have seen impressive growth since they converted to an outward looking capitalist economy. But Palman pointed out that these countries actually have quite a considerable degree of regulation and had so at the time of their rapid industrialisation.
He condemned the free market attitude that 'all problems should be able to be solved by the market and if they are not then tough'.
One example he gave of the failure of the free market to solve the world's problems was that of the AIDS crisis in Africa. US multinationals want to charge $10,000 per person per year for their medicines and this is totally unaffordable.
The irony here is that this is in some ways not actually free market capitalism. While the refusal of the state to interfere with the rights of companies to choose their prices is a free market policy, the excessive use of patents by e.g. pharmaceutical companies is surely, when one thinks about it, a protectionist policy. In a true free market economy anyone would be allowed to make generic medicines without being taken to court by the owners of patents. In his speech, Ha Joon Chang had pointed out that in the 19th Century, the free-marketeers had at least been more logically consistent than they are today, for they had strongly opposed the idea of patents.

Dr Madsen Pirie is the chair of the Adam Smith Institute. He "actually like[s] wealth, even the financial stuff. I want the whole world to be really stinking rich". He says he only knows of one way to do this and that is through opening up the whole world to the free market. He says that, like Adam Smith, he doesn't know or even care what the causes of poverty are but he does know how to go about creating wealth and that's through "spending, saving, specialisation of labour, trade and capitalism".
Before launching into his speech Dr Pirie asked all the "anti-capitalists" in the room to raise their hands. About 20 people put their hands up. "Good", he exclaimed, "25 years ago there would have been a lot more hands up... That's progress!".
He claimed that the motion "This house believes that free market capitalism is responsible for continuing global poverty" was a brilliant one because it is, he asserts, precisely the exact opposite of the truth, which is that "Free market capitalism is the only thing that can end poverty!".
He pointed to Japan, Hong Kong, Thailand and Malaysia as examples of countries which opened up to the free market and have become very rich as a result. At the beginning of this liberalisation, each of these countries focussed on cheap manual labour but now most of their work force is quite skilled and specialised and earns a relatively high income.
Dr Pirie claims that all a country needs to prosper is peace, a tolerable administration of justice and easy taxes.
He says that India and China currently have spectacular growth rates and that in 50 years time they'll be rich - "richer than we are now".
Well Dr Pirie, we'll wait and see. Perhaps in 50 years time, the growing movement in India against the neo-liberal policies imposed by the IMF and the World Bank will have grown strong enough to "overthrow [freemarket] capitalism and replace it with something nicer" (to coin a phrase!). As for China, I rather suspect that protests against the IMF and World Bank are illegal.
There is a question from the floor - does the wealth generated by factories in the developing world belong to the people who work in those factories or does it belong to the people owning the factories?
Pirie admits that people in developing countries are taking low wages for menial work but he says that this is a step up from abject poverty and that soon they'll go the way the other recently industrialised countries (Japan etc) have gone. It will be interesting to see if things will indeed go this way. They certainly did in places like Hong Kong and Thailand (although that region still suffering from the after effects of the late 1990s crash), but those economies were and still are reasonably well regulated. In the meanwhile, it would be nice if sweatshop labour was at least paid a decent living wage and if workers weren't injected with amphetamines and if they were protected with reasonable health and safety standards. Surely this near slave-labouring is not the only way poor countries can drag themselves out of abject poverty. Pirie clearly agrees with Margaret Thatcher's famous assertion that "There Is No Alternative". The anti-corporate-globalisation movement's response to this is "Another World Is Possible". The impression I get is that those who would have us believe that no other world is possible usually tend to be those who make so much money out of the current unequal free market system.
Interestingly Pirie and the Adam Smith Institute believe that we should write off third world debts. He also says that we should open our markets to their exports and lift our distorting subsidies.
Concluding his speech, Dr Pirie puts it to us that "Capitalism has helped our countries to become richer. It could do the same for the developing countries". My reaction to this is the free market system has had 20 years to do this and so far it seems only to have made things worse.

Next the debate was opened up to the floor - but not to the free market (but beware, under the WTO's new GATS agreement which will be signed soon, the day that the Union Society gets privatised may be closer than we think!)
There were various speeches.
Someone wanted to know what kind of a success the US economy is supposed to be when 25% of the population are living below the poverty line.
Someone thought that technology is responsible for inequality, rather than capitalism and that "computers destroy low skilled manual jobs" thereby creating unemployment amongst what used to be called the working class, whilst at the same time, "they create high skilled high paid jobs". And so the poor get poorer and the rich get richer because of computers.
Someone pointed out that ICI pay for schooling and health care in many countries, and that they pay "25% higher than the local avereage".
Somebody else suggested that multinationals like Nike go to the third world to make a product and they can only successfully make that product if their workers are content and paid a decent living wage. "Nike" was an unfortunate choice because human rights abuses in Nike factories (or more accurately factories owned by sub-subcontractors of Nike) are very well documented, so unfortunately this person didn't know what he was talking about.
There was a speech from someone who found it "funny" that Amy Lewis thinks that free market capitalism reduces corruption, given that George W Bush is now president of his country.

The final speech from the proposition was from Caleb Ward of Corpus Christi College, who repeated that growth had declined all over the world since the move circa 1980 towards a free market model. Ward also asked that if a truly free market could deliver the goods then why do the rich western nations maintain such a strangle hold on the World Trade Organisation? Officially the WTO operates on a 'one country one vote' system, but in practice decisions are reached by consensus and that consensus is largely dictated by the influential rich western nations. If developing countries don't like the consensus that is offered to them as a fait accompli then they are often threatened - for example that they will have their aid removed if they don't comply. Also, the rich nations have dozens of negotiators (the USA was going to deploy 200 in Qatar but reduced it to 50 for security reasons) while the poorer nations have very few and many can't even afford an office in Geneva, so it's pretty clear who has the most bargaining power. Ward told us that Mike Moore, the top man at the WTO, only got the job because of American pressure not to allow the appointment to go to a vote - because the US could not allow a Thai to head the WTO for then Thai interests might be represented, to the cost of American corporations and so the US would "lose its grip on the so called free market".
The debate was concluded by Peter Bottomley. But he really did just talk bollox - in fact he barely addressed the motion at all. And that's not just being flippant either. Traditionally one of the main let downs of the Union Society (apart from the fact that the big name speakers never turn up) is the abundance of speakers who prefer rhetoric to substance. Mr Bottomley was a prime example of this phenomenon.
It was an interesting debate. Perhaps surprisingly, the proposition won the day, by a margin of 91 Ayes to 61 Noes. Maybe this goes to show that when the movement against neoliberalism has the opportunity to put its case to the public, people get to see that the arguments are quite convincing, and that this movement is not merely just a - in the dismissive words of our Prime Minister - "a travelling anarchist circus".

Hugh Jones

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