Michel Chossudovsky on Thu, 29 Oct 1998 12:05:57 +0100 (CET)

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<nettime> global poverty (part 2)

In the South, the East and the North, a privileged social minority has
accumulated vast amounts of wealth at the expense of the large majority of
the population. The number of billionaires in the US alone increased from
13 in 1982 to 149 in 1996. The "Global Billionaires Club" (with some 450
members) has a total Worldwide wealth well in excess of the combined GDP
of the group of low income countries with 56 percent of the world's

Moreover, the process of wealth accumulation is increasingly taking place
outside the real economy divorced from bona fide productive and commercial
activities. According to Forbes: "Successes on the Wall Street stock
market [meaning speculative trade] produced most of last year's [1996]
surge in billionaires." In turn, billions of dollars accumulated from
speculative transactions are funnelled towards confidential numbered
accounts in the more than 50 offshore banking havens around the World. The
US investment bank, Merrill Lynch, conservatively estimates the wealth of
private individuals managed through private banking accounts in offshore
tax havens at $3.3 trillion. The IMF puts the offshore assets of
corporations and individuals at $5.5 trillion, a sum equivalent to 25
percent of total world income. The largely ill-gotten loot of Third World
elites in numbered accounts is placed at $600 billion, with one third of
that held in Switzerland. 

Increased Supply, Reduced Demand

The expansion of output in this system takes place by "minimising
employment" and compressing workers' wages. This process in turn
backlashes on the levels of consumer demand for necessary goods and
services: unlimited capacity to produce, limited capacity to consume. In a
global cheap labor economy, the very process of expanding output (through
downsizing, lay-offs and low wages) contributes to compressing society's
capacity to consume. 

The tendency is therefore towards overproduction on an unprecedented
scale. In other words, expansion in this system can only take place
through the concurrent disengagement of idle productive capacity, namely
through the bankruptcy and liquidation of "surplus enterprises". The
latter are closed down in favour of the most advanced mechanised
production: entire areas branches of industry stand idle, the economy of
entire regions is affected, and only a part of the World's agricultural
potential is utilised. 

This global oversupply of commodities is a direct consequence of the
decline in purchasing power and rising levels of poverty. Oversupply
contributes in turn to further depressing the earnings of the direct
producers through the closure of excess productive capacity. Contrary to
Say's law of markets, heralded by mainstream economics, supply doesn't
create its own demand.  Since the early 1980s, overproduction of
commodities leading to plummeting (real) commodity prices has wreaked
havoc particularly among Third World primary producers, but also (more
recently) in the area of manufacturing. 

Global Integration, Local Disintegration

In developing countries, entire branches of industry producing for the
internal market are eliminated, the informal urban sector - which
historically has played an important role as a source of employment
creation - has been undermined as a result of currency devaluations and
the liberalization of imports, including primary commodities.  In
Sub-Saharan Africa, the informal sector garment industry has been wiped
out and replaced by the market for used garments (imported from the West
at 80 dollars a ton). 

Against a background of economic stagnation (including negative growth
rates recorded in Eastern Europe, the former Soviet Union and Sub-Saharan
Africa), the World's largest corporations have experienced unprecedented
growth and expansion of their share of the global market. This process,
however, has largely taken place through the displacement of pre-existing
productive systems, i.e.  at the expense of local-level, regional and
national producers. Expansion and "profitability" for the World's largest
corporations is predicated on a global contraction of purchasing power and
the impoverishment of large sectors of the World population. 

Survival of the fittest:  the enterprises with the most advanced
technologies or those with command over the lowest wages survive in a
World economy marked by overproduction. While the spirit of Anglo-Saxon
liberalism is committed to "fostering competition", G-7 macro-economic
policy (through tight fiscal and monetary controls), has in practice
supported a wave of corporate mergers and acquisitions as well as the
bankruptcy of small and medium-sized enterprises. 

In turn, large multinational companies (particularly in the US and Canada)
have taken control of local-level markets (particularly in the service
economy) through the system of corporate franchising.  This process
enables large corporate capital ("the franchiser") to gain control over
human capital, cheap labor and entrepreneurship. A large share of the
earnings of small firms and/or retailers is thereby appropriated while the
bulk of investment outlays is assumed by the independent producer (the

A parallel process can be observed in Western Europe. With the Maastricht
treaty, the process of political restructuring in the European Union
increasingly heeds to dominant financial interests at the expense of the
unity of European societies. In this system, State power has deliberately
sanctioned the progress of private monopolies: large capital destroys
small capital in all its forms.  With the drive towards the formation of
economic blocks both in Europe and North America, the regional and
local-level entrepreneur is uprooted, city life is transformed, individual
small scale ownership is wiped out. "Free trade" and economic integration
provide greater mobility to the global enterprise while at the same time
suppressing (through non-tariff and institutional barriers) the movement
of small local level capital. "Economic integration" (under the dominion
of the global enterprise), while displaying a semblance of political
unity, often promotes factionalism and social strife between and within
national societies. 


The Debt Crisis

The restructuring of the global economic system has evolved through
several distinct periods since the collapse of the Bretton Woods system of
fixed exchange rates in 1971. Patterns of oversupply started to unfold in
primary commodity markets in the second part of the 1970s, following the
end of the Vietnam War. The debt crisis of the early 1980s was marked by
the simultaneous collapse of commodity prices and the rise of real
interest rates. 

The balance of payments of developing countries was in crisis, the
accumulation of large external debts provided international creditors and
"donors" with "political leverage" to influence the direction of
country-level macro-economic policy. 

The Structural Adjustment Program

Contrary to the spirit of the Bretton Woods agreement of 1944 which was
predicated on "economic reconstruction" and stability of major exchange
rates, the structural adjustment program (SAP) has since the early 1980s
largely contributed to destabilizing national currencies and ruining the
economies of developing countries. 

The restructuring of the World economy under the guidance of the
Washington based international financial institutions and the World Trade
Organization (WTO) increasingly denies individual developing countries the
possibility of building a national economy: the internationalization of
macro-economic policy transforms countries into open economic territories
and national economies into "reserves" of cheap labor and natural
resources. The State apparatus is undermined, industry for the internal
market is destroyed, national enterprises are pushed into bankruptcy.
These reforms have also been conducive to the elimination of minimum wage
legislation, the repeal of social programs, and a general diminution of
the state's role in fighting poverty. 

"Global Surveillance" 

The inauguration of the World Trade Organization (WTO) in 1995 marks a new
phase in the evolution of the post war economic system.  A new "triangular
division of authority" among the IMF, the World Bank and the World Trade
Organization (WTO) has unfolded. The IMF had called for more effective
"surveillance" of developing countries' economic policies and increased
coordination between the three international bodies signifying a further
infringement on the sovereignty of national governments. 

Under the new trade order (which emerged from the completion of the
Uruguay Round at Marrakesh in 1994), the relationship of the Washington
based institutions to national governments is to be redefined. Enforcement
of IMF-World Bank policy prescriptions will no longer hinge upon ad hoc
country-level loan agreements (which are not "legally binding" documents).
Henceforth, many of the mainstays of the structural adjustment program
(e.g. trade liberalization and the foreign investment regime) have been
permanently entrenched in the articles of agreement of the new World Trade
Organization (WTO). These articles set the foundations for "policing"
countries (and enforcing "conditionalities") according to international

The deregulation of trade under WTO rules combined with new clauses
pertaining to intellectual property rights will enable multinational
corporations to penetrate local markets and extend their control over
virtually all areas of national manufacturing, agriculture and the service

Entrenched Rights for Banks and MNCs

In this new economic environment, international agreements negotiated by
bureaucrats under intergovernmental auspices, have come to play a crucial
role in the remoulding of national economies.  The 1997 Financial Services
Agreement under the stewardship of the WTO, as well as the proposed
Multilateral Agreement on Investment (MAI) until recently under OECD
auspices provide what some observers have entitled a "charter of rights
for multinational corporations". 

These agreements derogate the ability of national societies to regulate
their national economies. The Multilateral Agreement on Investment (MAI)
also threatens national level social programs, job creation policies,
affirmative action and community based initiatives. In other words, it
threatens to lead to the disempowerment of national societies as it hands
over extensive powers to global corporations. 


Ironically, the ideology of the "free" market upholds a new form of State
interventionism predicated on the deliberate manipulation of market
forces. Moreover, the development of global institutions has also led to
the development of "entrenched rights" for global corporations and
financial institutions. The process of enforcing these international
agreements at national and international levels invariably bypasses the
democratic process. Beneath the rhetoric on so-called "governance" and the
"free market", neoliberalism provides a shaky legitimacy to those in the
seat of political power. 

The manipulation of the figures on global poverty prevents national
societies from understanding the consequence of a historical process
initiated in the early 1980s with the onslaught of the debt crisis. This
"false consciousness" has invaded all spheres of critical debate and
discussion on the "free" market reforms. In turn, the intellectual myopia
of mainstream economics prevents an understanding of the actual workings
of global capitalism and its destructive impact on the livelihood of
millions of people. International institutions including the United
Nations follow pace, upholding the dominant economic discourse with little
assessment of how economic restructuring backlashes on national societies,
leading to the collapse of institutions and the escalation of social

Michel Chossudovsky

Department of Economics, University of Ottawa, Ottawa, K1N6N5 Voice box:
1-613-562-5800, ext. 1415 Fax: 1-514-425-6224 E-Mail:
chossudovsky@sprint.ca http://www.interlog.com/~cjazz/chossd.htm

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