U.S. trade policies make rich, richer and the poor, poorer
Cross-posted at Eyes on Trade
By Todd Tucker
Today is Blog Action Day on Poverty, and it seems like a good opportunity to remember the impact that our failed trade policies have had on the world’s poor.
- The worldwide gulf between rich and poor has widened under current trade policies. In the early 1990s, proponents of the WTO and NAFTA touted these pacts as keys to poverty reduction in developing nations and a more equitable global economic system. That same argument is being raised again today to promote the Doha Round WTO expansion.
- Long-standing economic theory predicts that trade increases inequality in developed countries, but not in developing countries. However, during the era when the corporate globalization policies were implemented worldwide, income inequality between developed and developing nations, and between rich and poor within developing nations has increased. Research by 2007 Nobel Laureate Eric Maskin recently confirmed this trend. In 1960, the 20 richest nations earned per capita incomes 16 times greater than non-oil-producing, less-developed nations. And by 1999, this gap had more than doubled. The richest 1 percent of the world’s population is 2,000 times richer than the poorest 50 percent.
- One United Nations study concluded that, “in almost all developing countries that have undertaken rapid trade liberalization, wage inequality has increased, most often in the context of declining industrial employment of unskilled workers and large absolute falls in their real wages, on the order of 20-30 percent in Latin American countries.” World Bank projections show that the WTO Doha Round could make matter even worse, with only a few large developing countries likely to gain, while many countries and regions would be likely to suffer net losses.
- Progress on growth and social development in poor countries slowed during the corporate globalization era. Increasing economic growth rates mean a faster expanding economic pie. With more pie to go around, the middle class and poor have an opportunity to gain without having to “take” from the rich – often a violent and disruptive process. But the growth rates of developing nations slowed dramatically in the current globalization period. For low- and middle-income nations, per capita growth between 1980 and 2000 fell to half that experienced between 1960 and 1980. The slowdown in Latin America was particularly extreme. There, income per person grew by 75 percent in the 1960-80 period, before the International Monetary Fund (IMF) and World Bank began imposing a package of deregulation, investment, and trade policies similar to that found in NAFTA and the WTO. Since adopting these policies, per capita income growth in Latin America plunged to 6 percent in the 1980-2000 period.
- Even when taking into account the longer 1980-2005 period, there is no single 25-year window in the modern history of the continent that was worse in terms of rate of income gains. In other world regions, growth also slowed dramatically. In Sub-Saharan Africa, income per person actually shrank 15 percent, due to implementation of the neoliberal policy package as well as a variety of other contributing factors. Improvement measured by human indicators – in particular, life expectancy, child mortality and schooling outcomes – also slowed for nearly all countries in the current period as compared with 1960-80. Pro-FTA analysts consider these outcomes to have been a significant factor in the numerous Latin American elections where critics of current globalization policies prevailed (see here and here).
- Poverty, hunger and displacement on the rise during the neoliberal period. The share of people living on less than $2 a day rose in Latin America & the Caribbean, the Middle East & North Africa, Sub-Saharan Africa and Eastern Europe over the 1993-2001 period, while the share living on less than $1 a day (the World Bank’s definition of extreme poverty) grew in Sub-Saharan Africa and the Middle East & North Africa.
- According to the Food & Agriculture Organization, in 1996 “world leaders committed themselves to what was considered an ambitious but attainable intermediate target: to halve by 2015 the number of undernourished people in the world from the 1990 level. Ten years later, we are confronted with the sad reality that virtually no progress has been made towards that objective. Compared with 1990-92, the number of undernourished people in the developing countries has declined by a meager 3 million – a number within the bounds of statistical error.”
- As nations have begun adopting NAFTA-WTO style policies, the displaced rural poor have had little choice but to emigrate to wealthy countries or join swelling urban workforces. As a recent exposé in the pro-NAFTA New Republic put it, “as cheap American foodstuffs flooded Mexico’s markets and as U.S. agribusiness moved in, 1.1 million small farmers – and 1.4 million other Mexicans dependent upon the farm sector – were driven out of work between 1993 and 2005. Wages dropped so precipitously that today the income of a farm laborer is one-third that of what it was before NAFTA. As jobs disappeared and wages sank, many of these rural Mexicans emigrated, swelling the ranks of the 12 million illegal immigrants living incognito and competing for low-wage jobs in the United States.” Indeed, a review of Mexican income growth rates, inequality, and manufacturing value-added shows that Mexico fared better before neoliberalism’s introduction relative to outcomes post-neoliberalism and post-NAFTA (see here and here).
- Developing countries that did not adopt the neoliberal policy package fared better. In sharp contrast, nations that chose their own economic mechanisms and policies through which to integrate into the world economy had more economic success. For instance, China, India, Malaysia, Vietnam, and Chile (and Argentina since 2002) have had some of the highest growth rates in the developing world over the past two decades – despite largely ignoring the directives of the WTO, IMF and World Bank. It remains to be seen what will occur if these countries implement the corporate globalization policy package. It is often claimed that the successful growth record of countries like Chile was based on the pursuit of NAFTA-WTO-like policies. But nothing could be farther from the truth: Chile’s sustained rapid economic growth was based on the liberal use of export promotion policies and subsidies that are now considered WTO-illegal.