Transcripts
"Globalising Poverty Reduction"
by Brigitte Granville
The Royal Institute of International Affairs
(Speech delivered 17 June 2000, at the Friends of Le Monde Diplomatique conference `Globalisation: In Whose Interest?' at Conway Hall in London.)
The term globalisation touches various spheres with which an economist such as I has little knowledge and understanding. But even if restricted to economics, the term `globalisation' has come to encompass everything from expanded trade, and factories shifting work around the world, to the international bodies that set the rules for the global economy. There is in fact no other cliché so popular than globalisation, and many discussions around this concept are based on `common sense'; that is, the quality that makes people assert that the earth is flat, since it is how it appears to the naked eye.
I am not here going to question this `common sense', even if I doubt that the economy is as widely integrated as generally assumed. Instead, I will try to understand the pros of cons of economic integration, because alongside the opportunities for economic prosperity that it presents, it also creates inequalities. The question I am addressing therefore is growth and distributive justice.
At first sight, few public policy debates can be more familiar than the one about growth and justice: growth in itself by no means guarantees distributive justice; on the other hand, it is difficult to imagine falling incomes bringing about greater justice in the world. Yet neither the intensity of these arguments nor any amount of sophisticated empirical data analysis rids me of the feeling that this debate is stunted. Two things in particular are most often missing:
- first, a sense of how justice should be accounted, especially the net effects of trade-offs between, for example, child labour and starvation;
- secondly, the right to be given to non-material factors when measuring outcomes in distributive justice in richer countries as much as in poorer ones.
The debate about growth and justice focuses on international trade, with the pro- and anti-globalisation camps at loggerheads. In Seattle last December, this ideological conflict translated into street battles (a pious observance of western historical traditions invented by the French Revolution).
In the blue corner, mainstream economists and policymakers have no difficulty demonstrating the extraordinary wealth creation that has accompanied the establishment of a multilaterally regulated, open, world trading system in the second half of the twentieth century.
In the red corner are those who argue that globalisation has, on the contrary, aggravated poverty and inequality, while also destroying communities and the environment.
The best answer from the blues is to remove remaining distortions from the existing open trading system. Above all, this must mean much more comprehensive opening of rich countries' markets to competitively priced `low-tech' imports from poorer countries. Here, however, the blue camp is divided. Many governments, starting with the US and the EU countries, are cool in their support for open trading, because of concern about the risk of increasing domestic unemployment in some sectors of the economy, as a result of competition from developing countries' imports with the comparative advantage of cheaper labour. Principles can be preserved by raising issues like labour standards -- with appropriate images of the exploitation of women and children in sweat shops -- as justification for non-tariff protectionism.
This, of course, overlaps with the reds' concern for social justice in developing countries, although they would presumably reject the charge that they were also motivated by the desire to protect living standards in their own (rich) societies. Indeed, in another policy field -- environmental protection -- many voices in the red corner can be heard arguing for the radical approach of abandoning economic growth as the paramount objective of policy, thus accepting permanent reductions in material wealth as the price for preserving the planet from the destructiveness of human consumption.
Cutting through these arguments, the case for extensive further trade liberalisation by rich countries seems irrefutable, indeed a moral imperative. Returning to the parallel with radical environmental policy, trade liberalisation would not entail the same certain and irreversible reduction in living standards. Quite the opposite, trade liberalisation does not decrease the aggregate level of employment; it changes the composition of the labour force and makes the whole economy more efficient. There would be a short term risk of forgoing some growth, and even perhaps of recession in some sectors such as agriculture or textiles. Yet just as the objection to the radical environmentalists is that we should not accept poverty out of despair that human ingenuity and innovation will never succeed in finding ways to increase consumption with more efficiency and less damage to the environment, so all the less should we despair that rich countries should not use all their advantages, above all through education, building on existing know-how, to find new comparative advantages and generate more efficient value added. This would create wealth and employment despite increased competition from poor countries' exports, or rather because of it. Indeed, it would increase aggregate rich country demand, further benefiting poorer countries, which would in turn have to take care to maintain their competitiveness in the face of even poorer countries beneath them seeking to take advantage of the demand made accessible by this maximum opening of global trade.
Positing this virtuous circle brings us back up against the red objections that the envisaged circle is in fact vicious, since it would only result in ever worse exploitation of the poor and vulnerable in developing countries. It is at this point in the discussion that the question of universal principles of justice and human rights enters.
When those principles take a more crudely political form, as in international sanctions regimes against `rogue' regimes like Iraq or Serbia, the result is self-defeating. Economic sanctions victimise ordinary people in the countries concerned, while strengthening the wicked regimes, which grow fatter still in the corrupt game of sanctions-busting. Malnutrition and even starvation amongst Iraqi children would not be a justifiable price to pay even if it were the case that the regime was at the same time being weakened and thus more vulnerable to being overthrown. The fact that the opposite holds only redoubles the scandal. A policy of openness and integration, allowing the subjects of these regimes to see and profit from the outside world, is the best way to undermine these regimes in the long run, as the fall of the Soviet Union proves.
Leaving aside the practical flaws of economic sanctions regimes, there is of course a strong case of principle to be made for the universal and impartial application of values. If child labour is wrong, then it is always wrong. Moreover, many arguments against the `moral imperialism' of the rich West are merely cover for repressive regimes. A good example is the appeal to `Asian values' as an unspoken justification for the curtailment of political freedom. However, it does not need a moral casuist to point out the weaknesses in this high-minded universalism (assuming it is high-minded). To illustrate this, we can take the example of the morality of war. Every decent person would agree that war is a great evil. The pacifist says that it is an absolute evil that can never be justified. Most people, however, accept that war can occasionally be justified as a lesser evil. So it is with child labour in developing countries. No one could favour it, even if children were working in healthy conditions for fair wages. They should, of course, be in full-time schooling. But if the alternative is starvation, or at least the children being turned out by their families onto the streets, then child labour might be tolerated pragmatically, in the context of public policy designed to combine growth with a determination to use the fruits of that growth to reduce poverty and promote social justice.
But how to define and measure poverty and social justice? Normally, this argument is confined to technical discussions about poverty measures, leading to value-based arguments about whether inequality should be combated as an end in itself, or whether we should cease to care about the gap between the rich and the poor so long as the poor are becoming richer. But this discussion needs to go much deeper. Is poverty only low income or, as Amartya Sen has suggested, in his book Development as Freedom, the `deprivation of basic capabilities'? For the latter precludes equality of opportunity (assuming that the traditional socialist goal of equality of outcomes has fallen into the dustbin of history). Following Sen, economic growth in poor countries is not enough without enlightened political order and public policy which concentrate resources on both relieving immediate poverty and increasing people's `capabilities' to fulfil themselves.
The notion that poverty is more than relieving immediate needs applies all the more strongly to the rich countries where malnutrition and other material deprivation have been all but eradicated. The cocooned, protectionist, over-regulated environment of Western Europe has produced high unemployment in the context of well-funded social security systems. But is the lower inequality as conventionally measured a reflection of real justice?
High unemployment entails distress for people which is not usually well captured by statistics. The deprivation of wages can of course be offset by benefits, and the French unemployed are to that extent better off than many low-paid unskilled (and often part-time) workers in the relatively more unequal societies of the UK or USA. But the effects of unemployment on a person's confidence and self-esteem are less easily measured. The low-paid worker who is nevertheless making his way up, from however low a base, and despite considerable hardship, is less likely to suffer the despair of the long-term unemployed who find himself rejected by the very society he lives in.
This illustrates the importance of the broad and systematic thinking about poverty exemplified by Sen. Starvation is the starting point for any definition of poverty, and a fundamental measure of the success of relief efforts. But the overall conceptualisation of poverty needs to be truly global, not confined to the pragmatic analysis and relief of particular cases of starvation. That is, the approach should be equally valid in principle to the West as to developing countries because, from the point of view of poverty reduction policies, the politics of one impinge on the other if the two are not addressed together. The unemployed at home will call for more protectionism, meaning hampering not only free movement of goods and services but also people, denying the chance for workers and student immigrants to acquire know-how, training and high education. The relative power of different interest groups within nations rather than some measure of overall national interest is the main determining factor in government policies toward international trade and development. For instance, when the US administration is weak, even a small slowdown in growth with a rise in unemployment could swing the whole country (or at least a majority in the Congress) toward protectionism.
Whether Europe or US, the fact is that rich countries' internal structural weaknesses affect the entire set of economic policies towards poor countries, making trade access for their primary resources and manufactures even more difficult. Without trade access, aid is their only hope. Yet development has has decreased quite dramatically in the last ten years. Without entering here into the debate of the pros and cons of aid, we can simply note that if trade access is not improved and if flows remain at their present low level, there can be little positive to say about the West's policy towards very poor countries.
This brings me back to the necessity of building a global model of poverty. At present the closest proxy we have for this is the United Nations, with its network of international organisations, including the Bretton Woods agencies. The IMF in its present form has some kind of leverage on the way middle- and low-income countries manage their economies. This leverage increasingly extends to those countries' approaches to democracy and human rights, through the process of conditionality on IMF credit. Yet there is no such leverage as regards the developed world, at least not since the last IMF loan in 1977 to the UK. It would make sense for rich countries to subject themselves voluntarily to prudential norms monitored and enforced by the IMF. The fiscal stability pact accepted by countries participating in EMU is a step in this direction; sadly, no maximum unemployment rate is part of the Maastricht criterion. As things stand, however, as long as a developed country wants to mismanage its economy to the extent of increasing unemployment rates as high as 10% or above, it can do so without any external check. Unfortunately, increasing poverty at home means increasing poverty abroad, so the government will be under pressure to be more protectionist with goods and services, and less than friendly to immigrants.
The formalisation of the global governance role of the IMF (or in principle, another agency that may be more to people's taste) would enable it to locate and then act on the optimum cost-benefit balance in poverty, combating flows from rich to poor countries. This enhanced role in turn presupposes increasing IMF's quotas. If anything, however, the policy consensus especially in the US seems to be going in the opposite direction.
There is no question that taxpayers need to be protected, but equally one should remember that world governance requires broader objectives to foster systemic stability, and to advance wider social and political objectives. Clearly, countries should feel obliged to meet their debts in full and on time, but at the same time there is a need for some leadership on such issues, not out of philanthropy, but to fill the very objective of fostering economic stability, and not only in the developing world, but mainly because otherwise it may backlash on developed countries, threatening their citizens' fundamental security and prosperity (not merely their interests as taxpayers). The present approach of the advanced and rich industrial countries to globalisation, and its impact on poverty reduction, where capital markets are freed but not labour markets, where countries with labour-intensive manufactures are constantly the object of trade restrictions, and at a time of severely constrained foreign aid budgets, amounts to schizophrenia. This is, of course, nothing new; to reconcile domestic and international politics has always been an art. But in a world of high-technology advances, never has been so clearly the need for international market failures to be met by some world governance, whether the present international financial institutions or some other agencies. But since the IMF and the World Bank are there, why not give them the real means to meet some criteria of poverty reduction, whereby the rich will get richer but where the poor will not get poorer, in a world dominated by democracy, because indeed, development is freedom.
Brigitte Granville, Head of the International Economics Programme at the Royal Institute of International Affairs (Chatham House). Previously chief macroeconomist and Vice-President for Russia at JP Morgan, economic advisor to the Russian Federation, economist to the European Commission Delegation in Moscow, associate professor at the new Economic School in Moscow, consultant to the World Bank and Senior Research Fellow at the Institute of International Affairs. Took her PhD at the European University Institute in Florence.
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