[Marxism] Debunking free trade

Louis Proyect lnp3 at panix.com
Mon Nov 29 11:12:26 MST 2004

Counterpunch, November 29, 2004
A Look at the Numbers
Globalization and Economic Inequality


The integration of economic activities across national borders that goes 
under the name of globalization is effected primarily by economic actors 
in the private sphere (mainly multinational corporations) and government 
actors. The former are concerned only with profit, while the latter are 
severely constrained by the needs of the former. Key institutions of 
neoliberal or free-market globalization such as the North American Free 
Trade Agreement (NAFTA) and similar trade agreements are negotiated 
primarily to benefit employers and investors, as is clear to anyone 
familiar with the lack of labor, environmental and other social 
protections in such agreements.

Supporters of the free-market version of globalization, however, 
blithely repeat the mantra that free trade is win-win, everyone 
benefits. A recent apology comes from David Brooks' New York Times 
column.[1] Brooks cites a recent report by the World Bank showing that 
strong economic growth in certain parts of the developing world has 
produced dramatic reductions in extreme poverty.[2]

Brooks claims that this reduction in poverty "supports the argument that 
we are seeing a drop in global inequality" and goes on to make the 
oversimplified, unqualified and unwarranted (by the data cited) argument 
that globalization "explains all this good news." Let us examine this 
news in a bit more detail.

A closer look at the numbers: world poverty and inequality continue to grow

Chiding leftists for being overly pessimistic, Brooks vaunts his 
optimistic reading of the data: "In its report, the World Bank notes 
that economic growth is producing a 'spectacular' decline in poverty in 
East and South Asia. Less dramatic declines in extreme poverty have been 
noted around the developing world, with the vital exception of 
sub-Saharan Africa."

Reading the same table as Brooks presumably did, I find less reason to 
be optimistic. To begin with, despite the impressive overall global 
economic growth, there was little decline in overall extreme poverty in 
the world. In 2001 there remain 1.1 billion people in the world living 
on less than $1 per day, down just slightly from 1.2 billion in 1990, 
hardly a noteworthy achievement after the most prosperous decade in 
world history.[3]

In fact, Brook's interpretation of the data ­ dramatic declines in 
extreme poverty everywhere except sub-Saharan Africa ­ is wrong on its 
face. In Europe and Central Asia, the number living on $1 per day 
increased dramatically from two to 17 million, while in Latin America 
and the Caribbean (certainly part of the "developing world") the number 
in extreme poverty remained essentially unchanged, increasing by one 
million to a total of 50 million people in extreme poverty in 2001.

If China is excluded, the number of people in the world living in 
extreme poverty actually increased slightly from 1990 to 2001, from 844 
to 877 million. And if we take the $2/day indicator (also in Table 1.5 
of the World Bank report), overall world poverty increased from 2.65 
billion in 1990 to 2.74 billion in 2001.

Based on these data Brooks contends that globalization is having "a 
wonderful effect on world poverty, because when regions grow, that 
growth is shared up and down the income ladder." While it is true that 
the benefits of economic growth are pulling some people out of extreme 
poverty ­ and this is certainly a good thing ­ it is also the case, 
again contrary to Brooks, that these benefits are captured 
disproportionately by a very few at the top of the income distribution. 
In order to see this it is necessary to move beyond measures of absolute 
poverty and examine income inequality.[4]

There are two main ways of measuring global income inequality: 
inequality within individual countries and inequality between countries. 
To see the uneven effects of economic growth, it is important to look at 
between-country inequality. Using World Bank data on 121 countries 
between 1965 and 1992, sociologists Roberto Korzeniewicz and Timothy 
Moran conclude that the data "indicate a prevalence of profound 
inequality with the most pronounced increase taking place in the 1980s."[5]

Korzeniewicz and Moran use two standard measures of inequality, the Gini 
coefficient and Theil's T. The Gini coefficient is a number between 0 
and 1, where 0 indicates perfect equality and 1 indicates extreme 
inequality. The Gini coefficient for the world in 1965 stood at .658 and 
moved to .739 by 1990, denoting a quite extreme level of global income 
inequality. Theil's T produces a similar result.

Is growth in fact shared "up and down the income ladder" under 
globalization? According to Korzeniewicz and Moran's analysis of World 
Bank data, "The share of world income accruing to the poorest 40% of the 
world's population diminished over the 1965-1990 period from 5.1% to 3.2%."

During the same period, the top 20% of the world's population increased 
its share of world income from 69.5% to 83.4%. What's more, in 1990 the 
richest 10% of the world received 56.1% of world income.

To repeat: in 1990 the bottom 40% of the world population received only 
3% of total world income, while the top 10% received fully 56%. So much 
for evenly spreading the benefits of remarkable economic growth.

full: http://www.counterpunch.org/vidal11292004.html


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