THE PATH TO DEPENDENCY: UNDERSTANDING NEOLIBERALISM
“…since the others become men in name against us, it seems that we are the enemies of mankind; the elite shows itself in its true colors – it is nothing more than a gang.”
-Jean-Paul Sartre; preface to Frantz Fanon’s Wretched of the Earth
To quote Jean-Paul Sartre, when it is his words that merely provide the preface to The Wretched of the Earth may first appear ill conceived. But to quote Fanon has its own difficulties; the most notable being that “he speaks of you often, never to you”. The implication, pointed out by Sartre, is that Fanon spoke unrelentingly to the colonized but simply had nothing to say to the colonizers and the supporters of colonizers – to us. His words were about us, not to us. This is as it should be; as the colonizers, we were indeed the “enemies of mankind”. But the end of colonialism did not bring with it the end of suitable heirs to this knavish title. On the contrary; we shall see that with colonialism being replaced by neoliberalism as a means to an insidious end, there is much to suggest the label has merely shifted to another, no less deserving “gang”.
Neoliberalism, also called neoclassical liberalism, free-market libertarianism, the “Washington Consensus”, the “New World Order”, and various other labels, is an ideology [1] that had come to characterize global economics and politics at the end of the 20th century. It continues its’ dominance today, well into the 21st century, with significant support within the world’s developed nations. Through intergovernmental organizations (IGOs) such as the International Monetary Fund (IMF), the World Trade Organization (WTO), the World Bank, and other actors and forces on the global stage such as the United States government, neoliberalism has successfully implanted itself as the leading global economic and political philosophy. Its adherents proudly trumpet its “successes”, rationalize its failures, and all the while vigorously proclaim, “There Is No Alternative!” [2]. Countries are more-or-less forced to adopt its doctrinal canons and are expected to faithfully follow its rules to ensure the success of the “program”. The opposition is labeled as idealists or Luddites; their views seen as being irreconcilable with “reality” and disregarded as utopian and unrealistic. Support for neoliberalism appears to be strong indeed – but is this the path the developing world should be following [3]?
In attempting to answer this question, we will first briefly examine both what “neoliberalism” means, and how it came to be. We will then focus on Mexico’s experience with neoliberalism, which will provide valuable insight into the real effects that neoliberal policies have on a country’s economy and population. Next, we will then look at the countries of East Asia and briefly explore the alternative path to development that they took. The economic policies and practices of the rich countries will comprise the next part of the paper. Finally, we will finish by looking at some possible answers to neoliberalism and solutions to the current global disparity.
In light of this exploration of neoliberalism, this paper contends that contrary to being approached as a viable development option or even a flawed but well-intentioned political-economic philosophy, neoliberalism should be disregarded as an ideology that will not bring development and prosperity to the poor countries of the world. In fact, it is useful to contemptuously view it as a pragmatic form of neocolonialism in which the powerful countries – the ones that largely influence international politics and have positions of overwhelming control within the prominent international organizations – attempt to advance their “national interests” – which just so happen to include the preservation of the global economic disparity. Of course, the “national interests” of the powerful countries are largely determined and asserted by powerful actors and forces (mainly huge corporations); as are the “national interests” in most developing states. And it is the agreements and maneuverings between these two groups – with similar desires and interests – that work together to implement the neoliberal policies that are so rewarding to a few and so destructive to the rest. It must be noted that, in acknowledging and accepting this critical conception of neoliberalism, this shift in understanding does not imply anything by itself; it merely provides a first step in which the reader is obliged to explore their conception of what they think the world should be like; the subsequent steps remain unscripted.
“…I advise you as a friend to remember that to defend neoliberalism you must remember that it is only an ideology, and nothing more. Don’t you understand that this is a most astute, and insidious ideology? There is nothing more ideological than to say: ‘Everyone else is ideological; I am the only one who is lucid.’”
-Subcomandante Insurgente Marcos, Zapatista Army of National Liberation (EZLN)
To effectively analyze neoliberalism, it is necessary to understand what it refers to. The prefix neo suggests that it is a reincarnation of some earlier idea or ideology and indeed it is. Many of its ideas and assumptions are based on the capitalist ideas and assumptions of Adam Smith, who, along with contemporary free-market libertarians such as Friedrich August von Hayek and Milton Friedman, are venerated as its ideological founding fathers and most prominent adherents. Taken as a whole, neoliberalism refers to an assortment of market-orientated principles and governmental guidelines that are designed by the United States and intergovernmental organizations like the IMF, WTO and World Bank. These three organizations are overwhelmingly controlled by the United States and, to a lesser extent, Europe and Japan – in essence, the rich industrial countries. It is through these organizations that the rich countries are able to have neoliberal policies implemented in the countries of the majority world. In the IMF and World Bank, countries receive voting power according to their relative economic contributions. In the IMF, the US has 17.14% of the total vote, and when combined with the other G8 countries (excluding Russia), they control just under 50% of the total vote [4]. Due to the simple majority vote requirement, the G8 countries only need to find support with one other country or group of weak countries to impose their desires. It is this way in which the developing world is severely underrepresented in the IMF and World Bank relative to their percentage of the global population, and it is through the control of these international organizations that the rich countries are able to ensure their interests are the ones that take precedence.
These interests most commonly take the tangible form of Structural Adjustment Agreements or SAAs, which are implemented in susceptible societies as a condition for borrowing money from the IMF and World Bank. Although they are proscribed in varying degrees and combinations, the key “conditionalities” are; “budgetary discipline, a reorganization of public expenses, tax reforms, financial liberalization, export-led growth, competitive rates of exchange, trade liberalization, attracting foreign direct investments, deregulation of economic sectors and labour markets, and the protection of property rights.” [5]. It is instructive to see the policies as attempting to create a “laissez-faire” capitalist model in which privatization, free-market trade and financial liberalization are maximized and the role of the government is minimized.
But these policies could not be enacted without the support of theories and arguments. The most oft-cited theories are variations of the following propositions: trade liberalization and deregulated capitalism lead to economic growth [6], which eventually benefits all in the society through the “trickle down effect”; the size and role of the government is to be minimized, as this promotes economic and social development [7], by maximizing individual opportunities, limiting the opportunity for corruption, and releasing talented people into the more efficient private sector [8]; also, by limiting the government and reducing barriers to the free market, you enable people to pursue their interests and enhance their opportunities unrestricted, resulting in innovation and the creation of industries; the market has “natural laws” that will “sort out” problems in the economy; and perhaps the most famous being: all other freedoms require economic freedom [9]. It is the amalgamation of these assumptions and theories, the proscriptions that stem from them, and the ways in which they are enforced and implemented which comprises the essence of what we mean by neoliberalism. Now that it is understood what neoliberalism refers to, it is conducive to explore the precursors to it to enable us to better understand its place in international economics – international economics, of course, largely being a result of the machinations of powerful sectors within the powerful countries.
The beginning of the emergence of neoliberalism can be traced to the end of World War II, in which the United States and Russia emerged as the sole superpowers in the world. But while Russia was busy dealing with internal problems and trying to catch up to the United States, the US was taking steps to ensure its economic and political dominance in the global scene. The United States was indeed aware of the extreme global disparity that plagued the world, and an interesting insight into the thought processes of US government policy planners can be seen in passages in the previously top-secret Policy Planning Study 23, written by George Kennan for the US State Department planning staff in 1948. Some excerpts:
We have about 50% of the world’s wealth, but only 6.3% of its population… In this situation, we cannot fail to be the object of envy and resentment. Our real task in the coming period is to devise a pattern of relationships which will permit us to maintain this position of disparity… We should cease to talk about vague and…unreal objectives such as human rights, the raising of living standards, and democratization. [10]
This passage expressed the will; the way had been undertaken four years earlier in 1944 with the signing of the Bretton Woods agreements by the Allied powers. This pact put in place the three major intergovernmental economic organizations existing today; the International Monetary Fund; the General Agreement on Tariffs and Trade (GATT – which became the WTO in 1994) and the International Bank for Reconstruction and Development – or World Bank [11]. These three organizations were created to serve the interests of the United States and the other former colonial powers, and their first task was to facilitate the recovery of Europe and Japan, which were devastated by the war. Their success in this endeavor allowed them to gain legitimacy and power, and they were soon playing a much larger part in the global economy than they were originally created for.
“We are no longer writing the rules of interaction among separate national economies. We are writing the constitution of a single global economy.”
-Renato Ruggiero , Former Director-General of the World Trade Organization (WTO)
The “Third World” development efforts in the 1960s and early 1970s were largely influenced by the United Nations [12] and involved the IMF, World Bank and GATT in increasing degrees. In this period development was grounded in what is called “takeoff theory”; this involved the lending of huge sums of money from the World Bank, from private firms and banks in the developed countries, and from First World governments [13]. Takeoff theory hypothetically consisted, among other characteristics, of developing world governments undertaking big initial capital investments and injecting large amounts of money into the economy, which would then stimulate growth and create jobs, raise the living standards of all through the “trickle down” effect, and eventually create a cycle of growth and development in which the economy would become self-sufficient and “take-off”. But in reality something different occurred. Instead, it was found that some were indeed getting rich, but for the vast majority in developing countries, life had not gotten much better, and in some ways had gotten worse [14]. This was compounded by the fact that many countries focused production on “cash crops”, which led to a precarious reliance on a single market export, such as bananas, coffee or cocoa beans. In turn, this made the countries extremely susceptible to world market fluctuations, especially if they were so unlucky as to be trade-reliant on a single country. Soon many developing countries came to acquire massive amounts of foreign debt; some were unable to even pay off the rapidly accumulating interest. The reasons for this crisis include: irresponsible lending practices by the lenders in the rich countries, which lent a lot of money to repressive “kleptocracies” (where most of the money would be used to pad government pockets and the rest for repression) [15]; American and (to a much lesser degree) Soviet interventionism under the guise of Cold War hostility [16]; and the rapid rise of interest rates which came as a result of a world economic depression incurred by the tripling of oil prices [17].
A change came in the form of neoliberalism, which came to be embraced as the guiding doctrine of global economic policy and development in the later 1970s and 1980s. Stemming in large part from global economic problems, in 1982 Mexico became the first country to stop the repayment of its external debt – it was essentially bankrupt. Others soon followed in what came to be a massive debt crisis. The result was the IMF and World Bank introducing a new kind of “development” in the form of Structural Adjustment Agreements (SAAs). These were intended to reorganize foreign debt; the country in crisis would be lent money through the IMF or World Bank to help pay off their private firm and government debts, but in return they would have to implement the various SAAs. This is what occurred to many developing countries all over the world, and it is now instructive to see the result of this policy shift. It must be noted that SAAs were employed to various degrees in different countries; but as Mexico is generally touted as a success of the neoliberal policies in which it was whole-heartedly subjected to, it therefore provides an instructive expression of the result of neoliberal reforms.
“Neoliberalism is not in crisis, neoliberalism is a crisis!”
-Durito; philosopher-beetle, knight-errant, and friend of Subcomandante Insurgente Marcos; Zapatista Army of National Liberation (EZLN)
From the end of World War II until the mid-1970, Mexico was characterized by a fairly steady growth average (over six percent per annum), low inflation, and progressing social indicators [18]. It was lauded as the “Mexican Miracle” for its economic successes, despite the fact a considerable portion of the population, especially the indigenous, remained poor. Takeoff theory was still the dominant development paradigm, and the Mexican government undertook massive loans in an attempt to stimulate economic growth even further. Also as a result of takeoff theory prescriptions, Mexico became increasingly reliant on the export of petroleum, which increased as a percentage of total merchandise exports from 66.7% in 1970 to 87.9% in 1980 [19]. The debt through this period also rose dramatically; it went from a meager US$7 billion in 1972 to an outstanding US$78 billion in 1981 [20]. The increasing domestic inflation that came as a result of this debt, the rising world inflation rates, and the falling world petroleum prices, all combined to result in Mexico declaring a moratorium on its foreign debt payments August 1982 [21]. It was the ensuing developing country debt crisis that ushered in the Structural Adjustment Agreements and the period of neoliberal policies.
By the mid-1980, Mexico had fully implemented the neoliberal SAAs as requested by the World Bank and IMF. The reforms significantly altered governmental actions and trade practices. There was a drop in government net transfers to state enterprises from 12.7 percent of GDP in 1982 to 2.5 percent in 1991; a drop in average tariffs from 23.5 percent in 1985 to 11.0 percent in 1988; the privatization of 18 state banking groups in 1991/1992; and a growth in manufacturing exports from US$4.1 billion in 1985 to US$16 billion in 1991 [22].
The balance sheet for neoliberalism in Mexico reveals the effect these reforms had on the country. Between 1982 and 1988, per capita GDP fell 11 percent [23]. From 1979 to 1989 the average GDP growth rate was a dismal 1.3 percent [24]. And from 1990 to 1994, overdue foreign loans grew from 2.1 percent of all credits to 10.6 percent [25]. But not everyone faced economic hardship; although 92.4 percent of the Mexican population earned less than $5,700 US per year in the early 1990s, Mexico was host to seven billionaires who likely enjoyed very high standards of living [26]. In 1994, Mexico further secured its commitment to neoliberalism with the signing of the very neoliberal North American Free Trade Agreement (NAFTA) with the United States and Canada. The economic integration embodied in NAFTA is usually defended as promoting free trade and comparative advantages, and the prediction of a US undersecretary of commerce on the impact of NAFTA on Mexico was that the Mexican GDP would grow between 6 to 12 percent per year [27]. The reality is in stark contrast to these optimistic predictions.
From 1989 to 1999, Mexico’s GDP only grew an average of 2.9 percent [28], which is astonishing when considering the main objective of neoliberal policy is to increase GDP. But it is the human costs that provide the most telling tale. The percentage of the population living in poverty grew from 59 percent in 1984 to 80 percent in 1996 (two years after NAFTA’s introduction), with almost half living on less than US$2 per day [29]. As of 2003, 82 percent of the rural Mexican population continued to live in poverty while 55 percent lived in extreme poverty (under US$2 per day).[30] The inequality is predictably severe; as of 2003, the richest ten percent received 42 percent of the total national income, while the poorest forty percent made do with just over 11 percent [31]. In Forbes annual report on the world’s richest people, in 2006 Mexico was found to have 10 billionaires – more than Australia, Sweden, or the Netherlands [32].
Most of the poverty in Mexico after NAFTA came from the devaluation of wages, the introduction of “world prices” into the market, and an inability of producers to compete with their neighbours to the north. Despite promises to the contrary, from the onset of NAFTA in 1994 until 2003, the minimum wage lost a significant 23 percent of its buying power [33]. As anyone living around the poverty line can attest to, this is absolutely devastating – to some it is a death sentence. In 1994 the minimum wage afforded 44.9 pounds of tortillas; in 2004 it bought only 18.6 pounds. In 1994, that same wage could buy 24.5 litres of gas; in 2004 it only bought seven [34]. Without protection from the government, it is no wonder that the minimum wage suffered under the new “rules”.
Regarding maize production, which is a staple product in Mexico and provides the livelihood for over 2 million small producers, Mexico was now forced to have to compete with the United States and Canada. Due to the disparities in agricultural methods, technological levels, subsidies, and various other factors; at the signing of NAFTA, Mexico could only produce 1.7 tons of maize per hectare compared with the US’s 6.9 tons [35]. What this meant was that after NAFTA was signed, Mexico was forced to eliminate government support to maize producers while simultaneously allowing world maize prices into the market. Meanwhile, US subsidies for agricultural products increased [36], including the ones for maize and coffee. By 2003, maize in Mexico lost 27 percent of its value, while coffee lost a massive 58 percent [37]; the result being that thousands of unfortunate small Mexican farmers were priced out of their own markets. This effectively forced the former farmers sell their farms and try to find other jobs in the cities; overwhelmingly in low-paying no-benefit employment. But this is only if they were lucky – although the labour force grew by more than ten million people in the ten years between 1993 and 2003, there was only an increase of 6.2 million jobs; effectively leaving almost four million people without any way to earn a living [38]. This rapid increase in the supply of labor was also vital in pushing the price of wages down, which is extremely desirable for foreign-owned corporations wishing to take advantage of the low cost of labor. The result was that in 2003 some ten million Mexicans were forced through necessity to work in the informal sector, usually without any sort of job security or benefits [39].
Many indigenous peoples were also unable to continue to eke out an existence; as their claims to traditional communal lands, or ejidos, were foreign to neoliberalism, with its emphasis on land ownership and privatization. Redistribution of land according to neoliberal reforms left many indigenous without the land that had been a part of their communities for generations. This contributed further to the injustices to the poorest of the poor. The environment did not fare much better; since NAFTA, government spending on environment-sustaining policies dropped by nearly 50 percent [40], leading to a dramatic increase in environmental degradation – completely in defiance of the prediction that NAFTA would bring about a better environmental record. The balance sheet for Mexico’s development under neoliberal policies is dismal indeed. This has led some, including Joseph Stiglitz, former Chief Economist of the World Bank and winner of the 2001 Nobel Prize in Economics to proclaim:
That Mexico has done so poorly under NAFTA has not helped the case for liberalization. If there ever was a free trade agreement that should have promoted growth, that was it…But growth in the decade since has been slower than in the decades before 1980…[41]
Analyzing Mexico’s balance sheet after being subjected to roughly 20 years of neoliberal reforms – and about 10 years of NAFTA – it is clear that something is wrong. Neoliberal policies have not stimulated economic growth in any substantial way and have only increased inequality and hardships for the poor. The ones that do not have a place in the global market; the ones that do not or cannot contribute, either in the form of buying or selling, are ignored; they are seen as “superfluous” and “expendable” both by the market and by the government; their pleas for dignity are disregarded and their cries of hunger are not heard. It is the indigenous that suffer the worst effects, but the majority of Mexicans are increasingly finding themselves caught up in a system that creates massive wealth for a select few at the expense of the rest. The trickle-down effect is only working very slowly and at an uneven pace; how can Mexicans be expected to desire enduring a system that may allow their great-great grandchildren to survive on more than subsistence income – provided their lineage survives that long?
But it is not just Mexico that is having problems. Mexico was only an instructive example because of its inclusion in the ultra-neoliberal NAFTA and its supposed distinction as a neoliberal success story. From the mid-1990s to the early 2000s, a study by the World Bank’s Independent Evaluation Group found that out of 25 poor countries, only 11 saw reductions in poverty – 14 countries suffered stagnating or increasing rates during that term [42]. This is a dismal record indeed. So a very important question remains: are there any countries that have developed during the period since WWII, when the efforts of the international community have supposedly been focused on development and reducing world poverty? And if so, is there anything that may help explain their development? A brief scrutiny of the answers to these questions provides an interesting insight into the supposed advantageous effects of neoliberal policies.
It is generally contended that the countries that have developed the most during the period since World War II are the countries of East Asia. Japan [43], South Korea and Taiwan have, for the most part, developed successfully compared to the rest of the developing world. This fact has not been lost on the critics of neoliberalism, who rightly indicate that there is a reason behind this success – namely, that the countries of East Asia have not followed the neoliberal tenet of market discipline. Joseph Stiglitz notes, “They did not pursue policies of unfettered liberalization. Indeed, they actively intervened in markets to encourage exports, and only took away trade barriers as their exports grew.” [44]. Contrary to neoliberalist doctrine, which stresses the diminution of the government, it is found that the East Asian countries benefited extensively from strong governments that were able to protect their respective populations from the potentially harmful practices of international agencies and the economic elite. It was the governments of the East Asian countries that forced the increase in wages that many attribute to their early industrial development [45]. In South Korea and Taiwan, it was also the governmental land reforms – definitely not neoliberal policy – that likely contributed to the ensuing economic growth [46].
The government played an important role in other ways too. In South Korea and Japan, it is acknowledged that a contributing factor to growth was that the private banks in the countries were “so reliant on support from those countries’ Central Banks” [47] that they could be effectively counted on to follow the lead of the government in promoting national economic growth. Therefore, whereas in other, more neoliberal countries the economic elites would often have free-reign to profit at the expense of the population – making themselves richer and in turn contributing to the misery of the masses – in the East Asian countries these excesses were mitigated and re-routed in such a way as to contribute much more to overall, and not just selective, economic growth. The conclusion one reaches is that the East Asian countries’ “government[s] took major responsibility for the promotion of economic growth” [48], which in turn played an integral part in their subsequent economic successes. The East Asians seemed to understand something vital to development – namely that the government was essential to ensuring success in the economy.
Noam Chomsky, in Profits over People, goes further in his analysis of the developed countries and looks at the history of development in the United States and Britain in addition to the development of East Asia. He concludes that “development has been contingent on freedom from “experiments” based on the “bad ideas” that were very good ideas for the designers and their collaborators” [49]. The “bad ideas” that he is referring to are the policies that the powerful countries have forced upon weaker countries – policies exactly like the ones promoted in neoliberalism. Meanwhile, the powerful or luckier countries were left to follow their own growth strategies, which, contrary to being guided by market discipline, were driven by massive government intervention in the economy – exactly what was observed in Eastern Asia. But this is not what occurred or is occurring in most of the developing countries of the world. Advocates of government intervention and market protection in the weak developing nations usually find little support within government circles that are beholden, both literally and intellectually, to self-interested forces in the more powerful nations. This begs the question: why is it that market discipline (neoliberalism) is promoted as a growth strategy for developing countries, when it appears that the opposite (government intervention) seems to be necessary for development? Perhaps a better question to ask is: who benefits?
Turning our attention to the developed countries, and especially the United States, we see that neoliberal tenets are not the guiding forces in their economies. Government economic intervention in the form of import barriers (tariffs), industry subsidies, and other forms of market protectionism is rampant in the countries that are free from the imposition of market discipline. The United States, along with the other Western countries (including Japan) thoroughly ensure that their markets are protected from the dangerous fluctuations of supply and demand that have the tendency to dictate to those forced to submit to their “laws”. As previously mentioned, history has shown that the economically successful country is the one free to utilize government to protect its economy in several important ways. It is only in industries in which a rich country perceives it is much more advanced than other countries when it sees an advantage in submitting to market forces and promoting “free trade”. But in the absence of this perceived advantage, “free trade” resorts to being something that other countries should practice – not something to be taken seriously domestically. For example, while US President Ronald Reagan was a fervent promoter of neoliberalism and market discipline, influential US academic journal Foreign Affairs stated that the Reagan Administration “presided over the greatest swing towards protectionism since the 1930s” [50]. There are several ways in which the rich countries are able to do this.
Tariffs are one of the ways. Tariffs are taxes on foreign goods upon importation that result in raising the price of the taxed product – thus making it less desirable to domestic consumers and producers. The reason a government may wish to do this is that, if a foreign-produced product costs less than the same product produced domestically, then there is an increased desire for consumers and producers to purchase the lower priced foreign product. If this occurs, it leads to the “flight” of capital from the country and takes away income from the domestic product producer. So what governments can do is impose taxes (tariffs) on the foreign product to ensure that the domestic product is more desirable and gets purchased instead. Therefore, money stays in the economy where it can circulate and the domestic producer is able to develop under “protection” from threatening foreign market intruders.
Since tariffs require government intervention, they are predictably prohibited by neoliberal policies. Nevertheless, they are more than significantly employed in the developed nations; Stiglitz notes that, “Tariff levels by the advanced industrial countries against the developing countries are four times higher than against the developed countries.” [51]. What this means is that the developed countries are effectively working like a “gang” in keeping the developing countries’ products out of their markets. This results in the developed countries being able to further develop their own industries while simultaneously crippling the ability of developing country producers to acquire capital by selling their products to the rich countries where effective demand (the demand for a product coupled with the funds sufficient to purchase the product) is much more abundant than it is domestically. It is also generally noted that developing countries are rich in natural resources, which theoretically should allow them to make favorable profits off them by selling them to the rich countries. However, the existence of this tariff “wall” that the developed countries have erected around themselves have contributed immensely to the diminution of the developing countries’ ability to effectively get fair market access and a fair price for their products. It has been noted that if Africa took in just 1% more of world trade, it would earn US$70 billion more each year – around three times more than it currently receives in aid [52]. But this would require a conscious effort on the part of the developed countries to diminish their market-altering practices like imposing tariffs and supplying subsidies – the other chief tactic prohibited by neoliberalism, yet employed extensively by the developed countries.
A subsidy is a form of governmental financial assistance to a firm or industry. It may take the form of a tax break, grant, or trade barrier that promotes the production or consumption of a product. In employing subsidies, a government can effectively funnel large amounts of money to firms and industries, resulting in a large market advantage for the receiving companies and fueling growth. Since this is a tactic undertaken by governments to artificially alter the market, it too is discouraged by neoliberalist theory. Yet, being that subsidies are highly beneficial, they too are predictably employed extensively throughout the developed world.
A good example of subsidies and their effects, but by far not the only example, is found in the international cotton market. The United States and European Union (EU) are condemned worldwide for their cotton industry subsidies that effectively destroy the livelihoods of small cotton farmers all over the world in direct violation of their own neoliberalist rhetoric. Every year the US gives approximately US$3.4 billion in subsidies to its cotton industry [53]. By having the American taxpayers subsidize the cotton industry, US cotton firms are able to produce at a much lower cost to themselves, resulting in the overproduction of cotton – much of which finds its way to the international markets. And by artificially and dramatically increasing the global cotton supply, the market price drops, as per the law of supply and demand. While this is not particularly alarming to the American firms, which are able to produce more and more cotton while staying protected by the subsidies, it is devastating to the world’s small cotton farmers that depend on the product for their livelihoods. Even though the small cotton farmers may be more efficient producers, the fact is that these small farmers and producers simply cannot compete with their subsidized US and EU counterparts. And unless the rich countries end these unfair practices, cotton farmers around the world will be unable to get a fair and sufficient price for their product. This contributes not only to poverty in the developing countries that have citizens who rely on it as an important source of income, but it effectively ensures that cotton industries unable to compete with subsidized US firms do not develop – depriving the countries of much needed jobs and industrial infrastructure.
The use of subsidies is not limited to cotton; agricultural subsidies are also pervasive within the wealthy developed countries. It is estimated the developing world loses US$350 billion annually as a result of these subsidies, – which eclipses the US$50 pledged to official development aid [54]. This means that just counting the global agricultural sector alone, there is a net flow of US$300 billion from the poor countries to the rich ones. This is not just unfair – it is unconscionable. In a world where ten children die every minute as a result of malnutrition [55], it is also reported that the richest two percent of adults in the world – ones undoubtedly included in agri-business and other subsidized industries – own over 50% over the world’s wealth [56]. While neoliberalism is strongly endorsed and more-or-less forced upon the debt-ridden developing countries, the self-interested guiding forces of the developed world use their wealth and power to exploit the newly opened markets, undermine the very rules they imposed, and extract even more wealth – effectively keeping the developing world in debt-bondage and on its knees. Aid is pledged, but it is not nearly enough; as illustrated in the example of agricultural subsidies, much more money leaves the country than stays in. In this way, current “development aid” can be seen as a token sum meant to provide developed countries with the moral leverage useful for opening new markets and pacifying the righteous moral outrage that all with any sense of humanity should feel about the current state of the world.
What is to be done? Without development, the countries are forced to be reliant on token aid – condemning them to remain underdeveloped, rife with poverty, and unable to be the arbiters of their own destinies. If neoliberalism is the development strategy promoted by the developed countries, what can be done to help the developing countries break out of the cycle of poverty?
“It is not necessary to conquer the world. It is sufficient to make it new.”
-Subcomandante Insurgente Marcos, Zapatista Army of National Liberation (EZLN)
The developing countries need solidarity if they are going to be able to oppose neoliberal policies and develop economically. They must recognize that for the most part, the current forces in power in the developed countries are opposed to their development. It is against the “national interests” of the developed countries when other countries make gains relative to them, and considering the goal of developing countries should be equality with the developed world, this means that gains relative to the developed world are essential. Alternative paths to development must be promoted in place of neoliberalism and the current status quo. Developing “third world” solidarity and integration within regions and between countries with common interests is fundamental to this goal. Venezuela and Cuba are two countries that have shown they understand this. Venezuela sells oil to other poor countries at cheap prices, lends money to countries to allow them to avoid the SAAs of the IMF and World Bank, and is attempting to create a hemispheric South and Central American market called the Bolivarian Alternative for the Americas (ALBA) – in direct opposition to the Washington-endorsed Free Trade Area of the Americas (FTAA) [57]. While ALBA is only a recent creation and has few members, its complete implementation would create a market where the countries of the region could help each other out, be protected from the unfair practices of the developed world, and ensure they are able to get fair prices for their products. Cuba is part of ALBA and also contributes doctors to other countries; even engaging in a wonderful example of mutual aid with Venezuela, whereas Cuban doctors are sent to Venezuela in return for oil. The recent actions of Brazil going against international patent laws and developing generic versions of AIDS drugs to sell cheaply to afflicted African countries is another good example of the type of solidarity that is required.
Reforms of the United Nations, IMF, WTO, and the World Bank are also essential in allowing the developing countries to have more control over their own destinies. In this way, the developing world can utilize the organizations to ensure the alternative paths to development have a forum for regulation and implementation. In the case of the IMF and World Bank, the introduction of a “double majority” requirement for decisions made by vote would require the G7 countries to have the support of at least half of the countries in the IMF or World Bank. This would make it much more difficult for the G7 countries to impose their collective will on the organizations. But it must be realized that unless the IMF, WTO and World Bank are radically reformed, they will continue to work in favor of the powerful industrialized countries and the developing countries will have to find other outlets in which to help themselves. For example, although in 2004 the WTO decided that the majority of US cotton subsidies were illegal and were to be eliminated by September 2005, they continue to exist in direct opposition to the ruling [58]. If the developed countries are able to disregard the rules when they want to, there is no reason for the developing countries to continue their memberships in these organizations. To justify their continued existences, the three organizations must become the guardians of the poor, working to ensure the developing countries are able to grow; not stay as they currently are – the administrators of the rich.
The people in the developed nations are also responsible for ensuring the successful creation of an alternative path to development is able to be implemented in the majority world. The first step requires admitting that the rich countries are rich because the poor countries are poor. Through past ills such as colonialism, the developed countries have extracted the wealth of the developing world to fuel their own growth; severely stunting the growth of the developing world in the process. We must ensure our governments are working to redress the global economic disparity and hold them accountable if they do not. The struggle for global equality is parallel to our own struggle for equality within our developed world societies. For the most part our societies are currently very unequal and only democratic to the extent that it has been proclaimed (about the US, but applicable elsewhere) “…if voting could change the system it would be illegal.” [59]. By no means should these battles be waged separately and it is a fact that “the great political battles of our era will not be fought in watertight national compartments.” [60]. The interests of the small global elite are in direct opposition to the rest of humanity’s, and as part of group of the vast majority, we must oppose them in every way possible. Solidarity movements with groups in the developing world must be forged, and ties – developmental, informational, cultural, economic, and others – must be made with the peoples of all the countries. Alternative media must be created in place of corporate media. When groups such as the Zapatista Army of National Liberation (EZLN) undertake actions to oppose the injustices imposed upon those without a voice at all, their actions – and especially the actions of their oppressors – must be reported on and monitored by the citizens of the world and the international community. Boycotts of companies that engage in immoral practices are essential, and this too requires alternative media options to make the immoral actions known. Protests and demonstrations, such as the one in Seattle 1999, or the Live8 concert in 2005, must always, respectively, demonstrate our opposition to the machinations of the global elite and make inroads to the potentially misguided and misinformed mainstream. The struggle is not, by any measure, irrelevant to any citizen in the developed world, as 9/11, nuclear arms proliferation and the current global environmental crisis can attest to. The well-being of all is dependent upon the equality of all.
“If you cannot choose to have both reason and strength, always choose to have reason and let the enemy have all the strength. In many battles strength can obtain the victory, but in the struggle only reason can win. The powerful can never extract reason from his strength, but we can always obtain strength from reason.”
-Subcomandante Insurgente Marcos, Zapatista Army of National Liberation (EZLN)
Understanding where we are in the world is essential to understanding where we want to be. It is apparent that significant changes must be made to the global order if we desire significant changes to the global economic situation. In the case of neoliberalism; when an ideology or path to development is promoted by the global elite, we would do well to ask who benefits from it and understand how it effects the societies that follow its’ doctrinal canons. It would be very foolish indeed, to assume that the interests of the powerful few are the same as the interests of the majority of citizens in the developing or developed world. Neoliberal policies take the government out of the economy, which, to the extent that the government is democratic, is akin to taking out the participation of the very people that the economy is supposed to benefit. To say that government is an obstacle to the “laws” of the free market; or when advocates of neoliberalism assert that it is not an ideology, but is just an exposition of the natural “laws” to be followed, is false and terribly misleading. Markets do not exist in a state of nature; they are human creations defined by enforceable rules. Human beings create markets and enforce the rules that leave space for the “laws” to develop and function. Following the “laws” of neoliberalism, as we have seen, is not conducive to development in any acceptable way, and for this reason neoliberalism should be disregarded as a viable path to development and prosperity. The countries that follow neoliberal tenets are increasingly left open to exploitation by large corporations – mostly foreign, but also domestic too. The freedom that comes with these open markets and new rules is indeed the “freedom to plunder and exploit”. Mexico was only one example; the world is full of many more. By espousing the miracles of the “free market”, using their positions of power to bully countries into accepting their doctrinal prescriptions, and undermining the very rules that they imposed, the powerful guiding actors in the developed world effectively keep the developing world on its emaciated knees. Despite the strategic dogmatism, there are alternatives – alternatives that can make the world a more equal and just place for all. But unless these alternatives are able to grow and flourish, the developing world will continue to be subjugated to rule by a “gang” who – like their colonial predecessors – are indeed the “enemies of mankind”.
Sources and Endnotes
1) The term ideology is loosely applied in a sense; although there is a definite consistency within the “ideology” of neoliberalism, which invokes a fairly standard understanding of its entailment, there is not a universally agreed upon ideological definition. But for the purposes of simplicity, this paper will follow the lead of various others in the discussion and refer to neoliberalism, (being a specific form of capitalism), as an ideology.
2) TINA – A slogan attributed to Margaret Thatcher, former Prime Minister of the United Kingdom
3) The term “developing world” is commonly used to refer to what used to be called the “Third World”; it refers to the poorer countries of the world. But I wish to add that I am not particularly enamored with the term, as it implies, through traditional usage, that the poorer countries of the world are on this ubiquitous “mission” to become just like the countries of the “developed world” – as if becoming one of the “developed countries” is the ultimate end goal, and the current “developed countries” are the molds in which other countries should cast themselves. “Majority world” will also be employed at times and refers to the same.
4) Ngaire Woods and Domenico Lombardi, “Uneven patterns of governance: How developing countries are represented in the IMF”, Review of International Political Economy, (August 2006): 489
5) Francine Mestrum, “Global Poverty Reduction: A new social paradigm?” Development, 49(2), (2006): 63
6) Joseph Stiglitz “Social Justice and Global Trade” Annual Editions: Developing World, (2007/2008): 33
7) Hollis B. Chenery and A. M. Strout, “Foreign Assistance and Economic Development”, American Economic Review, 56(4) (1966): 679-733 quoted in M. Rodwan Abouharb, “The Human Rights Effects of World Bank Structural Adjustments,1981-2000” International Studies Quarterly, 50 (2006): 236
8) Milton Friedman, Capitalism and Freedom, (Chicago; University of Chicago Press, 1962) quoted in M. Rodwan Abouharb: 236
9) Friedman,; 236 quoted in M. Rodwan Abouharb; and Frederich Von Hayek, “Principles and Expedience”, The Essence of Hayek, edited by Chiaki Nishiyama and Kurt R. Leube, (Stanford, Hoover Institution Press, 1984); quoted in M. Rodwan Abouharb
10) Quoted in Noam Chomsky, What Uncle Sam Really Wants, (California: Odonian Press, 1986-92), 10.
11) Joseph N. Weatherby, Craig Arceneaux et al., The Other World: Issues and Politics of the Developing World, (Washington, Pearson Education, 2007), 56
12) Mestrum, 62
13) Weatherby et al., 57
14) Ibid at 58
15) Ibid at 61
16) Noam Chomsky, What Uncle Sam Really Wants, (California: Odonian Press, 1986-92), or numerous other books by Mr. Chomsky, Howard Zinn, and several others.
17) Mestrum, 63
18) World Bank, Mexico Country Assistance Evaluation,, (World Bank, 28 June 2001), 31
19) Robert N. Gwynne and Cristobal Kay, Latin America Transformed: Globalization and Modernity, (New York, Oxford University Press, 1999), 133
20) World Bank, 31
21) Ibid at 31
22) Ibid at 31-33
23) Ibid at 32
24) Ibid at 39
25) Gerardo Otero, Mexico in Transition: Neoliberal Globalism, the State and Civil Society, (London, Zed Books, 2004), 207
26) Weatherby et al., 60
27) Jeff Faux, “Without Consent: Global Capital Mobility and Democracy”, Annual Editions: Developing World,(2006/2007): 55
28) World Bank,, 39
29) Timothy Wise, Hilda Salazar and Laura Carlson, Confronting Globalization: Economic Integration and Popular Resistance in Mexico, (Bloomfield, Kumarian Press, 2003), 3
30) Timothy Wise et al., 3
31) Ibid
32) Forbes.com, “The World’s Billionaires”, link (16 March 2006)
33) Timothy Wise et al., 3
34) Faux, 58
35) Neil Harvey, The Chiapas Rebellion: The Struggle For Land and Democracy, (Durham and London, Duke University Press, 1998), 181
36) Faux, 58
37) Timothy Wise et al., 4
38) Ibid
39) Ibid
40) Ibid at 5
41) Stiglitz, 33
42) Peter Goodman, “Report: World Bank losing war on poverty. Living conditions for millions are worse”, Washington Post, 8 December 2006
43) Although Japan is a different case than the rest of the East Asian developing countries, the fact is that it had to overcome massive post-war reconstruction and rebuilding. Of course it must be noted that Japan is certainly “more developed” than the rest.
44) Stiglitz, 33
45) Robin Broad, John Cavanagh, and Walden Bello, “Development: The Market Is Not Enough”, Foreign Policy, 81 (Washington, Carnegie Endowment For International Peace, Winter 1990): 320
46) Broad et al., 321
47) Robin Hahnel, The ABCs of Political Economy, (London, Pluto Press, 2002), 273
48) Joseph Stiglitz, quoted in Noam Chomsky, Profit Over People: Neoliberalism and Global Order, (New York, Seven Stories Press, 1999), 32
49) Chomsky (1999), 30
50) Quoted in Chomsky (1999), 37
51) Stiglitz, 33
52) Kate Eshelby, “Cotton: The Huge Moral Issue”, Annual Editions: Developing World, (2007/2008): 40
53) Eshelby, 40
54) John Tirman, 100 Ways America Is Screwing Up the World, (New York, HarperCollins Publishers, 2006), 27
55) Maxine Frith, “Malnutrition kills 10 children every minute”, The Independent, 03 May 2006
56) Aaron Glantz, “Richest 2 Percent Own Half the World’s Wealth”, Oneworld.net, link (21 December 2006)
57) Wikipedia.org, “Bolivarian Alternative For the Americas”, link, (taken March 10, 2007)
58) Eshelby, 41
59) Will Miller, “Social Change and Human Nature”, In Democratic Socialism Course Reader 2007, compiled by Peter G. Prontzos.
60) James Laxer, In Search of a New Left (Toronto, Penguin Canada, 1997): 219. In Democratic Socialism Course Reader 2007, compiled by Peter G. Prontzos.
