Feature

Blueprint for an unequal world

Will globalisation reduce the obscene wealth and health inequalities which exist? Mike Rowson examines the consequences of falling trade barriers for human welfare

In June, Ravi Kanbur, lead author of a flagship World Bank report on poverty due to be published in mid-September, suddenly resigned his position. Reports since have alleged that the high-profile academic and former World Bank chief economist for Africa quit the project at the last minute because US Treasury secretary Larry Summers had intervened personally to tone down sections of the report critical of the current globalisation process.

Why should a report’s discussion of globalisation cause such a storm? If you think that globalisation means greater use of the internet or the spread of infectious diseases the answer probably isn’t very clear. But in the world of high finance, attitudes to globalisation, and the policies propelling it ever onwards, are highly political.

Does the opening of markets increase trading opportunities for the poor? Will relaxing controls on the movement of capital mean that money will flow from richer to poorer countries? These are just some of the questions about globalisation vexing the minds of financial institutions and government ministries around the world.

Globalisation, poverty, inequality

Orthodox economists claim that globalisation will lead to wealth accumulation as the opening of markets stimulates economic growth, and that the poorest countries have the most to gain from higher levels of trade and investment.

But evidence from independent academics, UN bodies and even parts of the World Bank are asserting the exact opposite: globalisation is, in fact, increasing inequalities both within and between countries.

The UN Development Programme has estimated that the ratio of the income of the richest 20 per cent of the world’s population to the poorest 20 per cent has increased from 30: 1 in 1960 to 78: 1 in 1994. And the poorest countries are not catching up with the richest ones. According to other UN research, between 1965 and 1995 only countries in southern Europe and East Asia converged with the developed nations in terms of income; over the same period, real GDP per capita in sub-Saharan Africa has halved in relative terms and in Latin America has fallen by 30 per cent since 1979.¹

This evidence has huge implications for health and poverty reduction. Economic growth will lift far fewer people out of poverty where inequality is profound; and recent work by researchers such as Michael Marmot and Richard Wilkinson shows that income and other forms of inequality play a crucial role in determining health outcomes, even in rich countries.

Could there be common denominators causing this increase in inequalities to occur in many nations at the same time? Research by Giovanni Andrea Cornia, of the United Nations University in Helsinki, indicates that the answer is yes, and that the increase in inequality is fundamentally linked to globalisation.²

From boom to bust

The globalisation crisis par excellence was the East Asian economic collapse at the end of the 1990s. At the beginning of the decade, pushed on by international policy advice institutions, several of the East Asian economies removed their controls on capital coming in and out of their countries.

Investment poured in – until 1997. Previously the darlings of speculators and investment bankers, suddenly the booming East Asian countries became international economic pariahs, as investors and lenders withdrew their capital. A net inflow of capital of $97bn in 1996 became a net outflow of $8bn by the end of 1997 – a reversal worth $105bn or about 10 per cent of the five crisis-affected countries’ income. The implications for people’s livelihoods were catastrophic.

Why the sudden change? There was no dramatic change in the region’s macro-economic fundamentals. Several of the countries banking systems were weak (although this had not unduly bothered investors for most of the 1990s) and several currencies were overvalued (as a direct result of the huge capital inflows) but these factors cannot account for the sudden collapse.

What happened, and happened so suddenly, was a change in investors’ perceptions from extreme optimism about the region’s economic fortunes to extreme pessimism.

Trade liberalisation and incomes

The movement towards greater trade liberalisation was given impetus by the conclusion of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), and setting up of the World Trade Organisation in 1995. While trade liberalisation can bring important benefits to poorer people as new markets open for their goods, it can also hold out the threat of massive destruction of livelihoods.

Oxfam shows how, in the Philippines, the proposed removal of quotas which restrict imports from competing in local corn markets could have massive implications. Eighty per cent of corn farmers live below the poverty line in the Philippines. It is estimated that opening the corn sector to cheap US imports would lead to a loss of livelihood for 500,000 households. So much for the level playing field of world trade that the GATT negotiations were meant to produce.³

Mobility of labour

Rapid economic change tends to stimulate large-scale migration within and between countries, as households seek new opportunities to maintain or expand their incomes. The large-scale migration from Europe to the US in the 19th century was prompted by a labour surplus in agriculture in European countries brought about by the industrial revolution; America was also undergoing an industrial revolution but had a labour shortage. As a result, millions crossed the Atlantic in the half century before World War One.⁴

Today, although travel is quicker there are many barriers to such a high level of mobility, most importantly the immigration controls imposed by developed nations. Nevertheless there are significant levels of cross-border migration.

But labour mobility can have serious drawbacks, especially for developing countries. A major problem is the ‘skills drain’ resulting from the outflow of health sector workers from developing to more developed nations. Almost two-thirds of the Ghanaian doctors trained inside the country in the 1980s are now working overseas.⁵

Conclusion

This article only begins to touch upon the health implications of economic globalisation. Nevertheless, it reveals the dramatically increasing inequalities and lack of protection for people’s health in the face of massive economic change. Trade and financial liberalisation has been rushed through with little thought for the economic consequences, let alone the health implications.

Parallel global policy trends, such as the ‘roll-back’ of the state and moves to increase the role played by market forces in economic and social life, appear to have made it more likely that these negative aspects will not be addressed, and may even be exacerbated.

It is important to remember that, despite technological change, the present globalisation process is occurring largely due to specific policy pressures towards liberalisation. These could be halted and reversed where they are shown to be dangerous for health.

A necessary first step is to get international institutions – such as the World Bank, International Monetary Fund and World Trade Organisation – and national governments to assess the health implications of all the economic policies they promote. Only by putting health concerns at the heart of economic governance will we able to reverse some of the negative effects of globalisation.