Employment Crisis : Inequality and the Global South

How it impacts workers:
Transformation in the Global South

The end product… has been increasing global inequality in wealth and income and the continuation of massive poverty, powerlessness, and precariousness.

By Harry Targ (with David Cormier) / The Rag Blog / April 4, 2010

Neo-liberalism challenges the non-aligned movement

Since the 1970s, poor countries have been increasingly forced to embrace neo-liberal economic policies at home — cutting government programs, privatizing the economy, opening up the economy to foreign penetration, and shifting to an export-orientation — contrary to the agenda of the Non-Aligned Movement. For many countries, neo-liberal policies constituted a radical break from state policies in which government collaboration with or oversight of the economy were common (so-called heterodox policies).

The Non-Aligned Movement of newly independent countries began to meet in the 1950s. Their concern was the polarization of the international system around debates about “communism” and the “free world” or USSR/U.S. conflicts. For them the central issue was economic development. NAM countries became attracted to variants of Socialist or heterodox policies that called for strong state involvement in economic growth.

Because of United States/Soviet competition during the Cold War for the support of NAM, it gained voice in the United Nations system. Leaders of NAM countries began to demand a new international economic order or NIEO that would regulate international capitalism: limit the free reign of transnational corporations (TNCs), reschedule debts, liberalize patent laws, stabilize prices of agricultural commodities and raw materials, and in other ways regulate global capitalism to reduce some of its negative consequences for the Global South.

In Latin America, these policies were referred to as Import-Substitution Industrialization. The thinking behind ISI, initially developed by Economic Commission for Latin America economists and later amended by dependency theorists, was that manufacturing countries gain more from global exchange than export-oriented raw materials producing countries. Consequently Latin American countries needed to shift resources to industrialization. In the process, ISI policies required protections from unbridled foreign, i.e. United States, economic penetration.

The debt trap

The ability to further implement the NIEO and ISI was dramatically reversed by two historic world events. First, the Middle East wars led to dramatic increases in the price of oil during the 1970s. Oil poor countries that had embraced industrial development policies based on the importation of cheap oil experienced enormously increased trade deficits. Western banks choked with oil profits needed to find ways to use the glut of petro dollars. As a result, poor countries were forced to borrow huge sums of money from banks and banks encouraged the blossoming debt system.

To illustrate, indebtedness of the non-oil producing Global South increased five times between 1973 and 1982 reaching a total of $612 billion (Wayne Ellwood, The No-Nonsense Guide to Globalization, 43). By the new century, the total debt of developing countries had reached nearly $3 trillion, or $400 for each person living in the Global South (Ellwood, 48) In the 1990s, payments flowing from the South to the North in interest on loans exceeded loan funds entering the countries concerned.

In addition to the debt trap, as suggested above, the debt system came with a policy price: requirements that debtor countries reverse commitments to the NIEO vision and ISI policies. In the 1980s, the neo-liberal economic policies, central to the process of globalization, began to spread throughout the global economy. The debt system has been institutionalized ever since such that countries have become trapped in debt and requirements to carry out the policies of the banks.

The nail-in-the-coffin of Socialist or mixed-economy policies resulted from the economic and political disintegration of Socialism in the 1980s. The former Soviet Union sought to match the U.S. side of the arms race (the Reagan military build-up was the biggest in U.S. history). It found itself in expensive military quagmires in places such as Afghanistan. In addition, political legitimacy of the regime in the Soviet Union and across Eastern Europe declined with the inability of Socialist economies to match consumer growth in the West. The end result was the collapse of Socialism at the same time that the debt system was imposing neo-liberal policies everywhere.

Paradoxically, its advocates claimed, the neo-liberal policy agenda would increase the ability of poorer countries to participate in the global economy. Economic reforms at home would entice increased foreign investment. Shifting from tariffs to markets and from production for domestic consumption to production for sale on world markets would increase earnings which could be plowed into domestic economic development (as well as paying back the bankers for interest on loans).

Data on the 1990s indicated that direct foreign investment increased by about 15 times over the decade. However, 75% of the investment went to just 12 countries, the most industrialized of the countries of the Global South with the largest markets. These countries included Argentina, Brazil, China, Indonesia, Mexico, and South Korea.

Also trade data, exports and imports, indicated that the countries of the European Union, the United States, Japan, and Canada accounted for half of all world trade. Similarly a small number of countries accounted for half of the world’s imports. Despite claims by advocates, neo-liberal economic policies did not increase incorporation of most poor countries into the global economy.

The transformation of work

The transformation from Socialist or heterodox policies in the Global South to neo-liberalism, while not stimulating incorporation into the global economy and development, did facilitate changing work patterns. Neo-liberal policies, including privatization and shifting production from domestic consumption to exports, radically transformed rural work in many countries of the Global South.

Governmental pressures undermined traditional patterns of agriculture including land ownership and production processes. Land holdings were consolidated under the control of foreign or wealthy domestic investors. More productive and larger agricultural units began to produce commodities for sale in rich overseas markets.

Peasant farmers who in the past produced food stuffs for domestic consumption were replaced by agricultural workers and new technologies to produce winter vegetables and flowers for foreign customers. Countries which had produced enough food for their own people became net importers of food products. In addition, agricultural subsidies characteristic of the United States and countries of the European Union made it all but impossible for poor farmers to compete with the cheap imported food.

As a result of the new agriculture, and farmers forced off their land, migration to urban centers magnified, as more and more rural dwellers sought work. Cities in the Global South doubled or tripled in size, becoming surrounded by make-shift dwellings of people looking for work. Some rural migrants were able to find work in the new export-processing zones or sweat shop industries rising in some countries of the Global South.

The pool of cheap labor in the Global South, replenished by the transformation of agriculture, provided an attractive opportunity for textile, electronics, and other manufacturing employment, once basic to the manufacturing economies of the industrialized countries. The globalization of production occurred in tandem with the imposition of neo-liberal economic policies, and the transformation of agriculture.

These changes were reflected in changing employment/unemployment rates and the kind of work that became available in the Global South. From 1950 to 1990, there was a decline by almost 1/3 of those of working age in the world engaged in agriculture. The percentage of the world work force in agriculture in 1990 was down to 49%, from 67% in 1950 (In Latin America and the Caribbean the decline from 1950 to 1990 was from 54% to 25% in agriculture).

In addition, the growth in industrial employment between 1950 and 1990 was modest, not commensurate with the declining agricultural employment. (In Latin America, the decline in agriculture was more dramatic than the world figures while the increase in industrial employment was not greater than the world figures.) More recent International Labor Organization (ILO) data suggests that in the world at large “the share of employment in manufacturing declined between 1990 and 2001 in all economies for which data are available…” (ILO, 21 Nov. 2005).

Further, the world data (and the data for Latin America) indicate that the major sectoral growth in employment has been in the service sector. Increases in service sector employment ranged from 8% to 16% among countries in different economic strata. The largest growth in the service sector occurred in the lower-middle income countries.

The rise of the informal sector

Finally, the most significant shift in employment throughout the world, particularly in the Global South, is from the formal economy (agriculture, industry, and service) to the informal economy. Most workers in this growing sector of the work force are driven by a desperate need to provide the rudiments of life. Consequently, they are willing to do virtually anything to earn money.

This may involve lucrative small street market sales, or low wage home work (from house cleaning to garment assembly), or prostitution, or drug dealing. Work in the informal economy is not regulated. Workers enjoy no work place health and safety protections. They receive no health or retirement benefits. And, of negative consequence to the national government, they pay no taxes.

In a recent report produced by the Department of Economic and Social Affairs of the United Nations, “The Inequality Predicament,” a distinction is made between “haves” and “have-nots” in terms of employment. The former are employed in the formal economy. They are more likely “…to earn decent wages, receive job-related benefits, have secure employment contracts and be covered by relevant laws and regulations” (UN, 2005, 29). The informal sector represents the polar opposite in terms of wages, benefits, and rights. The growth of the informal sector worldwide, the report says, is intimately tied to growing global inequality.

The UN report estimates that “informal employment accounts for between one half and three quarters of non-agricultural employment in the majority of developing countries.” They indicate that the percentage of those who work in the informal sector varies across the Global South: 48% in North Africa, 51% in Latin America and the Caribbean, 65 % in Asia and 78% in Sub-Saharan Africa (UN, 30).

In addition, the report refers to studies that suggest that the informal sector accounts for significant shares of the overall income and gross domestic product of individual countries. One study of 110 countries in 2000 found that the 18% of the gross national incomes of OECD countries came from the informal sector, 38% in “transition” countries (formerly Socialist), and 41% in developing countries. The informal economy accounted for 42% of the GNP in Africa, 26% in Asia, and 41% in Latin America (UN, 30-34).

The precarious classes

Data shows that unemployment around the world rose over the period from 1993 to 2002 and declined somewhat in 2003. What may be the most significant finding from this data is the fact that the seeming recovery of 2003 only imperceptibly impacted on unemployment rates. Even if sectors of the global economy experience growth, some theorists suggest, recovery given the system of global capitalism is “jobless.”

The economic transformations initiated in the Global South in the 1970s occurred in the context of the concentration and globalization of capital and the declining resistance including the collapse of Socialism. The oil crisis, the rise of a global debt system, global policy shifts from state/market economies to neo-liberalism parallel significant changes in work activity from agriculture and industry to service, to the rise of the informal sector and unemployment. The end product of these transformations has been increasing global inequality in wealth and income and the continuation of massive poverty, powerlessness, and precariousness.

While rates of poverty declined over the last 20 years of the twentieth century, still half the world’s population in 2001 lived on less than $2 a day. And the percentage declines in extreme poverty, less than $1 a day, during this period mask the fact that more people in 2001 were in extreme poverty than 20 years earlier. The numbers of people in extreme poverty increased in Latin America and the Caribbean, the Middle East and North Africa, South Asia, Sub-Saharan Africa, and India. The numbers of those in poverty declined in East Asia and the Pacific and China.

Also, it is clear that income inequality has been increasing between richer and poorer regions of the globe. With the OECD countries representing the rich countries, on a per capita income basis, shares of income of peoples in Sub-Saharan Africa, South Asia, the Middle East and North Africa, Latin America and the Caribbean have declined between 1980 and 2001. Weller, Scott, and Hersch (2001) report that in 1980 median income in the richest countries (top 10 percent) was 77 times greater than the median income in the poorest countries (the bottom 10 percent). By 1999, the gap had expanded to 122 times.

The transformation of employment from agriculture and industry to service and the informal sector — a shift that has been characterized as one from “have” to “have-not” jobs — has been reflected in the continuation of massive poverty around the globe and substantial evidence that the distribution of wealth and income has worsened over the period of neo-liberal policy influence. “The Inequality Predicament” makes it clear as well that income inequality is reproduced in the distribution of access to health care, education, housing, access to water, and sanitation.

Data like these led Samir Amin (2003) to predict that the transformation of the global political economy was precipitating a crisis of poverty and human misery that will transcend the expectations of the most well-meaning humanists. Amin described the emergence of “precarious classes” in both rural and urban areas.

Estimating that half the world’s population (3 billion people) live in the country, he predicted that nearly 2.8 billion of them will become economically redundant. That is, given technology, 20 million people could provide the food needs for the planet. In the cities, 1.5 billion of 3 billion people are marginalized workers who experience work temporarily and/or who always live with the insecurity of job and income loss.

Over 4 billion people of the 6 billion living on the planet, Amin wrote, constitute “the precarious classes,” made redundant because of declining employment and being reduced to perpetual employment insecurity due to the exigencies of the pursuit of profit in an era of neo-liberal globalization. This situation, Amin asserted, constituted a coming global crisis not seen in human history.

[Harry Tarq is a professor in American Studies who lives in West Lafayette, Indiana. He blogs at Diary of a Heartland Radical.]

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