TRADE: Dispelling myths:
Globalisation is an economic dud

CEPR.NET

 

The Emperor Has No Growth:
Declining Economic Growth Rates in the Era of Globalization

May, 2001              Executive Summary

Globalization and the policies of its most powerful advocates, the
International Monetary Fund and the World Bank, have come under increasing criticism in recent years. In the United States, the median real wage is about the same today as it was 28 years ago. This means that the majority of the labor force has failed to share in the gains from economic growth over the last 28 years. That is drastically different from the previous 27 years, during which the typical wage increased by about 80% in real terms.

Trade has doubled as a percentage of our economy since the early 1970s, and there is no doubt that globalization has played a significant role in the worsening distribution of income here.

However, throughout the growing debate, it has generally been assumed that globalization has helped spur economic growth throughout most of the world. Even critics of globalization, and of the IMF and World Bank, have generally accepted this assumption. They have argued that these institutions have focused too much on promoting growth and not enough on other goals such as alleviating poverty and protecting the environment.

The official data for the last two decades (1980-2000) tell a different
story. Economic growth has slowed dramatically, especially in the less
developed countries, as compared with the previous two decades (1960-1980). For example:

∙ From 1960-1980, output per person grew by an average, among countries, of 83%. For 1980-2000, the average growth of output per person was 33%.

∙ Mexico would have nearly twice as much income per person today if not for the growth slowdown of the last two decades; Brazil would have much more than twice its current per capita income.

∙ Eighty-nine countries ≈ 77%, or more than three-fourths ≈ saw their
per capita rate of growth fall by at least five percentage points from the period (1960-1980) to the period (1980-2000). Only 14 countries ≈ 13% ≈ saw their per capita rate of growth rise by that much from (1960-1980) to (1980-2000).

∙ In Latin America, GDP per capita grew by 75% from 1960-1980, whereas from 1980-1998 it has risen only 6%. For sub-Saharan Africa, GDP per capita grew by 36% in the first period, while it has since fallen by 15%.

Even where high growth rates were achieved, as in Southeast Asia, they were still better in the earlier period. The exceptions to this trend were East Asia and South Asia, which grew faster from 1980 to 1998 than in the previous period. The East Asian result is due to the quadrupling of GDP, over the last 18 years, in China (which has 83 percent of the population of East Asia.) The South Asian result is due to faster growth in India (which has three-quarters of the population of South Asia.)

In short, there is no region of the world that the Bank or Fund can
point to as having succeeded through adopting the policies that they promote ≈ or in many cases, impose ? upon borrowing countries. They are understandably reluctant to claim credit for China, which maintains a non-convertible currency, state control over its banking system, and other major violations of IMF/Bank prescriptions. And in both India and China, their opening to trade took place about a decade after the increase in growth began.

If these facts were well known, the entire debate over globalization
would change dramatically. The growth of output per person is not the only economic objective, nor is it necessarily the most important one in all circumstances. Nonetheless it is what allows a society to achieve a rising standard of living.
For most people in the poorer countries of the world, economic growth
offers the only hope that their children and grandchildren might escape from crushing poverty.              

If globalization and other policies promoted by the IMF and the World
Bank have not led to increased growth, it becomes extremely difficult to defend these policies. The costs of these changes ≈ the destruction of industries and the dislocation of people, the harsh austerity medicine often demanded by these institutions and by international financial markets ≈ become a burden to society without any clear countervailing benefit.

In just the last three years the IMF and its allied creditors have made
serious policy errors that have undoubtedly reduced cumulative economic growth for hundreds of millions of people. In the Asian financial crisis, the
Fund's drastically tight monetary policies (interest rates as high as 80% in Indonesia) and fiscal austerity deepened the recession and threw tens of millions of people into poverty. The Fund also helped create the crisis in the first place by encouraging the opening up of financial markets to large inflows of portfolio investment, which subsequently flowed out even more rapidly, causing the currency collapses and financial panics that threw the region into a downward spiral. In Russia and Brazil in 1998, the Fund's support for overvalued exchange rates that ultimately collapsed also caused economic damage. And the IMF's policies in the economies of the former Soviet Union have, over the last decade, contributed to one of the worst economic disasters in the history of the world ≈ with Russia losing more than half of its national income.

The failure of the last two decades of globalization, structural adjustment, privatization, and market fundamentalism to raise living standards worldwide, and the dramatic decline in growth, especially in underdeveloped countries, should be cause for serious concern. The IMF and the World Bank should be using their enormous capacity for research to try to find out what has gone wrong.
Most importantly, they should not pretend that they have the necessary
expertise nor the answers to the difficult and often country-specific problems of economic growth and development, for it is clear that they do not. They could play a much more constructive role by helping to cancel the crushing, unpayable debt of the poorer countries and allowing each nation to choose its own path to economic growth and development.

Full Report is at
http://www.cepr.net/globalization/The_Emperor_Has_No_Growth.htm