Pauperizing The Periphery

Contrary to the grandiose claims made by the ideologues, the neoliberal, open-door economic regimes imposedon the Periphery by Core capital - starting in the 1980s - have produced no economic miracles. Instead, theneoliberal policies have brought economic ruin or, at best, lack-luster performance to the countries they havetouched most deeply.

Starting with the October Revolution of 1917, sections of the Periphery began to break away from, orattenuate their linkages to, global capitalism. After Second World War, this decentralizing movement embracednearly all of Asia, Africa, and the Caribbean, who now joined Latin America to form the Third World. Severalof these countries chose communism and severed their links to global capital. Others used their newfoundsovereignty to re-structure their relations with global capital, using the power of government to developindigenous capital. This was the Periphery’s window of opportunity: its golden hour.

However, this window began to close, starting in the 1980s. For a variety of reasons, which includedgeopolitical luck as well as the still-strong expansive power of capitalism, Core capital staged a comebackboth in the Core countries and in the Periphery. Taking advantage of the debt crisis, the World Bank and theIMF began to dismantle the developmental states in the Periphery. In 1994, shortly after the collapse ofSoviet Union, Core capital created the World Trade Organization in order to deepen and police the neoliberal,open-door regimes it had imposed on the Periphery. After a hiatus of some three decades, power was once againcentralized in the Core states.

The orthodox economists argued, as they had since Adam Smith, that these neoliberal regimes created thebest bargains for all parties concerned. Free markets and open economies, so they argued, would directproduction to countries where their unit costs were lowest; and if capital were mobile, it would flowcopiously from the capital-rich to capital-poor countries. Indonesia, with cheap labor, would produce shoes;and United States, abundantly endowed with capital and skills, would design, finance, advertise and marketthem. In the neoliberal paradigm, the capital and skills of Core countries would fertilize labor from thePeriphery. This was a marriage made in heaven: it would produce prosperity for everyone, and especially forthe poor countries.

There was one problem with this marriage. It had been forced on the Periphery once before for nearly acentury and a half, and it had only led to abuse and rape of their economies. Of course, the orthodoxeconomists never saw any of this; they could only see their side of the ledger, which always showed profits.They could not see the abuse and rape because they lived in a world of toy economies with no economies ofscale, no externalities, no monopoly power, no advertising, no racism, and no asymmetries of power. That isscarcely surprising: every system that produces abuse also produces its apologists. Always, it is the victims- if only because they are the victims - who must identify and analyze the abuse that penetrates theirlives.

In order to identify the failure of neoliberal economics, we will compare the growth record of thePeriphery in the two decades before and after 1980. First, consider the two decades preceding 1980 when nearlyall countries in the Periphery protected their manufactures, regulated their currency markets, engaged indeficit spending, and their governments took on entrepreneurial roles. By the norms of neoliberal economics,they violated all the rules of good economic housekeeping. Yet, they recorded quite impressive growth ratesunder the interventionist regimes. The GDP of low-income countries grew at average annual rates of 4.6 and 4.5percent during the 1960s and 1970s; the corresponding figures for the middle-income countries were 6.0 and 5.6percent. There were no strong regional variations in the growth record for this period. Although growth inSub-Saharan Africa faltered during the 1970s, there were nine countries in this region whose average annualgrowth rates exceeded 5.0 percent during this decade.

Over the next two decades, as the World Bank and IMF forced neoliberal policies upon them, the growth ratesin the Periphery declined in proportion to their embrace of these policies. The neoliberal policies took theirfirst toll in Latin America and Sub-Saharan Africa. Both regions suffered a precipitous decline in their GDPgrowth rates to 1.7 percent per annum during the 1980s, and this produced declining per capita incomes. Thegrowth rates in Latin America recovered during the 1990s to 3.4 percent per annum, though this wassignificantly below their pre-1980 levels. The growth rate for Sub-Saharan Africa improved only marginallyduring the 1990s, and it was unable to stem the decline in its per capita income.

The collapse of Eastern Europe and Central Asia came next, with their rapid integration into globalcapitalism starting in the 1990s. Their economic decline was striking. Although the growth performance ofthese economies had been weakening for some time, they still managed to log an annual growth rate of 2.4percent in their GDP during the 1980s. However, their precipitate transition to markets produced catastrophicresults. During the 1990s, their GDP declined at an annual rate of 2.7 percent, more than wiping out the gainsof the previous decade. It is doubtful if any economic region of comparable size has experienced a similardecline in its output. Soon, their fertility rates fell significantly below replacement levels, producing adeclining population.

The economic decline of the Middle East and North Africa since the 1980s has been nearly as steep as inSub-Saharan Africa. Their GDP growth rates in the two decades after 1980 were significantly below those forthe two preceding decades. As a result, the region’s per capita income declined between 1980 and 2000. Thiswas not due to declining oil prices alone. The non-oil economies in this region shared in this decline; theirGDP had grown at 2.9 percent annually between 1950 and 1980, but this declined to 1.5 percent in the twodecades after 1980. This decline occurred at a time when the non-oil economies, barring Syria, wereliberalizing their trade and payments regimes.

Most countries in East and South Asia, which had made striking progress in the transition to neoliberaleconomic regimes, followed the same pattern. Their growth rates in the two decades after 1980 were visiblylower than in the two preceding decades. Notably, this group includes the most advanced countries in theregion - Taiwan, South Korea, Singapore, Hong Kong, Thailand and Malaysia - as well as the poorer countries:Sri Lanka, Indonesia, Philippines and Pakistan.

There were a few countries in the Periphery that escaped the declining trend in growth rates in thepost-1980 period. India and China, the two largest countries in the Periphery with more than one-third of theworld’s population, nearly doubled their GDP growth rates in this period compared to their record in thethree previous decades. Although both countries enacted market reforms since 1980, they were still amongst themost illiberal economic regimes in the world, whether one examines the extent of state ownership in theirindustries or their trade and payments regime. A second group of countries - Myanmar, Laos and Vietnam -experienced dramatic upturns in their growth rates during the 1990s, without the benefit of a liberal regime.

These results should surprise no one but the historically myopic. In the hundred years before 1950, thecolonies and open-door countries performed poorly compared to the sovereign countries in the Periphery - thosethat were generally free to choose interventionist policies. During the post-war interlude lasting into the1970s, when most of the former colonies and open-door countries practiced strongly interventionist policies,they experienced a dramatic acceleration in their growth rates. It is scarcely surprising that the forcedreturn to open-door policies in the Periphery, since the 1980s, has repeated the results from the past. It isnot clear how long India and China, the two major countries that have not yet surrendered their economicsovereignty, can resist conversion to neoliberal economic regimes.

The re-centralization of power by Core capital that began in the 1980s was quite swift and mostlynon-violent, unlike the centralization that reached its peak in the last decades of the nineteenth century.Perhaps, this is not surprising. The first centralization was a pioneering movement: it involved the creation,extension and deepening of core-controlled systems of transport, trade, finance, investment, culturalinstruments, and subordinate classes in the Periphery. It took centuries to establish this system, ofteninvolving wars. However, when the colonial powers departed from their colonies, in most cases, they did notfully liquidate these long-established systems of control. While they terminated direct political controls,and ended their military presence, many of the economic and social linkages, though weakened, persisted inmost former colonies; only the communist countries severed nearly all their linkages with Core countries. Thisis what made the second re-centralization easier.

The Core countries began to reinforce their informal systems of control as soon as they lowered their flagsover their former colonies. The reinforcements took many forms, including foreign aid, military assistance,joint military exercises, training programs, and foreign investments. When Core countries, now working inunison, articulated their new determination - through IMF, World Bank and the OECD - to impose neoliberalregimes on the former colonies in the 1980s, there was little resistance. For the most part, the elites in thePeriphery had already been integrated into the hierarchy of power emanating from the Core; they alsounderstood that resistance carried unacceptable costs. There was no popular resistance becausere-centralization did not affect the visible symbols of sovereignty. The communist countries too werere-integrated without firing a shot. They were overthrown from within, since they failed to deliverprosperity, freedom or a sense of ownership.

The swift and easy re-centralization of the global economy created a paradoxical situation. United Statesstill commanded a massive military force while its main adversary had melted away. Soon, there were calls todownsize the military, an intolerable prospect for the industries whose profits depend on military contracts.This had to be remedied.

The refurbished power of Core capital was creating some domestic problems too. On the one hand, Corecapital began eroding the social gains made by workers, consumers, and environmentalists since the 1930s. Moreimportantly, the labor force in the Core countries was beginning to face competition from sections of thePeriphery as they developed manufacturing capabilities. They began losing jobs as Core capital relocated tothe Periphery; a process accelerated by the internet revolution. In addition, Core capital was also using itsnewfound muscle to import workers into their domestic markets. Faced with a sustained decline in their livingstandards - the first in the history of industrial capitalism - a growing number of workers in the Corecountries were gravitating towards anti-Corporation, anti-globalization movements. This too had to beremedied.

United States would solve these problems by inventing new enemies. It was in this context that BernardLewis, in 1990, advanced his thesis of the "clash of civilizations" between the West and Islam. He arguedthat the Islamist opposition in the Middle East represented "a mood and a movement far transcending thelevel of issues and policies and the governments that pursue them. This is no less than a clash ofcivilizations - the perhaps irrational but surely historic reaction of an ancient rival against ourJudeo-Christian heritage, our secular present, and the worldwide expansion of both in 1990, that the West wasengaged in a veritable clash of civilization with Islam." Three years later, Samuel Huntington generalizedthis thesis into a historical principle. At the end of the Cold War, he prophesied, the world is entering anew age of civilizational conflicts, primarily involving the West and Islam, and the West and China.

The Clash thesis set up the military machine for capture by powerful special interests and voting blockswithin United States. Quickly, the Israeli lobby, Christian fundamentalists, and oil interests in the UnitedStates joined forces. Each would pursue its specific goal - eliminate threats to Israel’s hegemony,Christianize Islamic societies, and capture oil profits - by mobilizing America’s redundant military tore-colonize the Middle East. It was not hard selling this imperialist project to Americans. It would not bedifficult painting the Arab regimes into a corner. They were tyrannies, they possessed weapons of massdestruction, they were an imminent threat to American lives, they opposed Western values, and they threatenedIsrael. A great nation - the "greatest" there has ever been in the history of mankind - would have littledifficulty manufacturing a clash of civilizations when it needed one.

M. Shahid Alam is professor of economics at Northeastern University.His last book, Poverty from the Wealth of Nations was published by Palgrave (2000). © M. Shahid Alam