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close this book Human Security and Mutual Vulnerability
View the document INTRODUCTION
View the document Acknowledgements
View the document Chapter 1: A Framework for Analysis
View the document Chapter 2: Environmental Insecurity
View the document Chapter 3: Economic Insecurity
View the document Chapter 4: Social Insecurity
View the document Chapter 5: Political Insecurity
View the document Chapter 6: Cultural Insecurity
View the document Conclusion
View the document Bibliography

Chapter 3: Economic Insecurity

One of the most enduring and culturally ubiquitous themes since the 1930s has been the pursuit of economic security through growth. In fact, development theory and specifically modernization theory have been predicated on the basis of the inextricable relationship between the improvement of sociopolitical conditions and the expansion of per capita income. Conventional wisdom postulates that once the society's overall level of goods and services increases in relation to population, an automatic "trickle down" of benefits is bound to occur. Likewise, it is assumed that wealth and poverty are at the opposite ends of the economic continuum. Between the Second World War and the 1970s, most Western economies experienced a prolonged period of prosperity, while global demand for raw materials triggered a unique pattern of commodity-based expansion in peripheral regions. Since 1961, the non-Western countries of Asia, Africa, the Middle East, and the Americas have gone through at least three United Nations sponsored "development decades." However, little development, let alone catching up, has taken place. From an historical perspective, it appears that the periods of generalized prosperity were indeed abnormal and that economic crises, volatility, and uncertainty are more the rule than the exception. We have moved once again from economic soaring to a state of freefall where insecurity prevails. As in the previous chapter, we will examine both the conditions of economic insecurity and the nature of the global economic regime that manages and nurtures such conditions.

The Symptoms of the Economic Crisis

Since the economic recession of the early 1980s, the world economic system has been seemingly in disarray. Stagflation, unemployment, indebtedness, and declining opportunities are terms commonly associated with the crisis. Yet, in the same period, accumulation of wealth has proceeded at an unprecedented rate; the global GNP has increased and a world system of economic management has been set in place. True, many of the features of crisis persist; but the economic order, globally and domestically, seems to have worked to the advantage of those who control capital and production. To ascertain the nature of the crisis and its victims and beneficiaries, we will examine a number of its symptomatic manifestations. These multiple traits are often are systemically interconnected. At any rate, we should bear in mind that the impact of the crisis tends to be class, gender, age, and regionally sensitive and does not affect an entire population in the same way. The opposite is the case.

Persistent and Expanding Poverty

Poverty is the common denominator of economic insecurity. It is seen by many as the outstanding economic and social problem in the world (UN 1993). The key issue of real economic development, more than the size of the GNP, the GDP per capita, or the rate of growth, is Dudley Seers' (1977) question: "What's happening to poverty?" The paradox is that poverty is spreading in the most prosperous age in human history. The problem is squarely one of distribution. While there were 157 billionaires and about two million millionaires in 1989; there were also 1.2 billion inhabitants of the planet living in absolute poverty, including 100 million living without shelter (Brown 1993). A 1993 UNDP report noted that the wealthiest 20% of humanity receives 82.7% of the world's income. The historical trend is even more revealing .

The same global elite also controls 80% of world trade, 95% of all loans, 80% of all domestic savings, 80.5% of world investments. They consume 70% of world energy, 75% of all metals, 85% of timbers and 60% of food supplies. In this context the global middle sectors are shrinking considerably, since the 20% of what could be called the world's middle class only receives 11.7% of the world's wealth (Robinson 1994). Between one-half and two-thirds of the African population lives in a state of permanent destitution. It has been estimated that "in this decade average per capita incomes fell by about 3% per year in sub-Saharan Africa and by about 1.3% in the highly indebted countries" (IDRC 1992). The cumulative figures of economic decline for the decade are 25% for Africans and 10% for Latin Americans. [World economic growth per capita for 1990–92 declined 1.1% per year on average. This hides extreme differences in performance in various regions. For instance, while the aggregate world GDP declined by 0.5%, the developed market economies grew 0.8% and the developing economies (including here Asia) by 3.4%. However, the "economies in transition" in Eastern Europe declined by 16% (UNDESD 1993, p. xvi).] In addition, there is the drastic restructuring of the "transitional" Eastern European economies. The movement to capitalism in the formerly centrally planned economies of the East has resulted in declining productivity, dropping living standards, and in an extremely unequal distribution of income (UNDESP 1993). About one-half of the poor in the North now live in Eastern Europe and in the territories of the former Soviet Union. They include social categories virtually nonexistent a decade ago: homeless people and beggars. In the United States, where a radically regressive distribution of income has been underway, the proportion of the population living below the poverty line was 13.5% in 1990 and had risen to 14.2% in 1991; a 5.2% increase in one year (US Bureau of the Census 1992, p. vii). [Although the definition of "poverty line" is arbitrary and responds to overall economic profiles (e.g., $ 6,393 per person in 1991 in the USA versus $370 per person in the less-developed regions in 1985), it is a useful device to appreciate a phenomenon that is relative and contextually structured.]

Estimated figures for the number of people living in absolute poverty in the less-developed countries were calculated by Worldwatch Institute for 1989 .

The Crisis of Growth

An examination of the historical patterns of world economic growth for the last 40 years reveals two main features. One is the slowing down of the rate of economic expansion. The other is an entrenched structural crisis. Since 1974, there have been three successive recessions. The first two, in 1974–76 and again in 1980–81, were a direct result of oil price increases. During these years, rates of growth in personal income dropped sharply worldwide but remained on the positive side. The 1990s recession, resulting from broader structural transformations in the developed economies, has been deeper, longer, and much more devastating than its predecessors. Between 1990 and 1992 the average global rate of change in income per person has in fact not only declined but become negative .

The rate of per capita income decline in Africa and Latin America between 1991 and 1992 was, respectively, 0.9 and 0.8%. In Africa, per capita incomes were lower in 1992 than in 1971, while in Latin America they were worse than a decade earlier. In terms of the pace of deterioration, however, the once relatively affluent centrally planned economies of Eastern Europe were the most severely affected by the downward spiral. A comparison of the changes in the aggregate rates of GDP illustrates the growing peripheralization of the former Second World (Table 13).

Unfortunately, aggregate figures fail to convey the disparate regional and intrasocietal impact of reduced incomes. For instance, the Gini coefficient used to measure income disparities in a range between 0 and 1, rose from 0.69 to 0.87 between 1960 and 1989; "an intolerable level that far exceeds anything seen in individual countries" (UN 1992). Dramatic as they are, these numbers do not show the preexisting and expanding enormous inequalities, nor the actual growth of poverty. For poverty, contrary to widespread developmental mythology, is not just the reciprocal value of wealth.

While, under conditions of economic deterioration, the absolute and relative numbers of those unable to afford a basic "basket" of goods and services can, predictably, increase, absolute poverty also expands under conditions of economic growth. For instance during the recoveries of the mid- and late-1980s and mid-1990s in North America, employment creation has failed to keep pace with economic reactivation. This type of no-employment recovery is also noticeable in Latin America, after the so-called "lost decade." The deleterious impact of pauperization is felt more strongly in sectors already vulnerable - like women, the young, the elderly, minorities, the unemployed - being more strongly associated with existing income disparities and powerlessness than with composite levels of prosperity.

The Debt Crisis

A principal contributing factor to macroeconomic insecurity is the expanding and unsurmountable indebtedness. The debt burden creates an entangled weak link not only for the bulk of the population in the debtor nations, but also for most of the people in the creditor countries. According to World Bank figures, the total external debt of all debtor nations was equivalent to 14% of their GNP and 142% of their export earnings in 1970. In 1987, it had climbed to 51.7% and 227.9% respectively (IDRC 1992, p. 5).

The figures are insufficient to portray the tragedy of the situation, since they include all kinds of debtor countries (Table 14). It also fails to indicate the differential impact upon the poor, who are the most grievously hurt. The debt crisis affects employment, consumption, and credit in the less-affluent countries. In industrialized states, the exposure of lending institutions has led to uncertainty and severe internal dislocations. Financial institutions, attempting to reduce exposure, normally transfer the debt burden to the public sector through goverment-sponsored insurance schemes or simply pass on losses to their customers at home. Ultimately, the burden falls on the shoulders of salaried taxpayers, those who cannot take advantage of the shelters created to protect the business elites.

As a liquidity problem, the foreign debt crisis in the periphery translates into equally burdensome indebtedness in the centre. As credit tightens, or as economic recession sets in, material production tends to decline. Bankruptcies of the most heavily indebted firms ensue, bringing about a chain reaction: more defaults, unemployment, and shrinking consumer demand. This, in turn, feeds the spiralling productive downturn. The consequences are both extreme concentration and economic decay.

An overextended public sector is frequently singled out as the major cause of public indebtedness. While irresponsible public spending is probably the direct and manifest cause in most countries, the root causes of indebtedness vary considerably. For instance, in the USA, the huge government deficits can be traced back to the extensive overspending resulting from the Vietnamese war and the arms race, which, incidentally, bankrupted the former USSR. In other countries, increases in the cost of basic imports (such as oil), growing interest rates on borrowing, declines in the value of exports, government inefficiency, corruption, and sunk costs in existing projects, played a major part. Likely, the debt problem is a combination of all of these. Yet the debt crisis is specifically the consequence of national revenues, especially exports, being unable to keep pace with increasing interest rates (IDRC 1992b). In a way, the debt crisis was created by high interest rate monetary policies in the developed countries designed to fight the stagflation of the late 1970s and early 1980s (Sheppard 1994).

Another side of the debt crisis is the use of credit policies by Western elites and their governments to turn the tables against the newly found "oil power" of the Organization of Petroleum Exporting Countries (OPEC) and its inspiration for commodity cartels throughout the Third World. The West "won" the "credit wars" of the 1980s; credit resulting from recycled petrodollars generated by the 1970s "oil crisis." The enormous profits created by soaring prices between 1973 and 1980 had accumulated in the hands of transnational companies, such as Exxon, Texaco, Shell, BP, and Standard Oil and the ruling sectors in the oil- producing countries: Saudi Arabia, Kuwait, Nigeria, Iran, Libya, Brunei, Mexico, Venezuela, and Indonesia. Petrodollars were transformed into long-term deposits in major Western banks, which in turn, peddled them at low, yet floating interest rates. Third World political and economic elites in both the oil and the non-oil-producing nations were particularly lured by the availability of easy international credit. High indebtedness was the consequence of expanded financial availability. When oil prices sharply fell in 1981–82, on the eve of the Iran–Iraq war, borrowers were saddled with unmanageable debt burdens.

The inability to meet debt payments resulted from the double impact of declining export values for primary commodities, including oil, and higher interest rates. Credit restriction, geared to fight inflation by means of high interest rates, was the trademark of a new monetarist policy relentlessly pursued by the central banks of the major industrial nations. This manoeuvre had tangible short-term financial and political benefits for the ruling sectors in the West. It had, however, disastrous systemic effects. It further destabilized an already vulnerable periphery, bringing about severe balance-of-payment deficits. The tight money policies also wreaked havoc among middle and lower income earners in the centre. The credit squeeze sent a second shock wave against salaried sectors barely recovering from the earlier impact of high energy prices and stagflation.

The debt crisis was construed by Western elites and their associates very much as was the "oil crisis" of the 1970s: a pretext to increase accumulation on an unprecedented scale. The crisis justified belt tightening, antilabour, and probusiness policies. Today's financial crisis has been used as a rationalization to impose massive "structural adjustment" packages in both the North and the South, not to mention the former East. What all this adds up to is the breaking down of labour's share of the economic "pie," generalized unemployment and a concomitant process of transnational accumulation of capital. It has also facilitated a major revamping and concentration of the global power structure.

Deteriorating Terms of Trade

The dismantling of the foundations of a yet unborn "new international economic order," a more equitable trade regime based on price stabilization for basic commodities for producing countries enhanced the historical trend of deteriorating terms of trade extant in traditional export economies (Todaro 1989). The relationship between deteriorating terms of trade, debt, and underdevelopment has been noted by analysts:

[T]he long term deterioration in terms of trade is deeply entangled in the debt situation in a process of mutual causation. A fall in the terms of trade dampens the growth of purchasing power of exports and increases the need to borrow for necessary imports, and a rise of debt puts downward pressures on export price and the terms of trade through devaluation and other measures of forced exports. (Singer and Sakar 1992)

It has been estimated that the effects of deteriorating terms of trade accounted for about $357 billion dollars of the debt in less developed countries in the mid-1980s. By the end of the decade, it had risen to about $500 billion. "More than 70 percent of this increase debt can be explained by a deterioration of the terms of trade of LDCs" (Singer and Sakar 1992). But the negative impact of this secular and structurally conditioned tendency, in the long run, has also affected ever increasing numbers of people elsewhere. Unstable commodity prices and unfavourable terms of trade in the less-developed countries have created not only depressed living standards for the majorities there but, most importantly, they reduce the capacity to import. This has had a negative effect for manufactured exports in developed countries, resulting in loss of jobs and marginalization at both ends.

For instance, it has been estimated that during 1980 and 1986, the USA alone lost $15 billion worth of exports to Latin America. This meant 860,000 fewer, mostly blue collar jobs in 1987. In total, the USA lost some 1. 8 million jobs as a consequence of insufficient export performance to the Third World, at least half of these directly attributable to the debt crisis. Estimates for Europe put the job losses for similar reasons between 2 to 3 million. In turn, Canada lost about $1.6 billion in exports to the Latin American and Caribbean region during the same period (IDRC 1992c). The entry into the broader NAFTA arrangement and an economic recovery in America have failed to arrest this trend.

The Downside of Global Competitiveness

The transnationalization of production and the displacement of manufacturing to the semiperiphery, on account of the "comparative advantages" brought about by depressed economic circumstances and the "low-wage economy," results in import dependency in the North. This deserves further explanation. The import dependency mentioned here does not mean that developed countries become dependent on less-developed countries for the satisfaction of their consumption needs. Since most international trade takes place among transnationals, all that import dependency means is First World conglomerates buying from their affiliates or from other transnationals relocated in peripheral territories. The bulk of the population at the centre, therefore, becomes dependent on imports coming from core firms domiciled in "investor friendly" host countries. Via plant closures and loss of jobs, such globalism replicates in the centre similarly depressed conditions to those in the periphery.

Manufacture evolves into a global maquiladora operating in economies of scale and integrating its finances and distribution by means of major transnational companies and franchises (for an analysis of maquiladoras, see Kopinak 1993, pp. 141–162). Abundant, and above all cheap, labour and probusiness biases on the part of host governments are fundamental conditions for the new type of productive system. Since there are many peripheral areas with easy access to inexpensive raw materials and with unrepresentative governments willing to go out of their way to please foreign investors, a decline of employment and wages at the centre will not necessarily create incentives to invest, or increase productivity. Nor would it increase "competitiveness." Since production, distribution, and accumulation are now global, it would rather evolve into a situation of permanent unemployment, transforming the bulk of the blue collar workers - the "working" class - into a "nonworking" underclass. In the current global environment, production, distribution, consumption, and accumulation are not constrained by the tight compartments of the nation state, national legislation, or responsible governments. On the contrary, regulation has become anathema. The implicit social contract that was articulated in the system af labour relations and collective bargaining in the industrialized countries has become invalidated by transnational business. The new correlation of forces is one where blue collar workers have lost, and lost big. Figures for the proportion of long-term unemployment over total unemployment for the developed countries are revealing (Table 15).

The Global Economic Regime

By contrast to the global environmental regime, the present world economic order is by far, more centralized, concentric, and institutionalized at the top. Its fundamental components are trade, finance, and the protection of the proprietary rights of international business. Rules, actors, and mechanisms constitute a de facto functional system of global governance where core elite interests in the centre and the periphery are increasingly intertwined. As the Bush administration was ostensibly vetoing a global environmental regime at the Rio Summit of 1992, its representatives, in conjunction with their counterparts in the Group of Seven were putting the final touches on an international trade and financial regime (the WTO to replace GATT) that would come into being scarcely a year later.

Context

The historical and structural circumstances of this new economic order are defused by three fundamental structural parameters, the common denominator of which is global macroeconomic restructuring. The first is the end of the Cold War and the collapse of the socialist "Second World," construed as a victory of capitalism. The second contextual parameter of this new order is the disintegration and further marginalization of the Third World. The third parameter is economic globalization in a scale and depth unprecedented in human history.

Culture

There is also a crucial ideological trait that underpins the present regime. This is the pervasiveness of neoliberalism as a hegemonic and homogenizing discourse. Whether under the spell of monetarism or the so-called "Trilateral" doctrine (Sklar 1980), conventional economic thinking has not only displaced socialism but practically all manifestations of structuralism. Most, important, however is the entrenchment of inequality as a guiding principle of economic life.

Structure

The formal decision-making structures of the global economic regime are clearly recognizable, encompassing the General Agreements on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO), the International Monetary Fund (IMF), the World Bank, the various regional banks, the Organisation for Economic Cooperation and Development (OECD), the Group of Seven and the established major trading blocs: the EC, ASEAN, NAFTA. A new crucial development in this regard is the emergence of the WTO at the 1993 GATT talks in Geneva. It was designed to substitute a monitoring and enforcement agency for the GATT conference itself. This is tantamount to the establislunent of a formal mechanism for the regulation of world trade, thus formalizing the leading role of trade - especially the trade of "invisibles" - in both the global economic regime and the overall global order. This global structure finds its correlate inside the internal mechanisms of macroeconomic management within nation states: ministries of finance, treasury boards, central banks. The formal linkage between global and domestic management is provided by international agreements and external conditionalities attached to fiscal, monetary, and credit policies, especially those of debt management. This linkage is, in turn, reenforced by common ideology and professional socialization on the part of national and international experts.

Processes

Through these devices, world economic elites manage their discrepancies and negotiate regulatory structures to serve their common interests and maximize profits. As Huntington (1992) rather cynically put it:

Decisions... that reflect the interest of the West are presented to the world as... the desire of the world community. The very phrase "the world community" has become the euphemistic collective noun (replacing "the Free World") to give global legitimacy to actions reflecting the interest of the United States and other Western powers.... Through the IMF and other international economic institutions, the West promotes its economic interests and imposes on other nations the economic policies it thinks appropriate.

Effects

But harmony and predictability at the level of the transnational core does not necessarily translate into security at the base. As production, finance and distribution in a rapidly globalizing economy become transnationalized, so does mass economic vulnerability. After years of worldwide prosperity during the 1960s and 70s, instability and exposure have become endemic. The effects of economic insecurity, manifested in poverty, unemployment, and sheer uncertainty are felt by the bulk of the population in both the centre and the periphery. We will outline some of the linkages of these effects with social, political, and cultural insecurity in the following chapters.