New Internationalist

Meltdown South

Issue 419

So far, the ‘credit crunch’ and ‘economic downturn’ have been framed largely in terms of the Global North. But the Global South matters just as much, if not more. David Ransom sifts the evidence.

‘The best solution for the crisis not to spread is that rich countries resolve their problems,’ suggested Luis Inácio Lula da Silva, President of Brazil, at the G20 meeting in Washington DC on 15 November 2008. ‘For the first time,’ he went on, ‘the problems are not in the poor countries, they are in the rich countries.’

This statement came from a leader under whom the number of millionaires has mushroomed and the divisions of wealth and welfare remain among the most extreme in the world. It makes some sort of sense only because the G20 meeting (which included Brazil, China, India, Russia and South Africa) seemed to have displaced the G7 at the exclusive top table of important countries. Whatever else, the President of Brazil was not going to be patronized.

A variation on a similar theme came from Cristina Fernández de Kirchner, President of Argentina, Brazil’s traditional rival for status in Latin America. ‘Not long ago,’ she jibed, ‘analysts from investment bank Lehman Brothers announced the fall of Argentina. Shortly after, we realized that what they were hiding was the real possibility of their own bankruptcy, as indeed happened.’

Other heads of government were rather more anxious. ‘Developing countries are in a peculiar situation,’ warned Manmohan Singh, Prime Minister of India. ‘They are not the cause of this crisis, but are among the worst affected.’

Kgalema Motlanthe, President of South Africa, was a little more specific. ‘The Millennium Development Goals are among the first casualties of this crisis,’ he said. ‘They have been set back by about seven years.’

False promise

The G20 tossed around not tens but hundreds of billions, even trillions of dollars of public funds to patch up a private financial system that had just fallen apart in their hands. As ever, money was superabundant when it came to looking after itself.

But a couple of weeks later, not even the heads of the World Bank and International Monetary Fund (IMF) bothered to turn up to the Finance for Development Conference in Doha, Qatar, to which all 192 members of the UN were invited. This conference was charged with hitting the Millennium Development Goals, which aim to cut world poverty in half by 2015. Here, nothing of any real substance at all was on offer, other than the age-old promise by rich countries to increase ‘development assistance’ to 0.7 per cent of their wealth. The promise was duly renewed, along with the expectation that it will never be fulfilled.

Amid the financial hysteria in the rich world, rather desperate hopes were indeed expressed that the poor world might somehow come to the rescue, since it had been left on the sidelines of the bizarre financial excesses of Wall Street or the City of London. Countries like China, India or Russia (and, of course, the oil-rich members of OPEC) that had trade surpluses and were ‘capital rich’ had, it was suggested, some sort of duty to bail out the private banks, even the governments, of the rich world. And, as North America and Europe slid towards recession in the ‘real’ economy, experts predicted that in the Majority World economic growth would continue, even if only at a reduced rate.

But the latest crisis, just like the bubble of corporate globalization that preceded it, is experienced very differently by the majority of the world’s people. They never had any credit to begin with. All they have ever been given is debt.

For these people, catastrophe had already happened when food prices doubled between 2007 and 2008: there were riots in more than 30 countries and perhaps 200 million people joined the ranks of those who do not have enough to eat. The roots of the current global crisis lie here, much more than in the property bubble of the Global North.

Reservoir

The use of the Global South as some sort of giant reservoir of undifferentiated human, environmental or ‘natural’ resources to be exploited by the corporate Global North has been of remarkably little general benefit. With few exceptions, the doubling or more of commodity prices (not just oil) prior to 2008 went straight into the pockets of corporations, particularly energy-related ones, and local élites. Statistics showing economic growth in the Global South at apparently desirable levels conceal more than they reveal, since little of it ever reaches the majority.

Moreover, as real recession begins to bite and commodity prices halve, the relatively poor and relatively weak are first in the firing line. The British agency ActionAid has calculated that ‘lost growth’ in developing countries could amount to $414 billion by 2010. As many as 100 million people could join the ranks of the ‘working poor’ earning less than $2 a day. The International Labour Organization makes a very conservative estimate of 20 million job losses by the end of 2009. Flows of investment are stalling already.1

The Global South is being hit in a more specific way, too. Many developing countries rely on remittances by migrant workers in the Global North, who are more liable than others to lose their jobs. In Kenya, remittances fell by a third in the year to August 2008. In the Philippines, where remittances supply at least a tenth of national income, presidential spokesperson Jesus Dureza said: ‘If their stomach aches, we will also feel it.’ The Inter-American Development Bank forecasts that in 2008 the real value of remittances to Latin America and the Caribbean will fall for the first time on record.2

In Latin America, the ‘pink tide’ of left-leaning liberal-democratic regimes has, for the most part, simply added ‘pro-poor’ social programmes to economic policies and structures that otherwise remain largely unchanged. As government revenues fall, even these programmes are now at risk. The Bolivarian Revolution in Venezuela is as dependent as ever on the value of oil exports, which is falling sharply. Ecuador, another oil-dependent country, is feeling the pinch already.3

Capital rich

China, meanwhile, is ‘capital rich’ and able to announce a stimulus package of more than $500 billion. But it is now totally dependent on phenomenal rates of growth, particularly in exports, which are being hit by recession in the Global North. Factories are closing and – perhaps most threatening of all – the great tide of migration from the countryside to the industrial cities is leaving millions of people in limbo. Even official estimates of unemployment (which leave most of them out) are beginning to rise, and the first evidence of serious unrest outside the closed gates of factories is surfacing.4

One striking aspect of this crisis is the way the ‘unholy trinity’ of the IMF, the World Bank and the World Trade Organization (WTO) has been exposed. They have been as irrelevant to solutions as they were complicit in the crisis itself. And it’s not difficult to see why. Iceland, Hungary and Turkey are among the first countries to go ‘cap in hand’ to the IMF. They have been forced to raise interest rates and cut public expenditure: the exact opposite of what is being done in, say, the US or Britain. On 29 November 2008 there was simultaneous mass protests in all three of these countries.5

As for the WTO, its ‘Development Round’ of trade negotiations is stalled. Concerted efforts are being made to revive it, particularly by ‘Lord’ Peter Mandelson, the former Trade Commissioner of the European Union who was twice disgraced but is now on his third reincarnation in the British Government, as ‘Business Secretary’. The problem is that the liberalization agenda of the WTO is to trade what deregulation has been to finance, and no-one in their right mind is currently advocating that.

What next?

What, then, are we to make of it all?

First, it is impossible to understand the current ‘global’ crisis without considering the vast majority of the world’s people. For most of them, the issue is that they consume far too little, whereas for a small minority it is that they consume far too much. In this way the world remains crudely divided – and the fundamental causes of climate change remain unaddressed.

Second, political and economic orthodoxy has given us governments that are, for the most part, insular in outlook and schooled only in the verities of free markets. They are, quite simply, incapable of comprehending the sheer scale and urgency of the problems we face – just as they, and the corporate media that claim to keep us informed, failed to see the crisis coming. So what if world poverty is not halved by 2015? So what if the world warms by two, four or more degrees? In the end, we are all dead.

It is commonplace now to suggest that this is the worst economic crisis since the 1930s. But, lest we forget, that endured for 10 bitter years, was accompanied by the rise of fascism and was resolved only by the mass destruction of world war. And, lest we are unaware of it, the suffering was not confined to the Global North; it was, in point of fact, just as great in the Global South, at the time still largely under the colonial yoke. And here, arguably, it was never resolved at all.

David Ransom is a Co-editor of New Internationalist magazine.

  1. ActionAid, Car crash economics: what G20 leaders must do to stop the financial crisis becoming a poverty catastrophe, www.actionaid.org.uk
  2. Christian Aid, The Morning After the Night Before – the impact of the financial crisis on the developing world, www.christianaid.org.uk
  3. Washington Times, 4 November 2008.
  4. See, for example, Michael Bristow, Looking for Work in Today’s China, 20 November 2008, www.bbc.co.uk
  5. Observer, 30 November 2008.

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