Socio-economic development for underdeveloped countries and social equity in developed countries

By Harry Shutt

Social and economic conditions in today’s world can only be understood in the context of a long-term overall decline in global economic performance which has been going on at least since the early 1970s. The authorities have for long tried to conceal this reality and pretend that we are potentially on the brink of an advance towards universal prosperity – as private enterprise operating in newly liberalised and deregulated global markets is enabled to exploit the wonders of modern technology. Lately, however, even the International Monetary Fund has been forced to admit the reality of deepening stagnation, decade by decade, over the last 30 years.[i] At the same time people everywhere have become aware, especially since the early 1990s, that liberalisation and globalisation too often translates into boom and bust, jobs which are here today and gone tomorrow, fluctuating commodity prices paid to farmers and consequent generalised insecurity.

For the vast majority of the world’s population who live in underdeveloped countries (otherwise known as the Third World) such insecurity is nothing new. In addition to the 1.3 billion officially admitted to be living in absolute poverty (i.e. typically suffering from chronic malnutrition and without access to the most basic standards of housing, health care or other vital services) there are billions more who live under the permanent fear of falling into this state without any possibility of recourse to social welfare programmes.

Such conditions have long been regarded as intolerable in developed countries. This is mainly because in the 19th century the terrible social consequences of economic depression in newly industrialising Europe provoked serious unrest, even leading to attempted revolution in many parts of the Continent in 1848. Fearing the threat of further such movements, the ruling bourgeois élites of Europe felt obliged (by 1914) to concede not only a progressive extension of voting rights to the working masses but an increasing range of welfare benefits, including old age pensions, unemployment insurance and free elementary education. Yet these systems were overwhelmed by the Great Depression of the 1930s, when the huge numbers of unemployed far outstripped the resources available to pay adequate benefits. The resulting widespread social misery was a major factor behind the rise of Fascism and Nazism, leading to the outbreak of World War II. By the end of the war all governments in the industrialised world accepted that it was their primary duty to direct economic policy towards assuring full employment and to provide an adequate social safety net for those unable to work for whatever reason.

Despite this commitment, reinforced by the prolonged post-war boom lasting up to 1973, the traditional capitalist business cycle in which all booms eventually turn to bust has since reasserted itself. As a result unemployment throughout the Western industrialised world has soared from average levels of around 3 per cent in 1970 to 8-9 per cent today – even on the basis of official figures. In reality, the ratio would be far higher (probably at least 12-15 per cent) if account were taken of all the workless who have been airbrushed out of the figures. In Britain this has been done partly by reclassifying many of them as sick or disabled, while in the United States it has been achieved partly by criminalising them, so that now at least 2 per cent of American adult males are in prison (4 times the number in 1980) while another 5 per cent are on parole or probation.

At the same time there has been a massive rise in the proportion of those living in poverty (i.e. those dependent on some form of state benefit), with this figure now standing at 25-30 per cent of the population in Britain – some 3 times the level of 30 years ago. All the while, of course, governments have struggled to hold down the cost of the welfare bill by squeezing the average entitlement of the vastly increased number of claimants. Thus, for example, in Britain this has meant linking the rise in the state pension to that of consumer prices rather than wages, so that ever since 1980 the incomes of poorer retired people have progressively shrunk relative to their previous earnings. This process of cutting spending on social benefits and public services has enabled the authorities to cut taxes in the interests of sustaining the rise in corporate profits (thus helping to avert a collapse in stock market values). Yet this has been done at the considerable cost of creating of a large “underclass” of the economically and socially excluded – i.e. those who are not only jobless, but in many cases also homeless and effectively barred from access to education, health or other social services which are defined as a basic human right in the Universal Declaration of Human Rights. Moreover, it has clearly failed to achieve the revival of economic growth which its advocates promised, with the result that governments have been forced steadily to increase borrowing, thereby causing the level of public indebtedness in the rich (OECD) countries to double as a proportion of national income since 1975.

This increasing marginalisation of a large minority in the developed countries thus represents a major setback in the struggle to improve the conditions of the mass of the population after a century of considerable advances. For their counterparts in the Third World, on the other hand, the decline in their fortunes over the last 25 years is simply the continuation of a much longer-term trend. For, as another recent study from the IMF has pointed out, the gap in income per head as between developed and underdeveloped countries has been steadily widening ever since the start of the 20th century, if not longer.[ii] This relative deterioration in the condition of the world’s most disadvantaged peoples has continued, moreover, during the period since around 1960 when, for the first time, the problem of underdevelopment was recognised as serious enough to require remedial action by the developed countries that effectively control the world economy. Yet the fact that the subsequent 40 years of “development aid” have failed to prevent the relative deprivation of the Third World getting even worse demonstrates either that the scale of such aid as been hopelessly inadequate and / or that the political and economic structure of the world needs fundamental reshaping.

Indeed the experience of the last 100 years or more demonstrates conclusively that the capitalist profits system has an inescapable tendency

a) to be too unstable to offer adequate security of livelihood for the majority of people in the world, and

b) to concentrate more and more wealth in the hands of a minority of owners of capital.

As the increasingly anarchic deregulated financial markets of the world now descend into chaotic meltdown, it is becoming more and more difficult for the majority even in the developed world to defend the existing “free market” model of world economic order. Hence the opportunity presents itself to push demands for a drastically revised model of economic organisation at both national and international level which will be both more stable than the present one and capable of meeting the basic requirements of the mass of the world’s people for dignity and security. It should be obvious that this will also necessitate fundamental reform of the decayed structures of political control.

The essential features of such a reformed model – in rich and poor countries alike – will be:-

  1. Increased accountability of the enterprise sector

    One of the lessons of the last 20 years is that corporations which wield enormous power over the lives of billions of people around the world must, in line with basic democratic principles, be made accountable to the wider community. The failure to insist on this hitherto has resulted in ever more obvious and appalling abuses of corporate power. This is revealed not only in multiplying individual cases such as that of the big pharmaceutical multinationals which presume to manipulate the prices of vital drugs for the treatment of deadly diseases such as HIV/Aids around the world purely in the interests of maximising their shareholders’ profits. It is also evident from the increasing subordination of all social priorities – and indeed every other aspect of public policy – to the interests of big business.

    Since these corporations enjoy substantial protection and privileges granted by the community (represented by the state) – such as the right to limited liability and substantial tax breaks or other subsidies to underpin their profitability and survival – it is self-evident that they should be prevented from taking decisions affecting the vital interests of that community without being properly accountable to it. It follows that all companies which enjoy such privileges (the vast majority) must be required to accept some kind of representation of the public interest in determining their policies – for example on pricing, employment or investment – and that this must take precedence over that of shareholders where the two conflict.

    It should, of course, be clear that such a requirement is bound to weaken the enthusiasm of private investors for putting their money into businesses where the level of profit they can expect will be quite low relative to the possible risk of loss. Hence it can be expected that under such a régime the recent trend away from public ownership in favour of private ownership of enterprise will be reversed and that the collective (through national or local government bodies) will have an increasingly dominant role in both the ownership and management of companies. However, for such a model to deliver the kind of economic system in which the priorities and concerns of the majority are met it will also be essential to create more effective structures of democratic accountability (see below).

  2. Emphasis on cooperation instead of competition

    While competition can have some short-term benefits to consumers in delivering better value for money, these gains tend to be outweighed by:

    • The long-term tendency towards monopoly (as the stronger competitors absorb the weaker), thus reducing competition or even eliminating it altogether;
    • The wasteful creation of excess capacity and overproduction – driven both by competitive forces and the need to reinvest accumulated profits – in conditions of market uncertainty;
    • The consequently inevitable cycle of boom and bust, with its destructive impact on employment and social conditions;
    • The tendency to drive down standards of treatment of workers and the environment – as well as to engage in other forms of anti-social behaviour whose costs are paid by the rest of the community – in pursuit of the maximisation of private profit.

    Hence in future more publicly accountable enterprises must be encouraged to put greater stress on assuring stability of output and employment and other social priorities, while yet assuring their financial solvency and adequate standards of quality and price. The emphasis on stability rather than maximising growth, as at present, will also probably be dictated – particularly in industrialised economies – by the need to reverse the damage to the environment that has resulted from indiscriminate growth in the past. Thus the destructive tendencies associated with unfettered competition will need to be replaced by an ethos of cooperation in pursuit of goals collectively determined as being in the public interest.

  3. Enhanced political democracy

    The ideal of democracy, in which representative governments are supposed to reflect the freely expressed wishes of all the people, is one that has only been generally accepted even in the developed countries within the last 200 years. Indeed in most of Europe and North America the right to vote has only been extended to all adults since the start of the 20th century. It is therefore not surprising that its institutional development is still quite primitive and everywhere conspicuously fails to reflect the popular will. Indeed it could be argued that in many supposedly advanced countries (notably the United States) progress towards genuine democracy has been reversed in recent years, as big business interests have been allowed to buy the political process by channeling ever larger sums of money to the political parties – much as they were in Britain before the Reform Bill of 1832.

    In the vast majority of underdeveloped countries (including most of the former Soviet Union) progress towards democracy has been even slower, or in some cases almost non-existent. Very often this backwardness is less the product of a commitment to totalitarian Communism as of the solidly entrenched feudal structures that still largely dominate society, much as they did in Europe before the 19th century. This means that typically the ruling élites in these countries have every reason to oppose not only the enhancement of democratic rights for the masses but also any kind of economic development which would tend to empower the impoverished majority and make them less subservient to the authority of traditional chiefs or feudal landowners. This helps to explain why so many Third World leaders are such willing henchmen of Western transnational companies in the exploitation of their own people, especially when they can easily obtain lucrative pay-offs from such outside interests in return for their support.

    If these deficiencies in the “governance” of both developed and underdeveloped countries are to be addressed it is clear that:

    a) Financial contributions to political parties from corporations or other sectional interest groups must be banned;

    b) Much tougher rules for ensuring proper accountability must be put in place, including rigorously enforced penalties for corruption and abuse of power, while at the same time the opportunities for personal gain from holding public office must be severely restricted (e.g. by barring public servants from taking jobs with companies whose fortunes they have in some way been able to influence in their official capacity);

  4. Strengthened international solidarity

    In order to move decisively to close the huge gap in living standards between rich and poor countries – and thereby end the misery of the billions currently sinking deeper into absolute poverty – the basis of international relations must be fundamentally restructured. Above all the emphasis of the present model on supposedly free, non-discriminatory competition between nation states must change to one of cooperation and integration between states in a way that is specifically designed to discriminate in favour of the poorer regions. The essential features of such a new global order would be:

    • The formation of regional groupings of states economically large enough and strong enough to attain a substantial measure of self-sufficiency. This would entail permitting them to protect their markets from stronger competitors from outside as well as to ensure their monetary stability by establishing a common regional currency shielded from the destabilising effects of excessive inflows and outflows of capital;
    • Increasing integration between rich and poor regions of the world based on common objectives of enhanced economic equality (supported by long-term structural flows of support from the former to the latter) and enforced respect for common standards of democracy and human rights.

    The achievement of greater global solidarity along these lines will obviously encounter powerful resistance and will take many years even on the most optimistic assumptions. The achievement of progress in this direction will require those countries with the necessary political will to move ahead without waiting for those seeking to obstruct such progress to change their minds. As already suggested, however, the current rapid decay of the existing order offers unprecedented scope for a decisive political shift in favour of such a movement.

 


 

[i] International Monetary Fund, World Economic Outlook. September 1999. Chapter 1

[ii] International Monetary Fund, The World Economy in the Twentieth Century: Striking Developments and Policy Lessons, Chapter V of World Economic Outlook, May 2000

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