Decolonising the economy

A new ourEconomy series focusing on the global economy and global justice.

Laura Basu
1 July 2019, 12.56pm

We are connected on a planetary scale. All our resources, our infrastructure, our food, energy, clothing, our electronic devices, almost everything human-made that we see around us, contains some component that someone from somewhere else has worked on. Our economy is global. It affects not only every human but also every animal, our climate and every aspect of our environment. Understanding it is absolutely essential if we want to end unnecessary human suffering and avoid environmental collapse.

Yet the workings of the global economy now seem more hidden and confusing than ever. We sometimes get smacked round the face with headlines about factory collapses in Bangladesh, child labour in cobalt mines, toxic waste dumping in west Africa, indigenous peoples being displaced from their land, or suicidal Foxconn working conditions in China, but the reporting rarely joins the dots between them in a meaningful way, and that usually leads to us wanting to crawl under the duvet and hide.

But it is the underlying structures of our world economy that connect all these things. Looking under the hood to see how the global economy really works, getting to grips with its systemic inequalities and its relations of power, might not be pretty but it is a precondition for designing a better one – one that delivers a good life for everyone while respecting our ecological limits.

That’s why today we’re launching our new series, ‘Decolonising the economy’. We aim to shed light on the global economy, by asking questions like: why do some parts of the world have much higher living standards than others? How does the wealth accumulated in the global north – itself very unequally divided – relate to what is going on in the global south? What role does the global economy play in both environmental breakdown and the distribution of the effects of that breakdown?

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We also want to think about solutions. What kinds of economic model can enable human flourishing worldwide on a healthy planet? What should be the new rules for world trade, investment, finance and migration? What are the roles of the nation-state and the local community in all this? What are some on-the-ground examples of people doing things differently, and what steps can we all take to transform our global economy?

Decolonising the economy aims to be a hub where voices from across the globe and from different political and intellectual traditions can come together to delve into these fundamental questions, join dots, flesh out ideas, and look together to a better shared future.

The rest of this introductory piece gives a first taste of some of the issues we’ll be exploring over the course of the coming weeks. We kick off by taking a look at globalisation and asking, following the title of our series, to what extent is our global economy imperialistic?

Globalisation – what is it good for?

Globalisation is a strange beast. It is currently on the firing line for disadvantaging the working classes of the US and western Europe – some of the richest regions of the world – to the benefit of emerging countries where manufacturing jobs have been outsourced. Hence the emergence of tariff wars and Donald Trump’s determination to make America “great again”.

But back in the 1990s and early 2000s, globalisation was under attack for basically the opposite reason. The global justice or anti-globalisation movement argued that the world economic order was stacked in favour of rich countries and corporations, allowing them to extract of value from the global south while outsourcing environmental harm.

Both of these narratives counter what until recently has been the mainstream narrative, which is that globalisation is good for everybody, pulling millions out of poverty and allowing developing economies to catch up with their wealthier counterparts. So what’s going on?

The big picture

According to the World Bank, a billion people have been lifted out of extreme poverty over the past 25 years, and the global poverty rate, at around 10%, is the lowest it has been in recorded history. That figure is less heartening, however, when it turns out that the threshold for extreme poverty is set at $1.90 a day, and even then in sub-Saharan Africa more than 40% of the population is below that line. The figure for South Asia is 12%. Much of the progress made in lifting people out of extreme poverty has been confined to China.

Meanwhile, inequality is on the rise both within countries and globally. Oxfam’s latest jaw-dropper is that 26 people own more wealth than the 3.8 billion people who make up the poorest half of humanity. Between 2017 and 2018 the wealth of the super-rich grew by $2.5 billion per day on average, while the bottom half of the world's population saw their wealth decline by $500 million a day over the same period.

Branko Milanovic’s famous ‘elephant graph’ shows that between 1998 and 2008, the growing middle classes of emerging countries like China, India and Brazil saw their incomes rise substantially, as did the super-rich. The working classes of the developed countries gained very little – and neither did the poorest people in the world, including those on $1.90 a day or less.

It’s a complex picture, then, with inequalities cutting across geographical divides as well as reinforcing them. Globalisation in its current form seems to be working against the 99%, from Britain to Bangladesh, and benefiting the 1% – whether that be a Wall Street trader or one of China’s newly minted billionaires. However, it’s also important to remember that the poorest people in the global south tend to be a lot poorer than the poorest in the global north. Even the economic miracle that is China has a per capita GDP of $8,827, while in the US it’s $59,927, and in Switzerland it is $80,342. In Uganda it is $606. And inequality within developing and emerging countries has risen even more than in developed countries. Something is clearly not right with the way the global economy is organised.

A rigged system

Mainstream narratives about development focus on corruption, good governance and productivity. If poor countries can only tackle corruption and raise productivity levels, they can make the most of their competitive advantage and ‘catch up’ with the developed world. However, this approach has been criticised for obscuring deeper structures which mean that the global economy is rigged in favour of rich countries at the expense of poor countries. From this perspective, it is impossible for third world countries to ‘catch up’, because the wealth of the first world is achieved at the expense of the underdevelopment of the third world. One’s gain is the other’s loss.

It is in this vein that some describe the global economy as imperialistic, claiming that globalisation is actually a fancy term for what is really an ongoing process of global imperialism. Imperialism in this sense doesn’t just refer to formal empires such as those of 19th Century Europe – though many modern-day barriers to development do stem from the days of slavery and colonialism – but describes an integrated world economy that is hierarchical in structure.

That hierarchy functions through a mix of state and corporate power, which is itself complex and contradictory. Transnational corporations are among the big winners in today’s global economy. They seek to operate above national borders, and this is how they come to exert pressure on elected national authorities, extract value from across the globe, and avoid paying taxes. However, while these corporations are transnational, most are headquartered in the ‘triad’ of the US, western Europe and Japan – rich countries. There are various reasons why this creates privileges for those places, including the repatriation of profits to the home country, and the fact that revenues from intellectual property tend to flow to the home country.

There are multiple dimensions along which state-corporate power is exercised – including the organisation of systems of global production, trade and investment, finance and migration.

Global production

Transnational corporations make profits by paying ultra low wages in the global south through offshoring or outsourcing and selling at much higher prices in the global north. Some might argue that it’s ok to pay low wages because the cost of living in say China is lower, but this equation can be turned on its head – living costs are lower because wages are lower. In any case, wages are often paid below the cost of living. There are two important reasons why firms can pay low wages. Firstly, many more people have entered the formal workforce having migrated to cities from rural areas, decreasing the bargaining power of workers. This is turn partly due to ‘land grabs’ by corporations. And secondly, immigration regimes mean that while capital is mobile, workers are largely prevented from seeking higher paid work across national borders.

Corporations are clearly major beneficiaries here, but the GDPs of the countries in which the products are sold (often rich countries) also benefit – swelling the state coffers of that country, as well as even the pockets of its citizens and workers.

Here’s an example of how it works:

Tony Norfield, author of the acclaimed book The City, tells the story of a T-shirt made in Bangladesh and sold in Germany by H&M for €4.95. H&M pays the Bangladeshi manufacturer €1.35 per shirt. 40c of this covers the cost of importing the cotton from the US. This means that 95c of the final sale price remains in Bangladesh to be shared between the factory owner, the workers, the suppliers of inputs and services and the Bangladeshi government, which also expands Bangladesh’s GDP by this amount. 6c is spent on shipping costs to Hamburg. The remaining €3.54 counts towards the GDP of the country where the shirt is consumed: Germany. €1.99 goes towards distribution costs, shop rent, sales force, marketing and administration in Germany, while H&M makes 60c profit. 16c covers various ‘other items’. The German state captures 79c of the sale price through VAT at 19 per cent, and will spend its piece of the pie on its own citizens, military and businesses (in the form of ‘corporate welfare’). It may even give "a few pennies to the poor countries in the form of 'foreign aid’'", in the words of political economist John Smith.

Global finance

Norfield has ranked countries according to an ‘index of power’ in the world economy. The index adds up countries’ nominal GDP, Foreign Direct Investment stock outstanding, outstanding cross-border lending and borrowing by banks, the use of their currency in international markets, and military expenditure. The top two countries in this ranking are the US (by miles) and Britain, which comes in second because of its immense financial sector. Other power players are China, France, Japan, Germany, the Netherlands, Canada and Switzerland. Britain’s financial sector helps offset its enormous chronic trade deficit. Out of some 200 countries in the world, perhaps 20 count as major players in global affairs. A country’s financial sector can be a deciding factor in whether it will be one of those players.

Tax havens

Although tax havens may appear marginal to the financial system, they have been at the heart of the growth of finance capitalism. Tax havens are key vehicles for modern imperialism. Britain controls a ‘spider’s web’ of offshore centres based in its former colonies.

Moreover, developing countries lose vast sums through the use of tax havens by individuals and, above all, transnational corporations. The Global Financial Integrity (GFI) programme estimates that developing countries lose a trillion dollars in illicit financial flows every year. This is compared to around $150 billion in total foreign aid. So for every dollar given out in aid, the West has been taking back some $7 under the table in illicit money.

Global governance

It has long been argued that the institutions of economic globalisation – the World Trade Organisation (WTO), the World Bank (WB) and the IMF – are set up to give countries of the global north privileges in the world market. For example, the WTO sets the rules for world trade. Almost all WTO agreements formally aim to promote trade liberalisation, preventing developing countries from taking the same measures to protect their infant industries that pretty much all rich countries have adopted in the past. There’s an exception, though, to this free-market thrust: the agreement on intellectual property (TRIPS) is protectionist, seeking to protect profits on patents – which happen to mainly be registered in rich countries.

When an economic crisis arises, the IMF and World Bank step in with loans in return for the now infamous ‘structural adjustment’ programmes. These have included privatisation, cuts to public spending, removal of subsidies on basic items, opening up the financial sector to foreign ownership, and labour market reforms to push down wages. Recipient countries are now saddled with expensive debts along with economic reforms that usually impede rather than promote development.

Our global economy

You might at this point be wanting to hide under that duvet, but there is hope. Communities across the globe are ‘taking back control’ of the resources they share with their neighbours and the natural world. New ideas are springing up for new ways of producing and distributing resources, of organising work, and of governing investment, trade, finance and migration. New paradigms for development are emerging that aren’t based on endless accumulation and growth but have a different vision for what constitutes a good life. This is what our 'Decolonising the economy' series will seek to explore. Watch this space.

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