The Ranting Kraut

19.3.2006 – 27.9.2010

Michael Meacher on Globalization

Posted by rantingkraut on July 30, 2006

Back in June, Michael Meacher launched an all round attack against globalization in a Times commentary. His comment covers a wide variety of problems –real and imagined- and regurgitates some of the anti-globalization movement’s more common fallacies. Meacher:

“The share of global income of the poorest fifth of the world has actually halved since 1960 to a paltry 1.1 per cent today. World inequality has grown drastically. The richest 20 countries now have 125 times higher GDP per head than the 20 poorest countries.

The main reason for this impoverishment is that a global economy has locked developing countries into the role of primary producer of basic commodities, forced to open up their markets to transnational competition that they cannot resist as the price of receiving the investment that they cannot do without. What is needed is the right for the poorest countries to erect tariff walls to protect their infant industries, at least until they are strong enough to meet the full force of international competition.

The key is to be allowed to tailor economic policies to domestic needs — which is why for example Vietnam, subject for decades to a US trade embargo, has had a growth rate five times higher than Mexico fully plugged into the world economy via NAFTA. But this is precisely what a globalisation run by the transnational corporations in their own interests will never permit.”
(Source)

The problems faced by primary commodity exporters were discussed in the late 1950s by Hans Singer and Raul Prebisch [1] who concluded that commodity prices were destined to decline dramatically in real terms and that any foreign investments which poorer countries received would not benefit the economy at large. The more paranoid view of such a situation being the result of capitalist powers at the centre forcing poorer countries in the periphery into quasi colonial dependence dates back to the Marxist economist André Gunder Frank [2].

In fact, dependence on commodity exports is indeed often a problem for underdeveloped countries, although it is far from clear that this is due to a capitalist conspiracy. The solution Meacher has in mind however will almost certainly not work: it is precisely the kind of policy which was widely practiced throughout the 1960s and 1970s. Latin American countries in particular protected their ‘infant industries’ with the long term aim of substituting domestic manufacturing industries for imports of manufactured goods. In contrast to the export oriented policies of South East Asian countries they were not very successful.

If Michael Meacher has reasons to believe that things will work better this time round he should tell us about them –he doesn’t. So far, his love for protectionism almost resembles the attitude of diehard communists: the idea is great, it has just been badly applied wherever it was attempted. Even allowing for a hefty dose of idealism, Meacher’s comments on Vietnam and Mexico don’t make sense at all: Vietnam, it is alleged, benefited from being subject to a US trade embargo. Yet growth in Vietnam accelerated after the country liberalized during the 1990s and the trade embargo was lifted [3]. Prior to this, economic growth was anything but impressive [4].

All this can be said with respect to the practice of infant industry protection. As for legality, one should note –in passing- that a provision allowing for infant industry protection has been part of the General Agreement on Tariffs and Trade (GATT) from 1947 onwards in Article XVIII. This ‘infant industry clause’ has been incorporated into the WTO agreement [5].

Meacher’s interpretation of inequality is likewise misleading. An increase in inequality may coincide with an increase in poverty, but it need not. It may simply mean that others’ income is growing faster while yours stays where it is. It is a shame if the world’s poorest countries do not participate in generally faster economic growth, but this does not imply that the more successful ones have grown at their expense. Neither does it imply that those countries are actually getting poorer –a notion which most people would associate with impoverishment.

Using data on GDP per head from the World Bank it can be shown that the only country group for which income has fallen consistently during the 1990s is Sub-Saharan Africa. Lower and middle income countries generally have grown slightly faster than high income countries as a group during this time [6].

It is simply not true that globalization has lead to a polarization of wealth by redistributing income from the poorest countries to the richest. When Meacher points to the income share of the poorest countries [7] he may merely be highlighting that some countries fail to take part in global economic growth and so fall further behind the rest. This is unfortunate, but it does not describe the overall impact of globalization: as the above comparison of growth figures shows: a large number of middle ranking developing countries have benefited from globalization. In a domestic policy context, Meacher’s argument would be equivalent to claiming that your country’s economic system doesn’t work because the income gap between homeless alcoholics and Millionaire pop-stars is growing –it may be, but that hardly matters. One thing that does matter when judging the welfare record of an economic system is the income of the typical, or modal, income earner, not merely that of the richest and poorest strata of society.

In another part of his commentary, Meacher makes the following statement:

In the UK we are losing 130,000 manufacturing jobs a year. Thirty years ago only a fifth of manufactured goods sold in the UK were made abroad; today it is 60 per cent and rising. No economy can survive on the service sector and high tech alone.
(Source)

It may or may not be true that an economy can’t survive on the service sector and high tech alone, that’s an interesting thought, but as usual Meacher just makes empirical claims and expects us to believe them. He does not tell us why he thinks what he thinks. Be that as it may. What is really interesting about this passage is its flat out contradiction to the one quoted above: either developing countries are forced into commodity dependence by the rich world, or they are up and coming industrial powers eroding its industrial base. Both can’t be generally true at the same time.

If developing countries can threaten developed country industries they must in principle be able to compete with them. If that is so, it can’t be that the developed world is forcing them into commodity dependence. So if some countries develop successfully while others remain poor and dependent on primary commodity exports, maybe the successful lot are doing something right. It would then seem that the others are getting something wrong –just a thought.

In closing, let it be said that Meacher does address some vital issues, he just does it in a counterproductive way. Like any process of profound and rapid change, globalization is bound to create problems as well as benefits. The poorest countries’ failure to benefit from globalization is a real problem. However, what is needed is an informed debate, not a resuscitation of archaic conspiracy theories. There also needs to be a debate on how to cope with structural change in developed economies, but it needs to be based on sober discussion, not theoretically and empirically unfounded doomsday predictions.

Post Scriptum:

Throughout this post, I have criticized Meacher for not providing enough background information or data sources. This is not intellectual snobbery, nor is it a claim to authority based on a third party source. By quoting his sources, Meacher could have clarified exactly what information his analysis is based on. He could also have allowed others to replicate his results.
This would have improved Meacher’s commentary substantially. However opinionated he may be, if only we could check his data, know exactly what he measures or even what period he is referring to we could distinguish facts from opinions, spot errors or offer alternative interpretations. We could enter into a debate beyond merely approving or dismissing a piece of anti-globalization propaganda.

[1] Lecture notes on this at Strathclyde University: homepages.strath.ac.uk/~hbs96106/lecture%20notes/418-GroupD%20text.doc (Word Document)

[2] Wikipedia entry on André Gunder Frank: http://en.wikipedia.org/wiki/Andre_Gunder_Frank

[3] For a chronology of events see: http://servercc.oakton.edu/~wittman/chronol.htm

[4] In 1975, Vietnam’s per capita GDP was US$3804, by the time the embargo was lifted in 1994, this had fallen to US$1348. GDP per head then recovered, reaching US$2756 in 2004 –a value still below its 1975 level and substantially lower than Mexico’s per capita GDP level of US$9046. (The data quoted are purchasing power parity adjusted per capita GDP data in constant 2000 international US$ from the World Development Indicators.)

[5] To be picky about it: it has been annexed to the Final Act (if I understand the legal niceties correctly), http://www.wto.org/English/docs_e/legal_e/legal_e.htm .

[6] Sub-Saharan Africa experienced average GDP growth of -0.1% over the period 1991-2000; over the whole period 1975-2004 for which data are available the average growth rate was -0.2%. The growth rates for lower and middle income countries were 2.52% and 2.46% respectively for the 1991-2000 period, while for high income countries average growth was 1.72% over this decade. (The data used are again purchasing power parity adjusted per capita GDP data from the World Development Indicators. Growth rates quoted are geometric mean growth rates computed from start and end points of the series.)

[7] Meacher consistently refuses to provide data sources, but the 1.1% share he mentions is roughly consistent with the 1.75% world GDP share for Least Developed Countries obtained from World Bank Data (ppp adjusted data on GDP levels). I was not able to find evidence for the per capita GDP discrepancy mentioned by Meacher though: according to the World Bank’s World Development Indicators, the poorest 20 countries had an average per capita GDP of US$908 in 2000 while that of the richest 20 was US$31357, that is about 35 times the level of per capita income in the poorest countries. (Data for 2000 are used to avoid reporting gaps in later figures. Again, the data quoted are purchasing power parity adjusted per capita GDP and GDP data in constant 2000 international US$ from the World Development Indicators.)

[Edited for clarity, 26 January 2008]

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