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Notes On: “The Divide” by Jason Hickel

This article was originally published by “Department of Northern Affairs” and reproduced here with the permission of the author. We find the article to be informative but we must make a short disclaimer that the views expressed here and in the category of do not necessarily reflect the views of this project.


Summary

The mainstream capitalist aid/development narrative is a myth; poverty is getting worse, not better, and the global agencies charged with measuring it manipulate statistics in order to claim success for globalization, including by bringing China’s gains with a mixed economy into the picture. The roots of global inequality are imperialism in the forms of:

  1. Colonial accumulation
  2. Western intervention in developmentalist attempts
  3. Debt peonage for global south countries, resulting in governance by IMF/World Bank
  4. Illicit outflows / tax havens
  5. Unequal exchange
  6. Unfair terms of trade / imperialist intellectual property rent through WTO enforced free trade agreements.

His proposed solutions to these problems range from technocratic fixes (democratizing the WTO) to radical economic shifts (degrowth for the West!). The book neglects the question of how to build the political power needed for these reforms, and also strangely sidesteps past socialist economic experiments, in only presenting the basics of Western capitalism and global south attempts at developmentalist (but still capitalist) projects. Also little indication about how the author views China and its development model, besides hinting that it “escaped” IMF enforced SAP and managed to bring hundreds of millions out of poverty.

Part 1: The Divide

Hickel describing the problem.

Chapter One: The Development Delusion

Hickel begins the book by telling a tale of what he terms the “Development Delusion” – the standard liberal NGO/World Bank/USAID story, that poor countries can be raised up to the level of rich countries through economic “development” and aid from the West. Presents the Western public as somehow duped by this tale, which is a weak point of his reading overall – he consistently sells short the amount that all Westerners benefit from the current order of things, and instead speaks in Occupy style generalities about large corporations, the ultra-rich, etc.

He also introduces here his basic arguments for the rest of the book, in brief, and summarizes the stagnation of progress on poverty and other measures of global inequality.

Chapter Two: The End of Poverty.. Has Been Postponed

Focuses principally on the use/manipulation of poverty statistics by global agencies/NGOs in order to sell the aid narrative. Mostly technical discussion on statistics like the num. living in poverty, poverty line, etc.

That was just the beginning. Shortly after the Millennium Declaration was adopted, the UN rendered it into the Millennium Development Goals that we know so well today. During this process, the poverty goal (MDG-1) was diluted yet again — this time behind closed doors, without any media commentary at all. First, they changed it from halving the proportion of impoverished people in the whole world to halving the proportion in developing countries only. Because the population of the developing world is growing at a faster rate than the world as a whole, this shift in the methodology allowed the poverty accountants to take advantage of an even faster-growing denominator. On top of this, there was a second significant change: they moved the starting point of analysis from 2000 back to 1990. This gave them much more time to accomplish the goal, extended the period of denominator growth and allowed them to retroactively claim gains in poverty reduction that were achieved long before the campaign actually began. This backdating took particular advantage of gains made by China during the 1990s,3 when hundreds of millions of people were lifted out of extreme poverty, and deceptively chalked them up as a victory for the Millennium Development Goals.

How did the World Bank’s poverty numbers change so suddenly from a rising trend to a falling one? To put it simply, they changed the international poverty line. In 2000, they shifted it from the original $1.02 level to $1.08. While the new poverty line looks slightly higher than the old one, in reality it was just ‘rebased’ to new purchasing power parity (PPP) calculations, which are updated every few years to compensate for depreciation in the purchasing power of the dollar. If the purchasing power of the dollar goes down, people need more dollars to buy the same stuff as before. So the poverty line needs to be periodically ‘raised’ to account for this. But in this case they didn’t raise it quite enough to account for purchasing power depreciation. So the new $1.08 poverty line was actually lower in real terms than the old $1.02 line. And lowering the poverty line made it appear as though fewer people were poor than before. When the new line was introduced, the poverty head-count fell literally overnight, even though nothing had actually changed in the real world.This new poverty line was introduced in the very same year that the Millennium Campaign went live, and it became the campaign’s official instrument for measuring absolute poverty. With this tiny alteration, a mere flick of an economist’s wrist, the world suddenly appeared to be getting better.The IPL was changed a second time in 2008, to $1.25. The World Bank’s economists claimed that this new line was roughly equivalent to the earlier one, in real terms, but watchdogs like Yale professor Thomas Pogge and economist Sanjay Reddy at the New School in New York pointed out that the data was simply not comparable.12 Once again, the number of absolute poor changed overnight, although this time it went up — by 430 million people. At first glance this seems like it must have been shockingly bad news — a decisive blow to the good-news narrative. But there was a bright side, as far as the World Bank was concerned: the poverty reduction trend started to look significantly better, at least since the baseline year of 1990. While the $1.08 line made it seem as though the poverty headcount had been reduced by 316 million people between 1990 and 2005, the new line inflated the number to 437 million, creating the illusion that an additional 121 million souls had been saved from the jaws of poverty. Once again, the Millennium Campaign adopted the new poverty line, which allowed it to claim yet further gains.

 

There is yet another sleight of hand at the centre of the poverty story that is often overlooked. Remember that the Millennium Development Campaign moved the baseline year back to 1990, which allowed them to claim China’s gains against poverty. What happens if we take China out of the equation? Well, we find that the global poverty headcount increased during the 1980s and 1990s, while the World Bank was imposing structural adjustment across most of the global South. Today, the extreme poverty headcount is exactly the same as it was in 1981, at just over 1 billion people. In other words, while the good-news story leads us to believe that poverty has been decreasing around the world, in reality the only places this holds true are in China and East Asia. This is a crucial point, because these are some of the only places in the world where free-market capitalism was not forcibly imposed by the World Bank and the IMF.13 Everywhere else, poverty has been stagnant or getting worse, in aggregate. And this remains evident despite the World Bank’s attempts to doctor the figures.

Hickel here and elsewhere lumps China and East Asia together as an economic outlier block – contention here that free-market capitalism was not imposed, is that true for all of East Asia, and why.

What if we were to take these concerns seriously, and measure global poverty at a minimum of $5 per day? We would find the global poverty headcount to be about 4.3 billion people. This is more than four times what the World Bank and the Millennium Campaign would have us believe. It is more than 60 per cent of the world’s population. And, more importantly, we would see that poverty has been getting worse over time. Even with China factored in, we would see that around 1 billion people have been added to the ranks of the extremely poor since 1981.42 At the $10-a-day line we see that 5.1 billion people live in poverty today — nearly 80 per cent of the world’s population.43 And the number has risen considerably over time, with 2 billion people added to the ranks of the poor since 1981.

This story has the benefit of feeling intuitively right. After all, we’re aware that countries like China and some East Asian economies have made dramatic leaps towards industrialisation, and have produced large and growing middle classes. And indeed that is exactly the key point. As it turns out, the trend towards greater global equality has been driven entirely by China and East Asia. Take China out of the picture, and the good news narrative melts away. In fact, the economists Sudhir Anand and Paul Segal show that if we take China out of the Gini figures, we see that global inequality has been increasing, not decreasing — up from 50 in 1988 to 58 in 2005.45 This is important, because — once again — China and East Asia are some of the only places where structural adjustment was not imposed by Washington.46 Instead of being forced to adopt a one-size-fits-all blueprint for free-market capitalism, China relied on state-led development policies and gradually liberalised its economy on its own terms. It is disingenuous, then, for commentators like Charles Lane and the Cato Institute to build an inequality-reduction narrative that rests on gains from China and chalk it up as a win for Washington’s approach to free-market globalisation.

Again “China and some East Asian economies” early in the paragraph vs just China addressed later.

Part 2: Concerning Violence

Chapter Three: Where Did Poverty Come From? A Creation Story

Hickel’s chronicle of colonialism and the basis it laid for modern imperialism. Borrows heavily from *Open Veins of Latin America* for description on LatAm colonization and its impact on development of global capitalism.

Before colonialism, Europe no further ahead in living standards than China, other civilizations.

What happened to all of this silver and gold from Latin America? Some of it went to building up the military capacity of European states, which would help secure their political advantage over the rest of the world. But most of it lubricated their trade with China and India. Silver was one of the only European commodities that Eastern states actually wanted; without it, Europe would have suffered a crippling trade deficit, leaving it largely frozen out of the world economy. The silver trade allowed Europe to import land-intensive goods and natural resources that it lacked the land capacity to provide for itself. We can think of this as an ‘ecological windfall’ — a transfusion of resources that allowed Europe to grow its economy beyond its natural limits at the time, to the point of catching up with and surpassing China and India around 1800. China and India, then, provided a kind of ecological relief to overstrained Europe. Outsourcing land-intensive production also allowed Europe to reallocate its labour into capital-intensive industrial activities — like textile mills — which other states did not have the luxury of doing.

Concept of “ecological windfall” here is interesting but not explored more – just as capitalism decouples processes of agr. production and consumption (rural production, urban consumption), colonialism/imperialism decouples any connection btwn imperial state’s ecological/natural resources and its economic might.

But their most potent tool was the use of one-way tariffs, which protected Britain’s markets from India’s exports while ensuring easy access for Britain’s goods into India. It worked: India, once self-sufficient and famous for its exports, was remade into ‘the greatest captive market in world history’.The economic transformation was dramatic. Before the British arrived, India commanded 27 per cent of the world economy, according to economist Angus Maddison. By the time they left, India’s share had shrunk to just 3 per cent.

The treaties that followed granted sweeping trade privileges to Europe but conceded nothing to China in return. According to these ‘unequal treaties’, as they came to be called, Europeans could sell their manufactured goods on China’s markets while protecting their own markets against Chinese competitors. The consequences were devastating. China’s share of the world economy dwindled from 35 per cent before the Opium Wars to an all-time low of just 7 per cent. What is more, China’s loss of control over its grain markets led in part to the famines that China suffered during the same droughts that hit India. And, as in India, 30 million people in China perished needlessly of starvation during the late 19th century, after having been integrated into the London-centred world economy.

Successive colonial administrations introduced policies designed to do exactly that. As early as 1857, they began forcing Africans to pay taxes, which compelled African households to send family members to the mines and plantations for work. Those who didn’t pay taxes were punished — so there was always the threat of violence lurking in the background. On top of this, they began to systematically push Africans off their land in a process that mimicked the enclosure movement in England. The Natives Land Act of 1913 restricted African land ownership to a series of ‘native reserves’ or ‘homelands’ that totalled only 10 per cent of the country’s area. The division was brutally enforced: Africans were gradually and systematically forced off their land and into the reserves. And because the reserves were on marginal, unproductive land inadequate to support the population, Africans had no choice but to migrate to European areas for wage work.

The story in Latin America unfolded somewhat differently. Three centuries of European colonialism came to an end in the early 19th century with revolutions led by liberators such as Simón Bolívar, who, after a long period of struggle against the Spanish Crown, won independence for Venezuela in 1821, Ecuador in 1822, Peru in 1824 and Bolivia in 1825. But these and other independent nations that emerged in the wake of decolonisation tended to be controlled by autocratic local elites who were quite happy to maintain the economic arrangements that their European counterparts had imposed.

Interesting footnote here about autocratic elites which is not discussed further – what impact does this different model of development/colonialism have on present day LatAm vs. other regions.

Chapter also discusses English enclosure (primitive accumulation) and the model it provides for understanding how poverty spread to rest of the world.

First discussion of “Unequal Exchange” as Hickel defines it:

The system had two built-in features that generated increasing inequalities between the West and the rest. The first was that the terms of trade of developing economies deteriorated over time.54 In other words, the prices of their primary commodity exports gradually decreased relative to the prices of the manufactured goods they imported. This meant that they had to spend more to get less, which translated into an outward net transfer of wealth.55 The second was that the wages that workers in developing countries were paid for the goods they traded remained much lower than in the West, even when corrected for productivity and purchasing power, so the South was undercompensated for the value they shipped abroad. Together, these two patterns lie at the heart of what economists call ‘unequal exchange’ between the core and the periphery.

Chapter Four: From Colonialism to the Coup

A brief history of Third World Developmentalism (although somewhat uncritical of it), as well as Western attempts to halt or reverse it via military intervention, covert action, etc.

Also recapitulates Keynesian social policy in the West (pre and post WWII) as the basis for these developmentalist attempts.

This was the era of ‘developmentalism’. Latin America’s Southern Cone — Chile, Argentina, Uruguay and parts of Brazil — became an early success story. The epicentre of the developmentalist movement was the United Nations Economic Commission for Latin America, based in Chile. Founded in 1948, the Commission was headed by the progressive Argentinian economist Raúl Prebisch, one of the thinkers who developed the theory of dependency and unequal exchange.11 Prebisch argued that underdevelopment and global inequality were the result of the way that colonialism had organised the world system, limiting the countries of the global South to exporting primary commodities and preventing them from building competitive industries.12 And because the value of primary commodity exports was constantly declining relative to the manufactured goods they imported from the West, they were continually losing ground.Drawing on Prebisch’s ideas, Latin American governments began to roll out ‘import substitution’ strategies — a bold attempt to industrialise and produce the very commodities they had been made to import from the West at such great expense.

All of these strategies relied on relatively high trade tariffs on foreign goods, restrictions on foreign capital flows and limits on foreign ownership of national assets. Land reform was often a central part of the package. And in many cases, governments sought to nationalise natural resources and key industries in order to ensure that their citizens benefited from them as much as possible.

What set off the crisis of stagflation? Most scholars point to a few key events that happened during the Nixon administration. For one, Nixon was engaged in expansionary monetary policy — in other words, he was effectively printing money.52 On top of this, government spending on the Vietnam War at the time was spiralling out of control. As international markets worried that the US would not be able to make good on its debts, the dollar began to plummet in value and contributed further to inflation. And while all of this trouble was unfolding, another crisis hit. In 1973, OPEC decided to drive up the price of oil. The price of consumer goods suddenly shot up too, because the energy required to produce and transport them was more expensive. And because production became more expensive, economic growth slowed down and unemployment began to rise. It was a perfect storm.The crisis of stagflation was the direct consequence of specific historical events. But the neoliberals rejected these explanations. Instead, they insisted that stagflation was a product of Keynesianism — the consequence of onerous taxes on the wealthy, too much economic regulation, labour unions that had become too powerful and wages that were too high. Government intervention, they claimed, had made markets inefficient, distorted prices and made it impossible for economic actors to act rationally. The whole market system was out of whack, and stagflation was the inevitable consequence. Keynesianism had failed, they claimed, and the system needed to be scrapped. In the end, this argument prevailed. Not because it was correct, but because it had more firepower behind it — and when it came to swaying public opinion it helped that Hayek and Friedman had both won the Nobel Memorial Prize in Economics for their ideas along these lines, in 1974 and 1976 respectively.53 The argument held a great deal of appeal for the wealthy, who were looking for a way to restore their class power, and they were more than happy to step in to support it.54 The crisis of the 1970s became a perfect excuse to dismantle the social contract of the post-war decades.

Is Hickel’s explanation above adequate? Was it only an unlucky confluence of events that undid Keynesianism, or was it a crisis in the rate of profit as others have argued?

Hickel also ignores completely the relation of socialist block to developmentalist projects (he barely touches socialist economies at all for that matter).

Part 3: The New Colonialism

Chapter Five: Debt and the Economics of Planned Misery

In Hickel’s story, as coups and direct political interventions became too unpopular/costly to enact, Western leaders concluded that other means would serve better to crush the developmentalist project. However, his explanation of how debt specifically came to be a primary tool relies on the 70s oil crisis and the resulting influx of petrodollars to US banks after the agreement between Saudi Arabia and the West – this created enough capital to start a global sovereign debt market which had not existed before. Deals with IMF structural adjustment, other ways debt is used as leverage by the imperialist powers.

In the early 1980s, the G7’s goal was to use the World Bank and the IMF to cripple the South’s economic revolution and re-establish Western access to its resources and markets. On this point, they certainly didn’t fail. But there was another, deeper purpose that the World Bank and the IMF served, and that was to save Western capitalism itself. We know that from time to time capitalism bumps up against limits to the creation of new profits. There is the market saturation limit, for instance: when consumers have more than they need, buying slows down and businesses can’t turn over as many products. There is the ecological depletion limit: when natural resources run low, the cost of essential inputs begins to rise. And there is the class conflict limit: as workers bargain for higher wages, the cost of labour becomes more expensive; and if you deny their demands, or indeed if you try to push wages down to increase your profits, you risk sparking social instability. All of this makes it increasingly difficult for firms to extract big profits. When capitalism hits these limits, investors find themselves with fewer options for investing their capital, since nothing gives an acceptably high return. They can’t just put it into savings because interest rates on savings accounts are typically lower than inflation, and that means losing money. This is what economists call a crisis of over-accumulation.36 In a crisis of over-accumulation, capital begins to lose its value — and according to the driving logic of capitalism, this cannot be allowed to happen. In order for capitalism to carry on, crises of over-accumulation have to be solved; someone needs to step in to provide a way to mop up the excess capital, to funnel it into some kind of profitable investment. It is an iron law.

The race-to-the-bottom effect triggered by structural adjustment and globalisation is one of the main drivers behind this ever-widening gap. In the 1960s developing countries were losing $161 billion (in 2015 dollars) each year through what economists call ‘unequal exchange’, the difference between the real value of the goods that a developing country exports and the market prices that it gets for those goods. We can think of this as an expression of undervalued labour. If workers in the developing world had been paid the same as their Western counterparts for the same productivity in the 1960s, they would have earned an additional $161 billion per year for their exports.48 This disparity was largely the result of colonial policy, which had maintained wages at artificially low levels. But structural adjustment made this system even more inequitable. The German economist Gernot Köhler calculated that annual losses due to underpaid labour and goods rose by a factor of sixteen, reaching $2.66 trillion (in 2015 dollars) by 1995, at the height of the structural adjustment period. In other words, developing countries would have been earning $2.66 trillion more each year for their exports if their labour was paid fairly on the world market. The best way to think of this is as a hidden transfer of value from the global South to the North — a transfer that, in 1995, amounted to thirty-two times the aid budget, and outstripped total flows from the OECD by a factor of thirteen.49But another major driving force behind the growing inequality gap is the debt system itself. Not only because it paved the way for structural adjustment, but also because of the plain fact of debt service, which constitutes a river of wealth that flows from the periphery of the world system to the core. During the first decade of structural adjustment, the South sent out an average of $125 billion each year in interest payments on external debt. This flow stayed roughly steady through the next two decades, but has shot up to an average of $175 billion annually in recent years. Altogether, since the debt crisis began in 1980, the South has handed over a total of $4.2 trillion in interest payments to foreign creditors, mostly in the North. If we include payments on principal, we see that developing countries made total debt service payments of $238 billion per year during the 1980s, rising dramatically through the 1990s to $440 billion per year in 2000, and then to more than $732 billion per year by 2013. Altogether, during the whole period since 1980, the South has made debt service payments totalling $13 trillion.50 The graph on the next page illustrates the scale of these payments.

Chapter Six: Free Trade and the Rise of the Virtual Senate

Discusses the modern free trade system and the inequalities engineered into it. Technical discussion of WTO trading rules, etc. Discussion of intellectual property provisions of free trade treaties ex. copyrights on medications/vaccines (imperialist rent extracted from global south).

Chapter Seven: Plunder in the 21st Century

The less-than-legal aspects to contemporary imperialism: tax evasion, trade misinvoicing, land grabbing.

Part 4: Closing the Divide

Chapter Eight: From Charity to Justice

Hickel introduces his ideas for a “fairer global economy”:

Perhaps the most important first step is to abolish the debt burdens of developing countries. This move is crucial in a number of respects. It would roll back the remote-control power that rich countries exercise over poor countries, and restore sovereign control over economic policy at the national level. It would also free developing countries to spend more of their income on healthcare, education and poverty-reduction efforts instead of just handing it over in debt service to big banks. This will be a difficult battle, of course, since creditors stand to lose a great deal. Some that are overexposed to debt in heavily indebted countries might even go bankrupt. But that is a small price to pay for the liberation of potentially hundreds of millions of people. If we abolish the debts, nobody dies — the world will carry on spinning. Debts don’t have to be repaid, and in fact they shouldn’t be repaid when doing so means causing widespread human suffering.

 

Of course, it is unlikely that existing lenders — like the World Bank, for instance — will go along with such a plan, as it would mean relinquishing their authority over debtors and would weaken their ability to enforce debt repayment. Instead of battling the World Bank, we could create alternative institutions altogether. The New Development Bank, founded by Brazil, Russia, India, China and South Africa in 2015, might provide just such an alternative. So too might the new Asian Infrastructure Investment Bank, founded by China in 2016. If these banks choose to give finance to other developing countries at zero or low interest, and without structural adjustment conditions, they would help liberate the global South from the grip of Western creditors. That explains why Washington has been less than pleased with their emergence. At the same time, they might not be so benevolent: just as the World Bank has facilitated Western imperialism, so these new banks could end up projecting the economic and geopolitical interests of their founding nations over other regions of the global South. In other words, they might function as a tool of sub-imperialism.

 

The second crucial step towards creating a fairer global economy would be to democratise the major institutions of global governance: the World Bank, the IMF and the WTO. Allowing global South countries — the world’s majority — to have fair and equal representation in these institutions would give them a real say in the formulation of policies that affect them.

 

A third vital step would be to make the international trade system fairer. As we have seen, one of the major problems with the WTO is that it demands across-the-board trade liberalisation from all member states — the so-called ‘level playing field’. This is theoretically supposed to increase trade flows and improve everyone’s lives, but it almost always benefits rich countries at the expense of developing countries. Developing countries lose control over the policy space they need to ensure that they gain from trade. Instead of requiring across-the-board tariff reductions, trade could be conducted with an intentional bias towards poor countries, for the sake of promoting development.7 One way to do this would be to have all WTO members provide free-market access in all goods to all developing countries either smaller or poorer than themselves (in terms of GDP and GDP per capita). This would allow developing countries to benefit from selling to rich-country markets without having to liberalise their own trade rules in return. This is not unheard of. In fact, we already have a system of special preferences for poor countries — but it is limited, and the WTO has been trying to phase it out since 1994.

If we are going to have a global labour market, where companies can roam the planet in search of ever-cheaper workers, it stands to reason that we need a global system of labour standards as well. This is where a fourth intervention might lie: putting a stop to the global race to the bottom for cheap labour by guaranteeing a baseline level of human fairness. The single most important component of such an intervention would be a global minimum wage. On the face of it, this might sound problematic. For one, it wouldn’t make any sense for workers in Tanzania to earn the same as workers in Britain, for example, since the cost of living differs markedly between these two countries. Plus, what if raising wages in cheap-labour countries ruins their competitive advantage and causes businesses to flee, increasing unemployment and poverty?The current recommendation for a global minimum wage would deal with these difficulties by setting the bar at 50 per cent of each country’s median wage, so it would be tailored to local economic conditions, costs of living and purchasing power. As wages increase across the spectrum, the minimum wage would automatically move up. For countries where wages are so low that 50 per cent of the median would still leave workers in poverty, there would be a second safeguard: wages in each country would have to be above the national poverty line.

 

The fifth step would be to deal with the three mechanisms of plunder that I discussed in the previous chapter: tax evasion, land grabbing and climate change — all of which have to do with reclaiming public resources and protecting the commons.

On the whole, some somewhat technocratic fixes mixed in with larger proposals but no discussion of the overall political/state power needed to achieve these things, aside from references to some NGO coalitions or other loose global networks of organizations.

Chapter Nine: The Necessary Madness of Imagination

The final chapter, where Hickel indicates his support for degrowth/moves beyond the standard “developmentalist” model.

So the problem isn’t just the type of energy we’re using, it’s what we’re doing with it. What would we do with 100 per cent clean energy? Exactly what we’re doing with fossil fuels: raze more forests, build more meat farms, expand industrial agriculture, produce more cement and heap up more landfills with waste from the additional stuff we would produce and consume, all of which will pump deadly amounts of greenhouse gas into the air. We will do these things because our economic system demands endless exponential growth. Switching to clean energy will do nothing to slow this down.

 

The Degrowth Imperative If we peel back the false promises of dematerialisation and carbon capture, it becomes clear that the problem is much deeper than most are willing to admit. Our present economic model of exponential GDP growth is no longer realistic, and we have to face up to this fact. This presents us with a very difficult conundrum when it comes to development and poverty reduction. How can we eradicate poverty if we’re already bumping up against our ecological limits?

He considers several alternatives to GDP, seeming to fall into the trap that GDP growth is something the capitalist world has stumbled into as a key metric instead of a necessary representation of capital’s need for further accumulation. Also blames corporations focus on “shareholder returns” (again, rejecting more basic need for rate of profit)

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