Year XXXIX, 1997, Number 1, Page 26
GLOBALIZATION AND NEW INEQUALITIES:
THE LIMITS OF THE UN HUMAN DEVELOPMENT REPORT 1996
1. “Despite the economic downturns and difficulties, the key indicators of human development have advanced in almost all developing countries. Indeed, developing countries have made much more progress in human development than in income. Between 1960 and 1993 the North-South gap in life expectancy was more than halved, from 23 to 11 years”.[1] […] Indeed, the developing countries have in many respects covered as much distance in their human development during the past 30 years as the industrial world managed over one century (my italics). The infant mortality rate has been more than halved. Combined primary and secondary school enrolment has more than doubled. And people on average now live 17 years longer. In our preoccupation with trends in pure economic indicators, we sometimes lose sight of the achievements in human lives”.[2] From these few sentences drawn from the UN Human Development Report 1996, one immediately has a clear idea of the profound changes which have taken place at world level in relations between developed and developing countries in the brief space of a generation, just as one has a concise picture of the content of the Report: which is to say a concept of well-being which cannot be summed up by the parameter of pro-capita income alone, even if for a proportion of the world population economic conditions have worsened.[3] The UN has established an indicator, called the human development index, which does not take account of pro-capita income alone, but also includes two more parameters: life expectancy at birth, and the degree of adult literacy, together with the combined quota of school enrolment at primary, secondary and tertiary levels. Put in other terms, with this new way of determining a country’s degree of well-being, the UN intends to highlight the importance of an adequate state policy supporting individual development, which is precisely a policy for education, training, and health care. Therefore, according to the United Nations, for the purposes of increasing the degree of well-being, human capital must assume the same importance until now held by physical capital alone. This fact is confirmed by a World Bank study, according to which a country’s economic growth is due 16 per cent to physical capital (machinery, construction and infrastructure), 20 per cent to natural capital (raw materials etc.), and for a good 64 per cent to human and social capital. In other words, for the purposes of economic growth, greatest importance lies with investment in research and development, education, training, and health. For example, in commenting on the results achieved by many developing countries, the Report points out that an increase of 10 per cent in life expectancy raises the economic growth rate by 1.1 percentage points per annum. But even more substantial are the effects of investment in education and training: an increase of one year in the average education of the workforce increases GDP by 9 per cent, an increase which is maintained for the first three additional years of education. After this period, the rate of growth in GDP, while perceptibly dropping, is nevertheless maintained at the level of 4 per cent for every additional year. On this subject, the Report cites the experience of Pakistan and South Korea, which in 1960 presented similar pro-capita income figures, but had very different rates of primary school education, 30 per cent in the former, and 94 per cent in the latter: in 1993 the pro-capita income of Korea, today a country of high human development, has proved three times higher than that of Pakistan, a country numbered among those with low human development.
In parallel to the improvement in the level of human development, at world level considerable progress has also been made towards democracy: “more than two-thirds of the world’s people now live under formally pluralistic and democratic political regimes”.[4] Although the Report does not go deeper into the role that can be played in supporting economic growth by a democratic regime as opposed to a non-democratic one, it confirms that growth can favour the advent of democracy and this, allied to better distribution of wealth, in turn favours human development as a whole.
Certainly, therefore, significant progress has been made, both towards the improvement of the level of human development, and towards increasingly democratic institutions. However, to the problems which nevertheless remain, for a significant proportion of the world population which has seen its own economic living conditions worsen, and for a great number of countries where not only is there no democracy, but in which the most elementary human rights are daily trampled upon, the Report adds one which is more and more generally identified as the crux of the future economic and institutional development of mankind: the globalization of the economy. This has developed in two ways: the growth of international trade in goods and services, and the increase in the size and freedom of capital movements. The UN notes that, in the course of a generation, the world has reached a very high degree of integration: trade in goods and services now has decisive importance in income growth and hence in one of the parameters on which human development is measured. Suffice to say that the impact of exports and imports of goods and services on the world gross domestic product rose from 25 per cent to 45 per cent between 1970 and 1990: that means that almost half of world income now depends on trade, which has now assumed the same importance as in commercial relations between European countries at the beginning of the 1970’s, when the first attempt at monetary unification started with the Werner Plan. The globalization of the economy, according to the Report, is at the basis of at least three new phenomena whose importance transcends state boundaries, even of the larger countries: the growth of economic inequality, which not only affects relations between rich and poor countries, but which is also beginning to be felt within rich countries too; the growing liberalization of the movement of capital at world level; and the progressive marginalization of countries which do not participate in world commerce.
There was a real leap forward in the opening up of markets during the nineties, and this is at the origin of widespread processes of industrial concentration on a global scale. For example, in 1990, the value of total company acquisitions at world level was 420 billion dollars, a figure which increased without interruption to the point of exceeding a trillion dollars in 1996. The effect of these initiatives, apart from rationalising supply on a world scale (consider for example recent events concerning the telecommunications and aeronautical sectors), has also been to concentrate wealth heavily in the hands of few countries and few people, so that a global anti-trust problem is beginning to present itself. Moreover, the competition of emerging countries, which are characterised by an un-developed social state with minimal guarantees for workers, the unemployed and pensioners, is inducing industrialised countries, under the impulse of world competition, to reduce the level of social protection. As an example of the new nature of economic inequality, the UN notes that the net worth of the assets of the 358 richest individuals in the world is equal to the combined income produced in a year by the poorest 45 per cent of the world population, and that in the largest economy, the United States, “the richest 1 per cent of the population increased its share of assets from 20 per cent to 36 per cent” between 1975 and 1990.[5] The phenomenon of inequality is therefore emerging in a new light, both because of the dimensions involved, and because it also concerns distribution of income within industrial countries. In the economic context of the past, the response of state aid for development — i.e. a policy which belongs to the sphere of cooperation between states and not to what a transnational federal government can effect — could seem an adequate response to overcome the inequality between rich and poor countries. Just as the policy of the Welfare State could be considered adequate to overcome internal inequalities in nation states. Now that the dimension of the state no longer coincides with the dimension of the economy, and wealth — and the income which this produces — easily escapes the power of national taxation, obstructing its redistributive function, the need for a global response is becoming increasingly obvious.[6]
As for the importance that is being assumed by the growing freedom of capital movements, the Report observes that in the period 1965-90 “financial flows have reached unimaginable dimensions. More than a trillion dollars roam the world every 24 hours, restlessly seeking the highest return. This flow of capital is not just offering unprecedented opportunities for profit (and loss). It has opened the world to the operation of a global financial market that leaves even the strongest countries limited autonomy over interest rates, exchange rates or other financial policies”.[7] The importance assumed by the movement of private capital, over the years, has in turn produced a new effect: it has considerably reduced the role of state aid in the total funding which has flowed towards developing countries. The total flow of aid, between 1987 and 1994, has tripled, and the proportion of private capital, over the same period of time, has grown from 37 per cent of the total to 76 per cent, which means that the proportion of discretionary capital movements has overtaken that of those activated by political decisions and has obtained, at least so far, indisputable results. This fact constitutes a new element which must be taken into account: it highlights the fact that an effective development policy, considering the limited capacity for activation of state capital, cannot do without the intervention of private capital, and in the second place that the latter, not being regulated, favours some areas to the detriment of others. Indeed, as the UN again points out, the destination of private capital is concentrated in few areas: the most substantial part of total direct investment (84 billion dollars) in 1994 was directed 40 per cent towards China, 24 per cent towards Hong Kong, Indonesia, Malaysia, Singapore, and Thailand, and only 3.6 per cent towards sub-Saharan Africa, which represents the true problem of development today, in that it fails to attract private capital in sufficient measure to support its economic take-off.
A highly unstable political situation, and here we come to the most important question in international commerce, not only hinders participation in the world market, but also hinders interregional trade, discourages foreign investors and instigates an allocation of resources which penalises human development. On this subject, the World Bank recently pointed out that there is a strong correlation between conflicts and poverty and that fifteen of the twenty poorest states in the world have had serious conflicts starting from the 1980’s; here the Bank refers in particular to the African continent, which has the least involvement in world commerce and is also the part of the world where interregional trade — in contrast to intra-European, intra-American and intra-Asiatic trade — is the least developed. Not only that: the situation of permanent political and military tension in Africa explains how between 1960 and 1994 the proportion of armaments spending over gross domestic product could increase from 0.7 per cent to 2.9 per cent. In other words, while at world level the relationship between volume of military spending and that of spending on education and health was reduced from 104 per cent to 37 per cent between 1960 and 1991, in Africa, over the same period, it increased from 27 per cent to 43 per cent. This means that in this continent the distribution of resources has been to the detriment of human development, and it is no wonder that among the 48 countries which the UN considers of low human development, a good 38 belong to the African continent.[8]
2. The 1996 UN Report has the merit of raising the problem of the inequalities produced by globalization of the economy not only between rich and poor countries, but also within the rich countries themselves. The weak point of the report is that no solutions are provided at the institutional level. However, consciousness of the need for a world response to the problems of inequality and development is beginning to make progress among political leaders and men of culture. Pierre Mauroy, President of the Socialist International, recently observed that “one has to respond to the globalization of the economy and finance by means of the globalization of politics and democracy”.[9] Mauroy then goes on to set out a series of objectives (reform of the international monetary system, enlargement of the G7, the fight against unemployment, etc.) which should form a worldwide initiative. John Kenneth Galbraith, for his part, moves on a step from the need for a generic political commitment at world level and, in commenting on the crisis of the Welfare State at national level and the inequalities produced by globalization, instead identifies the objective to pursue as radical institutional change, affirming that “the economic and social responsibilities of the nation-state are a transitional phase. The ultimate goal is a transnational authority provided with suitable powers, not excluding the raising and spending of revenue, that go with it”.[10] In substance, Galbraith maintains that in the age of globalization the policy of the Welfare State must also tend to be global. Only in this perspective, which brings the process of globalization of the economy back under democratic control, is it thinkable that the inequalities in distribution of wealth, both internal and international, can be limited, and the political conditions created for private capital to continue to make its contribution, alongside state aid, to overcoming development gaps, without any discrimination between the various world areas.
Confirmation that the fundamental point emerging is greater democracy at world level can be drawn from the outcome of the recent World Conference on Food, called by the FAO last November. The conclusions of the Conference once more highlighted the fact that significant progress towards the solution of one of the most important global problems, that of hunger, cannot be made without reinforcing the powers of the UN. The attitude taken by the USA with regard to the content of the final declaration is emblematic. They opposed both the introduction of the right to food as an internationally recognized right, and the setting up of a tax on GDP aimed at funding food aid programmes. The USA therefore opposed the strengthening of instruments aimed at supporting poor countries and administered by existing international bodies: the concern implicit in this attitude is that of excessive delegation of powers to institutions where they have no right of veto. It would however be mistaken to assign all responsibility to the USA alone: Europe, indeed, has its own specific faults, in that it could set an example, in the first place by deciding to finance the European Development Fund (EDF), not with national contributions, but by drawing on the community budget. It is to be noted that the EDF is the only European fund financed by national contributions. Moreover, by profiting from the on-going discussion on the revision of the Treaty of Maastricht, Europe could speed up the timing of the shift to a single foreign and security policy, which would allow it to carry out an effective policy of aid to the Third World, and in particular Africa, and to support the reinforcement of the powers of the UN. In the second place, it is objectively hard to imagine that the United States, or any other area of the world which was called to intervene significantly in support of the poorest countries, should agree to delegate the responsibility of managing the problem of development to bureaucratic institutions, when instead this problem requires the democratic transformation of the United Nations institutions.
Domenico Moro
[1] UNDP, Human Development Report 1996, Oxford University Press, Oxford, 1996, p 4.
[2] UNDP, op. cit., pp.l7-18.
[3] According to the Report, economic conditions have worsened for 20 per cent of the population. It should however be noted that this 20 per cent is largely concentrated in few areas of the world, prevalently in Africa, followed by some countries of Latin America and Asia.
[4] UNDP, op. cit., p. 59.
[5] UNDP, op. cit., p.17.
[6] On the limits on the nation states’ powers of taxation, cf. AA.VV., Nazioni senza ricchezza, richezze senza nazione, Bologna, Il Mulino, 1993.
[7] UNDP, op. cit., p.8.
[8] The African prevalence in terms of number of states disappears if one takes population into consideration, since the countries of low human development include India. For the latter country separate considerations must however be made. First of all, India is a continent which constitutes a unified single market, while the African continent is divided into dozens of sovereign and independent states, and in the second place the Indian economy is growing at a very high rate — over 5 per cent annually in the period 1985-93 — and it is forecast that at the beginning of the year2000 it will become one of the principal economic powers in South East Asia.
[9] Pierre Mauroy, “Pour une mondialisation de la politique”, in Le Monde, November 6, 1996.
[10] John Kenneth Galbraith, The Good Society, London, Sinclair Stevenson, 1996, p. 119.
