Log on to the website of the UK government's Department for International Development and you will find the motto:

"working to eliminate world poverty". Pride of place is given to the department's paper on "Making globalisation work for the poor".

Since the anti-capitalist movement moved from the side streets to the main avenues of political life, the leaders of the IMF, World Bank, the WTO and the G7 governments have tried to reposition themselves.

In March, Horst Köhler managing director of the IMF intoned: "Widespread poverty in the midst of global prosperity is both unsustainable and morally unacceptable. World poverty is thus the paramount challenge of the 21st century."

Apparently, the IMF is no longer in the business of overseeing structural adjustment programmes which cut health and education so that foreign debt servicing can continue.

The World Bank is no longer forcing development loans upon Third World governments so that US and European multinationals can turn a huge profit building dams and roads where they are not wanted by local communities.

The WTO is no longer drawing up plans for prising open markets in the South so that peasants have to compete with the big agri-capitalists of the North.

No, these institutions have all had a makeover. Now their aim is to eliminate poverty, to work in co-operation with Third World peoples to make their governments more accountable and less corrupt, to raise education and health levels. In short, to make governments effective and markets efficient and to show that "globalisation is good for you"

Naturally, these institutions are not charities. The path to prosperity for the world's poor lies in promoting more economic growth and the best way to do this, they argue, is to continue to liberalise global trade and capital flows.

The director general of the WTO, Mike Moore, made exactly this point in his speech to the Third UN Conference on the Least Developed Countries in May, 2001. He claimed that one of its studies, "confirms that those poor countries that are catching up with the rich ones are those that are open to trade. The more open they are, the faster they are converging. . . The message is clear: freeing trade boosts economic growth, and helps to alleviate poverty."

According to The Economist, where poverty still prevails it is because, globalisation has not gone far enough. Barriers to trade and capital have not been freed up enough. In essence, then, the leopard has not changed its spots.

The goal of poverty reduction can only be reached by sticking to the same old prescription: tear down tariffs, remove capital controls, privatise, invite in foreign capital. Meanwhile, the "international community" will once again try to marshal aid to specific programmes that will allow the poor to live longer and stay at school so that some of them can take advantage of the new market opportunities.

So there we have it. "A rising tide lifts all" say the pro-capitalists and growing prosperity within nations is the best guarantee of peace within and between them.

However, the reverse must also be true: growing inequality and economic decline must give rise to greater social, ethnic and political antagonism.

Which description best fits the reality of global capitalism today?

We argue in this chapter that:
• all forms of capitalism promote inequality and the liberalisation of capital and trade in the 1990s has increased it and its rate of growth with tremendous social consequences
• the number of people in poverty around the world has grown in the 1990s
• although the proportion of the world's population in poverty has fallen slightly, mainly because of China's growth, in many countries it has grown

Inequality, if not poverty, is always with us
The orthodox neo-liberal view used to be that economic growth would naturally deliver "convergence" of rich and poor nations. But you no longer hear that particular line of defence from the main agencies and their supporters in the media.
The United Nations Conference on Trade and Development (UNCTAD) annual report for 2000 on the Least Developed Countries (LDC) concluded:

"In the early 1990s, there was a widespread expectation that the globalization of production systems and of finance, and the liberalization of economic activity, would promote diminishing income disparities between countries within the global economy. . . However, overall progress in increasing real incomes, reducing poverty and moving towards various international targets for human and social development has been disappointingly slow."

In fact, if we examine the evidence for "diminishing income disparities between countries within the global economy" it does not indicate even a slow progress but a sharp worsening of the problem. The weight of evidence proves beyond reasonable doubt that inequality of income and wealth in the world has widened during the 1980s and 1990s, exactly the period when liberalisation of trade and capital flows increased dramatically.

A recent World Bank study by Branko Milanovic gathered data for 83 per cent of the world's population for the years 1988-93, using household income surveys rather than GDP. Using the Gini coefficient (0 means perfect equality, 100 means one person holds all the wealth) this study proved that world inequality increased from 62.5 in 1988 to 66 in 1993. This is a faster rate of growth in inequality than was experienced in the USA and UK in the 1980s under Reagan and Thatcher.

A further study using the same data concluded that the share of the world's income going to the poorest 10 per cent of the world's population fell by over a quarter, whereas the share of the richest rose by 8 per cent.

Why has global inequality increased? There are four proximate causes:

• faster economic growth in OECD countries than in developing countries

• faster population growth in developing countries

• slow GDP growth in rural China, rural India and Africa

• rapidly widening inequality between urban and rural incomes in China

The sheer size of the populations in India and China, and their weight in the world's total, together with the gradual opening up of India to foreign capital and the process of capitalist restoration in China, accounts for much of the increase in global inequality.

Indeed, given the faster pace of India's liberalisation after 1992 and the dramatic deepening of disparities between town and country in China over the last 10 years, there can be little doubt that a survey today would indicate a further sharp increase in inequality.

The process of capital accumulation and investment in the Third World in the 1990s was an extremely uneven one both within and between countries. In China, for example, capital investment has been heavily concentrated in the coastal provinces and some interior urban centres.

This has sucked labour out of the countryside, raising urban working class wage levels in some areas but impoverishing tens of millions in the rural areas.

Official figures show that rural inequality nearly tripled between 1980-2000 and doubled in urban China in the same period. The richest 20 per cent of households receive 42 per cent of the income, whereas the poorest 20 per cent only receive 6.5 per cent. Added to this, population growth is greater amongst the poor, a phenomenon only too apparent in India and China.

The process of technological renewal and investment is invariably to the advantage of the countries in which the major multinationals are based. They retain a monopoly of key research and development facilities and monopolise the fruits of their application in terms of enhanced productivity.

One result of this is that the prices of goods and services exported from G8 countries are increasing faster than those of goods and services exported by the South. These price trends mean that the majority of the population of poor countries can buy fewer and fewer of the goods and services that enter into the consumption patterns of the rich-country populations.

Of course, it is not just within Third World countries, or between them and the OECD members, that inequality has widened under globalisation. It is no accident that the pacesetters of liberalisation and privatisation – USA and UK – have recorded the biggest domestic increases in income and wealth inequality of all G8 countries.

Under the first Clinton administration (1993-96) the share of national income going to the top 5 per cent of the population increased at a faster rate than it did during the Reagan years. The top 20 per cent of the wealthy increased their share of national income from 46 to 49 per cent.

In the US, the mechanism for this growing disparity was clear enough: wages were pegged while the benefits of increased productivity went to the bosses in the form of profits. Real wages were stagnant from 1979-95 and only grew at around 1 per cent a year for the rest of the 1990s. This was the point at which manufacturing productivity took off (3-4 per cent pa) leading to profit levels in 1997 being 100 per cent above the levels of the early 1980s.

Globalisation was central to this process since downward pressure on wages stemmed from a massive assault on trade union rights and organisation combined with export of jobs to Mexico (about 100,000 a year in 1980s) to take advantage of cheap labour and no union rights in the maquiladora border zone.

That inequality has widened is less and less contested. In its survey of India, The Economist observed: "Inequality is bound to grow when the guiding principle for sharing out resources shifts from entitlement to competition" (2/6/01). In the same issue, we find an article entitled: "Market reforms mean that China is becoming more unequal."

One response of the pro-capitalists has been to turn the argument around: "if inequality has increased in Africa, rural China and rural India they are victims of the lack of globalisation. It makes better sense to extend the scope of globalisation - which means addressing the causes of their isolation." (Economist 28/4/01).

What this conveniently ignores is that the process of world capitalist development is an uneven one. As the examples of China and India show, "opening up" such countries means forcing millions off the land because they cannot possibly compete with cheap imported food. Many gravitate to the cities where they provide cheap labour for export-oriented industries.

But those left behind become more and more impoverished as sources of income dry up. In short, the relative prosperity of urban capitalist development is predicated on the decline of the rural interior.

The idea that rural India and China suffer from "too little" globalisation (i.e. opening up of markets, ending protection) is ludicrous, given that this is what has destroyed their way of life. Elsewhere, The Economist admits that the next stage in China’s embrace of globalisation, entry into the WTO, will worsen the problem of inequality as "state-owned enterprises collapse and other companies benefit from improved access to world markets. Rural incomes will be further depressed by increased agricultural imports."

The same pattern can be observed in Mexico. An average of one new factory a day opened in the 1000 mile border corridor with the USA during the 1980s, creating tens of thousands of new jobs, producing (or assembling) goods destined for re-export back to US consumers. The number of Mexican billionaires grew, but inequality widened as 40 per cent of the population were left beached by the globalisation tide.

A final argument against the idea that " globalisation has not gone far enough" is found in the record of the LDCs during the 1990s. UNCTAD's report for 2000 concluded:

" IMF data actually show that trade liberalization has proceeded further in the LDCs than in other developing countries. In 1999, for 43 LDCs for which data are available, 37 per cent had average import tariff rates of below 20 per cent coupled with no or minor non-tariff barriers, whilst amongst the 78 other developing countries in the sample, only 23 per cent had this degree of openness. . . Similarly, UNCTAD data for the late 1990s show that in a sample of 45 LDCs only 9 maintain strict controls on remittances of dividends and profits and capital repatriation. Twenty-seven LDCs have adopted a free regime, guaranteeing such transfers, whilst nine have a relatively free regime . . ."

Moreover, "the record of the 1990s shows that there has been an accelerating process of economic liberalization in many LDCs. In fact 33 out of the 48 LDCs have undertaken policy reforms under the IMF-financed Structural Adjustment Facility (SAF) or Enhanced Structural Adjustment Facility (ESAF) programmes since 1988."

Yet it is the LDCs, which have responded most readily to IMF strictures for reform and more openness, which have been most impoverished by the process. According to UNCTAD, "the number of people living in poverty is increasing in various regions of the world, and the poorest countries are failing to catch up with developed and other developing countries, and some are getting stuck in vicious circles of economic stagnation and regress... economic growth was too slow in most LDCs to make a significant dent in the unacceptably high rates of poverty. "

"Inequality is good for you"
If you cannot deny the fact of growing inequality nor its association with more and more globalisation, then why not turn it into a virtue?

This is the standpoint of those who argue that inequality is inevitable. Of course, this argument is in flat contradiction to the first. If inequality is inevitable, then it is hard to see how "more globalisation" will eliminate it by spreading the benefits of investment more evenly. This does not, however, stop the same ideologues putting the two contradictory arguments side by side.

Their argument is that inequality provides market incentives for entrepreneurs and companies to take risks and invest. This in turn boosts growth and this creates the "rising tide which lifts all".

What matters, goes the refrain, is not inequality but poverty. Irrespective of what happens to the rich minority, as long as the real incomes of the people at the bottom do not fall and the numbers living in absolute poverty do not rise, then capitalism and open markets are doing their job..

There are three responses to this:

• rising inequality does matter and has profound social and political consequences which the pro-capitalists try to disconnect from their causes
• absolute poverty has increased in many countries even if it has fallen in others
• the international agencies and governments have failed miserably to carry out the measures which they said would alleviate the poverty caused by liberalisation and have fallen way behind in the objectives they set themselves.

Why inequality, or relative poverty, matters
Rising inequality causes social conflict. In the globalised world, the mass media promote First World consumption patterns as the birthright of anyone with a TV set to see them. Yet, across the globe, as much as 60 per cent of a population may live in poverty.

The realisation that within their own societies a minority prosper while the majority suffer, fuels resentment and the demand for change. People use what means they can to get the goods and services they need and want. Internally, this spans the range from political and economic mobilisation to crime. Internationally, it not only stimulates a dramatic rise in crimes such as piracy, patent evasion and illicit drug production but also spurs migration from the poor countries to the rich.

China, so often praised for the single mindedness with which it has pursued market reforms, is a case in point. At a press conference in March, 2001, Prime Minster, Zhu Rongji, admitted that "the general public has voiced fairly strong complaints about income distribution" which he said was now at 39 on the Gini co-efficient. Since a level of 40 is recognised as a "warning light" this was a stark enough admission.

But the official news agency has said it is 46 and other analysts say it is 60. Worse, possibly, than the level of inequality, is its rate of increase which provokes massive grievances; the gap between rural and urban incomes in China increased by 50 per cent in the 15 years up to 1999.

In May, 2001, Beijing publicly recognised that market reforms had led to a wave of unrest across the country, including armed demonstrations of tens of thousands and bloody clashes between workers and state officials. Looking to the future, the same report predicted that such instability would grow in intensity as a result of further reforms required for China’s accession to the WTO.

The response of the G7 and many EU governments has been to supply the hardware for governments to maintain "law and order". At home, they criminalise those who manage to escape the impoverished regions of rural China, sub-Saharan Africa or disintegrating Russia. While they champion their own right to move capital around the globe at the click of a mouse, they deny the rights of workers to move to where there is work.

Is absolute poverty falling?
The first thing to note is that the number of people in poverty has grown in the 1990s. According to United Nations and World Bank's figures, the number of people living on less than one dollar a day grew from 1.83 billion in 1987 to 1.98 billion in 1998. Those living on less than $2 a day grew from 2.5 billion to 2.8 billion in the same period.

The second thing to register is that, although the proportion of people living in poverty did fall during these years, this was only because of substantial growth in East Asia, especially China. Even here, the 1997 financial crisis reversed the trend in most countries.

In South Korea, the proportion of people in poverty (national definition) increased from 8.6% before the crisis to 23% in early 1998 before declining to 15.7%. In Indonesia, the proportion of poor doubled during the crisis.

This tells us something important. Even during the long investment boom in Asia (1990-97) and despite an unprecedentedly long upturn in the world business cycle in the 1990s, the numbers of poor kept growing. Capitalism's productivity could not keep pace with the increase in population. This fact alone condemns it as a social and economic system and calls for its replacement by something higher and non-antagonistic – socialism.

When the cycle turned down, the numbers of poor soared as the crisis of capitalism was solved at their expense through mass unemployment and loss of income. Wage earners were turned into paupers by the market.

In Russia, the ripping up of a non-market economy and the forced imposition of capitalism saw poverty rise from 11% of the population to 43% between 1989 and 1996, and then worsen again in 1998.

Even countries which have experienced rapid growth in the 1990s have seen large pockets of grinding poverty emerge. "In the cities of China, absolute poverty is increasing" according to The Economist in 2001. By the mid 1990s, 9 per cent of urban people lived below the official poverty line ($217 a year). But this figure was 30 per cent in Xian and even 60 per cent in Shuangyashan, a city of 1.8mn which was devastated by state enterprise closures.

Even at the heart of the most capitalistically developed country in the world, poverty exists. In the United States, in the 1980s, one in four children lived below the official poverty line. 13 million people were pushed below the poverty line by Clinton’s cuts in welfare programmes in 1994.

All in all, the United Nations 2000 review of progress in the decade 1997-2006, concluded that, "the promise of poverty eradication as a result of faster growth, consequent upon stabilisation and structural adjustment programmes, generally remains to be delivered."

"You reform, we renege on our promises"
At the UN millennium summit, member countries loudly committed themselves to halving world poverty by 2015. A raft of development targets on health, mortality and literacy was laid out. Today, none are on target, even by their own admission.

The millions of poor in the 43 Least Developed Countries of the world have grounds for scepticism. At UN conferences on LDCs in 1980 and 1990, development targets were set for these nations. For their part, the LDC’s met their obligations to open up markets to trade and investment from western MNCs. We have already noted that the LDCs did more than the average Third World country in this respect.

In return what did they get? The rich nations slashed development assistance by $3.5 bn. The agreed target of each First World country was to donate 0.7 % of their GDP. This target was set two decades ago. Today, only five countries have met it. The UN says: "In practice, the share of aid to LDCs in DAC donors’ GNP fell from 0.09 per cent in 1990 to 0.05 per cent in 1998. "

The Third conference on LDC development, in Brussels, in May, 2001, did little to help except to seek even more openness in trade from the LDCs, and to promise to untie development funds and provide more infrastructural aid.

As a justification for this malign neglect and cuts in official aid, those who insisted that globalisation could be made to work for the poor said that private capital flows would fill the gap. Indeed, long-term private capital inflows into the LDCs did increase from $323.1 million per annum during the period 1990–1994 to $941.9 million during the period 1995–1998.

However, about three-fifths of this increase has been concentrated in four countries – Cambodia, Lao People’s Democratic Republic, Uganda and United Republic of Tanzania.

As a result, most LDC’s have experienced a fall in aid and not enough inward capital to compensate. The UN concludes: "long-term capital inflows into the LDCs as a whole have declined by about 25 per cent in nominal terms since 1990,"

The UN holds out a gloomy scenario for the 43 most impoverished nations on earth if globalisation continues not to serve them:

"They will be pockets of persistent poverty in the global economy, falling behind other developing countries and obliged to call on the international community for aid to tackle humanitarian crises and peace-keeping missions. They will also be epicentres for the global refugee population and major sources of international migrant workers."

Globalisation brings peace and stability
In February 1997, Donald Johnston, head of the OECD, confessed to being "bullish about the future of the planet. Globalisation is extending economic interdependence and this will bring peace and stability." In July of the same year, Thailand's currency went into free fall, followed rapidly by those of the rest of the region. Over the next year, thousands of businesses folded, 15 million were made unemployed in Indonesia alone, ethnic tension and clashes multiplied.

Yet this was the region which had "benefited" most from globalisation in the first half of the 1990s. Governments willingly got rid of exchange controls on their currencies and lowered tariffs on foreign imports. They welcomed foreign investment with open arms. More than 40% of all global FDI during 1989-94 went to China and East Asia.

How did Johnston get it so wrong? How did globalisation produce war and instability?

Johnston's naïve view of capitalism was that more economic ties meant less likelihood of wars; countries would have too much in common and too much at stake to risk war and a relapse into autarky.

Such a view assumes that capitalism develops smoothly and that its benefits gradually "trickle down" to reach the poorest countries and peoples. But capitalism does not work like that. It moves forwards in leaps and bounds with enormous disequilibrium built into its foundations.

Likewise, it suffers explosive convulsions and leaps backwards as excessive investments and optimism rebound upon those who gained most from the upturn. In this sense, the Asian crisis of 1997 was only the "normal" consequence of capitalist development and a text book example of the disruptive course of a capitalist business cycle.

The story began in the mid-1980s when Japan agreed to revalue the yen against the dollar to help reduce its huge trade surpluses with the USA. As a result, Japan's MNCs relocated large parts of their operations to SE Asia to take advantage of cheaper labour. Between 1985-90 around $15 billion of Japanese FDI flowed there, and billions more followed in portfolio investment and bank loans.

With the collapse of Mexico in 1995, fund managers the world over poured even more money into countries like Thailand. Thailand did three things to attract such funds. It fixed its currency to the US dollar to ensure foreign investors against currency risk, it liberalised capital controls and it maintained high domestic interest rates.

The money poured in. Around $70 billion worth of investments in 1994-97 to be exact. Similar amounts found their way to Indonesia, South Korea, Philippines and Malaysia.

But there was a huge contradiction built into this "development model". To attract foreign capital, interest rates had to be kept high and exchange rates had to stay fixed. However, to maintain the economy meant increasing exports and that required a lower exchange rate. The two central parts of the model were incompatible.

In 1995-96, the US dollar appreciated and, with it, the SE Asian pegged currencies. This hit the competitiveness of their exports. In 1996, there was nil growth in exports in Thailand and Malaysia.

Meanwhile, the bulk of foreign investment was in property or equities, seeking short term results. It could leave at a moment's notice. By 1996, it was clear that there was a property glut and investors feared that their loans would not be repaid. They also realised that the export boom, which brought in foreign exchange to service the debts, was flattening off.

The strong currency that attracted them was now to be the cause of their misfortune. Mass flight began. Billions of Thai baht chased restricted numbers of dollars. Panic ensued.

An account of how the capitalist market worked in this situation, when "emerging market" fund managers all rushed for the exit sign individually, but simultaneously, would run something like this:

The news from Thailand is bad. You’re not affected, your money is in Malaysia – but might Malaysia be next? You do not think so and you have good sources. But you must take into account how other managers might react. They do not have the good information you have, so they are more likely to react negatively and get out of Malaysia.

Your only choice is to pre-empt them, sell your equities in Malaysia despite your own assessment of their worth. But you are known for your understanding of Malaysia, when others see you getting out…

This is what capitalism looks like, not the idealised image that Johnston carries around in his head. The market is not, as Adam Smith presumed, an invisible hand working rationally to the good of all; each individual working to maximise their own good and, thereby, producing a collective good.

Globalisation will not reach the parts that other periods of capitalism couldn't reach. It will not end world poverty and bring peace and stability to the planet. Globalisation cannot be made "to work for the poor"; it cannot even give the poor work, it can only work to make the poor, poorer.
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