Part Three of a Series

In the age of globalization, the gap between high and low income countries is not only persisting, but in many cases it is widening, as the OECD (Organization for Economic Cooperation and Development)[1] has shown in its study of Luxembourg. While the existence of such a divide is unquestionable, its origins, structure, and consequences are not. Could one, for example, securely say that income gaps lead to conflict? Is it possible to relate intractability to this divide? Rather than answer these thorny questions, this article explores the debate with the aim of identifying its key arguments. But first, it is necessary to clarify some concepts.

Double-Standard "Free" Trade

Since Truman's inaugural words, the capitalist system has logged an incredible number of achievements. The technological revolution has brought a new standard of wealth, health and comfort to the peoples of First World countries, as well as great accomplishments in LDCs. According to E.A. Brett, these achievements have been possible due to a new institutional framework that supports "competitive markets, political freedoms, universal education, encourages objective scientific research, allows social and political criticism, and provides safety nets to reduce risk and deprivation."[2]

But Brett also observes that these achievements come with conflict. "Reducing scarcity," says Brett, "has created a crisis of sustainability as our propensity to consume exceeds our capacity to conserve diversity and control wastes; removing national barriers has exposed poor and ill-equipped peoples to the threats as well as the benefits of free trade and competitive markets; globalizing communications has reduced cultural diversity and exposed everyone to the temptations of an often materialistic and trivial international media industry."[3] In addition, Brett analyses the demands of competition in the capitalist setting, transforming workers into workaholics, with implications for stress-related illnesses, family breakdown, and the loss of traditional values and community solidarity.

The internationalization of the economy has had a direct impact in one of LDCs most important sectors: the international trade in agricultural and livestock commodities. Lagging behind in terms of industrialization, it is in the commodity market that LDCs may be competitive due to innate comparative advantages such as weather, soil, specific products, and labor costs. It is by commercializing their natural products, either raw or (semi) processed, that LDCs may achieve a balance of trade surplus. However, it is also in the agricultural markets that rich countries' policies have been most contradictory.

For example, global cotton prices have fallen by 50 percent since the mid-1990s. According to an Oxfam report,[4] when adjusted for inflation, prices are now lower than at any time since the Great Depression of the 1930s. However, as the study points out, despite its rhetoric of economic liberalism, the United States' cotton subsidies give its cotton producers an unnatural place in world market. It is only because of these subsidies that U.S. cotton is globally competitive. "Every acre of cotton farmland," says Watkins, "attracts a subsidy of $230, or around five times the transfer for cereals. In 2001/02 farmers reaped a bumper harvest of subsidies amounting to $3.9 billion -- double the level in 1992."[5] This is larger than the entire USAID budget for Africa's 500 million people, and also larger than the entire GDP (Gross Domestic Product) of a country like Burkina Faso.

The problem is not liberalization of trade. As McKay et al. have discussed, trade liberalization "can have significant impacts on poverty which may be either positive or negative."[6] Liberalization may have positive impacts in the long run because, "it stimulates broadly based economic growth." Nevertheless, as the authors state, "it can still have significant adverse effects on particular groups...especially in the short term."[7] The problem is "double-standard" liberalism, one which may spread the gospel of democratic free trade, and at the same time put people's livelihoods at risk

This is also the case with the European Union's Common Agricultural Policy, which, among other roles, protects the income of its member nations' dairy farms "through a system of price support, production quotas, import restrictions, and export subsidies."[8] According to Fowler et al, "milk production is the most important agricultural activity in the majority of EU member states," and is particularly important in France, Germany, the Netherlands, Ireland, Italy, and the UK, representing around 14 percent of agricultural production, or $38 billion, and involving 600,000 farmers.[9]

Arguing the need to attend to its own internal market, the EU introduced a system of production quotas in 1984, which was set at 120 million tons of milk per year. This is 110 per cent of today's domestic consumption, which means that a large export surplus was built into the quota system. In addition, the dairy sector receives subsidies of around $16 billion -- 40 percent of dairy production. This is, says Fowler, "equivalent to more than $2 per day per cow. Half the world's people live on less than this amount."[10]

The damage is twofold. First, within the EU, subsidies are monopolized by the dairy processing and exporting industries, which have concentrated production, transportation, distribution and trade at the expense of the small farmer. So, "the number of EU dairy farmers has fallen by more than 50 percent over the past decade, while average herd size has increased by 55 percent."[11] The same concentration of production at the hands of large transnational companies effects LDCs. Low-priced dairy products from the EU are shipped to countries like Jamaica, Dominican Republic, Argentina, and India where they undermine local small-scale production.

The cases of U.S. cotton and EU dairy subsidies are just two examples of how economic globalization has benefited a few large companies and producers while damaging the small, mostly in developing countries. There are many other cases in the commodity sector as well as in the financial sector. However, the core discussion here is whether, and how, this state of affairs leads to social conflict.

Read Article—

By Olympio Barbanti, Jr. 

ENDNOTES

[1] OECD, Income Distribution in OECD Countries: Evidence from the Luxembourg Income Study (Paris: OECD, 1995).

[2] E. A. Brett, (2000) "Development Theory, Universal Values and Competing Paradigms: Capitalist Trajectories and Social Conflict," LSE Development Studies Institute -- Working Paper Series No. 00-02, (London: London School of Economics, 2000), 20.

[3] Ibid.

[4] K. Watkins, "Cultivating Poverty -- The Impact of U.S. Cotton Subsidies on Africa," Oxfam Briefing Paper 30 (Oxford: Oxfam, 2002).

[5] S. Kuznets, "Economic Growth and Income Inequality," American Economic Review 45, no. 1(1955): 1-28.

[6] A. McKay and others, "A Review of Empirical Evidence on Trade, Trade Policy and Poverty - A Report to the Department for International Development (DFID), prepared as background document for the Second Development White Paper," mimeo (London, DFID, 2000), 45.

[7] Wolfgang Sachs, ed., The Development Dictionary -- A Guide to Knowledge as Power (London: Zed Books, 1995); and Weber M., The Protestant Ethic and the Spirit of Capitalism, (London: Unwin University Press, 1971).

[8] P. Fowler and others, "Milking the CAP -- How Europe's dairy regime is devastating livelihoods in the developing world," Oxfam Briefing Paper 34 (Oxford: Oxfam, 2002), 4.

[9] Wolfgang Sachs, ed., The Development Dictionary -- A Guide to Knowledge as Power (London: Zed Books, 1995).

[10]  See international inequality database at http://www.worldbank.org/research/growth/absineq.htm.

[11] S. Kuznets, "Economic Growth and Income Inequality," American Economic Review 45, no. 1(1955): 1-28.

Olympio Barbanti, Jr. is on the faculty in the Department of International Relations at the Pontificia Universidade Catolica de Minas Gerais, in Belo Horizonte, Brazil. He has 16 years of professional experience on issues relating to the promotion of community-based sustainable development in the Brazilian Amazon, and has delivered a number of capacity-building courses on conflict negotiation and consensus building for social and environmental NGOs, government officials, Public Attorney members, and trade union leaders. http://www.crinfo.org/