Globalization and Workers

Stan G. Duncan

Dani Rodrik, a very thoughtful economist at Harvard (yes, it's possible), posted the chart below the other day (his original is here) and it got me thinking.

It's a little confusing, but here's what you want to look at. There are three bars. The bottom bar represents the growth in labor productivity before the modern leap into globalization, 1950 to 1975. He refers to this as the era of "Import Substitution," when countries tried to substitute imports with their own internal manufacturing.

The middle bar is the time during the heart of the debt crisis, when the Reagan and Thatcher administrations and the IMF were trying to use the debt of poor countries as a tool to launch the world into a radical "free" market economy, 1975 to 1990. And the top bar represents full bore, "Washington Consensus" economic globalization, 1990 to 2005.

I might argue a bit with his dates (he puts the beginning of the debt crisis with when they started borrowing. I would have set it at when they had to start paying the debts back) but basically I get his point.)

Now look at the shading. The movement of labor within one sector of the economy is the gray area, between sectors, say farming and manufacturing is black and across both is white.

Ignore the middle period for now and note that the growth of workers within one sector didn't change much in the bottom and top. But the really interesting thing to look at is the black band.

The chart measures the amount of labor productivity of the two eras. The first thing to notice is that labor productivity in the pre-globalization era, which was based on import substitution, is almost twice as large as the era of extreme globalization. Even more interesting to me is the growth in workers who move around between industries. In the pre-globalization age, labor is about seven times larger than in the globalized age.

Here's why. During both eras people moved from the farms to the cities. That's not always a good thing, but in the first era they at least moved off the farm and into productive work. They then moved around within the jobs. They advanced. Their incomes by and large went up . In the era of rapid globalization, they also moved from the farms to the cities, but then they got a job with pud wages and eventually when their wages were about to go up they got laid off and the plant hired somebody else just off the farm and hungry enough to work for pud wages again. The age of globalization brought very high productivity (mainly for exports) but with seven times less employment. People came to the cities, took a job, lost it, then moved to the beaches to sell tee-shirts and Chiclets, or sell drugs, or beg, or move to the US to pick water melons or clean houses. The human cost of globalization has been catastrophic. And in it's own geeky simple way, this chart shows that.

The Economic Meltdown and the Third World

Stan G. Duncan

Years ago I was drinking sangrias at a cock fight outside of Cuernavaca, Mexico, with a guy who had just gotten fired from the Mexican finance ministry (long story, don’t ask).

Among other things we talked about (like why did you take me to a cock fight?) also asked him why he got fired. He said something like, “The US is in a financial crisis, and whenever your economy stumbles, ours collapses. You are like a giant water buffalo and we are the little animals that live in its coat. When you are healthy, we are fine. But if you fall over, or run stupidly into a fire, you get hurt, but we burn up. We are your needed, but unwanted bastard step-child.”

That was a long time ago and the financial crisis passed and now we are in another one. But our conversation has been haunting me as our nation is once again mired in the worst financial briar patch in generations. I wonder how my friend is doing these days?

During the fake money boom years of the US, a better than average amount of money tricked down to the poor and developing countries of the global south, but recently most of that has disappeared. For example, basic credit has dried up and what’s out there cost twice as much. It’s bad for banks in the US but awful for banks in Honduras. Bank lending to emerging markets slid from $410 billion in 2007, to $167 billion in 2008 and will be around $ 60 billion in 2009. A new World Bank study of the effects of the recession on developing countries found that private investments (which is different than loans) fell from $1.2 trillion in 2007 to $707 billion in 2008. And it projects that the inflows will be cut in half this year to just $363 billion.[1] I realize all of this looks like just a bunch of numbers, but in real terms it is about real people. On the ground in real countries it means no schools, no health care, no infrastructure improvement, and many people will die.

The second thing is trade. Developing countries are like export platforms to places like the US and Europe. In Trinidad, for example, exports of commodities account for almost twenty-five percent of their entire GDP. But the World Bank has recently projected that prices for developing country commodities will fall by around twenty-three percent this year. And that doesn’t even count the black hole of tourism this year. Hotels in the Caribbean, a major magnet for tourists, are expecting an eighty-percent drop in occupancy and are offering sixty percent discounts[2] (if you still have a job, this deal’s for you). Imagine what your own life would be like if your income dropped that far in less than a year (no, wait, some of you probably can imagine that).

The third thing is remittances, Those are the extra money that immigrants send home after cleaning toilets in Tulsa or picking watermelons in California. In many countries remittances are so high they are greater than what they receive in foreign aid and they rival the income from their major exports. Remittances make up 24 percent of Guyana’s GDP and 25 percent of Honduras’. Migrant workers sent over $ 8 billion to the Caribbean and $ 11 billion to Central America to support their families during 2006. That is expected to suffer a steep decline this year, probably around a fourteen percent drop.[3] It will be devastating to communities that depend on them.

As if we didn’t need any evidence, a recent study put out by the British Institute for Development Studies[4] showed that underclasses in poor countries are eating less often, pulling their children out of schools to work the fields, and families are being broken up as husbands are forced to leave home looking for work. Remember too, that in addition to the present crisis, last year’s oil price spike and multi-national crop failure and creeping climate change, had already begun causing human destruction throughout the third world like a modern black plague.

So, what can you and I do about it? Well, the short answer is not much. On a macro level, even if the wealthy countries stepped up to the plate and spent the paltry $20 billion they promised in April to help the developing world (which they won’t) it still wouldn’t make up for the amount that has been lost by the decline in remittances. And if you and I gave more money to Church World Service (which we should), cumulatively it would help only a fraction of the people who have lost their homes to the global destruction.

What it would take in the long run would be a complete re-drawing of the global economic map. The financial crisis that we are going through is terrible, but it is a bi-product of a much deeper economic structural problem that until addressed will continue to force these wild and painful bi-polar economic mood swings onto the world forever.

Things like an international regulatory agency with enforcement powers which could reign in the banks who make dangerous obsessive compulsive bets with other peoples’ money. And do it with impunity because they know that they will always be bailed out by rich country governments if they bet the farm and lose everything.

Re-writing of global trade rules that are now subtly (and sometimes not so subtly) biased towards the countries with the most money (remember the Golden Rule: Those who have the gold get to make the rules). And an end to policies that force poor countries to continually over produce, which is good for us because we can buy things for less money, but bad for them because they have to sell things for less money.

Dismantling (and in some cases arresting) the oligarchies who have ruled both rich and poor countries (starting with our own) since at least the beginning of the modern age of globalization (which I put at August, 1982, but that’s for another time).

And a few others.[5]

What small things can you do? Well, we’re not helpless. Don’t do nothing because you can’t do much. For one thing, if you have a job you really ought to be giving more money to Church World Service, or Oxfam or another fine development organization. It can’t save the world, but it can save a family, and that’s a start. Click here for Church World Service.

For another, there are several bills in Congress right now that are a down payment on a new international economic order and you can write your senators and representatives in support of them.

For example, Bread for the World, the Christian hunger and poverty lobby is sponsoring a bill that would completely overhaul and make more effective the way the US allocates its foreign aid money. It’s in John Kerry’s Senate Foreign Relations committee right now. Write him a letter telling him you support it. (More on the bill here, and how to write Kerry’s office here).

Second, JubileeUSA, known best for its relentless campaign to lift the crippling debts that have been drowning most of the developing world for thirty years, is still alive and involved in a number of important campaigns for better financial structure and terms of trade around the world. A good example is their “Vulture Fund” campaign. Vulture funds are the insidious, immoral companies that buy the defaulted debt of poor countries from the original lender, often for pennies on the dollar. Then they wait until a country receives debt cancellation from governments or international financial institutions and then sue in US or European courts to seize the newly available resources and make the poor country pay top dollar. It seems impossible to do, but they are doing it and they should be stopped. There is a bill in Congress about it now. Click here to go to their web page and get more information.

Interestingly, both Bread and Jubilee host a special Sunday for churches each year to highlight their issues in a worship setting. This year, by total coincidence, they have fallen on the same Sunday, October 18. This is a tremendous opportunity for you to lift up the global economic crisis and our churches’ response to it. Both organizations offer sermon notes, worship ideas, and Bible studies that can help you. Put the two together and celebrate the possibility of making a contribution to lightening the darkness of this global crisis. It would be a great way to educate and motivate your congregations on how to be a part of the global community.

Bread for the World Sunday
Jubilee Sabbath resources


When my banker friend down in Mexico decided to leave the cock fight both of us had had a little too much to drink and he left the parking lot and started driving in exactly the wrong direction to get us back to Cuernavaca. After about half an hour he figured it out and turned around. “What happened?” I asked him.

He laughed. “It’s you,” he said.

“What do you mean?” I said. “I’m just sitting here.”

“Seems like every time we’re around you Americans,” he said, “we start going off in the wrong direction. I think you are a bad influence on us.” He was kidding, but he also made a point.

Maybe someday—probably not soon, but some day—there will be a time when none of our children are step-children, all of us are in the same family, and all of us will be going in the same direction. It’s a possibility, it's worth a shot, and it’s worth a prayer.

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[1] http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTDECPROSPECTS/EXTGDF/EXTGDF2009/0,,menuPK:5924239~pagePK:64168427~piPK:64168435~theSitePK:5924232,00.html

[2] Dirk Willem te Velde, “Poor countries hit harder than expected by global financial and economic crisis” (Overseas Development Institute: June 04, 2009), http://blogs.odi.org.uk/blogs/main/archive/2009/06/04/global_financial_crisis_poor_developing_countries.aspx?utm_source=newsletter&utm_medium=email&utm_campaign=20090707

[3] Ibid.

[4] http://www.ids.ac.uk/

[5] Joseph Stiglitz gives a list of about twenty suggestions coming out of the “UN Commission of Experts,” which he chairs. See “A Global Recovery for a Global Recession” The Nation, July 13, 2009.