Import Substitution in Modern China

I have been fascinated the last few days with a timely IMF working paper that argues rebalancing economic development in China will mean rapidly stimulating domestic demand and entering new non-tradable industries, even requiring some degree import- substitution. The paper is an ironic testament of these desperate economic times, considering the pervasive but wrong assertion among liberal economists that import-substitution failed in the 20th century. Besides ignoring the near complete decimation of important sectors within several developing national economies, the apologists for unfettered external export continue to pretend countries pursuing variations of import-substitution performed horribly. They didn't.

A blog post by Harvard economist, Dani Rodrik could not make this point much clearer. ISI "had a more-than-respectable productivity record" in the middle of the 20th century. So what are the prospects of the industrialization strategy making a comeback in the 21st? They could be greater than many care to admit.

The End of Global Free Trade? Not Quite

In the past, globalized "free-trade" has generated enormous hostility and intense social protests between the poor and the intergovernmental organizations who they perceive as primarily serving the interests of elites and multinational corporations. These protests have only increased during the current economic crisis. But is the global free-trade regime in any significant danger? The masters of the free-trade universe are already in panic-mode.

In the name of "ensuring that trade flows as smoothly and freely as possible" among countries, organizations like the WTO and OECD seek to prevent governments from implementing policies that regulate trade to promote national interests or benefit vulnerable citizens (workers, farmers, etc). The OECD has recently released a report called, Trade-Separating Fact from Fiction, in which the organization warns against widespread questioning of the benefits of trade and free markets during the current crisis.

Freer flows of trade are part of the solution to the current economic crisis... Still, there are calls from some to protect industries and workers against imports by raising tariffs, imposing quotas or resorting to various non-tariff barriers. We would all pay a high price for heeding such calls.

The WTO is making a similar case for continued faith in globalized free-trade, warning governments not to make "protectionist" trade policy changes in response to greater unemployment. Governments risk catastrophic social unrest if they fail to offer some relief to constituents who are most vulnerable to shocks in the global trading system. In the so called BRIC countries such as India, China, and Brazil popular outrage about increasing pauperization, unemployment, and social service cuts are challenging the stability of their societies. Over 50,000 Indian farmers for example have mobilized in recent days against the WTO and demanded that the Indian government offer more defense against the organization's dictates.

For now, many developing countries are locked in a delicate balancing act between meeting the immediate needs of their citizens, and opening new markets for their exports in wealthier nations. The contradiction between dependency on external markets for exports and meeting domestic needs suggests that there is a significant trade-off under the current economic development strategy pursued by emerging economies. A structural shift among the largest emerging economies would appear to be highly unlikely in the near future.

I predict that ultimately, the BRIC nations will side with their pocket-books and seek to continue the path toward high-speed economic growth under the status-quo in the "Doha Round" WTO deliberations. So far, it appears that BRIC governments are merely paying lip-service to the aspirations of the poor---many of whom have asked for a complete break with the WTO altogether. However, we can expect to see some coordinated push-back against future rulings that explicitly limit freedom of action on trade policy by Brazil, India et al. and while this is not the complete reorganization of the global trading system the poor need, it is a long overdue step in the right direction.

Inspired By Guadeloupe

On Monday, I attended a packed meeting hosted by the Inter-Religious Task Force here in Cleveland, OH hosting a main spokesman and labor leader from Guadeloupe. If you don't know about the awesome workers movement which took place there earlier this year, hopefully this post will change that. The event was a reminder of the massive effect everyday people can have on international debates about globalization and development.

The headliner of the event was Elie Domota, who I had a chance to speak with personally after the official program. Elie Domota is the secretary general of the UGTG, the main trade union in Guadeloupe. He is also spokesman of the Liyannaj Kont Pwofitasyon (LKP), which means the Movement Against Exploitation in creole. The general strike which began January 2009 in Guadeloupe over widespread anger about living standards, brought 100,000 people into the streets in a country of only 400,000.

The strike was met with repression by the French military and police who in 2009 still consider Guadeloupe as a region of France---thousands of miles away. A historian from Guadeloupe also shared a brief history of political events and the workers movement in Guadeloupe. In the midst of the general strike, an uprising occurred in the streets of Guadeloupe pitting protesters against the French authorities and a young man was killed in the chaos. When an agreement was finally reached on increases in the average wage of Guadeloupe, it was named in honor of the fallen protester, Jaques Renee.

A translator assisted Elie as he spoke to the audience about the general strike through his own eyes. A video was also shown as well detailing key movements of the struggle, its highs and lows. The full edited version hasn't been released yet but is expected soon. Alternative media station, Democracy Now, did a good piece earlier this year about the historic protests that you can follow by clicking here.

There was a fairly large and diverse crowd for the event and after all was said and done the audience had the opportunity to ask questions of both Elie and a Haitian labor leader who spoke about the UN's unjust actions in his country. Many consider UN presence in Haiti today nothing short of an occupation including horror stories of rape of young girls and repression of political parties.

There was so much information presented at the event, that there isn't enough space here in this blog to do it justice. What I can say is that if you have not heard about the workers movement in Guadeloupe, it is definitely worth taking a very close look at. In conversations about global development, the Caribbean is often overlooked. However, like Africa and South Asia the region is what with persistent poverty, inequality and populations hungry for social change.

Below are some pictures I took on my camera phone from the event. You can expect to hear much more from me about the ongoing sagas in both Guadeloupe and Haiti.

Joseph Stiglitz's Africa Task Force Meeting, Pretoria, South Africa

Last week the Initiative for Policy Dialogue (IPD) hosted the fourth Africa Task Force meeting in in Pretoria, South Africa. The meeting hosted a number of leading political scientists and economists who discussed the impact and implications of the financial and economic crisis on Africa, agricultural development, climate change and policy innovations to foster social and economic development. The agenda, participants, and papers presented at the event are online for public view.

Nobel prize winning economist Joseph Stiglitz founded the IPD in 2000, to open up a dialogue with specific developing countries on alternative policies and programs for development. Stiglitz is of course best known for his criticism of the tragic effect dominant economic development paradigms have had on the world's poor. The work of the IPD is a counter to many of the traditional policy perspectives supported by the World Bank or International Monetary Fund. The Africa Task Force meeting in SA highlighted cutting-edge and unconventional approaches to African development. Beyond the obvious criticisms of the failures of neoliberal globalization, the meeting really raised some specific policy recommendations that can have a positive impact on African livelihoods today. This was the kind on meeting that reminds me why development matters.

Why is Globalized Agriculture Leaving 1 Billion People Hungry?

All of us have probably seen movies lampooning the ditzy beauty pageant contestant and her selfless desire to see the "end of world hunger". All jokes aside, the steady march of global hunger is actually gaining strength, while our every attempt to fight back is encumbered by either a lack of coordination, fresh ideas, or both. The number of people in the world designated as hungry has reached a mind-blowing 1 billion. There are 100 million more people who are identified as hungry than last year, consuming fewer than 1,800 calories a day. Not surprisingly, sub-Saharan Africa has the highest rate of hunger in the world.

There are no easy answers to solving hunger in the world, but at least one thing should be obvious---what we have done up until now hasn't worked.As I explained in an earlier post on the 2008 global food crisis, people around the world aren't hungry because there isn't enough food, or even simply because of bad economic policy (although this is an important factor). The very design of globalized agriculture has unfortunately contributed to a lop-sided model that has enriched a few at the expense of many of the world's poorest.

The Impact of the Economic Crisis

Despite the good intentions of policymakers, activists and aid agencies, the economic crisis has only worsened the hunger problem, moving poor nations further away from the aim of food security. The near future looks even bleaker in light of an expectation that international food prices will be exceptionally high well into the next decade. The Organization for Economic Cooperation and Development and the U.N. Food and Agricultural Organization, released a report which predicts crop prices will be 10 to 20 percent higher during the next decade than during the previous 10 years. The current economic crisis has reduced access to food by the poor. FAO Director-General Jacques Diouf had this to say about the fall-out of the recession on the world's most vulnerable,

"A dangerous mix of the global economic slowdown combined with stubbornly high food prices in many countries has pushed some 100 million more people than last year into chronic hunger and poverty...The silent hunger crisis — affecting one sixth of all of humanity — poses a serious risk for world peace and security. We urgently need to forge a broad consensus on the total and rapid eradication of hunger in the world and to take the necessary actions."

More and more, the urban poor in the developing world are completely dependent on food that they not only can't produce, but that is produced farther away and by fewer and fewer sources. The end result is that poor families are left vulnerable to wild price fluctuations in the global market. When jobs are lost and incomes dried up there is virtually little recourse for protection. Under the status-quo, many governments are unlikely to initiate any kind of price controls on key food sources to offer some security when prices do sky-rocket.




Is Uneven Development to Blame?

There is a strong argument vocalized in the global South that the world's productive and financial resources for farming are concentrated in the hands of too few agricultural oligopolies in North America, Europe, and in Australia. In this view, the economic crisis did not create the world's hunger problem, but only exposed inherent structural weaknesses in the architecture of globalized agriculture.

The Third World Forum in Dakar, Senegal explains the uneven nature of global food production in the world lucidly in an article called, "The new agrarian question : What alternatives for the Third World peasant societies?"

"Capitalist agriculture governed by the principle of return on capital, which is localised almost exclusively in North America, in Europe, in the South cone of Latin America and in Australia, employs only a few tens of millions of farmers who are no longer “peasants”. But their productivity, which depends on mechanisation (of which they have monopoly worldwide) and the area of land possessed by each farmer, ranges between 10.000 and 20.000 quintals of equivalent cereals per worker annually..........

The ratio of productivity of the most advanced segment of the world agriculture to the poorest, which was around 10 to 1 before 1940 is now approaching 2000 to 1 ! That means that productivity has progressed much more unequally in the area of agricultural-food production than in any other area. Simultaneously this evolution has led to the reducing of relative prices of food products (in relation to other industrial and service products) to one fifth of what they were fifty years ago."

The majority rural farmers in the global South simply can't compete with the highly capital-intensive techniques of subsidized farmers in rich countries without support. In the developing world, peasant farmers are rarely supported with the appropriate technologies and processes to fight crop disease, and climate change among other external factors. Ultimately, these families are priced out of the local market for agricultural foods, which can be produced cheaper in America or Europe and with higher-yield varieties due to genetic modification. Furthermore, colonialism and later structural adjustment policies from the International Monetary Fund and World Bank coordinated the whole sale abandonment of large scale domestic agricultural production for a "competitive advantage" in the extraction of cheap natural resources or labor.

Finding Alternative Solutions to the Hunger Problem

The natural response to the global hunger crisis by most is simply more investment coupled with liberalization. The assumption being that increased spending on productive capacity, and an expansion of market access will help small-holder farmers increase productivity and income. However, this status quo approach does not address the fundamental structural deficit that developing nations have inherited. US Secretary of State, Hillary Clinton wrote an article in the Huffington Post laying out the Obama Administration's plan to fight hunger. Her policy prescriptions were more of the same market responses to the problem that has characterized at least the last 30 years i.e. "increase agricultural productivity", "stimulate the private sector", and "increase trade".

There are important organizations in the US investigating alternative responses to the growing problem of world hunger which go beyond free- market mechanisms alone. The Institute for Food and Development Policy is a think-tank in Oakland, California which, "believe(s) a world free of hunger is possible if farmers and communities take back control of the food systems presently dominated by transnational agri-foods industries." The IFDP sees the solution to global hunger as a three-pronged approach including building local agri-food systems, forging food sovereignty for farmers, and democratizing the development process.

A host of think-tanks like the Institute for Food and Development Policy, the Third World Forum and mass social movements in the global South are rightly asking for a re-organization of globalized agriculture to meet the needs of the world's poor. However, the dominant policy discourse on hunger in the US hasn't yet acknowledged the uneven structure of globalized agriculture and the need for serious transformation within the system. It seems highly unlikely that the battle against world hunger can be won without conscious policy changes in the US, Europe and other rich nations. There are 1 billion people and counting waiting for that to happen.