WASHINGTON, Aug. 19 (UPI) -- Low- and middle-income countries have fared worse in the past 20 years -- the so-called age of globalization -- than they did during the previous 20 years, and the fact is being ignored by mainstream economists, say analysts from a Washington think tank.
Speaking at a recent forum sponsored by the New America Foundation, Dean Baker and Mark Weisbrot, co-directors of the Center for Economic and Policy Research, discussed data from the report they co-authored, "The Scorecard on Globalization 1980-2000: Twenty Years of Diminished Progress."
The report rated 116 countries ("all the countries for which there was data") on economic growth, life expectancy, infant and child mortality, and education and literacy. It found a decline in progress, especially for the poorer countries, since 1980, despite claims by The World Bank and the International Monetary Fund that globalization reforms have boosted the economies of such countries.
"The last two decades have seen a number of important changes in economic policy -- like removing tariff and non-tariff barriers for international trade and liberalizing financial flows -- adopted through much of the world, and especially in the low- to middle-income countries," the CEPR study says. "This report presents a strong prima facie case that some structural and policy changes ... are at least partly responsible for these (economic) declines. The slowdown is quite dramatic for the poorest countries ... (but) countries at every level of gross domestic product, or GDP, performed worse on average in the period of globalization."
"Between 1980 and 2000, the economic growth rate for all low- and middle-income countries was only half of what it was between 1960 and 1980," said Weisbrot, at the Aug. 12 press conference. "This means a whole generation lost out on the ability to gain earning standards."
Besides creating an atmosphere where countries economically compete against each other with little regulation, Weisbrot said, new IMF rules require higher interest rates, and require countries to hold more international reserves, as criteria to get loans.
The New America Foundation forum on the report -- which was published in July 2001 -- was part of NAF's ongoing examination of the impact of globalization upon the economies of nations. The think tank has held several events exploring this issue.
"This was sparked by the issue of the very different growth rates between OECD and non-OECD nations, which has been highlighted since (U.S. Treasury Secretary Paul) O'Neill's trip to Africa," says Steve Clemons, executive vice president of NAF. "There has been lots of talk about how the growth of industrial nations is far outpacing the growth of the developing nations."
(The member nations of the OECD, or Organization for Economic Cooperation and Development, are the so-called developed nations. Non-OECD nations are the developing countries.)
Clemons said that he is in some ways critical of Den and Wesibrot's report. It is accurate, he says, but does not take into account the shifting nature of the pace of development. He agrees that the period from 1960 to 1980 saw enormous growth in the economies of less-developed countries relative to the slower growth from 1980 to 2000.
But that, he says, does not mean that growth slowed for all developing countries while developed nations expanded at their expense. Instead, he says, it means that between 1960 and 1980, many more poor nations underwent explosive growth, starting from a virtual economic standstill. As a result, from 1980 to 2000 there were simply fewer underdeveloped nations.
"Looked at in another way, we can say that more nations are coming into the upper end, and that it has been a great success."
Those nations that did not experience this earlier growth spurt tend to be the ones that are still growing slowly, he says. And these countries, he points out, are falling farther and farther behind, which puts everyone at risk.
"What does world do with these slow-growing nations?" he says. "They have weak social fabric and civil society, it is hard for them to attract investment. And they also tend to be among those nations that produce the terrorists we have been seeing."
"Globalization has increased the poverty rate," said Robert Scott, an international economist at the liberal Economic Policy Institute. "NAFTA has hurt the United States, Canada and Mexico. It destroyed three three-quarters of a million jobs in the United States and pushed wages down here, disrupted Mexico's economy by reducing wages by 25 percent, and led to a 10-year recession in Canada. Under NAFTA, big business can sue foreign governments, and there are no labor standards."
The CEPR's conclusions are contrary to other recent reports by two conservative Washington think tanks: the Cato Institute and The Heritage Foundation.
Cato's Economic Freedom of the World report, published with Canada's Fraser Institute, measures how consistent the policies and institutions of 123 countries are with a myriad of factors that create economic freedom. These factors include the size of government, legal structure and security of property rights, freedom to trade with foreigners; regulation of credit, labor and business; per-capita income; protection of intellectual property; tax laws; and overall government regulation.
Based on its index's rating scale, the Cato report concluded that the average global economic freedom rating was 6.39 for the year 2000, up from 5.99 in 1995, and has steadily improved since 1980.
The Heritage Foundation's Index of Economic Freedom graded nations on governmental policies most conducive to economic freedom. Both it and the Cato report showed that nations with high levels of economic freedom tend to have higher per capita incomes than less free nations.
The stark differences between the conclusions of the CEPR report and the Cato and Heritage studies stem from the different methodologies used in the studies, Weisbrot said.
"The Cato study grouped countries by criteria they thought were important for their own ideological reasons," Weisbrot said. "For example, they thought small government was a good thing, and counted that as an indicator of economic freedom. They used per capita income as an indicator, but that was only one of 10 factors, so how much could that influence the results?
"Their study didn't contradict anything the we said in ours. On the other hand, our study simply showed what happened over the last 20 years: we sorted countries by data alone."
Critics of the CEPR study respond by saying that the only countries that haven't fared well in the past 20 years are ones that haven't embraced globalization.
"I don't agree with CEPR's numbers," said Sara Fitzgerald, a trade policy analyst at the Heritage Foundation. "NAFTA and the WTO trade liberalization rounds have raised the yearly average savings and gains of an American family of four from $1,300 to $2,000. Countries that haven't opened their borders, like those in Latin America and Africa, who don't have strong property rights, for example, are the ones suffering."
"What is clear is that countries that have done the most to embrace economic freedom have performed better than those that have not," said Ian Vasquez, director of the Project on Global Economic Liberty at Cato. Russia has done poorly because they have abandoned socialism, but haven't embraced economic freedom. Those countries that have opened up trade but failed (anyway) can blame their failure not on globalization, but on other failed policies, like in Mexico, which held on to monetary mismanagement."
"The (countries) least integrated in the world economy are the ones that haven't made progress," agreed Carol Graham, vice president and director of the Governance Program at the centrist Brookings Institution.
Dean Baker, co-director of CEPR and co-author of the report -- along with other analysts at more liberal think tanks -- said the World Bank and IMF numbers are skewed because India and China, which are doing well economically, together constitute half of the developing world, yet aren't following the "Washington Consensus," the globalization model.
"The World Bank and the IMF lump countries into globalizers and non-globalizers, and the globalizers are dominated by India and China," said Robert Scott, an international economist at the Economic Policy Institute. "Neither country has globalized in the way that has been recommended -- they have failed to open up capital flows, have maintained high tariff barriers, and have a vast network of non-tariff barriers to trade."
"China, a communist country, has strict control of capital flows and hasn't privatized its economy; the globalization model the IMF is quoting is disingenuous," said Sarah Anderson, director of the Global Economy Project at the Institute for Policy Studies. "The CEPR report blows the cover off the myth that globalization is leading the developing world into prosperity."
Other say that China has reformed enough to be considered changed by globalization.
"China has reformed sectors of its economy, like opening up trade, deregulation of its domestic market, and privatization of agriculture," Vasquez said.
"The CEPR report was written before China joined the WTO in November," Fitzgerald said. "Since November, China had to rewrite 2,000 of their laws, crack down on corruption, and open their markets."
