World economic crisis: No room for band-aid solutions in the Third World

By Reihana Mohideen

December 29, 2008 – According to recent Food and Agriculture Organisation (FAO) figures, another 40 million people have been pushed into poverty and hunger so far this year as a result of spiralling food prices, and the total number of people suffering hunger and malnutrition has reached 963 million worldwide.

While the prices of major cereals have fallen by more than 50per cent of their peak in 2008, they still remain high compared to previous years.[1] Nearly two-thirds of the world's hungry live in Asia (583 million in 2007). In sub-Saharan Africa, one in three people – or 236 million (2007) – are chronically hungry. Most of the increase in the number of hungry occurred in a single country, the Democratic Republic of Congo, as a result of widespread and persistent conflict. The FAO predicts that the impact of the economic crisis, on the heels of the food price crisis and oil price increases, could further exacerbate malnutrition and hunger levels.

While much of the focus of the global crisis has been on the industrialised countries and the “emerging’’ economies such as China, India and Brazil, a global recession will have a serious impact on increasing poverty levels in Third World countries, through contraction in markets for their exports, reduced official development aid, declines in remittances from workers employed overseas, and “balanced budgets’’ that cut back on social subsidies and welfare for the poor.

Remittances

Remittances from overseas migrant workers, key to the economies of countries such as the Philippines, are expected to decline steeply as factories close and workers are sent home. According to Philippines newspaper reports almost half a million overseas-based Filipino workers are due to return as a result of the economic crisis. According to the International Organisation for Migration the flow of remittances to developing nations – currently about US$283 billion could decline by up to 9 per cent because of the global slowdown. India was the top recipient of remittances last year, amounting to $27 billion, or about 3 per cent of its gross domestic product. Remittances received by China reached $25.7 billion; the Philippines, $17.2 billion; and Bangladesh, $6.6 billion; according to the IOM's World Migration 2008 report (available at http://www.iom.int/jahia/Jahia/cache/offonce/pid/1674?entryId=20275). And a very large number of these migrant workers are women.

Jobless workers return home

December 25, 2008

Cecil Morella

Agence France-Presse

ANGONO, Philippines -- Americans were already defaulting on home payments when Gertrudes Capili mortgaged her modest farm near Manila to help send her two granddaughters to Taiwan. There they worked in a factory making microchips for appliances sold to an American consumer market on the verge of collapse.

Little did the 90-year-old grandmother know that the US subprime meltdown and subsequent financial crisis would come home to roost in Angono, a lakeshore town east of Manila where she lives with a daughter and two granddaughters in a cramped 34-square-meter (366-square-foot) plywood and sheet iron home.

A nearby river often overflows and floods the ground floor in the rain, and the warped furniture, bought with the granddaughters earnings, has to be replaced every year. "Huge debts and a splitting headache," 24 year-old Bernadette Cortas told AFP when asked what she earned from her stint at the ASE semiconductor factory near Taipei, which serves electronics giants such as Motorola and Epson.

Both she and her cousin Cristina de Borja now wear horn-rimmed glasses, the result of working long hours in front of tiny circuit boards. Just eight months after the cousins got their jobs, which netted them about 20,000 Taiwan dollars ($600) a month after food and lodging expenses, they were shipped back home along with 103 other Filipinos as the company cut staff amid plunging global electronics demand.

Cortas would be an apt poster child of the Philippines economic diaspora……

According to the Asian Development Banks’ latest predictions for ASEAN economies[2], in 2009 GDP growth is expected to weaken to 3.5 per cent from an estimated expansion of 4.8 per cent in 2008 (which was only kept relatively high because of higher growth rates in the first half of 2008). Indonesia, Malaysia, the Philippines and Thailand are expected to see growth drop by one to two percentage points. Vietnam’s GDP is expected to drop from 6.3 per cent in 2008 to 5 per cent in 2009. However, the ADB report warns that these figures are based on a “positive regional outlook” as the stabilisation of market conditions “remains a tenuous assumption” and pose a major “risk to the outlook”.

A recent study by the International Food Policy Research Institute estimates that if world economic growth declines by 2 to 3 points and investment in pro-poor agricultural growth is neglected, as has been the case for the past several decades due to the imposition of structural adjustment programs, the number of malnourished children will increase by 16 million in 2020, with Sub-Saharan Africa’s share of malnourished children increasing to 25 per cent of the world’s total.[3] Malnourishment and micronutrient deficiencies have long-term consequences for nutrition and health, such as impaired cognitive development, lower resistance to disease, increased risks during childbirth for both mothers and children. (In Bangladesh, for example, a 50 per cent increase in the price of food is estimated to raise prevalence of iron deficiency among women and children by 25 per cent.)

Wage cuts

Studies published by several development agencies on the impact of the economic crisis, on the heels of the food price crisis and oil price increases, predict job losses, reduced household incomes and wages and decrease in education and health indicators. A key concern for the keepers of the system, such as the World Bank, is “political instability’’, i.e. a rise in the class struggle as workers and the poor resist being made to pay, even at the expense of their own lives and that of their families, for the crisis of the capitalist system. The World Bank thus proposes a host of “social protection’’ measures to “mitigate’’ increasing poverty levels.[4] Underlying these skimpy measures is the concern to “mitigate’’ increasing political “unrest’’ by the workers and the poor, by maintaining some minimal legitimacy for the capitalist system.

According to the World Bank prescription for governments, the only choices are job losses or wage reductions. The World Bank argues for the reduction of wages as its preference, as “the burden of adjustment will be spread more evenly”, unlike job losses which will increase the number of unemployed and pose the need for public works programs.

And what will happen to unemployed workers? They will move from the “highly paid sectors” to “low-pay, small-scale sectors, such as agriculture or the informal economy”.  Thus the unemployed worker will transmogrify into that elusive category called the “informal sector”, where labour is unorganised, low paid, with none of the benefits or relative security or level of organisation of workers formally employed by capital, and who compete against other sections of the working class. In World Bank-speak, this decimation of the better paid and better organised sections of working class is the “intersectoral transmission of shocks”.

And what of those dreaded “public works programs”? These are “short-run assistance” and not “prominent labour market interventions” which “risk introducing significant labour market distortions and fiscal costs… and may be difficult to eliminate once vested interests in their continuation have been created”. Decoded, this means only band-aid measures which will take the edge off the impact of the economic crisis and not increase expectations, especially amongst “formal-sector employees’’, i.e. the trade unions, which can potentially trigger political upsurges against the system.

Super-exploitation

But this public sector investment, such as in infrastructure programs, is to be combined with emergency measures such as “food and cash for work”, which can also have a strong “gender equity focus”, i.e. being paid to women. Far from being job-creation programs, workers, and especially poor women, will be super-exploited by being made to work for food and maybe cash, and on short-term contracts. Hey presto, a gender-sensitive infrastructure project emerges as a case study in gender-inclusive poverty reduction.

But even here the margins that the keepers of the system have to work with are so very small. In many Third World countries today wages don’t even cover adequate food provisions for an average family. And the aim of the food-for-work programs, generally aimed at the urban and rural poor, are set well below even these standards.

And what of reduced wages and incomes?  A concern here for the World Bank is the impact this will have on education and health indicators as families are forced to pull children out of school and cut back on even minimum health care, such as basic pre- and post-natal care. If so, what happens to those ever-so-carefully crafted Millennium Development Goals and targets? Hence, conditional cash transfer programs have been devised which commit families, especially women, to make use of education and health services in exchange for cash. It’s important for the World Bank to show, at least on paper, that some attempt is made at achieving some of these targets. This is important to foster some level of legitimacy in a teetering system. To show, at least on paper, that the system continues to show concern to include the poor, even at the extreme periphery of its functions. 

Whichever way you look at it, the system will fight and struggle to survive at the expense of the overwhelmingly poor majority in the Third World, even if it means squeezing further blood from their already dry bones.

[Reihana Mohideen is chairperson of Transform Asia.]

[1] FAO Newsroom, Dec. 2008, http://www.fao.org/news/story/en/item/8836/icode/

[2] ADB, Asia Economic Monitor 2008, http://www.adb.org

[3] Braun, von Joachim,  Food and Financial Crisis, Implications for Agriculture and the Poor, International Food Policy Research Institute Brief, Dec. 2008.