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Mainstream, VOL XLIX, No 24, June 4, 2011

Impact of Globalisation on the Poor in USA

Thursday 9 June 2011, by Mathew Aerthayil

A COMPARISON BETWEEN ‘REAGANOMICS’ AND STRUCTURAL ADJUSTMENT PROGRAMME IN INDIA

Globalisation is an international phenomenon which has swept through every country in the world. But its impact has been varied among countries. Most of the developing countries experienced more of its negative impact than the positive effects. The United States of America (USA), which was the main force behind the process of globalisation, had also experienced its impact. The objective of this article is to examine whether the USA itself had some policies and programmes of globalisation similar to those in India, and, if so, how they have affected the people, particularly the poor, in the USA and what lessons can be learned from the experiences of both. This is the fruit of the research done by the author by staying in Washington D.C. for six months.

The globalisation process has grown in so diverse and complex forms that it is difficult to explain it. But in this article it means a process of transnationalisation of capital, production and consumption through greater integration and interdependence of countries and people. In the developing countries, globalisation, as promoted by the International Monetary Fund (IMF) and World Bank (WB), started with their policy of structural adjustment and stabilisation, which in India, was known as the Structural Adjustment Programme (SAP) initiated in 1991. Some of the problems India and other developing countries faced were trade deficit, inflation, stagnating output, paucity of development fund, and inefficiency of the government. To remedy these problems the measures India adopted were privatisation, liberalisation of economy, reducing the role of the government in socio-economic spheres etc. The USA had problems similar to those of India, and it adopted a similar policy package in 1980 under the Administration of President Ronald Reagan, which is known as ‘Reaganomics’.

Background of ‘Reaganomics’: With the soaring oil prices, rising unemployment, economic stagnation and high interest rates of about 12 per cent in the 1970s, there was cause of worry for the people and government of the USA. The US was losing in international trade since other countries were rising as competitors, and it was shifting from an industry-based to a service-based economy. When Ronald Reagan came to power in 1980 he initiated many policies to tackle these problems. His aim was to take away government control and bring back full market economy and entrepreunership. For this, the main programmes he introduced were tax cuts, restraining government spending, reducing government regulation and sound monetary policy. The whole measures of policies and programmes thus implemented are known as “Reaganomics”. President Clinton built upon several of these ideas, including the North American Free Trade Agreement (NAFTA), and George W. Bush vigorously followed the same policy with some modification in the social sector. They have profoundly affected the structure of economic life in the USA during the past three decades.

Structural Adjustment Programme (SAP) and ‘Reaganomics’—A Comparative Analysis

FOR the SAP as followed by India, basically three processes could be identified—liberalisation of the economy and trade, privatisation, and reduction of the government role in the economy and social sectors. ‘Reaganomics’ also is analysed under these headings.

Liberalisation of economy: In India this was done through reducing import and export tariff to boost external trade and opening up of the financial market. In the case of Reaganomics it took measures to reduce foreign trade deficit, high interest rate and to encourage Foreign Direct Investment (FDI).

Privatisation: Unlike in India, the private sector already had a predominant position in the USA, it being a capitalist country. But over the years the government was also involved in economic and productive spheres for the larger interest of the public. During the Reagan era full freedom was given to the private sector. Tax-cut derived from ‘supply-side economics’ was an important measure in the privatisation process. He enacted a three-year 30 per cent tax cut across the board for individuals and corporates. The rationale of the policy was “to liberate business from over-regulation and over-taxation, encourage privatisation and free play of the market, increase export and decrease the federal budget deficit”. (Alt-WID, 1992: 21) Reagan deregulated natural gas, communication, airlines, trucking, railroads, hospitals, parks, and media like radio and television. He also relaxed the anti-trust and monopoly laws leading to consolidation of capital and mergers.

Reduction in Government’s Role in Economy and Social Welfare: With the change of Administrations and growing criticism of the “liberal welfare state”, the political commitment to end poverty waned, and the new wave of neo-conservative thinking began to reshape the government’s approach to economic policy. In his first campaign for the Presidency, Ronald Reagan promised “to get government off” the backs of the American public, and his election ushered in a series of changes that reversed the direction of the US’ economic and social policy. Social safety net’s programmes were slashed leaving the most vulnerable in the economy with few resources either personal or government funded. (coc.org, 2008) In 1980 the government reduced the fund for Medicaid which was designed to provide health care for the poor and which was sufficient only for 38 per cent of the people in 1984 while it was 65 per cent in 1976. (Alt-WID, 1992:15)

Impact of ‘Reaganomics’ in the USA and SAP in India

REAGAN’S policies increased wealth in the country with robust growth of the economy. There was 31 per cent rise in the Gross Domestic Product (GDP). Inflation was brought down and recession was tackled. Twenty million jobs were generated. Unemployment fell from 9.7 per cent in 1982 to 5.5 per cent in 1988. “US economy enjoyed the longest peace time boom in its history.” (Bien’kowski, 2006:61) After the SAP was introduced, India also became one of the fastest growing economies in world and a leading country in information technology. There was high growth in industrial production with private sector as the moving force. This has increased wealth in the country, and the GDP grew around seven per cent during the first decade of reform. Inflation was controlled. Balance of payments in foreign trade was no longer a problem.

Negative effects of Reganomics are explained in relation to the poor in general, and African-Americans and the Hispanics in particular. These are given under the title of poverty, unemploy-ment, homelessness, and inequality, and lack of health care. African-Americans have their origin in any of the Black racial groups of Africa. In 2002, they were 12.3 per cent of the US population, about 36.6 million, the largest racial minority. Hispanics are Americans with origin in the Hispanic countries of Latin America or in Spain. In 2008 they constituted 46.9 million or 15.4 per cent, the largest ethnic minority in the USA. (wikipedia.org)

Poverty: Under Reagan there was a relative decline in income of the most of people with the result of economic hardship. An index of social health of the US for 1970-1988 developed by the Institute for Innovation in Social Policy of Fordham University identified 17 indicators of the society’s wellbeing including infant mortality, unemployment, health and housing. “The average rating of US social health under Nixon-Ford was 69 points on a scale of 100; it slipped to 61 points during the Carter era; and averaged 38 points under the Reagan Administration.” (Alt-WID, 1990:6) Thus the quality of life of the people declined considerably during the time of Reagan. The social health index of women in the US dramatically deteriorated from 78 points in 1974 to 38 points in 1988. “In 1979-89, poverty-level rose from 15 per cent to 19 per cent for Whites, while for Blacks it rose from 25 per cent to 33 per cent and for Hispanics from 27 per cent to 38 per cent.” (Ibid., 197)

In 1991 child poverty was 17 per cent while it was 46 per cent for the Blacks and 40 per cent for Hispanics. (Stricker, 2007:197) The condition of farmers in rural areas deteriorated during the Administration of Reagan. About 13 per cent of the farms owned by small farmers were sold to agribusiness corporates between 1980 and 1988 as they were not able to compete with big farmers. They fell into heavy debt as the federal government stopped all assistance to framers in the form of loan with low interest. Land ownership and production got concentrated in the hands of a few with 4.9 per cent of the farmers earning 54.9 per cent of all farm profit by 1988. Farmer’s poverty climbed from 17.7 per cent in 1980 to 25 per cent in 1985. (Alt-WID, 2002:11)

Unemployment: According to the Bureau of Labour Statistics, by the mid-1980s about 72 per cent of all jobs in the US were in the service sector, which tended to be lower paying, often with few or no benefits and were predominantly held by women. The rate of the women labour force increased from 51.5 per cent in 1980 to 57.4 per cent in 1989. (Alt-WID, 2007:8) “Officially, unemployment had fallen in the 1980s, but the real rates were much higher….During the so-called full employment, millions could find only part-time work, and millions dropped out of the unemployment numbers. Black unemployment was still 12 per cent in 1988” (Stricker, 2007:197)

Average family income increased a bit only because family members were putting in more hours at work. Thus there was decrease in the purchasing power of people. The power of unions to protect labour declined during Reagan’s time. The social contract between labour and manage-ment after World War II was gone. “Reagan worked to cut unemployment benefits and eligibility. In 1980, 50 per cent of the unemployed received benefits, in 1988, only 32 per cent...” (Ibid., 189)

Homelessness: Due to rise in housing cost and decline in housing assistance from the Federal Government, homelessness increased with roughly four million people in US in the 1990. “The homeless population had begun to grow in the 70s, it jumped in the 80s, and its composition changed.” (Ibid., 200) “The continued presence of homeless and street children on the streets of the America is a visible reminder that the disease of poverty has been neither contained nor eradicated.” (Ibid., 280) According to some authors, homelessness is also caused by globalisation. “The presence of homeless and street children within sight of the skyscrapers, museum and luxury apartment of great North and South American cities exposes the contradictions between the concentration of wealth and intensification of poverty that accompany globalisation.” (Ibid., 280)

Widening Inequality: Most of the gain of economic growth in 1980s and 1990s went to the richest fraction of the population, especially with massive tax-cuts during these year. “During the same period, the top one percent of the population’s income grew by 74 per cent and the top 20 per cent saw their income rise by 28.9 per cent …With the bulk of tax cuts going to businesses and affluent and with the bulk of social programme cuts and unemployment going to the bottom, it was not surprising that income inequality widened.”(Stricker, 2007:6 and 196)

Lack of Health Care: In the US health care depends on health insurance through employment or federal government schemes. In 1990 there were 37 million people in the US without health care coverage with an increase of 25 per cent since 1980. (Alt-WID,1992:15) Besides, about 60 million people had health insurance which was inadequate for serious illness. This has led to malnutrition of adults and children. In 1990 there were 18-20 million people including about eight million children without basic nutritious food needed for good health and growth. The reasons are privatisation of health insurance and reduction in the federal fund for health care, Medicaid, and Medicare and rural health services. (Ibid., 16)

Thus in spite of apparent prosperity to the nation, ‘Reaganomics’ adversely affected the people at large especially the African-Americans and Hispanics. “Because of his inability to see social policy differently, Ronald Reagan’s economic policies were all too often criticised as cold-blooded and anti-poor.”(Bien’kowski, 2006: 70) According to some authors, the negative impact of Reaganomics was not a coincidence but a matter of investment theory and free market philosophy of globalisation. “More important than individual factors in creating poverty are structural processes: the restructured globalising economy, an inadequate minimum wage, a lack of affordable housing, transpor-tation, or child care, and, of course, the gaping holes in the social safety nets.”(Mickelson, 2000:24) In the globalising economy of the USA the reduced role of the government in housing and social welfare contributed to homelessness and poverty. “Globalisation contributes to the diminished supply of affordable housing for the poor in a number of ways. Gentrification of urban areas began well before the globalisation of the world’s economy. But globalisation forces contributed to the dynamics of gentrifi-cation……They created conditions that promote the formation of low-wage services and manu-facturing labour force in global cities.”(Ibid., 25)

Impact of SAP on India: What was recorded as the effect of globalisation through Reaganomics is similar to the effect of globalisation in India. On the one hand, India achieved a high growth rate of the GDP and economy, and on the other, its human development did not grow. Though there was slight improvement in the matter of reduction in the number of poor people, 55 per cent of the people in India are still poor, in which about 30 per cent are below the poverty level. (Talukdar, 2010:19) Unemployment and under-employment are rampant in many States. As people without health insurance increased during the Reagan Administration, the health situation of the majority people in India did not show any substantial improvement. While the Central and State governments spent one per cent of the GDP for health in 1980, it got reduced to 0.1 per cent in the 1990s and late 2000. According to Global Hunger Index, 21 per cent of the Indian population were undernourished while 43.5 per cent of children under five were underweight between 2002 and 2007. (Deccan Herald, 21-12-2009) In education also there was no increase in the allocation of funds in real terms in the Central Budget over the Five Year Plans. (Aerthayil, 2003:129) India has the highest number of illiterates in the world.

The annual average farm growth rate declined to 1.03 per cent in 1990 from 4.09 per cent in 1980, the period of liberalisation. This has increased unemployment in the rural areas as a majority of working people in India live in the rural areas. (Ibid., 111) As it happened in the case of Reaga-nomics, the inequality increased as a result of globalisation in India. The richest minority and corporate sector became richer, the poor became poorer. The number of billionaires increased manifold in India as it happened in the US in the Reagan era, while the poorest, especially Dalits and tribals, remained poor or became poorer. Thus increasing inequality is a common characteristic of globalisation in both India and the USA

Recession, a byproduct of Globalisation: The financial meltdown, started in the USA by the end of 2007, had its effect all over the world. Globalisation is said to be one of the reasons for recession, particularly the policies of deregulation started in the 1980s through Reaganomics. “It was found that the basic cause of the great recession was mismanagement of the globalisation process in the US. Providers of labour to the USA economy found their earnings stagnant or declining, and falling increasingly behind their rate of produc-tivity and growth.” (Sundquist, 2010:4) The huge national debt, rising trade deficit, stagnant wages of a majority of workers and massive immigration, which are part of the globalisation process, contributed to the crisis. “Political ideologies favouring deregulating the financial system and ‘less-government-is-better-government’ generally made the great recession significantly worse.” (Ibid., 2)

Lessons to be Learned both by the USA and India to Face the Challenges of Globalisation

SINCE ‘Reaganomics’ in the US resembled the SAP in India in the policies, programmes and effects, both should learn from their experiences, and the lessons would be useful not only for them but also for all countries which grapple with the issue of globalisation. This is all the more needed for the world after the recent recession when the major countries like G-20 are tackling various issues relevant for the world economic order. Globalisation has increased access to market and technology, and brought about an active global civil society to fight for social justice and human rights. It has increased inter-connected-ness among countries through trade, services and communication media. But its benefits have not reached a majority of people in the US and India. The challenge today is how to make globalisation work not only for the rich and the advanced countries, but also for the poor and the least developed countries.

1. Privatisation not a panacea for all ills of the countries: According to the SAP and Reaganomics, private sector is the engine of growth and development. But over the years it has not solved the problems of the majority of people neither of India nor of the USA. According to Joseph E. Stiglitz, the winner of the Nobel Prize in Economics, “privatisation needs to be comple-mented with more comprehensive programmes of job creation, better community health, education and social welfare for the marginalized groups. There is need of government intervention especially in the case of developing countries as was true of the US in the 19th century.” (2003:20) Experts even in developed countries are aware of the dangers of unfettered and unregulated market. “The good news is that today there is increasing recognition of the problems of globalisation, not just in the developing countries which have long confronted them, but also in the developed countries.” (Ibid., 254) Therefore, the private sector should be regulated for the common good. “Privatisation accompanied by regulation, corporate restructuring and strong corporate governance has led to higher growth.” (Ibid., 220)

2. Liberalisation not a protection to poor countries: It was claimed that if all markets were competitive, national disparities would eventually vanish, and goods and services would be easily available to all countries and people. But this has proved wrong with the experience of globalisation so far. “Research even suggested that the removal of barriers to trade and factor movement might-in certain circumstances—actually lead to a relative deterioration rather than an improvement of some countries.” (Bien’kowski, 2006:172) The reason is that smaller and poorer countries are not able to compete with bigger and richer countries on the principle of free trade. “Financial market liberalisation unaccompanied by an appropriate regulatory structure is an almost certain recipe for economic instability.”(Stiglitz, 2003:84) The aim of the international community should be fair trade through which developing countries are supported to get necessary goods and technology for their basic development.

3. Giving proper role for government in economy and social welfare: As a condition for globalisation, India and other developing countries were almost forced to reduce subsidies to agriculture, traditional industries and social welfare programmes like health and education. Reagan and later Bush decreased social expenditure on social security and social welfare. These measures had an adverse impact on the poor and the marginalised both in the US and India. So leaving the socio-economic sphere solely to market is not a solution for any country, especially the developing countries which at this stage need a lot of government intervention to ensure the basic needs of the people. In contrast, privatisation accompanied by regulation can lead to higher growth.

Some of the Scandinavian countries which follow the capitalist system take greater responsibilities in social welfare. As, for example, Sweden where inequality is lower and poverty less but has a higher living standard. There is need for both the market and government to work together. “We have to consider the strength and weakness of both government and market and see that both work in partnership with the precise nature of the partnership differing among countries depending on their stages of political and economic develop-ment.” (Ibid., 220)

4. Humane process of globalisation: If both globalisation and the centrally controlled economic system have problems, what is viable for the world today? With the collapse of the socialist countries the world now knows the limitations and dangers of totalitarian regimes, however high their ideals are. But to counter globalisation based on private profit and compe-tition there should be an alternate economic system. The combination of globalisation based on the market economy and government regulation can be one solution. Thus what is perhaps needed is a humane process of globa-lisation which ensures the welfare of a majority of people in each country and a majority of the countries in the world. “There is hope that a more humane process of globalisation can be a powerful force for the good, with the vast majority of those living in the developing countries benefiting from it and welcoming it.” (Ibid., 249)

For this, first of all, the concept of development should be understood as ensuring basic health, education and employment for all. In this, the agricultural sector should be given importance to meet the global food crisis and to give gainful employment to the rural people. “Development is about transforming societies, improving the lives of the poor, enabling everyone to have a chance at success and access to health care and education.” (Ibid., 252) Secondly, the developing countries should be allowed to have their own model or path of development. They should be able to adapt any economic system according to the particular context and needs of their country and people.

5. Conscious efforts to ensure equitable distribution of wealth: Globalisation has increased disparity between the rich and the poor both in the USA and India. This is because conducive factors for growth are provided by globalisation for private enterprises. Naturally the big corpo-rates in industries and agri-business grow, and growth in the GDP is often growth based on these sectors. “Globalisation works on the principle that GDP growth by itself benefits all. But this has not happened in most countries. The challenge today is how to reform globa-lisation to make it work not just for the rich and more advanced industrialised countries but also for the poor and the least developed countries.” (Stiglitz, 2003:253)

Unless conscious policies are made to take the benefits of growth to the majority, if not all, it will not lead to equitable distribution. “Trickle-down economics was never much more than just a belief, an article of faith. Pauperism seemed to grow in nineteenth century England even though the country as a whole prospered. Growth in America in the 1980s provided the most recent dramatic example: while the economy grew, those at the bottom saw their real income decline. If this has not worked in the United States, why should it work in developing countries? While it is true that sustained reductions in poverty cannot be attained without robust economic growth, the converse is not true: growth need not benefit all.” (Ibid., 78) China and Brazil took serious efforts to reduce the gap.

9. Restructuring of Global Financial Institutions: Since interdependence of countries in the economic sphere has increased in a globalised world, there is need for international institutions to facilitate the global financial transactions and trade in a fair manner. “The most dramatic change in these institutions occurred in the 1980s, the era when Ronald Reagan and Margaret Thatcher preached free market ideology in the United States and United Kingdom. The IMF and WB became the new missionary institutions, through which these ideas were pushed on the reluctant poor countries that often badly needed their loans and grants.”(Stiglitz, 2003:13) But very often their policies based on neo-liberal ideology became an obstacle to developing countries. Joseph Stiglitz, who was also working in the WB, has this to say: “I know the tasks were difficult, but I never dreamed that one of the major obstacles the developing countries faced was man-made, totally unnecessary, and lay right across the street-at my ‘sister’ institution, the IMF.” (Ibid., 25) Their interventions contributed to poverty and inequality. “IMF and WB policies are associated with increased poverty, inequality of income and wealth, and slow or negative economic growth.”(Mickelson, 2000:17)

To solve these problems and to create a better and just world giving benefits of development and representation to all countries, there is need for structural reform of these institutions. “The most fundamental change that is required to make globalisation work in the way that it should is a change in governance.”(Stiglitz, 2003:226) So both developed and developing countries should work together for the restructuring of these international institutions. The words of Stiglitz for the Western countries are pertinent here: “The developed world needs to do its part to reform the international institutions that govern globalisation. We set up these institutions and we need to work to fix them. If we are to address the legitimate concerns of those who have expressed a discontent with globalisation, if we are to make globalisation work for the billions of people for whom it has not, if we have to make globalisation with a human face succeed, then our voices must be raised. We cannot, we should not, stand by.” (Ibid., 252) If these institutions cannot be reformed, new agencies should be created.

Conclusion

COLLECTIVE thinking and action at international level is needed to face the challenges of globalisation. For this, concerns of environment with global warming, gender equality with recognition of caring work are to be at the centre of the stage for the world order.

In other words, “the greatest challenge is not just in the institutions themselves but in the mind-sets; caring about the environment, making sure the poor have a say in decisions that affect them, promoting democracy and fair trade are necessary if the potential benefits of globalisation are to be achieved”. (Stiglitz, 2003: 216)

REFERENCES

Alternative Women in Development (Alt-WID), 1990, Reaganomics and Women: Structural Adjustment US. Style-1980-1992, A case study of women and poverty in the US, Washington D.C.: Alt-WID (Mimeo).

Aerthayil, Mathew, 2008. Impact of Globalization on Tribals. in the Context of Kerala, New Delhi: Rawat Publications/

Bartlett, Bruce, 2009, The New American Economy-the Failure of Reaganomics and a New Way Forward, New York: Palgrave Macmillan.

Bien’kowski, Wojciech, Josef C.Brada and Mariusz-Jan Radlo, 2006, Reaganomics Goes Global—What can the EU, Russian and Other Transition Countries Learn from the USA?, New York: Palgrave Macmillan.

Mickelson, Roslyn Arlin, 2000, Children on the Streets of the Americas-Homelessness, Education and Globalisation in the United States, Brazil and Cuba, New York and London: Routledge

Raghuram, Shobha, 1995, Structural Adjustment—Economy, Environment, Social Concern, Delhi: Macmillan India Ltd.

Stiglitz, Joseph E., 2003, Globalisation and its Discontents, New York: W.W.Norton and Company Inc.

Stricker, Frank, 2007, Why America lost the War on Poverty—and How to win it, North Carolina: The University of North Carolina Press.

Sundquist, Bruce, 2010, The Link between Globalisation and Recession: Implications for the Future, Edition 4, May 2010, wwwhome.windstream.net...Link.html

Talukdar, 2010, “India’s Poor Report Card”, Indian Current, July 2010, Vol. 26, and No. 30.

The State of Black America 2010, Jobs: Responding to the Crisis, Executive Summary, Urban League’s State of Black America’s Report, www.nul.org

US Census Bureau 2008, American Community Survey Data. www.census.gov.org

Dr Mathew Aerthayil S.J. is the Director, Samskriti, Pariyaram, Kerala. Samskriti is an institute of socio-cultural research and action. He can be contacted at mathewaerthayil@yahoo.co.in

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