The Globalization of Poverty

 
Highlights from: The Globalization of Poverty and the New World Order

By Michel Chossudovsky


Professor Eric T. Karlstrom, 2005


Canadian economics Professor Michel Chossudovsky has actually taught, lived and traveled in the following countries and witnessed the following:

Economic Shock Treatment imposed on Chile, after the CIA sponsored Sept. 11, 1973 overthrow of democratically-elected President Salvador Allende, was designed by a group of economists called “the Chicago boys”- economists trained by Milton Friedman.  Some of these economists were, at the time teaching at the Institute of Economics of the Catholic University of Chile.  These same individuals were then appointed to key positions in the new Pinochet military government.

Soon thereafter, food prices skyrocketed while wages were frozen to ensure “economic stability to stave off inflationary pressures”.  The entire country was plunged into abysmal poverty.  In less than one year, the price of bread rose 36 times and 85% of the population was driven below the poverty line.

Through the manipulation of prices, wages and interest rates, people’s lives were destroyed, an entire national economy was destabilized.

In 1976, a carbon-copy of this process occurred in Argentina where an orchestrated military coup was followed by imposition of “free market” solutions.  Since then, the “economic bullets” of the free market system began hitting country after country.  Feeding on poverty and economic dislocation, a New World Order was taking shape.  Since then IMF (International Monetary Fund) economic medicine has been imposed on 150 “developing” countries.

Parliamentary “democracies” replaced military regimes throughout Latin America.  These had the gruesome task of putting national economies on the auction block under World Bank-sponsored privatization programs. 

Peru- 1990:  After Alberto Fujimori became new President, a few days later “economic shock therapy” was imposed.  Peru was punished for not conforming to IMF dictates.  The price of fuel was hiked by 31 times and the price of bread was increased by a factor of 12 in a single day.  These reforms, carried out in the name of “democracy” were much worse than those imposed under military dictatorships in Argentina and Chile.

The same economic medicine has been applied to Africa, Rwanda, Kenya, Nigeria, Morocco, India, Vietnam, Brazil, the Philippines, and Russia.  In all countries, IMF “reforms” were driving millions of people into starvation. 

In Vietnam, one of the world’s most prosperous rice producing economies, local-level famines erupted directly from the lifting of price controls and the deregulation of the grain market. 

Since 1997, the globalization of poverty has been extended to all major regions of the world including Western Europe and North America. 

A New World Order has been installed destroying national sovereignty and the rights of citizens.  Under the new rules of the WTO (World Trade Organization, established in 1995), “entrenched rights” were granted to the world’s largest banks and multinational corporations.  Public debts have spiraled, state institutions have collapsed, and the accumulation of private wealth has progressed relentlessly. 

War and globalization go hand in hand.  Now the US has embarked on a military adventure that threatens the future of humanity. 

Iraq:  With 11 % of the world’s proven oil (70% in the region), the US invasion in 2003 was to secure dollar hegemony and secure the oil reserves for the Anglo-American oil giants.  Iraq’s spiraling external debt will be used as an instrument of economic plunder.  Conditionalities will be set.  The entire national economy has been privatized and placed on the auction block.  The IMF and WB are called in to provide legitimacy to the plunder of Iraq’s oil wealth. 

A 1995 document of US Central Command (Centcom) states: “the purpose of US engagement… is to protect US vital interest in the region- uninterrupted, secure SU/Allied access to Gulf oil”.

In the wake of the 2003 invasion, Iraq’s economy has been placed under the US military occupation government led by retired General Jay Gardner, a former CEO of America’s largest weapons producers.  The goal is expand America’s economic sphere of influence in an area extending from the Mediterranean to China’s Western frontier- ie. Eurasia. (Chossudovsky fails to note that in invading Iraq in 1991 and 2003 and bombing Iraq in the intervening years, the US military was also acting on behalf of Israel- ETK).  The US-led war is occurring at the height of a global economic depression, which began with the debt crisis of the early 1980’s.  State resources in the US since then have been directed towards financing the military industrial complex and beefing up domestic security at the expense of funding much needed social programs which have been slashed to the bone. 

The “global free market system” with its waves of deregulation, privatization, and resulting corporate take-overs of most if not all of public services and state infrastructure- including health care, electricity, water and transportation.  Meanwhile, the legal fabric of US and European societies has also been overhauled.  Based on the repeal of the Rule of Law, the foundations of an authoritarian state apparatus have emerged with little or no opposition. 

Here are the key issues of the 21st century:

1.  The merger boom and the concentration of corporate power
2.  The collapse of national and local level economies,
3.  The meltdown of financial markets
4.  The outbreak of famine and civil war

5.  The dismantling of the Welfare State in most Western countries.

The New World Order feeds on human poverty and the destruction of the natural environment.  Since the 1990s, it has extended its grip to all major regions of the World including North America….

The post-Cold war recession:

In the former Soviet Union, as a direct result of IMF “economic medicine” initiated in 1992, economic decline has surpassed that of the height of WWII.  National economies have collapsed: The WB concedes that in Bulgaria, 90% are living below the WB-defined poverty level of $4 a day. 

The former “Asian Tigers” of Indonesia, Thailand, and Korea- fell apart after the 1997 financial crisis- Meanwhile there is a thriving criminal economy.  Criminal syndicates have invested in acquisition of state assets under IMF-WB sponsored privatization programs.  The UN states that TCOs (transnational criminal organizations) earn revenues of over one trillion dollars/year.  This equals the combined GDP of the low income countries (with 3 billion people).  These businesses include narcotics, arms sales, smuggling of nuclear material, prostitution, gambling, exchange banks, etc.  These criminal organizations also have legitimate aspects, and generally outperform most Fortune 500 companies. 

Meanwhile, the IMF, WB, and WTO are mere bureaucracies, regulatory bodies that operate under an intergovernmental umbrella on behalf of powerful economic and financial interests, namely the Wall Street (and City of London- ETK) bankers and the heads of the world’s largest business conglomerates.  

The new international economic order feeds on human poverty and cheap labor.  As unemployment skyrockets around the world (according to the International Labor Organization (ILO), unemployment affects one billion people or nearly 1/3 of global workforce), capital migrates from one country to another in search of cheaper supplies of labor.  And with the global economy the abundant supply of cheap labor in the Third World contributes to depression of wages in First world economies.  Virtually all categories of the labor market, including scientists and professionals, are affected. 

Real wages in the Third World and Eastern Europe are as much as seventy times lower than in the US, Western Europe or Japan: The possibilities of production are immense given the mass of cheap impoverished workers throughout the world.

Meanwhile, the number of billionaires in the US grew of 13 in 1982 to 149 in 1996 to 300 in 2000.  The Global Billionaire Club with some 450 members has a total wealth well over that of the combined GDP of the group of low income countries with 59% of the world’s population.  (Note: the numbers of global billionaires as of 2008 has nearly doubled to over 800 members.)

The private wealth of the Walton (Wal-Mart) family ($85 billion) is over twice the GDP Bangladesh with 127 million people and per capita income of $260.

Tremendous amounts of money, accumulated through speculative trade on Wall Street and completely divorced from bona finde productive and commercial activities, are funneled towards confidential numbered accounts in over 50 offshore banking havens around the world.  Merrill Lynch conservatively estimates that the wealth of private individuals, managed through private banking accounts in offshore tax havens, is over $3.3 trillion.  IMF puts offshore assets of corporations and individuals at $5.5 trillion, a sum equaling 25% of total world income.  The largely ill-gotten loot of Third World elites in numbered accounts in the 1990s was estimated at $600 billion, with one third of that held in Switzerland. 

Overproduction through increased supply and reduced demand: By minimizing employment, worker’s wages are lowered and this reduces ability of the poor to buy things.  So there is simultaneously an unlimited capacity to produce and a limited capacity to consume.  In the global cheap labor economy, the process of expanding output through downsizing, lay-offs, and low wages- contributes to compressing society’s capacity to consume. 

The overproduction leads to bankruptcy and liquidation of “surplus enterprises” which are closed down in favor of the most advanced, mechanized production.  Thus, entire branches of industry stand idle, and only part of the world’s agricultural potential is utilized.  “Survival of the fittest” means that in a world of overproduction only the enterprises with the most advanced technologies or those that command the lowest wages survive.  Meanwhile, G-7 macro-economic policies, through tight fiscal and monetary controls, has supported a wave of corporate mergers and acquisitions and the bankruptcy of small- and medium-sized enterprises.  Thus, local economies are destroyed.

Through the system of corporate franchising, large multi-nationals take control of local-level markets.  This allows the multinationals to take control of human resources, cheap labor, etc.  Thereby, the bulk of investment outlays is assumed by the independent producer (franchisee) while a large share of the earnings of local firms is appropriated by the global corporation (example, Wendy’s, McDonald’s, Home Depot, you name it).  The government sanctioned drive toward economic blocks (“economic integration”) in North America and Europe results in the uprooting of local entrepreneurs and small-scale ownership is wiped out. 

Basically, imposition of macro-economic and trade reforms under the IMF, WB and WTO purports to peacefully re-colonize countries through deliberate manipulation of market forces.  This is actually a form of warfare.  War and globalization are not separate issues. 

What happens to countries that refuse to “open up” to Western banks and MNCs as demanded by the WTO?  The IMF, WB, and WTO collaborate with NATO in its various “peacekeeping” endeavors.  Today war and the free market go hand in hand.  War physically destroys what has not been dismantled through deregulation, privatization and the imposition of “free market” reforms.  Now “missile diplomacy” has replaced “gunboat diplomacy” of the 19th century as a way to enforce “free trade”.

Central Banks- have become independent and shielded from political influence.  Thus, national treasuries are at the mercy of private commercial creditors.  Their statutes are conducive to the enlargement of the public debt by private and banking institutions. 

In the US, the Federal Reserve is dominated by a handful of private banks which are the shareholders of the twelve federal reserve banks.   In the European Union, the European Central Bank is dominated by Germany’s banking giants- the Deutche and Dresdner Banks- now merged into one conglomerate.  Thus, monetary policy belongs not to the state but to private bankers.  Thus, the creation of money, implying  a command over real resources) occurs within the web of international banking system in accordance with the sole pursuit of private wealth. 

The interests of the financial establishment, especially in the US, have permeated the top echelons of govt., the Treasury, and Bretton Woods institutions (WB, IMF, etc.):

Individual examples of the “revolving door,” in which members of the ruling elite move seamlessly between influential positions in government and business:

1)  Former US Treasury Secretary Mr. Robert Rubin was a senior banking executive at Goldman Sachs.
2)  Former President of the World Bank Mr. Lewis Preston was CEO at J.P. Morgan
3)  Preston was replaced at World Bank by James Wolfensohn, a prominent Wall Street investment banker. 
4)  Upon retiring as WTO head, Peter Sutherland joined Goldman Sachs in Wall Street.
5)  Mr. Nicholas Brady- a Republican Senator during the Reagan era and former US Treasury Secretary in the Bush administration- moved into the lucrative business of offshore banking.
6)  Robert McNamara- CEO of Ford Motor Co., Sec of Defense under Kennedy and Johnson, and President of World Bank
7)  Richard Cheney- Chief of Staff for Ford, Rep. From Wyoming, Sec. of Defense under Reagan, CEO of Halliburton, VP under Bush II  

8) George Shultz, CEO of Bechtel, Secretary of State under Ronald Reagan during the 1980's.  

"Neoliberalism" is an integral part of the platform of all political parties.  As in a one party state, the results of the ballot have virtually no impact on the actual conduct of state economic and social policy.

Globalization of poverty: IMF economic medicine

Under IMF jurisdiction, the same menu of SAPs (Structural Adjustment Programs) are now imposed on more than 150 countries.  This includes budgetary austerity, devaluation of currency, trade liberalization, and privatization.  Debtor nations forego economic sovereignty and control over fiscal and monetary policy.  While adopted in the name of “democracy” the SAPs require the strengthening of the internal security and military intelligence apparatus, political repression- all with the collusion of Third World elites. 

SAP = a form of economic genocide and directly affect the lives of over 4 billion people.  It is a form of “market colonialism” that subordinates peoples and governments through the seeming “neutral” interplay of market forces. 

At heart of global economy is an unequal structure of trade, production and credit. 

In India: 80% of population of India lives on less than equivalent of $1/day. 
In Nigeria: In 1980’s under military government minimum wage declined by 85%
In Vietnam: Wages were below $10/month. In 1991, a college-educated secondary teacher made a monthly salary of US $15.
In Peru: After IMF/WB SAPs were imposed by Pres. Fujimori in 1990, fuel prices increased 31 times overnight and the price of bread increased 12 times.  And the real minimum wage had declined over 90% since the mid-1970s.

New World Economic Order- based on “dollarization” of domestic prices, internationalization of commodity prices and fully integrated world commodity market.  Prices are unified but wages (and labor costs) in 3rd world and Eastern Europe are as much as 70 times lower than those of developed countries.   Between country wealth disparities are matched by within country wealth disparities, in 3rd world countries over 60% of national income goes to upper 20% of population.  In many low and middle income developing countries, 70% of rural households have per capita income between 10 and 20% of national average.  SAPs imposed in the 90s have increased all disparities.

Since the late 1980s, the WB supervises the privatization of state enterprises, the structure of public investment, and the composition of public expenditures (for reforms in health, education, industry, agriculture, transportation, the environment) through the so-called Public Expenditure Review (PER).  The borrowing country is often obliged, under its agreements with the Washington-based institutions, to outline its policies in a so-called Policy Framework Paper (PFP).

“Thirdworldization” of former Eastern Bloc (former Second World) countries: Until early 1990’s, these countries were considered part of the developed “North”.  But they have been impoverished by IMF-sponsored reforms and now are reclassified as developing countries.   

The WTO Articles of Agreement call for “charter of rights for multinational corporations”.  The 1994 WTO meeting in Marrakech produced a 550-page document.  The 1994 Marrakech Agreement by passed the democratic process of each of the member countries.  The process under which the WTO was created was blatantly illegal.  A totalitarian intergovernmental body has been installed in Geneva- empowered under international law with a mandate to police country-level economic and social policies, derogating the sovereign rights of national governments as well as various UN programs.  The articles of the WTO contradict existing national and international laws and certainly repeal the UN Declaration of Human Rights.  They allow the patenting of life forms and the genetic manipulations of biotech companies.  They also allow multinationals and banks to take control of entire countries.
 
Global Falsehoods- G7 governments, WB, IMF and the WTO routinely deny and under-report the increasing levels of world poverty.  The public is bombarded with glowing images of global growth and prosperity.  The big lie is that “globalization” and “free market” reforms are conducive to long-term prosperity for all.  So the international institutions must fabricate and falsify the data.  So figures on poverty are manipulated by the WB, UN, etc.  The WB defines upper level of poverty as $1/day- and finds 33% of Third world in this category.  They define population groups making over $1/day as “non-poor”.  So $1/day is defined as the “poverty threshold”.  And they use computer simulations to mask reality.  India (where over 80% live on less than $1/day): the WB said poverty levels were lowered from 55% in 1985 to 25% in 2000.  But the $1/day framework is removed from an examination of real life needs.  What are household, food, clothing expenditures?  These are not considered in the equation.

Thus, the UN Development Group (UNDG) can state “the progress in reducing poverty over the 20th century is remarkable and unprecedented….. The key indications of human development (in the late 20th century) have advanced strongly”.

In Peru, after IMF reforms, 83% of the population was unable to meet minimum daily calorie and protein requirements.  It’s worse in sub-Saharan Africa and South Asia, where the majority of the population suffers chronic malnutrition. 

Policing Countries through Loan Conditionalities

How do you bring a sovereign country under the control of private bankers?  Debt.  The Bretton Woods institutions have been able to oblige countries to adopt so-called “conditionalities” attached to loan agreements to redirect their macro-economic policy in accordance with the interests of their creditors. 

The debt burden of 3rd world countries has increased 32-fold since 1970.  From US $62 billion in 1970, to $481 billion in 1980 to $2.5 trillion in 2000. 

But the “official” neoliberal dogma has also spawned its own “counter paradigm” of “sustainable development” and “poverty alleviation”.  This “counter ideology” rarely challenges the neoliberal prescriptions for economic progress.  The function of these development types is to generate a semblance of critical debate without addressing the social foundations of the global market system.

There are two phases in IMF/WB policy, but they are carried out together: 

Phase One: “ Economic Stablization” is accomplished by devaluation of national currency, price liberalization and budgetary austerity.

1) Devaluing (Destroying a Nation’s) Currency: IMF always argues that the exchange rate is “overvalued”.   Often devaluation of currency is a pre-condition for a structural adjustment loan.  Devaluing currency has immediate effects on the buying power of people’s money.  Prices go up immediately, and real earnings go down, as well as value of labor.  The domestic prices of food, essential drugs, fuel and public services go up overnight.  So the IMF obliges the government to adopt a so-called “anti-inflationary policy”- which requires dismissal of public employees, drastic cuts in social security, and de-indexing of wages.  (This requires elimination of cost of living adjustment clauses in collective agreements and phasing out of minimum wage legislation.)
 
Not only that a $500 million IMF loan really only allows the borrowing country to take export money and use it to pay back the original loan.  Then there is still the problem of paying back the new loan.  So a $500 million IMF loan generates $1 billion to creditors.  Basically the loan is “FICTITIOUS,” or created out of nothing.

If a govt. is not “seriously committed to economic reform” and “not on track” and does not receive a “satisfactory performance” by quarterly reviews by the IMF, it is “on the blacklist”- with a  danger of facing reprisals in the area of trade and capital flows.  Likewise, if country falls behind on its debt-servicing obligations it can be blacklisted. 

The IMF requires the “liberalization of the labor market”, ie., the elimination of cost of living adjustment clauses and phasing out of min. wage legislation. 

2) Taking Control of the Central Bank.  The IMF restructures the Central Bank so that the IMF rather than the government controls the money creation.  And increasingly, the allegiance of the Central Bank is to the IFIs (international financial institutions). 

3) Dismantle public employment sector.  Dismissal of public employees and drastic cuts in social sector programs.  Gradual withdrawal of the state from basic health and education services. 

4) Engineering the Collapse of Public Investment.  Devaluation and budget targets imposed by the IMF trigger the collapse of public investment. 

5) WB also regulates the price of petroleum products and public utilities.  By manipulating and raising these prices, the WB/IMF can stress and economy to the breaking point. 

Phase Two: “Structural Reforms”

1) "Trade liberalization" consists of eliminating import quotas and reducing tariffs.  The resulting decline in custom’s revenues helps break the state’s public finances.  These also lead to collapse of domestic manufacturing geared towards the internal market.  They also fuel the influx of luxury goods, while the tax burden of the rich is reduced as a result of lowering import tariffs on autos, etc.  So imported goods replace domestic production.  All this helps swell the external debt.
 
2) Divest and privatize state enterprises.  Privatization is always tied to renegotiation of external debt.  Proceeds of these sales deposited in the Treasury go to the London and Paris Clubs.  International capital takes control of state enterprises at a very low cost.  (affected areas are oil, gas, telecommunications, public utilities, etc.). 

3) Tax reform- value added and sales tax and changes in structure of direct taxation- places greater tax burden on lower and middle class.

4) Privatization of agricultural land - First land titles are issued to farmers, then conditions set so that farmer can’t afford to keep his land- he forfeits and/or mortgages the land to large agribusiness interests.  This helps develop a class of landless seasonal farm workers.  Also privatization of public land sales generate state revenues, channeled to international creditors.

5) Deregulate Bank system-  Central bank loses control- interest rates are raised- set by WB and IMF.  Key state banking institutions are divested and taken over by foreign financial interests.

6) Recycling dirty money to debt servicing- Hard currency (dirty money- or proceeds from illegal trade) is transferred from offshore accounts into the interbank market and used to purchase state assets and or public land put on the auction block by the government.  Foreign exchange proceeds of these sales are channeled toward national Treasury where they are ear-marked for debt servicing.  

7) SEF (Social Emergency Fund) is set up which sanctions withdrawal of government from the social sector and “management of poverty”.  Various non-governmental organizations (NG0s) step in and take over some of these functions of local-level governments.  This gives only basic survival needs and helps contain risk of social upheaval.

8) “Democratization” occurs- holding of multi-party elections are added as conditionalities of loan agreements.  However, the nature of economic reforms prevents genuine democracy. 

Consequences of Structural Adjustment

The imposed solution to the debt crisis becomes cause for further indebtedness.  The very processes of “belt tightening” imposed by creditors undermine economic recovery and enlarge the debt.  Thus the IMF-WB reforms undo the efforts and struggles of post-colonial period.  What happens is social and economic collapse, the disintegration of the state, production of the domestic market is destroyed through compression of real earnings and domestic production is redirected to the world market. 

On Education

Educational establishments are closed down and teachers are laid off due to lack of funds.

Explicit conditions of WB social sector adjustment loans are: freezing number of graduates of teacher training in colleges and increasing the number of pupils per teacher.  Education budget is curtailed, number of contact hours spent by children is lowered, a double-shift system is installed, one teacher now does the work of two, the remaining teachers are laid off and again the resulting savings to the Treasury are funneled towards the external creditors. 

But in sub-Saharan Africa, a new imaginative “cost-effective” formula consists in eliminating the teacher’s meager salary altogether (in some countries as low as $15 to 20 a month), while granting small loans so that unemployed teachers can set up small, informal “private schools” in rural backyards and urban slums.  Even under this scheme though, the Ministry of Education would still be responsible for monitoring “the quality” of teaching.

On Health

In the health sector, there is a breakdown in curative and preventive care as a result of lack of medical equipment and supplies, poor working conditions, low pay to medical personnel, etc.  According WB, state subsidies to health create undesirable “market distortions”, which “benefit the rich”.  They maintain that $US8/person/year is enough to meet acceptable standards of clinical services.  The result: health establishments in sub-saharan Africa have become a source of disease and infection.  (price hikes in fuel, electricity and water and shortage of medical supplies- increase incidence of infection, including HIV transmission. 

Result: a resurgence in sub-Saharan Africa of communicable diseases that were thought to be under control.  Including cholera, yellow fever and malaria.  Likewise, in Latin America malaria and dengue have worsened dramatically since the mid-1980s.  Bubonic and pneumonic plague have broken out in India in 1994 are recognized as “a direct consequence of a worsening urban sanitation and public health infrastructure which accompanied the compression of national and municipal budgets under the 1991 IMF/WB sponsored SAP.

The IFIs acknowledge the social consequences of the SAPs.  However, they belong, according to their logic, to a separate sector, the social sector and are considered “undesired side effects” – not part of the workings of an economic model.   

The global cheap labor economy

The new world economic order involves the relocation of large part of the industrial base of advanced countries to 3rd world countries.  Now 3rd world manufacturing encompasses most areas of manufacture (autos, ship-building, aircraft assembly, arms prod, in addition, to garments, food, etc.)  This is increasingly undertaken in SE Asia, China, Latin America, and Eastern Europe

Along with the cheap labor economy in these areas there is reduced wages and reduced demand for goods.  Therefore, it is based on the destruction of national manufacturing for the internal market- all manufacture is for export to the wealthy.  Thus, “free trade zones” have been extended to entire national territory of developing countries.

In these 3rd world countries, national enterprises are pushed to bankruptcy.  The “hidden agenda” of SAPs is the compression of wages in 3rd world countries supports the relocation of economic activity from rich to poor countries.  Again, though, poor people, the cheap labor economy do not constitute a market for the goods they produce. 

In fact, consumer demand is limited to about 15% of the world population, confined mostly to the rich countries and the small pockets of wealth (the elites) in the poor countries.  Thus, supply does not create its own demand (contrary to Say’s Law).

"Die or export" is the motto.  Since all poor countries want to export to the rich countries’ markets, and there is overproduction and an oversupply of manufactured goods, there is cut-throat competition among poor countries to lower their wages and prices to get the work.   

So ironically, the most successful exporting economies are also the World’s largest debtors- due to low wages and prices for commodities and hence revenues generated.

Poverty in the 3rd world also puts downward pressure on wages in developed countries. 

SAPs transform national economies into open economic spaces and countries into territories, i.e., “reserves” of cheap labor and natural resources.  However, export promotion can only succeed in a certain number of cheap-labor locations. 

So what happens, as 3rd world countries apply SAPs (“economic adjustment”) and export promotion policies, this causes oversupply.  This depresses the value of the products and lowers wages. 

So poverty, low wages, and an abundant supply of cheap labor are considered “inputs” on the supply side. 

World Unemployment: If labor unrest in one “free trade zone” gets out of hand, transnational capital can easily move to another area.  So labor costs are conditioned by the existence of a “global reserve pool of cheap labor” made up of “reserve armies” of labor in different countries.  This amounts to a “world surplus population.”  So again, international capital (which is mobile) can move easily from one national labor market to another (ex. From Guatemala to Vietnam) and workers from different countries are competing with each other. 

Thus, mass poverty “regulates” the cost of labor in each national economy.  Wages also related by the urban-rural relationship.  Rural poverty and existence of large mass of unemployed and landless farm-workers tend to promote low wages in the urban areas of manufacturing. 

Of course, the development of cheap-labor export factories in the 3rd world is matched by plant closures in the industrial cities of the advanced countries. 

So under the rules of NAFTA, the US has turned the entire Mexican economy into an export processing zone.  Likewise, two other major trading blocks are the same: Japan gets cheap labor from the Phillipines and Thailand, and Germany (under Maastricht Treaty rules) gets cheap labor from Poland, Hungary, and the Czech and Slovak Republics (where the cost of labor is about $120/month as opposed to $28/hour in Germany).

These are examples of “cheap labor hinterlands” along geographic borders of developed countries.  Ex. "Maquiladora zones" south of Rio Grande.   So NAFTA enforces mobility of capital but immobility of the labor force.  Under NAFTA rules, American corporations can reduce labor costs by over 80% by moving to Mexico.  Also, high tech industries can hire Mexican professionals and make equal savings.  This is called “relocation”.  When US and Canadian companies move to Mexico, they displace existing Mexican enterprises.  This tends to concentrate industry and eliminate small and medium-sized enterprises, and also tends to take over part of the Mexican service economy through corporate franchising.  So now the US exports its recession to Mexico. 

So NAFTA results in the depression of wages and employment in all three countries.  Examples include:

1) the retail price of coffee is about 7-10 times the factory price (fob) and 20 times the price paid to the farmer in the 3rd world.

2) Now about 60% of the shoes sold in the US are made in industrial sweatshops in China

3) For shirts made in Bangladesh, the shirts retail at about $22 each or $266 a dozen, less than 2% of the total value of the commodity accrues to the workers- females and child labor.  Those workers make about $20 a month, about 50 times less than garment workers in North America.  The actual labor costs for those shirts is about $5, which corresponds to 25 to 30 hours of labor at 15 to 20 cents/hour.  At that wage, someone working 10 hours a day makes between $1.50 and $2 a day.  The gross markup of a dozen shirts from the $38 factory price to the $266 retail is split between:
 
a)  merchant profit to international distributors, wholesalers, retailers and owners of the shopping mall (the largest),
b)  the costs of transport, storage, etc.,
c)  customs duties exacted on commodity upon entry into the developed country. 

This profit is seen as something produced in this country. So now the former “socialist” countries are integrated into the global cheap labor economy. 

For every job lost in the developed countries and transferred to the 3rd world there is a corresponding decline of consumption in the developed countries.  So moving jobs to Mexico means plant closures and lay-offs in the US.  Decline of consumption leads to global economic recession. 

The increased concentration of wealth in the hands of the few has led to the dynamic growth of the luxury-goods economy.  Travel and leisure, the auto, the electronics and telecommunications revolution, etc.  Meanwhile basic consumption for some 85% of the world’s population is confined to a small number of food staples and essential commodities.   

Thus, the global production system is increasingly geared toward supplying limited markets (the upper 15%) of luxury consumption.  Now those who produce are not those who consume.  Thus, in the rich countries we have a “rentier economy” (which virtually does not produce anything). 

The high-tech economy (“non-material sector”) of the rich countries is based on the ownership of industrial know-how, product designs, research and development, services economy, real estate, communications and transportation.  Thus, rich countries have “de-industrialized”  and these interests now have subordinated “material production” in poor countries.

The service sector appropriates the “value added” of manufacturing.  Earnings of 3rd world workers are appropriated by distributors, wholesalers and retailers in the developed countries.  So industrial production remains subordinate to corporate monopoly capital.

Thus, GDP in developed countries is import led. 

Disarming the New World Order

The ideology of the “free” market upholds a novel and brutal form of state intervention predicated on the deliberate tampering of market forces.  The “free trade” of the WTO grants “entrenched rights” to the world’s largest banks and corporations and simultaneously derogates the rights of citizens.  Thus, the process of enforcing international agreements by the WTO invariably bypasses the democratic process. 

The New World Order is based on the “false consensus” of Washington and Wall Street which proclaims the “free market system” as the only possible choice way to a “global prosperity”.  All political parties share this consensus, even the Greens, Democrats, and former Communists. 

Solutions:

1) Unveil the insidious links between politicians and international officials and financial interests (the “revolving door”).
2) Remove state and intergovernmental organizations from the clutch of the financial establishment.  (and secret societies).
3) Democratize the economic system, its management and ownership structures.
4) Challenge the blatant concentration of ownership and private wealth.
5) Disarm financial markets.
6) Freeze speculative trade (speculative transactions in commodity futures and derivatives and the manipulation of currency markets)
7) Stop the laundering of dirty money. (0ver $1 trillion/year is laundered through legitimate banks and offshore subsidiaries).
8) Dismantle the system of off-shore banking.
9) Redistribute income and wealth.
10) Rebuild the welfare state.
11) Restore the rights of direct producers.

And I (ETK) would add:

12) return to government the perogative of issuing money and repeal the Federal Reserve Act of 1913.   

Also, since the Pentagon is an arm of Wall Street, the military and security apparatus endorses and supports the dominant economic and financial interests.  NATO coordinates its activities with the IMF and WB.  Thus, government, military and financial institutions share an ideological consensus and commitment to the New World Order.  Therefore we also need to:

13)  Dismantle the military industrial complex, NATO and the defense establishment including its intelligence, security, and police apparatus. 

Additionally, the virtually (Jewish) monopolized global media fabricates the news and distorts the course of world events.  This “false consciousness” pervades our societies, masks the truth, and prevents critical debate.   Therefore we also need to:

14) Disarm the controlled corporate media
15) Reinstate sovereignty to our countries
16) Disarm and abolish global monopoly capitalism- which has funded all wars of the 20th century and earlier by creating and funding its opponents (ex. Communist China, Soviet Union and fascist Germany).
17)  Dismantle the one-party state beholden to money interests.  Reaffirm US constitutional and UN Declaration of Human Rights values for all world citizens.
18)  Protect the rights of other species to co-exist and protect bioregions.  

This effort needs to democratize and integrate the interests and efforts of workers, farmers, small businessmen, professionals, artists, civil servants, clergy, students, and intellectuals.  This struggle needs to be globalized and international, and at the same time recognize and respect the tremendous human cultural diversity that still exists on this planet. 

The global economic system feeds on social divisiveness between and within countries.  Therefore, unity of purpose and worldwide coordination among diverse groups is essential.