09 November 2016

The political origins of inequality

Why a More Equal World is Better for Us All

Simon Reid-Henry
2015, University of Chicago Press, 208 pages,
ISBN 9780226236797

Reviewer: Christine Shields, Shields Economics

We may have a globalised economy but we do not have globalised policies. Quite the opposite. Hence the democratic deficit – and in a world of Clinton/Trump extremes and the tensions exposed in post-EU referendum Britain, to say nothing of ongoing EU strains, this is by no means confined to the emerging world. Discontent with the status quo is widespread. In this world of the voiceless poor, this book lambasts international community. The IMF, its leadership arrangements, the WTO and its rules, as well as the World Bank are all seen as not serving the world’s best interests, trade agreements likewise.

This book came alive some two thirds through. I found the early parts a struggle though there were some strong arguments made. In particular, using the example of the 1948 Marshall Plan, the author explores the origins of post-war development policies and their advantages to the western world. Later, he draws on the troubles of the Non-Aligned Movement as it struggled to maintain unity in the face of an increasingly self-interested West once the regime of floating exchange rates took off after 1971. This he regards as the beginning of the end of the West’s period of benign hegemony - which has of course diminished further since as the West’s recent interventions in Afghanistan, Iraq, Libya and Syria attest. Moreover, with the OPEC oil price shock of 1973, global common interests started to fragment. And within the United Nations (UN) subtle changes moved the locus of power from the General Assembly, where the Third World could dominate, to the Security Council, mainly populated by the major global powers. Rather than sticking to the founding principles of the UN, this shifted the organisation into another organ of Western power that over time lost its role of pushing for global social equity. The creation of the then G6 exacerbated this.

Positively, now the G20 exists, and has the capacity to dilute Western domination. But the book highlights that as the world has become more globalised and the economic mantra is more laissez faire than interventionist, it is western economic institutions that have benefitted. Yes we have the Millennium Development Goals and the Sustainable Development Goals, but we also have global corporates treating the world’s poor as their new frontier markets. And they drive the agenda. Not all are benign – even Unilever and Nestle – both companies renowned for their emerging market empathy - are criticised, as is Apple. The author sees their fault as selling products designed by the West generally for the West, but not necessarily best for poorer countries. Arms companies are another important blight on international politics. Not only are they the means by which the rich world can escape recession (by selling arms to the poor world), but also they further corruption in the poor countries by perpetuating the power of the existing, often corrupt, elites. Pharmaceutical companies are another target, as are retailers exploiting cheap labour in (and on) poor conditions to satisfy western demand for low-price fashion. The Rana Plaza disaster in Bangladesh is a good example of such exploitation.

And as for financial services, little can be worse. Vulture funds trading in distressed debt, tax havens and banks providing unsuitable easy credit are obvious targets. But even the much-lauded free movement of capital can be a disaster for emerging countries. Yet when Brazil pointed this out recently, nothing changed and the damage to Brazil’s economy from an overvalued exchange rate persisted. Different rules apply to different players it seems. Global trade agreements are a further problem – by imposing western standards on the emerging world, the system is geared towards western needs not those of the poor countries.

So what is the solution? Here the author draws on Scandinavian politics and the evolution of their model of social democracy in which parties reach beyond their core constituency to embrace other interest groups to create consensus and allow compromise. (Labour under Corbyn could learn something there.) Lessons from the past have to be learnt. Policy should be geared to social prosperity not just narrow economic growth. For this of course, the world needs strong – and wise – leadership, not wholly conspicuous anywhere just now. Also required is land reform, social policy, better education provision, reform to the financial system and – crucially - global public investment.

Global public investment would provide a double dividend: protection of public goods and improved development and prosperity, which may in turn help to reduce existing political and economic tensions. UN reform is also needed, to make it more democratic (though the EU hardly offers a positive role model there). In sum, tolerance is needed as is complicity. Make all feel involved and they will have a stake in their society.

So an impressive wish list, if only it were either feasible or likely. But a timely argument in this book, which finally gets around to making some interesting points and suggestions.