3 Structural adjustment

There is only one thing worse than structural adjustment; and that is not adjusting. KWAFI AKOOR, FINANCE MINISTER, GHANA

ESAP (Zimbabwe's Enhanced Structural Adjustment Programme) has meant that we can only eat two meals a day. We can no longer afford meat, because prices are too high. Everything costs more. I cannot afford to pay the school fees for my son and daughter since they started charging. Government said it was because of ESAP We can't even go to the clinic when the children are sick because we can't afford the medicines. ZIMBABWEAN WOMAN, HARARE

/ have read that our country is stabilising. That may be true, but we have no jobs. We can't send our children to school. Maybe stabilising is a good thing for the country's we pay debt to, but here life is getting harder. ZAMBIAN WOMAN

Intheolddays, we provided soup for a few hundred people. Then, in 1990, wehad 'stabilisation'. Prices went up more than 2000 per cent. Look around you, you can see what stabilisation has meant. Look at the children hawking on the streets, when they should be in school; look at the num- bers of people we are feeding; look at the numbers sleeping on the streets; look at the conditions in our slums. Has 'stabilisation'made things better? SOUP-KITCHEN WORKER, LIMA, PERU

which became the breeders of fascism and, Introduction 1 The United Nations was born out of the two finally, war'. The blueprint for global econ- great failures of the inter-war period: the failure omic governance which emerged from the to prevent the Great Depression and the failure deliberations at Bretton Woods was designed to to avert war. In the eyes of the founders of the prevent a recurrence of that tragedy, and to UN system, the two events were indissolubly create the conditions for human security in the linked. President Roosevelt urged delegates at post-war era. the 1944 Bretton Woods Conference to recall The overwhelming preoccupation of the con- how 'the great economic tragedy' of the 1930s ference delegates was to create the conditions had caused the 'bewilderment and bitterness for full employment and improved human I The Oxfam Poverty Report welfare.2 In the 1930s, the international trade world the IMF and the World Bank were and financial systems had imploded, with created to serve no longer exists. Yet their influ- calamitous results for commodity prices, ence is greater than ever; and nowhere more so output, and employment. Governments had than in the developing world. As lenders of compounded the crisis by responding to global financial resources in their own right, the IMF problems with deflationary economic policies, and the World Bank directly control billions of further damaging domestic and international dollars. Indirectly, they control considerably prosperity. Speculative and unregulated capital more. Most industrial countries demand an transfers had added to the chaos. Above all, the IMF-World Bank imprimatur as a precondition crisis of the inter-war period revealed the for providing development assistance and debt dangers inherent in a global economic system relief to developing countries. Their financial which tied nations in a web of interdependence, strength and role as intermediaries in North- but lacked an institutional structure to regulate South economic relations gives the Bretton it. The International Monetary Fund (IMF) and Woods agencies an enormous influence over the World Bank were intended to provide that governments; and their structural adjustment structure. policies influence the welfare of hundreds of Although the IMF differed from the agency millions of people, most of whom have never originally envisaged by Keynes, its most influ- heard of Bretton Woods. ential architect, its objectives were decidedly Because of their enormous influence, the Keynesian. According to its first Article, the IMF and the World Bank occupy a pivotal posi- IMF's basic purpose was 'to contribute...to the tion in international efforts to eradicate pov- promotion and maintenance of high levels of erty. The President of the World Bank at the employment and real income and to the time, Lewis Preston, acknowledged its obliga- development of die productive resources of all tions in this area. Launching the Bank's poverty members'.' The Fund was charged with prime reduction strategy in 1992, he stated: 'Sustain- responsibility for assisting countries suffering able poverty reduction is the overarching from short-term trade imbalances in a manner objective of the World Bank. It is the bench- which, with the memory of the inter-war period mark by which our performance as a develop- clearly in mind, enabled them to adjust 'without ment institution will be measured.'6 The IMF resorting to measures destructive of national or has similarly stressed the importance of poverty international prosperity'.4 The World Bank was reduction to its programmes.' set up to create the longer-term conditions for These are important commitments. How- expansion, first by supporting reconstruction in ever, in Oxfam's experience, there is a gulf Europe; and then by channelling resources to between the policy statements of the Bretton developing countries. Its over-arching Woods agencies and the design and imple- purpose, as described by Keynes, was 'to mentation of their policies. Charged with facili- develop the resources and productive capacity tating expansionary responses to macro- of the world with special attention to the less economic imbalances, the IMF has become a developed countries, (and) to raise the standard guardian of the type of deflationary measures of life and conditions of labour everywhere'.5 which the Bretton Woods conference sought to consign to history. These policies have under- The changing role of the IMF and mined the economic growth which is a World Bank necessary condition for poverty reduction in the developing world, with damaging conse- During the 50 years that have elapsed since the quences for employment and household Bretton Woods conference, radical changes income. Whereas the Bretton Woods confer- have taken place in the world economy. The ence envisaged the regulation of markets in the i Structural adjustment public interest, the IMF and the World Bank reduction at the heart of policy design. The have consistently promoted market deregula- collusion between the Bretton Woods agencies tion as the solution to poverty. This approach and governments in designing adjustment poli- ignores the fundamental reality of the market cies which transfer the social costs of adjust- place: namely, that people enter markets as ment disproportionately to the poor, must give unequal partners, and they leave them with way to a new poverty-focused compact for rewards which reflect that inequality. Market recovery. Such a compact will require far- deregulation has brought major gains for the reaching reforms in the Bretton Woods agen- wealthy. But for poor communities, such as cies. It will also require international action to those with whom Oxfam works, deregulation of address the debt crisis which, 15 years after it markets has often meant further marginal- gave birth to structural adjustment, continues isation. At the same time, the Bretton Woods to undermine prospects for social and econ- agencies have failed to protect expenditure on omic recovery. health care, education, and other social proviision needed to eradicate poverty. This is not to suggest that the objectives of Structural adjustment programmes structural adjustment, which include the res- toration of financialstabilit y to countries racked Structural adjustment policies evoke powerful by economic crisis, are misplaced. Nor is it to emotions, on all sides of the debate. The IMF, argue for a return to the flawed policies of the the World Bank, and governments all recognise past. Fifteen years ago, many governments the social costs of adjustment, but insist that defended to the death over-valued exchange these are symptoms of an economic crisis, for rates, the blanket protection of industries, and which structural adjustment offers the only stifling forms of state control over the economy. cure. There is, in the familiar refrain of count- Today, there is a growing consensus that less IMF-World Bank statements, 'no alter- markets have a vital role to play in develop- native' to adjustment. In the cities and villages ment; and that sustainable budgets, realistic of Latin America and Africa, on the other hand, currency alignments, viable trade balances, and structural adjustment has become a euphem- individual initiative are vital to economic ism for suffering, as the quotations at the head growth and poverty reduction. The issue is no of this chapter suggest. Zimbabweans have longer one of 'state versus markets', but of reinterpreted the acronym for their Enhanced which policies are most likely to meet the two Structural Adjustment Programme, ESAP, as equally important objectives of achieving sus- 'Enhanced Suffering for African People'. For tainable growth and eradicating poverty. people in the South, the argument that there is There are no ready-made, painless solutions no alternative to adjustment provokes the to the economic crisis which, in varying degrees almost universal response that there must be. of intensity, has affected so many Third World Oxfam believes that they are right — and that countries since the early 1980s. However, from there is an alternative. the standpoint of the poor, the ideologically- driven prescriptions of deflation and deregula- tion now on offer are not working. The The background: debt and the failures challenge as we approach the twenty-first cen- of state intervention tury is to develop new approaches to adjust- Structural adjustment policies were a response ment, which are compatible with the objectives to the severe financialcrisi s which visited much identified 50 years ago at Bretton Woods. That of the developing world in the early 1980s. The means developing expansionary responses to slow down in the world economy, and the lethal economic crisis; and it means placing poverty interaction of falling commodity prices and The Oxfam Poverty Report rising interest rates, caused by changes in US Bank expanded its soft-loan International monetary policy, devastated one economy after Development Association (IDA) facility for low- another. As export earnings fell, debt repay- income countries, providing them with what ment obligations rose, leaving much of Africa amounted to grants. and Latin America in a state of financial bank- The financial resources provided by the ruptcy. By the middle of the 1980s, Latin Bretton Woods agencies were both inappro- America was transferring some 5 per cent of priate (since most countries could not afford the regional income to its creditors in the industrial repayment terms), and insufficient to enable world. Between 1980 and 1987, Africa's debt countries to grow out of recession. However, stock rose from the equivalent of one-third of its their response to the debt crisis profoundly income to almost three-quarters. By the late changed the relationship between the Bretton 1980s, Africa's debt-to-export ratio (the value of Woods system and the developing world. Both its debt relative to its export earnings) had risen agencies assumed an increasingly pivotal policy to 500 per cent, which was even higher than role in developing countries. The World Bank that for Latin America. shifted its focus from project-based lending to The debt crisis which evolved in the 1970s the provision of balance-of-payments support and culminated in the early 1980s was precisely for programmes of economic reform. The IMF the type of event which the IMF and World became increasingly involved in providing 9 Bank were created to prevent. Under the orig- 'stabilisation' loans to cover budget deficits. inal Bretton Woods plan, the IMF would have Along with their loans came conditions for provided the resources to enable countries to policy reforms which, for practical purposes, adjust without recourse 'to measures destruc- transferred control over economic policy in tive of national prosperity'. In the event, both those countries to Washington. These policy institutions simply took it for granted that reforms were broadly aimed at expanding ex- debtor countries should honour their debts in ports and depressing domestic demand suffic- full. Instead of calling for a large-scale debt iently to maintain debt repayment capacity. As write-off, they devoted themselves to maintain- we argue below, this strategy was doomed to ing creditor claims, in effect acting as debt failure, in part because of the failure of Western collectors in indigent states. The preferred governments to address the debt crisis; and in solution to the debt crisis was to divert resources part because of the inherent shortcomings of on a scale bound to destroy growth and orderly the structural adjustment strategy itself. adjustment. The IMF lent money to indebted As the debt crisis deepened, more and more countries at market interest rates, enabling countries came under IMF-World Bank tutel- them to repay creditors. When it became clear age. Around 30 countries in Africa have had that the poorest countries would be unable to near-continuous programmes with the IMF repay the IMF, a new system of loans, the struc- and the World Bank since the early 1980s.10 In tural adjustment facility (SAF), was created to Latin America, there were 107 IMF-World provide more concessional credit; and when the Bank programmes in 18 countries during the money from this ran out yet another facility was 1980s. These programmes were intended not created in the form of the enhanced structural merely to address the immediate symptoms of adjustment facility (ESAF), inaugurated in the debt crisis, but to initiate wider policy 1987. These concessional facilities are now the reforms. In particular, the systems of state main form of IMF credit for low-income intervention which had contributed to the countries. For its part, the World Bank provid- economic crisis of the early 1980s were to be ed loans at market interest rates, which were radically overhauled. recycled to commercial bank creditors in the form of debt repayments. Subsequently, the e Structural adjustment

The need for reform Both in Latin America and Africa, governments increasingly resorted to overseas borrowing to The case for reform was a powerful one. During cover trade deficits. That borrowing in turn the 1970s, the failures of development models generated inflationary pressure and exchange- aimed at import-substituting industrialisation rate appreciation, discouraging exports and (ISI), or the displacement of imports through putting strain on the balance of payments in the the promotion of local manufactured goods, process. State regulation of foreign exchange were becoming increasingly apparent. Fiscal markets and import quotas provided a valuable profligacy and extreme corruption were part of source of political patronage, as well as windfall the problem in many countries. But the deeper profits for powerful vested interests, paid for at failure of ISI was rooted in its own contradic- vast public expense. By the end of the 1970s, tions." In sub-Saharan Africa, smallholder agri- these economic policies engendered the un- culture was regarded by governments not as an stable budgetary and trade conditions which engine of growth but as a source of foreign were exposed, with disastrous effects, by the exchange and finance for industry. State mar- surge in US interest rates and slump in com- keting boards levied taxes of up to, and even modity prices. over, half of the export value of the crops. On Under structural adjustment, state interven- average, these taxes were 70 per cent higher in tion was to be reduced to a minimum, and the sub-Saharan Africa than in other developing 12 impetus for economic growth was to come not, regions. Blanket protection was provided to as in the past, from the domestic market, but manufacturing industries, most of which re- from closer integration into the world economy. quired heavy public subsidies to survive. Over- Governments were to withdraw from the valued exchange rates were used to lower the market to provide better incentives for export- costs of industrial and food imports, and to ers; public spending was to be reduced in the lower the incomes of agricultural producers. In interest of balancing budgets; protectionist contrast to what was happening in South-East barriers were to be withdrawn; and currencies Asia, most industries in Latin America and were to be devalued to more realistic levels. Africa relied heavily on imports but produced These objectives remain central to adjustment mainly for domestic markets. policies. In recent years, however, the IMF and In Latin America, industrial growth in the the World Bank have claimed that structural 1960s and 1970s was accompanied by persistent adjustment represents not merely an agenda balance of payments deficits, as the cost of for macro-economic stability, but a comprehen- imports for local industries outstripped foreign sive strategy for poverty reduction. exchange earnings. Those deficits were covered by foreign borrowing. In Africa, the high import-content of industrial growth reinforced A range of reforms dependence on primary commodities to gener- The term 'structural adjustment' is shorthand ate foreign exchange, making industrial devel- for a wide range of policy reforms. These typi- opment ever more vulnerable to the vagaries of ally start with an IMF stabilisation programme, world commodity markets." At the same time, which is intended to reduce fiscal deficits (the heavy taxation of export producers, intended to difference between government spending and generate resources for industry, reduced their revenue) and restore the balance of payments to competitiveness, most disastrously in sub- a viable position. The rationale behind the IMF Saharan Africa, where market shares collapsed. approach is that both deficits are caused by Thus, import substitution became a victim of its excess demand, which is reflected in inflation- own contradictions, by undermining the very ary pressure.14 Stabilisation programmes are foundations upon which its success depended. almost always designed to reduce demand, The Oxfatn Poverty Report notably by cutting government expenditure, cent of GDP. At the same time, there was a controlling money supply, and raising interest recurrent trade deficit, which gave rise to rates, stringent targets being set in all of these growing debt service obligations. These rose areas. Devaluation, which is intended to correct from less than 3 per cent to more than 20 per currency over-valuation, restrict imports, and cent of export earnings during the 1980s. expand exports, is an almost universal part of Meanwhile, slow growth was associated with IMF programmes. low levels of savings and investment (which was World Bank adjustment programmes are diverted into financingth e government deficit), considerably wider in scope than those of the and slow rates of employment creation. In Fund, being intended to establish the founda- 1990, the year in which the country negotiated tions for longer-term recovery. Import liberal- a structural adjustment agreement with the isation, designed to increase exposure to IMF-World Bank, employment creation was foreign competition, figures prominently. So, sufficient to absorb only one out of every three too, does the removal of domestic market school leavers, so that unemployment had risen 'distortions', such as labour protection, food to 26 per cent." Social welfare expenditure had subsidies, and state control of agricultural already started to come under pressure, jeop- marketing. More recently, die Bank's influence ardising the gains made since Independence. has extended into social sector reform, By comparison with other countries in Africa including healdi financing and the design of and Latin America, Zimbabwe's economic social welfare safety nets.15 In practice, IMF- problems were not of chronic proportions. But World Bank programmes are complementary they illustrate the depth of the economic crisis in two respects. First, the principle of 'cross- facing countries which turn to the IMF-World conditionality' means that the World Bank sel- Bank. They also lend weight to the IMF-World dom initiates a programme unless a government Bank claim that macro-economic adjustment is has become a client of the IMF. Second, the unavoidable. The first victims of chronic instab- World Bank, like the IMF, stresses the im- ility are to be found not among elites, who have portance of stringent monetary discipline, the access to foreign currency, but in the shanty deregulation of labour markets to lower wages, towns and villages, where hyperinflation and economic policy liberalisation, and a reduced the collapse of public services exact a very high role for the state. price. Any assessment of structural adjustment pro- grammes must start out by acknowledging the The costs of adjustment severity of the problems they are introduced to But while the costs of not adjusting might be address. Consider, for example, the case of high, so, too, are the costs of structural adjust- Zimbabwe.16 During the 1980s, the country ment. The main thrust of IMF stabilisation has maintained a growth rate which was consider- been to cut public expenditure, through con- ably higher than the average for sub-Saharan trols on credit creation, reduced subsidies, and Africa, at around 2.7 per cent a year. However, lower public sector wages, while concentrating this was lower than the population growth rate, resources on production for export. Below we so that living standards declined. Deteriorating argue that stabilisation measures have been living standards were accompanied by an inconsistent with the objective of achieving sus- increasingly untenable budget deficit, which tained economic recovery. However, they have the government covered by printing money also resulted in massive social costs, which have (which created inflationary pressure) and rais- been borne disproportionately by women. An ing taxes. By the end of the decade, govern- example is provided by the experience of ment spending was a quarter higher than Zimbabwe, where the simultaneous reduction revenue, so that the fiscal deficit reached 11 per of food subsidies and decline in wages which 1 Structural adjustment accompanied structural adjustment dramatic- increased male unemployment reduced family ally reduced household incomes. Between 1990 incomes.21 There has been a similar trend to- and 1992, price decontrol increased by half the wards increasing female employment outside of price of an average food basket for low-income the home in Africa. In Zambia, a study of urban families. At the same time, average wage Chawama, a low-income settlement in Lusaka, settlements in 1992 were 25 per cent lower than showed that the number of women working the rate of inflation, implying a further erosion outside the home tripled during the 1980s.22 in purchasing power;18 and unemployment in- Most of this employment expansion has taken creased sharply as structural adjustment and place in the informal economy, where female drought combined to cause a deep recession. labour is typically concentrated in sectors with One study of Kambuzuma, a low-income urban the lowest economic returns, and where long settlement of 40,000 people in Harare, showed hours of work are required to generate small the proportion of families living below the amounts of income. As household managers, poverty line doubling, to 43 per cent. Most women have also been forced to compensate for households also changed their diets, eating less the decline in social welfare provision which has high protein foods and more carbohydrates. accompanied economic crisis and structural The poorest families cut their number of meals adjustment. The Chawama study mentioned from two to one per day. Women bore the brunt above discovered that a decline in the provision of this household-level adjustment, foregoing of public water-points had resulted in women meals themselves in order to maintain the food walking greater distances to fetch water. One- intake of children. Women-headed households third of the women in the compound spent over were particularly badly affected, reducing their an hour a day in this task. Declining health spending on food by one-fifth.19 sector provision has imposed considerable new Increasing unemployment, declining real demands on women, not least since lower wages, and reduced social welfare provision, nutritional status increases family exposure to have been almost universal features of struct- illness. The dilemmas facing women in this area ural adjustment. In Tanzania, the minimum are summarised by a Zimbabwean women wage covered only 14 per cent of the cost of the living in a low-income settlement in Harare: most basic food requirements for a one-person 'My daughter is sick, but what am I supposed to household at the end of the 1980s.20 In Peru, a do? If I take her to the clinic, I cannot afford to 'shock-therapy' programme introduced under pay for treatment — so what is the point? If I President Fujimori in 1990, saw food prices rise stay at home to care for her, how will we buy the by 2,500 per cent in one year, and the number food we need to stay alive?' of people living in extreme poverty double. These words capture some of the less visible Such trends impose costs on all poor house- costs associated with adjustment. Where adjust- holds, but women and young girls suffer dispro- ment policies result in a deterioration in food portionately from deteriorating access to food intake, health care, and public utilities, women when household incomes fall, because of in- are forced to compensate through a combina- equalities within the household. These in- tion of paid and unpaid labour. Yet the female equalities, largely ignored by policy makers, labour time spent on family care and the main- have a crucial bearing on how the costs of tenance of resources does not figure in national adjustment are distributed. accounts.23 In this sense, the costs to women and Additional female employment is one of the family life are invisible. They are, however, very mechanisms through which families survive real. The great rise in the number of street economic crisis. In Latin America, the propor- children observed in the cities of the developing tion of women in the work-force rose from 22 world, are testament to the growing pressures per cent to 38 per cent during the 1980s, as on low-income households. Once again, the The Oxfam Poverty Report real costs of depriving future generations of 1994, and reached 15 per cent of total Bank education are not reflected in national balance lending, is cited as evidence of reform in this sheets. Nor are the personal costs to women, area. who are faced with increasingly impossible de- The finalargumen t concerns the relationship mands on their time. One detailed study of a between growth and poverty reduction. Accord- low-income community in Ecuador24 showed ing to die IMF and the World Bank, structural that women were typically working in excess of adjustment programmes, where properly imple- 18 hours per day, and sacrificing time with their mented, have not only created the conditions for children in order to generate income outside growth, but for growth which is pro-poor. They the home. On the basis of interviews conducted contend that state intervention in the rural with the women, the study concluded that sector, where the vast majority of the poor live, about 30 per cent were coping; another 55 per has lowered prices, reduced market oppor- cent were barely getting by, mortgaging the tunities, and thereby depressed household future of their children, and especially their income. Deregulating these markets, according daughters, to survive; and another 15 per cent to the World Bank, has had the opposite effect, were exhausted, their families disintegrating raising prices and creating rural employment. In and children dropping out of school. The the urban sector, die IMF and World Bank salutary conclusions drawn by the author was believe that import liberalisation will have the that: 'Not all women can cope under crisis and it effect of making local industries more com- is necessary to stop romanticising their infinite petitive, by allowing them to take advantage of capacity to do so.'25 imported technologies. Together widi the re- moval of labour market regulations which, in the IMF-World Bank view, artificially raise labour An agenda for poverty reduction? costs, diis is supposed to expand employment.27 There are three main arguments which the These claims are not supported by the Bretton Woods agencies present in defence of experience of Oxfam's international pro- their claim that structural adjustment contrib- gramme. Few of our partners would question utes to poverty reduction. The first is that fail- the case for reform, and most are aware of the ure to adjust will, ultimately, impose huge costs 'tribute' siphoned off into foreign bank on the poor, with unsustainable budget and accounts by political elites operating behind a trade deficits leading to hyperinflation, curr- cloak of state intervention. Control over import ency instability, and economic collapse. This is licenses and foreign exchange quotas have gen- uncontroversial, although it hardly amounts to erated vast revenues, some of which are to be a defence of the specific policies associated with found in foreign bank accounts. However, the structural adjustment. fact that corruption and misappropriation The second, more controversial, argument occurred is not a reason for the withdrawal of concerns social provision. Both the IMF and the the state from areas of social and economic life World Bank acknowledge that insufficient where the regulation of markets, and public attention was paid to this area during the first provision, are vital to the interests of the poor. generation of adjustment programmes in the Nor can it justify the failure to protect the 1980s. They now claim to have introduced welfare of poor people through adequate social 'social conditionality' into structural adjust- welfare provision. ment, making provisions to protect expend- The harsh reality is that structural adjust- iture and welfare service delivery in areas of ment policies have not created a framework for 26 concern to the poor. World Bank investment sustainable and equitable growth. Their fail- in health, education, and nutrition, which rose ures are particularly pronounced in four areas: from $lbn for 1987-1989 to over $3bn for 1992- • Social welfare expenditure has not been i Structural adjustment

adequately protected. In many countries, The World Bank is right to stress the import- health and education provision has been cut ance of investment in people. Poor people will back. The introduction of user-charges to not be able to benefit from an improved macro- finance social welfare systems has meant that economic framework if they are illiterate, mal- essential services are beyond the means of the nourished or in poor health; nor will they be poorest people. able to contribute to sustained economic • Market deregulation has not provided a growth. framework for poverty reduction for the Given that investment in social welfare is an rural poor, and in some cases it has further area in which efficiency and equity are mutually marginalised them by excluding them from reinforcing, current expenditure patterns give markets. In the manufacturing sector, the cause for deep concern in all developing deregulation of labour markets has resulted regions, and especially in Africa. During the in increased insecurity and lower wages. 1980s, real per capita spending on education in • Deflationary stabilisation policies and over- Africa fell by one-third; and two-thirds of the rapid, unco-ordinated trade liberalisation countries in the region also reduced health has undermined the investment and employ- spending.29 Schools have been left without ment creation vital to poverty reduction. books and rural clinics without drugs. Staff • Sustainable and equitable patterns of growth morale has been sapped by wage cuts and lack have not been generated under structural of teaching materials. Increasingly, local adjustment. This is especially true in Africa, communities have been called on to fillth e gap where 15 years of adjustment have failed to left by the withdrawal of state support, by create a climate for recovery. But even in paying to maintain schools and clinics, and Latin America, where a fragile economic rec- financing salaries. In the admittedly extreme overy has taken root, it has been accom- case of Zambia, it has been estimated that panied by growing inequality. parents pay 80 per cent of the costs of primary 30 We will now look at each of these areas in education for their children. more detail. Africa is now the only region in the develop- ing world where the percentage of children not attending primary school is projected to rise to Passing the costs to the poor the end of the decade. But the future of Latin The World Bank claims that improved social America has also been jeopardised. Average welfare provision is at the heart of its structural state spending in the region on primary adjustment operations, and that it has had education fell from $164 per capita at the considerable success in this area. In a statement beginning of the 1980s, to $118 at the end." In to the World Summit for Social Development in South Asia, enrolment rates are improving, but Copenhagen, its Vice-President responsible for from an exceptionally low base, and with major Human Resources Development commented: gender disparities. But even where countries show high initial enrolment rates, poor As many donors are tightening their belts, foreign children — especially girls — are forced to drop aid spending for health, education and other basic out as a result of economic pressure, and are needs is no longer in vogue. The World Bank unable to complete primary schooling. continues to buck this trend because the numbers show What makes a dismal situation even worse is that investing in people is not only the key to improving the bias in public spending towards higher people's lives, it is also good economics....The World education and urban hospitals, from which Bank's main goal is to help developing countries reach poor people derive fewer benefits. This mis- the point where limits to investment in people, no allocation of resources carries a high social price longer hold back growth or keep people in poverty.23 in terms of lost welfare for poor people. But it The Oxfam Poverty Report

also carries a high economic price, since it declines in health and education spending, and concentrates resources in sectors where the they are also reorienting public spending to returns to society are lowest. Misallocation is concentrate on primary-level facilities. Unfor- particularly evident in Africa. Despite having tunately, in many countries this is not happen- the lowest enrolment rates in the developing ng, even where the Bretton Woods agencies world, governments there spend a higher have attempted to introduce social con- proportion of GDP on education (4.7 per cent) ditionality. than do governments in East Asia (3.4 per cent), where many countries have achieved universal Structural adjustment in Zimbabwe primary education. This reflects the fact that Zimbabwe is widely cited by the World Bank as Africa spends more on tertiary education than an example of its new, poverty-focused ap- any other region.52 proach to structural adjustment. Under its 1990 The World Bank argues that structural structural adjustment programme, the Govern- adjustment programmes are now reversing ment of Zimbabwe committed itself to reducing the national budget deficit from 10 per cent to 5 Figure 3.1 Real expenditure per pupil per cent of national income by 1995. There was in primary school, Zimbabwe 1987-93 an agreement with the World Bank that it would do so in a way which would not only protect public expenditure in health and SOURCE: UNICEF education, but restore cuts made since 1988, when per capita spending in both areas began to decline." According to the World Bank, this was a condition for the release of adjustment 112 ^Structural adjustment finance. In practice, however, budgets for /lO5 health and education declined dramatically in real terms during the first three years of the structural adjustment programme. Per capita spending on health services fell by one-third, and on education by 29 per cent, to its lowest level since Independence. Per capita spending on primary education fell even faster than spending on other areas of education, suggest- ing that cuts were falling most heavily on the sector most crucial to poverty reduction. Expenditure on the maintenance budgets for rural water-supply points was also cut severely, reducing the availability of clean water in rural areas.34 These expenditure patterns have threatened the impressive social welfare improvements made in Zimbabwe since Independence. Their effects have been deeply felt by many of Oxfam's project partners, who have seen their opportunities for education and health care diminish. There is a widespread and justifiable anger at the failure of the World Bank and the 1987 1988 1989 1990 1991 1992 1993 Zimbabwean government to consider more I Structural adjustment equitable ways of reducing the budget deficit. maternal mortality rates are amongst the worst Public sector reform has been spectacularly in the developing world. While per capita slow, with the result that subsidies to the ailing income in Pakistan is some 80 per cent higher steel industry and other parastatals have not than the average for the 54 countries grouped fallen. The build-up of public debt needed to in the UNDP low-human-development cate- maintain government spending in these areas is gory, its social indicators in each of the above diverting resources on a huge scale. Annual areas are considerably worse." Under these cir- interest payments on public debt now absorb an cumstances, public expenditure cuts carry an estimated 18 per cent of the budget, the second extremely high price in terms of increased largest item of expenditure after education. suffering, wasted human potential, and re- Reluctance to cut spending on defence, the duced long-term economic growth prospects. third largest item of government expenditure, Such a price ought to be regarded as too high accounting for 3.5 per cent of GDP, has further under any circumstances. In a country where reduced the government's capacity to maintain military expenditure absorbs more than the spending on social welfare.55 combined health and education budgets, re- duced social welfare expenditure suggests a Social welfare provision in Pakistan dereliction of responsibility on the part of Pakistan is often and justifiably cited by the government. World Bank as one of the worst offenders in terms of failure to invest in social welfare. Yet the The responsibilities of the Bretton Woods country's structural adjustment programme agencies and of governments appears to have coincided with a further The World Bank has made genuine efforts to deterioration in the country's performance. persuade governments of the need to protect During 1993-1994, the third year of the social expenditures. Unfortunately, these programme, the Pakistan Government exceed- efforts have often been belated and ineffective. ed even the targets set by the IMF for reducing For instance, the Indian government in 1991 its budget deficit. The deficit fell by almost one- began implementing budget stabilisation mea- third in a single year, from 8 per cent to 5.4 per ures agreed with the IMF and World Bank by cent of GDP. However, this reduction was cutting expenditure in a number of social achieved not through increased revenue, but priority areas. The Department of Rural Devel- through drastic cuts in public expenditure. opment reduced its expenditure budget in the Since the start of its structural adjustment pro- first year of stabilisation. This was followed in gramme, health expenditure in Pakistan has 1992-1993 by a 46 per cent cut in the rural fallen from 1 per cent of GDP to 0.7 per cent, sanitation budget and a 39 per cent cut in rural while education spending has fallen from 2.4 water-supply spending, both priority areas for per cent to 2.2 per cent.36 poverty reduction.58 In 1992, the World Bank Attempting to meet budget targets through strongly criticised the Indian government for expenditure reductions in these areas raises proposing deep budget cuts in health spending, concerns at several levels. In contrast to and it may have played a role in limiting the Zimbabwe, they are being introduced in a con- scale of public expenditure retrenchment. The text of already grossly inadequate provision. fact remains, however, that real spending on Pakistan has some of the worst social welfare health, agriculture, irrigation, and social services is lower today in real terms than in indicators in the world in health and education. 59 In 1990, only one-third of the country's popula- 1991. tion was literate, and less than a quarter of its The World Bank's inability to use its influ- women; half of the population does not have ence to secure more effective protection for access to clean water; and infant mortality and social welfare provision under stabilisation, has 1 The Oxfam Poverty Report been in evidence elsewhere. In Zambia, one of protracted cuts in social welfare provision, and the 'new model' adjustment operations, the the failure to reverse the cuts raises serious Bank has made strenuous efforts to achieve doubts over the poverty-reduction claims made government commitments on priority social- for Zambia's adjustment programme. sector expenditure. However, these commit- The failure to protect social expenditures ments were not translated into budget under structural adjustment raises a number of allocations and expenditure. In the 1991 bud- important questions about existing approaches get, the government pledged itself to raise ex- to stabilisation and budget allocations. To its penditure on education from 9 per cent to 12 credit, the World Bank has attempted to estab- per cent. During the complex political bargain- lish agreements with governments, both to pro- ing processes over inter-departmental alloca- tect social expenditure, and to improve its tions which followed, the government reduced distribution. In practice, these agreements have the education sector share of the budget to 7.7 proved difficult to enforce, and non-compliance per cent, its lowest-ever level. Commitments to has been tolerated in a manner which would be restore the cuts had still not been implemented inconceivable were it repeated in relation to, say, by 1993, when the education budget still money supply or credit control. Yet removing accounted for only 9 per cent of total expendit- barriers to primary education and health care is ure. Moreover, the amount going to primary no less important to the long-term outcome of education within the overall budget has fallen.40 structural adjustment than restoring macro- These trends follow a period of deep and economic imbalances.

Figure 3.2 Health and Education sector spending, Zambia 1981-93 SOURCE: WORLD BANK

Million 1993 Kwacha 90000—.

80000

70 000 —I

1981-85 1986-90 1991 1 Structural adjustment

This suggests the need for more transparent The effects of user-fees on health and and wide-ranging dialogue over how fiscal education deficits are to be reduced. Given the influence of political and economic elites, it is hardly sur- The problems associated with declining public prising that most governments have an in-built expenditure provision have been made worse tendency to pursue targets for reducing fiscal by other aspects of structural adjustment, deficits by cutting expenditure on areas of con- including increased recourse to user-fees to fin- cern to the poor. It is far easier to cut budgets ance services. Faced with budgetary constraints, for rural health clinics than for imported many governments have imposed charges for weapons, or for parastatals which are important health and education services. In an effort to re- sites of patronage. And it is far easier to tax the finance its educational system, the Government poor, by charging for primary education, for of Zimbabwe introduced fees for all urban example, than the rich. These are the political primary schools and all secondary schools in realities in which the Bretton Woods agencies 1992.42 Parallel moves in the health sector saw operate. Yet it is surely unacceptable for them the introduction of more rigorous fee collection to fix broad budget targets, in the certain know- in 1991, and a sharp increase in prices at rural ledge that they will be a catalyst for reduced clinics and hospitals in 1994.4' These actions welfare provision. In this context, the IMF and were encouraged by the IMF and the World the World Bank should accept responsibility for Bank. Under the structural adjustment pro- agreeing with governments deficit-reduction gramme introduced at the beginning of 1991, measures which protect the poor. Far more targets were set for raising the revenue collec- emphasis could be placed upon establishing fis- ted from education fees from Z$40m to Z$ 120m cal stability by reducing military expenditure by 1993. Healdi fees were to rise from Z$ 15m to and parastatal subsidies, debt relief, and raising Z$45m over the same period. Both measures revenue through progressive forms of taxation. were intended to reduce the fiscal deficit by 44 More rigorous social conditionality must also raising the equivalent of 0.7 per cent of GDP. be considered.41The respective balance of rights The cost-recovery programme had adverse and obligations between the Bretton Woods effects on the welfare of poor people. In 1992, agencies and governments is a complex issue. one survey showed that almost one-third of all The IMF-World Bank view is that governments patients were unable to afford the full cost of must take responsibility for setting priorities their treatment. Another found that out of a within agreed overall budget parameters. Both sample of children suffering from diarrhoea agencies claim that the principles of national who had been treated at home, over half had sovereignty demand that governments retain not been taken to clinics because of the cost.45 responsibility for public spending. This Women's attendance at antenatal clinics was sensitivity towards national sovereignty is less particularly sensitive to increased fees.46 This apparent in other policy areas, such as money was reflected in an increase to 8.8 per cent from supply. In Oxfam's view, governments and the 1.6 per cent in the number of babies born in international financial institutions share an Harare Central Hospital to mothers who had ethical obligation to protect the interests of the not registered for antenatal care. The perinatal poor during adjustment. In some cases, social mortality rate for these mothers is five times costs may be an unavoidable consequence of higher than for mothers who had registered, economic crisis. But the underlying principle underlining the extreme dangers for women of for adjustment should be that of'last call' on the exclusion from health facilities.4' resources of the poor, with poverty-related To its credit, the Government of Zimbabwe elements of the budget protected to the withdrew user-fees from rural clinics in 1995 maximum possible extent. when the evidence of their adverse effects on

^S The Oxfam Poverty Report

Figure 3.3 Maternal deaths recorded nationally at hospitals and clinics compared with Ministry of Health recurrent expenditure per capita, 1987-92, Zimbabwe

Maternal deaths Real expenditure (ZS/capita) 30

1991 1992 SOURCE: UNICEF public health became clear. Even before then, The most significant costs of the reduction in the World Bank had acknowledged the high provision and imposition of user-charges have social costs of user-fees and urged their with- been borne by women, for whom inadequate drawal, showing a genuine concern to act on its health care poses acute risks, especially during commitment to protect the health of the poor. pregnancy. Women also suffer in terms of Unfortunately, however, that concern is not increased demands on their time. When health always reflected in World Bank advice. Since services collapse, it is women who look after sick the mid-1980s, the Bank has been encouraging children and elderly relatives, extending their countries to increase user-charges, with the unpaid labour to cover the real costs of struct- 49 twin aim of raising revenue for the health sector ural adjustment. and introducing market principles into re- There are serious grounds for questioning source allocation. Although exemption systems the use of cost-recovery in health services, even have been designed to shield the poorest from on narrowly-defined efficiency terms. User-fees payments, in the absence of institutional capac- are not a particularly efficient mechanism for ity these have almost universally proved health sector financing, seldom generating inadequate. The consequences are cogently more than 5 per cent of recurrent health spend- summarised by a Medical Superintendent at ing even where they are well established. In Masaka Hospital in Uganda: many countries, the costs of administering user- fees are probably more or less equivalent to the The rural poor do not attend Masaka hospital revenue they generate. Where there is wide- except in extreme cases. They do not attend because spread poverty, as in most of Africa and Latin they cannot afford the costs involved including America, the costs of administering an 1 transport, drugs and the minimum fee." exemption system which actually worked would

^H Structural adjustment almost certainly outstrip the revenue from user- increased unemployment and falling incomes. fees. Under such conditions user-fee systems Variously labelled as 'social emergency funds', are particularly inefficient, since the revenue 'social dimensions of adjustment programmes', they generate decreases with the extent of pov- and 'social investment funds', they have been erty, while the costs of administration increase used to protect vulnerable groups, typically as the number of people eligible for exemption through joint interventions by donors, govern- rises. Claims that user-fees can generate finan- ments, and the NGO community. All the pro- cial resources for investment in health services grammes were introduced to ease the costs of are technically correct, but largely irrelevant. In adjustment in the short term, while assuming almost all cases, the income generated by user- (erroneously in many cases) that economic fees is transferred to finance ministries, rather recovery would diminish the need for assistance than re-invested in health care. In reality, fees in the medium term. Among the motives for have been imposed with the aim of rationing these programmes, the objective of maintaining resources and reducing fiscal deficits by taxing political support for structural adjustment has the poor; and their effect has been to reduce figured prominently. demand by pricing services beyond the means 50 In some cases, social dimensions pro- of poor people. grammes have been reasonably effective. In Oxfam's anxiety is that the World Bank's other cases, they have proved deeply flawed, advocacy of user-fees and private health care even as limited social welfare initiatives. But has subordinated a concern for equity and the whatever the country-specific experiences, provision of basic health for all, to the introduc- social welfare safety-nets have inevitably proved tion of market mechanisms into health financ- inadequate in the face of the failure of structural ing. This reflects the underlying philosophy of adjustment programmes to create a viable the Bank, which sees the market as the most macro-economic framework for poverty efficient way of allocating scarce resources and reduction. 51 forcing individuals to exercise responsibility. Politically, one of the most successful pro- The scarcity of financialresource s poses very grammes has been National Solidarity difficult dilemmas in health-care planning. Programme (PRONASOL) in Mexico. Between However, there are more equitable and effi- 1989 and 1993, the budget for this programme cient ways of addressing that scarcity, both quadrupled to $2.5bn, providing food assist- nationally, through raising additional funding ance, social services, investment in water and from progressive taxation or reduced military sanitation, and direct subsidies and credit to and parastatal spending, and internationally, small producers. The World Bank has held through development assistance and debt re- PRONASOL up as a model to be followed. lief. The introduction of what amount to highly However, while the programme has provided regressive forms of taxation such as user-fees benefits for many communities, it has also been should be a last resort, unless they can be effect- the subject of extensive political manipulation, ively targeted at income groups who can afford with resources being concentrated in accord- to pay them. ance with the political priorities of the governing Institutional Revolutionary Party. Much has been made by the World Bank of Social welfare safety-nets the 'demand-driven' character of its social Since the latter part of the 1980s, most struct- dimensions interventions, most of which place ural adjustment programmes have incorpor- the emphasis on responding to community ated social welfare safety-nets, aimed at initiatives. This is a laudable alternative to 'top- off-setting what the World Bank characterises down' interventions, which ignore community as 'transitional' effects of adjustment, such as concerns. But responding to project applica-

^S The Oxfam Poverty Report tions is not, in itself, an effective targeting the Social Development Fund (SDF) did not strategy for poverty reduction. In Bolivia, the come into operation until some 18 months after Emergency Social Fund (ESF) sought to offset the adjustment programme was finalised in the effects of the unemployment caused by 1991. No co-ordinator was appointed until adjustment, providing the equivalent of one- 1993, and no additional staff were allocated to third of public spending by 1991. However, existing social welfare offices, despite the over half of the beneficiaries from this pro- massive increase in public demand caused by a gramme, which focused on construction work, combination of drought and structural adjust- already had a job; and the poorest regions of the ment policies.54 There was widespread duplica- country received least funding. Another way in tion in procedures for applying for assistance, which the programme failed to reach the poor- with separate procedures for food subsidies, est was that only 1 per cent of the jobs created health fee exemptions, and assistance with went to women.52 These failures reflect a wider education fees. Forms to register eligibility were failure to make ESF funding available to the several pages long, requiring information poor. But perhaps the biggest failings were that unlikely to be available to many people.55 Not the programme was able to reach only a small surprisingly, the scheme achieved limited proportion of the unemployed, and that it came success. Food subsidies have reached an to an end before any sign of recovery had estimated 4 per cent and school fees exemptions occurred. around 20 per cent of the eligible population. One of Oxfam's criticisms of the 'demand-led' By mid-1994, three years into the adjustment approach associated with social dimensions programme, 45 per cent of the population had 56 programmes is that, in practice, they often not even heard of the SDF. result in resources being distributed to those Social welfare programmes occupy a central best placed to make viable applications. In role in the World Bank's poverty reduction Honduras and Costa Rica, for example, it strategy. But while social safety-nets are import- appears that wealthier municipalities are ant, they cannot resolve long-term poverty receiving the largest share of resources.53 problems. This is especially true in countries Elsewhere, the prospect of World Bank funding where economic recession is fostering wide- has led to a proliferation of NGOs, some of spread social dislocation, and where free- whom have only tenuous links with local market reforms are excluding large sections of communities. the population from any prospect of sustainable The dilemma, to which there is no easy livelihoods. What is needed is an integrated answer, is that genuine community initiatives approach to social welfare provision, in which and genuine participation take time, whereas the emphasis is placed both on improving the there is an onus on social dimensions pro- capabilities of the poor, through the provision grammes to make large grants and to spend of health care, education, and productive assets, funds swiftly. More fundamentally, there is a and on creating an enabling environment in problem of working with communities to devel- which those capabilities can be realised. op alternative strategies for survival in condi- tions where the poor are becoming increasingly marginalised, and where broader macro- Agricultural markets and liberalisation economic policies undermine sustainable liveli- hoods. The view that structural adjustment auto- Many social dimensions programmes, espe- matically brings benefits for the rural poor rests cially in sub-Saharan Africa, appear to have upon a number of assumptions about how rural been contrived as a hastily designed after- markets operate. According to the Bank, deval- thought to structural adjustment. In Zimbabwe, uation (which raises the local currency earnings

^S Structural adjustment from export crops) and the elimination of state household, and the degree to which the with- marketing agencies, which previously taxed drawal of the state is followed by the emergence producers at sometimes ruinous levels, have of a competitive private-sector trading system. restructured markets in a 'pro-poor' fashion. As one Bank document puts it: Adjustment and commercialisation Because the majority of Africans — and the One of the central aims of structural adjustment majority of Africa 'spoor—live in rural areas and are is to improve the balance of payments by self-employed smallholders, adjustment programmes encouraging agricultural exports. Commercial- that move the terms of trade in favour of the rural isation in this area has been promoted both by sector and focus on broad-based growth in agriculture macro-economic reforms (such as devaluation offer the most immediate opportunity for alleviating and reduced taxation), and by direct invest- poverty." ment. Unfortunately, the benefits of commer- In other words, higher prices for the crops cialisation are often skewed towards large-scale produced by the poor will raise their household commercial producers, who produce the bulk incomes and reduce their poverty. of marketed production. Almost nobody today defends the past In Zimbabwe, the large-scale commercial excesses of marketing boards in Africa, or de- farm sector accounts for around 90 per cent of nies the damaging effect of currency over- the marketed output of crops and livestock. valuation on smallholder producers. However, While small-scale communal farmers have dra- the conviction that market deregulation is matically increased their marketed share of sufficient to reduce poverty owes more to some crops, such as cotton and maize, this has ideology than to evidence derived from the been restricted to 20 per cent of the better-off experience of poor communities. For many of communal farmers.68 Meanwhile, the vast these communities, market reforms have con- majority of rural households, which are located spicuously failed to create a framework for in overcrowded, ecologically fragile, low- enhanced opportunity, increased self-reliance, rainfall areas, have few opportunities to expand and poverty reduction. production for the market. Most of these Structural adjustment in agriculture has had households are net purchasers of food, rather complex and sometimes contradictory conse- than surplus producers. One of the prerequi- quences, which affect particular groups in sites for any poverty-reduction strategy in this different ways. The main effects are mediated context is a comprehensive redistribution of through the price system and marketing assets, including land redistribution, coupled arrangements. Devaluation and lower levels of with public investment in the social and taxation on exports have raised the prices economic infrastructure of the poorest areas. generated by the sale of export crops (although Without such measures, the benefits from com- the prices of imported inputs have also risen). mercial incentives will inevitably be skewed to Meanwhile, parastatal marketing agencies have the advantage of the wealthier. Yet the World significantly scaled down their presence in Bank's structural adjustment policy for markets, and in some cases been withdrawn Zimbabwe has focused upon expanding the altogether. From the standpoint of producers production of horticultural crops, flowers, this has meant a change in the intermediary tobacco, and cotton, where the benefits will be through which they market their produce, with concentrated on the commercial farm sector. It private traders assuming a greater role. The is true that, if successful, this strategy will effects of adjustment policies depend upon generate some rural employment. But it will do little to enhance the autonomy or reduce the what people produce, their strength in the 59 market, the distribution of rewards within the vulnerability of the poorest sections of society. I The Oxfam Poverty Report

The boom in non-traditional exports which state protection for minimum health and safety has accompanied adjustment in many countries standards and labour rights. illustrates the inequitable distribution of bene- There can be other costs incurred as a result fits which can flow from market reforms. The of ineffective state regulation. In Ghana, for promotion of non-traditional exports in Chile example, the World Bank structural adjust- resulted in fruit exports growing at over 25 per ment programme, included measures to boost cent a year in the two decades after 1974. The timber exports. These exports have contributed country is now the largest supplier of seasonal to the destruction of forest cover, which is fruit to the northern hemisphere.60 But while receding by between 1.3 per cent and 2 per cent there have been major foreign exchange gains, a year. Once again, there have been foreign the bulk of these have gone to the five large fruit exchange gains, although these are likely to companies, four of them foreign-owned, which prove temporary. Timber resources have now account for over half of all exports. Fruit been depleted to such a degree that the country exports have created employment, but often on is likely to become a net importer in the next few highly exploitative terms.61 In die Central Valley years. Deforestation has undermined the liveli- of Aconcagua, for example, Oxfam supports an hoods of some of the poorest communities in organisation for temporary agricultural labour- Ghana, who depend on forest resources for ers, who work up to 16 hours a day at harvest- food, fuel, and medicines.62 In many countries time, and often suffer serious health problems in which Oxfam works, structural adjustment resulting from applications of toxic pesticides. policies have contributed to the reckless Many of them come from families which were exploitation not only of forests, but coastal displaced from their holdings in the valley in waters, in a way which is degrading two of the the late 1970s, when the government lifted the primary natural assets of poor people: land and ban on land ownership by foreign corporations water. and eliminated land-ceiling legislation. For these labourers, the majority of whom are Smallholder producers: who benefits? women, the non-traditional export boom has Among small-holder producers, price and mar- been a mixed blessing, providing a source of keting reforms have differential effects; in most income, but on highly insecure terms. These countries there is an inverse correlation are the words of Luisa Pina, a labourer in the between the probability of a household being in Central Valley: poverty and the size of its marketed surplus. Higher producer prices will not have a We are paid to work ten hours, but during the significant impact on the poverty of farmers harvest we work for at least 14 hours with no extra who market very little of their output, and who pay. Last year I became sick. It was after we were produce mainly for their own consumption. In spraying Temik [a severely toxic pesticide] on the this sense, the price mechanism is a limited peas. I was told I would not be paid if I could not work, instrument for poverty reduction, since it so I continued working. Many other women suffered distributes benefits in a manner which reflects from stomach complaints. But we all continued market power. In Bangladesh, 75 per cent of working...we cannot live if we do not have work. marketed surplus is produced by 15 per cent of farms; with the result that an increase in producer prices will offer only marginal benefits The costs to women like Luisa of Chile's 65 economic miracle do not figure in national to poor farmers. For households which are net economic accounts or trade statistics. But they purchasers of food (the vast majority of the rural are an example of how market reforms can be a poor), higher food prices might have negative double-edged sword, especially where they are effects, if they translate into higher prices for accompanied by the withdrawal of effective consumers. Rough estimates show that on ^H Structural adjustment average the rural poor in Bangladesh and India impressive export-led recovery. They may also derive 50 per cent of their calorie intake from have contributed to an increase in wages for market purchases.64 Rural labourers are likely agricultural labourers. However, the general to suffer particularly adverse effects from an rise in prices for tradable goods has not been increase in food prices. matched in non-tradable crops, such as cassava, For smallholder producers of export crops, maize, millet, and sorghum, which account for structural adjustment policies can bring econo- about 70 per cent of total agricultural produc- mic benefits, as higher prices and reduced taxa- tion. Research by the World Bank suggests that tion increase the returns on production of farm-gate prices for these crops fell by 25 per coffee, tea, cotton, and other commercial cent between 1987 and 1992. Since the poorest exports. Whether these benefits are realised regions, such as the northern part of the depends partly on the terms on which produ- country, and the poorest households, depend cers participate in markets. Evidence from predominantly on the production of staple food Mozambique and Tanzania, for example, crops, they have not immediately benefited suggests that the gains from higher prices fall from structural adjustment.6' The same pattern disproportionately to traders, who are able to has been repeated in Ghana, where prices exploit the market weakness of producers, and received by cocoa producers in the southern purchase their produce on highly favourable part of the country have increased dramatically 65 terms. From a poverty-reduction perspective, under adjustment. However, producers of the more significant point is that rural poverty is staple foods in the drought-prone northern often highest in regions where farmers are savannah region suffered a fall in real income unable to grow cash crops for export, whether during the second half of the 1980s.68 because of distance from markets, lack of inputs, or ecological constraints. Structural adjustment and women The experience of Uganda illustrates these farmers diverse effects of market reforms.66 Under Whether or not women farmers benefit from structural adjustment, taxation on coffee structural adjustment depends less upon mar- exports, the country's main source of foreign ket prices than upon complex patterns of gen- exchange, was reduced from over 70 per cent to der relations. Women and men face different less than 10 per cent in the early 1990s. At the opportunities and constraints in responding to same time, devaluation increased the local economic policy changes and shifts in prices currency value of exports. The combined effect and incentives. These differences arise from was that the real prices received by coffee structural inequalities in their respective rights producers rose by about 7 per cent between and obligations, which translate into differences 1987 and 1991, even though international in use and control of productive resources. prices fell by half over the same period. Farm- Policy makers frequently overlook the fact gate prices for cotton, another major export that, in many countries, women farm their own crop, more than doubled. Smallholder pro- plots in addition to working on the plots of their ducers, such as the coffee producers around husbands. The resulting division of labour has Lake Victoria, who account for the bulk of important implications for the distribution of production in both crops, reaped significant benefits from structural adjustment. For ex- benefits. These have been reflected in the rapid ample, in Uganda the production and market- growth of production and exports. ing of coffee and cotton is controlled by men, By reversing years of disastrous state- whereas 80 per cent of staple food is produced marketing practices, structural adjustment by women.69 It follows that the distribution of measures have, in this case, contributed to the benefits within the household is likely to be rehabilitation of the agricultural sector and an skewed in favour of men. In West Africa,

^9 The Oxfam Poverty Report women are more extensively involved in the — illustrates the problem. In this case women production and marketing of commercial refused to abandon cultivation of their own crops. For instance, women farmers in southern fields to produce rice for commercial markets, Ghana commonly grow cocoa; in Niger even though returns were higher. The reason groundnuts provide the main income from was that the marketing of commercial rice was women's fields; and in The Gambia women controlled by men." grow and market cotton. However, it would be wrong to assume that men and women operate on the basis of equality. As one reviewer puts it: Agricultural markets and poverty reduction In most cases of women growing industrial or export Like the World Bank, Oxfam believes that crops on their own account, the scale is of the order of measures to enhance the productivity and a sideline. Nor do women and men enter production of 70 security of the rural poor are vital for poverty these crops in the same circumstances. reduction. However, increasing agricultural Their different circumstances include, in prices is not a sufficient condition for raising the many cases, exclusion from credit markets, ex- incomes of the rural poor. Improving the re- tension services, and marketing infrastructure. turns on assets held by the poor will not make In the Katete district of Zambia, where Oxfam inroads into their poverty if their productive works with smallholder farmers, most women assets are limited, or if supporting infra-struc- produce food crops, while crops such as cotton ture is lacking. The social consequences of price and tobacco are male-dominated; women tend reforms and their implications for poverty are to produce cotton only on a very small scale. An determined by the realities of power in the Oxfam credit survey carried out in 1992 market-place, including the distribution of showed that women were virtually excluded assets, land-tenure arrangements, and differ- from institutional credit, even where they were ences in power between men and women. producing cash crops." Separated from wider measures to address The assumption that benefits from adjust- these realities, increased prices are as likely to ment are equitably shared within die household exacerbate as to reduce inequality and to com- is flawed in several respects. Where restricted pound poverty. land rights make it virtually impossible for None of which amounts to a case for women to obtain credit, as they do in much of abandoning price reforms, or for returning to South Asia and sub-Saharan Africa, their ability the past excesses of state marketing boards. to benefit from market opportunities is dimin- Proper price incentives for agriculture are vital ished. Moreover, improved incentives for crops for national food security, rural employment, controlled by men can diminish the autonomy and wider economic development. But price of women in the household, and increase de- reforms need to be accompanied by measures mand for female family labour. For example, that increase the availability of productive assets the introduction of swamp rice in The Gambia for the poor, to enable them to benefit from in the early 1980s decreased the workload of such reforms, and to reduce their insecurity. 72 men, but increased that of women. Where Agrarian reform, including land redistri- female labour is transferred in this way, it can bution and land-tenure reform, is a prerequ- have adverse consequences for food production isite in many countries for poverty reduction. on women's plots and for household food In Latin America, where land ownership is security. In many cases, however, efforts to en- highly concentrated, the benefits of rising courage commercialisation have failed because agricultural prices are unlikely to benefit the women prefer to work on their own plots. One poor. Indeed, increased returns to large-scale irrigated rice project in Cameroon — SEMRY 1 commercial producers may result in the dis- ^H Structural adjustment placement of labour as a result of increased the prescription for reducing poverty through investment in mechanisation. For Asia, rural market reforms. landlessness is a major factor in explaining Unravelling the complex implications of poverty levels. Even in Africa, where land price reforms for women is vital to any poverty availability is a less pressing problem, landless- reduction strategy. This requires information ness or skewed patterns of land-ownership is a about the different roles of men and women in major cause of poverty in countries such as crop production and marketing, and about Zimbabwe, South Africa, and Kenya. Allied to intra-household relations. Yet such issues are landlessness, insecure land tenure and inequit- seldom considered in the design and imple- able share-cropping arrangements in much of mentation of adjustment policies, with poten- South Asia contribute to a situation in which tially adverse consequences for the section of higher prices are likely to lead to increased the population most vulnerable to the increased poverty and inequality. Unless such structural insecurity which can result from macro- inequalities are addressed, market reforms will economic reform. Similarly, market reforms generate only limited benefits for poverty which leave in place the social and economic reduction. barriers to the equal participation of women in Improving infrastructure is another the market-place, are likely to diminish rather necessary condition for creating an enabling than enhance their opportunities for greater environment. One of the defining features of autonomy. poverty in many countries is geographical isola- It is argued by some that the advantages in tion. Poor people often live in areas badly terms of efficiency of concentrating resources placed for transport networks, agricultural ser- on commercial farmers, outweighs the equity vices, and marketing facilities. Where farmers gains which would result from redistributing face difficulties in obtaining inputs or reaching assets: the 'efficiency versus equity' trade-off to markets, infrastructural investment is necessary which we referred earlier. In fact, this trade-off to improve productivity. In many cases, how- is more illusory than real. In South Korea, for ever, stabilisation policies result in cuts in public example, land reform played an important role expenditure in these areas, reducing the capac- in increasing agricultural productivity and ity of farmers to increase output and yields. By expanding rural demand, both of which were contrast, the combination of the rise in prices crucial to the country's economic success. Re- and increased infrastructural investment which distributive measures can do much to reduce took place in Indonesia during the 1980s the vulnerability of small farmers, who account resulted in agricultural growth rates which for the bulk of the poor in Africa and Asia. But were high even by South-East Asian standards.74 they can also bring wider benefits. There is a Similar policies were responsible for the dra- substantial body of evidence to show that matic post-independence increases in small- smallholder farmers have higher levels of holder production in Zimbabwe, where the productivity per acre than large farms.76 They proportion of maize marketed by smallholders also generate that productivity by using their increased from less than 10 per cent to over 50 own labour, rather than by investing in capital- per cent of the total." While the benefits of intensive systems of production. In addition, intervention were restricted to wealthier small- increased rural incomes have important holders, the experience of both countries linkage effects with the rest of the economy, underlines the important interaction between generating demands for goods and services. public investment in infrastructure and market One of the most important economic benefits outcomes. The provision of credit and viable derives from the savings in foreign exchange lending institutions tailored to the needs of which can result from increased food produc- small borrowers is another important part of tion and a lowering in demand for imported 1 The Oxfam Poverty Report cereals. Apart from these economic benefits, The Government was forced to step into the traditional, labour-intensive production systems breach with costly 'promissory notes' to cover are best equipped to maintain soil fertility and the debts owed to farmers. However, many minimise soil degradation. farmers, including Oxfam's project partners in Mumbwa, did not receive payment until five months after harvest, with devastating conse- Deregulating agricultural markets quences for the poorest households. Price reform is one of the foundation stones of Equally devastating was the entirely predict- structural adjustment. Another is the liberalisa- able concentration of private-sector traders on tion of agricultural marketing structures. Here, the more commercially viable agricultural areas as in other sectors, there has been a concerted located near to transport facilities and markets. effort by the World Bank to remove the in- The absence of a state marketing system, and fluence of the state from the market in favour of failure of private sector traders to fill the private-sector traders, in the belief that this will vacuum, left women farmers in Oxfam-sup- enhance productivity and reduce poverty. In ported co-operatives in the Petauke, Chipata, one recent publication, the World Bank identi- and Nyimba districts of Eastern Province fied the withdrawal of state agencies from the unable to market their maize. The Kazimule marketing of export and staple food crops as area of Chipata district, where Oxfam works one of the criteria for successful policy reform. with two women's groups, is about 45km from Is such an approach consistent with a the nearest maize marketing centre. Since there commitment to poverty reduction? The is no bus service, the only means of transport is experience of liberalisation of the maize market by foot, and the cost of the journey in terms of in Zambia would seem to suggest that it is not. lost labour time is considerable. Faced with this prospect, many farmers were forced to trade The Zambian maize market their maize on highly unfavourable terms in a Under its structural adjustment programme, market dominated by a single buyer. Some the Government agreed to liberalise and pri- eventually sold their maize at prices 25 per cent vatise the maize marketing system. In 1993, it lower than the official floor price. Others were provided some Kwacha 15bn to a small number forced into inequitable barter deals. In August of authorised private-sector traders, who were 1994, the Zambia Catholic Commission for expected to purchase maize at prices above a Justice and Peace reported that poor farmers floor price of Kwacha 5,000 per bag. In the were bartering cereals for groceries at event, however, much of this credit was 'ridiculously low prices', citing the exchange of invested by the traders in government bonds, a 15kg bag of maize for two tablets of soap, which yielded far higher profit levels than were worth only a quarter of the value of the maize at attainable from maize marketing." The the previous year's prices.78 resulting withdrawal of resources left the maize One women farmer from a village in Eastern marketing system chronically under-financed: Province summarises her experience under a classic example of the dangers of unregulated market deregulation in the following terms: markets. This was in a year when there was a bumper harvest, which could have replenished We were told that the ending of government national food reserves depleted by the drought. purchase would be a good thing for us. ..that we would Instead, a large proportion of the harvest went get a good price from the private traders. I have not to waste, as the marketing system collapsed. seen any traders. This year I got the lowest price I can Government-authorised traders were unable to remember—it was not a fair price. How can I afford pay their agents, who in turn were unable to pay to pay for school fees and medicine when prices are so farmers from whom they had purchased maize. low?

^9 Structural adjustment

The World Bank, which helped to shape the form of maize preferred by most consumers) at design of the liberalisation programme, has prices lower than the previously subsidised acknowledged the severe problems which em- price. Recent studies have shown that small erged in implementation. The conclusion it has hammer mills can supply more than half the drawn is that these problems did not arise from demand for maize meal in the main urban a headlong rush into deregulation, but fromth e centres, providing benefits for the urban government's concern to establish a floor price. population, while reducing demands on public Affirming its faith in the power of market dereg- expenditure.81 This is an example of a market ulation to benefit the poor, the Bank com- reform process which has worked, without mented: adverse effects on the welfare of poor people.

The principles behind the maize pricing and market reforms are sound and in the long run will help reduce Stabilisation and small producers poverty ... Their (i.e. poor producers) position can Stabilisation measures have in many countries only be improved under liberalisation, where they will reinforced the pressures operating on be in a position to choose freely between competing smallholder producers. For instance, in Costa suppliers and purchasers." Rica, high interest rates (in excess of 30 per (Keynes' observation that 'in the long-run we cent) and the reorientation of agricultural are all dead' might have rather more resonance production, has diverted credit away from the with many Zambian producers.) food-staple sector, in which the vast majority of It is certainly true that Zambia's maize mar- poor producers operate, into commercial ex- keting system was in need of reform. That port crops and commercially produced food system set up an unnecessary cycle, in which crops. There is a similar story unfolding in poor farmers were prevented from milling their Nicaragua. Between 1990 and 1993 credit own maize locally, which was sold to state provided to the smallholder sector in that monopolies, transported hundreds of kilo- country fell by half in die face of a sharp rise in metres to millers, and transported back in the interest rates. Although credit for livestock form of maize meal. Yet the market deregula- farming increased, this was oriented towards tion measures through which these distortions large-scale producers. Smallholder production were addressed proved to be economically of export crops such as cotton, coffee, and oil- inefficient, and highly damaging to the interests seeds has fallen, as has production of basic of many poor producers. foodstuffs. The result is an increased depend- In Zimbabwe, a similar marketing system to ence on food imports and a diminishing ability that in Zambia was estimated to reduce the to pay for them. For a country with one of the household incomes of the poorest families in world's most crushing debt burdens, this is communal areas, by raising the cost of their unsustainable. It is also a prescription for the food staple.80 The Zimbabwe Government's loss of rural livelihoods, increased poverty, and structural adjustment programme has address- social dislocation. ed the inefficiencies in the maize marketing The IMF view is that market interest rates are system in a constructive way. The state has the building blocks for successful adjustment. remained a buyer of last resort, setting a floor Both the Fund and the World Bank point to the under market prices in the more marginal failures of subsidised credit schemes, arguing areas. The marketing system has been opened with some justification that most have acted as a up, so that small-scale millers have been allowed conduit for transferring public resources into to process maize, ending the monopoly of large the hands of rural elites. But where small farm- urban millers. Small-scale millers are now ers are unable to obtain credit, it is very unlikely producing roller meal (a slightly less processed that they will be able to benefit from higher The Oxfam Poverty Report

prices. Indeed, inadequate credit structures are fell mainly on public investment, with adverse one of the main reasons why the price reforms consequences for economic recovery.84 Oxfam introduced under adjustment have failed has witnessed some of the resulting contradic- significantly to increase agricultural product- tions. In the Shinyanga area of Tanzania, for ion.82 Of course, simply pumping out sub- example, Oxfam works with smallholder produ- sidised credit in the general direction of small cers of cotton. These producers increased their farmers is unlikely to be either economically planting and production of cotton in response to sustainable or socially beneficial. What is re- price incentives, only to see much of their crop quired are institutions specifically designed to go to waste as the state marketing system enable small farmers lacking collateral to obtain collapsed. They lost desperately needed house- and repay credit. Such initiatives would com- hold income, and the country lost the foreign bine public and private finance in supporting exchange earnings which the structural adjust- communities, and their success would be ment programme was intended to increase. dependent on other support services for Stabilisation policies rely overwhelmingly on farmers being in place, including technical and interest rates to achieve their objectives. The marketing advice and transport infrastructure. aim is to restrict money supply by squeezing credit out of the economy and deterring gov- ernment spending. In recent years, the IMF has Stabilisation, trade liberalisation, and encouraged the use of government bonds to growth 'mop up' what is deemed to be excess liquidity in the economy, and reduce purchasing power. Almost all structural adjustment programmes Once again there have been some spectacular regard budget stabilisation and trade liberal- success stories, if success is measured against the isation as of prime importance, although the yardstick of reducing inflation. In Zambia, the specific policies implemented vary from squeeze on the domestic money supply lowered country to country. The aim has been to restore inflation from an annual rate of over 200 per 85 macro-economic stability and growdi. Policy cent in 1993, to 30 per cent in 1994. Thesaleof recommendations in both areas have tended to foreign exchange reserves, another measure to favour the simultaneous adoption of radical siphon money out of the economy, contributed budget reforms, the deregulation of financial to the dramatic decline in inflation and an markets to encourage foreign investment, and unplanned increase in the value of the Kwacha. the withdrawal of trade protection, in what is The IMF duly declared Zambia a model for the often termed the 'big-bang' approach. rest of sub-Saharan Africa. What it failed to point out was that real interest rates (i.e. the difference between the Budget stabilisation inflation rate and the nominal interest rate) in Measured in terms of reducing public sector excess of 60 per cent had crippled investment in deficits, structural adjustment policies have manufacturing industry, and squeezed virtually made some important advances. According to all credit out of non-commercial agricultural the World Bank, the 15 countries in sub- sectors. These punitively high interest rates Saharan Africa which adhered most closely to made it far more attractive for investors to the policy targets set by the Bretton Woods acquire government bonds than to invest in agencies reduced their budget deficits by economic activities. With real interest rates on around one-third between 1983-1985 and 1986- these bills in excess of 100 per cent in some 1990.8' However, these cuts were achieved periods, domestic and foreign investors were mainly through cuts in spending, rather than able to achieve in absolute security the aim of increased revenue. The resulting retrenchment speculators worldwide: to take a sum of money

^H Structural adjustment and double it, without risk. Meanwhile, the tex- Trade liberalisation tile industry, one of the labour-intensive sectors which adjustment was supposed to help, was Trade liberalisation under structural adjust- starved of the investment it needed to adjust to ment is intended to promote export-led recov- increased competition from imports. Over one- ery by reducing the costs of imports. The stated third of the work force in the industry was laid aim is to promote efficiency through increased off in 1993, reducing textile towns such as competition, while enabling potential exporters Livingstone to centres of mass unemployment. to acquire the imports they need to raise Zambia's experience is a cautionary tale of the productivity. Import liberalisation has been im- dangers associated with the IMF's obsessive plemented more vigorously than almost any preoccupation with lowering inflation, to the other aspect of adjustment apart from devalua- exclusion of all other considerations. Paradox- tion. Latin America now has lower tariff protec- ically, however, the IMF's supposedly stringent tion than any other developing region.87 The disciplines have given rise to some notably average tariff rates in six of the largest countries irresponsible forms of budget management. in Latin America are half those in East and Prior to IMF surveillance, most governments South-East Asia.88 Much of sub-Saharan Africa covered budget deficits by the simple expedient has undergone a transformation in trade policy of printing money and allowing inflation to act of only marginally less impressive dimensions. as a regressive tax. Today, they resort to the In the past, most governments maintained equally simple expedient of printing govern- 'positive lists' stipulating what imports were ment bonds. allowed in without regulation; most lists were In Kenya, for instance, the government has very small. Under structural adjustment pro- failed to make a dent in its budget deficit, not grammes most governments now have 'neg- least because most of it is directed towards ative lists', which allow all goods to be imported maintaining parastatals, which are centres of on open-general license (OGL) schemes, unless patronage for the ruling party. What it has done expressly prohibited. In Zambia, the OGL since the IMF's insistence on the abolition of scheme covered 95 per cent of imports in 1992, foreign exchange controls is to generate funds compared to 10 per cent in 1988. by offering government bonds to foreign There was a clear case for carefully phased investors, who have been attracted by some of trade liberalisation in both regions. In many the highest rates of return available on world countries, protection of local industry had been markets. Speculators have made windfall gains, raised to excessive levels. Tariff structures had investment has fallen from already low levels fostered dependence on imported capital (partly because of the rise in interest rates goods, instead of promoting more self-reliant needed to attract foreign speculators), and the industrial structures through effective protec- country has been left with burgeoning obliga- tion of nascent industries. However, rapid im- tions to foreign creditors, to add to those it was port liberalisation has not created the already unable to meet. Meanwhile, exporters conditions for a recovery in production and condemned the government for policies which, employment. Under the deflationary condi- by articifially driving up the value of the tions associated with adjustment, a sudden currency, were rendering them uncompetitive withdrawal of trade protection can destroy in foreign markets.86 The ultimate irony is that potentially competitive industries by exposing this exercise in financial irresponsibility is them to levels of competition to which they are effectively funded by the IMF and foreign unable to respond.89 Foreign exchange donors, since it is they who provide the financial shortages and high interest rates mean that assistance with which the Kenyan government industries are often unable to get the imports repays its creditors. they need to improve efficiency. Low levels of i The Oxfam Poverty Report domestic demand and capacity utilisation often across the region. But the most devastating compound the uncompetitive position of local effects of the NAFTA have been experienced industries. not by stock-market operators, but by the The end result of trade liberalisation under Mexican poor. The liberalisation of trade with these conditions is often the opposite of that the US exposed fragile domestic industries to intended by structural adjustment. Employ- levels of competition for which they were ill- ment in local industry is destroyed in the face of prepared. Upward pressure on commercial int- intense competition. Local production suffers, erest rates reduced investment, especially in leading to an increased dependence on im- medium- and small-scale enterprises, as savings ports, reduced exports, and persistent balance were diverted into speculative bond markets. In of payments problems. These are often dealt 1992 the country's textile industry shrank by 5 with by yet more deflationary measures, leaving per cent, as imports expanded their market local industry and employment trapped in a share.93 While new, low-wage jobs were being vicious downward spiral.90 created in the maquiladora zone, employment Compelling evidence for this spiral has opportunities overall contracted. In 1993 recently been provided by Mexico. In the mid- alone, over 600,000 jobs were lost in the manu- 1980s the World Bank provided two major facturing sector. Wages have fallen sharply, structural adjustment loans to support import with minimum wages losing one-third of their liberalisation. These have since been comple- value between 1987 and 1994. mented by the North American Free Trade The result has been a process of growth Agreement (NAFTA), which has transformed through exclusion, with high profits in the Mexico into one of the most open economies in financial sector and increased prosperity for the Latin America, especially for trade with the US middle classes, obscuring the worsening welfare and Canada. The abrupt liberalisation of trade of the poor. According to one study, almost half- has had dramatic effects, notably in the form of a-million people joined the ranks of the ex- a trade deficit with the US which expanded tremely poor between 1989 and 1992. Mean- from $5bn in 1989 to $30bn in 1994. In the while, the already huge gap between rich and latter year, the overall current-account deficit poor widened. In 1992, the richest 20 per cent stood at around 8 per cent of national income, of the population received 54 per cent of higher even than it had been on the eve of the national income, compared to 48 per cent in country's debt crisis in the early 1980s.91 Under 1984. Over the same period, the poorest 20 per normal market conditions, this deficit would cent saw their share fall from 5 per cent to 4 per have resulted in currency devaluation, which cent, mainly due to falling wages.94 It is likely to would have driven up inflation and prevented fall further in the wake of the country's financial the government from meeting its targets for crisis. With the rising costs of imports pushing financial stabilisation. The Mexican govern- up inflation, the Mexican government has ment sought to resolve this conundrum by initiated a new round of stabilisation, in which attracting speculative foreign capital through wages will bear the brunt of the adjustment.95 government bonds carrying exceptionally high Once again, ill-conceived 'big-bang' trade interest rates. As the current account deficit liberalisation and market deregulation have grew, the interest rates needed to sustain these benefited the wealthy, and the costs have been capital inflows increased, before the bubble borne by the poor. finally burst in December, 1994 and the The rapid removal of protection from local Mexican peso lost half its value in two weeks.92 industries is socially and economically disrup- The shock-waves from Mexico's financial tive even in countries with a diverse manufact- crisis spread rapidly to other emergent mar- uring base. That is why governments in the kets, prompting stock-exchange collapses industrialised world, for all their adherence to Structural adjustment free-trade principles, would never counten- Both the World Bank and the IMF argue that ance trade liberalisation practices on the scale of past forms of government intervention in fixing those implemented by governments in Latin minimum wages and enforcing security of America and Africa. The social and economic employment were an impediment to labour costs of rapid and poorly co-ordinated trade mobility, and a cause of unemployment. As liberalisation are apparent across much of these unemployment has increased under structural regions. In Nicaragua, for example, the virtual adjustment, they have argued for the with- elimination of tariffs under a 1990 IMF-World drawal of obstacles to mobility and the intro- Bank programme, coupled with the imposition duction of'flexible' labour practices. The sparse of severely deflationary policies, resulted in a 14 regulation of labour markets in South-East Asia per cent decline in industrial production dur- is often cited in defence of the case for ing the period 1990-1993. Employment levels 'flexibility'. fell from an average of 106,000 in the latter half 96 This approach suffers from several short- of the 1980s, to 60,000 in 1993. De-industrial- comings. First, it wrongly isolates labour market isation has also been evident in West Africa, regulation and high wages as a major cause of where local industries have contracted in the unemployment. Wages fell dramatically in face of intense competition. Africa and Latin America in the 1980s, even Serious tensions can emerge between stabili- where formal labour market regulations were sation programmes intended to restrict de- in place, without improving employment levels. mand, and economic reforms intended to The collapse of the economic model based upon expand output. These tensions focus on the import substitution, and debt, were far more sequence in which reforms are introduced in important causes of economic decline than high the three areas of trade policy, financial and wages, in both regions. Second, although the monetary policy, and public investment in suppression of the labour movement in South- social and economic infrastructure. Where East Asia was an accompaniment to economic import policy is liberalised without counter- growth in that region, it is doubtful whether it vailing support for domestic industries, then was a necessary feature, and it was of marginal unemployment and disinvestment can result. significance in comparison to wider economic Similarly, failure to stabilise budgets in advance policies. More recently, the improved recog- of import liberalisation can, as in Mexico, lead nition of trade union rights in countries such as to rapid inflows of capital which artificially South Korea has not had a negative effect on inflate currency values, to the detriment of growth rates. As the ILO has written of Latin industries producing for the local market, of America: exporters, and of the poor. All these problems point to the need for the careful design, co- Developments with respect to labour market ordination, and phasing of reforms in the inter- regulation do not provide confirmation of the view ests of maximising employment and generating that it is necessary to have an unregulated labour recovery. Unfortunately, the IMF-World Bank market in order to be internationally competitive.97 continue to favour a 'big-bang' approach, pre- Quite apart from the fallacies in the ferring to place their faith in sudden trade arguments used to support 'flexible' labour liberalisation and the capacity of market forces practices, such practices have consequences to restructure economies for the public good. which are both economically and socially undesirable. They are economically undesir- able because, in many countries, low wages and Labour market deregulation insecure employment lead to low productivity, Labour market deregulation has figured prom- inadequate training, and high levels of absent- inently as an element of structural adjustment. eeism. There can be little doubt that, in many 1 The Oxfam Poverty Report countries, wages have fallen below efficiency in those countries which are adhering to levels. In Tanzania, for example, by 1988 the structural adjustment policies. Unfortunately, average monthly wage was insufficient to pro- the evidence upon which this claim is based is vide an adequate family diet. By 1991, it would exceptionally weak. Evidence of the failure of barely buy enough food for 20 days.98 Drastic structural adjustment programmes is partic- wage reductions also have the effect of reducing ularly comprehensive in sub-Saharan Africa. In demand for local producers, undermining no other region have such programmes been growth prospects, and deepening recession. applied more frequently. Excluding sectoral The World Bank itself has acknowledged that adjustment loans, there have been more than this was one of the reasons for the failure of 160 World Bank and IMF loan agreements Bolivia's adjustment programme in the 1980s." covering over 30 countries since the early Flexible labour markets are socially unjust 1980s: more than for the whole of the rest of the because they involve highly exploitative labour world.101 Some countries have had the question- practices, especially with regard to women. The able privilege of uninterrupted structural trend towards 'flexible' labour markets has adjustment programmes for some 15 years. often reduced the return to female labour, and Moreover, these programmes have been the security of employment. One woman work- supported by around $200bn in net develop- ing in a garment workshop in Recoleta, the ment assistance since 1982. Foreign aid textiles centre of the Chilean capital of Santiago, doubled as a proportion of regional GDP from puts it in these terms: just under 5 per cent for the first half of the 1980s to almost 10 per cent for 1998-1992. / have four children. If I did not work, they would These aid flows increased Africa's share of not eat. But even when I work sixteen hours a day, I global aid to almost 40 per cent in 1991.102 On a make hardly enough to stay alive. I have no contract per capita basis, sub-Saharan Africa receives and no security. How can I build a future like this ? around four times more aid than other low- In Chile, 'flexibility', one of the watchwords of income countries. structural adjustment, has meant working Despite these transfers, average incomes in harder, for longer hours and less pay, with a loss Africa fell by over 1 per cent a year in the 1980s, of job security. Even though unemployment and have continued their decline in the has fallen and women are participating in lab- 1990s.103 Investment today is lower in real terms our markets on an unprecedented scale, adjust- than in 1980, and the region has suffered loss of ment policies have not eliminated long- world market share and foreign investment. standing problems of poverty. In 1992, almost There is no shortage of candidates to blame for half of all workers earned less than enough to the crisis. Civil conflict, domestic policy mis- provide for their basic needs. As a recent report management, corruption, debt, and deterior- by the United Nations Research Institute for ating terms of trade, have all contributed to Social Development confirmed, the single varying degrees. But so have structural adjust- major cause of poverty in Chile is not unemp- ment programmes. Attempting to separate the loyment, but precarious, low-wage employ- effects of these programmes from other factors, ment.100 internal and external, is a hazardous exercise, which is made more complicated by the 'counterfactual' case: what would have happen- A prescription for growth? ed without structural adjustment? The question is impossible to answer. Another complication, The Bretton Woods agencies both recognise strongly emphasised by the IMF and the World the social costs of adjustment. They claim, Bank, is the non-compliance of governments however, that economic recovery is taking root with the conditions of their structural

^S Structural adjustment

adjustment programmes. In fact, however, cantly', especially when compared to country's implementation has been more rigorous than is without IMF programmes.107 In fact, the often claimed. According to one World Bank statistical evidence raised more questions than study published in 1990, compliance for all it answered. While countries embarking on SAF adjustment conditions was in the range of 75 did record an increase in growth following the per cent, with particularly high levels of target inception of SAF programmes, for the ESAF attainment in fiscal policy, trade liberalisation, period the growth rate fell from 4 per cent to 2.8 exchange rate policy, and wages.104 Termin- per cent. This was below the average popu- ation of adjustment programmes was a rare lation growth rate, and only marginally higher occurrence in the 1980s, with only 21 out of 241 than for countries without IMF programmes programmes being abandoned, and has (which had received less donor assistance, and remained so in the 1990s. had a worse external trade environment, and Efforts to gauge the success of structural more serious budgetary problems). Moreover, adjustment programmes have focused on com- despite a strong increase in the growth of parisons of countries within various perform- export volumes, countries adhering most ance categories, ranked according to their closely to IMF programmes did not achieve compliance with adjustment policies. Studies by significantly better results in terms of reducing the IMF and the World Bank have attempted to their budget deficits or reaching more viable establish a correlation between these policies balance-of-payments positions. An indepen- and economic growth rates. This has proved dent review of the IMF study found no difficult. In one study of adjustment lending in significant correlation between adherence to an the 1980s, the World Bank concluded that: IMF programme and improvements in macro- economic stability.108 Adjustment lending has not significantly affected eco- These data are open to different interpreta- nomic growth and has contributed to a statistically sig- tions, but what appears beyond serious doubt is nificant drop in investment ratios...Also, adjustment that, apart from the disappointing impact of lending programmes did not significantly affect infla- m adjustment on GDP growth rates, there is a tion or saving to GDP ratios. strong negative correlation between adherence The World Bank's third review of adjustment to structural adjustment and investment, with lending, published in 1992, confirmed the weak serious consequences for future growth, em- correlation between adjustment policies and ployment, and poverty reduction. Comparing growth. 'Core' adjusting countries identified in the position in 1980 with 1986-1990, countries this study succeeded in expanding per capita classified by the World Bank as 'intensive income at 1 per cent a year: a growth rate at adjusters' suffered a drop in investment from which it would take 70 years to double per 25 per cent of GDP to 15 per cent. Savings also capita incomes.106 declined, with a resulting increase in depen- Reviews of IMF programmes have reached dence on foreign aid. For Africa as a whole, similarly unfavourable conclusions, although investment rates fell as a proportion of national these have been repackaged to provide a more income in 25 countries, with investment per positive interpretation. For example, in a head falling by half. review of 19 countries (all but four African) Recent World Bank evaluations presented as which had graduated from the IMF's Structural a vindication of structural adjustment have Adjustment Facility programmes to its En- taken on a slightly desperate air. In Adjustment hanced Structural Adjustment Facility Pro- in Africa: Reforms, Results and the Road Ahead, the grammes, the Fund claimed to detect evidence World Bank categorises countries according to which 'confirme(d) that these countries had how closely their economies conform to an improved their economic performance signifi- adjusted ideal (broadly balanced budgets, The Oxfam Poverty Report sustainable trade balances, and market-based nal factors, notably a marked deterioration in exchange rates). Six countries — Ghana, terms of trade, are partially responsible for the Zimbabwe, Gambia, Nigeria, Burkina Faso, and failures of structural adjustment. Even here, Tanzania—are identified on the basis of having however, the design of adjustment policies has made 'large improvements' over the period contributed. 1981-1986 and 1987-1991, which are claimed In the early 1980s, the IMF and the World to be associated with higher growth rates. Bank sought to address Africa's trade imbal- Summarising its conclusions, the Bank asks: 'Is ances by expanding the production of primary adjustment paying off in sub-Saharan Africa? commodities, and raising producer prices The answer is a qualified yes.'109 through exchange-rate and trade reforms. From a close inspection of the evidence, it is Expansion of exports of primary commodities possible to arrive at precisely the opposite con- was similarly stimulated through project- clusion. For example, Burkina Faso is included, lending and macro-economic reforms in Asia even though it was implementing a 'home- and Latin America. By encouraging a large grown' adjustment programme which bore number of producers to export a small number little resemblance to those advocated by the of commodities into already saturated markets, IMF-World Bank; Zimbabwe did not have a however, the IMF and the World Bank con- programme with the IMF-World Bank for most tributed to the deep depression in world prices. of the period, and made little progress in Cocoa provides a clear example. Between 1980 reducing its budget deficit; and Gambia's and 1992, West African cocoa producers success was built on a tourist boom which was increased their production from 1.6 million to weakly connected to the rest of the economy. In 2.3 million tons.1" Because these countries are each of these countries growth was either neg- major suppliers to the world market, the ative or only marginally positive. Indeed, with- resulting increase in exports contributed to the out Nigeria, where the adjustment programme collapse of world prices, which fell by more than collapsed in 1988, the group of large improvers half over the same period. As a result, countries would have lower average growth rates than such as Ghana doubled their exports but countries which were less diligent in following earned less foreign exchange."2 While it was adjustment-style policies. In reality, very little necessary to introduce exchange rate devalua- can be discerned from studies such as this. What tion and lower producer taxes to restore the they confirm is that large initial devaluations of market shares lost since the 1970s, the failure of massively over-valued currencies have a major the IMF and World Bank either to anticipate impact in expanding export production. How- the consequences of commodity over-supply, or ever, few countries have been able to combine to encourage moves towards international co- stabilisation with balance of payments improve- operation in managing commodity markets, ments and economic growth.'10 was irresponsible. One of the worrying findingst o emerge from Recent research by the OECD has confirmed the World Bank's study, is that agricultural that export promotion for primary commod- production (as distinct from agricultural export ities has been linked to a deterioration in trade production), has a lower rate of growth in coun- performances. In an economic simulation of the tries adhering most closely to conventional effects of a 25 per cent reduction in export adjustment policies. This trend, which has taxes, the OECD found that the resulting potentially damaging consequences for rural increase in supplies and decrease in prices employment, poverty reduction, and food self- would reduce the national income of major reliance, appears to be closely correlated with coffee and cocoa exporters by up to 0.5 per cent, reductions in the public provision of extension and cause a deterioration in the terms of trade services under adjustment programmes. Exter- ofaround 12 percent.113 Ironically, the IMF has Structural adjustment blamed adverse terms of trade for the failure of have recovered from the 'lost decade' of the many of its programmes to restore balance-of- 1980s, when the region saw its combined payments stability. income fall by one-tenth. Growth has averaged The oft-cited exception to the picture of Afro- over 3 per cent a year since 1990, although the pessimism is Ghana, which has been the IMF- recovery has been unequally spread (per capita World Bank's five-starperforme r for more than incomes have declined in Nicaragua and a decade. More recently, Uganda has succeed- Honduras, for example)."4 Translated into per ed is establishing high economic growth rates, capita terms, income has increased at the although from a low economic base. The exceptionally modest average annual rate of 1.7 question is whether or not these growth pro- per cent. That is half the growth rate of the cesses are sustainable: the evidence is mixed. By 1970s, suggesting that structural adjustment African standards, the 2 per cent a year increase policies may suffer from shortcomings which in average income achieved since 1983 is are more pronounced than those associated impressive. But at current rates of growth, it will with import substitution. At current rates of be another two decades before Ghana joins the growth it will take 40 years for average regional ranks of middle-income countries; and another income to double."5 This performance is even 50 years before the average Ghanaian crosses less impressive alongside the other benchmark the poverty line. This is despite international criteria for structural adjustment: inflation and aid transfers equivalent to 8 per cent of the export growth. After falling for three years, country's national income. Meanwhile, there regional inflation doubled in 1993, to 800 per has been little progress towards diversification, cent on an annual basis. At best, the record in manufacturing exports are negligible, and this area has been mixed and unstable. Export investment rates, one of the keys to sustained growth has been feeble in most countries economic recovery, are less than a quarter of (expecially when measured against the those in South-East Asian economies such as extremely low starting point of the late 1980s), Thailand. Without its international aid lifeline, averaging around 4 per cent a year."6 This has there can be little doubt that, after a dozen years proved insufficient to establish balance-of- of adjustment, the Ghanaian economy would payments stability, with trade deficits being collapse under the weight of a foreign debt covered, as they were in the 1970s, by foreign which has tripled to $1.3bn since 1986. capital flows. Here, too, the central dilemmas of import-substitution remain unresolved. Viewed from a poverty reduction perspective, Latin Latin America American growth patterns are neither strong The bleak picture which emerges from sub- enough nor equitable enough to bring Saharan Africa is of a set of policy prescriptions sustained improvements in human welfare. which have failed to establish a framework for economic recovery and poverty reduction. In In its preliminary overview of Latin American contrast to Africa, however, Latin America is economies for 1994, the Economic Commission often presented by the IMF and World Bank as for Latin America and die Caribbean (ECLAC) a region which, with some exceptions, has made concluded: 'Generally speaking, it is clear that the transition through macro-economic growth rates under 4 per cent...are not high stabilisation and adjustment to sustained enough to allow major inroads in the battle growth. Poverty reduction, so the argument against poverty or to prevent unemployment runs, will be the natural outcome of this econ- from remaining unacceptably high.'1" The omic recovery, as growth feeds into the creation deeper question is whether die existing pattern of employment and rising incomes. of growth will ever create the employment Unfortunately, the evidence does not sustain needed to reduce poverty. Part of the problem the argument. Growth rates for Latin America is that employment creation is lagging behind The Oxfam Poverty Report economic growth. Unemployment rose in around one-third of the region's population do Brazil, Argentina, and Bolivia. In Peru a growth not have adequate sanitation or an electricity rate of 11 per cent failed to reduce unemploy- supply.120 Economic infrastructure is dilapid- ment, which affects one in ten of the population. ated and a deterrent to investment. Yet while Arguably the most striking feature of Latin there is a growing recognition of the need for America's economic performance has been the restoration, the shifting of government assets huge inflow of foreign capital, amounting to and responsibilities to the private sector, and an around $ 184bn over the past three years. These entrenched reluctance to disturb elite con- inflows have masked some of the structural sumption patterns by expanding the tax base, weaknesses in Latin America's recovery, notab- make it difficult to see how public investment is ly the huge deficit — amounting to over $50bn to be financed. — in the region's merchandise trade, but The failure of investment levels to recover inflows are unlikely to be sustainable in the raises serious questions over the durability of the longer term. Over three-quarters of the funds economic recovery process.121 According to the flowing into Latin America are high-risk, non- ECLAC, investment rates need to increase from investment bonds — more commonly known as their present level of around 17 per cent of 'junk bonds'."8 The flow is being driven by the national income to 22 per cent if recovery is to be attraction of quick profits from investment in sustained. Yet there has been only a marginal government bonds and the sale of government increase in investment, despite the economic utilities, rather than productive investment in recovery. In 1992, Latin America's investment the economy. The resulting growth in financial and savings rates were less than half those for the markets brings major benefits to those asso- high-performing Asian countries.122 This rep- ciated with them, but few benefits in terms of job resents an obstacle to poverty reduction which creation and increased prosperity for lower lies at the heart of Latin America's inequitable income groups. In 1994, direct foreign invest- growth patterns. Despite high real interest rates, ment accounted for only $15bn out of $57bn of domestic savings levels have fallen. One reason foreign capital inflows."9 Quite apart from caus- is that upper-income groups prefer to use their ing financial instability, the capital inflows have increasing wealth to buy imported consumer artifically increased currency values, with ad- goods, which have been made more easily verse effects for livelihoods in the real economy. available through trade liberalisation, rather In Mexico, for instance, the over-valued peso than to invest it. Latin America's growth is being made imported foods cheaper, undermining directed into holidays in Miami, and expensive markets for rural smallholders, and encourag- imported stereos, designer clothing, and other ing the displacement of local manufacturing status imports which fill shopping malls from production by cheap imports. Bogota to Buenos Aires. The disruptive effects The underlying weaknesses in Latin America's of the resulting trade deficit are contained partly recovery are reflected in other areas. During through wage restraint, and partly through the 1980s, public investment in social and foreign capital inflows. The high interest rates economic infrastructure collapsed. If it is not needed to attract the latter are undermining restored, there is little prospect of economic manufacturing investment and employment recovery taking root; and no prospect of its creation. benefits being more equitably spread. During the 1980s, per capita spending on primary edu- cation, one of the most important determinants of growth prospects, fell by half, and it remains lower today than in 1980. One in five children of primary school age do not attend school; Structural adjustment

An alternative framework for structural deficit in developing countries themselves. adjustment While urging developing country governments to become more open and accountable to their citizens, Northern governments appear con- There are no ready-made, universal blueprints tent to see power over economic policy trans- for successful adjustment to economic press- ferred to agencies which they control. The ures. But it is possible to devise a new model for result is a perversion of the principles of 'good adjustment which combines equity and governance'. economic efficiency in a manner which offers If developing country governments are to be- hope for poverty eradication into the next come more accountable for structural adjust- century. As we suggest below, international ment policies which affect the lives of their action to resolve the debt problems of the citizens, they must be given greater power to world's poorest countries will be vital if any shape these policies in the World Bank and form of adjustment is to succeed. But so will IMF. Voting structures in both agencies should institutional changes and new policy priorities be reformed to allow for more democratic rep- on the part of the Bretton Woods agencies resentation, in which political influence more themselves. closely reflects the composition of their mem- bership. At the same time, the Bretton Woods agencies should be more closely integrated into The need for institutional change the UN system. It is often forgotten that both The Bretton Woods agencies exercise through the IMF and the World Bank are supposed to their structural adjustment programmes an be part of the UN, even though they have de- enormous influence over economic and social veloped parallel structures. These structures policy in developing countries. Yet neither need reform. Both the IMF and the World institution is accountable, in any meaningful Bank have a vital role to play in supporting eco- way, to the citizens of those countries. With nomic reforms and in helping to create the con- some justification, both the IMF and the World ditions for full employment. This is what they Bank are widely perceived in the South as were set up to do. However, both agencies have institutions representing Northern interests assumed a powerful role in shaping social pol- and offering policy prescriptions designed by icy. It is far from clear whether they are Northern governments. The resulting 'demo- equipped to play that role; or if they are in a po- cratic deficit' has been summarised in colourful sition to evaluate the social impact of macro- terms by Samuel Huntington, who has written: economic reforms. These are areas in which the specialised agencies of the UN should be given In any poll of non-Western peoples, the IMF un- an enhanced role in the design, implementa- doubtedly would win the support of finance ministers tion, and evaluation of structural adjustment. and a few others, but get an overwhelmingly un- As we suggested in Chapter 1, these are also favourable rating from just about everyone else.'" grounds for the various social treaty monitoring Part of the problem is that the Bretton Woods bodies of the UN to monitor the effect of IMF agencies are governed through a system of and World Bank policies on vulnerable social 'one-dollar-one vote', with nations allocated groups. The moral voice of such bodies could voting rights according to their financialstake . play an important role in shaping structural ad- Developing countries account for more than justment policies into a broader and more effec- three-quarters of the IMF's membership, but tive strategy for poverty reduction. they have only one-third of the voting share. Increased openness is also vital to the reform Such structures give Northern governments an of structural adjustment programmes. Com- undue influence. The also create a democratic munity participation in the social, political, and The Oxfam Poverty Report economic sphere is an important element in the designing, monitoring, and evaluating adjust- adjustment process, both as an end in itself and ment programmes. It is encouraging that because it increases the equity and efficiency of senior World Bank officials are now thinking development. At present, however, the entire along these lines. structural adjustment process is opaque and Greater disclosure of information is especially surrounded in secrecy. Developing country necessary with regard to the IMF, which governments bear considerable responsibility operates in an extremely secretive manner. for this, not least since they have an interest in Conditions for stabilisation and monetary blaming 'external' forces for policies which may policy established by the Fund under its be socially painful and politically unpopular. Enhanced Structural Adjustment Facility (ESAF) set the macro-economic framework within which adjustment occurs in many low- Availability of information income countries. However, the two documents There are a number of ways in which this setting out these conditions (the Performance secretive approach could be changed. In gen- Criteria and Structural Benchmark papers eral, information should be made more widely attached to EASF agreements) are made and more readily available. Policy Framework available only to the IMF's Board and, on a Papers, which set out the overall orientation of confidential basis, to a handful of other adjustment policies and include broad targets, organisations (such as the EU and regional are negotiated, usually without public debate, development banks). Once again, greater between the IMF-Wo rid Bank and govern- openness and accountability would facilitate ments. People in Zimbabwe had no inkling that wider participation in evaluating the likely the Bretton Woods agencies were recom- outcomes of IMF conditions. mending increases in user-fees for health and The IMF, far more than the World Bank, is education, or that their government had responsible for the detailed monitoring and agreed to them. If they had, community organ- appraisal of economic performance. Under its isations with experience in both sectors could Article IV consultations, the Fund carries out have provided information to guide policy surveillance and reports to its Board on macro- decisions. economic performance. It also prepares six- This is part of a wider problem which is linked monthly reports on countries with ESAF to the refusal of governments and the Bretton programmes. These exercises suffer from two Woods agencies to open dialogue on structural major shortcomings. First, the reports focus on adjustment to wider scrutiny. For example, the narrow macro-economic indicators, without Policy Framework Papers, which are negotiated evaluating the implications for poverty, liveli- between governments, the World Bank, and hoods, and social welfare provision. Second, the IMF, and set out the policies and conditions they are confidential, as are the Fund's Recent attached to structural adjustment loans, are Economic Development Reports, which provide the negotiated without public debate, and they are most comprehensive accounts of developments not made publically available. Similarly, the under adjustment in almost all developing World Bank's Country Assistance Strategies, countries. Once again, these documents should giving its analysis and policy recommendations, be made more widely available in developing are treated as internal documents. Publication countries, and their scope broadened to include of these documents would contribute to an evaluations of IMF programmes with respect to improved public debate. But the wider their success in reducing poverty. objective must be to involve at an early stage Wider participation in the design and representative groups, such as trade unions, implementation of adjustment policies would NGOs, and women's organisations, in also allow for more effective monitoring of their Structural adjustment effects. Through its poverty assessments, the achieving them. World Bank has made genuine efforts to in- Particularly problematic has been the pursuit volve community organisations and NGOs in of unrealistic targets for reducing inflation, with evaluating the impact of structural adjustment an over-reliance on deflationary monetarist on poverty. It has also attempted to develop policies for achieving them. These policies are participatory assessment methods, finding out inconsistent with the aims of poverty reduction from people their own experience of adjust- and recovery. Very high interest rates have ment. These are new and encouraging depart- hampered economic recovery and investment ures which should be developed. There is some activity, with damaging consequences for scope for improvement; for example, the employment creation. Meanwhile, wages have poverty assessment procedure is cumbersome, borne the brunt of the counter-inflationary often involving around two years' work to pressure, resulting in dramatic falls in house- produce reports which are out of date by the hold incomes. According to the IMF, the time they are published. What is required is a lowering of wages and the deregulation of more effective way of monitoring the effects of labour markets create the conditions for future adjustment as they are felt by vulnerable employment expansion. However, when wages groups, for example through periodic partici- fall below subsistence level, they are not merely patory surveys, and some way of ensuring that damaging for human welfare: they also reduce poverty assessments feed directly into policy productivity and demand. design. Also, more effective methods are need- Adjustment policies should set targets for ed to monitor the impact of adjustment on budget deficit reduction and interest rates women, especially with regard to their time and which are compatible with economic recovery workloads. It is important that poverty and employment creation. They should also assessments are made more relevant to the place more emphasis on revenue expansion, design and implementation of adustment through progressive tax measures, as an altern- policies. However, there is little evidence at ative to reduced public expenditure on social present that the findings from these welfare and economic infrastructure. Current assessments are influencing the formulation of approaches to revenue expansion focus on sales macro-economic policy. taxes and other measures which can be regressive in their effects. There are other options. For example, under a self-imposed Reforming stabilisation adjustment programme in the 1980s, Burkina Budget stabilisation is a vital precondition for Faso was able to increase government revenue successful adjustment. However, the repeated from 13 per cent in 1983 to 16 per cent of introduction and implementation of IMF- national income in 1986, while maintaining an World Bank programmes in low-income coun- expansionary economic environment. It was tries suggests that these countries have been able to do so by improving tax collection and unable to restore the conditions for self- introducing progressive taxes, such as a wealth tax, a property tax on urban landlords, and fees sustained growth. In many cases, the pro- 124 grammes have been accompanied by continued for use of paved roads. Accompanying reduc- economic deterioration, widening inequality, tions in expenditure were achieved through and rising poverty. One reason for these fail- measures such as a ban on the importation of ures is that adjustment policies have tended to luxury cars by government officials. exacerbate, rather than eradicate, underlying Policies aimed at reducing fiscal deficits structural problems in the economy. New forms through increased taxation need to be of stabilisation are needed which combine real- introduced as part of a convincing 'national istic fiscal targets with equitable ways of project' that persuades the private sector that The Oxfam Poverty Report the government is serious about growth and the past have been used to justify this approach. able to deliver. In this way, tax reform can be However, there is mounting evidence to introduced in a way which will avoid its acting as suggest that market deregulation has also been a disincentive to investment and employment profoundly unsuccessful in bringing about creation. In Latin America in particular, there sustainable and equitable growth. As the United are powerful reasons of equity and efficiency for Nations Conference on Trade and Develop- an increase in taxation of the richest section of ment has put it: 'Admittedly, there has been society to reverse the decline in the ratio of much misguided intervention in the past; but public expenditure to GDP. The richest 20 per that is no reason to throw the baby out with the cent of the region's population receive around bathwater.' two-thirds of its income, but pay less than 3 per As with structural adjustment in the broader cent of its tax.125 Increasing income tax on this sense, there is no blueprint for appropriate group would bring benefits in terms of in- trade policy; but there are important lessons creased revenue to finance the public expendi- from South-East Asia which suggest viable ture upon which sustainable economic recovery alternatives to the 'invisible hand' of the market. will depend. Supported by import duties and Trade policy in South Korea and Taiwan in- sales taxes on luxury items, it would also curtail cluded the extensive but selective use of import the consumption of imported luxury goods tariffs and quotas to protect firms producing for which is worsening the chronic trade deficits the domestic markets. Export incentives were facing the region. also provided in the form of cheap credit.127 In the Philippines, the Freedom from Debt These measures formed part of a wider strategy Coalition (FDC), has built a mass public cam- for industrial development, including support paign against the introduction of a regressive for technological innovation and strict controls sales tax, which will increase prices for basic over foreign investment and capital markets.128 items, designed to meet IMF budget targets. Governments in both countries played a critical While accepting the need for a reduced budget role in directing investment resources into deficit, the FDC campaign is aimed at making potentially competitive sectors, regulating the the rich pay proportionately more through markets, and generating new forms of increased income tax, because an increase in comparative advantage. While there was much rates of VAT would mean that the poor would greater state capacity in these countries than in shoulder more of the burden. They propose an many others in the developing world today, this increase from 35 per cent to 56 per cent in the is not an argument for weak states to give up on proportion of tax revenue generated by income managing markets. On the contrary, the Asian tax; stricter enforcement of tax collection to economic success story underlines the need for prevent evasion (current evasion rates reduce both public sector and wider institutional the tax returns from the corporate sector by reform. one-third and from individuals by two-thirds); By contrast, experience under sudden trade the withdrawal of tax privileges for foreign- liberalisation and the withdrawal of the state is owned companies; and the withdrawal of 'tax hardly encouraging. Chile is often cited as a holiday' provisions and duty exemption.126 model adjusting country which combined relatively high growth rates with a move towards market deregulation and low uniform Trade policy and the role of the state tariffs during the 1970s and 1980s. However, One of the central aims of structural adjustment Chile's 'success' was more partial than is often has been to diminish the role of the state in recognised. The country's manufacturing economic life, allowing market forces to dictate export growth has been relatively weak (just economic restructuring. The policy failures of over 3 per cent a year in the 1980s). Despite two Structural adjustment decades of liberalisation, and its large human policy and other forms of state intervention are resource base, Chile's manufacturing exports oriented towards the expansion of regional are only $96 per capita, compared to $3,5000 trade and employment. This is especially true in for Taiwan. Colombia, unlike Chile, retained Africa, where intra-regional trade still accounts significant trade barriers and state intervention for less than 5 per cent of the total; and where in during the 1980s, yet it grew faster (despite some regions, notably southern Africa, there adverse trends in its terms of trade), diversified are new opportunities for regional integration. its exports more rapidly, and improved its indicators of basic human welfare.129 Social equity and conditionality If there is a lesson to be learnt in this area, it is that successful exporters have usually been able Structural adjustment policies have failed to to combine protection of the domestic market achieve their stated poverty-reduction goals of with export promotion. The World Bank itself increasing incomes and social welfare provision has acknowledged this in a widely-cited study of for poor people. This is because of an undue economic growth in East Asia. According to the faith in the capacity of unregulated markets to Bank, however, the forms of state intervention operate to the benefit of the poor; and a failure which underpinned that growth could not be to protect social services delivery. pursued today, partly because they would be In Oxfam's experience, market deregulation inconsistent with obligations under the World has often reduced the opportunities for poor 130 Trade Organisation. This suggests that there people. The deregulation of agricultural mar- is a powerful case for reforming international kets has served, in many cases, to exclude vul- trade rules as well as adjustment policies. nerable communities and enhance the power of One area in which reform is particularly powerful trading interests. In manufacturing, urgent is in the regulation of capital markets, the deregulation of labour markets has made which adjustment policies have sought to de- employment more insecure, and reduced regulate. Evidence from Latin America suggests wages to below the level of subsistence. As we that speculative capital flows are destabilising have argued elsewhere in this report, redist- recovery prospects by causing severe balance of ributive strategies are needed so that poor payments instability. One of the lessons from people can acquire the productive assets, such Mexico's experience is that sustainable recovery as land and credit, which they need if they are to cannot be built on junk bonds. There are benefit from market deregulation. lessons here from countries such as Chile and The failure of adjustment policies to protect South Korea, where governments have actively social provision can be traced to two causes. discouraged speculative capital flows through First, the IMF-World Bank and governments regulations on profit repatriation and taxes on have failed to ensure that social expenditure is short-term capital. It is no coincidence that, in protected during adjustment. This suggests a contrast to other emergent markets, both case for more effective social conditionality. It countries survived the crash which followed will be argued by some that such conditionality Mexico's financial debacle relatively unscathed. would represent an unwarranted intrusion into Finally, structural adjustment policies need political sovereignty. Viewed from a different to focus to a far greater extent on developing perspective, health care, primary education, regional trade opportunities. At present, the and other forms of welfare provision, are basic IMF-World Bank approach to regional trade human rights, which governments and finan- policy is the mirror image of their global trade cial institutions both have an obligation to policy: namely, that restrictions should be re- respect. Moreover, if economic conditionality is moved across the board. What is needed is a being enforced, it is hard to see how there can more integrated approach, in which trade be grounds for not enforcing social condition- The Oxfam Poverty Report ality. But, important as such conditionality may the claim that adjustment policies are creating a be, it should be developed not through edicts framework for more equitable growth and from the Bretton Woods agencies, but through poverty reduction. In many countries they dialogue and binding contracts involving appear to be doing precisely the opposite. governments, the IMF, World Bank, and UN With or without the IMF and the World agencies. Such contracts should focus on the Bank, many developing countries will continue attainment of specific targets for welfare to undergo painful adjustment processes into provision and improvement, and be subject to the next century. Their problems pre-date close monitoring and surveillance by NGOs and structural adjustment, and will not be resolved grassroots groups. by external intervention. However, the Bretton Second, the move towards financing health Woods agencies, by virtue of their political and and education provision through user-fees has financial influence, can play an important role had adverse consequences for poor people. The in developing genuinely poverty-focused effect of these fees is to place services beyond adjustment strategies. If they are to do so, their reach, with severe consequences in terms fundamental reforms in policy design and of lost opportunities and, in the health sector, implementation will be vital, including an early lost lives and debilitating sickness. Against this departure from the free-market orthodoxies to background, adjustment programmes should which both remain wedded. Failure to embark aim at the progressive and speedy withdrawal on these reforms will mark a further betrayal of of user-fees for primary health and primary the principles upon which the Bretton Woods education. Alternative forms of resource mobil- system was founded. isation should be developed at the national level For their part, NGOs, including Oxfam, have and at the international level to replace reven- a responsibility to engage the Bretton Woods ues lost from cost-recovery. agencies in a more constructive dialogue. Defending past forms of state intervention, which have self-evidently failed the poor, is no Conclusion more a starting place for such a dialogue than a recitation of the received wisdom of free- It is now 15 years since structural adjustment market economics. All sides in the debate over policies started to dominate the economic adjustment share a common interest in devel- policies of developing countries. Over that oping a better understanding of the effects of period, the Bretton Woods agencies have macro-economic reforms on the poor; and in become increasingly aware of the need for a involving the poor themselves in the processes more poverty-focused approach. This has through which adjustment policies are created the scope for a more substantive designed and implemented. dialogue with grassroots groups in the South and with NGOs about the design and imple- mentation of adjustment programmes. But welcome as the public commitment of the IMF and the World Bank to poverty reduction may be, in Oxfam's experience a vast gulf remains between public statements in favour of policies which benefit the poor, and the realities of structural adjustment. In practice, the costs of adjustment are still being borne disproportion- ately by the most vulnerable sections of society. Moreover, there is little evidence to substantiate 4 International trade

We grow food to fill our stomachs and as insurance against hard times. But it is the income we get from coffee that clothes us, pays for school fees, and buys seed and implements. In the old days we got a very bad price for our coffee crop. The traders got most of the profit. Now we get a better price because we have formed a co-operative and we control the marketing. But we don't control the world market, where prices are too low. COFFEE FARMER, DOMINICAN REPUBLIC

They say free trade is good for our country. They say it will bring new opportunities and more wealth. But where is our opportunity ? We cannot compete with this American maize. How can they produce it so cheap ? What are we to do ? This free trade will be the end of us. Our only opportunity is to leave our land and move to the city. SMALLHOLDER MAIZE FARMER, MEXICO

In the old days, there were enough fish to support all of our villages. Today, there are fewer and fewer fish. There are giant ships from Japan which come to our shores and take too many fish. We can't survive if it goes on like this. FISHERMAN, THE PHILIPPINES

Introduction the poor, international trade, like economic growth, is neither inherently good nor bad. International trade conjures up images of giant Trade has the power to create opportunities cartels, impenetrable and seemingly endless and support livelihoods; and it has the power to rounds of GATT negotiations, disputes destroy them. Production for export can gener- between the major economic powers, and fren- ate income, employment, and the foreign etic activity on the floors of commodity markets. exchange which poor countries need for their Such images partially reflect reality. But inter- development. But it can also cause environ- national trade is also to do with people's mental destruction and a loss of livelihoods, or livelihoods and their most basic social and econ- lead to unacceptable levels of exploitation. The omic rights. For millions of the world's poorest human impact of trade depends on how goods people trade is part of daily life, and a crucial are produced, who controls the production and determinant of welfare. Consider the state- marketing, how the wealth generated is distrib- ments at the head of this chapter; what these uted, and the terms upon which countries accounts suggest is that, from the perspective of trade. The way in which the international The Oxfam Poverty Report

trading system is managed has a critical bearing central to economic policy in developing on all of these areas. countries. By contrast, issues of sustainable For the past half century, trade has acted as a resource management, the regulation of com- mighty engine of growth in the world economy. modity markets, and poverty reduction It has also emerged as one of the central threads strategies, are conspicuous by their absence in a web of interdependence, integrating from the international trade agenda. national economies into an increasingly global So, too, are transnational companies (TNCs). economic system. For some developing coun- In the popular perception, trade is an activity tries, trade expansion has played a crucial role conducted between sovereign countries, each in economic development, creating employ- of which controls its own economic destiny. In ment and opportunity. Others, however, have reality, however, world trade flows are domin- been increasingly marginalised, with ruinously ated by formidably powerful TNCs. The 'free low commodity prices and protectionism market' in most of the primary commodities excluding many of the poorest countries from upon which the world's poorest countries the benefits of world trade. If these countries depend, is actually controlled by a handful of are to share more equitably in global prosperity, private companies. At the same time, economic new approaches to trade management are deregulation and new technologies have made needed. It is also clear that unrestrained free TNCs more mobile. Through their trade and trade is no longer justifiable, if it ever was, as an investment activities, these companies are shif- end in itself. Trade which is built on the found- ing resources between economies and creating ations of unacceptable levels of social exploit- global production systems, over which govern- ation, which destroys the environments of ments have little control. The full implications vulnerable communities, or causes global of the growing mobility of capital have yet to be ecological damage and disregards our obligat- grasped. It is already clear, however, that as ions to future generations, is not conducive to borders become more porous it is increasingly sustainable development. Yet too much trading possible for TNCs to exploit differences in social activity conforms to these patterns. and environmental standards with a view to As we approach the twenty-first century, maximising profits. This carries with it the there is a need for new trade rules which recon- threat of a constant downward pressure on these standards towards a lowest common cile the demands of global commerce with denominator. Governments have facilitated the people's social and environmental rights. The increased mobility of capital by progressively current system of unregulated international withdrawing controls on foreign investment at trade is no more capable of safeguarding these the national level, and by instituting, under the rights than any other form of unregulated mar- auspices of the WTO, international trade rules ket. Unfortunately, governments remain wed- which limit the rights of governments to control ded to the principle that trade should be the activities of TNCs. Yet there is no counter- deregulated. Indeed, not since its heyday as the vailing force, either at the national or the inter- economic religion of nineteenth-century national level, to defend the social and Britain, has the doctrine of free trade enjoyed economic rights of people. The result is that such unassailable dominance. The expansion of public welfare and sustainable development commerce through the deregulation of markets have been subordinated to the pursuit of is at the core of the mission allocated to the corporate self-interest and commercial profit. World Trade Organisation (WTO), the body which, with the conclusion of the Uruguay Fifty years ago, the Bretton Woods confer- Round, succeeded the General Agreement on ence sought to recast a failed global trading Tariffs and Trade (GATT) and assumed system in a new mould. In the words of Harry responsibility for managing the world trading Dexter-White, the chief US negotiator: system. Trade liberalisation is also increasingly International trade

We must avoid the pre-war pattern of every country But finding alternative ways of balancing the for itself, of inevitable depression, of possible sometimes competing claims of economic widespread chaos, with the weaker countries succumb- growth, employment creation, sustainable re- ing first under the iron law of the jungle that charac- source management, and social equity, is not terised international economic practices of the pre-war easy. Outright protectionism is no more likely decade.' to achieve these diverse aims than free trade. Protectionist arguments, like those of free- The discriminatory trade policies of the inter- traders, are often little more than a smoke- war years, which had resulted in cycles of screen for the pursuit of sectional gain against beggar-your-neighbour protectionism, were to the public interest, or for the imposition of be consigned to history. Instead of each country discriminatory measures on developing coun- for itself, the system envisaged was to be built tries. What is clear is that to continue on the upon international co-operation and respect present course will impose huge costs on for shared rules and values. Non-discrimin- vulnerable communities, and threaten the ation, the regulation of commodity markets, interests of future generations. New institutions and control over international monopolies, all and policies are urgently needed to create an figured prominently in the blue-print for a new international trading system which will order which emerged from Bretton Woods.2 In enhance human welfare into the next century. the event, that order was never put into opera- tion. But the vision of the Bretton Woods con- ference remains a powerful inspiration. That The new world trade order vision was based, above all, on a commitment to establishing a system of management of world During the post-war period international trade trade which placed the advancement of human flows have expanded by a factor of twelve, to welfare above the reckless pursuit of short-term over $4.0 trillion. These flows have played an commercial advantage. important role in increasing global prosperity.3 The world has changed since 1944, and it is Since the early 1980s, for example, inter- not possible to resolve today's problems national trade has grown half as much again as through yesterday's solutions. Some of these the growth of national products, so that imports problems, such as the concentration of power in and exports have figured increasingly promin- the hands of TNCs, were only dimly perceived ently in the economic activity of most countries.4 at Bretton Woods. Others, such as the linkages On average, trade accounts for around one- between trade and environmental deregula- third of national incomes for middle-income tion, were absent from the agenda. But what the countries, and one-quarter for low-income Bretton Woods conference offered was a simple countries. But while trade remains an engine of but radically new approach to trade reform. It economic growth, international trade relations was taken as axiomatic that governments are undergoing a profound transformation. should regulate the global market-place in the Most obviously, there is no single dominant public interest. Today, the problems posed by economic power. In the 1960s and the 1970s, international trade are at least as formidable the US played that role, effectively policing the and potentially destructive as those faced at the international trading system and maintaining a Bretton Woods conference. Yet governments momentum behind liberalisation. In the 1990s, have offered no viable framework for protecti- there is a multipolar system, with power con- ng social and environmental rights in the global centrated in three blocs: North America, market-place of the mid-1990s. Europe, and, increasingly, the Pacific Rim.5 There are no simple answers. Free trade, to Within this more diffuse power structure, trade the extent that it has been pursued, has failed. relations are being transformed by: The Oxfam Poverty Report

• increased flows of foreign investment and the blue-chip US companies such as General Motors globalisation of production under the export gear-box components to its maquiladora auspices of TNCs plants in Mexico, for assembly and re-export • trade liberalisation in developing countries back to the US.10 The investment driving these • regional divergences changes has provided employment in many • new institutional structures. countries, including industrially advanced countries. Holdings by foreigners of companies registered in the EU, the US, and Japan Foreign investment increased from $800bn to $1300bn between Foreign investment is the driving force behind 1986 and 1991." the emergence of an increasingly integrated International specialisation in company international economy. Improvements in tele- operations is not new; nor is production in the communications, new information technol- South by foreign companies seeking to export ogies, reduced transport costs, and the removal to the North. It is the sheer scale and pace of of barriers on foreign capital, have made it globalisation which is unprecedented; and the possible for companies to transfer technologies manner in which foreign investment flows are and organise their production and marketing transforming economic relations. During the activities on a global basis.6 The national car, 1980s, foreign investment by the industrialised like the national economy, has long been a thing countries increased dramatically. Initially, of the past. Even something as apparently all much of that investment was directed towards American as the Pontiac Le Mans is made up of other developed countries.12 In recent years, parts produced in 18 different countries.7 Now however, developing countries have figured the Ford motor company has unveiled a increasingly prominently in foreign investment massive restructuring plan which will take glob- flows. In 1993, they attracted some $80bn in alisation in the automobile industry a stage such investment. That was approximately twice further, integrating its European, North the amount they received two years earlier and American, Asian, and Latin American opera- equivalent to total world investment flows in tions into a single, global, co-ordinated system 1986." of production, establishing a model which its Most foreign investment in the developing competitors will follow.8 This represents an world goes to a core group of about a dozen advanced stage in the internationalisation of countries in Asia and Latin America. China is production. But it is being repeated on a more now the world's second largest host to foreign modest scale throughout the world. investment, with $26bn of inflows.14 In Latin High streets in the industrialised world America, Brazil and, until the recent crisis, provide plenty of evidence of globalisation. Mexico, have dominated. But behind these Twenty years ago, most of the video recorders aggregate pictures, changes are taking place in exported by the Japanese company Mitsubishi capital flows within the developing world. were made in Japan. Now they are all made in Rising wage costs in the first generation of South-East Asian countries like Thailand, newly-industrialising countries (NICs) have where Japanese firms account for 7 per cent of prompted the transfer of Japanese investment manufacturing employment.9 Top-of-the-range to Malaysia and Thailand, where wage costs are shirts and dresses for chic middle-class con- one-tenth of those in South Korea and sumers are manufactured in Bangladesh and Taiwan.15 More recently, Vietnam has emerged China, from cloth exported from Europe and as a new growth point, diverting foreign North America. One of France's largest elec- investment from the second generation of tronics groups now employs three times as NICs. Since opening its economy to foreign many people in Asia as in France. In Mexico, investors in 1988, Vietnam has attracted $7bn International trade

in foreign capital.16 In Latin America, export- site from which to export to high-wage con- processing zones are expanding rapidly in sumer markets in the industrialised world. some countries as a point of entry to the US economy. Mexico is the most significant The technological revolution example, but other countries are in compet- ition; in the Dominican Republic, the number In the past, there were limits to the transfer- of such zones has increased from 18 to 27 since ability of capital. Some of these were politically 1988, with foreign investment rising from determined: developing country governments $0.5bn to $ 1.2bn over the same period. were often hostile to foreign investors, impos- ing tight controls on profit repatriation and ownership. Other limits were inherent in pro- The power of TNCs duction technologies, many of which required The increasing specialisation in the inter- high levels of skills and maintenance. Today, by national economy is intimately associated with contrast, most governments maintain an open the rise of TNCs. The 100 largest TNCs control door to foreign investors; and the micro-chip over one-third of the stock of foreign invest- revolution has transformed production systems, ment.17 World trade itself is becoming an making it possible for companies to transfer the increasingly corporate affair, with around 40 most productive technologies. As Klaus Schwab, per cent taking place within companies.18 The the President of the World Economic Forum, has economic power of these companies is difficult argued, what is distinctive about the world trade to comprehend. General Electric, General order as we approach the next century is the Motors, and Ford, for example, have between relative ease with which capital and technology them assets roughly double the GDP of Mexico. can be transferred across borders.20 Potentially, The largest ten TNCs control assets which this has the power to revolutionise relations represent three times the total income of the between the industrialised and developing world's poorest 38 countries (excluding China world. In the old order, high wages in the North and India), with a population of over one billion reflected the higher productivity of the people. technologies used. Coversely, low wages in the In the past, foreign investment by TNCs was developing world were linked to technologies often determined by a concern to locate with lower productivity. Limitations on the production in markets to which import access mobility and transferability of capital kept diese was denied through restrictive trade barriers. two high- and low-wage worlds separate. Now, Increasingly, however, it is directed towards re- the ease with which capital can be transferred has export and the global integration of produc- severed the link between high productivity, high tion. In China, the share of foreign affiliates of wages, and the most productive technologies, and made it possible to combine low-wage labour TNCs in the country's exports rose from 9 per 21 cent in 1989 to over 25 per cent in 1993." with highly productive technologies. German chemical giants such as Bayer and There is a countervailing force, in that labour BASF have relocated plants from Europe to in industrialised countries generates higher China's coastal provinces, partly with a view to levels of productivity — a consequence of differ- re-exporting to Europe and South-East Asia. ences in infrastructure, education, and other Foreign firms now account for more than half of factors. However, these differences are being manufactured exports in Malaysia, Mexico, and eroded. In the automobile industry, robotic the Philippines; and as much as three-quarters production systems are diminishing the pro- in Thailand. Thus developing countries are ductivity gap between car workers in Mexico becoming increasingly important export bases and the US. In labour-intensive industries, such for TNCs seeking a low-wage manufacturing as footwear, textiles and, to a more limited The Oxfam Poverty Report extent, iron and steel, some developing countries and the Americas, have given rise to a are outstripping their Northern competitors in perception of regionalisation as the antithesis of the productivity stakes. As these industries internationalisation. 'Fortress Europe', well- expand their exports to the industrialised world publicised clashes over agriculture and micro- they generate foreign exchange earnings, which chips, and economic sabre-rattling by the US will in turn finance imports, and drive the cycle against Japan have provided the headlines. In of trade expansion. New jobs will be created to fact, the images are almost entirely divorced produce for expanding Third World markets, from reality; the new patterns of regionalism locking North and South into a virtuous circle have been oriented towards liberalisation, eco- of growth and prosperity. That, at least, is the nomic deregulation, and integration into the theory. But it is a theory which ignores the fact global economy.26 that there are winners and losers in the Latin America typifies this new regionalism. industrial world. The winners are to be found in Since the mid-1980s, one country after another the more sophisticated, high-wage, knowledge- has been embarking on economic liberalisation intensive industries. The losers are located in at a rate which governments in the North would the low-skill, low-wage sectors, where competi- never contemplate.27 Average tariffs in the tion with Third World exporters is most intense. region were reduced by half between 1991 and According to one study, competition from Third 1993 to 12 per cent, less than a quarter of those World imports reduced the demand for unskill- prevailing in the mid-1980s.28 Quantitative ed labour in the industrial world by 15 per cent in restrictions have also been withdrawn from 22 the 1980s alone. This fall in demand has con- countries such as Bolivia and Brazil, where they tributed both to increasing income inequality in previously covered a large share of imports. North America and parts of Europe, insecurity of The North American Free Trade Agreement employment, and to the growing phenomenon (NAFTA) has linked Mexico, the US, and of poverty in employment as a result of low Canada into one of the world's largest free- wages. trade markets (second only to the EU) and In the US, the growing discrepancy between stretching from Yukon to Yucatan. As a result, the wages of high- and low-skilled workers has the tariffs and quantitative restrictions which contributed to levels of inequality unprece- have characterised the Mexican economy are dented in post-war history, with the real being phased out. Moves are now under way to incomes of the richest 20 per cent having risen integrate Chile, already Latin America's most by one-fifth since 1990, while those of the open economy, with an average tariff rate of 11 poorest 40 per cent have remained static.25 In per cent, into the NAFTA. In 1995 a new cus- Britain, around one-third of workers now earn toms union was created between Brazil (Latin less than 68 per cent of the national average America's largest and, traditionally, one of its wage, a 25 per cent increase since 1979.24 Such most protected, economies), Argentina, and trends are not caused solely by import com- Uruguay. This is likely to form the foundation petition from low-wage economies, but they are of a continent-wide free-trade area, linking up powerfully influenced by them. Thus inter- with NAFTA and extending to the Andean national trade relations raise important issues Group of countries (Venezuela, Colombia, of poverty and inequality for the North as well Ecuador, Peru, and Bolivia) early in the next as the South.25 century.29 These moves towards liberalisation have sub- stantially increased regional trade flows,a s well Regionalisation as trade with North America. Trade among the Media images of the world breaking into three 11 largest Latin American economies has mutually hostile trading blocs in Asia, Europe, doubled since 1989, and these intra-regional International trade flows now account for almost one-fifth of total illustrate how the mosaic of separate free-trade trade. Brazil, the dominant regional economy, agreements are combining to form an increas- has seen exports to its Mercosur partners rise ingly liberalised global trading and financial from 4 per cent to 14 per cent of the total since system. 1990.30 Restrictions on capital flows have also That system is being consolidated by the been reduced under regional free-trade pacts. Uruguay Round GATT agreement. Three- This is accelerating the creation of a regional quarters of the 117 countries which signed that free-trade market linked, through capital agreement were developing countries." Under markets and trade, to North America. the GATT accord, trade restrictions will fall In Asia too, countries have been removing across a wide range of areas, although the mer- tariff and other barriers to trade at an acceler- chandise exports of developing countries will ating rate. Average tariff levels have fallen continue to face discriminatory treatment in dramatically in countries such as Malaysia, the world markets. Where the agreement could Philippines, and Indonesia. Such moves reflect prove even more significant is in boosting an impetus to regional free trade within the foreign investment. For example, the agree- Association of South East Asian Nations ment on trade-related investment measures will (ASEAN). More significantly, the Asia-Pacific prohibit governments from requiring as condi- Economic Co-operation (APEC) forum, created tions for market access that TNCs meet criteria in 1993, holds out the prospect of an extended for training nationals, use a minimum content free-trade area, linking the NAFTA with Japan, of domestically produced goods in production, China, South Korea, and Pacific Rim states such or generate sufficient exports to cover the as the Philippines, Malaysia, and Thailand. foreign exchange costs of their operations. Under an ambitious plan drawn up by the US, Similarly, the General Agreement on Trade in APEC members are now considering a proposal Services will require governments to remove to abolish all trade barriers by 2020, locking restrictions on the repatriation of profits and more than half the world's population and 40 capital in the financial services sector. Both per cent of its trade into a free-trade zone." provisions will reinforce the trend towards the With the Pacific Rim countries growing at three globalisation of production and investment, times the rate of the Group of Seven countries, especially with the anticipated admission into the strategic interest of the latter in easier access the WTO of China, Russia and Vietnam. to Asian markets is considerable. Far from turning inwards, the European Trading prosperity and decline Union has been actively seeking to expand its trade ties with the other blocs. Since 1986, Almost all countries are becoming more dep- Europe has been the largest trading partner endent on trade to maintain growth and em- with the four Mercosur countries, with which it ployment. But trade has acted as a more is now negotiating a free-trade arrangement.52 powerful engine of growth for some countries This move is one of a series designed to link than for others. International trade played an Europe more tightly with potential growth important part in fostering the original South- points in the world economy, including the East Asian 'miracle' and in maintaining the ASEAN countries. Meanwhile, the integration dynamism of economies in the region. At the of Chile, with its Pacific coastline and strong other extreme, sub-Saharan Africa has suffered economic ties with Asia, into Mercosur is continued economic decline, in part because of creating an embryonic free-trade zone between the unfavourable trade environment in which Latin America and Asia." These evolving ties the region operates. between Europe and Latin America on the one During the 1980s, South-East Asia's export side, and Latin America and Asia on the other, growth rate averaged 10 per cent a year: more The Oxfam Poverty Report than double the world average. That trend has Figure 4.1 Sub-Saharan Africa's per- continued into the 1990s, boosted by the centage share in commodity exports, performance of China and Vietnam. It is projected to continue into the next century. By 1971-91 contrast, sub-Saharan Africa's export growth was barely positive in the 1980s and has 1971 1991 registered only marginal improvements in the 5 1990s.' With merchandise exports accounting Cocoa 81 67 for one-fifth of regional income, this goes some way towards explaining the catastrophic dec- line in living standards experienced by the Coffee 29 15 region. These contrasting fortunes reflect an interplay of domestic policy with external Groundnut oil 41 34 factors. Some of Africa's problems can be traced to Palm oil 16 3 grossly incompetent economic management. The predatory activities of state marketing boards which over-taxed producers, and persis- SOURCE: WORLD BANK tent currency over-valuation which undermined export competitiveness and reduced local international trade becomes increasingly earnings for exporters, led to dramatic losses of knowledge-intensive, this divergence is likely to market shares in primary commodities. At the continue. same time, debt and generalised economic crisis For sub-Saharan Africa, where primary led to a collapse in economic infrastructure and a commodities account for 80 per cent of exports, process of 'import strangulation', as foreign the consequences could prove disastrous. Only exchange shortages prevented producers from six countries in the region derive 20 per cent or importing essential requirements.36 Overall, im- more of their export earnings from manu- ports fell by 5 per cent a year in the 1980s. But it factured goods.39 The fundamental weakness of is sub-Saharan Africa's continued dependence Africa's economies is further underlined by the on primary commodities which has made the fact that, with around 10 per cent of the world's region so vulnerable. population, they account for 0.4 per cent of As a group, developing countries have dram- world manufacturing exports and less than 1 40 atically increased their share of world manu- per cent of world trade. Foreign investment facturing exports, accounting for almost 25 per flows appear to offer little prospect of trans- cent, compared to 5 per cent in the early forming this picture. While it is true that foreign 1970s." South-East Asia generates over 75 per investment and flight capital is returning to cent of these exports, and there is a direct cor- countries such as Ghana and Uganda, and that South Africa will continue to attract private relation between the region's reduced depend- 41 ence on primary commodities and its growth capital, Africa as a region is becoming increas- performance. Developing countries in which ingly marginalised. Collectively, the region manufactured goods compose 50 per cent or receives less foreign investment than Malaysia, its share of world investment flows having fallen more of total exports have achieved consistently 42 higher growth rates over the past two decades by half to 0.5 per cent since the early 1980s. than primary commodity exporters. Between 1980 and 1992 .manufacturing exporters grew at an average rate of 7 per cent a year, or four times faster than commodity exporters.58 As International trade

Figure 4.2 Percentage growth rate of exporters, such as commodity price stabilis- ation; and its rules on investment and intellec- economy of developing countries tual property may compound many of these according to type of exports problems. Meanwhile, the GATT agreement on agriculture, which the WTO will implement, 1970-80 1981-92 does little to address long-standing problems of subsidised over-production in the indus- trialised countries. Non-oil commodities 3.0 1.4 There is also a growing concern that the WTO does not create a viable framework for the Fuel 5.1 0.5 social and environmental regulation of inter- national trade. While the treaty includes a Manufactured goods 6.5 6.8 commitment to promoting sustainable develop- ment, its rules are focused almost entirely upon the narrower objective of trade expansion.4'1 Diversified 5.7 3.6 Developing countries have reacted strongly SOURCE: WORLD BANK against suggestions that the WTO should be used to establish minimum social and environ- Institutional structure mental standards, fearing that this could encourage protectionist action. They point out, Another distinctive feature of the current global with considerable justification, that poverty is trading system is the new institutional structure the real cause of low standards; and they claim through which it is now being managed. The that access to Northern markets is vital to General Agreement on Tariffs and Trade raising these standards. Equally, however, the (GATT) emerged by a circuitous route from the world cannot afford a global trading system Bretton Woods conference. It was intended to which subordinates all other considerations to oversee a trade regime built upon the principles trade expansion under the auspices of footloose of transparency, non-discrimination, and a TNCs. What is needed is an international regu- shared commitment to multilateralism. In latory system which protects the basic rights of practice, the GATT's rules were largely ignored people, without jeopardising legitimate trade by the industrialised countries, especially after interests. competition from developing country exports intensified from the 1960s. Moreover, the GATT's remit did not extend to areas such as International trade and sustainable investment, intellectual property management, livelihoods and the regulation of trade in services.43 All this will change with the creation of the World Trade Organisation (WTO). In contrast It is not only deepening economic interdepend- to the GATT, its successor has wide-ranging ence which is a striking feature of the global powers to enforce compliance with the princ- economy. Social and ecological interdepend- iples of trade liberalisation. It will also have the ence is no less obvious. The terms of that inter- power to enforce the liberalisation of foreign relationship have a crucial bearing on human investment and the protection of intellectual welfare; and on whether trade acts as a positive property rights. As we argue below, the force for human development, or as a negative Uruguay Round agreement, which the WTO force for increased marginalisation.45 will oversee, does not address many of the inter- All international trade involves some element locking problems facing developing country of specialisation, in which countries, commun- The Oxfam Poverty Report

ities, local manufacturers, and traders or stantial. By 1990, shellfish was the largest non- foreign investors seek to exploit a competitive oil commodity export from developing advantage. That advantage, which is shaped by countries, having surpassed coffee by a com- economic policies and international circum- fortable margin. For some low-income coun- stances, can derive from public investment in tries, such as Bangladesh and Vietnam, shellfish social and economic infrastructure, from is now one of the largest sources of foreign natural factors such as climate and the availa- exchange. However, shrimp and shellfish farm- bility of natural resources, or from the skills of ing along the coasts of tropical countries is the work force and the price of labour. It can destroying the world's mangrove forests, with also derive from unacceptable levels of disastrous social and economic consequences. exploitation, both of people and of the environ- In the Philippines, mangrove swamps have ment. Inevitably, there are complex trade-offs been cleared at an average rate of 3,000 hec- and dilemmas in determining what constitutes tares a year to make way for large commercial an 'unacceptable' level of exploitation. For prawn farms, most of them owned by Japanese example, production for export may cause companies producing for export to Japan. ecological problems while at the same time These swamps now cover less than one-tenth of creating employment opportunities for highly their original area. The destruction of the man- vulnerable populations. Exploitation and poor grove breeding grounds means a progressive labour standards are often associated with lowering of fish catches each year for local export production: but the old aphorism that it fisherfolk. On current trends, the Philippines' is better to be exploited than to be unemployed remaining mangrove swamps will be destroyed carries special weight in developing countries.46 within a decade.48 In Bangladesh the expansion Such dilemmas pervade debates on inter- of shrimp farming has been associated with the national trade. But it is increasingly clear that forcible displacement of smallholder produc- the present terms of world trade are highly ers, often involving considerable violence. In disadvantageous to poor countries, while the addition, the demands of the shrimp industry pursuit of trade expansion without regard to for fresh water has severely depressed the water ecological constraints is likely to prove dis- table in many areas, creating water shortages astrous to present and future generations alike. and adding to problems of salinity.49 Offshore, there has been a parallel depletion Natural resources of natural resources vital to community liveli- hoods. Mismanagement and over-exploitation Around 25 per cent of world trade involves the of fish stocks in the industrial world has in- import and export of primary products, such as creased dependence on fish stocks in the South. timber, fish, minerals, tea, and coffee.47 Many of In the decade up to 1987, the volume offish the world's poorest countries are heavily exported by developing countries increased dependent upon such exports for their foreign four-fold, to almost 70 per cent of world trade in exchange earnings. However, the export of fish stocks.50 European factory ships now supply natural resources often involves environmental their home markets by draining fishing and, sometimes, social, costs which do not grounds off West Africa of their stocks. In figure in national accounting systems. Senegal, the livelihoods of over 35,000 small- Consider, for example, the massive increase scale fisherfolk has been threatened by the in shellfish exports from developing countries. encroachment of EU fleets into their traditional During the 1980s, consumption of shrimps fishing grounds. Having failed to manage fish doubled in the US and Japan, generating a sus- stocks in its own territorial waters sustainably, tained increase in exports from South-East Asia. the EU is now extending its unsustainable prac- The foreign exchange gains have been sub- tices into the developing world. ''Governments International trade receive foreign exchange for fishingquotas , the couraged the expansion of cattle ranching on stocks and the profits flow back to the EU, and the country's fragile semi-arid soils. Chronic local communities suffer a destruction of their soil erosion has resulted. Meanwhile, the en- livelihoods. This is the unacceptable face of closure, with World Bank assistance, of vast trade in operation. In Chile, where coastal fish- areas has decimated the nation's herds of ing stocks have been depleted by factory ships migrating wildebeest, threatening the security producing animal feed compound for the EU of the vulnerability rural communities which market, the Federation of Regional Fish depend on them. Once again, the main benefic- Workers has drafted a fishing law which would iaries are a small group of wealthy ranchers who ban exports offish from areas reserved to meet control the bulk of the exports.55 the needs of local communities. Livestock farming illustrates in stark form the The timber trade and deforestation potential conflict between trade expansion and The international timber trade's role in rain- sustainable resource use. In Costa Rica, the forest destruction is well-documented. Indus- expansion of beef exports to the North trialised countries account for over 90 per cent American market was a driving force in the of timber imports, which are used for a variety country's trade expansion during the 1960s of purposes. In Japan, construction companies and 1970s. The price of satisfying the booming make disposable moulds out of tropical hard- US demand for hamburgers was the destruc- wood. Mahogany from Ghana has proved pop- tion of the country's rainforest, only 17 per cent ular for toilet seats in Europe. Chile exports to of which remained intact by the mid-1980s. the North American furniture industry 100- Cattle ranches forced smallholder producers year-old trees in the form of woodchips. These off their land on to fragile hillside slopes and exports generate foreign exchange, but often at into forests, accelerating deforestation and soil a huge environmental cost. Commercial timber erosion. By 1984, over half of Costa Rica's agri- logging has denuded the Malaysian states of cultural land was under pasture, even though Sarawak and Sabah, which supply over 90 per most of it was unsuitable. From 1979 to 1989, cent of Japan's timber imports, and increased the country lost an estimated 2.2bn metric the rate of clearance for natural forests four- tonnes of soil to erosion.52 To make matters fold in the two decades up to 1990.56 In worse, these huge social and environmental Sarawak, the local Penan people are engaged in costs were sustained for an enterprise which a last-ditch effort to protect the remaining was, by any normal market criteria, commerci- forests, upon which their survival depends. ally unviable. Cattle ranching was controlled by During the 1980s, Ghana's export drive includ- a small group of 2000 politically powerful ed an expansion of tropical timber exports families, who received huge government sub- which reduced its forest area to a quarter of its sidies, export grants, tax concessions, and original size. Like Cote d'lvoire, the country subsidised imports.53 Subsidised credit, most of will soon be making the transition from a net which was never repaid, enabled commercial exporter to a net importer of timber.57 Com- ranchers to reap huge profits. Although imp- mercial logging represents a profound threat to ressive quantities of foreign exchange were food security of local communities which earned, the environmental costs in terms of depend on forests for food, fuel, and medicine. resource depletion were equally impressive, It also reinforces wider pressures on forests. draining the country of an estimated 5 per cent Logging is often the beginning of a new cycle of of its national income each year.54 deforestation, as it enables small farmers to convert degraded forest to farmland. A similar story is continuing to unfold in Botswana, where privileged access to the EU As in other forms of trade in natural res- market under the Lome' Convention has en- ources, the benefits of timber exports are often The Oxfam Poverty Report

illusory. In the Philippines, commercial logging an equivalent amount of foreign exchange. removed 10 million cubic metres of timber Unfortunately, there are several obstacles to annually in the 1970s.58 Foreign companies this. One is tariff escalation (which we discuss in were given short-term leases to extract timber, more detail below), that is, the practice of which created an incentive to log their con- imposing import duties which rise with the cessions as rapidly as possible and leave. By the degree of processing undergone. This discour- end of the 1980s, the country had started to ages local processing, which is the most effective import wood. Meanwhile, the economic bene- way to add value to exports. For instance, Japan fits were considerably over-stated by the under- and the EU impose a higher tariff on plywood valuing of the forest ecosystem. The Philippines than logs. The aim, in both cases, is to protect 63 government received an estimated 11 per cent powerful domestic timber industries. The of the value of timber exports in the form of effect is to intensify environmental pressures, forest charges and export taxes, with the rest since logs have a lower unit value than plywood going to timber operators.59 Set against these and more have to be exported to generate the gains are the inestimable costs of lost forest same amount of foreign exchange. resources, such as fruits, nuts, fuelwood, and Transfer pricing by foreign companies repre- biodiversity; increased exposure to soil erosion, sents another potentially destructive influence as fragile slopes are exposed to sun and rain; on the environment. This is facilitated by intra- and lost livelihoods of forest dwellers. More- firm trade, which enables companies to evade over, provinces in the Philippines affected by taxes and raise profits by understating the true massive deforestation have become major value of exports of raw materials. Because it is disaster areas when hit by tropical cyclones. illegal, transfer pricing is not well documented, In Thailand, where logging reduced forest and it is extremely hard for poorly-resourced cover from 55 per cent to 28 per cent of the regulatory authorities in developing countries country's land area between the early 1960s and to take action to stop it. However, cases have been reported of exports from Indonesia being 1988, deforestation contributed to mud slides, 64 floods, and consequent loss of life, none of under-valued by as much as 40 per cent. The which registered in the 'loss' margin of the effect of transferring a large proportion of the country's national accounts.60 Studies have final value of a primary commodity is to in- repeatedly shown that preserving forests and crease the tendency towards over-production, managing their resources in a sustainable as countries compensate for revenue loss by ex- manner not only prevents these losses; but also panding export volumes. that it generates returns in terms of employ- Many of Oxfam's partners are supporting ment and income comparable to those gener- community efforts to resist commercial ated by commercial operators.61 But because the encroachments on common resources, such as goods and services provided by forests to local forests and coastal waters. Some are pressing communities do not have an easily measurable governments to establish limits on export monetary, or market value, they also do not volumes, by reducing quotas for foreign fishing appear in national accounts.62 fleets or limiting timber exports. But unless they are backed by international action, local initiatives often have unintended 'displace- Unsustainable practices ment' effects. For example, in 1989 pressure Reducing the environmental toll associated from local communities and environmental with commodity trade will require action in groups in Thailand resulted in the government several areas. Increasing the value of exports imposing a ban on logging. Timber companies could help in many cases, by reducing the promptly shifted their operations to Laos and volume of natural resources needed to generate Cambodia, which have become sites of appall- International trade ing environmental destruction. According to Taxing unsustainability the UNDP, nearly two million hectares of Cambodian forest have been destroyed since One of the most vexed problems in sustainable the Thai ban came into effect, with exports trade management is the role of the market. running at four times the sustainable harvest Current prices for many natural products, such level.65 Thus, positive action in one country has as timber, rarely reflect the social and environ- had a negative outcome in another. mental costs of production. This underval- International commodity arrangements and uation leads directly to overuse and depletion.69 fishing agreements could establish parameters The prices charged by Japanese companies to for sustainable resource use. The International consumers for shrimps do not reflect the enor- Tropical Timber Organisation (ITTO) has mous costs to local communities of lost fish taken a step in this direction, setting the end of stocks, the reduced soil fertility caused by salin- the decade as a target date for all trade in trop- ation, or the associated loss of livelihoods. ical timber to come from sustainably managed Similarly, the prices paid by European con- forests. In practice, however, progress towards sumers for furniture made from West African this goal has been derisory, largely because of hardwoods bear no relation to the costs borne the absence of political commitment by both by local communities. In theory, governments exporters and importers.66 Far more stringent could intervene in markets to ensure that prices measures are needed, including a ban on im- more accurately reflect hidden costs, imposing ports from countries in which particularly consumption taxes or import levies on unsus- unsustainable forms of timber extraction are tainably produced materials; or, in extreme practised. Several of the timber companies cases, prohibiting imports. responsible for the deforestation of Sarawak There are two problems with this approach. have now been granted extensive concessions in The first is the obvious one of determining what Guyana. One consortium, which has acquired a constitutes sustainable production. Where 4.1 million hectare concession, plans to export there is an international agreement, as there is, 1.2 million tons of timber from the country by for example, on timber production or fisheries, the year 2000. That represents four times the this may be possible. But how can governments country's entire current timber exports, and is compare the environmental costs of cocoa likely to cause massive environmental destruc- produced in, say, Ghana against that produced tion.67 Importing countries should take action in Brazil? The answer is 'not without extreme to prohibit imports in such cases, in defence of difficulty'.70 The second problem is that the communities in the exporting country. They international trade rules enshrined in the WTO should also act to eliminate the 'throw-away' use act as a potential restraint on local and internat- of tropical hardwoods, such as Japan's 25 billion ional action to protect natural resources. These pairs of disposable chopsticks and $2bn worth rules do not allow for the imposition of con- of single-use hardwood moulds.68 Concerted sumption or import taxes on the grounds of consumer action could play an important role unsustainable production.71 Nor is it clear whe- in fostering more sustainable trade; labelling ther they permit export controls in the interest schemes to identify timber grown and harvest- of sustainable resource management. While ed sustainably can persuade companies of the existing rules allow governments to restrict market advantages of sustainable resource exports for environmental reasons, such res- management. There is plenty of evidence to trictions are treated as exemptions to free trade suggest that consumers in importing countries which are only granted under stringent condi- are willing to pay more for sustainably logged tions.72 Recourse to GATT has been used to timber. overturn existing conservation measures, forc- ing a reversal of Canada's fish stocks man- The Oxfam Poverty Report agement policies in the early 1980s, for globalised system. This has profound implica- example. In recent years, both Europe and tions because of the divergence in living stand- Japan have threatened recourse to GATT to ards and environmental standards between overturn bans imposed by the Philippines on countries." There are at least three sources of the export of unprocessed timber. Meanwhile, concern. First, there is a danger that TNCs will efforts by the Dutch government to promote an relocate to countries where wages, working EU ban on unsustainably logged timber were conditions, and basic labour rights, do not con- withdrawn in the face of warnings that it would form to reasonable minimum standards, even be inconsistent with GATT obligations. allowing for the fact that countries are at very It is clear that there are major conflicts different stages of economic development. between the rules of international trade and the Second, there is a parallel concern that non- demands of sustainable resource management. existent or weakly applied environmental laws This is an area in which the WTO itself is in will act as a magnet for foreign companies eager urgent need of reform. Export prohibition can to lower production costs by relocating to 'poll- play a vital role in sustainable resource manage- ution havens'. Thirdly, there is a fear that these ment. So could export taxes and import levies, twin pressures towards 'social dumping' and despite the problems outlined above. Revenues the creation of 'pollution havens' will exercise from surcharges imposed for environmental downward pressure on social and environ- reasons could be pooled and used to finance a mental standards worldwide, as the fear of fund for sustainable resource management, losing foreign investment forces governments and to protect the interests of communities to lower standards. which have been adversely affected, provided The public in developed countries are the necessary institutional reforms were put in increasingly concerned that their living stand- place in developing countries. Such a scheme ards and employment prospects will be eroded has been proposed by Dutch and UK timber by competition from countries at lower stages of operators, only to be rejected by exporting economic development. Such fears are well- countries." One objection to such schemes is founded. For their part, developing country that they could in effect give an unfair governments and many NGOs regard any advantage to producers with lower environ- discussion of minimum social and environ- mental standards. However, that loophole mental standards as the thin end of a protec- could be closed by importers requiring imposi- tionist wedge, designed to insulate Northern tion of an export tax as a precondition for markets from Southern exports. In fact, the exporters gaining market entry. Countries not issues go far beyond North-South differences imposing the tax could either be charged an over trade rules, and raise fundamental ques- equivalent import duty (with the proceeds used tions about the balance between the claims of for the same purpose), or excluded from the free trade and basic human rights. market. Applied in an open and non-discrim- These questions have figured prominently in inatory manner, such export taxes could en- the debate over the future of Europe. Moves hance the prospects for more sustainable trade towards the creation of a regional free market across a wide range of products.'4 were belatedly supplemented by social pro- grammes and the Social Chapter. The aim has been to prevent the unacceptable exploitation Pollution havens: environmental and by investors of national differences in living social dumping standards. However inadequate the mechani- sms involved, they reflect a recognition that Foreign investment is integrating national eco- citizens have a legitimate claim on governments nomies and labour markets into an increasingly to defend certain basic rights, which might be International trade threatened by the deregulation of markets. estimated that only one-third of plants com- They also reflect an awareness that unless mini- plied with Mexican toxic waste laws.81 The mum standards are established, socially des- public health consequences, compounded by tructive forces might threaten political chronic over-crowding, have been alarming. In stability.76 There is no such awareness reflected one investigation, the US National Toxics Cam- in the rules governing international trade. paign found heavy metals and other toxic discharges associated with birth defects and Social and environmental dumping, brain damage being emptied into open ditches. NAFTA style Towns such as Matamoros have an incidence of Advocates of trade deregulation argue that anencephalic (brainless) baby births running at there is little evidence to support the claim that 30 times the Mexican average. The American social and environmental dumping is taking Medical Association has branded the maquila- place on any scale. That argument is not sup- dora region 'a virtual cesspool and breeding ported by the experience of Oxfam's project ground for infectious diseases', with hepatitis partners working in the maquiladora zone in and tuberculosis rife on both sides of the 82 Mexico, described by one commentator as 'a border. This is a classic example of how envir- facsimile of hell on earth'." onmental problems do not respect national The Mexican border region is the site of more frontiers. than 2000 manufacturing plants, which operate While it may be unrealistic to expect Mexico's by importing components free of duty, for environmental laws fully to comply with US assembly and re-export to the US.78 Blue-chip standards, either in design or implementation, companies such as General Electric, General the practices of maquiladora plants are clearly Motors, and Du Pont, have all transferred beyond the pale. The same is true with regard plants to the maquiladora zone (prompting Ross to labour. Low wages in Mexico reflect the lethal Perot to hear 'the giant sucking sound' of US interaction of rural poverty and government jobs being transferred south of the border). The policies designed to transfer the costs of adjust- attraction of the maquiladora zone is partly the ment on to wage-earners. But it is not merely low wages, which are less than a tenth of those in low wages which are attracting foreign com- US plants, and proximity to US markets. Lax panies. Consider the following testimony from a enforcement of environmental laws has been maquiladora worker, given before a US another attraction. More than a quarter of the Congressional committee in 1993: US firmswit h plants in Mexicali cited environ- mental costs and more stringent US environ- My name is Alma Molina, and I live injuarez...ln mental provisions as reasons for the June 1992 I went to work for Clarostat, a US relocation.'9 In the late 1980s, the introduction company with a plant in Juarez. I was among some of more stringent air pollution controls in 300 workers who made electrical switches and sensors. California prompted a large-scale exodus of I earned the Mexican minimum wage of $4.50 for a furniture manufacturers to the maquiladora nine-hour day. zone.80 A group of us wanted to improve our working conditions, safety and wages at Clarostat. We worked The environmental costs of the maquiladora with dangerous chemicals, including phenol and zone have been unacceptably high. According epoxy resin, but no masks were provided. The to Mexico's Secretariat of Urban Planning and chemicals irritated our skin. Six of us began to Ecology, more than half of the maquiladora organise a union. We had meetings every two weeks. plants produce hazardous waste. This waste is After a few months I was fired. Four other workers supposed to be transferred to the United States, were fired one week later. The personnel manager told but compliance is the exception rather than the me I was being fired because I was trying to organise a rule. An official Mexican investigation in 1991 union... The Oxfam Poverty Report

Shortly after being fired, I was hired by Electro- A problem beyond Mexico componentes, which is a General Electric Company. The GE logo is on the factory. At that plant, 1800 The experience of Mexico has placed the twin workers wake wiring for refrigerators sold in the problems of social dumping and pollution US...I had been at GEfor only seven days when I was havens on to the international trade agenda. called to the personnel office and shown a list with my The problems, however, extend far beyond name on it...The personnel man said that he did not Mexico. Pollution-intensive European chemical know why my name was on the list, but that he would industries, to take but one example, are relocat- have to fire me anyway.83 ing on a substantial scale to Asia in general, and to China in particular. When the German Alma Molina's testimony provides an insight chemical giant Bayer announced plans to trans- into the realities of deregulated trade. Eight out fer bulk capacity to Shanghai, the corporation's of every ten maquiladora workers are women, chief executive explained the move in terms of most of whom are denied even the most basic the disincentives to staying in Europe: 'The labour rights. Driven by rural poverty to towns main disadvantage we have to face are higher such as Juarez, where some 400,000 people live labour costs and expensive social security in shanty towns with no sewerage, clean water, systems, coupled with widespread regulation of or electricity, women find that the maquiladora environmental affairs by the state.'86 zone offers a livelihood which enables them to The clear inference for governments in survive, but little else. Efforts to improve work- Europe, and even in other parts of South-East ing conditions are hampered by company prac- Asia, is that the price for retaining investment tices such as those described in the testimony and employment is a progressive lowering of above; and by the Mexican government's sup- standards towards Chinese levels. Such threats pression of the country's independent trade constitute a potential deterrent to efforts to union movement. improve environmental standards. Environ- Concern over the social and environmental mental costs impose a substantial and increas- implications of the NAFTA led to the nego- ing financial burden, which would rise pro- tiation of two side-accords to address the prob- gressively if public pressure forces govern- lem of establishing minimum standards. Both ments to introduce higher standards. Accord- leave much to be desired. For example, the ing to the US Environmental Protection labour side-accord recognises the right to free- Agency, the costs of pollution control will dom of association and the right to collective increase from the equivalent of 2 per cent of bargaining. However, violations of these rights national income in 1990 to 2.8 per cent by the are to be the subject not of punitive trade sanc- end of the decade.8' The danger is that, as the tions, but fact-finding exercises and 'consul- 84 costs rise, TNCs will simply relocate their invest- tations'. The environmental side-accord has ment and jobs elsewhere, providing a major provided resources to improve standards in disincentive to government action. Mexico, recognising the need to establish It is sometimes argued that what may appear acceptable minimum standards. However, the to be exploitative working conditions when Commission established to oversee the accord seen through European or North American has no powers of investigation and must rely on 85 eyes, is reasonable employment from the view- evidence supplied by governments. Responsi- point of developing countries. In some instan- bility for enforcement is also placed squarely on ces, this may be true, in others, not. Women governments, despite the fact that non- account for the bulk of the employment enforcement of environmental laws by the generated by direct foreign investment, both in Mexican government is a major part of the manufacturing industries, where female labour problem. is used in assembly plants, and in the produc- International trade

tion of non-traditional agricultural exports. demand uniform and unblemished products. Employment in these areas can be a source of In Ecuador, one of the fastest-growing flower income and increased autonomy for women. exporters to the US, over two-thirds of workers However, employment practices are often interviewed in one medical survey in a flower- unsafe, insecure, and highly exploitative, with producing area had suffered health disorders women suffering serious wage discrimination. from exposure to toxic chemicals, many of In the Dominican Republic, for example, which are banned in Europe and the US.88 around 140,000 people are employed in free- Inadequate provision of protective clothing trade zones, the majority of whom are women, increases the risk from pesticides. Women are who are denied even the most basic security of particularly vulnerable to acute poisoning and employment, work for less than the minimum long-term damage because of the impact of wage, and are obliged to work long hours of toxic substances on the human reproductive overtime without compensation. To gain em- system. Another survey of female plantation ployment, women are often required to prove workers in Ecuador showed that less than half that they are not pregnant and to agree not to had received the health and social security ben- join a trade union. This is the testament of efits they were entitled to under the country's Andrea, a 25-year-old women: labour laws; 80 per cent had no labour contract; none had been given the statutory maternity / have five children and work in the free-trade zone leave to which they were entitled; and most making children's clothes. In lots of factories when the were required to work overtime, normally women try to form a union they throw every one out. without pay.89 When you go to fill out the forms many factories ask Such practices ought to be regarded as you if you have been a member of a union, and if you unacceptable for all people, regardless of the say yes they don't give you work. The rhythm of work is state of development of their countries. Unfor- very fast. There is no canteen — most people eat on the tunately, however, they could be multiplied patio. The free-trade zone helps the country in some many times over. In Thailand and China unsafe respects — because there are few other alternatives for conditions in factories producing for export to the people. But the way it operates is almost a crime Europe and North America have resulted in against the workers. horrifying loss of life as a result of fires. In Andrea's words cogently summarise the dil- Indonesia, independent trade unions are sub- emma facing women workers in the Dominican ject to ruthless repression, helping to keep Republic. They are acutely aware that the alter- wages low for TNCs producing training shoes native to working in the free-trade zone is un- for Western consumers. Whether attracted by employment and deeper poverty. But they also inadequate labour provisions, lax enforcement feel that the standard practices of TNC employ- of human rights and labour law, or weak envir- ers are unacceptably exploitative — and they onmental rules, it is clear that unregulated are right. foreign investment and trade flows have the In some cases, foreign investors have sought potential to lock all countries into a downward commercial advantage in a manner which ex- spiral of deteriorating social and environmental poses workers to acute health risks, as well as standards. extreme exploitation. This is especially true in countries which have specialised in non- Towards an international framework traditional agricultural exports such as flowers and horticultural products. Pesticide inputs are Drawing the line between the acceptable pur- especially high on crops such as strawberries, suit of comparative advantage and unaccept- flowers, and mangoes destined for markets in able exploitation is inevitably difficult. It would Europe and North America, where consumers be wrong, for example, to establish minimum The Oxfam Poverty Report standards which were beyond the reach of poor The International Trade Organisation for countries. But it would be equally wrong to turn which this Charter was drafted never saw the a blind eye to the dangers inherent in contin- light of day, and the problem of protecting social uing on the current course. rights within a multilateral trade framework was One answer to this dilemma is already allowed to drift off the international agenda. emerging in the form of local action. Trade Recendy, however, the issue has emerged as a unions in the US and Mexico are building focal point in the dialogue over the future of the alliances and attempting to strengthen the pro- World Trade Organisation. While international visions of the NAFTA labour side-accord, in trade treaties such as the WTO cannot and part by filing test cases. The first of these should not be used to eliminate differences in contested the sacking of 100 workers in two US wages, not all differences in wages reflect what plants in the maquiladora zone, one of them might be termed reasonable market conditions. owned by General Electric.90 Environmental The persistent and widespread violation of groups from Canada, the US and Mexico have internationally recognised labour standards is a also linked up in a effort to amend the NAFTA distortion of fair competition, as is discrimin- by removing the restrictions it places upon ation on the basis of gender. Failure to enforce governments seeking to conserve resources and provisions for social security, and health and promote environmentally clean technologies. safety regulations is also unacceptable. Across the developing world, many of Oxfam's If international trade is to be conducted partners are involved in struggles to establish under the auspices of an equitable, open, and basic trade union rights in free trade zones, to rule-based system, governments must accept a restrict commercial encroachments into areas reciprocal obligation to enforce minimum of common resources, and to conserve forests standards. Workers must be free to organise and fish stocks. and bargain over their conditions of employ- ment. Existing trade rules already outlaw the Ending social clumping use of prison labour to produce exports on the Much more could be done to suport these grounds that this is unduly exploitative. They initiatives by creating an enabling international also outlaw dumping where this involves the framework which establishes reasonable mini- use of subsidies to gain an unfair advantage in mum standards. In 1947, the UN Conference exporting, say, a video recorder. Logically, on Trade and Employment attempted to there is no reason why they should not outlaw extend the principles of the Bretton Woods dumping associated with the denial of the most framework to international trade. A charter was basic human rights in employment.92 These drawn up giving a clear statement of the links rights include those enshrined in International between trade and labour standards: Labour Organisation (ILO) conventions, such The members recognise that measures relating to em- as: ployment must take into account the rights of workers • the right to freedom of association under inter-governmental declarations, conventions • the right to collective bargaining and agreements. They recognise that all countries have • the abolition of forced labour a common interest in the achievement and maintenance • freedom from discrimination and entitle- of fair labour standards related to productivity, and ment to equal remuneration thus in the improvement of wages and working condi- • the right to adequate health and safety regul- tions as productivity may permit. The members recog- ations in the workplace. nise that unfair labour conditions, especially for export, Contrary to the fears of some Third World create difficulties in international trade, and accord- governments, the incorporation of social ingly, each member shall take whatever actions may be provisions in international trade rules will not appropriate and feasible to eliminate such conditions.91 insulate Northern economies from competi- International trade tion. All countries have to adjust to competition, swell the gathering tide of political xenophobia and it is up to Northern governments to pro- and overt protectionism in the industrialised vide the investment needed to facilitate new world, where competition with workers subject employment opportunities for vulnerable pop- to gross exploitation is deeply resented as a ulations. What a social clause would do is bring cause of unemployment. Moreover, without a greater equity to the international trading credible multilateral framework for social system. It would do so by spreading the benefits standards, unilateral actions will gather pace. of growth more widely in exporting countries, Under existing US trade law, aid and trade and by preventing the most extreme forms of preferences are conditional upon compliance exploitation. A social clause would also safe- with standards set by the US. These standards guard the achievements of citizens' groups in all are applied with great inconsistency, in a countries, who now see labour and environ- manner which reflects US commercial interests mental standards under attack from forces (hence the refusal to link trade with China to currently beyond public control. improvements in its human rights record). It Arguments against minimum social stand- would be far better from the standpoint of dev- ards betray a number of misconceptions. One eloping countries to participate in genuinely such misconception is that these standards rep- multilateral and open arrangements. resent the imposition of a Northern agenda. In fact, the vast majority of WTO members, Closing pollution havens including its developing country members, are The problems associated with 'pollution hav- already signatories to the main ILO Conven- ens' parallel those caused by the disregard of tions. There is, therefore, no question of impos- labour standards. Unacceptably low environ- ing new standards. This has been recognised by mental standards are not a source of legitimate trade union federations in Asia and Latin comparative advantage, but a form of exploita- America, who have endorsed calls for a social tion which creates unfair competition. 9S clause in the WTO. Nor would a social clause As in the labour sphere, complete harmonisa- have to be administered in an institutional tion of environmental policies is neither context, such as that provided by the WTO, practical nor desirable. However, moving susceptible to manipulation by Northern gov- towards a minimum parity level for some of the ernments. The WTO should recognise the most environmentally-damaging production obligation of all governments to meet minimum processes would be a step towards placing inter- standards, and it should allow trade restrictions national trade on more sustainable founda- to be imposed on countries which do not meet tions. Where the industrialised countries are those standards within a specified time-frame. concerned, there is a strong case for using trade But compliance should be monitored by the measures in defence of sustainable environ- specialised committees of the ILO, which mental policy objectives. The energy tax already review complaints and evaluate govern- 94 proposed by the EU's Environment Commis- mental performance. Citizens' groups, includ- sion was withdrawn partly because of fears of a ing non-unionised female workers, should be loss of industrial competitiveness. In this case, it given the right of individual and collective would have been legitimate to use import petition to the ILO. This would considerably restrictions to offset that loss, counteracting any strengthen the hand of local communities advantages accruing to competitors. striving for their basic rights. Unlike the industrialised countries, many The complexities and political problems in developing countries would be unable to afford attempting to establish minimum social stand- the clean technologies needed to meet higher ards are considerable. However, failure to environmental standards. The Brundtland create a social clause in the WTO will inevitably Commission estimated that in the early 1980s The Oxfam Poverty Report developing countries exporting to the OECD strategy for achieving environmental object- countries would have incurred costs in excess of ives. The framework should be developed not $5bn had they been required to meet US stand- by trade ministers in the WTO, but by a wider ards.95 The sum today would be considerably forum held under the auspices of the larger. Not large enough, however, to justify Commission for Sustainable Development, inaction. Financial resource transfers, includ- which is more democratic, transparent, and ing debt relief, could be linked to the adoption broader in its focus. The forum should examine of technologies which would enable developing trade, environment, and sustainable develop- countries to introduce higher standards. Sim- ment policies at the national, regional, and ilarly, if tariffs were deployed to protect indus- global levels, and recommend measures for tries meeting higher environmental standards, resolving potential conflicts between free trade the revenue generated could be repatriated to and sustainable development. These measures developing countries in the form of an environ- should: ment fund, administered by a multilateral • Establish the primacy of global environ- body, for investment in clean technologies. mental treaties. The WTO should explicitly One of the most formidable barriers to the use recognise that obligations under inter- of trade policies for promoting more sus- nationally negotiated environmental treaties tainable practices is to be found in the rules of take precedence over the commitment to free the WTO itself. Existing international trade trade. rules do not allow for governments to imple- • Recognise the right of governments to use ment trade restricting policies in pursuit of trade measures in pursuit of sustainable environmental objectives. This was underlined environmental policies. The WTO treaty by a GATT dispute between Mexico and the US should be amended to allow governments to over American restrictions on tuna imports implement trade restrictions where produc- caught by methods which killed large numbers tion and processing methods are having of dolphins. In practice, it is probable that the adverse environmental consequences, or US trade restrictions in this case, applied under where these are necessary to maintain higher the Marine Mammal Protection Act, did domestic environmental standards. Obliga- discriminate against Mexico. But the GATT tions on developing countries to comply with panel which ruled on the case in Mexico's favour industrial country environmental standards did so on two precedent-setting grounds. The should be linked to the provision of financial first of these was that no GATT member had a support, and subject to longer transitional right to use trade sanctions because of objections periods than for industrial countries. over the manner in which an import was • Establish a body under CSD auspices to produced. The second was that environmental negotiate, monitor, and adjudicate over resources located outside of national borders environmental standards in international could not be subject to trade restrictions.96 trade, and to explore options for introducing Both principles have far-reaching implica- 'green tariffs' to promote sustainable trade. tions. They call into question the use of trade • Establish minimum environmental stand- measures to counter global warming and ozone ards. These would set minimum inter- depletion (the ozone layer being located national norms of emission control on beyond national borders); and they appear to factories producing for export, which would rule out the use of trade sanctions against be codified in international agreements. Such unsustainably harvested timber and depletion agreements would prevent the industrial offish stocks.97 countries from imposing unrealistically high In Oxfam's view, there is an unassailable case standards. Importing countries with higher for using trade measures as part of a wider environmental standards would be permitted International trade

to block or impose tariffs on imports which two-thirds of which will go to the industrialised did not meet these standards. countries. Sub-Saharan Africa, the world's • Allow the imposition of'green tariffs' on trade poorest region, stands to lose from the between industrial countries. Where punitive agreement.98 tariffs are applied on environmental grounds The distribution of gains reflects the focus of the revenues should be invested in jointly the Uruguay Round on issues primarily of agreed funds to finance the transfer of clean concern to the industrial countries. Long- technology to the industry concerned. standing problems facing primary commodity • Facilitate technology transfer. Any inter- exporters have not been dealt with. Other national agreement on standards which did problems, such as discriminatory protectionism not provide for the transference of tech- and agricultural over-production, have been, at nology to developing countries would be best, only partially addressed. TNCs were able rightly regarded as unfair, and probably be to use their influence with Northern govern- unworkable. The initiatives undertaken ments to secure agreements in areas such as under the Montreal Protocol and the Bio- intellectual property and investment, which diversity Convention to facilitate technology could undermine the prospects for more self- transfer should be built upon to promote reliant development into the next century. sustainable development. Figure 4.3 GATT winners and losers Trading old problems and new: the (projections to year 2002) Uruguay Round SOURCE: WORLD BANK/OECD The Uruguay Round represented the most ambitious and far-reaching set of trade negotia- tions of the post-war era. It took place against a protracted crisis in the external trade environ- ment of the world's poorest countries, with low commodity prices, debt, and protectionism undermining their export prospects. The 1980s also witnessed a marked deterioration in the multilateral trade environment, with devel- oping countries increasingly subjected to the threat of unilateral trade sanctions by the major industrialised countries. Had the Uruguay Round failed to culminate in agreement, there would have been a real prospect of a descent into 1930s-style trade policies, with the major industrial powers engaging in cycles of retaliation and counter- retaliation. Developing countries, with their -2.6 limited retaliatory powers, would inevitably Africa have suffered. However, the agreement which emerged from the Uruguay Round is highly In the following section we examine the unbalanced and weighted in favour of the in- failures of the Uruguay Round to address the dustrialised nations. This is reflected in the dis- problems facing developing countries in four tribution of economic benefits, a projected critical areas: The Oxfam Poverty Report

• primary commodities Superimposed on the overall downward • protectionism in manufactured goods trend in commodity prices is an erratic zig-zag • agricultural and food security line of fluctuating prices, reflecting the volatility • the regulation of TNCs and intellectual of the markets upon which vulnerable com- property rights. modity producers depend. Prices for commod- ities such as sugar, coffee, and cocoa are Primary commodities notoriously unstable, making any attempt at planning a hazardous exercise. Prices for cocoa, Trade in primary commodities has grown for example, averaged $2000 per ton between much more slowly than trade in manufactured 1980 and 1987, before falling to $649 per ton in goods. But although primary commodities are 1992, and rising again in 1994. Coffee prices of diminishing significance in international plummeted to an all-time low in the early 1990s, trade flows, they are of great importance to before reaching a six-year high in 1994.102 some of the world's poorest countries and Despite these brief price surges, World Bank people. Some 30 countries in Africa and 18 in projections suggest that the index for beverage Latin America depend on primary commodity prices will not reach even its depressed 1989 exports for more than half of their export level before the turn of the century.103 earnings.99 Such dependence leaves them Falling world commodity prices are not just highly vulnerable to fluctuations in internation- trends on commodity flow charts; they can al commodity markets. Some nations are even destroy the livelihoods of entire communities. more vulnerable by being reliant on just one or For example, the collapse of world prices for two commodities.100 Coffee, for example, sugar in the mid-1980s, led to famine condi- accounts for over three-quarters of export tions on the Philippines island of Negros.104 A earnings for Uganda and Ethiopia. farmer in Colombia explained what a fall in coffee prices had meant for his family as follows: Instability and exploitation Revenue from primary commodity exports is We had no choice but to sell. But we cannot live on vital to the livelihoods of millions of small- what we have earned. This year our entire coffee crop holders and workers throughout the world, would hardly be enough to feed and clothe the from the Ethiopian Highlands, to the Punjab children, let alone to pay their school fees. It is the same and the Andean countries. These cash crops for the rest of the families in the village. We have no provide households with the income they need choice but to leave and find work in the towns. Maybe to buy seeds, clothes, and fuel, and to pay school we could borrow some money and hope that prices will fees. They also generate the foreign exchange rise next year. If they don't we may as well tear up our which countries need to maintain essential bushes. imports, and the revenue which governments In fact, many thousands of smallholders have need to invest in health and education services. been driven to tear up their coffee bushes to Yet for well over a decade, primary commodity grow coca, illustrating the deadly connection exporters have faced a sustained depression in between deepening poverty in the South and world markets, deeper and more protracted social problems in the North. Politicians in the than at any time since the 1920s. Between 1980 industrialised world often welcome reductions and 1993, prices for non-oil primary commod- in the commodity price index, citing the bene- ities fell by more than half relative to prices for fits of lower prices for consumers and inflation. manufactured goods.101 The estimated annual In fact, the benefits of lower commodity prices loss to developing countries over this period are reflected more in increased profit margins was around $100bn: more than twice the total in the highly-monopolised food-marketing flow of aid in 1990. sector, than in lower consumer costs. The International trade

US cents/kg Figure 4.4 Price fluctuations for coffee (top) 6OO-1 and cocoa (below) (projected to the year 2000)

500- SOURCE: WORLD BANK

400

300

200

100

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

US cents/kg 400-.

19801982 1984 1986 1988 1990 1992 1994 1996 1998 2000 benefits to consumers in terms of lower per cent and 25 per cent, although growers inflation are marginal, especially when offset receive substantially less after the profits of against the human costs to producers. traders and state taxes are taken into account.105 In its international programme, Oxfam is The bulk of the final value is transferred working with smallholder producers who are through production, processing and marketing attempting to develop more sustainable liveli- chains controlled by Northern TNCs, to the hoods through commodity trade. One of the industrialised world. main problems which these producers face is In the Dominican Republic, Oxfam works that, in most cases, they receive a small share of with some of the country's 70,000 coffee the final value of their production. For raw farmers, most of whom farm on ecologically cotton, the growers' price represents less than 8 fragile hillsides growing coffee alongside food per cent of the final product price. For coffee, staples. These producers are developing prod- exporting countries typically retain between 12 uction and marketing systems designed to The Oxfam Poverty Report retain a higher share of the final value of their the prolonged price depression in both com- produce in the local economy. At the other end modities. Structural adjustment programmes of the marketing chain, Oxfam is working with have also expanded supplies on to already other groups attempting to develop fairer trade saturated markets. These programmes were relations, by persuading consumers of the case designed in part to expand commodity exports for buying products which return a higher by liberalising trade and foreign exchange share of their sale value to producers. However, markets, so that the incentive to domestic without more fundamental reforms to address producers increased. As anticipated, export the underlying causes of the crisis in volumes rose. Unfortunately, they were rising international commodity markets, there is a everywhere, as a large number of countries limit to what such initiatives can achieve. producing a small range of exports sought simultaneously to expand their market shares in obedience to the dictates of structural Decline in the prices of primary adjustment programmes. The entirely predict- commodities able result was another twist in the downward There are several factors behind the long-term spiral of world prices. decline in prices for primary commodities, As with many of the international economic which some analysts trace back to the beginning problems facing the world's poorest countries, of the twentieth century.106 The low rate of underlying causes are easier to identify than growth in demand relative to production is part solutions. Over half-a-century ago, John of the problem. Demand for commodities such Maynard Keynes, the chief architect of the as tropical beverages tends to grow more slowly Bretton Woods system, warned of the dangers than income in the industrialised world, so that and inherent social injustice in allowing markets expand less rapidly than for manufact- commodity prices to fall to levels incompatible ured goods. Market outlets have also been with decent living standards. Defending the restricted by the development of synthetic case for a system of price support, he suggested substitutes; for example, Zambian copper has that the proper 'economic price' should be fixed been displaced by fibre optics in communica- not at the lowest possible level, but at a level tions networks. Changing economic structures sufficient to provide producers 'with proper and production patterns in the industrialised nutritional and other standards in the condi- world have also reduced the demand for tions in which they live'. He added: 'It is in the primary commodities. Financial services and interest of all producers alike that the price of a 'knowledge-intensive' production processes, commodity should not be depressed below this the growth points of most economies, use mini- level, and consumers are not entitled to expect mal amounts of raw materials. Meanwhile, that it should."09 efficiency savings have increased, so that the average American car weighs 15 per cent less than two decades ago, again resulting in Regulating commodity markets 107 reduced demand for raw materials. Higher and more stable prices for commodities These trends are probably irreversible. How- would bring substantial benefits for producers. ever, some of the causes of over-supply are This is especially true for producers of tree rooted in more immediate policy interventions. crops (like coffee) that produce their maximum Agricultural over-production and the dumping yield several years after planting. Increased of subsidised exports by the industrialised planting during times of shortage when prices countries has been a major factor in depressing rise, as they have over the past year, typically world markets.108 For example, exports of sugar leads to future glut, price collapse, reduced and edible oils by the EU have contributed to plantings, and the resumption of the same International trade unstable cycle. Latin American coffee produc- ility in international commodity markets. For ers in the Andean highlands who were tearing example, the coffee agreement broke down up coffee plants three years ago are now re- partly because Brazil refused to give up some of planting them. But the beans produced by their its market share to Central American and investments are likely to come on stream during African exporters. Similarly, the cocoa agree- the next price trough. Such instability cannot ment was undermined partly because new provide a foundation for sustainable and secure suppliers in Asia were determined to expand livelihoods. production and market shares outside of the During the 1970s, efforts to regulate com- agreement. modity markets focused on international The case for commodity co-operation be- agreements between producers and consumers tween consumers and producers, and between to maintain prices. These agreements sought to producers themselves, is as compelling today as defend prices by buying in stocks when prices it was for Keynes. Market forces can deal with were low and selling them on the rare occasions structural imbalances between supply and that prices rose above a pre-determined demand only through long and painful boom- ceiling.110 However, viable international com- bust cycles in output. For this reason, the modity agreements have proved an elusive essential objectives of UNCTAD's Integrated alternative to the destructive tendencies of free Programme for Commodities remain valid: markets. Of five international commodity improving terms of trade for commodity agreements developed under the auspices of exporters, stabilising prices, and encouraging the United Nations Conference on Trade and local processing.112 Appropriate forms of Development in the 1970s — coffee, cocoa, supply-management are also urgently required sugar, tin, and rubber — to defend floor prices to restore more balanced markets. Existing through managing 'buffer' stocks, only that for funds for compensating producers for short- rubber is still in operation. The international falls in exports earnings, such as the IMF's cocoa agreement was stripped of its market Compensatory Financing Facility and the EU's intervention provisions in 1988, contributing to Stabex Fund, could be diverted for this pur- the steepest price fall since the Great pose, instead of focusing on the fruitless task of Depression. The international coffee agree- counteracting the losses from adverse price ment followed suit the following year, with trends. It must be stressed that consumers and similarly dramatic price effects. Between 1989 producers share a joint interest in managing and 1990, prices dropped from 114 cents a commodity markets more successfully, not least pound to 44 cents. Today, both agreements to avert the potentially destabilising social dis- continue in name, but without any effective location caused by persistent excess supply and mechanisms for stabilising prices at reasonable depressed prices. levels."1 The reluctance of developed countries to Diversification provide the financial resources needed to main- tain effective buffer stocks has been part of the The longer-term solution for the problems problem. Chronic over-supply has been facing commodity-dependent Third World another. Consensus on what constitutes a real- exporters is diversification. However, this is istic support price has also proved hard to easier to advocate than to achieve, since it achieve, not least because of a concern on the requires investment, including funds for part of developed countries to exploit the weak education and infrastructure. The UN position of exporters by driving down prices. Secretary-General has attempted to address Developing countries themselves, however, this challenge by proposing, in the UN's New must bear some of the responsibility for instab- Agenda for the Development of Africa, a The Oxfam Poverty Report commodity diversification fund for sub-Saharan the local processing of fruit and vegetables. Africa. That was in 1991. Unfortunately, donors The Uruguay Round agreement will do little have failed to provide the $50-70m envisaged to reduce the problem of tariff escalation for for the fund, preferring to place their faith in beverages, oilseeds, and fish, which are of great private sector initiatives.1" concern to developing countries. Tariffs will Inadequate investment and lack of inter- continue to escalate by between 8 per cent and national support for diversification is com- 26 per cent in these areas, reducing the benefits pounded by problems of protectionism. One of of the agreement for the world's poorest coun- the most effective ways in which developing tries."6 Meanwhile, the trade barriers imposed countries can generate employment, increase under the Common Agricultural Policy will export earnings, and escape dependence on remain largely intact. For the world's poorest volatile primary commodity markets is to add commodity producers in sub-Saharan Africa, value to their exports through local processing. there are justifiable fears that the Uruguay However, this is actively discouraged by import Round agreement will jeopardise trade pros- tariffs in developed countries, which increase pects in European markets. This is because the with the level of processing. For example, agreement will lower tariffs for all countries, Malaysia can export unrefined palm oil to the thereby diminishing the preferences currently EU at a tariff rate of less than 2 per cent. But if it granted to Africa under the Lome' Convention. processes the palm oil into higher value-added Projections by the OECD in 1994 suggested that margarine the tariff rate rises to 25 per cent. the resulting loss in foreign exchange earnings Similarly, the average industrial country tariff could amount to as much as $2bn annually for on chocolate is more than twice that on cocoa sub-Saharan Africa (including South Africa) up beans."4 This system is designed to discourage to 2002.'" developing countries from diversifying — and Action is needed to improve the trading pros- it partly explains why such a small proportion of pects of the world's poorest countries, including: the final value of primary commodities remains • urgent international efforts to re-establish in exporting countries. price stabilising international commodity The EU has supported in a modest way agreements, especially for coffee and cocoa efforts at diversification under the Lome' • increased co-operation between developing Convention. These efforts, however, have been countries to initiate supply management undermined by the trade restrictions enshrined measures compatible with more remun- in the same treaty: an example of the contra- erative prices dictory effects of EU trade and aid policies. • a review of structural adjustment pro- Under the Lome' Convention, countries in the grammes and development assistance direct- African, Caribbean, and Pacific group can ed at expanding commodity exports to export locally processed goods duty-free to consider dieir impact on global commodity Europe, provided that all of their products markets originate in the ACP countries themselves. This • increased investment in complementary rule has prevented Zimbabwe from exporting measures to compensate least developed cloth mixed with South African wool, hamper- countries for shortfalls in foreign exchange ing the development of its textile industry."5 It earnings, such as those provided under the has also restricted potential sources of supply in Stabex scheme in the EU's Lome Convention a manner which is totally unrealistic if the aim of agreement with the African, Caribbean and the Convention is to promote the competitive Pacific countries position of the ACP countries. Restrictions • support for the UN's proposed commodity imposed under the Common Agricultural diversification fund and increased invest- Policy, present another formidable barrier to ment in other diversification initiatives International trade

• the withdrawal of escalating tariffs on With the arrival of the Single European primary commodities exported from devel- Market in 1992, such protection became oping countries. inconsistent with EU law. However, after a protracted debate, in July 1993, Europe Banana wars and free trade introduced a new import policy which set an increased quota for Latin America bananas. For some of the world's poorest and most Imports above that quota — set at 2 million tons vulnerable producers, the failure of the — are subject to higher duties."9 Uruguay Round to address problems in inter- The EU's aim was to protect the Caribbean national commodity markets will be com- from the social and economic effects of free pounded by its impact on existing trade trade by maintaining a regulated market. Such arrangements. These are the words of Winston a policy was justified by the degree of depend- Graham, a banana farmer in the Windward ence of Caribbean exporters on the EU market. Islands. In The Windward Islands (Dominica, St Lucia, We are told that the world has changed, that because St Vincent, and Grenada) bananas are the of GATT there must be a free market in bananas. But mainstay of economic life, accounting for 15 per the market should not be so free that it can destroy cent of national income and over half of export people's lives. earnings. Around 57,000 people, a third of the labour force, are directly or indirectly involved Winston Graham's small farm on a steep in the banana industry. Maintaining a viable hillside in the Windward Island of St Lucia banana industry was vital in a region where seems a million miles from the plush GATT unemployment is in excess of 20 per cent and negotiating rooms in Geneva. But along with where there are few alternatives. thousands of fellow banana producers in the However, the new EU regime was promptly Caribbean, his livelihood is at the heart of an challenged at the GATT by five Latin American international trade dispute between the EU on exporters. Having already condemned the the one side, and Latin America and the US on EU's system of preferences, there was little the other. It is a dispute which raises funda- doubt that the dispute panel set up to adjudi- mental questions about the values, principles cate would rule against the new system. The and priorities which underpin world trade. panel ruled that discrimination against the The immediate issue at stake is trade with the Latin American countries was a violation of the EU, whose citizens consume some 3.5 million obligation on the EU to uphold the GATT prin- tons of bananas annually. Until 1992, the EU ciple of free trade.120 banana market reflected the old colonial ties of The US has now entered the fray. Following a its member states. Britain, for example, import- complaint from the giant banana corporation, ed two-thirds of its bananas from its former Chiquita Brands International, the American colonies in the Caribbean, including the Trade Representative has threatened to impose Windward Islands. But this arrangement could trade sanctions on EU exports unless the only be maintained by protecting the British European banana market is liberalised. Along market from Latin American exporters, such as with three other companies (Standard Fruit, Colombia and Costa Rica, where bananas are Dole, and De Monte), Chiquita controls around produced at around half of the cost of the three-quarters of bananas exported from Latin Caribbean on giant, highly mechanised planta- America.121 tions. Thus the Latin American producers If the EU were to comply with the GATT (largely TNCs) dominated markets in ruling and the demands of the US, it would Germany, but were subject to quotas and tariffs sound the death knell for the banana industry in the British market."8 in much of the Caribbean.122 In Oxfam's view, The Oxfam Poverty Report this would place the dictates of free-trade discrimination, transparency (which meant that dogma and corporate self-interest over the countries should use open tariffs rather than interests of people and their livelihoods. There less quantifiable forms of protection), and reci- are likely to be more stringent rules for settling procity (which meant that where importers disputes under the new WTO regime, which reduced tariffs, exporters should recipro- will force the EU to give way and allow Latin cate).125 But these principles are little more than American exporters access to EU markets on empty words, especially where developing the same terms as the Caribbean producers. countries are concerned. Behind the rhetoric of Oxfam is supporting the efforts of farmers of multilateralism in international trade rules the Windward Islands Farmers' Association to there is discrimination, unilateralism, and re- improve the competitiveness of the local indus- course to arbitrary forms of protection. No try, and to develop ideas about diversification. other area of North-South relations is marked But without the maintenance of a preferential by such a profound divergence between the system in Europe, such efforts will count for stated commitment of Northern governments little. to market principles, and the protectionist nature of their trade policies. Manufacturing protectionism Non-tariff barriers (NTBs) If developing countries are to reduce their One of the achievements of the GATT during dependence on primary commodities and the post-war period was to reduce the incidence expand their exports of manufactured goods, of tariffs in industrial countries. With the con- they need access to the markets of the indus- clusion of the Uruguay Round, average tariffs trialised countries. These countries account for have fallen to less than 5 per cent, compared to over two-thirds of global imports of manu- over 40 per cent fifty years ago.126 Since the mid- factured goods and three-quarters of develop- 1970s, however, the international trading sys- ing country exports of manufactures.123 As a tem has witnessed the rise of new forms of result, trade policies in industrial countries protection, mainly in the form of non-tariff have an important influence on the economic barriers (NTB), which violate the spirit and, in prospects of developing countries. some cases, the letter, of GATT rules. Among Governments in the industrial countries fre- the most common NTBs are quotas, voluntary quently stress their adherence to the principles export restraints (VERs), and a wide range of of free trade. These principles have been adopt- measures to counter allegedly unfair trade 127 ed in many developing countries across Latin practices. Viewed from the perspective of the America, Asia, and Africa, as witnessed by the importer, the main advantages of NTBs are that steep decline in trade restricting measures. they are 'legal' in GATT terms, and that they Countries such as Ghana, Kenya, Tanzania, can be used, in contravention of the GATT and Zambia have been phasing out restrictions principle of non-discrimination, to target and tariffs.124 In contrast, there has been little individual suppliers. progress towards dismantling trade barriers in Developing countries have been the main industrialised countries. These barriers have target of NTBs. One-fifth of all non-fuel exports become increasingly arbitrary and discrimina- from developing countries are now covered by tory in their treatment of developing countries. NTBs, compared to one-tenth for trade As a result, there has been a widening diver- between the developed countries.128 Contrary to gence between the principles espoused by the a commitment made at the beginning of the industrial countries and their trade practices. Uruguay Round to 'roll-back' such trade The GATT was established on the found- restrictions, they actually increased during the ations of three key principles: non- 1980s.129 VER arrangements, under which International trade countries 'voluntarily' agree to limit exports, or intensive, its growth generates employment face trade sanctions, are especially pernicious, opportunities and income, especially for since they allow developed countries to exploit women; and because the technology involved in the weakness of developing country exporters. the early stages of production is relatively The US, which led the 'free trade' drive during simple, investment in the textiles sector is an the Uruguay Round, uses VERs to protect its obvious way for countries to generate the steel industry from Brazilian imports, its cem- exports they need to pay for imports. The MFA ent industry from Mexican competitors, and its was designed to undermine the comparative footwear industry from Asian exporters.'50 In advantage of developing countries, with detri- Europe, VERs and quotas are applied to mental effects for employment and trade. everything from teddy bears made in Thailand to videos produced in other parts of South-East Anti-dumping measures Asia. Some trade barriers are more difficult to quantify than others. For example, companies The Multi-Fibre Arrangement in Europe and North America have frequent The most significant NTB facing the world's recourse to anti-dumping actions. These are poorest countries is the Multi-Fibre Arrange- supposed to counter the use of subsidies to gain ment. Negotiated two decades ago as a temp- market shares by imposing countervailing orary departure from GATT principles, the duties on exporters. In principle, anti-dumping MFA has allowed the industrial countries to measures are a perfectly legitimate response to impose quotas on individual suppliers.1" It was unfair trade practices. In practice, anti-dump- progressively strengthened during the 1980s. ing rules are designed to discover dumping For example, in the early 1980s, the EU intro- where none exists and to exaggerate its severity. duced a device called the 'basket extractor'. They are widely abused by powerful business This allowed it to extend MFA restrictions even interests to exclude rivals from markets."4 For to products not covered in existing bilateral example, European electronics groups have agreements. Clearly impressed, the US foll- gained anti-dumping protection from South- owed suit. All major importers also introduced East Asian rivals, while continuing to import the a range of safeguard devices to curtail increases same items from their own plants in the region. in imports they might not have considered. The One recent review of anti-dumping cases fourth MFA was negotiated during the investigated by the EU and published in 1994 Uruguay Round, despite the pledge to 'roll found that 95 per cent had resulted in the back' existing forms of protectionism. In the exporter being found guilty — a conviction rate event, the MFA was rolled forward to cover a unmatched in any other judicial context.135 lengthy list of new products, including some (such as jute and ramie) of primary concern to Trade barriers after the Uruguay Round the world's poorest countries, such as 132 The Uruguay Round agreement concluded in Bangladesh. April 1994, only partially addresses the The overall cost of the MFA to developing bewildering array of trade barriers facing devel- countries has been estimated at around $50bn a oping country manufacturers. While the share year: roughly equal to the total flow of of such exports entering industrial country development assistance provided by Northern markets duty free will double, the proportion governments.133 The real costs in terms of lost attracting tariffs of 10 per cent or more will livelihoods in the developing countries are con- remain relatively high — and far higher than siderably higher. For many of these countries, for goods traded between the industrial coun- the textile industry is the first step on the ladder tries themselves. Moreover, some of the prod- of industrial development. Because it is labour uct groups of greatest interest to developing The Oxfam Poverty Report countries, including textiles and clothing, process of trade liberalisation. In practice, this footwear and leather goods, will continue to does not happen, for two main reasons. First, face severe discrimination. Around one-fifth of because developing countries have been liberal- textile exports will continue to face tariffs in ising their economies either unilaterally or in excess of 15 per cent.136 the context of structural adjustment pro- Other discriminatory measures will also grammes, rather than under GATT auspices, remain intact for some time, especially if the industrialised countries are technically not industrial countries continue their imaginative required to reciprocate. Second, developing efforts to undermine both the letter and the countries do not have the economic and politi- spirit of the GAIT agreement. The MFA is cal muscle to press their claims against the supposed to be phased out in three stages by industrialised countries. 2005. During the first phase, which lasts three There is considerable scope for improving years, restrictions are to be reduced by 16 per the Uruguay Round agreement by: cent. Unfortunately, instead of grasping the • setting clearer rules for phasing out the opportunity to remove one of the longest- Multi-Fibre Arrangement and accelerating standing inequities in world trade, the EU the withdrawal of restrictions appears bent upon discovering ingenious ways • abolishing 'voluntary export restraints' and of undermining the textile agreement. By withdrawing all NTBs which discriminate tabling an offer to remove restrictions on items against developing countries which were either not covered by the MFA, or • establishing clear and uniform rules for anti- which were covered but not subject to quotas, dumping legislation. the EU has signalled its intention to meet its • establishing a wider principle of reciprocity GATT targets in a way which will leave all whereby industrial countries are required to current restrictions in place until 1998 at the match the liberalisation efforts of developing 1 earliest. " This contrasts with moves towards countries. liberalisation in developing countries them- selves. For example, under bilateral arrange- ments with the EU and the US, India is Agriculture and food security reducing its textile tariff by 65 per cent up to 1998 and phasing out quotas thereafter.138 The agricultural policies of the industrial coun- Under the new GATT regime, anti-dumping tries exercise an important influence on the rules have been tightened. But the new rules trade prospects of developing countries, and on reflect the demands of US and EU negotiators the livelihoods of their inhabitants. The for a framework that will enable them to res- industrial countries are the world's largest im- pond positively to protectionist demands from porters of agricultural produce, and they dom- industrial lobbies. The GATT agreement will inate a number of export markets. These also allow for the continuation of VERs, and exports compete with those of developing permit the selective application of 'safeguard' countries on international markets, where they measures, which can be used to impose duties drive down prices. They also enter the food and quotas on countries which succeed in systems of the developing countries, bringing rapidly expanding their market shares.139 smallholder farmers there into direct competi- tion with farmers in Europe and North Arguably the deepest inequity in the GATT 140 system is the abuse by developed countries of America, often with disastrous consequences. the principle of reciprocity. In theory, GATT Until the Uruguay Round, agriculture was rules require all countries to respond to liber- treated as an exception to the GATT principle alisation by their trade partners with equivalent that markets should be liberalised. There was measures, the aim being to create a dynamic no prohibition on the use of export subsidies to International trade dispose of surpluses; and no effective prohibi- exporter of edible oils.144 The costs associated tion against the use of import controls to protect with toring surpluses and disposing of them on farm incomes. This special dispensation existed world markets now absorb over one-third of the because the GATT's rules on agriculture were CAP budget. tailored to accommodate the US farm-income support programmes designed during the New Deal, which depended on import controls and The effects of subsidised exports export subsidies. The Common Agricultural In the 1980s, competition between the EU and Policy (CAP) of the EU, which also involved the US intensified, as world markets contracted. import controls and subsidies to protect With surpluses mounting, both 'agricultural farmers, was subsequently accommodated with- superpowers' sought to outsubsidise each other in the GATT, resulting in increasing tension to expand their market share, with disastrous H1 with the US. consequences. World prices fell to their lowest Governments in the industrialised countries levels in real terms since the Great Depression, have used a wide range of mechanisms to driving up the costs of farm budgets and export protect the incomes of their farmers. Domestic subsidies. By the mid-1980s, agricultural trade price-support policies, in which farmers receive conflicts seemed likely to escalate into a wider guaranteed prices for their output, have been trade war, bringing the problem of agricultural backed by a bewildering array of trade restric- policy reform to the top of the Uruguay Round tions designed to stop imports coming in at agenda.145 lower prices. The overall cost to the OECD Agricultural trade problems are widely countries of these policies amounted to around perceived as a matter of interest solely to the EU $350bn in the early 1990s; around six times and the US. But the most damaging effects of what they provided in official development trans-Atlantic trade hostilities have been felt in 142 assistance. In Europe alone, taxpayers developing countries, where the most visible typically spend in excess of $20bn on the CAP, victims have been non-subsidised exporters, which continues to absorb the bulk of the EU's caught in the crossfire of the EU-US subsidy budget. barrage. For example, falling prices for cereals The CAP system has resulted in massive over- and oilseeds reduced Argentina's export earn- production. Until recently, farmers in the EU ings by 40 per cent between 1980 and 1987.The were paid a guaranteed price for virtually effects of falling world sugar prices as a result of unlimited output. This encouraged product- the twin pressures of a surge in EU exports and ivity gains, as farmers invested in increasingly reduced market access to the US were trans- intensive systems of production. Each acre of mitted back to producers, including millions of cereals farmland in northern Europe produces smallholder farmers and agricultural labour- three times as much today as it did in the 1960s. ers, with the Philippines and Dominican Thus, while small farmers have been squeezed Republic particularly severely affected.146 out, the larger farms which have replaced them Subsidised exports have also undermined have maintained a relentless incease in output, livelihoods by flooding local markets with cheap changing Europe from a net importer to a imported food. The impact of EU beef dump- 143 major exporter. Over one-third of European ing in West Africa is one example. Pastoral cereals production is now exported. As a result, farmers in countries such as Mali, Niger and the EU's share of world markets increased from Burkina Faso sell animals in local markets to less than 7 per cent in the early 1970s to almost generate cash income for household needs. a quarter in the 1990s. The EU is now the During the latter half of the 1980s, these world's largest exporter of sugar and beef, the markets were disrupted by heavily subsidised second largest exporter of cereals, and a major EU beef, which was being sold at one-third of The Oxfam Poverty Report

the normal price.147 Currency over-valuation poverty reduction. These dimensions of food further reduced the price of imported beef, security are often ignored by advocates of although a 50 per cent devaluation in 1994 agricultural trade liberalisation for the develop- radically changed this picture. For nomadic ing world. So, too, are implications of trade lib- peoples such as the Fulani, maintaining their eralisation in markets which are massively herds on ecologically fragile grazing lands in distorted by agricultural subsidies. The familiar areas of uncertain rainfall, the effects of low GATT refrain stressing the need for 'a level prices are disastrous. As one farmer puts it: playing field' in agriculture remains popular with Northern policy makers. But the playing Everything here depends on the income from selling field in agricultural trade runs all the way animals. With this climate nobody can count on crop downhill from the heavily subsidised farms of production. If the animals don't sell, or are sold at a Europe and North America to the staple-food derisory price, people lose their savings. They cannot systems of Asia, Africa, and Latin America. buy enough food, and they cannot afford education or medicine for their children. Mexican maize and NAFTA In the Andean region, Oxfam has witnessed Consider, for example, the implications of how heavily subsidised wheat and maize agricultural trade liberalisation under the imports from the US have destroyed the liveli- NAFTA. In Mexico, maize accounts for almost hoods of local producers of food staples. In two-thirds of agricultural production in some West Africa, cheap wheat imports have been areas of the country, where millions of house- displacing traditional food staples in local diets. holds farm on steep, ecologically fragile hill- Wheat imports into the coastal region have sides using traditional methods of cultivation. been increasing by over 8 per cent a year for the In areas such as Morelos, Guerrero, and the past decade, while per capita production of Tarascan Plateau, deepening rural poverty has sorghum and millet has been falling.148 Wheat- already caused a wave of male migration to based bread has become a staple food in many urban areas, leaving women and children to countries. By driving down local prices, wheat carry out the bulk of production. Households imports have damaged rural livelihoods and survive partly by selling small amounts of maize employment. They have also contributed to the after the harvest and partly through off-farm creation of an unhealthy and unsustainable activity, such as employment on larger hold- dependence in many countries upon food ings.151 Under the NAFTA agreement, restric- imports. These now use up more than a quarter tions on US maize imports are being pro- of export earnings in sub-Saharan Africa, where gressively withdrawn, along with price support political elites have long regarded cheap food to Mexican farmers. By imposing a 'free trade' imports as a way of supporting industrial on such unequal contestants in the market, development.149 NAFTA is signing the death knell for millions of Mexican smallholdings. Average yields in The UN's Economic Commission for Africa Mexico are less than a quarter of those in the has called for a renewed emphasis upon achiev- US,152 where farmers benefit not only from ing greater food self-reliance. 'Africa's viability,' production subsidies (which account for a third it wrote in 1991, 'resides, above all other con- of the value of maize output) but also from a siderations, in its being able to feed its own 150 wide range of marketing and irrigation sub- people from its internal resources.' The case sidies.153 It has been estimated that fewer than for improved self-reliance is rooted not only in one in ten Mexican maize producers could the inherent dangers for weak trading compete in an unprotected market. Translated countries of dependence upon volatile world into human terms, this means that the free food markets, but also in the importance of food importation of US maize will displace an staples production for rural employment and International trade estimated 2.4 million peasant producers and majority of people in the developed and the their families from the land.154 The overall effect developing world. The main beneficiaries of will be to destroy the social, ecological, and existing price support policies in Europe and economic foundations of agriculture in some of North America are large-scale farmers (the the poorest areas, resulting in forced migration largest 20 per cent of whom receive three- to cities or to the US. quarters of CAP subsidies),158 agro-chemical suppliers (for whom intensive agriculture provides a huge market), and grain traders Agricultural trade reform (who are given public funds to penetrate world The Uruguay Round agreement and the reform markets). Meanwhile, small farmers continue to of the EU's CAP have been widely celebrated as go bankrupt in record numbers, and intensive the start of a new era in world agricultural trade. agriculture is destroying natural habitats, and In practice, however, the changes introduced creating health hazards for consumers.159 There will be of marginal relevance to world agric- is a growing awareness in the industrial world ultural markets. Briefly summarised, the GATT that food systems are running out of control, agreement comprises three elements: a reduc- although considerably less awareness of the tion in domestic income support by 20 per cent; costs of this to developing countries. a reduction in the volume of subsidised exports A new sustainable agricultural framework is by 21 per cent and in the value of such exports by urgently needed in the developed countries. 36 per cent; and the conversion of all import 155 Currently, price-support systems reward barriers into tariffs. farmers in relation to the size of their output The implementation of the agreement will and land area. These systems should be restruc- produce results which are considerably less tured to encourage less intensive production impressive than the figuresimply . Both the US and lower levels of output, and more ecologic- and the EU claim to have already made the ally sustainable forms of production. Taxation necessary cuts in domestic subsidies, so there on inputs of nitrogen would be one of the most will be no additional reductions.156 The EU has effective ways of reducing productivity. Upper changed the way in which it provides subsidies limits should be placed on the volume of so that, in the arcane world of GATT semantics, production eligible for price support.160 Using they are no longer treated as subsidies (and taxpayers' money to finance over-production therefore not subject to reduction). Under the under a system which increases environmental new CAP regime, farmers are paid income damage, and benefits mainly a small elite, is bad support tied to the volume of land they farm, enough; expecting the same taxpayers to rather than price support for output. Since finance the disposal of surpluses on world mar- income support is treated, under the Uruguay kets in a manner which destroys the livelihoods Round agreement, as distinct from an export of Third World producers is totally unaccept- subsidy, it will be possible to maintain current able. The international framework for food levels of over-production and export dump- security should include: 157 ing. As in the US, the biggest farms in the EU • a provision in the WTO prohibiting the use of will have to take a proportion of their land out agricultural subsidies of cultivation to qualify for price support. • a provision allowing developing countries to Already, however, set-aside, as this system is protect their agricultural systems through known, has shown itself to be highly ineffective trade measures designed to enhance rural as a means of cutting production, as witnessed employment, achieve sustainable environ- by the increase in the EU's 1994 cereals harvest. mental objectives and improve food self- Agriculture is one area of international trade sufficiency. in which there are win-win scenarios for the The Oxfatn Poverty Report

TNCs, foreign investment, and Super 301 was used to force countries such as Brazil, Thailand, Chile and, with more limited intellectual property rights success, China, to amend their own intellectual property codes by bringing them into line with Increased recourse to protectionist measures those of the US.164 Charges were filed under the against developing countries has been one of US trade legislation by powerful companies the defining features of industrial country trade such as American Express, IBM, and Du Pont, policy since the early 1980s. Another has been and invariably upheld by the investigating an increased propensity to use the threat of authorities. unilateral trade sanctions to prise open Third World investment markets, and to enforce the Governments and TNCs intellectual property claims of Western TNCs. The GATT agreement enshrines in multilateral The influence of these companies on the trade law many of the policy changes which the outcome of the Uruguay Round is reflected in US government and TNCs have sought the agreements on investment, services, and through unilateral trade actions. The Agree- intellectual property, where the sovereignty of ment on Trade-Related Investment Measures Third World governments in relation to (TRIMs), for example, will prohibit developing foreign investors has been severely eroded.161 countries from requiring as a condition of The United States has been at the forefront in market access that TNCs meet minimum using unilateral trade threats to secure its requirements for using local materials in the strategic objectives. Under trade legislation production process. Regulations requiring adopted in 1988 — the so-called 'Super' 301 TNCs to meet minimum export requirements, provision of the country's Trade Act — the promote local ownership, or meet minimum Administration declared itself judge, jury, and capital requirements will similarly be phased executioner in deciding whether the US's out. trading partners were adopting 'unfair' trade Discriminatory taxation against foreign policies, and what the penalty should be. Super investors will also be forbidden under the new 301, or the 'crowbar legislation' as it came to be GATT agreement. Restrictions on profit repat- known, was used most conspicuously in an riation will be dismantled under the General attempt to prise open the Japanese market.162 Agreement on Trade in Services (GATS). Such But while the resulting trade tensions between arrangements will accelerate moves towards the Tokyo and Washington grabbed the inter- liberalisation of foreign investment codes. In its national headlines, it was developing countries 1994-1995 budget, for example, India lowered its tax rates on foreign companies as a step which bore the brunt of the US's threatened 165 recourse to trade sanctions. By 1990, more than towards creating a uniform structure. In half of the countries being investigated for many countries, moves towards the liberalis- 'unfair' trade practices were developing ation of foreign investment have been even countries.163 faster than towards trade liberalisation, and will 'Unfair', in this context, referred to a wide now be accelerated by obligations under the range of practices. For example, India was WTO, enforceable through punitive trade charged with denying American financial cor- sanctions. porations access to local banking and insurance markets, which were being protected in the TNCs and investment interests of national economic development. There is no political justification or economic The most frequently cited unfair practice was rationale for a multilateral investment regime the alleged failure of Third World governments so clearly designed to promote the interests of to protect the patents of American companies. foreign investors and TNCs. The new rules International trade were largely written by TNCs such as American developed. Malaysia's technological base re- Express and Citibank, which exercised a mains small and underdeveloped. With the rate powerful influence over the US trade negotiat- of foreign investment beginning to decline in ing position.166 This raises serious concerns the face of rising wages in Malaysia, and new about the distribution of power in international opportunities for low-wage assembly opera- trade negotiations; and about the subordina- tions emerging in China and Vietnam, it is tion of the principles of multilateralism to cor- questionable whether foreign investment has porate self-interest. There are sound economic improved prospects for self-reliant develop- reasons for developing countries to regulate ment. Where investment is concentrated on foreign investment and to subject it to condi- low-skill industries in free-trade zones — as in tions and export requirements which reflect the Dominican Republic — the economic link- national priorities and efforts to achieve greater ages generated, like the financialbenefit s invol- self-reliance. Investment flows determined ved, are negligible. Almost half of the solely by corporate profit objectives are unlikely employment generated by TNCs is in such to achieve the most efficient outcomes for zones. human development, and are likely to prove Although TNC production and exports financially destabilising in some sectors. More- generate revenue, this is often counterbalanced over, to cite free-market arguments in defence by profit remittances and transfer-pricing of the investment rights of TNCs ignores the systems designed to minimise tax liability. The realities of market power, monopoly, and the argument for regulating foreign investment is absence of transparency in the behaviour of reinforced by the experience of some of the most TNCs. As the South Commission has put more dynamic developing countries. In both it: South Korea and Taiwan, for example, foreign investment played a marginal role in support- In a world of monopolies, transfer pricing, and inter- ing economic growth.168 Such investment as was nationalisation of economic processes, measures to allowed, was tightly controlled to maximise the regulate foreign investment are not necessarily trade- benefits of technology transfer and local train- 67 distorting.' ing. In both countries, governments focused on It is true that foreign investment can play an the need to develop domestic capacity through important role in the development process, adaptation, training, and investment in tech- notably through employment creation, train- nical education. What these experiences ing, and the transfer of technology. Trans- suggest is that a far greater degree of autonomy ferred technologies in the form of hardware is required than envisaged under the GATT and machinery can facilitate the production of agreement, so that governments are able to new, higher-value-added goods, and generate adapt foreign investment to local development exports. In Singapore, for example, the emerg- needs. Any equitable multilateral agreement ence of a semi-conductor industry was an must also address other aspects of TNC behav- outgrowth of foreign investment. However, iour, such as transfer pricing, restrictive isolated success stories do not justify the business practices, restrictions of the free flowo f enforced liberalisation envisaged in the GATT technology, and excessive profit repatriation, that impede prospects for more self-reliant agreement. The limitations of foreign invest- 169 ment were demonstrated in Malaysia, where development. Japanese investment boosted exports of elec- tronic equipment; but the local content of these TNCs and intellectual property rights exports has been negligible, there have been The strengthening of the international few linkages with local firms, and no independ- intellectual property rights under the GATT ent design and marketing capacity has been agreement is a similarly one-sided approach, The Oxfam Poverty Report biased towards the interests of the Northern patented seeds with the full weight of inter- TNCs which control over 90 per cent of the national trade law, and the implicit threat of world's patents. Under the Trade-Related sanctions against governments, behind them. Intellectual Property Rights (TRIPs) agree- As a result, farmers could be penalised for ment, developing countries will be required to saving seeds for planting in future seasons, or enforce a patent system modelled on those of for exchange with other farmers.172 the US and the EU. The period of patent pro- Such a regime presents a considerable threat tection will extend to 15 years, which is to the conservation of biodiversity.1" One hun- substantially in excess of existing provisions in dred years ago, Indian farmers grew 30,000 many developing countries.170 Viewed from the varieties of rice. In 15 years' time they will be South, the danger is that, by rewarding mono- growing no more than 15, exposing the country poly through enhanced royalty collection, the to an increasing risk of crop failure. The GATT GATT agreement will further marginalise agreement will accelerate this loss of varieties in developing countries by raising the costs of all countries by placing a premium on uniform- technology transfer. None of today's industrial ity, with potentially irreversible adverse effects countries were subjected to such restrictive on local food systems. This is inconsistent with practices during earlier stages of their own the aims of the Biodiversity Convention, which development; and it is unlikely that they would was signed by 50 states at the Earth Summit. have developed their manufacturing bases if Driven by a growing sense of concern over the they had been. loss of the world's most vital resources, govern- But the intellectual property agreement does ments at the Summit pledged to explore fair not merely concern the interests of TNCs and and equitable ways of sharing the benefits from governments. It is also of profound concern to genetic resources, and of conserving bio- local communities in developing countries. diversity. During 1992 half-a-million farmers marched in The Biodiversity Convention has now been the Indian state of Karnataka to challenge the overtaken by the GATT agreement, which efforts of TNCs to extend, under the auspices of offers a one-sided approach to intellectual a GATT agreement, patents to genetic mater- property protection. Genetic resources from ials. Such a move, they claimed, would rob the South are being widely used in the North to farmers of the freedom to use, reproduce, and improve seeds and plants, generating vast modify their seeds and plant materials. Since revenues in the process. However, the seeds farmers control over 85 per cent of seed pro- patented after modification in Northern labora- duction in developing countries, the issues at tories by TNCs have, in many cases, been devel- stake are part of wider concerns about food oped and modified over centuries by com- security and sustainabledevelopment.171 munities in developing countries. Yet the local Unravelling the implications of the GATT knowledge, innovation, and ingenuity involved agreement is made difficult by the arcane in this process is not regarded, under the GATT language in which it is couched, and by the agreement, as intellectual property. widely divergent interpretations of what it The Uruguay Round agreement has consid- means. However, Oxfam shares the view that erably expanded the rights of TNCs. These the agreement could be used to deny farmers rights now extend beyond the bounds of legiti- the right to use certain seed varieties. Under the mate corporate concern, into areas where they new rules, WTO members will be required to threaten public interest, as starkly illustrated by provide for the protection of plant varieties the TRIPs agreement. Once again, the GATT either through patents, or through an effective agreement in this area was effectively written by national system of royalty collection. In either powerful corporations, such as Du Pont and case, companies will be able to pursue claims on IBM, which formed an Intellectual Property International trade

Coalition to influence the outcome of the in the US has developed a 'unitary tax' Uruguay Round."4 The resulting system priori- structure. This establishes its right to tax TNCs tises Northern interests, enlarging and by calculating the value of local operations as a strengthening, in the name of 'free trade', the proportion of their global activities. As a power- monopolistic rights of sellers of technology. ful economic entity in its own right, this is a This expansion of rules governing intellectual viable option for California; but it would hardly property rights will have significant adverse be feasible for, say, Honduras, to follow such an effects for developing countries. In particular, it option. This suggests the need for enhanced will reduce their capacity to afford, absorb, and regional co-operation and international mech- adapt new technologies, widening the distance anisms for assessing tax liability."5 between themselves and the knowledge- Public interest would also be strengthened intensive production systems of the industrial- through multilateral agreements and codes of ised world. conduct. Efforts to develop a binding code of As an urgent first measure of reform, it is vital conduct for TNCs began in the early 1970s, but that the GAIT agreement is made to comple- were effectively abandoned in 1994 in the face ment, rather than supersede, the Biodiversity of opposition from Northern governments. Convention. The WTO's Committee on Trade Such codes can play an important role in sup- and Environment should establish a review porting the efforts of TNCs attempting to procedure for examining the implications of develop socially responsible forms of invest- the TRIPs agreement in consultation with the ment. On the other hand, voluntary arrange- relevant UN bodies, NGOs, and local com- ments are inadequate where public health and munities, as well as industry. At the same time, safety is concerned. Several European and US new mechanisms of development assistance are TNCs openly violate codes of conduct agreed needed to facilitate the transfer of technologies with UNICEF and the World Health to developing countries, allied to measures Organisation for restricting the promotion of which curb the restrictive practices of TNCs in infant formula. Their activities are a contribut- relation to technology transfer. More generally, ory cause of the deaths of over one million the globalisation of investment and business babies annually, who would have lived had they requires new structures of public account- been breast-fed. Such practices ought to be ability, scrutiny, and control to ensure that the subject to judicial proceedings in the home legitimate concerns of consumers, producers, countries of the TNCs involved. In the case of and governments are not overridden by remote production processes involving hazardous toxic multilateral bodies, such as the WTO, which substances, TNCs should be subject to laws as predominantly represent the commercial least as stringent as those applying in their interests of TNCs. home countries, and be subject to prosecution The UN Restrictive Practices Code is a step in at home when they violate such laws elsewhere the right direction, but is too weak. Under the in the world. original Bretton Woods proposal for an International Trade Organisation, there was to be an anti-trust body with surveillance powers. An agenda for reform of world trade Such a body now needs to be established as an independent part of the WTO, with the author- Under the Uruguay Round, the power of ity to investigate transfer pricing and other policing and implementing the international malpractice. Co-operation is also urgently trading system will pass to the World Trade required on the issue of taxing multinationals. Organisation. This will enjoy a far wider remit Faced with the problem of foreign corporations than the GATT, with its authority extending under-reporting profits, the state of California into areas such as financial services, investment, The Oxfam Poverty Report intellectual property, and agriculture, prev- and environmental concerns. The WTO should iously either beyond trade rules, or weakly be required to co-operate closely with UN covered by them. agencies, including the Commission for Oxfam is in favour of a strong, supranational Sustainable Development (CSD), the Inter- body to oversee world trade. But it shares with national Labour Organisation, the UN Devel- its partners a serious concern both about the opment Programme, and the UN Conference rules underpinning the WTO, its account- on Trade and Development. Observer status ability, and its relationship to other inter- should also be granted to NGOs and citizens' national bodies and treaties. organisations, whose important role was Under the post-Uruguay Round regime, the acknowledged in Agenda 21. WTO will become a formal part of the Bretton It is to the credit of trade ministers that they Woods structure, interacting with the World are now attempting to examine trade principles Bank and the IMF, in a triumvirate of institu- which go beyond celebrating the virtues of tions which will effectively govern world trade market deregulation, notably with regard to the and finance. However, the WTO has a narrowly- environment and labour rights. New frame- defined free-market remit designed to expand works for trade policy are urgently needed in trade without reference to wider social, both areas. However, these too must be devel- economic, and environmental implications. oped in a broader institutional context. Res- One way of redressing this would be to make ponsibility for developing and implementing a the WTO answerable to the United Nations, social rights agenda should reside with the ILO through regular reports to the Secretary- and its specialised committees, which have an General, the General Assembly, and the established track record in monitoring com- Economic and Social Council. While this would pliance with standards. Meanwhile, the existing not, in itself, imply a fundamental shift in power WTO Working Party on Trade and the and authority, it would at least ensure that Environment should be administered under international trade issues were debated in a the CSD, and expanded to include environ- context where the views of small states carried ment ministers and environmental experts. more weight. Moreover, the moral authority of One of the keys to greater accountability in the UN and its influence on international international trade is improved access to opinion would inevitably have a bearing on the information. It is wrong that WTO trade dis- policy orientation of the WTO. putes panels should continue in the GATT Closer integration into the UN system is tradition of meeting in secret and arriving at important for the WTO, not least to address the judgements made available to the public only widespread concern among people and gov- after a long delay, or not all. In some cases, these ernments in the South that the WTO will unselected and unaccountable panels will have become, like the GATT, an instrument through the power to demand changes in policies and which the industrial countries impose their own standards set by democratically elected legis- strategic trade agendas. While formally demo- latures, without reference to public opinion. All cratic, the WTO will reflect the imbalances in meetings of the WTO, including those of its trading power between the North and the trade disputes panels, should be in public and South, with the world's poorest countries ex- governments should be required to report cluded to the margins of decision-making. This regularly to national parliaments on their is not the way to bring about co-operative positions. management of global economic inter- Improved structures of accountability are dependence. critical to the credibility and the future of multi- It is equally important that the WTO's remit lateralism. But accountability alone will not does not lead to the marginalisation of social ensure that trade becomes fairer and more International trade sustainable. As we have argued in this chapter, 'Bridge' programme, Oxfam provides a market wider action is needed to address the inter- for Third World producers, paying fair prices locking problems of low commodity prices, and purchasing through organisations which Northern protectionism, and the dumping of ensure that the bulk of the price reaches the agricultural exports. The fact that such issues producers. The name 'Bridge' aptly sum- were not dealt with in the Uruguay Round marises the aim of linking producers in the demonstrated the extent of the domination of developing world to their customers in the the GAIT by the industrialised countries. So North on more equitable terms. Oxfam did their success in forcing on to the GATT supports the efforts of local producers in agenda, against the almost universal opposition various countries to gain more control over of developing countries, the new issues of trade their production, for example by improving in investment, financial services, and intellec- their access to credit and information. tual property. The agreements in all of these Today, Bridge goods are sold in over 600 areas could severely hinder the efforts of Oxfam shops in Britain and Ireland, and pur- developing countries to foster more self-reliant chased by almost one million people annually. and sustainable development. Over 80 per cent of these goods are handicrafts, Finally, mechanisms must be found to regulate produced mostly by women. In 1993/1994, the growing power of TNCs. The Uruguay over £3m was paid out to 293 producer groups, Round agreement will give an important representing a significant transfer of resources impetus to the foreign investment rights of to the poor and an investment in their liveli- TNCs. What is needed is an international com- hoods. mitment to restoring the rights of workers to By providing a market, Bridge helps to minimum standards of welfare. These rights, ensure that money gets into the hands of based upon existing UN Conventions, should be women, whose labour is often unpaid. Apart enshrined in the WTO and implemented along- from the direct economic benefits, this helps to side wider measures to enforce greater trans- improve the status and self-esteem of the parency and accountability on the part of TNCs. women involved, and provides a means of Change at an international level is vital; and ensuring that children are fed and clothed. public pressure, exercised through consumer Bridge expects producer groups to adhere to choice, can also act as a force for change. certain criteria: including sensitivity to gender Consumers can make a difference by buying issues, avoidance of bonded labour, support for fairly-traded goods and demonstrating concern people with disability, and a responsible to major retailers over the sourcing of products, approach to child labour. In return, producers including the conditions under which they are receive a fair price and support with marketing, produced and the prices paid to producers. In design, and product development. this way, consumers in the North can help to bring about tangible improvements to the live- Aj Quen lihoods and rights of poor producers. Below, we Aj Quen, or 'weaving together', is Bridge's main describe the work of Oxfam and others to bring partner in Guatemala. It was established in the issue of fair trade before a Northern 1989 by a group of weavers, tailors, carpenters, audience. basketmakers, potters, and other handicraft producers in an effort to break out of poverty and establish a sustainable foundation for Oxfam's work for fair trade livelihoods. Eighty per cent of the producers with which Aj Quen works are women, many of Oxfam is working for change in international them widows whose husbands have been killed trade at a number of levels. Through its in conflict and violent repression. The Oxfam Poverty Report

In 1993/1994, Bridge purchased £30,000 amarradores, using a revolving credit fund to worth of orders from Aj Quen. This has brought provide cash advances which reduce the need social and economic benefits, even though the for forced sales in the immediate post-harvest average income per producer remains low period. In 1993, PRODECOOP was paying because the tailoring skills of many of the prices some three times higher than those groups need to be developed. offered by the amarradores. It was able to do so The purchase of good quality raw materials partly because it provides a higher proportion will help to change this. But the project cannot of the final price to the producers, and partly be measured solely by its economic returns. because it has the storage capacity to keep the Each year hundreds of women make long and coffee until prices increase later in the difficult journeys by foot and bus to take part in marketing year. annual meetings, giving them a sense of control Such market interventions, which figure over the co-operative and their own lives. At the increasingly prominently in Oxfam's work, same time, Aj Quen has invested in providing bring immediate and obvious benefits to literacy centres, expanding the opportunities producers. In El Salvador, Oxfam supports the for employment outside the home. Agrarian Reform Growers' Association, an umbrella organisation comprising 17 small- Trade in commodities holder co-operatives. Like PRODECOOP in Around 15 per cent of Bridge's sales come from Nicaragua, the association provides credit and food products such as coffee, tea, honey, and information to smallholder farmers. But it also spices. These are all competitive markets, provides processing facilities, which adds value where Bridge is up against the big-name brands to the coffee beans before export. This increases available on supermarket shelves, as well as low- the share of trade revenue going to local priced private labels. In order to compete, households and the local economy, and reduces Bridge promotes the fair-trade value of its the transfer to large companies in the North. products to consumers. There is increasing acceptance in the market that producers have a Cafedirect right to a reasonable standard of living, that Bridge has joined forces with three other realistic prices ensure sustainability of produc- alternative trade organisations to market a new tion, and that fair trade can be more effective brand of coffee, Cafedirect. As its name than aid in supporting the development of suggests, the coffee is purchased direct from communities. small farmers, who receive a price linked to the As in other countries, the coffee market in minimum floor price previously defended by Nicaragua is dominated by giant transnational the International Coffee Organisation. When companies. Working through local buyers, Cafedirect was launched during the trough in known as amarradores, these companies attempt world coffee prices, producers were paid $1.20 to buy their coffee as soon as possible after the per lb. Had they been selling in the inter- November-December harvest, when prices are national market, they would have been paid at their lowest. Smallholder producers have around 65 cents per lb. little choice but to sell at that time because they Cafedirect costs more than some of its lack storage capacity and have immediate cash competitors, but it has proved popular with needs, for school fees, clothes, and to purchase consumers; so popular that it is now stocked in next year's seeds. Many producers sign advance all the main supermarket chains in the UK. Its contracts with the amarradores before the success underlines the willingness of many harvest. consumers to pay slightly more when the PRODECOOP has intervened to challenge benefits go to producers. It also underlines the the powerful bargaining position of the extent to which consumer power can act as a International trade

positive force for change in international trade. from cocoa grown in Belize, which is already penetrating consumer markets with some Honey bees success. Oxfam also sells organic coffee from The forests of Zambia's remote North-western Peru. Province provide a source of livelihood for an Oxfam Trading is concerned to promote estimated 10,000 beekeepers, whose ancestors organic brands for several reasons. First, have been producing and trading honey since consumer preference is creating a growing the twelfth century. But in recent decades, they market for crops produced without the applica- have suffered from a combination of neglect tion of chemicals and pesticides. Second, the and misplaced policies by companies more marketing of organic produce can provide concerned with making short-term profits than support to traditional farming systems, where supporting sustainable livelihoods. producers are often unable to afford the chem- In the early 1990s, Oxfam responded to an ical inputs needed to exploit high-yielding initiative by the region's Beekeeping Assoc- hybrid seeds. Finally, the promotion of organic iation to set up a small company, the Uchi methods of production offers one route to the Trust, to purchase shares and represent their attainment of more sustainable and self-reliant interests in a company called North-western agricultural systems. Bee Products (NWBP), which controls the This is not to suggest that organic production production and marketing of honey. This has is an easy option. For example, the withdrawal had tangible effects on the prices they receive. It of chemical applications means that weeding has also enabled them to explore wider and pest control makes increased demands on marketing opportunities at home and abroad. labour time; and labour is a commodity in short For example, NWBP is now promoting supply during key periods of the agricultural sustainable forest management schemes, and season in most developing countries. However, has been given an organic certificate for the producers in many of the co-operatives with honey it purchases. This has enabled the which Oxfam works are expressing a growing company to penetrate Northern markets more interest in this option and are receiving support effectively by meeting consumer demands for for their efforts to meet organic standards. products produced without artificial chemicals. More recently, Oxfam has supported NWBP Removing obstacles to fair trade efforts to encourage diversification into crops It is now widely accepted that fair trade requires such as groundnuts, sesame, and castor. intervention to assist producers, to reform local Because honey harvests can vary enormously and international marketing systems, and to from year to year, depending on the rains, expand consumer markets. Along with other production of these crops will increase security. fair-trade organisations and development The aim is to maximise the value retained in agencies, Oxfam is improving its project inter- the forest economy by processing the seeds into ventions in support of producers, and investing oil, which will be marketed through local in more effective marketing. The overall aim is traders. NWBP is also exploring the possibility to shorten the chain between producers and of the local community producing timber goods consumers, and to maximise the returns to the for sale to Oxfam's Trading Division, which has former.176 been buying substantial quantities of honey. However, the trade policies discussed in this chapter constitute an obstacle to the creation of Organic production a fairer trading system. For example, because Honey is one of several organic products the organic coffee imported by Oxfam is marketed by Oxfam. 1994 saw the launch of processed in Mexico, it is subject to a far higher Maya Gold, an organic brand of chocolate made tariff than coffee beans. Such a tariff discour- The Oxfam Poverty Report ages local processing and protects the markets The fairtrade Mark and its counterparts (Max of powerful domestic food conglomerates. Havelaar and Transfair in other European People in the North can act as a powerful countries, and a similar scheme being prepared force for change both by campaigning for fairer in Canada) open a new avenue of action and trade policies and by exercising their power as bring a new power to bear in favour of greater consumers. After nearly 30 years of direct justice in trade. They provide a guarantee that involvement in alternative or producer- the product in question gives 'a better deal' to friendly trading, Oxfam saw the need to help to the workers or small producers, and therefore promote fair trade beyond its own shops and an opportunity for consumers to exercise catalogue, in the mainstream consumer positive choice. In this way, shoppers at the market-place. The device specially developed check-out point in Northern supermarkets can for the purpose in the UK is the Fairtrade Mark. make common cause with peasant farmers' Together with other development agencies, organisations and producer groups in the Oxfam is a founder member of the Fairtrade South in bringing about fairer trade. Foundation which administers the Mark. The Foundation licenses the Mark to endorse commercial products which need to satisfy strict criteria on terms of trade and conditions of employment in developing countries. In 1994, its firstyear , the Mark was licensed to brands of tea, coffee, and chocolate, which are all on sale in major supermarkets.