Global Crisis and the Developing World: The Slump-Unlike the Preceding Boom-Is Only Too Inclusive

By Ghosh, Jayati | Soundings, Spring 2010 | Go to article overview

Global Crisis and the Developing World: The Slump-Unlike the Preceding Boom-Is Only Too Inclusive


Ghosh, Jayati, Soundings


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Developing countries have never been immune to the storms that rage in financial markets in industrial countries, or to the impact of recession in the core of capitalism, but the recent period is somewhat unusual in the history of global capitalism. For most of the past century, business cycles in advanced economies were not reflected so sharply in simultaneous movements in developing countries, or were generally confined to only a small set of countries. But the recent economic trends have been marked by significant synchronicity of movement across the different regions of the world economy. The difficulties have been particularly extreme in certain regions, such as eastern and central Europe, which were until recently the 'beneficiaries' of large amounts of inflows of speculative finance capital; these have created domestic bubbles not unlike the larger and more dramatic one in the US. But all regions of the developing world have been affected to varying degrees by this particular crisis.

This sharp and almost immediate transmission of recessionary tendencies is strongly related to the various forms of economic integration that have been generally induced by policy changes across the world during the years of globalisation, in both developed and developing countries. As a result, there are now several transmission mechanisms operating to spread the crisis, including exports of goods and services; capital flows; patterns of migration and remittances; and sharp changes in world trade prices of important essential items like oil and food.

Among developing countries, China and India were widely seen to have 'decoupled' or delinked from the North, and as having their own autonomous growth trajectories. It was even believed that this could make them an alternative growth pole in the world economy. But the past year has belied such perceptions, as the first negative impulses from finance and trade caused even China and India to show similar trends of sharply declining growth rates of GDP. The relatively rapid current recovery of the Chinese economy, which reflects the impact of the fiscal stimulus and other recovery measures such as massive credit expansion, conceals the continued and fundamental dependence of the current Chinese accumulation strategy on Northern markets.

What has made the impact of the crisis worse in many developing countries is that it occurred after (and because of) an extremely imbalanced boom that was based upon, and intensified, inequalities, with the poor of the world subsidising the rich, both nationally and internationally. The financial bubble in the US attracted savings from across the world, including from the poorest developing countries, so that for at least five years the South was transferring financial resources to the North. Developing country governments opened up their markets to trade and finance, gave up on monetary policy and pursued fiscally 'correct' deflationary policies that reduced public spending. This meant that development projects remained incomplete and citizens were deprived of the most essential socio-economic rights, even in peripheral economies that were supposedly benefiting from the export boom.

Flows of capital and jobs

Despite popular perceptions, a net transfer of jobs from North to South did not take place during this period. In fact, industrial employment in the South barely increased during the past decade, even in the 'factory of the world' China. Instead, technological change in manufacturing and the new services meant that fewer workers could generate more output. While there have been significant changes in the forms of work, the recent capitalist boom was associated with hardly any net employment creation in the periphery. Old jobs in the South were lost or became precarious, and the majority of new jobs were fragile, insecure and low-paying, even in fast-growing China and India. One major shift has been the expansion of self-employment, typically in marketed but 'informal' activities, reflecting the absolute shortage of paid work, and the outsourcing of work to lower and lower levels. …

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