Why is the Global South Still Poor?

Development is not a new concept, but the meaning of development changed drastically after the end of World War II. One major challenge here was that now development had to be done without colonisation. “In the post-colonial era, Third World states could not repeat the European experience of developing by exploiting the labour and resources of the other societies.”^[1] This article is an attempt to find out why the Global South is still poor as compared to the Global North and the impact of neoliberal globalisation on the countries of the Global South. Global South and North here are not to be understood as geographically north and south countries. Rather Global North refers to relatively powerful and wealthy nations such as the USA, the UK, Canada, Japan and other European nations and Global South refers to countries from Africa, Latin America, Asia and the Middle East.^[2] This article is divided into three sections.

The first section will look at the era before post-colonialism. The playing field for the race of development was different for each state. Section two will focus on the era of neoliberal globalisation which gave rise to free market and trade liberalisation. Impact of the  Bretton Woods system, the IMF and the World Bank. How did the countries deal with this change and how did it affect them? The third section will look at the relation between neoliberal global institutions, their claims of working towards poverty, and inequality reduction, the continuing debt crisis and the subjective reality which might explain why the Global South is still poor.

From colonies to weak states: 

At the start of the 20th century, the British Empire comprised nearly a quarter of the landmass and population of the earth.^[1] During this time Germany, Austria-Hungary, France, Russia and the Netherlands also depended on imperialism to build their wealth. The empires were notorious for the way they used to deplete the colonies to fuel the European industrial revolution. Take the example of the textile city of Dacca ( Dhaka) then in India, now the capital of Bangladesh.  When the British first arrived in the mid-eighteenth century to Dacca, Robert Clive described it as “extensive, populous, and rich as the city of London.”^[2] Sir Charles Trevelyan described the same Dacca population and city as “has now fallen from 150,000 to 30,000 and the jungle and malaria are fast encroaching upon the town…Dacca, the very Manchester of India, has fallen from a very flourishing town to a very poor and small town”^[3] in front of the British Parliamentary Committee in 1840.

Though earlier development was a European concept, states outside Europe had a different way of living. Non-European states had fewer borders, there was little to no concept of the nation-state and the population lived in small ecological groups. These groups depended on the local flora and fauna and agriculture was practised accordingly. After colonisation agriculture was often reduced to a system of export. The farmers produced crops and plantations which could be exported more hence coffee, sugarcane, peanuts and rubber were produced more. This system interrupted centuries-old patterns of diet and cultivation. Only commercial food was grown, what was grown had no connection to what was eaten and money for the first time decided who ate what and if.^[4]  “In India, production of commercial crops such as cotton, jute, tea, peanuts, and sugar grew by 85 per cent between the 1890s and the 1940s. In contrast, in that same period, local food production was reduced by 7 per cent while the population grew by 40 per cent, a shift that spread hunger, famine and social unrest.”^[5]

Colonialism impacted the environment and its degradation, spread of diseases, ethnic rivalry and a lot of human rights violations. Territories in present-day India, China, Singapore and Malaysia were forced to cut rainforests so that rubber could be grown. The devastating cost to humans and the environment was ignored for diamond, ivory, oil, bauxite mining and timber production in West and South Africa.^[1] “Taxes imposed on Swazis, drought conditions, and the exportation of Swazi crops led to famines that left the Swazi people vulnerable to malaria infection.”^[2] It created an uneven distribution of resources between various tribes which led to growing resentment, class differences and unhealthy tribalism between them which still affects the growth and development of many African states. Britain colonised Nigeria, Germany colonised Rwanda, and France colonised Cameroon. The world saw the impact of this during the Rwandan genocide (1994) and the Nigerian Civil War (1967-1970)^[3] in the form of bloodshed and tears.

After the devastating damages of World War II, many colonies achieved independence. This simultaneous process of decolonisation and independence happened because of a few reasons. Firstly, the superpowers (US and Soviet Union) were in the Cold War where the power and might were exerted by ideological, economic and military means and need not require “colonies” as such. Secondly, the war was expensive and bloody and it would require more of that money and people to fight against indigenous people and to maintain the colonies.^[4] Thirdly, “colonial rule generated a politics of decolonisation, including class conflict, identity/cultural claims. and the desire for equality and sovereignty”.^[5] It was a paradox, the very same powers which were fighting for and supporting the sovereignty of Poland, the Netherlands and Czechoslovakia (now Czech Republic and Slovakia) were against the colonies which they ruled and wanted freedom and sovereignty from them.  Decolonisation took part in various phases. In South Asia with India, the British Crown lost half of the empire losing 388 million subjects. The Philippines (1946) and Indonesia (1949) also got independence. Between 1945 and 1960 over thirty-five new states of Asia and Africa achieved autonomy of independence from their European Colonists.^[6]

My intent with this section is to show that though all the nations needed to pivot to carry on or start “the development project”, the pivot for nearly a third of the entire world was very different from the countries of Global North. The starting line of the race to become a developed nation was not the same for all nations and there was no level playing field. These newly independent countries now had more borders, the states were deformed, they had no government or constitution, the local ecosystem was challenged, there was little to no money as many worked as slaves or were taxed highly and lastly they now had more ethnic/religious rivalry.

From “Development Project” to “Globalisation Project”:

The decades following World War II were of huge turmoil. Superpowers were now in a Cold War. Ex-colonial countries were working towards “nation building” and the Axis and Allies countries were recovering from the damages of the war. Development became a worldwide strategy when many countries accepted development as an antidote to colonialism. A speech given by President Harry S Truman on January 20, 1949, proclaimed this divide between modern and non-modern states. Development and modernity became the topic of discourse suggesting that the ex-colonies were backward but they could also develop with the help from the First World.^[7]

The U.S. spearheaded two initiatives, the bilateral Marshall Plan and the multilateral Bretton Woods system to reconstruct the global economy. The IMF and the World Bank (then International Bank of Reconstruction and Development) were the two major global institutions as the product of the Bretton Woods system with very specific tasks. The IMF was to disburse credit where needed, stabilise national currency exchanges and revitalise international trade. The World Bank helped with large-scale loans to states for national infrastructure projects such as dams, highways, and power plants, complementing smaller-scale private and public investments.^[8]

The “development project” worked in different ways from the 1940s to the 1970s and had multidimensional impacts:

●       First of all, it worked as a strategy to expand the values of liberal democracy as an alternative to communism practised by the Soviet Bloc (Second World). The countries of the Soviet Bloc were not a part of either the Marshall Plan or the Bretton Woods system. This gave the US an edge as more countries were aligned to its values.

●       Second, “development” was also working as a restoration of capitalism of the First World as they found new resources from the Third World countries.

●       The Bretton Woods system allowed the transfer of funds to the regions in need of money to increase their purchasing power. This also allowed the Third World to increase trade and stimulated economic growth.

But the system also impacted heavily on the states seeking funds from the US. It was seen as a universal plan to develop. The major issue here was with the perception of the Third World governments which had forgotten to take into consideration that Europe had taken several centuries to develop. No matter how rapid industrialization happened in the Third World, the capital was not enough to help the poor labour and marginalised communities.

Funds from the IMF were based upon “certain conditions” requiring countries to change their economic policies to receive funds. “From Africa to Latin America to Asia, loans were tied to the balancing of government budgets, the privatisation of state-owned industries, the removal of regulations, and the lowering of tariffs.”^[9] The conditionality was also not the same for all the nations, few had more power and privilege. “This was made clear in 1967 when Britain was granted a $1.4 billion stand-by arrangement with more lenient terms than most borrowers in the “developing world” enjoyed. Fearful of the political consequences of accepting conditions, British officials claimed that the United Kingdom was entitled to a degree of insulation that other countries were not.”^[10]

The World Bank emphasised “productive” investments in the field of export and energy solutions. Social investments such as housing, sanitation, education and health services did not appeal to the World Bank. These were the services which would matter the most to an underdeveloped society. Poverty breeds crime, people dropping out of school, premature parenting and their children growing up in poverty, it affects the health of the community. Building transportation, power systems and dams had less impact on these problems. The Third World elites had no other way than to accept what the IMF and the World Bank suggested which was in a way catering to the First World agendas. In 1972, the Organisation for Economic Co-operation and Development (OECD) reported, “It has become more and more clear that measures designed to help developing countries as a group have not been effective for [the] least developed countries. They face difficulties of a special kind and intensity; they need help specifically designed to deal with their problems.”^[11]

The late 70s and early 80s were the decade of the West focusing on containing Soviet and Chinese power. The neoliberal agenda of free markets and privatisation took over in the US and the UK. This allowed free market capitalism, limited government spending and public ownership and imposed harsh austerity policies which allowed the governments to reduce their deficit, increase indirect and corporate taxes and cut public sector jobs (Reaganomics and Thatcherism).  The IMF began rolling out Structural Adjustment Plans (the Baker Plan) within developing economies on conditions of privatisation of public assets, deregulation of capital markets and trade, and cuts to rates of corporate and personal income tax.^[12]

The stage for globalisation was set. Industrialisation was expensive and so was the required technology for it. Hence except for South Korea, Taiwan and Hong Kong as they developed quickly and soon became East Asian semiconductor hubs for US firms, other Newly Industrialising Countries (NICs) from Asia and Latin America shifted towards Export Oriented Industrialisation (EOI). For the First World, EOI became the means of relocating the manufacturing of consumer goods, machinery and computers to the Third World. Third World was ready for this as they had cheap and unorganised labour and gave corporate concessions. At the same time, First World consumption intensified mass consumption with the growth of shopping malls and fast food outlets. Global consumers shook hands with the global labour force. Global Value Chains (GVCs) came into existence, and Transnational Corporations (TNCs) started spreading to the South which led to the commodification of goods. What the world knew as nation nation-focused “development project” now had turned into a capitalist industrialism-focused “globalisation project”. ^[13]

As soon as the globalisation project took off, a major crisis from the 70s loomed and took over the Third World. The “debt crisis” had its roots in the accumulation of substantial amounts of external debt by Third World countries during the 1970s. The crisis strengthened the grip of the IMF and the World Bank as the individual national policies were subjected to external First World policymakers. The response to this crisis from the IMF and World Bank fell hardest on the poorest and least powerful social classes of the South. “The IMF insisted upon punitive interest rates to meet targets for lowering inflation. Social welfare provision and poor people’s access to health care and education have been eroded by reductions in public expenditure.”^[14] The World Bank on the other hand introduced “social safety schemes” for the Caribbean, Latin American and African countries but these schemes bypassed communities with least resources and neglected gender differences.^[15] Countries from the Third World had to take more loans to repay their earlier loans. Soon debt crisis became a regime. A result of this was compiled in Oxfam (UK and Ireland) report^[16]:

●       In Latin America, per capita incomes dropped by 10 per cent and investment fell from 23 per cent to 16 per cent of national income during the 1980s.

●       In Africa, average incomes fell by 20 per cent during the 1980s, open unemployment quadrupled to 100 million, investment fell to levels which were lower than in 1970, and the region's share of world markets fell by half, to 2 per cent.

●     In India, the Department of Rural Development cut its social expenditure budget in the first year of the country's stabilisation programme. This was followed in 1992-1993 by a 46 per cent cut in the rural sanitation budget and a 39 per cent cut in rural water supply spending — areas of social expenditure which are vitally important in any programme aiming to reduce poverty.

This does not mean that the policies of the IMF and World Bank had no positive impact on countries. Certainly, countries like China, Hong Kong, Taiwan, Indonesia and Brazil were showing good progress. Asian countries like China, Hong Kong, Malaysia, Indonesia, the Philippines, Singapore and Thailand managed to have stable growth even after the Asian financial crisis of 1997.^[17]  Neither does it mean that the IMF and the World Bank are responsible wholly for this debacle, other reasons include state interventions, corruption, over-military spending and continued instability of the governments to achieve development as they perceived it. However, adjustment policies were a significant factor in putting the world’s poorest countries into a “lost decade” of economic recession and neglecting human welfare in the 1980s. By 1992 more than 80 countries privatised nearly 7,000 public enterprises like water, electricity or telephone.^[18] Neoliberalism was spreading from the Global North to the South. These countries needed a coherent development plan which acted on reducing poverty and improving human development instead of an “export-led”, free market and high-interest loans - development plan. Especially the poorest countries as a huge part of their economy were dependent on mere commodities such as rubber, coffee and cocoa.

Linking globalisation, tightening debt and austerity:

Reducing poverty and inequality has been central to the IMF and the World Bank. Supporters of neoliberalism will also say that there has been a reduction in the number of people in poverty over the past few decades. The same is true with income inequality as well many will say that it has been reducing as well. But trends and data from across the world suggest otherwise.

While over 600 million people have come out of poverty between 2000-2011. Most of them are “barely” out of poverty. What is also more important here is to have a closer look at where these numbers are coming from. The rise in these numbers is from certain regions like China, Eastern Europe and South America. In 2011, only 16% of the world’s population was living on $20 or more daily. Most of these people are from advanced economies of North America, Europe and Asia-Pacific. This is not to suggest that developed economies don’t struggle with poverty and income inequalities but these numbers are far better than the South. 56 per cent of the population globally are of low income (they earn between $2-10 per day). On the other hand, the rise in the people in upper middle income and high income is too low.^[19]

Reducing poverty and income inequality is very important for any society. Economically such measures build a healthy human capital development. This allows society to access health care and education, it contributes to making a strong workforce which is essential for sustainable growth. Socially, it promotes stability and inclusivity. Less economic disparity reduces tensions which might arise from it. What also needs to be understood is that these measures are helpful to the poorest the most.

While blaming the IMF the World Bank and other neoliberal institutions completely for this would be wrong, one needs to consider the significance of these institutions and their policies on countries. The policies imposed by these global institutions are intended to restore fiscal health. Instead, they often put the people and economy in “shock therapy”.^[20] This can lead to increased poverty and widening income gaps, as the society comes under a burden as there are limited resources. Also losing wealth for a country can be just a matter of some months but rebuilding wealth and growing economically is a more time-consuming and coherent process which also can’t always be replicated. Social spending cuts affect the poor and vulnerable, limiting their access to essential services like food and health. Austerity can exacerbate income inequality. Reduction in public sector jobs and increase in public unemployment hits people of lower income more while the wealthier individuals may have more resources to survive on.

Consider the example of Egypt. Between 2016 and 2022 Egypt borrowed four times from the IMF. The most recent loan of $3 billion taken in 2022 still risks austerity and corruption. This led to food inflation rising by 37 per cent from the previous year (2022). Since 2016, government spending has declined from 11.43 per cent to slightly below 8 per cent of GDP, incorporating reductions in fuel subsidies, and an increased cost of living. As of January 2023, the debt-to-GDP ratio stands at 88.5 per cent.^[21]

In Argentina, measures implied by the IMF have impacted negatively on its people and its currency. This has led to rising poverty rates and increasing unemployment and food inflation. Argentina’s economy reports longstanding structural reforms making its public finances very fragile. Argentina is the largest borrower of the IMF (over $100 billion) and additional loans are making the debt-to-GDP ratio over 80 per cent and its crisis remains far from over.^[22]

Countries like Sudan (127.5 per cent), Ghana (88.77 per cent), Pakistan (75.75 per cent), Ukraine (83.12 per cent) and Sri Lanka (117.6 per cent) have defaulted or frozen their debt payments because of high debt-GDP ratio and have serviced more loans to pay off earlier loans^[23]. The debt crisis which started in the 1980s is continuing but the world has stopped talking about it.

To evaluate all the countries that have borrowed from the IMF, and World Bank and the impact of their policies is beyond the scope of this article. However, research^[24] done in this domain shows a trend of rising poverty when the policies are implied. The reforms involve deep and comprehensive changes that tend to raise unemployment, lower government revenue, increase costs of basic services, and restructure tax collection, pensions, and social security programmes.

Conclusion:

Colonialism robbed the countries of their natural wealth. It left millions in poor conditions, destroyed the environment and increased tensions among people on religious and ethnic lines. It created an uneven playing field for the countries to develop with or without the help from the First World countries. Development is not a “catch-up” but it has always been perceived to be that.  The help in the form of policies and aid from neoliberal global institutions might help the borrowing countries in the short term but they impact heavily on the people of lower social class and the overall debt of the country. The very same funds countries take as help to develop themselves end up putting them in a debt crisis which makes it further difficult to develop. It is true to some extent that globalisation has helped millions to come out of poverty. But these developments are region-specific more than country-specific. Also while millions might be out of poverty they are still very poor. The globalisation model is not a “one size fits all” model, nor can it be replicated as each nation comes with its own sets of problems. Countries of the South have been facing severe debt crises since 1980 and they continue to do so. Consider the factors of Covid, food inflation and climate crisis and it becomes more difficult for developing countries. The IMF, WTO and World Bank need to come up with coherent plans that help countries on a case-by-case basis to develop and further the agenda of the Global North.

^[1] John Doe, "Earth Day: Colonialism's role in the overexploitation of natural resources," The Conversation, April 22, 2023.

^[2] John Doe, "Did you know? Colonialism is responsible for the spread of malaria," McGill University, Office for Science and Society, March 15, 2022.

^[3] Eugene Obiora Eugene and Jeremiah Uko Akpe, "The Nigerian Civil War of 1967-1970 and the Rwandan Civil War/Genocide of 1994: A Comparative Appraisal of Post-Civil War Peace Building in Nigeria and Rwanda," Journal of Comparative Politics 25, no. 3, 2023.

^[4] Magdoff, H., Nowell, . Charles E. and Webster, Richard A.. "Western colonialism." Encyclopedia Britannica, December 18, 2023.

^[5] McMichael, P. Development and Social Change : A Global Perspective, by Philip McMichael, 5th ed. Los Angeles: SAGE, 2012.

^[6] U.S. Department of State, “Decolonization of Asia and Africa, 1945–1960”, Office of the Historian, accessed January 3, 2024.

^[7]  McMichael, P. Development and Social Change : A Global Perspective, by Philip McMichael, 5th ed. Los Angeles: SAGE, 2012.

^[8] McMichael, P. Development and Social Change : A Global Perspective, by Philip McMichael, 5th ed. Los Angeles: SAGE, 2012.

^[9] Martin, Jamie. The Meddlers : Sovereignty, Empire, and the Birth of Global Economic Governance, 2022.

^[10] Martin, Jamie. The Meddlers : Sovereignty, Empire, and the Birth of Global Economic Governance, 2022.

^[11] Brett, E. A. The World Economy Since the War : the Politics of Uneven Development. London: Macmillan, 1985.

 ^[12] Chorev, Nitsan, and Sarah Babb. “The Crisis of Neoliberalism and the Future of International Institutions: A Comparison of the IMF and the WTO.” Theory and Society 38, no. 5, 2009.

^[13] McMichael, P. Development and Social Change : A Global Perspective, by Philip McMichael, 5th ed. Los Angeles: SAGE, 2012.

^[14]A Case for Reform : Fifty Years of the IMF and World Bank. Oxford, U.K.: Oxfam Policy Dept., 1995

^[15]Benjamin Kohl and Linda Farthing, Impasse in Bolivia: Neoliberal Hegemony and Popular Resistance. London: Zed Books, 2006

^[16] A Case for Reform : Fifty Years of the IMF and World Bank. Oxford, U.K.: Oxfam Policy Dept., 1995.

^[17] HuangYiping, Wang Bijun. "From the Asian Miracle to an Asian Century? Economic Transformation in the 2000s and Prospects for the 2010s", Reserve Bank of Australia. Accessed January 3, 2024.

^[18] Danaher, Kevin. 50 Years Is Enough : The Case Against the World Bank and the International Monetary Fund. Boston, Mass.: South End Press, 1994.

 ^[19]Pew Research Center, "A Global Middle Class Is More Promise than Reality," Pew Research Center, July 8, 2015.

^[20] Investopedia, "Shock Therapy," Investopedia, accessed January 3, 2024.

^[21] Human Rights Watch, "Egypt: IMF Bailout Highlights Risks of Austerity, Corruption," Human Rights Watch, January 31, 2023.

^[22] Grigera Juan, “Argentina debt crisis: IMF austerity plan is being derailed”, King's College London, December 17, 2019.

^[23] International Monetary Fund, "Global Debt Database," 2022.

^[24] Gregory Biglaiser and Ryan J. McGauvran, "The Effects of IMF Loan Conditions on Poverty in the Developing World," Journal of International Relations and Development 25,2022.