Nicaragua and the failure of globalization

Submitted by tortilla on Lun, 17/07/2017 - 08:31

Tortilla con Sal, Telesur, July 17th 2017
http://www.telesurtv.net/english/opinion/Nicaragua-Highlights-Failures-…

Nicaragua’s Sandinista government recently published a survey of the standard of living in households across the country showing encouraging declines in poverty and inequality. Overall poverty in 2016 was just under 25 percent, down from over 42 percent in 2009. Extreme poverty for the same period fell to just under 7 percent, from over 14 percent in 2009. Nicaragua’s GINI index, measuring inequality, fell from 0.37 in 2009 to 0.33 in 2016. These encouraging results, better than Nicaragua’s Central American neighbors, vindicate the Sandinista government’s social and economic policies during a period of global stagnation.

Nicaragua’s experience highlights the failure of Western corporate capitalism to promote prosperity, security and stability either at home or overseas. Even Western cheerleaders for globalization acknowledge that most of the recent global reduction in poverty has occurred in Asia, especially China, while elsewhere poverty reduction has tended to stagnate and inequality even to increase. In world markets, still dominated and manipulated by Western corporate finance capitalism, small countries like Nicaragua are forced to compete for investment and a share in cut throat global export markets.

Direct foreign investment can be positive in the short term, creating employment. But over the medium and long term, it takes government and labor hostage. Foreign investors externalize onto local populations economic and environmental costs, thus tending to exacerbate inequality and poverty in the medium and long term. Their advantage is ultimately based on the threat of shifting their investment elsewhere knowing that governments’ regulatory powers can be penalized by vindictive financial markets and are, in any case, policed by multilateral lenders. This makes small countries like Nicaragua especially vulnerable to sanctions like those of the proposed NICA Act, currently pending in the U.S. Congress.

Western opinion rationalizes this system of predatory exploitation by framing discussion of global trade and investment in terms that generally ignore the fundamental needs and realities of impoverished majority world economies. For example, a typical discussion of trade and globalization will optimistically downplay the current slowdown in global trade arguing that the recent fall in world commodity prices means rich countries can cover their raw materials costs with lower export volumes. But that ignores the other side of the relationship, whereby majority world producers in impoverished countries have to export more volume in order to just maintain export earnings. Similar disregard for majority world reality in mainstream Western discussion of trade and globalization means policy makers at the highest level routinely omit fundamentals from their strategic analysis.

For example, a recent paper on globalization from the Bank of International Settlements completely ignores the relative lack of investment by North American and European capital in the majority world compared to the massive infrastructure and other investment by China associated with its enormous One Belt, One Road program aimed at revolutionizing infrastructure linking Europe, Africa and Asia. The BIS paper states “Both trade and financial openness can be expected to increase the rate of economic growth…. Overall, trade has been found to boost growth in many economies... Financial openness should also boost growth, by enabling a more efficient allocation of capital and facilitating the transfer of technology and know-how. The ability to hold foreign financial assets increases opportunities for higher returns and for risk diversification. The injection of foreign capital can provide funding for previously capital-constrained firms, increasing real competition and efficiency. FDI (Foreign Direct Investment) can yield even greater benefits through the transfer of knowledge and technology and the spread of best practice.”

This utopian BIS vision ignores the reality that North American and European investment tends to be exploitative, providing employment but extracting wealth. Likewise, the idea that demonstrably corrupt Western corporate culture is a model of best practice is a neocolonial fantasy. Nicaragua has found that valuable technology transfer has come, not from North America and Europe, but from Japan, South Korea, Taiwan and Russia. Nor is it straightforwardly true that financial and trade openness of itself enables more efficient allocation of capital. For an economy prioritizing the needs of the human person, an efficient allocation of capital must focus on medium and long term investment, not corporate profit. For countries like Nicaragua, financial markets dominated by the cartel of monopoly Western financial institutions are restrictive, not free.

Likewise, global markets for Nicaragua’s two main exports — arabica coffee and beef — show the limited trade benefits for low-income countries struggling to reduce poverty and inequality. Global price trends for beef and coffee have been similar since 2002, with sharp volatility after 2010. Over the last two years, prices have tended to fall, although lately beef prices have recovered slightly. A closer look shows that, by volume, Nicaragua’s coffee and beef exports followed very similar trends until 2011, when coffee export earnings fell markedly in comparison to beef. For both products, export earnings flattened out through 2015 and 2016.

However, a comparison between the export performance of Nicaragua coffee and beef with global trends shows that Nicaragua has performed comparatively well. Since 2006 international prices for beef increased year over year at an average of just over 5.5 percent and coffee at an average of 5.4 percent. Nicaragua’s export earnings from coffee increased at an average of 8.6 percent annually and from beef at an average of just over 20 percent annually. So Nicaragua’s export performance was well above the global average, but the figures demonstrate again how incredibly vulnerable low-income countries like Nicaragua are to the glib machinations of global markets under the dead hand of Western finance capitalism.

International trade, financial openness and direct foreign investment have played a positive role in Nicaragua’s exceptional economic performance since Daniel Ortega became president in January 2007, but only because President Ortega and his ministerial team did three things. Firstly, they mobilized crucial structural investment funds both from traditional development cooperation sources and from Nicaragua’s membership of the Bolivarian Alliance of the Americas, ALBA. Between 2007 and 2013 Nicaragua benefited from over US$2.5 billion in development funding from ALBA in addition to a similar amount from traditional international cooperation for development and international financial institutions.

Secondly, President Ortega’s Sandinista government worked with the country’s private business sector to greatly diversify trade relationships in Latin America, Asia and Europe. That work has enabled Nicaragua to maintain export earnings by sustaining trends in export volumes despite falling or stagnant global prices. The third and most important thing President Ortega’s team did was to focus strongly on bringing more people in Nicaragua into productive economic activity.

They did that by focusing on small and medium sized producers, especially coooperatives, previously starved of credit and technical support and by prioritizing women. So they have facilitated a relatively prosperous national consumer base of producers integrated as protagonists in the country’s economy. Investment in health and education has also played a key role in that development. In the context of the colossal failure of Western corporate capitalism, Nicaragua’s practice since 2007 is a model of how socialist inspired, broad-based social and economic investment can meet people’s real development needs.