G-20 Discussions Reveal Rich Nations Are Threatening the Growth of the Developing World
What do you get when a group of 20 self-selected countries with conflicting interests try to engineer a global economic consensus? You do not get much consensus, but you do get a lot of insight into the forces shaping global events.
At first glance, besides South Korea’s token designation as the first "emerging economy" to host a G-20 meeting, the summit was all about the problems facing the richest nations: Currency devaluation, government debt, and how to deal with decreasing consumption.
During the G-20 meetings, countries are specifically debating the United States' decision to engage in quantitative easing, or creation of more dollars to lower the value of the U.S. dollar, thereby making exports cheaper and raising interest rates. The United States has long accused China of doing this very thing to keep its exports so cheap.
In one sense, the woes facing the industrialized world could not be any less relevant to developing economies. Sub-Saharan African nations saw an average annual growth rate of over 7 percent between 2002 and 2008. Since 2000, between 35 to 40 percent of the global GDP growth was contributed by the developing world as a whole.
Beyond contributing global gross domestic product (GDP) growth, the average emerging market government debt averages less than 50 percent of national GDP, compared to an average of over 100 percent in the United States, Europe and Japan. Despite huge facing development gaps, it appears that developing countries have continued to grow, leading the world economy out of the Great Recession.
One approach to poverty reduction is growing average incomes in various countries, driven by economic expansion. This often leads to improvements in health and education. Growth shown in the developing world means that the world’s poor may be on the right track to meet the Millennium Development Goal of reducing poverty worldwide by half by 2015.
But, not all growth is created equal. Much of the developing world’s growth is in extractive industry, or industries that involve mining natural non-renewable resources like coal, oil, or precious metals. Economic growth that is predicated on ecological devastation is obviously unsustainable.
When it comes to borrowing capital to spur growth, that access in the developing world hinges on the debtors’ perceived ability to repay. One reason for the lower levels of debt is a lack of access; lenders are far less willing to dump money into countries that they fear may default on their loans. When developing countries are able to secure loans, they are charged much higher interest rates, meaning a larger percentage of their GDP goes to the repayment of their debt. This means that while the average developing world debt may only be 50 percent of GDP, an increasing amount of the remaining half is going towards paying interest to lenders.
Unlike loans to rich countries, loans to the developing world come with strict terms that force financial reform. Reforms that are often geared toward making sure debt can be paid back (with interest) rather than optimizing development results.
And that was when times were good. In the current worldwide crisis, most governments want to achieve net export growth as a route to economic expansion. But clearly, all governments cannot export their way out of trouble. The governments of the developing world, which have spent the last decade more beholden to their debtors than to their own citizens, now have devalued dollars and trade protectionism in exchange for their fiscal conscientiousness.
Let’s get over the export obsession. As Americans citizens and members of a global community, we should not advocate the devaluing of American currency and trade protectionism to extract profits from the developing world.
Instead, let’s invest in building infrastructure abroad—especially power, roads, water, and communications. Let’s export experts to ensure environmental sustainability of new development. We can address instability worldwide by tackling issues like food security, climate change, and unemployment through investment in smart growth projects. With increased stability and quality of live, real global demand will rise.
This will allow the American economy to grow by empowering less well off counties, rather than trying to snag their recently accumulated capital or divert their investments like the Clinton Administration did, contributing to the 1997 Asian Financial Crisis. We do not have to play a zero sum game—let’s shape sustainable global development rather than focusing on short-term income maximization.
Kayvan Farchadi is a staff writer for Campus Progress.
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