The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear. (Antonio Gramsci)
by Jayati Ghosh
Part 3 - Global Transfers
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 global South transferred financial resources to the North.
Developing country governments opened their markets to trade and finance, gave up on monetary policy and pursued fiscally ‘correct’ deflationary policies that reduced public spending. Development projects remained incomplete and citizens were deprived of the most essential socio-economic rights.
A net transfer of jobs from North to South did not take place. In fact, industrial employment in the South barely increased in the past decade, even in the ‘factory of the world’, China.
Instead, technological change in manufacturing and new services meant that fewer workers could generate more output. 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.
The persistent agrarian crisis in the developing world hurt peasant livelihoods and generated global food problems. Rising inequality meant that the much-hyped growth in emerging markets did not benefit most people, as profits soared but wage shares of national income declined sharply.
Almost all developing countries adopted an export-led growth model, which in turn suppressed wage costs and domestic consumption in order to remain internationally competitive and achieve growing shares of world markets. This led to the peculiar situation of rising savings rates and falling investment rates (especially in several Asian countries) and to the holding of international reserves that were then placed in ‘safe’ assets abroad.
This is why the boom that ended in 2007/8 was associated with the South (especially in developing Asia) subsidising the North: through cheaper exports of goods and services, through net capital flows from developing countries to the US in particular, through flows of cheap labour in the form of short-term migration.