Westerners' strategy to keep the East poor

By Bharat Jhunjhunwala

NEW DELHI (JP): U.S. Treasury Secretary Robert Rubin is acclaimed to have ushered in an unparalleled period of growth in the last decade.

In a recent article in Newsweek he explains the strategy he adopted: "Rein in public spending, give private sector a firm greenback, then stand back and let it roar."

But the United Nations Development Program (UNDP) warns: Do not do that. It will lead to buoyant Southern economies and hit at the interest of the industrial countries, whose mouthpiece UNDP appears to have become.

Thus, the program advocates increased taxation and public spending -- kill your private sector -- exactly the opposite of Rubin's prescription.

The objectives of UNDP, it seems, are to persuade the developing countries to create a healthy and educated low-wage work force which can perpetually serve the industrial countries -- in the name of "human development"!

First, let us get the facts straight. In its latest Human Development Report, UNDP advocates that developing countries aim at export-led growth by increased public spending on health and education.

"Indeed, poor countries can leapfrog several decades of development if they combine their low wages with basic education, technical skills and export-led growth," the report said. "This is the policy message of the East Asian Tigers."

Is this really so? Have the Tigers resorted to a high level of taxes and public spending? Let us look at the figures.

The taxes collected by the central government in China amounted to 2.6 percent of GNP. Its spending on social services was a paltry 3.3 percent of its total expenditure. It is clear that China has been able to improve the health and educational status of its people without heavy taxes or public expenditure.

In fact, the corresponding rates for Indonesia (19.1 percent taxes and 14.4 percent social sector expenditure) and the Philippines (16.9 percent and 23.1 percent) are both below average for the developing world (at 19 percent and 31 percent respectively).

The UNDP case that taxation simply does not stand, to put it politely, it is a misstatement.

What is worse is that the countries which have followed the UNDP advice have been led down into the dumps. Among the more populous developing countries; Chile, Costa Rica and Nicaragua had the highest level of public expenditure on social services at 64.9, 61.3 and 45.4 percent of their respective budgets.

If UNDP's prescription was valid, these countries should have had high levels of growth and poverty alleviation. But unfortunately for UNDP, that was not to be. Their average growth rate was a minuscule 1.1 percent.

What is worse, the poorest 20 percent of these populations obtained a mere 3.9 percent of the national income. In contrast, the report card of the countries that have, thankfully, ignored UNDP advice is much better.

China, India and Indonesia have had the lowest public expenditure on social services -- 3.3 percent, 9.3 percent and 14.4 percent respectively. Their average growth rate was a healthy 5.6 percent and the incomes obtained by their poorest was a reasonable 7.8 percent of their national incomes.

These figures show that higher public expenditure on social services leads to lower growth rates as well as greater poverty. UNDP's advice is a certain prescription for economic collapse and poverty generation.

This is not to argue that health and education hurt growth. They certainly do not. Provided, though, that they are acquired by the people from their own incomes instead of being pushed down their throats by the government.

When the government sets itself up on a pedestal, determining what health and education people should get, it negates the basic self-respect and "empowerment" of the individual.

Simultaneously, high taxes are imposed for financing these expenditures. They cut into growth, as Rubin has shown, and add to poverty.

The whole concept of tax plus government expenditure rests on the premise that the state knows best and the people are fools. Left to themselves they will neither acquire health services nor education. Thus, they must be "disempowered" -- their own freedom cut -- and they should be forcibly sent into the assembly lines of school education. This is "empowerment" a la UNDP. The result has been disaster across the globe.

Why should UNDP do this? What is its motive? We have to understand the needs of the industrial countries in order to unravel the mystery.

The interests of these countries are best served if:

- they, or their multinationals, have access to cheap and educated labor in developing countries.

"Poverty often serves the interests of the economically powerful," admits UNDP. The industrial countries have a vested interest in our poverty -- low-wage labor.

- the private sector of the developing countries must be nipped in the bud to lay their resources open to raids by the industrial countries.

- the social unrest created as a result of these policies must be "contained". Give them some minimal democratic institutions which can serve as a safety valve.

"Poverty is brutal," according to UNDP. "It can provoke violent reactions. Avoiding violence and chaos is in all people's interests."

These objectives are best achieved if the developing countries can be persuaded to increase their taxes. That will kill the domestic industries and give a free entry to the industrial countries' multinationals.

Second, that money should be spent on social services instead of roads, canals and power stations. That will create an educated work force which will labor for low wages as there will exist no domestic demand for a high-wage work force.

Third, to contain the disorder so generated, local democracy must be encourage. The people can then democratically decide how to adjust to their deprivation. In this way the developing countries will perpetually provide a peaceful and educated low- wage labor for the industrial countries.

It is high time that we realize that beggars will always remain beggars.

As UNDP itself said: "Governments, NGOs and other institutions do not empower people; people empower themselves." So it is for the developing countries. The UNDP or the World Bank cannot empower us. We must empower ourselves.

But UNDP would rather our government put all their efforts into begging for reliefs from the industrial countries instead of pushing their own inherent advantages.

UNDP said that the industrial countries must reduce tariffs on exports from our countries; eliminate agricultural subsidies that put our exports at a disadvantage; provide debt-relief and foreign investment. Beg, beg, beg, all the way.

Instead, developing countries need a three-fold strategy. First, a concerted effort to form OPEC-like cartels to reverse the terms of trade in our favor. Let us realize that the industrial countries are as much, if not more, dependent upon us for our resources than we are upon them for their technology or capital.

Second, reduce domestic taxes and impose the highest possible import tariffs under the WTO to empower the domestic private sector to face the onslaught of the industrial countries.

Third, we must launch a publicity campaign to explain the benefits of private expenditures on health care and education to our people so they can the best choice. Such recommendations are, of course, anathema to UNDP for they hit at the interests of the industrial countries.

This is a sinister game. The objective of these agencies is to ensure that we remain beggars. We alone can help ourselves by ignoring their advice.

The writer is a New Delhi-based columnist.