Economics and politics - comment and analysis

Economic ignorance: Angela Merkel and the German media on poverty reduction

This article was published September 28 in German.

Germany has discovered a fabulous new theme: let’s fight global poverty. Last week, at the UN Summit in New York (see here), Angela Merkel pledged to work to abolish absolute poverty. It seems that the never-ending influx of refugees has the positive effect of reminding the German media that there is a world out there about which we know very little and don’t want to know too much. But now the situation is changing and even an increase in development aid, a measure that was off the table for decades, does no longer seem to be a taboo.

The name of the new poverty alleviation program is Agenda 2030. It is the successor of the so-called Millennium Development Goals that should have been achieved by 2015. To German ears, ‘Agenda’ sounds suspiciously neoliberal, but this was probably not a consideration when the program was baptised. Even if such associations would turn out to be unjustified, it is by no means clear how the United Nations want to transform the ongoing fight against poverty in the world – outside of China, which is responsible for the bulk of the decline in poverty registered in the last two decades. The previous program was a list of lofty goals. By no means was it a strategy of how the world should combat global poverty.

For this the United Nations are also to blame. The institution kept itself largely insulated from relevant discussions on how development can be achieved and which economic policies need to be implemented in order for countries to grow. This saves professional diplomats such as UN Secretary General, Mr. Ban Ki Moon, the trouble of engaging in discussions and political battles on economic policies. But it also means that the United Nations leaves the field of development open to the IMF, the World Bank and the OECD (and thus to the finance ministers of the major industrial countries). We all know what this means. We have been witnessing it for the last twenty years. It is nothing but neoliberalism and neoclassical economics. No other approach was countenanced in the age of 21stcentury globalization.

This will, of course, be Angela Merkel’s approach for the next fifteen years or as long as she remains in power, but then the fight against global poverty will amount to nothing except more palliatives. The very same policy-makers that are unable to analyse Europe’s crisis and lead the continent back to growth are now expected to develop a series of correct policies that will alleviate poverty on a global scale and give developing countries a (new) chance. Who believes that the European finance ministers, who fight the crisis in their own countries with counterproductive policies of austerity and wage cuts, have the intelligence and the necessary knowledge to devise development programs for developing countries?

You do not need to be a prophet to predict how the next round of neoliberal ‘development’ will pan out – it suffices to read the Frankfurter Allgemeine Zeitung (FAZ). Under the heading ‘Economic literacy,’ the FAZ published an article that demonstrates its basic economic ignorance. It makes the one-sidedness of the ‘new’ development policies that are being laid out in conservative circles abundantly clear. Nowadays, the conservatives see China as the great model, although that is of course only possible when they cherry-pick the facts that fit into their neoliberal model. The author, Lena Schipper, writes that “China succeeded while many other developing countries, especially in sub-Saharan Africa, for various reasons, failed. Land reforms in the eighties and the transformation of collective farms into a market economy made Chinese agriculture internationally competitive. Collective, state-owned, enterprises entered the market and massively invested in the production of labor-intensive goods for the world market. In this way, China has built up a successful industry of gigantic proportions. The transformation was financed by vast amounts of foreign capital flocking into the country after Ding Xiaoping opened up China for foreign investment and, at the end of the seventies, established special economic zones in order to tap the potential of the Chinese internal market.”

It is really as simple as that! This is the neoliberal model of development: the market economy is everything, the state has to be pushed back as far as possible, territorial borders have to be opened, foreign capital has to flow into the country and everything will be fine. There is no need to mention the detail that China is still led by an absolutist communist party, which still gives the state a huge (FAZ authors would say excessive) responsibility for all key economic processes. Of course, China did not open its borders for any capital, but only to foreign capital that would turn into real investment. Perhaps even more important, the Chinese currency has been pegged to the U.S. dollar for decades and has been heavily undervalued for most of the catching-up process. Aside from that, in recent years, the Chinese leadership let workers’ wages rise sharply and raised the minimum wage on several occasions. This is necessary to stimulate domestic demand. None of this is mentioned in the FAZ article – presumably the shock to its readership would be too big. Or imagine that the reader would draw conclusions for developing countries or even Germany and Europe.

The second part of the article sings the holy mass of free trade and, of course, only economists that sing this song very well are being cited. But this is wrong, too. The proponents of free trade and unfettered markets always forget one absolutely crucial aspect: time. Free trade has not been a characteristic of the catching-up Chinese economy. The country only became a member of the World Trade Organisation in 2001. That is more than twenty years after the start of the economic reforms. China pushed for free trade when it was fairly certain that its companies were able to compete globally. This is the only way in which opening up to free trade can be beneficial. It is the path that all developed countries took. All industry in every developed country in the world was originally built up behind a wall that protected the infant industries from competition from abroad. Imagine that an African member of the WTO today would try to do the same. It would immediately be cut off from all development aid and cooperation and face trade litigation. Investors would flee the country. Western institutions would force the country to open its markets immediately.

The sad truth is that ideology trumps analysis. The FAZ shows it is no different for Mrs. Merkel. Those who want to devise a successful strategy for developing countries to develop must, first of all, lose the ideological preconceptions that blind them to the real world. We need competency in economics and in development instead of the type of self-congratulating and dangerous ideological ignorance that will not move away from its prejudices by even one millimeter.