How to halt the global money-go-round?

As big capital chases profit and low wages around the world, aid agencies are left with a dilemma: fund-raise, trade or campaign?
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The Independent Online
Where now for the world's poor? The years since the collapse of Communism have seen the emergence of an apparent global consensus about the inescapable role of markets in economic life. But they have also brought a steadily developing sense of unease about how to respond to the losers in the increasingly ferocious competitive marketplace.

Today in Lambeth Palace a collection of the great and the good, led by Douglas Hurd and the Archbishop of Canterbury, gather to debate the issue that is preoccupying the thinkers of the aid agency world: how to respond to growing economic globalisation. The occasion is the 50th anniversary of the founding of Christian Aid, whose work in the intervening period - from relief work for the starving in India in the Sixties to campaigning for the reform of unfair trading practices and the relief of Third World debt in more recent years - charts a shift in understanding of what keeps people poor. But the rapid integration of the world economy poses problems for the world's poor which are, according to senior aid analysts, qualitatively different.

Economic globalisation has come about through the interactions of high technology in communications, and other parts of industry, with the large- scale financial deregulation that was loosed in the Thatcher/ Reagan era. National boundaries and habits are becoming increasingly irrelevant to business decisions as investment flows and production facilities move in search of the highest possible returns or market share. Marketing has become global - the whole world is sold the same McDonald's, Ford Mondeo, Coca-Cola or Michael Jackson album. Transnational companies grow ever larger, with their subsidiaries spanning the globe.

As a result the movement of money round the world is constantly speeding up - current foreign exchange dealings exceed $1 trillion a day. And investors are moving their cash, known in financial jargon as foreign direct investment (FDI), around the unregulated world market in such quantities that FDI has overtaken trade as the engine of world growth. Jobs follow the cash, which is invested wherever labour is cheapest. Thus one of France's largest electronics groups employs three times as many people in Asia as it does at home. And Swissair has moved its accountancy department to Delhi.

Good news for the poor? Up to a point. For when living standards begin to rise - and local wages with them - the jobs move elsewhere. Japanese investment is already shifting from South Korea and Taiwan to Malaysia and Thailand, which have one-tenth of the wage costs. The commercial logic is hard to defy. Only last week the UK firm Morgan Crucible, one of the world's largest suppliers of industrial carbons and ceramics, announced that it was moving production from Germany and Japan to Eastern Europe and China. Wages were $31 an hour in Japan and $26 in Germany; in eastern Europe, rates were $1.50 an hour; at its new Shanghai plant $1 a day.

In such a process of heightened competition between countries, the strong do well and those left behind find it ever harder to catch up. The need to remain competitive in an open global economy will lead to a downward pressure on standards (of living, working and products) and national and local cultures will come under attack.

The resultant world system works perfectly well without bothering about Africa, where rates of malnutrition, child mortality and illiteracy - in decline until a few years ago - have begun to rise again. According to Kevin Watkins, senior policy adviser at Oxfam, less than 2 per cent of all FDI goes to Africa, so 15 per cent of the world's population is consigned to oblivion.

The idea that women in Shanghai - and their equivalents in the carpet sweatshops of Bangladesh - are working for about 65 pence a day provokes moral outrage in the aid agency world but no one seems very sure any more what to do about it. "They do not have an intellectually coherent response," says Vincent Cable, a senior economist with the Royal Institute of International Affairs.

He acknowledges the negative side: low wages, poor conditions, bronchial complaints from heavy wool dust in the air, saris caught up in cutting machines, piecework, no security. But if these women were not earning 65p a day what would they be doing? The alternatives would be subsistence farming, domestic service or prostitution. Cable sees labour-intensive, export-oriented growth as the only hope for the poor world. Their conditions will improve with overall economic growth. When the tide comes in, all boats rise.

To Kevin Watkins at Oxfam that sounds suspiciously like the old discredited "trickle-down" theory in new clothes. There has been more than a decade of economic growth in the US and UK and yet at the same time significant increases in poverty. All boats rise, except those which are anchored to the river bed. Economic growth is a necessary condition for poverty reduction but it is not sufficient, unless accompanied by economic redistribution measures that empower poor people. Watkins sees globalisation as a euphemism for a race to maximise profit by lowering environmental standards and workers' pay and conditions.

If Vincent Cable dismisses this kind of analysis as emotional and unhelpful and likely to feed the agenda of the new protectionists, Ian Linden, general secretary of the Catholic Institute for International Relations, takes a strictly pragmatic view. He concentrates on realpolitik, proposing that the agencies lobby governments for a half-way house in which minimum standards might be agreed within regional trading blocs. Jobs would still go from Europe to Asia, but not so easily from Korea to the Philippines. The big question here is whether mere lobbying can bring the market under such social and community control. If it could not, Linden argues, we would still have children up chimneys.

But others in the aid agencies feel that the only realistic option is to work with the grain of the new economics. The poor nations can't opt out of globalisation, argues George Gelber, head of policy at the Catholic agency Cafod. "They've got to be skilled up. Some will criticise us for saying that, but there are no alternative models in the wings."

That is very much the approach of fair-trade organisations such as Oxfam Trading, Equal Exchange, Twin Trading and Traidcraft. Traidcraft also offers a business development service to struggling Third World producers. The idea here is to use the market to create not only wealth but also community, by bringing pressure to bear on the commercial sector from all who have a stake in the business - consumers, staff and trading partners.

But such initiatives will always be symbolic. The cost of unfair trade and unequal competition to developing countries' labour, according to the UN Development Programme, is the equivalent of $500bn a year. Compare that with the total aid the rich world gives: $54bn. And compare that with the global budget for all voluntary agencies: $5bn. With their tiny resources, aid organisations can hope to make only a very limited contribution.

Increasingly the agencies are seeing their role as one of campaigning and advocacy on behalf of their poor partners. The internal debate is therefore on how much they should shift their emphasis from grassroots projects to campaigning for the relief of Third World debt, for institutions such as the International Monetary Fund to become more transparent and more sensitive to the poor, and for the developing world to be given a fairer deal by the new World Trade Organisation.

It may be that a globalised economy needs an alliance of comparable breadth to mitigate its excesses. "Globalised solidarity" is the term used by Julian Filochowski, the director of Cafod, for the scheme to train its partners in Zimbabwe and Zambia in media management techniques. Greenpeace showed the way with its Brent Spar campaign - international co-ordination, an effective consumer boycott and adroit use of the media. "It is sad that they turned out to be working on rather dubious evidence. But it was clearly an effective strategy," Filochowski says. But if building a globalised civil society is the solution, the agencies have a long hard struggle ahead.