Arguments and Evidence that Transnational Corporations Harm Developing Countries

Marxists are generally critical of the role of TNCs in developing countries. They basically argue that they are part of the neo-colonial project and their main focus is to maximize profit by extracting resources from poor countries as cheaply as possible, paying workers in poor countries as little as possible and externalizing as much of the costs of production of possible (basically not cleaning up after themselves.

The Corporation’ documentary provides an excellent analysis of why corporations commit so much damage against people and plant in the pursuit of profit – they are basically legally obliged to maximise the profits of their share-holders – profit comes first, everything else second, and simply put, it is cheaper to extract, pollute and exploit than to use resources wisely, pay people decent wages or clear up your pollution.

Criticisms of TNCs

Bakan (2004) argues that TNCs exercise power without responsibility. Bakan makes several criticisms of Corporations including:

  1. They pay workers low wages – as with sweat shop labour
  2. They pollute the environment – as with the case of Shell in Nigeria.
  3. They take risks with health and safety, which can result in worker injury and death – as with the case of Union Carbide in Bhopal
  4. They profit from human rights abuses – as with Coca Cola in Columbia.

Transnational Corporations pay workers low wages

This is probably the best known criticism to be leveled at well-known Corporations such as Nike, Adidas and Primark is that they profit from ‘sweatshop labour’ – with the workers who manufacture their products working extremely long hours in poor conditions and for extremely low wages.

In chapter 5 of The Corporation, one researcher calculates that workers at one of Nike’s factories in Indonesia were earning 0.3% of the final selling price of the products they were making. Now, I know there are middle men, but in classic Marxist terms, this is surely the extraction of surplus value taken to the extreme! The anti- sweat shop campaigns are several years old now, but still ongoing.

Of course sweat shop labour is not limited to the clothing industry – the BBC3 series ‘Blood Sweat and T shirts/ Takeaways/ Luxuries’, (3) in which young Brits travel to developing countries to work alongside people in a wide range of jobs, clearly demonstrates how workers in many stages of the productive process, including rice sowing, prawn farming, gold mining, and coffee packing, suffer poor pay and conditions. Many of the goods focused on in this series end up being bought and the sold in the West by Transnational Corporations for a huge mark up, and it is extremely interesting to see the Brits abroad struggling with the injustice of this.

The Daily Mail recently conducted some undercover journalism in a Chinese factory that makes the i-pad – where the report they ‘encountered a strange, disturbing world where new recruits are drilled along military lines, ordered to stand for the company song and kept in barracks like battery hens – all for little more than £20 a week.’ Apparently workers have to endure shifts up to 34 hour s long, and the factory has been dubbed the ‘i nightmare factory’.

Corporations are responsible for causing ecological decline and damage

The evil Coca-Cola corporation is a good example of a company causing environmental decline in India:

It takes 2.72 litres of water to produce 1 litre of coca cola. Now this may sound like a reasonable ratio for such a deliciously sweet beverage, but not if you happen to be a farmer living close by to Coca Cola’s Kaladera plant in Rajasthan, North East India. According to recent independent report, commissioned by coca cola, “[the factory’s] presence in this area would continue to be one of the contributors to a worsening water situation and a source of stress to the communities around,” concluding that the company should find alternative water supplies, relocate or shut down the plant.

The result of coke’s presence in the water depleted region is that local farmers who have lived in the area for decades now have inadequate water supplies to keep their crops watered and there appears to be a clear link between the coca cola Corporation moving into the region and the destruction of the livelihood of the farmers living nearby. Coca Cola, which had an advertising budget of $2.6 billion in 2006, is clearly in a position to compensate these farmers, or relocate to a more water rich area, but chooses not to. Coca Cola’s priority clearly lies in maintaining its sickly sweet image while generating famine and poverty for those living in proximity to its factory.

Another example of a company causing environmental damage is Shell in Nigeria. Watch the brief clip from the Video ‘Poison Fire’ and note down the scale of environmental damage caused by Britain’s biggest company.

Corporations cause illness and death in the pursuit of profit

Union Carbide in Bhopal India is easily the most horrendous example of this…..

In December 1984, an explosion at a pesticide plant in Bhopal India, then owned by the American multi-national Union Carbide, lead to deadly gas fumes leaking into the surrounding atmosphere and toxic chemicals into the ground. That was more than 25 years, but, according to the Bhopal Medical Appeal (1), a toxic legacy still remains.  In addition to the 3000 people that died almost immediately, over the last two and a half decades, there have been a further 20,000 deaths and 120 000 cases of people suffering from health problems, including severe deformities and blindness, as a result of the toxic seepage into the surrounding area from the plant.

Since the disaster, survivors have been plagued with an epidemic of cancers, menstrual disorders and what one doctor described as “monstrous births” and victims of the gas attack eke out a perilous existence – 50,000 Bhopalis can’t work due to their injuries and some can’t even muster the strength to move. The lucky survivors have relatives to look after them; many survivors have no family left.

apparent root cause of the accident was that the plant had not been properly maintained following the ceasing of production, although tons of toxic chemicals still remained on the site.

It wasn’t until 1989 that Union Carbide, in a partial settlement with the Indian government, agreed to pay out some $470 million in compensation. The victims weren’t consulted in the settlement discussions, and many felt cheated by their compensation -$300-$500 – or about five years’ worth of medical expenses. Today, those who were awarded compensation are hardly better off than those who weren’t.

TNCs profit from human rights abuses

In 2003 the Trades Union movement pushed for a boycott of Coke because of the company’s alleged use of illegal paramilitaries to intimidate, threaten and kill those workers who wished to set up a Trades Union at a bottling plant in Colombia.

Campaigners for the Killer Coke campaign have documented a ‘gruesome cycle of murders, kidnappings and torture of union leaders involved in a daily life and death struggle’ at these plants. The bosses at some of Coke’s factories in Columbia have contacts with right wing paramilitary forces, and use violence and intimidation to force unionised labour out of work, and then hire non-unionised labour on worse contracts for half the pay. There have been more than 100 recorded disappearances of unionised labour at Coke’s factories.

Now the Coca Cola Corporation is obviously not directly to blame for this, as Columbia is one of the more violent countries on the planet, and this culture of violence and intimidation is widespread. The company is, however, responsible for making the conscious decision to choose to invest in a region well known for such practices, and failing to either pull out or protect its workers.

The Role of TNCs in Development – Conclusions

It is clear that TNCs are not particularly interested in helping poor countries to develop. However, it is not the moral responsibility of these corporations to do so; their primary commitment is to maximize profit for their shareholders.

However, we must be careful not to tarnish all TNCs with the same brush – not all of them are as bad as each-other, and some do have ethical codes of conduct which they apply globally. TNCs are also sensitive to their public reputations, and boycotts supported by well-known charities such as Oxfam have the potential to damage corporate profitability.

It would also be a mistake to dismiss all TNC investment in the developing world as exploitative. TNCs can bring innovation and efficiency into developing countries, and the wages they pay are often more than the wages in local industries.

Finally, there is the fact that TNCs probably aren’t going to diminish in power any time soon, so instead of criticizing them, it might be better to focus on what steps we might take to make the immoral ones behave better.

The following barriers exist to making TNCs work more effectively for development

  1. There is a lack of global control by national governments and agencies such as the United Nations. Quite simply, there is no international body or law in place to regulate the activities of these corporations on a global scale, there is no international minimum wage, for example.
  1. Corporations are globally mobile. Local populations are not. Governments are often reluctant to hold Corporations to account because they will simply move their operations to other countries.
  1. Leaders of governments across the world are part of the same global-political elite circle as the CEOs who run TNCs, so it is not in their interests to regulate them.

 

TNCs – Extension work
Watch ‘The Shock Doctrine’ by Naomi Kline – a depressing account of how TNCs profit from war and conflict, among other things.

 

 

 

 

Advertisements

Arguments for Transnational Corporations in Development

Modernisation theory saw TNCs as playing a positive role in helping societies to develop. Rostow (1971) saw the injection of capital as essential in the pre-conditions for take-off phase of development, and he thought TNC’s were one of the institutions which could help kick start the process of development by investing money, technology, and expertise that the host country did not possess.

It is neoliberals, however, who have historically been the real champions of TNCs as the most efficient institutions to kick-start and carry through development in poor countries. In neoliberal theory, economic success is proof of competence – the fact that TNCs have been making goods efficiently at a profit on a global scale for decades, if not centuries, mean that these are the institutions best placed to kick start economic growth in poor countries.

Neoliberals argue that the governments of developing countries need to pull down all barriers in order to create a ‘business-friendly’ environment in order to encourage inward investment from Transnational Corporations.

In Neoliberal theory, corporations will help a country develop in the long term by providing jobs and training. The money earned will be spent on goods and services at home and abroad creating more money to invest and (limited) tax revenue for further development.

A summary of the supposed benefits TNCs can bring to developing countries

  • TNCs bring in investment in terms of money, resources, technology and expertise, creating jobs often where local companies are unable to do so.
  • TNCs need trained workers and this should raise the aspirations of local people and encourage improvements in education
  • Jobs provide opportunities for women promoting gender equality.
  • Encourage international trade which could increase economic growth, access to overseas markets
  • All of the above means that wealth generated from TNC investment and production should eventually trickle down to the rest of the population.

Arguments for Official Development Aid

Early modernisation theorists believed that it was essential to inject aid into countries to establish infrastructure and change attitudes. From the 1950s to 70s aid programs seemed to have a positive effect on many developing countries as both economic and social development increased, however this progress seamed to stall from the late 1970s.

Contemporary supporters of aid believe that aid is not necessarily a bad thing, but aid needs to be targeted, its effects monitored and accountability measures need to be in place, so that aid money doesn’t go astray, like the $10 billion lent to Indonesia during General Suharto’s rule between 1965-1995.

Neo-modernisation thinker Jeffry Sachs (2005)

In the ‘End of Poverty’ (2005) Sachs notes that large scale aid can work when it is practical, targeted, science based and measurable. He believes in aid as ‘one big push’ to sort out specific problems. He points to the following evidence  to support his view that aid works:

  • Firstly, aid aimed at improving health has been particularly successful. Aid money has led to mass immunisation of children against diseases such as smallpox and measles, polio, diphtheria. Smallpox was practically wiped out with $100 million of very targeted aid aimed at vaccinating those most at risk. Today, Barder (2011) points out that every year foreign aid pays for 80% of immunisations and saves 3 million lives a year.
malaria-graphic-008
Malaria Statistics

The recent sharp decline in Malaria deaths is largely due to targeted immunisation, paid for by international aid, a cause championed by the Bill and Melinda Gates foundation 

  • Secondly – The Green Revolution – In the 1960s, Western Aid assisted in the green revolution in China, India and South East Asia which saw rice yields increase by 2-3 times, leading to surplus rice being produced for export. Such countries were then able to use the income generated by these cash crops to diversify and grow their economies, transforming into Newly Industrialised Countries (The Asian Tiger Economies). The video below outlines the case for the Green Revolution.

(NB – as a counter criticism you should check out ‘The Mythology of the Green Revolution, featuring Vandana Shiva – basically a ‘post-development perspective on the green revolution.)

  • Thirdly, Numerous countries, known as the International Development Association (IDA) graduates have gone on to ‘drive to maturity’ following large injections of aid money. Riddel (2014) argues that there is a substantial body of evidence that South Korea, Botswana and Indonesia have all benefited economically from Official Development Assistance.
indonesia-underdevelopment
Indonesia – seems to have benefited economically from a large amount of Official Development Aid over the years

 

Aid can also Support the Interests of Developed Countries (*)

According to Marren (2015), there is plenty of evidence that aid is shaped by the self-interest of the donor countries:

  1. Aid may be used as a ‘sweetener’ to gain access to resources and markets and foster better trade links. The USA has used aid to guarantee access to scarce resources such as oil, while the increased donor activity of China in recent years may be linked to its need for raw materials. This goes some way to explaining why more aid money goes to lower-middle income countries rather than low-income countries – put simply, donor countries stand to gain more from giving aid the slightly better off rather than the very poorest.
  1. Aid may be a way stimulating the donor economy. Some countries attach conditions to aid stipulating that a proportion of the funds must be spent on goods manufactured in the donor country. This is known as ‘tied aid’. The UK banned this kind of aid in 2001, although research conducted by The Guardian newspaper found that only 9 out of a total of 117 major DFID contracts (worth nearly £750 million) had gone to non-British companies.
  1. Aid may be a way of strengthening political links and securing strategic interests. Countries which are viewed by the Americans as allies in the ‘War against Terror’ are generously rewarded with aid. A recent study of U.S. Aid since the 2000s showed that the main destinations were Afghanistan, Iraq and Egypt. Similarly, UK aid is increasingly being spent on military objectives.

Statistics on the Benefits of UK Aid (*)

Wealth creation provided 68.9 million people, including 35.9 million women, with access to financial services to help them work their way out of poverty.

Poverty, vulnerability, nutrition and hunger reached 28.5 million children under five and pregnant women through the government’s nutrition-relevant programmes.

Education supported 11.0 million children, of whom 5.3 million were girls, in primary and lower secondary education.

Health ensured that 5.1 million births took place safely with the help of nurses, midwives or doctors. The UK has funded the distribution of 47 million insecticide-treated bed nets and is investing in vaccines and drugs, helping contribute to malaria deaths falling by 60% in the last 15 years.

Water, sanitation and hygiene supported 62.9 million people, of whom 22.2 million were women, to access clean water, better sanitation or improved hygiene conditions.

Humanitarian assistance reached over 13 million people with emergency food assistance, including 5.5 million women or girls.

Governance and security supported freer and fairer elections in 13 countries in which 162.1 million people voted.

Climate change supported 15 million people to cope with the effects of climate change.

Tax and transparency supported agreement on a new global standard for automatic exchange of tax information, making it easier for governments to tackle offshore tax evasion.

Scientific research helped the global elimination of rinderpest, a cattle disease which led to famine and poverty, and helped breed a new disease-resistant crop which has increased food security for an estimated 3 million people.

Sources

Chapman et al (2016) – A Level Sociology Student Book Two [Fourth Edition] Collins.

*A good example of this can be found in DFID’s 2015 document ‘UK Aid: Tackling Global Challenges in the National Interest’

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/478834/ODA_strategy_final_web_0905.pdf

 

 

The Role of the World Trade Organisation in International Development

The World Trade Organisation (WTO) is the body through which governments and businesses (mainly TNCs) negotiate the rules of trade, and settle trade disputes once these rules have been established.

The concept of the WTO first began with the 1947 the General Agreement on Tariffs and Trade (GATT) was signed by the Western powers to govern global trade and to reduce trade barriers between nations. In 1994, the WTO was set up to replace GATT, originally consisting of 126 members; it has since expanded to 164 member states currently.

wto

The WTO now has trade rules in place covering not only goods but also services such as telecommunications, banking and investment, transport, education, health and the environment.

The WTO is committed to the concept of free trade, believing that unlimited competition in the free market results in efficient production, innovation, cheap prices and the fastest possible rates of economic growth. They see government interference in markets as stifling businesses and being harmful to economic growth. WTO trade agreements and trade rules have thus tended to focus on reducing government intervention, such as the reduction of tariffs, subsidies and restrictions on imports.

However, critics argue that the WTO has hidden goals, and that it is really interested in helping rich countries and TNCs maintain their economic dominance. Chang (2010) for example has criticized the World Trade Organisation, arguing that its trade rules are unfair, and biased against developing countries. The WTO pressurizes poor countries to open up their economies immediately to western corporations and banks by abandoning tariffs (taxes) on western imports. However, the developed countries are still allowed to impose quotas on the imports of manufactured goods from poor countries, in order to protect their manufacturing industries.

Along the same lines as Chang above, McKay argues that WTO trade rules have rigged the terms of global trade in favour of the West and consequently the WTO is a rich man’s club dominated by the neo-liberal philosophy of the developed, industrialised nations.

A second major criticism of the WTO is that it is notoriously undemocratic – decision making at the WTO is dominated by a small group of Western members, with representatives of developing countries being outnumbered by the representativeness of wealthier countries and TNCS, even though the majority of the world’s population lives in those poorer countries.  A consequence of this is that the WTO tends to see free-trade as more important than protecting workers rights or the environment.

This brief article from Forbes suggests various reasons why poor countries fail to get decent trade deals out of the WTO:

–They are seriously understaffed–at the extreme, some states have no permanent delegation in Geneva, or just one or two people who must also cover other international agencies in the city.

–Their experience of trade policy issues and multilateral negotiations is limited.

–Individually, and even collectively, few account for a significant share of any element in world trade.

Philippe Legrain (2002), former special advisor to the Director-General of the WTO has acknowledged four main criticisms of the WTO:

  • It does the bidding of TNCs
  • It undermines workers’ rights and environmental protection by encouraging a ‘race to the bottom’ between governments of developing countries competing for jobs and foreign investment.
  • It harms the poor
  • It destroys democracy by imposing its approach on the world secretly and without accountability. He argues that the WTO’s free trade rules have prioritised the interests of TNCs over democratic and human rights.

Further sources of criticisms

Sources 

Chapman et al (2016) – A Level Sociology Student Book Two [Fourth Edition] Collins.

The Millennium Development Goals – How Much Progress was Made?

The Millennium Development Goals (MDGs) were adopted by 189 nations during the UN Millennium Summit in September 2000. Eight MDGs were developed which responded to the world’s main development challenges.

millennium-development-goals

The goals ranged from halving extreme poverty rates to halting the spread of HIV/AIDS and providing universal primary education, all by the target date of 2015 – form a blueprint agreed to by all the world’s countries and all the world’s leading development institutions.

They have so far galvanized unprecedented efforts to meet the needs of the world’s poorest. The UN is also working with governments, civil society and other partners to build on the momentum generated by the MDGs and carry on with an ambitious post-2015 development agenda.

The MDGs aimed to measure development in eight categories, using 60 separate indicators. The final two goals were aimed more at developed countries, aiming to monitor things such as carbon dioxide emissions, development aid donations and fair trade rules.

Following the success of the eight MDGs, they have since ‘developed’ into seventeen global goals for sustainable development

The Global Goals for Sustainable Development

Sustainable Development Goals.jpg

The Millennium Development Goals – Progress to 2015 (selected)

The infographics below provide the headlines….

mdgs_infographics_english-mdg1

mdg 2 education.jpg

mdg3 gender equality.jpg

mdg-infographic-4

mdg 5 reproductive health.jpg

mdg 6 disease.jpg

MDG7 drinking water.jpg

mdg-8-official-development-aid

And some further MDG achievements….

  • The proportion of undernourished people in developed regions  halved between 1990 and 2015.
  • In 1990, nearly half of the population in the developing regions lived on less than $1.25 a day. This rate dropped to 14 per cent in 2015.
  • The average proportion of women in parliament has doubled
  • The net loss of forests has reduced from an average of 8.3 million hectares annually in the 1990s to an average of 5.2 million hectares annually between 2000 and 2010.

 

Remaining Development Goals (selected)

  • At the global level more than 800 million people are still living in extreme poverty
  • Globally, an estimated 795 people are malnourished
  • Globally, 300 million workers lived below the $1.25 a day poverty line in 2015.
  • The proportion of the working-age population that is employed – has fallen from 62 per cent in 1991 to 60 per cent in 2015.
  • In countries affected by conflict, the proportion of out-of-school children increased from 30 per cent in 1999 to 36 per cent in 2012.
  • Globally, about three quarters of working-age men participate in the labour force, compared to half of working-age women.
  • Women continue to experience significant gaps in terms of poverty, labour market and wages, as well as participation in private and public decision-making
  • Between 1990 and 2012, global emissions of carbon dioxide increased by over 50 per cent.

 

The map below shows the regions where most and least progress was made over the 15 years of the Millennium Development Goals.

mdgmap-620x3991
Sub-Saharan Africa remains the region where the most progress is to be made.

Some strengths of the MDGs as indicators of development

  • Much broader range of indicators (60) – more validity! – Good for professional development workers!
  • Includes the developed nations (these also have targets – 7 and 8 especially)
  • NB – These have now become the ‘sustainable development goals’.

Some limitations of the MDGs as indicators of development

  • Not very ambitious – halving poverty by 2015, given up on the idea of ‘economic growth’.
  • Problems with some indicators – e.g. ‘finishing primary school’ doesn’t tell us about quality of education or how many days actually spent in school.
  • Do the MDGs lack ambition?

Sources Used

The main source used to write this post was the United Nations ‘Millennium Development Goals Progress Page’.

http://www.un.org/millenniumgoals/

http://www.un.org/millenniumgoals/multimedia.shtml

Further Reading

United Nations: The Millennium Development Goals Report 2015

http://www.un.org/millenniumgoals/2015_MDG_Report/pdf/MDG%202015%20rev%20(July%201).pdf

http://www.un.org/millenniumgoals/2015_MDG_Report/pdf/MDG%202015%20PC%20final.pdf

Equatorial Guinea – High Income but Low Human Development (2017)

equatorial-guineaSince the 1990s, Equatorial Guinea has become one of the largest oil producing countries in Sub-Saharan Africa, and it is now the richest country per capita in Africa. It ranks 43rd in the world for gross domestic product per capita.

However,  the oil revenue is distributed very unequally and most people see no benefit from the high GDP. the country ranks 144th on the UN’s 2014 Human Development Index.

What this means is that Equatorial Guinea fails to convert a relatively high income into high life expectancy and formal education for its people.

 

hdi-eq
Equatorial Guinea – High GNI per Capita, Low Human Development (1)

 

Equatorial Guinea – Why High Income but Low Human Development?

For starters – Equatorial Guinea has been ‘blessed’ with a natural supply of oil and gas.

Most of the country’s income comes from oil and gas exports, as the export tree-map below shows (2012 figures)

Equatorial_Guinea_Export_Treemap.jpg

However, the income doesn’t trickle down because of an autocratic government which controls the oil industry and uses the revenue to enrich itself and keep itself in power. 

The current president of Equatorial Guinea is Teodoro Obiang, he has been quite literally running the country for three decades. He has extensive powers, including naming and dismissing members of the cabinet, making laws by decree,  negotiating and ratifying treaties and serving as commander in chief of the armed forces.The anti-corruption lobby Transparency International describes Obiang as one of the world’s “most kleptocratic” living autocrats and has put Equatorial Guinea in the top 12 of its list of most corrupt states.

The advocacy group Global Witness has been lobbying the United States to act against Obiang’s son, Teodorin, who is vice-president and a government minister. It says there is credible evidence that he spent millions buying a Malibu mansion and private jet using corruptly acquired funds.

During the three decades of his rule, Obiang has shown little tolerance for opposition. While the country is nominally a democracy, elections have generally been considered a sham. According to Human Rights Watch, the dictatorship of President Obiang has used an oil boom to entrench and enrich itself further at the expense of the country’s people. 

There’s also the fact that The U.S. Government and U.S. Corporations Support Obiang

Without the help of international oil corporations, it’s unlikely that Equatorial Guinea would have been able to drill for oil – think about it, drilling for oil requires heavy industry and lots of investment.

Exon Mobile, the USA’s biggest oil company, has been operating in Equatorial Guinea since the mid 1990s and controls a 75% stake in Equatorial Guinea’s most productive oil field, which produces 270 000 barrels of oil a day (the market value of oil is currently $50 a day, which means this one field returns a revenue of around $1.4 million a day, or around $400 million a year).

NB the government (which basically means Obiang’s family) only controls a 5% stake of this particular field, but this tiny stake from this one oil field returns them something in the region of $300 000 a day, and there are many more oil fields.

Despite his dismal human rights and corruption record, Obiang was recently invited (in 2014) to a U.S. African summit – along with a whole load of other human rights abusers on the continent. The general gist of the article is that the U.S. is tolerant of corrupt governments in Africa because if they don’t do business with them, then the Chinese will, there’s also the fact that they might be useful in combating Islamic extremism.

Related Posts (forthcoming)

This country case-study is also useful for illustrating how TNCs are not interested in promoting social development in other parts of the world.

(1) You’ll notice from the graph above that Cuba is a good example of a country which has a relatively high human development compared to its GNI per capita, more on that later. 

 

 

Economic Indicators of Development

International organizations such as the World Bank prefer to measure development using economic indicators. There are three main economic indicators which are used to give an indication of the overall economic health of a country:

Three Economic Indicators of Development

  • Gross Domestic Product (GDP) is the total economic value of goods and services (expressed in US dollars) produced within the borders of a country in the course of a year and available for consumption in the market place.
  • Gross National Product (GNP) is the same but includes the value of all services produced at home and abroad. A country such as Ghana will have a relatively similar GDP to GNP because it doesn’t have many companies which produce things abroad: most production takes place within Ghana. America, on the other hand, which is where many Transnational Corporations are based, has a much higher GNP than GDP – Think about MacDonald’s for example –all of those Big Macs sold outside of the USA won’t appear in the GDP of the USA but will appear in the GNP.
  • Gross National Income (GNI) a hideous oversimplification of this is that it’s ‘Gross Domestic Product + the additional income that self-employed people pay themselves +income received from abroad’. This matters to a lot of developing countries who don’t produce much but have large diasporas, or populations living permanently abroad. Take Gambia for example (the country Paul Mendy takes your old toys to at Christmas) – 1/6th of its GNI is from money sent by relatives who abroad, this would not be included in either GDP or GNP.

You get slightly different country rankings if you use GNP or GDP rather than GNI. Don’t worry too much about the differences between the above – with a few exceptions* most developing countries tend to have similar GDPs, GNPs and GNI*s.

GDP and GNI per capita in India
*If you look at India’s Gross Domestic Product, it is the 7th richest country in the world, but if you look at its Gross National Income per Capita, it falls to 151st, due to its enormous population, abut also due to the fact that it consumes a lot of the goods it produces itself, so it doesn’t export much, so there’s not a lot of income coming into the country.

Two further important terms – ‘Per Capita’ and ‘Purchasing Power Parity’

  • Gross National Product Per Capita – GDP/ GNP are often divided by the total population of a country in order to provide a figure per head of population, known as GDP/ GNP per capita.
  • The cost of living varies in different countries – so one dollar will buy you a lot more rice in India than it would in America. Purchasing Power Parity figures for GNI per capita factor in the cost of living which is useful as it gives you more of an idea of the actual standard of living in that country for the average person.

Gross National Income Per Capita

This section provides a closer look different levels of ‘development’ according to this particular economic indicator. Remember, global rankings will vary depending on whether you use GNI, GNP, or GDP. 

One measurement of development The World Bank uses is Gross National Income (GNI), which can be crudely defined as the total value of goods and services produced in a country in a year plus any income from abroad. If you divide GNI by the number of people in the country, you get the average amount of income per person, or GNI per capita.

GNI per capita is widely regarded as a good indicator of the general standard of living in a country, and it is a good starting point for giving us an idea of the extent of global inequalities between countries. For example, the United Kingdom has a GNI per capita of about $43 000, while India has a GNI per capita of about $1600, which is more than 20 times greater.

The World Bank’s map of countries by Gross National Income per capita map is a useful, interactive resources to easily find out how most countries fair by this indicator of development. 

The World Bank’s Four Income Categories

The World Bank categorises countries into one of four categories based Gross National Income per capita (per head): high, upper middle, lower middle and low income countries.

GNI per capita world bank 2014.png

  • High income = $12,736 or more – about 60 countries, including most of Europe
  • Upper middle income = $4,126 – $12,735 – about 60 countries, includes South Africa and China
  • Lower middle income = $1,046 – $4,125 – about 50 countries, mostly in Africa, includes India
  • Low income = $1,045 or less – about 30 countries, mostly in Sub-Saharan

 

Comparing countries by GNI per Capita and total GDP

Top ten countries – GNI per capita

Monaco.jpg
Monaco – ranked number 1 in the world for GNI per capita
1  Monaco 186,950
2  Liechtenstein 115,530
 Bermuda (UK) 106,140
3  Norway 93,820
 Channel Islands (UK) 65,440
4  Qatar 85,430
5   Switzerland 84,180
 Isle of Man (UK) 83,930
6  Luxembourg 77,000
7  Australia 60,070
8  Denmark 58,590
9  Sweden 57,810
10  United States 54,960

Top ten countries Total by Gross Domestic Product

United States.jpg
The United States – ranked number 1 in the world for total GDP
1  United States 18,561,930
 European Union[n 1][19] 17,110,523
2  China[n 2] 11,391,619
3  Japan 4,730,300
4  Germany 3,494,900
5  United Kingdom 2,649,890
6  France 2,488,280
7  India 2,250,990
8  Italy 1,852,500
9  Brazil 1,769,600
10  San Marino 64,443

Question to consider: Why do you think the top ten countries are so different when judged by total GDP compared to GNI per capita?

Evaluating the Usefulness of Economic Indicators of Development

Three Advantages of using GDP/ GNP/ GNI as an indicator of development

  1. GNI figures provide a snap-shot indication of the huge difference between the more developed and less developed countries. In 2016, the GNP per capita in the UK was $43000 while in India it was only $1600. This means that there is 20 times as much money per person in the UK compared to in India
  2. Gross National Income figures are also closely correlated with social development – generally speaking the higher the GNI per capita, the better the education and health indicators are in a country.
  3. Total GDP figures give us an indication of who the most powerful nations are on earth in terms of military power. It’s not a perfect correlation, but the USA, China, Russia and the UK are all in the top ten for GDP and they are the biggest arms producers and consumers in the world too.

Four limitations of using GDP/ GNP/ GNI as an indicators of development

  1. Quality of life (Social Development) may be higher or lower than suggested by GNP per capita.
  2. They don’t tell us about inequalities within countries. The USA has one of the highest GNPs in the world but some extreme poverty.
  3. A lot of production in developing countries may not be included. For example, subsistence based production is consumed locally in the community, and not sold in the market place. Similarly goods obtained illegally on the black market are not included in GNP measurement
  4. They are very western concepts, equating production and economic growth with development. Some countries may not want economic growth and have different goals (Bhutan)

The United States – economically developed but socially retarded? 

The USA is a good example of a country that demonstrates why we can’t rely on economic indicators alone to give us a valid indication of how developed a country is. Despite ranking number 1 for total GDP, the USA does a lot worse on many social indicators of development – See this post – ‘The USA – an undeveloped country?’ for more details.

Review Questions 

  • Define Gross National Income Per Capita and be able to identify some high income and lower income countries.
  • Explain the difference between GNI, GDP, GNP, and understand the significance of Purchasing Power Parity.
  • Outline three strengths of using economic indicators of development
  • Outline at least three reasons why GNP may not be valid measurements of ‘development’

Gender Equality in Saudi Arabia

Saudi Arabia is well known for its high levels of gender inequality – and this week, Janice Turner pointed out that it is the only nation, in ‘flagrant disregard of the Olympic Charter, that will not be sending any women to the games. The rational for this is that exercise, according to the Saudi Religious Police, prompts girls to wear scanty clothes, mix with men and leave the house ‘unnecessarily’. (I got this from The Week – I wouldn’t post a link to The Times in any case because of its pay wall)

Turner points out that there is precedent for banning Saudi Arabia from the Olympics – as happened in 2000 with the Taliban, and as happens to any country practising Racial rather than gender apartheid.

This gender apartheid is well documented – even if not widely publicised – Just some of the ways in which women are oppressed in Saudi Arabia include

  • Women are generally expected to wear the full Hijab in public – with only the eyes and hands being visible.
  • There is a strict policy of sex segregation in public places – including work places and restaurants, with facilities often being of a lesser quality than for men.
  • Even though women’s literacy is high compared to some countries, educational opportunities are heavily gendered – with women being effectively prohibited from studying traditionally male subjects such as engineering and law – 97% of Female degrees are in education or the social sciences, which are deemed to be suitable for women.
  • Women are not allowed to travel without being accompanied by a male relative – resulting in their Being banned from driving – Saudi Arabia is the only country in the world to do so – which has actually led to a Facebook campaign and women posting videos of themselves driving
  • Finally, there is the possibility of being lashed and sent to jail for committing adultery – even if the victim of a gang rape

All of this is pretty grim from the perspective of most people in the West, and serves to illustrate numerous themes in Sociology –

Firstly, Saudi Arabia has to be one of the best examples of overt patriarchy preventing women from having equal opportunities with men – and thus shows us the continued relevance of Feminism globally.  Of course you might take issue with this and argue that there are some pros to Saudi society too, but from the straightforward perspective of gender equality – women are clearly not equal with men.

Secondly, it demonstrates the limits of ‘Cultural Globalisation’ – clearly Liberal, or any type of Feminism, hasn’t effectively penetrated the boarders of this country.

Thirdly, Saudi Arabia is a very good example of the problems of relying on the standard statistical indicators of development –  Saudi Arabia has a GNI per capita (PPP) of just over $23 000, ranking 56th in the world, and has a correspondingly high HDI (nearly – 0.8) – also ranking 56th.

However, on the ‘Gender Equality Index’, which compares the male-female rates of things such as political involvement, years in school, and the number of men and women in work, Saudi Arabia drops down to 135th (or thereabouts – I may’ve lost count!). Saudi Arabia must be the country that shows the biggest gap between its GNI/ HDI and it’s level of Gender Inequality.

I should just mention that things are on the up – women will be able to vote for the firs time in 2015, and are much more likely to be allowed to study abroad, for example, than in previous decades, but this relative liberalisation may not last forever, and, in any case, by the standards of gender equality in the west, Saudi Arabia has a long way to go until it rids itself of its gender apartheid.

America – A Less Developed Country?

The United States ranks either at the top, or very near the top on several of the main development indicators used by the World Bank and the United Nations, but if you look more closely you find that the United States might not be so ‘developed’ after all.

United States of America.gif
The U.S.A. – You don’t need to dig too deep to find squalor beneath the surface, in fact you don’t really need to dig at all!

This post starts out by exploring the seemingly positive indicators which suggest that the United States is one the most developed nations on earth, before looking at some other statistics and evidence which reveal the darker side of life in the United States, outlining some of the many areas where the U.S.A. looks very underdeveloped, despite its huge wealth and income.

Evidence for the apparent high levels of development in the United States

The U.S. ranks very high up the league tables for many economic indicators of development, such as Gross National Income, Gross National Product, and for total wealth. It also scores very highly in the United Nations Human Development Index which measure income, education and life-expectancy. 

Gross National Income and Gross Domestic Product 

The United States is the wealthiest country on earth by a long way, at least measured in terms of Nominal Gross National Income, where it’s GNI of $17 trillion is a long way ahead of second place China’s $10 trillion (2014 figures). GNI basically measures the value of goods produced in a country + wages earned abroad (fuller definition here). 

The chart below shows rankings by GDP (Gross Domestic Product) which measures economic output in a slightly different way  to GNI, but gives very similar rankings to the vast majority of countries when compared to the GNI rankings (see link above for the differences between GDP and GNI).

projected-gdp-nominal-ranking
Top 10 countries by nominal GDP (Gross Domestic Product) 2015

In terms of GNI per capita (GNI per person), the United States is also very near the top of the league table, coming 6th if we exclude the tax havens at the top, and the only country with a population over 200 million anywhere near the top.

Wealth Indicators 

According to Credit Suisse’s ‘World Wealth Report 2015‘, we see the same story in terms of wealth, where the Unites States remains one of the few countries with very high levels of wealth.

wealthiest-countries

The Human Development Index

If we take a slightly more in-depth look at the development levels of the United States, then according to Human Development Index (2015 figures) which gives countries a score based on a combination of GNI per capita, the average levels of education and life expectancy, the USA is in the highest ‘very high human development’ category and it still ranks an impressive 8th (the U.K. is 14th), and as with GNI per capita is the only country with a huge population in the top 10.

human-development-index-2015

 

Evidence of Underdevelopment in the United States

Despite its coming near the top of the league tables for many economic indicators, the U.S.A. comes much lower down many of the international league tables for social development, which suggests that the U.S.A. is failing to translate its enormous wealth and high levels of income into appropriate levels social development. 

The rest of this post explores the relatively poor performance of the United States in terms of social development (and I look at some more economic indicators too.)

The United States has VERY HIGH income and wealth inequalities 

According to the OECD, the USA was the third most unequal country in terms of income (2014 data).

The most graphic way of displaying this is through the GINI coefficient.  This ranks nations according to equality – A nation where every individual’s income is equal would have a gini index of 0. A nation where one individual gets all income, while everyone else gets nothing would have a gini index of 100.

To put this in terms which might be slightly easier to understand: In the USA, the top 20% of income earners take home almost nine times as much as the bottom 20% of income earners.

//www.compareyourcountry.org/inequality?cr=oecd&lg=en&page=0

(NB – The  U.K. isn’t much better – with the income of the top 20% being 6 times greater than the income of the poorest 20%.)

The graph below illustrates the increasing income inequalities in America – the share of national pre-tax income going to the top 1% has increased from around 13% to 21% (for only 1% of the population), whereas the share of income which goes to the bottom 50% has decreased from around 19% to 13%. America income inequality

In pre-tax income dollars, this means the top 1% earn an average of $1.3 million a year, while the bottom 50% of the American population earned an average of $16,000, which means that the top 1% earn 81 times the bottom 50%, compared to 1980 when it was only 27 times more.

Looking at post tax income, the difference isn’t so stark – the top 1% today earn 40* the bottom 50%, but again, if you look at the 40 year trend, the income of the rich has increased much faster than the income of the bottom 50%, whose income levels have more or less stagnated…

income inequality USA

If we look at the distribution of wealth in America, rather than income, there is an even higher degree of inequality. 

According to Allianz’s new Global Wealth Report (2015) which includes not just salary, but also property and investments held by a family found that America’s wealth inequality is even more gaping its income inequality.

wealth-inequality-usa
An approximation of the unequal distribution of wealth in America

The U.S. has $63.5 trillion, or 41.6% of the world’s private wealth (next to China with 10.5%, the U.K. is 4th with 5.6%), but the U.S. also has the largest wealth inequality gap of 55 countries studied, according to the report.

Allianz calculated each country’s wealth Gini coefficient — a measure of inequality in which 0 is perfect equality and 100 would mean perfect inequality, or one person owning all the wealth. It found that the U.S. had the most wealth inequality, with a score of 80.56, showing the most concentration of overall wealth in the hands of the proportionately fewest people.

This is a very useful video providing an infographical overview of wealth inequality in the USA (2016)

These statistics on income and wealth inequality are one of the main reasons why I think it’s fair to argue that America is in some ways an underdeveloped country – because such unequal distribution of income and wealth means the people at the bottom are effectively marginalised and don’t benefit from all that wealth and income sloshing about – what we effectively have are pockets of people who don’t benefit from the economic growth (‘development’) which the country as a whole has enjoyed over the past decades.

At least the bottom 20% (about 50 million of people in the U.S.A) face a daily struggle to get by, really only earning just enough for the basics of life – housing, heating, food, utilities, transport, maybe enough to save for birthday presents and a decent Christmas, but that’s pretty much it

Some grim evidence for this lies in the fact that 30 million Americans still can’t afford health insurance (Fiscal Times 2016), with a further 20 million only benefiting from it because of Obamacare (which may be Trashed following Trump’s election), which totals 50 million, or about 20% of the population. If 50 million people lack sufficient money for health care, they sure as hell won’t have enough money to fully participate in the full-blown joys of consumerism which is so much part of American culture.

So that’s 30 million (possibly soon to rise back up to 50 million) people within the United States, unable to access basic health care, just like in many poorer countries, which is pretty compelling evidence for labeling the United States ‘underdeveloped’. (NB if those 50 million people made up a country, it would be 28th most populated country on earth, out of 233).

On top of this, the relatively poor in America also have to contend with everyone else’s wealth and income being conspicuously consumed and displayed around them – on the streets, but especially in the media (if they’re stupid enough to watch T.V, which is most people), which adds an aspect of indignity into just earning enough to get by.

kim-kardashian-wealth
Kim Kardashian – making the rest of us feel even more worthless?

Of course if you were to compare the richest 10% with the bottom 10% the multiplier effect would be even greater, and it’s this section of the population which will be most likely to experience the many problems that come with poverty and extreme relative deprivation – facing the insecurity of flexible working conditions, living on sink housing estates, the threat of homelessness, the worries of debt, and living in the midst of higher crime areas.

15% of the population of America live below the official poverty line

Obviously related the above statistics, The Atlantic notes that the official US census data shows that ‘14.9 per cent of Americans, or almost 47 million people, falling below the poverty threshold of about $24,000 for the year.’ (2014 figures).

https://www.theatlantic.com/business/archive/2015/09/americas-poverty-problem/405700/

HOWEVER, the supplemental data shows that the true figure is slightly higher – standing at 15.3%.

USA poverty rates

America has relatively low life expectancy and healthy life expectancy

In 2016, the USA ranked a dismal 53rd for Life Expectancy, and the USA is one of only very few countries with ‘very high’ human development where the average life expectancy of the population is below 80 (you can see this in the Human Development Index table above), and in fact, according to the table below, there are several countries which are nestled alongside the USA, such as Puerto Rico and Cuba, which are considerably poorer but do much better on this key indicator of human development.

life expectancy rankings 2016.jpg

If you look at World Health Organisation data on healthy life  expectancy, then the relative development levels of the United States look even worse. There is a marked contrast between the USA and Europe European countries, which have similar levels of GNI per capita and education to the USA, have healthy life expediencies of 70+, while the United State’s healthy life expectancy languishes in the 65-69 bracket below, alongside the much poorer South American countries and China.Health LIfe Expectancy by Country.pngAmerica has 1.5 million children of primary-school age out of school

You might have thought that every industrialised, developed nation on earth had figured out how to keep 99% of its kids in school for 13 years or so, well America fails to do so. According to World Bank data,  it has a dismal primary enrolment rate of 93%, which slips down to 86% for tertiary education, and there are nearly 1.5 million children out of school (2014 figures)

 America is the 114th least peaceful country in the world

According to the Global Peace Index, America has witnessed the fourth largest decrease in peacefulness in last ten years, in terms of how far it’s regressed, it’s right next to Syria in the international league tables for the ten year decline in peacefulness.

America still has the highest military expenditure in the world

The Global Peace Index 2017 notes that: ‘The past year has been a deeply worrying one for the US, with the presidential campaign highlighting the deep divisions within American society. Accordingly, the score for intensity of organised internal conflict has worsened. Data have also shown a declining level of trust in government and other citizens which has generated a deterioration in the score for level of perceived criminality in society. Social problems within the US are also likely to become more entrenched and racial tensions may continue to simmer. Reflecting these tensions, rising homicide rates in several major American cities led to a deterioration in the homicide rate indicator, contributing to the decline in the US’s peace score.’

HOWEVER, the main contributing factor to America’s high violence rating is it’s continued high levels of expenditure on its military and heavy weaponry. Despite military expenditure declining in recent years, relative to other nations, the U.S. still spends a fortune on the machinery of violence.

On the subject of military expenditure…. America’s recent $110 billion arms deal with Saudi Arabia and support for their war against Yemen doesn’t help its peacefulness score. …

America’s War in Yemen

NB – This post is a work in progress, I’ll add to it at various points over the coming year… 

Things to follow….

The United States are by far the largest nuclear power producer, with 33.2% of the world’s total, followed by France (17.1%) and Russia (7.0%). The United Kingdom’s production accounts for 2.9%.

This also means that the United States is the largest producer of nuclear waste, including Plutonium, an essential ingredient in nuclear weapons.

Related Posts

What is the Global Peace Index

The Global Peace Index – What is it and How Useful Is It?

 

Sources 

World Development Indicator Maps

The difference between GNP, GDP and GNI (Economics Help)

 

The Island of Nauru – Development as Environmental Decline

The case study of Nauru illustrates the potential catastrophic consequences of pursuing economic growth without considering the ecological consequences. It may only be one island but Klein argues that the logic which hollowed out Nauru is the same logic which has driven the global economy for the last 400 years. 

Nauru.jpg
Nauru – Hollowed out due to phosphorous mining

The extract below is taken from Naomi Klein’s ‘This Changes Everything‘ (2014: Chapter Five  Beyond Extractivism)

Few places on earth embody the suicidal results of building our economies on polluting extraction more graphically than Nauru. Thanks to its mining of phosphate, Nauru has spent the last century disappearing from the inside out; now, thanks to our collective mining of fossil fuels, it is disappearing from the outside in.

For decades, the tiny South Pacific Island of Nauru, home to only 10 000 people, seemed to be an example of a developing country which was doing everything right.

During the 1970s and 80s, the island was periodically featured in press reports, as a place of almost obscene riches, much as Dubai is invoked today, and in the mid-80s Nauru was reported as having the highest GDP capita in the world.

All of this was due to the fact that Nauru was made up almost pure phosphate, a valuable fertiliser, which the Nauruans had been shipping to mainly Australia since they gained their independence in 1968.

Extraction had been going on long before, since 1900, carried out by a series of colonial rulers, who had a simple plan for Nauru once all the phosphate had been extracted – simply ship the islanders to another island. In other words, Nauru was developed in order to disappear – an acceptable (and largely invisible) sacrifice to make for the advancement of industrial agriculture.

When the Nauruans themselves took control of their country in 1968, they had hopes of reversing the hollowing out of their island. They put large chunks of their mining revenue into a trust fund, with the intention of winding down the mining operation and rehabilitating their island’s ecology. However, this long term plan failed as Nauru’s government received catastrophically bad investment advice and the countries mining wealth was squandered.

As a result, rather than being wound-down throughout the 70s and 80s the mining continued unabated and Nauruans benefited from the royalties which rolled in – one consequence was a radical change in diet as islanders came to eat large amounts of processed food (as one resident recalls – ‘during the golden era we didn’t cook, we at in restaurants) which resulted in Nauru becoming the fattest place on earth (today it has the highest levels of obesity and the highest levels of diabetes in the world). Another consequence of high levels of cash was high levels of corruption amongst public officials.

Another consequence was, of course, the hollowing out of the island – in the 1960s Nauru could still have passed as a pleasant tropical island, but the 1990s it was a hollow shell with a small strip around the edge where people lived.

Isolated in the Pacific, the island of Nauru, world's smallest republic, was once world's richest country because of phosphate resources. Nauru holds currently diabetes and obesity highest levels though weightlifting is the national sport. Following state
Machinery used to extract phosphorous from Nauru

Now the island faces a double bankruptcy – with 90% of the island depleted from mining it faces ecological bankruptcy and with a debt of at least $800 million it faces financial bankruptcy as well.

But this is not the end of Nauru’s problems – it now also faces rising sea levels and inland water shortages because of climate change.

This isn’t the end of the misery of Nauru – because in the past decade the island has become a dumping ground of another sort – In an effort to raise much needed revenue it has agreed to house an offshore detention centre for the government of Australia, in what has become known as ‘the Pacific Solution’. Australian navy and customs ships intercept boats of migrants, most from Afghanistan, Sri Lanka, Iraq, Iran and Pakistan, and immediately fly them to Nauru where they languish in a detention centre, unsure of their status, sometimes up to five years.

Nauru detention centre.jpg
The detention centre for refugees on Nauru

Amnesty International has called the camp ‘cruel’ and ‘degrading’ and one journalist has likened it to a death factory because conditions are so bad that people have been driven to attempt suicide.

Nauru is only an extreme case – there are plenty of other examples which are similar, if not as bad…

Unfortunately for us, the logic which has led to such devastation and cruelty on Nauru is the same logic which has underpinned the last 400 years of ‘development’. This logic is the logic of ‘extractivism’ – a non-reciprocal, dominance based relationship with the earth, one of purely taking. The opposite is stewardship, which involves taking but also taking care that regeneration and future life continues.

Extractivism is also directly connected to the notion of sacrifice zones – places that, to the extractors, somehow don’t count and therefore can be poisoned, drained, or otherwise destroyed, for the supposed greater good of economic progress.

This extractivist thinking, unfortunately, lies behind not only the whole history of modernity and colonialism, and obviously neoliberalism, but also behind Socialism, including most of the recent leftist movements in Latin America, because despite their advances in bringing greater equality, national income is still heavily dependent on fossil fuels. Even the mainstream in the Green Movement are failing to challenge the extractivist model because they have come under the thrall of large-scale, big tech solutions to climate-change, rather than accepting as necessity that the earth requires us to consume less.

Pretty much the only ray of hope for a sustainable future according to Klein lies in the Scandinavian social-democratic models, which are going to take a globalised grass-roots movement to realise on an  international level.

Sources used to write this post:

Summarised from ‘Naomi Klein’s ‘This Changes Everything’ (2014)