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Press release: Embargo Thursday 18^th September, 2003

GLOBAL “HOOVER EFFECT” SUCKING WEALTH OUT OF POOR COUNTRIES INTO THE U.S. 

IN COUNTERBLAST TO IMF REPORT - LEADING THINK TANK’S DATA REVEALS GLOBAL DRAIN OF RESOURCES FROM IMPOVERISHED NATIONS

As the World Bank and IMF hold their annual meetings to discuss the state of the global economy, nef  (thenew economics foundation) releases groundbreaking data demonstrating that the global economy - as structured by western politicians and bankers - is acting as a giant “hoover”. The new analysis of global inequalities shows that globalisation is sucking wealth and resources out of the poorest countries and concentrating it in the hands of a few in the richest countries, particularly the United States.

The research is published ina new annual report which shadows the IMF’s World Economic Outlook, ‘Real World Economic Outlook’, published by Palgrave Macmillan. It is produced by Jubilee Research at nef, the team whospearheaded global awareness of third world debt.

Ann Pettifor, editor of Real World Economic Outlook said: “Despite much rigging of statistics, the “trickle down” effect has not been proven. Instead, as the World Bank’s own data illustrates, poor countries are lenders to the rich –  unwittingly financing opulent living standards in the US and elsewhere.

“Orthodox textbooks teach us that with financial liberalisation capital should flow from where it is plentiful, to where it is scarce. Tragically, the reverse is happening today. This is a form of global theft of the world’s poor – and helps explain rising tensions in the world .

“Poor countries are obliged to finance US consumption by holding dollar reserves.  They’re condemned if, like China, they build up these reserves; and they’re condemned - by capital markets-  if they don’t”.

Typical studies on inequality by the World Bank and the IMF only examine one part of global wealth - incomes. In nef’s annual report, Real World Economic Outlook, incomes and assets are analysed – and compared to rising levels of household, corporate and government debt.

Romilly Greenhill, senior economist at Jubilee Research and author of the RWEO analysis, said: “The rich on the whole, do not live from incomes. They make capital gains from assets. In our ground-breaking analysis of the distribution of assets and debts, we find that globalisation has generated massive wealth for the rich, and huge debts for the poor”.

According to the report the “hoover” effect of the global economy is achieved largely by an international financial structure skewed to benefit the rich. The dollar led construction of the international financial system means that poor and rich countries alike are obliged to keep financing the US deficit, through the purchase of US “IOUs” (Treasury Bills).

In the absence of a global key currency standard, the US Treasury Bill now plays the part that gold once played in the global economy. This system, according to nef, has led to an increased transfer of resources from poor countries, and the concentration of wealth in rich countries. There is a net flow of $48 billion every year from the poorest people to the richest, easily outstripping annual aid grants of £32billion.

•  As financial instability increase or as US consumption rises, countries are forced to hold high levels of US dollar reserves, usually in the form of US Treasury Bills. They are, in effect, making very low interest rate loans to the United States, while at the same time borrowing from abroad (including from the United States, the World Bank, and the IMF) at very high rates of interest.
• Capital flight and outflows of Foreign Direct Investment, to the tune of $97.8 billion every year, leave poor countries for banks in Switzerland, the United Kingdom and the United States in particular. Some of this money is legal investments made by residents of developing countries in Northern countries, but much of it is illegal capital that finds its way into the accounts of all too willing banks in the North.
• Remittances of multinational corporate profits from developing countries where the company branches operate to headquarters in the rich countries – a further $55 billion in 2001.

- ENDS –

1.    On Wednesday, 17^th September, 2003, at 4 p.m. Ann Pettifor and Romilly Greenhill will be briefing journalists on the Real World Economic Outlook in Gulf Room 5, on the 33^rd Floor of the Fairmont Dubai, Sheikh Zayed Rd.

2.   nef is an independent think and do tank that inspires and demonstrates real economic well-being. We aim to improve quality of life by promoting innovative solutions that challenge mainstream thinking on economic, environment and social issues. We work in partnership and put people and the planet first.

3.   Jubilee Research is a team, led by Ann Pettifor, specialising in international finance and governance at the new economics foundation.

4.    The Real World Economic Outlook is an annual report on the global economy, examining the international system from the point of view of economic and environmental justice. It is published by Palgrave Macmillan, and is available from their website at www.palgrave.com/rweo.

5.   For more information contact Ann Pettifor on 07770 886 146. Ms Pettifor and her colleagues will be staying at the Jumeira Rotana Hotel, Tel: 971 – 4 3455 888.

              Net flows to all developing countries (1998-2002) (US$ billion) (Source: Global Development Finance 2003).