Women -- particularly low-income women and women of color -- will likely bear the brunt of the spiralling U.S. economic crisis,
writes women's economic development expert Sara Gould.
September 22, 2008
The Poverty Problem
The decline of the global economy has triggered concerns that millions will be sent into poverty in China and India.
By year's end, the impact of the global financial crisis of 2008 was starting to be felt in the developing world, with slowdowns expected in all emerging economies. These growth declines could have significant effects on the world's poorest populations. The World Bank estimates that a 1 percent decline in developing country growth rates traps an additional 20 million people in poverty. Concern centers on slowing growth in India and China, the world's two most populous nations and the largest contributors to reductions in global poverty in the last two decades, according to many academic studies. Reduced economic growth in both countries could reverse poverty alleviation efforts and even push more people into poverty, say some experts. The financial crisis has also likely made the achievement of the United Nations' Millenium Development Goals (MDGs) on poverty—to halve the proportion of people in extreme poverty by 2015—more difficult.
Poverty and Hunger Challenge
In the developing world as a whole, economists say that soaring food and fuel prices were already placing strain on the poor prior to the onset of the financial crisis. The UN World Food Program estimated in September 2008 that there are 850 million chronically hungry people in the world, a tally that could increase by 130 million this year (PDF). The World Bank estimates that the number of poor increased by at least 100 million as a result of the food and fuel crises. It argues that declines in food and fuel prices in late 2008 have not solved the problem. According to its November 2008 report, the poorest households were "forced to switch from more expensive to cheaper and less nutritional foodstuffs, or cut back on total caloric intake altogether, face weight loss and severe malnutrition."
The poor in India and China, like the rest of the world, have also been affected by the rise in fuel and food prices. For India the problem is especially vexing. The 2008 Global Hunger Index of the International Food Policy Research Institute says India already suffers from alarming levels of hunger, and is one of three countries with the highest prevalence—more than 40 percent—of underweight children under five.
The Specter of Growing Inequality
Yet sharply tighter credit conditions and weaker growth are likely to cut into governments' abilities to invest to meet education, health, and gender goals, hitting the poor the hardest, says the World Bank. An October 2008 report on global income inequality by the International Labor Organization says income inequality, on the rise in most regions of the world, is expected to increase due to the global financial crisis.
China, with its current account surplus and nearly $2 trillion in foreign reserves, is better placed than India to continue long-term investments in infrastructure and social-welfare initiatives. In November 2008, the Wall Street Journal reported that as many as half of India's planned highway-improvement projects, valued at more than $6 billion, could be delayed as much as two years. India is especially hard-hit, it says, because it had expected private investment to fund around half of the more than $100 billion a year in planned infrastructure development.
Threats to Political and Social Stability
A slowdown in exports contributed to the closing of at least 67,000 factories (NYT) across China in the first half of 2008, prompting laid-off workers to take to the streets in protest. Joshua Kurlantzick of the Carnegie Endowment for International Peace's China program writes in the New Republic that so far China has kept the labor protests separate from one another, preventing them from developing a common theme or a common leader. "But if China's downturn turns into an outright recession, the country could face its first serious threat to the regime," he warns.
According to the International Monetary Fund's (IMF) 2008 world economic outlook, China's gross domestic product (GDP) growth is expected to fall from 11.9 percent in 2007 to 9.3 percent in 2009. Adam Segal, CFR senior fellow for China studies, says the Chinese government's announcement of a $586 billion stimulus package in November 2008 shows how worried leaders are. "This is the first serious slowdown for China in thirty years," he says, adding that the government knows that to maintain social stability, it must keep generating employment for those migrating from rural to urban areas. In an October 2008 meeting with Singapore's prime minister, Chinese President Hu Jintao acknowledged the need for sustained economic reforms. He said the country will sustain its economic and social stability by "transforming the economic growth pattern, restructuring the economy, attaching more importance to agriculture, and taking regulatory measures."
In India, no one is going to be satisfied with a growth rate lower than what they have come to expect in the last ten years, says Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics. The IMF projects India's growth will fall from 9.3 percent in 2007 to 6.9 percent in 2009. "Not meeting expectations poses a problem for policy," he says, adding that the government is sensitive to this and has already cut interest rates and pumped liquidity into its capital markets to sustain investment. But in India, the threat is different than the one faced by China, says Segal. India, a diverse, multiethnic, multifaith country, has always struggled with a degree of social instability as various minority groups seek redress against discrimination. Instability may rise as the country goes to the polls early next year and opposition groups try to take advantage of the financial crisis to highlight the government's deficiencies, say experts.
Stimulus and Questions Over Trade
China's top-down governance structure gives it a greater ability to mobilize resources and implement policies faster, says experts. CFR's Segal says "it's probably better to be a poor person in China than India" because of China's ability to spend on projects that could provide immediate relief to the poor. In India, taking steps through a democratic system makes the response time longer in such a crisis. India also lacks the ability China has to respond with direct cash transfers.
Some economists are worried about the impact on poverty reduction if the current financial crisis spurs protectionism, undermining free trade policies. In November 2008, the Indian government, in response to a fall in global commodity prices , imposed a 5 percent import duty (Bloomberg) on a range of iron and steel products, and slapped a 20 percent duty on crude soybean oil imports to protect domestic producers. India and China have also been called upon to agree to the World Trade Organization's Doha development agenda, dealing with a range of international trade reforms, including some in the agricultural sector. In July 2008, the seven-year negotiations reached a stalemate when India and China refused to compromise over measures to protect farmers in developing countries from greater liberalization of trade. But leaders attending the G-20 summit on the financial crisis in November 2008, which included India and China, promised to refrain from protectionist measures in the next year, and called for each country in the group to make "positive contributions" to a successful conclusion of the Doha round.