It had been a productive morning so far. The family I was helping had picked close to 200 pounds of red, ripe coffee beans and we were relaxing around a cooking fire where the women had prepared a feast of beans, tortillas and avocado. Life seemed peaceful for the moment. Bellies were full. Beautiful Lake Atitlán, the jewel of Guatemala, was glistening in the distance. The only serious issue that remained this day was the matter of getting a couple of 100-pound sacks of coffee two miles down the side of the Tolimán volcano to the coffee-processing plant where they would be weighed and scrutinized for leaves and stems prior to the payout.
Our discussion at lunch ranged from coffee prices to politics, focusing especially on the recent Peace Accords. Yes, everyone agreed, life had improved since the cessation of hostilities in December 1996, if only because the Guatemalan military was no longer dragging their sons off the streets and soccer fields to fight in the counterinsurgency war against the Guatemalan National Revolutionary Unity (URNG). Also, sleep came a lot easier knowing that the chances of a visit in the middle of the night from a paramilitary death squad were significantly reduced if not entirely eliminated.
Had any of the benefits of the Accords on the economy or judicial reform trickled down their way? Beyond a basic recognition that the Accords had left land-holding patterns untouched, they were not aware of many details. Their lives had remained essentially unchanged, they told me, living from day to day, eagerly awaiting the coffee harvest in hopes that it would be profitable enough this year to allow them to keep their kids in school and to pay their medical bills.
I asked if they were aware of the global economic crisis that had engulfed Asia, Russia and Brazil, and if they were concerned that Guatemala might be next. Don Ramón, the patriarch of the family, patiently explained to me that during his entire lifetime, and that of his father—indeed, he said, for nearly 500 years—Guatemala had been going through an essentially permanent economic crisis. How, he asked, could a country possibly have a healthy economy when most of its people go to bed hungry each night, and when they do not have land or any control over their lives? How could the latest problems from Asia or wherever make their lives any worse?
I was thinking about this lesson in real-world economics the next day when I stumbled on an issue of Newsweek devoted to the global financial crisis.[1] One of the broad themes running through all the stories was that while calm was returning to financial markets, economic recovery in the developing world was slow in coming. Indeed, there is abundant evidence that poverty and suffering is widespread. In the arctic regions of Russia, for example, people whose life savings vaporized in the early days of the ruble crisis faced starvation during one of the worst winters on record. In Jakarta, fathers who were once gainfully employed have now joined their families in the garbage dumps scrounging for their next meal. For many people, life—which was never very easy—has become precarious and desperate.
Many are beginning to blame the global financial system itself for such outcomes.[2] With countries like Malaysia setting a “dangerous” example by establishing restrictions on the movement of foreign capital, there is genuine fear in the establishment that some serious backsliding may be in the offing among those countries that had so eagerly embraced the neoliberal agenda. This may help to explain why Klaus Schwab, president of the World Economic Forum, selected “Responsible Globality” as the theme of this year’s conference in Davos, Switzerland. Globalization is not going away anytime soon, says Schwab. The key, therefore, for lifting people out of poverty, is an improved infrastructure—”procedural, legal and institutional mechanisms”—to help harness the global revolution. “The new dividing line between richness and poverty,” he suggests, “is not between the haves and have-nots, but between the knows and don’t knows. The best way to help the poor is to enable them to take advantage of a global knowledge-economy.”[3]
Don Ramón’s eyes would probably glaze over if I told him that there was a fellow by the name of Klaus Schwab who was of the opinion that it did not matter that he was a have-not, and that he could improve his life if he would just take advantage of the “global knowledge-economy.” If Don Ramón could speak with Mr. Schwab, he would surely tell him that his knowledge of the coffee business is just fine, and that what he needs is not a fancy Internet hookup or a Web page, but rather a higher price for his coffee and more land on which to grow it.
Each of the 100-pound sacks (referred to as a quintal) that Don Ramón’s sons carried down the mountain that day only brought the family approximately $14. They only have half an acre of coffee and, because of the age of the trees, will be lucky to harvest a total of 2,500 pounds this year. If they can avoid the thieves who prey on small producers—lying in wait to take a family’s harvest at gun point—they will earn an extra $360, a nice supplement to Don Ramón’s weekly income of $17, but still not yet within striking distance of Guatemala’s average annual income of $1,500.
Another way to think about the Ramón family’s precarious position in the global economic order is to suppose that with a bit of luck some of their coffee ended up in the inventory of an upscale U.S. coffee shop. For every $4 cup of café latté sold, Don Ramón would receive about $0.02—less than 1%. Coffee processors and exporters, transportation companies, advertising agencies, roasters, retailers and other intermediaries would take the remaining 99%.
In spite of all that, Don Ramón is one of the lucky ones. Most people have no hope of owning their own land. In Guatemala, just 2% of the population owns 80% of the land. Not coincidentally, three-quarters of Guatemalans live in poverty, with nearly 60% of the population unable to meet minimal nutritional needs. Eighty-five percent of children under age five experience malnourishment to some degree, and stunted growth affects up to 95% of non-Spanish speaking children in some regions of the country.[4]
Don Ramón is luckier still because of his steady $17 per week job as a bee keeper. For many highlands residents, however, not only is land an impossible dream, but work itself has become scarce. Many highlands families survived for generations as residential employees of the giant coffee plantations, a throwback to the days of the colonial encomienda, or royal land commissions, where the indigenous were expelled from their own lands and, through a variety of forced-labor laws, made to work on the estates. The Constitution ostensibly protects modern plantation workers by obligating owners to provide workers with housing, clean water, a minimum wage (currently $2.80 per day), schooling and health care—not a bad deal, on paper. In reality, many of those services are not provided, including payment of the minimum wage. More often than not, a daily wage of only $2.10-$2.60 is paid. Guatemala’s own Ministry of Labor estimates that there is only 15% compliance with payment of the minimum wage in rural areas.[5] Since workers are generally poorly educated, not aware of their legal rights, and with no local authority to whom they can turn, owners can operate with impunity. Nevertheless, there is some limited degree of security for the families in this arrangement, no matter how inequitable.
A trend begun on the coastal sugar plantations in the 1980s, which is gaining more and more acceptance on the coffee estates of the highlands, is to use seasonal or sometimes daily contract laborers instead of permanent employees. For the owners, efficiencies—i.e., cost-savings—from not having to provide year-round wages and benefits far outweigh the uncertainties associated with having to hire and supervise temporary workers. There is also a secondary financial benefit that comes from releasing hundreds of families into the labor market. Their presence in the contract labor force helps to put further downward pressure on an already distressed labor market, allowing the owner to pay wages far below the legal minimum. For the families, on the other hand, who have been kicked out of the only homes they have ever known for generation upon generation, life takes a turn for the worse. They have little choice but to join the ranks of the seasonal work force. Their wages, which were never totally adequate in the first place, get cut in half or more since seasonal work is just that—seasonal. Plus, without land, there is no means to grow one’s own food. Housing, medical care and schooling become additional complicated financial matters.
With at most six months of work at the subminimum wages of approximately $2.30 a day, feeding and caring for a typical highlands family of six is nearly impossible. All hopes will be pinned on a bountiful coffee harvest. The months of January and February are the peak months and entire families will head up the mountainsides at daybreak to pick coffee for the owner. They are paid by the pound, and with all hands working feverishly they may pick 300 pounds a day. At a pay scale averaging $0.023 per pound, the family may bring home approximately $6.90 every day during this peak period. It is imperative that these two months go well for the families because nearly 70% of their annual income is earned at this time. The yields are so much lower in the month before and the month after that only 25-30 pounds per day, or $0.62 per day, can be counted on.
With some luck, the father and possibly an older son may get hired for an extra couple of months for weeding, pruning or planting on one of the plantations. Additional work could conceivably be found on one of the coastal sugar plantations, though the harvest season tends to overlap with that of coffee. At any rate, the family’s income for the season will be in the vicinity of about $715, an amount that will cover only about a third of the required minimal daily caloric intake of a basic corn and beans diet.[6] In addition, housing, medical care, school and clothing will take as much as a third out of this already strained family budget. Income-earning opportunities during the rainy season for families like the Ramóns are limited. The occasional odd job—shining shoes, selling prepared foods in the market, or for the desperate, begging or prostitution—brings only a modicum of financial relief. It is not hard to see where the high statistics on malnutrition come from when so many families face similar circumstances. It is also easy to see why a plot of one’s own land is so critical for survival.
To my knowledge, former U.S. Treasury Secretary Robert Rubin, the architect of U.S. neoliberal economic policies during the 1990s, and his former deputy and now successor, Lawrence Summers, never invited Don Ramón or any of the rest of the world’s poor campesinos to any of their free-market strategy sessions. Nor have I seen any accounts of their visits to the countryside to share a meal and a discussion with the Don Ramóns of the world for whom the benefits of trickle-down economics are slow to arrive.
Indeed, the current global crisis has little to do with the fact that Secretary Rubin has not gotten interest rates or exchange rates right, or that the various countries’ budget deficits are too high, or some other statistical imbalance. It has a lot to do with the fact that policies aimed at the developing world are far removed from the needs and realities of the majority of the world’s peoples. Such policies, implemented by the rich and powerful, assume a textbook world in which producers and consumers operate at arms length, negotiating until a price and quantity are determined that clear the market and benefit both parties to the transaction. Overlooked are the more realistic scenarios whereby Don Ramón and other small producers receive take-it-or-leave-it prices from agribusiness concerns that control the world’s markets.
A survey done by the Association for the Development of San Lucas Tolimán, a highlands community in the heart of the coffee-growing region, indicated that small coffee producers need to receive a price of $28.50 per 100 pounds in order to cover their production costs and to put an adequate diet on the table. But the reality is that market prices have not been that high in years.[7] You can be sure that if there is a glut of coffee on world markets—and if the powerful coffee merchants have their way, there will always be a glut—prices will fall for Don Ramón and his family. On the other hand, café latté prices will hold firmly, or possibly rise a bit at the fashionable coffee houses.
U.S. Treasury policies, which draw upon free-trade concepts first espoused by the British economist David Ricardo over 200 years ago, are supposed to work like this: Guatemala should produce those products in which it has a comparative advantage, such as coffee, sugar and bananas. The United States, its largest trading partner, should do likewise, focusing on goods like sport utility vehicles (SUVs), computers and information services. Then, by trading freely with one another, their respective national incomes will be higher than if each country attempted to be self-sufficient in the production of all goods.
So how much coffee would a landowner in Guatemala have to produce to be able to afford to purchase the latest $50,000 SUV? At an average wholesale price for top-end, gourmet coffee of $100 per 100-pound sacks, the landowner would need to produce 250,000 pounds of coffee beans.[8] This would entail the use of approximately 50 acres of land.[9] The landowner would have to employ approximately 21 workers during a four-month harvest season and pay them approximately $0.23 per hour.[10] This would add up to a collective wage bill of about $5,700, or 11% percent of the cost of the SUV. If the plantation in this example happened to be among the country’s largest, it might be in the vicinity of 600 acres, enabling the owner to buy a fleet of nearly 12 SUVs per year.[11]
On the other hand, suppose that one of the boss’s workers also wanted to purchase a vehicle. If he were somehow able to save every single cent of his paycheck it would take him 18 years to accumulate enough money to buy a $5,000 used car. To buy an SUV he would have to share the purchase with each of his 21 co-workers and they would each have to save the entirety of their paychecks for nine years.
Such free-trade policies will be deemed successful as long as they can continue to generate 20% returns year in, year out, in the U.S. financial markets. But how long can this continue? The investment guru Peter Lynch emphasizes in his television commercials for Fidelity Investments that there is nothing magical about successful stock-market investing. Good portfolio performance results from doing one’s homework, from carefully scrutinizing those companies that have strong profit potential. What is not mentioned, however, is how those profits come about, and especially how critical the connection is to the developing world.
Profits, of course, arise when sales revenues exceed the costs of production. Don Ramón might be amazed to realize just how vital he is to the amassing of global corporate profits—he figures critically in both variables in the profit equation (revenues and costs). To the coffee merchants, his family’s 2,500 pounds of coffee sold at $14 represents just another cost of doing business. The more small growers like him there are around the world, the more coffee is produced. And with more coffee comes lower production costs for the coffee multinationals. The lower coffee prices are, however, the less food Doña Ramón can afford to buy for her family’s meals. But that is not the concern of the coffee companies.
The Ramón family is also critical to the revenue side of the equation. Here is how that connection works. The United States produces many more goods than it is capable of consuming domestically. In certain industries such as agriculture, this imbalance is quite significant. For example, wheat production exceeds domestic consumption by as much as 50% in a given year, corn by 25%. In order for corporations to provide investors with healthy annual returns, not only do they need to hold the line on costs, but they also need to find overseas outlets for their surpluses. To follow our example, this entails finding markets for as much as 50,000,000 metric tons of wheat and corn per year.[12] Exports, therefore, represent an increasingly large share of gross domestic product (GDP), having grown from less than 6% to nearly 15% of GDP in the past ten years. Also, developing countries have become increasingly more important as destinations for U.S. surpluses during this period, increasing their share of U.S. exports from 35% to 45%.[13] In countries like Guatemala, the well-to-do have been consuming imports from the United States for years. It is people like Don Ramón and his highlands neighbors who are being called upon more and more these days to do their share.
We have created a system that generates enormous profits for a select few who sell products like soft drinks, snacks and cigarettes to the masses around the world. The glitch occurs when the masses can no longer afford to buy these things. When this happens, the system begins to grind to a halt. In other words, the system is sustainable only as long as the masses are actually able to participate in it—that is, when they are paid a living wage. And the system has limited sustainability when the people who actually have enough disposable income to buy these consumer goods number less than 10% in most countries of the developing world.
For the moment, thanks to aggressive advertising—as well as high sugar and nicotine content—Don Ramón and the remaining 90% in Guatemala who are among the have-nots are obediently consuming soft drinks, snacks and cigarettes like there is no tomorrow, much to the detriment of their health and well-being. It is not an uncommon sight to see a family that cannot afford to send its kids to school or buy them shoes spending their hard-earned quetzales on Coca-Cola, Chiclets, Doritos or Marlboro cigarettes. However, it seems unlikely that the means exist for the Ramóns and their neighbors to increase their purchases of these products year after year so that the companies that peddle these products can continue to expand. Amazingly though, stock market investors continue to place their bets that somehow the multinationals will continue to reach more people throughout the world with their advertising, or convince those already in their grasp to dig deeper into their pockets to buy even more.
Herein lies a core capitalist contradiction. With the goal of increasing global profits, corporations are searching all over the world for new customers like Don Ramón, promising them unlimited happiness if they would just buy their products. The corporations’ hope, on the other hand, is that someone else will pay these customers a high enough wage so that they can afford the products. So far, no one appears willing to do so.
Like the global corporations, Guatemala’s oligarchy also faces a contradiction. In its effort to maintain power, prestige and wealth, it refuses to treat the indigenous and campesino poor of its country humanely—to share the richness of the land. Without land, the poor are forced to work as seasonal laborers or to assemble clothes in the maquiladoras for wages that cannot put food on the table, much less buy consumer goods or luxury items. Guatemala’s producers thus have no choice but to become ever more dependent on export sales. What they find, though, is that the oligarchy in nearly every other developing country is doing the same thing, from Brazil to Indonesia to Russia. Prices around the world fall as a result of the collective attempt to run trade surpluses. The people who have to tighten their belts as a result are not the landowners—they do not want to give up their SUVs and their country clubs—but rather the Don Ramóns of the world.
ABOUT THE AUTHOR
John D. Abell is professor of economics at Randolph-Macon Woman’s College.
NOTES
The Neoliberal World Order: The View From the Highlands of
Guatemala
1. Newsweek International, February 1, 1999.
2. See, for example, the four-part New York Times series “Global Contagion,” February 15-18, 1999.
3. Newsweek International, February 1, 1999, p. 56.
4. Bread for the World, Hunger 1990 (Washington, D.C.: Bread for the World Institute on Hunger and Development, 1990).
5. Tom Barry, Inside Guatemala (Albuquerque: Inter-Hemispheric Education Resource Center, 1992), p. 97.
6. At current market prices for corn ($0.11 per pound) and beans ($0.54 per pound), it would take $5.20 per day to provide a family of six with the minimal daily required calories (2,900-men, 2,340-women, 1,485-children) based on figures from the National Academy of Sciences. An annual income of $715 per year covers about 38% of the cost of the basic diet.
7. In an effort to address poverty in the area, the Association pays small coffee growers who meet exacting quality standards the above market price of $28.50 per 100-pound sack. For more on this effort and other sustainable projects of the community, see John Abell, “Peace in Guatemala? The Story of San Lucas Tolimán,” in J. Brauer and W.G. Gissy, eds., Economics of Conflict Resolution and Peace (Brookfield: Ashgate Publishing Co., 1997), pp. 150-178.
8. This assumes a ratio of five-to-one raw bean to wholesale (what is known as green coffee).
9. This asumes a yield of approximately 5,000 pounds per acre.
10. This assumes each worker can pick on average 100 pounds per day. The actual day-to-day yield will depend, of course, on the stage in the harvest.
11. Barry, Inside Guatemala, p. 104. The exact average is 582.
12. Agricultural data from: U.S. Department of Agriculture, USDA Economic Research Service, an online data service.
13. Guatemala has gone from essentially being self-sufficient in the production of corn, importing only a negligible amount in the 1960s, to importing 25% of its domestic needs in the 1990s from the United States and other countries. Cheap U.S. wheat has swamped the domestic wheat industry such that nearly 100% of all wheat consumed domestically is imported.
