Global Capitalism, Third World Development:
Is the Sweat
Shop the Destination or
the start of a Take Off into Self-Sustained Growth?
Bill Geddes
July 7 2010 Kindle (zipped '.mobi' file) Version; EBook (zipped '.epub' file) Version; HTML (zipped '.htm' file) Version
One of the saddest features of the ‘Third World Development’
drive is that, in the process of reorganising utilization of their environments,
non-Western communities have been disrupted.
Many of them are disintegrating, victims of the well-meaning
‘development’ activities of Western experts 1.
As S. N. Sangmpam claimed:
 Modernisation theory assumes an imaginary
society because the real society in the Third World is perceived as
'transient'.
(Sangmpam (1994 p. 1))
The Imaginary 'Development Specialist' World: 
It is possible to identify all societies,
in their economic dimensions, as lying within one of five categories: the
traditional society, the preconditions for take-off, the take-off, the drive to
maturity, and the age of high mass-consumption.
…Once it was demonstrated that growth was possible, the
consequences of growth and modernization, notably its military consequences,
unhinged one traditional society after another, pushed it into the treacherous
period of preconditions, from which many, but not all the world's societies have
now emerged into self-sustained growth…
We can be confident … that to the degree that consumer
sovereignty is respected and real incomes increase we will see similar — but not
identical — income-elasticities of demand and, therefore, similar patterns of
structural evolution in different societies as they go through the
high-consumption phase.
Now, … consider this question: what lies beyond? What will happen
to societies when income provides such good food for virtually all that it
raises questions of public health by its very richness; where housing is of an
order that people are not tempted to exert themselves much to improve it; where
clothing is similarly adequate; where a Lambretta or Volkswagen is within the
grasp of virtually all… ?
(Rostow
(1961 pp. 4, 90-1))
The Reality:
 In 2001, 924
million people, or 31.6 per cent of the world’s urban population, lived in
slums. The majority of them were in the developing regions, accounting for 43
per cent of the urban population, in contrast to 6 per cent in more developed
regions.
Within the developing regions, sub-Saharan Africa had the largest
proportion of the urban population resident in slums in 2001 (71.9 per cent) and
Oceania had the lowest (24.1 per cent). In between these were South-central Asia
(58 per cent), Eastern Asia (36.4 per cent), Western Asia (33.1 per cent), Latin
America and the Caribbean (31.9 per cent), Northern Africa (28.2 per cent) and
Southeast Asia (28 per cent).
With respect to absolute numbers of slum dwellers, Asia (all of
its sub-regions combined) dominated the global picture, having a total of 554
million slum dwellers in 2001 (about 60 per cent of the world’s total slum
dwellers).
Africa had a total of 187 million slum dwellers (about 20 per
cent of the world’s total), while Latin America and the Caribbean had 128
million slum dwellers (about 14 per cent of the world’s total) and Europe and
other developed countries had 54 million slum dwellers (about 6 per cent of the
world’s total).
… in many cities, there are more poor people outside slum areas
than within them. Slum areas have the most visible concentrations of poor people
and the worst shelter and environmental conditions, but even the most exclusive
and expensive areas will have some low-income people. In some cities, slums are
so pervasive that rather than designate residential areas for the poor, it is
the rich who segregate themselves behind gated enclaves.
(UN Agency for
Human Settlements, The Challenge of Slums: Global Report on Human Settlements 2003
p. xxv, xxvi)
Third World Communities are Changing — but into
What?
In this discussion we will examine the experiences of Third
World nations as they became "unhinged" and attempted to "emerge into
self-sustained growth" (to use Rostow's colourful, optimistic phraseology); as
they attempted to 'develop' into capitalist success stories over the past 60
years. We will briefly contextualise that examination by looking at pre-Western
forms of environmental organisation and understanding.
The West has, over the past five hundred years, viewed such
understandings as irrelevant; relics of prehistory; eclipsed by "the world of
contemporary technology" and the rational understandings it has unveiled to the
world. W. W. Rostow, that doyen of economic development specialists, explained
it:
A … challenge which clearly relates to the stages of growth is
the fate of societies that appear still trapped in the preconditions for
take-off. They are not traditional societies, because the world of contemporary
technology is so powerful and intrusive that it has introduced elements of
modernity in all nations. Nevertheless, perhaps 20% of the human race [2] — a billion or so men
women and children — lives in countries that have not yet attained
self-sustained growth…
The second stage of growth embraces societies in the process of
transition; that is, the period when the preconditions for take-off are
developed; for it takes time to transform a traditional society in the ways
necessary for it to exploit the fruits of modern science, to fend off
diminishing returns, and thus to enjoy the blessings and choices opened up by
the march of compound interest.
(1961
pp. xxii, 6)
In the 1st decade of the 21st century,
most Third World communities are transient. As we have discussed elsewhere
3, most
post-colonial territories are in various stages of change. They are
slowly, but inevitably, metamorphosing into communities which exhibit
similarities with the pre-colonial communities from which they came.
Western peoples are faced with a difficult decision:
- ignore the changes and continue to assert with Rostow
and his many followers that Third World communities are still in the process of
metamorphosing into capitalist nations — it's just taking longer than we
expected!
- attempt to prevent the changes;
- accept the changes and live with the consequences
4.
I remember, as a young child, reading a story about a little
Dutch boy who was walking to school alongside a dyke wall. He had been told by
his father that if he ever saw a leak in a wall he should immediately warn
adults of it so that the dyke could be repaired before disastrous failure. Being
a conscientious little boy, he would scan the wall as he walked, acutely aware
of his responsibility for protecting his community from disaster.
On this particular morning, he saw a tiny hole in the wall and,
realising that this could be disastrous, decided that the best thing to do would
be to stick his finger into the hole to stop the water from breaching the dyke
wall. The story 5 has
poor little Hans dying in his successful attempt to save his community from
disaster.
As I read the story my mind worked overtime (as the minds of
small boys are wont to do). What would happen if little Hans was standing there
with his finger in the hole and, a little further down the dyke wall, another
hole should appear? Perhaps we would have little Hans attempting to save a small
part of the wall while all the rest disintegrated around him!
Welcome to the 21st century!
Western governments and international organisations find
themselves with their fingers in dyke walls. If they don't keep the holes
plugged, the walls around them will collapse. And more and more holes are
appearing all the time.
We're going to be busy people if we're going to keep all the
holes plugged in this century!
As we examine post 2nd World War experiences in Third
World countries, we need to bear in mind that these experiences mask a deep,
historical disruption of non-western communities. Those communities were,
all-too-often, forcibly included in Western European colonies, with scant regard
for their own peculiar identities, to serve the interests of the colonising
powers.
That disruption, however, did not result in the loss of
pre-European understandings of the world. It merely obscured them. The chaos and
turmoil found in many non-Western countries in the early 21st century
can be traced back to their experiences over the past 150 years 6.
Examples of non-Western Understandings of Reality
To understand the differences between Western capitalist
communal organisation and interaction and the pre-existing forms of organisation
and interaction in non-Western communities, we need to examine how such
communities were organised before colonisation by Western European powers. This
is, of course, how they still would be organised — with inevitable
accommodations to outside influences — if left to their own devices.
To do justice to such a preliminary exploration of non-Western
forms of understanding and organisation is beyond a discussion of this kind. The
best we can do here is refer to two explanations of such communities which can
be accessed on the Internet. The discussion which follows will bounce off those
explanations.
The first example is an excellent study by Paul Liffman of the
"Wixaritari (Huichols) in the community of San Andres Cohamiata", living in
90,000 square kilometres of western and north-central Mexico. The study was part
of a larger undertaking by a team of anthropologists studying the people of the
region. The Journal of the Southwest, Vol. 42 Issue 1 (2000), has a number of other research articles by team
members, focussing on similar issues in the region.
In this study, entitled Gourdvines, Fires, and Wixarika Territoriality, Paul
Liffman introduces us to an understanding of the world which is completely
different to anything that people in Western capitalist communities experience
or understand. Here is Liffman's explanatory summary:
Wixaritari (Huichols) in the community of San Andres Cohamiata
say that the genealogies and social bonds constructed in ritual grow along
divine ancestral migration paths, just as gourdvines grow out across the earth.
These ancestral vines connect the ceremonial fire of the xiriki
(shrine) of a kie (rancheria), where people live, to a great temple (tuki), from
which the kie's founding ancestors first "borrowed fire," to creation sites
throughout 90,000 square kilometers of western and north-central Mexico.
If the rancheria expands and ramifies like a gourdvine, those
ancestors' descendants must "borrow" and "register" (inscribe or legitimate) new
fires, and their xirikite ultimately grow up to be tukite.
This historical process of establishing land tenure ceremonially
entails fulfilling cargos (five consecutive annual cycles of ritual obligations)
at the tuki, from which people make the growing gourdvine paths of divine
descent extremely vivid by retracing them in sacrificial treks to the creation
sites, most notably Wirikuta, the birthplace of the sun.
It is always extremely difficult for anyone to begin to see the
world from a perspective that has so little in common with their own. This is
why most Western people simply don’t attempt it, convinced that, even if the
Wixaritari and other non-Western communities do see their worlds and interact
with them in such radically different ways, their ways must be riddled with
superstition and highly illogical.
Concepts such as private property and public property, economic
activity and political activity, fit very poorly into an understanding of the
Wixaritari world. Liffman's description of Wixaritari understandings of and
interactions with the land on which they live gives a graphic illustration of
the differences:
Wixarika land tenure is based on a fundamentally
reciprocal--although most certainly hierarchical--Mesoamerican sacrificial
economy. As with other Uto-Nahuan groups such as the Nayari (Coras) and Mexika
Aztecs, the ideological basis of this system is exchange between people and the
divine ancestral owners of the earth, rain, and sun.
Living people, divine ancestors, and the cosmological divinities
are connected through sacrifices and offerings, at key sites of the landscape
(particularly at primeval emergence sites situated in caves and springs; cf.
Coyle, this volume 7).
As a result, relating the origin myths of the landscape to the
site where they are narrated and leaving offerings at key points of the
landscape where divine history happened so that the earth will continue to
produce are intrinsic to Wixarika land tenure and political legitimacy in
general.
To rewrite their understanding of their polities and systems of
land tenure and use in Western terms would result in the loss of most of the
meaning which they consider inherent in the real world, objective reality
for the Wixarika. To impose Western democratic political organisation and forms
of individualised land ownership and use on them would directly challenge and
deeply undermine their communal organisation and understanding of reality.
An entirely different set of communities, the San (commonly
called 'Bushmen') of the Kalahari in south west Africa, illustrates a very
different approach to understanding and interacting with their environments. In
an article entitled Those who have each other: San relations to the land,
Edwin Wilmsen (1989, pp. 58-9) examined a range of understandings of San kinship
available in the literature and concluded that among that subgroup of the San
known as Zhu,
Kinship in Zhu society, rather than being a static straitjacket,
is a dynamic keyboard on which individuals play variations on a theme of
options. It is, as Comaroff (1982:164) notes, up to the individual to "create
and manage an effective social network."…
Within this incorporative structure of kinship, the corporate
unity of Zhu landholding devolves from one generation to the next.
Property right transfers consequent on marriage are, accordingly,
largely matters of reshuffling priorities among latent claims by members of a
kin consort. Negotiations for, and legitimation of, marriage ties are important
moments in this creative process.
To condense Bourdieu (1977:34-36; original emphasis): "to treat
kin relationships as something people make, and with which they do
something, is not merely to substitute a 'functionalist' for a
'structuralist' interpretation … it is radically to question the implicit theory
of [kin relationships] 'in the form of an object or an intuition' as Marx puts
it.
In this perspective, Zhu bride service can be seen… as a form of
devolutionary marriage payment that mediates the conflicts over land that
inevitably must occur among mutually interdependent groups.…
For Zhu, bride service resolves the question of personal status
and locates a marriage union with its offspring within the structure of
relations between persons and places. The devolution of property begins with
negotiations and prestations between principals to a future marriage, primarily
future co-parents-in-law.
This process may extend over a period of many years….
Devolution begins to take more concrete form with the
establishment of a new household located in association with the woman's
parents. The period of bride service is measured in terms of offspring, its
conditions having been satisfied when two or more children have been born to the
union.
(1989, pp. 58-9)
Zhu social relationships and systems of land tenure and
utilisation are intimately intertwined. One cannot be understood without
understanding the others. Zhu communities (like other Kalahari San communities),
might appear organisationally simple to Western eyes, but the realities are a
complex network of subtle relationships and negotiations which the Zhu consider
features of the objective reality within which they live.
It is common to all human beings that they believe that their
ways are the best ways and that where other people deviate from their ways they
are less than rational. Western Europeans are not exceptions to this rule. They
demanded change from these groups, not because the practices they opposed were
inherently bad or evil (if there is a universally valid set of criteria in terms
of which such judgments can be made) but because they conflicted with their own
understandings.
The Wixaritari and San communities were not passive. They
reacted to the changes brought into their communities with the expansion of
capitalist activity into their environments by altering communal organisation,
land tenure and use to accommodate changed demands. In doing so, they attempted
to ensure that the fundamental presumptions in terms of which they related to
their environments were preserved and maintained.
This has always been the response of non-Western communities to
Western demands for change. Human beings are not able to simply drop their own
understandings and live by the understandings of others. They will always try to
accommodate changes they can’t resist, while retaining their own understandings
of the world and of themselves.
When changes forced upon them become more than they can
accommodate within their own understanding of the world, they begin to lose a
sense of communal identity and their communities begin to unravel 8. Wixaritari and San
communities have experienced these consequences over the past forty years in
central America and south west Africa.
Unravelling Communities and Population Growth
Throughout the world, non-Western communities, subjected to
unrelenting demands for massive change in their interaction with their material
environments, have experienced similar loss of identity, with rapidly escalating
crime and violence and uncontrollable population growth.
All stable communities (both historically and in the present)
have both direct and indirect means of limiting population growth. As
communities disintegrate, the means of population control become decreasingly
effective and population begins to grow.
Many non-Western communities have experienced rapidly increasing
population growth as their communities have unravelled. The current average
annual rate of population increase through sub-Saharan Africa is 2.4 percent. At
this rate of increase, populations double every 30 years. Through all of the
non-Western regions of the world the average annual rate of increase is 1.6
percent, with populations doubling every 44 years.
The pressures put on both material and social environments by
these rates of increase are enormous.
Through the Western world, the average rate of increase is a
mere 0.5 percent, with populations doubling over 139 years. Given that there are
always natural events over such a period which impact on growth, Western
populations have either stabilised in countries like the United States or, as in
Western Europe, with a -0.01 percent annual growth rate, are in decline.9 Population increase in Western countries
comes through immigration.
People like the Wixaritari and San, don’t simply reinvent
themselves as Western capitalists when they are subjected to Western capitalist
demands for change. They lose their sense of identity and self-worth as their
indigenous status and prestige systems break down and their understanding of
their environment and of themselves in terms of their environment decreasingly
‘makes sense’.
Status, Possessions, Land Tenure and Utilization
People in most non-Western communities
determine relative status through
competitive and/or cooperative involvement in non-material forms of
activity (e. g. ritual events, festivals, religious activities, kinship and
other social involvement and activities together with involvement in the
material environment). They, then, very often, require people who attain
particular statuses to demonstrate their fitness for the statuses attained by
obtaining the material possessions deemed correct for the status positions.
If they cannot obtain the necessary possessions, their statuses
come under threat. If, on the other hand, they accumulate more
possessions than they should, or obtain inappropriate possessions, then the rest
of the community reacts, wanting to know who they think they are.
People who are able to get more than they should have usually
feel an inner compulsion to limit their acquisitions in some way. If they are
not able to do this, they usually feel it necessary to give the surpluses away.
In doing so they can strengthen ties with other community members.
There are, of course, communities which do not tie possessions
to status in this way. In such communities (e. g. the San of the Kalahari or
Aboriginal Australian communities) status is not clearly linked to the
accumulation of possessions and owning things does little or nothing for either
status or prestige. See Sahlins (1972) for a discussion of such communities.
The ways in which communities are organised and the ways in
which they interact with their material environments are two sides of a coin. If
the organisation of the community changes, interaction with their material
environment will also change. Equally, if interaction with the material
environment changes, so does the structure of the community.
When those changes are forced from outside, based on
understandings of which community members are often not even aware, then
community members find it increasingly difficult to make sense of their
experiences. The changes forced upon them often require forms of interaction
which directly contradict the basic forms of interaction of the community.
Attack the systems of land tenure and utilization in a community
and you attack the organisation and interactions of the community. You cannot
force change in land tenure and utilization without directly attacking the
cohesion of the community which reflects and incorporates those systems in its
organisation.
Brutality, Despotism, Corruption and Communal Disintegration
One of the saddest features of the ‘Third World Development’
drive in which Western capitalist nations have engaged over the past fifty years
is that in the process of reorganising utilization of their environments,
non-Western communities have been disrupted. Many of them are in various stages
of disintegration, victims of the well-meaning ‘development’ activities of
Western experts.
As the consequences of disruption have become increasingly
apparent, in a classic ‘blame the victim’ response to the problems created,
those same experts have urged further, deeper change to address the problems of
social disintegration which their policies have induced.
Because they have been well trained as Western specialists, they
take it for granted that their understanding of the world, and their forms of
land tenure and utilization are the only ‘reasonable’ ones. So they force change
upon those who don’t see the world as they do or relate to the material
environment as they do.
A leader in the magazine The Economist, entitled
‘Hopeless Africa’, put the Western perspective well,
No one can blame Africans for the weather, but most of the
continent’s shortcomings owe less to acts of God than to acts of man. These acts
are not exclusively African — brutality, despotism and corruption exist
everywhere — but African societies, for reasons buried in their cultures, seem
especially susceptible to them.
(The Economist May 13th-19th 2000
)
Brutality, despotism and corruption in communities are evidences
of communal disintegration, not features of ‘traditional cultures’ as the
Economist writer suggests.
As Gustave Speth, Administrator of the United Nations
Development Program, said of Africa in 1994:
We conveniently forget Africa's history. We forget that the
transatlantic slave trade robbed Africa of about 12 million of its able-bodied
men and women. We forget that colonialism which followed the slave trade
introduced a system of exploitation of Africa's natural resources to feed the
industries of the West.
We forget the 1884/1885 Colonial Conferences of Berlin which
crudely Balkanised and divided Africa into geographic areas of control by the
West, with scant regard for ethnic groupings. We even forget that during the
period of the cold war's geopolitical fight for spheres of influence, Africa
became a focal point for the ideology and the arms that today contribute to the
havoc we find in Rwanda and Burundi, in Zaire and Angola and Somalia.
Western capitalist developers have intruded into communities and
changed the face of the material environments of peoples. They have forced new
land tenure and utilization practices upon them, extracted huge ‘surpluses’ from
their environments and now blame them for the ensuing social, political, and
material environmental disintegration.
Open-ended and Closed Utilization of the Material Environment
(The Key to
Sustainable Lifestyles)
We need to understand the single most
important difference between almost all non-Western orientations to the material
environment and that of Western capitalism.
- Western capitalist utilization of the material
environment is open-ended, with no upper limit to its use and a built in
inflation of demand for natural resources.
- Most non-Western forms of utilization are
closed, with a built in upper limit to demand.
This is not because non-Western people are ‘more attuned’
to their environments or because they are ‘natural conservationists’ or ‘closer
to the environment’ than Western people.
As many studies have shown, non-Western people have shaped and
moulded their environments to their needs. Their aim has not been to ‘live in
harmony with nature’, as sometimes suggested by environmental activists in
Western countries, but to utilise their environments to supply their needs and
wants.
However, because their status and prestige systems have not been
anchored in the accumulation of material goods and services but in some other
form of activity and organisation, there has been no inbuilt pressure to
over-use their material environments.
Where they have done so (and this has often happened), it was
the growth in population living in a region which produced problems, not a
constantly escalating demand from a stable population for more and more material
possessions and ever-increasing levels of consumption, as in Western
communities.
Most human activity is related not to subsistence but to the
promotion and maintenance of social position and self-esteem. People in
communities like those of the Wixaritari and San are focused on something other
than ‘private enterprise’ and competitive individual material accumulation and
consumption as the basis of status. So, they spend less time in material
production/ consumption activities and more time in what Western capitalist
people would consider ‘waste’ activity: in religious, ritual, social and
kin-based activity of various kinds.
If they are being ‘productive’ what they are producing is not
material goods and services but various forms of ritual, religious and social
activity and organisation — whatever is required of the status system which is
built into the structure of their communities and into their forms of
interaction with each other. So, in many non-Western communities such activities
seem extravagantly elaborated to Western people.
The upshot of this focus away from the material environment is
that, in the past, they more or less matched their material needs and wants to
what was available in their own environments or could be traded for goods from
their environments without needing to expand into the territory of neighbouring
groups.
Sahlins (1972) argues that many communities underused the
resources available in their material environments. Since they matched their
material needs and wants to the usual productive capacity of their environments,
in good years they had surpluses and in bad years they had less than they
required, but things averaged out over the years.
With material needs and wants socially circumscribed, the
technologies necessary for their production remained relatively stable. There is
little need to develop more sophisticated, efficient, and streamlined production
techniques and technologies where those which have been developed provide both
the quantity and quality of goods required and where requirements do not
constantly escalate 10. Rather, people spend their time in
pursuits which directly relate to the requirements of the social templates of
their communities, through which they achieve increased social status and
respect.
When Western people arrived in non-Western regions, they
demanded that those communities produce a ‘surplus’ from their material
environments for export to Western countries. This required local inhabitants to
use their material environments not only to supply their own needs and wants,
but to supply, additionally, a range of products sought by Western traders and
‘developers’.
Utilization of their environment was, therefore, almost
immediately, raised to long-run unsustainable levels.
Inevitably, the environments of communities where these demands
were made became progressively more degraded as the years passed. As Gustave
Speth (1994) claimed 11, most of the soil and other environmental
deterioration of the past fifty years has occurred in non-Western regions of the
world. Westerners use their own environments to the limits of sustainability,
but readily, and unthinkingly, push the environments of other communities over
the edge.
In the jargon of Western capitalism, non-Western communities,
prior to Western intrusion, were naturally oriented to ‘sustainable lifestyles’,
to living within their environmental means. This is why such advanced
material cultures as those of Han China, Korea and Japan, although well aware of
the existence of other lands and peoples, and although placing neighbouring
peoples into tributary relationships, did not greatly expand their accumulative
and productive activities into their environments.
For the Chinese, Koreans and Japanese, throughout thousands of
years of elaborate political organisation and advanced material culture, North
America was less than a week’s sailing time away. And they had the sophisticated
craft necessary to make such journeys with ease on a regular basis. Yet, when
Western Europeans invaded and subjugated the indigenous inhabitants of the North
American continent there were no communities of Chinese, Koreans or Japanese to
deal with.
Why not?
Because, despite their elaborate material cultures, status and
prestige were not primarily determined by competitive individual material
accumulation and consumption. They, more or less, lived within their
environmental means.
This is equally true of Aboriginal Australians. Of course they
reshaped their environment to better suit their requirements, and of course that
meant that Australia, after their arrival, was a different land to Australia
before their arrival. But they did not utilise their material environment to,
and beyond, its limits. They did not, in Western capitalist terms, ‘realise the
potential’ of their material environments.
As Tonkinson (1978, p.18) put it, Aboriginal people stressed,
not the mundane skills and techniques for surviving in harsh surroundings, but
“the imperative of conformity to Dreamtime laws… it is spiritual rather than
ecological imperatives that have primacy in guaranteeing their way of life”.
The Aboriginal people of Australia, like non-Western peoples in
most parts of the world, understood reality, and interacted with the world in
ways which are difficult for Western peoples to understand.
Enter the Europeans
With the advent of capitalism in Europe as the driving force to
individual and communal activity, Western Europeans set out to discover the
riches of the world and appropriate them.
From the early predatory adventures of traders, explorers and
privateers, to state and capitalist enterprise organised invasions of the rest
of the world, Western Europe imposed its self-interested ambitions on the
planet. Over five hundred years it metamorphosed from an insular feudally
organised region into a rampant colonising power. By 1914 it controlled more
than 80% of the world. And it controlled it for one reason; to exploit its
resources.
Not only was there very little interest in the organisation and
understandings of the communities they invaded, there was little or no
understanding of, or interest in, the consequences of their activities for
invaded populations. As Gilbert Murray explained for the British (and his
explanation could be applied with equal or greater force to the other Western
European colonising powers),
A slave is ultimately a man spared in war; a man whom you might
kill, but whom you prefer to keep, in order to make him work for you.
It is abundantly clear, if one considers the question, that this
has historically been the position of most of the subject races in the British
Empire. And it is in a sense their condition still. Those whom we cannot utilize
we exterminate; those whom we can utilize we protect, and often enable to
increase in numbers.
(1900, p. 152)
Obafemi Awolowo was equally clear in describing the British
invasion of Nigeria,
Britain … sought to impose her rule on the various tribes that
inhabited the country in order to attain her own selfish ends.
There was… no question of trusteeship. This was the result of a
later compunction of conscience which usually dawns on any evil-doer who is not
hardened beyond redemption. Those tribes with whom she first came into contact
resisted the unwarranted attack on their political independence. They were
overpowered by force of arms. Thereafter, each tribe was faced with a choice of
one of two roads leading to subjection: defeat or surrender…
(1947, p.
24)
The fable held by Western peoples 12, from the outset, told a story of humanitarian
selflessness. Rudyard Kipling 13 put into words what the enlightened of
Western Europe believed to be their responsibility. They had to:
Take up the White Man's burden —
…To seek another's
profit,
And work another's gain.…
Fill full the mouth of Famine
And bid the sickness cease…
This was (and still is) the fable. The reality was (and is)
harsh. As Awolowo explained, "There was… no question of trusteeship. This was
the result of a later compunction of conscience which usually dawns on any
evil-doer who is not hardened beyond redemption."
When Western people entered non-Western territories, they
quickly began to reorganise the invaded environments to contribute to the
snowballing production and consumption needs of the West 14. They oversaw an
expansion in utilisation of available resources, stepping up production and
export to the raw materials markets of Western Europe.
This ushered in a period in which non-Western regions were
reorganised to mass produce particular commodities for European markets. Regions
became devoted to 'mono-agricultural' export, to large-scale production of a
very few primary commodities for export 15, rather than for the communities whose
environments were reorganised. Where mono-agricultural development in large
holdings was not feasible, indigenous communities were re-organised to emphasise
cash-cropping, producing agricultural products required for European markets on
small-holdings.
Over time, such regions became very vulnerable to fluctuations
in market demand for their produce. In any period of economic downturn in the
West, local people, increasingly reliant on cash income from commodity exports
for their subsistence, found their source of income diminished, and therefore
their subsistence under threat.
Further, the inherent drive of the capitalist system to reduce
costs, resulted in constantly decreasing returns to raw materials producers. In
turn, this resulted, inevitably, in constant pressure to increase production
quantities. Naturally, this led to further pressure on prices and a spiral of
over exploitation of the environment simply to maintain subsistence lifestyles.
Once Western economic forces gained control in non-Western
areas, whether local peoples were or were not oriented to the same acquisitive
and consumptive drives as Western people, they soon found their environments
being reorganised to suit Western needs.
Increasing numbers found themselves involved in wage labour, in
cash cropping, and in placing increasing productive demands on their own
environments. And, as in Western Europe in earlier centuries 16, increasing numbers of
people found themselves displaced from their subsistence resource bases as
Western forms of productive organisation and ownership were imposed and more and
more land became individually owned and committed to commercial crop
production.
Since most non-Western communities limited their needs and wants
to the productive potential of their own environments, any additional demands,
beyond those of their own communities, very soon expanded use of the environment
beyond sustainability.
Even where there was no alienation of land for commercial
purposes, new demands placed on environments to provide not only for the ongoing
needs of local communities, but also crops for sale to gain cash income for new
goods offered by Western traders, placed new pressures on local environments. In
the long run, the new demands, stimulated by Western trade and directly required
by Western authorities, led to the depletion of their resources, and forced
increasing numbers of people into wage labour as the primary means of
subsistence.
Whether non-Western people adopted Western status systems or
not, their environments could not be protected from the constantly escalating
productive demands of the West 17.
The current environmental crises of the vast majority of Third
World countries are not, as many Western experts would have us believe, a
consequence of uncontrolled population growth 18 and ineffective and inefficient
technologies. They are, rather, the consequences of attempting to reorganise
non-Western communities to live by Western presumptions. The West has required
them to utilise their environments, not only to meet their own needs and wants,
but also to contribute to the snowballing needs and wants of the Western world.
The production stimulated in and forced upon Third World
communities was not focused on the needs and wants of those communities. It was
focused on the needs and wants of Western communities. It was, and still is
export oriented production.
We have dealt at some length with the establishment of Western
European colonies elsewhere 19. Here we pick up that story in the post
2nd World War era.
As we deal with issues of the past 60 years, it is important to
remember the historical background of those Third World communities. It is
equally important to remember that the issues dealt with here are
additional to all those other problems we have explored in previous
posts 20.
The presumption that governments had a responsibility to manage
their economies underwrote political activity in both Western and Third World
countries in the post-Second World War years. This assumption, and the practices
that followed from it have, in the literature, usually been referred to as
'developmentalism'.
Worldwide economic activity was considered to be the result of
the interaction of many separate, but interconnected, 'national economies', each
controlled by a national government. Each government tried to ensure that the
economy was managed and 'developed' to provide the best possible returns for all
community members within its own borders. As colonial territories gained
independence, this presumption of separation and responsibility for internal
'development' passed to the new governments — with a little help/direction from
their erstwhile colonial masters 21.
It was assumed, by Western authorities, that post-colonial
governments had little expertise in managing economies. Most colonial powers
used this presumption as justification for retaining strong economic ties and
controls. Not only did they provide economic management advice, they linked
economic assistance with scrutiny of economic performance. This enabled them to
provide constant economic direction as a condition of aid.
Inevitably, therefore, the economies of most postcolonial
countries remained strongly tied to economic actors in the former centres of
colonial power. Independence brought little change in economic organisation or
in the established emphasis on export-oriented production, feeding industrial
enterprises in the Western World.
Governments, it was asserted, needed to be funded from within
their own territories. A prerequisite for 'take-off into self-sustained growth'
in Third World countries was, therefore, the establishment of necessary
infrastructures for industrial development.
Money and effort were to be spent on major development projects:
on building dams, in constructing ports, in constructing road and rail networks,
and other infrastructural requirements of an industrialised country — in the
process, creating massive sovereign debt in those countries.
Whereas it was assumed that First World governments managed
their economies in the interests of their populations, Third World governments
were assumed to be managing their economies in the interests of 'economic
development'.
Primary Product Exports and Import Substitution Industry
These developments, from 1950 to the 1970s,
were assumed to be focused on two kinds of industrial development:
- the export of raw materials and agricultural produce to
the Western World,
- and the development of import substitution industry
(ISI) within the country.
It was recognised that few Third World countries could develop
competitively viable export industries in the short term. It was assumed,
however, that if a range of protective tariffs and import restrictions were
imposed on the import of particular commodities, local industries would develop
to supply the local market. As they grew in strength, they could then reorient
their activities toward export, thus providing a base for further
export-oriented production.
This apparently logical development plan was, however, fraught
with many hidden pitfalls. As Erica Schoenberger explained,
Investments in developing-country markets such as India, Brazil,
Argentina, or Mexico were driven mainly by extremely high protectionist barriers
associated with import substitution policies.
In general, these markets were not sufficiently large to sustain
optimum volume production, so costs tended to be high in any case (see Holmes
1983; Nofal 1983). Nor were they large enough to allow for fully integrated or
wholly self-contained production.
Thus the system as a whole functioned on the basis of
long-distance — sometimes extremely long-distance — supply lines.
(Schoenberger 1994, p. 55)
Import substitution policies failed to recognise two fundamental
problems.
- Local businesses, having to import all their technology
and rely on overseas expertise in establishing enterprises (as well as supplying
a far smaller market than major overseas exporters), could not hope to compete
with overseas products. The cost of such import substitutions was usually much
higher than that of the previously imported items.
- In communities which still saw purchased commodities as
alternatives to locally-produced items (for which the expertise still existed in
most communities), demand fell as price increased.
ISI businesses, with few exceptions, failed to expand as
anticipated in the face of falling demand coupled with expanding costs. In some
countries industries were, in the interests of development, subsidised to make
their products affordable. This, of course, defeated the initial reasons for
their establishment. They were supposed to generate revenue for government and
provide a base for further industrial development.
A Classic Capitalist Conundrum
As import substitution failed to fulfil its mooted potential, to
meet their growing debt commitments and fund further 'development' activities,
countries placed increasing emphasis on the export of primary commodities to
generate income. This resulted in constantly expanding production and export of
raw materials to industrialised countries.
Until the mid-1960s, with the industrialised world in a period
of booming growth following the Second World War, this expansion was absorbed
with little reduction in price. However, from the mid-1960s, as industrialised
production started to contract in the face of over-supply, prices of primary
commodities began to fall.
Countries, relying on primary product sales to fund their
development activities and service their debts, found themselves caught in a
classic capitalist conundrum:
- As prices fell countries needed to export greater
quantities to meet their commitments.
- As supply increased, prices fell.
- Since they had little short-term alternative, Third
World countries then had to attempt further to increase supplies to maintain
their incomes.
During the same period, First World demand for primary products
fell. During the 1980s, primary commodity imports to industrialised countries
fell by more than nine per cent, resulting in a primary commodity glut on world
markets. Together with the move of labour intensive industry to low-wage
regions, these factors led to falling prices for finished goods in
industrialised countries and an increasingly serious debt problem in Third World
countries.
Third World countries had relied on the twin strategies of
primary commodity export and the development of import substituting industry to
kick-start their economies into what W. W. Rostow (1961), in a wonderfully
optimistic turn of phrase, had called a 'take-off into self-sustained growth'.
They found, to their dismay, that the anticipated rewards of their sustained
attempts at 'development' had led them into a state of chronic indebtedness.
First World development agencies, looking for reasons for the
failure of their confidently promoted development schemes and projects, in large
measure found them, not in the rationale of the plans themselves, but in the
'corruption' of Third World governments.
From the mid-1960s, it became fashionable in development circles
to speak of the endemic corruption of politics and government in Third World
nations. Patron-clientism, which was and is an expression of the
'personalisation' of leadership which is standard in most of the world (other
than in Western countries), came to be seen as a major obstacle to development
22.
Let's 'Add Value' to Primary Product Exports!
From the early 1970s, with import substitution failing to
deliver the expected rewards, and primary commodity prices faltering,
development agencies began to look elsewhere for the key to successful Third
World development.
An important alternative to import substitution was, obviously,
the further processing of primary commodities within the country of origin,
rather than shipping raw materials for processing in industrialised countries.
Primary commodities should have 'value-added' to them prior to shipment.
Rather than shipping raw materials, money should be spent on
processing plant, thus earning exporting countries additional income and, in the
process, kick-starting their economies through the establishment of a processing
industry which would take advantage of, and stimulate further, infrastructural
developments.
Unfortunately, the enthusiasm of 'development experts' once
again outstripped their expertise. While it seemed logically sound to develop
'value-added' enterprises in Third World countries, the rationale failed to take
into account the existing industries in industrialised countries.
No industry voluntarily commits suicide, and no industry in the
industrialised world was going to help a competitive industry in a Third World
country to become established. The expertise was not provided, outdated
technology was supplied, and, most importantly, the network of purchasers
established by processing industries in industrialised countries was not
available to Third World suppliers.
With all the disadvantages stacked against Third World
'value-added' industry, it was inevitable that Third World enterprises would
fail to compete against their well established rivals. Not only was this true,
but, given that demand in industrialised countries was shrinking or stalled, the
timing for such value-added industrial expansion was less than propitious. Once
again, an anticipated success story turned into a financial millstone for Third
World countries.
Again, development agencies looked for reasons for the failure
and saw the problem not as lying in the development direction established by
themselves but in the performance of governments. The reasons for failure lay in
the lack of expertise in government, in political interference, in the syphoning
of capital out of businesses and into the hands of politicians, bureaucrats and
their supporters.
There was substantial evidence that businesses caught in the web
of patron-client networks were often milked for funds. However, once again,
rather than seeking to understand the phenomenon, patron-clientism and
'corruption' came to be seen as stumbling blocks to economic development.23
Government should get out of The Economy
In the mid to late 1970s, as aid agencies took stock of yet
another round of failed plans and projects, they did so in the intellectual and
ideological climate of neoliberalism. The problem was now perceived as one of
public distortion of private enterprise. Governments should not be involved in
economic enterprise. Rather, governments were there to provide a stable backdrop
to private economic activity.
As Third World countries, burdened by insupportable debts,
turned to the International Monetary Fund for assistance, they found themselves
faced with a new set of development requirements. The old had failed, but, at
last, aid agencies had the touchstone to development — privatisation.
No longer should governments actively seek to develop the
economies of their territories. Now they should provide the kinds of political
and economic environments which would stimulate the natural entrepreneurial
instincts of their populations.
From the mid-1970s, economic conditions began to deteriorate
around the world as a result not only of rapidly increasing oil prices resulting
from the monopoly practices of OPEC (a cartel formed by major oil producing and
exporting countries to control oil prices), but also from a general stagnation
in economies around the world.
Everywhere, and in every economic area, the world seemed to be
producing more than it could reasonably consume and so markets faltered and
prices fell. This provided an excellent platform for economic theorists and
practitioners who were opposed to the 'soft', 'uneconomic' policies of
developmentalism.
Neoliberal economic experts managed to convince governments
everywhere that the only way in which countries could ensure long-term 'economic
well-being' was through removing those programs and regulations which distorted
'market activity'. It was in the distortion of processes of economic exchange
that the evils of the 1970s and 1980s could be located.
In this brave new world, it would be the responsibility of
governments to provide a stable political and social environment and provide the
necessary institutional frameworks within which private, independent
individuals, whether real or artificial, could engage in uninhibited,
competitive, accumulative exchange.
Governments, it was argued, should get out of economics.
Economic activity should be 'deregulated'. The presumption was that when markets
were freed from government interference, nations and communities would reap the
rewards which accrue to those which operate within streamlined, efficient
economies. As Haworth described:
Contemporary theoretical discussion around Public Choice Theory,
Agency Theory and Transaction Cost Analysis has presented a view of government
as parasitical on individual interests and resources. In this critique,
politicians and civil servants are transformed from Weberian constructs,
offering public service on a professional and vocational basis, to
self-interested abusers of resources coerced from the people…
It follows from these arguments that the state as government
requires substantial pruning of its purview and an equally important
reorientation of its functions. This is perhaps most succinctly captured by
Friedman who baldly argued for government which:
… maintained law and order, defined property rights, served as a
means whereby we could modify property rights and other rules of the economic
game, adjudicated disputes about the interpretation of the rules, enforced
contracts, promoted competition, provided monetary framework, engaged in
activities to counter technical monopolies and to overcome neighbourhood effects
widely regarded as sufficiently important to justify government intervention,
and which supplemented private charity and the private family in protecting the
irresponsible, whether madman or child … the consistent liberal is not an
anarchist.
[Friedman & Friedman 1962, p. 34]
(Haworth 1994, p. 28) [24]
Neoliberal attitudes to government were well summed up by
Cristobal Kay:
The neoliberals are … hostile to the state and trade unions,
advocating privatisation, liberalization, private entrepreneurship and
deregulation of the labour markets. The state is seen as the source of most of
the development problems of the LDCs [Less Developed Countries].
They argue that state interventionism (or dirigisme in
Lal's terminology) has created distortions in the price mechanisms which has
resulted in the misallocation of productive resources and therefore lower rates
of growth. The neoliberal slogan is that imperfect markets work far better than
imperfect governments and planning.
(Kay 1993, p. 695)
The Neoliberal Experiment — They've got to do as we tell them!
Western economic advisers had far greater direct power to
influence political behaviour in Third World nations, through management of
structural adjustment programs, as those nations found themselves unable to
handle their accumulated debt 25. They were, therefore, able to demand broader
changes than could be achieved in Western countries.
They were not slow to exercise their muscle! The demands they
made were driven by a belief in the efficacy of 'free markets'; by a strong
belief in the power of the marketplace to deliver social welfare; by a belief in
the justice of 'user pays' principles of welfare delivery; and, more generally,
by the neoliberal ideology which underpinned unregulated capitalism from the
17th century and had been honed in Western thought as a consequence
of experiences in the 1920s and 1930s 26.
It became inevitable that neoliberal 'development' advisers
would argue for the 'privatisation' of Third World government agencies and
activities. Government should not be involved in the marketplace, so all
services and goods supplied by government should be divested to private
investors. The only responsibility of government was to ensure safety and equity
amongst its populace.
Since neoliberal principles were universally valid, they could
be applied wherever governments found themselves in economic difficulty.
… As President Kaunda of Zambia put it, 'The IMF does not care
whether you are suffering economic malaria, bilharzia or broken legs. They will
always give you quinine'.
The policy prescriptions … reflect[ed] the Fund's political and
economic ideology rather than the interests of the developing countries.
(Cheru 1989, p. 37)
In Western nations, the movement towards privatisation resulted
in a range of government agencies being sold in order to be operated by private
individuals or firms for private profit. In the Third World, the consequences of
this neoliberal belief in the efficacy of 'market-led recovery' were far more
dramatic.
Both the International Monetary Fund and the World Bank
developed programs for the reorientation of Third World economies which directly
reflected the basic assumptions of the neoliberal belief in the power of private
enterprise to kick-start Third World economies. These policies came to be known
collectively as 'Structural Adjustment Programs' (SAPs) 27.
Governments were fundamentally affected by structural adjustment
programs in a number of ways.
First, the old active involvement in planning and promoting
economic development, assumed under previous development regimes, disappeared.
The government should now avoid any involvement in planning and promoting
economic activity. This should be left to the 'private-sector'.
Second, the government should divest itself of all those areas
of service provision which, in the past, had largely been its rationale for
existence. Now, those government departments and agencies involved in the
delivery of services to the population should be sold to private enterprise.
Governments should, in this new climate, distance themselves from service
provision.
This policy of privatisation originated, as Mitchell and Manning
explained, in First World government reorganisation:
The contemporary idea of public-private partnerships as an
approach to economic development had its origins in American and British public
policy during the late 1970s.
Faced with a mushrooming budget deficit and a stagnant economy,
the Carter administration tried to curb government spending through the
introduction of zero-based budgeting and championship of the concept of
privatisation.
The former meant justifying government spending programs each
year during the annual budgeting cycle. The latter advocated spinning off
feasible programs to the private-sector, where they would be operated on a
for-profit basis …
Both tactics were meant to save the government money, and perhaps
make the economy work more efficiently, by broadening the sphere of activity
directed by market forces.
(Mitchell & Manning 1991, pp. 45-6)
The emphasis on privatisation in the 1980s and 1990s was
primarily a movement away from treating individuals as 'citizens' to treating
them as 'clients' and 'customers' (see Sharp 1994, p. 4), from seeing the
population as members of a co-operative community, to seeing them as
competitive, individualised consumers.
Individuals were required to accept the costs of services as
individually attributable. Any who required 'subsidisation' in order to meet
their needs and wants were therefore exposed as 'inefficient,' as a 'cost' on
other individuals, as a 'tax burden'.
This movement from community to individual responsibility was
based on a definition of all acceptable exchange as competitively balanced and
individualised.28 Social
responsibility had, therefore, to be legislated and 'public watchdogs' appointed
to ensure that those who relied on 'subsidies' to make ends meet were not
'cheating' and 'defrauding' the system.
Privatisation: the Antidote to Political Opportunism and Corruption
In Third World countries, an implicit purpose of this
privatisation of service provision was to sever the political connection with
revenue raising. This was supposed to reduce the level of political opportunism
and corruption associated with service provision and the syphoning of resources
from government coffers into political networks.
For some inexplicable reason 29, the 'experts' assumed that economic
enterprises, if they were made responsible for public welfare, would not engage
in such activity.
'Development specialists' considered this to be a
political problem. In order to reduce political involvement in business
organisation and activity, it was considered necessary to deregulate private
enterprise; to remove the legislative levers which could be manipulated by
politicians and their associates to ensure access to revenue from private
business.30
Once this happened, since transnational companies could now
develop their activities within Third World countries with less need for
political sponsorship (and with no need to assume a public welfare
responsibility for people in the communities in which they operated), business
activity quickly passed into the hands of foreign entrepreneurial forces.
Transnational companies have learned, over the past thirty
years, to utilise their superior international integration in order to maximise
their control within national boundaries 31.
Underwrite Private Borrowing: You Can't Lose!
Not only have neoliberals seen big government as the bete
noire of development and emphasised privatisation of government activity and
the deregulation of private enterprise to counter this, they have also seen such
government as responsible for the debt crisis of Third World countries.
Since the late 1970s, First World lenders have remained
concerned about the ability of Third World countries to service debts, in part
accumulated during the heady days of the 1970s.
During the 1970s, OPEC countries tried to reinvest windfall
profits from the rapid rise in oil prices around the world. First World banks,
embarrassed by the large amounts of money available for investment, were less
than cautious in their lending policies, encouraging Third World governments and
private enterprises to borrow heavily on very little security.
Many development advisers believed that the flood of investment
finance resulting from the OPEC-led oil price rises, if tapped by Third World
enterprises, would ensure rapid industrial development, provided governments
agreed to act as guarantors.
Banks and other lending agencies (including IMF and World Bank
officials), seeing this as a way of guaranteeing their investments, strongly
backed this claim. They argued that this, 'risk-free', backing was the only way
in which enterprises in Third World countries could be assured of investment
funding.
They advised governments, therefore, to underwrite private
enterprise borrowings, assuring them that future investment returns would not
only meet debt repayments but also generate increasing public revenues.
One of the consequences of the flood of money made available to
Third World elites through this new inflow of investment funds 32 was a rapid inflation
in the purchasing power of those who had access to the borrowed money.
As Briones and Zosa described for the Philippines:
The benefits of the debt have long been enjoyed by the governing
and favoured elite, and they are still reaping the benefits of the current debt
management strategy. The masses, on the other hand, bear the burden of debt
service through expenditure cuts in economic and social welfare services in the
national budget.
(Briones & Zosa 1994, p. 258)
Third World elites, linked through a range of patron-client
relationships, gained access to money borrowed by both government and business
interests and were able to use this money to further their own status
aspirations. This resulted in an inflation in expectations amongst elites.
In communities where social templates are not primarily based on
material accumulation, any inflation in the material requirements of those with
status, in time, becomes firmly institutionalised. Once this happens, statused
people are locked into those levels of expenditure. If they cannot fund their
status requirements they lose credibility and become less useful to those who
rely on them for support.
Their clients, therefore, find themselves having to shore up the
credibility of their patrons by supplying the necessary funds to ensure their
credibility. In Third World countries, once access to foreign funds disappeared,
this resulted in a rapid reduction in the material quality of life for those of
lower status as they were called on to meet the shortfall.
Rather than the anticipated 'trickle down' effect, assumed to
result inevitably from investment of the borrowed funds in productive enterprise
and the consequent increase in labour requirements, Third World communities
experienced the reverse.
Communities experienced a 'trickle up' effect as patrons sought
new avenues of funding for their new needs and clients realised that their
patrons were only useful if they could retain their status positions, which
required them to contribute to the costs of those needs.
During the 1980s, those Third World governments and private
enterprises which had gained access to the windfall funds of the 1970s
inevitably found themselves unable to meet debt servicing costs. First World
lenders became concerned that they might default on their loans and took steps
to ensure that this would not happen 33.
Debt-Equity Conversion Programs - Swapping the Family Farm!
During the 1980s, international agencies like the IMF, at the
instigation of worried creditors, devised and applied structural adjustment
programs to deal with the resultant debt crises in Third World countries. One of
the features of these programs was the emphasis placed not only on the
privatisation of government services, but also on the need to attract foreign
direct investment (FDI).
Development experts and First World creditors managed to
convince many governments that they could lure investors into Third World
countries and, simultaneously, tackle their debt burden. This could be done,
they claimed, through the promotion of a variety of debt reduction schemes
through which investors could avail themselves of national assets at bargain
basement prices.
These 'debt-equity conversion programs' 34 offered foreign
investors national assets in exchange for debt write-offs. A favourite target
for this kind of deal was the privatisation of government assets in the course
of structural adjustment programs devised and overseen by the World Bank and the
International Monetary Fund.
The schemes involve governments in reducing debts, primarily to
commercial banks, in exchange for government assets or for private-sector
assets, often bought with discounted local currency. This is best explained
through an example.
The following is a debt-equity swap arranged by General Motors
in Mexico. The summary comes from the presiding Judge Stephen Swift's summation
of a case brought before the US Tax Court by the US Inland Revenue Service
against General Motors for understating its gains in the transaction:
In October 1987, G.M. Trading paid $600,000 to the Nederlandsche
Middenstandsbank N.V. Bank (NMB) for $1.2 million of U. S. dollar-denominated
debt guaranteed by the Mexican government, reflecting the prevailing market
discount rate of 50% for such debt.
The company incurred $34,000 in fees as a result of the
transaction.
In November 1987, the Mexican Ministry of Finance and Public
Credit deposited 1,736,694,000 pesos — equal to $1,044,000, or $1.2 million at a
13% discount — into an account established in Procesos' favour.
Procesos then transferred 173,670 shares of its class B stock —
one share for every 10,000 pesos or remaining fraction thereof — to the Mexican
government, which transferred them to G.M. Trading in exchange for cancellation
of the $1.2 million dollar-denominated debt.
The Internal Revenue Service argued, and the court agreed, that
G.M. Trading realised a $410,000 gain on the debt-equity exchange — the
fair-market value of the 1,736,694,000 pesos less its $634,000 cost of
participating in the exchange.
(Zobrist, Wichman, Murai & Ichiki 1992)
As this example illustrates, debt/equity transfers often
involved an initial transfer of debts incurred by private enterprises in Third
world countries to the government.
The buy-out of Procesos by G.M. Trading was based on an initial
Mexican Government bail-out of the company to the tune of $US1 044 000, for
which G.M. Trading paid a total of $US634 000 in external funds.
It is important to understand why the Mexican Government had to
assume Procesos' debt.
Third World governments had been encouraged by both development
and banking advisors to underwrite private enterprise borrowings, assuring them
that future investment returns would not only meet debt repayments but also
generate increasing public revenues.
As private enterprises failed in the 1980s, governments found
themselves responsible for their external borrowings.
Short of defaulting on their commitments, there were two
principle ways in which Third World governments grappled with the mounting debt
burden created by private enterprise failure:
- They could assume responsibility for the debt, and pay
it out in local currency through the transfer of resources to transnational
companies, as in the above case, or
- they could buy back the debt papers from banks
themselves at a fifty per cent discount, though this, of course, usually
required further borrowing of 'hard currency' to fund the buy-back — usually at
high interest rates because the credit worthiness of governments facing such
difficulties was obviously low.
The result of either practice created new problems for Third
World governments 35.
It is little wonder that political leaders in Third World
countries, by the 1990s, were speaking of a new age of colonialism, in which
those major assets of Third World countries which were not already foreign owned
passed into the hands of transnational companies at bargain-basement prices.
In these arrangements, Third World governments often became
partners in public-private partnerships dominated by overseas interests. Those
interests invariably argued for further reorganisation of national economies
along neoliberal lines, decreasing government involvement in economic activity,
and further deregulating economic and financial activity.
This, in turn, further facilitated the free movement of capital
and enabled the ready transfer of profits from Third World countries into the
rapidly expanding financial markets of the West.
The Paradox of Increased Production and Decreased Returns
There are a number of important consequences of reorganising
communities in terms of neoliberal principles.
The first is that uninhibited competition will always act to
drive down costs and prices. The most successful firm will be the one which is
able to lower costs, and therefore lower price, and so gain an edge over rivals
in the marketplace.
Over time, this inevitably puts downward pressure on primary
commodity prices; on the raw materials of production or the basic production
inputs. As those prices decrease, small holdings become non-viable and
smallholders are forced to sell and move off the land. The processes of land and
resource consolidation and constantly increasing economies of scale result,
inevitably, in the movement of people out of the countryside and into the
burgeoning slums of Third World towns and cities 36.
The consequences are the rural-urban migration phenomenon of the
past fifty years and the emergence of a growing population of people who have
lost access to subsistence resources and must rely on whatever money they are
able to obtain from activity in towns for subsistence. This, in turn, has
resulted in large informal economies in most Third World countries
37.
Formal economic activity will always focus on
areas where money is to be made. That is, by definition, production will
continue to expand until it is surplus to requirements. Western economies are
premised upon a supply glut, not on supply scarcity.
This feature, in a truly 'free' and 'unregulated' market, in
combination with the consequences outlined above, results in the stimulation of
production at ever reduced cost. Once an individual or firm has invested capital
in production, it is often difficult in the real world to diversify. So, the
only way to maintain income as prices are being driven down is to increase
production.
This results in a paradox.
The less profitable that production becomes, the greater the
effort to increase production to compensate for falling returns through
increased sales. Until, of course, the firm or individual can no longer compete
and the business collapses.
The consequences of this are, of course, that constantly
increasing demands are made of the environment. At the very time when those
involved are least able to afford the costs of environmental protection,
they are being forced into expanded utilisation of the resources available to
them.
Under such circumstances, relatively costly conservation
programs are beyond the means of those whose activity is most likely to result
in long-term environmental degradation. This has, in many Third World countries,
resulted in looming environmental disaster 38.
As long as there is money to be made from an activity, the
number of producers will continue to multiply and the exploitation of resources
will continue to expand until they are in short supply. That is, economic
activity becomes premised on a scarcity of resources. As resources become
scarce, people, inevitably, utilise those which are only marginally productive.
This process has been compounded in Third World countries
through the expropriation of resources for capitalist development 39.
While resources are available, the number of suppliers and the
volume of production will continue to expand until production exceeds the
requirements of the marketplace. This has been an experience shared by most
Third World communities over the past fifty years.
What starts as a specialised product for a niche market, becomes
the flavour of development programs as word passes from one aid organisation to
another. Before long, the market has been saturated and the investment made in
necessary infrastructure becomes added to the debt load of the country.
Economies of Scale and Impoverishment of Small Producers
In almost all cases, the number of suppliers greatly exceeds the
number of buyers, the market forces competition upon suppliers, forcing down
prices until returns on production are marginal. At that point, and not before
then, production stops expanding. With production marginally in excess of market
requirements, producers remain in competition and economic success depends on
reorganisation of production to trim costs.
Those producers who do not reorganise production, or do so less
effectively, become uncompetitive and drop out of production. This, over time,
leads to economies of scale so that small producers find themselves unable to
compete with large producers.
As the size of productive enterprises grows, the sophistication
of production also increases as producers look for new ways of cutting costs,
leading to increased use of machinery and other forms of cost-reducing and
production-increasing technology. As this happens, the capital requirements of
being involved in production escalate, making it less likely that newcomers can
successfully enter into the marketplace to challenge the dominance of the large
players.
Many Third World countries, in trying to develop viable
industrial sectors, have found themselves in just this position in relation to
already industrialised countries.
With the emergence of Just-In-Time production processes 40, they become relegated to the
position of suppliers of cheap labour until the industries which have relocated
to take advantage of that resource re-tool with emerging technology and relocate
nearer their major markets. Consequently, in attempts to attract and then retain
industry to their regions, governments find themselves having to offer greater
and greater incentives, sometimes supplying most of the necessary
infrastructural supports, in order to lure companies to relocate.
Of course, the smaller the necessary investment in establishing
a factory, the easier it is for the business to relocate elsewhere in pursuit of
cheaper labour or more attractive inducements. Third World governments find
themselves subsidising transnational corporations in order to ensure that they
locate and remain in their countries.
At times, returns to Third World countries barely cover their
outlays in attracting and retaining transnational corporate investment 41.
Since only those producers who are able to respond to market
forces will survive, those who find themselves no longer able to economically
compete in a particular product area will, if they are to remain economically
viable, have to find other products for which there remains a strong demand.
That is, they will have to diversify.
Long-term economic success in the Western marketplace requires
access to, and understanding of, the emerging technologies for reducing costs
and increasing production and/ or sufficient grasp of market realities to be
able to predict future demand and gear production to that prediction.
In the real world, of course, few small operators are able to
rapidly change from one form of production to another as the market becomes
saturated. This kind of rapid response to market demand requires sophisticated
technologies, organisation and information 42.
Small producers do not have access to the necessary information,
technology and organisational expertise and so are unable to successfully
compete with transnational companies. Instead, as profitability drops,
production tends to expand until the cash reserves of producers are expended and
they have been driven into debt. Then, already in debt, they are forced out of
production.
There is little possibility of diversifying into more profitable
forms of production since that would require capital and they have already used
their surplus in a vain attempt to remain viable in the current form of
production. This scenario is played out all over the world as product supply to
the market reaches saturation levels.
Since the aim of production is to make money, the only way in
which a producer can ensure that he or she remains in a profitable venture,
other than through cutting costs and increasing production, is through cornering
the necessary resources for that production, that is through gaining a monopoly
in an area of production. This is seldom possible in primary production, and
Western nations have laws limiting the possibility of monopoly control of
production since it is well understood that cartel price-fixing arrangements, or
the cornering of a market by a single producer, limits the possibilities of
production and therefore erodes the efficiency of the marketplace.
The inevitable end result of this play of market forces is not
increased well-being for small producers, but marginal subsistence. Only those
producers which are prepared to lower prices until they can just survive will
remain. All others will lose market share.
The Sweat Shop is the Destination — unless you're protected!
In a deregulated world, the sweat shop is not a step on the road
to 'economic development', it is the destination of most Third World people who
aspire to Western-style economic development.
Western economic forces, given free rein, lead to people living
lives of borderline starvation, of endemic poverty, with the few who control
access to finance and resources, or who can become involved in international
corporate activity, able to maintain wealthy lifestyles 43.
One of the important reasons why Western nations introduced
baseline wage rates through the last part of the nineteenth and the twentieth
centuries has been because without them market forces would have reduced the
bulk of the population to this level. Now, through deregulating national
economies and universalising competition, those countries which decide to retain
basic wage rates find themselves unable to compete in labour-intensive
production with countries which do not have basic wage rates.
Inevitably, therefore, those who are ideologically committed to
allowing market forces free play argue that it is 'rational' to remove basic
rates. But rational for whom? If the consequences of allowing market forces free
rein is the long-term impoverishment of the majority of the population then what
is rational in terms of the marketplace becomes irrational in terms of the
long-term well-being of communities of people.
The presumption that there is an 'unseen hand' ensuring that
what is good for the marketplace is good for society is an ideological one. It
is not based upon a rational assessment of the long-term results of organising
society to serve the marketplace. Rather, it is based upon an historical
argument which certain sections of Western European communities used in
justifying a break with feudalism and a loosening of government restrictions on
profit making 44.
The organisation of society to serve the marketplace was not to
the advantage of the majority of people in the 18th or
19th centuries. Its success for Western nations during
20th century and to the present has been based upon privileged access
to the resources of the world and low-cost primary production to an expanding
world market.
The last three decades have ushered Western communities into a
'new world order'. Western nations have accepted the arguments of neoliberal
economics that in order to ensure 'economic efficiency', national economies need
to be deregulated and opened to worldwide competition.
Of course, the arguments are logically impeccable, given the
forces now driving international economic organisation and activity. In a
deregulated world, those communities which don't deregulate cannot compete in
the international marketplace. But the reason they can't compete is that they
have retained those minimum standards of well-being which were set in place
during times of economic protection and regulation.
Conglomerates and the Progressive Modernisation of Poverty
Internationalised business has become globalised, consolidated
into insulated, self-sustaining conglomerates 45 and increasingly profitable. Those
conglomerates might operate within a globalised 'free market', but they manage
to contrive either monopoly or cartel conditions for themselves wherever they
operate.
In countries around the world, corporations gain the cooperation
of political players and government officials, blurring the boundaries between
the 'public' and 'private' realms. While neoliberal economists and fellow
travellers have insisted that "governments should not be involved in economic
enterprise", there has been little protest about the involvement of major
corporations in government. Economic enterprises have become major players in
governments around the world.
Creswell and White (2008), in an article in the New York
Times, provided a description of the kinds of blurring which occur. As they
explained,
The power and influence that Goldman wields at the nexus of
politics and finance is no accident. Long regarded as the savviest and most
admired firm among the ranks — now decimated — of Wall Street investment banks,
it has a history and culture of encouraging its partners to take leadership
roles in public service 46.
The interconnections they describe are not unique to Goldman
Sachs. Corporations everywhere, attempt to institute similar relationships with
government and political partners.
Praful Bidwai (2010) claims that in India,
Washington-style practices of corporate lobbying have crept up on
New Delhi politics, subverting the policy-making process to meet the profit
imperatives of private corporations. The new trend of corporate lobbying in
India presents a real and serious threat to democracy.
…Lobbyists have come to acquire enormous clout, to the point of
influencing the choice of Cabinet minister, nominating key bureaucrats, and
formulating economic and industrial policies at the nuts-and-bolts level.
(Bidwai May 2010)
Of course, corporate lobbying is the tip of an iceberg. As
Creswell and White (2008) explained for Goldman Sachs,
It is a widely held view within the bank that no matter how much
money you pile up, you are not a true Goldman star until you make your mark in
the political sphere.
There is an interchange of personnel between government agencies
and private corporations as individuals supply expertise and networking links to
both through short term contract activities. At times it can be difficult to
distinguish between corporate and government staffing as people move between
public and private organisations — usually justified as 'selecting the best
people for the job'.
For these corporations, competition can be controlled by
internal corporate protections; by limiting business interaction and promotion
to those which are included under a common corporate umbrella; and by securing
favourable business-government relations for themselves at the expense of
possible competitors. This provides them with a powerful platform from which to
negotiate favourable terms of trade with both Western and Third World
governments and communities.
Protective regulation for populations has been weakened or
removed within national boundaries, leaving communities and individuals open to
free market exploitation. To take advantage of the new conditions, international
corporations, using their extensive legal and political expertise and
connections, have invented their own forms of protective insulation from the
impoverishing effects of internationalised 'free competition'.
It is scarcely surprising that, to maintain their contrived
advantage, they will continue to vociferously denounce public regulation of
economic activity as contrary to the spirit of 'free markets'. The markets are
only truly 'free', however, for those who cannot insulate themselves from its
effects in similar ways.
In the long run, in a deregulated worldwide economy, the only
winners are those who can insulate themselves from its consequences: those who
can, through various subterfuges, gain and maintain monopoly or cartel-like
control of business transactions. For the rest, since costs are always driven
down, and prices are similarly adjusted to the margins, the logical outcome of
allowing market forces free play is that businesses become uncompetitive or
marginally profitable.
There seems to be a force at work in the 'free' marketplace,
driving down production costs and prices and, in the process, reducing the bulk
of people involved in small-scale production to penury. As Paul Burkett
described of the 1980s:
The severe economic crisis experienced in most of the periphery
in the 1980s is shown by World Bank data. During the 1980-88 period, the average
annual growth rate of real per capita gross domestic product (GDP) in the
countries of Sub-Saharan Africa (excluding South Africa) was -2.4 per cent. For
Latin America and the Caribbean, per capita GDP growth averaged -0.7 per
cent.
Overall, per capita GDP shrank at an average annual rate of
-0.8per cent in the countries that the World Bank classifies as 'low-income'
(excluding China and India).
(Burkett 1991, p. 475)
Burkett asked why centuries
…of production for the world market left the majority of Third
World people with appallingly low living standards?
and concluded:
One answer is that it is the global capitalist economy that
itself reproduces underdevelopment and poverty in the Third World.
(1991, p. 477)
Over the past thirty years, the world has become aware of a
growing population of destitute people living not only in Third World slums and
areas of rural depression, but also in First World cities 47.
The implementation of structural adjustment programs in Third
World countries seems to have resulted in a process of patterned disorder.
People have lost access to subsistence resource bases, communities have been
disrupted, poverty has become endemic in many areas of the Third World, and the
disparity between the rich and the poor has grown more pronounced in both Third
World and industrialised countries.
For many people in Third World countries, globalisation seems
like a conspiracy of the rich and economically powerful against the poor and
defenceless. As Marjorie Mbilinyi, author of Big Slavery: The Crisis of
Women's Employment and Incomes in Tanzania (1991), said in an interview at
the University of Guelph:
We could have a lot of despair in Africa right now. Many of us
see this as a moment of mass genocide. And it's a very conscious one, we think,
on the side of at least some big government actors as well as some of the actors
in agencies like the World Bank and the IMF.
The peoples of Africa are being steadily impoverished. They are
also being dispossessed of their lands.
Governments like Tanzania, partly in response to popular demand,
had begun to nationalise assets and try to guide the economy in the direction
that would meet the basic needs of the people and increase national control and
make it more inward oriented. Now we have complete reversal so that it is almost
worse than in the colonial period.
(Mbilinyi 1994)
Fantu Cheru claimed of African experience:
The overwhelming consensus among the poor in Africa today is that
development, over the past 25 years, has been an instrument of social control.
For these people, development has always meant the progressive modernisation of
their poverty.
The absence of freedom, the sacrifice of culture, the loss of
solidarity and self reliance which I personally observed and experienced in many
African countries, including my own, explains why a growing number of poor
Africans beg: please do not develop us!
(Cheru 1989, p. 20)
Conclusion
Nearly one billion people alive today — one
in every six human beings — are slum dwellers, and that number is likely to
double in the next thirty years, according to UN-HABITAT’s new publication
The Challenge of Slums: Global Report on Human Settlements
2003.
Unprecedented urban growth in the face of increasing poverty and
social inequality, and a predicted increase in the number of people living in
slums (to about 2 billion by 2030), mean that the United Nations Millennium
Development goal to improve the lives of at least 100 million slum dwellers by
2020 should be considered the absolute bare minimum that the international
community should aim for, according to the report to be released in October
2003.
The locus of poverty is moving from the countryside to cities, in
a process now recognized as the “urbanization of poverty.” The absolute number
of poor and undernourished in urban areas is increasing, as are the numbers of
urban poor who suffer from malnutrition, say the report’s authors.
(UN - HABITAT: Twenty First Session of the Governing Council,
16 - 20 April 2007, Nairobi, Kenya)
There are strong international pressures for the deregulation of
economic activity within national borders and for the lowering of tariff
barriers and other forms of restrictive import and export regulations.
International business is becoming truly independent of national
governments and increasingly able to play countries and regions off against each
other in negotiating investment terms. And, in the process, is increasingly able
to escape responsibility for funding social welfare needs of the communities
within which it operates.
In efforts to limit the effects of this internationalisation,
there have been a number of bilateral and regional trade agreements and
organisations established 48. They have attempted to mimic the
conglomerate organisation of international business, trying to gain the
advantages of internationalisation while maintaining some control over regional
economic activity. In large measure, however, they provide further support to
transnational economic activity and provide little regulation.
It has been said before 49, but bears reiteration:
Nation-states, once firmly in control of economic activity
within their borders are, in a deregulated, privatised world, decreasingly able
to shield their populations from the exploitative consequences of unregulated
and internationalised market exchange. Those countries with few bargaining
counters become those most vulnerable to demands by transnational business for
ever more favourable conditions of trade and access to their resources.
For many people in Third World countries, the free-market
economic order is one in which they have lost what power they once had to
control their own destinies. They do not even have the recourse of the colonial
past to appeal to the colonising power to limit exploitation within their
regions.
Now, there is no international forum capable of limiting and
directing the bargaining advantages of business conglomerates whose holdings and
turnover eclipse those of the countries with which they do business.
No longer is the economy the means by which communities meet
their needs and wants. Now communities service an internationalised economy
which need accept no reciprocal responsibilities for their welfare.
Post a Comment »
1 See
The 'Development' Business for more on this.
2 This figure appears to be plucked out of the air —
no rationale is given for using it. With characteristic, if unrealistic,
optimism, Rostow assumed, in 1961, that 80% of the world's people were already
involved in "self-sustaining" economic growth, allowing them to "enjoy the
blessings and choices opened up by the march of compound interest".
His assessment of the ease with which the world's
populations could transition into "self-sustained economic growth" has fuelled
the optimism of Third World Development specialists and their programs ever
since.
3 See Capitalism and its Colonies; The Decay of Western Influence for more on this.
4 Type the term "failing states" into any search
engine and you will get a deluge of opinions on what should be done — very few
accept the legitimacy of this last option.
5
by an American author, Mary Mapes Dodge, in Hans Brinker, or the Silver
Skates published in 1865
6 See Capitalism and Its Colonies; Capitalism and Work for more on this.
7
"To
Join the Waters": Indexing Metonymies of Territoriality in Cora Ritual. by
Philip E. Coyle
8 See Revitalisation Movements and Fundamentalism for more on
this.
9 The
following internet address provides access to international population
statistics: http://www.census.gov/ipc/www/idb/.
10 The often quoted Greek invention of a
steam-powered piston and its use as a toy is an example of this. The
technological developments in non-Western communities reflected their
utilisation of their environments. The Western presumption that the
sophistication of a community can be judged by its mastery of sophisticated
technologies is ethnocentric. That could only apply if community technologies
were being driven by expanding material needs and wants.
11
38 Gustave Speth,
Administrator of the United Nations
Development Program, in 1994 (repeating a description he gave in a World
Bank address (Speth 1993)), outlined some of the massive problems
confronting the world a decade ago (and confronting us even more starkly
today),
Today, the average person among the 4 billion in the developing
countries consumes about 2,500 calories of food each day. The average person
consumes 3,400 calories per day in Western Europe and more than 3,600 in the
United States…
[A]ccording to recent estimates by the world's leading soil
scientists, an area of about 1.2 billion hectares — about the size of China and
India combined — has experienced moderate to extreme soil deterioration since
World War II as a result of human activities. Over three-fourths of that
deterioration has occurred in the developing regions, most of it in arid and
semi-arid regions.
When combined with other environmental threats to the
agricultural resource base — loss of water and generic resources, loss of
cultural resources, and climate change, both local and global — the situation is
disturbing indeed.
12
As a 1990 editorial in The Ecologist put it:
History", wrote the French philosopher Voltaire, "is a fable
upon which we are all agreed". So far as the colonial period goes, the fable
would have us believe that the colonial powers were primarily motivated by a
desire to bring "progress" and "civilization" to their colonies. Whilst this may
indeed have been true of the missionaries who trail-blazed Europe's colonial
expansion, it was far from the minds of the main architects of colonial
rule.
(Ecologist Vol 20 No 6 1990 p. 201)
13 Rudyard Kipling, 1899. 'Take up the White Man's
Burden', McClure's Magazine, New York and London
14 See King Leopold II and
the Belgian Congo for one of the more extreme examples of this
reorganisation in central Africa.
15 See The mono-agricultural re-organisation of Africa for more on
this.
16 See From Indolent Subsistence to Labour-pool Worker for more on
this.
17 These constantly escalating demands have not
lessened in the 21st century. As long as Western social templates are
centred on competitive material accumulation and consumption, attempts at
'sustainable development' must, by definition, fail.
Sustainability requires a stable demand for
material goods. This can only happen when the social templates of communities
are focused on something other than competitive, individual material
accumulation and consumption. Of course, to hold consumption and accumulation at
present levels is already an unsustainable proposition.
Unless the social templates of Western countries
and their accumulative and consumptive demands are reduced to genuinely
sustainable levels, and the status systems of other communities are not warped
through competition with the West and through the stimulation of material needs
and wants by promotional agencies, 'sustainable development' is an oxymoron.
18 This, of course, is a contentious assertion. The
populations of Third World communities are, indeed, out of control. However, we
need to ask when they began this uncontrolled growth. It seems that in almost
all Third World countries the take-off into uncontrolled population growth
coincided with the commencement of the 'development' drive of the post-Second
World War period.
It is contended that the rapid increase in
population growth is largely a consequence of the disruption of communities,
through attempting to reorganise them to Western requirements. Communal controls
on population have been disrupted, and people are socially disoriented and
confused.
Population growth is no longer driven by the needs
and requirements of communities, and individuals have not been reoriented to
Western forms of individualised population control based on material cost
calculations.
As I have argued elsewhere (Ideology and reality), Western belief that people can easily
be reoriented to Western assumptions and Western drives is naïve. The more
vigorously such attempts are pursued, the more disrupted communities become and
therefore the less effective population control measures become.
19 See Capitalism and Work: The white Man's Burden; Capitalism and its Colonies
20 See Capitalism and its Colonies for more on this.
21 A cynical observer might say that colonial
powers had found a way to retain the advantages and avoid the disadvantages of
empire.
They handed political control/ responsibility to
colonial politicians, ducking the problems of independence movements and
political unrest, while retaining most of the economic advantages of empire.
In doing so, they could require postcolonial
countries to purchase the requirements of government (including weapons,
infrastructural equipment of various sorts, and pay for expertise) while
retaining privileged access to their resources.
22 There was, of course, an element of truth in this
(the best excuses are those which appear to be corroborated). For more on this
see Political/Economic Activity in Third World Nations.
23 They did
not appear to have seriously hampered economic development in the East Asian
'tiger' nations.
24
Friedman's views were hardly original. As we have already seen, similar views
were forcefully promoted through the 19th century (see 19th Century Free-Marketeers). See Boston (1991)
for a discussion of the emergence of the theoretical arguments.
25
See Third World Debt for more on this.
26 See The Triumph of Neoliberalism for more on this. It is, perhaps,
worth reminding ourselves of the rationale underpinning neoliberal forms of
'Third World development'.
Fundamental to the neoliberal creed is the
presumption that Government should not interfere in the functioning of national
or international market exchange, either through regulations which attempt to
straitjacket market activity or through the supply of goods and services to the
community.
It is there as an arbiter of disputes among
suppliers and consumers, and its most important role is in the maintenance of
those rules and regulations which will ensure that economic activity — the
production, exchange, and consumption of goods and services — remains equitable
77.
This requires two important forms of
legislation.
The first is aimed at ensuring that those
involved in a transaction are 'free' from coercion to be involved in, or to
settle the transaction to their disadvantage. That is, the state should ensure
that economic activity takes place on a 'level playing field'.
As Milton Friedman, a neoliberal theorist, explained,
governments are responsible to ensure
the protection of individuals in the society from coercion
whether it comes from outside or from their fellow citizens. Unless there is
such protection, we are not really free to choose.
(Friedman & Friedman
1980, p. 29)
Secondly, the state should ensure that the
market remains truly competitive. That is, it should ensure that there is no
collusion on the part of suppliers or purchasers to fix prices or to gain a
monopoly in any area of trade. This is because the most efficient economy is
that which is most competitive.
Unfettered competition will ensure that prices are kept low,
that quality is constantly improved and that supply is similarly constantly
improved. It will also ensure that the reach of markets is constantly expanded
as competitors strive to remain viable through expanding sales. This will result
in the internationalisation of business activities.
It is good that major multinational firms are entering the
economies of Third World countries.
Companies should be strongly encouraged to operate
across national borders, and a prime responsibility of government is to make
such internationalisation possible through removing legislative obstacles.
Unfettered competition will also ensure that suppliers are forced to be
innovative in improving and diversifying their product ranges so that they might
keep ahead of the inevitable saturation of the market by particular products.
This constant emphasis on innovation, it is
argued, results in human beings continually exploring their environments,
searching for new ways in which to profit. In the process they expand their
horizons, thus ensuring fuller development of the human potential.
These requirements of government preclude it from
involvement in economic activity. One cannot allow the referee to start playing
because if the government is a player, it will also be a biased arbiter.
Further, since those who work for the government are not primarily focused on
material profit, but on the provision of services in the absence of competition,
they will, by definition, be less efficient than private enterprise.
Public enterprise (including the various 'social
services') should be privatised to improve efficiency. There must be a clear and
unequivocal separation of the public realm of government from the private realm
of economic activity. The primary responsibility of the public realm is to
ensure that private players abide by the rules of fair trading.78
The rules of fair trading and economic development
require two fundamental principles to be maintained. The first is that no
individual could be compelled to enter into a transaction with another
individual. The second is that self-interested accumulative activity, provided
it does not infringe the first principle, should be rewarded.
If multinational companies made large profits from
their Third World activities, this demonstrated the validity of neoliberal
principles.
The person/ corporation who, playing the game by
the rules, is able to accumulate property of one kind or another is not only
entitled to that property, but should be recognised as having substantially
contributed to the public good in the act of accumulation 79.
Unless such people/corporations are directly,
materially able to benefit from their activity they will put less effort into
it. This, in turn, will result in economic stagnation. On the other hand, if
those who generate profits are allowed to retain them, they, through reinvesting
those profits, will generate increased economic activity.
It is assumed that since human nature is the
distillation of millions of years of evolutionary experience, human beings as
individuals will be adapted innately (through natural selection) to make the
best of their natural and social environments. (Of course, there are many who do
not accept an evolutionary explanation, preferring to rely on the 'natural law'
argument 80 as
justification for their belief in the primacy of independent and competitively
opposed individuals.)
Effectively, therefore, if one removes all social
inhibitions aimed at channelling and distorting human behaviour, human beings,
in any community, will be freed to real self-development which, inevitably, will
most satisfactorily be expressed in involvement in market exchange.
So, human communities are best served, and
individuals will benefit most, if they are empowered to engage in the
uninhibited, competitive exchange of goods and services. All human beings, it is
claimed, are naturally and individually competitively opposed to each other and
intent on accumulation.81
These principles, naïvely presumed to be
universally valid, have driven Third World economic development advice since the
1970s. That advice has been mandated through the demands of international
agencies as Third World countries have found themselves unable to meet their
international financial 'responsibilities'.
27
Barry Riddell, examining the implementation of SAPs in Third World countries in
the late 1980s, concluded that:
… the I.M.F. has imposed 'conditionalities' in sub-Saharan
Africa as integral elements of Structural Adjustment Programs (S.A.P.s) that
affect not only the lives of all the inhabitants, but also the nature and
landscapes of the nations concerned — their very geographical composition …
Although the specifics of S.A.P.s differ, four basic elements
are always present:
- currency devaluation,
- the removal/ reduction of the state from the workings of
the economy,
- the elimination of subsidies in an attempt to reduce
expenditures,
- and trade liberalization
… at the same time, the countries themselves are altered in
certain fundamental ways. These involve the organisation of the state, the
character of the environment, the supply of food, the meaning of development,
urban-rural interaction, and distinctly different future prospects for the
several areas that make up the Third World [83] …
The debt crisis dominates national life: unemployment is
increasing, food and fuel are in short supply, availability of services has
deteriorated, and standards of living are falling. It is more than a matter of
export earnings not meeting the financial obligations of debt servicing and the
costs of imports, for the situation is exacerbated by rapid population growth,
environmental deterioration, over-urbanisation, unemployment, and AIDS. …
Chinua Achebe wrote Things Fall Apart (London 1958) in
order to describe disasters which befell African society and economy with the
onset of colonialism. Financial stringency is leading to similar results again
almost a century later. The exigency means that the economies of the newly
independent states are in decline, with little or no hope for the immediate
future despite the rhetoric of international institutions.
(Riddell 1992, pp.
53-55)
28 See Reciprocity and Exchange for a discussion on the nature of
social exchange.
29 I have never found anyone who could
satisfactorily explain why this presumption was (and is) held.
30 Syphoning
of funds into patron-client networks was, of course, a feature of both
government and business organisation in many Third World countries. See
Biersteker (1987) and Robison (1990) for descriptions of the relationship
between government and private enterprise in Nigeria and Indonesia.
31 The Secretary-General of UNCTAD, in 1996,
explained:
International trade and production have not expanded at the same
rate as international financial transactions, but production by transnational
corporations has grown faster than trade. More importantly, trade and the
internationally integrated production of TNCs have acted both separately and in
interplay with each other to increase interdependence of economies in terms of
production activities, lending a qualitative dimension to globalisation that
distinguishes it from its earlier variants …
The principal driving force in the globalisation process today
is the search of both private and publicly-owned firms (and more generally,
producers and asset holders) for profits worldwide.
Their efforts are made possible or facilitated by advances in
information technology and by decreasing transport and communication costs. To
maintain or increase market share and maximise profits in a world economy with
rapid technological change, converging consumer tastes and liberalised flows of
goods, services, capital and technology across national boundaries, firms are
pursuing strategies that allow them to exploit all available sources of
competitive strength, combining their own, firm-specific assets with assets that
are specific to particular locations.
They minimise transaction costs and maximise efficiency and
profits through appropriate choice of modes of international transactions and
distribution of assets and of international production activity …
As firms increasingly see transnational production as necessary
for their competitiveness and profitability, they are exerting more and more
pressures on Governments to provide conditions that will allow them to operate
worldwide. This involves not only further liberalization of international trade
but also freedom of entry, right of establishment and national treatment, as
well as freedom for international financial transactions, deregulation and
privatisation …
Macroeconomic forces have, meanwhile, exerted other pressures on
firms and Governments. Slow growth of demand, stagnant wages and persistently
high unemployment in the developed countries over the past 20 years have
resulted in pressures from firms and workers that have influenced these
countries' policies.
The slow growth of domestic demand and the related squeeze on
profits in developed countries has led firms there to intensify their search for
growth and profits in other markets; in so doing, they also apply pressure on
their home Governments to demand greater openness of foreign markets.
(UNCTAD 1996, ch. 1, pp 15-16,20-21)
32 See Inflation of the Material Requirements of Status Positions for
more on this.
33
Briones and Zosa (1994) described the situation in the Philippines:
… for more than two decades, external debt accumulation in the
Philippines has been characterised by an accelerating trend. These are monetary
and non-monetary liabilities incurred by both the public and the private-sector
from foreign entities such as commercial banks, multilateral organisations, the
International Monetary Fund, the private bond market, foreign government and
bilateral agencies, and other foreign institutions …
The Philippines external debt increased almost ninefold between
1972 and 1982 …
This illustrates the policy of development financing during the
period — a policy where development projects were financed by borrowings from
external sources, particularly from the international financial system, which
was awash with recycled petrodollars …
Investment and international financial resources flowed into
their economies. Unfortunately, global finance innovations also facilitated the
outflow of these resources in larger amounts through capital flight, which
resulted from the unsettling political and social events prevailing at the time.
The outcome was the 1983 debt crisis where debtor economies like the Philippines
had to declare a series of moratoria on debt service payments …
Even after the debt crisis, the Philippine external debt
continued to rise. This was accounted for mainly by net availment of foreign
loans, foreign exchange fluctuations, and capitalised interest on debt service
payments after the debt reschedulings following the moratoria …
Again, shift in the international financial and monetary systems
played a major role in the structure of the Philippine external debt. With the
capitalisation of unpaid interest after the moratoria, debt stocks rose and
correspondingly bloated debt service payments.
This necessitated the need for more loans and financial
assistance, which the international financial community provided at increasingly
higher costs financially, economically, and politically. The access enjoyed by
developing countries to Eurocurrency credit markets in the 1970s and 1980s made
these debtor nations more vulnerable to foreign exchange fluctuations.
(Briones & Zosa 1994, pp. 253-5)
34 See Center for
the Study of Democracy (1995) for an exploration of the options available to
Bulgaria as it struggled to handle a debt crisis in the mid 1990s.
See Chapter 2 of that study for an economic
advisor's description of the rationale for such programs: Rationale
for a Debt Conversion Program and Chapter 3: Debt for
Equity Conversion Models for the implementation models of such schemes in a
variety of Central and South American countries. As the writer explained,
Debt Conversion Programs are no panacea for a country's debt or
development problems. They should be viewed as useful but limited vehicle for
debt reduction and for the attraction of new investments. However, in certain
circumstances, they can make a substantial contribution both by encouraging
foreign capital inflows at a time when it is scarce and in alleviating the debt
service burden. Some countries have used these programs as an incentive for
capital flight reversal.
35 Briones and Zosa described a few of the
problems faced by the Philippines in the early 1990s:
The Philippines has reduced around $3.4 billion of external debt
through the above-mentioned schemes, including its debt buy-back of US $1.3
billion.
It is important to stress that, although these voluntary debt
reduction schemes may ease cash-flow payments, they are clearly inadequate to
reduce overall debt stocks. Furthermore, these schemes are expensive and require
foreign exchange resources to implement.
For example, the cash buy-back of US $1.3 billion (which
involved purchasing the debt papers at 50 cents in the dollar) had to be
supported by an official loan of US $650 million from multilateral and bilateral
creditors as the Philippines did not have the reserves to support the buy-back.
Thus, what was gained in reduction of commercial bank debt was
lost in terms of an increase in official loans.
Furthermore, debt-equity programs and other debt schemes also
create undue inflationary pressure. These, too, link the debt problem to
investments in debtor economies like the Philippines.
As scarce capital deters local investors, the premium enjoyed by
investors in debt-equity programs and debt-for-note/debt programs favour foreign
investors and accords them the opportunity of availing themselves of the
assets/resources in the economy at 'sweet-heart' prices.
The hold of transnationals in key industries and sectors of the
Philippine economy remains a burning issue. In the medium and long-term, the
pressure on foreign exchange reserves brought about by profit remittances will
also have to be addressed.
(Briones & Zosa 1994, pp. 269-270)
36 This phenomenon is not confined to Third World
countries. Average farm sizes in Western nations have similarly expanded over
the past century. In Western regions, the movement into urban areas commenced in
the 16th century, with the dispossession of millions of small land
holders. It continues to the present.
In non-Western regions, the problems of
consolidation began with the economic reorganisation of colonial regions to feed
the factories of Europe. Urbanisation was kept in check through laws and
regulations controlling the movement of people from 'traditional' reserves.
Following the 2nd World War, those
legal restrictions were challenged as 'anti-democratic' and people began to move
to possible employment centres (see The Right of Individuals to Freedom of Movement and
Self-expression for more on this).
With the globalisation of economic activity over
the past forty years, the problem has grown even more serious. As Un-Habitat's,
The Challenge of Slums: Global Report on Human Settlements 2003
explained:
The locus of poverty is moving from the countryside to cities,
in a process now recognized as the “urbanization of poverty.” The absolute
number of poor and undernourished in urban areas is increasing, as are the
numbers of urban poor who suffer from malnutrition.
37 As Charmes described:
Estimates of the informal sector as comprising between 20 and 60
per cent of urban or non-agricultural employment are now accepted truths, and
the wide margin is taken as evidence that the lower level of development of a
country, the larger its informal sector …
(Charmes 1990, p. 17)
Perhaps the most important point to remember in
considering informal economic activity in Third World countries is that people
are involved in supplying their subsistence and status-related needs and wants
in ways which are acceptable to people in their own communities. They are
organising activity in ways which 'fit' the requirements of the social templates
which underwrite all communal organisation and activity.
The forms of productive exchange and consumptive
organisation and activity which emerge are likely to reflect more closely forms
from the community's own past than formal economic organisation and activity.
For this reason, a great deal of the activity will only coincide poorly with the
requirements for involvement in Western economic activity, that is in 'formal'
economic activity.
Attempts by well-meaning development agencies to
'harness the informal sector' in promoting formal economic development are
inappropriate since they are attempts to refashion such activity to fit the
presumptions and requirements for involvement in Western social template
activity. The social engineering implications of such attempts are enormous,
though seldom recognised by those who promote such refashioning.
39 As
Dharam Ghai explained:
The establishment of colonial rule in the 19th and early 20th
century in most parts of Africa set in motion a series of developments with
profound implications for the environmental balance.
The principal mechanisms disturbing the equilibrium were
expropriation of land for settlement and plantations, assumption of state
sovereignty over natural resources, commercialisation of agriculture,
development projects and policies and population growth …
These developments not only disrupted the long established
systems of shifting cultivation and nomadic pastoralism but also confined
indigenous populations to restricted areas often of low agricultural potential …
The situation varied by regions and colonial authorities but the
general trend was towards increasing central control and growing
disenfranchisement of local communities … The process continued after
independence from colonial rule …
The search for profits brought an ever increasing area of land
under cultivation. Some of the earlier practices of crop rotation,
intercropping, mixed farming and shifting cultivation were either abandoned or
restricted …
The growth of export commodities such as cotton and groundnuts
reduced soil fertility and increased its vulnerability to erosion. This was
especially the case with continuous mono-cropping. The deleterious effects on
soil fertility have also been observed with continuous mono-cropping of food
crops such as maize even when fertilisers are used.
(Ghai 1993, p. 65)
40 See
Just-in-Time and Total-Quality-Control for more on this.
41 John Borrego described their experience in the
1990s:
The spatio-temporal unity of the polity and economy,
characterising the earlier phases of capitalist development, has been fractured.
The State's capacity to mediate between market and society has been weakened.
In particular, global capitalism has substantially reduced the
local, regional and national State's control over its economic and non-economic
environments (Ross & Trachte, 1990). Post-Fordist firms seek settings with
'good business environments'.
While this concept can suggest qualities such as a skilled
labour force and highly developed and maintained infrastructure, it can also
mean low wages, weak unions, and lax regulation of the work place and
environment which disempower people and communities.
In this setting, States use tax abatements and various other
subsidies to attract or simply hold businesses. 'Economic development' often
means States encouraging competitive rollbacks in all these areas which force
communities into 'placewars' in order to attract globally mobile capital
(Mingione, 1991; Donald Haider, 1992: 127-134).
(Borrego 1995, pp. 37-8)
42
See Moves to Automation for more on this.
43
It is easy for people who still have adequate housing and reasonably paid
employment and conditions (fewer than there were five years ago) to forget that,
in the history of capitalism, the conditions they enjoy are an 80 year long
exception to a far harsher rule.
For most of the past four hundred years, Alexis de
Tocqueville's description of Manchester in the 1830s has not been
exceptional:
Thirty or forty factories rise on the tops of the hills I have
just described. Their six stories tower up; their huge enclosures give notice
from afar of the centralisation of industry.
The wretched dwellings of the poor are scattered haphazard
around them. Round them stretches land uncultivated but without the charm of
rustic nature and still without the amenities of a town...
Some of [the] roads are paved, but most of them are full of ruts
and puddles into which foot or carriage wheel sinks deep... Heaps of dung,
rubble from buildings, putrid, stagnant pools are found here and there amongst
the houses and over the bumpy, pitted surfaces of the public places...
Amid this noisome labyrinth from time to time one is astonished
at the sight of fine stone buildings with Corinthian columns...
But who could describe the interiors of those quarters set
apart, home of vice and poverty, which surround the huge palaces of industry and
clasp them in their hideous folds?
On ground below the level of the river and overshadowed on every
side by immense workshops, stretches marshy land which widely spaced muddy
ditches can neither drain nor cleanse. Narrow twisting roads lead down to it.
They are lined with one-storey houses whose ill-fitting planks and broken
windows show them up, even from a distance, as the last refuge a man might find
between poverty and death. Nonetheless the wretched people reduced to living in
them can still inspire jealousy of their fellow beings. Below some of their
miserable dwellings is a row of cellars to which a sunken corridor leads; twelve
to fifteen human beings are crowded pell-mell into each of these damp, repulsive
holes.
(1958, pp.105-6)
Here is a (2005) description of one of the slums
in Mumbai, see Denis Gruber et al (2005):
The settlement unit ‘Bharantinga Nagar Ekta’ close to Kurla
station was founded about 65 years ago. Like Dharavi, it is located close to a
railway line and station, which guarantees access to transport and work in more
distant places of Bombay (Desai 1995:149).
The slum is surrounded by apartment blocks (so-called shawls) of
the former workers’ class. Outside the slum are huge heaps of rubbish and a
ditch that replace a sewerage system. A gangplank crossing the main ditch allows
reaching the huts and houses. Here only Muslims live.
Therefore, this slum reflects a very homogenous social
composition. As the slum population has no legal right to stay although many of
them settled before 1995, and there are administrative plans for building a huge
bridge in this area, the people are afraid of eviction and demolition of their
houses and working places, what is very common in India and has recently (late
2004, early 2005) in Maharashtra experienced a new height that has even caused
international protest. According to our question, concerning political
activities in order to attain a legal sanction people regretted that there is no
time for a political engagement, since they are mainly concerned with making
their survival.
(2005 p. 7)
See Who's to blame for their degrading circumstances; Organising the Working Poor; The Breakdown and Revitalisation of Communities for more on
this.
44
See The Granting of Monopolies for more on this.
45 Wikipedia provides a base definition for
understanding the nature of conglomerate business organisation in the
20th century:
A conglomerate is a combination of two or more corporations
engaged in entirely different businesses together into one corporate structure,
usually involving a parent company and several (or many) subsidiaries.
(Wikipedia accessed 28-06-2010)
Over the past thirty years conglomerate
organisation has become more refined, mitigating many of the perceived problems
encountered in the 1960s and 1970s (when regulatory protections were still
effective in Western regions). The model which best applies to current practice
is a modified and Westernised (and also less focussed) version of the Japanese
keiretsu (see Wikipedia's entry for the Keiretsu outside Japan (accessed 28-06-2010) for a preliminary
description).
The emphasis in conglomerate organisation is now
less on the incorporation of 'entirely different businesses' than on the
relatively loose interconnection of more focussed business interests,
coordinating the activities of businesses with complementary interests and
strengths. This provides monopoly or cartel-like advantages and strengths while
circumventing legal limitations on cartel and monopoly activities.
Praful Bidwai (2010) has provided an interesting
sketch of some of the features of conglomerate dealings in India. His
description could be replicated in any of the major Western and Third World
centres of government.
Corporate lobbyists have become important mediators — and
sometimes active players — in business-government relations in a number of
areas, including
- the infrastructure (highways, ports and huge projects under
the Jawaharlal Nehru National Urban Renewal Mission in 63 cities),
- energy (including gas, oil and energy),
- telecom (where the 3G auction bids show that the earlier
2G-spectrum were sold at a fraction of the market price),
- and mining (where global conglomerates have developed
stakes running into billions of dollars in India's tribal
heartland).
Not to be ignored is the clout that lobbyists wield in military
contracts, agribusiness, seeds, civil aviation, and opening up retail trade to
organised business, including multinational hypermarket chains like Metro,
Carrefour and Wal-Mart.
Corporate lobbying has become the highest embodiment of crony
capitalism in India. It has developed into a formidable industry, with at least
30 major firms based in New Delhi alone. Each of them appoints dozens of
"facilitators", "account executives", point-persons and lawyers, all dedicated
to securing sweetheart deals and licences for their clients, and just as
importantly, ensuring that their clients' rivals don't get them.
(Bidwai May 2010)
46
Not only has "Corporate lobbying… become the highest embodiment of crony
capitalism in India", as Praful Bidwai claims, the intermeshing of corporate and
government interests has become commonplace throughout the neoliberal global
economic world.
In an article entitled "The Guys From ‘Government Sachs’" (New York Times, October 17,
2008), Julie Creswell and Ben White described the "power and influence that
Goldman wields at the nexus of politics and finance":
THIS summer, when the Treasury secretary, Henry M. Paulson Jr.,
sought help navigating the Wall Street meltdown, he turned to his old firm,
Goldman Sachs, snagging a handful of former bankers and other experts in
corporate restructurings.
In September, after the government bailed out the American
International Group, the faltering insurance giant, for $85 billion, Mr. Paulson
helped select a director from Goldman’s own board to lead A.I.G.
And earlier this month, when Mr. Paulson needed someone to
oversee the government’s proposed $700 billion bailout fund, he again recruited
someone with a Goldman pedigree, giving the post to a 35-year-old former
investment banker who, before coming to the Treasury Department, had little
background in housing finance.
Indeed, Goldman’s presence in the department and around the
federal response to the financial crisis is so ubiquitous that other bankers and
competitors have given the star-studded firm a new nickname: Government Sachs.
The power and influence that Goldman wields at the nexus of
politics and finance is no accident. Long regarded as the savviest and most
admired firm among the ranks — now decimated — of Wall Street investment banks,
it has a history and culture of encouraging its partners to take leadership
roles in public service.
47 Stephen Gill suggested that what has happened
through most of the world is an extension of the kind of disorder experienced in
the old Soviet Union in the wake of Gorbachev's policy of perestroika
in the final years of the USSR. As he explained:
Robert Cox (1992) has coined the phrase 'global perestroika' to
describe this process. Thus, rather than being simply explicable in terms of
conscious political decisions and the direct use of political power, global
perestroika (that is, the process beyond the former USSR) has produced a type of
institutionalised chaos that is propelled by the restructuring of global
capitalism.
Of importance here are accelerating changes in production,
finance, and knowledge that have given rise to a relatively coherent,
interrelated pattern. In this pattern there has been a cumulative if uneven rise
in the structural power of internationally mobile capital (Gill & Law 1988,
1989), a rise that has brought with it certain limitations and contradictions.
This emerging world order, then, can be contrasted with the one
that prevailed in the metropolitan nations in the 1950s and 1960s.
From the vantage point of the early 1990s, it appears to be
characterised by deepening social inequalities, economic depression for most
parts of the world, and a reconfiguration of global security structures.
These changes are strengthening the strong, often at the expense
of the weak. The principle of distributive justice that is increasingly
associated with this order is, to paraphrase the Book of Matthew, 'to him that
hath shall be given, to him that hath not shall be taken away'. This is what I
mean by 'patterned disorder'.
(Gill 1994, pp. 170-1)
48 See Meyer, N.
et al. (2010) for a discussion of the effects and necessity for such
agreements among African countries.
As they say,
…domestic regulation and standards are essential for protecting
economies from unscrupulous business practices that bring harm to humans, plant
and animal life, the environment, national security and infant industries.
49 See Global Capitalism, Western Realities
77
This was not, of course, a new development of the late 20th century.
Thomas Huxley (1893) described this attitude to the responsibilities of
government in the second-half of the 19th century:
According to their views, not a shilling of public money must be
bestowed upon a public park or pleasure ground; not sixpence upon the relief of
starvation, or the cure of disease.
…The State is simply a policeman, and its duty is neither more
nor less than to prevent robbery and murder and enforce contracts. It is not to
promote good, nor even to do anything to prevent evil, except by the enforcement
of penalties upon those who have been guilty of obvious and tangible assault
upon purses or persons.
(1893, p. 258)
78 See Subsistence and status for a discussion of the nature of and
relationship between 'private' and 'public' environments in Western communities.
79
Adam Smith had explained this two centuries earlier:
The resolute firmness of the person who acts in this manner, and
in order to obtain a great though remote advantage, not only gives up all
present pleasures, but endures the greatest labour both of mind and body,
necessarily commands our approbation.
(1759 Part 4 Ch. 2)
80
See Natural Law and Perfection
81 See Reciprocity and Exchange for discussion on the nature of
reciprocity and exchange. The presumption that there is only one definition of
human exchange, from which actual behaviour deviates as a result of constraints
and incentives imposed by society, seems to be based on a rather naïve
understanding of processes of categorisation and classification and therefore of
processes of human interaction.
83 The
World Trade Organisation statement of purpose would later explain this:
The economic case for an open trading system based upon
multilaterally agreed rules is simple enough and rests largely on commercial
common sense…
All countries, including the poorest, have assets — human,
industrial, natural, financial — which they can employ to produce goods and
services for their domestic markets or to compete overseas.
Economics tells us that we can benefit when these goods and
services are traded. Simply put, the principle of “comparative advantage” says
that countries prosper first by taking advantage of their assets in order to
concentrate on what they can produce best, and then by trading these products
for products that other countries produce best.
In other words, liberal trade policies — policies that allow the
unrestricted flow of goods and services — sharpen competition, motivate
innovation and breed success. They multiply the rewards that result from
producing the best products, with the best design, at the best price.
(WTO)
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