1990s >> 1997 >> no-1116-august-1997

Development: the shattered illusion

The stereotype is that we live in a world of haves and have-nots: a prosperous “First World” alongside an impoverished “Third World”.

The reality, however, is more complicated. For wherever you look you will find rich and poor people alike. Indeed, the growing disparity in GNP between rich and poor states in recent years has been matched by the growth of inequality within each. That said, there arc undeniably huge differences in material circumstances of the average worker in Britain and their counterparts in, say, Bangladesh. But how did this come about and what, if anything, can be done about it within global capitalism?


Since the Second World War there has been a concerted effort by national governments and international agencies to “develop” the so-called Third World. At the outset this was linked with de-colonisation; it would help make political independence more “meaningful”. According to the prevailing “modernisation” theory, development meant less developed countries passing through a scries of stages mirroring the economic history of developed countries. But while favourable circumstances had allowed the latter to reach the final stage of “mass consumption”, a number of internal factors prevented the former from progressing towards “take-off into self-sustaining growth”.

Most important was a supposed shortage of capital. This had to be tackled on two fronts. Firstly, savings as a proportion of GNP had to be increased. As the “propensity to save” was thought to be highest among the rich, gross inequalities were justified on the grounds that they facilitated savings. Secondly, as less developed countries were thought unlikely to generate sufficient capital internally, foreign capital needed to be mobilised for inward investment along the lines of the famous Marshall Plan which helped rebuild the war-torn economies of Western Europe.

For modernisation theorists, this shortage of capital necessitated a policy of “unbalanced growth”: concentrating investment where it realised the greatest return and hence the most rapid accumulation of capital. Following the example of the First World countries, developing nations embarked on a programme of industrialisation. At a time when Keynesian orthodoxy still held sway with its implicit distrust of unfettered markets, a policy of import-substitution was pursued to protect budding industries from foreign competition behind a wall of tariffs.

As well as promoting rapid growth, industrialisation was supposed to assist the structural transformation of these countries’ economies. Typically, these were thought to exhibit an essentially dualistic structure: a small modern urban-industrial sector alongside a large traditional, mainly pre-capitalist, rural sector. The latter was supposedly characterised by low productivity and an abundance of surplus labour. Industrialisation would enable this surplus labour to find employment in the modern sector and indirectly help boost local agriculture: the exodus of labour from the rural areas would draw farmers into the emerging cash economy, compelling them to buy agricultural inputs, like machinery and fertilisers, to meet the growing demand for food in the towns. In due course, the benefits of economic growth hitherto confined to the modern sector would automatically “trickle-down” to the impoverished backwaters: the “dual economy” would be replaced by a structurally-integrated modern capitalist economy.

It was not long before cracks in this scenario began to appear. The prohibitive costs of agricultural inputs meant many small farmers were unable to increase output, while growing labour shortages caused by urban migration seriously impaired the productivity of traditional labour-intensive farming. As for the urban sector, modern methods of industrial production, being highly capital-intensive, required only a relatively small workforce. Thus, increasing urban migration in fact led to rising unemployment while the importation of these First World technologies imposed a growing debt burden.


By the 1960s modernisation theory had reached an impasse. A new scenario of development emerged: dependency theory. Contrary to the previous conventional wisdom that the economic backwardness of less developed countries was attributable to their incomplete incorporation into global capitalism, it was portrayed instead as an inevitable consequence of capitalist penetration of the Third World which left it increasingly dependent on the First. This shifted attention from internal to external factors affecting the development of national economics.

For dependency theory, the “world trading system” was a hierarchical order in which the dominant or “core” countries with their technological, economic and political superiority, are able to impose their needs on the “peripheral” countries. These dictate that the latter should become markets for the products of industrial countries, not rival producers, supplying them with raw materials for processing into finished goods. In short, industrial development and economic diversification in the less developed countries became effectively blocked within an externally imposed global division of labour.

The basic mechanism that condemned them to a state of perpetual “underdevelopment” has been said to be the continual outflow of economic surpluses—notably in the form of debt repayments and expatriated profits. So, far from foreign aid and investment compensating for the lack of local capital, they caused this to happen. This had been compounded in recent years by the declining terms of trade with the value of Third World exports falling sharply against manufactured imports. Political independence made little difference to their plight: it simply enabled the First World to divest itself of the cost of administering these territories while co-opting an emergent class of “comprador bourgeoisie” into this process of neocolonial exploitation.

To break this stranglehold less developed countries would have to “delink” as far as possible from the international economy and pursue “self-reliance”, while nationalising the economy to staunch the likely outflow of capital this would incur. In short, a marriage of convenience between Third World nationalism and Leninist state capitalism.

However such an approach has been problematic for several reasons. Firstly, the structure of production which many of these countries inherited was heavily oriented towards exportation of cash crops or minerals and could not easily be re-oriented towards local needs. Secondly, an autarkic policy favouring economic diversification has to contend with local markets being insufficiently large, particularly in small countries, to justify investment in certain lines of production where economies of scale may be critical. Thirdly, increasing state intervention is likely to lead to the growth of an unproductive bureaucracy, further impairing an already impoverished economy while increasing the scope for corruption.

Getting worse

The 1970s oil crisis made matters worse for the less developed countries by massively increasing import costs but in the short term it produced a flood of “petrodollars” loaned to them via western banks. Between 1973 and 1981 these loans increased nine-fold. The spending spree this unleashed helped maintain relatively high growth rates though much of this investment tended to be channelled into grandiose projects which did little to alleviate poverty.

Then, as the long post-war boom petered out, the bubble burst. The 1980s in particular witnessed a steep decline in Third World incomes. Growing poverty led to eruptions of popular unrest to which governments responded with increased military repression. Yet ironically increased military spending only exacerbated the problem, diverting scarce resources away from development projects. In the 32 poorest countries in the world (apart from India and China) such expenditures amounted on average to twice what was spent on education and seven times that on health.

Global recession also signalled a profound change in the political climate. Growing disenchantment with Keynesian policies in the late 1970s and the sudden collapse of the Soviet bloc in the late 1980s ushered in an age of “market triumphalism”. Blind faith in market forces replaced blind faith in the efficacy of state intervention.

The concept of development had by then already undergone a subtle mutation. No longer crudely equated with GNP growth it began to also incorporate notions of redistribution and empowerment. In this broader sense, development came to be increasingly linked with concern for the environment, following the emergence of the environmental movement in the early 1970s.

As the global economy went into recession interest in environmental issues diminished but it re-emerged in the late 1980s under the rubric of “sustainable development”. Popularised by the 1987 Brundtland report Our Common Future, sustainable development meant a form of development that met “the needs of the present without compromising the ability of future generations to meet their own needs”. Environmental deterioration and economic decline were perceived as being mutually reinforcing. Since poverty caused people to over-exploit their natural resources, a more equitable distribution of wealth would help ensure more sustainable use of those resources. Although this represented an advance on earlier environmental thinking, it failed to address the real problem: it is not the poor who are the main culprits of environmental vandalism: more often than not they are victims of destructive decisions made by remote governments and multinational corporations who in turn are driven by the logic of market competition.


Yet it was this self-same logic which the less developed countries were now being urged to apply. With the growing threat of debt defaults in the early 1980s, the IMF and World Bank took on a more aggressive role as watchdogs of international capitalism. Structural Adjustment Programmes were imposed in exchange for rescheduling debts and further aid. This involved privatisation of state enterprises, public spending cuts and price liberalisation. If the stated intention of such reforms was “economic stabilisation”, their real purpose was to ensure that these countries were better able to fulfil their debt obligations. To that end, greater emphasis was placed on boosting exports with the less developed countries reverting to their traditional role as suppliers of raw materials as prescribed by the theory of comparative advantage within a global trading system progressively shorn of protectionist features.

Predictably, the results have been disappointing. But then that is the nature of reformism: “solving” one problem within capitalism only seems to generate another. For example, while the new GATT treaty prohibited developing countries from dumping subsidised food onto Third World markets, this meant the less developed countries having to pay more for food imports. More expensive imports means getting ever deeper into debt which in turn intensifies the drive towards export production at the expense of domestic food production. Furthermore, with many other producer countries in the same boat yet prevented by free trade agreements from forming cartels to bargain for higher prices, the markets for such exports are soon saturated. So, prices decline and hence also the capacity of less developed countries to service their debts. It’s a case of protectionist swings or free market roundabouts.

Meanwhile, the problems of poverty and environmental destruction escalate in tandem. The same pressures that force governments to inflict austerity programmes on populations in the name of “structural adjustment” compel them to drastically cut their meagre environmental protection budgets—at a time when the drive to increase exports poses a growing threat to the environment. Similarly, the increasing mobility of international capital in an era of free markets has enhanced its bargaining position vis-a-vis labour in both developed and less developed countries alike while enabling it to circumvent even limited attempts by states to impose environmental cost constraints by relocating (or threatening to relocate) to countries where environmental standards may be lower.

Not that things could have turned out much different given the nature of capitalism. There can be no turning back to the discredited models of development of the past. State interventionism could never provide a solution to poverty and environmental destruction. Even if this were theoretically conceivable, capitalism’s globalising tendencies have put paid to that option. Arguably, the neo-liberal order we now have is the irresistible outcome of such tendencies but in any event it too can offer no hope of real progress.

In short, the system has exhausted every possibility of meaningful development. To move forward the dispossessed majority across the world must now look beyond the artificial barriers of nation-states and regional blocs, to perceive a common identity and purpose. There is in reality only one world. It is high time we reclaimed it.

Robin Cox