July 1997, U.K. (Updated April 2001)
While the growing disparity in G.N.P. between rich and poor states in recent years has been matched by the growth of inequality within each, there are undeniably huge differences in material circumstances of the average worker in Western Europe and their counterpart in, say, Bangladesh. 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 series 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, Third World countries 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. It was expected that, in due course, the benefits of economic growth, hitherto confined to the modern sector, would automatically “trickle-down” to the impoverished backwater. The “dual economy” would, it was envisaged, 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 economies. 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 was effectively blocked within an externally imposed global division of labour.
The basic mechanism that condemned the Third World to a state of perpetual “underdevelopment” was 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; it simply enabled the First World to divest itself of the cost of administering these territories while co-opting their emergent class of “comprador bourgeoisie” into this process of neo-colonial exploitation.
To break this stranglehold, several less developed countries saw the need to “de-link” 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 was 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 would have 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 was likely to lead to the growth of an unproductive bureaucracy, further impairing an already impoverished economy while increasing the scope for corruption.
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 “petro-dollars” 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 came to an end, the bubble burst. The 1980s witnessed a steep decline in Third World incomes. Growing poverty led to eruptions of popular unrest to which governments responded with increased military repression. 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 on health.
Magic of the market?
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.
Such free market theory was shaped by an influential theory first put forward by the British economist and MP David Ricardo in the last century. According to his theory of ‘diminishing returns,’ companies would reach a point after which their additional investment would yield increasingly lower returns. This theory, of course, had implications for national economies, for as they grew they could also be expected to reach a point of diminishing returns with their growth expected to eventually come to a halt. This meant that the poorer nations were predicted to catch up – the ‘Third World’ to convergence with the ‘first.’
This view did not take account of a number of important factors. Huge initial amounts of capital are, as mentioned above, required before a company or nation can even begin to compete in many world markets. Furthermore, wealthy states can exert influence on trade patterns to maintain their interests, as indeed they were doing during the 1980s when free market theory was so much in vogue.
Free market rhetoric was the forte of the I.M.F. and World Bank who took on a more aggressive role as watchdogs of international capitalism during the 1980s. With the growing threat of debt defaults in the early 1980s, 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. (The World Bank, IMF and Structural Adjustment.)
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 G.A.T.T. treaty prohibited developed 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 price, the markets for such exports are soon saturated. So prices decline, as does the capacity of less developed countries to service their debts. It’s a case of protectionist swings or free market roundabouts.
History has forced economists to rethink their supposition of a smooth path towards development. Average growth for 16 rich countries surveyed by The Economist has slowed since the early 1970s in particular, but it is still above the average. As for the supposed faster growth among the developing world,
if there is any discernible pattern…. it is the opposite: poorer countries have tended to grow more slowly.(1)
Interestingly, the United Nations Development Programme administrator, James Speth, believes “the world has become more economically polarised” and that “if present trends continue, economic disparities between industrial and developing nations will move from inequitable to inhuman”(6).
As a result, many of the world’s poorest countries have seen average incomes decline and increased polarisation. The wealth of many nations has actually declined in recent years. 89 countries are reporting lower per-capita incomes than they were 10 years ago.(6)
The wealthiest fifth of nations dispose of 84.7 per cent of the word’s combined GNP; its citizens account for 84.2 per cent of world trade and possess 85.5 per cent of savings in domestic accounts. Since 1960 the gap between the richest and the poorest fifth of nations has more than doubled which confirms in figures the bankruptcy of any promise of fairness in development aid (GT 29)
During the 1980s average incomes were reported to have fallen by 10% in most of Latin America and 20% in sub-Saharan Africa. In many urban areas wages have fallen by as much as 50%.(1)
The 1980s decline in average incomes in many developing countries has continued in the 90s: in 1990, average per capita income fell by over 2.5% in Latin America and by over 2% in Africa.(2)
The 1992 United Nations Human Development Report states that the poorest 20% of the world’s population have seen their share of world income fall from 2.3% to 1.4% over the past 30 years.(3) In sub-Saharan Africa, the number of families who are unable to meet their most basic needs has doubled in a decade.(4) According to OXFAM projections, the future looks little brighter for the rest of Africa, the Middle East, South and Central America.
Yet, as the Bank works through its sixth decade of trying to promote something called ‘development’, the poor in most of its borrowing countries are in worse shape than they were a decade and a half before. According to the United Nations Development Programme (U.N.D.P.), since 1980, economic decline or stagnation has affected 100 countries, reducing the incomes of 1.6 billion people”. For 70 of these countries, average incomes are less in the mid 1990s than in 1980, and for 43, less than in 1970. In the early 1990s incomes fell by 20 per cent or more in 21 countries, mainly in the former Soviet Empire. The poorest fifth of the world’s population has seen its share of global income fall from 2.3 per cent to 1.4 percent over the past 30 years. Even according to the Bank’s Operations Evaluation Department’s latest Annual Review of Development Effectiveness 1999, “poverty trends have worsened… The number of poor people living on less than US $1 a day rose from 1,197 million in 1987 to 1,214 million in 1997. Excluding China, there are 100 million more poor people in developing countries than a decade ago”. Furthermore, since 1990 life -expectancy has declined in 33 countries.(7; p15)
On other indicators of progress, the U.N.D.P report does provide some more positive facts:
During this half century the trend was towards greater income inequality among countries. At the same time, on some important measures of social well-being, the gap between the `North’ and the `South’ has narrowed in recent years. During the 1960 to 1990 period, North-South disparities declined in, for example, life expectancy, literacy rates, infant mortality and average caloric supply. In the same period however, disparities rose on important indicators of economic capacity for further progress: mean years of schooling, tertiary education enrolment rates, and scientists and technicians per capita, for example (9; p71)
So-called ‘new growth theorists’ have sought explanations for this discrepancy between fact and the Ricardian theory. They have identified factors such as unequal levels of education and training as decisive in explaining the increased polarisation. In a comprehensive study R. Barro concludes that:
if one holds constant such factors as a country’s fertility rate, its human capital (proxied by various measures of educational attainment) and its government policies (proxied by the share of government spending in Gross Domestic Product), poorer countries tend to grow faster than richer ones.(5)
In stark contrast to the hopes of charity organisations such as the United Nations Children’s Fund (U.N.I.C.E.F.), Overseas Development Aid (O.D.A.) can be relied upon even less as a substantial source of help for poorer nations. In 1993, O.D.A. fell 8 per cent from 1992 levels to US$56 billion.(3)
As Michel Chossudovsky explains, the World Bank produced an influential study in 1990 in which they proposed a low and quite arbitrary threshold to define poverty:
The World Bank ‘estimates’ that 18 per cent of the Third World is ‘extremely poor’ and 33 per cent is ‘poor’. In a major World Bank study which has served as a reference on issues of global poverty, the ‘upper poverty line’ is arbitrarily set at a per capita income of $US1 a day, corresponding to an annual per capita income of US$370 per annum. Population groups in individual countries with per capita incomes in excess of $US1 a day are arbitrarily identified as – ‘non poor.’ In other words, through the manipulation of income statistics, the World Bank figures serve the useful purpose of representing the poor in developing countries as a minority group. Double standards abound in the ‘scientific measurement of poverty’. The World Bank, for instance, ‘estimates’ that in Latin America and the Caribbean only 19 per cent of the population is –poor’.: a gross distortion when we know for a fact that in the United States ( with an annual per capita income of approximately US$20,000) one American in five is defined (by the Bureau of the Census) to be below the poverty line.(10; p43)
More than 80 countries now have per capita incomes lower than they were a decade or more ago, and as the United Nations Development Programme (U.N.D.P.) points out, it is often the countries that are becoming even more marginal which are highly `integrated’ into the global economy. While exports from Sub-Saharan Africa, for example, have reached nearly 30 per cent of G.D.P. (compared to just 19 per cent for the leading industrialised countries of the O.E.C.D.), the number of people living in poverty there has continued to grow. (7)
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. (See Environment section) Similarly, the increasing mobility of international capital in an era of free markets had 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. ( Globalisation)
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 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.
- (1) The Economist 25-31/5/96
- (2) New Internationalist – Housing issue:
- (3) Fairer World Statistics (Revised Version Feb 1992) OXFAM
- (4) The Guardian 29.7.96
- (5) The Economist 25-31/5/96
- (6) The Observer, London 1996
- (7) The Ecologist, U.K., September 2000.
- (8) 20/20 Plan, U.N.I.C.E.F.
- (9) United Nations Development Project Report 1992
- (10) The Globalisation of Poverty – Michel Chossudovsky (Third World Network 1997)
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