[from a work in progress.SP]
Notes on Development Theory Sam Pawlett
Introduction
Development theory took off after WWII with the first wave of
decolonization. The problems
facing the newly independent countries became of concern to
intellectuals who wanted to understand the plight of the newly
independent countries as well as rationalize imperialism. Such problems
had in the past really only been the preserve of those working in the
Marxist tradition because of the events and issues raised by the 1917
Russian revolution. Because of the small size of the Russian industrial
working class and the agrarian nature of the economy, the Russian
revolutionaries were concerned with problems of underdevelopment and the
problem of building socialism in a backward country where Marx and his
followers said that socialism would (not could) take place in advanced
industrialized capitalist countries. Russian and German Marxists like
Pleknakov and Kautsky argued that socialism could only be built on
nations that had developed capitalist economies. Only a high level of
productivity could support socialist social relations . . .
The central concern of the U.S. and British governments and their
intellectual servants were that the newly independent countries might
fall into the Soviet sphere of influence. The USSR presented an
alternative model of development since in 1917 it was in a similar
position with a poor, technologically backward, mostly agricultural
peasant society. The USSR had industrialized quickly through a period of
"socialist primitive accumulation," had raised standard of living,
advanced technologically and maintained a high degree of economic
self-sufficiency. The hope for leaders of newly independent countries
was that these countries could repeat the Soviet experience with a
minimum of the immense costs suffered by the peoples of the USSR.
The newly independent countries were to be kept out of the Soviet
sphere so the raw materials, oil and cheap labor supply could come to
benefit the U.S. and Britain. This was to be done through a mix of
covert action, military intervention, a range of macroeconomic
instruments especially including the World Bank and IMF.
What is Development?
Development theories are closely bound to the development of
capitalism itself. The content of the theories themselves, reflect the
degree of development of the productive forces and the state of the
class struggle. The theory itself emerges as something to be explained,
i.e. development theories are both the cause and effect of the reality
they purport to explain. As Marx and Engels explained:
"The ideas of the ruling class are in every epoch the ruling ideas i.e.
the class which is the ruling material force of society is at the same
time its ruling intellectual force. The class which has the means of
material production at its disposal, consequently, also control the
means of mental production, so that the ideas of those who lack the
means of mental production are on the whole subject to it. The ruling
ideas are nothing more than the ideal expression of the dominant
material relations, the dominant material relations grasped as ideas;
hence of the relations which make the one class the ruling one,
therefore, the ideas of its dominance."(GI,59)
The classical economists including Marx had no conception of
"development" as we speak of today, they only sought to understand
pre-capitalistic economic formations as they led eventually to
capitalism. At the time there were only capitalist societies and non or
pre-capitalist societies. The issue was to explain how pre-capitalist
societies became capitalist. Marx ridiculed the traditional notion of
‘original sin' in primitive accumulation where capitalist relations
arise from frugal and hardworking individuals(the capitalist class) and
lazy individuals (the proletariat.)(Capital V.1p873ff.) In Marx's view
capitalism came into being through the seperation of workers from the
means of production such that all they has to sell was their own labor.
The full title of Adam Smith's most famous book "The Wealth of
Nations" is "An Inquiry into the Nature and Causes of the Wealth of
Nations". A concept of development is inherent in the title. Smith is
interested in how nations become wealthy and stay that way. For Smith,
the development of society occurs through the division of labor and the
application of technology leading to an increase in the productivity of
labor. Smith held a theory of value where he believed that the wealth of
a nation is equal to what it produces each year. To increase wealth, one
must increase production. Economic activity is the physical production
of material goods. Further, productive work is such that allows only for
the accumulation of material wealth and hence material wealth has value
only in so far as it embodies human labor. So, in Smith's view, the key
factor in increasing national wealth is an increasing amount of the
workforce dedicated to productive work. In addition an increase in the
division of labor will increase productivity. This is achieved through
an expansion of international trade and the international market. One of
Smith's key errors was to try and show that rent and profit contribute
to value and thus show a harmony of interest among all classes of
society.
David Ricardo saw political economy as an investigation into "the
produce of the earth is divided into three classes of the community,
namely, the proprietor of the land, the owner of the stock or capital
necessary for its cultivation and the laborers by whose industry it is
cultivated."
Ricardo, like Smith, defended a "labor theory of value" where the
value of a commodity is the result of the amount of labor incorporated
in it such that the amount of time taken to produce the commodity. So
wages, profits and rent could only come out of the value created by the
working class. In contrast to Smith who saw a harmony on interests among
all three classes, Ricardo saw conflict between the capitalists and the
landowners. Landowners benefit as population grows between from
cultivating less fertile land with diminishing returns. This pushes up
rents and increases the price of corn in the towns in turn pushing up
wages. As a consequence, the profits of industrialists fall as value is
transferred to the landowners. The manufacturers need to boost
accumulation by lowering the price of food in order to lower labor
costs.
Development then for Ricardo is a process of self- sustained
accumulation of capital; and growth that could only be arrested by the
limitations of available land. Ricardo allowed for the free import of
corn and raw materials in exchange for manufactures. "Let these be
supplied from abroad in exchange for manufactured goods". Ricardo did
not allow for shifting productivity over time.
Marx and Engels on Development
Marx and Engels (ME) views on development, colonialism and
economically "backward" nations is controversial and depends to a large
degree on which aspect and which particular text one wants to emphasize.
Great consideration must be given to the time and the mileau in which ME
wrote. Given the state of knowledge of non-European societies at the
time, there is any way ME couldn't have been Eurocentric and
diffusionist
Marx termed his work " a Critique of Political Economy." While
building on the insights of Smith, Ricardo and Mill as well as many
other lesser knowns, he wanted to penetrate beneath the veil of
appearances to lay bare the laws of motion of capitalism, to explain the
operation of the capitalist market by the real social relations which
lay in the process of production (Weeks).
One must interpret Marx on development while considering his ideas
as part of the materialist conception of history, though there is a
question whether his concept of development can be reduced to historical
materialism as some writers have done (e.g. G.A. Cohen). I think it is
best to see development as one aspect of historical materialism because
historical materialism is a theory that seeks to explain how all modes
of production shift from one mode to another whereas the theory of
development is concerned only with the capitalist mode of production.
Broadly, one important aspect of Marx's theory of development is
about the expansion of the productive forces i.e. concerned with the
expansion of productivity. Marx is with Smith in this regard though he
has a much different theory. Development is about the drive for capital
accumulation i.e. the need for capital to appropriate the surplus value
created by labor and to realize the surplus value through the selling of
commodities in the market, thus allowing the process to be continued on
an ever widening scale. Marx describes capital accumulation independent
of any moral evaluation of it.
To increase accumulation is to extract more and more surplus
value. Given capitalist constraints on prolonging the working day,
capitalists must try and reduce the value of labor power by increasing
the productivity of labor by means of new technology and improved
methods of production. The development of the productive forces also
created crisis and instability through a tendency for the profit to
fall, concentration of capital and thus heightened competition between
capitals. (Larrain 42.)
The limitations to the growth of the productive forces is the
opposition of the working class to capitals imposition of the mechanisms
aimed at growth in productivity and the struggles of workers to satisfy
the needs that capital itself ha created. The class relations that
create surplus value become the barriers to the realization of profit
and subsequently to the accumulation of capital: the crisis in exchange
relations is based in the crisis of production i.e. in the relations
between classes. Capitalist relations of production act as a barrier to
the expansion of valorization of capital. The relations of production
are the barrier to the growth of the productive forces. This where
foreign trade becomes of importance as a means of accumulation without a
direct confrontation with the working class. This explains the
universalizing tendency of capitalist social relations. Further foreign
trade helps resolve the realization problem by creating new markets
elsewhere in the world.
Modernization Theory
The first non-Marxian theory to emerge that showed how the
peripheral nations could escape the poverty and technological
backwardness of their economies was called modernization theory. It was
called modernization because these theorists drew a Weberian ideal type
distinction between traditional and modern societies. The social cement
of traditional societies was things like caste, kin and birthright while
the modern societies represented by North America and Europe had
opposite institutions that allowed them to grow e.g. a special unique
rationality. Modernization theory had a number of different versions
each drawing on psychology, sociology, economics and politics. The most
well known author in the economic modernization was W.W. Rostow. His
book The Stages of Growth – A Non-Communist Manifesto argues that all
societies go through a series of five stages as they evolve through
history; traditional society, preconditions for take off, take off, road
to maturity and the age of high mass consumption. This theory is a
hangover from the ‘4 stages' theory pioneered in the Scottish
enlightenment by the likes of Adam Ferguson (see Meekb for more.)Rostow
thought that all the American and European countries had gone through
these stages and had arrived in the era of mass consumption. Peripheral
nations to develop must repeat Europe's experience, they must do "as the
Europeans have done." The peripheral nations were stuck in stage 1 or 2.
The main barrier to advancing to the next stage was a lack of
technology. For Rostow, communism is a disease that intervenes between
stages 1 and 2. To prevent this disease from permeating all the
peripheral nations, Rostow argued that development assistance, aid and
support for modernization should be given by the core countries to the
periphery to prevent communist revolutions that had already occurred in
Cuba and other places. The result was The Alliance of Progress for Latin
America.
Rostow's theory was to act as a surrogate for actual historical
processes the so-called developed and modern societies had gone through.
Rostow could not take actual history seriously since this would mean
having to take on Marx and Engels something not possible for political
reasons. His theory is ex post facto, prescriptive and hypothetical.
Modernization theories assume that underdevelopment is an original
state, which must throw off the shackles of traditionalism and adopt
Western values. Like Max Weber, modernizers like Rostow and Hoselitz
thought underdeveloped societies were as such because of the lack of
western values like achievement motivation, entrepreneurship, hard work
and thrift. Development thus requires programs that will instill these
values. One of the problems here is that there is no explanation of how
underdeveloped societies came to be that way. Without this knowledge, it
is hard to identify obstacles and potential for future development.
Further, the values that allow societies to develop are specific and
unique to Anglo-America and must spread to "backward" regions. No
analysis is given of the historical reasons why Europe developed and the
peripheral nations did not.
One of the most serious shortcomings of Rostow's theory is the
inability to specify how a society goes from one stage to the next. He
gives no account of structural and institutional change over time.
There is no reason to suppose a society will go from one stage to the
next. Further, no country has ever developed by means of Rostow's
stages. Modernization theory states that economic growth and development
occur endogenously. This abstracts from the complex international and
historical relations within which nations and geographical areas are
imbedded, resulting in an impoverished explanation. To explain
development, the modernizers prescribe the diffusion of Western values
yet these values are of course external to the country under
examination.
Why then with such a poor theory, was it adopted? The answer is in
realpolitik. Rostow's theory was a rationalization for U.S. foreign
policy. The spread and reign of modernization theory had little to do
with its intellectual power than with its close convergence with US
state and corporate interests, coinciding with US imperialist
interventions in the third world during the 50's and 60's. The best way
to further development was through the continuation of imperialist
policies since underdevelopment by definition occurs when societies
resist imperialism. Modernization theory's decline came unsurprisingly,
after the devastating American military-political defeat in Vietnam.
Further, modernization theory acts as a theory of European superiority
over non-European cultures.
Economistic Approaches
In the 1950's a school known as development economics arose. Its main
adherents were Arthur Lewis, Simon Kuznets, Charles Kindleburger and E.
Domar. These theorists were concerned almost solely with economic growth
and how an underdeveloped society could foster economic growth and
become less impoverished. These economists build formalistic models on
how a country could grow. The main fault here is, again, a lack of
historical process.
The history of underdeveloped economies is the history of European
expansion.
Deflationary Approaches
Deflationary approaches argue that the very concept of "development" is
nonsensical and mistaken. The issues of most third world social
movements from the 1979 Iranian revolution to the mass popular upheavals
in S.Korea is not productivity growth or the growth of the productive
forces but autonomy, freedom and self-government as well as exploitation
and authoritarian social relations. The goal of the West in its dealings
with the third world is wealth and domination not development. The focus
is on financial or fictitious capital the fastest growing and most
expansive sector today attracting the best university graduates.
(Petras, Bernstein)
The Analysis of ECLA
Under the chair of the Argentinian economist, Raul Prebisch, The
U.N. Economic Commission of Latin America pursued a critique of trade
theory that would influence the dependency theorists. The process of
development and underdevelopment was a single process, the core and
periphery form part of a single world economy where disparities between
the regions are reproduced through international trade and a series of
asymmetrical relationships and causal processes. Prebisch's main target
was the orthodox notion of comparative advantage first introduced by
David Ricardo. Comparative advantage states that an economy should
produce what it produces most efficiently even though it may not be the
cheapest producer globally or absolutely. Prebisch put forth the
argument the terms of trade of underdeveloped counties decline over time
because the prices of imported manufactured goods rise relative to the
raw materials exports of the importing underdeveloped countries.
ECLA took into account historical factors in its core-periphery
model. Colonialism. Mercantilism and the industrial revolution created a
high productivity, high wage, manufacturing core and a raw materials
producing periphery.
ECLA concluded that if orthodox trade theory was correct, the prices
of raw materials would rise faster than the manufactured goods because
of demand. This was not the case as the peripheral countries were
transferring value to the core countries. To rectify this situation,
peripheral nations would have to increase the percentage of manufactured
products in their economies through "import-substitution" i.e. replacing
the manufactured imports with domestically produced goods. The state was
to play a primary role erecting protectionist barriers so the whole
industry would not have to face competition from the outside. Moreover,
the state was to engage in industrial planning but not so as to replace
business but to guide the private sector through giving incentives,
disincentives, and relevant fiscal and monetary policy.
The thought of ECLA came in for heavy criticism from the left and the
right. The left emphasized the lack of analysis of class and capitalism
as a whole. ECLA, for all its criticism of textbook theory, still
remained wedded to capitalist development and the diffusion of "middle
class" values from North to South. In its diffusionism, ECLA remained
faithful to modernization theory.
ECLA identified a number of causal factors in the transfer of value
from south to north. There was a scarcity of workers in the north and a
relative surplus of labor in the south. This situation kept prices of
core manufactured products high while keeping the prices of products
produced in the south low. Prebisch concludes that 1st world unionized
labor exploits their comrades in the third world. This analysis bears
some similarity to the Lenin/Trotsky idea that workers in the north are
beneficiaries of imperialism as they are through organization and class
struggle able to sucre a share of the spoils of imperialism.
For ECLA, if there was perfect mobility of the factors of production
as orthodox trade theory assumes, the surplus labor of the south would
be absorbed into the labor markets of the north. Of course, this has
never been the case with tight immigration laws, the costs of emigrating
and social and cultural barriers to doing so. Further, northern
protectionism cut world effective demand.
Further, demand for industrial products grew rapidly while demand for
raw materials fluctuated because of the amount of low wage low
productivity countries competing to export the same items. This was
because new products developed in the core were substituting for raw
materials in e.g. plastics, improvements in technology made primary
products decreases a proportion of total value.
The right criticized ECLA for confusing the effects of recession
with general historical deterioration of the terms of trade. ECLA was
just criticizing the effects of a recession in the peripheral countries,
using as recession as the base of normal economic activity and ignoring
upswings assuming that the low points are the chronic condition of the
country or region under consideration. The usual arguments against
protectionism and mercantilism were reproduced too; absence of
competition made industries inefficient, their products poor, expensive
and catered to a small elite of the domestic population. Further the
state could be captured by "rent" seeking behavior.
ECLA also produced influential analysis of the hyperinflation
and import-substitution prevalent in Latin America in the 60's and 70's.
Their analysis of the failure of import substitution can be summed up
thus;
1) persistence of foreign exchange problems
2) inability of industrialization to give benefits to other areas of the
economy.
3) the limited absorption of surplus labor
4) growing inequality in income distribution
5) growing power of foreign capital over strategic industries.
6) 5) reduced autonomy.
Dependency Theory
There are many different dependency theories, some only bearing a
superficial resemblance to one other. Andre Gunder Frank's theory is
probably the best known and certainly the most commented on. Dependency
theory has received short shrift among scholars and activists because
its best theorists came from Latin America and a lot of their work has
not been translated into English. Broadly, dependency theorists can be
divided into two groups the reformists and the Marxists. Reformists
would be Cardoso and Faletto, Sunkel, Furtado, Jaguaribe, Ferrer and
Pinto. Marxists would be Marini, Dos Santos, Frank, Braun, Bambirra,
Quijano, Torres-Rivas, Vasconi, Aguilar, Garcia, Baran and Sweezy. The
Marxists might better be called neo-Marxists since they challenge the
classical Marxist notion that capitalism will develop all nations as it
spreads throughout the world. Marxists advocate socialist revolution to
overcome dependency while reformists advocate economic nationalism and
measures aimed at gaining economic self-sufficiency. Dependency theories
usually contain some of the following claims:
1) The social, economic and political conditions prevalent in UDC's is
not an original state of affairs but is the result of the same
historical process that developed the core countries.
2) The prime causal factor in this historical process was capital
seeking opportunities for profit and possibilities for capital
accumulation.
3) (2) occurs where costs and risks are lowest and the return on
investment is highest. A consequence of this process was surplus removal
from the UDC's to the core countries where these capitalists are based.
The structure of the UDC's economy becomes subordinated to the profit
taking needs of core countries and is bound up with the need to
accumulate capital by these core countries resulting in an external
orientation of the UDC's, e.g. export of primary commodities and import
of manufactures. The UDC's economy is marked by monoculture and low
productivity.
4) Local initiatives to pursue autonomous development are blocked and
the domestic market is small due to low incomes.
5) Social classes emerged in the UDC's who have class interests in
common with the bourgeoisie of the core countries leading to alliance of
these class which, amongst other things, further blocks attempts and
opportunities for autonomous development in the UDC countries.
6) These processes are self-perpetuating and the structures produced by
these processes are self-reproducing.
7) The differences in wealth, productivity between the core and
periphery is due to asymmetries in political power.
8) These asymmetries cannot be overcome within the present capitalist
system.
Dependency and Marxism
There have been many criticisms made of dependency theories ranging
from Popperesque non-testability/falsifiability to detailed empirical
criticisms. The strongest criticisms of dependency theory have been made
by Marxists. Dependancy theory was on the receiving end of some harsh
criticisms that I will let speak for themselves; "dependance is an
eclectic combination of orthodox economic theory and revolutionary
phraseology" (Kay), "dependancy theory can neither claim empirical
verification nor theoretical validity."(Weeks), ....(KAY 174)
1) Dependency theory is full of circular reasoning. Consider Frank's
thesis that UDC's experience the most development the weaker their ties
are to the core countries. However, development is defined as
self-sustaining industrial growth so UDC's without self-sustaining
industrial growth remain or become underdeveloped. Underdevelopment and
development are defined as symmetrical opposites such that circularities
are produced because the explanation is contained in the definition of
the terms. (Larrain)
2) Dependency shares assumption and hence faults of modernization
theory. Both theories provide ideal types and consider the relation of
the UDC's to it. Modernization argues that the UDC's will develop by
repeating the historical process of the core countries and dependency
insists on the impossibility of such a process. (Leys)
3) Dependency theory has explained out of existence and importance class
struggle in the core countries.
4) Dependency theorists do not properly theorize capitalism. Capitalism
is seen as a system of market exchange, commodity production and profit
none of which are unique to capitalism rather than through the social
relations of production. (Alavi)
5) Dependency theory is static, mechanical and economistic. Static
because dependency is taken as a given rather than considering the
possibility that it might be declining. Mechanical because dependency is
produced because of logic and mechanisms making it seem that dependency
is inevitable. Economistic because the structures of underdeveloped
societies are seen to always be the result of economic processes. Class
struggle, the state, culture, politics and ideology are always the
result of economic processes.(Leys)
6) Dependency underestimates the possibility of capitalist development
in the UDC's represented by Taiwan and S.Korea which represent types of
capitalist development.(Amsden)
7) Dependency theorists make the case for socialism by showing that
capitalist development is impossible in the UDC's. However as capitalism
development creates improvements, the case for socialism disappears.
Socialism becomes less a movement of the working class and more a
movement for national modernization. The solution to the problems of the
third world is autarky and not socialism.
8) Dependency theorists make a fetish out of national development that
is no longer possible due to globalization. Achieving development will
require a forfeit of sovereignty.
9) Dependency theory is marred by a lack of empirical evidence. The
hypotheses of the theory may be explained by unique national and local
factors.
10) Dependency theorists practice functional and teleological
explanation. That the core countries benefit from the current
socio-economic structures explain the origin and persistence of these
structures.(Booth)
11) Related to 9) dependency theory is false because industrialization
and development is taking place in the third world albeit
unevenly.(Warren)
12) the notion of underdevelopment is an impossibility since capitalist
nations from the outset have all been interdependent.(Bernstein)
Dependency theory fell from its position of intellectual hegemony
with the end of the Vietnam War and the decline of public opposition to
imperialism and a turning inward to national, economic and professional
interests among intellectuals. The emergence of high growth third world
countries that were immersed in the world market diminished the
attraction of dependency although I think these countries confirmed some
of the claims of the dependentistas. Anti-third world rhetoric emanating
from the imperialist core and "blaming the victim arguments." The
emergence of OPEC as a power bloc gave the image of a third world in
control of its destiny.
Let's start with objection 6). Amsden argues that the experience of
S.Korea and Taiwan falsifies both dependency theory and neoclassical
economics and has forced a reworking of the concept of imperialism.
According to ‘stagnationist'dependency theory, capitalist development is
not supposed to take place in the peripheral nations. At the same time
neoclassical economics states that growth and development will not take
place unless nations follow the orthodox prescriptions of "getting the
prices right" and submitting to the will of international capital
markets. However, as Amsden convincingly shows, S.Korea and Taiwan did
grow and develop through a type of capitalism and did so by violating
many if not all of the prescriptions of neoclassical economics.
As Amsden argues, S.Korea exerted strong central control over its
economy. S.Korea deliberately got the prices wrong i.e. did not allow
international market forces of supply and demand to set prices for key
resources, foreign exchange and capital. Starting with dictator Park
Chung Hee is 1961, S.Korea nationalized all the banks giving the state
control over domestic interest rates, the allocation of foreign loans–
targeting them to specific industries and firms. Foreign lenders
required government guarantees of repayment in case of default thus
giving the Korean state power to determine which firms could borrow from
abroad. (Amsden p26).
Because the inflation rate exceeded that of currency depreciation,
real interest rates on long-term loans was negative through the 70's and
80's.
As Amsden summarizes:
"In all late industrializing countries Japan, Korea and Taiwan included
not only have governments failed to get relative prices right, they have
deliberately got them wrong in order to stimulate investment and trade.
They have subsidized the price of capital and exports. The faster growth
of E.Asian countries is attributable less to freer markets than to the
institutions that have allowed subsidies to be allocated more
effectively elsewhere. Consequently, any analysis of disparate growth
rates among late industrializing countries requires an institutional
approach" Amsden
S.Korean and Taiwan grew and developed along classic
protectionist/mercantilist lines. We can see this if we compare what the
Mercantilists (and their followers like Friedrich List) said with how
their ideas worked in Asia in practice.
"Every Government ought to be thoroughly acquainted with, and
steadfastly pursue the Interest of the country. Good Politicians by
dextrous Management, laying heavy impositions on some Goods, or totally
prohibiting them, and lowering the Duties on others, may always turn and
divert the Course of Trade which way they please...But above all,
they'll keep a watchful Eye over the Balance of Trade in general and
never suffer that all the Foreign Commodities together, that are
imported in one Year, shall exceed in value what of their own Growth or
Manufactures is in the same exported to others. Note that I speak now of
the Interest of those Nations that have no Gold or Silver of their own
Growth." Mandeville, p115,1714
"That caeteris paribus, the rich industrious country would always
undersell the poor one ; and by that means attract the trade of all
poorer countries to itself;-- but it is equally true that if either of
these poor countries hath any peculiar produce of its own, it may
prohibit its exportation till it be wrought up in complete manufacture.
It is true likewise, that all of them have it their power to load
manufactures of the rich country from entering their territories, with
such high duties as shall turn the scale in favour of their own
manufactures ...Thus it is, in my poor apprehension, that the rich may
be prevented from swallowing the poor." Tucker 1758
"Infant trade, taken in a general acceptation, may be understood to be
that species, which has for its object the supplying the necessities of
the inhabitants of the country; because it is commonly antecendent to
supplying the wants of strangers. A considerable time must of necessity
be required to bring a people to a dexterity in manufactures. The
branches of these are many;... People do not perceive this
inconveniency, in countries where they are already introduced; and many
a projector has been ruined for want of attention to it." Steuart.
"Do as you see others do before you. This is an advantage which an
established industry has over another newly set on foot; and this I
apprehend to be the reason why we see certain manufactures, after
remaining long in a state of infancy, make in a few years a most
astonishing progress." Steuart.
[Hudson p80]
Falling Dominoes
S.Korea went from a candidate member of the OECD to a recipient of the
largest bailout in the history of the multilateral institutions. How and
why did this happen?
I think a solid argument can be made that the high rates of growth in
Japan, Korea and Taiwan are confirmations rather than falsifications of
certain aspects of dependency theory. The cases of these three countries
is closer to what Cardoso and Faletto called "associated dependant
development." C/F make the point that construction of generic models
does no justice to the explanation of developing economies. Each country
must be considered separately due to the unique historical situation in
which each country developed or maldeveloped. During the E. Asia crisis
the countries collapsed for different reasons. There was also a tendency
for economists to construct a regional mode l of "late
industrialization" which reified these countries economic structures
(Hart-Landsberg).
The E.Asian economies were dependant, on the OECD countries, on the
flows of money, technology, military assistance and legitimating
ideologies. The importance of external financial assistance in staving
off catastrophe reveals this dependency.
However, at the same time each country was autonomous in the sense
that its national base of social and political power was such that the
state could regulate consumption, trade patterns and discipline labor
and capital. This type of dependance is different from classical
dependancy theory in that national structures are not wholly determined
by their external relations with core countries. The class relations
internal to each country is the result of historic class struggle and
external relations where the United States wanted Korean and Taiwan to
be showcases for capitalism in the face of the challenge from socialist
China, Korea, Cambodia and Vietnam. (Bernard p183)
E.Asia was able to foster the greatest growth rates in capitalist
history resulting in a reduction in the levels of absolute poverty and
was able to industrialize the fastest with the possible exception of
Stalinist USSR.
The collapse of the E.Asian model was a result of the contradiction
between the forms of dependance and the autonomous development of the
state. One of the problems was the low cost financing of the
conglomerates (Chaebol) resulting in massive debt/equity rations.
Because of the status of the Chaebol as massive pillars of the economy
and industrialization made the state ensure that the Chaebol did not go
bankrupt. Thus the state had to finance their debt. Further, the Chaebol
were built on the principle of building capacity rather than
profitability.
Dependency Theory Summed Up
Dependency theory was the first set of ideas to come out of the
third world, explaining why in fact in there is a first and third world.
While no definitive version of dependancy theory exists, these
theorists made enormous contributions to understanding the world.
Dependancy stimulated a wealth of empirical and theoretical research on
the third world and in particular its relations to the world economy and
the core nations. Many of the strengths and weaknesses of dependancy
theory arise from its scope and ambition in trying to create a new
paradigm that was historical, interdisciplinary and total. Dependancy
demolished modernization theory and the theory of classical imperialism
which claimed that capitalism would develop all societies as it diffused
out of Europe.
The key strength of the dependentistas was insisting that the
dynamics of third world countries must be examined in relation to the
dynamics of the core, imperialist countries. Internal and External
relations are seen as a dialectical unity. Since 1492, core and
periphery have become increasingly interrelated in a complex social,
cultural, economic and political totality. Dependancy analysis showed
how the so-called advanced or modern can reproduce the poverty and low
productivity of the peripheral regions and how modern capitalism can
create new forms of backwardness.
A new form (well not new but of increasing importance since the
early 80's debt crisis) has been debt dependance and the dependance of
the periphery on incoming flows of transnational flow of money and
investment.(Surin)Some country facing withdrawals of foreign portfolio
capital will face pressure on its exchange rates and its balance of
payments. Moreover, such pressure causes instability such that the
country will have problems with macroeconomic management; runs on the
currency, interest rate hikes, foreign reserve squeeze. This instability
make sit difficult for the UDC to pursue an independent fiscal and
monetary policy necessary to help raise standards of education, health
and social welfare which in turn are important in raising productivity.
Dependance on cash flow from abroad has resulted in the inability of
UDC's to maintain a high level of real domestic investment. All foreign
exchange earnings must go to paying off the debt. The debt is
denominated in US dollars so is not subject to ebbs and flows of the
business cycle i.e debt service is price inelastic it is not responsive
to changes in price and income levels. Debt service has become a
structural fact of life that can only be ameliorated through
rescheduling or cancellation. The former is a highly political process
involving the IMF and the US treasury. The latter involves total
exclusion from the world economy such as was imposed in Cuba after 1962
and the USSR after 1917. Debtor nations must, therefore, capitulate to
the policies of creditor-industrial governments. Michael Hudson puts it
thus:
"This means that they must export raw materials demanded by the creditor
nations. They must curtail their rates of population growth to minimize
consumption of their own resources. They must submit to monetraist
austerity blocking new investment in social infrastructure and domestic
industries to work up their own raw materials into finished
whose loans dovetail into these government programs." p307
As we have seen in the discussion of Asia, these creditor nation/IMF
policies directly contravene what has been learned through economic
history in developed countries and the ex-Asian tigers.
Development theory should take as its starting point the
polarization of the core and peripheral countries where peripheral
countries have failed to achieve parity with the core countries. The
theory must be historical to show how current uneven resource endowments
have come to be that way rather than taking, as orthodox economics does,
resource endowments as given. The leading elements of international cost
structure and trade patterns have long historical and political roots.
Yesterday's poorer countries like Japan, S.Korea and Taiwan ameliorated
their conditions by doing what the U.S. and U.K., have done– take
control of their own destiny and shape their market relations to promote
greater self-reliance and upgrade the quality of their land, labor and
capital. However, the crisis in E.Asia may signify the end of state led
development and structural development theory.
The core countries have been able to reinforce their position by
establishing positive feedback mechanisms starting with high wage
industrialization and further ennobled by the broad array of
international diplomacy and aid programs. The aid programs have acted as
a board of directors of the industrial creditor countries subsidizing
world economic polarization and obsolescence.(Hudson 430)
The dependentistas have been criticized for their overdue attention
to problems of unequal exchange and deteriorating terms of trade which
detracts from the central issue of development and underdevelopment; the
class struggle within society.. Unequal exchange occurs when core
countries transfers part of the economic surplus from the periphery.. No
doubt this does occur and hampers the periphery's ability to accumulate
capital but the ability of a country to generate and retain its surplus
is a product or function of the internal mode of production and the
internal state of the class struggle. Unequal exchange sets the
exploitation between nation states where exploitation is a class
phenomenon. The external relations of a state are in part a function of
the internal class relations embedded in the world economy. A country's
relations with the world economy are a product of the class struggle
within that particular country.
Neo-Liberalism
The third world debt crisis of the early 1980's signaled the end of
import-substitution industrialization and its intellectual backing of
structuralist development theory. In its place rose the neo-liberal
model, a combination of laissez faire with monetarism. The ascendancy
and eventual hegemony of neo-liberalism also came in a series of
historic defeats for the left world wide. The death of Mao and the move
towards markets and integration into the world economy in China and
Vietnam, the overthrow of the USSR and its client states. The defeat of
the guerrilla movements in Latin America, the isolation of Cuba and the
FSLN government in Nicaragua. The continuing collapse and move rightward
of nationalist governments in Africa like Mozambique, Kenya, Angola and
the rightward march and stubborn refusal of the South African national
liberation
forces–the ANC and SACP–to pursue an alternative to neo-liberalism.
The ascendancy of neo-liberal capitalism worldwide is the product of
a class struggle in specific historical locations. Intense
politico-military and ideological struggles created the political and
economic basis of the triumph and supremacy of global capitalism. The
triumph of the free market is the product of state violence in the third
world and state sponsored decimation of the working class struggle in
the core countries. The decline of the left was the result of defeats in
crisis situations.
I think the military coup in Chile in 1973 was pivotal. The lessons
drawn by the left in the face of the coup were different in Latin
America and Europe. Latin American revolutionaries drew the conclusion
that a peaceful transition to socialism was impossible and could only be
won through military struggle. In Europe, particularly in Italy and
France where Communist Parties were the strongest, the lesson was the no
elected government could afford to antagonize the domestic capitalist
class making class colaborationism and the search for market solutions
the dominant paradigm(Eurocommunism). In both instances, the result was
the same: revolutionary defeat. But, I would add, not after heroic
struggles against incredible odds in Latin America and Asia.
The triumph of capitalism is again through, polarization,
stagnation, creating the conditions for a return to revolutionary
marxism and communism as people realize that no reform of capitalism is
possible without a systemic rupture in capitalism's logic.
Appendix:Globalization
"Globalization" is a term that has in come into being since the end of
the USSR and the Eastern Bloc communist nations in the early 1990's. The
term has had a meteoric rise with the growth of the economic and
(hence)political
power of international business. Related is the end of nation-based
Keynesianism– social democratic policies of regulating the economy and
the functioning of an effective welfare state such that everyone in
society can claim some benefit in national productivity increases.
Globalization is the shift towards monetarism and laissez faire
economic and political philosophy among the ruling classes – once
considered crank philosophies. Together with these shifts has been a
massive one-sided class struggle waged against the working classes of
the world. Partisans explain these shifts not by the victorious right
wing in the national class struggles but by the growth of international
business and transnational corporations and the integration of global
markets. The power of international business has undermined the
effectiveness of the nation state in its ability to regulate capital and
foreign exchange markets as well as the economy as a whole.
With the growth of international business scope has come the
transnationalization of production and productive systems leading to a
transnational ruling class. This transnationalization,as it were, of
production has led to geographical dispersion of capital accumulation to
different parts of the world. Capital has moved from internationlization
to being transnational such that capital has no national base and thus
cannot be fought on an national base. A corollary of
transnationalization is growth in foreign direct investment both
productive and portfolio in many geographically diverse areas.
The transnationalization of capital has given the global ruling
class more power over labor. Capital is free to roam the globe searching
for the cheapest labor and sunk costs, playing national labor forces off
against one another leading to falling wages a global "race to the
bottom." The core=periphery distinction has lost importance with the
transnationlization off production where both core and peripheral
working classes must compete for international business. The ruling
classes who control the states in the peripheral countries now have
interests in common with the ruling classes of the core countries such
that ruling classes can co-operate in ruling the world. The interests of
the ruling classes in the third world lie in integrating into the world
economy.
Any attempt at reversing globalization is met with the cry "there is
no alternative." Of course there is an alternative in capitalism's
dialectical opposite – socialism -- but it is an alternative that will
require a lot of education, organizing, dedication and sacrifice. Noone
has ever thought otherwise.
Globalization has spawned some fruitful though at times repetitive
debates among left intellectuals and activists. The Monthly Review and
its regular contributors like Ellen Meiksins Wood, Doug Henwood, David
Mcnally,Harry Magdoff, John Bellamy Foster, William Tabb, Michael Lowy,
Aijaz Ahmad, Leo Panitch, James Petras and others have taken opposition
to this defeatist form of globalisation. I will briefly summarize some
of their main points below and add a few observations of my own.
1) Capitalism has always been, more or less, a global and integrated
system.
2) The globalizers limpid response of "there is no alternative" is an
admission of failure and shows a crude dichotomy between Soviet style
communism and global capitalism.
3) Globalized capitalism has little and fragile support from a minority
whose interests lie in global economic integration. Such little support
hardly warrants the triumphalist rhetoric of the globalizers.
4) Advocates of globalization show a lack of class and historical
analysis in the shaping of market relations.
5) Global capitalism has arisen because of various state's ability to
neutralize political opposition often through brutal violence as well as
more subtle forms of co-optation and indocrination.
6) Globalization is essentially a continuation of the past based on the
deepening and extension of exploitive class relations into previously
outside capitalist relations.
7) The asymmetric relations of the global market ensure that a minority
of vountries benefit from trade and investment with a majority of
countries.
8) Investment goes to a select few countries.
9) Globalization is simply just the ideological and cultural hegemony of
capitalist ideas and culture.
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