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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
Close up of a Dharavi slum area, Mumbai, India

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:

Dharavi slum area, Mumbai IndiaIn 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.

From Developmentalism to privatisation

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.

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End Notes

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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