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The political economy of development
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(by Róbinson Rojas Sandford)(1998)

The story of less developed societies after 1945 is the story of
geographical zones of economic and political influence where Africa
was a hunting ground for Western European capital, Latin America for
United States transnational capital, and East and South East Asia under
the "guidance" of Japanese monopolic capital. All of it parallel to the
political aim of 'encircling' the two former 'evils': Soviet Union
and satellites, and People's Republic of China and North Viet Nam.

Up to the late 1970s, this 'neo-colonization' for some or
'modernization' for others of Africa, Asia and
Latin America was achieved having the cold war as a political
background. Since the late 1980s, the world became tri-polar, with
United States, European Union and Japan as home for transnational
capital integrating every corner of the globe into a process of
globalized production of goods and services planned in the board of
gigantic international corporations.

In the 1990s, a Triad is into place: United States dominating the
external economies of Latin America, Japan the ones in South East
and East Asia, and the European Union dominating the external
economies of Africa and Central and Eastern Europe, and the three
leading members of the Triad competing among themselves to encroach
in the "spheres of influence" of each other.


When looking at the world economy, the following economic theories are
utilized by different people:
                             a) free-market theory
                             b) international Keynesianism
                             c) protectionism and import-substitution
                             d) critical view of a), b) and c) using
                                either Marxist or classical economic
                             e) dependency theory

Less developed societies' development after 1945 has been a process
within another process: the post-war economic-political settlement,
which was characterized by the roles played by 
                     a) the International Monetary Fund,
                     b) the World Bank, and
                     c) the General Agreement on Tariffs and Trade(GATT)
                        today the World Trade Organization (WTO)

That settlement produced economic-political agents, which are:
                     a) transnational corporations (industrial, services
                                                    and financial)
                     b) national monopolic/oligopolic corporations
                     c) governments in nation states.

The above economic-political agents created in industrial and less
developed societies "triple alliances"( international
monopoly capita, less developing societies monopoly capital, and
less developed societies state) which dominated the economic and
political development of both groups of economies.
By and large, the post-world politics had two distinct stages:

                     a) the cold war period 1947-1989
                     b) the capitalist globalization from 1989 onwards.

By the 1990s, a new economic-political settlement was in place:

                     a) Western Europe, Japan, and United States in
                        control of the world economy (The Triad)
                     b) United States as the political leader ( clear
                        globalization of American values, habits and


The following periods, driven by economic variables, identify political
and economic processes in less developed societies:

                 a) the long boom period 1945-1971, which was driven
                    by very low oil prices, and a militarized economy
                    mainly in United States, to sustain wars of
                    containment against the expansion of communism in
                    the world. The main wars were the Korean War in
                    the early 1950s, and the Viet Nam war in the late
                    1960s until the United States army was defeated in
                    1975. Parallel to that, the financing of the
                    industrialization of South Korea and Taiwan in
                    Asia, and the reconstruction of Germany, Italy
                    and France, in Western Europe (Marshall Plan),
                    completed the dynamics of the boom.
                    African, Asian and Latin American societies tried
                    to develop through nationalistic movements which
                    aimed at protecting their infant industrialization
                    and gaining political freedom from the world
                    centers, especially United States, Britain and
                    France at the time.

                 b) the crisis years between 1971 and 1984, when oil
                    price increases by the members of the Organization
                    of Petroleum Exporters Countries accelerated a
                    generalized crisis already in the making in the
                    industrialized societies sending shock waves to
                    Third World countries economies.
                    African, Asian and Latin American countries were
                    encircled by external pressures and their
                    nationalist movements were destroyed one by one,
                    sometimes with U.S., British or French overt or
                    covert intervention, sometimes with sheer economic
                    pressure through the IMF, the World Bank or private

                 c) the miracles and disasters from 1984 to 1990s:
                        c.1 the "Asian miracle" which inaugurated
                            what is called "guided capitalism"
                        c.2 the "Latin American lost decade" in the
                            1980s, when negative growth created the
                            basis for what is called "savage capitalism"
                        c.3 the "African disaster", still in the making,
                            which was characterised by negative economic
                            growth of the African economies and higher
                            rate of profits for TNCs operating in the
                        c.4 the "Latin American small miracle", in the
                            1990s, which consolidated its variant of
                            "savage capitalism"

By and large, this was a period of African, Asian and Latin American
societies being integrated into the quest for a globalized economy and
a globalized political system.

It was the last stage, so far, of the process of integration which can
be characterised as follows:

First stage (1945-1971): cold war economy and cold war international
                         policy PLUS acceptance of import-substitution
                         as an engine of growth. In charge of the
                         international economic order were the
                         International Monetary Fund and the World Bank,
                         both under management by the United States.

Second stage (1971-1984): dealing with the crisis in the center and the
                          crisis in the periphery:
                           a) oil and private banks in the center
                           b) oil and LDCs financial bonanza first and
                              debt nightmare after
                           c) commodity markets and debt
                           d) foreign direct investment and debt

Third stage (late 1980s and 1990s): Overcoming the crisis with the
                                    old theoretical approach:
                                    balanced budgets PLUS the rule
                                    of market forces. There have been
                           a mixture of export-led booms and inequality,
                           poverty and further structural fragmentation
                           of the national productive systems, and
                           export-led recessions and inequality, poverty
                           and further structural fragmentation.

Furthermore, this third stage made clear that the system in practice
since 1945 is not sustainable because is depleting non renewable
resources at a phenomenal speed, is destroying eco-systems, is
polluting sources of water in a global scale, is polluting the
atmosphere, and is menacing the survival of all living species on planet


What is happening in the 1990s, including the October 1997 crisis 
engulfing stock markets in Asia, Western Europe and Latin America,
is like if the world economy was completing a full circle to the
1940s, when in Bretton Woods, U.S.A., the negotiations between United
States and British governments led to the creation of the International
Monetary Fund and the World Bank. In 1945, H. D. White, the
Northamerican architect of the IMF, in his "Preliminary draft proposal
for a United Nations Stabilisation Fund", wrote that its aim was:

-"to avoid drifting from the peace table into a period of
                           chaotic competition,
                           monetary disorders,
                           political disruptions, and finally
                           new wars within as well as among nations".

-"conditions would have to be created which would ensure that war-torn
  and impoverished nations in the rest of the world would not be driven
  back into the pre-war pattern of
                           every country for itself,
                           of inevitable depression,
                           of possible widespread economic chaos,
  with the weaker countries succumbing first under the law of the jungle
  that characterised international economic practices of the pre-war

-"...a breach must be made and widened in the outmoded and disastrous
  economic policy of each-country-for-itself-and-the-devil-take-the-
  weakest...the absence of a high degree of economic collaboration among
  leading nations will, during the coming decade, inevitably result in
  economic warfare"...

In a nutshell, the aim was to change the system of national and
international competition that had prevailed in the 1930s:
                 1.- international trade and finance was based upon
                     relatively self-contained economic blocs based
                     around the old imperial system dominated by
                            the United States,
                                France, and
                 2.- neoclassical economic theory was taken as the
                     only valid approach to national and international
                     economics, with a very simple rule to follow by
                        balanced budgets PLUS the rule of market forces

Out of Bretton Woods neoclassical economic theory was declared outmoded
and inexact, and it was agreed to create an international system based
upon the following principles:
         a) internationally:
                           -multilateral cooperation ( the IMF,
                                          the World Bank and GATT as
                                          the enforcers )
                           - decolonisation of Africa and Asia, and
                             the incorporation of Latin America to the
                             world system
         b) domestically: 
                         -creating an "interventionist state" in the
                          industrial countries
                         -commitment to economic management aiming at:
                                   full employment,
                                   economic growth,
                                   adequate welfare services.

(Agreement b) was abandoned in the 1980s, and agreement a) was changed
 into ensuring total mobility of capital through the action of
 transnational corporations, and having the IMF and the World Bank as
 fire engines when bottlenecks on balance of payments or internal
 markets appeared )

By the late 1950s, the landscape was pretty:
                     -economies had been rebuilt
                     -employment restored
                     -growth had become continous
                     -an international framework for the progressive
                      liberalisation of trade and capital flows had
                      been created under firm capitalist control.

Up to the early 1970s the most dynamic and extensive period of growth
the world has ever seen was at work. See Table 1

TABLE 1.-    Average annual real growth rates
                   Gross Domestic Product
                      1950-60 1960-65 1965-70 1970-81 1980-90 1990-95
Industrial countries    4.2     5.3     4.8     3.0     3.2     2.0
Sub-Saharan Africa      3.5     5.2     4.8     3.3     1.7     1.4
M. East & North Africa  4.3     3.9     5.7     7.1     0.2     2.3
East Asia & the Pacific 5.3     5.6     8.1     8.0     7.6    10.3
South Asia              3.9     4.3     4.9     3.8     5.7     4.6
Latin America & Caribb. 4.8     5.0     6.1     5.2     1.7     3.2
Southern Europe         6.0     6.6     6.7     5.0     4.8     2.8

                  Exports of goods and services
                      1950-60 1960-65 1965-70 1970-81 1980-90 1990-95
Industrial countries    6.9     6.8     9.2     6.1     5.2     6.4
Sub-Saharan Africa       ..     5.9     6.4     1.1     1.9     2.5
M. East & North Africa   ..     1.3     6.1     1.9      ..      ..
East Asia & the Pacific  ..     7.2    11.7    11.7     8.8    13.9  
South Asia               ..     4.6     3.3     6.7     6.4    11.9   
Latin America & Caribb.  ..     6.1     5.0     4.3     5.4     7.0
Southern Europe        10.7    12.1     8.3     6.0    13.0     9.0

                   Gross domestic investment
                      1950-60 1960-65 1965-70 1970-81 1980-90 1990-95
Industrial countries    5.0     7.3     5.6     1.7     4.1    -0.2 
Sub-Saharan Africa       ..     7.9     6.7     7.1    -4.0     3.4
M. East & North Africa   ..    -3.1     9.1    12.4      ..      ..
East Asia & the Pacific  ..    11.1    14.7    11.0     8.5    14.4
South Asia               ..     8.6     1.7     5.1     6.1     5.3
Latin America & Caribb.  ..     4.5     8.0     6.0    -1.5     5.7
Southern Europe         7.4     9.3     7.7     4.4     3.0     2.0
source: World Bank Tables, 1980 and 1997

Conversely, by the 1980s and 1990s, it appeared as if the economy went
full circle to square one. There were:
                       -chaotic competition
                       -monetary disorders
                       -political disruptions
                       -new wars within as well among nations

Economic indicators were clearly negative:
                       -growth stagnated
                       -employment declined
                       -inequalities increased
                       -monetary arrangements collapsed
                       -financial agreements between creditors and
                        debtors were increasingly undermined by
                        bankruptcies on a global scale.

There was also a mediocre level of theoretical explanations. There was
theoretical incoherence to explain the above political and economic


By the late 1980s, scholars from industrialized countries working at
the World Bank, International Labour Organization, Organization of
Economic Cooperation and Development and the United Nations Development
Programme drew from the main tenets of what is known collectively as
"Latin American theories of development" as published in the 1960s
mainly in Santiago, Chile, whose main representative is dependency
theory, and agreed on the following:

-economic and political problems are the outcome of a global process
 which cannot be dealt with on a purely national scale;
-internationally and nationally some social classes are in a much
 stronger position to influence and benefit from global events,
 specially if those classes belong to strong dominant economies;
-there is enough evidence to suggest that much of the responsibility
 for dramatic ups and downs in national economies lies with the
 transnational corporations, industrial and financial, which dominate
 both the economy in the home country and the world economy
-governments and international agencies, usually held to be responsible
 for the ups and downs in national economies, actually play a secondary
 role to the transnational corporations;
-any solution to the volatile behaviour of the world economy will
 involve a dramatic alteration in the balance of power and wealth both
 between countries and within them, and, most of all, between TNCs and
 the rest of economic agents.

Thus, a complex whole of problems to solve, answering dificult
questions. For understandin development, then, theoretical approaches
were needed to attempt answer questions like the following:

1.- what are the connections between international and national
    political control which are at work in the relationships between
    governments, domestic economic classes, and agencies like the IMF,
    the World Bank, and transnational corporations?

2.- is there any relations between the decisions taken in Washington,
    Tokio and Berlin and the fate of the poorest people in the poorest

3.- to what extent does the continuous expansion in the global reach of
    the TNCs intensify or ameliorate the problem of economic
    deterioration and loss of political control internationally and

4.- is it possible to produce a major transfer of wealth and power
    without risking major conflicts, even endangering the survival of
    entire societies?

Orthodox approach to answer the above questions will be, of course,

Alternative approach will be drawing from the main tenets of political
economy as posed by Adam Smith and Karl Marx and/or doing a critique
of both neoclassical economics and functionalist political science.

Some factual knowledge could help us to make theoretical sense of the
task in front of us:

-external forces constantly undermine the policies adopted to restore
 full employment and welfare services:
                * speculative investment creating dramatic outflows
                  and inflows of money affecting exchange rate,
                  interest rate, rates of investment and lines of
                * irrestricted mobility of capital creating sudden
                  economic voids with subsequent changes in employment,
                  levels of poverty, pattern of inequality, etc;
                * transnational and national capital pressurizing for
                  decreasing rates of taxation which makes impossible
                  for the state to finance even rudimentary welfare
                  services, etc.

- transnational corporations have constantly expanded their control over
  production and distribution on a global scale, thus:
                * their need to maximise global profits means that they
                  can and must act in ways which undermine the changes
                  that the national and international authorities must
                  make in order to restore stability to the system.

The problem with finding the right solution to the problems pointed at
by the above economic and political processes is that different schools
of political and economic theory see the world from different
perspectives, they are concerned to achieve very different goals, and
prescribe very different medicines for its problems. Using professor
Robert Reich sentence "what it may be rational for a corporation is
irrational for society". Thus, neoclassical economics and
functionalistic political science will say:

                 a) deregulated markets PLUS minimum role of the
                    state will create a world where the dynamics of
                    competition will reward efficiency and will punish
                    inefficiency, thus, it follows, unemployment and
                    poverty will be the outcome of individual
                    inefficiency and not of the market structural
                    internal dynamics;
                 b) at the most, and not all the time, the state
                    must help inefficient individuals out of extreme
                    poverty or destitution.

Alternative theories will say:
                 a) it is in the nature of the capitalist system to
                    create wealth alongside poverty, to create a
                    dominant sector in society and a dominated sector
                    in society. Economic and political power
                    concentrated in a few individuals is the natural
                    outcome of the capitalist market;
                 b) therefore, theoretical approaches should look for
                    alternative economic and political arrangements,
                    whose rules ensure that production and political
                    participation aim at meeting social needs which, in
                    turn, are the aggregate of individual needs.

Summarizing and coming back to the Latin American theories of
development, as Cardoso and Faletto ("Dependencia y Desarrollo en
America Latina", 1969) put it:

---- we conceive the relationship between external and internal
forces as forming a complex whole whose structural links are not
based on mere external forms of exploitation and coercion, but
are rooted in coincidences of interests between local dominant
classes and international ones, and, on the other side, are
challenged by local dominated groups and classes.

---- imperialist penetration is the result of external social
forces ( multinational enterprises, foreign technology,
international financial system, embassies, foreign states and
armies, etc)...but, then, the system of domination reappears as
an "internal" force, through the social practices of local groups
and classes which try to enforce foreign interests, not precisely
because they are foreign, but because they may coincide with
values and interests that these groups pretend are their own.

And, twenty years after:

      "any explanation for the crisis must necessarily take account
       of all these elements, elements which include
                      the political and the economic,
                      the national and the international,
                      the historic and the contemporary,
       and must consider them within an intellectual framework
       which, while not ignoring the significance of all the major
       theories that have been used to explain them, nevertheless
       attempts to do so in a consistent and convincing way"
       (E. A. Brett, "The World Economy since the War: the politics
                      of uneven development", Macmillan, 1986)

Japan-USA alliance:

Since 1945 until the late 1980s United States governments pursued
an international policy of encirclement against  the Soviet Union
first (made public with the Truman Doctrine in 1947) and the People's
Republic of China, next, since 1949.

The economic side of this international policy was the US financing
of several "miracles" in countries facing either Soviet Union or
People's Republic of China. Those miracles occured mainly in West
Germany and Japan, among the former colonial empires, and Taiwan and
Korea, among the former colonies.

In Asia, United States formed what some scholars have called an
"unholy alliance" to fight communism on two fronts: the military,
led by the US atomic muscle, and the economic, shared by both Japan
and the United States in the task of "industrialise" chosen
countries, in this case Taiwan (former province of China) and South
Korea, former component part of the Japanese Korean colony.

Furthermore, the US government was pouring grants and credits on
fourteen chosen countries encircling Soviet Union and the People's
Republic of China. The following data is illustrative:

                   FROM 1945 TO 1965 (in US$ million)
Total for 77 countries        101,931

           Japan                4,593
           South Korea          6,165
           Taiwan               3,948
           India                5,289
           Iran                 1,375
           Pakistan             3,281
           Vietnam              3,810
           Philippines          1,611
           Greece               3,408
           Yugoslavia           2,622
           Austria              1,212
           Turkey               4,315
           West Germany         3,907
           Italy                5,422

Total for the above 14 cts.    50,950, which is 50% of the total
                                       given to 77 countries in
                                       the period considered.
( The figures for France and the United Kingdom are 8,639 and
  7,600 respectively )

The above is clarified even more with the following three opinions: 

Opinion one:

"It can hardly be doubted that Japan's road to recovery was paved by
 the coincidental developments on the international scene. With the
 heightening of the cold-war psychology from about the time of the
 announcement of the Truman Doctrine (March 1947), reinforced by the
 demonstrably successful march of communists in China in 1948 onwards,
 the US government apparently became determined to make Japan "a
 bulwark against communism". The consequence was a major shift in the
 US policy in Japan towards expediting the latter's economic recovery.
 ...What put the finishing touch on the US determination was the
 eruption of the Korean War in June 1950. This, incidentally,
 constituted a most significant watershed in the recovery of Japan's
 postwar economy, with impetus given by special procurements in Japan
 by the "United Nations Army" for the prosecution of the war".
S. Tsuru, "Japan's capitalism. Creative defeat and beyond", Cambridge
           University Press, 1993   
Opinion two:

" From 1947 until 1958 the US deliberately encouraged an outflow of
  dollars, and from 1950 on the United States ran a balance-of-payments
  deficit which provided liquidity for the international economy...In
  addition...,the United States assumed the international management
  of imbalances in the system...It dealt with its own huge balance-of-
  trade surplus and the European and Japanese deficits by foreign aid and
  military expenditure...[It] abandoned the Bretton Woods goal of
  convertibility and encouraged European and Japanese trade
  protectionism and discrimination against the dollar. For example, the
  United States absorbed large volumes of Japanese exports while
  accepting Japanese restrictions against American exports. It supported
  the European Payments Union, an intra-European clearing system which
  discriminated against the dollar. And it promoted European and
  Japanese exports to the United States..."
(J. Spero, "The politics of international economic relations",
            Allen & Unwin, 1982)
Opinion three:

" In Germany and Japan the combination of an undervalued exchange rate,
 generous American aid, the close economic management of industrial
 investment, the increase in demand created by the Korean War boom,
 and the availability of a large labour surplus and correspondingly
 low wages, generated economic "miracles" which would have not been
 possible but for these uniquely favourable external circumstances". 
(E. A. Brett, "The world economy since the war: the politics of uneven
               development", Macmillan, 1986)

After the triumph of the counter-revolution in China in 1978, the
country became the big prize for Japan and the United States competition
for dominating the world economy, and they had to dismantle the
ideological inheritance of the cold war, because the Chinese elites
have serious hostility against Japan ( rooted in the savage Japanese
colonization of China in the 1930s until 1945 ) and the United States
(rooted in the U.S. international behaviour since early XIX century).

Wang Jisi, in his "The role of the United States as a global and
                   Pacific power: a view from China", THE PACIFIC
                   REVIEW, Vol 10, No 1, 1997, writes:

"However, the fundamental assumptions in viewing the role of the United
 States in world affairs, probably agreed upon by the vast majority of
 the Chinese political elite, will remain for many years to come. These
 assumptions include at least the following:
 - the United States wants to maximize its national power and dominate
   the world;
 - it is easier to deal with the United States and seek its cooperation
   when its power is on decline;
 - Americans believe in 'the law of the jungle', seeing no other nations
   as equal partners and attempting to prevent them from rising up;
 - compared with other advanced capitalist countries, the United States
   has a much stronger concept of racial and cultural superiority, and
   tends to use ideological and cultural tools, in addition to economic
   and military strenghts, to expand its influence."
end of this notes.RR