INTERNATIONAL CAPITAL AND INTELLECTUAL DISHONESTY
(Róbinson Rojas Sandford)(1999)
The basic rationale of what loosely is quoted or misquoted as "export-
led growth" has its foundation on the ideological position that
capitalist market always clears, and therefore delivers goods and
services as needed by those members of society who can buy them.
The old triple alliance between the state, domestic monopolic capital
and foreign capital was changed to a double alliance (domestic
monopolic capital and foreign capital) with a political warden (the
state) making sure that the domestic market was firmly in the hands
of the double alliance.
In a more sophisticated fashion, the intellectuals employed/hired by the
World Bank did put together, in 1991, the following conceptualization:
"The Report looks at the relation between governments and markets
under four broad headings: human development, the domestic economy,
the international economy, and macroeconomic policy. These areas of
activity are interrelated. A relatively undistorted domestic economy
rewards those who build up their human capital more generously than
does a distorted one; at the same time, education makes the
domestic economy more productive by speeding the adoption of new
technology. To take another example, a stable macroeconomy helps the
domestic price system because it clears away the fog of inflation.
But microeconomic efficiency also makes it easier to keep inflation
low: with fewer unviable enterprises, there will be less need of
subsidies to swell the public sector deficit. All four sets of
actions are worth doing in their own right. But because of such
linkages, the results will probably be disproportionately strong if
done together" (World Development Report 1991, World Bank, 1991,
page 6)
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The model (named "A market-friendly strategy for development") proposed
by the World Bank's managers visualizes the following linkages:
INVESTMENT IN PEOPLE: if parallel to opening up to GLOBAL LINKAGES,
will allow to absorb knowledge and technology,
and will create the ability to meet international
standards of production;
INVESTMENT IN PEOPLE: if parallel to the creation of a COMPETITIVE
MICROECONOMY ( deregulation, privatization), will
drive a rapid growth in productivity, which will
generate high returns from education;
GLOBAL LINKAGES: will generate gains from international trade for
the COMPETITIVE MICROECONOMY, and the latter will
create the ability to attract foreign investment;
STABLE MACROECONOMY: if in place ( privatization of the financial
sector, privatization of state-owned enterprises,
using charges to recover the cost of some state-
provided services, implementing tax reforms) will
attract capital from GLOBAL LINKAGES, and because
of the latter the economy will develop the ability
to withstand shocks.
Financial discipline and international prices will
make the COMPETITIVE MICROECONOMY more efficient.
------------------------------------------------------------------------
PRIORITIES FOR ACTION
For the managers of the World Bank, implementing the model will require
two sets of actions, one from the industrial countries and the other
from the developing countries.
The World Bank managers suggest:
THE INDUSTRIAL COUNTRIES NEED TO:
1.- Roll back restrictions on trade..."Nontariff barriers to trade
need to be dismantled. Developing countries would benefit from
being granted unrestricted access to industrial-country markets
-some $55 billion in additional export earnings, or as much as
they receive in aid".
2.- Reform macroeconomic policy. "Reduced fiscal deficits, stable
financial systems, stable currencies, low and stable interest
rates, and steady non-inflationary growth would transform the
climate for development in the rest of the world".
3.- Increase financial support. "More external financing, both
concessional and nonconcessional"..."Many developing countries
continue to struggle with heavy burdens of external debt. Further
progress in extending debt relief to the middle- and low-income
countries is needed".
4.- Support policy reform. "Additional financing will be far more
effective when it supports sound domestic policies. Experience
shows that it pays lenders and borrowers alike to ensure that
investments and market-friendly policies go together".
5.- Encourage sustainable growth. "The global community has a great
responsibility to take common action to protect the earth's
environment, and to support the control of environmental
degradation in developing countries".
"THE DEVELOPING COUNTRIES NEED TO:
1.- "Invest in people. Government must spend more, and more efficiently,
on primary education, basic health care, nutrition, and family
planning. That requires shifts in spending priorities; greater
efficiency and better targeting of expenditures, and in some cases
greater resource mobilization".
2.- "Improve the climate for enterprise. Governments need to intervene
less in industrial and agricultural pricing, to deregulate
restrictions to entry and exit, and to focus instead on ensuring
adequate infrastructure and institutions".
3.- "Open economies to international trade and investment. This calls
for far fewer nontariff restrictions on trade and investments,
substantially lower tariffs, and a decisive move away from
discretionary forms of control".
4.- "Get macroeconomic policy right. Macroeconomic policy needs to
ensure that fiscal deficits are low and inflation kept in check.
Appropriate, market-based incentives for saving and investment are
essential if domestic resources are to play their essential part
in financing development".
(World Development Report 1991, The World Bank, 1991)
The managers of the World Bank support their argument indicating that
South Korea and Taiwan are successful cases of "market-friendly"
paths to development, and that the negative examples are the ones
known as "populist experiments". For the latter (see BOX 1) present
the cases of Peron in Argentina, Garcia en Peru and Allende in Chile,
giving an account of why Allende's populist experiment failed.
The World Bank's version of Allende's populist experiment is an
outstanding case of intellectual dishonesty, because, at the same time
that it brands "populist experiments" of being examples of
"interaction between political and economic processes" (as negative),
it hides the fact that all the major economic problems faced
by Allende's government were an outcome of the "interaction
between political and economic processes", in this case the political
and economic role played by the U.S. Government, army and big capital
joining forces with the Chilean monopolic capital and army to destroy
the Chilean democratic socio-economic experiment.
Even more, the intellectual dishonesty of the scholars subcontracted
by the World Bank reaches a peak when they give only technical
reasons for the rate of inflation and the lack of foreign reserves
in the Allende's last year of government.
There are three works which documented beyond any doubt the extent
of domestic and foreign political intervention to create economic havoc
as a prelude to a military coup d'etat in Chile in the period 1970-1973.
They are:
1.-Salvador Allende's speech to the United Nations General Assembly, 1972
2.-Róbinson Rojas, "The Murder of Allende and the end of the Chilean
way to socialism", 1975
3.-United States Senate, "Covert Action in Chile, 1963-1973", 1975
I do recommend the reading of those documents, particularly because
they are documents demonstrating the extent to which intellectual
dishonesty is part of the mainstream of what is called "development
research" in industrial countries and their academic institutions.
I do strongly recommend reading pages 32 to 35 of the United States
Senate report, where the U.S. senators expand on their statement that
"it is impossible to understand the effect of covert action without
knowing the economic pressure which accompanied it".
Equally dishonest is the World Bank's report version about the main
variables contributing to South Korea's "economic miracle", because
it hides the fact that the first 20 years of the miracle were totally
financed by the U.S. government, army and big corporations, first, and
the Japanese transnational capital, next.
For an account of the above, see
R. Rojas: Notes on South Korea, Taiwan and the myth of the "East Asian
miracle"
The main criticism to the "market-friendly" model could be that it
does not address some of the social effects brought about by the
use of "efficient" technologies (capital-intensive) in societies
were the supply of labour is so huge. And also that the model does
not address the social structures in developing societies as blocking
development through extreme inequalities in access to resources. Both
above features lead toward instances of social and economic "fractures"
in developing societies, which, in turn, create mechanisms of
dependency.
In 1980, the Independent Commission on International Development Issues,
under the Chairmanship of Willy Brandt, published its report entitled
"North-South: A programme for survival". A summary of its
recommendations give us some ground to make comparative analysis:
"THE TASK OF THE SOUTH:
essential reforms (social and economic)
a) redistribution of productive resources (land, capital,
raw materials, labour)
b) redistribution of incomes
c) expansion of social services to the poor
d) agrarian reform
e) increased development expenditures in rural areas
f) stimulation of small-scale enterprise
g) better tax administration
h) provision of increased resources (credit) to the informal sector
i) expanded training and extension services for the informal sector
broader reforms
1.- strengthening the indigenous technological capacity, through:
1.1 more scientific bias in education
1.2 encouragement of a domestic engineering industry
1.3 emphasis on intermediate technology
2.- improved economic management, through:
2.1 better taxation policies
2.2 better public administration
2.3 pricing system
3.- wider participation in the development process, through:
3.1 decentralized administrative systems
3.2 support for relevant voluntary organizations
4.- regional and sub-regional integration, to support
industrialization and trade expansion and provide
opportunities for multi-country ventures
5.- expanded preferential trade schemes among less developed
countries (this could be encouraged by such measures as the
untying of aid)
6.- establishment and extension of payments and credit arrangements
among LDCs, to facilitate trade and to ease balance of
payments problems.
"THE TASK OF THE NORTH:
1) The commodity sector of LDCs should contribute more to economic
development through the greater participation of these countries in:
1.1 the processing
1.2 the marketing, and
1.3 the distribution
of these commodities in the world trade
2) protectionism by industrialized countries against the exports of
LDCs should be rolled back
3) financial support and technical assistance should be given to the
poorer countries to facilitate their establishment of improved
commercial infrastructure
4) transnational corporations, investment and the sharing of
technology should be internationally regulated
5) the world monetary order should be reformed to avoid chronical
balance of payments deficit in LDCs
("North-South: a programme for survival". Report of the Independent
Commission on International Development Issues", Pan Books, 1980)
Another set of concepts to have in mind to do a critique of the
market-friendly model is contained in the CONCLUSIONS of the NGO/UN
WORKSHOP ON DEBT, ADJUSTMENT AND THE NEEDS OF THE POOR", held in
Oxford, UK, 19-22 September 1987, addressing the effects of structural
adjustment programs on less developed societies:
"CONCLUSIONS:
a) the economic crisis has exposed the unsustainability of the
development models adopted by:
-- the elites of the third world, and
-- supported by the policymakers of the North and the
international community
b) the models of development have brought countries
1) into greater dependence, on an unequal basis, on the
world trade financial systems,
2) into loosing US$100 billion a year in terms of trade,
which are transferred to the rich countries in the form
of cheaper imports and profits from exports,
3) into external debt of US$1,000 billion
c) large portions of the debt in many LDCs were spent in unproductive
infrastructure and industrial projects and armaments
d) there is evidence of transnational corporations bribing political
leaders to buy their plants whilst arranging the loan package to
finance the deal
e) less developed countries now have to pay more than US$100 billion
a year for debt servicing of which 50% is interest
f) there is substantial capital flight
g) it is clear that the crux of the development crisis rests on the
unequal distribution of resources and
economic power at both the international
and national levels
h) this basic inequality is reinforced by the export-led models,
which reinforce also dependence on primary commodity exports,
foreign investment and loans, and over-dependence upon non-
essential imports.
i) human consequences:
1) increasing infant mortality in large regions
2) decreasing access to food and growing malnutrition
3) increasing ill-health and the reappearance of
diseases that were thought to be conquered
4) increasing landlessness and unemployment
5) drastic cuts in real wages and rising prices for goods
consumed by the poor
6) the collapse of education, health and other services
7) women incorporated into waged employment under
extremely bad conditions
8) irreversible toll on the natural environment
9) increasing repression and human rights abuses
("NGO/UN Workshop on "Debt, Adjustment and the Needs of the Poor",
WORLD DEVELOPMENT, Vol. 15, supplement, 1987, pp. 255-261)
HOW GOOD THE MODEL?
By and large, the "market-friendly" model has been the path to
development adopted by the largest economies in Latin America in the
last 16 years or so, the balance is rather unclear for the managers
of the World Bank, and cristal clear for agencies of the United
Nations like ECLAC and United Nations Conference on Trade and
Development.
See
UNCTAD: The Trade and Development Report, 1997 (press release 1)
R. Rojas: 15 years of monetarism in Latin America: time to scream
________________________________________________________________________
________________________________________________________________________
BOX 1
From WORLD DEVELOPMENT REPORT 1991, World Bank, 1991, page 133, Box 7.2
Populist experiments
The populist experiments in Latin America -Allende in Chile (1971-73),
Peron in Argentina (1946-1949), and Garcia in Peru (1985-88)- are
extreme examples of the interaction between political and economic
processes.
Populist policies have emphasized growth and short-run distributional
goals, brushing aside the risks of inflation and excessive deficits and
ignoring external constraints and the responses of firms and households
to their aggressive anti-market policies.
Addressing poverty and income distribution issues, which populist
regimes viewed as the source of social conflict and political
instability, could not be done, however, through unsustainable economic
policies.
In a typical populist cycle, the new administration sets in motion a
marked shift in policies. Excess capacity and the availability of
foreign reserves at first support higher output growth, which in many
cases is accompanied by an increase in real wages. Inflation is kept
low with the help of price controls.
But blottlenecks soon appear as a result of strong expansion in domestic
demand; because the dwindling foreign reserves, these cannot be bypassed
by increasing imports. Shortages, accelerating inflation, and declining
reserves lead to capital flight and the demonetization of the economy.
The budget deficit worsens as subsidies increase, and taxes decline in
real terms. In this unsustainable position, the government is forced to
devalue the currency and cut subsidies. Inflation accelerates and real
wages fall.
The Chilean experience of 1970-73 clearly illustrates this sequence of
events. To achieve rapid growth and improve the living conditions of
low-income groups, the government stepped up public spending. Public
sector wages were increased, adding to the fiscal deficit. Agrarian
reform was intensified, and the mining and banking sectors as well as
parts of the industrial sector were nationalized.
The combination of price controls and expansionary demand policies
fueled repressed inflation; the parallel market flourished. Foreign
reserves were so low that it was impossible to meet the surge in demand
by increasing imports.
By 1972, the government was force to devalue the escudo and adjust
public sector prices. It was unable to control wages, however. Between
1970 and 1973, inflation increased from 35 percent to about 600 percent
a year, and the fiscal deficit jumped from 2.7 to 24.7 percent of GDP.
GDP growth accelerated to 9 percent in 1971 but turned negative in 1972
and 1973, when output fell by 5.6 percent.
____________________________end Box 1___________________________________
________________________________________________________________________
BOX 2
From WORLD DEVELOPMENT REPORT 1991, World Bank, 1991, pages 132-134
Remedies: democracy and institutions?
Authoritarianism often has been seen as a useful, if regrettable,
expedient for effective policymaking in the face of political
instability.
A strongly held view from the 1950s through the 1970s was that
development policies took time to bear fruit, and that this was
consistent with the politics of short-term electoral cycles. Democracies
were seen as having a built-in inclination toward populist policies
(Box 7.2 -Box 1 here). Benevolent authoritarian regimes (led by
philosopher-despots) were needed, it was argued, to push through
unpopular reforms and tame an unruly or otherwise ineffective
administration. Economies managed with varying degrees of
authoritarianism have made progress at different times in the past, for
example, Brazil, Chile, Spain, and some of the East Asian economies.
Yet, at the same time, some democracies -old ones as in India or new
ones as in the Philippines- have been unable so far to make rapid
progress.
During the 1980s, however, severe disenchatment with authoritarian
regimes set in. Now it is better understood that such regimes are no
less likely to yield to the interests of narrow constituencies. Few
authoritarian regimes, in fact, have been economically enlightened.
Some of the East Asian NIEs are the exceptions, not the rule.
Dictatorships have proven disastrous for development in many economies-
in Eastern Europe, Argentina, Central African Republic, Haiti, Myanmar,
Nicaragua, Peru, Uganda, and Zaire, to name only a few.
Democracies, conversely, could make reform more feasible in several
ways. Political checks and balances, a free press, and open debate on
the costs and benefits of government policy could give a wider public
a stake in reform.
The need to produce good results in order to be reelected could help,
rather than hinder, economic change: it increases government's
incentives to perform well and keeps predatory behavior in check.
Experience allows no hard and fast conclusion. Peru is going through one
of the worst economic crises in its history, mostly as a result of
policies implemented in the last 1980s by a democratically elected
government. Bolivia has been unable to improve its government's
administrative capacity despite almost a dcade of democracy. Literacy
rates in China in 1950 were similar to those in India, and four decades
later they are twice as high. Yet India is one of the oldest and most
sophisticated democracies in the developing world.
Democratic governments are not necessarily more adept at managing
reform, either. Transitional democratic governments, perhaps because
their political base is still fluid, appear to be particularly
vulnerable (Tables 7.2 and 7.3).
Democratic governments have a better record than authoritarian
governments in countries that are not politically polarized; the reverse
seems to be true in polarized societies.
On the whole, the evidence suggests that the democratic-authoritarian
distinction itself fails to explain adequately whether or not countries
initiate reform, implement it effectively, or survive its political
fallout.
Table 7.2_______________________________________________________________
The success of economies with differing political systems in
implementing an IMF adjustment program
------------------------------------------------------------------------
Continuous Continuous Transitional
Percentage of democratic authoritarian democratic
adjustment years systems systems systems
------------------------------------------------------------------------
In which fiscal fell 49 50 25
In which expenditures as percentage
of GDP fell 38 46 29
In which credit expansion slowed 61 62 43
------------------------------------------------------------------------
Note: Based on reform episodes in seventeen countries from the 1950s
through the 1980s.
Source: S. Haggard and R. Kaufman, "The Political Economy of Inflation
and Stabilization in Middle-Income Countries", PRE Working
Paper 444, World Bank, Country Economic Departament,
Washington, D.C., 1990
________________________________________________________________________
Table 7.3_______________________________________________________________
The success of economies with differing political systems in
controlling rapid inflation
------------------------------------------------------------------------
Democratic Authoritarian
Measure systems systems
------------------------------------------------------------------------
Percentage of inflation episodes
which ended in stabilization
--------------------------------
In nonpolarized environments 75 62
In polarized environments 29 67
------------------------------------------------------------------------
Percentage of adjustment programs
that led to breakdown of system
twelve months or less after program started 11 14
------------------------------------------------------------------------
Note: Based on 114 standby arrangements from 1954 to 1984 signed by
nine Latin American countries.
Source: K. L. Remmer, "The Politics of Stabilization: IMF Stand-by
Programs in Latin America, 1954-84", COMPARATIVE POLITICS,
October 1986,.
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________________________end of BOX 2____________________________________
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