Developing countries in the world economy.

Róbinson Rojas
PART I.- THEORIES FOR DEVELOPMENT

LECTURE 3: Structural deficit on balance of payments: the basic concepts.

The Cold War and Modernisation theory. Comparative advantage
and
imperialism and neo-colonialism. The basic approach: Hobson,
Lenin and Schumpeter.

Topic for Discussion:

Can the relationship between developing societies and
industrialised societies be conceptualised as neo-colonialism?.
---------------------------------------------------------------------

See R. Rojas, "Latin America: Blockages to Development. The role of U.S. imperialism", 1984
S. Allende, Address to the U.N. General Assembly, 1972

THE POVERTY OF INTERNATIONAL TRADE THEORY

(Notes by Róbinson Rojas)(1998)

Since David Ricardo's "Economic Principles" were published in 1817,

international trade theory has been based on his main tenets, even
when "fine tuned" by Heckschen, Ohlin and Samuelson (trying to
build
a neo-classical framework for the theory), Leontieff and Vernon
(attempting the introduction of the concept of technology), and
Krugman (oligopoly theory). By and large, with fine tuning and all,
still the three basic assumptions of the classical trade theory are
the main conceptual structure of the model. That is, capital flows,
technology transfer and labour migration are excluded from the
model.

From above:

A.- factor immobility within the borders of a nation-state

is the most crucial assumption of the model;

B.- comparative advantage is determined before hand, that

is before the opening of an economy to trade, according
to the static comparative approach, dividing economies
into capital-abundant and labour-abundant.

(the above leads to the historical act of "creating"

situations of comparative advantage via exogenous
agents such as colonization, imperialistic behavior,
neo-colonization, neo-imperialism, and eventually
"dependent capitalist development" as defined by
Latin American theories of dependency)

C.- nation-states are the only actors in the international

economy, and thus, national economies are conceptualized
as "black boxes" inside which factors of production are
combined in perfectly competitive markets. Because of
this
the model doesn't consider firms as economic agents, and
trade is reduced to a relationship among nation-states.
Of course, the real world economy doesn't have any of the above
features assumed by the classical theory.

In contemporary world economy trade flows, capital movements,

inward and outward foreign direct investment, and technology flows
are component parts of the same system. The system is dominated by
transnational corporations, and not nation-states.

Therefore, the very nature of the world economy is the existence of

close interactions between foreign direct investment, foreign
speculative investment, trade, technology transfer, finance and
labour movements. Unlike comparative advantage theory assumes,
world-wide economic integration is no longer built solely on more
intense trade flows among countries. IT IS NOW THE RESULT OF A
MULTIDIMENSIONAL AND COMPLEX SET OF ASYMMETRIC RELATIONS:

-industrialized countries are connected to other industrialized

countries through inward and outward flows of trade, foreign
direct investment, speculative investment, and technology.

-less developed countries are connected to industrialized countries

mainly through trade, while foreign direct investment, speculative
investment, technology flows and financial flows are managed from
abroad to meet the needs of discret economic agents (transnational
corporations).

-thus, in contradiction with the old theory, factors of production

are increasingly crossing national borders.

-also, foreign direct investment is becoming a crucial determinant

of a country's pattern of specialization. Therefore, "comparative
advantage" now is created by foreign direct investment to serve
foreign direct investment, creating dramatic economic effects
within the "black box".

-decisions regarding the location of new activities, or the

relocation of new ones, are taken by transnational corporations.
-the funding of economic activities (in both industrialized and
less
developed countries) is made by transnational banks operating
outside
the jurisdiction of central banks, which creates, from time to
time,
dramatic macroeconomic disequilibria.

-more than 40% of international trade consist of intra-firm flows.

Thus, prices of goods and services that are channeled from one
foreign affiliate to the other are not determined by the market
( as assumed in the classical theory of trade ).

-specialization in production is the result of transnational

corporations' decisions to locate some of their activities
abroad.
-gains from competitiveness benefit transnational corporations and,
sometimes, as a residual effect, some firms in the host countries.

-oligopolistic competition is the rule. Of course, any

undergraduate
is aware that an oligopolistic market does not produce the
conditions for an optimal allocation of resources.

-more importantly, economic policies tend to fail because of the

increasing asymmetry that exists between the globalization
process and the national interest.

Examples: with capital mobility, the targets of monetary

and fiscal policies can no longer be reached with
certainty. The power of transnational banks, when
confronted with policies of the central banks, is
inmense.

national tax rates have to be adjusted to the

lower existing rate if capital flight is to be
avoided.

by borrowing abroad, transnational corporations

are able to avoid paying higher interest rates for
financing domestic investments.

- the rationale for industrial policy in any nation-state is to

strengthen national firms, but there are mounting obstacles
arising from the rationale of globalization both for
transnational
corporations and the local firms doing business with them:

* more and more transnational corporations are moving

towards a global approach, which means that investment
decision-making is less local market-oriented than in
the case of a multinational strategy (trying to jump over
trade barriers), and more world-market oriented, which
adds
to the effect of economic fragmentation in the host
economy.

* foreign affiliates located in different countries tend to

be specialized, and flows among them are INTERNALIZED to
reduce transaction costs, which makes transfer pricing
easier, damaging even more the local economy's balance
on current account.

* as a result of the above, imports of home countries

consist,
in part, of imports produced abroad by the affiliates of
the home country's transnational corporations.
 * also, an increasing share of the turnover of these
transnational corporations is generated by its foreign
affiliates selling in the markets of host countries, or
exporting to third countries, including the home country.

* by and large, in the 1990s, countries are no longer in

a position to screen and control potential investors as
was the case in the past decades. Now, big companies
select countries on the basis of their location-specific
comparative advantages...but that "comparative advantage"
is not the Ricardian one, but the transnational
corporation
own international competitiveness. Once again, is a
comparative advantage "created" by the powerful in the
world of the weak to meet the needs of the powerful. Like
the set of comparative advantages created by powerful
armies
during the period of colonization by Western European
nation-states, Japan and the United States from XV to
early XX century, today, late XX century, the historical
process of creating comparative advantage is being done
by the not with powerful armies, but with huge amounts
of capital owned-managed by transnational corporations.

--------------------------RRojas Research Unit/1997----------------

-----

TRADE, DEVELOPMENT AND THE THEORY OF COMPARATIVE ADVANTAGE

Drawing from M. Todaro (1990), there are five questions related

to international trade:

1) How does international trade affect the rate, structure and

character of LDC economic growth?

2) How does trade alter the distribution of income and wealth

within a country, and
among different countries or
groups of countries?

3) Under what conditions can trade help LDCs achieve their

development objectives?

4) Can LDCs by their own actions determine how much and what they
trade?

5) In the light of experience, what is best

a) outward-looking policies
b) inward-looking policies, or
 c) a combination of both (in a regional economic
cooperation agreement)?

Neo-classical free trade model will provide a general answer

stating that if capital-abundant societies specialize in
capital-intensive production for exports and labour-abundant
specialize in labour-intensive production for exports, trade
among them will

1) be an important stimulator of economic growth, because trade

enlarges consumption, increases world output, and provides
universal access to scarce resources;

2) tend to promote greater international and domestic equality:

equalizes prices
rises real income of trading countries
rises relative wages in labour-abundant
countries and lowers them in capital-
abundant countries

3) help countries to achieve development through specialization

Neo-classical trade theory will argue that "international prices

and costs of production determine how much a country should
trade", and, therefore, outward-looking strategies of production
are neccesary. Of course, if international prices and costs of
production are mainly the business of transnational corporations
and not domestic economies, then the neo-classical argument will
be valid only for the welfare of transnational corporations and
not the host countries.

Neo-classical trade theory assumes perfectly competitive market

in both the international market and each individual domestic
market, and, because of that, builds the model upon the
following assumptions:

a) all productive resources are fixed in quantity and constant in

quality across nations. They are fully employed and there is no
international mobility of productive factors.
( this assumption is critical, because if there was mobility of
productive factors, then "comparative advantage" will be a
product of market forces competing, which will mean that
powerful capitals would create comparative advantage for
them all the time. Thus, eventually, there will be
comparative advantage only for transnational corporations.)

b) technology is fixed or similar and freely available to all

nations.

c) consumer tastes are also fixed and independent of the influence

of producers, because international consumer sovereignty
prevails.
d) within national borders factors of production are perfectly
mobile between different production activities, and the economy
as a whole is characterized by the existence of perfect
competition. Because of the latter there are no risks and
uncertainties.

e) the national government plays no role in international economic

relations, so that trade is strictly carried out among many
tiny and anonymous producers.

f) trade is balanced for each country at any point in time and

all economies are readily able to adjust to changes

g) the gains from trade that accrue to any country benefit the
nationals of that country (the theory excludes the possibility
of transnational corporations being the main producers for
export in export-led economies)

Apart from the possibility that the above assumptions are either
extremely naive or extremely dishonest, some simple statistics
prove that none of the predictions of the theory is correct.

------------------------------------------------------------------

TABLE 1

Trade as % Real GDP per capita

of GDP as % of ind. cts.
avg. GDP per capita

1960 1990

17 less developed countries 33% 50 44

48 less developed countries 17% 10 5
61 less developed countries 15% 11 8

Chile 30% 62 35
Brazil 7% 21 33
South Korea 29% 15 47
Papua New Guinea 36% 21 12
Nigeria 31% 12 8
Turkey 19% 27 32
Sri Lanka 30% 21 17

All less developed countries 20% 17 15

Least less dev. cts. 14% 9 5
Sub-Saharan Africa 23% 14 8
source: World Tables, World Bank, several years
Data processed by Dr. Robinson Rojas
------------------------------------------------------------------

------------------------------------------------------------------

TABLE 2 Annual average growth rate (percent)

countries GDP EXPORTS as % of GDP
1970-80 1980-91 1970 1991

40 low-income 4.5 6.0 21 28

42 lower middle-income 5.5 2.7 14 26
21 upper middle-income 6.1 2.1 13 18
20 OECD 3.1 2.9 13 19

source: World Development Report 1993

Data processed by Dr. Robinson Rojas

------------------------------------------------------------------

TABLE 3 Internal distribution of income

quintiles from poorest to richest

country year 20% 20% 20% 20% 20% richest 10%

Chile 1968 4.4 9.0 13.8 21.4 51.4 34.8

1989 3.7 6.8 10.3 16.2 62.9 48.9
1994 3.5 6.6 10.9 18.1 61.0 46.1
Brazil 1972 2.0 5.0 9.4 17.0 66.6 50.6
1989 2.1 4.9 8.9 16.8 67.5 51.3
Mexico 1977 2.9 7.4 13.2 22.0 54.4 36.7
1984 4.1 7.8 12.3 19.9 55.9 39.5
1992 4.1 7.8 12.5 20.2 55.4 39.2

source: World Development Report, various years

------------------------------------------------------------------

Drawing from Todaro (1990), the real effects of trade, in

conditions of international capital domination of the world
economy (conditions of neo-colonialism), are that "the
principal benefits of world trade have accrued disproportionately
to rich nations and within poor nations disproportionately to
both foreign residents and wealthy nationals".

The above reflects the highly inegalitarian institutional, social

and economic ordering of the global system in which a few powerful
nations and their transnational corporations control vast amounts
of world resources.

"Trade, like education, tends to reinforce existing inequalities".

In a word, as expected from the internal dynamics of the
capitalist system, "any initial state of unequal resource
endowments will tend to be reinforced and exacerbated by the very
trade that these differing resource endowments were supposed to
justify".

The following figures were calculated by GATT, when it was going to

be replaced by the World Trade Organization, to illustrate the
benefits of the new free trade agreements:

Benefits from the extra trade generated

by the new agreements. In US$ billion
1991 prices. Up to the year 2002

Total extra trade in the world 211.8

of which
Australia 1.6
Canada 5.9
European Union 78.3
EFTA 34.2
Japan 35.5
United States 26.3
TOTAL OECD 181.8
Total rest of the world 29.9

Benefits per capita:

OECD US$ 260
Rest of the World US$ 7

source: GATT

------------------------------------------------------------------

From: GLOBAL ECONOMIC PROSPECTS AND THE DEVELOPING COUNTRIES,World

Bank, World Bank, 1996

Commodity prices and manufactured goods prices. Index

G-5 unit value index of manufactures*

1965 100
1970 114
1975 205
1980 327
1985 314
1990 455
1994 486
Commodity price indexes

Metals Cash
and Crops Food Oil
Minerals

1965 100 100 100 100

1970 105 97 113 100
1975 166 155 194 850
1980 283 300 326 2,400
1985 210 198 255 2,100
1990 244 227 213 1,667
1994 207 250 270 1,167

Commodity price indexes as % of G-5 manufactured goods index

Metals Cash
and Crops Food Oil
Minerals

1965 100 100 100 100

1970 92 85 99 88
1975 81 76 95 415
1980 87 92 100 734
1985 67 63 81 669
1990 54 50 47 366
1994 43 51 56 240
__________________________________________________________________

CENTRAL TENDENCY FOR VARIATIONS- 29 YEARS

AVERAGE ANNUAL GROWTH

G-5 METALS CASH FOOD OIL
MANUFACTURES AND CROPS
MINERALS
------------------------------------------------------------------
1965-1994 5.6 2.5 3.2 3.5 8.8
------------------------------------------------------------------
1965-1980 8.2 7.2 7.6 8.2 23.6
------------------------------------------------------------------
1980-1994 2.9 -2.2 -1.3 -1.3 -5.0
__________________________________________________________________

__________________________________________________________________
 * United States, Japan, Germany, France, United Kingdom
------------------------------------------------------------------
M. Todaro, "Economic Development in the third world", Longman,1990
-------------------------------------------------------------------
-----
BACK

The basic approach to imperialism. Notes by Róbinson Rojas (1997)

Since the XIX century, "industrialization and the global economy" refers
to the political, economic and social effects of domination by
imperialist powers on colonies, semi-colonies, and spheres of influence,
and the political, economic and social effects within imperialist
societies.

The fundamental questions are how the forces of production, relations

of production and class structures evolved in imperialist powers and
peripheral societies.

And then, we have to look at features related to at least two large

historical periods:

a) colonialism, which ended with the process of decolonization in the

1950s and 1960s;

b) the period of the cold war and then 'globalization'.

The first period is characterised by "political imperialism" whose main

weapon was military force to generate economic expansionism, which also
lead to rivalry among colonial powers: Britain, Germany, France, Italy,
United States, Spain, Portugal, Russia and Japan.

The second period is characterised by "economic imperialism" whose main

weapon was economic power and military might to generate economic and
political expansion. The main rivalry among only two superpowers: United
States and Soviet Union. Asia, Africa and Latin America were the
battlegrounds for this rivalry for world domination.

In Latin America, the power of United States as the imperial master was
unchangelled until today, while in Africa there were some weak
encroachments by Soviet Union and People's Republic of China, but the
main control of the area was in the hands of Britain and France,
supporting United States in the cold war. In Asia, the situation was
more complex, with India being disputed among Soviet Union and the
United States until the latter's victory in the 1970s, open war in
Vietnam, Cambodia, Laos and South Korea, etc.
United States, particularly, was utilizing the concept of "political
freedom" as equivalent to "capitalist system", and supporting the most
brutal dictatorships in the name of preserving "democracy" against
totalitarian socialism. Latin America, Asia and Africa witnessed in the
1950s, 1960s and 1970s the creation of dictatorships by the successive
U.S. government as shields againts popular insurrections from Iran to
Chile. See BOX 3

Every attempt of alternative industrialization in less developed

societies was opposed by commercial and political forces based in
United States and the former colonial power, originating a pattern
of development which didn't work in favour of the majority of the
populations in Third World countries. An excellent description of
this pattern of 'dependent' development can be read in
E. Galeano, Latin America and the Theory of Imperialism
which covers the period until the late 1960s.

By and large, African, Asian and Latin American societies (except very
few exceptions, Cuba and North Korea) were exposed to the more powerful
capitalist nations grafting their mode of production on them:
the imposition of capitalist relations of production, by force
and overwhelming economic power, creating sources of expanding
production and surplus value of continuous benefit to the leading
capitalist nations. See BOX 2

The above had three historically new features:

1) the institution of an international division of labour between
manufacturing nations and those that mainly supplied raw materials
and cash crops/food;

2) the creation of a hierarchy in which the overwhelming majority of

nations and people were, to a greater or lesser degree,
economically and financially dependent on a few centers of
industry and banking, and

3) the economic laws and institutions of capitalism (its market,

price and financial mechanisms) continuously reproducing the
international division of labour and the hierarchy of economic
and financial dependency.
Thus, the concept of imperialism as an historical construct is central
to any understanding of its effects.

I will discuss imperialism in the restricted region of "european

overseas expansion and empires". I will not address the case of
Japanese imperialism at the end of the XIX and first half of the
XX Centuries.
Because this imperialism took place when capitalist relations of
production were destroying the feudal relations of production and
it peaked in the XIX century alongside the triumph in Western Europe
of capitalist relations of production, some historian call it the
"new imperialism"...

Analysts recognise many factors involved: the main authors

supporting the idea of "economic imperialism" recognize that
political, military, and ideological influences were also at
work; others who challenge the notion of "economic imperialism"
still acknowledge that economic interests played a significant
role. The problem is: what were the PRIMARY causes.

John Atkinson HOBSON, english, liberal, economist ("Imperialism.

A Study", London, 1902):
-financial interests of the capitalist class "was the
governor of the imperial engine". Hobson wrote that
imperialist policy had to be considered irrational if
viewed from the vantage point of the nation as a whole:
the economic benefits derived were far less than the costs
of wars and armaments; and needed social reforms shunted
aside in "the excitement of imperial adventure".

But it was rational in the eyes of the minority of financial

interest groups (there was a persistent congestion of capital
in manufacturing...the pressure of capital needing investment
outlets arose "in part from the maldistribution of income:
low mass consuming power blocks the absorption of goods and
capital inside the country"..."the large firms are faced with
limited opportunities to invest in expanding domestic production"
...the result of both unequal distribution of income and
monopolistic behaviour is a need to open up new markets and new
investments opportunities in foreign countries (dominated,
captives economies--colonies)

-for Hobson, associated features of this new imperialism were

political changes, racial attitudes and nationalism.

Vladimir Ilich LENIN, russian, revolutionary, communist

("Imperialism, the Highest Stage of Capitalism", 1917):

- imperialism is so closely integrated with the structure and

normal functioning of an advanced capitalism (not only the
financial sector) that only the revolutionary overthrow of
capitalism, with the substitution of socialism, would rid the
world of "imperialism".

- the above is because capitalism changed in the late 19th

century entering a new phase. The new phase involved political
and social as well as economic changes: but its economic essence
 is the replacement of competitive capitalism by monopoly
capitalism, a more advanced stage in which finance capital, an
alliance between large industrial and banking firms, dominates
the economic and political life of society.

- competition continues, but among a relatively small number of

giants who are able to control large sectors of the national and
international economy. It is this monopoly capitalism and the
resulting rivalry generated among monopoly capitalist nations
that foster imperialism; in turn, the processes of imperialism
stimulate the further development of monopoly capital and its
influence over the whole society.

- like Hobson, Lenin maintained that the increasing importance of

capital exports is a key figure of imperialism, but he went
beyond Hobson saying that this acceleration of capital migration
arises from the desire to obtain exclusive control over raw
material sources and to get a tighter grip of foreign
markets...Further, Lenin shifted the emphasis from the general
problem of surplus capital, "inherent in capitalism in all its
stages", to the imperatives of control over raw materials and
markets in the monopoly stage.

- with the above perspective, Lenin stated that the thrust was to
divide the world among monopoly interest groups, the rivalry
extends to a struggle over markets in the leading capitalist
nations as well as in the less advanced capitalist and colonial
countries. The rivalry is intensified because of the uneven
development of different capitalist nations...thus, wars among
capitalist nations...

- Lenin pinpointed "five tendencies" in the capitalist system

leading to imperialism:

1.- the CONCENTRATION OF PRODUCTION and capital has

developed to such a high stage it has created
MONOPOLIES which play a decisive role in economic
life;
2.- the merging of bank capital with industrial capital,
and the creation, on the basis of "finance capital"
of a FINANCIAL OLIGARCHY, creating an internal
contradiction in the ruling classes leading to wars;
3.- the EXPORT OF CAPITAL as distinguished from the
EXPORT OF COMMODITIES acquires exceptional importance
because extend the reach of political power to the
periphery;
4.- the formation of INTERNATIONAL MONOPOLIST CAPITALIST
COMBINES which SHARE THE WORLD AMONG THEMSELVES; and
5.- the territorial division of the whole world among the
biggest capitalist powers is completed creating a
tendency to encroach on each other spheres of domination
leading to generalized wars among the big powers.

- by and large, Lenin's book was based on Rudolf Hilferding,

 "Finance Capital" (published in 1910), and Nicolai Bukharin,
"Imperialism and the World Economy", 1915), and Rosa Luxemburg,
"The Accumulation of Capital", 1913 (for a general critique see
BOX 1)

Joseph Alois SCHUMPETER, german, economist ("The Sociology of

Imperialism", 1920)

-wrote against Hobson's and Lenin's notion that "imperialism

grows naturally out of capitalism". But he accepted the thesis
that the influence of class forces and class interests are major
levers of social change.

-three generic characteristics of imperialism:

a) at root is a persistent tendency to war and conquest, often
producing nonrational expansions that have no sound utilitarian
aim;
b) these urges are not innate in man. They evolved from
critical experiences when peoples and classes were molded into
warriors to avoid extinction; the warrior mentality and the
interests of warrior classes live on, however, and influence
events even after the vital need for wars and conquests
disappears;
c) the drift to war and conquest is sustained and conditioned
by the domestic interests of the ruling classes, often under the
leadership of those individuals who have most to gain
economically and socially from war.

-then, Schumpeter assumes that all the above is antithetical to

capitalism in its purest form. Thus imperialism would have been
swept away as capitalist society ripened.."yet despite the
innate peaceful nature of capitalism, interest groups do emerge
that benefit from aggressive foreign conquests. Under monopoly
capitalism the fusion of big banks and cartels creates a
powerful and influential social group that pressures for
exclusive control in colonies and protectorates, for the sake of
higher profits".

-Schumpeter argued that monopoly capitalism can only grow and

prosper under the protection of high tariff walls; without that
shield there would be large-scale industry but no cartels or
other monopolistic arrangements.

-Because tariff walls are erected by political decisions, it is

the state and not a natural economic process that promotes
monopoly...Therefore, it is in the nature of the state that the
cause of imperialism will be discovered (modern academic thought
about imperialism follows Schumpeter's conclusion -that modern
imperialism is not a product of capitalism- without paying much
attention to scientific analysis, the political economy of
modern imperialism, that is. Two problems to explain remain:
the close relationship between power and wealth, and the almost
simultaneous eruption of the new imperialism in a whole group of
leading power by the end of last century and beginning the
twentieth century.
___________________________________________________________

BOX1____________________________________________________
modern concept of imperialism, as thought by post-Marx
theorists:

--a foreign policy which seeks POLITICAL and ECONOMIC control

over backward areas to guarantee the home country an OUTLET for
IDLE savings and SURPLUS manufactured goods in exchange for
strategic raw materials and/or cash crops

(the majority among the so-called marxist theorists assume

that a closed capitalist economy must suffer from a chronic
DEFICIENCY of effective demand, which can only be corrected by
the opening up of foreign markets)

The above concepts are completely alien to Marx's theory of

capitalist development. By and large, Marx's logical sequence is
as follows:

a) once capitalism is established, capitalists are driven by

competition to find new methods of production which raise
productivity and lower costs of production.

b) competition in a capitalist system generates cumulative

development (each advance is soon copied, the laggards go
bankrupt, and the leader's advantage can only be maintained by
repeated expansion and innovation).

c) at the same time, capitalism expands and draws all other

societies into its orbit.

d) but capitalism does not develop evenly; where one industry

develops ahead of others, it can find itself hampered by a
shortage of demand relative to a greatly expanded supply (it is
not markets in general that are needed, but markets for a
particular industry)

e) the fact that capitalist production does not require

external markets (external to the system of production, not to
individual capitalist nation-states), does not mean that
capitalists will ignore external markets where they exist or can
be created (by force or otherwise) (on the contrary, competition
forces capitalist firms to seek out the markets in which they
can get the best price (highest level of abnormal profits) for
their products...and to seek out the cheapest sources of supply
for the commodities they need to produce new commodities)

f) capitalist economies progress through a sequence of BOOMS

and SLUMPS (the business cycles)...so there are always periods
in which excess supplies of commodities exist and sellers must
search for expanded markets...conversely, there are always
periods in which shortages of commodities will have the opposite
effect.

g) the other factor that drives the capitalist sector of a

national or international economy to expand at the expense of
non-capitalist production is a need for fresh supplies of labour
power (Marx assumed that a healthy capitalist system would tend
to expand more rapidly than the growth of productivity in itself
would permit and would thus tend, periodically, to run into
shortages of labour. In the absence of any external source of
labour power this would cause an increase in the wage...which
would both estimulate labour-saving innovations and provoke a
crisis which would reduce demand for labour...any external
sources of labour power would be eagerly raided in order to
stave off the crisis.

Thus:

1) Marx defined capitalism in terms of the relation between

a class of free wage labourers and a class of capitalists,
relations leading to a political, economic and ideological
framework suitable to the reproduction of the above relation;

2) competition between many capitals (distinct units of

production) compels accumulation and technical progress;

3) capitalism DOES NOT NEED a subordinated hinterland or

periphery, though it will use it and profit from it if it
exists (and, of course, if can maintain it to accumulate short-term
extra profits);

4) once industrial capital had taken charge, CAPITALIST

CONQUEST could play a technically progressive (though morally
brutal, negative) role in initiating capitalist industrialisation;

5) the origin and rapid development in Europe and its slow

penetration in Asia, Africa and Latin America, were the result
of differences in the PRECEDING MODES OF PRODUCTION in the areas,
where pre-capitalist social structure were successful in adapting
to changes in the organisation of production (capitalist) and
became a blockage to fast ('efficient' -in the sense of conquering
the whole domestic economy, especially the rural sector) capitalist
development. (Students should read the relevant sections of my PhD
dissertation in this databank. R.R.).

6) European domination was the result and not the primary

cause of this difference and lack of economic dynamism.
______________________________________________________________
END OF BOX 1________________________________________BACK____

______________________________________________________________
BOX2__________________________________________________________
"I helped make Mexico and specially Tampico safe for American
oil interests in 1914. I helped make Haiti and Cuba a decent
place for the National City Bank boys to collect revenue in...
I helped purify Nicaragua for the international banking house of
Brown Brothers in 1909-12. I brought light to the Dominican
Republic for American sugar interests in 1916. I helped make
Honduras 'right' for American fruit companies in 1903".
(Major General Smedley D. Butler, U.S. Marine Corps., quoted in
"Latin American Politics and Development", J. Wiarda and H. T.
Kline (eds.), Westview Press, 1990)

______________________________________________________________
END OF BOX 2__________________________________BACK__________

_____________________________________________________________

BOX3_________________________________________________________

A CHRONOLOGY OF MILITARY COUPS IN THE EARLY DAYS OF THE DEBT CRISIS

1962 -USA

The American government creates a counter-insurgency programme, training

over 60,000 officers from all over Latin America during the next

15 years. It sets up a public security agency, which sends 400

specialists in police repression to Third World countries.

1962 -Argentina

The military overthrows president Arturo Frondizi, beginning a cycle of

coups that lasts until 1984, when the Falklands/Malvinas defeat ends the

dictatorship. About 30,000 opponents of the regime 'disappear' under

military rule. The foreign debt reaches $48 billion.

1963 -Ecuador

Military coup overthrows President Julio Arosemena.

1963 -Dominican Republic

Military overthrows Juan Bosch, the first elected president after 31

years of dictatorship under the US ally, Leonidas Trujillo. Two years

later, the US Marines invade the country with the support of six Latin

American countries to squash the popular insurrection led by Francisco

Caamano to bring Bosch back to power.

1964 -Brazil

With US support, the military overthrows President Joao Goulart,

beginning 21 years of military rule. The foreign debt leaps from

$2.9 billion in 1964 to $103 billion in 1984. Almost 5,000 opponents are

imprisoned, killed or forced into exile.

1965 -Bolivia

General Rene Barrientos overthrows President Victor Paz Estenssoro,

starting the 'long night' that, with a brief interval in 1970-71, lasts

until 1978. US support for the coup is rewarded by opening up the

country to transnationals. The foreign debt reaches $3 billion.

1968 -Peru

The military overthrows President Belaunde Terry, who is carrying out

social reforms. Later, the military regime itself takes on a nationalist

character.

1973 -Chile

The military, supported by the CIA and Pentagon, overthrows President Salvador

Allende, who two years earlier had denounced the financial exploitation

of the country by transnationals. General Augusto Pinochet sets up one

of the longest-lasting military dictatorships in the continent. The

foreign debt increases from $3.6 billion to $14 billion.

1973 -Uruguay

After defeating the Tupamaros urban guerrillas, the military carries

out a coup, setting up a military regime that is to last until 1984.

The debt, which was $300 million in 1973, reaches $3 billion.

With the coup in Uruguay, the cycle is completed. All of the Southern

Cone of Latin America, including Paraguay, which has been ruled by

General Alfredo Stroessner since 1954, is under military control.

(from S. Branford and B. Kucinski, "The Debt Squads. The U.S.,

the Banks, and Latin America", Zed Books, 1988)

________________________________________________BAC___________

END OF BOX 3___________________________________________

On neo colonialism:

The Penguin Dictionary of Politics gives the following definition and analysis of neo-
colonialism:

"The enormous economic and political influence that rich northern hemisphere countries
often have over Third World nations is often bitterly resented in the latter. Neo-colonialism is
the argument that the conditions of poor countries are often no better, and their people no
freer, than when they were actually governed by the European colonial powers in the period
up to the mid-20th century. There are several elements in this theory, all of them involving the
impact of strong economies on less developed ones, but outright attempts at political control
are also often suspected.

There are three main forms of trade between a major northern hemisphere industrial
economy and a Third World country. The more important is, probably, where the Third World
country is a primary producer, either of agricultural products or (natural) resources from
extractive industry. It is argued that price levels for such products are largely dictated by the
rich countries, the producers being effectively powerless unless they can organise into a
semi-cartel, as with the Organization of the Petroleum Exporting Countries (OPEC). A second
form is where a Third World country is a provider of cheap labour for the production of
components in consumer goods assembled elsewhere. Often the poorer countries lack the
expertise or capital (investment) to benefit from the marketing of finished products, but they
can produce the labour for factories owned and built by companies based in richer countries.
Thirdly there is the role of the Third World in providing mass markets for products
experiencing market saturation or interruption in richer countries, often in cases where the
consumer protection standards that would be imposed in the manufacturing country cannot
realistically be imposed by a Third World (country) government.

The reason why it seems appropriate to add the prefix neo to colonialism is that especially in
the first and third cases, these were precisely the motives for the 19 th century colonial
(expansion). If the same economic aim can be achieved without the expense of governing
and garrisoning a country, so much better. The suspicion of those who see First World/Third
World relations as essentially colonial are intensified when it comes to the question of direct
interference in the politics of the weaker countries. For whatever reasons, and however
justified, there is no doubt that powerful nations, and especially the USA, have intervened
repeatedly, overtly and covertly, particularly to oppose revolutionary movements (mainly
nationalists) and to prop up right-wing regimes. Even if the governments of the rich countries
are not motivated by a need to protect their corporations operating in the Third World, the
effect is often just that.

Other aspects can be seen as part of neo-colonialism but, whether they refer to the terms on
which development aid is provided, to the role of banks in funding development or to the
impact of tariff arrangements like GATT ( now WTO), in all cases the weaker economies are
totally dependent on decisions made elsewhere."

Imperialism against Chile 1970-1973

3. United States Economic Policies Toward Chile: 1970-1973

A. COVERT ACTION AND ECONOMIC PRESSURE

The policy response of the U. S. Government to the Allende regime consisted of an

interweaving of diplomatic, covert, military, and economic strands. Economic pressure
exorted by the United States formed an important part of the mix. It is impossible to
understand the effect of covert action without knowing the economic pressure which
accompanied it.

B. CHILEAN ECONOMIC DEPENDENCE

The demise of the brief Allende experiment in 1970-73 came as the cumulative result of
many factors -external and internal. The academic debate as to whether the external or the
internal factors weighed more heavely is endless. This is not the place to repeat it. A brief
description of the Chilean economy will suffice to suggest the probable effect on Chile of
U.S. economic actions and the possible interactions between economic and political factors
in causing Allende's downfall.

Chile's export-oriented economy remained, in 1970, dependent for foreign exchange

earnings on a single product -copper- much as it had depended on nitrate in the 19th
century. However, the Allende Administration consciously adopted a policy of beginning to
diversify Chile's trade by expanding ties with Great Britain, the rest of the Western
European countries, and Japan, and by initiating minor trade agreements with the Eastern
Bloc countries.

Nevertheless, Chilean economic dependence on the United States remained a significant

factor during the period of the Allende government. In 1970, U.S. direct private investment
in Chile stood at $1.1 billion, out of an estimated total foreign investment of $1.672 billion.
U.S. and foreign corporations played a large part in almost all of the critical areas of the
Chilean economy. Furthermore, United States corporations controlled the production of 80
percent of Chile's copper, which in 1970 accounted for four-fifths of Chile's foreign
exchange earnings. Hence, the Allende government faced a situation in which decisions of
foreign corporations had significant ramifications throughout the Chilean economy.

(From "Covert Action in Chile 1963-1973, Staff Report of the Select Committee to Study
Governmental Operations with Respect to Intelligence Activities", United States Senate,
December 18, 1975.

On Imperialism

"Imperialism is the policy or goal of extending the power and rule of a government beyond
the boundaries of its original state, and taking into one political unit other nations or lands.
There can be some variations whether the states that make up the empire retain some degree
of independence and identity, or are all swallowed entirely into the administrative and
political institutions of the original imperial state. Nor it is necessary that an empire has any
specific form of central government, though there must be one central and ultimately
overwhelming force otherwise it is more likely to be an alliance or league or loose
federation"..."The motives for creating an empire vary greatly, but imperialism in itself
should not be confused with colonialism, which is a specific form and motive for holding
political control beyond national boundaries". (D. Robertson, "The Penguin
Dictionary of Politics", Penguin Books, 1985)

MODERNIZATION THEORY AND THE LAWS OF SOCIAL CHANGE (notes)

by Róbinson Rojas) (1996)

MODERNIZATION THEORY AND THE PACIFIC (OR VIOLENT) TRANSITION

TO INDUSTRIAL CAPITALISM

Modernization theory is the historical product of three main events

in the post-World War Two era:

1) the rise of the United States as a superpower to contain the

growth of the international communist movement. For this,
the United States financed the industrialization of Western
Europe ( Marshall plan), the industrialization of South Korea
and Taiwan, and the reconstruction of Japan.

2) the growth of a united worldwide communist movement led from

Moscow and later on also from Beijing (with Soviet Union,
People's Republic of China, Vietnam and Cuba as hot points).

3) the process of de-colonisation in Africa and Asia as an outcome

of the disintegration of the former European colonial empires.
By and large, including Latin American states which decolonised
themselves between 1804 and 1844, the new nation-states were in
a search for a model of development.

Thus, the United Sates political and economic elites encouraged

their social scientist to study the new nation-states, to devise
ways of promoting capitalist economic development and political
stability, defined as "social order", SO AS TO AVOID LOSING THE
OLD AND NEW STATES TO THE SOVIET COMMUNIST BLOC.

United States political scientists, economists, sociologists,

psychologists, anthropologists, and demographers teamed up and
started publishing since the early 1950s.

They adopted

a) an EVOLUTIONARY THEORY, and

b) a FUNCTIONALIST THEORY

a) the classical evolutionary theory ( see Comte et al) stated

the following:

1) social change is unidirectional, from a primitive to an

advanced state, thus the fate of human evolution is
predetermined.
2) it imposed a value judgement on the evolutionary process:
the movement toward the final phase is GOOD because it
represents PROGRESS, HUMANITY, and CIVILIZATION, the latter
three concepts defined in accordance with Western European
cultural parameters.
3) it assumed that the rate of SOCIAL CHANGE is slow, gradual,
and piecemeal. Most importantly, social change, in
accordance with Charles Darwin approach to biological
development, was EVOLUTIONARY, not REVOLUTIONARY.
4) from above, the process (from primitive to complex. modern
societies) will take centuries to complete.

b) Functionalist theory, as presented by Talcott Parsons, 1951, had

the following tenets:

1) human society is like a biological organism, with different

parts corresponding to the different institutions that make
up a society;

2) each institution performs a specific function for the good

of the whole, thus there are FOUR CRUCIAL FUNCTIONS that
every institution must perform to maintain the social fabric:

a) adaptation to the environment -performed by the economy,

but not any economic system,
only capitalism can adapt
to the environment

b) goal attaintment -performed by the government, pursuing

 liberal aims as defined by English and
French thinkers.

c) integration ( linking the institutions together) -performed

by the legal institutions and religion. But
not any religion. Branches of the judeo-
christian religions were the right ones.

d) latency ( pattern maintenance of values from generation

to generation ) -performed by the family as an
ahistorical basic human organization, and
education.

From the above, functionalist theory stated that societies tend

to harmony, stability, equilibrium and the status quo. Any
behaviour jeopardizing these conditions will be considered anti-social
and therefore punishable, etc.

Modernization theory characterised societies as follows:

TRADITIONAL SOCIETIES: social relationships tend to have an

affective component -personal, emotional,
and face-to-face, which is a constraint
in the process of developing efficient
relations of production via a market.

MODERN SOCIETIES: social relationships are NEUTRAL

-impersonal, detached and indirect,
which make possible efficient market
relationships, etc.

Functionalism, or its related theories of structural-functionalism

and systems theory, has been one of the most influential of all
social science theories, not only in political science and
sociology, but in anthropolgy. Like we saw, much of its origins
depends on analogies with biological systems, and in just the way
that a biologist might study the role of some physiological aspect,
some set of cells, in the maintenance of life, functionalists have
tried to understand what are the necessary "functions" that must
be carried out in any political system if it is to cope with its
environment and achieve its goals, and to locate the "structures"
(political parties, socializing agencies like churches, family,
etc) which facilitate the functioning.

One very important structure for modernization theory, the family

institution, have been conceptualized as follows:

THE TRADITIONAL FAMILY is multifunctional

was responsible for:
reproduction
emotional support
production (the family farm)
education ( informal parental socialization)
welfare ( care of the elderly )
religion ( ancestral worship )
 THE MODERN FAMILY is small and nuclear, the state take over the
education, welfare and religion functions
and the individual takes over production.
Reproduction becomes ambiguous, etc

SOCIAL DISTURBANCES appear when one or more sectors in the

"balancing chain" family-civil society-the state fails to
fulfil its functions. The social disturbances are the
result of lack of integration among what were thought by
modernization theory followers as "differentiated structures".

The disturbances take the form of:

peaceful agitation
political violence
nationalism
revolution, or
guerrilla warfare

It follows that crushing human beings involved in these

social disturbances takes the form of "humanitarian actions" to
preserve social order and social peace to maintain the
balance family-civil society-state.

It is interesting to notice that in the bureaucratic

socialist state - equivalent to the crude notion of "stalinist
state", first in the former Soviet Union, and then in People's
Republic of China -, the same notional framework of "disturbances"
was at work,except that the state enjoyed the dual-status of civil society
and family. (See my books "La Guardia Roja Conquista China", 1968,
and "China: Una Revolucion en Agonia", 1978, for a more scientific
approach to this phenomenon)

THE GENERAL SOCIOLOGICAL AND ECONOMIC PERSPECTIVE

N. Smelser (see his "Mechanisms of and adjustments to change", in

T. Burns (ed.), INDUSTRIAL MAN, Penguin 1969), and W. Rostow (see
his "The Stages of Economic Growth: A Non-Communist Manifest",
Cambridge University Press, 1960) attempted to provide more general
perspectives. Smelser was concerned with the effects of economic
development ( for Smelser, economic development had the restricted
meaning of economic growth ) on social structures.

Smelser distinguished four processes:

1) there was a move from simple to complex technology

2) there was a change from subsistence farming to cash crops
3) there was a move from animal and human power to machine power
4) there was a move from rural settlements to urban settlements

For Smelser those processes would not occur simultaneously, and,

more, importantly, changes would differ from one society to another.
He added that "there was a variety of pre-modern starting points
and the impetus to change would also vary, being crucially affected
by tradition, thus leading to different paths towards modernization".
National differences are always important, even in the most advanced
stages of modernization, he stated, and added that "wars and natural
disasters, can crucially affect the pattern of development".

For Rostow, the processes of change were simpler ( actually

Rostow theory is one of the most simplistic, mediocre and
unscientific body of thought ever produced by the third rate
political economy of development coming from Western Europe and
the United States in the last 50 years. R.R.). He suggested that
"all societies can be placed in one of five categories, or stages
of economic growth":

The first stage: traditional society. Output is limited

because of the inaccessibility of science
and technology. Values are generally
"fatalistic", and political power is non-
centralized.

The second stage: The preconditions for take-off. There are

clusters of new ideas favouring economic
progress arising, and therefore new levels
of education, entrepreunership, and
institutions capable of mobilizing capital.
Investment increases, especially in transport,
communications and raw materials, with a
general direction towards commercial expansion.
But, in accordance with Rostow, traditional
social structures and production techniques
remain. There is the presence of a "dual
society". ( A fractured society in accordance
with my notional framework. R.R.)

The third stage: the take-off. Agriculture is commercialized,

there is a growth in productivity, because
that is necessary if the demand emanating from
expanding urban centres is to be met. New
political groups representing new economic
groups push the industrial economy to new
heights.

The fourth stage: the drive to maturity. Rostow said that

between 10 and 20 per cent of gross domestic
product is invested and the economy "takes its
place in the international order. Technology
becomes more complex and there is a move away
from heavy industry". Now production is not
the outcome of social necessity but of
the need of maximizing profits to survive in
a competitive capitalist market.

The fifth stage: mass consumption. The leading economic sectors

specialize in durable consumer goods and
services. At this stage, economic growth makes
 sure that basic needs are satisfied, and the
social focus changes to social welfare and
security.

Rostow thought of his theory as a dinamic one "that deals not only
with economic factors but also with social decisions and policies
of governments".

It seems to me (R.R.) that a review of Rostow's assumptions is

necessary at this stage:

1) modernization is a phased process, and the stages in this

process are common to all societies (thus, this assumption
put the theory outside historical development. R.R.)

2) modernization is a homogenizing process. There exist tendencies

toward convergence among societies ( which, of course, justifies
cultural imperialism by the central powers, R.R.)

3) modernization is an Europeanization or Northamericanization

process. The nations of Western Europe and the United States
are the models tha latecomers would like to emulate.

4) modernization is an irreversible process. In other words, once

"third world societies" come into contact with the Western
European and Northamerican societies, they will not be able
to resist the "impetus toward modernization". Towards adopting
capitalist relations of production, that is.

5) modernization is a progressive process. Modernization creates

agonies and suffering for many, but that is "the right price"
to pay.

6) modernization is a lenghty process. It is an evolutionary change,

not a revolutionary change.

7) modernization is a transformative process, societies must drop

traditional ways of thinking, traditional ways of human
relations. In a word, societies must drop traditional structures,
cultures and values, and adopt those of Western Europe and
Northamerican societies today.

It is not difficult to work out that some "simple implications"

can be derived from this theory which created to fight socialist
thought in the 1950s until today. I (R.R.) propose the following:

a) since the United States is MODERN AND ADVANCED and the Third
World is TRADITIONAL AND BACKWARD, the latter should take the
former as its model, and, of course, ask for guidance and
advice from the people leading the model.

b) because of the above, Third World societies should consider

their common enemies communist ideology and socialist economic
 theory.

c) modernization theory helps to legitimate as progressive and

necessary the United States' ruling class "foreign aid policy",
"trade policy", and "international relations policy", and the

U.S. expansionism (imperialism) since the XIX century, especially

in Latin America and the Pacific, as a "modernizing" drive
helpful to the whole human species.

(This is what a I mean by "the view from the top". R.R.)

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