@Maphusio- Your argument about water doesn't really work except in the idea that whether it is a good year or bad year in Africa depends on the rain. With the rain you have agriculture. But that doesn't explain why agricultural products are so heavily taxed that they are no longer competitive. Read Bates, suggested below, for an answer. And while the Sahara was once a grassland and not a desert, that time passed a long time ago. I am not saying that the environment isn't important. But again, the two "successful" cases in Africa- one is Botswana- a country that is primarily a desert.
Baboon- The problem with CCR is not that he is retarded. He's not. I wish I had more students of his age that were as thoughtful or willing to engage in discussion. The problem with CCR is that he's often too stubborn and ideologically committed. To not be willing to consider criticism of free trade is just silly, especially when you are at an age when you are still learning about the world.
OK-
This is primarily a long answer to both John and Ratty, and meant more to get you guys thinking about your points rather than give you a clear answer.
The problem for both of you, Ratty and John, is that you are each a bit one dimensional in your views. Ratty blames the IMF and external agents for most of the problems of his country. The politicans are merely agents of international forces, conspirators in the game. This is very Dependency Theory.
John is looking primarily at domestic variables as the cause of the problems, and ignoring that external forces may be driving those problems as well. Your argument places the blame on the nature of the states that fail to create a substantial middle class, which supports a liberal argument that is supportive of free trade but is not paying heed distortions that free markets can create.
To a certain extent you are both right- there are both external and internal variables at work. The question is really about what is the mix. But the argument is a central one to political economy and the economics of the developing world.
John Uskglass said:
No offence, but I automatically stop reading when someone calls free trade a bad thing. Go worship at the idol of Lou Dobbs.
Perhaps you shouldn't be so closed minded. Free Trade can be a good thing. But it can also cause signficant problems for other countries. The Gershenkron "Late Development" theory points out that states sometimes need to intervene in the economy to get things going.
And while the liberal west often criticizes those who doubt Free Trade theory, most of the developed states have variations of state intervention as well. Simply put, a state can't afford not to regulate its economy or give incentives to keep its economy moving. Sometimes those incentives are given for purely political reasons- which can lead to problems (and thus is a good reason to support Libertarian arguments). But sometimes the free market leads to externalities that the primary beneficiaries of the econonic exchange can tolerate because they become a burden on their parties. IN other cases markets simply fail to provide some of the essential services that individuals, social groups and factions, or economic classes expect. This leads to the political problems of economic development and the creation of institutions- a process shaped by the struggle over distribution of material assets by social actors.
The economic crisis in sub-saharan African nations is much more due to the lack of a middle class created by Mercantilist trade policies and handouts to outrageously corrupt governments resulting in a lack of need for native products.
True there is a lack of a middle class in most countries- but most of the money is not handed out, and even if they could produce industrial goods (a big if) there is doubt that local markets alone would work. Many of the goods that go to much of African society don't necessarily come through official/formal channels. ANd while I agree that mercantilist policies (both domestic and international) shape those economies and their corruption, that doesn't explain the origins of those economic policies.
So unfortunately, this is only partially right. You are right that many governments are corrupt. This leads to what Bayart calls "the politics of the Belly." However, we often forget that the first wave of new governments in Africa were democratically elected. We also fail to account for the many times that countries started with some middle class and that class died out. WHich begs the question- how did we get to where we are now?
It also doesn't make much sense rationally- why would African state leaders wish to perpetuate a process or condition that correlates strongly with coup d'etat if they didn't have to? Considering that coup d'etat is probably the first or second leading cause of regime change in Africa, and most successful coups lead to the death of the incumbant and members of his class, it would behoove an African leader to avoid these problems in the future. So why don't they?
John, you might want to look at Robert Bates- States and Markets in Tropical Africa for a read. There are others I could suggest. But the short answer is not enough. You might also want to check out THe Precarious Balance, I think by Ravenhill.
But lets get back to that problem of primary products and corrupt regimes.
Perhaps we might learn something from other states- Botswana and Mauritius- two of Africa's best performing countries. IN both countries the states were built becuase classes made a number of significant 'bargains' early in their independence. Both states were dependent on the export of primary products (Botswana remains so). Mauritius was able to intervene successfully to move from a sugar based economy to a more diversified economy. In addition the country has been able to provide significant social services, reduce unemployment, reduce ethnic violence and have a number of free and fair elections leading to government transition. Botswana also intervened- increasing the quality of life for most of its people (despite huge AIDS problems), increase infrastructure, have elections (though no real change of regime), gain significant control over primary exports, and begin the process of diversification and industrialization (although it suffers significant challenges from South Africa which can offer better and more lucrative tax credits and incentives to foreign firms). It is also not a coincidence that both countries had virtually no military at independence (Botswana did build a military until the middle 1970s).
Both Mauritius and Botswana did better, not because they are dedicated to free trade, but because they intervened in their economies to make significant and long-lasting structural changes, because they were able to control export prices. Botswana has significant control over its diamond exports and significantly changed how it exports beef. Mauritius' intervention into the sugar trade was initially opposed by economic elites, yet it is those same elites who benefitted by channelling profits into productive enterprises. Rulers also lacked coercive force to apply against the political opposition, thus keeping political violence out of the political game. This forced rulers to make bargains with both dominant and subordinate economic classes in exchange- economic growth and social services in exchange of extractable revenue. Finally, Botswana and Mauritius also benefitted from external agreements with foreign countries, primarily the EU,- the beef protocol to the Lome Convention for Botswna and the Sugar Protocol for Mauritius.
Compare that to, say Liberia and Congo- both countries which had shown tremendous growth prior to independence as sellers in the Post World War 2 economy. In fact, if you look at many African states and how they performed into the 1970s, many were making huge profits in commodity exports and could be labelled developmental- if we only look at GNP growth. Yet both countries became caught in years of civil war and coup d'tate which not only created their instability but the instability of neighbors. Why?
IN part because those countries couldn't undertake the political bargains found in Mauritius and Botswana. The first five years of COngo were marred with significant internal conflict as major social and ethnic groups could not agree about the constitutional form of the state (sounds a bit like Iraq). Eventually order was restored when Mobutu came to power- one of Africa's most successful predatory rulers. In Liberia, the American Liberians had dominanted other social groups for years creating lots of grievance. When the commodity prices dropped, these countries were incapable of sustaining economic development or adjust to change- leading to crisis. Liberia had a coup led by Samuel Doe, and then the US bankrolled Doe for ten years until he was no longer useful to us in 1989- the same year that Taylor invades. In Zaire, the US bankrolls Mobutu and the French and Belgians drop paratroopers to spare him during the 1970s crisis. Mobutu survives longer because he's better able to control the market on lootable commodities. Where did these dictators get their money- international lenders of last resort, the US, foreign parties.
Ok, so back to that problem, if its about state intervention it is also about the nature of that intervention. The Asian Dragon economies- South Korea, Taiwan, Japan, Singapore- have prospered not because of free trade. True they did benefit from export-led growth. But their growth was chaperoned by states that were eager to create more productive enterprises. Not that this is without problems- see Kang's Crony Capitalism. For example, it was not uncommon in South Korea for the major companies to make significant contributions to politicans.
South Korea illustrates an important point- Corruption exists in both the winners and the losers of the developing world, just as it exists in the developed. The question is not whether the country is corrupt, but the nature of the corruption, or how that corruption causes problems.
But compare that to South America. Much of the criticism of liberalism in the countries of South America mirror what Ratty has laid out. But many of those companies had very close ties between economic elites and political elites through rather corporatist structures. That led to corruption as state intervention was often more for political than economic goals.
Which raises two problems- (1) Do we count on economic growth merely in terms of GDP rates or also in GDP per capital and quality of life issues? (2) Could these countries have done better had liberalization policies (free markets, privatization, deregulation) had not been so thoroughly pushed through.
Graz'zt said:
Having read a number of articles on the process globalization and roles of international monetary organizations - specifically, International Monetary Fund and World Bank - in it, I have been further assured in a very upsetting conviction; that IMF and World Bank, organizations which supposedly aid developing countries financially, are in fact imperialist mechanisms employed by corporate conglomerates to extract profit out of said countries, economically and politically devastating them in the process. This destructive practice is very methodical and occurs in four stages:
This fits the old IMF/World Bank is bad. Yet, this is not completely true Ratty. Be careful not to ignore the many good things that the IMF/World Bank have done. Of the two, World Bank has been more beneficial than the IMF. ANd also be careful that the links between the international lenders and the corporate giants are not so tight as you may argue.
That said, their is a good reason why the prevailing philosophy of those organizations is called "the Washington Consensus," or Post-Washington Consensus.
THe problem of conspiracy theory is that it is overdeterministic- you are looking for links that may not exist. This doesn't mean they don't exist, but here is a good case were ontology shapes epistemology.
1. With help from lobbies formed of corrupt politicians and local "businessmen", IMF and World Bank push the government into selling state-owned banks, telecommunication and media companies, oil companies, electric and transportation grid etc. to foreign corporations at unreasonably low prices. This isn't something that happens at random; before IMF and World Bank are willing to grant loans, the government must sign a series of secret contracts that stipulate necessity of "market liberalization". There is in fact nothing "liberal" about the process - old monopolies are still retained, it's just they are now controlled by foreign corporations which tend to be even more unscrupulous than the state.
But why do the World Bank IMF push government into these types of liberalization policies in teh first place? Perhaps because prior government intervention has led to such distortions in their economic performance that they are no longer internationally competitive? This is true of many South American companies that were protected by their states and thus not internationally competitive. The state charges high import taxes to create a more even playing field for domestic companies, but paid for by consumers.
As for the conditionalities- yes those organizations require that the states cut back on their social spending and economic practices. Consider, for instance, that the IMF/World Bank pushed the Suharto government of Indonesia to end its control over the leading banks of that country (which had been used as an instrument by which the Suharto family owned a piece of every major economic enterprise in that country). When they forced the government to end subsidies on kerosene- used as a cooking fuel- the people rioted and the government fell.
IN many cases these countries would not be trouble if they didn't have significantly bad policies to begin with- often because of the tight relationship between economic and political elites. The IMF/World Bank are lenders- they do want the money paid back.
That said, yes- once the state-owned companies are sold their are either the subject of scavenger companies that will take the more lucrative assets and leave behind the bones, or they are bought out by new, foreign companies. WHile these companies may make significant changes to the formerly state-owned, this often leads to higher prices for society. But also, much of their profits are repatriated back to the foreign companies home- the US, Europe and Japan.
The move of profits is a problem because that capital could be reinvested in productive sectors of their own country, allowing for further development. Yet for countries to limit the ability to repatriate profits makes those countries less attractive as sites for Foreign Direct Investment. IN a world of mobile capital, its' the most attractive country that gets the investment- a significant structural impediment of the international structure.
But this also raises the question of why the World Bank/IMF support these policies. Political policies are also a form of institutional rule- and institutions are a consequence of distributional conflicts between actors over material gains. So who are the actors who get to shape these policies?
2. Once all the national infrastructure is in hands of foreign monopolists, prices of electricity, communications and similar commodities skyrocket and poverty increases. At the same time, the state is pressured into decreasing social welfare expenditures, particularly those in healthcare sector, for retirement funds and aids for the unemployed (who begin to abound).
Yep- this is part of the problem. Especially in economies where the state has less extractable revenue and thus limited ability to adjust to market dislocations or respond to negative externalities.
THe other problem is that the states become less capable of controlling their economies- they lose sovereign power. This is where the argument of neo-imperialism comes in. But the question is whether this imperialism is creating a heirarchical international order?
It is note worthy how these policies come at the benefit of foreign, usually western, companies.
YOu might also want to consider that these policies- of making lots of liberal changes at the same time- is the right way to go. This practice, called 'shock therapy' was done in Poland and Peru. THe argument behind making all these liberal changes is that the difficulty of economic adjustment requires dramatic and wide ranging reforms or the economy will not be transformed.
3. The country is admitted into various free trade associations. Borders open for trade and market is flooded with import products. The pressure on national economy (or rather what's left of it) is simply too high and domestic companies go out of business en masse. Domestic industry dies off and economy is on its knees. Shards of ruined economic subjects are sold to foreigners at meager prices. Instead of being reinvested into the economy, all profit is drained out of the country with help of companies and projects which are started for purpose of money laundering. Loans given out to the state by the World Bank are spent on funding the often bloated bureaucracy and purchasing overpriced equipment and services from foreign contractors (some Croatian examples - Enron's investment in the power plant in Jertovec and Bechtel's contract to build a grid of highways). These contracts are acquired illegally and with help from domestic lobbyists.
Much of this is the scavenging and deconstruction of foreign buisness discussed above, plus repatriation of profits and capital.
Actually the World Bank often favors cutting back on bloated bureaucracies- But why are bureaucracies bloated and often rent-seeking rather than developmental? COuld it be that the government has used the bureaucracy not as a means for furthering the development or economy and social life, but rather as a means to sustain favor, to create more personalistic ties, to find new avenues of rent seeking to the ruling class, and perhaps as a means of patronage to clients?
As for the illegality of contracts- consider that many of the companies that were privitized in the former soviet union went to members of the communist party, or that the members of the communist party of China are also members of its economic elite. Do you see the connections?
4. In order to reap whatever rewards remain to be reaped in the target country (oil, electricity...), IMF pressures the government into giving tax breaks which are primarily beneficial to corporations. If the government doesn't relent, IMF and World Bank, with help of the United States government and CIA, attempt to stage a coup d'etat in the insubordinate country. The country, already troubled by poverty and other difficulties, is further destabilized by inciting massive strikes, riots and demonstrations (Remember Argentine?). The ensuing state of disarray creates ideal conditions for a regime overthrow. Foreign centers of power signal contenders for new regime that they will support their ascension. CIA actively participates in this phase. Though such extreme measures are seldom necessary, they aren't unheard of. Example: in April 2002, when Hugo Chavez, the president of Venezuela, refused to decrease taxes for oil companies and redirected a larger portion of government funds to social programs instead, IMF announced that they would support an alternative government both declaratively and financially, thereby encouraging the army to overthrow the Chavez regime. Though the attempt to depose Chavez failed, such scenario could realistically happen in any country indebted to IMF.
This might be a bit overstated. Certainly the US has had a hand in coups. But it has also worked against coups. In Francophone Africa, it was often France that decided whether a regime stays or goes.
Coup d'etats are always military projects, simply because that is their political tool. Students protest, workers strike and riot, business leaders bribe, and the military launches coups. Your political action depends on the type of resources you possess.
Military coups are often legitimized as "necessary to safeguard the public good." Because they see themselves as the guardians of the public and social order, they will intervene to make things right. Often this is a disaster as military leaders are usually incompetent political leaders.
More honestly, military coups often occur because the military feels threatened with being 'left out' in the distribution of political and economic spoils.
But to argue that all coups, or even most coups, are led by the US or are the responsibility of the US, oversimplifies this. I think your enthusiasm and drama are getting ahead of your analysis.
The reason why this issue vexes me so is because a similar scenario, with slight deviations, is occuring in my own country. All the ingredients are there. We have corrupt politicians and lobbyists who ensured all our national wealth is cheaply sold to foreigners.
Sometimes though, only foreign companies can afford to invest in poorly performing domestic companies. Bottom-line for business = profit.
We have governments that have on multiple occasions cut expenditures in welfare sectors.
Often because social spending leads to debt. To much debt leads to problems in terms of balancing accounts.
The tyranny you are looking for might be less about the tyranny of states than that of accountants.
We have a market flooded with import products and domestic industry in ruins.
But perhaps domestic companies were not competitive in the first place?
We have decreasing standard of living. We have a pauperized and increasingly disgruntled populace. All it would take is a bold individualistic move by our government in the field of economic policies and mass riots followed by a violent regime change would occur here too. Though I retain hope it won't come to that, I suspect it will be years before Croatia is free from clutches of IMF vultures. Generations will suffer in poverty because of our politicians' greed, incompetence and shortsightedness.
Our outlook is bleak indeed.
YOu might want to consider taking a look at Haggard and Kaufmans, The Political Economy of Democratic Transitions and Haggard's The Politics of Economic Adjustment.