Chris Harman


Where is capitalism going?
(Part two)

(Autumn 1993)

From International Socialism 2 : 60, Autumn 1993, pp. 77–136.
Transcribed & marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

(Continued from)

Eighty five percent of humanity live outside the advanced industrial countries. Any judgement about the future of capitalism is a judgement about what it does to them and how they respond. Twenty five years ago the economic orthodoxy was that capitalist market mechanisms could not bring about economic development in what was generally called the ‘Third World’. By contrast the command economies of the ‘socialist countries’ were seen as advancing without problems, regardless of the repressive political character of their regimes. As the staff of the World Bank now recall of ‘the dominant paradigm at that time’:

It was assumed that in the early stages of development markets could not be relied upon, and that the state would be able to direct the development process ... The success of state planning in achieving industrialisation in the Soviet Union (for so it was perceived) greatly influenced policy makers. The major development institutions (including the World Bank) supported these views with various degrees of enthusiasm. [1]

Just as Keynesianism was dominant within bourgeois economics in the advanced countries at the time, so statist, ‘import substitutionist’ doctrines were hegemonic when it came to the Third World. The main proponent of these in the 1940s and 1950s was the very influential United Nations Economic Commission for Latin America, directed by the Argentine economist Raul Prebisch. It argued that development could only take place if the state intervened to block imports from the advanced countries and to foster the growth of new local industries. [2] The market alone would only prolong stagnation and poverty. Proponents of anti-statist pure market theory existed, but their influence was marginal and they were very much on the defensive. So even a leading figure in the monetarist ‘Chicago school’, Harry Johnson, could accept in the 1960s that ‘in some cases the prospects for genuine economic growth are so bleak that nationalism is the only possible means for raising real incomes’. [3]

If these were the views of powerful defenders of the international bourgeoisie, it is hardly surprising that the common sense of the left became that capitalism was incompatible with economic advance in the Third World. The case was powerfully put by people like Paul Baran and Andre Gunder Frank. Baran argued:

Far from serving as an engine of economic expansion, of technological progress and social change, the capitalist order in these countries has represented a framework for economic stagnation, for archaic technology and for social backwardness ... [4]

The establishment of a socialist planned economy is the essential, indeed indispensable, condition for the attainment of economic and social progress in underdeveloped countries. [5]

Frank was just as adamant:

Short of liberation from this capitalist structure or the dissolution of the world capitalist system as a whole, the capitalist satellite countries, regions, localities and sectors are condemned to underdevelopment ...

No country which has been tied to the metropolis as a satellite through incorporation in the world capitalist system has achieved the rank of an economically developed country except by finally abandoning the capitalist system. [6]

‘Socialism’ for Baran and ‘breaking with capitalism’ for Frank meant following the model of Stalinist Russia. [7] But even those who opposed ‘socialism in one country’ from a revolutionary perspective accepted part of the argument. In a powerful article in 1971 Mike Kidron proved the incapacity of Stalinist state capitalism any longer to be able to develop backward economies – a proof well vindicated by subsequent developments in countries like Mozambique, Vietnam, and, above all, Kampuchea – and drew the conclusion that this meant there could be no development without a break with capitalism internationally. This was ‘the end of a terrible illusion, held as fervently by many seeming revolutionaries as by members of the more orthodox schools: that economic development in backward countries is possible without revolution in the developed ...” [8]

So pervasive was the view that ‘capitalism means underdevelopment’ that people read it back into some of the Marxist classics – despite arguments by Lenin and Trotsky to the contrary. Baran quoted Lenin to back up his case, while even someone as perceptive as Nigel Harris could write in 1980, ‘the Bolsheviks in 1917 believed the role of the national bourgeoisie was exhausted. In this context that means the bourgeoisie could no longer fulfil its “historic tasks”, namely the creation of capitalism’. [9]

The established view was not, however, long lasting. In the 1970s it was dealt heavy blows from two sides. On the one hand, the state directed model of economic development entered into crisis. In Asia the tightly regulated Chinese economy and the less tightly regulated, but still centrally directed, Indian economy both began to stagnate, forcing governments to look for alternatives; in Latin America the import substitutionist model was found wanting in its Argentine homeland as economic and political crises erupted; in Africa state direction could not break the vicious circle of underdevelopment, impoverishment, political corruption and dictatorship.

On the other hand, a number of countries which oriented themselves to the world market experienced very fast growth. In Asia four bastions of anti-Communism – South Korea, Kuomintang Taiwan, Hong Kong and Singapore – registered growth rates easily as large as those in Stalin’s USSR. In Latin America the generals who had seized power with an anti-reformist coup in Brazil in 1964 presided over a decade and a half of massive industrial expansion. And in Europe countries like Spain, Greece and Portugal, which Baran had included in the underdeveloped world, grew rapidly enough to join that rich man’s club, the European Community.

The intellectual pendulum swung from one extreme to another. Those bourgeois economists who had opposed the fashion for state direction now found support from among the best known of their old opponents, as the Chinese politburo, the Indian Congress leadership, the Argentine Peronists and most of the governments of Africa became overnight converts to the market. It was not long before Marxists were following in their footsteps. Bill Warren had led the way in 1978 with a work which portrayed imperialism as a progressive force, advancing the forces of production right across the world. He was followed by many others.

In Latin America there has been a ‘visible right turn of many of the left wing (social democrat, populist, socialist) parties, their political leaderships and their ideologues – the latter primarily ex-Marxist intellectuals of the 1960s.’ [10] Even Andre Gunder Frank now preaches the gospel of European unity and praises the pro-market policies of the Chinese government, claiming they amounted to ‘enormous strides in the ... economic and political direction’ barely days before the Tiananmen Square massacre. [11] By 1991 when the editor of New Left Review – once a fervent Third Worldist – proclaimed the indispensability of the market, he was simply expressing the new orthodoxy of a great swathe of the old left intelligentsia internationally. [12]

The record of a decade

The central contentions of the new orthodoxy are summed up in the World Bank’s World Development Report 1991. It insists:

A consensus is gradually forming in favour of a ‘market friendly’ approach to development ... Competitive markets are the best way yet found for efficiently organising production and distribution of goods and services. Domestic and external competition provides the incentives that unleash entrepreneurship and technological progress ... If markets work well, and are allowed to, there can be substantial economic gain.

This does not mean that governments have no role. They ‘must, for example, invest in infrastructure and provide essential services for the poor’. But they should withdraw from productive activities and stop attempting to regulate international trade or the flow of investment. [13] Such views are not simply a matter of analysis. They also underlie the practical activities of the International Monetary Fund and the World Bank. When they are called on to help individual states with balance of payments or debt problems, they lay down as a precondition ‘stabilisation and structural adjustment programmes’ which implement the new orthodoxy. According to the orthodoxy, these are going to pay handsome dividends for the world’s peoples over the next decade:

The World Bank is forecasting a surge in developing countries’ growth rates over the next ten years, as a result of the often painful economic reforms they have undertaken. Growth in the developing world is projected at 4.7 percent a year over the period 1992–2002 compared to 2.7 percent in 1982–92. [14]

Similarly the IMF claims, ‘medium term economic prospects for the developing countries appear brighter than for decades.’ [15]

Such forecasts are repeatedly made, and just as repeatedly reported as ‘facts’ in the media, with headlines like ‘Bright outlook for Third World’ [16] or ‘India, reform pays off’. [17] Yet previous optimistic forecasts from the World Bank and the IMF have usually been way off beam, as graph 1 shows. Indeed, the World Development Report 1991 itself admits that ‘the 1980s were a difficult decade for most countries’. [18]

The latest report on the 47 least developed countries by the United Nations Conference on Trade and Development says: ‘Per capita incomes in the very poorest developing countries have fallen for the past three years ...’ [19]

Difference between outcome and forecast

But it was not just the least developed countries that suffered in the 1980s. Virtually the whole of Africa has been undergoing a 20 year long decline.‘Per capita GDP fell from $854 in 1978 to $565 in 1988; external debt rose from $48 billion to $423 billion ...’ [20] And devastation has even hit economies which were presented as the success stories of the 1970s. Nigeria’s industrial output fell by an average of 2.1 percent a year through the 1980s and private consumption per head by 4.8 percent a year – both had risen substantially in the 1960s and 1970s. [21] ‘Development’ has not stopped most people’s living standards falling to the same level they were at more than 30 years ago.

Nigeria might be thought of as an exception, since its fortunes were tied to its oil revenues, which declined with the fall in the oil price in the 1980s. But things have been no better in the Ivory Coast, ‘for a time the darling of the development agencies as its outward-looking policies generated growth. So strong was the economy in 1979 that one large multinational made 10 percent of its worldwide profits there’. [22] In the 1980s industrial output fell by 1.7 percent per year while foreign debt rose to $15 billion and the cost of servicing it to 40 percent of export earnings. [23] The real income of urban workers fell by 20 percent between 1978 and 1985, before ‘a new fall in the terms of trade brought the country back into recession and financial crisis’. [24]

Latin America – which contained by far the biggest of the ‘newly industrialising countries’ of the 1970s – suffered from massive crises through the 1980s, as can be seen from graph 2. There was a fall in GNP per person for the whole of Latin America of over 10 percent between 1980 and 1990. [25] Table 1 shows how accumulation proceeded at a much slower rate in the 1980s than in the 1950s, 1960s and 1970s.

GDP per capita

Table 1:
Latin America: Gross Non-Residential Capital Stock, 1950–89


(Annual average compound growth rates)





























Arithmetic average




(Source: A.A. Hoffman: Capital Accumulation in Latin America)

Some 76 countries implemented ‘adjustment programmes’ designed by the World Bank on ‘free market’ criteria in the 1980s. [26] Only a handful had better growth or inflation rates than in previous decades; of 19 countries which carried through ‘intense adjustment’, only four ‘consistently improved their performance in the 1980s.’ [26] In capitalism’s own terms the system was much less successful than it had once been.

For the mass of people living within the system the picture has been grim indeed. In 1990 44 percent of the Latin America’s population were living below the poverty line according to the United Nations Economic Commission for Latin America, which concluded there had been ‘a tremendous step backwards in the material standard of living of the Latin American and the Caribbean population in the 1980s’. [27] In Africa more than 55 percent of the rural population was considered to be living in absolute poverty by 1987. [28]

Just as devastating to the pro-market argument is what has happened in Eastern Europe and the former USSR since the turn to the market after 1989. The new ‘economic miracles’ promised by the reformers have not taken place anywhere. ‘The World Bank forecast that 1989 output levels in Eastern Europe would not be regained until 1996 ... By April 1992 we were being told that “pre-transformation levels of per capita GDP in Poland may not be reached before the year 2000”.’ [29] Even Hungary, which received ‘well over 50 percent of all foreign capital directed to central and Eastern Europe’ [30], experienced a quadrupling of unemployment to 9 percent in 1991 and was expected to see that double in 1992. [31]

If attention is focused on Africa, Latin America, Eastern Europe or, for that matter, the Middle East, then the conclusion has to be that only in rare and exceptional circumstances does the market succeed in restoring the old dynamic of capital accumulation, let alone lead to any improvement in the economic position of the majority of people. None of this has prevented proponents of ‘free market’ solutions to the world’s ills claiming that their remedies can work. They insist that if, for instance, none of the eight economic ‘stabilisation’ programmes in Brazil in the last dozen years have been successful it is because impediments to the market have remained as a result of governments failing to push reform programmes through to the end.

They have also seized upon any year on year improvement in output anywhere as proof that their remedies are succeeding – as with Poland’s 1 percent industrial growth in 1992 (after a 37 percent fall in the previous three years) or the upturn in Chile’s economy in the early 1990s. But their central argument has been to point to East Asia and important parts of South Asia. The World Development Report 1991 speaks of ‘the remarkable achievements of the East Asian economies’, of ‘various degrees of reform’ in China, India, Indonesia and Korea being ‘followed by improvements in economic performance’. [32] Samuel Brittan, of the Financial Times, has reassured his readers:

Someone who wants to cheer up should look, not backwards to the Great Depression, but to the developing countries of Eastern Asia which have contracted out of the world slowdown ... The four Asian ‘tigers’ are all estimatedto be growing by between 6 and 7.5 percent this year. Even the non-tiger countries have achieved a comparable performance. [33]

There certainly has been growth in these countries, both absolutely and in terms of output per head:

Table 2:
Average Annual Growth









GNP per head

South Korea




Hong Kong




























And the advantages of growth have not always been confined purely to the ruling classes in these countries. It makes no sense at all to talk of South Korea today as having ‘Third World living standards’. Real wages are probably between two thirds and three quarters of those in Britain [35] (although the average working week, at 47.4 hours [36], is substantially longer than in Western Europe and North America). In the early 1990s there were fewer beggars on the streets of Seoul than there are on the streets of London.

In China a surge of agricultural output [37] has increased the average food supply per head, raising it from under 2,000 calories a day (less than the minimum nutritional requirement) in the late 1970s to over 2,500 calories in the late 1980s (well above it). This is certainly an advance for a country where previously the great mass of people lived in a condition of near hunger, and stands in marked contrast to what has happened in, say, sub-Saharan Africa – where the daily calorie supply is 9 percent below minimum requirements and less than 25 years ago. [38] The advance is not only quantitative. There has also been an improvement in the average diet. For most people food does not any longer mean just rice, and consumption of pork, fish and vegetables has risen considerably. [39]

At the same time, many families now own consumer goods they could only dream about in the past. In 1978 only about one family in four had a radio or bicycle, let alone a TV or washing machine. [40] By 1989 most families in the cities owned a television (40 percent of them colour TVs), a bicycle and an electric fan, while two thirds had a washing machine and a sewing machine, and one in three had a fridge. [41] And even among the much poorer peasantry there was an average of a bicycle for every household, a sewing machine and a radio for half of them, and electric fans and TVs (nine times out of ten black and white) for more than a third. [42]

No wonder that pro-capitalist commentators look with hope at the East Asian economies, believing they will inexorably continue to expand. No wonder too that they fantasise about what the world would be like if only the ‘startling success could be replicated elsewhere’:

Billions of people in developing and formerly Communist countries could look forward to improved living standards. And the hope, eventually, of eliminating the scourge of grinding poverty would seem less quixotic. [43]

Yet there must be very serious doubts both about the likelihood of the East and South Asian economies continuing to grow through the 1990s as they did in the 1980s and about the possibility of their example being generalised to the rest of the underdeveloped world.

Capitalism and the ‘Third World’

If the old ‘development of underdevelopment’ view was wrong to claim that capitalism could never develop any fresh parts of the globe, the new pro-market orthodoxy is absolutely mistaken in its belief that development will occur if only obstacles to the ‘free market’ are removed. When capitalist production using waged labour begins to take root anywhere there is at least some degree of accumulation, of the transformation of living labour into means of production, and therefore ‘development’. But the new capitals cannot avoid competition with the much larger capitals which already exist elsewhere in the world system. And so, just as the productive power of a certain region grows, it is subjected to the dynamic of the wider system – the booms and slumps, the spells of frenzied accumulation of capital and the spells of dizzy destruction of capital, the national rivalries and the wars.

Classical Marxism always understood the contradictory character of such development. It understood that the first effect of Western capitalism forcibly opening up colonies to the world system was often not economic advance, but regression as the old ways of producing wealth were destroyed and little put in their place – as with the destruction of the old Inca and Aztec civilisations in Latin America, the slave trade in Africa, the pillaging of Bengal by the British. [44] What is more, the colonial powers often then sought to maintain their rule through alliances with wasteful, unproductive and parasitic groups among the colonised population – as with the ties the British authorities established with the zamindar landlords and the rulers of the princely states in India.

But that was never the whole story. By destroying the old societies, the Western powers made room for capitalist exploitation and, therefore, accumulation. The process was often very slow (as was the original development of capitalism out of the feudal system in parts of Europe). Colonial rulers could obstruct it when it contradicted their own looting or alliances with privileged parasitic classes. But they could not stop it completely. There was a market for luxury goods among both the Western colonists and the old parasitic groups, and there were profits to be made by organising production for this market using wage labour. Some members of old indigenous merchant and artisan classes began to see this and to undertake production on a new basis, while some Western capitalists saw advantages in adding surplus value from production in the colonies to what they got from production in the advanced countries. As capitalist production began its slow advance, it in turn created a market, albeit at first a small one, for the basic means of consumption (bread, lodgings, clothing) among a new class of urban workers.

Over time the growth of such markets was bound to persuade some farmers, and occasionally some landowners, to turn to elementary forms of capitalist agriculture. As Marx wrote of the impact of British colonialism in India:

England has a double mission in India: one destructive, the other regenerating – the annihilation of old Asiatic society and the laying of the material foundations of Western society in Asia ...

The historic pages of their rule in India hardly report anything beyond the destruction. The work of regeneration hardly transpires through a heap of ruins. Nevertheless it has begun ... [45]

He pointed out that even though the British cotton manufacturers only wanted railways in India to extract raw materials:

When you have introduced machinery into the locomotion of a country which possesses iron and coal you are unable to withhold it from fabrication. You cannot maintain a net of railways over an immense country without introducing all those industrial processes necessary to meet the immediate and current needs of railway locomotion, and out of which there must grow the application of machinery in those branches of industry not immediately connected with railways. The railway system will become, in India, truly the forerunner of modern industry. [46]

This did not, however, lead him to believe that Indians should simply submit to colonialism. He understood only too well that capitals based in Britain would use their political influence over the colonising state to hinder the advance of rivals in India:

The Indians will not reap the new elements of society scattered among them by the British bourgeoisie till in Great Britain itself the now ruling classes shall have been supplanted by the industrial proletariat or till the Hindus themselves have grown strong enough to throw off the English yoke altogether. [47]

Lenin’s Imperialism assumed capital would flow from the advanced countries to the less advanced: ‘The export of capitalism greatly affects and accelerates the development of capitalism in those countries to which it is exported ...’ [48] But he too saw this was not the end of the matter. Such a growth of capitalism also drew the backward countries into the economic crises and the disastrous wars that beset the old capitalisms. Trotsky spelt all these arguments out in much greater detail in 1928, when polemicising against Stalin and Bukharin:

Capitalism inherently and constantly aims at economic expansion, at the penetration of new territories, the surmounting of economic differences, the conversion of self sufficient provincial and national economies into a system of financial inter-relationships. Thereby it brings about their rapprochement and equalises the economic and cultural levels of the most advanced and most backward countries. Without this main process, it would be impossible to conceive ... the diminishing gap between India and Britain ... [49]

Writing of Kuomintang China, Trotsky referred to ‘the extraordinary rapid growth of home industry on the basis of the all embracing role of mercantile and bank capital; the complete dependence of the most important agrarian districts on the market; the all-sided subordination of the Chinese village to the city – all these bespeak of the unconditional predominance, the direct domination of capitalist relations in China’. [50] His account – which foreshadowed the conclusions of recent studies of 1920s China [51] – stands in sharp contrast to Baran’s claim that ‘a republic of the Kuomintang variety ... has nothing to hope for from the rise of industrial capitalism ...’ [52] But Trotsky also insisted that the world system necessarily reacted on the underdeveloped world in negative as well as positive ways:

By drawing countries economically closer to one another and levelling out their stages of development, capitalism operates by methods of its own, that is to say, by anarchistic methods which constantly undermine its own work, set one country against another, one branch of industry against another, developing some parts of the world economy while hampering and throwing back the development of others ... Imperialism ... attains this ‘goal’ by such antagonistic methods, such tiger leaps and such raids upon backward countries and areas that the unification and levelling of world economy which it has effected is upset by it even more violently and convulsively than in the preceding epoch. [53]

The stages of capitalist development

The interaction of domestic capital accumulation and the world system has led to a number of stages of capitalist development. The first Third World capitalists faced some obstacles which their forebears in Europe had not. They usually began by exploiting wage labour in industry and accumulating on a small scale, as do most new capitalists. Yet they faced competition from the goods produced by established Western capitalists operating with relatively large capitals. The new industries which they established therefore often led a very precarious existence, as do those anywhere owned by small capitalists. Even when they discovered new markets or new products, they could find they acted as little more than pathfinders for bigger, Western, capitalists who would then enter the new line of business and drive them out. What is more, these competitors had political influence over the colonial state and would use that influence, when necessary, to help them succeed against the newcomers.

The new capitalists found the dice loaded against them. And there could be a vicious circle of underdevelopment. Every failure in one sector of the economy reduced the markets available for local capitalists setting up in other sectors. Industrial stagnation, or even regression, could easily become the norm as the old mode of production was destroyed and the new one was unable to take root. This was the particle of truth in the old ‘development of underdevelopment’ theory.

But there were occasions when industrial development did take off. And the failures were not because capitalism automatically favours the ‘metropolis’ and causes the ‘periphery’ to stagnate. Rather it was because particular established capitalist interests were in a position to keep out new rivals. Historically, the first big spurt of industrial development in places like India and China took place during the First World War, when the disruption of much foreign trade suddenly freed indigenous industries from more advanced competition.

In many countries the progress continued until the early 1930s when the great slump in the advanced counties suddenly destroyed much of the market for foodstuffs and other raw materials, caused a huge drop in Third World incomes and threw whole economies backwards. Faced with the danger of immense social turmoil and unable to balance their own books, some governments, particularly in Latin America, reacted pragmatically by trying to cut themselves off from external destabilising pressures. They imposed very tight controls on imports, refused to repay foreign debts and used the power of the state to redirect resources from some industries to others. These measures had the effect of recreating the situation that had been created by accident during the First World War, enabling local industrial enterprises to expand without fear of competition from more advanced firms abroad. Within a couple of years of the adoption of the new measures, the local economies moved from slump to boom.

It was an example which was widely followed in the first two decades after the war. ‘Import substitutionism’ – and with it varying degrees of state capitalism – became the norm not merely for Latin America but for newly decolonised countries like those of South Asia and Africa, and for the East Asian states of South Korea and Taiwan. For a number of years the policy seemed to work. ‘The data show considerable advances were made in the degree of industrialisation’ [54]; ‘the performance of all developing countries actually improved between the 1950s and the 1960s’. [55]

But in the late 1960s changes in the wider world system began to throw the strategy into crisis. Agricultural advance and increased industrial efficiency in the developed countries reduced their dependence on raw materials, Third World commodity prices fell (except for a brief upward surge in 1973–4), as graph 3 shows, and with them the export earnings needed to pay for the industrialisation drives.

Terms of trade of developing countries

It was then that, more by luck than by judgement, a number of states stumbled upon another development strategy, directing resources into certain industries which found niches for exporting manufactured goods to the advanced countries. This was, for instance, the path South Korea began to follow after the establishment of the Park dictatorship in the early 1960s and Brazil after the military coup of 1964.

Not all the Third World states could follow the new ‘export oriented strategy’ at the time. In some the state was not powerful enough to divert resources from old landowning classes to industry of any sort: significantly, the successful Asian NICs were either city states (Hong Kong and Singapore) without a landowning class, or countries where the military had been prepared to carry through a radical land reform in order to strengthen its own position (Taiwan and South Korea). In some the import substitutionist stage had simply not built up industry sufficiently to compete internationally. In some the opposition of those industrialists who had benefited from import substitutionism prevented a different approach. In any case, if all the Third World states had hunted for ‘niches’ there would not have been enough to go round! But none of this stopped ruling classes, and their ideologists, who not so long before had extolled ‘import substitutionist development’, now opting for the free market and the ‘export oriented model’.

The contradictions of neo-liberalism

The most widespread form of the pro-market ideology is what is often called ‘neo-liberalism’ – the word ‘liberal’ not being used in its normal Anglo-Saxon sense of ‘vaguely progressive’, but rather to refer to the ideal of an economy with minimal state controls on business activities. It is the set of ideas common to Thatcher and Reagan, Pinochet and Menem, Klaus and Yelstin, and the leaders of the Baltic states, Poland, the Czech republic and Hungary. And it underlies the various World Bank ‘adjustment programmes’ which debtor states have to accept if they are to receive International Monetary Fund support.

At the centre of the neo-liberal view is the contention that the state should withdraw from direct economic activity. Its role is to facilitate the free play of the market, not to intervene in the market and still less to undertake productive activities on its own. The prevalence of these ideas today has led some Marxists, in this country notably Nigel Harris, to conclude that we are in a new period of capitalism, in which the members of an increasingly international capitalist class no longer need to root themselves in rival national state machines. The era of state capitalism and, by implication, imperialism, is at an end.

But the reality of the capitalist world is very different to the neoliberal ideology. The state still plays a mediating role between the local economy and the wider system, seeking to exert pressure to prise open foreign markets for local products, to mobilise local resources to take advantage of these markets and to entice multinational capital to set up shop in one country rather than another. In the process, the state’s role can be as great, even if differently exercised, as in the previous period of import substitutionism.

A recent important study of the interactions of multinationals and states by Stopford and Strange has concluded:

Growing interdependence now means that the rivalry between states and the rivalry between firms for a secure place in the world economy has become much fiercer, much more intense. As a result, firms have become more involved with governments and governments have come to realise their increased dependence on the scarce resources controlled by firms. [56]

The rulers of states need to maximise the resources at their own disposal if they are to buy support from a section of the population and ward off challenges from below. Increasingly, they can only do so if they can reach a bargain with the multinationals about the development of new means of production. But there is no easy way to achieve this goal. The neo-liberal doctrine of simply abandoning all government constraints on trade and opening up the economy to any multinational which wants to operate in it does not offer any guarantees of success.

Neo-liberalism assumes that the reforms will attract investment from firms which in turn will lead to stable economic expansion. But the reality can be very different to this. As Stopford and Strange note:

As firms harness the power of new technology to create systems of activity linked directly across borders, so they increasingly concentrate on those territories offering the greatest potential for recovering their investment. Moreover, in a growing number of key sectors, the basis of competition is shifting to emphasising product quality, not just costs. Attractive sites for new investment are increasingly those supplying skilled workers and efficient infrastructures ... [57]

These problems are most felt in the poorest regions of the world, especially Africa. However much they dismantle their old, protectionist, import substitutionist policies, they still remain unattractive to the multinational they want to woo: ‘Small, poor countries face increased barriers to entry in industries most subject to the global forces of competition’. The result is that ‘small, poorer countries cannot afford the luxury of letting market forces determine outcomes’. [58]

These countries are, in fact, usually in a no win situation. Import substitutionism was never going to be a successful option for them because of their limited internal markets. But the chances of breaking through with the export oriented strategy are little greater, despite all the admonishments from the World Bank and the International Monetary Fund. For they have little to offer multinational investors apart from cheap labour, yet many competitors offer the same. Even when they persuade multinationals to invest, such states rarely have the clout to prevent them changing their mind and moving elsewhere.

The multinationals are themselves subject to global competition, which is continually making them reassess their own priorities. They will invest in a particular country in order to open up certain markets – but then see the possibility of even bigger markets if they switch their investment elsewhere. What were enclaves of growth in a Third World country can suddenly become abandoned ghettos of decay. And there may be very little the governments of poor countries can do about it.

Hong Kong and Singapore, long established trading centres with favourable locations and very good international communications, stand almost completely alone in the world as the only small states to industrialise. Elsewhere the experience has been that of the central American republics, the great majority of Caribbean islands and of almost all of Africa – of limited growth during the world boom of the 1950s giving way to stagnation, and now often decline. No wonder even the World Bank can complain that ‘the results of market reforms have often proved disappointing in the developing economies.’ [59]

The big NICs

The neo-liberal ideology justifies itself by referring to the rise of the NICs. Yet the NICs themselves (except for Hong Kong) have not followed neo-liberal policies. Capitalist development has depended upon powerful state intervention in the economy, which continued even after an initial phase of import substitutionism gave way to the export oriented strategy. It was usually the state that marshalled the resources to enable locally controlled industry to conquer international markets, even if as a partner of multinationals or local conglomerates. Such was the approach, for example, of Brazil during the 1970s, when it was widely said to enjoy an ‘economic miracle’. It was also what happened in the large Asian NICs of South Korea and Taiwan right through the 1970s and 1980s. [60] Thus, even after South Korea had embarked on its export oriented strategy, the state, under the military dictator Park Chung Hee, insisted on restricting foreign capital to less than 50 percent ownership of joint companies, pushed through a policy of building up heavy industry in the face of resistance from both foreign and domestic capital, and controlled prices in such a way as to rig the market to achieve the sort of growth it wanted. [61] As one account sums up the experience of South Korea:

While mouthing anti-communist, anti-socialist free market slogans, it set out in practice to protect its domestic market and created one of the world’s most stringent foreign investment regimes. While receiving massive amounts of IMF and World Bank assistance, as a preferred anti-Communist client, the state launched, in the face of opposition from the two agencies, the heavy and chemical industry drive that spurred the creation of a more solid heavy and intermediate industrial base. One cannot say that the Korean state was lacking in either the vision or the will to create a more independent national industrial economy ... [62]

An internal World Bank memo notes that South Korea has followed policies very different to the neo-liberalism the Bank itself encourages:

From the early 1960s the government carefully planned and orchestrated the country’s development ... It used the financial sector to steer credits to preferred sectors and promoted individual firms to achieve national objectives ... It socialised risk, created large conglomerates (chaebols), created state enterprises when necessary and moulded a public-private partnership that rivalled Japan’s. [63]

Apparently, even some World Bank officials believe a study of the functioning of the East Asian economies will enable them to draw up ‘a new paradigm for development in the 1990s’, which does more than ‘just abdicate development to the private sector’. [64] However, if neo-liberalism provides little guarantee of development through establishing a certain territory as a permanent base for capital which wants to compete internationally, neither does state intervention. The inadequacies of both were shown dramatically by what happened to the one time ‘miracle’ economies of Latin America in the 1980s.

That was the miracle that was: Latin America in the 1980s

There was a time in the 1970s when the financial press assured its readers Brazil was the great rising Third World country whose industries were destined to challenge those of the West. The country had indeed experienced a decade and a half of amazing growth:

For almost 15 years (1965–80) the average rate of growth was 8.5 percent, making Brazil the fourth fastest growing country. This growth performance was reached by a modernisation strategy based on production of durable goods with up to date technology thanks to favourable policies towards imports and foreign investors and the massive penetration of foreign multinational companies ... [65]

The growth seemed even more impressive when it continued after the outbreak of the 1973 oil crisis and the world recession that followed. Under the Geisel military government of 1974–9 there were ‘moderate levels of inflation, real wage growth, and uneven but relatively high rates of output growth’. [66] Other Latin American states began to emulate the Brazilian policy. The military coups in Chile (1973) and Argentina (1976) were followed by an opening to external capital, in the hope that this would produce stable, export led growth. And again the outcome seemed encouraging, at first. Under the Videla regime in Argentina ‘the rate of inflation was lowered, real output grew, and a current account surplus was generated’, [67] while Chile’s real GDP grew 8.5 percent a year between 1977 and 1980. [68]

All this growth depended on foreign borrowing: ‘Many Latin American countries gambled on ambitious growth targets by borrowing heavily in international financial markets ... The external debt of Chile and Argentina almost trebled over a few years, 1978 to 1981 ...’ [69] But this did not seem to matter at the time – either to the national governments or the international banking system:

Up to the second oil price shock (1979–80) the gamble was worth taking.

Export growth was sustained in world markets at favourable prices ... as a consequence the ratio of debt outstanding to export proceeds was more favourable for all non-oil developing countries in 1979 than in 1970–72. [70]

This approach was later attacked on all sides as a ‘short sighted’ bungle by incompetent governments. But at the time the great majority of establishment economic commentators viewed things very differently. They spoke of the Brazilian and Chilean economic ‘miracles’ and dismissed fears of indebtedness. The IMF assured people in 1980: ‘During the 1970s ... a generalised debt management problem was avoided ... and the outlook for the immediate future does not give cause for alarm.’ [71] This was written just months before the second international recession, of the early 1980s, caught all these states unprepared. As export markets shrank and international interest rates began to rise, the debts they had incurred in the 1970s crippled their growth, threw them into recession and crippled their economies right through the 1980s.

In the aftermath of the debt crisis, the neo-liberal orthodoxy put all the blame on the state taking investment decisions rather than leaving them to private entrepreneurs ‘more responsive to market signals’. The state, it was said, was bound to be pressurised by vested interests (corrupt politicians, particular local capitalists, militant workers) into making inept and wasteful decisions. But that cannot explain the scale of miscalculation, for it occurred not just in Brazil, with a high level of state intervention in its economy, but also in Chile, which after the 1973 coup was the world pioneer in privatisation and neo-liberal economic policy. There the borrowing was by banking ‘groups’ controlling the newly privatised firms. The state was careful not to provide official guarantees for foreign loans equal to 14.5 percent of GDP and 66 percent of gross domestic investment by 1981. [72] ‘It was thought at the time by the economic authorities and some other observers that since most of the debt had been contracted by the private sector, the increase in foreign indebtedness did not represent a threat to the country as a whole’. [73]

But when the ‘groups’ proved unable to pay their debts, the international banks insisted that the Chilean dictatorship take responsibility for them. ‘The government “nationalised” large private debts that could not be serviced or repaid’. [74] Those who had made fortunes during the previous boom hung on to them, while the mass of the population suffered as unemployment rose to over 26 percent, and the government forced down real wages and per head welfare spending by 20 percent. [75]

In Argentina, Mexico and Uruguay private interests and corrupt political forces were equally involved in the build up of debt. While governments exerted themselves to persuade the international banking system to lend money, private capitalist interests put much of their effort into moving their funds abroad. [76] Again, however, it was the mass of the population who were expected by governments and neo-liberal advisers alike to pay the cost: in Mexico in 1987 real wages were only 43 percent and a ‘composite welfare index’ only 68 percent of the 1980 level. [77]

Whether the original borrowing had taken place under state auspices or private auspices, the result was the same. The major Latin American states were faced with external debt repayments ‘twice as large as Germany’s war reparations’ [78] after the First World War, leading to a massive outflow of economic resources. Yet by the end of the decade many of the countries were still as indebted as at the beginning, with the cost of servicing the debt eating up, on average, about a third of export earnings. [79]

The fact that the gambling, whether by private or state interests, went disastrously wrong should really surprise no one. ‘Private’ multinational financial and industrial corporations are just as capable of making catastrophic errors of judgement as are nation states – as is shown by the bankruptcy of Pan Am, Maxwell Communications Corporation and BCCI, and by the catastrophic losses incurred recently by General Motors and IBM. The mistakes are made because both states and private corporations are players in an international system which is increasingly unpredictable, so that what seems sound policy today turns to complete folly tomorrow.

Occasionally staunch defenders of the system admit this. So Jeffrey Sachs, the arch-adviser to governments implementing IMF-World Bank adjustment programmes, even today defends the gamble made by the Brazilian generals when they went on their borrowing spree 20 years ago: ‘The accumulation of Brazilian debt up until 1981 made good sense ... It was the unforeseen and essentially unforeseeable shifts in the world macro-economy that ultimately undermined Brazil’s strategy of debt accumulation.’ [80] This does not, of course, lead Sachs to challenge the essential features of the ‘world macro-economy’. But then it is not economic advisers but the mass of workers and peasants who pay with their living standards, and often their lives, for mistaken gambles in the world economic casino.

Sachs and his ilk have certainly not abandoned their view that such gambling is sound economic policy. In recent months the neo-liberal ideologists have once again begun to talk of a Latin American ‘miracle’, claiming that new bursts of growth prove how worthwhile were the ‘reforms’ of the 1970s and 1980s. Thus the Financial Times, commenting on a World Bank report [81], speaks of ‘the emergence of Latin America, phoenix like, from the ashes of the commercial bank debt crisis of the early 1980s’ with ‘the chance of joining east Asia as a second engine of developing country growth.’ [82] Mexico and Argentina are praised, and the ‘success’ of the Menem programme in Argentina is contrasted with the ‘failure’ of Brazil. [83] But Chile gets the highest honours, its former military government being credited with laying the basis for a ‘true breakthrough’ which meant ‘its economy expanded 10.4 percent last year, while inflation fell to 12 percent.’ [84]

But a long term overview of the Chilean economy makes the recent growth look much less miraculous. GNP per head was, after all, lower at the beginning of 1988 than it had been in 1971. [85] So the growth of 30 percent or more in the last four years has not even made up for lost time. What is more, the growth is precarious, depending, as in the late 1970s, on a massive inflow of private capital, much of which has gone into financing a boom in speculation and luxury consumption. In 1990 an attempt to contain the boom led to virtually nil growth in manufacturing industry [86], while, with the revival of the boom in 1992, ‘commerce grew fastest, showing growth of 14.3 percent, mainly because of higher imports ... Imports grew 22.2 percent, while exports grew by 12.3 percent.’ [87] In its more sober moments, even the World Bank has had to admit the inbuilt weaknesses of this sort of boom in an economy where servicing past foreign debts still eats up nearly 30 percent of export earnings [88]: ‘The 1980s demonstrated Chile’s sensitivity to external shocks. Projections suggest that Chile will require annual private capital inflows equivalent to approximately 3.5 percent of GDP ... There is a risk such inflows might not be forthcoming.’ [89]

Chile is the best case for the pro-market argument. The situation with Argentina and Mexico is even worse. In Argentina GNP per head and real manufacturing earnings were lower in 1989 than in 1965 [90], while the World Bank admitted in 1992 that the recent much acclaimed ‘recovery’ depended on ‘consumption growth fuelled by credit growth’ and that ‘imports have more than doubled’. [91] By May 1993, as imports surged until they were nearly 50 percent higher than exports [92], the Financial Times could note that ‘alarm is growing over Argentina’s increasing reliance on foreign capital’. [93] In Mexico the ‘boom’ meant that GDP in 1992 was only about the same as in 1981 [94], but it was enough to raise imports until they were about 80 percent higher than exports and to cause ‘the Mexican government of president Carlos Salinas, once proud of its free trade credentials’, to take ‘a series of measures to curb imports and to protect some of the country’s most inefficient industries’. [95]

The ‘booms’ have been accompanied by an end of the decade long flow of capital out of Latin America. Foreign direct investment climbed by 50 percent in two years to $38 billion in 1992, with portfolio investment growing even more explosively to $34 billion ...’ [96] The Financial Times says, ‘Latin America is once again in the enthusiastic embrace of the world’s financiers’. [97] The inward movement of capital does not, however, begin yet to compare with the drain out of the continent in the 1980s (according to one estimate, profit remittances and interest payments for the years 1982–9 totalled $281 billion [98]) and ‘in most countries these inflows are smaller in comparison with the size of the economies than they were in the 1970s’. [99] What is more, past debt still remains an enormous burden. The IMF has noted for Brazil, Chile, Mexico and Venezuela ‘the total interest burden was greater in 1990–92 than in 1978–82’. [100]

Most important of all, the inflow of capital can lead to great instability, to a rerun of the pattern of the late 1970s and early 1980s. The IMF itself notes the flow of capital has been motivated mainly by the search for quick profit rather than long term investment and warns:

The history of private financing flows to developing countries has been marked by repeated episodes of lending surges followed by market correction, debt servicing difficulties and curtailment of market access ... Volatility in external financing flows cannot be avoided entirely ... Integration into international capital markets necessarily implies exposure to the shifts in global market conditions ... Levels of debt are still relatively high, and there are questions about the adequacy of risk assessment by the new investors ... [101]

In fact, there are enormous risks in any economic strategy based on attracting private investment to finance an import-based boom. What is involved is exactly the same gambling over the direction of the world economy that led to such disaster in the early 1980s. Indeed, the risks are greater now.

The IMF explains that ‘strong ... net capital inflows ... have reflected a decline in the interest rates in industrial countries’. These relatively low interest rates are a product of the world recession. Yet the World Bank’s chief economist has admitted that its much headlined optimism about developing countries’ growth was:

heavily reliant on the assumption that the recovery that now appeared to be consolidating itself in the US would spread to the rest of the G7 industrial nations, with a prospect of sustained growth in the developed world over the medium term, combined with lower real interest rates. The forecasts also assume faster growth in world trade, a stabilisation in real non-oil commodity prices and continuations of policy improvements, especially in Latin America ... A more pessimistic set of assumptions would halve the rate at which developing countries’ per capita income grows. [102]

In reality, the Latin American economies are in a double bind. If the world economy recovers from recession, interest rates internationally will rise, and Latin America will no longer be so attractive to investors looking for a quick profit. But if the world economy does not recover, Latin American exports are unlikely to grow sufficiently to make balance of payments figures look healthy enough for governments to risk letting the booms continue. Once again talk of ‘miracles’ will sound very sick.

Stopford and Strange conclude from their study of the interactions of states and multinationals that there are ‘no more clear guidelines, no simple models, no sure-fire prescriptions for success’ either for governments or for ‘managers as they wrestle with the new demands for innovation in global competition’. [103] But this means that neither the ‘neoliberal’ free market model nor the state directed market model can stop economic policy in ‘developing countries’ (or, for that matter, in developed countries) from going disastrously wrong more often than not. This can be seen by looking not just at the failures of the 1980s, but also at some of the most prominent success stories – Korea, the largest of the Asian NICs, China, the world’s most rapidly growing economy, and India, whose population now accounts for nearly a quarter of humanity.

The South Korean example

A few days before the publication in December 1992 of Samuel Brittan’s article extolling the growth of East Asian capitalism, the Far Eastern Economic Review reported: ‘GDP growth in the third quarter was anaemic (by Korean standards), 3.1 percent over the same period in 1991 compared with earlier predictions of at least 5 percent. This is the lowest quarter on quarter growth rate in 11 years.’ [104] A few days later Kim Young Sam won the country’s presidential election. A central part of his campaigning message was that the country was suffering from the ‘Korean’ disease which threatened further economic advance.

The sudden weakness in the Korean economy was not just a reaction to the American and then Japanese recessions, but reflected a deeper problem. The economy had enjoyed very high growth rates through the 1980s. Chun Doo Hwan’s military government had succeeded in coping with Korea’s own debt crisis of the late 1970s and early 1980s by cutting real wages sharply [105] at a time of massive increases in productivity, using the crudest forms of repression to crush the popular resistance which culminated in the Kwangju uprising of 1980.

The large conglomerates, the chaebols, were able to take advantage of the low labour costs of a workforce subject to military repression to carve out markets for themselves, especially in the booming US economy of the Reagan years. At the same time they were able to upgrade Korean industry by imports of plant and machinery from Japan – continuing to copy foreign technology rather than to innovate themselves. [106] Imports from Japan exceeded exports to it by an average of $4.5 billion a year for 1985–9; but these could be paid for from the average excess of exports over imports on US trade of $6 billion. But it was a strategy fraught with potential problems. It depended on the Korean workers putting up with enormous rates of exploitation and the US government ignoring the deficit on its Korean trade. By the late 1980s it had come to grief on both fronts.

A new upsurge of popular unrest which shook the state to its core was followed by a huge wave of strikes which drove up real wages by about 45 percent in three years. At the same time growing US pressure forced the Korean government to begin to open up the economy to foreign goods and finance. The overall result was an acceleration of demand in an already booming economy, leading to a huge surge in construction, property speculation and other services. Manufacturing output grew only 4.4 percent in 1988–9 while construction orders nearly doubled and imports of consumer goods rose 25 percent.

This took place just as the US began to enter into recession and Korean exports of goods such as textiles, steel, machines and chemicals to Japan met increasing competition from other low wage South East Asian countries. [107] By 1991 and 1992 the trade surplus Korea had had throughout the late 1980s had turned into a deficit. Both the state and the major chaebols looked to high technology investments to restore competitiveness. There has been a growth in spending on capital equipment from Japan and elsewhere, ‘reflecting a restructuring in the Korean economy as industry seeks to overcome higher labour costs and competition from cheaper regional producers by upgrading productivity, increasing quality and raising value added.’ [108] But it was one thing to want to turn from low technology to high technology exports. It was another to succeed in doing so. This was shown in two major industries.

The auto industry was supposed to be one of the rising industries. But the much acclaimed entry of Korean made cars, especially Hyundai, into the US market in the mid-1980s had turned sour by the beginning of the 1990s ‘due to the US economic slowdown and the poor reputation for quality that Korean cars gained in the late 1980s’. [109] The magazine Consumer Reports told that Hyundai’s Excel and Sonata 4 were voted among the worst in terms of owner satisfaction in 1989 and 1990. [110] The result was that total auto exports fell from a peak of 576,000 in 1988 to 390,000 in 1990, as against a target of 900,000. [111]

In steel, Posco, the world’s third biggest producer, opened the $2.8 billion Kwangyang integrated steel complex in October 1992, ‘the most modern in the world’. ‘Unfortunately for Posco, though, the world is awash in the basic steel products in which it excels, US and European steel makers are bleeding red ink, while Japanese steel makers have seen their earnings nose dive’. [112] As a result the price it got for its exports fell by 12 percent in 1992 and its profits depended on it exploiting its near monopoly position in the home market to charge 19–20 percent more than prevailing international prices. [113]

Finally, the turn to high technology industry is held back by lack of resources for the necessary investment – the US auto giant General Motors spent more on research and development in 1990 than all of South Korean business combined. [114] Some chaebols are gambling on breaking through in key high technology industries – as with Posco’s attempt to diversify into telecommunications and the manufacture of silicon wafers. The government launched a ‘G7 project’, aimed at pushing Korea towards joining the major industrial powers through building up ten major research areas. But these are gambles, only a few of which are likely to be successful, given the lack of resources to sustain them all. [115]

While waiting to see if any of its gambles work, South Korean industry is having a hard time. ‘Rising stockpiles of goods such as electronics and cars are testimony to the increasing competition the country is facing in the export market ... Recessions in the developed economies have cut demand for South Korean cars, electrical appliances, clothing and other consumer goods. And what goods can be sold are facing diminishing price competitiveness against comparable quality exports from ‘transplant factories’ set up by regional or multinational corporations in China and South East Asian countries ...’ [116] When it comes to the country’s second most important export industry, textiles, ‘A stroll through a clothing market or department store reveals the dismal state of the nation’s garment and textile industry. Prices on clothing have been slashed by more than 50 percent in recent weeks ... the direct result of rising inventories of unsold goods on world markets.’ [117]

Against this background, the government had to step in itself in 1991 and 1992 to dampen down the domestic boom and to try to restore the balance of payments by discouraging imports. But this had the effect of making it even more difficult for industry to get access to the more advanced technology required to upgrade its output. There have been growing splits within the ruling party and between the ruling party, the planning agencies and the chaebols, with enormous rows over how restructuring is to take place. [118] Meanwhile some commentators have begun to suggest Korea’s industries are much less efficient and profitable than was generally thought: ‘industrialists are profligate with capital ... They tend to throw money at capital investment rather than working out the most efficient way to grow.’ [119] Much of the rest of the world is still being told to admire the South Korean model, yet in South Korea itself there is considerable concern the model might not work any more.

What the outcome of the present problems will be no one can foresee. Korea is still a relatively small player on the international capitalist stage, and so may be able to find niches for its exports: it is easier to find niches if you produce only 2.9 percent of world high technology exports as South Korea does, than if you produce 6.3 percent as Britain does or 10.8 percent as Germany does. [120] The point, however, is that the Korean example of an export dependent economy is not one which is generalisable to the whole world, and the more attempts are made to generalise it – for instance by trying to imitate the Korean example in Malaysia, Thailand or South Eastern China – the more Korea itself is going to be pushed into crisis, that is, unless it can shift to a different model of capitalist development. But the first moves in that direction have produced a speculative inflationary boom, leading straight into at least the beginnings of a recession. There is not much hope in that scenario for the capitalist system as a whole.


Increasingly, it is not just the ‘tigers’ who are hailed as the exception to the world picture, but also the world’s two biggest countries, China and India, which between them account for two fifths of the world’s people. Capitalism, it is said, has produced substantial growth in these countries over the last decade, and so has a progressive role to play for the poorest section of humanity. This is Brittan’s contention (although not, of course, expressed in these terms). And it is a view that even seems to be held, for China at least, by John Ross of the Socialist Economic Bulletin, who writes that ‘economic reform in China has produced the greatest economic success in the world’ and recommends it as a model to Eastern Europe and the former USSR. [121]

However, it is a huge step to go from saying that China has experienced growth and its population an improvement in their lives over the last ten to 15 years, to saying that this represents a future for the world system as a whole. The starting point for China was a very low one. Even today the mass of the Chinese people live in villages, tilling about an acre of land for a family of five, without mechanical power, and supplementing their meagre agricultural output with very elementary forms of non-agricultural work (brick making and building, transporting goods with a horse and cart, making elementary food products like noodles, various forms of handicraft production) and, in a minority of cases, with employment in so called collective or co-operative enterprises (often leased out to individuals who then run them as private capitalist concerns). Even after more than doubling in seven years, the net annual income for each member of the farming population in 1985 was only 398 yuan ($108 at the official exchange rate), and that for workers 1,096 yuan ($246). [122]

Output and living standards began to improve 15 years ago, after years of stagnation. The dismantling of the command economy in the countryside and the introduction of the ‘responsibility’ system gave individual peasant households the freedom to produce the particular crops which left them with the greatest incomes (provided they contracted to sell a certain portion to the state at fixed prices) and to use any surplus labour to work on producing goods and services to sell to other peasants (or, if they live close to towns, to the urban population). Each household had an incentive to maximise its output, as it had not before. The result was a ‘virtuous circle’, in which the desire to feed themselves fully and to obtain elementary consumer goods (more tolerable accommodation, furniture, clothing and so on) encouraged peasants to produce more, and, to some extent, to use the increased output of non-food goods to gain money to improve agricultural productivity.

But this process only took off because of something else – a massive, one off transfer of resources from the state to the peasantry. Under the command economy a massive portion of national output (over 30 percent) had gone into investment and was used to build up heavy industry. There had been claimed GDP growth rates of over 8 percent in the late 1960s and early 1970s [123], but by the mid-1970s they gave way to growing signs of crisis. Agricultural production per head was no higher than 20 years before and 100 million of the rural population suffered from food shortages, despite the government importing large amounts of grain. [124] In desperation, the regime cut back the rate of accumulation temporarily and put considerable resources into the rural sector. It raised the prices it paid for foodstuffs by between 25 and 40 percent, while holding down the cost to the peasants of inputs like fertilisers and steel tools – allowing fertiliser use per hectare to rise to more than six times its 1970 level. [125]

In effect, the state was responding to the crisis of primitive accumulation under the command economy by diverting resources from its own hands into agriculture and consumption. It could do so precisely because those resources existed as a result of three decades of Stalinism. As the Indian economist Hanumantha Rao has pointed out, ‘This high growth is due to the existence of tremendous slack, as capital formation was very high and its utilisation very inefficient.’ [126]

This was not the first time that reform, coming after a phase of primitive accumulation had reached an impasse, had released the resources necessary to restore growth rates. This had happened right across Eastern Europe after the great crisis year of 1956, giving Stalinism another decade and more in which it seemed to superficial observers to be able to develop economies. [127] In China the great forward impetus of the agricultural reform began to run out in the mid-1980s. The growth rate of agriculture fell from 8 percent in 1979–84 to about 3 percent in 1985–8. And, as the great once only transfer of resources from the state sector to agriculture came to an end, ‘the share of capital investment in agriculture declined from 9.3 percent to 3.3 percent of the national budget, in absolute terms from $530 million to $380 million’. [128] At the same time, it was reported, ‘In the villages private funds are being diverted away from agriculture into more lucrative endeavours.’ [129] Peasants preferred to spend any savings on building new houses or on their children’s weddings rather than on investment in improving their land. [130]

The decline in agricultural investment could not be justified by any great improvement in agricultural techniques. For reform had not ‘affected the nature of traditional Chinese agriculture’. In 1989 only one rural household in 13 had a ‘animal drawn cart with rubber tyres’, only one in 20 had a ‘small and walking tractor’, and only one in 200 a ‘large or medium tractor’. Forty percent of households regarded themselves as relatively lucky because they owned ‘handcarts with rubber tyres’. [131] ‘No significant technological breakthrough has taken place’, the average one acre farm remained ‘dispersed into 9.7 plots’ [132], there was little sign of any consolidation of dwarf holdings into more efficient units [133], and rural illiteracy was growing rather than declining. [134]

The result, inevitably, was that the ‘virtuous circle’ in the countryside began to disintegrate by the late 1980s, with ‘rural irrigation systems deteriorating, land being depleted, agriculture machinery old and in disrepair, and a serious shortage of expert agricultural personnel ... Necessary agricultural inputs were becoming all but unavailable ... There was a fall in the effectively irrigated area by 3.4 million hectares, leading to a loss of grain totalling 10 million tonnes’. [135] The official China Daily now reports grain output is likely to fall in coming years due to ‘shrinking arable land and deflated enthusiasm among farmers’ [136], and the government, worried about the political impact of workers going hungry, has had to resume importing grain.

Massive industrial growth accompanied the expansion of agriculture in the 1980s, and total output trebled according to the official figures. But again the process was much more contradictory than is often portrayed. In certain coastal areas industry was increasingly oriented to the world economy, for which it was becoming a major supplier of shoes, toys and other low technology consumer goods: the most developed area, Guangdong (adjacent to Hong Kong), with 3 million workers, receives 80 percent of foreign investment in China and accounts for 80 percent of Chinese exports. There were other regions, however, with mainly heavy industry producing means and material of production for the national economy – much as under the old command economy. In still others industry was centred around towns and cities which, because of poor communication links, catered almost exclusively for the local provincial markets. Finally, in almost all provinces many of the village industries – which with 47.6 million workers [137] account for a very high proportion of the country’s total industrial workforce – were situated away from the main urban centres and catered only for markets in close proximity to themselves. [138]

The result is that the impression which visitors to, say, Guangdong get of a country most of its way to catching up with the developed world is very misleading. Enormously uneven development is occurring. In some coastal provinces it is very rapid: thus the value of Guangdong’s output rose by an astonishing 27 percent in 1991 [139] while per capita GNP has reached $701 for the province as a whole, and $2,000 in the Shenzhen special zone next to Hong Kong. But other regions – and even some rural areas within advanced regions – are stagnating, lacking the transport and communication links needed to gain from growth elsewhere.

Hypothetically, if the Chinese economy were able to develop in isolation from the rest of the world for several decades, then the unevenness might begin to be overcome. However low the productivity of labour in the stagnating areas it would, over time, lead to the building of crude roads and storage facilities, to improvements in local rural industries, to the use of very cheap labour to produce cheap low technology goods for the wider market and to the absorption of more advanced technologies from elsewhere. Even the most backward areas would develop at a snail’s pace. But there is not just uneven development in China. There is combined and uneven development. The vast backward regions are influenced by the much smaller advanced areas. The peasants still toiling 12 or 14 hours a day to keep just above the breadline hear about the minority in the coastal cities lucky enough to own all the modem consumer durables, and may even know about the instant fortunes made on the new stock exchanges or the 63-storey Gitic Plaza complex in Guangzhou, with its hotel, offices, apartments, department stores and restaurants ‘rivalling the most luxurious Hong Kong office blocks in lavishness’. [140] They are no longer content to wait for decades in the hope of gradual improvement. Thus early in 1992, as reports told of an influx of a quarter of million people into Guangzhou from elsewhere in the country, Chinese officials spoke of a ‘surplus rural labour force of 150 millions’, while vice-premier Tian Jiyun warned that ‘rural labourers remain idle for half a year. Without work and income, some of them stir up trouble while others flow to other parts of the country’. [141] There were riots in some regions when the state paid peasants with IOUs rather than cash for their grain and of attacks by peasants on tax collectors elsewhere, on one occasion involving 10,000 people. [142]

Yet, while the mass of poor peasants look with envy at the more advanced regions, the managers in those regions increasingly turn their back on the backward areas as they make the world market their focus and they try to shift from labour intensive low technology production to capital intensive high technology. They use every means available to them to procure the resources needed for investment in their industries, effectively stopping them going elsewhere. Their efforts are matched by others within the ruling class – the heads of state owned heavy industry, generals out to upgrade their weaponry, national and provincial party bosses eager to emulate the lifestyle of the richest entrepreneurs. [143] In the process the poorer regions lose out. Far from catching up, they fall further behind, with an ‘increasing concentration of the poor in hard core, resource-poor regional pockets’ where ‘access to basic education and health care’ is ‘outside the reach of poorer families’. [144]

Such pressures explain the difficulties in sustaining the advances in agriculture after the early 1980s. The resources which had been switched to agriculture were now pulled back into industrial investment, as the total accumulation rate rose from 28.3 percent of GDP in 1981 [145] to close to 40 percent at the end of the decade, higher than virtually anywhere else in the world. [146]

In the renewed sacrifice of agriculture to industrial investment the Chinese regime was following the path of other ‘export oriented economies’. In both South Korea and Taiwan a period of putting resources into agriculture has given way to subordinating agriculture to industry and services, leading to rural decline and an increasing dependence on food imports. [147] But agricultural stagnation is a much bigger problem for the Chinese government than for them. Not only does it force the government to spend sums it can ill afford on imports, it also exacerbates social tensions as more than 10 million people a year flood into the cities and unemployment grows massively, since ‘neither the rural non-agricultural sectors nor the urban economy can create enough employment opportunities for absorbing the surplus labour from agriculture’. [148]

The struggle between rival interests within the ruling class for resources does not just doom dreams of development in wide regions of the country. It also drives the whole national economy into repeated crises. Spells of frenetic investment and economic growth cause shortages of energy and industrial inputs, rapid increases in prices and growing deficits on the state budget – and eventually crisis conditions develop which threaten social instability and force the government to take action to bring the surge in growth to a halt. As the World Bank says, ‘As the 1980s progressed China experienced increasingly severe cycles of economic activity ... Investment in transportation, telecommunications, energy and irrigation have lagged behind those in industry ... As a result, serious bottlenecks in these key sectors became apparent in the latter part of the 1980s.’ [149]

Graph 4 shows the severity of the cyclical fluctuations. Significantly, the last great boom came to a peak just before the massacre at Tiananman Square. Soaring prices threatened the living standards of the mass of workers and peasants, leading to the discontent that found a focus in the student demonstrations. Just as the protests were followed by a severe repression, the boom was followed by a recession – retail sales fell by 7.6 percent in 1989 and industrial growth sank to zero [150], hitting hundreds of thousands of rural and small town enterprises and forcing them to lay off large numbers of workers.

Industrial growth quarterly

A new boom began in mid-1990, and industrial growth rates are again high. But none of the sources of instability have gone away. Prices are rising quickly again, investment shows signs of getting out of hand (increasing by 70 percent in the first quarter of 1993) [151], the infrastructure continues to lag behind industrial growth, the budget deficit remains high, state owned industries are making enormous losses [152], and the boom has brought about ‘an import surge’, leading to ‘a deterioration in China’s trade balance’. [153] The situation would be much worse if it were not for a massive excess of exports over imports with the US, amounting to $12 billion in 1991. [154] The boom is therefore vulnerable to international as well as national pressures: either a falling off of the US recovery or protectionist measures against Chinese exports could give a huge downward push to a recession that is likely anyway.

The vulnerability of the boom is producing deep political tensions. A growing current of opinion within the Chinese ruling class – strongly encouraged by the IMF, the World Bank and so on – sees protecting its economic position as dependent on the one hand on cutting back on the ‘unprofitable’ state industries (forgetting that they often give subsidies to the profits of the private sector by providing cheap energy and raw materials), and on the other on smashing of the ‘iron rice bowl’ which provides a minimum of welfare services (food subsidies, enterprise supplied housing, pensions) to important sections of workers. This current also tends to believe the poorer regions will have to be sacrificed to capital accumulation in the richer coastal areas. [155]

Whether the build up of pressures on the workers and on the poorer regions will lead to another Tiananmen Square, no one knows. But they certainly show that the Chinese economy is not some great island of relentless forward development, cut off from the contradictions of the wider world system and providing a future for humanity as a whole.


What applies to China applies even more so to India. In the 1980s the Indian economy did seem to overcome what many observers had seen in the late 1970s as a disastrous inability to break out of stagnation. The improvement was most marked in agriculture, where average annual growth shot up from 1.8 percent in 1973–80 (less than the growth rate of the population) to 3.2 percent in 1980–91 [156], so that the government no longer needed to import grain to prevent wholesale starvation. The surge in output was a result of the ‘Green Revolution’ – the introduction of new varieties of grain, the drilling of wells, a large increase in fertiliser use and the move to fully capitalist production relations on the land in regions like the Punjab. [157]

Industrial output also grew strongly, with the annual growth rate rising from 5.2 percent in 1973–80 to 6.3 percent in 1980–91. The overall improvement in economic performance led to a new optimistic tone in IMF and World Bank comments on India, which ascribed the improvement to Congress government measures to ‘liberalise’ the economy, especially in 1981 and 1985. [158] Such comment, however, downplayed the build up of economic imbalances, which came to a head suddenly early in 1991 when, as the head of Hindustan Lever later put it, ‘The mounting burden of borrowings, both domestic and foreign, brought the economy to the brink of insolvency.’ [159]

The government had, in fact, found in early January 1991 that India was ‘close to technical default’ on its foreign debts, and that foreign exchange reserves had dropped to the equivalent of two weeks of imports. [160] What became clear was that for at least the previous five years the high growth rate in industry had been a result of the boost to consumption brought about by the excess of government spending over taxation. The other side of the ‘liberalisation’ of the Rajiv Gandhi government had been ‘increasingly loose macro-economic management’. [161] The government’s budget deficit grew from 6.4 percent of GNP in 1980 to 8.9 percent in 1990, leading to an annual rate of inflation of close to 10 percent. And exports grew much more slowly than imports, especially imports of luxury goods: imports of ‘other consumer goods’ grew tenfold between 1980 and 1990, until they were roughly at the same level as the imports of capital goods intended to modernise Indian industry. [162] By 1991 the government’s domestic debt had risen to 56 percent of GDP. [163]

What is more, as in China after the mid-1980s, the growth of luxury consumption and investment in industry was at the expense of investment in agriculture, putting in danger the growth of food output needed to feed the population. ‘Fixed capital formation in agriculture, at 8 percent of GDP in the sixth plan (1980–85) was lower than in the fifth plan, and declined further in the seventh plan. The decline was noted mainly in the public sector and in the critical field of irrigation and flood control’. [164] But without increased investment the rapid growth of wheat production sustained in ‘wet’ areas in the 1970s and early 1980s could not be matched in areas of ‘dry or rather rainfed agriculture’, which accounted for 70 percent of the cultivated land, but only 40 percent of output. ‘The growth in output has been highly uneven across regions ... Output growth has been unstable ... The degree of instability since the 1960s has been greater than before ... Several crops (notably the coarse cereals, pulses and oil seeds) show modest and slow improvement.’ [165] The result was that for the second half of the 1980s, as the country’s Planning Commission reported in 1990, ‘the average growth of agricultural production has been modest and concentrated in certain regions of the country’. [166]

The foreign exchange crisis of 1991 forced the government to try to do something about these imbalances. As in so many other parts of the world, its response was to negotiate with the IMF over a ‘structural adjustment programme’. This combined short term measures to improve the balance of payments with long term ‘liberalisation’ reforms, which, finance minister Manmohan Singh claimed, would put the economy ‘on the path of high and sustained growth’ ... by 1993. [167]

The first part of the programme seemed to work. A sharp recession and emergency import controls in 1991 led to a limited improvement in the balance of payments and a fall in inflation from about 17 percent in August 1991 to about 12 percent in March 1992, while cuts in government expenditure reduced the budget deficit to about 5 percent of GDP. [168] But the second part, the return to ‘sustained growth’, has been much more problematic. The ‘liberalisation’ included the easing of restrictions on imports and foreign investment and making the rupee convertible, as well as cuts in sugar and fertiliser subsidies, deregulation of steel distribution and a reduction in the top rate of personal income tax. There was certainly a resumption of growth – but also a re-emergence of many of the old imbalances.

Imports surged ahead, growing by 25 percent in a year. Exports grew much more slowly, by only 3.5 to 4 percent from March 1992 to March 1993 [169], leading to a $6 billion balance of trade deficit. [170] Meanwhile industrial growth was ‘groggy’. [171] There was no evidence that ‘liberalisation’ had, in reality, achieved any of its promised goals. Even the World Bank, which claimed reform could lead to India becoming ‘one of the world’s most dynamic economies during the second half of the 1990s’, admits:

GDP growth is likely to remain modest in the next few years. The balance of payments will remain fragile ... over the next four or five years. Foreign exchange reserves ... are still insufficient to cope with any serious exogenous shocks ... Finally liberalising imports is central to the success of the reform process ... but makes the management of the balance of payments difficult ... [172]

So, although conditions for capitalist accumulation still exist, they are very precarious. At the same time, the growth during the 1980s and the ‘structural adjustment’ since have been accompanied by growing social tension.

The most visible change in India during the late 1980s was the spread of consumer durables among the middle class, with a growing number of cars and a proliferation of TV aerials in the cities. But talk of ‘a hundred million’ middle class ‘united by affluence’ [173] has to be put into perspective. The average income of the wealthiest 10 percent of the population – about 90 million people – was only about $900 a head in 1989 (or a little over £600). [174] Even if you multiply this by four to account for the fact that basic foodstuffs, medicines and household goods are between half and an eighth of their price in the West, it hardly amounts to ‘affluence’. In fact, the total numbers of TVs (three quarters black and white), motorcycles or scooters, and fridges produced in the 1980s was only enough for, at most, half the ‘middle class’ families to have one of each, while, with only 64,000 cars produced in 1987 and 165,000 in 1991, not more than 1 or 2 percent of families could have benefited.

What is true, however, is that consumption by a relatively small and privileged layer of the population has grown in importance. These are the people who bought the surge of consumer good imports in the 1980s. They are also the beneficiaries of the cuts in income tax and import duties of the last two years. Through the whole period of liberalisation resources were ‘sucked into the affluent sector for consumption and for capital goods serving consumption in this sector.’ [175]

The other side of this has been a stagnation, or even a deterioration, of the conditions of the mass of the population, a trend which further liberalisation is likely to accentuate. The government’s measures for controlling the budget deficit involve cutting food subsidies and making welfare more ‘cost effective’. The improvement in the average daily diet in the 1980s brought it only up to the same level as 25 years earlier. This left 49.3 percent of children under five suffering from malnutrition [176], and more than a quarter of the population below the poverty line. [177]

The average Bombay textile worker earned 39.77 rupees (about £2 [178]) a day in 1986 and the coal miner 30.42 rupees (£1.50). Yet these groups of workers are still better off than the great mass of the population. Wage rates for workers in the ‘unorganised’ [179] sectors of industry, which account for three quarters of the manufacturing workforce, are a quarter of these figures. For the 75.6 million agricultural labourers they are one tenth of the same amount. [180] The majority of the 110 million ‘cultivators’ (as opposed to the minority of capitalist farmers) are hardly ‘prospering either: ‘agricultural incomes as a proportion of GDP have declined’ [181], and ‘there is no conclusive evidence of a significant and declining trend in the incidence of rural poverty’. [182]

At the same time, the number registering at unemployment exchanges doubled in the 1980s, until it reached 34 million, or 10 percent of the country’s total active population. [183] In the countryside the supply of labour has been growing much more quickly than the demands for agricultural workers, leading to both unemployment and migration to the cities. [184] In the towns the number of jobs has not grown nearly enough to absorb the newcomers. Jobs in the modem or ‘organised’ sector only grew by 15.2 percent in 1980–8, and the traditional sector has failed to expand to take up the slack. [185] So total manufacturing employment of 25 million is less than the total registered at employment exchanges, 30 million in 1988. And half the registered unemployed come from the small proportion of the population of qualified secondary school graduates. [186] As a study of a typical northern city tells, ‘the towns provide many more graduates than the local economy is able to assimilate ... 60 percent ... registered at the government employment exchange ... are termed as educated.’ [187]

Again as in China, unbalanced, crisis ridden, economic growth is producing political instability. The mass of the burgeoning urban population are increasingly conscious of modem consumer goods which are beyond their own reach. The resulting bitterness can be explosive, as was shown by looting in the wave of anti-Muslim rioting that swept Bombay and Ahmedabad early in 1993. [188] In recent years politically motivated religious bigots have been able to direct the bitterness at other communal groups rather than against the system. [189] Nevertheless, the result can still be acute political instability which makes it more difficult for the economic imbalances to be dealt with, as was shown graphically when the Bombay pogrom of 1992–3 completely disrupted the country’s export trade.

The old strategy of state directed capitalist development has clearly reached an impasse. But deregulation is not a way out. It leads to increasing exposures to the instabilities of the international system at a time when increasing instability is also the mark of the domestic economy.

The overall dynamic

The picture for capitalism in the Third World, the NICs and the former ‘Communist’ states is not that of endless expansion promised by the neoliberal market ideology. Nor is it everywhere one of uniform decline or stagnation. Rather it is one, like that for the advanced countries, of sudden ups and downs, with bursts of industrial growth in the midst of widespread poverty, of new technologies transplanted on top of old production methods, of moving two or three steps forward as well as four or five back.

Precisely because capital depends on national states to do its bidding while having no national allegiance itself, there is no rational, predictable order to the system. Its functioning depends upon the blind interaction of 200 states, a couple of thousand multinationals and hundreds of thousands of smaller capitals. The result is not the stable equilibrium promised by neo-classical market theory, but rather chaotic ups and downs. In such a system the fortunes both of individual states and individual multinationals can rise and fall suddenly: this year’s economic miracle is next year’s economic basket case, this year’s star multinational is next year’s cash strapped invalid.

As Stopford and Strange say, ‘The outcome of the bargaining’ between states and firms ‘has been markedly divergent’, with ‘divergence between continents, between countries in the same continent or region, even within countries over time and between sectors, and, finally, divergence between firms – not necessarily in accordance with their national origin’. [190] The world system does not therefore choke off possibilities of development, or at least of capital accumulation, everywhere in the poorer countries. This can, on occasions, proceed at remarkable speeds. But it does rule out any guarantee of sustained even growth and ensures that decisions made by states and capitals are gambles that can go hopelessly wrong.

The dynamic of capitalist development is no different in the Third World and the NICs than it is elsewhere. The older the system gets, the more it is marked by instability. The slowdown of accumulation internationally means that capital is continually searching the globe for opportunities for quick profits. It hits upon first one place, then another, believing it has found the miracle it so desperately needs. There are bursts of growth – sometimes spectacular – that seem for a time to fulfil its desires. But then all the old contradictions suddenly come to the fore again and one more boom goes bust.

The pattern of capitalist development

There are those, on the left as well as on the right, who dissent from this view. They argue that the poverty of much of the world provides a way out of crisis for the capitals of the advanced countries. Faced with falling profits, it is said, they can always shift production to regions with lower wage rates and so find new possibilities for accumulation. This, after all, was seen by Marx as one of his ‘counteracting tendencies’ to the fall in the rate of profit’ and by Lenin as one of the ways capitalism overcame the trend towards stagnation in the advanced countries. In a cruder form, the argument becomes that, since some goods (the examples usually quoted are food and raw materials) can be produced more cheaply using low wage Third World labour, workers in the advanced countries gain from super-exploitation elsewhere.

But, as we have seen, the trend of the last 15 years does not show capital flowing from the advanced countries to the less advanced. In general, the trend has been the other way, at least since 1980:

The picture (for foreign direct investment by multinationals) is where the concentrations of activity are increasingly within the developed world, leaving all but a few developing countries outside the reach of the new dynamism ...

The US alone has attracted 60 percent of the all ... non US-sourced ... Foreign Direct Investment during the 1980s. [191]

In 1984–7 ‘developing countries’ accounted for only 21.2 percent of new foreign direct investment, as against 27.5 percent in 1981–3, with only one twentieth of that going to the poorest single region, Africa. [192]

The World Bank estimates that the net flow of funds into all developing countries fell from around $5 billion a year in 1983–4 to about nil in 1988–91; the International Monetary Fund estimates that from 1986 onwards funds were flowing outward at a rate of more than $5 billion a year. [193] In either case, the overall picture throughout the 1980s was certainly not one of capital moving from the advanced countries in search of higher profits. And even the return of some capital to countries like those of Latin America in the last couple of years has not changed the overall picture much. An increase of foreign direct investment to developing countries ‘by 50 percent since 1990’ [194] sounds impressive – except that still only leaves them getting a lower proportion of such investment than they were in 1984–7, after the eruption of the debt crisis. The great mass of capital investment worldwide is still in the advanced countries.

Of course, insofar as some capital goes to regions with lower labour costs, the effect might be to increase overall, worldwide profit rates. But the effect can only be a slight one, given the small proportion of total worldwide capital involved in moving in this way.

There is a slightly different argument, which stresses the increasing production of manufactured goods in less developed countries which, it is said, will lead to a shift throughout the world system as whole from capital intensive to labour intensive methods of production and so ease pressures worldwide on the rate of profit. Thus Nigel Harris writes, ‘With the entry to world production of the working classes of China, India and the rest ... there is now labour abundance and capital scarcity and the organisation of firms is likely to be transformed by this radical change in the relative position of the factors of production’. [195]

But the empirical evidence does not bear out such contentions. In India, for example, despite the abundance of labour the tendency is for investment to be capital intensive: there has been a 30 fold increase in investment in the main export industry, textiles, in 17 years. [196] ‘The secondary sector and manufacturing in particular have not been playing the job creating role particularly effectively ... Technology has become unfavourable to the employment of unskilled labour.’ [197] Conditions are, of course, very different in India’s ‘traditional industry’ sector, which employs 18 million workers. Capital investment is very low, so that even in the towns two thirds of units do not use any power other than the human hand. But the relative output of this sector is also very low. The ‘traditional’ workforce produces altogether only two fifths of the value coming from 6 million workers in the modern sector [198], and so is unlikely to compensate for its rising ratio of investment to the labour force. [199]

The picture seems rather similar in China. The rapid growth of rural industries over the last decade has not stopped average capital per worker and employee in industry nearly doubling from 10,900 yuan in 1985 to 21,300 yuan (at 1980 prices) by 1990. [200] In Latin America investment per worker grew by nearly 2,000 dollars in the 1980s [201], while in South Korea the ‘marginal fixed capital output ratio’ (the amount of new means of production required to increase output by one unit) grew by an average of 3.6 percent a year between 1981 and 1989. [202]

All these figures show the impact of competing as part of the world system on industry in the less developed and newly industrialising countries. The techniques they adopt are, in general, determined by international and not domestic considerations. Thus a report on Indonesia tells of its electronics industry:

The new factories are not low-tech assembly operations relying only on cheap labour. Instead the new generation of Japanese and South Korean factories in Indonesia are almost as automated as their counterparts back home. It would be cheaper to have fewer machines and more workers, says Sony factory manager Toshikazu Morikawa, ‘but the quality would not be so good’. [203]

The same logic means that new oil refineries or steel works are capital intensive, not labour intensive: when plant is bought second hand from ailing Western firms to be shipped and reassembled in developing countries, as with the Malaysian buy up of the Ravenscraig steel works from Scotland, the plant is usually relatively modern and capital intensive.

There is, of course, also a lot of labour intensive production in developing countries. But even this does not mean that the share of worldwide production that is labour intensive is increasing. Often all that is involved is the migration of existing labour intensive productive capacity from higher to lower labour cost economies – as with the tendency in recent years for firms in South Korea, Taiwan, Hong Kong and Singapore to shift their labour intensive operations to Thailand and Malaysia and now to south east China. [204]

Of course there are some gains to the profitability of the world system from shifting some production to areas with lower labour costs. But the gains certainly have not been anywhere near big enough to offset the powerful worldwide downward pressures on profit rates.

Finally, there is an oft repeated argument that poverty in the developing countries is to the advantage of workers in the advanced countries. They ‘benefit’, it is claimed, because the low wages paid to Third World workers reduce living costs in the advanced countries – or, to put the argument in a slightly more sophisticated form, the pay for an hour of labour in the advanced countries can buy the products of several hours of Third World labour.

The best answer to this claim is to look at the facts. The great majority of goods which make up the living standard of workers in the advanced countries today are produced in the advanced countries, or the relatively highly waged Newly Industrialising Countries. It long ago ceased to be true that most raw materials and food came from underdeveloped countries. The United States, not any African, Asian or Latin American country, is the world’s most important food exporter. The poorest continent, Africa, accounts for only 1 percent of world trade (as against four percent in the 1960s). [205] However cheap its products, that could hardly have a significant impact on the living standards of workers in the advanced countries.

There is, of course, one very important raw material that is produced mainly outside the advanced countries – oil. Its price in real terms has been falling in recent years. But this price is not determined by the wages of oil workers in the Middle East or of other workers in the advanced countries, but by bargaining between rival governments and oil firms which results in each of them taking a slice of oil revenues far in excess of the total wages paid to those who produce the oil. [206]

The poverty of the great mass of people who live in what is called the Third World is a horrific expression of what the regime of worldwide competitive accumulation means for those who live under it. But it is not something easing the contradictions of the system or making life more bearable for the workers in the more industrially advanced countries. The central division in the system is not between three ‘worlds’, but between two classes.

‘Development’ and livelihood

Reality is very different to the figures provided by the World Bank/IMF orthodoxy to justify the present system. Growth under present day capitalism is uneven everywhere and repeatedly gives way to stagnation or decline. But that is not all. Even where accumulation takes place it can often be accompanied by a deterioration in the conditions of the mass of people which is not shown by the statistics usually used to measure economic advance.

The most commonly used figures are those for Gross National Product. [207] This is a meant to be a broad indicator of how much wealth is produced within a year. But it does not say how this wealth is used or distributed, and it may even be a faulty measure of the real growth of output. It is a measure of marketed output only. It therefore tends to understate the real total production of economies in which capitalist development is not complete (and much output is not marketed). [208] It can also give an impression of economic growth when what is happening is simply the extension of the market. [209]

For instance, if a Chinese peasant employs another peasant to build a wall for him then that counts as part of the Gross National Product; but if he builds the wall himself, it does not. Since the spread of the market in the last 15 years has led to a massive growth in the first sort of building in the countryside at the expense of the second sort, it has almost certainly made the total growth in output seem much greater than it really has been. [210]

More importantly, perhaps, none of these estimates of national output tell you what is actually happening to the lives of the mass of people. At most they give a rough indication of the expansion or otherwise of capitalist production; they do not show to what extent this is in the interests of those whose labour keeps it going.

This has been particularly important in recent years. Again and again, even where there has been growth in GNP per head, there has been a sacrifice of workers’ consumption to accumulation, often with cuts in real wages. Thus in most of Latin America, although GNP was a little higher at the end of the 1980s than the beginning, minimum urban salaries (received by half the urban workforce) were down by 74 percent in Peru, 58 percent in Ecuador and 30 percent in Brazil. [211] The IMF may claim the developing world as a whole grew by 6 percent in 1992, but it ‘notes with disappointment its failure to find evidence that living standards in the developing world are catching up with those in prevailing in industrialised nations’. [212]

Such a divergence between the path of accumulation and that of the living standards of the mass of people is not an accident, but follows from the dynamic of the system itself. The IMF has spelt out what developing countries need to do to attract foreign capital for ‘development’: ‘The fundamental condition for sustaining capital inflows is that the recipient economies be able to generate sufficient returns in foreign currency to meet the ensuing costs of servicing debt or equity obligations’. [213] Or, to put it more simply, there has to be an increase in the rate of profit.

It was this increase in profits that the various ‘stabilisation and structural adjustment programmes’ of the IMF and World Bank set out to achieve in the 1980s. David Ruccio has noted the ‘curious anomaly’ that the various programmes implemented in the different Latin American states – whether along strict IMF/Bank lines or using ‘heterodox’ measures such as wage and price freezes – all failed in their own terms. They did not end inflation, restore employment or solve balance of payments problems. Yet ‘these failures have not led to the abandonment of the policies or the theories that led to them’. [214] The explanation for the anomaly, he argues, is that ‘these favours turn out to be successes – not with respect to employment, price stability and the balance of payments, but in terms of increasing exploitation, which generally falls to Marxists to point out.’ Jeffrey Sachs, who has been involved in the implementation of numerous IMF/Bank programmes, admitted that, ‘The basic strategy of the IMF and the creditor governments since 1982 has been to ensure that the commercial banks receive their interest payments on time.’ [215]

That in itself has implied increasing the rate of exploitation of workers in the developing countries. But on top of this the local ruling classes have wanted to recreate conditions for themselves to pursue capital accumulation, which has meant even further pressure on the mass of the population. They often like to present the IMF and World Bank as the only villains; yet they themselves gain as well. So in Chile the ‘solution’ of the debt crisis did not involve merely paying 20 percent of export earnings each year as interest payments to the international banks, but also protecting the local capitalists who had incurred the debts in the first place. As Meller has put it, ‘while 600,000 unemployed workers were receiving 1.5 percent of GDP as unemployment subsidy, fewer than 2,000 dollar debtors were receiving subsidies totalling 3 percent of GDP’. [216] The ‘miracle’ has been one sided: official figures show managers’ salaries as 64.5 percent higher than ten years ago, while workers wages, although up by about 20 percent on the 1982 level, are still probably lower than in 1971! [217] In China, where debts have not (yet!) required IMF/World Bank intervention, only memories of working class insurgency at the time of Tiananman Square hold the regime back from trying to smash the ‘iron rice bowl’ completely.

Attempts by capitalists of all sorts to accumulate in poor countries in conditions of world crisis mean attempts to increase the rate of exploitation, even when this involves what Marx used to call ‘absolute immiseration’ of the workforce. The reality is far from the utopian image of widespread growth and rising living standards preached by the ‘neo-liberal’ orthodoxy. There can be growth of output at some points in time in some parts of the less developed world. But it is often going to be growth at the expense of living conditions and standards. And even then no amount of past growth can guarantee the local ruling class a continuation of past success.

Uncertainty and imperialism

Certainty about the future is the first victim as each local capitalist class is dragged into the whirlpool of the world system. This ensures that economic crises again and again transmute themselves into political crises, not only nationally but also internationally.

Any local network of capitalist interests will try to strengthen its hand in global bargaining by turning to the state, relying on it to attract investment from foreign multinationals, to guarantee private sector debts from the international banking system, and to prise foreign markets open through trade diplomacy. The competition between states is intensified by the way the investments of multinationals in the developing world are not evenly dispersed, but are concentrated in a relatively few places, with size being one factor attracting investment to one country rather than another. ‘Multinationals ... focus their interests on those countries with abundant natural resources, large internal markets, plentiful skilled but relatively cheap labour, and favourable regulatory regimes.’ [218] Some people like Stopford and Strange conclude from this that the old method of competition between states – that based on amassing rival armed forces – has been made out of date by the new international pattern of production:

States are now competing more for the means to create wealth within their territory than for power over new territory. Where they used to compete for power as a means to wealth, they now compete for wealth as a means to power – but more for the power to maintain internal order and social cohesion than the power to conduct foreign conquests or to defend themselves against attack. [219]

Nigel Harris concludes in a slightly more guarded way that, ‘as capital and states become slightly dissociated, the pressures to war are slightly weakened’. [220]

But such arguments contain one great omission. They do not see that individual states – and the networks of local capital connected with them – can turn to the old methods of confrontation, including if necessary military confrontation, with other states as a way of increasing their bargaining power when it comes to multinational capital.

The 1980s was not just a period of the ‘globalisation’ of capital. It also saw the world’s most powerful capitalist class, that of the United States, raise its level of military expenditure in a conscious, and successful, attempt to impose a burden of military expenditure on the USSR which would cripple it economically. The 1990s began with the waging by a US led coalition of the war against Iraq, with the aim, as President Bush put it, of ‘burying the Vietnam syndrome’ and establishing a ‘new world order’ in which the US would be recognised as ‘the only superpower’. In the aftermath US capital expected to reap the benefit from military hegemony through exercising enormous leverage over the availability and price of Middle East oil and by gaining the lion’s share of the defence and reconstruction orders in the region.

The exercise of great power hegemony in the interests of national capital did not always take military forms. Often it meant the US state co-ordinating the actions of international banking institutions in their negotiations with the go.irnments of indebted Third World and Newly Industrialising Countries. The two major schemes for dealing with the debt problem were named appropriately after members of the US government – the Baker plan and the Brady plan. [221] Behind the veneer of the IMF/World Bank talk of ‘new paradigms for development’ lay the reality of making sure the banks, especially the US banks, were paid off handsomely. The Paris club of creditor governments ‘will only agree to meet a debtor if it has come to an agreement with the IMF to implement an economic adjustment programme’. [222] In a candid moment Jeffrey Sachs recognised what was involved. While banks which make loans usually share some of the losses if they overestimate the credit worthiness of their client, on this occasion they were able to insist on payment in full: ‘The banks have been able to maintain their incomes because the creditor governments have defended their claims.’ [223]

Stopford and Strange make the same point:

It was the internal policies of the United States that determined to a great extent who among the indebted nations won and who lost out in the long debt crisis of the 1980s... Domestic policies, adopted to safeguard the solvency of the domestic banking system, could exacerbate the pains of adjustment for the debtors. [224]

Or, as Barton Briggs, a managing director of Morgan Stanley, put it, the outcome was ‘200 million sullen Latin Americans sweating away in the hot sun for the next decade so that Citicorp can raise its dividend twice a year’. [225]

The system does not just consist of firms and states, bargaining as equals. Some states, and the firms connected to them, are ‘more equal than others’: there is imperialism as well as market competition. This has reverberations throughout the system. There is always the possibility of one of the subordinate states deciding it can gain by direct physical pressure on other states – to engage in its own form of ‘sub-imperialism’. And this possibility in turn pushes them to make sure they can exercise counter-pressure.

The two Gulf wars of the last decade are an important example of what can happen. Iraq waged its long, bloody and costly war against Iran as a way both of attracting the support of the US and the wealthy Gulf states and of cementing its relations with important multinationals. Then, when it did not gain financially as much as it had hoped from its backers in the war, it turned on one of them, Kuwait – miscalculating the response of the great powers, especially the US, and the other Gulf states.

Iraq went further than the great majority of other states, in that its use of state power resulted in two costly wars. But many other states have gone part of the way in the same direction. Arms spending has been rising rather than falling in most Third World and Newly Industrialising Countries. Thus the Financial Times reported early in 1992:

Hopes for a more stable Middle East after Iraq’s defeat in the Gulf War are buckling under the weight of some $30 billion in proposed new arms transfers ... with Saudi Arabia alone ordering $15 billion of new equipment ... Iran and Syria are also in the vanguard of arms purchases. Both are taking advantage of bargain prices available for surplus equipment from the former Soviet Union and the east European satellites ... [226]

But it is not only in the Middle East that the seeds of military confrontation remain. Possibly more significant is what is happening among those NICs that seem to have been most successful, in South East Asia.

Asia looks likely to see the fastest growth of military spending of any area in the world up to the end of the decade ... Since 1988 developing countries in south and east Asia have overtaken the Middle East in purchases of weapons ... [227]

The Daily Telegraph tells the same story in greater detail:

Oil wealth found in the South China Sea is fuelling an explosive arms race in South East Asia. Every nation surrounding the waters between Japan and the Sea of Malacca has either announced or begun a major weapons build up, fearing the post Cold War withdrawal of American and Russian forces will bring to a boil long suppressed territorial and maritime claims ... The current focus is the Spratly and Paracel Islands, two far flung groups of reefs and atolls to which China, Vietnam, Malaysia, Taiwan, the Philippines and Brunei make competing claims ... [228]

Political military tensions are also on the increase in Central Asia, where Turkey and Iran are increasingly competing to take advantage of the decline of Russian influence over the southern republics of the former USSR. This in turn is creating concern in China:

China is deeply anxious about Turkish ambitions among Turkic ethnic groups in Central Asia and about Iranian and Pakistani stimulation for Islamic fundamentalist sentiments... Should Central Asia collapse under the pressure of economic problems and religious aspirations, the impact on China, the Middle East and even on Europe through Turkey would be severe ... China might find itself drawn into a broader political, perhaps even military, role. This is not something Western governments would view with equanimity. [229]

Further east the South Korean capitalist class is looking at ways in which it can advance its global ambitions by using the state to take advantage of the economic and political crisis in North Korea. Its preferred option, based on an examination of the effects on West Germany of absorbing the old German Democratic Republic, is not immediate reunification. Rather, it hopes to prop up a post Kim Il Sung government in the north in return for a privileged role in the northern economy. But it cannot guarantee it could control events were the North Korean regime to collapse following the East European pattern, and so has to be prepared for a possible military role. Once again success in economic competition does not at all rule out a preparedness for military action.

Finally the case of former Yugoslavia shows how economic collapse and social turmoil can lead ambitious ruling class politicians to gamble on politico-military adventures – even when these can only make the economic crisis itself even worse.

Such jostling for politico-military influence by middle level powers feeds back into the behaviour of the largest. The United States, in particular, has been using its military superiority to try to ensure other powers accept its global priorities. It waged the Gulf War to show smaller powers they could not disobey its orders with impunity and to demonstrate to the European states and Japan that it alone could police the Middle East and that they had to accept its goals in the region that produces the world’s most important raw material. More recently the Clinton administration tried to persuade the European powers to accept its schemes to bomb Serbia as a way of showing it alone could ‘restore order’ even in Europe.

But to achieve such goals the US has to maintain some of the momentum of its great arms build up in the 1980s. So, although the proportion of its national income going on armaments has been cut, most of the weaponry remains intact: ‘Budgetary pressures are having their effect on US strategic programmes, but the momentum became so great during the high spending years of the 1980s that there is a pronounced carry over effect which is allowing substantial modernisation through the current decade ...’ [230]

This does not mean the US is all powerful. Its difficultly in coping with the break up of Yugoslavia – or, for that matter, with bringing ‘order’ to the break up of the USSR – shows there are limits to what even the most modem arms can achieve. But insofar as it is successful, the result is pressure on the other economically powerful states to consider whether they should be building up their arms. Hence a continuing debate within the Japanese ruling class over whether they should be building strategic forces independent of the US. Hence the attempts by the West European powers to follow a line independent of the US’s in former Yugoslavia. Hence too the continuation by the successor regimes of the USSR of some at least of the arms programmes of the 1980s. [231]

World capitalism is not just a system of interacting multinationals and states. It is also a system in which some states are much more powerful than others when it comes to bargaining. If the power of states can be so important, measures to increase or decrease that power – the methods of old style imperialism – still have a role to play. The unpredictability of the new world of interacting states and multinationals is not just economic unpredictability, but political and, on occasions at least, military unpredictability as well. Just as the state capitalist phase of the system’s history did not do away with imperialism, but gave it new and even more frightening forms, so the multinational phase does not eliminate the use of state capitalist imperialism as a complement to economic competition.

The world working class

Capitalist ‘development’, however uneven and precarious, has brought about one epoch making change in the Third World. It has transformed the nature of the exploited masses. At the beginning of the long post Second World War boom the vast majority of these were peasants. Even in the cities industry was usually restricted in scope, leaving an urban population typical of pre-industrial societies in which artisans and traders played a predominant role. The picture had changed by the end of the long boom, in the early 1970s. Nevertheless, most of the left still saw peasant revolution as the key to change and rural guerrilla warfare the way to bring it about. Only a minuscule number of revolutionaries insisted on recalling the lesson of 1905 and 1917: that a working class that is a small minority of the population was strategically placed to lead other oppressed and exploited groups in a challenge for state power.

Today, however, the working class is no longer a small minority in most parts of the world. Everywhere cities have grown enormously in size and been transformed by some growth of industry and a much wider spread of wage labour. At the same time, the spread of market relations in the countryside has usually been accompanied by the replacement of pre-capitalist by capitalist forms of exploitation, with the creation of a large class of agricultural workers. Wage labour is now easily the biggest source of value in most of the Third World: in 1989 industry accounted for 38 percent of GDP for all Tow and middle income economies’, agriculture for only 19 percent (while in 1965 the proportions were virtually the same, with agriculture on 30 percent and industry 31 percent) [232], and industry was even ahead of agriculture in nine of the 34 poorest countries. And in the cities wage labour is not some uncultured, ignorant mass. Everywhere the great majority of modem workers are literate and numerate: a study of one Indian city some years ago, for instance, discovered that 73 percent of the factory workers were literate – 25 percent in three languages and two different alphabets. [233] At the same time, the development of capitalism itself is making them aware of events on a world scale. The television aerials in the townships of South Africa, the slums of Rawalpindi or the shantytowns of Latin America can disguise declining real living standards [234], but they do indicate a breakdown of parochial ignorance as ex-peasants are drawn into an international culture.

The enormous social weight of the working class can be seen by looking at the two most populous countries in the world, India and China. India has more than 25 million employees in medium and large workplaces [235], 25 million employees in urban workplaces of less than ten employees, 75 million agricultural labourers and nearly 37 million people working in small rural establishments. [236] Even though the figures include not just wage workers, but managers, higher level salaried employees (the ‘new middle class’) and some self employed, they point to a total working class which cannot be less than 25 to 30 percent of the population and which must be bigger than the peasantry (there are 110.5 million ‘cultivators’, of which some will be capitalist farmers).

In China the peasantry is still by far the biggest class: of the total workforce of 533 million, more than 332 million were estimated to be in agriculture in 1989, virtually all with some land. But the number of workers has been growing rapidly, so that in 1989 there were 61 million urban industrial ‘workers and staff’ and 47.6 million ‘rural industrial labourers’ [237], indicating that the wage workers probably account for a little over 25 percent of the population.

The political importance the working class can have was shown by the crisis in China at the time of Tiananmen Square. Although most Western media coverage focused on the role of the students, what terrified China’s rulers was the involvement of workers, who joined in demonstrations right across the country and began to raise demands of their own. [238] It is also shown by the way the crisis of one party rule in Africa has led to strike movements in countries as varied as Malawi and Mali. However, it would be a mistake to believe that working class action automatically comes to the fore when Third World and Newly Industrialising Countries enter into crisis. [239] For the stunted character of industrial growth often means that the working class lives in cities where it mixes with and is easily influenced by a large impoverished petty bourgeoisie of tradespeople and artisans which merges into the lumpen proletariat.

Figures for Pakistan provide a typical picture. Although 47 percent of the urban working population are ‘employees’, slightly over 50 percent are ‘self employed’ or ‘family workers’. Among ‘production and related workers’, employees are again in the minority, although only marginally so, and waged labour accounts for only about 60 percent of the total workforce even in urban ‘manufacturing’. [240] In the slums workers mix with, and can be strongly influenced by, people whose conditions of life lead them to accept individualist rather than collectivist attitudes, even though their living standard may be very low.

In India the cities are inhabited not just by the 25 million workers in large workplaces, but also by a similar number of unemployed or temporarily employed people desperate for permanent jobs, many of them high school and university graduates who share the values of the middle class which they believe they are entitled to join. The class mix will vary from city to city and country to country. [241] So too will the internal composition of the working class itself – whether it is in large impersonal factories or in small workplaces, the differences within the working class when it comes to wages and working conditions, the degree to which family or local political connections influence recruitment, the extent to which workers still own peasant plots and are influenced by village life. [242]

The influence on the working class will not always be at the same level. It will rise and fall to the degree to which workers learn to wage struggles successfully in their own interests. But it cannot be ignored. It explains how workers can on occasions be drawn into communalist battles waged by political careerists and sections of the petty bourgeoisie. In India, for instance, the weakness of working class organisation and consciousness since the defeat of the textile strike nine years ago has allowed sections of workers to be drawn into the pogroms launched by fascist organisations like Shiv Sena and the RSS with their large petty bourgeois cum lumpen base. An important study of the Shiv Sena describes its members as part of a very large milieu to be found in any Indian city:

The members and militants often run shops and services enterprises ... One also encounters ... casual wage earners, drivers of taxis, autorickshaws or lorries, and watchmen at firms or worksites ... persons involved in all sorts of unstable jobs ... situated on the fringes of legality: pirating and video sales, negotiations of land and real estate for third persons, hawking of train tickets and movie tickets, card gambling ... neighbourhood lotteries ... Only a minority are employed in the wage earning category ... These unstable activities leave much spare time which is spent on the streets at tea stalls ... [243]

The picture could be that of many Third World cities, where populist, nationalist, communalist or fundamentalist ideas find a base among an enormous social layer which in turn influences the working class. What the outcome can be has been shown horrifically in former Yugoslavia. The working class was larger and the petty bourgeoisie cum lumpen proletariat smaller titan in most of the Third World. But many workers still lived in the countryside, influenced by old peasant attitudes. [244] The bitterness against the old regime which came to a head in 1988–9 was diverted by political figures playing upon old rural prejudices, fanning them into hatreds against rival ‘national’ groups. [245]

The reactionary political forces face a problem, however. Just as the petty bourgeois lumpen masses can influence the workers, so if the workers enter into struggle under their own demands the influence can run the other way, as happened to some extent in Poland in 1980 and in China in 1989. In the right conditions the workers in large enterprises can pull behind them the workers in small enterprises, the lower layers of white collar employees and the agricultural workers and so exert a decisive influence over the students, the unemployed graduates, the self employed, the artisans and traders and sections of the peasantry.

What the outcome is does not, however, just depend upon objective conditions. Also very important is the degree of socialist political leadership within the working class movement. The crises experienced by the system in the 1990s are political as well as economic – splits within ruling classes, sudden eruptions of racism and communalism, unexpected wars and civil wars. Such conditions will again and again open up the ground for working class struggle. But successful struggle depends on socialists building independent parties that break with the Stalinist, populist and nationalist politics responsible for so many mistakes in the past.


1. World Bank, World Development Report 1991, pp. 33–34.

2. For summaries of these arguments, see I. Roxborough, Theories of Underdevelopment (London 1979), ch. 3, N. Harris, The End of the Third World (Harmondsworth 1987), and R. Prebisch, Power Relations and Market Forces, in K.S. Kim & D.F. Ruccio, Debt and Development in Latin America (Indiana, 1985), pp. 9–31.

3. H.G. Johnson, Nationalism in Old and New States (London 1968), p. 15, quoted in N. Harris, op. cit., p. 121.

4. P. Baran, The Political Economy of Growth (Harmondsworth 1973), p. 399.

5. Ibid., p. 416.

6. A. Gunder Frank, Capitalism and Underdevelopment in Latin America (Harmondsworth 1971), pp. 35–36.

7. Despite Baran’s preparedness to criticise certain features of Stalin’s rule, he quoted Stalin himself favourably and repeated Stalinist lies about the USSR’s agricultural performance and living standards. See, for example, P. Baran, op. cit., p. 441. Contrast Baran’s treatment with the critical, scientific assessment of Soviet figures to be found in Tony Cliff’s writings of the 1940s and 1950s, for instance in State Capitalism in Russia (first written in 1947).

8. Memories of Development, New Society, 4 March 1971, reprinted in Capitalism and Theory (London 1974), p. 173.

9. The Asian Boom Economies, International Socialism 2 : 3, p. 2.

10. J. Petras and M. Morley, Latin America in the Time of Cholera (New York 1992), p. 27. See also their chapter, The Retreat of the Intellectuals.

11. A. Gunder Frank, article in The Economic and Political Weekly (Bombay), 29 April 1989, p. 916.

12. See R. Blackburn, Fin de Siècle: Socialism After the Crash, New Left Review 185, Jan/Feb 1991.

13. World Bank, Overview, World Development Report 1991, pp. 1–11.

14. Report in Financial Times, 13 April 1993.

15. Financial Times, 27 April 1993.

16. Headline in Financial Times, 27 April 1993.

17. Far Eastern Economic Review, 1 April 1993.

18. World Bank, World Development Report 1991, p. 2.

19. Summary in Financial Times, 10 March 1993, of UNCTAD, The Least Developed Countries, 1992 report.

20. Food and Agricultural Organisation, The State of Food and Agriculture 1991.

21. Figures from World Bank, World Development Report 1991.

22. J. Stopford and S. Strange, Rival States, Rival Firms (Cambridge 1991), p. 13.

23. Figures from World Bank, World Development Report 1991.

24. S. Lambert, H. Schneider and A. Suwa, Adjustment and Equity in the Côte d’Ivoire, 1980–86, World Development, vol. 19, no. 11, pp. 1565–6.

25. World Bank, World Development Report 1991.

26. Numerical breakdown of ‘adjusting’ economies given by R. Sobhan, Rethinking the Market Reform Paradigm, Economic and Political Weekly (Bombay), 25 July 1992.

27. Quoted in J. Petras and M. Morley, op. cit., p. 14.

28. Food and Agricultural Organisation, The State of Food and Agriculture 1991.

29. W. Keegan, The Spectre of Capitalism (London 1992), p. 114.

30. OECD, Economic Surveys, Hungary (Paris, July 1991), p. 20.

31. According to W. Keegan, op. cit., p. 123.

32. World Bank, World Development Report 1991, pp. 4–5.

33. S. Brittan, Financial Times, 10 December 1992.

34. Figures are from World Bank, World Development Report 1991, tables 1 and 2. There are enormous methodological problems with all attempts to estimate growth rates and make comparisons between different countries undergoing economic change. Nevertheless, such figures provide an indication of the general trends.

35. Major Statistics of the Korean Economy 1990 gives the average manufacturing wage in 1989 as 491,642 won (about 490 pounds sterling) a month, and the average wage for ‘production and related workers’ in June 1988 as 313,886 won (about 313 pounds sterling), with wages rising at a around 20 percent a year at the time, following the great strikes of 1987. Prices also have been rising by up to 10 percent a year, but were still lower than in Britain for most basic consumer products. Alice Amsden notes that the average hourly wage of manufacturing employees, at $5.40 (about £3.75) an hour at the market exchange rate was ‘higher than many workers receive in the north of England or the south of the United States’ (A. Amsden, The South Korean Economy, in D.N. Clark (ed.), Korea Briefing 1992, p. 75).

36. Figure given ibid., p. 75.

37. Averaging 5.7 percent a year in the 1980s at a time when the population was growing by only 1.4 percent a year. Figures from World Bank, Social Indicators of Development 1990, p. 119.

38. Figures from World Bank, Human Development Report 1991, p. 166.

39. So that although over half of average urban household spending goes on food only 6.76 percent goes on grains, see Chinese Statistical Year Book 1990, p. 284.

40. There were, for each hundred people, only 0.3 television sets, 7.8 radio sets, 7.7 bicycles and 0.2 tape recorders – ibid., p. 277.

41. Ibid., p. 296. Even though these goods were about 50 percent more frequent in the households of privileged ‘cadres’ like senior engineers than the average, there can be little doubt some were quite widespread among workers.

42. Chinese Statistical Year Book 1990, p. 297.

43. M. Prowse, Financial Times, 26 April 1993.

44. Bill Warren, by refusing to recognise this, ends up providing a neo-liberal apology for capitalism, not a Marxist critique of it. So, for instance, he quotes sentences from Marx’s 1853 New York Tribune articles pointing to the elements of capitalist growth encouraged by the British in India, but does not include other passages from the same articles showing how British rule had devastated agriculture and indigenous handicraft industries, so that ‘the misery inflicted by the British on Hindostan is of an essentially different and infinitely more intensive kind that Hindostan had to suffer before.’ (K. Marx, The British Rule in India, New York Tribune, 10 June 1853, reprinted in K. Marx and F. Engels, Collected Works, vol. 12, p. 126) Interestingly, Third Worldist critics of Marxism like Edward Said also play down Marx’s bitter comments about the negative impact of colonialism and his support for revolutionary anti-colonial movements. This point is very well dealt with by A. Ahmed, In Theory (London 1993), ch. 6.

45. K. Marx, The Future Results of British Rule in India, New York Tribune, 22 July 1853, reprinted in K. Marx and F. Engels, Collected Works, vol. 12, p. 218.

46. K. Marx, ibid., p. 220.

47. Ibid., pp. 221–2.

48. V.I. Lenin, Imperialism, the Higher Stage of Capitalism (London 1948), p. 81. Lenin’s belief that capitalist development would occur in backward countries is not surprising. His own political baptism had, after all, been in the polemics with Narodniks who claimed capitalism could not develop in the backward Russian empire of a century ago. His first writings, What the Friends of the People are and On the so-called Market Question, confronted many of the arguments later to be found in latter day Third Worldists like Baran.

49. L. Trotsky, The Third International after Lenin (New York 1957), p. 18.

50. Ibid., p. 209. Even in his The Death Agony of Capitalism and the Tasks of the Fourth International, with its general insistence that ‘mankind’s productive forces stagnate’, he insists, ‘the backward countries are part of the world dominated by imperialism. Their development therefore has a combined character: the most primitive economic forms are combined with the last word in capitalist technique and culture’ (London), p. 37.

51. For example, M.-C. Bergere, The Golden Age of the Chinese Bourgeoisie, 1911–37 (Cambridge 1989).

52. P. Baran, op. cit., p. 338.

53. L. Trotsky, The Third International after Lenin (New York 1957), pp. 19–20.

54. H. Schmitz, Industrialisation Strategies in Less Developed Countries, Journal of Development Studies (October 1984).

55. A. Fishlow, Review of Handbook of Development Economics, Journal of Economic Literature, vol. XXIX, December 1991, p. 1730.

56. J. Stopford and S. Strange, op. cit., p. 1.

57. Ibid., p. 1.

58. Ibid., p. 8.

59. J. Page, a senior member of the Bank’s ‘miracle team’, paraphrased in the Financial Times, 26 April 1993.

60. This is the point made by the most thorough study of South Korean industrialisation, A. Amsden, Asia’s Newest Giant (Oxford 1992).

61. For accounts of this period, see especially ibid, and also W. Bello and S. Rosenfeld, Dragons in Distress, Asia’s Miracle Economies in Crisis (London 1992), pp. 54–59; and N. Harris, op. cit..

62. W. Bello and S. Rosenfeld, op. cit., p. 344.

63. Quoted in Financial Times, 16 April 1993.

64. Financial Times, 26 April 1993. See also A. Amsden, The South Korean Economy, in D.N. Clark (ed.), Korea Briefing 1992, pp. 87–88, for details of Japanese pressure on the World Bank to shift its stance away from neo-liberalism.

65. A. de Janvry, Social Disarticulation in Latin American History, in K.S. Kim and D.F. Ruccio, Debt and Development in Latin America (Indiana 1985), p. 49.

66. D.F. Ruccio, When Failure becomes Success: Class and the Debate over Stabilisation and Adjustment, World Development, vol. 19, no. 10, p. 1322.

67. Ibid., p. 1320.

68. Figures in A. de Janvry, op. cit., p. 67.

69. K.S. Kim and D.F. Ruccio, op. cit., p. 1.

70. A. Fishlow, Revisiting the Great Debt Crisis of 1982, ibid., p. 106.

71. IMF, quoted in A. Fishlow, ibid., p. 108.

72. Figures from S. Edwards and A.C. Edwards, Monetarism and Liberalisation, the Chilean Experiment (Cambridge, Mass. 1987), p. 12.

73. Ibid., p. 12.

74. P. Meller, Adjustment and Social Costs in Chile during the 1980s, in World Development, vol. 19 no. II, 1991.

75. Figures given by P. Meller, ibid.

76. Figures given in A. Fishlow, op. cit..

77. C.R. Duran, Mexico: the Transfer Problem, Profit and Welfare, in D. Felix (ed.), Debt and Transfiguration? Prospects for Latin American Economic Revival (New York 1990), p. 186.

78. P. Meller, Comment, in S. Edwards and F. Larrain, Debt Adjustment and Recovery (London 1989), p. 65.

79. The 1989 figures were: Chile 27.5 percent, Mexico 36.9 percent, Argentina 36.1 percent, Brazil 31.3 percent, Uruguay 29.4 percent. All from World Bank, World Development Report 1991, table 24.

80. J. Sachs, The Debt Overhang of Developing Countries, in G. Calvo, R. Findlay and P. Kouri (eds.), Debt Stabilisation and Development (Oxford 1989), p. 87.

81. Global Economic Prospects and the Developing Countries, 1993.

82. Financial Times, 19 April 1993.

83. Although it was only a little over a year ago that the Collor programme for Brazil was receiving enormous praise. See, for instance, C. Lamb, On the road to righteousness, Financial Times, 16 March 1992.

84. Financial Times, 5 April 1993.

85. Rough estimates obtained by combining the figures provided by P. Meller, op. cit., and S. Edwards, Stabilisation with Liberalisation: an Evaluation of 10 Years of Chile’s Experiment with Free Market Policies, Economic Development and Cultural Change (1985), pp. 223–254.

86. Figures from Economic Intelligence Unit, Annual Survey Chile, 1992–3.

87. Summary of report of Central Bank of Chile, Financial Times, 23 March 1993.

88. Figure for 1991 given in Economist Intelligence Unit, Annual Survey Chile, 1992–3.

89. World Bank, Trends in Developing Economies 1992.

90. World Bank, World Development Report 1991, table 1, p. 205, and table 7, p. 217.

91. World Bank, Trends in Developing Economies 1992. Contrast this conservative account of the ‘recovery’ and its awareness of the possible threats to growth with the wild enthusiasm of the Menem administration (and enthusiasm matched by much journalist coverage in Britain) as given, for instance, in Argentina: Key Economic Indicators (Buenos Aires, March 1992).

92. Figures in Financial Times, 10 March 1993.

93. Financial Times, 4 May 1993.

94. Inter-American Development Bank Annual Reports, and World Bank, World Development Report 1991, table 7, p. 217.

95. Financial Times, 28 April 1993.

96. Financial Times, 19 April 1993.

97. Financial Times, 5 April 1993.

98. Figure given by J. Petras and M. Morley, op. cit., p. 14.

99. Financial Times, 5 April 1993.

100. IMF, Private Market Financing for Developing Countries (Washington DC, December 1992), p. 38.

101. Ibid., pp. 5–8.

102. Quoted in Financial Times, 19 April 1993.

103. J. Stopford and S. Strange, op. cit., p. 58.

104. Far Eastern Economic Review, 10 December 1992, p. 20.

105. The official figures show a fall of nearly 6 percent in manufacturing wages between 1979 and 1981. But the fall was probably substantially greater than this for manual and routine white collar workers, given that the ‘all city’ price index rose by 50.5 percent in the two years 1980 and 1981, but the wages of ‘production and related workers, by only 35.8 percent. See Major Statistics of the Korean Economy, 1990, pp. 94, 186 and 255.

106. A. Amsden notes that all the newly industrialising countries rely on copying foreign technology rather than on innovating themselves as Germany and the US did when they began to challenge British capitalism for world dominance a century ago. But this presents problems for them of learning to innovate once they have gone some way towards catching up with the West. See A. Amsden, Asia’s Next Giant (Oxford 1992), and A. Amsden in D.N. Clarke (ed.), op. cit.

107. See, for instance, Far Eastern Economic Review, 12 November 1992.

108. Financial Times, 15 March 1991.

109. Financial Times supplement, World Car Industry, 20 October 1992.

110. The 1992 cars, Consumer Reports, April 1992, quoted in A. Amsden, The Korean Economy, in D.N. Clark (ed.), op. cit.

111. Figures for 1991 in Far Eastern Economic Review, 13 August 1992. Hyundai itself had expected to do much better than the official mid-1980s target for 1991, reckoning motor vehicle exports would reach about 3 million by 1991. Targets given in N. Harris, The Mobile Industry, Socialist Worker Review, January 1986. Harris himself thought they were attainable, arguing, ‘The Korean performance in shipbuilding should caution the sceptics about ridiculing these targets’.

112. Far Eastern Economic Review, 22 October 1992.

113. Ibid.

114. Far Eastern Economic Review, 13 August 1992.

115. Far Eastern Economic Review, 8 April 1993.

116. Far Eastern Economic Review, 13 August 1992.

117. Ibid.

118. See, for example, Far Eastern Economic Review, 13 August 1992, pp. 29–34; Far Eastern Economic Review, 10 December 1992, pp. 20–21; Financial Times, 22 March 1991; Korean Times, 11 August 1991; Korean Herald, 26 July 1991.

119. N. Holloway, Panting for Breath, Far Eastern Economic Review, 20 August 1992, p. 60.

120. Figures given in Financial Times, 15 June 1992.

121. Socialist Economic Bulletin Research Paper, no. 3, November 1992.

122. Figures given in Z. Ling, Rural Reform and Peasant Income in China (London 1991), p. 183.

123. World Bank, Social Indicators of Development 1990, p. 119. The IMF, China: Economic Reform and Macroeconomic management, suggests an average growth rate in the 15 years before reform of about 4 percent.

124. Z. Ling, op. cit., p. 12.

125. Figures from World Bank Development Report 1992, table 4.

126. C.H. Hanumantha Rao, World Development Report 1991: An Appraisal, Indian Economic Review, vol. XVI, no. 2, 1991, p. 254. He notes the Chinese experience is not generalisable to other underdeveloped countries: ‘It is not possible to realise such a high growth rate in Indian agriculture merely through economic reforms mainly because there is no such slack. We did not introduce collectives or communes, nor is capital formation sufficiently high.’ It should be added that Chinese type reforms cannot work in most of the former USSR and Eastern Europe for a different reason: in these countries Stalinist primitive accumulation all but destroyed the peasantry (farming accounts for only about 15 percent of the labour force of the former USSR), meaning that simply giving incentives to the mass of the rural population to work harder cannot increase productivity much.

127. For an account of this renewed growth, and the illusions it created, see my Class Struggles in Eastern Europe (London 1984).

128. A. Chan, Social Origins and Consequences of Tiananmen, in D.S.G. Goodman and G. Segal, China in the Nineties (Oxford 1991), p. 113. See also, Z. Ling, The transformation of the operating mechanisms in Chinese agriculture, Journal of Development Studies, January 1990, vol. 26, no. 2, p. 237.

129. A. Chan, ibid., p. 113.

130. Z. Ling, op. cit., p. 238.

131. Figures from China Statistical Year Book 1990.

132. Z. Ling, op. cit., p. 234.

133. Ibid.

134. Ibid., p. 239.

135. A. Chan, op. cit., pp. 113–4.

136. Quoted by T. Walker, in Fields of Frustration, Financial Times, 10 May 1993.

137. According to the China Statistical Year Book 1990, p. 107.

138. For an account of nine case studies in Central China, see Z. Ling, Rural Reform and Peasant Income in China (London 1991).

139. According to the Financial Times, 16 June 1992.

140. Ibid.

141. Report by J. Gittings, Guardian, 22 February 1992.

142. See, for example, T. Walker, op. cit..

143. ‘In the six years after 1984, China’s trade deficit ... was caused not so much by imports of machinery, equipment and intermediary products, as by the import of high grade consumer durables. In particular the high deficit registered in 1985–6 resulted from the import of expensive passenger cars and high grade TV sets’. R. Kojima, Achievements and contradictions in China’s economic reforms, The Developing Economies, December 1990, vol. 28, no. 4, p. 382.

144. World Bank, Social Indicators of Development 1990, p. 117.

145. Figure given in China Statistical Year Book 1990, p. 38.

146. World Bank, Social Indicators of Development 1990, p. 119.

147. Taiwan is a net importer of a third of its food in caloric terms, despite exporting rice (W. Bello and S. Rosenfeld, op. cit., p. 188); South Korea imported more than 60 percent of its grain in 1989 according to Major Statistics of the Korean Economy 1990.

148. Z. Ling, The transformation of the operating mechanisms in Chinese agriculture, op. cit., p. 235.

149. World Bank, Social Indicators of Development 1990, p. 115.

150. According to CIA Directorate of Intelligence, The Chinese Economy in 1990 and 1991: Uncertain Recovery (Washington, 1991), pp. 5–6.

151. According to the Financial Times, 10 May 1993.

152. Estimated at $76 billion in 1992, according to the Financial Times, 10 May 1993. Neo-liberal commentators blame these losses on the inefficiency of state owned as opposed to private industry. What they forget is that the profits of much of Chinese private industry depend upon the cheapness of inputs it gets from the state sector.

153. Financial Times, 10 May 1993.

154. According to the Financial Times, 16 June 1992.

155. See, for instance, the views of professor He Jianzhang of the Chinese Academy of Social Sciences, quoted in Financial Times, Survey of China, 16 June 1992.

156. Figures from World Bank, Trends in Developing Economies 1992, p. 266.

157. It rose by 400 percent for each hectare between 1960 and 1990, according to World Bank, World Development Report 1992, table 4.

158. See, for example, World Bank, World Development Report 1991, p. 38, and Trends in Developing Economies 1992, p. 262.

159. S.M. Datta, Economic Transition, a Business Response, Economic and Political Weekly, 9 May 1992, p. 1018.

160. Financial Times, 22 February 1991.

161. Financial Times, 22 February 1991. See also S.M. Datta, op. cit., p. 1019.

162. Figures from World Bank, Trends in Developing Economies 1992, p. 266.

163. Ibid., pp. 262–263.

164. G. Parthasarathy, Rural Developments, in C.T. Kurien, E.R. Prabhakav and S. Gopal (eds.), Economy, Society and Development (Madras 1991), p. 200.

165. A. Vaidyanathanan, Agriculture and the Economy: Causes and Consequences of Slow Growth, ibid., pp. 125–126.

166. Quoted in Financial Times, 11 May 1990.

167. Structural adjustment second thoughts within the government, Economic and Political Weekly (Bombay), 18 March 1992.

168. World Bank, Trends in Developing Economies 1992, p. 264.

169. Financial Times, 29 March 1993.

170. Far Eastern Economic Review, 1 April 1993; see also Back to Reforms, Economic and Political Weekly (Bombay), 9 September 1992.

171. Far Eastern Economic Review, 1 April 1993.

172. World Bank, Trends in Developing Economies 1992, p. 265.

173. Front page, Far Eastern Economic Review, 14 January 1993.

174. Calculation based on figures in World Bank, Social Indicators of Development 1990, p. 143, and Ministry of Planning, India: Monthly Abstract of Statistics, June 1991.

175. G. Parthasarathy, op. cit., p. 199.

176. Figures from World Bank, Indicators of Development 1990. See also A. Vaidyanathan, op. cit., pp. 125–138.

177. 1984–5 estimate for end of 1980s, in T. Lakdaula, Development Planning: the Indian Experience, in C.T. Kurien, E.R. Prabhakav and S. Gopal (eds.), op. cit., p. 365.

178. The then exchange rate.

179. The usual designation for informal, casual or traditional sectors.

180. Figures for industrial wage rates in Indian Labour Year Book 1990 – the exchange rates used are for 1986. Figures for agricultural wages are in D.T. Lakdaula, op. cit., p. 367.

181. Ibid.

182. G. Parthsarathy, op. cit., p. 196.

183. The figures do not provide a fully accurate total of those without jobs. Some of those who register have existing jobs which they regard as below their capabilities, while millions of rural unemployed are not registered. See, for instance, G. Heuze, Shiv Sena and “National” Hinduism, Economic and Political Weekly, 3 October 1992.

184. See A. Vaidyanathan, op. cit., p. 129, and G. Partasarathy, op. cit., p. 200. The two writers give slightly different accounts of the degree of expansion of non-agricultural rural employment.

185. Figures from D.T. Lakdaula, op. cit., and L.C. Jain, The Role of Traditional Industries, both in C.T. Kurien, E.R. Prabhakav and S. Gopal (eds.), op. cit.. The only traditional industry to grow rapidly has been handicrafts, which saw a growth in employment from 1.01 million to 3.51 million between 1955 and 1985.

186. Figures in D.T. Lakdaula, op. cit., p. 271.

187. G. Heuze, op. cit., p. 2190.

188. See the report of the observations of the Indian sociologist Ashish Nandy in Independent on Sunday, 24 January 1993. An earlier wave of anti-Muslim riots in Indian cities in December was accompanied by a very similar wave of riots and looting in the Pakistani cities of Lahore and Karachi against Hindus, and, where they did not exist, against former Hindu temples that had been converted to other uses. See Newsline (Karachi), December 1992.

189. See the excellent account of the Shiv Sena Hindu chauvinist movement by G. Heuze, op. cit.

190. J. Stopford and S. Strange, op. cit., p. 29.

191. Ibid., p. 16.

192. Ibid., table 1.2, p. 18.

193. Both sets of figures given in summary of United Nations Development Programme, Guardian, 24 April 1992.

194. Financial Times, 19 April 1993.

195. N. Harris in A Comment on National Liberation, International Socialism 2 : 53, p. 86.

196. Figures for 1966–1982/3 in L.C. Jain, The role of Traditional Industries, in C.T. Kurien, E.R. Prabhakav and S. Gopal (eds.), op. cit., p. 215.

197. G. Parthasarathy, op. cit., p. 199. N.M. Chandra presents figures which show a long term rise in the capital-labour ratio in large scale industry, and a much more rapid growth of large scale industry than small scale industry. He also argues that the organic composition of capital is higher in Brazil, India, South Korea and Indonesia than in the US, West Germany, Britain and Japan. See The Retarded Economies (Bombay 1988), pp. 172–173 and 140.

198. Figures for value added per sector of the economy in India, National Account Statistics, 1991. Manufacturing accounts for 15.6 percent of GDP (out of a total for industry of 23.9 percent) as against 28.3 percent from agriculture and 37.4 percent from services (and 10.4 percent accounted for by indirect taxes).

199. The shift of some industry (for instance, low quality textile production) to India from other parts of the world so as to gain from lower wage rates while using established, relatively developed means of production, might increase the rate of exploitation internationally, and so reduce the pressures on the world system. But again, this effect must be very limited, given the relatively small size of the labour force in India’s export sector compared with the industrial workforce of the world as a whole (less than 1 percent). Even the four Asian tigers still only account for 8.5 percent of world trade in world manufactures – a figure more than five times higher than in 1965, but not sufficient to alter the trend in profitability of the world system substantially.

200. Figures from table 8, ‘Productivity of independent accounting industrial enterprises, 1985–90’, in China’s Industrial Performance since 1978, in China Quarterly, September 1992, p. 593.

201. United Nations, World Economic Survey, 1992, p. 68.

202. Major Statistics on the Korean Economy, 1990, table 1, p. 4.

203. Far Eastern Economic Review, 17 December 1992.

204. Far Eastern Economic Review, 18 March 1993.

205. United Nations Development Programme, summarised in Guardian, 24 April 1992.

206. There is a second, theoretical, objection to the argument about workers in advanced countries benefitting: it confuses the wage paid to workers with the price at which a commodity is sold. The two are quite distinct. It is true that, according to Marx, both are determined by labour times – but they are different labour times. Wages are determined by the labour time necessary to provide the workers with the level of consumption which will make them able and willing to work (as Marx put it, to reproduce their ‘labour power’); prices by the labour time the average worker in the system as a whole needs to expend to make the commodity (what Marx calls ‘the socially necessary labour time’). The argument therefore rests upon the Ricardian theory of value, discarded by Marx, which failed to distinguish labour power and labour. (For presentation of the argument which makes this mistake quite transparently, see I. Roxborough, op. cit., p. 61: ‘The value of labour-time is the cost of its reproduction’).

Using Marx’s theory of value, it would be possible to establish a viable theory of unequal exchange in cases where some commodities were produced mainly in the low wage regions of the world and some commodities mainly in the high wage regions. Then capital from the high wage countries would flow into the low wage regions, attracted by the initially high rates of profits accruing from the low wages, until rising output forced the prices of the low wage region’s goods to fall below their value. Buyers in the advanced countries (whether workers or capitalists) would then get more value than they had paid for. This could not happen, however, if production of the different commodities was more or less evenly distributed between high wage and low wage regions. In that case, a fall in the prices of some goods below values would transfer value to buyers from producers in both the high and low wage regions. To give a concrete example, if food were to be sold below its value today, there would be a transfer of value from the US farm industry to food consumers throughout the world, including in many Third World countries. For further discussion on the theoretical issues, see M. Kidron, Black Reformism, in Capital and Theory (London 1983). See also A. de Janvry and F. Kramer, The Limits of Unequal Exchange, Review of Radical Political Economy, Winter 1979, p. 3, and N.M. Chandra, The Retarded Economies (Bombay 1988) ch. 4, The theory of unequal exchange, pp. 140–157.

207. Or sometimes the related Gross Domestic Product.

208. As the pioneering statistician Simon Kuznets pointed out in 1947: ‘The availability of goods and services in less developed economies, in which a large proportion of production is in the home, is not so much less than in the highly developed economies as would appear from viewing only market economic activity’. (Kuznets paraphrased by R. Eisner, Extended Accounts for National Income and Product, Journal of Economic Literature, vol. XXVI, December 1988, p. 1613.) ‘The line of division between business and the family differs from country to country, and for the same country from time to time’ (S. Kuznets, quoted in R. Eisner, op. cit.).

209. Thus during the industrialisation of the US: ‘The growth of total output is exaggerated as we move from the old spinning wheel in the parlour to the textile factory, and from the wood stove and fresh farm produce to frozen food and restaurants.’ (R. Eisner, op. cit., p. 1613).

210. The same is probably true in the US and Britain as well with the growth of women’s employment, since a woman who, today, cooks a hamburger for a man in McDonald’s is counted as contributing to the national output while the one who, 25 years ago, cooked her husband’s tea every day was not so counted. As Eisner (op. cit.), puts it, ‘The recent increases in conventional GNP associated with the movement of women into the labour force may signify a much lesser gain in total output, as non-market childcare gives way to the baby sitter, care of the aged to nursing homes, and home cooking to McDonald’s.’

What is more, GNP attempts to measure not only the output of goods but also of services. Since many of these are not traded internationally it is virtually impossible to compare their total value in different countries. How do you compare the value of domestic service sector in Pakistan with that in France, or of the non-computerised banking system in India with the highly mechanised one in Britain? The answer of the statisticians is usually to measure ‘factor cost’ (how much people get paid in the local currency). But this rules out in advance any measure of the relative productivity of labour in different countries, or any attempt to distinguish between wasteful and essential services. Thus a country whose income distribution favours a wealthy class employing lots of servants will seem to have a higher national output than one with a more egalitarian structure, and a country going through a speculative boom involving vast growth of banking and property sales will seem to have a faster growth than otherwise.

Thus, in the case of India, figures for real domestic product per head show a rise of 20 percent between 1920 and 1970, an apparently significant advance. But if instead the figure used is that for real material output (which excludes the service sector), there is ‘no noticeable rise’. (M.N. Chandra, The Retarded Economies, Bombay 1988, pp. 175–176.) Net Material Product figures are not that perfect as a guide to real advance. They exclude services which clearly are productive, and they leave other problems unresolved when it comes to comparing output between countries or over time – in particular how you account for the different quality of products (for instance comparing a 1950s black and white TV with a 1990s colour one, a large late 1940s thermionic valve computer with a 1990s microcomputer, or a Russian tank with an American one).

Finally, in comparing different economies, there is always a choice between measurements using official exchange rates and those which take into account the different purchasing powers of different currencies. Thus in 1970 the purchasing power of the Indian rupee was three times its official rate vis à vis the US dollar (M.N. Chandra, as above, p. 218). All this means that growth rates are much more rough and ready than is often implied. It also means that there can be wildly different estimates for the relative size (and therefore growth rates) of different economies, and that ideological preference often determines which measure is used.

This has happened recently in the case of commentators looking at China. Various methods of measuring its 1989 GDP give completely different results. One puts it second only to the US. Another puts it about the same size as Germany’s. A third puts it just under half Britain’s, and a final estimate puts it scarcely more than India’s and a quarter of Britain’s. Estimates of growth for the 1980s differed less, but still varied for 1980–8 from under 25 percent to 100 percent. (There is a comprehensive discussion on the different sets of figures in CIA Directorate of Intelligence, The Chinese Economy in 1991: Uncertain Recovery, Washington 1991, Appendix A.) Commentators wanting to put the ideologically based view that the market is turning China into a new ‘economic giant’ have thus been able to discover ‘new’ sets of figures, based on purchasing power parities, that show the country as being much larger economically than used to be thought – except that the figures are hardly new, coming from a United Nations study that began in the late 1960s (the Penn World Tables of the United Nations International Comparison Project. For an account of these, see D. Mazumdar, L. Travers and C. Trikha, International Comparisons and GNP Measures, Economic and Political Weekly, Bombay, 24 October 1992).

211. Figures given by J. Petras and M. Morley, op. cit., p. 13.

212. Summary of International Monetary Fund, World Economic Outlook in Financial Times, 27 April 1993.

213. IMF, Private Market Financing for Developing Countries (Washington DC, December 1992), p. 6.

214. D.F. Ruccio, When Failure Becomes Success: Class and the Debate over Stabilisation and Adjustment, World Development, vol. 19 no. 19, p. 1315.

215. J. Sachs, The Debt Overhang of Developing Countries, in G. Calvo and others (eds.), op. cit., p. 84.

216. Quoted in F. Bourguignon, J. de Melo and C. Morrison, Poverty and Income Distribution during Debt Adjustment, in World Development, vol. 19, no. 11, p. 1497.

217. S. Edwards, Stabilisation with Liberalisation, Economic Development and Cultural Change, 1985, pp. 223–254, presents a real wage index for Chile with 1971 as 129.0 and 1982 as 109.5, while the Banco Central de Chile Boletin Mensuel, February 1993, using an index with December 1982 as 100 calculates that by December 1992 unskilled workers stood at 116.17, skilled workers at 123.19, employers at 197.47 and managers at 164.48.

218. J. Stopford and S. Strange, op. cit., p. 18.

219. Ibid..p1.

220. N. Harris, The End of the Third World, op. cit.

221. For a detailed account of the negotiations, see M. Mohanty, Strategies for Solution of Debt Crisis: an Overview, Economic and Political Weekly (Bombay), 29 February 1992.

222. M. Milivojevic, The Debt Rescheduling Process (London 1985), p. 44.

223. J. Sachs, op. cit., p. 85.

224. J. Stopford and S. Strange, op. cit., p. 46.

225. Quoted in M. Milivojevic, op. cit., p. 111.

226. Financial Times, 11 May 1992.

227. Financial Times, 18 May 1992.

228. Daily Telegraph, 7 July 1992. See also Far Eastern Economic Review, 24 December 1992; International Herald Tribune, 1 April 1993; Far Eastern Economic Review, 4 February 1993.

229. Financial Times, 2 June 1992.

230. P. Rogers and M. Dando, A Violent Peace: Global Security After the Cold War (London 1992), pp. 46–47.

231. Ibid., p. 46.

232. All figures from table 3, World Bank, World Development Report 1991, pp. 208–209.

233. R.S.D. Lambert, Workers, Factories and Social Change in India.

234. Patricio Meller observes how in Chile the spread of certain consumer durables among the poorest fifth of the population has occurred while living standards have fallen: ‘Once poor families acquire household appliances, they are loath to give them up, even to buy food.’ Adjustment and Social Costs in Chile during the 1980s, World Development, vol. 19, no. 11, p. 1546.

235. There were 24.21 million employed in 1984 in the so called ‘organised sector’ with more than ten workers per establishment – R.S. Singh, The Indian Economy (New Delhi 991).

236. These figures come from the Census of India 1991. But this does not distinguish between workers, managers and employers, and so probably exaggerates somewhat the number of wage earners. In the same way, the figures for ‘organised workers’ will include higher grade salaried employees – the ‘new middle class’ – and so exaggerate the size of the working class.

237. China Statistical Year Book 1990, pp. 105 and 107.

238. For accounts of working class struggles at the time of Tiananmen Square, see C. Hore, China: Tiananmen Square and After, International Socialism 2 : 44, Autumn 1989, and A. Chan, op. cit.

239. A view which can be encouraged by simplistic assertions that ‘the working class is the majority class in the world’ – which is probably not true, given the enormous size of the Chinese peasantry.

240. All figures are based on those provided for 1987–8 in the Statistical Yearbook for Pakistan, tables 3.2 and 3.3.

241. Thus in Delhi in 1956, 35.9 percent of the workforce were self employed or ‘independent workers’, as against 22.9 who were employees in ‘factories’ or large non-factory establishments in the organised sector (V.K.R.V. Rao and P.B. Desai, Greater Delhi, A Study in Urbanisation 1940–57, London 1965); in Bombay in 1961 ‘employees’ outnumbered ‘employers, single workers and family workers’ by over three to one (K.C. Zachariah, Migrants in Greater Bombay, London 1968, p. 229); in Maharastra state, excluding Bombay, in 1961, 55 percent of the working population were employees and 45 percent non-employees (K.C. Zachariah, op. cit.).

242. There is, for instance, a considerable difference in this respect between South Korea, where large firms predominate, and Taiwan, where small scale rural industry plays a much larger role. See F.C. Deyo, Beneath the Miracle, Labour Subordination in the New Asian Industrialisation (Berkeley 1993).

243. G. Heuze, op. cit., 3 October 1993.

244. The Yugoslav Statistical Year Book 1992 shows 50 percent of the population of ‘Yugoslavia’ (i.e. Serbia and Montenegro) as living in the countryside, but only about 10 percent as working in agriculture.

245.y All the serious accounts of the civil wars in former Yugoslavia stress that the centres of communalist bigotry were in the rural, rather than the urban, areas, but also that they came to dominate political life in the towns as well as the countryside. See, for example, M. Glenny, on the different attitude of rural and urban Serbs and Croats in Bosnia, in The Fall of Yugoslavia (London 1992), p. 155.

Last updated on 24 April 2018