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Globalization: History and Problems
Professor Gérard de Bernis
1 Introduction
The debt of peripheral countries, which constitutes the fundamental obstacle to their development, can otherwise be considered as the main factor enabling "world-wide financial application", the most negative aspect in the building of the global village. The enormous mass of accounts receivable that cannot be reimbursed -and that could never be- has created a financial market of a size unknown to date. Without any authority being able to control such a mass of credit, it casts an atmosphere of uncertainty upon our productive economy: the banks holding these liquidities make a profit by moving them from one market or one sector of the market to another (thereby taking advantage of differences in interest rates, exchange rates or even by speculating on raw materials markets); firms, having become incapable of anticipating a quasi-certain profit rate, restrict their investments. This is why we are seeing intolerable unemployment and misery around the world, not to mention their consequences.
2. The origin of the debt : the structural trade deficit of the United States, since 1967 ; Eurodollars must be seen as acknowledgement (recognition) of debt, not payment.
As is usually the case with capitalism, the lowering of the profit rate in mainstream international economy is at the root of passages from periods of stability and growth to periods of instability and crisis (1). This was observed once again, around 1965, at the time when the American profit rate dropped (a). American capital reacted with "Foreign Direct Investment" (FDI) in Europe (b). The Franco-American debate that thus took place lead to the neglect of the rules set forth at Bretton-Woods (c). The IMF stopped checking monetary parities (d). The Smithonian agreement attempted, however in vain, to re-establish some monetary order (e).
a/ The saturation of the Latin American market
The profit rate of American capital lowered once again around 1965 (2) when the Latin American market was saturated; American capital invested massively in this direction but paid salaries so low to the extent that the population could not buy what they produce. This turnover in the American situation put an end to twenty years of post Second World War steady growth, and provoked the crisis that has not ceased to worsen since then.
b/ American capital reacts with the FDI in Europe
Although it was not the only responsible entity, American capital quickly knew how to take advantage of an exceptional contradiction:
- on one hand, the national deficit running in the United States -cost of the war in Vietnam, the reduction of their technological advance on Europe- reduced their stock of gold. This could have encouraged the American authorities to limit the FDI's in order to reduce the deficit and bring the gold stocks back on track;
- on the other hand, American capital imposed and entirely different policy: to save its profit, it reacted by developing the FDI; it was able to do so because -and this is a decisive factor- the rest of the world desired so much to hold dollars due to the foregoing years when it suffered from a lack of dollars that it finally admitted the fact that what it was selling to the United States was paid to them by a mere transfer of dollars, that is to say nothing other than the United States' recognition of the debt they accumulated abroad, as though it was enough to sign an "IOU" (i.e. "I owe you") in order for the debt to be actually paid!!! Evidently, the non-American creditor in the United States is only really paid back when he buys, either with dollars received, goods, an asset or a service to the United States. If the rest of the world had refused these "false payments" (3), the evolution of the world's economy would have been entirely different; however, this was not the case. Since the United States found -and still finds- this an immensely advantageous situation, the deficit of the balance running in the States has lately exploded out of all proportion, which is a witness to the weakness of foreign demand in the United States as well as the illusions concerning the nature of currency in international payments.
c/ The Franco-American negotiations of 1967, abandoning Bretton Woods
Eurodollars were abundant as early as 1965. Its first effect was the collapse of the fixed exchange system established at Bretton Woods in 1944: as France had called upon the American FDI's to "restructure" various sectors of its industry, it held dollars; under the influence of Rueff for whom gold was the only true currency, the French government asked the United States to buy back, in accordance with their 1947 agreement, the dollars held by the Banque de France. The agreement states that the United States will reimburse in gold any dollar shown at the fixed rate of $35 an ounce (rate fixed by Roosevelt in 1933), which established the post-war law of the International Monetary System, "the Dollar is as good as gold". Worried about the drop of their gold stocks, the United States first off refused France's proposition; after some hard-going negotiations, they accepted the proposition in 1967 but declared that they would no longer do so for other countries. The President of the Bundesband immediately approved their position for, as the better part (80?of his reserves were in dollars, he wanted to avoid a dollar crisis at all costs.
Since that day, the Dollar ceased to be just as good as gold, the system of Bretton Woods is broken, and the international economy had to work on a new foundation. The consequences of this situation quickly appeared, firstly because the new situation was not going to change.
d/ Monetary floatation and revaluation without IMF agreement
The United States did not have any reason to want to modify the situation that allowed them to pay for their imports by emitting the dollars deposited in American banks. These banks in turn circulated these dollars outside of the United States (Eurodollars) not only profiting from interest in the classical sense but making profit from the manipulation of the exchange rates -easy to anticipate as all they have to do is modify them- and the differences in interest rates which are due to governments acting in order to maintain their rates of exchange at a desired level. One can thus understand how the financial system could have developed to such a far extent, but all this money flow was not necessarily checked up on: in 1967, a simple modification of the interest rates (on the Eurodollar and the œ) was all that was needed to devaluate the œ which in turn made the Sterling zone disappear, an institution that existed for centuries that no one could have imagined would be as vulnerable as this; in 1968-69, Germany, Japan and Switzerland received massive amounts of dollars leaving their currencies float in the first instance before re-evaluating them (this even very nearly happened to the French Franc), which they decided out of all agreement or negotiation with the IMF in flagrant violation with the statutes of that organisation (any change in parities must be negotiated within the IMF).
e/ The Smithonian Agreement
The relinquishing of fixed exchange rates in 1967 was the end of the Bretton Woods Agreement, well before the American decision of August 1971 to impose a customs duty on European steel (4). Since 1967, the international monetary system has continued towards self-destruction, to the extent that it became further necessary to re-establish a bit of order at least temporarily: the Smithonian Agreement (December 18th, 1971) (5) endeavoured to go beyond the wave of savage currency revaluation.
The American foreign balance deficit inevitably throws off the external balance of other countries which increases once again the volume of monetary payments, thus those of liquidities, most payments being labelled in dollars (Euro-dollars). Inevitably, after a more a less long trip, these dollars return to the United States, their natural trading habitat: either they limit the foreign deficit, either the finance the public debt; the one and the other can be linked, but there is nothing mechanical about it (one must nuance the meaning of the expression "twin deficits"(6) The whole world accepts this situation and is disinterested in the lack of balance in productive economy: without thinking of ways to solve these problems, we transfer them to the financial system (public debt, bank deposits) it now being up to that system to manage them, which it does, but it can only do so in accordance with financial market logic.
When the mass of Eurodollars exceeded the 50 billion point in 1969, economists became worried because no authority whatsoever could control this. But on the financial market they offered immense possibilities for growth: the annual American foreign deficit had risen considerably since the end of the 1960's, easily over $100 billion, around $200 billion in 1998, and probably far more in 1999 (7). However, no one is surprised any longer by the enormous growth of world liquidities: the 50 billion in euro-currencies in 1969 have amounted to 8 000 billion, which is only a small part of the world's finance; the explanation often is that it is good for the world economy!!! Of course there is no single cause for a long-lasting world phenomenon. Nonetheless, the starting point of the "world-wide application" process of our planet is implanted in this deficit.
3. The external deficit of United States, growing from one year to next, created a huge mass of liquidities held by banks ; they used them to get profits -modification of exchange rates, differentials of interest rates- and so bringing about overall uncertainty which spoils investment, growth and employment
In the 1950's and 1960's, the national productive systems of the countries central to the world economy, profoundly destructured by the crisis between the two wars and the Second World War, were re-organised in the framework of the rules laid down by the governments. At the time we spoke about plannification, although it was called "indicative". It promoted the public sector and relied on strict boarder controls. The American government itself helped to a large extent the reconstruction of European countries with its Marshall Plan: the fact that it was necessary for the economy of the United States, in order to avoid the "re-conversion crisis" feared by the entire world, does not lessen in any way either the role of the American State nor the inter-State character of its decision (8). In the peripheral countries that were just starting to emerge from colonisation, development planification was generally carried out; Korea in particular did not escape this (9).
The situation radically changed at the beginning of the 1970's. Even the idea of having a plan remained at an institutional level and its orientation changed. In the first Rapport Annuel sur la Situation Economique et Sociale de la France ("Annual Report on the Economical and Social Situation in France") (10), the CGT entitled the chapter concerning the 70's as follows: "De la déstructuration du système productif national ... la "contrainte extérieure", the last expression (i.e. "the foreign constraint") becoming the new mainstream idea:
- the central countries develop the theme of "industrialisation" but only give it a very specific aim. The idea of entertaining a Plan remains -the institution is a witness to this-, but its perspectives change in a profound way: the first objective is to adapt the national economies to the structures of the world economy in order to attract foreign capital, develop exportation and orient industries towards what is called "promising gaps on the market"; once again we observe from one crisis period to the next the same thing as did Stuart Mill as early as the crisis of 1848, that is that mercantilism always surges forth in a crisis period;
- very quickly off they organise the "industrial relaunch", which is to accelerate the delocalisation of enterprises by increasing their implants abroad, thus in the image of the what the United States, Germany and Japan (11) were doing already: this is the first indication of the international effects of the profusion of liquidities;
- little by little, the preoccupation with the stability and coherence in the national productive systems disappeared.
Today, under the influence of dominant forces, our news media manipulate two discourses although they do this without even understanding they are contradictory to each other:
- "in the 1950's and 1960's we benefited from a very strong growth period" (some even speak of "30 years of glory").
- "national economy will not regain growth unless it respects absolute liberalism", for which the two essential themes are increasing flexibility in social relations and deregulation in international relations.
Putting these demands to work expresses the existing tension, since the rules on how the economy functions are always defined from period to period (or from crisis to crisis) by the current mainstream forces.
Since the 1950's and 60's, concentration -capitalism's permanent and monotone process having an irregular pace- transforms global economy. Just as any firm those of the 50's and 60's, already dominant that were veritable "national monopolies", wished to re-enforce themselves once again -use new techniques, hold up against foreign competition and the American FDI. In order to do so, they wished to reach beyond national boarders and thus claimed total liberty of action at boarder controls, and they also wanted to impose their own policy on employees and therefore a profound reform of Workers' Rights:
- freedom at boarders implies that there would not be any costumes duty -firms that relocate would like to sell at least part of their products in their home country-, nor would there be any control on exchange -relocating necessitates the transfer of funds- ; financial deregulation is unavoidable;
- the liberty of action with regards to workers can be carried forth only if the State helps national firms to become the most competitive, which imposes upon enterprises and their State in a permanent way the necessity to invent and carry out new measures against the tendency of profit rates lowering: although the intensification of work does show up in the same ways as in 1968 (intensification, de-qualification), it progressively reappears, however this time more discretely: extension of teamwork to professions that still escape from it, giving up the law of no night shift work for women -long live 'women's lib'!-; this is how the long history of flexibilisation started, quietly but systematic destroying employees' rights.
These two aspects of "globalisation" -deregulation, flexibilisation- do not come about naturally. They always express tentions in relations between industrial leaders themselves -level of concentration-, as well as between these leaders and their workers -salary, hours and working conditions-, which have all changed in a deep way between the 1950's and 1970's: during this latter decade, rapidly growing firms had become quite powerful enough to free themselves from the rules defined in the 1950's by the dominant forces of that time and were able to impose new rules that correspond to what they conceive as being more favourable to their own interests. As the weight of the State is obviously still very great, these companies have to continually put pressure on public authorities, however their argument that "freedom" is always more efficient if we do not either ask who makes use of such liberty, nor to what aim; Lacordaire's saying that "between the weak and the powerful, it is freedom that oppresses the law that liberates" has not grown too old. Upon this observation, one can attempt to formulate the beginning of an answer to the all-to-often asked question about what role the States played in the globalisation process, were they agents or victims?
The State in itself was not a coherent entity; it underwent contradictory pressures due to its complexity, hence the interference of politics and economics and the unavoidable conflicts. Firms lend great importance to their decisions and the consequences for themselves, and continually seek to obtain facilities or advantages that are profitable to their activity from their national State or from the States of the nations in which they are present. Therefore they frequently grow on the basis of external competition to which they must necessarily submit themselves in order to obtain internal advantages: the host-State is concerned with the prosperity of its external implants; if it finds it particularly advantageous to incorporate a company, in return it can give it advantages (12).
The diversity of the countries in which the same firms are implanted increases political and economical interference: in fact free enterprise organised competition between all the industrial workers of the world in its own way (13), which is very negative for them in a period of unemployment; they were able to pin wage earnings much lower -work norms being very much higher- and working conditions became quite a lot more mediocre in nature than they would have been without such competition; everywhere they questioned most of the work laws and the laws of conventions, but they left to the wayside the decisive questions concerning the respect of acquired advantages, the decisions concerning where and at what level negotiations were to take place as well as the fixation of minimum wage for each nation, etc., in order to modify these factors as they see fit. As the direct intervention of the State was on the decrease, companies didn't any longer need them in order to carry this out. As long as they didn't affect either institutions nor written rules, this allowed them great room to manoeuvre. First they struck where the unions were the weakest, then increasingly widely until it became a general practice. They developed a new style of negotiation -"give-for-give"-, for which, opposite to the former rules, the results could be to render the worker's situation worse than it was, exchange the agreements for branches of activity for new enterprise agreements, etc. They imposed their decisions upon host-States as their arrival or non-arrival could have great consequences on the economy of the country.
Overall, one would make a mistake to say that the State was a victim of the world-wide application process, unless it was said to be a victim by consent. Due to the push of evolving contentious forces, the overload of pressing demands, quite contrary to those of the past, it suppressed the rules established in the 1950's. But not all the States did not have the same policy: Great Britain claimed to be an active agent in the globalisation process (Mrs. Thatcher); the German State did not have a Plan in the way Italy and France had one, but it kept its internal structures intact and, as did Japan, it yields much less than others to globalisation. The French State had been less an active actor in globalisation than the one who hesitated that finally rallied up the group that spoke up the most : between the company heads and the union organisations, the former was to be the better heard.
4. The banks had three successive opportunities to place liquidities (higher price of petroleum, credits for modernising the European firms in order to resist American competition, loans to peripheral countries) : each time, they came back to their point of departure.
Bank that hold liquidities seek to place them in order to make interest which is their gain. They had three opportunities to do so, and each time they failed and thus ended up at their point of departure: the rise in oil price (a), the need for modernisation in European enterprises in order to hold up against the competition of American FDI (b), the debt of peripheral countries (c).
a/ A first chance, the rise in petroleum prices, but...
The first opportunity banks were offered with was the rise in the price of oil in 1973 (14), which was more so imposed by the United States than the countries producing petroleum (15). The petroleum taxes could only be paid for in dollars for it was the only abundant currency: if this abundance of Eurodollars did not exist, the tax payments could not have been attended to. The Western banking system was the only to have dollars at its possession, they were lucky to be able to enhance the value of this currency by lending to petroleum buyers: once they were transferred to producers of oil, they were renamed "petrodollars" which did not change their nature, even though this indicated their change of ownership. The Middle East financial system was too little developed to value this godsend, so the new holders had to "recycle" them in the Western financial system: this system awoke with the same mass of Eurodollars, increased by the American deficit, and was forced to rethink through the same question concerning how and where to invest them, which meant they were back at home plate.
b/ A second chance, the need to invest to stay in competition, but ...
The second opportunity for the banks was the obligation European enterprise had to invest in order to modernise their businesses and increase productivity in the face of American FDI competition. This period is complex and full of contradictions: inflation was high (16) (abundance of liquidities, abandonment of pricing norms, financing of the modernisation process is supplied by enterprises), it attracts worry to the extent that we do not take interest in the deflationistic tensions it generates (bankrupts, lowering of the demand to invest and consumption), and that will finally take over. Paradoxically, in Capitalism we pay more attention to financial phenomena than to the "real stuff". Firms do not speak of deflation (17), they seek new markets; banks do not speak any more about it, but look to better "tie up" their liquidities; governments worry about the rise of unemployment, although they rightly think unemployment limits protests, strengthens individualism, and weakens the union movements as every one wishes to keep their job. Banks, enterprises and States find a middle ground. Indeed, in the second half of the 1970's, the level of investment is higher being financed by the abundancy of liquidities, it is also facilitated by inflation, even though we must take note that its effect is very different from that of the 1960's, and quite contradictory in itself:
- carried out to the ends of modernisation and to ensure competitivity, it reduces employment, above all if the firm relocates to a foreign country with a low salary rate, which there plenty of;
- destroys enterprises producing equipment, those that adapt very slowly to new techniques or that have not the useful patents (18). This investment de-structures national industrial tissue, creates "holes" in the productive system, hence the rupture of industrial procedures, dependency upon importation and the suppression of jobs _
- different from the 1960's, the errors in investment multiply, ultra-modern factories close their doors before opening, the waste is destructive.
This process is nevertheless brutally interrupted at the end of 1979 for a reason that is completely external: integrating the management of the FED, Volker brutally increases the interest rate -and therewith the exchange rate of the Dollar, we will come back to this-; enterprises are able to resist against the rise of financial prices by buying back their debt, once again sending the banks back to their point of departure for the second time.
c/ A third (and last) chance : put the peripheral countries in debt, but ...
It is the alliance of enterprises, banks and States that offer the banks a third opportunity to invest their liquidities. In order to resist against deflationary tension, enterprises seek clients: put the the potential customer in debt is a good selling argument (at the beginning of the 1970's in France, consumer credit created the household over-indebtedness (19)). The question is "who shall we throw into debt?": in the middle of the 1970's, firms, households and the countries' governments themselves from East to the West are in debt to a point one never thought they could be. All that was left were the peripheral countries that are still not too far "in the red": "prime opportunity encourages robbers" as banks, firms and the States of the central countries form an alliance; firms that wanted to sell could easily convince banks to lend money, especially since the States incited them to participate in the growing number of consortiums in order to reduce escalating unemployment in their countries (20). Loans became the best selling argument (21). Ministers, bankers and industrial businessmen visited the peripheral countries proposing, thanks to inflation (22), competitively attractive deals at very low real rates of interest without hesitating to reveal to the local press the Ministers of these countries that refused to take the risk of debt, mentioning that in refusing to do so would mean refusing to "create jobs in their country" (23).
We do not intend to hold against the heads of these countries the fact that they entered this debt process. It might have been the alternative to the weakness of the Public Aid for Development facing their needs. Corruption exists everywhere (24). The influential groups of these countries may want to maintain the importation of consumer goods, or to export their own capital (25). On the other hand, we can blame the IMF for not ceasing to blame banks dispensing credit for their carefulness, an attitude they judged useless and dangerous (26). How could the leaders of these countries have refused? Everyone is satisfied, the debt of the countries on the periphery is nearly eight times greater in less than ten years (27).
Needless to say the circumstances during the years 1975-80 was artificially good in the Peripheries: grace periods made it possible the have nothing to pay, neither interest nor reimbursement of capital. The competition between firms of the central countries forced the prices down and also elevated the terms of exchange for buyers and the product per head available (artificially though, but international accountancy is just that way). All of this together accelerated the progress in education and health systems. When it comes to the Centre, even if the growth rate was lower than that in the Peripheries, the sales to the Peripheries had stabilised it stimulating their investment and slowing the rise of unemployment. Due to this context, the rise of the price of petroleum in 1979 didn't appear to be a catastrophe, it lured even the oil-rich countries the borrow more (so Mexico rapidly increased its deficit (28)).
But this is only the beginning of the story that lead to radical change in the world's economy, a fundamental step to the process of globalisation.
5. The debt crisis (1982) : indebted countries cannot pay debt: alliance between creditor banks and IMF implemented SAPs, contravening all development efforts
Although we can affirm based on pure logic that the debt of the peripheral countries could never be paid (a), the real detonator of the "debt crisis" was the sudden about-face in the American monetary policy, which was decided upon by the Director of the FED in the last months of the Carter presidency (b). On the spot, the banks demonstrated that, in the name of financial logic, their thoughtlessness was able to organise enormous, and real, waste (c). Debt became a heavy burden for the countries of the Peripheries (d) and, what we are concerned with here, it accelerates the process of financialisation, financial globalisation and world-wide application.
a/ Based on pure logic, the debt could not be paid
Some economists, not many -fishermen in troubled waters, that bring on bad incidents by announcing their arrival, whom should above all not be listened to-, rang the alarm. It was in fact obvious that, as early as at the beginning of the debt process of the Peripheries, the debt would never be paid: empirically speaking, the history of debt in the afore-going crisis periods show that it had never been paid; theoretically speaking, this has been demonstrated within the framework of liberal theory of the "growth transmitted through the transfer of capital":
- borrowing in national currency is no problem, an enterprise borrows to buy its equipment goods and the sale of its products allows it to come up with the currency necessary to reimburse its initial loan; these are the fundamental lessons from Schumpeter (29) and Keynes (30) so it is no use dwelling on this here;
- a loan in foreign currency has to be reimbursed in foreign currency. We really do have the same mechanism -every year we have to pay the servicing costs of the debt, the interest and part of the capital until the total face value of the loan is paid back-, but with an essential difference: this must be done in convertible funds; it is therefore necessary to sell one's products to receive convertible funds, thus to central countries, in order to earn a sufficient quantity and then transfer the sum obtained to the creditor for the cost of the debt;
- the lenders of the Centre, if they really (honestly) wish to be reimbursed, and if this is not simply an excuse to ensure their dominant position, must accept not only to buy from the Peripheries the products that they already buy from them, in the quantity and at the prices at which they do in order to bring the commercial budgets into balance, but buy much more from them in order that the indebted country may receive (over and beyond the balance of his budget) the quantities of exchangeable funds which will allow them to pay their debt.
Two phenomena obstructed the road to successful reimbursement:
- on the one hand, the reason that the indebtors had put the Peripheries in debt was to be able to sell to them. It would have been unimaginable if they all of a sudden wanted to buy from them since it would especially have created a large number of problems in their own countries (bankruptcy, unemployment);
- on the other hand, the Peripheries do not have anything else than a narrow line of products to sell (either agricultural or mineral basic products, some manufactured products, textiles and footwear), as their other manufactured products do not have the degree of sophistication that corresponds to the demands of the Centre (though India for example is an exception), and they already sell everything the countries of the Centre are ready to buy from them.
First and foremost, the marketplace is where the offer meets the demand: how can one imagine that 140 indebted countries could have sold an additional mass of products of a value comparable to that of the cost of the debt (more than a hundred billion dollars a year) to countries interested in selling to them, not in buying from them, without a collapse of the prices of the products the Peripheries were already selling (31)? To top things off, the additional products they would have wished to sell were the same products they were currently selling at the time, nothing new.
But the obsession with selling in the central countries was to the extent that there was no chance to have oneself heard when bringing into focus the contradictions of the process of going into debt.
It is thus of no use to lengthen the discussion here and now on what clearly triggered the "debt crisis", it was inevitable in the long run. Everything went quite well for a few years: the "grace periods" (the debtor does not have to begin paying until after five to seven years have gone by) run on, the price of petroleum (that had lost buying power since 1973) came back up in 1979, urging producers of petroleum to go further into debt once again.
b/ The detonator: the Volcker policy
Although the crisis was inevitable, the practical circumstances that would trigger it the time come, were not as yet determined: its immediate detonator -and not its cause- was the sudden change of the monetary and economic policy of the United States at the end the Carter mandate (end of 1979). During his time in office, in order to stimulate industrial development he maintained low interest rates in order to maintain a relatively low exchange rate for the Dollar (facilitating the export of merchandise and limiting the exportation of capital). When Carter nominated Volcker to the management of the FED, Volcker decided to reverse American economic policy: he brought the rates of interest up and therewith the exchange rate of the Dollar. The short-term nominal interest rate jumped from 7.4?n 1978 to 14 ?n 1981, the long-term rate from 7.9 to 12.9 (32). The exchange rate of the Dollar (in Ecus) rose 29.9 ?etween 1978 and 1982 and 66.9 ?etween 1978 and 1985 (33).
A significant part of the debt was subject to a variable rate and worded in Dollars: the about-face in American policy radically changed the data on the debt (34). But it is not a foreign event with regards to the crisis, it is the result of the overall instability of world economy: from now on, the real fundamental data has less an influence on exchange rates than does the flow of capital; the interest rates are not set on the basis of the (real) internal balance, they are manipulated according to the desired exchange rate.
This decision is all the more regrettable as it comes at a time when grave difficulties for the countries in debt accumulate:
- expiration of the first grace periods;
- reduction of importation by the central countries (between 1979 and 1981, Europe reduced theirs by 3.8?the United States 5.2?nd Japan 8.3?
- reduction of inflation which started in the Centre: this is not a lowering of prices, but the slowing of their escalation which puts at a disadvantage those who have goods to sell to the Centre, like the countries that produce petroleum that, at this same time, saw its price decrease once again.
The Governor of the Bank of Mexico (35) is obliged to declare (July 1982) that his country can no longer make its payments: the decision was not brought public until the 16th of August, that is after the International Bank of Payments had established the indispensable measures to be taken with the main creditors in Mexico in order to avoid banking panic. Not in any way was it envisaged that the debts could be frozen or not recognised, as if the BIS had forgotten that, 15 years earlier, it had accepted that England freeze or not owe up to its own debts (36); in the space of a few months several heavily indebted countries did the same thing, and finally, one after another, all the "indebted" came to see they needed to act likewise. Like all the other public and private financial authorities, the IMF had never envisaged such a situation, especially coming from Mexico, where the "rating" (37) was higher (38) than elsewhere: all these institutions were totally taken by surprise.
c/ The new thoughtlessness of the banks: imposing waste
A very serious aspect of the crisis was often not talked about. Just as banks were observed to be thoughtless, occupied above all with their own matters -in 1980 half of the profit of American banks came from putting the Peripheries in debt-, one must recall their brutality: the "indebted" not being able to make their payments, the "indebtors" decided to suspend any new instalments of cold cash right away. One can not conceive of a more unjust way of acting. Other than the purchasing of goods, the debt was consecrated to a large extent to big investments (communication links, hospitals, etc.) spread throughout time: in order to avoid paying useless interest, the loans were cut in portions according to the progress of roadwork, train track installation or building e******n. The halt of all instalments did not only definitively shut down unfinished work sites, it rendered the previous work useless, and therefore the previously assumed costs were a pure loss due to the banks' decision: the banks did not hesitate to add this to the face value of the debt (they only counted that the money advanced out, but they did count it all and without recognising that they were responsible for the waste imposed on the "indebted") (39). This said, the banks find themselves once again (the third time) back at their starting point, which is difficult for them to swallow.
d/ The burden of debt
The American deficit went on, businesses continued to ease out of debt, the banks cannot increase the debt of the Peripheries since they never had such a mass of liquidities available. The banks had to manage in such a way as to avoid bankruptcies from happening, which would risk causing repercussions between them, and bring on an overall financial crisis: three groups of agents intervened:
- the FED, the "last resort lender" of the American banks;
- the IMF (40);
- the two "clubs" for re-negotiating debt, Paris ("indebtors" re-negotiate the public debt of the "indebted") and London (creditor banks re-negotiate their private debt) (41): the negotiations lead either to refinance, or the rescheduling of payments (the non-paid interest is capitalised, the "indebted" can obtain a new loan in order to pay the rescheduled interest). In this such way, we have gone from the "economy of international credit" to the "economy of international debt" as the new debt has the only aim of paying the service costs of the debt (42).
The IMF had in this manner imposed upon the "indebted" the Structural Adjustment Programmes (SAP) (43): their theoretical object was to help the "indebted" pay his debt, but the analysis revealed some very different aspects:
- if the SAP's constrains them to balance the State budget (reduction of civil servants' salaries, public investment, cost -and thus volume- of public services, subsidies for consumption), the situation is already serious;
- if it forces public enterprises to be destroyed, it is pure liberal ideology;
- if it pushes towards balancing the rest of the payments while imposing freedom of importation, then its priority is to allow the "indebtors" to continue to sell their products.
In total, the SAP is less attentive to the balance of the "indebted" than to that of the "indebtors". Turned the other way round, we understand that the SAP encourages countries the export as much as possible, but this creates a contradiction: the number of products the 140 "indebted" can hope to sell hardly exceeds 15; they are in competition with another, forced to sell more as the prices drop, taking them mutually into a terrible downward spiral; the buying power of their exportation diminished 33?etween 1980 and 1987 (UN figures).
It is still necessary to take note of two other very negative aspects of the question:
- on the one hand, to obtain convertible money, the "indebted" must produce the goods the central countries buy, which are not, and far from being, those the countries in the Peripheries use or consume;
- on the other hand, they must sell these products in the relative pricing system of the "indebtors", thus very different from that which helps their development; we will come back to this question. In this way, the SAP "opened them up" very well, but in conditions far from allowing them to develop, driving them to self-destruction.
Finally, SAP's lead them to what we could call either a "perpetual loan" (44), or close to that, the "usury model", in which the debtor cannot free himself from the debt: it is not good for the usurer to put the in-debt farmer in prison, that would go against him; every year, the farmer carries out the harvest which is insufficient to pay off the debt, however, it exceeds that which is necessary for him to survive from one year to the next. Effectively, the usurer repeatedly lends him what is necessary to work the following year, so increasing his debt. The usurer's revenue (without working) is the difference between the product and the survival needs of the farmer. This is the very definition of the "surplus" the creditor takes from year to year, which does ever not let the debtor escape from this dependent situation. That is really why the rescheduling of debts is always calculated according to the surplus the country can transfer without destroying itself, which would go against the interests of the "indebtors".
6. Banks hold a lot of accounts receivable feeding financial markets, thereby enlarging the processes of financial globalization and internationalisation leading to financial crisis.
The "debt crisis" was a decisive event, a turn in recent history of world economy, the entry point into what is ambiguously called "financial globalisation" and a critical cause in the acceleration of the globalisation process for at least three reasons:
- in 1982, the world had seriously changed: whereas on the one hand, the foreign deficit of the United States had incessantly enlarged the volume of liquidities, on the other hand, the banks that hold them can no longer value them through debt as they could in previous years for there is no longer another agent susceptible of going into debt. The only other alternative is to circulate them on the financial market: this market expanded in a big way;
- the debt of the peripheral countries constitutes an enormous mass of accounts receivable, most of which are held by banks innovating increasingly sophisticated techniques in order to increase their value as it becomes obvious that they can never be reimbursed: the financial market experiences a new expansion;
- the extension of the financial market and the acceleration of capital movements that result from it modify the way the productive economy functions with regards to four aspects:
- liquidities gain all the more value as the flow of capital gained freedom: this is justified as it is said that "the marketplace ensures the optimal allocation of resources", though this is without neglecting the following threat: if a country limits its capital flow, capital will goes elsewhere and its exchange rate collapses and the country goes bankrupt; or if the public debt grows too quickly from the "market's" point of view, the market with sanction the State in question. In this way, the power of the "markets" over the States and the submission of the latter to the former become established at the same time;
- the flow of capital increases once again the volatile nature of the exchange rates; the interest rates, as fixed by the State in order to stabilise the exchange rate at the desired level, are in turn de-stabilised; basic products and raw materials become shelters for capital in difficulty on one or the other financial markets, their price being more unpredictable than usual (45);
- the cumulative process took off: enterprises have growing need to be covered; operations become more and more risky; operators in turn cover themselves and the derived products markets always becomes more complex and abstract (futures, options);
- to enlarge the market once again and more quickly without revealing this, as well as to allow for easy valuing of capital without risk, the IMF encourages the countries of the Peripheries (the IMF prefers to call them "emerging countries") to open their financial market; the American pension funds -and speculators- see in this a new field of action and new opportunities to value their capital, but they know that this type of enhancement has its limits and are thus prepared to pull out as soon as they think it is no longer safe; the first to leave do not lose anything, all the others would like to bail out as quickly as possible which causes the collapse of markets, one after another, even in countries said to be very stable, even those that are the best pupils of the IMF (this was the case of Mexico and Korea which, at the moment when they were attacked by the Mexican crisis in 1994-95, then by the Asian crisis in 1997, were seen to be the best pupils of the IMF, and what's more is, they were just admitted to the OECD.
7. The debt constrains, limits or impedes South-South trade because each "indebted" country must sell to the Central ones. Competition between "indebted" countries leads to the decline of prices.
The 140 "indebted", who compete to sell about 15 products, have to sell all the more so since the price decreases incessantly in a sort of dive twisting downward: in seven years, from 1980 to 1987, their exportation businesses lost 33?f their buying power when it comes to buying products from the Centre (46) due to the simultaneous nature of the constraint to pay the debt -it started to be felt even before the 1982 crisis- and the Centre's strive for perfectionism: its businesses had put the Peripheries in debt in order to sell to them, not buy from them.
This is all the more understandable if we take into consideration the contradiction created within world economy by the conjunction of two aspects of the world-wide application process, the liberalisation of exchanges and the extension of TNC's. DFI's were first of all oriented towards countries where the salary level was the lowest because of the low living standards and the extent of unemployment that reigned there. But one cannot forget that to survive the peripheral countries could not avoid, unless they said they were justified, taking advantage of the reduction in absolute costs, extracting freely from "nature" -destruction of water resources, soil fertility, deforestation, pollution of all types- or from "human beings -inhuman working conditions, no protection against accidents (here one thinks of Bhopal!), child labour, etc.- ; for a long time we have known that capitalism tends to destroy the two pillars upon which it stands, nature and the human being!
Industrial products are not the only concerned by this. All the farmer of the world have also been brought into competition; amongst others, three series of facts show this.
The perversion of the flow of inter-nation commerce by way of the manipulation of prices is nothing new. I will limit myself to two examples:
- in 1964, European countries decide to reduce the price of peanuts from the African Sahel; in order to survive, the farmers of the region had modified their traditional way of planting -peanut-peanut-mill, substituted for peanut-mill-, which brought about a two-fold decrease in the production of the mill -surface and yield-, and its more northerly position accelerated the woods-clearing process modifying the climate all of which was at the origin of the great drought in this region in the beginning of the 1970's.
- at the same time, the conjunction of an American law (PL 480) that was said to "help" the farmers of Latin America, and of the principle of "gradualism" -aid diminishes as the countries develop- lead the United States to substitute the local production of grain in Columbia with the importation of American grain: at the outset we "helped" Columbia by offering them grain at a low price payable in local currency, which destroyed the local production and increased importation; by applying the principle of gradualism -increased importation indicated the development of the country!!!-, importation was billed in Dollars; the importation growing once again, a decision was taken to bill it at the "normal price"; in the meantime, Colombian grain production was destroyed in an irreversible way, drugs became the substitute, but the United States had created itself a new market for its agriculture (47).
The Uruguay Round had again accelerated the perversion of the flow of goods and money by price manipulation: over two decades, France imported food for livestock from the United States; the French farmers wanted to limit this importation and export their excess grains; the United States considered that this market opening was a right of theirs. In the light of French farmers' uprisings, a vicious agreement finally was signed between the two countries: the United States kept their right to continue to sell their grain to France, but they proposed France with the idea of subsidising their grain exportation but only when it came to exporting it to peripheral countries; in this way the American and French farmers were satisfied, but this was done by sacrificing the grain production of peripheral countries who didn't have any other country against which to turn.
In a more general way over the last decade, we observe a profound change in the world flux of food products. Traditionally, peripheral countries sold their food products to central countries; the latter having increased their yields, which put them in a position to supply the Peripheries with basic food products, they transformed the Peripheries making them into, not only exporters of tropical products ( coffee, tea, cocoa) or raw materials (cotton) which they already have been for a long time, but also exporters of consumer goods for the middle-class peoples of the central countries (flowers from Columbia, off-season green beans from Africa, etc.) that were paid at very low prices. We will not forget that some countries (United States) did not hesitate in the past to use "food weapons". One must conclude that the dependence of the Peripheries with regards to the Centres is incessantly being reinforced. And, if one takes into account the recent studies according to which the world risks in the next fifteen years not being able to ensure its self-sufficiency when it comes to food, one understands to what extent the situation in the Peripheries can become dramatic.
If we admit to thinking about it, it is still irresponsible to lower the prices of basic products, even to reduce without effort inflation in the Centre_
8. This North-South trade leads countries in debt to sell their goods within the framework of the Northern countries' relative pricing system, an obstacle to their economic development.
The question of the pricing structure in international exchanges is not much focalised on by mainstream economic theory; such theory considers that prices are the result of the gaming in the marketplace that is the norm everyone is subject to, and thus it easy to conclude that it is fair to all. When it comes to the flow, it depends on one's aptitude to participate in the marketplace under the constraints of "competitivity", the key-word here. However, Perroux reiterated that domination -"the asymmetrical influence of A on B"- was just as so made possible by anticipation as by the questions of price and flow (48).
In international exchange, tariffs which have continually decreased evidently carry an absolute price which is more or less the same for the seller and the buyer. This observation is neither trivial nor without consequence. It partially explains why the debt of the peripheral countries by the central countries in the second half of the 1970's had, as early as 1980, very negative effects on those in debt.
As they were not able to make their payments in the "indebtors'" currency, the "indebted" did not only have to sell as much as possible but on the market of the "indebtors" to obtain the right currency. From then on, because of the influence of the "indebtors" on the level of prices, even greater as they are also the biggest foreign direct investors, the structure of the "indebted" countries' relative prices leans towards that of the "indebtors" prices, that is if it is not soon identical to it. This means the structure of prices of the "indebted" is nearing the structure of the sectorial productivity of work in the "indebtors'" country which is very different (49) from that of the sectorial productivity of work of the "indebted". One basic law in economy is the development of a country necessitates that the structure of country's relative prices and that of its sectorial productivity of work "correspond" (or if one prefers, the level of development of its productive forces).
9. The writing off of the debt cannot create difficulties for banks : they have been funding their loans for a long time. Three aspects of questions concerning the debt cannot be dissociated.
a/ It is not necessary to dwell on the argumentation for the absolute, urgent need to write off the debt. Nobody thinks that writing it off would cause the least problem for the banks: they have had more time than was necessary to fund their accounts receivable as they were the first to know that the debt could never be reimbursed, not any more than were the debts of the end of the XIXth century or those of the 1930's. As long as we have not gone through with this write-off, it is useless and aimless to speak about development. Certainly there have from time to time been a few small reductions in the debts, but they had hardly lessened the burden. There is no need here to recall figures that are well-known to all. But the writing off of the debt is an utmost priority necessity in order to ensure the conditions of development. The writing off of the debt is, from this point of view, only a preliminary.
b/ The second and just as urgent aspect of the problem is that writing off the debt will allow the development of South-South exchanges. This question is little spoken about but I believe it to be essential: when the Peripheries are liberated from all this debt, they will be free their constraint of selling in the Centre's marketplace, and by this very fact, they will escape from the determination by the central countries of their relative prices. The structures of the sectorial productivity of work in the peripheral countries being much closer to one another than to those of the central countries, even if they are not absolutely identical, inter-Peripheries commerce will be able to develop and facilitate their mutual development. But as long as the debt exists, it is useless to discuss this point, even if I am sure it is one of the decisive aspects for world-wide strategy on development.
c/ The third question is linked to the two preceding ones: if the debt is written off and we do desire to develop South-South commerce, one more step has to be taken, that of the convertibility of the Periphery's currencies, under the condition of course that they are not convertible with those of the Centre. The convertibility of the central countries' currencies was a decisive element in the extension of exchanges between them, at least as much so as their liberalisation. The currencies of the Peripheries are still non-convertible between each other: as long as they remain so, it will be difficult to rapidly develop inter-Peripheries commerce, even if we admit it would be an essential instrument for the country. This idea is not new: the Bretton Woods Agreements drew up a tight link between the International Monetary System and commercial exchanges.
Hence the necessity to raise the question of whether it is not an emergency to launch a serious debate on the establishment of an International Monetary System for the Peripheries proper. This would allow for the existence of a currency into which the peripheral currencies could be converted, but would itself be convertible into the Centre's currencies. That would have the advantage, second but not negligible, of creating the obligation to balance the value of exchanges between Centres and Peripheries, which would allow for a serious gain in value of the products of the latter. Without a doubt, a proposition of this type demands in-depth reflection and leads to difficult questions: amongst others, it supposes that the peripheral countries are ready to re-establish the unity among themselves they showed in the 1970's; is this sufficient enough to abandon the proposition before hand?
These three questions are obviously linked, but they are nonetheless meaningless if the debt is carried forward. But all this is still, at best, only a pre-condition to a policy of development in the Peripheries. A given monetary structure can help in the resolution of real problems, but it cannot suffice to resolve all that comes of "productive economy".
10 It is impossible for the Central countries to escape from the harsh crisis they are weathering if they maintain the current state of affairs in the peripheral countries. This was clearly stated by Boumediène at the UNO's General Assembly in 1975, and Willy Brandt in his 1979 report. It is an urgent matter that the entire world come to understand this point.
Writing off the debt and organising new inter-Peripheries economic relations are essential preliminary points for strategic development, but in any case, the necessary policies have to be carried out. There is surely no single strategy for development as no country is in the same situation as any other, even if they can all be characterised by their dependency: this allows a population the freedom to define what it sees to be the most efficient, the most in-line with its needs and culture, as long as it prepares itself against risks and domination coming from the outside, which can at any time ruin the effort of several decades: the recent experiences of the ravage financial crisis has left behind had been too serious for us not to pay attention now.
In any event, if it is not up to the economist of central countries to define the economic policy of peripheral countries, it is not any more so up to trans-national firms to do it there where they decide to implant themselves: Daly and Goodland (50) note that such firms define the amount of capital they introduce into the country as well as their technique, product, quality and its market without discussing these issues with the governments; they produce 70?f the "international commerce": the GATT ensures that they keep an absolute freedom of action, which restrains to the same extent that of the States under the threat of sanctions. Andreff (51) estimates the portion of "intra-firm captive commerce" in the world exchange of products to be at 30?the "transfer price" here being very much lower than world prices, for example, around 30?ower for rubber, 38?or electronics or 61?or pharmaceuticals. They have a very strong concentration in the services sector. Hipple (52) noticed in 1988 that at least one TNC was part of the transaction in 99?f the United States foreign commerce; Chesnais (53) adds that their own American TNC's (umbrella corporations and divisions) do 80?f the United States exportation and close to 50?f its importation, and that on a world scale, TNC's are involved in less than 40?f international exchange. Again he adds that, around 1985, the intra-firm (or intra-group) flux of American, Japanese and British TNC's represent one third of the manufacturing sector. There is no reason to let these foreign TNC's control so much of the market.
Of course the authors condone all this in the name of "world-wide application", that they present as a new phenomenon, which is from the truth: in fact it was around 1882 that the term "global village" appeared for the first time; the telegraph and steamboats had reduced the dimension of the world much more than the fax does nowadays (54).
This indicates that for today's "powerful", "world-wide application" has a very precise meaning: as Bergsten and friends (55) reflect on the very best strategy for the United States to preserve their leadership of the world, they start with areas of domination that the three Centres -the United States, Germany and Japan- seek to organise, the NAFTA and the Initiatives for the Americas, the European Union with respect to African, Caribbean and Pacific countries (ACP), or their influence on East Asia. The peripheral countries only exist in their eyes as being parts of these sets.
I do not dwell on the elaboration of a definition of development, there are already plenty: Pearce, Markandya, Barbier speak of twenty-four of them (56), and they miss others out -step-by-step, it had been "true", "self-centred", and more recently, "long-lasting". I only remember one much older one: "raise the level of essential needs satisfaction in order and in hierarchical fashion by the voluntary organisation of a long autonomous dynamic. It articulates two inseparable aspects in a strict way, on one hand, the progressive satisfaction of needs -hence the definition of "essential needs" given by the ILO (1972) including participation and employment-, and on the other hand, the long dynamics that By‚ defined as "the transition of a relatively low head productivity structure to a relatively higher head productivity structure. He adds to this that: "an economy is fully developed when its structure is such that productivity by the head is as high as it can be, that is when we take into account the national and world resources and the technical knowledge available_ in the opposite situation we speak of under-developed economy" (57). In this way, he refused (with Boulding, Myrdal and Perroux among others) to take the GNP for development criteria: we can always increase the GNP by accepting a diminishing level in the satisfaction of needs; econometric works carried out in the United States since 1947 (Daly and Cobb, 1989 (58); Cobb, 1992 (59)) clearly establish the weakness in the correlation between the Welfare Index and the GNP. The reports on Human Development from the UNPD show that the classification of countries by the IDH clearly differ from that carried out on the basis of the GNP.
These two aspects of development -aim and means- are closely inter-linked; one of the articulations resides in what can be called "development consumption", that particular consumption -health, food, education and training, which Perroux calls the "Human Resource" to avoid saying "human capital"- that raises both needs satisfaction and population productivity, and by this very fact, bring together investment (the dynamic: the trio of needs/work/surplus) and needs opposing them. In working to satisfy needs, the population produces a surplus (excess of the actual production with regards to the "necessary" consumption) that it accumulates if no other country come from the outside to take it away (60). If it can regularly achieve this -amongst other things if the population does not weaken this effort-, development can be "long-lasting".
However, none of this is possible if the State does not become responsible in the definition and application of the development policy of the country, and if it does not forcefully defend national independence. This is the fundamental condition in order to overcome the contradiction between world-wide application and development; having learned a lot from my young colleague, Ick Jin Seo (61), while he wrote his excellent Thesis on the development of his country since it gained independence, I truly believe that Korea, despite its recent financial crisis, remains an example.
This said -and it is also the case for Korea, if one wants to make such a reading of it-, history shows that it is dangerous to put oneself in debt externally and that we can avoid this if we put a rigorous policy into action: selling is necessary if we need to buy, even if to do so we need both customs tax and subsidies which are in contradiction to the rules of the IMF. In the end, this produces a type of discrete system of multiple exchanges. If we wish to buy machines with the aim of becoming industrialised, it is necessary to sell goods that we produce in the country. This defines the function of transforming foreign commerce into development. Obviously, we can only stock goods that can be accumulated, those created earlier productive processes: neither wheat, water, coal nor work are accumulated; we "accumulate" machines, fertiliser, etc., which means manufactured products that raise productivity and work capacity. An undeveloped country is precisely defined as that in which the surplus has not got a direct form of "accumulable" goods. The international commerce of a country transforms unaccumulable goods (produced by the Peripheries, and that they have to sell) into goods that can be accumulated (paid for by the product of that sale). Any country can only accumulate its surplus; but it is nevertheless a necessity for the surplus to take the form of accumulable goods, either directly or through exchange. This function of transformation demands refereeing, as we have to select the goods we sell in order to pay for those we need.
- minerals cannot be sold: the quantity that we can sell has to be specified without sacrificing the future of national industry; the more we sell immediately, the more we accelerate the pace of immediate development, but the quicker we run out of resources;
- agricultural products can be sold, we immediately reduce the quantity of foodstuffs available: we control the balance between the satisfaction of needs and the rise of "development consumption" and speed of structural transformations;
- a more delicate choice is to be carried out between selling bulk products (oranges) or products already elaborated (orange juice); the result of this decision depends on the yield in capital of the capital used to transform oranges into orange juice.
Of course the function of transforming foreign commerce evolves in its actual content along with the development of the country (62). This way of looking at the problem is that of Stuart Mill, who, in his Principles (1848) -in a time of great instability, when industrial Capitalism was about to become dominant and started to setting the cadence for the economic situation- criticised the mercantilist ideology that took control of the heads of industry, and stated firmly that the decisive function in international commerce is first of all to buy the goods necessary for "accumulation", to be paid for with the goods one sells.
This still necessitates the listing of the four conditions necessary for the realisation of the function of international commerce:
- paying the debt must not absorb the financial product of exportation;
- the State -and not the trans-national companies- must assume this responsibility;
- an international collective action is necessary to stop the continuous drop in prices of raw materials: there is a risk of not being able to exploit them.
If under-development breaks up national economies while separating in particular agriculture from industry, development is based on the articulation of industrial progress -the creation of an autonomous basis of accumulation- and agricultural progress -it obtains from industry the input it needs, machines, tools, fertiliser, seeds-, in the triple dimension of employment, development consumption (increase in productivity thanks to machines, satisfaction of needs), and the condition of independence (63).
But as long as the Centres impose on the Peripheries annuity payments at prices that do not allow farmers to survive, the soil degradation, deforestation, destruction of water reserves will cruelly continue, to the point Mazoyer described it as the "de-structuring of rural societies". The contradiction explodes when the central countries reject the immigration that comes from Peripheries, whatever their policy might be that renders unavoidable these populations' emigration. Gorbachev, in his ProblŠmes Mondiaux, conceived emigration as source of world conflict. Whatever the case may be, emigration today certainly remains as unavoidable as impossible, that it is a dangerous source of intolerable discrimination and racism, and that it is currently the major manifestation of the contradictions between the central and peripheral countries.
Some countries have carried forth their policy of industrialisation for more or less a long time, this was the case of several Latin American countries, in the crisis of the 1930's. In these countries, letters of credit are currently re-bought at a low price and the amounts received this way are used to buy the shares of the companies the government is privatising. Paradoxically, this is the very example of the "condition for paying the debt" from Keynes: one may well argue that following this the new owner of the capital will modernise the enterprise, which is probably true, but other than the fact that this is a veritable "re-colonisation" -one must admit this term is appropriate-, one cannot see the reason for which the new owner would take the needs of the country into account. He will perhaps modernise the company, better its productivity, but there is no reason the least increase in the level of satisfaction of the country's needs will come of it.
We must be aware of apparently positive doings that are ambiguous if they are unilateral. We understand the link between the rules of commerce and the environment. Nonetheless, we must emphasise the importance of some phenomena of de-possession hidden by the legitimate concern with the conservation of resources: local populations are thrown out after being said to be dangerous for the conservation of resources, parks throw out masses of people, the extension of some forms of water life destroys mangrove swamps, raising of cattle destroys savannahs, plantations destroy tropical forests, all this is to satisfy the international market, and a number of personal interests, possibly the need to pay off debt.
Conclusion
But I would like to conclude on a more positive note: lessons are to be taken from the practices in several East Asian countries. Among other things, I am referring to the creation of the great poles of development, both regional and multinational, like that which is happening south of Singapore, the bridge to Batam Island, the role of the peninsula of Jahor, the industrial park that already brings together a very large number of enterprises, etc., and the supply of water from Indonesia. One can also mention here the Island of Kyuchu, the small island off the coast of southern Japan, where great industrial and scientific progress is being made to the extent that, if one calculated the industrial power of the island as an independent national power, it would be the thirteenth industrial power of the world. Recent activities in Vietnam resemble this wave as they are starting to create industrial parks open to various countries of the region. These experiences must not be lost sight of as they are good teachings for the whole of the Peripheries.
In his speech at the 1974 special session of the UNO Assembly, President Boumediène brought up a fundamental question: if the Peripheries carry out the necessary to become developed, they will buy investment goods from the central countries, which will contribute to their prosperity. It is thus understandable that in exchange the Centres help them on the road to development. Instead of opposing Centres and Peripheries, he emphasised world unity. Three decades beforehand, Keynes recalled the theory -the productivity of capital decreases with its abundance- and concluded that it is in the interest of all to transfer capital from the richest countries to those poor in capital, assigning this role to the International Bank for Reconstruction and Development. He would turn over in his grave at the thought of the famous "reverse transfers" of capital that the debt imposes and that the organisations that came into being at Bretton-Woods had covered up unbelievably well, very nicely forgetting their initial function (64).
The fact that "globalisation" has developed since then, and it is related to what has just been analysed, does not question the soundness of the theory. However, the respective situations of the different countries have changed. With the exception of the United States that lives in spite of the others, the central countries know because of the uncertainty already described that a long-lasting crisis paralyses investment, wherefrom unemployment and its effects, a situation difficult to escape from. This is the same crisis that brought about the situation in the Peripheries as early as the end of the 1970's. If it is the uncertainty brought forth by the financial market that caused the crisis, we must work on this issue.
At the same time, most of the peripheral countries are chained down with debt and cannot, apart from rare exceptions, realise the investments they urgently need, investments of which we are now sure of the nature. It is not original to seek to give priority to the solutions already used, but political economy has its rules. The enormous mass of available capital is not used any more than for the speculative enrichment of a few, by the game of amalgamations and concentrations that accentuate unemployment and de-structure productive economy (65).
Since the Brandt Report, several authors have suggested that this capital would have been better put to use in financing large investment programmes in infrastructures. Various propositions have been made in this perspective for the European situation (66), which were not pursued as the preoccupation of the balancing of the European States budgets won out. This could be useful to Europe on one hand, and on the other, it could contribute to the reduction of the mass of capital in circulation, but this is not an answer to the true problems which are those of the world as a whole.
I remain convinced that what is realistic on a world scale today can be no other than a large investment programme for infrastructures, schools and hospitals, to raise productivity everywhere they are missing. Once again, it has to be emphasised that a programme of this nature must exclude all debt on the one hand, and on the other, it must be exclusively decided in favour of by those that are directly concerned and that know their true needs, in a democratic fashion and without interference from the central countries. I will be ready to argue to the end that this is not about handing out gifts, but rather a way of thinking (that should be shared) which states that the Centres will be able to escape from their crisis situation by carrying out a massive programme of productive investments. It is the only way to re-establishing a minimal degree of certainty so that investment in their countries can pick up. It is perhaps also the time for the Centres to realise that the world is a unique whole and that everyone -Centres and Peripheries- depend on each other. If we leave the least leverage for domination in such a programme, it will surely lead to failure. That is the veritable challenge.
It is also within this framework that we can return to the question that disappeared from world debate, though it received a lot of importance in the 1970's, about sea rights that -well beyond the fishing conflicts that must be settled, the important stake is exploitation of under-water reserves- introduce the idea of a "humanity's common heritage", with the difference between res mullius that gives the right to exploit to the first one there, and res communis that demands equitable share amongst those concerned.
I will finish -finally- with a technical question that seems to me to be insufficiently studied, hence unresolved, but essential for more than a billion citizens in the Peripheries (67), because I do not know how it can be resolved quickly. What is the capacity of humanity to have a sufficiently high growth rate of its capital to be able to ensure the needs of rapid development? In order to do so, I return to the model from Lowe: the pace of development for an economy depends, firstly, on the portion of machines produced in Sector I ("machines producing machines" in the words of Perroux) and accumulated in this sector -which can never be total manufactured-, and secondly, on technical progress, which is only achieved within Sector I (68). The growth rate of this sector is therefore itself limited, for at least part of the machines it produces have to be transferred into Sector II (which produces machines producing consumer goods) to allow it to develop. Historically, we observe that Sector I is very reduced. So I wonder, and I do not have any immediate response to this, to what extent it is not the rate of growth of Sector I that would be the decisive constraint of world growth. It is a formidable question which has to be taken head on. But that's another matter!
FOOTNOTES
(1) In the case of the literature on crisis theory within the framework of the Theory of Regulation, a great number of pages were inked; extensive citation is thus out of the question here. On this matter, I will only refer the reader to:
-GRREC, Crise et Régulation, Recueil de textes I : 1979-1983, Edited by the University of Grenoble.
-GRREC, Crise et Régulation, Recueil de textes 1983-1989, Edited by the University of Grenoble.
-de Bernis, G. (1988), El Capitalismo Contemporaneo, Edited by Nuestro Tiempo, Mexico, 1988.
-de Bernis, G. (1988), Propositions for an Analysis of the Crisis, in Moseley, F., (1988) Limits of Regulation, International Journal of Political Economy, summer 1988, vol.18, Nø2, p.44-67.
-Boyer, R. (1986), La théorie de la Régulation, une analyse critique, La D‚couverte, Paris, 1986.
(2) Cf. Duménil, G. et Lévy,D. (1993),The Economics of Profit Rate, Competition, Crisis and Historical Tendencies in Capitalism, Edward Elgar.
(3) This expression is thanks to Schmitt, B. (1975), Théorie unitaire de la monnaie, nationale et internationale, ed. Castella, Albeuve (Suisse), 1975.
(4) I am aware of the fact that quite often one considers that -for reasons I cannot explain- this rupture did not come about until 1971. In that year, the United States had effectively established a costums tax on European steel; the fact that this constituted a break-up in international exchange system is incontestable, but the decisive event is still that the Dollar is no longer as good as gold, which dates back to 1967. I explain this in an in-depth way elsewhere, cf. Relations Economiques Internationales, Dalloz, Paris, 1987 (2de partie, Titre II, ch.13).
(5) For curiosity sake, one may remark that the Smithonian Agreement had been prepared for during the meeting between Nixon and Pompidou (the then President of the Frence Republic): the United States President's choice to work on the accord with the French President is due to the fact that the œ did no longer play a role since 1967, and that the Yen and the Mark did not yet play a role international. Of course the weight of the French Franc could not be compared to that of the Dollar, but, in a certain way, we can take heed of the relative decline of the French Franc (and of the French economy) by taking note that the Franc today doesn't even figure amongst the three currencies that really count on the international monetary scene.
(6) Recently, on the contrary one observes the co-existence of the external deficit and the balance -or evex excess- of the State budget.
(7) It will surely outdo this amount in 1999, since it seems to grow from month to month: 21,2 billion in May, et 24,6 in June (imports : 103 billion, a record-breaking figure; exportations : 78,4), whereas the previsional figure for June was only 20,6. For the first six months of 1999, we have reached the record figure of 118, 14 billion (75,3 for the same period in 1998).
(8) Cf. Perroux, F. (1948), Le Plan Marshall ou l'Europe nécessaire au monde, Librairie de Médicis, Paris.
(9) Cf. the remarkable Ph.D. written by Séo, Ick-Jin (1998), Une interprétation dialectique du processus de développement en Corée du Sud : Etat, accumulation et société, Doctoral Thesis in Economical Sciences, Grenoble.
(10) & (11) éditions de la CGT, Paris, 1982.
(12) The theory concerning this change of perspective is put forth in two important books, that will have a very strong influence on the French public authorities:
- Cotta, A. (1978), La France et l'impératif mondial, PUF, Paris ;
- Stoffaes, Ch. (1978), La grande menace industrielle, Calmann-Lévy, Paris.
However, we must take note, which is worth mentioning here, of the fact that these two authors analyse the phenomenon in a very different way at a later date.
(13) This was perhaps one the the rare aspects that could make the MAI project useful, that is to avoid host-States from having a situation imposed upon them whereby they would have to consent to giving out too many advantages.
(14) Exactly like the flow of food distribution and the pricing system puts all the farmers of the world in competition with one another.
(15) Although the difficulties of the French economy are usually attributed to this rise, it is an error to do so as the rate of investment in France decreased in 1971 (cf. les Rapports sur les Comptes de la Nation, 1971, 1972, 1973), therefore before the rise of the oil price. In any event, what went up in the price of oil is only the taxes paid to the country of production, which had bottomed out in terms of buying power during the preceeding years, because of inflation. If one takes into account the cost of transport, stockage, refining, distribution, and of the amount of petroleum in the national energy results statement, the rise in fees had only brought about a maximum of 1?ncrease of the overall level of French prices. It is also true that it increased the "petroleum bill", and the deficit of the French external balance, although for a correct evaluation, it is necessary to take into account the famous "great works" the financing of which was made possible in the producing countries by the quadrupling of the fees, and which were carried out by industrial leaders of the Western countries (including France).
(16) Remember that -we tend to forget this- the rise in petroleum prices was not imposed by the producing Arab countries. It was so by the United States who wished to negotiate the end of the embargo themselves. This was indespensable for Ira‰l. But the rise in price, which the Arab countries did not ask for, was necessary for the United States in order to re-establish their competitivity with Europe (their technological advance on Europe was decreasing, the extraction of their petroleum was much more costly than that of the petroleum of the Middle East), and stabilise or even increase the exchange rate of the Dollar.
(17) One spoke of "double-digit inflation" (more that 10?er annum). It was very high everywhere in 1974 due to the psychological after-shock of the rise in the price of oil (up to 20,8 ?n Japan, 11,1 in France, but 7 in Germany, which although had exactly the same energy structure as France, 9 in the United States (from which the price of petrol is not taken off). But as early as 1975, Japan came back down to 7,7 ?Germany 6 ?which was never again to excede 5 ?whereas France revolved between 13,5 and 9 ?and England between 27 and 11,3 ?
(18) This was recently experienced once again: in 1993-94, people spoke about unemployment but not deflation, and, although there was a rise in abnormally low prices, the obsession with inflation went on. A.Cotta (La France en panne, Fayard, Paris, 1991) recalls that the well-known growth of the "thirty years of glory" carried forth with a rise in prices that was never under 3?er annum, sometimes going as high as 5.
(19) This phenomen is essential in order to understand the degradation of the French productive structures and the relative decline of the country of France in comparison to Germany. This was analysed by the CGT in their first Rapport Annuel sur la Situation Economique et Sociale de la France (10 mai 1981, d‚cembre 1982) op.cit. On this subject, the reader can consult the in-depth analysis in P. TourrŠs' Ph.D. Thesis, Leÿred‚ploiement industriel en France : un essai de mesure et d'analyse, Grenoble, 1986.
(20) Independently of the fact that when salaried workers are severely in debt, they cannot carry out long struggles for they are constrained by the need to buy what is indispensable for survival on a day-to-day basis.
(21) In a way, this is the idea the 1979 Brandt Report spoke out against (Nord-Sud, Un Programme de Survie, Gallimard, Paris, 1980). Being in debt is dangerous: the report exposed the necessity to act on massively transferring financial ressources out of all endetted situations, possibly by taxing international commerce, stabalising prices of products sold by the Third World at a satisfactory level, and moving some industrial divisions from North to South. The reduction of unemployment in the Northern countries will them come from the need the South will have of the machines produced in the North, need which would then be matched up to the necessary buying power. In the end it takes up the position in the Boumedi‚ne Report at the 1974 General Assembly of the United Nations.
(22) This is how Airbus wanted to sell aeroplanes to Brazil. Boeing was the competition. Finally Airbus decided to organise a loan to Brazil worth two and a half times the price of the planes (construction of airstrips, control towers); under these such conditions, how could the settlement ever take affect? We don't ask questions, we sell.
(23) It is the re-edition of the trips that came after the rise in petroleum taxes to grab the great works market in the countries producing petroleum.
(24) I noticed this in Tunisia, although the sales that were to be financed by it went directly against the economic and cultural policy of the country (television sets).
(25) But the bribe must first be offered before it can be taken up or refused!
(26) J.Léonard established a strict correlation in Venezuela between the aid received and the leak of national capital: for every $1 that entered for the sake of debt, $1.70 left to be invested in an American bank! (cf. the collection of works on debt performed by ISMEA, 1989).
(27) The IMF itself dwelled in this erroneous atmosphere until the last minute without thinking for a moment what would happen when the grace periods will have come to term, and that would be necessary to start repaying loans obtained in foreign currency with foreign currency. In February 1982, the European bankers that it called to Paris once again heard its porte-parole speak about the same blames: a few months later they were quite astonished to hear this porte-parole, who was none other than the Governer of the Central Bank of Mexico, declare that his country could no longer pay the interest costs of its debt!_
(28) 108 billion dollars in 1973, 170 in 1975, 398 in 1978, 560 in 1981, 839 in 1982 (source : CNUCED and IMF).
(29) However in 1982, the price of petroleum took a plunge.
(30) Schumpeter, J. (1912), Th‚orie de l'Evolution Economique, French translation with an important preface by F. Perroux, Dalloz, Paris 1935.
(31) Keynes, J.M. (1936), The General Theory of Investment, Interest and Money, 1936 (CW, vol.7).
(32) Logical reasoning!
(33) Because of the reduction of inflation, the real short-term rate climbs from -0.3?n 1978 to 4.3?n 1981, the real long-term rate at 0.2?n 1978 (-0.l in 1979, average for 1971-80 : -0.2 ?went up from 1981 to 1984 as follows: 2,9, 6,0, 6,7, 7,5 ?
(34) The effective nominal exchange rate of the Dollar had decreased more than 20?etween 1969 and 1979, and it increased 50 ?etween 1980 (4.5 Francs) and the first months of 1985 (10.5 Francs).
(35) The "benign neglect": the internationally dominant economy is indifference to the rest of the world.
(36) He was the one who complained in February the the banks did not lend enough money (cf. supra n. 26).
(37) It would be useful to recall here that when England had devalued in 1967 it obtained the agreement from the same BIS in order to freeze its debt towards the "Sterling countries" (all the peripheral countries)_ The situation in today's world would have been profoundly different than what it is if the freezing of the debt of the indebted was accepted in 1982, but "according to whether you are rich or poor, weak or powerful_!"
(38) The quality of the "indebted" countries evaluated by banks according to their capacity to pay back a loan (creditworthiness).
(39) It came to be known afterwards that many people had cancelled their subscriptions to journals specialised in the "analysis of risky countries".
(40) Since then, weeds have covered all the unfinished works, as those that were finished but not maintained. What would we become if we were not as certain as financial experts: "the market ensures the optimal allocation of resources"?
(41) The mission of the IMF was nevertheless to preventively impede the arrival of structural deficits": we could have expected on its part to be conscious of what was going on, and act to stop the incident before it degenerated into a catastrophe.
(42) The "indebted" asked in vain to have the negotiations carried out at the United Nations so that the global aspects of the problem may be taken into account, or atleast in a bilateral way with each of the creditors. Contrarily though, the "indebtors" forced all the "indebted" to be appear, one by one, before an assembly of "indebtors". But the "indebted" still needs to have an agreement with (and a loan from) the IMF in the framework of "conditionality", and appear before the club of Paris before going to appear before London's club.
(43) It would be useful to say a work about this mechanism: on their own, the banks could not have any means of imposing the payment of the debt; on its own, the IMF has too little cash flow to be able to strongly influence the reimbursement procedure, but the alliance between banks and the IMF changes the data. The statutes of the IMF carries an exhorbitant clause from common law: in the contract of conditionality with a country, it is evaluated and under evaluation from the moment it knows if the country in questions executes its contract or not. The situation is in this way deadlocked to the advantage of the "indebtors" if they demand -and they do- that before any agreement on rescheduling the "indebted" in question signs a contract of this type with the IMF. Suffice it that the IMF declare the country not to satisfy the conditions of the agreement for the rescheduling to be cancelled!
(44) Cf. his excellent analysis in L'Hériteau, M-F., (1986), Le FMI et les pays du Tiers-Monde, PUF, Paris.
(45) According to the expression from Bourguinat, H. (1 985), L'Economie Mondiale ... D‚couvert, Calmann L‚vy, Paris, pp. 165 et ff.
(46) In 1993, the United States debenture market under went a crisis and capital found refuge in the marketplace; although experts had plenty of objective reasons to anticipate the drop in prices, what we witnessed instead was a very strong increase. In fact this is not an exception, when capital moves massively to any sort of market, they inevitably gain value in the first instance.
(47) Figures from UNCTAD and UNO.
(48) Dudley, L., Sandilands, R., (1 975), "The side effect of foreign Aid ; the case of PL 480 Wheat in Colombia", Economic Development and Cultural Change, January, pp.331-332.
(49) Cf. the fundamental text by Perroux, F. (1961), L'Economie du XX ème siècle, 1st ed. PUF, Paris, 1961, re-edited in 1969, 1971, 1974, and 1991 in the collection of works Fran‡ois Perroux, PUG, Grenoble, 1991.
(50) Cf. the works of E. Seretakis in the GRREC framework: he shows several examples (the Ivory Coast and France, or Greece and Germany since the Greece's joining the European Union) of the fact that structure of relative prices of the dominated economy tend to that of the structure of relative prices of the dominating countries.
(51) Daly, H., Goodland, R. (1994), "An ecological assessment of deregulation of international trade under GATT", Ecological Economics, 9, pp. 73-92.
(52) Andreff, W. (1 996), Les Multinationales Globales, La Découverte, Paris, 1996, pp. 37 et ff.
(53) Hipple, F.S. (1990), "Multinational Companies and International Trade : The Impact of Intrafirm Shipments on US International Trade", Journal of International Business Studies, vol. 21, cited by Chesnais, op. cit., p.194.
(54) Chesnais, F. (1994), La mondialisation du capital, Syros, Paris, p.194.
(55) On this matter, cf. the decisive text by Bairoch, P., Kozul-Wright, R. (1 996), "Globalization myths : some historical reflecfions on Integration, Industrialisation and Growth in the World Economy", UNCTAD Discussion Papers, nø l13.
(56) Bergsten, C.F., Noland, M. (1993), Reconciliable differences, Institute for International Economics, Washington DC.
Bergsten, C.F., Stern, P. (1993), "A New Vision for United States - Japan Economic Relations", in Harness The Rising Sun : Managing Japans Rise as a Global Power, An Aspen Strategy Group Report, Aspen Institute, Cambridge, MA.
(57) Pearce, D., Markandya, A. et Barbier, E. (1992), Blueprint for a green economy, Earthscan Publications, London.
(58) By‚, M. (1961), "The role of capital in economic development", in H. S. Ellis, ed., Economic Development for Latin America, Macmillan, London, 1961, pp. 110-124.
(59) Daly, H.E., Cobb, J. (1989), For the Common Good, Bacon Press, Boston.
(60) Cobb, J. B. Jr (1992), "Growth without Progress", Loyola of Los Angeles International Comparative Law Journal, 15, 1, pp. 45-62.
(61) That which renews the conditions of production; this surplus includes the consumption of the inoccupied workforce (in the Peripheries, people that are productively active are cared for by the others).
(62) For instance, in the name of a real of supposed debt, or a unequal exchange pricing system, etc.
(63) Séo, Ick-Jin (1998), Structures Sociales et D‚veloppement Economique, les phases de l'industrialisation cor‚enne, Ph.D. Thesis, Grenoble, 1998, in print, L'Harmattan, Paris.
(64) In his Thesis Relations entre Importations et Développement : le cas de l'Inde, (Grenoble, 1994), P. Boureille showed how this country went from "start-up importation" (at the beginning of the construction of its Autonomous Basis of Accumulation) to diversification importation", and then "transitory or permanent follow-up importations" (possibly with "useless importations"), and on to "modernisation importations", "importations for exportations" and to "stimulating importations" to increase the efficiency of businesses.
(65) François Perroux insisted quite a bit on this liaison between agriculture and industry: cf. Perroux, F., (1983), A new concept for development, Croom Helm, UNESCO, Paris.
(66) The Brandt Report of 1979 asked the same questions.
(67) Cf. Clairmonte, F. (1997), "The transnational gulag, reflections on Power Inc.", Economic and Political Weekly, 1-8 March, pp.449-452.
(68) Cf. Drèze, J., Malinvaud, E., (1994), "Croissance et Emploi, l'ambition d'une initiative européenne", Revue de l'OFCE, nø 49, pp.247-288; Sterdyniak, H. et al. (1994), "Lutter contre le chômage de masse en Europe", Revue de l'OFCE, nø 48, pp. 177-236.
(69) According to the figures produced by the United Nations during the World Summit on Employment in the world (Copenhagen, March 1995), 1,100 million people in the world live under the absolute poverty level, half of which do not have either land or tools. If it is known that the production of tools calls for machines, and that the machine production sector only represents a small pourcentage of the whole industry, one has to conclude that it is a priority issue to develope this as soon as possible.
(70) A machine that makes paper cannot produce paper otherwise than according to the its own characteristics; but the machines from Sector I of a given generation are those that make possible the production of "machines that produce machines" of the next generation.
Hanoï, December 1999
Answered By: Arun M - 11/27/2006 |