The first thing to understand is this: 3rd world GDP growth in the post-war liberal period (roughly 46-68 or so), was good. It was above population growth in most cases. That changed around about the time OPEC grabbed the West by short and curlies, squeezed and wound up with tons of money they didn’t know what to do with. This is an act in three parts:
ACT 1: Banks Loan Money to Third World Countries
Lots and lots of it. The pitch is this: we know how to develop countries. You’ll borrow this money, invest in development and have more than enough money to pay off the loans. Except that they didn’t know how to develop countries and even those countries in which the leaders didn’t steal the money, the loans grew faster than the tax base, leaving governments less and less able to administer their own countries.
ACT II: Money, Money, Money and Cash Crops
So, you need $. Foreign dollars. How do you get them? You could do what Japan, Korea, the United States and Britain all did, and develop real industry behind trade barriers, of course, but that’s not what the experts are telling you to do. What they’re saying is “you have a competitive advantage in certain commodities: cash crops and maybe minerals. You should work on that.”
Most cash crops are best grown on plantations, so if you want to move your economy to cash crops, you have to move the subsistence farmers off their land. That means they will go to the cities and need food that you no longer grow (since you’re growing cash crops to sell to Westerners.) But hey, that’s ok, because with all the foreign currency you’ll be getting from bananas, coffee and so on, you’ll be able to buy that food from Europe and America and Canada. Right? Right!
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Except that everyone is getting this advice, and everyone is growing more cash crops, and the price drops through the floor and you have a thirty year commodities depression. You can’t feed the people you’ve shoved off the land without taking more loans; there are no jobs for those people, so now instead of self-supporting peasants you’ve got a huge amount of people in slums. But, on the bright side, while not enough hard currency has been created to develop, or even stay ahead of your loans, enough exists so that the leaders can get rich; the West can sell grain to you; and you can buy overpriced military gear from the West. Win! For everyone except about 90% of your population.
ACT III: The IMF
The above was standard IMF and World Bank advice, of course. Don’t let anyone tell you that the World Bank or IMF want a country to develop; their actions say otherwise. What they do need to do is push neo-liberal doctrine. So, now that your country is vastly in debt and can’t feed itself without foreign food which must be bought in hard currency, the IMF says “well, we could give you more money, BUT”.
The but is that they want you to stop subsidies of food and let food prices float. Then they want you to reduce tariffs on goods, even though tariffs are a huge source of tax revenue, because your government is crippled and your people have tiny incomes, so you really don’t have the ability to tax them. Then they want you to open up your economy to foreigners buying it up, so foreigners can own every part of your economy worth having (anything that generates hard currency, basically.)
FINIS
After all this your country is a basket case.
Win, Win, Lose.
(This was the great commodities depression. It ends about 1998, but the vast debt overhang remains in most cases.)
Originally published October 10, 2014. I can’t write this any more succinctly than this.
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Mandos
DING DING DING, bingo! The advice that was given was based on a combination of ideological (economist) blindness and elite greed, and here we are.
Celsius 233
Mandos
October 10, 2014
DING DING DING, bingo! The advice that was given was based on a combination of ideological (economist) blindness and elite greed, and here we are.
~~~~~~~~~~~~~~~~~~~~~~~
Give that man (Mandos) a cupie doll.
Zounds!
Christopher Harlos
Who needs an army when we have bankers?
Peter VE
When the OPEC oil embargo came in ’73-’74, and again in ’79, there was a certain amount of public hand-wringing about how the high oil prices would effect Third World countries. The official answer was “Recycle the profits from the OPEC countries as loans”.
No one ever explained how those loans were supposed to be paid back. I remember wondering then what the hell they were thinking. It has become clear to me in retrospect, thanks to Mr. Welsh and other bloggers.
John Measor
Wonderful and succinct overview Ian! I’d only add that not enough stress can be placed on the ‘wise men’ or technocrats or whatever they call themselves these days didn’t and don’t know how to develop countries – because they need to place their own interests before those of their – ahem – ‘clients’ and more so because they thought they were the product of some Darwinian competition where their personages and ideas had won out over others … rather than merely the scions of political arrangements that handpicked winners over the rest of society. Classic case of Barry Switzer’s line that “Some people are born on third base and go through life thinking they hit a triple.”
Jessica
Excellent and succinct summary.
It is not that our Overlords did not know how to develop countries. They did not want to develop them.
As you pointed out, the examples of Japan, then later South Korea etc. showed how to do it.
This may be a quibble, but since the mainstream propaganda apparatus claims otherwise, it is important keep it clear that these people are not our stupid, incompetent friends. They are our enemies.
Hvd
Jessica just a quibble on your quibble but beyond the surface ability to manipulate reality they are deeply, profoundly stupid. Otherwise you are very, very right.
Lee Doran
Another stellar post Ian.
I wonder if the storyline doesn’t go right back to Bretton Woods, say, and the ‘winners” determination to (subtly, in the beginning) impose their economic/cultural biases on the planet they had just conquered?
I’m not sure whether they knew or saw what form, exactly, the economic component of their new adventure would take (although I am sure there must be experts out there now who do know the answer to this; I seem to recall Keynes was involved(?)). But they knew they had won and they were, thus, validated by the violence of victory in their core beliefs.
The whole operation ramped up at a leisurely pace (the private sector arm of the World Bank wasn’t founded until 1956). Besides, people had an horrendous war to recover from. Plus, they had just used nuclear weapons, deliberately — twice — against fellow human beings. That was a truly momentous, if not profoundly unique, event. It would take some time to process, intellectually — for those few who would even engage with the issue.
As well, these new world conquistadors had to deal with the ideological challenge from those — many, at one point — who believed that common goals for the common good were a better ethical and moral basis for organizing their societies. Better, say, than the pursuit of individual greed, in atomized organizations designed deliberately to fight — to continue the physical fight of the War in the somewhat-more-abstract (but no less ‘real’ to the folks so engaged) fight of the economy .
[Sidebar: These are the competitive behaviors that drive the human (male) mind so relentlessly to battle fellow human (male) minds to the winner’s circle whence his team followers (not only the team members themselves) get their testosterone surge that reinforces the rightness of that particular battle with the satisfying bath of neuro-chemicals that make him feel — well, ecstatic. This fighting is just incredibly addictive. It’s the winner’s high, Harold, he even walks taller, bigger. Look at him!]
It took a good 40 years to complete that battle (which ended, interestingly, in a whimper — no explicit direct war, just economic collapse — briefly — until the newly-minted capitalist thugs (literally gangs, the most basic of human (male) fighting units) took over … and then, re-took their government — also peacefully.)
All the while Ian’s Three Acts were quietly working away in the background. By the ’90s, towards the end of the Warring Century, the game — the only game in town (read: planet) now –could really get geared up. There was nothing else to do, or attend to — except for the perrennial Crusade in the Middle East which had just been profoundly (Ian again) distorted by money beyond measure to feudal cultures of male-only minds and bodies ‘running’ the (global) economic show. What profound irony! And of course the WW II conquistadors had to go along because in their (self) designed system money is all, king, top of the pyramid.
Except of course that it’s not, really. We know from talking to terrorists (Scott Atran did it) that sacred values trump economic ones — always. (They even use different parts of the brain for decision-making.) So the perennial wars continue, because the money doesn’t deliver the sacred, except to the conquistadors and their descendants (and even they are having second thoughts because all this economic success is fueling climate disaster that is building, building, building … hurricanes, wild fires, floods – oh the floods. And that element of the system is not even truly engaged, yet. Just wait for what’s coming … you can see the headlight of the train emerging from the tunnel… Look – over there! Get off the tracks, Emily… Get Off The Tracks…!)
Just in the past couple of weeks, the descendants of the founding godfathers of the winning movement (Rockefellers, by name) abandoned the stuff that brought them. No more fossil fuels for them. Fossil fuels are for fossils, now. Or soon to be.
And so the story continues … “Where were you during the war, Daddy?” “Uh, which war was that, son?”
Thanks again Ian,
L.
JustPlainDave
It would bear mentioning that Liberia and Sierra Leone (which account for a significant majority of cases and deaths) recently finished fighting fairly extensive infrastructure-destroying civil wars.
Michael Robinson
It’s actually much worse than you’ve outlined.
A book everyone should read:
http://www.amazon.com/Confessions-Economic-Hit-John-Perkins/dp/0452287081
Tony
It is convenient short hand – especially using a venue such as a blog – to write of “elites” as being monolithic. I.e., elites are stupid but greedy. The reality, of course, is much more complicated.
As I argued a few months ago, one crucial decision point for the developing world was the death of Franklin Roosevelt, and the unwillingness or inability of US elites to follow through on FDR’s preferred policy path of resisting the restoration of the British and other European empires, and give former colonies access to “American methods” to develop and industrialize. Some people will immediately frown about what is meant by “American methods” thinking that they are not much different than British imperialism. Which I believe is wrong. British imperialism sought to keep countries as suppliers of raw materials, without ever developing their own industries to process raw materials themselves. This is, of course, exactly the policies that led to revolt by the American colonies in 1776. British imperialism would build railroads, for example, only from large mines or agricultural areas, to seaports. “American methods” would build railroads to link population centers, as well as to access raw materials in the interior of a country.
Here is an excerpt from Elliott Roosevelt’s ‘As He Saw It,’ (New York: Duell, Sloan and Pearce, 1946), recounting a conversation he witnessed between his father, FDR, and Churchill at the conference at Argentia Bay off Newfoundland in August 1941:
‘You see,’ said Father slowly, ‘it is along in here somewhere that there is likely to be some disagreement between you, Winston, and me.
‘I am firmly of the belief that if we are to arrive at a stable peace it must involve the development of backward countries. Backward peoples. How can this be done? It can’t be done, obviously, by eighteenth-century methods. Now–‘
‘Who’s talking eighteenth-century methods?’
‘Whichever of your ministers recommends a policy which takes wealth in raw materials out of a colonial country, but which returns nothing to the people of that country in consideration. Twentieth-century methods involve bringing industry to these colonies. Twentieth-century methods include increasing the wealth of a people by increasing their standard of living, by educating them, by bringing them sanitation–by making sure that they get a return for the raw wealth of their community.’
Around the room, all of us were leaning forward attentively. Hopkins was grinning. Commander Thompson, Churchill’s aide, was looking glum and alarmed. The P.M. himself was beginning to look apoplectic.
‘You mentioned India,’ he growled.
‘Yes. I can’t believe that we can fight a war against fascist slavery, and at the same time not work to free people all over the world from a backward colonial policy.’
‘What about the Philippines?’
‘I’m glad you mentioned them. They get their independence, you know, in 1946. And they’ve gotten modern sanitation, modern education; their rate of illiteracy has gone steadily down….’
‘There can be no tampering with the Empire’s economic agreements.’
‘They’re artificial….’
‘They’re the foundation of our greatness.’
‘The peace,’ said Father firmly, ‘cannot include any continued despotism. The structure of the peace demands and will get equality of peoples. Equality of peoples involves the utmost freedom of competitive trade. Will anyone suggest that Germany’s attempt to dominate trade in central Europe was not a major contributing factor to war?’ END EXCERPT
Here are some factions of “elites” that I can think of. This is not intended to be comprehensive, but to spur people’s thinking.
1. British imperialist types. Some American elites, such as the House of Morgan, can probably be included among them.
2. The Cold Warriors. These are the types, such as Allen and John Foster Dulles, who came to see the post-war period solely through the lens of anti-communism. For these elites, any foreign nationalist such as Mossadegh, Nasser, Sukarno, or Minh, who wanted to develop their countries using elements of socialism, was simply an ally of the Soviet Union, and needed to be resisted and eliminated.
3. The malthusians. I do not believe this group of elites is very large, but their power and influence appears to me to be out of all proportion to their numbers. These are the types who funded and promoted the eugenics movement in the 1920s and 1930s. They honestly believe the world’s problem arise almost entirely from over-population. The most rabid ones speak in terms of “culling the human herd.” The British aristocracy and monarchy harbor a number of these, such as Prince Phillip.
4. The true believers. Perhaps the largest number, these are the ones we refer to as stupid. They honestly believe in the doctrines of economic neo-liberalism. These are your basic economist, CEOs, editors, Congressmen, etc., etc. I do want to note here the remarkable shift in popular perception from government being an agency for good, to a complete animus anything the government tries to do. Concomitant with the rise of movement conservatism, of course. But lest you think this was a “natural development” I urge people to at least look at Philip Mirowski’s books on the Mont Pelerin Society.
5. Let’s not forget that there ARE some elites who are for development of all nations. I think John Kennedy was one of these.
Stevan
This reminds me of “Confessions of an Economic Hit Man” by John Perkins. He was a big time enabler of all this, had a change of heart and wrote a couple of books about it.
Ian Welsh
Bretton Woods was significantly better for the third world than the era after it. It wasn’t as good as it could have been had Keynes plan been followed in full, but it did allow tariffs and so on for developing countries. Keynes believed that countries should make/grow most of what they needed, and import only what they could not make themselves. Ordinary manafactures should be made in the country of origin and certainly the country should grow as much of its own food as practicable.
Chris Geary
A few points:
1. Uganda has successfully death with Ebola outbreaks in the past. Despite being poor and all.
2. Ebola is not “out of control in Africa”, and probably will never be. It’s limited to four countries at least, so far. Far better to speak of it being out of control in specific devastated countries.
3. World Bank and IMF policy is the policy of the advanced capitalist countries i.e. US, Western Europe and Japan. Just to be clear.
jemand
I found this article fascinating: http://www.okayafrica.com/news/ebola-a-wake-up-call-to-sierra-leone-upper-class/
The perspective of someone from the upper class in Sierra Leone, and how it immediately made me think of the essays here regarding free- trade, elites selling countries out, and the destruction of countries.
Jessica
@HVD
Point well taken.
If the relevant institutions actually wanted to do the good that they claim they want to do, they would need different personnel.
xraymike79
JustPlainDave says
“It would bear mentioning that Liberia and Sierra Leone (which account for a significant majority of cases and deaths) recently finished fighting fairly extensive infrastructure-destroying civil wars.”
And who were the merchants of death supplying the arms to Africa?
http://www.bu.edu/globalbeat/syndicate/Hartung021000.html
http://www.theguardian.com/world/2014/oct/02/-sp-africa-arms-dump-south-sudan
http://www.washingtonpost.com/world/national-security/chinas-arms-exports-flooding-sub-saharan-africa/2012/08/25/16267b68-e7f1-11e1-936a-b801f1abab19_story.html
http://www.theguardian.com/world/2013/apr/04/arms-trade-africa
JustPlainDave
As some analysts of the continent are wont to say, “Africa is not a country”. Much more specific transfer data available below:
http://www.sipri.org/databases
Maureen Coffey
The problem also is that US and European agricultural policies deliberately destroy Africa’s smallholder farmers by pressing subsidized produce into the markets at prices an African even if he earned less than a dollar a day couldn’t match. This leads to more starvation than necessary and/or people leaving the country-side to dwell in city slums to be closer to the NGOs that then feed them. Both starvation and cramped slums are ideal precursors of epidemics.
Ten Bears
Do we fare call it a conspiracy?
Ten Bears
Do we dare call it conspiracy? Stupid phone.
Which of course refers to Gary Allens seminal 1972 None Dare Call It Conspiracy. There remain to this day questions of how a healthy athletic fifty year old could suddenly die fourteen years later, but… ho-hum.
Synoia
The Destruction of the
3rdWorldIt’s not limited to the 3rd world. Before this regime, most countries supported local manufacture.
And by definition, only 50% of countries in aggregate can run a trade surplus.
This statement is crucial:
Will anyone suggest that Germany’s attempt to dominate trade in central Europe was not a major contributing factor to war?
That’s changed? When?
Hugh
OT I didn’t know where to park this, but for those interested, the September jobs report came out yesterday. The key metric I look at is jobs created in the private sector, seasonally unadjusted (as in what actually happened). The official stats are seasonally adjusted and represent a smoothing of data. They make for prettier graphs but aren’t real, even though they are religiously reported as such. My take home is that the Trump bounce is gone, erased. The private sector usually loses jobs in September due to the beginning of the school year. While the public sector gains around a million education-related jobs in September, the private sector loses about 400,000. This year it lost 697,000. Year to date (Jan.-Sept.), 3.500 million jobs have been created in 2017. This compares with 3.739 million in 2016,
3.836 million in 2015,
and 4.193 million in 2014.
As I always point out, while 2014 is by far the best year of the last four for job growth in the private sector, it was a solid, not stellar year. Each year since has been worse, and 2017 appears now not to be an exception.
Due to the timing of the survey upon which the jobs report is based, hurricane Harvey had some effect on the September 2017 numbers, and hurricane Irma may have had, but even before them, 2017 looked at best to be on track to be similar to 2016. In other words, the Trump bounce had already largely faded, and the hurricane(s) stamped out what little was left and then some.
Hugh
On topic, I would just note that overpopulation and climate change, absent immediate and radical action to control population growth and reduce greenhouse gases, will result in the collapse of all states in Africa with the possible exception of South Africa, all states in South Asia, and most states in the Middle East and Southeast Asia, including Indonesia and the Philippines. These crises plus North Korea’s nuclear program will also place major stresses on East and Northeast Asia. The timeframe and scope for action are further reduced by the kleptocratic policies of the international financial community, local kleptocratic ruling classes, and cultural and religious biases, especially with regard to limiting, and reversing, population growth.
different clue
@Tony,
If you are the same person as Tony Wikrent, then a most recent Naked Capitalism thread might be an opportunity for you to add something over there.
And here is that thread. Someone named Sound Of The Suburbs said some stuff about different theories of banking and finance, and the relative merits among them. Here is the link.
https://www.nakedcapitalism.com/2017/10/mark-ames-finance-important-leave-larry-summers-4.html
Over the several years of my commenting there before my recent enbanment I would mention Frederick Soddy now and then when relevant. It took me several years of doing that till finally someone else mentioned Frederick Soddy when relevant without any prompting from me. It takes several years of constant steady presence to get something of value finally seen and known among the readership over there . . . in case you think it is worth the effort.
johnm33
It does look a little like progress, look what happened to Paraguay when they decided not to borrow foreign currency back in the 18[40s?]. They were right of course a government, of good will, can create all the money it needs, as debt if they wish, without any need for a parasitic banking class. Which clearly cannot be allowed to happen, either in the 3rd world or the 1st.
Peter
This post covers much of what happened up until 2000 and since then the Chinese have been busy in much of Africa with their development plans. They have loaned a lot of money for infrastructure building to ease the removal of the commodities they needed. They have also required these countries to open their markets and cheap consumer goods have flowed into them, displacing much of the local manufacturing.
With high commodity prices and steady demand from China many of these countries economies grew rapidly during the good years. Now Chinese imports from Africa are down 40% and low oil prices are adding to the problem. The Chinese are promising $60 billion more in development funds but how will they deal with these countries if they default on those loans?
Sid Finster
Not to mention, 1) you need to tear down tariffs and other barriers to entry, because, markets; and 2) you need to be prepared to sell off your assets and industries to foreign concerns, because, markets.
Sid Finster
To beat my preceding comment to death – countries such as Japan, Taiwan, South Korea and China did precisely the opposite of the World Bank/IMF/because, markets consensus.
For decades, you could not buy a Japanese car in South Korea.
Hugh
Free markets and free trade are tools of looting. They work equally well in First and Third World countries. They remain, however, a fairly effective branding mechanism. Who can be against anything “free”? What is interesting is the same people who push free trade and free markets, the economists and politicians, will tell you everywhere else that nothing is free. But then no one ever said that propaganda had to be logical. In fact, the only way it works is if it isn’t.