Myths of Development versus Myths of Underdevelopment

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Arghiri Emmanuel

Myths of Development versus Myths of Underdevelopment

Bill Warren’s article Imperialism and Capitalist Industrialization in NLR 81 is a very important text, although I believe his fundamental line of argument to be misconceived. There is no doubt that he draws attention to many aspects of the vexed question of development in the Third World that are too often ignored, by Marxists as well as by bourgeois economists. However some of his theses are perhaps less surprising than he imagines. Warren’s insistence upon the relatively high industrialization rates experienced in recent decades by underdeveloped countries is certainly no great shock to the present writer. In my book Unequal Exchange I give due acknowledgement to the recent ‘wave of industrialization’ in the Third World and to the fact that annual growth rates of industrial production in some of these countries are ‘higher than those prevailing in the advanced countries (which are) themselves higher than had ever been known before’.1 Bill Warren is also quite correct to attack the ‘ambiguities in current Left analyses’ conceived of in terms of ‘dependence’, ‘backwardness’ and ‘underdevelopment’—understood not simply as a quantitative gap but as an undefined 61

qualitative distortion. On this point I would indeed go somewhat further than Warren and add that the concept of ‘domination’ which he accepts is no less elusive than that to which he takes exception, as soon as direct colonial rule is no longer involved. If it is not specified whether it is political domination which entails economic domination or the other way round, reference to it involves familiar circular reasoning. In the peripeteia of the recent oil crisis and the inglorious response of some of the imperialist powers to this major challenge to their most vital interests—with their representatives queueing up in the ante-rooms of the Middle Eastern princes—it would not be difficult to find empirical material for an article no less iconoclastic than that of Warren. It is certainly the case that current Left literature underestimates the significance of formal independence, of economic—I would even say of political—nationalism, and of the ability of small countries, and of some rightist regimes of the periphery to avail themselves of inter-imperialist rivalries and to get the best out of capitalist bargaining, up to and including the use of punitive actions against foreign companies. It is also quite true that current Left-wing criticism does not distinguish clearly between development within the framework of capitalism on the one hand, and socialist revolution, on the other. It denies any progress of the former just because of the absence of the latter. I expressed much the same view in my own book, pointing out the absurdity of blaming imperialism for not having betrayed its own principles and having promoted state planning and the socialist path of development, and for ‘not having lavished all sorts of benefits on its victims’.2 The overall improvement in the bargaining position of host countries vis-à-vis foreign resource companies, outlined by Warren is, of course, an obvious fact of the contemporary world, and it would need a rather large dose of dogmatism to remain unaware of it. Moreover, the conventional argument that underdeveloped countries suffer from the implantations of unsuitable—excessively labour-saving—technology is not only a gratuitous assertion, as Warren rightly observes, but constitutes an unconscious reinstatement of the basic neo-classical theory of the international division of labour, that of Heckscher-Ohlin, and the crudest rejection of the traditional Marxist position on this issue. For bourgeois doctrine has always taught that each country specializes in those branches, and chooses those techniques within these branches, which make the most use of its most abundant factor—assumed to be also the cheapest one—thus bringing about a maximization of its own output and an optimization of the international division of labour. Marxists have always contended that it is indeed by so doing that free enterprise blocks development in undeveloped—and consequently lowwage—countries, since it relegates them to the ghetto of labourintensive production techniques (agriculture, light industry, etc), that is, production with the lowest technology and productivity, which, in their turn, keep wages low and reproduce the same conditions. But today, all of a sudden, socialists blame multinational corporations for 1 2

Arghiri Emmanuel Unequal Exchange, London NLB 1972, p. 375. Unequal Exchange, p. 376.

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breaking this vicious circle of the ‘specific imperialist international division of labour’, by doing exactly the opposite: introducing into cheap-labour countries labour-saving plant and processes! I doubt whether multinational corporations have really adopted such uncapitalist behaviour on any significant scale. If, by any chance, they were to do so, their practice would constitute an unexpected proof of Warren’s belief in the ‘self-destructive’ character of imperialism. So far as the ‘dependence’ of the Third World in general on foreign technology of any kind is concerned, I would argue that under present circumstances, where the cultural infrastructure in capitalist countries is financed by the State and put free of charge at the disposal of scientific research, ‘indigenous’ technology costs too much to be preferable, whereas licences and patents are one of the rare categories of goods imported by underdeveloped countries, perhaps the only one, which are artificially undervalued, in so far as part of their cost of production is defrayed by the seller’s state. Finally, I myself do not equate ‘debt with a debt problem’ and even less with a draining of surplus from the periphery to the centre, so I find Warren’s comments on this subject very sensible indeed. In some cases, debt must be equated with a draining of surplus in the opposite direction, from the creditor to the debtor. This is currently the case of Eurodollars, which represent a huge volume of real values supplied to the United States by the rest of the world, against an American ‘debt’. To be sure, the underdeveloped countries do not have the same power as the United States of monetizing their debt—more plainly, of not servicing it—but in a period when all currencies are losing between 5 and 10% of their value each year, I would strongly recommend any individual or any state to run into debt up to the extreme limit of their lenders’ readiness to oblige, notwithstanding any apprehension about future servicing. The Fetish of Industrialization

However, despite these merits, Warren has attempted to prove too much. On the assumption that development implies industrialization, he jumps to the unwarranted conclusion that industrialization (eventually just ‘manufacturing’) and development are one and the same thing. It follows that the same data lead Warren and myself in two opposite directions. The very fact that manufacturing labour and manufacturing output, as percentages of total labour force and total output, are roughly the same in Argentina as in USA, 25·1% and 28% as against 26·5% and 28%, and considerably higher than that, 41·4% and 38%, in Hong Kong, proves in my view that mere industrialization is by itself not a good gauge of development; for it would logically compel Warren to admit that Argentina is as highly developed as the USA, and Hong Kong 50% more so!3 3

If manufacturing were as significant an indicator as Warren believes, we should also be obliged to say, according to his own figures, that Japan is equally or more highly developed, and Western Germany considerably more highly developed than the USA, not to mention the other unexpected comparisons made by the author himself on the basis of only GDP proportions between such countries as Zaire and South Korea, on the one hand, and Canada and Australia on the other. 63

I have explained at length, in an appendix to my book Unequal Exchange, my own view of the prevalent confusion between industrialization and mechanization, and shall not go over these arguments afresh. It can be said, however, that if we really want to de-mystify the concept of economic development we must, first and foremost, acknowledge that the only conceivable purpose of development is to improve men’s material well-being, and that it is only on this account that it is of interest to economists. Industrialization, manufacture, mechanization and so forth, can only be means to attaining this end, and it would be absurd and ridiculous to regard them as ends in themselves. Leaving aside the questions involving choice of life-style—what is currently called ‘the quality of life’—this improvement in well-being must mean a quantitative increase in consumption of goods and services of all kinds. Since this increase must in turn affect a certain number of individuals, and be accompanied within capitalist relations of production by a certain diffusion of consumption, which reinforces the significance of averages; and since we are not concerned with development in general, but with capitalist development, the most reliable and direct measurement of it, which is at the same time the simplest and easiest (in my view, this is no disadvantage) is GNP per head of population. Wiseacres like to quote against this criterion the example of Kuwait, a country that is regarded as underdeveloped despite its $4,000 GNP per head of population before the increase in oil royalties—perhaps $10,000 now. But even if this objection were well-founded, I should not alter my definition. For even if it broke down in the case of Kuwait, it would still be less bad than any of those that are offered in its stead—less bad, for example, than a definition which, on the basis of the relative growth of manufactures, makes Portugal, Chile, Mexico, Iran, Singapore, Ecuador or Malta, countries that are more highly developed than Greece, and Spain a country nearly as highly developed as Australia and New Zealand. It would be less bad, too, than a definition which, on the basis of their exports of primary products, makes Holland, Denmark, Sweden, Canada, Australia, New Zealand, and even the USA, countries less highly developed than Japan. It is certainly less bad than a definition which uses the concept of ‘domination’ by foreign capital in general, and multi-national corporations in particular, to make Canada the least highly developed country in the world, because it is the one most dominated by foreign-owned firms, and India the most highly developed country in the world because there is less foreign investment there than anywhere else. In fact, however, the ‘Kuwaiti’ objection is not well-founded. It neither contradicts nor weakens a definition of development based on the GNP; for the simple reason that neither the citizens of Kuwait nor even its Emir actually appropriate this GNP. They allow the greater part of it to become merely so many book-entries in the banks of Zürich or London —which, in the long run, is just to make a gift of it to foreigners. Let us assume, however, that a government were established in Kuwait tomorrow which decided to take possession of this income in real values —something that obviously could be done only by importing equiva64

lent commodities, in goods and services, into Kuwait itself; and that by so doing it automatically transformed the country’s 700,000 inhabitants into idle rentiers on a grand scale; that it provided every family with a luxurious villa, and that, in addition to the desirable number of cars, refrigerators and television sets per head, this complete Welfare State used its immense income in order to introduce free, compulsory education up to the age of thirty, turning all Kuwaitis, men and women alike, into holders of university degrees; that it trained or imported a doctor for every 300 persons and installed a hospital bed for every 100; that, finally, it imported (after all, why not?) some tens of thousands of German governesses for the country’s children, and the same number of well-trained West-European maids and servants. Then, perhaps, although I might have some reservations about the morality of the society concerned, I should certainly refrain from classifying it as underdeveloped—and neither the absence of the smoke, noise and pollutant waste-products of manufacturing industry nor of an adequate technology would cause me to modify my view.4 But not all countries can by natural endowment dispose of a volume of royalties so disproportionate to their population as to enable them to live without working and consume without producing. As a rule they can consume only what they produce, or what they receive in exchange for what they produce. Now, the ratio between the number of producers and the number of consumers is not easy to alter. For a certain number of mouths to be fed, a human community has at its disposal only a certain number of pairs of hands. Unlike other factors of production, labour is biologically limited. The consequence is that, in order to increase the amount consumed by each mouth, it is necessary to increase the product of each pair of hands, in a given unit of time; in other words, to increase the productivity of labour, which thus becomes the only relevant magnitude, as well as the essential problem of economic development. We have then only to reflect that an increase in the productivity of labour can be attained by two means alone—namely, by making a larger quantity of instruments of production available to the worker, or else by increasing his degree of skill—in order to perceive that the driving forces of development are mechanization and education—the replacement of hands by machines and of muscles by brains. Industry, Agriculture and Capacity for Mechanization

All the foregoing is commonplace. The complications begin after this theoretical point has been reached. Dazzled by the fact that it is industry that produces machines and stimulates the training of brains, many economists have lost sight of the fact that it is not the production of machines in certain specific branches that increases productivity, leads to technical training of workers, and eventually brings abundance, but the utilization of machines and technicians in any branch whatsoever 4 It is noteworthy that, even today, substantial budgetary privileges, a sort of social dividend, have been granted to all the inhabitants, or at least to the citizens of Kuwait (who make up about half of the country’s inhabitants); hence one could say, so far as the latter are concerned, that they have already transcended the stage 0f underdevelopment.

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(including that in which machines are produced—where, however, it so happens that relatively less machinery is used than elsewhere). All branches have not, of course, the same capacity for absorbing machines and brains; and, as a result, a choice between them has to be made in deciding on a strategy of development. But while it is the sector of manufacturing industry that produces machines, it is not necessarily the branches of this sector that possess the greatest potential for utilization of machines and technicians. In agriculture, stockbreeding, fishing, mining and even in the tertiary sector, there are branches which have a greater capacity for absorbing machinery and engineers— and so, capital and skilled labour—than is possessed by certain branches of manufacturing industry. This will be reflected in output per head of person employed, since it is this output that rewards the capital and skilled labour engaged in production. Consequently, when Warren speaks of the transference of active population from ‘backward agriculture’ to ‘modern industry’, he is begging the question. Quite simply, he forgets that there is also ‘modern agriculture’ and ‘backward industry’. If he had taken this into account he would have interpreted his own figures differently. According to these figures, in 1959 the underdeveloped countries (excluding Japan) produced a total value of $27.6 billion in manufacturing industry; since there were at that time about 46,600,000 persons engaged in manufacture in these countries, output per person employed was $592.5 Here we really see ‘backward industry’, since in the same period the average product per person employed in the countries of the OECD was $3,760, and in the USA $7,180. Also in the same period the average product per person employed in agriculture in the principal OECD countries was $1,860, and in the USA $3,638. There we see ‘modern agriculture’.6 If we leap forward about a decade and take the year 1970, we observe that the gap between the ‘modern agriculture’ of one group of countries and the ‘backward industry’ of the other has widened instead of diminished. To be sure, the product per person engaged in manufactures in the Third World has made some progress, increasing from $592 to $994, in current prices; but the product per person engaged in agriculture in the advanced countries has risen from $1,800 to $4,488, and in North America from $3,638 to $8,095. In constant prices, the productivity of labour in manufactures in the Third World has increased from index 100 to index 129, while the productivity of labour in agriculture in 5 I have calculated the number 0f persons employed in manufactures on the basis of the figures of total population given in the United Nations Statistical Annual and the percentages of persons employed in each sector given by P. Bairoch and J. M. Limbor in Revue Internationale du Travail, Vol. 98, No. 4, October 1968, Geneva, International Labour Office. [Note that throughout this article, a billion ⫽ a thousand million, in keeping with US usage]. 6 Calculated by me on the basis of (a) Labour Force Statistics, 1959–1970, Paris, OECD, 1972, (b) UN Statistical Annual, and (c) National Accounts of OECD Countries, 1953– 1969. For the output per employed person in agriculture I have taken the year 1960 instead of 1959.

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the OECD countries as a whole has increased from 100 to 185, and in the USA from 100 to 171. As for the productivity of labour in manufactures in the advanced countries, this has increased in the same period from 100 to 160.7 Clearly, therefore, it is not by transferring its factors from agriculture to industry that a country develops, but by mechanizing and modernizing both of these sectors. The superiority of the OECD countries over the Third World does not consist in the larger share occupied by manufacture in their national production, but in the fact that both their manufactures and their agriculture are on a far higher level than those of the Third World. Two Types of Manufactures

The frontier of development does not run between agriculture and manufactures, but between two totally different forms of these two activities. Terms of comparison more real than monetary indices may perhaps serve better to bring out the difference between the two forms. Out of every 100 persons engaged in industry in 1960 there were in the three most populous countries of the Third World—India, Pakistan and Indonesia—only 45 wage-earners in the first, 36 in the second and 44 in the third, as against 95 in the USA, 92 in Western Germany, and 98 in Britain. Warren repeatedly writes of an expansion of capitalist relations of production. In my view, it is difficult to describe as capitalist the development of a sector where, in the countries mentioned, there was less than one wage-earner per enterprise, as against 19 to 49 in really advanced countries.8 For Warren has overlooked the point that ‘manufacturing industry’ includes craft production; or else, perhaps, he thought that the latter was relatively negligible. In point of fact, the OECD study already cited gives the relevant figures for Latin America. In this region, which is not the least developed of the Third World, and where the proportion of wage-earners among persons engaged in industry lies somewhere between the proportion in the three Asian countries and the three OECD countries mentioned above, ranging between 72% (2·6 wage-earners per enterprise) in Colombia and 84 % (5·25 wage-earners per enterprise) in Mexico, the proportion of craft production, listed as such in these statistics, amounts to 44·2% of the total employment credited to the rubric ‘manufactures’ (as against 55·8% that is specified as ‘industrial’ production).9 It can thus be seen that the ‘manufacturing industry’ of 7 Calculated by me on the basis of sources mentioned in the previous note, together with Principaux Indicateurs Economiques, Statistiques Retrospectives 1955–71, Paris, OECD. 8 To simplify matters, I have assumed that the number of independent workers is equal to the number of production-units, leaving out of account members of the same family working in the same little workshop. But the possible bias is the same on each side, and in order to avoid it we may read ‘independent producer’ instead of enterprise. Source: Le Problème de l’Emploi dans les Pays en Voie de Développement. Paris, OECD, 1971, p. 35. 9 The proportion of the employed population working in manufacturing industry to the total employed civil population amounts, for this region and this year, to 13·8– 7·7% being engaged in industrial production and 6·1% in craft production (Le Problème del’ Emploi, p. 48).

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which Warren makes so much, is only half industrial, the other half being pre-capitalist craft production (with no purchasing of labourpower), which accounts for the fact that, altogether, there are more employers and self-employed than wage-earners in it. Another term of comparison—a physical one, so to speak—between the two types of ‘manufacture’ is the quantity of energy consumed by the one and the other. This is also, in a sense, the most direct gauge, since it shows us the degree to which man makes nature contribute to his productive effort, and so the true degree of development of the productive forces—and, consequently, of development itself. The general average of energy consumption in the Third World as a whole, in coal-equivalent, was 520 kilogrammes per head of population in 1971, as against 11,059 in the USA. For the advanced countries, the approximate share of energy consumed in industry is usually estimated at 40% of the total. For the underdeveloped countries there are neither statistics nor official estimates, but the OECD experts have the impression that the proportion taken by industry must be less. Nevertheless, so as to avoid any underestimation that night unduly strengthen my argument, I will assume the proportion to be the same—40%. Consequently, the energy consumed by industry in coal-equivalent, per person employed in industry, was 4,133 kg in the Third World in 1971, as against 37,670 kg in the USA.10 Two Types of Agriculture

We have already seen that the difference in output between a mechanized and a non-mechanized agriculture is considerably greater than that between an agriculture and a manufacture neither of which is highly mechanized or advanced. To take an extreme case; if the Third World were to give up agriculture completely and transfer all its employed population into manufactures of the same type that it possessed in 1959, which Warren invokes, it would advance only from $140 to $244 in its GNP per head, and would still be very far from crossing the threshold of development: whereas if, by some miracle, it had been able in 1959 to modernize its agriculture up to the North-American level, it would, by concentrating in that sector the whole of its employed population, have advanced from $140 to $1,370 per head—which was, at that time, the average level in the OECD countries. This is, of course, just a hypothesis of pure theory. In impure reality it is not possible to mechanize a country’s agriculture without industrializing it to some extent at the same time. Consequently, economic development is accompanied by a certain transfer of active population from agriculture to industry. Between these two phenomena, however, 10 Calculated on the basis of the figures given by P. Bairoch, in Diagnostic de l’Evolution Economique du Tiers-Monde, Paris 1970; of the UN Statistical Annual for 1972; of the Indicateurs Economiques, 1955–1971, of the OECD; and of the OECD’s statistics of employed population, 1959–70.

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there is no linear causal relation, but only concomitance. Industrialization is not the structural condition for development, but its syndrome. In other words, the transfer from agriculture to industry does not take place because agriculture is backward in itself, and industry advanced in itself, but quite simply because the spectrum of industrial goods is so much wider than that of agricultural products, and the proportion they represent in the housewife’s shopping-basket is such an increasing function of the rise in the standard of living that, given the rigidities of external trade and certain minimum dimensions of the country concerned, the outlets for agriculture are soon saturated. Let us assume that the other economic activities of the USA produced less value per person employed than its agriculture; that the rest of the world agreed to give up its own agriculture completely and import from the USA all the agricultural products it needed, supplying the USA in exchange with all the industrial goods that country wanted; that natural factors such as cultivable land were unlimited in the USA; that the transfer of equipment and personnel from one sector to the other presented no problem, and that transport costs were nil. It would still nevertheless be impossible for the USA to profit from this situation and specialize 100% in agriculture, for the simple reason that the 80 million employed Americans, working in an agriculture as productive as theirs is, would produce a volume of agrarian products more than twice what is at present consumed by the entire population of our planet (the Communist countries included). It is thus not because agriculture is ‘backward’ that men leave it, but, on the contrary, because it is relatively too productive in relation to the scale of existent needs. What development presupposes is not industrialization but, first and foremost, an increase of productivity in agriculture such that those who remain in it can feed those who leave it.11 As with manufactures, so in this case, a comparison in physical terms is most eloquent. Employing certain coefficients of conversion of ‘elaborated’ calories into ‘direct’ calories, and making other extremely minute calculations, Paul Bairoch has perfected an index of productivity based on net physical production per male employed person, unity being equal to one million of these ‘direct calories’ per annum. He arrives at the following results: In the light of the above, we can observe another bias in Bill Warren’s statistics. The workers who leave agriculture during a process of development do not all go into industry, as he seems to suppose. A substantial section go into the tertiary sector. This means that the most significant indicator is not the number of employed persons who arrive 11 The most decisive of the factors which made possible the Industrial Revolution in England in the middle of the 18th century was the considerable superiority of English agriculture over that of the Continent (England was at that time a net exporter of cereals), which enabled Britain to transform, without risk or upheaval, part of its peasantry into urban proletarians.

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Average Production in ‘Direct Calories’ Per Annum Per Male Employed Person12 All underdeveloped countries of which Africa Latin America Latin America less Argentina Asia France USA UK

1960–4 5·2

1810

4.9 13·0 9·1 4·6 60.0 180·0

1840

7·0 21·5 14·0

Germany Belgium

7.5 10·0

in manufactures, but the number who remain in agriculture. The only figures that are missing in Warren’s statistics are precisely those that would show this. Seen in the light of the first indicator, the situation in 1970 does not seem very dramatic: Manufacturing Labour-Force as % of Total Population countries (less Turkey) Rest of the (non-Communist) world OECD

28·5 10·0

Seen in the light of the second indicator, however, the distance between the two categories of country is much bigger, and it is evolving in a way that is absolutely unfavourable to the Third World. Agricultural Labour-Force as % of Total Active Population Advanced countries (OECD less Turkey) Under-developed countries

1960 19·1 70·7

1966 14·1 69·5

197013 11·6 68·7

Statistics and Projections

It may perhaps be objected that the foregoing argument is beside the point, because it matters little whether industrialization is the motor of development or merely its corollary, once I agree that development is indissociable from it; and because even if the manufacturing industry already installed in the Third World is not very productive, it nevertheless constitutes an advance on the other economic activities, which are even less so. While this industry produces only $592 per head of employed population, these ‘other activities’ produce only $340. While, therefore, ‘modern agriculture’ is superior to ‘backward industry’, the latter is nevertheless superior to ‘backward agriculture’. Moreover, this superiority is accurately reflected in the evolution of GNP in the Third World, which I accept as the most reliable indicator of overall development. 12

P. Bairoch, Diagnostic, p. 60. Calculated by a four-year (1966–70) extrapolation 0f the figures given by Paul Bairoch for 1900–66, in Diagnostic. 13

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My reply to this is as follows. If we were concerned merely to record the statistical fact of a certain advance already achieved by the underdeveloped countries, the theoretical distinctions I have made would indeed be futile hair-splittings. But I am assuming that this is not what interests us: that what we seek to discover is whether future development of the Third World is possible along the capitalist road (imperialism being ‘self-destructive’, according to Warren’s very strong formulation), or whether this road is, in fact, blocked. In order to do this it is not enough to juxtapose phenomena in statistical terms; we have to organize them in a network of precise determinations. Accordingly, I have two points to make to Bill Warren. The first relates to the correctness of his interpretation of the statistical data, and the second to the forces at work behind these data. 1. Warren notes that the rate of growth of the total product of the underdeveloped countries exceeded, in the period 1951–69, that of the advanced countries. True, he says, per capita this rate ‘does lag behind that of the imperialist world, in part because of the unprecedented postwar rates of population growth in the former’. But, he adds, growth per head is ‘an extremely demanding criterion of performance’, and he concludes that it is total growth rather than growth per head that is what is at issue in our controversy. I wonder if Warren has not fallen into a statistical snare here? He seems to forget that the additional population consists not merely of consumers, but also of producers. Depending on the differential mortalityrate per age-group, it is indeed possible for an increase in the rate of demographic growth to be accompanied by a certain decline in the proportion of active persons in the total population. But this decline is not cumulative. It needs to be reckoned with only once—at the moment when the rate of demographic growth changes. Once this rate has become stabilized, the number of active persons will increase year by year in the same proportion as the total population, and variations in product per head of population will thereafter faithfully reflect those in product per head of employed persons—the latter being the true index of the development of the forces of production.14 Seen from this angle, the situation in the Third World is far from brilliant. The difference in levels was thus 1:6 in i900; it had widened to 1:13·2 by 1970. Here it is indeed hard to discern ‘the significant and continuing reduction of inequality’ that Warren observes.15 2. This disparity in the respective growth-rates per head of population carries with it some very important implications, in so far as, if I am right, the main obstacle to the development of the Third World coun14

Warren’s method of calculation would lead to unacceptable results. About the middle of last century, Latin America as a whole had a population roughly the same as that of France at the same time, and probably the same total product. Would we be satisfied with its development if, today, with a population more than five times that of France, Latin America had the same total product as France (which, moreover, it has not) ? 15 Warren, NLR 81, p. 10. 71

tries lies neither in a peculiarity of their own social structure nor in a deliberate strategy of the great powers or of big capital (although both of these factors may worsen the situation), but in the free working of market forces. GNP per Head of Population of the Non-Communist Countries, in Constant 1953 $16

1952

Under-developed countries (Oil-producing countries excepted from 1965 onwards) Absolute values Growth-rate 70 43% 100

1958

114

1965

129

1970

144

1900

}

}

For the whole 70 years

Advanced countries Absolute values 420 875

}

}

Growth-rate 108%

1,115 44%

1,510

117%

1,903 1o6%

353%

For, in the capitalist world, in which all the natural functions of human society are stood on their heads, the primary problem being not to produce but to sell, he who dominates is not the biggest producer but the biggest consumer, and it does not matter much whether or not the difference in consumption is reinforced by a demographic imbalance. Little Denmark possesses neither a predominant production of a particular commodity, nor a national technology that is exclusive in some domain, nor a particularly powerful finance-capital, nor, finally, military strength of any significance. What it does possess is a domestic market as big as all those of the Arab countries of North Africa, plus Saudi Arabia, put together. That is enough for it to be a parasitic capitalist country which exploits the underdeveloped countries. This may seem paradoxical—as though we were saying that it is the possibility of clearing the estuary of a river that determines the volume of its tributaries. Yet it is so. Instead of consuming what it has already proved capable of producing, the capitalist system can produce—and consequently, advance and develop—only what it can sell, that is, only where there is an already-available capacity for consumption, either actual or potential. This is, indeed, the most fundamental difference between the dynamic of capitalism and the dynamic of socialism. In the former, all the impulses come from the market, so that investment in capital goods becomes impossible at the very moment when demand for final goods recedes or stagnates. The world is turned upside-down What is downstream determines what is upstream. In the dynamic of socialism, production creates its own market. The world stands on it feet, and what is upstream supplies what is downstream. I do not intend to enlarge on this point here; but if we accept it, and stop looking for the causes of the blockage of the Third World’s de16 Integration by my own calculations of the data given in the of 1972 into Bairoch’s series (Diagnostic).

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UN

Statistical Annual

velopment in the functions of production or of technology, or in vague conspiracies hatched in chancelleries or boardrooms of multinational corporations, all the questions with which Bill Warren is concerned become much clearer. The Case of Oil

It may well be that the recent oil upheaval will help to demystify these matters. We can now see that the increase in the price of oil, and the fantastic profits made from it, will be largely illusory—manifested in mere alterations in book-entries in banks in Zürich, London and New York—for lack of adequate structures for the absorption, and so for the consumption, of commodities and services that could be imported by the oil-producing countries. These ‘structures of reception’ are, quite simply, domestic incomes, and in particular adequate wage-levels, since, even if it is a question of importing capital-goods, the latter will eventually lead to an increase in the production of consumer-goods, and under the free-enterprise system no entrepreneur is going to invest ‘upstream’ of a branch when he has not already available, ‘downstream’, an outlet for the corresponding final product. 17 Thus, the rise in the price of oil will very probably remain formal, costing nothing to the consumer countries as a whole,18 and bringing no profit to the producing countries. The latter will continue to receive, in real values, only the cost of production, some 10 or 20 cents per barrel, plus a very small additional part of the price, realized in the form of armaments, or of a few tankers and perhaps also some refineries 17

This dilemma is one of the manifestations of the fundamental contradictions of capitalism, between social production and private appropriation. On the basis of the present incomes of the Bedouin, no businessman would import new products into the deserts of Arabia, or install factories to produce them. Yet, without new means of production, the income of the Bedouin cannot be increased. A socialist country, or even one where central planning prevails, does not have this problem. Should tens of billions of dollars fall from the sky one day, such a country would experience no difficulty in converting them into real values. On the contrary, indeed, it would profit by the frugal habits of its Bédouin population in order to accelerate accumulation, by devoting the largest possible share of these additional receipts to the purchase and installation of capital goods—importing machines to construct blastfurnaces to produce steel to make sheet-metal to make refrigerators or washingmachines, within ten or twenty years. During that period, these intermediate operations whould have transformed the Bedouin into industrial wage-earners with incomes large enough to consume these refrigerators or washing-machines. Accumulation and consumption have here been treated as inversely proportional magnitudes, which is what they are by nature. The extraordinary thing about the capitalist system is that it can function only by treating these magnitudes as directly proportional to each other, whereas this is objectively impossible, since these magnitudes are the two components of a given entity, namely, the national income. 18 Even if it costs a great deal to some of these countries, namely, those which pay for oil not with their own national currency but with dollars—which means that, so far as they are concerned, these countries do indeed pay for their oil, though not to the Arab countries but to the United States. In the end, if the Arabs keep their holdings in dollars, a gigantic triangular ‘fools’ fair’ will be the result. In exchange for oil, the West European countries will supply the USA with equivalent real values, and the USA will receive as a gift—in exchange for non-repayable paper—not only the oil that it purchases itself, but also value equivalent to that which the European countries purchase. 73

installed here and there. The rest of the price they will never receive, for lack of capacity to consume it. In other words, these countries, after having been for a long time too poor to be able to sell their oil at a normal price, when at last they have the opportunity to unite and, nominally, dictate this price, turn out to be too poor to be able to ensure that they are paid it in real terms.19 Furthermore, the fact that the cost of production of oil in the Middle East continues to be between 10 and 20 cents a barrel today renders present prices very vulnerable. The least weakening of the Arab ‘united front’ will lead to their rapid collapse. The only force that could consolidate these prices durably would be an increase in the actual cost of extraction. Let us imagine that the recent price-increases had been preceded by a wave of strikes in the Middle East which had resulted in a very substantial increase in wages. Let us further imagine that, as a consequence, there had followed a rapid economic development of these countries, and intense urbanizations so that the price of a square metre of land in Saudi Arabia or Iraq had risen to the level of California or Texas; and that, as a result of all this, the real cost of extraction had risen from 10 cents to 10 dollars a barrel. It is clear that nobody, in those circumstances, would have vociferated about ‘blackmail’. For this is the logic of capitalism: you can easily make the rest of the world pay for your wages and your consumption as previously established, that is, the prices of your factors of production, whatever these may be. You cannot, without problems and conflicts, make the rest of the world pay a price based on an exchange of equal quantities of such factors. The End of Imperialism?

In the light of the above we can now tackle Bill Warren’s principal conclusion, namely, that the flow of capital from the centre to the periphery will cause, as with a pair of communicating vessels, the levels of development of centre and periphery gradually to level up, and therewith imperialism itself to disappear. The notion of the diffusion of development by the movement of capital is one of the oldest theses of Marxism.20 Nowadays, there will be many readers who will be shocked by it. I am not one of them. I have already said that I do not believe in mysterious baleful forces which confabulate in the boardrooms of great holding companies in order to enslave peoples. Here we have Canada, a country where it would be hard to find a single enterprise of any importance which is free from control by foreign capital, in this case US; and there we have India, where there is practically no foreign invest19 Not all the Arab countries are, of course, in the same category. In this connexion I am thinking especially of countries like Saudi Arabia or Kuwait. Countries like Algeria and Iraq will be in a position to materialise at least a large part of their receipts. 20 ‘The export of capital’, wrote Lenin, ‘influences and greatly accelerates the development of capitalism in those countries to which it is exported. While, therefore, the export of capital may tend to a certain extent to arrest development in the capital-exporting countries, it can only do so by expanding and deepening the further development of capitalism throughout the world.’ (Imperialism, the Highest Stage of Capitalism: Collected Works, 4th edition, Vol. 22, English version, p. 243).

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ment and where industrialization has been conducted by a bourgeoisie as national as can be imagined. I must confess that I have never understood what Canadian workers or the Canadian people would gain if the decision-making centres of their industry and commerce were to be shifted from offices located in the skyscrapers of New York or Chicago to others located in the tower-blocks of Montreal or Toronto—and still less have I ever understood what the Indian masses, with their income of $10o per capita per annum, would stand to lose if the day came when capitalists with Indian passports handed over to capitalists with North American or Japanese ones. Bill Warren is right. The mere arrival of foreign capital in a country does not ‘block’ anything. It enslaves or develops the country just as much as any other capital, neither more nor less. Consequently, if it should happen that capital from New York were to flow into Calcutta as it flows into San Francisco, we should have no reason to suppose that Calcutta would not one day be, for better or worse, the equal of San Francisco. Unfortunately—and this is where Bill Warren’s mistake begins—(a) capital has never flowed into Calcutta; (b) under present conditions it seems improbable, if not impossible, that it will flow into Calcutta in the future; indeed (c) Calcutta is not underdeveloped because it has been invaded by foreign capital but, on the contrary, because it has been starved of this capital. I have already explained in New Left Review my own view of the myth of the export of capital from the centre to the periphery, before Lenin, in Lenin’s time, and since Lenin.21 But Warren himself does not conceal the marginal character of the net inflow of foreign capital into the underdeveloped countries today. Quoting Manser’s figures, he shows that in 1964–8 the net inflow of foreign capital into Latin America—even though the multi-national corporations show a special predilection for this continent—represented 1·3% of gross asset formation in this region, which is a derisory figure. This makes it even more surprising that he should adopt the position a few pages later, that this inflow justifies an optimistic assessment of the future growth of the underdeveloped countries. But the situation is even worse than is suggested by the percentage just mentioned, for it is not possible to calculate the true net inflow from the data directly contained in official statistics. To cite only one bias characteristic of these figures, let us here mention that the monetary holdings in dollars created in favour of non-residents are not reckoned in the deficit of the American balance of payments, and so in the rest of the world’s surplus, unless they are credited in the accounts of the Central Banks of the other countries—that is, incorporated in their reserves. Let us take as example a US engineer who pays his hotel bill at Abidjan with a $1,000 cheque drawn on a US bank. If the hotel-keeper refrains from selling this cheque to the Central Bank of the Ivory Coast—if he sends it to Switzerland, or even if he simply keeps it in his wallet—this outflow of capital from the Ivory Coast to the USA will not be recorded anywhere. On the other hand, if this engineer is engaged on some 21

A Emmanuel, ‘White-Settler Colonialism and the Myth of Investment Imperialism’, NLR 73, May–June 1972. 75

project in the Ivory Coast, and the expenses of his stay are paid by some international aid fund, these same one thousand dollars will be reckoned as part of the inflow of capital into Ivory Coast, although, so long as the cheque in question is not used in order to import a real value from the USA, nobody has aided anybody, the Ivory Coast having housed and fed the engineer from its own resources. When we think of the volume of transactions in dollars throughout the world, such as the payment of oil royalties in this currency, we can appreciate how serious this bias in the statistics really is. In fact, all the Eurodollars held by residents of underdeveloped countries, whether oil-producing or not, represent such an outflow of capital which ought to be deducted from the most net possible inflow shown in the statistics. That is why I think that the most reliable method is to take as the overall balance of financial operations the inverse of the trade balance. Trade Balance of the Underdeveloped Countries, in Billion Dollars22 Imports c.i.f. Exports f.o.b. Deficit

1958 27·8 24·8 3·0

1966 41·0 39·1 0.9

1967 42·2 39·9 2·3

1968 46·0 43·8 2·2

1969 50·7 49·0 1.7

1970 56·9 55·1 1·8

1971 63·8 62·0 1·8

By reckoning, as in the above table, imports as c.i.f. port of destination and exports as f.o.b. port of departure, we credit the advanced countries with all transport, not merely between themselves as a whole and the underdeveloped countries as a whole, but also among the latter, since these figures are for the entire external trade of the Third World, from all sources and to all destinations. In other words, we assume that the underdeveloped countries possess absolutely no means of international transport, whether inter-continental or intra-continental— which is, of course, far from being the case. Since, moreover, transport, insurance and banking operations in external trade make up the bulk of the services provided by the advanced countries to the underdeveloped ones, the remainder of the invisible items—tourism, emigrants’ remittances, etc—must be positive rather than negative for the underdeveloped countries. By ignoring these considerations and regarding the above figures as equivalent to the annual balances of every kind of the underdeveloped countries, we have thus reckoned in generous terms the financial inflow of every kind arriving from the advanced countries. This is the most reliable method of calculation since, if what we are trying to discover is the possible contribution made from external sources to the development of the Third World, it is as well to abandon the crazy dance of dollars, sterling and francs, with its inextricable criss-crossings, and look directly at the material objects which move over the frontiers in both directions (and which possess the additional advantage of being quite visible and well recorded by customs-officers); since, our world being what it is, the development of a country can only be accomplished by means of material objects—steel, cement, coal— and nobody has yet seen wads of dollars, pounds or francs turn into railways, power-dams or factories. Now, as we see in the figures set out 22

UN

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Statistical Annual, 1972.

above, by broadly crediting the advanced countries with all the flows regarding which there is doubt or uncertainty, we arrive at a grand maximum total of external financing which is, on the average, less than 2 billion dollars per annum, or about $2·50 per head of active population of the Third World—hardly the value of one screwdriver. At that rate it would take several thousand years to equip all the workers of the underdeveloped countries with means of production comparable to those of the present advanced countries, where the fixed capital per head of active population exceeds, on the average, $40,000 in the USA, and the gross formation of fixed capital per annum and per head of active population is, for example, $2,400 in West Germany, $2,25o in France and $2,750 in Italy.23 The Impasse of Development

So much for the past: but why have we reason to think that the future will see no improvement? Because of the very fact of the inequality of levels. Capital is not attracted by a low level, like the liquid in communicating vessels, but is, on the contrary, sucked up by a siphon effect, towards active markets and high levels of consumption. Apart from raw materials and certain agricultural products which have to be sought where they can be found, the movement of capital is not an increasing but a decreasing function of difference in incomes. It is here that we observe the limits to import-substituting industrialization which Warren does not choose to acknowledge. The advanced countries are nowadays too rich not to be able to absorb themselves, without difficulty, all the new capital that is formed in them, and the underdeveloped countries are too poor to offer attractive investment prospects to this same capital, apart from their few import-substitution industries. They are even so poor that they dispatch to Switzerland part of their own national surplus. All this, in turn, keeps them poor, or makes them even poorer. Imperialism is not self-destructive: it is selfreproducing.24 23 For lack of conclusive evidence I have taken no account in my calculations of clandestine capital movements, which are generally negative for the Third World and can, in the last analysis, only be effected by under-invoicing exports and/or overinvoicing imports. According to most estimates, these leaks surpass the nominal total deficit of the trade balance, since for Latin America alone some experts evaluate them at over $2 billion per annum. Ultimately, the real situation is probably that servicing of previously incurred debts, plus legal repatriations of profits and principal of previous investments, plus illegal outflows of funds, exceed the total of public aid in gifts and loans, plus private investments and credits of all kinds, so that, instead of the advanced countries paying for a few ‘screwdrivers’ in the Third World, it is rather the latter that pay for a few screws in the industrial machine of the advanced countries. 24 Warren cites against this axiom the example of England, which, he claims, industrialized by exporting products which its ‘low wages’ did not allow it to consume. This objection is however untenable. English real wages at the end of the 18th and the beginning of the 19th century were indeed stagnant, just possibly even somewhat lower than they had been at an earlier period. But, even so, these wages were still considerably higher than those on the Continent, and it is their comparative level that matters; moreover, in the English society of that time the mass of wageworkers constituted only a small proportion of the income and purchasing power of the population. Other incomes, especially ground-rent, were relatively high (as were the wages of white-collar workers). England was rich before it became industrialized. No analogy can be drawn between it and the present situation of the underdeveloped countries.

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It is, of course, true that despite this general deficiency, certain marginal movements of capital, concentrated for various reasons in some small country, such as Greece, Taiwan, or the Ivory Coast, may enable such a country to cross the threshold of development. Something like this happens inside a nation when a single proletarian succeeds, as an individual, in rising out of his class. But just as, whatever may happen in this way, capitalists are in no danger of waking up one fine morning to find that there are not enough proletarians left to operate their factories, so it seems materially out of the question for the two billion people in the periphery to follow the same path. It is because the other underdeveloped countries do not follow this path of ultra-liberal opening to international capital, that the few countries that do follow it have a chance, however slight this may be, of succeeding with it. The Gap in Physical Terms

The impasse of development can be made brutally plain if it is translated into real terms. Some 6% of the world’s population—the inhabitants of the USA—consume more than 40% of an available quantity of raw materials. An equalization of consumption to US levels implies, therefore, a more than sixfold multiplication, on average, of the present volume of extraction—assuming that the USA does not progress any further. Geologically and technically, a leap such as this is out of the question in the foreseeable future. The inhabitants of the USA consume nearly 700 kg of steel per head per annum. If the entire world followed their example, all our planet’s known reserves of iron ore would be exhausted in 40 years—assuming that the world’s population ceased to grow; otherwise, exhaustion would occur in an even shorter space of time. The same equalization of international consumption would, furthermore, exhaust all known reserves of copper within 8 years, and of tin within 6 years.25 But where the impasse is most complete is, once again, in the domain of oil. At present US levels of consumption, the world would need about 14–15 billion metric tons each year. But world reserves amount only to about 80 billion—which corresponds, given a stationary state of population and economic development, to 5–12 years of consumption. If we add reserves still to be discovered, or to be exploited by new technological inventions, we can reckon according to OECD calculations on twice this quantity or about 160 billion metric tons—and so, given the same assumed state of stagnation, a period of 11 years before the end is reached. Finally, if we include the sea-bed potential throughout the world, some experts reckon that, given the most optimistic calculations and assumptions, we could count on 320 billion metric tons altogether, or 22 years’ consumption. But exhaustion of deposits and reserves is not the only factor that rules out equalization of consumption upwards. Ecological limitations represent another. If the advanced countries of today can still get rid of their waste by dumping it into the sea or allowing it to pass into the 25

See Yves Saulan’s very interesting article: ‘Le Développement du Tiers Monde est-il encore Possible?’ in Revue du Tiers Monde, October–December 1972. 78

atmosphere, this is because they are the only nations to be doing so— just as, for example, if their citizens can still travel about the globe by air without too much difficulty, this is because the rest of the world’s inhabitants are unable to fly across it, so that the nationals of the advanced countries alone crowd the skies of our planet. International Solidarity

Here then, it is no longer a question of the abstract rhetoric of concepts —surplus-value, capital, profit, and so on—but of material consumption. It is therefore the great mass of the population of the advanced countries, the wage-earners themselves, who are implicated. The consequence is that, regardless of any other consideration or antagonism, in the objective natural and technological conditions of today and of the foreseeable future, the peoples of the rich countries can consume all those articles to which they are so attached only because other peoples consume very few or even none of them. It is this that breaks solidarity between the working classes of the two groups of countries. We have today reached a point at which, equalization being impossible either downwards, for socio-political reasons, or upwards, for naturaltechnical reasons, the only solution lies in a global change in the very pattern of living and consumption, and the very concept of well-being. Since the framework and parameters of this solution must be those of mankind as a whole, the contradictions between classes within the advanced countries, which still undoubtedly subsist, have nevertheless become historically secondary. The principal contradiction, and driving force for change, are henceforth located in the realm of international economic relations. Imperialism is certainly not indestructible. But nor is it withering away, as Warren supposes. It is waiting to be attacked and destroyed from outside. What lies ‘outside’ imperialism is not—is no longer—the working classes of the home countries of imperialism, but those of the world outside their frontiers.

A Note on the Primary Commodities Boom Angus Hone, in his article ‘The Primary Commodities Boom’ (also NLR 81), is as optimistic about the Third World’s terms of trade as Bill Warren is about its prospects for development. From my own point of view, however, there is an essential difference between them. Unlike, Warren’s positions, those of Hone do not conflict at any point with mine, for the simple reason that he and I have studied two different objects. What interested me in Unequal Exchange was abstract equilibrium prices of production, whereas Angus Hone is concerned with actual market prices in his article. For the price that he discusses to be an equilibrium price it would be necessary: 1. That it be projected over a long period, and thus be more than just the effect of conjunctual speculation or extra-economic vicissitudes. Not only does Hone not claim this, but he explicitly admits 79

that an important element in the recent increase in prices has been speculative in character, a result of the erosion of currency values which makes ‘investment in commodities a profitable hedge against future depreciation’, and has brought about a ‘stockpile of commodities’ in Japan. He even writes of ‘waves of speculation’.26 He also ascribes many of the recent price-rises either to ‘political crises’ in the producing countries, as in the case of copper, or to natural calamities such as the ‘droughts’ of 1972 and 1973, in the case of rice, sugar, cocoa, oilseeds, wool, sisal and cotton. 2. It would also be necessary if equilibrium and market prices were to coincide, that the latter be related to conditions of production in such a way as to represent the ideal moment at which transfers of factors from one branch to another come to a halt. Angus Hone, however, acknowledges that present-day prices diverge considerably from the point of equilibrium. So far as oil is concerned, he points out that ‘the real weakness of the OPEC countries is that the marginal cost of a barrel . . . is between 10 and 20 cents’; while as regards agricultural products, he notes that ‘it will take three to five years for adjustments to be made on the production side’.27 This means that present prices are, in Hone’s view ‘abnormal’ in the sense that they over-reward the producers, and are therefore liable to cause an inflow of factors into the branches concerned, which will increase production and result in halting price-increases, even if only after a certain delay (three to five years) due to the specific period needed for investments in tropical agriculture to take effect. Since the ‘long term’ exceeds, by definition, the time which elapses between the movement of factors and subsequent changes in production, this last remark of Hone’s makes it clear that the prices with which he is concerned cannot be regarded as equilibrium prices. Not only, however, are the prices in question not long-term equilibrium prices of the factors of production, they are not always, in Angus Hone’s account, even true momentary equilibrium prices of supply and demand, based on free confrontation between the latter on the market. Where oil is concerned, the situation is plain. Here we have an ‘artificial’ increase due to political action by the OPEC countries; Hone adds the clear-sighted comment that ‘any break in OPEC’s united front would have the very serious consequences of causing a steep decline from the present floor of “tax-plus-cost” towards a price based on the marginal cost of production’28—an explicit acknowledgment that the true equilibrium price is that which is determined by conditions of production. Even for the other traditional export products, however, Angus Hone ultimately puts his hope in international agreements between the producing states. This is sound. However conjunctural the recent price-rises may be, they do provide the Third World with an opportunity for concerted political action that could consolidate some of its gains. But this possibility is, obviously, something that belongs outside the realm of economic laws. 26 NLR 81, pp. 84–5. It is true that he goes on to say that ‘the world stocks of all commodities in 1973 are low’, (p. 85) which hardly squares with his earlier reference to ‘a stockpile of commodities’ on p. 84. 27 Ibid., p. 86. 28 Ibid., p. 84, n. 2.

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This is not all that needs to be said, though. Current prices not only are not ‘prices of production’ (equilibrium prices); not only are they contingent and in part ‘political’ in character; they are also not even entirely real. To some extent they are fictitious, for as Angus Hone admits, ‘a significant portion of the boom’ is a purely nominal reflection of the fall in the value of the pound and the dollar29, the currencies in which the prices of the commodities in question are usually quoted. Angus Hone’s analysis of the present conjuncture, and his market forecasts, thus constitute an important and interesting contribution in their own right; but they do not affect the theoretical foundations of Unequal Exchange. Having said this, however, two questions remain: 1. Whatever the origin of the recent spiralling of commodity prices, may not its very occurrence—however precarious in itself—shift the balance of political forces within the underdeveloped countries by widening the local margin for concessions by employers, and thus creating conditions for wage-increases, which in their turn would render the present rise in prices permanent? In other words, might not future re-equilibrium be achieved, not by a realignment of prices downwards to previous costs, but by an inflation of costs upwards to present prices? 2. If the present prices increases were in one way or another consolidated at their current levels, would their incidence on the terms of trade amount to a significant modification of the economic relationships between the developed countries and the Third World? The first hypothesis leaves me very sceptical. Of course, it cannot a priori be excluded that the present disequilibrium may unleash a series of wage-increases in the Third World which would reabsorb present price-rises at the point of production. But although theoretically possible, this eventuality in practice seems very improbable. The current price-increases are too unequally distributed from country to country and product to product, the margins for negotiation created by them are too temporary and erratic, the gains themselves too unexpected, to stimulate a real wave of generalized social struggles whose impetus could compensate for the weakness of the political and tradeunion structures, and the lack of co-ordination between the workers’ movements, in countries competing with each other in the same 29

Ibid., p. 86. To mitigate the implications of this admission, Hone subsequently employs a wide range of arguments. Thus he refers to the fact that imports from the USA and the UK are not large; forgetting that, when the dollar or the pound lose their purchasing power, they lose it not only inside the countries of which they are the national currencies, but throughout the world. Again, replying to those who point to the losses suffered by the Third World because of the depreciation of its monetary reserves in gold and dollars, he states that ‘many poorer countries hold large portions of their foreign exchange reserves in gold’ (p. 87). This is simply untrue. Of the $21,893 million total reserves held by the underdeveloped countries in 1971, only $3,515 million were held in gold, and the bulk of this was owned by a few oilproducing countries. It is nevertheless true that those who speak of exchange losses suffered by the underdeveloped countries are wrong, and Hone could have used another, much simpler argument against them: what these countries lose under the rubric of their foreign-exchange reserves they recover, and very amply, under the rubric of their external debt. 81

product markets. In any case, nothing like this occurred at the time of the Korean War boom, the only serious historical precedent hitherto. However, so far as the second question is concerned, I would be rather inclined to answer it in the affirmative. Oil and other raw materials put together, the size of the windfall represented by the recent price increases in primary commodities is nearly 100 billion dollars. Even if certain countries are not in a position, as we have said, to materialize their share, or can do so only partially, it is still true that the proportion of the total sum materialized will be of the order of several tens of billions of dollars. The significance of this figure cannot be dismissed, when it is remembered that the global foreign trade—in both directions—of the Third World was only some 63 billion dollars in 1971. Moreover, even the proportion of the windfall that remains purely monetary and non-materialized, cannot fail to lead to serious perturbances in both the international monetary system and the balances of payments between the advanced countries themselves. The underdeveloped countries thus have every interest in seeking to consolidate the present situation by every possible means at their disposal. In the absence of domestic wage increases, they will doubtless try to use the short-cut of directly dirigiste methods such as export taxes or centralization of foreign trade, reinforced where possible by international agreements, to try and capture the difference between what international demand is capable of paying in each case, and what internal forces are at present content with receiving.

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