Erik Growen
The scope of international relations between the Industrial North (IN) nations and the Less-Developed Countries (LDC) is vast and covers a wide variety of individual but linked topics a few of which will be explored in this paper. Some basic theory to lay down the ground work will be followed by a brief examination of the Newly-Industrialized Countries (NIC). The International Monetary Fund (IMF) and the World Bank (WB) and their role in international finance vis a vis LDCs and their particular role in the Latin American debt crisis of 1982 and the marginalization of Africa in the 1980s will be examined next. A possible solution for the LDC's economic and political problems; the concept of self-reliance and it's feasibility, will be rounded off with a short look at environmental factors in international relations and a look into the possibilities for the futures of the LDCs.
The issue of North-South relations can be boiled down to: how far the present international system can, or should, be changed.(1)As the international system is only 'working' for one half of the equation (the IN) the second half of the question should be answered with a resounding yes, it should be changed. Therefore the obvious focus for theorists and their implementors should be how, and not if, the international system can be changed.
At present LDCs are particularity vulnerable players in the international system (IS). This is due to a number of factors including the fact that most LDCs have only a small number of export items which makes their economies highly sensitive to changes in the international price of their exports. As LDCs have a higher propensity to trade than IN, fluxes in prices can have a drastic effect domestically. Imports for LDCs tend to be essential goods like food, machinery, spare parts, et cetera, and not luxury goods.(2) The impact of this is that if export income goes down then there is less money for imports which can be highly disruptive (for example if the LDC cannot import enough food). If the LDCs had more control over their own finances this might be offset but as it stands they are tied up by external sources of finance and direct foreign investment that keeps control over a large portion of the economy (about double what is controlled externally in IN). All of this outside control means that the LDCs cannot influence unilaterally or adjust internally to pressures from the global market.
The fact that research and development technology in the IN is continuously creating substitutes for the primary resources they used to rely on from the LDCs (such as plastics to replace wood) further hinders the South and tips trade imbalances even more in the North's favour.
Despite all of this there is still the underlying belief in most IPE theories that the South must remain coupled with the North in order to ever achieve prosperity. This is because under the present system the South needs the markets of the North to sell their exports to even though the North is far less reliant on the South as the bulk of international trade occurs between IN nations.
There are two basic views on the causes of continuing underdevelopment and they are 1) the workings of the IS creates an imbalance which is not corrected for or 2) the policies pursued by and the natural characteristics of LDCs have led them to where they are now.
Orthodox Liberal thought believes in the later and is disturbed by many LDCs rejection of market mechanisms. Reformist Liberals discourage protectionism both in the North and the South and are tolerant of short-term anti-market tendencies such as Import Substituting Industrialization (ISI). Interdependence would indicate that if the South failed the North would be dragged down with them but this does not seem to be the case presently. Dependency makes more sense with it's focus on states that have had their political and economic systems penetrated by external forces such as Trans-National Corporations (TNC), foreign governments, and the IMF/WB system.
The prevailing Liberal and Realist theories that are originated by "professional economists and policy analysts...are transmitted internationally through international organizations, bilateral aid missions and the training of foreign professional economists and domestically through universities, research centres and think tanks."(3) This leads to what is known as ideological hegemony whereby the North superimposes it's agenda upon the intellectuals and those who govern in the South.
There are three basic development strategies that are presently used as models for the LDCs to use and they come from the experiences of the NICs. The first is ISI which requires a large internal market, the importation of selected goods to provide the basis for manufacturing, and when the industrial base has been created exports are expanded and protectionist policies dropped. this has been the approach of Mexico and Brazil. Export Led Growth (ELG) favours light, labour intensive manufacturing exported at globally low costs. Income from this is shifted into specific, more high tech and capital intensive industries as has been done in South Korea and Taiwan. The third method is called the Entrepot Path which calls for the development of large service and commercial sectors acting as middle men between the INs and the LDCs such as Singapore and Hong Kong have managed to do.(4)
Not all of these methods have met with resounding success and part of that has to do with the unique situations many of these countries were in at the end of WW II. This has been largely ignored and so for over fifteen years now the LDCs have been told to follow the same basic path that the NICs have followed. There was an underlying fault in the logic that said that as the NICs went into higher tech areas they would abandon the unskilled labour sectors and the LDCs could then move into that area. The problem was the NICs did not abandon anything therefore there was no market for the LDC's IMF/WB promoted textiles and clothing.
These NIC path followers then began to fight with each other over the limited market by offering TNCs lower labour costs and free-trade tax havens. This encouraged the exploitation and repression of labour.
OECD protectionism to maintain their own textile and clothing industries shut the LDCs out of the North and the only plan the WB had was to do more of the same structural adjustment that led to the LDCs developing globally irrelevant industries. Without the promised income from the export industries LDCs were unable to repay the WB and other lenders and therefore underwent IMF austerity programs which bred popular resistance to the governments, the IMF/WB, and the US as backer of the IMF/WB). The basic problem is that the global economy is turning out far more than consumers can possibly buy.
The US preference for free trade and private sector development has driven the IMF/WB. The organizations also provide the US with a handy scapegoat if the LDCs fail to pay and go bankrupt. The US banking system uses them as a buffer to stay solvent. This is not however the main problem LDCs have with them. The conditions that are placed on loans from the IMF/WB have been the biggest bone of contention between them. Conditionality has led to internal unrest in the LDCs. An example of this would be if the WB structural adjustment program says that the LDC must drop staple subsides, food prices go up and the LDC may be facing food riots.
The IMF/WB are not the only multilateral development banks. There also three main regional development organizations: the Inter-American Development Bank (IADB), the Asian Development Bank (ADB) and the African Development Bank (AFDB). Although the IADB does not impose conditionality upon it's borrowers it is almost entirely at the whims of the US government. This can be seen with how the IADB cut off Chile completely upon the election of Allende in 1967 and the lack of any loans to Cuba. Japan is the biggest individual contributor to the ADB and as such has the biggest influence on where the money goes. It is very market oriented and follows the Japanese ideals of specific economic incentives for 'useful' industries. The AFDB is the most independent and as such is the smallest of the three. For a period it was run exclusively by Africans, however in order to attract more money in 1981, the US and the Europeans have been given more say in the running of the fund.
In 1982 the whole system almost fell apart with the Latin American debt crisis. US banks overextended themselves as their foreign subsidiaries were not subject to domestic reserve requirements or deposit insurance fees and could therefore lend at low rates and still make big profits. They showed no restraint during the lending frenzy and bypassed rules that one borrower could only account for 10% of a banks assets by declaring each agency within each government to be a separate borrower. When the US government realized the severity of the situation they got the IMF/WB to loan huge amounts of money to the Latin American countries so that they would be able to pay off the debts owed to the US banks to get them solvent again. The IMF forced the countries to devaluate their currencies, make deep cuts in imports and government expenditures and funneled what was left into the export sector. The effect of this was to increase repayment ability at the expense of increased poverty and social unrest.(5)
Latin America has not been alone in facing the hand of the IMF/WB. In Africa all external attempts to ensure economic and political development have failed. The IMF/WB donor nations built up never-realized expectations in the African countries. These LDCs did exactly what the IMF/WB told them to do and in the long run to no benefit. Economic and political decay has led to peasants returning to subsistence agriculture and therefore out of the cash economy. Tax revenue has dropped with the fall in consumerism and there has been a marked increase in the use of bartering, the black market and smuggling.
Structural adjustment has been a combination of devaluation, deregulation, desubsidization, privatization, reduced welfare and infrastructure budgets and reduced bureaucracy. This has all led in turn to inflation, poverty, ecological deterioration, the disappearance of the middle class, diminished state power, a privatized and informalized economy and disappearing infrastructure. The declining states have in many cases resorted to violence to retain control and the newly self-reliant peasants have become more likely to use the informal economy to get arms and fight against further repression leading to numerous civil wars.
As Africa has been so severely marginalized from the global economy, especially during the 1980s, it has been forced to become more self-sufficient and in the long run this may be the best thing that could happen to the LDCs.
This enforced self-reliance has led to a modified theory of ISI which may be of use for the LDCs. State-led national development with it's emphasis on protectionism, money being put into infrastructure projects and a strong emphasis on education, is not a new idea but it gets a new slant when combined with regionalism.
The basic plan is to de-link from the IS, develop domestic industry and when this step is complete, reenter the IS on a more equal footing with the other players. The problem is, of course, that it is becoming harder and harder for countries to de-link due to LDC dependency on external finance, TNC et cetera.
In an attempt to make this viable the LDCs would have to cut dependence by diversifying their trading partners and products, put a new focus on domestic goods first and then produce for a regional bloc and lastly look globally. Extensive land reform, progressive taxation policies and guarantees of worker's rights within a country specific approach would be far more useful then more IMF/WB austerity programs or structural adjustment loans. An increase in LDC-LDC trade with a newly diversified industrial base based on regional production would go a long way towards the goal of having domestic needs shaping trading patterns as opposed to the way it is presently with global needs shaping domestic policies.
Systems like what has been set up in South America with the Andean Pact (Bolivia, Chile, Columbia, Ecuador, Peru & Venezuela) have to be explored more to determine their impact on determining the economic agenda within their own borders. As it stands now they have a rule that after three years at least 15% of any foreign firm must be locally owned. This could be a model for other groupings of LDCs to follow and/or expand upon.
A relatively new phenomena which may be of use to the LDCs is the increasing role that the environment is playing in trade negotiations. How actually useful it may become is largely up to the LDCs themselves. There are a number of problems involved at this time such as the fact that most LDCs rate the benefits they derive from industrial productions far ahead of environmental concerns. When the INs try to impose any sort of environmental regulations upon the LDCs they merely point out that the INs pollute far more than the LDCs do and therefore there is a major credibility problem developed. Cross border pollution also is a difficulty as it is hard to regulate and there are, at present, no international rules or governing bodies to tackle the problem.
Despite all the inherent difficulties the LDCs may still be able to use the environment to their own advantage. LDCs could demand from the INs money in return for setting up nature preserves or to ensure a species survival against the encroachment of man. This idea actually was brought up in a GATT meeting specifically in respect to the rainforests of Brazil and Thailand. The plan is to compensate these countries for not using/destroying a natural resource the whole globe requires to survive.
Another interesting concept that has been actually implemented on a small scale is the 'debt for nature' swaps. Environmental groups have bought off some LDC foreign debt and sold the debt back to the issuing government/bank/agency in exchange for investment in local environmental projects or for tracts of land to be turned into preserves. This is another idea that could be expanded upon. INs could work out a debt forgiveness for nature deal with the LDCs in order to help out the global environment as well as the problem to LDC debt.
In the end what is truly going to be required are innovative and new theories/conceptions in order to stop the presently almost inevitable fall of the international system. Disengagement by most nations is utopian impossibility due to dependency but perhaps a partial de-linking is possible. In areas such as Africa which have already been severely marginalized, partial de-linking combined with an ISI and regional approach may be the best bet for their future. This approach cannot be universal however as the circumstances in Asia and Latin America are totally different as the countries are far too dependent to just leave the system. For these there is an apparent choice between ISI, which has failed in Mexico and Brazil, or an ELG approach which has worked in South Korea and Taiwan but due to specific historical circumstances. Neither seem very likely to lead to a new prosperity in the near future. Perhaps the emergence of trading blocs such as that begun with NAFTA will lead to a greater linking of IN and LDC economies and then towards more parity in economic circumstances.
The more bleak picture would see INs de-linking from the UN/IMF/WB which the US
periodically makes noises about doing and which would cost the LDCs their only global forum.
It may also be that for now this is a problem without a solution.
Bibliography
1. Broad,Robin & Cavanaugh,John,"No More NICs",Foreign Policy, Fall 1988.
2. Freidan,JA & Lake, DA,International Political Economy. St. Martin's Press,1991.
3. Gill,Stephen & Law,David,The Global Political Economy. Baltimore
:John Hopkins,1988.
4. Haggard,Stephan,Pathways from the Periphery. London:Cornell,
1990.
5. Krasner,Stephen,Structural Conflict. Berkeley:U of California,
1985.
6. Strange,Susan,New Diplomacy in the Post-Cold War World. London:
St. Martin's Press,1993.
7. Stubbs,Robert & Underhill,Geoffry,Political Economy and the Changing Global Order,
Toronto:McClelland & Stewart,1994.
8. Rosecrance,Richard,"Regionalism and the Post-Cold War Era." International
Journal,41(3) Summer 1991,p.373-393.
1. Stephen Gill & David Law,The Global Political Economy.(Baltimore:John
Hopkins:1988),p.281.
2. 3. 4. 5.