Transformations in the Global Political Economy

INTERNATIONAL POLITICAL ECONOMY SERIES General Editor: Timothy M. Shaw, Professor of Political Science and Director of International Development Studies, Dalhousie University, Nova Scotia

The global political economy is in a profound crisis at the levels of both production and policy. This series provides overviews and case-studies of states and sectors, classes and companies in the new international division of labour. These embrace political economy as both focus and mode of analysis; they advance radical scholarship and scenarios.

The series treats polity-economy dialectics at global, regional and national levels and examines novel contradictions and coalitions between and within each. There is a special emphasis on national bourgeoisies and capitalisms, on newly industrial or influential countries, and on novel strategies and technologies. The concentration throughout is on uneven patterns of power and production, authority and distribution, hegemony and reaction. Attention will be paid to redefinitions of class and security, basic needs and self-reliance and the range of critical analyses will include gender, population, resources, environment, militarization, food and finance. This series constitutes a timely and distinctive response to the continuing intellectual and existential world crisis.

Alfredo Behrens REGIONAL MANAGEMENT OF ENERGY RESOURCES IN LA TIN AMERICA

Robert Boardman PESTICIDES IN WORLD AGRICULTURE

Bonnie K. Campbell (editor) POLITICAL DIMENSIONS OF TilE INTERNATIONAL DEBT CRISIS

Bonnie K. Campbell and John Loxley (editors) STRUCTURAL ADJUSTMENT IN AFRICA

Jerker Carlsson and Timothy M. Shaw (editors) NEWLY INDUSTRIALIZING COUNTRIES AND THE POLITICAL ECONOMY OF SOUTII-SOUTH RELATIONS

Diane Ethier (editor) DEMOCRATIC TRANSmON AND CONSOLIDATION IN SOUTHERN EUROPE, LA TIN AMERICA AND SOUTII EAST ASIA

David P. Forsythe(editor) HUMAN RIGHTS AND DEVELOPMENT TilE UNITED NATIONS IN TilE WORLD POLmCAL ECONOMY

Steven Kendall Holloway THE ALUMINUM MULTINATIONALS AND THE BAUXITE CARTEL

James H. Mittelman OUT FROM UNDERDEVELOPMENT

Dennis C. Pirages and Christine Sylvester (editors) TRANSFORMATIONS IN THE GLOBAL POLmCAL ECONOMY

John Ravenhill (editor) AFRICA IN ECONOMIC CRISIS

GarryRodan TilE POLmCAL ECONOMY OF SINGAPORE'S INDUSTRIALIZATION

Patricia Ruffin CAPITALISM AND SOCIALISM IN CUBA

Roger Southall (editor) LABOUR AND UNIONS IN ASIA AND AFRICA

Sharon Stichter and Jane L Parpart (editors) WOMEN, EMPLOYMENT AND THE FAMILY IN THE INTERNATIONAL DIVISION OF LABOUR

David Wurfel and Bruce Burton (editors) THE POLITICAL ECONOMY OF FOREIGN POLICY IN SOUTIIEAST ASIA

Transformations in the Global Political Economy

Edited by Dennis C. Pirages Professor of Politics, University of Maryland

and

Christine Sylvester Associate Professor of Political Science, Northern Arizona University

Palgrave Macmillan UK

ISBN 978-1-349-10375-1 ISBN 978-1-349-10373-7 (eBook) DOI 10.1007/978-1-349-10373-7

©Dennis C. Pirages and Christine Sylvester, 1990 Softcover reprint of the hardcover 1st edition 1990 978-0-333-47078-7 All rights reserved. For information, write: Scholarly and Reference Division, SL Martin's Press, Inc., 175 Fifth Avenue, New York, N.Y. 10010

First published in the United States of America in 1990

ISBN 978-0-312-04075-8 Ubrary of Congress Cataloging-in-Publication Data Transformations in the global olitical economy/edited by Dennis C. Pirages and Christine Sylvester. p. em. Includes bibliographical references. ISBN 978-0-312-04075-8 I. International economic relations. 2. International trade. 3. Economic developmenL I. Pirages, Dennis C. II. Sylvester, Christine. HF1359.T73 1990 337--dc20 89-28541

CIP

Contents

List of Tables and Figures vii Acknowledgement ix List of Abbreviations X

Notes on the Contributors xii

1 Technology, Ecology and Transformations in the Global Political Economy Dennis C. Pirages 1

2 The International Oil Market: The Future of Relations between Producers and Consumers Fereidun Fesharaki 22

3 Adjusting to Global Transformation: Sub-Saharan Africa and the Global Food System Cheryl Christensen and Shah/a Shapouri 39

4 International Competition and Commodity Market Management: The Politics of the International Sugar Agreements Jock A. Finlayson and Mark W. Zacher 64

5 Interdependence and Increased Competition among the Industrialised Countries: Implications for the Developing World Jeffrey A. Hart 94

6 The Welfare State and Export Optimism Douglas R. Nelson 127

7 The Future of the Newly Industrialising Countries: An 'Uncertain Promise'? Chung-In Moon 153

v

vi Contents

8 The Future of the Fourth World: Choices and Constraints on the Very Poor in the 1980s Timothy M. Shaw 195

9 The Emperors' Theories and Transformations: Looking at the Field Through Feminist Lenses Christine Sylvester 230

Index 255

List of Tables and Figures Tables

2.1 Preferred and maximum sustainable OPEC production (million barrels per day) 31

3.1 Average percentage growth in food production, 1966-86 48

3.2 Distribution of agricultural inputs 50 3.3 Selected official producer prices, 1980--6 54 5.1 Ratios of imports and exports to production in major

industrial countries in the 1960s and 1970s 95 5.2 The growth of world trade (billions US dollars)

1947-85 96 5.3 World shares in percentages of global motor vehicle

production, 1950--85 97 5.4 Relative per capita income in the larger industrialised

countries (US = 100) 99 5.5 Import penetration ratios for imports of steel,

automobiles and semiconductors into the US market, 1956-85 (percentages) 103

5.6 Foreign bank debt of developing countries (billions US dollars), numbers of countries undergoing debt renegotiations, and amount involved (millions dollars) 1975-82 122

5.7 Average annual percentage growth of GDP for specific groups of countries 123

6.1 Export performance by country group 128 6.2 Non-fuel primary exports: changes of export

purchasing power and export volume, by product category and by country, 1970--80 (change as a percentage of 1970 level) 132

6.3 Purchasing power of exports of manufactured goods, increase by major country group, 1970--80 133

7.1 A comparison of various lists of newly industrialising countries (NICs) 155

7.2 Growth performance (average annual growth rate, percentage in GDP) 160

vii

viii List of Tables and Figures

Figures

3.1 World grain imports 3.2 World wheat trade and US share 3.3 World feed grain trade and US share 3.4 US agricultural exports

41 42 43 43

Acknowledgement The editors wish to thank the Institute for World Order (now the World Policy Institute) for supporting the conference that made this book possible.

ix

DENNIS C. PIRAGES CHRISTINE SYLVESTER

List of Abbreviations

ACP ADB AIC BETs BHN CFA CIEC CSA EC ECA ECLA ECSC FTC GATT GDP GSP IBM IBRD

ICA lEA IMF ISA I SACs lSI ITO LDCs LIB OR LIEO LLDCs MFA MITI MNC MTN NBER NECs NEDO

African, Caribbean and Pacific Group African Development Bank Advanced Industrialized Countries Basic Export Tonnages Basic Human Needs Central African Franc Conference on International Economic Cooperation Commonwealth Sugar Agreement European Community Economic Commission on Africa Economic Commission on Latin America European Coal and Steel Community Federal Trade Commission General Agreement on Tariffs and Trade Gross Domestic Product Generalised System of Preferences International Business Machines International Bank for Reconstruction and Development (World Bank) International Commodity Agreement International Energy Agency International Monetary Fund International Sugar Agreement Industrial Sector Advisory Committees Import Substitution Industrialisation International Trade Organization Less Developed Countries London Interbank Offered Rate Liberal International Economic Order Least Developed Countries Multi Fibre Agreement Ministry of International Trade and Industry (Japan) Multinational Corporation Multilateral Trade Negotiations National Bureau of Economic Research Newly Exporting Countries National Economic Development Office (Britain)

X

NICs NIEO NTT OAPEC OAU OECD

OPEC QRs RAMs REAs SADCC

List of Abbreviations

Newly Industrializing Countries New International Economic Order Nippon Telegraph and Telephone Organization of Arab Petroleum Exporting Countries Organization of African Unity Organization for Economic Cooperation and Development Organization of Petroleum Exporting Countries Quantity Restrictions Random Access Memories Reference Export Availabilities Southern African Development Coordination Conference

UAE United Arab Emirates UNCTAD United Nations Conference on Trade and

USDA VER VHSIC WTI ZPG

Development United States Department of Agriculture Voluntary Export Restraint Very High Speed Integrated Circuits West Texas Intermediate Zero Population Growth

xi

Notes on the Contributors Cheryl Christensen is Research Director for the Agricultural Analysis Project with ABT Associates, Washington, DC. Prior to that, she spent ten years in management positions in the Economic Research Service, US Department of Agriculture. She is author of numerous articles and monographs on agricultural policy in SubSaharan Africa.

Fereidun Fesharaki is Leader of the Energy Program at the Resource Systems Institute, the East-West Center, Honolulu, Hawaii. He has served as energy advisor to the Prime Minister of Iran and is the author or editor of twelve books and more than fifty papers. Among his most recent books are The Oil Market in the 1990s: Challenges for the New Era and China's Petroleum Industry in the International Context.

Jock A. Finlayson is a consultant based in Ottawa, Canada. He has written widely on international trade and political economy. He is currently a doctoral candidate at Queen's University.

Jeffrey A. Hart is Professor of Political Science at Indiana University, Bloomington. He has served as a professional staff member of the President's Commission on an Agenda for the Eighties, as a Paul Henri Spaak Fellow for US-European Relations at Harvard University and as a contractor for the US Office of Technology Assessment. Among his most recent books are The New International Economic Order and Interdependence in the Post-Multilateral Era.

Chong-In Moon is Associate Professor of Political Science at the University of Kentucky. He is co-author or co-editor of several volumes and monographs. Most recently he has co-authored The U.S. and the Defense of the Pacific and Alliance Under Tension.

Douglas R. Nelson is in the Department of Economics at Syracuse University. He has worked in the Office of Trade Research at the US Treasury and in the International Economic Research Division of the World Bank. His current research is on changes in the international and domestic regimes regulating international trade.

xii

Notes on the Contributors xiii

Dennis C. Pirages is Professor of Government and Politics at the University of Maryland. He is author or editor of eight books and numerous articles. Among his most recent books are The New Context for International Relations: Global Ecopolitics, and Global Technopolitics: The International Politics of Technology and Resources.

Shahla Shapouri is an agricultural economist in the Developing Market Economics Branch, Economic Research Service, US Department of Agriculture, Washington DC.

Timothy M. Shaw is Professor of Political Science at Dalhousie University and Visiting Professor of Political & Administrative Studies at the University of Zimbabwe. He has authored or edited more than thirty volumes dealing with Africa. Most recently he has coauthored Zimbabwe: Security for Development and Towards a Political Economy of Nigeria: Petroleum and Politics at the SemiPeriphery.

Christine Sylvester is Associate Professor of Political Science at Northern Arizona University. Her main research interests are in the areas of gender and international relations and the political economy of Zimbabwe. She is the author of the forthcoming book Zimbabwe: The Political Economy of Contradictory Development.

Mark W. Zacher is Professor of Political Science and Director of the Institute of International Relations at the University of British Columbia. He specialises in the international politics of international regulatory regimes. Most recently he has co-authored Pollution, Politics, and International Law: Tankers at Sea and Managing International Markets: Developing Countries and the Commodity Trade Regime.

1 Technology, Ecology and Transformations in the Global Political Economy Dennis C. Pirages

Entering the 1990s, the global political economy is radically different from what it was only two decades ago. Two of the major differences are reflected in the terminology itself. In the innocent sixties an explicit analytic division existed between international economics and politics and to speak of an international political economy was to make a radical statement. And, although the term global was certainly in use, there was little realisation of the extent to which a truly global system was soon to emerge. The acceleration of events in the 1970s erased much of this innocence and the shocks and upheavals that have since worked their way through the international system give testimony to a series of major transformations. Beginning with the first energy crisis cycle, a series of events has shaken many of the comfortable assumptions about international politics and economics that were commonly shared in the optimistic years preceding the 'oil decade'. Although continuities certainly can be found linking the system of the 1960s with its contemporary relative, an era of turmoil and discontinuity in international relations seems to be more characteristic of the decades leading to the next century. 1

The quarter-century of steady growth and relative economic stability that followed the Second World War has given way to two decades of economic, social and political challenges within a rapidly changing international political economy. This period has been punctuated by two cycles of energy crisis and related economic instability, an explosion of food prices brought on by perceptions of scarcity, a run-up in basic commodity prices followed by a price collapse, two major periods of economic recession, an international debt crisis and a stock market crash that reverberated around the world. The rules of conduct governing interactions in the battle-scarred global political economy that has emerged from this cauldron of instability are very different from those of its predecessor, which had been governed

1

2 Technology, Ecology and Transformations

largely by simplistic US free trade prescriptions. Faith in the near inevitability of significant industrial economic

growth has been badly shaken by the two severe economic downturns, the first of which bottomed out in 1975 and the second in 1983. A world that was once depicted as divided economically into three categories - the industrial open market economies, the developing countries and the centrally planned economies - is now officially composed of four groupings with the recognition of the plight of the least developed economically troubled countries which are often uncharitably referred to as 'the never to be developed world'. A simple and straightforward international political hierarchy that was once clearly under United States hegemony has been replaced by a more complex one in which many countries exert different kinds of power and influence. And naive assumptions about the separation of international markets from politics have been replaced by the realisation that under more intense competition countries are loath to play by old free market rules.

These new realities are reflected in data that indicate a major slow-down in growth on a world-wide scale. The industrial market economies experienced a real growth rate of about 5 per cent in the thirteen years preceding 1973. Since then it has been about 2 per cent. The less developed countries saw their vigorous 6 per cent growth rate of the earlier period plummet to less than 2 per cent in the first half of the 1980s and, with the exception of the newly industrialising countries, they have grown very slowly since. 2 Many of the least fortunate less developed countries have actually lost ground economically over the last two decades on a per capita basis. 3 While the oil exporting countries experienced a boom in the 1970s, by the mid-1980s most of them were spending more than they were collecting in export revenues and some had moved deeply into debt, courtesy of a major decline in oil demand and prices.

Political and social challenges to the rules supporting the established political hierarchy have accompanied these changes in economic fortunes. A growing number of newly independent nations has set about changing the global agenda and the political and economic map of the world. There is now concern about future growth opportunities for poorer nations in a global economy that is no longer expanding at expected historical rates. These countries, mainly exporters of primary commodities, see no way that they can gain a toe-hold in the existing global division of labour. It is not clear to

Dennis C. Pirages 3

them that a slowly rising tide will lift all ships. In fact, there is well-founded fear that the tide may be ebbing and leaving them behind as litter on the beach. It has become more generally accepted among them that collectively valued economic and social goals will not be met in the less developed world by relying on an invisible hand (or mind) that holds equal promises of prosperity for all actors in the world economy.

The austere economic times and system instability characteristic of the last twenty years have focussed renewed attention on the close link that exists between domestic politics and international economic policies. The free trade regime that developed in the postwar economic euphoria stressed a rigid separation between politics and economics. But contemporary realities brought on by slow growth, more intense economic competition among industrial countries, persistent poverty in the 'fourth world', new protectionism against exports from 'third world' countries and various non-tariff barriers to trade have focussed attention on the political aspects of what previously have been perceived as purely market problems. There has thus been a renaissance of political economy as an accepted academic discipline and the global political-economic system as an entity worthy of study.4

These dislocations of the last two decades and changing definitions of appropriate conduct have been driven by unprecedented technological and ecological change. In the ecological realm, the global ecosystem has been under sustained attack from rapidly growing human populations and the resource demands of the world-wide spread of industrialisation. Although there are differences of opinion on the severity of these threats, there are growing indications of perturbations in the resource systems that are essential for human well-being. Pressure on conventional resources such as energy, food and other raw materials has been manifest in the two energy crisis cycles, a food crisis and 'boom and bust' cycles in other raw material markets. But there are also growing problems resulting from human impacts on the Earth's non-conventional resources such as the atmosphere, hydrosphere and the protective ozone layer. 5 In brief, the relationship between human beings, world-wide resource-intensive industrial growth and the integrity of the global ecosystem has been dramatically transformed over the last twenty years and, along with it, perceptions of global problems in need of solutions.

An acceleration of the world-wide diffusion of science and tech-


nology is also fundamentally changing the expectations, possibilities, opportunities and rules of conduct that determine interactions among nations. Innovations in transportation and telecommunications have made the world a much more highly integrated and a smaller place, characterised by the deepening of four types of interdependence, relating to ecology, structure, policy and value. Deeper ecological interdependence results from the fact that five billion human beings step on each other's toes much more frequently than half that number. The rise of pressing global ecological issues such as the build-up of carbon dioxide and the associated greenhouse effect, the loss of part of the ozone layer that protects human beings from ultra-violet radiation and the pollution of the atmosphere, oceans, lakes and streams highlight the growth of common dependence on the Earth's sustaining resource base. Increased structural interdependence results from the continuing development of a world economy characterised by growing communication, the spread of multinational corporations, development of world capital markets and the increasingly rapid diffusion of technology and engineering. This is associated with greater policy interdependence, a need for increasing coordination of policies among the major industrial powers so that policies of one country do not serve accidentally to sabotage those of close allies. And, finally, in the developing 'global village' a consensus on basic human rights, a sort of global value interdependence, is emerging as a code of conduct for the just treatment of human beings.

In summary, this ecological and technological momentum has shaped and continues to drive upheavals and transformations within the global political economy, creating new configurations of power, arenas of competition, prospects for various groups of nations, forms of conflict and rules of conduct in relations among nations. The following chapters address some of the consequences of the transformations that are now under way for various groups of countries. The first three chapters focus on the impacts of crisis cycles and related perturbations in basic commodity markets on producer and consumer countries. The chapters that follow look more closely at the changing impact of technology-based competition on prospects for various groups of countries. And the book concludes with an essay (Chapter 9) that argues for a basic transformation in the gender-biased way that international politics is both carried out and analysed.

Dennis C. Pirages 5

POLITICAL ECOLOGY: PEOPLE AND RESOURCES

Over the last two decades there has been growing recognition that ecological factors, people and resources are important in shaping the economic and political successes and failures of nations. This era was ushered in with the timely publication of The Limits to Growth, a book based on a global model that indicated impending ecological and economic problems on a global scale.6 The publication was timely because it preceded the onset of the first oil crisis cycle by several months, the ensuing crisis lending a great deal of credence to the book's central thesis. Since that time the analysis of the impact of ecological factors on the global political economy has become much more sophisticated, in no small part owing to the experience gained in several interdependent population and resource crises in the 1970s. While perceptions of ecological scarcity are still important factors in international resource politics, shorter-term problems of supply security under the threats of rapidly shifting supply and demand and rapid price fluctuations have come to dominate contemporary analysis.

Although many of the more simplistic notions associated with the international politics of scarcity now seem to be of less relevance, there are many complex trends in populations and resources that continue to reshape the global political economy. In the early 1970s, for example, a world population explosion coupled with limited agricultural capacity was seen to be the cause of an impending period of global famine. 7 This famine threat has been replaced by at least a temporary food glut, but a more complex set of demographic discontinuities continues to drive basic changes in the industrial countries as well as the less developed world. Two world energy shortages have given way to a glut of petroleum, but more complex concerns of supply stability in a world increasingly dominated by a handful of Middle Eastern producers still remain. And although no one really thinks that the world will exhaust supplies of non-fuel minerals in the near future, maintaining access to certain 'strategic materials' in the southern part of Africa has become a pressing concern in United States foreign policy. 8

One of the most significant shifts in perceptions of global ecological problems has been the transformation of what was once regarded as a serious world population explosion into a multidimensional set of demographic discontinuities having different impacts on different groups of nations. While the explosion dimension is still a driving


force behind political economy problems in the developing South, a 'greying' dimension is beginning to have a significant impact upon politics and economics in the countries of the industrial North. In most of the less developed world the introduction of life-saving and life-prolonging medical technologies in the absence of changes in values governing reproductive behaviour has triggered rapid population growth that severely limits the potential for economic development and food self-sufficiency. This is particularly true in subSaharan Africa where population growth rates of ~ per cent per year are common. The population of Kenya, for example, is growing at more than 4 per cent per year, which means that Kenya's leaders must find a way to double the entire developmental infrastructure every eighteen years simply to keep up with population growth. 9

This rapid population growth taking place in the less developed countries underlies the food issues explored in Chapter 3. Malthusian dramas are now taking place in many African countries where populations are growing faster than food production. According to Christensen and Shapouri, the world food market has shifted cyclically from a production glut in the 1960s to shortages in the 1970s and back to overproduction in the 1980s. The shortages of the 1970s were at least partially caused by dietary upgrading in the less developed countries at a time when commercial loans were freely available to facilitate food imports. The food glut of the 1980s has, in turn, partially resulted from new domestic production priorities in many of these financially constrained countries that can no longer afford to import food in the face of large debt burdens. Domestic food policy reforms are now at a critical point because, at least in the short term, they are painful and production shortfalls and changes cannot be offset with higher levels of outside financial assistance.

Another result of the African inability to curb population growth is a frustrating lack of economic progress. Many of these countries have been in extended economic decline over the last decade as growing populations have outstripped the ability of the economy to produce. 10

In Chapter 8, Shaw points out that one result of this has been a significant transformation in African development thinking over the last two decades as the region has become increasingly 'marginalised' in its dealings with the more industrially developed countries. An African search for developmental alternatives, given an obvious lack of progress coming out of its association with the industrial world, leads to heavier emphasis on an informal sector. African leaders are now searching for new institutions and values that might help them

Dennis C. Pirages 7

cope with problems associated with becoming the 'fourth world' with little hope of following conventionally accepted development paths. 11

While too much population growth continues to stymie development in many African countries, too little growth is rapidly becoming a major problem for some of the world's highly industrialised countries. Approaching zero population growth, many Eastern and Western European countries are experiencing a demographic transformation and 'greying' problems associated with expansion of the older age cohorts and contraction of the portion of the population yet to enter the labour force. Although the United States and Japan are not yet seriously affected by this 'birth dearth' and related expansion of retirement age populations, early in the twenty-first century the burden of liberal entitlement programmes created during decades of rapid growth in labour forces could well become an economic factor affecting competitiveness and trade problems discussed in several of the following chapters. 12 Because of the increasing numbers of the 'entitled' in relation to the economically active portion of these populations, a much larger share of public spending will probably be devoted to medical and pension programmes. 13 Although it might be speculative to attribute Reaganism and Thatcherism to a related political greying of their respective countries, the demographics of zero population growth raise important questions of dynamism and innovation in the affected countries. Aging populations in these greying societies are likely to be less innovative, less open to new ideas and more conservative; it is highly possible that economic, social and political stagnation will result.

Population movements, both within and among nations, are also creating thorny political economy issues. The 'push' of rapid population growth and limited economic opportunities in less developed countries, combined with the 'pull' of perceived better economic conditions in the oil-exporting and industrial countries have led large numbers of migrants to seek residence, legally and illegally, in countries of greater opportunity. In addition, nearly two million migratory 'guest workers' have in recent years provided cheap temporary labour in countries as diverse as West Germany, Saudi Arabia and Nigeria. But slow economic growth and declines in prices and demand for oil have subsequently reduced demand for cheap foreign labour in the more affluent countries and guest workers have been ordered to return to their impoverished countries of origin, further adding to the poverty burden. 14

Population migration within countries is also creating problems


and food dependencies. Industrialisation is normally accompanied by a large-scale movement of people from rural to urban areas. Thus cities of unmanageable size are growing in the third world at the same time that the agricultural sector is depleted of the labour required for adequate food production. 15 Thus shortfalls in food production are at least partially created by rural labour shortages in many less developed countries at a time when they cannot afford to purchase additional imports. Because of the potential for violence among the unemployed and underemployed masses in these cities, politicians frequently respond by subsidising food consumption in the cities by controlling retail prices while making up the difference by shortchanging producers in the countryside. Christensen and Shapouri point out that these policies have resulted in extreme distortions in food demand, greater imports and eventually major internal adjustments as the International Monetary Fund forces these countries to deal with these distortions as well as external balance of payments problems.

Finally, growing demographic imbalances are an increasing source of conflict within and among nations. Differential rates of population growth, for example, often upset delicate balances among population components within nations. In Israel the rapid growth of Arab populations is of great concern to Jews; in Lebanon the Arabs and the Christians are similarly involved in counting heads; and in the Soviet Union the Russians are concerned about the rapid growth rates of their peripheral populations. 16 Wherever there are significant minorities, ruling majorities become concerned with differences in rates of reproduction. Internationally, rapid population growth rates in the less developed world could well become of concern to the already industrialised countries that have already reached population equilibrium, since the numbers in the industrial North could dwindle down to an insignificant part of the world's population.

Changing patterns of resource production and consumption are also causing transformations in the world political economy. Although the original concerns about depletion of conventional resources, so prevalent in the 1970s, have been set aside at least temporarily, dislocations in resource markets remain a problem for both producers and consumers. Primary among these has been the shift in the world oil market from one controlled by a handful of multinational oil companies to one dominated by the Organization of Petroleum Exporting Countries (OPEC) and eventually the emergence of market anarchy. The initial concern with the 'running

Dennis C. Pirages 9

out' of petroleum has given way to a better appreciation of energy crisis cycles stemming from tight supply channels and concentration of future production in the Middle East. Worries about other commodity cartels forming to mimic the OPEC successes have been replaced by concern over commodity price stability to preserve economic growth in less developed countries. 17

Given the essential role played by oil in industry and transportation, the future of the global political economy is tied closely to the future of the world petroleum market. The two energy crisis cycles shook the foundations of the global economy, not only because of the shortages, but also because of subsequent economic insecurity and 'boom and bust' price cycles. A similar crisis cycle in the mid- to late 1990s could be even more destructive of a fragile world economy. 18

At least when the market was controlled by the Seven Sister oil companies it was predictable and price volatility was minimised. Given the current relations between producers and consumers, however, rapid and extreme price fluctuations can be expected in the future and will be debilitating to all parties.

The future of the now volatile oil market is the focus of the Chapter 2. Fesharaki points out that predicting future changes in the market is a complicated undertaking and the best that can be done is to isolate factors on the supply and demand sides that will influence it. Underlying the protracted producer-consumer dialogue is the geological and economic reality of concentrated reserves and inevitable higher prices. Price stability is best for all parties involved, but when prices rise producers have little incentive to seek long-term agreements and when they fall consumers balk at reaching an accord.

The inability of any force to keep order in the world petroleum market is the factor that Fesharaki isolates as being responsible for the price volatility and inability to engage in long-term energy planning. The power of OPEC to control the market has been much diminished by the oil glut of the 1980s. In the early 1970s OPEC was producing over one-half of the oil reaching the world market, but this had fallen to less than one-third in the mid-1980s. During the period 1971-85 world demand for oil grew only by 19 per cent, while non-OPEC production grew by 59 per cent. In addition, much of the oil that OPEC countries used to sell on long-term contract is now traded on the volatile spot market, a situation further eroding control of prices and markets. Fesharaki concludes by emphasising that oil is an exhaustible resource and that US production is bound to decline significantly over the years. Most future production will come from a


handful of countries in the Middle East. Thus Fesharaki cautions the governments of importing countries to take the defunct producerconsumer dialogue more seriously before the market again shifts to the benefit of exporting countries.

While cyclical changes in the world energy market have transformed the economic fortunes of large industrialised importers and a handful of significant exporters, many of the world's less developed countries have been jolted more directly by rapidly fluctuating prices for other basic commodities that make up the bulk of their exports. A large number of non-oil exporting less developed countries obtain more than half their export earnings from exports of three or fewer basic commodities. Over the last two decades prices for these exported commodities have fluctuated sharply within a long-term pattern of general decline in relation to the price of industrial products. The deep recession of the early 1980s added urgency to efforts by commodity exporters to improve their economic prospects.

Since the end of the Second World War, exporters ofthese non-oil primary commodities have attempted to organise commodity markets in order to stabilise or increase export revenues. Efforts have been made in the copper and bauxite markets to use producer associations to restrict production and follow the OPEC example. But more frequent attempts have been made to establish international commodity agreements (ICAs) between producers and consumers in other commodity markets. Of more than twenty potential agreements that have been discussed, only six (wheat, sugar, tin, coffee, cocoa and natural rubber) were subsequently turned into meaningful efforts to stabilise prices. The wheat agreement unravelled in the 1960s and the International Tin Agreement collapsed in 1985 as a result of falling demand induced by the world-wide recession. The other agreements have remained in flux as participants have attempted to iron out their differences in the face of depressed markets.

Finlayson and Zacher address the dilemmas faced by the less developed exporters of primary commodities in Chapter 4. Through a detailed analysis of the International Sugar Agreement, which persisted through more than twenty turbulent years following its signing in 1953, they elucidate many of the obstacles that frustrate exporters of primary commodities in their attempts to organise. Typical of many such primary commodities, the price of sugar has fluctuated from a few cents per pound to a high of 43 cents per pound in 1981 and back again. Finlayson and Zacher identify several politi-

Dennis C. Pirages 11

cal splits that frustrate potential members of ICAs, including differences between high cost and low cost producers, more developed and less developed exporters and preference and non-preference countries. Experience with such agreements has shown that supported prices tend to increase production well beyond demand levels and thus quotas become necessary to maintain agreements. In sugar, as in oil, cheating on quotas by members of such agreements as well as increased production by non-members tend to undermine longterm stability. Finlayson and Zacher conclude their assessment with the rather pessimistic observation that far more is involved than disputes between producers and consumers in keeping international commodity agreements from succeeding. One of the unfortunate continuities in the global political economy would seem to be the plight of the politically and economically fragile basic commodity exporters buffeted by fluctuating demand in the industrial countries.

TECHNOLOGY AND THE POLITICAL ECONOMY OF INCREASED COMPETITION

An acceleration of scientific and technological progress and more rapid diffusion of knowledge and techniques are other factors that are driving transformations in the global political economy. The rapid world-wide spread of technology is upsetting established power hierarchies, sharpening economic competition, bringing new actors into the game and weaving a web of much tighter interdependence among nations. At the end of the Second World War the United States was clearly the technologically dominant power in the international system. The military and political clout of Germany and Japan had been obliterated by the war. Even though technically on the winning side, the Soviet Union turned inward and to harsh repression in order to restore civilisation to thousands of miles of scorched earth. Great Britain and France also were in poor competitive shape, facing significant tasks in repairing the wounds of war. Only the United States emerged from the war with the technological, military, political and economic power required to dictate rules by which postwar commerce would be carried out.

Making use of this new unchallenged power, US leaders established a set of international economic institutions and rules of conduct that suited domestic preferences. The International Monetary Fund (IMF) and the World Bank, to be located in Washington, were


to facilitate the postwar world-wide flow of capital and postwar reconstruction and development. The United States' vision of expanded trade in a relatively free international market went largely unquestioned from the end of the Bretton Woods conference in 1944 until the mid-1960s, when a series of events began to chip away at hitherto unchallenged United States hegemony.

The dislocations of the 1970s were the culmination of a number of trends that can be traced back to the immediate postwar period. The diffusion of science, technology and engineering, combined with the gradual recovery of the former allies and enemies, slowly transformed the international system from one in which the United States exercised clear hegemony to one in which there is now a troubled search for a more consensual way of interacting. Successful postwar US aid policy gradually sowed the seeds of enhanced competition within a much more complex global system. 19 In the late 1960s a resurgent Japan, profiting from the technological modernisation of Japanese industry, became a major actor on the international economic scene. Japanese dedication, industrial policies, ingenuity and aggressive trade practices eventually culminated in intense competition with the United States and trade surpluses with that nation of more than 60 billion dollars each year. Germany also recovered rapidly from the war, modernised its industries and now presents the United States with formidable challenges. And, on the other side of the fence, America's former wartime allies have emerged from their postwar dependence and are now significant powers in a revamped global political economy.

A more recent challenge to US hegemony has come from the economic success stories in Asia. The newly industrialising countries (NICs) have been able to exploit small niches in the world economy in order first to gain a toehold and then to push a large foot in the door. The so-called 'Gang of Four' in Asia (Taiwan, South Korea, Hong Kong and Singapore) have used US aid, industrial policies, cheap labour and government-directed export promotion to become a major trading force that poses an additional challenge to the established political-economic hierarchy. Also, in the Western hemisphere, both Mexico and Brazil have become major economic forces, not only because of their populations and natural resource bases, but also because of their roles in the international debt crisis which represents a threat to the viability of financial institutions in lending countries. The successes of the Newly Industrializing Countries can be looked upon as a mixed blessing. They are seen by liberal econ-


omists as proof that other less developed countries can follow similar development paths and also become successes. But from another perspective, the NICs represent an increasing challenge to established industries in OECD (Organisation for Economic Co-operation and Development) countries.

To summarise, the well-ordered hierarchy of the international political economy that was firmly under the control of the United States in the two decades following the Second World War has now become much more complicated, with significant new actors challenging the rules originally established under American hegemony. Resurgent wartime allies and enemies, the Newly Industrializing Countries, and a collection of aspiring second-tier NICs now challenge the old structure and rules of the system and a search is now on for more consensual ways of resolving international issues.

Not only has US hegemony eroded over this period, but the growth of surplus capacity in key industries world-wide has sharpened competition within markets that are only slowly expanding. 20 The fall from pre-eminence has been especially difficult for the United States, which now faces tougher competition from countries that have made good use of new technologies and export-oriented industrial policies. Having become complacent in the absence of any strong postwar competition, US industries are now in a position from which they cannot easily catch up in a rapidly evolving global economyY

The impact of more complex interdependence, surplus capacity and increasing competition on domestic policies within OECD countries is covered in Chapter 5. The onset of more severe international economic competition has created major internal policy problems for the United States, largely because of the traditional separation of the public and private sectors. The United States has been mainly responsible for the general reduction of international trade barriers since the Second World War, but now finds itself competing with stronger countries that still utilise government export subsidies and non-tariff trade barriers. This more seasoned foreign competition does not play by the 'rules of the game' that were tacitly accepted for the two decades following the war. The United States is ill-prepared to compete in this more rough-and-tumble system, its experience having been with clear-cut 'border' measures such as tariffs rather than with the subterfuge involved in precise selection of certain industries in order to maintain market dominance.

The industrial market economies vary greatly in the role that the public sector plays in promoting industrial policy and these differ-


ences, according to Hart, make acceptance of commonly understood trade rules unlikely. He examines four major industries in the United States, Japan and Western Europe in order to assess the impact on them of increased trade competition, and finds different coping mechanisms at work that do not formally violate the General Agreement on Tariffs and Trade (GATT). He sees it as unlikely that the privately concerned export industries and related subsidies can be eliminated in countries that feel export promotion to be essential to continued economic well-being. Rapidly fluctuating exchange rates and exaggerated capital flows worsen the potential trade conflict in an increasingly integrated monetary system where domestic monetary and fiscal policies have immediate significant ramifications for all others in the system.

Hart concludes with a rather pessimistic assessment of the impact of increased industrial interpenetration on trade protectionism. Declining US hegemony and the increased influence of Japan and Western Europe have made a new set of rules governing trade and the international monetary system an urgent necessity, but the significant differences that exist among the advanced countries in domestic industrial and economic policies make such an agreement unlikely. Without a major boost in world economic growth, it is likely that more intense conflict over subsidies, selection of targets, tariffs and quotas will continue to complicate an already complex and contentious trade system. Part of the fall-out from this accelerated conflict is that less developed countries that have just begun to penetrate industrial markets in a significant manner may find themselves victims of a new protectionism that could freeze the world at its present level of inequality.

The plight of the contemporary less developed countries seeking to develop economically in the face of world-wide economic stagnation and creeping neo-protectionism is explored in Chapters 6 and 7. Nelson focusses on the political-economic nexus in analysing the impact of internal political and economic pressures in industrial welfare states on markets for exports from less developed countries. Political commitments made to domestic pressure groups in expanding welfare states would appear to be antagonistic to the international free trade regime championed by the United States. One element of the welfare state is protection from risk and insecurity, both of which are growing in a more harshly competitive and integrated world economy. Lending agencies such as the World Bank have encouraged the less developed countries to forgo import-substitution pol-


ICies in favour of more openness to world markets and related export-oriented growth. But there are serious questions to be raised about the willingness and ability of industrial welfare states to accept the political consequences of large-scale imports from these fledgling economies.

Even under the liberal international economic order (LIEO) that has existed for most of the postwar period the less developed countries (LDCs) have not fared well in international trade. Nelson finds that LDC export growth was not as strong as that which took place in the industrial countries in the 1960s and that, with the exception of OPEC countries, it eroded substantially in the 1970s. Furthermore relative export prices as indexed by terms of trade deteriorated significantly for the LDCs over the same period. He suggests that even the existing GATT system works against the interests of the less developed countries because they have no concessions that they can make in the trade bargaining that takes place within the GATT framework.

Nelson concludes that the most important barrier to future prospects for less developed countries is the growth of welfare states with domestic commitments to use international policy instruments to maintain employment and thus to protect industries. These welfare states are the market for nearly two-thirds of LDC exports and the source of almost all net capital flows to them. But development successes on the part of LDCs, that is growth of exports, creates a backlash in the affected industrial countries. Under the free trade regime of the postwar period the pains of adjustment to world-wide economic competition were borne by the weaker and less competitive economic sectors. But new welfare politics in the industrial countries are increasingly protecting even inefficient sectors from making necessary competitive adjustments. Once precedents are set, protection spreads from one sector to another. The result is a contradiction between welfare policies in the industrial countries and the welfare of growing numbers of workers in the LDCs.

The most obvious 'success story' of the postwar liberal trade regime is the small number of Newly Industrializing Countries. These countries are held up by trade liberals as examples for other less developed countries to follow, but, given the changing outlook for world economic growth, it is unclear whether or not these countries were able to take advantage of a relatively brief temporal 'growth window' which is not likely to reappear. The origins of NIC successes and prospects for their future are assessed by Moon. He analyses the


way the NICs were able to industrialise so rapidly, their prospects for continued rapid growth in a stagnant global economy and whether there are other less developed countries that can industrialise by following this model.

Moon identifies several factors that have been essential to the economic successes of the existing NICs. Timing is one of the most crucial factors. These countries made a shift from inward-oriented to export-led economic growth in the 1960s, paralleling significant economic growth in the industrial countries and a general expansion of international trade. Once launched on a successful development trajectory, the NICs have been able to weather the tougher times of the last decade through government interventions and a significant flow of private capital from the international banking community.

Strong state entrepreneurship has been another important component of NIC success. Governments have not only been involved in subsidising leading export industries, but they have also been important in maintaining stability in the face of growing demands for higher wages. Governments in these countries have been involved in insulating the domestic economies from growing social pressures, a 'revolution from below', in directly intervening in the economy to promote the growth of certain key sectors and in initiating shifts from inward- to outward-looking growth strategies.

Looking to the future, Moon is not optimistic that this set of circumstances can be repeated and that other countries can follow this development path, nor does he see much hope that all of the original NICs will be able to return to rapid growth in the near future, given heavy financial obligations, protectionist pressures developing in industrial countries, competition from the group of twelve aspiring NICs and a growing threat from China. Most of the NICs have experienced in the 1980s serious economic problems, not the least of which is significant foreign debt accrued through extensive privatesector borrowing. And a stagnant international market has intensified competition between the existing and second-tier aspiring NICs. At home, politically volatile demands for higher wages are cutting into the competitive advantage enjoyed by the present NICs and abroad neo-protectionist policies are chipping away at established markets.

In view of the hardening of competition, development of surplus capacity and the slow growth of the world economy, the plight of the world's least developed countries has obviously worsened. The economic dislocations and ecological disasters of the last decade have


combined to wreak havoc on the development aspirations of this large group of poverty-stricken countries. The world-wide recession of the 1980s destroyed markets for the basic commodities that most of these countries export, high oil prices worsened balance of payments situations, rising interest rates forced debt rescheduling in many cases, and rapid population growth made improvements in per capita living standards nearly impossible. Many of these countries have been steadily losing ground on a per capita basis over the last two decades. Even food production is falling on a per capita basis in many of them. 22 Experiencing as they do staggering birth rates, starvation and extensive malnutrition and minimal economic growth, there would appear to be little immediate hope for these pariah nations to become fully-fledged participants in the global political economy.

In Chapter 8, Shaw sees both despair and hope in the African plight; despair because the present situation in most of these African countries precludes profiting from any association with the international economy and hope because this difficult situation lends itself to the formation of self-reliant regional groupings. Shaw juxtaposes the Organization of African Unity's 'Lagos Plan of Action', which suggests an emphasis on inward-oriented growth, with the World Bank's 'Agenda for Action', which argues for export-oriented growth, to illuminate some of the realities and hard choices that face fourth world nations. While many African countries have responded to outside demands for economic reforms, lending institutions have not kept their side of bargains struck, thus further worsening the African predicament.

Shaw concludes by arguing that these increasingly marginalised African fourth world countries are the least developed in the world and therefore have an opportunity to avoid the pitfalls of excessive dependence upon the industrial world. However even the limited number of African 'success stories', such as Kenya, the Ivory Coast or Malawi, will soon be bumping up against international structural constraints and will have only a limited place in the future international division of labour. Shaw foresees novel political and social situations developing in Africa that will cut across accepted NorthSouth distinctions. Some third world African nations may emerge from the decade dominant over the weaker African fourth world countries that will be heavily dependent upon outside aid to avert a major catastrophe. Differing interests could emerge between those countries that stand a chance of economic success through outward-


oriented development and those that do not. In this depressed environment, Shaw advances the possibility of a transcendent cultural revolution based on collective self-reliance and growth of the informal sector as many fourth world African countries become so marginal in the world economy that new indigenous models of appropriate development become essential for cultural, political and economic survival.

QUESTIONS FOR THE FUTURE

Having analysed the role of technological and ecological factors in the transformations currently under way in the global political economy, it remains to hazard a few thoughts, both theoretical and existential, about what sorts of changes might lie ahead. While the global political economy literature is not rich in 'futures' studies, the kind of analysis suggested above permits some insight into problems that will shape the world of the twenty-first century. Twenty years ago, very few scholars or politicians would have predicted the major dislocations that have recently taken place in the international system. Undoubtedly similar turmoil lies ahead and anticipation of these problems and dislocations should be a priority research task. For the moment, however, it must suffice to isolate four significant areas of tension that this kind of analysis indicates will shape the international political economy of the next century.

A world-wide revolution of rising expectations persists in the face of diminishing capabilities to meet it. Continued industrial economic growth requires generation of social 'surplus' and related capital formation, but demographic trends in both the industrialised and less developed countries work against such accumulation. The greying of the industrial countries represents a drain on these economies and a possible cause of future economic and political stagnation. Rapid population growth in the less developed countries precludes capital formation since so much economic activity must be devoted to simply maintaining existing standards, where possible, for rapidly growing populations.

The emergence of global ecological problems, such as ozone depletion, global warming, acid rain and oceanic pollution, demands higher levels of co-operation among nations, but there are few indications that nationalism is on the wane and the 'global consciousness' required to solve these problems may not rapidly develop.


Brazil, for example, contains large tracts of tropical rain forest that are essential to maintaining the global ecological balance. But officials in that country have voiced resentment at international pressures to preserve the forests and continue to assault them in the name of rapid economic growth.

The evolution of a much more tightly integrated global political economy characterised by much higher levels of interdependence requires stability and predictability in political and economic relationships, but future cycles of commodity 'boom and bust', led by petroleum, threaten to disrupt the required co-operation. There is at present no indication that the destructive dynamics underlying the first two energy crisis cycles have changed appreciably. In fact control of world petroleum reserves continues to be concentrated in fewer hands, raising the spectre of a third crisis before the turn of the century.

The industrial revolution has brought with it a new set of values that has diffused outward from Western Europe along with the spread of 'modernisation'. But, as this revolution has begun to lose some of its impetus, it is increasingly in conflict with the traditional agrarian values of Islamic fundamentalists. Given the rapid population growth taking place in the Islamic world, this clash of values and world views will undoubtedly precipitate new forms of conflict.

Other areas of tension in the future international political economy can undoubtedly be identified through development of theories that focus on the dynamic relationships that exist among 'technoecological' factors, social, economic and political structures and value configurations. It remains to apply this type of analysis to the identification of impending global problems so that policies can be implemented to soften some of the harsher consequences of future transformations on a much more densely populated and interdependent planet.

Notes 1. For an analysis of the continuity-change argument see Peter Gourevitch,

'The Second Image Reversed: The International Sources of Domestic Politics', International Organization (Autumn, 1978).

2. Figures derived from World Bank, World Development Report /986 (New York: Oxford University Press, 1986) Chap. 2.

3. For example, seventeen countries lost ground during this period and a larger number barely broke even. See World Bank, World Development Report /988 (New York: Oxford University Press, 1988) pp. 222-3.


4. See, for example, Susan Strange (ed.), Paths to International Political Economy (London: George Allen & Unwin, 1984); Robert Keohane and Joseph Nye, Power and Interdependence (Boston: Little, Brown, 1977).

5. See National Academy of Sciences, Changing Climate (Washington: National Academy of Sciences Press, 1983); Stephen Seidel and Dale Keyes, Can We Delay a Greenhouse Warming? (Washington: US Environmental Protection Agency, 1983); National Academy of Sciences, Protection Against Depletion of Stratospheric Ozone by Chlorofluorocarbons (Washington: National Academy of Sciences Press, 1979).

6. Donella Meadows et al., The Limits to Growth (New York: Universe Books, 1972).

7. Georg Borgstrom, The Hungry Planet (New York: Collier Books, 1972); William Paddock and Paul Paddock, Famine I975! (Boston: Little, Brown, 1967).

8. See, for example, 'Imports of Minerals from South Africa by the United States and the OECD Countries' (Washington: Congressional Research Service, 1980).

9. Figures taken from '1988 World Population Data Sheet' (Washington: Population Reference Bureau, 1988).

10. See Thomas Goliber, 'Sub-Saharan Africa: Population Pressures on Development', Population Bulletin (February, 1985).

11. See Lester Brown and Edward Wolf, Reversing Africa's Decline (Washington: Worldwatch Institute, 1985).

12. Ben Wattenberg and Karl Zinsmeister, 'The Birth Dearth: Geopolitical Consequences', Public Opinion (December/January, 1986).

13. Social Expenditure 1960-1990- Its Growth and Control (Paris: OECD, 1984).

14. See Michael Teitelbaum, 'Immigration, Refugees and Foreign Policy', International Organization (Summer, 1984).

15. George Beier, 'Can Third World Cities Cope?', Population Bulletin (December, 1976); Leon Bouvier, 'Planet Earth 1984-2034: A Demographic Vision', Population Bulletin (February, 1984) p. 22.).

16. For an analysis of the Soviet situation see Murray Feshbach, 'The Soviet Union: Population Trends and Dilemmas', Population Bulletin (August, 1982).

17. These arguments were initially laid out during the first oil crisis. See C. Fred Bergsten, 'The Threat From the Third World', Foreign Policy (Summer, 1973); Zuhayr Mikdashi, 'Collusion Could Work', Foreign Policy (Spring, 1974); Stephen Krasner, 'Oil is the Exception', Foreign Policy (Spring, 1974).

18. Dennis Pirages, 'World Energy Crisis 1995', Futures Research Quarterly (Fall, 1986).

19. See Arthur Stein, 'The Hegemon's Dilemma: Great Britain, the United States and the International Economic Order', International Organization (Spring, 1984).

20. See Susan Strange and Roger Tooze (eds), The International Politics of Surplus Capacity (London: Butterworth, 1980) and Peter Cowhey and Edward Long, 'Testing Theories of Regime Change: Hegemonic Decline


or Surplus Capacity?', International Organization (Spring, 1983). 21. For an overview of competitiveness arguments see John Zysman and

Laura Tyson, American Industry in International Competition (Ithaca, NY: Cornell University Press, 1983) and Stephen Cohen and John Zysman, Manufacturing Matters: The Myth of the Post-Industrial Economy (New York: Basic Books, 1987).

22. When the period 1979-81 is compared with 1984--86, nearly fifty countries saw a decline in per capita food production. Figures from World Bank, World Development Report I988 (New York: Oxford University Press, 1988) pp. 234--5.

2 The International Oil Market: The Future of Relations between Producers and Consumers Fereidun Fesharaki

I INTRODUCTION

Much has happened in the oil market since the Tehran Conferences in 1971, when the price of oil increased for the first time in more than 15 years. The shift in control of oil resources from the oil companies to the producing governments, the oil price shocks of 1973-4 and 1979-80, and the massive slide in oil demand in the early 1980s have resulted in structural changes in the oil market which have fundamentally altered the relationship between producers and consumers. These structural changes have not yet come to an end. While the oil industry and the governments (on both sides) remain preoccupied with short-term supply/demand and price questions, the underlying changes slowly continue to change the structure of the oil market.

This chapter is an attempt to analyse the underlying factors which are likely to shape the oil market and the oil political economy over the next two decades. This author, who has long been engaged in statistical analysis and oil market forecasting, has deliberately decided to avoid excessive reliance on statistical analysis in this paper. Rather, this chapter represents the subjective perception of the author with a long-term view of the factors which will affect our lives and our children's lives in the future.

II WHY OIL FORECASTS GO WRONG

Oil market forecasting, with all its poor past performance, continues

22

Fereidun Fesharaki 23

to remain an integral part of our energy policy. Producer and consumer governments, the oil industry, and all other sectors of the world economy which depend on energy, rely on oil forecasts to make policy decisions. Today's policy decisions shape the future and today's forecasts are based on yesterday's information - and poor information for that matter.

Oil market forecasting is a difficult task. It is difficult because (a) information is imperfect and (b) forecasting techniques are far from adequate to start with and subjective biases are often introduced into the assumptions. 1 It is thus no great wonder that oil forecasts have often gone wrong. Let us take a closer look at the factors which affect our outlook for oil. Information is imperfect: that is to say, we do not have current data. Our data are at best a year old for most of the industrial world and two to three years old for the developing world. At the same time, many governments and oil companies treat information on oil as national security concerns and are reluctant to make them available in a useful form. Forecasting techniques are far from adequate: that is, econometrics applied to oil market forecasting with a poor information base cannot be relied upon seriously. More scientific techniques such as 'end-use' analysis require far more elaborate data than are available.

Perceptions

Projections of the future of the oil market are affected more by the perceptions of analysts than by the actual underlying changes in demand and supply. Clearly perceptions differ, as do assumptions about underlying changes in the market, leading to differing projections for the future. Perceptions affect the oil market forcasts, much in the same way as they affect the stock market! That is to say that short-term considerations are projected long into the future, further affecting immediate decisions to be made. In the oil market, we can identify a series of perception changes in the past decade.

• Pre-1973: perception of indefinite supply of oil, rising demand, and declining real price of oil.

• 1973-4 oil shock: perceptions of rising demand and real price of oil and some concern over the physical limit of oil resources.

• 1975 recession: perceptions of decline in demand for oil, declining real prices, indefinite glut, and little concern over the future availability of oil.

24 The International Oil Market: Future Relations

• 1979-80 oil shock: perceptions of rising demand for oil, large increase in the real price of oil, concern over political availability of oil as well as the physical resource base.

• 1980-3 recession: perception of ever-declining demand for oil, ever-declining real price of oil, little concern for the physical availability of oil and expectation of indefinite oil glut.

• 1984--5: slow revival of oil demand, but no concern over availability. Expectation of declining oil prices and oil glut for many years.

• 1986: oil price crash and perception of total loss of OPEC power.

• 1987-9: rebound of prices to $18 per barrel, no fear of crude availability in the market, and more confusion.

• 1989 on:?

In each case, the immediate perception is projected one to 20 years ahead. This is why oil forecasting has become such a hazardous business. When confronted with their past mistaken projections, many forecasters put the blame on some unexpected OPEC or consumer policy change. Some forecasting groups, including the giant Exxon Corporation, no longer publish forecasts. The embarrassment of such drastically wrong forecasts has persuaded the Exxon management to order a halt in publication.

Beside the problems of perceptions, there are genuine difficulties in forecasting demand and supply for oil. The major problems can be summarized in the following way.

Demand Side

What rates of gross domestic product (GDP) growth should be assumed? Keep in mind that each one-half per cent difference in economic growth could lead to two to three million barrels per day (mmb/d) difference in demand estimates for energy. That is to say that energy demand is extremely sensitive to GDP growth rates and the decision as to what growth rate ought to be chosen for GDP significantly affects the rate of energy consumption.

How will the capital stock change affect energy/GDP ratios? As the old, high energy using machinery is replaced by new energy-efficient machinery, the value of energy needed to generate one unit of GDP will decline. However the turnover of machinery will depend also on interest rates and the general state of the economy. Ironically, in a


recession, many private firms cannot afford to pay for the energyefficient capital stocks.

How should the political will of the governments to impose taxes and/or other administrative measures to reduce oil consumption be projected into the future? Different governments around the globe have different levels of political will to reduce dependence on oil. With election issues, domestic political crises and weak administrations there is often reluctance to take measures which will add to the price of oil, even if that ultimately results in curbing consumption.

What are the long-term price and income elasticities of demand for oil? While we can quickly measure the response of demand to price and income changes in the short run, we do not really know what will happen in the long run. Perhaps by the mid-1990s we will have sufficient historical data to make such a judgement.

Supply Side

What is the physical and technical availability of oil? We need to ascertain the range of available oil supplies not only on the basis of 'total' oil under the ground, but in terms of the physical and technical availability. This requires detailed geological analysis but with a good understanding of the political, legal and engineering issues which affect the availability of oil.

How much will the oil exporters prefer to produce? The oil exporters are not private firms. They consider their oil resources a national asset. Their production policies are thus based on long-term objectives of the country and on the political impact of their actions. Subjective case-by-case analysis of the likely range of policies must be superimposed on physical/technical availability of oil.

What is the pace of development and exports of non-OPEC oil? The growth of non-OPEC oil and its challenge to OPEC oil should be considered. How much investment is being made in non-OPEC oil and can one expect the growth of the past decade to go on? Will non-OPEC exporters begin to behave like OPEC after a certain period of time?

What is the long-term price elasticity of supply for oil? To what extent will the rise or fall in the price of oil affect the supply of oil from more high-cost areas?

How will the investment in development of non-oil energy supplies be affected by the general economic conditions (recession/boom,


inflation/interest rates, tax incentives and so on) and the consumer governments' willingness to step in and directly help develop other energy sources?

Where will the cost of non-oil energy sources stand in relation to oil? The cost of alternative energy supplies, particularly synthetic fuels, seems to rise with the price of oil. Synthetic fuels are always projected to cost twice as much as oil. What is the realistic cost level of synthetic fuels which could be a ceiling for the price of oil?

There are simply too many imponderables in the way of forecasting oil market developments. Oil forecasters can be blamed for shortsightedness and for biases but, even at best, we cannot and should not expect precise forecasts.

III PLANNING IN UNCERTAIN MARKETS

The key characteristic of today's oil market is volatility. Prices change suddenly, rising and falling in a pattern that is difficult to predict. When successful predictions can be made, it is a matter of predicting a week or a quarter ahead. In most of the oil companies, long-term planning has been shelved in favour of taking advantage of short-term opportunities and avoiding short-term disasters.

Some people may ask, 'What's wrong with planning on a shortterm basis?' For most companies at the present moment, the only need for the longer-term picture is in investment planning. Since there is a world-wide overcapacity of refining, petrochemicals and tankers, there is not too much need for investment planning on the downstream side. For companies the key issue is investment in exploration and production, and the current downturn in these activities is symptomatic of this uncertainty.

For governments the problem is greater. Governments must make a wide variety of decisions that involve the longer-term picture. Regulations and policies must be adapted in the light of long-term consequences; even the decision to abandon regulation altogether requires some sort of prediction of the longer-term market.

The Changing Structure of the Oil Market

To understand the volatility of today's market, it may be useful to review the new forces that have come into play since 1985. Prior to 1970, the oil market was fairly well controlled by the international


majors. They made most of the production decisions, the pricing decisions, and decided the destination of most oil exports. Posted prices ruled the day. In the 1970s, OPEC took over control of the market. Although OPEC in general only responded to the new realities in the market, following the market price up rather than setting it, OPEC official prices gave the market a solid and fairly reliable benchmark. During most of the 1970s and early 1980s, 90 to 95 per cent of all oil exports were sold on contracts related to official prices.

It is informative to consider the situation today as compared with a year when the market was in something akin to balance, prior to the prices increases, just to see how much has changed. 1971 is a good base year, since the market was roughly in balance, and no major disruptions were under way. Excluding the OPEC nations, every region in the world except North America produced more oil in 1985 that in 1971. Even North America held more or less steady. Between 1971 and 1985 non-OPEC oil production increased 59 per cent. In 1971, OPEC produced about half of the world's oil. By 1985, that proportion had fallen to only 30 per cent.

World consumption of oil grew only 19 per cent from 1971 to 1985. Dramatic changes took place in the location of oil demand. Demand in the developed nations of the OECD fell about 3 per cent, while demand outside the OECD rose almost 71 per cent. This means that the OECD accounted for 70 per cent of all oil consumption in 1971, but accounts for only 57 per cent of demand in the late 1980s.

Putting these factors together, the reasons for the oil glut are obvious: non-OPEC production rising by 59 per cent during a period when oil demand only rose 19 per cent. This has led, as we all know, to a massive decrease in OPEC production. At the 1979 peak, OPEC was producing 31.5 million barrels per day of oil; in 1985, the figure had fallen to 17.2 million. OPEC's new difficulties in selling oil have led to a major change in the way oil is sold. Whereas about 90-95 per cent of oil was sold on a contract basis at official prices only a few years ago, today only 10-15 per cent is sold at official prices. 30-35 per cent of oil is now moved directly on the spot market, or at government sales prices corresponding to the spot market. The remaining 50-55 per cent is sold at prices linked to the spot market, through mechanisms such as netback pricing, toll processing, spot market escalators (formulas), production-sharing agreements, countertrade (barters) and a host of other new techniques that played only a minor role before.


This new market structure has led to wild fluctuations in price. Although the feature that most people have noticed is the huge overall drop in the average price, the upward and downward fluctuations on a week-to-week basis are just as startling and just as unexpected.

A further confusion results from the futures market, a commodities market that trades cargos for delivery at some future date. Although economic theory argues that futures markets tend to stabilise commodity markets by acting as a hedge against price fluctuations, the futures market in oil thus far seems to have acted as a force that creates increased price volatility. In terms of the actual volumes of oil involved, the futures market is utterly insignificant. Although around 45 million barrels of oil are apparently traded on the New York Exchange on a typical day, this usually involves only about 700 000--800 000 barrels being sold over and over again. The volumes of oil ever actually delivered from the futures market are tiny; in fact, in one case where a contract was called due for delivery, it was found that there was not an actual cargo of oil available to be delivered. Indeed only two crudes are available for purchase on the futures market: West Texas Intermediate (WTI) and North Sea Brent. These represent a rather modest fraction of world crude supplies, and are actually consumed in only a few areas of the world, especially since WTI cannot be exported from the ·united States. Total production of WTI is around 1.8 million b/d; the volume of WTI 'traded' on the New York Exchange is 13 times the production volume, even though only about 10 per cent of WTI production is ever actually sold on futures contracts. The large volume of transactions compared to actual oil production has recently led to oil analysts referring to such transactions as 'paper oil'.

None the less the futures market is important for two reasons. First, movements in the futures market tend to affect the current spot market, since they are supposedly an indicator of current oil industry thinking regarding the trend of prices in the near future. (In fact, most of the trading is done by speculators who know about as much about oil as the average IBM stockholder knows about computers.) Second, it affects perceptions, because the news media find the fluctuations in the futures market make for more dramatic news stories than the complex workings of the day-to-day oil market.

Despite the fact that oil may fall to $10 per barrel on the futures · market, this does not mean that the true price of oil has fallen. A common cry among refiners in recent months has been, 'Well, where


is this $10 oil I've been hearing about?' Even though the futures market price may drop to $10 per barrel, this is merely an option to take delivery at that price at some future date. Not only does this mean that the oil is not yet available at that price, it is no assurance that it will ever be acquired at that price. If the prices rise in the interim, the purchaser of the $10 oil may resell it at $11; by the time it is actually delivered, the price could be dramatically different, and the same oil could have been resold countless times.

A question frequently asked is: 'How do you do market forecasting in today's market?' The short answer is that we don't ... at least not in the traditional sense. The standard economic and modelling tools do not work in today's situation. There is a wide gap between supply and demand. Domestic production is given priority by every country, which means that the marginal barrel of supply is usually cheaper to produce than the average barrel of supply. Under these conditions, there are no good equilibrium conditions to calculate.

Anyone who would plan according to a price forecast in such an environment is either very brave or very foolish, or possibly both. Our main goal at present is to determine 'outer bounds' - what are the ranges of likely outcomes, and how soon, or late, will the market return to a state where some of the standard driving variables will come back into play? Everyone knows that oil prices will eventually go up; the real question is, when will they begin to rise again on a sustained basis?

The first question is, are there any scenarios that can result in a short-term sustained increase? For starters, what about further cutbacks by non-OPEC producers in support of the OPEC effort? China and the Soviet Union are unlikely to make major cuts because of hard currency requirements. Egypt is having trouble marketing, and would like to increase production. Mexico may cut around 150 mb/d. Malaysia has promised a cutback of 10 per cent, but this is a cutback from potential production, and leaves actual production at its current levels. Involuntary cutbacks of about 500 000 b/d have already taken place, mainly in the United States, Canada and the North Sea. Thus no more than half a million b/d of voluntary cuts could take place, at best, and even this is not assured.

A second angle is the political one. What about wars, revolutions or other disruptions? The largest exporter, Saudi Arabia, now produces only 4.3 million b/d. The second largest, Iran is at 2.3 million b/d. Shutting off all supplies from both of these countries for a prolonged period would certainly tighten the market for a while, but


it would by no means create a supply emergency. It is difficult to create a reasonable scenario of supply cut-offs that would cause a sustained leap in the price in the current market; it is necessary to suppose some sort of prolonged disruption involving a few major countries, or a Third World War, and we make no attempt to predict what would happen to prices under such conditions.

In the short term, then, it is impossible to find any really likely factors arguing for a sustained price increase. Prices will probably become firm, but it is hard to identify anything that could push the price above $20 per barrel in real terms prior to 1990.

IV THE MEDIUM-TERM OUTLOOK

There are three factors that determine when the prices will become firm and begin to rise: demand; non-OPEC production levels; and OPEC's required or desired levels of production. Demand is of course the biggest question. Each year we conduct a survey of what everyone - governments, industry, academia - thinks about the future of demand and try to get a feel for the realistic ranges. Of course we take some of these forecasts more seriously than others, according to the methodology used, but there seem to be pretty reliable upper and lower limits. For the period up to 1990, compiling estimates for eleven regions of the world, it is hard to find realistic combinations that yield annual demand growth rates below about 0.7 per cent or above 1.2 per cent, largely because of slow demand growth in the OECD and Eastern Europe which account for 77 per cent of consumption. Even very rapid growth rates in the developing countries do not have much effect in raising this rate in the near term. For the 1990-5 period, the rates that seem likely are 0.8 per cent on the low side and up to 1.6 per c~nt on the high side.

Turning to non-OPEC production, it is difficult to imagine a net increase between now and 1995. Although some increases will occur in some areas, these are likely to be more than offset by decreases in areas such as the United States and the North Sea. Therefore, at best, non-OPEC production might be maintained at around 40 million b/d until1995. Decreases seem more likely. Many companies which have done field-by-field analyses expect a loss of 1.5 million b/d by 1990, and a slightly greater loss between 1990 and 1995. At the outside, some of the more pessimistic forecasts are looking at a decline of 6 million b/d by 1995, twice as high as most expect. This would involve


Table 2.1 Preferred and maximum sustainable OPEC production (million barrels per day)*

1986 1990 2000 A p c p c p c

Iran 2.1 2.3 3.2 3.0 3.5 4.0 4.0 Iraq 1.7 2.0 2.0 3.0 4.0 4.0 6.0 Kuwait 1.3 1.3 2.2 1.3 2.2 2.0 3.0 Saudi Arabia 4.6 5.0 8.0 5.0 8.0 8.0 10.0 UAE 1.4 1.6 2.1 1.8 2.5 2.5 3.0 Qatar 0.3 0.5 0.5 0.5 0.5 0.3 0.3 Neutral Zone 0.3 0.5 0.6 0.5 0.5 0.3 0.3

Total Gulf 11.7 13.2 18.6 15.1 21.2 21.1 26.6

Indonesia 1.4 1.6 1.7 1.6 1.8 1.2 1.2 Libya 1.0 1.3 1.7 1.5 1.7 2.0 2.0 Ecuador 0.3 0.3 0.3 0.4 0.4 0.4 0.4 Venezuela 1.7 1.9 2.5 2.0 2.5 2.5 2.5 Gabon 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Algeria 0.6 0.6 0.8 0.6 0.6 0.5 0.5 Nigeria 1.5 1.6 1.8 1.6 2.1 1.3 1.3 Total OPEC 18.4 20.7 27.6 23.0 30.5 29.2 34.7

Note: * Excluding natural gas legends. A = Actual January-July 1986. P = Preferred/acceptable level of output. C = Sustainable capacity (based on long-term production profiles).

widespread shut-downs of existing production, including some fairly large fields; we consider such a scenario rather unlikely, and think that a drop in non-OPEC production to about 37 million b/d by 1995 is much more likely.

The required or desired OPEC production levels are the most complex aspect of the subject, since each individual country must be reviewed in detail to determine production ceilings, optimal production levels from a geological point of view, income requirements and political outlook. There are two aspects to the questions: at what level can some semblance of discipline be achieved, and what level of production would the countries actually prefer? Looking first at preferred levels, we estimate that, in 1990, OPEC members would be happy producing at around 23 million b/d; by 1995, 25.8 and by 2000, 29.2 million b/d (see Table 2.1). Demand for OPEC oil above these levels would result in sustained increases in the price of oil, putting it back on the path it seemed to be following in the 1970s.


Let us consider the most slack market likely: low demand and high continued non-OPEC production. In 1990 this scenario would indicate a demand for OPEC oil of around 20 mb/d, about 3 mb/d below OPEC'S desired level. In 1995, this would result in 22.8 mb/d demand for OPEC oil - still leaving about 3 mb/d slack relative to what OPEC would like to produce.

Now let us look at the tightest market likely, with high demand and large declines in non-OPEC production. In this case, demand on OPEC oil in 1990 would be about 22 million b/d- about 1 mb/d below OPEC's preferred level. However, continued declines and continued high demand up to 1995 could have an impressive effect; this would demand OPEC production of 29mb/din 1995, with a strong upward pressure on price.

We estimate that about 21 mb/d of production would be necessary to maintain any effective OPEC discipline; by that we mean an end to violations of quotas, an end to widespread discounting by the larger producers, and a major curtailment of netback sales. Such a level of demand is not likely to occur before the end of the decade, according to calculations based on the above figures; however it seems likely that, by the early 1990s, OPEC will again be in a position to act as a stabilising force in prices, even if major increases cannot be forced.

Having looked at the ranges of possible outcomes, we would like to present what we think is a likely scenario. Our belief that this is likely is based on three assumptions:

1. the most important forces in the market react sluggishly, and usually come when no one expects them; 2. history tends to repeat itself; 3. we do not learn anything from history.

In our pet scenario, demand grows at the lowest possible rate between now and 1990, and then surges to a high rate in the 1990-5 period after consumers have readjusted to lower prices. Non-OPEC production declines of 1.5 mb/d take place between now and 1990, but there are no declines after 1990 because of the market growing firm; in any case, further declines are likely to be the result of temporary shut-downs of wells rather than of permanent closures.

This scenario gives us an OPEC oil demand in 1990 of about 21.8 mb/d; by 1995, demand on OPEC increases to 26.8 mb/d. This indicates a fairly rapid increase in firmness of prices between 1990 and 1995. It also gives history a chance to repeat itself. At 26.8 mb/d


of demand for OPEC oil, we are back in a situation where a revolution, war or other disruption could easily result in another oil crisis. In 1995, OPEC production capacity is likely to be around 30 mb/d; there is thus only 3.2 mb/d slack between maximum physical capacity to produce and required production. In this situation, it is easy to imagine an instant replay of 1973 or 1979 in 1995.

What does all this mean in terms of price? In real terms, it means that prices are unlikely to go above $20/b between now and 1990. After 1990, however, things could begin to tighten considerably, and much of OPEC's lost ground could be regained. It is reasonable to predict real prices in the range of $20-26/b between 1990 and 1995. After 1995, real prices could rapidly resume their 1980 levels, even with no disruptions, but political events after 1995 could easily result in exactly what we have seen before: a sharp jump in prices, and a gradual erosion as demand slowly responds. All the energy security and conservation considerations that many are ignoring at present are likely to become key issues once more in the middle of the next decade.

V CONSUMER-PRODUCER DIALOGUE

The issue of consumer-producer dialogues was seriously taken up after the oil price increases in 1973, but has since undergone a series of changes which in a way has separated the oil producers and consumers even further today than they were in the mid-1970s.

The First Experiment: The North-South Dialogue

The ill-fated Conference on International Economic Co-operation (CIEC) popularly known as the North-South Dialogue, was the first (and last) attempt at co-operation between oil producers and oil consumers. The need for such a dialogue arose from the first oil price shock in 197~. There were fears of supply insecurity and further oil price rises. Developing nations plunged into debts incurred to pay for the high oil prices. United States banks were busy in the Eurodollar market, recycling OPEC surplus revenues by lending to LDCs without regard to their creditworthiness.2

The industrial nations of OECD were the initiators of the dialogue. They were seeking 'secure' oil supplies and 'reasonable' prices. For OPEC producers this translated into making available all the supplies


OECD demanded at lower prices than they could sell. In effect the oil exporters saw the result of this dialogue as of no possible gain to themselves. Still they agreed to negotiate, but with a proviso: other issues relating to developing countries should be discussed. OPEC insisted on the inclusion of issues of finance, development aid and technology transfer in the agenda. After some disagreements the industrial nations agreed to negotiate. The conference began in 1975 and dragged on for nearly two years. It gradually became clear that the industrial nations were not prepared to give anything, but they attempted to turn other LDCs against OPEC and engaged in longdrawn fruitless negotiations. In the view of this author, who had certain involvement with CIEC, the United States and West German governments were bent on sabotaging the conference. On one occasion a cable from Secretary of State Kissinger to the US Ambassador at the conference was leaked to the press. The cable instructed the head of the US delegation to keep OPEC busy negotiating during an OPEC ministerial conference, so that OPEC ministers would be too embarrassed to raise the prices while such vital negotiations were going on.3

The failure of CIEC was a major blow to the chances of oil producer-consumer dialogue. Oil producers felt that the industrial countries were not really willing to give up anything. They in turn did not concede much. There was a good possibility that an agreement could be reached if the industrial nations were really interested. OPEC members at the time were so nervous about their own actions that they might have made major concessions. The failure of CIEC created a feeling of mutual distrust; it set back the chances of future dialogue for a number of years.

Factors Affecting the Dialogue

After the CIEC Conference and the tightening of the oil market resulting from the Iranian revolution, many OPEC countries felt themselves to be in the driver's seat. They considered that negotiation with consumer governments was unnecessary. After all, they operated on the basis of the same perceptions as the western world: oil prices were expected to rise unchecked. At the time the consumer governments were eager to engage OPEC in a dialogue. With the decline in oil demand and weakening of prices, the attitudes were somewhat reversed. OPEC countries feeling the pain of lower oil prices were eager to solicit the assistance of the consumer govern-


ments in stabilising prices. What transpired was a shift in position by both sides depending on circumstances - neither side displaying the foresight needed for a real dialogue. In the process of the development of discussions by both sides, three countries deserve special mentions- all on the consumer side.

(a) The United States The Reagan administration took the position that any kind of dialogue or discussion which 'might' lead to an impact on oil prices (which would presumably be the reason for the discussions) was unacceptable- since it would interfere with the free market. On the other hand, discussions about the security of supply were welcome! Clearly these two issues of prices and security of supply are inseparable and no oil producer will discuss one without the other. The administration banned participation of its staff even in conferences where the issues 'might' be brought up. Given the US influence on many major consumers and the International Energy Agency, this position significantly hampered any dialogue. Notwithstanding the US government's position, Vice-President Bush did go to Saudi Arabia in 1986 to 'cordially request' the Saudis to raise the price of oil to help fellow Texans.

(b) Japan Japan has always expressed sentiments that a dialogue between producers and consumers should take place, although she has never proposed a concrete plan. Japan as a resource-poor OECD country is acutely aware of the importance of at least the goodwill of OPEC countries. Having gained such a goodwill, there is little wonder that Japan is not interested in employing large naval forces to protect the oil lanes of the Gulf. Japan's most important contribution to the producer-consumer relationship came in the wake of the 1986 collapse of oil prices. Japan seriously feared that lower oil prices might endanger the political stability of oil exporters. Emphasising the philosophy that oil importers should not take advantage of the temporary weakness in prices, the Japanese proposed a compromise oil price of $18 per barrel. Though other industrial governments did not publicly endorse the idea, this proposition won support among many oil producers and consumers. When OPEC chose to push prices up to $18 per barrel in late 1986-early 1987, the Japanese blessing provided important moral and political support.

(c) Italy Successive Italian governments have encouraged close relations and dialogues between consumers and producers of oil.


Unlike the Japanese, they did not volunteer to pay high prices but instead emphasised 'forward integration' of the oil producers into consumer countries. This meant encouragement of refining and petrochemical industries to be built by oil producers in the oil-consuming countries. The Italians felt this activity, financed by oil exporters, would commit both oil and capital of OPEC countries in the oil-consuming areas. The state oil company undertook a series of in-depth studies with the Organisation of Arab Petroleum Exporting Countries (OAPEC) to show the value of this type of investment.

Having discussed the role of these key oil-consuming governments, it is worthwhile to mention briefly the oil companies' interest in such a dialogue. At the outset, it is important to define what matters to the oil companies: profit. Profit in the oil business is the difference between acquisition cost (producing crude or buying crude) and the sale price of refined products. All the companies would care for is that there should be a 'margin'. While stable prices 'might' lead to positive margins, only uncertainty and wide fluctuations can lead to substantial profits. For the companies which are primarily engaged in exploration and production, high and stable prices are extremely important. Differing goals such as these can often lead to conflicts among production and marketing subsidiaries of the same company. Fundamentally, however, the oil companies today do not have an important desire or a major say in whether a consumer-producer dialogue should take place.

VI THE FUTURE

There is an irrefutable fact about oil, which many people tend to forget. Oil is an exhaustible resource. For instance, US oil production will decline over the years no matter what government policies are in effect and even what the price is. Certainly the rate of decline may be slowed down but the trend is unchangeable. Whether we like it or not, the geologic fact is that most of the oil resources are concentrated in Iran, Iraq, Saudi Arabia, Kuwait, United Arab Emirates, Venezuela and Libya. As we approach the turn of the century, these producers will have an even more important control over oil supplies than OPEC ever did in the 1970s. Will they learn


from history and keep prices at moderate levels? Most probably not! Oil is an important component of the political and social life of these countries and any indication that prices are being kept below the market could prove political suicide.

It seems that the chances for an effective producer-consumer dialogue have been reduced to almost nil. Not only have both sides failed to come up with a workable plan in the past, but it may now be too late for any kind of plan. There are too many players in the oil market: from the 'Wall Street refiner' to speculators on the commodity exchanges, to virtually thousands of middlemen who trade oil. Even if the oil producers can succeed in keeping prices below the market clearing prices, the speculators and middlemen will raise the prices and reap the benefits.

The only serious prospects for consumer-producer relations lie in expansion and emphasis of the Italian plan on forward integration. The consumer governments should consider active encouragement of investments in oil industry by OPEC nations. It is much more difficult to shut down a refinery in a consuming market with thousands of consumers than just to shut off the crude valve. Not only will OPEC nations risk seizure of assets in cases of confrontation, but they will genuinely learn about the complexities of survival at the retail level -reducing significantly the prospects of political cut-off of oil supplies. So far only Kuwait (in Europe) and Venezuela (United States and Europe) have ventured into downstream markets. Others are hesitant, fearing the consumer governments' political backlash. This is where there is some scope for improvements. Of course forward integration is only a minor step on the road to consumer-producer dialogue. But it is better than nothing!

Notes

1. See F. Fesharaki and S. Hoffman, 'Medium-Term and Long-Term Outlook for Oil', Energy International Journal, California, 1983.

2. Indeed the debt crises of the developing nations today are the direct result of the US banks' excessive lending policies of the mid-1970s.

3. R. Fallah and F. Fesharaki, 'The New World Economic Order: The Energy Dimension', Middle East Economic Survey, vol. XX, no. 3, Nicosia, Cyprus, June 1977.


References Fesharaki, F., D. Isaak, S. Pintz and N. Yamaguchi (1986) 'Pacific Oil Study:

Phase One (SPOS I)' (Honolulu: East-West Center, June). Fesharaki F., and D. Isaak (1986) 'The World Oil Market: A Brief Note'

(Honolulu: East-West Center, November). Fesharaki F., and D. Isaak (1986) 'OPEC and the World Refining Crisis',

EIU Special Report no. 168 (London: Economist Intelligence Unit). Fesharaki F., and H. Razavi (1986) 'Spot Oil, Netbacks and Petroleum

Futures', EIU Special Report no. 1063 (London: Economist Intelligence Unit).

3 Adjusting to Global Transformation: Sub-Saharan Africa and the Global Food System Cheryl Christensen and Shahla Shapouri

INTRODUCfiON

The global food economy has undergone major transformations over the past two decades. These transformations have been rooted in part in agriculture and agricultural policies, but have reflected other forces as well: the ebb and flow of demand in developing countries and oil exporting nations; the growing impact of macroeconomics on global trade patterns, and the increasing economic interdependence among major nations and regions. The global food system of the 1980s continues to change. The basis for these changes, as well as their implications for the future, are the main focus of Section I.

Discussions of global transformations generally focus attention on the 'major actors' - those countries and economic groups whose actions have the most impact in shaping global outcomes. Less attention is paid to the consequences of global changes for economically weaker states, who must respond to rather than shape global conditions. For such countries, adjusting to global transformation can be a difficult and painful, albeit necessary, process.

Section II examines the recent experience of sub-Saharan Africa, a continent plagued by economic and agricultural problems and vulnerable to changing global economic conditions. While some of the continent's difficulties originate in the international economic environment, countries' reactions to external shocks are an important factor in explaining growth and development prospects. The combination of external shocks, policies and institutions which reduced the capacity to cope, and inadequate domestic food production have made sub-Saharan African countries as a group especially vulnerable

39

40 Sub-Saharan Africa and the Global Food System

to recurrent food crises, even in a global food economy that has been characterised by relatively abundant supplies.

Facing recurrent famine, severe balance of payments deficits, debt problems and curtailed international lending, sub-Saharan Africa must now adjust to current global economic conditions. Some 30 countries in sub-Saharan Africa have now undertaken adjustment programmes under IMF and/or World Bank auspices. Their adjustment experience (examined in Section III) highlights both the difficulty in implementing changes in domestic policies and institutions, and the extent to which success is conditioned by global conditions.

Despite the recurrence of grain surpluses, the global food system of the 1980s is fundamentally different from the chronic surplus situation which existed in the 1950s and 1960s. Global markets are more complex, interdependent and potentially volatile. Pressures for change in the agricultural policies of major countries and economic groupings are more significant. There are genuine prospects for negotiating change in the global food regime which did not exist even a decade ago. The future of economically weaker countries- like those in sub-Saharan Africa - remains a delicate balance between natural conditions, policy reform and global changes. Without significant domestic and international change, that future is bleak. Section IV examines the prospects and problems.

I GLOBAL FOOD PATTERNS

Global food markets have shown widely varying patterns over the past two decades. The 1950s and 1960s were years of chronic producer surplus, stable low prices and high volumes of food aid (primarily from the United States) flowing to countries where purchasing power was too limited to permit effective market development. 1 The 1970s, on the other hand, were years of great price volatility and major changes in global trading patterns. Rapidly expanding commercial demand in developing countries and planned economies led to major increases in the volume of basic grains traded. Most of the increased demand was met by production increases in the developed grain producing countries, predominately the United States, Canada, Australia and, more recently, the European Community (EC). As the opportunity cost of food aid rose, flows became more erratic and declined from the high levels of the mid-1960s.

Cheryl Christensen and Shah/a Shapouri

Million metric tons 250

200

150

1

/ ,--...._,

--,.- ,..,....,., / ' // World less USSR '"'.,.....,..... ,-

// 100~~--------L-----------L-----------~--~

1970/71 1987/88 forecast

75/76 80/81 85/86

41

Source: United States Department of Agriculture, 1988 Agricultural Chartbook.

Figure 3.1 World grain imports

By the early 1980s, patterns had shifted again, as a combination of rising debt, foreign exchange constraints and global recession significantly reduced the growth in global demand. Large grain surpluses returned. Competition among exporters increased, with major changes in foreign exchange rates complicating market development efforts.

The magnitude of these changes should not be underestimated. World grain imports doubled between 1971 and 1981, from around 110 million metric tons to over 200 million metric tons (see Figure 3.1). Trade grew both absolutely and as a percentage of world production. Most of the expansion occurred in wheat and coarse grains. Coarse grain trade rose from 8 per cent to 15 per cent of world production, while trade in wheat rose from 17 per cent to 21 per cent of world production. 2

One unintended consequence of the rapid growth in agricultural trade was that the health of the United States agricultural economy, as well as that of some other major exporters, became far more dependent on exports, at the same time that changes in exchange rate regimes made trade in general more sensitive to fluctuations in exchange rates. 3 During the 1970s the United States provided much


Mi II ion metric tons Per cent 125.----------------------------------------,100

World trade

100 80

75 60

50

25

0 82/83 84/85 86/87

1987/88 forecast Includes wheat flour, excludes intra-EC trade


Figure 3.2 World wheat trade and US share

of the grain to meet increasing export demand, and initially increased its market share in wheat and feed grains (see Figures 3.2 and 3.3). Both wheat and feed grain markets were relatively concentrated, with five countries (the United States, Canada, Australia, Argentina and the EC) accounting for most wheat exports, and six countries (the United States, Canada, Australia, Argentina, Thailand and sometimes South Africa) accounting for most of the feed grain trade.

As purchasing power in importing countries declined after 1981, trade volumes decreased, and competition for the remaining market intensified. World grain imports declined, surged and again declined, leaving 1986 import levels below 1981 levels (see Figure 3.1). US exports of wheat and feed grains fell after 1981, and total US agricultural exports fell by more than 50 million tons before more agressive export programmes and a decline in the value of the dollar reversed the trend in 1987 (see Figure 3.4). Increased exports, the weather and US domestic programmes helped to reduce surplus stocks which were down significantly by mid-1988.

Another unintended consequence of the rapid expansion of global food markets in the 1970s was that exporters in general and the United States in particular found that their agricultural economies became

Cheryl Christensen and Shah/a Shapouri 43

Million metric tons Per cent 120~---------------------------------------, 140

120

100

80 60

60

40

20 20

o~_u~~~~~~u_~~~~~_u~~~~~~ 0 1070/71 75/76 80/81 86/87

1987/88 forecast


Figure 3.3 World feed grain trade and US share

Million metric tons 170

163 r--~ 150

160 1986 to 1988 + 30%

r-- r-- 142 140

130 ~

r--

120

rl 110

100 1980 81 82 83 84 85 86 87 88

1988 forecast


Figure 3.4 US agricultural exports


more sensitive to the impact of economic changes in non-OECD countries. The most rapidly growing importers during the 1970s were the centrally planned economies (including Eastern Europe, the Soviet Union and China) and the developing countries (primarily OPEC members, the newly industrialising countries (NICs) and middle-income developing countries). The growth of imports in these countries significantly changed the direction of trade flows. In 1960 developed countries accounted for 40 per cent of all wheat imports, centrally planned economies 20 per cent and developing countries 40 per cent. The situation had not changed significantly by 1970. By 1981, however, developed countries accounted for only 10 per cent of world wheat imports, while planned economies accounted for 40 per cent and developing countries 40 per cent. Feed grain patterns were similar. In 1960 developed countries accounted for 80 per cent of world imports, planned economies 10 per cent and developing countries 10 per cent. By 1981, however, the developed countries accounted for about 40 per cent, the planned economies 30 per cent and developing countries 30 per cent. 4

The pattern was even more pronounced for US agricultural exports. American agricultural exports to LDCs had an annual compound growth rate of 20 per cent between 1970 and 1980, with even higher export growth rates for NICs (26 per cent) and OPEC (22 per cent). While food aid accounted for much of the US trade with developing countries in the 1950s and 1960s (30 per cent on average between 1955 and 1965), food aid accounted for an average of only 4 per cent of US agricultural exports to developing countries between 1977 and 1983.5

Dietary improvement, associated with rising incomes and/or changed government policies, was central to growth in all these markets. In many cases, dietary upgrading meant increasing the share of livestock products (meat, milk, poultry, eggs) in the diet. In others, it meant providing additional calories from basic grains, or a larger supply of more preferred grains, such as wheat. In some of the most rapidly growing OPEC countries, dietary improvement entailed the simultaneous growth of imports of basic food grains, feed grains, and a wide range of more highly processed agricultural products.

In most instances, government policies in importing countries were instrumental in supporting dietary upgrading, either through explicit decisions to turn to trade to supply more food than could be domestically produced (as in the case of the Soviet Union and China) or through domestic policies which provided consumer food subsidies.


Dietary upgrading, in turn, was heavily financed with gains from international trade. The case of the OPEC countries is clear. In the case of the NICs, medium-income LDCs and Eastern Europe, trade performance and international borrowing financed dietary improvement. Declining oil prices, less favorable terms of trade for many other commodity exporting LDCs, and the emergence of debt crises in a broad spectrum of countries, all worked to dampen the demand for agricultural imports. Increased concessional sales programmes softened the decline in imports for some countries, while increasing the cost of agricultural programmes in major exporting countries. For many developing countries, however, foreign exchange shortages and austerity programmes forced painful trade-offs between food imports and imports of capital goods.

Over the longer term, changes in agricultural policies in developing countries could have major trade impacts in their own right. A number of developing countries have changed agricultural policies in ways designed to stimulate domestic production. In some cases these changes flow from more general changes in economic policies. In China, for example, economic liberalisation has created new incentives for agricultural production which significantly increased grain production and reduced grain imports. In other instances changes reflect foreign exchange scarcity and policies which create 'import substituting' agricultural policies. Nigeria, for example, has banned the import of a wide range of food products (including rice and wheat), stimulating a significant increase in the production of local staple foods. In still other instances, increases in production are likely to arise as the result of economic adjustment programmes, which create more market-oriented environments in countries where government intervention has constrained domestic agriculture (see below for a discussion of this process in sub-~aharan Africa).

Changes in trade flows, however dramatic, tell only part of the story, however. Agriculture, especially in the United States and other industrialised countries, has become much more sensitive to general macroeconomic conditions. As agricultural production has become more technology- and capital-intensive it has become more dependent on other sectors of the economy for inputs, while competing with these sectors for labour and capital. Greater dependence on purchased inputs and credit strengthen the linkage between agricultural and macroeconomic policy - as reflected in interest rates and inflation.

Changes in macroeconomic and trade conditions increased financial


pressures on farmers in the 1980s. In the United States some farmers faced debt and liquidity problems. Land values declined substantially from their peak in the early 1980s, making it difficult for many farmers who purchased land or invested heavily in equipment during the 'boom' years of the 1970s to service their debt. 6 Foreclosures and bankruptcies increased significantly, agricultural input industries contracted, and rural communities heavily dependent on agriculture suffered a decline in economic activity. The cost of agricultural programmes increased significantly, from an average of $3 million in the 1970s to a high of $26 billion in 1986.7

The cost of maintaining domestic agricultural programmes, and the limitations of traditional commodity programmes in an era of increased linkages to macroeconomic conditions, has led to a new willingness to consider negotiated changes in the global food regime. Most industrialised countries heavily subsidise domestic agriculture, with a tendency for the levels of subsidisation to increase in the last few years. 8 Agricultural programmes are being considered in current GATT negotiations (the Punte del Este Round) and, for the first time, there is agreement to negotiate reductions in domestic agricultural subsidy programmes, rather than to engage in the more traditional 'offer-bargain' style of trade negotiations.9

In short, the reappearance of global surpluses in the 1980s does not signal a 'return' to the world of the .1950s and 1960s. The closer integration between agriculture with macroeconomic conditions, in the context of an increasingly integrated global financial market, adds new sources of volatility to global food markets, as well as significantly complicating traditional farm support programmes. Increased competition among major exporters can lead to significant changes in global prices (as, for example, followed the adoption of the US Food Security Act of 1985), as well as in the terms offered importers who benefit from selected market competition.10 The wider range of importing countries adds greater uncertainty due to policy changes -including both domestic policies to stimulate agricultural production and international debt and trade policies, which ultimately affect the purchasing power of a significant number of developing countries. Finally, the prospect for wide-ranging agricultural trade negotiations, which will place domestic agricultural programmes 'on the table' for the first time, holds the potential for significantly changing global trade patterns.

Changes in the global food regime, whether negotiated or not, mean changes both for major actors, whose domestic policies and


reforms will have an impact upon global markets, and for less influential countries, which will need to adjust to altered conditions. The experience of the last two decades suggests that these adjustments are difficult for many poor countries. Yet the same experience suggests that attempting to avoid adjustment carries its own costs and risks. The experience of sub-Saharan Africa illustrates both the difficulty of, and the necessity for, responding to changing global conditions. It also highlights the complexity and costs of implementing such policy changes.

II FOOD PROBLEMS IN SUB-SAHARAN AFRICA

Like many other developing countries, nations in sub-Saharan Africa increased their food imports over the past decades. 11 The reasons were generally not increasing income, gains from trade or dietary improvement, however. Imports were primarily used to offset the effects of domestic agricultural problems and to support policies designed to assure low-cost food for politically important urban populations. While diets in some countries improved for some people, widespread declines in per capita food availability meant that diets deteriorated, rather than improving, in a large number of countries. When world food prices increased in the 1970s, domestic prices for staple foods, especially cereals, did not keep pace, as governments postponed painful adjustments to the changing global environment. As a result, the cost of government food subsidies rose dramatically during the 1970s. The subsidies, in turn, shifted consumption patterns in favour of subsidised foods, and contributed to larger import requirements. The net result was to make the region more dependent on international markets to sustain politically important consumption patterns.

Providing adequate food supplies in sub-Saharan Africa has become a major policy issue in the past decade. The region faces unique challenges, as a result of its difficult physical environment, the organisation of agricultural production and marketing, and government policies which weakened the agricultural sector. Plagued by famine, poverty and debt, the region graphically illustrates some of the world's most intractable food problems.

Sub-Saharan Africa is the only region to experience long-term declines in per capita food production (see Table 3.1). During the period 1966--86, population growth outstripped cereal production in


Table 3.1 Average percentage growth in food production, 1966-86

Growth rates

Negative

Less than 1

1-2

2-3

More than 3

Countries

Gambia, Mali, Mauritania, Angola, Botswana, Chad Mozambique, Lesotho Guinea-Bissau, Sierra Leone, Malawi, South Africa, Burundi, Madagascar, Zambia Ghana, Guinea, Niger, Senegal, Togo, Ethiopia, Kenya, Uganda, Cameroon, Central African Republic Burkina-Faso, Nigeria, Rwanda Benin, Ivory Coast, Liberia, Swaziland, Zimbabwe, Somalia, Sudan, Tanzania, Zaire, Congo

Source: US Department of Agriculture, Economic Research Service, Developed Economies Branch.

28 countries. In eight countries production actually declined. Only ten countries experienced increases in per capita food production (growth rates exceeding 3 per cent). The physical environment often imposes severe constraints on crop production. Tropical soils are frequently fragile, and maintaining their structure and fertility poses challenges that have traditionally been met by mixed cropping systems, with relative long fallow periods. The irrigated area is very limited, and consequently the bulk of sub-Saharan Africa's crops are vulnerable to weather variability. In some regions drought is likely as often as one year in three. 12 In regions where planting is dictated by seasonal rainfall patterns, the cropping season may be a very short period, limiting the crop varieties which can be grown. Traditional varieties are well adapted to local conditions, yielding a minimal harvest even with severe moisture deficiency. On the other hand, yields are also low in good growing conditions.

Capital inputs are not used intensively in the region. Although some natural replacement of plant nutrients in the soil occurs under the rotational bush fallow system, there is very little effort to replace nutrients by means of chemical fertiliser, except in Zimbabwe's


commercial subsector, in Sudan's irrigated schemes, and to some extent in Kenya. Use of tractors, and even of draft animals, is uneconomical for most smallholders and peasant farmers, who are the major producers of agricultural commodities in all countries. As a result, production is frequently constrained by seasonal labour shortages, particularly during planting, weeding and harvesting. There is much more slack during the rest of the year. Seasonal labour shortages therefore alternate with underemployment.

Rural labour shortages have been aggravated by urbanisation and in some countries by out-migration of labourers (from Sudan to oil-exporting countries of the Middle East, from Mali to Ivory Coast, and from Zambia, Zimbabwe, Mozambique and Lesotho to South Africa), generally in response to higher wages. Farm incomes are usually not high enough to compete with urban wages. Overall rural-urban income disparities on the continent typically range between 1:4 and 1:9, compared with ratios of 1:2 to 1:2.5 for many countries in Asia.

Production problems have translated rather directly into serious food emergencies, including the crisis in the Sahel and Ethiopia in 1972-4, the widespread African drought of 1984-5, and the current (1988) food problems in Ethiopia. Because per capita consumption levels are often low under 'normal' conditions, there is little margin for absorbing shortfalls in supply without human disaster. Food supplies generally fluctuate widely, following food production patterns. Because most food is produced by subsistence cultivators for home use, rural consumption is closely tied to production. Countries also often lack the physical and financial resources to use food stocks or imports to fully offset production variability.

Available food supplies are unevenly distributed, increasing the 'nutritional vulnerability' of affected groups. Food consumption patterns reflect skewed income distribution, differing geographical patterns of food production and consumption, seasonal variations in food availability and family eating habits. In countries where average nutritional intakes are significantly below minimal dietary recommendations, the impact of even a small production shortfall can turn out to be extremely severe for certain groups of people. 13

While natural conditions are an important reason for the slow growth of food production in the region, inappropriate domestic agricultural policies and inefficient administrative systems reduced production and increased the need for food imports. Governments have intervened heavily in agriculture, generally to raise revenue (by


taxing agricultural exports) and to support urban-oriented consumption programmes. 14 In an attempt to procure low-cost food for urban areas, governments have kept official prices for producers low, and attempted to manage the marketing of agricultural commodities through quasi-governmental bodies in the form of parastatals or marketing boards. Subsidised inputs were provided as a means of partially offsetting the negative effect of these policies on farmers (see Table 3.2). While the form and extent of government intervention in food markets varied by crops and by country, government intervention has exerted a profound impact on production investment decisions and on the welfare of producers and consumers in the region.

Low official prices for agricultural commodities have two major effects on agricultural production. First, they act as disincentives to production of, and investment in, agricultural commodities. Second,

Table 3.2 Distribution of agricultural inputs

Farm Fertiliser Seed Chemical equipment

Country supply supply supply supply 1 2 3 1 2 3 1 2 3 1 2

Ethiopia X X X X Kenya X X X X Lesotho X X X X Mali* X X X Mozambique NA NA NA NA Niger X X X X Senegal X X X X Somalia X X X X Sudan X X X Zambia X X X Zimbabwe X X X X

Notes 1 Private. 2 Government. 3 Mixed. NA Not available. * Supplies come from the Operations de Developpement Rural (ODR). The most effective of these is the CMDT, which is quasi-governmental. Source: United States Department of Agriculture, Economic Research Service, Developing Economies Branch country analysts and various reports.

3

X

X X


they act as disincentives to increasing marketed production, and have diverted supplies from official marketing channels to unofficial or informal markets. The inability to procure adequate food from domestic markets under such policy regimes has plagued many African governments, leading to larger import requirements, growing budget deficits and reduced food security.

The marketing behaviour of traditional producers is complicated because they consume and/or market most of their crops through informal, unofficial channels. The difference between prices in the informal market and the government-set prices in the formal market will usually determine the size of the officially marketed surplus. When supplies are plentiful, informal prices generally drop, leading farmers to increase their sales in official markets. Frequently this surge of selling exceeds storage capacity and increases government costs. A typical response to such local surpluses is to reduce the official producer price of the commodity currently in surplus, while attempting to dispose of excess stocks. On the other hand, a poor harvest will typically raise the price in the informal market, leading farmers to sell there. Reduced official supplies put pressure on official delivery systems and emergency food distribution efforts, creating pressures for increased imports. In many cases, however, countries lack the ability to purchase the required quantities commercially; food aid offsets some of the variability, but generally not enough to prevent significant declines in consumption. 15

Food pricing policies and marketing patterns also affect the financial solvency of parastatal marketing boards. In theory, the difference between official producer prices and consumer prices, minus transportation, storage and administration costs, constitutes parastatal revenue. If the country is exporting or importing crops, the differences between border prices and domestic prices could add to or reduce their revenues. In practice, the handling of the budget follows the pattern of governments in other fields. When the cost exceeds the revenue, costs are recovered through the government budget. Uncertainty over procurement quantities means high, unanticipated storage costs in years when the harvest is plentiful. In years when the unofficial price is more favourable to farmers, it means higher per unit handling and storage costs. In addition, subsidised consumer and input prices, too low to cover marketing and delivery costs, have made parastatal cost overruns chronic.

Parastatals' financial problems also affect agricultural production and investment. A common way of handling financial pressure is to


delay payments to farmers. When this occurs, it reduces real producer prices, especially when inflation is high. Delayed payments also affect future investments, since farmers lack capital to purchase seeds and inputs needed.

Where the major part of urban demand is satisfied through official market channels, consumer food prices are subsidised in varying degree. The subsidy costs are absorbed through parastatallosses and government budget deficits. However the subsidisation of consumer prices by governments has, in general, only limited benefit for consumers. In fact those who have access to subsidised grain provided by the marketing board are able to sell it in the open market, especially in years when the differential between government and free market prices is significant. Therefore the uniform government subsidy programme, rather than subsidising poorer consumers, generates unearned income for those who are the fortunate recipients of food.

The net effect of inappropriate policies, in the context of serious production constraints, has been to increase sub-Saharan Africa's dependence on food imports, at a time when its capacity to finance these imports deteriorated. Widespread famine underscored the seriousness of the situation, while demonstrating the limits of even large food aid shipments in preventing hunger and starvation.

Population growth and past production performance leave little basis for optimism that per capita production of basic staples will improve. Food production forecasts- assuming current production trends and normal weather - show increasing import dependency, to about 40 million tons by the year 2000, a fourfold increase from the 1980-5 average. 16 Whether countries will be able to earn sufficient foreign exchange to import such large quantities of food, and whether they will have the physical capacity for handling and distributing such large amounts are unanswered questions. If the average variability in food production is taken into account, along with historical food production growth rates, the picture becomes even gloomier. In countries such as Gambia, Sudan, Lesotho, Mozambique, South Africa, Senegal and Zimbabwe, average production variation from trend was more than 20 per cent, implying very significant increases in import requirements during weather-induced production shortfalls.

The increasingly severe conditions, and bleak prospects for the future, have led to significant attempts at policy reforms designed to correct medium-term balance of payments problems and stem economic decline.


III POLICY CHANGES IN THE 1980s

By early 1980, countries in sub-Saharan Africa began to change both macroeconomic and agricultural policies. Many of these policy reforms were stimulated by the need to obtain additional external financing, which generally stipulated policy reform as a condition for continued international lending. Macroeconomic policy changes were generally stimulated by lending agreements with the IMF, while sector-specific policy reforms were frequently addressed through World Bank structural adjustment lending. IMF lending was originally designed to provide assistance to countries facing short-term trade and payment imbalances. By and large, developing countries are faced with chronic balance of payments problems. Since the mid-1970s, the IMF has undertaken lending to cope with mediumterm imbalances, such as those which emerged in the wake of rapid oil price increases or the more recent debt crisis. Its medium-term lending, however, is generally conditional on adopting policies to adjust to changed economic conditions, and so to eliminate chronic balance of trade or payments deficits. Because such adjustment generally requires changes in major productive sectors of the economy, the World Bank, in 1980, instituted structural adjustment lending to support programmes of policy and institutional change which were needed to change the structure of the economy to maintain both its growth rate and a viable balance of payments. IMF conditionality generally focusses on changes in exchange rates, interest rates and government spending, while structural adjustment agreements related to agriculture have emphasised changes in producer, consumer and input prices and government parastatals. Bilateral donors, such as the United States, frequently urge similar reforms. 17

At the end of 1987, about 30 of the 45 sub-Saharan countries had undertaken adjustment programmes. Although only a limited number of countries have more than a few years' experience in implementing such programmes, it is possible to characterise major agricultural reforms and draw some tentative conclusions about their operation. 18

Producer prices Nominal producer prices for food crops have risen substantially in most sub-Saharan countries, reflecting the role that they are expected to play in increasing production (Table 3.3). Cereal production in sub-Saharan Africa increased by 9 per cent between 1978-81 and 1983-6. How much the credit should go to the


Table 3.3 Selected official producer prices, 1980--6

1980 1981 1982 1983 1984 1985 1986

local currency/ton* Ivory Coast (Central African francs)

Rice 50 000 60000 60 000 60 000 80 000 80 000 80 000 Corn 40 000 40 000 40 000 40 000 40 000

Senegal (Central African francs) Rice 41500 51 500 51 500 60 000 66000 85 000 85 000

Kenya (Kenyan shillings) Corn 1000 1 055 1444 1 600 1 733 1944 2 089 Wheat 1436 1 667 1 777 2 167 2 690 2 933 3 178

Zambia (Kwacha) Corn 130 150 178 203 272 315 500

Zambabwe (Zimbabwean dollars) Corn 85 120 120 120 140 180 180 Wheat 135 165 190 220 250 285 300

Nigeria (Naira) Corn 200 210 210 210 360 450 520 Millet 220 231 231 231 360 500 575 Rice 329 340 400 400 500 700 1000

Tanzania (Tanzanian shillings) Corn 1000 1 500 1 750 2200 4 000 5200 5 800

dollars/ton*

Ivory Coast Rice 235 221 183 158 183 178 231 Corn 152 105 92 89 116

Senegal Rice 196 190 157 158 151 189 246

Kenya Corn 135 117 132 120 120 118 129 Wheat 194 185 162 163 186 178 198

Zambia Corn 165 173 192 163 152 116 65

Zimbabwe Corn 132 174 159 119 113 112 108 Wheat 210 239 252 221 202 178 180

Nigeria Corn 366 342 312 290 468 562 385 Millet 403 376 343 319 468 562 426 Rice 602 554 594 553 650 787 741

Tanzania Corn 122 181 189 197 262 298 177

* Converted at official exchange rates.

Source: United States Department of Agriculture, Economic Research Service, Developing Economies Branch


price incentives and how much to the good weather in 1985-6 is not known for sure. The short-run impact of changes in official producer prices varies significantly among countries and crops, depending on how and by whom they are produced. Official producer prices are of varying importance in African countries, depending on the proportion of food crops that is marketed through official agencies. Official prices are more important in East and Southern Africa, particularly in Kenya, Zimbabwe and Zambia, where more than 30 per cent of cereal output is marketed through official channels.

According to the available studies the producer supply response in Africa is positive. The USDA study of selected sub-Saharan countries showed that, with few exceptions, the production response to the real producer price increases are positive. 19 Long-run price elasticities are larger than short-run elasticities by a sizeable magnitude, suggesting that there exists a considerable potential in the long run for increasing production if real prices are increased. Crops produced mainly for home consumption (for example, millet and sorghum) have lower price elasticities than crops with some commercial marketing (such as wheat, rice and corn) in the same country.

Finally, it should be noted that, while a strong positive price response by producers of cereals is a good thing if it leads to increased food production, localised labour shortages may mean that increased cereal production will occur at the expense of production of other crops, in the absence of technological change. If cereals acreage expands at the expense of non-food cash crops, this may reduce the export earnings. If, however, it expands at the expense of other, less profitable food crops the positive nutritional effects could be substantial.

Inputs Eliminating agricultural input subsidies is seen as a crucial step to more efficient resource allocation. A few countries cut subsidy rates significantly on strictly agricultural inputs such as fertiliser, pesticides, tractor hire and research. In some instances the effects of reduced input subsidies may be offset by other policy distortions, such as an exchange rate which remains overvalued, resulting in a substantial effective subsidy, as has apparently occurred in Nigeria.

Countries that reduced subsidies on fertiliser show reductions in use by farmers, as well as impacts on domestic fertiliser production. In Ivory Coast, the reduction in government fertiliser subsidies caused sales of locally produced fertiliser to fall almost 20 per cent in 1986. The elimination of fertiliser subsidies is expected to reduce fertiliser use further, unless increases in producer prices are enough to cover the additional production costs. In fertiliser import-


dependent countries such as Zambia, lack of foreign exchange, devaluation of the local currency, and reduction in subsidy means a substantial increase in costs and fall in use. Declines in fertiliser use are expected to have limited impacts on food production performance because fertiliser is not heavily applied to food crops, especially in subsistence farming.

Marketing Reduction in parastatal marketing activities is a central policy within the policy reforms. Parastatals have long been criticised for their inefficiency. However the extent of policy reform varied by country. Since 1985 eight countries (Congo, GuineaBissau, Malawi, Niger, Nigeria, Sierra Leone, Somalia and Zambia) have terminated the state monopolies for marketing of selected agricultural goods.

In countries with grain marketing boards, the harvest of large crops and the higher producer prices prompted farmers to shift grain sales to the government, straining the institutions' physical and financial capabilities. The costs of the producer or consumer subsidy put heavy pressure on the marketing board and increased costs to governments. The total subsidy cost of agriculture in Zimbabwe increased by 13 times during the five years 1977-82 and forced the government to increase even further consumer prices on staple food items like corn. The price of corn at the retail level increased by 50 per cent in 1983 from a constant nominal level during most of the 1970s (Z$102 to Z$152 per kg).

Countries that attempted to export surplus grain took losses because export markets were limited or the world price was too low. Both Eastern and Southern African marketing boards have experienced expensive disposal problems in 1985 and 1986. Countries with relatively small government marketing roles also experienced difficulty in handling bumper harvests. Overall, bumper harvests tend to destabilise purchasing programmes in countries that are struggling to maintain producer incentives. The lack of management policies flexible enough to deal with high variations in production continues to create uncertainties in the grain markets and future prices.

Exchange rates A typical measure to restructure African economies is to relax state control over foreign exchange, generally to correct substantial currency overvaluation. Since 1980, major currency devaluations have occurred in Equatorial Guinea, Ghana, Guinea-Bissau, Kenya, Nigeria, Mauritius, Madagascar, Sierra Leone Somalia, Sudan, Tanzania, Uganda, Zaire, Zimbabwe and Zambia. However most countries retain various controls on use of foreign


exchange. For example, Nigeria continues to determine the value of foreign exchange for debt repayment and fertiliser imports. Similarly, Zambia instituted a two-tiered system for valuing foreign exchange, and used a lower rate for debt payments and government purchases of medical and educational supplies.

One effect of devaluation is to reduce the gap between domestic and world prices and to increase the production incentives to producers of export commodities. So far the results have been ambiguous. The USDA study of the impact of devaluation on trade and economic growth in 12 sub-Saharan countries found that the net impact of a policy change, such as devaluation, could deviate from expectations because of policy environments and economic structures of countries. 2° Conflicting policies, external changes and the initial economic structure of the market could erode the impact of devaluation, leading to a substantial distortion in the economy. The study showed that during the three years after exchange rate adjustment, both exports and imports declined. The stronger rate of decline in imports, however, contributed to a substantial improvement in trade and current account deficits.

In contrast, the currency in West African countries, the Central African franc (CFA) which is tied to the French franc, began to appreciate as the dollar depreciated, leading countries such as the Ivory Coast to experience higher comparative costs of production. As the local currency costs of cereal imports fall, cheap imports undercut sales of domestic production. Because CF A countries cannot control their exchange rates, compensating fiscal and pricing policies will have to be adopted.

IV LESSONS LEARNED

Although the experience with structural adjustment has been limited, there are several tentative conclusions which may be drawn. Supply responds to price increases, but the response is frequently slow, and heavily dependent on weather. Analyses of sub-Saharan Africa's cereal production demonstrate that weather variability is the single most important factor affecting production. Weather variability is so high in the Sahel, Eastern and Southern Africa that it can overwhelm the impact of most policy instruments. Hence the development of more effective institutional strategies for handling weather variability, including methods to cope effectively with high levels of


production, is critical to sustained improvement in food production and food security.

Supply response depends on overcoming local production constraints. The ability dramatically to increase production in response to higher prices depends in part on the ability to overcome constraints (such as peak labour problems). A recent study of Kenyan smallholders found that sugar production could increase, without reducing food crop production, because the sugar company provided the labour for key operations such as planting and weeding.21 Where such constraints are not overcome, changes in relative prices result in shifts in crop production, not increases in aggregate output.

Demand management programmes successfully contract import levels. Sub-Sahara's total imports decreased in 1986 for the fifth consecutive year. 22 Historically, food imports accounted for a small part of total imports (approximately 10 per cent in the late 1960s). In 1983-6, however, the food import share rose to more than 15 per cent. Non-food imports include consumer items, energy and fuels, and capital inputs. Two decades ago, consumer goods, considered luxury items, accounted for 40 per cent of total imports. But with adjustment and austerity measures these imports currently account for 25 per cent of the total. Capital imports, at 30 per cent, now compose the largest share. This is an important transition when considering future economic development. Because there are no domestic substitutes, imports of capital inputs are essential both for continued operations and for future growth.

External constraints to export enhancement are significant. While the importance of external constraints, such as poor growth potential in key primary commodity markets, was recognised by advocates of structural adjustment, they underestimated the impact on export growth. Despite structural adjustment programmes, the trade and debt situations of many countries remain precarious. In 1986, the value of sub-Saharan Africa's exports was $40 billion, a 20 per cent drop from 1985, and 55 per cent less than the 1980 peak level. The major reason for reduced earnings is lower world prices, not reduced export volume. In dollar terms, prices for less developed country exports in 1985 were at their lowest since 1978. Weak commodity prices can be attributed to slow growth of the developed world, inelastic commodity demand, and increased competition among suppliers that has contributed to increased stocks.

Without improved export performance, the debt situation will not improve, given the already sharp decline in imports. Total debt has


been increasing relative to the size of the region's economies (in 1986 to about 50 per cent of GDP). 23

Resource constraints remain critical. While structural adjustment programmes frequently provided an immediate inflow of resources to 'prime the pump', their long-term success depends on being able to generate resources for both investment and increased imports of critical products. 24 To date, the record is disappointing, in part because exports have not expanded, and in part because adjustment programmes have not been followed by significant inflows of new investment resources.

Import levels depend directly on changes in both credit and export earnings. If recent trends continue, further import cuts can be expected. After expanding 20-fold between the late 1960s and 1983, capital flows have stagnated over the last few years. With increased debt service burdens and donor concern about the inefficiency of credit use, it is unlikely that credit flows will be restored to historical levels.

Because food import demand is relatively inelastic in sub-Saharan Africa, import reductions occur primarily in non-food imports. A recent USDA study found that reducing imported inputs has a significant impact on the level of export volume and will adversely affect the export earnings. 25 An estimation of economic growth for 25 African countries determined that export performance had a positive and significant effect on economic growth. Therefore, if recent trends continue and imports of capital inputs must be reduced, the export sector will suffer, resulting in a stagnating economy.

Performance and policies in developed economies can play a key role in the region's financial situation. Accelerated growth in industrial economies improves the terms of trade of sub-Saharan exporters. This will raise the region's import capacity. According to the IMF, a 1 per cent increase in the real GNP in industrial countries will increase the purchasing power of exports by non-oil developing countries by 3.4 per cent. 26 Accelerated economic growth in the industrialised countries would have the greatest impact on the export volumes of exporters of manufactures and the largest impact on the terms of trade of primary exporters.

Protectionist policies will also have an adverse affect on LDC exports by lowering demand for the goods and thus lowering prices. According to a recent IMF study, trade liberalisation in industrialised countries could result in 5 to 10 per cent real growth in exports of developing countries. 27


Long-term improvements depend on environmentally sound technological improvements. Productivity increases are necessary to make significant long-term improvements in sub-Saharan Africa's food situation. However, given physical production constraints, and growing problems with soil erosion, deforestation and desertification, productivity-increasing technologies need to be environmentally sustainable.

Without substantial gains in productivity through improved practices and increased investments, the output of basic foods in the region is not expected to change significantly. Growth will be expansive rather than intensive, as it has been historically, and will be increasingly constrained by population growth in a third of subSaharan African countries where current land constraints significantly impede extensive production growth (examples include Botswana, Rwanda, Burundi, Ethiopia, Kenya, Lesotho, Malawi, Mauritania, Niger, Nigeria, Senegal, Somalia and Uganda). All, with the exception of Somalia, Rwanda and Nigeria, have shown less than 2 per cent production growth in the last two decades. 28

V CONCLUSIONS

Sub-Saharan Africa has begun an economic and agricultural adjustment programme which aims at correcting some of the policy distortions which contributed to the continent's significant agricultural decline. However the policy instruments changed by structural adjustments cannot be expected, in isolation, to reverse agricultural stagnation or to trigger renewed economic growth. The future of economic growth, as well as growth of the agricultural sector, depends on key external factors such as growth of export market, terms of trade, foreign financial flows and access to industrial markets.

Demand for the region's primary exports is not expected to expand in the near future. The World Bank commodity projections indicate that non-oil commodity prices are not expected to increase significantly over the next decade. 29 Generally weak commodity markets frustrate both programmes to restore viable trade balances by increasing export crop production and attempts to expand the range of primary commodities exported. Countries attempting to diversify their exports may inadvertently contribute to softening commodity markets if they seek to move into commodities already in oversupply. For example, Zambia's attempt to reduce its dependence on


copper by exporting coffee and sugar would add supplies to an already saturated world market. Similarly Gabon, Cameroon and Congo are investing in exports of palm oil and rubber, both commodities in plentiful supply in the world market.

With increased debt service burdens and lenders' reluctance to increase their international exposure, it is unlikely that credit flow will return to historical levels. Yet changes in sectoral price and marketing policies will require investment to keep them viable. A realistic pricing policy is only one element essential to a comprehensive programme to raise productivity. While some countries could increase their agricultural output by bringing more land into production, many more require increased output which can come only with improved technology. Additional investment is required to ensure agricultural growth.

The interdependence of domestic and global food markets will also play a crucial role in future development. Falling world food grain prices and subsidised exports by major exporting countries make it very difficult for the African countries economically to support substantial increases in investment in agricultural production, higher producer prices and provision of unsubsidised inputs. These external factors could easily interrupt implementation of incentive policies even in countries with strong commitments to reform.

Policy reforms are now at a critical juncture. The main question is whether the positive impact of these policies can begin to offer better living standard before mounting frustrations and economic difficulties lead to disillusion, retrenchment and political violence. Zambian riots in 1987 were triggered by reductions in consumer subsidies and stagnant wage levels. Zaire's initially successful reforms in 1985 faced severe setbacks because of depressed commodity prices and a slow flow of aid. The fear of political unrest led the government to relax wage restraints and limit debt repayments. Other measures discussed included lowering interest rates to stimulate consumption and suspending floating exchange rates. Reports indicate that in Senegal, even with timely external assistance to policy reforms, the political opposition is growing. A recent United Nations report, Financing Africa's Recovery, found development programmes in sub-Saharan countries to be in retreat. 30 Social services and educational facilities are exhausted. The policy reforms which lead to redistribution of income and employment in some cases showed temporary output reductions. These transitional costs are expected to have painful short-term political effects. The report suggests that, if African


countries are to succeed in their policy reforms, they need more financial assistance than they are currently receiving. African governments are aware of their role in their own recoveries, but, in the course of policy adjustments, external flows of resources are needed to play a key role in the short run and to restore economic growth in the long run.

Notes 1. Huddleston, Barbara, Closing the Cereals Gap with Trade and Food Aid

(Washington DC: International Food Policy Research Institute) January 1984.

2. United States Department of Agriculture, Foreign Agricultural Service, 'Grains', Foreign Agricultural Circular, various issues.

3. For a good discussion of these changes see 'Effects of Changes in the Domestic and International Environment on U.S. Agriculture', in United States Department of Agriculture, Economic Research Service, Embargos, Surplus Disposal and U.S. Agriculture, Staff Report AGES860910 (Washington DC: United States Department of Agriculture) November 1986, pp. 5.1-5.27.

4. United States Department of Agriculture, Economic Research Service, World Agriculture, various issues.

5. Op. cit. 6. For a discussion of changes in land values, and the 1988 upturn, see

United States Department of Agriculture, Economic Research Service, Agricultural Resources, April 1988.

7. United States Department of Agriculture, 1988 Agricultural Chartbook (Washington DC: United States Department of Agriculture) April1988.

8. Estimates of producer and consumer agricultural subsidies are provided in United States Department of Agriculture, Economic Research Service, Government Intervention in Agriculture: Measurement, Evaluation and Implications for Trade Negotiations (Washington DC: United States Department of Agriculture) April 1987.

9. Ibid. 10. For a discussion of the provisions of the 1985 farm bill, see Lewrene

Glaser, Provisions of the Food Security Act of 1985 AlB, 498 (Washington DC: United States Department of Agriculture) 1986.

11. For a discussion of the factors underlying Africa's food situation, see Cheryl Christensen et al., Food Problems and Prospects in Sub-Saharan Africa (Washington DC: United States Department of Agriculture) 1981.

12. Shahla Shapouri, A.J. Dommen and Stacy Rosen, Food Aid and the African Food Crisis, FAER, 221 (Washington DC: United States Department of Agriculture) 1986.

13. Ibid. 14. For the classic statement of these policy biases, see Robert Bates,

Markets and States in Tropical Africa: the Political Basis of Agricultural

Cheryl Christensen and Shahla Shapouri 63

Policies (Los Angeles: University of California Press), 1981. 15. Shapouri et al., Food Aid. 16. Huddleston, Closing the Cereals Gap. 17. For a general discussion of IMF lending, see John Williamson (ed.), IMF

Conditionality (Washington DC: Institute for International Economics, distributed by MIT Press) 1983. For a discussion specifically on subSaharan Africa, see Gerald Hell~iner (ed.), Africa and the International Monetary Fund (Washington DC: International Monetary Fund) 1986.

18. For a more extensive discussion of policy reforms, see United States Department of Agriculture, Economic Research Service, Sub-Saharan Africa Situation and Outlook Report, RS-86-9 (Washington DC: United States Department of Agriculture) July 1986.

19. Shapouri et al., Food Aid. 20. Shahla Shapouri and Stacy Rosen, Effect of Fiscal Austerity on African

Food Imports, FAER 230 (Washington DC: United States Department of Agriculture) May 1987.

21. Kennedy, Eileen and Bruce Co gill, Income and Nutritional Effects of the Commercialization of Agriculture in Southeastern Kenya, Research Report 63 (Washington DC: International Food Policy Research Institute) November 1987.

22. United States Department of Agriculture, Economic Research Service, Developing Economies Branch.

23. Ibid. 24. For the importance of external resource flows to policy implementation,

see Cheryl Christensen, 'Food Security in sub-Saharan Africa', in Ladd Hollist and LaMond Tullis (eds), Pursuing Food Security: Strategies and Obstacles in Africa, Asia, Latin America and the Middle East (Boulder: Lynne Rienner) 1987, pp. 67-99.

25. Shapouri and Rosen, Effect of Fiscal Austerity. 26. International Monetary Fund, World Economic Outlook, 1986. 27. Kermani, N., L. Molpajoni and T. Mayer, 'Effect of Increased Market

Access on Exports of Developing Countries', IMF Staff Papers, December 1984.

28. United Nations Food and Agriculture Organization, Agriculture Toward 2000 (Rome: FAO) 1983.

29. World Bank, 'Price Prospects for Major Commodity Prices' (unpublished) 1988.

30. United Nations, Financing Africa's Recovery: Report and Recommendations of the Advisory Group on Financial Flows for Africa (New York: United Nations) February 1988.

4 International Competition and Commodity Market Management: The Politics of the International Sugar Agreements! Jock A. Finlayson and Mark W. Zacher

Since the end of the Second World War one of the major items on the agenda of North-South negotiations has been the regulation of international commodity markets so as to assure greater or at least more stable remuneration for less developed country (LDC) producers. The debate over the issue was first enjoined in the conferences to prepare a charter for the International Trade Organization (the Havana Charter), and it has continued until this day although it was certainly most intensive during the mid- and late 1970s.2 Deliberations focussed on both general principles and concrete schemes for individual commodities, and on the whole developing producers tended to fare rather better in the discussions of specific primary products. The developed states have seldom been willing to make important compromises on general principles, but at times they have been willing to move significantly towards third world producers' demands on individual commodities, in order to realise certain political interests.

Of all the commodities for which price-regulating international commodity agreements (ICAs) have been considered over the past four decades, none has a more interesting history than sugar. Also, none offers so many insights into the many factors both promoting and undermining the creation of ICAs. Sugar was the first primary

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Jock A. Finlayson and Mark W. Zacher 65

product exported largely by developing countries for which an ICA was created in the postwar era. (An agreement for wheat, largely exported by developed countries, was created in 1949 but had collapsed by the late 1960s.) Of the more than twenty commodities in this category that were subsequently discussed, ICAs were only created for four others - tin, coffee, cocoa and natural rubber. The International Sugar Agreement (ISA) did, however, have a more checkered history than the other four, in that following its signing in 1953 and entry into force the following year, it collapsed in 1961, was revived in 1968, collapsed in 1973, was again brought back to life in 1977, and finally disappeared from the scene in 1984. The reasons for states supporting and opposing the accord include a host of economic and political security considerations, and the competing groupings were more varied than in any other ICA negotiation. Not only was there the traditional division between developing producers and developed consumers, but there were divisions between low-cost and high-cost LDC producers, developing countries with and without preferential access to different developed-country markets, developing exporters and importers, developed-country producers and consumers, and different industrialised countries with varied political concerns in the third world. The sugar deliberations over time were a microcosm of the more general area of international commodity trade politics. In no other set of commodity negotiations can one see the range of divisions that one can see in international sugar politics. It is also notable that the price of sugar has been the most volatile of all commodity prices and this highlights developing country discontent with the instability in many primary product markets.

The purposes of this chapter are to trace the political development of the International Sugar Agreements, and to analyse the ways in which various divisions or competitive relationships affected states' policies and hence the fate of the commodity accord. What emerges is not a simple picture of a united third world arrayed against an integrated bloc of developed countries. The world of commodity, and particularly sugar, politics is much more complicated than that. It is a much more complex world that emerges, particularly in recent years. In fact the present situation in sugar may well be a better representation of the world that is emerging than are most other commodity markets where there are more strict delineations of roles and less complex trading arrangements.

Prior to the analyses of different negotiation stages (including a

66 The International Sugar Agreements

short section on the pre-Second World War era), there is a discussion of the international sugar market. The concluding section focusses on the patterns of policies and outcomes and the factors affecting them.

THE INTERNATIONAL SUGAR MARKET

Sugar is produced from two plants, sugar cane and sugar beet. The former is grown in tropical climates, and the latter in temperate climates. Most countries in the world produce either cane or beet, and in fact only about a quarter of world production is traded. And of this latter volume only about a half is traded on what is known as the 'free market'. The rest is conducted in conformity with preferential arrangements whereby developed importing countries agree to import particular volumes of sugar at certain prices. The United States has such arrangements with about three dozen sugar producing countries; Soviet bloc states have them with Cuba; and even the European Community (EC), which is one of the world's largest exporters, gives preferences to a large number of African, Caribbean and Pacific (ACP) countries under the Lome Convention.3

The developing countries have always accounted for a high percentage of global exports, although this declined from around 75 to 65 per cent from the mid-1950s to the early 1980s. About two-thirds of this share has been accounted for by Latin American producers, with Cuba being by far the most important. In fact Cuba has always been the largest exporter in the world, with its share dropping from close to 40 per cent in the 1950s to about 25 per cent in the 1980s. Other quite important producing states are Brazil, Thailand and the Philippines, with shares in the 4 to 9 per cent range. There are, however, many small third world producers for whom sugar accounts for quite high percentages of their export earnings.4 The two key developed country exporters have been Australia (from around 5 to 8 per cent) and the European Community (from less than 10 to over 20 per cent). There have also been some marked changes on the import side of the world market. The share of the developing countries has gone from around 25 per cent to over 40 per cent. The share of the Soviet bloc has also gone up from less than 10 per cent to over 25 per cent as a result of imports from Cuba. Some of this is actually re-exported to non-communist states at prices lower than those paid for it from Cuba.5

The price of sugar has been the most volatile of all commodities,


fluctuating on average over 40 per cent annually in constant dollars from the 1950s to the early 1980s.6 A number of factors help to explain this chronic instability. First, because only around 12 per cent of world production is traded on the free market, small changes in national production and protectionist policies can have tremendous effects on the free market price. Also there is a delay of about three years between the time when cane sugar producers expand their plantings and the maturation of the plants, and by this time the demand trend may have changed. Sometimes bad weather can have a very marked effect on production and hence world prices, especially when it occurs in a major production area. Finally, movement towards greater self-sufficiency in important importing areas can have a drastic impact on the free market price. This latter factor has certainly been a major influence in the last two decades. 7

MARKET REGULATION BETWEEN 1919 AND 1953

During the 1920s plentiful global supplies depressed sugar prices and prompted unilateral Cuban efforts to restrict production after 1926. This had an appreciable effect in maintaining the world price above what otherwise would have prevailed, but the onset of the Great Depression soon sent prices tumbling. 8 Cuba convinced several other producers to support a regulatory scheme (the Chadbourne Plan) designed to liquidate accumulated stocks and support prices. But this plan failed to stem the price decline, even though the participating countries almost halved their production between 1930 and 1933, because only 25 per cent of world production was covered by the arrangement. 9

In May 1937, the first producer-consumer International Sugar Agreement (ISA) was concluded by the major importing and exporting governments, including the United States and Britain, for themselves and on behalf of their overseas territories. Exporters were assigned quotas for the free market, and agreed to reduce their stocks to 25 per cent of their quotas. The Americans and British, concerned about the political implications of economic dislocation in some of the producing areas, were persuaded to satisfy stated portions of their consumption needs by buying from exporting members. 10 Although no price range was specified, a 'reasonable price' objective was sought, defined vaguely as one 'not to exceed the cost of production, including a reasonable profit, of efficient producers' .11 It is


difficult to assess the success of this first ISA, since the anticipation of war pushed prices up after mid-1938, and the beginning of the Second World War then brought the agreement to an end. 12

Sugar was in short supply when the war ended, and world production did not attain its 1939 level until 1948. Removal of wartime controls caused prices to rise to over five US cents per pound in 1947, three times the average 1934-8 free market price. This upward spiral precipitated the inevitable expansion of production, and the world price predictably declined, only to be rescued once again by a new war, this one in Korea. Although consumption was growing impressively, the increased production caused by the Korean War boom soon reversed the buoyant price trend, and by 1953 exporters were complaining about a world price of scarcely more than three cents, with the prospect of even further declines. 13 Given this context, it is not surprising that sugar exporters were convinced of the need to negotiate a new international agreement.

THE 1953 INTERNATIONAL SUGAR AGREEMENT

With the backing of most participants in the sugar trade, a Sugar Conference was convened in London in October 1953 and soon produced a new International Sugar Agreement. 14 The agreement had three major economic mechanisms to support its basic objective - price stabilisation. Most important were the provisions relating to the allocation and adjustment of export quotas. Exporting members were given 'basic export tonnages' or percentages of projected sales on the free market (Table 4.4). Their actual quotas, as set by the Sugar Council, would mirror their basic export tonnages when the market price was in the upper part of the range (3.25-4.25 cents). But if prices fell national quotas could be reduced by the Sugar Council to 80 per cent of basic export tonnages (90 per cent in the case of the smallest producers). When the price exceeded the ceiling, quotas were to be lifted. 15 Cuba's primacy among the exporting signatories was evidenced by its huge basic export tonnage of 50.7 per cent. This entitlement actually comprised only about half of Cuba's total sugar exports for 1954, the remainder being sold to the United States, all of whose imports were purchased through preferential arrangements with a host of producers. 16

A second key element of the 1953 agreement related to the accumulation and disposal of stocks, with producers prohibited by


article 17 from stocking more than 20 per cent of their production. This provision was included to prevent the accumulation of huge stocks of sugar that would then 'overhang' the market and depress prices. Exporting signatories were also required to maintain minimum stocks of not less than 10 per cent of their basic export tonnages so that sudden increases in free market demand could be met without thrusting the price above the ceiling (article 13). The third pertinent economic provision of the 1953 ISA was an obligation on the part of importing signatories not to purchase from non-member exporters as a group during any quota year more sugar than they had imported from such countries during one of three previous years: 1951, 1952 or 1953 (article 7). The obvious intention of this rule was to prevent non-member exporters from benefiting from the quota limitations accepted by ISA exporters. 17

The Sugar Council set up to administer the agreement was divided into groups of exporters and importers for purposes of decision making, each possessing an equal number of votes (1000) as stipulated in the Havana Charter. Routine council decisions required a majority of the votes cast by each group (That is, a distributed majority). On more important matters (such as the determination of quota adjustments) a 'special vote' was required, defined as a twothirds distributed majority (article 36). A system of weighted voting, based largely on countries' importance in the global sugar trade, was adopted. The United States and the United Kingdom accounted for almost half of the importers' votes, while Cuba had slightly less than a quarter of those granted to exporters (articles 33 and 34).

The question of why the exporting and importing states were able to put aside their inevitable intra- and intergroup differences and reach the necessary degree of consensus must be addressed. The wrangling among exporters that attends every effort to negotiate a commodity control arrangement was not absent in the case of sugar. 18

But the traditional battle for export quotas and market shares was muted by two salient facts. The first was Cuba's unquestioned dominance. As the world's largest sugar producer since the First World War, Cuba dwarfed all other exporters. In addition, its quota agreement with the United States allowed it to sell over half its exports in the American market at a price 50--100 per cent above the prevailing world price. It thus enjoyed considerable influence in bargaining over quota distributions. As one long-time participant in sugar negotiations commented: 'In reality, Cuba's predominance was greater than these figures reveal; for its 1952 production showed that it could


make or break the world market - and break it at relatively less cost to itself than to others. '19 Also helping to prevent more severe conflicts was the absence or limited involvement of several other major traders. The Philippines, for example, an exporter of almost one million tons annually during the mid-1950s, depended on the US market - where it enjoyed a preferential arrangement - for virtually all its exports, and thus was not inclined to quibble over its tiny share of the free market. 20 Similarly, Australia, South Africa and Mauritius were not vitally concerned with the ISA deliberations, since most of their exports were covered by the Commonwealth Sugar Agreement (CSA), under which they normally enjoyed higher prices than were obtainable in the world market. (The first two did become ISA members, however.)21 Had these various sugar exporting countries been more dependent on the free market, it is probable that the determination of export quotas in 1953 would have been a measurably less gentlemanly affair.

During the bargaining the developed-country importers from the free market (the most important being JJritain, West Germany, Japan and Canada) hoped to obtain a moderately low price range, but like the United States, they also wanted a stable market that would provide reasonable profits to efficient producers. The two dominant players among the industrialised nations were Britain and the United States. The former was concerned about the well-being of Commonwealth exporters (many of which also sold sugar on the free market) and had officials from these areas on its delegation. For its part, the United States, anxious to assist Cuba and several other Latin America sugar producers, decided for largely political reasons to support the agreement - it was a major force at the conference, influencing its Western allies as well as the Latin American producers. However the developed states would not let the ISA become a vehicle to transfer large sums to the producing countries.22 In their desire to keep the price range at a relatively low level, the importing states had a useful ally in Cuba, which had comparatively low production costs and hoped that moderate prices would discourage other exporters from expanding their output.23

In 1954, the ISA's first year of operation, the agreement won fairly broad international backing, with its members accounting for 84 per cent of exports to, and 54 per cent of imports from, the free market. 24

The council was able to achieve reasonable success in stabilising prices in 1954-5. In May 1956 a conference was held in Geneva to review the ISA. Cuba launched a major campaign to forestall the


anticipated efforts of other exporters to reduce its huge basic export tonnage. It was successful in this endeavour, retaining over 50 per cent of the total free market.25 It was also agreed in 1956 that the price range would be lowered temporarily to 3.15-4 cents per pound, a move that apparently satisfied consuming countries sufficiently to keep them on board. But events conspired to threaten the support of the consuming nations for the sugar scheme as the Suez crisis in late 1956led to increased transportation costs and stockpiling in response to the political insecurity. And this sent prices soaring above the ceiling (reaching a peak at 6.8 cents in April 1957), where they remained throughout 1957, in spite of the council's decision in January of that year to suspend all quotas and to permit purchases from non-members.26 An increase in production in response to this trend, combined with the cessation of consumer stockpiling undertaken during the recent political disturbances, resulted in falling prices in 1958. The 1957 events were thus shown to be but a temporary consequence of unforeseeable political tensions.

Overall the 1953 ISA must be judged a success in that free market prices stayed in the range for 56 out of 60 months. This stability was significantly attributable to Cuba's policy of maintaining several million tons of stocks and releasing them judiciously to prevent sharp price fluctuations. In a sense, Cuba 'acted as the world's buffer stock' .27 As one analyst has noted, Cuba's stabilisation strategy in the 1950s 'was in Cuba's long-term interest, and it was fortunate that the interests of the largest producer benefited the entire world sugar economy'. 28


The ISA was up for renewal in the autumn of 1958, and the key changes made to the agreement concerned the accession of Brazil and Peru, the major free market exporters outside the first accord. Some 95 per cent of free market exports were now covered. With Brazil and Peru each obtaining basic tonnages of around 9 per cent, Cuba's share had to drop, which it did from over 50 per cent to 38.7 per cent.29 On the importers' side, broad foreign policy and political objectives remained central to the continued support of Britain and the United States for the agreement.30 Japan was the importing member least happy with the first ISA, and in 1958 it sought to force exporters to hold larger stocks in the light of the inadequacy of such


stocks during the turmoil of 1957. In response to this complaint, the 1958 sugar agreement raised from 10 to 12.5 per cent of basic export tonnages the size of stocks exporters were required to hold. 31 Other than this fine tuning, the 1958 ISA was essentially indistinguishable from its 1953 predecessor. 32

The following year, 1959, witnessed a sharp increase in world production. The council's slashing of export quotas to their permissible minimum levels failed to stem a decline that had pushed the free market price down to 2.5 cents by July. The average price for the year as a whole was considerably below the ISA floor. In 1960 a development occurred that was to have an enormous long-term impact on the ISA. The United States decided to cut and then to abolish Cuba's quota in the US market because it opposed the foreign and domestic policies of the new Castro government. At the time, Cuba supplied over 30 per cent of total US consumption. 33

Fortunately for the new regime, however, Soviet-bloc countries and the People's Republic of China soon began massive purchases of Cuban sugar that, over the period 1961-5, absorbed almost 70 per cent of Cuba's sugar exports. Moreover these communist countries were prepared, as the United States had been earlier, to offer Cuba a price considerably in excess of that prevailing on the free market.34

The United States began programmes designed to increase the output of its domestic sugar industry and proceeded to redistribute the Cuban quota to other, chiefly Latin American, countries. It pursued this latter policy partly too because support for 'friendly' countries in the Western hemisphere was a central element in Washington's anti-communist foreign policy towards the region. 35

Although these developments created 'a drastic discontinuity in the market structure' governing international sugar trade, the pattern of low sugar prices established after 1957 continued unchanged for a time because of good crops in most of the producing countries.36 In the autumn of 1961 it was once again necessary to renegotiate the ISA export quotas. Cuba adopted a hard line, insisting that it be given about a third of the free market, despite its sales contracts with the communist bloc. Other producers predictably refused to accept Cuba's demands. Without anything vaguely resembling a consensus on export quotas, the economic provisions of the ISA were abandoned on 31 December 1961.37



The breakdown of the sugar agreement in 1961 was followed by a period of unusually high sugar prices, beginning in late 1962. Poor harvests in 1961-2 particularly in Cuba, where the withdrawal of American capital and technical personnel and agrarian reform combined to slash production by almost 40 per cent between 1961 and 1963- pushed average free market prices to more than 8 cents US per pound in 1963, and they remained at almost 6 cents over the subsequent years. These heady price levels encouraged expanded production in many countries. In addition, Latin American and Caribbean producers moved to increase their crops to take advantage of Washington's reallocation of the massive Cuban share of the American market. 38 A 25 per cent increase in world sugar production was recorded over the years 1963-5, and the free market price fell precipitously in 1965, averaging scarcely 2 cents for the year. Other important reasons for the low price in the mid- and late 1960s were the Soviet-bloc states' re-exports of Cuban sugar to the free market, and the increasing self-sufficiency in sugar of the developed market economies. 39

It was in this environment that an International Sugar Conference met in Geneva in September in 1965. Developing exporter countries brought with them some of the ideas and objectives that had characterised the first session of the United Nations Conference on Trade and Development (UNCTAD) one year before, and indeed the conference itself was the first commodity negotiation sponsored by the new body. Serious divisions soon appeared among the third world producers on the allocation of export quotas. 40 But conflict among exporters was by no means the only, nor even the primary, reason for the failure of the negotiations. The very low prices then characterising the world sugar market induced consuming countries to demand similarly low prices under any revised ISA, with the figure of 2.5 cents per pound suggested as a floor. Cuba, still the biggest producer and exporter of sugar, refused to sign any agreement with such a low price floor. Cuba's bargaining position was considerably strengthened by the agreements it had negotiated with the Soviet Union and China, in 1963 and early 1965, respectively, under which these countries paid roughly 6 cents per pound for over two-thirds of Cuban sugar exports. 41 Cuba could thus afford to ride out the depressed world market in hopes of more buoyant conditions.


Failure to negotiate a new sugar accord rebounded to the detriment of exporters during the next several years as the world sugar price declined to very low historical levels. Over 1966-8 the average world price was 1.8 cents per pound, less than production costs in most countries.42 In March 1966 the major exporters met in Geneva in an effort to improve market prospects. Most accepted an undertaking not to sell sugar at less than 2.5 cents per pound, well above the world price, but supplies were so plentiful that some members sold below the agreed price. The group soon decided to terminate the plan. Cuba's refusal to adhere to the 2.5 cent minimum was the main reason for its failure. 43

In July 1967 the Secretary General of UNCTAD, Dr Raul Prebisch, visited Havana, Washington, Brussels (for the EC) and Moscow to sound out the key actors on the possibility of negotiating a new sugar agreement. He soon obtained their support for another world conference. From the perspective of third world producers, the 'prolonged price depression had badly hurt many sugar producers, making them much more appreciative of the need for a new agreement'. 44 Thus another International Sugar Conference was convened under UNCTAD's auspices in April 1968. As in earlier conferences, imports of sugar by the United States under its Sugar Act, and by Britain under the Commonwealth arrangement, were excluded from consideration, and producers' sales to these markets would thus not be charged against their ISA quotas. However participants were less willing to include all Cuba's sugar sales to Soviet-bloc countries in the category of 'special' exports to be ignored in determining ISA basic export tonnages, since a large portion of Cuba's exports to these countries was in fact resoldY At a second negotiating session in July 1968, Secretary General Prebisch succeeded in fashioning a delicate compromise on the crucial issue of Cuban re-exports. The Soviet Union agreed to limit its export to the free market to 1.1 million tons in 1969 and 1.25 million tons in 1970 and 1971, while Cuba agreed that its exports to Poland, Hungary and Czechoslovakia would count against its basic ISA quota to the extent that they exceeded 250 000 tons annually. 46

On the question of prices, exporters reportedly 'insisted' on a minimum floor price of 3.5 cents per pound, while Canada and Japan, two of the biggest free market importers, refused to sign any agreement with a floor above 3.25 cents, the minimum provided by the 1958 I SA. 47 The exporters, only too aware of the devastatingly low prices that had prevailed for over three years, reluctantly yielded


and accepted a 3.25 cents floor price. Also contributing to the success of the 1968 negotiations was the quick concurrence of participants to the introduction of differential treatment in favor of LDCs in structuring quota provisions. Developing exporters were granted quotas at least equal to their best performance during 1960-7, whereas quotas for developed countries were lower than their best performance.48 Other provisions assisting LDC exporters related to redistribution of shortfalls (article 47) and the establishment of a 'hardship' quota for small exporters (article 44). 49 Like the earlier sugar agreements, the 1968 ISA also contained measures providing for stocks, and here too differential treatment was accorded to developing exporters. All exporters were required to maintain minimum stocks on call by the Sugar Council, but for developing countries the amount was 10 per cent of basic quota, while of developed exporters the figure was 15 per cent (article 53). More important, exporters agreed, apparently in order to secure Canada's accession to the ISA, to a 'supply commitment clause' under which, once the price reached 6.5 cents per pound, they would guarantee supplies of 'specific quantities' of sugar to 'traditional' customers at this price. 50

Overall the sugar negotiations produced an agreement of considerable benefit to sugar exporters, particularly LDCs, considering the extremely depressed state of the free market at the time. A minimum price significantly higher than the market price was accepted; exporters received assurances from importing members that no sugar would be purchased from non-member exporters if sugar prices fell below the floor; and LDCs were granted more favourable treatment in the design of the rules relating to quotas and stocks. That UNCTAD's influence helped to ensure an agreement reasonably favourable to developing countries is clear. 51 However the decision of the European Community not to join the agreement as part of its Common Agricultural Policy commitment to increase production and exports posed a serious threat to the ICA's ability to regulate the free market effectively. During the negotiations the EC was offered an export quota of 300 000 tons, but this proved totally unacceptable, given the community's ambitious plans to become a huge net exporter. 52 And indeed in the years subsequent to the negotiations, the community did precisely this: between 1969 and 1974, its net exports increased threefold, from 497 000 tons to 1 516 000 tons. Moreover EC exports were very heavily subsidised and were in effect dumped on the world market, depressing prices. 53 The other major non-signatory, the United States, felt that the 1968 agreement was far


too generous to Cuba, which had the largest export quota, and to the Soviet Union, which was permitted to re-export large volumes of Cuban sugar. Because the United States was no longer concerned with the welfare of the Cuban industry and had provided quotas and a generous price for many third world producers under the Sugar Act, it had little interest in the success of the ISA.

In the years after the 1968 ISA (which was to operate from 1968 to 1974), world free market prices experienced unprecedented buoyancy. As a result, the sugar agreement was under great strain and, like its predecessor, eventually collapsed. The market price reached the ISA floor of 3.25 cents in February 1969 and surpassed the 4 cent level in October-November 1970. By November 1971 it had reached 5 cents, and a year later it was well above the ISA ceiling, in the range of 9 cents per pound.54 Observers of the sugar market have suggested that a primary reason for the sharp rise was the way in which the ISA allocated export quotas. What appears to have happened is this: although the agreement made a fairly accurate estimate of demand, the decision to give some 40 comparatively small exporters the bulk of the basic export tonnages came back to haunt consuming countries as these LDCs generally failed, often spectacularly, to produce enough sugar to fill their generous entitlements. Thus the 'bias in favour of developing exporters' in the sugar scheme 'greatly weakened the 1968 agreement'. 55

By January 1972, with the world price well above the ceiling, the agreement began to operate by virtue of the 'supply commitment' clause.56 A number of exporters were unable to meet their supply obligations or to provide the required volumes of stockpiled sugar when requested to do so. However many exporters did sell substantial quantities of sugar to traditional importers, particularly Japan and Canada, at or below the supply commitment price. 57 The higher average world prices (7.3 cents for 1972 and 9.5 cents for 1973) were viewed as 'delayed justice' by the long-suffering exporters, but for importers the failure of the agreement to 'stabilise' prices within the prescribed range (3.25-5.25 cents) led to a different, and less sanguine conclusion.

In May 1973 negotiations to review the ISA commenced under UNCT AD's auspices in Geneva. At the time the sugar agreement was effectively moribund, with the free market price over 12 cents per pound, all ISA stocks released, and quotas suspended. Exporters were ecstatic at the skyrocketing price after several years of hardship. But they all recognised that these high prices would very soon lead to


increased production and downward pressure on price. They requested a range of 6-9 cents per pound and a supply commitment price of 11 cents, and 8.9 cents for the supply commitment obligation. The 'hardliners' among the consumers and producers - Canada and Cuba, respectively - refused to accept this suggestion. 58 Consumers also demanded that larger minimum stocks be held by exporters under any new agreement, since the stockholding obligations of the previous ISA had been shown to be totally inadequate. This the exporters strongly opposed. The 1973 conference thus collapsed, and the economic provisions of the ISA were terminated - victims of the bullish market for sugar then prevailing. 59

Following the abortive 1973 talks, prices rose astronomically, averaging almost 30 cents per pound in 1974 and 20.4 cents the next year. A major reason was that the efforts of the developed countries to increase their domestic production after the initial price rise in the early 1970s had failed. Poor crops in the Western and communist countries led to seriously reduced yields. 60 Intermittent negotiations to renew the agreement were held between 1973 and 1976, but with continuing high prices the producers saw little incentive to regulate the market. In the meantime the United States, which had been unable, in spite of the strict import and production control prescribed by the Sugar Act, to protect its market from the world price escalation, allowed the Sugar Act to expire in mid-1974. The domestic coalition of growers, refiners and processors that had backed the act collapsed in disarray because of the turbulent market condition. There was also a strong feeling in some government and congressional circles that the unseemly politicking for export quotas on the part of various foreign governments should be ended.61 Rather than individual country quotas, the United States now set a 'global quota' (which totalled 7 million tons in 1975) to regulate imports. The new procedure for sales to the United States was 'first-come, firstserved', although Cuba and other Soviet bloc exporters were still denied access to the American market. 62

In 1975 the expanded European Community negotiated a sugar protocol in connection with the Lome Convention between itself and 46 African, Caribbean and Pacific developing countries. Because of the volatile world market, inadequate supplies and recent astronomical prices, France and the other original EC members agreed to continue the Commonwealth Sugar Agreement (CSA) under which Britain imported most of its sugar from Commonwealth states, rather than require it to buy its sugar from EC producers. 63 The CSA


exporters, excluding Australia, obtained a commitment that the prices paid to them under the Lome accord would be 'linked' to those paid to EC beet growers and subject to annual renegotiation. Although the community was now obliged to import some 1.3 million tons of sugar annually from its ACP partners, its plans to become a massive net exporter were maintained. Under the 1974 EC sugar policy, domestic beet producers were guaranteed a price (then below, but normally expected to be much above, the world price) and a market for a quantity of sugar sufficient to satisfy 100 per cent of domestic consumption. Production in excess of this amount up to 45 per cent of domestic consumption was also guaranteed a market at a lower price and was eligible for export subsidies. Any sugar produced beyond this level was to receive no guarantees and had to be disposed of outside the community at the growers' own risk. 64

The community's decision to expand exports and sharply increase domestic production helped to turn the market situation round after 1975. These EC policies, combined with greater production elsewhere and the increasing use of alternative sweeteners such as high fructose corn syrup, created an excess of production over consumption beginning in 1976. This in turn caused prices to fall almost as dramatically as they had risen earlier. The average 1974-6 world price of 20.5 cents per pound declined to slightly above 8 cents in 1977.65 Given these developments, the growing interest of exporters in negotiating a new sugar agreement came as no surprise to those involved in the sugar trade.


In this declining market, a conference to formulate a new ISA was convened under the auspices of UNCTAD in May 1977. Between the first session and the second in September, sugar prices continued to fall, from about 11 cents to 8 cents per pound. 66 The exporters, by now most anxious to negotiate an accord, were much more predisposed to compromise. The one major exception was the European Community. As in 1968, the community wanted to avoid any restriction on its future exports. It did express some willingness to support a pure buffer-stock arrangement, but all the other major participants rejected this idea out of hand - preferring the traditional system of export quotas and national stocks. While the Western European countries were criticised by many third world exporters, they were


seldom strongly attacked by the producing states about whom the EC was most concerned, namely the ACP countries, which enjoyed sugar quotas in the lucrative community market. 67

Within the importers' group at the conference, countries such as Japan, the USSR and Canada adopted positions very similar to those they had taken in the past. While prepared to sign an agreement that stabilised prices, they insisted on a price range close to the market trend and did not want to assume any major costs. One importer, however, took quite a different stance from what it had advocated in the past: the United States. It had two chief concerns. First, it wanted an agreement which would make unnecessary an expensive pricesupport programme for domestic producers and possibly also its system of import duties and fees. This required an ISA that would at least keep the price above a floor of 11 cents. Second, the United States wanted to assure a decent price for those producers in the third world (especially in Latin America) that until 1974 had possessed quotas in the American market and whose prosperity and good will Washington hoped to promote. This was probably the most important consideration, although there are differences on this question among American and other participants in the 1977 talks. 68

As in the past, the three central issues at the conference were the price range, the quota system and national stocks. The Latin American producers initially pushed vigorously for a floor price of 15 cents, but the opposition of the consumers and a few other exporters (Australia and Thailand), coupled with a continued decline in prices, convinced them to back a 13-23 cent range by the beginning of the September session. Most of the consumers supported a 6-8 cent floor, although the United States favoured 10 cents. The US Congress had just passed the United States Farm Bill, which stipulated that import controls and higher tariffs should be instituted unless the Secretary of Agriculture found that the international sugar scheme could maintain a world minimum price. Conference participants eventually settled on a range of 11-21 cents.69

The most contentious issue at the conference was the quota system. Under the system all producers were given basic exports tonnages (BETs) the aggregate total of which should theoretically come close to the annual 'global quota' set by the Sugar Council. The global quota is the estimated amount of sugar that the larger members of the ISA can sell to the free market at prices within the range; it is equal to the estimated demand of the free market, minus the exports of non-members, plus the exports of the smallest producing


members (referred to as annex II states). 'Country quotas' are those volumes that individual countries are allowed to export in a particular year; they are set in terms of certain percentages of the BETs. For the system to succeed in stabilising the market, the total sum of country quotas must approximate the global quota.

At both sessions of the 1977 conference the bargaining over the size of national BETs and over the total of all BETs led to serious conflicts among the approximately thirty larger exporters (states exporting more than 70 000 tons). At the centre of the discussions were Cuba, Brazil, Australia and the Conference President, E. Jones-Parry, although the United States was active in trying to bring about a consensus. In the end Cuba was allocated 16 per cent of total BETs (15.9 million tons), while Brazil and Australia obtained 15 per cent each. Many smaller exporters as well as Australia were extremely upset with the size of their quota allocations. 70 An additional quota issue that caused controversy concerned the maximum size of cuts in BETs to establish individual country quotas. The participants eventually agreed that, for most ISA members, the maximum reduction would be 17.5 per cent (that is, quotas could be no lower than 82.5 per cent of countries' BETs); for countries such as Australia, Thailand and the Dominican Republic, which shipped at least 60 per cent of their sugar to the free market, the reduction figure would be 15 per cent (and quotas 85 per cent of BETs). Most producers were adamant that the reductions not be larger, since they feared the prospects of having to accept major cuts in their production and in employment in the sugar industry. 71 The conference also agreed that the BETs could be renegotiated for the last two years of new ISA and that, if there were no consensus on this issue, the BETs would be altered according to a formula set out in the agreement. What was evidently not understood at the time was that the formula would have a strongly inflationary effect on the size of BETs, and thus of country quotas, if it were strictly applied- as it was in 1981 and 1982.72

The final major issue confronting the 1977 conference related to the obligation of members to stock sugar for release in periods of rising prices. The United States, always anxious to design ICAs so as to protect the ceiling as well as the floor of a range, proposed that stocks be 4 million tons rather than the approximately 1.3 million tons written into the 1968 ISA. Developing-country exporters objected, arguing that such stocks were expensive to store and would have a depressing effect on the market. The two sides compromised and accepted 2.5 million tons, including certain 'special stocks' whose


storage costs could be financed by loans from a fund raised by a levy imposed on every ton of sugar traded. Unlike the 1968 ISA, no distinction was made between the stocking obligations of developing and developed exporting states. 73

Overall the participants in the 1977 conference were far from overjoyed with the new ISA. Neither the quota provisions nor the stocking provision satisfied the objectives of the producers or the consumers. However most governments were optimistic that the new agreement would be able to bring the price up into the 11-21 cents range from its prevailing level of 8 cents. This view was based partly on the policy of the United States, which for both domestic economic and foreign policy reasons supported a higher world price. Other factors suggested that a .more pessimistic appraisal was called for, especially the weakness of the quota system (that is, the size of the BETs and the limited cuts that could be made in them) and the refusal of the EC to join. As it turned out, the pessimistic view proved more correct.

Throughout 1978 and most of 1979, world prices remained below the ISA floor of 11 cents, even after quotas were slashed by the permissible amount. The total of country quotas remained above the global quota for both years because the BETs were too high, the maximum reduction was too low, and the EC continued to expand its exports. Partly because of this, the United States instituted higher tariffs on imported sugar in order to protect the domestic price guaranteed to United States producers (now 14-16 cent/lb), with the level of the tariff increasing in 1978 and again in 1979.74 It is difficult to argue that developing exporters benefited much from the ISA in its first two years, although the free market price (which varied from about 7 to 9 cents/lb) probably would have fallen in the absence of the !SA-mandated export reductions. On the other hand, producers would have been under no obligation to acquire stocks had it not been for the 1977 sugar agreement.

Near the end of 1979 there began one of those surges in the sugar market that seems to occur every five to seven years. In November prices climbed through the 11 per cent floor; in January 1980 they hit 15 cents, at which point quotas were suspended. 75 In the spring prices went through the ceiling, and by September they had reached a high of 43 cents. In response, the Sugar Council raised the price range to 13-23 cents. A number of factors caused the temporary price surge in 1980-1: some countries had curtailed production in the light of poor prices in the late 1970s; several producers experienced bad weather,


which was expected to reduce production; and Brazil diverted a significant quantity of sugar into the production of fuel alcohol. In addition, some exporting members of the ISA had failed to acquire the stocks that they were obliged to hold. This was in part caused by the delay until 1980 of the application of the levy system, which was to yield the funds to assist producers with the costs of storing stocks. This in turn was due to a postponement in the ratification process of the 1977 ISA in the United States because of the legislative battle over the domestic price-support programme for domestic producers. 76

There was a general expectation of a long period of inadequate supplies because of the above developments, but the shortages did not persist. Instead a situation of excess supplies recurred and the price began to fall dramatically in 1981.77

The serious downturn in the market that came in the fall of 1981 prompted demands for action by the Sugar Council. However the council found itself less able than it had been in the late 1970s to stem the price decline. Under the 1977 ISA, the BETs of all producers were to be altered by a particular formula for the last two years of the accord (1981-2) in the event that the members were unable to agree on new figures among themselves. The application of this formula increased exporting countries' BETs far in excess of what had been expected in 1977. This meant that the total volume of country quotas - even with the maximum 15-17.5 per cent reductions in BETs -could not be brought even close to the global quota for three years. Thus, after hovering just below the floor in the last half of 1981, the price dropped steadily to around 6-7 cents by mid-1982.

In November 1981 the council decided to extend the ISA for two years beyond the end of 1982, and in the spring of 1982 it agreed to keep BETs for this two-year extension at their 1982 levels. Attempts were made during 1982 to secure an agreement between ISA members and the EC (now accounting for over a quarter of exports to the free market) to reduce exports, but to no avait.78 In the spring of 1982 the United States decided that it could no longer maintain an adequate price for domestic producers with its existing system of import duties and fees. It also concluded that the ISA was not assisting US sugar producing allies in the third world. Washington therefore reinstituted the national quota system it had abandoned in 1974. Under this system, over thirty countries were assured a price of around 17 cents/lb for given volumes of sugar sold in the US market, although the total volume imported by the United States between 1977 and 1983 was halved.79 With the departure of the United States


from the free market and the continued depressed price, the Sugar Council decided in late 1982 to initiate negotiations for a new ISA. Over its five-year life the 1977 ISA had been able to keep the price within the range for only 13 months; prices were below the floor for almost 36 months, and above the ceiling for about 11 months. The need for some basic changes was recognised by all the sugar-trading nations. Integration of the EC into the scheme was clearly the most urgent objective.

THE 1982-4 NEGOTIATIONS

Negotiations in pursuit of a fifth ISA began in December 1982 and eventually ended with a conference in June 1984. The talks took place in the context of a very depressed sugar market. In contrast to the 1977 negotiations, on this occasion the European Community was a central and active participant. The community was now not only a net exporter but also the largest exporter to the global free market. A new agreement without it would be virtually meaningless. On the other hand, the most important participant in 1977, the United States, played only a minor role this time. With its quota system in place, the United States was helping those developing-country producers of particular concern to it. Moreover, given the changes in trading patterns within the free market, the United States no longer viewed the ISA as a useful vehicle for helping the poorer developing nations. Only about a quarter of sugar exports to the free market were sold by this latter group of third world states, whereas almost half came from developed countries (the EC, Australia and South Africa) and the rest from Brazil, Argentina and Cuba.80

From the very beginning of the negotiation the debate centred on a new proposal advanced by the European Community. The community suggested that export quotas be abolished for the big exporters and that they be required instead to stock sugar when the price fell. Behind this position was the insistence of the European producers, especially the French, that they could not be forced to cut production. According to the plan, the ten major producers that accounted for over 75 per cent of exports would be given 'reference export availabilities' (REAs) of set tonnages. As the price fell into the first trigger point, these exporters would have to stock all production above this amount ('surplus stocks'); and if prices fell below a second trigger point, they would be required to stock certain percen-


tages of their REAs ('security stocks'). Two of the four largest producers, Brazil and Cuba, strongly opposed this proposal because of its cost and their fear that it would not address the perennial overproduction problem. According to one long-time student of the ISA, most of the other participants in the talks considered the community proposals unworkable and 'a deliberate camouflage' to allow it to escape from having to reject future pleas to reduce exports.81 Australia, however, endorsed the plan, seeing it as the only basis for integrating the community into the ISA. By late 1983 almost all participants indicated a reluctant willingness to negotiate on the basis of the EC stocking scheme.

This agreement on the basic mechanism still left other issues to be resolved. Most important was the aggregate size of the REAs and the allocations of particular REAs to the ten major producers. It was judged that, in order to maintain the price in the existing range, the REAs should total approximately 17 million tons; but adding the demands of the key producers collectively produced a figure close to 24 million tons. Another conflict concerned the extent to which Cuban exports to the Soviet bloc should be counted toward its free market quota. Australia in particular insisted that they should be included, arguing that the exclusion of Cuban exports would grant Cuba an unlimited ability to increase sales. Differences also emerged over the size of stocks that producers would have to hold. The community, the United States and Brazil advocated a relatively high figure, while Japan, Australia and several other exporters sought a low one. The price range was not a major problem, as most states were willing to support a range close to the one prescribed in the old agreement.82

The negotiations culminated in the convening of a conference in June 1984, by which time the price was hovering around 5 cents/lb. The central issue was the size of the REAs. Several attempts were made to achieve a consensus among the major exporters. The conference president, Jorge Zorreguieta of Argentina, suggested that the total of REAs should be 21 million tons (a figure most importers thought too high), with the 'big ten' receiving 17.3, the European Community 4.9, Brazil and Australia 2.6 each, and Cuba 2.2. Brazil and 'the six' (the Philippines, the Dominican Republic, South Africa, Argentina, India and Thailand) accepted their shares with some reluctance. However Australia and Cuba quickly rejected their allocations as well as those of other producers, while the community wanted a firm assurance that its figure would not be lowered for the


five-year life of the accord. At this point the talks collapsed. The chairman and most of the delegates pointed to the conflicts among the producers over market shares as the nub of the problem, although there were other outstanding issues. 83 With the failure to develop a new ISA after a year and a half of discussions, the signatories to the 1977 agreement decided simply to extend it, without economic provisions, for 1985-6.84

Because a number of major sugar importing countries have granted certain producers preferential quotas while others have strong interests as sugar exporters in their own right, the developed countries as a whole were not strong supporters of a new sugar agreement designed to stabilise the free market and to assist third world countries reliant on this important commodity. The political and foreign policy gains to be made through the conclusion of a sugar agreement did not carry enough weight to induce them to accept significant sacrifices. From 1985 to early 1987, free market sugar prices were at very low levels, ranging between 3 and 8 cents per pound. The fate of the ISA over the longer run is difficult to foretell. The system of preferential arrangements has in a sense served as a functional equivalent of a global regulatory agreement. Moreover, because a few developed countries are major exporters, while some developing-country suppliers are regarded as either politically unfriendly (for example, Cuba in the view of the United States) or else sufficiently wealthy not to need the protection of the ISA (for example, Brazil and Taiwan), key importing countries apparently have concluded that fully-fledged regulation is not necessary. Also clouding the ISA's future prospects are several other factors, notably the unwillingness of the European Community to alter its export policy or to support an ISA control mechanism based on export quotas, and the continuing problem of Soviet-bloc re-exports of Cuban sugar. 85

CONCLUSION: CONFLICT AND COLLABORATION

Competition is central to politics, and it has certainly been the life-blood of the politics surrounding the International Sugar Agreements. Certain axes of conflict have tended to be supportive of international management of the market, and others have been detrimental. And still ·others have had different effects at various times. In other words, the relationship between competition for


economic welfare and security and collaboration is not a simple or unidirectional one. It is complex and its implications must be carefully studied in different issue areas.

One thing that is clear from the previous discussion of the ISA is that LDC producers have always been competing for market shares and that this competition has often put the ISA in jeopardy or has actually caused its collapse. Certainly the unity of third world states cannot be called 'robust' since their preferences often differ - sometimes drastically. 86 This should not be unexpected since each state is concerned first and foremost with its own welfare and since the objective conditions that influence the strategies of developing countries vary. In the early years of the agreement (1954--9) the competing ambitions of LDC producers did not ruin the accord because of the sanctioning power that the dominant producer, Cuba, had at its disposal and because that state had reasonably secure markets for its sugar in the 'free market' and in the United States. Also, of course, the memory of past depressed markets did lead the tropical sugar growing countries to exhibit a modicum of reasonableness. However, when Cuba lost access to the American market following the accession to power of Castro, it began to demand a larger share of the free market, and this led to such differences over quotas with other developing producers that the accord fell into desuetude until its revival in 1968. There were serious tensions among LDC producing states at the time of the conclusion of the 1968 and 1977 accords, but they did not prevent an accord. However in the case of the 1977 ISA the only way of securing agreement was to give them larger quotas than they should have had, and this led to the arrangement's inability to protect the floor of the price range. Of course, they did not realise that they were agreeing to quotas that would create such a marked over-supply, in part because they did not realise that the European Community would increase its production at the rate it did. In the case of the final collapse of the ISA in 1984 rivalries among the third world producers certainly posed a serious obstacle to an agreement, but they probably could have been surmounted, given the very depressed market of the time, if the EC had been more accommodating.

An axis of conflict also among developing countries that did not actually emerge as a serious factor in past ISA negotiations is that between LDC exporters and importers, but it could become a serious factor in future deliberations. Very few third world importers ever joined previous ISAs which itself is an indication that they were not


too concerned with the plight of the sugar producing states. However, as long as most of the exporters joined the ISA and most of the major developed importing states supported it, it was not a major problem. Now, with the developing countries accounting for around 40 per cent of world imports, they offer a huge market for producers that might want to trade outside the agreement. And, of course, if the EC plan for stock withdrawals had been accepted in 1984, there would have been significant incentives for the sugar growing countries to operate free of the ISA. Overall one can say that there are few indications of a real concern on the part of LDC importers to support an agreement that raises prices, and this undoubtedly poses greater problems for market management than in the past, given their growing salience in trade.

The competition between developed and developing countries was, of course, crucial to the development of ISAs. However it was not simply a matter of competing interests between consumers and producers - but also between producers. Producers and consumers are always divided by the interest of the former to get as high a price as possible and the interest of the latter to obtain as low a price as possible. Quite interestingly, this was not the key division that undermined the ISA over its checkered history. Developed consuming countries have always been willing to pay more for a great deal of their sugar than they would pay on an open market. They just wanted to make sure that the price was not too high (although their definition of this varied over time) and that the countries to which they wanted to give remunerative prices received them. Almost as a matter of course, the sugar trade was one where the industrialised countries accepted that there would be resource transfers to third world producers (and subsidies to their domestic growers as well). The only occasions when producer-consumer differences over the price range really undermined the conclusion of an agreement was for a couple of years in the mid-1960s and then in 1973, and especially in the latter case the tropical producers were pushing for price levels that were far above what they had been historically.

An interesting feature of the politics of sugar has been that, unlike the situation of other commodities for which international commodity agreements have been created (tin, coffee, cocoa and natural rubber), there were important developed exporters- particularly Australia and the European Community. And as they, and more particularly the latter, became more prominent, the accord and prospects for renegotiating it weakened. Beginning in 1968 the EC


stayed out of the ISA, but it was not until the 1980s that the Western European states were exporting enough to challenge its viability. And the community would not backtrack on its export policy because of the political commitment to European sugar producers. It was this conflict of interest between developing and developed producers that more than anything undermined the efficacy of the 1977 accord and prevented the renegotiation of a new one in 1983-4. It is interesting to note that, with regard to the nine out of eighteen commodities in UNCTAD's Integrated Programme for Commodities87 where the developed countries were major exporters (sugar, cotton, oils and oilseeds, beef, copper, manganese ore, iron ore, phosphate rock and bauxite), a commodity agreement was only accepted for sugar, and it collapsed when the EC share jumped dramatically. There are a variety of reasons to explain why accords were not accepted for these other commodities, but the industrialised countries' interest in protecting their own producers was always important.

All of the competitive relationships that have been discussed above have concerned economic interests. None of them, however, explains why International Sugar Agreements have been concluded. In order to understand this one must move into the realm of political security relations. It is important, however, to point out that political rivalries can have both positive and negative impacts on collaborative accords. On the positive side they can lead consuming states to back pricesupport schemes when they want to befriend or assist producing states that they see as valuable allies in their competition with rival powers. Unquestionably the Western states viewed the ISA as transferring resources to third world states whom they viewed as needy of potential friends in their competition with the Soviet bloc. Of course, as producing states that were both friendly and needy became less prominent in the market, the attractiveness of the ISA began to wane. The Soviets became involved in the agreement both to assist its ally Cuba and to advertise itself as a friend of the third world.

While developed-country backing for the ISA can be seen largely in political security terms, the overall competitive relations between East and West and even within the West had negative effects on the commodity agreement as well. The Soviet bloc, the United States and the European Community (and Britain on its own before its entry into the EC) were all interested in befriending certain countries in the third world and developed their own preference schemes for them. These schemes were politically more important than the ISA and in a sense served as a surrogate for a global commodity scheme


like the ISA. For a number of years (1974-82) the United States cancelled its own preference scheme and during that time became a more active supporter of the ISA than it had ever been. However, when the ISA was not delivering resources to its third world friends along the lines that the United States had hoped it would do, it went back to the old system. It is interesting that the way that the EC solves the political problems caused by its active export policy and its general opposition to the ISA is to have its own preference scheme whereby it purchases sugar from its favoured third world allies and then re-exports the sugar at a considerable loss to the free market. The above developments certainly indicate a movement towards economic blocs and an attenuation of economic globalism.

The political history of the International Sugar Agreements unquestionably belies the notion of commodity politics being a simple struggle between developing exporters and developed importers. Beyond that it indicates that there is a host of axes of conflict that are relevant to the politics of commodity market management. They concern exporters and importers, developed and developing, and various political security groupings - and various permutations of these categories. Commodity regimes are generally based on extrinsic or political considerations and relationships, but they can be stymied or fall for a variety of economic and political reasons. It is not difficult to understand why the ISA has collapsed on a number of occasions and why states are so pessimistic about the prospects for reviving it.

Notes

1. The material in this article is drawn from the authors' Managing International Markets: Developing Countries and the Commodity Trade Regime (New York: Columbia University Press, 1988).

2. William A. Brown, The United States and the Restoration of World Trade (Washington, DC: Brookings, 1950); and Clair Wilcox, A Charter for World Trade (New York-: McGraw-Hill, 1949).

3. Abdessatar Grissa, Structure of the International Sugar Market and its Impact on Developing Countries (Paris: OECD, 1976); Ian Smith, 'Structure and Policy Changes in World Sugar', Journal of World Trade Law (May-June 1977) 15 pp. 228--47; and Ian Smith, 'Prospects for a New International Sugar Agreement', Journal of World Trade Law (July-August 1983) 17 pp. 308-24.

4. World Bank, Commodity Trade and Price Trends (1985) table 9. 5. Ibid., various years; and Food and Agricultural Organization, Trade

Yearbook, various years.


6. Data provided by the World Bank. 7. Grissa, Structure of the International Sugar Market and its Impact on

Developing Countries; World Bank, Sugar Handbook (1981); F.O. Licht's International Sugar Report, 16 November 1982, pp. 581-92.

8. J.W.F. Rowe, Primary Commodities in International Trade (London: Cambridge University Press, 1965) p. 125.

9. Ibid., pp. 146-7; Carmine Nappi, Commodity Market Controls (Lexington, Mass.: Lexington Books, 1979) p. 35.

10. Vincent A. Mahler, 'The Political Economy of North-South Commodity Bargaining: The Case of the International Sugar Agreement', International Organization (Autumn 1984) 38 pp. 709-32.

11. The World Sugar Economy: Structure and Policies (London: International Sugar Council, 1963) 2, p. 211.

12. Ibid., 2, pp. 211-12; Rowe, Primary Commodities in International Trade, pp. 147-8.

13. Nappi, Commodity Market Controls, pp. 50-52. 14. The agreement is in United Nations, Treaty Series (1957) 258, p. 153. 15. World Sugar Economy, 2, pp. 213-15. 16. World Sugar Economy, 1, p. 126. 17. World Sugar Economy, 2, p. 213. 18. World Sugar Economy, 1, pp. 175 and 191; Rowe, Primary Commodities

in International Trade, p. 175. Albert Viton, 'Towards a New I.S.A.', F.O. Licht's International Sugar Report, May 1983, p. 25.

19. Albert Viton, 'The Once and Future ISA Negotiations', F.O. Licht's International Sugar Report, January 1985, p. 4.

20. World Sugar Economy, 1, p. 243. 21. Ibid., pp. 279, 293 and 303-4. 22. Interviews; Ian Smith, 'The New International Sugar Agreement: The

Search for Effective Market Control', F. 0. Licht's International Sugar Report, May 1983, p. 8; Viton, 'Towards a New I.S.A.'; Smith, 'Prospects for a New International Sugar Agreement', pp. 319-20.

23. C.P. Brown, The Political and Social Economy of Commodity Control (New York: Praeger, 1980) p. 21.

24. World Sugar Economy, 2, p. 212. 25. New York Times, 23 May 1956, p. 39. 26. World Sugar Economy, 2, p. 216; Rowe, Primary Commodities in

International Trade, p. 176. 27. Vi ton, 'Towards a New I.S.A.', p. 28. 28. Smith, 'The New International Sugar Agreement', p. 8. 29. World Sugar Economy, 2, p. 214. 30. Interviews; Viton, 'Towards a New I.S.A. ', p. 25. 31. New York Times, 23 September 1958, p. 13; International Sugar Coun

cil, Annual Report and Accounts, 1958 (1960) pp. 6-7. 32. The 1958 agreement is in United Nations, Treaty Series (1961) 385, p.

137. 33. Rowe, Primary Commodities in International Trade, p. 176. 34. Grissa, Structure of the International Sugar Market and Its Impact on

Developing Countries, pp. 31-4. 35. Linda A. Cahn, 'National Power and International Regimes: United


States Commodity Policies, 193{}-1980' (PhD. diss., Stanford University, 1980) ch. 5.

36. UNCTAD, Commodity Survey, I966 (1966) p. 44. 37. World Sugar Economy, 1, p. 124; The Economist, 21 October 1961, p.

280. 38. John Southgate, 'World Trade in Sugar', Journal of World Trade Law

(November-December 1967) 1, p. 609; L.N. Rangarajan, Commodity Conflict: The Political Economy of International Commodity Negotiations (Ithaca, NY: Cornell University Press, 1978) p. 215; Nappi, Commodity Market Controls, p. 52; Grissa, Structure of the International Sugar Market and Its Impact on Developing Countries, p. 17.

39. Southgate, 'World Trade in Sugar', p. 631; Nappi, Commodity Market Controls, p. 71; Grissa, Structure of the International Sugar Market and Its Impact on Developing Countries, p. 57; FAO, Commodity Review and Outlook, I968 (1969) p. 104.

40. F.O. Grogan, International Trade in Temperate Zone Products (Edinburgh: Oliver and Boyd, 1972) p. 110.

41. New York Times, 6 January 1965, p. 11, and 4 March 1966, p. 43; Grissa, Structure of the International Sugar Market and Its Impact on Developing Countries, pp. 31 and 34.

42. Nappi, Commodity Market Controls, p. 71. 43. UNCTAD, Commodity Survey, I966 (1966) p. 69; The Economist, 19

March 1966, p. 1164. 44. Grogan, International Trade in Temperate Zone Products, p. 112. 45. Ibid., p. 118. 46. A similar, though more complicated, undertaking was provided with

respect to Cuban exports to East Germany and China, which were ineligible to accede to the accord because of their absence from the United Nations. Ibid., p. 119; 'The International Sugar Agreement, 1968', Journal of World Trade Law (March-April 1969) 3, pp. 219-20.

47. 'The International Sugar Agreement, 1968', p. 220. 48. Ian Smith, 'Sugar Markets in Disarray', Journal of World Trade Law

(January-February 1975) 9, p. 48. 49. The 1968 agreement is in United Nations, Treaty Series (1969) 654, p. 3. 50. Grogan, International Trade in Temperate Zone Products, p. 115; Smith,

'Structure and Policy Changes in World Sugar', p. 244. 51. Grogan, International Trade in Temperate Zone Products, p. 116; Smith,

'Sugar Markets in Disarray', pp. 47-8. 52. Grogan, International Trade in Temperate Zone Products, p. 122. 53. Rangarajan, Commodity Control, p. 149; Smith, 'Sugar Markets in

Disarray', pp.5{}-3. 54. Grissa, Structure of the International Sugar Market and Its Impact on

Developing Countries, p. 63. 55. Smith, 'Structure and Policy Changes in World Sugar', p. 245; Grissa,

Structure of the International Sugar Market and Its Impact on Developing Countries, pp. 63--4.

56. Smith, 'Structure and Policy Changes in World Sugar', p. 244. 57. FAO, Commodity Review and Outlook, I971172 (1973) p. 88. 58. Smith, 'Sugar Markets in Disarray', pp. 48-9.


59. Ibid.; Brown, The Political and Social Economy of Commodity Control, p. 23; New York Times, 13 October 1972, p. 31.

60. FAO, Commodity Review and Outlook, 1975176 (1977) pp. 73 and 78. 61. Smith, 'Structure and Policy Changes in World Sugar', p. 236; inter

views. 62. New York Times, 19 November 1974, p. 61. 63. Vincent A. Mahler, 'Britain, the European Community, and the Devel

oping Commonwealth: Dependence, Interdependence, and Political Economy of Sugar', International Organization (Summer 1981) 35, pp. 482-3.

64. Ian Smith, 'EEC Sugar Policy in an International Context', Journal of World Trade Law (March-April 1981) 25, p. 96.

65. FAO, Commodity Review and Outlook, 1979-80 (1981) p. 23; Smith, 'Structure and Policy Changes in World Sugar', p. 233.

66. The 1977 ISA is in UN Doc. TD/SUGAR/9/10 (1977). 67. Smith, 'The New International Sugar Agreement', p. 6; Brown, The

Political and Social Economy of Commodity Control, p. 181; interviews. 68. Vi ton, 'Towards a New ISA', p. 26; Brown, The Political and Social

Economy of Commodity Control, p. 180; interviews. 69. Latin American Commodities Report, 15 July, 19 August, and 9 Septem

ber 1977; Brown, The Political and Social Economy of Commodity Control, p. 184; interviews. Some producers were concerned that a high price could spur production of high fructose corn syrup in developed countries - thus reducing future demands for sugar.

70. Latin American Commodities Report, 9 September, 16 September, 23 September and 21 October 1977; Mahler, 'The Political Economy of North-South Commodity Bargaining', pp. 721-2; interviews.

71. Article 41; Kabir-ur-Rahman Khan, 'The International Sugar Agreement, 1977', Food Policy (May 1978) 3, p. 107; interviews.

72. Article 34; H. Ahlfeld, 'Elements of an International Sugar Agreement', F. 0. Licht's International Sugar Report, May 1983, p. 17; Smith, 'The New International Sugar Agreement', p. 5; Viton, 'Towards a New I.S.A.', p. 36; Smith, 'Prospects for a New International Sugar Agreement', pp. 316--18; interviews.

73. Khan, 'The International Sugar Agreement, 1977', p. 109; Brown, The Political and Social Economy of Commodity Control, p. 181; interviews.

74. Latin American Commodities Report, 3 February 1978 and 9 March 1979.

75. Prices for 1978-81 are in International Sugar Organization, Annual Report for the Year 1982 (1983) pp. 30--1.

76. Latin American Commodities Report, 6 April 1979; FAO, Commodity Review and Outlook, 1979/80 (1981) p. 22; Viton 'Towards a New I.S.A.', p. 41; and interviews.

77. On what were actually a series of bumper crops beginning in 1979, see Smith, 'The New International Sugar Agreement', pp. 7-9.

78. F.O. Licht's International Sugar Report, 28 May 1982, pp. 289--90, and 9 December 1982, p. 636; Smith, 'Prospects for a New International Sugar Agreement', pp. 314--19.

79. Smith, 'Prospects for a New International Sugar Agreement', pp.


314-14; W.D. Bensen, 'The Geneva Conference: A Look Backwards and a Look Forwards', F.O. Licht's International Sugar Report, January 1985, p. 17; Comptroller General of US, U.S. Sweetner!Sugar Issues and Concerns (Washington, DC: US General Accounting Office, 15 November 1984); interviews.

80. Viton, 'Towards a New I.S.A.', p. 27. 81. Vi ton, 'The Once and Future ISA Negotiations', pp. 5-6. 82. The negotiations during 1983 are described in F.O. Licht's International

Sugar Report, 8 February 1983, pp. 359-61; 7 September 1983, pp. 455-7; 27 October 1983, pp. 545-8; 11 November 1983, pp. 587-8; 28 November 1983, p. 498; 31 January 1984, pp. 68-9. See also Smith, 'The New International Sugar Agreement', pp. 5-10; and Smith, 'Prospects for a New International Sugar Agreement', pp. 308-24. Information also obtained from interviews.

83. The 1984 conference is analysed in: Latin American Commodities Report, 11 June 1984 and 6 July 1984; Gill and Duffus Ltd., Sugar Market Report No./6, July 1984, pp. 1 and 11-13; and C. Czarnikow Ltd., Sugar Review No. 1707, 18 June 1984, p. 119 and Sugar Review No. 1708 5 July 1984, p. 123; Viton, 'The Once and Future ISA Negotiation', pp. 3-11; Bensen, 'The Geneva Conference', pp. 17-22; R. Holland, 'International Sugar After Geneva', F. 0. Licht's International Sugar Report, January 1985, pp. 35-42. Information was also obtained from interviews.

84. The text is in F.O. Licht's International Sugar Report, January 1985, pp. 43-57.

85. Vinton, 'The Once and Future ISA Negotiations', pp. 3-11. 86. For an argument that the unity of third world states has been 'robust'

across a wide range of issue areas, see Stephen D. Krasner, Structural Liberalism: The Third World Against Global Liberalism (Berkeley: University of California Press, 1985).

87. For analyses of the development of the Integrated Programme for Commodities, see Finlayson and Zacher, Managing International Markets; Christopher P. Brown, The Political and Social Economy of Commodity Control (New York: Praeger, 1980); and Robert L. Rothstein, Global Bargaining: UNCT AD and the Quest for a New International Economic Order (Princeton, NJ: Princeton University Press, 1979).

5 Interdependence and Increased Competition among the Industrialised Countries: Implications for the Developing World Jeffrey A. Hart

The past three decades have been ones of increasing interdependence and competition among the industrialised countries of the capitalist world. The international economic system set up by the United States and its allies after the Second World War permitted a rapid growth of world trade. In the 1970s, further reductions in barriers to international trade (in the aggregate) resulted in a widespread increase in the importance of world trade for all the industrial countries. A steady increase in the interpenetration of markets posed serious questions for those firms and industries which could not compete on an international scale. As a result of the reduced barriers to trade, and the inability of specific firms and industries to adapt to this change in the international economy, certain governments found themselves under attack for permitting major domestic industries to be exposed to 'unfair' foreign competition. In addition, these governments were criticised for not preventing a decline in the competitiveness of key industries. In some areas it was argued that the economy had become over-specialised and was not likely to provide the sort of financial returns on which growth in national economic prosperity depended. 1

The evidence for reduction in barriers to trade must be obtained in a somewhat indirect manner. Negotiated tariff barriers have clearly declined, as anyone who examines the record of multilateral trade negotiations will see. The average tariff levels of all the major industrialised countries have decreased, even when weighted for the volume of trade in different commodities. Looking at the United States in particular, the value of import duties as a percentage of the

94

Jeffrey A. Hart 95

Table 5.1 Ratios of imports and exports to production in major industrial countries in the 1960s and 1970s

A Ratios of imports to production of manufactured goods Year France Germany UK USA

1970 1975 1980

16.2 18.0 23.2

19.4 24.2 31.2

16.3 22.0 28.2

Source: World Bank, Market Penetration Data Base. B Ratios of exports to production (excluding services)

5.6 7.0 8.7

Year France Germany UK USA

1960 1970 1979

23.4 30.6 52.2

31.2 40.5 54.8

38.5 50.4 74.9

11.5 14.4 25.3

Japan

4.7 4.9 6.3

Japan

18.8 22.1 29.2

Source: Charles Lipson, 'The Transformation of Trade: The Sources and Effects of Regime Change', International Organization, 36 (Spring 1982) p. 423.

value of total imports declined from 18.4 in 1934 to 9.9 in 1946 to less than 5 per cent in the early 1950s. The 1960s witnessed a small, temporary increase in duties/imports, but by the late 1970s the duties went back down to 4 per cent.2

Furthermore the ratios of exports and imports to domestic production increased in all the major industrial countries (see Table 5.1). Also, the aggregate level of world trade outpaced the aggregate rate of growth of domestic production (see Table 5.2). It is hard to believe that the impressive rate of growth of world trade experienced in the 1970s could have been maintained without a steady or declining level of trade barriers.

Concomitant with the increased openness of international markets was the increasing ability of the previously less developed industrial economies to compete with the economically stronger economies. The most dramatic increase in competitiveness was experienced by Japan. In automobiles, for example, the Japanese share of world production jumped from near zero in the early 1950s to over 30 per cent in the early 1980s (see Table 5.3). While every industrial country experienced increased penetration of its domestic markets by imports, Japan was somewhat less affected than the other countries. Thus Japanese industries had become much more competitive internationally than they had been previously. While many political

96 Interdependence and Increased Competition

Table 5.2 The growth of world trade (billions US dollars) 1947-85

Year

1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985

Exports

48.6 54.4 55.1 56.7 76.9 74.1 74.9 77.6 84.6 94.0

100.9 96.1

101.9 113.8 115.0 125.6 134.1 151.0 163.6 179.3 188.2 212.4 246.0 282.6 315.8 376.1 523.4 767.6 805.6 916.1

1043.5 1203.2 1526.6 1875.5 1836.3 1705.2 1673.0 1777.1 1796.6

Imports

53.3 60.0 60.1 59.2 81.6 80.4 76.6 79.7 89.4 98.7

108.5 101.6 107.1 119.8 121.3 130.0 141.4 158.7 172.7 190.9 201.0 225.4 258.4 297.1 330.9 388.0 535.1 784.3 825.1 930.8

1071.1 1246.0 1568.6 1927.3 1908.0 1793.0 1731.8 1844.0 1883.3

Sources: For 1947-60, Gunnar Adler-Karlsson, Western Economic Warfare 1947-1967 (Stockholm: Almqvist and Wiksell, 1968) p. 154; for 1961-78, International Monetary Fund, Direction of Trade Annual, 1982 and previous issues; for 1978-85, International Monetary Fund, Direction of Trade Statistics: Yearbook (Washington, DC: 1986).

Jeffrey A. Hart 97

Table 5.3 World shares in percentages of global motor vehicle production, 1950-85

Year USA Europe Japan

1950 75.5 19.8 0.0 1955 67.6 27.2 1.5 1960 47.9 41.2 4.8 1965 45.7 39.1 7.8 1970 28.3 45.1 18.4 1975 27.3 41.2 21.2 1980 20.8 37.7 28.6 1985 26.2 35.9 27.8

Source: Computed by the author from Motor Vehicle Manufacturers Association, World Motor Vehicle Data 1982 (Detroit, 1982) p. 39; Motor Vehicle Facts and Figures (Detroit, 1986) p. 28.

groups in Europe and the United States claim that the Japanese achieved their successes largely as a result of highly protectionist trade barriers at home, with a particularly strong reliance on nontariff barriers, the ability of Japanese firms to become low-cost producers of whatever good they manufactured cannot be explained in this way.

In the late 1970s and the early 1980s, there appeared to be a decline in the legitimacy of the international regime for trade. A series of new tariff and non-tariff barriers was adopted in a variety of major industrial countries. Countries began to quarrel over the basic rules in international trade. More specifically, the United States, with its general avoidance of direct subsidies and directing measures to assist specific firms and industries was forced to rely largely on border measures (tariff and non-tariff barriers) to protect domestic firms from international competition. Japan and a number of European countries relied more heavily on targeting measures, either to support industries suffering from international competition or to ease their exit from the market. Both border and internal targeting measures stemmed from the desire to protect domestic firms, and they differed primarily in the types of policy instruments used to do this. Border measures such as tariffs and non-tariff barriers went into effect only when goods attempted to cross the boundaries of the nation-state, while targeting measures, even though they affected trade flows, were carried out primarily through government policies toward investment, competition, research and development and so on, which were traditionally considered to be 'domestic' policies. The


United States adopted an international policy of opposing targeting practices; the Japanese and Europeans defended them in terms of their right to national sovereignty. The Japanese and Europeans accused the United States of abandoning its commitment to the liberal trade regime it had been responsible for establishing after the Second World War. 3

Thus a common challenge to the domestic systems of major industrial countries, posed by the evolution of the international economic system, resulted in different responses. The differences in responses undermined the legitimacy of the international trading regime. Much of the recent conflict among the capitalist industrialised countries can be explained in precisely this way.

RECOVERY AND THE DECLINE IN US DOMINANCE

The United States emerged from the Second World War with an overwhelming advantage in industrial capacity and production. Not only had less of its productive capacity been destroyed; great technological advances had been made during the war, creating further advantages for US industries over their competitors abroad.

The international regimes established under US leadership after the Second World War reinforced the strength of US industries in international competition. They reflected the US belief in the desirability of relatively unimpeded trade and investment flows, which would allow US firms to expand their operations abroad through trade and direct foreign investment. 4 Of course, various exceptions to the liberal trade and investment regime were allowed. The European Coal and Steel Community (ECSC), in organising and limiting competition in those two sectors in Europe, effectively closed some European markets to US exports and investments. This was not a major concession on the part of the United States, given that high transportation costs ruled out a major increase in exports from that country. But the inability of the US steel industry to internationalise later on was partly the result of US toleration of the ECSC.

Similarly, the creation of the European Economic Community, with its common external tariff, constituted a challenge to the principles supposedly underlying the international economic regimes set up after the Second World War. The most favoured nation principle in the General Agreement on Tariffs and Trade (GATT) required that all signatories of the GATT apply the same tariffs toward all the other signatories. The EEC common external tariff was clearly incon-

Jeffrey A. Hart 99

Table 5.4 Relative per capita income in the larger industrialised countries (US= 100)

Country 1970 1975 1981

United States 100 100 100 Canada 95 109 89 France 76 82 95 F.R. Germany 90 90 105 Japan 55 62 79 United Kingdom 51 51 71

Sources: For 1970 and 1975, US Department of Commerce, Statistical Abstract of the United States (Washington, DC: Government Printing Office, 1979); for 1981, World Bank, World Development Report 1983 (New York: Oxford University Press, 1983) p. 149.

sistent with this principle. For quite good political and security reasons, the United States did not oppose this development. Some scholars suggest that a deal was struck whereby the United States would accept the trade discrimination inherent in the Treaty of Rome in exchange for free access for the direct foreign investments of US-based multinational corporations in Western Europe. Recovery both in Europe and Japan were judged to be crucial to the survival of anti-communist and pro-United States national regimes. US occupation authorities in Japan and Germany actually may have accelerated the recovery of industrial production in those two countries by breaking up pre-war cartels and permitting continuity of management.5

By the late 1960s, the Europeans were reaching a level of per capita income close to that in the United States. By the end of the 1970s, four or five countries would match or exceed that level (see Table 5.4). The growth of production in Europe and Japan was accompanied by a massive increase in the volume of international trade. The large increase in trade was facilitated by a series of international trade negotiations, most notably by the Kennedy Round of 1961-7 and the Tokyo Round of 1971-9. Reductions in average tariff levels are significant.

By the late 1970s, however, there appeared to be problems in a number of major industries which were creating strong protectionist pressures throughout the industrialised world. The general trend towards increased liberalisation of world trade had not been reversed, but tensions among the industrialised countries had been mounting for a variety of reasons: (1) the weaker industrialised


countries became stronger and more diversified economically and began to challenge the predominance of the stronger industrialised countries in new markets; (2) the industrialising countries of the developing world began to compete in international markets for the simpler, labour-intensive goods, not just creating competitive pressures on firms but also (in conjunction with the increasing internationalisation of production through multinational corporations) creating strong downward pressures on the wages of workers in labour-intensive industries; and (3) global recessions accentuated the effects of both of the previous points. To demonstrate more concretely how this happened, the cases of textiles, steel, automobiles and semiconductors will be discussed below.

THE TEXTILE INDUSTRY

The first harbinger of the conflicts to come was the reaction by the United States to large increases in exports of cotton clothing from Japan in the late 1950s and early 1960s. The domestic textile industry of the United States complained bitterly to a series of presidents, starting with Eisenhower, until the government negotiated a 'voluntary export restraint' with the Japanese government (called the Long Term Agreement). The use of voluntary export restraints (VERs) was favoured over tariffs because one could limit imports through a bilateral agreement without directly undermining GATT rules on trade barriers. The charter of the GATT explicitly allowed for this sort of government-to-government negotiation to deal with the consequences of sudden surges in imports. Unfortunately a number of voluntary export restraints became institutionalised, because they were the result of conflicts caused by long-term shifts in production cost advantages and not, as asserted by certain governments and firms, temporary and reversible market conditions. The country requesting a VER was in effect merely delaying the eventual decline of its uncompetitive firms and industries. The delay, by reducing incentives for disinvestment and restructuring, actually may have accelerated the decline and thus increased the incentives for firms and workers to seek aid (including further barriers to trade) from governments.

A voluntary export restraint is generally a quantitative limit on the amount of goods to be imported from a specific country or group of countries. To compensate for the limitation, the exporting country

Jeffrey A. Hart 101

will generally raise prices so as to generate more profits from the smaller amount of goods exported. It may do so with impunity in this case because the domestic producers cannot cut their prices without suffering losses in profits (remember their average production costs are higher than those of the exporter). The slightly higher average prices for goods made possible by a VER provide a guaranteed profit for both exporters and domestic firms, but tend to provide higher rates of profit to the exporters. For the VER to do any long-term good for the domestic firms, these firms must reinvest their temporarily increased profits immediately and wisely to equalise their production costs with foreign firms. The human tendency of domestic managements, however, is to be satisfied with the slightly higher profits caused by the VERs and to lobby for more trade restriction as a way of guaranteeing these profits, rather than making the more difficult decisions required for reducing production costs (that is, closing inefficient plants, diverting revenues away from dividends and employee benefits in the direction of capital investments, adopting new and perhaps unproven production technologies and so on).

In addition, export restraints encouraged the diversification of the production of the exporting country out of products in which they had had early success into new products. For example, the VERs with Japan in cotton textiles resulted in rapid efforts to diversify into wool and synthetic textiles. Similarly VERs with one country tended to result eventually in VERs with many countries. Confronted with a VER for a specific product, the producers had an incentive to invest in overseas production in a country which had not agreed to a VER with the importing country, especially if that country had the right sort of labour force and wage structure. Thus the United StatesJapan VER rather rapidly became a VER system limiting exports from a wide variety of countries (including the industrialising countries of South-east Asia) to the United States and Europe (in the form of the Multi Fibre Arrangements), and this system grew to include cotton, wool and synthetic fibres. 6

THE STEEL INDUSTRY

A similar process occurred in the steel trade, albeit for slightly different reasons. When they decided to rebuild their steel industry in the 1950s, the Japanese took a gamble that a new production technology, utilising the 'basic oxygen process', would allow them to


produce steel at costs comparable to those of the most efficient US and German firms. This gamble paid off handsomely. When the price of imports of iron ore and coking coal declined in the 1960s and 1970s, the Japanese steel industry emerged as the lowest cost producer in the world. Since shipping costs also declined during this period, the potential for exporting steel and steel products rapidly increased. The US steel industry and most of the European industry, meanwhile, was slow to perceive the challenge of the new process technology. Most US firms had invested heavily in open hearth furnaces in the 1950s and thus were loath to make the new investments needed to convert to the more efficient oxygen process in the 1960s and 1970s.7

Conflict in the steel trade therefore began again in the United States-Japan nexus, before eventually spilling over into the trilateral sphere of United States-Europe-Japan. The level of import penetration (imports divided by total domestic consumption, that is domestic production plus imports minus exports) in steel increased from 1. 7 per cent in 1956 to 10.3 per cent in 1965. It stayed in the low teens until the steel strike of 1968, when import penetration jumped to 16.7 per cent (see Table 5.5). The US steel industry put pressure on the Nixon Administration to limit imports, but settled for a voluntary export restriction with Japan which lasted for several years. When the 1974 Trade Act was being considered, the US steel industry lobbied hard and successfully for new rules governing the imposition of countervailing duties and the awarding of injury claims to firms and industries suffering from unfair trade practices of exporting countries and firms. These rules were considerably tightened in favour of domestic firms and industries in the 1979 Trade Act, again largely as result of successful lobbying on the part of the steel industry.8

In 1977, under heavy pressure from the industry, the United Steel Workers union, and the governors of the major steel producing states, the Carter Administration set up a system to establish a floor price for imported steel products. Called the 'trigger price mechanism', the system was based on a calculation of Japanese domestic production costs, allowing for a fixed rate of return and transportation costs to various US markets. This system was administered in such a way as to keep Japanese imports at a more or less constant level despite continuing cost advantages. It was supposed to give the US industry a breathing-space in which to re-equip existing plants or

Jeffrey A. Hart 103

Table 5.5 Import penetration ratios for imports of steel, automobiles and semiconductors into the US market, 1956-85 (percentages)

Year Steel Autos Semiconductors

1956 1.7 1.6 1957 1.5 3.4 1958 2.9 8.1 1959 6.1 10.2 1960 4.7 7.6 1961 4.7 6.5 1962 5.6 4.9 1963 6.9 5.1 1964 7.3 6.0 1965 10.3 6.1 1966 10.9 7.3 1967 12.2 9.3 1968 16.7 10.5 1969 13.7 11.2 1970 13.8 14.7 1971 17.9 15.1 1972 16.6 14.6 12.9 1973 12.4 15.1 18.1 1974 13.4 15.7 23.9 1975 13.5 18.2 26.5 1976 14.1 14.8 26.5 1977 17.8 18.3 26.1 1978 18.1 17.7 28.2 1979 15.2 21.9 29.9 1980 16.3 26.7 31.7 1981 19.1 27.3 30.4 1982 22.0 27.8 32.5 1983 20.5 26.0 33.2 1984 26.5 23.5 33.8 1985 23.3 33.8

Note: Import penetration ratios are measured here in terms of units imported divided by units consumed domestically (production plus Imports minus exports). The units for steel are tons of raw steel equivalent, for autos numbers of assembled passenger vehicles, and for semiconductors dollar values of shipments.

Sources: (a) For steel, American Iron and Steel Institute, Annual Statistical Report, 1959-80; U.S. Industrial Outlook I987. (b) For autos, Ward's Automotive Yearbook I983 (Detroit: 1983) p. 106; James Womack, Public Policy for a Mature Industrial Sector, PhD dissertation, MIT, 1982, p. 24. (c) For semiconductors, U.S. Industrial Outlook 1987.


to diversify out of steel production. While some firms used this opportunity to make new investments in steel production processes, the largest US firm, US Steel, remained more or less as it was in steel, and tried to purchase firms in other industries in order to diversify its base. It was finally successful in buying Marathon Oil in 1982. The domestic politics of steel became more and more confused as the conflicting interests of managements, unions, local governments and the federal government became evident.

One unintended consequence of the trigger price mechanism was that it gave European firms and firms from the developing countries an opportunity to export to the United States. Since trigger prices were administered in such a way as to keep floor prices just about constant (if not slightly increasing) and since a number of European firms were either highly subsidised or had adjusted rapidly to growing international competition by adopting new production technologies, quite a few firms were able to export products to the United States at price levels competitive with both Japanese and US domestic producers. Overall import penetration levels rose dramatically in the early 1980s (from 16.3 per cent in 1980 to 22.0 per cent in 1982). The Japanese share remained more or less constant, while that of European and developing country producers rose quickly. The US steel industry pressed for new measures to shelter them from imports, this time viewed against Europe and the developing country exporters (of whom Brazil and Korea were the most important).

A rather bitter round of negotiation began in the summer of 1982 for a voluntary export restraint between the United States and the EEC. This negotiation ended in October of that year with an agreement that EEC producers would limit their share of the US market to 5.44 per cent.9 The internal EEC negotiations were especially intense, because the more efficient, privately-owned firms in Germany (supported by allies in the Netherlands, Luxembourg and Italy) claimed that they should be allocated larger proportions of the total EEC share relative to the less efficient and largely state-owned and subsidised firms of France, Britain, Belgium and Italy.

The Europeans were particularly angry about the way in which the United States handled the dispute. The internal EEC politics was geared to a recognition of the fact of over-capacity in the industry. Some firms had increased capacity despite steady or declining demand for steel in the EEC. Internal EEC price-cutting behaviour had been a problem in the past for the stability of the European industry,

Jeffrey A. Hart 105

so the institutions established by the ECSC treaty allowed for the setting up of emergency measures to administer prices and production. The ECSC treaty was invoked in the Davignon Plan of 1977, and a system of reporting of prices and production levels was instituted. A system somewhat analogous to that used in the United States established floor prices for European steel products. Instead of being based on Japanese production costs, these floor prices were based on the costs of the most efficient European producers (probably not all that different from Japanese costs). In the meantime the provisions of the EEC Treaty allowed the Commission and the Council of the EEC to ask the governments to limit the growth of productive capacity, through their potential veto over state subsidies, and allowed the Commission to encourage the governments to seek the closure of the least efficient plants, especially those controlled by state enterprises. This process had been difficult and slow, and it is understandable that the Europeans were angry when the US government upset the carefully negotiated arrangements in 1982, when it asked for export restrictions. US authorities seemed particularly insensitive to the growth of legitimacy within the EEC of the use of state revenues to encourage the restructuring of industries, rather than simply propping up inefficient firms. 10

THE AUTOMOBILE INDUSTRY

The case of the trade in automobiles is again one in which a USJapanese conflict expands to a broader international arena. The root of trade problems in automobiles, as in steel, is in the ability of the Japanese firms to become low-cost producers of assembled automobiles. The parallel is not exact, however, because Japan became the low-cost producer of small, fuel-efficient vehicles, but did not produce the larger vehicles traditionally consumed in the United States. Also Japanese efficiency in the case of automobiles was more the result of the organisation of production and its scale than of the choice of production technologies. It was only in 1979, after the second oil price increase and the massive shift in consumer preferences away from large cars to smaller ones, that Japanese imports became a serious problem for the US automobile industry. Import penetration jumped from 17.7 per cent in 1978 to 21.9 per cent in 1979 and 26.7 per cent in 1980 (see Table 5.5). An intense period of


lobbying for protection began in late 1979 and culminated in the first few months of the Reagan Administration in an agreement to negotiate a voluntary export restraint with Japan.

The Europeans were more uniformly competitive with the Japanese than the US firms in terms of their ability to produce inexpensive, fuel-efficient vehicles. Nevertheless higher labour costs would give the Japanese a price advantage in the European market were it not for the widespread use of non-tariff barriers to limit Japanese penetration. It is widely believed that the Japanese concentrated their early export efforts on the United States because they knew they would face fewer barriers there than elsewhere.

Whereas the response to the Japanese challenge in steel was highly divergent from firm to firm, with some being extremely sluggish and others rapidly adjusting, in the automobile industry there seems to have been a much more rapid response. Almost every major firm has changed its production processes to at least match the productivity of Japanese firms. Several firms have developed new models to compete with Japanese products. There has been a much greater stress on quality control. The overall result is that the world automobile industry is somewhat smaller, in the sense that there are fewer mass producers of a wide variety of models, and decidedly more global in perspective. The idea of a world car is still not completely viable, given the different tastes of consumers in different regions. Nevertheless there has been a clear homogenisation of design features to allow interchangeability of components while varying model designs for different markets. 11

One of the common features of adjustment to Japanese competitiveness in the automobile industry is the rapid spread of robotised assembly lines. This appears not only to save labour, but also to change the very nature of factory work. The robots typically do the most routine and tedious (and often unpleasant) work: welding, painting, simple assembly, and transportation of components and bodies through the assembly line. The computerisation of assembly lines tends to give workers greater ability to control the pace of work, while putting a greater value on work of a more complex sort than was previously available in automobile assembly plants (for example, servicing the robots and computers, following a single unit as it moves along the assembly line and so on).

The automobile industry produces durable consumer goods which have become fairly standardised. In this respect, it has a lot in common with a variety of consumer goods industries. A large propor-

Jeffrey A. Hart 107

tion of manufacturing involves non-standardised or customised products, however, examples of which are heavy generators, diesel locomotives, underground railway vehicles and large airframes. The production of all of these products is subject to economies of scale, just as in the automobile industry, but it is also subject to what are called 'learning curve' or 'experience curve' economies. These are reductions in cost which occur as workers and managers gain experience in the production of a specific product. Learning curves are theoretically independent of increases in investments in capital, labour or technology. They are the result generally of marginal improvements in the production process made over time by managers and workers. 12

THE SEMICONDUCTOR INDUSTRY

A good example of an industry quite dependent on learning curve economies is the advanced semiconductor industry. There are standardised semiconductor devices, such as simple transistors, rectifiers, or widely integrated circuits (such as the Z-80 microprocessor or the 64K RAM memory device). Nevertheless there are a large number of products in the industry for which learning curves apply because of the rapid change in products. The US industry has been very successful in such products, while the Japanese semiconductor industry has consistently gained ground in the standardised part of the business. The Europeans are almost completely out of the picture in this industry because of the slowness of most European firms (Philips is the big exception) to recognise the direction of change.

The overt conflict in semiconductor trade at the moment is mainly between the United States and Japan. The Japanese firms have rapidly etched a niche for themselves in the US markets for standardised memory devices like RAMs (see Table 5.5). They also lowered prices for these devices more rapidly than had been expected. The result was to undercut the profitability of the mediumsized firms which had been the main innovators in US semiconductor production. Large firms like IBM and AT&T which produce semiconductors for their own consumption (captive producers) are less vulnerable to this sort of competition because they have diversified sources of income and continue to make a lot of money in related businesses: computers, telecommunication, office equipment, for example. All of the major Japanese competitors are also relatively


diversified and large companies. Thus the small and medium-sized US firms are complaining the loudest, although often with the backing of the larger firms, to the US government. 13

The answer to these pleas was an agreement on the part of the Reagan Administration to investigate charges of government 'targeting' of the semiconductor industry in Japan, a vague claim made by the Semiconductor Industry Association which seems basically to boil down to a charge that government policies which have promoted the growth of the industry constitute a rough equivalent to the erection of trade-distorting subsidies and non-tariff barriers to US imports. 14 In addition to investigating these charges, the Reagan Administration pushed enthusiastically a programme designed during the Carter Administration to give a boost to domestic electronics firms by means of defence R&D and procurement policies (the VHSIC, or very high speed integrated circuits, programme). Several hundred million dollars were spread around to various firms in support of the development of high speed circuits and the technology for producing them. The production technology for high speed circuits just happens to be quite similar to that which will be needed in the next round of competition with Japanese firms. Similarly, although the Defense Department would rather purchase circuits which can survive nuclear attacks, it is allowing firms to go for speedier circuits first, hoping that they will get around to radiation-proof circuitry later on. 15

The Japanese have every right to feel put out by this seemingly contradictory approach: on the one hand, the US government is asking the Japanese government to stop supporting its electronic firms, while at the same time it is starting up its own version of targeting. Nevertheless the United States seems to have ample grounds for pushing for greater progress in opening the Japanese markets to US products. Two major avenues are likely to be pursued: greater access to the Japanese market via direct investment in production facilities there and the opening up of major government or quasigovernmental purchasing to bids from US firms. There is an explicit agreement between the US and Japanese governments in the case of Nippon Telegraph and Telephone (NTT), the Japanese telecommunications monopoly. However enforcement of this agreement continues to bedevil relations between the two countries. 16

The Europeans are just beginning to enter this area. An interesting case in point is the diversion of Japanese video-recorders in the summer of 1982 to a customs clearance office in Poitiers (a small town in the centre of France with a very small customs office, known

Jeffrey A. Hart 109

historically as the place where Charles Martel stopped the advance of the Moors into France). Heavy symbolism aside, the importance of Japanese video-recorders for the French government rests on the weakness of the French electronics industry. Its main hope for the future, Thomson-Brandt, is primarily a producer of consumer and military electronics. The French computer industry is so weak that, without the consumer electronics wing of Thomson, there would be no possibility of generating enough domestic demand for semiconductors to support a 'leading-edge' firm. Thus the video-recorders become a crucial part of French strategy for catching up with the United States and JapanY

Many Europeans doubt whether this sort of natiomilly based strategy will do any good. Previous national attempts to establish internationally competitive computer industries were dogged by failure (examples include Honeywell-Bull and CII in France, Siemens in Germany, and ICL in Britain). 18 The European Community has put forth a programme, ESPRIT, to encourage joint ventures among European firms to develop new technologies which will enable them to compete on a more equal footing in the future. This is still a very small effort, and it is likely that European firms will continue to rely primarily on the strategy of allying themselves with stronger US or Japanese firms to survive the next few years. 19 Nevertheless it demonstrates the importance which both national governments and the EC attribute to the development of internationally competitive, indigenously controlled electronics industries.

CONCLUSIONS FROM THE CASES

The protectionist pressures created by increased levels of competition in the four industry cases discussed above have somewhat different sources. In the case of textiles, the general problem was the inability of the higher-wage countries to cope with the competition from lower-wage countries, since labour costs are a major component of total production costs. Only where luxury products or products capable of being made with very advanced machinery were involved was it possible for the higher-wage countries to maintain market shares. The attempts to ward off the displacement of textile workers and firms produced a byzantine set of bilateral and multilateral agreements which, in the end, merely delayed relocation of production to the lower-wage countries.


In the case of steel, the low-cost producers were in industrialised countries, that is, Japan and the Federal Republic of Germany. The firms of these two countries were quicker than those in other countries to adopt a new technology (in the 1950s) which reduced production costs dramatically. The protectionist policies (border measures by the United States, nationalisation of steel firms in Britain, France and Italy) adopted by the other industrial countries did not really address the central problem of differences in production costs. The end result has been the organisation of a global cartel of steel producers which discriminates against new firms being set up outside the industrialised world. While there has been some trend towards equalisation of production costs, there is sufficient remaining differentiation to maintain the current highly unsatisfactory status quo.

Automobiles and semiconductors may be more typical of the general tendency in industrial production than textiles and steel because of the greater role within these two industries of rapid technological change. Automobile product and production technologies changed more rapidly in Europe and Japan than in the United States. When the preferences of consumers in the US market began to approximate those of the other two regions after the Iranian oil embargo in 1978, the differences in product quality and production costs became more evident, and US firms and unions began to push for protection, and imports of small, fuel-efficient vehicles rose rapidly. That US firms still have not been able to match Japanese quality and production costs is evident from the continuing pressure for extensions of the VER with Japan. Developing countries are not hurt by these developments directly as they continue to provide inexpensive components and even entire vehicles for the highly internationalised global automobile industry. Developing countries that have benefited significantly from this trend are South Korea, Taiwan, Brazil and Mexico. Nevertheless the growing 'organisation' of the global car market is likely to make it more difficult for other developing countries to benefit from future growth in automobile markets.

Until very recently, pressures for protectionism have been much lower in the semiconductor industry than in any of the others, partly because it is, relatively, such a new industry but also because few major actors realised the centrality of this industry for general economic development or perceived the growing gap in the capabilities of the firms of the United States and Japan, on the one hand, and of Europe, on the other. The delayed realisation of this fact in Europe

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has produced a spate of proposals for sheltering European firms from external competition. It is not clear whether these proposals will result in protectionist policies, since the European firms may prefer to align themselves with US or Japanese firms rather than with other European firms in dealing with their (in their minds temporary) technological backwardness.

The thing which binds all these cases together is the increased competitive presence of foreign firms in the domestic markets of industrial countries. The factor which differentiates them is the relative importance of technological change and the location of the low- and high-cost producers. While the European countries and Japan have lived with the problems of intense foreign competition and rapid industrial change in the past, many US industries have been relatively immune from this until quite recently. The size of the US market, high transportation costs, the dynamism of US firms, along with a variety of other factors, tended to insulate the US economy against this sort of competition. Lower transportation costs, bad choices by US firms in products and technology, and the general increase in global economic interdependence have broken the pattern of the past. It has not been an easy transition.

Since the United States played such an important role in setting up the international economic regimes of the post-Second World War era, and since it continues to play a central role in the preservation of those regimes, its reaction to its new position in the world economy is a crucial determinant of their continued stability. Similarly the reaction ofJapan and the major trading nations of Europe to the general growth in interpenetration of economies will be important because they have come to play a more significant role as well. If the stability of regimes depends on uniformity, or a trend towards uniformity, in reactions to change, as seems likely, then it is probable that the liberal trade and investment regime is going to be in serious danger of deteriorating in the next decade.

DIFFERENT REACTIONS OF THE INDUSTRIALISED COUNTRIES

There is an institutional change problem associated with the response of the industrialised capitalist countries to the challenges posed by the increased openness of the world economy. Some countries, like Japan, seem to have adapted quickly to changes because of the high


degree of centralisation in decision making in matters dealing with the promotion of competitiveness in business. Japan has a tradition of excellence in bureaucracy, and at least five decades of experience with promoting industrial change through the Ministry of International Trade and Industry (MIT!) (and its institutional predecessors). It has relatively lax anti-trust regulations and enforcement procedures, while it promotes domestic competition in other ways which do not necessarily create an adversarial relationship between business and government (for example, through the use of subsidised credit or tax incentives). The industrial unions in Japan are quite weak; many firms have only company-specific unions. This institutional structure, inherited from the past and relatively stable since the US occupation, enables the government to do many things which are not possible for, say, the US government. 20

The growing perception of institutional advantages in certain countries tends to produce pressures for reforms which might lead to a greater convergence of institutions. For example, in the United States there has been an effort to combine the Department of Commerce with the US Trade Representative's office. The result would be a Department of International Trade and Industry which, theoretically, would be able to do many of the things which Japan's MIT! does. Similarly the German Ministry of Research and Development was recently upgraded to deal with more general problems of industrial promotion. The Mitterrand government in France has added R&D responsibilities to the Ministry of Industry.

Another area of possible convergence is in anti-trust and competition policies. The Reagan Administration made a variety of proposals for reducing the penalties for anti-trust violations, decreasing the powers of the Federal Trade Commission, and making it easier for firms to create joint research or marketing ventures. 21 The handling of the IBM and AT&T cases by the Reagan Administration was a clear signal to US tiusiness that the stress would be on keeping together units which have managed to remain competitive internationally, even if these units command a high domestic market share. The Europeans, for the most part, have never had strong anti-trust laws. While there is growing concern in some countries (especially France) that the giant corporations promoted by previous governments have not performed well, the main response seems to be to create new institutions to promote start-ups of small and medium-sized firms rather than efforts to break up existing giants. 22

Jeffrey A. Hart 113

Finally, a number of countries have adopted new ways of arriving at some sort of consensus among government, business and labour representatives through corporatist mechanisms. The Japanese do this through the meetings held by MIT! which result in MITI's 'visions' documents. 23 The French have their indicative planning techniques, as well as sector-specific councils organised by the Ministry of Industry and Research. 24 The British use the National Economic Development Office (NEDO) and the various sectoral working groups within NEDO or the Ministry of Industry to engage in sector-specific concertation and consensus-building.25 In the United States, this sort of thing has been somewhat more controversial, but there are quite good examples of ad hoc concertation in the case of the Chrysler Loan Guarantee Board, the Tripartite Steel Committee, and the industrial sector advisory committees (!SACs) set up by the Trade Representative's office to co-ordinate US policy for multilateral trade negotiations. 26

While it may appear, from this brief summary, that further moves towards convergence are likely, that conclusion is not in order. First, it is not at all clear that efforts to centralise authority for trade and industry, relax anti-trust enforcement, and institutionalise sectoral if not national concertation will succeed in key countries such as the United States. In fact present indications are to the contrary. Similar statements could be made about the United Kingdom, and the current disenchantment in France with the performance of its highly centralised industrial promotion activities suggests a move away from that model. Each country, in other words, seems to be locked into dissimilar institutional patterns which will not change quickly or easily, despite the pressure for some convergence.

Why is this so? The best explanation refers to the relationship between political institutions and social coalitions. 27 One starts with the proposition that political institutions are a product of negotiated agreements among social groups. Political institutions in industrialised capitalist countries are almost without exception associated with enabling legislation. The legislative (and more broadly, the legal) framework in which institutions must work evolves slowly, partly as a result of shifts in the power of social groups and partly as a result of the process of internal rationalisation which goes on in all adjudicated normative systems.


ANTI-TRUST IN THE UNITED STATES

Take the example of laws governing anti-trust and competition policy. These had their origins in the United States during a period of general societal dissatisfaction with the economic performance and potential political power of giant trusts. The Sherman Anti-Trust Act of 1890 and the Clayton Act of 1914 established the legal basis for government intervention to promote competitive markets. The original legislative mandate was somewhat vague as to how the government was to do this. Anti-trust law was given more bite in the 1920s and 1930s with the passage of the Federal Trade Commission Act (1920) and the Robinson-Patman Act (1938). The first created a new body, the FTC, with new powers to supplement the Anti-Trust Division of the Department of Justice. The FTC, unlike Justice, had the power to initiate legal actions against offending firms. The Robinson-Patman Act broadened the definition of anti-competitive behaviour to include a variety of price-fixing and price-discriminating activities. This new system was possible partly because of the unusually high level of labour militancy in the 1930s and the relative weakness of the anti-labour wing of the business sector in the New Deal coalition. From the 1930s to the late 1970s, the anti-trust rules gradually got a little stricter as the Federal Trade Commission expanded its operations, while the Justice Department refined its methods for dealing with anti-competitive practices. Towards the end of the 1970s, these regulatory bodies were heading toward rules which, in effect, identified anti-competitive practices with control over large shares of the domestic market. Recent attempts to modify the anti-trust laws are coming from two directions: (1) businesses which have always opposed government regulation of competition, and (2) businesses which believe they are particularly handicapped in international competition by the need to avoid anti-trust suits (and especially firms with a large share of the domestic market). 28

There is virtually no support within organised labour, however, for a relaxation of anti-trust laws. Labour, while growing weaker relative to its previous position in US politics, is joined by organised consumer interests and those business interests which would be adversely affected by monopolistic or oligopolistic pricing made possible by relaxation of anti-trust. The stickiness in this case, therefore, derives from the relative stability of the distribution of power among social groups in the US political system.

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CENTRALISATION IN JAPAN

A similar argument can be made for the stickiness of the Japanese system. It is not likely that the Japanese will soon abandon their relatively centralised institutions for decision making in industrial policy, nor will they quickly adopt much stronger anti-trust rules or reduce barriers to foreign investment and foreign exports. The centralisation of decision making is made possible by the traditional strength of the bureaucracy in Japan. The use of the bureaucracy by the Shogunate and the Emperor as the means of disarming the opposition of the samurai (warrior) class required giving the bureaucracy major responsibilities in the implementation of policy. In addition, the desire of the Tokugawas to speed up the pace of industrialisation meant reinforcing the powers of the state in the presence of a relatively weak industrial managerial elite. The association of the aristocratic families with the larger industrial combines (zaibatsu) of the late nineteenth and early twentieth centuries gave the military governments of the 1920s and 1930s numerous incentives to undermine the power of the zaibatsu by supporting 'new' zaibatsu, who owed their good fortune mainly to the sponsorship of the militarised state. The promotion of industry by the state thus became a central means for the state to maintain its position within society by creating allies in the business sector. But the new zaibatsu could come to rival the old zaibatsu in economic strength only in a highly militarised environment.

The defeat of Japan in the Second World War introduced an external factor into the evolution of the state-society relationship. The American occupation authorities attempted explicitly to break up the old 'trusts' (that is, zaibatsu) and to introduce American-style political institutions. While the Japanese went along with these proposed changes superficially, they maintained the centralised power of the bureaucracy in the setting of industrial policy. The net effect of the occupation, therefore, was to weaken the traditional industrial groups, to leave the state more or less as it stood before the war, and, through US sponsorhip of the Liberal Democratic Party as the party most likely to support US views, created the basis for a political coalition between the state, the more dynamic portions of the business sector and traditional service sector and agricultural groups. This coalition has been rather stable. The main source of change is the increase in the economic strength and political power of the internationally competitive portions of the business community and


their growing dissatisfaction with the restrictive side of business regulation by the Japanese state. Thus we see only recently some attempts to establish an anti-trust regime in Japan (in the form of the Japanese Fair Trade Commission) and to weaken the powers of super-bureaucracies like MITI. 29

THE FEDERAL REPUBLIC OF GERMANY: AVOIDING STRUKTURPOLITIK

In Germany the occupation also introduced an external factor, but more important, perhaps, was the initial delegitimation of the national socialists and their allies and the return of the social democrats to a role in national politics. In economic terms, the coalition between agrarian conservatives, industrialists and the state was disrupted by the partition of Germany, and the state increasingly became a mediator, in explicit tripartite negotiations at the federal level, between labour and industrial business interests. The resulting Soziale Marktwirtschaft combined international liberal foreign economic policies with special sector-specific arrangements to limit the vulnerability of specific sectors (railroads, coal, steel and so on) to external competition and set the pattern for state sponsorship of industries. This particular coalition did not support extensive centralisation of state power in industrial policy areas, nor did it grant authority to the state to enforce strict anti-trust rules. Much of the power for pursuing industrial policy was delegated to the regional (Lander) governments. Only when industrial policies at the regional level failed did the federal government get involved. Even then, the federal government acted in concert with the major banks, the firms and the unions to arrange a solution to the conjunctural problems. 30

The debate over strukturpolitik was further evidence of the stickiness of state-society relationships in the Federal Republic. The debate only reached national proportions in 1977 when one of the leaders of the Social Democratic Party (Wolfgang Roth) was appointed to head a committee to examine the advantages and disadvantages of pursuing more explicit and centrally controlled industrial promotion policies. These reforms were strongly opposed by the Ministries of Finance and Economics, representing partly their own bureaucratic interests, but more importantly those of the financial and large manufacturing enterprises which were their major constituencies. Not only was strukturpolitik blocked at this time but, at the

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ertd of the Schmidt Administration, the Minister of the Economy, Count Otto von Lambsdorff, suggested a variety of measures for dismantling existing subsidy and industrial promotion mechanisms. 31

Thus, even though the Ministry of Research and Development was granted new powers to deal with a perceived lag in adjustment to new technologies in German industry, the federal authorities continued to remain without an institutional structure for pursuing a federal industrial policy.

CENTRALISATION IN FRANCE

The Gaullist and centrist era in France was one of co-operation between the state and large enterprises to create internationally competitive firms on the basis of a relatively sheltered domestic economy and a highly politicised foreign trade. Labour was excluded for the most part from the 1960s until the election of Mitterrand. The Tresor and the Ministry of Industry had extensive powers to allocate credits and credit subsidies among industries and even specific firms, and thus were able to speed the transition out of agricultural production and into manufacturing that characterised the French economy in the 1960s and 1970s. France became a force to be reckoned with in global markets for aircraft, automobiles, telecommunications and armaments. 32

It was possible for the French government to engage in such an ambitious industrial policy because of the inherited strength of the French bureaucracy. 33 Just as in Japan, the bureaucracy had been strengthened by the monarchy as a way of countering or controlling the power of the aristocracy. A strong bureaucracy preceded the formation of powerful business interests. Many firms perceived themselves as highly dependent on the policies of the state for their survival, especially given France's relatively backward industrial status prior to the 1960s.

Some social groups remained relatively independent from the state, however, most notably organised labour and the producers of mass consumer durables (like the automotive firms). Thus the state did not always win its battles, and the institutional structure established by the Gaullists and centrists was vulnerable to a change in the electoral fortunes of the parties in their coalitions. A growing perception of the precariousness of France's position in the world economy, given its specialisation in aircraft, cars, telecommunications and


armaments - and the growing problems of traditional industries such as steel and textiles - helped to create greater support for the socialists and communists. 34

The election of Mitterrand had an impact on French industrial policies, although this impact was probably more incremental than revolutionary. The Mitterrand government increased state ownership of domestic banking assets, nationalised a number of large firms in electronics, consumer goods, armaments and other key industries, and adopted a series of new measures favouring the interests of workers. It maintained, however, the role of the Tresor and the Ministry of Industry (renamed the Ministry of Industry and Research in 1981) in setting industrial policy at the national level. It also maintained the indicative planning mechanisms (initially established by socialist governments after the Second World War to defuse intensely strong anti-business sentiments of the left toward 'collaborators' in the business world). Mitterrand's first Minister of Industry and Research, Jean Pierre Chevenement, was rebuked after allegedly trying to make decisions that were supposed to be made by the directors of state-owned enterprises and for pushing protectionism in disputes with Japan and other trading partners. 35 The initiative for economic and industrial policy passed to the Minister of Economics, Jacques Delors, and Chevenement was replaced by a less ambitious industrial policy-maker, Laurent Fabius. Some socialists, obviously, had not reckoned on the stickiness of French political institutions.

DECENTRALISED STATISM IN THE UNITED KINGDOM

British industrial policy seems to change every time Labour replaces the Conservatives and vice versa, but in fact there has been some continuity in the institutional infrastructure. The Thatcher government comes out looking like the most radical of all recent British governments with respect to altering industrial policy instruments. Its sale of the state-owned enterprises associated with the dissolved National Enterprise Board and its attacks on the National Economic Development Office (NEDO) and the Central Policy Review Staff suggest a certain hostility to centralised industrial policy making. In fact this hostility, except at the rhetorical level, is far from established.

Consider the British government's strong backing of the semiconductor and computer industries, its continued participation with France and Germany in the Airbus enterprise, its continued subsidies

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to British Leyland and British Steel, and its use of the sector working parties of NEDO as a way of getting information about labour views in specific sectors. The British government was never able, even under Labour, to centralise industrial policy decision making in a global fashion. The highly decentralised bureaucracy (not unlike that in the United States) has remained weak relative to the bureaucracies of Japan and France, and perhaps weak even in comparison to the bureaucracies of the Federal Republic of Germany. The weakness of the British bureaucracy may be attributable to the political strength of the City of London and its business allies. It is probably also partly attributable to the militancy and distrust of centralised control on the part of organised labour. In any case, the UK, like the US, seems to lack the institutional infrastucture to pursue an ambitious industrial policy of the sort which is available to both France and Japan.36 The Germans let the banks and the regional governments do it. Until they fail.

INCREASED QUESTIONING OF THE RULES OF THE GAME

These highly varying approaches to making and implementing industrial policies in the largest capitalist industrialised countries militate against the acceptance of a common set of rules governing trade and the promotion of industries. Thus it is highly unlikely that the international regimes governing trade and industrial promotion will be stable and effective in reducing the intensity of trade conflicts among the major industrial countries. Countries which avoid explicit centralised industrial policy making (and which therefore tend to rely on tariff and non-tariff barriers to protect vulnerable industries) favour the elimination of subsidies and of 'targeting' on the part of countries which do have such policy-making machinery. Since the removal of targeting is as difficult for countries that do it as starting it is for the countries that do not, the predictable result is that there is a growing tendency for countries to respond to so-called 'temporary' trade barriers either by challenging them in the GATT or by erecting their own barriers in retaliation. It is too soon in this game to be able to report hard statistics. The record of the 1970s was one of general decline in the level of trade barriers. But there is reason to believe that this decline has been halted and perhaps reversed by events in the early 1980s.

Controversy over the international trade regime is compounded by


disagreements over the international monetary system. Fluctuating exchange rates have a direct and immediate effect on the competitiveness of exports. Uncertainty created by fluctuating exchange rates makes it more difficult for firms to adopt rational pricing strategies and to plan their international investments. Thus the result may be a decline in overall flows of trade and capital. The flow of fungible capital into countries with increasing rates of exchange (usually a function of high domestic interest rates relative to that of other countries) has the effect, when the country with high interest rates is a large one like the United States, either of reducing the availability of capital in countries with lower interest rates or of forcing them to match those rates and thus slow down their rate of growth. This has led certain countries, notably France, to question the rules of the international monetary system and to suggest a new Bretton Woods meeting to examine the options for new rules. 37 The fact that both the trade and the monetary regimes are under fire simultaneously heightens the sense of crisis and urgency in the international economic system. This sense of crisis is only partially a result of the current and possibly reversible downturn in world economic growth. A large part of the problem is the decline in the relative economic power of the United States and the rise in strength of the Japanese and European economies.

IMPLICATIONS FOR THE THIRD WORLD

The third world depends on the international economic system directly in that growth in the South is constrained by the rate of growth of the North. Exporters of commodities and raw materials are adversely affected by declines in global demand which occur during recessions in the North. Exporters of manufactured goods are hurt by the barriers to trade which are erected during trade conflicts among the industrialised countries. Since not all developing countries are exporters of both raw materials or commodities and manufactured goods, it will be necessary to discuss the implications of the current crisis in the international economic system separately for three groups of countries: the NICs (newly industrialising countries), the less industrialised oil-exporting countries, and the fourth world (all the other developing countries).

The NICs are highly dependent on exports of manufactured goods to the North. This is especially true of the South-east Asian NICs

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(Korea, Taiwan, Hong Kong and Singapore), but also of the Latin Americans (Mexico and Brazil). To date, the main threat of NIC manufacturers vis-a-vis those in the industrialised countries has been in shoes, textiles and small appliances. The strategy of the South-east Asian NICs has been strongly reliant on growth in exports of labourintensive products to Northern countries. The Latin American NICs have adopted strategies of expansion of domestic economies, using imported capital and exports as a way of getting around domestic bottlenecks. The Latin American NICs have been attempting to diversify their industrial base and to export both capital-intensive and labour-intensive goods. They tend to export labour-intensive goods to the North and capital-intensive goods to the South. A revival of growth in the North helps all the NICs to the extent that it increases demand for their labour-intensive exports. But the key to the future of the NICs is demand for their capital-intensive products.38

The NICs have also been the most important recipients of capital flows from the North. Both in direct foreign investment and in flows of loan capital from financial institutions, the NICs account for the majority of total flows to the third world. Short-term debt repayment difficulties have forced a number of countries to re-finance and reschedule their loan payments (see Table 5.6). Most notable among the NICs with debt problems are Brazil and Mexico (the Asian NICs seem to have responded much more rapidly to the global economic downturn and have so far avoided major debt crises).39 The total 'net liability' of Brazil at the end of 1982 was close to 52 billion dollars; that of Mexico was 48 billion. 4° Korea's debt to foreign banks in 1982 was around 20 billion, while that of Taiwan was only 6-7 billion.41 In order to make their rescheduled debt payments, both Brazil and Mexico will have to be able to count on continued access to the markets of the North. They must also continue to receive new loans from the North. The austerity programmes which have been adopted at the behest of the IMF in order to qualify for these new loans are likely to create a political climate hostile to the continuation of the development strategies of the past. This means that a tightrope will have to be walked in dealing with Brazil and Mexico. The North has to pay close attention to the way its internal squabbles affect the fortunes of these two countries, or else they risk contributing to the delegitimation of regimes which have been held up by the North as examples of the positive consequences for the developing world of associating closely with the international capitalist economic system.

The less industrialised oil exporters are primarily affected by the


Table 5.6 Foreign bank debt of developing countries (billions US dollars), numbers of countries undergoing debt renegotiations, and amount involved

(millions dollars) 1975-82

Year Bank No. of Amount debt renegotiations involved

1975 62.7 2 372 1976 80.9 3 1 796 1977 94.3 2 237 1978 131.3 4 2 953 1979 171.0 7 5 434 1980 210.2 7 3 954 1981 253.5 11 1935 1982 268.3 12 9 987

Sources: For bank debt, Paul Volcker, 'How Serious is U.S. Bank Exposure?', Challenge, 26 (May/June 1983) p. 14; for renegotiations and amount, World Bank, World Development Report 1983 (New York: Oxford University Press, 1983) p. 23.

global recession and are less affected than the NICs by the increased competition among the industrialised countries. The global recession has meant declining petroleum revenues. To the extent that oil exporters have used these revenues to finance ambitious internal development projects, the decline has forced them to revise their plans, to cut back on projects. Most of the less industrialised oil exporters are aware that their petroleum resources are limited and are therefore eager to diversify their economic base for the future. Their ambitions, if not their performances, are similar to those of the NICs. Because they tend to have higher domestic wages than the export-oriented NICs, they must try to compensate for this disadvantage by importing technology which allows them to be cost competitive. Thus the less industrialised oil exporters have moved towards a higher degree of industrialisation by using their petroleum revenues and their good credit ratings on international financial markets to borrow. That this is a problematic strategy can be seen in the generally lower rates of growth among the OPEC countries since 1978 as compared with that of the NICs (see Table 5.7). To the extent that oil exporters (mainly Algeria, Venezuela, Nigeria, Indonesia, and Ecuador) have borrowed to supplement their revenues, they are also dependent on the openness of Northern markets for paying back those loans in the future. 42

The fourth world has clearly suffered the most from the global

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Table 5.7 Average annual percentage growth of GDP for specific groups of countries

1960-73 1973-9 1980 1981 1982

All developing 6.0 5.1 3.0 2.0 1.9 Low-income 4.5 5.1 6.1 3.7 3.7 Middle-income

oil importing 6.3 5.5 4.2 1.1 1.1 Middle-income

oil exporting 7.0 4.8 -1.3 1.5 1.9

Source: World Bank, World Development Report 1983 (New York: Oxford University Press, 1983) p. 7.

recession of the past few years. The rate of growth of the fourth world, and especially the poorest parts of it, lagged behind that of both the industrialised and the other developing countries until1978. Since 1978, it has grown somewhat faster than the more industrialised countries. Those countries fortunate enough to have raw materials and commodities to export to the North have suffered from declining prices. Countries which had finally gained access to international capital markets, thanks to the glut of loan capital following the first oil price increase and the recession of 1974-5, are now more threatened by the timidity of bankers to make new loans than are the big borrowers among the NICs and the oil-exporting countries. 43 In a way their poverty also insulates them somewhat from the vicissitudes of the international economy. If the global economy recovers, the prices of commodities and raw materials will also recover. Recovery may make it easier to obtain grants and foreign aid from the North (but not if a conservative government remains in power in the United States). These countries are less threatening to the industrialised world because they have no current capability to compete with them. The political incentives to help them, so as to create allies in the third world or to counter the influence of the socialist bloc, will in many cases help to overcome domestic resistance in the North to increasing aid. A good example of this is the Caribbean Basin Initiative of the Reagan Administration (which, of course, has other motivations as well).44

In sum, the effect of increasing competition among the industrialised countries on the third world depends on two factors: (1) the degree to which that competition is likely to close major Northern markets for manufactured goods (especially relevant for the NICs


and the industrialising oil exporters) and (2) the extent to which the increased questioning of the economic rules of the game in general may impede recovery in the North (and therefore in the global economy). Things could not get too much worse for the fourth world. Things appear likely to get worse for the rest of the third world. Thus the increased competition among the industrialised countries seems likely to have the main overall effect of freezing the world at its current level of hierarchy and inequality.

Notes 1. On the general increase in trade and interdependence, see Centre

d'Etudes Prospectives et d'lnformations Internationales (CEPII), Economie Mondiale: La Montee des Tensions (Paris: Economica, 1983); French Institute for International Relations, RAMSES: The State of the World Economy (Cambridge, Mass.: Ballinger, 1982). Literature on specific countries will be cited below.

2. Judith L. Goldstein, 'The State, Industrial Interests, and Foreign Economic Policy: American Commercial Policy in the Postwar Period', paper delivered at the annual meeting of the American Political Science Association, New York, 3-6 Sept. 1981, pp. 19-20.

3. Details on the experiences and views of specific countries will be given later in the text.

4. Robert Gilpin, US Power and the Multination(!l Corporation (New York: Basic Books, 1975).

5. The author is developing this argument further in a forthcoming book tentatively titled Atlantic Riptides.

6. Stephan Haggard and Vinod Aggarwal, 'The Politics of Protection in the U.S. Textile and Apparel Industries', in John Zysman and Laura Tyson (eds), American Industry in International Competition (Ithaca, NY: Cornell University Press, 1983). See also, David Yoffie, Power and Protection (New York: Columbia University Press, 1983).

7. Leonard Lynn, How Japan Innovates: A Comparison with the United States in the Case of Oxygen Steelmaking (Boulder, CO: Westview, 1982).

8. Hans Vander Ven, 'The Politics of Trans-Atlantic Steel Trade', unpublished manuscript, Harvard Business School, May 1983.

9. Ibid., viii-13. 10. Commission of the European Communities, General Objectives Steel

1985, SEC(82) 1564 (Brussels: 28 October 1982). 11. James P. Womack, Public Policy for a Mature Industrial Sector, PhD

dissertation, MIT, September 1982; Gilbert Winham, The Automobile Trade Crisis of 1980 (Halifax, NS: Centre for Foreign Policy Studies, Dalhousie University, 1981).

12. Boston Consulting Group, Perspectives on Experience (Boston: 1971). 13. Michael Borrus, James Millstein and John Zysman, International Compe

tition in Advanced Industrial Sectors: Trade and Development in the

Jeffrey A. Hart 125

Semiconductor Industry (Washington, DC: Joint Economic Committee of Congress, 1982).

14. Semiconductor Industry Association, The Effect of Government Targeting on World Semiconductor Competition (Cupertino, CA, January 1983).

15. Glenn R. Fong, 'Project Update: American, Japanese, and European Industrial Policies in Microelectronics: A Preliminary Report of the US Experience in the Very High Speed Integrated Circuit Program', Harvard Business School, February 1983.

16. Urban C. Lehner, 'US-Japan Phone Gear Pact Totters', Wall Street Journal, 27 July 1983, p. 24.

17. Les Nouveaux Produits de l'Electronique Grand Public (Paris: Documentation Fran<;aise, 1978); 'Europe gangs up on Japanese electronics', Business Week, 21 March 1983.

18. Jacques Jublin and Jean-Michel Quatrepoint, French Ordinateurs: de /'affaire Bull a l'assassinat du Plan (Paris: Alain Moreau, 1976).

19. Giovanni Dosi, Technical Change and Survival: Europe's Semiconductor Industry (Brighton, UK: Sussex European Research Centre, 1981).

20. Ira C. Magaziner and Thomas M. Hout, Japanese Industrial Policy (London: Policy Studies Institute, 1980); Chalmers Johnson, MIT! and the Japanese Miracle (Stanford: Stanford University Press, 1982).

21. Business Week, 7 March 1983, p. 119; Robert E. Taylor, 'Reagan to Seek Cut in Damages for Trust Suits', Wall Street Journal, 29 March 1983, p. 3.

22. Frederic Jenny, 'La politique industrielle de Ia France', paper delivered at a conference on industrial policy and structural adjustments at Isveimer, Naples, 21-2 April 1983; Andrew Black, 'The Industrial Policy of the Federal Republic of Germany', same conference; Alfredo del Monte, 'La politica industriale in ltalia', same conference.

23. An example is MITI, Vision of Industry in the Eighties (Tokyo: March 1980).

24. Stephen S. Cohen, Modern Capitalist Planning: The French Model (Cambridge, Mass.: Harvard University Press, 1969); Sol Estrin and Peter Holmes, French Planning in Theory and Practice (London: George Allen & Unwin, 1983).

25. See the annual reports of the National Economic Development Council. 26. Gilbert Winham, 'Robert Strauss, the MTN, and the Control of Fac

tion',Journal of World Trade Law, 14 (September/October 1980) p. 384; Michael Moritz and Barrett Seaman, Going for Broke: The Chrysler Story (New York: Doubleday, 1981).

27. For a similar argument, see Peter Hall, 'Patterns of Economic Policy among the European States: An Organization Approach', in Steven Bornstein, David Held and Joel Krieger (eds), The State in Capitalist Europe (London: George Allen & Unwin, 1983).

28. Theodore Lowi, The End of Liberalism (New York: Norton, 1969) pp. 133-41; Ira Millstein and Salem Katsh, 'The Limits of Corporate Power', unpublished manuscript, 1980.

29. Johnson, MIT!; Kent Calder, 'Opening Japan', Foreign Policy, no. 47 (Summer 1982) pp. 82-97.

30. Black, 'Industrial Policy'; Jeremiah Riemer, 'Alterations in the Design of Model Germany: Critical Innovations in the Policy Machinery for


Economic Steering', in Andre Markovits ( ed.), The Political Economy of West Germany (New York: Praeger, 1982).

31. Black, 'Industrial Policy', Riemer, 'Alterations'; Hans-Rudolf Peters, Grundlagen der Mesooekonomie und Strukturpolitik (Bonn: Haupt UTB, 1980); Christopher Wilkinson, 'Trends in Industrial Policy in the EC: Theory and Practice', paper presented at a meeting at the Centre for European Policy Studies, Brussels, June 1983.

32. Jenny, 'La politique industrielle'; John Zysman, Governments, Markets and Growth (Ithaca, NY: Cornell University Press, 1983); Stephen S. Cohen, 'French Economic Strategy and the Crisis', paper delivered at a conference on industrial sectors in the world market, Swarthmore College, Swarthmore, PA, 1-2 September 1982.

33. Ezra Suleiman, Politics, Power and Bureaucracy (Princeton, NJ: Princeton University Press, 1974).

34. For a sample of writings criticising the Gaullist economic policies see Jacques Attali, La nouvelle economie fran~aise (Paris: Flammarion, 1978); Alain Boublil, Le socialisme industriel (Paris: Presses Universitaires de France, 1977); Andre Grjebine, La nouvelle economie internationale (Paris: Presses Universitaires de France, 1980); and Jean Marcel Jeanneney, Pour un nouveau protectionnisme (Paris: Seuil, 1978).

35. 'Apres dirigisme, le deluge', The Economist, 7 May 1983, p. 85. 36. Stephen Blank, 'Britain', in Peter Katzenstein (ed.), Between Power and

Plenty (Madison, WI: University of Wisconsin Press, 1978). 37. See CEPII, chs. 1-3. 38. Stephen Haggard and Chung-In Moon, 'The Korean State in the Inter

national Economy: Liberal, Dependent, or Mercantile?', in John Ruggie (ed.), The Antinomies of Interdependence (New York: Columbia University Press, 1983); Stephan Haggard and Tun-jen Cheng, 'State Strategies, Local and Foreign Capital in the Gang of Four', paper delivered at the annual meeting of the American Political Science Association, Chicago, 2 September 1983; Jeffrey Hart, 'Industrial Change in the Trilateral Countries: Implications for the NICs', same meeting.

39. 'Asian Lessons for Latins', The Economist, 4 June 1983, p. 68. 40. World Bank, World Development Report 1983 (New York: Oxford

University Press, 1983) p. 18. 41. Paul Volcker, 'How Serious is U.S. Bank Exposure?', Challenge, 26

(May/June 1983) p. 15. 42. Terri Karl, 'Why Oil Exporters Overborrow', paper delivered at the

annual meeting of the American Political Science Association, Chicago, 4 September 1983.

43. I am summarising here the content of several presentations by Steven Dizard, Jonathan Aronson, Richard Cooper, and Benjamin J. Cohen on the question of North-South debt rescheduling problems at a seminar on North-South Relations at Harvard University, Center for International Affairs, Spring 1983.

44. See the several articles on the Caribbean Basin Initiative in Foreign Policy, no. 47 (Summer 1982).

6 The Welfare State and Export Optimism Douglas R. Nelson

With the apparent failure of import substituting industrialisation strategies in the early 1960s, developing countries increasingly turned to more outward-oriented strategies - a tendency which has been strongly encouraged by the major international aid donors. The success of such a strategy is predicated on the notion of trade as an engine, or at least a handmaiden, of growth. The purpose of this chapter is to examine the 'demand-side' viability of such a strategy. That is to say, this chapter questions neither the effect of a successful export orientation on long-run economic growth1 nor its effect on domestic political stability, 2 rather it examines the prospects for successful export orientation. This examination is developed in two sections: the first attempts to determine the openness of the international economy, as currently constituted, by reviewing the postwar export performance of the developing countries; the second looks at the political-economic foundation of the international trading system and the prospects for its continued stability. A final section discusses strategies implied by the preceding analysis.

I LDC EXPORT PERFORMANCE UNDER THE LIEO

Recent research on the structure of international regimes (Krasner, 1984) reminds us that the economic relations of nations are embedded in a political framework which, along with the material forces central to the economic analysis, generate systematic patterns of international economic relations (for example, trade, finance, foreign direct investment). Thus a useful piece of evidence relating to the future export performance of the LDCs would be their past performance under the conditions of the 'liberal international economic order' (LIEO) which emerged following the Great Depression and the Second World War.

Table 6.1 summarises the overall export performance by major

127

128 The Welfare State and Export Optimism

Table 6.1 Export performance by country group

Low-income* Lower middle-income Upper middle-income Industrial market

Share of manufactures Export growth in total exports

1960-70 1970-80 1960 1980

4.9 5.2 5.4 8.5

-0.7 3.0 7.0 5.4

21 4

16 66

45 18 45 72

Source: World Bank, World Development Report, 1983.

* Note that if China and India are dropped from the Low-income category the share of manufactures in total exports becomes 1960: 9 per cent and 1980: 29 per cent.

country groups for the period 19~0 and isolates manufactured exports - a category of particular interest to states pursuing an export-oriented industrialisation policy. The picture that emerges from this table is clear: although developing countries as a whole experienced solid export growth in the 1960s, that growth was not as strong as the export growth of the advanced industrial countries (AICs). Furthermore, by the 1970s, export growth of LDCs was substantially eroded. Finally, this table reflects a clear relationship between per capita GNP (the basis of the World Bank's country classification) and export performance. We may seek the explanations for these broad patterns in political and economic factors operating on both the demand (international) and supply (domestic) sides of the market for LDC commodities.

Probably the most common explanation of the gap between AIC and LDC export performance involves the assumption of a structural asymmetry in the demand for the products of LDCs relative to that for AICs. Specifically, it is argued that the income elasticity of demand for the primary products and crude manufactures which make up a larger share of LDC exports is lower than the income elasticity of demand for the major export products of the AICs. Thus, as world income rose rapidly through the 1950s and 1960s, while demand for all goods would rise, the demand for LDC exports would rise more slowly than the demand for AIC exports. 3 Although this position is not uncontroversial, the data seem to demonstrate that LDC terms of trade had declined about 13.3 per cent between the mid-1950s and 1973 while AIC terms of trade improved by 104 per cent, as this theory would predict (Yeats, 1979, Table 3.4).

Douglas R. Nelson 129

Others have attempted to demonstrate the existence of international political structures which distort the demand for LDC exports. This position emerges from the recognition that one of the major factors affecting the development of world trade in the postwar era has been the tariff-cutting process under the GATT and the argument that there is a systematic bias against LDC exports in this process. The most significant source of bias was the reciprocity rule which mandated that every tariff concession by one party must be 'paid for' by the party gaining the concession. This bargaining rule flows from the mercantilist fear that a unilateral concession would result in lost competitiveness for domestic industry, and lost jobs.4

Unfortunately, given the relatively small market for most AIC exports in most LDCs, the reciprocity rule tended to disenfranchise LDCs from meaningful participation in the tariff-cutting process: that is, since they were unable to offer significant concessions on goods of interest to AICs, they could not get their high priorities for tariff cutting on the agenda. 5

Evidence in support of the effect of the international economic regime can be found in both the structure of tariffs following tariff cutting and in the structure of production that has emerged. Yeats (1979) estimates that, following the Kennedy Round, nominal tariffs on primary and processed goods exported by LDCs averaged 2.6 per cent for stage 1 (unprocessed) commodities, escalating to 7.9 per cent for stage 2, 9.3 per cent for stage 3, and dropping slightly to 8.9 per cent in the final stage 4. When effective rates of protection are examined, however, rather than escalation we find a pronounced tariff 'hump': 1, 2.6 per cent; 2, 23.4 per cent; 3, 19.8 per cent; and 4, 15.2 per cent. 6 Thus, in general terms, the goods of most interest to countries pursuing an export-oriented industrialisation policy face the highest effective protection while raw inputs to industry and intra-core products face lower protection. We will return to this pattern in the following section's discussion of the dynamic properties of the LIEO.

We can see the effect of the GATT process even more strongly in the structure of trade and production which has emerged in the wake of the tariff-cutting process. Standard trade theory predicts that as trade becomes freer production will become increasingly specialised along lines of comparative advantage and that this specialisation will be a major source of the gains from trade. A consideration of the political costs, however, changes this conclusion somewhat, because large shifts towards specialisation which carry large gains from trade


will also produce large dislocations and elicit strong political responses, especially, as will be suggested below, in the welfare states which constitute the core of the LIEO. 7 If these pressures on the core states are reflected in the regime structure we would expect to find a lower level of specialisation than would emerge from a strictly liberal regime. Using interregional specialisation in the United States as a baseline for comparison, Hufbauer and Chilas (1974) conclude:

The extensive specialization which characterizes interregional trade contrasts sharply with the limited specialization observed in international trade. The international division of labor is restricted because workers and capitalists join hands in defending their common interest as producers, because even temporary changes in the wage/profit ratio can be painful, and because many nations are unwilling to tolerate the flows of capital and the growing power of multinationals which would accompany free trade. (p. 15)

As a result, much of the rapid increase in trade following the Second World War was of the much less disruptive intra-industry type. That is, as the core countries (the AICs) exchanged tariff concessions on similar products, trade in those products grew rapidly, with most domestic adjustments involving shifts within industries, which reduced the likelihood of concerted lobbying by industries as a whole.

The opportunities for intra-industry specialisation are much lower in North-South trade as a result of the significant differences in overall economic structure associated with significant differences in the level of economic development. This is especially the case with differences in factor-price structure which would tend to lead to interrather than intra-industry specialisation. Thus as a result, at least in part, of the combination of international economic and political structures prevailing at the end of the Second World War, NorthSouth trade has expanded more slowly than intra-core trade. At the same time, in part as a result of tariff escalation and other barriers to moving up-stream in processing, developing country exports have become diversified more slowly than the exports of core countries (Yeats 1979, Table 3.3). In terms of overall effect, while the postwar international economic order encouraged growth in the core, which stimulated historically high levels of trade in general, systematic biases in that regime meant that LDC exporters shared less in that expansion than core exporters.

Before turning to a brief discussion of the supply factors affecting


the export performance of LDCs, it should be noted that the above analysis is not meant to imply any conscious attempt by the core states to construct an international regime which systematically discriminated against LDC exporters. In fact the framers of the ITO/ GATT system originally intended to include developmental goals explicitly (Gardner, 1969). Although these goals faded with the failure of the International Trade Organisation (ITO), they were eventually institutionalised in the GATT system through the inclusion of Part IV in the treaty and the negotiation of a Generalized System of Preferences for LDC exporters (Finlayson and Zacher, 1982). The argument of this chapter, as developed in the next section, is simply that domestic political-economic structures in the core countries constrain the capacity of core states to pursue liberalisation and that constraints are reflected in the structure of the regime as well as in the patterns of trade and production which flow, in part, from that regime.

This discussion of demand factors has been highly aggregated under the not terribly unreasonable assumption that LDC exporters, and especially exporters of manufactures, face about the same demand conditions in the global market. However, the clear importance of demand conditions should not blind us to the importance of the supply (internal) conditions. Like the demand side, both economic and political constraints operate on the supply side. The major economic factors which reduce the price elasticity of supply in LDCs are inadequate infrastructure (such as transportation, storage and handling facilities), low levels of saving and, perhaps most importantly, low levels of human capital for production or management. As in the case of pessimism about the relative income elasticity of demand for LDC exports, it is difficult to prove a case for long-term pessimism about the price-elasticity of supply (Diaz-Alejandro, 1975). The very real existence of these problems in the politically relevant short run, however, will often result in the establishment of political arrangements which slow painful adjustment but also slow supply response to price changes. In recent years several major studies of these political arrangements and their effects have been undertaken in LDCs. 8 All of these studies document a generally negative effect of restrictive trade/exchange regimes on the global competitiveness of the national economy as well as the benefits flowing to the economy from participation in the world economy.

Further evidence in support of the importance of supply-side effects on economic performance has been found in studies which


Table 6.2 Non-fuel primary exports: changes of export purchasing power and export volume, by product category and by country, 197~0 (change

as a percentage of 1970 level)

All Metals non-fuel Food and Non-food and

Country group and variable primary beverages agriculture minerals

Developing countries Low-income oil importers

Change of relative export price -36 -28 -33 -61

Change of export volume +84 +77 +92 +111 Composition of 1970

exports (percentage) 100 61 15 24 Middle-income oil importers



exports (percentage) 100 57 17 26 Industrial market economies



exports (percentage) 100 55 23 22

Source: World Development Report 1981 (Washington, DC: The World Bank) p. 121.

disaggregate the aggregate 'LDCs' into richer and poorer LDCs (as a proxy for more and less developed LDCs). If the demand conditions facing both sets of countries are approximately the same, then differential export performance is suggestive of a central role for supply-side factors in any explanation of export performance. A recent study by the World Bank demonstrates such differential performance quite clearly. What Tables 6.2 and 6.3 show is that, even using gross country categories and controlling for primary and manufactured exports, the wealthier (and presumably more economically developed) countries experienced greater gains from trading than other LDCs and increased their market shares at the expense of other LDCs.9 Furthermore Havrylyshyn and Alikhani (1982) show that the experience of the first generation of newly industrialising countries (NICs) is being followed in terms of high rates of growth in similar


Table 6.3 Purchasing power of exports of manufactured goods, increase by major country, 1970-80

Developing countries Oil importers Industrial

Low- Middle- Oil market Item income income exporters economies

Percentage change of relative export prices -33 -22 -8 -7

Total increase of export purchasing power (billions of 1978 dollars) 1.1 53.9 2.1 297.8

Effect of volume change 3.9 77.4 2.6 346.4 Effect of relative price

change -2.7 -23.5 -0.5 -48.6 Increase of export purchasing

power as percentage of 1970 level Total (net) increase 26 194 61 76

Effect of volume change 90 279 75 88 Effect of relative price

change -64 - 85 -14 -12

Source: World Development Report 1981 (Washington, DC: The World Bank) p. 122.

commodities by a second generation of countries they call the 'new exporting countries' or NECs.

At the same time, the strong exporters tended to become more diversified than other LDC exporters (Kravis, 1970; Yeats 1979, Table 3.3). This is consistent with the observation advanced by Chenery (1977) and Balassa (1977) that economic development- that is, changes in domestic supply conditions - leads to relatively rapid change in comparative advantage. The greater supply flexibility associated with economic development plays a critical role in responding to changed political as well as economic conditions in the world economy. This can be seen most clearly in the case of clothing exports where quantitative restrictions under the Multi Fibre Arrangement resulted in a shift into higher quality, higher value-added export lines such that export value grew more rapidly than export volume (Keesing and Wolf, 1980). A more important example is given in Finger's studies ofthe effect ofthe Dillon (Finger, 1974) and Kennedy (Finger, 1976) Rounds of the GATT on LDC exports. His


findings suggest that LDCs benefit more from concessions negotiated between AICs which they receive under the generalised most favoured nation clause than they do from application of the Generalised System of Preferences. That finding, however, only has meaning to countries capable of producing beyond the tariff 'hump'.

Overall, then, the evidence seems to suggest that the international economic order as currently constituted provides a relatively positive environment for export orientation for those countries capable of such orientation. Thus far this conclusion is fairly standard (Hughes and Waelbroeck, 1981; Riedel, 1984). What this conclusion ignores is change in the system emerging as a result of the successful operation of the system. Specifically, in the next section we examine the interaction between a relatively liberal trade regime and the stability of the political core of that regime.

II WELFARE STATES AND THE ROOTS OF THE NEW PROTECTIONISM

The advanced industrial countries of Europe, North America and Japan constitute the economic and political core of the liberal international economic order (LIEO) discussed in the previous section. The economic case is the most obvious; in 1981 the AICs constituted the market for nearly two-thirds of the exports of every country group except the low-income countries (50 per cent) and the East European non-market countries (30 per cent). The case is even stronger when we consider that the AICs are the source of virtually all public and publicly guaranteed capital flows and the great majority of private capital flows as well. That the institutional structure of the LIEO reflects this economic centrality is suggested by the discussion of the biases in GATT tariff-cutting rules presented in the previous section as well as by the system of weighted voting used in the IMF (Dam, 1982).

Most proponents of export-oriented industrialisation assume that successful export drives by LDCs will produce no significant change in the behaviour of the core countries. This assumption is objectionable on at least two grounds. First, it ignores the probability that there is some threshold of import penetration in a given industrial sector beyond which the core countries will adopt protectionist measures - this is generally referred to as the fallacy of composition argument (Helleiner, 1973). The implication is that the very success


of the NIC exporters has foreclosed the same path for future exporters. The fallacy of composition argument, like export optimism, assumes no change in the overall propensity to protect. The dispute between the two positions is simply over the magnitude of that propensity. The second objection to export optimism relates to the effect of export penetration on the propensity to protect. This is basically a 'log-rolling' argument: that is, once protection has been granted to one sector, it becomes increasingly easy for additional sectors to receive protection. An evaluation of either of these positions requires an understanding of the political economy of the core countries, and the system they support.

The international economic order which emerged in the years following the Second World War was the product of an attempt by state actors from core countries (primarily the United States and Great Britain in the initial period) to construct a political-economic order which embodied a commitment to relatively free trade in goods and services. This commitment flowed from a perception that the economic instability of the 1930s had been spread and magnified by the breakdown of international economic order under the pressure of beggar-thy-neighbour economic policies and, further, that this situation had led directly to the breakdown of international political order (Gardner, 1969). As a result, these state actors attempted to construct a set of rules and institutions embodying a commitment to downward flexibility and upward inflexibility in levels of protection and a further commitment to generalised non-discrimination. These commitments, however, were taken by states in the process of rapidly evolving a new form of state-economy relations.

The combination of world-wide economic crisis with a world-wide political crisis accelerated a fundamental transformation in the relationship between the state and the economy characterised by an explicit concern for the effect of the economy on people. 10 That is, by the emergence of the welfare state. 11 This conclusion needs to be qualified in both time and space. Obviously the welfare state did not emerge from the Depression and the Second World War as a fully developed phenomenon. Rather it grew over time both in terms of the number of issues in which the state became involved as well as in the depth of involvement. Similarly the precise nature of the stateeconomy relationship and its growth has varied across countries as a function of pre-existing structural differences and unique conjunctural factors. None the less in all of the core countries the political and economic crises resulted in the evolution of structurally similar


relations between state and economy which can be characterised as movements toward a welfare state (Myrdal, 1960; Shonfield, 1965). The critical thing to recognise about these welfare commitments is that they became a critical element in the legitimation of the state. Concretely, politicians could lose their jobs for failure to maintain these commitments.

The effect of the welfare commitments on the part of states in the core countries was to reduce their flexibility of response to change in the economic environment. Under a domestic regime of laissez-faire, the burden of adjustment to economic change is borne by the weak. Such an adjustment mechanism is obviously undermined by an explicit commitment to protect the weak. Thus large economic shocks pose a more serious problem for welfare states than others precisely because their legitimacy rests on protecting people from the costs of adjustment. 12 As was suggested in the first section, this had an effect on both the institutional structure of the LIEO and on the pattern of international trade and specialisation which has evolved under that order; that is, the prominence of intra-industry specialisation which displaces less labour and capital than inter-industry specialisation.

The welfare commitments also help to shed light on the nature of the 'new protectionism'. Protectionism in the eighteenth and nineteenth centuries was part of the political programme of the most advanced fractions of capital in their attempt to secure domestic markets and political power in much the same way as liberalism was the policy of similar factions in Britain, the first industrialiser (Rubinson, 1978; Chase-Dunn, 1980). 13 Since the infant industries in this period were capital-intensive relative to the rest of the economy, the Stolper-Samuelson theorem suggests that protection would raise the returns to capital. 14 That is, wealth would be transferred from labour to capital via state policy to underwrite the expansion of the most dynamic industries.

This would remain a stable situation as long as labour remained politically insignificant and the recipients of protection remained dynamic. What is new about the 'new protectionism' is that both of these conditions have changed. Organised labour has become a fundamental actor in the political systems of all core countries, with the possible exception of Japan (Greenstone, 1969; Berger, 1981). Furthermore, as the above discussion suggests, it is fundamental to the welfare state to protect not the most dynamic industrial sectors but, rather, the declining sectors, and with labour a fundamental part of the political system, a degree of freedom has been removed which


existed in the eighteenth and nineteenth centuries: that is, use of the state to transfer wealth from labour to capital and weak to strong industrial sectors has become an uncertain proposition. 15 Thus studies of the tariff structure in AICs find a general bias in those structures towards labour protection (Anderson and Baldwin, 1982).

Finally, to the extent that the stability of the LIEO rested on successful domestic stabilisation, a breakdown in the political order which undergirds liberal interventionism could undermine the stability of the LIEO. Given the welfare commitments to economic performance in general and employment in particular, the states in core countries need effective macroeconomic tools to remain politically viable. The Bretton Woods agreement explicitly recognised this necessity with regard to exchange rate policy in the face of 'fundamental disequilibrium'. Relatively liberal trade policy rests on a similar condition where fundamental equilibrium is defined as the capacity to manage economic disequilibrium using domestic (primarily macroeconomic) tools in the politically relevant period. If the capacity to use these tools is frozen by domestic political stalemate we can expect a re-emergence of beggar-thy-neighbour policies in attempted defence of the status quo. 16

Where the welfare commitments of the core states have changed the fundamental relationship of protectionist policy to the domestic political economy, their LIEO commitments have changed its characteristic formsY Prior to the GATT most protection of domestic industry from foreign competition was carried out through direct restrictions on either the price or quantity of the foreign commodities with a preference for price restrictions because they generated a steady stream of income to the state prior to broad-based income taxation. Signatories to the GATT, however, undertake not to use QRs and not to increase tariffs. Furthermore, although most favoured nation clauses have long appeared in commercial agreements between nations, generalised non-discrimination in the application of barriers to trade is a new feature introduced by the GATT. Whereas these rules are consistent with the international agenda of the core states, circumstances may arise in marginal adjustments in the level of protection received by a sector which are the most efficacious policy response to a shock. Corden (1974) develops one justification:

Suppose import prices of particular goods fall owing to foreign suppliers becoming more competitive for one reason or another.


This will redistribute income against producers of importcompeting goods and in favor of consumers or using industries. It may be impossible to bring about a redistribution to the original situation through taxes and subsidies . . . There is only one way of reversing or avoiding the income distribution effects precisely, and that is to impose a tariff which will keep the prices facing domestic consumers and producers where they were before the import prices fell. (pp. 109-10)

Underlying such a situation is the inflexibility imparted to the system by the state's welfare commitments and the political-economic structures those commitments reflect.

The GAIT itself recognises the necessity for a response by signatories under three circumstances:

1. dumping or subsidised imports (Article VI); 2. balance of payments difficulties (Article XII); 3. surges of imports, caused by previous concessions, which threaten

to cause serious injury to a domestic industry (Article XIX). 18

Although Article XII has not been used extensively by core countries, Articles VI and XIX create the legal foundations for systems of administered protection which have been 'the leading edge of trade policy at least since 1975' (Hufbauer, 1980). Administered protection differs from legislated protection in that the legislature mandates a general set of rules for the administration of cases (called 'less than fair value' cases) rather than legislating a specific tariff schedule. Once legislated, the rules are set for all protection seekers.

If administered protection were as rigid in reality as it is in the law books it could not survive politically. Such a system must be able to withstand and/or accommodate specific demands from politically powerful sectors for greater protection than the rules afford as well as shifts in 'popular' support for protection. These mechanisms differ between core countries as a function of differing bureaucratic cultures and structures but the fundamental task of mediating between GA TI commitments to liberalisation and domestic welfare state commitments is common to all. As mechanisms for managing the domestic conflict between consumers of imports and producers of import substitutes, administered protection mechanisms in both the United States and Europe function by quietly disenfranchising consumers but limiting the amount of protection available to protection seekers. This asymmetry in the legal structure is embodied in mech-


anisms which are empowered to decide only whether or not to raise the level of protection. There is no technical mechanism for reductions in the level of protection (Finger et al., 1982). This reflects the commonly noted distributional asymmetry in the effect of a tariff reduction: that is, the benefit to any individual consumer of a tariff reduction is likely to be much smaller than the loss to any protected factor of production. On the other hand, most cases in both the United States and Europe are handled at the low visibility end of the administered protection mechanism (US 83 per cent, EC 65 per cent) which tends to produce only small adjustments in the level of protection.

Thus attempts to alter the level or structure of protection face a two-track system. At the international level the GAIT process attempts to reduce the level of protection on specific goods through multilateral negotiation. At the domestic level the administered protection process seeks to raise protection through a quasi-judicial process. Foreign exporters, generally through actions by their nation's state, must seek change simultaneously in both arenas. The major message of this chapter is that effective political action in pursuit of such change must be informed by an understanding of the structure and dynamics of these arenas and of their interdependence. The final section of this chapter briefly reviews the strategy implied by the structure outlined above and the likelihood of its continued success.

III STRATEGIES AND PROSPECTS FOR LDC EXPORTERS

The preceding section of this chapter sketched the two-track political structure at the core of the LIEO and the domestic political arrangements in the core from which that structure derives. The first track involves international negotiations in the GAIT over the general rules of trade and specific reductions in protection.19 The second track involves national-level confrontations over the application of the international agreements in the major national markets. The successful LDC exporters have pursued a joint strategy of collective confrontation with regard to the international track and private technocratic participation with regard to the national level application of the general rules. Let us examine each part of this strategy in a little more detail before passing on to the final issue of the continued viability of such a strategy.

The widespread dissatisfaction with import substituting industrial-


isation strategies which emerged in the early 1960s in no way reduced the uncertainties about export-oriented policies which had encouraged the widespread adoption of import substitution in the 1950s. Rather, the third world rallied around a new analysis of the tradedevelopment locus. Where the earlier analysis had emphasised the necessity of transforming the domestic economy before LDCs could compete in the global economy, the new analysis argued that the fundamental problem with North-South trade lay on the demand side. Thus exporting could be an engine of growth, but only if there were major institutional changes in the regime governing trade and payments. Such an analysis implied a shift of strategy from autarkic import-substitution to one of attempting to transform the LIEO. Since individual LDCs were characterised by relative weakness vis-a-vis the core countries this meant some form of collective confrontation. In this confrontation UNCTAD played a crucial role. On the one hand, UNCT AD provided an institutional focus for the organisation of LDC interests (Nye, 1973; Rothstein, 1979). By playing a co-ordinating role UNCT AD and the Group of 77 helped reduce Olsen-type collective action problems. Perhaps more importantly, UNCTAD economists (Prebisch in particular) developed and promoted a theory of North-South economic relations which was consistent with prevailing economic orthodoxy but justified fundamental changes in the LIEO and produced data to support their position.20 Thus the UNCTAD theory provided a basis for strong claims on the LIEO since those claims were rooted in the same liberal analysis which legitimated the regime while, simultaneously, creating an ideological foundation for collective political action by all LDC exporters - since demand-side problems affect all LDC exporters in roughly the same way and identify a common political target. 21 This combination has proved to be a successful one for the third world. For example, in 1965, Part IV, which explicitly recognises development goals and the special conditions of developing countries, was added to the GATT and by 1971 most core countries had undertaken to implement a generalised system of preferences for LDC exports. These constitute considerable changes in the trade regime by contradicting the reciprocity and non-discrimination norms, the two most fundamental pillars of the GATT system in its early years.

Whereas the benefits of collective confrontration at least potentially accrue to all LDC exporters, the discussion in Section I above suggests that the benefits of trade following the regime changes were


not equally distributed. A small number of countries (NICs and NECs), accounting for a small proportion of total LDC population, experienced relatively high rates of export growth (in both value and volume terms) through the economically turbulent 1970s, when most LDC exporters, as well as most core countries, barely held even. Although strictly economic supply-side factors account for much of this success, a major contribution was made by a successful political-economic strategy based on private and technocratic participation with core countries under the terms of the LIEO regime. Without such a strategy the NICs would have realised gains on a smaller proportion of their greater capacity for supply. The major elements of this strategy can be summarised as:

1. playing by the rules; while 2. aggressively taking advantage of opportunities created by the rules; and 3. participating in ad hoc rule changes which stabilise markets.

We can briefly consider each of these elements. Under the GAIT tariffs have ceased to be a major policy tool. As

a result, incremental adjustments in the level of protection are provided by a variety of non-tariff barriers, the most important of which are the GAIT-allowable administered protection mechanisms described in Section II of this paper. 22 As long as trade conflicts can be kept at the low visibility/technical end of the administered protection mechanism, our research indicates that cases will tend to be determined on their technical merits (Finger et al., 1982). Thus, by learning the laws and procedures of the administered protection mechanism LDC exporters can effectively fight to minimise the impact of incremental changes in the level of protection on their products.23 A recent study of US-Latin American trade conflicts (Odell, 1980 p. 223) corroborates this conclusion with the finding that:

The Latin American strategy used to the greatest effect could be called a technocratic strategy. This strategy requires mastering the technical details of the relevant business and related laws, precedents and institutions, and using this mastery to persuade middlelevel officials in the US to accept a favorable technical argument or interpretation. 24


The second and third elements of successful NIC strategy recognise explicitly the dynamic nature of the political-economic environment in which trade conflict occurs. Most systems of rules contain some flexibility which creates opportunities if an actor has the capacity to recognise the opportunity and act on it. The most obvious example is the NIC response to the Multi Fibre Arrangement (MFA). In the face of simple quantitative restrictions the East-Asian NICs shifted production into higher value-added product lines, thus increasing their returns from the same quantity of exports (Keesing and Wolf, 1980). As the restrictions are drawn increasingly tight, exporters can diversify into other branches of light manufacturing, eventually leaving the highly protected sectors completely (Donges and Riedel, 1977). Furthermore, as Yoffie (1981) suggests, LDC exporters should consciously seek ambiguity and flexibility in restrictive arrangements as a quid pro quo for accepting the arrangements.

The MFA also illustrates nicely the third element of NIC strategy: participating in ad hoc rule changes which enhance system stability. The MFA is obviously not in the short-run interests of the major textile exporting LDCs: its explicit intention is to slow the growth of imports into AIC markets and a secondary effect has been to permit relatively rapid growth in market share by smaller exporting countries not originally covered by the 'voluntary' export restraints negotiated under the MFA. Furthermore, although permitted by the GATT, the MFA is clearly in violation of its protection reduction, nondiscrimination and development norms. None the less the NIC states recognised that the alternative to such a rule change could be a series of protective actions and GATT suits which could politicise and destabilise the system, eventually producing even higher levels of protection. By pursuing a strategy of participation in the process, LDC states may gain some good will for use in future negotiations, establish some presumption with reference to future rule changes and, most importantly, they may succeed in negotiating lower levels of protection than originally preferred by the AICs.

The final issue to be addressed in this chapter has to do with the continued viability of export-led industrialisation strategies. As we have already suggested, this question revolves around two issues:

1. The proximity of LDC exports to the threshold beyond which core countries will engage in higher levels of protection; and

2. Tranformation in that threshold.


Most of the debate on the prospects for LDC exports revolves around the first question. The main line of argument for the export pessimists is the fallacy of composition argument:

If all small countries adopt (outward oriented) policies on the assumption that their individual impact on the world market will be small, the total impact may nevertheless be large and may generate the market barriers which each alone could successfully have avoided. (Helleiner, 1973, p. 27)

The main line of response to this position by the export optimists has been to examine the degree of actual market penetration by LDC exporters. One such study (Hughes and Waelbroeck, 1981) finds not only that the market share of LDC exporters in any given industry is small25 but that there is no statistically significant relationship between the level or rate of change of market penetration and the incidence of protection. This leads to the conclusion that there is still substantial room in the system for expansion of imports from LDCs.

Before turning to the question of changing tolerance for imports, it should be pointed out that the empirical analysis of the export optimists is problematic on at least two grounds. The first problem relates to the degree of opportunity for exporting implied by the currently low level of penetration. A study by Cline (1982) simulates the expansion of LDC exports if all LDC exporters performed as well as the four East Asian NICs (Hong Kong, Korea, Singapore and Taiwan). 26 He concludes:

The simulation exercise indicates that generalisation of the East Asian model of export-led development across all developing countries would result in untenable market penetration into industrial countries ... Using an LDC import penetration ratio of 15 as a threshold beyond which protective response would be expected, fully four-fifths of the industrial country markets for manufactured exports from LDCs would be vulnerable to probable protective action in the face of the flood of LDC exports caused by a general adoption of the East Asian export model. (p. 89)

The second problem with the export optimists' empirical analysis relates to the insignificant relationship between import penetration and level of protection. The problem is that, in the core countries, as


a result of their GA TI commitments, the tariff structure no longer changes in response t9 policy shocks. As a result, the tariff structure will not adequately reflect the system's response to import competition. A more adequate measure would be the incidence of affirmative findings in the administered protection mechanism. Finger (1981) presents such data for the United States: for anti-dumping and countervailing duty cases, five of the cases filed against AIC exporters were found affirmative compared to 59 of the LDC cases.27

Furthermore an IMF study (Nowzad, 1978) documents the increase in protective acts since the early 1970s in broader terms. Thus there are considerable grounds for scepticism about the demand side of the case for export optimism even if we assume a relatively fixed propensity to protect.

Such an assumption would seem to be unwarranted. The analysis of Section II suggests that the domestic Welfare commitments of the core states drive them increasingly to use international policy instruments to affect the domestic economy. The administered protection mechanism again provides a good example. Finger (1981) demonstrates that filing an anti-dumping or countervailing duty case has a statistically significant negative effect on import growth - a harassment effect. Thus we can define increased ease of filing of such cases as an indicator of increased willingness to grant marginal protection on the part of Congress (the body that defines the rules regulating administered protection). An examination of the trade legislation since the late 1950s in fact shows a steady process of easing access to the administered protection mechanism (Nelson, 1981). Furthermore Congress in recent years has been increasingly willing to consider the possibility of directly legislating protection - the domestic content legislation for automobiles is a recent example - which raises the spectre of a massive shift in the level of protection along SmootHawley lines as a function of 'log-rolling' in Congress.

A final dynamic element to consider relates to the distribution of LDC exports among the core countries. A paper by Peter Gray (1982) demonstrates that the US economy has absorbed a greater proportion of NIC exports than other core countries and that, while the rate of growth of NIC imports into the United States grew from 1968/73 to 1973/8 it declined in Canada, the EEC and Britain (to zero). As Gray suggests, this can be expected to reduce US commitment to international openness and encourage attempts to shift NIC exports onto other core countries- as it recently attempted to do with Japanese cars. In periods of slow growth, displacement of national


producers from domestic or international markets can produce strong political pressure for protectionist responses which could conceivably snowball into beggar-thy-neighbour economic warfare. Again the probabilities of such an outcome are increased by the political-economic rigidities imparted to the core states by their domestic welfare commitments.

The argument of this chapter is that the demand-side prospects for export-led growth are rather bleak. This conclusion is made rather bleaker by the recognition that there are precious few alternatives. Import-substitution beyond the first stage has been tried and found unworkable in all but a few very large countries (and most of them have eventually sought a more outward orientation). Lewis's prescription in his Nobel Prize address (Lewis, 1980) was increased South-South trade and integration, but the historical record on the latter is not encouraging (Vaitsos, 1978) and what evidence there is of the former shows no strong tendencies developing in that direction either (Havrylyshyn and Wolf, 1983). It is probably not particularly comforting to recognise that supply-side constraints in most LDCs will keep them from being a source of major pressure on the core countries.

Notes

The World Bank does not accept responsibility for the views expressed herein which are those of the author and should not be attributed to the World Bank or to its affiliated organisations.

1. The debates over trade as an 'engine of growth' are complex and inconclusive. The locus classicus of this debate is Nurkse's (1961) contention, recently reasserted by Lewis (1980) in his Nobel Prize address, that international trade had provided the motive force behind the economic growth of national economies in the nineteenth century but that, for a variety of reasons, the engine would not work for the developing countries of today. The primary response to this line of analysis is the position taken by Kravis (1970) that factors endogenous to LDCs are far more important to the growth process than international demand factors. This line of analysis underlies the World Bank/IMF approach to development and adjustment: that is, an outward adjustment promotes efficiency in the domestic economy - it is, in Kravis's words, a 'handmaiden of growth', not an engine. Also see Riedel (1984) for additional criticism.

2. See especially the work on bureaucratic authoritarianism in Latin America by such scholars as O'Donnell, Cardoso, Stepan, Schmitter, and Kaufman. A good place to start on this literature is the volume of papers edited by Collier (1979).

3. The classical statements of this position are Prebisch (1959) and Singer


(1950). A number of scholars have since presented variations on more or less the same theme. Findlay (1981) presents a useful survey and synthesis and Taylor (1983) provides a detailed presentation of the model underlying one such variant.

4. See Cline (1982b) for a discussion of the concept and an argument that reciprocity is becoming more important as the core nations experience intensified domestic economic problems.

5. See Finlayson and Zacher (1981) for an excellent discussion of GATT rules based on the highly useful distinction between sovereignty norms (that is, norms encouraging the pre-eminence of national over international logics) and interdependence norms (that is, norms encouraging international logics).

6. These figures are highly aggregated and, thus, only indicative. For greater detail by product and market see Yeats (1979) tables 4.4 and 4.7.

7. See Findlay and Wellisz (1982), Baldwin (1982) and Magee, Brock and Young (forthcoming) for attempts to model this political process. Nelson (forthcoming, a) provides a convenient survey of this literature.

8. Little, Scitovsky and Scott (1970) summarise the OECD study; Balassa (1978; 1981) presents relevant World Bank sponsored research: Donges (1976) and Donges and Riedel (1977) summarise results from a project at the Kiel Institute for World Economic Studies; and Bhagwati (1978) and Krueger (1978; 1983) summarise the results of the National Bureau of Economic Research studies under their direction.

9. A similar result was shown by Kravis (1970) who found that ' ... successful performers among LDCs were differentiated from the less successful primarily by increases in their shares in the world market for their traditional exports rather than by good fortune in world demand for their particular exports' (p. 868).

10. Polanyi (1944) tells the story of how, concretely in the case of England, economic relations between people were 'disembedded' from other social relations. Counter-tendencies began to emerge almost simultaneously but only began to accelerate in the post-depression era. In fact the primary concern of the welfare state in its early development was with the economic effects of the capitalist system on people - security of savings (Securities and Exchange Act of 1934, Banking Act of 1935), protection of income (Social Security Act of 1935, Employment Act of 1946) and so on. By the mid-1960s, however, the concern for physical well-being also began to grow, as evidenced by the cluster of legislations on these issues in the 1967-72 period: motor vehicle safety, consumer protection and occupational health and safety (Noble, 1982; Bowles et al., 1983).

11. We can define a welfare state as: a capitalist state committed to improving the match between the norms regulating behaviour in the economy and the norms operative in the rest of society without altering the fundamental (that is, capitalist) relations of production and exchange. Since the pursuit of such a policy involves obvious and considerable efficiency costs, it is likely to be viable only in relatively wealthy countries. We leave open the question of whether such a policy is viable in the long run even in relatively wealthy countries. Bowles (1983)


suggests three major policy components of the modern welfare state: the safety net (that is, direct income support); the citizen wage (that is, direct provision of education, health care and so on); and counter-cyclical macroeconomic policy (the pursuit of full employment and price stability).

12. Corden (1974) presents a very neat analysis of this problem in the context of trade theory by developing the concept of a 'conservative social welfare function' as a defining characteristic of the welfare state. This is defined as: 'a social welfare function which includes the following income distribution target: any significant absolute reductions in real incomes of any significant section of the community should be avoided' (p. 107).

13. See Gerschenkron (1966), Moore (1966) and Gourevitch (1978) for analyses of the particular political coalitions which emerged and their effect on overall political-economic development in various countries.

14. The Stolper-Samuelson theorem is one of the core propositions of neoclassical trade theory. It states that an increase in the relative price of one commodity raises the real return of the factor used intensively in producing that commodity and lowers the real return of the other factor.

15. It is not too unreasonable to suggest that Thatcherism and Reaganism constitute attempts to carry out a transfer from labour to capital. Bowles et al. (1983) see the entire 1970s as an extended period of political counter-attack by capital against the welfare state. Reagan's and Thatcher's frontal assault on the welfare state's commitment to economic and social equity and environmental safety may tend increasingly to polarise conflicts rather than to defuse them.

16. The Reagan government's actions against steel imports as well as earlier actions against automobile imports can be seen as just such a response. The more successful is the counter-attack against labour, the less necessary is the protectionist response.

17. The following discussion assumes continued stability of the core and maintenance of the historical trajectory the regime has followed to date. If the core were to fragment we would expect the rapid emergence of rival trading blocks with very different implications for NIC and LDC strategies.

18. See Nelson (1981, forthcoming, b) and Finger et al. (1982) for greater detail on the material in the following three paragraphs.

19. The early rounds of the GATT were almost exclusively concerned with tariff cutting. As tariff rates have been negotiated to insignificant levels in many sectors, the GATT participants have been led to attack other trade-related practices. This has involved the GATT increasingly in attempts to define general rules for trading nations. The Tokyo Round (Multilateral Trade Negotiations) went furthest into non-tariff rules.

20. Prebisch's analysis was rooted in standard Keynesian economics. It did not question the general virtues of capitalism as a mechanism for allocating production or consumption the way imperialism theory or dependency theory does. Its analysis of structural problems in demand, in the international capital markets and asymmetries in market power implied reform of the system, not its elimination.


21. See Nye (1973) and Rothstein (1979) for more extended discussions of UNCT AD. For an excellent discussion of the evolution ofthe ideological roots of 'third worldism' see Murphy (1984).

22. Baldwin (1970) and Swann (1983) provide extensive discussions of the wide range of non-tariff barriers in the United States and the European Community respectively. Greenaway (1983) is a clear presentation of the analytical and empirical issues relevant to current trade policy; Part III explicitly treats the New Protectionism.

23. It should be noted that the incidence of cases involving LDCs will continue to be greater than that involving AICs simply as a function of what LDCs export to AIC markets. The bias against LDC exports is a function of the domestic political economy of AICs and not of any conscious attempt to construct a system of dependency.

24. This conclusion should hold mutatis mutandis for conflicts with the EC where the major difference is in the mode of operation (Nelson, 1981).

25. Their study finds only four 5-digit ISIC industries out of more than 150 in which the LDC share of the AIC market exceeded 25 per cent: leather, knitted apparel, furs and jewellery. Donges and Riedel (1977) present similar results.

26. Cline recognises the extreme nature of the assumption that all LDCs will perform at such a level (although the implication of the export optimist's position is that they can) and performs a similar analysis on a more limited sample ofLDC exporters (Argentina, Brazil, Colombia, Mexico, Indonesia, Israel and Malaysia). Even with this limited sample, market penetration exceeds 15 in 63 of imported manufactures from LDCs.

27. It is important to be clear about this finding. Our research on administered protection indicates that technical criteria dominate the decision process in anti-dumping and countervailing duty cases (Finger et a/., 1982). Thus the finding of a much larger proportion of affirmative findings in the case of LDC exporters reflects the bias against the products of LDC exporters consistent with the welfare commitments discussed in section II and not an explicitly anti-third world bias.

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7 The Future of the Newly Industrialising Countries: An 'Uncertain Promise'? Chung-In Moon

I INTRODUCTION

Over the last two decades, a small number of developing countries known collectively as 'the newly industrialising countries' (NICs) have emerged as significant actors in the international economic system. Far from fitting the conventional definition of underdevelopment, these countries have demonstrated upward mobility in a quite rigid hierarchy of the world economy through rapid economic growth, dynamic export drives and accelerated industrialisation. The sudden rise of this group of countries has evoked much discussion, some of it captious, in the international political economy literature (Donges and Riedel, 1977; OECD, 1979a; Turner et al., 1980; Balassa, 1981a, 1981b; Turner and McMullen, 1982; McMullen, 1982; Haggard, 1983, 1986; O'Neill, 1984; Cheng, 1987; Deyo, 1987; Gereffi and Wyman, 1987).

The NICs phenomenon has attracted scholarly attention for two distinct reasons. The NICs challenge the tight binary classification of the world into North and South with their new image of the 'middle class of an evolving world society' (OECD 1979a, p. 400). Suggesting a shift in the international division of labour, the NI C strategies were for a time perceived as 'the way out' for other less developed countries trapped in poverty and economic backwardness. The NICs represented a phenomenon that partially confirmed the conversion thesis of the modernisation school, implying that other developing countries could also transform themselves from underdevelopment into modern industrial societies.

On the other hand, the NICs syndrome has stirred up a plethora of policy debates on the durability of the industrial order and stability of the West. The advent of the NICs has been regarded as a profound threat and challenge to the advanced economies. At a time of

153

154 The Future of the NICs: An 'Uncertain Promise'?

persistent recession, unemployment and industrial dislocation in the West, the dynamic advance of some NIC manufacturing sectors alarmed the West and stimulated debates on how to cope with the subsequent shocks and traumas.

This chapter intends to explore the dynamics of this new phenomenon within the larger framework of the international political economy. Section II surveys the recent theoretical debates on the NICs as a way of giving the topic a discernible analytic locus. In the third section commonalities of the NICs are examined in terms of leading economic indicators over the last two decades. The fourth section traces some causal factors responsible for the rise of the NICs, which also differentiate them from other developing countries. The fifth section diagnoses the current situation of the NICs and identifies various internal and external constraints to their further progress and growth. The final section attempts to project the future of the NICs by focussing on patterns of crisis management, the chances for their permanence, the transferability of the NIC model to other developing countries, and the level and degree of their impact on the international system.

II THE NICs: CONTENDING ANALYTICAL PERSPECTIVES

No consensus exists on which countries are NICs. As Table 7.1 illustrates, the number is quite elastic and arbitrary, ranging from six core members (the East Asian 'Gang of Four' and the two Latin American giants) to twenty or more. 1 Nor is there any agreement about how this group of countries should be labelled. They are sometimes referred to as the semi-periphery (Wallerstein, 1974a, 1979), semi-industrial countries (Bergsman, 1979; Balassa, 1981b), advanced developing countries (Mathieson, 1979), intermediate (Frank, 1981), subimperial (Marini, 1973) and even 'go-between' countries (Galtung, 1974).

The confusion is due to the incongruities inherent in selecting criteria to identify the NICs. Selection criteria range from the rate of economic growth, export performance in manufactured goods and the expansion of industrial sector to the level of national income. Causal factors in the rise of the NICs have also been subject to diverse interpretations, involving an array of both static and dynamic variables such as cultural factors (for example, Confucian Asian v.

Chung-In Moon 155

Table 7.1 A comparison of various lists of newly industrialising countries (NICs)

No. oftimes Region Country ABCDEFGHI J listed

Asia Hong Kong xxxxxxxxxx 10 India XXX X X 5 S. Korea xxxxxxxxxx 10 Taiwan xxxxxxx XX 9 Singapore xxxxxxxxxx 10 Malaysia XXX X 4 Pakistan XX X 3 Iran X 1 Philippines xxxx 4 Thailand XXX 3

South America Argentina xxxx XX 6 Brazil xxxxxxxxxx 10 Mexico XX xxxxxxx 9 El Salvador X 1 Guatemala X 1 Costa Rica X 1 Chile X 1 Colombia X XX 3

Mediterranean Spain X xxxxx 6 Portugal X XX XX 5 Israel XX XXX 5 Malta X 1 Greece X XX X 4 Turkey X XXX 4 Lebanon X 1 Egypt xxxx 4 Tunisia X 1

Eastern Europe Yugoslavia XX xxxx 6 Poland X 1 Romania X 1 Hungary X 1 Total 23 22 16 16 15 10 9 6 8 6

Notes: A Government Economic Service (1979); B Morton and Tulloch (1978); C Pelkmans (1981); D World Bank (1979), Balassa (1981a, 1981b), Hersman (1979); E Donges and Reidel (1977) (1976); F OECD (1979b); G Edwards (1980); H UNCTAD (1979); I Turner and McMullen (1982), McMullen (1983), Lall (1984); J Mathieson (1979), Haggard (1983). Source: Adopted, with revision, from O'Neill (1984, p. 712).


Catholic Latin), market sizes, the quality and availability of human capital, articulation of development strategy, state structure and geopolitical setting. In addition, opinions on the future of the NICs vary from extreme optimism to grim pessimism.

The disarray is understandable given the novelty of the NIC phenomenon. The NICs are a new empirical dimension which is constantly evolving in the international economic system. Their economies have become mobile, dynamic and diversified, which fosters a new stratification and polarisation in the southern bloc. This anomalous and dynamic nature might have presented the NICs as a difficult analytical unit to approach.

A deeper and more important reason for this disarray might be related to the commitment on the part of various investigators to explain the NIC syndrome from a normative perspective. The epistemological positions taken by investigators have not been immune to hidden or more obvious motivations, intentions and purposes. Contending theorists and policy makers tend to use the NICs to justify their theoretical, empirical and normative positions, furthering analytical confusion.

For liberal, neoclassical economists, the dramatic advent of the NICs provides sufficient reason to proclaim the benefits and virtues of open economies and export promotion as sources of economic growth. The NICs constitute a powerful, empirical proof that open economies work better than closed ones. Liberal economists are therefore able to advance their argument that there is an inevitable historical process at work, common to all developing countries, which brings about changes in comparative advantages over time, thereby leading to a new configuration of the international division of labour in which developing countries are able to transform themselves. For them, the NIC phenomenon is neither unique, mystical, nor novel. When there is a proper mix of policies favouring an open economy, such as an efficient incentive structure, timely sequencing of development strategies from import-substituting industrialisation (lSI) to export promotion, and the application of other pertinent economic policies, developing countries can follow the NIC path. Liberal economists generally predict a bright future for the NICs and are optimistic in that they regard the changes as substantially permanent and transferable to other developing countries (Balassa, 1981a, 1981b; Krueger, 1978, 1983; Bhagwati, 1978; Little eta/., 1979; Corbo, Kreuger, and Ossa, 1985).2

Another perspective on the NICs is a neo-mercantile interpreta-

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tion that is gradually emerging in the West. The rapid expansion of NICs' exports in selected manufactured goods have recently caused industrial adjustment problems in the West. When the world economy was expanding, the NICs were regarded as insignificant freeriders whose impacts could be ignored. Since the mid-1970s, however, aggressive import penetration in the OECD countries by the NICs, coincident with a downturn in the world economy, began to reshape the image of the NICs from ignorable free-riders to spoilers who need to be tamed. This changing image in turn facilitated the formation of protectionist coalitions involving business, labour, bureaucrats and politicians.

Those who follow this perspective conceive the NICs as a quite broad phenomenon. All countries which do not belong to the OECD, yet threaten the Western industrial sectors with expanded exports, are referred to as NICs. The NICs, therefore, are regarded as comprising a large number of countries in East Asia, Latin America, Southern Europe and sometimes in Eastern Europe. Their selection is based largely on export performance in the manufacturing sector as it relates to the sensitivity to, and vulnerability of, industrial order and stability in the West. Theoretical and policy concerns of this approach have centred around both determinants of the export drive of the NICs and measures to correct their unfair trade practices bilaterally or multilaterally (OECD, 1979a; Hamilton, 1980; Cline, 1984; O'Neill, 1984: Cheng and Haggard, 1987).

While the previous two approaches attempt to understand the rise of the NICs in terms of shifting patterns of comparative advantage and its management, the Marxist-dependencia theorists perceive this new phenomenon from a different angle. They place the NICs within a larger framework called 'semiperiphery' which represents 'an amalgam of countries with a wide variety of development patterns, more diverse than the core or periphery' (Wallerstein, 1974b, p. 7). NICs in particular and the semiperiphery in general are products of the internal logic of capitalist movement designed to avert its potential demise through the creation of a 'middle class' to avoid the impending crisis. Put differently, the NICs emerged out of a peculiar conjundure of world economic downturn and hegemonic decline, at which increasing comparative costs of production and a wage productivity squeeze in the core accelerate the shift of capital from the core to the semiperiphery (Wallerstein, 1974b, 1979; Evans, 1979; Warren, 1980; Duvall and Freeman, 1981; Arrighi and Drangel, 1986).


This approach treats economic growth, industrialisation and export performance as secondary variables. In their stead, wage patterns, profit margins, and related economic structure and labour control mechanisms serve as important criteria for differentiating the semiperiphery from other countries. Therefore the semiperiphery includes a wide range of countries including the whole outer rim of Europe, New Zealand and Australia, OPEC countries, and the NICs (Wallerstein, 1979, p. 100). Regarding the future of NICs in particular and the semiperiphery in general, there are divergent opinions. Orthodox Marxists (Warren, 1973, 1980) and most recent dependencia theorists (Cardoso and Felleto, 1979; Evans, 1979) argue that capitalist industrialisation and development have occurred and will continue in some developing countries to a significant degree, although the ultimate possibility for self-sustaining development is limited because of the perpetual capital and technological dependence on the core. On the other hand, others regard the NIC phenomenon as a mere illusion that has no permanence or replicability by the very logic of capitalist development (Wallerstein, 1974b: 7; Arrighi and Drangel, 1986).

Apart from the above three approaches which treat the NICs primarily from the economic vantage point, a new breed of scholars, labelled as statists, began to look into political determinants of the NICs. Heavily influenced by the Gerschenkronian thesis on the role of the state in late-industrialising countries, they have paid attention to causal links between state structure, policy choice and economic performance. Statists argue that a changing configuration of comparative advantage and the 'boom and bust' cycles of the world economy are simply background conditions. In their view, what really matters in the context of the NICs is the domestic political dynamics that shape policy choices and implementation, and ultimately determine economic outcomes.

Statists concur with neoclassical economists in that an outwardlooking development strategy was the key to the success of the NICs. But statists go one step further by identifying political prerequisites for the adoption and implementation of an export-led growth strategy. They argue that the adoption of an outward-looking strategy was not a result of market forces, but of a conscious state choice to realise economic and political objectives. Furthermore its consistent and coherent implementation has been facilitated by state strength unique to the NICs, which is manifest in the state's capability to insulate technocratic and economic decision making from contending social

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pressures. Political insulation of the economy, which is essential to the continuation of an export-led growth, was possible through the formation of a hegemonic developmental coalition and the exclusion of the popular sector. In view of this, the continued success of the NICs depends on the longevity of state strength, which is determined by a changing balance of power between the state and society (Caporaso, 1981; Haggard, 1983, 1986; Haggard and Moon, 1983, 1986; White and Wade, 1984; Cheng, 1987; Deyo, 1987; Clark and Lemco, 1988).3

We can derive three major analytical concepts from the above survey of the contending perspectives: market, state and international system. As we·shall discuss below, however, the dynamics of the NICs cannot be fully elucidated by relying on a single variable. The rise of the NICs is a product of dynamic interplays of market, state and the world economy. Therefore the following analysis draws on an eclectic synthesis of the above approaches. As to the constituents of the NICs, we follow the minimalist definition by limiting the number of the NICs under study to six: the East Asian 'Gang of Four' (South Korea, Taiwan, Singapore and Hong Kong) and two Latin American giants (Brazil and Mexico).

III THE RISE OF THE NICS: AN EMPIRICAL OVERVIEW

The central feature distinguishing NICs from other developing countries and even from the core is economic performance and a consequent change in their structural position in the international division of labour over the last two decades. Indeed measuring economic performance may be elusive and tricky (Donovan 1983). Nonetheless economic performance of the NICs, measured by three basic indicators (overall growth rate, industrial capacity and export performance), reveals the enormity of their success.

Table 7.2 provides us with the growth patterns of the NICs over two decades. The figures indicate that the NICs as a whole enjoyed consistent growth from 1960 to 1981, while other groups of countries experienced a slight decline in growth rates during the period. More impressive, the NICs have survived two major oil shocks in the 1970s and maintained an average annual growth rate of 8.4 per cent from 1974 to 1985. The Latin American NICs exhibit slightly less growth than the East Asian group. As shall be discussed below, this may be attributed to different timing and degree in sequencing development


Table 7.2 Growth performance (average annual growth rate, percentage in GDP)

Country 1960-70 1970-81 1980-5

Korea 8.6 9.1 7.9 Hong Kong 10.0 9.9 5.9 Singapore 8.8 8.5 6.5 Taiwan 9.2 8.0° 6.1b Mexico 7.2 6.5 0.8 Brazil 5.4 8.4 1.3 N/Csc 8.2 8.4 4.85 Low-income countries 4.6 4.5 1.6 Middle-income countries 6.0 5.6 1.7 Industrial market economies 5.1 3.0 2.3

Source: World Development Report 1983 World Bank, pp. 150-1; World Development Report 1987 World Bank, pp. 202-5. 0 1970-8 period: data from World Development Report 1978. b1980-4 period: Taiwan Statistical Data Book, 1986, Council for Economic Planning and Development, Taiwan, Table 3-1a. c Aggregate data for four World Bank country groups are weighted averages.

strategies from import substitution to export promotion. Nevertheless, compared with the industrial market economies which show a sharp decrease in growth rate from 5.1 per cent in the 1960s to 3.0 per cent in the 1970s, the overall growth performance of the NICs is quite remarkable. During the period 1980--5, most NICs suffered severe economic crises. But in general the NICs showed better growth rates than any other groups of countries. However growth performance among the NICs was not even. While the East Asian NICs recovered soon from severe economic downturns averaging 6.8 per cent annual growth during the period, the Latin American NICs continued to stagnate, showing 1 per cent average annual growth rate.

A similar trend can be seen in industrial production. While the three World Bank groups (low-income, middle-income, and industrial market economies) hovered around single digit growth rates in industrial production, most NICs enjoyed double digit rates throughout the 1960s, and still higher performances in the 1970s. The exception is Hong Kong where a burgeoning service sector started to replace industrial production. In addition, an increase in industrial diversification can be deduced from the rapid growth rate in the manufacturing sector. Although manufacturing growth declined slightly from the 1960s (when heavy investments in key manufactur-

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ing sectors were made) to the 1970s, manufacturing production continues to remain a major sector leading to rapid economic growth in general and industrial production in particular. Compared with low-income group countries and industrial market economies (2.9 per cent and 3.1 per cent respectively in the 1970s), the overall performance of the NICs in the manufacturing sector is quite remarkable, ranging from 15.6 per cent in Korea to 7.1 per cent in Mexico.

While the other three World Bank groups experienced stagnant or negative trends in manufacturing as a share of GDP from the 1960s to 1970s, the NICs have shown a constant increase. As of 1981, the NICs surpassed the level of industrial market economies, suggesting further industrial deepening and diversification. Within the NICs, however, a sharp contrast exists between the East Asian and the Latin American. While the East Asian group's increase in the share of manufacturing more than doubled between 1960 and 1970 (indicating very drastic changes in the industrial structure), Brazil and Mexico were slower. This might be largely owing to the duration of the impart substitution index (lSI). While the Latin NICs had a difficult transition to export promotion as a result of a longer duration of the lSI dating back to the Great Depression, the East Asian NICs experienced only a short period of inward-looking strategy before adopting export promotion. In addition, Latin NICs' traditional reliance on the production and exports of primary commodities accounts for this variation.

The most salient aspect of the NIC phenomenon derives from their export performance, which is crucial for two reasons. First, economic growth and industrialisation in the NICs has been driven by export promotion. Second, their export drive has become a potential and actual source of change in the international economic system in that the dominance of the North in the world market is somewhat threatened.

The NICs have performed extremely well in average annual growth rate of exports. Among them, Korea's export growth has been most impressive, reaching 34.1 per cent and 22 per cent annual average increases in the 1960s and 1970s respectively, followed by Taiwan and Hong Kong. Comparatively, Mexico and Brazil, along with Singapore, exhibited slightly lower rates of growth for reasons which shall be discussed later. Mexico's quantum jump from 2.8 per cent in the 1960s to 15.3 per cent in the 1970s is attributable chiefly to the oil boom of the mid-seventies. Additionally, the NICs increased their share of world total exports from 3. 7 per cent in 1970s to 5.5 per cent in 1978, implying relative as well as absolute growth.


A striking dimension of this export drive is the export performance in manufactured goods. In the case of Korea, manufactured exports as a share of total exports rose from 14 per cent in 1960 to 91 per cent by 1985. Taiwan, Hong Kong and Singapore also show large increases in manufactured exports. In fact Korea (91 per cent), Hong Kong (92 per cent) and Taiwan (94 per cent) greatly exceeded the level reached by the industrial market economies (77 per cent) as of 1985 in the share of manufactured export. Brazil (41 per cent) and Mexico (28 per cent) showed remarkable improvement in 1985, compared with their 1960 level (World Bank, 1980).

It is this absolute and relative growth in exports of manufactured goods that has made possible the upward mobility of the NICs in the international economic system. This export explosion entails another significant dimension, however. The growing concentration of manufactured exports in these six countries has raised the issue of stratification and potential cleavage within the South. For example, the six accounted for only 39 per cent of total developing countries' manufactured exports in 1965. This trend drastically changed by 1979, by which time almost two thirds (68 per cent) of manufactured exports originating in the developing countries came from these six (McMullen, 1982, p. 3). A study on the sectoral composition of manufactured exports by Keesing (1979) makes this aspect more real. The study shows that the six, along with Yugoslavia and Argentina, controlled 81 per cent of the LDC trade in clothing, 47 per cent in textiles, 86 per cent in consumer electronics and electrical machinery, 74 per cent in iron and steel, and 72 per cent in machinery and transport equipment in the mid-1970s.

Associated with the impressive economic performance discussed above is the growing power and influence of the NICs in the international economic system. Economic growth and industrial deepening transformed the NICs into important markets for the advanced industrial economies. In order to grow further and to export more value-added industrial goods, the NICs must import more capital and intermediate goods from the North. This increasing demand and purchasing capability have created a new structure of interdependence between the NICs and advanced industrial countries, allowing the NICs to be more flexible, though limited, in the bargaining process with Northern countries.

An example of increased power and influence of the NICs can also be found in the recent third world debt crisis. Although the NICs are principal debtor nations, they have become important actors serious-

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ly affecting the banking structure in the West. The survival of leading world commercial, financial institutions is closely tied to debtservicing and principal repayment capabilities of the NICs, particularly Mexico and Brazil. This mutual dependence gives more bargaining leverage to the NICs in reducing pressure for time, inducing rescue-loan packages, and rescheduling the debts.

The NICs also represent growing raw material importers as well as sources of relatively low-cost industrial goods and technical expertise for developing countries. The NICs' attempts to diversify their trade partners and their increasing ability to do so are posing other problems affecting the global market structure in which the predominant role of the advanced industrial countries might be weakened. In a similar vein, the newly emerging complementarity of interests among developing countries, for all their problems of heterogeneity and stratification, may provide a powerful impetus to the consolidation of inter-South horizontal linkages. 4

IV WHY NICs SUCCEED: TIMING, SEQUENCE AND POLITICS

The examination of the economic performance of the NICs during the last two decades reveals two interesting phenomena. One is that, while other developing countries continued to suffer chronic underdevelopment, the NICs sustained impressive economic growth, industrialisation and export drives. A second point of interest is that there was a relatively wide variation between the Latin American and the East Asian NICs in their economic performance. What makes the NICs so distinctively different from other developing countries? What accounts for the variation between the two groups of the NICs? This section attempts to answer these two questions by looking into causal factors responsible for the rise of the NICs.5

Timing and the World Economy

In explaining the dynamics of the NICs, liberal economists, statists, Marxists and World System theorists alike emphasise the importance of the external economic environment as it relates to the timing of development sequencing, world market changes and shifting patterns of international capital flows. Singer (1978), Krause and Ring (1981), McMullen (1982) and Cline (1984) argue that the expansion of


export-led industrialisation in the NICs was not possible without external buyers for their exports, particularly given small market size or market saturation caused by lSI which had earlier prevailed in these countries. Demand for exports is contingent largely on the rate of growth in the world economy and the subsequent changing pattern of the world market structure. In this context, it is noteworthy that the general shift of development strategy to export promotion coincided with an unprecedented boom period in the world economy. With the exception of Hong Kong, most NICs underwent the transition from an inward- to an outward-looking strategy between 1960 and 1968. During this period, the rate of growth in the world economy averaged more than 5 per cent annually. Additionally, growth in the volume of world trade reached 8 per cent during 195~72, dramatically reversing the record low growth rate of 0.9 per cent between 1913 and 1939 (Anell1981, pp. 33-9). This synchronisation in the precise timing of the shift in development strategy with an unusually buoyant world market may offer an important clue to a fuller explanation of the successful rise of the NICs.

While the booming world economy in the sixties and early seventies facilitated the initiation of an outward-looking development strategy, the world economic climate throughout the seventies was rather hostile to the NICs. The world economy in the seventies went through a series of traumas: the commodity price boom of the early years, the oil crisis, protracted recession and slow recovery. Reflecting such difficulties, OECD economies showed record low growth performances; -0.1 per cent in 1974 and -0.6 per cent in 1975 (Anell 1981, p. 34). This sharp decrease of world market demand trembled the foundation of the NICs' economies which were based on export drives, whereas the foreign exchange burdens triggered by high oil prices and commodity price increases severely worsened the balance of payment positions of the NICs. The NICs in general, however, managed to overcome these constraints without altering the course of export promotion during this period.

What accounts for this rather successful adjustment in the NICs? Several explanations have been suggested. Balassa (1981a, pp. 76-7) for example, argues that it is due to their effective policy adjustment. By expanding exports more aggressively, liberalising imports, rearranging the industrial structure and concentrating foreign capital inflows in industrial investment (rather than in the consumption sector), the NICs, particularly those in East Asia, were able to overcome vulnerabilities caused by the very openness of national

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economies. In contrast, Mexico and Brazil suffered because of their continuing inward-looking policy orientation and general policy insensitivity to external shocks, although the overall shock level to their balance of payment positions was relatively low. In addition, some contingent factors have also been cited in explaining the NICs' successful adjustment, such as the Middle East oil boom and its positive spill-over effects upon the economies of the East Asian NICs.6

However effective policy adjustment is not the sole determinant of the continuation of the NICs' growth and export drive during the global recession. The timely and massive inflow of international capital in the seventies was an equally important contributing factor. Recession in the industrial West entailed the waning international competitiveness of firms. Rising wage costs, increased production costs in the wake of public awareness of externalities, and overall decline in comparative advantage drove capitalists in the core to search for offshore production alternatives. The NICs offered them an ideal niche into which to transplant their business. Low wages, high labour quality and a congenial business climate, along with basic industrial infrastructure set up during the lSI period and the early phase of the export drive, were enough to attract substantial direct investment to the NICs from the industrialised countries.

The direct investment inflow represented only one aspect of capital movement into the NICs, however. A decreasing demand for capital in the core in the wake of the global recession facilitated the availability of commercial loans. Entering the 1970s, international financial markets became much more flexible and lenient toward the NICs. The sharp rise in medium-term Eurocurrency credits to them from 1971 to 1973 was sustained through the oil crisis without interruption. Owing to the recycling of petrodollars via the Eurocurrency market, the NICs had easy access to commercial loans which were instrumental in financing development and in easing severe current account deficits caused by heavy oil bills (Aronson, 1979; Hallwood and Sinclair, 1981; Jorge and Hiyannet, 1983).

In sum the NICs benefited not only from the expanding world economy at the initiating stage of an outward-looking strategy, but also from massive foreign capital inflow during the crucial period of economic contraction. In particular, the timely availability of foreign capital in terms of investment and loans helped not only to ameliorate the balance of payments situation and finance industrial restructuring for continued exports, but also played a significant role in


opening new markets through intra-industry trade.7 In view of this, the cyclical pattern of the world economy offered an important momentum through which the NICs could drive a path to an outwardlooking growth and a deeper integration into the international economic system.

Sequencing from lSI to Export Promotion

Apart from international economic conditions, the timely transition to an outward-looking strategy is another important determinant of the success of the NICs. Empirical findings by Krueger (1983, p. 7) indicate that an increase in the growth rate of export earnings of one per cent was associated with an increase in the rate of growth of GDP of about 0.1 per cent. Several liberal economists support this finding. (Balassa, 1981a; Bhagwati, 1978; Little, et al. 1979; Chenery, 1980; Cline, 1984; Westphal, 1978). While countries pursuing inwardlooking strategies, such as Tanzania and Jamaica under Manley, have experienced quite low growth rates, the NICs as a whole have achieved excellent economic results during the periods of an outwardlooking strategy.

It is, of course, presumptuous to generalise the supremacy of export-promotion strategy over an inward-looking one. Experiences in developing countries vary from one to another. Nevertheless the lSI approach, which evolved out of the unequal exchange thesis advanced by Prebisch and his ECLA associates, has long been subject to harsh criticism (Seers, 1967; Streeten, 1973; DiazAlejandro, 1976; Bhagwati, 1978; Krueger, 1978). Originally intended to protect domestic infant industries, it resulted in high consumer prices without creating more employment opportunities and perceived 'backward' and 'forward' linkages to other economic sectors. High tariffs, import quotas, monopolies and overvalued multi-exchange rates badly hurt export sectors by decreasing technological innovation and quality control, by bringing about inefficient resource allocations, and eventually by weakening the international competitiveness of domestic industries. Consequently, when the easy phase of import substitution ended with the saturation of the domestic market, lSI countries were in trouble, stuck with inefficient, high-cost domestic industries, unable to export and dependent on ever more necessary imports such as raw materials, intermediate and capital goods to operate the new and existing industries. The immediate chain effect was the emergence of a structural economic crisis.

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Low export and high import demands worsened balance of payment positions. Hyper-overvaluation of foreign exchange and wage expansion, combined with deteriorating current account balances, led to high inflation and slowed export growth, ending up with a high level of unemployment.

Export-led growth strategy in the NICs can be viewed as a desperate policy response to the failure of lSI. But the pattern of transition to an outward-looking strategy was not uniform across the NICs. Korea and Taiwan experienced a short duration of the lSI phase in the 1950s, which was followed by export-oriented industrialisation in the early 1960s. Hong Kong and Singapore virtually skipped the lSI stage, and entered the export-promotion stage directly from their traditional entrepot trade, which is attributable to their open economies in the colonial setting. However Mexico and Brazil took a different course. The long duration of the lSI (1930-55) was not immediately followed by export promotion. Despite conscious liberalisation and stabilisation efforts during the mid-1960s (Brazil in 1964 and Mexico in 1965), Brazil and Mexico entered the second phase of the lSI with selective export promotion in which the substitution of consumer goods in the first phase of the lSI was replaced by that of consumer durables, intermediate and capital goods. It was only after the early 1970s that Brazil and Mexico actively engaged in diversified export promotion. This difference in the timing of development sequencing and the relative degree of openness is pointed out as being a crucial factor differentiating Latin American NICs from East Asian NICs (Krueger, 1978; Ranis, 1980; Haggard and Moon, 1983: Haggard, 1986; Gereffi and Wyman 1987).

A wide range of economic policies was designed and implemented to facilitate the transition. Korea, Mexico, Taiwan and Singapore provided extensive credit preference to the export sector to the extent that interest rates for export credit were set at almost half the market rates. Korea, Mexico, Taiwan and Brazil also utilised an export-import bank scheme to support the export of strategic items (such as shipbuilding, plants, heavy chemical industrial goods). While Mexico subsidised exporters for new market penetration, Korea, imitating Japan's Shogo Shosa, set up the General Trading Companies with substantial financial, fiscal and administrative support. Export incentive schemes in taxation and tariffs also appeared. In most NICs, corporate tax and tariffs for those imported raw materials destined for export purposes were exempted. Moreover Brazil and Mexico waived import tariffs for capital goods and machinery for the


export sector (Kim, 1980; Balassa, 1981a; Korea Traders Association, 1981).

These discretionary export incentives were closely linked to macroeconomic, trade and foreign exchange rate policies involving a more liberal trade and payments regime, a unified exchange rate system accompanied by an initial sharp devaluation and by measures to maintain a competitive exchange rate, and a policy mix of demand and production management using fiscal and monetary tools to enhance exports and curb imports. However, the degree and scope of this policy reform varied across the NICs. While the East Asian NICs have been much more consistent and aggressive in liberalising and stabilising their national economies, the Latin NICs' efforts have been severely constrained by internal political opposition, resulting in lower growth and export performance (de Vries, 1979; Balassa, 1981b; Ranis; 1980).

Although the degree of openness and the timing of development sequencing were divergent between the Latin and East Asian NICs, the shift to export-oriented industrialisation produced positive payoffs. Export earnings increased to ameliorate balance of payment positions. More efficient allocation of resources reshaped comparative advantage in favour of the NICs. Moreover increased capacity utilisation, exploitation of economies of scale and improved competitiveness in international markets began to emerge as a result of the transition to the outward-looking strategy (Balassa, 1981a, pp. 15-23).

The above discussion indicates that the rise of the NICs is a function of a precise timing of the shift in development strategy, well matched with favourable external economic conditions. However the transition from the lSI to an outward-looking strategy is not solely dictated by such parameters as changing advantage, movements of international capital, and contraction and expansion of the world economy. After all, the transition is a policy choice which emerges out of dynamic interplays of domestic politics.

State Entrepreneurship

The majority of literature on the NICs treats the political variables as an exogenous or residual factor in accounting for the rise of the NICs. At best, political stability is singled out as an important background condition for the rapid industrialisation and the export drive in the NICs (McMullen 1982, p. 9; Bradford, Jr, 1982, pp. 21-2). In reality, however, politics plays a more critical role. Caporaso elaborates this

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point succinctly by stating that 'the nation state is the primary causal unit, or at least organizer of those causal forces which affect industrialization and development' (1981, p. 368). Indeed the states in the NICs went far beyond the 'conventional arsenal of parametric controls' (White and Wade, 1984, p. 2), and played a role of aggressive entrepreneurs in the quest for economic growth, capital accumulation and political legitimacy. 8

Generally speaking, state entrepreneurship refers to direct ownership of the means of production in terms of state enterprises (Frieden, 1980; Bennett and Sharp, 1982; Duvall and Freeman, 1981). The concept employed here, however, reflects a larger domain of state behaviour in terms of direct or indirect state intervention in the economy. State entrepreneurship therefore involves initiating, coordinating and implementing economic policies not only to ensure efficient market function, but also to achieve a set of economic and political objectives defined by the state (Donges and Riedel, 1977, p. 61; Jones and Sakong, 1980; Wade, 1984; White and Wade, 1984). Effective state entrepreneurship usually accompanies political capability to insulate technocratic and economic decision making from societal pressures to facilitate policy intervention (Caporaso, 1981; Haggard, 1981, 1983; Haggard and Moon, 1983, 1986; Cheng, 1987).

The nature of state entrepreneurship and its causal link to economic performance are not uniform across the NICs. The NICs as a whole, however, have exercised extensive entrepreneurial functions of initiating, co-ordinating, and implementing policy decisions in a decisive, coherent and consistent manner, eventually leading to remarkable economic outcomes.9

In Korea, the shift to an outward-looking strategy was not a result of the private sector's receptivity to changing internal and external market conditions, but of a state choice to cope with political and economic crises. Prior to the economic transition, Korea was confronted with a series of political and economic problems. Economic reforms following the military take-over in 1961 failed. Reductions in foreign aid aggravated the balance of payments. Inflation and unemployment were acute and pervasive, triggering immense social and political unrest. At the same time, the United States and the IMF began to press the Korean government to stabilise and liberalise the national economy. It was in this context that the Korean state was impelled to choose an outward-looking option as a political solution (Jones and Sakong, 1980; Haggard and Moon, 1983, pp. 152-5; Haggard, Kim and Moon, 1987).


Brazil offers another pertinent example where the state played the important role. In the mid-1960s, when the easy phase of lSI had resulted in economic and social crisis accompanied by extensive popular protests, the military intervened. In the vortex of the impending crisis, an outward-looking strategy was adopted by the military regime as a political response to the crisis. Singapore initiated a similar shift when situational factors (the failure of integration efforts with Malaysia) brought about a potential threat to the national economy (Hughes and Seng, 1969; Geiger and Geiger, 1973). In one way or another, an impending crisis or situational change has led the political leadership in NICs (with the exception of Hong Kong) to initiate a major economic shift, with the private sector following the lead of the state. 10

The initiation of an outward-looking strategy was followed by active policy intervention. Usually the transition from lSI to an outward-looking strategy requires 'a holistic and internally consistent shift in the entire range of relevant economic policies' (Bradford, 1982, p. 22), which should be implemented 'over the long run.' Though divergent in the degree and scope of policy intervention, the NICs in general actively intervened in, and orchestrated, economic affairs to achieve relatively well-defined objectives, economic growth, industrialisation and, ultimately, political legitimacy.

Although Hong Kong and Singapore remained largely laissezfaire, other NICs have been active interventionists. Korea, Taiwan, Brazil and Mexico all heavily intervened, not only by tightly controlling macroeconomic, trade and industrial policies, but also by influencing even micro-level corporate decisions on production and investment. The political authorities in all the NICs were instrumental in inducing foreign capital and investment by creating 'favourable' business climates in terms of labour control, tax holidays and other incentives. Furthermore the state mobilised domestic financial and administrative resources in order to expedite export promotion. At the same time, NIC governments maintained tight control over foreign exchange, trade and price, so as to enhance an export drive. In view of this, it can be argued, comparative advantage in the NICs was rather artificially induced by active state entrepreneurship than derived from market forces.

Such interventionist policies entail imbalances, bottlenecks and disequilibrium. As explained by Hirschman (1979, pp. 87-8), the entrepreneurial pursuit of growth and exports undermines the 'balancing' or 'legitimising' function of the state, creating opposition,

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grievances and discontent. For example, sudden or incremental import liberalisation invites opposition from the import-substitution industrial sector, small and medium-sized firms, and other affected economic sectors. Control of labour in order to interest foreign capital causes labour opposition and protest. The concerted allocation of domestic resources for the export sector triggers intensive grievances from other economic sectors damaged by it. Interest rate policy, foreign exchange rate policy, and other incentive measures are accompanied by unavoidable political pressures from the affected social forces. The ability of the state to insulate the national economy from these sociopolitical pressures distinguishes the NICs from other developing countries. Again the insulative capability has not been uniform across all the NICs. While the East Asian NICs have been more successful, the Latin NICs have been relatively weak, despite their systematic efforts to 'statise' or to 'corporatise' the social forcesY

Korea was successful in insulating its economy from socio-political pressures by systemically eliminating 'leftist' factions and by effectively organising, subsidising and controlling socioeconomic-political groups under the hegemony of the state (Haggard and Moon, 1983; Luedde-Neurath, 1984; Cumings, 1984; Hamilton, 1984). Singapore did it by consolidating the People's Action Party's monopoly rule with the systematic exclusion of radical left groups and by strict control of labour forces. In Taiwan, the early consolidation of political power by one party, the Kuomintang, and the relative weakness of the opposition enabled the insulation of the economic realm from social pressures. In Hong Kong, it was a different story. British colonial rule favouring a laissez-faire open economy had paved the way for relative insulation of the open economy from social debate.

On the other side of the Pacific, Brazil and Mexico suffered internal political fragmentation, resulting in inconsistent policy implementation. Despite the 'pre-emptive' incorporation of popular sectors into the state controlled structure (that is, the Institutional Revolutionary Party) and the effective control of workers, peasants and even the middle class by its sectoral organisations, Mexico could not insulate the national economy enough to pursue an outwardlooking strategy. The Echeverria regime's dilemma in the early seventies, tom between external constraints expediting export promotion and internal forces favouring the continuation of the lSI, dramatised the limits of the state power in Mexico (Steven, 1977; Bennett and Sharp, 1982; Hamilton, 1982; Levy and Szekely, 1983).


In Brazil, economic policy has been depoliticised by dismantling a possibility of horizontal mobilisation of urban popular sectors and excluding them from the scene of political debates, with the systematic introduction of corporatist controls, as was shown during the Costa de Silva regime in the late sixties. None the less the extent of openness was fundamentally constrained by domestic social forces (Skidmore, 1977; Stepan, 1973; Mericle, 1977; Bruneau and Faucher, 1982; Collier, 1982).

What accounts for this variation in state entrepreneurship? The variation can be seen as a result of divergent state structures manifested in distribution of power between the state and social forces, as affected by the duration of the lSI. While the East Asian NICs were devoid of internal resistance to the transition to an outward-looking strategy owing to a short duration of the lSI, the Latin NICs suffered from stiff internal opposition to such a shift by the precarious coalition of national bourgeoisie, labour and bureaucrats, a creation of the longer duration of the state sponsored lSI. In other words, following Olson's (1982) thesis, it may be argued that the state power of the Latin NICs was weakened by the formation of dense networks of collusive, cartelistic and lobbying organisations holding narrow interests as they emerged from an aged inward-looking strategy. Meanwhile the East Asian NICs were free from such a barrier, which in turn strengthened state autonomy. This relative degree of the state autonomy, characterised by the state's insulative capability, appears to be a key variable which accounts not only for different economic performance between the NICs and other developing countries, but also for variation in economic performance between the two groups of NICs. 12 However it should be noted that the extensive application of state power has brought about a precarious trade-off between growth and liberty, if not necessarily equity.

All in all, the above discussion shows that the rise of the NICs is a product of the dynamic interplay of the world economy, the timely transition to an outward-looking development strategy, and state entrepreneurship unique to the NICs. But the nature of the conjuncture of these variables is divergent across the NICs. While the East Asian NICs were more entrepreneurial and outward-looking, the Latin American NICs were rather passive in outward orientation and rigid in exercising state entrepreneurship. This variation can be accounted for chiefly by the divergent nature of state structure and the underlying coalitional bases in the two groups of the NICs.

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V ECONOMIC CRISES AND EMERGING INTERNAL AND EXTERNAL CONSTRAINTS

Although the dramatic upsurge of the NICs in the international system over the last two decades signals some hope for other developing countries and a chance for the transformation of the existing system, the exit from the periphery was not easy. Entering the 1980s, most NICs began to see the limits of their success. Slowed economic growth, setbacks in the export sector, worsening international payments positions, spiralling inflation and unemployment hit the NICs. Suddenly the most recommended models for other developing countries turned into examples of potential collapse. In this section, we shall examine the nature of economic crises faced by most NICs in the late seventies and early eighties and look into newly emerging internal and external constraints.

Economic Crises in the NICs

Departing from unprecedented economic success in the sixties and seventies, South Korea was hit hard by severe waves of economic crisis during the period 1979-81. Growth rates averaging 10.3 per cent from 1970--8 plunged drastically to -5.5 per cent in 1980, the first negative growth in Korean economic history. Inflation jumped to almost 40 per cent in 1980, a huge increase from the average annual rate of 19.5 per cent from 1970 to 1978. Exports were stagnant, while investment in plant, equipment and inventory dropped 30 per cent in 1980. The external exchange position was equally devastated; the current account deficit reached a record $5 billion in 1980, almost a fivefold increase compared with $1.1 billion in 1978. Foreign debt soared, exceeding $30 billion early in the 1980s. This drastic economic downturn began to show spill-over effects in the sociopolitical arena: the assassination of President Park, record high labour unrest numbering 257 cases in 1980 alone, and eventually the advent of a new authoritarian regime. However Korea successfully managed to overcome this severe economic slump through aggressive stabilisation and liberalisation during the period 1981-5, and has opened the second phase of economic boom since the mid-eighties. Moreover the new economic success was followed by a dramatic transition to democratisation in 1987Y

The developmental crisis in Brazil has been much more serious than in Korea. As one journalist succinctly put it, 'Brazil, once hailed


as the economic miracle, is at death's door' (Washington Post, 10 July 1983). Brazil's average annual growth rate of 8.7 per cent in 1970-1979 fell to -1.9 per cent, -1.4 per cent and -3.3 per cent in 1981, 1982 and 1983, respectively. A more painful aspect of the Brazilian crisis has been the galloping rate of inflation. During the period 1970-9, the average inflation rate was 32.4 per cent, which skyrocketed to the level of 110.2 per cent in 1980, 95.2 per cent in 1981, 99.7 per cent in 1982, and 358 per cent in 1983. During the three-year period from 1979 to 1982, the current account balance deficit rose by almost five billion dollars from $7.6 billion to $14.3 billion in 1982. Industrial production turned sluggish with continued under-utilisation of industrial capacity; steel production dropped 15 per cent, and car production 26 per cent during 1980-2. Export performance also staggered; in 1982 exports fell by 13.2 per cent with the continuous decline in primary commodity prices. The most immediate result of this crisis has been reduced real income and consumption levels for the majority of Brazilians. Despite repressive military rule and partial political concession offered by the holding of a general election, labour continued to challenge the regime, eventually resulting in a transition to a civilian one. Brazil also pursued stabilisation and liberalisation measures, but was not able to reverse the economic downturn.

Mexico's dream of 'instant industrialization via petrolization' upheld by Portillo and Serrano has also suffered a rude awakening. 14

Optimism turned into gloomy pessimism. The first words of Miguel de la Madrid, the new president of Mexico, were: 'We are in emergency' (Time, 20 December 1982). Mexico has faced 'the worst' kind of crisis since the revolution. Consecutive negative growth rates for 1982 and 1983 have replaced the average annual growth rate of above 7 per cent in the 1970s. Inflation rose from an average 18.3 per cent for 1970-9 to a record high 97.5 per cent at the end of 1982 and 117.2 per cent by April 1983. Current account deficits recorded an astronomical increase from $1.6 billion in 1979 to $13.6 billion in 1982. The most striking aspect of the crisis was the memorable battering which the Mexican peso received. During the 1976 crisis, Mexicans panicked at the devaluation of the peso to 23: $1. Compared with this, the devaluation of the peso in 1982 was traumatic. It began to sink from 26.61 pesos to the dollar in January 1982 to 44.64 in February, crashing to 108 in August and diving all the way to 150 to the dollar on 20 December. While foreign debt rose from $30 billion to $80 billion by 1982, foreign exchange income from both the

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petroleum sector and other sectors stagnated. Mexico was on the brink of economic collapse. 15 Of course the Mexican economy did not collapse, but there are no signs of recovery in the near future. Along with the plummeted oil price and still mounting foreign debt, the Mexican economy is likely to continue to stagnate.

Interestingly, while Korea, Mexico and Brazil suffered severe economic setbacks, relatively smaller NICs (that is, Taiwan, Hong Kong and Singapore) were not exposed to such grave economic disruptions. Although growth rates slowed from the 10 per cent level to 4 per cent (Hong Kong), 4.2 per cent (Taiwan) and 5.5 per cent (Singapore) they remained in relatively good shape; inflation was under control, current account deficits were minimal, and the unemployment rate was steady. Moreover, entering the mid-1980s, the economic boom began to revive.

'Big Push' and Limits of State Entrepreneurship

What then explains the variation between large and small NICs in the early 1980s? The variation can be accounted for by different styles of economic management adopted by these countries. In the mid-1970s, Taiwan and Singapore followed contractionary policies by maintaining fixed exchange rates, compressing imports, and placing a priority on stability rather than on growth, which in turn reduced vulnerabilities to external shocks. Moreover industrial structure remained relatively diversified and decentralised throughout the seventies. In other words, state intervention in Taiwan and Singapore was not extensive. Hong Kong also continued to maintain an open economy with minimal state intervention because of its unique political and economic setting. Unlike these small NICs, however, Mexico, Brazil and Korea took a quite opposite direction. They all opted for the 'big push' in terms of industrial deepening and massive investment in infrastructure. In spite of inflationary pressures, these large NICs continued to implement expansionary macroeconomic policies. Consequently market rationality was discarded, and hyperbolic state intervention resulted in economic crises.

Assuming that oil revenues would continue to flow in, Mexico implemented its massive economic development and industrial restructuring with external financing. When conditions in the international financial and oil markets changed, Mexico was left in an extremely vulnerable position. Furthermore the critical lack of internal savings, imbalances in external payments, chronic inefficiencies of


the Mexican productive system and excessive public sector deficits fuelled by low taxes, subsidies and massive public sector projects pushed the crisis to embrace a complicated combination of temporal as well as structural vulnerabilities.

While Mexico's structural imbalances and crisis were camouflaged by the oil boom, Brazil suffered from that oil boom. From 1973 to 1982, Brazil spent $55.4 billion on imported petroleum despite its efforts to save energy. Financed largely by huge investments from multinational corporations and by loans from international financial markets, Brazil continued to pursue rapid growth and industrialisation structured around the familiar icons of economic dynamism, automobiles, freeways and nuclear energy programmes: a $1 billion space programme, $52 billion for nuclear plants and hydroelectric dams, merchant fleets and subway systems (Washington Post, 11 July 1983).

Korea pursued a similar path to catch up with industrial front runners. Disregarding the inflationary consequences, Korea opted for aggressive industrial restructuring towards heavy and chemical industries which absorbed more than 75 per cent of total available industrial investment funds between 1974 and 1978. Heavy industrial sectors such as steel, shipbuilding, electronics and machinery were singled out as 'strategic' sectors by the state for the purpose of diversifying industrial structure. This big push relied primarily on the use of the state-owned financial system to build national champions. Industrial concentration increased dramatically over the latter part of the seventies, as the largest business conglomerates were selected as the agents of implementing heavy industrialisation. Meanwhile growth was still favoured over stability .. The export drive was promoted despite falling profitability further necessitating state subsidies and supports. This hyper-boom collapsed when the second oil shock hit. Industrial restructuring had turned out to be disastrous through duplicative and contradictory investment co-ordination (World Bank, 1980; Korea Development Institute, 1981; Haggard and Moon, 1983; Moon, 1988a).

State entrepreneurship was essential for the initiation and implementation of an outward-looking strategy' the secret to the success of the NICs. It was, however, the very entrepreneurship that drove Korea, Mexico and Brazil to the brink of economic collapse. Contrasting experiences of the large and small NICs neatly confirm the John Ikenberry thesis of 'irony of state strength' in that 'a roughly inverse relationship exists between the degree of intervention in the

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economy and society and the degree of flexibiiity for the state' (Ikenberry, 1985, p. 134). Korea learned quickly from its failures, and tried to overhaul economic management styles through the active pursuit of macroeconomic stabilisation, liberalisation and rationalisation. Such efforts gradually began to pay off, reviving the vitality of the national economy. Both Brazil and Mexico worked hard to follow the Korean path, but so far they have fallen short of expectations.

Emerging External Constraints

Limits of state entrepreneurship became more pronounced in the face of newly emerging external constraints. The choice of an outward-looking strategy implies a deeper integration into the international economy. Such integration entails both opportunities and constraints. As noted above, expanding markets, increased inflow of foreign capital and technology, and improved productivity through international competition represent the positive side of the integration. However, constraints also exist in forms of systemic vulnerabilities, dyadic dependence and horizontal competition (Moon, 1984). In fact these newly emerging constraints were equally responsible for the development crises that swept the large NICs in the late seventies and early eighties.

Systemic vulnerability refers to the pattern of costs incurred by external turbulence and trauma uncontrolled by domestic policy options. Examples are erratic changes in relative prices, swings in world demand, instability in international financial markets and so on. The NICs suffered from a combination of three major events; the second oil shock, slow recovery from global recession, and high interest rates in the world financial markets. High interest rates in particular and their impact on the foreign debt burden can be regarded as the primary factor triggering the developmental crises, especially in the Latin American ~ICs. Ironically, while the availability of foreign capital in the early 1970s buttressed the NICs, the same inflow in the late 1970s became the primary cause of economic crisis. The large NICs borrowed massively from abroad. But this heavy borrowing, closely tied to a changing international financial market structure, has accumulated unexpected huge liabilities for them.

The trend towards a decrease in public loans and medium- and long-term loans with substantial reduction in the grace element pushed the NICs in particular and the developing countries in general


to opt for commercial loans under 'floating' rates. According to a World Bank survey, the share of bank credits under floating rate terms expanded dramatically from about 5 per cent in the 1960s to 42 per cent in 1971-5, and reached an average of 61 per cent at the end of the 1970s. Nearly 45 per cent to 50 per cent of total medium- and long-term debt also carried floating interest rates in 1981 (World Bank, 1983, p. 2). A second trend was the growth of the Eurocurrency market and multinational banking (Frieden, 1983). Depressed demand for credit among OECD countries amidst protracted recession and the appearance of lucrative markets created by dynamic economies prompted international lenders to rush to the NICs. The third and most crucial movement in the international financial market was the rise in real and nominal interest rates. The tight monetary policy of the United States led to the persistence of high, real, dollar interest rates, increasing the real cost of debt services for the third world borrowers, including the NICs. Furthermore, extreme volatility of interest rates complicated debt management for the NICs. Between 1976 and 1982, LIBOR (London Interbank Offered Rate), against which most international borrowing is set, zoomed from 6 per cent to 15 per cent. As a result of this, the debt service burden rose by an average of more than 40 per cent a year between 1976 and 1980. Put simply, each percentage point rise in interest rates added an estimated $2 billion to the developing countries' annual debt bill of which the NICs' portion was substantial (Time, 10 .January 1983). The cost of debt servicing swallowed up a great portion of export earnings. Brazil and Mexico's debt payments crossed a dangerous threshold, far exceeding their export earnings. Consequently Mexico and Brazil are on the verge of default and can only be saved by financial rescue packages, rescheduling, depressing imports and eventually downgrading welfare. However, Korea overcame foreign debt crisis by the rigorous implementation of stabilisation and liberalisation, and began to enjoy current account surpluses in 1986.

Debt burdens can be eased if the NICs increase their exports more aggressively. However, recent export performance by the NICs has been gravely undermined by dyadic dependence, the cost incurred by a concentration of export items among few trading partners. The most typical form of vulnerability that stems from dyadic dependence is protectionist pressures. At present more than 60 per cent of the NICs' exports are directed to three major trading partners; the United States, Japan and the EEC countries (Harvylyshyn and Alikhani, 1983, p. 10). Recent protectionist measures from these

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major trading partners have substantially impeded export expansion. As a result of successive rounds of multilateral trade negotiations, tariffs themselves have been reduced to the lowest level, ranging from 5 per cent to 8 per cent. However gains from this were upset by the significant rise of non-tariff barriers. Departing from the GATT provisions of most-favoured nations and non-discrimination, the OECD countries, notably the United States, began to implement more discriminative protectionist policies aimed at the NICs in the name of fair trade and bilateral reciprocity (Anjarin et al., 1982, pp. 6-7; McMullen, 1982, pp. 78--97; Cline, 1984; Cheng and Haggard, 1987; Moon, 1988b).

Given the fact that at least two-thirds of the free world's trade and one-third of the trade in manufactured goods are already protected and managed in terms of various non-tariff barriers such as quotas, export subsidies, barter arrangements and other government restrictions (Cypher, 1981; Anjarin et al., 1983), the NICs do remarkably well. However a problem arises from the more subtle forms of protectionist measures specifically directed at the NICs.

Most NICs have pursued their export growth by diversifying into chemicals, engineering products, miscellaneous finished consumer goods, textiles and clothing, and miscellaneous semi-manufactures. Non-tariff barriers set by industrial countries have been relatively higher on those products where the NICs enjoy substantial comparative advantages. And, in a number of cases, tariff escalation by dint of increasing nominal protection by stages of processing limits the possibilities for the NICs to pursue a higher proportion of value added by domestic processing activity.

Failure of the Tokyo Round to decrease sectoral protectionism, particularly in iron and steel, automobiles and textiles and clothing, and pressure for the graduation clause threaten the NICs. For example, the Multi Fibre Agreement (MFA) has allowed importing nations to wield more arbitrary restrictions on imports from the NICs through the relaxation of the safeguard clause. A perceptible shift by advanced industrial country policy makers in favour of bilateral trade balance and bilateral protectionist measures has pushed the NICs into a more difficult position. Recent American trade policy based on the ideas of fair trade and reciprocity has created a tougher trade environment for the NICs, especially those in East Asia, which heavily rely on the American market. A recent American decision selectively to remove the NICs from the GSP (Generalized System of Preference) benefits reflects this trend. The rise of sectoral protec-


tionism, growing political influence of Congress, and the rigorous application of specific reciprocity would not allow the NICs to enjoy the previous level of import penetration in the American market (Cline, 1983; Destler, 1986; Cheng and Haggard, 1987; Moon, 1988c). The EEC is also taking similar measures. It has substantially increased its bilateral trade restrictions against the NICs by frequent invocation of Article XIX of the GATT. Thus more than 50 per cent of NIC exports to the EEC are affected by various non-tariff barriers (Turner et al., 1980, pp. 136-7).

The last important external vulnerability constraining the NICs is a growing horizontal competition among developing countries. The NICs in general are similar in market and commodity composition. Thus they generally compete with each other in the same market with similar products, except for a few primary commodity exporters such as Brazil and Mexico (Park, 1980). This zero-sum game of export competition among the NICs is causing more burdens to these countries by worsening export competitiveness and reducing profitability (World Bank, 1980; KDI, 1981). Furthermore new entrants with similar products in the existing market structure are creating double burdens. For example, the Chinese entry into Japan, the United States, and South-East Asian markets is becoming a serious threat to the East Asian NICs. According to a recent survey, out of 249 sample export items, 103 exported by the East Asian NICs are affected by Chinese competition (KTA, 1981). In a similar vein, the rise of the Group of 12, the second generation NICs, is gradually challenging the once dominant position of the first generation NICs by exporting similar products to the same destinations. 16 This emerging pattern of inter-South horizontal competition in a limited market is adding to the burden of economic difficulties in the NICs.

VI THE FUTURE OF THE NICs: 'UNCERTAIN PROMISE'?

There is some cause for optimism on the export prospect; export booms always occur (recur), though at varying levels, in the best of times (1960s) as well as in the worst of times (the late 1970s) (Harvyshylyn and Alikhani, 1983, p. 10). In contrast to this optimistic projection, the present outlook for the NICs is quite mixed. While the East Asian NICs recovered from economic stagnation in the early eighties, the crises in the Latin American NICs appear to be deepening. They are not simply temporal-cyclical, but complicated by

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structural imbalances and a deteriorating external environment. What then of their future? Can the Latin American NICs survive this severe and protracted downturn and, together with the East Asian NICs, eventually graduate to the status of 'developed' countries? Can the East Asian NICs sustain the current momentum of economic boom? Can they bring about any significant and profound impact on the order and stability of the international system? Are the NIC models transferable to other developing countries? By way of conclusion, we shall explore these questions in this section.

The future of the NICs depends on whether they can continue'to pursue an export-led growth strategy. The viability of the outwardlooking orientation is in turn contingent upon the continuity of a liberal developmental ideology and its underlying social coalition. Such continuity, however, is now being contested in most NICs in the wake of the neo-conservative reform to cope with economic crises. The reform involves a form of 'structuralism using orthodox instruments' (Foxley, 1983, p. 17). It aims not only at short-term adjustment in terms of monetarist shock treatment, but also at a radical transformation of the economy through restructuring industry, liberalising the financial sector, opening up the national economy to free trade and redefining the role of the state vis-a-vis the market (Weintraub, 1979; World Bank, 1983b; Foxley, 1983; Feinberg and Kallab, 1984; Haggard and Moon, 1986; Moon, 1988a). The reform, tied in part to 'conditionalities' imposed by the international lending institutions, bears two important implications for the future of the NICs. One is the reduced role of the state in orchestrating the national economy, conceding more power to the private sector. The other is the negative consequences of the 'political economy of overkill' (Dell, 1982, pp. 597-612; Diaz-Alejandro, 1981, pp. 119-41).

The neo-conservative reform comprising macroeconomic stabilisation, liberalisation and rationalisation is predicated on reduced state intervention in economic affairs and more reliance on market rationality. Such a passive role of the state in turn weakens the state control of business or makes it difficult to maintain business-state alliances that have sustained an export-led industrialisation for the past two decades. For liberalisation and rationalisation deprive the state of such vital instruments of control and co-optation as administrative guidance and preferential credit allocation. Growing cleavages between the state and business are likely to undermine the developmental coalition and its underlying hegemonic ideology that have governed the modus operandi of the NIC economies. The state also


comes to lose control of the economy for political purposes in which the causal link between economic growth and political legitimacy becomes blurred. As a result, the nature and direction of economic development in the NICs will be more uncertain than before (Haggard and Moon, 1986; Moon, 1988a).

The state capability to insulate economic decision making from contending political pressures has also become threatened in the wake of neo-conservative reform. Recent experiences in Brazil, Mexico, Korea and Taiwan indicate the limits of state power all the more clearly. The neo-conservative reforms in these countries have entailed severe political opposition from deprived sectors of society, eventually resulting in democratic transition. Socially excluded sectors within the NICs have tolerated long periods of inequality and repression while waiting for tangible 'trickle-down' benefits of export-led growth, yet their rising expectations have been met with reduced consumption, deteriorating real income, and a widening income gap in the wake of the reforms. It is in this context that distributional coalitions in the NICs have gained new political power and influence, which has expedited a democratic transition in most NICs. As in most pluralist polities, however, democratisation weakens the state capability to insulate the economy, and subsequently the economy becomes increasingly politicised. Welfare and equality are likely to be emphasised more than growth. Dominance of technocratic decision making is likely to be replaced by new decision rules such as muddling-through and tinkering amid heightened social and political tension. A politicised economy, coupled with the fragile foundation of a liberal developmentalist ideology, is a more likely picture of the NICs in the coming decade.

Can the NICs cope with external constraints? Systemic vulnerabilities are by nature beyond their control. So far, however, the world economy appears to be working favourably for the East Asian NICs. For the time being, the world economy is likely to remain stable. Moreover the global oil glut and relatively stable global commodity markets will help the East Asian NICs reduce systemic vulnerabilities. Nevertheless the Latin American NICs are likely to continue to be victimised by the international economic system. Despite serious efforts to reduce imports even at the expense of productivity and welfare, to reschedule debt payments, and to request more relief packages, both Brazil and Mexico are still haunted by the debt trap. Moreover the continuing depression of prices of primary commodities, which are alternative sources of foreign earnings for the

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two countries, is likely to deepen economic hardship in the Latin NICs.

Surprisingly, dyadic dependence has become a new source of growing vulnerability to the NICs. As noted above, the NICs have become the prime target of toughening protectionism in the advanced industrial countries. To cope with this protectionist pressure, the NICs have diversified their trading items and partners in a significant manner, particularly in the fields of commodity trade and in the service sector (for example, overseas construction). Korea was and still is active in the Middle Eastern and South-East Asian markets, while Brazil diversified its trade partners into Africa and the Middle East by building a highway across the Sahara desert in Mauritania and railroad tracks in Iraq (Senese, 1981, pp. 241-59). Yet the recent sharp reduction in oil revenues in OPEC countries and the worsening balance of payments position prevailing in most developing countries have diminished a potential for inter-South diversification. Furthermore the NIC efforts to diversify their export items through industrial restructuring have been blocked by various factors: the developed countries' reluctance to transfer advanced technology, fearing 'boomerang effects'; 17 the high cost of technology transfer, potentially high risks involved in industrial restructuring and deepening by dint of surplus capacity and world market uncertainties; and the rise of aggressive industrial adjustment strategies in the Northern countries.

The NICs have also taken a more positive bargaining stance by signing the GATT codes for major non-tariff barriers by which they will pursue intra-GATT negotiations over the rising bilateral protectionist trend (McMullen, 1982, p. 82). At the same time the NICs have employed a wide range of tactics and strategies to win over or evade bilateral protectionist pressures, yielding some positive payoffs (Yoffie, 1981; Odell, 1982; Moon, 1988b). Given the fundamental weakness of the NICs in the context of dyadic dependence, however, the range of potential gains from this kind of bargaining appears to be minimal. The limits of the NICs' bargaining power became more evident in the wake of recent US moves to apply the principles of fair trade and reciprocity to the NICs. The NICs could not reverse the US decisions to remove them from GSP benefits and to impose selective import restrictions on them. Moreover the East Asian NICs' failure to deter American pressures to liberalise their import markets illustrates the limits of their bargaining power. Collective action could be an option, but it does not seem to be viable,


given the persistent stalemate in the New International Economic Order debate in which the NICs have been accused of being major beneficiaries of the NIEO, while not providing sufficient collective goods for inter-South solidarity and collective strength (Rothstein, 1980; Weintraub, 1979; Loehr and Powelson, 1983). On top of all this, newly emerging but much more desparate second-generation NICs, competing in the same market with similar products, will decrease chances for inter-South co-operation.

Contrary to the publicity in the West, the impacts of the NICs on the order and stability of the international system are likely to remain minimal. Although it is plausible to assert that the NICs' debt crisis may have serious negative impacts on the international banking structure, thus offering them more bargaining leverage, the relative depth of these impacts will not be significant, given the fact that developing country total debt is less than 6 per cent of total assets of the world financial market (World Bank, 1983a, p. 2). In addition, as a recent study shows, the NIC impact on industrial dislocation and unemployment in developed countries is overly exaggerated (Turner and McMullen, 1982). Apart from some labour-intensive manufactured goods, other industrial sectors of the NICs are relatively insignificant in terms of their share of market penetration and of future potential viewed from the perspectives of industrial innovation. A simple fact illustrates well the case in point: combined exports of manufactured goods from all the NICs in 1983 are less than from a single second-tier OECD country, Italy. In recent years, of course, the East Asian NICs have put up a remarkable performance in exports of more value-added products such as cars, consumer electronics, semiconductor chips and even personal computers. However their exports are now being severely constrained by growing sectoral protectionism of major importing nations.

Finally, are the NIC models transferable to other developing countries? There is a clear indication that several developing countries have adopted, and many are willing to emulate, the NICs' developmental models, especially those of the East Asian NICs. 18 In fact a growing number of developing countries have increased their exports of manufactured goods and accelerated industrialisation on the basis of the East Asian NIC model. The rise of these secondgeneration NICs suggests the dimension of potential as well as actual proliferation of the NIC phenomenon on a global level. However, the constraints that are affecting the first-generation NICs cast a dark

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shadow on the future prospects for the second generation. In this respect, a cautious warning by an economist attracts our attention:

The World Bank and others who urge an increasing number of countries (including such giants as India and China) to follow an export-led growth are giving cruel and irresponsible advice. Production capacities are built up with scarce resources, which then stand idle when the West slaps on restrictions. (Hager, 1983, b. B, p. 1).

Even leading liberal economists such as Adelman (1984) and Cline (1982, 1984) make a similar warning, pointing to the limits of export-led growth in the world of newly emerging protectionism. Moreover, they argue that the success episode of the East Asian NICs is a product of their unique timing and location, which are not easily replicable elsewhere.

All in all, the future of the NICs appears quite uncertain, and the chances for the NICs to cross the development threshold are rather slim. The present status of non-core and non-periphery is likely to continue. This is not only because of the limits of state entrepreneurship resulting from increased power and explosive expectation of distributional coalitions in the wake of democratisation, but also because of deepening external vulnerabilities imposed by the very logic of the international economic system.

Notes 1. OECD (1979) identifies India, Greece, Argentina, Portugal, Spain, and

Yugoslavia as NICs in addition to the six NICs. GES (1979) includes Israel, Malta, Iran, Malaysia, Pakistan, the Philippines, Thailand, Poland and Hungary in the NIC category in addition to the OECD listing.

2. Among liberal economists, however, Adelman (1984), Cline (1983, 1984) and Bradford (1987) show some reservation for this optimistic projection. They argue that the East Asian NICs are a special case that cannot be easily replicated.

3. There are different variants of the statist approach. Haggard and Moon (1986) identify three with specific regard to the rise of the NICs. They are the neoclassical, developmentalist, and state structure (or institutionalist) perspectives.

4. Mathieson (1979) and Singer (1979) raise this possibility. In this connection, South Korea and Singapore have recently proposed a NICs' summit meeting, not only to enhance intra-NIC co-operation, but also to discuss


inter-South linkages. For a detailed case-study of inter-South bilateral economic co-operation, consult Moon (1984).

5. Discussions of different perspectives on the causal variables leading to the rise of the NICs can be found in Bradford Jr (1982, p. 11), McMullen (1982, pp. 2-5), Haggard (1983, 1986) and Gereffi and Wyman (1987).

6. South Korea, Taiwan and Brazil were major beneficiaries of the Middle East oil boom.

7. Apart from foreign capital inflows in the form of direct investment and loans, foreign aid played a crucial role in some NICs. In the Korean case, US aid equalled nearly 80 per cent of total fixed capital formation between 1952 and 1962 (Cole, 1980). On the other hand, US aid financed 38 per cent of gross domestic capital formation between 1952 and 1962 in Taiwan (Jacoby, 1966). While Korea and Taiwan were the beneficiaries of the US aid, Hong Kong's early capital formation was facilitated by inflow of Shanghai nationalist capital dating from the last days of the Kuomintang regime on the mainland. See Haggard and Cheng (1987).

8. Apart from intervention in economic affairs in terms of initiation, coordination and insulation, the state performs an additional function as the monopolistic provider of hegemonic ideology. Consult the literature by Marxist structuralists such as Gramsci (1971), Poulantzas (1976) and Althusser (1969). Hirschman (1979) elaborates this point further. For an extensive list of entrepreneurial functions of the state, see Murray (1975) and Frank (1981).

9. There is a growing body of literature on the relationship between state intervention and economic outcomes in the NICs. See Bacha (1977) for Brazil; Fei, Ranis and Kuo (1979) for Taiwan; Jones and Sakong (1980) for South Korea; and Krause and Hong (1981) for the East Asian NICs as a whole. Balassa (1981a, 1981b) and Krueger (1978, 1983) are good sources for comparative policy analysis across the NICs.

10. On political determinants of the economic transition in the Latin NICs, see Stevens (1977) and Hamilton (1982) for Mexico; Stepan (1973), Mericle (1977) and Bruneau and Faucher (1982) for Brazil.

11. The notion of 'statising' or 'corporatising' is borrowed from O'Donnell (1973), Collier (1979) and Malloy (1977); it implies that the state organises, controls and subsidises social groups (Collier 1979, p. 493).

12. In addition to the degree and timing of the shift to an outward-looking strategy and the scope of state entrepreneurship, there are several other variables which account for the variation. They include the pattern of foreign capital inflow, land reform and relative importance of the agricultural sector, the size and historical development of the labour sector, and geopolitical setting. See OECD (1979b), Mathieson (1979), Bergsman (1979), Singer (1979), Haggard and Moon (1983), Cumings (1984) and Gereffi and Wyman (1987).

13. Data on the economic crisis and social and political unrest are from various issues of the Korea Herald, Hankuk II Bo, and Economic Year Books (Federation of Korean Industries, 1980, 1981, 1982). For a detailed discussion on political consequences of the economic crisis, see Moon (1988a).

14. For a good summary of the debate on the nature of Mexican industrial-

Chung-In Moon 187

isation in the mid-1970s, consult Story (1982, pp. 2-11) and Sanderson (1983, pp. 318-34).

15. Data on the Mexican and Brazilian economic crises are obtained from various issues of Business Latin America, Latin America Weekly Report, IDB (1984), and Williamson (1983).

16. Harvylyshyn and Alikhani (1983) identify the Group of 12 as Sri Lanka, Cyprus, Thailand, Indonesia, Peru, Jordan, Uruguay, Malaysia, Tunisia, the Philippines, Morocco and Colombia. McMullen (1982) designates 13 developing countries as potential NICs. They are Chile, China, Colombia, Egypt, Indonesia, Iran, Malaysia, Pakistan, Peru, the Philippines, Saudi Arabia, Thailand and Turkey.

17. The 'boomerang' thesis was suggested first by Shinohara (1982, pp. 76-82) and was adopted by the Japanese Ministry of International Trade and Industry as an administrative guidance to the private sector. The concept is designed to block the transfer of advanced technologies to the East Asian NICs for fear that these East Asian NICs would challenge Japanese comparative advantage (Choong Ang II Bo, 5 August 1983).

18. The 'Look East' policy of Malaysia represents this trend par excellence.

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8 The Future of the Fourth World: Choices and Constraints on the Very Poor in the 1980s Timothy M. Shaw

' ... the most fundamental assumptions underlying a significant improvement in sub-Saharan economic prospects are unrealistic. The implication is for a continuation of economic stagnation and human misery, recurrent crises and stop-gap measures.' -Christine A. Bogdanowicz-Bindert 'SubSaharan Africa: an agenda for action' 1

'The African continent is more drastically affected than the other regions of the world by the negative achievements of the development strategies adopted by most countries whose failure, aggravated by the social crises which the industrialized countries are currently undergoing, hardly needs emphasizing . . . [A] new pedagogy geared to African unity is necessary if the concept of development based on collective autonomy and on the African people's own values is to be a realistic proposition.' - 'Africa towards the year 2000'2

'Africa is unable to point to any significant growth rate, or satisfactory index of general well-being, in the past 20 years. Faced with this situation, and determined to undertake measures for the basic restructuring of the economic base of our continent, we resolved to adopt a far-reaching, regional approach based primarily on collective self-reliance.' - Organization of African Unity (OAU) Lagos Plan of Action for the Economic Development of Africa, 1980-200rf

'The deep recession in the industrialized world has plunged the Black African economies into a depression that will increase starvation and social unrest. With demand for primary commodities depressed, even nations that were regarded as success stories in the late 1970s - resource-rich economies such as the Ivory Coast, Kenya, and Nigeria- are now sinking fast. The oil importers, of course, are suffering the most ... [their] per capita growth is expected to be negative for this decade, after dropping to 1. 7 per cent per year in the 1970s from 3.7 per cent in the decade of the

195

196 The Future of the Fourth World

1960s.' - Tetteh A. Kofi, 'Black Africa: bleak prospects and rising unrest'4

The African crisis of relative and absolute underdevelopment intensified as the symbolic centenary of the Treaty of Berlin approached in the early 1980s: Africa has become more peripheral and marginal than ever before, with profound implications for development theory and national strategy as well as for economic revival and personal survival. The ecological devastation and social deprivation which much of the continent has endured during the last decade - the post-Bretton Woods era of oil shocks and Northern stagflation - is symptomatic of exponential structural changes and challenges. 5

These centre on the new division of post-independence Africa into 'third' (middling rich) and 'fourth' (chronically poor) worlds. As a recent OECD report recognises, differentiation within the 'third world' now poses a major challenge for policy (and for theory):

Output failed to keep pace with population during the 1970s in about half of the sub-Saharan countries. Per capita food output declined by 0.4 per cent per annum in low-income countries as a whole, and by 1.4 per cent in Africa. Meanwhile, middle-income and a few low-income countries maintained gains of around 3 per cent per annum in per capita GNP despite two oil shocks and stagflation in the West. This sharp differentiation among developing countries defines the main challenge and geographic priority for development assistance during the 1980s: the chronically lagging countries. 6

So one of the more dramatic and devastating results of the 'OPEC decade' following 1973/4 has been the appearance of a 'fourth world' of very poor and very vulnerable political economies: in a period of declining demand for raw materials the periphery, whose major function in the global division of labour has been to produce such primary commodities, loses its raison d'etre as well as much of its national income. The several direct and indirect impacts of the OPEC era - expensive energy, industrial recession and international inflation - served to open up latent divergencies within the Group of 77 and the non-aligned states. In particular, the oil exporters and oil importers on the one hand, and partial manufacturers versus nonindustrial states on the other hand experienced significantly different levels of growth. By the beginning of the 1980s, notwithstanding

Timothy M. Shaw 197

Afro-Arab relations,7 North-South dialogues and World Bank initiatives, the fourth world begun to be markedly distinct from the 'new' third world of OPEC members, newly industrialising countries (NICs), and assorted 'regional' centres.

And this intensifying marginalisation of the periphery is unlikely to be corrected, let alone reversed, notwithstanding either economic revival in the North or persuasive pleas from a series of Brandt Commission reports. For the next 'post-OPEC' decade, 1984--94, will consist neither of unrelieved expansion in the North nor of sustained revival in the South. The post-Bretton Woods order is too fragile and fractured for such scenarios. Rather, a lasting and limited reduction in the price of oil might serve to stimulate Western economies and companies. Yet many of these now have an interest in reasonably high oil prices both to pay for high-cost exploration and production and to finance debt repayments from Mexico, Nigeria and so on: petrodollar recycling must continue, albeit in a more controlled form, along with alternative energy programmes.

So no return to the halcyon days of the 1960s should be anticipated for the 1990s, especially in the fourth world where demand for minerals and primary commodities is unlikely to revive significantly. Moreover, while the NICs may successfully sustain a confrontation with the OECD and within the GATT over protectionism- a marginal redefinition of market access and 'spheres' of economic influence - the fourth world will remain peripheral in such negotiations and calculations. Indeed its major prospect for growth in the foreseeable future may be in a particular form of 'South-South' trade - that between third and fourth worlds - with the latter playing the role of raw material producer for the former, which in turn exports its new manufactures back to the periphery.

If such relations between the 'semi-periphery' and the periphery are difficult, those between the periphery and the centre may become less frequent (pace dependence theorists) while those between semiperiphery and centre become ever more crucial for economic revival and stability. Such complexities render obsolete any simplistic division of the world system into North and South, although industrialised and non-industrialised states are hardly becoming more equal. Moreover the breakdown of the established North-South connection compels a rethink about how to approach non-industrialised states analytically as well as politically. 8

For policy to be situated properly within the contexts of both peripheral social formations and political economy, then, old and new


orthodoxies need to be discarded (see second and third quotations, from OAU documents, at the beginning of this chapter) to be replaced by a focus on neither developmentalism nor dependency. Rather, an examination of social contradictions and coalitions at the periphery - situated within distinctive modes and relations of production - requires a nuanced perspective on such complexities: a political economy of the periphery. 9 Such a task is beyond the scope of one chapter, although some possible contradictions and coalitions are sketched below. Here an attempt is merely made to situate some of the origins of and possibilities for the periphery in a post-OPEC world, recognising the profound political and social content involved for Africa (as indicated in Kofi's pre-conditionality opening citation) as well as the more apparent economic and international aspects, which even detached IMF description cannot hide:

Many of the countries with the most severe constraints are in Africa. In 1981 ... the adverse consequences of the recession in the industrial countries were much more severe than had generally been foreseen. The weak demand in industrial countries for primary commodities induced shortfalls in African export volumes that were largely unexpected but have turned out to be substantial. 10

Prescriptions for Africa in its first two decades of independence were hardly appropriate or successful, otherwise it would have been better able to resist the difficulties of its second, OPEC, era. Yet despite these contemporary calamities and related unpromising projections, present policies for the continent are often re-statements of such past policies. Given the imminence of catastrophe and collapse innovative responses are an imperative.

This chapter, which attempts to respond in a preliminary way to The African Condition, 11 has three parts, followed by a postscriptum. Each of these is analytic as well as empirical, seeking to transcend the established orthodoxies of the developmental and dependencia literatutes and prescriptions. Rather, the intent is to go beyond 'independence', 'dependence' and 'interdependence' in the three sections on, respectively, problems, possibilities and prospects. Instead of merely recognising, comparing and debating alternative perspectives - such as, for instance, those presented in the Organization of African Unity's Lagos Plan of Action for the Economic Development of Africa, 1980-2000 or the World Bank's Accelerated Development in

Timothy M. Shaw 199

Sub-Saharan Africa: an agenda for action12 - the attempt is made to situate such alternative positions and proposals within the context of peripheral political economies: the complex of contradictions and coalitions which together determine whether the present crisis will be transformed into a decisive conjuncture ... or relapse into an interminable series of bourgeois feuds, putschs and repressionsY

I PROBLEMS-BEYONDINDEPENDENCE

The third decade of formal 'independence' promises to be peculiarly hard for Africa: with the dreams of the nationalist movement long since faded and the efforts of the first generation of leaders quite discredited, the continent faces an ungiving world with few apparent resources. Moreover the myths of unity have now been exploded, along with those of equality: the continent displays increasing divergence both within and between states. So although its fifty-odd national actors were incorporated into the world system for largely similar reasons - the exchange of raw materials for manufactured goods within different European empires- and although thus far they all exist at the global periphery, potentially their places in the international division of labour will become more clearly differentiated. It was this ineluctable trend which underlay much apparent debate and dissent in African circles as the 1980s opened.14

The specific articulation of African political economies within the post-Bretton Woods order has begun to vary, then, according to (i) stage in the global cycle of expansion and contraction; (ii) character of the state's economic, organisational and strategic resources; and (iii) character of national (and transnational) class formations, contradictions and coalitions (see Section III below). In short, the relationship between each 'peripheral social formation' and the world system is a function of complex class relations at and between both levels. There is a continuing debate, of course, about the relative salience of 'dependence' (that is, essentially external forces) and national structures (that is, the position and cohesion of the indigenous bourgeoisie); yet both elements are intrinsic; only their balance is controversial.

Appropriately, the trend in the discourse is away from simplistic, structuralist notions of dependence and towards more nuanced, dynamic concepts of peripheral social formations. As Ronald Chilcote indicates, the 'normal science' of dependencia is under attack


from neo-Marxist scholars; current, critical assessments of 'the significance of dependency for analysis of class and class struggle' tend to conclude that 'dependency has not led to developmental solutions for Latin America and the rest of the Third World' .15 Hence,

It seems clear that the task in the decade ahead necessitates not only familiarity with the classical Marxist texts and theories of imperialism but the development of theory and investigation that benefits from close examination of relations and modes of production, specifically class analysis of social formations that allows attention to state-class relationships and the impact of the internationalization of capital. 16

New contradictions within the global periphery serve to underline the need for such sophistication and subtlety.

Although the Group of 77 were diverging somewhat in terms of development performance and preference in the 1960s, the combination of exchange-rate fluctuations and oil-price transformations in the 1970s served to exacerbate differentials. By the 1980s, then, whilst the Non-Alignment Movement remains, its collective economic identity and direction have been seriously eroded: the oil exporters and importers, the industrial producers and consumers within the 'third world' no longer have identical interests. Rather, there is a new awareness of the growing 'gap'- to employ a euphemism hitherto applied to North-South, rather than South-South relations- between third (semi-periphery) and fourth ('real' periphery) worldsY The latter, least developed countries (LLDCs), may now almost be as ambiguous in their attitudes towards the former group of NICs as they have been historically in their relations to the so-called 'advanced' industrialised states.

Progress beyond 'binary' dependence, let alone 'complex' interdependence, is important for policy as well as for analysis. For even if a New (and more equitable) International Economic Order was designed and agreed it would not by itself secure Africa's developmental prospects. This is so for two main reasons. First, as Fassil Kiros asserts, the continent would stand to benefit least from any such external restructuring:

... the least developed countries of Africa are least justified to place much hope on international aid and trade to overcome the problems of development. First, it is readily apparent that the depth of poverty that prevails in those countries calls for a more

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determined domestic development effort . Secondly, past experience regarding international economic relations hardly justifies the expectation of greatly expanded assistance . . . Thirdly . . . the least developed countries of Africa stand to benefit least even if agreement were to be reached on . . . a NIEO. 18

And second, any external redistribution would not necessarily entail a new domestic dispensation. For more equal exchange merely generates increased income which could be transformed into the basis of enhanced development; but it would not necessarily be so utilised. For local bourgeois interests can always misappropriate such windfall or sustained 'profits' for their own class projects. Furthermore the social trends apparent on the continent since independence - embourgeoisement, urbanisation, (semi)industrialisation - constitute expensive social structures which have to be supported if decay is not to ensue. In short, the Berg Report and other critiques of ubiquitous state 'control' on the continent have a certain validity: Africa is underdeveloping, in places at an alarming rate. Yet the typical laissez-faire 'solution' would only reduce the costs of social overheads; it would not ensure the elusive 'take-off'. 19 Moreover, even the maintaining of past advances, mainly realised during Africa's relative 'golden age' of the first decade of independence, may require Herculean efforts: even 'standing still' and not regressing is an achievement.

The present mood of severe restraint means not only that the infrastructure is either stagnant or in decay but also that the remnants Jof a social welfare system are increasingly unavailable to all but the elite, even in supposedly 'socialist' systems. Social services, other than 'traditional' ones, have had a rather brief history in Africa- a function of postwar nationalist demands and successes - yet demand for them, especially for education, health and communications, has remained high. The combination of the population 'explosion' and great expectations has served to maintain such demand. Yet the demise of the colonial (or neo-colonial) economic nexus in the OPEC period has eroded the fiscal and financial bases for such services. So development defined as meeting basic human needs (BHN) has tended to be negative in trend over the last decade, a process which is hard to halt let alone reverse even in third, let alone fourth, world states.2° And as such resources become scarcer so demand becomes more intense and competitive, with contradictions more antagonistic and zero-sum.

It is within such an unrelenting and unpromising existential econ-


omic and social situation that the politics of crisis needs to be situated: coups and putschs, demonstrations and strikes become more frequent as alternative forms of amelioration are excluded.21

And African leaders have become justifiably perplexed about responding to such challenges. On the one hand - externally - they have reacted positively by seeking to redefine development strategies, and hence their place in the international division of labour; a process which had become an imperative as the post-neo-colonial world had already undermined many of their inherited niches. But on the other hand - internally - they have reacted negatively by seeking to repress social forces which they cannot otherwise satisfy or contain; a response which they have revived in new circumstances based on an established colonial pattern.22 It is within such a crisis milieu of international restructuring (but not a NIEO) and national reaction that debates over alternative development policies need to be situated. 23

'Official' intergovernmental debates have diverged over orientation - inward- versus outward-looking strategies - , sector- industry versus agriculture - , and ideology - state socialism or state capitalism. 24 The alternative strategies and ideologies have been best developed and articulated in the OAU Lagos Plan and IBRD Agenda for Action, respectively. And the ensuing stand-off has served to clarify assumptions and positions, particularly the limits to self-reliance for the OAU and constraints on external exchange for the IBRD (see below). Nationalist sentiments and monetarist preferences have buttressed the respective sides - we turn to alternative and antagonistic coalitions in Section III - and prevented more sophisticated and consensual possibilities from being designed and expressed.

Unfortunately, one of the casualties of the two aborted 1982 African summits in Libya was the promised OAU 'Tripoli Declaration' reasserting the members' commitment to the Plan and rejection of the positions and policies of Agenda. As an editorial in West Africa lamented:

Among the items due to have been discussed in Tripoli were some serious points concerning Africa's economic condition . . . The Tripoli Declaration reproaches Berg (the IBRD Agenda) for emphasizing 'export orientation in general, and primary commodity export in particular', and for regarding 'industrialization and economic cooperation in Africa as longer-term issues' and for 'disre-

Timothy M. Shaw 203

garding external factors as being major constraints on Africa's development and growth'. These phrases point the way to some of the emotions behind the angry positions taken, ie. that Berg looks downwards rather than upwards, as it were, is too concerned with what is rather than what could or should be and does not relate remedies to aspirations.25

Notwithstanding such diplomatic difficulties, the continuing African crisis, characterised by economic recession, political decline and social tension, poses fundamental problems not only for national regimes and developmental theories but also for extra-continental actors, particularly Western countries and corporations, plus international institutions. As indicated already, the World Bank has now responded to assorted demands from African and non-African interests. But its overly optimistic restatement of orthodox, extroverted policies (see Bogdanowicz-Bindert's opening citation) has served only to intensify the prior African response, summarised in and symbolised by the Lagos Plan of Action, which is antagonistic towards further agricultural exports and private investment along with reduced state involvement.

The ensuing debate over alternative strategies poses challenges not only to African but also to extra-African actors: if either dependent development, the IBRD preference, or collective self-reliance, the OAU's proposal, becomes the motif for Africa up to the year 2000 then demands on and implications for external trade, aid and financial interests vary widely. Ironically, the present wave of protectionist pressures in the North may be more compatible with the 'nationalist' orientation of Africa than with the remaining 'internationalist' advocates such as multinational corporations and the World Bank, as indicated by responses to the Brandt Commission.26

The reformist and globalist inclinations of the first Brandt Report came under attack from nationalists in both the North and the South for being too broad and general, with insufficient reference either to the least-developed (that is, to Africa) or to essentially internal problems. It does not prescribe sufficient policy proposals and is over-concerned with petro-dollar recycling and industrial adjustment:

It is the failure to suggest action which emphasizes mutuality rather than conflict of interests that is perhaps the greatest short-coming of the Brandt Report. However, the Brandt Commission embodies


a changing world economic order. Its canvas is broader than that of the Pearson Commission and its membership was more representative of the 'developing world'. 27

Whilst the Commission's second report on Common Crisis is less grandiose and more pragmatic it still fails to come to grips with the dilemmas of the super-poor concentrated on the continent. Its internationalist predilections make it unsympathetic to 'self-reliance' in either South or North.28

Nevertheless the character of the African crisis has become increasingly clear to Brandt and other groups as relentless and exponential setbacks have hit most countries on the continent over the last decade or so (see first citation from the Plan), particularly since the second 'oil shock' of 1979-80.29 As Dr Adebayo Adedeji, the Executive Secretary of the Economic Commission on Africa, has indicated:

. . . the African economy today is the most open and the most exposed economy in the world, overly dependent on external trade and other external stimuli, foreign technology, and foreign expertise. The very strategies of development the African governments have been pursuing since independence have come from outside, derived as they were from theories of economic development that were developed during the colonial and neocolonial periods to rationalize the colonial pattern of production in Africa. Not unexpectedly, those foreign theories of development and economic growth reinforce the economic dependence of Africa . . . The cumulative result is that, today, neither high rates of growth or diversification nor an increasing measure of self-reliance and selfsustainment has been achieved in the African economy. 30

Indeed, when population and inflation are taken into account, probably the majority of African peoples have suffered from negative, not even marginal, growth over the last decade. The combination of internal economic mismanagement and external stagflation has produced a crisis of domestic confidence - the psychology of dependence and defeat - and of foreign exchange. As the IMF reports in rather bland terms: 'In 1981 ... the adverse consequences of the recession in the industrial countries were much more severe than had generally been foreseen. The weak demand in industrial countries for primary commodities induced shortfalls in African export volumes that were

Timothy M. Shaw 205

largely unexpected, but have turned out to be substantial'. 31 The result in economistic terms is that 'severe shortages of essential imports of raw materials and consumer goods have arisen, leading to serious underutilization of plant capacity and problems of productivity and employment'. 32 As Adedeji, a leading author and advocate of the Lagos Plan of Action, has indicated in response to this catastrophic (and cumulative?) condition:

For Africa, the 1980s - the United Nations Third Development Decade - will be particularly critical. Unless the fundamental strategic changes I have advocated and the alternative policies that flow from such changes are introduced and become effective during the decade, the chances of installing a new national economic order in African countries and a new regional economic order in Africa as a whole -based on an increasing measure of national and collective self-reliance and self-sustained growth - will be permanently aborted. 33

Since the warning, given the continuity of recession and regression, Adedeji has reluctantly recognised that 'the prospects for future economic development itself, in countries that stand very much in need of it more desperately than any others, are very dim' ?4

In response to (1) the demise of any real prospect of a North-South dialogue and (2) the perpetuation of international recession and competition, African states have been debating the merits of the two contrasting continental diagnoses and prescriptions- the OAU Plan and the IBRD Agenda - recognising their almost diametrical character. In general, they favour the former over the latter; as an assessment by the combined OAU, ECA and ADB secretariats suggests, 'it is quite clear that the total effect of the [World Bank] recommendations addressed to African governments could very well make Africa more dependent and less self-reliant'. 35 However, as we will see, certain countries and classes may yet identify with the IBRD's Agenda, while still others may go beyond the reformist self-reliance proposed in the OAU's Plan. Moreover, reactions to these alternative proposals are still fluid and may yet be affected by any revival of international trade (post-OPEC expansion) or any pressure from international interests and institutions - IMF-style 'conditionality'.

The motif of the collective indigenous response to the crisis, as indicated in the Lagos Plan of Action and in the earlier deliberations at the Monrovia symposium is 'rapid self-reliance and self-sustaining


development'. 36 By contrast the IBRD Agenda advocated a 'growthoriented programme: (i) more suitable trade and exchange rate policies; (ii) increased efficiency of resource use in the public sector; and (iii) improvement in agricultural policies'. 37 While the Plan calls on Africa to use the crisis to utilise productively its own resources and to 'cultivate the virtue of self-reliance'38 the Agenda advocates a return to agricultural production for export. Not that self-reliance means autarky; rather it is an assertion of 'Africa first' in economic as well as in strategic and diplomatic matters: 'outside contributions should only supplement our own effort: they should not be the mainstay of our development'. There is, then, an important psychological element to the Plan: 'If Africa is to develop the necessary self-confidence to pull its economy out of the shadows of backwardness and underdevelopment, it is essential that our partners-indevelopment respect our priorities, perceptions, goals and strategies'.39

In an attempt to mediate the growing ECA-IBRD divergencies and disagreements over strategy, as well as to reassure sceptical conservative regimes on and off the continent as identified below, Adedeji and others have moved towards a middle ground: no single solution involving introversion, industrialisation and indigenisation. Instead of a radical definition of self-reliance - public rather than private sector, industry rather than commodities, and intra- rather than extra-continental exchange- Adedeji now advocates a shift in emphasis only, as indicated in a recent speech to the Western grouping for 'Cooperation for Development in Africa': 'Our requirements are at two levels. We need massive transfer of resources from the developed countries to Africa. But no less important, we need your understanding, your appreciation and your acceptance of our perception of the kind of development that we need in Africa ... '. 40 In a related yet unheralded move, the Bank has redone its own calculations, using regression analyses, to test the main (and acerbic) assertion of the Berg Report: the external conditions were less salient than internal mismanagement in exacerbating underdevelopment. It found, by contrast to the dogma of Agenda, that

Although African states undoubtedly could have planned their economic affairs better in the 1970s, the econometric results suggest that elimination of environmental problems which have been particularly severe in Africa and the re-establishment of favorable international market conditions would be sufficient to

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restore African growth rates (taken as a whole) to very respectable levels. 41

And in a surprisingly supportive statement of simplistic dependencia assertions, the Bank's data manipulation led to support for the following: 'A knowledge only of industrial-nation import quantities and movements in the barter terms of trade during the past two decades is sufficient to allow us to predict with a high degree of precision the growth history of the typical African state'. 42 To be sure, inappropriate policy and inattentive implementation cannot be excluded but these recent internal findings of the Bank stand in contrast to its widely-publicised Agenda: '. . . general growth performance in Africa would have been much better in the absence of the world downturn, bad weather, and repeated wars, coups and military incursions. This is not to say, of course, that it would not have been better still if some major policy errors had been avoided'. 43

Seemingly, the Bank is moving away somewhat from the monetarist and laissez-faire assumptions and assertions of Agenda towards a more empathetic position, while the ECA is, simultaneously, attempting to moderate its commitment to self-reliance; both of these global and continental institutions remain under pressure from assorted transnational coalitions, as we will see in the final section.

If at the diplomatic-cum-economic level The African Condition by the end of the eighties was characterised by a continuing crisis, this crisis was no less intense at the level of analysis and praxis. The myths of nationalism - 'Seek ye first the political kingdom' - sustained the new class through the sixties just as the assertion of dependence did during the seventies. But in the eighties, neither of these forms of ideology and explanation generate much support, resolutions and investigations notwithstanding. Instead, analysis and prescription as well as policy evaluation and design are inclined towards a new start, focussing on 'peripheral social formations' within the global political economy. Both parts of this equation - the periphery and the global milieu - are essential but 'dependence' is taken to be the startingpoint and not the end of inquiry. This chapter is cast within such a 'revisionist', 'neo-Marxist' mould. It is intended to be a positive response to the lament of Ankie Hoogvelt that

Having established the widening gulf between the Third World and the Fourth World, precious little attention is paid by any theorist to


the Fourth World where ... nearly 80 per cent of the one billion people classified as 'below the poverty line' live. Progressive liberalism, to be sure, has done as much if not more than the Marxists to put the world's poor on the map ... The Marxist preoccupation with 'dependency' and the 'imperial alliance' leaves no room for addressing the problems of those countries whose states are not invited to play any part in the imperialist alliance, because neither their people nor their national resources are worthy of exploitation.44

This relentless reality of marginalisation was masked during the (relatively) halcyon days of 'independence' in the early 1960s, a period of apparent political change and economic opportunity (or at least optimism) occasioned by (1) the ideology (and class composition) of the nationalist movement; and (2) an expansive period in the global cycle. When things began to fall apart towards the end of that decade attention was momentarily diverted by the chimeras of a New International Economic Order (NIEO) debate and the possibility of upward mobility on the coat-tails of OPEC through a novel Afro-Arab relationship. These mirages faded fast in the mid-1970s as global dialogue became mired down in endless fora and agendas while Afro-Arab relations never realised much of their promise.45

Eventually, under intense domestic as well as external pressure, fourth world leaders, if not analysts, came, often reluctantly, to recognise the inevitability of self-reliance, albeit of a consensual and non-socialist variety: 'For most peripheral states, upward mobility into the core is not an available option. A more radical form of self-reliance and societal reconstitution at the hands of state power may seem like an attractive alternative. The resulting policies involve greater economic autonomy, a severing of existing bonds of investment and trade and debt dependence ... '46

Of all the tensions and trends which have emerged in the global economy during the 'OPEC era' of 1973 to 1983- geometric energy prices, increased inflation, recessional rates of growth, heightened indebtedness, and a mood of uncertainty approaching pessimism if not fatalism - perhaps the most lamentable and lasting has been the 'creation' of a fourth world. The majority of states in the current world system are very poor and very vulnerable: this peripheralisation has intensified exponentially over the last decade, with particular implications for African development and direction. The continent with the largest number of states is now understandably the most

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marginal economically, containing more seriously affected and least developed, let alone land-locked, countries than any other region. So, to a greater extent than any other continent, Africa is the fourth world: an unenviable and unattractive status in an increasingly hierarchical international division of labour.

II POSSIBILITIES: BEYOND DEPENDENCE

The exacerbation of both marginalisation and differentiation apparent in Africa in the 1980s has raised major problems for both analysis and praxis. For the 'choice' seems increasingly to be a Hobsonian one: between self-reliance and obscurity on the one hand and incorporation and vulnerability on the other hand. Indeed the imputed 'choice' itself may be misleading, as inherited, established social structures do not permit much discretion for actors (state or class) at the periphery. And any degree of freedom is circumscribed by the very forces which underdevelopment itself has generated: alienated proletarian and petit bourgeois classes. Hence the reaction in terms of repression and containment, political, economic and ideological - Claude Ake's 'defensive radicalism'. 47 Such strategies and preoccupations further constrain choice as the spectre of anarchy haunts the halls of African state houses unless repression is maintained and terms of conditionality met.

In the circumstances, neither of the apparent alternatives (selfreliance or renewed incorporation) is as definable and attainable as it may appear to be at first. This is so not only because of the variety of social pressures which impinge on them in terms of unequivocal definitions, but also because they may be inherently contradictory. First, self-reliance when attempted at several levels simultaneously (continental, regional, national and subnational) may be incompatible: both state and class interests may differ at each level. And second, incorporation can no longer be assured at several levels (global, continental and regional) given inter-imperial rivalries, continental cleavages and regional antagonisms, respectively. In this section, the emphasis is on the former, incorporation scenario rather than on the latter, disengagement, one, which is treated in the next section.

Consistent with its marginal position, the continent at present has the dubious distinction of being the least industrialised region, including others in the third world; and most of its so-called industrial


production is for small domestic markets, primarily urban and petit bourgeois. Moreover its origins and orientation, while not leading to mass export-oriented products, have made it highly dependent on external inputs. With the precipitous decline of Africa's foreign exchange income, such inputs can no longer be afforded. Hence the spectacle of under-utilised capital and labour, along with a revival of direct importation of consumer goods for an increasingly limited market.

But this process of premature 'deindustrialisation' may provide a useful breathing-space because not only import-substitution but also export-led industrialisation has run into problems as light industrialisation has spread throughout the third world and creeping protectionism throughout the first. Moreover subsequent 'export-oriented industrialisation' was based on similar political economies to that of import-substitution; so external rather than internal interests again reaped most of the advantages. Given the unpromising inheritance of, admittedly limited, industrialisation to date, the continent has the opportunity, in association with the strictures of the Lagos Plan of Action to reorient and reconstruct its industrial sector to serve local BHN and to advance indigenous interests, whether these fractions be national or state capital. But precisely because established interests, particularly the comprador fraction engaged in legal and/or illegal trade, will be affected, and results may be slow to emerge, only courageous and confident regimes will embark on such a strategy. The rest will be inclined to continue to subsidise, directly and indirectly, inappropriate and uneconomic industrial plants.

To date, then, industrialisation in Mrica has tended to be extroverted rather than introverted, not serving to advance selfreliance. This is because of the character, control and class bases of extant semi-industrialisation, with its consumer orientation.48 'Importsubstituting industrialisation' was popular in Africa at independence and 'Although currently out of favor in orthodox development economics literature . . . still tends to dominate the industrialization plans of most of the smaller, less industrialized LDCs'. 49 Industrialisation per se could be integrated into a more self-reliant strategy, as the Lagos Plan advocates, if local resources, skills, technologies and needs were central, but this would require a substantial reorientation of national political economies away from externally oriented peripheral capitalism and towards a more autocentric socialist mode of production: a verit~ble 'revolution' for most established African regimes.

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If African OPEC members like Algeria and Nigeria are, on the least industrialised continent, at best, potential aspirants for the status of a NIC, then the several regional (sub)centres are even further from the realisation of such a position. To be sure, some of the larger and more capitalist states achieved impressive levels of growth throughout the 1970s, when less developed and diversified economies were hit both harder and quicker by the oil shocks and after-shocks: the Ivory Coast and Kenya are the marker buoys for such a path but Cameroon and Malawi also performed credibly, to the delight of established agencies like the World Bank and IMF. The OECD reflects the reassurance which such cases brought to orthodox liberal policies by bucking the trend during most of the OPEC decade:

The most encouraging feature of African development is the ability of a few countries to overcome severe initial handicaps and sustain strong economic growth during the troubled 1970s. More systematic efforts to understand disparities in economic performance from similar starting points should yield better guides to improving the state of the development art. Particularly revealing might be comparative analyses of the development histories of comparable countries, such as Ghana and Ivory Coast, Tanzania and Kenya, or Malawi and Niger. 50

The message from the Bank in Agenda and from the OECD in its development reports is similar and clear: the more extroverted, export-oriented economies, that is, those who accept an orthodox definition of the international division of labour, do best, at least in relative and aggregate terms: 'Economic growth has been considerably slower in most of the countries characterized by very small industrial sectors. However, as a group these countries did accelerate growth in the late 1960s and between 1973 and 1979. Within this growth, substantially faster growth was sustained by Ivory Coast, Kenya and Malawi, all of them notable for their market-oriented economic philosophies'Y However, as already noted, these minor 'miracles' may yet run into structural difficulties, having shifted already from growth based on import-substitution to that on exportorientation; and such problems are not really the result of OPEC shocks as much as of inherent limits to development strategy. 52 The select African 'success stories' are now bumping up against the limits of their place in the international division of labour. Oil off Abidjan


and Nairobi's role as an international conference and tourism centre may postpone the day of reckoning; but without substantial structural change in their political economies the day will surely come.

The sense of impending doom at worst or of inadequate growth at best underlies the impressive willingness of Africa's present generation of leaders to at least consider self-reliance as an alternative strategy. In part, this makes good political sense: African leaders are not interested in encouraging antagonistic contradictions, as outlined in Kofi's citation at the beginning of this chapter, which might lead to their downfall. Moreover even the so-called 'success stories' such as the Ivory Coast and Kenya (and now Zimbabwe?) face structural constraints which the Plan, especially its regionalist elements, might help to transcend. For the developmentalist doctrine of the 1960s has run into difficulties even in the semi-periphery, as Agenda indicates:

Import substitution can be a sound policy and most industrialisation has started on that basis. But in many African countries it has been badly implemented ... For countries that have nearly completed the first stages of import substitution, such as Kenya, Ivory Coast and Tanzania, few import substitution opportunities exist based on the internal market. 53

The real reason for IBRD reservations about import-substitution may have to do, of course, with new protectionism pressures for reindustrialisation in the North rather than with mismanagement or misdirection in the South. Industrialisation, as the Plan recognises, is the sine qua non of development- hence the designation of the years 1980 to 1990 as the 'Industrial Development Decade in Africa'54 - so any over-hasty acceptance of Agenda's priority of agriculture may serve to perpetuate dependence. Conversely, the logic of laissez-faire is differentiation: the successful (in the semi-periphery) grow while those without resources (the periphery) are allowed to decline. The growth of inequalities both within and between African states threatens national and continental order; hence the interest of the Plan in a form of Keynesian welfarism at the African level. The continent's unity is already sufficiently fragile; structural as well as strategic and diplomatic divergence might shatter any remaining cohesion. By contrast, the implication of Agenda is for renewed differentiation: those with agricultural and mineral exports would prosper while those with neither would be abandoned to triage. OECD interests lie with the third rather than fourth worlds; ECA is

Timothy M. Shaw .213

attempting to camouflage and compensate for such an unequal international division of labour.

If the initial African assertion of its collective self-reliance was a response by the continent's ruling class to Northern protectionism, then the subsequent African reaction to apparent World Bank subversion of its self-reliant orientation was a rejection of Northern paternalism. Post-independence Africa has endured continual Western attention to its 'developmental' needs, from 'modernisation' to 'mutuality', symbolised by the transition from Pearson to Brandt Commissions. It has tired of being the 'laboratory' for Northern development 'experts' and so is now innately sceptical of Western prescriptions and intentions, as indicated by the second citation at the beginning of this chapter.

In addition, Africa is dubious about whether the West has the resources any longer, given the impact of the world recession on it, too, to implement any of its schemes. Mahbub ul Haq expressed this widespread fear- the inability of the Bank to deliver any accelerated assistance as indicated in Agenda - on his resignation from the Bank because of his opposition to its move away from a real concern for poverty- the impossibility of 'adjustment with a human face':

The major danger is that the Report may well be used to lecture to Africa about its internal policy reforms without providing an increase in financial assistance. It will be very unfortunate if the foreign assistance recommendations of the Report fall through, which looks likely at the moment, and all that remains are generalizations and homilies about Africa's domestic problems. 55

Notwithstanding such a possibility, and notwithstanding the general preference of the OAU coalition for the Plan over the Agenda, certain states and fractions both inside and outside the continent may well still identify with the World Bank perspective. These represent alternative coalitions, either tacit or organised, to advance different strategies and policies intended to resolve the continent's crisis.

The history of African international relations is replete with alliance formation and interaction: from the innocent and idealistic days of the Monrovia, Casablanca and Brazzaville blocs to the more calculating and intransigent debates over Chad and Polisario, continental diplomacy has been characterised by coalition politics. The latest issue is that of economic rather than strategic or diplomatic direction. Because the controversy involves crucial issues as well as


external interests it has been treated as 'high' rather than 'low' politics: that is, imbued with intensity, intolerance and idealism.

As already indicated, the continent is divided increasingly into semi-periphery as well as periphery: the former, more affluent and capitalist economies may gain more from the Agenda than from the Plan. 56 Likewise the continent is divided increasingly into more bourgeois as well as more proletarian classes: the former, more advantaged and propertied interests may prefer the laissez-faire Agenda over the more structured Plan. Given such burgeoning interests among the middle powers and middle classes, while the OAU consensus may be maintained at the level of interstate diplomacy, in practice some regimes and fractions may go along with World Bank prescriptions and provisions, with serious implications for African unity and development. The IBRD perspective - after all, why did the African governors of the Bank ask for such a study in the autumn of 1979, following the February Monrovia symposium?may be most appropriate for the few successful 'state capitalist' agricultural economies (Ivory Coast, Kenya and Malawi) and for oil exporting 'semi-industrial' states (Algeria, Gabon and Nigeria).

Reflective of such divergent reactions are the statements of Sierra Leonean and Nigerian representatives respectively at the Governors' Dakar meeting. While Dr Sam S. Banya was quite critical:

The Report advocates that Africa should adjust to shocks generated by the world economy but says little about the need for restructuring the world economy, i.e., stabilization of commodity prices, reduction of interest rates, and reduction of rates of inflation . . . The Report somewhat lacks balance by failing to give due importance to these issues which like the oil bill affect the region's balance of payments57

S.A. Ogunleye was quite positive, even to the point of offering an apologia: 'The Report's analysis of a number of key problems and conclusions it draws are also appropriate.' While moderately decrying the IBRD's attack on the public sector and lamenting its neglect of external forces, Ogunleye still asserts that 'Despite this the Report does have several positive aspects. There are several instances in which priority problems have been appropriately identified, analyzed, and appropriate conclusions drawn'. 58

If the very poor and the middling rich countries diverge in this manner then we may anticipate a somewhat similar internal reaction,

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both between different parts of government and between distinct social groups. First, the more established financial ministries (for example, Treasury, Central Bank and Finance) may prefer economic orthodoxy whereas the less orthodox developmental ministries (such as Planning, Technology, Environment and Economic Development) may espouse more radical economic ideas. And second, the more bourgeois and least bureaucratic social classes and fractions may prefer more laissez-faire whereas less bourgeois and less bureaucratic interests may advocate more radical values. In short, the minority of affluent countries and classes may opt for the Agenda whereas the majority of less affluent countries and classes will tend to stay with the Plan. Thereby the better-endowed states, in going along with IBRD guidelines, will reinforce their claim to a special status with the OECD grouping. By contrast, the more 'political' and 'national' elements within the indigenous bourgeoisie throughout the continent will tend to favour disengagement while more 'technocratic' and 'comprador' interests will advocate further external incorporation to advance their own interests (for more, see Section III below).

Such 'divide and rule' results (and intentions?) arising from the Bank's report are particularly worrisome for any continent-wide African coalition. For in a period of global recession not all economies can expand: the implications of Agenda are that only cooperative semi-peripheral states will grow while the impoverished periphery will suffer further marginalisation. This is the logic of externally-oriented economies in a period of contraction: growth for the few and triage for the many. Hence the charge of 'new paternalism' against the IBRD Agenda and the imperative of collective self-reliance if Africa is not to be subjected to divide-and-rule tactics in the post-colonial era. Hence, too, the contradictions within as well as between African states as dominant social forces attempt to come to grips with the post-Bretton Woods reality.

If the prospects of division in Africa are worrisome, their incidence is likely to increase because of analogous tensions within the Norththe OECD nexus- as well as between Eastern and Western industrialised states. 'Inter-imperial' rivalries have intensified as the recession has continued: some countries in East and West have weathered the global depression better than others (for example, Hungary v. Poland or Japan v. Britain). Moreover some international institutions and governmental agencies (such as the World Bank and trade ministries) are more extroverted in character than others (GATT and finance ministries). Finally, some countries are home to


more multinational corporations and international banks than others and so tend to have more 'internationalist' values.

The latter coalition identifies most closely with the Brandt Report and North-South dialogue whereas a more 'nationalist' and protectionist grouping favours a retreat from global reach and neomercantilist, as well as neo-monetarist, positions. While the 'internationalists' would favour the Agenda, the 'nationalists' would identify with the Plan: an unlikely alliance of self-reliance advocates between Northern and Southern hemispheres. Notwithstanding problems in the global economy the internationalists still favour extroverted, exchange-oriented economies, such as those at the semiperiphery, whereas the nationalists exist in a tacit coalition with the periphery in favour of more introverted, self-sufficient economies.

The broader global debate about alternative theories and strategies to treat recession and underdevelopment reinforces, then, the new division of Africa, a prospect which the OAU Plan sought to avoid but which extra-continental pressures seek continually to exacerbate. Meanwhile the African crisis continues, with its only hope lying within peripheral social formations themselves. As Richard Sandbrook argues, in evaluating new inequalities and antagonisms:

If there is hope for Africa, then, this lies in a fundamental redirection of national development strategies. Both the realities of the international economy and the immensity of the problems confronting the African masses lead to this conclusion . . . [This] is to recognize the limited economic power of Sub-Saharan Africa, and thus its limited capacity to force or benefit from a new international order. However, African governments do, in principle, have it within their power to reorient their economies - towards selfreliance and satisfaction of their citizens' basic needs. 59

Even if regimes lack such attributes, it clearly is at this national level that contradictions and coalitions will be created, as the bases for transnational mobilisation and aggregation.

III PROSPECTS - BEYOND INTERDEPENDENCE

The emergence of significant new forms of articulation as Africa entered the 1980s - the simultaneous appearance of a national bourgeoisie in the semi-periphery and of anarchic states in the fourth

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world - threw up the prospects of novel social coalitions to succeed established transnational nexuses: the characteristic metropolitancomprador linkage of the 'neo-colonialist' period. Moreover, instead of the imputed 'mutuality of interest' between North and South anticipated by the Brandt Commission, the new articulation may generate a variety of coalitions which cut across such dualistic configurations. And the intensification of contradictions at the periphery in association with various 'external' connections will complicate both coalitions and solutions: the post-neo-colonial order will not be an easy one for the fourth world, although it does offer certain opportunities as well as challenges. The African situation is symptomatic of new alliances and antagonisms both within and between countries.

Notwithstanding various uncertainties and ambiguities, it seems clear that two important sets of transnational linkages are likely to emerge in the post-OPEC era, of considerable importance to the periphery. First, despite the slowing-down of rapid expansion in the third world of NICs and OPEC states, their connection with the OECD will remain central: the transfer of goods, technology and capital will continue to be rather active within this 'trilateralist' nexus. And second, as triage becomes inevitable for the fourth world of LLDCs, certain 'social democratic' or 'like-minded' states plus assorted non-governmental organisations will attempt to minimise the catastrophe: a novel coalition of relatively enlightened Northern state and non-state actors with the most marginal African political economies. Such a scenario of post-OPEC divergence has profound implications not only for the redefinition of North-South relations but also for the reconceptualisation of continental and national politics and production. 60

First, at the continental level, the redivision of OAU members into third and fourth worlds, particularly when the former strive to dominate elements of the latter in various regions (for example, Nigeria in West Africa and Libya within the Sahel belt), has provided the basis for continuing antagonistic coalitions. The more incorporated and conservative states, especially those with sub-imperial pretensions, tend to have quite different interests from those more self-reliant and progressive states, even if the 'progressiveness' of the latter has a nationalistic rather than a socialist tone. This divergence is apparent in economic (development 'strategy'), strategic (definitions of 'security') and diplomatic (formulation of 'non-alignment') affairs. And it is most advanced in the disagreements, covert and


public, between, say, participants in 'Franco-African summits' and institutions, especially the Ivory Coast and Senegal, and those in the 'Tripoli Front' of radical presidents and countries around Gadaffi (Ghana, Ethiopia, Mozambique and so on).61 For the future, then, as anticipated by the two Tripoli summit debacles in 1982, OAU divisions are likely to be structural rather than merely superficial. 62

The intermediate level - regional co-operation - has been that at which self-reliance rhetoric, if not practice, has been most readily espoused. On the one hand, regionalism is no threat, at least in the short term, to national priorities and jealousies; and, on the other hand, it usually involves a manageable number of states with a tradition of interaction, if not integration. So the prevailing predisposition towards regional groupings, such as is expressed in the East African Community, could be readily revived and redesignated as collective 'self-reliance' with minimal opposition as the implications for national sovereignty were seen to be marginal. It could also be made compatible, momentarily, with regional centres' 'sub-imperial' ambitions. And such regionalist intentions stand in contrast to continental disarray and national decay.

Second, then, at the national/eve/, the gradual decline and withdrawal of external interest and investment has left established 'neocolonial' political economies and social formations rather purposeless; having been created to serve external designs and to service external demands, these lack internal articulation and integration. They clearly cannot continue to depend on IBRD and IMF rescuesthe terms of conditionality are too hard and such institutions will tire of saving the hopeless. And the flows of old trade and new capital are so small that they all face severe foreign exchange constraints. In response, belatedly, alternative development designs have begun to be made, emphasising local resources rather than international prospects: alternative technologies, informal sectors, national food production, relevant education, appropriate institutions and so on. But such dramatic shifts in direction, some of which have occurred in unplanned and unco-ordinated movements, cannot be readily realised when resources are scarce and expectations are engrained. Hence the resistance of established urban, bourgeois elements to any reorientation. And yet the surplus on which such formations have depended for their own life-styles no longer exists. It is within this context that alternative development strategies have been articulated, debated, evaluated and revised.

The Plan and Agenda are both responses to the present continental

Timothy M. Shaw 219

crisis, yet, in the circumstances, the former would seem to offer an enhanced prospect of development by contrast with the latter. Both of them are reflective of current intellectual and ideological conditions and of established modes of analysis and praxis. 63 While the Agenda is essentially a revisionist developmentalist perspective within the modernisation genre the Plan falls within the dependencia tradition. Notwithstanding considerable evidence to the contrary, the IBRD report still proposes outward-looking growth based on agricultural exports with minimal regional co-operation, whereas the OAU strategy advocated inward-looking development based on integrated sectors, especially industry, with substantial regional and continental integration: an African Economic Community by the year 2000.64

They also differ in their level of analysis and prescription, with the Plan focussing on production (substructure) while the Agenda treats exchange (superstructure). Not that either are materialist documents; but at least the OAU is informed by industrial relations and aware of class and gender, whereas the IBRD is more preoccupied with fiscal and international issues. Moreover the Bank seeks to reverse the trend towards self-reliance, whether this be by design or by default; for such an orientation undermines its internationalist predilections and priorities.

These two plans are not only antithetical in intellectual association and policy direction; they are also advocated by two exclusive coalitions. The more nationalist or 'Africanist' coalition of the OAU under the leadership of Adedeji consists of indigenous and progressive academics, advisers and leaders, whereas the more 'internationalist' IBRD grouping is less cohesive, more conservative and less indigenous: bankers, bureaucrats and economists. The former is clearly a more 'radical' coalition than the latter. And both have been articulating their assumptions, conditions and expectations as the African caucus, despite the Tripoli non-summit, challenges the World Bank's Agenda: the Plan 'is conceived on the basis of individual state and multi-state collective self-reliance based on internal resources. On the other hand, the World Bank report broadly favours the African trade status quo; thus, by implication, unduly tying African economies to extra-African influences'. 65

Agreement on the Lagos Plan at the first continental economic summit in Lagos in 1980 was a singular achievement, given Africa's historical, ideological and developmental diversities: a tribute to both ECA diplomacy and the persuasiveness of the background 1979 Monrovia Strategy on 'Africa towards the year 2000',66 and an


indication of the seriousness of the economic crisis with its divisive implications. The continent had already moved, at least in terms of declaration, towards 'regional self-reliance' through a variety of integration schemes, but national and continental arrangements were and are more controversial.

At the national level self-reliance had been adopted as strategy by a group of more radical and peripheral states, Angola, Benin, Mali, Somalia and Tanzania, for example. It has been avoided consistently by those countries and regimes at the semi-periphery which still hope to benefit from continued incorporation in the world system, Algeria, Egypt, Ivory Coast, Kenya and Nigeria, for instance. Many others are both ideologically and structurally ambivalent - for example, Malawi, Senegal and Zambia. And still others - Chad, Gambia, Ghana, Sudan and Uganda- have, in many ways, lost whatever they had of a national economy because of the combination of black market, widespread 'smuggling' and foreign exchange difficulties. Indeed, the withdrawal of commodities, including labour, from these national economies and the return to self-sufficient subsistence constitutes a dramatic, if unco-ordinated, form of intra-national 'selfreliance', one which most regimes would not want to encourage. Not all forms of self-reliance are compatible, then: internal, national, regional and continental strategies need to be carefully co-ordinated and integrated to avoid conflicts and contradictions in the future.

The emergence of incompatible directions in the officiallystructured movement towards self-reliance is a reflection of increasingly divergent interests within and between the states of Africa: different classes and countries have different attitudes towards and definitions of 'self-reliance'. As over any development strategy, distinct elements within peripheral social formations have divergent views about the causes of and responses to underdevelopment.

If the more radical and peripheral regimes can identify most readily with the Lagos Plan, then the less radical, semi-peripheral regimes may do so least. Notwithstanding the pressures for African consensus, the latter still retain some confidence in orthodox developmentalist approaches because they have experienced rapid growth rates themselves thus far. So the semi-periphery has served not only as a market for OECD capital and technological exports but also, at least until the early 1980s, as an example of 'successful' orthodox growth policies. Even if the majority of people in, say, Kenya or the Ivory Coast or Nigeria did not benefit from high rates of growth, at least their ruling classes retained confidence in established assump-

Timothy M. Shaw 221

tions. As the keepers of faith in and linkages with OECD interests, semi-peripheral regimes can come to exert a regional dominance akin to the global hegemony of OECD countries and corporations; a very distinctive (and incompatible?) form of 'collective self-reliance'?

Such states are still quite ambivalent about the Lagos Plan, supporting its regional and industrial development provisions while downplaying its disengagement and agricultural goals. Moreover, as their economic position and projection are already relatively assured, they can afford to be beneficent: provide support or at least disinterest while retaining close transnational linkages. Further, the more 'national' fractions of the indigenous bourgeoisies in such formations may themselves use at least the rhetoric of the Plan -self-reliance, not socialism- to bolster their claims vis-a-vis the more comprador elements. So, notwithstanding continuing selective country and class interests concentrated at the semi-periphery in maintaining linkages with the metropole, the OAU membership as a whole, augmented by national bourgeois interests, has been able to espouse the values of the Lagos Plan.

Yet cold war, as well as trade wars, may return to Africa as detente evaporates and inter-imperial rivalries intensify. In such a circumstance of strategic, if not structural, intervention the embryonic national bourgeoisie located within the semi-periphery is placed under almost irresistible pressure and temptation to collaborate with extra-continental interests as 'sub-imperial' centres within regional configurations. By contrast, although the periphery may at times be cajoled into strategic associations, in general they are left well alone in their marginalised world. Occasionally they may also be the beneficiaries of the international conscience as drought and other crises endanger human lives: 'like-minded' states such as Scandinavia and Canada sometimes rush to rescue the poorest.

Yet, while the semi-periphery may include areas of concentrationripe for commercialism or 'bilateralism'- the periphery suffers from benign neglect. In such circumstances, especially when they are exacerbated by periods of economic contraction or ecological decay, self-reliance may be more than motif: it may be essential. The Lagos Plan may be adopted in part, then, by default and so be advocated by a group of more radical and marginal states, whereas the Agenda remains the preference of more affluent, expanding and incorporated regimes. Meanwhile self-reliance may be subject to a variety of interpretations and definitions depending on the position of different classes, countries and regions in the international division of labour.


And intervention, structural and strategic, will likewise be subject to the vagaries of international exchange and conflict with minimal African control over its incidence and impact, particularly in the more vulnerable fourth world.

Poverty in Africa remains, then, both cause and result of international intervention: cause because the continent's chronic instability encourages external adventurers and result because further impoverishment derives from political violence, skewed budgets and unstable policies. The revival of superpower confrontation will once again encourage (and legitimise?) such involvement. Yet important Western (and Eastern?) powers are critical of such cold war assumptions and perceptions: the so-called 'like-minded' countries. In particular, Canada and other OECD or NATO states distance themselves from the United States' propensity to intervene anywhere and everywhere to deal a blow to any lurking 'Soviet' presence. Thus detente needs to be revived, not only because of fears of nuclear war, but also because development in the third and fourth worlds is affected and advanced by it. The latter needs to be reinsulated against superpower politics, as Allan Gotlieb and Jeremy Kinsman advocate:

The world is a precarious place. There is not a great deal we can do to prevent violence from erupting in various parts of it, but we can try to limit those outbreaks, and also to insulate other developments in the Third World from East-West competition; their problems are surely severe enough. 67

Although in terms of production and distribution, the remaining decade of this century is hardly promising, its very inauspiciousness offers some advance. For without the crisis of the mid-1970s and the reaction embodied in the Lagos Plan of Action, Africa and other peripheral states would have been even less prepared for the faint prospects afforded by the post-OPEC era.68 Indeed, it is ·psychological as well as political, strategic and economic liberation and selfreliance which has been so scarce in a brutalised and marginalised continent. And it is this inheritance which the Plan and other elements in a cultural renaissance may yet transcend through the popularisation and implementation of self-reliance in various sectors and at various levels: a 'willed future'. 69 As Ade Ajayi aspires himself, in a mood of cautious optimism:

The vision of a new society in Africa will need to be developed in Africa, born out of the African historical experience and the sense

Timothy M. Shaw 223

of continuity of African history. The African is not yet master of his own fate, but neither is he completely at the mercy of fate. 70

POSTSCRIPTUM

The validity of this chapter's perspective on the early-1980s has, unhappily, been confirmed by prevailing conditions in the late-1980s. To be sure, the Lagos Plan of Action has been superseded by Africa's Priority Programme for Economic Recovery and Agenda for Action by a series of Bank reports, the most recent being Financing Adjustment with Growth in Sub-Saharan Africa, 1986-1990; and the Cooperation for Development in Africa synthesis has been reinforced by the Programme of Action for African Economic Recovery and Development 1986-1990 adopted by the UN Special Session in mid-1986 along with the follow-up report of the Secretary-General of mid-1987 on the Critical Economic Situation in Africa and Africa's Abuja Statement on the Challenge of Economic Recovery and Accelerated Development. 71 These have served to add agenda items - the now familiar syndrome of debt, devaluation, drought and deregulationbut the dialectical alternatives of self-reliance versus reincorporation remain. 72

However the resilience to survive of the fourth world has, perforce, been enhanced through the inadequacy of extra-continental responses. Notwithstanding all the good resolutions and intentions, the West has failed to meet its side of the conditionality bargain: despite Africa's adoption of Bank/Fund 'reforms', insufficient external resources have been forthcoming. 73 In these circumstances, the continent's peoples have survived through their own efforts. Neither IBRD nor ECA really recognise the vitality of the continent's 'informal' sector- the unrecognised and unrecorded production and exchange of myriad farmers, traders and entrepreneurs - yet this is truly adaptive private enterprise. This sector is, of course, multifaceted- from large-scale black markets and smuggling in currencies and drugs to small-scale food and repair activities - and exists everywhere, North and South. But in those fourth world states in decline and decay it, rather than the so-called 'formal sector', has become the major source of income and employment, from magendo in Uganda to kalabule in Ghana. This 'underground' economy has been enhanced by Bank/Fund insistence on the termination of subsidies and welfare, along with massive devaluations and privatisations: it now includes credit, health and educational institutions. Yet it is


not a very efficient means of accumulation or redistribution - it advances survival but not sustainability - although it does afford prospects of improved local participation and democracy. 74 Popular decision making has never really left Africa; it was camouflaged and disregarded in colonial and post-colonial times. As grass-roots mechanisms are being revived or recognised, however, so such participation is being enhanced: local, sometimes transnational, forms of decision making. Thus the expansion of the informal sector reinforces the trend towards new authentic forms of democracy as encouraged by the successor to the late-1970s Monrovia Declaration: 'Which way Africa? For Democracy, for Development, for Unity. Declaration on Africa'. 75

In short, the dialectic of incorporation versus self-reliance or third versus fourth worlds may yet be transcended by Africa's own survival instincts and resources: a mixture of informal sector and popular participation which may serve to further erode the post-colonial state with its militarist and corporatist tendencies. 76 The ubiquity of the informal sector also constitutes a novel form of sub-regional and inter-regional self-reliance beyond the reach of national regimes. The resilience of non-formal exchange in the fourth world reinforces its distinctiveness vis-a-vis the third - a non-NIC response to the new international division of labour77 - which enables it both to maximise its choices and to minimise its constraints as it approaches the 1990s:

[The Ahuja Conference] came to the conclusion that Africa's long-term development must be based on a fundamental structural change which would not happen by itself and which therefore had to be engineered by the Africans themselves . . . A viable development strategy for Africa should be predicated on a comprehensive programme of social transformation . . . The democratisation of the African society and increased accountability of those entrusted with power are vital for the mobilisation of greater popular participation. 78

Notes

1. Christine A. Bodganowicz-Bindert, 'Sub-Saharan Africa: an agenda for action', Journal of World Trade Law 16(4) July-August 1982, 286. Emphasis added.

2. 'Africa towards the year 2000: final report on the joint OAU/ECA symposium on the future development of Africa', Appendix C in Ti-

Timothy M. Shaw 225

mothy M. Shaw (ed.), Alternative Futures for Africa (Boulder: Westview, 1982) p. 330 and 333. Emphasis added.

3. OAU Lagos Plan of Action for the Economic Development of Africa, 1980-2000 (Geneva: International Institute for Labour Studies, 1981) 5. Emphasis added.

4. Tetteh A. Kofi, 'Black Africa: bleak prospects and rising unrest', Business Week, 1 November 1982, p. 122.

5. See Steven Langdon and Lynn K. Mytelka, 'Africa in the changing world economy', in Colin Legum et al., Africa in the 1980s: a continent in crisis (New York: McGraw-Hill, 1979) pp. 123-211.

6. Rutherford M. Poats, 'Development in perspective', OECD Observer 119, November 1982, p. 22. Emphasis added. See also David F. Lomax, 'The oil-finance cycle revisited', National Westminster Bank Quarterly Review, November 1982, pp. 10, 14 and 15.

7. On the inevitable failure of these, see Timothy M. Shaw, 'Towards a political economy of the OAU and the Arab League: collaboration, conflict or contradiction?', in Dunstan M. Wai et al. (eds), Africa and the Arab Middle East: relations in perspective (forthcoming).

8. See Bahgat Korany, 'Hierarchy within the South: in search of theory', Third World Affairs 1986 (London: Third World Foundation, 1986) pp. 85-100; and 'Now thrive Popeye' The Economist 286(7274) 29 January 1983, pp. 11-12.

9. For the attempt to do this, see Timothy M. Shaw, Towards a Political Economy of Africa: the dialectics of dependence (London: Macmillan, 1985).

10. IMF, World Economic Outlook: a survey by the staff of the IMF (Washington, 1982 Occasional Paper Number 9) pp. 23 and 26. Emphasis added.

11. See Ali A. Mazrui's cautionary, if melodramatic and enigmatic, 1979 Reith Lectures for the BBC: The African Condition (London: Heinemann, 1980).

12. For comparisons of these two prognostications and proposals see Caroline Allison and Reginald Green (eds), 'Accelerated development in sub-Saharan Africa: what agendas for action?', IDS Bulletin, January 1983; 'A special double issue on the Berg Report and the Lagos Plan of Action', Africa Development 7(1/2) January/June 1982; Charles Harvey, 'Accelerated development in sub-Saharan Africa: review article', in Colin Legum (ed.), Africa Contemporary Record: annual survey of events and documents, Volume 14, 1981--82 (New York: Africana, 1982); 'What the World Bank didn't say', Africa News 18(19) 10 May 1982, pp. 2, 3 and 11; and Timothy M. Shaw, 'OAU: the forgotten economic debate', West Africa 3375, 12 April 1982, pp. 983-4 and 'Debates about Africa's future: the Brandt, World Bank and Lagos Plan blueprints', Third World Quarterly 5(2) April 1983, pp. 330--44, reprinted in Toivo Miljan (ed.) The Political Economy of North-South Relations (Peterborough: Broadview, 1987) pp. 501-11.

13. On the prospects for repression rather than revolution, at least in the short term, see Claude Ake, A Political Economy for Africa (London: Longman, 1981) pp. 176-89 and Richard Sandbrook, The Politics of


Basic Needs (Toronto: University of Toronto Press, 1982) pp. 182-246. 14. For a succinct overview of current trends, economic and policy, see,

'Africa's economic crisis', North-South Institute Briefing 6, February 1983. See also Richard Sandbrook, The Politics of Africa's Economic Stagnation (Cambridge: Cambridge University Press, 1985) and John Ravenhill (ed.) Africa in Economic Crisis (London: Macmillan, 1986).

15. Ronald H. Chilcote, 'Preface' in his collection on Dependence and Marxism: towards a resolution of the debate (Boulder: Westview, 1982) p. X.

16. Ronald H. Chilcote, 'Issues of Theory in Dependence and Marxism', ibid p. 15. See also Joel Sarnoff, 'On class, paradigm and African politics', Africa Today 29(2), Second Quarter 1982, pp. 41-50.

17. For a useful introduction to such novel differences, see Paul Hallwood and Stuart Sinclair, Oil, Debt and Development: OPEC in the Third World (London: George Allen & Unwin, 1981). See also Shaw, 'Towards a political economy of the OAU and the Arab League'.

18. Fassil G. Kiros, 'What is in a NIEO for the least developed countries of Africa?', Africa Development 6(4) 1981, pp. 16-17.

19. For a recent defence of such an outward-looking strategy, albeit an idealistic one based on market forces and enlightened leadership, see Michael Roemer, 'Economic development in Africa: performance since independence and a strategy for the future', Daedalus 3(2) Spring 1982, pp. 125-48.

20. For a lament about the elusiveness of BHN in Nigeria despite the 'petro-naira' boom, based on the ILO report on First Things First: meeting the Basic Needs of the people of Nigeria (Addis Ababa, 1980), see V. P. Diejomaoh, 'Nigerian social science research priorities for development', Afrika Spectrum 17(2) 1982, pp. 151-60.

21. On the roller-coaster of Nigeria's political economy, see Julius 0. Ihonvbere and Timothy M. Shaw, Nigeria: political economy at the (semi?) periphery (Aldershot: Gower, 1988).

22. See Ake, A Political Economy of Africa, pp. 180-4. 23. See Timothy M. Shaw, 'The African crisis: debates and dialectics over

alternative development strategies for the continent', Alternatives 9(1) Spring/Summer 1983.

24. See Timothy M. Shaw, 'Conclusion: African development and the new international division of Labour' in Adebayo Adedeji and Timothy Shaw ( eds) Economic Crisis in Africa: African perspectives on development problems and potentials (Boulder: Westview Press, 1985).

25. 'Editorial: the untouched topic', West Africa 3408, 29 November 1982, p. 3063.

26. See Cranford Pratt, 'From Pearson to Brandt: evolving perceptions concerning international development', International Journal 35(4) Autumn 1980, pp. 623-45.

27. Michael Tribe, 'Critical reflections on the Brandt Commission report: a review article', African Affairs 81(325), October 1982, p. 582.

28. On the revised Brandt position, Common Crisis, see 'Brandt's second coming' and 'Brandt follow-up: in search of finance', West Africa 3419, 21 February 1983, pp. 455 and 466-7; and Michael Prest, 'Will Brandt's

Timothy M. Shaw 227

new plan go the way of the first?', The Times, Saturday 12 February 1983, p. 8.

29. For insights into the two shocks and the variety of African responses, see Willard R. Johnson and Ernest J. Wilson 'The "oil crises" and African economies: oil wave on a tidal flood of industrial price inflation', Daedalus 2(2) Spring 1982, pp. 222-4.

30. Adebayo Adedeji, 'Development and economic growth in Africa to the year 2000: alternative projections and policies', in Shaw (ed.), Alternative Futures for Africa, pp. 280-1.

31. IMF World Economic Outlook: a survey by the staff of the IMF (Washington: 1982, Occasional Paper Number 9) p. 96.

32. Ibid. 33. Adedeji, 'Development and economic growth in Africa to the year

2000'' p. 301. 34. Adebayo Adedeji, 'The deepening international crisis and its impli

cations for Africa' (Addis Ababa: ECA, April 1982) p. 8. 35. 'Accelerated development in Sub-Saharan Africa: an assessment by

OAU, ECA and ADB Secretariats' (Council of Ministers, 38th Ordinary Session, Addis Ababa, 22 February to 1 March 1982. CM 1177 (xxxvm) Annex 1) p. 29.

36. Lagos Plan of Action, p. 5. 37. Accelerated Development in Sub-Saharan Africa: agenda for action

(Washington: World Bank, 1981) p. 5. 38. Lagos Plan of Action p. 8. 39. Ibid. 40. Adebayo Adedeji, 'Address at the formal opening of the annual policy

meeting of the Cooperation for Development in Africa conference, Washington, 26 October 1982', p. 14. See also ECA and Africa's Development, 1983-2008: a preliminary perspective study (Addis Ababa, April 1983).

41. David Wheeler, 'Sources of stagnation in sub-Sahara Africa' (Washington, DC; IBRD Africa Office, nd [1982]) p. 138.

42. Ibid., p. 30. 43. Ibid., p. 142. See also 'Sub-Saharan Africa: progress report on develop

ment prospects and programs' (Washington: World Bank, July 1983). 44. Ankie M. M. Hoogvelt, The Third World in Global Development (Lon

don: Macmillan, 1982) p. 214. See also Korany, 'Hierarchy within the South'.

45. See Shaw, 'Towards a political economy of the OAU and the Arab League'.

46. Bruce Andrews, 'The political economy of world capitalism: theory and practice', International Organization 36(1) Winter 1982, p. 159.

47. See Claude Ake, Revolutionary Pressures in Africa (London: Zed, 1978) pp. 92-94.

48. For a useful and comprehensive introduction to the problems of and prospects for industrialisation, with reference to salient cases, see Martin Fransman (ed.), Industry and Accumulation in Africa (London: Heinemann, 1982).

49. Fred Nixson, 'Import substituting industrialization' in ibid., p. 38. On


the 'Warren' debate about prospects for industry in the periphery, see Alain Lipietz 'Towards global Fordism?' and 'Marx or Rostow?', New Left Review 132, March-April 1982, pp. 33--58.

50. Poats, 'Development in perspective', p. 25. 51. Ibid., p. 23. See also Roemer, 'Economic Development in Africa'. 52. See Johnson and Wilson, 'The "oil crises" and African economies'. 53. Accelerated Development in Sub-Saharan Africa, p. 93. 54. Lagos Plan of Action, p. 19. See also, A Programme for the Industrial

Development Decade for Africa prepared jointly by the ECA, OAU and UN/DO (Vienna: UNIDO, 1982).

55. 'World Bank "stagnant and confused" says former director', Africa Now 13, May 1982, p. 89.

56. On the calculatedness of 'ideological' shifts in Africa as the world system and external opportunities expand and contract, see Thandika Mkandawire, 'African State responses to economic cycles and economic crises: a preliminary note', African Studies Association, Washington, DC, November 1982.

57. 'What the World Bank didn't say', Africa News 18(19) 10 May 1982, p. 11.

58. 'Agenda for Action: valuable criticism', West Africa, 3377, 28 April 1982, pp. 1132 and 1131.

59. Richard Sandbrook, 'Is there hope for Africa?', International Perspectives January/February 1983, p. 7; see also his The Politics of Africa's Economic Stagnation.

60. On the analytic as well as economic implications of such changes see Henrik Seeber Marcussen and Jens Erik Torp, Internationalization of Capital: prospects for the Third World (London: Zed, with Scandinavian Institute of African Studies, 1982); Hoogvelt, The Third World in Global Development; Lipietz, 'Towards global Fordism?' and 'Marx or Rostow?', and Korany 'Hierarchy within the South'.

61. For a thoughtful and critical introduction to such divisions and definitions, see Robin Luckham, 'Armaments, underdevelopment and demilitarization in Africa', Alternatives 6(2) July 1980, pp. 179-245.

62. See Timothy M. Shaw, 'Class, country and corporation: Africa in the capitalist world system', in Donald I. Ray eta/. (eds), Into the 80s: proceedings of the 11th annual conference of the Canadian Association of African Studies, Volume 2 (Vancouver: Tantalus, 1981) pp. 19-37 and Africa's International Affairs: an analysis and bibliography (Halifax: Centre for Foreign Policy Studies, 1983).

63. For comparisons between development strategies see, inter alia, A.M. Babu, 'Development Strategy - revolutionary style', in his African Socialism or Socialist Africa? (London: Zed, 1981) pp. 144-64 and Timothy M. Shaw, 'From dependence to self-reliance: Africa's prospects for the next twenty years', International Journal35( 4) Autumn 1980, pp. 821-44.

64. See Lagos Plan of Action, p. 128. 65. OAU, 'Report of the Secretary-General on the World Bank Report'

(Council of Ministers, 38th Ordinary Session, Addis Ababa, 23 February to 1 March 1982) CM/1177 (XXXVIII) Appendix II, p. 3.

Timothy M. Shaw 229

66. See 'Africa towards the year 2000'. See also, What Kind of Africa by the Year 2000? (Geneva: International Institute for Labor Studies for OAU, 1979).

67. Allan Gotlieb and Jeremy Kinsman, 'North-South or East-West?', International Perspectives, January/February 1983, p. 28.

68. See Nigel Harris: The End of the Third World: NICs and the decline of an ideology (Harmondsworth, Pelican, 1987) and 'World Business: after the OPEC decade', The Economist, 289(7311) 15 October 1983, pp. 8~.

69. See ECA and Africa's Development, 1983-2008, pp. 2 and 96. 70. J.F. Ade Ajayi, 'Expectations of independence', Daedalus 3(2) Spring

1982, p. 8. 71. APPER (Addis Ababa: FAO for OAU, 1985), FAG (Washington:

World Bank, 1985), UNPAAERD (New York: UN, 1986), UNCESA (New York: UN, 1987) and The Abuja Statement (Addis Ababa: OAU, ECA & ADB, 1987). See 'Special Issue on SG's African Report', Africa Recovery 3, November 1987.

72. See Timothy M. Shaw and Jerker Carlsson, 'Issues and Prospects in Cooperation between Africa and the International Community', ECAI OAU/ADB Conference on 'Africa: the challenge of economic recovery and accelerated development' (Abuja, Nigeria, June 1987); cf. Ravi Gulhati, 'Recent Economic Reforms in Africa: a preliminary political economy perspective', ED/ Policy Seminar Report Series, no. 8 (Washington, September 1987).

73. See Timothy M. Shaw, 'Africa's Conjuncture: from structural adjustment to self-reliance', Third World Affairs 1988 (London: Third World Foundation, 1988).

74. See Timothy M. Shaw, 'Alternative African Futures: debates, dynamics and dialectics', 25th Anniversary Conference on African Futures, Centre of African Studies, Edinburgh University, Edinburgh, December 1987.

75. /FDA Dossier 54, July 1986, pp. 40-5. See also Naomi Chazan and Timothy M. Shaw (eds), Coping with Africa's Food Crisis (Boulder: Lynne Rienner, 1988).

76. See Julius Nyang'oro and Timothy M. Shaw (eds), Corporatism in Africa (Boulder: Westview, 1989).

77. See Harris, The End of the Third World. See also Jerker Carlsson and Timothy M. Shaw (eds), NICs and the Political Economy of South-South Relations (London: Macmillan, 1988).

78. The Abuja Statement, pp. 12 and 13.

9 The Emperors' Theories and Transformations: Looking at the Field Through Feminist Lenses Christine Sylvester

In an international system filled with tensions, analysts are keenly interested in questions of continuity and discontinuity. States persist as key political entities, as does a world capitalist system of commodity production and exchange. At the same time, new actors, technological capabilities and ecological factors impinge on the state, and a new international division of labour reshapes capacities within and between zones of the global economy. These and other crosscutting tensions have been examined by our contributors.

There are some interesting tensions, however, which rarely if ever cause the brows of mainstream structuralists to furrow. Issues of men-women relations in the international system fit this category. Conventional wisdom has it that this is a world of states, non-state actors and market transactions. It is a world in which neither men nor women figure per se, the emphasis being on impersonal actors, structures and system processes. Yet in the theories which depict this abstract system, there seems to be a structuring-out of women and their activities and an implicit structuring-in of men and their activities. There is a hidden gender to the field, and it affects how we think about empirical international relations and political economy. It inspires those of us who notice it to question the extent to which discontinuities in the global economy have cast shadows over gender continuities, transformed gender relations so that we no longer think of sex roles, or maintained and transformed this realm of system structure simultaneously.

That some of us raise these questions now has to do with what feminists have learned during the 'two decades of economic, social and political challenges within a rapidly changing international political economy': 1

230

Christine Sylvester 231

Feminist scholars have studied women, men, and social relations between the genders within, across, and insistently against the conceptual frameworks of the disciplines. In each area we have come to understand that what we took to be humanly inclusive problematics, concepts, theories, objective methodologies, and transcendental truths are in fact far less than that. Instead these products of thought bear the mark of their collective and individual creators, and the creators in turn have been distinctively marked as to gender, class, race, culture. 2

Starting with the premise that there are gender tensions in the field of international relations and political economy and in the larger international system, this chapter considers new conceptual horizons visible through feminist theoretical lenses. The method entails juxtaposing the mainstream theories of international relations and political economy which inform our contributors' work - neo-realism, transnationalism and world systems- with feminist critiques of scientific research, social structure, and theory itself. It is an exercise in the creative interplay of seemingly different levels of analysis.

MAINSTREAM INTERNATIONAL RELATIONS AND POLITICAL ECONOMY

Neo-realism and its Precursors

Neo-realism is realism updated for that era of economic interdependence described by transnationalists. In the realist tradition, territorial goal-seeking states are at the centre of international relations. Their interests are calculated in terms of power and their behaviours can be explained rationally, that is with reference to consistently ordered preferences and cost-benefit analysis. Power is fungible, which means that it can be used to achieve results on a variety of issues without significant loss of efficacy. This is an insecure Hobbesian world, however, because the rational pursuit of state interest aggregates into a loss of security for all. Accordingly, balancing mechanisms akin to market forces operate to check the tyranny of small decisions; tangentially, they also provide frameworks for international economic relations. 3

Transnationalists rejected realism in the 1970s as narrow, dated and incomplete, and still see the new issues of international relations

232 Theories and Transformations: Through Feminist Lenses

-energy, debt, pollution, population increases, shifts in comparative advantages, currency crises, third world under-development - as undermining the statist model. These new arenas of political interest represent a weaving of economic activities into the very fabric of system structure, constraining state autonomy, increasing the potential for co-operation (and mutual damage) in the system and enhancing the roles of multinational corporations, common markets, commodity cartels, international trade regimes and other non-state actors. Transnationalists claim that states are now so well integrated into a global economic framework that it becomes sensible to speak of a transformed system. 4

Neo-realists take a position between these two extremes which tips in the direction of realism. They recognise that non-state actors are powerful in many issue areas, and understand that economic interactions have bound states into complex interdependence. They argue, however, that states and politics continue to shape international political economy, rather than the other way round. Non-state actors are created by pre-existing states to help them manage interdependence; such are the origins of the IMF, OPEC, and GATT. These new actors are noteworthy for providing arenas in which state expectations can converge. But regime creation does not signal a fundamental change in international structure: states are still key actors and the structure of the system is still anarchic, meaning oriented toward self-help. In turn, self-help in the security order still means balances of power. In the economic order there is collaboration, but it is embedded in a competitive political framework. In both realms, state behaviour retains rationality, with some game theorists arguing that 'no state can choose its best strategy or attain its best outcome independent of choices made by others'. 5

Neo-realists think of the state system as:

very durable with only two ways to alter it, neither occurring frequently or rapidly. Within-system change is produced by a shift in the configuration of capabilities. Change of system requires the structure of anarchy transforming into a hierarchy and in the history of the modern state system, this has never occurred.6

This strong emphasis on continuity calls into question the transnationalist view of 'the sheer momentum of processes sweeping the international polity along toward its next encounter with destiny'. 7


Yet neo-realism locates most pressures for change at the level of system structure and makes that structure a property of its chief actors - states. This is problematic to some, because 'in any social system, structural change itself ultimately has no source other than unit-level processes'. 8

Several contributors to this volume seem to circumvent the neorealist-transnationalist divide, by noting situations where domestic constituencies co-determine state actions with international forces and produce limited discontinuities rather than total system transformations. Other neo-realists accord international regimes systemchanging agency within or outside a framework of leadership by a hegemon. 9 There are also critiques of neo-realism which take it to task for liberal-internationalist, modernist, pro-inequality, antistruggle and class biases. 10 Within a rich debate on the ways and means of a system which is both durable and changeable, there is near silence concerning the possibility that it has been the continuous preserve of men only. 11

World-Systems

The chief and oft-quoted premise of world-systems theory is that there has been only one all-encompassing international system since the sixteenth century. This global social system is fuelled by a single, expanding, capitalist economy and has decentralised political authority through states of differing capabilities. The world system may include other structures or logics as well, which 'continually emerge and reemerge over long historical eras, encompassing and reencompassing, integrating and disintegrating, defining and redefining the roles and positions of diverse actors in a world system'. 12 Key aspects of this system include core expansion, class polarisation, the creation of peripheries, bureaucratisation, and interstate competition.

Industrial countries comprise the core where capital-intensive goods and services are produced with considerable technological sophistication by skilled and semi-skilled labour, and states have the administrative and elite coalescence necessary to extract resources from the world and defend against challenges to their rule-setting power. Fourth world and some third world countries occupy the periphery, where the core has coerced a pattern of low-paid labour to produce primary goods for low profit, and where weak states try to


hold off attacks from struggling classes as they react to shifting international market conditions over which they have no control. The semi-periphery exports primary products to core countries and core products to peripheral areas in roughly equal degrees, under states which can be as bureaucratised as in the core, but which are less resistant to internal class pressures created by efforts to grow, adapt and readapt; states in this zone can make decisions which move them up the hierarchy of exchange, especially when the core is in disarray owing to recession or war.

The future is not expected to be continuous with a four-hundredyear past. Many world-system analysts think we are already in the long transition to socialism, and Immanuel Wallerstein posits that the next major structural change will come in the politics of the system as we move towards a socialist world government. 13 The details of transition are generally secondary to the task of understanding capitalist persistence, although there is concern to probe relationships between continuities which rejuvenate the world-system and 'salient discontinuities'14 which will propel the forces of transition. People can be agents of change in their capacities as labourers, elites and political activists. Women enter the system, therefore, under those social categories only, and are not agents by virtue of distinctly gender-related experiences: 'crudely, those who breed manpower sustain those who grow food who sustain those who grow other raw materials who sustain those involved in industrial production'. 15

Critics generally sympathetic to Marxist analysis seek more information in world-systems theory about 'contradictions which can lead to a system's transformation'16 and find, instead, an understanding of capitalism based ultimately upon the power of some individuals in some countries to order the social behaviour of others in different countries; they see neglect of 'ever-changing class and nonclass processes comprising human relationships within and between nations' .17

Neo-realists find the world system reinforcingly realist: 'Dutch economic hegemony in the seventeenth century was destroyed, in quintessential Realist fashion, not by the operation of the world-market system, but by the force of British and French arms' .18 Nowhere in these critiques is there sustained discussion of gender biases and issues: the promising mention of non-class processes simply hangs in the air and Robert Keohane's comment that 'the insights of Realism ... cross ideological lines', 19 rings true as a statement of what is accepted as permanent in international relations.


MISSING

Neo-realism and world-systems contribute greatly to our understanding of actors and structures which endure despite and beyond the changes and tensions associated with interdependence. Feminist theorists, by contrast, are generally concerned with what gender invisibility in theory, and in the apparently durable actors, structures and processes of the world, means. Looking at our theoretical frameworks and the essays in this volume, feminist theorists will surely ask where the women are in international relations: where are they in commodity agreements, food production and markets, newly industrialising countries, the fourth world and Japanese-American trade? Is their absence warranted, theoretically and empirically, or have women and their spheres of economic and political activity been structured out by a levels-of-analysis sleight-of-hand which does not extend to men and their activities? What is the true meaning of continuity and discontinuity in a system which does not recognise women's agency? How deep and significant can some of the changes noted in this volume be when they do not overturn global structures of male dominance or make enough of an impact to make mainstream theorists take gender into account? Are not deep gender divisions deeply implicated by silence?

Feminist theories are diverse, but generally concur that the invisibility of gender issues within mainstream social theories, and of women in 'important' public domains of human existence, cannot be remedied simply by adding a pinch of woman - to the state, to capitalist processes and to theories - and stirring. Visibility requires considerable analysis of the points in the international system, and in the theories which depict it, where women's behaviours and contributions are choked off and men's are taken as the norm.

FEMINIST THEORISING

Sandra Harding discusses three feminist theoretical approaches which reveal, examine and correct androcentrism in mainstream theorising: empiricism, standpoint, and postmodernism. 20 None poses a direct and theoretically complete challenge to reigning understandings of international relations and political economy. Rather, their usefulness and relevance for us come from identifying deceptions, distortions and systematic denials in theories which implicitly or explicitly


assume that women and their activities are either beside the point or are subsumed under men's activities. Although each focusses on a different aspect of female exclusion, there is shared conviction that the unveiling starts by plumbing the depths of social structures and conventions.

Feminist Empiricism

Feminist empiricists think researchers often lack the detachment from social expectations about gender roles necessary to do good science. The scientific observer tries to be objective, but is unknowingly influenced by prevailing views of proper roles for men and women:

In a wide variety of cultures and discourses, men tend to be seen as free from or as not determined by gender relations. Thus, for example, academics do not explicitly study the psychology of men or men's history. Male academics do not worry about how being men may distort their intellectual work, while women who study gender relations are considered suspect (of triviality, if not bias). 21

Social science is no less free of gender influences than the 'harder' sciences. In fact, social scientists tend to equate humanity with men in ways which distort theory, affect hypothesis formation, and skew the data. It has only been with the advent of feminism that scientists can see this. Women scientists, in particular, have applied mainstream theories to women and found that this new inclusiveness leads to fundamental challenges to conventional wisdom. Carol Gilligan, for example, has shown that the Kohlberg scale of moral reasoning tests conformity to male ethical concerns: it is the boys who think in terms of justice, not the girls, for whom an ethic of care is more central. If systematic bias goes undetected, female behaviours can be lost in the residuals, or worse -labelled deviant and immature.22

Although there is no specific research on this, it is arguable that there are a number of analogous biases in mainstream theories of international relations and political economy. Each enters at the level of assumptions about structures and key actors of the system.

Rationality as Bias

The rationality assumption, which figures so prominently in neorealism, may derive from a deep and unexamined cultural expec-


tation that 'men are supposed to be motivated by calculations of instrumental or other "rational" considerations'. 23 As male domains, states, economic zones, bureaucracies, trade regimes and so on appear in theory and case-studies as personifications of Real (White) Men, that is as receptacles of idealized Western, masculine qualities. This could constitute a hidden ecological fallacy of serious proportions which goes undetected so long as women are few in number within theoretical circles and within the public domains theorists of international relations study. And, they have been few in number because there is another side to the rationality of men's assumption which stipulates that women are private beings motivated by conscious or unconscious emotions and feelings.

With this pervasive and double-edged bias - men are rational and rationality characterises the behaviour of important social entities -states become gendered: they are autonomous and unitary actors which thrust, penetrate and calculate their moves like high-stakes billiard players. As long as women do not occupy the high decisionmaking posts which aggregate into state behaviours, assumptions of rationality in politics can interact with and bolster the socially acceptable view that politics is a male activity. Meanwhile clear examples of male irrationality will seem anomalous or be interpreted as new types of rationality, as when, for example, states become positive or negative altruists. 24 In that way, emotional aspects of decisions are underplayed and, in a final coup de grace, theory is judged on its usefulness and falsifiability, not on the degree to which the assumptions used to build it are correct. 25

The Single-Society Bias

World-systems theorists recognise that several logics can intersect the primary economic logic of the system. Neo-realists present political and economic systems as separate but interactive. Transnationalists speak of several overlapping realms of activity which produce integrative webs. In each case, however, an obvious awareness of plurality does not extend to the gender realm. There is 'the' state system, 'the' world system, and 'the' interdependent system; presumably, men and women live together within each, subscribing to shared principles, norms and values. Feminist empiricists point out that gender-unitary society must be validated through research, rather than assumed. They suspect it is more common for women and men to occupy quite separate societies which appear gender-unitary because 'women more than men are forced to lower expectations and


rationalize discomfort in order to gain economic or social/political benefits' from the dominant society of men. 26

Maria Mies brilliantly explores this proposition using a feminist empiricist adaptation of world-systems theory. 27 She traces the historical emergence of two male-identified societies in the world system: the class society of capitalism, which world systems theorists acknowledge, and the unacknowledged society of patriarchy. Of the two, patriarchy is older, perhaps for reasons of biology: women could produce without tools through pregnancy and lactation, while men could not and became the more tool-oriented, nature-dominating sex. Patriarchal society conditions women to be primarily household caretakers rather than keepers of the tools, symbols and offices of the public sphere. Capitalism devalues women's traditional economic activities and remunerates women less when they become paid labourers.

With this two-fisted structure in the foreground, Mies looks closely at the new international division of labour. She argues that this capitalist-patriarchal re-division of the world encourages third world women to enter income-generating export sectors, and Western women, increasingly involved in non-household production, to define themselves as consumers, often of those third world products. This seeming differentiation of tasks, however, belies a commonality for both types of women, and that is the intensification of the sexual division of labour such that women everywhere become defined mostly, and most disceptively, as housewives:

The housewife is the optimal labour force for capital at this juncture and not the 'free proletarian', both in the underdeveloped and overdeveloped countries. Whereas the consumer-housewife in the West has to do more and more unpaid work in order to lower the costs for the realization of capital [like bring her own grocery bags to some food stores], the producer-housewife in the colonies has to do more and more unpaid work in order to lower the production costs. Both categories of women are increasingly subjected not only to a manipulative ideology of what a 'modern', that is, 'good' woman should be, but even more to direct measures of coercion ... as visible in the Third World as far as birth control is concerned. 28

Women thereby form an unintended aggregation separate from the 'real' breadwinners. 29 In revealing this separate society, Mies adds


another, women-relevant, logic to an already useful model of international political economy.

The Functional Bias

Theories of international relations and political economy also imply that a particular social entity or kind of behaviour is functional for 'the' state system or for capitalism. A feminist empiricist will ask whether relationships functional for men's societies are also functional for women's societies. Harding raises the question of whether 'beyond and across adjustments to race and class hierarchies, women are forced to accommodate their natures and activities to restrictions they have not chosen'. 30 This type of hypothesis would not leap out of neo-realist discussions of functionally equivalent states or standard world systems analyses of the changes which sustain capitalism.

The Bias of Impersonal Actors and Processes

Based on increasing awareness of bias in social science, feminist empiricists conduct considerable research on the origins of those 'impersonal' actors and processes which comprise 'the' state and world systems. They find that ~oth the modern state and capitalist markets were centrally involved in structuring women out of official significance. Both emerged at a time of systematic persecution of women for activities which science, religion and budding statecraft deemed superstitious, dangerous, disorderly and therefore to be controlled by outside authority. Midwifery, for example, was a profitable and socially useful profession until the age of science when, with assistance from a church reeling under accusations of virgin worship, it was branded as witchcraft. In parts of Europe the legal profession coalesced around the vibrant and lucrative business of witch defence or prosecution. 31 States became war-constituted solidarities of men which transcended the realms of necessary labour where women dwelled. 32 States enshrined the rights of Man in the West, elsewhere through colonisation, and literally empowered men to own and control all manner of property, including women. 33 This is a form of protectionism which feminist empiricists would notice and investigate.

The market system worked hand-in-glove with the state in demoting women and their activities to the sphere of private property. Women are primary producers of children and the food to feed them. The market system has direct rewards only for the types of production which yield exchangeable commodities. With the rise of


capitalism, women's traditional labour became part of nature, to be controlled by men. Henceforth capitalism relied on women's noncirculating production and nurturing of producer men, but defined this as external to the economic realm of significance. As Cecil Rhodes subjugated the Shona and Ndebele of Zimbabwe, European women became the subjugated Beautiful Ones in the private sphere, delicate of physique, soft and giving of temperament, and highbuttoned in starched collars. 34

The Feminist Empiricist Contribution

Feminist empiricist examinations of neglected evidence show that historical trends in the emerging international system were very likely misogynist as well as racist and classist. Both the state and the market became communities of men where 'power is the domination of those outside the community' ,35 sometimes in the name of free exchange, comparative advantage or division of labour. If the social biases these processes wrought are eliminated from scientific research, women will reappear. This could, however, represent a transformation of greater significance than feminist empiricists usually note. To date, 'women and the sphere with which they have been historically linked remain an absence that helps to make possible the much cherished "parsimony" of the preferred model, or framework, or simulation, or analysis'36 - or international system.

Besides issues raised above, feminist empiricist work leads us to consider:

1. Whether it is accurate to focus on states and world-wide capitalist processes and not also examine the social attitudes and structures which impart a gender to international relations.

2. Whether gender biases may result in systematically overlooking important focal points of change and continuity which have to do with women's economic and political activities. Do we posit discontinuity and transformation in ways which change the symbols but keep the substance of patriarchy in the next world order?

3. What interdependence means in a male-dominated political economy. Are neo-realist states interdependent the way women and men are, that is, within a structure of domination-subordination?

4. Whether we can work within science to falsify theories incorporating so many hidden, unspeakable gender issues at the level of assumptions. Is a challenge to these and other biased theories really tantamount to challenging gender itself, or the state, or capitalism?


Feminist Standpoint

Theorists of feminist standpoint offer theories and methods which reflect lessons women learn through subjugation. They argue that centuries of exclusion have given women perspectives on social issues which more insightfully reveal the true structures and actors of the world than do theories spun by representatives of the dominant group. The overarching analogy is men-women with master-slave, where the slave is a structural extension of the master's will, yet the master thinks the relationship is really co-determining, with slaves creating masters and masters simultaneously creating slaves. In dyads like this, 'however well intentioned one may be, the real relations of humans with each other and with the natural world are not visible'. 37

To see them, one must look from the perspective of the subordinate, not the master.

Feminist standpointers want to identify the elements of women's voice, insight, understanding of reality and, through political struggle as well as good research, transform these elements into 'a morally and scientifically preferable grounding for our interpretations and explanations of nature and social life'. 38 The emphasis is less on women as victims of bias as on valorising her standpoint as a point of departure in understanding and changing her relationships to the world. There are a variety of ways to go about this task.

Constructing Woman-Culture

Some standpoint theorists seek a true story of womanhood in the spiritual realm. Mary Daly, for example, recovers woman in the very concepts, words and metaphors men have long used to demean her. Her story revolves around lusty wanderers weaving and spinning connections in the universe in ways which threaten and annoy men; hence their terms for us- nags, shrews, scolds, spinsters and worse. She calls her method Methodicide, and her research a project in errata to crystallise woman's experience in ways the mainstream would dismiss as a Mistake. She is bold and challenging in referring to snoolish sovereigns of sadostate who try to prevent women's escape from amnesia into ancestral Memories. Hers is a fully oppositional perspective on a world characterised first and last by structures of patriarchy. Reminding us that realism has meaning in modern philosophy as material objects existing externally to us and independently of our sense experience,39 she offers Realizing reason as a natural transforming elixir: 'through the pursuit of Realizing


reason, women realize that the restored world is an artificial product resulting from the forced compliance of "reality" to the patriarchal male's perceptions of and designs upon "reality"'. 40

To enter this woman-memory is very likely to abandon the male world as much as possible, rather than seek to correct its biases. It raises the interesting question of whether there are entirely different ways of seeing the world of states and regimes, zones and exchanges if one 'controls for' patriarchy and focusses on the political economy of matriarchy. It also pushes a feminist empiricist point to its limits: is not the scientific method itself an inextricable component of manculture?

Reconstructing Gender Structuring Processes

A very different approach to woman's standpoint emerges from applications of object-relations theory, the purpose of which is to understand the social structuring of gender identity through psychoanalytic method. The central thesis of this school is:

In cultures where most child care is performed by women, both male and female infants must individuate themselves against only women. This struggle creates different models of the self and its relation to others for those who are becoming girls and boys. Because the creation of gender in the individual occurs simultaneously within the transformation of a neonate of our species into a social person, our social identities as distinctive human beings are inseparable from our sexual identities as female and male or our gender identities as feminine and masculine.41

Some standpoint theorists see within this 'systemic structural account of socialization and social reproduction', 42 materialist and ideological components of difference.

Boy babies begin to learn affinity for abstraction and transcendence from the moment they realise mother is biologically not-1, an object rather than extension of self. This trauma encourages defensive responses which simultaneously deny, and in the vehemence of denial, affirm the material closeness in that first relationship. Patriarchal social norms reinforce this defensive personality structuring, by determining that proper male gendering corresponds with how extensively boys root out, denounce or create opposite models of, remove


themselves materially from, and otherwise denigrate the concrete mother-world:

This experience of two worlds, one valuable, if abstract and deeply unattainable, the other useless and demeaning, if concrete and necessary, lies at the heart of a series of dualisms - abstract/ concrete, mind/body, culture/nature, ideal/real, stasis/change. And these dualisms are overlaid by gender; only the first of each pair is associated with the male. 43

In 'successfully' transcending the trauma of individuation from a woman through retreat to the mind, adult men maintain artificial discontinuity from the material world through abstract masculinity. This is a set of idealised gender traits which keep unconscious connective longings at bay so that they will not inappropriately resurface and commingle subject and object into loss of identity. Abstract masculinity shows up in Roberts's Rules of Parliamentary Procedure, which structure the emotion of meetings into overcontrolled, over-ordered relations. It may also underlie the requirement of scientific method to achieve distance from the subject, objectivity and detachment from 'the particularities of time and place, personal quirks, prejudices, and interests'. 44 Consider, as well, that neorealists give states a degree of realist freedom in rationality, even as their choices become increasingly constrained by the decisions of others states (men). Even interdependence is something of a battle between fundamentally hostile and primordially unconnected entities 'whom one comes to know by means of opposition (even death struggle) and yet with whom one must construct a social relation in order to survive'. 45 Moreover, to assert that the global economy has been transformed, even as capitalism persists, may unconsciously model that other 'transformation' of continuously connected boys into paragons of (false) autonomy as men.

Girls have different individuation experiences. Mother is biologically similar to self rather than an object, which means that the trauma of individuation comes much later when girls try to gain psychosexual maturity as autonomous adults. In infancy, the absence of a jarring discovery of mother-difference sets the stage for an empathetic identity. This is nurtured by socialisation practices which equate femininity with mother-world activities of family preservation, personal involvement and necessary labour (such as changing dirty diapers). A maturing girl thereby develops affinity for continu-


ous connections; more so than for the dichotomies and abstractions of man-world: for her, mental and manual labour go together; work is often play; the sensual can be intellectual; and change is the reworking of continuous ties.

This may explain why many adult women seem more peace-loving than men and avoid activities of statecraft in which 'we' are in a competitive death struggle with 'them'.46 We may know from experience in the mother-child dyad that power relations are interchangeable over time, rather than fixed, hierarchical and defensively protected from decline: it is a sign of healthy child development that mother's omnipotence ebbs within less than a year of her infant's birth. As well, the preferred arena of power for women may be the local community, where there are opportunities to express caretaking morality in concrete ways. 47

However these gender lessons also prepare women to join a status group subordinated to men. Women can continue connecting to the point of losing ourselves and our power in mesmerising mergers with others; we can almost seek out of objects into which to pour ourselves. 48 Ours can be a community of self-sacrificers lacking effectiveness as system challengers. This could explain the long reign of emperors and their theories.

The Feminist Standpoint Contribution

Standpoint counter-theories seek expressions of womanhood in structures and processes operating at very different levels than most neorealist and world-system analysts would find relevant. None the less there are lessons there in the importance of deconstructing abstractions which may invisibly gender-mark the structures we do find relevant for study and mask the distorted relations which create them. There are also lessons in how to conceptualise transformative discontinuity as valorisation in the public domain of the continuities women experience in officially less important private domains. The novel question posed is: what is 'the potentiality available in the actuality'49 of women's lived experiences or natures, and in analagous processes which connect and co-determine through mutual attraction rather than domination-subordination?50

A set of feminised relations may be embedded in the still incipient Southern Mrican Development Coordination Conference (SADCC). Designed to end dependence on the South African economy by building up regional infrastructures, SADCC is a mutual-attraction


scheme which valorises the historically muted voices of the colonially subjugated and promises an order based on simultaneous codetermining processes of state and regional action. 51 By contrast, neorealist states collaborate as competitors seeking to extricate themselves from prisoner's dilemmas by forcing others to back down as 'chickens', to take the patsy 'sucker' rap, or do the 'saintly' thing. Recent contribJJtions to game theory bring out elements of cooperation in 'tit-for-tat' strategies and considerations of 'long shadows' of the future. 52 A feminist standpoint theorist, however, would notice that these international relations are pseudo-personalised and that dominance masquerades as a co-operative tendencyY

In feminist standpoint theories, the feminist is the transformer. She enhances her agency in the world by putting her lived experiences on the same plane as, if not higher than, woman-denying authority. In this spirit, we ask:

1. Is there a woman's standpoint on international relations and political economy?

2. Is there a relationship between the social construction of males as men and the topics analysts of international relations and political economy consider to be within or outside the field?

3. Are there dyads in political economy which behave as codetermined entities of the child-mother type?54

4. What does the search for scientific parsimony suggest about the types of actors, processes and structures men seek to control and/or transform?

Feminist Postmodernism

Like other feminist approaches, postmodernism notices 'how we think, or do not think, or avoid thinking about gender'. 55 Feminist postmodernists, however, advise researchers to embrace a posture of uncertainty about 'the self, gender, knowledge, social relations, and culture (understood by) linear, teleological, hierarchical, holistic, or binary ways of thinking and being'. 56 They are the sceptics for whom 'reality can have "a" structure only from the falsely universalizing perspective of the dominant group'. 57 They see danger in denying women behaviours which do not exemplify some true story of womanhood, as when women in the public sphere are accused of being like men. They also object to accounts of womanhood which are not sensitive to historical nuance, and which ignore the impact of


class, race and culture on identities and lived experiences. Their overarching question is: in what ways do women comprise 'a' group and in what ways is the search for themes of group coherence a way of voiding diversity?

Sandra Harding, a leading light of feminist postmodernism, suggests that 'we should expect differences in cognitive styles and world views from peoples engaged in different kinds of social activities'. 58

There are women in the armed services and 'offshore women in the electronics factories in Korea'. 59 There are subsistence food producing women in Africa and luxury consumer women in the United States. Margaret Thatcher is at the head of a state, female economists are in the employ of the IMF, and some Caribbean women are in the sex industry. There are Western middle-class mother-feminist-peaceactivists and peasant-combatant literacy teachers in Southern Africa. Are we more alike than different? Do we have a standpoint?

Harding thinks not. In her view, 'if there can be "a" feminist standpoint, it can only be whatever emerges from the political struggles of oppositional consciousness - oppositional precisely to the longing for "one true story"60 and 'the culturally dominant forces of unitarianism'61 which lead us to believe that there is such a thing. It is theoretically preferable to accept the notion of permanent partiality and to explore intersecting, contradictory and simultaneous realities within a pro-women framework. Other streams of postmodernism, including world order and peace studies, have pecked away at mainstream international relations for years. Feminist postmodernism, however, stands alone in seeking to deconstruct more than it prescribes.

Smashing the Stereotypes

Jean Bethke Elshtain demonstrates one postmodernist approach in a study of Women and War. She embeds an assessment of the realist tradition of international relations in a broader treatment of 'war as an object of discourse central to historic understandings of politics in the West'. 62 Her method entails exploring the political claims and social identities deeded to us through war stories. She realises that this is unorthodox, as is her non-theoretical approach, but claims it is important 'to remain open to one's subject matter, to see where it is going and follow- not to impose a prefabricated formula over diverse and paradoxical material'. 63 On these grounds, she takes 'professionalised IR discourse' to task as 'one of the most dubious of many


dubious sciences that present truth claims that mask the power plays embedded in the discourse and in the practices it legitimates'. 64 She also takes to task, however, the commonplace and standpointconstitutive assumption that Real Women have no yearnings for war. She speaks of her own youthful identity with soldier's tales and recalls a nurse veteran of Vietnam saying: 'I think about Vietnam often and I find myself wishing I was back there'. 65 She goes on to suggest that in handing war over to men, making it their creation and responsibility, women fade too far into the background: rather, 'wars destroy and bring into being men and women as particular identities by canalizing energy and giving permission to narrate'. 66

This seems a far cry from the topics at hand in this volume, but it is not. Elshtain is suggesting a way of including the heretofore excluded by questioning the limited categories of 'acceptable' identities in stories where soldiers are on the battle front and women are on the home front (and where there are statesmen and first ladies). She says there are many 'historical amputations that excise many alternatives, male and female'. 67 Her humanistic 'even-handedness' in seeing men and women as equal before the power of war may be problematic, 68

but Elshtain helps us think creatively and more accurately about the amputations which must have taken place for women's activities to be so structured out of mainstream international relations and political economy, and for men's activities to be so stage-centre. As Elshtain says, 'if this is where we are at, where have we been?'69

The Feminist Postmodernist Contribution

Feminist postmodernism asks us to think of the multiple realities which are hidden by any True Story of Reality, and the ways that story can promote oppressive conformity and discourage criticism and action for change. Applied to the study of international political economy, it inspires us to ask:

1. What stories have we accepted about men which deny women agency in war, capitalism, state decisions and so on?

2. In what ways are women battling patriarchal international relations and political economy today? How many women-logics are there in how many different systems?

3. What are all the salient divisions of labour within and between the entities we study? Relatedly, how are 'understandings of gender relations, self and theory partially constituted in and through the

248 Theories and Transformations:_ Through Feminist Lenses

experiences of living in a culture in which asymmetric race relations are a central organizing principle of society?00

TRANSFORMATIONS?

Feminist and mainstream theorists may seem to talk past one another because their frameworks, levels of analysis, and foci are very different. This may be more apparent than true. There are points of nexus which could bring accuracy through inclusiveness to theories of international relations and political economy.

The empiricists tell us that bias enters theory building when gender is uncritically projected onto the world and becomes a basis for identifying 'significant reality'. In our field, masculine preserves are well depicted in our theories. The theorists, however, do not acknowledge the gendering of international relations, and this subterfuge makes it difficult to talk about transformation: how many ways are there to rearrange systems and, notwithstanding laments about their harmful aspects, maintain masculine privilege? There are limits on the very parameters of change. States persist - Men lead.

Standpoint theorists tell us it is not just that theorists fail to ask how gender experiences and expectations may impinge on the claims of scientific accuracy, universality, coherence and completeness. They fail to ask how the world looks from the vantage point of any outside group. Henry Kissinger once said: 'For me, women are only amusing, a hobby. No one spends too much time on a hobby.m Few male analysts reading this will answer: Amen. Yet 'our' frameworks of analysis propagate the dualisms which make this, a particularly offensive work/hobby distinction, possible. Women's activities occupy space at the lower end of the public/private dichotomy. As a group, women are either the Beautiful Irrelevant Ones or the Overbreeding Ones; I suppose women academics are the Exceptional Ones. If dualisms reconstruct the world from a master's standpoint, then we should not be surprised to discover resistance to any notion that structural transformation is, at root, a bringing-in process for all those who are 'not-1'. The world of 'her' may be quite different from 'his': she may experience power both as male dominance and as the mutual attraction of the mother-child dyad; states may be more symbols than reality and community the empirical point of reference and action; markets may figure as places to gather as well as to sell and buy; games may be what children play with great abandon of rationality and considerable pleasure.


Feminist postmodernists tell us that the world of 'her' is not unitary or ideal. We should not seek 'a' framework for understanding 'her' or anything else right now, or a consequence may be that we merely elevate one of the patriarchy-battered perspectives to a position of privileged insight. At this moment of flux, to transform is to deconstruct and fragment all potentially tyrannical coherences into partialities.

Although feminist theorists will disagree on the questions we should introduce to the study of international relations and political economy and methods to improve the field, few will disagree with the proposition that there are many relations masked within official international relations. This is a clue to the transformation puzzle which no other tradition of analysis offers. How a gender dethroning can occur, how it would interact with other changes, are issues mainstream theorists might explore in dawning recognition that their theories are more similar than different in the issues they evade.

Notes

1. Dennis C. Pirages, 'Technology, Ecology and Transformations in the Global Political Economy', introduction to this volume, p. 1.

2. Sandra Harding, The Science Question in Feminism (Ithaca: Cornell University Press, 1986) p. 15.

3. For a review of realist literature, see Robert Gilpin, 'The Richness of the Tradition of Political Realism', International Organization (Spring, 1984) and Richard Mansbach and John Vasquez, In Search of Theory (New York: Columbia University Press, 1981). Original realist writings include: E.H. Carr, The Twenty Years' Crisis, 1919-1939 (London: Macmillan, 1946); John Herz, Political Realism and Political Idealism (Chicago: University of Chicago Press, 1951); Hans Morgenthau, Politics Among Nations (New York: Knopf, 1978); Kenneth Thompson, Political Realism and the Crises of World Politics (Princeton: Princeton University Press, 1960).

4. For a review of transnationalist literature, see Richard Mansbach and John Vasquez, In Search of Theory. Original writings include: Dennis Pirages, Global Ecopolitics (North Scituate, Mass.: Duxbury Press, 1978); Seymour Brown, New Forces in World Politics (Washington, DC: Brookings, 1974); Robert Keohane and Joseph Nye, Power and Interdependence (Boston: Little, Brown, 1977); Ernst Haas, M.P. Williams, D. Babai, Scientists and World Order (Berkeley: University of California Press, 1977).

5. Duncan Snidal, 'The Game Theory of International Politics' World Politics, vol. 35, no. 2 (January, 1983) p. 39. See other articles in that issue; Kenneth Waltz, Theory of International Relations (Reading, Mass.: Addison-Wesley, 1979) and Robert Keohane (ed.), Neorealism and Its Critics (New York: Columbia University Press, 1986).


6. John Ruggie, 'Continuity and Transformation in the World Polity', in Keohane (ed.), Neorealism and Its Critics, p. 140, referring to Kenneth Waltz, Theory of International Relations (Reading, Mass.: AddisonWesley, 1979).

7. Ruggie, 'Continuity and Transformation in the World Polity', pp. 151-2. 8. Ruggie, ibid. Also see Alexander Wendt, 'The Agent-Structure Problem

in International Relations Theory', International Organization, vol. 41, no. 3 (Summer, 1987).

9. Ernst Haas, 'Is There a Hole in the Whole? Knowledge, Technology, Interdependence, and the Construction of International Regimes', International Organization, 29 (Summer, 1975). Robert Keohane, After Hegemony: Cooperation and Discord in the World Political Economy (Princeton: Princeton University Press, 1985). Robert Gilpin, War and Change in International Relations (New York: Cambridge University Press, 1981). Arthur Stein, 'The Hegemon's Dilemma: Great Britain, the United States, and the International Economic Order', International Organization, 38 (Spring, 1984).

10. See Richard Ashley, 'The Poverty of Neorealism' and Robert Cox, 'Social Forces, States and World Orders: Beyond International Relations Theory', in Keohane (ed.), Neorealism and Its Critics. Also Bradley Klein, Strategic Discourse (New York: CUNY, the John Jay College of Criminal Justice, 1987). R.B.J. Walker, 'Realism, Change, and International Political Theory,' International Studies Quarterly, 31, 1, 1987.

11. The outlines of a promising exception can be seen in Bradley Klein, 'Textual Strategies of Military Strategy: Or, Have You Read Any Good Defense Manuals Lately?', and Richard Ashley, 'Living on Border Lines: Man, Poststructuralism, and War', in John Der Derian and Michael Shapiro (eds), International Intertextual Relations (Lexington, MA: Lexington Books, 1989).

12. W. Ladd Hollist, 'Anticipating World SysteiJI. Theory Synthesis', in Hollist and James Rosenau (eds), World System Structure: Continuity and Change (Beverly Hills: Sage, 1981) p. 291. For other discussions of world systems, see Immanuel Wallerstein, The Modern World System I (New York: Academic Press, 1974) and 'The Rise and Future Demise of the World Capitalist System: Concepts for Comparative Analysis', Comparative Studies in Society and History, 16 (September, 1974), Christopher Chase-Dunn and Richard Rubinson, 'Toward a Structural Perspective on the World-System', Politics and Society, 7 (no. 4, 1977) and other contributions to the Hollist and Rosenau volume.

13. Wallerstein, 'The Rise and Future Demise of the World Capitalist System'.

14. Hollist, 'Anticipating World System Theory Synthesis', p. 291. 15. Wallerstein, The Modern World System I, p. 86. A new contribution

edited by J. Smith, J. Collins, T. Hopkins and H. Muhammad, entitled Racism, Sexism, and the World-System (New York: Greenwood Press, 1988) offers numerous examples of women both as anti-systemic agents and as victims of structure. Nonetheless, there is a tendency in this work to see the twin evils of racism and sexism as emanating from one system united and functional in its dialectics.


16. Cox, 'Social Forces, States and World Orders', in Keohane (ed.), Neorealism and Its Critics, p. 206.

17. Stephen Resnick, John Sinisi and Richard Wolff, 'Class Analysis of International Relations', in W. Ladd Hollist and F. LaMond Tullis ( eds), International Political Economy Yearbook, vol. 1 (Boulder: Westview, 1985) p. 97.

18. Keohane, 'Theory of World Politics: Structural Realism and Beyond', in Keohane (ed.), Neorealism and Its Critics, p. 182.

19. Ibid. 20. Harding, The Science Question in Feminism. 21. Jane Flax, 'Postmodernism arid Gender Relations in Feminist Theory',

Signs, vol. 12, no. 4, 1987, p. 629. 22. Carol Gilligan, In A Different Voice: Psychological Theory and Women's

Development (Cambridge: Harvard University Press, 1982). Of course, it is noteworthy that Gilligan's female subjects are from relatively privileged racial and class groups.

23. Harding, The Science Question in Feminism, p. 86. This section of her work raises again issues discussed in Marcia Millman and Rosabeth Moss Kanter (eds), Another Voice: Feminist Perspectives on Social Life and Social Science (New York: Anchor Books, 1975).

24. Contrast Joanne Gowa's discussion of positive and negative altruism in 'Anarchy, Egoism and Third Images: The Evolution of Cooperation and International Relations', International Organization, 40 (Winter, 1986) with Robert Keohane's critique of rational choice as abstracting individual decision making from 'irrational' social influences, in 'Review of Mancur Olsen, The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities', Journal of Economic Literature, 21 (June, 1983).

25. See discussion by Martin Staniland in What is Political Economy: A Study of Social Theory and Underdevelopment (New Haven: Yale University Press, 1985) chap. 2.

26. Harding, The Science Question in Feminism, p. 87. 27. Maria Mies, Patriarchy and Accumulation on a World Scale: Women in

the International Division of Labour (London: Zed, 1986). 28. Ibid., p. 126. 29. See James Rosenau, 'Interpreting Aggregative Processes in the Inter

national Political Economy: Third World Demands as Empirical Data', in Hollist and Rosenau (eds), World System Structure.

30. Harding, The Science Question in Feminism, p. 87. 31. See discussion in Mies, Patriarchy and Accumulation, chap. 3. 32. See Nancy Hartsock, Money, Sex, and Power: Toward a Feminist His

torical Materialism (Boston: Northeastern University Press, 1985) and Jean Bethke Elshtain, Women and War (New York: Basic Books, 1987).

33. Kathleen Staudt, 'Women's Politics, the State and Capitalist Transformation in Africa', in Irving Leonard Markovitz (ed.), Studies in Power and Class in Africa (New York: Oxford University Press, 1987). Also, Mies, Patriarchy and Accumulation.

34. Elshtain offers this description of Victorian-age women in Women and War.

35. Hartsock, Money, Sex, and Power, p. 203.


36. Elshtain, Women and War, pp. 90-1. 37. Hartsock, Money, Sex, and Power, p. 117. This is a point Cox raises as

well in 'Social Forces': Theory is always for someone and for some purpose . . . The world is seen from a standpoint definable in terms of nation or social class, of dominance or subordination .. .' (p. 207). His list of standpoint-constitutive influences, however, does not include gender.

38. Harding, The Science Question in Feminism, p. 26. 39. Mary Daly, Pure Lust: Elemental Feminist Philosophy (Boston: Beacon

Press, 1984) p. 161n. Daly's use of capitals is, in her words, 'capitally irregular: it is intended to convey my meaning rather than to conform to standard usage' (p. 31).

40. Ibid., p. 163. 41. Harding, The Science Question in Feminism, p. 131. 42. Nancy Chodorow, The Reproduction of Mothering (Berkeley: University

of California Press, 1978) p. 39. 43. Hartsock, Money, Sex, and Power, p. 241. 44. Susan Bordo, 'The Cartesian Masculinization of Thought', Signs, vol.

11, no. 3, 1986, p. 451, paraphrasing Evelyn Fox Keller, Reflections on Gender and Science (New York: Yale University Press, 1985).

45. Hartsock, Money, Sex, and Power, p. 242. 46. See discussions in Sarah Ruddick, 'Pacifying the Forces: Drafting

Women in the Interests of Peace', Signs, vol. 8, no. 3, 1983; Birgit Brock-Utne, Educating For Peace: A Feminist Perspective (New York: Pergamon Press, 1985); Betty Reardon, Sex and the War System (New York: Teacher's College, Columbia University, 1985).

47. See discussions in Hartsock, Money, Sex, and Power; and Gilligan, In a Different Voice.

48. Adrienne Rich, Of Women Born (New York: Norton, 1976). 49. Hartsock, Money, Sex, and Power, p. 246. 50. Marilyn French, Beyond Power: On Men, W9men, and Morals (New

York: Summit Books, 1985) p. 499. 51. Arguably, the European Communities have similar potential as a model

of mutual-attraction political economy, so long as the tendency to resort to traditional power plays diminishes.

52. Robert Axelrod, The Evolution of Cooperation (New York: Basic Books, 1984) and Axelrod and Robert Keohane, 'Achieving Cooperation Under Anarchy', World Politics, vol. 38, no. 1 (October, 1985) and special issue of World Politics on Continuity and Transformation in the World Polity, January, 1983.

53. Gowa notices the problem of system-dominant sources of state behaviour and outcomes in Axelrod (see 'Anarchy, Egoism and Third Images') and says it 'circumscribes his book's utility for students of the field' (p. 168). She does not go on, however, to tie her very interesting discussion of state altruism to feminist theoretical frameworks.

54. See Wendt, 'The Agent-Structure Problem in International Relations Theory', for a similar query. Wendt asks researchers to conceptualise states as having internal organisational structures which condition perceptions and responses, and which experience, absorb and perhaps


change in response to the intended and unintended actions of other states and agents. Both neorealists and world-systems analysis, he says, should explore 'the social structural organizing principles which generate the state as a particular kind of social actor' (p. 366). Yet he uses both the master-slave and the child-parent dyads to illustrate co-determining entities. If mainstream researchers take Wendt's advice but do not consult feminist literature, they may fail to expose dominating sides of some only apparently co-determined entities.

55. Flax, 'Postmodernism and Gender Relations in Feminist Theory', p. 622. 56. Ibid. 57. Ibid, pp. 633-4. 58. Harding, The Science Question in Feminism, p. 189. Some standpointers

share this position and speak of multiple standpoints. See Nancy Hartsock, Money, Sex and Power. Also, see discussion in Christine Sylvester, 'Some Dangers in Merging Feminist and Peace Projects', Alternatives, vol. 12, no. 4 (October 1987).

59. Harding, ibid., p. 192. 60. lbid.,p.193. 61. Ibid., p. 247. 62. Elshtain, Women and War, p. x. 63. Ibid., p. xi. 64. Ibid., p. 91. 65. Ibid., p. 10. 66. Ibid., p. 166 (emphasis in original). 67. Ibid., p. 171. 68. See discussions in Sylvester, 'Some Dangers in Merging Feminist and

Peace Projects', Alternatives; and 'Patriarchy, Peace, and Women Warriors', in Linda Forcey (ed.), Peace: Meanings, Politics, Strategies (New York: Praeger Press, 1989).

69. Elshtain, Women and War, p. 171. 70. Flax, 'Postmodernism and Gender Relations in Feminist Theory', p. 640. 71. Quoted in Alison Jaggar and Paula Rothenberg, Feminist Frameworks:

Alternative Theoretical Accounts of the Relations Between Women and Men (New York: McGraw-Hill, 1984) p. 81.

Index

Abuja Conference 224 Adedeji, Adebayo 204, 205, 219 administered protection 138-9, 144 African Economic

Community 219 Agenda for Action 17, 199, 202,

205,206,207,211,212,213, 214, 215, 216, 218, 219

agriculture policies 45-6 in Africa 61 in China 45 in Nigeria 45 in United States 41-4, 46

Ajayi, Ade 222 Ake, Claude 209 Alikhani, Iradj 132 anti-trust laws 113-14 automobile industry,

international 105, 107, 110

Balassa, Bela 133 Banya, Sam 214 basic exports tonnages 79-83 Berg Report, the 201, 202, 203,

206 border measures 97 Brandt Commission, the 203, 204,

217 Brazil

economic crisis in 173-4 energy crisis in 176 state entrepreneurship in 170-2

Bretton Woods Agreement 137

Caporaso, James 168 Chadbourne Plan, the 67 Chenery, Hollis 133 Chevenement, Jean Pierre 118 Chilcote, Ronald 199 Chiles, John 130 Christensen, Cheryl 6, 8 Clayton Act 114 Cline, William 143 collective confrontation 139-40

commonwealth Sugar Agreement 70, 77

conditionality 53, 181, 121, 218 Conference on International

Economic Cooperation 33-6 core countries 130, 233 Cuba, in world sugar market 67,

68, 69, 70, 71, 72, 73

Daly, Mary 241 Davignon Plan 105 deindustrialisation 210 de la Madrid, Miguel 174 Delors, Jacques 118 demographic discontinuities 6 demographic imbalances 8 Department of International Trade

and Industry 112 dependence 199, 207 dependencia theory 157-8 dependent development 203 dietary upgrading 44-5 Dillon Round 133 domestic content legislation 144 dyadic dependence 183

ecological change 3 ecological problems 18 economic growth, world 2 economic regimes,

international 98-100 Elshtain, Jean Bethke 246-7 energy sources, non-oil 26 entitlements 7 ESPRIT 109 Eurocurrency 165, 178 European Coal and Steel

Community 98, 105 European Economic

Community 98, 104 sugar policy in 75, 77, 78

exchange rates, and agriculture 56-7

export -oriented

255

256

industrialisation 134, 142, 167-8, 210

export promotion 166 export quotas, sugar 68 exports

from less developed countries 128-34

from NICs 178-80 external constraints on

development 177-80 Exxon Corporation 24

Fabius, Laurent 118 fallacy, of composition argument,

134, 143 Federal Trade Commission 114 feminist empiricism 236-40 feminist standpoint 241-5 feminist postmodernism 245-8 Fesharaki, Fereidun 9, 10 Finger, J.M. 133, 144 Finlayson, Jock 10-11 floating interest rates 178 food

consumption, African 49 imports, African 58 issues 6 marketing, African 56 policies, African 50-62 production, African 47-52 subsidies 47 supplies, African 57, 58

food market African 50-2 global 40-7

food system, global 39-40 forward integration 36 fourth world 16-18, 196, 197,

200, 208, 217, 223, 122-4 functional bias 239 future

of global political economy 18-19

of international petroleum market 36-7

of the newly industrialising countries 180-85

futures market, petroleum 28-30

Index

Gang of Four, newly industrialising countries 12

gender politics 230-1, 235 General Agreement on Tariffs and

Trade 14, 15, 98, 100, 129, 131, 137, 138, 139, 140, 141, 180

Generalised System of Preferences 140

Gilligan, Carol 236 Global political economy,

defined 1 Gottlieb, Allan 222 grain imports, world 42-4 grain trade, world 41-4 Gray, Peter 144 Great Britain, in sugar market 70 greying 7 Group of 77 200

Harding, Sandra 235, 239, 246 Hart, Jeffrey 14 Havana Charter, the 64, 69 Havrylyshyn, Oli 132 hegemony, decline of United

States 12-15 Hoogvelt, Ankie 207 horizontal competition 180 Hufbauer, Gary 130

Ikenberry, John 176 import substitution

initiatives 161-3 incorporation 209 industrial revolution 19 informal sector 223 integrated circuits 108 interdependence 4, 243

food 61 international Commodity

Agreements, 10-11, 64-5 International Monetary Fund 53 International Sugar

Agreements 10-11, 67-8, 68-71, 71-2, 73-7, 78-83

International Trade Organization 64

intra-industry trade 130

Index 257

Italy, position on oil co-operation 35

Japan competitiveness 95, 97, 105-6 position on oil co-operation 35 recovery of 12

Jones-Parry, E. 80

Keesing, Donald 162 Kennedy Round 99, 129, 133 Kenya, population growth in 6 Keohane, Robert 234 Kinsman, Jeremy 222 Kiros, Fassil 200 Kissinger, Henry 248 Kohlberg scale of moral

reasoning 236 Korea, South

economic crisis in 173 energy crisis and 176 state entrepreneurship 169-72

Krueger, Ann 166

Labour shortages, African agriculture 49

Lagos Plan 17, 195, 198, 202, 203, 205, 210, 212, 213, 214, 215, 216,218,219,220,222,223

less developed countries 2, 3, 6, 7, 8, 127

Lewis, W. Arthur 145 Liberal Democratic Party,

Japan 115 liberal international economic

order 15, 127, 129-30, 134, 137, 139

LIBOR 178 Limits to Growth, The 5 log-rolling argument 135 Lome Convention 66, 77

macroeconomic conditions, and agriculture 45-7

Marathon Oil 104 marginalisation 197, 208 Martel, Charles 109 methodicide 241 Mexico 12

economic crisis in 174-5 energy crisis and 175-6

Mies, Maria migration 7-8 Ministry of International Trade and

Industry 112-13 Mitterrand, Fran~is 117-18 Moon, Chung-ln 15-16 Multi Fibre Agreement 142, 179

National Economic Development Office 113, 118

Nelson, Douglas 14-15 neoclassical theory 156 neo-mercantile theory 156 neo-protectionism 136 neo-realism 231-3 newly industrialising countries 12,

13, 15, 16, 120-2 defined 153-9 economic crisis in 173-80 rise of 159-66 second generation 184

Nippon Telegraph and Telephone 108

North Sea Brent 28

object-relations theory 242 Ogunleye, S. A. 214 Olson, Mancur 172 Organization for Economic

Co-operation and Development countries 33, 34

Organization of African Unity 217-19

Organization of Arab Petroleum Exporting Countries 36

Organization of Petroleum Exporting Countries 8-9, 27, 29,30, 31, 32,34, 36,37

outward-oriented development. strategies 127

parastatals 51, 52, 53, 56 patriarchy 238 peripheral social

formations 199-200

258 Index

periphery 192, 198, 200, 214, 221, 233

petrodollars 165 petroleum

consumption 27 consumption and GDP 24 consumption and taxes 25 demand 24-5 forecasting 22-6 international market 8, 9,

22-37 planning 26 supply 25-6

Poitiers 108 population growth 6 poverty 222 Prebisch, Raul 74, 140, 166 producer associations 10-11 producer prices, in

agriculture 53-5 protectionism, 14-15, 99-100,

109-11, 136, 178-9 in agriculture 59 sectoral 179-80

Punte del Este Round 46

RAMs 107 rationality bias 236-7 Reagan Administration 35

anti-trust in 112 Reaganism 7 realism 231-3 reference export

availabilities 83-5 Rhodes, Cecil 240 Roberts's Rules of Parliamentary

Procedure 243 Robinson-Patman Act, 114 robots, 106 Roth, Wolfgang 116

Sandbrook, Richard 216 scientific method 243 self-reliance, collective 203, 206,

209,210,212,213,220 semi-conductor industry,

international 107-9, 110 semi-periphery 157-8, 197, 200,

214, 220, 221, 234

Shapouri, Shahla 6, 8 Shaw, Timothy M. 6, 17, 18 Sherman Anti-Trust Act 114 single-society bias 237-9 Southern African Development

Coordination Conference 244 Soviet Union, in sugar market 74 standpoint theories 242-5 state entrepreneurship 16,

168-72, 175-7 statist theory 158-9 steel industry,

international 101-5, 110 Stolper-Samuelson theorem 136 structural adjustment, in

agriculture 53-60 strukturpolitik 116 sub-Saharan Africa, food

problems 47-52 subsidies, in food market 52, 55 sugar

exports 66 international market 66-8 politics of 85-9 prices 66-7 stockpiles 68-9 tariffs in USA 81

Sugar Act, the 77 Sugar Council, the 69 systemic vulnerability 177

targeting measures, in trade 97, 108, 119

tariff 94-5, 97 tariff hump 129, 134 . technocratic participation 139,

141-2 technological diffusion 3 technology, and political

economy 11-18 Tehran Conferences 22 textile industry,

international 100-1, 109 Thatcherism 7 Third Development Decade 205 timing, in development 16, 163-5 Tokyo Round 99, 179 Trade Act of 1974 102 Trade Act of 1979 102

trade, growth of 95-6 transnationalists 231-3 Treaty of Rome 99 triage 212, 215, 217 trickle-down 182 trigger price mechanism 102, 104 Tripoli Declaration 202 tropical rain forest 19

Ul Haq, Mahbub 213 United Nations Conference on

Trade and Development 73, 76, 140

United States in sugar market 70, 72, 79, 82 position on oil co-operation 35

US Steel 104

video-recorders 108

Index

voluntary export restraints (VERs) 100-1, 104, 106

Von Lambsdorff, Otto 117

Wallerstein, Immanuel 234 war 246-7 welfare state 14, 15, 134-7 West Texas Intermediate 28 women, persecution of 239 World Bank, the 53 world systems theory 233-4,

237-8

Yeats, Alexander 129 Yoffie, David 142

Zacher, Mark 10, 11 zaibatsu 115 zero population growth 7

259

Transformations in the Global Political Economy

Documents