Third-world nations and Development

[benhur]

Third-world nations generally happen to have a lot of resources. Yet, people often say they remain poor, because they don't have enough money. What I want to understand is, if they have the resources and labor, why then is it hard for the state to develop industries on their own, instead of depending on first-world corporations?

If they lack resources, one can understand as to why they have to depend on other countries, but since most of them are resource-rich, why isn't it happening for them?

[BobKKKindle$]

Third-world nations generally happen to have a lot of resourcesThere is an important clarification that needs to be made here because it is crucial to understanding why these countries are freequently unable to develop by their own efforts; developing countries often have valuable natural resources in the form of minerals and fossil fuels but they generally lack the technical resources which are needed to refine these resources and turn them into products which can attain a high price on the international market and guarantee a stable source of income for the producer countries - in other words, there are different categories of resources, and it is often the case that the only way these countries can gain access to the technical resources they require is to create an environment that will encourage MNCs to conduct investment and take control of these resources for their own purposes, giving rise to a system of dependency. A case study which shows how this has occurred historically is the extraction of tin ore in Bolivia - the ore only becomes valuable after it has been refined through an expensive industrial process and so even though Bolivia has some of the largest reserves of tin in the entire world, the Bolivian people have been denied the right to benefit from their own country's natural resources. If at any point the governments of these countries attempt to reestablish control of their natural resources after the MNCs have developed the necessary infrastructure they may be faced with a trade embargo and even the threat of military invasion (as occurred in Iran in 1953, under the rule of President Mossadeq) and so this is rarely a desirable option.

[Tatarin]

What I want to understand is, if they have the resources and labor, why then is it hard for the state to develop industries on their own, instead of depending on first-world corporations?

Like you said, if they lack money, how are they going to build industries to refine the resources they have?


If they lack resources, one can understand as to why they have to depend on other countries, but since most of them are resource-rich, why isn't it happening for them?

Because they need the means to get to the resources. A country can have an almost endless supply of wood, but how are you going to sell it if you don't have a saw in the first place?

[wigsa]

Third-world nations generally happen to have a lot of resources. Yet, people often say they remain poor, because they don't have enough money. What I want to understand is, if they have the resources and labor, why then is it hard for the state to develop industries on their own, instead of depending on first-world corporations?

If they lack resources, one can understand as to why they have to depend on other countries, but since most of them are resource-rich, why isn't it happening for them?


We actually did a Geography project on the subject last year,with cotton trading in Mali being the case study.Basically,Mali has shitloads of cotton.The cotton industry employs a huge amount of people.They have extremely high quality cotton.So why isn't it a wealthy nation?The country it is in direct competition with is,of course,the United States.

You see,the US is so much more advanced than Mali that it has an automatic advantage before the trade war begins every year.The US,due to the decline in primary sector employment in the country,now subsidise their cotton farmers to the tune of 5 billion dollars annually to keep producing cotton for export.This is,according to UN directive,illegal,but of course nobody is going to attempt to make the US play by the rules,are they?Mali respects UN rules,and therefore does not subsidise its farmers.

The gap in technology is another huge factor.The average farmer in the US can produce 1 tonne of cotton in one day of collection.The same amount can take up to 1 month in Mali.

Storage is another problem.Malian producers must store their cotton in plastic wrapping.There is rarely enough warehouse space for all the cotton.Therefore large amounts must be left outside,in the African sun.This causes the plastic to melt and ruin the cotton it is supposed to be protecting.This,naturally,is not a problem in the US,where storage space is in an abundance.

Although different types of cotton are all basically the same,each year,the US sets the standard for cotton strand width.What this means is that it tells the world what the optimum width of cotton strand is.Anything else is inferior.The width is obviously whatever width is being produced in the US at the time.Therefore Malian cotton is inferior.

It's basically capitalism at its worst.One country gains an unfair advantage over another and continues to widen the gap,regardless of the rules and directive on the issue.Mali is doing well to compete but realisitically,it can't last much longer.And then it's another third world country with nothing to offer,which will slip into greater and greater poverty,while the US cleans up in another industry it really does not need at all.It's horrible.

[BobKKKindle$]

The US,due to the decline in primary sector employment in the country,now subsidise their cotton farmers to the tune of 5 billion dollars annually to keep producing cotton for exportThis is a deceptive argument because it infers that the best way so solve the problem would be to remove all subsidies, because the US cotton industry would not be able to survive when faced with market competition from a country which is able to produce the same good but at a lower cost, and so the case study you put forward can easily fall into the hands of proponents of free trade as an example of how a complete lack of trading regulations would improve the situation in developing countries. In reality, although the removal of subsidies would be a step forward and is something that communists should support as an immediate demand, it will not reverse the historic and ongoing underdevelopment of these countries because they will still be forced into a state of primary product dependency, or PPD. This means that the economies of these countries will still be based on the production of a single or small range of primary goods (i.e. goods which have not been refined or used to produce something else - cotton in the case of Mali, bananas in the case of Costa Rica) which attain a low price on the global market and are vulnerable to sudden fluctuations in price due to the effects of speculation and, in the case of agricultural goods, the long time interval between planting and the point at which the goods becomes available for sale.(1) The dominance of the primary sector relative to other sectors of the economy in developing countries is the product of historical oppression and the experience of these countries under the yoke of colonialism, as occupying powers often make a deliberate attempt to disrupt the growth of industry in order to create a market for their own manufactured goods. In India, for example, the British imposed taxes on domestically produced textiles, and at the same time transported Indian cotton back to Britain to produce textile products in Lancaster which were then sold to the Indian market.(2) In the contemporary world, developing countries are still unable to develop an independent manufacturing sector as goods imported from other countries can be sold at a low price and are often of better quality than anything which can be produced locally, and so any emergent manufacturing firms are unable to compete and rapidly go out of business, making PPD a permanent condition with negative impacts for economic development and income stability. The rules of the WTO prohibit countries from enacting trade barriers to protect their own industries despite the fact that the small group of countries which have been able to develop after the experience of colonialism have done so through extensive government intervention and import substitution.(3)

(1) 'Capitalism and Underdevelopment in Latin America', by Andre Gunder Frank
(2) 'The West and the Third World', 'Imperial Economies and Third World Development', by David Kenneth Fieldhouse
(3) 'Kicking Away the Ladder', by Ha-Joon Chang

[wigsa]

Bobkindles,

Good post,but:

Nearly all nations started out as being PPD.Thing is,the capitalist ones who had the opportunities,moved on and developed economically at the expense of those who did not,hence where the 1st/3rd world divide comes from.Unfortunately,most African nations are still stuck in this primitive state,due to the continued abuse by the US of their power to control the world markets across the board.

The reason I take issue with the subsidies is not the subsidies in itself.It's the fact that on its own,the US cotton industry would not be able to sustain itself.The US doesn't need the cotton industry,however it feels the need to be at the top of every market,due to its predisposed desire to control everything(I know I'm being really hippie-ish now,but anyway).The Malian cotton market is more than capable of sustaining itself,and would probably be the strongest in the world if it weren't for the disadvantages to the US.Essentially,the need of the US to control basically everything it can,is what is preventing the development of a 3rd world nation IN THIS PARTICULAR CASE.And I'm sure there's plenty of other examples aswell.The US is keeping alive something it doesn't need,simply for the sake of it.And that's what pisses me off.

[BobKKKindle$]

Thing is,the capitalist ones who had the opportunities,moved on and developed economically at the expense of those who did not,hence where the 1st/3rd world divide comes fromThe "opportunities" that you mention came in the form of European states occupying and exploiting what would later become known as the developing world during the initial stages of capitalist development as a means to support industrial growth. This often took place indirectly; the precious metals extracted by the Spanish in Latin America was used by the parasitic ruling elite to purchase artisan products from France and Britain, and this exchange provided an important source of capital for the recipient countries which was transferred to the emergent manufacturing sector and thereafter allowed these countries to establish themselves as the most economically advanced countries in the entire world.(1) The idea that countries have developed independently of each other or are capable of doing so is an illusion as the wealth of the developed world has always been tied to and ultimately dependent on the exploitation of other countries.


The Malian cotton market is more than capable of sustaining itself,and would probably be the strongest in the world if it weren't for the disadvantages to the USEven if the Malian cotton market were the "strongest in the world" the majority of the Malian population would still end up living in conditions of dire poverty and the Malian economy would still be dependent because no country has ever been able to develop solely on the basis of a primary sector - industrial development and movement up the value chain (which in the case of Mali would mean the production of textiles and eventually finished garments) are vital and yet the structure of the global trading system prevents developing countries from doing this and thereby makes dependency permanent. This is shown by the case study of coffee, as coffee exports encounter almost no tariffs or subsidies because coffee beans can only be grown in certain areas of the world and it would be prohibitively expensive to grow them elsewhere, and yet coffee-producing countries (for example Ethiopia) are still dependent on producing the raw coffee beans as they do not have access to the technology needed to produce goods which are further up the value chain such as roasted beans. As mentioned in my previous post, primary goods tend to attain a low price and in the case of coffee and other primary goods this is often due to the structure of the market itself - the production of coffee is generally based on large numbers of small producers who do not interact with each other or coordinate production, as shown by the fact that smallholders, defined as people who cultivate less than 10ha of land, account for 70% of all coffee production on a world scale.(2) This fragmented system of production contrasts with a concentrated system of purchasing, as four roasters purchase more than 50% of annual production, and roasting is the stage at which the biggest profit margin is obtained.(3) This contrast (otherwise known as an unequal distribution of market power) places purchasers in a position of strength and allows them to dictate the price at which coffee is sold (often with the help of local intermediaries) which prevents producers from obtaining sufficient income, often leading to mass migration to slum areas in the vicinity of cities. In accordance with the predictions of the Raul-Prebisch hypothesis, raw coffee bean prices have experienced a downwards trend over time, as coffee sold for 100 US cent/lb during the 70s/80s, but has since fallen to just 41.17 US cent/lb (as of 2001 - a fall of more than 50%) due to a combination of factors, including the entry of new market participants such as Vietnam, increasing market inequality, and market saturation, further deepening the impacts of PPD. The point of this case study is that it shows how subsidies are not the central problem - PPD would continue even if all the subsidies in the world were removed because PPD and the associated negative impacts are the "natural" consequences of colonialism and the capitalist world-system.

(1) 'Open Veins of Latin America: Five Centuries of the Pillage of a Continent', by Eduardo Galeano
(2) SOMO/Food World R&C, Controlling the Supply Chain, (2000)
(3) Crisis in a Coffee Cup (http://money.cnn.com/magazines/fortune/fortune_archive/2002/12/09/333463), CCNMoney, (12.2002)

[JimmyJazz]

Third-world nations generally happen to have a lot of resources. Yet, people often say they remain poor, because they don't have enough money. What I want to understand is, if they have the resources and labor, why then is it hard for the state to develop industries on their own, instead of depending on first-world corporations?

If they lack resources, one can understand as to why they have to depend on other countries, but since most of them are resource-rich, why isn't it happening for them?

Because a third world country's industries can't compete with the established industries of the first world. Yet through free trade, they have no choice but to try.

For example: a new Indonesian carmaker can no more compete with Toyota, Ford or BMW for the global auto market, than a little corner convenience store can compete with Wal-Mart.

If third world countries would be protectionist, they might have a chance. To continue with the same example, Indonesia could close itself to auto imports so that Indonesians all bought Indonesian-made cars. Eventually one or two Indonesian carmakers would dominate the domestic market. By this time they'd be providing cars for tens of millions of Indonesians, so they might be big enough (your size is directly proportional to how much risk you can absorb) and experienced enough to at least have a fighting chance on the global auto market. At this point, Indonesia could open up the auto market to free trade, allowing foreign companies to sell in Indonesia in exchange for them allowing Indonesia's company to sell in their country. The Indonesian car company would sink or swim, but at least it would have been given a realistic chance.

However, protectionism isn't usually considered an option. The West forces unrestricted free trade on everyone else. It does this, for instance, by making anti-protectionist rules a contingency of loan and aid agreements. Thus, if you are a third world country, the West will agree to give you the startup capital necessary to try developing your own industries, in the form of a loan; but simultaneously, the West will ensure that you never succeed in this venture by refusing to let you grow your industries via protectionism.

This is really all globalization is: ever-expanding, unrestricted free trade. The result of it all is that, in the global production scheme, the West provides the capital and the rest of the world provides the dirt cheap labor. A pretty handy situation for Westerners.

Ha-Joon Chang has written a couple books that elaborate this (Bad Samaritans, Kicking Away the Ladder).

[BobKKKindle$]

This is really all globalization is: ever-expanding, unrestricted free trade

This is incorrect; trade between countries is not free because the developed states continue to protect their national agricultural sectors through tariffs and subsidies, and there are also several countries, including China, which fix the value of their national currencies to maintain a favorable balance of trade. More importantly, however, although trade is an important component of globalization (which is really just imperialism in its most recent form) it is not the most important component - investment flows are now more important than trade in terms of annual value, which validates Lenin's prediction that the export of capital (i.e. foreign investment conducted in the developing world) would take the place of the export of commodities as the most important transaction between capitalist states during the imperialist epoch. Investment allows the imperialist core to increase the rate of profit by situating production in the developing world where workers do not obtain high wages and can be forced to work for long periods of time in poor conditions, thereby averting periodic crises, and the surplus value generated in the periphery is returned to the core where it is used to support the personal consumption of the capitalist class and "buy off" a section of the proletariat to avert the threat of social revolution. The division between oppressed and oppressor nations (or core and periphery states, to use the language of dependency theory) is based on whether the net movement of surplus value for a given country is negative or positive.