Rules of the Game:

(The effect of the New World Order on the countries of the Third World)

from the book

Development and Disorder:
A History of the Third World since 1945

by Mike Mason

published in 1997


By the end of the century-despite the varied national manifestations of "development" in the Third World, and the complicated responses of both elites and majority populations -- certain large global structures have had the effect of overriding the national and universalizing the general. These institutions were created to guarantee the capitalist development of the West, and of the United States in particular, and in the process came to dominate the dependent capitalist development of the Third World. But by the early 1990s the cost of such domination was perceived as having led to the United States' loss of economic, although clearly not its military, preponderance. The effect of this perception was that the United States was transformed from a nation besieging the world with its message of economic and cultural superiority to one besieged and wondering who to blame. Just as significantly, the apparent U.S. economic deterioration has been accompanied by vertiginous Third World decline-and not necessarily a decline in national product as symbolized by GNPs and GDPs, but a decline in the living standards of most people.


Morning in America

At the conclusion of World War II, the United States was, in one succinct phrase, "the Free World colossus." Never in history had a country been so economically powerful and its citizens so individually prosperous. In 1945 U.S. industrial production was double the average of the five prewar years; the United States produced half of the world's coal, two-thirds of its petroleum, and more than half its electricity. The U.S. GNP had swollen from $90,500 million in 1939 to $211,900 million in 1945-or from $691 to $1,515 per person. In 1938 U.S. shipyards had constructed the equivalent in tonnage of one-sixth of the British merchant marine (the world's largest). In one wartime year alone, 1943-44, the yards produced a tonnage equal to one and a half times the same merchant marine. In 1945 the United States held 80 per cent of the world's gold and three-quarters of its invested capital. The U.S. military capacity had grown by leaps and bounds. According to Melvyn P. Leffler: "Its strategic air force was unrivaled. Its navy dominated the seas. It held a monopoly over humanity's most intimidating weapon, the atomic bomb. The United States had preponderant power."

With the country's capitalist rivals either raising their hands in gestures of surrender or holding them out in gestures of supplication, Uncle Sam had reason to walk tall. Both Germany and Japan, the most formidable rivals for preponderance, had gone from being strutting imperial powers to cowering and conquered territories administered by former enemies.

Not only the enemies but also the allies had been badly wounded in the war. Charles de Gaulle was later to write: "As the tide [of war] retreated it suddenly exposed, from one end to another, the mutilated body of France." The Netherlands and Belgium, the other colonial powers of northwest Europe, were, if anything, in worse shape: flooded, plundered, disordered, and destitute. Britain was unique among the major capitalist democracies in not having been occupied, yet with the country having lost more than a quarter of its economic assets as a result of the war, its rulers recognized that, in general terms, it had ceased to be a power of the first rank in the game of postwar politics. As for the Soviet Union, in January 1946 a U.S. Naval Intelligence report commented, "Economically, the Soviet Union is exhausted." Still, the Soviet Union was, in military terms, a power to be reckoned with; indeed, it was the other world power.

Given this state of affairs-and with widespread fears of global chaos and revolution-order had to be restored, and this restoration would be primarily a U.S. responsibility. Indeed, the exercise of this responsibility by means of two major programs, one political and the other economic, forms the main narrative thread of postwar history.

The political program was based on an argument voiced by both U.S. and other Western leaders that the greatest threat to a peaceful, prosperous postwar world was communism and communist-inspired nationalism. This argument was particularly convenient for the European colonial powers, because it allowed them to apply for U.S. financial credits, arms, and general sympathy to help reimpose a modified and more efficient colonialism. They argued that if communist-inspired nationalism prevailed, wide ranging parts of the "underdeveloped" world would be lost to the West. This West was now christened "the Free World," and "Freeworldism" became the ideology of the Cold War political world order.

The antidote to the threat of communism-which came, first, from the direction of Moscow and, later, from Beijing as well-was applied in two stages: "containment" followed by "rollback." The U.S.-led war in Korea was the first major war of containment in the Third World, and the war in Vietnam was the second, but many smaller wars and skirmishes also took place, as well as even more interventions in the form of coups. In many places and in many situations,(as we've seen in earlier chapters, nationalism and communism were successfully rolled back.


Bretton Woods

Postwar economic programs for a new world order were based on the assumption that if global economic stability were to be ensured, U.S. supervision and U.S. capital were essential. The rules for the new world order were hammered out at the United Nations Monetary and Financial Conference held in July 1944 in the rambling Mount Washington Hotel in Bretton Woods, a holiday resort in New Hampshire. "Bretton Woods" was to become the shorthand for globe-girding economic agreements in the way that "Versailles" became the shorthand for political agreements after World War I.

In Bretton Woods the representatives of nearly 50 states had come together, though not, of course, as equals. Besides the United States and Canada, most were from Western Europe and Latin America. India, China, and the Philippines were also there, as was Ethiopia. South Africa was there, represented by its white government officials.

It is no coincidence that Bretton Woods was in the United States; almost all of the dominant international institutions that provided the superstructure for the postwar world were established and guided from the United States: the United Nations, the World Bank, the International Monetary Fund (IMF), and the great scheme for Western European economic rehabilitation, the Marshall Plan. The U.S. treasury secretary had explained to his president his intention to move the financial center of the world from London, where it had been since the 19th century, to Washing ton. U.S. conservatives and isolationists, who might have otherwise been hostile to supranationalist institutions, accepted the ones invented at Bretton Woods, confident in the knowledge that the bodies would be U.S.-controlled.

At the outset the discussions about trade in the postwar world were dominated by the United States and Britain, the two leading capitalist countries at the end of World War II. The famous British economist John Maynard (Lord) Keynes led the British side. Keynes had been the hero of a revolution in economic thinking that began to gain ground in the 1930s. Keynes and his followers believed that unregulated capitalism had been the source of the Depression, and the Depression had been the cause of World War II. Keynes advocated more state intervention in the economy to ensure full employment, which would underpin general security and prosperity. Insecurity, it was widely assumed, had led to the desperation and dictatorship that had put the world on the road to World War II. Keynes was also a great iconoclast: "Practical men, who believe them selves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist," he wrote.

The two leading teams of negotiators did have somewhat different visions of what lay ahead for both their national economies and the world economy in general. Basically, the British wanted U.S. credit to rebuild the economies of Western Europe (including their own) and to stimulate the economies of the colonies. The colonial economies would complement those of the metropolitan countries. Keynes saw London remaining as the financial center of the empire and of some (if not all) non-imperial countries as well. The Americans, by contrast, wanted the dismantling of the protective tariff walls that Britain and other imperial powers had built around their empires. The United States' future depended on unimpeded access to the world's markets and raw materials. In sum, the United States wanted free trade. In 1944, as 50 years later, free trade was seen as being necessary for the fullest development of capitalism. It was therefore bound to be the ideology of the preponderant capitalist power.


The International Monetary Fund (IMF)

The IMF was the more important of the two major institutions conceived at Bretton Woods; its actual birth and that of the World Bank took place at Savannah, Georgia, in February 1946. In the months after the 1944 meetings at Bretton Woods, Washington's attitude towards the reconstruction of global capitalism had shifted. Less tolerant of rival centers of economic influence (such as the British Empire/Commonwealth or the French or Netherlands unions) and more concerned with their own country's primacy, the U.S. negotiators at Savannah flexed their muscles more frequently. This disillusioned those, like Keynes, who held a more internationalist perspective. He died a few weeks after the Savannah meetings, doubtless in a disappointed frame of mind.

The IMF's overriding aims were regulation and stabilization-to regulate the marketplace of the "free world" in the interest of stability and free trade. The term "world" is key: the IMF has always claimed to be acting in the interests of global economic well-being; national or regional questions could never be allowed to impede universal requirements. The directors of the IMF, not local leaders, would get to interpret what was good for "mankind." Just as the directors of General Motors had claimed that what was good for GM was good for America, the directors of the IMF were able to say with equal confidence that what was good for America was good for the world.

The IMF had five original concerns: convertibility, exchange, currency, credit, and adjustment. Convertibility required that all national currencies could be exchanged with all others, which was the opposite of currency control, which restricted convertibility from one currency to another and had been common before World War II. Most advanced countries postponed convertibility until the end of the 1950s, but since then even most Third World countries have accepted it. The Soviet bloc countries held out until the bloc disintegrated. Convertibility meant that national governments had diminished control over the relative value of their currencies.

The second concern, exchange, required that convertibility be handled at fixed rates. The object was to prevent countries from manipulating their currencies to their own advantage, a practice common in the 1930s. The Bretton Woods negotiators agreed that the value of the U.S. dollar should be tied to the price of gold and the exchange rates of all other countries should be tied to the dollar. Countries with U.S. dollars could exchange them for gold.

Currency required an internationally acceptable and available monetary unit, and this concern also led back to the U.S. dollar, the most acceptable currency in the postwar capitalist world. The United States guaranteed that the dollar would not be devalued, so that other countries would be confident about keeping it in their reserves. Devaluing in relation to the dollar, as the British did in 1968, was regarded as a sign of economic weakness and an admission of political mismanagement.

A system of credit was needed because international trade inevitably led to balance of payments problems. By 1978 the total amount of money available for loans had reached $39 billion, of which the United States contributed 21 per cent. By 1995 the Fund's 179 members had contributed a total of $226.2 billion, of which $52.4 billion had been loaned out. This money was loaned on a short-term basis to countries in need "on the understanding," according to E.A. Brett, "that they adopt policies to deal with the problem which the IMF considered appropriate." Unless the IMF's solutions to a country's economic problems were accepted, there would be no loans, a factor that came to be known as "conditionality." The IMF had no leverage on economic strategies in non-borrowing countries.

In all of this the United States was influential from the beginning, at least partly because voting strength within the IMF was proportional to contributions, and the U.S. quota has always been the largest. This power led to initial disagreements with Washington's European partners, but in the late 1940s their economic weakness was decisive. Washington had little difficulty in imposing its will.

Some four decades after the Bretton Woods agreements, criticism of the IMF had become a major intellectual pastime among developmentalists. The 1980 Brandt Commission report, Global Challenge, which con fronted the problem of global economic disparity, criticized the IMF for putting the burdens of economic reform primarily on the poor countries and largely ignoring any responsibility on the part of the rich. But the IMF was unmoved, as it was 15 years later on its 50th birthday. Its executives had an ecclesiastical confidence that not only what was good for the IMF was good for the world, but also what was wrong with the world could be made right by the IMF.


The World Bank

The second product of the Bretton Woods conference was the International Bank for Reconstruction and Development (IBRD), later known as the "World Bank." The original purpose of the Bank was to provide, in the words of its own charter, for "the development of productive facilities and resources in less developed countries" and for the promotion of a "balanced growth of international trade." But because of the reluctance of its Western founders to contribute, it had no money of its own. For its investments it turned to the bond market, by which means it had raised about a billion dollars a year by the end of the 1960s.

The governing body of the World Bank, like that of the IMF, reflected the economic status of its members. Thus it was ruled by representatives of the richest countries. Unlike the IMF, its president has always been an American. Most of its senior officials were Americans, British, French, Canadians, and Germans. Its researchers were often Indians, Egyptians, and Spanish-speakers. The largest contingent of clerical workers was Filipino.

In 1960 the International Development Association (IDA) was established as an offshoot of the World Bank to make loans to countries too poor to afford the terms of the Bank itself, a concept that the United Nations had been pushing. Most of the IDA loans were "soft," often requiring no repayment for at least 10 years, but they were hardly interest-free. Thus, from the 1960s onward, the term "World Bank" refers to the IBRD plus the IDA. With the introduction of the IDA, the World Bank was moving rapidly from postwar reconstruction to economic development, and by the end of the decade the shift was complete. Presiding over this new phase in the history of the World Bank was Robert McNamara, a heavy weight figure in the Kennedy and Johnson administrations who became president of the World Bank in early 1968 after serving as U.S. defense secretary from 1961 to early 1968-that is, through the period of the build-up of the war in Vietnam. Among the U.S. policy elite McNamara had a stature even greater than that of the developmentalist Rostow. In their study of the World Bank, Susan George and Fabrizio Sabelli remind us that McNamara's close identification with the Vietnam War earned him the sobriquet "Butcher of Vietnam." Like Rostow, an obsessive anti communist, McNamara had pioneered such concepts as the "body count" and fostered such murderous weapons as cluster bombs and chemical defoliants. He praised the Dow Chemical Company for its "service to the Free World." Dow manufactured the napalm that the U.S. air force dropped on Vietnam.

There would seem to be a somewhat macabre ideological overlap between the manufacture and systematic counting of bodies and the fastidious counting of dollars. It takes the form of a belief that, based on exclusively quantifiable information, rational calculations and decision-making can be ensured. The old-fashioned term for this was "positivism." The l9th-century positivists believed that the secrets of the universe would be disclosed by the prudent accumulation of facts. McNamara was a modern positivist, a believer in the magical reliability of numbers; one leading U.S. politician referred to him as "an IBM machine with legs," although it appears as though he often made up the data as he went along.

In the first months of his World Bank presidency, true to form, McNamara concentrated his attention on augmenting the numbers: he raised more money than had been collected in any previous calendar year. In the 19 years to 1968, the Bank had financed 708 projects at a total cost of $10.7 billion. In McNamara's first term, from 1968 to 1973, 760 new projects were undertaken at a cost of $13.4 billion, and the staff of the Bank increased by 120 percent. According to McNamara's vision, the more money that was borrowed, the more likely Third World economies were to develop. Because loans by the Bank were apparently viewed as Guarantees of Good Housekeeping, other banks and donors opened their purses, too. There seemed to be no downside; developmentalist dogma predicted that the loans would yield growth, and growth would guarantee the paying off of loans. Certainly, no one in the Bank predicted anything like the debt crisis that followed in the 1980s, by which time the phenomenon of loan pushing had become known as "reckless credit expansion."

In 1973, when McNamara discovered "rural development," he explained it to the annual meeting of the World Bank: "The question is what can the developing countries do to increase the productivity of the small farmer. How can they duplicate the conditions which have led to very rapid agricultural growth ... and combat rural poverty on a broad scale." A couple of years later the Bank reported: "Traditional peasants need to be modernized; they need to be given access to capital, technology, and adequate assistance. Only in this way can production and productivity be increased." The Bank would help make life better for the rural poor of the Third World by helping them become more economically rational. The question of the teeming urban poor, whose numbers continued to increase, was postponed. In subsequent decades the Bank's attention turned to issues of women's welfare and later to the environment and even the survival of workers within the global system that it had designed.

But by the end of 1981 unanticipated problems rose. Most states in the Third World had borrowed heavily, on relatively easy terms, in the 1970s and early 1980s, to finance the development for which they yearned and that Western experts recommended. While the World Bank had encouraged specific development strategies and offered to organize their financing, the Bank could not either guarantee their success or pick up the tab if they failed. By the early 1980s a mammoth problem had emerged: it had become clear that development had not taken place, or at least not to the extent required. Third World borrowers found themselves in the position of needing to borrow even more money, but now against a background of falling primary product prices, to pay off their development loans. Loans were made to pay off loans, and the Third World borrowers were becoming net exporters of capital. Because all development requires the investment of capital, its export constituted disinvestment and therefore anti development.

By early 1982 McNamara had been replaced by a former Bank of America president, A.W. Clausen, and the interest rates on bank loans were at nearly 10 per cent. Some debtors owed more than they could earn from exports: "The external debt service as a percentage of exports was 179 percent for Argentina, 129 percent for Mexico, 122 percent for Brazil, 95 percent for Venezuela, and 91 percent for the Philippines." As for the poorer African countries, according to Joyce Kolko, "By 1985 sub-Sahara Africa's forty-two countries owed $135 billion, or 35-40 percent of exports, compared to 9 percent in the mid-1970s. Governments began to increase their production of commodities to meet their foreign-exchange demands for debt service and essential imports, and the overproduction drove prices down further. Over the same period their average per capita national income fell between 10 and 25 percent.... By 1985 one-fifth of all IMF loans were in Africa.''

Small and copper-dependent Zambia was one of the most stricken by this situation. Zambia's GNP was 27 per cent lower in 1984 than in 1974, and its per capita income had fallen by two-thirds since 1981. The social consequences of increased poverty were notable: despair, drunkenness, and disease all increased markedly. According to President Nyerere of neighboring Tanzania: "Africa's debt burden is now intolerable. We can not pay.

The debtors were also in deep trouble in Latin America, too, and in 1982 Mexico became the first to announce that repayment was impossible. Still, no attempts were meant to forge a common front against the lenders. Debtor nations negotiated one by one and broke ranks when general agreements were attempted, and, one by one, they attempted to stem the flow out of their countries towards the lending countries. In 1985 Peru declared that it would pay only a fixed proportion of its export earnings. In 1987 Brazil refused to pay interest until better terms were negotiated. Soon Bolivia also refused to pay. When the banks eventually negotiated a highly profitable "buy-back" scheme that netted them huge tax breaks, the Bolivian government redeemed its debt at 11 cents on a dollar. In 1987 Zambia, a small-time player in the field of international finance, withdrew from the IMF altogether. Yet despite this general debt disaster, both the IMF and the World Bank continued to urge many Third World states- China and India among them-to increase their development debt.

Partly in response to the unnerving debt crisis, the World Bank and the IMF, as well as state-controlled aid agencies such as the U.S. Agency for International Development (USAID), jumped onto a new 1980s band wagon called "structural adjustment." The claim of Structural Adjustment Programs (SAPS) was that they would consciously shift the direction of development by accelerating it. The great agencies would offer financial assistance to help with balance of payments difficulties on the proviso that a Third World country would accept a package of policies ensuring its return to financial balance. The contents of the program were more or less the same throughout the Third World: the liberalization of foreign exchange and import controls, the devaluation of the currency, and the deflation of domestic demand. After enduring this Draconian economic medicine, Third World economies were expected to return to health and join the ranks of the developing.

As part of this solution to the economic problems of the Third World, from the early 1980s the World Bank pushed for privatization of national economies. Privatization was part of a series of measures associated with the economic doctrine known as "neoliberalism" that was designed to shrink the state or, in other words, to reduce expenditures on such state run areas as health and education. With Keynesianism now dead, the new economic doctrine called for the reduction of state interventionism. The downsizing of the state, said the economic theorists of the Chicago School and their followers everywhere, was necessary for the continued viability of capitalism. Since the end of World War II, publicly owned firms such as oil companies and banks had become normal and ubiquitous in both the developed and the less developed worlds. The postwar rehabilitation of capitalism had been closely connected with the growth of the public sector. In India, the most populous of the non-communist Third World countries, for instance, in the 1970s "of the 101 largest companies (by value of assets), thirty were state-owned (including the nine largest, covering 60 percent of the total assets)." Now the World Bank and the IMF set out along the path of stripping the public sectors of Third World countries of many of their most valuable possessions and turning them over to an elite of locals and foreign buyers: state oil companies, television networks, banks, air lines were all auctioned off in the decade from the mid-1980s to the mid-1990s.

Writers who accept the premises of neoliberal economics cite the examples of Chile, Ghana, Turkey, and Indonesia as countries that accepted SAPS and thereby achieved relative economic success. Other critics argue that structural adjustment exacerbated rather than solved the debt problem. Often, as in developed countries, privatization provided easy pickings for the rich, because nationalized firms were sold off, to either foreign investors or local elites, at prices far below their real value. Local buyers generally had to borrow capital internationally, which led to great benefits for some but often debt and distress for national institutions. Local populations were not insensitive to the declining living standards and pain that often followed. Throughout the 1980s and early l990s, powerful demonstrations against the World Bank and IMF became common enough that they had their own name: "IMF riots."

Through all this, the World Bank and the IMF were represented by their advocates as being, like the market itself, above the normal commercial melee and unconnected with the material interests of those who governed them. Not all were taken in by this, however. Julius Nyerere of Tanzania appeared among the dissenters. In 1985 he stated, "The IMF has become largely an instrument for economic and ideological control of poor countries by the rich ones... in enforcing the unilateral will of the powerful."


The General Agreement on Tariffs and Trade (GATT

Yet another institution, the General Agreement on Tariffs and Trade (GATT), was the unexpected outcome of U.S. initiatives and three conferences held between October 1946 and March 1948 to oversee the formation of a global marketplace. U.S. dominance of this market was taken for granted, and by the mid-1960s GATT was often perceived as a "rich man's club "

The GATT charter, signed by 23 countries (11 of them in the Third World), came into effect in January 1948. With a secretariat in Geneva and a set of rules governing negotiations over tariffs, by the early 1990s GATT had 109 members, including all of the OECD as well as the majority of developing countries and even Hungary, Czechoslovakia, Poland, and Rumania.

Since its emergence GATT has organized eight sets of negotiations or "rounds," the most important of which was the "Tokyo Round," which took place between 1973 and 1979. The "Uruguay Round" began in 1986 and concluded at the end of 1993. In all of these rounds the prime purpose was to encourage non-discrimination between countries and the progressive reduction of tariffs, which was to be done by exercising the principle of reciprocity: any country that broke the rules of the GATT would be liable to retaliation from its main trading partners. The 1995 GATT agreement authorized the establishment of the World Trade Organization (WTO), which replaced GATT. (Among other differences, whereas GATT was essentially a set of rules and was conceived of as a provisional measure, the WTO is an institution and forms a permanent commitment for its member states.)

Although each member of GATT had but one vote, the organization was anything but democratic. Most decisions were made as a result of negotiations between the great economic blocs within the capitalist oligarchy known as the Group of Seven (G7)-the United States, Canada and members of the European Union, and Japan. These accounted respectively for 36 per cent, 34 per cent, and 19 per cent of the total output of the then 25 OECD members, that is, a whopping 89 per cent of the total output of the industrialized world. Nor surprisingly, then, as Kevin Watkins points out, "Whatever the skills of negotiators from the South, for the most part they are like extras on the GATT stage; the show can't go on without them, but nobody is remotely interested in what they have to say." At the Brussels GATT summit in December 1990, the U.S. chief negotiator, Carla Hills, had a staff of 400 advisers-more than the staffs of all of the African and Latin American delegations put together. Even then, Hills and her team did not represent U.S. interests in the abstract: the lobbying of the multinational corporations saw to that. Rather, the U.S. team argued for the corporations-in the form of IBM, Citibank, and American Express. Among other things, "We want to abolish the right of nations to impose health and safety standards more stringent than a minimal uniform world standard." On the European side, Hills's opposite numbers also argued on behalf of great multinationals-Unilever, Hoechst, Bayer, and British American Tobacco. It is difficult not to conclude that GATT and its successor, the WTO, represent a parliament of titans watched by noisy but generally ineffective paupers sitting on the back benches.

The most pressing and divisive issue in the GATT Uruguay Round was agricultural trade reform. According to Watkins, writing before the concluding agreements of December 1993:

The U.S., espousing an aggressive free market ideology, has attempted to use the GATT as the multilateral extension of domestic farm policies adopted in the mid-1980s. These have been aimed at consolidating its market domination through the use of a variety of direct and indirect subsidies to dump farm surpluses on to world markets. Under the GATT regime advocated by the U.S., farm protection would be phased out globally, thus removing barriers to U.S. export dumping.


The Food Regime

Infinitely more obscure than the international financial and trade institutions was the postwar "food regime," which had neither a home nor an acronym but existed as a set of political and economic priorities and conventions nonetheless. It was also like the menu at McDonald's-highly advertised, persuasively packaged, accessible, and, even to the poor, compelling.

The food regime, also established after the end of World War II, had as its purpose the setting down of agreed-upon regulations to govern production and consumption, not just of human food but also of animal feeds, such as soy and maize. The export of food, including stimulants (tea, coffee, cocoa, marijuana, opium), was, after all, the basis of many Third World economies.

The first period of the food regime was roughly that of the "golden age" of postwar capitalism, from 1947 to 1973.39 In this period of uncontested U.S. dominance, Washington passed a succession of laws that were not only intended to protect U.S. food producers but would also enable the United States to use food as a means of achieving strategic and other objectives: food could be used to make friends and to twist arms. As a result of U.S. food aid policies, recipient countries were forced to modify both their own food policies and the eating habits of their peoples. Thus, as in other areas, the U.S. government captured its partners in a net of relationships designed to meet the requirements of U.S. domestic producers (farmers producing wheat, for example) and U.S. agricultural corporations (agribusinesses), as well as U.S. foreign policy goals.

The establishment of this regime had several visible consequences. One was the increase in meat-centered diets everywhere in the West. The effects of this increase were particularly profound in Latin America, where much of the beef and animal food was produced. Another was the shaping of Third World production to conform to Western appetites. From the 1950s the United States cultivated Third World import markets to absorb existing U.S. wheat surpluses. At the same time, U.S. agriculture under mined the markets for Third World agricultural products. For instance, sweeteners using corn competed with sugar, and U.S.-produced soya oil undermined Third World vegetable oils, peanut oil and palm oil particularly. Arturo Escobar summarizes the consequences of this shift:

Countries that were self-sufficient in food crops at the end of World War II- many of them even exported food to industrialized nations-became net food importers through the development era. Hunger similarly grew as the capacity of countries to produce the food necessary to feed themselves contracted under the pressure to produce cash crops, accept cheap food from the West, and conform to agricultural markets dominated by the multinational merchants of grain. Although agricultural output per capita grew in most countries, this increase was not translated into increased food avail ability for most people. Inhabitants of Third World cities in particular became increasingly dependent on food their countries did not produce.

By 1973-74 a new crisis ushered in the second period, from late 1973 to the 1990s. With their own tropical crops in decline because of a shrinking export market, many Third World countries had become desperately dependent upon U.S. food grains. At the same time vegetable oil prices had also increased. These changes meant that the Third World countries had to borrow money to enable themselves to buy the oil to cook the food that they may or may not have received as charity. The loans incurred put them in the power of the lords of financial discipline-the World Bank in particular. The main form of discipline was to be structural adjustment.

This second period saw the addition of a new market, that of the Soviet Union. In the 1980s the Soviet Union became a major importer of U.S. food grains. By now a kind of reciprocal dependency had developed: the new Third World (including part of the former Eastern bloc) became dependent on imports of U.S. food grains, but the United States became dependent on Third World markets, especially as U.S. industry became increasingly less able to compete with the production of Pacific Asia and Western Europe. Japan, meanwhile, sought to develop diversified sources of food grains to reduce reliance upon the United States. By stimulating new centers of food production in the Third World, Japan was destabilizing the system carefully nurtured by Washington since 1947. Also in the 1970s Washington found a new source of distress, this time in the form of the "New Agricultural Countries," or NACS. One of these was Brazil, whose production of oilseeds and meal cut deeply into U.S. markets.

A major preoccupation of the leading GATT negotiators had become, therefore, to shore up the crumbling foundations of this postwar food order, which now included not only the G7 states (particularly France) but also the NACS.


The Aid Regime

In the postwar era the acceptance of the idea that aid is a necessary and irreplaceable part of the structure of the contemporary world economy has led to the formation of yet another regime. The granting of foreign aid is, therefore, not usefully seen as the outcome of humanitarian concern driven by a superior Western conscience that empowers the airplanes of this or that country to fly off to Biafra or Rwanda with a few tons of food (amid great media hurrahs). The aid regime is better understood as a facet of the trade practices of the dominant economies that have guaranteed the subordination of many of the economies of the Third World.

Contemporary aid has three visible forms; money and technology or technique aimed ostensibly at encouraging or supporting development; money for arms and training; and money and goods for health and emergency relief. All three forms come from the same sources and often the same institutions, and these are almost invariably Western. The modern genealogy of aid takes us to the expansion of imperialism in the 19th century-Christians preaching the missionary position on modernization theory: the "do's" and "don'ts" of nudity, sexuality, morality, punctuality, frugality, diligence, and accumulation. Missionary aid was a source of power for Christians, indigenous and foreign, whose views about the necessity of Western trusteeship seldom diverged from those of the colonial powers who were their hosts. From the 1930s its beginnings in the days of the colonial powers, development aid had as its first priority the strengthening of the metropolitan (that is, British or French), not the colonial, economies and was to be used as a form of social engineering.

But these instances of postwar aid to the non-Western world pale by comparison to the aid given by the United States to Europe under the auspices of the European Recovery Program, better known as the Marshall Plan. This plan dispensed over $13 billion between 1948 and 1952 to Western European countries. Its motives were not purely philanthropic, because it sought to provide the Western European economy with the means to buy U.S. goods. While this may not have been charity in its purest form, it was certainly an intelligent expression of self-interest. All Western Europeans welcomed it, and several communist states sought (but didn't get) it. The Marshall Plan was intended to be part of the re creation of a new global order. By tying the European economies to that of the United States, the aid forcefully limited the recipients' options. "The Marshall Plan, as well as subsequent aid programs, was as much directed against 'national capitalism' as against socialism or communism," states Robert E. Wood. That is, like the programs of the IMF and the World Bank, aid inhibited forms of development that did not suit the donor.

In the Third World, within this new postwar global order, aid was to have two major objects: to ensure that the economies of the Third World functioned efficiently, because the prosperity of the West was closely connected to the purchasing power and raw materials of the non-West; and, just as in Europe, to discourage the development of national capitalism or communism in any form. Postwar U.S. aid to European states with colonies was used to influence or even destroy independence movements. The British in Malaysia, like the French in Indochina, got invaluable military aid from Washington in their attempts to destroy communist nationalism. Regimes that defied the interests of the Americans, like Mossadeq's Iran or Goulart's Brazil, were destabilized by being cut off from loans and aid; and once Washington saw that government was back in the hands of compliant regimes, loans and aid flowed in once again. So aid was used as a hammerlock to hold Third World countries in place as dependent associates in a U.S.-dominated system-even though this hammerlock was passed off, wherever possible, as an embrace of solicitation.

While the forms of aid have varied historically they have always conferred a major "feel good" component on their benefactors; young (mainly white) Americans in the Peace Corps in the 1960s, whose numbers reached nearly 16,000 in 1966, could feel that they were following the dictum of their president, who said, "Ask not what your country can do for you-ask what you can do for your country." The young (mainly white) volunteers from other Western countries, from CUSO in Canada or VSO in Britain, for instance, together with cooperants from France, knew that what they were doing in Peru or Uganda was not for themselves, it was for the people of the Third World. This form of aid was at its peak from the early 1960s to the early 1970s. The various volunteers also functioned as missionaries in reverse; they carried the gospel of "Third Worldism" back to the industrialized countries they came from, stimulating the credo that Westerners would be "partners" in the development of the non-West. The idea of partnership seemed to be less paternalistic than previous relationships. By the mid-1990s the sense of righteousness on the part of the givers had not completely disappeared. "The First World confers much largesse on the Third World," begins John Stackhouse, a development issues writer for Toronto's Globe and Mail, continuing on to explain how the World Bank "has long built foundations on which individuals [in the Third World.

Aid was therefore never what it seemed to be; it was more concerned with the discipline that is a frequent corollary of charity than it was with simple humanitarianism. If aid were simply humanitarian, it might be logical that either the most needy or the most promising got the most aid. But neither did; most U.S. aid, for instance, has gone to the most reliable and the most respectable from the point of domestic political and "national security" considerations. The greatest aid recipient, by any standards, has been Israel; another major beneficiary is Egypt. One-quarter to one-half of all U.S. foreign aid has fallen into the "military security" category. In the mid-1980s, at the height of the U.S. counterinsurgency program in Central America, El Salvador got 5 times as much aid as Bangladesh, even though Bangladesh had 24 times as many people and was 5 times poorer than El Salvador. Awkwardly, despite this aid, infant mortality rates in El Salvador climbed in the 1980s when the "free market" regime oversaw the decline of public services, such as adequate and clean water.

There are clear cases in which aid simply mitigates the harmful effects of other development policies: the aid to health systems administered by the U.S. Agency for International Development is an example. As Merideth Turshen points out, the policies of the U.S.-dominated IMF and World Bank have caused a decline in national health care systems all over Africa. At the same time USAID provides funds for U.S. organizations that provide Africa with forms of health and medical aid. A more macabre instance of this is to be found in Rwanda. The French sold arms to the rulers of Rwanda in autumn 1993, trained soldiers in the use of those arms, and sent military and medical aid in the form of soldiers and doctors to protect those being killed as a result of the ensuing genocide in spring 1994.

Most public health aid is, in any case, not dispersed overseas, but spent in the donor countries. Food aid expenditures are no more philanthropic: U.S. food aid, which constituted 31 per cent of U.S. aid to developing countries between 1953 and 1970 and 24 per cent between 1971 and 1981, has, according to Wood, "probably cost the United States nothing at all because the cost of price support and storage in the absence of the food aid program would have amounted to about as much as 'giving' it away."

This is not to deny that aid, of both the development and military varieties, has been essential to development in at least a few countries. For instance, South Korea, a bastion of anti-communism, received nearly $6 billion in economic aid, and more in military aid, between 1946 and 1978. For most of the 1950s and 1960s, while the South Korean economy was becoming industrialized, this aid represented about half of the income of the Korean government. Taiwan received nearly $6 billion in economic aid in the same period, accounting for about 34 per cent of the country's total gross investment. The whole of Africa, by comparison, received $5.6 billion over the same period, indicating the close connection of most major aid beneficiaries to U.S. strategic interests.

Still, a number of countries with little or no "national security" value have become habituated to aid payments. This was particularly the case of those states in Africa where, by the end of the 1980s, aid represented more than 5 per cent of GDP. Indeed, it was in that decade that Julius Nyerere made the novel plea that it was the humanitarian duty of the West to provide aid to the poorer and less developed nations, including his own country, Tanzania. In the banking capitals of the West, this idea was regarded as being risible; indeed, its opposite, that charity should be given to only those who could provide some kind of security or profit dividend, was the central tenet of aid policy towards the Third World.

International aid (excluding that from the World Bank) to the Third World generally peaked in the decade between the mid-1960s and mid-1970s and then declined. While aid did not invariably diminish in absolute terms, it did so in terms relative to the needs of the Third World. This was particularly the case in the 1980s, the decade of crisis. A second major decline began in 1993 and continued through the middle of the decade. In almost no countries-with Norway and Denmark the exceptions-did it reach the 1 per cent of GDP that was held out as being the United Nations' goal.

By the 1990s aid was increasingly being used to service debts. In 1993-94, of every three dollars of development loans, two went straight back to the World Bank to repay debts, and part of the remaining dollar was used to repay credits to the IMF. It becomes evident that many countries can only service their external debts when the donors provide the resources for them to do so. Those countries, which are mainly in Africa, are known as the "Severely Indebted Low Income Countries" (SILICs) and pay more to their creditors than they receive. In 1987-93 Britain, for instance, received over $1.5 billion from the SILICs. About half of SILIC debt repayment, however, is of the "multilateral" kind, that is, payable to the World Bank and IMF.


Ordering Arms

A third "development" regime concerns the sale of arms. At the end of 1945 only two Western nations, the United States and Britain, had viable and substantial arms industries. Other countries, such as India, Sweden, Canada, and Spain, produced only small arms (light artillery, rifles, machine guns) in small quantities. Although parts of the world from East Asia to Western Europe were saturated in arms of all kinds, immense areas, including Africa and most of the Middle East, either had no arms or sported relatively few modern "heavy" arms.

The Americans and the British attempted with some success to divide the world into exclusive arms markets. The British got most of Africa, the Middle East, and South Asia, the French got the rest of Africa, and the Americans supplied (and trained) a colorful range of customers: the Guomindang regime in Taiwan, the French in Indochina, the Filipino oligarchy, the Greek monarchists, the Turks, and Papa Doc in Haiti.

By the early 1950s the marketplace was becoming more clamorous, but most of the stall-holders still had only small arms on display. The Americans and the British still controlled the large arms market, comprising jet fighters, tanks, and warships. This was both profitable and politically valuable; their aircraft and tank producers could finance the development of new models by selling off the old. And because there was little or no competition and the demand was greater than the supply, it was a seller's market.

In the Middle East, particularly after the Tripartite Agreement of 1950 (which sought to prevent military escalation in the region) most of the tanks and fighter aircraft were, by agreement with the Americans and the French, British-made. The situation changed dramatically in 1955, when the French sold the Israelis supersonic jets that were far superior to anything possessed by the Arab air forces. The Franco-Israeli agreement drove the Egyptians, who had only been able to acquire a trickle of second-rate British jets, into the arms of Moscow, which supplied them not only with a fleet of MIGs but also an armada of modern tanks. "The Egyptian-Soviet arms deal of September 1955 was probably the turning point in the postwar arms trade," write John Sutton and Geoffrey Kemp. By the time of the "Suez Crisis" of October-November 1956, the Middle East arms race was already off to a flying start. By the late 1960s the ranks of the major Western arms suppliers had broadened considerably with the appearance of West Germany, Sweden, Canada, Switzerland, and Belgium. By the 1980s the Middle East was to account for 40 per cent of all global arms purchases.

The primary stimulus to arms production was war, and in the postwar period war-by any other name, and sometimes with no name at all-was always fought in the Third World (counting Greece during the civil war of 1946-49 as part of the Third World). From the Greek and Chinese civil wars in 1946 through to the Gulf War in 1991, tens of wars in the Third World consumed record consignments of U.S., Soviet, and other arms. In the war between Iran and Iraq in 1980-88, the two oil-rich Middle Eastern states together spent $64 billion. That war proved a bonanza for the arms trade. France had sold Iraq $11.5 billion of military equipment by the end of 1986, and hundreds of millions of dollars worth of arms to Iran.

After the 1988 truce French arms salesmen swept down on Baghdad to replenish Saddam's arsenal. In 1990 Hussein signed a contract with the French firm Aerospatial to produce ground-to-air missiles and purchase 100 Mirage and Alphajet fighters. Although Iraq was France's main market for arms in the Middle East, the French were not alone. The Salon Militaire held in Baghdad from April 28 to May 2, 1989 featured 200 exhibitors. In January 1990 Italy sold Iraq 11 warships for $4 billion. A French writer spoke of "ce commerce fabuleux." By 1990 Iraq had a foreign debt of $75-80 billion, much of it incurred to buy arms.

Nor was Africa exempt from this gun craze. According to Richard Sandbrook, "Between 1973 and 1978, the value of weapons sold or donated to the continent of Africa increased ten-fold, from $300 million to over $3 billion annually. The Soviet Union was the most bountiful arms supplier, accounting for about one-half the total, followed by France (25 per cent) and the U.S. (13 per cent).''

Third World countries have always produced some weapons. Although largely dependent on U.S. supplies during World War II, even the Chinese nationalists produced a limited range of small arms. But the real leap in Third World production came after 1970, and especially after the oil prices increases of 1973. By 1980 Brazil, North and South Korea, Israel, India, Pakistan, Turkey, and China were among the most active exporters, although their sales were insignificant compared with the USSR (30.1 per cent of the market in 1982), the United States (26.2 per cent), France, the United Kingdom, West Germany, and Italy, which accounted for 84 per cent of all sales to the Third World. In the 1980s the People's Republic of China (PRC) was the largest of the Third World exporters of military equipment, with its closest competitor, Brazil, lagging far behind.
The granting of foreign aid has long been connected to the supplying of arms. In many cases countries got aid only after they had bought arms. In other cases they got aid to offset the purchase of arms. In early 1994 a scandal exploded in Britain surrounding an alleged connection between a

£1.3 billion defense contract with Malaysia and a 234 million aid contract to build a hydroelectric dam. Britain had apparently brokered another deal with Indonesia, which bought ~500 million worth of military equipment from Britain while being offered an aid sweetener of ~65 million to build a power station. According to the World Development Group, Britain had made similar arrangements with Thailand, Nigeria, Ecuador, Jordan, and Oman.

After the Gulf War of 1991, inquests and reports documented the spider's web connecting the Western arms suppliers to their Iraqi customers. Although both the United States and Britain had supposedly embargoed the sale of arms to Saddam Hussein during the Iraq-Iran war, both countries still supplied him with arms and intelligence. Intermediaries in this trade included the CIA and a whole range of more conventional manufacturers, suppliers, and bankers. In the end, Americans, Britons and others ended up fighting armies and disarming paramilitaries that their own merchants of death had recently armed.

In some cases disarmament proved problematic. In the 1980s, Washington supplied the Afghani "freedom fighters" with shoulder-launched ground-to-air missiles to use against the invading helicopters of the Soviet Union. When the Soviet forces withdrew, the Afghanis were left with valuable assets for which they had no use, so they began to sell them on the international market, making them available to anyone with the money and the right connections. Here, then, is the Western nightmare predicted by Tom Athanasiou and sensationalized by any number of writers of thrillers: "Since weapons proliferation is at all levels unimpeded by any serious efforts at control, we must assume that the poor of the future will be armed to the teeth."


Transnational Corporations (TNCS)

Among the major institutions of the postwar world are the several hundred transnational corporations that have had a powerful, if uneven, effect on the economies of the Third World. In their contemporary form-GM, Ford, Exxon, Royal Dutch Shell, IBM, Nestle, Samsung, Toyota-the transnational corporations first appeared in the 1960s, although their antecedents go back to the beginning of the century. By the 1970s they had become a global force; there was even a certain apprehension that they were going to take over the world.

Yet the transnational firms should not be seen in isolation but rather as a part of the emerging transnational economy-as part of a network of economic activities that had escaped the bounds of the national states that had originally nurtured them. According to Eric Hobsbawm, the three most obvious aspects of this new transnationalization were the transnational firms themselves, the new international division of labor, and off shore finance.

The earliest form of contemporary economic transnationalism, and, by the 1990s, the most persistent, was not that of the TNCS themselves but of finance. Richard J. Barnet and John Cavanagh refer to this phenomenon as the "Global Financial Network," defining it as "a constantly changing maze of currency transactions, global securities, MasterCards, euroyen, swaps, ruffs, and an ever more innovative array of speculative devices for repackaging and reselling money."

One aspect of the Global Financial Network was "offshore finance," with the term "offshore" being used because Western firms registered themselves in tiny countries, like Liechtenstein and the Turks and Caicos islands, where taxes and restrictions were minimal. Corporations that have subsidiaries the world over frequently organize their transactions to minimize the taxes they pay. They do this through a device known as transfer pricing. If the corporate parent "sells" goods or services to a subsidiary based in another country, the corporation can choose to declare the profit from that transaction in whichever country taxes are lowest, or perhaps even a third country in which another subsidiary (which may or may not consist of a brass plaque, a registration number, and a fax machine) exists solely for that purpose. Business advocates frequently argue that the free play of market forces must be allowed to set the rules of the economic gain. But in real life many transactions take place within corporations-without any reference to the market.

The currency of offshore finance was the "Eurodollar" (often known as "Eurocurrency," which was the same thing). The Eurodollar was the U.S. dollar held in foreign banks over which the banking laws of the United States had no control. Eurodollars originated in the early 1950s as dollars kept by the Beijing government in a Soviet bank in Paris-out of the reach of Washington. In the following decades U.S. dollars overseas accumulated enormously, thanks to U.S. spending, especially on the military. By the 1970s, the lending and borrowing of Eurodollars had become big business. Hobsbawm states:

The net Eurocurrency market rose from perhaps fourteen billion dollars in 1964 to perhaps 160 billions in 1973 and almost five hundred billions five years later, when this market became the main mechanism for recycling the Klondike of oil-profits which the OPEC countries suddenly found themselves wondering how to spend and invest. The USA was the first country to find itself at the mercy of these vast, multiplying floods of unattached capital that washed round the globe from currency to currency, looking for quick profits. Eventually all governments were to be its victims, since they lost control over exchange rates and the world money supply. By the early 1990s even joint action by leading central banks proved impotent.

Throughout the 20th century, huge corporations had become transnational as they moved from the industrialized centers of capitalism, particularly the United States, stalking sources of cheaper labor and new markets, driven by the need for increased profit. At home profitability had reached an impasse. Abroad, cheap labor and resources, lower taxes, and few environmental and health controls were attractive. By the mid-1980s the TNCS numbered in the hundreds and controlled between a quarter and a third of all production and a larger percentage of its trade. According to Watkins: "In 1985, the combined size of the world's largest 200 TNCS exceeded $3 trillion, equivalent to nearly one third of global GDP." Yet, despite the development of transnational trade, 90 per cent of global production was aimed at domestic markets: that is, most of what was produced in the United States and in the European Union was consumed in those same markets, not exported. "The national bases of production and trade remain for the domestic market," insists Michael Mann, who also argues, "It is doubtful whether, in many respects, capitalism is more transnational than it was before 1914."

Most TNCS have been U.S.-owned; otherwise they are European (especially British) or Japanese. Few were from the Third World. Such TNCS accounted for the lion's share of U.S. exports-as high as 97 per cent, according to Brett. Furthermore, although many TNCS moved into the Third World, most of their investment was in the developed countries. In 1975, for instance, only 26 per cent was in the Third World, and this amount was on the decline. Yet they had a huge influence in the Third World. In agriculture, for instance, "six TNCS control the distribution of 60 percent of the world's coffee, three TNCS sell 75 percent of the bananas, fifteen control more than half of the world's sugar trade, two TNCS control half the wheat trade, and two companies produce more than half of the farm machinery." One firm, Cargill, has come close to monopolizing the coffee market. To talk thus about "the coffee market" is to talk, to a large extent, about what the family that owns Cargill decides. But Cargill's principal interest is not even coffee, it is grain, in which it is also the world's largest trader. Cargill controls 60 per cent of the world's grain trade, and it and five other grain companies control 96 per cent of U.S. wheat exports and 95 per cent of U.S. corn exports. "The same companies handled 90 percent of wheat and corn trade in the Common Market, 90 percent of Canada's barley exports, and 80 percent of Argentina's wheat exports," Barnet and Cavanagh found. When the United States negotiates on matters concerning grains, Cargill does the homework and presents the papers to the government. It was once said by the fatalistic that Man proposes and God disposes; in cereals Cargill both proposes and disposes.

What does this transnationalization lead to? A U.S business executive working for the National Cash Register company expressed the view from the cash register with a pleasant straightforwardness: "I was asked the other day about United States competitiveness and I replied that I don't think about it at all. We at NCR think of ourselves as a globally competitive company that happens to be headquartered in the United States." In Eric Hobsbawm's view, "The most convenient world for multinational giants is one populated by dwarf states or no states at all."

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