along with the discouragement of local manufacturing competing with manufacturing in the mother countries, prevented the economic development of the colonies. The terms of trade – what one can obtain from one’s export – favored the European nations, since the prices of the primary products from the colonies remained low while the prices of the manufactured products sent back to the colonies continually increased. It was the political power of the “core” that determined the global economic structure, rather than the economic “laws” of the market.
When most of the colonies gained their independence after World War II, this trade pattern continued. Many resource rich yet economically poor countries still produce food and minerals for the world market and primarily trade with their former colonial powers. The world demand for the products from the poorer nations fluctuates greatly, and the prices of these products remain depressed. The political and social systems that developed in the former colonies also serve to keep the majority within these nations poor. A local elite, which grew up when these countries were under colonial domination, learned to benefit from the domination by the Western countries. In a sense, two societies were created in these countries: one, relatively modern and prosperous, revolved around the export sector; while the other consisted of the rest of the people, who remained in the traditional system and were poor. The local elite, which became the governing elite upon independence, acquired a taste for Western products, which the industrial nations were happy to sell them at a good price.
The present vehicle of this economic domination by the North of the South is the multinational corporation. Tens of thousands of these exist today. In 2009, 140 of the 500 richest corporations in the world had headquarters in the United States, while many others were headquartered in Europe and Japan.40 In 2018, the figure reduced to about 130.41 These corporations squeeze out smaller local firms in the developing nations, evade local taxes through numerous devices, send large profits back to their headquarters, and create relatively fewer jobs than their local counterpart when the manufacturing firms they set up utilize the same capital‐intensive technology that is common in the industrialized countries. Also, they advertise their products extensively, thus increasing demands for things such as Coca‐Cola and mobile technology while many people in the countries in which they operate still do not have enough to eat.42
Advocates for a state approach point to the adverse terms of trade that many poorer countries face today. There is general agreement that there has been a long‐term decline in the terms of trade for many of the agricultural and mineral products that these resource rich nations export. There has also been great volatility in the prices of some of these products, with a change of 25 percent or more from one year to the next not uncommon for some products. Such fluctuations make economic planning very difficult. There is also clear evidence that the industrialized countries, while primarily trading among themselves, are highly dependent on other countries for many crucial raw materials, including chromium, manganese, cobalt, bauxite, tin, and, of course, oil.
Although international trade is still far from being the most important component of the US economy, it is a very important factor for many of the wealthiest corporations. In the early 1980s about one‐half of the 500 wealthiest corporations listed in Fortune magazine obtained over 40 percent of their profits from their foreign operations.43 Some multinational corporations have financial resources larger than those of many nations.
Finally, the defenders of a state approach argue that there is little chance for many poor nations to achieve as fair a distribution of income as that achieved by Europe after it industrialized. This situation has evolved because controlling elites have repressive tools at their disposal (such as sophisticated police surveillance devices and powerful weapons) that the European elites did not have. This allows them to deal with pressures from the “have‐nots” in a way the Europeans never resorted to.
Critics of a state approach point to the breakup of the Soviet empire in Eastern Europe in the late 1980s, and to the collapse of communism in the former Soviet Union and the breakup of that country in the early 1990s, as support for their view that the state approach cannot efficiently produce wealth. In fact, it was the dissatisfaction of Eastern Europeans with their economic conditions that played a large role in their massive opposition to the existing communist governments and their eventual overthrow. Dissatisfaction with economic conditions also played a large role in the overthrow of the Soviet government, a startling rejection of the state approach by a people who had lived under it for 70 years.
Critics of the state approach also point to the suppression of individual liberties in the former Soviet Union, China, and other communist states as evidence that the socialist model for development has costs that many people are not willing to pay. In fact, most revolutions have huge costs, leading to much suffering and economic deterioration before any improvement in conditions is seen; even after improvements occur, oppressive political and social controls are used by leaders to maintain power.
Plate 2.4 The state approach to development struggles to survive the collapse of communist regimes in Europe, as can be seen in the posters of a Communist Party conference in Nepal
Source: Ab Abercrombie.
Some critics say that central planning has proven to be an inefficient allocator of resources wherever it has been followed. Without prices from the free market to indicate the real costs of goods and services, the central planners cannot make good decisions. And if efficient central planning has proven to be impossible in a country such as the former Soviet Union, it has proven to be even worse in nations where governmental administrative capability is weak. A final criticism of central planning is that it always leads to a large, inefficient governmental bureaucracy.
Even less invasive forms of state involvement in the economy tend to provoke similar criticisms. The state, lacking a profit motive or the threat of bankruptcy, is going to be less responsive to changes in economic conditions that may necessitate a change in policy. Further, that excessive government involvement in the economy means the state is “picking winners and losers,” a process that virtually invites corruption. And finally, that the state cannot become involved in the economy without making value choices that are better left to individual consumers.
Additionally, some argue that the state approach generates less wealth than the free market approach. Multinational corporations have created more wealth, especially in richer economies. They have brought new technologies; and they have helped the balance of payments problems of those nations by bringing in scarce capital and by helping develop export industries that earn much‐needed foreign exchange. These advantages help explain why multinational corporations are welcomed by many countries.
Finally, the critics of a state approach argue that political elites have used dependency theory, especially in Latin America where the theory is popular, to gain local political support among the bureaucracy, military, and the masses. To blame the industrial nations for their poverty frees them from taking responsibility for their own development and excuses their lack of progress. It also frees them from having to clean their own houses of governmental corruption and incompetence and stop following misguided economic development approaches. According to some critics, the newly industrializing countries have shown that when market principles are followed, economic progress can be made even by nations that have a dense population and few, if any, natural resources.
A Blended Approach
In
