Development, the NIEO and Economic Globalisation

Core claim of the Third World economic argument

The South's problem was not simply that it was poor; the terms on which it traded kept it poor, and those terms were made, not natural.

Inheritance of colonial economies

Chief income still came from commodity exports to the rich capitalist West (Ghana cocoa, Zambia and Chile copper, Egypt cotton, Cuba sugar, Malaya rubber and tin, Venezuela and the Gulf oil); roads and railways still ran to the ports.

Commodity price volatility

Wild price swings made planning on predictable revenue extremely hard; a one-crop budget cannot commit to a five-year industrial programme if the price can halve in a season.

Prebisch and terms of trade

1950s work by Raul Prebisch and other Latin American economists showed the terms of trade were deteriorating: the same coffee or copper bought fewer imported manufactures each decade.

Terms of trade

The ratio of what a country's exports earn to what its imports cost

Why did Latin America join the Third World agenda?

States independent since the 1820s suffered the same unfavourable terms of trade as states independent since the 1950s.

What the Third World demanded

Not charity but different rules: fixed prices for commodity exports; aid from the West and Bretton Woods institutions on better terms, free of Cold War conditions; capital to industrialise

Import substitution

Achieving growth by raising protective tariffs to keep out imports and replacing them with domestically produced goods

Third World lever: votes, not force

With no usual instruments of power, states used numbers in the UN General Assembly (one vote each), where they held a majority by December 1960

UNGA Resolution 1514 (Dec 1960)

Called for the independence of all states under colonial rule

UNGA Resolution 1522 (Dec 1960)

Declared the 1960s a 'development decade'

Cairo economic conference (July 1962)

NAM-sponsored, 36 states including some from Latin America; objectives coalesced around fixed commodity prices and better-term aid from Western and Bretton Woods institutions

UNCTAD

UN Conference on Trade and Development, set up in Geneva in 1964 after a declaration by 75 developing states. It won some progress (looser IMF lending rules, slightly lower tariffs) but disappointing results overall.

Group of 77 (G-77)

Standing bloc of developing states formed in 1964 (originally 77 nations), organised outside the NAM, lobbying the UN to equalise terms of trade and ease access to aid from the World Bank and IMF

Why was the West receptive to development talks?

Experience of the world wars and the Great Depression (relief bodies, New Deal, Colonial Welfare and Development Act), fear of communism, and Cold War competition for Third World favour

Modernisation theory

Idea (associated with W. W. Rostow) that rapid development comes through a 'take-off' stage driven by an entrepreneurial class and high investment; US aid could speed it and stop the spread of communism. It shaped Kennedy's Alliance for Progress.

Rostow's The Stages of Economic Growth

1960 book subtitled 'A Non-Communist Manifesto', the core text of modernisation theory

Alliance for Progress (1961)

Kennedy's US aid initiative for Latin America, based on modernisation theory

Green Revolution

High-yield cereal strains (e.g. IR-8 super-rice) plus fertilisers and pesticides expanded agricultural output from the mid-1960s; term coined in 1968 by USAID head William Gaud

Problem with the Green Revolution

Only wealthy farmers could afford the seeds and fertilisers, increasing rural inequality; in the Philippines unrest contributed to Marcos's martial law in 1972

Problems of development projects

Hydroelectric dams brought irrigation and power but caused waterlogging, salinity, silting and soil erosion; development was often short-term fixes with long-term costs

Dependency theory thinkers

Paul Baran (foreign firms drain profits), Andre Gunder Frank (capitalism keeps the Third World underdeveloped), Immanuel Wallerstein ('world system' of core and periphery)

Why did the Third World radicalise in the 1970s?

The 'development decade' failed; dependency theory suggested only fundamental change would work; and the US looked weakened after Vietnam

OPEC

Organization of Petroleum Exporting Countries, founded Sept 1960 (Iran, Iraq, Kuwait, Saudi Arabia, Venezuela) to represent oil-producing Third World states against Western oil companies

How did OPEC gain power by the early 1970s?

Developed economies grew reliant on its oil, and OPEC (following Libya) forced oil companies to let members set prices

1973 oil shock

After US arms were airlifted to Israel in the Oct 1973 war, Arab OPEC members raised prices fourfold. Commodity producers had set a price instead of taking one.

Why was 1973-74 the moment for the Third World?

If oil could be done, why not copper, cocoa or coffee? The NAM and G-77 publicly backed OPEC's action even though members paid more for oil.

Algeria nationalises oil (Dec 1971)

Algeria nationalised its French-owned oil industry, a model of resource sovereignty

New International Economic Order (NIEO)

1974 UN General Assembly call, led by Algeria's Boumedienne, for major changes to the international trading and financial order

What did the NIEO demand?

Fixed commodity prices; sovereignty over natural resources including the right to nationalise; changes to how the IMF and World Bank operate; greater voting rights for Third World states within them

Best on the NIEO

It was the fulfilment of Bandung's promise and the Third World's zenith as a cohesive bloc, but turning it into reality proved difficult

Group of 7 (G-7)

Seven most advanced capitalist economies (US, Japan, West Germany, Britain, France, Canada, Italy); grew out of Rambouillet in Nov 1975, convened by Giscard d'Estaing

Rambouillet (Nov 1975)

Giscard convened the major capitalist powers in France to discuss the energy crisis, launching the G-7 summit idea

North-South Dialogue (Paris, 1976)

Talks between the West and the Third World; the only positive result was a special fund for the poorest countries

Brandt Commission

Established Jan 1977 (commissioned via the World Bank); its 1980 report urged better terms of trade and aid equal to 1% of GNP

Cancun summit (Oct 1981)

North-South summit in Mexico where the Brandt recommendations were vetoed by the new Reagan administration

Reasons the NIEO failed (lecture)

1) The West answered separately 2) Proposals arrived too late 3) Economic orthodoxy changed 4) Borrowers lost leverage; and the bloc fragmented

Why did the West's response matter?

The West did not negotiate through the UN General Assembly where the South held votes; it used G-7, the North-South Dialogue and the Bretton Woods institutions, so the South's numbers lost leverage

Change in Western economic thought

End of the Keynesian consensus (dominant since 1945) and rise of monetarist/neo-liberal orthodoxy under Reagan and Thatcher, with inflation as the priority

Washington Consensus

Neo-liberal policies imposed by the World Bank and IMF from the 1980s (privatisation, austerity, comparative advantage, exports); term coined 1989 by John Williamson

Structural adjustment programme (SAP)

World Bank/IMF loan conditions from the early 1980s requiring privatisation of state assets, austerity and currency devaluation

US withdrawal from UNESCO (1985)

The US left a body the Third World dominated, then withheld payments to the UN

Newly industrialising countries (NICs)

Asian exporters (South Korea, Taiwan, Hong Kong, Singapore) whose rapid growth was read in the West as proof that critics of the NIEO were right

Petrodollars

Oil revenues deposited by OPEC states in Western banks, which then lent heavily to Third World states

Latin American debt 1970-82

Long-term debt rose from $27.6 billion to $238.5 billion

Causes of the 1980s debt crisis

Second oil shock after the 1979 Iranian Revolution (oil up 160%), Western recession, monetarist high interest rates, and falling commodity prices

Mexico August 1982

Announced it had to negotiate a rescue package to avoid defaulting; Brazil and Argentina followed; Peru nearly defaulted in 1985

African debt 1982

$51.3 billion; debt servicing of $5.46 billion equalled 12.6% of export earnings

Commodity prices 1990

Only 35% of their 1980 value

'Lost decade'

The 1980s debt crisis period for the Third World

Why did the Third World fragment?

The oil shock enriched a dozen exporters and wrecked poor oil importers; NICs boomed; debtors suffered; NAM leadership faded. A coalition built on one grievance had no common demand left.

Why was East Asia largely spared the debt crisis?

It invested petrodollar loans in export-oriented industries and benefited from freer trade in consumer goods

Post-Cold War effect on the Third World

It could no longer play the superpowers against each other, so was more exposed to Western pressure and the Washington Consensus

Globalisation

Cultural, social and economic changes caused by growth in international trade, rapid transfer of investment capital and high-speed global communications

WTO (1995)

World Trade Organization, established 1995, marking the peak of the new free-market paradigm

'Good governance' conditionality (1990s)

World Bank and IMF made aid conditional on good governance, democracy and market liberalisation

HIPC Initiative (1996)

Highly Indebted Poor Countries debt relief: creditors cut debts in return for fiscal stability and good governance

Gleneagles G-8 summit (2005)

Agreed more generous debt relief for the poorest states

Millennium Development Goals (2000)

UN goals including halving extreme poverty by 2015

ASEAN and Mercosur

Regional groupings (ASEAN, 1967; Mercosur, 1991) created to improve trade and bargain collectively with the Global North

G-20 summit (2008)

First held in Washington after the financial crisis; includes China, India, South Africa, Brazil, Argentina, Saudi Arabia, Indonesia and Mexico

BRICS

Brazil, Russia, India, China and South Africa; annual summits from 2008-09

Failed states

Label for countries such as Afghanistan, Somalia and DR Congo whose poverty and government collapse diverged sharply from rising Southern powers

Best's verdict on the Third World's economic project

It had real influence on the agenda (development became central) but little substantive effect on trade terms; the NIEO was the zenith of Third World unity

Seminar Q: Was the NIEO defeated by Western resistance or divergence within the bloc?

Both mattered. Western resistance: G-7 forum shift, Reagan veto at Cancun, Washington Consensus. Internal divergence: oil shock split exporters and importers, NICs and debtors. A strong answer argues one primary cause and shows how the other made it possible.