Book Review: Global Development, A Cold War History

This book is about the creation of a particular form of dialogue between “the North and South”. In the postwar environment the ideas for decolonization gained traction as newly-minted international institutions found their purpose; the UN for international dialogue and conflict resolution, and the IMF and World Bank to fund and manage investment in foreign, developing countries. These relationships were instrumentalized during the Cold War to counteract Soviet influence around the Third World, but its consequences went far beyond. A tightly coupled mechanism was formed uniting the global North and South, by which raw materials flowed towards central countries from the periphery was developed, one where diplomatic concessions and military interventions were used to maintain the regular resource flow. The unfortunate consequence was that development and aid fell short of their objective of creating self-sustaining economic growth. Often, what it caused was spurious and inadequate funding of disparate projects, and it encouraged corruption across the world. What it did achieve was sustaining US hegemony throughout the period, promoting and instituting a super system of integrated economic exchange, ultimately going against the very interests that the system was supposed to maintain: the growth and best interest of the Third World.

“On 20 January 1949, when Harry Truman came onstage at the Capitol and took his oath for the second term as the thirty-third president of the United States of America, he probably did not anticipate that his words would be included on the list of the history’s most influential speeches. As the fourth point in his program, he launched a policy of making US scientific advances and industrial progress available to underdeveloped areas in order to fight misery, malnutrition, and illness. Truman’s Point Four, as it soon became known…”

In this speech, Truman posited a radical new role for the United States vis-a-vis the rest of the world, and conceived as the great resistance of the West against the Soviet Union on the eve of the Cold War, of democracy against communism. Already for decades experiments had been conducted on southern Italy. “The Mezzogiorno was a laboratory of the kind envisaged by economist Eugene Staley in the 1930s.” Here the wisdom of economists, engineers, technicians and other experts was put into practice. The World Bank was put into action in order to kickstart Italy’s largely traditional economy into self-propelling industrial development. Albert O. Hirschmann, Manlio Rossi-Doria are some of the prominent actors in this area, and were related with the creation of the Associazione per lo Sviluppo dell’Industria nel Mezzogiorno think tank, which designed the direction of development across “Backward Areas” of Italy. The language of Willard L. Thorp (economist, assistant secretary of state for economic affairs, writer of Formulating a Four Point Program, on a 1950 special edition of Annals of the American Academy of Political and Social Science), was clear in the preeminence of “technology, international cooperation, and promotion of democracy,” this was more of an excuse to foster conditions for foreign direct investment, the taming of “nationalist and leftist tendencies among peasants and workers” that were so characteristic of their time. Along with the Marshall Plan to rebuild Europe, a vast enterprise was undertaken by the United States to single-handedly kickstart development across the globe.

To accommodate the interests of the aid-giving nations around the issues surrounding development, a circle of elites began to coalesce and develop methods and ideas suited for this purpose. This included educators, engineers, health practitioners, anthropologists, activists and internationalists of various sorts. The project intended to “educate” more than just dialogue, and instill attitudes that favored US interests such as openness to free trade, suspicion of Soviet and communist relations, and respect of foreign investments. Aurelio Peccei, founder of the Club of Rome think tank that funded the controversial Limits to Growth, and Beyond the Limits, which stressed the importance of managing the adverse consequences of exponential growth. Other economists created the frameworks still in use today to measure hunger, poverty, and development, most prominent among stands Colin Clark, the creator of the modern methods for calculating GDP. The World Bank defined poverty as under $100 annual GDP per capita. The failure to satisfy the goals of creating self-sustained growth was presented as evidence that infrastructure was not enough. Although the use of uniform standards of poverty highlighted the structural possibility of a transition from underdeveloped to highly developed and even a donor country, it did not offer any clues to help the transition. So if the measures employed were not shown to promote the self-sustained growth that was the goal, why was this policy pursued? We will have to consult Eisenhower.

“While Harry Truman saw development assistance as a way to increase security in the changing decolonizing world and as a tool in the Cold War, his successor, Dwight D. Eisenhower, did not share his enthusiasm. It was during Eisenhower’s administration, though, between 1953 and 1961, that the soviet challenge in the Third World became palpable and a discussion about foreign aid moved to center stage. Unable to reconcile anticolonialism with its overriding determination to contain communism, preserve ties with the European allies, and promote a liberal capitalist international economy, the Eisenhower administration endorsed conservative elites in the Third World, backed repressive regimes, and resorted to covert operations to prevent a communist seizure of power. As a result, it nourished the kind of revolutionary violence that Americans most feared.”

The purpose was not necessarily providing a measure of aid or development to the recipient country, but to crowd out Soviet “solidarity” from corrupting the country elites towards communist sympathies. It was mostly thanks to the charisma of John F. Kennedy that the American approach to development is not recognized as simple imperialist or colonialist policy. He proclaimed to the UN General Assembly in 1961 that this would be the “Decade of Development.” He increased funding for aid agencies by $800 million, and consolidated all agencies under USAID, the Agency for International Development. There was a special committee for Latin America called Alliance for Progress: A Program of Inter-American Partnership, a “ten-year, $20 billion foreign aid program” that was orchestrated by Albert O. Hirschman, Paul N. Rosenstein-Rodan, Federico G. Gil, Walt W. Rostow, and included input from Felipe Herrera, president of the Inter-American Development Bank, and Raul Prebisch the principal intellectual force of the United Nations Economic Commission for Latin America.

“Chile, Brazil, the Dominican Republic, and Colombia received almost 60 percent of all US funding. The Alliance failed, and weaknesses in its administrative structure are usually blamed. At the core, however, stood the flawed assumption (held for the whole developing world, not just Latin America) that foreign aid would convince leaders to change their policies and accept US ideas about development.”

It was not just about the failed attempt to indoctrinate the Third World with US ideas about development, and particularly about the choice of capitalism over socialism as a source for progress and well-being. It was also about the creation and satisfaction of a vast machinery aligned to produce “scientific” solutions to the problems of development. “Economist and US ambassador to India John Kenneth Galbraith was an eyewitness to this transition. He explains how in 1949 development economics hardly existed, but within fifteen years, with contributions from private foundations such as Ford, Rockefeller, and Carnegie, attention to poverty and its conundrums had increased exponentially.” This problem was not just one of a technical nature, it often entailed the restructuring of social relations in various countries, particularly when they were underdeveloped. But the language of economics that was used to justify these interventions clouded the fact that the relationships that were raised were often not in the interest of these developing nations. “The World Bank promoted an idea of efficiency based on the theory of comparative advantage. It encouraged solutions in which poor countries exported raw materials while advanced countries produced and exported technology.” It also excluded any projects that were not compatible with the ideas that were associated with capitalism during the era.

The consequences of these biases often spelled disastrous consequences for the recipient countries. The technocratic body that was responsible for these policies came to terms with their radical inefficacy when Hans W. Singer produced a 1949 report titled UN Report on Relative Prices of Exports and Imports of Underdeveloped Countries. His findings were shocking, because he found that the theory of comparative advantage was in fact creating a systematically worsening situation for developed countries that primarily exported raw materials. “The terms of trade for goods exported by poor countries tended to worsen, while the terms of trade for manufactured goods tended to improve.” The political consequences of this study are evaluated by Raul Prebisch in his The Economic Development of Latin America and Its Principal Problems. He develops the language that evoked a rise in consciousness among the developing country elite on the importance of economic as well as political sovereignty.

The retreat of colonial rule represented the recognition of the political sovereignty of these developed nations, well then the recognition of the systematic unfairness observed in the worsening terms of trade from Singer’s study. Many Third World countries found their voice when Prebisch spoke of a “long-standing pattern of trade” that was “systematically disadvantageous” for Third World countries. It would be thanks to these books that the discourse around development would focus now on the possibility of a renegotiation between the First World and the Third World, the creation of a New International Economic Order (NIEO) to right the scales in favor of the Third World.

Countries were demanding their sovereignty in the economic domain, which included “sovereignty over natural resources, controls on foreign investments, better trade terms, access to the markets of developed countries, reduction in technology costs, more aid, a moratorium on debt and its eventual reduction, and the redistribution of power within the World Bank and the IMF.” They would however, unfortunately, receive exactly the opposite deal, although this is better explained in another book, Oil Revolutionaries, by Christopher Dietrich. By some account they are successful, for oil producing countries established OPEC and took control over price and production of many of the world’s most important oil fields, particularly in Iran, Saudi Arabia and Kuwait.

The nationalist rhetoric encouraged plenty of politicians to take advantage of the opportunity: “seventy-nine U.S. firms were expropriated in 1967-1971; fifty-seven were expropriated in 1972-1973.” However, it was not enough, because the plans for the NIEO would fall through and non-oil producing developing nations would face one of the hardest decades that they would see during the 20th century. But this is better left for my review of Oil Revolutionaries, which will follow soon.

For now, I really liked this book, I think it’s worth most people’s time if they’re perversely interested in development economics, and particularly how development is instrumentalized by rich and powerful countries. This book will be very useful in my upcoming essay, Malign Logic, which will decompose the thought behind Nick Land’s language when describing the relations between developed and developing countries.

Book Review: Spaces of Global Capitalism

As alluded to by Zizek in his debate with Jordan Peterson, David Harvey’s flavor of Marxism is one that is rigorously backed by sound economic analysis in urbanization dynamics, particularly the role of the city as nexus for economic forces and the outcomes of suburbanism, gentrification, etc. My interest in other theorizers of the city, like Lewis Mumford, brought me towards this book. However, this book is not about cities. This is a book about the notions of space under which modern neoliberalism supports and satisfies capitalism.

Key notions that are introduced are the means by which neoliberal projects, too radical for domestic politics, are exported to third world countries in the interest of “peace, democracy, development”, satisfied by the privatization, free trade and the free market. These maxims, although consistent with the monetarist political theories popularized by Milton Friedman and proselytized by the “Chicago boys”, failed to materialize their goals, and instead seem to be pursued solely for elite interests.

Looking particularly at the era of 1970s, which was haunted by inflation and unemployment, a series of policies were pursued in what is interpreted by Harvey as a consolidation of power towards elite hands being the defining narrative of our current era, the answer to “what happened during the 1970s?” that we debate at length. Although I am sympathetic to austrian perspectives regarding the monetary consequences of Nixon closing the gold window, I believe a more nuanced perspective of this era is necessary to properly isolate the forces at work behind the great stagnation.

I believe the key that Harvey lays out is this idea of accumulation by dispossession, which is contrasted to “accumulation through the expansion of wage labor and productivity in industry and agriculture, which dominated processes of capital accumulation in the 1950s and 1960s. Dispossession, on the other hand, is fragmented and particular–a privatization here, and environmental degradation there, a financial crisis of indebtedness somewhere else.” Herein I target my own version of the critique, which is that the nature of this distributed system of dispossession and perpetuation of class differences is nebulous by design, and that only by properly describing the behaviors and intensities of these forces can we understand our present condition: stagnant, overburdened by debt, monotonically rising inequality. Let’s then begin where Harvey begins, with the closure of the 70s:

“In October of 1979, Paul Volcker, Chairman of the US Federal Reserve Bank, engineered a draconian shift in US monetary policy. The long-stranding commitment in the US to the principles of the New Deal, which meant broadly Keynesian fiscal and monetary policies with full employment as the key objective, was abandoned in favor of a policy designed to quell inflation no matter what the consequences might be for employment or, for that matter, for the economies of countries (such as Mexico or Brazil) that were highly dependent upon economic conditions and sensitive to interest rate shifts in the US.

The real rate of interest, that had often been negative during the double-digit inflationary surge of the 1970s, was rendered positive by fiat of the Federal Reserve. The nominal rate of interest was raised overnight (the move came to be known as the ‘Saturday night special’) to close to 20 percent, deliberately plunging the US, and much of the rest of the world, into recession and unemployment. This shift, it was argued, was the only way out of the grumbling crisis of stagflation that had characterized the US and much of the global economy throughout the 1970s.”

What interests Harvey most about this movement is not the consequences of this policy at home, which favored debt-owners and thus the financial elite, and were broadly observed as “deregulation, tax cuts, budget cuts, and attacks upon trade union and professional power,” but mainly the consequences that were externalized to codependent countries like Mexico and Brazil. These policies, exemplified by the refusal to back down to PATCO air traffic controller union strike, proved to be actively hostile towards the middle classes as well as lower classes, surprisingly, since PATCO was a white-collar union and an icon of the middle class.

But where Harveys analysis is most interesting to me, and sadly where I feel more detail is necessary, is at the global level for the consequences of these actions. In the wake of the oil crisis, product of the 1973 oil embargo, vast amounts of capital flowed towards oil producers in OPEC, Saudi Arabia, Kuwait, Abu Dhabi. Through threats of invasion and other means of coercion, the US had the Saudi’s agree to channel all their petrodollars through New York investment bank infrastructures, which created a “search for yield” in the historical low interest rates of the mid-70s (conditions mirrored in today’s world), which forced these banks to find new territories on which to invest and speculate. The search for yield needed to satisfy two conditions for the profits to be secure to US interests. First, investment opportunities had to be made available by tearing down barriers to foreign investment. Second, the security of these investments was to be guaranteed, most critically the risk of nationalization, for these were critical material resources (oil, minerals, agricultural goods), as well as capital-intensive industries, such as telecom.

The logic of this coercive project is, of course, fraught with parallels to colonialism, and yet again this is regrettably not the focus of the book. However, a historical sketch depicts the most flagrant instances of this practice, taking Pinochet’s 1973 coup in Chile, Mexico’s 1982-4 default, and in Nicaragua during the 40s and 50s. Mexico’s case is of particular interest, as it most exemplifies the logic of “accumulation through dispossession” that Harvey points out. In an initial stage, these investment banks take dollars that are a result of low interest rate regime as well as coercive channeling of petrodollar money and start to offer dollar-denominated debt to foreign governments.

Upon becoming indebted to US banks with debt denominated in US dollars, these governments became sensitive to changes in US interest rates. It is for this reason that, following the Volcker shock of 1979, Mexico fell into distress and eventual default. Harvey cites Wade and Venenoso when they write about the 1997 Asian currency crisis, but is similarly applicable to the conditions orchestrated in Mexico, “Financial crises have always caused transfers of ownership and power to those who keep their own assets intact and who are in a position to create credit, and the Asian crisis is no exception … there is no doubt that Western and Japanese corporations are the big winners … The combination of massive devaluations, IMF-pushed financial liberalization, and IMF facilitated recovery may even precipitate the biggest peacetime transfer of assets from domestic to foreign owners in the past fifty years anywhere in the world, dwarfing the transfers from domestic to US owners in Latin America in the 1980s or in Mexico after 1994. One recalls the statement attributed to Andrew Mellon: ‘In a depression assets return to their rightful owners.'”

These are the austerity measures that today are most apparent in troubled countries like Greece, Argentina, Turkey, etc, and consist of “cuts in welfare expenditure, relaxed labor laws, union busting, and privatization.” These of course make the country more attractive as pools of exploitable labor for US investment, and make the country compete in a logic of zero-sum extractive, cost-differentiation strategy, which is basically a race to the bottom, as it disincentivizes value-added industries from flourishing, as well as draining or destroying natural resources of these countries without benefiting local interests.

Harvey writes about the ejidos, a system of communal land ownership that was fundamental to Mexican agriculture, and how “the privatization of the ejidos in Mexico became a central component of the neo-liberal program set up during the 1990s … [forced] many rural dwellers off the land and into the cities in search of employment.” Furthermore, the creation of bankruptcy and distressed condition of company interests make these investments even more compelling to US interests, which have priority access to make these investments.

It is again disappointing that Harvey does not further expand on this thesis, as I find it very interesting, but perhaps other sources cited by Harvey, such as Dumenil and Levy, do a better job. He acknowledges their perspective, although distances himself from their more radical conclusion: “Dumenil and Levy go so far as to argue that neoliberalism was from the very beginning a project to achieve the restoration of class power to the richest strata in the population. Commenting on how the top one percent of income earners in the US fared, they write: ‘Before World War II, these households received about 16 percent of total income. This percentage fell rapidly during the war and, in the 1960s, it had been reduced to 8 percent, a plateau which was maintained during three decades. In the mid 1980s, it soared suddenly and by the end of the century it reached 15 percent.’ Other data show that the top 0.1 percent of income earners increased their share of the national income from 2 percent in 1978 to over 6 percent in 1999.” Today we know these trends have only exacerbated in the years since this analysis was performed, so the question of whether these movements should be identified as malicious class conflict remains critical.

The operative logic of neoliberal accumulation is described: the confluence of private and government interests, the public bearing of risk and reaping of profit by private sector. The preeminence of economic interests, particularly in places where laws are little or loose and nothing stands in the way of capital. Although familiar, Harvey poignantly : “externally, neo-liberal states seek the reduction of barriers to movement of capital across borders and the opening of markets (for both commodities and money capital) to global forces of capital accumulation, sometimes competitive and more often monopolistic. The powers of international competition and the ideology of globalization are used to discipline internal opposition at the same time as new terrains for highly profitable and in some instances neo-colonial capitalistic activity are opened up abroad.”

Other relevant characteristics such as: “governance by elites is favored and a strong preference for government by executive order”, and use of institutions such as IMF and World Bank outside of democratic influence. Although these conditions are today taken for granted, Harvey details the ways in which skepticism of this economic orthodoxy still prevailed in the 1980s: “in spite of all the rhetoric about curing sick economies, neither Britain nor the US achieved high levels of economic performance in the 1980s […] The 1980s in fact belonged to Japan, the East Asian ‘tiger’ economies and West Germany as powerhouses of the global economy […] To be sure, in both Japan and West Germany, the central banks generally followed a monetarist line (the West Germany Bundesbank was particularly assiduous in combating inflation). But in West Germany the unions remained very strong and wage levels relatively high […] In Japan, independent unions were weak or non-existent, but state investment in technology and organizational change and the tight relationship between corporations and financial institutions (an arrangement that also proved felicitous in West Germany) generated an astonishing export-led growth performance […] By the end of the decade those countries which had taken the stronger neo-liberal path still seemed to be in economic difficulty. It was hard not to conclude that the West German and Japanese ‘regimes’ of accumulation were deserving of emulation. Many European states therefore resisted neo-liberal reforms and increasingly found ways to preserve much of their social democratic heritage while moving, in some cases fairly successfully, towards the West German model.” Here this line of thought is very interest, and is in line with Robert Gilpin’s Global Political Economy, in which he broadly categorizes the main political-economic forces into American, German, and Japanese flavors. However, the notion of these ideologies competing is not thoroughly developed in this book, nor do I think it is the main point. Nonetheless, an interesting line of thought, and one that is consistent with other work that I’ve read. Especially interesting because Harvey believes that the reason that the American model was ultimately successful, the neo-liberal model, was because from the standpoint of the elite class this was the most effective way to help them restore and accumulate their power.

In his critique of this system as a means of accumulation through dispossession, he relies on Dumenil and Levy, as previously alluded to, but also Brenner, Gowan, and Pollin. These thus stand out as places to learn more about the things that interest me most about this book, the gory details. Although these deserve separate lines of inquiry, three main arguments are of critical importance in Harvey’s analysis. The first is the financialization of the economy in the course of the last 50 years, with distinct waves of innovation in financial instruments, as well as deregulation and a preponderance of financial companies as the drivers of economic growth. This is tied in his view to the rise of foreign direct investment (FDI) and the integration of previously disjointed markets, such as Germany and Japan, into the global financial fabric that US interests located about New York City. Secondly, the alliance between Wall Street, the IMF and the US Treasury, which is previously alluded to, become an important political driver during the Clinton presidency, which consolidated these institutions and their political economics as the new orthodoxy around the globe. It was in particular effective at persuading emerging markets to open up to foreign capital, with preferential treatment to for US capital and consumer market. This is not, however, the type of victory that is clearly worthy of emulation, as Harvey qualifies the high growth of the 1990s as unsatisfactory, given wages grew so little during this period. Finally, he postulates that this decisively “eradicated” Keynesian economics from corridors such as the IMF and the World Bank and, by the end of the millenium, most economic departments too.

This is all an interesting narrative, but it is one that is spoken in a way that I find very interesting, particularly with how it resonates with other modes of capitalist exploitation that I have been developing separately, and which were greatly informed by this book. Have you ever searched for months for a way of describing some crazy idea, only to find a book that approximates it a few months later? It is a great feeling. Just a few months before I had been working on an essay detailing a distributed system of coercive extraction, not one where one particular country clearly benefits, as in colonialism of old, but where the structure that delineates economic competition is itself the constraining element that creates political expediency towards the allineation of countries into a cohesive trade structure. Harvey says “the development of neo-liberalism must be regarded as a decentered and unstable evolutionary process characterized by uneven geographical developments and strong competitive pressures between a variety of dynamic centers of political-economic power.”

What I want to highlight is that it is part of the nature of this system, its main feature perhaps, that not one country can be singled out as responsible, as an oppressor, as guilty of a crime that by logic of economic orthodoxy does not exist. There is no grand plan, isn’t that a post-modern beauty? Instead of the hegemonic powers that we dealt with in yesteryear’s colonial history, today we deal with institutions like the World Bank, the IMF and the WTO, which are ostensibly independent but in practice pliable under US pressure, allows these interests to manage the rest of the world under the cover of plausible deniability. Instead, in this regime we see a new, distributed layer that fills the void of the omnipotent state: NGOs, think tanks, consultancy firms, investment banks.

In Harvey’s view, the deification of human rights as intransigent laws of nature is a political project meant to satisfy primarily the economic rights of man, and exclude those that cannot be formulated consistently under the guise of an individualist worldview. “The rise of advocacy groups and NGOs has, like rights discourses more generally, accompanied the neo-liberal turn and increased spectacularly since 1980s or so … NGOs function as ‘trojan horses for global neoliberalism.’ Furthermore, they are not democratic institutions. They tend to be elitist, unaccountable, and by definition distant from those they seek to protect or help, no matter how well-meaning they may be … Chandler reports, a prominent journal such as Foreign Affairs, carried not a single article on human rights [before the 1980s]. Human rights issues came to prominence after 1980 and positively boomed after the events in Tiananmen Square and the end of the Cold War in 1989 … Law replaces politics ‘as the vehicle for articulating needs in the public setting.’ It is, Chandler concludes, ‘the liberal elite’s disillusionment with ordinary people and the political process (that) leads them to focus more on the empowered individual, taking their case to the judge who will listen and decide.'” And yet who does the judge serve but precisely those interest and advocacy groups with the money and contacts to succeed in litigious activities. It may seem noble to support human rights, but the conditions under which these rights are exercised–that is, the conditions under which state actors are roused to respond to claims of human rights violations–are those most likely to be in their interest, while in the courts of justice the group with the greatest and richest supporter is likeliest to be satisfied. As Marx said, “between two rights force decides.” This is in an environment where the progressives were successfully “persuaded that class was a meaningless category”, and where instead categories that do not challenge business interest, or in cases which directly support them, become new obsessions.

To conclude this review, I would like to say that in spite of the 3/5 stars that I am awarding this book, I think that it is very important and worth reading, at least for those interested in the themes that I allude to in this article. Although I am left with more question than answers when I started this reading, I am sent in a direction that has been thoroughly transited by the work and literature that Harvey builds upon. Particularly, in respect of my other projects on the question of modern systems of control, I am still undecided and need more time to make my mind, but again this is a good direction, and a satisfying work from an interesting thinker. I look forward to read more of his work on city development, as well as the authors cited, particularly Venenoso (fantastic name), Dumenil and Levy.