Independence from America

Global Integration and Inequality

Jon V. Kofas

• Editorial: Routledge
• Año: 2017
• ISBN:
  9781351155700
• Edición: 1
• Categoría: Politics & International Relations
• Categoría: Politics

Jon Kofas offers a comprehensive and thought-provoking study of 'global integration' after the Second World War. Globalization is perceived to be essentially the process of world economic integration in which the United States has played the key role but in which interests of most Third World countries have been sacrificed. This study's original contribution lies in the author's contention that there have been two 'models' of globalization: the US led 'patron-client model' and the EU initiated 'interdependent integral model'. It will be of particular interest to those studying and researching in the fields of international political economy, foreign policy, development politics, political theory and sociology of development.

Chapter 1
Historical Overview of Models of Integration

Inter-dependent, Patron-Client Integration Models, and the State in the Early Cold War

The emergence of the capitalist world-economy in northwest Europe in the 16^th century gave rise to international economic integration which has always entailed uneven social and geographic distribution of wealth within nation-states and globally. Though Spain and Portugal played an important historic role in the integration of Latin America, Africa, and Asia, the Iberian countries were intermediaries as part of the semi-periphery in the world capitalist system. Owing to their dominant economic roles by the 17^th century, northwest European countries used Spain (port of Cadiz) and Portugal (port of Lisbon) to sell manufactured products intended for domestic and global distribution, while purchasing raw materials from the Iberian colonies. Consequently, Spain and Portugal established a dependency relationship with northwest Europe, one that would last until the present.¹

Along with the rest of the Balkans, Greece was underdeveloped by the semi-feudal Ottoman Empire at the same time that the Iberian peninsula and its colonies became dependent on northwest Europe. Like much of the Ottoman-ruled Middle East after the Treaty of Kutchuk-Kainardji in 1774, Greece became a satellite of the British empire from the 1830s to the end of World War II. The Industrial Revolution and institutional modernization that changed northwest Europe in the 19^th century left the Iberian peninsula and the Balkans more dependent on northwest Europe. A catalyst to external dependence, in the 19^th century foreign loans became a major tool for the advanced capitalist countries to exercise preponderate financial, commercial, and political influence in southern Europe and other underdeveloped countries around the world, including Latin America where British businesses dominated until the Great Depression.²

Replacing northwest Europe's traditional role, the U.S. became the preeminent force behind the policies of the IFIs that managed the world capitalist economy after the Second World War. The astronomical rise in U.S. GNP during the war, when the rest of the world experienced precipitous decline, combined with the experience of the Lend-Lease program, and managing the hemispheres war-geared economy, afforded the U.S. the opportunity to design plans for global management. Based on the plans drafted in 1943 and 1944 by special assistant to the secretary of state Leo Pasvolsky and assistant treasury secretary Harry Dexter White, the U.S. had determined to impose its own transformation policy that would create a dependent relationship based on the asymmetrical patron-client model with the Third World. At the Bretton Woods conference, some Europeans and Latin Americans backed John Meynard Keynes who argued for a more equitable relationship between creditor and debtor nations. The U.S. rebuffed all proposals and implemented its own.³

Pursuing integration on the basis of the long-standing doctrine of Pan-Americanism in Latin America, the U.S. designated western Europe to help reintegrate southern Europe, Africa, and the Middle East to some extent, while Japan would help integrate Asia where South Korea and Taiwan would be deliberately strengthened owing to special geopolitical considerations as front-line countries in the fight against Communism. A continuation of a historical global integration process, globalization, which became identified with the post-Cold War rapid integration under a deregulated economy, has its origins in the Bretton Woods system. After the war the state in the developed and underdeveloped countries became increasingly a support mechanism for international finance capital. This does not mean, however, that there are not institutional differences between capitalist countries like the U.S. and Sweden, Spain and Nigeria, etc. in fiscal, monetary, trade, labor, and other policies, although in all cases the state is a tool for capital accumulation and in all cases they operate under the umbrella of a single world system.⁴

As part of a managed global system emerging from Bretton Woods, and the race to prevail over the Communist countries, the U.S. economic inter-dependent relationship with western Europe and Japan included political and military components, supported by a liberal ideology. U.S. foreign policy was institutionalized through the IMF, World Bank, OECD, GATT, regional military blocs like NATO and OAS, and international trade unions. To make certain that global integration under the aegis of the U.S. succeeded without problems arising from radical trade unions around the world after the creation of the pro-Communist World Federation of Trade Unions (WFTU) in 1945, the Truman administration helped to create the International Confederation of Free Trade Unions (ICFTU) funded by the U.S. and pro-U.S. governments. A docile, pro-capitalist labor movement in every country was as indispensable as NATO and the IFIs in managing the world capitalist system which targeted Communism and nationalism as enemies.⁵

To contain the spread of Communism, prevent economic nationalism, and buttress capitalism at home and abroad, the U.S. helped to revitalize the western European and Japanese economies and helped to shape their institutions. Re-industrializing western Europe and Japan was an ideological, political, military, and economic decision, largely at the expense of keeping Latin America, Africa, and most of Asia perpetually dependent on raw material exports to finance manufactured imports from the industrialized countries. Though southern Europe and large Third World countries like India, Indonesia, Brazil, Mexico, and others evolved into a dependent capitalist mode where foreign companies eventually dominated manufacturing and financial services, foreign capital rapidly penetrated periphery economies that were historically far less inward oriented or self-sufficient than the advanced capitalist countries.⁶

By providing billions of dollars in grants, sustaining massive balance-of-payments deficits, directing the World Bank to offer development and balance-of-payments loans, and subsidizing trade with western Europe and Japan, the U.S. made it possible to attract direct foreign investment and forge a solid foundation for a fairly symmetrical relationship with its junior partners compared with the asymmetrical relationship between the U.S. and the rest of the world. However, western Europe was obligated to open the markets of its colonies and spheres of influence to the U.S. and there was no doubt who was the hegemon. Moreover, U.S. wholesale prices rose sharply in the late 1940s, accounting for massive transfer of capital from around the world to the U.S.⁷

While western Europe and Japan were pursuing Keynesian policies, the IMF, World Bank, U.S. Export-Import Bank, and Washington were advising underdeveloped countries to pay their past debts in order to qualify for new loans, adopt laissez-faire measures affecting everything from trade and currencies to foreign investment, and abide by GATT which favored the U.S. and its junior partners. Semi-developed and underdeveloped countries indirectly provided the subsidies for western Europe's and Japan's re-industrialization, while also offering markets for the U.S. to sell surplus products. Besides being relegated to the raw materials export sector where the value of labor was substantially lower than in manufacturing, semi-developed and underdeveloped countries historically suffered from capital flight, deteriorating terms of trade which entailed billions of dollars in losses, service on foreign loans that far exceeded the principal, and dividend and profit repatriation. The net result of perpetual decapitalization and financial dependence entailed permanence under the patron-client integration model.⁸

Discouraging Keynesian policies and national capitalism in favor of global integration under its aegis, the U.S., the IFIs, and Wall Street discouraged state-owned companies in underdeveloped countries from venturing into areas like steel which they could purchase from American firms, or providing special protection for domestic textile firms, or from having their own merchant marine. A number of European firms, including UK's Rio Tinto, lobbied the State Department for a share of Spain's business under Eximbank credits, but U.S. firms were given preference. Just as the U.S. demanded that Latin American countries must use U.S. shipping companies instead of their own for inter-American trade financed by IFI loans, in 1953 the State Department blocked Spain from drawing a $12 million Eximbank credit for cotton purchases, because Madrid insisted on using national lines for transport.

In the late 1940s-early 1950s the State Department and U.S.-based multinationals did their best to prevent Flota Mercante Grancolombiana (Colombia, Venezuela, Ecuador), and other Latin American lines from taking any business away from U.S. shippers. From the early 1950s to early 1970s, the U.S. prevented Peru from strengthening its own merchant fleet, arguing that Lima had no right to demand that half of all imported goods must be shipped on Peruvian vessels. While the U.S. discouraged a mixed economic model that included nationalism in Spain, Peru and other underdeveloped countries, it permitted it in western Europe, Japan, Canada, Australia, Taiwan, and South Korea.⁹

To qualify for aid, the U.S. during the past sixty years has always demanded that governments make accommodations to U.S.-based multinational corporations. In the 1950s the U.S. and western Europe decided that underdeveloped countries must focus on increasing raw materials exports to finance imported manufactures and capital goods from the U.S., western Europe, and Japan. In 1957 prime minister Jawaharlal Nehru appealed to Washington for a $500-600 million loan, but the Eisenhower administration and the World Bank refused any money for state enterprises.¹⁰

Where the Third World needed farm machinery, petroleum refineries, and other capital goods, western Europe was initially interested in exporting luxury products, though gradually it began to sell capital equipment. Admonishing underdeveloped nations about quasi-statist policies that impeded private enterprise and global integration, the U.S. government's policy of not allowing industrialization of the Third World was based on general policy but also corporate pressures. Among others, General Electric (GE) demanded and received assurances from Washington that Brazil, Argentina, Turkey, and other Third World governments would not receive U.S. loans to form publicly-subsidized electric industries that competed with GE. The same rules did not apply to western Europe and Japan where the state fostered national capitalism.¹¹

While loans to underdeveloped countries were designated for the foreign-dominated primary sector and infrastructural development, the U.S. directed the World Bank and Eximbank to make loans for western Europe's and Japan's manufacturing with a focus on rebuilding national capitalism. Encouraging a multilateral inter-European clearing system to stimulate trade and raise living standards, while discouraging the same in the rest of the world, the U.S. supported the Schuman Plan that led to the Treaty of Rome in March 1957 and the formation of the EEC and its initial four sub-agencies. Two years later, Britain led the European Free Trade Association (EFTA) designed to eliminate trade barriers.

The historical significance of European integration was that the political and business elites chose this route as a means of strengthening national capitalism and protecting national sovereignty from the U.S. The massive injection of capital from the U.S. to western Europe and Japan, the preferential interest rates and long-term loans targeting industrialization, and the trade, monetary, and fiscal policies that they pursued resulted in full employment of males in high paying manufacturing and professional (white collar) jobs. By contrast, the political economy in southern Europe and the Third World shaped by the asymmetrical patron-client model entailed low-wage jobs in the primary sector, high unemployment and underemployment, and mass emigration that provided cheap labor for the G-7.¹²

Import-Substitution and Dependent Development

Import substituting industrialization, which had its roots in the Great Depression and continued through the 1970s from Turkey and Taiwan to Brazil and Argentina, posed no threat to global integration. Though many underdeveloped and semi-developed countries used import-substitution to counterpoise U.S. transformation policy thinly veiled in the legitimacy of the Bretton Woods system, the policy did not achieve its intended results. Like southern Europe, South Korea, Taiwan, Turkey, Brazil, among other larger Third World countries pursued import-substitution to protect jobs and national capital.¹³

To circumvent national laws and take advantage of cheap labor, proximity to regional markets, and less regulation than they faced in the advanced capitalist countries, multinational corporations, with the help of their governments and the IFIs, set up subsidiaries and merged with local capital. Under the guise of free enterprise, they established plants and assumed dominant roles in national economies. Regardless of import-substitution or export-oriented growth strategies, semi-developed and underdeveloped countries remained dependent on U.S., Japanese, and west European capital and technology that dominated not just extractive industries, but gradually all the major sectors from finance to communications. Hence, either import substitution policie...