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International Capital: A Threat to Human Dignity and Life on Planet Earth

March 30, 2001 No Comment
By Róbinson Rojas

President George W. Bush’s spokesman said:

“He has been unequivocal. He does not support the Kyoto protocol. It is not in the United States’ economic best interest.”

Notes on globalisation and its effects on developing societies as explained by structuralism and dependency theory

1.- Increasing globalisation, which appears as if it was the only way societies can develop in modern times, points to the continuing relevance of structuralist theory as posed by ECLAC since the 1950s, and dependency theory as developed from the early 1960s,  in Chile. Both theories view the problems of underdevelopment and development within a global context, as interconnected economic, political and social processes. Dependency theory forecasted that the world system will tend to concentrate production in the hands of relatively few transnational corporations, making of the world market an oligopoly market. From this, the theory also forecasted a long trend to slow down production and to speed up income polarisation.

World trade and output, 1948-1998

(average annual change)

1948-73 1973-98 1948-98 1990-98
World merchandise exports 7.4 4.7 6.0 6.5
Exports per capita 5.5 2.9 4.2 4.9
World exports of manufactures 9.8 5.9 7.8 6.7
Exports per capita 7.8 4.1 5.9 5.1
Commodity output 5.5 2.4 3.9 1.9
Manufacturing output 7.1 2.7 4.9 2.0
Gross Domestic Product 5.0 2.9 4.0 2.6
GDP per capita 3.1 1.2 2.2 1.0
World population 1.9 1.7 1.8 1.6
1950 1973 1990 1998
Trade-Output ratio (Exports of goods and services, to GDP) 8.0 14.9 19.7 26.4

Source: WTO, with historic data from IMF, UN, World Bank and GATT

2.-A fundamental approach by structuralism has been its conceptualisation of the international system as being constituted by asymmetric center-periphery relations. Later, dependency theory developed this conceptualisation even further stating that the international system being a capitalist market system has an internal dynamics which reproduce those asymmetric center-periphery relations as a component part of economic efficiency of the world system.

3.- The economic divide and income gap between industrialised countries and developing countries has widened continually, especially during the debt adjustment decade of the 1990s, which vindicate the predictions of structuralist and dependency theories as opposed to the neo-classical and neo-liberal approaches which foresee convergence. That widening of the income gap is, of course, the aggregate effect, at the world system level, of what is happening at the level of individual economies in the industrialised countries where it is apparent that economy efficiency is in contradiction with social efficiency. (See my notes on Basic Economics. Robinson Rojas)

GDP as percentage of aggregate GDP for 156 market economies

1960 1970 1980 1990 1999
Industrialised countries (21) 83.2 83.2 78.4 83.3 84.3
Sub-Saharan Africa (50) 2.5 2.3 2.8 1.4 1.1
South Asia (8) 3.9 3.1 2.2 2.0 2.3
Middle East and North Africa (9) 1.8 2.6 5.5 3.1 1.8
Latin America and the Caribbean (41) 6.7 6.8 7.7 5.9 6.7
East Asia and the Pacific (27) 2.0 2.1 3.3 4.4 3.8

Source: World Development Indicators and World Development Report, several years

Poverty in developing countries and transition economies, 1987-98                               ( millions)
(People living on less than PPP $1 a day)

1987 1990 1993 1996 1998
East Asia and the Pacific 417.5 452.4 431.9 265.1 278.3
Excluding China 114.1 92.0 83.5 55.1 65.1
Europe and Central Asia 1.1 7.1 18.3 23.8 24.0
Latin America and the Caribbean 63.7 73.8 70.8 76.0 78.2
Middle East and North Africa 9.3 5.7 5.0 5.0 5.5
South Asia 474.4 495.1 505.1 531.7 522.0
Sub-Saharan Africa 217.2 242.3 273.3 289.0 290.9
TOTAL 1183.2 1276.4 1304.3 1190.6 1198.9
Excluding China 879.8 915.9 955.9 980.5 985.7
People living on less than PPP $2 per day 2800.0

Source: World Development Indicators 2000

Widening income gap between regions (GDP per capita)
(1985 PPP US$)

1960 Difference from OECD 1998 Difference from OECD
High Income (OECD) 6,200 —— 17,000 ——–
Latin America and the Caribbean 2,000 4,200 4,900 12,100
East Asia and the Pacific 500 5,700 2,500 14,500
South Asia 800 5,400 1,400 15,600
Sub-Saharan Africa 750 5,450 700 16,300

Source: Human Development Report 2001

Income per person. Data for the world population

(in 1987 US$)

Poorest 20% Middle 60% Richest 20%
Year 1960 236 980 7,069
Year 1993 187 731 14,629
Change 1960-1993 -21% -25% +107%
Year 1960: As % of Richest 20% 3.3% 13.9%
Year 1993: As % of Richest 20% 1.3% 5.0%
Population in 1998 (millions) 1,179.4 3,538.2 1,179.4
ITEM: The population of high income countries in 1998 was 886 millions

Source: Human Development Report 1997. Data processed by Robinson Rojas

4.- East Asian development has confirmed the position of structuralists and dependentists who pointed to the importance of the state in promoting economic growth. And that this economic growth will generate a “dependent capitalist model of economic growth”.

5.-The Latin American debt crisis of the 1980s, which also affected Africa and many Asian countries, can be seen as an illustration of the contemporary relevance of dependency theory. With the vast increase in capital mobility, the economies of developing countries have become more and more dependent on foreign capital. This greatly increased their exposure and vulnerability to changes in world capital markets and substantially reduced their room for independent economic policies. Thus, the international financial institutions are by and large able to dictate economic and social policies to the indebted countries, especially the weaker and smaller economies, through structural adjustment programmes, with negative consequences for the poor as unemployment soared and wages and social welfare were drastically reduced.

6.- Dependency writers put particular emphasis on technological dependence. Despite the increasing presence of TNCs in Latin America, for instance, there has been little technological diffusion, which has confirmed dependency theory’s critique of  transnational corporations as modern colonisers, this time not with the might of military state terrorism but the even stronger might of the gigantic international capital.

7.- Through the remittances of royalties, profits and interest payments (factor payments to abroad) the developing countries continue to transfer a significant net economic surplus to the industrialised economies. Such surplus transfers arising from foreign investment and unequal exchange in foreign trade means a significant reduction in funds which should have been used for domestic investment in the less developed countries themselves. Poor societies finance rich societies, in a word.


(Coefficients as a percentage of GDP.- 1980 dollars)

1950 to 1959 1960 to 1965 1966 to 1972 1970 to 1973 1974 to 1981 1982 to 1989 1990 to 1997
1.- Gross domestic savings 22.7 25.4 25.7 26.1 23.1 23.9 21.0
2.- Net factor payments to abroad -2.1 -1.7 -1.9 -2.1 -2.4 -4.7 -3.2
3.- Terms-of-trade effect -0.8 -0.4 -3.4 -5.9 -1.1 -4.0 -0.7
4.- External savings 1.5 1.2 2.0 2.6 4.0 1.6 2.9
5.- Gross national savings (1+2+3) 19.8 19.7 20.4 18.1 19.6 15.2 17.1
6.- Gross domestic investment (4+5) 21.3 20.9 22.4 20.7 23.6 16.8 20.0
7.- Net transfer of resources abroad (4+3+2) -1.4 -4.5 -3.3 -5.4 0.5 -7.1 -1.0

Source: ECLAC, “Postwar transfer of resources abroad by Latin America”, UN, 1992, and CEPAL, “Panorama Económico de América Latina 1999”, UN,1999

LATIN AMERICA: Gross domestic product growth rates

1960- 1969 1970 – 1973 1974 – 1981 1982 – 1988 1980 – 1990 1990 – 1998
Industrialised countries 4.9 4.2 2.3 3.0 3.1 2.3
Latin American and Caribbean countries 5.7 6.4 4.7 1.5 1.7 3.6

Source: ECLAC

Summary for free market economies with negative

net factor income from abroad (US$ million – 1992 prices)

1960-1992 1960-1975 1976-1992
TOTAL -3,065,221.19 -672,230.50 -2,392,990.70
Per day - 254.48 - 115.11 - 385.66
PER HOUR - 10.60 - 4.80 - 16.07
Africa (per hour) - 2.21 - 2.01 - 2.39
Latin America and the Caribbean (per hour) -3.26 - 1.52 - 4.90
Asia (per hour - 1.79 - 0.72 - 2.79
Industrialised (per hour) - 3.35 - 0.55 - 5.98

NOTE: Six industrialized countries received more than 95% of the above flows: United States, Switzerland, Japan, Germany, France and Luxembourg.
Source: World Bank tables 1995 –processed by Róbinson Rojas.

8.- Globalisation forces have reduced further the room for maneuver in developing countries whose  national development policies must abide by the principle of “one recipe fits all” imposed by the IMF and the World Bank. During the import substitution industrialisation period, during the 1950s to early 1970s national development policies had a wider range to experiment with. The process unleashed now has proved right one of the key tenets of dependency theory.

9.- The deterioration of the periphery’s terms of trade in relation to those of the center, confirms another central tenet of structuralism and dependency theory notion of unequal exchange.

World Bank commodity price index (1960 = 100)

1960 1998 Growth per year
Nonfuel commodities 100 51 -1.8%
Agriculture 100 50 -1.8%
Beverages 100 58 -1.4%
Food 100 55 -1.5%
Raw materials 100 38 -2.5%
Fertilizers 100 65 -1.1%
Metals and minerals 100 53 -1.7%
Petroleum 100 162 +1.3%
Steel products * 100 60 -1.9%
MUV G-5** 100 495 +4.3%

* From 1970 to 1998
** The MUV index is a composite index of manufactured exports from the five major countries: France, Germany, Japan, the United Kingdom and United States.
Source: World Development Indicators 2000.- Data processed by Róbinson Rojas

10.- It could be argued that developing  nation-states must increasingly pursue national goals and objectives within globally-defined parameters and structures by the central economies’ dominant capital. This situation of being more fully inserted into the global economy increasingly makes of developing countries new colonies serving the needs of the central economies.-

Structural integration with the global economy makes weak economies vulnerable to the transnational corporations needs. The World Bank produce a main indicator of relative integration with the world economy. The indicator is trade in goods as a % of GDP. The bank defines this variable as ”trade in goods as a share of goods GDP is the sum of merchandise exports and imports divided by the value of GDP after subtracting value added in services, all in current U.S. dollars” (World Development Indicators 2000, in definitions for table 6.1). The United Nations Conference for Trade and Development (UNCTAD), produce inward foreign direct investment as a percentage of gross fixed capital formation as a variable to measure relative structural domination by transnational corporations.

Trade in goods as a percentage of GDP

1988 1998
Europe and Central Asia 48.7 106.4
Sub-Saharan Africa 73.2 99.5
East Asia and the Pacific 74.8 98.1
Industrialised countries 75.2 95.1
Middle East and North Africa 70.3 80.5
Latin America and the Caribbean 52.3 74.5
South Asia 24.2 40.5

Source: World Development Indicators 2000

Inward FDI flows as % of Gross Fixed Capital Formation

1988-1993 annual average 1994-1998 annual average
World 4.1 6.9
Developed countries 4.0 6.0
European Union 5.8 8.5
Other Western Europe 3.0 8.6
Canada 4.7 11.1
United States 5.3 7.5
Japan - 0.3
Developing countries 4.6 9.5
Africa 4.9 8.1
North Africa 3.1 4.3
Sub-Saharan Africa 8.1 13.6
Latin America and the Caribbean 5.2 12.6
South America 4.3 11.8
Central America and the Caribbean 7.3 15.7
Asia 4.3 8.4
West Asia 1.1 2.6
Central Asia 4.1 17.9
South, East and South-East Asia 5.5 9.3
China 6.4 14.8
South Korea 1.0 2.0
Taiwan 2.9 2.3
The Pacific 17.4 16.8
Central and Eastern Europe 3.7 8.8

Source: World Investment Report 2000, United Nations)

Share of the final price of goods produced in less developed countries for consumption in industrialised countries.

Jeans % Coffee % Chocolate bar % Bananas %
Retail mark up 54 Retailers 25 Brand 10.4 Distribution/ retail 34
Overheads/ profits 16 Shippers/ Roasters 55 Overheads/ others 36.8 International transport 11
Materials 16 Exporters 10 Supermarket 34.1 Profits 17
Tax 14.8 Ripening 5
Import licenses 9
Exports costs 4
Labour 12 Growers 10 Farmers 3.9 Producers 9

Source: UNCTAD

Structural dependency from international capital is stronger in developing countries than in developed countries. The latter are dominated by transnational corporations; therefore developing countries are even more dominated forcing their economies to adopt a style of development which is suitable for the economic activities of international capital and political needs of its home countries and not the civil societies in developing countries.

The style of development imposed on Latin America is an illustrative case study. Drawing from R. Rojas, “15 years of monetarism in Latin America. Time to scream”, the following appears:
Summarizing from UN and World Bank literature [1}, we can say that the monetarist experience has brought about a fundamental change in the region's development process were the main economic role is not anymore plaid by the state, but by the private sector. In the triple alliance between the state, domestic monopoly capital and transnational corporations, the state's role is essentially political. It is basically about maintaining a social order adequated to the works of the capitalist private market.

Nonetheless, the region's average growth rate for the 1990s has been no more than moderate: respectable but below its traditional level of performance and unsatisfactory from the dual standpoint of technical progress and the elimination of social asymmetries.

The new production patterns have not generated
a) a sufficient rate of job creation,
b) an acceptable reduction in inequalities
c) the number of high-quality jobs has been very slow to rise,
d) the relative wage rates for jobs requiring different skills levels
have tended to diverge further,
e) compensatory social policies have so far been of limited effectiveness,
f) social expenditure has been curbed by efforts to maintain budgetary

By and large, the Latin American economies are in a serious position
of vulnerability:
1) macroeconomic stability has been achieved at the cost of large
deficits on the balance of payments current account,
2) these deficits have been financed with volatile capital that may
be withdrawn the moment that anything shakes investors' confidence,
3) the 1980s saw a steep downturn in saving, and in particular,
investment, rates,
4) the production activities that have been hit the hardest have been
branches of industry that serve the domestic market, and state-run
5) in contrast, export sectors, natural resource-based activities,
large locally-owned conglomerates and transnational corporations
have been the ones profiting from the new circumstances.

The outcome of the above is dramatic:
A.- A shift in production towards natural resources-intensive
goods for export, especially mining products, which accentuates
both factors of unsustainibility and dependency,
B.- In the domestic setor, there have been strong growth rates for
energy, construction, and transport sectors, with a high component
of foreign investment, which, in the long term will create
severe unbalances on current account through the growth of net
factor payment to abroad,
C.- Growth of the tourism sector, MAQUILA type industries and data-
transmission services, which are creating new forms of dependency
and structural deficits on balance of payments,
D.- The manufacturing sector is being restructured as it moves away
from a pattern of specialization based on mechanical engineering
and towards a pattern based on NATURAL RESOURCE-INTENSIVE
ACTIVITIES ( aluminium, petrochemicals, paper and pulp, food
products and non-ferrous metals),
E.- The above expansion is balanced out by reductions in textiles,
leather and footwear, capital goods and fine chemicals, which
makes even stronger the characteristic of former colonies exporting
raw materials and cash crops, this time at a higher level of
productive sophistication.

Parallel to the above, structural effects are very marked:

1.- the structural heterogeinity which is characteristic of the Latin
American production apparatus HAS BEEN HEIGHTENED AS THE
PRODUCTIVITY GAP widens between the large companies at the
forefront of the modernisation drive and the broad range of
activities that have fallen behind in this process (productivity
gains tend to be concentrated in and among  modern manufacturing activities,
export-oriented agriculture, large-scale mining enterprises, the energy sector,
telecommunications and  financial services.)

From the above, two main outcomes:

--- greater social inequality by increasing domestic productivity
differentials and the production structure's degree of economic

--- impairs the economy's growth potential by limiting the expansion
of linkages and the spread of technical progress, while, as a side-
effect, also slowing the momentum ox exports,

By and large, the framework of extreme inequality among the economic agents involved:
inequality between monopolistic and small and medium entrepreneurs;
inequality between the owners of capital and the owners of labour power,
is becoming more extreme.

This strenghtening of the links with international capital shaping
dependent capitalist economies is accompanied by social effects:

--severely regressive distribution of income,
--slump in per capita income levels,
--considerable expansion of urban poverty
-lower wages
-higher rates of unemployment
-various forms of underemployment

ECLAC gives the following range of figures on URBAN POVERTY for the period 1980-1994: (% of households)
Colombia        36-38
Costa Rica      16-25
Chile               38-25
Uruguay            9-8
Argentina          5-10
Brazil              30-39
Mexico            28-30
Panama            31-34
Peru                 35-
Venezuela       18-32

Of course, there is a coexistence of a rapid modernisation process and an expansion of informal activities, a greater concentration of production activity in companies belonging to large national or transnational conglomerates. In a word, the creation, yet again, as has been happening since XIX century in Latin America, or the reinforcement of a two-tier social formation: one tier extremely rich, the other tier extremely poor.

Is convenient not to forget a basic law of the capitalist market:
capitalist competition tend to make more unequal original inequalities.

Or, as World Development Report 1997, page 26 put it: "competitive markets may distribute income in socially unacceptable ways".

Also, competitive markets can make a "miracle" unsustainable because of the destruction of the environment as a sequel to maximisation of profits. Some Chilean people are fighting back. One of them is Sara Larrain. Please read her message. It is important for all of us [Sara Larrain, Chilean Ecological Action Network, RRojas Databank (http:]
[1]ECLAC, “Social Panorama of Latin America, 1996″, UN, 1997
UNDP, “Human Development Report 1997″, OUP, 1997
O. Rosales, “Economic policy, Institutions and productive
development in Latin America”, Cepal Review, August 1996
ECLAC, “Strenghthening Development. The interplay of macro- and
microeconomics”, ECLAC, 1996
ECLAC, “Latin America and the Caribbean: the economic experience
of the last 15 years”, ECLAC, 1996
World Bank, “World Development Report 1997. The State in a changing
World”, OUP, 1997
* Some of the points developed in this notes were taken from “Latin America Transformed. Globalization and Modernity”, R. N. Gwynne & C. Kay (eds), Arnold, 1999, chap. 1.

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