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SOCIALIST' & CAPITALIST PIRSPICTIVBS ON 'l'BI DBVBLOPMJmT PROCBSS & TRI ROLl OF IN'l'BRNATIONAL CAPITAL !LOWS:

'l'HBORY & PRACT1CB

by

Jannat t.e 0:\ IOfl1G)

A thesis presented to tbe JfaaJlty of Gra4uate Stud:fes and Researc:h of ~l Uûversity in partial fulfUl .. t of tM ~ts for tM cJerree of Muter of Arts.

'-. 1975

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SOCIALIST & CAPITALIST PERSPECfIVES ~ nIE DEVELOPMENI'

POOCESS .'

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by Jannette O. OCMINOO ",

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ABSTRACI'

Both Marxist and orthodox econanists eq>hasize the role 'of capital

acctlll.Ùation in the developnent process, but they differ sharply in their

assessments of the historical and contSDpOraty roles of international

capital flows.

In identifying obstacles to and strategies for conteqx>rary ~eVelop­

ment, mains,trean\ Western theory draws heavily on int~rpretations of the

Western experience, while MBrxist5 emphasize the exploitative nature of

Western primary acC1.lJlLl1ation and the role of Western developoent in the

underdeve~opnent of the periphery. .

In evaluating contemporary private capital flews, Mirxis'tS acknow .. \

looge the productive potential of direct foreign investment, ~t emp~F

its costs, particularly costs associated with. socio-economic di~to~ons due to foreign danination. In contrast, mainstream Western ec~sts em·

phasize the benefits of direct foreign investment in raising :incomes in

. host dnmtries, and providing linJcages .ancJ. external economies •

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• While aid programs pursue b~y slmilar goals of penetration, JOOdèrn-• f , r

ization and stabilization, these ~s ~re pursued in the context of the

donor's iœologica1 :fraIIework and definèP in tenas of _intaining and ex-, • ~ \0

\ \ , panding the cIoDOr's socio-eccmœd.c syst~: Western aict programs foster

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privat~ enterprise (foleign and daap.t1c) while sociallst aid programs / . /

stT8SS plillic sector deYelq IIlt •. 1 , .

1bus, flmdllWlta;Uy differell.t views of the italist $)'st. and differ .. '

ct aspiratiœs for the cJ1rectian of future ~t are teflected in

the role assi&Md internatianal capital ONS' 1a sociJ]!st and capitalist (

d.welas-nt theory mc1 pract1ce. . , / ~

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nms le 'processus du développement éccmomi.que, éconanistes orthodoxe5

conme marxistes ~ccordent la mène importance au rôle de l'acCUlllllation du

catlital. Cependant ils diffèrent nettement dans leurs analyses 'du TÔle 1

historique et conteqx>rain des flots internationa1ll des capitaux.

Les premiers utilisent conme JOOde1~ de dével~t l'experience

occidentalé alors que les marxistes insistent sur la natUre exploitrice •

de l'accumulation primaire occidentale et le rôle du développement del'occi-

dent dans le sous-dévelopP.lI'lt. En c.Waluant les flots des capitaux con­

temporains les marxistes recormaissent certes, l'importance de 1 tinvestisse·

ment direct ~tranger dans le ~loppement mais aussi les cdits èl~s,

particu1ierement les coGts associ~ aux distorSions socio-econaniques causées

par la domi,nation ~t~ère. Les éconanstes orthodoxes par contre, j,nsist­

ent sur les ~fices de l'investissement direct étranger cœiDe facteur d' ac­

croissement des revenus et des opportunités konaniques;

Les Programes d'aide des pays socialistes et capita1rtes ont les

~s btt~ pcSMtrati~", de mdemization et de stabil~tion, mais leurs

objectifs r&poœent, a leurs ideologies respectives et ils sont définis de •

fa)on à établir et _intenir leun systems socio .. ~ques_

La divergence de vue sur le 'r&le des flots intema~onaux des capitaux ~

par les capitalistes et les socialistes refllltent 1eun différences 4e vue

du systa. capitaliste et leurs dUf'ere.Dtes aspirations pour le futur ~loppe-

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TABLE OF rnNTENTS!

Introduction

1. The Relevance of Western BxpeTieoc.e " ,

II. The Role of International Capital Flows 1 Privat,e Foreign Investment

'III. The RIlle of International Capital Flows, Western Md ProJ1'8ll1'5

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IV. 'Ihe Role of IntC!rnational Capital Flows 1

Socialist ~d Programs !; V. ~. & ~lUSlons :-

/ Tables

Bib1iography .

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76

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The field of development economics is one which illustrates

a broad range of diff~rences in both substance and emphasis

between Marxist and mainetreamWestern economic theories and , ~

practices. Socialist and capitalist oriented analysts differ

greatly in their interpretations of the process of economic

development as an historical experience. These differènces have

led to different views of the relevance of the Western European

and North American experience to the solution of the problems

of tod~f's less developed aountries, and- to different analyses

of the causes and nature of, and the means of overaoming contem-

porary underdavelopment. , While capital accumulation plays a

central role in both theoretical approaches 'to economic develop­

ment, thera ara important differences in the analys\s-Of the , \ nature and causes of pr ob lema 'of capital.formation in\today-s

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underdeveloped countries, particularly with regard to both the

historieal and conteœporary roles ,o~ international flows of , public and privat. capital.

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In Chis paper, we will examine sorne of the major differences

in the role of private foreiqn capital in Marxist and mainstream

Western development theories, and also compare and contrast the

aid programs of the major capitalist and socialist donors as

expressions of their dominant economic ideologies.

I. "' RELEVANOB' OF gSTBRN EXPERIENCE

Conventional Western accounts of the historical experience

of development in Western Europe and North America stress

individualistic entrepreneurship and profit motivation as central

forc~8 behind the dynamic8 ot capitalist'development. In the

laissez faire context of the 18th,and 19th centuries, the contri-

bution of qovernment la generally seen as_having been limited.

Technologieal and orqanizational change, first in an agricultural

revolution, and bhen an indus trial revolution, are a180 central

in the Western experiencé. The development of a Bocial, political

and institutional fram~rk conducive to ~ontinued capitalist

developMnt, whàt.Marx c.lled Burope's "bourqeois revolutions,"

is uaually noted .s either a prerequisite or condition for sustained D' •

qrowth al i. the development of an extensive infrastructure • • !

Bxpanded trac!. is ... n .s a ,fundamental part of the dev.lopment

proces., and the world ,economy as lUl "engine of g'rowth" for

W •• tern lUrOpe and Ibrth -..rie., and also f~ ~. le.. developed

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countries which are thought to have benefitted fram the f

increased demand for their exports associated with the

, increasing national, incoJDes in the West.

Behind all these characteristics of Western develop­

ment noted by conventional ecolbrndcs is the crucial

accumulation of capital. Rostow, for instance, made a

substantia1 rise in the percentage of national incorne

investep (from about 5 or 6% to 10 or 12%) a critica1 " .. indication that an economy W8a "taking off" into sustained

growth. 1 A1though his specific take-off dates for various_ 2 .

countries have been 1argely rejected , there is still general

agreement on the central role of increased investment in

raising national income.

Similarly, a Marxist economist views the most salient

features of the ddcay of precapita1ist Western &ocieties and

the development of capitalism as follows:

First there was a slow, but nevertheless appreciâble'increase ,in aqricu1tural output accompanied by intensified feudal pressure upon'the under1ying agricultural p~ulation as well .s more massiv~ displacement and rabellion of·pe.'sants and con •• quentfy ... r­g.ne. of a potential industrial labor force.

lw ••. Rostatt, Tb. Stag" S?f Bcon9!Dic Growth.

2s .. , for example, article. by ~znets, Deane and,TBuru in Ic9D9'iC. of take-Off 1ntp SUltained Growth,~W.W.Ro.tow,ed.

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Secondly, there was a more or less far­reaching and more or 1ess genera1 propagation of division of labor and with it the evolution of-the class of merchants and artisAns accompanied by the growth of towns. And thirdly there was a spectacUlar

. aCcum:ulation of capital in thè hands of the more or 1ess steadily expanding and risinî class df merchants ~d weal thy peasants.

Emp , sis added)

It is the confluence of aIl these processes (and of other secondary developments) tbat forma the indispensible precondition for -, the emergence of capitalism •••• Yet it is the third -~ the primary accumulation of capital -- to which, as 'the term 'capita1ism'

. l' suggests, strategie significance must un-doubtedly he assiqned •••• it was the scope and speed of the accumulation of merchant capital and the ascent of the merchant class that played itself a major part in corroding the structure of feudal society, in èreating

~ the prerequisites for its ultimate demise. 4 1

Thue, there ia a basic similarity in substance, although

a difference in emphasis ie already apparent ~n the choice of

vocabulary describing these events. The motivating force of

change and development in the Marxist analysis is conflict,

conflict between the mode and the relations of production,

conflict between social classes. This i8 the framework within

3paul Saran, Ibe Political Icon~ of Growth, p. 137. (Sereafter cited ae Satan I)

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which the domestic transformation of Western Europe, i.e., .

the decay of the feudal order and the tensio~s between the

evolving productive powers of the European economies and

the social relations of feudalism, are assessed. The concept

of class is also extended to include classes of nations and

conflicts of interest obeerved on an international scale.

In this view, the world economy, rather than being an

essentially impartial "engine of qrowth", provides another

area for conflict and exploitation.

As in mainstream Western" theory, capital accunn,llation ie

central to the Marxist analysis of the historieal experience

'* of development. However, the Marxist economist emphasizes ,

the ~loitative na·ture of Western primary accumulation which

was f~d by piraey, plunder, the slave tra4e and the coloni-

zation of so-called empty lands. Thus, Ernest Mandel notes

that

••• the chief victime of primitive accumulation were, more than the yeomen driven tram their farms by eh •• p raisinq or the journeymen of the cr.fta 1eft without work in the towna and forced te work for a pittance in poor rel~ef workahops,

*It ia alao central to the analyala of aocialiat dev'lopment hiatqty and to preacriptions for the aurrently developing cOWltrie.. s.e, for exa..,le, Où.ar IAneJe Ob 'the planning of capital accwmlatloa arad productive inv •• tlleDt for development in ,,~c: Dlr\telq:nti p~ and IDt.rbàti6nal cooperation" ln hi. ltpIEI tg ~pt ~&o~ogy, 1930-1260, eapecially W··~~. "

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the indios condemned to mita (forced labor), the Santu sold as slaves, the Wretched inhabitants of the Hongy Islands, extermin~ted by the expeditions10f the Dutch East India Company, the people of the Mogul Empire, pitilessly plundered by the agents of the British East India Comp ny. It' was this systematic lun erin of four cdntinents duriIl'

t ' ommercial e ans ion of t e s1X~èenth to the e hte nth centuries, th created the conditions for the d! isive lead acquired by Europe 5 f= th, industrial revolution onward. ' ( hasis added) , i

Exploitation is thus positted as the central feature of

Western primary accumulation and of the related failure of

contemporary underdeveloped countries to develop.

Althouqh the transfers of wealth fram the non-European

eountries to Western Europe have generally been minimized in

conventional histories as being of insiqnificant magnitude in

relation to the aqqre~ate outputs of the countries to which

they accrued, ,this is debated by more critical analysts.

Their emphasis is placed on the addition to the economie

surplus at the di.posal of Western Europe, and its concentra-

tion in the handa of capitalistsrwho.uaed it for inveatment ,

purpo.e~. Thua, the role of eurrently le8s developed countries . l

5 ~ Q' Irn •• t Mandel, _Giat 'S9P!R1a DI,tory. p.444. s •• a180

Mauric. Dobb, ,~4i., in th! R1v,lopMPt of C8pita1111Jll, pp. 201tt, aBd Baran l, p. 139.) i

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in the development of an important w~stern Eu~~e becomes

part of the historical 1nterpreta110n. The removal of a

large po~tion of the previously accumulated and currently

generated surpluses of the non-Eu~opean countries to Western

Europe is seen· as an important accelerator of European

development and a serious setback to capital accumulation

in the less developed areas.

Thus. in assessing the relevance of the experi~~e of /1

Western Europe as a guide to contemporary develop1ent,

Marxist ana}ysis ~resses the fact that today's yesB developed

countries do not have colonies or other even less\developed

countries which can be used as sources of wealtli/to aècèl-

erate primary accumulation. Other unique circumstances

linked to the past and present relationships between the

currently more advanced and the less developed countries

are also emphasized. For example, rather than portraying

the early contact with capitalism as a basically beneficial

learning proeess, as far as it went, ~he Marxist analysis,

~ while noting the acceleration of the development of sorne of

the prerequ~,rt~s for capitalism, also asserts th$t /'

dev.elopme~ of other prerequisites was bloekéd ~y the

intrusion of Western capitalism6 •. The proeess of deqenera-

6paul Baran liOn the Politieal Bco~ of Baekwardness," in ,,' .. ~"'..r

Aqarwala and.Sinqh, Th. Jconomies Of Und.rd.v.lopment,p.7~. (Be17eafter cited a. Baran II) 1

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tion of pre-capitalist societies was greatly accelerated.

Traditional agriculture was disrupted and the self-sUfficien-

cy of rural society destroyed through the introduction of cash

crops for export, the seizure of peasant occupied land for

plantations and other uses by foreign enterprise, and the

competition of industrial imports with. rural handicrafts.

These created a pool of pauperized labor, a potential indus-

trial labor force. The institution of legal and property

relations attuned to the needs of the market economy and

the establishment of administrative institutions for their

enforcement is rêcognized as a~egacy of colonialism conducive

to, and indeed a prerequisite for, capitalist development.

Also, sorne of the economic surplus of these economies was

diverted ta the development of the infrastructure needed to

make (foreign) investIDent profitable. There was also sorne •

contact with Western te chno l ogy associated with European

penetration. However, the distortions caused by the intrusion

of Western Europe are Sèen as being equally powerful forces

precluding the emergence of the classi~al conditions for

growth. As we have already noted, the removal of a large

portion of the economic' surplus of the les8 developed countries

is 8mphasized as a serious' setback ta primary accumulation.

In addi~ion, the emer98~ee of stagnant ~nopolized economies

at an •• rly ataqe of capitalist deV.laplDent ls a1so linked ,

to th. relatlon.hip. between the cblonized and the c_lonizers.

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Thua, the Marxist approach assigns a deeisi~e role

to external international factors in the de~elopment of

.capitalism and the underdevelopment of the periphery.

The present state of the Iesa devel6ped countries is

essentially traced ba.ck to the effects of ,colonisation and

imperialism and current "neo-colonialism" or "neo-imper'ial-

ism. Il Some Western economists have also regarded external J •

forces as more or 1ess decisive factors in contemporary

, * underdevelopment. Thus , Gunner Myrdal remarks that

the now highly developed countries were able to develop as 8mal'l islands in the large oeean of underdeveloped peoples, they could exploit them as sources of raw materials and markets for cheap industrial goods and could for this ~urpose ev en keep them under colonial domination. .

However, the major difference between this approach and that

of the Marxists seems to be that it' does not, ae do the

,Marxiste, incorpora te this observation into a general critique

of world capitalism with eolonia1iam and imperialisa as a

stage of that specifie socio-eeonomie system which Itfollows

na~ura1ly and objectively fram its LCJpitalism's7 inherent

laws and nature. Il 'rtlus, eontrast the view expressed by Andre

Gunder Frank:

*See, for example, works by Gunnar, IIYX'dal,'paul prebi.ch, w. Arthur LeWi., B.W. si~q.r.

'Cited in TamIl. s •• ntes, The Polit~sal looPSaY of tJnc1er­Qlvel0R!f9t, p. 102.

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••• eontemporary underdevelopment is in large part the historieal produet of past and continuing eeo­nomie and other relations between the satellite un­derdeveloped and the DOW developed metropolitan eountries. Furthermore, these relations are an essential part of the structure of the development of the eapitalist system on a world scale as a whole. B (Emphasis added)

Other Western economists give external factors les~ importancef*

In their analysis, such factors are only significant in con-

junction with, certain internaI conditions, that is, "the

negative role and effect of external factors are referred

bacJc in the last instance to internaI determi-ning fac,tors." 9

While, in contrast, Marxists emphasize the role of external

factors in shaping internaI conditions.

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In the Marxist analysis, the ~erience of North America, ,) J#

Australia and New Zealand, the Bo-called empty lands, is also

seen as being of limited relevance to the problems of today's

developing countries. We.tern BUropeans settled in those areas

and established economies of their awn which were capitalist

, in structure" fram their inception. As Baran, puts it:

SAndre G\ander Frank, "The Development of tJnderdevelopment," in Robert 1. Rhode., ed., lEK i,l1n i YnaerS\fvelopment; A aeaa.r, p.S •

•• Se., for exl'lIple, warka by HIa Jlyint, Gerald M(ltier, Jacob Viner, Ragnar IIllrka., David Baldwin.

9Tamaa Ssente., op,cit, p.lOl.

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unencumbered by the fetters and barriers of feudalism that society could ~ingle-mindedly devote itself to the development of its productive forces. Ite social and political enerçies were neither sapped by a pro­tracted struggle against feudal rule nor dissipated in overcoming conventions and traditions of the feudal age. The only obstacle to accumulation and capital-ism was foreiqn ~omination., Yeti although by no means free of internal tensions and,conflicts 01\considerable inteneity •.• the newly emerging bourgeois AQcieties . were at an earl~ stage cohesive and strong enough to overthrow that domination and to crea te a political framework conducive to the growth of capitalism. 10

In contrast, there seems to be a presumption in Wester~

development theory that the experiences of North America ~

and ~estern Europe are more generally relevant to the problems

of contemporary developing countries and that similar, though

hopefully aomewhat accelerated paths, are n?t only desirable, , .' ~

but actually open to them. This se~ms Uf bé illustrated by

the various conventional formulations of th~ obstacles or

barriers to contemporary development, several of which, for

instance the shortaçe of capital and of entrepreneurial

talent,- the terme of trad., ahd· the inadequate lsocio-politcal

milieu of the underdeveloped countri8s, seem to f~ow directly

fram the interpretatio~ of past develOpm.nt~ Similarly, the

Marxist re.ponae to th •• e.formulations refl.cta the theoretical

framework of their particular intérpretation of history.

lOsaru l, p. 141.,

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For example, stemming from the identification of

rapid capital aGcumulation as a critical feature of the

development process, one of the major obstacles to develop-

ment singled out by Western the ory is the scarcity of

. -capital and the related "vicious circle" concept of low

.• incoDe, thérefore low savings ability and high marginal

prapensity ta consume, therefare Iittle investment and "

low productivity, and theréfore low incarne and output, thus

c10sing the circIe. 11 There 8eems to be a tendency to

portray th,is situation as a PQculiar condition inherent in

the less developed countries. somettmes including a~ ethno-

cenuic conception of what people are "able" to save. In

contrast, the Marxist analysis again emphasizes the role of

the relationship between the more advanced a~ the Iess

developed countries in ahaping the political, social, and

economic conditions in the les. developed countries, and

thus in perpetuating thelr low rate~ of accumulation. Thua,

the major locus 'of the Marxi.t analysis ie not on a shortaqe

of. capital as such a8 a principal obstacle to development.

the lack of saving8 il vlewed •• a .omewhat artificlal

, probl ... which could be _lWnated by a more rational1y , ,

1.1 S •• , for elCample, Jacob Viner, IlIl'h.e 1ç000000oa of Develop­.. nt~ Il Gerald' Mal.r, "Tbe probl .. of Lbdte4 BcoftClllic:: DevelOp.ent,"tnd Ragnar BUrke., "Soma International Aspecte of the 'robl .. of DevelO1pMDt" in Agarwala and Sing'h,gp clt •

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12 ordered economy, that is, ~ith planning. An actual surplus,

* and an even greater potential surplus ls alleqed. The

principal defect of the underdeveloped economy, then, seeMs

to be the miause of its surplus through excess consumptron,

wlthdrawals by foreiqn enterprise, and other exports of ,

capital to more developed countries. The appropriators.

(and misusera) of the surplus include domestic commercial . -intermediaries (moneylenders and merchants), domestic industry,

foreiqn enterprise, and the state. Their failure to use the

economic surplus productively is sean as peinq due to'the

distorted and stunb.d evolution of the underdeveloped

economies under the impact pf Western imperialism. Hungarian

economist Tarnas Szentes s~rizes this position thus:

.' •• We are faced with the problem of surplus, which has always been emphasized by Marxist literature. 'fAlIS ~lnvesti9ationa must be made as to how and to what utent -surplus la produced (what the produc­tivity of social laboùr ia, hOW the national labour force ls used and allceated amonq the various .conondc sec~r. and aetivities, i.e., what, the structure of the n.tional economy i, like), who expropria te. tbe surplu8 (the cla8' structure of t;bt '9Çi.W>, and what factors impede the conVer­sion of th. 8urplus into productive investments

* Saran d.fin.. 'c~.* surplus a8 th. diff.r.nc. between society'. aotu.l c:urrent output and it8 actual current con'Wlption. Thi. i& idel1tical to th. conv.ntional concept of curr.nt .av1D9& or aCCR.UII:llation. '0tlntyl economic .urplu. i. the dill.renc. bebMtm th. output that SOUld be produce4 'in a 9iftlt natural a124 tedmolOCJlcal .nvlronment w1~ r:at.ionally ordered (i ••• , pl.anned) production and dis­tribution of .ocrial output and ••• enti.l con.umption, S.a Baraa I,p.23. '

128raDko 8Orvat, "CC-eDt.," in J .. I. Mler, ed., CApital !Ie!--t. aJt4 1Ip!!MI!&g Pn!lOJ!ll!!t, p.229

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or lts lnvestment wlthin the country (repatriation and remlttance of profits). And in case the value produced is realized outside the country, in the world market, it ls also to he investigated how this affects (just as the purchases made in the world market) 'the real value of economic surplus ••.

Capital shortage as a characteristic assumed to be general and as an explanafion for under­development has turned out to he very superficial and deficient. Its validi~y is not only impaired by the wide differences among the individual underdeyeloped countrles and rendered unreliable by the problems of profitable investment oppor­tunities and capital absorptivè capacity, but it also raises such further problems as, e.g., the pattern of international capital flow, thd 'trends in the world market, structural problems connected with the productivity of social labour'and the pattern of consumption, the relations of exploit­ation and questions of class structure, etc., aIl problems that must be considered far more fundamental and determininq/than the problem of capital shortag~.13 (Bmphasis added)

Inspired by the works of Weber and Schumpeter, main-

stream Western economics has identified the entrepreneur

'as the dynamic personality of capitalist devel~ment. In-

dee'd, the sentiment of prof •• sor Arthur Cole that Il to study , ,

the 'entrepreneur' is to study the' central figure in modern

economic history, and ••• th. central figure in economic~1I14

continu •• to he refl.cted in mOd.rn economic theory in general, f

anél in d.velopment theory in puticular. But the risk-taking, . . dar~nqi iaqinative and fruqal bu.ine.aman ..... to be

large1y absent frOll the le •• developed countri •• , for the

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14Cited iD Jar.aD l, p. 235.

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1ack of entrepreneurial talent is asserted as another

barrier to dévelopment in today's underdeveloped countries.

However, Marxist cri tics of .~is proposition point out

the tautological,nature of asserting that in the absence

of industrial capitalism the:e are no industrial capitalists.

As Paul Baran remarked,

It should be obvious that what the theorist of entrepreneur~ip has to explain ia not the sudden appearance of men of genius -- such men " have been with us since the beginning of timel -- but the fact that ~hese men in a certain h!storical constellation have turned their 'genius' to the accumulation of 'capital., a.nd that they found· the best way to accomplish this end to be investment in industria1 enterpriaes. Fai1-ing to do this and invOking instead a deus ex machina is not unlike 'explaining' squalor by the existence of peq .. ty, and renders the theory of the strategie tmportance of the entrepreneur entirely worthless. 15

Baran goes on to note that

there is an i\unda.nce, if not indeed a superabun­danoe, of entrepreneurial ability in the under­developed countries. Whether we look at India, or at the Hear East, at Latin Amer'ica or at the~ backward Buropean countr ies such as Greece and portugal, al'l-of th$m swarm with scheming, contriving, risking, and .harply calculating entrepreneurs bent on ~ombinin9 re.ourc •• ' to their best advantaqe, determined to maximize their profits within the fra~rk of ~xi.tinq opportunities. 16

'thus, the problem of entrepreneurial abi1ity, like that of

econom.ic surplus, 1. a.en not 80 much in the inadequacy of

lSIbid, pp.23S-36.

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its supp1y, but in the use that's made of what is available

under the existing economic and social conditions. While

there has been Borne recognition of the problem of entrepre-

neurship in this light by essentially mainstream economists,

the main thrust of Western theory has remained the assertron

. of the,lack of entrepreneurship in the under~eve1oped

countries. ,When an abundance of entrepreneurial energy

directed toward non-industria1 enterprises ia recognized,

this observation,has not been ~ntegrated into an anal~is

of the distortion of development caused by the impact of

Western penetration to the extent that it tas been in the

Marxiet analYsis.

• Baving focused on the expansion of international trade

as another key feature of Western development, the prospecte

for 1e88 developed countries to expand their trade with the

rest of the wor1d becomes an important consideration for

qontemporary development. W.stern 1iterature has placed

great emphasis on the deterlorating terme of trade as a

factor .eriou81y retardinq development. 17 There ia general

agr.ement that th. terme of trad. for the exports of the

... l7he, for éxalllple, B ••• Singer, "The Distribution of Gains B.~ Il'lv •• tilng and Borrowing COW\tri •• ," .rican Bcono­NO Btvil!!, May 1950, a180 Jacob Viner, op cita

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less developed countries have been steadily dete~iorating • .. However, the general significance of this trend is questioned

by Marxiste and other radical observers. First, it is noted

that "terms of trade" may have 'little meaning for many

underdeveloped countries where export industries are largely , 1>0...

foreign controlled •. Raw-materials-productng and expor,ting

~oreign enterprises are usually vertically integrated with

process'ing and marketing facili ties for their exports

outside of 'the source country, and often operating ~heir

own transportation services. Thus, the f.o.b. priee of the

raw materials exported is qet~rmined in light of différences

in national tax systems and in,royalty agreements with local

governments, and intra-company financial arrangements

whereby individual concerns can allocate their profits to

affiliates and subsidiaries. Secondly, given that supply

schedules are fairly inelastic, changes in demand are seen

to effect prima~ily priees and profits, not local employment

and wage.. It is further emphasized that the relevance Of the

magnitude of profits to economic development 'depends on to

whom they accrue and the uae made of them. 'l'O the exten t

that inerea.ad profita accrue to foreign enterprise and are

repatriated, or to dameatic cap~tàli.t. who send them to

Sv! •• bank acoounta or spend th .. on tmported luxurie., or

to corrupt and/or ~naffic!ant government., tbey _ke no

,

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contribution to development.

'l'he "bourgeois revolutions" whtch created the in-

stitutional framework for capitalist development are

central to bqth Marxist and.non-Marxist interpretations .. of the historical experience Of development. Thus, the

90cio-political environments of the less developed

countries are identified as another barrier to development

by both. The prescription of conventional Western theory

is essentially a more thorough inculcation of capitalist

mores. Marx also assumed that development would take

place along the Western European model. Rowever, post-

Lenin Marxists have stresse'd the new inter- and intra-

national environments created by impêrialism. Thus, the

neo-Marxist analysis portrays the development of capitalism

in the less developed ~ountries as having been so distorted

by Western penetration that the fu~l development of capital--,

ism ia precluded, leaving the less developéd with the

" woret of both worlds -- oppressive remnants of feudal

relation.hipa and a stagnant form of monopoly capitalism. 18

In a critique of Roatow' a "take-off" conoept, John coatsworth

note. tbat when the two more or -1 ••• measurable indicators

18Baran II, p.76.

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of the take-off are present, that is 10% or higher investment

rate and the growth of a leading sector, and an economy still

fails to attain sustained growth, the implication is that the

political, social, -and' institutional framework is at fault.

But, he a~~o notes, .. .

in the modern world Rostow's 'traditional' societies are uniformly dominated by capitalist social and economic institutions, and thie dominance ie reflect­ed in their political systems. Much recent research on the structure of underdeveloped economies has revealed tbat the so-called feudal, subsistence, or trIbal sectora in these nations have long since ac~i~ed an essentially capitalist character -­pr~ate ownership of property, wage labor, produc­tion for the market, and the like •.• If today's 'traditional' societies are capitalist societies, then the transition to modernity can no long~ , take plaçe on the model of th~ French Revolutlon. The 'traditional upheavals' of the modern era are socialistg not bourgeois or 'middle class' revolutions. l ,

Thus, the neo-Marxist prescriptions for today's developing

countries are'based on the developmental goal of a socialist

economy rather than on trying to develop capitalism to its

fullest potential. 20

'!'hua, we see that whil. conventional theory draws

heavily on its interpretation of western economic history,

aB a guide to contempotary development, Marxi8t analysis

"

eœphasi ••• the unique probl ... of i:oday' s developing c'oun- • <)

Q

ttj;~ B. Coa tavor th , walt w. aoatow, Th!, Stages of Jçonomic Sttpat1oi'~ pp.7-B. d

208.. OIIkar Lange, op çit.

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tries and the links between their peculiar conditions and

the past and present relationships with currently'more.

dèveloped countries. This difference is reflected in the

analysis of the raIe of contemporary international capital

floWs in economic development.

II. THE ROLE OF INTERNA TIONAL ' CAP ITAL FLOWS: PR IVATE i

FœBIGN INVESTMBNT . /\ '.j

In assessing the role 'of international ~tal flows

in the "development process, there is agreement on the most

elementary level, that is, that inflows of r~ources from

abroad ~ be useful in accelerating domestic growth and

development. However, there is a diver9~nëe between capital-

iat and socialist orfented economists in the evaluation of

~he actual contribution of foreign capital to development

of today's less developed countries, and the relative '" deBirability 0 types of flowB.

,

rSp8ctive, although public capital

("aid") ha. outweiqhed private flows in ~po8t war period ' 1)

through the lat. 1960's and remains over 45% of the total

flow of We.tern capital to the developing nations, it ia '; " ,

con.id.red an .a.entLally trànsitory phehomenon necessary " ' '

.1 to help dev.1op conditions favorable for capltalilm

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( . f') 21 domestlc and orelgn. Thus, mainstream Western theory,

with its fundamental bias in favor of private enterprise,

stresses the benefits of private flows.

During the 19th century, portfolio investment comprised

up to 80% of the total flow of private capital to the less

developed countries.Securities were 'floated in Western

capital markets to finance public works, military expendi-

tures, infrastructure, mining and plantations. The enter-

prises financed were general1y prornoted and controlled by

, d f h '1 t' 22 Th l' t . ht resl ents 0 t e caplta source coun rles. us, mlg

be said that these bond issues essentially financed a form

of direct foreign investment. This bond market, however,

virtual1y collapsed during the 1930's Depressiofr and public

capital in the form of aid has largely supplanted po~tfolio

lending in providing infrastructure and public works

financing. In the post war era, portfolio investment has

averaged less than 25% of the flow of private capital to

developing countries.* Steadi1y and rapid1y rising export~

21See, for examp1e, Gerald Meier, H§ading Issues in Develop­mont Economies, (hereafter cited as Meier II),p.296 and West German Karel Ho1bik, The United States, the S9vièt Union & The Thirg War1d, p. 63. 22Fe1ipe Pazos, "The Role of International Movements of Privat. Capital," in J.H. Adler, op cit:' p.,;192.~ * " Western development institutions, notably the lBRD, have bean the 'main borrowers in the bond market. Other borrowers ar-e genara11y among the more advanced d~ve1oping eountries. In 1971, on1y Il developing countries floated bonds, and Israel, Spiin and Mexico accounted for '80% of these i8sues. Se. ~c, Dev'lopmtpt OOoptration~ 1972, p. 63.

wu os

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credits have also averaged about 25% of the flow in this

period, and dir ct investment averaged over 50%. It is

• this e~ca_~al _~hat is central in Western theories of

the role o'(~t ii1 ~.tmént in the development proces •.

In' contr:~~~i;t analysis ie more cri~ical of J/'

private foreign investmènt and--stresses the conflicts

between the interests of foreign enterprise arid local

developrnent. private flows are, therefore, of secondary,

importance in their strategy for developrnent, and private

23 equity capital is especially suspect. In fact, it is

seen as the basis of neo-colonialism. 24 Of course, aIl

transfers from the socialist countries are in the form of

public flows.

.-The general thrust of Western views}'f the role of

private foreign investment in the deve14pment process has

been that, despite some costa, "capital imports in aIl

their forms have been and are a highly poslti~e agent of

proqress in developing countries.,,25 Direct investment is

23see , fo~ example, Jozaef Bognar, Economie policy and P lanninq in Dlv.lopinq Countries 1 p. 414.

~ , 24s •• A. Andre.ayan, "CClllllD8Dts, /1 in J.H. Adl.r, op eit i

p. 319. ~ • 2SA• Kafka', "Bconcmlic Bfdets of capital lmpOrts," ..ru.s., P. 211.

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particularly singled out as a major contributor to developrnent. .. As NUrkse rernarked, ,

foreign investment in extractive industries working for export ia not to be despised, since it usually carries with it various direct and indirect benefits ta the country where it is made. 26

'...--The essence of the case for encouraging private capital

flows ie that the resulting increase in real incorne ia qreater

th an the increase in the incorne of the investor. In other

words, social returns exceed private returns because the

amount appropriated by the investor is le8s than the total

addition to output resulting frorn his investment. Thus, the

benefits of the greater ou~ut are shared by other incorne

groups to whom they aecrue-~ the form of lower priees, higher

wages and/or greater employment, higher tax revenues, and

in~irect gains through the realization of external economies •

• Domestic consumers are portrayed as possiblé beneficiaries

of direct foreign investment. 1fhen the investrnent is cost-

reducing in a partiçular industry, consumers of that product

may gain tbrough lower prie... If it ia product-improving

or introduc •• a new~r~duct, consumers benefit from better

~ quality or more vari~ty. Marxi.~ analysi.,. in'êontrast, takès ... . . " al... id.a1ized view of th. hi.torie.l contribution of foreign

enterpri... produeing for th. dC/llD8.tic market. of le •• t Il

~

26.. IUrk •• , AR oit, p. 261

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-24-

When in the course of tirne the possibility arose of undertaking sorne indus trial production, whether because of the procurability of the necessary tariffs or of other government concessions, such enterprise ~s sometimes founded by foreigners (usually in conjunction with domestic interests)

who ~ht to bear their experience and 'know how' upon the organization of the new venture. Setting out to supply commodities similar in quality and design to those previously imported fram abroad, they erected single large scale modern plants whieh were sufficient to meet the existing demand ••• The new firms, rapidly àttaining exclusive control over their markets and fencing them in by protective tariffs and/or government concessions of aIl kinds, ~ocked further indus trial growth while their mono­polistie price and output policies mtnimized the ekpansion of their own enterprises. 27

Thus, rather ~han being dynamic priee redueers and/or quality

improvers, foreign enterprises, like domestie producers for

the local market, have ~UallY,staqnated in monopolized en­

vironments. A similar an~lysis is applied to contemporary

import substitution. 'These failures of foreign epterprise

~to dynamize underdeveloped eeonomies have been reeognized by

malnstream Western economists. but they have not been qiven

as much emphasis nor have they been generally accepted as

fundamental characteristics of private foreiqn enterprise

producing for the local markets of developing countries as

they have Ül the Marxi.t critique. of the role of private "".

f~r.ign iDv •• tment. At anv rate, it i8 generally accepted ..

that the hulk of priv.te for.iCJ1l inv •• tMnt i. in export

orieDte4 .Dterpri ••• 'wbich have 1tttl,~~ect affect on

27aaran l, pp.175-76. ...

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domestic priees or the quality of domestically consumed goods.

G.D.A. MacDougall's classic discussion in "The Benefits - .

anc;t,costs' of private In~estment from Abroad,,28 forme the

"

basis for Most of the conventiona1 ''arguments that foreign

- . capital 'iaflews increase real incarnes of domestic factors.

In figure 1, a slightly siroplified version of MacDougall's

diagram, EG illust~ates the marginal productivity of capital . with a given amount of labor (two factor model). Initially

aIl capital stock ls domestlcally owned (AB) and output ie

ABCE. Assuming that profits per unit of capital equal the

marginal product of capital, total profits are ABCD and real

wages CDE. E

l t------w-+--.....

figure 1

A B F ..

capital Stock

W;th1an .iaflow of'"fcàd4l'lcapital in the amount BF, total output

" . inerea ••• by th. amount BPGI .nd prof1ts on for.iqn capital

are BPGB. Sine. the profit rate ha. fallen due to the fall

in the .,arqinal. proCtuct of capital vith the. inere ••• in capital

28~C Btcor4# Marcb# 1960, pp. 13-35 • .1

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stock, profits on domestic capital are reduced to ABHI',

but total real wages increase by DCGI. If the foreign

capital inflow is only a small percentage of the total

capital stock, MOst of labor's gain is a redistribution

from domestic capi.talists, but even then there is a net

increase in real incornes of domestic factors represented

by the amount CGH.

The inflow of foreign capital may ~ot only rais.

the productivity of a given amount of labor, but may also

allow employment of a larger labor force. As the wages , received by the newly employed are assumed to exceed their

former real incomes in the rural sector, this exceSB ia

considered a national gain.

There are many criticisms of this formuLation within .

the framework of conventional analysis. Firstly, the idea

of measuring capital as a homogeneous factor is particularly

suspect in the context of developing countries, and even

~-more -BO when dame.tic and foreign c~tal are being con-

Biderad. The •• Buaption that their marginal product curves

are identical i. .urely inoorrect, except perhapa in thé

rare c.... lik.Au.tralia (lIacDougall ' • exurple) whera the

• gap bebMen ao.estic and fora1gn t.echnoloqy and co~l ... ntary

.kills iallinimal. Seconc:tly, .. rginal product1vlty' di8tri-

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bution theory has a1so come under attack in the general

theoretical literature with regard to the definition and

identification of marginal products. In development

literature, peculiar limitations to the app1icability of

. the marginal productivity analysis of actual incarne distri-

bution are noted. It is recoqnized, for example, that

resource markets àre often biased in favor of foreiqn

investment. For·~xample, "10ca1" banks are often branches

of foreiqn bank~ and are more willing to provide funds ta

foreign than ta local enterprises. Wi~h interest rates

often kept down by law, thesè funds May be obtained for less

than their marginal product. 29 Other power relationships

may al~ow foreign investore ta appropriate more than th'eir

marginal product whi1e domestic factors get 1ess.

Th~ Marxiat critique of the assertion that direct forJtg~

investment is a bcon to dome.tic labor and thus ta the

whole economy takes Il different tack. It places eIophasis

on the actuel aiz. of the labor ·force employed by foreign

capital and the extent and~nature of its incarne effecta.

Baran giv •• sc:ae striking exemples of the percentages of the

labor force.involved and the portion of the oompaniea'

total revenue ~1Qh accru.. to labor 1

29se., for exalllpl., A.' Kafka, op 91t., p. 225 •.

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the part of the companies' -total revenue that is absorbed by wages ia generally small. In Venezuela, petroleum accounts for over 90 percent of aIl exports ( and for a large part of total national product), but the oil industry employs only seme 2 percent of Venezuela's labor force, and its local currency expenditures (exclusive of government payments) do not exce~d 20% of the value of exports~ some 7/8 of t~enditures have gone to meet the wa~ salariès bill, with the remainder be-i:ngÛSèd for purchases within the coun,try. In Chile before the first world war about 8% of the active population was engaged in ,the mines or assoclated processing plants, but this proportion has steadily fallen ••• In the Middle Hast aIl of 0.34 percent of the ropulation are engaged ih the oil inQustry while less than 5 percent of the oil revenues are paid out as wagef. In seme countries withvery small populations and large raw materials developments the proportion of people employed in conneotion with them is of course larger (for ex~le, about 10 pereent in the NOrthern Rhodesian copper mines), but these cases a~e exceptional. Even there, moàeèVer, the ahare of total receipts paid out in wages is approxima te !Y the same as in other instan~es just mentioned. 30 -

·t , The limited potential of this additional incame to widen

the internal market for industrial products is also emphasized

in the Marxi.t critique. Soma of the labor involved consjsts "

of foreigners filling manageria! and aemi-manageria! positions pl>

with corr •• pondinqly high .alaries which absorb a diapropor-

tionate .bare of that part of the foreign companies 1 revenue

which doe. accrue to labor. on. of th. main attractions of

th ••• jobs ha. be.n the po •• ibility of aC"C!UDllàtinq considerable

.avinq. in a relatively .hort tiM. IXpatriatea can maintain

30Baran l, p. 18.1.

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a high standard of living while savihg a large portion of

their incornes. 1hese savings are either immediately re-

patriated or taken home when the foreign workers leave their

posts. A large percentage of their consumption expenditures

is on imported articles, further reducing their expenditures

on locally produced goods and services.

With regard to dOrnestic labor, it is generally asserted

that their wages bardly leave room for savings and can

therefore be counted on to be spent on immediate consumption.

Howeve~,

accruing for the most part to low paid workers" it ls directed toward acquisition of the most eiementary wage goods that are produceq in agriculture, by local craftsmen, or imported, and therefore cannot possibly form a market encouràging the development of industrial entérprise. 31

1

The governments of less devel9P8d countries are se en as

the major recipients of incame fram the activitie~-of private

forei~ enterprise. Meier provides a conventional statement 1 ,

of the banefits darived fram private foreign inves~t:

For Many countriea, taxes on foreign profits or royalties fram conce.aion agreements constitute a large proportion of total govérnment revenue.

31Ibid, p. 183 •. S ... 1.0 Abra. P~in, Moderp Th!O{ies of ~PttrRat1ona1 ~,ç a.l.t~, p. 227. ~\

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The fiscal benefit derived from foreign inv~stment is evident from the fact that the share of government revenue in the national product of countries that have received substantial foreign investment (Iraq, Venezuela, Peru, Ceylon~ co~ta Rica, Guatemala ) is considerably higher than in most of the other low incorne countries. 32

While it is not debated that tax and royalty receipts have

in sorne cases been substantial, and that their prudent utili-

zation might have provided an important impetus to development, ........

the crux of the Marxist critique of the role of private

foreiqn investment in this area lies in.an analysie of the

actual use that has been made of government receipts and the

role of the interactions between loéal governments and foreagn

investors in determining the uses of that incorne. It is

deemed inadequate to compartmentalize and limit the analysie

to--tlîe "purely economic" identification of the revenues

obtained. Thus, Baran responds to the conventional as~ertion

thAt what the government of a developing country does with .

ita receipta fram foreiqn enterprises has nothing to do with

the "purely economic" appraisa.l of the fôreign enterprises' , .

contribution to economic development by debUnking the concept

of "pure eeoDOlDic8." Be rema.rks:

32Meier II, p. 300 •

, "

, .---........... h ........ ----____ ... _ .. Ài!~v._:; ...

•

-':"31-

This view affords a veritable textbook example of the inherent incapacity of bourgeois economics to penetrate the sUbject matter of its investigation. Crudely tearing asunder a historical phenamenon, turning away from the complex whole in order to see better its much simpler parts, it arrives at state­ments which, even if partaking of truth with regard to the parts, constitutes falsehoods with regard to the whole. For a historical phengmenon is 1nseparable from what represents its inevitable outgrowth.,. the exploitation of raw materials inunderdeveloped countries by foreign capital, and e existenee of wasteful corru t and react-

J ionarY copprador r!9imes in these countrie , are ~ not fortuitou. coincidences but merely different if closely interconnected aspects of what can be only adequately understood as the totality of imperiali.m. (Bmphasis added) jj

Given this perspective on the scape of the analysis, the

various activities of foreign governments~and their agents

-- CIA, AlD, etc., in train~ng elites, financing and/or

infiltrating political parties, factions or movements, and

more direct participation such as dispatching the marines,

etc. -- in conjunction with their international investors

to foster stable and favorable investment climates a1so come

under acrutiny aa part of the impact of foreign investment

on the character of governments in the lesa developed

The 011 produclng countrl.. are prime examplea. Tbeir

ro,altie. tram foreign enterpri •• have been large in abso1ute \

a. wall •• per capita magnitude and they have been accruing

33 _ saran l, p. 217.

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to those governments for a substantial period. Yet, the

people of these countries have hardly benefitted. In

Venezuela, an official American showcase for the benefits

ftom foreign exploitation of raw materials, the American

government and foreign investors were implicated in the

overthrow of a progressive government in 1948 which seemed , to be moving toward the Mexican èxample of nationalization'

of the oil industry.34 The government of Romulo Galleqos

had already increased its share in oil company profits to

50% and had begun to devote s~e of this revenue to develop-

ment projects. Since then, the bu1k of the venezuelan

government 1 s expenditure has been absorbed by

the construction of roada, airports, arld harbor facilitie8, by the spectacular ~ansion and modernisation of the city of Caracas, and by similar undertakings highly desirable from the atandpoint of foreiqn capital operating in venezuela, but contributiDg little to the emer­gence of a balanced national economy. As the government, true to the directives of its American sponsors, abataine fram ancroaching upon the area ordained to be reeerved for private'i~vestment, it confine. it. outlays to providing sources of ~external economies' to free enterprise. But •.• auch inve~tment ae ie facilitated by the lavish extarnal économi.. made available by the c~rador qovernment i. primarily foreign inveatment. 3

34Rew York Ti_a, lIove1lber 25,Novelliber 27, & Decembar 6, 1948.

35aaran I, p~ 213-14.

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In the Middle East, oi1 revenues main tain essentia11y

feuda1 regimes whose use of the receipts is chàracterized

J

by extremes of persona1 extravagance, waste and mismanagement,

whtle at the same time they are able to maintain vast military

establishments· to assure the stabl1ity of their regimes a'nd

the maintenance of a suitab1e climate for foreign investment.

The MOst significant and unique contribution of direc~ 1

private investmeht to deve10pment is often held to be its

externa1 economies. Management abi1ity, technical know1èdge

and personnel, administrative organization, and innovations '1 1

in products and production techniques acaompany direct-

foreign investment as we11 as the competent formulation and

implementation of the prçject whiçh is often 1acking or in-

adequate when recipients try to use aid themse1ves. Access

to foreign know1edge to help overcome the manageria1 and

technological gap ia aeen aa one of the most significant

contribution. of private foreign investment to the development

proce •• , a sort of "priyate technical assistance." 'rhe rate

of technologieal advan~e in 1e.8

a. being highly dependent on the

developed countr~s is seen

rate of private ca~al

.... por exaaple, 3SCl' of total gcwermlent expendit*re in Saudi Arabi. i. u •• 4 eo mainta1n the military e.tab1iahaent. ~an l, p. 209 •

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inflows. 36 Foreign enterprise i~ seen as providing training

for labor in new skills which May later be diffused through-......

out the labor force and used by domestic firms.

In an extreme statement, direct foreign investment has ),

been called "prefabricated industries" providing a "shortcut

to development." But in the very same analysis, it is

. ' recognized that the "too complete charac'ter of lots contri-.., <

bution" may be a serious detriment to its making a signifi-

ca nt contribution to the development process. 37 In this

context" a.w. Sfnger has empl}asized the "enclave"i'nature o~

much direct foreign investment. 38 The greater th~ gap

between domestic technology and managerial capabilities and

those imported, and therefore the greater the need for

learning, the more 11kely it is that foreign enterprise will

/

in fact be an isolated i~land of knowledge unable to communi-

cate or be disseminated. Although these caveats have'been

advance8 by mainBtream Western economists, they do not seem > v

to bve gained a central position in westel~ assessmenta, of 'j \

thi. type of .xternal economy'of direct inve.tment.\'I~

contra.t, a gr •• ter ~si. on the costa of private foreign

36 "ier II, p. ~Ol.

37fe1J.pe P •• o., '3! oit, p. 196.

-q38a\1f. SiDpr, cp c'lt, pa •• ia.

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investment coupled with a greater emphasis on the

limitations of private enterprise's ability and willing-

ness to provide extensive technical education leads lesg

conventional analysts to deprecate this contribution of

direct investment and place the emphasis on aid as a ,

* source of accelerated technical development.

Private foreign investment is also seen as providing

another important stimulus to domestic investment and

development through forward and backward linkages. It is

seen as strengthening exieting local enterprises and

encouragin~ new ones through the expansion of incorne and

the traininq of local personnel already mentioned, and

through the local purchase of parts, intermediate goods,

*It should be noted, however, that earlier Marxiste (for example, Lenin, Imperiallsm: The Higheet Stage of Capitalism, p.65) ~ believe that this contact with foreign capital would, on balance, accelerate the development of capitalism in backward areas. '

Althouqh, with the Ruesian Revolution, Lenin and other Marxists began to develop the idea of economic development under socialism, the basic Marxist concept of economic development remained ~at of capitalist accumulation and expansion of productive capabilities. The ease with wnij~ contemporary Marxista reject the necessity and/or deeira~lity of capitalism as a stage'of development seems to he a relatively~ecent development in Marxiat thinking.

•

....

•

•

• "-"r.~;4f..,."."...r~~"~JN""'I~ .!*.pYff"'-~"""~~~~~'''''''''')#".f''''l'!'''''I_~<II'''_''' ,

-36-

raw materials and services, and/or through provision of

cheaper and more abundant inputs to other enterprises.

Foreign investment is se en ~s breaking bottlenecks 'in

production, thus stimulauing expahsion and raising profits

on previously underutilized productive capacity and allow-

ing the exploitation of economies of' scale. The Marxist

response to thege claims has already been discussed in

connection with MaCDougall's analysis of the effect of

private foreign investment on real incornes of domestic

* factors. The small portion of foreign enterprise's

revenues paid ta domestic fac~ors~.nd the limited ability .

of these payments to significantly expand the domestic

market for indus trial gOod9;- and the raw materials export

orientation of foreign enterprise which forestalls signifi-

cant linkages, it seems, have not been adequately examined

by conventional ~eory.

The development of infrastructure ia another indirect

benefit attributed ta foreiqn ~nvestment. In a numoer of ... areas, the establiahment of foreiqn enterprise necessitated

investment in installations indispeDsible to the production

and exportation of raw materials. Railways, harbors, roads,

airports, telephone & telegraph syatema, canals and power

stations were built on this ba.ia. Such projecta are

* See âbove pp.25-27.

• -37-

usually considered to have the beneficial effect of

increasing the possibilities for local investment. But

it has been pointed out by B.W. Singer, a noted non-Marxist

liberal economist, that

the~productiye facilities for export from underdeveIoped countries, which were so largely a result of foreign investment, hever became a part,of the internaI economic structure of those underdeveloped countries themselves except i~ the purely geographical' and .physical sense.

While such observations do no.t se.- to have significantly

diminished Western enthusiasm for the infrastructure/external

economies argument for direct investment, it has become an

important part of Marxist criticisms of past and 'presen~

foreign investment in infrastructure. The Marxist cri tic

aiso relates the fai1ure of foreign-enterprise-sponsored

facilities to contribute significantly to domestic investment

to the socio-economic structure of the underdeveloped

countries, a structure which i~ in turn related to the

activities of private foreign investment. 40

Western th.ory 4088, of course. recognize seme potentially ~

signifieant coat. of privaté foreign inve.tment. The most

important of thes. atiae f~oa special concesaiona offer~

39 B.W. Sing'w, op oit, p. 475.

4°a.r~'1. p. 193.

p ..

•

--38-

by the host countries which absorb governmental resources

that could be used elsewhere, or reduce tax revenues

(sometimes including those from domestic sources); adverse

effects on domestic savinqs through the theoretically

possible, but seemingly u~ikely redistribution of incorne

away from domestic capitalists through a reduction in

domestic profits;41deterioration in the terms of trade;

and balance of payments problems accentuated by the outflow

of profits and debt-service payments. On balance, however,

these costs are donsidered to be outweighed by the benefits

accruing to the developing countries from private foreign

investment.

While recogn~zing the cb~a identified by conventional

th~ory,* the main thrust of the Marxist analysis of the

costs of private fo~eign investment lies firstly in the

Jealm of political economy, in the association of distortions

4lMeier , II, p. 302.

* ' bc.pt, perhap., the ·coat" of a redistribution of income away fram domestic capitalists. In contrast ta the conven­tional view of dameatic capitaliate (8e_ for e.ample, w. Arthur x.wta, "BconOlllic Development with onlimited Sup­plies of LaboUr" in Agarwala and Sin,h, op cit, who adv~cates rediatribution of, incOlDe te domeat'ic capitalista), domestic capitali'ats are !!5Œ. s"n aa major ,aources of productive inv.atment, but ratber a. extravagant conaumara in the neo­Marx'iat analysis of coftditions in 4eveloping countties •

,

..... _-_ .... _--~-------~---------------------------

: \

•

-39-

in the political and social, as weIl as economic, . structure

of und~rdeveloped countries with the dominance of private

foreign i~estment. As Sov~et economis~ Abram Frumkin

expressed it,

the crux of the matter is .•. that the none toc many consèquences of foreiqn capital domination that May be called benefici~l (such as certain, though decidedly lopsided, d~velopment of thé host country's produotive fo~ces, the opening up of its,natural resources, ~tc.) are inextric­ably associate~with the harmfiul consequences (such as increased exploitatioh of foreign

monopolies, greater economic dependence on the imperialist states, perpetuation of the host country's economic backwardness, ete.) which greatly outweigh them, ••• even this kind of limited and lopsided development must be paid for by a further exacerbation of the social contradictions·inseparable fram càpitaligm, includinq increased exploitation of the under­developed cauntries by the imperialist countries and their monopolies. 42

Secondly, the Marxist analysis emphasizes the cost of

the appropria~ion of the locally generated eèonomic surplus

by foreign investora in the form of repatriated profits.

Th~8, a sort of dilemma emerges from the Marxist analysis.

As Baran puts it,

1 lt 18 very hard to·say what has been the greater evil a. far as the econcedc developœent of the undardeveloped countrie. is qbnoerned: the ra.oval of tbelr economic surplus by forei~ capital or its reinv •• t.ent by forëign .nterprise~43

ft

42»r .. l'twI1c.J.n, op c1t, p. 214.

·43au.ft l, ,. 184.

'l,

1

.' /

• . (~~~~.J!! 9W'I •• ft"~~"t}; M jblf'''' 1i._MIII 401 uaA.""' ... , .... ,. PlU." •• "'." .. "rw ..... l;I1 ... , ..... " ....... $iWi ,.1&tJf_ .... ~_ ..... ~.......--

1

• -40-

Conven~ional analysis does not count the outflow of

profits and interest as an encroachment on the host

countries' economi,è surplus and a real cost in itself (Le.,

apart from balance of payments effects)since, as Meier

remarks,

even though part of the increased production from the use of foreign capital,has to be paid a~oad in profits or inter~st -- and this is a deduction that would not he necessary if the savings were provi~ed at home --,this is merely to say that the country must not expect to 9ét an income fram aavinqs if it does not make the savings. 44

(Emph"asis added)

ln response to t~e view that these transfers represent

no sacrifice by the underdeveloped countries, ~rxist aaalysis

turns again to an analysis of the distortions associated with

private foreiqn investment and noteè that ..

\

\

it is by no meana to be takep for qranted that the n~underdevelop.d countries, 'given an independent development, would not a~' some point have initiated the utilization of their ~ natural resourees,on their own and on terms more advantageou8 than thoae reeeived fram foreign !Dv •• tor.. Thi. could be di.mis.ed if foreign inve.tment and the course tâken by the deVèlopment of underdeveloped countries were independent of .ach other. Sowever, ••• 8uch independence cannot pos.ibly he a8sumed ••• With regard ta seme agri-loultural pro4ucta ••• quite, apârt fram the fact , that expert oriented dOrporationa have- traditionally .ngagad'in th • .o.t predat,ory exploitation of the plantation' land under ~.ir control, the e.tabliah­.nt and .xpanlion of the.e plantationl have brougbt about the ay.te.atic pauperization, indeed in.many in.tance. the phyaic annihilat~on, of

4 .... ,ler Il, P. 303. ô

•

•• 'J

-41-

large parts of the native population ••• NOr is the 'n6 sacrifice' proposition much

stronger where the output of the expert oriented foreign enterprise i8 made up of products of extractive industr~es ••• Although in this case the displacements of the native population and the destruction of their traditional bases of existence may have assumed somewhat lesser proportions than in connection with plantatioh agriculture -- it has been by no means negligible -- the long r,un effect of this type of raw materials e~loitation

.~

may be no less te11ing. Indeed there-is no reason to consider the rlw materials resources of under- 45 developed countries as a free 900d in infinite supply.

Thus, the sacrifice of 1ess developed countries ~ terms of

" precluded opportunities for development in their own interests,

exhaustion of non-replaceab1e re"sources, and untold human

sUffering ia emphasized as the hasis of forei~ profits. ,

In addi'tion ta theae sacrifices, and in more direct

response to the type of criticism expressed by Meier above,

the fact that local savin9s are indeed a major sou~ce of

investment funds for foreign lnve.tors in less developed

.countries ia an important part of the neo-Marxist and radical

argument. 46* For American investors, for,example, actual

capital CNtf10w fram the Uftited States i's the smallest

~ran I. pp. 186-88.

468 .. , for el'aIllp1., Bcluardo Galeano, "Latin .AMrica & the ~eory of laper!a11 .... in SWeeay & Mag4off, 8a8., Lenin To<!!y, Andre Gunder Frank, Qpital' .. Md tln4HsteyelopMnt in"Latin ~1C1.; (lIer .. f~r cit.e4 a • .rz:an1t II), Buan I.

W A

• A~ t:hi. '1. _11 lmOWll- and c1ocu..eft~d in W •• tern bus !nes. , a_illt, aJ&4 ilMJtitGt.10Da1 ciz:ci •• , !.t doe. DOt .... to he weil 1atepate4 iato t'MWl •• of the role of privat. fœeign inveat-MSlt iD' deY.1OJ •• ~t. ' ..

i :'

•

•

'.

--42-

component qf investment in developing eountries. It

aeeounts for only 20% of dir~ct investment while internaI

finaneing, that is, reinvested profits, aeoounts for 50%

and loeal borrowing aeeounts for 30%.47 Markists often

read this as 2,0% U.S. capit~l and 80% local capital (30%

1 local borrowing plus 50% reinvested profits) sinee profits

\ . i . ho \ are seen as embodyl.ng the explo tat10n of local la rand

""~. 48 ** ' , ' res~urees. ' The proliferation 'of Ameriean bank supsid-

iaries eapturing loéal funds, the subservience of local

batiks to foreign investors, and the role of international

ageneies like the !MF in pushing pOlieies that foster

foreign domination of the use of local funds are also stressed

as condi tians under which local funds àre appropria ted by

47Carles T. Niabet, "Transferring Wealth fram Underdeveloped to Developed Countries Via Direct Foreign Investm8nt: A Marxi.t Claim Reconsidered," pp. 94-5.

48 See, for'examp~e, Eduardo Galeano, op cit, p. 35.

** ,. . Thi. 18 part o( the Marxiat emphasis on the notion that (foreiqn) 'capital doea not, a. it were, create its own prOfits, . but. rather workera are the trua produeera o.f aIl mat.erial valu... '!'hu., profit. repreaent exp loi tatlon of the workers. Loqically the contributions of foreign Workara shOQld be aub­tracted. Bowwver, thi. i. pre.umably being ab8tracted frOlll in .uah an ana lYti i. 0,

\

'.

us

.. ~~ ,.\~~"., !",'cl-"'~ .. r <l!l'l\. .... ".,.... ~ ..... _"..IIl</~": l''''of-+~~ - .... ,...~..."" ..... '<'l'""~ .... _'_1. '_ .... \ ...... ~~""..,.....~~~, '''' "

-43-

. {

foreign investors.

While de-emphasizing the flow of investment capital

that ~ctually origiaates in developed Western countries

in camparison to the use of local resources, there is

•

also an emphasis on the outflow of capital fram the under­

developed to the developed countries. Many writers simply

compare inflows and outflows for a given period, for exarnple,

1950 to 1965 when Americàn corporations sent $23.9. billion

abroad for direct investment and repatriated net incarne of

$37.0 billion. The drain was concentrated in the under-

developed countries where only $9.0 billion of the total

$23.9 billion had been invested, but from whioh $25.6 billion ... of the total $37.0 billion in repatriated income was drawn.

Thua, it seem. that a profit of 184' was repatriated on ,

••

. investment in lese developed countries while incorne repatriated

fran Europe and Canacta was only. 80t of the outflow to those

areas. 49 Thé conclusion drawn is that foreiqD investment,

-far fram being a mèans of devéloping underdeveloped coun-

'......." tries, ia a moat ef-ficient dev iee for

__ r

49BarryMa9doff, JfIÎe'Age of laperiali., p.198; Frank II, p.30S, John Co.é.-worth, 01 oit, p.lo, pierre Jalee, The Pillaqe of the ''1'h1rcl Worr, pp.10-S4. All use u.s. fiéPart­.. nrol &iïiiâ6rce aatâ ..

•

l \ ;; } "

j

•

e-

- ..,

-44-

transferring \i6B.lth from poorer to ricber countries. Il 50

However, as is pointed out by mainstream, as weIl as

some Marxist orientèd economists, this type of comparison

is over-simp1ified and inaccurate. 51 Year1y inf10ws and

outflows should be related. back to the stock of investmen;s

and the tendency to finance direct investment 10cally should

a1so be incorporated into the analysis.* Capitalist oriented

economdsts also emphasize the productive aspects of foreign -invetrtment and assert tha t the Il Marxist approach ignores

the fact that direct investmertt engages in productive acti-

vit Y which may génerate its' own capacity to malte remittances." 52

î As *e have seen, Marxists do de-emphasize the productive

aspect of private foreiqn investment giving greater weight

to its negative effects and lack of positive lin'kages ~ith

the local economy.

50 0

Pa,.l Baran and Paul Sweezy, "Notes on the Theory of Imperial-ism," in Fann and Bodqe., a •• dings in U,S, Imperialism. 51 ,

See, fo;, example, the ~ between Charles T. Nisbat, 2e. ~ and Richard 1)Q8off, "CoaIIeJlt. ft

* t(I" 'rhi. would JDake ~è 'b ••• t.o which income flows ara re1at.l1

larger. BDwever, th1. doesn' t .... to bave any signifieant .ffect. on the positiou a40pted by .ither aide iD this dis-cu •• ion. TO the capitali.t oriented analyst, the œo.t ~r­tant .ff.et of taltiDg the.. factors 101;0 account seem. to be tbat a low rate of profit i. illplied. J'or the llarxi.t oriented analyet, it .erv •• t6 turthar fI1II>hasi •• the ÛIIpOrtanee of locally gàDerated surplus both in ,fi~lU'.u:d.D9 imr.sa.nt and in t .... of r.1aY .. tt14 profits. • S2l1iabet, OR a",'p. '1. (_ ..... 1. ad~),

•

.. -45-

"

Another way in which Marxists emphasize outflows of ,

capital from developing countries is by citing high rates

of return on f1reign investment in these areas: 21% return

" on American investment in Africa, 31% in Asia and the Mîd-

dle East, and 13% in Latin America, as compareq to only 7%

53 in Canada and Europe. The super profit4bility of investment

in less developed countries is a matter of .debate among ~in-

stream economists. >lrhose who do reéognize significant profit

differentials do not accept the argument that ,higher rates

of ·return rep~esent or are baséd prlmarily on exploitative

relations. Rather, they are justified as compensating the

gr~ater risk and uncertainty (and perhaps effort and hardship)

of investing in less developed countries, whereas Marxist

analysis seems to suqgest that foreign investors axtract too

much for the service~f cambining local resources in a manner

that ls not necessarily ( or u8ually) ~~ficial to the under­

developed countries whoae resources are being used.

In this discu*sion of the outflow of capital from

deveJ.opinq countriea, the 'views of contempor&ry Marxists

have been str •• sed. It ahou1d be noted that thi. emphasis

not only difl.rs fram _instre .. W •• tern economic theory,

53DuBoff , op clt, p. 119. ca1cu1ated frca U.S. Department of ec-eerce. c!ata~ /) ,

. .

•

=

-46-

but also fram earlier Marxist theories of imperialism which

emphasized the outflows from the dev~l6ped countries. Of ... course, Lenin's analysis of the export of capital from the

advanced countries included the motivation of "super profits"

to be gaineg in the colonies, with the implication ot"a con-

Commit82:1Y larqe return flow of p~ofits.· However, as with

Marx's/own writing on colonialism and the devêlopment of

cap~alism, the émphasis in Lenin's work on imperialism

is on conditions in the advanced countries. Thua, the

institutional factors of "artificial" capital surplus caused

by monopoly conditions in advanced economie~ and the sup-

posedly fallinq rates of profit there are the central

features of Lenin's analYsis.

In contrast, conventional analyses mAkes little use of

the fact of increased concentration in Western econamiea

or the concept of exploitation in their explanations of

* . The emphasia w&a on the !nereasad importance of the export-ation of capital •• compared ta the exportation of commodities rather tban on a compariaon between capital inflowa and outflows. In CODtrast, the work of Lenin'. contemporary, Ros. Luxemburg, on illperial1 .. (The AcC9P11.t;&op of Ctpital) was basad on the a8~tion of ~titiv. eOOD08dc structures and oontinued to ...,Ma1 •• cœaocU. ty exporte BoweVer, thia approach has been large1y O'I.r~d0we4 by the Lenlni.t eapbasis on capital and by the ris. of th. mlti ...... Uonal corporation •

'" '. ' >, ,

•

-47-

international movements of capital. Rather, foreign invest-

ment ie seen as essentially a means of improvinq the distri-

bution and use of resources on ~ world wide basis, and level­

inq out economic conditions. 54 At a recent conference on

* development,. th~ majority viewpoint was expressed by Judd

Polk who states that "investment abroad is clearly in the

direction of better international use of resources induced

by the real pull of hiqher marqinal Yields."55 He a1so

implied that the multinational corporations would do for

the world' economy what théir national predecessors had do ne

for the United States at the turn of the century, that is,

create a vast, unified market in which special­ization" the division of labor, comparative advantaqe, and the hiqhest produotivity are produced bY5gn 'optimum mixe of the factors of production.

HOwwge~, the major division of the conference was be-

tween those who, like Pol~ and most capltalist oriented

theorists, accept the exiatinq world situation as "~oraal,"

as opposad to those who, like Marxist observers, 'see it as

a phase of neo-ooloniali.m based on exploitation and

dClllination. The fomer qroup advocated. ~ international

private inv •• c.ent a. a -.pur to development; the latter '.

5epor all early expr ••• ioll oi"'"this approaeh, .e" R. Nurtae, PrObl_à Of1!1tal Parution, and B. Ohlin, Intett!g'ional âDa !Jttiiii~ oaal frid.. . .

·COluabla uni~.it7 Conference Oft InterDat10nai Economie ,De9âlo..-nt •• ~, 1910 •

5~elt.t iD Iarbar.WUd, et al, The "J4epJ.ng (Jep, p.2el .. i

56D!4.

,-

•

-48-

group advocated an end to such private invesoment and its . ~,

replacement with morë disinterested economic aid for

devel.Qpment. • •

• •

III. THE ROLE ~F INTERNATIONAL CAPITAL F'I.iQHS: WESTERN ! ! '

, 1 AIn PROGRAMS

with regard to the international flows of official . ~ ". capital, the aid programs of both socialist and capitalist ,

\

countries reflect the more or less objective social, politi-

cal and economic conditiorts wbich prevail in the donor

count~ies themselves as weIl as in the recipient countries.

\

They also reflect the interaction of thesè conditions with

the donors' Ideologies, specifically their conceptions of the

nature of the development pro~ess# their interpretations of

the historieal experienee of todayls more advanced and less

4~~loped nationa, an~ ~.ir aspirations fo~ the future.

'l'hi8 interaction. in th,) context of international ideologieal

and econ(aic competition, has affected the forma as weIl as'

the proclaimed p~.e.~and actual affects of,foreign aide ..

In this aDel tpe following section" there will be no attempt

to catalogue COIIIpletely tbe"variou8 ageneiee aDd forma of

•

-49-

aid dispensed by the major donors, but rather a brief look

at the historical origins of the various programs, their

relationships to other forms of capital flows and to the,

theoretical frameworks of the donors discussed above.

The basic philosophy underlying American and other

Western donors' aid prograrns centers on the growth of

private enterprise as the basis for "real" development ,

~"under "free" and "dernocratic" institutions. Official

capital flows to less developed countries are viewed as

a transitory phenomenon directed towards the creation of

social overhead capital and economic infrastructure

as a precondition for the success of private inve~trnent.

Thus; aid is viewed as a prel.iminary and complementary

service to private investors. Official aiù philosophies,

therefore, emphasize the building of essentially capitalist

• systems in order to foster a desirable social, political,

and econornic context. 57 Anti-communism is both irnplicit

and explic,it in official statements of purpose.

57See Meier II, p. 297; Leo Tansky, V.S. & U.S.S,R. Aid to Deyelqping Countries, p.vi .

. '

'.

,

•

--50-

The united States has been by,far the greatest single

so~ee ~f eeonomic aide Sinee World War II, over $55 \ 1

billion in development aid has been disbursed. 58 In the

past deeade, an average of 60% of American eeonomic aid )

has been in the form of grants. The grant element of the

total U.S. aid has averaged about 83%, and about 59% for

development loans alone.* The average maturity for loans

has been about 33 years with an 8 year grace period, and

58 DAC, Development Cooperation, 1972,p.215 and Develgpment Assistaqce, 1967, p. 34. (Annual DAC reports hereafter ci ted as, DAC 1972, etc.)

*The grant element is a statistic used by tpe Development Assistance Co~ittee (DAC) of the Organization for Econo­mie Cooperation and Development (ORCD) as a measure of the

a "softness" of aide It takes into account the per­.f aid given in the form Of outright grants, the

interes rates, maturities, and graee periods of loans. The grant element of a loan repaid in annual installaents is gi~en by the formula T

t "Ci+~ . L - . Ciqjf or in the percentage far:m 1 -4(1+00) 1-

(1+ OO)i pl pl

where L is the face vaiue of the loan, T is the ~turity in years~ Ci and Ii are capital and interest due at the end of ye~' i, and q is the rate of discount. A 10% discount rate is'used bo represent the net rate of return prevailing~n ,~, the OSCO/DAC countries, reflecting the alternative uses ~~' these funds by donors. Thus the grant element is essentlally a measure of the sacrifice of donors rather than a direct measure of the ben.fit to.reeipients. See ~pendix l of the OBCD report, Tbe Flow of F,inaneia1 Re.ourees to Less peve10ped Countti •• , 1961 to 1965. (perioa1e OEJCD reports hereafter eited as OBCQ, 1961 to 1965, etc.)

•

1

•

-51-

interest rates have averaged about 3.3%. The percentage

of grants" grant element, average maturity and grace

period have consistently been slightly above the average

for aIl members of the Development Assistance Committee

, **. of the OECD wh~le interest rates have been slightly

below the average.

The basic objectives of American aid have been des­

cribed as penetration, modernization, and stabilization. 59

penetr~n has meant the opening up of new areas to

Amer~political and economic intérests. In areas of

Asia and Africa formerly under European control, aid has

been a means of breaking down 1ega1 and administrative

barriers to American entry. This function may also ~~ called "decolonization." Modernization implies a re-

strueturing of the'economic, politieal, and social fabric

of the recipient country into patterns which are more \

eompatïble with Western capitalism. And stabilization

has referred to minimizing uncertainty and to the main-

~. tenance of relationships in which American investment

can profit. The forma of aid employed to achieve these

**1he ~c member~ ar~ Australia, Au.tria, Belqium,.canad~, Denmark, France, Germany, Italy, Japan, Netherlands, Horway, Portugal, Sweden, united Xinqdom, United StateBr SWitrc'lan:1. '1'bls,. the major W.stern donors are included.

"

59CF Charl •• WOlf, '0;.1;; AldI ~tY and praetia. in ==:::;-,iA:':frica aes .. rob Group, +Q1rf'rpationel iD- • 1'70 1

'7 RObert'S. Wa1ters, Im'rig,p & Soviet Aide ,A %!R!:i:ative' Analy.ie.

1

1

-52-, objectives have evolvèd to meet the changing political

climates at home and abroad an~ the changing needs of

American business. '

,Prior to World \War II, there had been sporadic

American assistance to friendly governments in strategie

positions in Asia and Latin ?Ameri'ca, but it was the

Marshall Plan which marked the real beginning of exten-

sive American aid programs. The American reconstruction

of Western Europe led to the thorough penetration of

European' markets and a substantial American influence

in European political affaira. Conceived at the onset

of the Cold War, the stabilization of Europe against the

Soviet Influence advancing through Eastern Europe was a

central consideration of ~e Plan. Marshall Plan funds

were also used ta survey Africa for criticsl mineraI .

resources, and following the outbreak of the Korean War,

this aid was extended ta a few Asian countries.

The pressu~es caused by the attempt to implement the

pOlicy of containment and' the need for more raw mineraIs

to proseeute the ~r.an W&r l~ to th~ establishment of

the MineraIs Poliey COmmission (paley Commission) under

the TrUman administ~ation to evaluate long-range resource '1

, "

• n

- ) / .; .... H ...... t .. ~~'P4.tl_i_.M,.T.;...,.~fi".,'~ .. ".~ .....

-53-

requirements of American industry and make policy réco~ndf 1

ations to assure the future supply of law-cost raw materi~s.

ThedCommission's report, Resources for Freedom, a ,

program of "new encouragements" to gain access to reso , .

in the less developed countries. The National Resourc /

Security Board (NRSB), which was charged with developi g

such a proqram, recommended economic aid ....

gain access to new resource areas (penetration/decol

and as a way of providing the infrastructure needed - 1

corporate ekploitation profitable. Th~s, tied loans and

J oject tied technical assi'stance became/valuable

ilitatinq American penetration and reso rce

/

as well as early instruments of Cold r diplomacy.

In

under

dir

-. l, the United States' aid proqram was r rganized

Agency for International Development (~I ) which ,

ltshed as part of the Foreign Assistance A t. The

gave over-all responsibility' for supervisi n and

of aIl assistance proqràms to the Secreta y of

Be in turn delegated this r~spon8ibility to\the

...... 4"/ .. " ... of the Aqency for International Development (J\tD). . ,

, AtD talce. direct' ,teaponaibility for all funds ma4e 1

1

•

--54-

f

available under the annual amendments to the Foreign

Assistance Act* and coordinates and coopera tes in the

administration of other aspects of the U.S. bilateral .. aid program, i.~., ~he Peace corps, th~ Food for Freedom

program (PL 480), the Export-Import Bank, and the Alliance fi • ft

for progress. :The Development Loan Fund, which had been

,established in 1957 by the Mutual Security Act and was

intènded to make loans to assist in initiating ~conomic

improvements as a prelude to private investment, was

absorbed by AID and functiohs as its disburser of loans.

The coordination of aid under AID represented for-

malization Of the Kennedy administration's attempt to

extend and refurbish the American, foreign aid program

through shifting of policy from ~e defensive emphasis

on containment of communiaM to a more activist and inte-

grated approach to development of favorable investment

c1iBates. The intellectua1 handboOk and rationalization

of the new approach was provided by one' of the IlKennedy

intellectuals," W.W. Rostow, in"his "nan-communist

manifesto,,,," Th, Stai •• of BCQIlomic Growth (1961) ~ The

basic ingredient. of the d,v'lopment proeeas were

* Both mi1itary and economic deve10pment aid are inëluped under thi. appropriation. However, administration of mi1i~ary aid:" ha •. r .. ined e.s.ntially under th. Defens. Department in cooperation with AID'Which coordinate. the other aspects of the u.s. aid proqram with thi. aid •

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identified a modernization and investmen~. Greâter flows \, .

o.f capital and\technoloqy (Le., direct investment and aid)

to the 1ess developed countries and their adoption of

Western institutions were reasserted as requirements for

development. 1

Thus, in the interests of modernization and penetration,

Western donors have tended to impose conditions on aid in-

t,nded to make its use most favorable to the private

.~ sector, includinq fOre,gn investors, in the developing

countries. In the United States this policy was formalized

in the 1963 Clay Report to Conqress. The Report asserted

that there had been too much ~ican aid to the public ,

sectors of aid recipients and not enough consideration

given to t~ "interests of L'lbe America,n7 economic system".60

,It recommended an increase in aid to pr~vate sector develop-

ment in order to make the greatest contributio~ to growth

ana development. The Report made it clear that u.s. aid

would not-be avail.ble for pUblic sector manufacturing

enterprises since the ~jor objective of aid shou1d be the

promotion of orivate enterprise. This policy has also.been 1

adopted by th. British and other BIC ..abers.

-. ,

Th. early 1960'. reor9aniz~tion of the U.S.-aid proqram

wa. accompanied bl' other important po1icy reformulation ••

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The American interest in modernization was a1so expressed

in the principle of "self he1p" which was estab1ished as

a criter~n for aid giving. In his a~ message to Congress

in ~rch, 1961, President Kennedy stressed that

1 the first requirement is that each recipient government se.rious1y undertakes to the best of its abi1ity on its own those efforts of , resource mobilization, self help and interna1 reform -- including land reform, tax reform, and improved education and social justice -­which its own deve\opment requires and which wou1d increase its capacity to absorb externa1 capital productive1y.61

However, it shou1d be noted that the application of this

~ princip1e of self he1p has been somewhat 1imited by another

aspect of American aid, that: is, the fact that the "support-

oing assistance" (ca11ed defense support prior te the 1961

reorganization), which accounts for about 25% of AID funds,62

and the substantia1 f10w of mi1itary aid are'disbursed on the

basis of very different criteria. Despite the attempt to

get away from strident and unsubt1e anti-communism, the

need to "keep the wor1d aafe fo.r democracy" and capita1ism

remaina. Thua, mi1itary and 8upparting assistance, main1y

to countriea on the' perip~ of the communist bloc, have

accounte4 for one third to one ~alf of ~he total ~ua1 aid

approprlatloft8.~3 Whl1. 1t 1. recognl •• d that thi. type of

61C1t• 4 in R.J.P. lirno1d, Ald for P!v.10J)11l!Pt. p. '45. 620BCD 1962-1968, p. 205. 63Leo Tana1ty, op cit, p. 20, R.J.P. Arnold, OR 91ty p~ 75-6.

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aid has at best very limited capacity to contribute to i

development and is more likely to lead to inflation and"

distortions of resource allocation that May actually

retard growth, it is felt that problems of development

must still be subordinated to the task of containment .

.As Leo Tansky pu ts i t,

in situations where open Communist aggression is involved, as in Vietnam, there is no choice but to relegate dev~lopment to a secondary position. 64

Thua, we see that anti-communism remains an important part , ,

of American foreiqn policy, and of foreiqn aid policy in

particular.

Nevertheless, the adoption of the self help principle

has been reflected in changes in the ~rican aid proqram.

The ,mphasis on self help has been associated with official

recognition and acceptance of the need for planned develop-, ./

J"

ment as opposed to the unplanned historical model of Western

deveiopment.* At the seme time that the principle of self

help wa. initially ~dopt.d, AID came out openly and empha­

tically in" ~avor of lOneJ tera devélopment planning, though

f /

649 __ ----ky,/ ~ it 177 .www .&.a.üII !!!.!! C , P • •

* luropean colonial powers had already adopted planning for th.Ir coloni •• in the 1940's and 50' •• S.e WOlfganq Friedman, et al, IPternational Finapci.~ Md, p. 401.

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it was careful to distinguish between national economic

planning and socialism with which the concept of planning is

closely associated, but which would ~ean public ownérship of

the means of production, in direct contradiction to the

capitalist ideology expressed by AID.65

Since few developing coun~ries have the expertise to

formulate extensive development plans on their own, most

dèpend heavily on foreign experts, most of whom are provided •

as part of the te~hnical assistance .programs of Western and

socialist donors.* AID has de~ploped.a system of country

planning based on its own ,nalysis of conditions in the

recipient country -- resources, objectives, economic indicators,

~olitical capabilities, etc. Barly discussions of projected

aid are generally conducted.privately within the U.S.

government agencies concerned. prior consultations with

recipients are limlted in order to avoid a premature sense

of conmitment given the fact that changes can and do occur

at many 1.ve1~ (field missidh, Bmbassy, AID headquarters

in Washington, Congress) and that there may ~ changes in j

conditions in the United States or the recipierlt country

and/or relations between the U.S. and the recipient. In

addition, ear1y.conBultatio~ may he further 1tmited when ~

65~, p. 51 •

* Thua, It ia p.rhapa an oyer.ta~nt to conB.ider p1amd.ng, •• lt baa aatually been ouriee! out, •• an .apeet of .... lf help." ~ .'

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there is a conf1ict in goals and/or means desired by the

United States and by the recipient. 66 Formally, the host

government must make a request for aid in a particular

form and quantity, but these requests are usua11y worked

out jointly by the AID mission staff and the host government,

and it is, of course, the AID mission which is respopsib1e J / , ..

for the analysis ànd strategy recommendations that lat9~y /'

/

de termine the amount and composition or âid the United

states ia willing to extend •. Thé -mission recommendations

will be dèsigned to fit in 'with ~nd support the national

development plan, l'f one exists, only if AID considers the

~lan to be sound.

AID's attemPt to develop a more integrated' and compre-

hen.ive approach to aid and deve10pment through planning is

also ref1ected in the inc~eaaed emphasis on program aid

which a110ws the donor a greater scope of participation and

inftuence in the formulation of broad domestic policies of

the recipient than does project aide From 1961 to 1963, about

65% of AID ' •• siatance w&a in ~e form of proq~am financinq,

and the perceJ1tage ha. r_ined near this level aince then. 67

In 1965, the Recçamendation on Pinancial Terma and Conditions

adopted by the, Deve10pmant ~.i.tanc. CQMmittee (DAC) of the

"

6'oacn, 1956-1963, 121.

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OECD called for greater empha~is on program aid in order .

that donors might better "see the needs of the country

as a whole.: In 1967, 47' of the bilateral commitments of

the DAC members were in the form of program aid. 68

program aid i8 not tied to specifie projects, but

rather attempts to deal with the more general needs of thé

economy as a whole, or of a given sector or industry. Pro­

gram aid is extended mainly for current budget or general

budget support, for emergency balance of payment assistanc'e,

for general balance of payments supplementation in supp6rt

of development programs, and for importation of certain

categories of capital goods. This approach is closely

related te the use and popularity of quantitative growth

models like those of Chenery and Strout and McKinnon which

emphasize savinqs and foreign exchange constraints on growth

and dèvelopment. 69 Using such models, the level of aid

required is determined mainly by gap calculations rather

than by absorptive capacity, that is, the ability to

formulate specifie viable projects.

It is believed that program aid can be more effective

in removing these bottlenecks ând fostering more bàlanced

investment. In eontrast, project aid is usually ltmited

680AC , 1968, p.S7.

6980l1is Chanery , Allen Strout, "Foreiqn Assistance and 8co- . neaia "Deve1o~ent," and R.I. McJCinnnon, "Foreign Exchange Con­straint. ln Bconomic Development and Bfficient Ald Allocation ft

in .ariaan Bconcalc Revi.." Septeaber 1966 and Economie Journal June 1914 re.pec{lv.ly.

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ta the direct import eomponents of specifie projects and

may lead to an overemphasis on large import intensive

projects while the major bottleneck may be a shortage of

exchange for the.gerieral ~mports associated with a wide'

range of investment activities.

program aid is fl~xible in that it is able ta flow

toward bottlen~ck areas. It is also flexible in the sense

that it is disbursed in quarterly tranches and is not tied

ta specifie projects sa that it is more credible that it

coul? be stopped suddenly in response ta undesirable actions t"'i>

or failures to act (particularly ~n areas of "self help")

on the part of the recipient. This flexibility,

comprehensive nature, qive program aid .greater

plus its (\

influence ~ j and' leverage potentiàl. It is felt that recipient 40vernments

are more willing tGfcomply with self help requirements and

demands for concessions for American investors and exporters

as a condition for this type of aid than they would be if

70 only individual projects were at stake. program aid gives

the donor a more pervasive presence.

It is believed tbat the qovernments of developinq COUD-

tries use up toc muc~ of those countries' scaree 'oreign

exchanqe, &0 proqram loans are often uaed to ltberalize imports

7~Tereea Bay ter, Aid ae lmperi'lie., p. 96 •

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used by thé private sector. AID not only ties such loans to

procurement in the United States, but also limits their use

to a particular shopping list of capital gooda, spare parts

aRa raw materials. This ia àn importartt example of how ,

conditions imposed on American aid render its use most

t

favorable to the development of the priv~te sector of

recipients.

The Foreign Assistance Act specifically emphasizes the /

role of American private enterprise in the development

" process. Thus, AID has provided a growing number of •

supports to American private investment in the developing

countries which ar~ intended to facilitate their penetration

of local economies as weIl as to stabilize the investment

climate.

The tying of aid is one of~the most obvious means through

which aid programs facilitate penetration/decolonizatipn'.

The tyinq of aid has provided significant benefits to

American exporters. Charles Baker, an administrative vice

president of united States Steel c~r~ration remarked tpat

it i. larqely due to the operation of our foreign aid program that the steel induatry manaqed t~ •• cape th. full .f~.ct. of the force. at work in t.'III!a, world market place. w ••• timate that AID pro-

. cur-.nt in the œaited States of steel mill products curr.ntly accounts for soma 30 1>ercent of the value of our eteel exporte, and for an ev.n higber percent of the tonnaqe ahipped -- perbapa •• INch .e 40

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percent. 71

The estimates of AID statisticians Charles Hyson and Alan

Strout support this corporate view of the value of American

foreign aid to private interests~ They note that

although AID i8 not involved in direct subsidiza­tion of exports, U.S. procurement policies do in effect provide direct subsidies to U.S. exporters. This is because sorne of our tied exports would simply not occur if it were not for foreign assist­ance financing. This is most easily seen in the case of a number of U.S. commodities that are priced above world levels but which are nevertheless exported because AID funds are restricted for purposes of their purchase. The cost of sorne commodities we finan9~ may run considerably above world market priees.

Since all the major donors tie their aid to procurement ,\

from their own nationals to sorne extent, the effect is corn-

pounded. In Foreign Aid & Foreign Policy, Edward Mason

attempted to estimate what the equivalent valuefof capital

flows to the developing countries would be without these sub-

s7 to bu~j.ness and agriculture in the donor countries,

that is, under a more competitive world priee structure.

While admitting that it would be impossible to give a

definitive quantitative formula to take into account aIl

the forms, of sub~dy, he aays,

l might hazard the gueas that if i~ could be done, it would bo!l the nearly $9 billton in total flow of funds fram the developed to the underdeveloped world ta a figure in the range'of $2 or $3 billion:)

71Cited in Charles D. Byson , Alan Strout, "Impact of Fore'ign AiE'! dh U.S. Exports," p. 63. 72Ïb4.d, p. 69. 73 Edward Mason, FOreign Aid & Foreign Policy, p. 14

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At any rate, it seems correct to infer that the real value

of aid flows to developing countries is substantially reduced

by the practice of tying aide

In addition to the immediate effects of tying aid, there

are the secondary or second round effects of replacement and

expansion needs geared to donor country equipmen~ and the

establishment of tastes a~d desires for the donor country's

goods. OUtstanding examples of this are the'expansion of

American trade in Pakistan, India and Africa after the

extension of aid to these areas. 74

Western donors also provide important supports to'direct

investment. Investment guarantee programs are one of the

major meane of facilitating foreign investment. AID

adminieters a comprehensive guarantee system eomposed of

the Specifie Risk Guarantee program, the'Extended Risk

Guarantee Program, and the Housing Investment Guarantee

Program. The Specifie Risf Guarantee program provides insur-

ance against political-riaks BUch as losses due to incon-

vertibility, expropriation, wars or insurrectioR. By 1968, j

Specifie Riak Guarantee agreements had been signed with 88·

developipq countries and there was $6.5 billion in eoverage

outstanding. The Bxtended Riak GuaraQtee program bavera up

to 75% of both politieal and normal business 108ses and

74aa~ry Magdoff; op clt, p. 134.

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accounted for $89.5 million in outstanding coverage by 1968.

The Housing Investment Guarantee Program insures against

lasses on loans ta home mortgage institutions and housing

projects, mostly in Latin ~erica, and accounted for $300

million in coverage. 75

Other Western aid donors with extensive investment

guarantee programs are Germany, Sweden, Norway, Japan, Denmark,

and Australia. However, only Germany and the United States

1imit guarant~ te investment in countries which have signed

investment protection treaties. In the United States, the

Foreign Assistance Act of 1963 declared that

no assistance shall be provided under this Act after December 31, 1965 to the government of any less developed country which has failed to enter into an agreement with the President to institute the investment guarantee program •.• providing against the specifie risks of inconvertibility .•• and expropriation or confiscation •.. 76

Germany, Switzérland, and the United States, through \ \

AID, have also entered into investment protection agreements

against discriminatory (campared to local business as weIl

as other foreigners) legal and administrative action. These

agreements; in conjunction with investment guarantees and

guarantee treBtiea, are attempts to stabilize the investment

'- . climates in recipient countries in favor of foreign investment

(apecifically donor country ~nvestors) as well as to fost~

" eBsier penetration of thèse .cono~ie ••

750ICD, 1962~1968. ·l

76C1ted in Bar~y .aqdQff, op çit, pp. 127-28.

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AID a1so provides promotion and information services r, '" ,

to Arnerican investors as do qovernmenta1 aid agencies of

other Western donors for their own investors. Under its

Investment Survey program, AID pays ha1f of the cost of , preinvestment surveys which is refunded by thé potentia1

investor on1y if he decides to carry out the project. In

such cases, AID assistance has been in the form of a 10an.

If the investor decides not to go ahead with the project he

has only lost half of the cost of the survey. and AID hast

in a sense, guaranteed ha1f of the survey costs. AID a1so

carries out surveys in conjunction with private business.

AID a1so runs a Businessmen's Information Center through

which potentia1 investors can find out where and how the y ,P j

can participate in the Agency's various private enterprise

programs, and until 1~67, it also published and qistributed

free A Catalogue of Investment Information and Opportunities.

U. S. Aid funds a,180 go to Alnerican business in the form

of dollar loans and local currency loans ("Cooley 10ans")

out of funds generated by Title l transactiorls under PL 480.

Such loans go direct1y to American enterpris~sjfor business

. developlDent and trade expansion. ,...'

Other Western donors have

also coneiderad lQ&ns to private firma ~ve.ting in the

developing eountriea a8 part of aide Au.tria has provided 61

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-67-

such loans as "starting aid projects;" France has provided

"second rank loans" for industri,~l enterprises., and.

equipment grants for investment in overseas departments

and territories~ and Germany has used European Recovèry

Plan (ERP) counterpart funds for toans to German enterprises.

There ha's a1so been significant aid to local development

batiks designed specifically to strengthen local private

sectors thereby improving the overall investment climate

and making it more attraètive to foreign investors as well

as local investoré.

Development finance corporations are also playing an

increasing role ln tailoring Western aid programs to the

ne~s and interests of donor country investors. Using

public funds which form part of aid total', these corporations

provide equity financing, loan capital, and investment guaran-

tees, as weIl as advi80ry and promotion services. They seek

bU8iness opportUhities in the developing countries and

initiate projects to serve as catalysts encoura!ing larger

private investment. They a1so encourage joint ventures

between donor country inveJtors and local interests. In

general, the development corporations repleniah their funds

by either sel1ing off aucceaaful parts of their portfolios

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to local in~estors and thus promoting the development of the

local capital market, or by selling to foreign investors,

and thus promoting capital inflows.

The United States is a new comer to this field.* The "

OVerseas Private Investment Corporation (OprC) which

officially began operations in 1971 was establishéd by the

1969 Foreign Assistance Act. This Act and the establishment

of OPIC initiated another important phase of.restructuring

of the American foreign aid program. The relationship

between public capital flows and the interests of the

major U.S. based multinational corporations was made more

explicita This new quasi-governmenta1 corporation is

publicly funded, but directed and administered b~ an Il

member joint public-private board of directors appointed

by the President. The board is dominated by corporate

interests. OPIe has taken oyer the responsibi~ties of the

-private Enterprise Office of AID in facilitatinq investment

'. ~ American corporations in developing countries. it DOW

carries out feasibility studies'and insures investment •

* The British Commonwealth Deve10pment Corporation (CDC) was ..

established in 1948. B.Y the ear1y 1960's, Ge~y, Prance, Japan; The World Bank, and the De had' functibninq develop­ment fin~ce corporations. Denmark (1~9) and the Rether1ands (1971) estàb1ished dev.l~nt corporat:i4hs- at about the same time as the .stab1i8~nt of OPIC in th.~united States •

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OPIC was initially allowed $7.5 billion in new insurance

authorization and a $100 million revolving fund for

~irect investment. Its lobbyists are pressing for a

greater investment fund and eventually the power to issue

government underwritten securities. 77

Thus, we see the growing trend toward more conepicuous

participation of private enterprise in the formulation of

American aid policies and programs. In OPle, corporate

officers directly control a share of the flow of public

funds to less developed countries. This trend is personi-

fied in the nomination of Daniel Safford Parker to become

the new director of AID. Parker is a former chairman of

the National Association of Manufacturers and vice. president

of the Council of Better Business Bureaus, as weIl as chairman

of the Parker Pen Company which makes two thirds of its sales

outside the United States. The nominations of this "artic-

ulate spokesman for business" to head AID is seen as "a

natural fùsing.of his interests in business and in inter­

national affairs.,,78 parker had previously been appointed

~ one of the private directors of OPIe by ~esident Nixon.

77 ~ Africa Rea.arch Group, op cit, p. 6 •

.78 Tl)! J!1eW Yprk TiMa, September 8, 1973 , p. 27.

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As director of AlD, he will become chairman of the investment

corporation as weIl.

The other leading,Mestern donors are France, Britain, , ~

and Germany. The basic capitalist philosophy and objectives

~ underlying the various programs are essentially similar to

. those of the united States' aid program although they have

been modified by different historical, political, and economic

circumstances and capabi1ities.

I~ 1960, West Germany initiated a deve10pment aid proqram.

, Since then it has granted about $7 billion in aid. 79 The

program was conceived as part of the symbolic resumption of

international responeibi1ities by Germany. It was a1so an integral part of ,its participation in the Cold War, that is,

its desire for sympathy vith regard to the Berlin situation

a~d the reunification of Germany (Ha1lstein Doctrine).80

The explicit purpoBe of West German aid has been

the promotion of indigenous private enterprise in the

recipien~ countries. Aid is intended to foster capitalistic

deve1opment. It va. not offiaially intended te;> ~en up t

markets for German exporta and th.refora it WBS not

79 ' DAC, 1'972, p. 215 •

80 ~~ I.M.D. Little &1 J .M. Clifford, ,1\1étrnatJ,OftIl Mg, p. 42.

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-71-

initially tied. But the lack of an official administrative

framework for implementation of this policy led to a \

situation in which it i8 ~rman businessmen;who actually

stimulate most requests for aid which is then éffeetively

tied because of the central role of the particular business-., • men in the variouB projects.

German aid has been primarily in the form of project

aide Even sinee the 1965 DAC recommendation of qreater -w

emphasis on program aid, the Germans have maintained a

preference for project aid. apparentIy preferring the type

of control and evaluation associated with project aid to

the qreater influence and involvement associated with program

aid. Grants have been qiven only for technical assistance.

Loans at 3 or 3~ rates of interest are qiven for infra-. '

structure pr\~jects and loans at cOlllllercial rat" for

revenue-earning projects.

•

With their roots in colonialism, flow8 of OffiCial'

capital from Britain and France to the 1e88 developed

countries have a longer hi. tory than official flows from 1-

eith_r the United states or West Germa~y. Bri t~Bh colonies

wz,e reqarded as Bource. of weal,th, but 1ai •• ez faire

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policies limited the scope of government involvement in

their exploitation. "Development'II of British colonies in

the 18th and 19th centuries was limited to private invest-

,ment in extractive enterpr ises and building of the nécessary

~, infrastructure to sUpport that investment.

In the early 20th century there was increased interest

in colonial economies, especially their natural resource

potentials. After World War l there were attempts to expand

the markets for colonial (i.e., B~itish expatriate) products

and loans were made 'for the extension of infrastructure ~

systems. Part of th~ basis for this upsurge in interest in

',colonial economies was made clear in a 1929 Act of Parlia­

ment which sought to~~timu1ate the economies ~f the British

colonies in order to promote emp10yment in Britain through

increased demand for British exports. Sl Therefore, aIl aid

fundis were to be spent on British 90ods,' an ear1y case of

tied aide In 1940, the Colonial Development and Welfare

A~t. (C.D.~~ w.) provided .5 million annually and in 1945

this appropriation W8a raised ta .120 million for a ten year

periode , In 1948, the Colonial Devel,oPment corporation , ~.

(which became the Commonwealth ~elopment corporatidn in /

/ 1963) vas .et up to borrow .fr,em 'the Bri ti.h '!'reasury to

/

~e inve.tm8nta )in indu~~y, .gricu1tur.,~and other profit /

making are.a'in or4.r<~O .. re fully exploit the available

,81Ibi4, p. 31.

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, resources and to provide sorne additional employment in

the colonies.

PUblic capital flows to the British colonies were 1

primarily (85%) in the form of grants in aid for administra-

tion and special purposes like flood control, for C.D. & W.

grants and for cne investment. There was an emphasis on

aid for capital expenditure more than for recurrent costs. -'-This w~s part of the British colonial philosophy that colonies

shou~d be prepared. for an eventual independen?e.

At independence, grants in aid were largely replaced

by Export Credit GuaranteeB -- funds lent at commercial

rates and tied to procurement of British goods. This post

independence policy of hard terms and tying of aid has been

gradually eroded, however, by the recognition, on an- ad hoc

basis, of "exceptiona! conditiol1s," for example, the need

to lower interest rates so that debt service payments would

not out.trip gr08~ aid receipts in Pakistan and India, and

the fact Chat export credits tied to British goods May not

be réadily usable by seme countrie~, as was the case in

• Sierra Leone and Uganda.

Technica1 a8sista~ce has a1so been an importan~ part

of British aid to its former co~oni... Th~s has mainly

taken the form of "topPiÎ19 up" salaries, pJlylng coapensation

for civil .ervants and teachers.

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French aid has aiso evolved from a colonial relationship,

but one based on a somewhat different philosophy. Economic,

political, and social incorporation of the colonies into

metropolitan France has been its aime Consequently, French

aid has beeo(concentrated in the areas of budget support

and price supports fo~ exports to France. Grants composed

70% of the Frénch aid to its colonies.

There has been little change in the philosophy or terms

of aid aince the independence of France's colonies. Most

of the over $10 billion in French aid since 1960 qas been

in the forro of grante. The franc area has maintained close

trading ties, and trade and monetary agreements effectively

tie aIl aid thus providinq an actual subsidy to French (and

now EEC) firms. The opening up of markets has been explicitly

recognized as a benefit to be derived from the aid pr09ram.

Thue, the Jeanneney Report assessing the French aid program

etated that

fraDce may expect economic advantages from supplying in the form of aid high quality machinery and installations: technical contacts are thus acquired in countries which May later become solvent and where, without the help of aid, French industries might not have 'Penetrated ••• 82

French aid has also ~en explicitly recognized as an

important source of foreign policy influence and of poiiticai

advantage to France. !hus, the Report also notes that

82Cited in B.J.P. Arnold, op pit, p. 106.

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France may der ive diplomatie advantages from good relations with developing countries who are increasingly eoncerned with what is said and done on their behalf and whose support may be valuable either in regional arrangements or in world debates.. . • '

Although strategie needs are being changed by science, France may still gain defense advantages from the goodwill of the countries of the Third World:.not, as in the past, in the supply of manpower, but in inter-continental facilities for telecomuronications and transport.8~

Thus, there is a great deal of similarity in the general

objectives of the aid programs of the major Western donors.

Penetration, modernization and stabilization goals can be

clearly discerned in ~aeh. The intimate relationship

between the nature and direction of official capital flows

and the interests of private enterprise ie a central feature

Of the attempt to foster capitalism both at home and abroad.

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IV. THE ROLE OF INTljiRNATIONAL CAPITAL FLOWS: SOCIALIST AID ,

PROGRAMS ,

1he socialist bloc's* economic aid to non-communist

developing countries has been substantially less ,than that

of the major Western, donors. As compared to almo~t $60

billion from the united States alone between 1954, and

1971,84 socialist aid commitments were only about $13

billion. 85 In addition, actual disbursements of socialist

aid have lagged far behind commitments. Only about one third

of the total commitments made between 1954 and 1965 were

actual~y disbursed during that period. S6 Through 1969,

only about 47% of Soviet aid commitments had been disb~rsed.87

This slow rate of imple~ntation ie at least partially due

to the emphasis on industrial and infrastructure projects

which not only take longer to complete than most other types

of projects, but also run afoul of shortages in local

tec~ical and management

There has also been

*

* skills, and of local currency.

a \:omparable amount of intra-bloc

The terme "socialist bloc" and "socialist countries" will be used to refer to aIl socialist donora, includinq China. "Soviet bloc" will rafer on1y to the Soviet union and its Bastern Buropean allies. 84 OBCD, 1962-19681 DAC, 19721 and Lao Tanaky, op cit, p. 18 85 united Hations Stêti'tfcal YearbQok (1972), p. 744.

'860BèD, 1961-1965, p. 57. 87 Robert S. Waltera, 2P cit, p. 227 • *Llk. Western project aid, aocialist credita typically finance ~ly ,~e fore!gn exahanqe coae. of aid financed·projects. The ~.cip1bt ia expected to finance aIl local coata.

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economic aide Kurt Muller, in The Foreign Aid programs of

t,he Soviet Bloc and Communist China: An Analysis, estimates

an intra-bloc flow of about $13 billion between 1946 and

1965. 88 Between, 1946 and 1968, the OECD estimates a flow

0f $9 to $10 billion in socialist aid to developing countries

wi thin the blOc,' $6.8 to $7.3 billion from the Soviet Union

alone. Cuba received about, $3.2 ,billion; Mongolia, North

Korea and North vietnam received between $4.3 and $4.65 , among them; and China received~etween $1.5 and $2.0 billion. 89

\

Despi~e the relatively small socialist contribution of

aid to non-Communist developing countries, they have reaped

substantial recognition for their efforts. Socialist bloc

aid has been concentrated in a relatively small number of

countries, and in a few'cases, especially in Africa, has • 1

exceeded American aid. 90 It has als9 b,en extenged at highly

politically' opportune times, for exampi'e;, to Guinea after

its departure fr~ the French commun~ty in 1958, to India

for an i~rtant steel projeèt the United States refused.to

finance, Jnd similarly 'to Igypt fo~ the Aswan Dam. This has ,1 ' !: '

greatly added to its impact. Also, the" Bocialist coùntries.

J88Kurt MUllèr, Tb- F.oreign Aid programa of the Soviet Bloc and Cgmmuni.t China; An Analysi., p. '216. 890BCDï 1962-1968, p.'296. 90Congo (Bra •• avil1e), 9Uinea, Mali, Somalia, Tansania, Uganda .rn Africa. Mar.ha11 l. Gçldman, Sgvift Foreign .ud, p. 1$. (Hereafter oited .s·Gola.&n l.)

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portray themse1ves, and to sorne extent are seen as, the

champions of the 1ess developed countries, extending

aid which will he1p them obtain economic independence.

Being, theoretica11y, nations of workers where c1ass

antagonisms have been mitigated, they c1aim that their

system' is not exp10itative of domestic or foreign work-

ers. Therefore, the inherent conf1ict between the inter-

ests of the deve10ping countries and those of Western

donors and private investors are not part of the re1ation-

ship between the socia1ist countries and the developing

countries. Rather, a mutua11y beneficial re1ationship

is supposed to exista

Other 4spects of Marxist po1itica1 and economic

theory are evident in the aid practices of the socia1ist

donors •. However, it is a1so evident that theoretica1

principles are often modified in practical application,

and that the motivations of theoretically very different

and oPijpsed states may oqtain a general similarity under , .

the preasures of concern for national interests in the

context of international ide91ogical, political, and eco­

namic competition. Thua,·the goala of penetration, mod­

ernization, and atabllization are identifiable in aocial­

iai as well .a Western aid progr .. a. L" '

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The Soviet aid program, like that of the United States,

was !ditiated in the post World War II Cold War context.

Aiso like that of the united States, it was at first

esseptially a reconstruction program directed toward

members of its own bloc. It was at least partially motivated

by the need to compensate Eastern Europe for having been

pressured to reject Marshall Plan aid. However, reconstruction

of the war ravaged Soviet economy actually took first priority.

Therefore, at the same time that sorne minor aid efforts were

initiated, substantial'reparations were demanded from the

former rnembers of the Axis Pact: East Germany, Rumani HUngary

and Bulgaria. Much of Eastern EUrope's industry was seized

through joint stock campanies. Factories were dismantled and f

1itera11y carried away to the Soviet Union. Occupation coste

had to be paid. Exploitative ~ade priees were imposed.

Through sueh practices, $15 to $20 billion was extraoted

from Eastern Europe by the Soviet Union in the decade

immediate1y following wor1d War II. 91

Bowever, more meaningfu1 program of aid to the satellites

soon became -Ulperative. As Marshall Goldman remarkeds

91 Robert S.' Walter., op cit, p. 90 •

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the unanticipated threat of anarchy and revolution in the Communist block ~n the ~ly 1950's not only forced the Soviet Union to cancel reparations, but also induced the Russians to offer large scale credits. Actual1y, the Russians had been periodi­cally he1ping their satellites for sorne time, but on balance the Russians were recipients rather than suppliers. Now because of politica1 .nd economie developments, they beeàme net donors. 92

The new Chinese communist regime also began ta receive

substantial Soviet aid in the ear1y 1950'8. Before they

began net repayment in 1956, they had received over $1

billion in aid from the Soviet Union. 93

'Stalin's attitude toward the less deve10ped countries was

\

basi9ally one of hoeti1ity since they were part of the non-

Commnnist wor1d. Like the advanced Western countries, they

were potential targets for Communist seizure of power. Local

f Parties were encouraged to t:ry to wrest power from "reaetionary 1 Il

"pro-Western, Il and .. incompetent" 'natio •• l bOUrgeOisieB./~t

any rate, the Soviet Union under Stalin'was not capable of , . extending signifieant aid to the-1ees developed countries

until the ravages of war had been r~paired.

""'" By the midd1e 1~50's, after the death of Sta1in, the thrust

of Soviet foreign policy shifted fram the "two eanp''' approaeh

towarda "peac.ful coexistence" and a greater eoncern for wooing 1

92Goldman I, p. 23.

e3Marahall I. Goldman, "A Balance .... t of So.vi..t l'oreign Aid, Il Foreign Affaira, January 1965, p. 358 •

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non-Conununist developing countries in a "peaceful competition

between eoci~lism and capitalism" which emphasi~ed trade

between the socialist countries and the less developed

countries. Thus, today we find a .soviet bloc economist

remarking that

•

it is a generally accepted view that in our age the developing countries represent a most decisive scene of peacefUl co-existence and international co-opera­tion as w~il as of peaceful comp~tition and ideological struqgle. (Eaphasis in the original)

This shift in attitude towards the déve1oping~countries

" was politica1ly motivated .y a new assessment of the likelihood

-of local Communist Parties assuming power there, and by the

des ire to exploit growing neutra1ist and anti-colonialist

sentiments whic~ were interpreted as being essentially anti­

Western. 95'

Bconomic motivation for the new orientation toward the

developinq eountries stemmed fram the nature of economie

d.~lopments wit~n thè Soviet bloc itself. The USSR Handbpok

~ (or For~~ Trlde noted that

• the po.twar qrowth of the USSR as a major economic power, and the rise in production in all bran~. of i,ndu.try and agricùlture enabled the tJSSR to.

, ext.nd ec:ODOIIlic aid. to t'oreiqn atate. a1so in' the

94JOC •• f 8OgDU', Dt per.pec.ti~.a of OUt Relations W1th the . ptv'l-sœYa CèNDtri." p. 3

95 R.J.P. Atnold, op cit, p. 144.

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form of loans. In this regard, the USSR changed from a debtor nation, which it was until the end of worl§6war II, into a significant creditor nation. (Emphasis' in the original)

Behind this observation lies the fact that, by the 1ate

" ,

1950's, Eastern European and Soviet heavy industry and the

production of simple c6nsumer goods that would not be readily "

saleable to the West had so expanded that ~omestic markets

were saturated. 97 And, in 1960, the Sino-Soviet rift led ta a

drastic reduction in trade relations with China which had been

a major market fo~ these goods. These factors led to pressure

to open up new markets. Coupled with the need for raw materials, ~

they led to increased econ~mic interest in the' developinq

countries. Kurt Muller describes the Soviet bloc's economic

situation thus:

••• trade during Rusaia's first industrial revolution served primarily as a means of acquiring badly needed producer goods for the buildup of the home industry.

~Only with the advent of the second industrialization phase,' with the appearance of a 'socialist world markét' and'W1th the force-fed industrialization of European bloc members, at the expense of the agri­cultural structure in seme countries, did certain raw materials of the backward nations become of in­tereet to the~Soviet bloc. Now, the latter a1so e.merqed as an exporter of producer gOOds. 98

96 Cited in Kurt MUller, op cit, p. 195. ,

97Go1dman l, p. 185.

98 Kurt Jl11ler, .OP cft" p_ 193.

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Thus, it was at this time that bar ter agreements and credit

arrangements with non-Communist developing countries began

with a view toward opening up these areas to socialist trade.

This is directIy parailei to the penetration objective

identified in Western aid programs although thé interests of

public rather than private lenberprises are invoived.

Most Soviet bloc aid has been in the form of credits

~iCh are used to purchase equipment,

from thedonor. Although it has been

materials, and service~

olaimed that the

continued reliance qn credit and bar ter arrangements, and

the consequent tying of aid, is a résult of the bIoc's

shortage ~f hard currency due to the' smaii volume of its

trade with Western countries,99 severai ~ocia1ist economists

hâve a1so recentIy identified these loans as "pump primers"

for foreign t~ade, a.modern f~rm of export subsidization.

The Soviet economist , A. Kodachenko, remarked that

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.. ' the credita granted by the Soviet Union under the terma of it. tradé and aldo-agreements with the underdeveloped nationa serVe as a potent stimulus for Soviet exporta to these states ~- --410!; on1y do thea. erec1ita ••• cre~te conditions fa'W'Orable .1or cont:inU0\l8 exchange of raw aa.teriala aqainst \

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rnanufactured goods supplied by countries operating under a centrally planned econorny, but they rnay ~ave an important effect on fïa~re exports of ,these underdeveloped nations .

. fhis view of the beneficial effects of Soviet aid on Soviet

trade with the less developed countries has been substantiated

in a recent study by Jarnes R. Carter, The Net cost of Soviet

Fore;i.gn A,id. Sirnilarly, a senior Polish trade official refers

to t~e "sweetener of credit" that must be offered to Western -

oriented developing countris in order to divert tneir trade fram

Western rnonopolization. lOl

'Foreign trade is officially por~rayed as being "foremost

in'econOlllic collaboration," and actually "a f!orm of aid," fur-

rtishing an increasing flow of currency to the less developed

countries. Indeed, fram 1955 to 1960, several Soviet bloc ~

countries, inc1ui~ng China, followed a policy of importinq

more frorn various developinq countries than they exported to

them. This was purportedly to assist them with foreign exchange.

Ho~evèr, a~long-term unfavorable trade balance has been accept­

ed wi~h only a very few countries which supply crucial raw ma­

terials or consumer goods, for example, Malaysian rubber1

With reqard to·the Soviet union, for instance, in 1950 when ~

the n~ed for variou. raw materials wa. their main interest ~ \ .Ir,

in the.DOn-èammuni.t d~elOpinq countri •• , eXports to .the ('" ',' ..

developiâg countri •• amoun~ed te ,nly $32 million!while imports

~r. ~~3 ml11io~" Dy 1955;,' the volume of trade had increased

te -.1'~ Ilillion in exporta and $160 -million in importe. After

lOOCiw,liII l1Ut. !Nlht'B,Oit. ~.1J9. " lOlC.ltt4 ia Goldlae l, p. ". .-

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1958, the balance of trade shifted in favor of the Soviets . •

By 1965, $1.2 billion worth of Soviet exports went to the less

developed countries while $815 ~llion worth of raw materials 102 ~

were imported from them. Thus, it seemg that the unfavor-

able balance of trade was essentially a device to gain a foot­

hold in these countries. As lurt HuIler notes,

generally, the balance of trade beqins to favor / the East bloc as saon as the relations to the· /, ,.. developinq country have been cemented and the />/ trade relatiQns auqmented through credit qra~tB /'/ and economic aid. Since 1961 the' Soviet-Ufi1on ~ has been able to reqister a trade surplus with .// ," those countries whom it has qranted credits~ who have bequn to make use of these qrants/

./

Indeed, throughout the 1960' s there was a plear ten,Çléncy .r,' ,

for the size of the annuàl trade SU~luses~' the Soviét bloc ,,/

countries to increase, and to increase ât a faster rate than

did aid commitments. ;,

Although there has been an increase in the soeialist ~ .

countries' importa of the traditional exports of the develop-

ing countries, and the Soviet, Czech, POlish, 'and Hun9a~ian

deleqates to the 19~4 United Nations Conference on Trade and

Development (UNC~AD) de~ared their intention ta double their

\ importe frOID the less developed countries by 1970, this was ... on the condition that thi. incré •• e in importa be accompanied

by an inorea •• in th. 4evelopinq countriea', purchaaeB from the

aocialiat oOUDtrie.. This furtber bel! •• the bloc'. cla1ms

tb«t their trad. wi~b the develo,..q~countri •• 1. intended ta

1

Beone l MX1;h , Raa11tyf p.l56. 102..,...ba11 i. Go14illan, Th. sOviet , ~~ . .! .

103 -:' " XU.t MUller, • c15, p.110.

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net these countries funds which they can use for their develop-

mént efforts.

However, in addition to the claim that "trade is aid,"

~ere is another ideological justification for the penetration

of the, markets of developing countrie$. It is the desire to

undermine economic and political r~lations be'tween the West

and thé develop,ing countries, and to weaken Western economies

by fostering a climate of independenc~'and socialist alternatives

conducive to nationalization of the investments of "finance capi-

tal" and thus hasten the "inevitable" crisis of "monopoly capi­

talism."I04

The close relationship seen by the soc1alist donors between

trade and aid is evident in their administ~ative organizations

fo'r aide Since 1957, the Foreign Economie Relations Committee

of the Soviet Council of ~inisters has been in charge of Soviet

foreign aide In addition to the central administration in Mos-

cow, there ~re counselor.s and experts attached to the embassies

in the recipient coun~ries. The Committee i8 responsible for'

planning aid agreements, but in pra~tiée Implementation is

often left to trade organizations. The Eastern Europe~n coun­

tries have similar orqanizations. The Association of the Chi-

1ieae People for Poreiqn Cultural Relations ie in charge of

Chinese cultural, technical and 8cientific cdbperation. Bbw­

ever, .... the eo.:1ttee for Promotion of International Trad'e and 1-

\ l04Leo Tanaky,' OP oit, p.20.

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various other trade organizations are responsible for commer-

cial and financial agreements. \.

.. In copt~àst to the American emphasis on program aid, the

main compoeent of Bocialist countries' aid is project credits.

Convertible currency loans have been made-by the Soviet Union,

but only to other bloc members, especially East Germany. "Non­

repayable loans" have been made chiefly to North Korea, North

Vietnam, and Hunqary. Only the Chinese have made grants an im-

portant part of their aid program to non-Communist developing

countries.

It is claimed that in their more sincere effor~ to provide

real aid, the socialist countriea' credit terms are more advan-

tageous to the developing countriea than are those of Western

loana. Socialiat loana usually have interest rates of 2.5 to

3.0' and may be repayable in local currency or in kind~ However,

in addition to the relatively small scale of theae programs, the

advantagea of these terms may be diminishee by several other fac-..

tors. ,

Firstly, while·Soviet interest rates have qenerally been -lover than those of IIIOat of the major W.'stern donors exç::ept the

qnited State. and the United Einqdom, other factors contributing r

to the overall ~tneas ot aid bave wot~ in the qpposite direc-\

. ~ tion making Soviet terme effectively harder than West.rn terms:

9- percentaqe of 9ranta in Soviet aid ha. been extreely low,

~t 3., wh!le the repayaant per!od i. u.~11y relatively short "

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-- 10 to 15 years -- and the grace period ?n1y inc1udes the

time it takes to complete the project. 105 Thus, the grant

e1ement of Soviet aid was estimated to be only 36% in 1968 106 ,. as compared to the DAC average of 75% in trye same year.

In addition, while the DAC members seem to be gradua1ly mov- '

ing toward softer terms, Soviet bloc terms are hardening with

a growing emphasis on trade credits with higher interest rates

(3 to 5%) and shorter matùrities. Among socia1ist donors,

only the Chinese maintain a grant element (85%) comparable ,

to that of the major Western donors. 107

Secondly, lower interest rates can be compensated for by ,

manipulation of the priees of goods used for repayment and/or

of the pr,ices of goods sent to the developing countries.

"Agreements for Economie & Technical Collaboration~ are only

skeleton agreements that require priee fixing instruments nego-

tiated every year fee each project and eaeh aid category. How­

ever, aside erom a few ~ften eited ex~ples, mostly fram the

1950's, priees of goods flowing to and from the less developd

countries a8 a result of soeialist trade and eeonomie assistance

are generally conaistent with werld market priees, and there

•• am. to be little evidence of ~stematie priee manipulation ~ , *

by the aoci.liat dODOrs. ;

At any rate, under the tenna of l,

'.lmoat .very .• Cire._nt; the tlPviet bloc donors may dettland pay-

, . 105Ibid, p.27 -lO'DAC, 1972, p.69 •

l07Ibid• - . *~ i. 4i •• 9r .... n~ IUIODq W •• tern an.1y.t. on thi, po.j.nt. For

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ment in foreign exchange if no priee agreement is reached .

Thirdly, there are other important loopholes in the for-

eign exchange saving provisions of the aid agreements. In

practice, annual repayments normally go into the donor coun-

try's account in the recipient's Central Bank. It is these

funds which May be used to purchase local products. However,

the Agreements also often provide for the conversiQn of these "1.... ,

accounts into convertible currency on the demand of the donor.

Sorne of the Eastern European countries have taken advantage of

the se provisions.

• The usual procedure in the granting of socialist aid is

that a recipient government submits a list of desired projects

to the socialiat donor and a general line of credit is then

extended indicating the types of projeets to be financed. Some­

times, however, the specifie projects for which funds are to

be used are not indicated. Rather, the agreement only outlines,

in a very qeneral way, ~ow the funds are to be utilized. Even

when specifie projects are included in the agreement, though, ,. ,

the reeipient is usually allowed considerablé lattitude in actusl 1

. . example, B.J.P. -Arnold (op oit, g.17l) and Robert S. Walters (op cit, p.204) think it unlliely that the possible p011tical tepercu •• ion. of suéh a policy would be risked. In eontrast, the OBCD po.ition (OSCD, 1956-1963) has been that this type. of manipulation ha, been extensively employea 'by the Soviet bloc donor.. See also Kurt Muller, op oit, p.209. However, com­pJ.aint. bave al.o bHn macSe aboût the qualiia of 9004 •• upplied 'db ai4 ~.c1pient. and it .. y he con.id.rad t priees ale high

,"1 in relation ta the qua11ty of the gooda. See below p,-lO -/. on .th. Chin.se r.spon •• to thi. probl_.

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application of the credits. By the same token, these agree-

ments do not constitute definite commitment to a particular

project by th~ donor either. The Soviet Union particularly

has become more cautious and selective with regard to projects

funded. Initially, it seemed that they were primarily con-

cerned with the political and propaganda returns of providing

recipients with the projects closest to their hearts. Since

1 1965, however, ext~nsive feasibility studieê have been carried,

out before Any def1nite cammitment is made. lOe Plans may be

altered or projects scrapped as a result of the feasibility ~~

etudies or for other, non-economic reasons.

In contrast to American "country planning," and the more

or 1ess permanent involvement of American country missions in

evalu~tng the development plans of aid recipients, the 80cial­

iat donors tend to confine their activlties to this evaluation

of specifie projects, and' to bow out of project management as

soon as possiale, leaving control and responsibility in the , hands of the recipient. In this'way, they strenqthen the im­

pression that there are fewer strings attached to socialist aide 1 ,

Despite this ltmited participation in over-all dev~lopment

planninq in the initiation, ,of project proposaIs, the spcialist 1 "

1 •

,donars str •• s t~e subordination of aid to the recipient's 1 • . \

planning' object·ives. 4

The planning process is an integral pa~t . . of the th.oretical framework of the sociaLiat donors. They

(). ~ 1"

envi"CJe planning and central control of the eo~nomy as a 90~1

'* l08~ 1"2-1"8, p.299. ~ ~.

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for aIl soo1eti.. rather 'than merely as a phenomenon they are .

forced to advocate by the weaknesses of underdeveloped econo-

rn~eB, as seems to.be the case with Western donors. Consequent-

ly socialist,aid is directed toward strengthening the public

sectors of the recipients. This is a conscious goal of 80cia1-

is~ aid rather than an incidental by-product of the pursuit of

another goal, i.e., the creation of conditions conducive to

private investment,jas may be the case with Western aid. T~U8,

sOrne of the conditions for the effective use of aid -- effect-

ive planning and'a consequent stren~thening of the public sector

-- are more easily related to general socia1ist policy and

theoretical framework th an to classica1 capitalist perspectives.

The long-run goals of th~ ~ocialis~ aid programs include

aspects comparable to the nrnodernizati~n" goals of Western

polieies. MOdernization in the socialist context, however f

rneans instilling a preference for socialist instit~tionB.

Lenin believed that, with the support of socialist countries,

less developed countries eould by-pass capitalism, or sorne

of'lts phases. 109 As we have already noted, contemporary

MarxistB alBo do not envisaqe the completion of capitalist

development by the le8s developed countries, but rather the ;

abandonment of that stage sinee'it. fu~l realization ia believed

to have been precluded by the unique historieal background of·

... " eontemporary developinq countrles. Development throuqh a

109 Cit~ ih B.G. Shaffer, The Soviet looDC!!lY ln Theory and

pract:lce, p.45'.

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socialist revolution is seen as the next stage for them. 110 .

How~ver, provision of social ov&rhead capital like edu-

cational facilities which has been an important part of ~he .... , Western lI'Cderni.zatioo effort has not been as significant a

part of the aid programs of so~ialist donors until fairly re­

cently. In comparison to the distribu~ion of Western aid,

socialist aid has involved the creation of little social in~

frastructur~. This failure to concentrate directly on build­

ing socialist institutions is undoubtedly related tq the cen-

tral theoretical role of economic change, that iB, changes in

the mode of production, as the motivating force behind social

change. Nevertheless, the OECO survey, The Flow,of Financial

R.sources to Less Oeveloped Countries, 1961-1965, noted that'

increasing efforts are now being made ta extend activities' int.o su ah fields as education, health, agriculture and economic planning! Prajects of this kind, mostly financed by grants, include the construction and pr~ation of technical schools, universities and vocational training centers, agri­cultural pilot farms, etc. III

Apparently more emphaBis was to be given ta projects that more

directly affect' the social fabric -of the recipient. However',

qrants, whicp provide moat of the financin9 for such prajects,

have remained an insignificant part of socialist aid proqrams

excapt for that of the Chinesa. 112

, The major emp~a8is remains on industrialization as the

key to ecopqmic and polltical ind.pend.nce fram Western im-

110s ••• b:ve, pp.la-19.

1110BcD, 1961-1965, p.58~ 1

ll~~ __ ..:. ~ above, pp.87-Be.

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perùùism', and as the best way to demonstrate the superior­

ity of soci~list motives and methods. Two thirds o~ the

so~~alist cou~tries' aid has been for industrialization

projects. 113 Major areas include steel production, machine

tool mlnufacture, crude oil and chemicals. But imrnediat~ industrialization is not alwa~ possible. This has been

especiall~ tru~ in Africa. In tsuch cases, f!1 policy has been Î

adopted of encouraging whatever immèdiate developmeats are . . possible, especially the expansion of, extractive' industries

,

and agriculture in order to incr~ase exports, and the develop­(

ment of infrastructure. These are encouraged in order to get,.

the econamy growing,~and to lay the foundation for industrial-1

" ization. Thus'- while 50% of ,oviet.aid, for example, i9 used

for industrialization projects, 35' is used for ~ojects like

hydroelectric, irrigation, and transport facilities. The re-... maining 15' is used for the development of mineraI resourc~s,

1

and,to a lesser extent, for health programs, education, other

public utilities, and the devèlopm.n~ of tourism. 114

However, thls policy ha. ~eft the Soviet Union in particu­

lar open to Chinese critici~ of ""inq a rich nation which,

like the United Statea ~)western Europe, has neo-tmperiali~t

intentions and ls, ther.~ore, reluctant to help develop basic

lnduatry in the developing coUntrlea. 115 The Chineae also

~13Kurt Muller, op cit, p.257.

l14Leo Tan.ky, op cit, p.29. ,

ll5IDdetad, ,in 1965 aDd 1966, th. Sovieta be9an to openly .spou.e tb. ··!Japerialiat- poaition tbat • _jor goal CI! forelgft aid aboûld be the atiau}at.t..OD of the flow of ra" uteriala te the .

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claim that Soviet bloc industria1ization aid cornes with strings

attached and that it is aimed~t building up ChinaIs enemies,

, \speciallY India. Of course, the Soviets vehemently deny the se

qharges, though it is true that they usually help \n~y the

more advanced Afro-Asian countrles with heavy industry since

the y already have much of the necessary infrastructure.

It sbau1d be noted that· the Chineae themselves, at least

partly, due to their mm limit,ed qapabilities as a don or , have

also de-em~hasized ÛDmediate industrialization as a practica1

short-~un goal of their aid program. They have given more

attention to agricultural devèlopment ~hah àny of the other

socialist donors. Short on capital, they preter labor inten-

sive projects, and do not concentrate On large industrial or

infrastr~cture projects, but *ather on immediately p~oductive ,

small and medium sized facilitiea, especi~lly in light indu~-

tries and food proce8sing~ a~d on smal~ scale infrastructure

projects. Thua, the4.r 1967 agreement to help construct the

1200 ~ile "Tanzam" railroad with $405.,6' million 1l1terest

free loan to Tanzania and zambia' and 6000 Chinese workers , * was quite unu8ual. ,However, it was undertaken in the con-

text of a potentially'exploaive and revolution~~y ~ituatioq

in Southerp. and .East Alrica. The railroad will a11ow,~Âmbia . , ~ ,- . .

ta by-.... ·whi~e minority rule4 South.rn·Rhodesia and South, ,

;

soVUt Union. Articl.. in Vopro.y .kol'lGllaika ar~ that aid _.ld pro..-ote the flov of tIii, copper;ilic, al~inum, oil, rub~~' 1ro~ 'ore, all4 cotton to the U.8 .. 8... (~ited in Gold'" 1liaJtI:r, plaf) 1 • "' • ,/

\

*The lOU' ~qr""ftt va. net, illfbl.-nttMt unt~1.//1t70. Dy 1971, th.r~ w~. l~l' Chill ... w.orilD9 on the ,ra;t'1roada DAC 1972, p.69

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-95- .

Africa in shiwinq its exporta to port. It will 11Dre c10aely 1ink Tan-

zania and Zambia, 'the two most outspoken and active opponents

of white minority ru1è in Southern Africa, and reinforce their

abi1ity to.withstand economic and po1itica1 pressures from

the south. ~hus, this project not on1y provides important

deve10pmenta1 assistance to Zambia and Tanzania, but a1so

gives the Chinese a major propaganda vic~ory over the Soviet

b100 as the champions of progressive governments and 1ibera-

tion movements in Africa.

\

The Chinese have assumed militant ~eadership of the socia1-

ist movement, and denounce revisionism in the Soviet b10~ The

dispute has ranqed over a11 aspects of policy, inC1Uding~rade

and aid, important components of for.eign p01icy. The ;lreach

in the "monolithic" facade of the socia1ist bloc was ~lrea~y

public by ear1y 1960 when ~astaB Mikoyan, then Soviet Firat

Deputy Prime Ministert vas asked the fo11owinq question about .

the Soviet aid pr~am by a Chinese correspondent whi1e on

tour in Iraq; ... '1

What i8 the Soviet posit'ion on the question of developinq the 'national economy of the Afro~ A.ian countriea and bow doe. it diifer' fimoth the We.tern po.itlon on thll'question? le ( phas1s aaa~)

• Sino-Soviet ten.iona were already surfacinq in 1956.

In tbat year, the dbine.~ bagan ne~~~yment of soviet,~id. c;.

At 'the .... tille, the Soviet ~nion .as increa.Ü9 its cOIlIIlit-

. -116C1ted in B.J.P. Arnold,' OR cit,VJ146.

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ments ta Eastern Europe and beginning the aid proqram\f;r non­/

Cammun!st developing cauntries. Soviet priorities seemed ta

he shifting away from China. The Chine se alsa resented their r

exclusion from that year's Summit Conference. In June of

1956, the Chinese began their own aid proqram with a $23 million

grant ta Cambodia. Grants to Nepa1, ,and loans ta the united •

Arab Repub1ic and Indonesia sooA fo11owed. Sino-Soviet competi-- .. tion'has been ~specia11y intense in Asia and East Africa.

The Chinese have striven ta assume leadership of the Third

Wor1d, asserting that they are a better model for development

than the ~viet Union,·having experienced,their revolution at

a stage of development more s~mi1ar to that bf the developing

countries, being non-whi~~, and having experienced stmilar ex-,

. ploitation at the hands of the West. They argue tllat paor

countries (which includes China, but not the Soviet Union) must ,

rely ,on their own efforts and the help of equal1y paor allies - ' -i8 order to avoid exploitation.

(

SeveraI of the "Eight Princip1es

of Lëhinea!7 D.velo~ent policy" proQlatme6 by Chou En-lai

durinq his 1964 African tour express this approach. ~A joint

Tanzanian~Chine.e cpmmuniqu_ of June 21,' 1964 atated that

in arder to lift them •• ives f~ poverty and hack­wardn ••• , the Aeian-African countries must f~rst of all rely on th.ir own people and resoùrcea for th. work of national oonstruction and aecondly they al.o neec! mutual aid and' eeonomic·> coopera­t60n amont th .... lv •• on the ba.i. of equality and mutuel ~.tit~ Thi. i. the reliable vay for "A8ian-A'trioan counuiè' te attain economic iDdepen4ence and oaaaon proaperity.117

117cite4 in Goldman l, ~.l.O.

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-97-

The Chine se have criticized Soviet bloc aid on the grounds ,

that it is neo-imperialist and reflects the growing revision-

isnf,'of the bloc. The ').,Soviet' s continued efforts to reconcile . ~ t~eir ideological conceptions of the development process wlth

the a)iual situation in the developing countries have, indeed,

,~In~v~ reass~ssments of the revolutionary capabiliti~S of

~ ) , bath local Communist Parties and of non-Communist leaders like

1

- 1

Sekou Toure, Ben Bella, Sukarno, Nasser and Nkrumah. These

reassesaments have led to such extensive revisions of doctrine

t.~t the basic Marxist-Leninist model of development has often

been practically abandon~ •. 'l'hus tlie Chinese have attacked . what they aee as an over emphasis on peaceful liberation of

developing countriés, especially where this has been at the

eKpense of the local Party. Their criticisms are consiatent

with the analysis of this trend presented by Robert S. Walters.

He states: ".

Soviet

n

, A1~~ 40.. not find a neat place in the Marxiat

4ialeotic, in the realpolititue of international competition, ~ , . ,

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it can be argued Ehat Soviet aid has at ttmes been app1ied

to avoid change and uncertainty (e.g., in India and the Middle

East), and that this has often been more c10se1y related. to

the maintenance of the national interests of the Soviet Union

than to the spread of world Communism. Marshall Goldman re-

marked that

as the number and size of Soviet loans to the developing nations increases, the U.S.S.R. is finding itself with vested interests in a large number of countries in the Afro-Asian world. A1-though the Russians do not own shares of stock in enterprises they have he~ped establish, they are owed a long i!gm debt that they expected would be repaid.

In the 1970's, the Chinese have begun to compete with

the U.S.S.R. in the magnitude of their aid commitments,

Chinese aid had been 1ess than one sixth of that extended by

the Soviet Union, only onè tenth of the total socialist bloc

assistance, and infinitesimal in comparison ta Western' aid,

but in 1970, China was the most important soèialist donor.

Ber commitment of $686 million far outstripped Lthe unusually \

lo!7 Soviet commitment of $197 million. The 1971 Chinese

commitment was $492 million, still weIl above their 1960's

level and comparable ta the Soviet commitment of $677 million.

Thua, considerations of repayment and atabilization May be

expected to become more important in Chinese forei9n policy

a8 their vestad tnteresta 8laô bec~e more aubatantial.

It should be noted that de.ptte their militant rhetorie

and inor~.inq support for Ea.t European and Asian allies and

1190014maD Ir p.IIC • • - '

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leftist regimes in Africa and Latin Ameri~a, Chine se aid is

also being extended to an increasing number of decidedly non­

Communist, non-leftist" regimes (e.9., Ethiopia, Mauritania,

Peru, Burma) and Egypt and Pakistan rernain major recipients. i20

Thus , just as with Soviet aid, weIl defined revolutionary cri­

tefia have been manifested more in the type of aid given than

in the choiee of recipients, and the distribution of aid has

reflected the competition for international leadership as weIl

as ideological perspectives.*

The Chinese have also criticized the terms of Soviet . . . ,

bloc aid and have sought to out do them in providing softer

terms. Thus, the third of the Eiqht Principles proclaimed -

in 1964 stated,the following:

The Chine se government furnishes economi9 assist­ance in the form of loana exempt from interest or at a minimum rate of interest and provides long perioda of repayment so as to ~educe ta a minif~f the burden carried by the recipient count~iea.

This po1icy waa a1ready weIl established. Through 1966, 74.5%

of Chine se aid ~as in the forro of interest free loans to be re­

paid in commodities, 16.9' waa in grants, and only 8.9' in loans

with interest rates of 2 to ·2~ •• 122 In contrast, only about

3% of Soviet aid in thi. period was in the fo~ of qranta with • a,l.most all of the remaining 97. in intereat bearinq loana .123

!20Naw Yo~k Time., March S, 1973. stmlJarly, Xierican economic and political development criteria

are bètte.z.:. repre.ented .in th, forma of U.S. aid than in the ehar-

fo~er'of the recipienta. ~~ited in John K. cOol.y, zaet Wlnd OYer Africa. Red China'a Aiiioan Offen.lve, p.224.o

1 Kurt Muller, .of oit. p.234. 123LeO Tan.ky, ':02 cit, p.27. . '

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-100-

The Chinese have also made the terme of taeir loans easier /

by customarily allowing a ten year grace period and an amorti­

zation period longer than. t~t of moet Soviet bloc loans. These '. ,

disparate àid pelicies led ta very d~fferent grant elernents in

1968: the grant eleme~t of Soviet aid ~~~le that of

Chinese aid was 85'. the 1960's the real eco­

nomic impact-of the Chinese terme w s 1imite~ by the emalI maq­.. nitude of their proqrarn. In

Chinese aid have 1agged very

• disbursernents of

hind coromi trnents • Thlrough

1969, only about 20% of Chineee cOl'll1\itrnentfJ had actu'a11y been

spent as compared to over 47' 0 Soviet commitrnents, and bver

90\ of American commitments. 124 J

Chinese technica1 assistance has also been 1ess expensive

than that of the Soviet bloc. Under Soviet bloc agreements,

on1y the trave1 expenses of spec~a1ists can bé paid out of

the funds provided by an aid aqre~ent. AlI other expenses \

must be financed by the host government ... Since Soviet bloc

specia1ista have continued to live at their accustomed'standard ., '. of living, if not better, their aid at t~e8 became so expen­

sive that the co st to the host qovernment exceeded ,the credits

provided for the projeèt. 125 The Chineee, recoqnizinq this

as a sore spot in reiationa betwaen Soviet bloc donors and ')

their aid recipients, have thems.Ives paid trave1 expensea for •

their specialists and atipulated thÂt the living conditions

.' l24Robert S. Walters, op oit, p.227.

"l25Xurt Muller, op oit, p.2l2.

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of èpeeialists should not exeeed those of their counterparts

in the host country. The eighth of ,the Eight principles deals

with this problem.

The sixth principle addr,~sses another sensitive point

that has arisen with regard to Soviet bloc aid, i.e., the

quality and priee of qoods ~upplied as aide It states,' . the Chinese government furnishes the best material manufactured by its plants at priees prevalent on the interna,tional market. Ii the material. proves not to be i~ eonformity with the norms of quality desired, it promises to replace it.

''\, " Thus,. in several areas of aid pOlicy, the Chinese have

,.'

)aPitalized on Soviet bloc shorteomings and sought to reaffirm

thé1r ideologieal leadership ,nd demonstrate a more sincere

eoneern for, and better undèrstanding of the problems of develop-

inq countries.

SUMMARY , CONCLUSIONS,

Fundamentally different assessments of the capit~l!at

system are reflected in the development theoriea and praetic\s

of Marxist and main stream Western economica, particularly j (..---

with regard to th~ siqnificance of the Wèstefn development

experi.nee. for eont_porary developIDent', and the role of , ....,

both private and public international capital flows. Wherèas

the eODvefttional vi_ of eapitali., whethe" from a national

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or international perspective, is that of an efficient and

essentially impartial system for effective utilizatlon of

resources, Marxist analysis ernphasizes conflicti~g interests

of classes, and clasae's of nations, and the notion of exploita-\

tion as basic features of capitalism.

Thus, as we have seen, in assessing the relevance of

the Westèrn experience, capitalist and socialist oriented

economists typically approach the question from different per-

spectives. west/ern economists generally view Eur,opean and

North American development as guides to identification of ele-

'-.

ments of a successful development program, whereas Marxists

emphasize Western developmentO ~s a major element in the process

of non-Western underdevelopment. Mainstream Western economists'

assessments of the prospects for contemporary development and

prescriptions for fostering development'draw heavily on con­

ce~tio~ of prerequisites and conditi~ns for.development based .

on an in~erpretation of the.Western.experience. Thus~ removal ,

of internal obstacles to damestic capital formation and large

tnflows of foreiqn capital assume important roles in fostering

.~he developaent of modern capitalist economies in the curre~y •

underdeveloped countries. In contrast, Marxise analysis empha-

.izes the uniquen ••• of the situation of countries developinq

in' th. cohtext of a verid aconomy dàaia"ed ~ alrâady induatri­

ali_ad naeions. Bxplo~tat~and the diatortipn of. the econo­

mie. df the Ub4er4~veloped countr~.. because of their colonial

nao-colonial contacta vith the We.t and tbeir particlpa-

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tion in th~ pr'ocess of We\stern development are central to

the Marx~st analysis. Thus, the Marxist approach assigns a

decisive role to external factors in the development of West­

ern capitalism and the underdevelopment of "the periphery of

the capitalist system while ~ost Western economists tend to ,1

~efer the negative effects of external factors back to internaI ,',

weaknesses or faults.

The Marxist emphasis on negative ,external factors and

conflicts of interest between less developed countries and

Wes~ern industrialized countries, and the Western presumption

of a basically positive role of the international capital

flows are also reflected in assessments of contemporary inter-

national capital flows. While acknowledging the productive

potential of direct foreign investment, Marxist analysis empha­

sizes it costs, particularly coste associated with distortions

Of the economies and societies of underdeveloped countries

due to foreign d,omination. In contrast, Western economists

emph~8ize ,the developmental con,tribution of direct foreign

investment in raising incomes in host countries, providing

external econOlllies and forward and I?ackward linkages. Foreign

investment la seen as a meana of improving' the distribution

of resourcea and fostering the development of capitalism on a

world wide basis. The potential~coats to the hoat countries

are minimized. Indeed, encouraqinq fIon of private capital

and .stabliahinq favorabl~ in~éstment cl~tea are centDal to

th. aid programa of the major W.stern donors.

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• t

The basic objectives of aid programs' have been described

as penetration, modernization, and stabilization. With re-'---

J' 1

gard to Western aid, these obj~ctives are defined in terms ~

, " .J

of the expapsion and maintenance of the capitalist system. Pene- _~

tration has meant the opening up of new areas to political and

economic influence; modernization refers to the restructuring

of the economic, social, and political fabric of the recipi-

ent country int0rPatterns more compatible with Western capital­

ism; stabilization means the minimization of uncertainty and

qtaintenance of cxnlitions favorable to''\Western political and

economic interests, particularly the maintenance of favorable

investment climates. 1

The central role assigned to private enterprise in Western

development efforts and the close relationship between Western

business interes~s and Western aid programs are illustrated in ,~

the manner in ë.ch these goals 'are pursued. Stabilization 4 and penetration are facilitated by the various supports t~

donor country investors which are important parts of ~he West­

ern aid prQgrams. Modernization and penetration are facilitated

by the imposi~ion of conditions on aid which are intended to

make its use most beneficial to the private sector, including

foreign investors, in the recipient countries, and by the . growing emphasis on program aid, self help, and planning.

Penetration is further aaaisted by the univers.l practice of

tying aide

,

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Despite ideolocjical differences, the sarne basic objectives

of penetration, modernizatiQn and stabilization can be identi-

fied in the aid programs of soc list donors. In this case,

however, they

tènanèe of an

ern a1~'pro~rams are conceived a

developing conditions under

s of the expansion and main-

system. Whereas wefJt-,- ~

as essentially vehicles for"

private interests can ultl-

rnately dominate economic development, sociallst aid programs

stress the central and continuing role of the public sectora

of donors and recipients. ·'Since there are no private sectors

and therefore no outflows of private capital from socialist ~

donors, their interests are expressed solely in terms of their 1

public sectors. Thus , in this context, penetration means open-

ing up new areas to official socialist influence. It has been

shown that penetra~ion ie a oonscious goal of the completely

tied aide For the sociallst donors, modernization means poli-1

tioal, economic and social reatructuring of recipient coun-

tries into more'socialist modes. The primacy of economic

change is reflected in the great emphasis on modernlzation

through strengthening the public sectora of the economies of 4

aid recipients. Stabilizatian means minimizing uncertainty

and maintaining friendly re~tion8 for socialist donors in

arder to a.aure the continuance of trade relations, political

influence, debt repayment, etc. It has been note4 that the

avolution of Soviet bloc policy towardldeveloping countries

has led to an,-Il,tnoluaiviat, qradualist, and minimally violent"

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view of the revolutionary process such that bloc m~ers have

apparently been willing ta main tain relations with aIl sorts

of regimes, even at the expense of local Communist parties.

Thus, as with Western aid, ideological development criteria

have been mor~ consistently represented in the forms of aid,

than ~ the character of·the recipients~ In âddition, it i~

surmised that, as the debt owed socialist donors becomes mpre

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substantial, their interest' in maintatninq conditions and rela­

tions conducive ta repayment will also become more substantial.,

Thus, similar objectives of "enlightened self iriterest"

can be identified in the aid proqrams of capitalist and socia1-

ist donors~ However, these objectives are pursued in the con-

text 6f different ideoloqical frameworks and defined in terms

of the expansion and maintenance of the socio-economic system

of the donors. Similarly, aslsessments of the historical and

contemporary raIes of private capital flows reflect different

views of 'the nature of the capitalist system and different /

aspirations for the direction of future~evelopment.

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Tm.E 1 NET FLCJf OF FIlW'OAL Rl3SOORCBS TC LOC t S & MJLTIJ..ATERAt" AœOES FJDf ~ CDM'RIES, 1956, 1960, 19?4.1971

~,jg4Ai"

.,

Nfi11ions of U.S. dollars .

~"' . - 1956 1960 1964 1965 1966 1967 1968 1969 1970 1971 . . \

1. Offi.cial Develop-32Sg& JBlt Msis'taDce • 4665 5957 5916 6003 6552 6316 6622 6840 7718

U. Otber Official ~

Pl..~ 9o •••••••••• . . 300 ·41 283 428 508 731 570 '1144 1279 . ,

Ill. Private Plows ••• 3072 3150 3729 4121 3959 4381 6377 6587 7019 8399 ' ,

Di1'ect Investllent •••• 2Z30 1767 1572 _ 2468 2179 2105 304"3 2910 3557 .4087 B:I.lateral Portfolio jjJ 260 633 837 655 480 800 971 1211 777 804 MJltllateral Portfo1' 25 204 461 247 175 469 767 419 474 706 EXport Credi~ ••••••• 457 546 859 751 1124 1007 1596 2047 2211 2802

IV. GnmU by private volmtary apncies . . .. . , . . . . . . . . . . 855 890

,1btal net flON ••••••• 6261 8115 9645 10320 10390 11441 13425 13779 15858 18285 . ----_ .. -- - --- ,- ~. --~ -- L..

~ta1 offidal fion ~ ... tbese flmds are of private origin1..~ are used br D1Ùtilateral in.5tltutions together with l1Il1tilateral official fiows and othor funds fTœ !'M)Jl-1JAL; sources: in p1'OgraDL'5 govemed by criteria' similar to those~ applied in bilateral official -deYe10(liDei1t programs.

'14easured by sœe COUIltties as change in rutstaMing alJDUnts guaranteed, br others as change' in outstaMing moounts due cm disbursed credits. Interest is included in the st1IlS outstanding, !tO that the net flow tends to he oveT~ stated il gross Dell guarantees are rising, and vice versa. . '

Source t IW: P.evisw, 1971, 1972 and OEa> 1961 .. 1965.

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TABLE 2 roRBIGN AND INTERNATIONAL BOO) IssuEs 1960 .. .1971

Million U,S, dollars ~ percentages

Le'Ss- Inter- Total AlI 2 as % 3 as % Developed National . 1+2 Issues of 3 of 4

Year CcRm.tries I~titv-t10JlS

1 2 3 4 .~5 6

.. •

1%0 " ............. 73.1 454.5 Sn.6 1285.7 86.1 41.0 1961 ................. 91.6 456.7 548.3 1696.5 , 83.3 32.3 1962 ...... -........ , 93.2 275.5 368.7 1685.8 74.7 , 21.9 1963 .l1li •••• "., 89.6 135.1 224.7 2066.9 60.1 10.9 1964 ............ t .... 228.2 439.2 667.4' 2594.2 ' 65.8 25.7 1965 .... Il ........ , .. 237.1 600.2 837.3 3241.5 71.7 25.8 1966 ................ 278.0 122.8 1000.8 3755.l 72.2 26.7 1967 ............. " . 446.2 1034.4 1480.6., 4847.6 69.9 30..5

1968 .......... " .... " 532,4 149L6 2024.0 7604.2 . 73.7 26.6 1969 ....... , ...... 388,9 865.0 1253.9 6219.,8 .69.0 20.2 1910 ................. 345.3 1260.8 1.606.1- 5988.3 78',5 26.8 1971 •••••••• , 443.7 1853.6 2297.3 n.a. 80.6 n.a.

*IBRD, Inter-.American Developaent Bank, Àsian Developaent BankL and part of lUropèan InvestDa1t Bank issues. Althàuah the _jor part of EllSts own ftmds (exclucJJ.na flmds av.dlable for special ope1'&dm\s) are spent in develop­ecl r.te.ber <:OUrltrles, a saIâll pOrtion 1$ used for projects in Associated 6e. wloping coœtrles, Por the purpOse of this table, lot of BIB·s bond issues dur1ng the period 1960 .. ta 1968 bave been included. Por 1969 to 1971 El! issues bave not been incl.lI:1ed since loans te develOldnl CClUlt'ries out of J;nB r s own funds have been .negligible after the termlnation of 1ending to Greec:e.

'" Source: Dt\C Rni., 1911, 1912. ,

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TABLE,3 nIE NET PUlf OF PRIVA'Œ CAPITAL ro LESS·ŒVE.I..CPED <DJNI'RIES AND KJL~ AœNCIBS, 1956, 1960, 1964-1971 j~

• .\li.~

Mallion U.S. dollars 0'

, . 1956 1960 1964 1965 1966 1967 1968 1969 1970 1971

>

_tnü1a .. : .••.. • • • • 14.8 22.9 22.4 26.4 . '48.7 57.5 210 • .9 , 28{)..4 ~ ......•.. 4.4 ' 8~ 6.7 15.8 16.1 21.3 51.6 64.3 76.4 84.4 lSIt~ ........... 69.1 81 93.0 119.'3 96.9 65.6 137.0 138.7 \ 187.7 170.5 CI:DI4M ••••••• ' ••• 75.6 70 14.1 45.0 55.0 58.9 93.6' 68.7 223.6 352.1 n.n.art a •••••• ,. 1.6 ' 32 21.2 2.3 -4.8 '-3.2 54Ss 96.2 29.0 61.9 Preaoe •••••••••• 471.1 471 504.2 514.2 553.6 498.5 846. 751.3 829.3 498.0 Ge~ ••••••••• 275.0 276 283.5 263.6, 302.6 598.6 1068.:5 . 1500.7 678.2 1016.8 l'''t8J..y .............. 90.7 . 193 196.6 172.5 516.6 131.4 400.9 710.5 500.2 566.5 ~ , ........... 26.0 103 79.1 132.1 159.1 214.3 390.5 451.7 669.4 978.7 HetberlaDc1s .... ô • 232.0 203 69.2 16!l.2 160.2 114.7 -141.1 219.4 240.6 ' 371.3 NbrNIy •••••• ~ •• ~ 0.6 • • 5.9 26.6 4.0 14.7 34'.6 37.4 26.1 21.3 Port\Ja8.l. ...... ".,., · . · . . . 9.3 15.4 31.8 13.3 18.1 15.3 28.9 s.ea.n ., •••••••• 11.8 40 34.4 34.6 51.1 60,,8 57.4 91.6 87.1 84.7 SwitzerlaDd ....... · . 153 100.9 187.8 107.0 131.5 220.3 95.2 100.9 217.8 lllited Xi.JI&dda ... 383.7 .474 425.5 541.1 198.0 326.0 332,6 717.7 791.6 1014.1 Ülited States ••• 1230.5 1042 1879.7 1859.0 1505.5 2089.7 2486.6 1568..0 2438-.0 3541.0

Total 1)\C ..... " ••• 2878.5 3150 3128.8 4121.3 3958.7 4381.0 6377.4 &587-.0 7019.3 9288.4 -

Source 1 DAC Review. 1967, 19n, 1972.

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TABLE 4' OFFICIAL ŒVElŒfen' ASSISTANCE TO LOC'5 & MJLTILATERAL ~FS FIOf DAC COUNTRIES, 1956, 1960, 1964·1971

•

Million U •. S. dollars

1956 1%0 1964 1965 1966 1967 1968 1969 1970 1971 -

.

~

...fIIs'tr1ll..ia. .......... 34 59 100 119 126 157 160 175 203 . 202.2

."tria. ........... . . .. 12 31 32 26 23 15 19 10.3 Belgiua •••••••••• 20 101 71 102 ' 76. 89 88 116 120 146.1 CBnada ••••••••••• 30 75 78 96 187 198 175 245 346 340.1 ~:rk •••••••••• 3 5 10 13 21 26 29 54 59 74.4 ~ ••.••.•.... 647 823 828 152 745 826 853 955 951 1087.9 (;e:x-..y- ••••.•••••• 142 223 459 456 419 509 557 ' 579 599 734.2 IWy •••••••••••• 43 77 48 60

. 18 155 146 130 147 182.7'

JIIp8Il ~ .. 96 105 116 244 283 384 3S6 436 458 510.7 .. . ... . . .. . . .. . .. :Netherlands •• ' ..... 48 35 49 70 . 94 113 123 143 196 216.1 ~ ~ .....••.. , -8 5 9 11 l4 14 27 30 37 42.3' ~ ••....... - 3 37 50 22 20 25 Z7 58 29 98.8 9Meden ••••••••••• . 3 7 33 38 57 66 71 ... 121 117 158.9 SWitzerlaDd .......... . . 4 9 12 13 13 24 30 29 28.4 lhited lfnadœ : ... 205 407 493 472 486 485 415 431 447W 560.7 lhited States ....... 2006 2102 3592 3418 3349 3472 3242 3092 3050 3324.0

-Tcrtal.. J:W: fI," tir. ......... 3288 4665 5957 5916 6001 6552 6316 6610 680~ 7717.8

Source: DAC Reyiew. 1967, 1971, 1972.

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TABLE 5 BILATERAL <XI+Œ1MBNl'S BY ~Y PLANNED EaHmFS ro DEVElDPING a::umuES, 1954.1901a , 1962, 1964-1971

~ '4f9':;;.P·u,.

.,

Millions of U.S. dollars

Country 1954- 1962 1964 1965 1966 1967 1968 1969 1970 1971 1961&

-

~

lJ!a:IlJ8rla. •••••••• 18 2 . . .. 30 " 35 20 82 SS (]I.i.JIa.. ••••••••••• 354 11 30S n 6 40b 42 .. 685 492 Czechoslovakia ,4 467 1 118 43 192 88 200 37 SS 14 ~4ImanY •... 108 · . 71 132 · . 120 8 134 . 125 ~5

~ ......... 151 · . 10 42 52 :~ 40 21 79 42 l'I)~ ••••• " •••• 244 88 54 22 · . 20 30 2S 6S :RIwania .......... 112 · .- 70 _ .. · . 14 45.- 132 10 141 U.S.S.L .......... 2684 214 618 330 1033 77b~ 368 402

J 197 677

•

1bta1 ••••• , ••• " 4138 316 1246 646 13-13 527 758 776 1258 1511 , - -~._.- ---_.~ ._--_._~- - - -- -

''-~

~_dative tbtal . bEXCiuding a contri~on to the $100 million credit to Nigeria provided br Czec.hDslovakia, Poland, the

. U.S.s..R. and YugoslaYÎa.'. "-

Source: Url.ted Nations Statistical Yearbook, 1966, 1968, 1972,

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