The Problem of Capital

The principal problem faced by all Third World states, regardless of their political hue, was how to accumulate the basic reserves of capital on which advanced industrialisation depends.

Economies structured around agriculture and resource extraction—i.e., the production of basic commodities for export to the industrialised West—were the most significant hangover of imperial rule. As a result, these countries were forced to import back manufactured goods, including the basic machinery for their own producer industries, resulting in a disastrous crisis in their terms of trade. What they were exporting was always necessarily less valuable than what they were required to import. Although the direct colonial methods of control had been lifted, the maintenance of this settlement through the political and economic leverage of the old imperial powers was termed ‘neocolonialism’ by Ghanian president Kwame Nkrumah, one of the early Third World’s foremost theorists.

Capital could be accessed in the form of aid or loans from international financial institutions or directly from richer countries, but this method posed a risk to national sovereignty: states would be forced to create policy for the benefit of their international creditors, rather than the immediate needs of their own populations. Capital could also be accessed by inviting direct foreign investment, but since most foreign investors already possessed high-value manufacturing capacity in their country of origin, that investment tended to reinforce the Third World’s dependency on low-value commodity production; to paraphrase Korean economist Ha-Joon Chang, international corporations looked to the Third World to make wood chips or potato chips, not microchips.

In order to accumulate the capital reserves required to reach the next state of industrialisation—to produce microchips themselves—many developing countries attempted to modernise and expand their agriculture and mining sectors. But bringing increased quantities of more efficiently produced commodities into the world market put downward pressure on prices, locking states into their second-order position in the global economy. Further, the largest international corporations often did not compete to offer better prices to access raw materials but banded together to form cartels which dictated prices to the producer nations.

This left Third World states primarily accountable to the demands of both financial investors and their export customers, and less and less to the demands of their population. The hollowing-out of democracy which comes from state policy being overtly crafted in accordance with the requirements of financial interests is now being experienced in the de-industrialised West, but took place initially and most severely in the Third World.

Political institutions like the Non-Aligned Movement and the United Nations Conference on Trade and Development (UNCTAD) encouraged a global rebalancing of economic power in favour of the Third World. One solution was to form producer cartels in opposition the mega corporations which directed global flows of capital as a political weapon. Most of these failed, like the International Bauxite Association, created on the initiative of social democratic Jamaican leader Michael Manley, as countries within the cartels exploited the price fixing regimes to undercut their competitors – a sort of Prisoners Dilemma played out in the terms of international trade.

The only major success was OPEC, the Organisation of Petroleum Exporting Countries. Those countries in possession of what was then the most lucrative natural resource succeeded in pushing back the dominance of the ‘Seven Sisters’ of major oil companies. However, rather than advancing the development of the Third World as a whole, the oil-producer nations abandoned the political goals of the movement and settled down to a corporate relationship with their opposite numbers in the cartel of private oil monopolies.

The Communist Model

The other option open to Third World states was the Communist model of development. This form of economic autarky allowed them to close the doors to foreign exploitation and regain a modicum of genuine sovereignty.

The Communist development model opted for an accelerated route to self-sufficient industrialisation by sacrificing certain liberal democratic freedoms in favour of the state’s direct appropriation of the surplus value generated by workers. The state then diverted as much of this capital as it dared towards planned investment in strategic assets, relying on poverty reduction as an alternative source of legitimacy in the absence of multiparty democracy.

In the early years of decolonisation, before Western ‘development economists’ had formulated a strategy for exporting capitalism by means other than imperial rule, the Communist economic model had the advantage of being pretty much the only coherent set of policy tools available to Third World leaders. Socialist idealism resonated with the egalitarian aims of the new national revolutionary states. The Soviet Union (and to a lesser degree China) was also desperately seeking a way out of the besieged position they found themselves in during the Cold War, and this meant the terms of Soviet aid were often much more favourable than those offered by the more secure Western powers.

In the early years of independence, departing imperial powers left the new nations of the Third World without adequate governmental bureaucracies, technical corps, or developed political institutions. Very often, the underground Communist parties which had been germinating in the colonised world since the Comintern’s radical call-to-arms against imperialism in the early 1920s were the only useful organisational structures to hand. Additionally, they were often the only ones with an economic programme which stretched beyond the advent of independence itself.

However, apart from in China, the first wave of decolonisation saw very few actual Communist states come into being. The revolutionary nationalist leaders of Third World were usually drawn from the tiny indigenous bourgeoisie which had been fostered by the imperialist powers as an interface between themselves and their subjects. They had neither the political will nor the economic means to create a dictatorship of the industrial working class, especially in those places were no industrial working class actually existed.

Most repressed their local Communist movements or absorbed them into a cross-class revolutionary nationalist state, activity to which Moscow turned a blind eye, or even implicitly endorsed by offering favourable terms of aid and trade to their new nationalist allies.

The Assassination of the Third World

The new nationalist states now found themselves in a tenuous political position within the uneasy balance of the Cold War. Those states which appeared to be progressing more or less successfully along the road to egalitarian development found themselves facing new threats from the old imperial powers.

Where political persuasion or economic coercion failed keep the commodity-producing markets open to Western interests, direct intervention was employed. A series of coups and military interventions, almost always following attempted nationalisations of natural resources, radicalised the Third World, leading to a further spiral of conflict.

These coups and interventions found willing allies in the Third World itself. The old social classes, especially in the high ranks of the military and among the largescale landowners, had found themselves disinherited by the increasing radicalism of the nationalist governments and exploited the anticommunist paranoia of the United States to gain crucial support for their bloody takeovers.

The national liberation states, which had through necessity centralised enormous political and economic power on themselves, were extremely vulnerable to this form of decapitation. Often, the general population had been sufficiently demobilised since the liberation struggle to find itself either unable or unwilling to rise up in defence of their own governments, and in those cases where a highly politicised and energetic population did attempt to come to defence the state, they were subjected to massacres and other forms of extreme repression.

The toppling of Iran’s democratic socialist regime in 1953, the bloody murder of Patrice Lumumba in the Congo in 1960, the Indonesian genocide of 1965, and the murder of Chile’s Salvador Allende in 1973 are all examples of the very real risks faced by governments which prioritised sovereignty over Western interests. Interventions of this kind all resulted in the imposition of severe dictatorships which offered up their populations as a source of cheap labour to prospecting foreign capital; it was against this alternative that Third World Communists justified their own less-than-democratic experiments in state building.

As the more liberally-inclined nationalist governments were replaced by hardline military dictatorships, a backlash appeared on the left, which increasingly abandoned the principle of non-alignment and threw their lot directly in with the Soviet camp. Following the successful examples of the Chinese, Cuban, and Vietnamese communists in maintaining their countries’ sovereignty, the 1970s saw a wave of explicitly Marxist-Leninist governments appear, particularly in Africa.

However, this last surge of extreme radicalism came at a time of economic slowdown and stagnation in the Soviet Union itself. The last gasp of Third World militancy did not long find the support it looked for in the Communist camp, with the regimes in Angola, Ethiopia, and Afghanistan quickly becoming bogged down in devastating civil wars, the last of which finally overextended the capacity of the Soviet Union to come to their aid at all.

Shorn of the countervailing economic weight of the Soviet camp, the states which had followed the Communist developmental model were forced to return to capitalist financial institutions like the IMF in order to access short-term credit with which to service their long-term debts. The IMF, seizing the advantage, made access to capital contingent on the deregulation of markets, the end of subsidies on basic goods, and the mass privatisations of public services and state industries.

The ‘structural adjustment loans’ rolled back years of social progress within the national liberation states, returning them to the kind of gross poverty not seen since the most tyrannical days of the old empires. Many nascent industrial economies quickly snapped back to raw commodity production, or even subsistence farming, as the state’s assets were cannibalised in the name of ‘restructuring’.

The impact was felt most heavily by women, who often relied on the social wage to emerge from their underprivileged role within traditional social structures. It’s not for nothing that Africa in the late eighties and early nineties is so closely associated with the image of starving children.

Although some states had managed to create stable enough manufacturing bases to compete in the new conditions—for example, Brazil and South Korea—for the majority, the medicine killed the patient, producing rapid economic contraction instead of growth. By the 1990s, the ruins of the Third World were acting as a direct subsidy to the economies of the First, in which all pretence of social and economic development was sacrificed in favour of servicing unimaginably huge debt burdens. These were the economic conditions in which religious fundamentalism and hardcore ethno-nationalism replaced the more progressive, egalitarian nationalism of the liberation state.

The political project of the Third World was a gleaming jewel of optimism and pride in a world system more generally characterised by the grim cynicism of the superpower conflict. However, whichever way these new regimes reached, the development trap gripped them like a vice.

Some, like Puerto Rico, abandoned all their sovereignty to the United States and resigned themselves to poverty in exchange for access to First World investment and consumer goods. Others, like Cuba, became fortified islands, cut off from the capitalist world market and entirely reliant on their own resources and the political commitment of their populations to sustain them.

Despite the end of the Cold War, and the tragic death of the Third World, the development trap is still with us today. It lives in the failed states which never recovered from the Communist collapse, the producer economies that remain locked on the periphery of the capitalist world system, and, increasingly, it is festering in the heart of the imperial core itself, in the working-class communities abandoned by governments in the service of international financial capital.