Why Did The Poorest Countries Fail to Catch Up? Vulture Globalization.

“Why did the poorest countries fail to catch up?”  Before we can discuss development or failure through war and peace in so-called undeveloped nation-states, it is important to recap the history of the beast that places a slave collar on those so-called undeveloped nation-states.

The relationship between war and development, and peace and development correlate in the constant exploitation and generation of global capital profit under the banner of capitalism and globalization.  Free trade agreements between nation-state actors, from the era of the Treaty of Westphalia and the East India Company, birthed the original concept of international markets and early capitalism.  Anyone who has studied capitalism in an unbiased manner understands the basic pillar of capitalism: to generate capital, one must own capital, and eventually the available capital becomes consolidated within an elite group of owners until more paper capital is created and placed into circulation which eventually devaluates currency.  It is important to consider that, within modern global capitalism that a devaluated national currency can be profited on internationally, by those with capital, through the international currency exchange establish through the International Monetary Fund (IMF).

The development of world submission to vulture capitalism, or globalization and development in politically correct terms; occurred through two major international wars.

World War II

After the Allied victory of World War II, the fallacy of the League of Nations was rectified by the creation of the United Nations and a five permanent member security council with veto power.  Four of the five permanent members were open free markets supporting capitalism, with Russia being the sole exception (although Communist nation-states still import and export trade).  The world globalization process began after WWII with the creation of the IMF, which regulated currency values exchanges of capital across nation-state borders, the General Agreement on Tariffs and Trade (GATT), which would become the World Trade Organization (WTO), and the International Bank for Reconstruction and Development, which would become the World Bank. 

What was the first thing the free market economic powers did upon the creation of the GATT?  They generously provided their colonial possessions with membership.  At this point, through “regionalized economic systems that provide the main motors of the global economy”, capitalism began to outgrow nation-state borders into a regional international so-called free market (Beger & Weber, p. 8).  Just as the early days of capitalism within nation-state borders, capital unleashed on the international stage began a process of capital generation and a consolidation period was initiated as the market expanded to enhance exploitation of colonial property natural resources with increasing technologies.  With the establishment of the GATT/WTO, the IMF, and the IBRD/World Bank, it is easy to see how “rich countries tended to grow as a club” and that there has never been “negative-growth in the rich world” (Milanovic, p. 4).  Capital creates capital. 

It was only the balance of power created by the bi-polar Cold War between capitalism and communism that held capitalism and the international market from globalizing, yet even in a stalemate capital was generated and consolidated by international banks and private sector capital through a massive arms race.

Cold War

After the collapse of the Soviet Union and the end of the Cold War in the “1990s, the most economically significant post-communist nation-states that arose from the collapse of the Soviet power (including Russia itself), were reconfigured as part of the ‘emerging economies’ or ‘emerging markets’” (Berger & Weber, p. 9).  With no communist hegemon to balance against the rising capitalist behemoth of the United States which had moved “to a position of unrivaled global power”, capitalist globalization expanded Eastward and Southward with the backing of the UN Security Council, and the collective capital of the IMF and World Bank, in order to open previously communist states and post-colonial states to the free market and, more importantly, globalize the former communist and colonial state borders for the infiltration of foreign private sector investment capital.

Globalization and international capital consolidation had become complete and was illustrated by the “key characteristic of global development by the 1990s was the growing concentration of economic power in the hands of a small number of large oligopolistic corporations” (Berger & Weber, p. 8).

Why Did the Poorest Countries Fail to Catch up?

The Carnegie Endowment for International Peace report by Milanovic reminds me of a kid that watches somebody get beat down on the playground and when asked about it by teachers and adults, replies “Did something happen to Johnny?”

This report was almost offensive to read as Milanovic simply regurgitates twisted World Bank statistics and points out previous economic theories on globalization, while puzzling over the “disastrous performance of LDCs during the era of globalization” like someone who masters quantum physics, but doesn’t understand the basic concepts of capitalism (p.9).  What is worse is that the bulk of statistics and charts create an overall average (or mean) for multiple categories, when each so-called LDC has a specific history of political, economic, and social events that has shaped its current political and economic condition.  Category averages derived from all countries, the statistics offsetting each other because of the number of states being averaged, offer little meaning when dealing with post-colonial states, post-communist states, and states that didn’t even exist before World War II.  

Let’s look at how Milanovic attempts to discern the failure of LDC development.  In these areas, we can see the exploitative arm of international capitalist profiting during times of civil and international conflict, as well as during times of peace.

1] Civil Wars and International Conflict.  Conflict and the banner of so-called reconstruction is the World Bank’s main capital maker.  The Bank, as it is often called in its own reports, gained its original calling during the reconstruction of Europe after WWII and has greatly expanded its international mandate and methods over the past half century.  Everywhere, meaning post-communist soviet satellite states and post-colonial LCDs, that the UN Security council has sent multi-national so-called peacekeeping forces to over the last thirty years, the World Bank has attempted to follow in their footsteps with reconstruction loan promises and foreign private sector capital actors ready for exploitive investment.  Behind some UN operations, states became stable enough for foreign private sector infiltration while in others, such as Somalia, stabilization was unsuccessful.  World Bank loans often come with conditions that open the flood gates for foreign capital investment that result in loan interest rate costs for the recipient state while “private capital flows in the past 20 to 30 years have generally gone from one rich country to another rich country” via the private sector exploitation of natural resources and cheap labor force exploitation in Lower Developed Countries (LDCs).

Even as the United Nations, and NATO for that matter, has continued to expand its role on the international stage, they contribute to enforcing hypocritical sanctions and eventual military ‘sticks’ that remove and rebuild state regimes that just will not accept the international free market ‘carrots’.  Each LCD nation-state that has been internationally ganged on, from Iraq to Libya and soon Iran, has an individual account that has ended the same way, with a new regime in place that opened to the global market and welcomed the World Bank and IMF.    

“Total disbursements from international financial institutions (IFIs) to the LDCs have grown from 2.75 percent of the recipient’s GDI in the first half of the 1980s to about 3 percent of their GDI in the first years of the new century.  The expansion was mostly due to an increase in World Bank loans to the LDCs”

2] Institutions, reform and policies.  When these terms are used to criticize a nation-state, it is usually because a domestic policy is barring maximum foreign private sector investment and profit in some way.  Institutions equal a stable government.  Private sector capital doesn’t generate profits well under politically unstable conditions.  In the cases of policy, requirements similar to deregulating energy or some other resource is usually the case.  Foreign private sector capital is unable to invest in domestic regulated resources.  In many cases with the World Bank, educational reforms (often technical) are an important issue.  This is an important condition because private sector capital needs a human work force on the ground in the LDC they are economically exploiting for profit.  These three terms, which can be attributed to many other areas outside of the simple examples I provided, are basically considered terms for World Bank and IMF loans.

  3] Lower trade (policies and outcomes) to Gross Domestic Product ratio.  The more debt a nation-state accrues under these international capitalist loans with conditions (which allow entry for the foreign private sector capitalist investors), the more slowed economic growth will be.  In 2011, Jamaica’s annual debt payments actually exceeded their annual GDP and the state defaulted from their 2010 IMF agreement (which, as I have mentioned in previous posts, the IMF loans capital in the strongest international currency while loan recipient states are required to pay back the loan in their own devaluated domestic currency).  In Jamaica’s case, the international economic community threatened to isolate them if they did not return to the IMF table for another loan, this one required a debt exchange at higher interest rates.

  4] Attracting foreign investment as a way to gain access to new technology.  If foreign investment owns the technology, they own the profits.  The foreign capital investment may create some temporary jobs, but when the foreign investment has exceeded its profiting, or a natural resource is depleted, the capital will again flow back to the rich nation-state or private sector international actor.  If the international loans are utilized to purchase technology, the loan repayment collects large amounts of interest (and if it is IMF, the currency difference adds to the total) while technologies have durations, and new technologies often replace older technologies making them obsolete in completing with new technologies. 

Closing Statement

There is no separate relationship between economic development during times of war and times of peace for developing nation-states on the international stage.  There is only the international caste of global capitalism.

Berger, M. T. & Weber H.  War, Peace and Progress: Conflict, Development, (in)security and Violence in the 21^st Century.  Third World Quarterly, 30(1), 2009. P. 1-16.

Milanovic, Branko.  Why Did The Poorest Countries Fail to Catch Up?  Trade, Equity and Development Project, Number 62, November 2005.  Carnegie Endowment for International Peace.