International support for the least developed countries: moving out of the mainstream

Next January the next United Nations Programme of Action for least developed countries (LDCs) will launch in Doha. It will set the framework for the next 10 years of international support for the world’s 46 officially poorest and most structurally disadvantaged countries, home to around a billion people.  

LDCs are low-income countries confronting severe structural impediments to sustainable development. Membership of the category is based on three criteria: income per capita, human assets and economic and environmental vulnerability.  

Assistance for LDCs currently falls under three categories: trade, aid and a range of ad hoc measures broadly aimed at help with taking part in the international system, such as lower contributions to the UN budget and support for travel to international meetings like the annual UN General Assembly.  

Support is largely based on the premise that LDCs are artificially or temporarily excluded from global commerce. Preferential market access, temporary development assistance and help with participating in multilateral processes are intended to tackle this defect, in turn helping the LDCs ‘catch up’.  

Dating to 1971, the category is the only one recognised in UN and multilateral legal texts. There is no official ‘developing country’ or ‘middle income’ category with associated support measures. Low income countries are not specifically targeted, and the small and vulnerable states are only recognised as a working group at the World Trade Organisation. They are not acknowledged in the legal texts. 

Although donors don’t meet aid pledges and support doesn’t go far enough, official targets are possible because the LDC group is officially recognised in the UN system and has legal bearing. An example of such a target is the commitment by developed countries to deliver 0.15-0.20% of gross national income (GNI) in development assistance to LDCs. The European Union offers duty-free, quota-free market access to LDC exports under its Everything But Arms (EBA) trade scheme for LDCs. 

The theory behind support for LDCs is implicitly based on the mainstream economics view that LDCs lag behind because they aren’t exposed enough to correct market prices and conditions. The removal of so-called distortions like overseas tariff and non-tariff barriers, alongside temporary development assistance and help taking part in the global system, is supposed to free up these economies to play a fuller role in the international economy. Economic growth will drive development and reduce poverty. 

The evidence shows that for most LDCs this theory never worked. Until the pandemic the economies of some LDCs were performing well. Up to 12 could leave the category in coming years. A few, like Bangladesh, Cambodia and Myanmar, were able to take advantage of lower tariffs for their garment exports. These three countries account for 87% of imports to the EU under EBA.  

But half were supposed to meet the criteria by 2020, according to international targets. 12 graduations falls well short. The six that have left since the formation of the category in 1971 have not all done so because of better international market access or special support measures. Commodity exports, tourism or improved health and education are mostly responsible.  

The remaining LDCs aren’t catching up. The gap is widening. The pandemic devastated the group. Gross domestic product (GDP) shrank 1.3% on average in 2020, with the economies of 37 contracting during the year and extreme poverty in the group rising by a staggering 84 million. But even before Covid, average real GDP per capita for the group had long diverged from other developing countries and the rest of the world.  

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World Development under Monopoly Capitalism

Photo: do bicycles come from? Source: WDR2020, Figure 1.1, pp. 16.

One of the main effects (I will not say purposes) of orthodox traditional economics was…a plan for explaining to the privileged class that their position was morally right and was necessary for the welfare of society.

—Joan Robinson1

The recent period of globalization—following the collapse of the Eastern bloc and the reintegration of China into the world economy—is one where global value chains have become the dominant organizational form of capitalism. From low to high tech, basic consumer goods to heavy capital equipment, food to services, goods are now produced across many countries, integrated through global value chains. According to the International Labour Organization, between 1995 and 2013 the number of people employed in global value chains rose from 296 to 453 million, amounting to one in five jobs in the global economy.2 We are living in a global value chain world.3

The big question is whether this global value chain world is contributing to, or detracting from, real human development. Is it establishing a more equal, less exploitative, less poverty-ridden world? Which political economic frameworks are best placed to illuminate and explain the workings of this world?

Recent critical scholarship has applied monopoly capital concepts and categories to the analysis of global value chains. John Bellamy Foster and others have illuminated how global value chains represent the latest form of monopoly capital on a world scale.4 John Smith shows how surplus-value transfer and capture—from workers in poorer countries to lead firms in northern countries—is portrayed by mainstream economists as “value added” by those firms.5 Intan Suwandi analyzes how global value chains are enabled by, and also intensify, differential rates of worldwide labor exploitation.6

Mainstream advocates of global value chain-based development tend to ignore such critical analyses, and continue to preach the benefits of global value chain integration by drawing on examples and data that support their claims. However, it says much about the anti-developmental dynamics generated by global value chains when a World Bank report advocating global value chain-based development actually provides data that supports the analyses of the aforementioned critical authors.

Here, we interrogate the data used and the claims made in the World Bank’s World Development Report 2020, titled Trading for Development in the Age of Global Value Chains (WDR2020, or “the report”).7 While the report portrays global value chains as contributing to poor countries’ development through job creation, poverty alleviation, and economic growth, we reveal how its data shows the opposite.8

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Economic Corridors as Infrastructures of Extraction

Economic Corridors

Economic corridors are geographically targeted development initiatives currently under construction on nearly every continent of the planet. While hard infrastructure such as transportation links, power generation, ports, and industrial zones contrive a spine, economic corridors are distinguished by accompanying “soft infrastructure” including business-friendly policies, regulations, and institutions to facilitate trade and investment. They feature prominently in foreign policy and development initiatives worldwide and have provided scaffolding for billions of dollars’ worth of infrastructure investments. They will likely do the same for those spurred by the “Build Back Better World (B3W) Partnership” recently announced by the G7. Yet despite being around for over twenty years, relatively little has been written about economic corridors beyond the grey literature supported by multilateral development banks.

Notable exceptions to this dearth of conceptual engagement include those framing them as technologies of nationhood (in Malaysia), a form of licenced larceny (in Africa), tools of containment and enclosure (in China), and neoliberal institutions and new frontiers of capital (in India). In an article recently published in the Review of International Studies I contribute to this literature on corridors and infrastructure by proposing we should understand economic corridors as an essentially extractivist paradigm: a constellation of policy prescriptions that advance processes of valorisation and accumulation based on the subjugation of human and extra human nature to intensified exploitation. The adjective “extractivist” here denotes a process whereby capital draws on its multiple outsides as it depletes the social bases of wealth. This includes but is not limited to the plundering of the earth and biosphere, extending also to social dimensions of exploitation, such as the reorganisation of production and social relations that enable production.

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What You Exported Matters: Persistence in Productive Capabilities across Two Eras of Globalization

This blog was first published on the Rebuilding Macroeconomics website.

By Isabella Weber, Tom Westland and Maya McCollum

“The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep…” This was how John Maynard Keynes described the globalisation of the Belle Epoque before the First World War. London, and by extension Britain, was at the centre of the world economy: not just a global manufacturing powerhouse, but also the ruler of a vast colonial domain upon which the sun famously never set. The global division of labour was stark: Britain and other Western nations largely produced manufactured goods. But they also exported a whole range of temperate agricultural goods like wheat, beef and barley. Elsewhere in the European colonial empires, products like cotton, cocoa and coffee were exported, often at very low prices and sometimes with forced labour, to sate a growing demand in the global economic core for tropical luxuries. 

More than a century has passed since World War I heralded the collapse of this world order. Today, another globalization wave that has shaped the world since the 1980s is ebbing. The question we ask in our ESRC Rebuilding Macroeconomics project What Drives Specialisation? A Century of Global Export Patterns is simple: what is the legacy of the First Globalization of the late nineteenth and early twentieth centuries on the economic fortunes of countries during the Second Globalization? Or in other words, to what extent have countries’ positions in the international economic order been persistent across the two globalizations with some trapped at the bottom and others floating on top?

To answer this question, we have assembled a large new database of global commodity exports from 1897-1906. We exploit the fact that this period was the high point of colonial trade statistics and use a large variety of primary sources in five languages. To the best of our knowledge, ours is the most ambitious census of world trade for the previous globalization to date. This allows us to investigate the long-term wealth of nations in ways that aren’t possible with GDP data. The latter is sparse and unreliable for large parts of the world before the Second World War.

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Understanding development in a Global Value Chain World: Comparative Advantage or Monopoly Capital Theory?

By Benjamin Selwyn and Dara Leyden

The recent period of globalisation – following the collapse of the Eastern bloc and the integration of China into the world economy – is in essence the period of global value chains (GVCs). From low to high-tech, basic consumer goods to heavy capital equipment, food to services, goods are now produced across many countries, integrated through GVCs.

The big question in development studies is whether this globalised reconfiguration of production is contributing to, or detracting from, real human development? Is it establishing a more equal, less exploitative, less poverty-ridden world? To understand these complex dynamics, scholars rely on economic theories. These theories must be relevant to the GVC-world and equipped to tackle these pertinent questions.

In 2020 the World Bank published its World Development Report Trading for Development in the Age of Global Value Chains (WDR2020, or ‘the Report’) to address these questions. It confidently proclaimed that ‘GVCs boost incomes, create better jobs and reduce poverty’ (WDR2020: 3). Given the World Bank’s promotion of neoliberal globalisation, this conclusion is unsurprising.

However, before accepting the Report’s claims at face value, we should reflect on the findings of Robert Wade (2002: 220). These annual World Bank reports serve as “both a research-based document and a political document…. the Bank’s flagship message must reflect back the ideological preference of key constituencies and not offend them too much, but the message must also be backed by empirical evidence and made to look technical”.

When globalisation is booming it may be possible for the report’s liberal bias to appear to complement its data. However, the GVC world has generated such inequalities that the dissonance between the report’s liberal bias and its own data is stretched to breaking point.

Drawing on our recently published article, this blog post uses the Report’s own data to undermine its core claims. It shows that the GVC world enhances the dominance of transnational corporations (TNCs), concentrates wealth, represses the incomes of supplier firms in developing countries, and creates many bad jobs – with deleterious outcomes for workers.

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Big ships were created to avoid relying on the Suez Canal. Ironically, a big ship blocked it.

The 2021 blockage is another reminder of the fragility and lack of accountability in global shipping.

On the morning of March 23, a gargantuan freighter laden with containers, heading north to the Mediterranean, ran aground in the Suez Canal. The weather was blustery, with sandy gusts blowing across the canal. A strong gust and the hydrodynamics of shallow waters pushed the merchant vessel Ever Given into the east bank of the canal.

It was immediately clear that the bulbous nose at the prow of the ship had lodged in the canal’s bank, and the 1,300-foot body of the ship lay diagonally across the waterway, blocking traffic. Ironically, as my new book explains, the most dramatic leaps in ship sizes were precipitated by Suez Canal politics in the 1950s and 1960s. Decades later, it’s the vast size of the ship that makes refloating it so difficult.

By Friday, more than 160 ships were anchored in the Mediterranean and the Red seas. Egyptian officials appeared confident the canal could reopen within days, while salvage engineers cautioned that freeing the stuck ship might take weeks. Oil prices jumped up by a few dollars on Wednesday; and insurance claims on freight delays have begun to trickle in.

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The Promise – and Pitfalls – of State-led Development in Resource-rich Countries: Resource Nationalism in Latin America and Beyond

miningThe eclipse of neoliberalism in 2000s coincided with the so-called commodity ‘super cycle’ that lasted between 2002 and 2012. In search of a new model, resource-rich states began to articulate resource nationalism as a development strategy. While ownership and control of minerals and hydrocarbons are intricately tied to claims of state sovereignty and exercise of political authority in development policy, resource nationalism can also be understood in terms of a power struggle between host states and global hegemons in their quest to secure resources for their own industrial needs. Hence, contemporary natural resource governance is reflective of the wider ideological return of the state despite two decades of reforms promoting market liberalization and privatization. Resource nationalism is a vital expression of the renewal of state agency amidst high external constraints imposed upon resource-rich countries.

Resource Nationalism as a State-led Development Strategy

It is not a coincidence that resource nationalism returned in mainstream political debates at the same time as emerging powers designed new industrial policies aimed at recalibrating state-market relations in favour of the former. With extraordinary high prices and rising demands for natural resources from China, domestic political configurations in resource economies appear to move towards reforms aimed at (1) capturing and maximising windfall profits amidst a boom, (2) extending the role of state in commodity production through a renewed role for state-owned enterprises, and (3) renegotiating the terms of contracts with multinational mining capital.

These policies are emblematic of a wider trend: the growing importance of state stewardship for industrial transformation in an era of cross-border production networks governed by global lead firms. Despite the rhetoric on economic globalization, the role of the state remains prevalent as observed in the number of state-owned enterprises, the significant expenditure on industrial policy, and the array of government-business partnerships in East Asia and beyond. State interventions are reconfigured not simply to reinforce the residual statist tendencies, but to actively construct new comparative advantages and build strong ties with economic elites who can compete in a globalized international economy. Perhaps, more importantly, political elites are forging new social contracts with ordinary citizens to enhance the legitimacy of the state, whether in terms of actively supporting social welfare programmes (as in the case of many conditional cash transfers in Latin America), or by creating new avenues to engage with marginalised groups (for example, through participatory institutions and FPIC process).

Amidst the resource bonanza, development plans were set in motion centred around the exploitation of natural resources. For example, Brazil launched a programme focussed on heavy investments in the capital goods sector, notably in oil, gas and ship-building industries.

Several Latin American countries also introduced new royalty fees and export taxes aimed at capitalising on high prices. Table 1 details the increasing role of natural resource rents in state revenues over the past twenty years.

Table 1: Public Revenues from non-renewable natural resources in percentages of GDP

Screenshot 2020-03-24 at 09.33.07

Alongside attempts at adding value in mining and hydrocarbons, Latin American governments faced redistributive pressures from their political base. ‘Compensatory states’ justified their resource extraction strategy as a necessary step for further income distribution and revitalization of manufacturing. While political citizenship in post-neoliberal Latin America is increasingly defined by redistributive politics, it also emphasised recognition and identity politics as a central feature of a contentious state-society relationship.

The Limits of the Resource Bonanza

It is now a widely held view that the Left-of-Centre governments successfully reduced poverty and extreme poverty (see Table 2), and although slow, inequality has begun to taper off (Figure 1). However, the data also confirm the fragility of the social achievements of Latin American governments – as the bonanza ended, so did the gains from poverty reduction. This points to several important shortcomings of resource-based strategies.

Figure 1 Gini Inequality Index in Latin America, 2002-2018

Screenshot 2020-03-24 at 09.29.28Source: CEPAL 2019

Most conspicuously, poverty gains may have created a trade off in making vital investments in the productive economy. Finite domestic revenues have been subject to immense political competition for rent-seeking, and without a coherent industrial strategy, an export-led growth model based on commodities are likely to be fragile and is vulnerable from price swings.

This, then, leads to a gloomy conclusion. Resource-rich states, without the institutional capacity to design a productivist strategy to diversify their export base and to set out an ambitious multi-year development plan to upgrade their industrial sectors, are likely to suffer from the vicissitudes of international commodity markets. At worst, those without political consensus over governance – Venezuela under Maduro being the emblematic case – are likely to waste the opportunities for development through their strategic mining sectors. The broader lesson, I suspect, is that institutional preconditions and pro-industrial policy coalitions are central to the success of developing countries advancing new strategies in an increasingly globalized international economy. Crucially, whenever crisis and uncertainty appear, the state as a stabilizing force becomes more prescient than ever.

Table 2: Poverty and Extreme Poverty in 18 Latin American Countries, 2002-2019 (in percentages)

Screenshot 2020-03-24 at 09.34.27

Jewellord (Jojo) Nem Singh is an Assistant Professor at the Institute of Political Science, Leiden University working on the political economy of development and democracy in Latin America and East Asia. He tweets at @jnemsingh.

Should the African lion learn from the Asian tigers? A comparison of FDI-oriented industrial policy in Ethiopia, South Korea and Taiwan

19095762104_2c72b2e569_o.jpg
The Huajian shoe factory in the Eastern Industrial Zone in Ethiopia. Photo: UNIDO.

Ethiopia is being hailed as one of the most successful growth stories in Africa. Because of the country’s rapid economic growth, the high degree of state intervention in the economy, and the state’s focus on industrialization, people have started to compare Ethiopia to the Asian ‘tigers’ (Aglionby, 2017; Clapham, 2018; De Waal, 2013, Hauge and Chang, 2019; Oqubay, 2015) four countries in East Asia (Hong Kong, Singapore, South Korea and Taiwan) that underwent rapid industrialization and maintained exceptionally high growth rates in the post-WWII era.

However, this emerging literature on Ethiopia-Asia comparisons has not yet sufficiently addressed one of the most important aspects of Ethiopia’s industrialization strategy — the attraction of foreign direct investments (FDI) into the manufacturing sector.

The rationale of my recently published article was this gap in the literature. In it, I ask the question: Should the African lion learn from the Asian tigers with respect to FDI-oriented industrial policy? 

In short, my answer is yes. While Ethiopia’s policies are bringing about short-term economic success and showing promise for further industrialization, the state could arguably bargain harder with foreign investors, like it did in South Korea and Taiwan.Read More »