Category: Trade

Want to understand industrialisation in resource-rich countries such as Uzbekistan? Read Marx (and Iñigo Carrera)

fgaldini1 Comment

The commodity supercycle of the 2000s and 2010s gave rise to a rich debate in the academic literature about the possibility for resource-rich countries to muster the primary commodity price bonanza for development. As in past debates on the rise of Asia as the ‘world’s factory’, industrial policy was once again at the forefront of discussion.

On the one hand, orthodox scholars insisted that the use of market distortions to channel resources towards industrialisation would be a risky gamble with little guarantee of success. Instead, as the Asian ‘tigers’ and China before them, developing countries would do well to make good use of the market to identify their comparative advantages. In this view, industrial policy continues to be inefficient and wasteful, especially as it creates plenty of opportunities for corruption rather than development. On the other hand, heterodox researchers argued that state intervention was crucial to divert resource rents to specific nascent industries that would never be able to withstand international competition without sustained support. As both the Asian ‘tigers’ and China more recently used robust industrial policy to develop globally competitive industries, developing countries should also use targeted policy intervention to ‘upgrade’ to higher value-added manufacturing for export.

Still, one question that eludes both orthodox and heterodox literature concerns why, for decades, multinational corporations would consistently invest in manufacturing in resource-rich countries such as, for instance, Argentina, Brazil, and Egypt. This has been the case despite the small scale and high costs of production in these markets (making them inefficient, per orthodox scholars), whose output is mostly sold domestically rather than exported (pace heterodox scholars).

In a recently published open access article in Competition & Change, I applied Argentinian scholar Juan Iñigo Carrera’s original elaboration on Marx to the under-researched case study of the car industry in Uzbekistan to answer precisely this question. I found this same orthodox-heterodox binary to dominate the literature on ‘transition’ from the command to the market economy in Uzbekistan, too. Orthodox researchers averred that state-owned auto company UzAvtoSanoat failed to develop due to inefficiency and corruption, in particular due to the distortions of the government’s industrial policy. Heterodox scholars instead found industrial policy to be the very reason behind the creation of a successful export-oriented car industry, in particular during the commodity supercycle when part of total output was exported mostly to Russia. Neither, however, could explain why Korean Daewoo Motor Company (DMC) and American General Motors (GM) entered into a joint-venture with UzAvtoSanoat, despite the small domestic scale (hence high costs) of automobile production in the country, which is mostly purchased domestically.

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The Malformation of West Africa

Abel B.S. Gaiya1 Comment

In 1927, Ladipo Solanke – co-founder of the West African Students Union (WASU) – published a book in which he argued that “It took the white race a thousand years to arrive at their present level of advance: it took the Japanese, a Mongol race, 50 years to catch up with the white race, there is no reason why we West Africans, a Negro race, should not catch up with the Aryans and the Mongols in one quarter of a century.” (Solanke, 1927: 58). All that would be needed to achieve this, for Solanke, would be “a strong self-determination to take up and money to back up,” as well as active cooperation among West Africans. Sir Henry J. Lightfoot-Boston, in an article titled Fifty Years Hence, prophesied a federation of West African territories by 1976 (Boahen, 1982: 40).

The fulfilment of such grand visions has continued to elude the region for decades. West Africans, and indeed many from outside the region, have not only underestimated the difficulty of development in general and in the region in particular, but have understated how crucial it is to examine the difficulties within a regional framework.

Developmental and Regional Difficulties

In the case of the former, the worldwide development experience since the 1960s and the multitude of crises in West Africa have demonstrated that development and stability are not merely matters of “political will” or “strong self-determination”. Particularly for West Africa, there is a reason why the great empires and societies of the interior (the Western Sudan) which had the highest levels of integration with the rest of the world, elite Arabo-literacy rates and the largest empires in the pre-Atlantic period now rank the highest in poverty rates and the lowest in economic production, anglo-literacy rates, and many other measures of human development.

There is a reason why West Africa had the highest incidence of military coups in Africa following political independence (McGowan, 2003: 355); why the region is a major center of diffusive terrorism on the continent; and why it is experiencing a current climate of violence between farmers and pastoralists that is “unprecedented in modern times” (Brottem, 2021: 2). There is a reason why West Africa, along with Central Africa, has the highest transport costs and lowest transport quality in a continent which has the highest transport costs in the world (Teravaninthorn and Raballand, 2009: 17).

There is a reason why, according to the latest attempt to quantify political settlements of developing countries (Schulz and Kelsall, 2020), West Africa ranks the lowest in Africa in terms of virtually all the variables identified by Whitfield et al. (2015) as critical for industrial policy success. Yet presidential elections and development discourse within nations in West Africa continue to be dominated by simplistic narratives of “good governance”, “corruption” and “political will”.

With regard to understating the importance of adopting a regional lens, this has been the case since the late colonial period when self-government began to be extended to the colonies on a territorial rather than regional basis. The movements for West African cooperation fostered by the National Congress of British West Africa (NCBWA), its eventual rival, the Universal Negro Improvement Association (UNIA) and student organizations such as the West African Students Union (WASU) and the Fédération des étudiants d’Afrique noire en France (FEANF) (Black African Students Federation in France) went into decline in West Africa as nationalist territorialism spread across the region in response to the expanded opportunities for legislative engagement which followed colonial acquiescence to some degree of self-rule (Boahen, 1982: 15). Efforts at creating regional federations, as pre-eminently envisaged by Kwame Nkrumah, did not succeed, and faded away after the fall of Nkrumah in 1966 (Serra, 2014: 21-22). Since then, “Although rhetorical support for integration exists, there is no dominant personality to articulate a vision and turn it into a crusade the way Nkrumah once did.” (Lavergne and Daddieh, 1997: 105). There is also an absence of an “integration culture” in the region, among governments, business communities and ordinary people (Bundu, 1997: 38).

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

Dan1 Comment

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

benjaminselwyn1 Comment

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

charliethame4 Comments

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

isabellamweber2 Comments
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?

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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.

Laleh KhaliliLeave a comment

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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