29.06.2005

Political economy of aid

What lies behind the establishment's 'campaign for Africa'? Hillel Ticktin, editor of Critique, looks beneath the hype

There is, of course, a long tradition of philanthropy within capitalism, but only the very naive can believe that the imperial powers are dispensing billions of dollars in order to disinterestedly assist the very poor in the world. When Gordon Brown praises the British empire, notorious for its robbery, enslavement and destruction of the third world for hundreds of years, and later says that he wants to help the poor, one has to find another motive.

From the earliest times it is clear that such apparently disinterested help for the poor served other purposes. The provision of bread and circuses from the Roman empire onwards has been a traditional method of containment of discontent. In all empires some measure of prior investment is required, if only on the army and the requirements of policing.

Good roads and methods of communication are necessary and their establishment can be represented as a generous gift by the imperial power. Since some regions are held for strategic reasons rather than for the exaction of tribute, the improvement of the infrastructure can be regarded as selfless aid.

Religions have generally emphasised the saintliness of assisting the less well off, so helping to take the edge off a patently unequal society. The selfless missionaries to Africa played the role of an imperialist vanguard notoriously 'discovering' Africa. They provided the information necessary for imperialist conquest and converted the local population to needs which only capitalism could supply.

In modern times, the aid to Stalinist eastern Europe played a similar role, in that it enmeshed those countries in a web of market-type relations. Loans/grants to the former Soviet Union still play that role. Today, various reactionaries are trying to revive the idea that the abolition of slavery within the British empire was a result of the great humanity and genius of reformers like Wilberforce.

Eric Williams, the former prime minister of Trinidad, showed clearly in his work, Capitalism and slavery, that capitalism needed to abolish slavery and most of the establishment reformers were little more than opportunists. It is obvious to all except orthodox economists that slavery has a number of serious disadvantages for capital.

First, there is the damage done to the tools; second the poor quality of workmanship; and third the relatively poor skills when work is done on a mass basis. All of this results from the fact that the slave has no incentive to raise his level of productivity other than various forms of force. Marx makes the point in the first volume of Capital.

In addition, a workforce based on slavery does not provide a mass market for either consumer or producer goods.

Finally, the absence of a free market in labour effectively destroys any concept of abstract labour and hence, crudely, any way of comparing costs. The law of value does not apply and hence capital itself can only be stunted.

Therefore, it paid capitalism in its prime to abolish slavery and, in principle, forced labour and semi-forced labour. (While this is an analogy, no one can forget that one of the chief reasons for the relative backwardness of much of Africa has to do with centuries of the slave trade.)

What follows is a discussion of the present situation and assumes the past history of primitive accumulation, and the later period of the initial decline of capital, when it became imperialist. Both periods saw, of course, the mass slaughter and super-exploitation of peoples in countries outside Europe. Why capitalism wants to develop the third world One can draw the obvious deduction that, in a world economy, it pays capitalism to develop all regions to a level such that they can act both as a market for goods and a source of cheap commodities, based on labour of high productivity but low cost.

We are told that: "Some multinationals such as Hewlett-Packard and Unilever are beginning to see the poor as not an intractable problem but as the biggest consumer market in the world" ('Subsidies that breed poverty' The Observer business section, June 26).

This does not imply that all regions will be developed or reach the same level as the metropolitan countries. After all, in the developed countries there are substantial layers of the population in dire poverty. Nor does metropolitan capital want third world national capital to threaten its hold over the world economy.

Nonetheless, for capital to function it requires to expand without limit. However, capital is itself only dead labour and hence it requires labour to exploit and wage workers to buy the commodities produced. Exploitation itself requires the atomisation of workers who compete in order to get and keep their jobs.

This is not just a question of low wages, because modern production requires an increasing level of skill. In South Africa, for example, wages are low, but productivity is also very low and the reason in part (even if it is only in part) is the low level of education for the majority. In part, it is also a question of health. Clearly, workers with uncontrolled Aids or incipient Aids are unlikely to have a high level of productivity.

"The inability to trade their way out of poverty means aid from rich countries fails to build sustainable long-term growth, believes CBI director-general Digby Jones" (ibid).

Such is the view of the ruling class. The same article in The Observer, from which the above quote comes, also points out that developed world agricultural prices are so low that the underdeveloped world cannot compete. It therefore argues that agricultural subsidies have to be removed in the developed world.

Apart from the obvious impoverishment of developed world farmers that would result, the whole argument is absurd. Ordinary people are starving in the third world. Food ought to be as cheap as possible and in principle no food ought to be exported as long as nationals do not have enough to eat. The emphasis on cash crops to be exported to the west is itself a cause of poverty, not the reverse.

The enrichment of a few large farmers, or landlords, only makes the situation worse. Trade with aid will not solve the problem. The amount of aid is trivial in relation to the amounts needed to be invested to achieve the necessary result and the trade proposed will not provide the necessary surplus.

At the same time, foreign private investment in much of the third world, outside of East Asia, has been declining, particularly in Africa. Capital comes up against its oldest contradiction that its goods can only be bought if workers have the money to buy the commodities, but if they are not paid or not sufficiently paid they cannot do so. If they are better paid then profits are reduced and capital can either not invest in anticipation of such an outcome or, where it has invested, it may pull out.

The development of technology has reached the point where the percentage of the population needed for agriculture is a small fraction of the workforce and where industry too requires an ever lower number to produce the same quantity of goods. In a market economy this results in mass unemployment unless there is government intervention. In the case of the third world this now means open or hidden unemployment on a colossal scale.

In the absence of a socialist alternative, wages and conditions can be driven down on an international scale, if advantage be taken. The problem of finding buyers for such goods, however, remains. High and long-term levels of unemployment create a potentially undisciplined, low-productivity workforce, which can revolt dangerously when employed under wage-slavery.

On the other hand, capital needs poverty to drive the reserve army of labour to work, so it must create and recreate poverty - but only on a scale which does not threaten capital itself. It is also true that with more capital and proportionately fewer workers profit rates will tend to fall, pushing the capitalist class to find more profitable opportunities in the third world, but this is a tendency in the hidden essence of the system, though it is nonetheless important.

As Marx points out, money is only money when it is world money. Capital is only capital when it can expand to the maximum extent. When it is constrained - as it has been, and is, with non-market economies, or even sectors - it malfunctions. It has, therefore, constantly to attempt to break through all non-market forms.

In the contemporary world, the term 'globalisation' is little more than a propaganda slogan being used to glorify the centuries-old drive to accumulate the world over. There are two main differences today. One is that capital has itself been overthrown in parts of the world and its restoration is limited. The second is that capital is in the process of transformation as it reaches its limits.

In other words, capitalism is in decline. The dominant form of capital today is finance capital and, since it is separated from production, it needs no location. As Hilferding rightly put it, it is abstract capital. As a result, it is truly global in that it will be invested wherever it can make money. At the present time, there is a vast surplus of capital, threatening indeed to bring down the system, with derivatives running into hundreds of trillions of dollars and hedge funds in the trillions.

Finance capital differs from productive capital also in that it needs to get ever higher profits in order to exist. Productive capital attempts to raise profits, but it is ever mindful of its long-term profitability. Finance capital is short-termist and consequently looks for immediate, ever-rising profit - something that is impossible over the long term.

The third world can therefore be looked at as part of the system that will provide the increasing profits, if the conditions are right, and that is where aid comes in. In a sense, this is a forlorn strategy because the chances that it can actually do so are limited, but capital is desperate to find outlets for profitable investment.

Reasons to relieve poverty

The above analogy gives us two reasons to remove poverty. The first is to reduce the incentive to revolt and the second is to extend the operations of capital. There is a third, based on the close interconnection of all countries socially and economically. It is clear that, if there is one part of the world where disease is prevalent, it cannot be contained there. This is obviously true of Aids, malaria and TB, the three mass-killer diseases of Africa, but the rarer diseases of ebola, etc have already begun to spread.

In the 19th century, the bourgeoisie realised that they could not contain the disease in the working class areas and they would have to ensure that there was proper delivery of water and installation of sewage removal, if they wanted to avoid disease themselves (quite apart from the need to have healthy workers).

There is, of course, as with any imperial system, always the threat that workers and peasants unable to sustain themselves in one part of the world will migrate in larger and larger numbers to the area of the world where they can sustain themselves. Capital is in favour of open borders for labour because it brings down wages and conditions of labour.

Nonetheless, capital has had to concede to the political opposition to such migration. The ruling class, therefore, is conflicted on this issue. It would seem to have a policy of reducing the outflow of workers by attempting to develop the economies of the underdeveloped countries at least to the point where the outflow is politically acceptable. In the UK, it is abundantly clear that the British government has worked out that it can establish an extra diversion from its failures and the discontent of the working class by claiming that it is doing its best for the poor of the world.

The sub-text is that people in Britain have never had it so good and instead of complaining they should give money to Africa. Blair is not just a warmonger but also a do-gooder. Instead of marching against the war and against capitalism, people should march for aid. This does not remove the fact that there is genuine sympathy with the suffering populations of much of the world but the ruling class normally ignores the feelings of the majority unless there is a good reason to use them.

The aid campaign can be said to be driven, therefore, by the contradictions of capital itself. We may still ask why capital requires that aid be supplied rather than long-term investment in medical facilities, infrastructure, housing and education, followed by direct investment in industrial facilities. It appears as a paradox because colonial Africa did get a limited amount of such investment both from the government of the imperial power and from the imperial capitalist class anxious to develop the extractive industries, plantations and the limited degree of industry in which they had invested.

The answer lies in the further decline of capitalism, in that the finance capital which lay behind the imperialist drive from the 1870s onward had not yet descended to the point where short-termism and the consequent push for ever higher returns had further degenerated to an unheard of immediacy. The conquest of a country and the installation of the necessary facilities in order to exploit extractive industries was itself a medium to long-term project.

Today, finance capital needs a return within 18 months, not over 10 to 20 years. Furthermore, it cannot today expect that the state can finance an armed invasion or the infrastructure, as it did in colonial times, so aid is there instead. In those times, the misery of the majority was hidden, as well as contained by direct force. Today people cannot be shot down in the old way nor allowed to quietly starve to death on a mass basis.

Blair-Brown aid

It has been agreed, it appears, to write off the debt of some 18 countries - four in South America and 14 in Africa - to the IMF, World Bank and the African Development Bank (see 'Economics focus: to give or forgive' The Economist June 18, p82, for the detail on the current discussion on aid). However, the money will not be returned to the IMF, although it will be paid to the other two.

The countries agreeing to provide the money will pay the interest involved: that is to say, they will reimburse the banks. The recipients will have subsequent aid from the World Bank reduced to account for the write-off. As a result, the total sums involved, some $1-1.5 billion, are marginal. US gross domestic product is calculated at some 11 trillion dollars. US arms expenditure per annum is around 400 billion dollars per annum. The US government asked for around $85 billion for the war in Iraq in 2004.

Nonetheless, the US was not keen to pay anything on debt relief. It is supposed that it may pay around $300 million extra, but it is not clear whether this will not come from some other part of its aid budget. The Economist gives the example of Rwanda, which was due to pay at least $4.5 billion to the two banks and $2.9 billion to the IMF. As a result, it will now receive $4.5 billion dollars less in aid from the banks, so it will in fact only save the $2.9 billion.

It is not known whether the donor countries will reduce their aid in subsequent years or not. To make matters worse, it is clear that the IMF/World Bank have historically imposed conditions that rendered the position of the masses worse than before they extended the loans. The debt write-off will impose new conditions that could well have the same effect. The conditions are being imposed, ostensibly, in order to make sure that corruption is avoided.

George Monbiot gave a serious account of the kind of conditions introduced in his article in The Guardian, where he pointed out just how onerous, ideological and self-serving they are: "The G8 plan to save Africa comes with conditions that make it little more than an extortion racket" ('A truckload of nonsense', June 14). I refer to these conditions again below.

Whenever there is a discussion on the failure of third world economies, there is a hue and cry about the extent of corruption. There is no question of the extensive role of corruption in those economies, but equally there is no question of the role of corruption in developed capitalist countries. One has only to think of Enron and its way of making profits and then trace its contacts with the US government.

The same can be said of the other companies indicted in the US, like World Com, Tyco, etc. That metropolitan companies bribe executives in the underdeveloped world is well known and clearly essential to 'good business'. In fact, the failure of third world economies has little to do with corruption. The export of capital from those countries is, however, crucial and it is a condition of IMF-style aid that such economies relax exchange controls, as well as barriers to the repatriation of profits to the imperial-owned companies.

The result is that there is a flood of capital back to the developed countries. This consists of the payment of interest and capital on loans (a) from international agencies, (b) from government agencies, (c) from banks and other private lending agencies, and (d) from the payment of dividends, consultancy fees and profit shares to investors in the developed countries.

Then too there is dispatch of money by the indigenous capitalist class, the middle class of professionals and other hangers-on of the capitalist class to capital havens in the developed world. Aid may consist partly and sometimes largely of payments to western consultants or of loans tied to the purchase of western armaments. The essential point is that there is very little so-called aid which actually helps the development of the countries concerned.

From time to time there have been famines where the western liberals like Geldof and other establishment figures become much concerned and the money then collected has helped the local inhabitants. Even then, it has often been done in such a crass way that much of the aid is lost or is actually detrimental to the local economies or societies.

According to The Economist article, a country like Mozambique paid $71.8 million on its debts in 2003, but received 14 times that figure in aid, including debt relief. A number of these countries cannot pay the loans, and the national and international agencies agreed to give extensive and long-term debt relief. The Brown-Blair debt relief appears trivial by comparison.

However, the essential point is that such lending, debt relief, write-off or acceptance of defaults for both private capital as well as state capital, as in the case of Argentina or Russia, are today the norm and the means by which these countries are controlled and maintained within the world capitalist system. Mozambique is in the orbit of South Africa, where the outflow of capital, both legal and illegal, has been far higher than any loans or foreign direct private investment in the past 20 years.

Underdeveloped capitalist societies are structurally incapable of absorbing grants or loans such that it will either raise the standard of living of the majority or lead to a self-sustaining rise in growth rate. The money is not given directly to the peasantry or working class or its representatives precisely because that would destroy the line of authority within the society. Instead, starving workers or peasants are given food to tide them over the emergency, after which the society returns to its previous perilous state.

Without planning the economy, extra resources must inevitably be wasted. Conditions for development If we observe the history of the last 80 years, we see that only those societies where there was a measure of central organisation of the economy were able to develop, provided always that they were able to obtain sufficient surplus product, either internally or from foreign investment.

This has applied both to Stalinist-type societies and to particular capitalist countries, where a local bourgeoisie has used the state as a means of building itself up. In the second place, it is clear that elementary educational and health measures do not require much investment. Where regimes have been able to enlist the enthusiasm of their populations, as during war time or after the initial overthrow of capitalism, or colonialism, they have often pressed the intelligentsia into providing successful mass literacy and health campaigns.

By contrast modern African ruling classes are often compelled to cut education and health budgets to reduce the government budget and so antagonise the same private and public sector professionals. As a result education and health become intractable problems.

In the third place, the often-cited examples of east Asia refute the propaganda that any country can reach the level of developed countries, because they were granted a special dispensation by the US to have centrally organised capitalist economies, in view of the cold war. They had strong states, eager to suppress any working class discontent, ably assisted by the presence of imperial, usually US, troops. They maintained high levels of protectionism against foreign commodities, including US goods, and their industry was quickly organised in the form of giant firms.

In Japan, Sony, Matsushita-Panasonic and Toyota are global brands; in South Korea the chaebols, such as Samsung, are also well known. In other words, we are talking of an organised capitalism given a special licence by the US, which both invested in these societies and permitted their goods free access to the US market, even though US goods did not have reciprocal access.

China is a special case where the economy is centrally organised, with a strong state held by the Communist Party. Even there it is clear that the majority of the population, who are peasants, have benefited very little, if at all. However, the surplus invested is huge, with something like $50 billion per annum coming from abroad alone.

The Chinese example is instructive because it is largely based on increasing exports to the US and Europe - something that has definite limits. Japan came up against the same barrier 15 years ago and remains mired in a long-term downturn. Today, the cold war has come to an end, and concessions extended to underdeveloped countries in the front line have no place.

At the same time, the era of Stalinism is over and there will be no new examples of China or Vietnam moving from Stalinism to controlled capitalist development. As a result, it is hard to see how any underdeveloped country can do more than have islands of industrial development, without either a nationalist revolution, whose initial success will inevitably fade away, or a socialist revolution as part of a world revolution.

The current finance-capitalist orthodoxy is one in which it is assumed that, if conditions are set in place for free trade, a balanced budget, control of the money supply, rule of law, protection for private property and a positive attitude to foreign investment, there will be an industrial boom forever and a day, largely based on small and medium-size enterprises.

In reality, this is little more than a utopian dream and it would be of no importance if not for the fact that this view of the economy is brainwashed into the heads of the economists and politicians of such countries and then held up as necessary conditions for loans and grants.

There are two problems with this view of reality. The first is that it is untrue, as already argued, and the second is that it cannot work, even if were true. Change in strategy forced by failure Indeed, it has already failed, and is itself responsible for a measure of the poverty in underdeveloped countries. Removal of protection and reduction of expenditure on health, education and welfare which results from attempts to balance the budget have led to higher unemployment, lower productivity and greater poverty than previously.

At the same time indigenous capitalists, who were given a share in the extractive industries, property markets, etc have become rich, while the majority have usually become poorer. Driven by the patent failure of their economic policy and the political animosity engendered, the IMF/World Bank have begun to change their policy. They have had to recognise that the conditions imposed are politically unpopular. The result is a policy vacuum in which the old conditions remain but with less enforcement.

The underlying policy of the ruling class is one in which they seek to impose a subordinate capitalist class supported by a pliant 'middle class', which is supposed to have formed out the owners of the small and medium-size enterprises plus the professionals dependent on these new capitalists. The problem, however, is that modern capitalism is proletarianising the formerly 'middle class' professions in education, health, law and the public sector in general.

The very reduction in the government budgets that was supposed to ensure financial discipline has also led to a major shift in the conditions of this sector, as well as a reduction in real income for the majority. The effect of finance capital squeezing costs in every sector in order to raise its profits has been the proletarianisation of white-collar labour. The idea that industrialisation is controlled or driven forward by small or medium-size capitalists is drivel.

Although there are, by definition, many more such enterprises in any country, they are generally subordinate to the very large firms that control sectors of the economy. This is only partly shown in production or market statistics, since the added value at the giant corporation may not tell the whole story. An even worse conflict for finance capital has been the downturn that began in March 2000.

In reality, one ought to date the global downturn to the end of the cold war. Jeremy Rifkin points out that: "Today, while corporate profits are soaring around the world, 89 countries find themselves worse off economically than they were in the early 1990s. Capitalism promised that globalisation would narrow the gap between rich and poor.

Instead, the divide has widened. The 356 richest families on the planet enjoy a combined wealth that now exceeds the annual income of 40% of the human race. Two-thirds of the world's population have never made a phone call and one-third has no access to electricity" ('Capitalism on trial' The Guardian June 22).

The cyclical upturn has been weak and Japan and Europe remain with low or negative growth rates - since the early 1990s, not just since March 2000. One of its effects has been the reduction in profits for the underdeveloped countries, alleviated by a rise in commodity prices, which has now reached its peak.

However, the essential basis of the continuing crisis lies in the vast capital surplus in the world economy. This means that the competition for profitable investment outlets must inevitably reduce the opportunities for the national bourgeoisies of the underdeveloped countries. This raises the whole question of the stability of these countries.

An obvious example has been Argentina, which defaulted on its international debts and devalued its currency. One result has been a massive proletarianisation of the former middle class in that country, showing once more that the only way of ensuring that capital remains capital is to export it to the developed countries. In reality, this is a process going on throughout the third world to a greater or lesser degree.

We therefore have the position where the stability of the national capitalist class and its supporters in the 'middle class' depends on the export of capital, at the same time as international capital has a problem of finding outlets for its investment funds.

Imperialism

It is clear that modern imperialism has its own form. The core of imperialism since 1870 has rested on the evolution of capital into finance capital, which in turn exported capital to countries underdeveloped in relation to itself. This included the USA and Germany at the time and most capital did indeed go to those countries, even though substantial amounts went to the conquered countries of the third world.

Capitalism in decline had to move out of productive capital because the rate of profit was declining and its export raised the rate of return. The exact mechanism is still argued over among Marxists but it does not matter for these purposes. There was a surplus of capital that found outlets but led to colonial conquest and two world wars. The problem is that money cannot generate money in itself. It has to have a source of surplus value or, in other words, labour to exploit.

However, the ruling class does not want to compete with itself and hence colonial industry was made subsidiary to the metropolitan firms by imperial rules. Since the end of colonialism, those rules cannot be made imperial fiat. In short, General Motors does not want more competition than it has to accept and hence wants free trade except in its home territory. The World Trade Organisation and IMF/World Bank act as the imperial policemen.

At the present time, however, national bourgeoisies or ruling strata either have to export their capital, and so become in effect an expatriate bourgeoisie, or revolt against the international trade and financial system. In principle, the essence of imperialism lies in the extraction of tribute by an imperial ruling class from the inhabitants of the empire outside the metropolis. Lenin used the term to apply exclusively to the period of the export of capital from the 1870s onwards, but his definition is not in conflict with the above.

Finance capital extracts surplus value at a higher rate from the colonial and ex-colonial world than in the home country. The local inhabitants are superexploited and that continues to be the case. Chinese or Indian or Bolivian workers receive a pittance in wages.

As a result, the imperial bourgeoisie increases its profits both directly and indirectly. In the latter case, they benefit from the cheap goods imported into the imperial countries, allowing them to avoid raising real wages or even nominal wages.

Conclusion

In short, this article has argued that the temporary respite granted a declining capitalism during the period of the cold war has ended and this has meant that the position of all classes in the third world is deteriorating. Metropolitan capital is not prepared to invest the sums necessary to develop these countries, but it does want to be able to extract profits from them. They have solved some of their problem by investing in China, which is partially outside the world capitalist system, although it is gradually integrating into it.

The future of east Asian capitalism is unlikely to be bright and the countries are likely to suffer the same fate as Japan. The huge capital surplus overhanging capitalism will almost certainly result in a further slump, in which the position of the masses in the third world will worsen. This would not be inevitable if the capital class were to go for a Keynesian-type solution of major re-investment in a massively expanding industry, producing for the sectors which have a needs deficit. But they are afraid of the working class being so strengthened that they will be back to the struggles of the 60s and 70s.

So they will not do it. Instead they are walking a tightrope, trying to force countries to open their economies to risk free exploitation of the population by providing aid and loans with the necessary conditions. The only real solution to the poverty of the third world is to end the wasteful expenditure on such items as arms and the state apparatus and use the resources saved, in the first instance, to invest in improving the education, health, housing and infrastructure of the country in a planned manner, under the democratic control of the associated workers. Then these countries will be able to take part in a planned and agreed international division of labour, in which their inhabitants will be equal partners with their fellow workers in the rest of the world.

In other words, until capitalism is overthrown, poverty is a necessary part of the capitalist system of control. A society based on the extraction of profit and tribute cannot transform itself into a society based on meeting need.