Underdevelopment in an Historical Context
It has long been argued by nationalists in the third world and by radical economists and other social scientists in the West that under-development is not an original state of nature but a product of historical forces. “Europe did not ‘discover’ the underdeveloped countries; on the contrary she created them.”1 The impact of imperialism took various forms, differing from one place and one time to another, and it is an unfinished task of modern scholarship to write the history of the colonized people, as opposed to the history of the colonizing powers.2 Britain in India and Africa, France in Indochina and Africa, Holland in Indonesia, Belgium in the Congo, Spain in Latin America, Portugal in Africa and Brazil pursued different policies and had different consequences, and moreover these policies and consequences changed over time, but there is little doubt that in most parts of the world the ordinary people - farmers and fishermen, artisans and small traders - gained little and lost much from being conquered. The civilizing mission of Europe was a myth invented to soothe the consciences of the conquerors, not the wounds of the conquered.
In many regions of the world the expansion of Europe resulted in a sharp decline in population, partly as a result of the importation of alien diseases, partly as a result of war and partly as a consequence of the destruction of the pre-existing social structure.1 Notable examples of where this occurred are the Andean region of South America, Mexico and Central America, Australia and the South Pacific.2 In Africa, from Guinea to Angola, the capture and trade in slaves did much to depopulate vast regions3 and to transform the economy from one based on settled agriculture back to long-fallow agriculture and nomadism. During the colonial period forced labour was used in many areas, notably in the Belgian, Portugese and French colonies, while elsewhere the combination of head taxes and the alienation of African lands resulted in the creation of a large and impoverished labour force that had no alternative but to work on European owned plantations, farms and mines.4 Africa is widely regarded in the West as the most “traditional” of the underdeveloped regions, yet there is nothing that is truly traditional about rural Africa, if by traditional one means pre-imperial and pre-colonial. Land use and land tenure systems, population densities, the organization of labour and the patterns of migration, even many of the crops that are grown: all these things were profoundly affected by European penetration into the continent.
China represents a rather different case because the country never was wholly colonized. Instead China was incorporated into a nefarious trading arrangement against her will and forced to import opium in exchange for useful products. The consequence was widespread drug addiction, the transfer abroad of part of her economic surplus which could have been used for capital accumulation and growth, partial colonization and conquest, the payment of indemnities and the granting of special privileges to foreigners, the weakening of her indigenous social structure, and in the three decades before the revolution of 1949, a sharp decline in the standard of living of the mass of the population, including of course the mass of the rural population.1 Underdevelopment in China cannot be attributed solely to imperialism; it is more likely that internal and external forces interacted in a process of mutual causation, but it would be implausible, to say the least, to claim that the impact of the West (and later Japan) on China was wholly or even on balance beneficial.
The apologists for European, American and Japanese imperialism point to three sources of economic benefit to third world countries. First, it is argued that colonialism destroyed feudal or pre-capitalist economic systems and encouraged the creation of a capitalist labour market. Presumably this is thought to have been of benefit to the rural population since the majority of the labour force lived in rural areas. Second, the imposition of free trade in commodities, even if on a restricted basis, permitted the principle of comparative advantage to operate. Since the apologists assumed that the third world had a comparative advantage in agricultural and mineral products, this too should have increased the well being of the rural population. Third, uninhibited international capital flows, largely in the form of direct investment in plantations, mines and public utilities, allowed investment and growth to occur in capital-scarce underdeveloped countries which otherwise would have remained stagnant. Thus imperialism was good for the conquered peoples: it led to a higher level of output because of improved allocative efficiency and a higher rate of growth of output because of a faster rate of capital accumulation.
The facts, alas, are not consistent with the apologists’ expectations. Let us consider the period 1870-1913.1 This was the heyday of the old order, for it was a period of relatively free trade and rapid industrialization in the West which coincided with the formation of a unified world market and the maximum extension of the colonial system. After 1913 the old order went into 35 years of decline. First came the First World War; this was followed by falling terms of trade for primary commodities in the 1920s, then by the great depression of the 1930s and finally by the Second World War. This was a period of disaster for the tropics. In the late nineteenth century, however, the old order had a chance to show what it could do for the third world.
From 1883 to 1913 the trend rate of growth of industrial output in the “core” countries of the U.K., France, Germany and the U.S.A. was about 3.65 per cent per annum. Unfortunately, as Arthur Lewis shows, despite this growth “the core was not really importing that much” from the tropics. Foreign investment, on the other hand, increased much faster, namely 4.25 per cent a year from 1886/90 to 1909/13, but most of this investment was located in the temperate rather than in the tropical countries of the “periphery”. There were, however, massive exports of labour from India and China, but these migrants were channeled to other tropical countries, not to the high wage economies of the “core” or to the temperate zone of the “periphery”. Thus the empirical evidence assembled by Lewis lends no support to the orthodox thesis, even in the period most favourable to that thesis.
It is possible, however, to go further and attempt to refute each of the three points raised by the apologists for imperialism. It can be argued, first, that labour markets in the third world during the colonial period were characterized by coercion, monopsony and various systems of labour control that were designed to reduce the level of remuneration of local people, ensure an adequate supply of labour to expatriate controlled enterprises, and prevent both occupational and unregulated geographical mobility. Formal slavery was the exception rather than the rule, but the systems of labour control that were devised were equally harsh and far removed from the free labour markets of laissez faire economics. In Kenya, for example, a cheap, regular African labour supply was obtained by sharply reducing the amount of land available to Africans and thereby creating overcrowded reserves; by imposing hut, poll and other taxes; by threatening to conscript Africans into the army if they were not’ working for wages; by using tribal headmen to recruit labour; by introducing an all-inclusive internal pass system in combination with policies to encourage immigration from neighbouring territories; and by using forced labour where all else failed.1 Many features of these colonial labour markets persist today and constitute one aspect of the neocolonialism or internal colonialism that afflicts so much of the third world.2
Second, leaving aside “free trade” in slaves, addictive drugs and guns, it is far from clear that the forcible insertion of the third world into a trading system dominated by Western Europe and the United States operated to the advantage of third world countries or, more to the point, to the advantage of the majority of the population in third world countries. Even as orthodox an economist as John Hicks acknowledges that “it would... be absurd to pretend that those who are dispossessed by colonies of settlement are likely, even in the very long run, to be benefited” and more generally, he argues that the forcible imposition of free trade may well lead to “mistakes that will be costly, often very costly”.3
The precise effects on the third world of the spread of an integrated international market are the subject of much debate, but one interesting hypothesis is that the imposition of “free trade” and the resulting growth of exports of primary products from the underdeveloped countries occurred “at the expense of industrialization of these countries and also at the expense of other crops or products primarily meant for domestic consumption”.1 The case of de-industrialization in India and Bangladesh is quite well established2 and it is possible that something similar but perhaps of lesser magnitude occurred in China and other parts of the third world. Most observers now agree that colonial authorities “were typically hostile to domestic industrialization”.3 Clearly more research needs to be done on this topic, but enough is known to cast doubt on the proposition that freer trade brought immediate and substantial gains to all parties. Indeed the opposite proposition is at least as plausible, namely, that in the third world the results of trade-induced changes in the commodity composition of output were unemployment, a decline in the supply of some foodgrains and only marginal gains for most of the population. This entire process of industrial contraction and unemployment, a shift from food to cash crops, and a decline in living standards of the urban and rural poor is summed up by Amiya Bagchi in the phrase “export-led exploitation”.4
Export-led exploitation is the view of imperialism as seen from the periphery. Viewed from the centre, the purpose of modern imperialism reflects the desire of the dominant countries to secure essential imports on favourable terms (e.g. oil); to obtain protected markets for exports (including exports of arms); and to obtain uninhibited access to third world countries for investment.5 This quest for economic security and advantage leads inevitably to attempts to control foreign economies through direct intervention (including covert and overt military intervention) or indirectly by obtaining control over local political authority. Economic power and political power usually go hand in hand.
Third, a number of writers have begun to argue that far from gaining from international capital flows, the growth of third world countries was severely damaged because a large part of their economic surplus was transferred abroad, where it was used to increase the consumption of the richer classes and raise the general level of investment abroad. This does not deny the obvious fact that some investment flowed to the third world and thereby helped to increase their economic surplus, but the net flow of resources, it is claimed, was from the underdeveloped countries to the developed and not the other way round. Almost all economists accept that there were instances of plunder, pillage, unfair bargaining, unequal treaties, etc., but these usually are regarded as special cases1 and perverse, whereas a radical view is that perverse flows of resources were and are the norm.
Modern research has unearthed a number of examples in which capital flowed from the periphery to the centre. Thus Spain’s exploitation of Latin America’s mineral wealth was reflected in an export surplus in Spanish America and higher consumption on the Iberian peninsula. Britain’s possession of most of the West Indies resulted in a capital transfer to the mother country equivalent to 8-10 per cent of Britain’s entire income in the closing years of the eighteenth century, “and probably a larger percentage in the period preceding the American War of Independence”.2 The Indonesian export surplus in 1876-80 was more than 6 per cent of Indonesia’s income, and the presumed financial counterpart was profits transferred back to Holland by the Dutch East Indies Company which helped considerably to raise living standards in the mother country. The exploitation of Bengal by the British East India Company is of course notorious. Famine reduced the population by over a third during 1769-71, yet from the mid-eighteenth until well into the nineteenth century 5-6 per cent of Bengal’s income was siphoned off as unrequited exports and locally financed expenditure on wars of conquest incurred by the East India Company.3
These figures acquire added significance when set beside Arthur Lewis’s much quoted statement that “the central problem in the theory of economic development is to understand the process by which a community which was previously saving and investing 4 or 5 per cent of its national income or less, converts itself into an economy where voluntary saving is running at about 12 to 15 per cent.”1 In retrospect it now appears that third world countries had no difficulty reaching and exceeding a savings rate of 15 per cent once they became independent and acquired greater control over their economies. The central problem of underdevelopment was that during the era of imperialism a high proportion of the economic surplus potentially available for domestic investment was transferred abroad in the form of unrequited exports or was used locally to pay for the cost of colonial administration, the maintenance of large standing armies and police forces and the high standard of luxury consumption of the expatriate ruling class.
Uninhibited capital flows on balance did little or nothing to raise investment and growth in the pre-independence period in those countries which account for most of the people in the third world, e.g., in undivided India and Burma, in China, Indonesia, Indochina, Nigeria and Zaire. On the contrary, the net movement of financial flows was from the third world to the advanced capitalist countries, and thus resource transfers constituted one of the mechanisms of underdevelopment. Even today, I have argued contrary to both neoclassical and orthodox Marxist views, the natural tendency within the world economic system is for savings to flow from capital-scarce poor countries to capital-abundant rich countries, because the real rate of interest and the return on investment (especially in industries based on new technology) are higher in rich countries than in poor.2 If further research supports this view, it follows that a relaxation of capital controls by third world countries would in most cases reduce their relative rate of growth, shift the functional distribution of income in favour of profits and consequently lead to greater inequality in the distribution of income among households. The poor of the third world, and perhaps above all the rural poor, are bound to lose in a world in which capital is free to move internationally but mass migration of labour is prohibited.
[Ukrainian] [English] [Russian]