The impact of imperialist economic power on developing countries
by N M Sundaram, Centre of Indian Trade Unions (CITU) [Edited]

IN COUNTRY after country, we hear of the economic "reform" process in progress. This is variously described as a new economic policy, policy of economic liberalisation, globalisation and competitiveness in the world market. But there is, in fact, nothing new about this process. It has been tried over the past three decades in several parts of the globe -- both in industrial and in developing countries.

The euphemistically named Structural Adjustment Programmes (SAPs) prescribed by the International Monetary Fund (IMF), are projected as the panacea for all the world's problems including that of national economies. But because there is nothing new about this policy -- tried and tested in several countries -- experience is able to demonstrate quite different conclusions. It is no longer a matter of mere conjectures or perceptions. The stark reality of experience is there for all to see.

What "globalisation"?

According to the United Nations Commission for Trade and Development (UNCTAD): "International production has become the central structural characteristic of the world economy." In other words, the global economy is nothing but the internationalisation of trade, investment and production as well as employment. And national economies are linked together by a network of trade, investment and credit.

If this is so, the essence of international production should mean the development of all the countries, and the equitable distribution of world trade in the process of developing countries gaining access to resources, technology and markets through this claimed "globalisation".

But experience shows that these objectives have not been achieved. Far from it, the opposite has resulted. Backward countries remain backward and continue to be deprived of their legitimate share of resources and world markets. Instead of the net inflow of resources, a net outflow has occurred with attendant accentuation of economic and social problems.

In the process, though national identities have not been altogether obliterated, in practice this has gradually yielded to externally controlled forces -- the Transnational Corporations (TNCs). In fact, people, countries and their destinies have come under the control and are increasingly at the mercy of these forces. And because they remain outside the pale of national priorities, as well as being autonomous and socially unaccountable, these forces are dangerous to national interests and people of all nations.

The claim that there has been an internationalisation of production and employment, cannot hide the reality that the TNCs' motivating objective is profit and not social or human development. When advanced industrial economies, its people -- particularly its workers, are themselves victims of TNCs' inexorable quest for profits, what of developing countries' economies, and its workers?

Origin of underdevelopment

The preachers of competition tell us, from the pulpit of the IMF and World Bank, that we are all equals and belong to the global village and should compete for our mutual good. This, of course, follows in the footsteps of their colonial mentors, who subjugated and enslaved a major part of the globe and it's population through centuries of exploitation.

Unsurprisingly, today's forces of economic exploitation refuse to accept that the non-competitiveness of the Third World, or rather the competitiveness of the developed capitalist world, has its origin in this nefarious colonial exploitation which has consequently led to a lack of development.

What transfer of resources?

For a period the imperialists, after being divested of most of their colonies following the end of the Second World War, talked of undoing the ravages of colonial exploitation through redistribution of incomes and wealth. They undertook scholastic studies on "poverty of nations", "challenges" posed by "world poverty" and pointed accusing fingers at the "affluent societies" built on the foundation of unequal competition.

They appointed commissions -- the Willy Brandt Commission, for instance -- and set up institutions to find ways and means of remedying the long interlude of rapacity and exploitation, plunder and impoverishment of whole nations and people. And these bodies concluded that a reverse flow of incomes and wealth was the only remedy. A massive flow of funds through aid and loans resulted.

But this only increased the stranglehold of exploitation through a different process -- debt. Colonial exploitation gave way to more comprehensive exploitation, the neo-colonialist way. The formerly enslaved countries remained enslaved, but now through the mechanism of the debt trap, eventually endangering the very freedom they secured at enormous cost.

Debt trap and the lethal prescription

The burden of debt and debt servicing, of structural adjustment and so on, resulted once again in a flow-back of resources to the creditor nations and their instruments, the TNCs.

Poor countries like India, in the process of securing this "benign" assistance, ended up repaying more: so the debt increased The rich countries and their creatures, the IMF and the World Bank, were once again generous with further "advice". Debt is ruinous,they implored -- and threatened. So, they say, it is prudent to liquidate debt, which can be done by disinvesting the shares of vital public services.

Privatisation was proclaimed as the panacea for all the economic ills and shortcomings. The creditor soon became the owner: Force the state to retreat first, and then the people thereafter. Retreat, and further retreat, on the altar of competition and competitiveness and so-called global development and consumer satisfaction.

The power of TNCs

Around 40,000 parent TNCs and 250,000 affiliates or subsidiaries control 75 percent of all world trade in commodities, manufactured goods and services. This is apart from sub-contracting, licensing and franchising under the aegis of TNCs, which would further increase their stranglehold.

Outward Foreign Direct Investment (FDI) stock increased to a staggering $2.6 trillion in 1995 and $5.2 trillion in world sales by 1992. In 1990, the rate of growth of FDI stock has substantially exceeded that of world output in terms of GDP and world exports. FDI stockholding and their sales are taken as proxy indicators of international production.

As much as one-third of this world trade is intra-firm, that is, within different units of a single TNC. Apart from making any claim to genuine competition a farce, it makes it extremely difficult for governments -- or even the WTO -- to exercise any real control over their activities. TNCs also control one-third of the world's productive assets.

The strangehold of imperialism

The flow of FDI and investment in stocks remain concentrated predominantly in the developed world -- the European Union (EU), US and Japan. The developing countries account for only one-fifth and one-quarter respectively of world GDP and global inward FDI stock.

This is indicative of the vast disparity in not merely the flow of resources, but also in the global market, which makes a mockery of the claims about the virtues of "globalisation". Among the developing countries too, the lion's share of the meagre FDI stock flows, are concentrated in the 10 largest developing countries, amounting to two-thirds of the total stock in developing countries taken as a whole.

This unevenness reflects the dominant competitiveness of the TNCs of the developed world, particularly in the EU, US and Japan. So much so, the developing countries' outward FDI stock -- that is, investment outside their national boundaries -- constituted barely six per cent of the total world FDI stock in 1994. Even here, outward investments, as in the case of inward flows, remains concentrated in the hands of firms from only a handful of developing countries.

Furthermore, developing countries taken together have come to rely increasingly on FDI in-flows rather than imports (30 per cent in the 1990s). In contrast, they rely on exports more than their foreign investments, when it comes to supplying gootls and services to the rest of the world. This indicates who controls the world market, as well as world investments.

When UNCTAD claims that: "International production has become the central structural characteristic of the world economy," the unevenness of the relative share of the world market and the asymmetry of FDI flows cannot give any comfort to the developing countries.

On the contrary, this stranglehold by the developed countries and their TNCs over the developing economies indicates that exploitation of the Third World is increasing. Greater burdens are shifted onto the workers of the developed countries and the people of former colonies.

All competitive advantages of the developed countries' and their TNCs are further enhanced in the process of technological advance. For they not only lead the way in development and control of technology, but are also the main beneficiaries of technological and scientific advance -- particularly in electronics, telecommunications and transport. They therefore control manufacturing as well as services, including finance capital.

The circumstances are exacerbated as the concentration of the world market in the hands of developed countries' TNCs leads to acquisitions, mergers and hostile takeovers. TNCs' acquisitions worldwide increased by as much as 17 percent to $229 billion in 1995 alone.

Behind the facade of competition, a process of monopolisation and cartelisation is taking place. It is a case of the big fish gobbling up the small fish. It leads to more disparities between the Third World and the developed countries and within. The result is more intensive exploitation of countries and their people.

Germany's share of foreign acquisitions amounted to $21.2 billion. In the US alone, Germany succeeded in trebling its presence amounting to a total of $9 billion. Its acquisitions in Britain amounted to $5.8 billion. By 1994, Germany's foreign acquisitions amounted to more than the aggregate for the preceding 10 years.

Japan's acquisitions increased by 50 per cent to $15.9 billion in 1995. The US, which suffered a setback of sorts in the early 1990s, made a strong recovery. The repositioning that resulted brought back the US ahead of others. By 1995, TNCs headquartered in the US increased their acquisitions by 47 per cent over the previous year, to the tune of $63.7 billion.

The sum total of US acquisitions ill other countries was $4 billion more than what others could do in the US. In Russia alone, the purchases exploded to $10 billion in 1995 from $1.7 billion the previous year.

We can understand the extent of dominance secured by TNCs belonging to the EU, US and Japan -- particularly the US. Another important aspect to note is the explosion of acquisitions in technology and financial services. Information technology alone rose by 48 per cent to $134 billion with in countries and across borders.

The distribution of TNCs among the EU, US and Japan and other developed countries, as against the developing countries, clearly showed who actually benefitted from so-called globalisation and who were deprived.

Following the Mexican way: Thailand and Malaysia

It might be useful to consider certain specific country cases to illustrate how structural adjustment programmes operate and affect individual Third World economics. Apart from the case of Mexico (followed by Peru and Chile), which faced a monumental crisis following the devaluation of its Peso and the consequent devastation of the entire economy and living standards of its people, there are some other countries which call be considered to be well on the Mexican path.

The important thing to note here is that these countries, along with Mexico, were projected as economic miracles, brought about by the IMF's prescription of the structural adjustment programme and neo-liberal policies. Two such countries in Asia are worth mentioning in this respect: Thailand and Malaysia.

The distinctive features of these countries is their high "current account" deficits. Thailand's increased from three per cent of GDP in 1988 to 7.5 per cent in 1995. The corresponding deficit in Malaysia is still higher at 10 per cent of GDP.

FDI investments increased substantially both in Thailand and Malaysia. FDI in-flows into Thailand increased from barely $250 million in 1986 to $2.44 billion in 1990. Thereafter, it gradually declined to $2.11 billion in 1991 and ultimately reached a low of $640 million in 1993. But FDI picked up in 1994 to reach $2.3 billion. But the damage had already been done.

In Malaysia FDI in-flows were higher at $5.18 billion in 1992, which increased in 1993 and 1994 to reach a peak of $5.8 billion in 1995. Far from indicating strength of the economy, the FDI investments increased the external vulnerability of dependent nations.

Capital flight

The terrible effects of FDI are not far behind the havoc wrought by what is called portfolio investments. This is because much of these are short-term investments and the creditors can always refuse to turnover if confidence falls. This is precisely what happened in Thailand. And when FDI in-flows slow down, accentuating structural deficits by an excessive current account deficit, the position would be hard to manage.

This vunerability is made worse due to the ever present possibility of flight of capital in search of greener pastures. This is happening both in Thailand and Malaysia. The worst part of the scenario is that FDI investments have always been accompanied by an increase in imports (technology and capital goods, not to speak of pandering to consumerist trends), in the expectation that not only development and growth would materialise but also, through manufacture of efficient and competitive goods for the world market, that exports would increase.

In fact, following the increase in FDI in-flows, exports did increase substantially and so did imports. But this cannot beguile the developing countries into believing that the going would continue to be good. This has not happened. When the so-called global market is dominated by the developed countries and their TNCs how can exports from Third World grow?

Yet more debt traps

The regional blocs such as the North American Free Trade Agreement (Nafta), EU and APEC, are essentially imperialist-dominated protectionist blocs. This is apart from the individual country's protectionist policies, such as that of the US and other developed countries.

It happened that, as the FDI flows tapered off and the feared flight of capital materialised, Thailand and Malaysia were left with a high level of imports which have to be serviced as exports declined. They were forced, in turn, to seek external borrowing in a big way.

With respect to Thailand, external debt -- wllich was $23.45 billion in 1989 -- increased to as much as 560.99 billion by 1994. This is apart from bonds and loans secured from external capital markets which rose from $2.71 billion in 1992 and increased to as much as 96.50 billion in 1995. Foreign debt thus rose to 49 per cent of GDP with attendant repayment and servicing burden on the economy.

There is a point here with respect to Mexico: Foreign debt was only 35 per cent of GDP in 1994 when the catastrophe struck. The experience of Malaysia is no different. Its external debt rose to 39 per cent of GDP, again higher than that of Mexico. No wonder the currency exchange rate -- Baht of Thailand and Ringgit of Malaysia - was seriously destabilised. It seems that an off-shoot of the emerging crisis led to 3,600 workers being laid-off recently in Penang, Malaysia's leading enterprise zone and home of 130 electronic firms -- an expanding industry.

The World Bank Report 1994, said Thailand was providing an "excellent example of dividends to be obtained through outward orientation and receptivity to foreign investment and market friendly philosophy, backed by conservative macro-economic manage ment and cautious external borrowing policies." It is another matter that this appreciation catne after pushing Thailand into its present uncertain days. The dividend referred to in the World Bank Report obviously is FDI in-flow which has now sharply declined.

The Philippines' trade deficit for the first seven months of 1996 widened to $7.1 billion from $4.9 billion in the same period last year. Exports grew by 17 percent to S11.3 billion, but imports surged forward by 27 percent to $18.4 billion.

Cheap Asian labour losing its edge?

A study conducted by the Political and Economic Risk Consultancy (PERC), a Hong Kong-based firm, revealed that the traditional labour attractiveness of Asia may no longer hold. The cheap cost of labour availability, quality and stability, which marked Asian labour out as attractive enough for investors, may no longer hold sway. The consultancy firm assessing these labour attributes graded the Asian countries, along with some of the developed countries, in a scale of zero to ten.

Surprisingly, only the Philippines scored reasonably well in all categories. As for the comparative cost of labour, as against the United State's 5.06, Britain's 4.25, Australia's 4.71, Switzerland's 8.00, and Japan 8.08 points, India secured 2.14, Philippines 3.24, Vietnam 3.3, China 3.40, Indonesia 4.46, Taiwan 5.44, Thailand 5.00, South Korea 5.88, Singapore 6.41, Malaysia 5.06 and Hong Kong 6.32 points.

Shifting the burdens onto workers and consumers

In the name of competitiveness, workers in the developed countries are told to accept job shrinkage, lay-offs, casualisation, non-unionisation, social security benefit cutbacks, and so on. Production facilities are moved to other countries where labour is cheap.

In the countries of the Third World, where labour is already cheap and labour rights are fragile, on the plea of continuing to remain competitive in the global market, wage levels are frozen or further depressed. Worse working conditions are enforced; even the limited labour rights under existing labour and social welfare laws are denied.

The inevitable process of the downward spiral of wages and working conditions, has led to the creation of indentured lahour and the accentuation of unemployment and poverty. Innumerable examples can be given. The case of Nike shoes may be mentioned, which manufactures sport shoes in Indonesia using cheap labour.

The cost of manufacture of a pair of shoes may be as low as $4.5. These are brought to the home market in the US and sold for $140 to $150 per pair at the minimum.


For developing countries, increasing the level of employment must follow growth of the economy as an essential social policy. In this way, the purchasing power of the people would be increased and would enable them to save as well as consume essentials. Among other measures, this requires thorough-going land reform.

In all the Third World countries except a few, domestic savings are dwindling. Capital formation is lower despite the private sector's increased profits and easier access to capital markets following liberalisation. Incentives for mopping up domestic savings for national development should be provided.

The state, instead of withdrawing, must assume a proactive role in economic and social development. These are essential elements in any healthy development process which would pave the way for self-reliance.

Nafta, EC, APEC and others, are under the firm control and tutelage of imperialist powers. This must be countered. There must be public awareness through campaigns and struggles, as well as solidarity among the people of the Third World countries.

There is a great potential for independent development and growth of the countries of the Third World. National trade unions and democratic platforms must be used to mobilise public opinion against all imperialist machinations, against the globalisation idea and the structural adjustment programmes of the IMF, World Bank and imperialism.

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