by Syed Ehtisham, published on Countercurrents, February 13, 2021
The West seeks to preserve present relations, which enable it to make immense profits by exploiting natural and manpower resources of the whole world. It also molds socioeconomic development of neo-colonial states to the purpose, by adopting development models, which will be based on foreign capital for finance, technology and know-how. There is good reason behind the billions of easy credit.
When colonized states won independence, capitalism lost some spheres of influence, commodity markets and source of raw materials. Independent states started taking a stand in economic spheres, tried to curb foreign capital in circulation and in production sphere and nationalized property.
But even after independence, they remained dependent upon capitalist economy and foreign monopoly capital leading to neo-colonialist imposition of political, economic, military and ideological relations and exploitation.
The idea of internal accumulation of sources and development of state sector initially gained favor in Less Developed Countries-LDCs. But due to lack of development, they needed external resources for modern industrial technology and raising the level of consumption.
Over accumulation of capital in capitalist countries requires international lending.
Debt grows exponentially and is an effective instrument of control (lending agencies ‘sold’ the unpaid loans which they had given to African countries to predators, who strong armed the countries to hand over natural resources at the rate of pennies to a dollar). (1). Terms of loan and its use should be in line with the country’s development strategy and not for unsustainable projects thrust upon weak, stupid and corrupt rulers.
From the capitalist point of view, aid is an instrument of expansion of political/economic goals to help their monopolies to penetrate LDCs (2). If public policy could be prosecuted for misleading advertising, the label foreign aid would be an obvious case for the courts. Aid used properly could increase assets, consumer goods, science and technology. So aid is a two pronged lever on which two antagonistic forces, progressive and regressive, are bearing down.
In fact, LDCs should be compensated for the damage inflicted by colonization.
Western agencies claim that LDCs can solve their social problems with aid, without any progressive transformation in society and without reconstruction of aid system. That is obviously not correct.
Analysis of the instruments of aid, and its orientation and influence on economy of the recipient:
Aid as capital export:
State and state guaranteed private capital, patent licenses of know how, brain drain, migration of labor, struggle among capitalist countries and groups of countries, constitute new international socio-economic relations.
From 1950’s, all LDCs joined the ranks of creditor countries. Export of capital is one of the most essential features of capitalism, though its form and mechanism have changed with time. Material conditions of reproduction are ensured by help from monopolies to market their products and obtain raw material (outsourcing gives additional advantage of cheap labor, control over ruling class and increases profits). Social base of capitalist relations in the countries ensures continued dependence by urging adoption of non-regulated private enterprise.
Most aid is low interest or interest free, but it serves as infra-structure and is necessary for purchase of the means of production and labor power. Profit is obtained by Multinational Corporations (MNCs) and conditions are created for their expansion and lead to suppression of development of industrial base in the recipient country in order to curb competition.
Food subsidies help export of agricultural business; technical assistance favors further export, increases labor productivity and indirectly suppresses the working class movement in both donor and recipient countries. They get access to unorganized labor which is cheaper and easier to control.
Investment is from non-productive-state taxes. Only a little comes from corporate taxes.
In colonial times international movement of capital and foreign trade were the main instruments of capitalist reproduction. With decolonization, it became a bit more difficult. Now the state uses aid to stimulate export and assets are protected by armed force, subversion, indirect violence and war, division of labor and unprofitable expenditure by the government.
Easy credit covers budget deficit, so the aid goes straight into monopolies. The debtor country can be coerced to pass legislation to encourage investment (Iraq directly, Asian crisis countries, indirectly), as well as ensure markets for shipping and consultants. Spare parts are bought from monopolies and handed over as aid. It perpetuates unequal position in division of labor. LDCs export raw material, import equipment, know how and experience. Development of backward socio-economic structure, school, health, infra-structure, welfare and labor productivity is not considered.
In the past, imperialism was not interested in developing capitalist relations in colonies fearing competition with the local bourgeoisie. They now develop a stratum of entrepreneur, which control the assets and resources there; crony capitalism-dependent comprador brand.
It is important for imperialist states to ensure a guaranteed supply of raw material especially oil.
LDCs, in an effort to strive for rapid economic development, take large loans, and technical aid, but end up enhancing their dependence. Aid amounts to a small percentage of the budget of developed countries (DCs). “OECD …official assistance is directed to countries…with normal market incentives which…can be expected to respond “(3).
Credit to LDCs stimulates only those branches of LDC economy which supply goods to DCs. Reactionaries want it tied to monopolies and direct subordination to its military goals. Liberals would like aid directed to welfare in their own countries. America spent more on potted plants ($ 5 billion) than on aid” (4).
Aid is tied to buy goods or services from DC s and or use it for a specific purpose. Technical aid is tied to resources used to pay for specialists, who can not be hired from other countries. Experts instinctively recommend machinery from own countries.
Tying aid is to channel own exports; $ 1 million in aid, creates $ 760,000 worth of goods, besides salaries of consultants and technical imports. Together with increased exports plus interest on past loans, US actually runs up a balance of payment surplus. It also helps to export non-competitive products. Aid officials exhort recipients to spend funds in the USA. In 1976, only $ 25 million out of 760 million of aid was spent outside the USA. For example, the U.S gives $ 1.4 billion per year to Egypt, most of which is spent in buying U.S arms. The British do the same. (4a).
Some aid is tied to actual products which help industries at home in donor countries. When recipient countries defer payment, further aid goes to repayment of past loans. Germans are the same (5). French are a little better, but compensate for it by more dependency of former colonies; aid covers the deficit trade with France.
Economic impact of tied aid:
Dean Rusk, addressing foreign relations committee hearings, “Aid is the business of exporting US goods and services, not US dollars”. Same goes for other western countries. (6).
Construction and running of projects entails import of spare parts and specialists from the USA. The funds can not be used to buy spare parts elsewhere . Aid Administrator William Gaud 1975, “Lists are made of commodities…relatively less competitive…unlikely to export in any great value” (7).
Clarence Long Congress subcommittee of foreign relations committee on apportionment, “Lot of business firms… can’t sell it in this country at the price they want…sell it abroad at American tax payer expense (8). Elite types made vast sums of money out of foreign aid. It has…enriched the will to do it” US rulers pursue unabashed protectionism…to sell products at higher than market prices. PL 480 food aid would not be given, if it will not lead to increase of commercial food export to the recipient. In 1977, Egypt was due to pay out $ 1,600 million in debt service, still US and Europe increased its quota of obligatory wheat import from 2.2 to 2.6 million tons (9).
For projects for which L.DCs do not have the money to buy equipment and machinery, they have to go to capitalists who get a market with out competition and lot of jobs to which L.D.Cs cannot hire their own people. Donors choose designs to increase import component and cut back local material and manpower.
Creditors offer assistance for projects which suit their own industry, often not what the recipients need.
Limit on freedom to choose supplies results in monopoly price hikes. Transportation costs for the USA are higher than in Europe. Tunisia had to pay $ 17/ton for freight from USA (adding 10-13 % C.I.F price. Aid is tied to increased interest (actual) to cover commercial rate by overpricing of up to 30%). (10).
In 1965, Tunisia got 85 buses under U.S.AID at 30% above European rate. There was design fault in the buses. Spare parts cost 30 to 50 % more than the European one would. There was a long delay in spare parts; seller paid less attention as buyer was bound by contract. (10 a).
Foreign Resources:
Usefulness of the loan depends on the ratio of long term low interest loan (15 to 20 years at 3-5%) and short term (3-5 years) high interest at 17%.
Capital export ties in accumulation of international lending to LDCs to make them dependent on capital accumulation in DC’s. It ensures unconditional priority of private resources. Dean Acheson, “It would be contrary to our policy to place government funds in competition with private funds” (11).
Aid to Africa:
In 1980, Africa received $ 3,132 million worth of multilateral aid. Capitalist aim is to bolster regimes which keep them dependent, reproduce capitalist economic system and offer funds to uphold elites who maintain archaic social systems. LDCs are divided into spheres of influence. Secretary of state Al Haig, “The new administration has redirected to specific and vitally important objectives” (12).
Africa magazine, “US state department lists 60 primary materials…to keep US economy functioning…imported from Africa” (13).
Uncompetitive industries like steel get support through foreign aid (14).
Under PL 664, 50% aid was delivered by US vessels. US government financed aid along the following channels; 16.4 % steel, 25% fertilizer, 15.7% rail road, 8.5% textiles. Steven Weizman, “Aid also used to subsidize farm products” (15)
“One $ into W.B. [World Bank] generates $10 in contracts for the US companies” (16).
Aid helped Britain save 54,000 jobs (17).
Among OPEC countries, Saudi Arabia is the biggest exporter of capital; in 1982 it was $ 4482.00 millions. Western powers use foreign exchange reserves of OPEC to fit them into credit financial system of capitalism. (17 a).
There is an Evil Triad- West[ern] technology, OPEC money and funds on market terms.
Most economic aid takes the form of project aid. In 1982, 53.1% of the aid helped giving countries expand their commodity exports.
Aid missions follow every stage of the project and put pressure on local government to accept programs according to the former’s wishes.
Borrower’s creditworthiness is determined from the point of view of donors.
Commercial profitability is the most important consideration.
Food and Agriculture aid:
In many African countries, the policy is to give precedence to production for sale to food for consumption, a carry over from colonial times to meet the needs of metropolis (Sisal, coffee, cocoa, cotton, tobacco, and wheat, not maize though). Import is suggested for local consumption. Food aid is always small and leads to hunger, rural-urban divide, rapid urbanization, Capitalist agrarian protectionism, which produce all the machinery. (18).
LDC population growth is much faster (Pak, India, BD started with 400 million in 1941, 70 years later it stands at 1620 million). They are always falling behind as they do not have the means and the will for birth control. (18 a).
Rural immigrants to cities can’t find jobs and that leads to social conflict. Capitalists suffer from the crisis of overproduction (19). In a world of hunger, US can apply its agricultural capacity as a lever to promote policies beneficial to this nation. US PL 480 brought an acute agricultural crisis; world prices went down. (19 a). Assistance to agricultural development is related to the need for market of industrial farms.
Technical assistance accounts for most of the funds to LDCs, specialists, advisers and their families, salaries; all expense comes from aid funds. Foreign private capital remains hostile to training LDC technical cadres.
Debt Problem:
LDC debt increases along with outflow of resources. The theory offered is that in 60-70 years internal accumulation in LDCs will be such that they will be able to pay the external debt. (19 b). It ignores the importance of foreign markets. Rudolph Peterson “Debt…pressing problem, endangered imports…investment and development.’ (20).
Bibliography/References:
- 1. Patricia Adams, ” Odious Debt: Earthscan, Problem International,” 1991.
- Wightman, David, “The Economic Interest of Industrial Countries in the Development of the Third World,” (New York: The United Nations, 1971), p 30; Allan Drazen, Is there a different political economy for Developing Countries? Issues, Perspectives and Methodology,” presented at Plenary session on Political Economy and African Economic Development-African Economic Research Consortium, Nairobi, Kenya, May 28, 2006.
- 3. “Development, Cooperation, Efforts and Policies of the Members of the Development Assistance Committee”(Paris: OECD Review, 1976), p 29; Review Aid to Third World. WTO Third World Review of Aid for Trade, 18-19 July 2011.
- 4. ‘The Economist’London, vol. 276, No 7150, (London: September 13, 1980);
4 a. www.reuters.com/article/2011/01/29/us-egypt-usa-aid-idUSTRE7OSOIN20110129
- Stephen Klasen, Mario Larch, Inmaculada Martinez-Zargoso, Felicitas Nowak-Lehman D, “Aid as Promotion of Exports: Does German Development Aid Promote German Exports,” German Economic Review, Verern Fur Social Politik, vol to, pp 317-338ec/667.html; ideas.repec.org/r/bocd
- Foreign Assistance 1966, Hearings before the Committee on Foreign Relations, U.S Senate, 98th Congress, 2nd Session, (Washington, DC: United States Government Printing Office, 1966), p 97;
- 7. Tendler, Judith, “Foreign Aid,” (Baltimore: The Johns Hopkins University Press, 1975), p 46;
- Economic Cost of U.S Arms Exports: Subsidies and Offsets. Testimony Before the Senate Appropriation Committee, May 23, 1995; ‘Foreign Assistance and Related Agencies Appropriation for 1977’, Hearing before a Subcommittee of the Committee on Appropriations, House of Representatives, 94thCongress, 2nd Session, Part 2 (Washington, DC: United States government Printing Office, 1976), p 570;
- 9. ‘Egypt’s Capacity to Absorb US Economic Assistance Effectively’ Report of Comptroller General of the USA, US General Accounting Office (Washington, DC: US Government Printing Office, 1977), 32-20;
- 10. Proceedings of the UN Conference on Trade and Development, Second Session, New Delhi, February 1-March 29, 1968, vol. iv (New York: The United Nations, 1968), p 101; Lal, D, “The Poverty of Development Economics” 3rd edition, (London: Institute of Economic Affairs, Cambridge: Harvard University Press; Cambridge: MIT Press, 2002).
10 a. Baskin, B. S, “Weatern Aid: Myth and Reality,” (Moscow: Progress Publishers, 1985).
- ‘Politics and Society’Los Altos, vol. 10, No 1, 1980, p 11;www.pbs.org/newshour/bb/government_programs/…/food 2_04-24 html
- Department of State Bulletin, Washington, DC, vol. 82, no 2061, April 1982, p 301; James Peron, “The Sorry Record of Foreign Aid in Africa: African Governments are Destroying their Countries with Aid from the West. The Freeman, 8/1/2001.
- Africa, London, no 76, December 1977, p 21;
14.Tribune, Colombo, vol. 24, no 50, June 28, 1980, p 9;
- 15. Weissman, Steve, “The Trojan Horse: A Radical Look at Foreign Aid,” (San Francisco: Ramparts Press, 1974), pp 237-239;
- The Nation, New York, vol. 233, no 2, July 11-18, 1981, p 43;
- West Africa, July 1982, p 1744;
17 a. ibid 10 a.
- 18. Business Weekly, Accra, vol. 11, no 8, August 9-15, 1976, p 2;
18 a. www.unesco.org/education/wef/en-leadup/findings_demography%201.shtm
- 19. Business Weekly, New York, no 2411, December 15, 1975, p 54; ‘US Foreign Assistance in the 1970’s: A New Approach’ Report to the President for the Task Force on International Development, Washington, DC, 1970, p 10
19 a. www.merip.org/mer/mer145/language-food
- Less Developed Countries. W.B Study of 1970. Bryant Johnson, “The World Bank and Economic Growth: 50 Years of Failure” www..heritage.org/research/reports/1996/05/bg1082nbsp-the-world-bank-and-economic-growth.
Syed Ehtisham was born in Dewa Sharif, UP, India in 1939.
He went to school from the fourth to eighth class in Gonda, UP and the 9th grade in Jhansi, UP, India. Then moved to Quetta, Pakistan and went to school for the 10th grade and intermediate college in the same town.
Syed Ehtisham was in Karachi University 1954-57, then Dow Medical College 1957-62. I Was in the National Students Federation from 1954 to 1962, trained in surgery in the Civil Hospital Karachi 1962-65, proceeded to England 1965 and trained in General surgery and orthopedic surgery till 73, when I left for Canada 1973-74, USA 1974-83, back to Karachi 1983 and built a hospital and went back to the USA in 1991, been in the USA since. He retired from surgery in 2005.
Syed Ehtisham has worked in various HR and Socialist groups in the USA.
He have Published two books ,:”A Medical Doctor Examines Life on Three Continents,” and ,”God, Government and Globalization”, and am working on the third one, “An Analysis of the Sources and Derivation of Religions”.