28/03/2006" by Dr. Garvin Karunaratne
The current impasse in world development is perhaps best explained in the words of Rene Dumont, a former French Minister: ‘We are first and foremost exploiters of the poor, because of an economic system based on dominance that has been cunningly devised by and for the rich nations’. (Stranglehold in Africa)
When the newly independent Third World countries, which aimed at achieving economic development and full employment, commenced action through various programmes designed with guidance and advice from the United Nations, and with the help of developed countries and the cream of academia at leading Universities and began to achieve success as evident from increase in production, employment generation and poverty alleviation, the developed countries found that they were losing markets for their agricultural produce and manufactures. Something had to be done and they resorted to subversive methods of neocolonialism. This came in the form of a multi-pronged approach.
The USA came up with the PL 480 Programme, whereby the excess wheat produced in the USA was dumped on the developing countries. The wheat was offered at low prices undermining the local production and this was the ‘bread trap’ to which many countries have fallen as manifest in the boast: We taught people to eat wheat who did not eat it before. While PL480 can be utilised to help crisis situations and support Third World development, today it is used purely to create markets for U.S. produce. Consequently many countries like Mexico that formerly exported food became importers.Structural Adjustment
Then the World Bank and the International Monetary Fund came up with the Structural Adjustment Programme (SAP), which comprise a number of policies that when implemented together inevitably create a no-growth paradigm that cause poverty and deprivation within any country. The SAP provisions include:
The country should follow a high interest rate policy. This makes local manufacturers and producers obtain money at high interest rates while competitors from abroad use loans obtained at very cheap rates in their own countries. This destroys local production and causes unemployment.
The country has to follow free trade policies and reduce import tariffs and place no restriction on imports. When import tariffs are reduced local producers cannot compete and give up production for the market. This amounts to the creation of an Import and Sell Economy, which leads to increased prices because prices are determined by the high cost of imports. Every developed country has used tariffs on imports in their formative years to boost their local production. Third World leaders are brain washed to think of Free Trade Agreements as achievements; in actual practice local production is sacrificed and unemployment increases.
Countries are advised to deregulate, to have no restrictions on trade and this includes the use of foreign exchange which is liberalised to enable anyone to use, irrespective of its availability. The countries are advised to sell their assets and even to obtain foreign exchange on loans to enable this extravagance which the country can ill afford. Accordingly Foreign exchange restrictions on foreign travel and foreign education and imports are removed. This enables the rich to get unlimited foreign exchange for travel abroad. This money ends up in the developed countries. Even in 1969 when Sri Lanka was not in debt, there were restrictions on the issue of foreign exchange for travel.
Removal of Subsidies is insisted on, while the superpowers can continue with subsidies. What is not well known is that the subsidies offered to producers in developing countries is based on the cost of production while the subsidies offered in developed countries is based on the premise of enabling the farmer to live a life of affluence.
Professor Joseph Stiglitz, the former Chief Economist of the World Bank advocated the continuance of subsidies to avoid the Financial Crisis in Indonesia. In his own words:
"I suggested that the excessively contractionary monetary and fiscal programme could lead to political and social turmoil in Indonesia."
The IMF pressed ahead, demanding reductions in government spending. And so, subsidies for basic needs like food and fuel were eliminated every time when contractionary policies made these subsidies more desperately needed than ever.
Indonesia blew up in riots deposing Suharto and the the adverse effects were still evident when I visited that country in 2003. Stiglitz was actually thrown out of the World Bank for his very words of wisdom.
Privatisation of national assets is insisted upon. When assets are privatised they get into the hands of the private sector where the aim is not national development. The aim of the private sector is to make profits fast and ultimately the assets end up in the hands of foreigners, to whom the goals of national growth and development, the creation of employment are only secondary concerns. Their prime aim is to make profits for the shareholders in their mother country. It is a well known strategy of foreign multinationals to control raw material assets and resources and manage them not in the national interest but in the company’s interest to bolster the sale of items manufactured in the Developed Countries.
Privatisation of assets to raise money to spend on the recurrent budget is advocated. Successes in developed countries are hailed and the reigns of Thatcher in the UK and Regan in USA are touted as exemplary achievements. One needs to know that during the reign of Margaret Thatcher in the U.K. many mental hospitals situated in prime areas were sold and funds raised for recurrent expenditure. The mental patients who were thrown out of hospitals in the process became a burden on the community.
The money realised from the sale has been spent and is lost. In the UK the Railways in the sixties were the showpiece of the world. Privatisation netted millions that were soon spent. Worse was to follow. RailTrack, the private company that was in charge of the track was not interested in spending on safety measures and instead handed over fanciful profits to its shareholders, high salaries and heavy bonus payments to its chief officers. Safety measures used in European trains were not adopted in the UK and the commuters have paid dearly with their lives in repeated rail crashes.
Out of desperation, the UK government had to renationalise Railtrack. In California, the privatisation of the electricity utilities resulted in the private companies overcharging and the attempt by the Governor to control it, ended up costing him his post! These instances expose the ugly side of privatisation, where service and national interest are sacrificed for the personal gain of the shareholders and officers. However the WB and the IMF continue to force the Third World to privatise state ventures.
Privatisation of State commercial concerns is advocated by the WB and the IMF. Accordingly the entire infrastructure that countries have built up for peasant agricultural development like BULOG in Indonesia, the Paddy Marketing Board and the Department of Marketing in Sri Lanka are abolished or privatised. The latter had a Cannery. The Department of Marketing offered floor prices for essential vegetables and fruits thus enabling Sri Lanka to achieve self sufficiency. This enabled farmers to sell their produce at reasonable prices.
The privatised cannery opts for importing fruit. Producers when they fail to sell the produce stop production. Imports take the place of local production. The State has to play a major role by providing incentives and engaging in commercial activities that enable and help people to boost production. This is one method of combating poverty and creating employment. However the WB and the IMF’s SAP prevent such activity.
Devaluation of local currency is advocated on the grounds that the local currency should find its correct value in terms of the theory of supply and demand.
Next, the IMF advises countries to free-float their currencies. Free Floating means that the State––the Central Bank––has no control over the foreign exchange that comes in and allows the commercial banks to determine the exchange rate. The modus operandi is to privatise the State Banks, get foreign banks in so that the currency can be controlled by foreign banks. In reality, the foreign Banks hoard foreign currency collections and bid the foreign exchange value upwards when a large bill has to be paid in foreign currency.
This happened in Sri Lanka in January 2001, when the rupee was free floated and the Rupee plummeted. When the Turkish Lira was freefloated in 2001, the Lira suffered a devaluation of 36%. In 2003, the USA pressured China to free float the Yuan but the Chinese were too wise to fall for that.The Sri Lankan rupee has plummeted in value from Rs 15.70 to pound sterling in 1977, (when Sri Lanka started following the IMF’s SAP) to Rs. 35 in 1983 and to Rs. 180 to in 2006, recording a drop of 1,046% between 1977 and 2006 and a drop of 414% in the period between 1983 and 2006.
In Indonesia the rupiah has been devalued from Rs. 1,330 to pound sterling in 1983 to Rs. 16,002 to in 2006, a drop of 1,103%. The Turkish Lira has dropped in value from Lira 336 to the `A3 in 1983 to Lira 2,316,733 to the `A3 in 2006, marking a devaluation of 689,400%.
The Ghanian Cedi has been devalued from 5.7 Cedi to the `A3 in 1983 to 15,924 Cedi to the `A3 in 2006, a devaluation of 279,000%! The Nigerian Naira has been devalued from Naira 1.11 to the pound in 1983 to Naira 223 to the pound in 2006––a drop in value of 21,170%.
This devaluation of currencies is done by induced supply and induced demand––all designed to reduce the value of the currencies. Increasing the demand happens when foreign exchange is liberalised as insisted by the IMF, while restricting the supply is automatic because no economy can earn endless foreign exchange to support unrestricted imports and their liberal use. In addition the supply is further restricted by foreign banks that hoard the foreign currency it can get hold of. The IMF plan is to privatise local banks so that foreign banks can act undeterred in their manipulations. It is important to note that the theory of supply and demand is restricted to the textbooks.Richness of third world countries
I served as a member of the Sri Lanka Administrative Service for 18 years and have worked at first as an Assistant Commissioner and finally at Head of Department level being in charge of a major District in charge of social and economic development. I worked in Bangladesh for two years as the Commonwealth Fund Advisor to the Ministry of Labour and Manpower. Bangladesh is the most fertile country I have ever seen. In my experience, there is no problem of these two countries achieving development- self sufficiency in food and small consumer goods within a few years. I can make this statement without reservation. Poverty Alleviation need not wait till 2015, as envisaged by the Millennium Development Goals. I have traveled widely in Mexico, Turkey, Indonesia and Thailand and can state that there is no necessity for these countries to be indebted or to have their currencies trashed. All these countries have a tremendous potential, with ample land and labor resources. Indonesia too has been advancing in development till the IMF forced them to dismantle the infrastructure the country had built up to help the peasants to become productive farmers. However these countries can develop only if the Developed Countries and their prot`E9g`E9 the World Bank and the IMF stop their manipulations.
The current paradigm of development has totally failed in developing the Third World. Though this process has enabled the development of the Developed Countries; it has caused poverty, untold misery and sheer deprivation in the Third World.
Even the Wall Street Journal has been extremely critical of the IMF. In their words:
"The IMF Drill is as follows. A Third World poor country with a pegged currency is working towards taming its inflation. Instead of a growth formulae, it gets the IMF’s old austerity dosage which slows down the economy. The Banks begin to falter in paying their old debts. The IMF recommends yet more medicine- devaluation making the Bank predicament and capital flight worse. The currency slumps and the banks are now in real trouble`85. Is this any way to run an international monetary system"(Feb22,2001)
It is important to note that though world famed economists like Professor Jeffery Sachs and Joseph Stiglitz have criticized the Structural Adjustment Program and the IMF policies, they have failed to provide an alternative solution. Professor Jeffery Sachs states that by the cancellation of debts in specific instances, by the introduction of petty changes and Safety Nets, extreme poverty can be cut by half by 2015 and banished by 2025. It is my opinion that unless the Structural Adjustment provisions are totally amended, no development can ever be brought about. The current scenario of the rich becoming rich will continue increasing poverty and deprivation. Even The Lugano Report, though it admits that development has so far failed wants a situation where the IMF and the WTO could function as an embryonic International Ministry of Finance, Investment and Trade. Their method is clear- it is through the WTO. For the first time an international body (WTO) enjoys genuine judicial power over trade disputes with regard to all its member states. As stated by the Director of the WTO: We are writing the constitution of a single global economy. The WTO is now attempting to rule the entire world by regulating all countries to conform to globalization in a manner that enables the present paradigm of exploiting the resources to continue further. As Professor Stiglitz states The IMF has forgotten its original mission and seemingly become more interested in ensuring the repayment of foreign loans than in helping the poor countries sustain their economy as close to full employment as possible (The Roaring Nineties).New paradigm for development
It is time that the Third World countries take a hard look at countries like India and Malaysia where they have managed to follow strict tariff controls, develop their agriculture and industries and keep their currencies intact in value. Mahatir Muhammed showed the entire world that in order to bring Malaysia out of the East Asian Crisis in 1997/98 he had to follow the obverse of the SAP provisions. Malaysia succeeded and that offers hope to every Third World country.
One has to probe the post colonial period experience of development in the attempt to find a solution.
In the Sixties the United States was genuinely interested in finding out how development can be brought about. They selected a poverty stricken Thana (area of 102 square miles) in Comilla, Bangladesh, funded Programs for development with the help of expertise from Michigan State University. This was the Comilla Program of Rural Development. The aim was self sufficiency in food, full employment, the development of agriculture and industries in both the private and cooperative sectors. The colonial administrative set up was overhauled to enable community economic development. The method was to use community development and non-formal education techniques to ‘build people’ in the words of its legendary director, Dr Akhter Hameed Khan. People were empowered through a network of cooperatives to attend to infrastructure development, provide marketing facilities and finance to enable development. In less than nine years the yield of paddy was more than doubled, full employment achieved and the employment created spilled over into adjoining areas. It is an achievement without any parallel in the annals of development. Despite its intrinsic success and that by inputs from the United States, the WB and the IMF ignored it in drafting their SAP.
In 1982, the Ministry of Youth Development of Bangladesh commenced a Youth Self Employment Program, in order to combat the growing tide of youth unemployment. It was based on the development of agriculture, poultry, dairy products and industries. The core elements were: to teach vocational trainees basic elements of economics, encourage trainees to prepare a project to be self employed and start implementing the project, not to offer any subsidies but to offer free training and a fast and efficient extension service- remedial action- technical assistance at the doorstep of the project and all training institutes had to provide extension services when any trainee commences self employment. The thrust was on non-formal education where the abilities and capacities of the youths were built up as they engaged in commercial activities aimed at making them self reliant entrepreneurs. This Program has by November 2002 enabled 709,993 persons to become self employed- derive incomes by creating production. Since 1997, annually 160,000 youths are given intensive training and guidance to become self employed. Upto now over a million people have been found self employment on a commercially viable basis. This is easily the largest self employment program the world has seen. I designed and established this Program when I worked there as the Commonwealth Fund Advisor on Youth to the Ministry of Labor and Manpower in 1981 to 1983.
Both the Comilla Program of Rural Development and the Youth Self Employment Program have stood the test of time and stand as a beacon of hope for prospective developers.
There was once a time when the premier Universities concentrated on teaching disciplines- strategies to bring about development viz., community development and non-formal education. The Universities even directed projects to develop the Third World. I functioned myself as a Research Associate on the Michigan State University Non-Formal Education Project in Indonesia. This was funded by the U.S. Agency for International Development. The earlier mentioned Comilla Program of Rural Development was another such attempt. These were genuine attempts of the excellence in academia fuelled by the magnanimity of the Developed Countries.
The thrust was not only at providing Aid, but to explore ways and means of utilizing the Aid to bring about development. These studies and projects were stopped and in their place sprang up the Non-Governmental Organi-sations. In the Universities studies in Community Development and Non Formal Education were stopped and instead the MBA became the doyen of finding lucrative employment. In the Business Schools the concentration was on methods to make profits, how to get workers to work more, exploring methods of hiring and firing workers, how companies can show profits by selling assets-even by retrenching staff- the aim was to grope for methods to enable profits for the shareholders and in this craze, the aim of rounded development- creating local production- self sufficiency, looking after the interests of the country, the people- their well being and employment was totally sacrificed.
Earlier, in agricultural economics, management techniques and financial analysis were used to enable farmers to become profitable, how small industries could be developed, how cooperatives and marketing systems could be designed and implemented to help a peasant economy. Resource Development was taught detailing sustainable development. In the Faculties of Education, Community Development was taught- techniques used to enable people to become partners in development and for communities to take charge of development. Non Formal Education was taught to equip professionals to guide and enable people to develop their capacities and become self reliant. The Business & Management Studies rapidly gained ground and there was no place for these educational strategies. Instead financial analysis and management techniques were devoted to emass profits for the shareholders. The people were an expendable commodity and the thrust was to enable riches for the rich..Conclusion
Once when Robert McNamara assumed duties as the President of the World Bank he said that the World Bank had been going on the wrong track. He tried to correct it but miserably failed. The latter part of his tenure is noted for creating indebtedness among the Third World countries. It is time that the World Bank, the IMF and the Developed Countries do understand what is really happening in the Third World and instead of engaging in further exploiting the Third World, commence groping for a paradigm that will usher in development first in their own Developed Countries by arresting the recessions that scourge their economies, eliminating poverty and finally bring about development in the entire world. They have the ability and the strength to attend to this task. Today the attempt of the Developed Countries is to squeeze the assets of the Third World by prise opening them for investment and thereby usher development in the Developed Countries. A paradigm for development based on the tears and tribulations of the people in the Third World is unethical. Let that not continue. Surely there is a paradigm by which development can be ushered in the First, Second and Third Worlds.
In developing this new paradigm for development it is necessary that firstly the IMF and the World Bank should abandon their Structural Adjustment Programme and instead develop a programme that is full of growth strategies. The Developed Countries should consider measures to bring about economic development on a global basis in their own developed countries as well as in the Third World countries. The latter should be helped to develop their own programs and projects that can make their people contributors to their economies and not be relegated to be mere consumers. In this task of ‘building people’ as Akhter Hameed Khan, the director of the Comilla Programme, and ‘developing the abilities and capacities of the people to make them partners in development’ the strategies of Community Development and Non Formal Education deserve to be utilized to the maximum. A further strategy that has to be emphasized is Community Economic Development, where communities handle their own development. In this community leaders are trained to establish commercial ventures on a cooperative basis to develop their areas. The advantage in this is that the commercial venture stays in the community as opposed to a private entrepreneur who with success may move to an area of affluence leaving behind the poor and deprived community within which he sprang up.
To enable the masses to become productive- the lost infrastructure for development should be built up; marketing and technical advice has to be provided. The IMF and the World Bank and the United Nations have to back track to how they attended to bring about development till the Sixties- the pre Structural Adjustment period. It is only then that countries can flower into development, producing their own needs and requirements, providing employment and incomes for their people- a self reliant type of development, aimed at sustainable development- what the world yearns for today. Professor Stiglitz states that Globalization may be inevitable but the way we attempted to structure it- for our interests- was not consonant with our values and ultimately failed even to serve our own interests. The ‘globalization, boom like the stockmarket boom and the economic boom, was followed by a bust, and partly because as in the case of the other booms, they had within themselves the seeds of their own destruction (The Roaring Nineties).
A new paradigm for development has to emerge which includes all that is good within globalization, with prosperity for all people.
Let us hope that the leaders of the Developed and Third World Countries, the mandarins of the World Bank and the IMF, the Presidents and Vice Chancellors of the premier Universities- the depositories of academic excellence, may take on this challenge in the name of humanity. I do wish to be associated with any authority that takes up this challenge.