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The Struggle for Development:
National Strategies in an International Context
Edited by M. Bienefeld and M. Godfrey
@ 1982 John Wiley & Sons Ltd.
Chapter 1

The International Context for National Development Strategies:
Constraints and Opportunities in a Changing World

MANFRED BIENEFELD

The struggle for national development inevitably takes place in an international context, the changing circumstances of which define both constraints and opportunities for the various protagonists. This chapter provides one view of that context which emphasizes the importance of the changes it has undergone since 1945, and suggests that each individual country's experience can be analysed and understood only in relation to those changes.
   Because of the inadequacy of any view which conceives of these international developments as exogenously given facts which impinge equally on all countries, so long as one allows for differential resource endowments, it is essential to analyse the links which transmit signals and pressures between the international and the various national spheres, thereby attaching relative significance to the nation state because it has the capacity, albeit a variable and limited one, to define those links.
   The discussion which follows focuses on competitive economic relations as particularly powerful, though highly ambiguous, transmitters of pressure, inducing national adjustment to international change. It suggests that the benign circle of causation which free trade theory associates with such competitive relations was experienced in the 1950s and 1960s by the (OECD) industrialized countries, but argues that the 1970s, and the experience of most developing countries since 1945, indicate that this result depended on a number of conditions which have been eroded since the late 1960s.
   The chapter concludes by considering the implications of this interpretation of the international context for development strategy. It suggests that while fuller integration into the international economy is generally desirable it can
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easily undermine the state's effective ability to set limits to the social and material conditions ultimately reflected in, and judged by, the competitive economic process, or to direct the process of economic (material) growth towards some specified and defensible social objectives.
   Ascribing such central significance to the economic links between a nation and the international system does not imply the dominance of economic factors, nor does the fact that those links are treated as variable imply that any nation can hope to insulate itself totally from the external world, even if that could be shown to be desirable in a particular circumstance. Indeed, the argument which follows stresses the derivative status of economic factors, and emphasizes the potential benefits of trade, by stressing the importance of the domestic political task of perpetually redefining the appropriate (to its social objectives) economic links a nation should maintain with the outside world. Moreover, not only must such 'appropriate links' be defined in relation to particular national circumstances, they must also be based on an assessment of international developments, whose analysis therefore constitutes an essential input into the formulation of national development strategies.
   While in this context it is not possible adequately to survey the different ways in which the international sphere is conceived, either explicitly or implicitly, in the development literature, it is worth noting that the interpretation of this chapter differs in some important respects from most prevailing alternatives, although it inevitably shares common ground with many of these.
   It does not share the optimism of the now strongly reasserted free trade orthodoxy,(1) which has recently gone so far as to assert that if, under present circumstances, market signals were allowed total freedom to assert themselves, the costs of adjustment would be 'negligible' (OECD, 1979a). It also disagrees with the argument that the recent dramatic growth of the NICs (Newly Industrializing Countries) was primarily the result of the internal economic and trade policies adopted by those countries (Bhagwati, 1978; Krueger, 1978), or that this growth can be extrapolated and generalized on the basis of Vernon's product cycle thesis (Vernon, 1966), or of some related notion of a progressive and sequential movement up a technological ladder (Keesing, 1979; Balassa, 1980).
  On the other side of the debate it stands opposed to various Marxist formulations: which share the basic principle of the product cycle as a central feature of the operation of international capital and consider it likely to lead to a renewal of existing international hierarchies based on a new pattern of technologically based specialization (Palloix, 1971); which see in the developing countries generally a growth of national bourgeois states taking their place in an (economically conceived) international market (Warren, 1980); which see the international logic of capital as essentially definable without reference to the national political basis of capital and as unfolding largely in accordance with the law of value, under the aegis of the multinational firm (Murray, 1972);
                                                                                                 
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 which place key emphasis on the distinctions between merchant and industrial capital, and discuss the international operation of industrial capital largely without reference to its nationality (Kay, 1975) ; which place primary emph- asis on the idea of unequal exchange or the imperialism of trade (Emmanuel, 1972; Amin, 1973; Braun, 1973-see the recent excellent critical survey by Evans, 1981b); or which derive the crisis essentially from the third world's political reactions in the context of international class struggle (Amin, 1974). Finally it does not share the premises of those arguments which derive current international contradictions primarily from shortages of oil, or of liquidity (OECD, 1977; Brandt, 1980).
    While indebted to the foregoing analyses for many theoretical and empirical insights, the argument which follows represents an attempt at a synthesis which considers the international situation to be dominated by four long-term trends which have gradually widened certain critical economic imbalances to the point of creating a dangerous political crisis. These trends are made manifest in: the secularly declining profit rates of the OECD economies (OECD, 1979b); the major divergence in productivity growth between the US and the UK on the one hand, and Japan, West Germany and France on the other; the increasingly critical balance with respect to the supply of and demand for certain important raw materials; and finally, the extreme difficulties experienced by the developing countries in combining equilibrium in their balance of payments with a type of growth which is socially and politically sustainable without the threat of instability, or the need for extensive political repression.
    It is argued that in considering the interaction of the national and international interests, and of the interests of capital and labour within such a context, it becomes possible to see more clearly the nature of the relationship between the economic and the social and political spheres. Indeed this issue is at the centre of the following section, which considers the implications of the global reach of the principle of competitive economic relations.

 The Competitive principle and Political Interdependence

Production is above all a social process. It requires the organization and coordination of labour working towards specified objectives and under mutually acceptable conditions as regards effort and reward. Under guild manufacture, or in a socialist economy, the fact that this is first and foremost a social and political process is clear. However , when the exchange of products begins to take place under competitive conditions, attendant changes in the organization of production may obscure this fact by creating the illusion that the process of production can now be adequately understood in economic terms. This is not the case, although it is true that the introduction of the competitive
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principle inevitably has a profound impact on the process of production and exchange. This effect, and its implication for international relations, is our first concern.
For present purposes the competitive principle is said to apply whenever  products are sold in markets alongside other comparable products, with no  restriction on, or reference to, the social conditions under which they were produced. Hence there could be markets where many producers sell similar products, but where the principle does not apply because all have their production process carefully controlled by some particular guild (Bienefeld, 1979). However, as soon as uncontrolled producers from the surrounding countryside enter such markets, the competitive principle begins to exert its influence, as the recent historical literature on proto-industrialization makes marvellously clear in its emphasis on the importance of  'arms length' markets (Mendels, 1972; Deyon, 1980).
             The great importance of this change lies in the fact that all producers linked through such markets are drawn into an interdependence which implies, for each participant, that henceforth the viability of its socially and politically determined organization of production, or the adequacy of its productivity performance, can only be etablished in relation to that achieved in other 'linked' units. When the social units thus linked are specialized producers the effects are most unambiguous. Under the slogan 'Compete or perish ( economically)!' such producers cannot avoid adjusting their prices to those of their most efficient competitors (so long as that efficiency can be reproduced by others and is not a rent for some scarce input), and in the process they must
either lower their level of consumption, improve or intensify their process of production, or lower the prices of their material inputs. This fundamental consequence of the operation of the competitive principle remains unchanged even when the social units thus linked are larger, more diverse units of production, such as nation states, although in such cases the impact is less direct and the range of possible responses much wider. In order to clarify this point it is worth considering this competitive adjustment process in greater detail.
             Without doubt the most deeply contradictory element of the competitive economy is that which makes the maximization of consumption its raison d'etre, while at the same time transforming it into a cost of production, which the logic of the system forces each producer to minimize. In this sense the competitive system comes close to incorporating that apparent 'absurdity' of mercantilist thought which saw the prosperity of the nation achieved through the poverty of its inhabitants. Today it is within the many-faceted concept of efficiency that this contradiction is embedded. Efficiency (relative to other producers) is achieved on three battlefronts: favoured access (through ownership-an eminently political fact) to the materials required for production; possession of superior knowledge-i.e. technological or organizational; or lesser consumption/greater effort on the part of the producers. As a result,
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wherever and whenever resource access is 'given', and technology differentials are small, success, or rather survival, in the competitive process depends on the capacity of producers to restrict their own consumption per unit of effort expended.(2) As one might expect, under such circumstances the highest levels of  'efficiency' are attained in situations where the mass of producers are separated from those who exercise authoritarian control over production and who are willing to accept a relatively higher degree of self-denial  'on behalf' of the producers before losing their belief in the longer term virtues of  the system . These might be Prussian junkers, Virginia slave-owners, Argentine latifundistas or Manchester capitalists-all are in principle compatible with the competitive system. Furthermore, all of these necessarily respond to the pressure exerted by that system (Brenner, 1977), and each has a material incentive to improve the efficiency of production-i.e. to lower the costs of production.
   However, unlike capitalist entrepreneurs, non-capitalist masters did not 'respond' under the constant threat of economic destruction. If their production lagged behind in productivity, general incomes would fall, even the master's personal consumption might be affected but the survival of the enterprise was not usually at stake. By contrast, if the individual capitalist's enterprise lagged behind the likely consequence was bankruptcy. Hence, while the profit motive was common to all, it was the survival motive which distinguished the capitalist master, and left him to obey only one law and one commandment, , Accumulate! Accumulate!'. For the capitalist the lesson of the fable of the tortoise and the hare could never be that 'slow and steady wins the race', it had to be that 'no matter how big your lead in the race may appear , you can never let up and never stop looking over your shoulder' .
  Furthermore, the capitalist producer's stronger inducement to seek continuously greater efficiency was combined under capitalism with a greater flexibility due to the decentralized ownership and control of the investible surplus and the creation of  'free' wage labour. Historically, it is possible to assert that this combination established its superiority, not as a logically necessary consequence of the operation of competitive markets, but because during the early phase of  the development of the global economy (Wallerstein, 1979) it proved generally most 'efficient', but it is important to specify the forms of capitalism which did in fact emerge triumphant in this sense, to understand the reasons for that success, to consider the possibility that the most recent experience of the world economy suggests a change in this 'optimal' (i.e. competitively most successful) form of the social organization of production, and to bring that conclusion to bear on the efforts of technologically relatively backward economies to develop within the present global context. The first two of these tasks will be very briefly discussed in the next section; the third task will occupy the rest of this chapter, while the fourth and last will be primarily addressed in the country studies which make up the remainder of this volume.
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Competitive Forms of Production: Natural Selection in a Competitive Context

At one level the history of capitalism can be seen as an amazingly successful resolution of that potential conflict between the need simultaneously to increase consumption and to reduce the costs of production. The magic wands which resolved this apparent paradox were technology, time and the modern nation state: technology, because it allowed costs of production to be lowered and competitiveness to be maintained even as the consumption levels of labour rose; time, because the dynamic nature of the process allowed it to avoid a perpetuation of that situation where the equilization of technological capacities necessarily focuses the competitive process on the cheapening of the labour input through wage reductions or the intensification of labour; and the nation state, because it allowed the competitive process to be regulated and helped to concentrate the process of accumulation spatially, so that full employment became a real, though always problematic, possibility in particular countries.
   Since these achievements were not realized without the exploitation of many groups and regions, or without periodic and global conflict, the simple extrapolation into the future of this historically progressive aspect of capitalism is not defensible. Furthermore, striking though its material success has been in the industrialized world, where real wages increased steadily and by more than 500 per cent between 1860 and 1960 (Phelps Brown and Browne, 1968), this does not alter the fact that the fundamental logic of competitive capitalism continues to imply that under conditions of excess labour supply, the wage will tend to be reduced progressively until full employment is achieved, irrespective of the prevailing level of technical sophistication and hence of average productivity. Furthermore, in principle this downward pressure respects no social or humanitarian boundaries, unless the competitive principle can be set aside by some limits being effectively imposed on all competing producers. Otherwise this process would not even halt at some 'cost of reproduction of labour', except in a tautological, long-run sense.3 Indeed, from within the confines of the competitive process it was perfectly logical and technically correct for Nassau Senior to state, at the height of the Irish famine in 1848, when Irish food exports were running at a high level while millions in Ireland were starving, that he feared the famine of 1848 in Ireland would not kill more than a million people, and that would scarcely be enough to do much good, (Woodham-Smith, 1968).
    This is not meant to suggest the imminent collapse of real wage levels in the industrial countries, but rather to draw attention to the need to view the real wage experience of the industrialized countries not as the natural consequence of the productivity increases achieved under competitive conditions, but rather as the result of a combination of economic and political circumstances which led to nationally concentrated processes of accumulation able to approach full employment, and able to maintain their competitiveness, in spite of the
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 resulting real wage increases, by means of a sustained technological dynamism and the direct use of economic, political and military power whenever necessary-and possible.
    This process was politically formalized and institutionalized through the emergence of economistic trade unions within these economies, which often pushed real wage increases to the limits of what was internationally sustainable by such technical/economic or political/military means. At the same time these organizations reproduced aspects of this international pattern within the industrial economies, by ensuring full employment and rising real wages for various categories of labour even when there was little prospect of general full employment. Possibly the most striking consequence of this development is the fact that in many industrial countries, the periods of high and protracted unemployment-i.e. the 1870s, 1930s and 1970s-were often accompanied by real wage increases for those who remained in employment, which equalled or exceeded their respective long-term trend increases (Phelps Brown and Browne, 1968, Figure 1B, p. 31).
   In other words, capitalism's relative success in achieving a considerable (though still deeply problematic) reconciliation of economic and social objectives, for the majority of the population in the industrialized countries, has been significantly based on processes of exclusion and concentration, effectively shaped by the actions of nation states, firms and trade unions which established the limits within which the competitive principle has operated.
   Hence it was not simply 'capitalist production' which historically demons- trated its relative superiority in the competitive struggle, it was 'capitalism, as organized in an effective, modern nation state', which must claim this distinction. The qualification is most important. There is no major capitalist industrial country which achieved its rapid economic advance under capitalism without a strong state: capable of unifying domestic markets; able to exercise effective control over its competitive links with the outside world; successful in creating favourable conditions for concentrated domestic investment; able to defend the nation's external interests by force when necessary; and able to establish a 'free' labour force in the context of some minimal socially defined limits within which the competitive process operated domes-tically. The histories of nineteenth-century Germany, Italy, France, Japan, Russia and the United States all exemplify this proposition, though they also illustrate the variety of ways in which states could fulfil these conditions. Even Great Britain's experience leaves no doubt about the importance of the British state's role: in establishing a unified national market at an early date; in establishing its control over international trade routes; and in obtaining favoured access to various markets and sources of raw material.
  In considering the reasons why such a national form of capitalism should have proved most successful, a number of factors deserve consideration. First is the obvious fact that capital is a social relation and that, as such, it can exist only
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within the context of some political entity which creates the social and material conditions necessary for its existence. Second is the importance of creating a sphere of relative social homogeneity and stability, within which the competi- tive process can unfold relatively smoothly, and which can be protected from potentially disruptive contacts with competitors outside of this sphere. Third is the fact that the incentive for technical innovation (which allows competitive- ness to be reconciled with improved social conditions) is increased, and the conditions for it are improved, in so far as national policies induce capital accumulation to take an intensive (concentrated), rather than an extensive ( dispersed) form. Fourth is the related fact that both the control of labour and the development of its skill are likely to be facilitated by increasing real (social) wages, so that these also contribute to efficiency. Fifth is the need to possess some means of physical force which can, at least, guard against the danger that others might seek to gain some unfair advantage by blocking a nation's access to markets or raw materials, or at best, obtain such advantages for the economy in question. If these factors were of central importance in accounting for the success of capitalism in this particular form, it was that success which, through the natural selection based on a survival of the fittest, led to the continuing efforts to replicate the modern national state.
  When nation states are linked through competitive relations the effect, as before, is to create a powerful interdependence. Indeed, so long as the competitive principle is allowed to apply, any divergence in the evolution of national social processes of production which alters their relative competitive- ness, and hence eventually their balance of payments (as the summary of the nation's external econmic transactions), will generate an irresistible pressure for adjustment which overrides social or political opposition. In this sense one can say that economics dominates politics and, for this reason, also, internatio- nal economic balances deserve special attention in a world where the competitive principle applies widely.
  This should not, however, lead to the economistic fallacy that therefore this need for adjustment can be understood in purely economic terms, or that the policies required to bring it about can be derived from within the confines of economics. Both the original divergence and the changes needed to bring the economic indicators back into balance reflect social and political factors which cannot be treated as mere 'dependent' variables that either will, or should, necessarily adjust in accordance with some particular set of economic signals. The great importance of such economic signals lies in their role as transmitters of information, as means of making certain comparisons between different social situations, but the adjustments which they 'demand' must always be analysed and evaluated in terms of their social and political substance. This is a central issue because when one is dealing with nation states there is always some possibility of political intervention to modify the manner in which, and the extent to which, such international competitive pressures can induce

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adjustment in the domestic organization of production, and in this ultimate sense the political sphere dominates the economic.
  To be sure, such intervention is frequently a mistake, and in any case no amount ofpolitical intervention can allow a nation to avoid balancing its external accounts in the longer run, or to avoid the necessity of adjustment if it assumes foreign exchange liabilities exceeding its capacity to earn hard currencies given the social conditions of production it has chosen to maintain. Such intervention does, however, create circumstances in which the assumption of foreign exchange liabilities can become a matter of conscious choice to be reconciled with other aspects of social and economic policy.
  Although the conditions for such intervention cannot be extensively explored here, there is no doubt that such conditions do exist. They arise whenever the divergence between national and international levels of efficiency is such that an unqualified application of the competitive principle would demand a degree of social or political change which was either unattainable or undesirable for social or political reasons, or simply because it impaired the economy's long-term competitiveness. Furthermore, such conditions are more likely to apply: when the efficiency differential to be bridged is very wide; when the technological level of the weaker economies is such that they must seek to attain competitiveness primarily by means of lowering labour costs; when the global economy is far removed from full employment and especially when this is also true within the leading economies; when the transfer of technology between different types of economies is relatively inhibited; and when there are significant dynamic economies to be derived within particular nations by an intensive, nationally coherent and forward-looking allocation of investable resources.
  While most of these factors emphasize the importance for the lagging economies of the careful regulation of their links with external competitive markets (List, 1904; Senghaas, 1979; Diaz-Alejandro, 1978), the issue is also of great potential importance for the leading economies. If over an extended period the relatively advanced nations are able, on the basis of their technological, social and related political/military strength, to maintain their competitiveness even while constantly increasing the differential between their social conditions of production (i.e. the social wage and the intensity of labour demanded) and those prevailing in the less developed countries, that widening gap creates a growing danger of the emergence of competitive pressures, whose social and political implications could not be readily absorbed. Should the relative technological lead of the advanced economies be eroded, as for example by an increased global mobility of technology (Soete, 1981; Froebel et al., 1980), or should the political and institutional market power which may have sustained these divergent trends decline, then in the context of vast global labour reserves the competitive process would come to focus primarily on the wage cost differential4 with potentially explosive consequences if absolute disparities in social conditions of production were very wide.
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  Certainly the tendency of nations to regulate their exposure to international competitive pressures in accordance with their relative economic circumst- ances is an all but universal feature of the history of capitalism. It is illustrated by the early protectionism of today's industrial powers,(5) common responses to the conditions of the 1930s, and their post-Second-World-War policies, which combined high subsidies for domestic food production with cascading tariffs on manufactured exports from less developed countries ( escalating with increased degrees of fabrication). One may, of course, accept these facts but argue that they do not indicate the necessity of the national regulation of external economic links, but rather the inevitability of economically irrational political intervention in the competitive process so that all protectionist demands are treated by definition as macroeconomically irrational political pressures arising because specific interest groups press short-term sectional advantages against the 'general interest'. Furthermore, it can be argued that since the liberalization of trade has historically been loosely associated with rapid economic growth, especially in the 1950s and 1960s, the freeing of trade is a cause of such growth (Balassa, 1966). In fact, however, it is necessary to consider the possibility that the liberalization of trade is itself facilitated by the circumstances conducive to rapid economic growth, and even though under such conditions it undoubtedly helps to reinforce that growth, this beneficial consequence of freer trade cannot be considered universal. Indeed, when the conditions for rapid economic growth are no longer given, the social and political consequences of entering further liberalization could even become dangerously divisive and destabilizing.
   What follows is an interpretation of the period since 1945, which suggests that by the end of the 1970s such a situation may again have arisen.

Post-war Developments Summarized

The post-war period has been characterized by a range of striking political and economic developments. Of greatest concern to this chapter's discussion are: a historically unprecedented growth of output and consumption; the multiplica- tion of independent nation states, together with very large increases in the absolute differences between income and consumption per head in the richest and the poorest nations, and also between the OECD countries and the rest; an increase in cultural interdependence, based on an explosive growth in travel and communications; a deepening of economic interdependence as a result of capital and trade flows, with labour flows playing a lesser role; an increase in the concentration of international production, when considered by firm, though a decrease when considered by nation; an increase in the importance of supranational organizations and a strengthening of international economic and political institutions; the emergence of important bottlenecks in the supply of certain material inputs, together with the threat of major ecological problems
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following from accelerating levels of material consumption; high levels of population growth, together with disappointing growth in food production in most parts of the world; a political transition from a primarily bipolar East- West divide, with one power clearly dominant in each 'camp', to a multipolar situation by the 1970s; a rapid expansion of international financial instititutions with a sharp structural shift towards private international financial flows after the mid 1960s; a 'miraculous' period of growth in a number of semi- industrialized countries (the NICs: especially Brazil, South Korea, Taiwan, Singapore) which began largely in the latter half of the 1960s; and finally the re-emergence in the 1970s of deep problems within the international economy, which have created a more and more polarized and volatile international situation both economically and politically.
   Undoubtedly, even this long list has missed out important areas. Its purpose is merely to indicate the main issues which the following acount will attempt to relate to each other in the context of the four long-term trends identified earlier .
   The following discussion will consider in turn the separate post-war
 experiences of the North-west (the OECD countries) and the South, followed by a conclusion which will briefly consider the experience of the socialist countries (the 'North-east') in relation to the trends identified in the capitalist world.
 The Industrial West's Golden Age: The Growth of Output, Free Trade and Contradictions
 Between 1945 and 1973 the industrial countries underwent a process of rapid growth and accelerating mutual integration, which was stimulated by Marshall Aid and facilitated by the stability and liquidity provided by the Bretton Woods arrangements, especially by the convertibility of the gold-based dollar, the relative stability of exchang rates and the IMF's ability to smooth out minor disequilibria in external payments. Under conditions of generalized full employment and relative price stability, the growth of commodity and capital flows between the OECD economies outstripped the growth of output by a substantial margin. When trade barriers between these countries were gradually lowered in the 1960s, this extension of the competitive principle was associated with broadly favourable social and economic developments because, apart from Japan, the social and cultural homogeneity of the countries concerned was considerable. Initial intercountry real wage differen- tials, though significant, were small by international standards and tended to be associated with productivity differentials which reduced the competitive
  advantages they might have conferred. As a result the pressures for adjustment conveyed by the extension of the competitive principle were modest in scale and could be readily accommodated.

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  Even such gradual pressure could easily have led to resistance and conflict, if growth had not been rapid and if the US, which was slowly losing an enormous economic lead, had not decided at the end of the war that West European and Japanese economic expansion were the best safeguards against communism in France and Italy, and against instability or revanchism in the volatile political situations of Japan and Germany. This was a magnanimous and an important decision which reflected the lessons learned at the end of the First World War .It was made somewhat easier because European reconstruction was in the short run economically highly complementary to US requirements by providing demand for its war-inflated capital goods industry, 6nd because fears about future competition were muted by the extent of the US's economic dominance.
  To most observers the process appeared remarkably reassuring. They saw convergence between the industrial countries, and expected convergences with the socialist bloc, the end of ideology, and even the waning of the nation state . There were some voices in the academic wilderness pointing to emerging problems, (Triffen, 1960; Melman, 1965; Mandel, 1964), but such 'Cassandras' were easily ignored in the midst of such euphoria. Of course, there was de Gaulle, and the Japanese, who both in their different ways seems stubbornly wedded to an apparently irrelevant nationalism, but it was possible to think that the EEC might take care of the former, and the proximity of China and the Soviet Union of the latter. There was also the developing world which was rife with nationalist talk about balanced growth, import substitution and the like, but it seemed possible to believe that global economic growth could generate enough resources to provide the capital required to allow even them to resolve their special problem.
  In short, because the adjustments required to accommodate the economic signals transmitted through the competitive links between the OECD econo- mies were relatively modest, and because the US was content initially to see its economic lead eroded, a general political 'atmosphere ' prevailed which fostered trade liberalization, detente, decolonization and developmentalism. From this perspective it was easy to feel that the problems of the pre-war world had been banished to the pages of history as deplorable monuments to an earlier age of economic and political ignorance (Tinbergen, 1962).
  In retrospect, however, it is possible to see that the harmony and calm which prevailed in the OECD world during this period were superficial and deceptive. In actual fact the underlying long-term trends in national economic performance differed so markedly that major adjustments had become necessary by the late 1960s. At this point the world again entered a phase in which the social and political arrangements in all countries, including the industrial countries, would be subject to powerful, open-ended and relatively unpredictable pressures transmitted through their links with the international economy. These pressures continue to increase today, and no 'new order' , able to recapture the harmony of the preceding period, is on the horizon.

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   Two trends at work within the O ECD bloc undermined the apparent harmony most fundamentally and must be the starting point for an analysis of broader international developments. The first was the substantial, long-term differential in rates of industrial productivity growth in different OECD countries. The second was the emergence of structural economic problems common to the OECD as a whole and manifesting themselves in a generallong-term decline in rates of profit.
   The first trend primarily reflected the long-term deterioration in the competi- tiveness of the US and the UK economies because oflagging productivity growth (AER, 1980;Meier, 1977;USBLS, 1977). This trend began early in the post-war period but caused little concern for a long time, for a number of reasons.
   First, it represented initially a process of convergence which narrowed intercountry differences in the social conditions of production because it resulted in a progressive reduction of the gap between the US ( and Canada) and other OECD countries, especially as regards the price of labour ('the social wage') and the ability to apply technical advances to production (innovative capacity). This further ensured that the pressures for adjustment transmitted through international competitive links would not be disruptive, which encour- aged trade liberalization, made demand patterns more similar across countries, increased trade and encouraged intra industrial specialization (Grubel and Lloyd, 1975).
   Secondly, in so far as it was understood as a process of convergence, it was naturally regarded as temporary, merely reflecting a process of reconstruction in Europe, and of 'catching up' and reconstruction in Japan. This meant that once the gap had been narrowed, the differentials in economic performance were expected to decline.
   Thirdly, its consequences were obscured by the dollar's reserve currency status, as a result of which the US could persistently combine trade surpluses with balance of payments deficits based on capital exports to other OECD members, the former reflecting the basic strength of the US economy in the production of goods and knowledge, the latter reflecting the expansion of US multinationals into European production, and incidentally providing the liquid- ity necessary for the growing international economy. U nder these circumstances some decline in the US trade surplus did not call for urgent adjustment in the short or medium term.
  Fourthly, large US capital flows to the other OECD economies (excepting Japan) allowed the US economy to share in their relative economic success, and the presence which US capital established in these economies was so significant that it was bound to allay fears concerning the possibility of an eventual competitive challenge from these economies.
  Fifthly, faith in the ideology of free trade weakened such concerns, since no- one armed with a belief that there can be no insufficiency of aggregate demand and that the market always tends towards full employment equilibrium, will be

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concerned about the growth of competitors. The fact that, within the OECD, the rapid growth of intra industrial specialization accompanied continued full employment confirmed the view that the potentially disruptive competitive displacement of major industrial sectors was most unlikely. Indeed, so long as OECD employment levels remained high, the optimists would continue to be proved right by history.
  Finally, the fact that the US needed strong allies in both the Atlantic and the Pacific to safeguard the system on which its power and prosperity rested gave it a continuing self -interst in European and J apanese prosperity. Given the emerging strength of the Soviet bloc, the problems of the developing world, and the political uncertainties in some major European countries, these concerns were of major importance in providing Marshall Aid and other forms of assistance in those areas considered most sensitive. The contrasting tough stance adopted on war debts and post-war assistance to Britain, which was regarded as politically safe and a potential competitor, indicates the dominance of pragmatic considerations of political economy, rather than some boundless faith in the universal benefits of unilateral pump-priming.
  By the second half of the 1960s the continuing disparities in economic performance began to cast doubt on the convergence thesis. Although the gap had by now narrowed dramatically, the' respective productivity trends remained as far apart as ever, and the results began to threaten the economic, the political and the institutional bases of the post-war boom (MacEwan, 1975; Meier, 1977). The US trade surplus dwindled away (recording its first deficit this century in 1971), and with the increasing capital outflows associated with the invasion of Vietnam, the US balance of payments deteriorated sharply.
  Now, as foreign dollar claims agains the US increased, reaching $63 billion by November 1971, confidence in the dollar as a safe reserve currency collapsed. More and more creditors preferred gold, and by 1971 US gold reserves had fallen to $10.1 billion, from $24.6 billion in 1949 (Perlo, 1973:183). Furthermore, this was not merely the signal for a technical adjustment in the exchange rate. It reflected a growing disjunction between US economic strength and its global political role. The fact that the Vietnam War was the haystack that broke the camel's back served to emphasize the point.
   By this time the devaluation of the dollar had become unavoidable, although this had far-reaching consequences because the dollar was the 'stable value' underpinning the international trading system established at Bretton Woods. Those negotiations had opted for a gold-based dollar and relatively fixed exchange rates, because with the 1930s on their minds they feared the trade- inhibiting and potentially destabilizing effects of flexible rates, at times of high unemployment (Gardner, 1956; Brett, 1981). Now, just when unemployment levels in the OECD were about to rise once again, economic pressures swept aside these defences. On 14 August 1971 President Nixon announced the end of the gold-based dollar, and the effective end of the Bretton Woods system in

39
what he termed modestly 'one of the most important decisions in the history of the world' (The Times, 15.8.1971).
   The value of the dollar fell but the US balance of payments continued to deteriorate, still weighed down by the Vietnam war and suffering from relatively low productivity growth in the US. By 1973 the US balance of payments was more deeply in the red than ever and the government prepared for tough trade negotiations with the Europeans. As reported in July 1973 by an aide to the Secretary of State for Trade, they were 'refining a controversial strategy for international trade negotiations. ..the aim [ of which] is to strengthen the U .S. hand in the trade talks in the hope. ..easing the U .S. balance-of-payments deficit. The linkage strategy recognises the weakness in the U .S. bargaining position on trade, and seeks to offset it by tying the talks to other issues, where U .S. negotiating leverage is better. ..' (Ffowlkes, 1973). The areas of greater leverage were 'defense, monetary and energy issues'. On energy the strategy was particularly blunt and explicit, setting out clearly that a large increase in oil prices would affect the US's main industrial competitors much more severely than the US, and going on to suggest that the consequent accumulation of funds in the Middle East would be a lesser problem for the US because 'it has the largest capital market in the world. ..which would serve as a magnet for Arab investment. It concluded by noting that 'all but a few of the major integrated oil companies are U.S. owned, and other countries might reasonably expect these companies to favor the U.S. market were the energy problem to reach critical proportions' (Ffowlkes, 1973- emphasis added). Although the spokesman self-consciously rejected the charge that this strategy amounted to 'blackmail', it certainly amounted to an attempt to obtain economic concessions by means of threats concerning the use of US power in its broadest political and economic sense. Clearly economic pressures were not leading automatically to the social and political changes required to defuse them. Rather competitive pressures were revealed as operating through channels which are politically constituted, and subject to change. In short, what appeared to be an economic problem turned out to be a problem of political economy.
  The trade talks failed and th~ next two years witnessed the greatest instability of exchange rates since 1945 (Schmidt, 1979), the grain crisis6, and the oil crisis. As a result, the US balance of payments position eased in the mid-1970s but, with underlying productivity trends unchanged, by the end of the 1970s the balance of payments had slid even lower than its 1973 level, and this without the burden of the Vietnam war. In response, the late 1970s saw: a major export drive with respect to military goods, greater use of defence as a bargaining lever with the end of detente; a second round of oil price increases, which still effects the US's competitors much more than it does the US, although the difference is now smaller with an increased proportion of imports in total US oil consumption.
40


  By October 1979 the US's balance of payments position was deemed so difficult that the traditional remedy for deficit countries was sharply applied. With the introduction of strong deflationary policies (Volcker monetarism) in spite of an imminent presidential election campaign, the US seemed to have become just another economy, no longer able to ignore its external deficits because of the 'poisonous privilege' of dollar exports. When, in the first quarter of 1980, GDP fell at an annual rate of almost 10 per cent there was a policy reversal that halted the decline in output but left the balance of payments to find its own level, namely a deficit of $38 billion. The lesson was that in the US the changes required by international competitive pressures were politically unacceptable, so that the problem was once more covered up by a dollar export. In the short run the problem has been further obscured by the use of high interest rates to attract a larger share of the extensive international liquidity now seeking safe investment outlets in an unsafe world, but this may well increase foreign liabilities, fuel inflation, strengthen the dollar and inhibit long-term investment, thus reducing the chance that long-term productivity trends will be reversed. However, if these are not reversed, relative economic decline will either have to be accepted in social and political terms or the rules of the game will have to be changed even more violently, with dangerous and unpredictable economic and political results.
   Certainly by the end of the 1970s it had become clear that the greater economic dynamism of the main challengers -Japan, West Germany and France -was not simply a consequence of reconstruction nor of the rapid acquisition of already existing technologies. Although after twenty-five years the potential effect of reconstruction on the average age of capital would have diminished to negligible levels, in these economies that average age remains significantly lower than it is in the US (or the UK). Furthermore, although these challengers reached the technological frontier in many sectors there is as yet no evidence of a reversal of the long-term productivity trends.
   This problem must be considered against the background of the second long-term trend emerging within the OECD from the late 1960s. This has involved falling rates of profit, increasing levels of industrial overcapacity (relative to effective demand at prices yielding minimum acceptable profits), increasing inflation and rising levels of unemployment. These changes undermined, both in theory and in practice, the foundation on which trade liberalization had been based. If full employment was not in prospect, then trade would inevitably become more divisive since it would now allocate unemployment, and not merely the commodity mix to be produced in anyone economy.
   While an exploration of the deeper causes of this trend goes beyond the scope of this paper (Mandel, 1980; Barr, 1979; Nordhaus, 1974; Rostow, 1978; MacEwan, 1975), a major contributory cause of this downturn was the overinvestment (in relation to what could actually be realized) encouraged by

41


the long period of sustained economic expansion (Forrester, 1976) , especially because credit mechanisms allowed early warning signals to be effectively obscured (Business Week, 1974; Monthly Review, 1975), and the running of a persistent trade surplus -as in Japan and Germany from 1967- allowed individual economies to sustain relatively more favourable investment climates (Bienefield, 1980; Schlupp, 1980). This suggests correctly, these conditions were always likely to reassert the 'nationality' of capital, as nation states sought to secure advantages for 'their capital'.
  Indeed, the emerging problem of industrial overcapacity was undoubtedly exacerbated in the late 1960s by the entry of Japan as a full fledged competitor into many major international markets for manufactured goods. Its shape of global manufactured exports increased from 4.8 per cent in 1965 to 7.8 per cent in 1970 (UNIDO, 1979:37). The impact was particularly great, partly because it was the result of strategic, long-range decisions (Ojimi in Singh, 1978b) involving the installation of very large, high-technology capacities whose viability had to be established against existing competitors through lower unit costs, and partly because Japan's imports of manufactured goods remained at a relatively very low level.
  By 1967, with profit rates falling, with the full implication of Japan's expansion becoming apparent, and with both Japan and West Germany pursuing aggressive balance of payments policies, competitive pressures intensified. In response, the other major western industrial countries witnessed significant changes in economic structure in the shape of a remarkable wave of mergers. In Britain during 1967 and 1968 alone 'more than a quarter of the companies registered at the beginning of 1967 with a value of £10m. or more were taken over' (Tugendhat, 1973: 87), and similar though less dramatic changes occurred in the US (Dowd, 1977: Ch.3), France, Italy, Sweden and other smaller European economies over the mid-1960s.
  Meanwhile the most dynamic major economies, Germany and Japan, concerned themselves less with the simple creation of size and more with the creation of a context in which longer range decisions could achieve an increase in the degree of intersectoral coherence within the national economy. In J apan , the symbiosis between state and corporations, both financial and industrial, achieved this result most effectively. In Germany, the fact that 'much of the economy is controlled by the big three banks' and that 'the country has a strong tradition of companies working together through co-operative agreements and understandings' (Tugendhat 1973: 91) contributed to a similar result. France, with its extensive state ownership of commercial banks and its indicative planning capacity, has sought to develop in a similar direction, though with many difficulties (Rehfeldt, 1980). .
  As competitive pressures intensified, such macroeconomic rationality became more important than ever. Increasingly, economic success depended on the maintenance of a favourable investment climate to sustain rapid

42


innovation, combined with co-ordinated and effective national policies concer- ned with marketing, exchange rates, subsidies, foreign aid and education/ technology .In the absence of such an environment the mere creation of big firms is no solution.
   The overcapacity which emerged reduced productivity sharply in some sectors and firms, but also led to a decline in expansionary investments and an increase in rationalizing investment (Meier, 1977) .The result was to destabilize the previously stable relationship between output and employment (V erdoorn 's Law) in the OECD countries (Clark, 1979; Dean, 1979). As unemployment rose, the adjustments demanded by mounting international competitive pressure became more and more difficult to achieve, and the danger of economic or political confrontation grew.
   Currently, this danger is increasing as the irresistible force of international competitive pressure bears down on the sluggish and complex social reality of the countries enmeshed in the system, and produces an escalation of class struggle, while polarizing choices around two options: that of 'market radicalism' or that of state or 'social radicalism'.
  The market radicals essentially treat the changes in the social conditions of production necessary (as they see it) to re-establish competitive equilibrium as dependent variables, which 'must' adjust to 'the facts of economic life' at whatever cost. Unfortunately, under present economic circumstances ('Zero- sum society' -Thurow , 1980) this approach further intensifies the competitive struggle, with protagonists pushing each other towards more and more extreme positions.
  The consequences of such a strategy depend on the assumption that through such an adjustment process the competing countries can, in the foreseeable future, regain full employment 'equilibrium' and general economic expansion. So long as prospects for that are remote, the danger of such strategies lies in the explosive and unpredictable social and political situations which will arise if they are dogmatically pursued irrespective of short- or medium-term costs.
  The 'social radicals' propose to resolve these contradictions differently. On the assumption that the scale of social adjustment required to reconcile current economic disparities in a competitive context is neither feasible nor desirable, especially given the measures which an attempt at implementation would require, they argue that it is necessary to reduce the influence of the competitive principle through state intervention in trade and production. Using as much trade protection as is required to allow the effective domestic mobilization of resources and investment, they would seek to increase growth and trade. The feasibility of this option rests ultimately on the actual (technical, political, administrative) capacity to mobilize domestic resources in such a context.
  Certainly both of these options may by now lead to a dangerous intensification of international economic conflict. While that danger is rooted in the the current crisis, it has been increased by rising trade ratios. Here it is interesting and

43


potentially disquieting to note that the degree of intra-OECD interdependence ( as measured by share of imports in total consumption of manufactures) had by the late 1970s just returned to the levels prevailing in 1913, at the end of the first great period of free trade (Batchelor et at, 1980). Since such high trade dependence increases the impact of changes in international competitive conditions and affects an economy's ability to respond to such changes in an orderly and effective manner the increase in these ratios, when combined with an international economic downturn, multiplies the danger of instability and conflict. It is this combination of circumstances which threatens to transform the competitive principle from a stimulant to growth and international convergence within the OECD, to an incitement to conflict and political crisis.
   In this context it is necessary to consider the third long-term trend mentioned at the outset: namely, the pressure of sustained economic growth on the supply of certain strategic raw materials, which will lead into the next section, concerned with the developing world.
   Although some eminent theorists have long pleaded that non-renewable resources should be placed at the centre of economic analysis (Georgescu- Roegen, 1971), the issue was generally neglected, obscured by strong assumptions about factor and product substitutability and by faith in technical progress. Only more recently in the context of the oil crisis has it received more attention (Dasgupta and Heal, 1979). In contrast, politicians and policy- makers working in a national context have always had a greater appreciation of the potential importance of this issue. While Europe and Japan have long been centrally concerned with this question, for good reason (Vaitsos, 1978a), even the US, with its high degree of resource self-sufficiency, has accorded it a lot of attention, especially more recently, when its degree of self -sufficiency had declined significantly (Dean, 1971; USGAO, 1976). As early as the 1950s a semi-official report7 pointed out ominously that its 'conclusion that there is no general resource shortage problem for the balance of the century applies specifically to the U nited States. ..[ and] cannot be extended automatically to other countries' and that especially for the less developed countries the availability of materials to support 'a sustained increase in living levels can by no means be guaranteed with the same assurance' (Dean, 1971: 143) .This was a considerable irony in view of the fact that a significant proportion of these materials are located in the developing countries.
   In a critical sense this report proved prescient. When the supply of energy became scarce the bulk of the developing world found itself in a desperately weak position in the ensuing scramble, and for many there have been sharp reductions in living standards. In other respects, however, the report was mistaken. It significantly underestimated the growth of Japanese demand for raw materials; it mistakenly ruled out the possibility of accelerating industriali- zation in some developing countries; and it erred in assuming the continued hegemony of the US. As a result, the crunch came earlier than anticipated, and

44


when it came it generated more serious problems for the US economy. Even so it remains true that in this conflict the political power of the US has been most evident and most effective in helping it to compensate for its economic weakness. Indeed, that advantage could still prove decisive., as the report assumes. When the energy crisis came it was closely linked to the two long-term trends already discussed. It shifted competitive advantage strongly against the US's main competitors in the shortrun, which unquestionably contributed to its timing and form. It also contributed to the problem of global industrial overcapacity, by slowing down growth and widening the gap between actual economic magnitudes and those anticipated by investors.
  Meanwhile in the short run it probably helped to ease a central structural problem in the western economies by diverting income into demand for producer goods -purchased either by OPEC itself, or by borrowers using internationally recycled funds for industrial expasion. However, because these debtors had to export much of the consequent output to the OECD to meet their hard currency financial obligations, the longer term effect was much the same as if these productive capacities had been built in the OECD economies where overcapacity had restricted investment opportunities. In a sense this process became merely a further stage in the creation of global industrial capacities exceeding potential effective demand under existing economic and social conditions, and/or exceeding the levels of production possible, in view of existing or imminent bottlenecks in the supplies of certain critical inputs.

The Progress of the South: Diversity in a Rapidly Changing World

The political and economic weight of the South increased over the past thirty- five years, but it remains relatively small. Its share of the global production of manufactures has increased a few percentage points, but its share of population has increased more and, if one excludes oil, its share of global production and consumption has failed to rise. Furthermore, its aggregate influence is even less than this would imply, because its weight is divided between such a large number of heterogeneous countries. At the same time that heterogeneity has allowed a small number of developing countries to become more significant individual actors on the global stage.
  Although the trends which emerged in the developing countries, during the thirty-five years since 1945, were powerfully affected by developments in the OECD, there is no doubt that they add a separate and additional dimension to the global process of development and change.
  For the developing countries a focus on their links to the international market is particularly appropriate, not only because it is a useful starting point for the consideration of national interdependence in a global market, but because the wide absolute gap in income and technology between today's industrialized and developing countries, is the definitive characteristic of

45


underdevelopment, and because this disparity creates a powerful and con- tinuous tension between the almost unlimited number of internationally produced goods, which (apart from the ability to pay) the underdeveloped countries would find more useful and desirable than domestically produced goods, and conversely, the small and restricted number of their domestically produced goods which can be sold on the international market. Indeed this tension is such a dominant characteristic of modern underdevelopment that the way in which a country seeks to deal with it must be regarded as a central feature of its development.
  For any particular developing country this focuses attention on the relationship between the economy's capacity to export, and the extent to which such production for export can utilize available labour. However, in a competitive context, underdevelopment may best be defined as a situation where even physical subsistence wages are unable to produce anything approaching full employment, so that reliance on the market will always produce (though to differing degrees) a common result, variously characte- rized as dualism, the preservation of pre- and non-capitalist forms of production, marginalization or overpopulation. This implies the need to create protected areas of production which allow the productive utilization of the available labour, even when that production does not meet current standards of international competitiveness.
   Such policies frequently produce the now familiar import substitution crisis, but they may also lay the technical, organizational and social foundations, either for a relatively more self-reliant socialist strategy, or for an eventual export-oriented strategy in which export diversification and unprotected import substitution permits the achievement of full employment, at which point it is possible to make a good case that analytically such a country should no longer be characterized as underdeveloped, but should be simply analysed as a capitalist economy, though that would by no means imply its permanent capacity to sustain full employment.
   In general, the post-war period has witnessed a significant differentiation between developing economies, with OPEC and the NICs coming to occupy a more and more distinctive position. While OPEC's rise was closely related to the enormous increase in oil rents and hence to the trends discussed in the earlier sections, the NICs deserve attention because they have been widely presented as generally applicable models (Keesing, 1979) whose success is primarily based on their national economic policies, with special significance being attached to their free market orientation and their elimination of any discrimination between production for domestic consumption or for export (Bhagwati, 1978; Krueger, 1978; Westphal, 1978; Little, 1979).
  A complete assessment of the NIC phenomenon must, however: consider it in the context of the post-war evolution of the development debate and of development policy; discuss the extent to which it must be understood as one

46


dimension of the international developments outlined earlier; and explore the likely future relationship between NIC growth and evolving global trends.
   The post-war period began with a strong consensus among analysts and policy-makers, that the high levels of underemployment within the developipg countries had to be eliminated by means of active policy intervention (Nurske, 1953; Rosenstein-Rodan, 1943; Myrdal, 1957). This reflected the severity of problems in the developing countries, but was not unrelated to the fact that such views were fashionable even with respect to the developed countries (Lewis,1948).
   Protectionist import substitution policies were consequently all but universal in the independent (as opposed to the still colonial) developing world. In some they were further encouraged by the post-war difficulties encountered by many industries built up under the 'special protection' afforded by wartime disruption of production and markets.
   In the course of the 1960s evidence accumulated to emphasize both the urgency of the problem and the limitations of this particular 'solution'. The urgency of the problem was revealed on one hand by the inadequate levels of labour absorption (Turnham and Jaeger, 1971), by the socially and economi- cally unsustainable rates of urbanization, (Hauser, 1961), by the consequent problems of 'marginalization' (Quijano, 1974), and by the increasing political polarization which attended these developments. Furthermore, it appeared that in contrast to the great trade expansion before the 1930s, now the growth of trade in primary commodities was lagging behind the growth of trade as a whole (Maizels, 1963). This increased the need for structural changes to increase GDP/Export ratios, or for regional customs unions, since only thus could GDP growth exceed that of primary exports. In principle this reinforced the demand for import substitution, at least so long as the developing countries were effectively restricted to the export of primary commodities.
  At the same time, the accumulating evidence on import substitution revealed the limitations of that 'solution'. While import substitution did produce some shift in GDP/Export ratios (Maizels, 1963), the high levels of import content and the high capital-Iabour ratios found in most of the industrial projects which resulted meant that economies soon ran up against the foreign exchange constraint in a more binding form because import shortages now had a greater multiplier effect due to their importance in domestic production. To make matters worse, in many cases the growth of exports had probably been reduced by these policies, which cancelled any advantage gained from an increased GDP/Export ratio as far as overall growth was concerned (McKin- non, 1965).
  Furthermore, many of these new industries were inefficient, in that their operation did not yield the dynamic externalities which were their rationale (Singh, 1978a), although the debate about this was thoroughly confused by the fact that such inefficiency was frequently alleged on the basis of measures

47


which defined it in relation to current international opportunity costs (Soligo and Stern, 1965; Krueger, 1966). Such measures did not so ~uch assess import substitution, as deny the possibility that it could be a desirable policy, by assuming a level of project and factor divisibility and substitutability and an international market structure which made possible full employment under competitive conditions.8 Without these assumptions their 'discovery' that import substitution industries were 'inefficient' by internationally competitive standards was obviously true 'by definition'. More disturbing was evidence showing that frequently such import substituting production actually con- sumed more foreign exchange that would have been required to import the finished articles. In time even those who assessed the general experience in more appropriate, dynamic terms, often came to pessimistic conclusions regarding the longer-term benefits of the policies, as they had generally been implemented (Lipton, 1976; Sutcliffe, 1971; Furtado, 1964; Amin, 1974).
   However, if simple import substitution policies were at an impasse, this left three possible avenues for further advance, though these were not mutually exclusive. The first involved the search, or the demand, for significant increases in resource flows to the developing countries, either through aid (Pearson, 1969) or through some means of improving the effective terms of trade primary commodity exports (Prebisch, 1961; ECLA, 1963; Emmanuel, 1972; UNCTAD, 1974).9 The second was based on the idea that a 'radicaliza- tion' or a 'nationalization' of import substitution programmes had the capacity to shift the economic structure substantially, and to release readily the productive potential residing in existing underutilized labour ( Gurley , 1971 ; Amin, 1974; Thomas, 1974). The third emerged if one rejected the basic premise of the previous discussion, namely that the developing countries were effectively restricted to the export of primary commodities, and that under their circumstances the achievement of full employment was incompatible with export-oriented policies. By the mid-1960g- the rejection of this premise was rapidly gaining support (McKinnon, 1965; Little et al. ,1970) partly because the belief in the benefits to be derived from free trade had grown much stronger in the light of OECD experience,'partly because full employment in the industrial countries seemed to be permanently sustainable, and partly because only this third 'avenue' was really consistent with a reaffirmation of the international market as the primary mechanism for integrating the developing countries into the global process of economic growth as then dominated by the OECD countries.
  In the event, the first avenue proved feasible for the OPEC countries which had their economic circumstances transformed by the dramatic change in their terms of trade, although unfortunately the benefits in growth were not always closely associated with development in a broader social sense (ILO/JASPA, 1981).
  The second possible way forward, that of greater self-reliance, or of

48


socialism, was espoused by an increasing number of nations in the 1960s. While the social benefits were often substantial (Horvat, 1974; US Congress, 1978) and economic growth was steady but not spectacular, all of these 'solutions' developed their own particular contradictions. In addition, economic perform- ance was in all cases impaired by the international economic crisis of the mid- 1970s since none of the countries concerned practised autarchy. In cases where the political and material basis for such a strategy was particularly weak, as in Tanzania and Ethiopia, these strains became virtually unbearable, while in others, such as Cuba, their dependence on favourable trade agreements with the socialist bloc increased sharply.
  Whatever the ultimate lessons of these experiences may be, the fact was that in the latter half of the 1960s the option appeared increasingly attractive. Indeed it sometimes appeared as the only feasibile option in those countries which correctly saw the aid channel as hopelessly inadequate, which could envisage no massive improvement in their terms of trade, and which were not in a position to regard the suggestion that they should export diversified manufactures on a large scale as anything other than a rather bad joke, Hong Kong and Puerto Rico notwithstanding.
  In general this trend towards 'self-reliance' was viewed with alarm by the OECD countries, since a reduction in the intensity with which the developing countries pursued the earning of foreign exchange could jeopardize essential raw material supplies, and worsen the prospects of realizing expected profits on past investments and of selling or investing profitably in future. Reactions included the Cuban blockade and the active assistance given to military coups d'etat intent on reversing such tendencies in Iran, Indonesia, Guatemala, Brazil and Chile, among others. More subtle efforts to achieve the same end were reflected in the US's counter-insurgencyl0 and in the associated commitments to make alternative options viable through aid, as epitomized by the unhappy Alliance for Progress.
  The simple fact was however that it seemed increasingly clear that no amount of repression II could contain the emerging social and political pressures as long as the manufactured export alternative did not become a more realistic option, at least in 'key' countries with particular geo-political significance.
  Such 'political' considerations were not in themselves sufficient to allow the viability of this third alternative to be established, as illustrated by the total inadequacy of the aid flows which they generated directly. But they did create a context favourable to the emergence of a particular response to the contradic- tions developing within the OECD bloc. As competitive pressures between OECD producers intensified, the temptation for the lagging economies to improve their position (and hence sustain their profits and contain inflation) by taking advantage of cheap labour in the developing world became more and more irresistible. What the UK and the US had begun on a minute scale in Hong Kong and Puerto Rico, was now expanded dramatically to South Korea,

49


Brazil, Taiwan, Singapore, Mexico and the European periphery. In addition a growing number of Export Processing Zones were established as pure enclaves in a variety of countries (Froebel et al. , 1980; UNIDO, 1980).
   In this context a relatively heterogeneous set of economies, all (except Mexico and Yugoslavia) under extremely authoritarian right-wing regimes, emerged more or less simultaneously as the NICs, to be eventually acclaimed as models which vindicated the market as an adequate, and indeed, the optimal engine of rapid development (Bhagwati, 1978; Krueger, 1978; Little, 1979). Their experience has become the basis for the militant application of equilibrium economics to development, as implicit in the use of cost-benefit techniques based on the practically unqualified use of international prices as relevant opportunity costs (Little and Mirrlees, 1968; Squire and van der Tak, 1975), and effectively ignoring the many earlier counsels that this frame of analysis was inappropriate to the development context (Seers, 1967; Nurkse, 1953; Myrdal, 1968; and many others). It is somewhat ironic that this should have happened just when the inadequacies of that frame of analysis have become most evident in the developed countries.
  The new faith was immensely strengthened during the 1970s when a few of the smaller NICs -South Korea, Taiwan, Singapore, Hong Kong -attained effective full employment, and as a consequence saw real wages rise significantly in spite of continued political, and trade union, repression. This crucial evidence strengthened the argument that market-based policies which accepted initial inequalities could be economically and socially desirable in developing economies. The experience demonstrated once again that if the process of capitalist accumulation can be sufficiently concentrated in a particular economic space for an adequate period it has the capacity to generate full employment, and consequently to diffuse material benefits within that economic space. In this sense the notion of trickle down lives, as it has lived in Japan, and in the other industrialized countries before that. It still remains, however, to determine what conditions, both national and international, might allow such a concentration of accumulation to be sustained over time. In this respect the end of full employment in the industrial countries represents a strong warning against simplistic generalizations or undue optimism.
  The international context which allowed this to happen in the NICs was therefore dominated by the growing contradictions within the OECD, and by the political crisis emerging in the developing world by the mid-1960s. It was in response to these contradictions that the latter half of the 1960s saw a significant shift of international economic patterns, spearheaded by the US and the UK, implemented by the multinationals and certain developing nations, and financed by the Eurodollar markets' explosive expansion based on the dollar glut resulting from the US deficits (Engellau and Nygren, 1979; Griffiths-Jones, 1980). The US took the lead in creating the three conditions most important for the emergence of the NICs, namely the provision of

50


markets for NIC exports; the encouragement of investment and technology flows to the developing world; and the political and military support of regimes able to implement the new policies, against whatever domestic opposition this might create in the short run.
  The early importance of the US (and to a lesser extent the UK) as markets for developing country exports of manufacturers is strikingly illustrated by the fact that by 1965, roughly 60 per cent of all such exports went to these two markets (Lary, 1968). Furthermore, these flows did not arise in response to a general trade liberalization granting freer access to exports from all developing countries, but appeared in the context of an extensive array of special import quotas granted to particular suppliers (as in the Multi-Fibre Agreement of 1973) or of measures like the US valued added tariffs 806 and 807.3, which levied import duties only on the difference between gross value and the value of inputs originating in the US (Helleiner, 1977). In other words, developed country markets were opened in a controlled and limited manner, and frequently to specific countries and particular products.
   Meanwhile investment flows were encouraged by the effect of such market allocation, by the strengthening of government-backed export credit schemes, and by expanded investment guarantees. In this context the US banks were initially primarily responsible for mobilizing the Eurodollar pool for invest- ment in the developing world. The resulting flow of funds was sufficiently large and sufficiently concentrated on a few economies ( ten countries account for roughly 60 per cent of the total debts of developing countries -OECD, 1979c), to allow their import substitution crises to be overcome12 by permitting the industrial structures to be rapidly expanded, modernized and export- oriented.
   The military backing of the regimes in question has continued to be an important factor sustaining the confidence of the investor, and is probably stronger today than ever, in view of the significance these economies have attained for the international financial community.
   While these international circumstances are essential for an understanding of the NIC phenomenon, that does not imply it was a process orchestrated by the OECD and passively endured by the respective developing countries. That this is not the case is illustrated clearly enough by the relevant country studies in this volume, and deserves special emphasis. In fact if one excludes tiny 'locations' like Ireland, Singapore or Hong Kong, which may have a reasonable chance of sustaining full employment by relying heavily on international capital flows, the extent of state involvement in generating and allocating investible resources in the most successful NICs is striking. Particularly in South Korea, the emphasis on long-term strategic investment criteria has strong similarities with the Japanese industrialization strategy (Hasan, 1976; Luedde-Neurath, 1980). The importance of this point is highlighted by one of the early architects of the Brazilian 'miracle', who suggested (Campos, 1980), that Brazil's current

51


 problems may have been made more intractable by an 'excessive use of foreign capital', particularly during its early import substitution phase. This contrasts sharply with the South Korean experience, where early import substitution was domestically based and where, as in Japan, the state has subsequently (at least until 1981) exercised strict control over direct foreign investment within the economy, so as to maintain effective domestic control over finance, and over 'strategic', or 'basic', industries (Kuznets, 1977; Hasan, 1976).
    Indeed this dimension of the South Korean experience is so important that it may be placed alongside the Japanese, West German and French experiences, to reinforce the disturbing possibility that under the technological and economic conditions of the latter part of the twentieth century and especially in the context of general recession, the competitive process is beginning to reveal that the most 'efficient' form of social organization of production may be a capitalism organized in a relatively more corporate, more centralized form than was true of earlier periods. Furthermore, as the scale and the gestation periods of research and production projects increase, the formulation and co- ordinated implementation of strategic, long-term policies will become even more important, and may well erode that loose historical association between capitalism and liberal democracy, which, for all its shortcomings, has been a source of capitalism's strength in the past. The corporate state model effectively brings a much larger part of social life into the confines of what is, to all intents and purposes, one economic enterprise, and under capitalism, essentially authoritarian and hierarchical relations have always dominated within that sphere. The multinational conglomerates exhibit the same tenden- cies as they internalize markets, increase the share of 'non-arm's length transactions' (Helleiner, 1975; Vaitsos, 1978b) and extend their direct control over labour, but by now it seems more than likely that the corporate state will emerge as the more competitive form of capitalism because its range of powers over the social base on which production is organized is more comprehensive and more direct.
   Meanwhile, in considering future prospects for the NICs themselves, three things must be centrally borne in mind. First, unless the problems of overcapacity, low profitability and underemployment can be resolved in the central economies, the prospects for the NICs must be gloomy as their capacities will add to the global problem, while their ability to expand domestic consumption will be limited by their need to balance their external accounts under increasingly difficult circumstances.
   Secondly, the NIC's development of a significant capacity to export manufactures has thrown into direct competition economies with vastly different social conditions of production ( as regards the social wage and the intensity of labour). 13 This, in itself, would ensure that the idyllic intra-OECD trade expansion of the 1960s would not be a good guide for predicting the consequences of trade liberalization in the new situation. Indeed, even within

52


the OECD, the 'special' problems associated with Japanese competition, and the proliferating 'voluntary export restrictions' demanded of Japan, bear witness to the importance of this issue. In the case of the NICs, a freely operating competitive process in the context of high levels of unemployment would inevitably transmit signals which were so 'disruptive' that they would be either rejected, hence leading to protectionism, or enforceable only by means of increased political repression.
   Thirdly, if one assumes that the competitive process could be extended internationally to its logical limits, so that the nation state was superceded as the effective social and political basis for capital, then in the absence of global full employment the conditions of labour would be equafized downwards, since in so far as labour was thrown into one large market suffering from excess supply the competitive principle would produce a progressive downward pressure on the wage (Bienefeld et al., 1977) irrespective of the average productivity of labour, a conclusion which follows equally from neo-classical, classical or specifically Marxist perspectives.
   In fact, of course, a pure labour market could never exist, because to treat labour as a pure commodity would be socially and politically inconceivable (Polanyi, 1957), so that in practice, sections of labour would always be able to separate 'their' labour market from the general labour market. 14 They would thus secure relatively better conditions for themselves,. and would be incorporated into the privileged enclaves which are such a central feature of the transnationalization thesis (Sunkel, 1973). However, if the above arguments are valid, then that process would not spread outwards from central econo- mies, where the bulk of the population is within the 'privileged' enclave, to a developing world, where an expanding proportion of the population would be thus incorporated. Instead the proportion of the population thus incorporated in the industrial countries would decline towards a level which would vary little internationally, so that even there capitalism could no longer hope to generate a substantial social or political consensus and the type of liberal democracy associated with it. Everywhere the marginalized masses outside of the privileged enclaves would have to be dealt with harshly, and far from the industrial countries representing the model for the developing ones, the 'savage capitalism' (Andrade, 1982) of Brazil would become the vision of the future for the industrial countries.
   For the time being this evolution is unlikely because much evidence suggests that, as in previous similar periods, the emergence of major contradictions at the international level is reinforcing the national character of capital. Indeed 'Japan Incorporated' seems to be proving the most competitive way of organizing production, but there are ominous signs to remind us that such economic success may have to be defended against increasingly strong political -and even military -pressures.
  Apart from the NICs there are of course the 'other' developing countries,

53


those with no oil and without the political or social conditions which might allow them to join the exclusive NIC club. For these economies the 1970s have been extremely disruptive and painful. With their balance of payments position shattered, most of them have had to reduce domestic levels of economic activity and consumption, to reduce imports and to allow more resources to be channelled into production for export. Meanwhile the fact that the bulk of international resources available to developing countries now flow through straight commercial channels means that their allocation simply reinforces the dictates of the market. Even though dwindling aid flows have been marginally diverted to the poorest countries in some cases, this hardly compensates for that effect, especially as non-commercial flows are declining further as the squeeze on the developed countries intensifies.
   Prospects for these poorest economies are thus extremely bleak. For many, the capacity to diversify exports in an increasingly competitive international market is purely notional, while their traditional exports are being squeezed both by sluggish demand, and by the increased supply resulting from the generally intensified pressure to export, so that their ability to attract commercial international funds declines. In essence, they are being forced back to a more 'self-reliant' pattern of growth but under circumstances where the difficulty of sustaining a more self-reliant strategy economically or politically has risen dramatically.
   On balance, in the developing world, the crisis of the 1970s has opened new (though possibly temporary) opportunities for some, and it has harshly disciplined others. With social and economic breakdown threatened in these latter economies, the industrial west and in particular the US, seems prepared to contain the resulting political upheavals by force, not so much because it has forgotten Vietnam, but because it has fewer options, because it probably considers the socialist bloc as less united and generally weaker, and because it feels that through the NICs it has consolidated its position in the most significant developing countries.
Conclusions, and Some Notes on the Socialist Bloc
This chapter has argued that there is a greater need than ever for national policies to be formulated in the context of an informed judgement about the nature of international development, because these are currently deeply
contradictory and increasingly uncertain.
  So far this discussion has concerned itself with developments in the capitalist world, and that is as it should be, since most underdeveloped countries are effectively part of that world. At the same time, developments within the . socialist bloc clearly have a bearing on these trends and it is necessary to incorporate these into the discussion, although within this chapter, it has only

54


been possible to indicate some of the major issues requiring further study and elaboration.
   Economically the first thing to note about the socialist bloc is its phenomenal long-term growth, which has enabled it to increase its share of global manufacturing production, which was less than 10 per cent at the end of the Second World War, but rose from 18.1 per cent in 1960 to more than 27 per cent in 1975 (UNIDO, 1979), in spite of the fact that this was a period of historically unprecedented expansion in the capitalist world. By contrast the share of global manufacturing production located in the developing world, including the NICs, rose from 6.9 per cent to 8.6 per cent between 1960 and 1975.
   This economic expansion was accompanied by an increase in political and military influence which, by the 1960s, had grown to the point where it could provide crucial support to regimes seeking to extricate themselves from their existing links with the international market, as in Cuba and Vietnam. While this represented an important new factor in the international situation, its significance has not continued to grow, partly because of rising international tension and partly because of the emergence of a range of internal contradic- tions within the socialist bloc itself.
   The contradictions of socialism were partly political, reflecting the perpetual conflict between the democratic, participatory ideals of socialism and the need for a considerable degree of central authority to ensure the macroeconomic coherence necessary for continued growth. They were partly economic, reflecting the difficulty of planning an increasingly complex economy, the special problems of agricultural production in some of the countries, and the increasing attractiveness of western technology, especially as their technical levels rose far enough both to absorb it and to earn more of the foreign exchange needed to purchase it. They were partly social, or rather social psychological, in that the extensive responsibilities assumed by the state in such a system make it a ready focus of self-reinforcing discontent, particularly if and when economic difficulties appear .
   Possibly the deepest contradiction of all, however, is that between the internationalism of socialist theory, and the fact that the actual socialist countries find themselves in a situation where painful and potentially divisive choices about relative prices or incomes are continually and necessarily made in a national context and must daily be justified on that basis. This reinforces nationalism and creates conditions for potential conflict between opposing national interests, which lead to difficulties in achieving a socialist international division of labour, in expanding collaboration with developing countries, and occasionally even to military conflict between socialist states.
  As these tendencies have evolved in the different socialist countries, the socialist bloc has appeared to become a less attractive, and a less readily available, alternative context for development. It has become more and more

55


heterogeneous and as individual economies within it have extended their trading and financial links with the capitalist world, they themselves have been increasingly exposed to the competitive pressures generated there. These developments have reduced the socialist bloc's importance as a potential context for alternative development strategies, although it does still play that role and at least a part of the reason for the current hotting up of the cold war is undoubtedly to reduce this option further in practice.
  In general, developments within the socialist bloc (especially in Poland) further reinforce the earlier conclusion that the current international uncer- tainty makes it more important, though also more difficult, to define national development stategies on the basis of a realistic assessment of global tendencies.
  To conclude, it is clear that while the specification of a desirable strategy must remain a matter to be defined for a particular place and time from a particular class perspective, there is little doubt that the historical importance of a strong nation state as the basis for a dynamic and politically viable process of expanded material production, has not diminished. Only the state can establish the coherent and sustainable set of social and political mechanisms which are necessary to facilitate expanded material production to some social purpose. Furthermore, that same state must seek to protect such internal coherence and dynamism from disruption by external change, and to reconcile that with taking advantage of the enormous benefits potentially to be derived from links with the external world.
   How any particular state will perform those tasks depends on the resources at its disposal, the extent of influence, it has over the allocation of those resources, and the interests is represents. In the world of the 1980s, as economic pressures intensify, the likelihood is that in ever more states, governments will be largely dominated by small minorities representing sections of private capital, desperately defending their material positions - often with international help -and effectively abandoning the idea of the nation as a significant economic or social unit, whose general political and economic strength it is in their interests to increase over time.
   However, those states whose governments effectively represent the mass of their populations must, by definition, persevere in their attempts to stimulate a process of accumulation nationally with the capacity to produce growth while also diffusing social and material benefits and laying the social and economic foundations for the economic, social and political advance of the nation as a whole.
  It is theoretically possible that such an objective could be achieved through capitalist accumulation in a relatively 'open' economy. In a few relatively small and relatively advanced developing countries this might even be possible in practice. However, our assessment of the experience of the 1970s, and especially of the larger NICs, suggests that this would generally require a

56


strong, nationalist and highly interventionist state, which: liberalized trade gradually 'as it was able'; pursued an aggressive export strategy; organized the domestic acquisition of technological capabilities; maintained substantial control over financial flows and implemented an industrial strategy which reconciled long-term objectives with the need to balance the economy's external accounts in the interim. Moreover the possibility that even such a comprehensive strategy could succeed is receding because the favourable international conditions which allowed the NIC strategies to achieve such success for a period are now disappearing. Most particularly the critical availability of cheap (negative real interest rate) finance and of markets for exports is rapidly being eroded.
   This leaves only the alternative of nationally oriented strategies capable of mobilizing domestic resources in a dynamic and effective manner on a national ( or regional) basis, and trading with the outside world, in so far as that is possible without allowing the social conditions of production and the adequate (for economic survival) level of productivity to be determined by those established somewhere else, irrespective of short-term social or econo- mic consequences. Within such a structure, just what role would be played by the market as an allocator of resources and by competition as a means of commensurating effort and reward would be a matter for considerable diversity. The essential requirements of such a policy would be political, namely control of the government by political forces effectively representing the broad interests of the working population (which still leaves much room for conflict of interests), and material, meaning sufficient control of the financial and material base of the economy to ensure that resources will be utilized within the context of the national strategy, although the types of ownership and control compatible with that objective would again be a matter for particular cases.
  It is of some significance for this discussion that Keynes, who had written in 1923 that Free Trade was based on fundamental truths 'which, stated with their due qualificaitons, no one can dispute who is capable of understanding the meaning of the words', should write by 1933 that 'a greater measure of national self-sufficiency and economic isolation between countries than existed in 1914 may tend to serve the cause of peace, rather than otherwise' (Keynes, 1933), and that because 'there is no prospect for the next generation of a uniformity of economic system throughout the world. ..we all need to be as free as possible of interference from economic changes elsewhere, in order to make our own favourite experiments towards the ideal social republic of the future' (Keynes 1933).15
  That is not an argument against trade. It is an argument against the notion that the signals transmitted through the competitive process are always a desirable or acceptable judge of the adequacy of a country's social conditions of production. It is an argument to make trade the servant, and not the

57


master, of a responsible and democratically constituted social and economic policy.


Notes
 1. This paper cannot enter into the theoretical controversy concerning the theory of free trade, but it should be noted that its discussion leans heavily on the Neo- Ricardian trade theory literature (Steedman, 1979a and b; Evans 1981a) which has challenged orthodox trade theory on its own ground and which has, in the process, provided a theoretical basis for countering the 'free trade ideology' derived from that body of thought. The themes of this paper, which centre on the dynamic consequences of trade links between economies with widely differing social and technical conditions of production and in the context of a substantial unemploy- ment disequilibrium, are also central concerns of the Neo-Ricardian trade debate.
 2. In Marxian terms this refers to the extraction of absolute surplus value, which is said to dominate the early stages of capitalist accumulation when technology differentials are small and when labour is in excess supply.
 3. Some Marxists have used this concept of 'the cost of reproduction' in a very misleading manner, as if it referred to some wage, which by ensuring the required labour supply, represented a long-run optimal wage for capital. This ignores the central contradiction of capitalism which rests on the fact that the market-induced behaviour of individual capitalists does not necessarily coincide with the interests of capital in general.
 4. This refers of course to the 'social wage'. While the crucial element in many locational decisions may appear to be capital subsidies, these must represent deductions from the total of social (private and public) consumption.
 5. Though the waters are occasionally muddied by arguments which claim, for example, that Japan's early development was not protectionist, citing nominal tariffs (Little et at., 1970) but neglecting other forms of protection which were dominant in the Japanese case -i.e. the natural protection afforded by nineteenth-century transport costs and Japan's cultural difference and cohesion, as well as the well-known use of non-economic means of controlling the inflow of goods and finance, which are of such importance even today.
 6. 'Food' was not a threat to be used against the Europeans because of their Common Agricultural Policy, bu the New York Times reported extensively in 1975 on a CIA study concerning food as a weapon, and Earl Butz, the Secretary of State for Agriculture, was quoted to the effect that 'food is the strongest weapon in America's diplomatic arsenal'.
 7. 'Resources in America's Future' published by an organization called 'Resources for the Future', funded by the Ford Foundation and set up to refine and expand the work of the 'U.S. President's Materials Policy Commission' which reported ('Paley Report') in 1952. W. S. Paley, the head of the Presidential Commission helped to administer the new organization (Dean, 1971:142).
 8. This is implicit in this discussion because the argument suggests that if in the production for exports, resources are used more efficiently -ie transformed more efficiently into hard currency equivalents -then more resources should be employed for such export production (Krueger, 1966) until these 'marginal efficiencies' are equalized in a context of full employment. Otherwise there would always be a case for additional domestic production even if it does not meet current standards of international efficiency. Of course , this conclusion may also be challenged by arguing that the additional output thus available in the short run may serve to inhibit future

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      efficiency, output and levels of employment, thus standing the import substitution argument on its head by asserting that the short-term costs associated with a strict adherence to market signals (in the presence of unemployment) should be accepted because that will produce long-term net benefits.
 9. The 'terms of trade' debate has raged ever since, focused on disputes about the movement of nominal, barter, factoral or double-factoral terms of trade, and yielding a variety of outcomes depending on the choice of the period, the starting and end point of the series and the set of commodities included (Evans, 1979, IBRD, 1978; Thoburn, 1977; Spraos, 1980). As so often, this debate distorts the issue by considering only one aspect of the problem. The basic issue was a concern that primary exports could not yield the volume of foreign exchange required for rapid growth in the developing world. To discover that in the face of many arrangements to restrict production, and in the face of a heavy emphasis on import substitution, primary commodity prices have behaved in a certain way is therefore far from decisive. Even though for most primary products exported from developing countries, the post-war trends are not encouraging, the real question is what would have happened, or indeed what would happen now, if the developing world generally were to seek its salvation through primary exports above all else. Considered in this way it is difficult not to agree with those who thought this would lead to overproduction and worsening terms of trade for most primary producers, which does not, of course deny that individual exporters are always in a position to improve their incomes faster than implied by global price elasticities of demand, if they expand production relatively more rapidly and capture a larger share of the market. By the same token such gains are achieved at the further expense of the lagging exporters.
10. The essence of that strategy was to 'forestall' the need for military intervention, by intervening much earlier to prevent an explosive situation from emerging. This early intervention was to be based on a combination of social/financial assistance and a strengthening of the security apparatus.
11. A very high level of repression is apparently acceptable before support is withdrawn from regimes intent upon the reversal of unduly 'nationalist', 'self- reliant' or 'socialist' policies. The experiences of Vietnam, Indonesia, Chile, El Salvador, Guatemala, Haiti and others bear eloquent testimony to this fact.
12. While in the longer term the proportion of NIC Gross Fixed Capital Formation which stems from foreign sources is relatively small, during certain early phases of the strategy it was occasionally very high -as in South Korea where in 1964 over 80 per cent of total domestic savings came from foreign sources.
13. Note that this competition between economies with vastly different social conditions of labour does not produce trade of the unequal exchange variety because it is trade in competing goods (Evans, 1981a). As such it will not produce a stable situation involving implicit transfers of value or income, but rather an unstable situation producing either adjustment or instability cum protection. Neo-Ricardian theory with its emphasis on distribution relations as major determinants of comparative advantage, and with its concerns for disequilibrium situations is highly relevant to the analysis of such situations.
14. It is of interest to note here that it has been recently suggested (Evans, 1980) that the most lasting contribution of Emmanuel's intervention might well be his insistence on treating labour as heterogeneous rather than homogeneous in competitive relations.
15. Keynes' argument is a most interesting one. He rightly warns against the dangers of 'national self-sufficiency' and indicates clearly that he sees it as a means to an end and not an end in itself. It is of some significance to our argument that he lays

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     special emphasis on the point that 'finance be primarily national' largely because he argues that 'the structure of private enterprise is incompatible with that degree of well-being to which our technical advancement entitles us. ..[which ] ... may require a reduction of the rate of interest towards vanishing point within the next thirty years'. He then concludes that 'under a system by which the rate of interest finds, under the operation of normal financial forces, a uniform level throughout the world. ..this is most unlikely to occur' (Keynes, 1933).


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