Raw materials' crisis hits the third world
W E ARE NOT witnessing one
of those traditional drops in prices simply due to cyclical developments in supply and demand, or to the conjunctural hazards of speculation. Something is happening on a much larger scale that combines various structural developments in the world economy.
At first sight, as we will see, this price fall is related to the so-called "North-South" divide, since a good half of third world countries are dependent on two or three raw materials for at least two-thirds of their export income. But it is also linked to a major redistribution of cards between the big industrial sectors and trusts, and between capitalists in the various industrial nations. Substitutional goods, the new role of international trade, the new financial instruments that have become the futures markets for raw materials — all these have turned upside down a market that was still particularly under the influence of colonial traditions, captive trade and traditional relationships. The new situation on the commodities' market in its own way illustrates the evolution of the international division of labour and the exacerbation of uneven development in the last 25 years.
The place of raw materials in world trade has gradually changed. In value it only amounts to 50% of the trade of manufactured goods (energy products included), and it was the same in 1963.
As against some very simplistic ideas going around on the question, it should be remembered that the biggest exporters of raw materials are the industrialized countries themselves (69% in 1980). On the other hand, it is the structure of their foreign trade itself that marks out the third world coun tries - in other words, the extreme specialization of their exports. In 1977, primary products represented around 80% of their exports, as against 23% for the OECD countries.
Double dependence on
Draw materials' prices
So it is useful to note that the third world countries are doubly dependent on world raw materials' prices: dependent on the prices fetched by the goods they export and dependent on the prices they pay for goods imported from the industrialized countries — especially food — in the framework of a division of labour dominated by the imperialist economies.
This structural dependence, as well as the
ACCORDING to the World
Bank, the prices of raw materials - excluding oil - have fallen to their lowest level for 50 years! During 1986, their prices tell overall by 10% in relation to export prices for manufactured goods (see Table 1). This trend in the raw materials market is an important element in the world economic crisis. An
OECD2 report, called "Financing and the foreign debt of the developing countries, 1986 study", stressed that if one looked at the problem in a wider framework, raw materials' prices could be regarded as having influenced the whole trend of the debt problem for nearly two decades.
### CLAUDE GABRIEL evolution of world trade, have gone hand in hand with the economic decline in the third world over the past 15 years. In fact, not all the elements of this crisis date from the 1980s and from the more recent fall in prices. Often, one can read that "from 1970 to 1980, the dollar price of primary products climbed sharply" 3, while the general curve has been downward since 1980. This periodization, established on the basis of broad tendencies, is not relevant. It is based strictly on the average trend of prices, while in reality the market for most products during this "good" period has been particularly
"In an OECD country, when the exports of one category of goods fluctuates from 10% to 15%, it is a talking point in the media. But 93% of Uganda's exports are dependent on one variety of coffee, whose price has varied on average by 55% each year between 1973 and 1979"4
According to the International Monetary
ECONOMY Fund (IMF), during the 1970s there was an annual average growth in dollar prices of 12%. But this general trend does not take into account the chronic instability of prices during this whole period, which put a number of third world economies in a very precarious situation. This instability has been even greater than during the previous
"There was a price fall in 1971, a revival in 1972, a spurt in 1973-74 followed by a drop in 1975, a steady but weak upturn from 1976 to 1978; and a new spurt in
Major industrialization projects
All this has no relation to the usual fluctuations caused either by climatic or political hazards that regularly influence the availability of this or that product. The fall in cacao prices in the spring of 1979 was caused by American demand stagnating. The same goes for copper and nickel, whose prices went up and down all through the 1970s. The world recession in 1974-75, followed by that of 1977-78, profoundly affected demand. There were substantial contractions of trade and the upturns, depending on the product, have not always compensated for previous falls.
On the basis of conjunctural price rises, some governments were able to embark on irresponsible investments. Some, as in Africa, promised their populations miracles, and used the first financial windfalls from higher export prices as springboards for plunging into major industrialization projects, which often left nothing behind after a few years but uncompleted building projects or oversize factories out of all proportion to real needs.
In this context, the downward spiral of prices began in 1980-81 (despite a slight upturn in 1983) that has led to the present situation.
For the players themselves in this market, 1. Developing Country Debt, World Bank, Washington, 1987. 2. OECD - Organization for Economic Cooperation and Development. Member countries include Australia, Austria, Belgium, Canada, Denmark, FRG, Finland, France, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spanish state, Sweden, Switzerland, Turkey, UK and USA. 3. Marchés tropicaux et méditerrannéens, May 1, 1987, Paris. 4. Philippe Delmas and Christophe Guillemin, Le Monde, July 7, 1987. si. aude Tamar, La Do des prodi de baise. 180. 21 rie-Claude Jacmart, La Documentation française, 1980. May 2, 1988 • #140 International Viewpoint
Table 1: Raw materials prices 1890-1986
ECONOMY belief in traditional mechanisms has been shattered. Classically, price rises should bring new investments in their wake, and subsequently a growth of cultivation or mining. These rises resulted in a growth in supplies, causing a fall in market prices and therefore reduced production, ly could kick off a new cycle of rising prices and so on. This process is explained by the inevitable adjustment of supply and demand over a long period.
"The anomaly has become clearly visible over the last three or four years: a time when, after a more or less general fall, international prices for ferrous and nonferrous metals were established over a long period at unprofitable levels for a growing number of traditional large producers. A well-known mechanism always means that a lasting depression of sales progressively leads to the closure of those mines most in deficit. A contraction of supply follows, which at some point re-establishes a statis-
200 180160 -140120 -100-
80 -
1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1986 tical equilibrium leading to an upturn in
The index used is the index for raw materials for further processing published by the US prices. But this mechanism, thought to be
Trade Department. It includes oil prices. This index is deflated in relation to US retail prices.
eternal, no longer functions." 6
It shows the comparative trend of raw material producer's revenues in relation to the revenues of other economic indicators. The steep rises correspond to wars and economic conflicts (the 1973 and 1979 oil crises). Over time, the fluctuations have lost their intensity. The
An irreversible structural present crisis, on the other hand, is comparable to the depression of the 1930s.
shift
In reality we are witnessing a totally different sort of shift, undoubtedly an irreversible one within the structure of certain sectors of production: upstream of the market these changes are turning the dependant economies upside down; downstream, they are modifying some of the industrial structures of the imperialist countries:
• New technological discoveries in prospecting have made possible the discovery of new, very profitable, reserves for some products. This has a number of implications. A notable one is that the poorest pits, supposed to be closed temporarily for reasons of profitability, will never be reopened. This will benefit new forms of lowprice large-scale production, profitable in spite of the price depression. Another development to come is the working of deepsea metalliferous nodules, which could represent very large deposits of nickel, copper, cobalt and manganese in particular.
• Progress in the treatment of ores making it possible, aside from the main products, to obtain secondary - sometimes very profitable — ones, such as gold, silver or cobalt that are found in aggregate ores?
Hydro-metallurgy makes it possible to refine such low-grade ores and to obtain products whose prices do not necessarily evolve in a parallel manner to the principal metal extracted. The rise in gold prices can thus stimulate the production of copper, cobalt, Caledonian nickel, silver or lead. Consequently, all this can generate overproduction and some price falls.
• Recycled metals now occupy a substantial place. Because of increased energy prices up till the beginning of the 1980s and the ups and downs of the market, in-
• dustry turned partially towards recycling
International Viewpoint #140 • May 2, 1988
Ecological concerns have also boosted this activity. Around 45% of the production of lead and steel, 35% of copper and 30% of zinc are obtained via recycling. Ten years ago, these proportions were less than half
The more world industry develops, the more obsolescence makes a greater volume of metals available for recycling, making it possible to economize on the use of natural resources. This is, for example, how the car industry has become at the same time a customer for, and a supplier of, secondhand aluminium.
### Explosion of new technologies
At the other end of the chain, the recycling of the aluminium in some fizzy drink and beer cans in the USA has sent thousands of poor people patrolling the streets to collect these tins and re-sell them at derisory prices to the state or to industry. Although only just born, this new branch of capitalist industry has already found a way
• The explosion of new technologies in the fields of electronics, optics and information has rapidly raised the demand for materials until now considered as unimportant. These famous "new metals" are creeping into industry, posing new problems for supplies and production. Their production will have to multiply ten, 100 or 1,000 times - depending on each case — before the end of the century.®
• The development of synthetic substitutes is rapidly changing demand. For ex-
Source: Le Monde, May 6, 1986 ample, cocoa butter - used widely in the pharmaceutical industry — is being challenged by a product extracted from mango seeds; and synthetic rubber is being produced as an alternative to natural rubber. Already some synthetic flavours are used more widely than the real thing, which is going to ruin some small countries'
In other areas plastic or carbon fibre materials have been developed to replace metal parts, especially in cars. Plastics are replacing lead for pipes in building; the use of jute and cotton has been reduced considerably by the development of synthetic fibres; copper cables used in telecommunications are increasingly being replaced by optic fibres - the list could go
The chemical industry is central to these changes. Rapid innovations in this branch, and its capacity for producing synthetic products, often puts it in a position of strength in relation to traditional industries, accelerating the obsolescence of certain
All these factors have begun to have a 6. Usine nouvelle, March 17, 1983, Paris. 7. In 1983, Rio Tinto Zinc, the second largest Australian mining company, announced that it thought it could make up $50m of its 1982 deficit, thanks to rising gold 8. These metals are increasingly utilized for finished military products. Among the most used at the moment are titanium, lithium and gallium. But beryllium, germanium, nobelium, tantalum, platinum and zirconium are also used, as well as constituents and new materials like ceramics. Usine nouvelles, January 30, 1986, Paris; Raw Material Report, Vol.3, No.2, Stockholm, 1985. 9. For example, researchers at Edinburgh University in Scotland have produced cayenne pepper and saffron flavours from cell cultures in the laboratory.
considerable impact on the evolution of the markets, and consequently on prices.
One of the most threatened traditional sectors is sugar. Again, new sweeteners have appeared such as aspartin or isoglucose - sweeter products that don't rot your teeth! The development of dietary foods, pushed by the chemical trusts concerned, has led to less use of the traditional sweetener, sucrose. The appearance of composite sweeteners in fizzy drinks is already having a big impact on the natural sugar market. Advertising campaigns in the name of consumers "health" generally hide the restructuring taking place, according to criteria of production costs and profit, in the agri-food and chemical industries. World production of sugar cane threatened
Bio-technology is developing sweeteners at a pace that could threaten the whole world production of sugar cane. As early as 1980, Coca Cola had decided to replace more than half the sugar in its drinks by isoglucose. In 1985, for the first time in the USA, the quantity of new sweeteners consumed overtook sucrose (beet or cane), which will undoubtedly weigh heavily on subsequent world prices.
Economies based on the production of sugar cane have now entered a traumatic period. There are some tens of millions of people who are threatened today by this upheaval in the world sugar products' market. Negros Island in the Philippines, Haiti, Brazil, Mauritius, the "French" Antilles, Réunion Island and so on are all going to pay a very high price for these changes. It is significant that the sugar multinationals, such as Tate and Lyle, while commercializing and refining the sugar of certain client carefully researched substitute products that are going to finish off their current
Capitalist anarchy, cynicism and violence are expressed perfectly in the world sugar market. In addition to the competition of European beet growers, third world cane producers now face competition from American and Canadian producers of isoglucose, which uses maize and wheat as a basis. The changes taking place, pushed through but in no way prepared, will lead to the ruin of tens of thousands of smalland medium-size planters.
Another aspect of the upheavals underway is the development of the futures markets. These markets do not deal with physical goods, but with contracts - that is, abstract products. Their primary goal is not to deliver commodities; they are purely financial operations. But futures markets,
ECONOMY to be profitable, far exceed the "volume" of the physical market. For example, in 1974 in Paris only 1% of the 11 million tonnes of sugar traded was actually destined to be delivered!
Not all products have a futures market. 1° A large part of some markets is negotiated bilaterally, others involve agreements between producers and consumers, smaller part goes through the stock exchanges, that is, the "free market".
Changes are taking place here as well. Nickel, for example, has traditionally been negotiated bilaterally, but since 1979 a free market has operated in London. The oil market takes in all these forms: barter, mutual agreements and the futures market.
According to the professionals, these abstract markets are necessary for regulating prices and avoiding risks — as much for the buyers as for the producers. By considerably augmenting the volume of transactions, the speculators assume the latent financial
In reality, the thing is rather more complicated. The produce exchange markets have expanded and become increasingly complex. Everybody is not equal in the face of growing speculation. A number of producer states only have very partial access to the control of new techniques. Take the case of the African countries, where small producers are invited to play the markets in order to reduce their risks but often find themselves in a position of weakness when it comes to learning the real state of the
Boom in speculative markets
"At the beginning of 1984, the world price of cacao (4,500,000 tonnes traded) on the futures market was determined day by day by variations in the anticipated eventual deficit which, estimated at between 20,000 and 200,000 tonnes, will be in any case a marginal factor in relation to all the fluctuations" 12 Or again in relation to sugar: "It is no longer some 500 shipments that have mostly found buyers and sellers that count, but rather too many or too few shipments which, while marginal, are critical in determining the effective physical prices at a given time....The penalty, in differential terms, can therefore be very costly for latecomers" 13
Because the control of information on the market is very unequal, it is clear that the "positive" and "regulatory" effects of the futures market cannot benefit all the producer states! If they want to optimize their sales they must gamble on the price, on how much to sell and on the timing. They 10. For example, rice and tea. 11. This is the case for manganese, most nickel, phosphates and uranium. 12. Matières premières et échanges internationaux, Vol. V, Claude Mouton & Philippe Chalmin, Economica, 23 Paris, 1985. 13. Ibid. May 2, 1988 • #140 International Viewpoint
ECONOMY must know how to anticipate the markets, while for their part the specialists do not hesitate to manipulate them.
However, the development of the exchanges does not explain in and of itself the instability of prices. On the contrary, this "boom" in futures markets has only been an empirical response of capitalism to the chronic instability of markets and prices over the previous period.
This evolution has combined with a growth of the strictly financial market, the famous "speculative bubble". It is a sign of the times that a significant part of profits are no longer realized by exchanging commodities but by exchanging bits of paper simulating a real exchange of goods. Raw materials have not been spared. In the centre of this, the London Metal Exchange (LME) and the London Commodity Exchange (LCE) play a big role. The LME covers the markets for copper, zinc, lead, aluminium and nickel. The LCE deals mainly in cacao, coffee and cane
Aside from the activity of broker's firms and speculators, the commercial exchanges too are involved in the expansion of financial services. There are around a thousand trading houses operating in London. The Reuter agency has tens of thousands of video terminals installed in nearly 80 coun tries, and something like 100,000 people work in this little world. In 1974-75, receipts for this sector reached £179 million. In the receipts of the British financial system, raw materials represented 12% in 1972, 16.5% in 1975, 7% in 1979 and 4.9% in 1982.
Raw materials market increasingly volatile
The near-monopoly of the London markets in the trade of certain products is not properly exactly a "democratizing" factor in the market! In 1982, the City as a whole, which includes trading in primary products, brought in $7,000 million for the British economy - 50% of the net contribution of the financial services to the balpayments - and employed 400,000 people.' It is a good bet that the primary products market will tend to become increasingly deregulated, like the rest of the financial market. On the other hand, the growth of speculative markets in this area will depend on eventual innovations in financial instruments. The development of risks markets and the electronics explosion could thus make the raw materials market increasingly volatile, by increasingly detaching it from real production. 16
The risks of the raw materials' market are more numerous than those elaborated above. There are also those that operate in the monetary field. The chaos that appeared from the end of the 1960s, at the same time as American capitalism began to 24 fall back in relation to its competitors, was to play a decisive role in the ups and downs International Viewpoint #140 • May 2, 1988 of raw materials' prices in the years that followed. The abandonment of the gold standard in 1970, and then of the Bretton Woods' accord, was going to spark off an era of monetary instability. To this was added a very strong inflationary pressure.
It was in these circumstances that the curves of basic products' prices took on the appearance of a big dipper; that the oil crisis broke out, with OPEC's decision to increase the price of crude five-fold; and that a period of intense negotiations/pressures opened up on the price of some products.
The monetary chaos produced a certain inevitable unevenness on the markets, making long-term management of exploited resources even more precarious. Thus, the price in local currency of a raw material produced and sold outside of the dollar or sterling zones by a non-US or non-British firm depreciated when American or British currency fell. Exchange risks therefore led to losses or gains for producers, as well as for merchants, since in general prices were not linked to changes in exchange rates.
In the longer term, another disequilibrium was able to develop when the exchange rate of one currency in relation to others diverged too much over a long period from its real buying power. This disequilibrium gave an advantage in the late 1970s to mining operations in the dollar zone for example, when the American currency was under-valued in relation to its domestic buying power."
The disequilibrium between national and international price levels can destabilize the whole of a domestic market. When inflation differentials grow between one country and its commercial partners, the domestic costs of primary products rise more quickly than the international prices. This was why the US preferred to import certain products rather than support domestic production. These effects are particularly spectacular in the dominated countries — such as Mexico for example, which has a common frontier with an industrialized country, the United States. The same phenomenon appears in Africa, and elsewhere, for countries with non-convertible currencies whose neighbours are in the franc zone. In these cases, smuggling on a massive scale becomes the market regulator to the detriment of domestic products, which are often subject to astronomical rates of
The devastating effects of the instability of markets and prices on third world economies have already been stressed. On this subject, two French economic experts have said: "Out of this chaos emerges an inexorable decline in the buying power of primary products compared to manufactured goods. From 1960 to 1986, this decline reached an average of 30% for basic agricultural products, 27% for foodstuffs and 14% for other products.... Should we be surprised that there were problems in managing the debt in these conditions?" 18
According to the French National Institute of Statistics and Economic Studies
(INSEE), the deterioration in terms of trade for African and Indian Ocean states reached 15.4% between 1985 and 1986, the prices of their raw materials fell by 23% and the prices of imported goods only by 9%.! In these conditions, as long as interest rates remain very high, the indebtedness of these producer countries can only worsen.
The stock market crash of October 19 last year did not spare the primary products market. But it did not have such a spectacular effect on the shares market. It was the monetary disorder induced by the crash that first of all affected the primary products market. Afterwards, it was affected by the prospect of probable recession, and a no less probable lowering of world demand for these products.
An ongoing serial of chronic instability
For the time being, some primary products' markets have shown a slight upward trend, for rather conjunctural reasons. This conjuncture is explained by mere technical operations, such as the reduction of producers' stocks, or the reconstitution of stocks in consumer countries or industries. For wheat, for example, what was involved was the prospect of a probable decline in world production in 1987-88; for nickel, it was sudden opportunities in the industrial market. By the same token, copper prices leapt dramatically at the end of last year because of the simple fact of a reduction of reserves on the London Metal Exchange, combined with a copper miners' strike in Peru. But all this comes within the scope of an ongoing serial of chronic instability, and is in no way an indication of any medium-term trend. On the other hand, these temporary readjustments bring both joy and grief to the most impoverished producer countries. Zambia, for example — where the red metal represents 90% of exports - has had a breathing space in regard to its debt burden, but it cannot count on prolonged high prices that could free it from the "dictatorship of copper" and enable its economy to diversify. On the contrary, higher prices have 14. Most of the refined sugar market is concentrated in Paris. Since 1974, on the other hand, the main gold futures market has been organized in the USA and in Zurich. 15. "Work in progress: a survey of the City of London", The Economist, July 14, 1984. London has notably played a central role in recycling petro-dollars from the Middle East. For a good point of view on the exchange boom in the 1980s (before the crash!) see: La géofinance — pour comprendre la mutation financière, Charles Goldfinger, Seuil, Paris, 1986. 16. Each day on the financial market 40 or 50 times more capital is exchanged on average than physical merchandise. 17. The international nickel price in December 1979 was $2.60 a pound, or 10.55 francs at the official exchange rate, while it should have been 21.35 francs a pound according to exchange rate parities. This can have important consequences, notably for products like uranium, whose deliveries may span 20 years. 18. Philippe Delmas and Christophe Guillemin, Le Monde, July 7, 1987. 19. Marchés tropicaux et méditerrannéens, November 13, 1987, Paris.
hardly been registered and now a fall is looming in the second half of 1988!
Gold itself has shown the rise expected in the wake of the stock market crash. Shares in gold mines have even suffered some important falls since then. If the dollar's decline continues, gold could increase its role as a hedge and grow again in value (its price has already reached $450 per oz.) on condition that no other financial instrument comes along to offer a better "refuge"
In the current chaos US Treasury Secretary James Backer has proposed a shopping basket of raw materials — including gold
— as a base of reference. This attempt to reintroduce gold as a monetary standard and has not been taken
No mechanism of this sort can artificially get the capitalist economy out of its present crisis. The US government has advocated primitive free-enterprise policies for the primary commodities market for seven years. According to it, "real prices" could only play a positive role in the medium term in reorganizing third world economies. So it is hardly in a good position today to advocate any regulatory mechanism. Even if it wanted to, it would have a hard time finding a solution.
Le Monde of November 3, 1987, forcefully described the current atmosphere: "Futures markets only react on a daily basis, without looking to the near future.... the stainless steel industry's order books are full until the first half of 1988. This sole certainty is supporting nickel prices, even if tomorrow it has to be abandoned or revised for the folsightedness makes it impossible henceforward to consider raw materials' prices as relevant indicators of real economic activity"
Primary commodities that are being more and more replaced by substitute products increasingly pose problems for judging the reactions of the industrial market. Their overproduction remains major trend. Thus, in 1984 and 1985 their prices continued to fall even while the international economy was picking up. The
Le Monde journalist concluded: "Deaf and blind, these products are for the moment
In such conditions, unorthodox sales methods must be expected. Bartering or buy back arrangements are growing rapidly as a consequence of the markets' instability, but also due to the importance of political questions as regards certain exchanges.
The most diverse figures are put forward:
between 10% and 20% of world trade according to different sources. In this way frozen mutton is exchanged for petrol, military material for cacao and so on. This commercial practice, condemned by international institutions, introduces important political or diplomatic factors. The East
European countries were the first to develop this sort of exchange with the West. But it has now been extended owing to the insolvency of some third world countries. Oil is the commodity most often involved in such transactions. It is being exchanged for textiles and foodstuffs, Boeing 747s and military planes, but it has also been exchanged against part of a debt (France/Iraq in 1984) or for the construction of a hydroelectric power station (Brazil/China/Iraq in
Moreover, barter makes it possible to hide the undercutting of crude prices fixed by OPEC. It also enables some third world oil-importing countries — like Brazil, Turkey, India, Malaysia or Pakistan — to export industrial products and protect themselves, at least temporarily, against competition from industrialized countries.
States and international institutions have been looking for technical solutions to solve all these problems. The general philosophy of these various measures is either to intervene downstream of "natural" market mechanisms or directly upstream by attempting to plan the quantities to produced. But none of this can sort out the destructive anarchy of the capitalist market because, in reality, the private sectors are allowed to make as much profit as possible and afterwards it is left to public bodies to financially clean up the worst damage.
The market functions without pity and can break the most fragile economies or destabilize states. In the long term, this rebounds against imperialist stability. The European Community, for example, essentially carries the responsibility for political stability in the Black African states. Consequently, it has to compensate, at least par-
ECONOMY tially, for the destructive effects of these countries' relations with the world market.
Black Africa, whose place in the international division of labour is still deeply marked by its colonial past, needs a permanent crutch to prevent it sinking into political chaos. This is why the EEC's Lomé
Convention set up a system of financial compensation benefitting its junior partners
- in theory to compensate for shortfalls of export receipts after price drops or setbacks in production. For some agricultural products this is known as the Stabex system, and for some mining products, Sysmine."1
In March 1986 the International Monetary Fund set up a structural adjustment facility to help certain countries with low incomes, since all the previous compensatory mechanisms could no longer save them from bankruptcy.
But all these have only been insufficient stop-gap measures, for the good reason that they do not rationalize the market and are not preventative medicine. As the crisis deepens, the less resources there will be for compensation:
losses of primary commodities' producers (outside of oil) rose to
$20,000 million in the two years
1981 and 1982. With respect to these losses, the sums paid over under the facility for compensatory fimillion, and under Stabex to $320 million — a compensation hardly more than 14%" 22
A common fund to stabilize basic commodities was proposed in
1976. But the US champions of the free market have until now opposed this and kept it from being put into operation. A high-level State Department official was to declare openly: "We prefer to follow an approach to development based more on market laws, which have proved themselves in the developed and developing countries" 23
At the end of the 1970s and beginning of the 1980s there were various attempts to revive the regulation of certain markets by means of agreements intervening directly into supply and demand. Five major international accords were signed or renegotiated between producers and consumers for
20. J. Backer has in fact taken an old argument of P.
Mendes France in the 1950s, which proposed to guarantee part of world money to secure a stock of raw materials — around 25% - to stabilize these products' prices. This proposal never saw the light of day because of its inherent contradictions: how could a price be fixed for the products in the shopping basket? How could the contents and mix be decided? And how would this be judged in terms of the relations of forces between the producer countries and/or the consumers?
21. The Lomé Convention brought together most of the countries of Black Africa, the Caribbean and the South
Pacific (ACP) associated with the EEC. See IV 51,
April 23, 1984.
22. Philippe Delmas and Christophe Guillemin, Le
Monde, July 5, 1987.
25
23. Marchés tropicaux et méditerrannéens, July 24,
1987, Paris.
ECONOMY sugar, rubber, cacao, tin and coffee.
In spite of these attempts the results were very meagre. The technique employed uses the system of reserve regulators or export quotas, with a maximum and minimum price fixed by conventions. The reserve regulators therefore become additional operators on the market, buying and selling in order to affect prices and maintain them within established upper and lower limits. But the effect of these instruments has been recognized to be insufficient since 1984 These accords were established or renegotiated at the end of the 1970s when prices, although very unstable, were generally buoyant. Some years later the trend has reversed, and the accords in question have been less and less successful in promoting stability.
A number of external factors were also at work: the fact that some producer states did not participate in the accord; political events; monetary evolution; technological progress or development of substitutes and so on.
Accords providing for production quotas, as with oil today, can lead to dog-fights between the better off who want to preserve their interests, and the small producers who want to increase theirs. Third world countries have their backs to the wall
Furthermore, reserve regulators need financial resources and require expensive technical expertise. The high interest rates have obviously not favoured this system. Besides, often the main reserves were held not by the producers or by institutions, but by the top industrial countries. Tin reserves established in 1982, for example, represented only a tenth of the strategic reserves of the USA. In 1982, the director of cacao reserves was stopped from buying because
In reality, the generalized indebtedness of the third world limits the effects of all accords of this type. With their backs to the wall, these countries have been implacably pushed into expanding production and selling at dumping prices. This drive for short-term gain becomes a drag on world prices. "Those who sell more cheaply have to sell more. Deliveries of Brazilian tin put both Bolivian and Asian producers out of the game. Malaysian cacao is the new headache for Ivory Coast planters. Indonesian coffee is worrying Sao Paulo. The gigantic iron mine at Carajas (Brazil) has nipped all the African mining projects in the bud." 24
In 1984, because of the refusal of Australia to agree to what they thought were too high EEC export quotas, the tin agreement was to finally fail and the sugar agreement was disrupted. A system of export quotas for coffee, re-established in October 1987, hardly slowed down the fall in prices. The cacao accord was renewed, but not without 20 cao reserve regulator made many purchas- • difficulties, in July 1986. In 1987, the caInternational Viewpoint #140 • May 2, 1988 es on the market without being able to stop the price falling for all that. This was a significant factor in the Ivory Coast's decision, as the principal world producer, to
Beyond the deterioration in the functioning of the capitalist system, a crisis has also been induced by the modifications taking place in the international division of labour. Well after colonial empires disap peared, the mechanisms of domination and the organization of trade routes remained profoundly shaped by the colonial past. These imprints have only begun to blur unevenly among countries and industries. Today, the capitalist crisis, combined with technological changes in industrial production, has accelerated this process. Already, the industrialization of countries like Brazil, Mexico, India or Korea had demonstrated these changes in a spectacular fashion. But this did not yet affect the bulk of relations between imperialist countries and third world countries. The expanding exports of producer goods reflected some major changes within imperialist industry. This modified somewhat the forms of penetration in a large number of third world countries, which could no longer be considered simply as suppliers of raw materials. But chronic over-production of classical primary goods has produced a
The first episode in this change was that affecting the ownership of mines and of some sources of agricultural raw materials during the 1960s and 1970s. Between 1960 and 1976, third world countries expropriated 1,369 foreign enterprises including 80 mining companies, 220 oil firms and 272 agricultural outfits. The poorer countries were, the stronger were nationalization policies as a means of providing a base for the state apparatus and the dominant classes, especially in Africa. This tendency toward growing state participation in the produc tion of basic goods did not involve in and of itself decreased dependence, but it was to mean a transformation of the forms of
The industrialization of certain countries and the general shift of some industries away from the imperialist countries towards the poor countries was to constitute the second episode. Some sectors - like textiles, steel, metallurgy, automobiles and small-scale electronics — preferred coun-
Table 2: Changes in steel production 140- Planned economies 100- Index 100 = 1971 Industrialized countrie
Source: Raw Material Report Vol.3, No. 4
1972 1974 1976 1978 1980 1982-83 tries where the workers came cheaper. The world map of iron and steel production has changed rapidly (see Table 2), and a number of steelworks have been set up in the third world, thanks to capital and technology from Europe, America and Japan. In Brazil, for example, such factories have been financed by Finsider (Italy), Kawasaki Steel (Japan), Mannesmann (West Germany) or Finsider (Luxembourg). In 1966, Europe and the USA represented respectively 20.9% and 14.7% of the world production of steel; in 1982, they represented no more than 7.5% and 4.7%. During the same period, the third world passed from 21.2% to 26.7%, and the socialist countries from
Spectacular changes in agriculture
These changes are not only affecting the so-called "North-South" divide, but the whole world market. Thus, in the production of bauxite, Australia's share of world production grew from 19.1% in 1971 to 23.3% in 1983, while Jamaica's slumped from 18.8% to 6.1% and Surinam's from 10.2% to 3.7%.
The world crisis from the middle of the 1970s caused mining investments to fall and reduced outlets. Western firms therefore tended to orient their investments towards the developed countries, including investments in new technology. Because of their indebtedness and a fall in export income, third world countries tended to look to the West for new investments in the "national" mining sectors. So the links between states and foreign operators were to multiply. New dependencies were born out of these links in prospecting, processing, commercialization or transport, owing to the simple fact that the multinationals who had dealings with these states enjoyed a considerable vertical integration.
Such changes were no less spectacular in agriculture. But here two new elements need to be looked at. Firstly, there is a growing change in third world eating habits, which has begun to turn their national production and their foreign trade upside down. We are indeed witnessing something that some would label an "internationalization of taste!" The generalized penetration of Western food products in these countries is now fostering a real vicious circle. It is jeopardizing domestic production and accelerating the rural crisis. The resulting exodus to the towns is aggravating the agricultural deficit, causing the production of national food products to decline, and this is leading, in its turn, to an increased demand for imports. Little by little, these imported products are becoming the basic foods. In Latin America, the development of certain quality foodstuffs for export or to 24. Eric Fottorino, Le Monde, January 24, 1987. 25. In 1950, the third world only produced 6.5% of the world output of iron. Source: Raw Material Report, Vol.3, No.1, 1984, Stockholm.
The oil market
OIL HAS some peculiarities that set it apart from other raw materials. An energy product, its price is set before those of all industrial products, of which it is a component. The first oil crisis in 1973-74 was due to a combination of economic and political elements: the be consumed by the well-off has affected the whole food industry, as well as the diets of the poor classes. The allocation of land, energy, credit or research towards these new foods has been to the detriment of traditional products. These imbalances subse-
ECONOMY
15-year long fall in barrel prices; the devaluation of the dollar and the pound after the quently affect the health of the whole establishment of floating parities; the American defeat in Vietnam and the Yom Kippur war in the Middle East. The Organization of Petroleum Exporting Countries (OPEC), rice is slowly replacing local created in 1960, was the sole cartel of its type able to lead an ongoing offensive to cereals. Now, the growing consumption of improve the terms of exchange. Everyone who tried to set up something similar to OPEC bread is imposing increasing flour imports.
for other commodities very quickly met with failure
But from 1978 there was again a very clear fall in barrel prices in relation to imported
Domestic trade patterns as a whole are goods, which was to provoke a second OPEC offensive in 1979 with a major price rise being affected by these changes. They are
However, after these seven years of commercial warfare, imperialism was able to get a being carefully orchestrated by the agrigrip on the market again. This was aided by a political crisis inside OPEC, the food multinationals, relying on advertising exploitation of new fields (notably in the North Sea) and a big drop in world demand due based on cultural identification and also the to the cumulative effects of recessions or the use of more cost-effective energy.
changes in urban work and living patterns.
Today, we are seeing the opposite effects. The fall in crude prices is aggravating the
Thus, industrial development in Latin crisis in some capitalist sectors, notably those linked to the US oil industry or to the sales
America, Africa or Asia has been seized on of arms or equipment to the Arab countries. Barrel prices went from $31 in 1983, $29 in
1984, $27 in 1985, less than $10 in July 1987 and have now increased slightly to $16.
by these trusts in order to promote new diet
While the 1970s' oil crisis brought some third world oil-importing countries to their knees, it also accelerated industrial reconversions. It was to favour the industrial goods
The second new element in agriculture is export sectors, help swell the liquidity bubble of international credit (petro-dollars), push the growth of research into genes and proup indebtedness, aggravate technological obsolescence and push forward the migration ducing hybrids. These techniques are aimed of certain sectors such as iron and steel io the third world. It served as a lever for at increasing agricultural productivity. But establishing a new relationship of forces between industrial sectors and holders of this noble objective carries with it a real capital, with both the ruling classes and the producer countries taking their commission in danger of leading to increased exploitation of the third world and the ruination of small
From 1974 to 1981, the OPEC countries deposited nearly $150,000 million in Western peasant production. For the time being, banks. At the same time, the growing revenue of these countries accelerated their own internal social differentiation, giving Western exporters new consumer markets. This "oil most of the hybrids are sterile, meaning that was the occasion for a massive redistribution of the surplus both at the each year the producer must buy new seeds.
This therefore puts a very large number of small peasants out of the game.
Worse still, private firms are now patenting the genes or the related techniques, thereby circumventing the research done by intemational public institutes.2 The privatization of genetic material coming from third world countries is a serious threat, considering the state of national research in these countries. For 23,000 researchers in this area in the US in 1983, there were
3,400 in Asia, 1,000 in Latin America and
400 in Africa. The situation is sufficiently worrying that in 1987 some European MPs produced a report entitled "Developing countries, profit from bio-technology or
Perish"!
All of this certainly confirms the evolu-
Growing marginalization of primary goods tion of forms of domination. Demagogic speeches about the "transfers of technology" to the third world cannot hide this sad reality. In 1980, an OECD document also confirmed this: "The rate of technological innovation determined by the North has to exceed the acceleration of technological obsolescence coming from transfers to the
South" 27
The move to using new materials in certain mass production techniques also confirms this tendency. New technologies are replacing old ones. It is in this framework that the growing marginalization of primary goods in world trade must be discussed. These goods represented no more than 17.5% of exchanges in 1985, against
45% in 1960. Trade flows (at origin and international and national levels. * destination) have also been modified, both for certain agricultural goods and for mining products.
Many changes have taken place in the domain of oil, also. While OPEC represented 65% of capitalist oil production in 1976, it represented no more than 40% in 1984. Another structural, and not just conjunctural, change is in oil consumption in the big industrial countries. A country like France is consuming 27% less petroleum products today than it did in 1979!
All this confirms big changes that have taken place in the international division of labour. In other words, the "specializations" produced by colonization and the empires are being increasingly challenged. Bolivian tin miners, Mauritian sugar cane planters and Senegalese groundnut producers are all feeling the pinch. This evolution is combining with new forms of domination and new commercial exchanges.
Uneven development is only the most glaring expression of what is happening. It is evident both between the various regions in one country and between different countries. The loss of interest in this or that product provokes a succession of cumulative socio-economic modifications. Some states, such as Mexico or Libya, are now facing a fall in their oil income. A smail country like Mauritius has seen the centre of gravity of its proletariat shift from the sugar industry to the free industrial zone in just six years, with all the negative consequences this has for unionization, class consciousness and so on.
Moreover, these transformations are coming 15 or 20 years after the equally spectacular changes that marked the end of the 1960s or the beginning of the 1970s. Countries like Nigeria or Mexico at that time abandoned their agriculture to devote themselves solely to the industrial fallout from the oil bonanza. This already repre sented a real social shock, which is now going to be followed by another. This confirms once again how underdevelop ment is not caused by a "lack of capitalism" but rather by the specific forms of capitalist development in these countries. These are brutal and hierarchical; they marginalize whole chunks of the rural and urban economy, and leave the rest to the mercy of rapid turnabouts impelled from the outside under the effects of imperialist domination.
The fine self-confidence displayed by the bourgeoisic right up until a few months ago about the development of financial and stock market instruments did not last long But the capitalist crisis cannot be reduced to the hazards of the stock markets, any more than it can to unemployment in Europe and the USA. Growing misery and famine in the third world, the destabilization of dozens of national economies -- all of this can also be laid on capitalism's doorstep. * 26. See Le Monde, May 19, 1987 27. Changements techniques et politique économique, OECD 1980, Paris. 28. For the first time in 1980, Mexico had a negative agricultural trade balance. Practically self-sufficient in local cereals, Nigeria imported more than 1 million tonnes in 1977. See Johny Egg. "Une effet de la rente
27
pétrolière au Nigéria", Le Monde diplomatique, May ' 1981. May 2, 1988 • #140 International Viewpoint