issue 204 - February 1990
Halfway to liberation
Trade is changing the world more effectively than any
government. And Nigel Harris argues that there is cause
for modest optimism about this revolution.
Look at the labels on T-shirts in your local clothes shop, or on the honey in the grocer's: they will show you 20 different countries of origin. At the other end, where the goods come from, you would find an even greater multiplicity of destinations. Christina Lamb of the Financial Times, for instance, recently tracked down the township that makes the world's footballs: Sialkhot in Pakistan. In the same town, she discovered the world's largest maker of traditional Scottish bagpipes, each carefully dressed in the appropriate clan tartan for sale in the different regions of Scotland.
A vast transformation is being wrought in the world economy and in our lives by the continuing mighty expansion of international trade. Part of this is accounted for by an astonishing and sustained growth in the productive power of the workers of the Third World. For the first time, I believe, there is hope - warts and all - for the employment of the vast millions of the world at levels of rising productivity and income.
What a difference this is from the picture of the world we had in the 1950s, when economic development of the globe first became an issue. At that time it was scarred by images of sugar plantations and slavery in Pernambuco and Cuba, starving tea pickers in Darjeeling, the deadly gold mines of the Rand, the tin mines of Kuala Lumpur, copper in Chile. In that age, the robber barons - De Beers, Rio Tinto, Booker Brothers, United Fruit ran whole countries as their fiefs.
In the Great Depression of the interwar years Europe and North America had minimized their imports, blocked capital exports to the raw-material exporters in Latin America and had foreclosed on debts. The pretty notion of an harmonious world 'division of labour' - the exchange of the manufactured goods of the More Developed Countries for the primary commodities of the Less Developed - stood exposed as a fraud by the strong upon the weak. The white man's burden turned out to be the white man's jackboot.
Given this, it was no wonder that governments of developing countries in the 1950s opposed reliance on exports as a means to generate growth - or even to raise the means to invest. They turned inwards, adhering to the conventional wisdom of the previous two decades. The key, it seemed then, was not a world division of labour - each country specializing in a particular activity - but self-reliance and a fully diversified national economy. As a solution to the problem of conquering poverty, it seemed too good to be true.
It was. Their own domestic markets were too small for all but the most primitive manufactures, and were not growing fast enough to allow industrialization to take off. Local manufacturers, now protected against competition from abroad, switched to providing for the most profitable market at home: the rich. Income inequality thus reproduced a manufacturing sector in its own image. A small domestic market meant high-cost production, and the lack of competition meant poor quality, high prices and few technical improvements. Mexico's garment industry could therefore clothe the better off, but not the poor. In contrast Hong Kong, supplying the world, also clothed its own inhabitants at the lowest world price. How?
A chink in the armour
It was the accidental good fortune of the four Little Tigers of East and South-East Asia - Hong Kong, Taiwan, South Korea and Singapore - to stumble upon an alternative development strategy. They found a chink in the armour of the More Developed Countries. They expanded by exporting, not raw materials, but manufactured goods, precisely the goods where the rich countries were supposedly at their strongest. Furthermore, they did so on their own resources, not as creatures of multinational corporations (they came later, after the boom had been started).
The four caught the gale of world growth in the 1960s, and their small or tiny economies flew and continued to do so for nearly three decades. Output soared to meet world demand at prices and quality accessible also to their own people. With rising output went economic and social transformation, rising productivity, incomes and consumption. With a life expectancy of 50 in 1950, South Koreans have now virtually arrived at developed status 69 to 70 years. Or, to give another graphic example, South Korean schoolboys of 14 have added 12 centimetres to their height since 1960.
Slowly but surely, the world has absorbed the lessons. More and more governments have tried to join in, to export manufactured goods. The fathers of the current officials of Ministries of Finance in the Third World would have been appalled. The cult of the market has never achieved such universal - and uncritical - adulation.
Pessimists thought the first chill of slump would put a stop to it all. But in 1974 to 1975, it did not. Contrary to the experience of the 1930s, the manufactured exports of the developing countries held up through both the first slump and the second (in the early 1980s). Indeed, while the world press in the 1980s was quite rightly preoccupied by the grave problems of hunger and economic decline in sub-Saharan Africa, or of debt in Latin America, some Third World countries - including some of the largest, like China, Pakistan or Thailand - actually accelerated their growth of manufactured exports.
Now, at long last, India, notorious as much for its endemic poverty as its stagnant economy, has also begun to move, raising the growth of output from roughly three-and-a-half per cent to six, with manufacturing growing by eight or nine per cent per annum and manufactured exports rising too.
This growth has contradicted much of the conventional wisdom about developing countries. Over half the exports of the Third World are now manufactured goods, not raw materials, and the share is expanding swiftly. Nor are these just cheap, labour-intensive goods. The fastest rate of growth recently has been in machinery and transport equipment. South Korea has come from nowhere to become the second largest shipbuilder in the world, and is now set to become a major exporter of cars. Malaysia exported its first 10,000 Proton cars to Europe last year. Brazil exports aircraft, China satellites and India computer software.
The fastest-growing trade, however, is not swapping finished products. It is contributing specialized parts to a finished product, so that complex manufactured products are now made from the contributions of many countries. The label of origin indicates no more than the last place the product came from. This is a quite new division of labour, and so complicated, little is known about it. You can see some of the complexity in the diagram below of who contributes what to the making of a Ford car.
So the growth of trade is not just in manufactured exports. It constitutes a new global economic order - where the integration of manufacturing undermines the old idea of simple, independent national economies. Governments are having to modify radically their ambitions. For now, increasingly, they administer part of a world economy rather than a separate fiefdom.
The god of economics is blind
It is not an outcome anyone anticipated. We are still absorbing the shock. Like justice, the god of economics is blind - and we only discover what was happening in the past long after the event.
Now we can see what was going on. First, great efforts were made in most Third World countries to train their workers, develop infrastructure and industrialize; the task could only be accomplished in selected areas, usually the cities, where the gap between More and Less Developed Countries narrowed.
Second, there was a remarkable decline in transport costs and in the average weight of goods moved.
Third, holes started to appear in the rich world's protectionist barriers and the conditions of trade eased. Convertible currencies and international banking facilities were established.
Because of these changes, the great initial 'comparative advantage' of the Third World in labour costs could start to take effect. Of course, management skills and confidence were needed to make the most of this advantage, but through example and painful trial and error, the lessons were learned.
Even then, without a change in the conditions of production in the rich world these factors would not have been enough. In the Europe of the 1950s, the scale of growth swiftly exhausted the available labour supply. European buyers scoured the world for new sources of supply of those goods which traditionally required a lot of labour to produce. They found, in the first instance, Hong Kong's garments.
From that point there have been successive transformations in the output and skills of the manufacturing exporters. As the leading countries like Taiwan and South Korea have upgraded their output to higher valued goods, poorer newcomers have pushed them out of the lower valued area where they began. Now the great growth sector of the world manufacturing trade is in capital goods - and especially office and telecommunications equipment. These are not cheap labour products. But for the leading Less Developed exporters of Asia (Hong Kong, South Korea, Malaysia, Singapore, Taiwan and Thailand), 60 per cent of their capital goods exports are in this category. And the boom of 1987 to 1989 lifted the exports of these Asian exporters to new record heights.
The end of history?
Is this, then, the end of the problem of development? The 'end of history' as US ideologist Francis Fukuyama recently proclaimed? Has capitalism finally won, submerging all in a festival of the market? Of course, we have to test the old theories against what has actually happened, but such a conclusion would be absurd.
First of all, it was not the practice of market economics or liberal politics which produced the high growth of the Four Little Tigers (with the exception of Hong Kong), but opportunistic states, driven in the case of the two largest countries by the ambition to be militarily strong.
Second, growth itself has produced rebellion - as was shown by the action of workers and students in South Korea in 1987 and 1988.
Third, and most important, not all countries can participate. The poorer a country, the less its ability to reshape output to fit external demand. So the potential for growth is as unequally distributed as income. The Least Developed of the developing countries - most of them to be found in Africa - have a per-capita income only one quarter of the average for the Third World as a whole; the role of agriculture in these places is two and a half times greater. Many of these countries can only sustain their present position with considerable external help. It is the worst kind of mockery to urge them to expand non-existent manufactured exports.
Things are not quite so severe for the most indebted in Latin America. Debt servicing takes a large share of export revenue, thus preventing the imports needed to sustain all-round domestic growth. But the debt burden has been lightened for some. And there has been a very considerable increase in manufactured exports. In the case of Mexico's special export plants, this has also produced a significant growth in manufacturing employment - from 180,000 in 1982 to approaching 400,000 today.
Even if the problems of the poorest and the most indebted could be overcome, industrialization brings its own negative consequences. To see exhausted Korean schoolchildren stumbling home in the dark with satchels bulging with homework is to catch a glimpse of the tyranny of work that seems to be the essence of raising the productivity of labour, incomes and welfare.
Industrialization does not shift class oppression, inequality, racism, nor even the poor - as Europe and North America demonstrate. It wrecks inherited ways of life and cultures. It can also wreck the environment - in Taipei's main industrial district, air pollution was recently put at 188 (on the Pollution Standard Index); 25 years ago, in a Los Angeles where freeways were jammed with gas guzzlers, readings never reached higher than 170.
The revolution of hope
Industrialization is only half the promise of liberation. But it is half - and makes the difference between the rebellion of despair and the revolution of hope. It may not create a just order, but it creates the means to achieve that order.
This is the trend: towards greater technical interdependence. The longer the process lasts, the less it will be possible to separate out national economies. The rich world now has all the strength of the blind Samson, capable only of accepting things or pulling down the temple on his head.
The sinews of the integration of one global economy are flows - of trade, capital and finance, information, migrant workers. There are very different levels of integration in each aspect, and trade is by no means the most advanced. Nonetheless it is achieving, unseen by most people, a practical internationalism, a level of collaboration between countries in the production of the world's output, which defies the political assumptions of a predominant nationalism. The process increasingly limits the powers of government to shape their domestic economies. Partly this is because it is more and more difficult to identify the nationality of commodities or capital or companies. All is merging into the flow.
None of this solves the underlying problems that concern so many: the emancipation of women, equality, justice, the cleaning of the environment. But many more people can eat, can get education and can more closely approach freer choices. Furthermore, the means to overcome some of these underlying problems is vastly strengthened. Given all the hideous problems, that is grounds for some modest optimism.
Nigel Harris works at the Development Planning Unit in London's University College. He is the author of The End of the Third World (Penguin 1987).
Building the Escort
BELGIUM: Tubes, seat pads, brakes, trim
CANADA: Glass, radio
NETHERLANDS: Tires, paints, hardware
SWEDEN: Hose clamps, cylinder bolt, exhaust down pipes, pressings, hardware
SWITZERLAND: Underbody coating, speedometer gears
UNITED STATES: EGR valves, wheel nuts, hydraulic tappet
ITALY: Cylinder head, carburettor, lamps, defroster grills
AUSTRIA: Radiator and heater hoses
DENMARK: Fan belt
NORWAY: Exhaust flanges
FRANCE: Alternator, cylinder head, master cylinder, brakes, underbody coating, weatherstraps, clutch release bearings, steering shaft and joints, seat pads and frames, transmission cases, clutch cases, tires, suspension bushes, ventilation units, heater, hose clamps, sealers, hardware
JAPAN: Starter, alternator, cone and roller bearings, windscreen washer pump
SPAIN: Wiring harness, radiator and heater hoses, fork clutch release, air filter, battery, mirrors
UNITED KINGDOM: Carburettor, rocker arm, clutch, ignition, exhaust, oil pump, distributor, cylinder bolt, cylinder head, flywheel ring gear, heater, speedometer, battery, rear wheel spindle, intake manifold, fuel tank, switches, lamps, front disc, steering wheel, steering column, glass, weatherstrips, locks
FEDERAL REPUBLIC OF GERMANY: Locks, pistons, exhaust, ignition, switches, front disc, distributor, weatherstrips, orcker arm, speedometer, fuel tank, cylinder bolt, cylinder head gasket, front wheel knuckles, rear wheel spindle, transmission cases, clutch, steering column, battery, glass