About the Author
Carlos Henrique Santana holds a PhD in political science from the Institute of Social and Political Studies, IESP-UERJ, was formerly Assistant Professor in Political Science at the Federal University of Rio de Janeiro (UFRJ), and is currently a researcher at the International Celso Furtado Center for Development Policies and at the NEIC-IESP.
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Development and Semi-periphery
Post-neoliberal Trajectories in South America and Central Eastern Europe
By Renato Boschi, Carlos Henrique Santana
Wimbledon Publishing CompanyCopyright © 2012 Renato Boschi and Carlos Henrique Santana
All rights reserved.
POSTSOCIALIST STATES IN THE SYSTEM OF GLOBAL CAPITALISM: A COMPARATIVE PERSPECTIVE
University of Cambridge
David Held and Andrew McGrew, in a widely accepted definition, refer to globalization as "the historical process which transforms the spatial organisations of spatial relations and transactions, generating transcontinental or interregional networks of communication." One might distinguish between the economic dimension, made up by transnational and international corporations, and the cultural ideological sphere, embracing a market ideology and a consumerism ethic. This chapter is restricted to the economic dimension of global transformation of the countries of Eastern Europe and the former USSR, and comparisons are made with the advanced Western countries, Latin America and China. After outlining the role the state socialist countries played in the world system, I consider the place of the economies of the postsocialist countries in the world economy. The focus of this chapter is on the extent of economic globalization of countries and their economic corporations. Since 1989, important differences have developed between the postsocialist states with respect to economic penetration and exposure to the world market. Greater participation in the global economy is a characteristic of the Central European states and Estonia; whereas Russia has a hybrid social formation containing elements of state economic control, national capitalism and global capitalism. The outcomes have not fulfilled the expectations of those advocating entry into the world economy. There has been a decline in their relative economic and welfare positions, though some countries have fared worse than others. While there are important differences between the countries of Central Eastern Europe and Latin America, it is concluded that they have many common features distinguishing them from the core capitalist countries and China and Russia. It is contended that some countries of the "semi-periphery" have possibilities for development without being part of the core states of the world system. To substantiate these viewpoints, I evaluate the global presence of the former state socialist societies. My focus is on the transnational companies in a comparative perspective of the core capitalist countries. Transnational influences are also surveyed in terms of foreign investment dependency on foreign company affiliates. Innovation and economic advance is measured by the spending on research and development (R&D). Finally, the effects of transformation on human development are considered.
State Socialism and the World System
The world system orientation conceptualizes the world economy in three main sectors: the hegemonic core (the dominant "Western" capitalist countries), the periphery (developing countries of the South) and the semi-periphery – countries with industrial capacity and national capital outside the capitalist core. The semi-periphery is regarded as a transitionary formation.
State socialist countries were part of the semi-periphery; there were no "socialist economies." Wallerstein claims that the world capitalist economy included the "entire world, including those states ideologically committed to socialism." It is contended that state socialist systems were not socialist modes of production, but interacted with the capitalist world economy. The socialist state, which exhibited some features of socialism (e.g. employment security, comprehensive welfare provision) nevertheless became a major player in capitalist accumulation, which in turn provided a basis for reintegration into the world capitalist system beginning around the 1970s. Following the World War II, such writers argued that international capital had penetrated the socialist bloc and had undermined it. This line of reasoning would lead to grouping the socialist states with those of the dependent countries of the South, such as Latin America. It also carries the implication that the transformation itself was not a qualitative change from socialism to capitalism, but rather a shift between different forms of capitalism.
There are two main economic arguments put forward in support of the thesis of incorporation into the world economy. First, the increasing levels of imports – and consequent high levels of foreign debt – created dependency on the Western capitalist system. Second is the growth of communist transnational corporations, which led to an internal capitalist dynamic. I discuss these in turn and conclude that the Soviet bloc was not part of the world capitalist economy.
From the 1950s to 1985, the socialist countries increased their trade at a higher rate than developed capitalist economies. But these developments do not, as contended by world system theorists, involve a high level of dependency on the world capitalist market. If we disaggregate the trade by different blocs, we find that the state socialist societies were far from being included into the world economic system. Consider data for 1983, before Gorbachev's perestroika policy. The highest share of trade turnover was between the socialist countries themselves, by far. Capitalist countries played a relatively minor role; even for the highest traders with the capitalist world, (Hungary, USSR and the GDR) turnover was a third or under and for most Comecon members it was under 20 percent. The scale of imports from capitalist countries, moreover, was not great. In 1984, imports from nonsocialist countries constituted only 1.39 percent of gross national product for the USSR, 4.2 percent for Hungary and 2.1 percent for Poland – the latter two being the largest importers. The dollar value of imports expressed as an average per capita of the population was only $97.7 for USSR, though a considerable $307.2 for Hungary.
A second development was the growth in debt to Western governments and financial institutions. By 1973, gross indebtedness was some $17.6 billion and had risen to $48.8 billion by 1985. However, it was distributed very unevenly: of the total Eastern European (excluding USSR) debt in convertible currency, Poland accounted for over half ($25.7 billion) and the second largest debtor country was Hungary; both financed their Western imports through loans from the West. Some scholars extrapolating from the example of these two countries come to quite the wrong conclusion. As a whole, the Soviet bloc was not in any serious financial difficulty. Eastern Europe and the USSR's total export earnings covered imports, with a large positive trade balance in 1984 and only a 2 percent deficit in 1985. One could not argue that the Soviet bloc as a whole was in a financial crisis, which precipitated the transformation entailed by perestroika. The Soviet bloc was a relatively independent autonomous economic entity.
A critical component in the globalization of capitalism is the interpenetration of companies between nation-states – the rise of international corporations. For globalization to be a component part of the former state socialist economies in any significant way, one would expect to find the presence of global companies. Studies of developments before 1985, however, show that inflows and outflows of investment capital were not very significant on a world scale.
Outward investment from the state socialist countries went to the advanced capitalist nations and to the Third World. It included the setting up of offices of companies abroad (such as Aeroflot and Moscow Narodny Bank) which were registered in the host states. Carl H. McMillan estimates that by 1983 some 500 companies in OECD countries had equity participation from state companies in the Council for Mutual Economic Assistance (Comecon/ CMEA) countries. But the scale of such investment was small: a total of $550 million in 1983, and more than half of this was capital in banks and financial companies.
The Third World accounted for approximately a third of outward investment which was directed to resource exploitation and was in small local companies. Even relatively medium sized transnational corporations (TNCs) like Pepsi Cola – 55th in world rank – had a greater share in the world stock of foreign investment than did all the state socialist countries combined. In 1985, the socialist countries (excluding China) accounted for only between 0.1 and 0.2 percent of the world stock of foreign direct investment, whereas IBM alone had 3.32 percent. Moreover, one must take into account the political factor. The socialist economic corporations were controlled by the home governments; they did not operate with the freedom of capitalist firms and they exerted little pressure over governments. Essentially (and what is missed by many world system theorists), economic coordination was bureaucratic in nature – not performed through markets.
Direct foreign investment into the socialist states was relatively low before the mid-1980s. The loans mentioned above were the financial side to the growth of East–West trade agreements which enabled the exchange of licenses and designs and coproduction ventures (usually Western firms providing key components). But there were few transnational corporations in the socialist countries. Until 1975, only five joint ventures had been established between enterprises in the Comecon countries and the West.
However, there were already important differences between the socialist countries. Poland and Hungary had small but significant Western investments from the 1970s. By 1986, Hungary had given enterprises the right – with relatively few restrictions – to engage in foreign trade. The object of the reforms was "... a fuller integration of the national economy in the world economy." In Poland 695 foreign enterprises were in operation by 1986. They were, however, a relatively small contribution to the economy; such enterprises accounted for about 1 percent of sales even in 1987 and employment was only 0.4 percent of the total.
In the USSR, strong controls were exercised over foreign companies; some (such as Pepsi Cola and Fiat) were given licenses to produce under government control and there were limitations on the foreign owners. Only in the mid-1980s did the government encourage foreign direct investment (FDI), and under Gorbachev, liberalization of trade took place, special areas of joint entrepreneurship were established and free economic zones were set up – though they were not very successful.
Moreover, they were not dependent on the world capitalist system in the same way as were Latin American countries which had a long and continuous history of European and American investment (as well as their own indigenous entrepreneurs and land owners). The state socialist semi-periphery was a relatively independent autonomous economic entity not closely linked to – let alone integrated into – the world economic system. Superstructural institutions (such as ideology and a dominant communist party) are beyond the scope of this chapter, but they too were not supportive of capitalistic market forms of accumulation. The centrally directed system, which operated on a country level as well as regionally through Comecon, greatly limited the extent of interaction with the world capitalist economy. Hence, the context in which capital accumulation occurred was quite different from that of modern capitalism. A qualitative shock, a transformation, was required to push the state socialist societies into the world system. This came with the reform program of Gorbachev.
Gorbachev recognized the importance of the world economy. "The world economy is a single organism, and no state, whatever its social system or economic status, can normally develop outside of it ... This places on the agenda the need [for] ... a new structure of the international division of labor." Exclusion from the global economy, Gorbachev contended, had a detrimental effect on the development of the USSR and the socialist bloc. He had no doubts that the USSR should (and would) join the core nations of capitalism, returning to its European home.
The Consequences of Reform: The Shift to a Global Economy
After 1989, the move to markets and private property strongly impacted on the shape of foreign trade, foreign investment and the place of the postcommunist countries in the world global order. The global dimension of change is usually regarded positively as part of the victory of liberalism and democracy. In this perspective, globalization empowers people through the development of wealth, communications (travel, networks) and culture. Others contest this judgment and contend that globalization has negative connotations. Global corporations and political organizations disempower individuals and weaken the responsibility of states because the processes of government – previously answerable to polyarchic interests – have been superseded by global (and nonaccountable) decision making by transnational organizations. Asymmetric relationships develop between the core industrialized and militarized countries and the periphery.
The reformed Central and Eastern European countries (CEECs) of the former socialist bloc have joined the world economic system through their membership of the European Union (EU). In doing so, they have become absorbed into the economic mechanisms dominated by the hegemonic old member states of the EU. The countries of the CIS, while moving towards the world economic system, have remained in many respects in the semi- periphery. They now share some of the economic features of the Latin American countries. Putin, Medvedev and others claim that Russia has not only survived, but is now sufficiently strong to be considered as one of the world's leading states and economies. I will argue below that, on the contrary, Russia's power (unlike that of China) has declined and the economy has inherent weaknesses which preclude it from becoming a major world power – at least in the foreseeable future.
Following the collapse of Comecon and the opening of markets to the West, capital flowed to the former state socialist societies. However, in comparison with advanced countries of the West, such flows were relatively small. As the amount of FDI can vary greatly from year to year, reflecting foreign purchases or investments of a "one off" nature, the European Bank for Reconstruction and Development (EBRD) has aggregated the inflows over the period of transformation (1989 to 2005). The average for the CEECs was $2,714 per capita; for the Czech Republic the sum came to $5,000. For the CIS states, the average was only $643 per head. The FDI stock in 2006 for Russia came to $197.6 billion – by comparison, for China it was $292.6 billion; this places Russia just above Ireland which had a stock of $179.0 billion, and China is just below Italy which had $294.8 billion. Western European countries are in a different league: the comparable figure for Germany is $502.3 billion and UK $1,135.3 billion. These figures represent purchases of assets in the host countries as well as capital investments in private companies. To what extent then, did the privatization of companies in the postsocialist countries lead to the growth of corporations having a world ranking?
The economic power of capitalist companies is evaluated in two ways: by measuring their revenue and by their market valuation. On the basis of these measures, the postsocialist countries have very low rankings. Fortune magazine publishes a list which is based on revenue. This list has the advantage of including 500 companies not quoted on the stock exchange (and therefore having no market valuation). In the July 2008 edition (data for March 2008) of the Fortune 500 top global companies, the United States has 153 companies followed by Japan with 64; France (38) and Germany (39) were also significant and in Latin America, there were just 10 companies divided equally between Mexico and Brazil. The only postsocialist country to have any significant number of companies is China with 29. Russia had only five, four in the energy sector and one bank; the postcommunist countries in the EU had only one representative: Poland with one company. The total revenue and profits of these companies is relatively small in comparison to the top Western corporations. Gazprom – the highest postcommunist earner – had a smaller profit than Exxon Mobil, though a much higher proportion of its revenues, in 2008.
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Table of ContentsList of Tables and Figures; Introduction – Renato Boschi and Carlos Henrique Santana; PART I DEVELOPMENT, MACROECONOMIC POLICIES AND VARIETIES OF CAPITALISM; Chapter 1. Postsocialist States in the System of Global Capitalism: A Comparative Perspective – David Lane; Chapter 2. Politics and Development: Lessons from Latin America – Renato Boschi and Flavio Gaitán; Chapter 3. Managing the Faustian Bargain: Monetary Autonomy in the Pursuit of Development in Eastern Europe and Latin America – Joseph Nathan Cohen; Chapter 4. Development and Dependency, Developmentalism and Alternatives – José Maurício Domingues; PART II POLITICAL CULTURE, IDENTITY POLITICS AND POLITICAL CONTENTION; Chapter 5. Indigenous Movements in Bolivia, Ecuador and Peru – Xavier Albó; Chapter 6. Path Dependence versus Adaptation in Estonian Ethnopolitics – Raivo Vetik; Chapter 7. Integration Parliaments in Europe and Latin America: Explaining Variations – Juliana Erthal; PART III IDEAS AND THE ROLE OF ELITES AND ADVOCACY NETWORKS: TRANSLATING AND LEGITIMATING THE FRONTIERS OF INSTITUTIONAL REFORMS; Chapter 8. Marketing Professional Expertise by (Re)Inventing States: Professional Rivalries between Lawyers and Economists as Hegemonic Strategies in the International Market for the Reproduction of National State Elites – Yves Dezalay and Bryant Garth; Chapter 9. Identity, Policy Preferences and the Perception of the European Integration Process among the Hungarian Elites – György Lengyel and Borbála Göncz; Chapter 10. Critical Junctures, Institutional Legacies and Epistemic Communities: A Development Agenda in Brazil – Carlos Henrique Santana; PART IV ECONOMIC REFORMS, PUBLIC POLICIES AND DEVELOPMENT; Chapter 11. Development and Citizenship in the Semi-periphery: Reflecting on the Brazilian Experience – Krista Lillemets; Chapter 12. The Periphery Paradox in Innovation Policy: Latin America and Eastern Europe Compared – Rainer Kattel and Annalisa Primi; Chapter 13. The Lula Government and the Social Democratic Experience in Brazil – Fabiano Santos
What People are Saying About This
“Of the emerging economies, those of Latin America and Eastern Europe receive less attention than China and India. This important volume will contribute to changing this situation. From a global comparative perspective, it sheds light on economic development and on political and politico-cultural changes over the last twenty years, and offers discussion of theoretical issues.” —Dr Uwe Becker, University of Amsterdam
“This volume revives the debates in comparative political economy concerning East European and Latin American transformations. Much can be learned from the diverse experiences of peripherality, development, and the different patterns of insertion into the flows of global capitalism. Bringing together a wide range of disciplinary perspectives, the collection discusses the topics of macroeconomic transformations, state capacity and policies of development, the role of the elites and the diffusion of ideas, and cultural and identity politics.” —Dr Jan Drahokoupil, University of Mannheim