Economic nationalism and the OPEC offensive

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UNITED NATIONS

.AFRIC.AN ll1STITUTE FOR ..ECONOMie DEVELOPMENT .AND PLANNING

DAKAR

ECONOMIC NAT!ON.ALISM AND TNE OPEC OFFENSIVE

By Norman GIRVAN

A paper prepared for Daedalus, Fall

1975.

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APRIL 1975

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ECONOMIC NATIONALISM AND THE OPEC OFFENSIVE

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The OPEC offensive of

1970-73

was a long time in the making. For Îts roots did not lie ₉ ul tirria tely, in tbe forma ti on. of the Organisa ti on of Petroleum Exporting Countries in

1960;

nor even in the Arao Petro- leum Congresses or the discussions on oil policy carried out within_

the fram~work of the Arab League from the la te 19409~

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The OPEC offen- sive wss a direct response to the unequal structur.e .of power .. relations i~ the contemporary world capitalist system. It formed what is so far the mo~t con~rete and dramatic manifestation of a ID9re. gene.r;al. .phenomenon in contemporary international politico-economic relations: .the pbeno- menon of Tbird World economie nationalisni. It repref:i_e_nts the vanguard of a movo'inent by which ·states in the Third Horld- or m9re precisely, the classes which control these states -are seeking·to reqefine their role in the world economie system and especially, to .assert greater equality in the ir rela tians wi tb tœ centres of power in that system. Renee we.propose to treat the OPEC offensive as sometbing wh~qh should not oe analyzed exblusively- or even mainly ~- within the framework

of

the international oil industry, but rather as a phenomenoR whicb must be analyzed within the oontext of the pattern of domination-dependenoy re-

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lationships charaoteristic of the contemporary world system and the tens·ions·, reactions and conflicts genel'ated by that pattern.

Wha t >-Tas unusual about the OPEC ac ti on? Why did i t genera te suob profound tensions and why bas the issue of OPEC behaviour oecome one of the most important items on the international agenda? Surely not oeoause the OPEC actions were₉ in themselves, uniq'ue or unpreoendented.

Cartels, cartel-like behaviour and acùninistered pricing are nothing ne"' to modern capi talism. 'Nor is the use of trade emoargoes an unusual

political weapon in modern international relations, -as e.;,eryCuoan knows.

To oe .. SU!e, oil is a vital commodi ty, and OPEC quadrup1ed the priee;

but grain is even more vital to the world¹s population, and the priee also quadrupled after the poor harvest of

1972-73,

prooably contributing more to the world inflationary process than oil. What was unusual and

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un.preeedented about the OPEC action was that it was tak~n byn group of

· Third ·Wor].d .pr·imary-exporting countries,' which for the first time in

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modern bistory succeed,ed in securing _market power in the world trade in the ir export commodi ty and used this power tô imp'ose a substantial improvement in their terms-of-trade wi th the industrializad West. Thus i t rudely disrupted the

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.established pattern of Center-Periphery power ^. relations characteristie of the economie relationshfps between the developed countries the Third World. Wlfat is more it serves-as an

inspiration; a lever, and possibly a financial base, for similar attemp·.s

by other Third World primary-exporting countries to secure market

power in the wor;Ld. trade . in other commodi ties. One journal paraphrases Che Guevara in speaking of the objective of creating "One, two, many OPECsu1. a prominent U.

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economist warns of "The Threat from the Thircl World" and points.· to the attempts to form producèr cartèis in bauxite, phosphate, copper, tin, coffee, bananas, iron ore and mercury; and

the potential for similar action over timber, r~bber, ·nickel, tungsten₉ cobalt, .tantalum, pepper and. quinine!2

Nlr does Third World economie nationalism stop .at atternpts to control the primary-product priees upon ·whieh depend the exp'ort ineomos and through that, the economie livelihood of these countries. Action

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on .Priees is seen as only one cornponent of a general strategy of securir.'g control over marketing and ul'timately production in the n~tural-resourcE:: • industries which sustain Third World economies. State participation in in ownership- whether the percentage of equity held is 20, 51, 60 or 100 -bas i'n the. space of the last few years become the order of the day for these industries in the Third World. National economie sovereignty, in short, is seen às inseparable from the objective of

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greater equality in international economie power-relation~. An out- grov.rth of this is the development of direèt government-to-government

joint ventures in basic industry among a number of Third :Vlorld countries

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in which the participating states provide capital, infrastructure and raw rnaterials. . Th us economie coopera ti on among Third World countries accornpanies sta te .involvernent in re source industries and the a tternpts to secure rna~ket power in the international trade in primary products.

Formally, the analysis₉ ideology and objectives of Third World economie nationalism were crystalized in the resolutions adopted at the Algeirs non-aligned sumrnit in September 1973 and the declaration of principles for a New International Economie Orcier adopted at the United Nations Special Session on Raw Materials in May 1974; events vThich rnarked a high point .of unanirni ty of stance by Third World governrnents and which formed an important part of the international political context within which the OPEC offensive took place.

In this paper we propose to identify the principal characteristics of the Center-Periphery system of power relations₉ to specify the naturG of the response by the ~ripbery which we have characterized as Third World

economie nationalism, aqd to analyze the OPEC offensive as an expression

.of that response. A final section offers sorne tentative interpretations

aoout the way in which the traditional system is ,being modified by the interplay of action, response and reaction initiated (from the analyti- cally restricted point of view) by the OPEC offensive.

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CENTER-PERIPHERY RELATIONS AND THE HORLD SYSTEM

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Even as political decolonization was taking place in the aftermath of the second world war, an international order was being consolidated in the non-communist world marked by profound - and growing - inequali- ties. At one pole of the system stood the. ~~ited States, closely follov;od by 1-lestern Europe and Japan, the centers of advanced indus trial capi ta- lism, characterized by sustained economie growth and technological pro- gress, near-full employment, structurally transfo:r:med and flexible

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economie system, and a considerable degree of international economie, financial and military power. At the. other pole lay the periphery of the international capi talist syste·m - the so-called ¹ underdeveloped coo/ltries', ¹developing nations' or ¹Third World^{1 -} containing the majority of nations and peoples of the world, characterized by under- . developed and dependent economie systems and vii th the mass ·of the ir

populations living under wretched conditions at or below the subsis- tance level. The two poles of the system were (and are) linked

organically by a complex of relationships marked by profound inequali- ties in the international diviSion of labour anJ. in the international

. 3 distribtuion of incarne.

If it is true that the contemporary forms of development/under- deyelopment, domination/dependance and center/periphary >-<ere consolidç,-- ted in the aftermath of tbu soconû. worl i war~ it is also true that these forms represent merely the hi.tést expression of a system which bas been evolving over the better part of the last five hundred years. In a sense, the seeds of the present world system were sown towards the end of the fifteenth century vrhen, in estern Europe, the Gmbryo of a commercial capitalism began to be formed within the womb of the old feudal order and, in association with this, the European maritime nations made the ¹discoveries¹ of America and of the sea-route to the East. The centuries which follovred were disastrous for the vast

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• maj ori ty of non-European peoples: they viere visi ted by massacre, pillaj;0, systematic e:x:tradtion ·and transferof surplu::;~ .. :S~.?.v:ery and forced labour, and finally the f6rcible reorienation of their socio-economic systems around the production. of goods .to sa tisfy tbe .requiremonts of the ex- ternal market; In short, these .countries began a transition from un- development to underdevelopment, from autonomy to dependance. 4 _{I t ,,ms} as if Europe, in emerging from i~_s .Dark Ages, was cLetermined to push thé rest of the vrorld into a Dark .Ages of i ts. 01-m in order to facili tECto the process.

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.This ma~ or may not have been the conscious intention; but it was

unquestionably _, the consequence of European economie _{. ·,} and politicai ex- pansionism. Naturally the specifie forms and effect.s ch~mged over time, as i ts objectives progressed from primitive plun_der _ t~ more

sophisticated commercial and then industrial exploi~ation •. In ·the 16th

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century the bustling and creative civilizations of highland America were smashed; their autonoroy was forever lost and. a process of s ocio- economic reorganiza ti on .'l'l'as init ia ted to subject' the mass· of the inJ.i- genous population to exploitation by a lanied ruling class which was numerically small but socially powerful, in the interests of external and iriternal colo.nization. From -~he 17th to the 19th •centuries the lowland areas of tropical America - North, South and Central - were incorporated into the .infamous plantation system, under which millions of Cél;ptives from the AfricEm ~.ontinent were forcibly carried _across the Atlantic an.d subjected to a system of cbattel slavery to provide the labour-power for the large-soale production of agricultural staples for sale in the European metropoles: a system which generated buge pro- fits for the European planters and more especially for the merchant class 1.;hich . financed produc tian and trade and organized the market. In Ùè 18th and 19th centuries i t was the turn of the Indian subcontinent, 'whose 'slili:-piJ..uses were E!Yste~_?-tically drained to help finance the British

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Industrial Revolution and whose traditional textiles industry vras deli- berately destroyed .to facilitate tbè ·grov;th of British industry. As th0

industrial revolution spread from Britain to '1-Testern Europe and thon -tb :the. United States and Japan, these countries used their rapidly-

growing economie and military power to carve up the rest of the world between them and to assign to such areas what was ta become their

characteris.tic roles in the errierging international order: that of

providing cheap raw materials for the f~ctories ^{of the} iridustrial-center oountries and cheap food for thoir,.r'nctory workers. By the enû. of the

· · j 9th century the development/1inderdevèlopment diobotomy of, the world economie system bad been clearly established ancl.the countries in whnt

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bad now become the underdeveloped periphery of world capitalism bad in nost cases cômpleted a process of profound reorienting of their socio-

economic systems to adapt to the needs of the center-countries as

expressed in the external market: a process which necessarily involved the subjection of the mass of their populations to the role of provider3 of cheap labour used directly or indirectly by the export industry.

It is hardly surprising that' the development of such a system bas been marked by tremendous tensions and continuing conflict. Wars by

the peoples of the emerging centres upon the peoples of the .submerging periphery, rivalries among the colonial'and imperial powers, anti-colo- nial and anti-imperialist struggle~ and ~ocialist revoluti6n in the periphery, have been sorne of the most frequent forms of cont'lict geno- rated by the nature and dynamics of the system itself. · Indeed it can fairly be said that in the 20th wentury~ marked as it bas been by two great wars among the dominant capitalist powers, socialist revolution in countries containing a largë slice of the land area and the popula- tion of the globe, and the anti-colonial revolution over most of Africa and a large part of Asia, capitalism as an economie system and imperia- lism as a means of structuring international politico-economic relations have been largely on the defensive. Nonetheless on the aftermath of the second world war it seemed that

a

relative stability bad been achieved, based on de facto acceptance of Soviet, East European and Cbinese socialism, poli tical decolonization over most of the' colonial world,' and American dominance in the· international capitalist order.

But this apparent stability- l3ometimes oalled the Pax Americana - only served to conceal certain fundam~ntal unresolv~d contradictions, just as in the 19th century the Pax BritEmnica became the prelude. to the most awful conflict the vJorld bad yet experienced. _, '

One contradiction was form;d by the challenge of the socialist states to the politico-economic hegemony of the capitalist powers and the geo-political tensions generated as a result by socialist

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revolutions in countries which otbe:nvise migbt bave been consillered unimportant in themselves, sucb as Cuba and Vietnam. Ano.ther contra-

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dictions, wbicb surfaced in the 1960·s, was formed by the _challenge by

"1-Testern Europe and Japan to U. S. economie and finan .. ial pre-eminence in the capi talist bloc - us ing as a sbield, ironica~~y enough, the very military pre-eminence of the United ~ta tes .a.I.'ound the world. Eut the contradiction of whicb the OPEC offensive __ _vras oply an expression came, generally, from another source, the. ~eb~llion by Third 1--!orld countries against the· inherent inequali t ies to whic.h . they were subjec- ted by the terms of their participation in the internat.~onal capitalist Ôrder and which the process of political decolonization bad done

little~ if anything at all₉ to correct •.

The f irst - and fundamental .- inequali ty l ies in the unequal degree of development of the productive forces as between the center and periphery of the international capitalist system• This is expressei in the f,orm of an international division of labour in which the bulk C)f, t];l.~ .t..;i.gh-prod~ctivi ty. and high-inco-me activi ties, especially manu;...

facturing, are located in the ce.nter-countries 1-rhile the bulk of low- productivity and· low income activities especially primary production, are located in the periphery. The unequai ·international division of labour is not hov1ever synonymous wi th specialization in manuf ac turing by the center-countries and in primary productio,n

py

tl}e periphery, for

the developed countries in fact account for a .considerable share of world output in primary products and manufact~ing industry bas spread

to a significant degree to many countries in the periphery. What is notable is that primary productiop in tb~ center-countries yield rela- tively high income.s to tb()3e engaged in i t ₉ wh ile such manufacturing activi ties as take place in. the periphery yield re la tively lo-vr incarnes

to the ir vTorkers: :thi.s phenomenpn, bas given :r;ise to the the ory of Un- egual Exchange, which purports to demonstrate and to explain lower rates of remuneration to workers in the peripbery as compared to the center for equal levels of labour productivity.5 In

additi~n

^{to the unequal}

international division of labour and unoqual exchange, unequal develop- ment is also expressed in the form of qualitative differences in the

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degree of autonomy and the orientation of the economie systems

characteristic of the two groups of countries. In the center-countries₉ the process of economie, growth and capital accumulation bas in large measure been internalized and. is therefore self -sus taiping; i t is

motivated largely by the production of consumers' goods used by the mass of the population and is oharacterized by strong organic links between the consumer-goods produoing sector and the capital-goods proùucing sec tor. It is otherwise in the typical peripheral economy, v.rhich is motivated principally by the production of export commoclities for con- sumption in the center and of import-substitutes for consumption by the elite groups in the society, where there is in most cases virtually no capital-goods production and also few organic links botween export industry and manufacturing production, and vlhere as a re sul t the main commodity circuits are olosed only at the level of the world system and through integration w-ith the center-countries.6

Renee the countries

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o~ the periphery tend to be characterized by the association of external

_depende~cy, structural unclerdevelopment, and poverty for the rnass of

the popula tian; wh ile self- sustaining growth, structural interdepen.lence and diversification, and steadily rising living standards for the mass of the population, tend tci be characteristic of tho central economies.

The post-war answer to this problem formulated by the developed countries was a sét of attitudes, policies and me as ures for the under-.

developed countries which may be referred to as 'International Develop- mentalism1. The underlying assumption was that underdevelopment was ~ue

to deficiencies in capital supply, skilled mçmpower, technology, anù economie infrastructure, and to the backwardness of socio-economic institutions? and that development could therefore be initiated by in- cre·asing the supply 'of the critioal but scarce resources and by insti- tutional ¹ modernization' ~ . Acoordingly, polieies and me as ures were adopte'd. to prorriot'e ·the flow of capital to .the underdeveloped countries in the form of economie 'a id' and priva te

i~v ~~ tm~nt,

to train manpo1-rer!

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and to develop trarisport 1' communications .and educational systems and so on. At first, International Developmentalism was enthusiastically accepted by governnients in the Third Horld: partly bocause they genuinely believ~d in it, partly because thei~_weak positiori in the international system left them l i t t le choice but to accept, partly because it corresponded to the interests of the elites which controlled these governments in self-expansion and in adopting the western way of l ife. But by the er:d ôf the 1960s, after t\yo decades of use, i t was be- coming increasingly c_lear . that the package of poli tical decolonization and Iri'terna tional Devel opmentalism was >-<earing , thin. The gap in income s between the rich and t he poor countries continued to widen rather

than to narrovr: thus in the 1950-68 period per capita gross domostic product grew at an annual average of 2.5% in the underdeveloped coun- tries compared to 3. 3% in the developed vlOrld, 7 and since ·the rich

countries were st~rting from a much higher base the absolute differences in income were getting larger eve,ry year. According to one estimate the. 7afo of the world' s population .found in the underdeveloped coun- tries enjoyed only

17%

of w orld income in 1963; this declined to around .157 by thE: end of the decade, and al l _indications pointed to a probable continuation of the trend.

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The failure of International Developmental ism also found expression in the emergenc;a_ of endemie crisis in the inté·r~a tional economie rela- tions of the pnderdevel~ped countries. By any one of a number of indi- cators in this area, .the Third \rJorld continuei:l to come a very poor .third in the world. Its share in world tradè was ~nbt only low but de- clining: from.21.3% in 1960 for example, the share fel l to 17.6% in

1970 ~

^{9 this was also matched by falls in the} Third World¹s sbare in international direct investment. 10

The fact vras tba t international

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economie relations among the capitalist centers and bètwéen them and tbe socialist count:ries were gro-vring mucb faster than those bet-vreen tbese two blocs and tbe underdeveloped countries: the Tbird. v·forld. 1·:2,s, in a sense, becoming 'marginalised' so far as tbe d.evel6ped countries

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were concerned. But at the 'same time this was not matched by a corres- :ponding fall in the external dependency of the Third Horld and a gro~r.;th

in internal self-reliance ei ther >li thin or oetween these countries: on the contrary, the ir trade wi th the develo:ped countries was grm~ing

fas ter than the ir trade wi th each · other, and external dependency 1vas oeing intensified rather than transcended. In effect₉ a nev-: vicious circle of dependency was oeing established, consi·sting rougbly of the following sequence. First₉ the strateé,ies of International Develop- mentalism placed grGat emphasis on the importation of i~:puts from the develo:ped world, which in turn meant a high priority assigned to the generation of foreign exchange and therefore to export expansion, But at the same time as the underdeveloped countries sought to increase experts they encountered a persistent decline in their te.rms of trade wi th the developed countries: th us according to UNCTAil es;tima tes the net oarter terms of trade of the underdeveloped countries declined -by 12% oetween 1954 and 1970,¹¹ a:rd the lasses resulting

f ro~

such de- clines amounted to $10 billion for these·countries in the :periocl 1960-72.12

Thus the growing demand for imports and increased payments for technology etc. were juxtaposed with a slow growth of experts and a secular decline in export priees relative to import :priees: the in- evi tab:le re sul t was persistent and grovïing balance of payments de- ficits. Such deficits were, willy-nilly, financed by a growth of

·external indebtedness; largely as a result, the extern~l debt of the underd,eveloped countries quadrupled during the 1;960s, and amountecl to "

the starting figure of $80 "billion at t he end of 1973.13 But this solution only exacerbated the problem, for the need to pay interest and principal on the.rapiJly growing debt soon bedame one of the chief motives for new oorrowing: the vicious circle was thereby intensified. By 1969 interest and profits payments alone on the external :public and :private deot of t he Third World was absoroing sorne 15% of their total export receipts and over one-half of new capital inflows to these countries. 14

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Ey the turn of the 1960 decade the crisis in the post-war de- velopment mode-{

;:fi~r-~_cf ~o ·_~t:h e·

ThTrd w·orid

wa~· --becoming

increasingly evident. Governments were eneountering severe and growing difficulties in meeting tbeir external payments obligations anQ tbeir targets for investment and economie growth. The~ currencies were depreciating, runaway inflation bad for many become endemie, and unemployment was growing. In stark buman terms, the situation was apalling: the non- aligned countries declared at tbeir September 1973 meeting in Algers tbat:

"Of the 2, 600 million inh.abi~ants of the deve1oping v-rorld, 800 millioN are illiterate, almost 1,000 million are suf- fering from malnutritiotl or hunger₉ and 900 million bave a daily incarne of·less than 30 U.S. centsn. 15

Populations, fed for a generation on the expectations of International Developmentalism and the promises of political independence, were bE:-

coming restless. Governments were coming under increasing pressure. Like it or not, most of them now bad little choice but to question

the assumptions on wbicb the post-war interna tiortal economie order bç:td been based and the attictudes and bebaviour patterns tbat "l'rent along . witb it. The stage was being set for new initiatives and a nei'r

assertiveness on the part of the Th.ird Worid •

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THIRD WORLD ECONOf/;Ic NATIONALISM: GLASS FORMATION, CLASS ::BEHAVIOUR AND ECONOMTC CONJUNTURE

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analysis of Third World economie nationalism which is cast in 'purely ¹ economie ¹ .terms is necessarily incomplete and ul tima tely misleading. The actions of Third World governments can dnly be more properly understood in terms of the behaviour of the classes and social groups which control the se states, the ir re la tians v-ri th other classes - and groups wi thin the ir own countries and ~-ri th the governments of the developed countries and the managers of the large multinational cor- porations which do business in the Third World. Any generalization for the Third World as a world, such as tha t which follows, must of necessity do violence to reality and have limited applicability to

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any specifie case. Nonetheless it can be asserted as a general princi- ple tha t, in ,the same vmy as the impact of the central ca pi talist coun- tries on the pre-capitalist w9rld was to generate an economie structure characterized by dependent underdevelopment·, i t also re sul ted in a characteristic pattern of class formation associated with that struc-

ture~

^{16 Typically,. the mass of the population was reduced and/or main-}

tained in the status of low-income rural and urban· ·workers ( inclucling 'own-account·' workers such as peasants and artisans) with a consider- able degree of unclereEJployment or open unemployment~ this vms the condition that ensured their supply of cheap and abundant labour to ~

the export sector and later on, to the sector producing import-substi- tutes for the local elite. The local elite or ruling class consiste~

mainly of three distinct groups, at least in the first instance: a landowning class, exploiting the cheap labour of the rural workers for the production of cash-crops for export to the center; an urban commercial bourgeoisie, organizing the export-import trade with the center; and an embryonic bureaucratie bourgeoisie or petty-bourgeoisie associated with the state apparatus. Later - mainly in the post- second-world-war period - the bureaucratie bourgeoisie will assume grov1ing importance and will be joined in sorne countries by an

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irtdustrial bourgeoisie. allietl 1~ith the mul tin,ational corporations producing irnport-substi tut es for the local eli·te, i.e. the class which correspon.ds to the process of dependent industrializa tian.

Up until tho yea.rs just after the second world war most of 1\.frica and Asia was under direct or Je facto ·colonial rule; governrnents irere

thus in the direct service of central capitalism and there wes no question of the assertion of economie nationalism ·itr t·he interests of the developed countries. :But - except where nat:i!onal liberation was the result of a deep popular revolutionary process₉ as in China - the initial period after political decolonization was marked by the more- or-less acquiescence of the new regimes to the international economie order and the terms of International Developrnentalism. In many of .tbese regimes the landowing classes and the urban commercial

-bourgeoisiewere important members of tpe dominant class alliance, and both these groups perceived their interests to lie with the expansion of the external market nnd accommodation to international capital and the center-countries. The embryonic bureaucratie bourgeoisie 2.nd the :populist leadership, for their part, were in most cases toc weak or too lacking in experience and self-confidence to confront the lienter-countries and international capital, especially as this might bave meant defying the other memb.ers of the ruling class alliance as well. Nonetheless recent events show that the acquiescence of

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the local bourgeoisie to the terms more-or-less imposed by the

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center is not necessarily .stable or .durable. On the contrary whero the local bourgeoisie p~rceives ·a configuration of international and dornes tic circumstances whicb allow i t .to sec ure grea ter independance and increased financial resources from .the center, there is every reas on for i t to take _ a,dyantage: of sucb oyportuni ties. This is partly because the increased financial. floHs provide the rnaterial resources for the local bourgeoisie to ex:pand itself and to at,tempt to develop its internal material base, especially through ^{industrialization~} and also because the a,ssertion of economie nationalism is a useful iQeologi- cal instrument for the politioal mobilization of the mass of the popula- tion in support of the local bourgeoisie in i ts 'strùggle against in:-

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porialist:J! Tht:-- circu. stances for n successful assertion of such ecooornic nationalism are provided VJhen (i) the nation-state possesses p01•T8r- ful sources of leverage over the center, such as the supply of cri- tical raw materials i~ short supply, and (ii) the local bourgeoisie, especially that section of i t consisting of technical and professional cadres employed in the stnte apparntus, bas developed the size,

sophistication and skills necessêry to perceive and take advantage of · the opportunities.

The process in the oil-exporting countries and tho OPEC offen- sive representa perhaps the clearest and most successful expression

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of this development so f ar. But historically, attempts in a similar di- rection are not by any means limi ted to the oil-exporting co un tries in scope or to the early 1970s in time. Conflicts between Third 1-lorld states and foreign companies involved in t.heir na tural-resource in- dustries v.rere evident as long as 1937/38, whcn expro.priations of U.S.-owned oil companies took place in J3olivia and Mexico. In the copper and bauxite as well as in the oil 'industri.es company-country disputes >·rere frequent and. common in the ~hddle East, Latin America and Africa throughout the 1950s and 1960s. Conflicts and disputes tended to crystallize around a number of fairly well-~efined issues common to all the countries and the industries, al though the rela- tive importance of each issue na turally varies from. case to case. 17 The issues of the pricing of output and the taxation 9f company pro- ~

fits have for obvious reasons been among the most contentious, since they affect the level and rate of growth of government reven~es from~

the industry

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through that the size and rate of growth of the state bureaucracy, of the government¹s capital expenùitures, and of the state's pay-outs to tho private sector and politically favoured groups in the population, Ultimatelypricing¹ taxation issues relate to the split between the state and the multinational corporation of the economie rents generated by tho industry. The. ;revenue question also forms part of another contentious issue: that of the net foreign eEhange contribution to 'the national economy of the companies in the

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industry. J3ecause of the importance of ~be foreign excbange constraint in the development strategies_ of most underdeyeloped countries the foreign exchange issue can be come as mucb' as or more important tban the

. t_ . . 1 ' 1

revenue issue proper in ,specific cases. Since the rate of reinvest- ment by the companies and tb,e ra te of expansion wi thin the country

that they decide to undertake affect the rate of growth of revenue and foreign exahange receipts from the industry, these factors often also become points of country-company dispute. Yet another issue arises out of the strategie importance of petroleum and mineral raw materials as industrial inputs - i.e. oil as a source of energy and petrocbémical feedstock and copper₅ bauxite and iron ore as metallur- gical materials. Government objectives of using such resources as the basis for a domestic industrialization ef~o.rt rpay conflict wi th company strategies of using them as t.he. ,basis of .vertically-integrated processing facilities in the rest of the world an~ especially in the center-countries where the companies .are based. Similar conflicts may arise in connection with the purchasing policies of the companie-s, where the. government wishes to use the input demand generated by the

·industry as the basis of backward linkaéSes wi tb in the irrdus trial sec tor.

More generally, country-company tensions arise as a result of the foreign-owned natural-resource industry¹s existence as an enclave,

pbysically, socially and economic~lly isolated from the national society, engaging in discriminatory or culturally alien practices in relation to nationals, and seeking to place itself above and beyond the reach of national jurisdiction and to defy or ignorethe policies of the gove:rmment. Tbese issues belp explain wby country-comparty conflicts often resolve tbemselves ultimately, in the eyes of tb~ government, into tbe issue of national sovereignty; and ~by policies ·of nationali- zation of natural-resource industries bave become so widespread in tbe Tbird World.

.·

R-2ô9ê3 P~ge 16.

The reCent explosion of economie nationalism il? not .therefore d~e so much to the absence of fundamental confliets of interest be- tWeen countriê·s and companies in the past as to the absence of condi-

. tions whièh allowed these c'onflicts to be openly e:x:press,eQ. and. to

be re sol ved iaore successfully from the point of vielr of: the countrios. Up until the early 1960s

a '

^{large part of the Thi!rd .World was still}

under colonial rule; and even among the formally independent states, such as those of Latin AmcricR~ the balance of power was tilted heavily in faveur of the multinational corporations and the center- countries. A state whic-h expropriated a multinational firm, for example, could at the very least expect an economie blackade, as took place after the Mexi:can and Iranian oil nationalizations in 1938 and 1952 respectively; and in addition quite possibly a military in- -tervention, as happened in Gua tema la in 1954, Suez in .1956 and Cuba

in 1961. As well, production technology and marketing outlets in these industries were so tightly controlled by the companies as to make it difficult and costly for a state to attempt to defy them and operate à resource-based industry successfully~ Finally₉ the develop- ment of a sizeable and sophisticated bi.lreaucratic class. in these coun-- tries was not so well-advanced as i t· is tod0.y; and the disillusionment with Internntional Developmentalism emong various classes in Third World countries had not yet ripened.

..

"'

Much of this was changing tol<ards the end of the 1960s. The growing importance of the socialist countries, and the riso of Third World influence in the United Nations_Organization₉ helped to change the international climate in a direction favourable to the assertion of economie nationalism and especially the iden .of sovereignty over natural resources; this took place at th~ same time as the failures of International Developmentalism were becoming more and more evident •

..

More specif ically, certain concrete sources of addition~l leverage

•

were becoming available to Third v-rorld resource-exporting na tians. Fe stern

•

R-2698 Page

11·

Europe and Japan had emerged in tbeir own rigbt as economie pov1ers , . in tbe capi talist worlcl, and botb bad become heavily dependent on

;Lmportod oil and mineral raw materials from tbc 'l'hirel 1-lorlcl. Tbe growtb of tbe Soviet and Cbinese economies, though based to a far

· greater extent on self-sufficiency in raw materials, àlso introduced

additional potential competi tian for tbe resources of the Third I:Torld. Such developments tended to loosen the tigbt monopolistic control over prodùction technology anù,markct access' exeri:lised by tho multi-

....

national cor.porations, e specially the U. S. companios.. In addi tion₉ growing fears of long-term resource shortages, th,e rise of the con- se:tvationist ethnie, and actual shortages of cortain critical commodi- ties (sucb as ail in tbe early 1970s) tend~d to shif~tbe bal nee of ac tual or psychological aclvan tage in f avour of auppliers.

Another factor facilitating the apparent success of economie na- tionalism sinc_e tbe turn of the 1960 decade bas· be en tha t the mul ti- national_ corporations en~aged in resouroe industries have to a large extent learnt to live with it and even turn it to thcir advantage and profit. The development of company techniques of aooo~oodating

to economie nationalism bas to a considerable extent diluted their resistance to i t aml in certain cases led them even to welcome i t.

Country-cartels in rm; materials oan be used by tl::ü companiE:s as a justification for raising downstream priees and profit margins:

· there is sorne evidence or at least suspicion th~t this took place in î974 in the cases of petroleum, bauxite and

b anà ùa s~:1 S

^Government

participa tian in the o•, nership of these industries can be made pro- fitable to the companies, by negotiating favourable valuation ancl payment provisions₉ reduced taxation and foreign exchange burdons~

and remunerative contracts for tbe supply of managerial, marketing and technical services. Tbrougb sucb techniques the multinational corporation can retain actual control àver tho partially or fully nationalized enterprise, and secure the same or even increased cast-

R-2698

Page 18.

flows from it; while the Third. 'Horld. government rmd.ertakes the job of policing the labour force, provid.ing rouch of the capital, and.

assuming the market risks. Ey d.efusing the ownership question and incorporating the Third \-Torld state formally into the ind.ustry, the supply of raw materials to the companies and. to the center-countries can actually be maùe more reliable. In addition many of the com- panies concerned. are busily engaged in substantial diversification efforts - the oil companies now have. major interests in al ternat ive

..

energy sources, the copper companies .in aluminium and coo.l, and so on. Thus their profitability and. growth are rapiùly becoming less d.ependent on a particular resource -rriaterial or on their operations .in Third. vlorld countries.

Most, if not all, of these factors operated to facilitate the apparent sucoe'ss of economie na tionalism in the specifie case of the petroleum inJ.ustry and OPEC in the 1970-73 period. There was the politioal backing of the non-aligned movemen±, the heavy import de-

~endenoe of Western Europe and Japan, the fears of long-term inaJ.e- quacy of energy resources and the ~ctual shortages of oil, and tho weak resistance of the major multinational oil companies to the 0Pb0 olaims. To be sure, thero was rouch that 1-ras also unique to thL: case of oil and of OPEC: the fact that the levols of output, incarnes and employment in the developed countries are far more sensitive

to oil supplies than to supplies of any other industrial

..

material imported in large quantities from the Third 'Horld, tho

..

abi1ity of the OPEC countries to play off tho inùependent oil com- panies against the Majors, the role of Libya as a 'leader' in taking apparently enormous risks with the companies anJ. getting away with it,1

9 thereby showing the other countries what was possible, and tho special role of the 1973 Arab-Israeli war in provoking production out-backs and embargoes v<hich maJ.e it ev~::n more possible to impose priee increases. Indeed, wer~ tho case of OPEC and the petroleum industry not in sorne senses unique, it could hardly have constitutod

•

•

R-<::69 '

Pago î

9.

the most s:pectacular-of the successes of Third \Vorld economie

nationalism so far. Eut to stress.tbe uniqueness of the properties of the OPEC offensive to the exclusion of the co~textual ^{factors -} i.e. the disillusionment of the Thir<i Horld iÜ th the post-wcr inter- national economie order an~ tbeir rebellion against it - is to commit a serious errer of understanding vlhicb can only lead to mistaken prognostications about the future.

I I I

Towards A New Irrt erna tional Economie Order?

Is a new international economie order really in the making? Are i-Te in fact wi tnessing a structural sbift of intern'a tional o conomic power to the OPEC countries and possibly to other Tbird World ral.v- material producing nations, at the expense 'of the multinational cor- porations and the developed capi talist countries? vJhat of the

ether underdeveloped countries - should we now speDk of a ¹Fourth World', the countries without resources of oil or otber valuable mineral commodities, and wbose position bas allegedly boen worsened as a resul t of tho OPEC offensive? Tbese are sorne of the questions wbicb it seems relevant to take up in a concluding section, at the

irievitable risk of com~itting those errors of interpretation which arise out of proximi ty in time to tho 0vents. as they unfold.

To begin witb, the.durability of OPEC ¹s achievements in securing eff·ective market p01.ver in the international cr~de-oil trade is by no means certain. The special circumstances prevailing in tbe

1970-73

period, especially the ail shortages of

1973,

bad to a large extent disappeared by early

î 975,

when surpluses of supplies and capnci ty be.gnn to .appear. Inùeed, in this wri ter ¹ s opinion the OPEC countries would proh~bly regard themselves ~s having been on the defensive on the pricing question since the increases of

R-2698 Page 20.

December

1973,

and undoubtedly the decision of the Je.nuary

1975

OPEC meeting to freeze priees for the time beirig -implies a formal acceptance of a declining real priee for the producers ¹ o il, bec2.us e of continuing inflation in the "Hest. Moreover, the surpluses and excess capacity which began to appear in early

1975

are a reminder tbat OPEC bas yet to f&ce the crucial test of an effective cartel - i.e. the ability to secure unanimous agreement among the members on production cut-backs in order to maintain agreed priees. Ul tima_tely ^ôl the durabili ty of OPEC ¹ s market power vlill ùepencl on whether the in- dustrialized West will be able to eut their rate of growth of consur~p~

tion. of OPEC oil belüi"T the-m-i-nimum. rate of growth of production that the OPEC countries can tolerate₁ given their development objectives. In the short run the balance of advantage appears to be clearly on OPEC ¹ s side, but in the longer run the industrialized "Hest may ·Nell have more room to manoeuvre than OPEC because of the long-run

flexibility of their economie systems and tbeir possession of

~~vanced technology, wbich ioply the ability to economise on the gro1-d h of ebergy consumption D.nd to develop sources alternative ~o

oil.

If the lorig-run durability of OPEC ¹s achievements is in doubt, so rouch more so are the sbort-run possibilities of other raw-material exporting nations duplicatingOPEC¹s recent successes. Attempts so far to form effective cartels in otber strategie commodities. such a~ s copper; bauxite ·and iron ore, have not been particularly successful

•

, and the producers have yet to demonstrate that they can exorcise real

..

market power. This bas been partly because inelasticities of import demand by the industrialized "Hest are lower for sucb commodities than for oil as a result of the availability of substitutes• or of ùomestic production; partly be_. cause _. the proùucers bave not been able to sucure effective agreement o~ proùuction restraints during times of exccss supply; .and partly be cause of t be importance of developed countries such as Australia ~nd Canadn in the proùuction of sorne of these commodities.

•

R~2698 Po.ge 21,

· On the other hnnd, we shoulù not by any menns underestimate the determination of Tbird World nations t o· u.se to . the fullest ext0nt .wha tever l everage they may be a ble to mœre ise. in tho markets for

their export commodities, in order to .improve ··their terms of trade, secure incrensed bnrgaining power in the internatioru:tl .economie order, and mobilise financial surpluses for development. Anù vrh?.t- ever may be our doubts about tho long-term · du;r:ability of OPEC ¹ s tw.rket power, there is no question but that in the short to. mediurn-term the oil oxporting nations oonstitute ~ group of Tbird World oo~tries wbicb is an important force to be reckoned with in international economie relations. OPEC¹s lovers over the industrialized worl<;l are th8 priee i t determines for crude oil, the rate at which it allows production to grov, and the use it makes of the buge finopcial surpluses which member countries D.re accumulating. Thef?e levers are particularly significant to Western Europe and Japan, both of wbich a:re much morG dependent on OPEC oil as an energy source .tha~ .is the United States, and ·l ack the United States ' reverse levera~e represente~ by that country ¹ s buge economie and mili talr'y presenc.e .oversea~. Renee both of thèse two oenters are assicluously a ttempting to come t? t erms wi th the OPEC countries, througb large technology-for-oil bilateral trans- actions , greater p6litical support for the the Arab cause, and a con- cilia tory at ti tude ori the international oi l question. · 'l¹his develop- ment is naturally viewed witb suspicion and concern 1{ytbe United States; for although the OPEC offensive p:r;od.uced.a teoporary boost to the financial •pre-eminence .of the U.S. through its r elatively groator impact on the economies of ~Testern Ewope ?-nd Japan, its long-term implications are more worrying to that çountry becau~e o:f the potential for a· rie stern Europe-Ji:tpanese-QPEC economie an~ finano ia1 al l iance, whicb would inevi tably .reinforce the decline of U.

s ...

begemony in the capitalist world~

R-2698 Page 22

OPEC ¹ s relations wi th the rest o.f the Third vlorld, meanwhile, are necessarily fraught with ambivalence. It is obvious that Third vlorld states suffering from chronic deficits in their_balance of payments and/or in government spend.ing; such as those in the Indian subcontinent and

most of Africa and Latin America, are finding it increasingly difficult to classify themselves in the same category as the oil-exporting states, _.who earn~_d surpluses amounting to sorne $60 billion in 1974, and whose

reserves might rise to $635 billion in 1980.20

This is especially so if we take into account 'tbat the bulk of tbese rèserves are accruing to the OPEC members witb the smallest populations: Kuwait, Libya, Saudi Arabia9 t

Quatar and the United Arab Emirates, with à combined popul.ation of 11 million, compared with 278 million for OPEC as a wbole. To the non- oil-exporting Third World states OPEC¹s victories in the vanguard of Tbird 1~orld economie nationalism bas in many ways been a costly one₉ faced as they are vii tb large increases in fuel-import bi~~s, w i th conse- quent contractions in non-ail imports, reduced economie growth, and in- ternal priee inflation. There are· many in t'he se countries "rho also express bitterness at the fact that the large majority of OPEC surplus revenues end up being ¹recycled¹ to the 1:Jest. Still, it _rlOuld be over- hasty to conclude from this that it will be easy to breach the tactical alliance of the rest of the Tbird '\rJorld wi tb the OPEC countries wbere the confrontation witb the center-countries in demanding a new international ,Qrder is concerned. On grounds of PMTe self-interest, the non-oil

Tbird World countries are willing to continue to support the OPEC cause for at least two reas ons. On·e is ··tha t tb.ey are willing to work

•

• on the assumption that the OPEC countries are likely to be more generous and syrnpathetic with financial assistance, and attach less strings to their 'aidj tban the center-countries - at least until the contrary is

.

.

^.

proven. OPEC pledges to otber uriderdeveloped countries₉ for example, were reported to amount to sorne $10 billion in 1974~ an .amount repre- senting nearly

7

times the flow of O.E. C.D •. aid in proportion to gross national product (2 percent for the OPEC countries compared to 0.3 percent for the O.E.C.D. countries).21

•

•

f; , ·

R- 2698 Page 23.

Ano~her example is provided by Venozuela¹s plan to relond to Central American countrios roughly

50%

^{of the value of their} paym~nts ^{for oil}

~;

imports from Venezuela , tho moncy to be used for dovolopment projocts.22 Th0 second reason for continuing support for OPEC from othor Third ~-Jorld Cou.n.tries is thd i t is part of a more g0meral pressure to improve tho terrru? of trado _{__ ,} for all primary products oxportod by ~ the Third World. Somo

! ·-- •

of tho moro progressive OPEC membors, lod by Algeria, have been sufficiontl~r

intelligent to ut1lizo this factor, and a.ro pushing for OPEC to be used as an instrument and a lever for the creation of a new international eco- nomie ordor more roflectivo of tho intorosts of tho Third Horld. This process was woll-illustra.ted iri tho Declaration of Dakar adopted by tho non-alignod group in February

1975

₁ which approvod. the idoa. of using OPEC revenues to finance buffer st6'cks of other prima.ry prod1.lctst and tho Paris Conference of April

'1 975,

whero the Third Wo~ld black held firm in donan- ding tha.t the proposod energy 'conference be broad'on~d to inch~de othor prima.ry products. b,or wha.tovor may be tho widc differences in fina.ncial affluence which noH separate OPEC from non-OPEC Third Wo:rld states ₁ the

~. ·;

fact is that thci r structural posi~tion in relation to t'ho-international capi talist system romain essentiallty simila.r: their economies are still fundamentally underdoveloped and dependent on one or a smc.<ül group of pri- mary products exported to the center-countrios.

It is tl~is ^{aspect of tho center-periphcry syste}m which tho OPEC

1 ~ ! l . . _\ .. .. . , . . l-

.effensivo and Third l!Jorld economie nationalism₁ ~~iÏl not by 'tïi8mselves change. Current devolopmont strat eg1es of OPEC countries involvo tho pur- chase of advanced t ochnology from tho dcvolopcd countrics and their largo multinational corporations: nuclea.r power plants ₁ gas liquèfecation fa.cilitios, petrochomicnl plants, large stool mills , and so on. Most of these projocts a.ro to be carried out wi thin tho sta.tci as whol6" or JK:.rt ownors in joint ventures ·'wi th tho mul tina.tiona.l firms • (As HOll t of .course, oil revenues aro also bcing 'used for substantial armaments

-- -,R-2698

<

Page 24.

§.ccumulation and for the modernisation of social and economie infrastruc- ture) • Such a development mode·l implies a considerable spread of heavy

.··)\

industria.lization to rra1-zy of these countries, and conseq_uently a modifica-

• • • 1 • •

tion of the traditional international division of labour a~ 'it affects them?

it also involves the ra.pid extension of the state as a.n economie agent in such economies and substantia.l growth of the bureaucratie olass. Nonetheless such a. development madel is not synonymous with self-sustaining growth and the superseding of the center-periphery mode.l, .of accumulation; for i t is ba.sed on the import of technology from the ocnter-countries and upon the . export to them of much of the output of the new industry. Furthermore this

pattern of dovelopment is usually highly capita.l....:.intonsivo technologica.lly and highly concontra.ted spatial,ly and does not normally involvo any profound reorganization of the agricultural social oconorey. Thore is thereforc no evidence tha.t it can solve tho problems of un-and underemployment, and of rural poverty, which is the fundamental condition for the allovia.tion of rrass pove:ç-ty in thesc countries. Thus, the growth of thc.state bureaucracy and othcr clements of the local ~ourgeoisie allied to it togethcr with tho continuation of ma.ss poverty, c,ould imply tho omcrgcncc of new oontra.dic- t ions wi thin OPEC countries, which might replace in intcmsi ty tho sc which have so far dividcd OPEC fro~ ^the center-co~t~ies.

All of which hclps to suggcst that a. new pattern of rela.tionships is being esta.blished in the world ca.pi talist system, both intcrnationally aand intr.a.nationall.Y-• The OPEC offensive a-nd the associa.tccl Thircl World

:~c_onomic nationalism, togcthor wi th othor devclopmcnts in the le..st decade

· such as -the Indochinosc national liberation procos~ and'thc economie re-

-

^.

surgçncc of Western Europe and Jap,-,n, ha.vo signal lod tho demise of tho ,, ,post-war international arder - poli tical as wcll as economie. So far i t

is not yet clea.r wha.t will replace it - if indecd it will be ropla.ced by arder at all. I wa.s askcd in this paper to suggest wha.t lessons can bo learnt from tho oil crisis • I would say thc:t if i t has but one lesson to toa.ch us, it is that, in tho times in which wc live, any system or set of arrangements which rosts upon domination and deponcloncy, upon power and ex- ploitation, is inhorontly unstable. Ono hundrod yoa.rs a.go, perhaps,

"

• •

' •

• ..

- . .

. • .

R-2698

Page 25.

the West could afford the arrogance of believing that it could arder the world in its own image, and make tbat~·order. :§!_~~~clc. But nç:>_t .tod~y.. For, if i t is ti·ue

th

at .for the :maj o:r:i ty o:f pe_{. ·- .} ople in

th~ · ~ o~ ld. · thë" . ~1~-é

te en th

-~--__ - -. .. ^. . ' .

century was the celitury of imperialism;

Ü ia·

·al~o the case·· that for thom

" tne

twèntieth country is unquestionably th~ c~ntury of liberation.

. . ^--~---..

~ : l 1

.. -.. ----. ^----~-. --·-

.. : .. ·· .... _{. '·: ).•}

-..

_

^{"-- -}

... _ _ : . .

^.:::~_:_:.~

..

^:=-.:~~

.. ·.·

. . .

---~---

: . ~ -. ^{. •...}

R~2698

Page 26.

Notes to "Economie Nationalism ••. n

1. Matiéres Prémiéres et Dévéloppement. Paris~ les dossieres Jeune Afrique .et Econom:ia, Juillet-DecGmbre 1974; p. 5.

2. ' G. Fred Bergston, "The Threa t from the Third World", Foreign Policy, No. 11, Summer 1973; and "The Ne1-.r Era in World Commodi ty ~~arkets"

Challenge, Sopt/October 1974•

3.

s.

6.

8.

1

o.

12.

For analytical and descriptive treatment of the center-periphery system, see articles in Norman Girvan (ed~) Dependance and Under- development in the New \forld and the Old, spocial number, Social and Economie Studies, 22, 1, March 1973; and Samir Amin, Accumula- tion On A World Scale, New York, 1974·

See references in note 3 above, Also vial ter Rodney, How Europe:;

Underdeveloped Africa. London: Bogle L'Ouverture and Dar-es-

Salaam; Tanzania Publishing House, 1972; A. Gunder Frank, Capi t2.lism and Underdevelopment in Latin America, New York, 1967: Paul Baran, The Poli tical Economy of Grov1th, Nev1 York, 1957.

Arrighi Emmanuel, Unequal Exchange, with additional comments

by Charles Bettelheim. New York, 1972; Samir Amin, L'Echafige Inégal et la Loi de la Valeur, avec une contribution de Jagdish Saigal, Paris, 197 4·

Samir Amin, "Accumumulation and Development: A Theoretical Mollel"

Revie;1 of African Poli tical Econo..!!!,;l, No. 1, August-November, 197L].

Animal Pinto, "The Center-Periphery System '.Pwenty Years After", in Norman Girvan (ed.) op. cit., p.41.

Id., pp. 40, 41.

IVth Conference of Heads of 3tate or Government of Non-Aligned

..

Countries, Algiers, 5-9 September 1973, Fundamental Texts: Decl~ra;

tions, Resolutions, Action Programme Fen Econooic Co~Oporation,p. 65,

Pinto, op.cit. pp. 51-52.

"Long-Term Changes in .the terms of trade 1954-1971: Report by the UNCTAD Secretariat", in Proceedings Of The United Nations Conference On Trade And Development, Third Session, Santiago de Chile₉

13 April-21 May 1972, Vol.IV; p.73.

From Report by the Secretary-General of t.n'l"CTAD to the United Na ti ons Sixth Specia.l Session, on Raw Materials, Nev·ï York, May 1974 cite.<:. è.'Y Sene gale se Delega te to the illJCTAD conference on Raw M:a terials,

Dakar, February, 1975.

• •