Western Aid-Myth and Reality

Western Aid: Myth and Reality
V.S. Baskin

West seeks to preserve present relations which enables it to make immense profits by exploiting natural and manpower resources and also gear neo-colonial stats to socio-economic development to the purpose, by adopting development models which will be based on foreign capital for finance, technology and know-how. They give billions in easy credit. Why the generosity?
Chap 1
With the rise of the capitalist system, Capitalism lost some spheres of influence, commodity markets and source of raw materials. Independent states started taking a stand in economic spheres, tried to curb foreign capital in circulation and in production sphere and nationalized property.
Even after independence, they remained dependent upon capitalist economy and foreign monopoly capital leading to neo-colonialist imposition of political, economic, military and ideological relations and exploitation.
The idea of internal accumulation of sources, initially gained favor in LDCs, and development of state sector. But due to lack of development, they needed external resources for modern industrial technology and raising the level of consumption.
Over accumulation of capital in capitalist countries requires international lending which has led aid to strengthen dependency on material and technological level while retaining access to material/manpower resources.
Debt grows exponentially and is an effective instrument of control (debt sale to predators).
Terms of loan and its use have to in line with the country’s development strategy (unsustainable projects thrust upon weak, stupid and corrupt rulers).
From the capitalist point of view, aid is an instrument of expansion of political/economic goals to help their monopolies to penetrate LDCs (David Wightman-the economic Interest of Industrial Countries in the Development of the Third world. UN Report 1971). If public policy could be prosecuted for misleading advertising, the label foreign aid would be an obvious case for the courts. Aid used properly could increase assets, consumer goods, science and technology. So aid is a pronged lever on which two antagonistic forces are bearing down,
Western agencies claim that LDCs can solve their social problems with aid, without any progressive transformation in society and without reconstruction of aid system.
LDCs should be compensated for the damage inflicted by colonization.
Aid- analyze instruments of aid, and its orientation and influence on economy of the recipient.
Aid as capital export:
New international socio-economic relations-state and state guaranteed private capital, patent licenses of know how, brain drain, migration of labor, struggle among capitalist countries and groups of countries.
From 1950s all LDCs joined the ranks of creditor countries. Export of capital is one of the most essential features of capitalism, though its form and mechanism have changed with time. Material conditions of reproduction ensured by help from monopolies to market their products and obtain raw material (outsourcing gives additional advantage of cheap labor, control over ruling class and increases profits). Social base of capitalist relations in the countries ensures continued dependence by urging adoption of non-regulated private enterprise.
Most aid is low interest or interest free, but it serves as infra-structure and as necessary as purchase of the means of production and labor power. Profit is obtained by MNCs and conditions are created for their expansion and can lead to suppression of development of industrial base in the country to curb competition.
Food subsidies help export of agricultural business, tech assistance favors further export and increases labor productivity and indirectly suppresses working class movement in both donor and recipient countries-they prefer using unorganized labor.
Investment-non-productive-state, taxes, a little from corporate taxes.
-productive-private
State should merely be a means of raising income tax of the rich and protect the system. State foreign investment is aid. In colonial times international movement of capital and foreign trade were the main instruments of capitalist reproduction. With decolonization, it has become a bit more difficult. Now the state uses aid to stimulate export and assets are protected by armed force, subversion, indirect violence and war, division of labor, unprofitable expenditure by the government.
Easy credit enables to convert budget deficit, it can pay profit to foreign capital so the aid goes straight into monopolies with the country holding the loan and can be coerced to pass legislation to encourage investment (Iraq directly, Asian crisis countries, indirectly), as well as ensure markets (use donor shipping, consultants, spare parts) bought from own monopolies and handed over as aid, perpetuate unequal position in division of labor, export raw material, import equipment, know how and experience. No development of backward socio-economic structure (school, health, infra-structure, welfare and labor productivity.
In the past imperialism was not interested in developing capitalist relation in colonies fearing competition with the local bourgeoisie, now develop a stratum of entrepreneur taking to its class forms to control the assets and resources there-crony capitalism-dependent comprador brand.
It is important for imperialist states to ensure a guaranteed supply of raw material especially oil.
LDCs strive for rapid economic development, take large loans, and technical aid, and enhance their dependence. Aid amounts to a small % of budget of DCs. OECD …official assistance is directed to countries…with normal market incentives…can be expected to respond “ (OECD 1976 Paris review.
DC credit to LDCs stimulates only those branches of LDC economy which supply goods to LDC. Reactionaries want it tied to monopolies and direct subordination to its military goals. Liberals would like aid directed to welfare in own countries (Economist) 9/13/19800 America spent more on potted plants ($ 5 billion) than on aid…($ 4.6 billion)….% of aid to GDP
Tied aid to buy good or services from DC and or use it for specific purpose. Tech aid is tied to resources used to pay for specialists, can’t hire from other countries. Experts instinctively recommend machinery from own countries.
Tying aid is to channel own exports –$ 1 million in aid, creates $ 760,000 worth of goods, besides salaries of consultants, technical imports. Together with increased exports plus interest on past loans, US actually runs up a balance of payment surplus. It also helps to export non-competitive products. Aid officials exhort recipients to spend funds in the USA. In 1976, only $ 25 out of 760 million spent outside the USA. (IMF conditionalities) The British do the same.
Some aid is tied to actual products which help industries at home in donor countries. When recipient countries defer payment, further aid goes to repayment of past loans. Germans are the same. French are a little better, but compensate for it by more dependency of former colonies-trade deficit with France-aid covers the deficit.
Economic impact of tied aid:
Dean Rusk 1966(senate 98the congress, 2nd session, page 97)-foreign relations committee hearings “Aid is the business of exporting US goods and services, not US dollars”. Same goes for other western countries.
Portion of aid tied deliveries replacing commercial exports called substitution co-efficient which hampers development of LDC foreign market.
Construction and running of projects entailed import of spare parts and specialists from the USA. Spare parts could not be bought with the funds elsewhere.-Aid Administrator William Gared 1975 “lists are made of commodities…relatively less competitive…unlikely to export in nay great value”.
Clarence Long congressman subcommittee of foreign relations committee on apporti9onment” lot of business firms… can’t sell it in this country at the price they want…sell it abroad at American tax payer expense. Elite types made vast sums of money out of foreign aid. It has…enriched the will to do it” US rulers pursue unabashed protectionism…to sell products at higher than market prices. PL 480 food aid can not be given, if it will not lead to decline in commercial food export to the recipient.. In 1977, Egypt due to pay out $ 1,600 million in debt service, still US and Europe increased its quota of obligatory wheat import 2.2 to 2.6 million tons (US GAO 1977 page 20 and 30).
For projects LDCs do not have the money to buy equipment and machinery, so have to go to capitalists which get a market with out competition and lot of jobs to which LDCs can’t hire own people. Donors choose design to increase import component and cut back local material and manpower.
Creditors offer assistance for projects which suit their own industry, often not what the recipients need at all.
Limits on freedom to choose supplies results in monopoly price hikes. Transportation cost for USA are higher than to Europe. Tunisia had to pay $ 17/ton for freight from USA (adding 10-13 % CIF price (un conference on trade, new Delhi 2/1/68 Vol IV NY 1968 p 101) Tying aid to increased interest (actual) to cover commercial rate by overpricing of up to 30%.
In 1965, Tunisia got 85 buses under USAID 30% above European rate. There was design fault in 6the buses, spare parts cost 30to 50 % more than European. There was a long delay in spare parts-seller p[aid less attention as buyer bound.

Chap 2 Foreign Resources
Utility depends on grant-long term low interest loan and short term high interest 3-5 year 17% interest. Important to distinguish between nominal and real volume of resources, difficult to assess volume of aid, as donors tend to bunch together state and private funds

Capital export:
-Tie in accumulation in LDC international lending to make it dependent of accumulation in DC.
-ensure unconditional priority of private resources Dean Acheron “It would be contrary to our policy to place government funds in competition with private funds” (Politics and Society Los altos Vol 10 No 1 1980).
Aid to Africa:
In 1980 Africa received $ 3,132 million worth of multilateral aid. Capitalist aim- bolster regimes that keep them dependent, reproduce capitalist economic system, funds to uphold elites who maintain archaic social systems. Divide LDCs in spheres of influence secretary of state Al Haig “the new administration has redirected to specific and vitally important objectives-Dept of State Bulletin vol 82 1-4/1982 page 35.
Africa magazine London no 76, 12/77 page 21” US state department lists 60 primary materials…to keep US economy functioning…imported from Africa”.
Uncompetitive industries like steel get support through foreign aid (Charles Baker VP US steel corp.-Tribune Colombo vol 24 no 50 1980 page 9).
PL 664 (50% aid delivered by US vessels. US government financed along aid channels. 16.4 % steel, 25% fertilizer, 15.7% rail road, 8.5% textiles Steven Weizman-the Trojan horse San Francisco 1974 p 237-239, also used to subsidize farm products.
“one $ into WB generates $ 10 in contracts for the US companies.” The Nation NY vol 233 no 2 July 1981 page 43.
$ ½ billion aid purchase for 22 corporations”
aid helped Britain save 54,000 jobs-West Africa 7/5/82 page 1744.
Aid primarily supports uncompetitive, low profit industries.
Among OPEC countries, Saudi Arabia biggest exporter of capital 1982 $4482.00 million aid.
Western powers use foreign exchange reserves of OPEC to fit them into credit financial system of capitalism.
Tripartite agreement-West technology, OPEC money, funds on market terms.

Chap 3:
Economic aid-most takes the form of project aid. In 1982, 53.1% of bilateral commitment help aid giving country expand its commodity exports.
Aid missions followed every stage of the project. Aid mission put pressure on local government to accept program according to the former’s wishes.
Borrower’s creditworthiness determined from the point of view of donors.
Economic appraisal-commercial profitability is the most important consideration.

Chap 4 Food and Ag aid:
In many African countries, the policy is to give precedence to production for sale to food…for consumption…a carry over from colonial times…meet the needs of metropolis “Business Weekly Accra Vol 11 no 8 8/9-15 1976 page 2-Sisal, coffee, cocoa, cotton, tobacco, not maize, begums and wheat. For local food suggest import. Food aid always small, leads to hunger, rural-urban divide, rapid urbanization, capitalist agrarian protectionism and produce all the machinery.
LDC population growth much faster (Pak, India, BD started with 400 million in 1947, 60 years later it stands at 1520 million).
Immigrants to cities can’t find jobs, leads to social conflict. Capitalists suffer from the crisis of overproduction. Business Weekly NY 2411, 12/15/1975, page 54”. In a world of hunger …US can apply…agricultural capacity as a lever…policies beneficial to this nation. US Pl 480 acute agricultural crisis, world prices down, bur aid could interfere with commercial imports.
Assistance to agricultural development related to the need for market of industrial farms.
Technical assistance:
Accounts for most of the funds to LDCs…specialists,. Advisers, families, salaries, expense comes from aid funds. Foreign private capital remains hostile to training LDC technical cadres.
Peace corp. 1961-advertised US way of life, but in contrast to the expatriates, they lived with the poor.

Chap 6 Debt Problem:
LDC debt increases along with outflow of resources. The theory offered is that in 60-70 years internal accumulation in LDCs will be such that they will be able to pay the external debt. It ignores the importance of foreign markets. WB study of 1970 by Rudolph Peterson “debt…pressing problem, endangered imports…investment and development…” used as a means of neo-colonialism