Capital and Development in
Some Critical Issues
By Geepu Nah Tiepoh
Behind the cloud over the issue of lack of development in Liberia, different attitudes emerge towards the role of international capital in domestic development. There are those who, unaware of the current dynamics of international capital, and in their honest desire to identify the appropriate forces for national development, are quick to point to the importance of global finance and investment capital in the development process. The general attitude of these individuals seems to be that international capital, regardless of its nature and source, is the ultimate key to Liberia's economic development, and therefore should be obtained at any costs. Lacking basic understanding of the logic of global capital, these individuals have the tendency to naively shout the usual slogan "Liberia needs international investments and finance". To their credit, however, when confronted with the ugly dynamics of capital, such individuals are more likely to become less fanatical and more willing to re-adjust their attitudes towards the conduct of global capital. There is another type of attitude, however, which is deeply entrenched within certain quarters of Liberia's ruling, business, and intellectual elites. This attitude is rooted in their belief that Liberia must unquestioningly accept the neo-liberal agenda founded on the absolute international mobility of capital, even as evidence mounts of the negative social consequences of such unrestricted mobility. For these individuals, the current financial globalization trend, and the "self-regulating" market system on which it is based, are a natural product of technological advancements over which neither government nor civil society can and should impose effective social control. Anyone who dares to pinpoint the drawbacks of this system is therefore branded as a pariah.
Thus, it is the case that the only regret of the Taylor government is its own inability to provide the required political and institutional environment for the free flow of foreign aid and private capital and not any fundamental disagreement with the conduct and demands of global capital. Such an attitude is hardly surprising since under this system of "liberalism without borders", which is driven by policies of extreme capital mobility, high interest rates, debt servicing, and budgetary austerity, it is mostly the poor classes of society that bear the brunt of the consequent deflation, slow growth, and high unemployment. Members of the ruling classes, especially those in Taylor's Liberia, are always able to find the means to protect their living standards through corruption, outright theft, speculative investments in foreign exchange markets, illegal diamond mining, and other Shaw-like financial schemes.
The importance of capital and investment in development has long been established and is undeniably recognized. What is troublesome, however, is the renewed dominance in the global political economy of what Samir Amin calls the "unilateral logic of capital", which is made possible by the collapse of East-West competition, Third World developmentalism, and the decline of the Western welfare state. Based exclusively on a constant search for the highest financial returns and the subordination of all human and social concerns, this unilateral logic of capital has not only produced mass unemployment and poverty around the world, but has led to a culture of shock, disbelief, powerlessness and enslaved mentality within certain nation-state and government circles. Some unstable regimes, like the one in Liberia, are shocked and cannot believe that they are unable to attract foreign aid and private capital into their coffers. They are unable to come to grips with the reality that the demise of the Cold War and fiscal downsizing in industrialized countries have dampened Western enthusiasm for providing aid to tyrants unlike before, and that this has somewhat reinforced the bargaining power of private international capital. As a percentage of their combined GNP, aid allocations from member countries of the Development Assistance Committee (DAC) of the OECD fell for five consecutive years, from 0.33 percent in 1992 to 0.22 percent in 1997, far below the United Nations target of 0.7 percent of GNP. Liberia's largest aid donor, the United States, is now in the lowest rank in aid-giving and, by the end of the year 2000, USAID will be operating in only 75 countries, compared with 120 in the early 1990s (The Tampa Tribune, 27 April, 1996). On the issue of foreign bilateral (government-to-government) aid to Liberia, there are those who would like us to restrict our analyses to the role and weaknesses of the current regime in Liberia. We disagree with such a narrow position, because it is the truth that some of these countries that are now denying direct aid to Taylor, however justified they are, were the same ones whose money reinforced the Doe dictatorship in the 1980s. Therefore, we should be very careful in our analyses in order not to confuse the present denial of aid to Taylor with donors' genuine interest in democracy.
As if blindfolded by past hopes, the Taylor regime seems not to understand that private international capital is now being driven mainly by a different dynamic that floating exchange rates and lack of controls over capital mobility are driving international finance away from productive investments into speculative investments in foreign exchange markets and, in some cases, into illicit mineral mining operations. In 1971, before the collapse of the Bretton Woods fixed exchange rate system, about 90 percent of all foreign exchange transactions were for trade and long-term productive investment, and only 10 percent were for speculation. Today, these percentages are reversed, with over 90 percent of transactions invested in speculation (McRobbie & Polanyi-Levitt, 2000). Furthermore, as Tom Kamara states, "criminal syndicates from Europe, the former Soviet Union, South Africa, South America", now prefer to invest their funds in illicit mining operations in places like Sierra Leone, thus robbing these poor countries of hundreds of millions of dollar worth of minerals yearly. Liberia's assistant minister for mines recently estimated that about 6,000 illicit gold and diamond miners now operate in the country (Panafrican News Agency, November 29, 1999). This shift away from development capital into short-term speculative and "criminal" capital has resulted in a rise of the bargaining power of legitimate long-term productive investors and the increase of real long-term interest rates during the 1980s and 1990s. As widely known, such increase in long-term interest rates has been partly responsible for the worsening of external debt crises in Latin American and African economies during these periods, with Liberia's debt now standing at over $3 billion. Furthermore, as if unaware of the precariousness of Liberia's own political, economic, and institutional climate, which now compounds the fears of long-term private capital, the Taylor government continues to place an evangelical faith in the mercy of global capital.
Given the above-mentioned forces and other pressures in the world financial system, countries that wish to attract productive capital in this new era will more likely succeed only at the costs of high interest rates, increased debt burdens, high unemployment, slow growth, and the dismantling of public services. This has already happened and is continuing today. With the exception of South Asia and East Asia, all major regions in the world economy experienced a dramatic slowdown of economic growth in the 1980s, with sub-Saharan Africa and Latin America diving into negative growth rates. While growth rates mildly recovered in the 1990s, they still lagged behind those of earlier decades. Unemployment rates in Western Europe climbed from 2.7 percent in 1964-73, to 4.6 percent in 1974-79, and to 9.4 percent in 1980-95. Analysts believe that these dismal trends in growth and unemployment rates around the world are directly linked to the current changes in the world financial system (Fred Block, 2000). Furthermore, under this unchallenged neo-liberal empire, countries that wish to attract productive capital must allow donor countries and the major international financial institutions to dictate their economic policies in ways that promote foreign debt servicing and uphold the profitability of capital, even at the cost of human and social wellbeing.
This is why I believe that in analyzing the question of international capital for Liberia, one should consider both specific and general issues. Specifically, the behavior of the political regime in Liberia provides sufficient reason for the decline of international capital. Obviously, one does not give aid to a government that claims to owe itself for waging war against its own people. Also, only few legitimate private investors will dare to go into a country where smugglers and con men are roaming about as investors. On the other hand, we should be careful not to interpret the restriction of foreign aid and private capital to Liberia under Taylor as necessarily a democratic protest from the owners of capital. International capital has its own universal logic and agenda that it seeks to impose on countries no matter who is in power. Some of the general macroeconomic policy demands by the owners of capital are not democratic at all but are simply the means for increasing the profitability and global power of capital. In some cases, unstable regimes, like the one in Liberia, only provide the needed pretext and conditions for the reinforcement of the demands of global capital. Let us beware.
Geepu Nah Tiepoh is a development economist and consultant with ACLAD Development, Canada
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