Predatory, Developmental, and Other Apparatuses

Scholars of development often vent their frustrations by identifying the culprits that keep their theories from working. Recently, an old favorite has been brought back into the dock with new vehemence. Instead of the peasant clinging to traditional values or the multinational manager funneling surplus back to headquartesr, the state bureaucrat, strangling the golden goose of entrepreneurship and lining his pockets with unproductive rents, has again become the central villain.

From an article by Peter Evans published in 1989, ties back into why Ryan’s United Fruit plan is good for cornering the market on bananas, but maybe not the best for developing serious trading partners.

Evans first outlines why bureaucracies are necessary,

Smith’s “natural propensity to truck and barter” had not sufficed to produce the rise of the market in England. Instead […] “The road to the free market was opened and kept open by an enormous increase in continuous, centrally organized and controlled interventionism.” From the beginning […] the life of the market has been intertwined […] with the forms and policies of the state.

and then describes what happens when developing state bureaucracies are awesome (Japan), not-so-awesome (Brazil), and a hot mess (Zaire). He suggests

  • that states need autonomy
  • that their bureaucracies need to be autonomous (in the sense that they follow their own institutional norms, as opposed to responding to the “invisible hand”)
  • that their bureaucracies need to be “embedded” (in the sense that they can bridge the government with the business world.)

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9 responses to “Predatory, Developmental, and Other Apparatuses

  1. I contend that the United Fruit plan is more efficient than the State Dept at creating stability. In defense of United Fruit:
    – They had 500,000 acres because the gov. of Guatemala defaulted on the payment for the railroad system it hired UF’s precursor to build, and decided that 500,000 acres of useless jungle was a small price to pay
    – UF offered the best wages, medical care, and six years of free school for kids
    – Built the telegraph system
    – Gave Guatemala something besides coffee to export
    – Dumped money into eliminating malaria

    1. Diane Stanley, “For the Record: The United Fruit Company’s Sixty-six Years in Guatemala,” blah blah blah

    Strawman – They were an evil profit driven corporation that sponsored a junta when Arbenz wanted to buy back 400,000 acres for the people.

    Not really, they complained to the State Dept, who turned it over to the CIA, who then fired up the paramilitary machine. I think the proper role of government in this situation would have been along the lines of brokering a deal between the corporation and the host nation.

    2. Lucien S. Vandenbroucke, Perilous Options: Special Operations as an Instrument of US Foreign Policy, New York, NY: Oxford University Press, 1993. chapter 2.

    The point is that corporations develop things efficiently, states do not. The role of the state shouldn’t be developing things, it should be making sure the corporations are providing an appropriate amount of social responsibility. It’s fine to point out that states need autonomy and a certain amount of rent seeking is normal, but at the end of it, Evans never gets to who builds shit. People seeking profit build shit well (more often than not) and people states build bridges to Gravina island.

  2. So then why is Guatemala so much further behind South Korea? If you want to pick another example, pick another example,

    http://en.wikipedia.org/wiki/List_of_the_largest_trading_partners_of_the_United_States

    http://en.wikipedia.org/wiki/Developing_country#List_of_graduated_developing_economies

    but the trend with the most successful developing world economies (the Tigers, Brazil and India, China) has not been foreign direct investment coming in, building some roads, killing the bugs. FDI has had a role to play, but success has also involved certain types of domestic (theirs, not ours) policy that FDI has not historically supported. (“Historically”, as in the last 125 years of the American experience–not the public-private hybrid of the British Empire from a few hundred years ago, built in the absence of modern international institutions and shareholder pressure.)

    And Evans does get to who builds up shit. That’s why he brings up MITI–

    http://en.wikipedia.org/wiki/Japanese_post-war_economic_miracle#Ministry_of_International_Trade_and_Industry_role

    –it’s the combination of business and government, shepherded by an “embedded” bureaucratic class whose motives are bureaucratic norms over individual rent-maximizing. Isn’t that what the British civil servant culture was?

    >People seeking profit build shit well

    People seeking profit build shit well when they’ve got the right mitigating influences (a “smart” corporate culture, good leadership, whatever you want to call it) that allows them to overcome shareholder pressure and individual greed. In the same exact way, governments tend to maximize rents unless they’ve got the right mitigating influences (in Evans’ example, a certain type of bureaucracy) to overcome voter pressure and individual greed.

    So I agree with you that DoS can’t do it on its own, but I never was trying to argue that. Going off the historical examples I can think of it, it looks like state sponsored foreign aid + protectionist, long-term oriented domestic policy has = success. I don’t see why FDI couldn’t be part of that, but I’m not going to believe how it could be the primary instrument until you explain what FDI’s MITI would be.

  3. I think Guatemala would be alot closer to South Korea had DoS told United Fruit to pay the proper taxes to Guatemala rather than host a proxy war on their behalf.
    UF valued its holdings, for tax purposes in Guatemala, at $500,000; it was actually closer to $16 million. Arbenz offered them the reported tax value of the holdings, and they went to DoS. This is where I think DoS fits into the picture best, holding corporations accountable for following host nation laws. Tough luck, UF, you should have been honest with the host nation about taxes.
    Better (if older) examples are the colonial charter companies that built the first 13 colonies in the US. Companies raised money in Britain by selling stocks, bot boats, built forts, killed Indians, house of burgesses, etc. No ministers from the Commonwealth coming to build roads or get Paul Revere to silver smithing.
    I read the “White Man’s Burden” in Afghanistan, it offers a tedious review of the Western world’s failure, to the tune of a gazillion dollars, to develop the rest of the world. That was USAID and DoS at its best in the context of the Cold War. Easterly’s point, as I recall, was that do-gooders have good intentions and tend to have shit implementation. Profit drives development, not hand outs, essentially.

    http://www.amazon.com/The-White-Mans-Burden-Efforts/dp/1594200378

    I think my main argument (if I ever had one) is that the US should provide incentives for corporations to have robust CSR platforms that provide value to the communities from which resources are extracted. The role of DoS should be compelling corporations to play fair. Playing fair in countries that maximize rent seeking at the national and mid levels (you want a license? I need 100,000 googley moogleys) will probably push corporations, to some degree, to avoid empire building in developing countries.

  4. Also! I reject Germany, Japan, and South Korea as examples. They are the result of war followed by threat, and were built with occupation dollars by the military industrial complex. I agree that that is extremely efficient in building industrialized states, but I suggest that it is not a viable policy for the US to adopt toward developing states.

  5. i think what you’re saying about CSRs makes sense in a very broad “industry-can-play-a-part” kind of way, but i can’t get my head around the mechanism you’re sketching out. i have a hard time seeing American (or anybody else’s) industry acquiescing to the sort of constraints that somebody would eventually have to impose. how would that go down? “okay, fine, we’ll accept paying 12x the amount of taxes that we wanted to in Guatemala. you got us, DoS. okay, fine, we recognize that at this point Guatemalan growth requires a shift to a post-agricultural economy, so we’re going to encourage them to convert our banana farms into textile plants. man, DoS, it’s a good thing we like you guys.”

    i don’t object to the idea that our industry can play a role in development, but while there is some overlap, there’s also a lot of distance between industry’s goals and development’s needs. GE skipped out of paying a billion dollars of _our_ taxes. they’re going to line up to pay somebody else’s? and then somehow mandate and enforce that the tax money gets used for productive shit instead of buying solid gold cars or whatever?

    it’s a sidebar, but multinational and developing nation relationships usually look a lot more like this: http://bit.ly/Lgw3VW (Phillip Morris tried the same play in Australia and Canada, but it’s a lot easier for them to push Uruguay around.)

    >I reject

    I’m not using Germany as an example, because it was an industrialized country before the war.

    > built with occupation dollars by the military industrial complex

    sidesteps the point i’m getting at. that’s like if

    1. you beat my ass
    2. I went to the gym and ate right and started juicing and learned karate
    3. now I can beat your ass

    and arguing from all of the above that you beating my ass was the critical part of my success. neither the “occupation” or the “military” part of South Korean and Japanese development were necessary nor sufficient to develop them–it was the dollars, and it was the right sorts of domestic policy.

    all of that said, if you don’t want to use South Korea and Japan: Taiwan. same sort of deal, but minus the occupation. or Singapore, if you want to take us out of it, and Ireland and South Africa with caveats.

  6. >“industry-can-play-a-part”
    Industry and the corporation have to play a part. When state shows up to do something, they bring poly sci majors, and wen USAID shows up they bring social work majors; that’s why they don’t get much done. When Shell shows up, they bring engineers; that’s why they get things done. The Army Corp of Engineers might be a better example than DoS of showing up and getting things done, but I don’t think they are in that business anymore.

    >Guatemalan growth requires a shift to a post-agricultural economy, so we’re going to encourage them to convert our banana farms into textile plants.
    UF started as an industrial endeavor, and if there were money to be made in textile plants, I’m sure they would adapt.

    >GE skipped out of paying a billion dollars of _our_ taxes.
    That’s sort of where I’m going with this, the state should be policing the corporations so they don’t get away with that sort of thing, not trying to develop development policies. GE is good at developing things, the State should be good at taxing GE.

    >neither the “occupation” or the “military” part of South Korean and Japanese development
    The dollars would not have been there if the tanks were not there first. And Singhman Rhee was not exactly George Washington. Military intervention followed by developmental policies and reconstruction dollars is not a sustainable national policy for the US.

    The point that I am (painfully, I’ll admit) trying to work my way towards is that the US needs useful national policy for developing states. Our institution with the best track record for developing industry is the corporation. It should follow that our best policy would be one that monitors corporations for sharp practices overseas as the primary tool for development, with DoS and USAID programs as a distant second and third. Recall that the bulk of the DoS was put together to bring developing nations into the Democratic camp during the Cold War, not actually develop the states themselves. More like a bribing institution.

    I would point to the state that you are exiled to as an example of poor functionality of “state as actor and instrument” policies.

  7. >the US needs useful national policy for developing states

    we’re violently agreeing.

    >Our institution with the best track record for developing industry is the corporation

    this is where it starts to get blurry. i’m not just talking about developing _industry_, i’m talking about developing _economies_. two different things. US manufacturing has expanded into Mexico, for example, but the Mexican economy is lagging compared to more successful developing economies. http://bit.ly/M8Cxlv similar analogy could be made with UF and Central America.

    >The dollars would not have been there if the tanks were not there first

    my point was simply that the dollars (and the domestic policy) are the independent variables, not the tanks–i was responding to what you said about “rejecting” SK and Japan as examples. (would be like saying, man, i wish i knew how to drive to Baumholder, and then “rejecting” the example of your GPS. the route is what’s key, not where it came from.)

    >UF started as an industrial endeavor, and if there were money to be made in textile plants, I’m sure they would adapt.

    this is the crux of where we’re disagreeing. there would only be money to be made on the very long time scale–several decades, at least–and money would likely get lost in the short-term, as it disappeared into making shitty products as the local technology base sorted itself out, into raising standards of living to create a middle class that consumes, etc. corporations pursue long-term goals, but not when they’re counter to their short-term goals.

    >>GE skipped out of paying a billion dollars of _our_ taxes.

    >That’s sort of where I’m going with this, the state should be policing the corporations so they don’t get away with that sort of thing, not trying to develop development policies. GE is good at developing things, the State should be good at taxing GE.

    > It should follow that our best policy would be one that monitors corporations for sharp practices overseas as the primary tool for development, with DoS and USAID programs as a distant second and third.

    GE is good at developing GE. that does not necessarily mean that GE will inherently be good at developing economies. as i described above, to be good at developing economies, GE (or whoever) would have to be steered, not monitored, in a direction that (in the short-term) would be counter to their natural tendencies.

    how likely is that? GE didn’t avoid paying their taxes because they weren’t “policed”; they complied with the law. GE–and other firms–were able to lobby for changes in domestic policy which enabled them to make a huge amount of money tax-free by keeping it out of the US. if GE–or whoever–can successfully get out of domestic taxes, i have a hard time believing that the necessary legal framework could be established to get them to comply to all of this.

    and even if it was established–who’s steering? when you’re saying that DoS is second to the corporate whatever, do you mean to say that direct aid is second and that DoS is still orchestrating all of this, or are you arguing that market incentives will somehow get all these corporations to work together, disregard their short-term interests, etc? there is a giant handwave here when you talk about CSR. someone needs to plan the CSR requirements, synchronize them, evaluate them.

    >I would point to the state that you are exiled to as an example of poor functionality of “state as actor and instrument” policies.

    in some ways, yes–in other ways, no. but either way, Phillip Morris isn’t helping.

  8. >we’re violently agreeing.
    /agreed

    >the independent variables
    /disagree. I get the idea, but I have a hard time wrapping my mind around divorcing history from the situation for the sake of case study. Call them independent variables if you like, but they cannot be separated from the war that put them there.

    >very long time scale
    The UF Company operated for nearly a century, in industries from railroad building to steamships. Bananas were a sideline they were using to feed the railroad workers. The argument that they wouldn’t shift to new industries because of short term profit loss is not supported by historical fact.

    “Iraq PM warns of ‘wars’ over Exxon deal with Kurds”
    http://www.google.com/hostednews/afp/article/ALeqM5jP51_ug6IEPs78GuJAW66bY5TrJQ?docId=CNG.f350adbfe831cc7507a71fb1f45ab600.2f1

    This is what I am on about, big oil is necessary to develop industry in this area, but will not self police from being assholes.

    From the same article:
    “The premier “sent a message to American President Barak Obama last week urging him to intervene to prevent ExxonMobil from going in this direction.”

    This is the sort of thing that DoS should be doing to police corporations. A loosely defined ‘Sharp Practice” law that allows DoS to spank corporations over seas would encourage them to play nice with developing nations or face arbitrary punishment.

    >Phillip Morris isn’t helping.
    Perhaps not, but Liebig’s Extract of Meat Company certainly didn’t hurt; the point being that without foreign corporations developing the beef industry, Uruguay would be a subsistence economy. Similarly, without English charter companies the Iroquois would still be in PA.

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