Picture of a Banana Plantation

(Picture is of a banana plantation .) 

There are decent chunks of what used to be the third world that no longer are – the Asian tigers,  the coast of China and parts of Malaysia, for example.  Then there are parts of the third world, most notably in Africa, where things have just gotten worse and worse and worse.  I grew up in the Aid world, my father worked for the United Nations, and I still remember his comment on colleagues working in Africa, “those poor bastards.  Their entire life is bailing against a hurricane, watching the ship going under despite everything they do.”

There are a lot of reasons for that, and a lot of them are “made in Africa”, or South America, or Burma, or wherever.  The US and the 1st world isn't responsible alone for world poverty, by any stretch of the imagination.  Anyone who has had to deal with the stunning corruption and bureaucratic ineptitude of most 3rd world countries knows this very well.  Yet, the fact is that most “development” of the 3rd world – most of the advice, often advice with a big stick, has been very bad for most countries that took it.  The countries that got themselves out of undeveloped status didn't do it by following the advice of western development experts, quite the contrary.  Instead of doing what experts told them to do, they found their own path, which in almost every case, was essentially mercantalism – protecting the internal economy and creating an export driven economy on manufactured goods by subsidizing manufacture in one way or another.  It's the same way that the US industrialized in the 19th century, as far as that goes.

But we're not going to talk about the people with the sense not to listen to us.  We're going to talk about the people who did listen to us – either because they assumed we knew what we were talking about, or because they had no choice.

Imagine you run a third world country back in the 60's or 70's.  Most of your population is still rural.  They live through subsistence farming and while they more or less feed themselves, they don't produce much that you can sell to the rest of the world, because even if you have a surplus, you can't compete with the rock bottom prices of highly subsidized and mechanized American and European farms.  Your farms are very inefficient, they use a heck of a lot of people and per person produce very little.  Maybe you have some mineral reserves or other resources, but you don't have the technology to get it out.  Your manufacturing industry, if it exists, is so backwards that the 1st world doesn't want to buy anything you make.

But you want some hard currency.  Why?  Because there are things only hard currency can buy.  Perhaps weapons if you're that sort of leader (or have some of them on your border).  Perhaps medicine.  Perhaps the machinery necessary to electrify your country.  Perhaps construction equipment. Perhaps Swiss bank accounts, a chalet and expensive holidays.  Whatever it is, if you want it, you have to buy it with dollars, or Pounds, or maybe Francs or you have to get an inferior version from the USSR by selling your soul.  Assuming you don't want to be part of the Soviet block, and you do want those things – you need cash.

To get that cash you need to sell the 1st world something it wants.  They don't want your food, they don't want your lousy manufactured goods. They may buy some handicrafts, but you don't have enough of those to make real money.  

But you do have land.

And what the western economists tell you is “you sir, have a comparative advantage in certain cash crops”.  (Or maybe, in certain minerals).  It doesn't really matter what those cash crops are – they could be bananas, coffee, sugar, oranges or a number of others.

But there's a problem with cash crops – with very few exceptions you can’t produce large quantities of them with small, subsistence or near subsistence farms. You need larger farms with capital intensive investment. Especially if you want to take advantage of western high yield agricultural techniques. That means kicking those farmers off their land and since the new techniques need many less people, most of them will have to run to the cities.

Not being a complete idiot, you turn to the economists and say “how am I going to feed and employ these people once they can no longer take care of themselves?”  And they turn back to you and say “you have a comparative advantage in cash crops. Based on current prices you'll make more than enough to buy food to feed your people plus invest in the economy to create jobs for many of them.”

So you go for it – either because if you don't, the banks will cut you off, or because you really do think that it's a wonderful way to modernize your economy.  You borrow money, and you turn your farm sector from a largely subsistence one which produces a moderate surplus, into a cash crop industry.

Things don't go as planned for a number of reasons.

First and most importantly, you aren't the only one getting this advice.  Seems that plenty of other countries have been too. And there are only so many commodities.  Everyone's growing or digging up the same stuff.  The market is glutted.  The prices are collapsing.  So you aren't making nearly as much money as all those experts predicted.  And, in fact, what happened is that there was a 30 year general decline in most commodity prices, which only started to reverse in the new millennium  And when you (and every other country on the same train) try to dig yourself out by growing more or digging up more, it just makes it worse.  Woosh.

Secondly, since the displaced farmers, who have flooded into your cities, creating huge slums, can't feed themselves, you have to.  But you aren't making the money you expected to, so either you can't quite afford to, or you can, but it uses up almost all the money and you have very little left for all that shiny “economic development” you wanted to do (none of which works anyway, because the “experts” don't have any more of a clue about that than they do anything else.)

Third – you've probably lost more economy than you've gained.  Oh sure, your economy might be appear to be larger than before, because it's a cash economy, which can be measured, while a subsistence and barter economy mostly doesn't show up.  So you've gained hard currency, but you've lost jobs, most of which will never be recovered.  The multiplier effect (the number of jobs created to serve primary jobs) is damn near zero, because the fancy new plantations and huge farms use machines built elsewhere, run on oil pumped elsewhere, need to be repaired by expats who were trained elsewhere, the fertilizer comes from oversees and even the seeds probably even come from overseas.  

In the meantime you’ve destroyed the livelihood not only of all the farmers, but the middlemen who distributed the food, those who sold the food, those who sold goods to the farmers and the local villages which depended on trade from the local farmers.

Fourth – and rather importantly in political terms, the displaced farmers have gone to the slums that ring almost every third world city and that are often larger than the city proper. Violence, disease and malnutrition is endemic, but they still manage to breed like mad, often doubling in population in less than 20 years.  With no hope for the future in this mundane world many turn to fundamentalist religion and while they don't become terrorists themselves in large number, they form a reservoir of support for terrorists and guerrillas  

So, at the end of the day, by following the advice of western experts you've destroyed your rural economy, gone from a country which could feed itself to a net importer of food, created huge slums around your cities, increased the instability of your country – and haven't modernized.  And when it doesn't work, as it never ever does, what do you do?  Well, probably, you go and try and get more loans to give you a chance to make it work – to modernize, to invest in your comparative advantage, and so on.  The solution to failure, for some time, is to “try harder”. And westerners keep giving you the loans, but the conditions get harsher and harsher, till one day the IMF tells you you're going to be cut off unless you get rid of the things that are holding you back.  

And no, they don't mean that you should stop with the cash crops, they mean that you need to go even harder into whatever industries create foreign currency (so you can pay back your loans) and you need to stop spending that foreign currency on anything that doesn't feed back into creating more foreign currency.

Like, say, food subsidies for the descendants of all those farmers who now live in your slums.

You can imagine how well that goes over, especially since, up until recently, most countries felt they had no choice but to go along and do it.

When citizens of third world countries talk about how the West in general, and America in specific, is keeping them down, this is much of what they're talking about.  It's an economic system, which while sold as a benefit to the third world countries following the prescriptions, coincidentally worked out to provide very cheap commodities to the first world for decades, allowed quite a number of loans to be made and didn't lift a single country I can think of out of poverty.

Those loans were made with the aid of experts who made pretty explicit claims about how things would work out for the better.  The common excuse is that “corruption” is why they failed, but even in countries where there was little corruption, they failed.  The money was used to dispossess the local population of their land, to destroy local economies, in order to turn them into something that would produce foreign currency.  Thirty years later the locals were worse off than they were before the loans were made and the advice was followed.

And today, most of those countries labor under loans they can never pay off, that the population never saw any benefit from, that enriched only a few.  And those who understand what happened are bitter and those who don't understand still know that it didn't work out how they were promised. The bright shining future they were supposed to have, never happened, but they got stuck with the bill anyway.

And meanwhile, in Asia, countries that didn't follow this path – countries that built up industry behind  trade barriers, didn't try and convert their farmland into cash crops – countries that rejected the advice of the western experts, who didn't accept the loans – they're the ones who have lifted themselves out of poverty.  The lesson, one might say, is clear.  Beware Westerners giving advice.  It's not that the advice doesn't work out to someone's benefit, it's just that that someone isn't you.

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