The decline of emerging countries

30 August, 2020

Fernández (Argentina) and Piñera (Chile) during a videoconference this week.

Expectations for the growth of production are falling throughout the Americas. The lest affected countries are Paraguay (-2.8%) and Uruguay (-3.9%), while the most affected are Venezuela (-21.9%), Peru (-11.7%) and Argentina (-11.3%). Brazil would fall 6.6%, Mexico 9.3%, Chile 6.1%, Colombia and Bolivia 5.8%, Ecuador 8.6%, Central America 5%. And it may still get worse in the remainder of the year.

At this time, the pandemic is escalating out of control in almost every country in the continent, with governments and the press blaming lockdowns for the economic disaster. But one need only look at the figures and take a look back to see that what the pandemic has done is accelerate processes that had been underway for a long time and were of a general nature.

This same week the UN published a report that showed how between 2010 and 2020, while globally accumulated foreign direct investment grew 83%, sixteen of two hundred and two countries regressed in their capacity to maintain and attract foreign capital. Not surprisingly, in the list of the unlucky sixteen there were failed states like Venezuela. But they were also so-called emerging states such as Argentina, South Africa, and Turkey. Together they form the last batch of fallen national capitals in the global capital competition. The international capital invested in Argentina, for example, went from representing 0.91% of the world stock of international capital in 2010 to only 0.19% in 2019.

When one looks at it with a decade of perspective, the usual excuses vanish: the political system of the three countries remains stable compared to many of the winners, Argentina and South Africa had during the decade apparently very different governments, the Covid did not produce any disruption until a few months after the end of the statistical series, and of course one cannot say that none of the three put any special constraints on foreign capital during the last ten years. What emerges is what all three have in common: their position in global capitalism.

Emerging countries or semicolonies?

Industrial production index of Argentina.

Historically, all three countries were relatively late comers in global capitalist competition. When capitalism was already entering its imperialist phase, a national industry was just beginning to emerge. When it finally emerged, the domestic non-capitalist markets -the artisan, independent peasantry, etc.- did not generate sufficient demand for all the value it produced. These are national capitals that were already born with a pressing need to gain foreign markets. In the countries of older capitalisms, this hunger for markets – and for the destiny of capital that accumulated in each cycle – translated into militarism and a violent struggle for colonies, into a brutal increase in the centralization and concentration of capital that would end up in the monopolies and state capitalism of today, and in two world wars.

But these young national capitals came from colonial economies. Apparently they did not lack buyers. The same imperialist powers that were rampaging among themselves, driving millions of workers to their deaths in the fields of honor to ensure the profits of their own capitals, supplied themselves with raw materials of all kinds by buying from them in massive quantities. Logically, the national capital of the newly arrived countries was concentrated in these export industries.

The paradox was that those countries which apparently had no problem exporting, also did not easily achieve the massive industrialization which had characterized rising capitalism. The reason is understandable. As we can see today when we analyze the protests of Spanish farmers, the primary sector cannot increase its productivity at the same speed as the industrial and service sectors. You will soon find a limit to the placement of capital. In addition, international demand will peak sooner or later or fall. And what is even worse: international prices will vary according to the situation and as the capital of the buyers is concentrated in large monopolies, they will exercise more and more power over the margins. As a result, the accumulated profits of the primary sector, at a certain point, will have difficulty being placed in the sector itself. And outside it… there was nothing. The situation in these countries had gone from being colonial to… semi-colonial.

How did national capital try to get out of the quagmire? By developing a particular form of state capitalism that we find today from Chile to Cuba and Mexico.

In broad strokes: the state will charge the primary sector with double-digit export taxes and with that it will maintain a consumption base and an industry protected by tariffs and, in many cases, directly subsidized. In other words, the state “guarantees” the realization of the surplus value that the market alone would not be able to realize, by taxing the export of a couple of products on the international market.

The trade war comes to South America (in Spanish)“, April 2018.

In periods of commercial peace and increase in the prices of that which they export – such as wars between great powers – the goal of governments will be to strengthen national capital by closing imports and trying to create a base of internal consumption capable of serving as a demand for industry. This is the whole secret of the South American “miracles”: the rate of profit increases in these periods, capital reproduces itself happily, and the state is able to sell its policies of strengthening demand as productive revolutions. These are temporary joys. The Venezuelan case is paradigmatic. The Argentinean case, even starting from a much more developed national capital, has followed the script. South Africa and Turkey, too.

But there is more: the lack of a domestic market in which to sell new products produces an endemic lack of opportunities for national capital to position itself. That is why Argentina’s balance of payments deficit -inward minus outward capital- reaches a whopping $30 billion a year. Argentine national capital has been bleeding itself dry for a long time. And not because of the supposedly stateless nature of national capital or because of the betrayal of a creole bourgeoisie selling itself out to imperialism. It does so precisely because Argentine capitalism, like Turkish, South African or all the others, is imperialist. In the absence of markets for the export of industrial goods and services, it exports capital. That its peculiar geographic and economic conditions do not allow it to expand, does not deny the daily game of pressures and alliances, nor the entire economic reality. Imperialism, under Argentine conditions, is exactly what we see. Turkey and South Africa, so similar but in different neighborhoods, show that the militarist and expansionist temptation underlies the general conditions of imperialism and manifests itself … when there is an opportunity.

Where are we headed to now?

Turkish frigates patrol off Crete in waters in dispute with Greece.

The general picture of the semi-colonial world is basically the same in all cases: an export sector that subsidizes the rest of investments through the state, a permanent tendency to devaluation and monetary storms due to capital flight and currency hoarding that inevitably occur due to the lack of internal investment destinations. And as a consequence, difficulty in maintaining and attracting foreign capital and periodic crises in public accounts. The picture we are experiencing right now.

What’s next? Rising taxes and the destruction of the weak industrial fabric as the state sucks even more income from the export sector. It is impossible to expect anything else from the national bourgeoisie. In Argentina not even speculators expect it. If they have accepted almost unanimously a massive removal of the state debt, it is because they know that what is coming is a gigantic destruction of productive capacities and they cannot expect more. In Ecuador the IMF has already accepted an agreement precisely on a plan of reforms that will mean the demolition of the few social services attending to workers, a general increase in taxes and a direct attack on working conditions. In Argentina, nothing else can be expected. Even in Brazil, a much larger and diversified national capital, nothing but a new wave of attacks is coming. Bolsonaro and Guedes will divide up roles to occupy all the space for discussion… but the result will be no surprise whatsoever.

This is because in the global game, what is expected are more and more tensions becoming increasingly violent in order to win some new market. In the case of Turkey, the flight forward involves conquering a place of weight in the hydrocarbon market in order to gain exports by force: the war in Libya and the increasingly dangerous game of position in the eastern Mediterranean are the immediate result. In Argentina, this desperate search for markets is leading it to abandon the strategy of equilibrium that it had traditionally carried out with Europe, the United States and Brazil, in order to throw itself into the open arms of China. Today, China represents 85% of meat exports, 63% of the total foreign currency coming in through foreign trade, and 45% of the reserves of the Argentine Central Bank.

Is this not comparable to Turkish military pressure? Not in the forms, but it prepares a situation no less explosive. The United States is trying to relocate the most valuable industry to its territory, but it knows that it cannot recover the low cost industry, so it tries to move it to the Americas, recovering regional weight in the process. With China investing massively in South America, the inevitable global result is the transfer of tensions from the China Sea to the continent. In this context, Argentina’s move to such a close relationship with China cannot fail to have consequences for its relationship with Brazil, which demands the immediate opening of markets such as the automotive sector, which are critical for Argentine capital.


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