Year XXXVI, 1994, Number 3 - Page 172
The Problem of Underdevelopment in the Era of World Unification
1. The problem of underdevelopment in the era of world unification.
Discussions of the problem of underdevelopment, in order to highlight the considerable imbalance of the global distribution of resources in favour of developed countries, often point to the fact that while developed countries represent 24% of the world’s population, they possess 83% of world income, while the remainder of the world’s population, 76%, possess the remaining 17% of world wealth. Other commentators stress the dramatic nature of the problem by calling attention instead to per capita income levels, maintaining that these have increased the gap between the richest 20% of the world’s population vis-à-vis the poorest 20%. Still others characterise the phenomenon geographically, maintaining that the disparity between the developed North and the underdeveloped South has widened, and emphasising the geographical contrast between two areas with supposedly homogeneous internal economic characteristics. Such assertions should nowadays be examined more critically, in the sense that they no longer correspond to the reality of economic development that the world has experienced in recent decades. In fact, it should be noted first of all that, evaluating world income on the basis of a common yardstick, the percentage of world income of less developed countries (LDCs) is 39% of the total. Secondly, the poorest 20% are in fact geographically concentrated in one area of the world, and hence reveal a problem, as this article aims to demonstrate, that is broader than the single problem of underdevelopment itself. Finally, important policies have been developed in recent years that put the problem of the poverty of several areas of the world in a new light, in as much as we are currently witnessing, as the example of NAFTA (North American Free Trade Agreement) demonstrates, examples of regional integration, rather than opposition, between developed and underdeveloped countries.
The reality is that by now more than 50% of humanity has liberated itself from the crisis of underdevelopment, or is rapidly doing so. Nevertheless, this result, however positive it may be, on the one hand can not be considered satisfying because almost half of humanity still remains in conditions of extreme poverty, while on the other hand nor can it be said that this achievement is irreversible. For that to happen, the European Union (EU) must seize the opportunity at the 1996 intergovernmental conference to further its transformation into a real, effective federation, with the aim of consolidating the results achieved within itself, and to contribute to defending the world’s economic and monetary stability, which, despite the momentary upsets that have occurred, lies at the heart of post-Second World War economic growth. If the EU should be turned into a mere free trade zone, the necessary European pillar of world economic stability would be lacking, and the world would run the risk of sliding toward forms of protectionism that would endanger the levels of economic development achieved so far. The strengthening of the EU, on the other hand, will ensure that democracy will further assert itself even at the world level, by involving in this process the UN, and the countries and regional associations where it has not yet become established.
Bringing our understanding of underdevelopment problems up to date, albeit with the necessary caveats and qualifications that will from time to time be required, can therefore help us to appreciate which responsibilities belong to Europeans, and what initiatives the EU can undertake in order to resolve the problems of the poorest countries.
With the aim of identifying the areas that can be considered as having exited the economic crisis, and those on which to concentrate attention in order to identify specific initiatives, both political and economic evaluations will be employed, using various measures. As regards economic evaluations, the first that will be used is that proposed by Fuà, according to which, even though it is important not to confuse measures of economic growth with indicators of welfare, given the unreliability of evaluations based on income levels, it is necessary “to take note of the fact that historically there has existed a certain connection between the income levels of a country and the average life-span of its inhabitants,” concluding that life-span “can be considered a significant indicator of the population’s physiological welfare.” Nevertheless, since average lifespan can still be considered a partial measure of welfare, and since it is impossible to establish a close correlation between income levels and life expectancy at birth, a new measure the UN has developed in an effort to establish a more relevant indicator of a country’s standard of living will be used. This new measure is called the Human Development Index (HDI), and takes into account average life-span, and educational and per capita income levels. On the basis of this measure, the UN has categorised countries into three groups. In the first are grouped countries of high human development (i.e., all the industrialised countries, plus some in Latin America and Asia that are normally considered to be still developing); in the second are grouped those of medium human development; and in the third those with the lowest human development levels. Finally, the other indicators considered are the average annual GDP growth rate, so as to have an indication of the dynamics of the situation; and per capita income, so as to take into account to what extent economic growth is being frustrated by excessive demographic growth.
Starting with political assessments, the first fact to note concerns the ratification of NAFTA by the parliaments of the countries involved, which happened at the end of 1993. For the first time, an important country with low per capita income, Mexico, which was however already an OECD member, joined a large free-trade area along with the United States and Canada. NAFTA is not yet the European Economic Community, nor even less the European Union. It does represent however a new approach to the problem of implementing active policies to confront underdevelopment, and has already led to requests for admission from other countries, such as Argentina, Chile and Venezuela. NAFTA (370 million people) has united countries with an average life expectancy, in 1992, of 74 years (Mexico 70 years), against a world average of 66 years; and with an HDI score that places it among the countries of high human development. The three countries that have asked to join (67 million people) have an average life expectancy of 71 years and a high HDI score, while nevertheless a per capita income that is much lower than North America’s, and Chile and Argentina in particular are still consolidating their return to democracy. In fact, the recent pan-American summit promoted by President Clinton and held in Miami on 11-12th December 1994, by posing the premises for the creation of a single American market within the year 2005, is breathing new life into the region’s economic communities, such as MERCOSUR for example. These regional economic communities, in the transition stage of the transformation of the pan-American market into a real and proper federation, will also be able to develop collaborative relations with the European Union and other areas, so as to offset the weight of the North American economy. In the meantime, through NAFTA, Mexico has chosen its own path to liberation from underdevelopment by embracing a policy of ever closer integration with North America, while in other parts of the American continent regional integration processes that seemed for a long time to be dormant have regained new dynamism.
The other area of the world where a rapid change in standards of living is underway is Asia. The rapid economic development in recent years (GDP growth of over 9% p.a. between 1980-91) in the so-called “Asian tigers”, South Korea, Hong Kong, and Taiwan, which together number 71 million inhabitants, is well-known. The UN categorises them among the countries of high human development. To these countries now need to be added also the ASEAN countries (334 million inhabitants), an association founded in 1967 by the Philippines, Indonesia, Malaysia, Thailand and Singapore, Brunei joining in 1976. From 1st January 1993 ASEAN began its gradual transformation into an effective free-trade area with a first stage of customs tariff reduction; and in July 1994 it launched negotiations for increasing collaboration on a range of matters from foreign to security policy. Despite the fact that the UN considers these countries to be of medium human development, the GDP growth of this group is important (5.2% p.a.) and the average life expectancy (64 years) is, even if by a small amount, superior to that of LDCs (61 years). ASEAN is exercising a powerful magnetic pull on neighbouring states, so much so that recently Cambodia and Vietnam have been admitted to the association as new members: the last, it is widely believed, will rapidly join the ranks of the area’s most industrialised countries. All the same, this is not the real news regarding the state of underdevelopment in this part of the world. The decisive turning point along the road to economic development is taking place in China, a country in which GDP from 1980-92 grew at almost 10% p.a. (against, for example, 2.3% in the European Union) and whose economy, which already today is second in size only to that of the United States, will overtake it in the coming decade. Certainly this country has not been developed uniformly over the whole territory, in as much as the urban areas of the eastern coast have been the main beneficiaries of economic development. Nor has the progressive opening up of the market been followed by a parallel development toward the adoption of democratic institutions. All the same, standards of living in China, which numbers 1,150 million inhabitants, and which the UN considers to be of medium human development, have improved considerably since the end of World War II. It is enough to consider that life expectancy at birth has jumped spectacularly from 47 years in 1960, to almost 71 in 1992.
As regards Central and Eastern Europe, and the republics of the CIS, the necessary evaluations are both political and more strictly economic in nature. From the political viewpoint, the fact that the admission of Poland, Hungary, the Czech Republic and Slovakia into the European Union is expected, is not only consolidating their economic growth and democratic institutions, but has sparked off a process of imitation that has spread to the other countries of Central and Eastern Europe and to the Baltic republics. Secondly, if one goes beyond an examination of the flows of wealth produced, and income levels achieved, to look at also the stock of accumulated physical and intellectual capital in Central and Eastern Europe and the CIS, then this area must be included in the group of industrialised countries. The UN, with the exception of Romania and the Asiatic republics of the ex-Soviet Union, which are considered as being of medium human development, categorises Central and Eastern Europe and the CIS as countries of high human development.
If the above is true, it can reasonably be maintained that as regards the Americas, Asia (with the important exception, to cite the major countries, of Pakistan, Bangladesh and India, certain regions of which are however very developed and will sooner or later drag the whole Indian continent into development), Central and Eastern Europe and the CIS, it is wrong to talk of real and proper underdevelopment. The only continent where this represents the real problem both for the levels of economic backwardness, and above all because as of today there are no visible indications of its solution in the medium to long term, is Africa. Indeed, it can be argued that the part of the world where the strategic problem is to find out how to bring about development, is solely the African continent.
The particular nature of this continent, compared to the other areas of the world, can be established through all the measures used above, and in others that indicate the extent of the difference. For example, life expectancy at birth, which for the developing countries as a whole is 61 years, is 52 years in the case of Africa. The most general measure used by the UN, that of human development, indicates once again that Africa scores lowest in the world, since 80% of the countries considered to be of the lowest human development are African. In addition, in sub-Saharan Africa, per capita GDP for the period 1980-91, given a rate of population growth above that of total GDP, was even negative. Hence, when it is argued that the distance between the wealthiest 20% of the world’s population and the poorest 20% has grown, it needs to be pointed out that this last group is very concentrated geographically, in so far as about half of them are Africans; in fact, this represents more than 3/4 of the entire continent’s population.
2. The theory of external exploitation, and the internal causes of underdevelopment.
The argument that LDCs are exploited by industrialised countries is still used to explain the low per capita income levels found in these countries. This theory places the accent on the external economic causes of underdevelopment and undervalues instead the internal causes.
One of the arguments on which the exploitation theory is based is that of the excessively low prices for raw materials, and of their progressive reduction long term; the second is that of the worsening of the terms of trade. In both cases the conviction is expressed that the two phenomena concern only LDCs, which are held to be prevalently exporters of primary products. The third argument concerns the negative role played by multinational corporations, which are held to be responsible for pursuing a policy of the systematic pauperisation of the resources of LDCs.
As regards the prices of raw materials, it should be noted that their reduction over the long term affects all the producers and exporters of raw materials, and that it is not possible to imagine damage that is limited only to LDCs, given that these only supply a third of the world’s raw material exports, against two-thirds for the industrialised countries (the USA, in particular, is the biggest world exporter of raw materials and food products). It seems more likely that the fall in prices can be imputed to a crisis of overproduction, and to a tendency to employ less raw materials in the productive cycle due to the greater efficiency of productive processes, and to the growing use of recycled raw materials. In addition, it should be kept in mind that raw materials are no longer the biggest share of LDCs’ exports: in 1990 they represented 46.9% of LDCs’ total exports, of which 24.9% was comprised of petrol and other combustibles.
Even the argument that the LDCs’ terms of trade (ratio between export and import prices) have systematically worsened is not sustainable. Between 1972-78, while the industrialised countries’ terms of trade worsened by 1.9% p.a., the LDCs’ terms of trade improved by 7% p.a. Subsequently, from 1982-91, the situation was reversed, with the industrialised countries’ terms of trade improving at the rate of 1.6%p.a. while those of the LDCs worsened by 2.2% p.a. However, even if the situation has recently worsened, by examining a wider time period, from the end of the 1930s until today, the thesis of a structural decline to the disadvantage of the LDCs alone is not corroborated. Once again the worsening of the terms of trade for these countries seems to be mainly due to the same reasons that, more generally, have determined a fall in the prices of raw materials. It should also be added that the fact of being for the most part exporters of raw materials does not mean automatically being harder hit than other countries, in as much as among raw material exporting countries there are both rich industrialised countries (e.g. Australia and New Zealand) and rich LDCs (e.g. Saudi Arabia and Kuwait). In general this latter group are in a relatively better position than other LDCs, and their problem is instead that of a greater degree of distributive justice internally. Certainly, however, the protectionist agricultural policies pursued by the industrialised countries, and in particular by the EU, do not help to support growth in LDCs.
As regards the role of multinational corporations in LDCs, even if it is accepted that an American multinational supported Chile’s coup d’état, it is not possible to deduce from this that a systematic policy of economic exploitation has been put into operation, nor that a generalised direct exercise of political power has occurred, that could go as far as collapsing regimes that are not to their liking. Rather, the fact is that multinationals are concerned about long term political stability, since this allows them to profit from their investments; this explains why they tend to invest in industrialised countries instead of LDCs.
Recently, the above arguments have been questioned from several angles, both in general terms and, in the case of a study produced by the World Bank, with specific reference to sub-Saharan Africa.
In particular, the type of aid policy extended to LDCs has been criticised. In fact, according to certain commentators, the persistence of underdevelopment should be ascribed to internal causes. The reason for this is explained by the fact that aid policy is effected through payments made to the governments of LDCs, which, having an interest to guarantee a constant flow of aid, tend not to resolve the problem of underdevelopment, and instead tolerate considerable economic inequality, such as between the high standards of living of a restricted caste of bureaucrats and public managers linked to the local political class, and the low standards of living of the vast majority of the population. This thesis is shared also by Third World economists who attribute malpractice and inefficiencies to the role of the state in the economy, which is deemed to be excessive.
Nevertheless, this criticism of aid policy, while containing many elements of truth which need to be taken into account, is overly simplistic in as much as it does not help us to understand under which conditions aid policy can be effective in launching the development process. The fact that aid policy, of itself, does not ensure the capital accumulation process in LDCs has always been clear. However, faced with the example of Africa, in which underdevelopment persists, it is useful to recall the fundamental elements of the criticism elaborated effectively by the Swedish economist Ragnar Nurske immediately after the Second World War. Nurske concluded his analysis on the process of capital formation in underdeveloped countries by arguing that the economic growth of LDCs depended ultimately on them alone, and hence on the existence of policies that were designed, or not, to maintain the process of accumulation. Neither aid policy, nor favourable terms of trade, nor other instruments can achieve significant effects if they are not accompanied by internal policies that are designed to achieve a strict policy of support for the accumulation process. Nurske justified his thesis on the basis of arguments that have been further refined over the years, and that can be reduced in substance to an emphasis of the fact that external aid, in the absence of active policy, does not add to available domestic savings, but substitutes them. This conclusion derives from the observation that the level of saving does not depend only on absolute income levels, but also on relative ones, and is based on the well-known “demonstration effect”, introduced into economic debate at the end of the 1940s. Namely, in a situation in which two areas characterised by two different levels of income come into contact, the consumers of the area with the lower incomes will tend to imitate the consumers of the area with the higher incomes, thus reducing the propensity to save. In this situation, and in the presence of a large velocity of the circulation of information and of the diffusion of consumption models from the richer countries to all the world, “it is almost always possible, to a certain degree, that foreign funds substitute domestic saving in such a way that the consumption of that country is expanded and there is no notable increase in the rate of accumulation.”
The subsequent refinement of this argument took place with the generalisation of the substitution effect of foreign savings for domestic ones, and with the observation of the so-called “transfers paradox”. In the former case, this analysis was extended to cover the effect that the flow of foreign savings has on the formation of the component of domestic savings represented by public savings. Since a large part of Third World countries’ international indebtedness is public debt that is often channelled through the state budget or public enterprises, as is the case in Africa, the contention is that when the public authorities observe a reduction of budget constraints, due to the impact of the supply of foreign capital, they tend to slacken budgetary discipline by reducing public saving. This argument is all the more valid, the more important the public component of a country’s potential domestic saving. This is the situation in which African countries find themselves, where the inflow of public funds from abroad is greater than private funds, and for which, given the low levels of per capita income, it is possible to hypothesise that the share of public saving is required to fulfil a decisive role in the accumulation process. A second reason that can justify the hypothesis of substitution between foreign and domestic savings, concerns the displacement effect on private domestic savings through foreign capital flows into the local capital market. If, in any given moment, there are only a limited number of investment opportunities in a national economy, the fact that foreign capital is invested in this economy can reduce local savers’ opportunities for profitable investment. In such circumstances, local savers are encouraged either to save less, since they have less opportunities for investment, or to look for opportunities abroad.
The “transfers paradox”, for its part, suggests that when an economy benefits from a foreign transfer, instead of this transfer causing an improvement in standards of well-being, in terms of the greater income available, these standards of well-being can in fact be impoverished. A transfer of real resources can have a negative impact on an economic system if it alters the evolution of the terms of trade unfavourably, and if it takes place within a context of distortions in the functioning of the market. The first case occurs when the transfer of resources modifies the terms of trade by altering the conditions of supply and demand for goods in international markets. In particular, the transfer will have a negative effect on the beneficiary country if it induces it to increase its demand for foreign produce more than the country that has transferred the resources reduces its demand for those same goods – because in this way an increase of import prices will result. The effect of the transfer will be positive in the opposite case. In the past, between 1970 and 1982, Third World countries benefited from growing net transfers. The fact remains that when the problem of their excessive indebtedness was posed, and reimbursement policies were put into action by transfers in the opposite direction, this policy was carried out simultaneously in all the countries involved. These countries, in order to generate the resources necessary for reimbursement had both to reduce imports, and to push their exports during a cycle in which the industrialised countries’ economies were encountering problems. Part of the origin of LDCs’ deteriorating terms of trade derived from this phenomenon, starting from the second half of the 1980s.
The arguments relating to the distortions introduced into the competitive equilibrium of the market seem to be even more pertinent. An important example of these distortions concerns the commercial policies, often protectionist in nature, that are implemented by LDCs. It is possible that the costs generated by protectionist policies are increased by a net transfer from the rest of the world, as in the case when the transfer serves to increase demand for protected local goods. The increased production of these goods, already initially costly due to the effect of protection, can prove damaging for the economy as a whole. The damage will be caused when the debt is paid back, in as much as the initial beneficiary economy will not have been able to accumulate the resources needed, since they have been wasted by mistaken resource allocation that generates de facto irreversible costs. It should however also be stated that such a result is produced when the protection policy is an end in itself; that is to say, when it is not designed to achieve the temporary defence of a nascent industry, and when competition within the economy which receives the transfer is lacking. Finally there can be distortions connected to the transfer itself. This is the case for aid contributions or loans that are dependent on the acquisition of goods produced in the country which makes the transfer. In this case the advantage for the country receiving the transfer is reduced, because of the fact that the increased demand for imported goods can harm the terms of trade; in addition to the fact that the prerequisites for the subsequent reimbursement of the transfer are lacking. This situation seems particularly true for Africa’s sub-Saharan countries, for which bilateral public credits, that is those for which the obligation to purchase goods from the donor country are more stringent, make up about 67% of total public credits, against an average of 58% for all developing countries taken together.
After about 50 years of aid policy to LDCs, it is important to re-evaluate these criticisms of such policies, taking note of the fact that in practice the majority of African governments have failed in their policy of supporting the accumulation process, and ask ourselves why this has happened and what new or different policies need to be implemented. In the meantime it should be pointed out that traditional aid policies have also been called into question at the World Bank. In a recent study, the Bank argues that the economic growth of a country is directly proportional to the growth of the principal urban areas that compose it, and that therefore only by overcoming the constraints and limitations that hinder economic growth in the cities will it be possible to ensure rapid growth in the economic system as a whole. This new direction in aid policy, moreover, would have the great advantage of implementing projects that have the best guarantees of profitability, and that are most easily verifiable.
These considerations in combination are valid for all developing countries, and demand an examination of the internal reasons for underdevelopment, even though they do not as yet fully explain the reasons for Africa’s greater backwardness. In addition, the limitation of this approach is that, as far as examining the external reasons is concerned, it only considers economic causes; while as regards the internal reasons, it analyses motivations that do not seem to be decisive.
3. Africa: a continent excluded from the process of world economic unification.
All continents, except Africa, are participating in the process of market unification at the world level. Examining more closely the reasons for underdevelopment, Africa’s singularity is revealed through its involvement in the world market. The total exports of African countries, according to the GATT, equalled $ 99 bn (U.S. dollars) in 1991, the same level as ten years earlier. African exports as a share of world trade, which in the meantime had increased considerably, were hence reduced from 5% in 1981 to 2.8% in 1991: in fact Africa, despite the fact that many of its countries export an important percentage of their GDP, is relatively closed compared to the rest of the world (for example, Taiwan’s exports alone, that in 1981 were 23% of total African exports, represented 77% in 1991). But Africa’s countries are also closed with respect to each other, as is demonstrated by comparisons of the various amounts of intraregional trade in the world’s principal areas. In fact, while in Europe, according to the GATT, intra-European trade in 1991 represented 72% of European countries’ total exports, and intra-Asian trade 46%, intra-North American trade 33% and intra-South American trade 16%, intra-African trade represented only 6.6% of the continent’s total exports. This last fact is particularly serious since, while on the one hand, the action of multinationals poses the problem of democratic control at the world level, on the other, it is also true that they represent one of the tools for unifying markets. In fact, according to the UN, the so-called transnational corporations (TNC) generate more than 70% of the world’s trade, and in particular it is estimated that 25% of world trade consists of exchanges between companies belonging to the same multinational group. The obvious conclusion is that the African continent, to the extent that it has been unsuccessful in attracting investments from TNCs, remains excluded from the market globalisation process that is leading to the birth of a world economy.
Another UN research project, into foreign direct investment by TNCs, confirms that the African market is unattractive to foreign investors. During 1981-85 the flow of foreign direct investment by TNCs into Latin America equalled $ 6 bn p.a., and by 1992 had risen to $16 bn. In the same period, foreign direct investment into South-East Asia (excluding Japan) rose from $5 bn p.a. to $ 21 bn. In Africa instead, the 1992 investment figure of $ 2 bn was the same as the annual average for the first half of the 1980s. In fact it should be pointed out with reference to the problem of LDCs’ foreign debt, that it is typical in Africa for debt to be contracted mainly with public institutions, as opposed to the situation in other areas of the world where foreign private loans are more common.
According to the above-mentioned World Bank study of Africa’s economic situation, in order to understand the reasons for the continent’s underdevelopment it is necessary to re-examine the situation of African states during the decolonisation process. Due to a lack of capital and domestic entrepreneurial skills, an unwillingness (having just gained independence) to resort to foreign capital and, as a corollary of the latter point, a distrust of the market, almost all African countries chose to enlist the state as the direct instrument of capital accumulation, and hence as the regulator of economic development. The other fundamental decision taken, as the World Bank stresses, was to aim immediately for industrialisation, which was seen as the cornerstone of rapid development, with the goal of containing a resort to importing manufactures, and also because agriculture was penalised by the declining prices for its products. On the basis of these choices, agriculture was taxed heavily from the outset with the aim of collecting public funds for the financing of industrialisation. The governments created public enterprises and approved measures for the control of prices, limitations on foreign trade, and discretionary intervention for the allocation of foreign exchange reserves in the pursuit of social objectives. In the meantime the bureaucratic and administrative structure necessary for the management of the new states produced by the decolonisation process was created; structures that, given the orientation imposed by a national and public development model, further increased the weight of the state in the economy. According to the World Bank these choices are the fundamental reason behind the ineffective political economic policies adopted by the African states; choices that prevented their taking the necessary rigorous and unavoidable measures for the healthy development of the economic system. These considerations place in a new light the evaluations previously expressed by Kohlhammer, who argued that the causes of underdevelopment are not to be found outside the underdeveloped countries themselves, but, rather, on their inside.
As regards the argument about the declining prices for raw materials, it clearly needs to be highlighted that the dependence of Africa’s economy on the export of primary products is higher than for other LDCs, and is hence more sensitive to the performance of their prices. In fact, toward the mid-1980s, primary products equalled 80% of total exports, as in the 1960s. This means, as the World Bank argues, that, despite such a long time period, and contrary to what has taken place in other parts of the world, Africa has proved incapable of diversifying its productive base and hence the composition of its exports. In fact, a comparison of two African countries, Ghana and Nigeria, with two Asian countries, Indonesia and Thailand, reveals that in 1965 the per capita income of the latter pair was lower than the former’s. However, in 1990 Indonesia’s per capita GDP was three times Nigeria’s, even though both were petroleum exporters; and Thailand’s per capita GDP was almost four times Ghana’s, despite the fact that both countries were initially predominantly agricultural.
As regards the argument concerning the terms of trade, Africa represents once again a case apart. From 1975-84 they improved by only 0.4% for the continent as a whole and decreased by 1% for sub-Saharan Africa, while from 1985-92 they decreased, by 3.9% and 3.6% p.a. respectively. Nevertheless, according to the World Bank, this is still not sufficient to explain sub-Saharan Africa’s economic decline. The reduction of net income from abroad, due to the impact of sub-Saharan Africa’s (Nigeria excluded) worsening terms of trade, represented 5.4% of GDP between 1971-73 and 1981-86. Now, taking into account that a drop in earnings from abroad equal to 1% of GDP, due to the impact of the decline in the terms of trade, reduces GDP growth on average by 0.8% p.a., for the case under examination this meant a lower annual GDP growth rate of 0.4%, in other words a relatively small negative impact. It is however necessary to recall that net transfers from abroad during the ’70s and ’80s were increased to compensate in part for the lower income inflows due to the terms of trade. According to the World Bank, sub-Saharan Africa received from 1971-86 more aid than any other area of the world. In particular, net foreign transfers as a share of GDP were between 2-5% for the period 1971-73, 4.3% between 1974-80, and 3.6% between 1981-86. If Nigeria is excluded from the group of sub-Saharan countries, the figures become 3.7%, 7% and 6.4% respectively. Even if the economic effects of the two phenomena (worsening of the terms of trade and increased transfers) are not equal, the net transfers from abroad as a share of GDP were greater than the negative impact annually of the decline in the terms of trade. It should also be added that the countries that instead benefited from a positive trend in the terms of trade proved unable to capitalise on this advantage, but rather nullified it by increasing current public spending, and by financing both unprofitable projects and flights of capital. In particular, African investment policies have been very different from those in South-East Asia. For example, from 1965-72 Nigerian investment as a percentage of GDP equalled 16.6%, while in Indonesia it represented 12.8%; but from 1987-90 it decreased to 15.4% of GDP in Nigeria, and grew to 33.9% in Indonesia.
To turn our attention for a moment to the internal reasons, the debate has focused primarily on the development model that has led to a growing role of the state in the economy, and to which has been added insufficient investment in infrastructures. The solution proposed by the World Bank is a criticism of the development model used by African countries. It calls for privatisation of the banks, public services and enterprises, lower taxes on agriculture, the abandonment of policies to control prices and exchange rates, and so on. This means, then, adopting the liberal development model. Nevertheless, the weak point of the proposal, which in general is reasonable, lies precisely in limiting itself to proposing the adoption of a policy of openness to the private market. This is unacceptable in as much as the liberalist economic model is still compatible with an authoritarian political system, which is considered increasingly less acceptable by the international community that instead is calling for greater democracy, even when dealing with LDCs. Democracy, moreover, is the indispensable institutional mechanism for the achievement of more advanced standards of living. On this point, the American Secretary of Labour, Robert Reich, commenting on sanctions that were discussed in the framework of the GATT, to be implemented against those countries that do not make provision for social and environmental legislation which is similar to that in Western democracies (hence the accusation of social and environmental dumping), maintained that such legislation can not be introduced into a poor country by decree, or by an act of external force, since it is a consequence of economic growth. The problem, according to Reich, is rather that of the mechanisms that can guarantee the parallel development of economic growth, and social and environmental legislation. The conclusion is that only democracy, that is free elections and political pluralism, introduces into the economic system the institutional mechanism by which the advantages of development are fairly distributed between the present generation (through higher salaries) and those generations still to come (through safeguarding the environment).
4. The constraint on Africa’s development: security.
In conclusion, then, the above analysis serves to highlight the particular situation of Africa compared to the other areas of the world generally classified as LDCs. However, it should also be noted that the European Community has elaborated an innovative policy toward the African countries since the 1970s. In 1974, as is well-known, the first Lomé convention was signed. This accord, for the first time in the history of relationships between industrialised countries and LDCs, provided measures for facilitating the export of LDC products to the European Community (today the European Union), without reciprocity for European exports to Africa. All the same, the most innovative measure concerns the institutions that were introduced to manage the convention. In fact, this latter feature (and it is this that makes the Lomé Convention different from other aid policies launched in different parts of the world) has created a joint parliamentary Assembly whose task is to supervise the implementation of the accords; this also represents the forum for discussing any necessary improvements. The importance of the Lomé Convention has been repeatedly stressed by the federalists, who have moreover criticised Europe’s excessively indifferent attitude to the internal political system of the African states, in as much as the Community has even ended up financing anti-democratic and authoritarian regimes. Beyond such political limitations, the agreement’s economic limitations should also be remembered, given that it has not fulfilled all the objectives expected of it. In effect, EEC imports from the African, Caribbean and Pacific (ACP) countries that adhered to the agreement have been reduced compared to the total number of imports from LDCs; nor has the Convention served to diversify the composition of their exports, about 80% of which still consist of raw materials (this fact represents the most significant difference of these countries compared to other LDCs).
Clearly, however, notwithstanding the fact that the Lomé Convention has prevented a worsening in African LDCs’ standards of living at a time when the rest of the world was establishing the foundations for the emergence of new areas of development, the fact remains that in Africa the symptoms of a development process are not visible, as is the case elsewhere. In fact, the Lomé Convention does not meet the strategic problem of the African continent, that of security and political stability.
Africa is an unstable continent. In the space of forty years, thirty-five important conflicts have caused about ten million deaths in sub-Saharan Africa alone, and at the beginning of the 1990s thirteen conflicts were still underway. In 1990, the President of the European Commission, Jacques Delors, argued that Africa in the 1990s would become an area of fundamental instability. The division of the continent into 53 states, making it the most fragmented area in the world, together with the arbitrary delimitation of borders inherited from the colonial period, as well as the unitary and centralised nation-state model that was inherited from Europe, are now identified as the causes of permanent tension. From 19th-21st May 1991, at Kampala, Uganda, one month before the Council of the heads of state and government of the Organisation for African Unity (OAU) met, and on the initiative of the Africa Leadership Forum, with the support of the OAU and UN, an important meeting of African and non-African political figures and representatives of pacifist and regional integration movements was held on the subject, “Towards a Conference on Security, Stability, Development and Cooperation in Africa.” The document approved at Kampala recognised that “The erosion of security and stability in Africa is one of the major causes of its continuing crises and one of the principal impediments to the creation of a sound economy and effective intra-and inter-African cooperation.” Moreover it recognised that the interdependence of the African states and the links between their security, stability and development require a collective African response. In addition, it proposed the creation of a conference on security, development and cooperation in Africa (CSDCA), in the awareness that internal and external security must derive from a structure of common and collective continental security. According to this document, security must be the first responsibility of the CSDCA, due to the organic links between the security of African states as a whole and the security of each of them individually. Africa should create a continental peace-keeping structure through the CSDCA, that, should it be necessary, would not exclude UN intervention. The document furthermore maintains the need to create an African economic community that will encourage the creation of institutions with continent-wide competences, even if it notes the need for a leading state to emerge in the cooperation process. All those states whose actions have an impact on stability, security, development and cooperation in Africa will be invited to become founder-members of this convention. Even if the document has not yet had practical results, it is nevertheless significant to recall that the summit of the heads of state and government of OAU member countries that took place the month after the Kampala meeting, recognised in its final communiqué that until such time as the African countries do not collectively assume the burden of continental security and stability, there will be no hope for the socio-economic development of Africa.
The European colonial powers exited from the African scene during the decolonisation process, but this fact did not make the continent immune from the policy of confrontation between the US and USSR, which manifested itself through the military assistance given to the states, or factions, that allied themselves with one or other of the superpowers. A partial responsibility for maintaining peace in Africa fell on France, as far as the ex-French colonies were concerned. This role was carried out with many difficulties, and the recent devaluation of the CFA franc, followed by the conflict in Rwanda, has marked the eclipse of even this limited responsibility for the security of the African continent.
By analysing the African countries’ military costs, and comparing them with those of industrialised countries, it is possible to measure how internal and external tensions lie at the heart of an enormous waste of resources. In fact, while industrialised countries as a whole spend about 3.4% of their GDP (1990-91) on military spending, countries like Egypt, the Gabon and Morocco spend 4-5%, Libya and Zimbabwe 8-9%, and Mozambique, Ethiopia and Angola 13-20%.
If the problem that lies at the root of all Africa’s difficulties is that of security (and the conflicts in Eritrea, Angola, Mozambique, Somalia, and Rwanda are examples of this), the European Union has a great responsibility to contribute to guaranteeing it, and some action is being taken to this end. In the course of the meeting held at the beginning of October, at Libreville, the joint Assembly of Lomé Convention IV, adopting John Corrie’s report on the revisions to be made half-way through the convention’s life, asked that article 5, regulating the rights of man, be reinforced by introducing a commitment to implement democratic values. However the definition according to which democracy is represented by universal suffrage, multiple parties and freedom of the press was rejected, and instead a formula according to which “there does not exist a pre-set model of democracy” was adopted. All the same it should be remembered that approval was given to the passage of the report that maintained that the Assembly must meet more frequently and, above all, that it must have more legislative powers; this is very significant since it opens the way to the institutionalisation of relations between the European Union and Africa. If, as far as democracy is concerned, the process is slowly gathering momentum, the contents of article 3 of the convention (according to which the ACP countries have sovereign power to determine the principles, strategies and models of their economic and social development) highlight the persistence of obstacles and impediments on the economic and social front. This text should be revised also, by establishing the idea that the market economy, albeit to be achieved gradually and with all the necessary correctives, is the prerequisite for the African economic system’s integration into the world economy.
In addition, the by now undelayable problem of conflict prevention, perhaps for the first time in such explicit terms, has emerged during the course of the joint Assembly’s work. In a resolution sponsored by certain European parliamentarians (among which Kouchner, Bertens, Hory, and Maij-Weggen) and by the ACP group, the Assembly, after recalling the conflicts in Liberia, Angola, the Sudan and above all Rwanda, has called on the international community to examine the possibility of creating a permanent army for the protection of human rights. In addition, it is regrettable that Africa’s regional organisations, and in particular the OAU, have not yet created structures capable of acting effectively to prevent conflicts breaking out; to this end it is necessary that the ACP-EU Council studies seriously the possibilities for creating a framework for political cooperation.
5. A world and European policy for the security and development of Africa: proposals for discussion.
Willy Brandt, in his report on North-South relations, highlighted that we are now faced with problems that concern the whole of humanity, and that therefore they will have to be solved at the world leve1. Underdevelopment, according to Brandt, is one of these problems, and to defeat it he proposed the establishment of automatic transfers of money to underdeveloped areas, to be financed by international taxation. “It will be pointed out that it is difficult to imagine applying international taxes in the absence of an international government. However, we believe that the unavoidable nature of certain aspects of what could be termed ‘international government’ has already been shown to be inevitable for the solution of collective and national problems, and that by the end of the century the world in all probability will not be able to function without some acceptable form of international taxation, and without the means for taking decisions that are considerably more elaborate than the current procedures.” With this passage, Brandt outlined the general framework within which an effective anti-underdevelopment policy must be set up, indicated the way to implement it, and posed the problem of strengthening the current world institutions’ powers. In light of the foregoing, for less than half of the world’s population this would represent managing their exit from the crisis of underdevelopment; for the rest of the world’s population it would instead concern the implementation of better income distribution, both domestically, and in favour of the world’s poor. In an initial stage, the international government talked about by Brandt will presumably have the power only to concern itself with the first problem, given the fact that the fall of the Berlin Wall, among other things, has meant an end to the opposition of two antithetical models of economic development, and has provoked a debate about which development model mankind should adopt. Moreover, the recently established World Trade Organisation, that will have to manage trade and competition policy for the accord’s member countries, is heading in this direction and will pose sooner or later the more general problem of a redistributive policy at the world level. It is nevertheless possible that a certain amount of time will still pass before this awareness, having produced the necessary institutional transformations, is translated into concrete facts. In the meantime it is possible to identify some steps in this direction, above all regarding the most marginalised areas, such as the African continent. As far as Africa is concerned, the EU, for geographical and commercial reasons, has a specific responsibility to guarantee its security. All the same it will not be able to assume this responsibility directly and autonomously, in as much as it would be politically unacceptable for the African countries themselves. Moreover with the end of the military confrontation between the US and USSR, even operations by the US beyond its own borders must have the guarantee of the UN, as was demonstrated by the instances of intervention in ex-Yugoslavia and Somalia. In Africa, then, the EU will be able to contribute, even if decisively, to fulfilling a political stabilisation role only if it operates alongside the OAU, and only if it acts in the framework of a UN policy aimed toward ensuring peace in the African continent, and as the regional articulation of the UN’s actions to this end. A return to stability in the African continent could be brought about on the basis of two stages of development: the first of a more general character to create the minimum framework for developing the second stage, consisting of the more challenging objectives of creating economic communities similar to the EC, destined to becoming real, effective regional federations.
The CSDCA, discussed at the Kampala summit, represents the general institutional framework in which the process of security cooperation could be launched, and the joint Assembly of the Lomé Convention, which has already asked that the creation of a permanent army for conflict prevention be studied, is the institution in which it could be proposed. The joint Assembly could therefore adopt the Kampala meeting proposal, and support the promotion of a conference under the aegis of the UN and OAU for African security, development and cooperation, with the aim of discussing the conditions for launching a process of general and controlled disarmament in the continent. With the aim of making the joint Assembly more representative, the European Union should ask for the extension of the Lomé Convention to South Africa, where democracy and multi-party politics have been affirmed and need to be consolidated, as well as to the countries of north Africa. Once the CSDCA has been established, an initial measure that the European Union could take would be that of ending the international trade in arms to African countries. In fact, it is notable that 86% of the international arms trade is supplied by Russia, China, the US, France and Great Britain, all of which are permanent members of the UN’s Security Council, while the last two are also members of the European Union. A second initiative that the EU could promote would be the launching of a debate on the formation of an economic development plan that, following the model of the Marshall Plan, would provide for the same strict economic and institutional conditions.
The second stage, which would constitute the most advanced stage, can only be set in motion if regional integration processes are begun that can subsequently lead to a broader African federation. On the basis of European experience, the presence of the EU will be able to facilitate the process, above all if it applies considerable pressure in this direction, but success will ultimately require that a local leader of the unification process emerge on the continent, that is an African leadership, like France and Germany provide for European unification. Since this leadership can not be the result of discretionary intervention by the EU or the UN, but will tend to emerge of its own accord, it is only possible to speculate about which African states, and which African leaders, will be able to fulfil this role. Once they have been identified, however, it will be important to establish collaborative relationships with them to support African federalism.
The vast size and the nature of Africa encourage ideas of a continent divided up into three large zones along the lines of the classifications currently used by international bodies: southern Africa, tropical Africa and north Africa. In the former case, it would seem that South Africa may provide, after a stabilisation period that must follow the affirmation of democracy, the first signs of a willingness to achieve regional integration. A factor favouring this outcome should derive from the fact that South Africa, aside from being the most advanced economically, is also the state where the most important multi-ethnic elections of recent decades have been held. In addition, being also the most integrated into the world economy, it should prove more willing than other southern African countries to stimulate processes of economic cooperation in the area.
As regards north Africa, identifying the African state that will be able to assume a leading role in regional political unification is not easy. Nevertheless, even on the basis of the first timid policies of integration that have been developed in the area, the unification of the Maghreb countries could represent an excellent starting point. An important role can nevertheless be played by the European Union. In effect, with the enlargement of the EU to the countries of the north, the need to implement a security and development policy for the African continent risks being undervalued. However, Europe possesses a historical responsibility: to return the Mediterranean sea from being a barrier that divides the European continent from the African one, to being rather the internal lake of the Euro-African community, as it was in the past before the confrontation with the Islamic world. This reference to Islam is also important from another point of view: the path to cooperation (and in a subsequent stage to political unification) between the two coasts of the Mediterranean requires the development of a common concept of the role of the state, just as a sharing of common universal values is necessary. This means the overcoming of all religious fundamentalism, which can be helped by beginning to promote a debate on multiculturalism.
Tropical Africa is the area with the biggest problems connected to poverty and political instability. However, it is also the area where African federalist thought was born, and where therefore the most fertile terrain for the resumption of the policy of continental federal unification should exist. The pre-condition remains, however, that, through the assistance of the UN and the EU, peace and democracy must be returned to the area, in such a way that within the countries of this African region the movements that are most moderate and most in favour of the elaboration of regional integration policies emerge from the process with renewed vigour.
 E. Dal Bosco, L’economia mondiale in trasformazione, Bologna, Il Mulino, 1993, p. 69.
 This is the result of the UN’s evaluations that assessed per capita income on the basis of purchasing power parity. Cf. UNDP, Human Development Report, Oxford University Press, 1994.
 G. Fuà, Crescita economica, Bologna, Il Mulino, 1993, pp. 47-62.
 UNDP, Op. cit., pp.139-41.
 All GDP growth data used in the text, unless otherwise indicated, are taken from: Stato del mondo 1994, Milano, Il Saggiatore, 1993.
 A. Corneli, “Orfani del bipolarismo”, in Il Sole-24 Ore, 25th August 1994. As regards Vietnam, note that the forecasts forGDP growth, in real terms, for 1994and 1995 are ranged between 9 and 10% p.a.. Cf. on this subject A. Nicoli, “Asia set in economic fast lane”, in Financial Times, 13th April 1994.
 J.L. Martin, Le décollage de l’économie chinoise, Banque Indosuez, August 1993.
 A. Jozzo, C. Magherini, “Europe in a Changing World Economy”, in The Federalist, XXXVI (1994), pp. 33-39.
 From the end of 1993, raw material prices have begun to increase significantly. Cf. J.-P. Tuquo, “Les cours des principales matières premières se redressent”, in Le Monde, 15th July 1994.
 J. Généreux, Chiffres clés de l’économie mondiale, Paris, Seuil, 1993.
 E. Dal Bosco, Op. cit., p. 71.
 S. Wickham, L’économie mondiale, Paris, P.U.F., 1991.
 S. Kohlhammer, “Viviamo a spese del Terzo mondo?”, in Il Mulino, n. 5, Bologna, 1992, p. 780.
 S. Kohlhammer, ibid., pp. 773-796.
 World Bank, Adjustment in Africa (Reforms, Results, and the Road Ahead), New York, Oxford University Press, 1994.
 G. Corm, Le nouveau désordre économique mondial. Aux racines des échecs du développement, Ed. La Découverte, Paris, 1993.
 R. Nurske, Problems of Capital Formation in Underdeveloped Countries, Blackwell and Mott ltd, Oxford, 1968.
 R. Nurske, Op. cit., p. 109.
 J.-C. Berthélemy, L’endettement du Tiers Monde, Paris, P.U.F., 1994.
 The net transfers of funds are equal to the balance between the gross flow of long-term capital and the cost of debt in the form of principal to be repaid and interest payments.
 World Bank, Urban Policy and Economic Development (An Agenda for the 1990s), Washington, The World Bank, 1991. Remarkably, this policy agrees with Jane Jacobs’ argument (The Economy of Cities, New York-Toronto, 1969), according to which the engine of a territory’s economic development is the city, as well as with what Nurske himself asserted (op. cit., pp. 15-18) when he argued that to overcome the difficulties of private individuals’ investment, due to the restricted nature of the market in LDCs, investments should be maintained over a broad range of different industries so as to create self-sustaining complementary markets. According to Jacobs, the best place for the development of these complementary markets is precisely the city. It is probable however that in the case of LDCs this policy alone is insufficient, if it does not change the attitude of people involved in city life. In fact, an African federalist has recently pointed out how there are no cemeteries in African cities, since people who go to cities from villages know that they will return to their villages to be buried. Perhaps it is necessary that, albeit gradually, new forms of identification in connection with urban life are developed alongside the traditional ones of the village.
 GATT, International Trade 91-92, Geneva, 1993.
 UNDP, op. cit., p. 97.
 United Nations, World Investment Report 1993 (Transnational Corporations and Integrated International Production), New York, United Nations Publication, 1993.
 International Settlements Bank, Evoluzione dell’attività bancaria internazionale e del mercato finanziario internazionale, Basle, 1994.
 World Bank, op. cit., p. 18.
 World Bank, op. cit., p. 17.
 J. Généreux, op. cit., p. 79.
 R.B. Reich, “Il commercio libera il lavoro”, in Il Sole-24 Ore, 21st June 1994.
 These considerations, that are certainly valid for African countries, should be extended also to China, which so far has experienced undoubted economic success, but at the expense of democracy. In the current international situation, characterised by the ending of the confrontation between the US and USSR, ideological arguments supporting centralised and authoritarian governmental structures, that typified the period of opposition between the blocs, no longer exist. Moreover, China’s admission to the APEC accord, of which the US and Japan are members, if it corresponds, as would seem to be the case, to a desire for integration into the world market, makes no sense, and will not be sustainable, if it is not accompanied by the introduction of democracy domestically.
 L’Afrique, l’Europe et la démocratie internationale, Lyon, Federop, 1991; G. Montani, Unione europea, sviluppo economico e democrazia internazionale, Pavia, ISDAF, 1992.
 F. Praussello, “E’ possibile un commercio ‘equo e solidale’?”, in Il Mulino, n. 1, Bologna, 1994.
 Africa Leadership Forum, The Kampala Document, Abeokuta, 1991.
 See also: The Report of the South Commission, The Challenge to the South, Oxford University Press, 1990.
 Le Courrier ACP-CE, Convention de Lomé IV, n. 120, March/April 1990.
 M. Scotto, “L’Union européenne accroit ses exigences en matière de démocratisation”, in Le Monde, 8th October 1994.
 Europe, Sessione plenaria dell’Assemblea paritetica ACP-UE, 8th October 1994.
 Europe, Sessione plenaria dell’Assemblea paritetica ACP-UE, 10-11th October 1994.
 W. Brandt, North-South: a Program for Survival, Ed. Independent Commission on International Development Issues, 1980.
 W. Brandt, op. cit., p. 29.
 UNDP, op. cit., p. 64. On the need to establish a world authority for the control of armaments, see: R. Etchegaray, M. Diarmuid, Il commercio internazionale delle armi, Pontificio Consiglio per la giustizia e la pace, Città del Vaticano, 1994.
 Generally, the memory of the Marshall Plan evokes solely the generous quantities of abundant aid from the Americans for the reconstruction of Europe’s economies. The stringent institutional conditions the Americans posed for the granting of aid are instead forgotten. These were, on the one hand, the common management by European states of the aid obtained, which led to the establishment of a body for that specific purpose (the OEEC, later becoming the OECD), and the removal of protectionist barriers that blocked commerce between Europe’s states. On the other hand, the type of aid was organised in such a way to accelerate as much as possible the capital accumulation process, and to avoid that aid was used to finance current spending. In fact, the US gave investment goods to Europe’s governments, which arranged for their sale in the market, thereby gaining resources that could be used for the financing of further public investments. The US exercised control over the positive outcome of the aid that was granted, checking the progress of the overall financial situation of European governments’ budgets, and preventing the financing of consumption alone. In effect, then, this was a similar outlook to the Maastricht Treaty, introduced 50 years early!
 Support for African unification through the Lomé Convention should instead lead to the progressive exclusion of the ACP countries that do not belong to the African continent, and which can be included in the processes of regional unification led by the US, as concerns the American continent, or by Japan or Australia, as regards the Pacific.
 G. Montani, Il Terzo Mondo e l’unità europea, Napoli, Guida, 1979.