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Modernization

Developing South Asia

 

 

 Modernization and Cold War Politics

 

 

Points of today’s lecture/this week more generally:

 

To frame “development” as a set of institutions, discourses and practices globally, as well as in South Asia in particular.

To flag modernization theory alongside development as a “master narrative” of sorts

To set it alongside the narrative of Bose and Jalal in terms of the integrity and unity of the nation (India, Pakistan and later Bangladesh) in the decades following independence in 1947

 

End-of-war Background:

 

Bretton Woods: The International Monetary Fund and the World Bank

 

 

The context of global interwar economics

What is a market economy? The classic understanding of a market economy is that it is characterized by cycles—that is to say, the global economy has booms and slumps that, taken together, constitute a wave. Slumps can be a particular problem because they tend to form a downward spiral (or multiplier effect) unless there is some sort of intervention.

 

The Bretton Woods plan was the outcome of the monetary troubles of the twenty years between the two wars. Claimed that other economic ills cannot be effectively treated unless the smooth working of the monetary system is assured.

 

Background: economic catastrophes of the inter-war years (1919-1939); the value of gold in terms of other forms of wealth quadrupled in between 1920 and 1935. Aimed to stabilise the wealth-value of money (e.g. how much is money worth? The problem of inflation, etc.)

 

History of the gold standard: in the nineteenth century a metallic standard was assumed to be the only sound monetary system. Economies between paper and metal fluxuated during wars, but the basic problem of enough gold to go around was sorted out in the mid nineteenth century with the discoveries of gold in Australia and California

 

The first world war left the entire world employing paper currencies. 1922 and the floating of the idea of the gold exchange standard. That is, only a limited number of countries, those accustomed to work as international finance centres, were to hold reserved in actual metallic gold. Other countries instead of gold were to hold reserves in the form of bank credit or other liquid assets at these centres. But the desired international cooperation in the regulation of credit was never given practical effect.

 

The crisis of 1929

 

Bilateral clearing agreements

The idea of a unified gold standard: a group of gold-standard countries is very nearly in the position of a single community with a common money unit. Stability; the currency cannot collapse

 

By the 1940s, US keen on setting up institutions to regulate postwar political and economic relations. ‘Planning for the peace’—to prevent instability that had caused the treaty of Versailles and the institutionalisation of the League of Nations at the close of ww1 to fail. The aim was never to revert to the competitive currency depreciations, imposition of exchange restrictions, import quotas and other devices which had all but stifled trade and plunged the planet into awful conflict. President of the Conference, US treasury Secretary Henry Morgenthau set the stage:

 

All of us have seen the great economic tragedy of our time. We saw the worldwide depression of the 1930s. We saw currency disorders develop and spread from land to land, destroying the basis for international trade and international investment and even international faith. In their wake, we saw unemployment and wretchedness—idle tools, wasted wealth. We saw their victims fall prey, in places, to demagogues and dictators. We saw bewilderment and bitterness become the breeders of fascism, and finally, of war.

 

Treaty of Versailles, League of Nations

 

Bretton Woods Conference

July 1944, United Nations Monetary and Financial Conference. Popularly know as the Bretton Woods conference. Culmination of extensive preliminary negotiations dating from 1942. Financial and monetary experts from 44 states discussed ways to achieve postwar financial stabilisation and to facilitate international trade. (read list). Mount Washington Hotel in Bretton Woods, New Hampshire. The experts agreed on two institutions: the International Monetary Fund and the International Bank for Reconstruction and Development (IBRD, later World Bank). At the conference, states pledged to maintain fixed currency exchange rates and to increase the volume of international trade. Agreements ratified by member states over the course of 1945. First meeting of the Board of Governors of the IMF and the IBRD in 1946. First loans made in 1947 for the reconstruction of Denmark, France, Luxembourg and the Netherlands. In 1948 what we could call its first ‘development’ loans were to Chile for two small projects.

 

Opening message:

 

Only through a dynamic and a soundly expanding world economy can the living standard of individual nations be advanced to levels that will permit a full realisation of our hopes for the future.

 

Tension in goals: US saw the institutions mainly as monetary stabilisation. Europe (eg John Maynard Keynes) and developing nations more interested in the loan-guaranteeing functions.

Keynes, in particular, sought to resolve a complex problem of providing for the financing of post-war reconstruction. Immediately after the war, no major country aside for the US would have any spare cash to lend. Potential borrowers, on the other hand, would be legion, impoverished and utterly lacking in capital equipment which the war had damaged or destroyed. If everyone insisted on playing by normal banking rules, it would be impossible to undertake reconstruction at all. Lenders would be required to assume huge risks. No sane investor—and the Bank was from the start intended to use mostly investors’ money, not government funds—would accept sucha proposition unless the borrower paid a heavy risk premium which, by definition, he would be too poor to afford.

Keynes scenario called upon all governments to pay, in proportion to their capacity, a subscription to the Bank in gold or ‘free exchange’ (ie a currency convertible to gold). These subscriptions would serve as the guarantee for bond issues on regular financial markets which, in turn, would provide most of the loanable capital. Investors would find these bonds creditable and profitable. They would be backed up by the Bank’s gold and convertible currency resources as well as by the Bank’s mechanisms of scrutiny to see that the funds loaned out were being used sensibly.

In other words, Keynes invented the pooling of credit insurance among nations.

 

IMF: the Fund was conceived to provide short-term balance of payments support to its members and thus facilitate the free flow of commerce.

WB: To work for the reconstruction and development of member countries

 

At its core, the Bretton Woods conference attempted to establish a currency stabilisation mechanism designed to make currencies interchangeable at stable and predictable exchange rates. Exchange-rate mechanism. How it worked: if one state’s currency fell against others its central bank would be obliged to buy its own currency and would so increase the currency’s value until it had again reached a predetermined level. If a central bank had exhausted its foreign currency reserves necessary to achieve this goal, the International Monetary Fund would provide the central bank with a loan against the deposit of an equal amount of that state’s own currency.

The immediate goal of the fund was not to provide foreign aid to Europe, but to stabilise currencies. The goal of the fund was not to distribute large sums of dollars among foreign states, not even for the explicit purpose of purchasing American goods (the Marshall Plan did that nicely).

 

Quotas:

Each member state to the IMF and WB would have a specific quota (in the IMF) and a subscription (in the WB). The size of each state’s quota determined the amount of money that state could withdraw from the fund in exchange for an equivalent amount of its own currency. The size of the quota also determined that state had on the fund’s overall policy. In contrast, the size of a bank subscription did not determine the amount of money a state could receive from the bank in the form of a loan.

The IMF and the exchange-rate debate:

All around unifying currencies to the gold standard. This had been universally dropped during the depression when countries had to print more money than the gold standard would allow and the value of these currencies dropped. In the end it was agreed that the gold standard could be dropped. That while the value of currencies would be expressed in terms of metal, they would not be tied to that metal. But what about fluctuations? The conference agreed to a system in which the value of the US dollar would be fixed in terms of gold. The value of all other currencies could be expressed either in terms of gold or in US dollars. The fund would determine the initial value of a currency entering the IMF. The value of all currencies had to stay within 1%, under pain of the suspension of lending privileges.

 

WB issues:

The bank would provide loans for long-term reconstruction or development purposes, there was no relationship between a state’s subscription to the bank and its drawing rights, and the bank was primarily a loan-guaranteeing institution. It would authorise and guarantee loans from private banks and would only have to contribute its own money if states defaulted on the payments. One question was how much the bank should be allowed to authorise. Some said only 100% of its total subscriptions and others said 200% or 300% since it was thought that only a small part of loans would be unpaid or defaulted upon.

The WB’s articles of agreement mention (though do not emphasise) assisting countries in raising standards of living, they do not mention or target poor countries in particular, nor do they mention any kind of guarantee of minimum standards (unlike the language of the UN). Instead, the articles emphasise productivity, investment, capital accumulation, growth, and balance of payments.

Development per se received little attention at the BWC

 

Postwar Background: The Marshall Plan

 

 

Whose idea was the Marshall Plan?—Marshall. And Truman—not Roosevelt—Truman was new and inexperienced – his Truman Doctrine: ‘It must be the policy of the United States to support free peoples who are resisting attempted subjugation by armed minorities or by outside pressure.’ (1947). When Britain announced that it could no longer afford to give aid to Greece, and the US responds that it will provide aid to Greece and Turkey.

 

Summer 1947—US calls on Europe to (1) draw up a balance sheet of European resources and needs; (2) to work out a blueprint for self-help; and (3) to submit to the US a program under which US dollars may be best used to help Europe itself.

 

In effect European countries get together in Paris to put together a ‘bid’- what they needed, in terms of dollars, to begin the job of their own post-war reconstruction.

 

Dollars handy for trade-imports—many countries (eg Latin American countries) would only accept payment in dollars in the postwar global economy amidst substantial political uncertainty. (eg sterling convertability problems). Regime of the green-back

 

Originally the bill came to $29 billion; it was halved, and passed through the American legislature in spring 1948

 

Problematic of ‘matching funds’- the countries had to stump up the same cash as the Marshall Plan funds.

 

What were the economics of the Marshall Plan?

$14 billion between 1948-51 to the sixteen participating countries.

Supplanting lend-lease financing during the war (how goods imported from the US during the war were paid for)—British liabilities after the war totalled around $20 billion. These debts were largely forgiven after the war (cf African Debt)

 

What were the institutions of the Marshall Plan?

State department administration of the Plan dropped in favour of the Economic Cooperation Administration; each country that received Marshall aid had a resident ECA country mission; the purpose of the country missions was to work closely with the government of the recipient country on their programme (ECA and echoes of the Public Works Administration—c20 logic of American aid relief administration)

European nations set up the Organisation for European Economic Cooperation

Office of the Special Representative (Paris)- First occupied by Avrel Harriman

 

Cold-War and the Marshall Plan

Marshall Plan one of the inaugural-institutional moments in the beginning of the Cold War. USSR and communism. Role of Czechoslovakia, Poland, Hungary, Bulgaria, Romania—Soviet occupation/liberation

Economics and the Cold War- critique of Marshall Plan as creating the conditions for the expansion and consolidation of US markets

 

Foreign Aid and International Philanthropy

 

 

‘We shall lift Shanghai up, ever up, until, God willing, it will be just like Kansas City’ (Rosen 1985:1)

 

1. Foreign Aid

 

1a. Isolationism and internationalism in US foreign policy in the twentieth century

 

By the 1930s, isolationism, post-WWI especially (feeling the sting of Wilson’s ‘making the world safe for democracy’ having gone terribly wrong), was about non-intervention and unilateralism, certain groups of pacifists. Mainly the isolation that isolationists sought was isolation from conflicts in Europe

 

Internationalism, on the other hand, assumed that new technologies had drawn the world further together and that US prosperity depended on orderly world markets. Believed that the US had replaced Great Britain as the world’s great power. They wanted an open world and low tariffs.

 

1b. US foreign aid at mid-century

 

 

Bretton Woods and Dumbarton Oaks

 

Marshall Plan

 

Truman’s Point Four: ‘bold new program for economic development’ (1949)

 

Colombo Plan

 

Kennedy administration (1961-63) – US foreign aid reached its zenith in the early part of the Kennedy administration. US Agency for International Development is established and takes over a wide range of capital and technological assistance programs.

 

Foreign aid as explicit ‘policy tool’: humanitarian aid (we can’t stand by and do nothing; the rich have a duty to the poor), economic aid (expansion/consolidation of markets), strategic aid (military/security)

 

1c. Foreign aid- not just an American monopoly

 

 

 

Former West Germany- foreign aid programmes begin in 1953 and grows rapidly in

the 1960s

Scandinavia- begins in earnest in the early 1960s

Japan- since mid-1950s

Canada- 1950s in the Colombo Plan and independently from the 1960s

USSR- early 1960s (eg Aswan High Dam in Egypt)

China- early 1960s (eg Tanzam railway)

 

Foreign aid usually works in terms of specific projects, or specific sectors (health, agriculture, education, various industries), or on specific forms of lending.

 

2. Multilateral institutions

 

World Bank commitments begin to outstrip individual US contributions after McNamara assumes the WB presidency

 

United Nations institutions like UNDP and UNICEF, UNESCO

 

The 1960s saw the rise of multilateral giving, replacing bilateralism—importance of consortia in this, and coordination. This is why the DAC is so important.

 

2a. Development Assistance Committee (DAC)

 

 

DAC est 1961 from the North Atlantic Alliance. NATO, the principal strategic organisation of the West, turns to its principal economic association, the Organisation for European Economic Cooperation (OEEC)—itself set up in the Marshall Plan era. OEEC sets up Development Assistance Group in 1960 and it becomes the Development Assistance Committee in 1961 at the same time as the OEEC became the Organisation for Economic Cooperation and Development (OECD).

 

World bank and Development Assistance Committee – DAC looks into general questions of aid policy where the WB takes responsibility for the field operations in which the activity of one group of aid-givers in one country or one area had to be brought together.

 

OECD is a framework for coordinating activities, whereas the WB is an autonomous organisation.

 

Military alliance roots instructive to recall in terms of strategy and command for a common effort. Strategy and command are crucial—also known as ‘aid management.’

 

DAC a completely new thing in terms of multilateralism. The case of the Marshall Plan had been a joint use of aid, but not really a case of the joint giving of aid. The DAC was the case of an association of aid-givers, with the US as the dominant member, seeking a new form of partnership with European partners, not simply one of enabling them to recover from the losses of war. They ‘graduated’ from aid-receivers to aid-givers. Yet the percentage of the overall DAC budget provided by the US rose steadily from 55% in 1958 to 65% in 1963.

 

The Americans asked the Europeans to follow their lead in providing aid, and aid in the European experience, meant Marshall aid.

 

The problem of the Marshall precedent for Europeans’ aid-giving. Selective memories of their own hard work rather than for the generosity of the Marshall Plan aid. Additionally, most European nations were already aid-givers, after a fashion, in terms of their colonial entanglements.

 

2b The consortia model within the DAC

 

India Consortium, est 1958.

India’s second five-year plan, centrality of proposed rapid build-up of heavy industry, particularly steel (historical precedents of US and UK; industrial revolution etc)

1958 – India’s foreign exchange crisis (in part caused by the imports necessary for the heavy industry plan), meant that it had to appeal for external assistance

 

3. International Philanthropy

 

 

 

3a. American philanthropic organisations: Background and context

 

Beginning to move the frame back to the opening of the twentieth century, rather than its mid-point. The concept of ‘the American century’—in the wake of the Paris World Exhibition of 1900, American pavilion attracted much attention because of the modern machinery on display. America came to be seen by Europe not simply as a land of cowboys and Indians but as a major technological power and a highly modern society with an urban and industrial culture. Mainly about mass production and mass consumption. At the turn of the century, American industry on a high. The nineteenth century was a century of expanding US internal markets, manifest destiny and the consolidation of an American industrial power base. American ‘big business’ flourishes, and the robber-barons begin to gentrify through philanthropy. Not only in the US- British industrial philanthropic projects like the Tate libraries (sugar). Often the most brutal businesses spawned the most high-profile philanthropies.

 

Relationship between American international philanthropy and new ideas of a culture of mass production, mass consumption, and mass politics.

 

Relationship between American international philanthropy and US foreign policy. Philanthropy and diplomacy became close partners in the cold culture wars of the post-1945 era.

 

Foundation giving was mainly to Europe until after the second world war when it began, particularly after the 1950s and 1960s to turn to questions in the third world.

 

3b. Major players: Carnegie, Rockefeller and Ford

 

 

 

Carnegie Endowment for International Peace est. 1910 by Andrew Carnegie, steel magnate. Endowment started out with $10 million in steel securities and its financial footing was ironically boosted during the first world war. US Steel. Lock-outs and robber barons. About international exchange and ‘friendship.’

 

Carnegie: family emigrates from Scotland to the US mid-c19. By the final quarter of c19, Carnegie sets out to mass-produce cheap steel. Based in Pittsburgh, made his coal-and-steel complex so powerful that it had no competition.

 

Rockefeller Foundation est. 1913, originally to promote international health reform.

John D Rockefeller Sr – Standard Oil. Largely for science and medicine. Major focus on China (missionary past and the ‘obvious’ problems of poverty and disease’) Peking Union Medical College est 1921, modelled on Johns Hopkins. From mid-1930s the Foundation refocused its energy on public health initiatives (seen to be more cost effective than producing highly-trained medical professionals and research hospitals). Broadened up the scope to deal with the ‘public’ (ie social problems) as well as their health. International health. Hygiene movement. Malaria-eradication programmes in India. Hookworm and yellow fever eradication programs.

 

Ford Foundation est. 1936.

From 1948 grew to become the largest philanthropic organisation in the world, spending millions of dollars every year on international projects. By 1950 had over $69 million at its disposal for funding philanthropic ventures. Ford Foundation’s Board of Trustees filled with high-level government officials, academics and banking and industry leaders.

 

Primacy of economics for ‘Fordist’ development mission:

Paul Hoffman returns from Europe where he had been administering the Marshall Plan and becomes President of the Foundation in 1951. Follows the Rockefeller experience closely, and decides that the key ‘science’ for progress—in terms of solving ‘root’ problems of poverty, rather than sickness —will be economic science rather than medical science. Following the apparent successes of emergency post-war economic aid to Europe and the rise of Keynesian economics amidst global depression of the 1930s.

 

India:

India emerges as the most attractive home since it has China’s history of missionary activity and poverty/disease, but in 1950 had not just undergone a communist revolution. Part of a larger set of refocusing from a now closed China to South Asia (not to mention the appeal of an English-medium bureaucracy and ruling elite). And reading recent Chinese history as a cautionary tale, Ford’s president Hoffman was energised by wanting to ‘immunise India against communism’ by providing social and economic development (Rosen 1985: 11).

 

Ford Foundation established an office in India (New Delhi) in 1952. First of the Foundation’s overseas offices and remains the largest. During 1952-1972, the focus was on agriculture and rural development. Provided technical assistance. Post-1972, a grant-making body.

 

Indian villages and American social science:

Re-working the village model and transforming society through its core unit. Etawah as a model, part of a larger logic of pilot projects. American-led development, Weber and Talcott Parsons, the relationship between economics and culture. MIT central in Ford’s early work in India. OSS, WWII and US South Asianists (not to mention missionaries)

 

 

What is the relationship between international philanthropy and (bilateral) foreign aid?

At home, charges of ‘buying influence’ results in US tax laws being overhauled in 1969 to attempt to prevent the buying of legislatures by professedly ‘apolitical’ philanthropic foundations. Abroad, the role of a vanguard. Problem of apolitics.

 

 

Background: Institutionalising Development Knowledge in the Academy

Academia after 1945

 

Contexts: post-war unemployment and the G. I. Bill

 

 

The Project of Disciplinary Knowledge: The Social Sciences

 

 

Political Science/Politics

 

‘Development’ as a set of political problem

 

International Relations

 

 

Anthropology

 

Colonial encounters

 

Post-colonial critiques

 

Development anthropology

 

critiques, ‘sustainable development’ and ‘appropriate technology’

 

‘Applied’ v ‘Pure’ anthropology

 

 

Sociology

 

Max Weber/ Talcott Parsons and Modernisation theory

 

 

Economics

 

Economic history as the tool of nationalism

 

R. C. Dutt, The Economic History of India (1909)

 

Keynesian macroeconomics

 

 Development Economics (post-’68 World Bank)

 

Dependency Theory - Andre Gunder Frank

 

Demography

 

Office of Population Research (Princeton University, 1936)

 

Foundations: JDRockefeller III and the Population Council (1952)

 

Frank Notestein and demographic transition

 

Kingsley Davis, The Population of India and Pakistan (1949)

 

Number-crunching cold warriors?

 

 

‘Development studies’

 

Re-casting ‘development’ as a language of poverty v children

 

UK: Institute of Development Studies, Sussex (1966)

 

Centre of Development Studies, Swansea

 

See: http://www.swan.ac.uk/cds/events&news/history.htm

 

School of Development Studies, Norwich (1973); Overseas Development

 

Group (1967)

 

Queen Elizabeth House aka the International Development Centre,

 

Oxford University (Institute of Commonwealth Studies and the Institute of Agricultural Economics)

 

London School of Hygiene and Tropical Medicine

 

Overseas Development Institute (1960)- ‘think-tank’

 

Journals: Oxford Development Studies (1972)

 

US: Harvard Center for Population and Development Studies (1964)

 

Harvard School of Public Health; population control

 

Public Policy and development as ‘International Studies

 

Johns Hopkins (1944), Princeton (1930; 1948)

 

India: Centre for Development Studies, 1971 (Trivandrum), Madras Institute for Development Studies

 

 

 PL480 notes

 

 

Sales of surplus agricultural commodities under PL480 began in the early 1950s

 

In the US PL480 assistance was largely motivated by economics considerations. In the early days of the program, PL480 shipments were seen mainly as a convenient way to reduce the large US food surpluses that were exceedingly costly to carry and tended to exert a depressing influence on US commodity markets. Since the PL480 loans were repayable in local currency, they were tantamount to grants in some countries. In the sixties, as balance-of-payments considerations came to the fore, PL480 loans were converted from a local currency to a hard currency basis.

 

When the US had large farm surpluses, the farm bloc encouraged PL480 food aid and made substantial contributions to many less developed countries. But the reduction in US surplus food stocks and the gradual demise of PL480 food programs have greatly increased the cost and difficulty of providing relief.