A Developmental Dependency Debate

This is a debate me and a friend had about development and the influences of corporations. I thought I would share this with you. M will be me and H will be him. He is a person moving to Honduras to help out. It is pretty long so you might have to check it under the fold:

H:In short Dependency Theory suggests that the rich institutionalize their wealth, making it easy for them to make profits, at the expense of the people who actually put this together. I have actually seen this process play out a Banana Plantation in Guatemala that I went to that had been taken over by Wal-mart…Wal-mart must make a certain amount of profit off of something in order to work with you. The plantation owner likes that he can count on lots of business with Wal-mart and agrees to help out, but he still want his same cut too…thus what happens is that the workers must worker harder each day, ie not only bag and box the bananas, but also price them since Wal-mart can pay someone there $0.50 to price them instead of $7.50… However the owner of the plantation does not want to take a cut himself in order to have his workers do more work, thus he just forces them to do the extra work at the same pay scale or be fired… more work for the same pay= a loss

M:Right this goes into the labor theory of value. The thing is isn’t the farmer better off after Wal-Mart then before? Sure, Wal-Mart reeps in the big profits but they also are the ones who take the large risks of investing in the farmer, shipper, and stores. Most people have a negative connotation of profits because they distinguish work with wage. There is more that goes into a wage/profit then just work. Profits too are often seen as bad, but most profits are reinvested in the business. So the profit includes the costs of paying someone to negotiate and find the farmer and shipper. Sure, it will always suck for the poor guy who looks at the other guy on his yacht. But it all boils down to is the farmer better off before Wal-Mart or after. It is going to be after or he would have not made the deal. In Capitalism, all boats rise with a rising tide. While Marxists thought all rich boats rise as they shoot down the poor boats. Capitalism is what brought us rich people the money to donate to causes like yours and the giving of technology to these areas that do not have the capital to develop them. For example, in Africa banking on cellphones has been a bigger hit there then here. This is because they did not have the infrastructure for landlines, ATMs, and dialup internet.

H: I am not against capitalism…I’m just for capitalism with a heart (…some might read bleeding heart liberal…). If you look at the case of the Banana plantation owner, he is better off, because he is guaranteed sales from walmart and he might even make more money than before. Wal-mart is happy because the way they got the contract is by leveraging one plantation against another in order to get the one that was going to give it bananas for the cheapest possible rate. The way that both the plantation owner and walmart end up happy, is that they both get more money than they were getting before. For the worker, getting the same amount of money boxing and picking bananas as before, however now he is forced to do more work for that labor, while barely making enough to support his family. Whats more is that in guatemala the governements are corrupt and get handouts from both the local plantation owner and walmart to make sure the labor does no unionize or try to protest for more money.This is done though through fear. Many workers who push for more money per hour are arrested, tortured, kidnapped or even killed. This is why people associate Wal-mart with the idea of the race to the bottom. I’m not saying this happens in all cases, but what I am saying is that pure capitalism is never going to look out for the worker. In some countries the government forces countries to give workers competitive wages, but often if this happens companies up root and look for a place where they can find the cheapest labor. This idea of searching for the cheapest labor falls in the realm of extracting as much from someone as you can for as little as you can. In part this is what some historical cases has shown has happened throughout the developing world. Unrestrained, unregulated capitalism leaves no incentive for walmart or the owner of the plantation to take care of its workers. It knows that it can find someone who would quickly take the workers place if they fired him.

M:Well I definitely agree with you on the government aspect. I believe that government is corrupt in all forms just some more than others. Development is most hindered by it. You contradict yourself on the other part. Obviously, the farmer wouldn’t make the deal if he did not get more money than before. Yes, he will have to probably work more, but he does so to satisfy the demand. The more he does the more money he will get. He is not “forced” to work as he could not make the deal and sell his banana’s like he used to. So I am sure we agree the solution is not more government is is less. You’re probably thinking that unionization is the solution. The problem with unionization is that it creates a monopoly on labor and causes unemployment. The more the union increases their wages the less the plantation owner will hire because he must keep costs under benefits. So it is true that some workers will be made better off by these high wages, but others will not have a job at all and starve. Any business is always going to find the cheapest labor, just like producers are going to find the person who pays the most for their bananas or whatever goods they are selling. Wal-Mart does have an interest in paying them more because Costco, K-Mart, Target, or even a local place could outbid them. The reason why the farmer goes to Wal-Mart is because they pay the most for their goods. Yes, the government should no be doing the violent acts they do, but again this is a time when we need less government not more. This gets back to the political greed versus market greed. Political greed causes violence. Market greed would mean that if the banana workers give them a lot of trouble they go to somewhere that won’t. Remember, America became rich on foreign direct investment not unions. Once the country became rich, we now invest within and with FDI.

H:I think the farmer definition is the confusing part… Their is the owner of the land, who does no work in the field, he just gets the contracts set up. Then there are hundreds of workers that are force to work at max speed to get as many bananas as possible out of the trees and into the warehouse, and then from the warehouse into boxes so that they can be shipped. The worker is not involved in the deal at all…one day he gets told that he must not only box bananas but also to price them, but he still has to fill 60 boxes of bananas an hour. If he says no he loses his job, because there is 10% unemployment in his country. It is good that he has a job, however who will ever stop the owner and walmart from having him box 70 boxes per minute. The owner wants to get as much work from his workers as he can, and he does. If the plant were to unionize, the owner would still make money of of his bananas, perhaps less than before…walmart too would make money, though perhaps less…the workers would make more and would be happy. The owner will not fire anyone because he is still making money and would lose money if he fired people because he has each worker, working at max capacity.. more workers means more bananas which means more money…fewer workers means fewer bananas which means less money… all people make money, the owner and walmart really didn’t need that extra money in order to turn a profit, they just wanted more profit. However the work will be able to make big changes in his own life with the small increase in wages.

M:Right but there is a reason its 60 and not 70, 80, or 90. If your theory that they are being “forced” to box them then we would imagine they would put the number to infinity. The fact is they do not. The worker does stay there because its a job and its that or starve, but he to is at a job that will pay him the most. Unions do not work the way you describe. They require government laws to make it so that the farmer does not hire non-union workers. This then like I said before causes a restriction in how many people he will hire because the wage is higher. Now you are deciding between 100 banana workers making a dollar an hour to 50 making 2 dollars and 50 making zero. I personally prefer the first. Unions are often know to be racist as a “boss” decides who is in. We find that in American in the early years the Irish were not allowed in. You also assume that the companies have the money but decisions are based upon the margin.It could be that the 1 dollar increase that then cuts the labor force in half, cuts the production capacity in half, thus not making it worth to ship half the amount of the bananas for the same price. Then you end up with the 50 joining the other 50 making nothing.

H:See I like the idea of foriegn direct invetment, however no one is investing in poor countries…don’t get me wrong, they build factories, but all of the factories make the same amount of money for the poor and really only give them enough to live on….thus no development there. The owner makes money and buys US stocks and clothing, and flies to the US to make his purchases, because he feels that is what rich people do (and it is what rich people do in Honduras). The walmart exec spends his money on investment in the US. Thus foriegn companies mean that the US gets richer and that more money is pumped into the US economy. However since the government is corrupt, the rich in Honduras pay no taxes and no money goes towards helping the poor become less poor. Who is looking out for the poor… no one. The only way to make them better off is by making government bigger and more effective in their country, though one must get rid of the corruption first, which is not an easy task

M:Yes, it is true that FDI in developing countries is low. As it should be, it is a risky measure. You have a chance of investing in people who die from Malaria etc. and a chance that the government will nationalize it. The thing it is not about the size of the government its about the efficiency. A government should provide security of property rights and that is it. This means it makes sure that Wal-Mart or Joe down the street doesn’t come in and steal the banana farm. The problem in developing countries is the person that steals it is usually the govt. I did a study on Nigeria and most of the problem was our lovely govts were giving the foreign aid directly to the government, in which fund themselves to do the above. Governments are suppose to be in business of furthering their people aka thats how they make money through taxes. When that source of income comes from places like World Bank and IMF, they do not need people. What these countries need is a minimal night watchman govt. p.s. have I changed your mind on Unions?

H:I have seen labor unions work in Latin America because people went after the American company and not the Honduran one. There are no quick fixes to the problems. If plantation x unionizes walmart will move to plantation y…only at the point when all of them are unionized, would wal-mart finally have to go with a unionized plantation. This however is not a very realistic answer. However at the same time not trying to fix the problem and letting capitalism run its course does nothing either… it leaves people in the same poor situation. With 50% of the population making below $2 per day there is a lot that needs to be fixed. There is a reason that we go down ourselves and try to fix the problem. The companies don’t want to pay more for labor, the owners don’t want to pay taxes, and the government is too happy taking bribes to care….thus it makes outside forces come in and change things. I would say that more factories would give more people jobs, however people find ways to…make $2 anyways…then a new factory comes and pays them $2 a day to do a job that is less stressful on them (thus they will live longer) but they will not make anymore money per day. They are happier working in the factory than trying to make money the way they did before. But if the companies shared more of their profits with the people all would benefit instead of just the owners.

M:No outside force came when we (as in European decedents) were living off of two dollars a day. The only reason we could break free was when we got rid of oppressive governments. Capitalism is not the problem, government is. What you consider fair and what I consider fair is different and we cannot set a wage on fair. What we can do is ensure that wages go up. If the pre-Wal-Mart wage was 1 dollar and the post-Wal-Mart wage is 2 dollars then that is a success. No one brought that but Capitalism. There is no reason to believe that without oppressive government the wage will stay that low. You have to be patient. Just like we are better off then we were a hundred years ago. They will be better off a hundred years from now (again assuming no oppressive government). I honestly believe that uninhibited Capitalism will make Honduras rich and as long as their wages keep going up, there is no reason to believe otherwise.

H:The history of Honduras however goes against your theory. Capitalism has been alive and well in Honduras since the early 1800’s, however little has changed for the vast majority of people. The US became successful because we were able to exploit the unused territories of the west (we killed/ gave disease to the inhabitants there) which gave the US economy a boom. Gold from the West helped build the US economies and help then get out from under British control. After we ran out of land in the west, we started investing in countries around us to take advantage of their resources. at one point United Fruit owned nearly half of all usable land in guatemala. US capitalism grew off of the backs of others, whether it be slaves, indigenous, latinos or now chinese. The poor Hondurans have no one left to exploit, the US didn’t leave them anyone to manipulate…

M:This again goes back to your belief in a zero-sum game. I guarantee that Capitalism has been alive and well in Honduras as there has only been a few places that has had more markets and less government control. The zero-sum game is this exploitation terms you use. We did not come wealthy as a nation through slavery or raping land. Slave holders found it very hard to motivate their workers so we were under producing our potential. We gains a boom when these people were allowed to work for their own wages. Slavery was more entrenched by government. In fact, the market was the first time we saw desegregation and then the govt forced it upon them. Everything you talk about is a govt policy.

H:In your model, when will the poor of Honduras not be poor?…where is the incentive for the companies to change their policies… where is the incentive for the government to change their policies…where is the incentive for our government to put pressure on the Honduran government. In capitalism, no one cares about what someone else is doing, as long as their pay check keeps coming in. I’m not saying that I can fix that, or that unions will fix that or that socialism will fix it…i just note that socialism realizes there is a problem…which is more than often goes on under capitalism…I hope there is a medium between the two, because socialism will never win out, and the capitalist will never realize that the poor need something more than they are being given

M:Poor is a relative term. There will always be poor people as we redefine it. This is something that should frustrate you when we talk about poverty in America. As you know many people in Honduras would trade places to have free healthcare, housing, and food as many people get here. No Capitalism realizes that it is just Capitalism gets blamed for much of the ills of government. Mercatus Institute in Fairfax showed that Wal-Mart did a better job at helping Katrina then FEMA. That Kiva.org that is privately funded does a better job than the World Bank that is funded by foreign governments. Your beef is with government, not capitalism.

H:Slavery was a business idea, desegregation and emancipation (good ones) was a government policy. western expansion was a business idea, the mexican american war, the trail of tears, going back on our terms for indian reservations was a government policy (bad ones)… Investing and taking over most of the Guatemalan governmental structure to grow bananas was a business idea, having the CIA help orchestrate a coup to overthrow Arevalo, a socialist seeking to help the poor, but who did so by taking land from the banana monopoly, that was a government idea (bad one)…the government makes bad decisions and good decisions, but business makes clearly self interested decisions. All I am is saying is that we need someone to make some not so self interested decisions and to make some good governement policy (either US or Honduras) to help the poor.Government supports business..often at the behest of business, by making these often negatively viewed decisions. Perhaps the bad policies come from the government intervening, but it intervenes because the businesses asked it to.

M:Slavery was institutionalized by the government. Take the banning of the slave trade. Most people are puzzled why a bunch of rich white slave owners would ban the slave trade. It was to inflate their values of their own slaves. Restrict supply and the price goes up. The first actual desegregation was a cable car company in San Francisco that wanted the extra revenue. The government came in and forced them to regulate. “Separate but equal” was a government policy and they desegregated schools, which is a govt arm. Many laws said you had to segregate. Now on to your government and business working together and self-interest stuff. Businesses are guilty of using govt to their advantage, this is a problem of govt not Capitalism. Governments are self-interested. You cannot make people not self-interested. This is why socialism doesn’t work it assumes you can. Like I’ve said a few times. I will take market self-interest over government self-interest anyday.

H:So this is where our problem is. Business needs government to protect it, to make sure that it can run in a true free market position with out someone just stealing any gains you make. However in order to do this you have to have a strong government, which as you put it tends to be self interested. Capitalism then takes care of themselves by using the governments self interest to help their businesses grow. You want small government, but you can’t have no government (Honduras is a small government, but it is too small to be able to protect investments). The US capitalist economy works so well, because it is protected by our big self interested government. Your problem is you need gov out of your life… for me I need my gov (or honduras’s in this case to step it up and get involved) Neither of us will get our pure gov control or a lassez-faire market system. Thus we must make a compromise…however business has no incentive to help the people and the gov really only wants more power

M:But that’s not a free market! Protection from government is not a free market! There are three main types of economic organization Capitalism, Interventionism, and Socialism. Capitalism is with no government intervention in the economy. Interventionism is with some and socialism is with all. Therefore, your example above is interventionism. Just like if your organization gets all of its money from donors and not any from government. You organization is free market.

H:Capitalism, and socialism are on a scale… capitalism and extreme socialism being at the extremes of the scale, and the distance between the two are measured by extent of intervention. Just as no one would want a purely socialist economy, we are likely yo never see a purely capitalistic economy. Even before WWI, when we were arguably the closest to a free market economy, there was still intervention.Completely free markets are almost impossible to create, and the closest we can come to making them is by extreme intervention in order to create free market areas like the EC or NAFTA, but even then these are not free of government intervention. You need governement to not have chaos in the business world. The government guarantees that your dollar is worth a dollar. The market can set the price of the dollar, but so can the government, but in the end it is the government which actually guarantees that dollar, whether or not it intervenes to set the price.

M:Actually it was between Jackson and the Civil War that we were very close to a free market. It is funny how this discussion has transformed. I agree with you that we may never see pure Capitalism. What I was arguing was your problems with capitalism was actually the problems with the interventions that are not capitalism. On the money issue, government has only guaranteed the dollar since the Civil War. Before that we did not have a national currency and we survived. Private banks issued money just like they do today with checks. It was no different except that they had gold or some commodity in their vault to back it up with. The monopoly of money by the government is a huge problem and believe you, me, when I say we do not need government for currency. For most of the world’s history there was not a national currency.

H:True, but my point about the Government guaranteeing the currency, is that regardless of whether the US were to intervene in the Dollar currency market, the stability of the US government is what guarantees the price of the dollar. The fact that we are no longer on a silver or gold standard is the whole reason I feel that government is required to guarantee the dollar. The price of the dollar is based no longer based on the value of silver, but by the structural integrity of the government that prints that dollar. It is through the relationship of business and government that gives that piece of paper value. If business felt that the government would print hundreds/ thousands more pieces of that paper, then the perceived value of that dollar would go down (regardless of whether or not it actually printed that dollar) Our economy today is based upon thin air and opinions..it is about what people think and not what actually exists. Capitalism (or my perception of capitalism) is at fault

M:Okay, I agree with you except for the last sentence. So go on further explain to me why we are no longer on a gold/silver standard and why it is Capitalism fault?

Nixon took us off the gold standard in the 70’s because France asked for their debt to be paid in gold. This was another instance where the problem was government and in particular spending by our government. So anyways with this information answer my previous question.

H:Economics has become such a complicated matter today, that the average person has no idea what caused what any more… did X cause Y or did X cause Y because W caused X… where does it start and where does it end. However the issue is that Business can not do without a stable government…especially since we are no longer on a gold or silver standard. ( I don’t even analyze gold or silver based currency markets, because I see them as soundly based on principles of a barter system… you did X which means you get Y which means you can turn it in for gold… which can be used for paying people or buying things… the government or banks were important then…today we live in a fairy tale, in which no one really knows what their money is equal to…its not based on anything except the soundness of the market… Business in government in my opinion can’t be separated in the economic system we live in today… when banks gave silver certificates then it could…

M:I agree with you that gold and silver was more stable. If business and government were separated like let’s say government got rid of a national currency tomorrow. The private sector would create a new form of money, probably based upon a commodity. This is what we saw after Rome fell. There was a national currency and then there were many different currencies. In fact, there was a guy who’s job was to resolve disputes as almost a private judge and help determine currency issues. They always have done this and countries with bad currencies come up with their own. We saw this with our first attempt at the Continental Dollar during the American Revolution.

H:The reason we are not on a gold or silver standard anymore is that we don’t have enough gold or silver… the amount of gold or silver you would get for your dollar would be so small (this is due to the perceived value of gold and silver in the first place). Capitalism grows our economy (which is a good thing), but it grows it to a point in which it cannot be seperated from goverment, because it can no longer be controled by the direct exchange of goods that hold a real world value. A dollar is a piece of paper, that can not be exchanged for anything more than the amount of metal you get in coins. (Personally I’ll take mine in any 100% copper pennies that are around). When we can’t rely on a direct exchanged of gold or silver for a product, we let business and the government run free with our money. The poor man has no control over his money. If the middle class man saves $1000 dollars, under a gold system, he knew that was the same as say 3 gold bars… today he has no idea… i

M:The reason why we are not on a gold or silver standard is because the government decided we were not on one. Even when we had one there was enough gold in the world to fill one large ship. The amount doesn’t matter. The dollar would be based upon the demand of the gold. The demand for gold would go up if people wanted therefore a dollar would be worth a lot. You do not need government to have a currency. You can undo it like I said in the Rome situation.

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One CommentLeave a comment

  1. Discussions of theory always make for a lively and entertaining debate, but consulting historical data can often clarify points of theory.

    For instance, your friend claims that “Capitalism has been alive and well in Honduras since the early 1800’s.” I personally know little about Honduras, but if this is true it would make Honduras the “unicorn” of development economics. The first thing to check is the various economic freedom indexes. Here is one:

    http://www.heritage.org/Index/Ranking.aspx

    Honduras ranks 91st out of 179. On FreeTheWorld.com, Honduras has typically been in the 50s and 60s out of a smaller sample (though there have been improvements very recently, which is encouraging).

    The main point I would emphasize is that, based on these economic freedom scores, Honduras has a very similar GDP/capita to countries with similar scores. Now of course one can disagree with the calculation of these scores, but the challenge you can answer with is: By what criteria has Honduras been capitalistic over a long period of time?


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