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nationalism, decolonization, and statist/socialist economies of third world countries after World War ii

In the wake of World War II, many non-Western countries gained their independence from Western powers. Their postwar economy was shaped largely by three factors: 1)a growing international network of cooperation led by agencies such as the World Bank and International Monetary Fund, which operated under the Keyenesian economic theory of government intervention for social benefits; 2) the absence of large numbers of professionals to run a free market economy in the newly independent countries; and 3) the independence from colonial rule in the African and Asian countries often led them to seek to be influenced by the camp opposite to capitalism in the ongoing Cold War--the socialist regimes of USSR, China, or Eastern European countries. The result was that in the newly independent countries, the economies were either statist--with heavy state intervention in it, or socialist--with state ownership.

Case study: India

Once termed the "jewel on the British crown," India, colonized since the 1700s by Britain, became independent in 1947. Up until the 1980s, India was a leader of the non-aligned movement, meaning it did not follow the US or USSR, but it practiced a socialist style economy till then.

Causes of Indian economic policies:

nation building and economic development required skills and resources, which India did not have sufficiently. Thus the state had to step in.
deep seated social problems: the caste system:
- Historically India was made up of around 500 princely states, loosely connected by the British into one colony, and divided into castes: from the Brahmin (priests) and katriya (warrriors) on high to the untouchables at the bottom who specialized in working with polluted goods (killing of animals and working with parts of animals, e.g. selling meat, making leather shoes). After the independence, although the royalty of the princely states and landlords whose estates were broken up, the same social groups as had emerged under the British remained influential. Two new classes of rich peasants and Indian capitalist classes emerged. And Jawaharlal Nehru, India's first prime minister, improved women’s rights, enforced rules of monogamy and divorce, and equal rights to inherit property. But social reform was slow. India, Even with the abolition of the untouchable people, it needed govt action to do something about it. So 100 million people of this class still lived as before until the 1970s.
religious differences:
- When India was partitioned into two countries in 1947, the partition was based on religious lines despite the cohabitation of both Hindus and Muslims. Thus the British colony of India was divided up into a Hindu state, India, and a Muslim state, Pakistan, with much bloodshed that resulted from it. When Muhatma Ghandhi tried to mediate the situation, he was assassinated by a Hindu fanatic. The deep seated differences in Indian society meant the ruling regime lacked a unified political opposition. Constant territorial disputes with Pakistan and territorial disputes with China steeled the Congress Party and its image as representing the nation. The lack of political opposition also made possible the building of a ruling dynasty in India. A few weeks after Nehru (r.1948-64)’s death, Indira Gandhi, his daughter, took over his National Congress Party (1964-84). Border war with China meant India needed an ally, found USSR. The lack of government transparency also meant democracy was not so easy to implement at home: in 1975 Indira Gandhi was found guilty of election fruad and for the next six years not supposed to hold office. She instituted a state of internal emergency and suspended the constitutional govt as a response. in 1980, she had another election and won massive victory. But national unity continued to be a problem. In 1984, Hindu-Sik religious clashes led to her assassination. Rajiv, her son, called an election and won (r.1984-91). But the Sikh-Hindu unrest continued, especially in the Punjab. A minority of Sik wanted their independent state, Kalistan. In the south, there was the Tamil independence movement, which led to Rajiv’s assassination 1991.
The Cold War: because India allied with the USSR, it pushed the US to further ally with Pakistan, India'a historical enemy.

Ghana and other Third World countries, socialist economy as a result of the inequality of the world economic structure:

Cash crops and commodities trade by developing countries (e.g. cocoa, beef, etc.) that have no control of prices decided at the commodities stock market in the developed countries.
The lack of "unions" of developing country producers versus the highly structured multinational companies that explore the developing countries' produce, such as Del Mont, Nestle, Proctor & Gamble, and Starbucks. OPEC (organization of petroleum producing countries) is one of the few organizations of developing countries that try to control the price and production of their resources. (Example: coffee now costs about 50 cents/lb, while production is 80 cents/lb.)
The government would often step in to build up the economy.

Nationalism and OPEC:

By 1947, the Anglo-American hegemony in the Middle East dictated the economic style of the ME countries, the market for their oil commodity, and often the price. This situation, however, was altered in 1960 with the rise of the OPEC, and in 1973, OPEC exercised a lethal political muscle by unilaterally setting oil prices and imposing oil embargo on the U.S. and other Western countries that sided with the U.S. on the issue of the Arab-Israeli War of 1973. This was followed by nationalization or partial nationalization of Western oil companies in the ME countries. With increasing Western consumption of oil as an energy source and with growing US dependence on ME oil, the ME countries seemed to have reversed the long Western control of their economy and the oil market. OPEC represented a third world transnational control of economy and politics.

1. What conditions led to the OPEC's flexing of political muscles?

a). greater dependence on ME oil; from a "buyers' market" to a "sellers' market" with any one of several major suppliers being able to create a supply crisis by cutting off oil supplies.

Example: the market was now huge for oil, so when Qaddaffi nationalized all the oil companies in Libya, unlike Iran 20 years earlier, he had no problem finding buyers.

b) growth of Arabic nationalism;

c) decline of British power (direct military intervention not very likely and would mean too much resistance).

Example: by 1971, Britain could no longer afford to station troops in the ME to protect its oil interests or the sheikhs friendly to it. Before completely withdrawing from the Arabic peninsula in 1971, Britain created The United Arab Emirates: the sheikhs ruling the seven constituent states on the Persian Gulf that constituted the United Arab Emirates were bound by truces concluded with Great Britain in 1820 and by an agreement made in 1892 accepting British protection. Before British intervention, the area was notorious for its pirates and was called the Pirate Coast. After World War II the British granted internal autonomy to the sheikhdoms. Discussion of federation began in 1968 when Britain announced its intended withdrawal from the Persian Gulf area by 1971.

2. Using oil as a political weapon

A central political issue facing the ME as a collective was the state of Israel, created and recognized by the UN in 1948. A series of wars were fought between Arabic countries and Israel between 1956-73:

The Arab-Israeli war of 1956:

After the Egyptian president Nasser nationalized the Suez Canal, which the British owned, in October, Israel struck Egypt, took the Sinai Peninsula and Gaza (later retreated from Sinai after war ended).

The Arab-Israeli war of 1967:

The Arabic countries led by Egypt prepared for war with Israel because of Israeli takeover of Arabic territories in the 1956 war. Israel struck preemptively in June 1967, leaving Israel in control of the Sinai Peninsula, all of Jerusalem and the West Bank, and Golan Heights.

The 1973 Arab-Israeli War:

The Arabic countries' way to get back territory taken by Israel through a surprise attack on Yom Kippur, 1973. This was Egyptian president Sadat's way of breaking through the Middle Eastern impasse and forcing Israel down to talk.

In both the 1967 and 1973 wars, and especially in the 1973 war, the Arabic countries imposed oil embargo on countries that supported Israel.

3. How much did OPEC succeed in changing the previous Western hegemony over the region?

Part of OPEC's success was the vast increase in market demand for ME oil by 1969. Riding on the market need for oil, OPEC tried to defy the market pressure for greater ME production of oil and lowering of prices, by pushing up prices through a "monopoly" of oil producers, so to speak. The industrialized countries' need for cheap oil contrasted with the ME countries' need to conserve oil, their only asset, which was depletable.

a) Leapfrogging oil prices before 1973:

OPEC started to acquire political clout after it made 55 per cent ownership by oil producing countries of oil companies minimum, based on the precedent created by Qadaffi's coup and raise of oil prices. Iran pushed profit sharing to 55 per cent. Venezuela then pushed it to 60 per cent. To prevent leapfrogging of oil prices, the oil companies formed the "Front Uni" to collectively negotiate with OPEC countries, while OPEC wanted oil companies' negotiations with individual countries so that price increases were not controlled. The eventual outcome: negotiations with two groups of OPEC countries: the Middle Eastern ones and the Mediterranean ones. OPEC gained the upper hand in oil prices and announced annual price hikes after 1976.

b) nationalization or participation before 1973.

Compare now with years earlier, when price was controlled in the hands of the oil companies. Now the oil producing countries asked for participation (when they did not do nationalization, because they still needed Western expertise in oil drilling and marketing networks.), which mostly meant increasing nationalization to half or more holdings.

c) 1973: the watershed for OPEC victory:

1973 was the landmark for ME victory in oil because OPEC took over total control of oil prices and made Western countries bow to its rules. Indirectly, it toppled the Nixon presidency.

i) the issue of price: OPEC or market decision?

With the growth of world demand for oil, oil prices increased faster than the posted prices. And the OPEC countries wanted a greater share of profit. Thus meeting in Vienna, Oct.1973, asking for 100 per cent price increase. Implied economic and political consequences: who will shoulder the cost, consumers? and the issue of "giving in too easily" before OPEC.

On Oct.16, The ME countries flew to Kuwait City and unilaterally raised oil price 70 per cent, to $5.11/barrel; now they took complete charge of the price of oil.

Meanwhile, oil prices soared; some countries asked for $22/barrel; Saudi asked for $8, and Iran $11.65. (from $1.80 in 1970).

ii) The Arab-Israeli war of 1973 and oil as political weapon.

Because of US promise of aid to Israel of $2 billion in the 1973 war, the Arab countries started oil embargo on certain countries, including the U.S., Japan, and the Netherlands.

The embargo would be implemented partly through cutback on oil production, 5 % a year until objective met. this time possible because of soaring oil prices and international need for oil. Iran caved in in the 1950s because at that time, not yet that much demand. Actually the cutback was less than thought because some countries, such as Iraq, actually increased production so net loss not so great.

iii) The West bowing to OPEC:

The oil companies' dilemma: had to carry it out; although tried to cut back on supply to all markets to even the thing out a bit.

Japan, to prevent the oil embargo, flew to ME to declare alliance with Arabic countries and cooperation projects.

The Watergate scandal: Nixon accepting illegal campaign money from oil companies. And he tried to bug Democratic party opponents' meeting at the Watergate condominium. Then it was found out. It coincided with the Oct.1973 Arab-Israeli war.

iv) ending the embargo

Sadat of Egypt and King Faisal of Saudi Arabia: now agreed to existence of Israel so long as return of territory from 1967 (land for peace); although many other Arabic countries still wanted Israel wiped off the map. Mar.1974, finally, oil embargo ended, although Assad of Syria and Libya dissented.