US Interventions and Economic
Development in Small, Poor Countries:
The Cases of Taiwan and Nicaragua
TAIWAN AND NICARAGUA, SO DIFFERENT
Nicaragua's recent history seems to be a story of dimmed hopes for a traditional vision of third world socialism. Under the broadly supported leadership of the Frente Sandinista (FSLN), the country pledged labor and resources to serve its population's basic material, social and spiritual needs and to alleviate crushing poverty. Initially the new government achieved substantial progress with increased food production and consumption, medical care and education (Collins, 1985: 249, 258). But increasingly Nicaragua was torn apart by civil strife and foreign intervention, bled by disrupted production and falling productivity (GDP per capita fell 30% from 1984-1988, UN 1987, 1989), haunted by soaring inflation (34,000% in 1988, UN 1989), and plummeting real incomes (real wages fell 80% from 1984-1988, UN 1989) and crippled by huge trade deficits and sky-rocketing external debt (foreign debt increased from $1.8B in 1980 to $7.5B in 1989, UN 1991).
In desperation the Sandinistas channeled more and more of the nation's economic activity into small, independent units of production linked by market exchange and simultaneously they imposed an IMF-style economic plan which severely cut government spending, on social services as well as the military, from almost 50% of GDP to 24%. Consequently, the government's fiscal deficit fell from 26% to 5% of GDP and the rate of increase of the money supply was dramatically reduced. Hyperinflation was slowed to 1700% in 1989. Simultaneously the currency was devalued, the volume of exports was increased, imports fell and the trade deficit was reduced. However, unemployment surged and GDP per capita fell by 6% to a level 2/3 of that in 1983 (UN 1991). The burden of the crisis and the resulting, forced austerity fell upon a majority who were increasingly poor, hungry, illiterate and medically at risk (Vilas, 1990: 12). The attempt to promote development in Nicaragua did not just stop, it retreated.
In stark contrast, the economic history of Taiwan involved increasing productivity and industrial output, soaring exports, low debt levels, and stable prices with dramatically increasing real incomes (per capita consumption increased 400% between 1952
86, Li, 1988: 52). Taiwan successfully integrated into the world capitalist economy while experiencing growth with equity (Li, 1988: 53). For many, Taiwan is a model that demonstrates the bright future of third world capitalist development. Looked at from this perspective, Nicaragua and Taiwan could not be more different in policies, processes and results. Taiwan's "capitalist" success shines, as Nicaragua's "socialist" failure darkens. In the view widely held among development agencies (USAID, World Bank, IMF) and analysts (primarily economists) this reading of Taiwan's example demonstrates the correct development policies for all third world (and former socialist) nations, while Nicaragua's cautions them.6
DEVELOPMENT WITH OPPRESSION IN TAIWAN AND NICARAGUA
Economic development is difficult for small, agroexport
dependent countries like Taiwan was and Nicaragua is. Economic growth requires, first of all, the production, appropriation, distribution and effective utilization of economic surplus for the development of infrastructure, social services and for investments in additional means of production and labor power. However, it is difficult for private or public agencies in these countries to generate and control much economic surplus. Typically, small agroexport countries do not have the capacity to produce many means of production or consumer goods at internationally competitive prices. Thus, they must produce and export traditional agricultural products or minerals in order to appropriate surplus in a form (i.e., foreign exchange) which would allow them either to construct a capacity for self-sufficient economic development or to pay for the imports necessary to sustain and expand production and consumption.7 Therefore, "self
reliant" economic development, much less autarkic development, is not usually a viable option. Yet, integration into the international economy is a delicate process fraught with pitfalls (e.g. large trade and budget deficits frequently arise and promote inflation and thereby impair long-term growth). Consequently, socially shared economic growth is virtually impossible without significant (low-cost) foreign assistance.8
Small countries typically are integrated into the international economy as exporters of agricultural or other primary products. Their exports generate the revenue to pay for their imported means of production and consumer goods required to continue export production. Their level of production and trade is based, in part, upon extreme oppression (poor working conditions, long hours, low wages, few services, etc.) of their labor force. These harsh conditions create low unit costs which enable internationally competitive export prices. Export production is also often dependent upon external finance (for imported means), technology, transport and markets (Fitzgerald 1986). Integration into the international economy creates an uneven, mutual dependency between small nations and their larger, more economically advanced counterparts.
Taiwan in 1949 and Nicaragua in 1979 were both small, poor nations. Each is filled with mountainous, inhospitable terrain. Consequently, in each the arable land, not all of which is terribly fertile, is only a fraction of the total. Neither country is blessed with large amounts of saleable natural resources. As Japan's colony, Taiwan's social structure was modified and directed toward producing basic agricultural goods, predominantly sugar and rice, in order to export high quality, low-cost food to Japan (Ho 1978). Nicaragua's development, on the other hand, was shaped by U.S. intervention into its domestic politics to establish, bolster, and protect the Somoza family dictatorship (Vilas 1986: 83) and by its position in the international division of labor as an exporter of agricultural products (primarily coffee and cotton, primarily to the U.S.) (Vilas 1986: 49). Thus, each country was similarly integrated into a subservient role within the international capitalist system.
Before World War II, most people in Taiwan did not own land or work steady, well-paid jobs. In pre-war Taiwan the top 10 percent of landholders controlled about 60 percent of the land, while the bottom 40 percent held approximately 5 percent (Ho 1978: 42-43). About 70 percent of the rural population were either tenants or very small part-owners (Ho 1978: 42-43). Their plots averaged less than one hectare and their rents were in excess of 50 percent of the primary crops (Shen 1964: 41). Overall, the people of Taiwan suffered very poor economic conditions.
In 1905, the Japanese cemented their domination of Taiwan by deposing the large absentee landlords and making Taiwan's resident landlords responsible for the land tax (Hamilton, 1983). Large portions of agricultural output were marketed and exported to Japan in order to pay the land taxes. These small landlords were effectively forced to act as intermediaries in the commercialization of Taiwan's agriculture. In this context, Japan directed Taiwan's development efforts towards increasing the productivity of its land and simultaneously exporting its surplus.
Indeed, by the 1920s over 80 percent of Taiwan's exports were food products. More strikingly, 50 percent of the total output of rice in Taiwan was exported. This made up about 20 percent of Taiwan's total exports and provided 30 percent of Japan's import requirements for rice. Ninety percent of Taiwan's total output of sugar was exported, constituting 50 percent of its exports and providing about 75 percent of Japan's total sugar consumption (Ho 1978: 30-31). Taiwan's economy was highly dependent upon Japan's for imported means of production and for export markets.
The resources, human efforts, and skill of Taiwan's people were not utilized to meet their needs, but instead were used to meet Japan's needs. The Taiwanese population's standard of living was neglected and depressed. During the 1930's, 75 percent of the rice produced was sold in urban areas or was exported to Japan (Ho 1978: 68). Rice and other agricultural exports earned approximately 90 percent of Taiwan's foreign exchange (Shen 1964: xxiv). Clearly these export earnings gave Taiwan the potential to substantially expand both its imports and its investment to meet its population's needs. However, the Japanese government's active involvement in Taiwan's development was explicitly directed towards capturing the exportable surplus and utilizing it to advance Japanese aims, not to improve Taiwanese living standards. Japan expanded and concentrated its economic power in the industrial, financial and commercial sectors (the sugar refineries, rice processing mills, banks, trading companies). The Japanese controlled the flow and utilization of surplus to these sectors. Thus, while output was rapidly increased, real wages and consumption were kept very low (Ho 1978: 32). The pattern of development imposed by the Japanese benefited Japan, but was very oppressive to the Taiwanese.
Nicaragua's large-scale agroexport sector, based on extensive use of land and highly exploited labor, successively displaced small food producers from Nicaragua's fertile Pacific plain to its central highlands and eventually to the much poorer agricultural frontier lands in its Atlantic coast region (Gibson 1987: 18). In the period 1952-78 the total land area cultivated in Nicaragua grew faster than the total number of farms, and the proportion held by large commercial farmers increased (Barraclough quoted in Gibson 1987: 19). This increase in concentration was associated with the growth of agroexport production. In 1950 about 25 percent of cultivated land was utilized for export crops, by 1977 this figure rose to 50 percent (Barraclough quoted in Gibson 1987: 20). Growth in cotton production was especially fast and highly concentrated. Its capitalist character reduced peasant participation in export earnings compared to earlier specializations (Zalkin quoted in Gibson 1987: 19).
Consequently, the growth of export agriculture had an adverse impact on medium peasants (production units with 7 to 70 ha. declined by 14 percent during the period of post-war, agricultural export growth) and it decimated small peasants (the number of units less than 7 ha. fell by one half during the period) (Barraclough quoted in Gibson 1987: 19-20). Not surprisingly, the proportion of landless peasants grew to 37 percent of the economically active population in the countryside and un- and underemployment soared. Close to half the landless were unable to secure full-time employment (Deere, et.al. 1985: 78).
As agroexport-led development proceeded in Nicaragua, the best, most accessible land was concentrated among the largest holders. About 5 percent of the population owned 85 percent of the land in pre-revolutionary Nicaragua's countryside (Deere, et.al. 1985: 77), while 75 percent were either landless or poor peasants. Output was exported rather than consumed domestically. As a result, despite rapidly rising agricultural output, pre
revolutionary Nicaragua's rural population became the most underfed people in Central America (Vilas 1986).
More than 60 percent of Nicaragua's population had deficient food intake, malnutrition was widespread and high, health services in the countryside were almost nonexistent, and the vast majority of the rural population was illiterate (Gibson 1987: 30-31). Many were forced to migrate into urban areas. Even though industry grew rapidly and formed an increasing percentage of rising GNP, it did not absorb much surplus labor from the agricultural sector. The migrants therefore could only find underemployment in the urban informal sector and received very little of the nation's growing income. Thus as Nicaragua's pre-revolutionary economy became one of the most dependent upon primary product exports in Latin America, (Conroy 1987: 176) the mass of its population was consigned to terrible poverty.
SOCIAL TRANSFORMATION OF AGRICULTURE IN TAIWAN AND NICARAGUA
The defeat of Japan in World War II eliminated its colonial domination over Taiwan. Thirty years later the Sandinista revolution partially displaced the United States neocolonial power over Nicaragua. In each, the new government was directed by a single, dominant party which attempted to respond to diverse, competing interests. One of the first steps taken by both governments was to expropriate the extensive properties of the defeated. In Taiwan all Japanese properties were seized, which amounted to 20 percent of the total arable land (Ho 1978: 161). In Nicaragua the lands and other properties of the Somoza's and their close associates were publicly appropriated. This land, 20 percent of Nicaragua's total, was of high quality, in prime locations and made up of large commercial, agroexport farms (Deere, et. al. 1985: 77). In both countries tenure on tenant land was secured and rents were strictly limited. In Taiwan rents were held to a maximum of 37.5 percent of the major crop (reduced in some cases from 70 percent) (Shen 1970, 57). Rents were reduced by 85 percent in Nicaragua, (Deere,et. al.: 83). These rent reductions caused significant transfers of income from landlords to peasants and appreciably improved peasant capacity for subsistence.
Taiwan's land reform was specifically designed to address widespread landlessness, ultra-small holdings, poor living conditions and poor expectations for the future (Shen 1964: 41). The government believed that sweeping land reforms would stabilize the rural social order and raise morale for a fight against communist incursion from the mainland (Shen 1970: 57). In comparison, the later Nicaraguan reforms were aimed to attack rural poverty, unemployment and deficient food production. However, as we will see, their reforms were less radical than Taiwan's because they were constrained by the exigencies of the Sandinistas' multi-class alliance.
The first, de facto, phase of land reform in Taiwan was the confiscation of "enemy" property. The second phase was imposed rent reductions. The latter instigated distress sales of landlord property. As a result, peasants took ownership of five percent of Taiwan's total arable land at low prices (Shen 1970: 59). The sale of public land followed rent reductions. The Taiwan government kept control of the large Japanese sugar estates through TaiSugar (approximately ten percent of the total arable land), but sold confiscated land to former tenants on relatively easy terms. Over a ten-year period an additional ten percent of Taiwan's arable land was sold (under ten year mortgages payable in rice or sweet potatoes) to peasants in this program (Shen 1970: 60).
The "land-to-the-tiller" phase of Taiwan's land reform expropriated an additional 16 percent of total arable lands (and 25 percent of all paddy) (Shen 1964: 44). Lands in excess of 3 ha. paddy or 6 ha. dry (medium-grade) previously leased or worked by laborers were subject to compulsory sale. Landlords were compensated with ten-year crop (rice or sweet potato) denominated bonds at four percent interest (70 percent of total compensation) and with shares in government-owned industries (30 percent). Peasants paid this same price, in crop at four percent interest, also over a ten-year period. The government's share of the proceeds (i.e., the imputed value of the industrial shares expressed in rice) financed government investment in agricultural infrastructure (Shen 1970: 61-64).
The process of land reform in Nicaragua was less extensive and less disruptive of existing social relations than it was in Taiwan. By 1986 approximately 16 percent of Nicaragua's arable land was redistributed to individuals and cooperatives. However a portion of this total (less than 5 percent) involved sale of public land (from the expropriated Somoza holdings); a portion represented voluntary sales (again less than 5 percent); and a portion (about 7 percent) represented new expropriations - most of which were compensated (Luciak 1987: 115-16; and Reinhardt 1987: 954). Thus, while over 40 percent of Taiwan's land went into the state sector or was redistributed to peasants, and fully 16 percent of Taiwan's land was expropriated from landlords, only slightly more than 30 percent of Nicaragua's land was transferred, with only about 7 percent expropriated. Taiwan's land reform more radically altered existing land ownership patterns than did Nicaragua's.
The effects of land reform in Taiwan were dramatic. The proportion of peasants who were landowners rose from 30 percent to 77 percent; the proportion who were strictly tenants fell from 40 percent to 11 percent (Ho 1978: 335). The reduction of landless peasants from 40 percent to 17 percent helped to reduce acute rural unemployment (Ho 1978: 144; Koo 1968: 35). During the first five years after land reform, consumption, public and private investment, and output in the agricultural sector all rose significantly (Shen 1970: 65). Most of the income increase went to the small farmers (Ho 1978: 168-170). In sum, close to 60 percent of Taiwan's farm households benefited from the land reform (Shen 1964: 70). Land reform helped to maintain relatively egalitarian income distribution (Ho 1978: 144) while it provided a foundation for industrial development.
Taiwan's government helped to secure the conditions for the reproduction of independent peasant agriculture. The rent reductions, land sales and land reform enacted by the government gave peasants access to land. The payment for land, land taxes, water fees, etc. in crop, at rates substantially lower than historical norms, helped peasants retain their land (Li 1988: 64). Farmers' Associations and government extension programs provided peasants with modern techniques and inputs and with cooperative facilities for storage and processing (Li 1988: 64; Shen 197: 185). The government provided irrigation and flood control facilities, new roads to markets, electricity and other important elements of an economic infrastructure. These inputs, services and infrastructure increased the productivity of peasant agriculture and lowered its costs. The government and cooperative institutions replaced exploitative money-lenders to provide credit that enabled peasants to dramatically increase their working capital (especially fertilizer, pesticides and feed) (Shen 1970: 207, 65). Peasants could repay these loans with crop from their consequent increased output. Altogether, secure land ownership, increased inputs, services and infrastructure, and low-cost credit which could be repaid independently of price fluctuations, increased the stability and prosperity of peasant agriculture.
Taiwan state policies not only secured the conditions for expanded reproduction of peasant agriculture, but they also transferred a significant portion of agricultural resources and agricultural surplus to the government. State sponsored land reform effectively eliminated both the landlord class and large
scale, private agroexporters. For example, the expropriation of land and mills belonging to Japanese owners enabled the government to establish Taiwan Sugar Corporation (Shen 1964: 195). TaiSugar's exports constituted 50 to 80% of Taiwan's total, yearly export revenues during the 1950's (Shen 1964: 302). Revenues from rice exports, also controlled by the government, made up an additional 10 to 25 percent of total exports during this period (Shen 1964: 302). Thus, the Taiwan state's extensive disruption and transformation of the pre-existing socio-economic structure allowed it to establish and stabilize new (state and independent peasant) social relations of production in agriculture and simultaneously enabled the government to control and benefit from the bulk of agricultural exports and to subsidize industrial development (Ho 1978: 180-81).9
The transformation of socio-economic relations in agriculture in Nicaragua was constrained by the " ... perceived economic and political imperatives of the inherited agro-export economy" (Reinhardt 1987: 953). Consequently, Nicaragua's initial reforms left most agroexport production unaffected because its existing structure was conceived to be "technologically progressive and dynamic" (Reinhardt 1987: 944). Sixty percent of the rural population in Nicaragua benefited from receiving either secure title to their existing land or newly distributed land (Reinhardt 1987: 946) and production of most crops, especially food, increased until 1984. However, medium and large capitalist farms continued to hold much of the best land, to dominate export agriculture and to control a significant share of the agricultural surplus.
Pre-revolution, 5 percent of the economically active population owned 85 percent of Nicaragua's farmland: 20 percent was held by Somoza or his close associates, 21 percent by non
Somocista, large (over 355 ha.) capitalist farmers, and 44% by mid-size (36-355 ha.) farmers. In 1981 the large and mid-size non-Somocista farmers held approximately the same percentages; by 1984 the holdings of the large farmers had fallen by about one
half, but the mid-sized holdings remained constant (Deere et.al. 1985: 77). Consequently, 80 percent of the production of major agroexports was left in the concentrated, relatively large-scale private sector (Reinhardt 1987: 950). In other words, in an effort conceived to maintain national unity and agricultural export levels, the revolutionary Nicaraguan government kept the bulk of (including the best) farmlands concentrated in the hands of land owners whose equivalents in Taiwan had been dispossessed (albeit with deferred compensation).
In Nicaragua the government not only allowed large and medium agroexport capitalists to retain their lands, but it also supported conditions which would secure their (at least as much so as the peasants) expanded reproduction. As long as large holders used their lands productively their continued ownership was guaranteed. They were also supplied credit at negative real interest rates to cover all working capital needs; they were guaranteed profitable minimum prices; they were granted special representation in governing and technical support bodies; they paid low tax rates; and they were given access to, and special rates on, foreign exchange so that they could readily obtain imported inputs and consumption goods (Collins 1985: 40). In summary, Nicaragua's land reform permitted the continued existence, economic predominance and reproduction of agroexport capitalists.
On the other hand, however, the government's national unity strategy did not successfully elicit much cooperation from large (or even medium) capitalist agroexporters, despite the many incentives offered to them (Deere, et.al 1985: 86). Their adverse actions, along with military disruption, contributed to problems in Nicaragua's post-revolutionary agricultural performance. Agroexporters' production fell short of pre-revolutionary levels, they absorbed scarce subsidies, credits and foreign exchange, and they hesitated to reinvest and maintain their properties and output levels. Nicaragua's less radical land reform and class transformations contributed to slower, less egalitarian agricultural and industrial development than Taiwan's.
Despite practical reassurances and support from the new government, the agroexporters' loss of political predominance threatened their exclusive control over land and its disposition, over money, credit and foreign exchange, and over the conditions of exploitation of labor. Their power was reduced and their costs were increased; they undoubtedly feared for a future in which they lacked the power to forcibly restrict the scope of the revolution. On the other hand, Reagan's election and the Republican party platform commitment to overturn the results of the Nicaraguan revolution provided the landowners a meaningful, externally supported alternative and mobilized them to actively oppose the revolution's goals (Deere et.al. 1985: 87).
STATE INTERVENTION AND CONTROL OF SURPLUS FOR ECONOMIC DEVELOPMENT
State intervention was utilized in both Taiwan and Nicaragua to alter class relations, (i.e. to change the appropriation, distribution and the utilization of the surplus) in order to stabilize their economies and to improve their populations' standards of living. State ownership, control and intervention were extended well past agriculture in both countries: key industries in each were either seized or nationalized. The state controlled close to 40 percent of manufacturing in Nicaragua, (Ruccio, 1987: 65) while in Taiwan it controlled in excess of 40 percent (Approximately 55 percent in 1952, 38 percent in 1964, Jacoby, 1966: 282). Both countries completely nationalized their banking systems and extended government control over credit, capital flows and foreign exchange. Nicaragua exerted its control over foreign trade in order to encourage exports and strategic imports of raw materials, capital goods and some basic consumer goods, while it discouraged luxuries and other consumer goods (Utting, 1987: 138). Similarly, in Taiwan the government strictly limited luxury and other consumer goods imports as part of an import-substituting industrialization strategy (Ho 1978: 133).
Taiwan's rice-fertilizer barter program illustrates how its interventionist state was able to encourage its small, independent agricultural producers to increase output (and to allow them some increase in consumption) and still enable the state to appropriate and control a larger surplus. The Taiwan government held a monopoly on imported and (much more expensive) domestically produced fertilizer. The types of rice planted in Taiwan produced much greater yields when heavily fertilized. The government bartered its fertilizer in exchange for rice at high relative prices. The government was able to gain control over 25 to 30 percent of Taiwan's annual rice production through rice-fertilizer barter (62 percent of the government's total), tax collection in kind (13 percent) and compulsory rice sales (11 percent) (Shen 1964: 333). Thus, the government captured most of the rice surplus and effectively protected and subsidized the development of domestic chemical and fertilizer industries. Together, these collections of rice (along with land purchase payments in rice) pressured peasants to produce, and to give up, a food surplus. The government was then able to utilize its supply of rice to stabilize the market price of rice at a low level, keep down government budget deficits by providing rations to the military and other employees, and restrain inflation of basic goods prices and thus guarantee a minimum livelihood for both the urban and rural populace.
After the revolution the new government rebuilt agriculture and industry in Nicaragua. However, under the post-revolutionary conditions of production, productivity and output fell (in part because oppression was reduced) and wage and import demands increased. The Sandinistas faced poor production unit performance and growing internal (budget) and external (trade) gaps (Ruccio, 1987: 73). Military disruptions exacerbated these problems. In this context, the FSLN had difficulty developing institutions and mechanisms that would give it control over the generation and distribution of surplus (Deere, et. al. 1985: 101). In the absence of such control Nicaragua was extremely vulnerable to foreign and domestic interventions which reduced the production of surplus (e.g., destruction of agricultural cooperatives), or restricted its realization (e.g., limited its external market through embargoes) and diverted it to support increased military activity. Consequently, Nicaragua suffered high and rising foreign debt; destabilizing inflations; neglected, if not destroyed, basic infrastructure; and physical and psychological debilitation of its people. In short, agriculture and industry were disrupted because the government lacked the capacity to control (or to fully protect) the production, appropriation and distribution of the surplus.
In both Taiwan and Nicaragua land reform and active state-led development programs addressed glaring social inequities, promoted increased output and self-sufficiency and created the potential for a better life for the poor. The Taiwan state, however, instituted and enforced a more radical transformation of Taiwanese social relations and maintained stricter control over the appropriation and distribution of the social surplus than did Nicaragua. In Taiwan the government did not hesitate to oppress local Taiwanese landlords and capitalists to achieve its objectives. In contrast, the Sandinistas attempted to avoid economic conflict with existing elites. They created a mixed economy and charted an independent international course. These differences between Taiwan's and Nicaragua's experiences raise interesting questions because the United States, while firmly entrenched in the rhetoric of laissez-faire capitalism and democracy, befriended and assisted radical, state-led development in Taiwan, while 30 years later it was the implacable foe of Nicaragua's less radical, democratic development approach.
U. S. SUPPORT FOR TAIWAN'S DEVELOPMENT
Taiwan's articulation into the international capitalist system is portrayed by many commentators as an unqualified success story that resulted from democracy and the free market. In practice it was not so simple. Indeed, active, non-democratic state intervention stabilized, developed and eventually linked Taiwan's economy to the international expansion of US capitalism.
The United States played strikingly different roles in the development of Taiwan and Nicaragua. The difference did not arise because Taiwan was capitalist and Nicaragua was socialist. Instead, the differences in the US roles are closely linked to differences in the geo-political and historical circumstances of Taiwan in the earlier period and Nicaragua more recently, relative to US policy goals.
The United States supported the defeat and the expropriation of the Japanese in Taiwan. Nationalization of industry and the banking system and control over foreign trade were directed against the Japanese and their allies. The expropriation of Japanese-held land and Taiwan's domestic land reform program broke Japan's influence and undermined its former allies' power in the countryside. Nationalization and land reform in Taiwan helped to dissolve Japanese economic and political institutions and power in the Far East while they stabilized the situation for the US.
After the Korean War began, the US supported Taiwan as a check upon, and a counter-example to, the People's Republic of China. The Nationalist state was established on Taiwan by force; it was not democratically constituted. It did not hold complete elections for its legislative branch until December 1991. This lack of democracy did not deter US support. US objectives for Taiwan were to help it establish and maintain a strong defense establishment and a rapidly developing economy in order to demonstrate the superiority of "free economic institutions" as instruments of social progress (Jacoby 1965: 137). Thus, for almost two decades the United States gave undemocratic Taiwan huge grants of military and economic aid in order to support its continued existence and development.
Steps taken in order to build a profitable export economy in a country like Taiwan may generate inequalities and conflicts. For example, the provision of adequate infrastructure and social services (education, public health, etc.) requires considerable government expenditures. Poorly paid workers and firms struggling to be internationally competitive, on the other hand, cannot provide much tax revenue. Large government budget deficits are likely to arise. At the same time, economic development efforts may stimulate imports (including to the government sector) in excess of exports and create a persistent trade gap and foreign exchange shortage (Fitzgerald 1986; Stallings 1986). Budget and trade gaps can undermine economic development programs. Taiwan's military budget was very large. Its size created a potential conflict with the demands economic development placed on government revenues. The United States resolved that conflict when it provided $2.7 billion in military aid, most of it between 1953 and 1962 (Ho 1978: 108-109). Per capita military aid per year from 1953 to 1957 was about $25. At this time Taiwan's per capita GNP was less than $150. US military aid dramatically reduced domestic budget gaps.
Most US economic aid was given to Taiwan under the auspices of military support (Jacoby 1966: 42). Taiwan received almost $100 million a year in US economic aid from 1951 to 1965 (Jacoby 1966: 38). During the 1950s, this aid amounted to between $12 to $15 per capita per year (Ho 1978: 110) and ranged between 10 to 15 percent of GNP and between 15 to 20 percent of personal consumption. The composition of this aid was 10 percent consumption goods, 25 percent capital goods and 60 percent industrial materials (including grain, cotton fiber and fertilizer) (Jacoby 1966: 46). It provided food, clothing, means of production for building basic industries and, taken together, stabilized Taiwan's economy while it provided a basis for future economic growth.
The United States helped set up and staff many of the agencies that planned and directed Taiwan's development. In this context, the US either allowed, or directly assisted, extensive development of the governmental and non-capitalist sectors, including government planning, government appropriation of the surplus, and import-substitution industrialization (Shen 1964: 39). Taiwan's public sector received 67 percent of all economic aid, another 27 percent went to joint public-private ventures, and only 6 percent went to the private sector (Jacoby 1966: 51; Ho 1978: 117). Eighty percent of the capital assistance granted by the US went to finance government projects and enterprises in such diverse fields as electric power, transportation, communications, chemicals, fertilizers and other agricultural industries (Jacoby 1966: 53). The United States financed over 50 percent of Taiwan's investment in the public sector. In short, the United States helped build a state-led economy in Taiwan.
The rapid agricultural development associated with land reform, which was the foundation for the distribution of economic benefits across social classes, would not have been achieved (at least not nearly as quickly) without US aid. Infrastructure and human services received 63 percent of US aid (Jacoby 1966: 50) and 57 percent of all capital assistance from the US (Jacoby 1966: 34). Agriculture received 20 percent of all US aid. This aid provided 75 percent of Taiwan's investment in infrastructure and 60 percent of its investment in agriculture (Jacoby 1966: 51).
The United States not only tolerated extensive state management of the economy and foreign trade, it also covered the costs of Taiwan's internal and external deficits. Domestic revenues, until the mid-1960's, rarely covered as much as 75 percent of Taiwan's consolidated government spending. US aid financed most of these deficits (Ho 1978: 116). Moreover, during the 1950's Taiwan's imports exceeded its exports by 60 percent; United States grant aid financed 90 percent of the resulting trade deficit (Jacoby 1966: 98-99; Ho 1978: 115). In spite of the limitations placed on consumption and high real domestic interest rates, Taiwan's high levels of investment created a savings deficit. US aid financed nearly 40 percent of Taiwan's gross domestic capital formation during the 1950's (Ho 1978: 115). Thus, Taiwan's internal and external deficits during its first fifteen years of development were largely financed by US grant aid. Consequently, Taiwan was able to spend its revenues on development projects and to import necessary materials and equipment without incurring massive foreign debt or generating high domestic inflation.
US aid made considerable contributions to Taiwan's development. It kept military spending down, financed internal and external deficits, built up infrastructure, human services, agriculture and the public sector, and provided the materials, equipment and technology to build the domestic industries that would later constitute Taiwan's potent export sector. Most importantly, the United States presided over (or overlooked) the dramatic social transformations and extensive state interventions that provided the foundation for rapid, materially beneficial development in Taiwan.
U.S. OPPOSITION TO NICARAGUA'S DEVELOPMENT APPROACH
Nicaragua's attempts at development were opposed and disrupted as a lesson on US power and dominance. Despite the Sandinistas' attempt to create a society that functioned in the political and economic interests of the majority, and despite their pragmatic attempt to combine this goal with policies that supported a mixed economy and political pluralism, US policy
makers perceived Nicaragua's existence and development policies as a dangerous threat to the United States.
Development policies in countries like Nicaragua have been centered upon trying to reduce oppression while stimulating growth. Social transformations directed toward meeting the needs of the majority of a population often entail the destruction of existing productive capacity and always disrupt, by definition, the old way of doing things, and create or exacerbate conflicts among those who must work together to produce. For example, reduction of oppression, e.g. at the point of production, may lead to reduced work effort and reduced production of surplus. Increased spending on social services (and attempts to reduce illiteracy and poor health) may absorb an increased portion of surplus and divert it from investment, without immediately boosting output (Vilas 1987: 245). Consequently, traditional export sectors and the domestic and foreign elites who have controlled them may suffer reduced output at increased costs.
Most successful newly industrializing countries' (NICs') growth in output and exports has been based upon their application and expansion of already existing products and production processes. Their price-competitiveness has not arisen from lower costs associated with invention or innovation in product or process (Amsden 1989). In the early stages of industrialization the NICs' factories have not approached the productivity levels of those in advanced countries. They "learned," Amsden points out, how to catch up to advanced productivity levels while competing on world markets. They compensated for their lower efficiency during their extended learning periods by compelling their work forces to spend longer hours at higher intensity under hazardous work/environmental conditions, for low wages.
The NICs' governments provided subsidized infrastructure (e.g., electricity and communications), direct production subsidies to firms, protected local markets, cheap credit and the foreign exchange necessary to import required means of production, in order to compensate for their firms' lower levels of productivity (Amsden 1989). The experience of the most successful NICs indicates that development required long catch-up periods when they maintained or even increased levels of exploitation (often by oppressive means); provided producers with credit, subsidies and foreign exchange; and disciplined labor and capital to the requirements of export-based accumulation. US aid gave Taiwan, in particular, the cushion that not only made catch-up possible, but also reduced the level of economic oppression necessary to achieve it.
Autarkic development in small agroexport countries like Nicaragua is improbable. Its alternative, international integration, exacerbates budget and trade gaps. An extended period of social transition and economic expansion is necessary to reduce these gaps. Therefore long-term foreign assistance (aid, low-cost loans, privileged access to markets, etc.) similar to that proffered to Taiwan is usually necessary to close the gaps and create the space for successful international integration and development. On the other hand, external aggression--which damages productive capacity, raises production costs, burdens the budget and restricts both exports and key imports--can cripple the development process. In other words, since small countries need foreign assistance to prosper, foreign aggression is doubly destructive (Fitzgerald 1987; Marchetti 1986).
Nicaragua's pre-revolutionary economy was highly dependent upon the international sector. Twenty-five percent of Nicaragua's income came from exports and by 1979 it faced an extremely large external debt ($1.6 billion). Further, the revolution provoked capital flight in excess of $500 million (Conroy 1985: 43-46). Nicaragua's surplus for accumulation and necessary inputs for agriculture and industry had to come from external sources. Therefore Nicaragua's post-revolutionary development was extremely vulnerable to outside disruption.
In Nicaragua, despite its mixed economy (over 70 percent of the agroexport sector was private), and despite its expressed commitment to political pluralism, the United States undermined export production, cut off its export credits, blocked the inflow of key production inputs and closed off export markets (Conroy 1985: 39-40). These steps cut to the heart of an economy dependent on export performance and external assistance. In addition the US supported agitation against, and attacks on, land reform programs and co-ops, discouraged participation in democratic elections and funded Contra military attacks on civilian targets. Material damages (including production losses) inflicted by US sponsored attacks and costs incurred from financial aggression and trade embargoes have been estimated at $1.42 billion (UN, 1989). Thus, US policy has attacked not only the goals, but also the very substance of Nicaragua's democratic development efforts. The costs imposed upon Nicaragua's development were almost as extensive as the benefits granted to Taiwan's. The United States paid heavily to achieve success in Taiwan and charged dearly to create failure in Nicaragua.
CONCLUSION
Taiwan, in many respects, is an exemplary case of state
managed and foreign-assisted development. The United States and the Taiwan government, in their own relatively independent ways and for their own purposes, planned Taiwan's integration into the US dominated post-World War II international economy. The intersection of their goals in Taiwan secured conditions that simultaneously promoted the internationalization of US capitalism throughout the Pacific Rim and stabilized Taiwan's political economy. US policy-makers wanted a stable model of anti-communist development; the Nationalist party wanted a secure base from which to launch a return to the mainland. Land reform and associated government interventions into Taiwan's economy produced results which allowed the US to claim Taiwan was a model of a noncommunist, politically stable and economically successful society firmly within the US sphere of influence. The geographic requirements of bolstering an anti-communist alliance made the US willing to intervene to support Taiwan's interventionist government policies, to support major changes in class relations, and to permit non-capitalist modes of production in order to support materially beneficial development in Taiwan.
Taiwan's case indicates that materially beneficial development is possible within the international capitalist economy but it also indicates that extensive land reform, nationalizations of banks, foreign trade and industry, industrialization on the basis of national firms and other disruptive changes in class relations are required. Generalizing these types of class transformations in other Third World nations would be very costly. Such transformations would break up long
standing political, economic and cultural alliances between local elites and foreign capital, and would directly threaten the property rights of international firms. The widespread access to means entailed by the Taiwan model, combined with its extensive use of resources (i.e., full employment) would provide working people with alternative means of survival. Workers would be in a position to demand and receive higher wages. A reduced capacity to compel workers to accept oppressive conditions tends, other conditions held constant, to reduce relative levels of exploitation and hence, profit. Taiwan's much noted equalization of income distribution occurred because local and foreign elites were forced to pay high costs and/or suffer reduced benefits.
In addition, Taiwan's model requires high per capita amounts of grant aid devoted to efficient investment in agriculture, physical infrastructure and human development. In contrast the model restricts the investment and, especially, the consumption choices of the local elites and, consequently, the exports of foreign firms. Local content requirements force international firms to expand local industrial linkages, i.e., to promote national industrialization and thus limit the investment options of and raise costs for international firms.
Taiwan's changed class structure and interventionist government policies strongly influenced the character of its articulation to the US economy. Taiwan provided low-cost labor in a politically repressive but stable environment. However, labor costs were not as low as possible because Taiwan's workers had viable alternatives in agriculture and other businesses. The capacity of international firms to exploit workers was limited. While exports of US firms to Taiwan were restricted, access for Taiwan's exports to US markets meant either existing US production and employment was displaced and/or its share of growing markets was reduced. Large scale replication of the Taiwan model throughout the Third World would likely entail significantly reduced exploitation, (relatively) reduced developed country (especially US) exports (with associated capital devaluation and job loss) and significantly increased imports to, and market share within, the developed countries.
The policies that fostered Taiwan's materially beneficial development were acceptable to the US in the 1950s because Taiwan's development - even though it was costly - supported both the US anti-communist offensive in East Asia and US efforts to rebuild an international capitalist economy (Jacoby 1966, Cumings 1984). Once relative political stability was secured in East Asia and once China was cut off and encircled, US development priorities shifted and Taiwan was presented as a "free-market miracle." Increased foreign (Japanese and European) competition pressured US producers to obtain access to low cost (international) production sites. In practice, the Taiwan model produced these low-cost sites, but did so at the expense of high initial costs to the US government and local elites. In addition, many of the details of the Taiwan model contradicted the extreme free-market rhetoric served up for US domestic consumption in the early 1980s. In the late 1970s and early 1980s the Taiwan model was rewritten to emphasize free markets, open access by capital and limited state economic intervention in order to conform to ascendant free-market ideology, to lower the model costs and to increase the benefits associated with internationalizing capitalism.
The original Taiwan model is not widely advocated and pushed by US or international agencies. The rewritten model, often touted under the rubric of "structural adjustment" (Ruccio 1991), is designed to reduce costs and increase benefits by securing the conditions for capitalist production in the Third World with little concern for the overall welfare level of the general population (e.g., levels of employment, real wages or social services), for levels of non-authoritarian stability and with intent to maximize access for international firms to land, materials and labor at low costs. Within the context of this truncated new model, countries with very few elements of Taiwan's development policies like Chile, Indonesia and Mexico are portrayed as development "success stories" simply because they increase internationally oriented output, increase exports and can pay off more of their accumulated debt (Harberger 1993a).
Taiwan's rewritten story is a powerful tool in the ideological struggle over development strategies. Its success is used to justify "structural adjustment" policies that are selective, distorted versions of Taiwan's actual early development history. On the other hand, Taiwan, as a counter-example of materially beneficial development, is at least triply subversive. First, it proves that successful development within a capitalist world system is possible if a sufficient price is paid. The Taiwan counter-example can justify the changes in class relations, transfers of surplus and policy independence required for materially beneficial development. Second, the Taiwan counter
example may have an uneven impact upon the interimperialist rivalry between Japan and the US. If the "structural adjustment" model best suits current US geo-political goals, then the Taiwan model may best suit Japan's.10 Finally, the Taiwan model may have contradictory implications for US internal development. Just as West European stagnation has served as a basis for attacks on social democratic attempts to secure the conditions for capitalism (e.g., Thatcherism), Taiwan's dynamic counter-example indicates the value of state intervention, industrial policy and attention to developing human and physical infrastructure. Its problems and struggles also point out the importance of environmental sustainability and democratic participation (Bello and Rosenfeld 1990).11
Nicaragua's attempts to foster development included many aspects of the Taiwan model. In Taiwan's case these efforts were supported by the US; in Nicaragua's they were opposed. Nicaragua's economic development policies concretized the challenge posed by the Taiwan model to the US. Taiwan shows that different models of development are possible within world capitalism and that materially beneficial development is possible in this context; Nicaragua shows that in order for these possibilities to be generalized throughout the Third World US opposition will have to be overcome. Critics of capitalism in the Third World should seize the counter-example to "structural adjustment" provided by Taiwan. At a time when actually existing successful alternative models are few and far between, fully understanding the strengths and weaknesses of the Taiwan model can serve useful purpose in ideological struggles against the oppressive aspects of capitalism.
Capitalist development in the Third World does not necessarily mean either underdevelopment or development. A range of possibilities exists. Socialism is usually presented as the alternative to world capitalism. In that view, state ownership and planned production for social needs replace capitalism's oppression and exploitation. However, it is widely believed the (actually existing) socialist model has lost its attraction. Taiwan's history suggests elements for a different kind of alternative. Taiwan's case indicates that agricultural reform, industrialization, shared increases in income and increased consumption are possible within the context of international capitalism. However, Taiwan's development occurred under very special circumstances. Substantial transformations in existing class and power relations were necessary for its kind of development to occur. Extensive land reform, nationalizations of banks and key industries, government control over the foreign sector -- including import/export controls, currency controls, import-substitution industrialization policies -- and state appropriation and reallocation of surplus within and between various class processes were all necessary to achieve the kind of development that took place in Taiwan.
Ironically, and in contrast to the US promoted free-market myth, Taiwan's actual experience of state intervention to support a mixture of class relations provides some positive lessons for the development of small, poor countries -- but only if the US and other developed capitalist countries are compelled to allow and support their widespread implementation. However, in order to have a chance at success these development policies (and politics) must be struggled over, negotiated and achieved within the context of the current power of the US state. Materially beneficial development (including some socialist policies) within the world capitalist system is only possible if international alliances, including alliances with groups in the US, create space for it within the US dominated framework, or if they successfully challenge US dominance.
ENDNOTES
1.The definition of economic development is often contested. An orthodox approach might define development as economic growth (in, for example, per capita GDP) plus structural change (e.g., increased industrialization and urbanization) (Gillis 1983, et.al.). In addition to these factors others might specify technological change - through either development and/or application of science to production (Bowles and Edwards 1993) - or, more broadly, institutional change - i.e., changes in economic institutions, relations and methods which increase the level and efficiency of the use of resources with respect to the needs of economic agents (Riddell, et.al. 1991) - as necessary aspects of real economic development. Economic development, for still others, is best measured, not by transformation in conditions of production, but by transformations in general and individual well-being. So amounts of goods, services and leisure, and the dispersion of access to them, as well as the status of overall natural and social environments (and the sustainability of their coexistence) need to be factored into appraisals of development (Bowles and Edwards 1993). Others believe that the real test of whether or not development has occurred is how well increases in levels of output are translated into human development (e.g., longevity, knowledge, opportunity etc.) adjusted for gender and dispersion (e.g., income distribution) (Human Development Report 1992). Broad participation among the population in decision-making (individually or collectively) and receipt of benefits is usually considered important (Gillis et.al. 1983, Bowles and Edwards 1993) although agreement on what constitutes participation (e.g., free choice in the labor market versus labor-managed firms) is rare. A rather comprehensive, and strict, definition is outlined by Bernstein: "...'national development'... encompasses the following: (1) the accumulation of capital under national control, promoting the development of the productive forces and the capacity for self-sustained growth; (2) the expansion of productive employment and the achievement of higher levels of income and social welfare - of health and nutrition, of education and participation in the political life of the nation; (3) the prospects of achieving national development are influenced to greater or lesser extent by the position Third World countries occupy in the international economy" 1982:219). Arguments over whether a particular country has developed or not often turn on the definition chosen. Instead of viewing development as a hurdle that either has/is or hasn't/isn't been/being cleared (i.e., development or underdevelopment) I prefer to use the various concepts outlined above to interrogate moments in economic history in terms of the various criteria: what happened along each of these dimensions where, when and why?
2.Critics of capitalism have traditionally argued that capitalism in the Third World produces underdevelopment instead of development (Frank 1967). Widespread and persistent poverty in the Third World seemed to support dependency theory and to controvert pro-capitalist modernization theory. However, rapid economic growth and extensive export based industrialization in the East Asian newly industrializing countries (NICs), especially South Korea and Taiwan, continue to be cited as evidence that "getting prices right" in the capitalist free-market is the key to successful development (Balassa 1981; Lal and Rajapatirana 1987). Alam (1989) and Wade (1990) both do particularly good jobs assembling quotations and references that demonstrate economists believe the NICs success came from free-market policies. More recently, Arnold Harberger reiterated these widely held views in his keynote address (Ely Lecture) to the 1993 Allied Social Science Associations (1993a). He provided the details of his position in another conference paper (1993b). Even politically liberal theorists (who explicitly recognize market failures in their work) like Paul Krugman (1993) continue to argue that free-trade, free
market policies are the best possible ones and, consequently, read Taiwan's history in that light.
3.A variety of analysts contrast increased democracy in Brazil and Argentina and (allegedly) successful pro-capitalist economic reforms in Chile and Mexico with the collapse of socialist regimes in the former Soviet Union and Eastern Europe, the electoral defeat of the FSLN in Nicaragua and market reforms in China to prove that capitalism is both the correct and popular choice for freedom and prosperity and to suggest that non-capitalist models have lost their attractiveness. The success of "free-market capitalism" and the failure of "socialism" is less a story of facts and more a matter of ideological construction. But this story is not being assembled solely by those who have always hated socialism and advocated capitalism. Many left economists have imbued markets with almost mystical capacities to organize economic activities (see Bardhan and Roemer 1992). Others see markets as, if not the ideal mechanism, then as the best existing form for providing the information and incentives necessary to allocate resources and stimulate productive effort (Weisskopf 1992). Still others see the best prospects for human development in "socializing the market" (Elson 1988). The extent of the perception that socialism has (universally) failed is indicated by Robin Blackburn's comment that the failures "... compromise the very idea of socialism" (1991). Eric Hobsbawm (1992) argues that the failures (in his view, of both socialism and free
market capitalism) indicate that debate should and will center on the line between non-socialist mixed economies and socialist mixed economies. In this context, examination of Taiwan's history indicates both the extensive conditions for establishing markets that may benefit the populace, and the extensive management of those markets necessary to begin to realize some of the potential benefits. Taiwan's history also shows how class relations and foreign interventions have enormous impact on the "functioning" of markets.
4.In this paper "materially beneficial" development is said to occur when economic development - growth plus institutional change - yields human development for the mass of the relevant area's population. Development in both Taiwan and Nicaragua involved strategies that were materially beneficial to a substantial portion of their peasantry and working class, often at the expense of segments of their former ruling classes. The sustainability (in terms of the natural and social environments) of, and degree of participation in, development are separate but related and extremely important questions. Bello and Rosenfeld (1990) critique the development processes of East Asian "dragons" on these terms. They make it clear that, for example, Taiwan's economic development was not "grass-roots" or "participatory" development: "A privileged circle of entrepreneurs well connected with the KMT have, in fact, exercised close control of the island's industrial economy together with the state technocratic elite" (p.235).
5.The US is an important and perhaps even decisive influence on, but certainly not the only or even the major factor contributing to, economic development in either Taiwan or Nicaragua. The paper emphasizes some general similarities between the two countries' situations. However, they aren't considered to be identical. Each has its own history, its unique mix of cultures as well as many distinctive economic, social and geo-political features which all affect its development path and results. The paper's point is that even with many of the other necessary, contributing factors in place, Nicaragua's development was frustrated by US policies while Taiwan's was supplemented and reinforced.
6.Some early literature (Amsden 1979, Landsberg 1979, Hamilton 1983, Wade 1984) and some more recent, longer critical studies (Gold 1986, Amsden 1989, Alam 1989, Bello & Rosenfeld 1990, Wade 1990, Burris 1992) demonstrate that Taiwan and other East Asian "dragons" owe their economic development to much more than free-market capitalism. There is also much research that shows that Nicaragua's development did not follow a traditional socialist model (Deere et.al. 1985, Luciak 1987, Reinhardt 1987, and Vilas 1990). These findings have been consistently ignored at the major, US dominated political and development agencies. See Wade's (1990: xiii, 5, 15-16) observations about the World Bank and IMF.
7.See Fagen et.al. (1986) especially the Stallings and Fitzgerald articles for detailed arguments and references to the literature. In addition, see the recent special issue of World Development (1993).
8.A sizable literature exists (e.g., Payer 1974, 1982) which argues that since aid frequently comes with strings attached, generates high repayment costs and goes to the wrong people, that it reproduces repressive power structures, saps growth, and produces benefits for only a few. As Griffin (1989: 82, 230) indicates these contentions are often either true, or aid is so small that its net effects are marginal. He also points out, however, that studies have shown positive effects of aid, under the right conditions. Whether aid is available in sufficient amounts is also important. White (1992) points out that studies do not show a negative correlation between aid and growth. In fact, when aid reduces budget and foreign exchange constraints it is associated with growth. The paper will later show that Taiwan received large amounts of grant aid that it used effectively. Taiwan's aid situation was a special case that correlates closely with its special situation as a small, poor country that developed. The set of small, poor countries that developed without foreign aid or investment is exceedingly small - and perhaps null.
9.Petras (1990) provides a succinct and Bello and Rosenfeld (1990) provide an extensive set of evidence and arguments that show the Taiwan state was (and is) very oppressive. In particular its government brutally suppressed opposition political movements and repressed the labor movement. Unlike similar states in many other parts of the third world, it also directed repression, on occasion, towards the pre
existing socio-economic structures and elites and continued to place limits on the power of its nascent capitalist elites.
10.Taiwan is deeply integrated into Japan's production and trade system. In particular, Taiwan is a major importer of Japanese technology and goods, is a site of much subcontracting for Japanese producers and trades substantial volumes via Japanese trading companies. Replication of the "East Asian" model may, in practice, require substantial integration of participating Third World countries into a Japanese dominated system. US firms and agencies may be left out. The Japanese are currently pressuring the World Bank and the IMF to more explicitly draw development lessons from the East Asian experience (Prowse 1993).
11.Bello and Rosenfeld's (1990) work makes clear that Taiwan provides as many negative examples and cautions as it does positive. However, even in the case of its negatives, e.g. its repression of labor and women, and its degradation of its environment, there are positive lessons. The population in Taiwan has increasingly, aggressively and successfully fought its oppression (see, e.g., Arrigo 1993 and Ngo 1993).
REFERENCES
Payer, Cheryl. 1982. The World Bank. N.Y.: Monthly Review.
Payer, Cheryl. 1974. The Debt Trap. N.Y.: Monthly Review.
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