shati town

Howard Nicholas teaches at the International Institute of Social Studies (ISS), in The Hague. His research interests are Economics of Development and Emerging Markets. To find out more about his work and publications, click here. This interview was conducted in March 2017.

 Could you briefly describe the origins and the nature of the current system of international trade, and the way in which is it designed to serve the interests of rich industrialized countries at the expense of the rest of the world?

 Howard Nicholas: The idea of the US, the real victor of WWII, was to basically govern the world for its own benefits. To do that, in the aftermath of the war, it had planned to set up three key institutions: the International Monetary Fund (IMF), the World Bank (WB), and the International Trade Organization (ITO).

The US delegated the creation of the ITO to Australia. To the eyes of the Americans, however, the Australians were too democratic about it, as they went about consulting developing countries, asking them what they wanted.

Needless to say, they wanted development. But, of course, development was not the aim of the Americans. The US wanted a system that benefitted them and their allies, not the developing countries; in fact they were to be the victims of the whole system.

Thus, when the Havana Charter, which gathered all the motions of the developing world into the basic rules of the ITO, was submitted to Congress, the US simply dismissed it, because it did not fully serve its interests, and the Charter never came into force.

Instead, the US set up the General Agreement on Trade and Tariffs (GATT), which it dominated. This was evident in the way the GATT was manipulated to serve US interests, as the US decided the agenda and appointed the chairperson for each GATT round. For example, the US arbitrarily excluded agricultural goods and garments, the products that the developing countries were the most competitive in, from any liberalisation discussions from the outset, and allowed Europe to impose tariffs to protect its industries until it recovered after the war.

From the inception, you could see the utter hypocrisy of the whole process. It was very clear that the global trading system was being designed to benefit the advanced countries, with virtually nothing for the rest of the world.

So was it mostly the Americans who were at the forefront of the construction of this new system of international trade, or did the Europeans also play an important role?

 H.N: The US played the leading role during the whole process.

They were the ones that demanded the exemptions mentioned before, for example. Each round of the GATT has an agenda, and the Americans always appointed the chairperson, and most of the agendas normally reflected what the Americans wanted. Over time the Europeans had more of a say, while the developing countries were essentially left out in the cold.

Developing countries tried to set up their own trade organization, the United Nations Conference on Trade and Development (UNCTAD) in the 1960s, but it didn’t fly, because developing countries exported to developed countries, the major global markets were in the rich countries, so they didn’t really have a choice.

A few concessions were at times made to them, but more by way of a game of carrots and sticks. This is how it worked, right up to the Uruguay round in 1986.

Despite the constant referral to the concept of “trade”, the global regulatory architecture of the WTO and bilateral agreements concerns much more than just the exchange of goods across borders. Could you explain what other domains, apart from trade, are concerned by the current structures governing trade?

 H.N: During the Uruguay round, which was completed in 1986, new agreements were introduced which covered more than what is normally understood by trade, that is, the cross-border movement of goods.

In fact, the Uruguay round marked a shift to a new understanding of the concept of trade, one which extended to how goods were produced, and the conditions governing this.

The most important among these agreements was the General Agreement on Trade in Services (GATS). What happened with the GATS, then, is that it became important to discuss the point of production as well.

A service, by its nature, doesn’t involve a cross-border movement and is generally delivered at the point of production. (such as, for example, shipping, banking, tourism etc.)

Accompanying the GATS was an agreement on intellectual property, the Trade-Related Aspects of Intellectual Property Rights (TRIPSs), which has even less to do with trade. TRIPs was basically designed to value knowledge and ideas – to prevent them from being used by others without payment through the widespread adoption of patent and copyright legislation.

Negotiations, therefore, come to be concerned not only with trade, but also with the whole production process. Today, negotiations also cover conditions governing foreign investment, government procurement, competition and many other areas that have very little relation with trade. These are all vehicles which allow rich countries to have greater control over the whole global system of production, bypassing national governments.

The pretense that negotiations are about trade is gone.

In what ways has the colonial relationship of domination and dependence between Europe and its former colonies in Africa been sustained after formal political independence of African countries in the wake of WWII?

H.N: Since the beginning, it was clear in the West that developing countries that had acquired political independence should not be allowed to develop, and that they had to be kept as a cheap source of raw materials and markets for goods from the advanced countries.

Today, Europe and the US don’t have colonies anymore, because they’re too expensive; instead, colonies have been replaced by a network of credit, debt, aid, trade, and corruption, that serves to maintain a relationship of domination and dependence between the West and the poor countries.

Also, when a figure in developing countries that might threaten Western interests appears, the West immediately intervenes. Most armies in Africa have Western agents. The West cultivates key individuals in the armed forces of developing countries who will do their bidding when required, like Mobutu in Zaire, Amin in Uganda, Mubarak in Egypt, etc.

The West makes sure that poor countries are kept in place. I think that’s always been the relationship.

I counted nearly 73 examples of interference in the internal political affairs of African countries by the West just in the last 25 years. In most cases it takes the form of an assassination.

The West doesn’t just put its own puppet in power; it installs psychopaths, like Mobutu in Zaire. The man was known to be a psychopath; he had partiality to cannibalism, and documentary records available today show that the West was perfectly aware about this before he was installed into power, but they didn’t care.

Suppose something similar happens in Holland: imagine, say, Chinese dropped 100 000 paramilitary troops into Holland, and put someone ten times more insane than Wilders in power. Then, someone tells the Dutch that from now on they will only produce gas for the Chinese. How long would civilization last in Holland? A week? Two weeks? A month?

Then, after ten years, when the population is living in poverty, a nationalist politician appears, gets immediately killed, and is replaced by another psychopath. This is what has been going on in African countries, repeatedly. And then we dare caricature them as savages, corrupt, violent etc.

What is your evaluation, as a scholar, of the degree of ideological permeation of neoclassical economic principles in academia? Have things changed in recent years?

H.N: Neoclassical economics has been the dominant economic ideology for over 100 years now, since British economist Alfred Marshall wrote his famous Principles of Economics.

My objection to academics is that they give any sort of credence to the nonsense being spouted about neoclassical economics, which makes them complicit in what is effectively a crime, that is, the impoverishment of developing countries.

Neoclassical economics has no concept of capital, is unable to explain profits, has a flawed theory of money, does not recognise economies are prone to instability, has an ideological theory of trade between advanced and developing countries, etc. Many of its core principles, theories and assumptions are flawed.

Academics are long behind the curve, and it’s very difficult for students to relate what they are being taught to the real world: there is a huge disjuncture between reality and the out-dated theories in their textbooks.

It is very difficult to give an analytical framework to recent developments in international trade with the flawed theories coming out of the textbooks, since they are no longer relevant to explain what’s actually happening now.

Also, academics have been forced into a rut of publishing. I grew up in in a period when academics were first and foremost worried about teaching, i.e., imparting knowledge, and concerned whether students understood what they were saying. Today, I don’t think most academics give a damn about these things, to be honest.

And it’s not their fault; it’s the fault of the system that gives promotion on the basis of the number of articles one gets published. No one actually cares whether these are good or bad, as long as they get published in some recognized journal.

This system has now developed a life of its own which is almost unstoppable, and which has really destroyed academia.

Today, professors with poor teaching records get promoted, because they spend most of their time publishing articles. This is a huge intellectual problem, and it will take us at least a generation to get out of it. I don’t see any light on the horizon.

In my area, 95% of academics pick on some minuscule thing, run a model, do some econometric analysis, and publish a paper. If you accumulate published papers, you become a professor.

The problem is that a lot of these people have no idea what they’re saying or doing. There is no one who is able to rewrite the books. We know all the textbooks have to be rewritten, but academics simply don’t have the knowledge.

One of the strongest, enduring myths of official economic orthodoxy is that trade liberalization is key for the development of the Global South. What is your response to this argument? And how would you define the concept of development?

H.N: You have to distinguish between trade and free trade. Free trade is a myth created by the powerful countries to open up weak countries. However, developing countries can only develop on the basis of trade, because they’re too poor to use their own domestic markets. So they need trade, they need to export, and they need the advanced countries to buy their goods.

Coming to your second question. Basically, there’s only one path to development: manufacturing, diversification, aggressive promotion of exports, and blocking imports. This, I think, is the only path developing countries can take.

In sum: trade is vital for the promotion of economic growth and development, but not trade liberalization per se.

How could this path of development fit with the urgent issue of climate change? Could alternative strategies of development, such as the creation of local currencies, or working towards self-sufficiency, and other more sustainable small-scale experiments, be successful?

H.N: I think these small-scale experiments are smokescreens, and that they push developing countries towards the wrong path.

We’ve had it before. There used to be a guy called Schumacher, a famous economist, who, in the 1970s, came up with the concept of “small is beautiful”. Developing countries, he said, shouldn’t get sucked into all of the mass production, go large scale, industrialize, and so on.

But you see, this is the good cop bad cop approach of advanced countries.

Scale matters because it reduces costs. We’re in a capitalist world. And in capitalism, size is power; it has always been the case. Developing countries have always been encouraged to go for small-scale projects, like microfinance, labour-intensive technologies etc.

A lot of publicity is given to these small-scale projects by the West and by NGOs, because they’re sweet, they’re nice. I mean, we don’t want developing countries to have big terrible corporations and rich capitalists. How dare someone even suggest that, right? We should support small, sustainable entreprises etc.

Suppose Western countries really allowed capitalist development in Africa: for how long do you think Western living standards would remain?

Imagine if Sub-Saharan Africa using its own resources started to produce its own goods and compete with the West. Or imagine if, say, Nigeria, used it oil wealth and funded a huge expansion of production and export of manufactures For how long do you think the West would remain as it is?

That’s why the West has had to overthrow regime after regime; it has no choice. They have to be as brutal and bloody to maintain their high living standards. And I think most people in the West are not ready to abandon their comfort and high living standards.

We can moralize and say that capitalism is terrible, and that we must go for sustainable development, but that’s because we’re sitting here in very comfortable surroundings, and we don’t have the problem of providing jobs and basic necessities to people.

I realize mine is not a very popular position. Many of my colleagues are appalled by it. Many of them don’t like my very pro-capitalist stance. Not that I like capitalism; in fact, I find it an abhorrent and absurd system.

But it delivers the goods, if you play the game properly. China has done it successfully, Vietnam is also doing it reasonably successfully, and I dare say lots of other countries that were once Communist will follow suit.

It’s not capitalism that keeps developing countries locked into poverty. It’s a global system that blocks capitalism in certain parts of the world, because the rich countries actually don’t want capitalists in poor countries. They only want the raw materials, and cheaply, that’s it.

On the question about climate change: that’s the other way developing countries have been morally blackmailed. If you’re going to chop down all your forests and pollute, people in the West tell poor countries, then we’re all dead. I didn’t hear any of these complaints in the advanced countries for doing it in the past and still today, and I don’t hear these complaints even today, as the average American family has 2 cars parked outside their house.

The hypocrisy is terrible. I don’t accept that. I am aware that environmental catastrophe is staring us right in the face. But then the Americans elect someone like Donald Trump, whose main message is that climate change is a hoax. Well, it goes to show you what the majority of Americans think.

What I do say is that there are technologies available today which are less polluting, which developing countries should use. Also, I think that there should be codes of conduct and rules, but not with a view of abrogating industrialization in the Third World to save the planet.

If the advanced countries cannot seriously cut down their consumption in order to meet carbon emission goals, I don’t see why developing countries have to do it.

One cannot undo the past, but one can pay for it, and there must be some global justice. The advanced countries must make a fundamental commitment to reduction of consumption. How they do it is their problem.

There are 3 billion people that still live in incredible poverty. I think developing countries and their governments have the responsibility to first and foremost lift their people out of abject poverty.

Is the balance of power still much in favour of the West in the realm of trade? Could BRICS countries threaten Western hegemony? And is their relationship with developing countries any different from that of the United States and Europe?

H.N: At the moment, the West controls the WTO, the IMF, the WB, and the global trading system. However, this is about to change, largely because of the rise of China. The problem for China has always been the US, who did not want to concede anything to them in the IMF or the WB.

Now, China is about to establish an Asian regional trading bloc, the Regional Comprehensive Economic Partnership. Also, it has recently set up its own WB, the Asian Infrastructure Investment Bank (AIIB). Japan and China are fighting over who will dominate it, but I don’t think they’re really fighting; I think it’s more of a smokescreen. The Chinese have been working towards this for a decade or more.

Essentially, they want a piece of the action. Emerging countries like China are no different than the advanced countries. They are all capitalist.

Trump is the weak link for the West here. What he doesn’t understand is that the US cannot go back in time and start producing cheap manufactures again, because it doesn’t have the cheap labour to do that. What advanced countries have to do is upgrade, and start competing at the higher levels, such as in the fields of robotics and biotechnology. But this is something Trump doesn’t understand, because he is not intelligent enough, just like his advisors. That’s the problem with nationalism and chauvinism; you get ignorant people like Trump and his advisors running countries. He knows the problem, but he doesn’t realize that the introduction of robots is far more damaging for American manufacturing than any import from China.

Generally speaking, the emergence of China is a good thing for developing countries, because the fact that there are more blocs competing creates spaces for them, and allows them to break ranks of the advanced countries. For example, they can get aid and loans from or do trade deals with China on more favourable terms.

Trump’s declarations against “free trade agreements”, such as the TPP, have created some confusion among analysts and the general public. Is Trump genuinely opposed to free trade agreements, and how does his position differ from the critique coming from the Left to these kinds of agreements?

H.N: Trump is not opposed to free trade agreements (FTAs), and he will eventually sign the TPP and the TTIP. He won’t survive if he doesn’t sign them. All the corporations of the world are united behind these international agreements. That is why they put all their money behind Hillary Clinton, who was committed to signing them.

The trend is to bypass national governments. That’s the aim of these kinds of agreements. Corporations want bypass and remove any type of regulatory control imposed on them. Now we see the crown of the whole thing, the International State Dispute Settlement (ISDS), in which corporations can take governments to court, making it extremely difficult for governments to implement national laws. I don’t think the corporations are about to give that up. They’ve invested too much time and money in the whole process.

Trump cannot resist those forces. He criticized TPP and NAFTA during his campaign only for political purposes. What he is going to say is “Look, I’ve played hard ball, I’ve negotiated everything, this is a tremendous deal fellow Americans”, and the FTAs will go through.

 Are there historical precedents where popular resistance to the inequities of the global trade system achieved tangible results? What methods of resistance do you think would be more effective? 

H.N: I think developing countries have to use the loopholes in the system and aggressively move towards industrialization. To do this, they need a very strong administration in their countries, so that they can play the game. They have to negotiate smartly while pursuing export-oriented industrialisation strategies.

There are ways to bypass WTO rules and regulations; it’s usually advanced countries that do so.

The Europeans, for example, find endless ways to give subsidies to their industries and farmers. Similarly, the US finds many ways to give income support and block imports they don’t want. Other countries like China, India, and Korea also do it.

However, most other countries don’t have the resources to do that, in the sense of a skilled and loyal government personnel. Structural Adjustment Programs during the 1980s reduced the salaries of all public employees in developing countries. As a consequence, the positions in the public sector in developing countries attracted unqualified and not very able people.

It’s crucial for developing countries to have a strong bureaucracy. I don’t think popular resistance per se does anything, to be perfectly honest. I think developing countries have to play the game, as one team, as a country; there must be a commitment to a national cause, and bureaucrats are pivotal to the whole process because they’re in the front line, they decide on the economic strategy to be implemented and how to implement it. They have to have a loyalty beyond the loyalty.

Take the case of Li Quan Yu in Singapore. He had a strong and loyal bureaucracy, and, crucially, a very privileged, high level, powerful inner core of bureaucrats. And these people basically controlled all information flows, such as sensitive economic information, especially vis-a-vis foreigners. He relied tremendously on his bureaucracy.

He was a manic capitalist, very pro-West! But he played the game. He knew exactly what the game was. Mahathir in Malaysia did the same: he was very nationalistic, had a very powerful bureaucracy that knew the rules inside out, and they could play games. I think that’s the task of developing countries.

© Tommaso Segantini


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