The Divide

by Jason Hickel

  In 1944, the Bretton Woods institutions were created with this goal in mind. The World Bank would finance reconstruction and development across war-torn Europe, and the IMF would finance state spending in countries experiencing economic slumps, to ensure that low demand in one nation wouldn’t trigger a crisis across the region.

  Keynesian policies created the conditions for high rates of economic growth through the 1950s and 1960s – growth that was relatively equitably shared across classes. It was a success story like none other. Of course, the system wasn’t perfect: there were many who were left out. Middle-class women, for example, remained largely confined to the home and dependent on male wages and salaries. Black people were denied fair labour contracts and access to decent schooling and housing – particularly in the United States, where the Civil Rights Movement had not yet won basic legal equality for African Americans. Gay people were routinely persecuted and marginalised. In short, the Keynesian compromise in the West worked mostly for people who conformed to a particular norm – white, male and straight. It depended to some extent on cheap labour from women and minorities, and of course was financed in large part by surplus wealth siphoned from the rest of the world through the old colonial pipelines.

  A Miracle in the South

  The rise of Keynesianism coincided precisely with the last decades of European colonialism. In fact, it was partly due to the influence of Keynesian ideology – with its focus on fairness and welfare – that the colonial project began to seem untenable and gradually unravelled. The progressive political parties that began to take control in Europe after the Second World War had little appetite for colonialism as it conflicted with the growing discourse on equality, national sovereignty and human rights. Indeed, the Universal Declaration of Human Rights was adopted by the United Nations a few years after the war ended. Europe’s colonial subjects, who had committed immense resources and millions of troops essential to the success of the war effort, wondered why they too shouldn’t benefit from this new regime and receive equal rights alongside Europeans.

  Anti-colonial thinkers like Mahatma Gandhi and Marcus Garvey had been sowing the idea of independence for a number of decades, and in the middle of the century it began to bear fruit. After waves of powerful civil disobedience, the British finally withdrew from India in 1947. France retreated from Syria and Lebanon, and a revolution in Egypt put an end to British occupation in 1952. Five years later, Ghana won independence and set off a wave of decolonisation across British Africa. By 1960, France had begun to withdraw from its colonies in West Africa. And Latin America was given breathing room for the first time when US president Franklin Roosevelt implemented the Good Neighbor policy, which committed them to respecting the sovereignty of Latin American nations. The policy suspended the long history of US intervention that had beleaguered the region under the Monroe Doctrine and opened up the possibility for democratic revolutions to gain traction and overthrow US-backed puppet regimes.

  For the first time, global South countries were free to determine their own economic policies. And seeing how well Keynesian economics was working in Europe and the United States, they were quick to adopt its basic principles: state-led development, plenty of social spending and decent wages for workers. And they added one crucial piece to the Keynesian consensus: a desire to build their economies for their own national good, rather than solely for the benefit of external powers.

  This was the era of ‘developmentalism’. Latin America’s Southern Cone – Chile, Argentina, Uruguay and parts of Brazil – became an early success story. The epicentre of the developmentalist movement was the United Nations Economic Commission for Latin America, based in Chile. Founded in 1948, the Commission was headed by the progressive Argentinian economist Raúl Prebisch, one of the thinkers who developed the theory of dependency and unequal exchange. Prebisch argued that underdevelopment and global inequality were the result of the way that colonialism had organised the world system, limiting the countries of the global South to exporting primary commodities and preventing them from building competitive industries. And because the value of primary commodity exports was constantly declining relative to the manufactured goods they imported from the West, they were continually losing ground.

  Drawing on Prebisch’s ideas, Latin American governments began to roll out ‘import substitution’ strategies – a bold attempt to industrialise and produce the very commodities they had been made to import from the West at such great expense. They wanted to free themselves from dependency on Western powers. In Argentina, for example, President Juan Perón’s administration (1946–55) invested heavily in infrastructure, nationalised oil resources and built the country’s capacity for heavy industry. It also made substantial investments in public education, healthcare, social security and housing – a programme spearheaded by the president’s wife, the reformer Eva Perón. To this day, the Peróns are celebrated for their largely successful efforts to eradicate poverty, support workers and build Argentina’s middle class.

  Developmentalism was also taking hold elsewhere in the global South. In much of Africa it appeared in the guise of African socialism, a philosophy that regarded the sharing of economic resources as an important expression of ‘traditional’ African values. The principles of African socialism guided the social justice efforts of countries like Ghana under Kwame Nkrumah and Tanzania under Julius Nyerere. In North Africa and the Middle East, developmentalism took the form of Arab nationalism, as exemplified by leaders such as Egypt’s Gamal Abdel Nasser and the Baathist parties of Iraq and Syria. In India it took hold under Prime Minister Jawaharlal Nehru and his successors. East Asia was busy doing something similar, using infant industry subsidies to build strong businesses in a protected economy, grooming them to the point where they were capable of competing and succeeding against their Western counterparts. All of these strategies relied on relatively high trade tariffs on foreign goods, restrictions on foreign capital flows and limits on foreign ownership of national assets. Land reform was often a central part of the package. And in many cases, governments sought to nationalise natural resources and key industries in order to ensure that their citizens benefited from them as much as possible.

  These developmentalist policies mimicked the very same measures that the United States and Europe used to such good effect during their own periods of economic consolidation. And they worked equally well in the global South, delivering high per capita income growth rates of 3.2 per cent during the 1960s and 1970s – double or triple what the West achieved during the Industrial Revolution, and more than six times the growth rate under colonial rule. It was a postcolonial miracle. And the new wealth was more equitably shared than before: in Latin America, for example, the gap between the richest fifth and poorest fifth of the population shrank by 22 per cent. Developmentalism also had an impressive impact on human welfare. At the end of colonialism, life expectancy in the global South was a mere forty years. By the early 1980s it had shot up to sixty – the fastest period of improvement in history. The same is true of literacy, infant mortality and other key human development indicators, which experienced their fastest rate of improvement through the mid-1970s.

  What is more, the income gap between rich countries and the regions of the global South where developmentalism was most thoroughly applied began to narrow for the first time. In 1960, the average income in the United States was 13.6 times higher than in East Asia. By the end of the 1970s the ratio was down to 10.1, having shrunk by 26 per cent. During the same period, the per capita income ratio between the US and Latin America shrank by 11 per cent, and for the Middle East and North Africa by 23 per cent. The South was steadily closing the divide.

  In addition to building their own national economies, global South countries were reaching out to one another for support. In 1955, newly independent African and Asian states gathered in Bandung, Indonesia, to share ideas, build ties of economic cooperation and commit themselves to resisting all forms of colonialism and neocolonialism
by Western powers. They saw themselves as developing a third way, defending their interests against the power of both the United States and the USSR and refusing to take sides in the Cold War. In 1961 they met again, this time in Belgrade, to form the Non-Aligned Movement. Led initially by Nehru, Nasser, Nkrumah, President Tito of Yugoslavia and Indonesia’s first independent president, Sukarno, the NAM would come to include nearly every country of the global South and became a powerful force for peace, sovereignty, non-intervention, anti-racism and economic justice. Three years later, they formed the G77 to advance their interests and vision at the United Nations, and founded the United Nations Conference on Trade and Development (UNCTAD), which would develop the principles for a fairer global economy.

  The South was rising, and leading the way to a better world for the planet’s majority.

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  One might think that Europe and the United States would be thrilled to watch this success unfold; after all, the new policies that global South countries were rolling out – tariffs, nationalisation, land reform, capital controls – were bringing about real development, and Western governments, in the spirit of Truman, claimed to be in favour of development.

  But they were not amused. Western states had become accustomed to having easy access to cheap labour, raw materials and consumer markets in global South countries, and the rise of developmentalism was beginning to restrict this access. Import substitution policies meant that Western exporters of consumer goods had to pay high tariffs to sell their products to global South markets. Sometimes they found that their products were blocked at customs altogether by nationalist governments intent on protecting local industries. In many cases, Western investors who wanted to operate in global South countries were denied entry. When they were allowed in, they often had to pay higher taxes on their incomes, and capital controls meant they had to pay higher fees if they wanted to repatriate their profits. A growing trade union movement and new constitutional rights meant they had to pay higher wages to the workers they hired. In some countries, they felt stymied by price controls that governments had imposed in order to keep basic goods affordable. In others – and this was their most serious concern – they feared that their land and assets might be nationalised.

  In other words, the developmentalist revolution – and the South’s growing political power – was eroding the foundations of the world system that Europe and the United States had come to rely on.

  The Age of the Coup

  The governments and corporations of the Western powers were not willing to let this continue; they needed some kind of counter-revolution in order to regain the access to resources and markets they had previously enjoyed. But there was no resisting the ideas that had been unleashed by Keynesianism, and no stifling the surging passion for economic independence in the South. In some cases they were able to negotiate favourable conditions for foreign direct investment through hard bargaining, winning concessions on taxes and capital controls, for example. But in others this proved to be impossible and they resorted to more aggressive measures in the hope of putting an end to developmentalism altogether.

  When President Dwight Eisenhower took office in the United States in 1953, he took a decisive stand against developmentalism, which he regarded as a threat to the commercial interests of America’s multinational companies. He hired two people into his administration who shared his views: John Foster Dulles, who became the US secretary of state, and his brother, Allen Dulles, who became head of the CIA. The Dulles brothers had both worked previously at the law firm Sullivan and Cromwell, where they represented large companies including J. P. Morgan, the Cuban Sugar Cane Corporation and the United Fruit Company – some of the very companies that felt they stood to lose out from developmentalism. But the Eisenhower administration knew that it would be difficult to justify attacking a movement that was so obviously rooted in the principles of equality, justice and independence. He had to find a way to get the American public onside. He did it in the end by drawing heavily on Cold War rhetoric: he painted developmentalism as the first step on the road to communism, and by connecting developmentalist governments to the USSR he was able to tar them in the minds of American citizens.

  Iran became the first target of Eisenhower’s backlash. Iran’s democratically elected leader, Mohammad Mossadegh, had become a stalwart of the developmentalist movement. Tall, dignified and Paris-educated, Mossadegh had risen to popularity in his country as a progressive politician. As prime minister, he introduced unemployment compensation and benefits for sick and injured workers. He abolished forced agricultural labour. He raised taxes on the rich in order to fund rural development projects. And, most famously, he sought to renegotiate ownership of the country’s oil reserves, which at that point were controlled by the British-owned Anglo-Iranian Oil Company, now BP. When the company refused to cooperate with an audit of its accounts, the Iranian Parliament voted unanimously to nationalise the company’s assets.

  This move further boosted Mossadegh’s popularity at home. But it outraged the British government, which quickly turned to the United States for assistance. The option of military intervention was on the table, but they worried that it might provoke the USSR into coming to Iran’s aid and set off a proxy war. So they worked covertly through a secret project called Operation Ajax, which was led by CIA agent Kermit Roosevelt (the grandson of Theodore Roosevelt, the man who established the Roosevelt Corollary to the Monroe Doctrine and paved the way for US intervention abroad). It was a clever plan. First, they bribed politicians to whip up anti-government sentiment and paid demonstrators to take to the streets to create the false impression that Mossadegh was unpopular. Then they convinced the military to depose Mossadegh and hand power over to the Shah of Iran, Mohammad Reza Pahlavi. It worked: the coup in August 1953 toppled Mossadegh and the Shah assumed power as an absolute monarch alongside a military government. He governed Iran for the next twenty-six years, most of that time with US support and with policies that were friendly to Western oil companies – just as in Saudi Arabia, the West’s other main client state in the region. Mossadegh, for his part, spent the rest of his life under house arrest.

  Operation Ajax was one of the first US operations to overthrow a foreign government, but it was certainly not the last. The following year, in 1954, the Dulles brothers really hit their stride.

  Guatemala was ruled from 1931 by Jorge Ubico, a military dictator who enjoyed the support of the US government in return for handing over to the American-owned United Fruit Company huge tracts of highly fertile land, much of it stolen from indigenous Mayan peasants. After many years of enduring Ubico’s brutal rule, a popular revolution deposed him and paved the way for the country’s first democratic elections, which brought Juan José Arévalo to power in 1945. Arévalo, a professor of philosophy, was the opposite of his predecessor: while Ubico ruled Guatemala in the interests of the elite, Arévalo saw the poor as his main priority. He introduced a number of pro-poor policies, including new minimum wage laws, as a way of reversing the mass impoverishment that the Ubico regime had produced during the land grabs. After his six-year term, which was marked by unprecedented political freedom and stability, Arévalo stepped down to allow for new elections, which brought one of his ministers, Jacobo Árbenz, to power.

  Árbenz – known for his Swiss ancestry and nicknamed the Big Blonde – continued the progressive policies of his predecessor, adding a new land reform programme called the Agrarian Reform Act. At the time, fewer than 3 per cent of Guatemalans owned 70 per cent of the land. Árbenz’s plan was to nationalise large tracts of unused private land and redistribute it to landless peasants who had been victims of debt slavery during the Ubico years, to allow them to farm their way out of starvation. Incidentally, some 450,000 acres of the earmarked land belonged to the United Fruit Company. Despite being offered full compensation, the company refused to cooperate. Instead, they lobbied the US government to overthrow Árbenz and whipped up public support in the US using Cold War rhetor
ic, painting Árbenz as a Russian stooge and Guatemala as a Soviet satellite. The CIA, under the direction of Dulles – who, together with his brother, was on the payroll of United Fruit for thirty-eight years – was happy to comply. Under Operation PBSUCCESS, they bombed the capital, toppled Árbenz and installed the military dictator Carlos Castillo Armas in his place, putting an end to ten hopeful years of democracy in Guatemala. The new government quickly deregulated foreign investment, reversed the policies of the Árbenz era, and proceeded to imprison thousands of the regime’s critics. Guatemala was ruled by a series of military dictatorships – all with US support – until 1996. During that time, the regime continued to force indigenous Mayans off their land, and Guatemala came to have one of the highest poverty rates in the Western hemisphere. When opposition arose, it was brutally suppressed: some 200,000 Mayans were killed for resisting the land grabs.

  The invasion of Guatemala marked the end of Franklin Roosevelt’s Good Neighbor policy of non-intervention in Latin America, after only twenty years of peace. In doing so, Eisenhower effectively restored the Monroe Doctrine and revived America’s habit of violently projecting power across the region.