Here is an entry from the Global South in our continuing series of commentaries marking the 50th anniversary of Mel Watkins’ classic article, “A Staple Theory of Economic Growth.”Â Dr. Alberto Daniel Gago teaches political economy at theÂ National Universities of San Juan and Cuyo-Argentina.Â He is a long-time collaborator of Mel’s, and has written extensively about the challenges of development and diversification in Argentina.Â His commentary explores the relevance of staple theory for understanding the modern barriers to development in the South.
The Staples Trap in Developing Countries
by Dr. Alberto Daniel Gago
In 1980 I first encountered the work of Mel Watkins, while I was completing my Masterâ€™s thesis on the theory of regional export base, applied to the Cuyo region of Argentina, at the Institute of Social Studies in the Netherlands. Indeed, Melâ€™s classic paper, â€œA Staple Theory of Economic Growth,â€ has been very influential in the whole Latin American school of economic development theory.
Watkinsâ€™ approach allowed us to leave aside the neoclassical theory of export base, brought more complexity to the analysis of staples-driven growth, and highlighted the range and contingency of possible outcomes to the development process. He coined the term â€œstaples trapâ€ to refer to the inability of a resource-based economy to mature into a diverse and industrialized one. Overspecialization in export-oriented staples implies dependence on foreign direct investment, while underpriveleging domestic manufacturing and economic diversification.
In regions with resource-intensive production, economic growth is strongly concentrated on staples, produced for export to more highly developed regions. This supposedly paves the way for broader economic growth, and implies a resource-intensive strategy for national and regional development based on external markets. However, this optimistic story is incomplete.
In countries open to global markets, staples industries produce deep structural economic, political, social and cultural changes:
â€¢ In a global era, staples industries typically rely on multinational corporations, that appropriate profit through their direct investments in staples projects. Transnational corporations control the overall staple trajectory, giving them a leadership role in the overall economic and political dynamic that does not necessarily serve the broader interests of the host economy well.
â€¢ These large global corporations also tend to absorb and exclude small and medium firms from the formal production system. The multinational corporations, from their dominant position, transform the regional production system into oligopolies, ultimately controlling the natural resources and capturing the resulting economic surplus.
â€¢ Peripheral capitalist regions dependent on staples fail to develop into full-fledged industrialized economies; these countries can be caught in a circle of economic re-primarization and de-industrialization.
â€¢ Instead of promoting broader economic diversification, multinational corporations strengthen only a few specialized productive branches and activities within the peripheral capitalist regions.
â€¢ The resulting concentration and centralization of economic power produces a dialectical process of economic, social, political and cultural fragmentation â€“ and in the long term leads to instability.
In this sense, MelÂ´s â€œStaple Theoryâ€ helped us to understand the implications and limitations of staples-led development, and spurred an intellectual focus on the â€œstaple trapâ€ and its causes. Topics for this inquiry included better understanding the forward and backward linkages to staples industries, the relationship between staples and broader domestic development, the role and influence of the new elites and investment groups, impact of staples-dependence on overall modernization, and the underlying conditions (values, institutions, and public policies) necessary for staples-led growth.
In Argentina, for instance, the latest international structural adjustments provoked deep changes in the national and regional economies. These developments spurred us to analyze the recent processes of economic and social development in the Cuyo region (in the western part of Argentina). Structural transformations have been imposed by the internationalization of production, markets and capital, helped by national policies which reinforced the dominance of international corporations.
It is necessary to understand how developing regions are incorporated into the new trajectory of the global economy. New questions for inquiry arise, including: Where and how are new organizations are shaped? How does overspecialization work, and how are its consequences manifested? Who are the dominant actors in the global staple exports chain, and how is their influence experienced in particular staples producing regions?
The behavior of staples, and specifically the â€œstaple trap,â€ inherently directs this analysis away from the neoclassical approach. For this reason, staples theorists in the south have also incorporated the main themes of the French Regulation school, in order to better comprehend the staples-driven economic growth process. Three of these complementary regulationist themes are: modernization, accumulation and regulation.
1. Modernization suggests that the staples-led development process is reliant on technological innovation imported from leading developed countries. In fact, the large corporations that control the staple economy benefit most from modernization, since they are able to arrange their export goods production on the basis of the advanced technology they apply to staple and complementary industries. Through capital accumulation and their access to the economic and inforÂ¬mation networks, they come to dominate world staple markets.
2. The accumulation process in staples industries reveals how hegemonic and dominant groups base their power on unequal social relations of production, income distribution, and surplus concentration. The interrelation among fractions of capital varies according to the regime of accumulation. The regime of accumulation refers to the way the dominant economic forces operate within a given mode of production, including their trade strategies, their pattern of capital, and their processes of production. Accumulation is controlled by great firms which manipulate the production process and exert the dominance of staples over the main economic branches. The accumulation process reflects, in turn, several more key considerations:
â€¢ The generation of surplus at the moment of production (through inputs of labor and capital);
â€¢ The relationships between production, distribution and consumption, shaped by social relations that permit the realization and subsequent recycling of the social surplus; and
â€¢ The ultimate utilization of social surplus, which can take different modalities according to the regime of accumulation and the mode of governmental regulation.
Through these channels, the overall dynamic of accumulation fundamentally reflects the staple-export chain. In short, the entire modes of regulation and accumulation are organized around staple industries. Obviously, this organization depends on the historical moment, on the kind of technological innovation imposed on the export economic branches, and on the economic agents leading this process.
3. Finally, is important to understand the role of regulation and the state in shaping the overall staple development process. According to the staple thesis, state actions tend to follow from their overall priority on facilitating the staple trade. These actions include provision of transportation infrastructure for the export of the staple; underwriting monetary obligations through the availability of credit guarantees and liquidity; and, as export demand shifts, aiding adjustment from declining to rising staple sectors. These actions highlight the conscious decisions of state and business elites to permit the internationalization of capital and the resulting staples-dependence. Political life is thus deeply influenced by staple exports, because economic wealth and political power are so concentrated in business and political elites (who are often the same people). In this way, the state synthesizes power relations through laws, decrees and regulations, in an attempt to adapt the behavior of social agents, given the staples orientation of the domestic economy, to changes in the international economy.
The Global Staple Chain: Production, Firms, and Capital.
Production and accumulation circuits are also influenced by national macro policies and international trade. At the same time, it is important to recognize the exchange relations between the sub-national, national, and international spaces â€“ in terms of both production processes and capital accumulation. To understand the contradictions and political struggles that entail, the analysis must explain the ways in which agents alter or preserve their positions within staple sectors, and then extend that power across regional, national and international spaces.
By emphasizing staples activities related to natural resources (such as agriculture, agro-industry, mining and petroleum), accumulation is controlled by large firms that articulate their influence into many different sectors (including resources, industry, and finance). This leads to the devaluation of other segments of capiÂ¬tal, negatively affected by the dominance of the global staples chain, producing social costs, obsolescence, and massive unemployment.
In developing regions like Cuyo, a process of concentration and centralization of foreign capital occurs among economic branches. Multinational corporations control the distribution and commercialization phases of the staple industry (both national and international).
The staple theory was constructed on a systematic account of staples exploitation, transportation, and market demands. But it is also necessary to emphasize the distribution of social surplus among firms and among classes, and the resulting distribution of power, to explain the overall trajectory of economic growth. Obviously, it is necessary to link staples firms with banks and other economic branches.
Government is essential to the coordination of transnational production systems, in terms of managing the overall mode of regulation, and promoting the location of large transnational corporations which play the central role in staples production. The main functions of global enterprises are to facilitate a transition from producer-driven to buyer-driven supply chains. But these firms also relate among themselves, belong to the same lobby groups, and promote similar interests. The regional export and natural resource bases are thus appropriated by national and international holdings. This partly explains the presence of foreign capital in agriculture, agro-industry, mining and petroleum. This process of globalization is further accelerated by state reforms and deregulation.
This panorama is completed with the shift of other agents as consequence of the lack of capital valuation within their own firms and sectors. Small scale firms are at a disadvantage, caught in a vicious circle: they cannot attract innovative managers, invest in the modernizaÂ¬tion of plant and equipment, or implement new technologiÂ¬cal advances. Then they are relegated to a battle for surviÂ¬val in the informal sector, facing continuously deteriorating conditions of unemployment and marginal self employment.
Modernity is represented by so called â€œbubbles of wealth,â€ expensive new residences and facilities built to keep ordinary people away and avoid social conflict â€“ such as the increasing prevalence of condominiums and private residential neighborhoods highly controlled by security apparatus. At the opposite end of the spectrum is the withdrawal of producers and workers from the rural to the urban areas, and the ever-present unemployed workforce â€“ so-called â€œbubbles of poverty.â€
To sum up, the globalization modernization process provoÂ¬kes increasing inequality and social polarization. Without changes in public policies aimed at improving the distribution of social and economic resources, social conflict remains a permanent feature of the staples-dependent developing economy.
Research we are currently conducting at the National University in Argentina further develops the analysis of staples industries and resource-intensive development in peripheral capitalistic regions. We pay close attention to the processes observed in recent decades following structural adjustment and globalization. Our key findings include:
â€¢ Staples industries generally failed to branch into mature manufacturing because they became caught in a â€œstaples trap,â€ resulting mostly from the dominance of large foreign capital.
â€¢ Technologically, staples industries are led by large international firms, which own and develop the technology.
â€¢ Developing countries and regions are attempting to complete the transition to industrial capitalism, at a time when the strongest sections of world capitalism were themselves undergoing intensive concentration and centralization. This makes the transition all the more challenging.
â€¢ Profound instability results when the staple growth model changes due to external causes.
â€¢ Public policies, values and institutions reinforce economic concentration in the wake of the shifting conditions of internationalization.
Social and economic development as a result of the internationalization of staples production, and the success of export activities and competitive specialization in staples, foster an apparent modernization of the peripheral regions, in line with the shifting conditions of imperial relations. This is a turning point, which helps to explain the dynamics of capital accumulation, the consolidation of the agentsâ€™ positions in the global supply chain, the growth of some economic branches (but the shrinkage of others), and the role of the state. This is a dialectical process in which both the productive forces and social relations represent the conflicted integration process of the overall system.
While 50 years have passed since Melâ€™s seminal paper, his pioneering analysis of the â€œstaple trapâ€ has kept its value in the development studies literature. It helps us understand the overall matrix of resource-intensive export production, and its impacts on production, accumulation, and policy â€“ outcomes that are still strongly visible in many developing countries, including Argentina.
- The Federal Role in Poverty Reduction (February 8th, 2017)
- How Housing Policy Benefits from a Socioeconomic Perspective (December 14th, 2016)
- Economics for Everyone: Second Edition (June 25th, 2015)
- Rethinking Economics Waterloo Conference, Feb 7 (January 22nd, 2015)
- Louis-Philippe Rochon’s Top 10 Economic Predictions for 2015 (January 11th, 2015)