Before the industrial revolution, the social reproduction of all countries of the world was dominated by manual labor, which determined its low productivity,and therefore low income. The scale of the accumulated means of production was insignificant; moreover, the latter were mainly represented by simple and cheap tools of labor, which led to a small amount of depreciation charges. Therefore, the gross product of society consisted mainly of personal consumption items. With a large uneven distribution of income, there were significant differences in the nature of consumption of the main mass of the population and its upper strata. For the majority of the population, consumption was limited to basic necessities - food, clothing, shoes, etc. For the upper strata of society, a different quantitative and qualitative standard of consumption was characteristic; at the same time, it included such goods (porcelain, silk fabrics, paper, carriages, etc.), the consumption of which was inherent only in these strata. The situation changes dramatically with the development of industrialization processes, first in the countries of the West, and then in the Eastern countries; but the differences that existed between them remain, significantly modified in the changed conditions.

I

In the West, during the industrial revolution, there was an increase in labor productivity, and consequently an increase in the income of society. In addition, the overall result of the industrial revolution was a reduction in the cost of production of essential goods. In other words, the industrial revolution was supposed to reduce the orientation of the economy towards the production of essential goods, as well as eliminate (reduce) the dissimilarity of the consumption fund of the lower and higher income strata of the population. In fact, this process was very slow: in North America, consumption began to change at the end of the nineteenth century, and in Western Europe, after the First World War.

Apparently, such a slow change in the personal consumption fund was due to several factors. First, the development of manufacturing and the new industries associated with it was accompanied by a continuous increase in the organic composition of capital, i.e., fewer and fewer workers were involved per unit of output. Therefore, at the end of the XIX century. in the main European countries, with the exception of England, most of the labor force was still concentrated in low-productivity agriculture. According to P. Barock's calculations, even in 1880, the share of the modern sector in the total volume of production in developed countries (with the exception of England) did not exceed 30-38%. Only with the beginning of mass emigration-

page 63

In the last quarter of the 19th century and the first decade of the 20th century, the situation began to change. In other words, progressive changes in industry spread very slowly to other sectors of the economy, and therefore had little effect on the nature of consumption.

Secondly, in the 19th century, due to changes in cultural standards, the development of medicine, sanitation and hygiene, there was an increase in the rate of demographic growth: compared to the previous century, they increased by one and a half times (from 0.4 to 0.6%). Similar rates were even higher in North America, where they ranged from 2.3% to 2.7% due to immigration. It is obvious that significant population growth rates have a direct impact on the nature of consumption, since the younger generation should be provided with goods and services according to existing standards. Therefore, the higher the rate of natural population growth, the higher the rate of production of essential goods should be.

Third, as early as the end of the 19th century, the German scientist E. Engel showed ("Engel curves") that at the initial stages of income growth, there is an increase in the consumption of essential goods. This growth is mainly due to the accumulation and diversification of the range of essential goods used. For example, along with archaic cast iron pots, copper, and later enameled dishes begin to be used, and depending on the method of cooking, all its types continue to be used. In other words, at the initial stages of economic growth, not only does the share of essential goods consumed not decrease, but, on the contrary, their consumption increases.

Fourth, a significant and growing portion of the raw materials and food consumed in the developed countries during the industrial revolution came from colonial and dependent countries. For a variety of reasons - improved transportation conditions, competition between the colonial-dependent countries themselves, production of substitutes, monopolization of markets, etc. - prices for these goods are gradually (relatively)increasing they were declining. According to estimates of the English magazine "Economist", for 1845-1995.prices for food and raw materials on the London Stock Exchange decreased by almost 20 times. But such price dynamics made it possible to stabilize the salary level. So, in the USA for 1850-1880. its average annual growth was only 1.15%. However, the low mobility of wages and fixed the focus of the economy on the production of essential goods. The latter was also supported by the relative cheapness of working capital and made it possible to save on fixed capital, which, in turn, hindered the development of heavy industry.

The result of all these factors was a slow change in the structure of the personal consumption fund. Indeed, in the first half of the twentieth century, household spending on food decreased from 33.9% to 30.4% in the United States, from 44.8% to 37.2% in the United Kingdom, from 55.2% to 52.0% in Germany, and from 67.0% to 49.1% in Italy; spending on fabrics, clothing, and footwear decreased only in the United States and Great Britain from 12.0% to 9.7% and from 10.4% to 10.0%, respectively. In Germany, Italy and France, they even increased.

The situation began to change rapidly after the Second World War. During these decades, the need for advanced training to master the achievements of the scientific and technological revolution, the pressure of trade unions, and competition with the Soviet Union, which showed a very good rate of development until the early 1970s, led to a widespread increase in wages. At the same time, it grew both due to higher rates and due to an increase in its share in national income. Along with the increase in wages, there was a reduction in working hours and an improvement in working conditions.

Based on the growth of incomes and the improvement of the employment situation, quite rapid changes in the structure of personal consumer spending began to occur.-

page 64

research institute. In developed countries as a whole, the share of spending on food decreased to 13-20%, on fabrics, clothing and footwear - to 6-9%, while spending on household items, transport, health, education and other items increased accordingly, becoming the main item of personal expenditure. At the same time, it should be noted that in absolute terms, the consumption of essential goods did not decrease: it was just that the entire increase in income was directed to the new items of expenditure listed above. Thus, in the post-war period, the economy of developed countries quickly lost its focus on essential goods.

There is another side to this problem. As you know, during the industrial revolution in European countries, it was revealed that their agriculture was unable to provide the industry with the necessary raw materials, either in quantity or quality. At the same time, the growing industry could not rely on the domestic market. Under these conditions, a new division of labor is emerging: colonial-dependent countries are turning into suppliers of food and raw materials, and developed countries are turning into suppliers of finished products. Since, as mentioned above, the economies of colonial-dependent countries were characterized by a low level of development, at that time they were in demand mainly for basic necessities. Therefore, the industries of developed countries that supplied finished products to the periphery also specialized in the same basic necessities. In other words, the economy of developed countries for a long time was focused on essential goods not only from the point of view of consumption, but to an even greater extent from the point of view of production, since these industries had to provide both the domestic and foreign markets, that is, they had to be used for the production of basic goods. the installed capacity significantly exceeded domestic needs.

In the mid-twentieth century, when the industrialization of modern developing countries began, these excess capacities began to be eliminated, as they turned out to be uncompetitive due to differences in production costs or protectionist policies. With the beginning of the fuel and energy crisis in 1973, there was an escalation of production costs in all labor-intensive, energy-intensive and material-intensive industries of developed countries, which led to the liquidation or removal abroad of the bulk of such enterprises. But the industries for the production of essential goods mainly belong to such labor-intensive enterprises. On the contrary, the production of essential goods (fabrics, clothing and knitwear, shoes, etc.) was concentrated in the group of developing countries that became the leading exporters of these products.

Partly influenced by changes in the structure of consumption and the economy, and partly by the export of industrial enterprises abroad in the post-war period, especially since the 1970s, the economy of developed countries has acquired a clearly pronounced service character: in the United States, services and circulation now account for about 3/4 of employment and GDP, in the European Union-about 2/3, in Japan - about 3/5. This phenomenon in the world of science and journalism is called "servicization" of the economy. Several long-term factors contributed to its development.

First, since the industrial revolution, the machine system has been implemented most consistently and comprehensively in the industrial sector, whereas in other industries its introduction began much later and, moreover, for various reasons (technological, organizational, natural, etc.), mechanization was not complex, but selective. Therefore, labor productivity in the industrial sector grew at a rate that outstripped the growth rates of all other sectors of the economy, which determined both the relative cheapening of its products and the relative reduction of employment in it. In turn, changes in the industry-

page 65

On the one hand, they created opportunities for the expansion of other sectors of the economy, and on the other hand, they made the development of these industries inevitable, as the entire system of reproduction became more complex, including bringing an ever-increasing mass of goods to the consumer and maintaining them in a suitable state for consumption.

At the same time, since it is impossible to mechanize and automate these industries to the same extent as the industrial sector due to the decentralization of operations, their uniqueness, etc., they were mainly expanded extensively. Since labor productivity was lower here, the number of employees increased and the number of approximately similar organizational units increased. Of course, the service sector is extremely diverse: it covers industries from finance to cleaning and landscaping, but most of the employees work in personal services, supermarkets, gas stations, hotels, cleaning, home appliances repair, etc. Therefore, the transition to the servisization of the economy was accompanied by a decline in the qualifications of the majority of employees and stagnation of their incomes. An indicator of the extensiveness of the expansion of this sphere is an increase in the share of services, especially financial services, in the price of goods.

Secondly, with the completion of the same industrial revolution on the planet, in the words of the Social Democrats, a "world city" and a "world village"were formed. These concepts reflected both the dominant nature of the exchange of raw materials and food for finished products, and the structure of the division of labor between colonial-dependent countries and industrial powers. Indeed, in the first half of the twentieth century, the share of finished goods in the exports of industrial powers increased from 1/2 to 2/3, while the share of raw materials in the exports of other countries of the world fluctuated within 4/5.

Now the situation has changed significantly: as a result of the policy of industrialization (based on import substitution or export orientation) in a significant part of developing countries, a fairly extensive industrial sector has developed, the formation of which often took place with the support of foreign corporations that invested in it, provided technology, trained qualified personnel, etc. In many medium-sized and large countries, this sector is becoming (or has already become) the most important source of GDP production.

Until the mid-1970s, the industry of developing countries focused mainly on meeting their own domestic needs for basic necessities of low and medium complexity. But this already reduced the volume of industrial production in the export sector of developed countries. With the onset of the fuel and energy crisis, there is a rapid change in the division of labor between developed and developing countries. The former, often using contracting and subcontracting relationships with local enterprises in developing countries and establishing their own enterprises, began to import scarce goods from there in large quantities at relatively low prices. While global exports of finished goods grew 3.3-fold in 1980-1996, exports by developing countries increased 6.7-fold over the same period. At the same time, the share of finished products reached almost 3/4 of the total export.

Exports of goods coming mainly for consumption of the lower and part of the middle strata of developed countries, and products of environmentally "dirty" industries increased most rapidly. As a result, the competition of developing countries led to a reduction in industrial production in developed countries intended for domestic consumption. This fact was the basis of the structural adjustment of the economy in the West.

If we briefly summarize all the above, we can conclude that over the course of almost two centuries of evolution, the economy of developed countries gradually lost its focus on the production of essential goods and acquired a service character. It is this circumstance that is paid attention to in the modern world.-

page 66

economic literature. Although the growing role of the service sector in the economies of developed countries is undeniable, I would still like to point out two things. First, all these countries retain industries that meet the personal needs of the middle and upper strata of the population and the investment needs of industries based on scientific and technological progress, but due to these circumstances, the results of their activities are downplayed by statistics. Secondly, it seems that the development of the service sector has already exceeded the needs of the economy. On the one hand, there is an increase in the share of services in the price of goods, and on the other hand, existing firms cannot profitably use the services provided. Nevertheless, the formation of a special type of economy in developed countries is evident.

II

Let us now turn to the experience of developing countries. This group of States was also dominated by manual labor, which was characterized by low productivity and, consequently, low income. Therefore, in the pre-industrial period, the economy of modern developing countries was also focused on the production and consumption of basic necessities. At the same time, due to the more uneven distribution of income and the export orientation of a number of higher crafts, the share of luxury goods in production here was higher than in Europe. As a result, the differences in the reproduction of personal consumption funds of the main mass of the population and its upper strata were stronger. With the beginning of the industrial revolution, the situation began to change in several ways.

The inability of European agriculture to provide the growing machine industry with raw materials, or to serve as a capacious market, led to the formation of a new international division of labor (to a large extent with the help of non-economic coercion). It was based on the supply of food and raw materials by developing countries in exchange for finished products produced by industrial countries. This meant that the reproduction of the personal consumption fund of colonial-dependent countries was split into two subsectors.

The first one is food reproduction, which in the vast majority of countries was carried out on an internal basis. But this subsector is characterized by a small share of the value added by processing, as well as a very short chain of direct and reverse cooperation links. Therefore, it could not become the engine of an industrial revolution.

The other subsector - the reproduction of fabrics, clothing, footwear, tableware, etc. - was concentrated mainly in industrial countries and reproduced in colonial-dependent countries only on the basis of international exchange. Despite certain advantages: low wages, cheap raw materials, savings in transport costs - in colonial-dependent countries, it could not arise spontaneously. This was hindered by discriminatory measures and manipulation of customs tariffs by developed countries, as well as the relatively high capital intensity of this subsector and intense foreign competition. Therefore, here the industrial revolution could not begin only on the basis of economic factors.

One more circumstance should be noted. Under the influence of the" demonstration effect " caused by the influence of colonial officials and other European residents, foreign trade, and sometimes direct orders of the colonial authorities, consumption of the highest-income strata of Eastern society was relatively quickly Europeanized. Russian writer I. A. Goncharov wrote in his travel essays "Frigate Pallas" that as early as 1854, wealthy Chinese in Singapore and Shanghai actively purchased European goods (refined sugar, watches, quads-

page 67

heavy woolen fabrics, etc.), the usefulness of some of which is doubtful in these climatic conditions.

In this situation, the beginning of the industrial revolution required, firstly, a certain universalization of the personal consumption fund, and secondly, consolidation of the reproduction of the personal consumption fund within national borders. But with the existence of colonial empires, zones of influence, discriminatory agreements, protectionist duties, etc., this could only happen on the basis of a certain autonomy of the national economy from the world market and active state intervention in the economy. It is obvious that such conditions were absent during the existence of the world hierarchical system. Therefore, although the beginning of the industrial revolution in Egypt, India, and China dates back to the last quarter of the nineteenth century, it did not become truly widespread until after the collapse of the world hierarchical system, i.e., after the Second World War.

The industrial revolution in developing countries has taken on a peculiar character. The fact is that by this time, in many industries for the production of essential goods, natural raw materials were replaced by cheaper and more efficient artificial or synthetic ones (leatherette, synthetic fibers, plastics, etc.). Further, the existence of mechanized transport, electric power, radio, television, etc. required the organization of the production of industrial goods. The peculiarity of the industrial revolution in the East also lay in the fact that while the Western factory had to struggle with tool production during its formation, the factory in developing countries had to compete both with pre-capitalist tool production within national borders and with the Western factory, which was often supported by its own state. Therefore, it had to become as capital-intensive as in the West. Thus, the industrial revolution in this group of countries should have acquired a more complex character, intertwining, in essence, with the second technological revolution (and later with the scientific and technological revolution). Therefore, it turned out to be immeasurably more capital-intensive.

With the development of the process of industrialization (this term in world science began to denote the marked intertwining of the industrial revolution and the second technological and scientific-technical revolution) in the middle of the XX century. the orientation of production in developing countries to the production of essential goods increased. To a certain extent, it was even higher than in developed countries. This phenomenon was based on several factors.

First, due to the import of new medicines (primarily antibiotics) and the prevention of mass hunger strikes (food aid), a "demographic explosion" has occurred in developing countries, i.e. a sharp reduction in mortality while maintaining the traditionally high birth rate. As a result, natural population growth throughout the second half of the twentieth century exceeded 2% per year, and only by the beginning of the twenty-first century did it fall to 1.9%. The annual increase of millions of people required a corresponding increase in the production of essential goods in order to ensure at least the usual level of their consumption. Foreign emigration from developing countries has not developed much either. Despite the ever-increasing illegal emigration, the share of total emigration in the population was several orders of magnitude lower than in Europe, and it also covered very little of Tropical Africa and South Asia. As a result, the pressure of poverty and unemployment continues to increase, which also affects the nature of consumption.

Second, in developing countries, with the exception of newly industrialized ones, a significant or even large part of the population continues to be engaged in low-productivity agriculture. In the industrial sector, however, due to

page 68

using imported labor-saving technologies, employment is not high. For these reasons, their population is dominated by beggars and the poor, who do not even consume all essential goods.

Third, developing countries are now undergoing the same process as developed countries in the nineteenth century - the accumulation and diversification of consumption of essential goods. For example, Indian statistics record an increase in the number of saris (women's top dress) produced per woman. As for the diversification of consumption, synthetic fabrics, glass and earthenware dishes, stainless steel pots, etc. have become widely used in developing countries in recent decades. At the current rate of per capita income growth, it seems that most developing countries will be delayed for a long time at this stage.

Fourthly, if during the 50s and 60s of the XX century there was a consolidation of the reproduction of the personal consumption fund within national borders and the displacement of foreign agents from it, then after the fuel and energy crisis of 1973, a massive transfer of labor-and material - intensive industries to developing countries, primarily for the production of essential goods, began. As a result, the share of developing countries in exports of textiles, clothing and "other unclassified" goods has steadily increased. Therefore, the focus of developing countries on the production of essential goods is stronger than on consumption.

Structurally, the world economy now consists of two "tiers". In the first of them - in developed countries-there is an absolute reduction in production and a relative decrease in consumption of essential goods, in the second-in developing countries-there is an absolute and relative increase in production and consumption of essential goods. Therefore, the expanded reproduction of the fund of personal consumption of humanity is possible only on the basis of the interaction of these two "tiers". In the context of globalization, this process is taking on a long-term character. In turn, it causes a number of consequences. It seems to me that the most important of them is the change in the ratio and functions of domestic savings and foreign long-term investments.

III

In the 19th century, the emergence and subsequent expansion of industrial methods of production and the formation of the capitalist mode of production in the developed countries of that time led to a steady increase in savings. To some extent, in a number of countries-England, Holland, France - these savings were supplemented by income from the colonies. Therefore, the entire industrial revolution took place in European countries mainly on the basis of internal savings (Dutch capital participated in the construction of railways in a number of European countries). However, by the 1870s and 1880s, the entire potential for internal development here was exhausted, as all areas where machines could be used in a capitalist way were mastered. In this regard, in the last quarter of the XIX century, the rapid growth of capital exports abroad began. According to League of Nations experts, in 1875-1913 accumulated foreign investment increased from $ 6 billion to $ 44 billion, i.e. the average annual growth was about 11%. As a result, accumulated foreign investment accounted for about 12% of the GDP of the exporting countries. (For comparison, let me remind you that throughout the second half of the 20th century, this share did not rise above 10%.)

There were three main reasons for such a large scale of capital outflows. First, the existence of the gold standard in a significant part of developed countries, which created opportunities for the free movement of capital anywhere in the world. Second, it is mainly a notification ha-

page 69

in most industries, this greatly facilitated the registration process and provided a free hand for a foreign entrepreneur. Third, the registration of already accumulated capital. As is well known, in the pre-capitalist environment of the colonies and dependent countries, only relatively small capitals could operate effectively. The relative convergence of interest rates (bank interest) in the center and on the periphery of the world economy contributed to the registration of these capitals on the stock exchanges of developed countries.

These foreign investments were roughly equally divided - 1/3 each-between relatively developed countries (Austria-Hungary, Russia, the United States, etc.), the British dominions, and the periphery. In the latter, contrary to the established ideas, the bulk of investments - over 2/3 - accounted for formally independent countries, since in the colonies some of the facilities could be built at the expense of budget funds, forced labor, etc.

It was considered that foreign long-term investments perform two functions. On the one hand, they complemented internal savings. Therefore, Western economists of the late 19th and early 20th centuries, as a rule, did not raise the question of savings (it could be solved by the influx of foreign investment). Even J. R. R. Tolkien. Keynes did not consider the problem of increasing savings, but methods of converting them into capital. On the other hand, foreign investment brought with it new types of production activities (new technologies - in modern parlance). But this provision needs some adjustment. Indeed, at the end of the 19th century, Russia, India, and China used foreign investment to create industrial infrastructure, build textile and shoe factories, and so on. But in the first quarter of the twentieth century, these investments were already directed to other industries - electric power, chemistry, and mechanical engineering. In other words, foreign investment was directed to mature but relatively fast-growing industries.

In general, the experience of many decades of foreign capital activity shows that it does not go to the old, already established industries (the "smokestack" industry), where the opportunities for a significant increase in the mass of profit are limited. Nor does it go to new industries: with a rapid increase in demand for a new product (technology), exporting is more profitable than building an enterprise abroad. At the same time, setting up an enterprise abroad often faces difficulties: the host country may not have the appropriate skilled labor force or related companies that manufacture auxiliary products, tooling, etc., i.e. foreign production may be more expensive.

After the First World War, the situation changed. Crises, debt repayments (Russia, Mexico, partly China), political upheavals, the transition to an approval system for issuing permits, and the abandonment of the gold standard have led to a sharp reduction in international capital migration. In general, during the interwar period, the average annual increase in accumulated foreign investment was (in constant prices) only 0.2%. But even this increase was largely due to government benefits or direct government investment. In other words, the first function of foreign investment was largely lost during this period.

The Second World War, accompanied by huge disruptions of productive forces in Europe, East and South-East Asia, and North Africa, led to a significant reduction in accumulated direct investment. It is estimated that they have decreased by 35-40%. In the first decade after the war, international migrations of foreign capital were relatively small. The fact is that the bulk of domestic savings in developed countries was used for

page 70

economic reconstruction and modernization, or diverted into government loans intended to finance military spending.

The direction of migration of foreign capital has also changed. Since most developing countries have adopted a policy of restricting the activities of foreign capital, and a number of countries have implemented its nationalization, foreign companies have begun to avoid developing countries. If in the first post-war years this group of states accounted for about 40% of accumulated investments, then in the 1970s they fell to 20-22%, i.e. almost twice. At the same time, a small trickle of investment in these years was directed mainly to the politically prosperous countries of Latin America and the monarchies of the Persian Gulf.

Under these circumstances, the ability to supplement domestic savings in developing countries with foreign capital proved to be very limited. Apparently, this circumstance was the basis for changing the ideas of Western economists (R. Nurkse, P. Rosenstein-Rodan, G. Myrdal, J. Tinbergen, etc.) about development processes. In their theories developed in the 1940s and 1960s, considerable attention was paid to the problems of accumulation. In their opinion, the latter should be encouraged both within national borders and attracted from abroad on the basis of special events in Western countries (economic assistance). Indeed, the process of industrialization in developing countries in the 1950s and first half of the 1970s was largely based on domestic savings, although a small number of countries that were a priority for the center managed to attract quite significant economic assistance.

Since the beginning of the fuel and energy crisis, there has been a noticeable increase in international migration of foreign capital. On the one hand, a number of industries, primarily labor-intensive and material-intensive, were losing profitability in developed countries and had to be moved abroad to prolong their existence, which required the export of capital. But this withdrawal itself limited the use of capital within the national borders of developed countries. On the other hand, the rise in oil prices in the 1970s and the inability to use oil revenues in oil-exporting countries led to the transfer of these funds to offshore financial centers. In turn, the activities of these centers have forced Governments in developed countries to begin gradually lifting controls and restrictions on the movement of capital abroad; since the 1980s, this liberalization has been extended to developing countries as well. As a result, the average annual export of capital abroad increased from $ 91.5 billion in 1983-1988 to $ 687 billion in 1996-2000. At the same time, the share of capital allocated to developing countries remained almost unchanged: 21.5% in 1983-1988 and 22.3% in 1996-2000. (17.3% in 2000), which once again underlines the relatively low economic attractiveness of most developing countries in the modern period. (Please note that these figures are too high, as they do not take into account the level of inflation. At the same time, they are underestimated, as they do not take into account the movement of TNC capital between host countries).

IV

Such a significant increase in international capital migrations (with all reservations) once again removed the problem of domestic savings for Western economists, as it was at the end of the XIX-beginning of the XX century, since, as before, it is believed that the capital deficit can be eliminated due to the influx of foreign investment. And in order for this to happen in practice, it is necessary to liberalize the movement of capital everywhere, which is postulated by neoliberal theory. Moreover, about-

page 71

Such liberalization is part of the rehabilitation programs imposed on debtor countries by international economic organizations.

In reality, it seems that foreign long-term foreign investment is not universal and cannot always replace domestic savings.

First, there are significant differences between the functions of these two components in developed and developing countries. In developed countries, there is an over-accumulation of capital, as evidenced by both the huge flow of long-term investments and the vast financial sector. But this overaccumulation is largely due to the mismatch between the structures of local production and consumption. Therefore, the inflow of foreign capital is aimed at eliminating this discrepancy. In addition, TNCs that export their capital to a developed country can bring with this capital more advanced technology, more advanced organizational structures, etc. In these circumstances, long-term foreign direct investment is not so much a complement to domestic investment as it is an opportunity to bring supply and demand into line. In developing countries, with very few exceptions, there is no over-accumulation of capital. In this regard, the inflow of foreign investment really complements domestic savings. But since foreign companies in developing countries have to operate in a multi-layered economy, they can interact with any of the ways, including small-scale production (growing flowers, pineapples, mushrooms, etc.). Therefore, their influence on the transfer of technology, new organizational structures, and so on may be limited. In addition, TNCs can set up their export enterprises in countries with low wages, cheap raw materials or energy. However, such enterprises are not intended to equalize the discrepancy between supply and demand in the domestic market by their own target installations.

Second,there are significant differences between developed and developing countries in the application of foreign investment. In developed countries, foreign investment can be directed to any industry, even the most complex and knowledge-intensive, if the firm-investor has certain innovations in the field of technology, know-how, production organization, etc. This is what underlies so-called cross-investment: for example, the Netherlands has been the largest investor in the American economy for several decades, while the United States is the largest investor in the Dutch economy. In other words, each of them invested in "its own" group of industries, in which it had certain advantages.

The situation is different in developing countries. Here, if we ignore the relatively small segment of investment in the extractive industry, primarily oil production, which originated in the colonial period, the bulk of foreign direct investment is concentrated in the food, pharmaceutical, chemical, clothing and electronics industries. It should be noted that in the food industry, these investments do not fall on the primary processing of agricultural raw materials (mills, rice mills, churns, etc.), but on the production of branded brands of finished products or semi-finished products (chips, cornflakes, instant coffee, oatmeal, various canned goods, etc.). In other words, foreign investment is concentrated in the following industries: companies serving the domestic consumption of the middle or upper strata, or working for export.

However, as shown above, production and consumption in developing countries are primarily focused on essential goods. Foreign direct investment in the vast majority of cases avoids these industries for a variety of reasons (lack of appropriate technology, low profitability, lack of prospects, etc.). In this regard, enterprises that are created with

page 72

foreign capital participation rates are far from fully consistent with the consumption patterns of developing countries. Therefore, the idea that in the context of globalization, the free movement of foreign capital across national borders can solve the problems of financing the industrialization of developing countries is illusory. The experience of the vast majority of developing countries shows that industries that produce essential goods were created by either domestic savings or"official development assistance".

One can imagine two options for the development of peripheral countries in the context of globalization, while still focusing consumption and production on essential goods.

In the first case, these industries will be created and developed at the expense of internal savings. But such a development option requires maintaining active state intervention in the economy by developing appropriate industrial policies, maintaining interaction between various socio-economic structures, tax measures, etc. It is obvious that with broad liberalization, this activity will be difficult, and therefore, the possibility of its implementation will depend either on changing forms of globalization, or on some exceptions in the policy of developed countries in favor of developing countries, which is now very problematic.

The second option involves the migration of long-term investments between developing countries. Such migrations began in the 1970s and their share in the international export of capital is gradually growing. Since firms in these countries have relatively simple technology, limited financial resources and organizational capabilities, they direct their investments mainly to developing countries where competition is less acute. Their applications are mainly in light industry (for example, South Korea's investment in the knitwear and clothing industry in Bangladesh, or Singapore's investment in similar industries in Indonesia). Therefore, in principle, they are more appropriate to the needs of developing countries, as they help to bring production and consumption into line. However, the number of developing countries exporting capital is very limited, and therefore their investment is relatively small. Therefore, they cannot serve as a source of financing for the entire extensive production of essential goods in a large number of developing countries.

* * *

Industrialisation in developing countries has occurred with a significant limitation of market impulses. The state, on the one hand, through the use of customs duties, contingent imports, changes in exchange rates and other things, limited the impact of the world market, and on the other hand, through licenses, preferential loans, tax incentives, the provision of currency, and sometimes direct business activities, facilitated the transfer of capital to priority industries. As a result, the growing correspondence between local consumption and production was ensured.

In a globalized environment that promotes the free flow of market impulses, the situation becomes much more complicated. Freedom of competition may distort the distribution of factors of production by industry, and the scope of local capital application will be determined by the global market situation, which may lead to an outflow of investment abroad. This situation, in turn, may constrain the further growth of matching consumption and production in developing countries. Finally, with the freedom of market forces, the least developed countries can be permanently relegated to the"grey zone".

Permanent link to this publication: