Development or robbery?

Capitalism in today’s world, we have seen, means the tyranny of the multinationals, the banks and the imperialist powers. How can this create the conditions for healthy growth in the under-developed countries or in Eastern Europe?

Defenders of the “market” argue that foreign investors provide machinery, jobs and skills; in return they get profits. In Zimbabwe, the Zanu(PF) leaders admit that this creates a danger of neo-colonial exploitation. But, they say, the government can decide how much profit can be sent out of the country.

This, they say, is the only way to develop the industries which the country so desperately needs.

If this were the whole story, workers would have little reason to complain about foreign investment or about capitalism in general! Doesn’t every employer claim to provide jobs and produce useful goods or services, in return for just a “reasonable” amount of profit?

But is it the whole story? Let us look at some real examples of what happens when multinational companies invest in Zimbabwe. Let us start with the case of the US diesel manufacturers Cummins.

In 1988 Cummins agreed to set up a company in Zimbabwe called Cumzim (Pvt) Ltd in partnership with Zimbabwe’s biggest capitalist concern, TA Holdings. The new company would assemble diesel engines as well as refurbishing, repairing and servicing trucks. Cummins agreed to bring $2.3 million of equipment to Zimbabwe, to transfer technology, to train local staff and create 60 new jobs.

So far, so good — but there was another side to the transaction.

Firstly, Cummins would receive “investment incentives” (concessions designed to leave more profits for the capitalists through tax cuts and other hand-outs).

Secondly, Cummins could remit 50 per cent of the profits (take it out of Zimbabwe in the form of foreign exchange). Under the new Investment Code this could be increased to 100 per cent.

Cummins undoubtedly calculated that after some years it will have taken out of Zimbabwe all or most of the $2.3 million it brought in. After that it will be clear profit — while for Zimbabwe the “joint venture” will become a bleeding wound draining vital foreign exchange from the country.

For multinationals like Cummins the whole aim is to make bigger profits out of its Zimbabwean market. Marxism explains that profit is drawn from the exploitation of the working class. The government can make as many rules as it likes — but, as long as capitalism is allowed to continue, the one thing it cannot do is to prevent investors from extracting profits.

Temporary controls on the movement of money might be tolerated by the capitalist class in a crisis, provided they are lifted as soon as possible. But in the longer term the government must allow investors like Cummins to ship more wealth out of the country than they put in. That is what investment is all about — as the Investment Code accepts!

What would happen if the government refused? Forty per cent of diesel engines in Zimbabwe are manufactured by Cummins. If the government rejected Cummins’s terms, Cummins would refuse to invest. Zimbabwe would then have to import spare parts for diesel engines as well as new engines — again at the cost of valuable foreign exchange.

A capitalist spokesman spells out what this means:

“The government must realise at the outset that Zimbabwe needs the multinationals; the multinationals do not need Zimbabwe. They must be wooed with inexpensive (even free) industrial sites, tax benefits, and any guarantees (within reason) that they require.” (Financial Gazette, 12 April 1985).

“Transfer pricing”

So the first problem is that the government does not have the power to enforce its “rules” on the multinationals. Instead the multinationals are in the driving seat, enforcing the rules of capitalism.

The first rule of capitalism is profit. To increase their profits the multinational investors will use every method they can. The interests of Zimbabwe are the last thing on their mind!

Take, for example, the method known as “transfer pricing”. It works as follows. Multinational A owns company B producing (say) copper in Zimbabwe. B “sells” copper to A at a cut-rate price. A then deposits the rest of the price into B’s account abroad.

That way, only a fraction of the foreign exchange paid for the copper comes into Zimbabwe. The rest stays in the hands of the multinational, and no tax is paid on it.

At the same time B’s earnings are kept artificially low. This can be used as an excuse to depress its workers’ wages or threaten them with redundancy.

The Minerals Marketing Corporation was set up by the government to prevent this kind of theft in the sale of minerals. Nevertheless it is estimated that one-fifth of Zimbabwe’s mineral exports, worth $100 million, still gets “lost” in the secret byways of the multinationals’ internal cash flows.

And what about the rest of the economy? As long as the multinationals control world trade they can get round any obstacle the government tries to put in their way.

A new trick

In 1985, for example, Anglo and British-owned Rio Tinto Zinc (RTZ) signed an agreement with two small Swiss companies, Incontra AG and Centametall AG. It worked as follows:

1. The two Swiss companies bought nickel and copper from the Selebi-Pikwe mine in Botswana (partly owned by Anglo).

2. The minerals were delivered to Zimbabwe to be refined by Anglo’s Bindura Nickel and RTZ’s Empress Nickel. (After closure of the Empress Nickel Mine in 1982, Empress’s refinery at Eiffel Flats was left idle.)

3. But, strangely enough, the fee charged by Empress for refining the ore was only half that charged by other refineries. Bindura was charging even less — and, in addition, it agreed to ship the refined ore to Europe free of charge!

The secret: Incontra and Centametall are controlled by AAC and RTZ. The work done by Bindura and Empress for their Swiss “clients” was only partly paid in foreign exchange to Zimbabwe. The rest stayed in the multinationals’ hands, free of taxation. Again Zimbabwe was the loser. Because of cut-price refining, Incontra and Centametall could sell the nickel and copper more cheaply. This helps to force down the price that Zimbabwe, Botswana and other producing countries can get for their nickel and copper. Is this robbery still going on?

Crime pays — for the capitalists

Crime, they say, doesn’t pay. Yet Bindura claimed a reward from the government for their robbery of Zimbabwe! It happened like this.

In 1987 — two years after the Incontra/Centametall arrangement — Bindura’s management came to the government with a sad story. In his report for 1986 the chair-man, Mr Roy Lander, claimed:

“The Group’s financial situation has continued to deteriorate. The accumulated loss…amounted to $22.8 million. Total borrowings increased from $77 million in 1985 to $103 million (by the end of 1986)…As a result the Corporation’s financial situation is clearly untenable…”

Mr Lander blamed the problem on the drop in the price of nickel. Its real value had fallen by 64 per cent between 1970 (at the height of the world capitalist boom) and 1983 (following the slump of 1979-82). It continued falling during the upswing of capitalism in the USA, Europe and Japan, which took place at the expense of the poor countries. From US$1.90 per lb in January 1986 it fell to US$1.60 by December 1986.

Why was the price falling? There was, said Mr Lander, “no nickel shortage” on the world market. In other words, the industrial monopolies who are the major buyers of nickel had no urgent need for it and could bid the price down.

As a result the 4,500 workers at Bindura (and many more at other nickel mines around the world) were threatened with unemployment. The Financial Gazette (24 July 1987) spelled out what closure would have meant:

“Bindura, a provincial capital, would have lost its principal employer, and the ripple effects through the other businesses in the town would have caused severe economic hardship outside Bindura Nickel itself … A now-thriving centre would, by next September, be facing a depression.

“The effect in other areas where the corporation’s mines are to be found might have been even more profound, adding ghost towns to Zimbabwe’s problems.”

If things were so serious, why was Bindura doing cut-price work for other Anglo companies? Why ship ore to Europe free of charge? And what about the manipulation of mineral prices by RTZ, AAC and other imperialist monopolies?

Bindura’s management did not answer these questions. Instead they persuaded 330 workers at Madziwa, Trojan and Shangani mines to give up their jobs “because of the company’s difficulties”. Next they demanded “financial support” from the government — according to the Financial Gazette, “about $30 million a year”!

The capitalists said the government should guarantee them a minimum price — in other words, make up the shortfall whenever they succeed in forcing the price down!

By April 1987 the Financial Gazette declared victory: “The decision by the government to provide financial support for Bindura Nickel is belated, but very welcome.”

What really happened?

In fact, Lander’s appeal to the government was based on lies. At the very time when he was pleading “poverty”, the price of nickel had already begun to rise on the world markets.

This was a result of the continued increase of production in the industrialised countries. By June 1987 nickel was fetching US$2 a lb, by October US$2.63 and by early 1988 over $4.

And what about Bindura’s shady deals, like that with Incontra? Bindura Nickel, according to the Financial Gazette, is “an efficiently run company”. Why did this “efficiently run company”, in serious financial trouble, make big donations to other AAC companies abroad?

Was it because the Anglo bosses decided to starve Bindura in order to fatten up the rest of their empire?

And yet, at the same time, they tried to blackmail the government for funds to “save” Bindura!

No doubt there are many other examples of daylight robbery by the monopolies which are kept hidden from workers’ eyes.

That is why it is essential for workers’ committees and trade unions to demand that the bosses open the books to inspection by the workers and their representatives. This is a first and very necessary step in fighting the multinationals’ profiteering — but only a first step.

Continue to Chapter Four